<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