N-CSRS 1 a2156091zn-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, 2005 Date of reporting period: February 28, 2005 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 28, 2005 TOTAL RETURN FOR THE 6 MONTHS ENDED FEBRUARY 28, 2005
LIPPER S&P 500 S&P 500 CLASS A CLASS B CLASS C CLASS D INDEX(1) FUNDS INDEX(2) 9.62% 9.23% 9.27% 9.76% 9.99% 9.87%
PERFORMANCE DATA QUOTED REPRESENT PAST PERFORMANCE, WHICH IS NO GUARANTEE OF FUTURE RESULTS. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE FIGURES SHOWN. FOR THE MOST RECENT 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 RETURNS ASSUME THE REINVESTMENT OF ALL DISTRIBUTIONS BUT DO NOT REFLECT THE DEDUCTION OF ANY APPLICABLE SALES CHARGES. SUCH COSTS WOULD LOWER PERFORMANCE. SEE PERFORMANCE SUMMARY FOR STANDARDIZED PERFORMANCE AND BENCHMARK INFORMATION. MARKET CONDITIONS The U.S. equity market was generally strong over the six months ended February 28, 2005. The Federal Open Market Committee raised the federal funds target rate a number of times during that period, but the increases apparently did not take many investors by surprise, and the stock market was largely unaffected. The U.S. economy continued to grow steadily and the labor market improved, though fewer jobs were created than some economists and investors had expected. Investor confidence was shaken over the summer by fears of growing terrorism and concern over the possibility of a disputed U.S. presidential election, which hampered the market's gains. The market went on to rally later in the year when the price of crude oil fell from its high and the election ended without incident. A pick-up in consumer spending further helped to lift stocks as 2004 drew to a close, although weaker-than-expected economic numbers contributed in part to the slowing performance of equities as 2005 began. The period ended on a slightly more positive note as a number of encouraging economic indicators supported market gains in February, despite some concerns over inflation. PERFORMANCE ANALYSIS Morgan Stanley S&P 500 Index Fund underperformed the S&P 500 Index and the Lipper S&P 500 Funds Index for the six months ended February 28, 2005, assuming no deduction of applicable sales charges. During this period stock performance varied across sectors, and a number of sectors contributed more positively to the Fund's performance than others due to relative size. Due in part to their large size, the technology and consumer discretionary sectors were significant contributors to the Fund's positive performance, although the energy sector was the top-performing for the period due largely to the rising price of oil. In spite of their smaller weighting in the portfolio, utilities stocks were among the best performers due in part to the rising interest rate environment. In addition, many utilities companies benefited from improved balance sheets that had strengthened when interest rates were low, and some were further helped by consolidation within the industry. Materials stocks also performed well for the period as a result of economic expansion and rising commodity prices, which helped steel, copper and chemical companies in particular. Some sectors underperformed others during the six months and contributed much less to positive performance. Telecommunications stocks were among the worst-performing over the six months, and the sector made the smallest contribution to the Fund's performance. Although some companies within the sector were helped by merger activity during the period, a number of the larger companies that sought to acquire others were significantly hurt. Health care stocks also significantly underperformed for the period, as large pharmaceutical companies suffered from the voluntary recall of drugs from the market by a number of companies. 2 THE INVESTMENT PERFORMANCE OF THE S&P 500 INDEX DOES NOT INCLUDE THE IMPACT OF ANY EXPENSES, SALES CHARGES OR FEES. INDEXES ARE UNMANAGED AND SUCH COSTS WOULD LOWER PERFORMANCE. AS A RESULT, THE PORTFOLIO'S PERFORMANCE WILL NOT EXACTLY TRACK THE PERFORMANCE OF THE INDEX. IT IS NOT POSSIBLE TO INVEST DIRECTLY IN AN INDEX. THERE IS NO GUARANTEE THAT ANY SECTORS MENTIONED WILL CONTINUE TO PERFORM WELL OR BE HELD BY THE FUND IN THE FUTURE. TOP 10 HOLDINGS Exxon Mobil Corp. 3.6% General Electric Co. 3.3 Microsoft Corp. 2.4 Citigroup Inc. 2.2 Wal-Mart Stores, Inc. 1.9 Pfizer, Inc. 1.7 Johnson & Johnson 1.7 Bank of America Corp. 1.7 American International Group, Inc. 1.5 IBM Corp. 1.4
TOP FIVE INDUSTRIES Pharmaceuticals: Major 6.4% Industrial Conglomerates 5.6 Integrated Oil 5.5 Major Banks 4.7 Financial Conglomerates 4.4
DATA AS OF FEBRUARY 28, 2005. SUBJECT TO CHANGE DAILY. ALL PERCENTAGES FOR TOP 10 HOLDINGS AND TOP FIVE INDUSTRIES ARE AS A PERCENTAGE OF NET ASSETS. THESE DATA ARE PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE DEEMED A RECOMMENDATION TO BUY OR SELL THE SECURITIES MENTIONED. MORGAN STANLEY IS A FULL-SERVICE SECURITIES FIRM ENGAGED IN SECURITIES TRADING AND BROKERAGE ACTIVITIES, INVESTMENT BANKING, RESEARCH AND ANALYSIS, FINANCING AND FINANCIAL ADVISORY SERVICES. INVESTMENT STRATEGY THE FUND WILL NORMALLY INVEST AT LEAST 80 PERCENT OF ITS ASSETS IN COMMON STOCKS OF COMPANIES INCLUDED IN THE S&P 500 INDEX. THE "INVESTMENT ADVISER," MORGAN STANLEY INVESTMENT ADVISORS INC., "PASSIVELY" MANAGES THE FUND'S ASSETS BY INVESTING IN STOCKS IN APPROXIMATELY THE SAME PROPORTION AS THEY ARE REPRESENTED IN THE INDEX. FOR EXAMPLE, IF THE COMMON STOCK OF A SPECIFIC COMPANY REPRESENTS FIVE PERCENT OF THE INDEX, THE INVESTMENT 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. FOR MORE INFORMATION ABOUT PORTFOLIO HOLDINGS EACH MORGAN STANLEY FUND PROVIDES A COMPLETE SCHEDULE OF PORTFOLIO HOLDINGS IN ITS SEMIANNUAL AND ANNUAL REPORTS WITHIN 60 DAYS OF THE END OF THE FUND'S SECOND AND FOURTH FISCAL QUARTERS BY FILING THE SCHEDULE ELECTRONICALLY WITH THE SECURITIES AND EXCHANGE COMMISSION (SEC). THE SEMIANNUAL REPORTS ARE FILED ON FORM N-CSRS AND THE ANNUAL REPORTS ARE FILED ON FORM N-CSR. MORGAN STANLEY ALSO DELIVERS THE SEMIANNUAL AND ANNUAL REPORTS TO FUND SHAREHOLDERS AND MAKES THESE REPORTS AVAILABLE ON ITS PUBLIC WEB SITE, www.morganstanley.com. EACH MORGAN STANLEY FUND ALSO FILES A COMPLETE SCHEDULE OF PORTFOLIO HOLDINGS WITH THE SEC FOR THE FUND'S FIRST AND THIRD FISCAL QUARTERS ON FORM N-Q. MORGAN STANLEY DOES NOT DELIVER THE REPORTS FOR THE FIRST AND THIRD FISCAL QUARTERS TO SHAREHOLDERS, NOR ARE THE REPORTS POSTED TO THE MORGAN STANLEY PUBLIC 3 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. YOU MAY OBTAIN COPIES OF A FUND'S FISCAL QUARTER FILINGS BY CONTACTING MORGAN STANLEY CLIENT RELATIONS AT (800) 869-NEWS. PROXY VOTING POLICIES AND PROCEDURES A DESCRIPTION OF (1) THE FUND'S POLICIES AND PROCEDURES WITH RESPECT TO THE VOTING OF PROXIES RELATING TO THE FUND'S PORTFOLIO SECURITIES AND (2) HOW THE FUND VOTED PROXIES RELATING TO PORTFOLIO SECURITIES DURING THE MOST RECENT 12-MONTH PERIOD ENDED JUNE 30, 2004, IS AVAILABLE WITHOUT CHARGE, UPON REQUEST, BY CALLING (800) 869-NEWS OR BY VISITING THE MUTUAL FUND CENTER ON OUR WEB SITE AT www.morganstanley.com. THIS INFORMATION IS ALSO AVAILABLE ON THE SECURITIES AND EXCHANGE COMMISSION'S WEB SITE AT http://www.sec.gov. HOUSEHOLDING NOTICE TO REDUCE PRINTING AND MAILING COSTS, THE FUND ATTEMPTS TO ELIMINATE DUPLICATE MAILINGS TO THE SAME ADDRESS. THE FUND DELIVERS A SINGLE COPY OF CERTAIN SHAREHOLDER DOCUMENTS, INCLUDING SHAREHOLDER REPORTS, PROSPECTUSES AND PROXY MATERIALS, TO INVESTORS WITH THE SAME LAST NAME WHO RESIDE AT THE SAME ADDRESS. YOUR PARTICIPATION IN THIS PROGRAM WILL CONTINUE FOR AN UNLIMITED PERIOD OF TIME UNLESS YOU INSTRUCT US OTHERWISE. YOU CAN REQUEST MULTIPLE COPIES OF THESE DOCUMENTS BY CALLING (800) 350-6414, 8:00 A.M. TO 8:00 P.M., ET. ONCE OUR CUSTOMER SERVICE CENTER HAS RECEIVED YOUR INSTRUCTIONS, WE WILL BEGIN SENDING INDIVIDUAL COPIES FOR EACH ACCOUNT WITHIN 30 DAYS. 4 PERFORMANCE SUMMARY AVERAGE ANNUAL TOTAL RETURNS--PERIOD ENDED FEBRUARY 28, 2005
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 6.34%(3) 5.50%(3) 5.46%(3) 6.52%(3) 0.76(4) 0.50(4) 4.46(4) -- 5 YEARS (1.63)(3) (2.41)(3) (2.40)(3) (1.42)(3) (2.69)(4) (2.80)(4) (2.40)(4) -- SINCE INCEPTION 4.16(3) 3.36(3) 3.36(3) 4.39(3) 3.41(4) 3.36(4) 3.36(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 THE MOST RECENT 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 TABLE DOES NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES. PERFORMANCE FOR CLASS A, CLASS B, CLASS C, AND CLASS D SHARES WILL VARY DUE TO DIFFERENCES IN SALES CHARGES AND EXPENSES. * THE MAXIMUM FRONT-END SALES CHARGE FOR CLASS A IS 5.25%. ** THE MAXIMUM CONTINGENT DEFERRED SALES CHARGE (CDSC) FOR CLASS B IS 5.0%. THE CDSC DECLINES TO 0% AFTER SIX YEARS. + THE MAXIMUM CONTINGENT DEFERRED SALES CHARGE FOR CLASS C IS 1.0% FOR SHARES REDEEMED WITHIN ONE YEAR OF PURCHASE. ++ CLASS D HAS NO SALES CHARGE. (1) THE STANDARD AND 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. THE INDEX DOES NOT INCLUDE ANY EXPENSES, 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 FUNDS INDEX IS AN EQUALLY WEIGHTED PERFORMANCE INDEX OF THE LARGEST QUALIFYING FUNDS (BASED ON NET ASSETS) IN THE LIPPER S&P 500 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. 5 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 management 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 09/01/04 - 02/28/05. 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 ENDING EXPENSES PAID ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD * ------------- ------------- --------------- 09/01/04 - 09/01/04 02/28/05 02/28/05 ------------- ------------- --------------- CLASS A Actual (9.62% return) $ 1,000.00 $ 1,096.20 $ 3.22 Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,021.72 $ 3.11 CLASS B Actual (9.23% return) $ 1,000.00 $ 1,092.30 $ 7.26 Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,017.85 $ 7.00 CLASS C Actual (9.27% return) $ 1,000.00 $ 1,092.70 $ 6.64 Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,018.45 $ 6.41 CLASS D Actual (9.76% return) $ 1,000.00 $ 1,097.60 $ 2.08 Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,022.81 $ 2.01
