<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 811-21339
---------------------------------------------
MORGAN STANLEY INSTITUTIONAL LIQUIDITY FUNDS
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
1221 AVENUE OF THE AMERICAS 22ND FLOOR NEW YORK, NY 10020
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
RONALD E. ROBISON
1221 AVENUE OF THE AMERICAS 33RD FLOOR NEW YORK, NY 10020
- -------------------------------------------------------------------------------
(Name and address of agent for service)
Registrant's telephone number, including area code: 1888 378-1630
----------------------------
Date of fiscal year end: 4/30/05
--------------------------
Date of reporting period: 10/31/04
-------------------------
Form N-CSR is to be used by management investment companies to file reports
with the Commission not later than 10 days after the transmission to
stockholders of any report that is required to be transmitted to stockholders
under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1).
The Commission may use the information provided on Form N-CSR in its
regulatory, disclosure review, inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street,
NW, Washington, DC 20549-0609. The OMB has reviewed this collection of
information under the clearance requirements of 44 U.S.C. Section 3507.
<Page>
ITEM 1. REPORTS TO STOCKHOLDERS.
The Fund's annual report transmitted to shareholders pursuant to Rule 30e-1
under the Investment Company Act of 1940 is as follows:
<Page>
2004 ANNUAL REPORT
[MORGAN STANLEY LOGO] OCTOBER 31, 2004
MORGAN STANLEY INSTITUTIONAL LIQUIDITY FUNDS
MONEY MARKET PORTFOLIO
PRIME PORTFOLIO
GOVERNMENT PORTFOLIO
TREASURY PORTFOLIO
TAX-EXEMPT PORTFOLIO
<Page>
2004 ANNUAL REPORT
October 31, 2004
TABLE OF CONTENTS
<Table>
SHAREHOLDER'S LETTER 3
INVESTMENT OVERVIEWS AND PORTFOLIO OF INVESTMENTS
Money Market Portfolio 4
Prime Portfolio 8
Government Portfolio 13
Treasury Portfolio 16
Tax-Exempt Portfolio 19
STATEMENTS OF ASSETS AND LIABILITIES 24
STATEMENTS OF OPERATIONS 25
STATEMENTS OF CHANGES IN NET ASSETS 26
FINANCIAL HIGHLIGHTS 27
NOTES TO FINANCIAL STATEMENTS 29
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 31
FEDERAL INCOME TAX INFORMATION 32
TRUSTEE AND OFFICER INFORMATION 33
</Table>
THIS REPORT IS AUTHORIZED FOR DISTRIBUTION ONLY WHEN PRECEDED OR ACCOMPANIED BY
PROSPECTUSES OF THE MORGAN STANLEY INSTITUTIONAL LIQUIDITY FUNDS. TO RECEIVE A
PROSPECTUS AND/OR SAI, WHICH CONTAINS MORE COMPLETE INFORMATION SUCH AS CHARGES,
EXPENSES, POLICIES FOR VOTING PROXIES, RISK CONSIDERATIONS, AND DESCRIBES IN
DETAIL EACH OF THE PORTFOLIO'S INVESTMENT POLICIES TO THE PROSPECTIVE INVESTOR,
PLEASE CALL 1 (888) 378-1630. PLEASE READ THE PROSPECTUS CAREFULLY BEFORE YOU
INVEST OR SEND MONEY. ADDITIONALLY, YOU CAN ACCESS PORTFOLIO INFORMATION
INCLUDING PERFORMANCE, YIELDS, CHARACTERISTICS, AND INVESTMENT TEAM COMMENTARY
THROUGH MORGAN STANLEY INVESTMENT MANAGEMENT'S WEBSITE:
www.morganstanley.com/im.
1
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2004 ANNUAL REPORT
October 31, 2004
(This page has been left blank intentionally.)
2
<Page>
2004 ANNUAL REPORT
October 31, 2004
SHAREHOLDER'S LETTER
Dear Shareholders:
OVERVIEW
We are pleased to present the Morgan Stanley Institutional Liquidity Funds
("MSILF") Annual Report for the period ended October 31, 2004. The MSILF
currently offers five portfolios (Money Market, Prime, Government, Treasury and
Tax-Exempt), which together are designed to provide flexible cash management
options. MSILF's portfolios provide investors with a means to help them meet
specific cash investment needs, whether they need a rated fund, capital
preservation, or tax-efficient returns.
PERFORMANCE
The seven-day current and seven-day effective yields (which assume an
annualization of the current yield with all dividends reinvested) as of
October 31, 2004, were as follows:
<Table>
<Caption>
PORTFOLIO 7-DAY CURRENT YIELD 7-DAY EFFECTIVE YIELD
--------- ------------------- ---------------------
Money Market -- Institutional Class 1.75% 1.77%
Money Market -- Advisory Class 1.50% 1.51%
Prime -- Institutional Class 1.75% 1.77%
Prime -- Advisory Class 1.50% 1.52%
Government -- Institutional Class 1.80% 1.81%
Government -- Investor Class 1.70% 1.71%
Government -- Advisory Class 1.55% 1.56%
Treasury -- Institutional Class 1.72% 1.73%
Treasury -- Advisory Class 1.47% 1.48%
Tax-Exempt -- Institutional Class 1.65% 1.67%
Tax-Exempt -- Investor Class 1.55% 1.57%
Tax-Exempt -- Advisory Class 1.41% 1.42%
</Table>
Performance data quoted represent past performance, which is no guarantee of
future results, and current performance may be lower or higher than the figures
shown. Performance assumes that all dividends and distributions, if any, were
reinvested. For the most recent month-end performance figures, please visit
www.morganstanley.com/im. Investment return and principal value will fluctuate
causing portfolio shares, when redeemed, to be worth more or less than their
original cost. Total returns do not reflect the deduction of taxes that a
shareholder would pay on portfolio distributions or the redemption of portfolio
shares.
Investments in the Money Market, Prime, Government, Treasury and Tax-Exempt
Portfolios (the "Portfolios") are neither insured nor guaranteed by the Federal
Deposit Insurance Corporation. Although the Portfolios seek to preserve the
value of your investment at $1.00 per share, it is possible to lose money by
investing in these Portfolios. Please read the MSILF's prospectuses carefully
before you invest or send money.
Yield quotation more closely reflect the current earnings of the Portfolios than
the total return. As with all money market portfolios, yields will fluctuate as
market conditions change and the seven-day yields are not necessarily indicative
of future performance.
Sincerely,
/s/ Ronald E. Robison
Ronald E. Robison
Executive Vice President --
Principal Executive Officer
November 2004
3
<Page>
2004 ANNUAL REPORT
October 31, 2004
INVESTMENT OVERVIEW
MONEY MARKET PORTFOLIO
The Money Market Portfolio seeks preservation of capital, daily liquidity and
maximum current income. The Portfolio seeks to maintain a stable net asset value
of $1.00 per share by investing in liquid, high quality U.S. dollar denominated
money market instruments of U.S. and foreign financial and non-financial
corporations.
