<Page>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-05634
Morgan Stanley Strategist Fund
(Exact name of registrant as specified in charter)
1221 Avenue of the Americas, New York, New York 10020
(Address of principal executive offices) (Zip code)
Ronald E. Robison
1221 Avenue of the Americas, New York, New York 10020
(Name and address of agent for service)
Registrant's telephone number, including area code: 212-762-4000
Date of fiscal year end: July 31, 2006
Date of reporting period: January 31, 2006
Item 1 - Report to Shareholders
<Page>
WELCOME, SHAREHOLDER:
IN THIS REPORT, YOU'LL LEARN ABOUT HOW YOUR INVESTMENT IN MORGAN STANLEY
STRATEGIST FUND PERFORMED DURING THE SEMIANNUAL PERIOD. WE WILL PROVIDE AN
OVERVIEW OF THE MARKET CONDITIONS, AND DISCUSS SOME OF THE FACTORS THAT AFFECTED
PERFORMANCE DURING THE REPORTING PERIOD. IN ADDITION, THIS REPORT INCLUDES THE
FUND'S FINANCIAL STATEMENTS AND A LIST OF FUND INVESTMENTS.
THIS MATERIAL MUST BE PRECEDED OR ACCOMPANIED BY A PROSPECTUS FOR THE FUND BEING
OFFERED.
MARKET FORECASTS PROVIDED IN THIS REPORT MAY NOT NECESSARILY COME TO PASS. THERE
IS NO ASSURANCE THAT THE FUND WILL ACHIEVE ITS INVESTMENT OBJECTIVE. THE FUND IS
SUBJECT TO MARKET RISK, WHICH IS THE POSSIBILITY THAT MARKET VALUES OF
SECURITIES OWNED BY THE FUND WILL DECLINE AND, THEREFORE, THE VALUE OF THE
FUND'S SHARES MAY BE LESS THAN WHAT YOU PAID FOR THEM. ACCORDINGLY, YOU CAN LOSE
MONEY INVESTING IN THIS FUND. PLEASE SEE THE PROSPECTUS FOR MORE COMPLETE
INFORMATION ON INVESTMENT RISKS.
<Page>
FUND REPORT
For the six months ended January 31, 2006
TOTAL RETURN FOR THE 6 MONTHS ENDED JANUARY 31, 2006
<Table>
<Caption>
LEHMAN LIPPER
BROTHERS U.S. FLEXIBLE
S&P GOVERNMENT/ PORTFOLIO
500(R) CREDIT FUNDS
CLASS A CLASS B CLASS C CLASS D INDEX(1) INDEX(2) INDEX(3)
6.79% 6.36% 6.36% 6.86% 4.67% 0.58% 6.76%
</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
The S&P 500(R) Index, a broad benchmark for large-capitalization U.S. stocks,
remained in a stable trading range during the reporting period, punctuated by
strong monthly returns in November and January. Bonds were even less volatile
and provided investors with meager total returns. Meanwhile, as policymakers at
the Federal Reserve (the "Fed") continued to raise short-term rates, cash
equivalents became a competitive alternative to stocks and bonds for the first
time in many years.
While many factors conspired to limit the gains of stocks and bonds during the
six-month period, Fed policy seemed the most consistently cited uncertainty for
investors. When would the Fed stop raising rates and at what level would
consumers begin to slow their spending activities? Would change at the helm of
the Fed -- from a long-standing, battle-tested veteran to an academically
oriented newcomer -- coincide with growth or recession? Against the backdrop of
these unanswered questions, the markets closed the reporting period with little
more visibility than at the start.
In addition to monetary policy uncertainty, other factors contributed to
investors' lack of confidence in the markets. These included the sluggishness of
corporate profits, some bubbling up of wage inflation, and geopolitical events
in the Middle East and elsewhere. On a positive note, the U.S. equity market,
by-and-large, is presently valued close to its 30-year historical average on a
price-to-earnings ratio basis. Moreover, on average, corporations have returned
more cash to shareholders via dividends and share buy-back programs than at any
time since the late 1980s.
PERFORMANCE ANALYSIS
Morgan Stanley Strategist Fund Class A and Class D shares outperformed the S&P
500 Index, the Lehman Brothers U.S. Government/Credit Index, and the Lipper
Flexible Portfolio Funds Index for the six months ended January 31, 2006,
assuming no deduction of applicable sales charges. Class B and C shares
outperformed the S&P 500 Index and the Lehman Brothers U.S. Government/Credit
Index and underperformed the Lipper Flexible Portfolio Funds Index for the same
period, again assuming no deduction of applicable sales charges.
The Fund's strategic asset allocation target remained unchanged during the
six-month period, standing as follows: 65 percent equity (versus a neutral
benchmark weight of 55 percent),* 25 percent fixed-income (versus a neutral
benchmark weight of 35 percent), and 10 percent cash (versus a neutral benchmark
weight of 10
2
<Page>
percent). Earlier in 2005, concerns over uncertain monetary policy and the
corporate profit cycle prompted us to reduce the Fund's equity allocation and
raise cash to a benchmark neutral weight.
The equity portion of the Fund continued to reflect a bias away from more
consumer-cyclical sectors and the financial sector and a preference for
industrial cyclical industries. While the U.S. consumer's future spending habits
appeared difficult to forecast -- especially in light of rising interest rates
and a cooling housing market -- capital spending, both in the U.S. and globally,
appeared more sustainable. Thus, sectors such as basic materials (metals,
mining, and chemicals), information technology (semiconductors, software and
Internet services), and industrials (machinery, equipment and rails) were more
heavily weighted than financial services and consumer cyclical industries within
the equity allocation. Two exceptions to this positioning deserve mention.
First, energy -- a sector that one would expect should benefit from capital
spending trends -- remained underweighted versus the S&P 500 Index due primarily
to our view that energy stock prices appeared to reflect most of the future
benefits of this economic cycle. Second, the Fund's equity portfolio was
overweighted in consumer staples relative to the Index. We viewed consumer
staples as attractive based on valuations and potential strategic opportunities
for food and beverage companies.
The fixed-income portfolio remained largely unchanged throughout the reporting
period, with the exception of position size adjustments made throughout the
year. The fixed-income allocation consisted of U.S. government securities (34.9
percent of the active fixed-income allocation as of the close of the period),
mortgage-backed securities (10.6 percent) and non-government securities (39.1
percent). The non-U.S. government portion was broadly diversified with 11.2
percent invested in asset-backed securities and the remainder invested in
corporate credits and dollar-denominated non-U.S. government bonds. Cash
equivalents represented 15.4 percent of the allocation, with most investments in
short duration, non-money market securities such as high-coupon mortgage
securities. As of the close of the period, the effective duration of the
fixed-income portfolio was 4.61 years.
* SOURCE: MORGAN STANLEY INVESTMENT MANAGEMENT.
THERE IS NO GUARANTEE THAT ANY SECTORS MENTIONED WILL CONTINUE TO PERFORM AS
DISCUSSED HEREIN OR THAT SECURITIES IN SUCH SECTORS WILL BE HELD BY THE FUND IN
THE FUTURE.
3
<Page>
TOP 10 HOLDINGS
<Table>
U.S. Treasury Securities 11.0%
Fed. Natl. Mtge. Assoc. 2.6
Apple Computer, Inc. 2.1
United States Steel Corp. 1.7
Corning, Inc. 1.7
Caterpillar Inc. 1.6
Hospira, Inc. 1.6
Motorola, Inc. 1.4
Archer-Daniels-Midland Co. 1.4
Citigroup, Inc. 1.4
</Table>
PORTFOLIO COMPOSITION
<Table>
Common Stocks 68.5%
U.S. Government Agencies & Obligations 13.9
Short-Term Paper 8.2
Corp Notes/Bonds 5.5
Asset-Backed 3.8
Foreign Government Bonds 0.1
</Table>
DATA AS OF JANUARY 31, 2006. SUBJECT TO CHANGE DAILY. ALL PERCENTAGES FOR TOP 10
HOLDINGS ARE AS A PERCENTAGE OF NET ASSETS AND 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.
INVESTMENT STRATEGY
THE FUND'S "INVESTMENT ADVISER," MORGAN STANLEY INVESTMENT ADVISORS INC.,
ACTIVELY ALLOCATES THE FUND'S ASSETS AMONG THE MAJOR ASSET CATEGORIES OF EQUITY
SECURITIES (INCLUDING DEPOSITARY RECEIPTS), FIXED-INCOME SECURITIES AND MONEY
MARKET INSTRUMENTS. IN DETERMINING WHICH SECURITIES TO BUY, HOLD OR SELL FOR THE
FUND, THE INVESTMENT ADVISER ALLOCATES THE FUND'S ASSETS BASED ON, AMONG OTHER
THINGS, ITS ASSESSMENT OF THE EFFECTS OF ECONOMIC AND MARKET TRENDS ON DIFFERENT
SECTORS OF THE MARKET. THERE IS NO LIMIT AS TO THE PERCENTAGE OF ASSETS THAT MAY
BE ALLOCATED TO ANY ONE ASSET CLASS.
