<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: 811-05654
Morgan Stanley Income Trust
(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: August 31, 2005
Date of reporting period: February 28, 2005
Item 1 - Report to Shareholders
<Page>
WELCOME, SHAREHOLDER:
IN THIS REPORT, YOU'LL LEARN ABOUT HOW YOUR INVESTMENT IN MORGAN STANLEY INCOME
TRUST PERFORMED DURING THE SEMIANNUAL PERIOD. WE WILL PROVIDE AN OVERVIEW OF THE
MARKET CONDITIONS, AND DISCUSS SOME OF THE FACTORS THAT AFFECTED PERFORMANCE
DURING THE REPORTING PERIOD. IN ADDITION, THIS REPORT INCLUDES THE FUND'S
FINANCIAL STATEMENTS AND A LIST OF FUND INVESTMENTS.
THIS MATERIAL MUST BE PRECEDED OR ACCOMPANIED BY A PROSPECTUS FOR THE FUND BEING
OFFERED.
MARKET FORECASTS PROVIDED IN THIS REPORT MAY NOT NECESSARILY COME TO PASS. THERE
IS NO ASSURANCE THAT THE FUND WILL ACHIEVE ITS INVESTMENT OBJECTIVE. THE FUND IS
SUBJECT TO MARKET RISK, WHICH IS THE POSSIBILITY THAT MARKET VALUES OF
SECURITIES OWNED BY THE FUND WILL DECLINE AND, THEREFORE, THE VALUE OF THE
FUND'S SHARES MAY BE LESS THAN WHAT YOU PAID FOR THEM. ACCORDINGLY, YOU CAN LOSE
MONEY INVESTING IN THIS FUND. PLEASE SEE THE PROSPECTUS FOR MORE COMPLETE
INFORMATION ON INVESTMENT RISKS.
<Page>
FUND REPORT
FOR THE SIX-MONTHS ENDED FEBRUARY 28, 2005
TOTAL RETURN FOR THE SIX MONTHS ENDED FEBRUARY 28, 2005
<Table>
<Caption>
LEHMAN
BROTHERS LIPPER
INTERMEDIATE CORPORATE
U.S. DEBT FUNDS
GOVERNMENT/ BBB-RATED
CLASS A CLASS B CLASS C CLASS D CREDIT INDEX(1) INDEX(2)
2.67% 2.36% 2.36% 2.80% 0.25% 2.81%
</Table>
PERFORMANCE DATA QUOTED REPRESENT PAST PERFORMANCE, WHICH IS NO GUARANTEE OF
FUTURE RESULTS. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE FIGURES
SHOWN. FOR THE 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 PERFORMANCE OF THE FUND'S FOUR SHARE CLASSES VARIES BECAUSE EACH HAS
DIFFERENT EXPENSES. THE FUND'S TOTAL RETURNS ASSUME THE REINVESTMENT OF ALL
DISTRIBUTIONS BUT DO NOT REFLECT THE DEDUCTION OF ANY APPLICABLE SALES CHARGES.
SUCH COSTS WOULD LOWER PERFORMANCE. SEE PERFORMANCE SUMMARY FOR STANDARDIZED
PERFORMANCE AND BENCHMARK INFORMATION.
MARKET CONDITIONS
The period began in the midst of a sluggish economic recovery brought on by
less-than-expected payroll gains. Investors responded to this perceived softness
in the economy by pushing yields down well into the third quarter. Despite these
factors, the Federal Reserve Open Market Committee reaffirmed its pledge to
raise the federal funds target rate at a measured pace and did so in its
meetings through the end of the period. This stance was supported by the overall
trend in economic growth, which picked up steam at the end of 2004.
The first two months of 2005 continued much as the ending weeks of 2004. The
yield curve (which measures the difference in yields between short-,
intermediate- and long-maturity Treasuries) flattened further as yields of
short- and intermediate-maturity bonds rose while longer-term yields fell. The
bulk of the increase in short-term yields occurred in February, when a recent
string of strong payroll numbers, evidence of an upward trend in inflation
numbers and testimony by Alan Greenspan finally turned the bond market
psychology to anticipation of an improving economy.
The generally optimistic economic environment was strongly positive for
corporate bonds, which also benefited from investors' ongoing hunger for yield.
Spreads -- a measure of the additional yield over Treasuries demanded by
investors for assuming credit risk -- tightened over the period, though not
uniformly. Performance at the sector level varied, with gaming and lodging,
energy and insurance among the best-performing components of the market. Each
sector benefited from improved earnings from key companies. By contrast,
automobile companies and their suppliers were among the worst performers. The
electronics sector also suffered.
PERFORMANCE ANALYSIS
Morgan Stanley Income Trust outperformed the Lehman Brothers Intermediate U.S.
Government/Credit Index and underperformed the Lipper Corporate Debt Funds
BBB-Rated Index for the six months ended February 28, 2005, assuming no
deduction of applicable sales charges.
The Fund's strong performance relative to the Lehman index was driven in large
part by its focus on corporate securities, which boosted its performance
relative to the more broadly constructed Lehman benchmark. Within its
2
<Page>
portfolio, the Fund benefited from an emphasis on the debt of insurance
companies, which outperformed strongly for the period. The Fund also profited
from strong security selection in the paper and energy sectors.
However, the Fund's interest-rate posture produced mixed results for the period.
The low level of interest rates across the yield curve at the beginning of the
period led us to conclude that they had little room left to fall. As a result,
we kept the Fund's overall interest-rate exposure well below that of its
benchmark. This posture was unfavorable to the Fund's returns in those months
early in the period when the market rallied, but was more beneficial during
periods of rising rates such as in January and February.
THERE IS NO GUARANTEE THAT ANY SECTORS MENTIONED WILL CONTINUE TO PERFORM WELL
OR BE HELD BY THE FUND IN THE FUTURE.
INVESTMENT STRATEGY
THE FUND WILL NORMALLY INVEST AT LEAST 80 PERCENT OF ITS ASSETS IN INVESTMENT
GRADE FIXED INCOME SECURITIES. THESE SECURITIES MAY INCLUDE CORPORATE DEBT
SECURITIES, PREFERRED STOCKS, U.S. GOVERNMENT SECURITIES, MORTGAGE-BACKED
SECURITIES, INCLUDING COLLATERALIZED MORTGAGE OBLIGATIONS, ASSET-BACKED
SECURITIES AND SECURITIES ISSUED BY FOREIGN GOVERNMENTS OR CORPORATIONS. IN
DECIDING WHICH SECURITIES TO BUY, HOLD OR SELL, THE FUND'S "INVESTMENT ADVISER,"
MORGAN STANLEY INVESTMENT ADVISORS INC., CONSIDERS DOMESTIC AND INTERNATIONAL
ECONOMIC DEVELOPMENTS, INTEREST RATE TRENDS, BOND RATINGS AND OTHER FACTORS
RELATING TO THE ISSUERS.
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 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.
3
<Page>
PORTFOLIO COMPOSITION
<Table>
Corporate Bonds 82.5%
US Government Agencies & Obligations 7.0
Asset-Backed 5.7
Foreign Government Obligations 2.9
Short-Term Paper 1.9
</Table>
LONG-TERM CREDIT ANALYSIS
<Table>
Aaa/AAA 17.1%
Aa/AA 9.4
A/A 24.8
Baa/BBB 41.7
Ba/BB 7.0
</Table>
DATA AS OF FEBRUARY 28, 2005. SUBJECT TO CHANGE DAILY. ALL PERCENTAGES FOR
PORTFOLIO COMPOSITION ARE AS A PERCENTAGE OF TOTAL INVESTMENTS AND 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.
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 JUNE 30, 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.
HOUSEHOLDING NOTICE
TO REDUCE PRINTING AND MAILING COSTS, THE FUND ATTEMPTS TO ELIMINATE DUPLICATE
MAILINGS TO THE SAME ADDRESS. THE FUND DELIVERS A SINGLE COPY OF CERTAIN
SHAREHOLDER DOCUMENTS, INCLUDING SHAREHOLDER REPORTS, PROSPECTUSES AND PROXY
MATERIALS, TO INVESTORS WITH THE SAME LAST NAME WHO RESIDE AT THE SAME ADDRESS.