PERFORMANCE
From the Portfolio's launch date of February 2 through the fiscal year ended
October 31, 2004, the Portfolio's Institutional Share Class had a total return
of 0.95% compared to 0.85% for the Lipper U.S. Institutional Money Market
Average. For the seven-day period ended October 31, 2004, the Portfolio's
Institutional Share Class provided an annualized current yield of 1.75%, while
its 30-day annualized moving average yield was 1.73%.
FACTORS AFFECTING PERFORMANCE
Since the Portfolio's launch date through the end of its fiscal year ended
October 31, the Federal Open Market Committee ("FOMC") raised its federal funds
target rate by 25 basis points on each of three separate occasions: June 30,
August 10, and September 21. At the September 21 FOMC meeting, the Fed stated
that future increases in its federal funds target rate would continue to be at a
"measured pace." The FOMC's formal risk assessment for economic growth and price
stability remained balanced. As of the end of October, the federal funds target
rate stood at 1.75%.
The Portfolio was launched during the first quarter of 2004. At the onset, the
market was characterized by a very flat money market yield curve, with the fed
funds target rate set at a historically low level of 1.00%. During the second
quarter, the economy began to show signs of expansion, and the market began to
anticipate the end of a very easy monetary policy from the Fed. On June 30, the
FOMC decided to embark on its tightening cycle, raising the overnight lending
rate to 1.25%. During the third quarter, preliminary numbers showed that gross
domestic product ("GDP") expanded at an estimated 3.9%, up slightly from 3.3% in
the second quarter, and 4.5% in the first quarter of 2004. October's
unemployment rate was 5.5%, up 0.1% from September. Non-farm payrolls rose
337,000 during October, more than double the trailing-year average of +152,000
per month. Stronger-than-expected October non-farm payrolls combined with
higher-than-forecast inflation for the same month caused money market rates to
increase slightly in anticipation of continued action by the Fed to bring
monetary policy to a neutral posture.
MANAGEMENT STRATEGY
As of October 31, 2004, the Portfolio had net assets of $3.1 billion and a
weighted average maturity ("WAM") of 42 days. Since launching the Portfolio in
early 2004, we have primarily followed a strategy of keeping our WAM on the
short side, concentrating on investments maturing near the next FOMC meeting
date in order to capitalize on higher expected money market interest rates. This
has primarily been achieved by investing in short, 30-day commercial paper and
certificates of deposit ("CDs"). In order to diversify the maturity structure of
the Portfolio and take advantage of steepness in the money market yield curve,
we have also selectively added six-month asset-backed commercial paper as the
market fully priced in future tightening moves by the FOMC. In addition, we have
looked to increase our exposure to floating rate notes, favoring one-month
Libor-based indices, while also selectively purchasing three-month Libor-based
floaters.
EXPENSE EXAMPLE
As a shareholder of the Portfolio, you incur ongoing costs, including management
fees and other Portfolio expenses. This example is intended to help you
understand your ongoing costs (in dollars) of investing in the Portfolio 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
six-month period ended October 31, 2004 and held for the entire six-month
period.
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
account values and hypothetical expenses based on the Portfolio's actual expense
ratio and an assumed rate of return of 5% per year before expenses, which is not
the Portfolio'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 costs of
investing in the Portfolio and other funds. To do so, compare this 5%
4
<Page>
2004 ANNUAL REPORT
October 31, 2004
INVESTMENT OVERVIEW (CONT'D)
MONEY MARKET PORTFOLIO
hypothetical example with the 5% hypothetical examples that appear in the
shareholder reports of the other funds.
<Table>
<Caption>
EXPENSES PAID
ENDING ACCOUNT DURING PERIOD*
BEGINNING VALUE MAY 1, 2004 --
ACCOUNT VALUE OCTOBER 31, OCTOBER 31,
MAY 1, 2004 2004 2004
- ------------------------------------------------------------------------------------------------------------------
INSTITUTIONAL CLASS
Actual $ 1,000.00 $ 1,006.90 $ 0.40
Hypothetical (5% average annual
return before expenses) 1,000.00 1,024.73 0.41
</Table>
* Expenses are equal to the Portfolio's annualized net expense ratio of 0.08%,
multiplied by the average account value over the period, multiplied by
184/366 (to reflect the one-half year period).
<Table>
<Caption>
EXPENSES PAID
ENDING ACCOUNT DURING PERIOD*
BEGINNING VALUE MAY 1, 2004 --
ACCOUNT VALUE OCTOBER 31, OCTOBER 31,
MAY 1, 2004 2004 2004
- ------------------------------------------------------------------------------------------------------------------
ADVISORY CLASS
Actual $ 1,000.00 $ 1,005.70 $ 1.71
Hypothetical (5% average annual
return before expenses) 1,000.00 1,023.43 1.73
</Table>
* Expenses are equal to the Portfolio's annualized net expense ratio of 0.34%,
multiplied by the average account value over the period, multiplied by
184/366 (to reflect the one-half year period).
GRAPHIC PRESENTATION OF PORTFOLIO HOLDINGS
The following graph depicts the Portfolio's holdings by investment type, as a
percentage of total investments.
[CHART]
<Table>
Discount Notes 0.8%
Commercial Paper 50.3%
Certificate of Deposit 17.5%
Corporate Notes 16.4%
Repurchase Agreements 15.0%
</Table>
5
<Page>
2004 ANNUAL REPORT
October 31, 2004
PORTFOLIO OF INVESTMENTS
MONEY MARKET PORTFOLIO
<Table>
<Caption>
FACE
AMOUNT VALUE
(000) (000)
- -----------------------------------------------------------------------------------------------------------
CERTIFICATE OF DEPOSIT (17.5%)
INTERNATIONAL BANKS (10.9%)
ANZ Banking Group Ltd.
1.71%, 12/14/04 $ 32,000 $ 31,999
Barclays Bank plc/New York
1.77%, 12/3/04 (b)35,000 34,999
1.86%, 3/24/05 (b)10,000 9,999
1.89%, 3/31/05 (b)10,000 9,999
Calyon North America, Inc./New York
1.86%, 8/23/05 (b)75,000 74,975
Credit Suisse First Boston
1.80%, 11/8/04 55,000 55,000
Fortis Bank/New York
2.19%, 6/9/05 25,000 24,991
Lloyds TSB Bank plc/New York
1.73%, 12/30/04 17,500 17,499
Royal Bank of Scotland/New York
1.84%, 4/20/05 (b)25,000 24,997
Societe Generale NA, Inc.
