<Page>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-05654
Morgan Stanley Income Trust
(Exact name of registrant as specified in charter)
1221 Avenue of the Americas, New York, New York 10020
(Address of principal executive offices) (Zip code)
Ronald E. Robison
1221 Avenue of the Americas, New York, New York 10020
(Name and address of agent for service)
Registrant's telephone number, including area code: 212-762-4000
Date of fiscal year end: August 31, 2006
Date of reporting period: February 28, 2006
Item 1 - Report to Shareholders
<Page>
WELCOME, SHAREHOLDER:
IN THIS REPORT, YOU'LL LEARN ABOUT HOW YOUR INVESTMENT IN MORGAN STANLEY INCOME
TRUST PERFORMED DURING THE SEMIANNUAL PERIOD. WE WILL PROVIDE AN OVERVIEW OF THE
MARKET CONDITIONS, AND DISCUSS SOME OF THE FACTORS THAT AFFECTED PERFORMANCE
DURING THE REPORTING PERIOD. IN ADDITION, THIS REPORT INCLUDES THE FUND'S
FINANCIAL STATEMENTS AND A LIST OF FUND INVESTMENTS.
THIS MATERIAL MUST BE PRECEDED OR ACCOMPANIED BY A PROSPECTUS FOR THE FUND BEING
OFFERED.
MARKET FORECASTS PROVIDED IN THIS REPORT MAY NOT NECESSARILY COME TO PASS. THERE
IS NO ASSURANCE THAT THE FUND WILL ACHIEVE ITS INVESTMENT OBJECTIVE. THE FUND IS
SUBJECT TO MARKET RISK, WHICH IS THE POSSIBILITY THAT MARKET VALUES OF
SECURITIES OWNED BY THE FUND WILL DECLINE AND, THEREFORE, THE VALUE OF THE
FUND'S SHARES MAY BE LESS THAN WHAT YOU PAID FOR THEM. ACCORDINGLY, YOU CAN LOSE
MONEY INVESTING IN THIS FUND. PLEASE SEE THE PROSPECTUS FOR MORE COMPLETE
INFORMATION ON INVESTMENT RISKS.
<Page>
FUND REPORT
FOR THE SIX MONTHS ENDED FEBRUARY 28, 2006
TOTAL RETURN FOR THE 6 MONTHS ENDED FEBRUARY 28, 2006
<Table>
<Caption>
LEHMAN
BROTHERS LIPPER
INTERMEDIATE CORPORATE
U.S. DEBT FUNDS
GOVERNMENT/ BBB-RATED
CLASS A CLASS B CLASS C CLASS D CREDIT INDEX(1) INDEX(2)
-0.62% -0.94% -0.91% -0.43% -0.28% 0.34%
</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
Despite high energy prices and the devastation of the Gulf Coast hurricanes, the
U.S. economy demonstrated resilience during the reporting period. While some
observers initially expected that Hurricane Katrina would deliver a significant
blow to the U.S. economy, it became apparent as the weeks progressed that the
impact on the economy would be much smaller and more temporary than many had
anticipated. Moreover, sharply higher energy prices failed to interrupt the
positive economic momentum.
The first two months of 2006 proved somewhat uneventful. As many expected, the
Federal Open Market Committee (the "Fed") once again raised the federal funds
target rate by a quarter-point to 4.50 percent in January. Also as expected,
Alan Greenspan retired in January after more than 18 years as chairman of the
Federal Reserve Board of Governors. Ben S. Bernanke replaced him, and in his
first Congressional testimony as chairman, Bernanke acknowledged some risks to
the Fed's relatively contained inflation forecast and recognized the potential
for upward pressure on inflation if certain conditions persisted unchecked. The
chairman also indicated that he concurred with the Fed's January policy
statement which noted the potential for further tightening of monetary policy.
U.S. Treasury yields rose for the period overall. Short- and intermediate-term
Treasury yields were more responsive to stronger-than-expected economic data and
rose more rapidly than longer-term Treasury yields. Accordingly, the yield curve
(which measures the difference between short- and long-term bond yields)
flattened during the six-month period.
U.S. investment-grade corporate bonds underperformed other major bond market
sectors. Sector returns were unevenly distributed, with a few key names driving
performance within each sector. Overall, Aa-rated issues posted the highest
returns while medium quality, Baa-rated issues lagged. Among the
investment-grade corporate sub-sectors, the best performers were energy,
utilities and banking issues. Within the high yield sector, lower-rated issues
posted the best performance with forest products, telecom and consumer products
leading the way.
PERFORMANCE ANALYSIS
Morgan Stanley Income Trust underperformed the Lehman Brothers Intermediate U.S.
Government/Credit Index and the Lipper Corporate Debt Funds BBB-Rated
2
<Page>
Index for the six months ended February 28, 2006, assuming no deduction of
applicable sales charges.
During the period, we kept the Fund's overall interest-rate exposure well below
that of its Lehman benchmark. This posture was beneficial as interest rates rose
across the yield curve, especially in the short-term and intermediate-term
portions of the curve.
Favorable sector and security selection decisions, most notably an underweight
in the automotive sector, benefited relative performance versus the Lehman
benchmark. Within the investment-grade portion of the Fund, a focus on
higher-rated issues contributed positively to both absolute and relative
performance.
While the Fund emphasizes investment-grade credits, it also includes a smaller
allocation to higher yielding securities. Within the high yield portion, a
conservative approach detracted from performance as higher-rated issues
underperformed the riskiest segment of the high yield market (issues rated CCC
and below).
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.
PORTFOLIO COMPOSITION*
<Table>
Corporate Bonds 68.8%
Short-Term Investments 13.1
U.S. Government Obligations 9.1
Asset-Backed Securities 8.8
Mortgage-Backed Securities 0.2
</Table>
LONG-TERM CREDIT ANALYSIS
<Table>
AAA 36.2%
AA 8.5
A 20.1
BBB 27.4
BB 5.2
B or Below 2.6
</Table>
* DOES NOT INCLUDE OPEN LONG FUTURES CONTRACTS WITH AN UNDERLYING FACE AMOUNT OF
$11,110,188 AND NET UNREALIZED APPRECIATION OF $611 AND OPEN SHORT FUTURES
CONTRACTS WITH AN UNDERLYING FACE AMOUNT OF $1,635,000 AND UNREALIZED
DEPRECIATION OF $209.
DATA AS OF FEBRUARY 28, 2006. SUBJECT TO CHANGE DAILY. ALL PERCENTAGES FOR
PORTFOLIO COMPOSITION ARE AS A PERCENTAGE OF TOTAL INVESTMENTS AND ALL
PERCENTAGES FOR LONG-TERM CREDIT ANALYSIS ARE AS A PERCENTAGE OF TOTAL LONG-TERM
INVESTMENTS. THESE DATA ARE PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND SHOULD
NOT BE DEEMED A RECOMMENDATION TO BUY OR SELL THE SECURITIES MENTIONED. MORGAN
STANLEY IS A FULL-SERVICE SECURITIES FIRM ENGAGED IN SECURITIES TRADING AND
BROKERAGE ACTIVITIES, INVESTMENT BANKING, RESEARCH AND ANALYSIS, FINANCING AND
FINANCIAL ADVISORY SERVICES.
3
<Page>
INVESTMENT STRATEGY
THE FUND WILL NORMALLY INVEST AT LEAST 80 PERCENT OF ITS ASSETS IN INVESTMENT
GRADE FIXED-INCOME SECURITIES. THESE SECURITIES MAY INCLUDE CORPORATE DEBT
SECURITIES, PREFERRED STOCKS, U.S. GOVERNMENT SECURITIES, MORTGAGE-BACKED
SECURITIES, INCLUDING COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS") AND
COMMERCIAL MORTGAGE-BACKED SECURITIES ("CMBS"), ASSET-BACKED SECURITIES AND
SECURITIES ISSUED BY FOREIGN GOVERNMENTS OR CORPORATIONS. IN DECIDING WHICH
SECURITIES TO BUY, HOLD OR SELL, THE FUND'S "INVESTMENT ADVISER," MORGAN STANLEY
INVESTMENT ADVISORS INC., CONSIDERS DOMESTIC AND INTERNATIONAL ECONOMIC
DEVELOPMENTS, INTEREST RATE TRENDS, BOND RATINGS AND OTHER FACTORS RELATING TO
THE ISSUERS.
