<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: 811-08265
Morgan Stanley S&P 500 Index 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: 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 S&P 500
INDEX FUND PERFORMED DURING THE SEMIANNUAL PERIOD. WE WILL PROVIDE AN OVERVIEW
OF THE MARKET CONDITIONS, AND DISCUSS SOME OF THE FACTORS THAT AFFECTED
PERFORMANCE DURING THE REPORTING PERIOD. IN ADDITION, THIS REPORT INCLUDES THE
FUND'S FINANCIAL STATEMENTS AND A LIST OF FUND INVESTMENTS.
THIS MATERIAL MUST BE PRECEDED OR ACCOMPANIED BY A PROSPECTUS FOR THE FUND BEING
OFFERED.
MARKET FORECASTS PROVIDED IN THIS REPORT MAY NOT NECESSARILY COME TO PASS. THERE
IS NO ASSURANCE THAT THE FUND WILL ACHIEVE ITS INVESTMENT OBJECTIVE. THE FUND IS
SUBJECT TO MARKET RISK, WHICH IS THE POSSIBILITY THAT MARKET VALUES OF
SECURITIES OWNED BY THE FUND WILL DECLINE AND, THEREFORE, THE VALUE OF THE
FUND'S SHARES MAY BE LESS THAN WHAT YOU PAID FOR THEM. ACCORDINGLY, YOU CAN LOSE
MONEY INVESTING IN THIS FUND. PLEASE SEE THE PROSPECTUS FOR MORE COMPLETE
INFORMATION ON INVESTMENT RISKS.
<Page>
FUND REPORT
For the six months ended February 28, 2005
TOTAL RETURN FOR THE 6 MONTHS ENDED FEBRUARY 28, 2005
<Table>
<Caption>
LIPPER
S&P 500 S&P 500
CLASS A CLASS B CLASS C CLASS D INDEX(1) FUNDS INDEX(2)
9.62% 9.23% 9.27% 9.76% 9.99% 9.87%
</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 U.S. equity market was generally strong over the six months ended February
28, 2005. The Federal Open Market Committee raised the federal funds target rate
a number of times during that period, but the increases apparently did not take
many investors by surprise, and the stock market was largely unaffected. The
U.S. economy continued to grow steadily and the labor market improved, though
fewer jobs were created than some economists and investors had expected.
Investor confidence was shaken over the summer by fears of growing terrorism and
concern over the possibility of a disputed U.S. presidential election, which
hampered the market's gains. The market went on to rally later in the year when
the price of crude oil fell from its high and the election ended without
incident. A pick-up in consumer spending further helped to lift stocks as 2004
drew to a close, although weaker-than-expected economic numbers contributed in
part to the slowing performance of equities as 2005 began. The period ended on a
slightly more positive note as a number of encouraging economic indicators
supported market gains in February, despite some concerns over inflation.
PERFORMANCE ANALYSIS
Morgan Stanley S&P 500 Index Fund underperformed the S&P 500 Index and the
Lipper S&P 500 Funds Index for the six months ended February 28, 2005, assuming
no deduction of applicable sales charges. During this period stock performance
varied across sectors, and a number of sectors contributed more positively to
the Fund's performance than others due to relative size. Due in part to their
large size, the technology and consumer discretionary sectors were significant
contributors to the Fund's positive performance, although the energy sector was
the top-performing for the period due largely to the rising price of oil. In
spite of their smaller weighting in the portfolio, utilities stocks were among
the best performers due in part to the rising interest rate environment. In
addition, many utilities companies benefited from improved balance sheets that
had strengthened when interest rates were low, and some were further helped by
consolidation within the industry. Materials stocks also performed well for the
period as a result of economic expansion and rising commodity prices, which
helped steel, copper and chemical companies in particular.
Some sectors underperformed others during the six months and contributed much
less to positive performance. Telecommunications stocks were among the
worst-performing over the six months, and the sector made the smallest
contribution to the Fund's performance. Although some companies within the
sector were helped by merger activity during the period, a number of the larger
companies that sought to acquire others were significantly hurt. Health care
stocks also significantly underperformed for the period, as large pharmaceutical
companies suffered from the voluntary recall of drugs from the market by a
number of companies.
2
<Page>
THE INVESTMENT PERFORMANCE OF THE S&P 500 INDEX DOES NOT INCLUDE THE IMPACT OF
ANY EXPENSES, SALES CHARGES OR FEES. INDEXES ARE UNMANAGED AND SUCH COSTS WOULD
LOWER PERFORMANCE. AS A RESULT, THE PORTFOLIO'S PERFORMANCE WILL NOT EXACTLY
TRACK THE PERFORMANCE OF THE INDEX. IT IS NOT POSSIBLE TO INVEST DIRECTLY IN AN
INDEX.
THERE IS NO GUARANTEE THAT ANY SECTORS MENTIONED WILL CONTINUE TO PERFORM WELL
OR BE HELD BY THE FUND IN THE FUTURE.
TOP 10 HOLDINGS
<Table>
Exxon Mobil Corp. 3.6%
General Electric Co. 3.3
Microsoft Corp. 2.4
Citigroup Inc. 2.2
Wal-Mart Stores, Inc. 1.9
Pfizer, Inc. 1.7
Johnson & Johnson 1.7
Bank of America Corp. 1.7
American International Group, Inc. 1.5
IBM Corp. 1.4
</Table>
TOP FIVE INDUSTRIES
<Table>
Pharmaceuticals: Major 6.4%
Industrial Conglomerates 5.6
Integrated Oil 5.5
Major Banks 4.7
Financial Conglomerates 4.4
</Table>
DATA AS OF FEBRUARY 28, 2005. SUBJECT TO CHANGE DAILY. ALL PERCENTAGES FOR TOP
10 HOLDINGS AND TOP FIVE INDUSTRIES ARE AS A PERCENTAGE OF NET ASSETS. 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 80 PERCENT OF ITS ASSETS IN COMMON STOCKS
OF COMPANIES INCLUDED IN THE S&P 500 INDEX. THE "INVESTMENT ADVISER," MORGAN
STANLEY INVESTMENT ADVISORS INC., "PASSIVELY" MANAGES THE FUND'S ASSETS BY
INVESTING IN STOCKS IN APPROXIMATELY THE SAME PROPORTION AS THEY ARE REPRESENTED
IN THE INDEX. FOR EXAMPLE, IF THE COMMON STOCK OF A SPECIFIC COMPANY REPRESENTS
FIVE PERCENT OF THE INDEX, THE INVESTMENT MANAGER TYPICALLY WILL INVEST THE SAME
PERCENTAGE OF THE FUND'S ASSETS IN THAT STOCK. THE S&P 500 INDEX IS A WELL-KNOWN
STOCK MARKET INDEX THAT INCLUDES COMMON STOCKS OF 500 COMPANIES REPRESENTING A
SIGNIFICANT PORTION OF THE MARKET VALUE OF ALL COMMON STOCKS PUBLICLY TRADED IN
THE UNITED STATES. THE FUND MAY INVEST IN FOREIGN COMPANIES THAT ARE INCLUDED IN
THE S&P 500 INDEX.
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
3
<Page>
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. 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 09/26/97) (SINCE 09/26/97) (SINCE 09/26/97) (SINCE 09/26/97)
SYMBOL SPIAX SPIBX SPICX SPIDX
1 YEAR 6.34%(3) 5.50%(3) 5.46%(3) 6.52%(3)
0.76(4) 0.50(4) 4.46(4) --
5 YEARS (1.63)(3) (2.41)(3) (2.40)(3) (1.42)(3)
(2.69)(4) (2.80)(4) (2.40)(4) --
SINCE INCEPTION 4.16(3) 3.36(3) 3.36(3) 4.39(3)
3.41(4) 3.36(4) 3.36(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 5.25%.
** THE MAXIMUM CONTINGENT DEFERRED SALES CHARGE (CDSC) FOR CLASS B IS 5.0%.
THE CDSC DECLINES TO 0% AFTER SIX YEARS.
+ THE MAXIMUM CONTINGENT DEFERRED SALES CHARGE FOR CLASS C IS 1.0% FOR SHARES
REDEEMED WITHIN ONE YEAR OF PURCHASE.
++ CLASS D HAS NO SALES CHARGE.
(1) THE STANDARD AND POOR'S 500 INDEX (S&P 500(R)) IS A BROAD-BASED INDEX, THE
PERFORMANCE OF WHICH IS BASED ON THE PERFORMANCE OF 500 WIDELY-HELD COMMON
STOCKS CHOSEN FOR MARKET SIZE, LIQUIDITY AND INDUSTRY GROUP REPRESENTATION.
THE INDEX DOES NOT INCLUDE ANY EXPENSES, SALES CHARGES OR FEES. SUCH COSTS
WOULD LOWER PERFORMANCE. IT IS NOT POSSIBLE TO INVEST DIRECTLY IN AN INDEX.
(2) THE LIPPER S&P 500 FUNDS INDEX IS AN EQUALLY WEIGHTED PERFORMANCE INDEX OF
THE LARGEST QUALIFYING FUNDS (BASED ON NET ASSETS) IN THE LIPPER S&P 500
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 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 (9.62% return) $ 1,000.00 $ 1,096.20 $ 3.22
Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,021.72 $ 3.11
CLASS B
Actual (9.23% return) $ 1,000.00 $ 1,092.30 $ 7.26
Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,017.85 $ 7.00
CLASS C
Actual (9.27% return) $ 1,000.00 $ 1,092.70 $ 6.64
Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,018.45 $ 6.41
CLASS D
Actual (9.76% return) $ 1,000.00 $ 1,097.60 $ 2.08
Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,022.81 $ 2.01
</Table>
- ----------
* EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO OF 0.62%, 1.40%,
1.28% AND 0.40% RESPECTIVELY, MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER
THE PERIOD, MULTIPLIED BY 181/365 (TO REFLECT THE ONE-HALF YEAR PERIOD).