1.26%, 12/30/04 50,000 49,957
- -----------------------------------------------------------------------------------------------------------
334,415
===========================================================================================================
MAJOR BANKS (6.6%)
American Express Centurion Bank
1.88%, 1/26/05 55,000 54,999
UBS AG
1.47%, 5/6/05 25,000 24,997
Washington Mutual Bank FA
1.64%, 11/1/04 50,000 50,000
1.83%, 11/10/04 75,000 75,000
- -----------------------------------------------------------------------------------------------------------
204,996
===========================================================================================================
TOTAL CERTIFICATE OF DEPOSIT (COST $539,411) 539,411
===========================================================================================================
COMMERCIAL PAPER (50.3%)
ASSET BACKED -- AUTOMOTIVE (6.9%)
DaimlerChrysler Revolving Auto Conduit LLC
1.79%, 11/3/04 25,000 24,998
1.80%, 11/8/04 - 11/9/04 106,180 106,141
1.85%, 11/9/04 20,000 19,992
Fcar Owner Trust
1.64%, 11/15/04 35,000 34,978
1.94%, 12/7/04 25,000 24,951
- -----------------------------------------------------------------------------------------------------------
211,060
===========================================================================================================
ASSET BACKED -- CONSUMER (4.6%)
Kitty Hawk Funding Corp.
2.04%, 3/21/05 (a)20,000 19,843
Ranger Funding Corp.
1.80%, 11/4/04 (a)91,477 91,463
Sheffield Receivables Co.
1.79%, 11/9/04 (a)30,000 29,988
- -----------------------------------------------------------------------------------------------------------
141,294
===========================================================================================================
ASSET BACKED -- CORPORATE (4.5%)
Atlantis One Funding Corp.
1.81%, 1/4/05 - 1/6/05 (a)21,300 21,231
1.82%, 12/13/04 $ (a)50,000 $ 49,894
1.88%, 1/14/05 - 2/15/05 (a)34,000 33,820
1.91%, 1/18/05 12,500 12,448
1.94%, 2/22/05 (a)10,000 9,939
2.04%, 3/15/05 (a)12,500 12,406
- -----------------------------------------------------------------------------------------------------------
139,738
===========================================================================================================
ASSET BACKED -- DIVERSIFIED (3.5%)
Fairway Finance Corp.
1.79%, 11/10/04 67,175 67,145
Jupiter Securitization Corp.
1.79%, 11/4/04 (a)40,000 39,994
- -----------------------------------------------------------------------------------------------------------
107,139
===========================================================================================================
ASSET BACKED -- MORTGAGE (1.6%)
Mortgage Interest Networking Trust
1.67%, 11/15/04 25,000 24,984
Sydney Capital Corp.
1.80%, 11/8/04 (a)23,310 23,302
- -----------------------------------------------------------------------------------------------------------
48,286
===========================================================================================================
ASSET BACKED -- SECURITIES (18.6%)
Amstel Funding Corp.
1.70%, 11/26/04 (a)25,000 24,970
1.84%, 12/30/04 (a)25,000 24,925
1.88%, 1/26/05 (a)15,000 14,933
Beta Finance, Inc.
1.75%, 11/9/04 30,000 29,988
2.02%, 3/15/05 48,500 48,139
2.17%, 4/6/05 10,000 9,907
CC USA, Inc.
1.75%, 11/9/04 (a)20,000 19,992
2.03%, 3/10/05 (a)18,110 17,980
2.04%, 3/21/05 - 3/22/05 (a)43,300 42,958
2.17%, 4/6/05 (a)20,000 19,814
Clipper Receivables Co., LLC
1.79%, 11/2/04 50,000 49,998
1.80%, 11/5/04 100,000 99,980
Dorada Finance, Inc.
1.99%, 3/1/05 (a)25,000 24,835
2.06%, 3/23/05 (a)20,500 20,335
2.17%, 3/30/05 (a)9,000 8,920
Galaxy Funding, Inc.
1.60%, 11/2/04 (a)10,000 10,000
Grampian Funding LLC
1.75%, 12/29/04 (a)45,000 44,873
2.18%, 4/19/05 (a)10,000 9,899
Scaldis Capital LLC
1.93%, 2/16/05 29,467 29,299
2.18%, 4/8/05 (a)10,000 9,905
2.27%, 4/22/05 (a)10,000 9,892
- -----------------------------------------------------------------------------------------------------------
571,542
===========================================================================================================
</Table>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
6
<Page>
2004 ANNUAL REPORT
October 31, 2004
PORTFOLIO OF INVESTMENTS (CONT'D)
MONEY MARKET PORTFOLIO
<Table>
<Caption>
FACE
AMOUNT VALUE
(000) (000)
- -----------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES (4.5%)
General Electric Capital Corp.
1.84%, 12/8/04 $ 25,000 $ 24,953
1.85%, 12/20/04 25,000 24,937
2.02%, 3/15/05 50,000 49,628
2.06%, 4/8/05 20,000 19,821
General Electric Co.
1.32%, 12/6/04 20,000 19,974
- -----------------------------------------------------------------------------------------------------------
139,313
===========================================================================================================
FINANCE -- AUTOMOTIVE (0.8%)
Toyota Motor Credit Corp.
1.76%, 2/1/05 25,000 24,888
- -----------------------------------------------------------------------------------------------------------
INSURANCE (0.8%)
ING America Insurance Holdings
1.74%, 12/3/04 25,000 24,961
- -----------------------------------------------------------------------------------------------------------
INTERNATIONAL BANKS (3.7%)
Bank of Ireland
1.43%, 12/31/04 (a)20,000 19,952
Natexis Banque/New York
1.71%, 11/22/04 25,000 24,975
Nordea NA, Inc./Delaware
1.75%, 11/18/04 20,000 19,984
Unicredit Delaware, Inc.
1.66%, 12/6/04 25,000 24,960
Westpac Banking Corp./New York
1.25%, 12/15/04 25,000 24,962
- -----------------------------------------------------------------------------------------------------------
114,833
===========================================================================================================
UNITED KINGDOM GOVERNMENT AGENCIES (0.8%)
Network Rail CP Finance plc
2.16%, 4/6/05 25,000 24,768
- -----------------------------------------------------------------------------------------------------------
TOTAL COMMERCIAL PAPER (COST $1,547,683) 1,547,822
===========================================================================================================
CORPORATE NOTES (16.5%)
ASSET BACKED -- SECURITIES (3.6%)
Beta Finance, Inc.
1.79%, 3/29/05 (a)(b)7,500 7,499
CC USA, Inc.
1.82%, 6/17/05 (a)20,000 19,964
2.13%, 4/25/05 (a)(b)25,000 25,010
Dorada Finance, Inc.
1.82%, 3/18/05 (a)(b)17,500 17,498
1.87%, 8/15/05 (a)(b)40,000 40,004
- -----------------------------------------------------------------------------------------------------------
109,975
===========================================================================================================
BANKING (1.0%)
Rabobank Nederlander NV/New York
1.32%, 12/20/04 30,000 30,003
- -----------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES (0.5%)
General Electric Capital Corp.