YOUR PARTICIPATION IN THIS PROGRAM WILL CONTINUE FOR AN UNLIMITED PERIOD OF TIME
UNLESS YOU INSTRUCT US OTHERWISE. YOU CAN REQUEST MULTIPLE COPIES OF THESE
DOCUMENTS BY CALLING (800) 350-6414, 8:00 A.M. TO 8:00 P.M., ET. ONCE OUR
CUSTOMER SERVICE CENTER HAS RECEIVED YOUR INSTRUCTIONS, WE WILL BEGIN SENDING
INDIVIDUAL COPIES FOR EACH ACCOUNT WITHIN 30 DAYS.
4
<Page>
PERFORMANCE SUMMARY
AVERAGE ANNUAL TOTAL RETURNS--PERIOD ENDED FEBRUARY 28, 2005
<Table>
<Caption>
CLASS A SHARES* CLASS B SHARES** CLASS C SHARES+ CLASS D SHARES++
(SINCE 07/28/97) (SINCE 05/03/89) (SINCE 07/28/97) (SINCE 07/28/97)
SYMBOL IISAX IISBX IISCX IISDX
1 YEAR 3.47%(3) 2.68%(3) 2.79%(3) 3.66%(3)
(0.92)(4) (2.25)(4) 1.80(4) --
5 YEARS 5.93(3) 5.09(3) 5.08(3) 5.91(3)
5.01(4) 4.75(4) 5.08(4) --
10 YEARS -- 4.96(3) -- --
-- 4.96(4) -- --
SINCE INCEPTION 5.05(3) 5.52(3) 4.28(3) 5.10(3)
4.45(4) 5.52(4) 4.28(4) --
</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 THE 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. PERFORMANCE FOR CLASS A, CLASS B, CLASS C, AND CLASS D SHARES WILL
VARY DUE TO DIFFERENCES IN SALES CHARGES AND EXPENSES.
* THE MAXIMUM FRONT-END SALES CHARGE FOR CLASS A IS 4.25%.
** 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.
(1) THE LEHMAN BROTHERS INTERMEDIATE U.S. GOVERNMENT/CREDIT INDEX TRACKS THE
PERFORMANCE OF U.S. GOVERNMENT AND CORPORATE OBLIGATIONS, INCLUDING U.S.
GOVERNMENT AGENCY AND TREASURY SECURITIES, AND CORPORATE AND YANKEE BONDS
WITH MATURITIES OF 1 TO 10 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 CORPORATE DEBT FUNDS BBB-RATED INDEX IS AN EQUALLY WEIGHTED
PERFORMANCE INDEX OF THE LARGEST QUALIFYING FUNDS (BASED ON NET ASSETS) IN
THE LIPPER CORPORATE DEBT FUNDS BBB-RATED 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 AND DOES NOT REFLECT
THE DEDUCTION OF ANY SALES CHARGES.
(4) FIGURE SHOWN ASSUMES REINVESTMENT OF ALL DISTRIBUTIONS AND THE DEDUCTION OF
THE MAXIMUM APPLICABLE SALES CHARGE. SEE THE FUND'S CURRENT PROSPECTUS FOR
COMPLETE DETAILS ON FEES AND SALES CHARGES.
5
<Page>
EXPENSE EXAMPLE
As a shareholder of the Fund, you incur two types of costs: (1)
transaction costs, including sales charges (loads) on purchase payments and
redemption fees; and (2) ongoing costs, including management fees; distribution
and service (12b-1) fees; and other Fund expenses. This example is intended to
help you understand your ongoing costs (in dollars) of investing in the Fund and
to compare these costs with the ongoing costs of investing in other mutual
funds.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period 09/01/04 - 02/28/05.
ACTUAL EXPENSES
The first line of the table below provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, to estimate the expenses that you paid over the
period. Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000 = 8.6), then multiply the result by the number
in the first line under the heading entitled "Expenses Paid During Period" to
estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line of the table below provides information about hypothetical
expenses based on the Fund's actual expense ratio and an assumed rate of return
of 5% per year before expenses, which is not the Fund's actual return. The
hypothetical account values and expenses may not be used to estimate the actual
ending account balance or expenses you paid for the period. You may use this
information to compare the ongoing cost of investing in the Fund and other
funds. To do so, compare this 5% hypothetical example with the 5% hypothetical
examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads) and redemption fees. Therefore, the second line of the table is
useful in comparing ongoing costs, and will not help you determine the relative
total cost of owning different funds. In addition, if these transactional costs
were included, your costs would have been higher.
<Table>
<Caption>
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD *
--------------- --------------- ---------------
09/01/04 -
09/01/04 02/28/05 02/28/05
--------------- --------------- ---------------
CLASS A
Actual (2.67% return) $ 1,000.00 $ 1,026.70 $ 4.77
Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,020.08 $ 4.76
CLASS B
Actual (2.36% return) $ 1,000.00 $ 1,023.60 $ 8.28
Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,016.61 $ 8.25
CLASS C
Actual (2.36% return) $ 1,000.00 $ 1,023.60 $ 7.98
Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,016.91 $ 7.95
CLASS D
Actual (2.80% return) $ 1,000.00 $ 1,028.00 $ 4.02
Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,020.83 $ 4.01
</Table>
- ----------
* EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO OF 0.95%, 1.65%,
1.59% AND 0.80% RESPECTIVELY, MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER
THE PERIOD, MULTIPLIED BY 181/365 (TO REFLECT THE ONE-HALF YEAR PERIOD). IF
THE FUND HAD BORNE ALL OF ITS EXPENSES, THE ANNUALIZED EXPENSE RATIOS WOULD
HAVE BEEN 1.07%, 1.77%, 1.71% AND 0.92%, RESPECTIVELY.
