N-CSRS 1 file1.htm FORM N-CSRS

 
 

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)

 

 522 Fifth Avenue, New York, New York
(Address of principal executive offices)
 10036
(Zip code)
 

Ronald E. Robison

522 Fifth Avenue, New York, New York 10036

(Name and address of agent for service)

Registrant’s telephone number, including area code: 212-296-6990

Date of fiscal year end: August 31, 2008

Date of reporting period: February 29, 2008

Item 1 - Report to Shareholders

 
 

 

 



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.




Fund Report
For the six months ended February 29, 2008

Total Return for the 6 Months Ended February 29, 2008


Class A Class B Class C Class D S&P
500®1
Lipper
S&P 500
Objective
Funds Index2
  −9.08   −9.41   −9.41   −8.95   −8.79   −8.91
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

Credit market woes initiated by the collapse of the subprime mortgage market and the increasing probability of recession led to turbulent market conditions in the six-month period ended February 29, 2008. In the third quarter of 2007, credit standards tightened significantly after rising home foreclosures led to a crisis in the subprime mortgage market. This event triggered additional financial crises, as mortgage lenders declared bankruptcy, high profile hedge funds imploded, and large financial institutions declared multi-billion dollar losses in investments related to mortgage securities. Economic data in the U.S. also began to signal trouble, and inflationary pressures were growing. Gross domestic product (GDP) growth slowed to 0.6 percent in the fourth quarter, down from 4.9 percent in the third quarter. With the housing market still contracting, weak manufacturing and employment data, rising commodity prices for food and energy, and a falling U.S. dollar, many investors adopted a much more pessimistic outlook and the stock market stayed volatile throughout the period. The Federal Open Market Committee (the ‘‘Fed’’) responded by lowering its target federal funds rate and taking other steps to boost liquidity in the credit market. The federal government also looked to aid the economy by providing an economic stimulus plan to bolster consumer spending. Nonetheless, the probability of recession appeared very high going into the end of the period.

Performance Analysis

All share classes of Morgan Stanley S&P 500 Index Fund underperformed the S&P 500® and the Lipper S&P 500 Objective Funds Index for the six months ended February 29, 2008, assuming no deduction of applicable sales charges.

The materials, energy and consumer staples sectors were the only sectors with positive returns during the period for the Fund and the S&P 500. The materials and energy sectors continued to perform well because their profits are driven by the underlying commodity prices of their raw materials (metals or oil, for example), which continued to advance during the period. The consumer staples sector benefited from renewed investor interest in stocks with ‘‘defensive’’ characteristics; that is, stocks that may be more resilient in an economic downturn.

Areas of weakness for the Fund and the S&P 500 included the financials, telecommunication services and consumer discretionary sectors. The financials sector

2





suffered from a range of woes deriving from the credit crisis, turmoil in the mortgage securities market, declining real estate values and volatile financial markets. In telecommunication services, weak performance was driven by several factors, including concerns that a new plan to offer unlimited calling would induce price wars, an analyst downgrade of one of the larger telecom stocks, and investor rotation out of the sector. The consumer discretionary sector was hampered by the reported slowdown in consumer spending, as well as diminished expectations for consumer spending going forward.

Because the S&P 500 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. As such, the financials, information technology (which represents one of the largest sectors in the Fund and S&P 500) and consumer discretionary sectors detracted most from absolute performance, while energy, materials and consumer staples were the largest contributors for the period.

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.


TOP 10 HOLDINGS   
Exxon Mobil Corp.   4.1
General Electric Co.   2.9  
Microsoft Corp.   1.9  
AT&T Inc.   1.8  
Procter & Gamble Co. (The)   1.8  
Chevron Corp.   1.6  
Johnson & Johnson   1.5  
Bank of America Corp.   1.5  
International Business Machines Corp.   1.3  
Altria Group, Inc.   1.3  

TOP FIVE INDUSTRIES   
Integrated Oil   7.4
Pharmaceuticals: Major   5.9  
Industrial Conglomerates   4.9  
Major Banks   4.6  
Electric Utilities   3.2  
Data as of February 29, 2008. 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.