FOR MORE INFORMATION ABOUT PORTFOLIO HOLDINGS
EACH MORGAN STANLEY FUND PROVIDES A COMPLETE SCHEDULE OF PORTFOLIO HOLDINGS IN
ITS SEMIANNUAL AND ANNUAL REPORTS WITHIN 60 DAYS OF THE END OF THE FUND'S SECOND
AND FOURTH FISCAL QUARTERS BY FILING THE SCHEDULE ELECTRONICALLY WITH THE
SECURITIES AND EXCHANGE COMMISSION (SEC). THE SEMIANNUAL REPORTS ARE FILED ON
FORM N-CSRS AND THE ANNUAL REPORTS ARE FILED ON FORM N-CSR. MORGAN STANLEY ALSO
DELIVERS THE SEMIANNUAL AND ANNUAL REPORTS TO FUND SHAREHOLDERS AND MAKES THESE
REPORTS AVAILABLE ON ITS PUBLIC WEB SITE, www.morganstanley.com. EACH MORGAN
STANLEY FUND ALSO FILES A COMPLETE SCHEDULE OF PORTFOLIO HOLDINGS WITH THE SEC
FOR THE FUND'S FIRST AND THIRD FISCAL QUARTERS ON FORM N-Q. MORGAN STANLEY DOES
NOT DELIVER THE REPORTS FOR THE FIRST AND THIRD FISCAL QUARTERS TO SHAREHOLDERS,
NOR ARE THE REPORTS POSTED TO THE MORGAN STANLEY PUBLIC WEB SITE. YOU MAY,
HOWEVER, OBTAIN THE FORM N-Q FILINGS (AS WELL AS THE FORM N-CSR AND N-CSRS
FILINGS) BY ACCESSING THE SEC'S WEB SITE, http://www.sec.gov. YOU MAY ALSO
REVIEW AND COPY THEM AT THE SEC'S PUBLIC REFERENCE ROOM IN WASHINGTON, DC.
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.
4
<Page>
PERFORMANCE SUMMARY
AVERAGE ANNUAL TOTAL RETURNS--PERIOD ENDED FEBRUARY 28, 2006
<Table>
<Caption>
CLASS A SHARES* CLASS B SHARES** CLASS C SHARES+ CLASS D SHARES++
(SINCE 07/28/97) (SINCE 05/03/89) (SINCE 07/28/97) (SINCE 07/28/97)
SYMBOL IISAX IISBX IISCX IISDX
1 YEAR 2.42%(3) 1.74%(3) 1.80%(3) 2.71%(3)
(1.93)(4) (3.15)(4) 0.82(4) --
5 YEARS 4.67(3) 3.85(3) 3.88(3) 4.68(3)
3.77(4) 3.50(4) 3.88(4) --
10 YEARS -- 4.23(3) -- --
-- 4.23(4) -- --
SINCE INCEPTION 4.74(3) 5.29(3) 3.99(3) 4.82(3)
4.21(4) 5.29(4) 3.99(4) --
</Table>
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH IS NO GUARANTEE OF
FUTURE RESULTS AND CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE FIGURES
SHOWN. FOR 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 4.25%.
** THE MAXIMUM CONTINGENT DEFERRED SALES CHARGE (CDSC) FOR CLASS B IS 5.0%.
THE CDSC DECLINES TO 0% AFTER SIX YEARS.
+ THE MAXIMUM CONTINGENT DEFERRED SALES CHARGE FOR CLASS C IS 1.0% FOR SHARES
REDEEMED WITHIN ONE YEAR OF PURCHASE.
++ CLASS D HAS NO SALES CHARGE.
(1) THE LEHMAN BROTHERS INTERMEDIATE U.S. GOVERNMENT/CREDIT INDEX TRACKS THE
PERFORMANCE OF U.S. GOVERNMENT AND CORPORATE OBLIGATIONS, INCLUDING U.S.
GOVERNMENT AGENCY AND TREASURY SECURITIES, AND CORPORATE AND YANKEE BONDS
WITH MATURITIES OF 1 TO 10 YEARS. INDEXES ARE UNMANAGED AND THEIR RETURNS
DO NOT INCLUDE ANY SALES CHARGES OR FEES. SUCH COSTS WOULD LOWER
PERFORMANCE. IT IS NOT POSSIBLE TO INVEST DIRECTLY IN AN INDEX.
(2) THE LIPPER CORPORATE DEBT FUNDS BBB-RATED INDEX IS AN EQUALLY WEIGHTED
PERFORMANCE INDEX OF THE LARGEST QUALIFYING FUNDS (BASED ON NET ASSETS) IN
THE LIPPER CORPORATE DEBT FUNDS BBB-RATED CLASSIFICATION. THE INDEX, WHICH
IS ADJUSTED FOR CAPITAL GAINS DISTRIBUTIONS AND INCOME DIVIDENDS, IS
UNMANAGED AND SHOULD NOT BE CONSIDERED AN INVESTMENT. THERE ARE CURRENTLY
30 FUNDS REPRESENTED IN THIS INDEX.
(3) FIGURE SHOWN ASSUMES REINVESTMENT OF ALL DISTRIBUTIONS AND DOES NOT REFLECT
THE DEDUCTION OF ANY SALES CHARGES.
(4) FIGURE SHOWN ASSUMES REINVESTMENT OF ALL DISTRIBUTIONS AND THE DEDUCTION OF
THE MAXIMUM APPLICABLE SALES CHARGE. SEE THE FUND'S CURRENT PROSPECTUS FOR
COMPLETE DETAILS ON FEES AND SALES CHARGES.
5
<Page>
EXPENSE EXAMPLE
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, including sales charges (loads) on purchase payments and redemption fees;
and (2) ongoing costs, including 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 09/01/05 - 02/28/06.
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 *
------------- ------------- ---------------
09/01/05 -
09/01/05 02/28/06 02/28/06
------------- ------------- ---------------
CLASS A
Actual (-0.62% return) $ 1,000.00 $ 993.80 $ 5.19
Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,019.59 $ 5.26
CLASS B
Actual (-0.94% return) $ 1,000.00 $ 990.60 $ 8.14
Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,016.61 $ 8.25
CLASS C
Actual (-0.91% return) $ 1,000.00 $ 990.90 $ 7.80
Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,016.96 $ 7.90
CLASS D
Actual (-0.43% return) $ 1,000.00 $ 995.70 $ 3.96
Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,020.83 $ 4.01
</Table>
- ----------
* EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO OF 1.05%, 1.65%,
1.58% AND 0.80% FOR CLASS A, CLASS B, CLASS C AND CLASS D SHARES,
RESPECTIVELY, MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD,
MULTIPLIED BY 181/365 (TO REFLECT THE ONE-HALF YEAR PERIOD). IF THE FUND
HAD BORNE ALL OF ITS EXPENSES THAT WERE WAIVED BY THE INVESTMENT ADVISER
AND ADMINISTRATOR, THE ANNUALIZED EXPENSE RATIOS WOULD HAVE BEEN 1.32%,
1.92%, 1.85% AND 1.07% FOR CLASS A, CLASS B, CLASS C AND CLASS D SHARES,
RESPECTIVELY.