6
<Page>
MORGAN STANLEY INCOME TRUST
PORTFOLIO OF INVESTMENTS - FEBRUARY 28, 2005 (UNAUDITED)
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------
Corporate Bonds (82.5%)
ADVERTISING/MARKETING SERVICES (1.1%)
$ 395 Interpublic Group of Companies, Inc. (The) 5.40% 11/15/09 $ 398,322
535 WPP Finance Corp. - 144A**
(United Kingdom) 5.875 06/15/14 559,873
----------
958,195
----------
AEROSPACE & DEFENSE (1.2%)
175 Raytheon Co. 4.50 11/15/07 177,957
300 Raytheon Co. 4.85 01/15/11 302,531
32 Raytheon Co. 6.75 08/15/07 33,921
100 Raytheon Co. 8.30 03/01/10 116,173
405 Systems 2001 Asset Trust - 144A**
(Cayman Islands) 6.664 09/15/13 441,850
----------
1,072,432
----------
AIR FREIGHT/COURIERS (0.5%)
125 Fedex Corp. 2.65 04/01/07 121,441
280 Fedex Corp. 7.25 02/15/11 313,883
----------
435,324
----------
AIRLINES (0.6%)
247 America West Airlines, Inc. (Series 01-1) 7.10 04/02/21 260,023
233 Continental Airlines, Inc. 6.648 09/15/17 224,240
----------
484,263
----------
AUTO PARTS: O.E.M. (0.3%)
265 Johnson Controls, Inc. 5.00 11/15/06 269,455
----------
BEVERAGES: ALCOHOLIC (0.6%)
530 Miller Brewing Co. - 144A** 4.25 08/15/08 529,068
----------
BROADCASTING (0.4%)
340 Clear Channel Communications, Inc. 7.65 09/15/10 380,814
----------
BUILDING PRODUCTS (0.2%)
160 Masco Corp. 4.625 08/15/07 161,778
----------
CABLE/SATELLITE TV (2.2%)
1,040 Comcast Corp. 6.50 01/15/15 1,147,126
445 Cox Communications, Inc. - 144A** 4.625 01/15/10 440,177
360 Echostar DBS Corp. 6.375 10/01/11 372,600
----------
1,959,903
----------
CASINO/GAMING (0.7%)
30 MGM Mirage Inc. 6.00 10/01/09 30,900
540 MGM Mirage Inc. 8.50 09/15/10 619,650
----------
650,550
----------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
7
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------
CHEMICALS: MAJOR DIVERSIFIED (0.4%)
$ 345 ICI Wilmington Inc. 4.375% 12/01/08 $ 343,835
----------
CONTAINERS/PACKAGING (0.6%)
540 Sealed Air Corp. - 144A** 5.625 07/15/13 557,035
----------
DEPARTMENT STORES (1.4%)
1,045 May Department Stores Co., Inc. 5.95 11/01/08 1,094,787
130 May Department Stores Co., Inc. 6.875 11/01/05 132,784
----------
1,227,571
----------
DRUGSTORE CHAINS (0.8%)
584 CVS Corp. - 144A** 5.789 01/10/26 601,112
53 CVS Corp. - 144A** 6.204 10/10/25 56,973
----------
658,085
----------
ELECTRIC UTILITIES (8.7%)
520 Arizona Public Service Co. 5.80 06/30/14 551,697
285 Arizona Public Service Co. 6.75 11/15/06 297,195
235 CC Funding Trust I 6.90 02/16/07 247,136
105 Cincinnati Gas & Electric Co. 5.70 09/15/12 110,344
365 Consolidated Natural Gas Co. 5.00 12/01/14 364,025
470 Consolidated Natural Gas Co. (Series B) 5.375 11/01/06 480,541
35 Consolidated Natural Gas Co. (Series C) 6.25 11/01/11 37,957
460 Consumers Energy Co. 4.80 02/17/09 464,774
55 Detroit Edison Co. 6.125 10/01/10 59,167
475 Detroit Edison Co. - 144A** 4.80 02/15/15 467,465
535 Duke Energy Corp. 4.50 04/01/10 535,705
365 Entergy Gulf States, Inc. 2.80 12/01/09 365,303
285 Entergy Gulf States, Inc. 3.60 06/01/08 278,837
795 Exelon Corp. 6.75 05/01/11 878,379
315 Jersey Central Power & Light Company 5.625 05/01/16 327,449
235 Ohio Edison Co. 5.45 05/01/15 238,573
495 Pacific Gas & Electric Co. 6.05 03/01/34 523,661
140 Panhandle Eastern Pipe Line Co.
(Series B) 2.75 03/15/07 136,233
130 Public Service Electric & Gas Co.
(Series MTNB) 5.00 01/01/13 131,977
110 Southern California Edison Co. 5.00 01/15/14 110,510
170 Texas Eastern Transmission 7.00 07/15/32 198,190
180 Texas-New Mexico Power Co. 6.25 01/15/09 187,590
270 TXU Energy Co. 7.00 03/15/13 302,819
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
8
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------
$ 20 Wisconsin Electric Power Co. 3.50% 12/01/07 $ 19,684
235 Wisconsin Electric Power Co. 5.625 05/15/33 244,263
----------
7,559,474
----------
ELECTRICAL PRODUCTS (0.6%)
480 Cooper Industries Inc. 5.25 07/01/07 491,015
----------
ELECTRONIC EQUIPMENT/INSTRUMENTS (0.7%)
585 Xerox Corp. 7.125 06/15/10 634,725
----------
FINANCE/RENTAL/LEASING (6.1%)
510 CIT Group Inc. 2.875 09/29/06 502,669
320 CIT Group Inc. 7.375 04/02/07 341,167
960 Countrywide Home Loans, Inc.
(Series MTN) 3.25 05/21/08 928,521
430 Ford Motor Credit Co. 7.25 10/25/11 448,325
765 Ford Motor Credit Co. 7.375 10/28/09 802,817
835 MBNA Corp. 6.125 03/01/13 892,593
135 Nationwide Building Society - 144A**
(United Kingdom) 4.25 02/01/10 133,436
745 SLM Corp. (Series MTNA) 5.00 10/01/13 749,176
525 Toyota Motor Credit Corp. 5.65 01/15/07 541,162
----------
5,339,866
----------
FINANCIAL CONGLOMERATES (7.6%)
735 Chase Manhattan Corp. 6.00 02/15/09 773,307
500 Citicorp 6.375 11/15/08 537,690
330 Citigroup Inc. 5.625 08/27/12 348,094
265 Citigroup Inc. 6.00 02/21/12 285,429
40 General Electric Capital Corp. 4.75 09/15/14 39,753
830 General Electric Capital Corp.
(Series MTNA) 6.75 03/15/32 981,023
385 General Motors Acceptance Corp. 4.50 07/15/06 384,566
2,095 General Motors Acceptance Corp. 6.875 09/15/11 2,080,040
605 General Motors Acceptance Corp. 8.00 11/01/31 608,560
410 Prudential Funding LLC
(Series MTN) - 144A** 6.60 05/15/08 438,235
170 Prudential Holdings, LLC
(Series B) (FSA) - 144A** 7.245 12/18/23 204,126
----------
6,680,823
----------
FOOD RETAIL (0.2%)
160 Safeway Inc. 6.15 03/01/06 163,844
----------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
9
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------
FOOD: MAJOR DIVERSIFIED (1.1%)
$ 230 Conagra Foods, Inc. 6.00% 09/15/06 $ 237,023
700 Kraft Foods Inc. 5.625 11/01/11 737,484
----------
974,507
----------
FOREST PRODUCTS (0.2%)
150 Weyerhaeuser Co. 6.00 08/01/06 154,545
----------
GAS DISTRIBUTORS (1.4%)