---------- * EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO OF 0.62%, 1.40%, 1.28% AND 0.40% RESPECTIVELY, MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 181/365 (TO REFLECT THE ONE-HALF YEAR PERIOD). 6 MORGAN STANLEY S&P 500 INDEX FUND PORTFOLIO OF INVESTMENTS - FEBRUARY 28, 2005 (UNAUDITED)
NUMBER OF SHARES VALUE ------------------------------------------------------------------------------- COMMON STOCKS (99.0%) ADVERTISING/MARKETING SERVICES (0.2%) 65,204 Interpublic Group of Companies, Inc. (The)* $ 856,781 28,729 Omnicom Group, Inc. 2,616,350 -------------- 3,473,131 -------------- AEROSPACE & DEFENSE (1.3%) 129,454 Boeing Co. 7,116,086 30,882 General Dynamics Corp. 3,253,419 18,338 Goodrich Corp. 679,056 17,756 L-3 Communications Holdings, Inc. 1,280,208 68,255 Lockheed Martin Corp. 4,042,061 56,775 Northrop Grumman Corp. 3,003,398 69,701 Raytheon Co. 2,665,366 27,220 Rockwell Collins, Inc. 1,253,481 -------------- 23,293,075 -------------- AGRICULTURAL COMMODITIES/ MILLING (0.1%) 100,917 Archer-Daniels-Midland Co. 2,432,100 -------------- AIR FREIGHT/COURIERS (1.0%) 46,344 FedEx Corp. 4,531,516 172,811 United Parcel Service, Inc. (Class B) 13,391,124 -------------- 17,922,640 -------------- AIRLINES (0.1%) 21,500 Delta Air Lines, Inc.* 99,760 120,201 Southwest Airlines Co. 1,664,784 -------------- 1,764,544 -------------- ALTERNATIVE POWER GENERATION (0.0%) 82,383 Calpine Corp.* 272,688 -------------- ALUMINUM (0.3%) 134,216 Alcoa, Inc. 4,311,018 -------------- APPAREL/FOOTWEAR (0.5%) 26,466 Cintas Corp.* 1,158,681 29,128 Coach, Inc.* 1,617,478 18,845 Jones Apparel Group, Inc. $ 598,706 16,737 Liz Claiborne, Inc. 707,975 40,470 Nike, Inc. (Class B) 3,518,867 8,962 Reebok International Ltd. 395,762 17,126 V.F. Corp. 1,023,450 -------------- 9,020,919 -------------- APPAREL/FOOTWEAR RETAIL (0.4%) 135,181 Gap, Inc. (The) 2,883,411 62,665 Limited Brands, Inc. 1,490,174 21,598 Nordstrom, Inc. 1,161,108 74,298 TJX Companies, Inc. (The) 1,814,357 -------------- 7,349,050 -------------- AUTO PARTS: O.E.M. (0.3%) 23,096 Dana Corp. 333,044 86,528 Delphi Corp. 594,447 23,421 Eaton Corp. 1,633,615 29,349 Johnson Controls, Inc. 1,734,526 19,973 Visteon Corp. 134,019 -------------- 4,429,651 -------------- AUTOMOTIVE AFTERMARKET (0.0%) 11,543 Cooper Tire & Rubber Co. 223,357 27,040 Goodyear Tire & Rubber Co. (The)* 390,998 -------------- 614,355 -------------- BEVERAGES: ALCOHOLIC (0.4%) 121,818 Anheuser-Busch Companies, Inc. 5,780,264 18,778 Brown-Forman Corp. (Class B) 955,800 11,377 Molson Coors Brewing Co. (Class B) 791,043 -------------- 7,527,107 -------------- BEVERAGES: NON-ALCOHOLIC (1.1%) 373,044 Coca-Cola Co. (The) 15,966,283 72,348 Coca-Cola Enterprises Inc. 1,544,630
SEE NOTES TO FINANCIAL STATEMENTS 7
NUMBER OF SHARES VALUE ------------------------------------------------------------------------------- 38,559 Pepsi Bottling Group, Inc. (The) $ 1,049,576 -------------- 18,560,489 -------------- BIOTECHNOLOGY (1.2%) 195,837 Amgen Inc.* 12,065,518 51,429 Biogen Idec Inc.* 1,987,731 28,808 Chiron Corp.* 1,024,989 38,238 Genzyme Corp.* 2,144,769 66,750 Gilead Sciences, Inc.* 2,306,213 38,350 MedImmune, Inc.* 923,468 7,668 Millipore Corp.* 347,054 -------------- 20,799,742 -------------- BROADCASTING (0.2%) 88,432 Clear Channel Communications, Inc. 2,943,017 49,834 Univision Communications Inc. (Class A)* 1,315,119 -------------- 4,258,136 -------------- BUILDING PRODUCTS (0.2%) 33,076 American Standard Companies, Inc. 1,514,881 69,075 Masco Corp. 2,329,209 -------------- 3,844,090 -------------- CASINO/GAMING (0.2%) 17,279 Harrah's Entertainment, Inc. 1,133,330 53,138 International Game Technology 1,618,583 -------------- 2,751,913 -------------- CHEMICALS: AGRICULTURAL (0.1%) 40,766 Monsanto Co. 2,396,225 -------------- CHEMICALS: MAJOR DIVERSIFIED (1.1%) 145,393 Dow Chemical Co. (The) 8,018,424 153,137 Du Pont (E.I.) de Nemours & Co. 8,162,202 12,016 Eastman Chemical Co. 693,804 18,857 Engelhard Corp. 570,424 17,264 Hercules Inc.* $ 247,566 34,668 Rohm & Haas Co. 1,669,958 -------------- 19,362,378 -------------- CHEMICALS: SPECIALTY (0.3%) 35,048 Air Products & Chemicals, Inc. 2,194,706 7,873 Great Lakes Chemical Corp. 210,209 50,068 Praxair, Inc. 2,244,548 10,645 Sigma-Aldrich Corp. 655,838 -------------- 5,305,301 -------------- COMMERCIAL PRINTING/ FORMS (0.1%) 33,859 Donnelley (R.R.) & Sons Co. 1,124,457 -------------- COMPUTER COMMUNICATIONS (1.1%) 70,586 Avaya Inc.* 988,204 1,015,276 Cisco Systems, Inc.* 17,686,108 14,267 QLogic Corp.* 574,817 -------------- 19,249,129 -------------- COMPUTER PERIPHERALS (0.5%) 369,473 EMC Corp.* 4,677,528 19,904 Lexmark International, Inc. (Class A)* 1,594,908 55,319 Network Appliance, Inc.* 1,660,123 -------------- 7,932,559 -------------- COMPUTER PROCESSING HARDWARE (2.0%) 123,984 Apple Computer, Inc.* 5,561,922 383,045 Dell Inc.* 15,356,274 57,625 Gateway, Inc.* 270,838 465,627 Hewlett-Packard Co. 9,685,042 28,740 NCR Corp.* 1,120,573 518,540 Sun Microsystems, Inc.* 2,188,239 -------------- 34,182,888 -------------- CONSTRUCTION MATERIALS (0.1%) 15,790 Vulcan Materials Co. 913,609 --------------
SEE NOTES TO FINANCIAL STATEMENTS 8
NUMBER OF SHARES VALUE ------------------------------------------------------------------------------- CONTAINERS/PACKAGING (0.2%) 17,362 Ball Corp. $ 770,873 16,489 Bemis Company, Inc. 492,032 22,886 Pactiv Corp.* 517,452 12,884 Sealed Air Corp.* 673,447 8,633 Temple-Inland Inc. 692,367 -------------- 3,146,171 -------------- CONTRACT DRILLING (0.3%) 23,053 Nabors Industries, Ltd. (Bermuda)* 1,323,242 20,871 Noble Corp. (Cayman Islands) 1,191,108 16,534 Rowan Companies, Inc.* 523,797 49,581 Transocean Inc. (Cayman Islands)* 2,403,677 -------------- 5,441,824 -------------- DATA PROCESSING SERVICES (0.9%) 19,819 Affiliated Computer Services, Inc. (Class A)* 1,024,642 89,819 Automatic Data Processing, Inc. 3,858,624 29,181 Computer Sciences Corp.* 1,349,038 21,833 Convergys Corp.* 327,277 127,951 First Data Corp. 5,248,550 30,157 Fiserv, Inc.* 1,144,157 58,313 Paychex, Inc. 1,861,934 44,540 SunGard Data Systems Inc.* 1,162,939 -------------- 15,977,161 -------------- DEPARTMENT STORES (0.5%) 12,663 Dillard's, Inc. (Class A) 295,048 26,089 Federated Department Stores, Inc. 1,472,724 52,900 Kohl's Corp.* 2,532,323 45,020 May Department Stores Co. 1,553,640 44,036 Penney (J.C.) Co., Inc. 1,959,162 31,888 Sears, Roebuck & Co. 1,592,168 -------------- 9,405,065 -------------- DISCOUNT STORES (2.7%) 17,402 Big Lots, Inc.* $ 203,081 72,324 Costco Wholesale Corp. 3,369,575 50,522 Dollar General Corp. 1,072,582 25,855 Family Dollar Stores, Inc. 851,147 138,062 Target Corp. 7,016,311 652,958 Wal-Mart Stores, Inc. 33,699,162 -------------- 46,211,858 -------------- DRUGSTORE CHAINS (0.6%) 61,685 CVS Corp. 3,073,764 157,575 Walgreen Co. 6,748,937 -------------- 9,822,701 -------------- ELECTRIC UTILITIES (2.8%) 100,036 AES Corp. (The)* 1,674,603 21,163 Allegheny Energy, Inc.* 400,616 30,035 Ameren Corp. 1,545,901 61,012 American Electric Power Co., Inc. 2,037,801 47,462 CenterPoint Energy, Inc. 568,595 28,200 Cinergy Corp. 1,140,690 30,024 CMS Energy Corp.* 364,491 37,315 Consolidated Edison, Inc. 1,595,216 27,114 Constellation Energy Group, Inc. 1,395,558 51,103 Dominion Resources, Inc. 3,680,949 26,822 DTE Energy Co. 1,186,069 147,502 Duke Energy Corp. 3,981,079 50,236 Edison International 1,631,665 34,468 Entergy Corp. 2,382,428 102,156 Exelon Corp. 4,633,796 50,856 FirstEnergy Corp. 2,097,301 28,615 FPL Group, Inc. 2,270,600 62,157 PG&E Corp.* 2,186,683 14,119 Pinnacle West Capital Corp. 589,468 29,148 PPL Corp. 1,589,732 38,091 Progress Energy, Inc. 1,650,864 36,652 Public Service Enterprise Group, Inc. 1,999,367 114,050 Southern Co. (The) 3,663,286 30,787 TECO Energy, Inc. 489,205
SEE NOTES TO FINANCIAL STATEMENTS 9