6
<Page>
MORGAN STANLEY INCOME TRUST
PORTFOLIO OF INVESTMENTS - FEBRUARY 28, 2006 (UNAUDITED)
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------------
CORPORATE BONDS (66.1%)
ADVERTISING/MARKETING SERVICES (1.2%)
$ 395 Interpublic Group of Companies, Inc. (The) 5.40% 11/15/09 $ 365,375
385 WPP Finance (UK) Corp. (United Kingdom) 5.875 06/15/14 386,964
------------
752,339
------------
AEROSPACE & DEFENSE (1.0%)
175 Raytheon Co. 4.50 11/15/07 173,002
32 Raytheon Co. 6.75 08/15/07 32,651
100 Raytheon Co. 8.30 03/01/10 110,805
323 Systems 2001 Asset Trust - 144A**
(Cayman Islands) 6.664 09/15/13 342,734
------------
659,192
------------
AIR FREIGHT/COURIERS (0.5%)
65 Fedex Corp. 2.65 04/01/07 63,182
220 Fedex Corp. 7.25 02/15/11 237,811
------------
300,993
------------
AIRLINES (0.4%)
238 America West Airlines, Inc. (Series 01-1) 7.10 04/02/21 250,642
------------
APPAREL/FOOTWEAR RETAIL (0.4%)
270 Limited Brands, Inc. 6.95 03/01/33 277,176
------------
AUTO PARTS: O.E.M. (0.8%)
265 Johnson Controls, Inc. 5.00 11/15/06 264,204
270 Lear Corp. (Series B) 8.11 05/15/09 238,435
------------
502,639
------------
BEVERAGES: ALCOHOLIC (1.3%)
430 FBG Finance Ltd.- 144A** (Australia) 5.125 06/15/15 412,568
430 Miller Brewing Co. - 144A** 4.25 08/15/08 420,657
------------
833,225
------------
BUILDING PRODUCTS (0.2%)
160 Masco Corp. 4.625 08/15/07 158,216
------------
CABLE/SATELLITE TV (1.5%)
270 Comcast Cable Communications Inc. 6.75 01/30/11 283,666
345 Cox Communications, Inc. 4.625 01/15/10 332,622
315 Echostar DBS Corp. 6.375 10/01/11 309,488
20 Echostar DBS Corp. 6.625 10/01/14 19,550
------------
945,326
------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
7
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------------
CASINO/GAMING (0.8%)
$ 530 Harrah's Operating Co., Inc. 5.625% 06/01/15 $ 518,752
------------
CONTAINERS/PACKAGING (0.8%)
540 Sealed Air Corp. - 144A** 5.625 07/15/13 534,916
------------
DEPARTMENT STORES (1.6%)
1,045 May Department Stores Co., Inc. 5.95 11/01/08 1,061,034
------------
ELECTRIC UTILITIES (8.5%)
420 Ameren Corp. 4.263 05/15/07 414,776
400 Arizona Public Service Co. 5.80 06/30/14 403,852
285 Arizona Public Service Co. 6.75 11/15/06 287,678
395 CC Funding Trust I 6.90 02/16/07 400,868
265 Cincinnati Gas & Electric Co. 5.70 09/15/12 269,730
105 Consolidated Natural Gas Co. 5.00 12/01/14 101,019
470 Consolidated Natural Gas Co.
(Series B) 5.375 11/01/06 470,525
390 Consumers Energy Co. 4.80 02/17/09 384,856
205 Detroit Edison Co. (The) 6.125 10/01/10 211,818
340 Duquesne Light Co. (Series O) 6.70 04/15/12 365,263
255 Entergy Gulf States, Inc. 3.60 06/01/08 244,526
365 Entergy Gulf States, Inc. 4.81+ 12/01/09 361,101
200 Entergy Gulf States, Inc. - 144A** 5.207+ 12/08/08 200,228
315 Jersey Central Power & Light Company 5.625 05/01/16 320,166
205 Monongahela Power Co. 5.00 10/01/06 204,658
395 Pacific Gas & Electric Co. 6.05 03/01/34 410,155
140 Panhandle Eastern Pipe Line Co. (Series B) 2.75 03/15/07 136,333
70 PSEG Energy Holdings Inc. 8.625 02/15/08 74,025
220 Texas Eastern Transmission, LP 7.00 07/15/32 257,578
------------
5,519,155
------------
ELECTRICAL PRODUCTS (1.3%)
480 Cooper Industries Inc. 5.25 07/01/07 479,237
360 Cooper Industries Inc. - 144A** 5.25 11/15/12 358,404
------------
837,641
------------
ELECTRONICS/APPLIANCES (0.7%)
175 Eastman Kodak Co. 7.25 11/15/13 172,853
260 LG Electronics Inc. - 144A** (South Korea) 5.00 06/17/10 254,093
------------
426,946
------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
8
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------------
FINANCE/RENTAL/LEASING (5.3%)
$ 510 CIT Group, Inc. 2.875% 09/29/06 $ 503,908
705 Countrywide Home Loans, Inc.
(Series MTN) 3.25 05/21/08 676,315
570 Nationwide Building Society - 144A**
(United Kingdom) 4.25 02/01/10 551,212
790 Residential Capital Corp. 6.375 06/30/10 798,414
415 SLM Corp. (Series MTNA) 5.00 10/01/13 404,715
525 Toyota Motor Credit Corp. 5.65 01/15/07 527,444
------------
3,462,008
------------
FINANCIAL CONGLOMERATES (4.3%)
735 Chase Manhattan Corp. 6.00 02/15/09 748,527
500 Citicorp 6.375 11/15/08 516,345
680 General Electric Capital Corp.
(Series MTNA) 6.75 03/15/32 798,470
375 General Motors Acceptance Corp. 6.875 09/15/11 336,137
410 Prudential Funding LLC
(Series MTN) - 144A** 6.60 05/15/08 421,983
------------
2,821,462
------------
FOOD RETAIL (0.9%)
425 Albertson's Inc. 8.00 05/01/31 407,880
160 Safeway Inc. 6.15 03/01/06 160,000
------------
567,880
------------
FOOD: MAJOR DIVERSIFIED (0.6%)
215 ConAgra Foods, Inc. 7.00 10/01/28 232,033
130 ConAgra Foods, Inc. 8.25 09/15/30 160,030
------------
392,063
------------
GAS DISTRIBUTORS (1.0%)
370 NiSource Finance Corp. 5.344+ 11/23/09 371,622
15 Ras Laffan Liquid Natural Gas Co.
Ltd. - 144A** (Qatar) 7.628 09/15/06 15,573
270 Sempra Energy 4.621 05/17/07 267,997
------------
655,192
------------
HOME FURNISHINGS (0.8%)
155 Mohawk Industries, Inc. 6.125 01/15/16 156,817
130 Mohawk Industries, Inc. (Class C) 6.50 04/15/07 131,264
210 Mohawk Industries, Inc. (Series D) 7.20 04/15/12 222,024
------------
510,105
------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
9
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------------
HOTELS/RESORTS/CRUISELINES (1.3%)
$ 695 Hyatt Equities LLC - 144A** 6.875% 06/15/07 $ 704,069
170 Starwood Hotels & Resorts Worldwide,
Inc. 7.375 05/01/07 174,250
------------
878,319
------------
HOUSEHOLD/PERSONAL CARE (0.9%)
560 Clorox Co. (The) 4.614+ 12/14/07 561,426
------------
INDUSTRIAL CONGLOMERATES (0.8%)
515 Honeywell International, Inc. 5.125 11/01/06 514,790
------------
INSURANCE BROKERS/SERVICES (2.9%)
1,135 Farmers Exchange Capital - 144A** 7.05 07/15/28 1,195,709
705 Marsh & McLennan Companies, Inc. 5.875 08/01/33 674,483
------------
1,870,192
------------
INVESTMENT BANKS/BROKERS (0.5%)
330 Goldman Sachs Group Inc. (The) 5.25 10/15/13 327,461
------------
MAJOR BANKS (0.9%)
560 HSBC Finance Corp. 6.75 05/15/11 595,781
------------
MAJOR TELECOMMUNICATIONS (5.0%)
540 AT&T Corp. 9.75 11/15/31 677,735
150 Deutsche Telekom International Finance
Corp. (Netherlands) 8.00 06/15/10 165,043
295 Deutsche Telekom International Finance
Corp. BV (Netherlands) 8.25 06/15/30 372,018
420 France Telecom S.A. (France) 8.75 03/01/31 552,932
80 GTE Corp. 6.36 04/15/06 80,106
300 SBC Communications, Inc. 6.15 09/15/34 299,911
305 Sprint Capital Corp. 8.75 03/15/32 401,830
255 Telecom Italia Capital SA
(Luxembourg) 4.00 11/15/08 246,392
310 Telecom Italia Capital SA
(Luxembourg) 4.00 01/15/10 293,508
165 Verizon Global Funding Corp. 7.25 12/01/10 177,850
------------
3,267,325
------------
MANAGED HEALTH CARE (1.4%)
600 Health Net, Inc. 9.875 04/15/11 692,656
175 WellPoint Health Networks Inc. 6.375 06/15/06 175,725
55 WellPoint Inc. 4.25 12/15/09 53,077
------------
921,458
------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
10
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------------
MEDIA CONGLOMERATES (1.1%)
$ 400 News America Holdings, Inc. 7.75% 02/01/24 $ 450,655
220 News America Inc. 7.28 06/30/28 239,091
------------
689,746
------------
MEDICAL DISTRIBUTORS (0.3%)
210 AmerisourceBergen Corp. - 144A* 5.625 09/15/12 209,955
------------
MOTOR VEHICLES (2.3%)
100 DaimlerChrysler North American
Holdings Co. 8.00 06/15/10 108,639
380 DaimlerChrysler North American
Holdings Co. 8.50 01/18/31 464,628
1,305 General Motors Corp. 8.375 07/15/33 926,550
------------
1,499,817
------------
MULTI-LINE INSURANCE (2.1%)
