<Page>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-08265
Morgan Stanley S&P 500 Index Fund
(Exact name of registrant as specified in charter)
1221 Avenue of the Americas, New York, New York 10020
(Address of principal executive offices) (Zip code)
Ronald E. Robison
1221 Avenue of the Americas, New York, New York 10020
(Name and address of agent for service)
Registrant's telephone number, including area code: 212-762-4000
Date of fiscal year end: August 31, 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 S&P 500
INDEX FUND PERFORMED DURING THE SEMIANNUAL PERIOD. WE WILL PROVIDE AN OVERVIEW
OF THE MARKET CONDITIONS, AND DISCUSS SOME OF THE FACTORS THAT AFFECTED
PERFORMANCE DURING THE REPORTING PERIOD. IN ADDITION, THIS REPORT INCLUDES THE
FUND'S FINANCIAL STATEMENTS AND A LIST OF FUND INVESTMENTS.
THIS MATERIAL MUST BE PRECEDED OR ACCOMPANIED BY A PROSPECTUS FOR THE FUND BEING
OFFERED.
MARKET FORECASTS PROVIDED IN THIS REPORT MAY NOT NECESSARILY COME TO PASS. THERE
IS NO ASSURANCE THAT THE FUND WILL ACHIEVE ITS INVESTMENT OBJECTIVE. THE FUND IS
SUBJECT TO MARKET RISK, WHICH IS THE POSSIBILITY THAT MARKET VALUES OF
SECURITIES OWNED BY THE FUND WILL DECLINE AND, THEREFORE, THE VALUE OF THE
FUND'S SHARES MAY BE LESS THAN WHAT YOU PAID FOR THEM. ACCORDINGLY, YOU CAN LOSE
MONEY INVESTING IN THIS FUND. PLEASE SEE THE PROSPECTUS FOR MORE COMPLETE
INFORMATION ON INVESTMENT RISKS.
<Page>
FUND REPORT
For the six months ended February 28, 2006
TOTAL RETURN FOR THE 6 MONTHS ENDED FEBRUARY 28, 2006
<Table>
<Caption>
S&P LIPPER S&P
500(R) 500 OBJECTIVE
CLASS A CLASS B CLASS C CLASS D INDEX(1) FUNDS INDEX(2)
- ------- ------- ------- ------- -------- --------------
5.64% 5.16% 5.17% 5.73% 5.93% 5.79%
</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 stock market advanced during the six-month period ended February 28, 2006,
although returns were earned at an uneven pace. The start of the period found
investors apprehensive as the Gulf Coast hurricanes sent oil prices spiking and
heightened anxiety about the economy. However, as October wound to a close, the
stock market showed signs of renewed optimism. Falling oil prices,
better-than-expected economic data, the nomination of Ben S. Bernanke to head
the Federal Reserve (the "Fed"), and strengthening consumer trends lifted
investor sentiment. Stocks continued to advance through November, buoyed by
indications that the Fed might soon slow the pace of rate increases, encouraging
consumer confidence data, continued declines in oil prices, strong retail trends
(excluding the beleaguered auto industry), and acceptable housing data.
Stocks delivered more muted performance in December as cross currents buffeted
the market. Rising gold prices, the ongoing struggles of the auto industry, an
additional Fed tightening and trends in bond market yields rekindled concern.
Yet, the market found positive signals as well, including favorable
productivity, employment and consumer confidence data; consolidation activity in
the oil industry; corporate litigation developments; and notes from the Fed's
meeting minutes which more strongly suggested that its tightening cycle could be
nearer to an end.
Although geopolitical risk, oil prices and mixed corporate earnings weighed on
investors, the market opened 2006 with a pronounced "January Effect." (The
"January Effect" is a historical trend wherein the market rallies in the first
month of the calendar year, particularly in higher-volatility segments of the
market such as small-cap stocks.) By February, the market slowed its pace.
Employment and payroll data and corporate earnings soured sentiment in the early
portion of the month, although declining oil prices and favorable inflation data
helped boost the market in final weeks of the period.
Thirteen companies joined the ranks of the S&P 500(R) Index during the period. A
variety of factors paved the way for their inclusion, including consolidation
activity, spin-offs and bankruptcies of previous Index participants.
PERFORMANCE ANALYSIS
Morgan Stanley S&P 500 Index Fund underperformed the S&P 500 Index and the
Lipper S&P 500 Objective Funds Index for the six months ended February 28, 2006,
assuming no deduction of applicable sales charges.
2
<Page>
On a market capitalization basis, the smallest companies of the Index performed
most strongly. Value-oriented stocks outperformed their growth counterparts,
broadly speaking.
During the period, all 10 sectors within the S&P 500 Index posted positive
returns. Materials led the way; the sector was well positioned to benefit from
sustained economic growth, demand for commodities, and rising prices for gold
and other metals. The financials sector followed, with particular strength in
the diversified financials group. Investor interest in the sector was stoked by
good earnings from "Wall Street" firms, such as money managers and securities
brokerages companies. In terms of the smaller industry groups that make up
sectors, transportation stocks fared well due to company-specific factors and
declining oil prices.
In contrast, the consumer discretionary sector brought up the pack on a total
return basis. Weakness within the auto and auto component industries were the
primary culprit. Bankruptcies, dividend cuts and labor issues were among the
many factors propelling these stocks downward. Utilities and consumer staples
trailed as well.
Because the S&P 500 Index is market capitalization weighted (and that the Fund
seeks to replicate the performance attributes of the Index, before Fund fees),
the overall contribution of each sector was influenced by its relative size
within the Index and the Fund portfolio. On a contribution basis, the
financials, industrials and technology sectors led. The financials sector's
impact reflected its large representation within the Index, as well as the solid
gains of diversified financials companies.
Also enjoying sizable representation within the Index, the industrials sector
benefited in a climate of economic growth, broadly speaking. Moreover,
company-specific events -- such as acquisition activity and good earnings --
enhanced the appeal of industrials. The technology sector rose as a variety of
companies posted strong earnings.
On a contribution basis, the utilities sector added the least to overall
returns, due primarily to company-specific misadventures. Consumer discretionary
also failed to keep pace; as discussed, auto and auto components faltered
significantly. The energy sector posted a below-average contribution as well.
Although oil prices remained elevated on a historical basis, they did decline
for the period overall. A warm winter slowed demand for energy, further
hindering the sector.
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>
Exxon Mobil Corp. 3.1%
General Electric Co. 3.0
Microsoft Corp 2.1
Citigroup, Inc. 2.0
Bank of America Corp. 1.8
Procter & Gamble Co. (The) 1.7
Pfizer, Inc. 1.6
American International Group, Inc. 1.5
Johnson & Johnson 1.5
Altria Group, Inc. 1.3
</Table>
TOP FIVE INDUSTRIES
<Table>
Pharmaceuticals: Major 6.1%
Integrated Oil 5.1
Industrial Conglomerates 5.1
Major Banks 4.8
Financial Conglomerates 4.4
</Table>
DATA AS OF FEBRUARY 28, 2006. SUBJECT TO CHANGE DAILY. ALL PERCENTAGES FOR TOP
10 HOLDINGS AND TOP FIVE INDUSTRIES ARE AS A PERCENTAGE OF NET ASSETS. THESE
DATA ARE PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE DEEMED A
RECOMMENDATION TO BUY OR SELL THE SECURITIES MENTIONED. MORGAN STANLEY IS A
FULL-SERVICE SECURITIES FIRM ENGAGED IN SECURITIES TRADING AND BROKERAGE
ACTIVITIES, INVESTMENT BANKING, RESEARCH AND ANALYSIS, FINANCING AND FINANCIAL
ADVISORY SERVICES.
INVESTMENT STRATEGY
THE FUND WILL NORMALLY INVEST AT LEAST 80 PERCENT OF ITS ASSETS IN COMMON STOCKS
OF COMPANIES INCLUDED IN THE S&P 500 INDEX. THE "INVESTMENT ADVISER," MORGAN
STANLEY INVESTMENT ADVISORS INC., "PASSIVELY" MANAGES THE FUND'S ASSETS BY
INVESTING IN STOCKS IN APPROXIMATELY THE SAME PROPORTION AS THEY ARE REPRESENTED
IN THE INDEX. FOR EXAMPLE, IF THE COMMON STOCK OF A SPECIFIC COMPANY REPRESENTS
FIVE PERCENT OF THE INDEX, THE INVESTMENT ADVISER TYPICALLY WILL INVEST THE SAME
PERCENTAGE OF THE FUND'S ASSETS IN THAT STOCK. THE S&P 500 INDEX IS A WELL-KNOWN
STOCK MARKET INDEX THAT INCLUDES COMMON STOCKS OF 500 COMPANIES REPRESENTING A
SIGNIFICANT PORTION OF THE MARKET VALUE OF ALL COMMON STOCKS PUBLICLY TRADED IN
THE UNITED STATES. THE FUND MAY INVEST IN FOREIGN COMPANIES, INCLUDING THOSE
THAT ARE IN EMERGING MARKET COUNTRIES, THAT ARE INCLUDED IN THE S&P 500 INDEX.
FOR MORE INFORMATION ABOUT PORTFOLIO HOLDINGS
EACH MORGAN STANLEY FUND PROVIDES A COMPLETE SCHEDULE OF PORTFOLIO HOLDINGS IN
ITS SEMIANNUAL AND ANNUAL REPORTS WITHIN 60 DAYS OF THE END OF THE FUND'S SECOND
AND FOURTH FISCAL QUARTERS BY FILING THE SCHEDULE ELECTRONICALLY WITH THE
SECURITIES AND EXCHANGE COMMISSION (SEC). THE SEMIANNUAL REPORTS ARE FILED ON
FORM N-CSRS AND THE ANNUAL REPORTS ARE FILED ON FORM N-CSR. MORGAN STANLEY ALSO
DELIVERS THE SEMIANNUAL AND ANNUAL REPORTS TO FUND SHAREHOLDERS AND MAKES THESE
REPORTS AVAILABLE ON ITS PUBLIC WEB SITE, www.morganstanley.com. EACH MORGAN
STANLEY FUND ALSO FILES A COMPLETE SCHEDULE OF PORTFOLIO HOLDINGS WITH THE SEC
FOR THE FUND'S FIRST AND THIRD FISCAL QUARTERS ON FORM N-Q. MORGAN STANLEY DOES
NOT DELIVER THE REPORTS FOR THE FIRST AND THIRD FISCAL QUARTERS TO SHAREHOLDERS,
4
<Page>
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.