3





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®. 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 S&P 500. For example, if the common stock of a specific company represents five percent of the S&P 500, the Investment Adviser typically will invest the same percentage of the Fund’s assets in that stock. The S&P 500 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.

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. The semiannual reports and the annual reports are filed electronically with the Securities and Exchange Commission (SEC) on Form N-CSRS and Form N-CSR, respectively. Morgan Stanley also delivers the semiannual and annual reports to fund shareholders and makes these reports available on its public web site, www.morganstanley.com. Each Morgan Stanley fund also files a complete schedule of portfolio holdings with the SEC for the fund’s first and third fiscal quarters on Form N-Q. Morgan Stanley does not deliver the reports for the first and third fiscal quarters to shareholders, nor are the reports posted to the Morgan Stanley public web site. You may, however, obtain the Form N-Q filings (as well as the Form N-CSR and N-CSRS filings) by accessing the SEC’s web site, http://www.sec.gov. You may also review and copy them at the SEC’s public reference room in Washington, DC. Information on the operation of the SEC’s public reference room may be obtained by calling the SEC at (800) SEC-0330. You can also request copies of these materials, upon payment of a duplicating fee, by electronic request at the SEC’s e-mail address (publicinfo@sec.gov) or by writing the public reference section of the SEC, Washington, DC 20549-0102.

Proxy Voting Policy and Procedures and
Proxy Voting Record

You may obtain a copy of the Fund’s Proxy Voting Policy and Procedures without charge, upon request, by calling toll free (800) 869-NEWS or by visiting the Mutual Fund Center on our Web site at www.morganstanley.com. It is also available on the Securities and Exchange Commission’s Web site at http://www.sec.gov.

You may obtain information regarding how the Fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 without charge by visiting the Mutual Fund Center on our Web site at www.morganstanley.com. This information is also available on the Securities and Exchange Commission’s Web site at http://www.sec.gov.

4





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) 869-NEWS, 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





Performance Summary

               Average Annual Total Returns — Period Ended February 29, 2008


  Class A Shares*
(since 09/26/97)
Class B Shares**
(since 09/26/97)
Class C Shares
(since 09/26/97)
Class D Shares††
(since 09/26/97)
Symbol  SPIAX  SPIBX  SPICX  SPIDX
1 Year   (4.11)% 3    (4.81)% 3    (4.79)% 3    (3.84)% 3 
    (9.14) 4    (9.54) 4    (5.73) 4    —        
5 Years   10.97 3    10.13 3    10.14 3    11.22 3 
    9.78 4    9.86 4    10.14 4    —        
10 Years   3.40 3    2.76 3    2.62 3    3.64 3 
    2.84 4    2.76 4    2.62 4    —        
Since Inception   4.34 3    3.72 3    3.55 3    4.57 3 
    3.80 4    3.72 4    3.55 4    —        
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/msim 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. Effective April 2005, Class B shares will generally convert to Class A shares approximately eight years after the end of the calendar month in which the shares were purchased. Performance for periods greater than eight years reflects this conversion.
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®) is a broad-based index, the performance of which is based on the performance of 500 widely-held common stocks chosen for market size, liquidity and industry group representation. The Index is unmanaged and its 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. The Fund is in the Lipper S&P 500 Objective Funds classification as of the date of this report.
(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





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 09/01/07 – 02/29/08.

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.


