N-CSRS 1 a2134550zn-csrs.txt 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) 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, 2004 Date of reporting period: February 29, 2004 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. FUND REPORT For the six month period ended February 29, 2004 TOTAL RETURN FOR THE SIX MONTHS ENDED FEBRUARY 29, 2004
LIPPER S&P 500 S&P 500 OBJECTIVE CLASS A CLASS B CLASS C CLASS D INDEX(1) FUNDS INDEX(2) 14.10% 13.75% 13.82% 14.35% 14.59% 14.39%
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS AND CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE FIGURES SHOWN. FOR MORE UP-TO-DATE INFORMATION, INCLUDING MONTH-END PERFORMANCE FIGURES, PLEASE VISIT 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 PERFORMANCE OF THE FUND'S FOUR SHARE CLASSES VARIES BECAUSE EACH HAS DIFFERENT EXPENSES. THE FUND'S TOTAL RETURN FIGURES 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 INFORMATION. MARKET CONDITIONS The U.S. equity markets continued to rise for the six months ended February 29, 2004. The positive returns were broadly based, with most major sectors posting solid gains. These gains were supported by improvements in the underlying health of the economy, which was reflected in GDP growth rates of 8.2 percent in the third quarter 2003 and 4 percent in the fourth quarter. Investors also drew assurance from corporate earnings, which improved throughout the period as companies repaired their balance sheets and trimmed costs. Performance was solid across all segments of the market. Small-capitalization stocks, as measured by the S&P 600 Small-Cap Index, benefited the most, as investors sought to benefit from their relatively low valuations and sensitivity to changes in the economy. That index posted a return of 16.8 percent for the period, followed closely by the S&P 400 Mid-Cap Index with 16.6 percent. The large-capitalization stocks that make up the S&P 500 Index trailed their smaller peers slightly, though their return was still strong on an absolute basis. PERFORMANCE ANALYSIS Morgan Stanley S&P 500 Index Fund remained true to its long-term strategy of seeking to provide investment results that, before expenses, correspond to the returns of the S&P 500 Index. This approach kept the Fund's returns in line with those of its benchmarks--the S&P 500 Index and the Lipper S&P 500 Objective Funds Index--for the six months ended February 29, 2004. The gains in the equity market were broad based during the period, with every major sector group posting positive returns. Financial stocks, the largest sector in the benchmark, were also the best performing during the six months. These companies benefited strongly from improving economic expectations, low interest rates, increased merger-and-acquisition activity and strong capital markets. Energy stocks also appreciated smartly as increasing demand from both emerging and developed economies ran up against limited capacity, driving energy prices and energy company profits higher. Much of the Fund's strong performance was driven by the sectors that had suffered the most heavily in the bear market of 2001-2002 but were poised to rebound most aggressively entering the period. Information technology, materials and industrials all posted notable positive returns in anticipation of improving economic conditions. While the market's tone was broadly positive, performance was not even across every sector, the consumer discretionary area being a case in point. The 2 sector's return for the period was a solid 9.85 percent which, while positive, kept it behind the market leaders. Much of the drag on the sector's performance was the result of lagging media industry stocks. LARGEST HOLDINGS General Electric Co 3.1% Microsoft Corporation 2.7 Pfizer Inc 2.6 Exxon Mobil Corporation 2.6 Citigroup Inc. 2.4 Walmart Stores Inc 2.4 American Intl. Group Inc 1.8 Intel Corp. 1.8 IBM Corp. 1.6 Johnson & Johnson 1.5
LARGEST INDUSTRIES Pharmaceuticals: Major 7.8% Industrial Conglomerates 5.1 Major Banks 5.0 Financial Conglomerates 4.5 Packaged Software 4.1
DATA AS OF FEBRUARY 29, 2004. SUBJECT TO CHANGE DAILY. ALL PERCENTAGES ARE A PERCENTAGE OF NET ASSETS. 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% OF ITS ASSETS IN COMMON STOCKS OF COMPANIES INCLUDED IN THE S&P 500 INDEX. THE "INVESTMENT MANAGER," 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 MANAGER 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 THAT ARE INCLUDED IN THE S&P 500 INDEX. PROXY VOTING POLICIES AND PROCEDURES A DESCRIPTION OF THE FUND'S POLICIES AND PROCEDURES WITH RESPECT TO THE VOTING OF PROXIES RELATING TO THE FUND'S PORTFOLIO SECURITIES IS AVAILABLE WITHOUT CHARGE, UPON REQUEST, BY CALLING (800) 869-NEWS. THIS INFORMATION IS ALSO AVAILABLE ON THE SECURITIES AND EXCHANGE COMMISSION'S WEB SITE AT http://www.sec.gov. 3 PERFORMANCE SUMMARY AVERAGE ANNUAL TOTAL RETURNS--PERIOD ENDED FEBRUARY 29, 2004
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 37.55%(3) 36.56%(3) 36.48%(3) 37.92%(3) 30.33(4) 31.56(4) 35.48(4) -- 5 YEARS (0.82)(3) (1.58)(3) (1.57)(3) (0.58)(3) (1.88)(4) (1.98)(4) (1.57)(4) -- SINCE INCEPTION 3.82(3) 3.02(3) 3.03(3) 4.07(3) 2.95(4) 3.02(4) 3.03(4) --
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE. WHEN YOU SELL FUND SHARES, THEY MAY BE WORTH 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. Notes on Performance (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. * 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% for shares redeemed within one year of purchase. ++ Class D has no sales charge. 4 MORGAN STANLEY S&P 500 INDEX FUND PORTFOLIO OF INVESTMENTS - FEBRUARY 29, 2004 (UNAUDITED)
NUMBER OF SHARES VALUE --------------------------------------------------------------------------------- COMMON STOCKS (99.5%) ADVERTISING/MARKETING SERVICES (0.2%) 76,376 Interpublic Group of Companies, Inc. (The)* $ 1,294,573 34,998 Omnicom Group, Inc. 2,862,836 --------------- 4,157,409 --------------- AEROSPACE & DEFENSE (1.1%) 154,956 Boeing Co. 6,720,442 36,423 General Dynamics Corp. 3,355,287 21,663 Goodrich Corp. 638,842 83,051 Lockheed Martin Corp. 3,843,600 33,732 Northrop Grumman Corp. 3,410,643 76,669 Raytheon Co. 2,330,738 32,606 Rockwell Collins, Inc. 1,060,999 --------------- 21,360,551 --------------- AGRICULTURAL COMMODITIES/MILLING (0.1%) 119,116 Archer-Daniels-Midland Co. 2,048,795 --------------- AIR FREIGHT/COURIERS (1.0%) 54,946 FedEx Corp. 3,773,691 207,086 United Parcel Service, Inc. (Class B) 14,626,484 --------------- 18,400,175 --------------- AIRLINES (0.1%) 22,742 Delta Air Lines, Inc.* 204,223 145,001 Southwest Airlines Co. 2,002,464 --------------- 2,206,687 --------------- ALTERNATIVE POWER GENERATION (0.0%) 76,099 Calpine Corp.* 419,305 --------------- ALUMINUM (0.3%) 159,398 Alcoa, Inc. 5,972,643 --------------- APPAREL/FOOTWEAR (0.4%) 31,457 Cintas Corp. 1,343,528 23,271 Jones Apparel Group, Inc. 868,008 20,101 Liz Claiborne, Inc. 741,727 48,338 Nike, Inc. (Class B) 3,540,758 10,848 Reebok International Ltd. 431,859 19,905 V.F. Corp. 894,332 --------------- 7,820,212 --------------- APPAREL/FOOTWEAR RETAIL (0.4%) 165,013 Gap, Inc. (The) $ 3,432,270 95,174 Limited Brands, Inc. 1,879,686 25,316 Nordstrom, Inc. 990,868 92,703 TJX Companies, Inc. (The) 2,183,156 --------------- 8,485,980 --------------- AUTO PARTS: O.E.M. (0.3%) 27,376 Dana Corp. 585,573 103,207 Delphi Corp. 1,052,711 27,998 Eaton Corp. 1,639,003 33,272 Johnson Controls, Inc. 1,940,423 24,077 Visteon Corp. 243,178 --------------- 5,460,888 --------------- AUTOMOTIVE AFTERMARKET (0.0%) 13,602 Cooper Tire & Rubber Co. 271,360 32,286 Goodyear Tire & Rubber Co. (The)* 271,848 --------------- 543,208 --------------- BEVERAGES: ALCOHOLIC (0.5%) 150,079 Anheuser-Busch Companies, Inc. 7,987,204 22,336 Brown-Forman Corp. (Class B) 1,091,337 6,705 Coors (Adolph) Co. (Class B) 454,465 --------------- 9,533,006 --------------- BEVERAGES: NON-ALCOHOLIC (1.3%) 451,569 Coca Cola Co. 22,560,387 83,793 Coca-Cola Enterprises Inc. 1,953,215 48,404 Pepsi Bottling Group, Inc. (The) 1,400,328 --------------- 25,913,930 --------------- BIOTECHNOLOGY (1.2%) 237,609 Amgen Inc.* 15,095,300 60,343 Biogen Idec Inc.* 3,346,019 34,577 Chiron Corp.* 1,691,161 41,287 Genzyme Corp.* 2,096,554 45,596 MedImmune, Inc.* 1,171,361 --------------- 23,400,395 ---------------