450 AIG Sun America Global
Finance VI - 144A** 6.30 05/10/11 472,648
300 American General Finance Corp.
(Series MTNF) 5.875 07/14/06 301,073
485 American General Finance Corp.
(Series MTNH) 4.625 09/01/10 470,108
135 Hartford Financial Services Group, Inc. (The) 2.375 06/01/06 134,157
------------
1,377,986
------------
OIL & GAS PRODUCTION (1.0%)
410 Kerr-McGee Corp. 5.875 09/15/06 412,878
230 Kerr-McGee Corp. 6.625 10/15/07 234,859
------------
647,737
------------
OTHER METALS/MINERALS (0.6%)
385 Brascan Corp. (Canada) 7.125 06/15/12 415,653
------------
PROPERTY - CASUALTY INSURERS (3.4%)
645 Mantis Reef Ltd. - 144A** (Australia) 4.692 11/14/08 630,853
350 Platinum Underwriters Finance
Holdings, Ltd. 6.371 11/16/07 349,554
335 Platinum Underwriters Finance
Holdings, Ltd. 7.50 06/01/17 342,731
250 St. Paul Travelers Companies, Inc. (The) 5.01 08/16/07 248,615
675 XLLIAC Global Funding - 144A** 4.80 08/10/10 660,849
------------
2,232,602
------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
11
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------------
PULP & PAPER (2.0%)
$ 276 Abitibi-Consolidated Inc. (Canada) 8.55% 08/01/10 $ 273,930
350 Abitibi-Consolidated Inc. (Canada) 8.85 08/01/30 309,313
460 Bowater Canada Finance (Canada) 7.95 11/15/11 453,100
300 Sappi Papier Holding AG - 144A**
(Austria) 6.75 06/15/12 287,803
------------
1,324,146
------------
RAILROADS (1.8%)
252 Burlington North Santa Fe Railway Co. 4.575 01/15/21 241,075
270 Norfolk Southern Corp. 7.35 05/15/07 277,041
245 Union Pacific Corp. 6.625 02/01/08 251,118
210 Union Pacific Corp. 6.65 01/15/11 221,373
160 Union Pacific Corp. (Series MTNE) 6.79 11/09/07 164,141
------------
1,154,748
------------
REAL ESTATE DEVELOPMENT (0.9%)
239 World Financial Properties - 144A** 6.95 09/01/13 250,048
324 World Financial Properties - 144A**
(Series 1996 WFP- B) 6.91 09/01/13 338,490
------------
588,538
------------
REAL ESTATE INVESTMENT TRUSTS (0.2%)
100 EOP Operating L.P. 4.75 03/15/14 94,361
45 EOP Operating L.P. 7.875 07/15/31 53,492
------------
147,853
------------
REGIONAL BANKS (1.4%)
740 Marshall & Ilsley Bank (Series BKNT) 3.80 02/08/08 722,819
175 US Bancorp 5.10 07/15/07 174,765
------------
897,584
------------
SAVINGS BANKS (1.4%)
70 Household Finance Corp. 4.125 11/16/09 67,476
170 Household Finance Corp. 8.00 07/15/10 187,372
685 Washington Mutual Bank 5.50 01/15/13 687,428
------------
942,276
------------
TOTAL CORPORATE BONDS
(COST $43,723,672) 43,052,295
------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
12
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------------------
ASSET-BACKED SECURITIES (8.5%)
FINANCE/RENTAL/LEASING
$ 550 Chase Manhattan Auto Owner Trust
2004-A A4 2.83% 09/15/10 $ 533,174
308 CIT Equipment Collateral 2004-EF1 A3 3.50 09/20/08 303,571
550 DaimlerChrysler Auto Trust 2003-B A4 2.86 03/09/09 539,621
325 Ford Credit Auto Owner Trust 2005B A3 4.17 01/15/09 322,349
450 Harley-Davidson Motorcycle Trust
2004-2 A2 3.56 02/15/12 441,579
600 Harley-Davidson Motorcycle Trust
2005-1 A2 3.76 12/17/12 587,424
550 Honda Auto Receivables Owner Trust
2004-1 A4 3.06 10/21/09 536,408
800 MBNA Credit Card Master Note Trust
2004-A4 A4 2.70 09/15/09 780,043
500 TXU Electric Delivery Transition Bond Co.
LLC 2004-1 A2 4.81 11/17/14 491,596
650 USAA Auto Owner Trust 2004-2 A-4 3.58 02/15/11 636,761
350 Volkswagen Auto Lease Trust 2005-A A3 3.82 05/20/08 346,868
-------------
TOTAL ASSET-BACKED SECURITIES
(COST $5,642,727) 5,519,394
-------------
U.S. Government Agencies - Mortgage-Backed
Securities (0.1%)
21 Federal Home Loan Mortgage Corp. 7.50 09/01/30 22,066
35 Federal National Mortgage Association 7.50 01/01/30 - 04/01/32 36,665
-------------
TOTAL U.S. GOVERNMENT AGENCIES - MORTGAGE-BACKED
SECURITIES
(COST $59,094) 58,731
-------------
U.S. GOVERNMENT OBLIGATIONS (8.8%)
3,210 U.S. Treasury Bonds 6.125 - 6.375 08/15/27 - 08/15/29 3,894,419
1,500 U.S. Treasury Note 4.25 11/15/13 1,464,903
950 U.S. Treasury Strip 0.00 02/15/27 361,816
-------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(COST $5,744,055) 5,721,138
-------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
13
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS (12.6%)
U.S. GOVERNMENT OBLIGATION (a) (0.2%)
$ 100 U.S. Treasury Bill*
(COST $98,414) 4.26% 07/13/06 $ 98,414
------------
REPURCHASE AGREEMENT (12.4%)
8,117 Joint repurchase agreement account
(dated 02/28/06; proceeds $8,118,027) (b)
(COST $8,117,000) 4.555 03/01/06 8,117,000
------------
TOTAL SHORT-TERM INVESTMENTS
(COST $8,215,414) 8,215,414
------------
TOTAL INVESTMENTS
(COST $63,384,962) (c) (d) 96.1% 62,566,972
OTHER ASSETS IN EXCESS OF LIABILITIES 3.9 2,553,440
----- ------------
NET ASSETS 100.0% $ 65,120,412
===== ============
</Table>
- ----------
* A PORTION OF THIS SECURITY HAS BEEN PHYSICALLY SEGREGATED IN CONNECTION
WITH OPEN FUTURES CONTRACTS IN AN AMOUNT EQUAL TO $67,280.