5
<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 09/26/97) (SINCE 09/26/97) (SINCE 09/26/97) (SINCE 09/26/97)
SYMBOL SPIAX SPIBX SPICX SPIDX
1 YEAR 7.76%(3) 6.91%(3) 7.01%(3) 7.99%(3)
2.10(4) 1.91(4) 6.01(4) --
5 YEARS 1.69(3) 0.89(3) 0.91(3) 1.91(3)
0.60(4) 0.50(4) 0.91(4) --
SINCE INCEPTION 4.58(3) 3.77(3) 3.78(3) 4.81(3)
3.91(4) 3.77(4) 3.78(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 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.
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 S&P 500 OBJECTIVE FUNDS INDEX IS AN EQUALLY WEIGHTED PERFORMANCE
INDEX OF THE LARGEST QUALIFYING FUNDS (BASED ON NET ASSETS) IN THE LIPPER
S&P 500 OBJECTIVE FUNDS CLASSIFICATION. THE INDEX, WHICH IS ADJUSTED FOR
CAPITAL GAINS DISTRIBUTIONS AND INCOME DIVIDENDS, IS UNMANAGED AND SHOULD
NOT BE CONSIDERED AN INVESTMENT. THERE ARE CURRENTLY 30 FUNDS REPRESENTED
IN THIS INDEX.
(3) FIGURE SHOWN ASSUMES REINVESTMENT OF ALL DISTRIBUTIONS AND DOES NOT REFLECT
THE DEDUCTION OF ANY SALES CHARGES.
(4) FIGURE SHOWN ASSUMES REINVESTMENT OF ALL DISTRIBUTIONS AND THE DEDUCTION OF
THE MAXIMUM APPLICABLE SALES CHARGE. SEE THE FUND'S CURRENT PROSPECTUS FOR
COMPLETE DETAILS ON FEES AND SALES CHARGES.
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 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 (5.64% return) $ 1,000.00 $ 1,056.40 $ 3.26
Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,021.67 $ 3.16
CLASS B
Actual (5.16% return) $ 1,000.00 $ 1,051.60 $ 7.12
Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,017.85 $ 7.00
CLASS C
Actual (5.17% return) $ 1,000.00 $ 1,051.70 $ 6.71
Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,018.25 $ 6.61
CLASS D
Actual (5.73% return) $ 1,000.00 $ 1,057.30 $ 2.04
Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,022.81 $ 2.01
</Table>
- ----------
* EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO OF 0.63%, 1.40%,
1.32% AND 0.40% 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 0.65%,
1.42%, 1.34% AND 0.42% FOR CLASS A, CLASS B, CLASS C AND CLASS D SHARES,
RESPECTIVELY.
7
<Page>
MORGAN STANLEY S&P 500 INDEX FUND
PORTFOLIO OF INVESTMENTS FEBRUARY 28, 2006 (UNAUDITED)
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------------------------
COMMON STOCKS (98.6%)
ADVERTISING/MARKETING
SERVICES (0.2%)
53,922 Interpublic Group of Companies, Inc. (The)* $ 558,632
21,871 Omnicom Group, Inc. 1,745,743
----------------
2,304,375
----------------
AEROSPACE & DEFENSE (1.5%)
97,919 Boeing Co. 7,117,732
24,418 General Dynamics Corp. 3,010,007
14,909 Goodrich Corp. 623,793
14,572 L-3 Communications Holdings, Inc. 1,211,079
43,372 Lockheed Martin Corp. 3,160,518
43,097 Northrop Grumman Corp. 2,762,518
54,186 Raytheon Co. 2,351,672
20,955 Rockwell Collins, Inc. 1,113,758
----------------
21,351,077
----------------
AGRICULTURAL COMMODITIES/MILLING (0.2%)
79,229 Archer-Daniels-Midland Co. 2,513,144
----------------
AIR FREIGHT/COURIERS (1.0%)
36,758 FedEx Corp. 3,941,928
133,858 United Parcel Service, Inc. (Class B) 10,000,531
----------------
13,942,459
----------------
AIRLINES (0.1%)
84,617 Southwest Airlines Co. 1,419,027
----------------
ALUMINUM (0.2%)
105,555 Alcoa, Inc. 3,094,873
----------------
APPAREL/FOOTWEAR (0.4%)
16,706 Cintas Corp. 686,450
46,101 Coach, Inc.* 1,646,728
14,171 Jones Apparel Group, Inc. 409,825
12,936 Liz Claiborne, Inc. 466,084
23,058 Nike, Inc. (Class B) 2,000,973
10,788 V.F. Corp. 591,182
----------------
5,801,242
----------------
APPAREL/FOOTWEAR RETAIL (0.3%)
69,619 Gap, Inc. (The) $ 1,290,736
42,240 Limited Brands, Inc. 999,821
26,516 Nordstrom, Inc. 1,007,608
55,881 TJX Companies, Inc. (The) 1,368,526
----------------
4,666,691
----------------
AUTO PARTS: O.E.M. (0.2%)
18,240 Dana Corp.* 32,102
17,952 Eaton Corp. 1,250,716
23,407 Johnson Controls, Inc. 1,668,217
----------------
2,951,035
----------------
AUTOMOTIVE AFTERMARKET (0.0%)
7,437 Cooper Tire & Rubber Co. 110,811
21,397 Goodyear Tire & Rubber Co. (The)* 306,619
----------------
417,430
----------------
BEVERAGES: ALCOHOLIC (0.4%)
94,168 Anheuser-Busch Companies, Inc. 3,911,739
10,076 Brown-Forman Corp. (Class B) 708,947
23,863 Constellation Brands Inc. (Class A)* 628,551
6,848 Molson Coors Brewing Co. (Class B) 429,712
----------------
5,678,949
----------------
BEVERAGES: NON-ALCOHOLIC (0.8%)
251,071 Coca-Cola Co. (The) 10,537,450
36,759 Coca-Cola Enterprises Inc. 722,314
16,630 Pepsi Bottling Group, Inc. (The) 488,257
----------------
11,748,021
----------------
BIOTECHNOLOGY (1.5%)
149,720 Amgen Inc.* 11,302,363
41,170 Biogen Idec Inc.* 1,945,282
13,267 Chiron Corp.* 605,904
31,322 Genzyme Corp.* 2,171,867
55,544 Gilead Sciences, Inc.* 3,458,725
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
8
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------------------------
29,846 MedImmune, Inc.* $ 1,089,081
6,316 Millipore Corp.* 437,888
----------------
21,011,110
----------------
BROADCASTING (0.2%)
65,564 Clear Channel Communications, Inc. 1,855,461
27,121 Univision Communications, Inc. (Class A)* 907,197
----------------
2,762,658
----------------
BUILDING PRODUCTS (0.2%)
22,175 American Standard Companies, Inc. 877,686
51,406 Masco Corp. 1,603,353
----------------
2,481,039
----------------
CABLE/SATELLITE TV (0.5%)
263,398 Comcast Corp. (Class A)* 7,066,968
----------------
CASINO/GAMING (0.2%)
22,292 Harrah's Entertainment, Inc. 1,603,241
40,871 International Game Technology 1,461,956
----------------
3,065,197
----------------
CHEMICALS: AGRICULTURAL (0.2%)
32,566 Monsanto Co. 2,731,636
----------------
CHEMICALS: MAJOR DIVERSIFIED (0.8%)
117,067 Dow Chemical Co. (The) 5,037,393
111,518 Du Pont (E.I.) de Nemours & Co. 4,487,484
9,884 Eastman Chemical Co. 487,578
14,544 Engelhard Corp. 578,124
13,678 Hercules Inc.* 162,084
17,469 Rohm & Haas Co. 869,083
----------------
11,621,746
----------------
CHEMICALS: SPECIALTY (0.3%)
26,916 Air Products & Chemicals, Inc. 1,726,931
8,705 Ashland Inc. 568,175
39,095 Praxair, Inc. 2,110,348
8,156 Sigma-Aldrich Corp. 525,328
----------------
4,930,782
----------------
COMMERCIAL PRINTING/FORMS (0.1%)
26,358 Donnelley (R.R.) & Sons Co. $ 887,210
----------------
COMPUTER COMMUNICATIONS (1.1%)
50,796 Avaya Inc.* 564,852
745,077 Cisco Systems, Inc.* 15,080,358
9,760 QLogic Corp.* 401,526
----------------
16,046,736
----------------
COMPUTER PERIPHERALS (0.4%)
289,985 EMC Corp.* 4,065,590
14,076 Lexmark International, Inc. (Class A)* 662,839
45,136 Network Appliance, Inc.* 1,496,710
45,128 Seagate Technology Inc. (Escrow) (a)* --
----------------
6,225,139
----------------
COMPUTER PROCESSING HARDWARE (2.1%)
102,226 Apple Computer, Inc.* 7,006,570
285,477 Dell, Inc.* 8,278,833
32,136 Gateway, Inc.* 75,841
347,517 Hewlett-Packard Co. 11,402,033
22,270 NCR Corp.* 892,804
414,141 Sun Microsystems, Inc.* 1,726,968
----------------
29,383,049
----------------
CONSTRUCTION MATERIALS (0.1%)
12,352 Vulcan Materials Co. 975,808
----------------
CONTAINERS/PACKAGING (0.2%)
12,620 Ball Corp. 537,612
12,773 Bemis Company, Inc. 382,935
17,380 Pactiv Corp.* 398,523
9,873 Sealed Air Corp. 561,576
13,614 Temple-Inland Inc. 580,909
----------------
2,461,555
----------------
CONTRACT DRILLING (0.4%)
19,167 Nabors Industries, Ltd. (Bermuda)* 1,264,064
16,608 Noble Corp. (Cayman Islands) 1,227,497
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
9
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------------------------
13,259 Rowan Companies, Inc. $ 533,675
40,038 Transocean Inc. (Cayman Islands)* 2,970,019
----------------
5,995,255
----------------
DATA PROCESSING SERVICES (0.9%)
15,075 Affiliated Computer Services, Inc. (Class A)* 948,519
69,940 Automatic Data Processing, Inc. 3,230,529
22,441 Computer Sciences Corp.* 1,219,444