SEE NOTES TO FINANCIAL STATEMENTS 5
NUMBER OF SHARES VALUE --------------------------------------------------------------------------------- BROADCASTING (0.4%) 113,390 Clear Channel Communications, Inc. $ 4,880,306 59,405 Univision Communications Inc. (Class A)* 2,116,600 --------------- 6,996,906 --------------- BUILDING PRODUCTS (0.2%) 13,411 American Standard Companies, Inc.* 1,461,263 85,313 Masco Corp. 2,392,177 --------------- 3,853,440 --------------- CABLE/SATELLITE TV (0.6%) 414,622 Comcast Corp. (Class A)* 12,455,245 --------------- CASINO/GAMING (0.2%) 20,348 Harrah's Entertainment, Inc. 1,057,079 63,773 International Game Technology 2,502,453 --------------- 3,559,532 --------------- CHEMICALS: AGRICULTURAL (0.1%) 48,260 Monsanto Co. 1,594,510 --------------- CHEMICALS: MAJOR DIVERSIFIED (1.0%) 169,563 Dow Chemical Co. (The) 7,370,904 183,606 Du Pont (E.I.) de Nemours & Co. 8,278,795 14,254 Eastman Chemical Co. 603,657 23,109 Engelhard Corp. 670,623 20,421 Hercules Inc.* 243,010 41,014 Rohm & Haas Co. 1,630,306 --------------- 18,797,295 --------------- CHEMICALS: SPECIALTY (0.3%) 41,862 Air Products & Chemicals, Inc. 2,019,423 9,311 Great Lakes Chemical Corp. 236,499 59,897 Praxair, Inc. 2,175,459 12,772 Sigma-Aldrich Corp. 730,175 --------------- 5,161,556 --------------- COMMERCIAL PRINTING/FORMS (0.1%) 9,310 Deluxe Corp. 366,628 20,929 Donnelley (R.R.) & Sons Co. $ 664,705 --------------- 1,031,333 --------------- COMPUTER COMMUNICATIONS (1.6%) 76,753 Avaya Inc.* 1,316,314 1,271,596 Cisco Systems, Inc.* 29,373,868 --------------- 30,690,182 --------------- COMPUTER PERIPHERALS (0.5%) 442,669 EMC Corp.* 6,339,020 23,665 Lexmark International, Inc.* 1,947,393 63,555 Network Appliance, Inc.* 1,376,601 --------------- 9,663,014 --------------- COMPUTER PROCESSING HARDWARE (1.7%) 66,773 Apple Computer, Inc.* 1,597,878 471,631 Dell Inc.* 15,398,752 59,752 Gateway, Inc.* 324,453 561,652 Hewlett-Packard Co. 12,755,117 17,425 NCR Corp.* 779,943 601,738 Sun Microsystems, Inc.* 3,213,281 --------------- 34,069,424 --------------- CONSTRUCTION MATERIALS (0.0%) 18,733 Vulcan Materials Co. 886,071 --------------- CONSUMER SUNDRIES (0.0%) 12,242 American Greetings Corp. (Class A)* 277,526 --------------- CONTAINERS/PACKAGING (0.2%) 10,381 Ball Corp. 670,301 9,781 Bemis Company, Inc. 499,613 28,964 Pactiv Corp.* 622,436 15,653 Sealed Air Corp.* 780,302 9,996 Temple-Inland, Inc. 651,239 --------------- 3,223,891 --------------- CONTRACT DRILLING (0.2%) 27,002 Nabors Industries, Ltd. (Bermuda)* 1,278,545 24,644 Noble Corp.* 1,000,546 17,326 Rowan Companies, Inc.* 407,161 58,924 Transocean Inc.* 1,737,080 --------------- 4,423,332 ---------------
SEE NOTES TO FINANCIAL STATEMENTS 6
NUMBER OF SHARES VALUE --------------------------------------------------------------------------------- DATA PROCESSING SERVICES (1.0%) 109,496 Automatic Data Processing, Inc. $ 4,648,105 34,504 Computer Sciences Corp.* 1,441,922 26,349 Convergys Corp.* 428,435 165,519 First Data Corp. 6,782,958 35,701 Fiserv, Inc.* 1,378,416 69,450 Paychex, Inc. 2,234,206 52,919 SunGard Data Systems Inc.* 1,538,355 --------------- 18,452,397 --------------- DEPARTMENT STORES (0.6%) 15,343 Dillard's, Inc. (Class A) 270,037 33,302 Federated Department Stores, Inc. 1,744,026 62,630 Kohl's Corp.* 3,225,445 53,157 May Department Stores Co. 1,872,190 50,291 Penney (J.C.) Co., Inc. 1,552,483 46,753 Sears, Roebuck & Co. 2,197,859 --------------- 10,862,040 --------------- DISCOUNT STORES (3.1%) 21,532 Big Lots, Inc.* 310,061 84,318 Costco Wholesale Corp.* 3,282,500 62,077 Dollar General Corp. 1,358,866 31,760 Family Dollar Stores, Inc. 1,208,150 167,891 Target Corp. 7,380,488 797,178 Wal-Mart Stores, Inc. 47,479,922 --------------- 61,019,987 --------------- DRUGSTORE CHAINS (0.5%) 72,748 CVS Corp. 2,728,050 188,842 Walgreen Co. 6,734,106 --------------- 9,462,156 --------------- ELECTRIC UTILITIES (2.4%) 114,699 AES Corp. (The)* 1,039,173 23,389 Allegheny Energy, Inc.* 308,501 29,914 Ameren Corp. 1,417,924 72,760 American Electric Power Co., Inc. 2,510,220 56,380 CenterPoint Energy, Inc. 589,735 32,801 Cinergy Corp. 1,285,471 29,674 CMS Energy Corp.* $ 273,001 41,529 Consolidated Edison, Inc. 1,834,336 30,812 Constellation Energy Group, Inc. 1,224,777 59,757 Dominion Resources, Inc. 3,754,532 31,001 DTE Energy Co. 1,254,300 167,168 Duke Energy Corp. 3,671,009 60,014 Edison International 1,385,723 42,146 Entergy Corp. 2,498,836 60,237 Exelon Corp. 4,044,312 60,756 FirstEnergy Corp. 2,347,004 33,883 FPL Group, Inc. 2,224,419 76,399 PG&E Corp.* 2,152,160 16,809 Pinnacle West Capital Corp. 657,064 32,664 PPL Corp. 1,519,856 45,141 Progress Energy, Inc. 2,083,709 43,316 Public Service Enterprise Group, Inc. 2,041,916 134,871 Southern Co. (The) 4,089,289 34,596 TECO Energy, Inc. 521,362 59,661 TXU Corp. 1,678,264 73,464 Xcel Energy, Inc. 1,283,416 --------------- 47,690,309 --------------- ELECTRICAL PRODUCTS (0.4%) 36,573 American Power Conversion Corp. 827,281 17,195 Cooper Industries Ltd. (Class A) 909,787 77,511 Emerson Electric Co. 4,842,887 35,064 Molex Inc. 1,110,828 15,338 Power-One, Inc.* 188,044 10,770 Thomas & Betts Corp.* 232,524 --------------- 8,111,351 --------------- ELECTRONIC COMPONENTS (0.2%) 36,793 Jabil Circuit, Inc.* 1,029,468 17,400 QLogic Corp.* 727,320 95,291 Sanmina-SCI Corp.* 1,209,243 153,991 Solectron Corp.* 984,002 --------------- 3,950,033 ---------------
SEE NOTES TO FINANCIAL STATEMENTS 7