** RESALE IS RESTRICTED TO QUALIFIED INSTITUTIONAL INVESTORS.
+ FLOATING RATE SECURITY, RATE SHOWN IS THE RATE IN EFFECT AT FEBRUARY 28,
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
$12,245,203 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 $235,871 AND THE AGGREGATE GROSS UNREALIZED DEPRECIATION
IS $1,053,861 RESULTING IN NET UNREALIZED DEPRECIATION OF $817,990.
FUTURES CONTRACTS OPEN AT FEBRUARY 28, 2006:
<Table>
<Caption>
UNREALIZED
NUMBER OF DESCRIPTION, DELIVERY UNDERLYING FACE APPRECIATION
CONTRACTS LONG/SHORT MONTH AND YEAR AMOUNT AT VALUE (DEPRECIATION)
- ------------------------------------------------------------------------------------------------------
82 Long U.S. Treasury Note 10 Year $ 8,848,313 $ (3,897)
June 2006
20 Long U.S. Treasury Bond 20 Year 2,261,875 4,508
June 2006
8 Short U.S. Treasury Note 2 Year (1,635,000) (209)
June 2006
--------------
Net Unrealized Appreciation $ 402
==============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
14
<Page>
MORGAN STANLEY INCOME TRUST
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 28, 2006 (UNAUDITED)
<Table>
ASSETS:
Investments in securities, at value (cost $63,384,962) (including a
repurchase agreement of $8,117,000) $ 62,566,972
Cash 991
Receivable for:
Investments sold 2,123,633
Interest 685,291
Variation margin 39,489
Shares of beneficial interest sold 3,152
Prepaid expenses and other assets 31,372
---------------
TOTAL ASSETS 65,450,900
---------------
LIABILITIES:
Payable for:
Shares of beneficial interest redeemed 131,755
Dividends to shareholders 31,323
Distribution fee 28,248
Transfer agent fee 6,709
Investment advisory fee 4,901
Administration fee 4,033
Accrued expenses and other payables 123,519
---------------
TOTAL LIABILITIES 330,488
---------------
NET ASSETS $ 65,120,412
===============
COMPOSITION OF NET ASSETS:
Paid-in-capital $ 72,888,067
Net unrealized depreciation (817,588)
Dividends in excess of net investment income (874,306)
Accumulated net realized loss (6,075,761)
---------------
NET ASSETS $ 65,120,412
===============
CLASS A SHARES:
Net Assets $ 30,237,587
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE) 3,223,936
NET ASSET VALUE PER SHARE $ 9.38
===============
MAXIMUM OFFERING PRICE PER SHARE,
(NET ASSET VALUE PLUS 4.44% OF NET ASSET VALUE) $ 9.80
===============
CLASS B SHARES:
Net Assets $ 28,850,069
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE) 3,101,580
NET ASSET VALUE PER SHARE $ 9.30
===============
CLASS C SHARES:
Net Assets $ 4,843,183
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE) 519,591
NET ASSET VALUE PER SHARE $ 9.32
===============
CLASS D SHARES:
Net Assets $ 1,189,573
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE) 128,252
NET ASSET VALUE PER SHARE $ 9.28
===============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
15
<Page>
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED FEBRUARY 28, 2006 (UNAUDITED)
<Table>
NET INVESTMENT INCOME:
Interest Income $ 1,779,463
---------------
EXPENSES
Investment advisory fee 147,733
Distribution fee (Class A shares) 37,965
Distribution fee (Class B shares) 135,983
Distribution fee (Class C shares) 20,854
Transfer agent fees and expenses 60,329
Professional fees 50,592
Shareholder reports and notices 34,994
Administration fee 28,140
Registration fees 20,855
Custodian fees 15,367
Trustees' fees and expenses 4,095
Other 13,791
---------------
TOTAL EXPENSES 570,698
Less: amounts waived/reimbursed (94,501)
---------------
NET EXPENSES 476,197
---------------
NET INVESTMENT INCOME 1,303,266
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
NET REALIZED GAIN ON:
Investments 6,743
Futures contracts 38,879
---------------
NET REALIZED GAIN 45,622
---------------
NET CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION ON:
Investments (2,019,127)
Futures contracts (44,873)
---------------
NET DEPRECIATION (2,064,000)
---------------
NET LOSS (2,018,378)
---------------
NET DECREASE $ (715,112)
===============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
16
<Page>
STATEMENT OF CHANGES IN NET ASSETS
<Table>
<Caption>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
FEBRUARY 28, 2006 AUGUST 31, 2005
------------------ ------------------
(UNAUDITED)
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income $ 1,303,266 $ 3,150,109
Net realized gain 45,622 1,103,433
Net change in unrealized appreciation (2,064,000) 125,178
------------------ ------------------
NET INCREASE (DECREASE) (715,112) 4,378,720
------------------ ------------------
DIVIDENDS TO SHAREHOLDERS FROM NET INVESTMENT INCOME:
Class A shares (687,543) (753,287)
Class B shares (627,108) (2,357,036)
Class C shares (106,465) (284,981)
Class D shares (60,910) (258,588)
------------------ ------------------
TOTAL DIVIDENDS (1,482,026) (3,653,892)
------------------ ------------------
Net decrease from transactions in shares of beneficial interest (11,369,873) (16,476,445)
------------------ ------------------
NET DECREASE (13,567,011) (15,751,617)
NET ASSETS:
Beginning of period 78,687,423 94,439,040
------------------ ------------------
END OF PERIOD
(INCLUDING DIVIDENDS IN EXCESS OF NET INVESTMENT INCOME OF
$874,306 AND $695,546, RESPECTIVELY) $ 65,120,412 $ 78,687,423
================== ==================
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
17
<Page>
MORGAN STANLEY INCOME TRUST
NOTES TO FINANCIAL STATEMENTS - FEBRUARY 28, 2006 (UNAUDITED)
1. ORGANIZATION AND ACCOUNTING POLICIES
Morgan Stanley Income Trust (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 high current
income consistent with safety of principal. The Fund was organized as a
Massachusetts business trust on September 1, 1988 and commenced operations on
May 3, 1989. On July 28, 1997, the Fund converted to a multiple class share
structure.
The Fund offers Class A shares, Class B shares, Class C shares and Class D
shares. The four classes are substantially the same except that most Class A
shares are subject to a sales charge imposed at the time of purchase and some
Class A shares, and most Class B shares and Class C shares are subject to a
contingent deferred sales charge imposed on shares redeemed within 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.
The Fund will assess 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) certain portfolio securities may be valued by
an outside pricing service approved by the Fund's Trustees; (2) portfolio
securities for which over-the-counter market quotations are readily available
are valued at the mean between the last reported bid and asked price; (3) when
market quotations are not readily available or Morgan Stanley Investment
Advisors Inc. (the "Investment Adviser") determines that the market quotations
are not reflective of a security's market value, portfolio securities are valued
at their fair value as determined in good faith under procedures established by
and under the general supervision of the Fund's Trustees; and (4) short-term
debt securities having a maturity date of more than sixty days at time of
purchase are valued on a mark-to-market basis until sixty days prior to maturity
and thereafter at amortized cost based on their value on the 61st day.
Short-term debt securities having a maturity date of sixty days or less at the
time of purchase are valued at amortized cost.
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined by the identified cost method.
Discounts are accreted and premiums are amortized over the life of the
respective securities. Interest income is accrued daily.
C. REPURCHASE AGREEMENTS -- Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the Fund, along with other affiliated
entities managed by the Investment Adviser, may
18
<Page>
transfer uninvested cash balances into one or more joint repurchase agreement
accounts. These balances are invested in one or more repurchase agreements and
are collateralized by cash, U.S. Treasury or federal agency obligations. The
Fund may also invest directly with institutions in repurchase agreements. The
Fund's custodian receives the collateral, which is marked-to-market daily to
determine that the value of the collateral does not decrease below the
repurchase price plus accrued interest.
