<Page>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-21248
Morgan Stanley Allocator Fund
(Exact name of registrant as specified in charter)
1221 Avenue of the Americas, New York, New York 10020
(Address of principal executive offices) (Zip code)
Ronald E. Robison
1221 Avenue of the Americas, New York, New York 10020
(Name and address of agent for service)
Registrant's telephone number, including area code: 212-762-4000
Date of fiscal year end: January 31, 2006
Date of reporting period: July 31, 2005
Item 1 - Report to Shareholders
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WELCOME, SHAREHOLDER:
IN THIS REPORT, YOU'LL LEARN ABOUT HOW YOUR INVESTMENT IN MORGAN STANLEY
ALLOCATOR 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.
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FUND REPORT
For the six months ended July 31, 2005
TOTAL RETURN FOR THE 6 MONTHS ENDED JULY 31, 2005
<Table>
<Caption>
LEHMAN LIPPER
BROTHERS U.S. FLEXIBLE
S&P 500(R) AGGREGATE PORTFOLIO
CLASS A CLASS B CLASS C CLASS D INDEX(1) INDEX(2) FUNDS INDEX(3)
4.28% 3.85% 3.98% 4.39% 5.44% 0.95% 4.49%
</Table>
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
U.S. economic expansion continued over the six-months ending July 31, 2005. With
the economy growing, payrolls expanding, albeit modestly, and a moderate pick up
in inflation, the Federal Open Market Committee (the "Fed") continued to tighten
monetary policy through four 25 basis point moves, raising the federal funds
target rate from 2.25 percent to 3.25 percent. The manufacturing sector, which
had been a prime area of concern for investors earlier in the year, regained
strength towards the end of the period as both the Industrial Production index
(which measures levels of output for manufacturing, mining, and utilities) and
the Institute for Supply Management manufacturing index pointed to a
re-acceleration in manufacturing.
Stock market performance was mostly positive at the sector level during the
period. All but one sector within the S&P 500(R) Index posted positive returns,
led by the energy, utilities and healthcare sectors. Materials was the only
sector that generated a negative return. Across the broader stock market,
small-caps and mid-caps more than doubled the return of their larger
counterparts for the period; and value stocks generally outperformed growth
securities.
The bond market continued to experience volatility during the period. After
reaching a high in March, long-term bond yields began to fall again until
reaching a low in June. Meanwhile, short-term yields continued to move up and
the yield curve continued to flatten throughout June, a situation which Federal
Reserve Chairman Alan Greenspan characterized as a "conundrum." However, after
the Fed raised the target rate an additional 25 basis points on June 30, 2005 to
3.25 percent, long-term yields began to rise again. Yields continued to rise
through July, and the yield on the 10-year Treasury ended the period at 4.2
percent.
PERFORMANCE ANALYSIS
Morgan Stanley Allocator Fund underperformed the S&P 500(R) Index, outperformed
the Lehman Brothers U.S. Aggregate Index and underperformed the Lipper Flexible
Portfolio Funds Index for the six-months ended July 31, 2005, assuming no
deduction of applicable sales charges.
During the reporting period, the Fund generally held an overweight position in
stocks and an underweight position in bonds relative to many of its Lipper group
peers. The Fund's overall performance benefited from this emphasis on stocks, as
the S&P 500(R) Index outperformed the Lehman Brothers U.S. Aggregate Index by a
substantial margin. However, sector allocation within the equity portion of the
Fund slowed its relative pace, especially in the first half of the period.
2
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Throughout the period, the Fund maintained a considerably underweighted position
in energy producers and a complementary overweighted position in select energy
consumers relative to the S&P 500(R) Index. This position was based on the
premise that oil prices were set to retreat after surging to record highs late
in 2004. As commodity prices, including oil, started to decline in the second
half of the reporting period, this stance benefited the Fund, although not
enough to fully offset the impact of this strategy during the earlier portion of
the period.
With the Fed showing no signs of slowing its "measured" pace of rate hikes, the
Fund was positioned for an increase in long-term bond yields. For example, the
Fund's equity portfolio was underweighted relative to the S&P 500(R) Index in
interest-rate sensitive sectors such as financials, real estate, and utilities.
However, although short-term rates rose in response to the Fed's actions,
long-term bond yields remained low. As a result, the interest-rate sensitive
sectors continued to outperform the S&P 500(R) Index, making this position a
hindrance to overall returns.
Also, during a majority of the period, the Fund included a small exposure to the
Japanese equity market. Japan had showed signs of an improved domestic outlook
and seemed situated to benefit from continued global growth. While Japan
performed well in local currency terms, the Fund's exposure had a negative
impact on performance, due to a strong rally in the U.S. dollar versus the yen.
The Fund closed out this position by the end of the period in anticipation of
continued dollar strength.
THERE IS NO GUARANTEE THAT ANY SECTORS MENTIONED WILL CONTINUE TO PERFORM WELL
OR THAT SECURITIES IN SUCH SECTORS WILL BE HELD BY THE FUND IN THE FUTURE.
TOP 10 HOLDINGS
<Table>
iShares GS InvesTop Corp. 4.0%
U.S.Treasury 4.0
General Electric Co. 3.1
Microsoft Corp. 2.5
Intel Corp. 1.7
Pfizer, Inc. 1.5
Johnson & Johnson 1.5
Exxon Mobil Corp. 1.4
Wal-Mart Stores, Inc. 1.4
Citigroup Inc. 1.3
</Table>
PORTFOLIO COMPOSITION*
<Table>
Common Stocks 89.0%
U.S. Government Agencies & Obligations 5.7
Convertible Corporate Notes/Bonds 2.3
Corporate Notes/Bonds 1.7
Asset-Backed 1.0
Convertible Preferred Stocks 0.2
Foreign Government Obligations 0.1
</Table>
DATA AS OF JULY 31, 2005. SUBJECT TO CHANGE DAILY. ALL PERCENTAGES FOR TOP10
HOLDINGS ARE AS A PERCENTAGE OF NET ASSETS. ALL PERCENTAGES FOR PORTFOLIO
COMPOSITION ARE AS A PERCENTAGE OF TOTAL 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.
* DOES NOT INCLUDE OUTSTANDING LONG FUTURES WITH AN UNDERLYING FACE AMOUNT OF
$4,955,055 AND OUTSTANDING SHORT FUTURES WITH AN UNDERLYING FACE AMOUNT OF
$9,420,844 WITH UNREALIZED NET APPRECIATION OF $71,484.
3
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INVESTMENT STRATEGY
THE FUND'S "INVESTMENT ADVISER," MORGAN STANLEY INVESTMENT ADVISORS INC.,
ACTIVELY ALLOCATES THE FUND'S ASSETS AMONG THE THREE MAJOR ASSET CATEGORIES OF
EQUITY SECURITIES (INCLUDING DEPOSITARY RECEIPTS), FIXED-INCOME SECURITIES AND
MONEY MARKET INSTRUMENTS, THE COMBINATION OF WHICH WILL BE VARIED FROM TIME TO
TIME BOTH WITH RESPECT TO INDUSTRY SECTOR WEIGHTINGS AND TYPES OF SECURITIES IN
RESPONSE TO CHANGING MARKET AND ECONOMIC TRENDS. THERE IS NO LIMIT AS TO THE
PERCENTAGE OF ASSETS THAT MAY BE ALLOCATED TO ANY ONE ASSET CLASS. THE FUND MAY
INVEST 100 PERCENT OF ITS ASSETS IN ANY ONE OF THE THREE MAJOR ASSET CATEGORIES
MENTIONED ABOVE AT ANY TIME. IT IS ANTICIPATED THAT THERE WILL BE SIGNIFICANT
FLUCTUATIONS IN THE ALLOCATIONS OVER TIME AND THUS, THE FUND MAY EXHIBIT HIGHER
VOLATILITY THAN OTHER FUNDS.
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.
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.
PROXY VOTING POLICY AND PROCEDURES AND PROXY VOTING RECORD
YOU MAY OBTAIN A COPY OF THE FUND'S PROXY VOTING POLICY AND PROCEDURES WITHOUT
CHARGE, UPON REQUEST, BY CALLING TOLL FREE 800-869-NEWS OR BY VISITING THE
MUTUAL FUND CENTER ON OUR WEB SITE AT www.morganstanley.com. IT IS ALSO
AVAILABLE ON THE SECURITIES AND EXCHANGE COMMISSION'S WEB SITE AT
http://www.sec.gov.
YOU MAY OBTAIN INFORMATION REGARDING HOW THE FUND VOTED PROXIES RELATING TO
PORTFOLIO SECURITIES DURING THE MOST RECENT TWELVE-MONTH PERIOD ENDED JUNE 30 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
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PERFORMANCE SUMMARY
AVERAGE ANNUAL TOTAL RETURNS--PERIOD ENDED JULY 31, 2005
<Table>
<Caption>
CLASS A SHARES* CLASS B SHARES** CLASS C SHARES+ CLASS D SHARES++
(SINCE 02/26/03) (SINCE 02/26/03) (SINCE 02/26/03) (SINCE 02/26/03)
SYMBOL ALRAX ALRBX ALRCX ALRDX
1 YEAR 11.44%(4) 10.63%(4) 10.68%(4) 11.74%(4)
5.59(5) 5.63(5) 9.68(5) --
SINCE INCEPTION 10.19(4) 9.37(4) 9.39(4) 10.47(4)
7.77(5) 8.27(5) 9.39(5) --
</Table>
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH IS NO GUARANTEE OF
FUTURE RESULTS AND CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE FIGURES
SHOWN. FOR MOST RECENT MONTH-END PERFORMANCE FIGURES, PLEASE VISIT
www.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% FOR SHARES
REDEEMED WITHIN ONE YEAR OF PURCHASE.
++ CLASS D HAS NO SALES CHARGE.
(1) THE STANDARD & POOR'S 500 INDEX (S&P 500(R)) IS A BROAD-BASED INDEX, THE
PERFORMANCE OF WHICH IS BASED ON THE PERFORMANCE OF 500 WIDELY-HELD COMMON
STOCKS CHOSEN FOR MARKET SIZE, LIQUIDITY AND INDUSTRY GROUP REPRESENTATION.
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 LEHMAN BROTHERS U.S. AGGREGATE INDEX TRACKS THE PERFORMANCE OF ALL U.S.
GOVERNMENT AGENCY AND TREASURY SECURITIES, INVESTMENT-GRADE CORPORATE DEBT
SECURITIES, AGENCY MORTGAGE-BACKED SECURITIES, ASSET-BACKED SECURITIES AND
COMMERCIAL MORTGAGE-BACKED SECURITIES. INDEXES ARE UNMANAGED AND THEIR
RETURNS DO NOT INCLUDE ANY SALES CHARGES OR FEES. SUCH COSTS WOULD LOWER
PERFORMANCE. IT IS NOT POSSIBLE TO INVEST DIRECTLY IN AN INDEX.
(3) THE LIPPER FLEXIBLE PORTFOLIO FUNDS INDEX IS AN EQUALLY WEIGHTED
PERFORMANCE INDEX OF THE LARGEST QUALIFYING FUNDS (BASED ON NET ASSETS) IN
THE LIPPER FLEXIBLE PORTFOLIO FUNDS CLASSIFICATION. THE INDEX, WHICH IS
ADJUSTED FOR CAPITAL GAINS DISTRIBUTIONS AND INCOME DIVIDENDS, IS UNMANAGED
AND SHOULD NOT BE CONSIDERED AN INVESTMENT. THERE ARE CURRENTLY 30 FUNDS
REPRESENTED IN THIS INDEX.
(4) FIGURE SHOWN ASSUMES REINVESTMENT OF ALL DISTRIBUTIONS AND DOES NOT REFLECT
THE DEDUCTION OF ANY SALES CHARGES.
(5) FIGURE SHOWN ASSUMES REINVESTMENT OF ALL DISTRIBUTIONS AND THE DEDUCTION OF
THE MAXIMUM APPLICABLE SALES CHARGE. SEE THE FUND'S CURRENT PROSPECTUS FOR
COMPLETE DETAILS ON FEES AND SALES CHARGES.
