<Page>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-05634
Morgan Stanley Strategist 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: July 31, 2004
Date of reporting period: July 31, 2004
Item 1 - Report to Shareholders
<Page>
WELCOME, SHAREHOLDER:
IN THIS REPORT, YOU'LL LEARN ABOUT HOW YOUR INVESTMENT IN MORGAN STANLEY
STRATEGIST FUND PERFORMED DURING THE ANNUAL 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.
<Page>
FUND REPORT
For the year ended July 31, 2004
TOTAL RETURN FOR THE 12-MONTH PERIOD ENDED JULY 31, 2004
<Table>
<Caption>
LIPPER
LEHMAN FLEXIBLE
S&P BROTHERS U.S. PORTFOLIO
500 GOVERNMENT/ FUNDS
CLASS A CLASS B CLASS C CLASS D INDEX(1) CREDIT INDEX(2) INDEX(3)
12.10% 11.24% 11.25% 12.37% 13.17% 4.72% 11.06%
</Table>
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. PAST PERFORMANCE IS NO GUARANTEE OF
FUTURE RESULTS. SEE PERFORMANCE SUMMARY FOR STANDARDIZED PERFORMANCE
INFORMATION.
MARKET CONDITIONS
Global stock and bond market conditions remained favorable for much of the
12-month period ended July 31, 2004, before deteriorating in the final months.
The equity markets gained considerably during the first six months of the period
as strong GDP growth, improving corporate profit results and continued consumer
spending combined to push equity benchmarks higher. In this first half, concerns
about deflation were replaced by worries about inflationary pressure as the
recovery accelerated. Equities remained strong through May as promising job
reports added to investors' confidence in the economic recovery. Small- to
mid-cap stocks performed the best, with energy, chemical and industrials
companies the strongest performers.
The equity market entered a new phase in the last few months of the period in
which gains were moderated by fears that the Federal Reserve would move to raise
interest rates more rapidly than anticipated. The market was also restrained by
reports indicating a lack of new hiring in the economic recovery, as well as by
the possibility of inflationary pressure. By July, the economy was demonstrating
clear signs of slowing, and equity market returns stagnated.
Performance was also mixed in the bond market. Bonds began the period in the red
as investors pushed yields higher and prices lower in anticipation of economic
recovery. After peaking in September, yields fell steadily through the next six
months as the bond market began signaling its weakening confidence in the
strength of the economy. The bond market became more volatile in the second half
of the period as yields were driven alternatively up and down by investors'
responses to conflicting economic signals, geopolitical events and commodity
price volatility.
PERFORMANCE ANALYSIS
Morgan Stanley Strategist Fund underperfomed the S&P 500 Index, but outperformed
the Lehman Brothers U.S. Government/Credit Index and the Lipper Flexible
Portfolio Funds Index for the 12 months ended July 31, 2004. The Fund's
underperformance was driven primarily by sector selection within the Fund's
asset class allocations.The Fund entered the period with a defensive posture
toward the bond market and an increased exposure to equities. Our cautious bond
allocation paid off as interest rates rose sharply early in the fiscal year,
reflecting an increasingly optimistic economic outlook. We took advantage of
this price pullback and increased our allocation to bonds in the belief that
they represented an attractive value. In addition, as corporate profits reports
suggested that a more robust earnings recovery was under way, we shifted more
Fund assets into cyclical
2
<Page>
sectors of the equity market as well. This reallocation proved beneficial, as
both equities and bonds posted strong gains for the early part of the period.
Within the equity portfolio, a number of our sector weightings turned out to be
beneficial during the period. Performance within the early stages of the
recovery was helped by sector exposures to industrials, energy, basic materials
and technology, all more heavily weighted than the S&P 500 stock index. In the
industrials sector, diversified electricals and construction equipment companies
were gainers, while large integrated oil companies were strong performers for
the energy sector. Semiconductor, telecommunication and hardware companies led
the technology sector, and within basic materials, steel companies performed
strongly.
During the back half of the fiscal year, choppy results from the cyclical
sectors, especially technology, led to underperformance versus our peers. While
we had shifted some gains to less economically sensitive sectors, we continue to
believe that the global economy, and thus cyclical stocks, should enjoy one more
solid period of outperformance during this recovery. Bond holdings provided
positive returns throughout much of the period, particularly during
December-January and during the rally of the final months when fears of an
economic slowdown developed. Our bond portfolio was skewed toward government
issues throughout the period. The long-maturity portion of the Treasury yield
curve performed admirably during the bond rallies throughout the fiscal year.
In July, performance was hindered by the Fund's positions in equities as stocks
began to suffer from concerns about inflation and weak job reports. A slight
overweighting to technology relative to the S&P 500 Index was a drag on
performance, as was an underweighted position in financials, which were strong
over the 12 months. Although our allocation to bonds was generally positive for
the Fund during the period, a greater emphasis on bonds during their rally would
have added considerably to performance.
3
<Page>
TOP 10 HOLDINGS
<Table>
U.S. Treasury Securities 17.3%
Fed. Natl. Mtge. Assoc. 2.6
General Electric Co. 1.9
Dean Foods 1.8
J.P. Morgan Chase 1.7
American Express Co. 1.7
Citigroup Inc. 1.6
Honda Motor Ltd Amern. 1.6
Costco Wholesale Corp. 1.6
Northrop Grumman Corp. 1.6
</Table>
PORTFOLIO COMPOSITION*
<Table>
Common Stocks 69.8%
U.S. Government Obligations 17.2
Corporate Bond 5.6
U.S. Government Agency Mortgaged-Backed 3.5
Short-Term 2.8
Asset-Backed 1.0
Foreign Government Bonds 0.1
</Table>
DATA AS OF JULY 31, 2004. SUBJECT TO CHANGE DAILY. ALL PERCENTAGES FOR TOP 10
HOLDINGS ARE AS A PERCENTAGE OF NET ASSETS AND PERCENTAGES FOR PORTFOLIO
COMPOSITION ARE AS A PERCENTAGE OF TOTAL INVESTMENTS. 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.
* THE FUND HAS OUTSTANDING SHORT FUTURES CONTRACTS WITH AN UNDERLYING FACE
AMOUNT OF $15,321,094 WITH UNREALIZED DEPRECIATION OF $365,106.
INVESTMENT STRATEGY
THE FUND'S INVESTMENT MANAGER, MORGAN STANLEY INVESTMENT ADVISORS INC., ACTIVELY
ALLOCATES THE FUND'S ASSETS AMONG THE MAJOR ASSET CATEGORIES OF EQUITY
SECURITIES (INCLUDING DEPOSITARY RECEIPTS), FIXED-INCOME SECURITIES AND MONEY
MARKET INSTRUMENTS. IN DETERMINING WHICH SECURITIES TO BUY, HOLD OR SELL FOR THE
FUND, THE INVESTMENT MANAGER ALLOCATES THE FUND'S ASSETS BASED ON, AMONG OTHER
THINGS, ITS ASSESSMENT OF THE EFFECTS OF ECONOMIC AND MARKET TRENDS ON DIFFERENT
SECTORS OF THE MARKET. THERE IS NO LIMIT AS TO THE PERCENTAGE OF ASSETS THAT MAY
BE ALLOCATED TO ANY ONE ASSET CLASS.
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 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
4
<Page>
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 1-800-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) 847-2424.
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
TWELVE-MONTH PERIOD ENDED JULY 31 IS AVAILABLE WITHOUT CHARGE, UPON REQUEST, BY
CALLING (800) 869-NEWS OR BY VISITING THE MUTUAL FUND CENTER ON OUR WEBSITE AT
www.morganstanley.com. THIS INFORMATION IS ALSO AVAILABLE ON THE SECURITIES AND
EXCHANGE COMMISSION'S WEBSITE AT http://www.sec.gov.
ANNUAL 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 AND 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 AM TO 8:00 PM, ET.
ONCE OUR CUSTOMER SERVICE CENTER HAS RECEIVED YOUR INSTRUCTIONS, WE WILL BEGIN
SENDING INDIVIDUAL COPIES FOR EACH ACCOUNT WITHIN 30 DAYS.
5
<Page>
PERFORMANCE SUMMARY
[CHART]
PERFORMANCE OF A $10,000 INVESTMENT--CLASS B
<Table>
<Caption>
CLASS B^ S&P 500(1) LEHMAN(2) LIPPER(3)
Jul 31, 94 $ 10,000 $ 10,000 $ 10,000 $ 10,000
Jul 31, 95 $ 11,605 $ 12,611 $ 11,013 $ 11,649
Jul 31, 96 $ 12,937 $ 14,700 $ 11,597 $ 12,675
Jul 31, 97 $ 16,783 $ 22,361 $ 12,848 $ 16,334
Jul 31, 98 $ 18,926 $ 26,676 $ 13,885 $ 18,257
Jul 31, 99 $ 20,672 $ 32,065 $ 14,208 $ 20,164
Jul 31, 2000 $ 23,316 $ 34,941 $ 15,020 $ 21,420
Jul 31, 2001 $ 21,673 $ 29,932 $ 16,929 $ 20,171
Jul 31, 2002 $ 18,038 $ 22,864 $ 18,095 $ 16,927
Jul 31, 2003 $ 19,698 $ 25,299 $ 19,382 $ 18,486
Jul 31, 2004 $ 21,912 $ 28,630 $ 20,297 $ 20,530
</Table>
ENDING VALUE
<Table>
<Caption>
CLASS B^ S&P 500(1) LEHMAN(2) LIPPER(3)
---------- ---------- ---------- ----------
$ 21,912 $ 28,630 $ 20,297 $ 20,530
</Table>
6
<Page>
AVERAGE ANNUAL TOTAL RETURNS--PERIOD ENDED JULY 31, 2004
<Table>
<Caption>
CLASS A SHARES* CLASS B SHARES** CLASS C SHARES+ CLASS D SHARES++
(SINCE 07/28/97) (SINCE 10/31/88) (SINCE 07/28/97) (SINCE 07/28/97)
SYMBOL SRTAX SRTBX SRTCX SRTDX
1 Year 12.10%(4) 11.24%(4) 11.25%(4) 12.37%4
6.22(5) 6.24(5) 10.25(5) --
5 Years 1.95(4) 1.17(4) 1.15(4) 2.17(4)
0.86(5) 0.86(5) 1.15(5) --
10 Years -- 8.16(4) -- --
-- 8.16(5) -- --
Since Inception 4.93(4) 9.53(4) 4.12(4) 5.16(4)
4.13(5) 9.53(5) 4.12(5) --
</Table>
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH IS NO GUARANTEE OF
FUTURE RESULTS AND CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE FIGURES
SHOWN. FOR 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 GRAPH AND TABLE DO 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% 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.
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 LEHMAN BROTHERS U.S. GOVERNMENT/CREDIT INDEX TRACKS THE PERFORMANCE OF
GOVERNMENT AND CORPORATE OBLIGATIONS, INCLUDING U.S. GOVERNMENT AGENCY AND
TREASURY SECURITIES AND CORPORATE AND YANKEE BONDS. 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.
(3) THE LIPPER FLEXIBLE PORTFOLIO FUNDS INDEX IS AN EQUALLY WEIGHTED
PERFORMANCE INDEX OF THE LARGEST QUALIFYING FUNDS (BASED ON NET ASSETS) IN
THE LIPPER FLEXIBLE PORTFOLIO 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.
(4) FIGURE SHOWN ASSUMES REINVESTMENT OF ALL DISTRIBUTIONS AND DOES NOT REFLECT
THE DEDUCTION OF ANY SALES CHARGES.
(5) 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.
^ ENDING VALUE ASSUMING A COMPLETE REDEMPTION ON JULY 31, 2004.
7
<Page>
EXPENSE EXAMPLE
As a shareholder of the Fund, you incur 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 02/01/04 - 07/31/04.