6
<Page>
MORGAN STANLEY S&P 500 INDEX FUND
PORTFOLIO OF INVESTMENTS - FEBRUARY 28, 2005 (UNAUDITED)
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------------------------------
COMMON STOCKS (99.0%)
ADVERTISING/MARKETING
SERVICES (0.2%)
65,204 Interpublic Group of
Companies, Inc. (The)* $ 856,781
28,729 Omnicom Group, Inc. 2,616,350
--------------
3,473,131
--------------
AEROSPACE & DEFENSE (1.3%)
129,454 Boeing Co. 7,116,086
30,882 General Dynamics Corp. 3,253,419
18,338 Goodrich Corp. 679,056
17,756 L-3 Communications
Holdings, Inc. 1,280,208
68,255 Lockheed Martin Corp. 4,042,061
56,775 Northrop Grumman Corp. 3,003,398
69,701 Raytheon Co. 2,665,366
27,220 Rockwell Collins, Inc. 1,253,481
--------------
23,293,075
--------------
AGRICULTURAL COMMODITIES/
MILLING (0.1%)
100,917 Archer-Daniels-Midland Co. 2,432,100
--------------
AIR FREIGHT/COURIERS (1.0%)
46,344 FedEx Corp. 4,531,516
172,811 United Parcel Service, Inc.
(Class B) 13,391,124
--------------
17,922,640
--------------
AIRLINES (0.1%)
21,500 Delta Air Lines, Inc.* 99,760
120,201 Southwest Airlines Co. 1,664,784
--------------
1,764,544
--------------
ALTERNATIVE POWER
GENERATION (0.0%)
82,383 Calpine Corp.* 272,688
--------------
ALUMINUM (0.3%)
134,216 Alcoa, Inc. 4,311,018
--------------
APPAREL/FOOTWEAR (0.5%)
26,466 Cintas Corp.* 1,158,681
29,128 Coach, Inc.* 1,617,478
18,845 Jones Apparel Group, Inc. $ 598,706
16,737 Liz Claiborne, Inc. 707,975
40,470 Nike, Inc. (Class B) 3,518,867
8,962 Reebok International Ltd. 395,762
17,126 V.F. Corp. 1,023,450
--------------
9,020,919
--------------
APPAREL/FOOTWEAR
RETAIL (0.4%)
135,181 Gap, Inc. (The) 2,883,411
62,665 Limited Brands, Inc. 1,490,174
21,598 Nordstrom, Inc. 1,161,108
74,298 TJX Companies, Inc. (The) 1,814,357
--------------
7,349,050
--------------
AUTO PARTS: O.E.M. (0.3%)
23,096 Dana Corp. 333,044
86,528 Delphi Corp. 594,447
23,421 Eaton Corp. 1,633,615
29,349 Johnson Controls, Inc. 1,734,526
19,973 Visteon Corp. 134,019
--------------
4,429,651
--------------
AUTOMOTIVE
AFTERMARKET (0.0%)
11,543 Cooper Tire & Rubber Co. 223,357
27,040 Goodyear Tire & Rubber
Co. (The)* 390,998
--------------
614,355
--------------
BEVERAGES: ALCOHOLIC (0.4%)
121,818 Anheuser-Busch
Companies, Inc. 5,780,264
18,778 Brown-Forman Corp.
(Class B) 955,800
11,377 Molson Coors Brewing Co.
(Class B) 791,043
--------------
7,527,107
--------------
BEVERAGES:
NON-ALCOHOLIC (1.1%)
373,044 Coca-Cola Co. (The) 15,966,283
72,348 Coca-Cola Enterprises Inc. 1,544,630
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
7
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------------------------------
38,559 Pepsi Bottling Group, Inc.
(The) $ 1,049,576
--------------
18,560,489
--------------
BIOTECHNOLOGY (1.2%)
195,837 Amgen Inc.* 12,065,518
51,429 Biogen Idec Inc.* 1,987,731
28,808 Chiron Corp.* 1,024,989
38,238 Genzyme Corp.* 2,144,769
66,750 Gilead Sciences, Inc.* 2,306,213
38,350 MedImmune, Inc.* 923,468
7,668 Millipore Corp.* 347,054
--------------
20,799,742
--------------
BROADCASTING (0.2%)
88,432 Clear Channel
Communications, Inc. 2,943,017
49,834 Univision Communications
Inc. (Class A)* 1,315,119
--------------
4,258,136
--------------
BUILDING PRODUCTS (0.2%)
33,076 American Standard
Companies, Inc. 1,514,881
69,075 Masco Corp. 2,329,209
--------------
3,844,090
--------------
CASINO/GAMING (0.2%)
17,279 Harrah's
Entertainment, Inc. 1,133,330
53,138 International Game
Technology 1,618,583
--------------
2,751,913
--------------
CHEMICALS: AGRICULTURAL (0.1%)
40,766 Monsanto Co. 2,396,225
--------------
CHEMICALS: MAJOR
DIVERSIFIED (1.1%)
145,393 Dow Chemical Co. (The) 8,018,424
153,137 Du Pont (E.I.) de
Nemours & Co. 8,162,202
12,016 Eastman Chemical Co. 693,804
18,857 Engelhard Corp. 570,424
17,264 Hercules Inc.* $ 247,566
34,668 Rohm & Haas Co. 1,669,958
--------------
19,362,378
--------------
CHEMICALS: SPECIALTY (0.3%)
35,048 Air Products &
Chemicals, Inc. 2,194,706
7,873 Great Lakes Chemical
Corp. 210,209
50,068 Praxair, Inc. 2,244,548
10,645 Sigma-Aldrich Corp. 655,838
--------------
5,305,301
--------------
COMMERCIAL PRINTING/
FORMS (0.1%)
33,859 Donnelley (R.R.) &
Sons Co. 1,124,457
--------------
COMPUTER
COMMUNICATIONS (1.1%)
70,586 Avaya Inc.* 988,204
1,015,276 Cisco Systems, Inc.* 17,686,108
14,267 QLogic Corp.* 574,817
--------------
19,249,129
--------------
COMPUTER PERIPHERALS (0.5%)
369,473 EMC Corp.* 4,677,528
19,904 Lexmark International, Inc.
(Class A)* 1,594,908
55,319 Network Appliance, Inc.* 1,660,123
--------------
7,932,559
--------------
COMPUTER PROCESSING
HARDWARE (2.0%)
123,984 Apple Computer, Inc.* 5,561,922
383,045 Dell Inc.* 15,356,274
57,625 Gateway, Inc.* 270,838
465,627 Hewlett-Packard Co. 9,685,042
28,740 NCR Corp.* 1,120,573
518,540 Sun Microsystems, Inc.* 2,188,239
--------------
34,182,888
--------------
CONSTRUCTION MATERIALS (0.1%)
15,790 Vulcan Materials Co. 913,609
--------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
8
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------------------------------
CONTAINERS/PACKAGING (0.2%)
17,362 Ball Corp. $ 770,873
16,489 Bemis Company, Inc. 492,032
22,886 Pactiv Corp.* 517,452
12,884 Sealed Air Corp.* 673,447
8,633 Temple-Inland Inc. 692,367
--------------
3,146,171
--------------
CONTRACT DRILLING (0.3%)
23,053 Nabors Industries, Ltd.
(Bermuda)* 1,323,242
20,871 Noble Corp.
(Cayman Islands) 1,191,108
16,534 Rowan Companies, Inc.* 523,797
49,581 Transocean Inc.
(Cayman Islands)* 2,403,677
--------------
5,441,824
--------------
DATA PROCESSING
SERVICES (0.9%)
19,819 Affiliated Computer Services,
Inc. (Class A)* 1,024,642
89,819 Automatic Data
Processing, Inc. 3,858,624
29,181 Computer Sciences Corp.* 1,349,038
21,833 Convergys Corp.* 327,277
127,951 First Data Corp. 5,248,550
30,157 Fiserv, Inc.* 1,144,157
58,313 Paychex, Inc. 1,861,934
44,540 SunGard Data Systems Inc.* 1,162,939
--------------
15,977,161
--------------
DEPARTMENT STORES (0.5%)
12,663 Dillard's, Inc. (Class A) 295,048
26,089 Federated Department Stores, Inc. 1,472,724
52,900 Kohl's Corp.* 2,532,323
45,020 May Department Stores Co. 1,553,640
44,036 Penney (J.C.) Co., Inc. 1,959,162
31,888 Sears, Roebuck & Co. 1,592,168
--------------
9,405,065
--------------
DISCOUNT STORES (2.7%)
17,402 Big Lots, Inc.* $ 203,081
72,324 Costco Wholesale Corp. 3,369,575
50,522 Dollar General Corp. 1,072,582
25,855 Family Dollar Stores, Inc. 851,147
138,062 Target Corp. 7,016,311
652,958 Wal-Mart Stores, Inc. 33,699,162
--------------
46,211,858
--------------
DRUGSTORE CHAINS (0.6%)
61,685 CVS Corp. 3,073,764
157,575 Walgreen Co. 6,748,937
--------------
9,822,701
--------------
ELECTRIC UTILITIES (2.8%)
100,036 AES Corp. (The)* 1,674,603
21,163 Allegheny Energy, Inc.* 400,616
30,035 Ameren Corp. 1,545,901
61,012 American Electric Power
Co., Inc. 2,037,801
47,462 CenterPoint Energy, Inc. 568,595
28,200 Cinergy Corp. 1,140,690
30,024 CMS Energy Corp.* 364,491
37,315 Consolidated Edison, Inc. 1,595,216
27,114 Constellation Energy
Group, Inc. 1,395,558
51,103 Dominion Resources, Inc. 3,680,949
26,822 DTE Energy Co. 1,186,069
147,502 Duke Energy Corp. 3,981,079
50,236 Edison International 1,631,665
34,468 Entergy Corp. 2,382,428
102,156 Exelon Corp. 4,633,796
50,856 FirstEnergy Corp. 2,097,301
28,615 FPL Group, Inc. 2,270,600
62,157 PG&E Corp.* 2,186,683
14,119 Pinnacle West Capital Corp. 589,468
29,148 PPL Corp. 1,589,732
38,091 Progress Energy, Inc. 1,650,864
36,652 Public Service Enterprise
Group, Inc. 1,999,367
114,050 Southern Co. (The) 3,663,286
30,787 TECO Energy, Inc. 489,205
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
9
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------------------------------
37,039 TXU Corp. $ 2,824,224
61,727 Xcel Energy, Inc. 1,093,802
--------------
48,673,989
--------------
ELECTRICAL PRODUCTS (0.4%)
29,491 American Power
Conversion Corp. 649,392
14,151 Cooper Industries Ltd.