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 advisory 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 02/01/05 - 07/31/05.
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 *
------------- ------------- ---------------
02/01/05 -
02/01/05 07/31/05 07/31/05
------------- ------------- ---------------
CLASS A
Actual (4.28% return) $ 1,000.00 $ 1,042.80 $ 6.69
Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,018.25 $ 6.61
CLASS B
Actual (3.85% return) $ 1,000.00 $ 1,038.50 $ 10.46
Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,014.53 $ 10.34
CLASS C
Actual (3.98% return) $ 1,000.00 $ 1,039.80 $ 10.47
Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,014.53 $ 10.34
CLASS D
Actual (4.39% return) $ 1,000.00 $ 1,043.90 $ 5.42
Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,019.49 $ 5.36
</Table>
- ----------
* EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO OF 1.32%, 2.07%,
2.07% AND 1.07% RESPECTIVELY, MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER
THE PERIOD, MULTIPLIED BY 181/365 (TO REFLECT THE ONE-HALF YEAR PERIOD).
6
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INVESTMENT ADVISORY AGREEMENT APPROVAL
NATURE, EXTENT AND QUALITY OF SERVICES
The Board reviewed and considered the nature and extent of the investment
advisory services provided by the Investment Adviser under the Advisory
Agreement, including portfolio management, investment research and equity and
fixed income securities trading. The Board also reviewed and considered the
nature and extent of the non-advisory, administrative services provided by the
Fund's Administrator under the Administration Agreement, including accounting,
clerical, bookkeeping, compliance, business management and planning, and the
provision of supplies, office space and utilities at the Adviser's expense. (The
Investment Adviser and the Administrator together are referred to as the
"Adviser" and the Advisory and Administration Agreements together are referred
to as the "Management Agreement.") The Board also compared the nature of the
services provided by the Adviser with similar services provided by
non-affiliated advisers as reported to the Board by Lipper Inc. ("Lipper").
The Board reviewed and considered the qualifications of the portfolio managers,
the senior administrative managers and other key personnel of the Adviser who
provide the administrative and investment advisory services to the Fund. The
Board determined that the Adviser's portfolio managers and key personnel are
well qualified by education and/or training and experience to perform the
services in an efficient and professional manner. The Board concluded that the
nature and extent of the advisory and administrative services provided were
necessary and appropriate for the conduct of the business and investment
activities of the Fund. The Board also concluded that the overall quality of the
advisory and administrative services was satisfactory.
PERFORMANCE RELATIVE TO COMPARABLE FUNDS MANAGED BY OTHER ADVISERS
The Board reviewed the Fund's performance for the one-year period ended November
30, 2004 and for the period from February 28, 2003 to November 30, 2004, as
shown in reports provided by Lipper (the "Lipper Reports"), compared to the
performance of comparable funds selected by Lipper (the "performance peer
group"), and noted that the Fund's performance was lower than its performance
peer group average for both periods. The Adviser informed the Board that in
order to try to improve performance the Adviser had restructured the portfolio
management team in January 2004 and implemented a revised investment strategy.
The Board concluded that the changes implemented by the Adviser were reasonably
designed to improve performance.
FEES AND EXPENSES RELATIVE TO COMPARABLE FUNDS MANAGED BY OTHER ADVISERS
The Board reviewed the management fee rate for the Fund and the total expense
ratio of the Fund and noted that: (i) the Fund's management fee rate was higher
than the average management fee rate for funds managed by other advisers (the
"expense peer group"), selected by Lipper, managed by other advisers with
investment strategies comparable to those of the Fund, as shown in the Lipper
Report for this Fund; but (ii) the Fund's total expense ratio was lower than the
average total expense ratio of the funds included in the Fund's expense peer
group. The Board concluded that the management fee rate was competitive in light
of the fact that the Adviser managed the Fund so that the total expense ratio of
the Fund was less than the total expense ratio of the funds in the expense peer
group average.
7
<Page>
BREAKPOINTS AND ECONOMIES OF SCALE
The Board reviewed the structure of the Fund's management fee schedule under the
Management Agreement and noted that it does not include any breakpoints. The
Board considered that the assets of the Fund were relatively small and its
potential growth was uncertain. The board concluded that it was premature to
consider adding breakpoints to the management fee schedule.
PROFITABILITY OF ADVISER AND AFFILIATES
The Board considered and reviewed information concerning the costs incurred and
profits realized by the Adviser and its affiliates during the last two years
from their relationship with the Fund and the Morgan Stanley Fund Complex and
reviewed with the Controller of the Adviser the cost allocation methodology used
to determine the Adviser's profitability. Based on their review of the
information they received, the Board concluded that the Adviser made no profit
from its operation of the Fund.
FALL-OUT BENEFITS
The Board considered so-called "fall-out benefits" derived by the Adviser and
its affiliates from their relationship with the Fund and the Morgan Stanley Fund
Complex, such as "float" benefits derived from handling of checks for purchases
and redemptions of Fund shares through a broker-dealer affiliate of the Adviser
and "soft dollar" benefits (discussed in the next section). The Board also
considered that a broker-dealer affiliate of the Adviser receives from the Fund
12b-1 fees for distribution and shareholder services. The Board also considered
that an affiliate of the Adviser, through a joint venture, receives revenue in
connection with trading done on behalf of the Fund through an electronic trading
system network ("ECN"). The Board concluded that the float benefits and the
above-referenced ECN-related revenue were relatively small and that the 12b-1
fees were competitive with those of other broker-dealer affiliates of investment
advisers of mutual funds.
SOFT DOLLAR BENEFITS
The Board considered whether the Adviser realizes any benefits as a result of
brokerage transactions executed through "soft dollar" arrangements. Under such
arrangements, brokerage commissions paid by the Fund and/or other funds managed
by the Adviser would be used to pay for research that a securities broker
obtains from third parties, or to pay for both research and execution services
from securities brokers who effect transactions for the Fund. The Adviser
informed the Board that it does not use Fund commissions to pay for third party
research. It does use commissions to pay for research which is bundled with
execution services. The Board recognized that the receipt of such research from
brokers may reduce the Adviser's costs but concluded that the receipt of such
research strengthens the investment management resources of the Adviser, which
may ultimately benefit the Fund and other funds in the Fund Complex.
8
<Page>
ADVISER FINANCIALLY SOUND AND FINANCIALLY CAPABLE OF MEETING THE FUND'S NEEDS
The Board considered whether the Adviser is financially sound and has the
resources necessary to perform its obligations under the Management Agreement.
The Board noted that the Adviser's operations remain profitable, although
increased expenses in recent years have reduced the Adviser's profitability. The
Board concluded that the Adviser has the financial resources necessary to
fulfill its obligations under the Management Agreement.
HISTORICAL RELATIONSHIP BETWEEN THE FUND AND THE ADVISER
The Board also reviewed and considered the historical relationship between the
Fund and the Adviser, including the organizational structure of the Adviser, the
policies and procedures formulated and adopted by the Adviser for managing the
Fund's operations and the Board's confidence in the competence and integrity of
the senior managers and key personnel of the Adviser. The Board concluded that
it is beneficial for the Fund to continue its relationship with the Adviser.
OTHER FACTORS AND CURRENT TRENDS
The Board considered the controls and procedures adopted and implemented by the
Adviser and monitored by the Fund's Chief Compliance Officer and concluded that
the conduct of business by the Adviser indicates a good faith effort on its part
to adhere to high ethical standards in the conduct of the Fund's business.
GENERAL CONCLUSION
After considering and weighing all of the above factors, the Board concluded it
would be in the best interest of the Fund and its shareholders to approve
renewal of the Management Agreement for another year.
9
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MORGAN STANLEY ALLOCATOR FUND
PORTFOLIO OF INVESTMENTS - JULY 31, 2005 (UNAUDITED)
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------------------------------------
COMMON STOCKS (88.8%)
ADVERTISING/MARKETING SERVICES (0.2%)
4,784 Interpublic Group of Companies, Inc. (The)* $ 59,800
2,029 Omnicom Group, Inc. 172,201
--------------
232,001
--------------
AEROSPACE & DEFENSE (1.4%)
8,375 Boeing Co. 552,834
2,122 General Dynamics Corp. 244,433
1,341 Goodrich Corp. 59,326
1,285 L-3 Communications Holdings, Inc. 100,526
4,626 Lockheed Martin Corp. 288,662
3,848 Northrop Grumman Corp. 213,372
4,787 Raytheon Co. 188,273
1,979 Rockwell Collins, Inc. 96,575
--------------
1,744,001
--------------
AGRICULTURAL COMMODITIES/MILLING (0.1%)
5,617 Archer-Daniels-Midland Co. 128,854
--------------
AIR FREIGHT/COURIERS (0.9%)
3,058 FedEx Corp. 257,147
11,380 United Parcel Service, Inc. (Class B) 830,399
--------------
1,087,546
--------------
AIRLINES (2.0%)
14,169 Alaska Air Group, Inc.* 495,632
26,932 AMR Corp.* 378,395
24,151 Delta Air Lines, Inc.* 71,487
52,452 Flyi Inc. 34,094
29,687 Frontier Airlines, Inc.* 364,556
9,702 JetBlue Airways Corp.* 203,742
37,382 Mesa Air Group, Inc.* 315,504
15,308 SkyWest, Inc. 317,641
21,082 Southwest Airlines Co. 299,154
--------------
2,480,205
--------------
ALTERNATIVE POWER GENERATION (0.0%)
2,202 Calpine Corp.* 7,311
--------------
ALUMINUM (0.1%)
4,012 Alcoa, Inc. 112,537
--------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
10