  Beginning
Account Value
Ending
Account Value
Expenses Paid
During Period*
  09/01/07 02/29/08 09/01/07 –
02/29/08
Class A            
Actual (−9.08% return) $ 1,000.00   $ 909.20   $ 2.75  
Hypothetical (5% annual return before expenses) $ 1,000.00   $ 1,021.98   $ 2.92  
Class B            
Actual (−9.41% return) $ 1,000.00   $ 905.90   $ 6.35  
Hypothetical (5% annual return before expenses) $ 1,000.00   $ 1,018.20   $ 6.72  
Class C            
Actual (−9.41% return) $ 1,000.00   $ 905.90   $ 6.26  
Hypothetical (5% annual return before expenses) $ 1,000.00   $ 1,018.30   $ 6.62  
Class D            
Actual (−8.95% return) $ 1,000.00   $ 910.50   $ 1.62  
Hypothetical (5% annual return before expenses) $ 1,000.00   $ 1,023.17   $ 1.71  
* Expenses are equal to the Fund’s annualized expense ratios of 0.59%, 1.34%, 1.32% and 0.34% for Class A, Class B, Class C and Class D shares, respectively, multiplied by the average account value over the period, multiplied by 182/366 (to reflect the one-half year period). If the Fund had borne all its expenses, the annualized expense ratios would have been 0.68%, 1.43%, 1.41%, and 0.43% for Class A, Class B, Class C and Class D, respectively.

7





Morgan Stanley S&P 500 Index Fund

Portfolio of Investments February 29, 2008   (unaudited)


NUMBER OF
SHARES
  VALUE
    Common Stocks (99.5%)
    Advertising/Marketing Services (0.2%)
  38,090   Interpublic Group of Companies, Inc. (The)* $       328,336  
  26,410   Omnicom Group, Inc.   1,179,735  
        1,508,071  
    Aerospace & Defense (2.0%)    
  62,630   Boeing Co.   5,185,138  
  32,510   General Dynamics Corp.   2,660,944  
  10,090   Goodrich Corp.   597,631  
  10,160   L-3 Communications Holdings, Inc.   1,079,906  
  28,040   Lockheed Martin Corp.   2,893,728  
  27,340   Northrop Grumman Corp.   2,149,197  
  11,160   Precision Castparts Corp.   1,231,952  
  34,690   Raytheon Co.   2,249,300  
  13,160   Rockwell Collins, Inc.   775,124  
        18,822,920  
    Agricultural Commodities/
    Milling (0.2%)
  51,950   Archer-Daniels-Midland Co.   2,342,945  
    Air Freight/Couriers (1.0%)    
  13,720   C.H. Robinson Worldwide, Inc.   696,564  
  17,220   Expeditors International of Washington, Inc.   677,090  
  24,990   FedEx Corp.   2,202,369  
  84,910   United Parcel Service, Inc. (Class B)   5,964,078  
        9,540,101  
    Airlines (0.1%)    
  59,310   Southwest Airlines Co.   727,141  
    Aluminum (0.3%)
  68,530   Alcoa, Inc.   2,545,204  
    Apparel/Footwear (0.4%)
  29,750   Coach, Inc.*   902,020  
  6,890   Jones Apparel Group, Inc.   97,218  
  8,040   Liz Claiborne, Inc.   142,951  
  31,030   Nike, Inc. (Class B)   1,868,006  
  4,760   Polo Ralph Lauren Corp.   296,024  
  7,110   V.F. Corp.   540,644  
          3,846,863  
    Apparel/Footwear Retail (0.4%)
  6,960   Abercrombie & Fitch Co. (Class A) $       539,609  
  37,630   Gap, Inc. (The)   758,997  
  25,110   Limited Brands, Inc.   382,927  
  15,190   Nordstrom, Inc.   562,486  
  35,310   TJX Companies, Inc. (The)     1,129,920  
        3,373,939  
    Auto Parts: O.E.M. (0.3%)    
  11,840   Eaton Corp.   954,659  
  47,980   Johnson Controls, Inc.   1,576,623  
  1   WABCO Holdings, Inc.   42  
        2,531,324  
    Automotive Aftermarket (0.1%)
  19,380   Goodyear Tire & Rubber Co. (The)*   525,198  
    Beverages: Alcoholic (0.4%)    
  59,300   Anheuser-Busch Companies, Inc.   2,792,437  
  6,980   Brown-Forman Corp. (Class B)   445,115  
  15,670   Constellation Brands Inc.
(Class A)*
  301,021  
  11,040   Molson Coors Brewing Co. (Class B)   595,718  
        4,134,291  
    Beverages: Non-Alcoholic (2.0%)
  160,590   Coca-Cola Co. (The)   9,388,091  
  23,130   Coca-Cola Enterprises Inc.   565,066  
  11,210   Pepsi Bottling Group, Inc. (The)   381,252  
  130,070   PepsiCo, Inc.   9,047,669  
        19,382,078  
    Biotechnology (1.3%)
  87,890   Amgen Inc.*   4,000,753  
  23,611   Biogen Idec Inc.*   1,377,938  
  31,180   Celgene Corp.*   1,757,616  
  21,490   Genzyme Corp.*   1,524,071  
  75,210   Gilead Sciences, Inc.*   3,558,937  
  4,425   Millipore Corp.*   309,308  
        12,528,623  