(Class A) (Bermuda) 981,655
64,716 Emerson Electric Co. 4,291,965
29,051 Molex Inc. 730,052
13,060 Power-One, Inc.* 76,009
--------------
6,729,073
--------------
ELECTRONIC
COMPONENTS (0.1%)
31,069 Jabil Circuit, Inc.* 798,784
80,354 Sanmina-SCI Corp.* 445,965
149,694 Solectron Corp.* 740,985
--------------
1,985,734
--------------
ELECTRONIC EQUIPMENT/
INSTRUMENTS (0.5%)
74,874 Agilent Technologies, Inc.* 1,796,976
222,646 JDS Uniphase Corp.* 423,027
28,400 Rockwell Automation, Inc. 1,765,060
23,639 Scientific-Atlanta, Inc. 730,445
37,104 Symbol Technologies, Inc. 657,854
13,878 Tektronix, Inc. 401,352
24,662 Thermo Electron Corp.* 677,219
147,031 Xerox Corp.* 2,293,684
--------------
8,745,617
--------------
ELECTRONIC PRODUCTION
EQUIPMENT (0.4%)
261,844 Applied Materials, Inc.* 4,582,270
30,136 KLA-Tencor Corp.* 1,489,020
21,554 Novellus Systems, Inc.* 636,597
29,940 Teradyne, Inc.* 461,675
--------------
7,169,562
--------------
ELECTRONICS/APPLIANCE
STORES (0.2%)
50,018 Best Buy Co., Inc. $ 2,701,972
30,130 Circuit City Stores - Circuit
City Group 470,932
24,434 RadioShack Corp. 722,269
--------------
3,895,173
--------------
ELECTRONICS/APPLIANCES (0.1%)
44,202 Eastman Kodak Co. 1,502,426
12,215 Maytag Corp. 186,157
10,242 Whirlpool Corp. 652,928
--------------
2,341,511
--------------
ENGINEERING &
CONSTRUCTION (0.1%)
12,920 Fluor Corp. 810,730
--------------
ENVIRONMENTAL
SERVICES (0.2%)
49,070 Allied Waste
Industries, Inc.* 403,355
88,215 Waste Management, Inc. 2,579,407
--------------
2,982,762
--------------
FINANCE/RENTAL/
LEASING (1.8%)
37,424 Capital One Financial Corp. 2,869,672
32,407 CIT Group, Inc. 1,307,622
89,492 Countrywide Financial Corp. 3,109,847
149,237 Fannie Mae 8,724,395
106,318 Freddie Mac 6,591,716
197,000 MBNA Corp. 4,997,890
45,194 Providian Financial Corp.* 775,077
9,913 Ryder System, Inc. 420,906
66,274 SLM Corp. 3,234,171
--------------
32,031,296
--------------
FINANCIAL
CONGLOMERATES (4.4%)
193,533 American Express Co. 10,479,812
800,188 Citigroup, Inc. 38,184,971
549,283 JP Morgan Chase & Co. 20,076,294
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
10
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------------------------------
47,329 Principal Financial
Group, Inc. $ 1,846,778
79,098 Prudential Financial, Inc. 4,508,586
51,407 State Street Corp. 2,254,197
--------------
77,350,638
--------------
FINANCIAL PUBLISHING/
SERVICES (0.3%)
20,829 Equifax, Inc. 632,993
29,280 McGraw-Hill Companies,
Inc. (The) 2,689,368
22,804 Moody's Corp. 1,913,484
--------------
5,235,845
--------------
FOOD DISTRIBUTORS (0.2%)
98,647 SYSCO Corp. 3,395,430
--------------
FOOD RETAIL (0.3%)
56,749 Albertson's, Inc. 1,270,610
113,960 Kroger Co.* 2,050,140
68,998 Safeway Inc.* 1,269,563
20,700 Supervalu, Inc. 657,639
--------------
5,247,952
--------------
FOOD: MAJOR
DIVERSIFIED (1.6%)
63,442 Campbell Soup Co. 1,757,343
79,297 ConAgra Foods Inc. 2,166,394
56,179 General Mills, Inc. 2,942,094
53,862 Heinz (H.J.) Co. 2,027,366
63,665 Kellogg Co. 2,801,260
259,724 PepsiCo, Inc. 13,988,735
121,007 Sara Lee Corp. 2,710,557
--------------
28,393,749
--------------
FOOD: SPECIALTY/
CANDY (0.3%)
37,943 Hershey Foods Corp. 2,390,409
21,080 McCormick & Co., Inc.
(Non-Voting) 800,829
34,605 Wrigley (Wm.) Jr. Co. 2,303,309
--------------
5,494,547
--------------
FOREST PRODUCTS (0.2%)
16,969 Louisiana-Pacific Corp. $ 445,776
36,984 Weyerhaeuser Co. 2,475,339
--------------
2,921,115
--------------
GAS DISTRIBUTORS (0.2%)
58,595 Dynegy, Inc. (Class A)* 243,755
24,762 KeySpan Corp. 979,337
6,797 Nicor Inc. 253,460
41,690 NiSource, Inc. 943,862
5,802 Peoples Energy Corp. 248,210
35,985 Sempra Energy 1,439,400
--------------
4,108,024
--------------
HOME BUILDING (0.2%)
19,164 Centex Corp. 1,218,639
7,142 KB Home 891,322
19,667 Pulte Homes, Inc. 1,534,419
--------------
3,644,380
--------------
HOME FURNISHINGS (0.1%)
29,434 Leggett & Platt, Inc. 814,439
42,370 Newell Rubbermaid, Inc. 944,427
--------------
1,758,866
--------------
HOME IMPROVEMENT
CHAINS (1.2%)
338,586 Home Depot, Inc. (The) 13,550,212
119,149 Lowe's Companies, Inc. 7,003,578
21,794 Sherwin-Williams Co. 965,474
--------------
21,519,264
--------------
HOSPITAL/NURSING
MANAGEMENT (0.3%)
64,946 HCA, Inc. 3,066,101
37,530 Health Management
Associates, Inc. (Class A) 862,064
13,328 Manor Care, Inc. 454,085
71,954 Tenet Healthcare Corp.* 785,018
--------------
5,167,268
--------------
HOTELS/RESORTS/
CRUISELINES (0.6%)
97,642 Carnival Corp. (Panama) 5,309,772
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
11
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------------------------------
59,520 Hilton Hotels Corp. $ 1,253,491
34,478 Marriott International, Inc.
(Class A) 2,210,040
31,959 Starwood Hotels & Resorts
Worldwide, Inc. 1,829,333
--------------
10,602,636
--------------
HOUSEHOLD/PERSONAL
CARE (2.5%)
14,032 Alberto-Culver Co.
(Class B) 733,453
72,923 Avon Products, Inc. 3,118,917
23,435 Clorox Co. (The) 1,407,037
81,763 Colgate-Palmolive Co. 4,326,898
153,078 Gillette Co. (The) 7,692,170
14,530 International Flavors &
Fragrances, Inc. 599,944
75,201 Kimberly-Clark Corp. 4,961,762
391,122 Procter & Gamble Co.
(The) 20,764,667
--------------
43,604,848
--------------
INDUSTRIAL
CONGLOMERATES (5.6%)
120,039 3M Co. 10,076,074
47,584 Danaher Corp. 2,577,625
1,630,077 General Electric Co.** 57,378,710
132,626 Honeywell International, Inc. 5,035,809
26,553 Ingersoll-Rand Co. Ltd.
(Class A) (Bermuda) 2,237,090
14,234 ITT Industries, Inc. 1,251,880
21,204 Textron, Inc. 1,640,129
310,161 Tyco International Ltd.
(Bermuda) 10,384,190
78,796 United Technologies Corp. 7,870,144
--------------
98,451,651
--------------
INDUSTRIAL MACHINERY (0.3%)
45,591 Illinois Tool Works Inc. 4,091,792
18,421 Parker-Hannifin Corp. 1,212,102
--------------
5,303,894
--------------
INDUSTRIAL SPECIALTIES (0.2%)
39,735 Ecolab Inc. $ 1,259,997
26,504 PPG Industries, Inc. 1,906,963
--------------
3,166,960
--------------
INFORMATION TECHNOLOGY
SERVICES (1.5%)
26,118 Citrix Systems, Inc.* 587,655
79,229 Electronic Data Systems
Corp. 1,687,578
256,673 International Business
Machines Corp. 23,762,786
51,796 Unisys Corp.* 397,793
--------------
26,435,812
--------------
INSURANCE BROKERS/
SERVICES (0.2%)
48,793 AON Corp. 1,195,916
81,245 Marsh & McLennan
Companies, Inc. 2,652,649
--------------
3,848,565
--------------
INTEGRATED OIL (5.5%)
14,132 Amerada Hess Corp. 1,418,853
326,661 ChevronTexaco Corp. 20,279,115
106,424 ConocoPhillips 11,801,357
994,701 Exxon Mobil Corp. 62,974,520
--------------
96,473,845
--------------
INTERNET SOFTWARE/
SERVICES (0.4%)
78,353 Siebel Systems, Inc.* 668,351
211,978 Yahoo! Inc.* 6,840,530
--------------
7,508,881
--------------
INVESTMENT BANKS/
BROKERS (2.0%)
16,064 Bear Stearns Companies,
Inc. (The) 1,598,368
57,343 E*TRADE Group, Inc.* 760,942
74,655 Goldman Sachs Group,
Inc. (The) 8,122,464
41,541 Lehman Brothers
Holdings Inc. 3,787,708
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
12
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------------------------------
143,611 Merrill Lynch & Co., Inc. $ 8,412,732
168,768 Morgan Stanley 9,530,329
207,685 Schwab (Charles) Corp.