NUMBER OF SHARES VALUE ------------------------------------------------------------------------------- 37,039 TXU Corp. $ 2,824,224 61,727 Xcel Energy, Inc. 1,093,802 -------------- 48,673,989 -------------- ELECTRICAL PRODUCTS (0.4%) 29,491 American Power Conversion Corp. 649,392 14,151 Cooper Industries Ltd. (Class A) (Bermuda) 981,655 64,716 Emerson Electric Co. 4,291,965 29,051 Molex Inc. 730,052 13,060 Power-One, Inc.* 76,009 -------------- 6,729,073 -------------- ELECTRONIC COMPONENTS (0.1%) 31,069 Jabil Circuit, Inc.* 798,784 80,354 Sanmina-SCI Corp.* 445,965 149,694 Solectron Corp.* 740,985 -------------- 1,985,734 -------------- ELECTRONIC EQUIPMENT/ INSTRUMENTS (0.5%) 74,874 Agilent Technologies, Inc.* 1,796,976 222,646 JDS Uniphase Corp.* 423,027 28,400 Rockwell Automation, Inc. 1,765,060 23,639 Scientific-Atlanta, Inc. 730,445 37,104 Symbol Technologies, Inc. 657,854 13,878 Tektronix, Inc. 401,352 24,662 Thermo Electron Corp.* 677,219 147,031 Xerox Corp.* 2,293,684 -------------- 8,745,617 -------------- ELECTRONIC PRODUCTION EQUIPMENT (0.4%) 261,844 Applied Materials, Inc.* 4,582,270 30,136 KLA-Tencor Corp.* 1,489,020 21,554 Novellus Systems, Inc.* 636,597 29,940 Teradyne, Inc.* 461,675 -------------- 7,169,562 -------------- ELECTRONICS/APPLIANCE STORES (0.2%) 50,018 Best Buy Co., Inc. $ 2,701,972 30,130 Circuit City Stores - Circuit City Group 470,932 24,434 RadioShack Corp. 722,269 -------------- 3,895,173 -------------- ELECTRONICS/APPLIANCES (0.1%) 44,202 Eastman Kodak Co. 1,502,426 12,215 Maytag Corp. 186,157 10,242 Whirlpool Corp. 652,928 -------------- 2,341,511 -------------- ENGINEERING & CONSTRUCTION (0.1%) 12,920 Fluor Corp. 810,730 -------------- ENVIRONMENTAL SERVICES (0.2%) 49,070 Allied Waste Industries, Inc.* 403,355 88,215 Waste Management, Inc. 2,579,407 -------------- 2,982,762 -------------- FINANCE/RENTAL/ LEASING (1.8%) 37,424 Capital One Financial Corp. 2,869,672 32,407 CIT Group, Inc. 1,307,622 89,492 Countrywide Financial Corp. 3,109,847 149,237 Fannie Mae 8,724,395 106,318 Freddie Mac 6,591,716 197,000 MBNA Corp. 4,997,890 45,194 Providian Financial Corp.* 775,077 9,913 Ryder System, Inc. 420,906 66,274 SLM Corp. 3,234,171 -------------- 32,031,296 -------------- FINANCIAL CONGLOMERATES (4.4%) 193,533 American Express Co. 10,479,812 800,188 Citigroup, Inc. 38,184,971 549,283 JP Morgan Chase & Co. 20,076,294
SEE NOTES TO FINANCIAL STATEMENTS 10
NUMBER OF SHARES VALUE ------------------------------------------------------------------------------- 47,329 Principal Financial Group, Inc. $ 1,846,778 79,098 Prudential Financial, Inc. 4,508,586 51,407 State Street Corp. 2,254,197 -------------- 77,350,638 -------------- FINANCIAL PUBLISHING/ SERVICES (0.3%) 20,829 Equifax, Inc. 632,993 29,280 McGraw-Hill Companies, Inc. (The) 2,689,368 22,804 Moody's Corp. 1,913,484 -------------- 5,235,845 -------------- FOOD DISTRIBUTORS (0.2%) 98,647 SYSCO Corp. 3,395,430 -------------- FOOD RETAIL (0.3%) 56,749 Albertson's, Inc. 1,270,610 113,960 Kroger Co.* 2,050,140 68,998 Safeway Inc.* 1,269,563 20,700 Supervalu, Inc. 657,639 -------------- 5,247,952 -------------- FOOD: MAJOR DIVERSIFIED (1.6%) 63,442 Campbell Soup Co. 1,757,343 79,297 ConAgra Foods Inc. 2,166,394 56,179 General Mills, Inc. 2,942,094 53,862 Heinz (H.J.) Co. 2,027,366 63,665 Kellogg Co. 2,801,260 259,724 PepsiCo, Inc. 13,988,735 121,007 Sara Lee Corp. 2,710,557 -------------- 28,393,749 -------------- FOOD: SPECIALTY/ CANDY (0.3%) 37,943 Hershey Foods Corp. 2,390,409 21,080 McCormick & Co., Inc. (Non-Voting) 800,829 34,605 Wrigley (Wm.) Jr. Co. 2,303,309 -------------- 5,494,547 -------------- FOREST PRODUCTS (0.2%) 16,969 Louisiana-Pacific Corp. $ 445,776 36,984 Weyerhaeuser Co. 2,475,339 -------------- 2,921,115 -------------- GAS DISTRIBUTORS (0.2%) 58,595 Dynegy, Inc. (Class A)* 243,755 24,762 KeySpan Corp. 979,337 6,797 Nicor Inc. 253,460 41,690 NiSource, Inc. 943,862 5,802 Peoples Energy Corp. 248,210 35,985 Sempra Energy 1,439,400 -------------- 4,108,024 -------------- HOME BUILDING (0.2%) 19,164 Centex Corp. 1,218,639 7,142 KB Home 891,322 19,667 Pulte Homes, Inc. 1,534,419 -------------- 3,644,380 -------------- HOME FURNISHINGS (0.1%) 29,434 Leggett & Platt, Inc. 814,439 42,370 Newell Rubbermaid, Inc. 944,427 -------------- 1,758,866 -------------- HOME IMPROVEMENT CHAINS (1.2%) 338,586 Home Depot, Inc. (The) 13,550,212 119,149 Lowe's Companies, Inc. 7,003,578 21,794 Sherwin-Williams Co. 965,474 -------------- 21,519,264 -------------- HOSPITAL/NURSING MANAGEMENT (0.3%) 64,946 HCA, Inc. 3,066,101 37,530 Health Management Associates, Inc. (Class A) 862,064 13,328 Manor Care, Inc. 454,085 71,954 Tenet Healthcare Corp.* 785,018 -------------- 5,167,268 -------------- HOTELS/RESORTS/ CRUISELINES (0.6%) 97,642 Carnival Corp. (Panama) 5,309,772
SEE NOTES TO FINANCIAL STATEMENTS 11
NUMBER OF SHARES VALUE ------------------------------------------------------------------------------- 59,520 Hilton Hotels Corp. $ 1,253,491 34,478 Marriott International, Inc. (Class A) 2,210,040 31,959 Starwood Hotels & Resorts Worldwide, Inc. 1,829,333 -------------- 10,602,636 -------------- HOUSEHOLD/PERSONAL CARE (2.5%) 14,032 Alberto-Culver Co. (Class B) 733,453 72,923 Avon Products, Inc. 3,118,917 23,435 Clorox Co. (The) 1,407,037 81,763 Colgate-Palmolive Co. 4,326,898 153,078 Gillette Co. (The) 7,692,170 14,530 International Flavors & Fragrances, Inc. 599,944 75,201 Kimberly-Clark Corp. 4,961,762 391,122 Procter & Gamble Co. (The) 20,764,667 -------------- 43,604,848 -------------- INDUSTRIAL CONGLOMERATES (5.6%) 120,039 3M Co. 10,076,074 47,584 Danaher Corp. 2,577,625 1,630,077 General Electric Co.** 57,378,710 132,626 Honeywell International, Inc. 5,035,809 26,553 Ingersoll-Rand Co. Ltd. (Class A) (Bermuda) 2,237,090 14,234 ITT Industries, Inc. 1,251,880 21,204 Textron, Inc. 1,640,129 310,161 Tyco International Ltd. (Bermuda) 10,384,190 78,796 United Technologies Corp. 7,870,144 -------------- 98,451,651 -------------- INDUSTRIAL MACHINERY (0.3%) 45,591 Illinois Tool Works Inc. 4,091,792 18,421 Parker-Hannifin Corp. 1,212,102 -------------- 5,303,894 -------------- INDUSTRIAL SPECIALTIES (0.2%) 39,735 Ecolab Inc. $ 1,259,997 26,504 PPG Industries, Inc. 1,906,963 -------------- 3,166,960 -------------- INFORMATION TECHNOLOGY SERVICES (1.5%) 26,118 Citrix Systems, Inc.* 587,655 79,229 Electronic Data Systems Corp. 1,687,578 256,673 International Business Machines Corp. 23,762,786 51,796 Unisys Corp.* 397,793 -------------- 26,435,812 -------------- INSURANCE BROKERS/ SERVICES (0.2%) 48,793 AON Corp. 1,195,916 81,245 Marsh & McLennan Companies, Inc. 2,652,649 -------------- 3,848,565 -------------- INTEGRATED OIL (5.5%) 14,132 Amerada Hess Corp. 1,418,853 326,661 ChevronTexaco Corp. 20,279,115 106,424 ConocoPhillips 11,801,357 994,701 Exxon Mobil Corp. 62,974,520 -------------- 96,473,845 -------------- INTERNET SOFTWARE/ SERVICES (0.4%) 78,353 Siebel Systems, Inc.* 668,351 211,978 Yahoo! Inc.* 6,840,530 -------------- 7,508,881 -------------- INVESTMENT BANKS/ BROKERS (2.0%) 16,064 Bear Stearns Companies, Inc. (The) 1,598,368 57,343 E*TRADE Group, Inc.* 760,942 74,655 Goldman Sachs Group, Inc. (The) 8,122,464 41,541 Lehman Brothers Holdings Inc. 3,787,708
SEE NOTES TO FINANCIAL STATEMENTS 12
NUMBER OF SHARES VALUE ------------------------------------------------------------------------------- 143,611 Merrill Lynch & Co., Inc. $ 8,412,732 168,768 Morgan Stanley 9,530,329 207,685 Schwab (Charles) Corp. (The) 2,180,693 -------------- 34,393,236 -------------- INVESTMENT MANAGERS (0.4%) 16,568 Federated Investors, Inc. (Class B) 489,419 38,452 Franklin Resources, Inc. 2,698,946 36,432 Janus Capital Group, Inc. 511,141 65,305 Mellon Financial Corp. 1,872,947 19,759 Price (T.) Rowe Group, Inc. 1,213,005 -------------- 6,785,458 -------------- LIFE/HEALTH INSURANCE (0.7%) 78,016 AFLAC, Inc. 2,990,353 21,050 Jefferson-Pilot Corp. 1,030,608 26,920 Lincoln National Corp. 1,261,202 114,766 MetLife, Inc. 4,709,997 16,669 Torchmark Corp. 868,622 45,715 UnumProvident Corp. 773,498 -------------- 11,634,280 -------------- MAJOR BANKS (4.7%) 622,785 Bank of America Corp. 29,052,920 119,788 Bank of New York Co., Inc. (The) 3,623,587 85,168 BB&T Corp. 3,334,327 26,298 Comerica, Inc. 1,501,090 35,633 Huntington Bancshares, Inc. 802,455 62,695 KeyCorp 2,068,935 104,467 National City Corp. 3,736,785 43,579 PNC Financial Services Group 2,293,999 71,664 Regions Financial Corp. 2,311,881 57,168 SunTrust Banks, Inc. 4,141,250 247,259 Wachovia Corp. 13,107,200 260,863 Wells Fargo & Co. 15,490,045 -------------- 81,464,474 -------------- MAJOR TELECOMMUNICATIONS (2.6%) 46,835 ALLTEL Corp. $ 2,678,962 122,712 AT&T Corp. 2,384,294 282,432 BellSouth Corp. 7,286,746 511,191 SBC Communications, Inc. 12,294,144 226,803 Sprint Corp. 5,370,695 426,935 Verizon Communications Inc. 15,356,852 -------------- 45,371,693 -------------- MANAGED HEALTH CARE (1.3%) 22,766 Aetna, Inc. 3,324,291 70,089 Caremark Rx, Inc.* 2,683,007 20,700 CIGNA Corp. 1,879,560 24,579 Humana, Inc.* 817,743 100,781 UnitedHealth Group Inc. 9,187,196 45,510 WellPoint Inc.* 5,554,951 -------------- 23,446,748 -------------- MEDIA CONGLOMERATES (2.1%) 315,046 Disney (Walt) Co. (The) 8,802,385 402,843 News Corp Inc. (Class A) 6,703,308 706,231 Time Warner, Inc.* 12,168,360 262,892 Viacom Inc. (Class B) (Non-Voting) 9,174,931 -------------- 36,848,984 -------------- MEDICAL DISTRIBUTORS (0.4%) 16,355 AmerisourceBergen Corp. 979,665 66,620 Cardinal Health, Inc. 3,900,601 45,318 McKesson Corp. 1,692,174 -------------- 6,572,440 -------------- MEDICAL SPECIALTIES (2.3%) 30,224 Applera Corp. - Applied Biosystems Group 620,801 16,136 Bard (C.R.), Inc. 1,073,044 8,244 Bausch & Lomb, Inc. 583,593 95,048 Baxter International, Inc. 3,389,412 39,053 Becton, Dickinson & Co. 2,333,417 39,031 Biomet, Inc. 1,647,889 130,207 Boston Scientific Corp.* 4,252,561