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. 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 that have transactional costs, such as sales charges
(loads), and redemption fees, or exchange fees.
<Table>
<Caption>
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD *
------------- ------------- ---------------
02/01/04 -
02/01/04 07/31/04 07/31/04
------------- ------------- ---------------
CLASS A
Actual $ 1,000.00 $ 989.90 $ 4.65
Hypothetical (5% return before expenses) $ 1,000.00 $ 1,020.19 $ 4.72
CLASS B
Actual $ 1,000.00 $ 984.90 $ 8.39
Hypothetical (5% return before expenses) $ 1,000.00 $ 1,016.41 $ 8.52
CLASS C
Actual $ 1,000.00 $ 985.50 $ 8.39
Hypothetical (5% return before expenses) $ 1,000.00 $ 1,016.41 $ 8.52
CLASS D
Actual $ 1,000.00 $ 989.90 $ 3.46
Hypothetical (5% return before expenses) $ 1,000.00 $ 1,021.38 $ 3.52
</Table>
- ----------
* EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO OF 0.94%, 1.70%,
1.70% AND 0.70% RESPECTIVELY, MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER
THE PERIOD, MULTIPLIED BY 182/366 (TO REFLECT THE ONE-HALF YEAR PERIOD).
8
<Page>
MORGAN STANLEY STRATEGIST FUND
PORTFOLIO OF INVESTMENTS - JULY 31, 2004
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------------------------------------------
COMMON STOCKS (70.3%)
AEROSPACE & DEFENSE (1.6%)
334,800 Northrop Grumman Corp. $ 17,610,480
------------
AGRICULTURAL COMMODITIES/MILLING (1.3%)
984,300 Archer-Daniels-Midland Co. 15,187,749
------------
AIRLINES (1.0%)
600,800 AMR Corp.* 5,064,744
633,300 Continental Airlines, Inc. (Class B)* 5,693,367
------------
10,758,111
------------
APPAREL/FOOTWEAR RETAIL (1.4%)
717,500 Gap, Inc. (The) 16,287,250
------------
BEVERAGES: NON-ALCOHOLIC (1.4%)
351,400 Coca-Cola Co. (The) 15,412,404
------------
BIOTECHNOLOGY (2.0%)
476,600 Applera Corp. - Celera Genomics Group* 5,595,284
174,300 Celgene Corp.* 9,295,419
127,300 Gilead Sciences, Inc.* 8,228,672
------------
23,119,375
------------
CHEMICALS: MAJOR DIVERSIFIED (0.7%)
186,300 Dow Chemical Co. (The) 7,431,507
------------
COMPUTER COMMUNICATIONS (1.3%)
702,100 Cisco Systems, Inc.* 14,645,806
------------
COMPUTER PROCESSING HARDWARE (2.4%)
419,800 Apple Computer, Inc.* 13,576,332
385,440 Dell Inc.* 13,671,557
------------
27,247,889
------------
CONTAINERS/PACKAGING (0.6%)
367,100 Smurfit-Stone Container Corp.* 6,831,731
------------
CONTRACT DRILLING (0.8%)
378,000 Diamond Offshore Drilling, Inc. 9,238,320
------------
DEPARTMENT STORES (1.3%)
323,300 Kohl's Corp.* 14,794,208
------------
DISCOUNT STORES (1.6%)
441,800 Costco Wholesale Corp. 17,963,588
------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
9
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES (1.6%)
183,650 Cinergy Corp. $ 7,024,612
371,140 Southern Co. (The) 10,866,979
------------
17,891,591
------------
ELECTRICAL PRODUCTS (1.3%)
240,800 Emerson Electric Co. 14,616,560
------------
ELECTRONIC COMPONENTS (0.5%)
489,400 Flextronics International Ltd. (Singapore)* 6,151,758
------------
ELECTRONIC PRODUCTION EQUIPMENT (0.8%)
525,100 Applied Materials, Inc.* 8,910,947
------------
ENVIRONMENTAL SERVICES (1.3%)
542,900 Waste Management, Inc. 15,277,206
------------
FINANCIAL CONGLOMERATES (4.3%)
328,350 American Express Co. 16,499,587
385,300 Citigroup, Inc. 16,987,877
415,600 J.P. Morgan Chase & Co. 15,514,348
------------
49,001,812
------------
FOOD: MAJOR DIVERSIFIED (1.1%)
289,400 Kellogg Co. 12,056,404
------------
FOOD: MEAT/FISH/DAIRY (1.8%)
541,230 Dean Foods Co.* 20,014,685
------------
INDUSTRIAL CONGLOMERATES (1.8%)
618,700 General Electric Co. 20,571,775
------------
INFORMATION TECHNOLOGY SERVICES (1.7%)
280,500 Accenture Ltd. (Class A) (ADR) (Bermuda)* 6,908,715
137,450 International Business Machines Corp. 11,967,772
------------
18,876,487
------------
INTEGRATED OIL (1.6%)
157,500 BP PLC (ADR) (United Kingdom) 8,876,700
194,600 Exxon Mobil Corp. 9,009,980
------------
17,886,680
------------
MAJOR BANKS (2.8%)
176,970 Bank of America Corp. 15,044,220
221,100 KeyCorp 6,672,798
168,000 Wells Fargo & Co. 9,644,880
------------
31,361,898
------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
10
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------------------------------------------
MAJOR TELECOMMUNICATIONS (2.8%)
110,300 ALLTEL Corp. $ 5,735,600
470,000 AT&T Corp. 7,097,000
350,000 SBC Communications, Inc. 8,869,000
265,000 Verizon Communications Inc. 10,213,100
------------
31,914,700
------------
MANAGED HEALTH CARE (0.3%)
49,712 UnitedHealth Group Inc. 3,126,868
------------
MEDIA CONGLOMERATES (1.1%)
720,830 Time Warner Inc.* 12,001,820
------------
MEDICAL SPECIALTIES (3.1%)
264,800 Bard (C.R.), Inc. 14,616,960
253,000 Fisher Scientific International, Inc.* 14,724,600
206,800 Hospira, Inc.* 5,358,188
------------
34,699,748
------------
MOTOR VEHICLES (1.6%)
747,300 Honda Motor Co., Ltd. (ADR) (Japan) 18,136,971
------------
MULTI-LINE INSURANCE (1.2%)
197,000 American International Group, Inc. 13,918,050
------------
OIL & GAS PRODUCTION (0.8%)
243,750 Burlington Resources, Inc. 9,303,938
------------
OILFIELD SERVICES/EQUIPMENT (1.7%)
295,500 Halliburton Co. 9,382,125
171,100 Smith International, Inc.* 9,971,708
------------
19,353,833
------------
PACKAGED SOFTWARE (1.8%)
397,100 Microsoft Corp. 11,301,466
867,200 Oracle Corp.* 9,114,272
------------
20,415,738
------------
PHARMACEUTICALS: MAJOR (4.8%)
228,910 Johnson & Johnson 12,651,856
178,100 Lilly (Eli) & Co. 11,348,532
170,000 Merck & Co., Inc. 7,709,500
480,400 Pfizer, Inc. 15,353,584
220,400 Wyeth 7,802,160
------------
54,865,632
------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
11
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------------------------------------------
PRECIOUS METALS (1.1%)
116,300 Barrick Gold Corp. (Canada) $ 2,223,656
85,300 Newmont Mining Corp. 3,452,091
401,200 Placer Dome Inc. (Canada) 6,427,224
------------
12,102,971
------------
PROPERTY - CASUALTY INSURERS (2.7%)
316,700 ACE Ltd. (Bermuda) 12,854,853
263,700 Allstate Corp. (The) 12,414,996
154,882 St. Paul Travelers Companies, Inc. 5,741,476
------------
31,011,325
------------
RAILROADS (1.2%)
143,200 Burlington Northern Santa Fe Corp. 5,080,736
279,700 CSX Corp. 8,754,610
------------
13,835,346
------------
REGIONAL BANKS (0.5%)
252,900 AmSouth Bancorporation 6,203,637
------------
SEMICONDUCTORS (1.8%)
322,800 Intel Corp. 7,869,864
542,600 Micron Technology, Inc.* 7,341,378
657,762 Taiwan Semiconductor Manufacturing Co. Ltd. (ADR) (Taiwan) 4,683,265
------------
19,894,507
------------
SPECIALTY STORES (1.0%)
328,500 Bed Bath & Beyond, Inc.* 11,625,615
------------
STEEL (0.4%)
53,800 Nucor Corp. 4,500,370
------------
TELECOMMUNICATION EQUIPMENT (3.3%)
1,128,200 Corning Inc.* 13,944,552
862,900 Motorola, Inc. 13,745,997
790,100 Nokia Corp. (ADR) (Finland) 9,180,962
------------
36,871,511
------------
TRUCKS/CONSTRUCTION/FARM MACHINERY (1.1%)
165,100 Caterpillar Inc. 12,133,199
------------
TOTAL COMMON STOCKS
(COST $625,269,982) 795,062,000
------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
12
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------
CORPORATE BONDS (5.6%)
ADVERTISING/MARKETING SERVICES (0.0%)
$ 515 WPP Finance (UK) Corp. - 144A**
(United Kingdom) 5.875% 06/15/14 $ 523,449
------------
AEROSPACE & DEFENSE (0.1%)
335 Raytheon Co. 6.15 11/01/08 360,177
960 Systems 2001 Asset Trust - 144A** 6.664 09/15/13 1,039,545
------------
1,399,722
------------
AIR FREIGHT/COURIERS (0.0%)
335 Fedex Corp. - 144A** 2.65 04/01/07 326,941
------------
AIRLINES (0.2%)
862 American West Airlines, (Series 01-1) 7.10 04/02/21 911,808
1,103 Continental Airlines, Inc. (Series 974A) 6.90 01/02/18 1,042,681
295 Southwest Airlines Co. (Series 01-1) 5.496 11/01/06 306,770
------------
2,261,259
------------
BEVERAGES: ALCOHOLIC (0.0%)
395 Miller Brewing Co. - 144A** 4.25 08/15/08 396,084
------------
BROADCASTING (0.0%)
280 Clear Channel Communications, Inc. 7.65 09/15/10 317,062
------------
CABLE/SATELLITE TV (0.1%)
165 Comcast Cable Communications Inc. 6.75 01/30/11 179,965
250 Comcast Corp. 6.50 01/15/15 263,538
60 Comcast Corp. 7.625 02/15/08 65,983
490 TCI Communications, Inc. 7.875 02/15/26 561,224
------------
1,070,710
------------
CHEMICALS: MAJOR DIVERSIFIED (0.0%)
270 ICI Wilmington Inc. 4.375 12/01/08 267,158
------------
CONTAINERS/PACKAGING (0.0%)
460 Sealed Air Corp - 144A** 5.625 07/15/13 459,024
------------
DEPARTMENT STORES (0.1%)
300 Federated Department Stores, Inc. 6.625 09/01/08 326,215
215 Federated Department Stores, Inc. 6.90 04/01/29 227,527
980 May Department Stores Co., Inc. 5.95 11/01/08 1,033,358
------------
1,587,100
------------
DRUGSTORE CHAINS (0.1%)
1,505 CVS Corp. 5.625 03/15/06 1,570,449
------------
ELECTRIC UTILITIES (0.5%)