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------------------------------------
APPAREL/FOOTWEAR (0.5%)
2,272 Cintas Corp. $ 100,718
4,167 Coach, Inc.* 146,303
1,379 Jones Apparel Group, Inc. 42,156
1,241 Liz Claiborne, Inc. 51,638
2,905 Nike, Inc. (Class B) 243,439
676 Reebok International Ltd. 28,595
1,267 V.F. Corp. 74,804
--------------
687,653
--------------
APPAREL/FOOTWEAR RETAIL (0.4%)
10,197 Gap, Inc. (The) 215,259
4,571 Limited Brands, Inc. 111,441
3,023 Nordstrom, Inc. 111,881
5,206 TJX Companies, Inc. (The) 122,393
--------------
560,974
--------------
AUTO PARTS: O.E.M. (0.2%)
1,702 Dana Corp. 26,738
6,261 Delphi Corp. 33,183
1,687 Eaton Corp. 110,229
2,125 Johnson Controls, Inc. 122,060
1,532 Visteon Corp.* 13,635
--------------
305,845
--------------
AUTOMOTIVE AFTERMARKET (0.0%)
771 Cooper Tire & Rubber Co. 15,513
1,994 Goodyear Tire & Rubber Co. (The)* 34,716
--------------
50,229
--------------
BEVERAGES: ALCOHOLIC (0.3%)
6,643 Anheuser-Busch Companies, Inc. 294,617
1,397 Brown-Forman Corp. (Class B) 81,655
747 Molson Coors Brewing Co. (Class B) 46,837
--------------
423,109
--------------
BEVERAGES: NON-ALCOHOLIC (0.8%)
20,614 Coca-Cola Co. (The) 902,069
4,066 Coca-Cola Enterprises Inc. 95,551
2,155 Pepsi Bottling Group, Inc. (The) 62,840
--------------
1,060,460
--------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
11
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------------------------------------
BIOTECHNOLOGY (1.6%)
14,870 Amgen Inc.* $ 1,185,883
3,830 Biogen Idec Inc.* 150,481
2,624 Chiron Corp.* 95,068
2,672 Genzyme Corp.* 198,824
4,838 Gilead Sciences, Inc.* 216,791
3,482 MedImmune, Inc.* 98,924
498 Millipore Corp.* 30,512
--------------
1,976,483
--------------
BROADCASTING (0.2%)
6,065 Clear Channel Communications, Inc. 197,962
3,610 Univision Communications, Inc. (Class A)* 102,091
--------------
300,053
--------------
BUILDING PRODUCTS (0.2%)
2,387 American Standard Companies, Inc. 105,696
4,718 Masco Corp. 159,987
--------------
265,683
--------------
CABLE/SATELLITE TV (0.6%)
24,403 Comcast Corp. (Class A)* 749,904
--------------
CASINO/GAMING (0.2%)
1,273 Harrah's Entertainment, Inc. 100,236
3,826 International Game Technology 104,679
--------------
204,915
--------------
CHEMICALS: AGRICULTURAL (0.1%)
1,257 Monsanto Co. 84,684
--------------
CHEMICALS: MAJOR DIVERSIFIED (0.4%)
4,422 Dow Chemical Co. (The) 212,035
4,578 Du Pont (E.I.) de Nemours & Co. 195,389
396 Eastman Chemical Co. 21,934
598 Engelhard Corp. 17,157
557 Hercules Inc.* 7,798
1,065 Rohm & Haas Co. 49,054
--------------
503,367
--------------
CHEMICALS: SPECIALTY (0.1%)
1,079 Air Products & Chemicals, Inc. 64,481
571 Chemtura Corp. 8,988
1,523 Praxair, Inc. 75,221
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
12
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------------------------------------
340 Sigma-Aldrich Corp. $ 21,814
--------------
170,504
--------------
COMMERCIAL PRINTING/FORMS (0.1%)
698 Deluxe Corp. 27,920
2,933 Donnelley (R.R.) & Sons Co. 105,735
--------------
133,655
--------------
COMPUTER COMMUNICATIONS (1.2%)
5,699 Avaya Inc.* 58,871
74,395 Cisco Systems, Inc.* 1,424,664
1,056 QLogic Corp.* 32,789
--------------
1,516,324
--------------
COMPUTER PERIPHERALS (0.5%)
27,942 EMC Corp.* 382,526
1,488 Lexmark International, Inc. (Class A)* 93,298
4,268 Network Appliance, Inc.* 108,877
--------------
584,701
--------------
COMPUTER PROCESSING HARDWARE (2.1%)
9,404 Apple Computer, Inc.* 401,081
28,011 Dell, Inc.* 1,133,605
3,693 Gateway, Inc.* 14,698
33,966 Hewlett-Packard Co. 836,243
2,287 NCR Corp.* 79,382
39,748 Sun Microsystems, Inc.* 152,632
--------------
2,617,641
--------------
CONSTRUCTION MATERIALS (0.0%)
481 Vulcan Materials Co. 33,785
--------------
CONTAINERS/PACKAGING (0.1%)
558 Ball Corp. 21,176
529 Bemis Company, Inc. 14,283
736 Pactiv Corp.* 16,207
413 Sealed Air Corp.* 21,914
552 Temple-Inland Inc. 21,964
--------------
95,544
--------------
CONTRACT DRILLING (0.2%)
787 Nabors Industries, Ltd. (Bermuda)* 51,509
677 Noble Corp. (Cayman Islands) 45,481
567 Rowan Companies, Inc.* 19,369
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
13
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------------------------------------
1,602 Transocean Inc. (Cayman Islands)* $ 90,401
--------------
206,760
--------------
DATA PROCESSING SERVICES (1.0%)
1,454 Affiliated Computer Services, Inc. (Class A)* 72,656
6,554 Automatic Data Processing, Inc. 291,063
2,167 Computer Sciences Corp.* 99,205
1,637 Convergys Corp.* 23,818
8,744 First Data Corp. 359,728
2,178 Fiserv, Inc.* 96,638
4,250 Paychex, Inc. 148,368
3,260 SunGard Data Systems Inc.* 117,001
--------------
1,208,477
--------------
DEPARTMENT STORES (0.5%)
986 Dillard's, Inc. (Class A) 22,540
1,849 Federated Department Stores, Inc. 140,284
3,804 Kohl's Corp.* 214,355
3,302 May Department Stores Co. 135,547
2,951 Penney (J.C.) Co., Inc. 165,669
--------------
678,395
--------------
DISCOUNT STORES (2.3%)
1,365 Big Lots, Inc.* 17,704
4,085 Costco Wholesale Corp. 187,787
3,765 Dollar General Corp. 76,505
1,897 Family Dollar Stores, Inc. 48,943
1,381 Sears Holdings Corp.* 212,992
9,775 Target Corp. 574,281
35,784 Wal-Mart Stores, Inc. 1,765,940
--------------
2,884,152
--------------
DRUGSTORE CHAINS (0.5%)
6,927 CVS Corp. 214,945
8,744 Walgreen Co. 418,488
--------------
633,433
--------------
ELECTRIC UTILITIES (1.1%)
2,548 AES Corp. (The)* 40,895
563 Allegheny Energy, Inc.* 16,046
764 Ameren Corp. 42,494
1,500 American Electric Power Co., Inc. 58,050
1,265 CenterPoint Energy, Inc. 17,381
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
14
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------------------------------------
773 Cinergy Corp. $ 34,128
801 CMS Energy Corp.* 12,688
949 Consolidated Edison, Inc. 45,704
693 Constellation Energy Group, Inc. 41,726
1,311 Dominion Resources, Inc. 96,830
680 DTE Energy Co. 31,960
3,541 Duke Energy Corp. 104,601
1,273 Edison International 52,040
831 Entergy Corp. 64,768
2,549 Exelon Corp. 136,422
1,288 FirstEnergy Corp. 64,117
1,530 FPL Group, Inc. 65,974
1,439 PG&E Corp. 54,150
403 Pinnacle West Capital Corp. 18,457
741 PPL Corp. 45,631
972 Progress Energy, Inc. 43,361
932 Public Service Enterprise Group, Inc. 59,928
2,869 Southern Co. (The) 100,386
847 TECO Energy, Inc. 16,059
936 TXU Corp. 81,095
1,569 Xcel Energy, Inc. 30,454
--------------
1,375,345
--------------
ELECTRICAL PRODUCTS (0.4%)
2,164 American Power Conversion Corp. 60,830
1,042 Cooper Industries Ltd. (Class A) (Bermuda) 67,292
4,428 Emerson Electric Co. 291,362
2,007 Molex Inc. 56,678
--------------
476,162
--------------
ELECTRONIC COMPONENTS (0.1%)
2,187 Jabil Circuit, Inc.* 68,213
6,246 Sanmina-SCI Corp.* 29,856
11,178 Solectron Corp.* 42,924
--------------
140,993
--------------
ELECTRONIC EQUIPMENT/INSTRUMENTS (0.5%)
5,029 Agilent Technologies, Inc.* 131,961
16,650 JDS Uniphase Corp.* 25,142
1,965 Rockwell Automation, Inc. 101,217
1,800 Scientific-Atlanta, Inc. 69,300
2,794 Symbol Technologies, Inc. 32,522
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
15
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------------------------------------
1,024 Tektronix, Inc. $ 25,661
1,606 Thermo Electron Corp.* 47,955
11,278 Xerox Corp.* 148,982
--------------
582,740
--------------
ELECTRONIC PRODUCTION EQUIPMENT (0.5%)
21,316 Applied Materials, Inc. 393,493
2,556 KLA-Tencor Corp. 132,145
1,845 Novellus Systems, Inc.* 53,228
2,675 Teradyne, Inc.* 41,543
--------------
620,409
--------------
ELECTRONICS/APPLIANCE STORES (0.3%)
3,620 Best Buy Co., Inc. 277,292
2,187 Circuit City Stores - Circuit City Group 39,913
1,768 RadioShack Corp. 41,495
--------------
358,700
--------------
ELECTRONICS/APPLIANCES (0.1%)
3,208 Eastman Kodak Co. 85,782
946 Maytag Corp. 15,959
759 Whirlpool Corp. 60,705
--------------
162,446
--------------
ENGINEERING & CONSTRUCTION (0.0%)
972 Fluor Corp. 62,014
--------------
ENVIRONMENTAL SERVICES (0.2%)
4,466 Allied Waste Industries, Inc.* 38,318
6,617 Waste Management, Inc. 186,070
--------------
224,388
--------------
FINANCE/RENTAL/LEASING (1.6%)
1,742 Capital One Financial Corp. 143,715
1,489 CIT Group, Inc. 65,724
6,341 Countrywide Financial Corp. 228,276
10,471 Fannie Mae 584,910
7,471 Freddie Mac 472,765
8,759 MBNA Corp. 220,376
680 PHH Corp. 19,237
2,082 Providian Financial Corp.* 39,350
733 Ryder System, Inc. 28,580
2,899 SLM Corp. 149,270
--------------
1,952,203
--------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
16
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------------------------------------
FINANCIAL CONGLOMERATES (2.7%)
8,091 American Express Co. $ 445,005
35,944 Citigroup, Inc.+ 1,563,564
24,312 JPMorgan Chase & Co. 854,324
2,051 Principal Financial Group, Inc. 90,141
3,607 Prudential Financial, Inc.* 241,308
3,192 State Street Corp. 158,770
--------------
3,353,112
--------------
FINANCIAL PUBLISHING/SERVICES (0.3%)
1,842 Equifax, Inc. 67,049
4,145 McGraw-Hill Companies, Inc. (The) 190,711
1,928 Moody's Corp. 91,214
--------------
348,974
--------------
FOOD DISTRIBUTORS (0.2%)
5,417 SYSCO Corp. 195,337
--------------
FOOD RETAIL (0.3%)
3,223 Albertson's, Inc. 68,682
6,229 Kroger Co.* 123,646
3,872 Safeway Inc. 94,090
1,187 Supervalu, Inc. 42,020
--------------
328,438
--------------
FOOD: MAJOR DIVERSIFIED (1.2%)
3,490 Campbell Soup Co. 107,667
4,475 ConAgra Foods Inc. 101,627
3,158 General Mills, Inc. 149,689
2,996 Heinz (H.J.) Co. 110,193
3,519 Kellogg Co. 159,446
14,349 PepsiCo, Inc. 782,451
6,737 Sara Lee Corp. 134,268
--------------
1,545,341
--------------
FOOD: SPECIALTY/CANDY (0.2%)
2,090 Hershey Foods Corp. 133,488
1,185 McCormick & Co., Inc. (Non-Voting) 41,214
1,925 Wrigley (Wm.) Jr. Co. 136,945
--------------
311,647
--------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
17
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------------------------------------
FOREST PRODUCTS (0.1%)
547 Louisiana-Pacific Corp. $ 14,671
1,148 Weyerhaeuser Co. 79,189
--------------
93,860
--------------
GAS DISTRIBUTORS (0.1%)
1,561 Dynegy, Inc. (Class A)* 8,679
632 KeySpan Corp. 25,716
181 Nicor Inc. 7,388
1,061 NiSource, Inc. 25,772
155 Peoples Energy Corp. 6,688
933 Sempra Energy 39,653
--------------
113,896
--------------
HOME BUILDING (0.2%)
1,414 Centex Corp. 104,608
918 KB Home 75,193
1,427 Pulte Homes, Inc. 133,596
--------------
313,397
--------------
HOME FURNISHINGS (0.1%)
2,152 Leggett & Platt, Inc. 54,424
3,108 Newell Rubbermaid, Inc. 77,296
--------------
131,720
--------------
HOME IMPROVEMENT CHAINS (1.3%)
23,800 Home Depot, Inc. (The) 1,035,538
8,553 Lowe's Companies, Inc. 566,380
1,575 Sherwin-Williams Co. 74,986
--------------
1,676,904
--------------
HOSPITAL/NURSING MANAGEMENT (0.3%)