SEE NOTES TO FINANCIAL STATEMENTS 13
NUMBER OF SHARES VALUE ------------------------------------------------------------------------------- 18,084 Fisher Scientific International, Inc.* $ 1,096,795 49,118 Guidant Corp. 3,604,770 24,068 Hospira, Inc.* 712,413 186,369 Medtronic, Inc. 9,713,552 19,119 Pall Corp. 517,551 19,751 PerkinElmer, Inc. 438,077 55,128 St. Jude Medical, Inc.* 2,155,505 61,986 Stryker Corp. 3,078,225 18,632 Waters Corp.* 910,173 37,822 Zimmer Holdings, Inc.* 3,248,910 -------------- 39,376,688 -------------- MISCELLANEOUS COMMERCIAL SERVICES (0.0%) 20,889 Sabre Holdings Corp. 440,340 -------------- MISCELLANEOUS MANUFACTURING (0.1%) 31,356 Dover Corp. 1,212,537 -------------- MOTOR VEHICLES (0.5%) 282,110 Ford Motor Co. 3,568,692 87,088 General Motors Corp. 3,106,429 45,300 Harley-Davidson, Inc. 2,803,164 -------------- 9,478,285 -------------- MULTI-LINE INSURANCE (1.9%) 401,589 American International Group, Inc. 26,826,145 45,286 Hartford Financial Services Group, Inc. (The) 3,258,328 28,601 Loews Corp. 2,038,679 19,555 Safeco Corp. 932,578 -------------- 33,055,730 -------------- OFFICE EQUIPMENT/ SUPPLIES (0.2%) 17,031 Avery Dennison Corp. 1,033,782 35,558 Pitney Bowes, Inc. 1,630,690 -------------- 2,664,472 -------------- OIL & GAS PIPELINES (0.3%) 99,177 El Paso Corp. 1,222,852 19,101 Kinder Morgan, Inc. 1,531,327 85,797 Williams Companies, Inc. (The) $ 1,615,558 -------------- 4,369,737 -------------- OIL & GAS PRODUCTION (1.4%) 38,136 Anadarko Petroleum Corp. 2,931,133 50,337 Apache Corp. 3,165,191 60,363 Burlington Resources, Inc. 2,995,816 74,938 Devon Energy Corp. 3,506,349 18,283 EOG Resources, Inc. 1,665,947 23,389 Kerr-McGee Corp. 1,816,390 60,861 Occidental Petroleum Corp. 4,276,702 40,579 Unocal Corp. 2,195,324 40,140 XTO Energy Inc. 1,827,173 -------------- 24,380,025 -------------- OIL REFINING/MARKETING (0.4%) 10,958 Ashland, Inc. 715,448 53,436 Marathon Oil Corp. 2,529,660 10,685 Sunoco, Inc. 1,058,884 39,570 Valero Energy Corp. 2,818,967 -------------- 7,122,959 -------------- OILFIELD SERVICES/EQUIPMENT (0.8%) 51,725 Baker Hughes Inc. 2,445,558 24,902 BJ Services Co. 1,244,104 77,321 Halliburton Co. 3,400,578 90,776 Schlumberger Ltd. (Netherlands Antilles) 6,849,049 -------------- 13,939,289 -------------- OTHER CONSUMER SERVICES (0.9%) 28,561 Apollo Group, Inc. (Class A)* 2,103,232 25,397 Block (H.&R.), Inc. 1,353,660 162,333 Cendant Corp. 3,590,806 204,423 eBay Inc.* 8,757,481 -------------- 15,805,179 -------------- OTHER CONSUMER SPECIALTIES (0.1%) 22,226 Fortune Brands, Inc. 1,800,306 --------------
SEE NOTES TO FINANCIAL STATEMENTS 14
NUMBER OF SHARES VALUE ------------------------------------------------------------------------------- OTHER METALS/ MINERALS (0.1%) 14,720 Phelps Dodge Corp. $ 1,566,944 -------------- PACKAGED SOFTWARE (3.7%) 36,793 Adobe Systems, Inc. 2,271,968 35,386 Autodesk, Inc. 1,051,672 34,222 BMC Software, Inc.* 511,619 90,298 Computer Associates International, Inc. 2,446,173 59,694 Compuware Corp.* 403,531 28,899 Intuit Inc.* 1,236,877 13,017 Mercury Interactive Corp.* 597,220 1,676,249 Microsoft Corp. 42,207,950 57,956 Novell, Inc.* 303,689 790,739 Oracle Corp.* 10,208,440 41,496 Parametric Technology Corp.* 238,602 98,673 Symantec Corp.* 2,171,793 65,087 VERITAS Software Corp.* 1,576,407 -------------- 65,225,941 -------------- PERSONNEL SERVICES (0.1%) 18,361 Monster Worldwide Inc.* 529,715 26,733 Robert Half International, Inc. 779,802 -------------- 1,309,517 -------------- PHARMACEUTICALS: GENERIC DRUGS (0.1%) 41,492 Mylan Laboratories, Inc. 730,259 16,884 Watson Pharmaceuticals, Inc.* 535,898 -------------- 1,266,157 -------------- PHARMACEUTICALS: MAJOR (6.4%) 240,128 Abbott Laboratories 11,043,487 299,986 Bristol-Myers Squibb Co. 7,508,650 457,582 Johnson & Johnson 30,017,379 174,483 Lilly (Eli) & Co. 9,771,048 341,921 Merck & Co., Inc. 10,838,896 1,161,176 Pfizer, Inc. 30,527,317 227,080 Schering-Plough Corp. 4,303,166 205,715 Wyeth $ 8,397,286 -------------- 112,407,229 -------------- PHARMACEUTICALS: OTHER (0.3%) 20,243 Allergan, Inc. 1,521,869 56,803 Forest Laboratories, Inc.* 2,425,488 37,245 King Pharmaceuticals, Inc.* 355,690 -------------- 4,303,047 -------------- PRECIOUS METALS (0.2%) 27,527 Freeport-McMoRan Copper & Gold, Inc. (Class B) 1,151,179 68,444 Newmont Mining Corp. 3,081,349 -------------- 4,232,528 -------------- PROPERTY - CASUALTY INSURERS (1.1%) 43,819 ACE Ltd. (Cayman Islands) 1,948,193 105,804 Allstate Corp. (The) 5,679,559 29,536 Chubb Corp. (The) 2,336,593 25,911 Cincinnati Financial Corp. 1,158,999 30,869 Progressive Corp. (The) 2,688,690 103,222 St. Paul Travelers Companies, Inc. (The) 3,955,467 21,379 XL Capital Ltd. (Class A) (Cayman Islands) 1,603,425 -------------- 19,370,926 -------------- PUBLISHING: BOOKS/ MAGAZINES (0.0%) 7,709 Meredith Corp. 353,766 -------------- PUBLISHING: NEWSPAPERS (0.4%) 12,634 Dow Jones & Co., Inc. 468,721 39,356 Gannett Co., Inc. 3,099,285 11,873 Knight-Ridder, Inc. 777,682 22,368 New York Times Co. (The) (Class A) 820,011 48,986 Tribune Co. 1,995,200 -------------- 7,160,899 -------------- PULP & PAPER (0.3%) 39,791 Georgia-Pacific Corp. 1,424,916 75,025 International Paper Co. 2,802,934
SEE NOTES TO FINANCIAL STATEMENTS 15
NUMBER OF SHARES VALUE ------------------------------------------------------------------------------- 31,246 MeadWestvaco Corp. $ 979,875 -------------- 5,207,725 -------------- RAILROADS (0.5%) 57,962 Burlington Northern Santa Fe Corp. 2,913,750 33,124 CSX Corp. 1,368,352 61,059 Norfolk Southern Corp. 2,191,408 40,024 Union Pacific Corp. 2,539,523 -------------- 9,013,033 -------------- REAL ESTATE INVESTMENT TRUSTS (0.5%) 14,614 Apartment Investment & Management Co. (Class A) 559,132 30,171 Archstone-Smith Trust 1,020,685 62,174 Equity Office Properties Trust 1,875,790 43,599 Equity Residential 1,430,483 28,304 Plum Creek Timber Co., Inc. 1,062,815 28,355 ProLogis 1,127,395 34,101 Simon Property Group, Inc. 2,112,898 -------------- 9,189,198 -------------- RECREATIONAL PRODUCTS (0.3%) 14,833 Brunswick Corp. 691,811 47,078 Electronic Arts Inc.* 3,036,060 27,294 Hasbro, Inc. 576,449 63,982 Mattel, Inc. 1,338,503 -------------- 5,642,823 -------------- REGIONAL BANKS (1.4%) 54,752 AmSouth Bancorporation 1,367,705 18,911 Compass Bancshares, Inc. 858,749 91,189 Fifth Third Bancorp 4,082,532 18,985 First Horizon National Corp. 807,812 17,907 M&T Bank Corp. 1,772,972 34,450 Marshall & Ilsley Corp. 1,394,881 72,567 North Fork Bancorporation, Inc. 2,090,655 33,799 Northern Trust Corp. 1,428,008 47,744 Synovus Financial Corp. $ 1,296,727 287,890 U.S. Bancorp 8,564,728 13,825 Zions Bancorporation 913,833 -------------- 24,578,602 -------------- RESTAURANTS (0.8%) 24,241 Darden Restaurants, Inc. 649,659 193,844 McDonald's Corp. 6,412,360 61,671 Starbucks Corp.* 3,195,175 17,574 Wendy's International, Inc. 665,176 45,166 Yum! Brands, Inc. 2,203,197 -------------- 13,125,567 -------------- SAVINGS BANKS (0.6%) 47,213 Golden West Financial Corp. 2,922,013 57,786 Sovereign Bancorp, Inc. 1,325,611 134,617 Washington Mutual, Inc. 5,648,529 -------------- 9,896,153 -------------- SEMICONDUCTORS (2.7%) 59,502 Advanced Micro Devices, Inc.* 1,038,310 57,402 Altera Corp.* 1,190,517 57,949 Analog Devices, Inc. 2,127,887 47,511 Applied Micro Circuits Corp.* 163,913 50,740 Broadcom Corp. (Class A)* 1,636,365 60,105 Freescale Semiconductor Inc. (Class B)* 1,152,814 974,919 Intel Corp. 23,378,558 47,342 Linear Technology Corp. 1,849,179 59,351 LSI Logic Corp.* 378,659 50,149 Maxim Integrated Products, Inc. 2,157,410 94,426 Micron Technology, Inc.* 1,085,899 55,220 National Semiconductor Corp. 1,101,639 25,628 NVIDIA Corp.* 742,956 27,479 PMC - Sierra, Inc.* 273,416 266,422 Texas Instruments Inc. 7,052,190
SEE NOTES TO FINANCIAL STATEMENTS 16