220 Appalachian Power Co. (Series H) 5.95 05/15/33 208,409
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
13
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------
$ 505 Arizona Public Service Co. 5.80 % 06/30/14 $ 511,764
530 Carolina Power & Light Co. 5.125 09/15/13 527,075
250 Cincinnati Gas & Electric Co. 5.70 09/15/12 258,156
180 Cincinnati Gas & Electric Co. (Series A) 5.40 06/15/33 158,563
125 Cincinnati Gas & Electric Co. (Series B) 5.375 06/15/33 109,700
45 Columbus Southern Power Co. 4.40 12/01/10 44,119
175 Columbus Southern Power Co. (Series D) 6.60 03/01/33 182,860
460 Consolidated Natural Gas Co. 6.25 11/01/11 493,061
60 Consolidated Natural Gas Co. (Series A) 5.00 03/01/14 58,261
140 Detroit Edison Co. 6.125 10/01/10 150,465
210 Duke Energy Corp. 3.75 03/05/08 208,631
345 Duke Energy Corp. 4.50 04/01/10 344,180
205 Entergy Gulf States, Inc. 3.60 06/01/08 199,966
285 Exelon Corp. 6.75 05/01/11 312,007
265 Ohio Power Co. (Series G) 6.60 02/15/33 275,821
520 Pacific Gas & Electric Co. 6.05 03/01/34 502,629
315 Public Service Electric & Gas Co.
(Series MTNB) 5.00 01/01/13 314,322
155 South Carolina Electric & Gas Co. 5.30 05/15/33 140,790
75 Southern California Edison Co. 5.00 01/15/14 74,214
240 Texas Eastern Transmission, L.P. 7.00 07/15/32 260,772
305 TXU Energy Co. 7.00 03/15/13 335,569
70 Wisconsin Electric Power Co. 5.625 05/15/33 66,600
------------
5,737,934
------------
ELECTRICAL PRODUCTS (0.0%)
520 Cooper Industries Inc. 5.25 07/01/07 544,122
------------
ENVIRONMENTAL SERVICES (0.1%)
325 Waste Management, Inc. 5.00 03/15/14 314,500
490 Waste Management, Inc. 6.875 05/15/09 541,174
------------
855,674
------------
FINANCE/RENTAL/LEASING (0.3%)
395 CIT Group Inc. 2.875 09/29/06 391,086
125 CIT Group Inc. 7.375 04/02/07 136,923
755 Countrywide Home Loans, Inc. (Series MTN) 3.25 05/21/08 731,784
50 Ford Motor Credit Co. 7.25 10/25/11 52,658
575 Ford Motor Credit Co. 7.375 10/28/09 617,583
235 International Lease Finance Corp. 3.75 08/01/07 235,027
705 MBNA Corp. 6.125 03/01/13 735,991
580 SLM Corp. 5.00 10/01/13 566,224
------------
3,467,276
------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
14
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------
FINANCIAL CONGLOMERATES (0.8%)
$ 920 Chase Manhattan Corp. 6.00 % 02/15/09 $ 982,410
275 Citicorp. 6.75 08/15/05 286,919
490 Citigroup Inc. 5.625 08/27/12 510,293
530 Citigroup Inc. 5.75 05/10/06 555,640
530 Citigroup Inc. 6.00 02/21/12 568,191
180 General Electric Capital Corp. 4.25 12/01/10 176,953
1,005 General Electric Capital Corp.
(Series MTNA) 6.75 03/15/32 1,100,925
200 General Motors Acceptance Corp. 4.50 07/15/06 202,891
1,255 General Motors Acceptance Corp. 6.875 09/15/11 1,290,143
1,295 General Motors Acceptance Corp. 8.00 11/01/31 1,318,662
325 Prudential Holdings, LLC - 144A** 8.695 12/18/23 399,220
1,350 Prudential Holdings, LLC
(Series B) (FSA) - 144A** 7.245 12/18/23 1,540,206
------------
8,932,453
------------
FOOD RETAIL (0.0%)
290 Albertson's, Inc. 7.50 02/15/11 328,856
175 Kroger Co. 6.80 04/01/11 192,442
------------
521,298
------------
FOOD: MAJOR DIVERSIFIED (0.1%)
845 Kraft Foods Inc. 5.625 11/01/11 873,194
175 Kraft Foods Inc. 6.25 06/01/12 187,092
------------
1,060,286
------------
FOREST PRODUCTS (0.1%)
165 Weyerhaeuser Co. 6.00 08/01/06 173,723
825 Weyerhaeuser Co. 6.75 03/15/12 903,349
------------
1,077,072
------------
GAS DISTRIBUTORS (0.0%)
105 Panhandle Eastern Pipe Line Co. (Series B) 2.75 03/15/07 101,300
------------
HOME FURNISHINGS (0.0%)
290 Mohawk Industries, Inc. 7.20 04/15/12 324,867
------------
HOME IMPROVEMENT CHAINS (0.0%)
100 Lowe's Companies, Inc. 6.50 03/15/29 106,581
60 Lowe's Companies, Inc. 6.875 02/15/28 66,641
------------
173,222
------------
HOTELS/RESORTS/CRUISELINES (0.1%)
510 Hyatt Equities LLC - 144A** 6.875 06/15/07 543,724
760 Marriott International, Inc. (Series E) 7.00 01/15/08 828,776
------------
1,372,500
------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
15
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES (0.1%)
$ 490 Honeywell International, Inc. 6.125% 11/01/11 $ 529,360
245 Hutchison Whampoa
International Ltd. - 144A** (Kyrgyzstan) 5.45 11/24/10 243,805
335 Hutchison Whampoa
International Ltd. - 144A** (Kyrgyzstan) 6.50 02/13/13 339,008
------------
1,112,173
------------
INFORMATION TECHNOLOGY SERVICES (0.0%)
180 Electronic Data Systems Corp. 7.125 10/15/09 188,204
------------
INSURANCE BROKERS/SERVICES (0.1%)
1,055 Farmers Exchange Capital - 144A** 7.05 07/15/28 1,036,334
------------
INTEGRATED OIL (0.1%)
395 Amerada Hess Corp. 7.875 10/01/29 436,325
70 Petro-Canada (Canada) 4.00 07/15/13 63,344
280 Petro-Canada (Canada) 5.35 07/15/33 242,783
------------
742,452
------------
INVESTMENT BANKS/BROKERS (0.1%)
320 Goldman Sachs Group Inc. 5.25 10/15/13 315,303
640 Goldman Sachs Group Inc. 6.60 01/15/12 696,938
340 Goldman Sachs Group Inc. 6.875 01/15/11 376,720
------------
1,388,961
------------
MAJOR BANKS (0.2%)
195 Bank of New York (The) 5.20 07/01/07 204,229
485 FleetBoston Financial Corp. 7.25 09/15/05 509,915
305 Household Finance Corp. 4.125 12/15/08 303,337
320 Household Finance Corp. 5.875 02/01/09 340,617
225 Household Finance Corp. 6.375 10/15/11 242,865
350 Household Finance Corp. 6.40 06/17/08 379,138
280 Household Finance Corp. 6.75 05/15/11 308,876
------------
2,288,977
------------
MAJOR TELECOMMUNICATIONS (0.3%)
600 Deutsche Telekom International
Finance Corp. NV (Netherlands) 8.75 06/15/30 747,496
255 France Telecom S.A. (France) 9.50 03/01/31 325,609
1,295 GTE Corp. 6.94 04/15/28 1,342,467
150 Sprint Capital Corp. 8.75 03/15/32 182,297
345 Telecom Italia Capital SpA - 144A**
(Luxembourg) 4.00 11/15/08 341,293
------------
2,939,162
------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
16
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------
MANAGED HEALTH CARE (0.2%)
$ 920 Aetna, Inc. 7.875% 03/01/11 $ 1,070,270
245 Anthem Insurance Companies, Inc. - 144A** 9.125 04/01/10 302,408
530 Wellpoint Health Network, Inc. 6.375 06/15/06 560,160
------------
1,932,838
------------
MEDIA CONGLOMERATES (0.2%)
190 AOL Time Warner Inc. 7.70 05/01/32 211,696
800 News America Holdings, Inc. 7.30 04/30/28 879,100
310 Time Warner, Inc. 6.625 05/15/29 306,796
380 Time Warner, Inc. 7.625 04/15/31 419,316
------------
1,816,908
------------
MOTOR VEHICLES (0.2%)
605 DaimlerChrysler North American
Holdings Co. 7.30 01/15/12 667,769
595 DaimlerChrysler North American
Holdings Co. 8.50 01/18/31 700,595
325 Ford Motor Co. 6.625 10/01/28 285,135
445 Ford Motor Co. 7.45 07/16/31 424,427
------------
2,077,926
------------
MULTI-LINE INSURANCE (0.4%)
1,170 AIG SunAmerica Global Finance VI - 144A** 6.30 05/10/11 1,270,508
575 American General Finance Corp.
(Series MTNF) 5.875 07/14/06 604,088
910 AXA Financial Inc. 6.50 04/01/08 994,186
95 Hartford Financial Services Group, Inc. 2.375 06/01/06 93,774
655 Hartford Financial Services Group, Inc. 7.90 06/15/10 764,289
100 MBNA Capital I (Series A) 8.278 12/01/26 108,811
510 Nationwide Mutual Insurance Co. - 144A** 8.25 12/01/31 610,251
------------
4,445,907
------------
OIL & GAS PIPELINES (0.0%)
415 Ras Laffan Liquid Natural
Gas Co. Ltd. - 144A**(Qatar) 8.294 03/15/14 473,100
------------
OIL & GAS PRODUCTION (0.2%)
125 Kerr-McGee Corp. 5.875 09/15/06 130,867
165 Kerr-McGee Corp. 6.875 09/15/11 179,503
345 Nexen Inc. (Canada) 5.05 11/20/13 334,988
245 Pemex Project Funding Master Trust 7.375 12/15/14 257,250
430 Pemex Project Funding Master Trust 8.00 11/15/11 474,075
560 Pemex Project Funding Master Trust 8.625 02/01/22 606,200
145 Pemex Project Funding Master Trust 9.125 10/13/10 168,563
------------
2,151,446
------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
17
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------
OTHER METALS/MINERALS (0.1%)
$ 550 Inco Ltd. (Canada) 7.20% 09/15/32 $ 587,102
190 Inco Ltd. (Canada) 7.75 05/15/12 217,214
------------
804,316
------------
PHARMACEUTICALS: MAJOR (0.0%)
120 Schering-Plough Corp. 5.30 12/01/13 120,198
------------
PROPERTY - CASUALTY INSURERS (0.1%)
760 Mantis Reef Ltd. - 144A** (Australia) 4.692 11/14/08 754,895
------------
PULP & PAPER (0.1%)
385 International Paper Co. 4.25 01/15/09 380,464
305 Sappi Papier Holding AG - 144A** (Austria) 6.75 06/15/12 328,021
------------
708,485
------------
REAL ESTATE DEVELOPMENT (0.1%)
1,463 World Financial Properties - 144A** 6.91 09/01/13 1,609,208
------------
REAL ESTATE INVESTMENT TRUSTS (0.1%)
770 EOP Operating LP 6.763 06/15/07 830,227
205 Rouse Co. (The) 3.625 03/15/09 196,563
95 Rouse Co. (The) 5.375 11/26/13 93,221
------------
1,120,011
------------
SAVINGS BANKS (0.1%)
470 Washington Mutual Bank 5.50 01/15/13 477,438
140 Washington Mutual Inc. 8.25 04/01/10 164,007
------------
641,445
------------
TOBACCO (0.1%)
325 Altria Group, Inc. 7.00 11/04/13 336,053
360 Altria Group, Inc. 7.75 01/15/27 371,497
------------
707,550
------------
WIRELESS TELECOMMUNICATIONS (0.0%)
250 AT&T Wireless Services, Inc. 8.75 03/01/31 312,092
------------
TOTAL CORPORATE BONDS
(COST $59,839,818) 63,719,550
------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
18
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------
ASSET-BACKED SECURITIES (1.0%)
FINANCE/RENTAL/LEASING (0.8%)
$ 2,960 Chase Credit Card Master Trust 2001-4 A 5.50 % 11/17/08 $ 3,097,215
2,230 Citibank Credit Issuance Trust 2001-A1 A1 6.90 10/15/07 2,345,597
53 Harley-Davidson Motorcycle Trust 2002-1 3.02 09/15/06 53,358
1,550 MBNA Master Credit Card Trust 5.90 08/15/11 1,668,753
1,194 Nissan Auto Receivables Owner
Trust 2001-C A4 4.80 02/15/07 1,205,708
275 TXU Electric Delivery Transition Bond
Company LLC 2004-1 A2 4.81 11/15/12 277,073
------------
8,647,704
------------
FINANCIAL CONGLOMERATES (0.2%)
2,300 American Express Credit Account 2001-2A 5.53 10/15/08 2,402,638
------------
TOTAL ASSET-BACKED SECURITIES
(COST $10,637,208) 11,050,342
------------
FOREIGN GOVERNMENT OBLIGATIONS (0.1%)
870 United Mexican States (Mexico) 8.00 09/24/22 933,075
610 United Mexican States (Mexico) 8.30 08/15/31 660,325
------------
TOTAL FOREIGN GOVERNMENT OBLIGATIONS
(COST $1,498,302) 1,593,400
------------
U.S. GOVERNMENT AGENCY MORTGAGE BACKED
SECURITIES (3.6%)
Federal Home Loan Mortgage Corp. Gold
5,921 6.50 01/01/29-11/01/33 6,198,459
381 7.50 01/01/30-08/01/32 408,764
13 8.00 07/01/30 14,409
Federal Home Loan Mortgage Corp.