370 Nisource Finance Corp. 3.43 11/23/09 371,628
330 Nisource Finance Corp. 7.625 11/15/05 339,196
31 Ras Laffan Liquid Natural Gas Co.
Ltd. - 144A** (Qatar) 7.628 09/15/06 32,228
335 Ras Laffan Liquid Natural Gas Co.
Ltd. - 144A** (Qatar) 8.294 03/15/14 393,848
105 Sempra Energy 4.621 05/17/07 105,963
----------
1,242,863
----------
HOME FURNISHINGS (0.3%)
130 Mohawk Industries, Inc. (Class C) 6.50 04/15/07 136,284
110 Mohawk Industries, Inc. (Series D) 7.20 04/15/12 123,719
----------
260,003
----------
HOME IMPROVEMENT CHAINS (0.4%)
300 Lowe's Companies, Inc. 7.50 12/15/05 309,497
----------
HOSPITAL/NURSING MANAGEMENT (0.8%)
625 HCA, Inc. 6.30 10/01/12 639,028
50 HCA, Inc. 7.875 02/01/11 55,405
----------
694,433
----------
HOTELS/RESORTS/CRUISELINES (1.6%)
695 Hyatt Equities LLC - 144A** 6.875 06/15/07 721,606
195 Marriott International, Inc. (Series D) 8.125 04/01/05 195,724
265 Marriott International, Inc. (Series E) 7.00 01/15/08 284,342
170 Starwood Hotels & Resorts Worldwide, Inc. 7.375 05/01/07 181,475
----------
1,383,147
----------
HOUSEHOLD/PERSONAL CARE (0.7%)
590 Clorox Co. (The) -144A** 2.543 12/14/07 590,508
----------
INDUSTRIAL CONGLOMERATES (1.5%)
515 Honeywell International, Inc. 5.125 11/01/06 525,246
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
10
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------
$ 315 Hutchison Whampoa International
Ltd. - 144A** (Cayman Islands) 5.45% 11/24/10 $ 325,198
400 Hutchison Whampoa International
Ltd. - 144A** (Cayman Islands) 6.50 02/13/13 431,612
----------
1,282,056
----------
INSURANCE BROKERS/SERVICES (2.7%)
1,335 Farmers Exchange Capital - 144A** 7.05 07/15/28 1,416,666
960 Marsh & McLennan Co., Inc. 5.875 08/01/33 910,533
----------
2,327,199
----------
INTEGRATED OIL (1.9%)
750 Amerada Hess Corp. 7.875 10/01/29 926,695
345 Conoco Funding Co. (Canada) 6.35 10/15/11 380,634
40 Petro-Canada (Canada) 4.00 07/15/13 37,202
350 Petro-Canada (Canada) 5.35 07/15/33 330,409
----------
1,674,940
----------
INVESTMENT BANKS/BROKERS (1.1%)
400 Goldman Sachs Group Inc. 5.25 10/15/13 407,572
60 Goldman Sachs Group Inc. 6.60 01/15/12 66,373
455 Goldman Sachs Group Inc. 6.875 01/15/11 506,875
----------
980,820
----------
LIFE/HEALTH INSURANCE (0.6%)
475 John Hancock Global Funding II - 144A** 7.90 07/02/10 547,244
----------
MAJOR BANKS (3.4%)
980 Bank of America Corp. 3.375 02/17/09 948,934
250 Bank of New York Co., Inc. (The) 5.20 07/01/07 256,468
675 HSBC Finance Corp. 6.75 05/15/11 745,834
480 Huntington National Bank 2.75 10/16/06 471,722
475 Wachovia Bank NA (Series BKNT) 7.80 08/18/10 548,976
----------
2,971,934
----------
MAJOR TELECOMMUNICATIONS (3.5%)
340 AT&T Corp. 9.75 11/15/31 433,925
150 Deutsche Telekom International
Finance Corp. (Netherlands) 8.50 06/15/10 176,454
400 Deutsche Telekom International
Finance Corp. (Netherlands) 8.75 06/15/30 540,710
305 France Telecom S.A. (France) 9.25 03/01/31 416,849
80 GTE Corp. 6.36 04/15/06 82,123
380 Sprint Capital Corp. 8.75 03/15/32 511,782
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
11
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------
$ 370 Telecom Italia Capital SpA - 144A**
(Luxembourg) 4.00% 01/15/10 $ 359,146
365 Telecom Italia Capital SpA (Luxembourg) 4.00 11/15/08 359,068
165 Verizon Global Funding Corp. 7.25 12/01/10 186,393
----------
3,066,450
----------
MANAGED HEALTH CARE (3.2%)
945 Aetna, Inc. 7.875 03/01/11 1,094,001
790 Health Net, Inc. 9.875 04/15/11 946,281
270 UnitedHealth Group Inc. 7.50 11/15/05 276,573
175 WellPoint Health Networks Inc. 6.375 06/15/06 180,539
265 WellPoint Inc. - 144A** 3.75 12/14/07 261,335
55 WellPoint Inc. - 144A** 4.25 12/15/09 54,259
----------
2,812,988
----------
MEDIA CONGLOMERATES (3.2%)
730 News America Holdings, Inc. 7.28 06/30/28 846,255
600 News America Holdings, Inc. 7.75 02/01/24 721,664
50 News America Holdings, Inc. 8.875 04/26/23 65,975
65 News America Inc. 4.75 03/15/10 65,261
530 Time Warner Co., Inc. 7.57 02/01/24 631,919
360 Time Warner, Inc. 7.625 04/15/31 440,387
----------
2,771,461
----------
MEDICAL SPECIALTIES (0.2%)
190 Fisher Scientific International, Inc. - 144A** 6.75 08/15/14 201,400
----------
METAL FABRICATIONS (0.1%)
95 Northwest Pipeline Corp. 8.125 03/01/10 104,856
----------
MOTOR VEHICLES (1.8%)
345 DaimlerChrysler North American
Holdings Co. 7.30 01/15/12 387,306
100 DaimlerChrysler North American
Holdings Co. 8.00 06/15/10 113,746
490 DaimlerChrysler North American
Holdings Co. 8.50 01/18/31 626,299
430 General Motors Corp. 8.375 07/15/33 423,521
----------
1,550,872
----------
MULTI-LINE INSURANCE (3.2%)
505 AIG Sun America Global
Finance VI - 144A** 6.30 05/10/11 542,032
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
12
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------
$ 565 American General Finance Corp.
(Series MTNH) 4.625% 09/01/10 $ 563,637
625 American General Finance Corp.
(Series MTNF) 5.875 07/14/06 642,287
365 Equitable Life Assurance Society - 144A** 6.95 12/01/05 373,872
135 Hartford Financial Services Group, Inc. 2.375 06/01/06 132,062
500 Hartford Financial Services Group, Inc. 7.75 06/15/05 506,289
----------
2,760,179
----------
OIL & GAS PRODUCTION (4.0%)
410 Kerr-McGee Corp. 5.875 09/15/06 421,333
230 Kerr-McGee Corp. 6.625 10/15/07 242,519
370 Nexen Inc. (Canada) 5.05 11/20/13 366,147
605 Occidental Petroleum Corp. 8.45 02/15/29 832,355
55 Pemex Project Funding Master Trust 7.375 12/15/14 61,188
210 Pemex Project Funding Master Trust 7.875 02/01/09 233,100
1,170 Pemex Project Funding Master Trust 8.00 11/15/11 1,339,650
----------
3,496,292
----------
OIL REFINING/MARKETING (0.7%)
140 Ashland Inc. (Series MTNJ) 7.83 08/15/05 142,711
300 Marathon Oil Corp. 5.375 06/01/07 308,026
120 Marathon Oil Corp. 6.00 07/01/12 129,033
----------
579,770
----------
PROPERTY - CASUALTY INSURERS (1.0%)
875 Mantis Reef Ltd. - 144A** (Australia) 4.692 11/14/08 870,605
----------
PULP & PAPER (1.8%)
590 Abitibi-Consolidated Inc. (Canada) 8.55 08/01/10 629,825
505 Bowater Canada Finance (Canada) 7.95 11/15/11 553,317
335 Sappi Papier Holding AG - 144A**
(Austria) 6.75 06/15/12 366,454
----------
1,549,596
----------
RAILROADS (1.5%)
305 Burlington North Santa Fe Railway Co. 4.575 01/15/21 300,090
230 CSX Corp. 2.75 02/15/06 227,388
160 CSX Corp. 9.00 08/15/06 170,872
190 Norfolk Southern Corp. 7.35 05/15/07 202,806
210 Union Pacific Corp. 6.65 01/15/11 231,118
160 Union Pacific Corp. (Series MTNE) 6.79 11/09/07 170,349
----------
1,302,623
----------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
13
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------
REAL ESTATE DEVELOPMENT (0.8%)
$ 355 World Financial Properties - 144A** 6.91% 09/01/13 $ 384,604
262 World Financial Properties - 144A** 6.95 09/01/13 284,049
----------
668,653
----------
REAL ESTATE INVESTMENT TRUSTS (0.5%)
100 EOP Operating L.P. 4.75 03/15/14 96,738
270 Rouse Co. (The) 3.625 03/15/09 251,673
135 Rouse Co. (The) 5.375 11/26/13 128,568
----------
476,979
----------
REGIONAL BANKS (1.2%)
890 Marshall & Isley Bank (Series BKNT) 3.80 02/08/08 880,460
175 US Bancorp 5.10 07/15/07 178,903
----------
1,059,363
----------
SAVINGS BANKS (1.4%)
70 Household Finance Corp. 4.125 11/16/09 68,930
70 Household Finance Corp. 6.375 10/15/11 76,472
215 Household Finance Corp. 8.00 07/15/10 248,611
685 Washington Mutual Bank 5.50 01/15/13 709,561
105 Washington Mutual Inc. 8.25 04/01/10 120,703
----------
1,224,277
----------
SPECIALTY STORES (0.2%)
185 Autonation, Inc. 9.00 08/01/08 209,975
----------
TOBACCO (1.1%)
305 Altria Group, Inc. 7.00 11/04/13 335,769
535 Altria Group, Inc. 7.75 01/15/27 626,967
----------
962,736
----------
WIRELESS TELECOMMUNICATIONS (0.5%)
390 AT&T Wireless Services, Inc. 7.875 03/01/11 453,064
----------
Total Corporate Bonds
(COST $70,943,549) 72,073,890
----------
Asset-Backed Securities (5.7%)
FINANCE/RENTAL/LEASING
550 Chase Manhattan Auto Owner
Trust 2004-A A4 2.83 09/15/10 535,222
350 CIT Equipment Collateral
2004-EF1 A3 3.50 09/20/08 345,591
550 Daimler Chrysler Auto Trust
2003-B A4 2.86 03/09/09 540,383
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
14
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------------------------------------
$ 450 Harley-Davidson Motorcycle Trust
2004-2 A2 3.56% 02/15/12 $ 446,512
450 Harley-Davidson Motorcycle Trust
2005-1 A2 3.76 12/17/12 446,903
550 Honda Auto Receivables Owner Trust
2004-1 A4 3.06 10/21/09 539,824
800 MBNA Credit Card Master Trust
2004-A4 A4 2.70 09/15/09 780,750