16,980 Convergys Corp.* 294,943
92,678 First Data Corp. 4,182,558
22,379 Fiserv, Inc.* 928,728
40,454 Paychex, Inc. 1,620,183
----------------
12,424,904
----------------
DEPARTMENT STORES (0.4%)
7,472 Dillard's, Inc. (Class A) 184,334
33,019 Federated Department Stores, Inc. 2,345,670
41,818 Kohl's Corp.* 2,011,864
28,170 Penney (J.C.) Co., Inc. 1,651,889
----------------
6,193,757
----------------
DISCOUNT STORES (1.8%)
13,821 Big Lots, Inc.* 175,665
57,264 Costco Wholesale Corp. 2,936,498
38,406 Dollar General Corp. 669,033
18,833 Family Dollar Stores, Inc. 484,385
12,106 Sears Holdings Corp.* 1,458,168
106,643 Target Corp. 5,801,379
303,013 Wal-Mart Stores, Inc. 13,744,670
----------------
25,269,798
----------------
DRUGSTORE CHAINS (0.6%)
98,760 CVS Corp. 2,797,871
122,763 Walgreen Co. 5,507,148
----------------
8,305,019
----------------
ELECTRIC UTILITIES (3.1%)
79,229 AES Corp. (The)* 1,370,662
19,754 Allegheny Energy, Inc.* 706,403
24,778 Ameren Corp. $ 1,255,501
47,753 American Electric Power Co., Inc. 1,742,984
37,615 CenterPoint Energy, Inc. 487,867
24,191 Cinergy Corp. 1,066,339
26,697 CMS Energy Corp.* 375,894
29,713 Consolidated Edison, Inc. 1,362,935
21,649 Constellation Energy Group, Inc. 1,271,662
42,124 Dominion Resources, Inc. 3,163,512
21,570 DTE Energy Co. 933,981
112,512 Duke Energy Corp. 3,195,341
39,520 Edison International 1,753,107
25,168 Entergy Corp. 1,824,932
80,933 Exelon Corp. 4,622,084
40,008 FirstEnergy Corp. 2,043,609
47,895 FPL Group, Inc. 2,008,237
41,618 PG&E Corp. 1,583,565
12,008 Pinnacle West Capital Corp. 492,928
46,110 PPL Corp. 1,466,298
30,526 Progress Energy, Inc. 1,354,744
30,409 Public Service Enterprise Group, Inc. 2,110,080
89,942 Southern Co. (The) 3,060,726
25,242 TECO Energy, Inc. 430,629
58,566 TXU Corp. 3,068,273
48,869 Xcel Energy, Inc. 907,009
----------------
43,659,302
----------------
ELECTRICAL PRODUCTS (0.4%)
20,848 American Power Conversion Corp. 425,925
11,114 Cooper Industries Ltd. (Class A) (Bermuda) 930,242
49,831 Emerson Electric Co. 4,076,674
17,412 Molex Inc. 554,224
----------------
5,987,065
----------------
ELECTRONIC COMPONENTS (0.1%)
21,104 Jabil Circuit, Inc.* 798,786
63,756 Sanmina-SCI Corp.* 246,098
110,818 Solectron Corp.* 400,053
----------------
1,444,937
----------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
10
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT/INSTRUMENTS (0.5%)
49,866 Agilent Technologies, Inc.* $ 1,795,176
200,433 JDS Uniphase Corp.* 609,316
21,729 Rockwell Automation, Inc. 1,481,266
30,442 Symbol Technologies, Inc. 353,736
10,115 Tektronix, Inc. 311,542
19,671 Thermo Electron Corp.* 681,010
116,495 Xerox Corp.* 1,735,775
----------------
6,967,821
----------------
ELECTRONIC PRODUCTION EQUIPMENT (0.4%)
196,804 Applied Materials, Inc. 3,609,385
23,946 KLA-Tencor Corp. 1,250,700
16,178 Novellus Systems, Inc.* 432,438
23,884 Teradyne, Inc.* 401,012
----------------
5,693,535
----------------
ELECTRONICS/APPLIANCE STORES (0.2%)
49,578 Best Buy Co., Inc. 2,670,271
18,998 Circuit City Stores - Circuit City Group 456,522
16,330 RadioShack Corp. 319,251
----------------
3,446,044
----------------
ELECTRONICS/APPLIANCES (0.2%)
34,837 Eastman Kodak Co. 977,178
6,600 Harman International Industries, Inc. 728,310
9,722 Maytag Corp. 167,218
8,183 Whirlpool Corp. 734,752
----------------
2,607,458
----------------
ENGINEERING & CONSTRUCTION (0.1%)
10,532 Fluor Corp. 908,912
----------------
ENVIRONMENTAL SERVICES (0.2%)
26,475 Allied Waste Industries, Inc.* 283,547
66,936 Waste Management, Inc. 2,226,291
----------------
2,509,838
----------------
FINANCE/RENTAL/LEASING (1.6%)
36,330 Capital One Financial Corp. $ 3,182,508
24,232 CIT Group, Inc. 1,302,955
72,437 Countrywide Financial Corp. 2,497,628
117,404 Fannie Mae 6,419,651
83,817 Freddie Mac 5,648,428
7,784 Ryder System, Inc. 345,143
50,619 SLM Corp. 2,855,418
----------------
22,251,731
----------------
FINANCIAL CONGLOMERATES (4.4%)
150,614 American Express Co. 8,115,082
613,642 Citigroup, Inc. 28,454,580
424,428 JPMorgan Chase & Co. 17,460,968
33,982 Principal Financial Group, Inc. 1,655,603
61,255 Prudential Financial, Inc. 4,719,085
39,774 State Street Corp. 2,485,080
----------------
62,890,398
----------------
FINANCIAL PUBLISHING/SERVICES (0.4%)
15,753 Equifax, Inc. 577,190
45,474 McGraw-Hill Companies, Inc. (The) 2,414,215
30,098 Moody's Corp. 2,016,566
----------------
5,007,971
----------------
FOOD DISTRIBUTORS (0.2%)
75,241 SYSCO Corp. 2,264,002
----------------
FOOD RETAIL (0.4%)
44,732 Albertson's, Inc. 1,137,982
87,925 Kroger Co.* 1,762,017
54,499 Safeway Inc. 1,324,871
16,519 Supervalu, Inc. 522,000
16,700 Whole Foods Market, Inc. 1,066,796
----------------
5,813,666
----------------
FOOD: MAJOR DIVERSIFIED (1.4%)
22,575 Campbell Soup Co. 702,760
62,943 ConAgra Foods Inc. 1,323,691
43,094 General Mills, Inc. 2,122,379
40,595 Heinz (H.J.) Co. 1,537,333
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
11
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------------------------
31,152 Kellogg Co. $ 1,380,345
201,256 PepsiCo, Inc. 11,896,242
92,130 Sara Lee Corp. 1,627,937
----------------
20,590,687
----------------
FOOD: MEAT/FISH/DAIRY (0.0%)
30,530 Tyson Foods, Inc. (Class A) 413,071
----------------
FOOD: SPECIALTY/CANDY (0.2%)
21,966 Hershey Co. (The) 1,123,561
16,236 McCormick & Co., Inc. (Non-Voting) 533,028
21,763 Wrigley (Wm.) Jr. Co. 1,382,821
----------------
3,039,410
----------------
FOREST PRODUCTS (0.2%)
12,830 Louisiana-Pacific Corp. 364,757
29,504 Weyerhaeuser Co. 2,014,828
----------------
2,379,585
----------------
GAS DISTRIBUTORS (0.2%)
36,544 Dynegy, Inc. (Class A)* 197,703
21,150 KeySpan Corp. 861,862
5,359 Nicor Inc. 230,062
33,068 NiSource, Inc. 678,886
4,626 Peoples Energy Corp. 169,820
31,184 Sempra Energy 1,491,843
----------------
3,630,176
----------------
HOME BUILDING (0.3%)
15,496 Centex Corp. 1,047,685
33,019 D.R. Horton, Inc. 1,126,278
9,496 KB Home 636,517
16,660 Lennar Corp. (Class A) 997,268
26,022 Pulte Homes, Inc. 999,505
----------------
4,807,253
----------------
HOME FURNISHINGS (0.1%)
22,315 Leggett & Platt, Inc. 523,956
33,418 Newell Rubbermaid, Inc. 831,106
----------------
1,355,062
----------------
HOME IMPROVEMENT CHAINS (1.3%)
257,671 Home Depot, Inc. (The) 10,860,833
94,845 Lowe's Companies, Inc. $ 6,466,532
13,617 Sherwin-Williams Co. 620,254
----------------
17,947,619
----------------
HOSPITAL/NURSING MANAGEMENT (0.3%)
51,420 HCA, Inc. 2,463,018
29,984 Health Management Associates, Inc. (Class A) 638,359
9,596 Manor Care, Inc. 396,795
56,938 Tenet Healthcare Corp.* 449,241
----------------
3,947,413
----------------
HOTELS/RESORTS/CRUISELINES (0.5%)
52,551 Carnival Corp. (Panama) 2,714,259
39,792 Hilton Hotels Corp. 962,966
19,967 Marriott International, Inc. (Class A) 1,365,743
26,592 Starwood Hotels & Resorts Worldwide, Inc. 1,688,592
----------------
6,731,560
----------------
HOUSEHOLD/PERSONAL CARE (2.5%)
9,157 Alberto-Culver Co. 418,200
55,602 Avon Products, Inc. 1,604,118
18,280 Clorox Co. (The) 1,114,166
62,839 Colgate-Palmolive Co. 3,423,469
13,300 Estee Lauder Companies, Inc. (The) (Class A) 497,686
9,802 International Flavors & Fragrances, Inc. 339,443
56,669 Kimberly-Clark Corp. 3,353,671
406,561 Procter & Gamble Co. (The) 24,365,201
----------------
35,115,954
----------------
INDUSTRIAL CONGLOMERATES (5.1%)
92,178 3M Co. 6,783,379
28,776 Danaher Corp. 1,743,250
1,281,651 General Electric Co.** 42,127,868
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
12
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------------------------
102,225 Honeywell International, Inc. $ 4,186,114
40,129 Ingersoll-Rand Co. Ltd. (Class A) (Bermuda) 1,646,493
22,402 ITT Industries, Inc. 1,176,105