2,080 5.125 11/07/13 2,067,406
2,185 7.50 11/01/29-10/01/32 2,344,725
Federal National Mortgage Assoc.
10,530 (DD) 4.25 05/15/09 10,621,906
1,178 6.50 08/01/32 1,231,028
4,060 7.00 12/01/17-01/01/33 4,300,921
5,546 7.50 07/01/29-06/01/32 5,939,560
6,711 8.00 05/01/09-01/01/32 7,290,477
------------
TOTAL U.S. GOVERNMENT AGENCY MORTGAGE
BACKED SECURITIES
(COST $27,232,563) 40,417,655
------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
19
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS (17.3%)
$ 250 U.S. Treasury Bond 5.50 % 08/15/28 $ 256,816
3,075 U.S. Treasury Bond 6.125 08/15/29 3,430,187
5,550 U.S. Treasury Bond 8.125 08/15/19 7,354,188
9,900 U.S. Treasury Bond 8.125 08/15/21 13,252,853
12,375 U.S. Treasury Note 3.50 11/15/06 12,560,637
150,000 U.S. Treasury Note 3.625 05/15/13 142,066,500
3,500 U.S. Treasury Note 3.875 02/15/13 3,383,380
7,100 U.S. Treasury Note 6.50 02/15/10 8,038,812
8,280 U.S. Treasury Strip 0.00 02/15/25 2,652,846
8,500 U.S. Treasury Strip 0.00 02/15/25 2,734,229
---------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(COST $210,050,484) 195,730,448
---------------
SHORT-TERM INVESTMENTS (2.8%)
U.S. GOVERNMENT OBLIGATIONS (a) (0.1%)
500 U.S. Treasury Bill *** 0.98 09/23/04 499,265
400 U.S. Treasury Bill *** 1.645 01/13/05 397,002
---------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(COST $896,262) 896,267
---------------
REPURCHASE AGREEMENT (2.7%)
30,106 Joint repurchase agreement account
(dated 07/30/04; proceeds
$30,109,399) (b) (Cost $30,106,000) 1.355 08/02/04 30,106,000
1,278 The Bank of New York (dated 07/30/04;
proceeds $1,278,554) (c)
(Cost $1,278,434) 1.125 08/02/04 1,278,434
---------------
TOTAL REPURCHASE AGREEMENTS
(COST $31,384,434) 31,384,434
---------------
TOTAL SHORT-TERM INVESTMENTS
(COST $32,280,696) 32,280,701
TOTAL INVESTMENTS
(COST $966,809,053) (d) (e) 100.7% 1,139,854,096
LIABILITIES IN EXCESS OF OTHER ASSETS (0.7) (8,288,045)
----- ---------------
NET ASSETS 100.0% $ 1,131,566,051
===== ===============
</Table>
- ----------
ADR AMERICAN DEPOSITORY RECEIPT.
FSA FINANCIAL SECURITY ASSURANCE INC.
* NON-INCOME PRODUCING SECURITY.
SEE NOTES TO FINANCIAL STATEMENTS
20
<Page>
** RESALE IS RESTRICTED TO QUALIFIED INSTITUTIONAL INVESTORS.
*** THESE SECURITIES HAVE BEEN PHYSICALLY SEGREGATED IN CONNECTION WITH OPEN
FUTURES CONTRACTS IN AN AMOUNT EQUAL TO $896,267
DD SECURITY PURCHASED ON A DELAYED DELIVERY BASIS.
(a) PURCHASED ON A DISCOUNT BASIS. THE INTEREST RATE SHOWN HAS BEEN ADJUSTED
TO REFLECT A MONEY MARKET EQUIVALENT YIELD.
(b) COLLATERALIZED BY FEDERAL AGENCY AND U.S. TREASURY OBLIGATIONS.
(c) COLLATERALIZED BY FEDERAL HOME LOAN MORTGAGE CORP. 4.007% DUE 10/01/33
VALUED AT $1,304,003.
(d) SECURITIES HAVE BEEN DESIGNATED AS COLLATERAL IN AN AMOUNT EQUAL TO
$25,521,667 IN CONNECTION WITH SECURITIES PURCHASED ON A DELAYED
DELIVERY BASIS AND OPEN FUTURE CONTRACTS.
(e) THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES IS $974,724,461. THE
AGGREGATE GROSS UNREALIZED APPRECIATION IS $185,980,617 AND THE
AGGREGATE GROSS UNREALIZED DEPRECIATION IS $20,850,982, RESULTING IN NET
UNREALIZED APPRECIATION OF $165,129,635.
FUTURES CONTRACTS OPEN AT JULY 31, 2004:
<Table>
<Caption>
UNDERLYING
NUMBER OF DESCRIPTION, DELIVERY FACE AMOUNT UNREALIZED
CONTRACTS LONG/SHORT MONTH, AND YEAR AT VALUE DEPRECIATION
- -------------------------------------------------------------------------------------------------------------
38 Short U.S. Treasury Notes 5 Year, September 2004 $ (4,161,000) $ (63,636)
92 Short U.S. Treasury Notes 10 Year, September 2004 (10,186,125) (260,622)
9 Short U.S. Treasury Bonds 20 Year, September 2004 (973,969) (40,848)
----------
Total unrealized depreciation $ (365,106)
==========
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
21
<Page>
MORGAN STANLEY STRATEGIST FUND
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
JULY 31, 2004
<Table>
ASSETS:
Investments in securities, at value (cost $966,809,053) $ 1,139,854,096
Receivable for:
Interest 3,574,268
Dividends 1,048,852
Shares of beneficial interest sold 666,997
Investments sold 163,565
Prepaid expenses and other assets 59,707
---------------
TOTAL ASSETS 1,145,367,485
---------------
LIABILITIES:
Payable for:
Investments purchased 10,733,365
Shares of beneficial interest redeemed 1,325,669
Distribution fee 884,063
Investment management fee 550,081
Variation margin 96,875
Payable to bank 13,138
Accrued expenses and other payables 198,243
---------------
TOTAL LIABILITIES 13,801,434
---------------
NET ASSETS $ 1,131,566,051
===============
COMPOSITION OF NET ASSETS:
Paid-in-capital $ 1,133,323,872
Net unrealized appreciation 172,681,393
Accumulated undistributed net investment income 227,216
Accumulated net realized loss (174,666,430)
---------------
NET ASSETS $ 1,131,566,051
===============
CLASS A SHARES:
Net Assets $ 58,968,084
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE) 3,623,090
NET ASSET VALUE PER SHARE $ 16.28
===============
MAXIMUM OFFERING PRICE PER SHARE,
(NET ASSET VALUE PLUS 5.54% OF NET ASSET VALUE) $ 17.18
===============
CLASS B SHARES:
Net Assets $ 970,723,514
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE) 59,576,167
NET ASSET VALUE PER SHARE $ 16.29
===============
CLASS C SHARES:
Net Assets $ 41,696,955
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE) 2,572,163
NET ASSET VALUE PER SHARE $ 16.21
===============
CLASS D SHARES:
Net Assets $ 60,177,498
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE) 3,693,072
NET ASSET VALUE PER SHARE $ 16.29
===============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
22
<Page>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JULY 31, 2004
<Table>
NET INVESTMENT INCOME:
INCOME
Interest $ 15,083,490
Dividends (net of $139,163 foreign withholding tax) 11,560,505
---------------
TOTAL INCOME 26,643,995
---------------
EXPENSES
Distribution fee (Class A shares) 143,804
Distribution fee (Class B shares) 10,534,750
Distribution fee (Class C shares) 417,795
Investment management fee 6,838,151
Transfer agent fees and expenses 1,448,416
Shareholder reports and notices 133,725
Registration fees 91,262
Professional fees 40,101
Trustees' fees and expenses 21,701
Custodian fees 6,250
Other 47,474
---------------
TOTAL EXPENSES 19,723,429
---------------
NET INVESTMENT INCOME 6,920,566
---------------
NET REALIZED AND UNREALIZED GAIN:
NET REALIZED GAIN ON:
Investments 107,480,393
Futures contracts 457,536
---------------
NET REALIZED GAIN 107,937,929
---------------
NET CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION ON:
Investments 19,808,633
Futures contracts (1,311,850)
---------------
NET APPRECIATION 18,496,783
---------------
NET GAIN 126,434,712
---------------
NET INCREASE $ 133,355,278
===============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
23
<Page>
STATEMENT OF CHANGES IN NET ASSETS
<Table>
<Caption>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
JULY 31, 2004 JULY 31, 2003
-------------- --------------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income $ 6,920,566 $ 2,985,852
Net realized gain (loss) 107,937,929 (66,373,339)
Net change in unrealized appreciation/depreciation 18,496,783 158,848,307
--------------- ---------------
NET INCREASE 133,355,278 95,460,820
--------------- ---------------
DIVIDENDS TO SHAREHOLDERS FROM NET INVESTMENT INCOME
Class A shares (801,953) (867,122)
Class B shares (6,130,739) (4,004,321)
Class C shares (254,636) (103,363)
Class D shares (1,005,940) (806,241)
--------------- ---------------
TOTAL DIVIDENDS (8,193,268) (5,781,047)
--------------- ---------------
Net decrease from transactions in shares of beneficial interest (187,139,550) (284,302,141)
--------------- ---------------
NET DECREASE (61,977,540) (194,622,368)
NET ASSETS:
Beginning of period 1,193,543,591 1,388,165,959
--------------- ---------------
END OF PERIOD
(INCLUDING ACCUMULATED UNDISTRIBUTED NET INVESTMENT INCOME OF
$227,216 AND DIVIDENDS IN EXCESS OF NET INVESTMENT INCOME OF
$210,400, RESPECTIVELY) $ 1,131,566,051 $ 1,193,543,591
=============== ===============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
24
<Page>
MORGAN STANLEY STRATEGIST FUND
NOTES TO FINANCIAL STATEMENTS - JULY 31, 2004
1. ORGANIZATION AND ACCOUNTING POLICIES
Morgan Stanley Strategist Fund (the "Fund") is registered under the Investment
Company Act of 1940, as amended (the "Act"), as a non-diversified, open-end
management investment company. The Fund's investment objective is to maximize
the total return of its investments. The Fund was organized as a Massachusetts
business trust on August 5, 1988 and commenced operations on October 31, 1988.
On July 28, 1997, the Fund converted to a multiple class share structure.