2.01%, 3/15/05 (b)13,000 13,009
2.09%, 3/21/05 (a)(b)4,000 4,003
- -----------------------------------------------------------------------------------------------------------
17,012
===========================================================================================================
FINANCE -- AUTOMOTIVE (1.6%)
American Honda Finance Corp.
1.78%, 2/11/05 $ (a)(b)28,000 $ 28,011
Toyota Motor Credit Corp.
1.85%, 6/22/05 (b)20,000 19,998
- -----------------------------------------------------------------------------------------------------------
48,009
===========================================================================================================
FINANCE -- CONSUMER (0.8%)
American Express Credit Corp.
2.01%, 12/16/04 (b)25,000 25,005
- -----------------------------------------------------------------------------------------------------------
FINANCIAL SERVICES (1.3%)
Metropolitan Life Global Funding I
1.84%, 8/26/05 (a)(b)40,000 40,033
- -----------------------------------------------------------------------------------------------------------
INSURANCE (0.5%)
AIG SunAmerica Global Financing VIII
2.00%, 11/15/04 (a)(b)16,050 16,051
- -----------------------------------------------------------------------------------------------------------
INTERNATIONAL BANKS (2.3%)
HBOS Treasury Services plc
1.89%, 6/10/05 (a)(b)30,000 30,009
1.92%, 3/14/05 (a)(b)25,000 25,009
Westpac Banking Corp./New York
2.07%, 4/25/05 (b)15,000 15,002
- -----------------------------------------------------------------------------------------------------------
70,020
===========================================================================================================
INVESTMENT BANKERS/BROKERS/SERVICES (4.4%)
Goldman Sachs Group, Inc.
1.93%, 12/20/04 - 2/14/05 (b)85,000 85,000
Merrill Lynch & Co., Inc.
2.12%, 10/3/05 (b)50,000 50,062
- -----------------------------------------------------------------------------------------------------------
135,062
===========================================================================================================
MAJOR BANKS (0.5%)
U.S. Bank National Association
1.19%, 11/29/04 15,000 15,000
- -----------------------------------------------------------------------------------------------------------
TOTAL CORPORATE NOTES (COST $506,170) 506,170
===========================================================================================================
DISCOUNT NOTES (0.8%)
U.S. GOVERNMENT & AGENCY SECURITIES (0.8%)
Federal National Mortgage Association
1.91%, 2/14/05 (COST $25,000) 25,000 24,861
- -----------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS (15.0%)
Goldman Sachs Group, Inc., 1.80%, dated 10/19/04, due 11/9/04,
repurchase price $125,131 (c)125,000 125,000
Goldman Sachs Group, Inc., 1.86%, dated 10/29/04, due 11/1/04,
repurchase price $337,902 (c)337,850 337,850
- -----------------------------------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENTS (COST $462,850) 462,850
===========================================================================================================
TOTAL INVESTMENTS (100.1%) (COST $3,081,114) 3,081,114
===========================================================================================================
LIABILITIES LESS OTHER ASSETS (-0.1%) (2,581)
- -----------------------------------------------------------------------------------------------------------
NET ASSETS (100%) $ 3,078,533
===========================================================================================================
</Table>
(a) 144A security -- certain conditions for public sale may exist.
(b) Variable/Floating Rate Security -- interest rate changes on these
instruments are based on changes in a designated base rate. The rates shown
are those in effect on October 31, 2004.
(c) The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of this portfolio of
investments.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
7
<Page>
2004 ANNUAL REPORT
October 31, 2004
INVESTMENT OVERVIEW
PRIME PORTFOLIO
The Prime Portfolio seeks preservation of capital, daily liquidity and maximum
current income. The Portfolio seeks to maintain a stable net asset value of
$1.00 per share by investing in liquid, high quality money market instruments of
domestic financial and non-financial corporations, as well as obligations of the
U.S. government and its agencies and instrumentalities.
PERFORMANCE
From the Portfolio's launch date of February 2 through the fiscal year ended
October 31, 2004, the Portfolio's Institutional Share Class had a total return
of 0.94% compared to 0.85% for the Lipper U.S. Institutional Money Market
Average. For the seven-day period ended October 31, 2004, the Portfolio's
Institutional Share Class provided an annualized current yield of 1.75%, while
its 30-day annualized moving average yield was 1.73%.
FACTORS AFFECTING PERFORMANCE
Since the Portfolio's launch date through the end of its fiscal year ended
October 31, the Federal Open Market Committee ("FOMC") raised its federal funds
target rate by 25 basis points on each of three separate occasions: June 30,
August 10, and September 21. At the September 21 FOMC meeting, the Fed stated
that future increases in its federal funds target rate would continue to be at a
"measured pace." The FOMC's formal risk assessment for economic growth and price
stability remained balanced. As of the end of October, the federal funds target
rate stood at 1.75%.
The Portfolio was launched during the first quarter of 2004. At the onset, the
market was characterized by a very flat money market yield curve, with the fed
funds target rate set at a historically low level of 1.00%. During the second
quarter, the economy began to show signs of expansion, and the market began to
anticipate the end of a very easy monetary policy from the Fed. On June 30, the
FOMC decided to embark on its tightening cycle, raising the overnight lending
rate to 1.25%. During the third quarter, the gross domestic product ("GDP")
expanded at an estimated 3.9%, up slightly from 3.3% in the second quarter, and
4.5% in the first quarter of 2004. October's unemployment rate was 5.5%, up 0.1%
from September. Non-farm payrolls rose 337,000 during October, more than double
the trailing-year average of +152,000 per month. Stronger-than-expected October
non-farm payrolls combined with higher-than-forecast inflation for the same
month caused money market rates to increase slightly in anticipation of
continued action by the Fed to bring monetary policy to a neutral posture.
MANAGEMENT STRATEGY
As of October 31, 2004, the Portfolio had net assets of $8.7 billion and a
weighted average maturity ("WAM") of 33 days. Since launching the Portfolio in
early 2004, we have primarily followed a strategy of keeping our WAM on the
short side, concentrating on investments maturing near the next FOMC meeting
date in order to capitalize on higher expected money market interest rates. This
has primarily been achieved by investing in short, 30-day commercial paper and
certificates of deposit ("CDs"). In order to diversify the maturity structure of
the Portfolio and take advantage of steepness in the money market yield curve,
we have also selectively added six-month asset-backed commercial paper as the
market fully priced in future tightening moves by the FOMC. In addition, we have
looked to increase the Portfolio's exposure to floating rate notes, favoring
one-month Libor-based indices.
EXPENSE EXAMPLE
As a shareholder of the Portfolio, you incur ongoing costs, including management
fees and other Portfolio expenses. This example is intended to help you
understand your ongoing costs (in dollars) of investing in the Portfolio 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
six-month period ended October 31, 2004 and held for the entire six-month
period.