NUMBER OF SHARES VALUE --------------------------------------------------------------------------------- ELECTRONIC EQUIPMENT/INSTRUMENTS (0.6%) 87,589 Agilent Technologies, Inc.* $ 2,994,668 264,313 JDS Uniphase Corp.* 1,295,134 34,341 Rockwell Automation, Inc. 1,046,027 27,970 Scientific-Atlanta, Inc. 925,807 42,470 Symbol Technologies, Inc. 722,839 15,574 Tektronix, Inc. 499,147 29,992 Thermo Electron Corp.* 841,875 22,366 Waters Corp.* 826,200 145,860 Xerox Corp.* 2,062,460 --------------- 11,214,157 --------------- ELECTRONIC PRODUCTION EQUIPMENT (0.5%) 306,351 Applied Materials, Inc.* 6,506,895 35,866 KLA-Tencor Corp.* 1,893,725 28,060 Novellus Systems, Inc.* 902,129 35,245 Teradyne, Inc.* 868,789 --------------- 10,171,538 --------------- ELECTRONICS/APPLIANCE STORES (0.2%) 59,612 Best Buy Co., Inc. 3,174,339 38,583 Circuit City Stores - Circuit City Group 431,358 30,229 RadioShack Corp. 1,044,714 --------------- 4,650,411 --------------- ELECTRONICS/APPLIANCES (0.1%) 52,787 Eastman Kodak Co. 1,506,541 14,469 Maytag Corp. 408,460 12,831 Whirlpool Corp. 935,893 --------------- 2,850,894 --------------- ENGINEERING & CONSTRUCTION (0.0%) 15,112 Fluor Corp. 623,068 --------------- ENVIRONMENTAL SERVICES (0.2%) 38,630 Allied Waste Industries, Inc.* 487,897 107,290 Waste Management, Inc. 3,057,765 --------------- 3,545,662 --------------- FINANCE/RENTAL/LEASING (2.0%) 42,536 Capital One Financial Corp. 3,008,146 42,263 Countrywide Financial Corp. 3,872,559 178,981 Fannie Mae 13,405,677 128,149 Freddie Mac 7,934,986 235,347 MBNA Corp. $ 6,432,034 53,460 Providian Financial Corp.* 691,238 11,814 Ryder System, Inc. 435,228 83,035 SLM Corp. 3,478,336 --------------- 39,258,204 --------------- FINANCIAL CONGLOMERATES (4.5%) 236,934 American Express Co. 12,657,014 950,229 Citigroup Inc. 47,758,510 375,818 J.P. Morgan Chase & Co. 15,416,054 53,291 John Hancock Financial Services, Inc. 2,245,683 59,491 Principal Financial Group, Inc. 2,153,574 99,560 Prudential Financial, Inc. 4,618,588 61,562 State Street Corp. 3,307,726 --------------- 88,157,149 --------------- FINANCIAL PUBLISHING/SERVICES (0.3%) 25,618 Equifax, Inc. 671,448 35,293 McGraw-Hill Companies, Inc. (The) 2,758,854 27,409 Moody's Corp. 1,832,566 --------------- 5,262,868 --------------- FOOD DISTRIBUTORS (0.3%) 119,205 SYSCO Corp. 4,726,478 --------------- FOOD RETAIL (0.4%) 67,587 Albertson's, Inc. 1,672,102 137,247 Kroger Co.* 2,637,887 81,472 Safeway Inc.* 1,863,265 24,699 Supervalu, Inc. 698,982 26,087 Winn-Dixie Stores, Inc. 159,652 --------------- 7,031,888 --------------- FOOD: MAJOR DIVERSIFIED (1.6%) 75,586 Campbell Soup Co. 2,113,385 68,775 General Mills, Inc. 3,162,274 64,814 Heinz (H.J.) Co. 2,476,543 75,182 Kellogg Co. 2,968,937 316,225 PepsiCo, Inc. 16,412,077 145,575 Sara Lee Corp. 3,176,446 --------------- 30,309,662 ---------------
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NUMBER OF SHARES VALUE --------------------------------------------------------------------------------- FOOD: MEAT/FISH/DAIRY (0.1%) 98,902 ConAgra Foods Inc. $ 2,689,145 --------------- FOOD: SPECIALTY/CANDY (0.3%) 23,968 Hershey Foods Corp. 1,986,947 25,571 McCormick & Co., Inc. (Non-Voting) 799,605 41,400 Wrigley (Wm.) Jr. Co. (Class A) 2,328,336 --------------- 5,114,888 --------------- FOREST PRODUCTS (0.2%) 19,505 Louisiana-Pacific Corp. 482,359 40,490 Weyerhaeuser Co. 2,641,972 --------------- 3,124,331 --------------- GAS DISTRIBUTORS (0.3%) 69,442 Dynegy, Inc. (Class A)* 284,018 29,299 KeySpan Corp. 1,113,362 22,706 Kinder Morgan, Inc. 1,401,187 8,109 Nicor Inc. 293,059 48,346 NiSource, Inc. 1,049,592 6,779 Peoples Energy Corp. 302,276 41,673 Sempra Energy 1,321,034 --------------- 5,764,528 --------------- HOME BUILDING (0.2%) 11,450 Centex Corp. 1,222,860 8,538 KB HOME 617,724 22,860 Pulte Homes, Inc. 1,206,094 --------------- 3,046,678 --------------- HOME FURNISHINGS (0.1%) 35,355 Leggett & Platt, Inc. 865,137 50,545 Newell Rubbermaid, Inc. 1,293,447 10,761 Tupperware Corp. 205,535 --------------- 2,364,119 --------------- HOME IMPROVEMENT CHAINS (1.2%) 419,095 Home Depot, Inc. (The) 15,217,339 144,846 Lowe's Companies, Inc. 8,111,376 26,852 Sherwin-Williams Co. 939,820 --------------- 24,268,535 --------------- HOSPITAL/NURSING MANAGEMENT (0.3%) 91,272 HCA, Inc. $ 3,880,885 44,165 Health Management Associates, Inc. (Class A) 984,438 16,419 Manor Care, Inc. 581,397 85,613 Tenet Healthcare Corp.* 1,029,068 --------------- 6,475,788 --------------- HOTELS/RESORTS/CRUISELINES (0.5%) 116,030 Carnival Corp. 5,148,251 69,884 Hilton Hotels Corp. 1,120,241 42,594 Marriott International, Inc. (Class A) 1,900,970 37,254 Starwood Hotels & Resorts Worldwide, Inc. 1,453,279 --------------- 9,622,741 --------------- HOUSEHOLD/PERSONAL CARE (2.5%) 16,236 Alberto-Culver Co. (Class B) 666,975 43,565 Avon Products, Inc. 3,075,689 38,871 Clorox Co. (The) 1,907,011 98,960 Colgate-Palmolive Co. 5,487,332 186,359 Gillette Co. (The) 7,172,958 17,252 International Flavors & Fragrances, Inc. 631,251 92,921 Kimberly-Clark Corp. 6,010,130 238,857 Procter & Gamble Co. (The) 24,485,231 --------------- 49,436,577 --------------- INDUSTRIAL CONGLOMERATES (5.1%) 144,576 3M Co. 11,279,820 1,849,528 General Electric Co.** 60,146,651 158,790 Honeywell International, Inc. 5,565,589 31,955 Ingersoll-Rand Co. Ltd. (Class A) (Bermuda) 2,124,368 16,996 ITT Industries, Inc. 1,283,198 25,054 Textron, Inc. 1,386,488 368,233 Tyco International Ltd. (Bermuda) 10,520,417 86,677 United Technologies Corp. 7,983,818 --------------- 100,290,349 ---------------
SEE NOTES TO FINANCIAL STATEMENTS 9
NUMBER OF SHARES VALUE --------------------------------------------------------------------------------- INDUSTRIAL MACHINERY (0.3%) 56,756 Illinois Tool Works Inc. $ 4,513,237 21,841 Parker-Hannifin Corp. 1,226,809 --------------- 5,740,046 --------------- INDUSTRIAL SPECIALTIES (0.2%) 47,460 Ecolab Inc. 1,296,133 31,300 PPG Industries, Inc. 1,836,997 --------------- 3,133,130 --------------- INFORMATION TECHNOLOGY SERVICES (1.8%) 30,231 Citrix Systems, Inc.* 640,293 88,483 Electronic Data Systems Corp. 1,694,449 316,902 International Business Machines Corp. 30,581,043 69,064 PeopleSoft, Inc.* 1,490,401 60,863 Unisys Corp.* 859,994 --------------- 35,266,180 --------------- INSURANCE BROKERS/SERVICES (0.3%) 57,767 AON Corp. 1,515,228 97,670 Marsh & McLennan Companies, Inc. 4,687,183 --------------- 6,202,411 --------------- INTEGRATED OIL (4.0%) 16,555 Amerada Hess Corp. 1,065,314 196,902 ChevronTexaco Corp. 17,396,292 125,399 ConocoPhillips 8,636,229 1,217,526 Exxon Mobil Corp. 51,343,071 --------------- 78,440,906 --------------- INTERNET SOFTWARE/SERVICES (0.3%) 91,341 Siebel Systems, Inc.* 1,192,913 121,081 Yahoo! Inc.* 5,375,996 --------------- 6,568,909 --------------- INVESTMENT BANKS/BROKERS (2.1%) 18,055 Bear Stearns Companies, Inc. (The) 1,585,951 87,213 Goldman Sachs Group, Inc. (The) 9,233,240 50,015 Lehman Brothers Holdings Inc. $ 4,336,801 174,125 Merrill Lynch & Co., Inc. 10,658,191 199,497 Morgan Stanley (Note 4) 11,921,941 1,952 Piper Jaffray Companies, Inc.* 100,567 249,885 Schwab (Charles) Corp. (The) 3,058,592 --------------- 40,895,283 --------------- INVESTMENT MANAGERS (0.4%) 20,016 Federated Investors, Inc. (Class B) 645,916 46,223 Franklin Resources, Inc. 2,611,599 44,332 Janus Capital Group, Inc. 758,964 79,249 Mellon Financial Corp. 2,566,083 22,937 Price (T.) Rowe Group, Inc. 1,206,257 --------------- 7,788,819 --------------- LIFE/HEALTH INSURANCE (0.7%) 94,463 AFLAC, Inc. 3,836,142 25,982 Jefferson-Pilot Corp. 1,388,478 32,785 Lincoln National Corp. 1,522,208 140,022 MetLife, Inc. 4,921,773 20,847 Torchmark Corp. 1,086,546 54,535 UnumProvident Corp. 808,209 --------------- 13,563,356 --------------- MAJOR BANKS (5.0%) 273,685 Bank of America Corp. 22,420,275 142,494 Bank of New York Co., Inc. (The) 4,702,302 205,922 Bank One Corp. 11,115,670 100,685 BB&T Corp. 3,740,448 32,301 Comerica, Inc. 1,858,600 194,250 FleetBoston Financial Corp. 8,747,077 42,161 Huntington Bancshares, Inc. 975,184 77,206 KeyCorp 2,503,019 111,977 National City Corp. 3,997,579 51,072 PNC Financial Services Group 2,993,841 61,120 SouthTrust Corp. 2,053,632 51,858 SunTrust Banks, Inc. 3,749,852
SEE NOTES TO FINANCIAL STATEMENTS 10