(The) 2,180,693
--------------
34,393,236
--------------
INVESTMENT MANAGERS (0.4%)
16,568 Federated Investors, Inc.
(Class B) 489,419
38,452 Franklin Resources, Inc. 2,698,946
36,432 Janus Capital Group, Inc. 511,141
65,305 Mellon Financial Corp. 1,872,947
19,759 Price (T.) Rowe Group, Inc. 1,213,005
--------------
6,785,458
--------------
LIFE/HEALTH INSURANCE (0.7%)
78,016 AFLAC, Inc. 2,990,353
21,050 Jefferson-Pilot Corp. 1,030,608
26,920 Lincoln National Corp. 1,261,202
114,766 MetLife, Inc. 4,709,997
16,669 Torchmark Corp. 868,622
45,715 UnumProvident Corp. 773,498
--------------
11,634,280
--------------
MAJOR BANKS (4.7%)
622,785 Bank of America Corp. 29,052,920
119,788 Bank of New York Co., Inc.
(The) 3,623,587
85,168 BB&T Corp. 3,334,327
26,298 Comerica, Inc. 1,501,090
35,633 Huntington Bancshares, Inc. 802,455
62,695 KeyCorp 2,068,935
104,467 National City Corp. 3,736,785
43,579 PNC Financial Services
Group 2,293,999
71,664 Regions Financial Corp. 2,311,881
57,168 SunTrust Banks, Inc. 4,141,250
247,259 Wachovia Corp. 13,107,200
260,863 Wells Fargo & Co. 15,490,045
--------------
81,464,474
--------------
MAJOR
TELECOMMUNICATIONS (2.6%)
46,835 ALLTEL Corp. $ 2,678,962
122,712 AT&T Corp. 2,384,294
282,432 BellSouth Corp. 7,286,746
511,191 SBC Communications, Inc. 12,294,144
226,803 Sprint Corp. 5,370,695
426,935 Verizon Communications Inc. 15,356,852
--------------
45,371,693
--------------
MANAGED HEALTH CARE (1.3%)
22,766 Aetna, Inc. 3,324,291
70,089 Caremark Rx, Inc.* 2,683,007
20,700 CIGNA Corp. 1,879,560
24,579 Humana, Inc.* 817,743
100,781 UnitedHealth Group Inc. 9,187,196
45,510 WellPoint Inc.* 5,554,951
--------------
23,446,748
--------------
MEDIA CONGLOMERATES (2.1%)
315,046 Disney (Walt) Co. (The) 8,802,385
402,843 News Corp Inc. (Class A) 6,703,308
706,231 Time Warner, Inc.* 12,168,360
262,892 Viacom Inc. (Class B)
(Non-Voting) 9,174,931
--------------
36,848,984
--------------
MEDICAL DISTRIBUTORS (0.4%)
16,355 AmerisourceBergen Corp. 979,665
66,620 Cardinal Health, Inc. 3,900,601
45,318 McKesson Corp. 1,692,174
--------------
6,572,440
--------------
MEDICAL SPECIALTIES (2.3%)
30,224 Applera Corp. - Applied
Biosystems Group 620,801
16,136 Bard (C.R.), Inc. 1,073,044
8,244 Bausch & Lomb, Inc. 583,593
95,048 Baxter International, Inc. 3,389,412
39,053 Becton, Dickinson & Co. 2,333,417
39,031 Biomet, Inc. 1,647,889
130,207 Boston Scientific Corp.* 4,252,561
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
13
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------------------------------
18,084 Fisher Scientific
International, Inc.* $ 1,096,795
49,118 Guidant Corp. 3,604,770
24,068 Hospira, Inc.* 712,413
186,369 Medtronic, Inc. 9,713,552
19,119 Pall Corp. 517,551
19,751 PerkinElmer, Inc. 438,077
55,128 St. Jude Medical, Inc.* 2,155,505
61,986 Stryker Corp. 3,078,225
18,632 Waters Corp.* 910,173
37,822 Zimmer Holdings, Inc.* 3,248,910
--------------
39,376,688
--------------
MISCELLANEOUS COMMERCIAL
SERVICES (0.0%)
20,889 Sabre Holdings Corp. 440,340
--------------
MISCELLANEOUS
MANUFACTURING (0.1%)
31,356 Dover Corp. 1,212,537
--------------
MOTOR VEHICLES (0.5%)
282,110 Ford Motor Co. 3,568,692
87,088 General Motors Corp. 3,106,429
45,300 Harley-Davidson, Inc. 2,803,164
--------------
9,478,285
--------------
MULTI-LINE INSURANCE (1.9%)
401,589 American International
Group, Inc. 26,826,145
45,286 Hartford Financial Services
Group, Inc. (The) 3,258,328
28,601 Loews Corp. 2,038,679
19,555 Safeco Corp. 932,578
--------------
33,055,730
--------------
OFFICE EQUIPMENT/
SUPPLIES (0.2%)
17,031 Avery Dennison Corp. 1,033,782
35,558 Pitney Bowes, Inc. 1,630,690
--------------
2,664,472
--------------
OIL & GAS PIPELINES (0.3%)
99,177 El Paso Corp. 1,222,852
19,101 Kinder Morgan, Inc. 1,531,327
85,797 Williams Companies, Inc. (The) $ 1,615,558
--------------
4,369,737
--------------
OIL & GAS PRODUCTION (1.4%)
38,136 Anadarko Petroleum Corp. 2,931,133
50,337 Apache Corp. 3,165,191
60,363 Burlington Resources, Inc. 2,995,816
74,938 Devon Energy Corp. 3,506,349
18,283 EOG Resources, Inc. 1,665,947
23,389 Kerr-McGee Corp. 1,816,390
60,861 Occidental Petroleum Corp. 4,276,702
40,579 Unocal Corp. 2,195,324
40,140 XTO Energy Inc. 1,827,173
--------------
24,380,025
--------------
OIL REFINING/MARKETING (0.4%)
10,958 Ashland, Inc. 715,448
53,436 Marathon Oil Corp. 2,529,660
10,685 Sunoco, Inc. 1,058,884
39,570 Valero Energy Corp. 2,818,967
--------------
7,122,959
--------------
OILFIELD SERVICES/EQUIPMENT (0.8%)
51,725 Baker Hughes Inc. 2,445,558
24,902 BJ Services Co. 1,244,104
77,321 Halliburton Co. 3,400,578
90,776 Schlumberger Ltd.
(Netherlands Antilles) 6,849,049
--------------
13,939,289
--------------
OTHER CONSUMER
SERVICES (0.9%)
28,561 Apollo Group, Inc.
(Class A)* 2,103,232
25,397 Block (H.&R.), Inc. 1,353,660
162,333 Cendant Corp. 3,590,806
204,423 eBay Inc.* 8,757,481
--------------
15,805,179
--------------
OTHER CONSUMER
SPECIALTIES (0.1%)
22,226 Fortune Brands, Inc. 1,800,306
--------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
14
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------------------------------
OTHER METALS/
MINERALS (0.1%)
14,720 Phelps Dodge Corp. $ 1,566,944
--------------
PACKAGED SOFTWARE (3.7%)
36,793 Adobe Systems, Inc. 2,271,968
35,386 Autodesk, Inc. 1,051,672
34,222 BMC Software, Inc.* 511,619
90,298 Computer Associates
International, Inc. 2,446,173
59,694 Compuware Corp.* 403,531
28,899 Intuit Inc.* 1,236,877
13,017 Mercury Interactive Corp.* 597,220
1,676,249 Microsoft Corp. 42,207,950
57,956 Novell, Inc.* 303,689
790,739 Oracle Corp.* 10,208,440
41,496 Parametric Technology
Corp.* 238,602
98,673 Symantec Corp.* 2,171,793
65,087 VERITAS Software Corp.* 1,576,407
--------------
65,225,941
--------------
PERSONNEL SERVICES (0.1%)
18,361 Monster Worldwide Inc.* 529,715
26,733 Robert Half
International, Inc. 779,802
--------------
1,309,517
--------------
PHARMACEUTICALS: GENERIC
DRUGS (0.1%)
41,492 Mylan Laboratories, Inc. 730,259
16,884 Watson
Pharmaceuticals, Inc.* 535,898
--------------
1,266,157
--------------
PHARMACEUTICALS:
MAJOR (6.4%)
240,128 Abbott Laboratories 11,043,487
299,986 Bristol-Myers Squibb Co. 7,508,650
457,582 Johnson & Johnson 30,017,379
174,483 Lilly (Eli) & Co. 9,771,048
341,921 Merck & Co., Inc. 10,838,896
1,161,176 Pfizer, Inc. 30,527,317
227,080 Schering-Plough Corp. 4,303,166
205,715 Wyeth $ 8,397,286
--------------
112,407,229
--------------
PHARMACEUTICALS: OTHER (0.3%)
20,243 Allergan, Inc. 1,521,869
56,803 Forest Laboratories, Inc.* 2,425,488
37,245 King Pharmaceuticals, Inc.* 355,690
--------------
4,303,047
--------------
PRECIOUS METALS (0.2%)
27,527 Freeport-McMoRan Copper &
Gold, Inc. (Class B) 1,151,179
68,444 Newmont Mining Corp. 3,081,349
--------------
4,232,528
--------------
PROPERTY - CASUALTY
INSURERS (1.1%)
43,819 ACE Ltd. (Cayman Islands) 1,948,193
105,804 Allstate Corp. (The) 5,679,559
29,536 Chubb Corp. (The) 2,336,593
25,911 Cincinnati Financial Corp. 1,158,999
30,869 Progressive Corp. (The) 2,688,690
103,222 St. Paul Travelers
Companies, Inc. (The) 3,955,467
21,379 XL Capital Ltd. (Class A)
(Cayman Islands) 1,603,425
--------------
19,370,926
--------------
PUBLISHING: BOOKS/
MAGAZINES (0.0%)
7,709 Meredith Corp. 353,766
--------------
PUBLISHING:
NEWSPAPERS (0.4%)
12,634 Dow Jones & Co., Inc. 468,721
39,356 Gannett Co., Inc. 3,099,285
11,873 Knight-Ridder, Inc. 777,682
22,368 New York Times Co. (The)
(Class A) 820,011
48,986 Tribune Co. 1,995,200
--------------
7,160,899
--------------
PULP & PAPER (0.3%)
39,791 Georgia-Pacific Corp. 1,424,916
75,025 International Paper Co. 2,802,934
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
15
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------------------------------
31,246 MeadWestvaco Corp. $ 979,875
--------------
5,207,725
--------------
RAILROADS (0.5%)
57,962 Burlington Northern
Santa Fe Corp. 2,913,750
33,124 CSX Corp. 1,368,352
61,059 Norfolk Southern Corp. 2,191,408
40,024 Union Pacific Corp. 2,539,523
--------------
9,013,033
--------------
REAL ESTATE INVESTMENT
TRUSTS (0.5%)
14,614 Apartment Investment &
Management Co.