16,056 Textron, Inc. 1,414,694
244,179 Tyco International Ltd. (Bermuda) 6,297,376
123,560 United Technologies Corp. 7,228,260
----------------
72,603,539
----------------
INDUSTRIAL MACHINERY (0.2%)
24,838 Illinois Tool Works Inc. 2,132,094
14,527 Parker Hannifin Corp. 1,135,576
----------------
3,267,670
----------------
INDUSTRIAL SPECIALTIES (0.1%)
22,360 Ecolab Inc. 809,208
20,260 PPG Industries, Inc. 1,228,364
----------------
2,037,572
----------------
INFORMATION TECHNOLOGY SERVICES (1.3%)
21,391 Citrix Systems, Inc.* 692,213
63,262 Electronic Data Systems Corp. 1,689,095
191,592 International Business Machines Corp. 15,373,342
41,395 Unisys Corp.* 276,519
----------------
18,031,169
----------------
INSURANCE BROKERS/SERVICES (0.3%)
38,817 AON Corp. 1,537,541
66,071 Marsh & McLennan Companies, Inc. 2,042,255
----------------
3,579,796
----------------
INTEGRATED OIL (5.1%)
9,705 Amerada Hess Corp. 1,342,299
272,311 Chevron Corp. 15,380,125
168,308 ConocoPhillips 10,260,056
754,762 Exxon Mobil Corp. 44,810,220
20,029 Murphy Oil Corp. 938,759
----------------
72,731,459
----------------
INTERNET RETAIL (0.1%)
37,203 Amazon.com, Inc.* $ 1,394,740
----------------
INTERNET SOFTWARE/SERVICES (0.4%)
28,600 VeriSign, Inc.* 676,676
153,160 Yahoo!, Inc.* 4,910,310
----------------
5,586,986
----------------
INVESTMENT BANKS/BROKERS (2.5%)
29,839 Ameriprise Financial, Inc. 1,357,078
13,745 Bear Stearns Companies, Inc. (The) 1,847,878
49,620 E*TRADE Group, Inc.* 1,269,280
54,681 Goldman Sachs Group, Inc. (The) 7,725,878
32,497 Lehman Brothers Holdings Inc. 4,742,937
111,466 Merrill Lynch & Co., Inc. 8,606,290
130,749 Morgan Stanley (Note 4) 7,800,485
125,127 Schwab (Charles) Corp. (The) 2,028,309
----------------
35,378,135
----------------
INVESTMENT MANAGERS (0.4%)
10,271 Federated Investors, Inc. (Class B) 399,439
18,007 Franklin Resources, Inc. 1,848,959
26,164 Janus Capital Group, Inc. 573,777
50,718 Mellon Financial Corp. 1,830,413
15,853 Price (T.) Rowe Group, Inc. 1,217,193
----------------
5,869,781
----------------
LIFE/HEALTH INSURANCE (0.9%)
60,694 AFLAC, Inc. 2,807,097
45,684 Genworth Financial Inc. (Class A) 1,453,665
16,258 Jefferson-Pilot Corp. 979,544
21,013 Lincoln National Corp. 1,192,908
91,856 MetLife, Inc. 4,603,823
12,588 Torchmark Corp. 688,186
36,149 UnumProvident Corp. 747,923
----------------
12,473,146
----------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
13
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------------------------
MAJOR BANKS (4.8%)
563,398 Bank of America Corp. $ 25,831,798
93,425 Bank of New York Co., Inc. (The) 3,198,872
65,779 BB&T Corp. 2,600,244
20,047 Comerica, Inc. 1,149,094
27,680 Huntington Bancshares, Inc. 665,704
49,464 KeyCorp 1,843,523
66,853 National City Corp. 2,326,484
35,447 PNC Financial Services Group 2,493,696
55,545 Regions Financial Corp. 1,931,855
43,837 SunTrust Banks, Inc. 3,172,484
188,432 Wachovia Corp. 10,565,382
202,839 Wells Fargo & Co. 13,022,264
----------------
68,801,400
----------------
MAJOR TELECOMMUNICATIONS (3.1%)
46,447 ALLTEL Corp. 2,933,128
473,837 AT&T Inc. 13,073,163
221,808 BellSouth Corp. 7,004,697
358,370 Sprint Nextel Corp. 8,611,631
354,470 Verizon Communications Inc. 11,945,639
----------------
43,568,258
----------------
MANAGED HEALTH CARE (1.8%)
69,384 Aetna, Inc. 3,538,584
54,556 Caremark Rx, Inc.* 2,714,161
15,257 CIGNA Corp. 1,872,797
19,705 Coventry Health Care, Inc.* 1,174,812
19,746 Humana, Inc.* 1,020,276
165,422 UnitedHealth Group Inc. 9,632,523
80,051 WellPoint Inc.* 6,147,116
----------------
26,100,269
----------------
MEDIA CONGLOMERATES (1.9%)
93,728 CBS Corp. (Class B) 2,292,587
233,329 Disney (Walt) Co. (The) 6,530,879
295,155 News Corp. (Class A) 4,805,123
565,564 Time Warner, Inc. 9,789,913
93,728 Viacom, Inc. (Class B shares)* 3,745,372
----------------
27,163,874
----------------
MEDICAL DISTRIBUTORS (0.5%)
25,293 AmerisourceBergen Corp. $ 1,163,225
51,943 Cardinal Health, Inc. 3,771,062
37,320 McKesson Corp. 2,020,132
16,773 Patterson Companies, Inc.* 604,499
----------------
7,558,918
----------------
MEDICAL SPECIALTIES (2.1%)
22,794 Applera Corp. - Applied Biosystems Group 644,386
12,720 Bard (C.R.), Inc. 833,033
6,522 Bausch & Lomb, Inc. 451,388
75,644 Baxter International, Inc. 2,863,125
30,572 Becton, Dickinson & Co. 1,952,022
30,212 Biomet, Inc. 1,099,717
71,569 Boston Scientific Corp.* 1,747,715
14,874 Fisher Scientific International, Inc.* 1,013,812
40,246 Guidant Corp. 3,089,283
19,511 Hospira, Inc.* 774,587
146,721 Medtronic, Inc. 7,915,598
15,111 Pall Corp. 444,566
15,865 PerkinElmer, Inc. 377,428
44,465 St. Jude Medical, Inc.* 2,027,604
35,369 Stryker Corp. 1,634,755
13,424 Waters Corp.* 573,608
30,054 Zimmer Holdings, Inc.* 2,079,136
----------------
29,521,763
----------------
MISCELLANEOUS COMMERCIAL SERVICES (0.0%)
15,918 Sabre Holdings Corp. (Class A) 384,101
----------------
MISCELLANEOUS MANUFACTURING (0.1%)
24,583 Dover Corp. 1,178,509
----------------
MOTOR VEHICLES (0.3%)
225,324 Ford Motor Co. 1,795,832
68,595 General Motors Corp. 1,393,164
33,310 Harley-Davidson, Inc. 1,749,108
----------------
4,938,104
----------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
14
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------------------------
MULTI-LINE INSURANCE (1.8%)
314,841 American International Group, Inc. $ 20,892,849
36,435 Hartford Financial Services Group, Inc. (The) 3,001,515
16,447 Loews Corp. 1,517,400
14,985 Safeco Corp. 771,877
----------------
26,183,641
----------------
OFFICE EQUIPMENT/SUPPLIES (0.1%)
13,399 Avery Dennison Corp. 803,940
27,670 Pitney Bowes, Inc. 1,182,616
----------------
1,986,556
----------------
OIL & GAS PIPELINES (0.3%)
79,975 El Paso Corp. 1,046,073
12,765 Kinder Morgan, Inc. 1,184,337
69,505 Williams Companies, Inc. (The) 1,499,223
----------------
3,729,633
----------------
OIL & GAS PRODUCTION (1.6%)
28,772 Anadarko Petroleum Corp. 2,853,032
39,943 Apache Corp. 2,672,986
45,855 Burlington Resources, Inc. 4,135,204
53,893 Devon Energy Corp. 3,159,747
29,303 EOG Resources, Inc. 1,975,022
14,070 Kerr-McGee Corp. 1,374,639
49,487 Occidental Petroleum Corp. 4,530,040
44,055 XTO Energy Inc. 1,845,464
----------------
22,546,134
----------------
OIL REFINING/MARKETING (0.6%)
44,453 Marathon Oil Corp. 3,138,382
16,512 Sunoco, Inc. 1,223,539
74,798 Valero Energy Corp. 4,023,384
----------------
8,385,305
----------------
OILFIELD SERVICES/EQUIPMENT (1.4%)
41,465 Baker Hughes Inc. 2,818,376
39,100 BJ Services Co. 1,224,221
62,206 Halliburton Co. 4,230,008
21,142 National Oilwell-Varco, Inc.* $ 1,287,125
71,455 Schlumberger Ltd. (Netherlands Antilles) 8,217,325
42,167 Weatherford International Ltd. (Bermuda)* 1,818,241
----------------
19,595,296
----------------
OTHER CONSUMER SERVICES (0.7%)
17,652 Apollo Group, Inc. (Class A)* 871,656
39,742 Block (H.&R.), Inc. 886,247
124,255 Cendant Corp. 2,065,118
138,630 eBay, Inc.* 5,553,518
----------------
9,376,539
----------------
OTHER CONSUMER SPECIALTIES (0.1%)
17,723 Fortune Brands, Inc. 1,374,419
----------------
OTHER METALS/MINERALS (0.1%)
12,318 Phelps Dodge Corp. 1,699,884
----------------
PACKAGED SOFTWARE (3.2%)
72,926 Adobe Systems, Inc.* 2,816,402
27,995 Autodesk, Inc.* 1,054,012
26,236 BMC Software, Inc.* 573,781
55,660 CA INC 1,511,726
46,997 Compuware Corp.* 385,845
21,463 Intuit Inc.* 1,042,673
1,110,410 Microsoft Corp. 29,870,029
46,335 Novell, Inc.* 440,646
463,253 Oracle Corp.* 5,753,606
13,212 Parametric Technology Corp.* 201,093
131,180 Symantec Corp.* 2,215,630
----------------
45,865,443
----------------
PERSONNEL SERVICES (0.1%)
14,932 Monster Worldwide, Inc.* 731,071
20,658 Robert Half International, Inc. 742,035
----------------
1,473,106