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
4
<Page>
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
WITHOUT CHARGE 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.
5
<Page>
PERFORMANCE SUMMARY
AVERAGE ANNUAL TOTAL RETURNS--PERIOD ENDED JANUARY 31, 2006
<Table>
<Caption>
CLASS A SHARES* CLASS B SHARES** CLASS C SHARES+ CLASS D SHARES++
(SINCE 07/28/97) (SINCE 10/31/88) (SINCE 07/28/97) (SINCE 07/28/97)
SYMBOL SRTAX SRTBX SRTCX SRTDX
1 YEAR 12.65%(4) 11.84%(4) 11.81%(4) 12.89%(4)
6.74(5) 6.84(5) 10.81(5) --
5 YEARS 2.99(4) 2.19(4) 2.19(4) 3.21(4)
1.88(5) 1.82(5) 2.19(5) --
10 YEARS -- 7.61(4) -- --
-- 7.61(5) -- --
SINCE INCEPTION 6.50(4) 9.85(4) 5.68(4) 6.74(4)
5.83(5) 9.85(5) 5.68(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 1.0% 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.
THE INDEX DOES NOT INCLUDE ANY EXPENSES, FEES OR CHARGES. SUCH COSTS WOULD
LOWER PERFORMANCE. IT IS NOT POSSIBLE TO INVEST DIRECTLY IN AN INDEX.
(2) THE LEHMAN BROTHERS U.S. GOVERNMENT/CREDIT INDEX TRACKS THE PERFORMANCE OF
GOVERNMENT AND CORPORATE OBLIGATIONS, INCLUDING U.S. GOVERNMENT AGENCY AND
TREASURY SECURITIES AND CORPORATE AND YANKEE BONDS. THE INDEX DOES NOT
INCLUDE ANY EXPENSES, FEES OR CHARGES. SUCH COSTS WOULD LOWER PERFORMANCE.
IT IS NOT POSSIBLE TO INVEST DIRECTLY IN AN INDEX.
(3) THE LIPPER FLEXIBLE PORTFOLIO FUNDS INDEX IS AN EQUALLY WEIGHTED
PERFORMANCE INDEX OF THE LARGEST QUALIFYING FUNDS (BASED ON NET ASSETS) IN
THE LIPPER FLEXIBLE PORTFOLIO FUNDS CLASSIFICATION. THE INDEX, WHICH IS
ADJUSTED FOR CAPITAL GAINS DISTRIBUTIONS AND INCOME DIVIDENDS, IS UNMANAGED
AND SHOULD NOT BE CONSIDERED AN INVESTMENT. THERE ARE CURRENTLY 30 FUNDS
REPRESENTED IN THIS INDEX.
(4) FIGURE SHOWN ASSUMES REINVESTMENT OF ALL DISTRIBUTIONS AND DOES NOT REFLECT
THE DEDUCTION OF ANY SALES CHARGES.
(5) FIGURE SHOWN ASSUMES REINVESTMENT OF ALL DISTRIBUTIONS AND THE DEDUCTION OF
THE MAXIMUM APPLICABLE SALES CHARGE. SEE THE FUND'S CURRENT PROSPECTUS FOR
COMPLETE DETAILS ON FEES AND SALES CHARGES.
6
<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 08/01/05 - 01/31/06.
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 *
------------- ------------- ---------------
08/01/05 -
08/01/05 01/31/06 01/31/06
------------- ------------- ---------------
CLASS A
Actual (6.79% return) $ 1,000.00 $ 1,067.90 $ 4.85
Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,020.52 $ 4.74
CLASS B
Actual (6.36% return) $ 1,000.00 $ 1,063.60 $ 8.74
Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,016.74 $ 8.54
CLASS C
Actual (6.36% return) $ 1,000.00 $ 1,063.60 $ 8.74
Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,016.74 $ 8.54
CLASS D
Actual (6.86% return) $ 1,000.00 $ 1,068.60 $ 3.55
Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,021.78 $ 3.47
</Table>
- ----------
* EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO OF 0.93%, 1.68%,
1.68% AND 0.68% FOR CLASS A, CLASS B, CLASS C AND CLASS D SHARES,
RESPECTIVELY, MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD,
MULTIPLIED BY 184/365 (TO REFLECT THE ONE-HALF YEAR PERIOD).
7
<Page>
MORGAN STANLEY STRATEGIST FUND
PORTFOLIO OF INVESTMENTS - JANUARY 31, 2006 (UNAUDITED)
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (68.6%)
ADVERTISING/MARKETING SERVICES (0.7%)
84,070 Omnicom Group, Inc. $ 6,876,085
--------------
AEROSPACE & DEFENSE (1.6%)
156,335 Northrop Grumman Corp. 9,713,094
136,300 Raytheon Co. 5,584,211
--------------
15,297,305
--------------
AGRICULTURAL COMMODITIES/MILLING (1.4%)
416,900 Archer-Daniels-Midland Co. 13,132,350
--------------
BEVERAGES: NON-ALCOHOLIC (0.7%)
164,605 Coca-Cola Co. (The) 6,811,355
--------------
BIOTECHNOLOGY (2.9%)
139,000 Celgene Corp.* 9,889,850
94,540 Gilead Sciences, Inc.* 5,754,650
334,100 Vertex Pharmaceuticals Inc.* 11,934,052
--------------
27,578,552
--------------
CHEMICALS: MAJOR DIVERSIFIED (0.6%)
132,170 Dow Chemical Co. (The) 5,590,791
--------------
CHEMICALS: SPECIALTY (0.7%)
101,820 Ashland Inc. 6,711,974
--------------
COMPUTER COMMUNICATIONS (1.0%)
534,430 Cisco Systems, Inc.* 9,924,365
--------------
COMPUTER PERIPHERALS (0.8%)
567,500 EMC Corp.* 7,604,500
--------------
COMPUTER PROCESSING HARDWARE (2.1%)
260,180 Apple Computer, Inc.* 19,646,192
--------------
DEPARTMENT STORES (0.6%)
125,060 Kohl's Corp.* 5,551,413
--------------
DISCOUNT STORES (1.1%)
202,180 Costco Wholesale Corp. 10,086,760
--------------
ELECTRIC UTILITIES (1.1%)
104,500 Ameren Corp. 5,304,420
94,500 FirstEnergy Corp. 4,734,450
--------------
10,038,870
--------------
ELECTRICAL PRODUCTS (1.0%)
126,440 Emerson Electric Co. 9,792,778
--------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
8
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
ELECTRONIC PRODUCTION EQUIPMENT (0.9%)
429,400 Applied Materials, Inc. $ 8,180,070
--------------
ELECTRONICS/APPLIANCES (1.0%)
200,000 Sony Corp. (ADR) (Japan) 9,780,000
--------------
ENVIRONMENTAL SERVICES (1.2%)
354,930 Waste Management, Inc. 11,208,689
--------------
FINANCIAL CONGLOMERATES (3.3%)
188,760 American Express Co. 9,900,462
246,490 Citigroup, Inc. 11,481,504
250,230 JPMorgan Chase & Co. 9,946,643
--------------
31,328,609
--------------
FOOD: MAJOR DIVERSIFIED (2.3%)
307,830 ConAgra Foods Inc. 6,381,316
208,170 Kellogg Co. 8,930,493
228,295 Kraft Foods Inc. (Class A) 6,721,005
--------------
22,032,814
--------------
FOOD: MEAT/FISH/DAIRY (0.8%)
193,450 Dean Foods Co.* 7,337,559
--------------
HOUSEHOLD/PERSONAL CARE (0.7%)
125,050 Colgate-Palmolive Co. 6,863,994
--------------
INDUSTRIAL CONGLOMERATES (2.1%)
297,140 General Electric Co. 9,731,335
269,000 Ingersoll-Rand Co. Ltd. (Class A) (Bermuda) 10,563,630
--------------
20,294,965
--------------
INFORMATION TECHNOLOGY SERVICES (2.0%)
300,000 Electronic Data Systems Corp. 7,557,000
145,840 International Business Machines Corp. 11,856,792
--------------
19,413,792
--------------
INTEGRATED OIL (2.3%)
100,200 BP PLC (ADR) (United Kingdom) 7,245,462
139,200 Exxon Mobil Corp. 8,734,800
85,000 Royal Dutch Shell PLC (ADR) (Class A)
(Netherlands) 5,789,350
--------------
21,769,612
--------------
INTERNET SOFTWARE/SERVICES (1.7%)
17,965 Google, Inc. (Class A)* 7,783,336
243,750 Yahoo!, Inc.* 8,370,375
--------------
16,153,711
--------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
9
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
INVESTMENT BANKS/BROKERS (1.1%)
688,800 Schwab (Charles) Corp. (The) $ 10,187,352
--------------
MAJOR BANKS (2.0%)
263,240 Bank of America Corp. 11,643,105
111,990 Wells Fargo & Co. 6,983,696
--------------
18,626,801
--------------
MAJOR TELECOMMUNICATIONS (0.6%)
203,342 AT&T Inc. 5,276,725
--------------
MEDIA CONGLOMERATES (0.8%)
418,420 Time Warner, Inc. 7,334,903
--------------
MEDICAL SPECIALTIES (3.5%)
148,320 Bard (C.R.), Inc. 9,406,454
136,840 Fisher Scientific International, Inc.* 9,150,491
339,900 Hospira, Inc.* 15,210,525
--------------
33,767,470
--------------
MOTOR VEHICLES (0.9%)
321,530 Honda Motor Co., Ltd. (ADR) (Japan) 9,147,529
--------------
MOVIES/ENTERTAINMENT (1.0%)
170,000 Pixar, Inc.* 9,822,600
--------------
OILFIELD SERVICES/EQUIPMENT (1.9%)
118,800 Halliburton Co. 9,450,540
202,400 Smith International, Inc. 9,108,000
--------------
18,558,540
--------------
OTHER CONSUMER SERVICES (1.0%)
225,145 eBay, Inc.* 9,703,750
--------------
PACKAGED SOFTWARE (3.0%)
394,200 Microsoft Corp. 11,096,730
804,600 Oracle Corp.* 10,113,822
344,140 Sybase, Inc.* 7,429,983
--------------
28,640,535
--------------
PHARMACEUTICALS: MAJOR (2.5%)
131,190 Johnson & Johnson 7,548,673
130,900 Lilly (Eli) & Co. 7,411,558
196,520 Wyeth 9,089,050
--------------
24,049,281
--------------
PROPERTY - CASUALTY INSURERS (0.9%)
160,900 Allstate Corp. (The) 8,374,845
--------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
10
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
RAILROADS (0.9%)
93,500 Union Pacific Corp. $ 8,271,010
--------------
SEMICONDUCTORS (2.6%)
265,821 Freescale Semiconductor Inc. (Class B)* 6,711,980
277,450 Intel Corp. 5,901,362
472,400 Micron Technology, Inc.* 6,934,832
481,213 Taiwan Semiconductor Manufacturing Co. Ltd.