(Class A) 559,132
30,171 Archstone-Smith Trust 1,020,685
62,174 Equity Office Properties
Trust 1,875,790
43,599 Equity Residential 1,430,483
28,304 Plum Creek Timber
Co., Inc. 1,062,815
28,355 ProLogis 1,127,395
34,101 Simon Property Group, Inc. 2,112,898
--------------
9,189,198
--------------
RECREATIONAL PRODUCTS (0.3%)
14,833 Brunswick Corp. 691,811
47,078 Electronic Arts Inc.* 3,036,060
27,294 Hasbro, Inc. 576,449
63,982 Mattel, Inc. 1,338,503
--------------
5,642,823
--------------
REGIONAL BANKS (1.4%)
54,752 AmSouth Bancorporation 1,367,705
18,911 Compass Bancshares, Inc. 858,749
91,189 Fifth Third Bancorp 4,082,532
18,985 First Horizon National Corp. 807,812
17,907 M&T Bank Corp. 1,772,972
34,450 Marshall & Ilsley Corp. 1,394,881
72,567 North Fork Bancorporation, Inc. 2,090,655
33,799 Northern Trust Corp. 1,428,008
47,744 Synovus Financial Corp. $ 1,296,727
287,890 U.S. Bancorp 8,564,728
13,825 Zions Bancorporation 913,833
--------------
24,578,602
--------------
RESTAURANTS (0.8%)
24,241 Darden Restaurants, Inc. 649,659
193,844 McDonald's Corp. 6,412,360
61,671 Starbucks Corp.* 3,195,175
17,574 Wendy's International, Inc. 665,176
45,166 Yum! Brands, Inc. 2,203,197
--------------
13,125,567
--------------
SAVINGS BANKS (0.6%)
47,213 Golden West Financial
Corp. 2,922,013
57,786 Sovereign Bancorp, Inc. 1,325,611
134,617 Washington Mutual, Inc. 5,648,529
--------------
9,896,153
--------------
SEMICONDUCTORS (2.7%)
59,502 Advanced Micro
Devices, Inc.* 1,038,310
57,402 Altera Corp.* 1,190,517
57,949 Analog Devices, Inc. 2,127,887
47,511 Applied Micro Circuits
Corp.* 163,913
50,740 Broadcom Corp.
(Class A)* 1,636,365
60,105 Freescale Semiconductor
Inc. (Class B)* 1,152,814
974,919 Intel Corp. 23,378,558
47,342 Linear Technology Corp. 1,849,179
59,351 LSI Logic Corp.* 378,659
50,149 Maxim Integrated
Products, Inc. 2,157,410
94,426 Micron Technology, Inc.* 1,085,899
55,220 National Semiconductor
Corp. 1,101,639
25,628 NVIDIA Corp.* 742,956
27,479 PMC - Sierra, Inc.* 273,416
266,422 Texas Instruments Inc. 7,052,190
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
16
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------------------------------
53,705 Xilinx, Inc. $ 1,621,891
--------------
46,951,603
--------------
SERVICES TO THE HEALTH
INDUSTRY (0.4%)
11,716 Express Scripts, Inc.
(Class A)* 882,098
35,764 IMS Health Inc. 870,853
21,329 Laboratory Corp. of America
Holdings* 1,021,446
42,015 Medco Health
Solutions Inc.* 1,866,306
15,604 Quest Diagnostics Inc. 1,551,038
--------------
6,191,741
--------------
SPECIALTY INSURANCE (0.2%)
16,755 Ambac Financial Group, Inc. 1,303,204
21,698 MBIA Inc. 1,271,503
14,922 MGIC Investment Corp. 936,206
--------------
3,510,913
--------------
SPECIALTY STORES (0.5%)
40,794 AutoNation, Inc.* 796,707
12,302 AutoZone, Inc.* 1,192,064
46,399 Bed Bath & Beyond Inc.* 1,740,890
48,170 Office Depot, Inc.* 927,273
14,399 OfficeMax Inc. 454,576
76,770 Staples, Inc.* 2,419,790
22,434 Tiffany & Co. 676,385
33,159 Toys 'R' Us, Inc.* 758,346
--------------
8,966,031
--------------
SPECIALTY
TELECOMMUNICATIONS (0.1%)
20,749 CenturyTel, Inc. 697,996
51,722 Citizens
Communications Co. 689,971
279,988 Qwest Communications
International, Inc.* 1,091,953
--------------
2,479,920
--------------
STEEL (0.2%)
14,725 Allegheny Technologies Inc. 362,382
24,530 Nucor Corp. 1,529,200
17,530 United States Steel Corp. $ 1,093,171
--------------
2,984,753
--------------
TELECOMMUNICATION
EQUIPMENT (1.2%)
124,717 ADC Telecommunications,
Inc.* 286,849
24,793 Andrew Corp.* 299,995
88,158 CIENA Corp.* 174,553
30,475 Comverse
Technology, Inc.* 707,325
216,206 Corning Inc.* 2,479,883
681,601 Lucent Technologies Inc.* 2,092,515
375,357 Motorola, Inc. 5,878,091
252,724 QUALCOMM Inc. 9,125,864
71,233 Tellabs, Inc.* 505,042
--------------
21,550,117
--------------
TELECOMMUNICATIONS (0.6%)
342,277 Comcast Corp. (Class A)* 11,141,116
--------------
TOBACCO (1.4%)
316,479 Altria Group, Inc. 20,776,846
22,751 Reynolds American, Inc. 1,864,444
25,476 UST, Inc. 1,392,263
--------------
24,033,553
--------------
TOOLS/HARDWARE (0.1%)
12,449 Black & Decker Corp. 1,032,271
8,872 Snap-On, Inc. 293,663
12,683 Stanley Works (The) 586,589
--------------
1,912,523
--------------
TRUCKS/CONSTRUCTION/
FARM MACHINERY (0.6%)
52,614 Caterpillar Inc. 5,000,961
7,018 Cummins Inc. 515,191
38,262 Deere & Co. 2,720,811
10,766 Navistar International Corp.* 424,826
26,786 PACCAR, Inc. 2,015,914
--------------
10,677,703
--------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
17
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------------------------------
WHOLESALE
DISTRIBUTORS (0.1%)
26,926 Genuine Parts Co. $ 1,165,357
13,889 Grainger (W.W.), Inc. 871,951
---------------
2,037,308
---------------
WIRELESS
TELECOMMUNICATIONS (0.3%)
171,345 Nextel Communications, Inc.
(Class A)* 5,042,683
---------------
TOTAL COMMON STOCKS
(COST $1,496,352,941) 1,729,588,470
---------------
<Caption>
PRINCIPAL
AMOUNT IN
THOUSANDS
- --------------
SHORT-TERM INVESTMENT (0.3%)
REPURCHASE AGREEMENT
$ 4,494 Joint repurchase agreement
account 2.62% due
03/01/05
(dated 02/28/05;
proceeds $4,494,327) (a)
(COST $4,494,000) 4,494,000
---------------
TOTAL INVESTMENTS
(COST $1,500,846,941) (b) (c) 99.3% 1,734,082,470
OTHER ASSETS IN EXCESS OF
LIABILITIES 0.7 12,301,715
----- ---------------
NET ASSETS 100.0% $ 1,746,384,185
===== ===============
</Table>
- ----------
* NON-INCOME PRODUCING SECURITY.
** A PORTION OF THIS SECURITY HAS BEEN PHYSICALLY SEGREGATED IN CONNECTION
WITH OPEN FUTURES CONTRACTS IN THE AMOUNT OF $1,134,000.
(a) COLLATERALIZED BY FEDERAL AGENCY AND U.S. TREASURY OBLIGATIONS.
(b) SECURITIES HAVE BEEN DESIGNATED AS COLLATERAL IN AN AMOUNT EQUAL TO
$20,262,402, IN CONNECTION WITH OPEN FUTURES CONTRACTS.
(c) THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES APPROXIMATES THE
AGGREGATE COST FOR BOOK PURPOSES. THE AGGREGATE GROSS UNREALIZED
APPRECIATION IS $464,086,618 AND THE AGGREGATE GROSS UNREALIZED
DEPRECIATION IS $230,851,089, RESULTING IN NET UNREALIZED APPRECIATION OF
$233,235,529.