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
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
25
<Page>
by the Trustees of the Fund; (7) certain portfolio securities may be valued by
an outside pricing service approved by the Fund's Trustees; and (8) 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. FOREIGN CURRENCY TRANSLATION AND FORWARD FOREIGN CURRENCY CONTRACTS -- The
books and records of the Fund are maintained in U.S. dollars as follows: (1) the
foreign currency market value of investment securities, other assets and
liabilities and forward foreign currency contracts ("forward contracts") are
translated at the exchange rates prevailing at the end of the period; and (2)
purchases, sales, income
26
<Page>
and expenses are translated at the exchange rates prevailing on the respective
dates of such transactions. The resultant exchange gains and losses are recorded
as realized and unrealized gain/loss on foreign exchange transactions. Pursuant
to U.S. federal income tax regulations, certain foreign exchange gains/losses
included in realized and unrealized gain/loss are included in or are a reduction
of ordinary income for federal income tax purposes. The Fund does not isolate
that portion of the results of operations arising as a result of changes in the
foreign exchange rates from the changes in the market prices of the securities.
Forward contracts are valued daily at the appropriate exchange rates. The
resultant unrealized exchange gains and losses are recorded as unrealized
foreign currency gain or loss. The Fund records realized gains or losses on
delivery of the currency or at the time the forward contract is extinguished
(compensated) by entering into a closing transaction prior to delivery.
G. 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.
H. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- Dividends and distributions to
shareholders are recorded on the ex-dividend date.
I. 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 at the close of
each business day: 0.60% to the portion of daily net assets not exceeding $500
million; 0.55% to the portion of daily net assets exceeding $500 million but not
exceeding $1 billion; 0.50% to the portion of daily net assets exceeding $1
billion but not exceeding $1.5 billion; 0.475% to the portion of daily net
assets exceeding $1.5 billion but not exceeding $2 billion; 0.45% to the portion
of daily net assets exceeding $2 billion but not exceeding $3 billion; and
0.425% to the portion of daily net assets in excess of $3 billion.
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
27
<Page>
assets of Class A; (ii) Class B -- up to 1.0% of the lesser of: (a) the average
daily aggregate gross sales of the Class B shares since the effectiveness of the
the Fund's first amendment of the Plan on November 8, 1989 (not including
reinvestment of dividend or capital gain distributions) less the average daily
aggregate net asset value of the Class B shares redeemed since the Plan's
inception upon which a contingent deferred sales charge has been imposed or
waived; or (b) the average daily net assets of Class B attributable to shares
issued, net of related shares redeemed, since the Plan's inception; 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
$16,320,783 at July 31, 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 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 year ended July 31, 2004, the distribution fee was accrued for Class A
shares and Class C shares at the annual rate of 0.24% and 1.0%, respectively.
The Distributor has informed the Fund that for the year ended July 31, 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 $2,257, $1,012,948
and $7,491, respectively and received $120,359 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/maturities/prepayments of
portfolio securities, excluding short-term investments, for the year ended July
31, 2004 aggregated $496,693,868, and $711,329,034, respectively. Included in
the aforementioned are purchases and sales/maturities/prepayments of U.S.
Government securities of $225,648,571 and $258,067,791, respectively. Included
in the aforementioned are sales of $3,005,365 for portfolio transactions with
other Morgan Stanley funds and a realized gain of $1,426,704.
28
<Page>
For the year ended July 31, 2004, the Fund incurred brokerage commissions of
$151,615 with Morgan Stanley & Co., Inc. an affiliate of the Investment Manager
and Distributor, for portfolio transactions executed on behalf of the Fund.
Morgan Stanley Trust, an affiliate of the Investment Manager and Distributor, is
the Fund's transfer agent. At July 31, 2004, the Fund had transfer agent fees
and expenses payable of approximately $13,000.
The Fund has an unfunded noncontributory defined benefit pension plan covering
certain independent Trustees of the Fund who will have served as independent
Trustees for at least five years at the time of retirement. Benefits under this
plan are based on factors which include years of service and compensation.
Aggregate pension costs for the year ended July 31, 2004 included in Trustees'
fees and expenses in the Statement of Operations amounted to $9,637. At July 31,
2004, the Fund had an accrued pension liability of $77,307 which is included in
accrued expenses in the Statement of Assets and Liabilities. On December 2,
2003, the Trustees voted to close the plan to new participants and eliminate the
future benefits growth due to increases to compensation after July 31, 2003.
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 enter into forward contracts to facilitate settlement of foreign
currency denominated portfolio transactions or to manage foreign currency
exposure associated with foreign currency denominated securities. The Fund may
invest in interest rate and index future contracts.
Forward contracts and 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 foreign exchange rates
underlying the forward contracts or 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.
29
<Page>
6. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<Table>
<Caption>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
JULY 31, 2004 JULY 31, 2003
--------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------- ----------- -------------
CLASS A SHARES
Sold 903,778 $ 14,533,257 1,845,888 $ 24,260,526
Reinvestment of dividends 46,974 756,837 44,688 590,931
Redeemed (993,765) (16,018,424) (4,032,753) (52,770,954)
----------- ------------- ----------- -------------
Net decrease -- Class A (43,013) (728,330) (2,142,177) (27,919,497)
----------- ------------- ----------- -------------
CLASS B SHARES
Sold 4,954,252 79,101,285 5,788,543 78,164,128
Reinvestment of dividends 330,204 5,346,630 267,210 3,508,089
Redeemed (16,430,935) (264,441,706) (25,138,244) (334,420,291)
----------- ------------- ----------- -------------
Net decrease -- Class B (11,146,479) (179,993,791) (19,082,491) (252,748,074)
----------- ------------- ----------- -------------
CLASS C SHARES
Sold 682,246 10,833,219 594,700 7,963,172
Reinvestment of dividends 14,352 231,305 7,120 93,720
Redeemed (604,217) (9,773,538) (701,340) (9,319,392)
----------- ------------- ----------- -------------
Net increase (decrease) -- Class C 92,381 1,290,986 (99,520) (1,262,500)
----------- ------------- ----------- -------------
CLASS D SHARES
Sold 493,807 7,927,291 609,164 8,132,406
Reinvestment of dividends 57,940 933,078 56,139 745,232
Redeemed (1,027,786) (16,568,784) (839,347) (11,249,708)
----------- ------------- ----------- -------------
Net decrease -- Class D (476,039) (7,708,415) (174,044) (2,372,070)
----------- ------------- ----------- -------------
Net decrease in Fund (11,573,150) $(187,139,550) (21,498,232) $(284,302,141)
=========== ============= =========== =============
</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.
The tax character of distributions paid was as follows:
<Table>
<Caption>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
JULY 31, 2004 JULY 31, 2003
------------- -------------
Ordinary income $ 8,193,268 $ 5,781,047
=========== ===========
</Table>
30
<Page>
As of July 31, 2004, the tax-basis components of accumulated losses were as
follows:
<Table>
Undistributed ordinary income $ 1,050,692
Undistributed long-term gains --
-------------
Net accumulated earnings 1,050,692
Capital loss carryforward* (167,862,299)
Temporary differences (77,307)
Net unrealized appreciation 165,131,093
-------------
Total accumulated losses $ (1,757,821)
=============
</Table>
*During the year ended July 31, 2004, the Fund utilized $103,722,216 of its net
capital loss carryforward. As of July 31, 2004, the Fund had a net capital loss
carryforward of $167,862,299 of which $71,039,211 will expire on July 31, 2010
and $96,823,088 will expire on July 31, 2011 to offset future capital gains to
the extent provided by regulations.
As of July 31, 2004, the Fund had temporary book/tax differences primarily
attributable to capital loss deferrals on wash sales and book amortization of
premiums on debt securities and permanent book/tax differences attributable to
losses on paydowns and tax adjustments on debt securities sold by the Fund. To
reflect reclassifications arising from the permanent differences, accumulated
net realized loss was charged and accumulated undistributed net investment
income was credited $1,710,318.
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 have moved to dismiss the action and intend to otherwise
vigorously 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.
31
<Page>
MORGAN STANLEY STRATEGIST FUND
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial
interest outstanding throughout each period:
<Table>
<Caption>
FOR THE YEAR ENDED JULY 31,
--------------------------------------------------------------
2004 2003 2002 2001 2000
---------- ---------- ---------- ---------- ----------
CLASS A SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period $ 14.72 $ 13.53 $ 16.43 $ 20.64 $ 20.16
---------- ---------- ---------- ---------- ----------
Income (loss) from investment operations:
Net investment income++ 0.20 0.14 0.22 0.44 0.44
Net realized and unrealized gain
(loss) 1.58 1.21 (2.84) (1.55) 2.16
---------- ---------- ---------- ---------- ----------
Total income (loss) from investment
operations 1.78 1.35 (2.62) (1.11) 2.60
---------- ---------- ---------- ---------- ----------
Less dividends and distributions from:
Net investment income (0.22) (0.16) (0.28) (0.50) (0.37)
Net realized gain - - - (2.60) (1.75)
---------- ---------- ---------- ---------- ----------
Total dividends and distributions (0.22) (0.16) (0.28) (3.10) (2.12)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 16.28 $ 14.72 $ 13.53 $ 16.43 $ 20.64
========== ========== ========== ========== ==========
TOTAL RETURN+ 12.10% 10.11% (16.14)% (6.24)% 13.48%
RATIOS TO AVERAGE NET ASSETS(1):
Expenses 0.95% 0.93% 0.88% 0.85% 0.88%
Net investment income 1.24% 0.95% 1.44% 2.41% 2.06%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands $ 58,968 $ 53,951 $ 78,583 $ 116,383 $ 110,600
Portfolio turnover rate 42% 124% 164% 136% 187%
</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) REFLECTS OVERALL FUND RATIOS FOR INVESTMENT INCOME AND NON-CLASS SPECIFIC
EXPENSES.
SEE NOTES TO FINANCIAL STATEMENTS
32
<Page>
<Table>
<Caption>
FOR THE YEAR ENDED JULY 31,
--------------------------------------------------------------
2004 2003 2002 2001 2000
---------- ---------- ---------- ---------- ----------
CLASS B SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period $ 14.73 $ 13.54 $ 16.43 $ 20.65 $ 20.16
---------- ---------- ---------- ---------- ----------
Income (loss) from investment operations:
Net investment income++ 0.08 0.02 0.10 0.30 0.29
Net realized and unrealized gain
(loss) 1.58 1.22 (2.84) (1.57) 2.18
---------- ---------- ---------- ---------- ----------
Total income (loss) from investment
operations 1.66 1.24 (2.74) (1.27) 2.47
---------- ---------- ---------- ---------- ----------
Less dividends and distributions from:
Net investment income (0.10) (0.05) (0.15) (0.35) (0.23)
Net realized gain - - - (2.60) (1.75)
---------- ---------- ---------- ---------- ----------
Total dividends and distributions (0.10) (0.05) (0.15) (2.95) (1.98)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 16.29 $ 14.73 $ 13.54 $ 16.43 $ 20.65
========== ========== ========== ========== ==========
TOTAL RETURN+ 11.24% 9.20% (16.77)% (7.05)% 12.79%
RATIOS TO AVERAGE NET ASSETS(1):
Expenses 1.71% 1.73% 1.67% 1.63% 1.53%
Net investment income 0.48% 0.15% 0.64% 1.63% 1.41%
SUPPLEMENTAL DATA:
Net assets, end of period, in millions $ 971 $ 1,042 $ 1,216 $ 1,827 $ 2,044
Portfolio turnover rate 42% 124% 164% 136% 187%
</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) REFLECTS OVERALL FUND RATIOS FOR INVESTMENT INCOME AND NON-CLASS SPECIFIC
EXPENSES.