4,297 HCA, Inc. 211,627
2,457 Health Management Associates, Inc. (Class A) 58,477
861 Manor Care, Inc. 32,684
4,672 Tenet Healthcare Corp.* 56,718
--------------
359,506
--------------
HOTELS/RESORTS/CRUISELINES (0.7%)
8,907 Carnival Corp. (Panama) 466,727
4,268 Hilton Hotels Corp. 105,633
2,467 Marriott International, Inc. (Class A) 168,915
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
18
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------------------------------------
2,390 Starwood Hotels & Resorts Worldwide, Inc.* $ 151,335
--------------
892,610
--------------
HOUSEHOLD/PERSONAL CARE (1.9%)
805 Alberto-Culver Co. 36,322
4,039 Avon Products, Inc. 132,116
1,350 Clorox Co. (The) 75,398
4,476 Colgate-Palmolive Co. 236,959
8,514 Gillette Co. (The) 456,946
466 International Flavors & Fragrances, Inc. 17,671
4,098 Kimberly-Clark Corp. 261,288
21,344 Procter & Gamble Co. (The) 1,187,367
--------------
2,404,067
--------------
INDUSTRIAL CONGLOMERATES (5.2%)
8,172 3M Co. 612,900
3,262 Danaher Corp. 180,878
111,809 General Electric Co. 3,857,411
8,984 Honeywell International, Inc. 352,892
1,830 Ingersoll-Rand Co. Ltd. (Class A) (Bermuda) 143,051
1,025 ITT Industries, Inc. 109,060
1,460 Textron, Inc. 108,288
21,262 Tyco International Ltd. (Bermuda) 647,853
10,803 United Technologies Corp. 547,712
--------------
6,560,045
--------------
INDUSTRIAL MACHINERY (0.3%)
3,085 Illinois Tool Works Inc. 264,230
1,335 Parker Hannifin Corp. 87,736
--------------
351,966
--------------
INDUSTRIAL SPECIALTIES (0.1%)
1,202 Ecolab Inc. 40,363
808 PPG Industries, Inc. 52,544
--------------
92,907
--------------
INFORMATION TECHNOLOGY SERVICES (1.4%)
1,943 Citrix Systems, Inc.* 46,302
5,809 Electronic Data Systems Corp. 119,491
18,677 International Business Machines Corp. 1,558,782
3,896 Unisys Corp.* 25,207
--------------
1,749,782
--------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
19
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------------------------------------
INSURANCE BROKERS/SERVICES (0.1%)
2,248 AON Corp. $ 57,189
3,682 Marsh & McLennan Companies, Inc. 106,668
--------------
163,857
--------------
INTEGRATED OIL (2.3%)
462 Amerada Hess Corp. 54,451
10,237 Chevron Corp. 593,848
6,793 ConocoPhillips 425,174
31,067 Exxon Mobil Corp. 1,825,186
--------------
2,898,659
--------------
INTERNET SOFTWARE/SERVICES (0.5%)
5,934 Siebel Systems, Inc. 49,846
15,591 Yahoo!, Inc.* 519,804
--------------
569,650
--------------
INVESTMENT BANKS/BROKERS (1.7%)
1,475 Bear Stearns Companies, Inc. (The) 150,612
4,937 E*TRADE Group, Inc.* 76,573
6,234 Goldman Sachs Group Inc. (The) 670,030
3,271 Lehman Brothers Holdings Inc. 343,880
12,320 Merrill Lynch & Co., Inc. 724,170
17,063 Schwab (Charles) Corp. (The) 233,763
--------------
2,199,028
--------------
INVESTMENT MANAGERS (0.4%)
1,021 Federated Investors, Inc. (Class B) 32,611
2,420 Franklin Resources, Inc. 195,584
2,246 Janus Capital Group, Inc. 33,735
4,080 Mellon Financial Corp. 124,277
1,266 Price (T.) Rowe Group, Inc. 83,999
--------------
470,206
--------------
INVESTMENT TRUSTS/MUTUAL FUNDS (4.0%)
34,950 iShares S&P Midcap 400 Index Fund 2,520,244
43,821 iShares S&P Smallcap 600 Index Fund 2,553,888
--------------
5,074,132
--------------
LIFE/HEALTH INSURANCE (0.5%)
3,467 AFLAC, Inc. 156,362
962 Jefferson-Pilot Corp. 48,264
1,238 Lincoln National Corp. 59,795
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
20
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------------------------------------
5,066 MetLife, Inc. $ 248,943
736 Torchmark Corp.* 38,471
2,106 UnumProvident Corp. 40,330
--------------
592,165
--------------
MAJOR BANKS (2.9%)
27,787 Bank of America Corp. 1,211,513
7,484 Bank of New York Co., Inc. (The) 230,358
3,775 BB&T Corp. 157,871
1,194 Comerica, Inc. 72,953
1,643 Huntington Bancshares, Inc. 40,976
2,846 KeyCorp 97,447
4,150 National City Corp. 153,177
1,959 PNC Financial Services Group 107,392
3,205 Regions Financial Corp. 107,816
2,348 SunTrust Banks, Inc. 170,747
10,892 Wachovia Corp. 548,739
11,659 Wells Fargo & Co. 715,163
--------------
3,614,152
--------------
MAJOR TELECOMMUNICATIONS (2.2%)
2,786 ALLTEL Corp. 185,269
7,360 AT&T Corp. 145,728
16,868 BellSouth Corp. 465,557
30,436 SBC Communications, Inc. 744,160
13,594 Sprint Corp. 365,679
25,535 Verizon Communications Inc. 874,063
--------------
2,780,456
--------------
MANAGED HEALTH CARE (1.3%)
2,829 Aetna, Inc. 218,965
4,382 Caremark Rx, Inc.* 195,350
1,275 CIGNA Corp. 136,106
1,612 Humana, Inc.* 64,238
12,351 UnitedHealth Group, Inc. 645,957
5,965 WellPoint Inc.* 421,964
--------------
1,682,580
--------------
MEDIA CONGLOMERATES (2.1%)
23,047 Disney (Walt) Co. (The)* 590,925
36,151 News Corp Inc. (Class A) 592,153
51,831 Time Warner, Inc.* 882,164
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
21
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------------------------------------
17,816 Viacom Inc. (Class B) (Non-Voting) $ 596,658
--------------
2,661,900
--------------
MEDICAL DISTRIBUTORS (0.4%)
1,039 AmerisourceBergen Corp. 74,590
4,187 Cardinal Health, Inc. 249,461
2,915 McKesson Corp. 131,175
--------------
455,226
--------------
MEDICAL SPECIALTIES (2.1%)
3,400 Applera Corp. - Applied Biosystems Group 70,788
1,048 Bard (C.R.), Inc. 69,996
530 Bausch & Lomb, Inc. 44,865
6,039 Baxter International, Inc.* 237,152
2,459 Becton, Dickinson & Co. 136,155
2,478 Biomet, Inc. 94,486
8,115 Boston Scientific Corp.* 234,929
1,196 Fisher Scientific International, Inc.* 80,192
3,156 Guidant Corp. 217,133
1,571 Hospira, Inc.* 60,091
11,756 Medtronic, Inc. 634,119
1,440 Pall Corp. 44,597
1,292 PerkinElmer, Inc. 27,106
3,520 St. Jude Medical, Inc.* 166,883
3,926 Stryker Corp.* 212,357
1,171 Waters Corp.* 53,023
2,405 Zimmer Holdings, Inc.* 198,076
--------------
2,581,948
--------------
MISCELLANEOUS COMMERCIAL SERVICES (0.0%)
1,506 Sabre Holdings Corp. (Class A) 28,915
--------------
MISCELLANEOUS MANUFACTURING (0.1%)
2,260 Dover Corp. 93,248
--------------
MOTOR VEHICLES (0.5%)
20,363 Ford Motor Co. 218,699
6,256 General Motors Corp. 230,346
3,150 Harley-Davidson, Inc. 167,549
--------------
616,594
--------------
MULTI-LINE INSURANCE (1.1%)
17,930 American International Group, Inc. 1,079,386
2,050 Hartford Financial Services Group, Inc. (The) 165,169
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
22
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------------------------------------
1,115 Loews Corp. $ 93,247
902 Safeco Corp. 49,556
--------------
1,387,358
--------------
OFFICE EQUIPMENT/SUPPLIES (0.1%)
1,355 Avery Dennison Corp. 76,788
2,641 Pitney Bowes, Inc. 117,736
--------------
194,524
--------------
OIL & GAS PIPELINES (0.1%)
3,208 El Paso Corp. 38,496
610 Kinder Morgan, Inc. 54,205
2,850 Williams Companies, Inc. (The) 60,534
--------------
153,235
--------------
OIL & GAS PRODUCTION (0.7%)
1,162 Anadarko Petroleum Corp. 102,663
1,603 Apache Corp. 109,645
1,882 Burlington Resources, Inc. 120,655
2,311 Devon Energy Corp. 129,624
1,195 EOG Resources, Inc. 73,015
1,157 Kerr-McGee Corp. 92,803
1,944 Occidental Petroleum Corp. 159,952
1,340 Unocal Corp. 86,899
1,737 XTO Energy Inc. 60,951
--------------
936,207
--------------
OIL REFINING/MARKETING (0.2%)
382 Ashland Inc, 23,474
1,800 Marathon Oil Corp. 105,048
344 Sunoco, Inc. 43,251
1,246 Valero Energy Corp. 103,144
--------------
274,917
--------------
OILFIELD SERVICES/EQUIPMENT (0.5%)
1,669 Baker Hughes Inc. 94,365
812 BJ Services Co. 49,524
2,461 Halliburton Co. 137,939
858 National-Oilwell, Inc.* 44,916
2,874 Schlumberger Ltd. (Netherlands Antilles) 240,669
--------------
567,413
--------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
23
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------------------------------------
OTHER CONSUMER SERVICES (0.9%)
2,006 Apollo Group, Inc. (Class A)* $ 150,751
1,827 Block (H.&R.), Inc. 104,066
11,457 Cendant Corp. 244,722
14,925 eBay, Inc.* 623,567
--------------
1,123,106
--------------
OTHER CONSUMER SPECIALTIES (0.1%)
1,606 Fortune Brands, Inc. 151,847
--------------
OTHER METALS/MINERALS (0.0%)
456 Phelps Dodge Corp. 48,541
--------------
PACKAGED SOFTWARE (3.9%)
5,467 Adobe Systems, Inc. 162,042
2,583 Autodesk, Inc. 88,313
2,547 BMC Software, Inc.* 48,622
6,641 Computer Associates International, Inc. 182,295
4,453 Compuware Corp.* 37,539
2,157 Intuit Inc.* 103,536
996 Mercury Interactive Corp.* 39,213
121,340 Microsoft Corp. 3,107,517
4,355 Novell, Inc.* 26,478
57,683 Oracle Corp.* 783,335
3,274 Parametric Technology Corp.* 22,591
13,347 Symantec Corp.* 293,234
--------------
4,894,715
--------------
PERSONNEL SERVICES (0.1%)
1,601 Monster Worldwide, Inc.* 48,622
2,343 Robert Half International, Inc. 79,404
--------------
128,026
--------------
PHARMACEUTICALS: GENERIC DRUGS (0.1%)
2,685 Mylan Laboratories, Inc. 46,612
1,098 Watson Pharmaceuticals, Inc.* 36,673
--------------
83,285
--------------
PHARMACEUTICALS: MAJOR (5.7%)
15,104 Abbott Laboratories 704,300
19,042 Bristol-Myers Squibb Co. 475,669
28,952 Johnson & Johnson 1,851,770
11,036 Lilly (Eli) & Co. 621,548
21,481 Merck & Co., Inc. 667,200
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
24
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------------------------------------
72,421 Pfizer, Inc. $ 1,919,157
14,367 Schering-Plough Corp. 299,121
13,020 Wyeth 595,665
--------------
7,134,430
--------------
PHARMACEUTICALS: OTHER (0.2%)
1,270 Allergan, Inc. 113,500
3,458 Forest Laboratories, Inc.* 138,043
2,411 King Pharmaceuticals, Inc.* 26,883
--------------
278,426
--------------
PRECIOUS METALS (0.1%)
846 Freeport-McMoRan Copper & Gold, Inc. (Class B) 34,077
2,098 Newmont Mining Corp. 78,780
--------------
112,857
--------------
PROPERTY - CASUALTY INSURERS (0.8%)
2,006 ACE Ltd. (Cayman Islands) 92,697
4,617 Allstate Corp. (The) 282,837
1,349 Chubb Corp. (The) 119,818
1,179 Cincinnati Financial Corp. 48,598
1,374 Progressive Corp. (The) 136,974
4,656 St. Paul Travelers Companies, Inc. (The) 204,957
991 XL Capital Ltd. (Class A) (Cayman Islands) 71,174
--------------
957,055
--------------
PUBLISHING: BOOKS/MAGAZINES (0.0%)
559 Meredith Corp. 27,671
--------------
PUBLISHING: NEWSPAPERS (0.4%)
934 Dow Jones & Co., Inc. 35,053
2,761 Gannett Co., Inc. 201,443
851 Knight-Ridder, Inc. 53,239
1,649 New York Times Co. (The) (Class A) 51,976
3,513 Tribune Co. 128,225
--------------
469,936
--------------
PULP & PAPER (0.1%)
1,216 Georgia-Pacific Corp. 41,526
2,308 International Paper Co. 72,933
965 MeadWestvaco Corp. 28,197
--------------
142,656
--------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
25
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------------------------------------