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
account values and hypothetical expenses based on the Portfolio's actual expense
ratio and an assumed rate of return of 5% per year before expenses, which is not
the Portfolio'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 costs of
investing in the Portfolio and other funds. To do so, compare this 5%
8
<Page>
2004 ANNUAL REPORT
October 31, 2004
INVESTMENT OVERVIEW (CONT'D)
PRIME PORTFOLIO
hypothetical example with the 5% hypothetical examples that appear in the
shareholder reports of the other funds.
<Table>
<Caption>
EXPENSES PAID
ENDING ACCOUNT DURING PERIOD*
BEGINNING VALUE MAY 1, 2004 --
ACCOUNT VALUE OCTOBER 31, OCTOBER 31,
MAY 1, 2004 2004 2004
- ------------------------------------------------------------------------------------------------------------------
INSTITUTIONAL CLASS
Actual $ 1,000.00 $ 1,006.90 $ 0.40
Hypothetical (5% average annual
return before expenses) 1,000.00 1,024.73 0.41
</Table>
* Expenses are equal to the Portfolio's annualized net expense ratio of 0.08%,
multiplied by the average account value over the period, multiplied by
184/366 (to reflect the one-half year period).
<Table>
<Caption>
EXPENSES PAID
ENDING ACCOUNT DURING PERIOD*
BEGINNING VALUE MAY 1, 2004 --
ACCOUNT VALUE OCTOBER 31, OCTOBER 31,
MAY 1, 2004 2004 2004
- ------------------------------------------------------------------------------------------------------------------
ADVISORY CLASS
Actual $ 1,000.00 $ 1,005.60 $ 1.66
Hypothetical (5% average annual
return before expenses) 1,000.00 1,023.48 1.68
</Table>
* Expenses are equal to the Portfolio's annualized net expense ratio of 0.33%,
multiplied by the average account value over the period, multiplied by
184/366 (to reflect the one-half year period).
GRAPHIC PRESENTATION OF PORTFOLIO HOLDINGS
The following graph depicts the Portfolio's holdings by investment type, as a
percentage of total investments.
[CHART]
<Table>
Other 1.1%
Commercial Paper 61.8%
Corporate Notes 14.2%
Repurchase Agreements 13.9%
Certificate of Deposit 9.0%
</Table>
* Investment types which represent less than 3% of total investments are
included in the category labeled "Other".
9
<Page>
2004 ANNUAL REPORT
October 31, 2004
PORTFOLIO OF INVESTMENTS
PRIME PORTFOLIO
<Table>
<Caption>
FACE
AMOUNT VALUE
(000) (000)
- -----------------------------------------------------------------------------------------------------------
CERTIFICATE OF DEPOSIT (9.2%)
BANKING (1.8%)
HSBC Bank USA
1.58%, 11/10/04 $ 55,000 $ 55,000
Wells Fargo Bank NA
1.79%, 11/8/04 100,000 99,999
- -----------------------------------------------------------------------------------------------------------
154,999
===========================================================================================================
MAJOR BANKS (7.4%)
American Express Centurion Bank
1.88%, 1/26/05 120,000 119,999
State Street Bank & Trust Co.
1.70%, 1/3/05 50,000 50,000
SunTrust Bank
1.84%, 4/1/05 - 8/5/05 (b)150,000 149,979
Washington Mutual Bank
1.63%, 11/1/04 102,000 102,000
1.64%, 11/1/04 52,000 52,000
1.83%, 11/10/04 175,000 175,000
- -----------------------------------------------------------------------------------------------------------
648,978
===========================================================================================================
TOTAL CERTIFICATE OF DEPOSIT (COST $803,977) 803,977
===========================================================================================================
COMMERCIAL PAPER (62.9%)
ASSET BACKED -- AUTOMOTIVE (9.2%)
DaimlerChrysler Revolving Auto Conduit LLC
1.78%, 11/5/04 80,000 79,984
1.79%, 11/3/04 87,028 87,019
1.80%, 11/8/04 - 11/10/04 272,717 272,602
1.85%, 11/9/04 5,000 4,998
Fcar Owner Trust
1.64%, 11/15/04 30,000 29,981
1.94%, 12/7/04 100,000 99,806
2.01%, 1/18/05 50,000 49,783
New Center Asset Trust
1.71%, 11/23/04 35,000 34,964
1.99%, 2/22/05 - 2/28/05 150,000 149,035
- -----------------------------------------------------------------------------------------------------------
808,172
===========================================================================================================
ASSET BACKED -- CONSUMER (8.6%)
BARTON CAPITAL CORP.
1.79%, 11/5/04 - 11/09/04 (a)71,668 71,644
Gemini Securitization Corp.
1.79%, 11/9/04 (a)77,975 77,944
2.01%, 1/11/05 (a)30,000 29,881
Kitty Hawk Funding Corp.
2.04%, 3/21/05 (a)23,251 23,068
Mont Blanc Capital Corp.
1.76%, 11/10/04 (a)73,541 73,509
1.87%, 12/14/04 (a)25,000 24,944
Old Line Funding LLC
1.78%, 11/8/04 48,042 48,025
Ranger Funding Corp.
1.79%, 11/3/04 (a)216,840 216,819
Sheffield Receivables Co.
1.79%, 11/3/04 - 11/9/04 $ (a)152,980 $ 152,931
Thames Asset Global Securitization
1.79%, 11/10/04 (a)33,934 33,919
- -----------------------------------------------------------------------------------------------------------
752,684
===========================================================================================================
ASSET BACKED -- CORPORATE (9.2%)
Atlantis One Funding Corp.
1.31%, 11/2/04 (a)25,000 24,999
1.81%, 1/4/05-1/6/05 (a)73,000 72,764
1.82%, 12/6/04-12/13/04 (a)90,000 89,818
1.86%, 1/7/05 (a)20,000 19,931
1.88%, 1/14/05-2/15/05 (a)47,000 46,753
1.91%, 2/16/05 (a)50,000 49,716
1.94%, 2/22/05 (a)25,000 24,849
2.04%, 3/15/05 (a)14,395 14,287
2.16%, 4/1/05 (a)70,000 69,372
CAFCO LLC
1.76%, 11/19/04 (a)100,000 99,912
1.78%, 11/2/04 (a)90,000 89,996
1.79%, 11/3/04 - 11/10/04 200,000 199,945
- -----------------------------------------------------------------------------------------------------------
802,342
===========================================================================================================
ASSET BACKED -- DIVERSIFIED (4.0%)
Falcon Asset Securitization Corp.
1.78%, 11/5/04 (a)20,000 19,996
Jupiter Securitization Corp.