See Notes to Financial Statements

8





Morgan Stanley S&P 500 Index Fund

Portfolio of Investments February 29, 2008   (unaudited) continued


NUMBER OF
SHARES
  VALUE
    Broadcasting (0.1%)    
  40,230   Clear Channel Communications, Inc. $     1,287,360  
    Building Products (0.1%)    
  29,800   Masco Corp.   556,962  
  13,850   Trane, Inc.   623,943  
          1,180,905  
    Cable/Satellite TV (0.7%)
  248,320   Comcast Corp. (Class A)*   4,852,173  
  58,010   DIRECTV Group, Inc. (The)*   1,453,150  
        6,305,323  
    Casino/Gaming (0.1%)    
  25,490   International Game Technology   1,150,874  
    Chemicals: Agricultural (0.5%)    
  44,180   Monsanto Co.   5,110,742  
    Chemicals: Major Diversified (0.8%)
  76,310   Dow Chemical Co. (The)   2,876,124  
  72,650   Du Pont (E.I.) de Nemours & Co.   3,372,413  
  6,550   Eastman Chemical Co.   431,056  
  9,340   Hercules Inc.   171,109  
  10,130   Rohm & Haas Co.   543,069  
        7,393,771  
    Chemicals: Specialty (0.5%)    
  17,400   Air Products & Chemicals, Inc.   1,589,142  
  4,585   Ashland Inc.   202,519  
  25,530   Praxair, Inc.   2,049,548  
  10,510   Sigma-Aldrich Corp.   578,260  
        4,419,469  
    Coal (0.2%)    
  14,660   CONSOL Energy, Inc.   1,113,867  
  21,400   Peabody Energy Corp.   1,211,668  
        2,325,535  
    Commercial Printing/Forms (0.1%)  
  17,340   Donnelley (R.R.) & Sons Co.   551,932  
    Computer Communications (1.4%)
  490,240   Cisco Systems, Inc.*   11,947,149  
  42,158   Juniper Networks, Inc.*   1,130,677  
  11,060   QLogic Corp.*   175,301  
        13,253,127  
    Computer Peripherals (0.4%)
  169,540   EMC Corp.* $     2,634,652  
  7,650   Lexmark International, Inc. (Class A)*   252,679  
  27,810   Network Appliance, Inc.*   601,252  
  45,128   Seagate Technology Inc. (Escrow) (a)*   0  
        3,488,583  
    Computer Processing
    Hardware (2.5%)
  70,750   Apple Inc.*   8,845,165  
  181,080   Dell Inc.*   3,594,438  
  208,320   Hewlett-Packard Co.   9,951,446  
  66,950   Sun Microsytems*   1,097,980  
        23,489,029  
    Construction Materials (0.1%)    
  8,740   Vulcan Materials Co.   612,674  
    Containers/Packaging (0.1%)    
  8,120   Ball Corp.   358,092  
  8,120   Bemis Company, Inc.   201,538  
  10,540   Pactiv Corp.*   266,873  
  13,050   Sealed Air Corp.   315,941  
        1,142,444  
    Contract Drilling (0.7%)    
  11,710   ENSCO International Inc.   700,726  
  22,890   Nabors Industries, Ltd. (Bermuda)*   721,722  
  21,660   Noble Corp. (Cayman Islands)   1,064,589  
  9,063   Rowan Companies, Inc.   365,330  
  25,565   Transocean Inc. (Cayman Islands)   3,592,118  
        6,444,485  
    Data Processing Services (0.7%)
  8,165   Affiliated Computer Services, Inc. (Class A)*   414,374  
  42,520   Automatic Data Processing, Inc.   1,698,674  
  14,060   Computer Sciences Corp.*   610,907  
  10,520   Convergys Corp.*   151,909  
  13,790   Fidelity National Information Services, Inc.   572,147  
  13,300   Fiserv, Inc.*   699,846  