(ADR) (Taiwan) 5,197,100
--------------
24,745,274
--------------
SPECIALTY TELECOMMUNICATIONS (1.1%)
837,500 Citizens Communications Co. 10,276,125
--------------
STEEL (3.0%)
144,300 Nucor Corp. 12,154,389
275,000 United States Steel Corp. 16,431,250
--------------
28,585,639
--------------
TELECOMMUNICATION EQUIPMENT (4.4%)
667,680 Corning, Inc.* 16,258,008
587,975 Motorola, Inc. 13,352,912
649,985 Nokia Corp. (ADR) (Finland) 11,946,724
--------------
41,557,644
--------------
TOBACCO (1.3%)
172,820 Altria Group, Inc. 12,501,799
--------------
TRUCKS/CONSTRUCTION/FARM MACHINERY (1.5%)
205,400 Caterpillar Inc. 13,946,660
--------------
TOTAL COMMON STOCKS
(COST $461,325,387) 652,381,587
--------------
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE
- --------- ------ --------
CORPORATE BONDS (5.5%)
ADVERTISING/MARKETING SERVICES (0.0%)
$ 320 WPP Finance (UK) Corp. (United Kingdom) 5.875% 06/15/14 322,496
--------------
AEROSPACE & DEFENSE (0.1%)
350 Northrop Grumman Corp. 4.079 11/16/06 347,781
199 Raytheon Co. 6.15 11/01/08 204,486
55 Raytheon Co. 8.30 03/01/10 61,342
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
11
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
$ 692 Systems 2001 Asset Trust - 144A** (Cayman Islands) 6.664% 09/15/13 $ 739,194
--------------
1,352,803
--------------
AIR FREIGHT/COURIERS (0.0%)
335 Fedex Corp. 2.65 04/01/07 325,858
--------------
AIRLINES (0.1%)
823 America West Airlines, Inc. (Series 01-1) 7.10 04/02/21 868,654
295 Southwest Airlines Co. (Series 01-1) 5.496 11/01/06 295,939
--------------
1,164,593
--------------
APPAREL/FOOTWEAR RETAIL (0.0%)
285 Limited Brands, Inc. 6.95 03/01/33 284,460
--------------
BEVERAGES: ALCOHOLIC (0.1%)
475 FBG Finance Ltd.- 144A** (Australia) 5.125 06/15/15 457,891
470 Miller Brewing Co. - 144A** 4.25 08/15/08 460,404
--------------
918,295
--------------
CABLE/SATELLITE TV (0.1%)
135 Comcast Cable Communications Inc. 6.75 01/30/11 142,345
60 Comcast Corp. 7.625 02/15/08 62,663
405 Cox Communications, Inc. 4.625 01/15/10 391,466
490 TCI Communications, Inc. 7.875 02/15/26 556,788
--------------
1,153,262
--------------
CASINO/GAMING (0.1%)
610 Harrah's Operating Co., Inc. 5.625 06/01/15 597,400
--------------
CHEMICALS: MAJOR DIVERSIFIED (0.0%)
270 ICI Wilmington Inc. 4.375 12/01/08 262,527
--------------
CONTAINERS/PACKAGING (0.1%)
630 Sealed Air Corp. - 144A** 5.625 07/15/13 623,197
--------------
DEPARTMENT STORES (0.1%)
980 May Department Stores Co., Inc. 5.95 11/01/08 998,362
--------------
DRUGSTORE CHAINS (0.1%)
1,505 CVS Corp. 5.625 03/15/06 1,505,903
--------------
ELECTRIC UTILITIES (0.7%)
460 Ameren Corp. 4.263 05/15/07 454,381
455 Arizona Public Service Co. 5.80 06/30/14 460,584
140 Arizona Public Service Co. 6.75 11/15/06 141,616
450 Carolina Power & Light Co. 5.125 09/15/13 445,812
515 CC Funding Trust I 6.90 02/16/07 523,754
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
12
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
$ 250 Cincinnati Gas & Electric Co. 5.70% 09/15/12 $ 254,054
45 Columbus Southern Power Co. 4.40 12/01/10 43,368
235 Consolidated Natural Gas Co. 5.00 12/01/14 226,948
460 Consolidated Natural Gas Co. (Series C) 6.25 11/01/11 483,466
310 Consumers Energy Co. 4.80 02/17/09 305,763
215 Detroit Edison Co. (The) 6.125 10/01/10 223,219
140 Entergy Gulf States, Inc. 3.60 06/01/08 134,651
340 Entergy Gulf States, Inc. 4.81++ 12/01/09 332,244
285 Exelon Corp. 6.75 05/01/11 302,485
655 FPL Group Capital Inc. 3.25 04/11/06 653,036
455 Pacific Gas & Electric Co. 6.05 03/01/34 464,848
105 Panhandle Eastern Pipe Line Co. (Series B) 2.75 03/15/07 102,182
315 Public Service Electric & Gas Co. (Series MTNB) 5.00 01/01/13 309,861
240 Texas Eastern Transmission, LP 7.00 07/15/32 275,655
345 Wisconsin Electric Power Co. 3.50 12/01/07 335,740
--------------
6,473,667
--------------
ELECTRICAL PRODUCTS (0.1%)
520 Cooper Industries Inc. 5.25 07/01/07 520,759
415 Cooper Industries Inc. - 144A** 5.25 11/15/12 414,287
--------------
935,046
--------------
ELECTRONICS/APPLIANCES (0.0%)
260 LG Electronics Inc. - 144A** (South Korea) 5.00 06/17/10 253,967
--------------
FINANCE/RENTAL/LEASING (0.5%)
395 CIT Group, Inc. 2.875 09/29/06 389,982
310 CIT Group, Inc. 4.75 08/15/08 308,315
5 CIT Group, Inc. 7.375 04/02/07 5,131
635 Countrywide Home Loans, Inc. (Series MTN) 3.25 05/21/08 609,126
100 MBNA Capital (Series A) 8.278 12/01/26 106,160
630 MBNA Corp. 4.721++ 05/05/08 635,415
320 MBNA Corp. 6.125 03/01/13 336,842
630 Nationwide Building Society - 144A** (United Kingdom) 4.25 02/01/10 612,083
915 Residential Capital Corp. 6.375 06/30/10 938,833
310 SLM Corp. 4.00 01/15/10 297,585
580 SLM Corp. (Series MTNA) 5.00 10/01/13 566,449
--------------
4,805,921
--------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
13
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
FINANCIAL CONGLOMERATES (0.4%)
$ 920 Chase Manhattan Corp. 6.00% 02/15/09 $ 941,789
430 Citigroup Inc. 5.625 08/27/12 440,639
530 Citigroup Inc. 5.75 05/10/06 531,379
530 Citigroup Inc. 6.00 02/21/12 554,687
180 General Electric Capital Corp. (Series MTNA) 4.25 12/01/10 174,039
55 General Electric Capital Corp. (Series MTNA) 4.75 09/15/14 53,520
760 General Electric Capital Corp. (Series MTNA) 6.75 03/15/32 885,510
--------------
3,581,563
--------------
FOOD RETAIL (0.1%)
575 Kroger Co. 7.50 04/01/31 643,765
--------------
FOOD: MAJOR DIVERSIFIED (0.1%)
175 ConAgra Foods, Inc. 7.00 10/01/28 184,959
215 ConAgra Foods, Inc. 8.25 09/15/30 258,905
255 Heinz (H.J.) Co. - 144A** 6.428 12/01/08 262,606
--------------
706,470
--------------
GAS DISTRIBUTORS (0.1%)
325 NiSource Finance Corp. 4.95++ 11/23/09 326,390
415 Ras Laffan Liquid Natural Gas Co. Ltd. - 144A** (Qatar) 8.294 03/15/14 476,783
305 Sempra Energy 4.621 05/17/07 303,061
--------------
1,106,234
--------------
HOME FURNISHINGS (0.1%)
275 Mohawk Industries, Inc. 6.125 01/15/16 277,027