----------------
PHARMACEUTICALS: GENERIC DRUGS (0.1%)
7,300 Barr Pharmaceuticals Inc.* 490,414
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
15
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------------------------
26,516 Mylan Laboratories, Inc. $ 609,868
12,301 Watson Pharmaceuticals, Inc.* 368,784
----------------
1,469,066
----------------
PHARMACEUTICALS: MAJOR (6.1%)
188,160 Abbott Laboratories 8,312,909
237,321 Bristol-Myers Squibb Co. 5,482,115
360,852 Johnson & Johnson 20,803,118
137,870 Lilly (Eli) & Co. 7,668,329
265,233 Merck & Co., Inc. 9,246,022
894,133 Pfizer, Inc. 23,417,343
179,265 Schering-Plough Corp. 3,316,402
162,813 Wyeth 8,108,087
----------------
86,354,325
----------------
PHARMACEUTICALS: OTHER (0.3%)
15,964 Allergan, Inc. 1,728,263
40,974 Forest Laboratories, Inc.* 1,880,707
29,329 King Pharmaceuticals, Inc.* 476,596
----------------
4,085,566
----------------
PRECIOUS METALS (0.3%)
22,324 Freeport-McMoRan Copper & Gold, Inc. (Class B) 1,130,264
54,194 Newmont Mining Corp. 2,867,946
----------------
3,998,210
----------------
PROPERTY - CASUALTY INSURERS (1.2%)
39,098 ACE Ltd. (Cayman Islands) 2,178,932
78,679 Allstate Corp. (The) 4,310,036
24,249 Chubb Corp. (The) 2,321,842
21,192 Cincinnati Financial Corp. 940,077
23,926 Progressive Corp. (The) 2,570,849
83,993 St. Paul Travelers Companies, Inc. (The) 3,610,019
21,151 XL Capital Ltd. (Class A) (Cayman Islands) 1,428,750
----------------
17,360,505
----------------
PUBLISHING: BOOKS/MAGAZINES (0.0%)
5,084 Meredith Corp. 280,078
----------------
PUBLISHING: NEWSPAPERS (0.3%)
7,156 Dow Jones & Co., Inc. $ 290,891
29,098 Gannett Co., Inc. 1,808,732
8,417 Knight-Ridder, Inc. 505,188
17,599 New York Times Co. (The) (Class A) 496,644
9,600 Scripps (E.W.) Co. (Class A) 461,568
31,758 Tribune Co. 971,795
----------------
4,534,818
----------------
PULP & PAPER (0.2%)
59,496 International Paper Co. 1,949,684
22,011 MeadWestvaco Corp. 612,346
----------------
2,562,030
----------------
RAILROADS (0.7%)
45,295 Burlington Northern Santa Fe Corp. 3,561,999
26,351 CSX Corp. 1,459,318
49,298 Norfolk Southern Corp. 2,523,072
32,137 Union Pacific Corp. 2,845,731
----------------
10,390,120
----------------
REAL ESTATE INVESTMENT TRUSTS (0.8%)
11,609 Apartment Investment & Management Co. (Class A) 514,395
25,714 Archstone-Smith Trust 1,218,844
49,267 Equity Office Properties Trust 1,549,447
34,954 Equity Residential 1,582,717
22,325 Plum Creek Timber Co., Inc. 829,374
29,535 ProLogis 1,551,178
10,029 Public Storage, Inc. 782,463
22,616 Simon Property Group, Inc. 1,876,450
14,320 Vornado Realty Trust 1,274,337
----------------
11,179,205
----------------
RECREATIONAL PRODUCTS (0.2%)
11,701 Brunswick Corp. 459,030
36,460 Electronic Arts, Inc.* 1,894,826
21,633 Hasbro, Inc. 438,934
48,982 Mattel, Inc. 825,347
----------------
3,618,137
----------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
16
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------------------------
REGIONAL BANKS (1.3%)
42,280 AmSouth Bancorporation $ 1,173,270
15,107 Compass Bancshares, Inc. 759,580
67,302 Fifth Third Bancorp 2,601,222
15,284 First Horizon National Corp. 597,757
9,678 M&T Bank Corp. 1,087,807
25,370 Marshall & Ilsley Corp. 1,116,280
57,699 North Fork Bancorporation, Inc. 1,473,632
22,502 Northern Trust Corp. 1,186,305
37,882 Synovus Financial Corp. 1,073,955
220,319 U.S. Bancorp 6,810,060
12,667 Zions Bancorporation 1,045,281
----------------
18,925,149
----------------
RESTAURANTS (0.8%)
15,884 Darden Restaurants, Inc. 666,175
152,662 McDonald's Corp. 5,329,430
93,214 Starbucks Corp.* 3,385,532
14,100 Wendy's International, Inc. 816,390
34,335 Yum! Brands, Inc. 1,637,779
----------------
11,835,306
----------------
SAVINGS BANKS (0.6%)
30,912 Golden West Financial Corp. 2,195,679
43,322 Sovereign Bancorp, Inc. 902,397
119,686 Washington Mutual, Inc. 5,110,592
----------------
8,208,668
----------------
SEMICONDUCTORS (2.6%)
49,013 Advanced Micro Devices, Inc.* 1,895,333
43,966 Altera Corp.* 881,079
44,496 Analog Devices, Inc. 1,697,077
36,238 Applied Micro Circuits Corp.* 130,819
52,619 Broadcom Corp. (Class A)* 2,372,568
49,780 Freescale Semiconductor Inc. (Class B)* 1,346,051
731,304 Intel Corp. 15,064,862
36,967 Linear Technology Corp. 1,362,604
47,512 LSI Logic Corp.* 463,242
39,763 Maxim Integrated Products, Inc. 1,554,336
74,961 Micron Technology, Inc.* $ 1,162,645
41,687 National Semiconductor Corp. 1,169,320
20,763 NVIDIA Corp.* 978,560
22,227 PMC - Sierra, Inc.* 226,938
196,266 Texas Instruments Inc. 5,858,540
42,275 Xilinx, Inc. 1,153,262
----------------
37,317,236
----------------
SERVICES TO THE HEALTH INDUSTRY (0.4%)
17,665 Express Scripts, Inc.* 1,541,625
28,104 IMS Health Inc. 677,306
16,123 Laboratory Corp. of America Holdings* 936,908
37,306 Medco Health Solutions Inc.* 2,078,690
20,100 Quest Diagnostics Inc. 1,062,687
----------------
6,297,216
----------------
SPECIALTY INSURANCE (0.2%)
12,759 Ambac Financial Group, Inc. 958,839
16,261 MBIA Inc. 955,171
11,005 MGIC Investment Corp. 701,569
----------------
2,615,579
----------------
SPECIALTY STORES (0.5%)
21,961 AutoNation, Inc.* 459,204
6,697 AutoZone, Inc.* 647,466
36,008 Bed Bath & Beyond Inc.* 1,297,728
37,463 Office Depot, Inc.* 1,336,680
8,588 OfficeMax Inc. 251,886
88,716 Staples, Inc. 2,177,091
17,254 Tiffany & Co. 640,641
----------------
6,810,696
----------------
SPECIALTY TELECOMMUNICATIONS (0.2%)
15,889 CenturyTel, Inc. 571,686
40,501 Citizens Communications Co. 540,688
187,259 Qwest Communications International, Inc.* 1,183,477
----------------
2,295,851
----------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
17
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------------------------
STEEL (0.2%)
10,315 Allegheny Technologies Inc. $ 521,011
18,876 Nucor Corp. 1,624,280
13,753 United States Steel Corp. 749,539
----------------
2,894,830
----------------
TELECOMMUNICATION EQUIPMENT (1.7%)
14,131 ADC Telecommunications, Inc.* 357,797
19,705 Andrew Corp.* 267,200
70,106 CIENA Corp.* 281,826
24,503 Comverse Technology, Inc.* 704,706
184,853 Corning, Inc.* 4,512,262
539,150 Lucent Technologies Inc.* 1,509,620
302,128 Motorola, Inc. 6,465,539
199,436 QUALCOMM Inc. 9,415,374
54,396 Tellabs, Inc.* 799,077
----------------
24,313,401
----------------
TOBACCO (1.4%)
252,586 Altria Group, Inc. 18,160,933
10,370 Reynolds American, Inc. 1,100,775
19,841 UST, Inc. 771,418
----------------
20,033,126
----------------
TOOLS/HARDWARE (0.1%)
9,511 Black & Decker Corp. 813,951
7,027 Snap-On, Inc. 273,491
8,823 Stanley Works (The) 442,385
----------------
1,529,827
----------------
TRUCKS/CONSTRUCTION/FARM MACHINERY (0.7%)
82,508 Caterpillar Inc. 6,029,685
5,680 Cummins Inc. 615,030
29,256 Deere & Co. 2,231,355
7,483 Navistar International Corp.* 219,626
20,535 PACCAR, Inc. 1,434,780
----------------
10,530,476
----------------
WHOLESALE DISTRIBUTORS (0.1%)
21,048 Genuine Parts Co. $ 937,057
9,221 Grainger (W.W.), Inc. 682,723
----------------
1,619,780
----------------
TOTAL COMMON STOCKS
(COST $1,171,740,754) 1,402,582,505
----------------
<Caption>
PRINCIPAL
AMOUNT IN
THOUSANDS
- -----------
$ 19,940 SHORT-TERM INVESTMENT (1.4%)
REPURCHASE AGREEMENT
Joint repurchase agreement account
4.555% due 03/01/06 (dated 02/28/06;
proceeds $19,942,523) (b)
(COST $19,940,000) 19,940,000
----------------
TOTAL INVESTMENTS
(COST $1,191,680,754) (c)(d) 100.0% 1,422,522,505
OTHER ASSETS IN EXCESS OF LIABILITIES 0.0 401,232
----- ----------------
NET ASSETS 100.0% $ 1,422,923,737
===== ================
</Table>
- ----------
* NON-INCOME PRODUCING SECURITY.
** A PORTION OF THIS SECURITY HAS BEEN PHYSICALLY SEGREGATED IN CONNECTION
WITH OPEN FUTURES CONTRACTS IN THE AMOUNT OF $1,008,000.