NUMBER OF SHARES VALUE ------------------------------------------------------------------------------- 53,705 Xilinx, Inc. $ 1,621,891 -------------- 46,951,603 -------------- SERVICES TO THE HEALTH INDUSTRY (0.4%) 11,716 Express Scripts, Inc. (Class A)* 882,098 35,764 IMS Health Inc. 870,853 21,329 Laboratory Corp. of America Holdings* 1,021,446 42,015 Medco Health Solutions Inc.* 1,866,306 15,604 Quest Diagnostics Inc. 1,551,038 -------------- 6,191,741 -------------- SPECIALTY INSURANCE (0.2%) 16,755 Ambac Financial Group, Inc. 1,303,204 21,698 MBIA Inc. 1,271,503 14,922 MGIC Investment Corp. 936,206 -------------- 3,510,913 -------------- SPECIALTY STORES (0.5%) 40,794 AutoNation, Inc.* 796,707 12,302 AutoZone, Inc.* 1,192,064 46,399 Bed Bath & Beyond Inc.* 1,740,890 48,170 Office Depot, Inc.* 927,273 14,399 OfficeMax Inc. 454,576 76,770 Staples, Inc.* 2,419,790 22,434 Tiffany & Co. 676,385 33,159 Toys 'R' Us, Inc.* 758,346 -------------- 8,966,031 -------------- SPECIALTY TELECOMMUNICATIONS (0.1%) 20,749 CenturyTel, Inc. 697,996 51,722 Citizens Communications Co. 689,971 279,988 Qwest Communications International, Inc.* 1,091,953 -------------- 2,479,920 -------------- STEEL (0.2%) 14,725 Allegheny Technologies Inc. 362,382 24,530 Nucor Corp. 1,529,200 17,530 United States Steel Corp. $ 1,093,171 -------------- 2,984,753 -------------- TELECOMMUNICATION EQUIPMENT (1.2%) 124,717 ADC Telecommunications, Inc.* 286,849 24,793 Andrew Corp.* 299,995 88,158 CIENA Corp.* 174,553 30,475 Comverse Technology, Inc.* 707,325 216,206 Corning Inc.* 2,479,883 681,601 Lucent Technologies Inc.* 2,092,515 375,357 Motorola, Inc. 5,878,091 252,724 QUALCOMM Inc. 9,125,864 71,233 Tellabs, Inc.* 505,042 -------------- 21,550,117 -------------- TELECOMMUNICATIONS (0.6%) 342,277 Comcast Corp. (Class A)* 11,141,116 -------------- TOBACCO (1.4%) 316,479 Altria Group, Inc. 20,776,846 22,751 Reynolds American, Inc. 1,864,444 25,476 UST, Inc. 1,392,263 -------------- 24,033,553 -------------- TOOLS/HARDWARE (0.1%) 12,449 Black & Decker Corp. 1,032,271 8,872 Snap-On, Inc. 293,663 12,683 Stanley Works (The) 586,589 -------------- 1,912,523 -------------- TRUCKS/CONSTRUCTION/ FARM MACHINERY (0.6%) 52,614 Caterpillar Inc. 5,000,961 7,018 Cummins Inc. 515,191 38,262 Deere & Co. 2,720,811 10,766 Navistar International Corp.* 424,826 26,786 PACCAR, Inc. 2,015,914 -------------- 10,677,703 --------------
SEE NOTES TO FINANCIAL STATEMENTS 17
NUMBER OF SHARES VALUE ------------------------------------------------------------------------------- WHOLESALE DISTRIBUTORS (0.1%) 26,926 Genuine Parts Co. $ 1,165,357 13,889 Grainger (W.W.), Inc. 871,951 --------------- 2,037,308 --------------- WIRELESS TELECOMMUNICATIONS (0.3%) 171,345 Nextel Communications, Inc. (Class A)* 5,042,683 --------------- TOTAL COMMON STOCKS (COST $1,496,352,941) 1,729,588,470 --------------- PRINCIPAL AMOUNT IN THOUSANDS -------------- SHORT-TERM INVESTMENT (0.3%) REPURCHASE AGREEMENT $ 4,494 Joint repurchase agreement account 2.62% due 03/01/05 (dated 02/28/05; proceeds $4,494,327) (a) (COST $4,494,000) 4,494,000 --------------- TOTAL INVESTMENTS (COST $1,500,846,941) (b) (c) 99.3% 1,734,082,470 OTHER ASSETS IN EXCESS OF LIABILITIES 0.7 12,301,715 ----- --------------- NET ASSETS 100.0% $ 1,746,384,185 ===== ===============
---------- * NON-INCOME PRODUCING SECURITY. ** A PORTION OF THIS SECURITY HAS BEEN PHYSICALLY SEGREGATED IN CONNECTION WITH OPEN FUTURES CONTRACTS IN THE AMOUNT OF $1,134,000. (a) COLLATERALIZED BY FEDERAL AGENCY AND U.S. TREASURY OBLIGATIONS. (b) SECURITIES HAVE BEEN DESIGNATED AS COLLATERAL IN AN AMOUNT EQUAL TO $20,262,402, IN CONNECTION WITH OPEN FUTURES CONTRACTS. (c) THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES APPROXIMATES THE AGGREGATE COST FOR BOOK PURPOSES. THE AGGREGATE GROSS UNREALIZED APPRECIATION IS $464,086,618 AND THE AGGREGATE GROSS UNREALIZED DEPRECIATION IS $230,851,089, RESULTING IN NET UNREALIZED APPRECIATION OF $233,235,529. FUTURES CONTRACTS OPEN AT FEBRUARY 28, 2005:
NUMBER OF DESCRIPTION, DELIVERY UNDERLYING FACE UNREALIZED CONTRACTS LONG/SHORT MONTH AND YEAR AMOUNT AT VALUE APPRECIATION ---------------------------------------------------------------------------------------------------------- 235 Long S&P 500 Index E-Mini $ 14,148,175 $ 127,266 March 2005 25 Long S&P 500 Index 7,525,625 149,420 March 2005 --------- Total Unrealized Appreciation $ 276,686 =========
SEE NOTES TO FINANCIAL STATEMENTS 18 MORGAN STANLEY S&P 500 INDEX FUND SUMMARY OF INVESTMENTS (UNAUDITED)
PERCENT OF SECTOR VALUE NET ASSETS -------------------------------------------------------------- Finance $ 347,109,469 20.7% Health Technology 178,152,863 10.2 Electronic Technology 171,060,284 9.8 Consumer Non-Durables 136,635,212 7.8 Producer Manufacturing 133,313,071 7.6 Energy Minerals 127,976,829 7.3 Technology Services 115,147,795 6.6 Retail Trade 112,417,094 6.4 Consumer Services 102,048,196 5.8 Utilities 53,054,701 3.0 Communications 52,894,296 3.0 Process Industries 41,016,860 2.3 Health Services 34,805,757 2.0 Transportation 28,700,217 1.6 Industrial Services 27,544,342 1.6 Consumer Durables 27,193,049 1.6 Non-Energy Minerals 16,929,967 1.0 Distribution Services 12,005,178 0.7 Commercial Services 11,583,290 0.7 Repurchase Agreement 4,494,000 0.3 ---------------- --------- $ 1,734,082,470* 100.0% ================ =========
---------- *DOES NOT INCLUDE OUTSTANDING LONG FUTURES CONTRACTS WITH AN UNDERLYING FACE AMOUNT OF $21,673,800 WITH UNREALIZED APPRECIATION OF $276,686. SEE NOTES TO FINANCIAL STATEMENTS 19 MORGAN STANLEY S&P 500 INDEX FUND FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES FEBRUARY 28, 2005 (UNAUDITED)
ASSETS: Investments in securities, at value (cost $1,500,846,941) $ 1,734,082,470 Receivable for: Investments sold 15,513,154 Dividends 3,183,915 Shares of beneficial interest sold 881,617 Prepaid expenses and other assets 201,077 Receivable from affiliate 68,212 ------------------ Total Assets 1,753,930,445 ------------------ LIABILITIES: Payable for: Shares of beneficial interest redeemed 5,944,120 Distribution fee 1,012,272 Investment advisory fee 162,809 Variation margin 146,325 Administration fee 108,086 Accrued expenses and other payables 172,648 ------------------ TOTAL LIABILITIES 7,546,260 ------------------ NET ASSETS $ 1,746,384,185 ================== COMPOSITION OF NET ASSETS: Paid-in-capital $ 1,795,063,333 Net unrealized appreciation 233,512,215 Accumulated undistributed net investment income 4,647,701 Accumulated net realized loss (286,839,064) ------------------ NET ASSETS $ 1,746,384,185 ================== CLASS A SHARES: Net Assets $ 320,897,177 Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE) 24,665,991 NET ASSET VALUE PER SHARE $ 13.01 ================== MAXIMUM OFFERING PRICE PER SHARE, (NET ASSET VALUE PLUS 5.54% OF NET ASSET VALUE) $ 13.73 ================== CLASS B SHARES: Net Assets $ 1,057,586,066 Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE) 83,811,931 NET ASSET VALUE PER SHARE $ 12.62 ================== CLASS C SHARES: Net Assets $ 170,432,823 Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE) 13,507,962 NET ASSET VALUE PER SHARE $ 12.62 ================== CLASS D SHARES: Net Assets $ 197,468,119 Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE) 15,053,057 NET ASSET VALUE PER SHARE $ 13.12 ==================
STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED FEBRUARY 28, 2005 (UNAUDITED) NET INVESTMENT INCOME: INCOME Dividends $ 21,507,421 Interest 94,319 ------------------ TOTAL INCOME 21,601,740 ------------------ EXPENSES Distribution fee (Class A shares) 349,855 Distribution fee (Class B shares) 5,430,079 Distribution fee (Class C shares) 759,795 Transfer agent fees and expenses 1,330,403 Investment advisory fee 1,297,571 Administration fee 470,234 Custodian fees 96,125 Professional fees 75,888 Shareholder reports and notices 75,672 Registration fees 17,199 Trustees' fees and expenses 10,902 Other 160,186 ------------------ TOTAL EXPENSES 10,073,909 Less: amounts waived/reimbursed (37,578) ------------------ NET EXPENSES 10,036,331 ------------------ NET INVESTMENT INCOME 11,565,409 ------------------ NET REALIZED AND UNREALIZED GAIN: NET REALIZED GAIN ON: Investments 32,025,535 Futures contracts 1,105,537 ------------------ NET REALIZED GAIN 33,131,072 ------------------ NET CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION ON: Investments 115,064,353 Futures contracts 434,588 ------------------ NET APPRECIATION 115,498,941 ------------------ NET GAIN 148,630,013 ------------------ NET INCREASE $ 160,195,422 ==================
SEE NOTES TO FINANCIAL STATEMENTS 20 STATEMENT OF CHANGES IN NET ASSETS
FOR THE SIX FOR THE YEAR MONTHS ENDED ENDED FEBRUARY 28, 2005 AUGUST 31, 2004 ----------------- --------------- (UNAUDITED) INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment income $ 11,565,409 $ 8,983,573 Net realized gain (loss) 33,131,072 (30,189,179) Net change in unrealized appreciation 115,498,941 197,028,655 ----------------- --------------- NET INCREASE 160,195,422 175,823,049 ----------------- --------------- DIVIDENDS TO SHAREHOLDERS FROM NET INVESTMENT INCOME: Class A shares (4,386,735) (2,527,310) Class B shares (6,352,859) (2,842,053) Class C shares (1,072,102) (512,905) Class D shares (3,188,310) (2,217,884) ----------------- --------------- TOTAL DIVIDENDS (15,000,006) (8,100,152) ----------------- --------------- Net decrease from transactions in shares of beneficial interest (178,902,164) (122,306,210) ----------------- --------------- NET INCREASE (DECREASE) (33,706,748) 45,416,687 NET ASSETS: Beginning of period 1,780,090,933 1,734,674,246 ----------------- --------------- END OF PERIOD (Including accumulated undistributed net investment income of $4,647,701 and $8,082,298, respectively) $ 1,746,384,185 $ 1,780,090,933 ================= ================