290 Mohawk Industries, Inc. (Series D) 7.20 04/15/12 307,436
--------------
584,463
--------------
HOTELS/RESORTS/CRUISELINES (0.1%)
510 Hyatt Equities LLC - 144A** 6.875 06/15/07 518,667
--------------
HOUSEHOLD/PERSONAL CARE (0.1%)
590 Clorox Co. (The) 4.614++ 12/14/07 591,382
--------------
INDUSTRIAL CONGLOMERATES (0.1%)
330 Textron Financial Corp. 4.125 03/03/08 324,660
240 Textron Financial Corp. (Series MTN) 5.125 02/03/11 239,916
--------------
564,576
--------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
14
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
INSURANCE BROKERS/SERVICES (0.2%)
$ 900 Farmers Exchange Capital - 144A** 7.05% 07/15/28 $ 939,469
805 Marsh & McLennan Companies, Inc. 5.375 07/15/14 786,830
--------------
1,726,299
--------------
INVESTMENT BANKS/BROKERS (0.1%)
640 Goldman Sachs Group Inc. (The) 6.60 01/15/12 683,290
--------------
MAJOR BANKS (0.1%)
195 Bank of New York Co., Inc. (The) 5.20 07/01/07 195,579
250 Bank of New York Co., Inc. (The) (Series BKNT) 3.80 02/01/08 244,671
280 HSBC Finance Corp. 6.75 05/15/11 299,146
325 Huntington National Bank (Series BKNT) 4.375 01/15/10 316,391
--------------
1,055,787
--------------
MAJOR TELECOMMUNICATIONS (0.3%)
530 Deutsche Telekom International Finance Corp. BV (Netherlands) 8.25 06/15/30 663,161
500 France Telecom S.A. (France) 8.75 03/01/31 655,363
305 SBC Communications, Inc. 6.15 09/15/34 301,293
150 Sprint Capital Corp. 8.75 03/15/32 196,747
270 Telecom Italia Capital SA (Luxembourg) 4.00 11/15/08 261,538
405 Telecom Italia Capital SA (Luxembourg) 4.00 01/15/10 385,075
--------------
2,463,177
--------------
MANAGED HEALTH CARE (0.1%)
530 WellPoint Health Networks Inc. 6.375 06/15/06 532,770
--------------
MEDIA CONGLOMERATES (0.0%)
465 News America Inc. - 144A** 6.40 12/15/35 464,582
--------------
MEDICAL SPECIALTIES (0.1%)
495 Baxter Finco BV - 144A** (Netherlands) 4.75 10/15/10 486,609
--------------
MOTOR VEHICLES (0.0%)
250 DaimlerChrysler North American Holdings Co. 8.50 01/18/31 304,010
--------------
MULTI-LINE INSURANCE (0.4%)
1,165 AIG Sun America Global Finance VI - 144A** 6.30 05/10/11 1,231,760
575 American General Finance Corp. (Series MTNF) 5.875 07/14/06 577,794
910 AXA Financial Inc. 6.50 04/01/08 940,732
95 Hartford Financial Services Group, Inc. (The) 2.375 06/01/06 94,237
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
15
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
$ 235 International Lease Finance Corp. 3.75% 08/01/07 $ 230,535
405 Two-Rock Pass Through - 144A** (Bahamas)+ 5.27++ 12/31/49 402,866
--------------
3,477,924
--------------
OTHER METALS/MINERALS (0.0%)
390 Brascan Corp. (Canada) 7.125 06/15/12 422,446
--------------
PROPERTY - CASUALTY INSURERS (0.3%)
760 Mantis Reef Ltd. - 144A** (Australia) 4.692 11/14/08 745,473
300 Platinum Underwriters Finance Holdings, Ltd. (Series B) 7.50 06/01/17 306,729
360 Platinum Underwriters Finance Holdings, Ltd. (Series B) (Bahamas) 6.371 11/16/07 360,526
515 St. Paul Travelers Companies, Inc. (The) 5.01 08/16/07 513,725
700 XLLIAC Global Funding - 144A** 4.80 08/10/10 688,993
--------------
2,615,446
--------------
PUBLISHING: NEWSPAPERS (0.0%)
325 Knight Ridder, Inc. 5.75 09/01/17 278,882
--------------
PULP & PAPER (0.0%)
305 Sappi Papier Holding AG - 144A** (Austria) 6.75 06/15/12 286,169
--------------
RAILROADS (0.1%)
256 Burlington North Santa Fe Railway Co. 4.575 01/15/21 245,842
310 Burlington North Santa Fe Railway Co. 6.125 03/15/09 319,666
290 Norfolk Southern Corp. 7.35 05/15/07 298,589
110 Union Pacific Corp. 6.625 02/01/08 113,300
180 Union Pacific Corp. 6.65 01/15/11 190,963
100 Union Pacific Corp. - 144A** (Series 2004-2) 5.214 09/30/14 99,299
140 Union Pacific Corp. (Series MTNE) 6.79 11/09/07 144,142
--------------
1,411,801
--------------
REAL ESTATE DEVELOPMENT (0.1%)
1,282 World Financial Properties - 144A** (Series 1996 WFP- B) 6.91 09/01/13 1,344,577
--------------
REAL ESTATE INVESTMENT TRUSTS (0.1%)
770 EOP Operating L.P. 6.763 06/15/07 783,598
--------------
REGIONAL BANKS (0.1%)
800 Marshall & Ilsley Bank (Series BKNT) 3.80 02/08/08 784,995
--------------
SAVINGS BANKS (0.2%)
305 Household Finance Corp. 4.125 12/15/08 297,374
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
16
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
$ 230 Household Finance Corp. 5.875% 02/01/09 $ 235,056
175 Household Finance Corp. 6.375 10/15/11 184,505
350 Household Finance Corp. 6.40 06/17/08 360,137
100 Sovereign Bank (Series CD) 4.00 02/01/08 98,170
470 Washington Mutual Bank 5.50 01/15/13 471,229
260 Washington Mutual Inc. 8.25 04/01/10 287,903
--------------
1,934,374
--------------
TRUCKS/CONSTRUCTION/FARM MACHINERY (0.1%)
190 Caterpillar Financial Services Corp. (Series MTNF) 3.625 11/15/07 185,731
480 Caterpillar Financial Services Corp. (Series MTNF) 4.44++ 08/20/07 481,096
--------------
666,827
--------------
WIRELESS TELECOMMUNICATIONS (0.0%)
480 Vodafone Group PLC (United Kingdom) 4.611++ 12/28/07 480,144
--------------
TOTAL CORPORATE BONDS
(COST $52,100,156) 52,478,584
--------------
ASSET-BACKED SECURITIES (3.9%)
FINANCE/RENTAL/LEASING
2,300 American Express Credit Account Master Trust 2001-2 A 5.53 10/15/08 2,303,659
1,500 American Express Credit Account Master Trust 2002-3 A 4.58++ 12/15/09 1,502,954
2,100 American Express Credit Account Master Trust 2003-3 A 4.58++ 11/15/10 2,105,949
350 Asset Backed Funding Certificates 2005-WF1 A2A 4.661++ 01/25/35 350,590
1,225 Banc of America Securities Auto Trust 2005-WF1 A3 3.99 08/18/09 1,209,684
31 Capital Auto Receivables Asset Trust 2003-2 A3A 1.44 02/15/07 30,971
850 Capital Auto Receivables Asset Trust 2003-3 A3B 4.55++ 01/15/08 850,976
1,250 Capital Auto Receivables Asset Trust 2005-1 A4 4.05 07/15/09 1,235,936
1,050 Caterpillar Financial Asset Trust 2005-A A3 3.90 02/25/09 1,037,202
960 Chase Credit Card Master Trust 2001-4 A 5.50 11/17/08 963,217
469 CIT Equipment Collateral 2004-EF1 A3 3.50 09/20/08 462,406