(a) A SECURITY WITH TOTAL MARKET VALUE EQUAL TO $0 HAS BEEN VALUED AT ITS FAIR
VALUE AS DETERMINED IN GOOD FAITH UNDER PROCEDURES ESTABLISHED BY AND UNDER
GENERAL SUPERVISION OF THE FUND'S TRUSTEES.
(b) COLLATERALIZED BY FEDERAL AGENCY AND U.S. TREASURY OBLIGATIONS.
(c) SECURITIES HAVE BEEN DESIGNATED AS COLLATERAL IN AN AMOUNT EQUAL TO
$20,523,158, 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 $394,935,749 AND THE AGGREGATE GROSS UNREALIZED
DEPRECIATION IS $164,093,998, RESULTING IN NET UNREALIZED APPRECIATION OF
$230,841,751.
SEE NOTES TO FINANCIAL STATEMENTS
18
<Page>
FUTURES CONTRACTS OPEN AT FEBRUARY 28, 2006:
<Table>
<Caption>
NUMBER OF DESCRIPTION, DELIVERY UNDERLYING FACE UNREALIZED
CONTRACTS LONG/SHORT MONTH AND YEAR AMOUNT AT VALUE APPRECIATION
- -----------------------------------------------------------------------------------------
105 Long S&P 500 Index
E-Mini March 2006 $ 6,732,600 $ 78,596
43 Long S&P 500 Index
March 2006 13,785,800 175,548
------------
Total Unrealized Appreciation $ 254,144
============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
19
<Page>
MORGAN STANLEY S&P 500 INDEX FUND
SUMMARY OF INVESTMENTS - FEBRUARY 28, 2006 (UNAUDITED)
<Table>
<Caption>
PERCENT OF
SECTOR VALUE NET ASSETS
- ------------------------------------------------------------------------
Finance $ 295,717,134 20.8%
Electronic Technology 148,742,931 10.5
Health Technology 142,441,830 10.0
Energy Minerals 103,662,898 7.3
Consumer Non-Durables 102,420,460 7.2
Producer Manufacturing 100,985,889 7.1
Technology Services 81,908,502 5.8
Retail Trade 79,848,030 5.6
Consumer Services 72,816,998 5.1
Utilities 47,289,478 3.3
Communications 45,864,109 3.2
Health Services 36,344,898 2.5
Industrial Services 32,738,934 2.3
Process Industries 28,858,465 2.0
Transportation 25,751,606 1.8
Consumer Durables 20,647,690 1.5
Repurchase Agreement 19,940,000 1.4
Non-Energy Minerals 15,043,190 1.1
Distribution Services 11,442,700 0.8
Commercial Services 10,056,763 0.7
--------------- ----------
$ 1,422,522,505* 100.0%
=============== ==========
</Table>
- ----------
* DOES NOT INCLUDE OPEN LONG FUTURES CONTRACTS WITH AN UNDERLYING FACE AMOUNT
OF $20,518,400 WITH UNREALIZED APPRECIATION OF $254,144.
SEE NOTES TO FINANCIAL STATEMENTS
20
<Page>
MORGAN STANLEY S&P 500 INDEX FUND
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 28, 2006 (UNAUDITED)
<Table>
ASSETS:
Investments in securities, at value (cost $1,186,333,157) $ 1,414,722,020
Investments in an affiliate, at value (cost $5,347,597) 7,800,485
Receivable for:
Dividends 2,793,538
Shares of beneficial interest sold 2,770,160
Prepaid expenses and other assets 70,563
-----------------
TOTAL ASSETS 1,428,156,766
-----------------
LIABILITIES:
Payable for:
Shares of beneficial interest redeemed 3,457,297
Distribution fee 708,650
Investments purchased 487,741
Variation margin 188,650
Investment advisory fee 120,069
Administration fee 87,814
Transfer agent fee 30,388
Accrued expenses and other payables 152,420
-----------------
TOTAL LIABILITIES 5,233,029
-----------------
NET ASSETS $ 1,422,923,737
=================
COMPOSITION OF NET ASSETS:
Paid-in-capital $ 1,379,727,812
Net unrealized appreciation 231,095,895
Accumulated undistributed net investment income 4,620,223
Accumulated net realized loss (192,520,193)
-----------------
NET ASSETS $ 1,422,923,737
=================
CLASS A SHARES:
Net Assets $ 443,701,301
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE) 32,086,224
NET ASSET VALUE PER SHARE $ 13.83
=================
MAXIMUM OFFERING PRICE PER SHARE,
(NET ASSET VALUE PLUS 5.54% OF NET ASSET VALUE) $ 14.60
=================
CLASS B SHARES:
Net Assets $ 654,362,092
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE) 48,679,058
NET ASSET VALUE PER SHARE $ 13.44
=================
CLASS C SHARES:
Net Assets $ 144,673,136
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE) 10,784,803
NET ASSET VALUE PER SHARE $ 13.41
=================
CLASS D SHARES:
Net Assets $ 180,187,208
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE) 12,915,896
NET ASSET VALUE PER SHARE $ 13.95
=================
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
21
<Page>
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED FEBRUARY 28, 2006 (UNAUDITED)
<Table>
NET INVESTMENT INCOME:
INCOME
Dividends $ 13,803,222
Dividends from an affiliate 77,657
Interest 350,901
-----------------
TOTAL INCOME 14,231,780
-----------------
EXPENSES
Distribution fee (Class A shares) 502,192
Distribution fee (Class B shares) 3,578,757
Distribution fee (Class C shares) 675,939
Transfer agent fees and expenses 1,192,490
Investment advisory fee 882,601
Administration fee 588,401
Shareholder reports and notices 103,122
Custodian fees 92,325
Registration fees 44,935
Professional fees 37,454
Trustees' fees and expenses 9,924
Other 137,248
-----------------
TOTAL EXPENSES 7,845,388
Less: amounts waived/reimbursed (146,496)
-----------------
NET EXPENSES 7,698,892
-----------------
NET INVESTMENT INCOME 6,532,888
-----------------
NET REALIZED AND UNREALIZED GAIN:
NET REALIZED GAIN ON:
Investments 41,105,871
Futures contracts 902,457
-----------------
NET REALIZED GAIN 42,008,328
-----------------
NET CHANGE IN UNREALIZED APPRECIATION ON:
Investments 28,492,177
Futures contracts 185,675
-----------------
NET APPRECIATION 28,677,852
-----------------
NET GAIN 70,686,180
-----------------
NET INCREASE $ 77,219,068
=================
</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
FEBRUARY 28, 2006 AUGUST 31, 2005
----------------- -----------------
(UNAUDITED)
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income $ 6,532,888 $ 17,747,547
Net realized gain 42,008,328 85,199,227
Net change in unrealized appreciation/depreciation 28,677,852 84,404,769
----------------- -----------------
NET INCREASE 77,219,068 187,351,543
----------------- -----------------
DIVIDENDS TO SHAREHOLDERS FROM NET INVESTMENT INCOME:
Class A shares (6,005,049) (4,386,734)
Class B shares (2,743,790) (6,352,859)
Class C shares (918,694) (1,072,102)
Class D shares (2,832,584) (3,188,310)
----------------- -----------------
TOTAL DIVIDENDS (12,500,117) (15,000,005)
----------------- -----------------
Net decrease from transactions in shares of beneficial interest (199,813,347) (394,424,338)
----------------- -----------------
NET DECREASE (135,094,396) (222,072,800)
NET ASSETS:
Beginning of period 1,558,018,133 1,780,090,933
----------------- -----------------
END OF PERIOD
(INCLUDING ACCUMULATED UNDISTRIBUTED NET INVESTMENT INCOME OF $4,620,223
AND $10,587,452, RESPECTIVELY) $ 1,422,923,737 $ 1,558,018,133
================= =================
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
23
<Page>
MORGAN STANLEY S&P 500 Index Fund
NOTES TO FINANCIAL STATEMENTS - FEBRUARY 28, 2006 (UNAUDITED)
1. ORGANIZATION AND ACCOUNTING POLICIES
Morgan Stanley S&P 500 Index Fund (the "Fund") is registered under the
Investment Company Act of 1940, as amended (the "Act"), as a diversified,
open-end management investment company. The Fund's investment objective is to
provide investment results that, before expenses, correspond to the total return
of the Standard & Poor's 500 Composite Stock Price Index (the "S&P 500 Index").
The Fund was organized as a Massachusetts business trust on June 18, 1997 and
commenced operations on September 26, 1997.
The Fund offers Class A shares, Class B shares, Class C shares and Class D
shares. The four classes are substantially the same except that most Class A
shares are subject to a sales charge imposed at the time of purchase and some
Class A shares, and most Class B shares and Class C shares are subject to a
contingent deferred sales charge imposed on shares redeemed within 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) 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
24
<Page>
valuations of such securities are determined (that is, close of the foreign
market on which the securities trade) and the close of business on the NYSE. If
developments occur during such periods that are expected to materially affect
the value of such securities, such valuations may be adjusted to reflect the
estimated fair value of such securities as of the close of the NYSE, as
determined in good faith by the Fund's Trustees or by the Investment Adviser
using a pricing service and/or procedures approved by the Trustees of the Fund;
and (7) short-term debt securities having a maturity date of more than sixty
days at time of purchase are valued on a mark-to-market basis until sixty days
prior to maturity and thereafter at amortized cost based on their value on the
61st day. Short-term debt securities having a maturity date of sixty days or
less at the time of purchase are valued at amortized cost.
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined by the identified cost method.
Dividend income and other distributions are recorded on the ex-dividend date.
Discounts are accreted and premiums are amortized over the life of the
respective securities. Interest income is accrued daily.
C. REPURCHASE AGREEMENTS -- Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the Fund, along with other affiliated
entities managed by the Investment Adviser, may transfer uninvested cash
balances into one or more joint repurchase agreement accounts. These balances
are invested in one or more repurchase agreements and are collateralized by
cash, U.S. Treasury or federal agency obligations. The Fund may also invest
directly with institutions in repurchase agreements. The Fund's custodian
receives the collateral, which is marked-to-market daily to determine that the
value of the collateral does not decrease below the repurchase price plus
accrued interest.