1.79%, 11/4/04 - 11/10/04 (a)230,192 230,126
Yorktown Capital LLC
1.79%, 11/1/04 - 11/8/04 101,162 101,144
- -----------------------------------------------------------------------------------------------------------
351,266
===========================================================================================================
ASSET BACKED -- MORTGAGE (5.2%)
Mortgage Interest Networking Trust
1.67%, 11/15/04 40,000 39,974
1.78%, 11/3/04 115,000 114,988
1.79%, 11/4/04 - 11/9/04 214,000 213,958
Sydney Capital Corp.
1.76%, 11/15/04 - 11/18/04 (a)43,915 43,882
1.80%, 11/8/04 (a)40,000 39,986
- -----------------------------------------------------------------------------------------------------------
452,788
===========================================================================================================
ASSET BACKED -- SECURITIES (16.3%)
Amstel Funding Corp.
1.70%, 11/26/04 (a)75,000 74,911
1.79%, 11/5/04 (a)187,590 187,553
1.84%, 12/30/04 (a)50,000 49,849
1.88%, 1/26/05 (a)35,000 34,844
Beta Finance, Inc.
1.76%, 11/15/04 36,000 35,975
1.80%, 11/10/04 25,000 24,989
2.16%, 4/13/05 50,000 49,516
CC USA, Inc.
1.76%, 11//04 (a)79,000 78,946
</Table>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
10
<Page>
2004 ANNUAL REPORT
October 31, 2004
PORTFOLIO OF INVESTMENTS (CONT'D)
PRIME PORTFOLIO
<Table>
<Caption>
FACE
AMOUNT VALUE
(000) (000)
- -----------------------------------------------------------------------------------------------------------
ASSET BACKED -- SECURITIES (CONT'D)
CC USA, Inc. (cont'd)
2.03%, 3/10/05 $ (a)75,000 $ 74,459
2.04%, 3/21/05 - 3/22/05 (a)45,000 44,645
2.17%, 3/30/05 (a)18,042 17,881
Clipper Receivables Co., LLC
1.79%, 11/1/04 - 11/2/04 225,000 224,995
1.80%, 11/5/04 60,000 59,988
Dorada Finance, Inc.
1.99%, 3/1/05 (a)50,000 49,670
2.01%, 1/20/05 (a)45,000 44,800
Grampian Funding LLC
1.75%, 12/29/04 (a)80,000 79,774
1.81%, 11/10/04 (a)45,000 44,980
2.18%, 4/19/05 (a)38,000 37,615
Scaldis Capital LLC
1.80%, 11/8/04 140,374 140,325
2.18%, 4/8/05 (a)40,000 39,621
2.27%, 4/22/05 (a)29,989 29,666
- -----------------------------------------------------------------------------------------------------------
1,425,002
===========================================================================================================
BANKING (1.1%)
Bank of America Corp.
2.16%, 4/6/05 100,000 99,073
- -----------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES (3.4%)
General Electric Capital Corp.
1.76%, 2/1/05 25,000 24,888
1.84%, 12/8/04 50,000 49,905
1.85%, 12/20/04 - 12/21/04 125,000 124,684
2.02%, 3/15/05 100,000 99,256
- -----------------------------------------------------------------------------------------------------------
298,733
===========================================================================================================
FINANCE -- CONSUMER (0.9%)
Household Finance Corp.
1.78%, 11/9/04 75,000 74,970
- -----------------------------------------------------------------------------------------------------------
INSURANCE (0.7%)
ING America Insurance Holdings
1.76%, 12/17/04 64,000 63,856
- -----------------------------------------------------------------------------------------------------------
INTERNATIONAL BANKS (0.6%)
UBS Finance, Inc./Delaware
1.24%, 12/23/04 50,000 49,910
- -----------------------------------------------------------------------------------------------------------
INVESTMENT BANKERS/BROKERS/SERVICES (3.7%)
Citigroup Global Markets Holdings, Inc.
1.77%, 11/1/04 75,000 75,000
1.78%, 11/2/04 - 11/9/04 150,000 149,975
Credit Suisse First Boston USA
2.01%, 1/12/05 100,000 99,600
- -----------------------------------------------------------------------------------------------------------
324,575
===========================================================================================================
TOTAL COMMERCIAL PAPER (COST $5,503,371) 5,503,371
===========================================================================================================
CORPORATE NOTES (14.4%)
ASSET BACKED -- SECURITIES (4.8%)
Beta Finance, Inc.
1.79%, 3/29/05 (a)(b)50,000 49,996
2.00%, 6/13/05 (a)(b)30,000 30,024
CC USA, Inc.
1.82%, 6/17/05 (a)42,500 42,424
1.87%, 3/29/05 $ (a)(b)22,000 $ 21,998
2.13%, 4/25/05 (a)(b)75,000 75,029
Dorada Finance, Inc.
1.82%, 3/18/05 (a)(b)20,000 19,998
1.84%, 9/12/05 (a)(b)50,000 49,998
1.87%, 8/15/05 (a)(b)100,000 100,010
2.06%, 3/23/05 (a)35,000 34,718
- -----------------------------------------------------------------------------------------------------------
424,195
===========================================================================================================
BANKING (2.3%)
Citigroup, Inc.
1.78%, 2/7/05 (b)55,000 55,015
Fifth Third Bancorp.
1.92%, 11/23/05 (a)(b)150,000 150,000
- -----------------------------------------------------------------------------------------------------------
205,015
===========================================================================================================
DIVERSIFIED FINANCIAL SERVICES (0.2%)
General Electric Capital Corp.
2.01%, 3/15/05 (b)8,000 8,005
2.09%, 3/21/05 (a)(b)4,000 4,004
2.12%, 2/4/05 (b)5,000 5,002
- -----------------------------------------------------------------------------------------------------------
17,011
===========================================================================================================
FINANCIAL SERVICES (0.5%)
Metropolitan Life Global Funding I
1.84%, 8/26/05 (a)(b)42,000 42,035
- -----------------------------------------------------------------------------------------------------------
INSURANCE (0.5%)
AIG SunAmerica Global Financing VIII
2.00%, 11/15/04 (a)(b)18,500 18,501
Nationwide Life Global Funding I
1.96%, 11/15/04 (a)(b)26,500 26,503
- -----------------------------------------------------------------------------------------------------------
45,004
===========================================================================================================
INVESTMENT BANKERS/BROKERS/SERVICES (2.9%)
Goldman Sachs Group, Inc.
1.93%, 12/20/04-2/14/05 (b)200,000 200,000
Merrill Lynch & Co., Inc.