800 CNH Equipment Trust 2005-A A3 4.02 04/15/09 791,037
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
17
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
$ 950 Daimler Chrysler Auto Trust 2005-B A3 4.04% 09/08/09 $ 939,326
800 Ford Credit Auto Owner Trust 2005B A3 4.17 01/15/09 793,657
900 GE Capital Credit Card Master Note Trust 2004-2 A 4.51++ 09/15/10 901,198
850 GE Dealer Floorplan Master Note Trust 2004-1 A 4.54++ 07/20/08 850,559
725 GE Equipment Small Ticket LLC 2005-2A 4.88 10/22/09 724,339
950 Harley Davidson Motorcycle Trust 2005-3 A2 4.41 06/15/12 940,755
1,500 Harley-Davidson Motorcycle Trust 2005-1 A2 3.76 12/17/12 1,469,904
750 Harley-Davidson Motorcycle Trust 2005-2 A2 4.07 02/15/12 738,000
700 Hertz Vehicle Financing LLC 2005-2A 4.93 02/25/10 698,687
650 Honda Auto Receivables Owner Trust 2005-2 A3 3.93 01/15/09 642,435
750 Hyundai Auto Receivables Trust 2005-A A3 3.98 11/16/09 739,200
1,475 MBNA Credit Card Master Note Trust 2003-A3 A3 4.59++ 08/16/10 1,479,481
1,550 MBNA Master Credit Card Trust 1999-B A 5.90 08/15/11 1,596,661
1,325 Merrill Auto Trust Securitization 2005-1 A3 4.10 08/25/09 1,309,197
925 National City Auto Receivables Trust 2004-A A4 2.88 05/15/11 891,503
147 Residential Asset Securities Corp. 2004-KS8 AI1 4.69++ 10/25/22 146,612
275 TXU Electric Delivery Transition Bond Co. LLC 2004-1 A2 4.81 11/17/14 271,498
1,600 USAA Auto Owner Trust 2004-2 A-4 3.58 02/15/11 1,568,080
1,550 USAA Auto Owner Trust 2004-3 A3 3.16 02/17/09 1,529,539
975 USAA Auto Owner Trust 2005-1 A3 3.90 07/15/09 963,884
850 Volkswagen Auto Lease Trust 2005-A A3 3.82 05/20/08 841,824
900 Volkswagen Auto Loan Enhanced Trust 4.80 07/20/09 898,682
69 Wachovia Auto Owner Trust 2004-B A2 2.40 05/21/07 68,998
525 Wachovia Auto Owner Trust 2004-B A3 2.91 04/20/09 517,792
650 Wachovia Auto Owner Trust 2005-A A3 4.06 09/21/09 642,714
975 Wachovia Auto Owner Trust 2005-B A3 4.79 04/20/10 973,530
500 World Omni Auto Receivables Trust 2004-A A3 3.29 11/12/08 494,965
--------------
TOTAL ASSET-BACKED SECURITIES
(COST $36,650,668) 36,477,601
--------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
18
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
FOREIGN GOVERNMENT OBLIGATIONS (0.1%)
$ 230 United Mexican States (Mexico) 8.375% 01/14/11 $ 261,625
430 United Mexican States (Mexico) (Series MTN) 8.30 08/15/31 542,875
315 United Mexican States (Mexico) (Series MTNA) 8.00 09/24/22 385,087
--------------
TOTAL FOREIGN GOVERNMENT OBLIGATIONS
(COST $1,036,114) 1,189,587
--------------
U.S. GOVERNMENT AGENCY-MORTGAGE-BACKED SECURITIES (2.7%)
Federal Home Loan Mortgage Corp.
41 6.50 12/01/32 41,697
1,530 7.50 05/01/29 - 05/01/32 1,516,494
Federal Home Loan Mortgage Corp. PC Gold
680 6.50 05/01/29 - 09/01/32 697,475
59 7.50 01/01/30 61,554
4 8.00 07/01/30 4,644
Federal National Mortgage Assoc.
850 6.50 12/01/29 - 01/01/33 874,233
8,305 7.00 12/01/17 - 11/01/35 8,637,279
2,199 7.50 07/01/29 - 08/01/32 2,303,760
2,987 8.00 05/01/09 - 02/01/32 3,192,240
Federal National Mortgage Assoc. ARM
935 4.60 07/01/33 934,793
3,693 4.84 01/01/36 3,795,639
3,693 5.002 01/01/36 3,796,943
--------------
TOTAL U.S. GOVERNMENT AGENCY-MORTGAGE-BACKED SECURITIES
(COST $25,922,550) 25,856,751
--------------
U.S. GOVERNMENT OBLIGATIONS (11.0%)
U.S. Treasury Bonds
11,750 0.00 02/15/25 4,771,405
250 5.50 08/15/28 276,338
5,575 6.125 08/15/29 6,673,453
1,295 6.375 08/15/27 1,578,737
16,300 8.125 08/15/19 - 08/15/21 22,156,873
U.S. Treasury Notes
9,000 3.375 02/15/08 8,803,836
41,500 3.625 05/15/13 39,236,963
850 4.00 11/15/12 824,202
18,655 4.25 08/15/13 - 11/15/13 18,306,232
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
19
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Strip
$ 755 0.00% 02/15/25 $ 305,450
3,250 0.00 02/15/27 1,205,483
--------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(COST $102,383,133) 104,138,972
--------------
U.S. GOVERNMENT AGENCIES-COLLATERALIZED MORTGAGE OBLIGATIONS (0.2%)
2,581 Federal National Mortgage Assoc. 2005-68X1 (IO) 6.00 08/25/35 792,344
1,333 Freddie Mac Whole Loan 2005-S001 2A2 4.68 09/25/45 1,335,477
--------------
TOTAL U.S. GOVERNMENT AGENCIES-COLLATERALIZED MORTGAGE OBLIGATIONS
(COST $1,794,048) 2,127,821
--------------
SHORT-TERM INVESTMENTS (8.1%)
U.S. GOVERNMENT OBLIGATION (A) (0.0%)
250 U.S. Treasury Bills ***
(COST $245,207) 4.26 07/13/06 245,207
--------------
REPURCHASE AGREEMENT (8.1%)
77,092 Joint repurchase agreement account
(dated 01/31/06; proceeds $77,101,519)
(b) (COST $77,092,000) 4.445 02/01/06 77,092,000
--------------
TOTAL SHORT-TERM INVESTMENTS
(COST $77,337,207) 77,337,207
--------------
TOTAL INVESTMENTS
(COST $758,549,263) (c) (d) 100.1% 951,988,110
LIABILITIES IN EXCESS OF OTHER ASSETS (0.1) (1,353,321)
----- --------------
NET ASSETS 100.0% $ 950,634,789
===== ==============
</Table>
- ----------
ADR AMERICAN DEPOSITARY RECEIPT.
ARM ADJUSTABLE RATE MORTGAGE.
IO INTEREST ONLY.
PC PARTICIPATION CERTIFICATE.
* NON-INCOME PRODUCING SECURITY.
** RESALE IS RESTRICTED TO QUALIFIED INSTITUTIONAL INVESTORS.
*** A PORTION OF THIS SECURITY HAS BEEN PHYSICALLY SEGREGATED IN CONNECTION
WITH OPEN FUTURES CONTRACTS IN AN AMOUNT EQUAL TO $21,760.
+ FOREIGN ISSUED SECURITY WITH PERPETUAL MATURITY.
++ VARIABLE RATE SECURITY; RATE SHOWN IS THE RATE IN EFFECT OF JANUARY 31,
2006.
(a) PURCHASED ON A DISCOUNT BASIS. THE INTEREST RATE SHOWN HAS BEEN
ADJUSTED TO REFLECT A MONEY MARKET EQUIVALENT YIELD.
(b) COLLATERALIZED BY FEDERAL AGENCY AND U.S. TREASURY OBLIGATIONS.
(c) SECURITIES HAVE BEEN DESIGNATED AS COLLATERAL IN A AMOUNT EQUAL TO
$56,346,979 IN CONNECTION WITH OPEN FUTURES CONTRACTS.
(d) THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES APPROXIMATES THE
AGGREGATE COST FOR BOOK PURPOSES. THE AGGREGATE GROSS UNREALIZED
APPRECIATION IS $201,758,068 AND THE AGGREGATE GROSS UNREALIZED
DEPRECIATION IS $8,319,221, RESULTING IN NET UNREALIZED APPRECIATION OF
$193,438,847.