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
- ----------------------------------------------------------------------------------------------------------
235 Long S&P 500 Index E-Mini $ 14,148,175 $ 127,266
March 2005
25 Long S&P 500 Index 7,525,625 149,420
March 2005
---------
Total Unrealized Appreciation $ 276,686
=========
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
18
<Page>
MORGAN STANLEY S&P 500 INDEX FUND
SUMMARY OF INVESTMENTS (UNAUDITED)
<Table>
<Caption>
PERCENT OF
SECTOR VALUE NET ASSETS
- --------------------------------------------------------------
Finance $ 347,109,469 20.7%
Health Technology 178,152,863 10.2
Electronic Technology 171,060,284 9.8
Consumer Non-Durables 136,635,212 7.8
Producer Manufacturing 133,313,071 7.6
Energy Minerals 127,976,829 7.3
Technology Services 115,147,795 6.6
Retail Trade 112,417,094 6.4
Consumer Services 102,048,196 5.8
Utilities 53,054,701 3.0
Communications 52,894,296 3.0
Process Industries 41,016,860 2.3
Health Services 34,805,757 2.0
Transportation 28,700,217 1.6
Industrial Services 27,544,342 1.6
Consumer Durables 27,193,049 1.6
Non-Energy Minerals 16,929,967 1.0
Distribution Services 12,005,178 0.7
Commercial Services 11,583,290 0.7
Repurchase Agreement 4,494,000 0.3
---------------- ---------
$ 1,734,082,470* 100.0%
================ =========
</Table>
- ----------
*DOES NOT INCLUDE OUTSTANDING LONG FUTURES CONTRACTS WITH AN UNDERLYING FACE
AMOUNT OF $21,673,800 WITH UNREALIZED APPRECIATION OF $276,686.
SEE NOTES TO FINANCIAL STATEMENTS
19
<Page>
MORGAN STANLEY S&P 500 INDEX FUND
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 28, 2005 (UNAUDITED)
<Table>
<Caption>
ASSETS:
Investments in securities, at value
(cost $1,500,846,941) $ 1,734,082,470
Receivable for:
Investments sold 15,513,154
Dividends 3,183,915
Shares of beneficial interest sold 881,617
Prepaid expenses and other assets 201,077
Receivable from affiliate 68,212
------------------
Total Assets 1,753,930,445
------------------
LIABILITIES:
Payable for:
Shares of beneficial interest redeemed 5,944,120
Distribution fee 1,012,272
Investment advisory fee 162,809
Variation margin 146,325
Administration fee 108,086
Accrued expenses and other payables 172,648
------------------
TOTAL LIABILITIES 7,546,260
------------------
NET ASSETS $ 1,746,384,185
==================
COMPOSITION OF NET ASSETS:
Paid-in-capital $ 1,795,063,333
Net unrealized appreciation 233,512,215
Accumulated undistributed net
investment income 4,647,701
Accumulated net realized loss (286,839,064)
------------------
NET ASSETS $ 1,746,384,185
==================
CLASS A SHARES:
Net Assets $ 320,897,177
Shares Outstanding (UNLIMITED AUTHORIZED,
$.01 PAR VALUE) 24,665,991
NET ASSET VALUE PER SHARE $ 13.01
==================
MAXIMUM OFFERING PRICE PER SHARE,
(NET ASSET VALUE PLUS 5.54% OF NET
ASSET VALUE) $ 13.73
==================
CLASS B SHARES:
Net Assets $ 1,057,586,066
Shares Outstanding (UNLIMITED AUTHORIZED,
$.01 PAR VALUE) 83,811,931
NET ASSET VALUE PER SHARE $ 12.62
==================
CLASS C SHARES:
Net Assets $ 170,432,823
Shares Outstanding (UNLIMITED AUTHORIZED,
$.01 PAR VALUE) 13,507,962
NET ASSET VALUE PER SHARE $ 12.62
==================
CLASS D SHARES:
Net Assets $ 197,468,119
Shares Outstanding (UNLIMITED AUTHORIZED,
$.01 PAR VALUE) 15,053,057
NET ASSET VALUE PER SHARE $ 13.12
==================
</Table>
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED FEBRUARY 28, 2005 (UNAUDITED)
<Table>
NET INVESTMENT INCOME:
INCOME
Dividends $ 21,507,421
Interest 94,319
------------------
TOTAL INCOME 21,601,740
------------------
EXPENSES
Distribution fee (Class A shares) 349,855
Distribution fee (Class B shares) 5,430,079
Distribution fee (Class C shares) 759,795
Transfer agent fees and expenses 1,330,403
Investment advisory fee 1,297,571
Administration fee 470,234
Custodian fees 96,125
Professional fees 75,888
Shareholder reports and notices 75,672
Registration fees 17,199
Trustees' fees and expenses 10,902
Other 160,186
------------------
TOTAL EXPENSES 10,073,909
Less: amounts waived/reimbursed (37,578)
------------------
NET EXPENSES 10,036,331
------------------
NET INVESTMENT INCOME 11,565,409
------------------
NET REALIZED AND UNREALIZED GAIN:
NET REALIZED GAIN ON:
Investments 32,025,535
Futures contracts 1,105,537
------------------
NET REALIZED GAIN 33,131,072
------------------
NET CHANGE IN UNREALIZED
APPRECIATION/DEPRECIATION ON:
Investments 115,064,353
Futures contracts 434,588
------------------
NET APPRECIATION 115,498,941
------------------
NET GAIN 148,630,013
------------------
NET INCREASE $ 160,195,422
==================
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
20
<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 $ 11,565,409 $ 8,983,573
Net realized gain (loss) 33,131,072 (30,189,179)
Net change in unrealized appreciation 115,498,941 197,028,655
----------------- ---------------
NET INCREASE 160,195,422 175,823,049
----------------- ---------------
DIVIDENDS TO SHAREHOLDERS FROM NET INVESTMENT INCOME:
Class A shares (4,386,735) (2,527,310)
Class B shares (6,352,859) (2,842,053)
Class C shares (1,072,102) (512,905)
Class D shares (3,188,310) (2,217,884)
----------------- ---------------
TOTAL DIVIDENDS (15,000,006) (8,100,152)
----------------- ---------------
Net decrease from transactions in shares of beneficial interest (178,902,164) (122,306,210)
----------------- ---------------
NET INCREASE (DECREASE) (33,706,748) 45,416,687
NET ASSETS:
Beginning of period 1,780,090,933 1,734,674,246
----------------- ---------------
END OF PERIOD
(Including accumulated undistributed net investment income of $4,647,701
and $8,082,298, respectively) $ 1,746,384,185 $ 1,780,090,933
================= ================
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
21
<Page>
MORGAN STANLEY S&P 500 INDEX FUND
NOTES TO FINANCIAL STATEMENTS - FEBRUARY 28, 2005 (UNAUDITED)
1. ORGANIZATION AND ACCOUNTING POLICIES
Morgan Stanley S&P 500 Index Fund (the "Fund") is registered under the
Investment Company Act of 1940, as amended (the "Act"), as a diversified,
open-end management investment company. The Fund's investment objective is to
provide investment results that, before expenses, correspond to the total return
of the Standard & Poor's 500 Composite Stock Price Index (the "S&P 500 Index").
The Fund was organized as a Massachusetts business trust on June 18, 1997 and
commenced operations on September 26, 1997.
The Fund offers Class A shares, Class B shares, Class C shares and Class D
shares. The four classes are substantially the same except that most Class A
shares are subject to a sales charge imposed at the time of purchase and some
Class A shares, and most Class B shares and Class C shares are subject to a
contingent deferred sales charge imposed on shares redeemed within one year, six
years and one year, respectively. Class D shares are not subject to a sales
charge. Additionally, Class A shares, Class B shares and Class C shares incur
distribution expenses.
The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS -- (1) an equity portfolio security listed or traded
on the New York Stock Exchange ("NYSE") or American Stock Exchange or other
exchange is valued at its latest sale price prior to the time when assets are
valued; if there were no sales that day, the security is valued at the mean
between the last reported bid and asked price; (2) an equity portfolio security
listed or traded on the Nasdaq is valued at the Nasdaq Official Closing Price;
if there were no sales that day, the security is valued at the mean between the
last reported bid and asked price; (3) all other portfolio securities for which
over-the-counter market quotations are readily available are valued at the mean
between the last reported bid and asked price. In cases where a security is
traded on more than one exchange, the security is valued on the exchange
designated as the primary market; (4) for equity securities traded on foreign
exchanges, the last reported sale price or the latest bid price may be used if
there were no sales on a particular day; (5) futures are valued at the latest
price published by the commodities exchange on which they trade; (6) when market
quotations are not readily available or Morgan Stanley Investment Advisors Inc.
(the "Investment Adviser") determines that the latest sale price, the bid price
or the mean between the last reported bid and asked price do not reflect a
security's market value, portfolio securities are valued at their fair value as
determined in good faith under procedures established by and under the general
supervision of the Fund's Trustees. Occasionally, developments affecting the
closing prices of securities and other assets may occur between the times at
which valuations of such securities are determined (that is, close of the
foreign market on which the securities trade) and the close of business on the
NYSE. If developments occur during such periods that are expected to materially
affect the value of such securities, such valuations may be adjusted to reflect
the estimated fair value of such securities as of the close of the NYSE, as
determined in good faith by
22
<Page>
the Fund's Trustees or by the Investment Adviser using a pricing service and/or
procedures approved by the Trustees of the Fund; and (7) short-term debt
securities having a maturity date of more than sixty days at time of purchase
are valued on a mark-to-market basis until sixty days prior to maturity and
thereafter at amortized cost based on their value on the 61st day. Short-term
debt securities having a maturity date of sixty days or less at the time of
purchase are valued at amortized cost.