500 TXU Electric Delivery Trans 2004-1 A2 4.81 11/17/14 505,072
500 USAA Auto Owner Trust 2004-2 3.58 02/15/11 495,511
350 Volkswagen Auto Lease Trust 2005-A A3 3.82 05/20/08 350,000
------------
Total Asset-Backed Securities
(COST $5,062,381) 4,985,768
------------
Foreign Government Obligations (2.9%)
455 Russian Federation 5.00 03/31/30 480,025
755 United Mexican States (Mexico) 8.30 08/15/31 912,040
110 United Mexican States (Mexico) 8.375 01/14/11 128,260
860 United Mexican States (Mexico) 9.875 02/01/10 1,046,620
------------
Total Foreign Government Obligations
(COST $2,520,048) 2,566,945
------------
U.S. Government Agency Mortgage-Backed
Securities (0.1%)
21 Federal Home Loan Mortgage Corp. 7.50 09/01/30 22,903
43 Federal National Mortgage Association 7.50 01/01/30 - 04/01/32 46,408
------------
Total U.S. Government Agency Mortgage-Backed
Securities (COST $68,215) 69,311
------------
U.S. Government Obligations (6.9%)
2,075 U.S. Treasury Bond 6.125 08/15/29 2,474,682
2,850 U.S. Treasury Note 4.25 08/15/13 2,837,756
950 U.S. Treasury Strip 0.00 02/15/25 358,056
950 U.S. Treasury Strip 0.00 02/15/27 331,864
------------
Total U.S. Government Obligations
(COST $6,120,309) 6,002,358
------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
15
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------------------------------------
Short-Term Investments (1.8%)
U.S. Government Obligation (a) (0.3%)
$ 300 U.S. Treasury Bill*
(COST $299,637) 1.895% 03/24/05 $ 299,637
------------
Repurchase Agreement (1.5%)
1,318 Joint repurchase agreement account
(dated 02/28/05; proceeds
$1,318,096) (b)
(COST $1,318,000) 2.62 03/01/05 1,318,000
------------
Total Short-Term Investments
(COST $1,617,637) 1,617,637
------------
Total Investments
(COST $86,332,139) 99.9% 87,315,909
Other Assets in Excess of Liablities 0.1 65,102
----- ------------
Net Assets 100.0% $ 87,381,011
===== ============
</Table>
- ----------
* A PORTION OF THESE SECURITIES HAVE BEEN PHYSICALLY SEGREGATED IN
CONNECTION WITH OPEN FUTURES CONTRACTS IN THE AMOUNT OF $55,950.
** RESALE IS RESTRICTED TO QUALIFIED INSTITUTIONAL INVESTORS.
(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
$21,014,792 IN CONNECTION WITH OPEN FUTURES CONTRACTS.
(d) THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES APPROXIMATES THE
AGGREGATE COST FOR BOOK PURPOSES. THE AGGREGATE GROSS UNREALIZED
APPRECIATION IS $2,103,044 AND THE AGGREGATE GROSS UNREALIZED
DEPRECIATION IS $1,119,274, RESULTING IN NET UNREALIZED APPRECIATION OF
$983,770.
BOND INSURANCE:
FSA FINANCIAL SECURITY ASSURANCE.
FUTURES CONTRACTS OPEN AT FEBRUARY 28, 2005:
<Table>
<Caption>
NUMBER OF DESCRIPTION, DELIVERY UNDERLYING FACE UNREALIZED
CONTRACTS LONG/SHORT MONTH AND YEAR AMOUNT AT VALUE APPRECIATION
- ---------------------------------------------------------------------------------------------------------
65 Short U.S. Treasury Notes 2 year
June 2005 $ (13,480,390) $ 44,922
19 Short U.S. Treasury Notes 2 year
March 2005 (3,955,859) 13,670
30 Short U.S. Treasury Notes 5 year
June 2005 (3,227,354) 19,509
3 Short U.S. Treasury Notes 5 year
March 2005 (324,375) 4,351
---------
Total unrealized appreciation $ 82,452
=========
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
16
<Page>
MORGAN STANLEY INCOME TRUST
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 28, 2005 (UNAUDITED)
<Table>
ASSETS:
Investments in securities, at value (cost $86,332,139) $ 87,315,909
Receivable for:
Interest 1,159,180
Investments sold 283,203
Shares of beneficial interest sold 34,226
Variation margin 29,115
Prepaid expenses and other assets 17,703
---------------
TOTAL ASSETS 88,839,336
---------------
LIABILITIES:
Payable for:
Investments purchased 1,046,183
Shares of beneficial interest redeemed 175,530
Distribution fee 51,179
Dividends and distributions to shareholders 36,602
Investment advisory fee 17,441
Administration fee 5,473
Accrued expenses and other payables 125,917
---------------
TOTAL LIABILITIES 1,458,325
---------------
NET ASSETS $ 87,381,011
===============
COMPOSITION OF NET ASSETS:
Paid-in-capital $ 95,268,806
Net unrealized appreciation 1,066,222
Dividends in excess of net investment income (806,440)
Accumulated net realized loss (8,147,577)
---------------
NET ASSETS $ 87,381,011
===============
CLASS A SHARES:
Net Assets $ 7,730,725
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE) 805,440
NET ASSET VALUE PER SHARE $ 9.60
===============
MAXIMUM OFFERING PRICE PER SHARE,
(NET ASSET VALUE PLUS 4.44% OF NET ASSET VALUE) $ 10.03
===============
CLASS B SHARES:
Net Assets $ 67,223,569
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE) 7,069,450
NET ASSET VALUE PER SHARE $ 9.51
===============
CLASS C SHARES:
Net Assets $ 7,142,987
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE) 749,434
NET ASSET VALUE PER SHARE $ 9.53
===============
CLASS D SHARES:
Net Assets $ 5,283,730
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE) 557,555
NET ASSET VALUE PER SHARE $ 9.48
===============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
17
<Page>
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED FEBRUARY 28, 2005 (UNAUDITED)
<Table>
NET INVESTMENT INCOME:
INTEREST INCOME $ 2,340,497
---------------
EXPENSES
Distribution fee (Class A shares) 5,864
Distribution fee (Class B shares) 299,945
Distribution fee (Class C shares) 28,849
Investment advisory fee 219,158
Transfer agent fees and expenses 56,417
Shareholder reports and notices 37,986
Professional fees 33,676
Administration fee 23,872
Registration fees 19,334
Custodian fees 12,667
Trustees' fees and expenses 4,246
Other 12,943
---------------
TOTAL EXPENSES 754,957
Less: amounts waived/reimbursed (56,887)
---------------
NET EXPENSES 698,070
---------------
NET INVESTMENT INCOME 1,642,427
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
NET REALIZED GAIN/LOSS ON:
Investments 832,716
Futures contracts (217,423)
---------------
NET REALIZED GAIN 615,293
---------------
NET CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION ON:
Investments (454,895)
Futures contracts 399,883
---------------
NET DEPRECIATION (55,012)
---------------
NET GAIN 560,281
---------------
NET INCREASE $ 2,202,708
===============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
18
<Page>
STATEMENT OF CHANGES IN NET ASSETS
<Table>
<Caption>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
FEBRUARY 28, 2005 AUGUST 31, 2004
----------------- ---------------
(UNAUDITED)
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income $ 1,642,427 $ 3,655,611
Net realized gain 615,293 62,074
Net change in unrealized appreciation (55,012) 2,654,295
----------------- ---------------
NET INCREASE 2,202,708 6,371,980
----------------- ---------------
DIVIDENDS TO SHAREHOLDERS FROM NET INVESTMENT INCOME:
Class A shares (177,078) (350,990)
Class B shares (1,438,673) (3,453,039)
Class C shares (149,255) (332,476)
Class D shares (134,112) (321,400)
----------------- ---------------
TOTAL DIVIDENDS (1,899,118) (4,457,905)
----------------- ---------------
Net decrease from transactions in shares of beneficial interest (7,361,619) (34,307,978)
----------------- ---------------
NET DECREASE (7,058,029) (32,393,903)
NET ASSETS:
Beginning of period 94,439,040 126,832,943
----------------- ---------------
END OF PERIOD
(Including dividends in excess of net investment income of
$806,440 and $549,749, respectively) $ 87,381,011 $ 94,439,040
================= ===============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
19
<Page>
MORGAN STANLEY INCOME TRUST
NOTES TO FINANCIAL STATEMENTS - FEBRUARY 28, 2005 (UNAUDITED)
1. ORGANIZATION AND ACCOUNTING POLICIES
Morgan Stanley Income Trust (the "Fund"), formerly Morgan Stanley Quality Income
Trust, (the Fund's name changed effective April 29, 2005) is registered under
the Investment Company Act of 1940, as amended (the "Act"), as a diversified,
open-end management investment company. The Fund's investment objective is high
current income consistent with safety of principal. The Fund was organized as a
Massachusetts business trust on September 1, 1988 and commenced operations on
May 3, 1989. 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) 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) when
market quotations are not readily available or Morgan Stanley Investment
Advisors Inc. (the "Investment Adviser") 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 (4) 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 Adviser, 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.