See Notes to Financial Statements

9





Morgan Stanley S&P 500 Index Fund

Portfolio of Investments February 29, 2008   (unaudited) continued


NUMBER OF
SHARES
  VALUE
  26,950   Paychex, Inc. $       847,847  
  16,400   Total System Services, Inc.   364,572  
  60,680   Western Union Co.   1,262,144  
        6,622,420  
    Department Stores (0.3%)    
  4,620   Dillard’s, Inc. (Class A)   68,330  
  25,350   Kohl’s Corp.*   1,126,554  
  34,990   Macy’s, Inc.   863,553  
  17,920   Penney (J.C.) Co., Inc.   828,083  
        2,886,520  
    Discount Stores (1.7%)
  7,310   Big Lots, Inc.*   123,174  
  35,080   Costco Wholesale Corp.   2,172,154  
  11,350   Family Dollar Stores, Inc.   217,352  
  5,890   Sears Holdings Corp.*   563,202  
  67,140   Target Corp.   3,532,235  
  190,930   Wal-Mart Stores, Inc.   9,468,219  
        16,076,336  
    Drugstore Chains (0.8%)    
  119,340   CVS Caremark Corp.   4,818,949  
  80,130   Walgreen Co.   2,925,546  
        7,744,495  
    Electric Utilities (3.2%)
  54,080   AES Corp. (The)*   972,358  
  13,430   Allegheny Energy, Inc.*   680,498  
  16,810   Ameren Corp.   717,787  
  32,320   American Electric Power Co., Inc.   1,322,534  
  25,960   CenterPoint Energy, Inc.   381,093  
  18,190   CMS Energy Corp.   261,754  
  21,940   Consolidated Edison, Inc.   897,126  
  14,600   Constellation Energy Group   1,289,910  
  47,260   Dominion Resources, Inc.   1,887,564  
  13,230   DTE Energy Co.   526,686  
  101,900   Duke Energy Corp.   1,787,326  
  26,330   Edison International   1,300,702  
  15,710   Entergy Corp.   1,614,045  
  53,330   Exelon Corp.   3,991,751  
  24,630   FirstEnergy Corp.   1,664,742  
  32,890   FPL Group, Inc.   1,982,938  
  6,232   Integrys Energy Group, Inc.   286,236  
  16,180   Pepco Holdings, Inc.   408,869  
  28,610   PG&E Corp.   1,077,453  
  8,110   Pinnacle West Capital Corp. $       288,311  
  30,070   PPL Corp.   1,364,577  
  20,940   Progress Energy, Inc.   877,595  
  41,100   Public Service Enterprise Group Inc.   1,812,510  
  61,370   Southern Co. (The)   2,119,106  
  17,020   TECO Energy, Inc.   254,960  
  33,930   Xcel Energy, Inc.   672,493  
          30,440,924  
    Electrical Products (0.4%)    
  14,550   Cooper Industries Ltd. (Class A) (Bermuda)   610,081  
  63,610   Emerson Electric Co.   3,241,566  
  11,440   Molex Inc.   257,743  
        4,109,390  
    Electronic Components (0.4%)    
  16,810   Jabil Circuit, Inc.   217,185  
  18,458   MEMC Electronic Materials, Inc.*   1,407,976  
  18,440   SanDisk Corp.*   434,262  
  40,180   Tyco Electronics Ltd. (Bermuda)   1,321,922  
        3,381,345  
    Electronic Equipment/
    Instruments (0.3%)
  31,230   Agilent Technologies, Inc.*   955,950  
  17,730   JDS Uniphase Corp.*   233,149  
  12,060   Rockwell Automation, Inc.   659,803  
  74,700   Xerox Corp.*   1,098,090  
        2,946,992  
    Electronic Production
    Equipment (0.3%)
  111,360   Applied Materials, Inc.   2,134,771  
  14,720   KLA-Tencor Corp.   618,387  
  9,380   Novellus Systems, Inc.*   207,110  
  14,030   Teradyne, Inc.*   168,220  
        3,128,488  
    Electronics/Appliance Stores (0.2%)
  28,360   Best Buy Co., Inc.   1,219,764  
  13,620   Circuit City Stores – Circuit City Group   60,200  
  10,590   RadioShack Corp.   184,796  
          1,464,760  