2.27%, 6/13/05 (b)52,750 52,885
- -----------------------------------------------------------------------------------------------------------
252,885
===========================================================================================================
MAJOR BANKS (3.2%)
Chase Manhattan Bank USA National Association
1.81%, 5/11/05 40,000 40,000
Fifth Third Bank
1.77%, 11/1/05 (b)25,000 24,992
Harris Trust & Savings Bank
1.77%, 11/5/04 130,000 130,000
US Bank National Association
1.19%, 11/29/04 15,000 15,000
1.20%, 3/11/05 35,000 34,976
2.22%, 7/18/05 32,500 32,468
- -----------------------------------------------------------------------------------------------------------
277,436
===========================================================================================================
TOTAL CORPORATE NOTES (COST $1,263,581) 1,263,581
===========================================================================================================
</Table>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
11
<Page>
2004 ANNUAL REPORT
October 31, 2004
PORTFOLIO OF INVESTMENTS (CONT'D)
PRIME PORTFOLIO
<Table>
<Caption>
FACE
AMOUNT VALUE
(000) (000)
- -----------------------------------------------------------------------------------------------------------
DISCOUNT NOTES (1.1%)
U.S. GOVERNMENT & AGENCY SECURITIES (1.1%)
Federal National Mortgage Association
1.89%, 2/11/05 $ 50,000 $ 49,734
1.91%, 2/14/05 50,000 49,723
===========================================================================================================
TOTAL DISCOUNT NOTES (COST $99,457) 99,457
===========================================================================================================
REPURCHASE AGREEMENTS (14.2%)
Goldman Sachs Group, Inc., 1.80%,
dated 10/19/04, due 11/9/04,
repurchase price $300,315 (c)300,000 300,000
Goldman Sachs Group, Inc., 1.86%,
dated 10/29/04, due 11/1/04,
repurchase price $637,754 (c)637,655 637,655
Merrill Lynch & Co., Inc., 1.79%,
dated 10/20/04, due 11/8/04,
repurchase price $300,283 (c)300,000 300,000
===========================================================================================================
TOTAL REPURCHASE AGREEMENTS (COST $1,237,655) 1,237,655
===========================================================================================================
TOTAL INVESTMENTS (101.8%) (COST $8,908,041) 8,908,041
- -----------------------------------------------------------------------------------------------------------
LIABILITIES LESS OTHER ASSETS (-1.8%) (158,829)
- -----------------------------------------------------------------------------------------------------------
NET ASSETS (100%) $ 8,749,212
===========================================================================================================
</Table>
(a) 144A security -- certain conditions for public sale may exist.
(b) Variable/Floating Rate Security -- interest rate changes on these
instruments are based on changes in a designated base rate. The rates shown
are those in effect on October 31, 2004.
(c) The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of this portfolio of
investments.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
12
<Page>
2004 ANNUAL REPORT
October 31, 2004
INVESTMENT OVERVIEW
GOVERNMENT PORTFOLIO
The Government Portfolio seeks preservation of capital, daily liquidity and
maximum current income. The Portfolio seeks to maintain a stable net asset value
of $1.00 per share by investing exclusively in obligations of the U.S.
government and its agencies and instrumentalities and in repurchase agreements
collateralized by such securities.
PERFORMANCE
From the Portfolio's launch date of August 9 through the fiscal year ended
October 31, 2004, the Portfolio's Institutional Share Class had a total return
of 0.38% compared to 0.32% for the Lipper Institutional U.S. Government Money
Market Fund Index. For the seven-day period ended October 31, 2004, the
Portfolio's Institutional Share Class provided an annualized current yield of
1.80%, while its annualized 30-day moving average yield was 1.78%.
FACTORS AFFECTING PERFORMANCE
Since the Portfolio's launch date through the end of its fiscal year ended
October 31, the Federal Open Market Committee ("FOMC") raised its federal funds
target rate on two separate occasions, August 10 and September 21, by 25 basis
points each time. At the September 21 FOMC meeting, the Fed stated that future
increases in its federal funds target rate would continue to be at a "measured
pace." The FOMC's formal risk assessment for economic growth and price stability
remained balanced. As of the end of October, the federal funds target rate stood
at 1.75%.
The Portfolio was launched during the third quarter of 2004. During the third
quarter, preliminary numbers showed that gross domestic product ("GDP") expanded
at an estimated 3.9%, up slightly from 3.3% in the second quarter, and 4.5% in
the first quarter of 2004. October's unemployment rate was 5.5%, up 0.1% from
September. Non-farm payrolls rose 337,000 during October, more than double the
trailing-year average of +152,000 per month. Stronger-than-expected October
non-farm payrolls combined with higher-than-forecast inflation for the same
month caused money market rates to increase slightly in anticipation of
continued action by the Fed to bring monetary policy to a neutral posture.
MANAGEMENT STRATEGY
As of October 31, 2004, the Portfolio had net assets of $548.1 million and a
weighted average maturity ("WAM") of 17 days. As of the end of October,
approximately 61% of the Portfolio was invested in overnight and term repurchase
agreements, 22% in floating rate Federal agency obligations, and 17% in fixed
rate Federal agency obligations.
Since launching the Portfolio in early August 2004, we have primarily followed a
strategy of concentrating our investments in fixed rate securities that mature,
or floating rate notes that reset, near the next FOMC meeting date in order to
capitalize on higher expected money market interest rates. This has primarily
been achieved by investing in overnight and term repurchase agreements,
one-month Federal agency discount notes, and floating rate notes that reset on
either a daily or a monthly basis. In order to diversify the maturity structure
of the Portfolio and to take advantage of the steepness in the money market
yield curve, we have also selectively added several positions in discount notes
or debentures in the six-month or longer portion of the money market curve.
EXPENSE EXAMPLE
As a shareholder of the Portfolio, you incur ongoing costs, including management
fees and other Portfolio expenses. This example is intended to help you
understand your ongoing costs (in dollars) of investing in the Portfolio 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 from August 9, 2004 to
October 31, 2004 for the Institutional and Investor Classes and October 1, 2004
to October 31, 2004 for the Advisory Class and held for the entire period.
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
account values and hypothetical expenses based on the Portfolio's actual expense
ratio and an assumed rate of return of 5% per year before expenses, which is not
the Portfolio'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 costs of
investing in the Portfolio 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.
13
<Page>
2004 ANNUAL REPORT
October 31, 2004
INVESTMENT OVERVIEW (CONT'D)
GOVERNMENT PORTFOLIO
<Table>
<Caption>
EXPENSES PAID
BEGINNING ENDING ACCOUNT DURING PERIOD*
ACCOUNT VALUE VALUE AUGUST 9, 2004
AUGUST 9, OCTOBER 31, -- OCTOBER 31,
2004 2004 2004
- ----------------------------------------------------------------------------------------------
INSTITUTIONAL CLASS
Actual $ 1,000.00 $ 1,003.70 $ 0.11
Hypothetical (5% average annual
return before expenses) 1,000.00 1,011.36 0.12
</Table>
* Expenses are equal to the Portfolio's annualized net expense ratio of 0.05%,
multiplied by the average account value over the period, multiplied by
84/366 (to reflect the period).