RAILROADS (0.6%)
4,480 Burlington Northern Santa Fe Corp. $ 243,040
2,643 CSX Corp. 120,362
4,761 Norfolk Southern Corp. 177,157
3,103 Union Pacific Corp. 218,172
--------------
758,731
--------------
REAL ESTATE INVESTMENT TRUSTS (0.8%)
1,346 Apartment Investment & Management Co. (Class A) 59,224
2,751 Archstone-Smith Trust 116,918
5,615 Equity Office Properties Trust 199,052
3,958 Equity Residential 159,903
2,566 Plum Creek Timber Co., Inc. 97,123
2,566 ProLogis 116,907
3,034 Simon Property Group, Inc. 241,931
--------------
991,058
--------------
RECREATIONAL PRODUCTS (0.3%)
1,102 Brunswick Corp.* 51,309
3,447 Electronic Arts, Inc.* 198,547
2,019 Hasbro, Inc. 44,297
4,660 Mattel, Inc.* 86,909
--------------
381,062
--------------
REGIONAL BANKS (0.9%)
2,497 AmSouth Bancorporation 69,691
877 Compass Bancshares, Inc. 42,280
3,605 Fifth Third Bancorp 155,376
878 First Horizon National Corp. 35,814
692 M&T Bank Corp. 75,089
1,506 Marshall & Ilsley Corp. 69,156
3,334 North Fork Bancorporation, Inc. 91,318
2,129 Northern Trust Corp. 108,153
2,201 Synovus Financial Corp. 65,084
12,664 U.S. Bancorp 380,680
634 Zions Bancorporation 45,318
--------------
1,137,959
--------------
RESTAURANTS (0.8%)
1,774 Darden Restaurants, Inc. 61,558
14,025 McDonald's Corp.* 437,159
4,403 Starbucks Corp.* 231,378
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
26
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------------------------------------
1,281 Wendy's International, Inc. $ 66,228
3,220 Yum! Brands, Inc. 168,567
--------------
964,890
--------------
SAVINGS BANKS (0.6%)
3,323 Golden West Financial Corp. 216,394
4,091 Sovereign Bancorp, Inc. 98,143
9,490 Washington Mutual, Inc. 403,135
--------------
717,672
--------------
SEMICONDUCTORS (3.5%)
5,149 Advanced Micro Devices, Inc.* 103,392
4,800 Altera Corp.* 104,976
4,817 Analog Devices, Inc. 188,826
4,313 Applied Micro Circuits Corp.* 12,982
3,811 Broadcom Corp. (Class A)* 162,996
5,160 Freescale Semiconductor Inc. (Class B)* 132,870
80,661 Intel Corp. 2,189,140
3,984 Linear Technology Corp. 154,818
5,192 LSI Logic Corp.* 50,674
4,302 Maxim Integrated Products, Inc. 180,125
8,192 Micron Technology, Inc.* 97,321
4,512 National Semiconductor Corp. 111,492
2,262 NVIDIA Corp.* 61,210
2,407 PMC - Sierra, Inc.* 23,661
21,657 Texas Instruments Inc. 687,826
4,572 Xilinx, Inc. 129,616
--------------
4,391,925
--------------
SERVICES TO THE HEALTH INDUSTRY (0.3%)
1,479 Express Scripts, Inc.* 77,352
2,259 IMS Health Inc. 61,513
1,342 Laboratory Corp. of America Holdings* 67,999
2,696 Medco Health Solutions Inc.* 130,594
1,990 Quest Diagnostics Inc. 102,167
--------------
439,625
--------------
SPECIALTY INSURANCE (0.1%)
766 Ambac Financial Group, Inc. 55,029
958 MBIA Inc. 58,189
1,058 MGIC Investment Corp. 72,558
--------------
185,776
--------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
27
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------------------------------------
SPECIALTY STORES (0.5%)
3,022 AutoNation, Inc.* $ 65,245
901 AutoZone, Inc.* 87,793
3,255 Bed Bath & Beyond Inc.* 149,405
3,564 Office Depot, Inc.* 101,146
1,063 OfficeMax Inc. 31,571
8,162 Staples, Inc. 185,849
1,629 Tiffany & Co. 55,435
--------------
676,444
--------------
SPECIALTY TELECOMMUNICATIONS (0.1%)
1,300 CenturyTel, Inc. 44,681
3,337 Citizens Communications Co. 43,848
17,848 Qwest Communications International, Inc.* 68,179
--------------
156,708
--------------
STEEL (0.1%)
476 Allegheny Technologies Inc. 13,837
754 Nucor Corp. 41,809
564 United States Steel Corp. 24,055
--------------
79,701
--------------
TELECOMMUNICATION EQUIPMENT (1.6%)
1,330 ADC Telecommunications, Inc.* 34,766
1,867 Andrew Corp.* 20,518
6,896 CIENA Corp.* 15,447
2,380 Comverse Technology, Inc.* 60,190
16,683 Corning, Inc.* 317,811
52,051 Lucent Technologies Inc.* 152,509
28,599 Motorola, Inc. 605,727
19,088 QUALCOMM Inc. 753,785
5,409 Tellabs, Inc.* 52,575
--------------
2,013,328
--------------
TOBACCO (1.1%)
17,705 Altria Group, Inc. 1,185,527
1,274 Reynolds American, Inc. 106,137
1,448 UST, Inc. 66,637
--------------
1,358,301
--------------
TOOLS/HARDWARE (0.1%)
903 Black & Decker Corp. 81,550
686 Snap-On, Inc. 25,162
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
28
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------------------------------------
938 Stanley Works (The) $ 45,896
--------------
152,608
--------------
TRUCKS/CONSTRUCTION/FARM MACHINERY (0.6%)
7,246 Caterpillar Inc. 390,632
508 Cummins Inc. 43,404
2,603 Deere & Co. 191,399
811 Navistar International Corp.* 27,696
1,836 PACCAR, Inc. 132,596
--------------
785,727
--------------
WHOLESALE DISTRIBUTORS (0.1%)
1,950 Genuine Parts Co. 89,276
1,020 Grainger (W.W.), Inc. 63,566
--------------
152,842
--------------
WIRELESS TELECOMMUNICATIONS (0.3%)
10,304 Nextel Communications, Inc. (Class A)* 358,579
--------------
TOTAL COMMON STOCKS
(COST $101,921,192) 111,759,951
--------------
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE
- --------- ------ --------
CORPORATE BONDS (1.7%)
ADVERTISING/MARKETING SERVICES (0.0%)
$ 20 Interpublic Group of Companies, Inc. (The) 5.40% 11/15/09 19,061
10 WPP Finance Corp.(United Kingdom) 5.875 06/15/14 10,341
--------------
29,402
--------------
AEROSPACE & DEFENSE (0.1%)
15 Northrop Grumman Corp. 4.079 11/16/06 14,895
34 Systems 2001 Asset Trust - 144A**
(Cayman Islands) 6.664 09/15/13 36,773
--------------
51,668
--------------
AIR FREIGHT/COURIERS (0.0%)
10 Fedex Corp. 7.25 02/15/11 11,119
--------------
AUTO PARTS: O.E.M. (0.0%)
10 Lear Corp. (Series B) 8.11 05/15/09 10,371
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
29
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------
$ 10 Meritor Automotive Inc. 6.80% 02/15/09 $ 10,050
--------------
20,421
--------------
BEVERAGES: ALCOHOLIC (0.0%)
20 FBG Finance Ltd. - 144A** (Australia) 5.125 06/15/15 19,689
--------------
CABLE/SATELLITE TV (0.1%)
30 Comcast Cable Communications Inc. 6.75 01/30/11 32,660
20 Cox Communications, Inc. 4.625 01/15/10 19,676
30 Echostar DBS Corp. 6.375 10/01/11 30,038
--------------
82,374
--------------
CHEMICALS: MAJOR DIVERSIFIED (0.0%)
15 ICI Wilmington Inc. 4.375 12/01/08 14,748
--------------
CONTAINERS/PACKAGING (0.0%)
25 Sealed Air Corp. - 144A** 5.625 07/15/13 25,310
--------------
DEPARTMENT STORES (0.0%)
15 Penny (JC) Co., Inc. 7.40 04/01/37 16,412
--------------
ELECTRIC UTILITIES (0.2%)
20 Arizona Public Service Co. 5.80 06/30/14 21,051
25 Cincinnati Gas & Electric Co. 5.70 09/15/12 26,205
15 Consolidated Natural Gas Co. 5.00 12/01/14 14,923
15 Consolidated Natural Gas Co. (Series C) 6.25 11/01/11 16,103
15 Consumers Energy Co. (Series B) 5.375 04/15/13 15,298
5 Detroit Edison Co. (The) 6.125 10/01/10 5,318
15 Detroit Edison Co. (The) - 144A** 4.80 02/15/15 14,731
10 Entergy Gulf States, Inc. 3.60 06/01/08 9,705
10 Entergy Gulf States, Inc. 3.73++ 12/01/09 10,034
10 Exelon Corp. 6.75 05/01/11 10,927
20 Monongahela Power Co. 5.00 10/01/06 20,089
10 Pacific Gas & Electric Co. 4.80 03/01/14 9,896
5 Panhandle Eastern Pipe Line Co. (Series B) 2.75 03/15/07 4,858
30 PSEG Energy Holdings Inc. 8.625 02/15/08 32,175
15 Wisconsin Electric Power Co. 3.50 12/01/07 14,679
--------------
225,992
--------------
ELECTRONICS/APPLIANCES (0.0%)
10 LG Electronics Inc. - 144A** (South Korea) 5.00 06/17/10 9,840
--------------
FINANCE/RENTAL/LEASING (0.2%)
20 CIT Group, Inc. 3.65 11/23/07 19,619
20 Countrywide Home Loans, Inc. (Series MTN) 3.25 05/21/08 19,278
30 Ford Motor Credit Co. 7.25 10/25/11 29,563
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
30
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------
$ 15 Hertz Corp. 7.625% 06/01/12 $ 14,674
25 MBNA Corp. 3.64++ 05/05/08 25,226
20 MBNA Corp. 6.125 03/01/13 21,435
25 Nationwide Building Society - 144A**
(United Kingdom) 4.25 02/01/10 24,554
20 Residential Capital Corp. - 144A** 6.375 06/30/10 20,343
15 SLM Corp. 4.00 01/15/10 14,590
--------------
189,282
--------------
FINANCIAL CONGLOMERATES (0.2%)
50 Citigroup Inc. 5.625 08/27/12 52,395
45 General Electric Capital Corp. (Series MTNA) 5.45 01/15/13 46,909
55 General Motors Acceptance Corp. 6.875 09/15/11 53,146
20 General Motors Acceptance Corp. 8.00 11/01/31 19,452
65 J.P. Morgan Chase & Co. 6.625 03/15/12 71,199
--------------
243,101
--------------
FOOD: MAJOR DIVERSIFIED (0.0%)
15 Kraft Foods Inc. 5.625 11/01/11 15,684
--------------
GAS DISTRIBUTORS (0.1%)
20 NiSource Finance Corp. 3.854++ 11/23/09 20,101
25 Ras Laffan Liquid Natural Gas
Co. Ltd. - 144A** (Qatar) 8.294 03/15/14 29,375
10 Sempra Energy 4.621 05/17/07 10,001
--------------
59,477
--------------
HOME FURNISHINGS (0.0%)
10 Mohawk Industries, Inc. (Series D) 7.20 04/15/12 11,209
--------------
HOSPITAL/NURSING MANAGEMENT (0.0%)
30 HCA, Inc. 6.30 10/01/12 30,640
10 HCA, Inc. 7.875 02/01/11 11,002
--------------
41,642
--------------
HOTELS/RESORTS/CRUISELINES (0.0%)
25 Hyatt Equities LLC - 144A** 6.875 06/15/07 25,619
10 Starwood Hotels & Resorts Worldwide, Inc. 7.375 05/01/07 10,450
--------------
36,069
--------------
HOUSEHOLD/PERSONAL CARE (0.0%)
25 Clorox Co. (The) 3.525++ 12/14/07 25,050
--------------
INDUSTRIAL CONGLOMERATES (0.1%)
25 Hutchison Whampoa
International Ltd. - 144A** (Kyrgyzstan) 6.50 02/13/13 26,724
--------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
31
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------
INSURANCE BROKERS/SERVICES (0.1%)
$ 100 Farmers Exchange Capital - 144A** 7.05% 07/15/28 $ 105,336
30 Marsh & McLennan Companies, Inc. 5.375 07/15/14 29,047
--------------
134,383
--------------
MAJOR TELECOMMUNICATIONS (0.1%)
25 AT&T Corp. 9.75 11/15/31 32,500
20 Deutsche Telekom International Finance
Corp. NV (Netherlands) 8.75 06/15/30 26,836
20 France Telecom S.A. (France) 8.75 03/01/31 27,629
10 Sprint Capital Corp. 8.75 03/15/32 13,803
25 Telecom Italia Capital SpA - 144A**
(Luxembourg) 4.00 01/15/10 24,147
--------------
124,915
--------------
MANAGED HEALTH CARE (0.1%)
30 Aetna, Inc. 7.875 03/01/11 34,397
25 Health Net, Inc. 9.875 04/15/11 29,366
10 WellPoint Inc. 3.75 12/14/07 9,801
10 WellPoint Inc. 4.25 12/15/09 9,822
--------------
83,386
--------------
MEDIA CONGLOMERATES (0.0%)
10 News America Holdings, Inc. 7.28 06/30/28 11,490
15 Time Warner, Inc. 7.70 05/01/32 18,801
--------------
30,291
--------------
MEDICAL SPECIALTIES (0.0%)
15 Fisher Scientific International, Inc. 6.75 08/15/14 15,863
--------------
MISCELLANEOUS COMMERCIAL SERVICES (0.0%)
30 Iron Mountain Inc. 7.75 01/15/15 31,050
--------------
MOTOR VEHICLES (0.1%)
15 DaimlerChrysler North American Holdings Co. 8.50 01/18/31 19,284
40 General Motors Corp. 8.375 07/15/33 36,300
--------------
55,584
--------------
MULTI-LINE INSURANCE (0.1%)