See Notes to Financial Statements

10





Morgan Stanley S&P 500 Index Fund

Portfolio of Investments February 29, 2008   (unaudited) continued


NUMBER OF
SHARES
  VALUE
    Electronics/Appliances (0.1%)    
  23,270   Eastman Kodak Co. $       395,125  
  4,960   Harman International Industries, Inc.   204,352  
  6,250   Whirlpool Corp.   527,312  
        1,126,789  
    Engineering & Construction (0.2%)
  7,242   Fluor Corp.   1,008,448  
  9,834   Jacobs Engineering Group, Inc.*   789,572  
        1,798,020  
    Environmental Services (0.2%)
  23,400   Allied Waste Industries, Inc.*   241,956  
  41,080   Waste Management, Inc.   1,348,656  
        1,590,612  
    Finance/Rental/Leasing (0.8%)
  15,412   American Capital Strategies, Ltd.   559,301  
  31,580   Capital One Financial Corp.   1,453,627  
  15,320   CIT Group, Inc.   340,410  
  46,760   Countrywide Financial Corp.   295,056  
  38,590   Discover Financial Services   582,323  
  79,040   Fannie Mae   2,185,456  
  53,460   Freddie Mac   1,346,123  
  4,690   Ryder System, Inc.   270,191  
  43,950   SLM Corp.   861,860  
        7,894,347  
    Financial Conglomerates (3.1%)  
  94,490   American Express Co.   3,996,927  
  403,400   Citigroup, Inc.   9,564,614  
  271,420   JPMorgan Chase & Co.   11,033,223  
  13,660   Leucadia National Corp.*   618,252  
  21,140   Principal Financial Group, Inc.   1,167,562  
  36,690   Prudential Financial, Inc.   2,677,269  
        29,057,847  
    Financial Publishing/
    Services (0.2%)
  10,650   Equifax, Inc.   364,443  
  26,580   McGraw-Hill Companies, Inc. (The)   1,087,919  
  17,330   Moody’s Corp.   658,193  
          2,110,555  
    Food Distributors (0.1%)    
  49,140   SYSCO Corp. $     1,378,868  
    Food Retail (0.3%)    
  55,040   Kroger Co. (The)   1,334,720  
  35,750   Safeway Inc.   1,027,455  
  17,080   SUPERVALU, Inc.   448,350  
  11,260   Whole Foods Market, Inc.   395,789  
        3,206,314  
    Food: Major Diversified (1.0%)    
  17,980   Campbell Soup Co.   580,574  
  39,370   ConAgra Foods Inc.   870,077  
  27,280   General Mills, Inc.   1,527,407  
  25,610   Heinz (H.J.) Co.   1,129,657  
  21,330   Kellogg Co.   1,081,858  
  125,020   Kraft Foods Inc. (Class A)   3,896,873  
  58,520   Sara Lee Corp.   739,108  
        9,825,554  
    Food: Meat/Fish/Dairy (0.1%)    
  10,622   Dean Foods Co.   228,585  
  22,130   Tyson Foods, Inc. (Class A)   318,893  
        547,478  
    Food: Specialty/Candy (0.2%)    
  13,580   Hershey Foods Co. (The)   503,546  
  10,320   McCormick & Co., Inc. (Non-Voting)   355,524  
  17,600   Wrigley (Wm.) Jr. Co.   1,053,536  
        1,912,606  
    Forest Products (0.1%)    
  16,930   Weyerhaeuser Co.   1,036,116  
    Gas Distributors (0.4%)
  40,060   Dynegy, Inc. (Class A)*   296,444  
  3,700   Nicor Inc.   126,170  
  22,150   NiSource, Inc.   380,758  
  13,960   Questar Corp.   771,290  
  21,120   Sempra Energy   1,122,106  
  51,090   Spectra Energy Corp.   1,180,690  
        3,877,458  
    Home Building (0.1%)    
  9,838   Centex Corp.   218,305  
  22,409   D.R. Horton, Inc.   314,398  
  6,313   KB Home   151,070  