SEE NOTES TO FINANCIAL STATEMENTS
20
<Page>
FUTURES CONTRACTS OPEN AT JANUARY 31, 2006:
<Table>
<Caption>
UNREALIZED
NUMBER OF DESCRIPTION/DELIVERY UNDERLYING FACE APPRECIATION
CONTRACTS LONG/SHORT MONTH, AND YEAR AMOUNT AT VALUE (DEPRECIATION)
- -------------------------------------------------------------------------------------------------------------
171 Short U.S. Treasury Notes 2 Year, March 2006 $ (35,028,283) $ 57,355
19 Short U.S. Treasury Notes 5 Year, March 2006 (2,008,953) 1,986
4 Short U.S. Treasury Notes 5 Year, June 2006 (422,750) 348
130 Long U.S. Treasury Notes 10 Year, March 2006 14,096,875 (60,434)
18 Long U.S. Treasury Notes 10 Year, June 2006 1,950,188 (2,159)
24 Short U.S. Treasury Bonds 20 Year, March 2006 (2,708,250) 30,965
--------------
Net Unrealized Appreciation $ 28,061
==============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
21
<Page>
MORGAN STANLEY STRATEGIST FUND
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
JANUARY 31, 2006 (UNAUDITED)
<Table>
ASSETS:
Investments in securities, at value
(cost $758,549,263) $ 951,988,110
Cash 950
Receivable for:
Interest 2,462,054
Dividends 374,837
Investments sold 312,205
Shares of beneficial interest sold 230,099
Prepaid expenses and other assets 41,793
---------------
TOTAL ASSETS 955,410,048
---------------
LIABILITIES:
Payable for:
Investments purchased 2,190,225
Shares of beneficial interest redeemed 1,490,430
Distribution fee 458,367
Investment advisory fee 350,722
Administration fee 66,804
Transfer agent fee 63,414
Accrued expenses and other payables 155,297
---------------
TOTAL LIABILITIES 4,775,259
---------------
NET ASSETS $ 950,634,789
===============
COMPOSITION OF NET ASSETS:
Paid-in-capital $ 769,685,501
Net unrealized appreciation 193,466,908
Accumulated undistributed net investment income 1,471,523
Accumulated net realized loss (13,989,143)
---------------
NET ASSETS $ 950,634,789
===============
CLASS A SHARES:
Net Assets $ 498,459,298
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE) 25,683,131
NET ASSET VALUE PER SHARE $ 19.41
===============
MAXIMUM OFFERING PRICE PER SHARE,
(NET ASSET VALUE PLUS 5.54% OF NET ASSET VALUE) $ 20.49
===============
CLASS B SHARES:
Net Assets $ 353,681,822
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE) 18,179,164
NET ASSET VALUE PER SHARE $ 19.46
===============
CLASS C SHARES:
Net Assets $ 40,750,068
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE) 2,108,036
NET ASSET VALUE PER SHARE $ 19.33
===============
CLASS D SHARES:
Net Assets $ 57,743,601
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE) 2,971,413
NET ASSET VALUE PER SHARE $ 19.43
===============
</Table>
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JANUARY 31, 2006 (UNAUDITED)
<Table>
NET INVESTMENT INCOME:
INCOME
Interest $ 6,535,743
Dividends (net of $21,656 foreign withholding tax) 5,215,154
---------------
TOTAL INCOME 11,750,897
---------------
EXPENSES
Investment advisory fee 2,038,694
Distribution fee (Class A shares) 623,616
Distribution fee (Class B shares) 1,865,596
Distribution fee (Class C shares) 204,787
Transfer agent fees and expenses 679,115
Administration fee 388,323
Shareholder reports and notices 75,761
Professional fees 38,135
Registration fees 24,571
Custodian fees 20,769
Trustees' fees and expenses 11,009
Other 31,732
---------------
TOTAL EXPENSES 6,002,108
---------------
NET INVESTMENT INCOME 5,748,789
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
NET REALIZED GAIN ON:
Investments 70,069,401
Futures contracts 92,292
---------------
NET REALIZED GAIN 70,161,693
---------------
NET CHANGE IN UNREALIZED APPRECIATION/
DEPRECIATION ON:
Investments (15,011,650)
Futures contracts (256,144)
---------------
NET DEPRECIATION (15,267,794)
---------------
NET GAIN 54,893,899
---------------
NET INCREASE $ 60,642,688
===============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
22
<Page>
STATEMENT OF CHANGES IN NET ASSETS
<Table>
<Caption>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
JANUARY 31, 2006 JULY 31, 2005
------------------ ------------------
(UNAUDITED)
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income $ 5,748,789 $ 9,822,084
Net realized gain 70,161,693 91,608,088
Net change in unrealized appreciation (15,267,794) 36,053,309
------------------ ------------------
NET INCREASE 60,642,688 137,483,481
------------------ ------------------
DIVIDENDS TO SHAREHOLDERS FROM NET INVESTMENT INCOME:
Class A shares (3,633,277) (2,900,467)
Class B shares (1,289,016) (5,549,576)
Class C shares (146,818) (347,195)
Class D shares (493,332) (1,059,379)
------------------ ------------------
TOTAL DIVIDENDS (5,562,443) (9,856,617)
------------------ ------------------
Net decrease from transactions in shares of beneficial interest (112,809,694) (250,828,677)
------------------ ------------------
NET DECREASE (57,729,449) (123,201,813)
NET ASSETS:
Beginning of period 1,008,364,238 1,131,566,051
------------------ ------------------
END OF PERIOD
(INCLUDING ACCUMULATED UNDISTRIBUTED NET INVESTMENT INCOME OF
$1,471,523 AND $1,285,177, RESPECTIVELY) $ 950,634,789 $ 1,008,364,238
================== ==================
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
23
<Page>
MORGAN STANLEY STRATEGIST FUND
NOTES TO FINANCIAL STATEMENTS - JANUARY 31, 2006 (UNAUDITED)
1. ORGANIZATION AND ACCOUNTING POLICIES
Morgan Stanley Strategist Fund (the "Fund") is registered under the Investment
Company Act of 1940, as amended (the "Act"), as a diversified, open-end
management investment company. The Fund's investment objective is to maximize
the total return of its investments. The Fund was organized as a Massachusetts
business trust on August 5, 1988 and commenced operations on October 31, 1988.
On July 28, 1997, the Fund converted to a multiple class share structure.
The Fund offers Class A shares, Class B shares, Class C shares and Class D
shares. The four classes are substantially the same except that most Class A
shares are subject to a sales charge imposed at the time of purchase and some
Class A shares, and most Class B shares and Class C shares are subject to a
contingent deferred sales charge imposed on shares redeemed within 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
shares, 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
24
<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.
25
<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 AGREEMENT
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 rates to the net assets of the Fund determined as of the close
of each business day: 0.42% to the portion of the daily net assets not exceeding
$1.5 billion; and 0.395% to the portion of the daily net assets exceeding $1.5
billion.
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.
26
<Page>
3. PLAN OF DISTRIBUTION
Shares of the Fund are distributed by Morgan Stanley Distributors Inc. (the
"Distributor"), an affiliate of the Investment Adviser and Administrator. The
Fund has adopted a Plan of Distribution (the "Plan") pursuant to Rule 12b-1
under the Act. The Plan provides that the Fund will pay the Distributor a fee
which is accrued daily and paid monthly at the following annual rates: (i) Class
A -- up to 0.25% of the average daily net assets of Class A; (ii) Class B -- up
to 1.0% of the lesser of: (a) the average daily aggregate gross sales of the
Class B shares since the inception of the Plan on November 8, 1989 (not
including reinvestment of dividend or capital gain distributions) less the
average daily aggregate net asset value of the Class B shares redeemed since the
Plan's inception upon which a contingent deferred sales charge has been imposed
or waived; or (b) the average daily net assets of Class B attributable to shares
issued, net of related shares redeemed, since the Plan's inception; and (iii)
Class C -- up to 1.0% of the average daily net assets of Class C.
In the case of Class B shares, provided that the Plan continues in effect, any
cumulative expenses incurred by the Distributor but not yet recovered may be
recovered through the payment of future distribution fees from the Fund pursuant
to the Plan and contingent deferred sales charges paid by investors upon
redemption of Class B shares. Although there is no legal obligation for the Fund
to pay expenses incurred in excess of payments made to the Distributor under the
Plan and the proceeds of contingent deferred sales charges paid by investors
upon redemption of shares, if for any reason the Plan is terminated, the
Trustees will consider at that time the manner in which to treat such expenses.
The Distributor has advised the Fund that such excess amounts totaled $8,326,135
at January 31, 2006.
In the case of Class A shares and Class C shares, expenses incurred pursuant to
the Plan in any calendar year in excess of 0.25% or 1.0% of the average daily
net assets of Class A or Class C, respectively, will not be reimbursed by the
Fund through payments in any subsequent year, except that expenses representing
a gross sales credit to Morgan Stanley Financial Advisors or other selected
broker-dealer representatives may be reimbursed in the subsequent calendar year.