D. MULTIPLE CLASS ALLOCATIONS -- Investment income, expenses (other than
distribution fees), and realized and unrealized gains and losses are allocated
to each class of shares based upon the relative net asset value on the date such
items are recognized. Distribution fees are charged directly to the respective
class.
E. FUTURES CONTRACTS -- A futures contract is an agreement between two parties
to buy and sell financial instruments or contracts based on financial indices at
a set price on a future date. Upon entering into such a contract, the Fund is
required to pledge to the broker cash, U.S. Government securities or other
liquid portfolio securities equal to the minimum initial margin requirements of
the applicable futures exchange. Pursuant to the contract, the Fund agrees to
receive from or pay to the broker an amount of cash equal to the daily
fluctuation in the value of the contract. Such receipts or payments known as
variation margin are recorded by the Fund as unrealized gains and losses. Upon
closing of the contract, the Fund realizes a gain or loss equal to the
difference between the value of the contract at the time it was opened and the
value at the time it was closed.
F. FEDERAL INCOME TAX POLICY -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute substantially all of its taxable income to its
shareholders. Accordingly, no federal income tax provision is required.
25
<Page>
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: 0.12% to the portion of the daily net assets not exceeding
$2 billion and 0.10% to the portion of the daily net assets in excess of $2
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.
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 that such operating expenses exceed
0.40% of the average daily net assets of the Fund on an annualized basis.
3. PLAN OF DISTRIBUTION
Shares of the Fund are distributed by Morgan Stanley Distributors Inc. (the
"Distributor"), an affiliate of the Investment Adviser and Administrator. The
Fund has adopted a Plan of Distribution (the "Plan") pursuant to Rule 12b-1
under the Act. The Plan provides that the Fund will pay the Distributor a fee
which is accrued daily and paid monthly at the following annual rates: (i) Class
A -- up to 0.25% of the average daily net assets of Class A; (ii) Class B -- up
to 1.0% of the average daily net assets of Class B; and (iii) Class C -- up to
1.0% of the average daily net assets of Class C.
In the case of Class B shares, provided that the Plan continues in effect, any
cumulative expenses incurred by the Distributor but not yet recovered may be
recovered through the payment of future distribution fees from the Fund pursuant
to the Plan and contingent deferred sales charges paid by investors upon
redemption of Class B shares. Although there is no legal obligation for the Fund
to pay expenses incurred in excess of payments made to the Distributor under the
Plan and the proceeds of contingent deferred sales charges paid by investors
upon redemption of shares, if for any reason the Plan is terminated, the
Trustees will consider at that time the manner in which to treat such expenses.
The Distributor has advised the Fund that such excess amounts totaled
$30,381,156 at February 28, 2006.
26
<Page>
In the case of Class A shares and Class C shares, expenses incurred pursuant to
the Plan in any calendar year in excess of 0.25% or 1.0% of the average daily
net assets of Class A or Class C, respectively, will not be reimbursed by the
Fund through payments in any subsequent year, except that expenses representing
a gross sales credit to Morgan Stanley Financial Advisors or other selected
broker-dealer representatives may be reimbursed in the subsequent calendar year.
For the six months ended February 28, 2006, the distribution fee was accrued for
Class A shares and Class C shares at the annual rate of 0.23% and 0.92%,
respectively.
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 $1,487, $913,857
and $8,942, respectively and received $78,328 in front-end sales charges from
sales of the Fund's Class A shares. The respective shareholders pay such charges
which are not an expense of the Fund.
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities, excluding
short-term investments, for the six months ended February 28, 2006, aggregated
$28,134,490 and $238,414,673, respectively. Included in the aforementioned are
sales of common stock of Morgan Stanley, an affiliate of the Investment Adviser,
Administrator and Distributor, of $1,138,373, as well as a realized gain of
$563,264.
Morgan Stanley Trust, an affiliate of the Investment Adviser, Administrator and
Distributor, is the Fund's transfer agent.
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 purchase and sell stock index futures ("futures contracts") for the
following reasons: to simulate full investment in the S&P 500 Index while
retaining a cash balance for fund management purposes; to facilitate trading; to
reduce transaction costs; or to seek higher investment returns when a futures
contract is priced more attractively than stocks comprising the S&P 500 Index.
27
<Page>
These futures contracts involve elements of market risk in excess of the amount
reflected in the Statement of Assets and Liabilities. The Fund bears the risk of
an unfavorable change in the value of the underlying securities. Risks may also
arise upon entering into these contracts from the potential inability of the
counterparties to meet the terms of their contracts.
6. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<Table>
<Caption>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
FEBRUARY 28, 2006 AUGUST 31, 2005
------------------------------------ ------------------------------------
(UNAUDITED)
SHARES AMOUNT SHARES AMOUNT
---------------- ---------------- ---------------- ----------------
CLASS A SHARES
Sold 1,840,066 $ 24,870,216 5,235,373 $ 70,363,664
Conversion from Class B 5,692,591 76,159,545 8,925,582 108,204,446
Reinvestment of dividends 417,812 5,707,309 328,035 4,280,860
Redeemed (6,103,225) (82,576,140) (9,303,697) (119,585,456)
---------------- ---------------- ---------------- ----------------
Net increase -- Class A 1,847,244 24,160,930 5,185,293 63,263,514
---------------- ---------------- ---------------- ----------------
CLASS B SHARES
Sold 605,865 7,913,970 3,953,339 48,834,993
Conversion to Class A (5,882,325) (76,159,545) (8,645,562) (108,204,446)
Reinvestment of dividends 185,895 2,470,551 447,897 5,679,334
Redeemed (9,746,503) (127,272,053) (27,578,164) (338,136,707)
---------------- ---------------- ---------------- ----------------
Net decrease -- Class B (14,837,068) (193,047,077) (31,822,490) (391,826,826)
---------------- ---------------- ---------------- ----------------
CLASS C SHARES
Sold 309,331 4,056,341 1,212,926 14,976,223
Reinvestment of dividends 65,154 863,945 78,995 1,000,865
Redeemed (1,574,450) (20,559,375) (4,203,867) (51,963,157)
---------------- ---------------- ---------------- ----------------
Net decrease -- Class C (1,199,965) (15,639,089) (2,911,946) (35,986,069)
---------------- ---------------- ---------------- ----------------
CLASS D SHARES
Sold 779,126 10,650,004 3,756,182 48,375,150
Reinvestment of dividends 159,078 2,190,504 190,144 2,500,397
Redeemed (2,064,333) (28,128,619) (6,226,828) (80,750,504)
---------------- ---------------- ---------------- ----------------
Net decrease -- Class D (1,126,129) (15,288,111) (2,280,502) (29,874,957)
---------------- ---------------- ---------------- ----------------
Net decrease in Fund (15,315,918) $ (199,813,347) (31,829,645) $ (394,424,338)
================ ================ ================ ================
</Table>
7. FEDERAL INCOME TAX STATUS
The amount of dividends and distributions from net investment income and net
realized capital gains are determined in accordance with federal income tax
regulations which may differ from generally
28
<Page>
accepted accounting principles. These "book/tax" differences are either
considered temporary or permanent in nature. To the extent these differences are
permanent in nature, such amounts are reclassified within the capital accounts
based on their federal tax-basis treatment; temporary differences do not require
reclassification. Dividends and distributions which exceed net investment income
and net realized capital gains for tax purposes are reported as distributions of
paid-in-capital.
As of August 31, 2005, the Fund had a net capital loss carryforward of
$217,749,622 of which $4,102,814 will expire on August 31, 2008, $1,186,260 will
expire on August 31, 2009, $31,462,959 will expire on August 31, 2010,
$156,244,657 will expire on August 31, 2011 and $24,752,932 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 and mark-to-market of open
futures contracts.
8. LEGAL MATTERS
The Investment Adviser, certain affiliates of the Investment Adviser, certain
officers of such affiliates and certain investment companies advised by the
Investment Adviser or its affiliates, including the Fund, are named as
defendants in a consolidated class action. This consolidated action also names
as defendants certain individual Trustees and Directors of the Morgan Stanley
funds. The consolidated amended complaint, 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.
29
<Page>
MORGAN STANLEY S&P 500 INDEX FUND
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<Table>
<Caption>
FOR THE SIX FOR THE YEAR ENDED AUGUST 31,
MONTHS ENDED ----------------------------------------------------
FEBRUARY 28, 2006 2005 2004 2003 2002 2001
----------------- -------- -------- -------- -------- --------
(UNAUDITED)
CLASS A SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period $ 13.27 $ 12.03 $ 10.97 $ 9.91 $ 12.17 $ 16.20
----------------- -------- -------- -------- -------- --------
Income (loss) from investment operations:
Net investment income++ 0.09 0.19 0.12 0.11 0.08 0.08
Net realized and unrealized gain (loss) 0.66 1.23 1.05 1.01 (2.34) (4.11)
----------------- -------- -------- -------- -------- --------
Total income (loss) from investment operations 0.75 1.42 1.17 1.12 (2.26) (4.03)
----------------- -------- -------- -------- -------- --------
Less dividends from net investment income (0.19) (0.18) (0.11) (0.06) - -
----------------- -------- -------- -------- -------- --------
Net asset value, end of period $ 13.83 $ 13.27 $ 12.03 $ 10.97 $ 9.91 $ 12.17
================= ======== ======== ======== ======== ========
TOTAL RETURN+ 5.64%(3) 11.81% 10.70% 11.36% (18.57)% (24.83)%
RATIOS TO AVERAGE NET ASSETS(1)(2):
Expenses 0.63%(4) 0.64% 0.70% 0.70% 0.73% 0.69%
Net investment income 1.30%(4) 1.52% 1.03% 1.11% 0.73% 0.59%
SUPPLEMENTAL DATA:
Net assets, end of period, in millions $ 444 $ 401 $ 301 $ 233 $ 161 $ 159
Portfolio turnover rate 2%(3) 3% 2% 2% 12% 4%
</Table>
- ----------
++ THE PER SHARE AMOUNTS WERE COMPUTED USING AN AVERAGE NUMBER OF SHARES
OUTSTANDING DURING THE PERIOD.
+ DOES NOT REFLECT THE DEDUCTION OF SALES CHARGE. CALCULATED BASED ON THE NET
ASSET VALUE AS OF THE LAST BUSINESS DAY OF THE PERIOD.