NUMBER OF SHARES VALUE --------------------------------------------------------------------------------- 243,836 Wachovia Corp. $ 11,696,813 311,672 Wells Fargo & Co. 17,874,389 --------------- 98,428,681 --------------- MAJOR TELECOMMUNICATIONS (2.7%) 57,483 ALLTEL Corp. 2,977,619 145,495 AT&T Corp. 2,914,265 340,423 BellSouth Corp. 9,382,058 609,826 SBC Communications, Inc. 14,641,922 166,508 Sprint Corp. (FON Group) 2,952,187 508,678 Verizon Communications Inc. 19,497,628 --------------- 52,365,679 --------------- MANAGED HEALTH CARE (0.8%) 28,103 Aetna, Inc. 2,270,441 25,471 Anthem, Inc.* 2,189,232 25,878 CIGNA Corp. 1,434,418 29,674 Humana, Inc.* 650,454 108,060 UnitedHealth Group Inc. 6,699,720 27,988 WellPoint Health Networks, Inc.* 3,044,255 --------------- 16,288,520 --------------- MEDIA CONGLOMERATES (1.9%) 376,756 Disney (Walt) Co. (The) 9,995,337 832,906 Time Warner Inc.* 14,367,628 322,211 Viacom Inc. (Class B) (Non-Voting) 12,392,235 --------------- 36,755,200 --------------- MEDICAL DISTRIBUTORS (0.4%) 20,608 AmerisourceBergen Corp. 1,195,882 79,748 Cardinal Health, Inc. 5,201,962 53,679 McKesson Corp. 1,465,973 --------------- 7,863,817 --------------- MEDICAL SPECIALTIES (2.1%) 38,319 Applera Corp. - Applied Biosystems Group 873,673 9,545 Bard (C.R.), Inc. 900,953 9,658 Bausch & Lomb, Inc. 573,589 112,418 Baxter International, Inc. 3,273,612 46,767 Becton, Dickinson & Co. 2,275,215 47,094 Biomet, Inc. 1,835,724 150,889 Boston Scientific Corp.* $ 6,163,816 55,628 Guidant Corp. 3,790,492 223,263 Medtronic, Inc. 10,471,035 8,990 Millipore Corp.* 470,627 23,020 Pall Corp. 602,433 23,366 PerkinElmer, Inc. 486,947 31,780 St. Jude Medical, Inc.* 2,308,817 36,745 Stryker Corp. 3,260,384 44,544 Zimmer Holdings, Inc.* 3,369,308 --------------- 40,656,625 --------------- MISCELLANEOUS COMMERCIAL SERVICES (0.0%) 26,426 Sabre Holdings Corp. 599,606 --------------- MISCELLANEOUS MANUFACTURING (0.2%) 10,946 Crane Co. 351,804 28,285 Danaher Corp. 2,535,185 37,305 Dover Corp. 1,461,983 --------------- 4,348,972 --------------- MOTOR VEHICLES (0.6%) 337,278 Ford Motor Co. 4,637,573 103,290 General Motors Corp. 4,970,315 55,807 Harley-Davidson, Inc. 2,964,468 --------------- 12,572,356 --------------- MULTI-LINE INSURANCE (2.1%) 480,384 American International Group, Inc. 35,548,416 52,111 Hartford Financial Services Group, Inc. (The) 3,413,271 34,160 Loews Corp. 2,059,506 25,523 Safeco Corp. 1,148,535 --------------- 42,169,728 --------------- OFFICE EQUIPMENT/SUPPLIES (0.2%) 20,349 Avery Dennison Corp. 1,289,516 43,028 Pitney Bowes, Inc. 1,779,208 --------------- 3,068,724 ---------------
SEE NOTES TO FINANCIAL STATEMENTS 11
NUMBER OF SHARES VALUE --------------------------------------------------------------------------------- OIL & GAS PIPELINES (0.1%) 112,033 El Paso Corp. $ 833,526 95,450 Williams Companies, Inc. (The) 903,912 --------------- 1,737,438 --------------- OIL & GAS PRODUCTION (0.8%) 46,215 Anadarko Petroleum Corp. 2,368,519 59,694 Apache Corp. 2,457,602 36,589 Burlington Resources, Inc. 2,141,920 42,837 Devon Energy Corp. 2,432,285 21,199 EOG Resources, Inc. 943,144 18,577 Kerr-McGee Corp. 970,648 70,940 Occidental Petroleum Corp. 3,149,736 47,699 Unocal Corp. 1,812,562 --------------- 16,276,416 --------------- OIL REFINING/MARKETING (0.2%) 12,637 Ashland, Inc. 605,439 57,148 Marathon Oil Corp. 2,008,181 14,228 Sunoco, Inc. 875,022 --------------- 3,488,642 --------------- OILFIELD SERVICES/EQUIPMENT (0.7%) 61,679 Baker Hughes Inc. 2,320,364 29,150 BJ Services Co.* 1,261,904 80,691 Halliburton Co. 2,578,884 107,839 Schlumberger Ltd. 6,954,537 --------------- 13,115,689 --------------- OTHER CONSUMER SERVICES (0.8%) 32,486 Apollo Group, Inc. (Class A)* 2,473,809 32,839 Block (H.&R.), Inc. 1,774,948 186,634 Cendant Corp. 4,236,592 118,991 eBay Inc.* 8,193,720 --------------- 16,679,069 --------------- OTHER CONSUMER SPECIALTIES (0.1%) 26,869 Fortune Brands, Inc. 1,920,596 --------------- OTHER METALS/MINERALS (0.1%) 16,458 Phelps Dodge Corp.* 1,419,667 --------------- PACKAGED SOFTWARE (4.1%) 43,105 Adobe Systems, Inc. 1,605,230 20,557 Autodesk, Inc. 588,958 41,676 BMC Software, Inc.* $ 816,850 106,667 Computer Associates International, Inc. 2,833,076 70,747 Compuware Corp.* 554,656 36,563 Intuit Inc.* 1,621,935 16,584 Mercury Interactive Corp.* 804,987 1,991,658 Microsoft Corp. 52,778,937 68,785 Novell, Inc.* 700,231 962,749 Oracle Corp.* 12,400,207 49,036 Parametric Technology Corp.* 223,604 56,745 Symantec Corp.* 2,334,489 78,760 VERITAS Software Corp.* 2,395,879 --------------- 79,659,039 --------------- PERSONNEL SERVICES (0.1%) 20,772 Monster Worldwide Inc.* 456,984 31,539 Robert Half International, Inc.* 708,681 --------------- 1,165,665 --------------- PHARMACEUTICALS: GENERIC DRUGS (0.0%) 19,885 Watson Pharmaceuticals, Inc.* 913,119 --------------- PHARMACEUTICALS: MAJOR (7.8%) 287,970 Abbott Laboratories 12,325,116 357,217 Bristol-Myers Squibb Co. 9,937,777 546,732 Johnson & Johnson 29,474,322 206,839 Lilly (Eli) & Co. 15,293,676 409,845 Merck & Co. Inc. 19,705,348 1,405,727 Pfizer Inc. 51,519,895 270,667 Schering-Plough Corp. 4,861,179 245,319 Wyeth 9,690,101 --------------- 152,807,414 --------------- PHARMACEUTICALS: OTHER (0.4%) 24,027 Allergan, Inc. 2,103,324 67,349 Forest Laboratories, Inc.* 5,083,503 44,418 King Pharmaceuticals, Inc.* 855,935 --------------- 8,042,762 ---------------
SEE NOTES TO FINANCIAL STATEMENTS 12
NUMBER OF SHARES VALUE --------------------------------------------------------------------------------- PRECIOUS METALS (0.2%) 31,482 Freeport-McMoRan Copper & Gold, Inc. (Class B) $ 1,342,707 79,587 Newmont Mining Corp. 3,458,055 --------------- 4,800,762 --------------- PROPERTY - CASUALTY INSURERS (1.1%) 51,406 ACE Ltd. (Bermuda) 2,311,214 129,600 Allstate Corp. (The) 5,913,648 34,589 Chubb Corp. (The) 2,455,127 29,544 Cincinnati Financial Corp. 1,330,662 39,787 Progressive Corp. (The) 3,288,793 42,027 St. Paul Companies, Inc. (The) 1,796,234 185,089 Travelers Property Casualty Corp. (Class B) 3,376,023 25,285 XL Capital Ltd. (Class A) (Bermuda) 1,938,348 --------------- 22,410,049 --------------- PUBLISHING: BOOKS/MAGAZINES (0.0%) 9,241 Meredith Corp. 464,822 --------------- PUBLISHING: NEWSPAPERS (0.5%) 15,025 Dow Jones & Co., Inc. 731,718 49,930 Gannett Co., Inc. 4,307,461 14,717 Knight-Ridder, Inc. 1,100,243 27,437 New York Times Co. (The) (Class A) 1,252,225 57,516 Tribune Co. 2,872,349 --------------- 10,263,996 --------------- PULP & PAPER (0.3%) 46,811 Georgia-Pacific Corp. 1,500,293 88,502 International Paper Co. 3,917,099 36,944 MeadWestvaco Corp. 1,082,459 --------------- 6,499,851 --------------- RAILROADS (0.4%) 68,379 Burlington Northern Santa Fe Corp. 2,200,436 39,422 CSX Corp. 1,242,976 71,915 Norfolk Southern Corp. 1,593,636 47,005 Union Pacific Corp. 2,991,398 --------------- 8,028,446 --------------- REAL ESTATE INVESTMENT TRUSTS (0.4%) 17,353 Apartment Investment & Management Co. (Class A) $ 562,237 73,636 Equity Office Properties Trust 2,101,571 50,740 Equity Residential 1,509,515 33,701 Plum Creek Timber Co., Inc. 1,051,808 33,142 ProLogis Trust 1,097,994 35,239 Simon Property Group, Inc. 1,920,173 --------------- 8,243,298 --------------- RECREATIONAL PRODUCTS (0.3%) 16,858 Brunswick Corp. 663,531 54,868 Electronic Arts Inc.* 2,587,575 32,140 Hasbro, Inc. 702,902 79,185 Mattel, Inc. 1,504,515 --------------- 5,458,523 --------------- REGIONAL BANKS (1.6%) 64,667 AmSouth Bancorporation 1,636,075 41,008 Charter One Financial, Inc. 1,485,310 104,813 Fifth Third Bancorp 5,871,624 23,118 First Tennessee National Corp. 1,068,976 21,900 M&T Bank Corp. 2,103,495 41,710 Marshall & Ilsley Corp. 1,652,550 27,938 North Fork Bancorporation, Inc. 1,179,822 40,589 Northern Trust Corp. 2,015,244 40,923 Regions Financial Corp. 1,510,059 55,584 Synovus Financial Corp. 1,392,379 355,275 U.S. Bancorp 10,135,996 34,733 Union Planters Corp. 1,041,295 16,552 Zions Bancorporation 964,485 --------------- 32,057,310 --------------- RESTAURANTS (0.7%) 30,367 Darden Restaurants, Inc. 740,955 233,780 McDonald's Corp. 6,615,974 72,038 Starbucks Corp.* 2,694,942 20,987 Wendy's International, Inc. 853,541 54,183 Yum! Brands, Inc.* 2,006,396 --------------- 12,911,808 ---------------