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined by the identified cost method.
Dividend income and other distributions are recorded on the ex-dividend date.
Discounts are accreted and premiums are amortized over the life of the
respective securities. Interest income is accrued daily.
C. REPURCHASE AGREEMENTS -- Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the Fund, along with other affiliated
entities managed by the Investment 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.
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.
23
<Page>
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 annual rate of 0.12% to the net assets of the Fund
determined as of the close of each business day.
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 net assets.
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 annual rate of 0.20% to the net assets of the Fund
determined as of the close of each business day.
The Investment Adviser has agreed to assume all operating expenses (except for
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 0.40% 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 1.0% of the average daily net assets of Class B; and (iii) Class C -- up to
1.0% of the average daily net assets of Class C.
In the case of Class B shares, provided that the Plan continues in effect, any
cumulative expenses incurred by the Distributor but not yet recovered may be
recovered through the payment of future distribution fees from the Fund pursuant
to the Plan and contingent deferred sales charges paid by investors upon
redemption of Class B shares. Although there is no legal obligation for the Fund
to pay expenses incurred in excess of payments made to the Distributor under the
Plan and the proceeds of contingent deferred sales charges paid by investors
upon redemption of shares, if for any reason the Plan is terminated, the
Trustees will consider at that time the manner in which to treat such expenses.
The Distributor has advised the Fund that such excess amounts totaled
$37,629,081 at February 28, 2005.
24
<Page>
In the case of Class A shares and Class C shares, expenses incurred pursuant to
the Plan in any calendar year in excess of 0.25% or 1.0% of the average daily
net assets of Class A or Class C, respectively, will not be reimbursed by the
Fund through payments in any subsequent year, except that expenses representing
a gross sales credit to Morgan Stanley Financial Advisors or other selected
broker-dealer representatives may be reimbursed in the subsequent calendar year.
For the six months ended February 28, 2005, the distribution fee was accrued for
Class A shares and Class C shares at the annual rate of 0.22% and 0.88%,
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 A shares, Class B shares and Class C shares of $1,079,
$1,136,749 and $15,774, respectively and received $78,501 in front-end sales
charges from sales of the Fund's Class A shares. The respective shareholders pay
such charges which are not an expense of the Fund.
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities, excluding
short-term investments, for the six months ended February 28, 2005 aggregated
$23,465,714 and $214,479,425, respectively. Included in the aforementioned are
sales of common stock of Morgan Stanley, an affiliate of the Investment Adviser,
Administrator and Distributor, of $1,093,302, as well as a realized gain of
$469,348.
Morgan Stanley Trust, an affiliate of the Investment Adviser, Administrator and
Distributor, is the Fund's transfer agent.
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.
5. PURPOSES OF AND RISKS RELATING TO CERTAIN FINANCIAL INSTRUMENTS
The Fund may purchase and sell stock index futures ("futures contracts") for the
following reasons: to simulate full investment in the S&P 500 Index while
retaining a cash balance for fund management purposes; to facilitate trading; to
reduce transaction costs; or to seek higher investment returns when a futures
contract is priced more attractively than stocks comprising the S&P 500 Index.
25
<Page>
These 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.
6. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<Table>
<Caption>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
FEBRUARY 28, 2005 AUGUST 31, 2004
-------------------------------- --------------------------------
(UNAUDITED)
SHARES AMOUNT SHARES AMOUNT
-------------- -------------- -------------- --------------
CLASS A SHARES
Sold 3,137,109 $ 39,646,311 11,255,434 $ 134,194,035
Reinvestment of dividends 328,035 4,280,860 206,673 2,449,074
Redeemed (3,852,840) (48,789,341) (7,675,856) (92,058,323)
-------------- -------------- -------------- --------------
Net increase (decrease) -- Class A (387,696) (4,862,170) 3,786,251 44,584,786
-------------- -------------- -------------- --------------
CLASS B SHARES
Sold 2,560,638 31,424,675 12,211,344 140,102,363
Reinvestment of dividends 447,897 5,679,334 221,123 2,545,116
Redeemed (14,535,220) (177,865,172) (26,528,825) (305,904,240)
-------------- -------------- -------------- --------------
Net decrease -- Class B (11,526,685) (140,761,163) (14,096,358) (163,256,761)
-------------- -------------- -------------- --------------
CLASS C SHARES
Sold 766,945 9,379,635 3,418,503 39,361,945
Reinvestment of dividends 78,995 1,000,865 41,702 479,992
Redeemed (2,234,692) (27,250,129) (3,742,890) (43,289,520)
-------------- -------------- -------------- --------------
Net decrease -- Class C (1,388,752) (16,869,629) (282,685) (3,447,583)
-------------- -------------- -------------- --------------
CLASS D SHARES
Sold 1,651,349 20,997,262 4,739,786 56,679,623
Reinvestment of dividends 190,144 2,500,397 144,815 1,729,093
Redeemed (3,110,963) (39,906,861) (4,866,322) (58,595,368)
-------------- -------------- -------------- --------------
Net increase (decrease) -- Class D (1,269,470) (16,409,202) 18,279 (186,652)
-------------- -------------- -------------- --------------
Net decrease in Fund (14,572,603) $ (178,902,164) (10,574,513) $ (122,306,210)
============== ============== ============== ==============
</Table>
7. FEDERAL INCOME TAX STATUS
The amount of dividends and distributions from net investment income and net
realized capital gains are determined in accordance with federal income tax
regulations which may differ from generally accepted accounting principles.
These "book/tax" differences are either considered temporary or permanent in
nature. To the extent these differences are permanent in nature, such amounts
are
26
<Page>
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 caryforward of
$278,205,062 of which $687,345 will expire on August 31, 2006, $1,110,663 will
expire on August 31, 2007, $14,522,885 will expire on August 31, 2008,
$14,524,329 will expire on August 31, 2009, $66,339,275 will expire on August
31, 2010, $156,244,657 will expire on August 31, 2011 and $24,775,908 will
expire on August 31, 2012 to offset future capital gains to the extent provided
by regulations.
The Fund obtained a net capital loss carryforward of $16,493,580 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 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 which are deemed to rise on the first business day of
the Fund's next taxable year), capital loss deferrals on wash sales and
mark-to-market of open futures 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.
27
<Page>
MORGAN STANLEY S&P 500 INDEX 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 AUGUST 31,
MONTH ENDED -------------------------------------------------------------
FEBRUARY 28, 2005 2004 2003 2002 2001 2000
----------------- --------- --------- --------- --------- ---------
(UNAUDITED)
CLASS A SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period $ 12.03 $ 10.97 $ 9.91 $ 12.17 $ 16.20 $ 14.05
------------ --------- --------- --------- --------- ---------
Income (loss) from investment operations:
Net investment income++ 0.11 0.12 0.11 0.08 0.08 0.08
Net realized and unrealized gain (loss) 1.05 1.05 1.01 (2.34) (4.11) 2.10
------------ --------- --------- --------- --------- ---------
Total income (loss) from investment
operations 1.16 1.17 1.12 (2.26) (4.03) 2.18
------------ --------- --------- --------- --------- ---------
Less dividends and distributions from:
Net investment income (0.18) (0.11) (0.06) - - -
Net realized gain - - - - - (0.03)
------------ --------- --------- --------- --------- ---------
Total dividends and distributions (0.18) (0.11) (0.06) - - (0.03)
------------ --------- --------- --------- --------- ---------
Net asset value, end of period $ 13.01 $ 12.03 $ 10.97 $ 9.91 $ 12.17 $ 16.20
============ ========= ========= ========= ========= =========
TOTAL RETURN+ 9.62%(3) 10.70% 11.36% (18.57)% (24.83)% 15.49%
RATIOS TO AVERAGE NET ASSETS(1)(2):
Expenses 0.62%(4) 0.69% 0.70% 0.73% 0.69% 0.75%
Net investment income 1.82%(4) 1.04% 1.11% 0.73% 0.59% 0.49%
SUPPLEMENTAL DATA:
Net assets, end of period, in millions $ 321 $ 301 $ 233 $ 161 $ 159 $ 183
Portfolio turnover rate 1%(3) 2% 2% 12% 4% 5%
</Table>
- ----------
++ THE PER SHARE AMOUNTS WERE COMPUTED USING AN AVERAGE NUMBER OF SHARES
OUTSTANDING DURING THE PERIOD.
+ DOES NOT REFLECT THE DEDUCTION OF SALES CHARGE. CALCULATED BASED ON THE NET
ASSET VALUE AS OF THE LAST BUSINESS DAY OF THE PERIOD.
(1) IF THE FUND HAD BORNE ALL OF ITS EXPENSES THAT WERE REIMBURSED OR 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 0.62% 1.82%
AUGUST 31, 2004 0.77% 0.96%
AUGUST 31, 2003 0.82% 0.99%
AUGUST 31, 2002 0.80% 0.66%
AUGUST 31, 2001 0.72% 0.56%
AUGUST 31, 2000 0.76% 0.48%
</Table>
(2) REFLECTS OVERALL FUND RATIOS FOR INVESTMENT INCOME AND NON-CLASS SPECIFIC
EXPENSES.
(3) NOT ANNUALIZED.
(4) ANNUALIZED.