D. MULTIPLE CLASS ALLOCATIONS -- Investment income, expenses (other than
distribution fees), and realized and unrealized gains and losses are allocated
to each class of shares based upon the relative net asset value on the date such
items are recognized. Distribution fees are charged directly to the respective
class.
E. FUTURES CONTRACTS -- A futures contract is an agreement between two parties
to buy and sell financial instruments or contracts based on financial indices at
a set price on a future date. Upon entering into such a contract, the Fund is
required to pledge to the broker cash, U.S. Government securities or other
liquid portfolio securities equal to the minimum initial margin requirements of
the applicable futures exchange. Pursuant to the contract, the Fund agrees to
receive from or pay to the broker an amount of cash equal to the daily
fluctuation in the value of the contract. Such receipts or payments known as
variation margin are recorded by the Fund as unrealized gains and losses. Upon
closing of the contract, the Fund realizes a gain or loss equal to the
difference between the value of the contract at the time it was opened and the
value at the time it was closed.
F. FEDERAL INCOME TAX POLICY -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute substantially all of its taxable income to its
shareholders. Accordingly, no federal income tax provision is required.
G. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- Dividends and distributions to
shareholders are recorded on the ex-dividend date.
H. USE OF ESTIMATES -- The preparation of financial statements in accordance
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures.
Actual results could differ from those estimates.
2. INVESTMENT ADVISORY/ADMINISTRATION AGREEMENTS
Pursuant to an Investment Advisory Agreement, the Fund pays the Investment
Adviser an advisory fee, accrued daily and payable monthly, by applying the
following annual rates to the net assets of the Fund determined as of the close
of each business day: 0.42% to the portion of the daily net assets not exceeding
$500 million; 0.35% to the portion of the daily net assets exceeding $500
million but not exceeding $1.25 billion; 0.22% to the portion of the daily net
assets exceeding $1.25 billion.
19
<Page>
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.
The Investment Adviser has agreed to cap the Fund's operating expenses (except
for brokerage and 12b-1 fees) by assuming the Fund's "other expenses" and/or
waiving the Fund's advisory fees, and the Administrator has agreed to waive the
Fund's administrative fees, to the extent such operating expenses on an
annualized basis exceed 0.80% of the average daily net assets of the Fund.
3. PLAN OF DISTRIBUTION
Shares of the Fund are distributed by Morgan Stanley Distributors Inc. (the
"Distributor"), an affiliate of the Investment Adviser and Administrator. The
Fund has adopted a Plan of Distribution (the "Plan") pursuant to Rule 12b-1
under the Act. The Plan provides that the Fund will pay the Distributor a fee
which is accrued daily and paid monthly at the following annual rates: (i) Class
A -- up to 0.25% of the average daily net assets of Class A; (ii) Class B -- up
to 0.85% of the lesser of: (a) the average daily aggregate gross sales of the
Class B shares since the inception of the Fund (not including reinvestment of
dividend or capital gain distributions) less the average daily aggregate net
asset value of the Class B shares redeemed since the Fund's inception upon which
a contingent deferred sales charge has been imposed or waived; or (b) the
average daily net assets of Class B; and (iii) Class C -- up to 0.85% of the
average daily net assets of Class C.
In the case of Class B shares, provided that the Plan continues in effect, any
cumulative expenses incurred by the Distributor but not yet recovered may be
recovered through the payment of future distribution fees from the Fund pursuant
to the Plan and contingent deferred sales charges paid by investors upon
redemption of Class B shares. Although there is no legal obligation for the Fund
to pay expenses incurred in excess of payments made to the Distributor under the
Plan and the proceeds of contingent deferred sales charges paid by investors
upon redemption of shares, if for any reason the Plan is terminated, the
Trustees will consider at that time the manner in which to treat such expenses.
The Distributor has advised the Fund that such excess amounts totaled $4,389,432
at February 28, 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 0.85% of the average daily
net assets of Class A or Class C, respectively, will not be reimbursed by the
Fund through payments in any subsequent year, except that expenses representing
a gross sales credit to Morgan Stanley Financial Advisors or other selected
broker-dealer representatives may be reimbursed in the subsequent calendar year.
For the six months ended February 28, 2006, the distribution fee was accrued for
Class A shares and Class C shares at the annual rate of 0.25% and 0.78%,
respectively.
20
<Page>
The Distributor has informed the Fund that for the six months ended February 28,
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 $6, $55,536 and
$137, respectively and received $5,127 in front-end sales charges from sales of
the Fund's Class A shares. The respective shareholders pay such charges which
are not an expense of the Fund.
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales/prepayments of portfolio
securities, excluding short-term investments, for the six months ended February
28, 2006, aggregated $10,126,378, and $25,786,028, respectively. Included in the
aforementioned are purchases and sales of U.S. Government securities of
$1,725,129 and $4,116,015, respectively. The Fund had sales of $2,243,199
including a realized loss of $29,301 with other Morgan Stanley funds.
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 February 28, 2006 included in Trustees'
fees and expenses in the Statement of Operations amounted to $3,625. At February
28, 2006, the Fund had an accrued pension liability of $63,011 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.
21
<Page>
5. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<Table>
<Caption>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
FEBRUARY 28, 2006 AUGUST 31, 2005
---------------------------------- ----------------------------------
(UNAUDITED)
SHARES AMOUNT SHARES AMOUNT
--------------- --------------- --------------- ---------------
CLASS A SHARES
Sold 104,914 $ 988,699 221,589 $ 2,132,992
Conversion from Class B 104,746 986,811 2,729,474 25,880,591
Reinvestment of dividends 47,218 444,275 52,537 502,897
Redeemed (352,668) (3,315,654) (481,353) (4,601,088)
--------------- --------------- --------------- ---------------
Net increase (decrease) -- Class A (95,790) (895,869) 2,522,247 23,915,392
--------------- --------------- --------------- ---------------
CLASS B SHARES
Sold 136,801 1,284,661 523,679 4,969,424
Conversion to Class A (105,634) (986,811) (2,752,699) (25,880,591)
Reinvestment of dividends 44,733 417,454 160,297 1,521,702
Redeemed (708,307) (6,610,572) (1,965,508) (18,649,225)
--------------- --------------- --------------- ---------------
Net decrease -- Class B (632,407) (5,895,268) (4,034,231) (38,038,690)
--------------- --------------- --------------- ---------------
CLASS C SHARES
Sold 15,064 141,204 127,272 1,208,754
Reinvestment of dividends 8,621 80,585 22,019 209,341
Redeemed (152,279) (1,425,289) (287,875) (2,733,330)
--------------- --------------- --------------- ---------------
Net decrease -- Class C (128,594) (1,203,500) (138,584) (1,315,235)
--------------- --------------- --------------- ---------------
CLASS D SHARES
Sold 11,084 103,090 70,246 665,641
Reinvestment of dividends 4,322 40,252 21,317 201,615
Redeemed (379,436) (3,518,578) (201,163) (1,905,168)
--------------- --------------- --------------- ---------------
Net decrease -- Class D (364,030) (3,375,236) (109,600) (1,037,912)
--------------- --------------- --------------- ---------------
Net decrease in Fund (1,220,821) $ (11,369,873) (1,760,168) $ (16,476,445)
=============== =============== =============== ===============
</Table>
6. FEDERAL INCOME TAX STATUS
The amount of dividends and distributions from net investment income and net
realized capital gains are determined in accordance with federal income tax
regulations which may differ from generally accepted accounting principles.
These "book/tax" differences are either considered temporary or permanent in
nature. To the extent these differences are permanent in nature, such amounts
are reclassified within the capital accounts based on their federal tax-basis
treatment; temporary differences do not require reclassification. Dividends and
distributions which exceed net investment income and net realized capital gains
for tax purposes are reported as distributions of paid-in-capital.