SEE NOTES TO FINANCIAL STATEMENTS 13
NUMBER OF SHARES VALUE --------------------------------------------------------------------------------- SAVINGS BANKS (0.5%) 27,985 Golden West Financial Corp. $ 3,230,029 165,658 Washington Mutual, Inc. 7,444,671 --------------- 10,674,700 --------------- SEMICONDUCTORS (3.4%) 64,211 Advanced Micro Devices, Inc.* 963,165 69,766 Altera Corp.* 1,540,433 67,658 Analog Devices, Inc. 3,376,134 56,548 Applied Micro Circuits Corp.* 365,300 55,782 Broadcom Corp. (Class A)* 2,263,634 1,203,195 Intel Corp. 35,169,390 57,545 Linear Technology Corp. 2,301,225 69,822 LSI Logic Corp.* 705,202 60,528 Maxim Integrated Products, Inc. 3,020,952 112,474 Micron Technology, Inc.* 1,691,609 34,148 National Semiconductor Corp.* 1,344,065 29,872 NVIDIA Corp.* 664,652 31,824 PMC - Sierra, Inc.* 633,298 318,781 Texas Instruments Inc. 9,770,638 63,059 Xilinx, Inc.* 2,651,000 --------------- 66,460,697 --------------- SERVICES TO THE HEALTH INDUSTRY (0.3%) 14,473 Express Scripts, Inc. (Class A)* 1,053,055 44,109 IMS Health Inc. 1,093,021 49,790 Medco Health Solutions Inc.* 1,626,141 19,148 Quest Diagnostics Inc. 1,586,795 --------------- 5,359,012 --------------- SPECIALTY INSURANCE (0.2%) 19,683 Ambac Financial Group, Inc. 1,539,211 26,549 MBIA Inc. 1,746,659 18,138 MGIC Investment Corp. 1,200,373 --------------- 4,486,243 --------------- SPECIALTY STORES (0.5%) 50,669 AutoNation, Inc.* 845,159 16,350 AutoZone, Inc.* $ 1,466,595 54,544 Bed Bath & Beyond Inc.* 2,229,759 15,928 Boise Cascade Corp. 536,774 57,680 Office Depot, Inc.* 1,005,362 91,206 Staples, Inc.* 2,391,421 27,010 Tiffany & Co. 1,135,771 39,323 Toys `R' Us, Inc.* 617,371 --------------- 10,228,212 --------------- SPECIALTY TELECOMMUNICATIONS (0.1%) 26,563 CenturyTel, Inc. 758,905 52,393 Citizens Communications Co.* 690,540 325,721 Qwest Communications International, Inc.* 1,491,802 --------------- 2,941,247 --------------- STEEL (0.1%) 14,854 Allegheny Technologies Inc. 188,646 14,421 Nucor Corp. 907,081 19,020 United States Steel Corp. 698,985 15,859 Worthington Industries, Inc. 274,836 --------------- 2,069,548 --------------- TELECOMMUNICATION EQUIPMENT (1.3%) 148,255 ADC Telecommunications, Inc.* 444,765 28,280 Andrew Corp.* 503,950 87,273 CIENA Corp.* 500,074 35,519 Comverse Technology, Inc.* 700,435 244,939 Corning Inc.* 3,073,984 772,452 Lucent Technologies Inc.* 3,236,574 428,775 Motorola, Inc. 7,910,899 147,373 QUALCOMM Inc. 9,350,817 76,854 Tellabs, Inc.* 745,484 --------------- 26,466,982 --------------- TOBACCO (1.2%) 374,142 Altria Group, Inc. 21,531,872 15,589 R. J. Reynolds Tobacco Holdings, Inc. 962,309 30,550 UST, Inc. 1,163,344 --------------- 23,657,525 ---------------
SEE NOTES TO FINANCIAL STATEMENTS 14
NUMBER OF SHARES VALUE --------------------------------------------------------------------------------- TOOLS/HARDWARE (0.1%) 14,319 Black & Decker Corp. (The) $ 738,001 10,732 Snap-On, Inc. 343,424 14,930 Stanley Works (The) 578,239 --------------- 1,659,664 --------------- TRUCKS/CONSTRUCTION/FARM MACHINERY (0.5%) 63,962 Caterpillar Inc. 4,845,122 7,792 Cummins Inc. 384,925 44,208 Deere & Co. 2,839,480 12,654 Navistar International Corp.* 589,676 32,239 PACCAR, Inc. 1,786,363 --------------- 10,445,566 --------------- WHOLESALE DISTRIBUTORS (0.1%) 32,045 Genuine Parts Co. 1,112,923 16,817 Grainger (W.W.), Inc. 794,603 --------------- 1,907,526 --------------- WIRELESS TELECOMMUNICATIONS (0.7%) 500,007 AT&T Wireless Services Inc.* 6,790,095 202,533 Nextel Communications, Inc. (Class A)* 5,365,099 190,661 Sprint Corp. (PCS Group)* 1,715,949 --------------- 13,871,143 --------------- Total Common Stocks (COST $1,798,144,413) 1,953,263,766 --------------- PRINCIPAL AMOUNT IN THOUSANDS VALUE --------------------------------------------------------------------------------- SHORT-TERM INVESTMENT (0.5%) REPURCHASE AGREEMENT $ 9,193 Joint repurchased agreement 1.03% due 03/01/04 (dated 02/27/04; proceeds $9,193,789) (COST $9,193,000) (A) $ 9,193,000 --------------- TOTAL INVESTMENTS (COST $1,807,337,413) (B) 100.0% 1,962,456,766 OTHER ASSETS IN EXCESS OF LIABILITIES 0.0 897,216 ----- --------------- NET ASSETS 100.0% $ 1,963,353,982 ===== ===============
* NON-INCOME PRODUCING SECURITY. ** A PORTION OF THIS SECURITY HAS BEEN PHYSICALLY SEGREGATED IN CONNECTION WITH OPEN FUTURES CONTRACTS IN THE AMOUNT OF $9,365,760. (a) COLLATERALIZED BY FEDERAL AGENCY AND U.S. TREASURY OBLIGATIONS. (b) THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES APPROXIMATES THE AGGREGATE COST FOR BOOK PURPOSES. THE AGGREGATE GROSS UNREALIZED APPRECIATION IS $422,397,795 AND THE AGGREGATE GROSS UNREALIZED DEPRECIATION IS $267,278,442, RESULTING IN NET UNREALIZED APPRECIATION OF $155,119,353. FUTURES CONTRACTS OPEN AT FEBRUARY 29, 2004:
UNDERLYING NUMBER OF DESCRIPTION, DELIVERY FACE AMOUNT UNREALIZED CONTRACTS LONG/SHORT MONTH, AND YEAR AT VALUE APPRECIATION -------------------------------------------------------------------------------- 1 Long S&P 500 Index E-Mini March 2004 $ 57,230 $ 1,545 34 Long S&P 500 Index March 2004 9,729,100 646,153 ------------ Total unrealized appreciation $ 647,698 ============
SEE NOTES TO FINANCIAL STATEMENTS 15 MORGAN STANLEY S&P 500 INDEX FUND FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES FEBRUARY 29, 2004 (UNAUDITED) ASSETS: Investments in securities, at value (cost $1,807,337,413) $ 1,962,456,766 Receivable for: Shares of beneficial interest sold 3,318,860 Dividends 3,196,408 Investments sold 82,237 Variation margin receivable 11,970 Prepaid expenses and other assets 106,151 ---------------- TOTAL ASSETS 1,969,172,392 ---------------- LIABILITIES: Payable for: Investments purchased 2,096,167 Shares of beneficial interest redeemed 1,832,792 Distribution fee 1,254,458 Investment management fee 517,428 Accrued expenses and other payables 117,565 ---------------- TOTAL LIABILITIES 5,818,410 ---------------- NET ASSETS $ 1,963,353,982 ================ COMPOSITION OF NET ASSETS: Paid-in-capital $ 2,092,804,730 Net unrealized appreciation 155,767,051 Accumulated undistributed net investment income 3,639,002 Accumulated net realized loss (288,856,801) ---------------- NET ASSETS $ 1,963,353,982 ================ CLASS A SHARES: Net Assets $ 296,218,352 Shares Outstanding (unlimited authorized, $.01 par value) 23,879,828 NET ASSET VALUE PER SHARE $ 12.40 ================ MAXIMUM OFFERING PRICE PER SHARE, (net asset value plus 5.54% of net asset value) $ 13.09 ================ CLASS B SHARES: Net Assets $ 1,265,187,139 Shares Outstanding (unlimited authorized, $.01 par value) 105,160,507 NET ASSET VALUE PER SHARE $ 12.03 ================ CLASS C SHARES: Net Assets $ 189,115,133 Shares Outstanding (unlimited authorized, $.01 par value) 15,724,024 NET ASSET VALUE PER SHARE $ 12.03 ================ CLASS D SHARES: Net Assets $ 212,833,358 Shares Outstanding (unlimited authorized, $.01 par value) 17,019,423 NET ASSET VALUE PER SHARE $ 12.51 ================
STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED FEBRUARY 29, 2004 (UNAUDITED) NET INVESTMENT INCOME: Income Dividends $ 16,223,677 Interest 90,254 ---------------- TOTAL INCOME 16,313,931 ---------------- EXPENSES Distribution fee (Class A shares) 328,308 Distribution fee (Class B shares) 6,046,695 Distribution fee (Class C shares) 867,349 Investment management fee 3,640,730 Transfer agent fees and expenses 1,406,165 Shareholder reports and notices 71,599 Registration fees 59,311 Custodian fees 44,610 Professional fees 24,802 Trustees' fees and expenses 7,026 Other 108,808 ---------------- TOTAL EXPENSES 12,605,403 Less: amounts waived/reimbursed (744,760) ---------------- NET EXPENSES 11,860,643 ---------------- NET INVESTMENT INCOME 4,453,288 ---------------- NET REALIZED AND UNREALIZED GAIN (LOSS): NET REALIZED GAIN/LOSS ON: Investments (1,140,867) Futures contracts 2,152,012 ---------------- NET REALIZED GAIN 1,011,145 ---------------- NET CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION ON: Investments 234,453,117 Futures contracts 329,315 ---------------- NET APPRECIATION 234,782,432 ---------------- NET GAIN 235,793,577 ---------------- NET INCREASE $ 240,246,865 ================
SEE NOTES TO FINANCIAL STATEMENTS 16 STATEMENT OF CHANGES IN NET ASSETS
FOR THE SIX FOR THE YEAR MONTHS ENDED ENDED FEBRUARY 29, 2004 AUGUST 31, 2003 ----------------- ----------------- (UNAUDITED) Increase (Decrease) in Net Assets: Operations: Net investment income $ 4,453,288 $ 7,904,451 Net realized gain (loss) 1,011,145 (39,422,328) Net change in unrealized appreciation 234,782,432 190,413,420 ----------------- ----------------- Net Increase 240,246,865 158,895,543 ----------------- ----------------- Dividends to Shareholders from Net Investment Income: Class A shares (2,527,310) (1,059,177) Class B shares (2,842,053) -- Class C shares (512,905) -- Class D shares (2,217,884) (1,290,827) ----------------- ----------------- Total Dividends (8,100,152) (2,350,004) ----------------- ----------------- Net decrease from transactions in shares of beneficial interest (3,466,977) (33,864,106) ----------------- ----------------- Net Increase 228,679,736 122,681,433 Net Assets: Beginning of period 1,734,674,246 1,611,992,813 ----------------- ----------------- End of Period (Including undistributed net investment income of $3,639,002 and $7,285,866, respectively) $ 1,963,353,982 $ 1,734,674,246 ================= =================
SEE NOTES TO FINANCIAL STATEMENTS 17 MORGAN STANLEY S&P 500 INDEX FUND NOTES TO FINANCIAL STATEMENTS - FEBRUARY 29, 2004 (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 seeks to achieve its objective by investing at least 80% of its total assets in common stocks included in the S&P 500 Index in approximately the same weighting as the 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 one year, 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 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 Manager") determines that the latest sale price, the bid price or the mean between the last reported bid and asked price do not reflect a security's market value, portfolio securities are valued at their fair value as determined in good faith under procedures established by and under the general supervision of the Fund's Trustees. Occasionally, developments affecting the closing prices of securities and other assets may occur between the times at which valuations of such securities are determined (that is, close of the foreign market on which the securities 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 18 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 Manager 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 Manager, 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. 19 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 MANAGEMENT AGREEMENT Pursuant to an Investment Management Agreement, the Fund pays the Investment Manager a management 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: 0.40% to the portion of daily net assets not exceeding $1.5 billion; 0.375% to the portion of daily net assets exceeding $1.5 billion but not exceeding $3 billion; and 0.35% to the portion of daily net assets in excess of $3 billion. The Investment Manager has agreed to assume all operating expenses (except for distribution fees) and to waive the compensation provided for in its Investment Management Agreement to the extent that such expenses and compensation on an annualized basis exceed 0.50% of the daily net assets of the Fund 3. PLAN OF DISTRIBUTION Shares of the Fund are distributed by Morgan Stanley Distributors Inc. (the "Distributor"), an affiliate of the Investment Manager. 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 -- 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 $46,716,466 at February 29, 2004. 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 20 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 29, 2004, the distribution fee was accrued for Class A shares and Class C shares at the annual rate of 0.25% and 1.0%, respectively. The Distributor has informed the Fund that for the six months ended February 29, 2004, it received contingent deferred sales charges from certain redemptions of the Fund's Class A shares, Class B shares and Class C shares of $2,191, $1,181,659 and $15,519, respectively and received $223,484 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 29, 2004 aggregated $17,125,480 and $9,369,010, respectively. Included in the aforementioned are sales of common stock of Morgan Stanley, an affiliate of the Investment Manager and Distributor, of $31,370, as well as a realized gain of $783. Morgan Stanley Trust, an affiliate of the Investment Manager and Distributor, is the Fund's transfer agent. At February 29, 2004, the Fund had transfer agent fees and expenses payable of approximately $5,500. 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. 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. 21 6. SHARES OF BENEFICIAL INTEREST Transactions in shares of beneficial interest were as follows:
FOR THE SIX FOR THE YEAR MONTHS ENDED ENDED FEBRUARY 29, 2004 AUGUST 31, 2003 ---------------------------------- ---------------------------------- (unaudited) SHARES AMOUNT SHARES AMOUNT --------------- --------------- --------------- --------------- CLASS A SHARES Sold 6,030,557 $ 71,049,898 10,488,519 $ 103,054,438 Reinvestment of dividends 206,673 2,449,074 105,392 1,020,200 Redeemed (3,624,838) (42,830,015) (5,565,675) (54,696,361) --------------- --------------- --------------- --------------- Net increase -- Class A 2,612,392 30,668,957 5,028,236 49,378,277 --------------- --------------- --------------- --------------- CLASS B SHARES Sold 8,138,658 92,225,132 21,183,000 202,881,480 Reinvestment of dividends 221,123 2,545,116 -- -- Redeemed (12,634,248) (143,432,408) (33,495,369) (314,102,708) --------------- --------------- --------------- --------------- Net decrease -- Class B (4,274,467) (48,662,160) (12,312,369) (111,221,228) --------------- --------------- --------------- --------------- CLASS C SHARES Sold 2,263,277 25,779,358 3,918,125 37,713,844 Reinvestment of dividends 41,702 479,992 -- -- Redeemed (1,760,354) (20,021,107) (4,009,024) (38,062,695) --------------- --------------- --------------- --------------- Net increase (decrease) -- Class C 544,625 6,238,243 90,899 (348,851) --------------- --------------- --------------- --------------- CLASS D SHARES Sold 2,863,474 33,753,275 6,932,537 68,900,746 Reinvestment of dividends 144,815 1,729,093 106,565 1,039,006 Redeemed (2,293,114) (27,194,385) (4,289,985) (41,612,056) --------------- --------------- --------------- --------------- Net increase -- Class D 715,175 8,287,983 2,749,117 28,327,696 --------------- --------------- --------------- --------------- Net decrease in Fund (402,275) $ (3,466,977) (4,625,915) $ (33,864,106) =============== =============== =============== ===============