For the six months ended January 31, 2006, the distribution fee was accrued for
Class A shares and Class C shares at the annual rate of 0.25% and 1.00%,
respectively.
The Distributor has informed the Fund that for the six months ended January 31,
2006, it received contingent deferred sales charges from certain redemptions of
the Fund's Class A shares, Class B shares and Class C shares of $382, $368,275
and $3,786, respectively and received $43,062 in front-end sales charges from
sales of the Fund's Class A shares. The respective shareholders pay such charges
which are not an expense of the Fund.
27
<Page>
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales/maturities/prepayments of
portfolio securities, excluding short-term investments, for the six months ended
January 31, 2006 aggregated $212,716,116 and $334,647,243, respectively.
Included in the aforementioned are purchases and sales/maturities/prepayments of
U.S. Government securities of $68,506,501 and $72,577,385, respectively.
For the six months ended January 31, 2006, the Fund incurred brokerage
commissions of $132,999 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.
The Fund has an unfunded noncontributory defined benefit pension plan covering
certain independent Trustees of the Fund who will have served as independent
Trustees for at least five years at the time of retirement. Benefits under this
plan are based on factors which include years of service and compensation. The
Trustees voted to close the plan to new participants and eliminate the future
benefits growth due to increases to compensation after July 31, 2003. Aggregate
pension costs for the six months ended January 31, 2006 included in Trustees'
fees and expenses in the Statement of Operations amounted to $4,872. At January
31, 2006, the Fund had an accrued pension liability of $78,226 which is included
in accrued expenses in the Statement of Assets and Liabilities.
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. 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.
To hedge against adverse interest rate and market risks, the Fund may enter into
interest rate futures ("future contracts").
28
<Page>
Forward contracts and future contracts involve elements of market risk in excess
of the amounts reflected in the Statement of Asset and Liabilities. The Fund
bears the risk of an unfavorable change in the foreign exchange rates underlying
the forward contracts or in the value of underlying securities. Risks may also
arise upon entering into these contracts from the potential inability of the
counterparties to meet the terms of their contracts.
6. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<Table>
<Caption>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
JANUARY 31, 2006 JULY 31, 2005
---------------------------------- ----------------------------------
(UNAUDITED)
SHARES AMOUNT SHARES AMOUNT
--------------- --------------- --------------- ---------------
CLASS A SHARES
Sold 278,832 $ 5,170,244 840,672 $ 13,790,598
Conversion from Class B 1,161,785 21,519,214 26,158,781 452,791,613
Reinvestment of dividends 174,252 3,233,427 148,520 2,628,095
Redeemed (3,780,509) (70,172,513) (2,922,292) (51,577,863)
--------------- --------------- --------------- ---------------
Net increase (decrease) -- Class A (2,165,640) (40,249,628) 24,225,681 417,632,443
--------------- --------------- --------------- ---------------
CLASS B SHARES
Sold 400,043 7,430,722 1,802,497 31,046,194
Conversion to Class A (1,158,960) (21,519,214) (26,189,482) (452,791,613)
Reinvestment of dividends 58,758 1,093,178 279,071 4,808,314
Redeemed (2,803,384) (52,036,491) (13,785,546) (237,957,003)
--------------- --------------- --------------- ---------------
Net decrease -- Class B (3,503,543) (65,031,805) (37,893,460) (654,894,108)
--------------- --------------- --------------- ---------------
CLASS C SHARES
Sold 130,668 2,387,686 341,082 5,845,255
Reinvestment of dividends 7,132 131,959 18,201 314,609
Redeemed (311,453) (5,763,555) (649,757) (11,210,612)
--------------- --------------- --------------- ---------------
Net decrease -- Class C (173,653) (3,243,910) (290,474) (5,050,748)
--------------- --------------- --------------- ---------------
CLASS D SHARES
Sold 119,097 2,226,324 226,903 3,947,950
Reinvestment of dividends 24,526 455,499 56,499 979,608
Redeemed (373,693) (6,966,174) (774,991) (13,443,822)
--------------- --------------- --------------- ---------------
Net decrease -- Class D (230,070) (4,284,351) (491,589) (8,516,264)
--------------- --------------- --------------- ---------------
Net decrease in Fund (6,072,906) $ (112,809,694) (14,449,842) $ (250,828,677)
=============== =============== =============== ===============
</Table>
29
<Page>
7. FEDERAL INCOME TAX STATUS
The amount of dividends and distributions from net investment income and net
realized capital gains are determined in accordance with federal income tax
regulations which may differ from generally accepted accounting principles.
These "book/tax" differences are either considered temporary or permanent in
nature. To the extent these differences are permanent in nature, such amounts
are reclassified within the capital accounts based on their federal tax-basis
treatment; temporary differences do not require reclassification. Dividends and
distributions which exceed net investment income and net realized capital gains
for tax purposes are reported as distributions of paid-in-capital.
As of July 31, 2005, the Fund had a net capital loss carryforward of $79,079,713
which will expire on July 31, 2011 to offset future capital gains to the extent
provided by regulations.
As of July 31, 2005, the Fund had temporary book/tax differences primarily
attributable to capital loss deferrals on wash sales and straddles,
mark-to-market of open futures contracts and book amortization of premiums on
debt securities.
8. LEGAL MATTERS
The Investment 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 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 9, 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 stage of the litigation, and no provision has been made in the Fund's
financial statements for the effect, if any, of this matter.
30
<Page>
9. SUBSEQUENT EVENT
On February 6, 2006, the Trustees of the Fund and Morgan Stanley Total Return
Trust ("Total Return") approved a plan of reorganization whereby Total Return
would be merged into the Fund. The plan of reorganization is subject to the
consent of Total Return shareholders at a special meeting scheduled to be held
during the third quarter of 2006. If approved, the assets of the Fund would be
combined with the assets of Total Return and shareholders of Total Return would
become shareholders of the Fund, receiving shares of the corresponding class of
the Fund equal to the value of their holdings in Total Return.
31
<Page>
MORGAN STANLEY STRATEGIST FUND
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<Table>
<Caption>
FOR THE SIX FOR THE YEAR ENDED JULY 31,
MONTHS ENDED ------------------------------------------------------------------
JANUARY 31, 2006 2005 2004 2003 2002 2001
---------------- ---------- ---------- ---------- ---------- ----------
(unaudited)
CLASS A SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period $ 18.31 $ 16.28 $ 14.72 $ 13.53 $ 16.43 $ 20.64
---------------- ---------- ---------- ---------- ---------- ----------
Income (loss) from investment
operations:
Net investment income++ 0.14 0.27 0.20 0.14 0.22 0.44
Net realized and unrealized
gain (loss) 1.10 2.03 1.58 1.21 (2.84) (1.55)
---------------- ---------- ---------- ---------- ---------- ----------
Total income (loss) from investment
operations 1.24 2.30 1.78 1.35 (2.62) (1.11)
---------------- ---------- ---------- ---------- ---------- ----------
Less dividends and distributions
from:
Net investment income (0.14) (0.27) (0.22) (0.16) (0.28) (0.50)
Net realized gain - - - - - (2.60)
---------------- ---------- ---------- ---------- ---------- ----------
Total dividends and distributions (0.14) (0.27) (0.22) (0.16) (0.28) (3.10)
---------------- ---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 19.41 $ 18.31 $ 16.28 $ 14.72 $ 13.53 $ 16.43
================ ========== ========== ========== ========== ==========
TOTAL RETURN+ 6.79%(1) 14.23% 12.10% 10.11% (16.14)% (6.24)%
RATIOS TO AVERAGE NET ASSETS(3):
Expenses 0.93%(2) 0.93% 0.95% 0.93% 0.88% 0.85%
Net investment income 1.49%(2) 1.48% 1.24% 0.95% 1.44% 2.41%
SUPPLEMENTAL DATA:
Net assets, end of period,
in thousands $ 498,459 $ 510,016 $ 58,968 $ 53,951 $ 78,583 $ 116,383
Portfolio turnover rate 24%(1) 48% 42% 124% 164% 136%
</Table>
- ----------
++ THE PER SHARE AMOUNTS WERE COMPUTED USING AN AVERAGE NUMBER OF SHARES
OUTSTANDING DURING THE PERIOD.
+ DOES NOT REFLECT THE DEDUCTION OF SALES CHARGE. CALCULATED BASED ON THE NET
ASSET VALUE AS OF THE LAST BUSINESS DAY OF THE PERIOD.
(1) NOT ANNUALIZED.
(2) ANNUALIZED.
(3) REFLECTS OVERALL FUND RATIOS FOR INVESTMENT INCOME AND NON-CLASS SPECIFIC
EXPENSES.
