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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
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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.
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FUND REPORT
For the six month period ended February 29, 2004
TOTAL RETURN FOR THE SIX MONTHS ENDED FEBRUARY 29, 2004
<Table>
<Caption>
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%
</Table>
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
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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
<Table>
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
</Table>
LARGEST INDUSTRIES
<Table>
Pharmaceuticals: Major 7.8%
Industrial Conglomerates 5.1
Major Banks 5.0
Financial Conglomerates 4.5
Packaged Software 4.1
</Table>
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
<Page>
PERFORMANCE SUMMARY
AVERAGE ANNUAL TOTAL RETURNS--PERIOD ENDED FEBRUARY 29, 2004
<Table>
<Caption>
CLASS A SHARES* CLASS B SHARES** CLASS C SHARES+ CLASS D SHARES++
SINCE (09/26/97) SINCE (09/26/97) SINCE (09/26/97) SINCE (09/26/97)
SYMBOL SPIAX SPIBX SPICX SPIDX
1 YEAR 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) --
</Table>
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
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MORGAN STANLEY S&P 500 INDEX FUND
PORTFOLIO OF INVESTMENTS - FEBRUARY 29, 2004 (UNAUDITED)
<Table>
<Caption>
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
---------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
5
<Page>
<Table>
<Caption>
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
---------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
6
<Page>
<Table>
<Caption>
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
---------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
7
<Page>
<Table>
<Caption>
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
---------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
8
<Page>
<Table>
<Caption>
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
---------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
9
<Page>
<Table>
<Caption>
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
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
10
<Page>
<Table>
<Caption>
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
---------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
11
<Page>
<Table>
<Caption>
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
---------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
12
<Page>
<Table>
<Caption>
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
---------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
13
<Page>
<Table>
<Caption>
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
---------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
14
<Page>
<Table>
<Caption>
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
---------------
<Caption>
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
===== ===============
</Table>
* 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:
<Table>
<Caption>
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
============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
15
<Page>
MORGAN STANLEY S&P 500 INDEX FUND
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 29, 2004 (UNAUDITED)
<Table>
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
================
</Table>
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED FEBRUARY 29, 2004 (UNAUDITED)
<Table>
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
================
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
16
<Page>
STATEMENT OF CHANGES IN NET ASSETS
<Table>
<Caption>
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
================= =================
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
17
<Page>
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
<Page>
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
<Page>
G. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- Dividends and distributions to
shareholders are recorded on the ex-dividend date.
H. USE OF ESTIMATES -- The preparation of financial statements in accordance
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures.
Actual results could differ from those estimates.
2. INVESTMENT 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
<Page>
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
<Page>
6. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<Table>
<Caption>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
FEBRUARY 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)
=============== =============== =============== ===============
</Table>
7. FEDERAL INCOME TAX STATUS
The amount of dividends and distributions from net investment income and net
realized capital gains are determined in accordance with federal income tax
regulations which may differ from generally 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
<Page>
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
<Page>
MORGAN STANLEY S&P 500 INDEX FUND
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<Table>
<Caption>
FOR THE SIX FOR THE YEAR ENDED AUGUST 31,
MONTHS ENDED --------------------------------------------------------
FEBRUARY 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%
</Table>
- ----------
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the net
asset value as of the last business day of the period.
(1) If the Fund had borne all of its expenses that were reimbursed or waived by
the Investment Manager, the annualized expense and net investment income
ratios would have been as follows:
<Table>
<Caption>
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%
</Table>
(2) Reflects overall Fund ratios for investment income and non-class specific
expenses.
(3) Not annualized.
(4) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS
24
<Page>
<Table>
<Caption>
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%
</Table>
- ----------
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the net
asset value as of the last business day of the period.
(1) If the Fund had borne all of its expenses that were reimbursed or waived by
the Investment Manager, the annualized expense and net investment income
(loss) ratios would have been as follows:
<Table>
<Caption>
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)%
</Table>
(2) Reflects overall Fund ratios for investment income and non-class specific
expenses.
(3) Not annualized.
(4) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS
25
<Page>
<Table>
<Caption>
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%
</Table>
- ----------
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the net
asset value as of the last business day of the period.
(1) If the Fund had borne all of its expenses that were reimbursed or waived by
the Investment Manager, the annualized expense and net investment income
(loss) ratios would have been as follows:
<Table>
<Caption>
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)%
</Table>
(2) Reflects overall Fund ratios for investment income and non-class specific
expenses.
(3) Not annualized.
(4) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS
26
<Page>
<Table>
<Caption>
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%
</Table>
- ----------
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Calculated based on the net asset value as of the last business day of the
period.
(1) If the Fund had borne all of its expenses that were reimbursed or waived by
the Investment Manager, the annualized expense and net investment income
ratios would have been as follows:
<Table>
<Caption>
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%
</Table>
(2) Reflects overall Fund ratios for investment income and non-class specific
expenses.
(3) Not annualized.
(4) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS
27
<Page>
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
Wayne E. Hedien
James F. Higgins
Dr. Manuel H. Johnson
Joseph J. Kearns
Michael E. Nugent
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]
<Page>
Item 2. Code of Ethics.
Not applicable for semiannual reports.
Item 3. Audit Committee Financial Expert.
Not applicable for semiannual reports.
Item 4. Principal Accountant Fees and Services
Not applicable for semiannual reports.
Item 5. Audit Committee of Listed Registrants.
Not applicable for semiannual reports.
Item 6. [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.
<Page>
(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.
<Page>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Morgan Stanley S&P 500 Index Fund
/s/ Ronald E. Robison
Ronald E. Robison
Principal Executive Officer
April 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