7. FEDERAL INCOME TAX STATUS The amount of dividends and distributions from net investment income and net realized capital gains are determined in accordance with federal income tax regulations which may differ from generally accepted accounting principles. These "book/tax" differences are either considered temporary or permanent in nature. To the extent these differences are permanent in nature, such amounts are reclassified within the capital accounts based on their federal tax-basis treatment; temporary differences do not require reclassification. Dividends and distributions which exceed net investment income and net realized capital gains for tax purposes are reported as distributions of paid-in-capital. As of August 31, 2003, the Fund had a net capital loss carryforward of $253,390,627 of which $687,345 will expire on August 31, 2006, $1,110,663 will expire on August 31, 2007, $14,522,885 22 will expire on August 31, 2008, $14,524,329 will expire on August 31, 2009, $66,339,275 will expire on August 31, 2010 and $156,206,130 will expire on August 31, 2011 to offset future capital gains to the extent provided by regulations. As of August 31, 2003, the Fund had temporary book/tax differences primarily attributable to post-October losses (capital losses incurred after October 31 within the taxable year which are deemed to arise on the first business day of the Fund's next taxable year), capital loss deferrals on wash sales and mark-to-market of open futures contracts. 8. LEGAL MATTERS The Investment Manager, certain affiliates of the Investment Manager, certain officers of such affiliates and certain investment companies advised by the Investment Manager or its affiliates, including the Fund, are named as defendants in a number of similar class action complaints which were recently consolidated. This consolidated action also names as defendants certain individual Trustees and Directors of the Morgan Stanley funds. The consolidated amended complaint generally alleges that defendants, including the Fund, violated their statutory disclosure obligations and fiduciary duties by failing properly to disclose (i) that the Investment Manager and certain affiliates of the Investment Manager allegedly offered economic incentives to brokers and others to recommend the funds advised by the Investment Manager or its affiliates to investors rather than funds managed by other companies, and (ii) that the funds advised by the Investment Manager 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 intend to move to dismiss the action and otherwise vigorously to defend it. While the Fund believes that it has meritorious defenses, the ultimate outcome of this matter is not presently determinable at this early stage of the litigation, and no provision has been made in the Fund's financial statements for the effect, if any, of this matter. On August 6, 2003, a complaint was filed in the United States District Court for the Southern District of New York by a shareholder of the Fund on behalf of the Fund against Morgan Stanley Investment Advisors Inc. and Morgan Stanley Distributors Inc. (collectively, the "Defendants") alleging breach of fiduciary duty in respect of the Defendants' compensation. Plaintiff alleges the Fund trustees are not independent as required and seeks a declaration that the investment management and distribution agreements between the Fund and the Defendants are void. Plaintiff also alleges that the investment management and distribution fees were excessive and seeks damages equivalent to the investment management and distribution fees paid to the Defendants. The Defendants believe that the lawsuit has no merit and have moved to dismiss the action. The ultimate course 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 such a matter. 23 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:
FOR THE SIX FOR THE YEAR ENDED AUGUST 31, MONTHS ENDED -------------------------------------------------------- FEBRUARY 29, 2004 2003 2002 2001 2000 1999 ----------------- -------- -------- -------- -------- -------- (UNAUDITED) CLASS A SHARES SELECTED PER SHARE DATA: Net asset value, beginning of period $ 10.97 $ 9.91 $ 12.17 $ 16.20 $ 14.05 $ 10.18 -------- -------- -------- -------- -------- -------- Income (loss) from investment operations: Net investment income++ 0.06 0.11 0.08 0.08 0.08 0.10 Net realized and unrealized gain (loss) 1.48 1.01 (2.34) (4.11) 2.10 3.85 Total income (loss) from investment -------- -------- -------- -------- -------- -------- operations 1.54 1.12 (2.26) (4.03) 2.18 3.95 -------- -------- -------- -------- -------- -------- Less dividends and distributions from: Net investment income (0.11) (0.06) - - - (0.07) Net realized gain - - - - (0.03) (0.01) -------- -------- -------- -------- -------- -------- Total dividends and distributions (0.11) (0.06) - - (0.03) (0.08) -------- -------- -------- -------- -------- -------- Net asset value, end of period $ 12.40 $ 10.97 $ 9.91 $ 12.17 $ 16.20 $ 14.05 ======== ======== ======== ======== ======== ======== TOTAL RETURN+ 14.10%(3) 11.36% (18.57)% (24.83)% 15.49% 38.82% RATIOS TO AVERAGE NET ASSETS:(1)(2) Expenses 0.75%(4) 0.70% 0.73% 0.69% 0.75% 0.73% Net investment income 1.02%(4) 1.11% 0.73% 0.59% 0.49% 0.72% SUPPLEMENTAL DATA: Net assets, end of period, in millions $ 296 $ 233 $ 161 $ 159 $ 183 $ 99 Portfolio turnover rate 1%(3) 2% 12% 4% 5% 5%
---------- ++ 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 Manager, the annualized expense and net investment income ratios would have been as follows:
EXPENSE NET INVESTMENT PERIOD ENDED: RATIO INCOME RATIO ----------------- ------- -------------- February 29, 2004 0.83% 0.94% August 31, 2003 0.82% 0.99% August 31, 2002 0.80% 0.66% August 31, 2001 0.72% 0.56% August 31, 2000 0.76% 0.48% August 31, 1999 0.81% 0.64%
(2) Reflects overall Fund ratios for investment income and non-class specific expenses. (3) Not annualized. (4) Annualized. SEE NOTES TO FINANCIAL STATEMENTS 24
FOR THE SIX FOR THE YEAR ENDED AUGUST 31, MONTHS ENDED -------------------------------------------------------- FEBRUARY 29, 2004 2003 2002 2001 2000 1999 ----------------- -------- -------- -------- -------- -------- (UNAUDITED) CLASS B SHARES SELECTED PER SHARE DATA: Net asset value, beginning of period $ 10.60 $ 9.60 $ 11.88 $ 15.94 $ 13.93 $ 10.13 -------- -------- -------- -------- -------- -------- Income (loss) from investment operations: Net investment income (loss)++ 0.02 0.03 (0.01) (0.03) (0.04) (0.01) Net realized and unrealized gain (loss) 1.44 0.97 (2.27) (4.03) 2.08 3.83 Total income (loss) from investment -------- -------- -------- -------- -------- -------- operations 1.46 1.00 (2.28) (4.06) 2.04 3.82 -------- -------- -------- -------- -------- -------- Less dividends and distributions from: Net investment income (0.03) - - - - (0.01) Net realized gain - - - - (0.03) (0.01) -------- -------- -------- -------- -------- -------- Total dividends and distributions (0.03) - - - (0.03) (0.02) -------- -------- -------- -------- -------- -------- Net asset value, end of period $ 12.03 $ 10.60 $ 9.60 $ 11.88 $ 15.94 $ 13.93 ======== ======== ======== ======== ======== ======== TOTAL RETURN+ 13.75%(3) 10.42% (19.19)% (25.47)% 14.69% 37.68% RATIOS TO AVERAGE NET ASSETS:(1)(2) Expenses 1.50%(4) 1.50% 1.50% 1.50% 1.50% 1.50% Net investment income (loss) 0.27%(4) 0.31% (0.04)% (0.22)% (0.26)% (0.05)% SUPPLEMENTAL DATA: Net assets, end of period, in millions $ 1,265 $ 1,160 $ 1,169 $ 1,544 $ 2,036 $ 1,588 Portfolio turnover rate 1%(3) 2% 12% 4% 5% 5%