20
<Page>
D. MULTIPLE CLASS ALLOCATIONS -- Investment income, expenses (other than
distribution fees), and realized and unrealized gains and losses are allocated
to each class of shares based upon the relative net asset value on the date such
items are recognized. Distribution fees are charged directly to the respective
class.
E. FUTURES CONTRACTS -- A futures contract is an agreement between two parties
to buy and sell financial instruments or contracts based on financial indices at
a set price on a future date. Upon entering into such a contract, the Fund is
required to pledge to the broker cash, U.S. Government securities or other
liquid portfolio securities equal to the minimum initial margin requirements of
the applicable futures exchange. Pursuant to the contract, the Fund agrees to
receive from or pay to the broker an amount of cash equal to the daily
fluctuation in the value of the contract. Such receipts or payments known as
variation margin are recorded by the Fund as unrealized gains and losses. Upon
closing of the contract, the Fund realizes a gain or loss equal to the
difference between the value of the contract at the time it was opened and the
value at the time it was closed.
F. 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.
G. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- Dividends and distributions to
shareholders are recorded on the ex-dividend date.
H. USE OF ESTIMATES -- The preparation of financial statements in accordance
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures.
Actual results could differ from those estimates.
2. INVESTMENT ADVISORY/ADMINISTRATION AGREEMENTS
Effective November 1, 2004, pursuant to an Investment Advisory Agreement, the
Fund pays the Investment Adviser an advisory fee, accrued daily and payable
monthly, by applying the following annual rates to the net assets of the Fund
determined as of the close of each business day: 0.42% to the portion of daily
net assets not exceeding $500 million; 0.35% to the portion of daily net assets
exceeding $500 million but not exceeding $1.25 billion; and 0.22% to the portion
of the daily net assets exceeding $1.25 billion.
Effective November 1, 2004 pursuant to an Administration Agreement with Morgan
Stanley Services Company Inc. (the "Administrator"), an affiliate of the
Investment Adviser, the Fund pays an administration fee, accrued daily and
payable monthly, by applying the annual rate of 0.08% to the Fund's daily net
assets.
21
<Page>
Prior to November 1, 2004, the Fund had retained the Investment Adviser to
provide administrative services and to manage the investment of the Fund's
assets pursuant to an investment management agreement pursuant to which the Fund
paid the Investment Adviser a monthly 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 daily
net assets not exceeding $500 million; 0.50% to the portion of daily net assets
exceeding $500 million but not exceeding $750 million; 0.40% to the portion of
the daily net assets exceeding $750 million but not exceeding $1 billion; and
0.30% to the portion of the daily net asset exceeding $1 billion.
The Investment Adviser has agreed to assume all operating expenses (except
distribution fees) and to waive the compensation provided for in its Investment
Advisory Agreement to the extent that such expenses and compensation on an
annualized basis exceed 0.80% of the daily net assets of the Fund.
3. PLAN OF DISTRIBUTION
Shares of the Fund are distributed by Morgan Stanley Distributors Inc. (the
"Distributor"), an affiliate of the Investment Adviser and Administrator. The
Fund has adopted a Plan of Distribution (the "Plan") pursuant to Rule 12b-1
under the Act. The Plan provides that the Fund will pay the Distributor a fee
which is accrued daily and paid monthly at the following annual rates: (i) Class
A -- up to 0.25% of the average daily net assets of Class A; (ii) Class B -- up
to 0.85% of the lesser of: (a) the average daily aggregate gross sales of the
Class B shares since the inception of the Fund (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 Fund's inception upon which
a contingent deferred sales charge has been imposed or waived; or (b) the
average daily net assets of Class B; and (iii) Class C -- up to 0.85% of the
average daily net assets of Class C.
In the case of Class B shares, provided that the Plan continues in effect, any
cumulative expenses incurred by the Distributor but not yet recovered may be
recovered through the payment of future distribution fees from the Fund pursuant
to the Plan and contingent deferred sales charges paid by investors upon
redemption of Class B shares. Although there is no legal obligation for the Fund
to pay expenses incurred in excess of payments made to the Distributor under the
Plan and the proceeds of contingent deferred sales charges paid by investors
upon redemption of shares, if for any reason the Plan is terminated, the
Trustees will consider at that time the manner in which to treat such expenses.
The Distributor has advised the Fund that such excess amounts totaled $4,743,043
at February 28, 2005.
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 0.85% 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
22
<Page>
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 February 28, 2005, the
distribution fee was accrued for Class A shares and Class C shares at the annual
rate of 0.15% and 0.79%, respectively.
The Distributor has informed the Fund that for the six months ended February 28,
2005, it received contingent deferred sales charges from certain redemptions of
the Fund's Class B shares and Class C shares of $56,968 and $523, respectively
and received $14,556 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/prepayments of portfolio
securities, excluding short-term investments, for the six months ended February
28, 2005, aggregated $19,794,131, and $25,178,314, respectively. Included in the
aforementioned are purchases and sales/prepayments of U.S. Government securities
of $6,121,305 and $51,260, respectively.
Morgan Stanley Trust, an affiliate of the Investment Adviser, Administrator and
Distributor, is the Fund's transfer agent. At February 29, 2005, the Fund had
transfer agent fees and expenses payable of approximately $10,000.
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 six months ended February 28, 2005 included in
Trustees' fees and expenses in the Statement of Operations amounted to $3,625.
At February 28, 2005, the Fund had an accrued pension liability of $61,545 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 and
eliminate the future benefits growth due to increases to compensation after July
31, 2003.
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 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.