SEE NOTES TO FINANCIAL STATEMENTS 21 MORGAN STANLEY S&P 500 INDEX FUND NOTES TO FINANCIAL STATEMENTS - FEBRUARY 28, 2005 (UNAUDITED) 1. ORGANIZATION AND ACCOUNTING POLICIES Morgan Stanley S&P 500 Index Fund (the "Fund") is registered under the Investment Company Act of 1940, as amended (the "Act"), as a diversified, open-end management investment company. The Fund's investment objective is to provide investment results that, before expenses, correspond to the total return of the Standard & Poor's 500 Composite Stock Price Index (the "S&P 500 Index"). The Fund was organized as a Massachusetts business trust on June 18, 1997 and commenced operations on September 26, 1997. The Fund offers Class A shares, Class B shares, Class C shares and Class D shares. The four classes are substantially the same except that most Class A shares are subject to a sales charge imposed at the time of purchase and some Class A shares, and most Class B shares and Class C shares are subject to a contingent deferred sales charge imposed on shares redeemed within 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 Adviser") determines that the latest sale price, the bid price or the mean between the last reported bid and asked price do not reflect a security's market value, portfolio securities are valued at their fair value as determined in good faith under procedures established by and under the general supervision of the Fund's Trustees. Occasionally, developments affecting the closing prices of securities and other assets may occur between the times at which valuations of such securities are determined (that is, close of the foreign market on which the securities trade) and the close of business on the NYSE. If developments occur during such periods that are expected to materially affect the value of such securities, such valuations may be adjusted to reflect the estimated fair value of such securities as of the close of the NYSE, as determined in good faith by 22 the Fund's Trustees or by the Investment Adviser using a pricing service and/or procedures approved by the Trustees of the Fund; and (7) short-term debt securities having a maturity date of more than sixty days at time of purchase are valued on a mark-to-market basis until sixty days prior to maturity and thereafter at amortized cost based on their value on the 61st day. Short-term debt securities having a maturity date of sixty days or less at the time of purchase are valued at amortized cost. B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on the trade date (date the order to buy or sell is executed). Realized gains and losses on security transactions are determined by the identified cost method. Dividend income and other distributions are recorded on the ex-dividend date. Discounts are accreted and premiums are amortized over the life of the respective securities. Interest income is accrued daily. C. REPURCHASE AGREEMENTS -- Pursuant to an Exemptive Order issued by the Securities and Exchange Commission, the Fund, along with other affiliated entities managed by the Investment Adviser, may transfer uninvested cash balances into one or more joint repurchase agreement accounts. These balances are invested in one or more repurchase agreements and are collateralized by cash, U.S. Treasury or federal agency obligations. The Fund may also invest directly with institutions in repurchase agreements. The Fund's custodian receives the collateral, which is marked-to-market daily to determine that the value of the collateral does not decrease below the repurchase price plus accrued interest. D. MULTIPLE CLASS ALLOCATIONS -- Investment income, expenses (other than distribution fees), and realized and unrealized gains and losses are allocated to each class of shares based upon the relative net asset value on the date such items are recognized. Distribution fees are charged directly to the respective class. E. FUTURES CONTRACTS -- A futures contract is an agreement between two parties to buy and sell financial instruments or contracts based on financial indices at a set price on a future date. Upon entering into such a contract, the Fund is required to pledge to the broker cash, U.S. Government securities or other liquid portfolio securities equal to the minimum initial margin requirements of the applicable futures exchange. Pursuant to the contract, the Fund agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in the value of the contract. Such receipts or payments known as variation margin are recorded by the Fund as unrealized gains and losses. Upon closing of the contract, the Fund realizes a gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. F. FEDERAL INCOME TAX POLICY -- It is the Fund's policy to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all of its taxable income to its shareholders. Accordingly, no federal income tax provision is required. G. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- Dividends and distributions to shareholders are recorded on the ex-dividend date. 23 H. USE OF ESTIMATES -- The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts and disclosures. Actual results could differ from those estimates. 2. INVESTMENT ADVISORY/ADMINISTRATION AGREEMENTS Effective November 1, 2004, pursuant to an Investment Advisory Agreement, the Fund pays the Investment Adviser an advisory fee, accrued daily and payable monthly, by applying the annual rate of 0.12% to the net assets of the Fund determined as of the close of each business day. Effective November 1, 2004, pursuant to an Administration Agreement with Morgan Stanley Services Company Inc. (the Administrator"), an affiliate of the Investment Adviser, the Fund pays an administration fee, accrued daily and payable monthly, by applying the annual rate of 0.08% to the Fund's net assets. Prior to November 1, 2004, the Fund had retained the Investment Adviser to provide administrative services and to manage the investment of the Fund's assets pursuant to an investment management agreement pursuant to which the Fund paid the Investment Adviser a monthly management fee accrued daily and payable monthly, by applying the annual rate of 0.20% to the net assets of the Fund determined as of the close of each business day. The Investment Adviser has agreed to assume all operating expenses (except for distribution fees) and to waive the compensation provided for in its Investment Advisory Agreement to the extent that such expenses and compensation on an annualized basis exceed 0.40% 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 Adviser and Administrator. The Fund has adopted a Plan of Distribution (the "Plan") pursuant to Rule 12b-1 under the Act. The Plan provides that the Fund will pay the Distributor a fee which is accrued daily and paid monthly at the following annual rates: (i) Class A -- up to 0.25% of the average daily net assets of Class A; (ii) Class B -- up to 1.0% of the average daily net assets of Class B; and (iii) Class C -- up to 1.0% of the average daily net assets of Class C. In the case of Class B shares, provided that the Plan continues in effect, any cumulative expenses incurred by the Distributor but not yet recovered may be recovered through the payment of future distribution fees from the Fund pursuant to the Plan and contingent deferred sales charges paid by investors upon redemption of Class B shares. Although there is no legal obligation for the Fund to pay expenses incurred in excess of payments made to the Distributor under the Plan and the proceeds of contingent deferred sales charges paid by investors upon redemption of shares, if for any reason the Plan is terminated, the Trustees will consider at that time the manner in which to treat such expenses. The Distributor has advised the Fund that such excess amounts totaled $37,629,081 at February 28, 2005. 24 In the case of Class A shares and Class C shares, expenses incurred pursuant to the Plan in any calendar year in excess of 0.25% or 1.0% of the average daily net assets of Class A or Class C, respectively, will not be reimbursed by the Fund through payments in any subsequent year, except that expenses representing a gross sales credit to Morgan Stanley Financial Advisors or other selected broker-dealer representatives may be reimbursed in the subsequent calendar year. For the six months ended February 28, 2005, the distribution fee was accrued for Class A shares and Class C shares at the annual rate of 0.22% and 0.88%, respectively. The Distributor has informed the Fund that for the six months ended February 28, 2005, it received contingent deferred sales charges from certain redemptions of the Fund's Class A shares, Class B shares and Class C shares of $1,079, $1,136,749 and $15,774, respectively and received $78,501 in front-end sales charges from sales of the Fund's Class A shares. The respective shareholders pay such charges which are not an expense of the Fund. 4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES The cost of purchases and proceeds from sales of portfolio securities, excluding short-term investments, for the six months ended February 28, 2005 aggregated $23,465,714 and $214,479,425, respectively. Included in the aforementioned are sales of common stock of Morgan Stanley, an affiliate of the Investment Adviser, Administrator and Distributor, of $1,093,302, as well as a realized gain of $469,348. Morgan Stanley Trust, an affiliate of the Investment Adviser, Administrator and Distributor, is the Fund's transfer agent. Effective April 1, 2004, the Fund began an unfunded Deferred Compensation Plan (the "Compensation Plan") which allows each independent Trustee to defer payment of all, or a portion, of the fees he receives for serving on the Board of Trustees. Each eligible Trustee generally may elect to have the deferred amounts credited with a return equal to the total return on one or more of the Morgan Stanley funds that are offered as investment options under the Compensation Plan. Appreciation/depreciation and distributions received from these investments are recorded with an offsetting increase/decrease in the deferred compensation obligation and do not affect the net asset value of the Fund. 5. PURPOSES OF AND RISKS RELATING TO CERTAIN FINANCIAL INSTRUMENTS The Fund may purchase and sell stock index futures ("futures contracts") for the following reasons: to simulate full investment in the S&P 500 Index while retaining a cash balance for fund management purposes; to facilitate trading; to reduce transaction costs; or to seek higher investment returns when a futures contract is priced more attractively than stocks comprising the S&P 500 Index. 