SEE NOTES TO FINANCIAL STATEMENTS
28
<Page>
<Table>
<Caption>
FOR THE SIX FOR THE YEAR ENDED AUGUST 31,
MONTH ENDED -------------------------------------------------------------
FEBRUARY 28, 2005 2004 2003 2002 2001 2000
----------------- --------- --------- --------- --------- ---------
(UNAUDITED)
CLASS B SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period $ 11.62 $ 10.60 $ 9.60 $ 11.88 $ 15.94 $ 13.93
------------ --------- --------- --------- --------- ---------
Income (loss) from investment operations:
Net investment income (loss)++ 0.06 0.03 0.03 (0.01) (0.03) (0.04)
Net realized and unrealized gain (loss) 1.01 1.02 0.97 (2.27) (4.03) 2.08
------------ --------- --------- --------- --------- ---------
Total income (loss) from investment
operations 1.07 1.05 1.00 (2.28) (4.06) 2.04
------------ --------- --------- --------- --------- ---------
Less dividends and distributions from:
Net investment income (0.07) (0.03) - - - -
Net realized gain - - - - - (0.03)
------------ --------- --------- --------- --------- ---------
Total dividends and distributions (0.07) (0.03) - - - (0.03)
------------ --------- --------- --------- --------- ---------
Net asset value, end of period $ 12.62 $ 11.62 $ 10.60 $ 9.60 $ 11.88 $ 15.94
============ ========= ========= ========= ========= =========
TOTAL RETURN+ 9.23%(3) 9.88% 10.42% (19.19)% (25.47)% 14.69%
RATIOS TO AVERAGE NET ASSETS(1)(2):
Expenses 1.40%(4) 1.46% 1.50% 1.50% 1.50% 1.50%
Net investment income (loss) 1.04%(4) 0.27% 0.31% (0.04)% (0.22)% (0.26)%
SUPPLEMENTAL DATA:
Net assets, end of period, in millions $ 1,058 $ 1,108 $ 1,160 $ 1,169 $ 1,544 $ 2,036
Portfolio turnover rate 1%(3) 2% 2% 12% 4% 5%
</Table>
- ----------
++ THE PER SHARE AMOUNTS WERE COMPUTED USING AN AVERAGE NUMBER OF SHARES
OUTSTANDING DURING THE PERIOD.
+ DOES NOT REFLECT THE DEDUCTION OF SALES CHARGE. CALCULATED BASED ON THE NET
ASSET VALUE AS OF THE LAST BUSINESS DAY OF THE PERIOD.
(1) IF THE FUND HAD BORNE ALL OF ITS EXPENSES THAT WERE REIMBURSED OR WAIVED BY
THE INVESTMENT ADVISER, THE ANNUALIZED EXPENSE AND NET INVESTMENT INCOME
(LOSS) RATIOS WOULD HAVE BEEN AS FOLLOWS:
<Table>
<Caption>
EXPENSE NET INVESTMENT
PERIOD ENDED: RATIO INCOME (LOSS) RATIO
----------------- ------- -------------------
FEBRUARY 28, 2005 1.40% 1.04%
AUGUST 31, 2004 1.53% 0.20%
AUGUST 31, 2003 1.62% 0.19%
AUGUST 31, 2002 1.57% (0.11)%
AUGUST 31, 2001 1.53% (0.25)%
AUGUST 31, 2000 1.51% (0.27)%
</Table>
(2) REFLECTS OVERALL FUND RATIOS FOR INVESTMENT INCOME AND NON-CLASS SPECIFIC
EXPENSES.
(3) NOT ANNUALIZED.
(4) ANNUALIZED.
SEE NOTES TO FINANCIAL STATEMENTS
29
<Page>
<Table>
<Caption>
FOR THE SIX FOR THE YEAR ENDED AUGUST 31,
MONTH ENDED -------------------------------------------------------------
FEBRUARY 28, 2005 2004 2003 2002 2001 2000
----------------- --------- --------- --------- --------- ---------
(UNAUDITED)
CLASS C SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period $ 11.61 $ 10.60 $ 9.60 $ 11.88 $ 15.94 $ 13.93
------------ --------- --------- --------- --------- ---------
Income (loss) from investment operations:
Net investment income (loss)++ 0.07 0.03 0.03 0.00 (0.03) (0.04)
Net realized and unrealized gain (loss) 1.02 1.01 0.97 (2.28) (4.03) 2.08
------------ --------- --------- --------- --------- ---------
Total income (loss) from investment
operations 1.09 1.04 1.00 (2.28) (4.06) 2.04
------------ --------- --------- --------- --------- ---------
Less dividends and distributions from:
Net investment income (0.08) (0.03) - - - -
Net realized gain - - - - - (0.03)
------------ --------- --------- --------- --------- ---------
Total dividends and distributions (0.08) (0.03) - - - (0.03)
------------ --------- --------- --------- --------- ---------
Net asset value, end of period $ 12.62 $ 11.61 $ 10.60 $ 9.60 $ 11.88 $ 15.94
============ ========= ========= ========= ========= =========
TOTAL RETURN+ 9.27%(3) 9.85% 10.42% (19.19)% (25.47)% 14.69%
RATIOS TO AVERAGE NET ASSETS(1)(2):
Expenses 1.28%(4) 1.46% 1.49% 1.49% 1.50% 1.50%
Net investment income (loss) 1.16%(4) 0.27% 0.32% (0.03)% (0.22)% (0.26)%
SUPPLEMENTAL DATA:
Net assets, end of period, in millions $ 170 $ 173 $ 161 $ 147 $ 169 $ 211
Portfolio turnover rate 1%(3) 2% 2% 12% 4% 5%
</Table>
- ----------
++ THE PER SHARE AMOUNTS WERE COMPUTED USING AN AVERAGE NUMBER OF SHARES
OUTSTANDING DURING THE PERIOD.
+ DOES NOT REFLECT THE DEDUCTION OF SALES CHARGE. CALCULATED BASED ON THE NET
ASSET VALUE AS OF THE LAST BUSINESS DAY OF THE PERIOD.
(1) IF THE FUND HAD BORNE ALL OF ITS EXPENSES THAT WERE REIMBURSED OR WAIVED BY
THE INVESTMENT ADVISER, THE ANNUALIZED EXPENSE AND NET INVESTMENT INCOME
(LOSS) RATIOS WOULD HAVE BEEN AS FOLLOWS:
<Table>
<Caption>
EXPENSE NET INVESTMENT
PERIOD ENDED: RATIO INCOME (LOSS) RATIO
----------------- ------- -------------------
FEBRUARY 28, 2005 1.28% 1.16%
AUGUST 31, 2004 1.53% 0.20%
AUGUST 31, 2003 1.61% 0.20%
AUGUST 31, 2002 1.56% (0.10)%
AUGUST 31, 2001 1.53% (0.25)%
AUGUST 31, 2000 1.51% (0.27)%
</Table>
(2) REFLECTS OVERALL FUND RATIOS FOR INVESTMENT INCOME AND NON-CLASS SPECIFIC
EXPENSES.
(3) NOT ANNUALIZED.
(4) ANNUALIZED.
SEE NOTES TO FINANCIAL STATEMENTS
30
<Page>
<Table>
<Caption>
FOR THE SIX FOR THE YEAR ENDED AUGUST 31,
MONTH ENDED -------------------------------------------------------------
FEBRUARY 28, 2005 2004 2003 2002 2001 2000
----------------- --------- --------- --------- --------- ---------
(UNAUDITED)
CLASS D SHARES
Selected Per Share Data:
Net asset value, beginning of period $ 12.14 $ 11.06 $ 10.00 $ 12.26 $ 16.28 $ 14.09
------------ --------- --------- --------- --------- ---------
Income (loss) from investment operations:
Net investment income++ 0.13 0.15 0.13 0.11 0.11 0.11
Net realized and unrealized gain (loss) 1.06 1.06 1.02 (2.37) (4.13) 2.11
------------ --------- --------- --------- --------- ---------
Total income (loss) from investment
operations 1.19 1.21 1.15 (2.26) (4.02) 2.22
------------ --------- --------- --------- --------- ---------
Less dividends and distributions from:
Net investment income (0.21) (0.13) (0.09) - - -
Net realized gain - - - - - (0.03)
------------ --------- --------- --------- --------- ---------
Total dividends and distributions (0.21) (0.13) (0.09) - - (0.03)
------------ --------- --------- --------- --------- ---------
Net asset value, end of period $ 13.12 $ 12.14 $ 11.06 $ 10.00 $ 12.26 $ 16.28
============ ========= ========= ========= ========= =========
TOTAL RETURN+ 9.76%(3) 10.97% 11.59% (18.43)% (24.69)% 15.81%
RATIOS TO AVERAGE NET ASSETS(1)(2):
Expenses 0.40%(4) 0.46% 0.50% 0.50% 0.50% 0.50%
Net investment income 2.04%(4) 1.27% 1.31% 0.96% 0.78% 0.74%
SUPPLEMENTAL DATA:
Net assets, end of period, in millions $ 197 $ 198 $ 180 $ 136 $ 118 $ 92
Portfolio turnover rate 1%(3) 2% 2% 12% 4% 5%
</Table>
- ----------
++ THE PER SHARE AMOUNTS WERE COMPUTED USING AN AVERAGE NUMBER OF SHARES
OUTSTANDING DURING THE PERIOD.
+ CALCULATED BASED ON THE NET ASSET VALUE AS OF THE LAST BUSINESS DAY OF THE
PERIOD.
(1) IF THE FUND HAD BORNE ALL OF ITS EXPENSES THAT WERE REIMBURSED OR 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 0.40% 2.04%
AUGUST 31, 2004 0.53% 1.20%
AUGUST 31, 2003 0.62% 1.19%
AUGUST 31, 2002 0.57% 0.89%
AUGUST 31, 2001 0.53% 0.75%
AUGUST 31, 2000 0.51% 0.73%
</Table>
(2) REFLECTS OVERALL FUND RATIOS FOR INVESTMENT INCOME AND NON-CLASS SPECIFIC
EXPENSES.
(3) NOT ANNUALIZED.
(4) ANNUALIZED.
SEE NOTES TO FINANCIAL STATEMENTS
31
<Page>
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
Wayne E. Hedien
James F. Higgins
Dr. Manuel H. Johnson
Joseph J. Kearns
Michael E. Nugent
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]
36007RPT-RA05-00302P-Y02/05
[GRAPHIC]
MORGAN STANLEY FUNDS
MORGAN STANLEY
S&P 500
INDEX FUND
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 S&P 500 Index Fund
/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