SEE NOTES TO FINANCIAL STATEMENTS
32
<Page>
<Table>
<Caption>
FOR THE SIX FOR THE YEAR ENDED JULY 31,
MONTHS ENDED ------------------------------------------------------------------
JANUARY 31, 2006 2005 2004 2003 2002 2001
---------------- ---------- ---------- ---------- ---------- ----------
(unaudited)
CLASS B SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period $ 18.36 $ 16.29 $ 14.73 $ 13.54 $ 16.43 $ 20.65
---------------- ---------- ---------- ---------- ---------- ----------
Income (loss) from investment
operations:
Net investment income++ 0.07 0.11 0.08 0.02 0.10 0.30
Net realized and unrealized
gain (loss) 1.10 2.08 1.58 1.22 (2.84) (1.57)
---------------- ---------- ---------- ---------- ---------- ----------
Total income (loss) from investment
operations 1.17 2.19 1.66 1.24 (2.74) (1.27)
---------------- ---------- ---------- ---------- ---------- ----------
Less dividends and distributions
from:
Net investment income (0.07) (0.12) (0.10) (0.05) (0.15) (0.35)
Net realized gain - - - - - (2.60)
---------------- ---------- ---------- ---------- ---------- ----------
Total dividends and distributions (0.07) (0.12) (0.10) (0.05) (0.15) (2.95)
---------------- ---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 19.46 $ 18.36 $ 16.29 $ 14.73 $ 13.54 $ 16.43
================ ========== ========== ========== ========== ==========
TOTAL RETURN+ 6.36%(1) 13.49% 11.24% 9.20% (16.77%) (7.05%)
RATIOS TO AVERAGE NET ASSETS(3):
Expenses 1.68%(2) 1.68% 1.71% 1.73% 1.67% 1.63%
Net investment income 0.74%(2) 0.73% 0.48% 0.15% 0.64% 1.63%
SUPPLEMENTAL DATA:
Net assets, end of period,
in millions $ 354 $ 398 $ 971 $ 1,042 $ 1,216 $ 1,827
Portfolio turnover rate 24%(1) 48% 42% 124% 164% 136%
</Table>
- ----------
++ THE PER SHARE AMOUNTS WERE COMPUTED USING AN AVERAGE NUMBER OF SHARES
OUTSTANDING DURING THE PERIOD.
+ DOES NOT REFLECT THE DEDUCTION OF SALES CHARGE. CALCULATED BASED ON THE NET
ASSET VALUE AS OF THE LAST BUSINESS DAY OF THE PERIOD.
(1) NOT ANNUALIZED.
(2) ANNUALIZED.
(3) REFLECTS OVERALL FUND RATIOS FOR INVESTMENT INCOME AND NON-CLASS SPECIFIC
EXPENSES.
SEE NOTES TO FINANCIAL STATEMENTS
33
<Page>
<Table>
<Caption>
FOR THE SIX FOR THE YEAR ENDED JULY 31,
MONTHS ENDED ------------------------------------------------------------------
JANUARY 31, 2006 2005 2004 2003 2002 2001
---------------- ---------- ---------- ---------- ---------- ----------
(unaudited)
CLASS C SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period $ 18.24 $ 16.21 $ 14.66 $ 13.46 $ 16.36 $ 20.57
---------------- ---------- ---------- ---------- ---------- ----------
Income (loss) from investment
operations:
Net investment income++ 0.07 0.13 0.08 0.03 0.10 0.29
Net realized and unrealized
gain (loss) 1.09 2.04 1.57 1.21 (2.83) (1.55)
---------------- ---------- ---------- ---------- ---------- ----------
Total income (loss) from investment
operations 1.16 2.17 1.65 1.24 (2.73) (1.26)
---------------- ---------- ---------- ---------- ---------- ----------
Less dividends and distributions
from:
Net investment income (0.07) (0.14) (0.10) (0.04) (0.17) (0.35)
Net realized gain - - - - - (2.60)
---------------- ---------- ---------- ---------- ---------- ----------
Total dividends and distributions (0.07) (0.14) (0.10) (0.04) (0.17) (2.95)
---------------- ---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 19.33 $ 18.24 $ 16.21 $ 14.66 $ 13.46 $ 16.36
================ ========== ========== ========== ========== ==========
TOTAL RETURN+ 6.36%(1) 13.44% 11.25% 9.09% (16.70%) (7.00%)
RATIOS TO AVERAGE NET ASSETS(3):
Expenses 1.68%(2) 1.65% 1.71% 1.73% 1.67% 1.63%
Net investment income 0.74%(2) 0.76% 0.48% 0.15% 0.64% 1.63%
SUPPLEMENTAL DATA:
Net assets, end of period,
in thousands $ 40,750 $ 41,621 $ 41,697 $ 36,351 $ 34,727 $ 45,612
Portfolio turnover rate 24%(1) 48% 42% 124% 164% 136%
</Table>
- ----------
++ THE PER SHARE AMOUNTS WERE COMPUTED USING AN AVERAGE NUMBER OF SHARES
OUTSTANDING DURING THE PERIOD.
+ DOES NOT REFLECT THE DEDUCTION OF SALES CHARGE. CALCULATED BASED ON THE NET
ASSET VALUE AS OF THE LAST BUSINESS DAY OF THE PERIOD.
(1) NOT ANNUALIZED.
(2) ANNUALIZED.
(3) REFLECTS OVERALL FUND RATIOS FOR INVESTMENT INCOME AND NON-CLASS SPECIFIC
EXPENSES.
SEE NOTES TO FINANCIAL STATEMENTS
34
<Page>
<Table>
<Caption>
FOR THE SIX FOR THE YEAR ENDED JULY 31,
MONTHS ENDED ------------------------------------------------------------------
JANUARY 31, 2006 2005 2004 2003 2002 2001
---------------- ---------- ---------- ---------- ---------- ----------
(unaudited)
CLASS D SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period $ 18.34 $ 16.29 $ 14.73 $ 13.55 $ 16.45 $ 20.67
---------------- ---------- ---------- ---------- ---------- ----------
Income (loss) from investment
operations:
Net investment income++ 0.16 0.30 0.24 0.16 0.26 0.48
Net realized and unrealized
gain (loss) 1.09 2.06 1.58 1.21 (2.85) (1.56)
---------------- ---------- ---------- ---------- ---------- ----------
Total income (loss) from investment
operations 1.25 2.36 1.82 1.37 (2.59) (1.08)
---------------- ---------- ---------- ---------- ---------- ----------
Less dividends and distributions
from:
Net investment income (0.16) (0.31) (0.26) (0.19) (0.31) (0.54)
Net realized gain - - - - - (2.60)
---------------- ---------- ---------- ---------- ---------- ----------
Total dividends and distributions (0.16) (0.31) (0.26) (0.19) (0.31) (3.14)
---------------- ---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 19.43 $ 18.34 $ 16.29 $ 14.73 $ 13.55 $ 16.45
================ ========== ========== ========== ========== ==========
TOTAL RETURN+ 6.86%(1) 14.60% 12.37% 10.25% (15.94%) (6.07%)
RATIOS TO AVERAGE NET ASSETS(3):
Expenses 0.68%(2) 0.68% 0.71% 0.73% 0.67% 0.63%
Net investment income 1.74%(2) 1.73% 1.48% 1.15% 1.64% 2.63%
SUPPLEMENTAL DATA:
Net assets, end of period,
in thousands $ 57,744 $ 58,707 $ 60,177 $ 61,423 $ 58,834 $ 81,594
Portfolio turnover rate 24%(1) 48% 42% 124% 164% 136%
</Table>
- ----------
++ THE PER SHARE AMOUNTS WERE COMPUTED USING AN AVERAGE NUMBER OF SHARES
OUTSTANDING DURING THE PERIOD.
+ CALCULATED BASED ON THE NET ASSET VALUE AS OF THE LAST BUSINESS DAY OF THE
PERIOD.
(1) NOT ANNUALIZED.
(2) ANNUALIZED.
(3) REFLECTS OVERALL FUND RATIOS FOR INVESTMENT INCOME AND NON-CLASS SPECIFIC
EXPENSES.
SEE NOTES TO FINANCIAL STATEMENTS
35
<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
Ronald E. Robison
PRESIDENT and PRINCIPAL EXECUTIVE OFFICER
J. David Germany
VICE PRESIDENT
Dennis F. Shea
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) 2006 Morgan Stanley
[MORGAN STANLEY LOGO]
38585RPT-RA06-0023OP-Y01/06
[GRAPHIC]
MORGAN STANLEY FUNDS
MORGAN STANLEY STRATEGIST FUND
SEMIANNUAL REPORT
JANUARY 31, 2006
[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 Strategist Fund
/s/ Ronald E. Robison
- ---------------------
Ronald E. Robison
Principal Executive Officer
March 23, 2006
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, this report has been signed by the following
persons on behalf of the registrant and in the capacities and on the dates
indicated.
/s/ Ronald E. Robison
- ---------------------
Ronald E. Robison
Principal Executive Officer
March 23, 2006
/s/ Francis Smith
- -----------------
Francis Smith
Principal Financial Officer
March 23, 2006