SEE NOTES TO FINANCIAL STATEMENTS
33
<Page>
<Table>
<Caption>
FOR THE YEAR ENDED JULY 31,
--------------------------------------------------------------
2004 2003 2002 2001 2000
---------- ---------- ---------- ---------- ----------
CLASS C SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period $ 14.66 $ 13.46 $ 16.36 $ 20.57 $ 20.11
---------- ---------- ---------- ---------- ----------
Income (loss) from investment operations:
Net investment income++ 0.08 0.03 0.10 0.29 0.29
Net realized and unrealized gain
(loss) 1.57 1.21 (2.83) (1.55) 2.15
---------- ---------- ---------- ---------- ----------
Total income (loss) from investment
operations 1.65 1.24 (2.73) (1.26) 2.44
---------- ---------- ---------- ---------- ----------
Less dividends and distributions from:
Net investment income (0.10) (0.04) (0.17) (0.35) (0.23)
Net realized gain - - - (2.60) (1.75)
---------- ---------- ---------- ---------- ----------
Total dividends and distributions (0.10) (0.04) (0.17) (2.95) (1.98)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 16.21 $ 14.66 $ 13.46 $ 16.36 $ 20.57
========== ========== ========== ========== ==========
TOTAL RETURN+ 11.25% 9.09% (16.70)% (7.00)% 12.62%
RATIOS TO AVERAGE NET ASSETS(1):
Expenses 1.71% 1.73% 1.67% 1.63% 1.63%
Net investment income 0.48% 0.15% 0.64% 1.63% 1.31%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands $ 41,697 $ 36,351 $ 34,727 $ 45,612 $ 39,006
Portfolio turnover rate 42% 124% 164% 136% 187%
</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) REFLECTS OVERALL FUND RATIOS FOR INVESTMENT INCOME AND NON-CLASS SPECIFIC
EXPENSES.
SEE NOTES TO FINANCIAL STATEMENTS
34
<Page>
<Table>
<Caption>
FOR THE YEAR ENDED JULY 31,
--------------------------------------------------------------
2004 2003 2002 2001 2000
---------- ---------- ---------- ---------- ----------
CLASS D SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period $ 14.73 $ 13.55 $ 16.45 $ 20.67 $ 20.18
---------- ---------- ---------- ---------- ----------
Income (loss) from investment operations:
Net investment income++ 0.24 0.16 0.26 0.48 0.48
Net realized and unrealized gain
(loss) 1.58 1.21 (2.85) (1.56) 2.18
---------- ---------- ---------- ---------- ----------
Total income (loss) from investment
operations 1.82 1.37 (2.59) (1.08) 2.66
---------- ---------- ---------- ---------- ----------
Less dividends and distributions from:
Net investment income (0.26) (0.19) (0.31) (0.54) (0.42)
Net realized gain - - - (2.60) (1.75)
---------- ---------- ---------- ---------- ----------
Total dividends and distributions (0.26) (0.19) (0.31) (3.14) (2.17)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 16.29 $ 14.73 $ 13.55 $ 16.45 $ 20.67
========== ========== ========== ========== ==========
TOTAL RETURN+ 12.37% 10.25% (15.94)% (6.07)% 13.79%
RATIOS TO AVERAGE NET ASSETS(1):
Expenses 0.71% 0.73% 0.67% 0.63% 0.63%
Net investment income 1.48% 1.15% 1.64% 2.63% 2.31%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands $ 60,177 $ 61,423 $ 58,834 $ 81,594 $ 80,925
Portfolio turnover rate 42% 124% 164% 136% 187%
</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) REFLECTS OVERALL FUND RATIOS FOR INVESTMENT INCOME AND NON-CLASS SPECIFIC
EXPENSES.
SEE NOTES TO FINANCIAL STATEMENTS
35
<Page>
MORGAN STANLEY STRATEGIST FUND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES OF
MORGAN STANLEY STRATEGIST FUND:
We have audited the accompanying statement of assets and liabilities of Morgan
Stanley Strategist Fund (the "Fund"), including the portfolio of investments, as
of July 31, 2004, and the related statements of operations for the year then
ended and changes in net assets for each of the two years in the period then
ended, and the financial highlights for each of the five years in the period
then ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of July 31, 2004, by correspondence with the custodian and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Morgan
Stanley Strategist Fund as of July 31, 2004, the results of its operations for
the year then ended, the changes in its net assets for each of the two years in
the period then ended, and the financial highlights for each of the five years
in the period then ended, in conformity with accounting principles generally
accepted in the United States of America.
Deloitte & Touche LLP
NEW YORK, NEW YORK
SEPTEMBER 16, 2004
2004 FEDERAL TAX NOTICE (UNAUDITED)
During the fiscal year ended July 31, 2004, 100% of the income dividends
paid by the Fund qualified for the dividends received deduction available
to corporations.
Of the Fund's ordinary income dividends paid during the fiscal year ended
July 31, 2004, 28.11% was attributable to qualifying Federal obligations.
Please consult your tax advisor to determine if any portion of the
dividends you received is exempt from state income tax.
Additionally, please note that 100% of the Fund's income dividends paid
during the fiscal year ended July 31, 2004 qualified for the lower income
tax rate available to individuals under the Jobs and Growth Tax Relief
Reconciliation Act of 2003.
36
<Page>
MORGAN STANLEY STRATEGIST FUND
TRUSTEE AND OFFICER INFORMATION
INDEPENDENT TRUSTEES:
<Table>
<Caption>
NUMBER OF
PORTFOLIOS
TERM OF IN FUND
POSITION(S) OFFICE AND COMPLEX
NAME, AGE AND ADDRESS OF HELD WITH LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
INDEPENDENT TRUSTEE REGISTRANT TIME SERVED* DURING PAST 5 YEARS** BY TRUSTEE*** HELD BY TRUSTEE
- --------------------------------------- ----------- ------------ ------------------------- ------------- ---------------------
Michael Bozic (63) Trustee Since Private Investor; 208 Director of Weirton
c/o Kramer Levin Naftalis & Frankel LLP April 1994 Director or Trustee of Steel Corporation.
Counsel to the Independent Trustees the Retail Funds (since
919 Third Avenue April 1994) and the
New York, NY Institutional Funds
(since July 2003);
formerly Vice Chairman
of Kmart Corporation
(December 1998-October
2000), Chairman and
Chief Executive Officer
of Levitz Furniture
Corporation (November
1995-November 1998) and
President and Chief
Executive Officer of
Hills Department Stores
(May 1991-July 1995);
formerly variously
Chairman, Chief
Executive Officer,
President and Chief
Operating Officer
(1987-1991) of the Sears
Merchandise Group of
Sears, Roebuck & Co.
Edwin J. Garn (71) Trustee Since Managing Director of 208 Director of Franklin
c/o Summit Ventures LLC January 1993 Summit Ventures LLC; Covey (time
1 Utah Center Director or Trustee of management systems),
201 S. Main Street the Retail Funds (since BMW Bank of North
Salt Lake City, UT January 1993) and the America, Inc.
Institutional Funds (industrial loan
(since July 2003); corporation), United
member of the Utah Space Alliance (joint
Regional Advisory Board venture between
of Pacific Corp.; Lockheed Martin and
formerly United States the Boeing Company)
Senator (R-Utah) and Nuskin Asia
(1974-1992) and Pacific (multilevel
Chairman, Senate Banking marketing); member of
Committee (1980-1986), the board of various
Mayor of Salt Lake City, civic and charitable
Utah (1971-1974), organizations.
Astronaut, Space Shuttle
Discovery (April 12-19,
1985), and Vice
Chairman, Huntsman
Corporation (chemical
company).
Wayne E. Hedien (70) Trustee Since Retired; Director or 208 Director of The PMI
c/o Kramer Levin Naftalis & Frankel LLP September Trustee of the Retail Group Inc. (private
Counsel to the Independent Trustees 1997 Funds (since September mortgage insurance);
919 Third Avenue 1997) and the Trustee and Vice
New York, NY Institutional Funds Chairman of The Field
(since July 2003); Museum of Natural
formerly associated with History; director of
the Allstate Companies various other business
(1966-1994), most and charitable
recently as Chairman of organizations.
The Allstate Corporation
(March 1993-December
1994) and Chairman and
Chief Executive Officer
of its wholly-owned
subsidiary, Allstate
Insurance Company (July
1989-December 1994).
</Table>
37
<Page>
<Table>
<Caption>
NUMBER OF
PORTFOLIOS
TERM OF IN FUND
POSITION(S) OFFICE AND COMPLEX
NAME, AGE AND ADDRESS OF HELD WITH LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
INDEPENDENT TRUSTEE REGISTRANT TIME SERVED* DURING PAST 5 YEARS** BY TRUSTEE*** HELD BY TRUSTEE
- --------------------------------------- ----------- ------------ ------------------------- ------------- ---------------------
Dr. Manuel H. Johnson (55) Trustee Since Senior Partner, Johnson 208 Director of NVR, Inc.
c/o Johnson Smick International, Inc. July 1991 Smick International, (home construction);
2099 Pennsylvania Avenue, N.W. Inc., a consulting firm; Chairman and Trustee
Suite 950 Washington, D.C. Chairman of the Audit of the Financial
Committee and Director Accounting Foundation
or Trustee of the Retail (oversight
Funds (since July 1991) organization of the
and the Institutional Financial Accounting
Funds (since July 2003); Standards Board);
Co-Chairman and a Director of RBS
founder of the Group of Greenwich Capital
Seven Council (G7C), an Holdings (financial
international economic holding company).
commission; formerly
Vice Chairman of the
Board of Governors of
the Federal Reserve
System and Assistant
Secretary of the U.S.
Treasury.
Joseph J. Kearns (61) Trustee Since President, Kearns & 209 Director of Electro
PMB754 July 2003 Associates LLC Rent Corporation
23852 Pacific Coast Highway (investment consulting); (equipment leasing),
Malibu, CA Deputy Chairman of the The Ford Family
Audit Committee and Foundation, and the
Director or Trustee of UCLA Foundation.
the Retail Funds (since
July 2003) and the
Institutional Funds
(since August 1994);
previously Chairman of
the Audit Committee of
the Institutional Funds
(October 2001-July 2003);
formerly CFO of the J.
Paul Getty Trust.
Michael E. Nugent (68) Trustee Since General Partner of 208 Director of various
c/o Triumph Capital, L.P. July 1991 Triumph Capital, L.P., a business
445 Park Avenue private investment organizations.
New York, NY partnership; Chairman of
the Insurance Committee
and Director or Trustee
of the Retail Funds
(since July 1991) and
the Institutional Funds
(since July 2001);
formerly Vice President,
Bankers Trust Company
and BT Capital
Corporation (1984-1988).
Fergus Reid (71) Trustee Since Chairman of Lumelite 209 Trustee and Director
c/o Lumelite Plastics Corporation July 2003 Plastics Corporation; of certain investment
85 Charles Colman Blvd. Chairman of the companies in the
Pawling, NY Governance Committee and JPMorgan Funds
Director or Trustee of complex managed by
the Retail Funds (since J.P. Morgan
July 2003) and the Investment Management
Institutional Funds Inc.
(since June 1992).
</Table>
38
<Page>
INTERESTED TRUSTEES:
<Table>
<Caption>
NUMBER OF
PORTFOLIOS
TERM OF IN FUND
POSITION(S) OFFICE AND COMPLEX
NAME, AGE AND ADDRESS OF HELD WITH LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
INDEPENDENT TRUSTEE REGISTRANT TIME SERVED* DURING PAST 5 YEARS** BY TRUSTEE*** HELD BY TRUSTEE
- --------------------------------------- ----------- ------------ ------------------------- ------------- ---------------------
Charles A. Fiumefreddo (71) Chairman of Since Chairman and Director or 208 None
c/o Morgan Stanley Trust the Board July 1991 Trustee of the Retail
Harborside Financial Center, and Trustee Funds (since July 1991)
Plaza Two, and the Institutional
Jersey City, NJ Funds (since July 2003);
formerly Chief Executive
Officer of the Retail
Funds (until September
2002).