25 These futures contracts involve elements of market risk in excess of the amount reflected in the Statement of Assets and Liabilities. The Fund bears the risk of an unfavorable change in the value of the underlying securities. Risks may also arise upon entering into these contracts from the potential inability of the counterparties to meet the terms of their contracts. 6. SHARES OF BENEFICIAL INTEREST Transactions in shares of beneficial interest were as follows:
FOR THE SIX FOR THE YEAR MONTHS ENDED ENDED FEBRUARY 28, 2005 AUGUST 31, 2004 -------------------------------- -------------------------------- (UNAUDITED) SHARES AMOUNT SHARES AMOUNT -------------- -------------- -------------- -------------- CLASS A SHARES Sold 3,137,109 $ 39,646,311 11,255,434 $ 134,194,035 Reinvestment of dividends 328,035 4,280,860 206,673 2,449,074 Redeemed (3,852,840) (48,789,341) (7,675,856) (92,058,323) -------------- -------------- -------------- -------------- Net increase (decrease) -- Class A (387,696) (4,862,170) 3,786,251 44,584,786 -------------- -------------- -------------- -------------- CLASS B SHARES Sold 2,560,638 31,424,675 12,211,344 140,102,363 Reinvestment of dividends 447,897 5,679,334 221,123 2,545,116 Redeemed (14,535,220) (177,865,172) (26,528,825) (305,904,240) -------------- -------------- -------------- -------------- Net decrease -- Class B (11,526,685) (140,761,163) (14,096,358) (163,256,761) -------------- -------------- -------------- -------------- CLASS C SHARES Sold 766,945 9,379,635 3,418,503 39,361,945 Reinvestment of dividends 78,995 1,000,865 41,702 479,992 Redeemed (2,234,692) (27,250,129) (3,742,890) (43,289,520) -------------- -------------- -------------- -------------- Net decrease -- Class C (1,388,752) (16,869,629) (282,685) (3,447,583) -------------- -------------- -------------- -------------- CLASS D SHARES Sold 1,651,349 20,997,262 4,739,786 56,679,623 Reinvestment of dividends 190,144 2,500,397 144,815 1,729,093 Redeemed (3,110,963) (39,906,861) (4,866,322) (58,595,368) -------------- -------------- -------------- -------------- Net increase (decrease) -- Class D (1,269,470) (16,409,202) 18,279 (186,652) -------------- -------------- -------------- -------------- Net decrease in Fund (14,572,603) $ (178,902,164) (10,574,513) $ (122,306,210) ============== ============== ============== ==============
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 26 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, 2004, the Fund had a net capital loss caryforward of $278,205,062 of which $687,345 will expire on August 31, 2006, $1,110,663 will expire on August 31, 2007, $14,522,885 will expire on August 31, 2008, $14,524,329 will expire on August 31, 2009, $66,339,275 will expire on August 31, 2010, $156,244,657 will expire on August 31, 2011 and $24,775,908 will expire on August 31, 2012 to offset future capital gains to the extent provided by regulations. The Fund obtained a net capital loss carryforward of $16,493,580 from prior year fund acquisitions. Utilization of this carryforward is subject to limitations imposed by the Internal Revenue Code and Treasury Regulations, reducing the total carryforward available. As of August 31, 2004, 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 rise 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 Adviser, certain affiliates of the Investment Adviser, certain officers of such affiliates and certain investment companies advised by the Investment Adviser or its affiliates, including the Fund, are named as defendants in a consolidated class action. This consolidated action also names as defendants certain individual Trustees and Directors of the Morgan Stanley funds. The consolidated amended complaint generally alleges that defendants, including the Fund, violated their statutory disclosure obligations and fiduciary duties by failing properly to disclose (i) that the Investment Adviser and certain affiliates of the Investment Adviser allegedly offered economic incentives to brokers and others to recommend the funds advised by the Investment Adviser or its affiliates to investors rather than funds managed by other companies, and (ii) that the funds advised by the Investment Adviser or its affiliates, including the Fund, allegedly paid excessive commissions to brokers in return for their efforts to recommend these funds to investors. The complaint seeks, among other things, unspecified compensatory damages, rescissionary damages, fees and costs. The defendants have moved to dismiss the action and intend to otherwise vigorously defend it. On March 10, 2005, Plaintiffs sought leave to supplement their complaint to assert claims on behalf of other investors. While the Fund and Adviser believe that each 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. 27 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, MONTH ENDED ------------------------------------------------------------- FEBRUARY 28, 2005 2004 2003 2002 2001 2000 ----------------- --------- --------- --------- --------- --------- (UNAUDITED) CLASS A SHARES SELECTED PER SHARE DATA: Net asset value, beginning of period $ 12.03 $ 10.97 $ 9.91 $ 12.17 $ 16.20 $ 14.05 ------------ --------- --------- --------- --------- --------- Income (loss) from investment operations: Net investment income++ 0.11 0.12 0.11 0.08 0.08 0.08 Net realized and unrealized gain (loss) 1.05 1.05 1.01 (2.34) (4.11) 2.10 ------------ --------- --------- --------- --------- --------- Total income (loss) from investment operations 1.16 1.17 1.12 (2.26) (4.03) 2.18 ------------ --------- --------- --------- --------- --------- Less dividends and distributions from: Net investment income (0.18) (0.11) (0.06) - - - Net realized gain - - - - - (0.03) ------------ --------- --------- --------- --------- --------- Total dividends and distributions (0.18) (0.11) (0.06) - - (0.03) ------------ --------- --------- --------- --------- --------- Net asset value, end of period $ 13.01 $ 12.03 $ 10.97 $ 9.91 $ 12.17 $ 16.20 ============ ========= ========= ========= ========= ========= TOTAL RETURN+ 9.62%(3) 10.70% 11.36% (18.57)% (24.83)% 15.49% RATIOS TO AVERAGE NET ASSETS(1)(2): Expenses 0.62%(4) 0.69% 0.70% 0.73% 0.69% 0.75% Net investment income 1.82%(4) 1.04% 1.11% 0.73% 0.59% 0.49% SUPPLEMENTAL DATA: Net assets, end of period, in millions $ 321 $ 301 $ 233 $ 161 $ 159 $ 183 Portfolio turnover rate 1%(3) 2% 2% 12% 4% 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 ADVISER, THE ANNUALIZED EXPENSE AND NET INVESTMENT INCOME RATIOS WOULD HAVE BEEN AS FOLLOWS:
EXPENSE NET INVESTMENT PERIOD ENDED: RATIO INCOME RATIO ----------------- ------- -------------- FEBRUARY 28, 2005 0.62% 1.82% AUGUST 31, 2004 0.77% 0.96% AUGUST 31, 2003 0.82% 0.99% AUGUST 31, 2002 0.80% 0.66% AUGUST 31, 2001 0.72% 0.56% AUGUST 31, 2000 0.76% 0.48%
(2) REFLECTS OVERALL FUND RATIOS FOR INVESTMENT INCOME AND NON-CLASS SPECIFIC EXPENSES. (3) NOT ANNUALIZED. (4) ANNUALIZED. SEE NOTES TO FINANCIAL STATEMENTS 28