---------- ++ 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 Manager, the annualized expense and net investment income (loss) ratios would have been as follows:
EXPENSE NET INVESTMENT PERIOD ENDED: RATIO INCOME RATIO ----------------- ------- -------------- February 29, 2004 1.58% 0.19% August 31, 2003 1.62% 0.19% August 31, 2002 1.57% (0.11)% August 31, 2001 1.53% (0.25)% August 31, 2000 1.51% (0.27)% August 31, 1999 1.58% (0.13)%
(2) Reflects overall Fund ratios for investment income and non-class specific expenses. (3) Not annualized. (4) Annualized. SEE NOTES TO FINANCIAL STATEMENTS 25
FOR THE SIX FOR THE YEAR ENDED AUGUST 31, MONTHS ENDED -------------------------------------------------------- FEBRUARY 29, 2004 2003 2002 2001 2000 1999 ----------------- -------- -------- -------- -------- -------- (UNAUDITED) CLASS C SHARES SELECTED PER SHARE DATA: Net asset value, beginning of period $ 10.60 $ 9.60 $ 11.88 $ 15.94 $ 13.93 $ 10.13 -------- -------- -------- -------- -------- -------- Income (loss) from investment operations: Net investment income (loss)++ 0.02 0.03 0.00 (0.03) (0.04) (0.01) Net realized and unrealized gain (loss) 1.44 0.97 (2.28) (4.03) 2.08 3.83 -------- -------- -------- -------- -------- -------- Total income (loss) from investment operations 1.46 1.00 (2.28) (4.06) 2.04 3.82 -------- -------- -------- -------- -------- -------- Less dividends and distributions from: Net investment income (0.03) - - - - (0.01) Net realized gain - - - - (0.03) (0.01) -------- -------- -------- -------- -------- -------- Total dividends and distributions (0.03) - - - (0.03) (0.02) -------- -------- -------- -------- -------- -------- Net asset value, end of period $ 12.03 $ 10.60 $ 9.60 $ 11.88 $ 15.94 $ 13.93 ======== ======== ======== ======== ======== ======== TOTAL RETURN+ 13.82%(3) 10.42% (19.19)% (25.47)% 14.69% 37.70% RATIOS TO AVERAGE NET ASSETS:(1)(2) Expenses 1.50%(4) 1.49% 1.49% 1.50% 1.50% 1.50% Net investment income (loss) 0.27%(4) 0.32% (0.03)% (0.22)% (0.26)% (0.05)% SUPPLEMENTAL DATA: Net assets, end of period, in millions $ 189 $ 161 $ 147 $ 169 $ 211 $ 143 Portfolio turnover rate 1%(3) 2% 12% 4% 5% 5%
---------- ++ 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 Manager, the annualized expense and net investment income (loss) ratios would have been as follows:
EXPENSE NET INVESTMENT PERIOD ENDED: RATIO INCOME RATIO ----------------- ------- -------------- February 29, 2004 1.58% 0.19% August 31, 2003 1.61% 0.20% August 31, 2002 1.56% (0.10)% August 31, 2001 1.53% (0.25)% August 31, 2000 1.51% (0.27)% August 31, 1999 1.58% (0.13)%
(2) Reflects overall Fund ratios for investment income and non-class specific expenses. (3) Not annualized. (4) Annualized. SEE NOTES TO FINANCIAL STATEMENTS 26
FOR THE SIX FOR THE YEAR ENDED AUGUST 31, MONTHS ENDED -------------------------------------------------------- FEBRUARY 29, 2004 2003 2002 2001 2000 1999 ----------------- -------- -------- -------- -------- -------- (UNAUDITED) CLASS D SHARES SELECTED PER SHARE DATA: Net asset value, beginning of period $ 11.06 $ 10.00 $ 12.26 $ 16.28 $ 14.09 $ 10.20 -------- -------- -------- -------- -------- -------- Income (loss) from investment operations: Net investment income++ 0.07 0.13 0.11 0.11 0.11 0.13 Net realized and unrealized gain (loss) 1.51 1.02 (2.37) (4.13) 2.11 3.85 -------- -------- -------- -------- -------- -------- Total income (loss) from investment operations 1.58 1.15 (2.26) (4.02) 2.22 3.98 -------- -------- -------- -------- -------- -------- Less dividends and distributions from: Net investment income (0.13) (0.09) - - - (0.08) Net realized gain - - - - (0.03) (0.01) -------- -------- -------- -------- -------- -------- Total dividends and distributions (0.13) (0.09) - - (0.03) (0.09) -------- -------- -------- -------- -------- -------- Net asset value, end of period $ 12.51 $ 11.06 $ 10.00 $ 12.26 $ 16.28 $ 14.09 ======== ======== ======== ======== ======== ======== TOTAL RETURN+ 14.35%(3) 11.59% (18.43)% (24.69)% 15.81% 39.13% RATIOS TO AVERAGE NET ASSETS:(1)(2) Expenses 0.50%(4) 0.50% 0.50% 0.50% 0.50% 0.50% Net investment income 1.27%(4) 1.31% 0.96% 0.78% 0.74% 0.95% SUPPLEMENTAL DATA: Net assets, end of period, in millions $ 213 $ 180 $ 136 $ 118 $ 92 $ 17 Portfolio turnover rate 1%(3) 2% 12% 4% 5% 5%
---------- ++ 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 Manager, the annualized expense and net investment income ratios would have been as follows:
EXPENSE NET INVESTMENT PERIOD ENDED: RATIO INCOME RATIO ----------------- ------- -------------- February 29, 2004 0.58% 1.19% August 31, 2003 0.62% 1.19% August 31, 2002 0.57% 0.89% August 31, 2001 0.53% 0.75% August 31, 2000 0.51% 0.73% August 31, 1999 0.58% 0.87%
(2) Reflects overall Fund ratios for investment income and non-class specific expenses. (3) Not annualized. (4) Annualized. SEE NOTES TO FINANCIAL STATEMENTS 27 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 Philip J. Purcell Fergus Reid OFFICERS Charles A. Fiumefreddo CHAIRMAN OF THE BOARD Mitchell M. Merin PRESIDENT Ronald E. Robison EXECUTIVE VICE PRESIDENT AND PRINCIPAL EXECUTIVE OFFICER Barry Fink VICE PRESIDENT AND GENERAL COUNSEL Joseph J. McAlinden VICE PRESIDENT Stefanie V. Chang VICE PRESIDENT Francis J. Smith TREASURER AND CHIEF FINANCIAL OFFICER Thomas F. Caloia VICE PRESIDENT Mary E. Mullin SECRETARY TRANSFER AGENT Morgan Stanley Trust Harborside Financial Center, Plaza Two Jersey City, New Jersey 07311 INDEPENDENT AUDITORS Deloitte & Touche LLP Two World Financial Center New York, New York 10281 INVESTMENT MANAGER 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) 2004 Morgan Stanley [MORGAN STANLEY LOGO] 36007RPT-RA04-00023P-A02/04 [GRAPHIC] MORGAN STANLEY FUNDS MORGAN STANLEY S&P 500 INDEX SEMIANNUAL REPORT FEBRUARY 29,2004 [MORGAN STANLEY LOGO] 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. [Reserved.] Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. Not applicable for semiannual reports. Item 8. [Reserved.] Item 9 - 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. There were no significant changes or corrective actions with regard to significant deficiencies or material weaknesses in the Fund's internal controls or in other factors that could significantly affect the Fund's internal controls subsequent to the date of their evaluation. (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 10 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. 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 20, 2004 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 20, 2004 /s/ Francis Smith Francis Smith Principal Financial Officer April 20, 2004