James F. Higgins (56) Trustee Since Director or Trustee of 208 Director of AXA
c/o Morgan Stanley Trust June 2000 the Retail Funds (since Financial, Inc. and
Harborside Financial Center, June 2000) and the The Equitable Life
Plaza Two, Institutional Funds Assurance Society of
Jersey City, NJ (since July 2003); the United States
Senior Advisor of Morgan (financial services).
Stanley (since August
2000); Director of the
Distributor and Dean
Witter Realty Inc.;
previously President and
Chief Operating Officer
of the Private Client
Group of Morgan Stanley
(May 1999-August 2000),
and President and Chief
Operating Officer of
Individual Securities of
Morgan Stanley (February
1997-May 1999).
</Table>
- ----------
* THIS IS THE EARLIEST DATE THE TRUSTEE BEGAN SERVING THE FUNDS ADVISED BY
MORGAN STANLEY INVESTMENT ADVISORS INC. (THE "INVESTMENT MANAGER ") (THE
"RETAIL FUNDS ").
** THE DATES REFERENCED BELOW INDICATING COMMENCEMENT OF SERVICES AS
DIRECTOR/TRUSTEE FOR THE RETAIL FUNDS AND THE FUNDS ADVISED BY MORGAN
STANLEY INVESTMENT MANAGEMENT INC. AND MORGAN STANLEY AIP GP LP (THE
"INSTITUTIONAL FUNDS") REFLECT THE EARLIEST DATE THE DIRECTOR/TRUSTEE BEGAN
SERVING THE RETAIL OR INSTITUTIONAL FUNDS AS APPLICABLE.
*** THE FUND COMPLEX INCLUDES ALL OPEN-END AND CLOSED-END FUNDS (INCLUDING ALL
OF THEIR PORTFOLIOS) ADVISED BY THE INVESTMENT MANAGER AND ANY FUNDS THAT
HAVE AN INVESTMENT ADVISOR THAT IS AN AFFILIATED PERSON OF THE INVESTMENT
MANAGER (INCLUDING BUT NOT LIMITED TO MORGAN STANLEY INVESTMENT MANAGEMENT
INC.).
39
<Page>
OFFICERS:
<Table>
<Caption>
TERM OF
POSITION(S) OFFICE AND
NAME, AGE AND ADDRESS OF HELD WITH LENGTH OF
EXECUTIVE OFFICER REGISTRANT TIME SERVED* PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS**
- ----------------------------- ----------------- ------------------- -------------------------------------------------
Mitchell M. Merin (50) President Since May 1999 President and Chief Operating Officer of Morgan
1221 Avenue of the Americas Stanley Investment Management Inc.; President,
New York, NY Director and Chief Executive Officer of the
Investment Manager and Morgan Stanley Services;
Chairman and Director of the Distributor;
Chairman and Director of the Transfer Agent;
Director of various Morgan Stanley
subsidiaries; President of the Institutional
Funds (since July 2003) and President of the
Retail Funds (since May 1999); Trustee (since
July 2003) and President (since December 2002) of
the Van Kampen Closed-End Funds; Trustee (since
May 1999) and President (since October 2002) of
the Van Kampen Open-End Funds.
Barry Fink (49) Vice President Since General Counsel (since May 2000) and Managing
1221 Avenue of the Americas February 1997 Director (since December 2000) of Morgan Stanley
New York, NY Investment Management; Managing Director (since
December 2000), Secretary (since February 1997)
and Director (since July 1998) of the Investment
Manager and Morgan Stanley Services; Vice
President of the Retail Funds; Assistant
Secretary of Morgan Stanley DW; Vice President
of the Institutional Funds (since July 2003);
Managing Director, Secretary and Director of
the Distributor; previously Secretary
(February 1997- July 2003) and General Counsel
(February 1997-April 2004) of the Retail Funds;
Vice President and Assistant General Counsel of
the Investment Manager and Morgan Stanley
Services (February 1997-December 2001).
Ronald E. Robison (65) Executive Vice Since Principal Executive Officer-Office of the Funds
1221 Avenue of the Americas President and April 2003 (since November 2003); Managing Director of Morgan
New York, NY Principal Stanley & Co. Incorporated, Managing Director of
Executive Officer Morgan Stanley; Managing Director, Chief
Administrative Officer and Director of the
Investment Manager and Morgan Stanley Services;
Chief Executive Officer and Director of the Transfer
Agent; Managing Director and Director of the
Distributor; Executive Vice President and Principal
Executive Officer of the Institutional Funds (since
July 2003) and the Retail Funds (since April 2003);
Director of Morgan Stanley SICAV (since May 2004);
previously President and Director of the
Institutional Funds (March 2001-July 2003) and Chief
Global Operations Officer and Managing Director of
Morgan Stanley Investment Management Inc.
Joseph J. McAlinden (61) Vice President Since July 1995 Managing Director and Chief Investment Officer of
1221 Avenue of the Americas the Investment Manager and Morgan Stanley Investment
New York, NY Management Inc., Director of the Transfer Agent,
Chief Investment Officer of the Van Kampen
Funds; Vice President of the Institutional
Funds (since July 2003) and the Retail Funds
(since July 1995).
Stefanie V. Chang (37) Vice President Since July 2003 Executive Director of Morgan Stanley & Co.
1221 Avenue of the Americas Incorporated, Morgan Stanley Investment Management
New York, NY Inc., and the Investment Manager; Vice
President of the Institutional Funds (since
December 1997) and the Retail Funds (since
July 2003); formerly practiced law with the New
York law firm of Rogers & Wells (now Clifford
Chance US LLP).
</Table>
40
<Page>
<Table>
<Caption>
TERM OF
POSITION(S) OFFICE AND
NAME, AGE AND ADDRESS OF HELD WITH LENGTH OF
EXECUTIVE OFFICER REGISTRANT TIME SERVED* PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS**
- ----------------------------- ----------------- ------------------- -------------------------------------------------
Francis J. Smith (38) Treasurer and Treasurer since Executive Director of the Investment Manager and
c/o Morgan Stanley Trust Chief Financial July 2003 and Chief Morgan Stanley Services (since December 2001);
Harborside Financial Center, Officer Financial Officer previously Vice President of the Retail Funds
Plaza Two, since September 2002 (September 2002- July 2003), and Vice President of the
Jersey City, NJ Investment Manager and Morgan Stanley Services
(August 2000-November 2001) and Senior Manager at
PricewaterhouseCoopers LLP
(January 1998-August 2000).
Thomas F. Caloia (58) Vice President Since July 2003 Executive Director (since December 2002) and
c/o Morgan Stanley Trust Assistant Treasurer of the Investment Manager, the
Harborside Financial Center, Distributor and Morgan Stanley Services; previously
Plaza Two, Jersey City, NJ Treasurer of the Retail Funds (April 1989-July 2003);
formerly First Vice President of the Investment
Manager, the Distributor and Morgan Stanley Services.
Mary E. Mullin (37) Secretary Since July 2003 Executive Director of Morgan Stanley & Co.
1221 Avenue of the Incorporated, Morgan Stanley Investment Management
Americas Inc. and the Investment Manager; Secretary of the
New York, NY Institutional Funds (since June 1999) and the Retail
Funds (since July 2003); formerly practiced law
with the New York law firms of McDermott, Will &
Emery and Skadden, Arps, Slate, Meagher& Flom
LLP.
</Table>
- ----------
* THIS IS THE EARLIEST DATE THE OFFICER BEGAN SERVING THE RETAIL FUNDS. EACH
OFFICER SERVES AN INDEFINITE TERM, UNTIL HIS OR HER SUCCESSOR IS ELECTED.
** THE DATES REFERENCED BELOW INDICATING COMMENCEMENT OF SERVICE AS AN OFFICER
FOR THE RETAIL AND INSTITUTIONAL FUNDS REFLECT THE EARLIEST DATE THE
OFFICER BEGAN SERVING THE RETAIL OR INSTITUTIONAL FUNDS AS APPLICABLE.
41
<Page>
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
Wayne E. Hedien
James F. Higgins
Dr. Manuel H. Johnson
Joseph J. Kearns
Michael E. Nugent
Fergus Reid
OFFICERS
Charles A. Fiumefreddo
CHAIRMAN OF THE BOARD
Mitchell M. Merin
PRESIDENT
Ronald E. Robison
EXECUTIVE VICE PRESIDENT AND PRINCIPAL EXECUTIVE OFFICER
Barry Fink
VICE PRESIDENT
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 REGISTERED PUBLIC ACCOUNTING FIRM
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
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]
38585RPT-RA04-00548P-Y07/04
[GRAPHIC]
MORGAN STANLEY FUNDS
STRATEGIST FUND
ANNUAL REPORT
JULY 31, 2004
[MORGAN STANLEY LOGO]
<Page>
Item 2. Code of Ethics.
(a) The Fund has adopted a code of ethics (the "Code of Ethics") that
applies to its principal executive officer, principal financial officer,
principal accounting officer or controller, or persons performing similar
functions, regardless of whether these individuals are employed by the Fund or a
third party.
(b) No information need be disclosed pursuant to this paragraph.
(c) Not applicable.
(d) Not applicable.
(e) Not applicable.
(f)
(1) The Fund's Code of Ethics is attached hereto as Exhibit A.
(2) Not applicable.
(3) Not applicable.
Item 3. Audit Committee Financial Expert.
The Fund's Board of Trustees has determined that it has two "audit committee
financial experts" serving on its audit committee, each of whom are
"independent" Trustees: Dr. Manuel H. Johnson and Joseph J. Kearns. Under
applicable securities laws, a person who is determined to be an audit committee
financial expert will not be deemed an "expert" for any purpose, including
without limitation for the purposes of Section 11 of the Securities Act of 1933,
as a result of being designated or identified as an audit committee financial
expert. The designation or identification of a person as an audit committee
financial expert does not impose on such person any duties, obligations, or
liabilities that are greater than the duties, obligations, and liabilities
imposed on such person as a member of the audit committee and Board of Trustees
in the absence of such designation or identification.
<Page>
Item 4. Principal Accountant Fees and Services.
(a)(b)(c)(d) and (g). Based on fees billed for the periods shown:
<Table>
<Caption>
REGISTRANT COVERED ENTITIES(1)
AUDIT FEES $ 32,344 N/A
NON-AUDIT FEES
AUDIT-RELATED FEES $ 452(2) $ 3,225,276(2)
TAX FEES $ 4,780(3) $ 610,053(4)
ALL OTHER FEES $ - $ -
TOTAL NON-AUDIT FEES $ 5,232 $ 3,835,329
TOTAL $ 37,576 $ 3,835,329
</Table>
2003
<Table>
<Caption>
REGISTRANT COVERED ENTITIES(1)
AUDIT FEES $ 30,510 N/A
NON-AUDIT FEES
AUDIT-RELATED FEES $ 830(2) $ 739,996(2)
TAX FEES $ 4,664(3) $ 187,500(4)
ALL OTHER FEES $ - $ -(5)
TOTAL NON-AUDIT FEES $ 5,494 $ 927,496
TOTAL $ 36,004 $ 927,496
</Table>
N/A- Not applicable, as not required by Item 4.
(1) Covered Entities include the Adviser (excluding sub-advisors) and
any entity controlling, controlled by or under common control with
the Adviser that provides ongoing services to the Registrant.
(2) Audit-Related Fees represent assurance and related services
provided that are reasonably related to the performance of the
audit of the financial statements of the Covered Entities' and
funds advised by the Adviser or its affiliates, specifically data
verification and agreed-upon procedures related to asset
securitizations and agreed-upon procedures engagements.
(3) Tax Fees represent tax compliance, tax planning and tax advice
services provided in connection with the preparation and review of
the Registrant's tax returns.