23
<Page>
5. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<Table>
<Caption>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
FEBRUARY 28, 2005 AUGUST 31, 2004
---------------------------------- ----------------------------------
(UNAUDITED)
SHARES AMOUNT SHARES AMOUNT
--------------- --------------- --------------- ---------------
CLASS A SHARES
Sold 134,451 $ 1,300,261 704,453 $ 6,705,247
Reinvestment of dividends 12,799 123,080 24,923 237,640
Redeemed (139,289) (1,343,418) (958,026) (9,092,170)
--------------- --------------- --------------- ---------------
Net increase (decrease) -- Class A 7,961 79,923 (228,650) (2,149,283)
--------------- --------------- --------------- ---------------
CLASS B SHARES
Sold 288,449 2,748,867 923,982 8,779,096
Reinvestment of dividends 98,095 934,974 238,171 2,253,505
Redeemed (1,085,312) (10,345,957) (4,090,065) (38,614,692)
--------------- --------------- --------------- ---------------
Net decrease -- Class B (698,768) (6,662,116) (2,927,912) (27,582,091)
--------------- --------------- --------------- ---------------
CLASS C SHARES
Sold 70,030 668,573 195,232 1,846,576
Reinvestment of dividends 11,127 106,258 25,345 240,274
Redeemed (118,492) (1,132,625) (546,505) (5,137,914)
--------------- --------------- --------------- ---------------
Net decrease -- Class C (37,335) (357,794) (325,928) (3,051,064)
--------------- --------------- --------------- ---------------
CLASS D SHARES
Sold 48,344 459,335 279,178 2,647,709
Reinvestment of dividends 10,762 102,235 23,723 223,653
Redeemed (103,433) (983,202) (466,532) (4,396,902)
--------------- --------------- --------------- ---------------
Net decrease -- Class D (44,327) (421,632) (163,631) (1,525,540)
--------------- --------------- --------------- ---------------
Net decrease in Fund (772,469) $ (7,361,619) (3,646,121) $ (34,307,978)
=============== =============== =============== ===============
</Table>
6. 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 August 31, 2004, the Fund had a net capital loss carryforward of
$8,415,827 of which $2,351,266 will expire on August 31, 2005, $199,882 will
expire on August 31, 2006, $1,146,203
24
<Page>
will expire on August 31, 2008, $2,891,735 will expire on August 31, 2009,
$313,469 will expire on August 31, 2010 and $1,513,272 will expire on August 31,
2012 to offset future capital gains to the extent provided by regulations.
As of August 31, 2004, the Fund had temporary book/tax differences primarily
attributable to post-October losses (capital losses incurred after October 31
within the taxable year are deemed to arise on the first business day of the
Fund's next taxable year), mark-to-market of open futures contracts and book
amortization of premiums on debt securities.
7. PURPOSES OF RISKS RELATING TO CERTAIN FINANCIAL INSTRUMENTS
To hedge against adverse interest rate, foreign currency and market risks, the
Fund may purchase and sell interest rate, currency and index futures contracts
("futures contracts").
Futures contracts involve elements of market risk in excess of the amount
reflected in the Statement of Assets and Liabilities. The Fund bears the risk of
an unfavorable change 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.
8. LEGAL MATTERS
The Investment Adviser, certain affiliates of the Investment Adviser, certain
officers of such affiliates and certain investment companies advised by the
Investment Adviser or its affiliates, including the Fund, are named as
defendants in a consolidated class action. 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 Adviser
and certain affiliates of the Investment Adviser allegedly offered economic
incentives to brokers and others to recommend the funds advised by the
Investment Adviser or its affiliates to investors rather than funds managed by
other companies, and (ii) that the funds advised by the Investment Adviser 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. On March 10, 2005,
Plaintiffs sought leave to supplement their complaint to assert claims on behalf
of other investors. While the Fund and Adviser believe that each 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.
25
<Page>
MORGAN STANLEY INCOME TRUST
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 AUGUST 31,
MONTHS ENDED ----------------------------------------------------------
FEBRUARY 28, 2005 2004 2003 2002 2001 2000
----------------- ------- ------- ------- ------- -------
(UNAUDITED)
CLASS A SHARES:
SELECTED PER SHARE DATA:
Net asset value, beginning of period $ 9.56 $ 9.39 $ 9.53 $ 9.35 $ 8.97 $ 9.30
-------- ------- ------- -------- ------- -------
Income (loss) from investment operations:
Net investment income 0.19 0.35 0.20 0.37 0.52 0.55
Net realized and unrealized gain (loss) 0.07 0.26 0.01 0.19 0.38 (0.33)
-------- ------- ------- -------- ------- -------
Total income from investment operations 0.26 0.61 0.21 0.56 0.90 0.22
-------- ------- ------- -------- ------- -------
Less dividends from net
investment income (0.22) (0.44) (0.35) (0.38) (0.52) (0.55)
-------- ------- ------- -------- ------- -------
Net asset value, end of period $ 9.60 $ 9.56 $ 9.39 $ 9.53 $ 9.35 $ 8.97
======== ======= ======= ======== ======= =======
TOTAL RETURN+ 2.67%(1) 6.57% 2.17% 6.17% 10.34% 2.49%
RATIOS TO AVERAGE NET ASSETS(3):
Expenses 0.95%(2)(4) 1.19%(4) 1.14% 1.04% 1.21% 1.10%
Net investment income 4.20%(2)(4) 3.86%(4) 2.14% 4.03% 5.71% 6.02%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands $ 7,731 $ 7,628 $ 9,636 $ 10,730 $ 4,177 $ 4,196
Portfolio turnover rate 22%(1) 164% 429% 400% 358% 114%
</Table>
- ----------
+ DOES NOT REFLECT THE DEDUCTION OF SALES CHARGE. CALCULATED BASED ON THE
NET ASSET VALUE AS OF THE LAST BUSINESS DAY OF THE PERIOD.
(1) NOT ANNUALIZED.
(2) ANNUALIZED.
(3) REFLECTS OVERALL FUND RATIOS FOR INVESTMENT INCOME AND NON-CLASS SPECIFIC
EXPENSES.
(4) IF THE FUND HAD BORNE ALL EXPENSES THAT WERE WAIVED BY THE INVESTMENT
ADVISER, THE ANNUALIZED EXPENSE AND NET INVESTMENT INCOME RATIOS WOULD
HAVE BEEN AS FOLLOWS:
<Table>
<Caption>
EXPENSE NET INVESTMENT
PERIOD ENDED RATIO INCOME RATIO
---------------------- ------------ --------------
FEBRUARY 28, 2005 1.07% 4.08%
AUGUST 31, 2004 1.24% 3.81%
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
26
<Page>
<Table>
<Caption>
FOR THE SIX FOR THE YEAR ENDED AUGUST 31,
MONTHS ENDED ------------------------------------------------------------
FEBRUARY 28, 2005 2004 2003 2002 2001 2000
----------------- -------- -------- --------- --------- ---------
(UNAUDITED)
CLASS B SHARES:
SELECTED PER SHARE DATA:
Net asset value, beginning
of period $ 9.48 $ 9.32 $ 9.45 $ 9.35 $ 8.98 $ 9.31
--------- -------- -------- --------- --------- ---------
Income (loss) from investment operations:
Net investment income 0.16 0.29 0.14 0.31 0.47 0.49
Net realized and unrealized
gain (loss) 0.06 0.24 0.02 0.10 0.37 (0.33)
--------- -------- -------- --------- --------- ---------
Total income from
investment operations 0.22 0.53 0.16 0.41 0.84 0.16
--------- -------- ------- --------- --------- ---------
Less dividends from net
investment income (0.19) (0.37) (0.29) (0.31) (0.47) (0.49)
--------- -------- -------- --------- --------- ---------
Net asset value, end of period $ 9.51 $ 9.48 $ 9.32 $ 9.45 $ 9.35 $ 8.98
========= ======== ======== ========= ========= =========
TOTAL RETURN+ 2.36%(1) 5.78% 1.63% 4.58% 9.55% 1.80%
RATIOS TO AVERAGE NET ASSETS(3):
Expenses 1.65%(2)(4) 1.85%(4) 1.79% 1.72% 1.84% 1.77%
Net investment income 3.50%(2)(4) 3.20%(4) 1.49% 3.35% 5.08% 5.35%
SUPPLEMENTAL DATA:
Net assets, end of period,
in thousands $ 67,224 $ 73,650 $ 99,695 $ 103,238 $ 97,452 $ 82,964
Portfolio turnover rate 22%(1) 164% 429% 400% 358% 114%
</Table>
- ----------
+ DOES NOT REFLECT THE DEDUCTION OF SALES CHARGE. CALCULATED BASED ON THE
NET ASSET VALUE AS OF THE LAST BUSINESS DAY OF THE PERIOD.
(1) NOT ANNUALIZED.