See Notes to Financial Statements

11





Morgan Stanley S&P 500 Index Fund

Portfolio of Investments February 29, 2008   (unaudited) continued


NUMBER OF
SHARES
  VALUE
  11,260   Lennar Corp. (Class A) $       209,549  
  17,170   Pulte Homes, Inc.   232,482  
          1,125,804  
    Home Furnishings (0.1%)    
  13,750   Leggett & Platt, Inc.   229,625  
  22,658   Newell Rubbermaid, Inc.   514,337  
        743,962  
    Home Improvement Chains (0.7%) 
  136,370   Home Depot, Inc. (The)   3,620,623  
  118,180   Lowe’s Companies, Inc.   2,832,775  
  8,420   Sherwin-Williams Co.   435,988  
          6,889,386  
    Hospital/Nursing
    Management (0.0%)
  38,310   Tenet Healthcare Corp.*   184,271  
    Hotels/Resorts/Cruiselines (0.4%) 
  35,300   Carnival Corp (Panama) (Units)†   1,389,055  
  25,260   Marriott International, Inc.
(Class A)
  861,366  
  16,090   Starwood Hotels & Resorts Worldwide, Inc.   761,540  
  14,380   Wyndham Worldwide Corp.*   318,804  
        3,330,765  
    Household/Personal Care (2.6%)     
  34,670   Avon Products, Inc.   1,319,540  
  11,190   Clorox Co. (The)   651,146  
  41,190   Colgate-Palmolive Co.   3,134,147  
  9,200   Estee Lauder Companies, Inc. (The) (Class A)   391,736  
  6,570   International Flavors & Fragrances, Inc.   283,364  
  34,190   Kimberly-Clark Corp.   2,228,504  
  250,950   Procter & Gamble Co. (The)   16,607,871  
        24,616,308  
    Industrial Conglomerates (5.0%)     
  57,630   3M Co.   4,518,192  
  20,460   Danaher Corp.   1,517,109  
  816,620   General Electric Co.   27,062,787  
  60,340   Honeywell International, Inc.   3,471,963  
  22,010   Ingersoll-Rand Co. Ltd. (Class A) (Bermuda) $       921,338  
  14,650   ITT Corp.   823,916  
  20,140   Textron, Inc.   1,090,984  
  39,980   Tyco International Ltd. (Bermuda)   1,601,599  
  79,880   United Technologies Corp.   5,632,339  
        46,640,227  
    Industrial Machinery (0.3%)    
  33,400   Illinois Tool Works Inc.   1,638,938  
  13,590   Parker Hannifin Corp.   878,322  
        2,517,260  
    Industrial Specialties (0.2%)    
  14,110   Ecolab Inc.   660,207  
  13,230   PPG Industries, Inc.   819,995  
        1,480,202  
    Information Technology
    Services (1.6%)
  15,330   Citrix Systems, Inc.*   504,817  
  23,460   Cognizant Technology Solutions Corp. (Class A)*   708,727  
  41,380   Electronic Data Systems Corp.   716,701  
  111,340   International Business Machines Corp.   12,677,172  
  14,630   Teradata Corp*   369,115  
  28,100   Unisys Corp.*   116,053  
        15,092,585  
    Insurance Brokers/Services (0.2%)     
  23,720   AON Corp.   986,989  
  42,030   Marsh & McLennan Companies, Inc.   1,070,504  
        2,057,493  
    Integrated Oil (7.4%)    
  170,610   Chevron Corp.   14,785,063  
  129,250   ConocoPhillips   10,690,267  
  441,480   Exxon Mobil Corp.   38,413,175  
  22,460   Hess Corp.   2,092,823  
  57,390   Marathon Oil Corp.   3,050,852  
  15,200   Murphy Oil Corp.   1,221,776  
        70,253,956  