22
<Page>
As of August 31, 2005, the Fund a net capital loss carryforward of $6,064,561 of
which $199,882 will expire on August 31, 2006, $1,146,203 will expire on August
31, 2008, $2,891,735 will expire on August 31, 2009, $313,469 will expire on
August 31, 2010 and $1,513,272 will expire on August 31, 2012 to offset future
capital gains to the extent provided by regulations.
As of August 31, 2005, the Fund had temporary book/tax differences primarily
attributable to capital loss deferrals on wash sales, mark-to-market of open
futures contracts, dividend payable and book amortization of premiums on debt
securities.
7. PURPOSES OF AND RISKS RELATING TO CERTAIN FINANCIAL INSTRUMENTS
To hedge against adverse interest rate, foreign currency and market risks, the
Fund may purchase and sell interest rate, currency and index futures contracts
("futures contract").
Futures contracts involve elements of market risk in excess of the amount
reflected in the Statement of Assets and Liabilities. The Fund bears the risk of
an unfavorable change in the value of the underlying securities. Risks may also
arise upon entering into these contracts from the potential inability of the
counterparties to meet the terms of their contracts.
8. LEGAL MATTERS
The Investment Adviser, certain affiliates of the Investment Adviser, certain
officers of such affiliates and certain investment companies advised by the
Investment Adviser or its affiliates, including the Fund, are named as
defendants in a consolidated class action. This consolidated action also names
as defendants certain individual Trustees and Directors of the Morgan Stanley
funds. The consolidated amended complaint, 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, which motion defendants opposed. While the Fund and Adviser
believe that each has meritorious defenses, the ultimate outcome of this matter
is not presently determinable and no provision has been made in the Fund's
financial statements for the effect, if any, of this matter.
23
<Page>
MORGAN STANLEY INCOME TRUST
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<Table>
<Caption>
FOR THE SIX FOR THE YEAR ENDED AUGUST 31,
MONTHS ENDED -------------------------------------------------------------------
FEBRUARY 28, 2006 2005 2004 2003 2002 2001
----------------- --------- --------- --------- --------- ---------
(UNAUDITED)
CLASS A SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning
of period $ 9.65 $ 9.56 $ 9.39 $ 9.53 $ 9.35 $ 8.97
----------------- --------- --------- --------- --------- ---------
Income (loss) from investment
operations:
Net investment income 0.17 0.38 0.35 0.20 0.37 0.52
Net realized and unrealized
gain (loss) (0.23) 0.16 0.26 0.01 0.19 0.38
----------------- --------- --------- --------- --------- ---------
Total income (loss) from
investment operations (0.06) 0.54 0.61 0.21 0.56 0.90
----------------- --------- --------- --------- --------- ---------
Less dividends from net
investment income (0.21) (0.45) (0.44) (0.35) (0.38) (0.52)
----------------- --------- --------- --------- --------- ---------
Net asset value, end of period $ 9.38 $ 9.65 $ 9.56 $ 9.39 $ 9.53 $ 9.35
================= ========= ========= ========= ========= =========
TOTAL RETURN+ (0.62)%(1) 5.81% 6.57% 2.17% 6.17% 10.34%
RATIOS TO AVERAGE NET ASSETS(3):
Expenses 1.05%(2)(4) 1.03%(4) 1.19%(4) 1.14% 1.04% 1.21%
Net investment income 4.01%(2)(4) 4.08%(4) 3.86%(4) 2.14% 4.03% 5.71%
SUPPLEMENTAL DATA:
Net assets, end of
period, in thousands $ 30,238 $ 32,038 $ 7,628 $ 9,636 $ 10,730 $ 4,177
Portfolio turnover rate 16%(1) 46% 164% 429% 400% 358%
</Table>
- ----------
+ DOES NOT REFLECT THE DEDUCTION OF SALES CHARGE. CALCULATED BASED ON THE NET
ASSET VALUE AS OF THE LAST BUSINESS DAY OF THE PERIOD.
(1) NOT ANNUALIZED.
(2) ANNUALIZED.
(3) REFLECTS OVERALL FUND RATIOS FOR INVESTMENT INCOME AND NON-CLASS SPECIFIC
EXPENSES.
(4) IF THE FUND HAD BORNE ALL EXPENSES THAT WERE WAIVED BY THE INVESTMENT
ADVISER AND ADMINISTRATOR, THE ANNUALIZED EXPENSE AND NET INVESTMENT INCOME
RATIOS WOULD HAVE BEEN AS FOLLOWS:
<Table>
<Caption>
EXPENSE NET INVESTMENT
PERIOD ENDED RATIO INCOME RATIO
----------------- --------- --------------
FEBRUARY 28, 2006 1.32% 3.74%
AUGUST 31, 2005 1.18 3.93
AUGUST 31, 2004 1.24 3.81
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
24
<Page>
<Table>
<Caption>
FOR THE SIX FOR THE YEAR ENDED AUGUST 31,
MONTHS ENDED -------------------------------------------------------------------
FEBRUARY 28, 2006 2005 2004 2003 2002 2001
----------------- --------- --------- --------- --------- ---------
(UNAUDITED)
CLASS B SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning
of period $ 9.57 $ 9.48 $ 9.32 $ 9.45 $ 9.35 $ 8.98
----------------- --------- --------- --------- --------- ---------
Income (loss) from investment
operations:
Net investment income 0.14 0.31 0.29 0.14 0.31 0.47
Net realized and unrealized
gain (loss) (0.23) 0.16 0.24 0.02 0.10 0.37
----------------- --------- --------- --------- --------- ---------
Total income (loss) from
investment operations (0.09) 0.47 0.53 0.16 0.41 0.84
----------------- --------- --------- --------- --------- ---------
Less dividends from net
investment income (0.18) (0.38) (0.37) (0.29) (0.31) (0.47)
----------------- --------- --------- --------- --------- ---------
Net asset value, end of period $ 9.30 $ 9.57 $ 9.48 $ 9.32 $ 9.45 $ 9.35
================= ========= ========= ========= ========= =========
TOTAL RETURN+ (0.94)%(1) 5.13% 5.78% 1.63% 4.58% 9.55%
RATIOS TO AVERAGE NET ASSETS(3):
Expenses 1.65%(2)(4) 1.65%(4) 1.85%(4) 1.79% 1.72% 1.84%
Net investment income 3.41%(2)(4) 3.46%(4) 3.20%(4) 1.49% 3.35% 5.08%
SUPPLEMENTAL DATA:
Net assets, end of
period, in thousands $ 28,850 $ 35,739 $ 73,650 $ 99,695 $ 103,238 $ 97,452
Portfolio turnover rate 16%(1) 46% 164% 429% 400% 358%
</Table>
- ----------
+ DOES NOT REFLECT THE DEDUCTION OF SALES CHARGE. CALCULATED BASED ON THE NET
ASSET VALUE AS OF THE LAST BUSINESS DAY OF THE PERIOD.
(1) NOT ANNUALIZED.
(2) ANNUALIZED.
(3) REFLECTS OVERALL FUND RATIOS FOR INVESTMENT INCOME AND NON-CLASS SPECIFIC
EXPENSES.