(2) ANNUALIZED.
(3) REFLECTS OVERALL FUND RATIOS FOR INVESTMENT INCOME AND NON-CLASS SPECIFIC
EXPENSES.
(4) IF THE FUND HAD BORNE ALL EXPENSES THAT WERE WAIVED BY THE INVESTMENT
ADVISER, THE ANNUALIZED EXPENSE AND NET INVESTMENT INCOME RATIOS WOULD
HAVE BEEN AS FOLLOWS:
<Table>
<Caption>
EXPENSE NET INVESTMENT
PERIOD ENDED RATIO INCOME RATIO
---------------------- ------------ --------------
FEBRUARY 28, 2005 1.77% 3.38%
AUGUST 31, 2004 1.90% 3.15%
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
27
<Page>
<Table>
<Caption>
FOR THE SIX FOR THE YEAR ENDED AUGUST 31,
MONTHS ENDED ----------------------------------------------------------
FEBRUARY 28, 2005 2004 2003 2002 2001 2000
----------------- ------- ------- ------- ------- -------
(UNAUDITED)
CLASS C SHARES:
SELECTED PER SHARE DATA:
Net asset value, beginning of period $ 9.50 $ 9.34 $ 9.46 $ 9.36 $ 8.99 $ 9.32
-------- ------- -------- ------- ------- -------
Income (loss) from investment operations:
Net investment income 0.16 0.29 0.14 0.31 0.47 0.49
Net realized and unrealized gain (loss) 0.06 0.24 0.03 0.10 0.37 (0.33)
-------- ------- -------- ------- ------- -------
Total income from investment operations 0.22 0.53 0.17 0.41 0.84 0.16
-------- ------- -------- ------- ------- -------
Less dividends from net
investment income (0.19) (0.37) (0.29) (0.31) (0.47) (0.49)
-------- ------- -------- ------- ------- -------
Net asset value, end of period $ 9.53 $ 9.50 $ 9.34 $ 9.46 $ 9.36 $ 8.99
======== ======= ======== ======= ======= =======
TOTAL RETURN+ 2.36%(1) 5.77% 1.74% 4.57% 9.54% 1.80%
RATIOS TO AVERAGE NET ASSETS(3):
Expenses 1.59%(2)(4) 1.85%(4) 1.79% 1.72% 1.84% 1.77%
Net investment income 3.56%(2)(4) 3.20%(4) 1.49% 3.35% 5.08% 5.35%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands $ 7,143 $ 7,474 $ 10,389 $ 6,415 $ 4,226 $ 1,738
Portfolio turnover rate 22%(1) 164% 429% 400% 358% 114%
</Table>
- ----------
+ DOES NOT REFLECT THE DEDUCTION OF SALES CHARGE. CALCULATED BASED ON THE
NET ASSET VALUE AS OF THE LAST BUSINESS DAY OF THE PERIOD.
(1) NOT ANNUALIZED.
(2) ANNUALIZED.
(3) REFLECTS OVERALL FUND RATIOS FOR INVESTMENT INCOME AND NON-CLASS SPECIFIC
EXPENSES.
(4) IF THE FUND HAD BORNE ALL EXPENSES THAT WERE WAIVED BY THE INVESTMENT
ADVISER, THE ANNUALIZED EXPENSE AND NET INVESTMENT INCOME RATIOS WOULD
HAVE BEEN AS FOLLOWS:
<Table>
<Caption>
EXPENSE NET INVESTMENT
PERIOD ENDED RATIO INCOME RATIO
---------------------- ------------ --------------
FEBRUARY 28, 2005 1.71% 3.44%
AUGUST 31, 2004 1.90% 3.15%
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
28
<Page>
<Table>
<Caption>
FOR THE SIX FOR THE YEAR ENDED AUGUST 31,
MONTHS ENDED ----------------------------------------------------------
FEBRUARY 28, 2005 2004 2003 2002 2001 2000
----------------- ------- ------- ------- ------- -------
(UNAUDITED)
CLASS D SHARES:
SELECTED PER SHARE DATA:
Net asset value, beginning of period $ 9.45 $ 9.29 $ 9.43 $ 9.35 $ 8.98 $ 9.31
------- ------- ------- -------- ------- -------
Income (loss) from investment operations:
Net investment income 0.20 0.37 0.22 0.38 0.55 0.57
Net realized and unrealized gain (loss) 0.06 0.24 0.01 0.09 0.37 (0.33)
------- ------- ------- -------- ------- -------
Total income from investment operations 0.26 0.61 0.23 0.47 0.92 0.24
------- ------- ------- -------- ------- -------
Less dividends from net
investment income (0.23) (0.45) (0.37) (0.39) (0.55) (0.57)
------- ------- ------- -------- ------- -------
Net asset value, end of period $ 9.48 $ 9.45 $ 9.29 $ 9.43 $ 9.35 $ 8.98
======= ======= ======= ======== ======= =======
TOTAL RETURN+ 2.80%(1) 6.68% 2.39% 5.23% 10.48% 2.67%
RATIOS TO AVERAGE NET ASSETS(3):
Expenses 0.80%(2)(4) 1.00%(4) 0.94% 0.87% 0.99% 0.92%
Net investment income 4.35%(2)(4) 4.05%(4) 2.34% 4.20% 5.93% 6.20%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands $ 5,284 $ 5,687 $ 7,113 $ 11,943 $ 3,018 $ 6,834
Portfolio turnover rate 22%(1) 164% 429% 400% 358% 114%
</Table>
- ----------
+ CALCULATED BASED ON THE NET ASSET VALUE AS OF THE LAST BUSINESS DAY OF
THE PERIOD.
(1) NOT ANNUALIZED.
(2) ANNUALIZED.
(3) REFLECTS OVERALL FUND RATIOS FOR INVESTMENT INCOME AND NON-CLASS SPECIFIC
EXPENSES.
(4) IF THE FUND HAD BORNE ALL EXPENSES THAT WERE WAIVED BY THE INVESTMENT
ADVISER, THE ANNUALIZED EXPENSE AND NET INVESTMENT INCOME RATIOS WOULD
HAVE BEEN AS FOLLOWS:
<Table>
<Caption>
EXPENSE NET INVESTMENT
PERIOD ENDED RATIO INCOME RATIO
---------------------- ------------ --------------
FEBRUARY 28, 2005 0.92% 4.23%
AUGUST 31, 2004 1.05% 4.00%
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
29
<Page>
(This page has been left blank intentionally.)
<Page>
(This page has been left blank intentionally.)
<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 ADVISER
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) 2005 Morgan Stanley
[MORGAN STANLEY LOGO]
38557RPT-RA05-00292P-Y02/05
[GRAPHIC]
[MORGAN STANLEY FUNDS]
MORGAN STANLEY
INCOME TRUST
SEMIANNUAL REPORT
FEBRUARY 28, 2005
[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.
Refer to Item 1.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
Not applicable for semiannual reports.
Item 8. Portfolio Managers of Closed-End Management Investment Companies
Applicable only to reports filed by closed-end funds.
Item 9. Closed-End Fund Repurchases
Applicable to reports filed by closed-end funds.
Item 10. Submission of Matters to a Vote of Security Holders
Not applicable.
<Page>
Item 11. Controls and Procedures
(a) The Fund's principal executive officer and principal financial officer have
concluded that the Fund's disclosure controls and procedures are sufficient to
ensure that information required to be disclosed by the Fund in this Form N-CSR
was recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission's rules and forms, based
upon such officers' evaluation of these controls and procedures as of a date
within 90 days of the filing date of the report.
(b) There were no changes in the registrant's internal control over financial
reporting that occurred during the 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 12. Exhibits
(a) Code of Ethics - Not applicable for semiannual reports.
(b) A separate certification for each principal executive officer and principal
financial officer of the registrant are attached hereto as part of EX-99.CERT.
<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 Income Trust
/s/ Ronald E. Robison
Ronald E. Robison
Principal Executive Officer
April 19, 2005
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
April 19, 2005
/s/ Francis Smith
Francis Smith
Principal Financial Officer
April 19, 2005