See Notes to Financial Statements

12





Morgan Stanley S&P 500 Index Fund

Portfolio of Investments February 29, 2008   (unaudited) continued


NUMBER OF
SHARES
  VALUE
    Internet Retail (0.3%)    
  24,830   Amazon.com, Inc.* $     1,600,790  
  12,850   Gamestop Corp (Class A)*   544,326  
  14,900   IAC/InterActiveCorp.*   296,510  
        2,441,626  
    Internet Software/Services (1.4%)     
  13,430   Akamai Technologies, Inc.*   472,199  
  18,710   Google Inc. (Class A)*   8,815,778  
  17,850   VeriSign, Inc.*   621,180  
  107,990   Yahoo! Inc.*   2,999,962  
        12,909,119  
    Investment Banks/Brokers (2.4%)     
  18,740   Ameriprise Financial, Inc.   948,993  
  9,330   Bear Stearns Companies, Inc. (The)   745,094  
  75,690   Charles Schwab Corp. (The)   1,484,281  
  4,357   CME Group, Inc.   2,236,448  
  34,240   E*TRADE Group, Inc.*   146,205  
  32,130   Goldman Sachs Group, Inc. (The)   5,450,212  
  5,681   Intercontinental Exchange, Inc.*   740,234  
  42,830   Lehman Brothers Holdings Inc.   2,183,902  
  69,170   Merrill Lynch & Co., Inc.   3,428,065  
  85,750   Morgan Stanley (Note 4)   3,611,790  
  21,410   NYSE Euronext   1,405,995  
        22,381,219  
    Investment Managers (0.6%)    
  6,990   Federated Investors, Inc.
(Class B)
  283,654  
  13,070   Franklin Resources, Inc.   1,233,416  
  12,400   Janus Capital Group, Inc.   300,328  
  10,888   Legg Mason, Inc.   719,044  
  21,340   Price (T.) Rowe Group, Inc.   1,078,310  
  31,210   State Street Corp.   2,451,545  
        6,066,297  
    Life/Health Insurance (1.0%)    
  39,420   AFLAC, Inc.   2,460,202  
  35,440   Genworth Financial Inc.
(Class A)
  821,499  
  21,750   Lincoln National Corp.   1,111,643  
  59,840   MetLife, Inc. $     3,486,278  
  7,450   Torchmark Corp.   448,937  
  29,160   UnumProvident Corp.   668,056  
        8,996,615  
    Major Banks (4.6%)    
  358,630   Bank of America Corp.   14,251,956  
  92,010   Bank of New York Mellon
Corp.
  4,036,479  
  44,400   BB&T Corp.   1,382,172  
  12,200   Comerica, Inc.   442,128  
  29,570   Huntington Bancshares, Inc.   361,345  
  31,410   KeyCorp   692,591  
  51,200   National City Corp.   812,032  
  28,250   PNC Financial Services Group, Inc.   1,735,398  
  56,170   Regions Financial Corp.   1,190,804  
  28,220   SunTrust Banks, Inc.   1,640,429  
  139,520   U.S. Bancorp   4,467,430  
  159,620   Wachovia Corp.