(4) Tax Fees represent tax compliance, tax planning and tax advice
services provided in connection with the review of Covered
Entities' tax returns.
(5) All other fees represent project management for future business
applications and improving business and operational processes.
<Page>
(e)(1) The audit committee's pre-approval policies and procedures are as
follows:
AUDIT COMMITTEE
AUDIT AND NON-AUDIT SERVICES
PRE-APPROVAL POLICY AND PROCEDURES
OF THE
MORGAN STANLEY RETAIL AND INSTITUTIONAL FUNDS
AS ADOPTED JULY 31, 2003(1)
1. STATEMENT OF PRINCIPLES
The Audit Committee of the Board is required to review and, in its sole
discretion, pre-approve all Covered Services to be provided by the Independent
Auditors to the Fund and Covered Entities in order to assure that services
performed by the Independent Auditors do not impair the auditor's independence
from the Fund.
The SEC has issued rules specifying the types of services that an
independent auditor may not provide to its audit client, as well as the audit
committee's administration of the engagement of the independent auditor. The
SEC's rules establish two different approaches to pre-approving services, which
the SEC considers to be equally valid. Proposed services either: may be
pre-approved without consideration of specific case-by-case services by the
Audit Committee ("GENERAL PRE-APPROVAL"); or require the specific pre-approval
of the Audit Committee or its delegate ("SPECIFIC PRE-APPROVAL"). The Audit
Committee believes that the combination of these two approaches in this Policy
will result in an effective and efficient procedure to pre-approve services
performed by the Independent Auditors. As set forth in this Policy, unless a
type of service has received general pre-approval, it will require specific
pre-approval by the Audit Committee (or by any member of the Audit Committee to
which pre-approval authority has been delegated) if it is to be provided by the
Independent Auditors. Any proposed services exceeding pre-approved cost levels
or budgeted amounts will also require specific pre-approval by the Audit
Committee.
The appendices to this Policy describe the Audit, Audit-related, Tax
and All Other services that have the general pre-approval of the Audit
Committee. The term of any general pre-approval is 12 months from the date of
pre-approval, unless the Audit Committee considers and provides a different
period and states otherwise. The Audit Committee will annually review and
pre-approve the services that may be provided by the Independent Auditors
without obtaining specific pre-approval from the Audit Committee. The Audit
Committee will add to or subtract from the list of general pre-approved services
from time to time, based on subsequent determinations.
- ----------
(1) This Audit Committee Audit and Non-Audit Services Pre-Approval Policy
and Procedures (the "POLICY"), adopted as of the date above, supercedes
and replaces all prior versions that may have been adopted from time to
time.
<Page>
The purpose of this Policy is to set forth the policy and procedures by
which the Audit Committee intends to fulfill its responsibilities. It does not
delegate the Audit Committee's responsibilities to pre-approve services
performed by the Independent Auditors to management.
The Fund's Independent Auditors have reviewed this Policy and believes
that implementation of the Policy will not adversely affect the Independent
Auditors' independence.
2. DELEGATION
As provided in the Act and the SEC's rules, the Audit Committee may
delegate either type of pre-approval authority to one or more of its members.
The member to whom such authority is delegated must report, for informational
purposes only, any pre-approval decisions to the Audit Committee at its next
scheduled meeting.
3. AUDIT SERVICES
The annual Audit services engagement terms and fees are subject to the
specific pre-approval of the Audit Committee. Audit services include the annual
financial statement audit and other procedures required to be performed by the
Independent Auditors to be able to form an opinion on the Fund's financial
statements. These other procedures include information systems and procedural
reviews and testing performed in order to understand and place reliance on the
systems of internal control, and consultations relating to the audit. The Audit
Committee will approve, if necessary, any changes in terms, conditions and fees
resulting from changes in audit scope, Fund structure or other items.
In addition to the annual Audit services engagement approved by the
Audit Committee, the Audit Committee may grant general pre-approval to other
Audit services, which are those services that only the Independent Auditors
reasonably can provide. Other Audit services may include statutory audits and
services associated with SEC registration statements (on Forms N-1A, N-2, N-3,
N-4, etc.), periodic reports and other documents filed with the SEC or other
documents issued in connection with securities offerings.
The Audit Committee has pre-approved the Audit services in
Appendix B.1. All other Audit services not listed in Appendix B.1 must be
specifically pre-approved by the Audit Committee (or by any member of the Audit
Committee to which pre-approval has been delegated).
4. AUDIT-RELATED SERVICES
<Page>
Audit-related services are assurance and related services that are
reasonably related to the performance of the audit or review of the Fund's
financial statements and, to the extent they are Covered Services, the Covered
Entities or that are traditionally performed by the Independent Auditors.
Because the Audit Committee believes that the provision of Audit-related
services does not impair the independence of the auditor and is consistent with
the SEC's rules on auditor independence, the Audit Committee may grant general
pre-approval to Audit-related services. Audit-related services include, among
others, accounting consultations related to accounting, financial reporting or
disclosure matters not classified as "Audit services"; assistance with
understanding and implementing new accounting and financial reporting guidance
from rulemaking authorities; agreed-upon or expanded audit procedures related to
accounting and/or billing records required to respond to or comply with
financial, accounting or regulatory reporting matters; and assistance with
internal control reporting requirements under Forms N-SAR and/or N-CSR.
The Audit Committee has pre-approved the Audit-related services in
Appendix B.2. All other Audit-related services not listed in Appendix B.2 must
be specifically pre-approved by the Audit Committee (or by any member of the
Audit Committee to which pre-approval has been delegated).
5. TAX SERVICES
The Audit Committee believes that the Independent Auditors can provide
Tax services to the Fund and, to the extent they are Covered Services, the
Covered Entities, such as tax compliance, tax planning and tax advice without
impairing the auditor's independence, and the SEC has stated that the
Independent Auditors may provide such services.
Pursuant to the preceding paragraph, the Audit Committee has
pre-approved the Tax Services in Appendix B.3. All Tax services in Appendix B.3
must be specifically pre-approved by the Audit Committee (or by any member of
the Audit Committee to which pre-approval has been delegated).
6. ALL OTHER SERVICES
The Audit Committee believes, based on the SEC's rules prohibiting the
Independent Auditors from providing specific non-audit services, that other
types of non-audit services are permitted. Accordingly, the Audit Committee
believes it may grant general pre-approval to those permissible non-audit
services classified as All Other services that it believes are routine and
recurring services, would not impair the independence of the auditor and are
consistent with the SEC's rules on auditor independence.
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The Audit Committee has pre-approved the All Other services in
Appendix B.4. Permissible All Other services not listed in Appendix B.4 must be
specifically pre-approved by the Audit Committee (or by any member of the Audit
Committee to which pre-approval has been delegated).
7. PRE-APPROVAL FEE LEVELS OR BUDGETED AMOUNTS
Pre-approval fee levels or budgeted amounts for all services to be
provided by the Independent Auditors will be established annually by the Audit
Committee. Any proposed services exceeding these levels or amounts will require
specific pre-approval by the Audit Committee. The Audit Committee is mindful of
the overall relationship of fees for audit and non-audit services in determining
whether to pre-approve any such services.
8. PROCEDURES
All requests or applications for services to be provided by the
Independent Auditors that do not require specific approval by the Audit
Committee will be submitted to the Fund's Chief Financial Officer and must
include a detailed description of the services to be rendered. The Fund's Chief
Financial Officer will determine whether such services are included within the
list of services that have received the general pre-approval of the Audit
Committee. The Audit Committee will be informed on a timely basis of any such
services rendered by the Independent Auditors. Requests or applications to
provide services that require specific approval by the Audit Committee will be
submitted to the Audit Committee by both the Independent Auditors and the Fund's
Chief Financial Officer, and must include a joint statement as to whether, in
their view, the request or application is consistent with the SEC's rules on
auditor independence.
The Audit Committee has designated the Fund's Chief Financial Officer
to monitor the performance of all services provided by the Independent Auditors
and to determine whether such services are in compliance with this Policy. The
Fund's Chief Financial Officer will report to the Audit Committee on a periodic
basis on the results of its monitoring. Both the Fund's Chief Financial Officer
and management will immediately report to the chairman of the Audit Committee
any breach of this Policy that comes to the attention of the Fund's Chief
Financial Officer or any member of management.
9. ADDITIONAL REQUIREMENTS
The Audit Committee has determined to take additional measures on an
annual basis to meet its responsibility to oversee the work of the Independent
Auditors and to assure the auditor's independence from the Fund, such as
reviewing a formal written statement from the Independent Auditors delineating
all relationships between the Independent Auditors and the Fund, consistent with
Independence Standards Board No.
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1, and discussing with the Independent Auditors its methods and procedures for
ensuring independence.
10. COVERED ENTITIES
Covered Entities include the Fund's investment adviser(s) and any
entity controlling, controlled by or under common control with the Fund's
investment adviser(s) that provides ongoing services to the Fund(s). Beginning
with non-audit service contracts entered into on or after May 6, 2003, the
Fund's audit committee must pre-approve non-audit services provided not only to
the Fund but also to the Covered Entities if the engagements relate directly to
the operations and financial reporting of the Fund. This list of Covered
Entities would include:
MORGAN STANLEY RETAIL FUNDS
Morgan Stanley Investment Advisors Inc.
Morgan Stanley & Co. Incorporated
Morgan Stanley DW Inc.
Morgan Stanley Investment Management
Morgan Stanley Investments LP
Van Kampen Asset Management Inc.
Morgan Stanley Services Company, Inc.
Morgan Stanley Distributors Inc.
Morgan Stanley Trust FSB
MORGAN STANLEY INSTITUTIONAL FUNDS
Morgan Stanley Investment Management Inc.
Morgan Stanley Investments LP
Morgan Stanley & Co. Incorporated
Morgan Stanley Distribution, Inc.
Morgan Stanley AIP GP LP
Morgan Stanley Alternative Investment Partners LP
(e)(2) Beginning with non-audit service contracts entered into on or after May
6, 2003, the audit committee also is required to pre-approve services to Covered
Entities to the extent that the services are determined to have a direct impact
on the operations or financial reporting of the Registrant. 100% of such
services were pre-approved by the audit committee pursuant to the Audit
Committee's pre-approval policies and procedures (attached hereto).
(f) Not applicable.
(g) See table above.
(h) The audit committee of the Board of Trustees has considered whether the
provision of services other than audit services performed by the auditors to the
Registrant and
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Covered Entities is compatible with maintaining the auditors' independence in
performing audit services.
Item 5. Audit Committee of Listed Registrants.
Applicable only for reports covering periods ending on or after the earlier of
(i) the first annual shareholder meeting after January 15, 2004 or (ii) October
31, 2004.
Item 6. [Reserved.]
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
Applicable only to annual reports filed by closed-end funds.
Item 8. [Reserved.]
Item 9 - Controls and Procedures
(a) The Fund's principal executive officer and principal financial officer have
concluded that the Fund's disclosure controls and procedures are sufficient to
ensure that information required to be disclosed by the Fund in this Form N-CSR
was recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission's rules and forms, based
upon such officers' evaluation of these controls and procedures as of a date
within 90 days of the filing date of the report.
There were no significant changes or corrective actions with regard to
significant deficiencies or material weaknesses in the Fund's internal controls
or in other factors that could significantly affect the Fund's internal controls
subsequent to the date of their evaluation.
(b) There were no changes in the registrant's internal control over financial
reporting that occurred during the registrant's most recent fiscal half-year
(the registrant's second fiscal half-year in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
Item 10 Exhibits
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(a) The Code of Ethics for Principal Executive and Senior Financial Officers is
attached hereto.
(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 Strategist Fund
/s/ Ronald E. Robison
Ronald E. Robison
Principal Executive Officer
September 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
September 20, 2004
/s/ Francis Smith
Francis Smith
Principal Financial Officer
September 20, 2004