(4) IF THE FUND HAD BORNE ALL EXPENSES THAT WERE WAIVED BY THE INVESTMENT
ADVISER AND ADMINISTRATOR, THE ANNUALIZED EXPENSE AND NET INVESTMENT INCOME
RATIOS WOULD HAVE BEEN AS FOLLOWS:
<Table>
<Caption>
EXPENSE NET INVESTMENT
PERIOD ENDED RATIO INCOME RATIO
----------------- --------- --------------
FEBRUARY 28, 2006 1.92% 3.14%
AUGUST 31, 2005 1.80 3.31
AUGUST 31, 2004 1.90 3.15
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
25
<Page>
<Table>
<Caption>
FOR THE SIX FOR THE YEAR ENDED AUGUST 31,
MONTHS ENDED -------------------------------------------------------------------
FEBRUARY 28, 2006 2005 2004 2003 2002 2001
----------------- --------- --------- --------- --------- ---------
(UNAUDITED)
CLASS C SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning
of period $ 9.59 $ 9.50 $ 9.34 $ 9.46 $ 9.36 $ 8.99
----------------- --------- --------- --------- --------- ---------
Income (loss) from
investment operations:
Net investment income 0.14 0.31 0.29 0.14 0.31 0.47
Net realized and unrealized
gain (loss) (0.23) 0.17 0.24 0.03 0.10 0.37
----------------- --------- --------- --------- --------- ---------
Total income (loss) from
investment operations (0.09) 0.48 0.53 0.17 0.41 0.84
----------------- --------- --------- --------- --------- ---------
Less dividends from net
investment income (0.18) (0.39) (0.37) (0.29) (0.31) (0.47)
----------------- --------- --------- --------- --------- ---------
Net asset value, end of period $ 9.32 $ 9.59 $ 9.50 $ 9.34 $ 9.46 $ 9.36
================= ========= ========= ========= ========= =========
TOTAL RETURN+ (0.91)%(1) 5.16% 5.77% 1.74% 4.57% 9.54%
RATIOS TO AVERAGE NET ASSETS(3):
Expenses 1.58%(2)(4) 1.62%(4) 1.85%(4) 1.79% 1.72% 1.84%
Net investment income 3.48%(2)(4) 3.49%(4) 3.20%(4) 1.49% 3.35% 5.08%
SUPPLEMENTAL DATA:
Net assets, end of
period, in thousands $ 4,843 $ 6,215 $ 7,474 $ 10,389 $ 6,415 $ 4,226
Portfolio turnover rate 16%(1) 46% 164% 429% 400% 358%
</Table>
- ----------
+ DOES NOT REFLECT THE DEDUCTION OF SALES CHARGE. CALCULATED BASED ON THE NET
ASSET VALUE AS OF THE LAST BUSINESS DAY OF THE PERIOD.
(1) NOT ANNUALIZED.
(2) ANNUALIZED.
(3) REFLECTS OVERALL FUND RATIOS FOR INVESTMENT INCOME AND NON-CLASS SPECIFIC
EXPENSES.
(4) IF THE FUND HAD BORNE ALL EXPENSES THAT WERE WAIVED BY THE INVESTMENT
ADVISER AND ADMINISTRATOR, THE ANNUALIZED EXPENSE AND NET INVESTMENT INCOME
RATIOS WOULD HAVE BEEN AS FOLLOWS:
<Table>
<Caption>
EXPENSE NET INVESTMENT
PERIOD ENDED RATIO INCOME RATIO
----------------- --------- --------------
FEBRUARY 28, 2006 1.85% 3.21%
AUGUST 31, 2005 1.77 3.34
AUGUST 31, 2004 1.90 3.15
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
26
<Page>
<Table>
<Caption>
FOR THE SIX FOR THE YEAR ENDED AUGUST 31,
MONTHS ENDED -------------------------------------------------------------------
FEBRUARY 28, 2006 2005 2004 2003 2002 2001
----------------- --------- --------- --------- --------- ---------
(UNAUDITED)
CLASS D SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning
of period $ 9.54 $ 9.45 $ 9.29 $ 9.43 $ 9.35 $ 8.98
----------------- --------- --------- --------- --------- ---------
Income (loss) from
investment operations:
Net investment income 0.18 0.39 0.37 0.22 0.38 0.55
Net realized and unrealized
gain (loss) (0.22) 0.16 0.24 0.01 0.09 0.37
----------------- --------- --------- --------- --------- ---------
Total income (loss) from
investment operations (0.04) 0.55 0.61 0.23 0.47 0.92
----------------- --------- --------- --------- --------- ---------
Less dividends from net
investment income (0.22) (0.46) (0.45) (0.37) (0.39) (0.55)
----------------- --------- --------- --------- --------- ---------
Net asset value, end of period $ 9.28 $ 9.54 $ 9.45 $ 9.29 $ 9.43 $ 9.35
================= ========= ========= ========= ========= =========
TOTAL RETURN+ (0.43)%(1) 6.03% 6.68% 2.39% 5.23% 10.48%
RATIOS TO AVERAGE NET ASSETS(3):
Expenses 0.80%(2)(4) 0.80%(4) 1.00%(4) 0.94% 0.87% 0.99%
Net investment income 4.26%(2)(4) 4.31%(4) 4.05%(4) 2.34% 4.20% 5.93%
SUPPLEMENTAL DATA:
Net assets, end of period, in
thousands $ 1,190 $ 4,695 $ 5,687 $ 7,113 $ 11,943 $ 3,018
Portfolio turnover rate 16%(1) 46% 164% 429% 400% 358%
</Table>
- ----------
+ CALCULATED BASED ON THE NET ASSET VALUE AS OF THE LAST BUSINESS DAY OF THE
PERIOD.
(1) NOT ANNUALIZED.
(2) ANNUALIZED.
(3) REFLECTS OVERALL FUND RATIOS FOR INVESTMENT INCOME AND NON-CLASS SPECIFIC
EXPENSES.
(4) IF THE FUND HAD BORNE ALL EXPENSES THAT WERE WAIVED BY THE INVESTMENT
ADVISER AND ADMINISTRATOR, THE ANNUALIZED EXPENSE AND NET INVESTMENT INCOME
RATIOS WOULD HAVE BEEN AS FOLLOWS:
<Table>
<Caption>
EXPENSE NET INVESTMENT
PERIOD ENDED RATIO INCOME RATIO
----------------- --------- --------------
FEBRUARY 28, 2006 1.07% 3.99%
AUGUST 31, 2005 0.95 4.16
AUGUST 31, 2004 1.05 4.00
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
27
<Page>
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
Wayne E. Hedien
James F. Higgins
Dr. Manuel H. Johnson
Joseph J. Kearns
Michael E. Nugent
Fergus Reid
OFFICERS
Charles A. Fiumefreddo
CHAIRMAN OF THE BOARD
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 Yu
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]
[GRAPHIC]
MORGAN STANLEY FUNDS
Morgan Stanley Income Trust
Semiannual Report
February 28, 2006
[MORGAN STANLEY LOGO]
38557RPT-RA06-00323P-Y02/06
<Page>
Item 2. Code of Ethics.
Not applicable for semiannual reports.
Item 3. Audit Committee Financial Expert.
Not applicable for semiannual reports.
Item 4. Principal Accountant Fees and Services
Not applicable for semiannual reports.
Item 5. Audit Committee of Listed Registrants.
Not applicable for semiannual reports.
Item 6.
Refer to Item 1.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
Not applicable for semiannual reports.
Item 8. Portfolio Managers of Closed-End Management Investment Companies
Applicable only to reports filed by closed-end funds.
Item 9. Closed-End Fund Repurchases
Applicable to reports filed by closed-end funds.
Item 10. Submission of Matters to a Vote of Security Holders
Not applicable.
<Page>
Item 11. Controls and Procedures
(a) The Fund's principal executive officer and principal financial officer have
concluded that the Fund's disclosure controls and procedures are sufficient to
ensure that information required to be disclosed by the Fund in this Form N-CSR
was recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission's rules and forms, based
upon such officers' evaluation of these controls and procedures as of a date
within 90 days of the filing date of the report.
(b) There were no changes in the registrant's internal control over financial
reporting that occurred during the registrant's most recent fiscal half-year
(the registrant's second fiscal half-year in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
Item 12. Exhibits
(a) Code of Ethics - Not applicable for semiannual reports.
(b) A separate certification for each principal executive officer and principal
financial officer of the registrant are attached hereto as part of EX-99.CERT.
<Page>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Morgan Stanley Income Trust
/s/ Ronald E. Robison
Ronald E. Robison
Principal Executive Officer
April 19, 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
April 19, 2006
/s/ Francis Smith
Francis Smith
Principal Financial Officer
April 19, 2006