60 AIG Sun America Global Finance VI - 144A** 6.30 05/10/11 64,397
15 American General Finance Corp.
(Series MTNI) 4.625 05/15/09 14,882
10 AXA Financial Inc. 6.50 04/01/08 10,493
--------------
89,772
--------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
32
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------
OTHER METALS/MINERALS (0.0%)
$ 15 Brascan Corp. (Canada) 7.125% 06/15/12 $ 16,613
--------------
PROPERTY - CASUALTY INSURERS (0.0%)
20 St. Paul Travelers 5.01 08/16/07 20,124
--------------
PULP & PAPER (0.1%)
20 Abitibi-Consolidated Inc. (Canada) 8.55 08/01/10 21,100
40 Abitibi-Consolidated Inc. (Canada) 8.85 08/01/30 39,200
45 Bowater Canada Finance (Canada) 7.95 11/15/11 47,925
10 Sappi Papier Holding AG - 144A** (Austria) 6.75 06/15/12 10,382
--------------
118,607
--------------
RAILROADS (0.0%)
13 Burlington North Santa Fe Railway Co. 4.575 01/15/21 12,896
15 Norfolk Southern Corp. 7.35 05/15/07 15,720
5 Union Pacific Corp. 6.625 02/01/08 5,243
15 Union Pacific Corp. 6.65 01/15/11 16,385
--------------
50,244
--------------
REAL ESTATE INVESTMENT TRUSTS (0.0%)
35 EOP Operating L.P. 4.75 03/15/14 33,983
--------------
REGIONAL BANKS (0.0%)
30 Marshall & Isley Bank (Series BKNT) 3.80 02/08/08 29,520
--------------
SAVINGS BANKS (0.1%)
45 Household Finance Corp. 8.00 07/15/10 51,074
23 Washington Mutual Inc. 8.25 04/01/10 25,994
--------------
77,068
--------------
SPECIALTY STORES (0.0%)
10 Autonation, Inc. 9.00 08/01/08 11,075
--------------
TOBACCO (0.0%)
20 Altria Group, Inc. 7.00 11/04/13 21,952
--------------
TRUCKS/CONSTRUCTION/FARM MACHINERY (0.0%)
45 Caterpillar Financial Services Corp.
(Series MTNF) 3.35++ 08/20/07 45,084
--------------
WIRELESS TELECOMMUNICATIONS (0.0%)
10 AT&T Wireless Services, Inc. 8.75 03/01/31 13,857
--------------
TOTAL CORPORATE BONDS
(COST $2,133,051) 2,158,584
--------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
33
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------
U.S. GOVERNMENT & AGENCIES OBLIGATIONS (5.7%)
Federal Home Loan Mortgage Corp.
$ 395 5.00% 05/01/20 $ 396,290
300 5.50 *** 306,000
Federal National Mortgage Assoc.
250 4.50 *** 245,938
250 6.00 *** 255,469
925 6.50 11/01/34 957,302
U.S. Treasury Bonds
965 6.125 08/15/29 1,189,363
85 6.375 08/15/27 106,476
U.S. Treasury Notes
600 3.50 11/15/06 596,883
400 4.25 08/15/13 400,625
2,300 5.625 05/15/08 2,395,057
U.S. Treasury Strips
400 0.00 02/15/25 163,239
375 0.00 02/15/27 140,507
--------------
TOTAL U.S. GOVERNMENT & AGENCIES OBLIGATIONS
(COST $7,171,674) 7,153,149
--------------
CONVERTIBLE BONDS (2.3%)
AIRLINES (0.3%)
350 Continental Airlines Inc. 5.00 06/15/23 352,188
--------------
ELECTRONIC EQUIPMENT/INSTRUMENTS (0.2%)
300 JDS Uniphase Corp. 0.00 11/15/10 236,250
--------------
FINANCIAL CONGLOMERATES (0.8%)
1,000 American Express Co. - 144A** 1.85# 12/01/33 1,032,500
--------------
FOOD: MAJOR DIVERSIFIED (0.2%)
300 General Mills Inc. 0.00 10/28/22 213,750
--------------
HOTELS/RESORTS/CRUISELINES (0.2%)
200 Starwood Hotels & Resorts Worldwide, Inc. 3.50 05/16/23 258,000
--------------
INTERNET RETAIL (0.2%)
300 Amazon.com, Inc. 4.75 02/01/09 291,000
--------------
OILFIELD SERVICES/EQUIPMENT (0.2%)
200 Schlumberger Ltd. (Netherlands Antilles) 2.125 06/01/23 234,500
--------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
34
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------
PHARMACEUTICALS: GENERIC DRUGS (0.2%)
$ 250 Ivax Corp. 1.50% 03/01/24 $ 277,500
--------------
TOTAL CONVERTIBLE BONDS
(COST $2,832,894) 2,895,688
--------------
ASSET-BACKED SECURITIES (1.0%)
FINANCE/RENTAL/LEASING
150 American Express Credit Account Master
Trust 2002-3 A 3.498++ 12/15/09 150,352
11 Asset Backed Funding Certificates
2004-HE1 A1 3.59++ 06/25/22 10,722
29 Capital Auto Receivables Asset Trust
2003-2 A3A 1.44 02/15/07 29,250
100 Capital Auto Receivables Asset Trust
2003-3 A3B 3.468++ 01/15/08 100,126
100 Citibank Credit Card Issuance Trust
2000-A1 A1 6.90 10/15/07 100,694
100 GE Capital Credit Card Master Note Trust
2004-1 A 3.27++ 06/15/10 100,129
100 GE Capital Credit Card Master Note Trust
2004-2 A 3.428++ 09/15/10 100,139
100 GE Dealer Floorplan Master Note Trust
2004-1 A 3.48++ 07/20/08 100,052
38 New Century Home Equity Loan Trust
2004-A AI11 2.598++ 08/25/34 37,671
51 Residential Asset Securities Corp.
2004-KSB AI1 3.62++ 10/25/22 51,109
70 SLM Student Loan Trust 2004-6 A2 2.74++ 01/25/13 70,535
150 SLM Student Loan Trust 2004-9 A2 2.72++ 10/25/12 149,934
25 TXU Electric Delivery Transition Bond Co.
LLC 2004-1 A2 4.81 11/17/14 25,117
54 USAA Auto Owner Trust 2004-2 A2 2.41 02/15/07 54,030
67 Wachovia Auto Owner Trust 2004-B A2 2.40 05/21/07 67,140
56 World Omni Auto Receivables Trust
2004-A A2 2.58 07/12/07 56,130
--------------
TOTAL ASSET-BACKED SECURITIES
(COST $1,206,075) 1,203,130
--------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
35
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------------------------------------
CONVERTIBLE PREFERRED STOCK (0.2%)
LIFE/HEALTH INSURANCE (0.2%)
8,800 MetLife, Inc. (Series B)
(COST $227,920) $ 243,496
--------------
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE
- --------- ------ --------
FOREIGN GOVERNMENT OBLIGATIONS (0.1%)
$ 30 Russian Federation (Russia) - 144A** 5.00% 03/31/30 33,375
125 United Mexican States (Mexico) 8.375 01/14/11 143,688
--------------
TOTAL FOREIGN GOVERNMENT OBLIGATIONS
(COST $171,803) 177,063
--------------
SHORT-TERM INVESTMENT (a) (0.0%)
U.S. GOVERNMENT OBLIGATION
50 U.S. Treasury Bills+
(COST $49,237) 3.35 01/12/06 49,237
--------------
TOTAL INVESTMENTS
(COST $115,713,846) (b) (c) 99.8% 125,640,298
OTHER ASSETS IN EXCESS OF LIABILITIES 0.2 273,322
----- --------------
NET ASSETS 100.0% $ 125,913,620
===== ==============
</Table>
- ----------
* NON-INCOME PRODUCING SECURITY.
** RESALE IS RESTRICTED TO QUALIFIED INSTITUTIONAL INVESTORS.
*** SECURITIES PURCHASED ON A FORWARD COMMITMENT BASIS WITH AN APPROXIMATE
PRINCIPAL AMOUNT AND NO DEFINITE MATURITY DATE; THE ACTUAL PRINCIPAL
AMOUNT AND THE MATURITY DATE WILL BE DETERMINED UPON SETTLEMENT.
+ ALL OR A PORTION OF THESE SECURITIES HAVE BEEN PHYSICALLY SEGREGATED IN
CONNECTION WITH OPEN FUTURES CONTRACTS IN THE AMOUNT OF $70,350.
++ RATE SHOWN IS THE RATE IN EFFECT AT JULY 31, 2005.
# CURRENTLY A 1.85% COUPON RATE; WILL CONVERT TO 0% ON DECEMBER 1, 2006.
(a) PURCHASED ON A DISCOUNT BASIS. THE INTEREST RATE SHOWN HAS BEEN ADJUSTED
TO REFLECT A MONEY MARKET EQUIVALENT YIELD.
(b) SECURITIES HAVE BEEN DESIGNATED AS COLLATERAL IN AN AMOUNT EQUAL TO
$15,253,812 IN CONNECTION WITH OPEN FUTURES CONTRACTS AND SECURITIES
PURCHASED ON A FORWARD COMMITMENT BASIS.