(1) IF THE FUND HAD BORNE ALL OF ITS EXPENSES THAT WERE REIMBURSED OR WAIVED BY
THE INVESTMENT ADVISER 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 0.65% 1.28%
AUGUST 31, 2005 0.65 1.51
AUGUST 31, 2004 0.77 0.96
AUGUST 31, 2003 0.82 0.99
AUGUST 31, 2002 0.80 0.66
AUGUST 31, 2001 0.72 0.56
</Table>
(2) REFLECTS OVERALL FUND RATIOS FOR INVESTMENT INCOME AND NON-CLASS SPECIFIC
EXPENSES.
(3) NOT ANNUALIZED.
(4) ANNUALIZED.
SEE NOTES TO FINANCIAL STATEMENTS
30
<Page>
<Table>
<Caption>
FOR THE SIX FOR THE YEAR ENDED AUGUST 31,
MONTHS ENDED ----------------------------------------------------
FEBRUARY 28, 2006 2005 2004 2003 2002 2001
----------------- -------- -------- -------- -------- --------
(UNAUDITED)
CLASS B SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period $ 12.83 $ 11.62 $ 10.60 $ 9.60 $ 11.88 $ 15.94
----------------- -------- -------- -------- -------- --------
Income (loss) from investment operations:
Net investment income (loss)++ 0.03 0.10 0.03 0.03 (0.01) (0.03)
Net realized and unrealized gain (loss) 0.63 1.18 1.02 0.97 (2.27) (4.03)
----------------- -------- -------- -------- -------- --------
Total income (loss) from investment operations 0.66 1.28 1.05 1.00 (2.28) (4.06)
----------------- -------- -------- -------- -------- --------
Less dividends from net investment income (0.05) (0.07) (0.03) - - -
----------------- -------- -------- -------- -------- --------
Net asset value, end of period $ 13.44 $ 12.83 $ 11.62 $ 10.60 $ 9.60 $ 11.88
================= ======== ======== ======== ======== ========
TOTAL RETURN+ 5.16%(3) 11.04% 9.88% 10.42% (19.19)% (25.47)%
RATIOS TO AVERAGE NET ASSETS(1)(2):
Expenses 1.40%(4) 1.40% 1.46% 1.50% 1.50% 1.50%
Net investment income (loss) 0.53%(4) 0.76% 0.27% 0.31% (0.04)% (0.22)%
SUPPLEMENTAL DATA:
Net assets, end of period, in millions $ 654 $ 815 $ 1,108 $ 1,160 $ 1,169 $ 1,544
Portfolio turnover rate 2%(3) 3% 2% 2% 12% 4%
</Table>
- ----------
++ THE PER SHARE AMOUNTS WERE COMPUTED USING AN AVERAGE NUMBER OF SHARES
OUTSTANDING DURING THE PERIOD.
+ DOES NOT REFLECT THE DEDUCTION OF SALES CHARGE. CALCULATED BASED ON THE NET
ASSET VALUE AS OF THE LAST BUSINESS DAY OF THE PERIOD.
(1) IF THE FUND HAD BORNE ALL OF ITS EXPENSES THAT WERE REIMBURSED OR WAIVED BY
THE INVESTMENT ADVISER AND ADMINISTRATOR, THE ANNUALIZED EXPENSE AND NET
INVESTMENT INCOME (LOSS) RATIOS WOULD HAVE BEEN AS FOLLOWS:
<Table>
<Caption>
EXPENSE NET INVESTMENT
PERIOD ENDED: RATIO INCOME (LOSS) RATIO
--------------- ------- -------------------
FEBRUARY 28, 2006 1.42% 0.51%
AUGUST 31, 2005 1.41 0.75
AUGUST 31, 2004 1.53 0.20
AUGUST 31, 2003 1.62 0.19
AUGUST 31, 2002 1.57 (0.11)
AUGUST 31, 2001 1.53 (0.25)
</Table>
(2) REFLECTS OVERALL FUND RATIOS FOR INVESTMENT INCOME AND NON-CLASS SPECIFIC
EXPENSES.
(3) NOT ANNUALIZED.
(4) ANNUALIZED.
SEE NOTES TO FINANCIAL STATEMENTS
31
<Page>
<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 $ 12.83 $ 11.61 $ 10.60 $ 9.60 $ 11.88 $ 15.94
----------------- -------- -------- -------- -------- --------
Income (loss) from investment operations:
Net investment income (loss)++ 0.04 0.10 0.03 0.03 0.00 (0.03)
Net realized and unrealized gain (loss) 0.62 1.20 1.01 0.97 (2.28) (4.03)
----------------- -------- -------- -------- -------- --------
Total income (loss) from investment operations 0.66 1.30 1.04 1.00 (2.28) (4.06)
----------------- -------- -------- -------- -------- --------
Less dividends from net investment income (0.08) (0.08) (0.03) - - -
----------------- -------- -------- -------- -------- --------
Net asset value, end of period $ 13.41 $ 12.83 $ 11.61 $ 10.60 $ 9.60 $ 11.88
================= ======== ======== ======== ======== ========
TOTAL RETURN+ 5.17%(3) 11.18% 9.85% 10.42% (19.19)% (25.47)%
RATIOS TO AVERAGE NET ASSETS(1)(2):
Expenses 1.32%(4) 1.34% 1.46% 1.49% 1.49% 1.50%
Net investment income (loss) 0.61%(4) 0.82% 0.27% 0.32% (0.03)% (0.22)%
SUPPLEMENTAL DATA:
Net assets, end of period, in millions $ 145 $ 154 $ 173 $ 161 $ 147 $ 169
Portfolio turnover rate 2%(3) 3% 2% 2% 12% 4%
</Table>
- ----------
++ THE PER SHARE AMOUNTS WERE COMPUTED USING AN AVERAGE NUMBER OF SHARES
OUTSTANDING DURING THE PERIOD.
+ DOES NOT REFLECT THE DEDUCTION OF SALES CHARGE. CALCULATED BASED ON THE NET
ASSET VALUE AS OF THE LAST BUSINESS DAY OF THE PERIOD.
(1) IF THE FUND HAD BORNE ALL OF ITS EXPENSES THAT WERE REIMBURSED OR WAIVED BY
THE INVESTMENT ADVISER AND ADMINISTRATOR, THE ANNUALIZED EXPENSE AND NET
INVESTMENT INCOME (LOSS) RATIOS WOULD HAVE BEEN AS FOLLOWS:
<Table>
<Caption>
EXPENSE NET INVESTMENT
PERIOD ENDED: RATIO INCOME (LOSS) RATIO
--------------- ------- -------------------
FEBRUARY 28, 2006 1.34% 0.59%
AUGUST 31, 2005 1.35 0.81
AUGUST 31, 2004 1.53 0.20
AUGUST 31, 2003 1.61 0.20
AUGUST 31, 2002 1.56 (0.10)
AUGUST 31, 2001 1.53 (0.25)
</Table>
(2) REFLECTS OVERALL FUND RATIOS FOR INVESTMENT INCOME AND NON-CLASS SPECIFIC
EXPENSES.
(3) NOT ANNUALIZED.
(4) ANNUALIZED.
SEE NOTES TO FINANCIAL STATEMENTS
32
<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 $ 13.40 $ 12.14 $ 11.06 $ 10.00 $ 12.26 $ 16.28
----------------- -------- -------- -------- -------- --------
Income (loss) from investment operations:
Net investment income++ 0.10 0.23 0.15 0.13 0.11 0.11
Net realized and unrealized gain (loss) 0.67 1.24 1.06 1.02 (2.37) (4.13)
----------------- -------- -------- -------- -------- --------
Total income (loss) from investment operations 0.77 1.47 1.21 1.15 (2.26) (4.02)
----------------- -------- -------- -------- -------- --------
Less dividends from net investment income (0.22) (0.21) (0.13) (0.09) - -
----------------- -------- -------- -------- -------- --------
Net asset value, end of period $ 13.95 $ 13.40 $ 12.14 $ 11.06 $ 10.00 $ 12.26
================= ======== ======== ======== ======== ========
TOTAL RETURN+ 5.73%(3) 12.11% 10.97% 11.59% (18.43)% (24.69)%
RATIOS TO AVERAGE NET ASSETS(1)(2):
Expenses 0.40%(4) 0.40% 0.46% 0.50% 0.50% 0.50%
Net investment income 1.53%(4) 1.76% 1.27% 1.31% 0.96% 0.78%
SUPPLEMENTAL DATA:
Net assets, end of period, in millions $ 180 $ 188 $ 198 $ 180 $ 136 $ 118
Portfolio turnover rate 2%(3) 3% 2% 2% 12% 4%
</Table>
- ----------
++ THE PER SHARE AMOUNTS WERE COMPUTED USING AN AVERAGE NUMBER OF SHARES
OUTSTANDING DURING THE PERIOD.
+ CALCULATED BASED ON THE NET ASSET VALUE AS OF THE LAST BUSINESS DAY OF THE
PERIOD.
(1) IF THE FUND HAD BORNE ALL OF ITS EXPENSES THAT WERE REIMBURSED OR WAIVED BY
THE INVESTMENT ADVISER 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 0.42% 1.51%
AUGUST 31, 2005 0.41 1.75
AUGUST 31, 2004 0.53 1.20
AUGUST 31, 2003 0.62 1.19
AUGUST 31, 2002 0.57 0.89
AUGUST 31, 2001 0.53 0.75
</Table>
(2) REFLECTS OVERALL FUND RATIOS FOR INVESTMENT INCOME AND NON-CLASS SPECIFIC
EXPENSES.
(3) NOT ANNUALIZED.
(4) ANNUALIZED.
SEE NOTES TO FINANCIAL STATEMENTS
33
<Page>
(This page has been left blank intentionally.)
<Page>
(This page has been left blank intentionally.)
<Page>
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
Wayne E. Hedien
James F. Higgins
Dr. Manuel H. Johnson
Joseph J. Kearns
Michael E. Nugent
Fergus Reid
OFFICERS
Charles A. Fiumefreddo
CHAIRMAN OF THE BOARD
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]
36007RPT-RA06-00335P-Y02/06
[GRAPHIC]
MORGAN STANLEY FUNDS
MORGAN STANLEY
S&P 500 INDEX FUND
SEMIANNUAL REPORT
FEBRUARY 28, 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 S&P 500 Index Fund
/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