FOR THE SIX FOR THE YEAR ENDED AUGUST 31, MONTH ENDED ------------------------------------------------------------- FEBRUARY 28, 2005 2004 2003 2002 2001 2000 ----------------- --------- --------- --------- --------- --------- (UNAUDITED) CLASS B SHARES SELECTED PER SHARE DATA: Net asset value, beginning of period $ 11.62 $ 10.60 $ 9.60 $ 11.88 $ 15.94 $ 13.93 ------------ --------- --------- --------- --------- --------- Income (loss) from investment operations: Net investment income (loss)++ 0.06 0.03 0.03 (0.01) (0.03) (0.04) Net realized and unrealized gain (loss) 1.01 1.02 0.97 (2.27) (4.03) 2.08 ------------ --------- --------- --------- --------- --------- Total income (loss) from investment operations 1.07 1.05 1.00 (2.28) (4.06) 2.04 ------------ --------- --------- --------- --------- --------- Less dividends and distributions from: Net investment income (0.07) (0.03) - - - - Net realized gain - - - - - (0.03) ------------ --------- --------- --------- --------- --------- Total dividends and distributions (0.07) (0.03) - - - (0.03) ------------ --------- --------- --------- --------- --------- Net asset value, end of period $ 12.62 $ 11.62 $ 10.60 $ 9.60 $ 11.88 $ 15.94 ============ ========= ========= ========= ========= ========= TOTAL RETURN+ 9.23%(3) 9.88% 10.42% (19.19)% (25.47)% 14.69% RATIOS TO AVERAGE NET ASSETS(1)(2): Expenses 1.40%(4) 1.46% 1.50% 1.50% 1.50% 1.50% Net investment income (loss) 1.04%(4) 0.27% 0.31% (0.04)% (0.22)% (0.26)% SUPPLEMENTAL DATA: Net assets, end of period, in millions $ 1,058 $ 1,108 $ 1,160 $ 1,169 $ 1,544 $ 2,036 Portfolio turnover rate 1%(3) 2% 2% 12% 4% 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 ADVISER, THE ANNUALIZED EXPENSE AND NET INVESTMENT INCOME (LOSS) RATIOS WOULD HAVE BEEN AS FOLLOWS:
EXPENSE NET INVESTMENT PERIOD ENDED: RATIO INCOME (LOSS) RATIO ----------------- ------- ------------------- FEBRUARY 28, 2005 1.40% 1.04% AUGUST 31, 2004 1.53% 0.20% AUGUST 31, 2003 1.62% 0.19% AUGUST 31, 2002 1.57% (0.11)% AUGUST 31, 2001 1.53% (0.25)% AUGUST 31, 2000 1.51% (0.27)%
(2) REFLECTS OVERALL FUND RATIOS FOR INVESTMENT INCOME AND NON-CLASS SPECIFIC EXPENSES. (3) NOT ANNUALIZED. (4) ANNUALIZED. SEE NOTES TO FINANCIAL STATEMENTS 29
FOR THE SIX FOR THE YEAR ENDED AUGUST 31, MONTH ENDED ------------------------------------------------------------- FEBRUARY 28, 2005 2004 2003 2002 2001 2000 ----------------- --------- --------- --------- --------- --------- (UNAUDITED) CLASS C SHARES SELECTED PER SHARE DATA: Net asset value, beginning of period $ 11.61 $ 10.60 $ 9.60 $ 11.88 $ 15.94 $ 13.93 ------------ --------- --------- --------- --------- --------- Income (loss) from investment operations: Net investment income (loss)++ 0.07 0.03 0.03 0.00 (0.03) (0.04) Net realized and unrealized gain (loss) 1.02 1.01 0.97 (2.28) (4.03) 2.08 ------------ --------- --------- --------- --------- --------- Total income (loss) from investment operations 1.09 1.04 1.00 (2.28) (4.06) 2.04 ------------ --------- --------- --------- --------- --------- Less dividends and distributions from: Net investment income (0.08) (0.03) - - - - Net realized gain - - - - - (0.03) ------------ --------- --------- --------- --------- --------- Total dividends and distributions (0.08) (0.03) - - - (0.03) ------------ --------- --------- --------- --------- --------- Net asset value, end of period $ 12.62 $ 11.61 $ 10.60 $ 9.60 $ 11.88 $ 15.94 ============ ========= ========= ========= ========= ========= TOTAL RETURN+ 9.27%(3) 9.85% 10.42% (19.19)% (25.47)% 14.69% RATIOS TO AVERAGE NET ASSETS(1)(2): Expenses 1.28%(4) 1.46% 1.49% 1.49% 1.50% 1.50% Net investment income (loss) 1.16%(4) 0.27% 0.32% (0.03)% (0.22)% (0.26)% SUPPLEMENTAL DATA: Net assets, end of period, in millions $ 170 $ 173 $ 161 $ 147 $ 169 $ 211 Portfolio turnover rate 1%(3) 2% 2% 12% 4% 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 ADVISER, THE ANNUALIZED EXPENSE AND NET INVESTMENT INCOME (LOSS) RATIOS WOULD HAVE BEEN AS FOLLOWS:
EXPENSE NET INVESTMENT PERIOD ENDED: RATIO INCOME (LOSS) RATIO ----------------- ------- ------------------- FEBRUARY 28, 2005 1.28% 1.16% AUGUST 31, 2004 1.53% 0.20% AUGUST 31, 2003 1.61% 0.20% AUGUST 31, 2002 1.56% (0.10)% AUGUST 31, 2001 1.53% (0.25)% AUGUST 31, 2000 1.51% (0.27)%
(2) REFLECTS OVERALL FUND RATIOS FOR INVESTMENT INCOME AND NON-CLASS SPECIFIC EXPENSES. (3) NOT ANNUALIZED. (4) ANNUALIZED. SEE NOTES TO FINANCIAL STATEMENTS 30
FOR THE SIX FOR THE YEAR ENDED AUGUST 31, MONTH ENDED ------------------------------------------------------------- FEBRUARY 28, 2005 2004 2003 2002 2001 2000 ----------------- --------- --------- --------- --------- --------- (UNAUDITED) CLASS D SHARES Selected Per Share Data: Net asset value, beginning of period $ 12.14 $ 11.06 $ 10.00 $ 12.26 $ 16.28 $ 14.09 ------------ --------- --------- --------- --------- --------- Income (loss) from investment operations: Net investment income++ 0.13 0.15 0.13 0.11 0.11 0.11 Net realized and unrealized gain (loss) 1.06 1.06 1.02 (2.37) (4.13) 2.11 ------------ --------- --------- --------- --------- --------- Total income (loss) from investment operations 1.19 1.21 1.15 (2.26) (4.02) 2.22 ------------ --------- --------- --------- --------- --------- Less dividends and distributions from: Net investment income (0.21) (0.13) (0.09) - - - Net realized gain - - - - - (0.03) ------------ --------- --------- --------- --------- --------- Total dividends and distributions (0.21) (0.13) (0.09) - - (0.03) ------------ --------- --------- --------- --------- --------- Net asset value, end of period $ 13.12 $ 12.14 $ 11.06 $ 10.00 $ 12.26 $ 16.28 ============ ========= ========= ========= ========= ========= TOTAL RETURN+ 9.76%(3) 10.97% 11.59% (18.43)% (24.69)% 15.81% RATIOS TO AVERAGE NET ASSETS(1)(2): Expenses 0.40%(4) 0.46% 0.50% 0.50% 0.50% 0.50% Net investment income 2.04%(4) 1.27% 1.31% 0.96% 0.78% 0.74% SUPPLEMENTAL DATA: Net assets, end of period, in millions $ 197 $ 198 $ 180 $ 136 $ 118 $ 92 Portfolio turnover rate 1%(3) 2% 2% 12% 4% 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 ADVISER, THE ANNUALIZED EXPENSE AND NET INVESTMENT INCOME RATIOS WOULD HAVE BEEN AS FOLLOWS:
EXPENSE NET INVESTMENT PERIOD ENDED: RATIO INCOME RATIO ----------------- ------- -------------- FEBRUARY 28, 2005 0.40% 2.04% AUGUST 31, 2004 0.53% 1.20% AUGUST 31, 2003 0.62% 1.19% AUGUST 31, 2002 0.57% 0.89% AUGUST 31, 2001 0.53% 0.75% AUGUST 31, 2000 0.51% 0.73%
(2) REFLECTS OVERALL FUND RATIOS FOR INVESTMENT INCOME AND NON-CLASS SPECIFIC EXPENSES. (3) NOT ANNUALIZED. (4) ANNUALIZED. SEE NOTES TO FINANCIAL STATEMENTS 31 TRUSTEES Michael Bozic Charles A. Fiumefreddo Edwin J. Garn Wayne E. Hedien James F. Higgins Dr. Manuel H. Johnson Joseph J. Kearns Michael E. Nugent Fergus Reid OFFICERS Charles A. Fiumefreddo CHAIRMAN OF THE BOARD Mitchell M. Merin PRESIDENT Ronald E. Robison EXECUTIVE VICE PRESIDENT AND PRINCIPAL EXECUTIVE OFFICER Joseph J. McAlinden VICE PRESIDENT Barry Fink VICE PRESIDENT Amy R. Doberman VICE PRESIDENT Carsten Otto CHIEF COMPLIANCE OFFICER 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 REGISTERED PUBLIC ACCOUNTING FIRM Deloitte & Touche LLP Two World Financial Center New York, New York 10281 INVESTMENT ADVISER Morgan Stanley Investment Advisors Inc. 1221 Avenue of the Americas New York, New York 10020 The financial statements included herein have been taken from the records of the Fund without examination by the independent auditors and accordingly they do not express an opinion thereon. This report is submitted for the general information of the shareholders of the Fund. For more detailed information about the Fund, its fees and expenses and other pertinent information, please read its Prospectus. The Fund's Statement of Additional Information contains additional information about the Fund, including its trustees. It is available, without charge, by calling (800) 869-NEWS. This report is not authorized for distribution to prospective investors in the Fund unless preceded or accompanied by an effective Prospectus. Read the Prospectus carefully before investing. Investments and services offered through Morgan Stanley DW Inc., member SIPC. Morgan Stanley Distributors Inc., member NASD. (C) 2005 Morgan Stanley [MORGAN STANLEY LOGO] 36007RPT-RA05-00302P-Y02/05 [GRAPHIC] MORGAN STANLEY FUNDS MORGAN STANLEY S&P 500 INDEX FUND SEMIANNUAL REPORT FEBRUARY 28, 2005 [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. Refer to Item 1. Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. Not applicable for semiannual reports. Item 8. Portfolio Managers of Closed-End Management Investment Companies Applicable only to reports filed by closed-end funds. Item 9. Closed-End Fund Repurchases Applicable to reports filed by closed-end funds. Item 10. Submission of Matters to a Vote of Security Holders Not applicable. Item 11. Controls and Procedures (a) The Fund's principal executive officer and principal financial officer have concluded that the Fund's disclosure controls and procedures are sufficient to ensure that information required to be disclosed by the Fund in this Form N-CSR was recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, based upon such officers' evaluation of these controls and procedures as of a date within 90 days of the filing date of the report. (b) There were no changes in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. Item 12. Exhibits (a) Code of Ethics - Not applicable for semiannual reports. (b) A separate certification for each principal executive officer and principal financial officer of the registrant are attached hereto as part of EX-99.CERT. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Morgan Stanley S&P 500 Index Fund /s/ Ronald E. Robison Ronald E. Robison Principal Executive Officer April 19, 2005 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated. /s/ Ronald E. Robison Ronald E. Robison Principal Executive Officer April 19, 2005 /s/ Francis Smith Francis Smith Principal Financial Officer April 19, 2005