(c) THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES APPROXIMATES THE
AGGREGATE COST FOR BOOK PURPOSES. THE AGGREGATE GROSS UNREALIZED
APPRECIATION IS $14,185,502 AND THE AGGREGATE GROSS UNREALIZED
DEPRECIATION IS $4,259,050, RESULTING IN NET UNREALIZED APPRECIATION OF
$9,926,452.
SEE NOTES TO FINANCIAL STATEMENTS
36
<Page>
FUTURES CONTRACTS OPEN AT JULY 31, 2005:
<Table>
<Caption>
UNREALIZED
NUMBER OF DESCRIPTION, DELIVERY UNDERLYING FACE APPRECIATION/
CONTRACTS LONG/SHORT MONTH AND YEAR AMOUNT AT VALUE DEPRECIATION
- -----------------------------------------------------------------------------------------------
16 Long NASDAQ - 100 E-Mini
September 2005 $ 515,680 $ 8,920
17 Short U.S. Treasury Notes 2 Year,
September 2005 (3,510,234) 25,015
39 Short U.S. Treasury Notes 5 Year,
September 2005 (4,180,922) 57,173
40 Long U.S. Treasury Notes 10 Year,
September 2005 4,439,375 (41,641)
15 Short U.S. Treasury Notes 20 Year,
September 2005 (1,729,688) 22,017
---------
Net unrealized appreciation $ 71,484
=========
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
37
<Page>
MORGAN STANLEY ALLOCATOR FUND
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
JULY 31, 2005 (UNAUDITED)
<Table>
ASSETS:
Investments in securities, at value (cost $115,713,846) $ 125,640,298
Cash 60,848
Receivable for:
Investments sold 1,335,149
Interest 132,943
Dividends 121,437
Shares of beneficial interest sold 18,139
Variation margin 2,121
Prepaid expenses and other assets 53,906
---------------
TOTAL ASSETS 127,364,841
---------------
LIABILITIES:
Payable for:
Investments purchased 843,052
Shares of beneficial interest redeemed 375,874
Distribution fee 94,729
Investment advisory fee 71,979
Administration fee 8,594
Accrued expenses and other payables 56,993
---------------
TOTAL LIABILITIES 1,451,221
---------------
NET ASSETS $ 125,913,620
===============
COMPOSITION OF NET ASSETS:
Paid-in-capital $ 115,109,429
Net unrealized appreciation 9,997,936
Net investment loss (6,004)
Accumulated undistributed net realized gain 812,259
---------------
NET ASSETS $ 125,913,620
===============
CLASS A SHARES:
Net Assets $ 15,194,604
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE) 1,386,204
NET ASSET VALUE PER SHARE $ 10.96
===============
MAXIMUM OFFERING PRICE PER SHARE,
(NET ASSET VALUE PLUS 5.54% OF NET ASSET VALUE) $ 11.57
===============
CLASS B SHARES:
Net Assets $ 92,738,610
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE) 8,556,029
NET ASSET VALUE PER SHARE $ 10.84
===============
CLASS C SHARES:
Net Assets $ 14,483,372
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE) 1,336,609
NET ASSET VALUE PER SHARE $ 10.84
===============
CLASS D SHARES:
Net Assets $ 3,497,034
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE) 318,011
NET ASSET VALUE PER SHARE $ 11.00
===============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
38
<Page>
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JULY 31, 2005 (UNAUDITED)
<Table>
NET INVESTMENT LOSS:
INCOME
Dividends $ 1,037,762
Interest 281,764
---------------
TOTAL INCOME 1,319,526
---------------
EXPENSES
Distribution fee (Class A shares) 18,693
Distribution fee (Class B shares) 506,814
Distribution fee (Class C shares) 76,023
Investment advisory fee 455,764
Administration fee 54,419
Transfer agent fees and expenses 50,641
Professional fees 41,072
Registration fees 37,477
Custodian fees 33,949
Shareholder reports and notices 28,567
Trustees' fees and expenses 1,229
Other 24,100
---------------
TOTAL EXPENSES 1,328,748
---------------
NET INVESTMENT LOSS (9,222)
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
NET REALIZED GAIN/LOSS ON:
Investments 1,388,880
Futures contracts (11,469)
---------------
NET REALIZED GAIN 1,377,411
---------------
NET CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION ON:
Investments 3,532,316
Futures contracts 74,696
---------------
NET APPRECIATION 3,607,012
---------------
NET GAIN 4,984,423
---------------
NET INCREASE $ 4,975,201
===============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
39
<Page>
STATEMENT OF CHANGES IN NET ASSETS
<Table>
<Caption>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
JULY 31, 2005 JANUARY 31, 2005
---------------- ----------------
(UNAUDITED)
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income (loss) $ (9,222) $ 398,662
Net realized gain 1,377,411 14,693,417
Net change in unrealized appreciation 3,607,012 (11,134,676)
---------------- ----------------
NET INCREASE 4,975,201 3,957,403
---------------- ----------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A shares (30,984) (146,436)
Class B shares (108,494) (156,304)
Class C shares (21,257) (25,204)
Class D shares (8,269) (72,064)
Net realized gain
Class A shares (132,321) (1,657,944)
Class B shares (804,019) (11,996,031)
Class C shares (121,579) (1,697,139)
Class D shares (31,802) (630,134)
---------------- ----------------
TOTAL DIVIDENDS AND DISTRIBUTIONS (1,258,725) (16,381,256)
---------------- ----------------
Net decrease from transactions in shares of beneficial interest (32,603,258) (47,024,636)
---------------- ----------------
NET DECREASE (28,886,782) (59,448,489)
NET ASSETS:
Beginning of period 154,800,402 214,248,891
---------------- ----------------
END OF PERIOD
(INCLUDING A NET INVESTMENT LOSS OF $6,004 AND ACCUMULATED UNDISTRIBUTED
INVESTMENT INCOME OF $172,222, RESPECTIVELY) $ 125,913,620 $ 154,800,402
================ ================
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
40
<Page>
MORGAN STANLEY ALLOCATOR FUND
NOTES TO FINANCIAL STATEMENTS - JULY 31, 2005 (UNAUDITED)
1. ORGANIZATION AND ACCOUNTING POLICIES
Morgan Stanley Allocator Fund (the "Fund") is registered under the Investment
Company Act of 1940, as amended (the "Act"), as a non-diversified, open-end
management investment company. The Fund's investment objective is selecting
securities to maximize total investment return through different stages of an
economic cycle. The Fund was organized as a Massachusetts business trust on
October 25, 2002 and commenced operations on February 26, 2003.
The Fund offers Class A shares, Class B shares, Class C shares and Class D
shares. The four classes are substantially the same except that most Class A
shares are subject to a sales charge imposed at the time of purchase and some
Class A shares, and most Class B shares and Class C shares are subject to a
contingent deferred sales charge imposed on shares redeemed within eighteen
months, 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.
Effective August 29, 2005, the Board of Trustees of the Fund approved the
implementation of a 2% redemption fee on Class A shares, Class B shares, Class C
share, and Class D shares, which is paid directly to the Fund, for shares
redeemed within seven days of purchase. The redemption fee is designed to
protect the Fund and its remaining shareholders from the effects of short-term
trading.
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
41
<Page>
trade) and the close of business on the NYSE. If developments occur during such
periods that are expected to materially affect the value of such securities,
such valuations may be adjusted to reflect the estimated fair value of such
securities as of the close of the NYSE, as determined in good faith by the
Fund's Trustees or by the Investment Adviser using a pricing service and/or
procedures approved by the Trustees of the Fund; (7) certain portfolio
securities may be valued by an outside pricing service approved by the Fund's
Trustees; and (8) short-term debt securities having a maturity date of more than
sixty days at time of purchase are valued on a mark-to-market basis until sixty
days prior to maturity and thereafter at amortized cost based on their value on
the 61st day. Short-term debt securities having a maturity date of sixty days or
less at the time of purchase are valued at amortized cost.
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined by the identified cost method.
Dividend income and other distributions are recorded on the ex-dividend date.
Discounts are accreted and premiums are amortized over the life of the
respective securities. Interest income is accrued daily.
C. REPURCHASE AGREEMENTS -- Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the Fund, along with other affiliated
entities managed by the Investment 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.
42
<Page>
F. FOREIGN CURRENCY TRANSLATION AND FORWARD FOREIGN CURRENCY CONTRACTS -- The
books and records of the Fund are maintained in U.S. dollars as follows: (1) the
foreign currency market value of investment securities, other assets and
liabilities and forward foreign currency contracts ("forward contracts") are
translated at the exchange rates prevailing at the end of the period; and (2)
purchases, sales, income and expenses are translated at the exchange rates
prevailing on the respective dates of such transactions. The resultant exchange
gains and losses are recorded as realized and unrealized gain/loss on foreign
exchange transactions. Pursuant to U.S. federal income tax regulations, certain
foreign exchange gains/losses included in realized and unrealized gain/loss are
included in or are a reduction of ordinary income for federal income tax
purposes. The Fund does not isolate that portion of the results of operations
arising as a result of changes in the foreign exchange rates from the changes in
the market prices of the securities. Forward contracts are valued daily at the
appropriate exchange rates. The resultant unrealized exchange gains and losses
are recorded as unrealized foreign currency gain or loss. The Fund records
realized gains or losses on delivery of the currency or at the time the forward
contract is extinguished (compensated) by entering into a closing transaction
prior to delivery.
G. FEDERAL INCOME TAX POLICY -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute substantially all of its taxable income to its
shareholders. Accordingly, no federal income tax provision is required.
H. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- Dividends and distributions to
shareholders are recorded on the ex-dividend date.
I. USE OF ESTIMATES -- The preparation of financial statements in accordance
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures.
Actual results could differ from those estimates.
2. INVESTMENT ADVISORY/ADMINISTRATION AGREEMENTS
Pursuant to an Investment Advisory Agreement with the Investment Adviser, the
Fund pays an advisory fee, accrued daily and payable monthly, by applying the
following annual rate of 0.67% to the net assets of the Fund determined as of
the close of each business day.
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.
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
43
<Page>
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 $3,168,194
at July 31, 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 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 July 31, 2005, the distribution fee was accrued for
Class A shares and Class C shares at the annual rate of 0.25% and 1.0%,
respectively.
The Distributor has informed the Fund that for the six months ended July 31,
2005, it received contingent deferred sales charges from certain redemptions of
the Fund's Class B shares and Class C shares of $267,738 and $1,084,
respectively. 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 July 31,
2005 aggregated $34,966,937 and $70,538,632, respectively. Included in the
aforementioned transactions are purchases and sales/prepayments of U.S
Government Securities of $9,270,535 and $13,911,225, respectively.
For the six months ended July 31, 2005, the Fund incurred brokerage commissions
of $5,503 with Morgan Stanley & Co., Inc., an affiliate of the Investment
Adviser, Administrator and Distributor, for portfolio transactions executed on
behalf of the Fund.
Morgan Stanley Trust, an affiliate of the Investment Adviser, Administrator and
Distributor, is the Fund's transfer agent.
44
<Page>
The Fund has 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. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<Table>
<Caption>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
JULY 31, 2005 JANUARY 31, 2005
----------------------------- ----------------------------
(UNAUDITED)
SHARES AMOUNT SHARES AMOUNT
------------- ------------- ------------ -------------
CLASS A SHARES
Sold 84,780 $ 900,830 382,760 $ 4,288,847
Conversion from Class B 412,550 4,289,713 -- --
Reinvestment of dividend and distributions (586,683) (6,236,808) 150,624 1,650,200
Redeemed 13,968 148,900 (1,015,352) (11,300,294)
------------- ------------- ------------ -------------
Net decrease -- Class A (75,385) (897,365) (481,968) (5,361,247)
------------- ------------- ------------ -------------
CLASS B SHARES
Sold 152,635 1,612,735 1,105,328 12,362,538
Conversion to Class A (416,599) (4,289,713) -- --
Reinvestment of dividends and distributions (2,301,960) (24,377,793) 1,021,928 11,109,253
Redeemed 79,435 837,248 (4,983,593) (54,958,695)
------------- ------------- ------------ -------------
Net decrease -- Class B (2,486,489) (26,217,523) (2,856,337) (31,486,904)
------------- ------------- ------------ -------------
CLASS C SHARES
Sold 49,133 523,981 193,028 2,140,499
Reinvestment of dividends and distributions (330,948) (3,513,554) 146,728 1,594,805
Redeemed 12,598 132,781 (672,931) (7,434,605)
------------- ------------- ------------ -------------
Net decrease -- Class C (269,217) (2,856,792) (333,175) (3,699,301)
------------- ------------- ------------ -------------
CLASS D SHARES
Sold 5,789 62,259 79,027 885,410
Reinvestment of dividends and distributions (255,588) (2,730,122) 59,339 651,744
Redeemed 3,394 36,285 (713,229) (8,014,338)
------------- ------------- ------------ -------------
Net decrease -- Class D (246,405) (2,631,578) (574,863) (6,477,184)
------------- ------------- ------------ -------------
Net decrease in Fund (3,077,496) $ (32,603,258) (4,246,343) $ (47,024,636)
============= ============= ============ =============
</Table>
45
<Page>
6. PURPOSES OF AND RISKS RELATING TO CERTAIN FINANCIAL INSTRUMENTS
The Fund may enter into forward contracts to facilitate settlement of foreign
currency denominated portfolio transactions or to manage foreign currency
exposure associated with foreign currency denominated securities.
The Fund may purchase and sell interest rate and index futures ("futures
contracts") to facilitate trading; increase or decrease Fund's market exposure,
seek higher investment returns, or to protect against a decline in the value of
the Fund's securities or an increase in prices of securities that may be
purchased.
Forward contracts and futures contracts involve elements of market risk in
excess of the amounts reflected in the Statement of Assets and Liabilities. The
Fund bears the risk of an unfavorable change in the foreign exchange rates
underlying the forward contracts or in the value of the underlying securities.
Risks may also arise upon entering into these contracts from the potential
inability of the counterparties to meet the terms of their contracts.
7. FEDERAL INCOME TAX STATUS
The amount of dividends and distributions from net investment income and net
realized capital gains are determined in accordance with federal income tax
regulations which may differ from generally accepted accounting principles.
These "book/tax" differences are either considered temporary or permanent in
nature. To the extent these differences are permanent in nature, such amounts
are reclassified within the capital accounts based on their federal tax-basis
treatment; temporary differences do not require reclassification. Dividends and
distributions which exceed net investment income and net realized capital gains
for tax purposes are reported as distributions of paid-in-capital.
As of January 31, 2005, the Fund had temporary book/tax differences primarily
attributable to capital loss deferrals on wash sales, mark-to market of open
futures contracts, capital loss deferrals on straddles and tax adjustments on
real estate investment trust ("REITs") held by the Fund.
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, filed in the United States District
Court Southern District of New York on April 16, 2004, 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
46
<Page>
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.
47
<Page>
MORGAN STANLEY ALLOCATOR FUND
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<Table>
<Caption>
FOR THE PERIOD
FOR THE SIX FOR THE YEAR FEBRUARY 26, 2003*
MONTHS ENDED ENDED THROUGH
JULY 31, 2005 JANUARY 31, 2005 JANUARY 31, 2004
-------------------- ------------------- --------------------
(UNAUDITED)
CLASS A SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period $ 10.62 $ 11.39 $ 10.00
----------- ---------- ----------
Income from investment operations:
Net investment income++ 0.03 0.09 0.05
Net realized and unrealized gain 0.42 0.32 1.67
----------- ---------- ----------
Total income from investment operations 0.45 0.41 1.72
----------- ---------- ----------
Less dividends and distributions from:
Net investment income (0.02) (0.10) -
Net realized gain (0.09) (1.08) (0.33)
----------- ---------- ----------
Total dividends and distributions (0.11) (1.18) (0.33)
----------- ---------- ----------
Net asset value, end of period $ 10.96 $ 10.62 $ 11.39
=========== ========== ==========
TOTAL RETURN+ 4.28%(1) 3.57% 17.16%(1)
RATIOS TO AVERAGE NET ASSETS(3):
Expenses 1.32%(2) 1.23% 1.23%(2)
Net investment income 0.62%(2) 0.84% 0.47%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands $ 15,195 $ 15,527 $ 22,141
Portfolio turnover rate 25%(1) 126% 239%(1)
</Table>
- ----------
* COMMENCEMENT OF OPERATIONS.
++ THE PER SHARE AMOUNTS WERE COMPUTED USING AN AVERAGE NUMBER OF SHARES
OUTSTANDING DURING THE PERIOD.
+ DOES NOT REFLECT THE DEDUCTION OF SALES CHARGE. CALCULATED BASED ON THE NET
ASSET VALUE AS OF THE LAST BUSINESS DAY OF THE PERIOD.
(1) NOT ANNUALIZED.
(2) ANNUALIZED.
(3) REFLECTS OVERALL FUND RATIOS FOR INVESTMENT INCOME AND NON-CLASS SPECIFIC
EXPENSES.
SEE NOTES TO FINANCIAL STATEMENTS
48
<Page>
<Table>
<Caption>
FOR THE PERIOD
FOR THE SIX FOR THE YEAR FEBRUARY 26, 2003*
MONTHS ENDED ENDED THROUGH
JULY 31, 2005 JANUARY 31, 2005 JANUARY 31, 2004
-------------------- ------------------- --------------------
(UNAUDITED)
CLASS B SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period $ 10.54 $ 11.31 $ 10.00
---------- ---------- ----------
Income (loss) from investment operations:
Net investment income (loss)++ (0.01) 0.01 (0.03)
Net realized and unrealized gain 0.41 0.31 1.67
---------- ---------- ----------
Total income from investment operations 0.40 0.32 1.64
---------- ---------- ----------
Less dividends and distributions from:
Net investment income (0.01) (0.01) -
Net realized gain (0.09) (1.08) (0.33)
---------- ---------- ----------
Total dividends and distributions (0.10) (1.09) (0.33)
---------- ---------- ----------
Net asset value, end of period $ 10.84 $ 10.54 $ 11.31
========== ========== ==========
TOTAL RETURN+ 3.85%(1) 2.84% 16.36%(1)
RATIOS TO AVERAGE NET ASSETS(3):
Expenses 2.07%(2) 1.98% 2.02%(2)
Net investment income (loss) (0.13)%(2) 0.09% (0.32)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands $ 92,739 $ 116,344 $ 157,175
Portfolio turnover rate 25%(1) 126% 239%(1)
</Table>
- ----------
* COMMENCEMENT OF OPERATIONS.
++ THE PER SHARE AMOUNTS WERE COMPUTED USING AN AVERAGE NUMBER OF SHARES
OUTSTANDING DURING THE PERIOD.
+ DOES NOT REFLECT THE DEDUCTION OF SALES CHARGE. CALCULATED BASED ON THE NET
ASSET VALUE AS OF THE LAST BUSINESS DAY OF THE PERIOD.
(1) NOT ANNUALIZED.
(2) ANNUALIZED.
(3) REFLECTS OVERALL FUND RATIOS FOR INVESTMENT INCOME AND NON-CLASS SPECIFIC
EXPENSES.
SEE NOTES TO FINANCIAL STATEMENTS
49
<Page>
<Table>
<Caption>
FOR THE PERIOD
FOR THE SIX FOR THE YEAR FEBRUARY 26, 2003*
MONTHS ENDED ENDED THROUGH
JULY 31, 2005 JANUARY 31, 2005 JANUARY 31, 2004
-------------------- ------------------- --------------------
(UNAUDITED)
CLASS C SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period $ 10.54 $ 11.31 $ 10.00
---------- ---------- ----------
Income (loss) from investment operations:
Net investment income (loss)++ (0.01) 0.01 (0.03)
Net realized and unrealized gain 0.42 0.32 1.67
---------- ---------- ----------
Total income from investment operations 0.41 0.33 1.64
---------- ---------- ----------
Less dividends and distributions from:
Net investment income (0.02) (0.02) -
Net realized gain (0.09) (1.08) (0.33)
---------- ---------- ----------
Total dividends and distributions (0.11) (1.10) (0.33)
---------- ---------- ----------
Net asset value, end of period $ 10.84 $ 10.54 $ 11.31
========== ========== ==========
TOTAL RETURN+ 3.98%(1) 2.76% 16.36%(1)
RATIOS TO AVERAGE NET ASSETS(3):
Expenses 2.07%(2) 1.96% 2.02%(2)
Net investment income (loss) (0.13)%(2) 0.11% (0.32)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands $ 14,483 $ 16,920 $ 21,927
Portfolio turnover rate 25%(1) 126% 239%(1)
</Table>
- ----------
* COMMENCEMENT OF OPERATIONS.
++ THE PER SHARE AMOUNTS WERE COMPUTED USING AN AVERAGE NUMBER OF SHARES
OUTSTANDING DURING THE PERIOD.
+ DOES NOT REFLECT THE DEDUCTION OF SALES CHARGE. CALCULATED BASED ON THE NET
ASSET VALUE AS OF THE LAST BUSINESS DAY OF THE PERIOD.
(1) NOT ANNUALIZED.
(2) ANNUALIZED.
(3) REFLECTS OVERALL FUND RATIOS FOR INVESTMENT INCOME AND NON-CLASS SPECIFIC
EXPENSES.
SEE NOTES TO FINANCIAL STATEMENTS
50
<Page>
<Table>
<Caption>
FOR THE PERIOD
FOR THE SIX FOR THE YEAR FEBRUARY 26, 2003*
MONTHS ENDED ENDED THROUGH
JULY 31, 2005 JANUARY 31, 2005 JANUARY 31, 2004
-------------------- ------------------- --------------------
(UNAUDITED)
CLASS D SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period $ 10.65 $ 11.42 $ 10.00
---------- ---------- ----------
Income from investment operations:
Net investment income++ 0.05 0.12 0.07
Net realized and unrealized gain 0.41 0.32 1.68
---------- ---------- ----------
Total income from investment operations 0.46 0.44 1.75
---------- ---------- ----------
Less dividends and distributions from:
Net investment income (0.02) (0.13) -
Net realized gain (0.09) (1.08) (0.33)
---------- ---------- ----------
Total dividends and distributions (0.11) (1.21) (0.33)
---------- ---------- ----------
Net asset value, end of period $ 11.00 $ 10.65 $ 11.42
========== ========== ==========
TOTAL RETURN+ 4.39%(1) 3.84% 17.46%(1)
RATIOS TO AVERAGE NET ASSETS(3):
Expenses 1.07%(2) 0.98% 1.02%(2)
Net investment income 0.87%(2) 1.09% 0.68%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands $ 3,497 $ 6,009 $ 13,006
Portfolio turnover rate 25%(1) 126% 239%(1)
</Table>
- ----------
* COMMENCEMENT OF OPERATIONS.
++ THE PER SHARE AMOUNTS WERE COMPUTED USING AN AVERAGE NUMBER OF SHARES
OUTSTANDING DURING THE PERIOD.
+ CALCULATED BASED ON THE NET ASSET VALUE AS OF THE LAST BUSINESS DAY OF THE
PERIOD.
(1) NOT ANNUALIZED.
(2) ANNUALIZED.
(3) REFLECTS OVERALL FUND RATIOS FOR INVESTMENT INCOME AND NON-CLASS SPECIFIC
EXPENSES.
SEE NOTES TO FINANCIAL STATEMENTS
51
<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]
39947RPT-RA05-00757P-Y07/05
[GRAPHIC]
MORGAN STANLEY FUNDS
MORGAN STANLEY
ALLOCATOR FUND
SEMIANNUAL REPORT
JULY 31, 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 Allocator Fund
/s/ Ronald E. Robison
Ronald E. Robison
Principal Executive Officer
September 20, 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
September 20, 2005
/s/ Francis Smith
Francis Smith
Principal Financial Officer
September 20, 2005