<Table>
<Caption>
EXPENSES PAID
BEGINNING ENDING ACCOUNT DURING PERIOD*
ACCOUNT VALUE VALUE AUGUST 9, 2004
AUGUST 9, OCTOBER 31, -- OCTOBER 31,
2004 2004 2004
- ----------------------------------------------------------------------------------------------
INVESTOR CLASS
Actual $ 1,000.00 $ 1,003.50 $ 0.34
Hypothetical (5% average
annual return before expenses) 1,000.00 1,011.13 0.35
</Table>
* Expenses are equal to the Portfolio's annualized net expense ratio of 0.15%,
multiplied by the average account value over the period, multiplied by
84/366 (to reflect the period).
<Table>
<Caption>
EXPENSES PAID
BEGINNING ENDING DURING PERIOD*
ACCOUNT VALUE ACCOUNT VALUE OCTOBER 1, 2004
OCTOBER 1, OCTOBER 31, -- OCTOBER 31,
2004 2004 2004
- ----------------------------------------------------------------------------------------------
ADVISORY CLASS
Actual $ 1,000.00 $ 1,001.30 $ 0.25
Hypothetical (5% average
annual return before expenses) 1,000.00 1,003.98 0.25
</Table>
* Expenses are equal to the Portfolio's annualized net expense ratio of 0.30%,
multiplied by the average account value over the period, multiplied by
31/366 (to reflect the period).
GRAPHIC PRESENTATION OF PORTFOLIO HOLDINGS
The following graph depicts the Portfolio's holdings by investment type, as a
percentage of total investments.
[CHART]
<Table>
Repurchase Agreements 61.1%
U.S. Agency Securities 26.3%
Discount Notes 12.6%
</Table>
14
<Page>
2004 ANNUAL REPORT
October 31, 2004
PORTFOLIO OF INVESTMENTS
GOVERNMENT PORTFOLIO
<Table>
<Caption>
FACE
AMOUNT VALUE
(000) (000)
- -----------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT & AGENCY SECURITIES (38.9%)
DISCOUNT NOTES (12.6%)
Federal Farm Credit Bank
1.80%, 11/9/04 $ 3,200 $ 3,199
Federal Home Loan Bank
1.80%, 11/12/04 405 405
2.24%, 6/9/05 250 247
2.25%, 7/8/05 1,000 985
Federal Home Loan Mortgage Corporation
1.70%, 12/30/04 750 748
1.73%, 12/27/04 1,000 997
1.75%, 11/3/04 - 11/8/04 1,275 1,275
1.80%, 11/9/04 6,120 6,117
1.81%, 2/25/05 1,500 1,491
1.90%, 11/2/04 380 380
1.91%, 1/18/05 4,900 4,880
2.02%, 1/24/05 1,200 1,194
2.20%, 4/5/05 900 891
2.21%, 4/19/05 2,000 1,979
2.32%, 7/26/05 900 885
Federal National Mortgage Association
1.77%, 11/1/04 8,780 8,780
1.78%, 11/3/04 - 11/10/04 16,900 16,894
1.93%, 2/9/05 1,000 995
2.01%, 2/1/05 - 2/2/05 13,000 12,933
2.06%, 1/20/05 2,600 2,588
2.28%, 7/5/05 (b)1,000 985
- -----------------------------------------------------------------------------------------------------------
68,848
===========================================================================================================
U.S. AGENCY SECURITIES (26.3%)
Federal Farm Credit Bank
1.75%, 2/7/05 (b)14,000 13,999
1.75%, 4/8/05 4,750 4,742
Federal Home Loan Bank
1.48%, 6/16/05 1,000 995
1.64%, 8/26/05 (b)10,000 9,993
1.73%, 9/8/05 (b)20,000 19,986
1.76%, 8/2/05 (b)15,000 14,997
1.78%, 7/15/05 (b)30,000 29,997
1.79%, 9/16/05 (b)20,000 19,995
1.91%, 10/5/05 (b)1,670 1,669
3.38%, 11/15/04 4,300 4,303
4.63%, 4/15/05 8,000 8,089
Federal Home Loan Mortgage Corporation
1.46%, 11/17/04 1,250 1,250
1.67%, 11/7/05 (b)600 600
1.83%, 9/9/05 (b)11,050 11,051
6.88%, 1/15/05 2,482 2,506
Federal National Mortgage Association
1.64%, 2/18/05 (b)150 150
- -----------------------------------------------------------------------------------------------------------
144,322
===========================================================================================================
TOTAL U.S. GOVERNMENT & AGENCY SECURITIES
(COST $213,170) 213,170
===========================================================================================================
REPURCHASE AGREEMENTS (61.1%)
Bear Stearns Cos., Inc., 1.86%,
dated 10/29/04, due 11/1/04,
repurchase price $96,015 $ (c)96,000 $ 96,000
CS First Boston LLC, 1.82%,
dated 10/29/04, due 11/1/04,
repurchase price $91,014 (c)91,000 91,000
Deutsche Bank AG, 1.79%,
dated 10/25/04, due 11/8/04,
repurchase price $20,014 (c)20,000 20,000
Goldman Sachs Group, Inc., 1.86%,
dated 10/29/04, due 11/1/04,
repurchase price $103,136 (c)103,120 103,120
UBS Securities LLC, 1.77%,
dated 10/8/04, due 11/5/04,
repurchase price $25,034 (c)25,000 25,000
===========================================================================================================
TOTAL REPURCHASE AGREEMENTS (COST $335,120) 335,120
===========================================================================================================
TOTAL INVESTMENTS (100.0%) (COST $548,290) 548,290
- -----------------------------------------------------------------------------------------------------------
LIABILITIES LESS OTHER ASSETS (-0.0%) (197)
- -----------------------------------------------------------------------------------------------------------
NET ASSETS (100%) $ 548,093
===========================================================================================================
</Table>
(b) Variable/Floating Rate Security -- interest rate changes on these
instruments are based on changes in a designated base rate. The rates shown
are those in effect on October 31, 2004.
(c) The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of this portfolio of
investments.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
15
<Page>
2004 ANNUAL REPORT
October 31, 2004
INVESTMENT OVERVIEW
TREASURY PORTFOLIO
The Treasury Portfolio seeks preservation of capital, daily liquidity and
maximum current income. The Portfolio seeks to maintain a stable net asset value
of $1.00 per share by investing exclusively in U.S. Treasury obligations and
repurchase agreements collateralized by such securities.
PERFORMANCE
From the Portfolio's launch date of August 9 through the fiscal year ended
October 31, 2004, the Portfolio's Institutional Share Class had a total return
of 0.36% compared to 0.36% for the Lipper Institutional U.S. Treasury Money
Market Fund Index. For the seven-day period ended October 31, 2004, the
Portfolio's Institutional Share Class provided an annualized current yield of
1.72%, while its annualized 30-day moving average yield was 1.70%.
FACTORS AFFECTING PERFORMANCE
Since the Portfolio's launch date through the end of its fiscal year ended
October 31, the Federal Open Market Committee ("FOMC") raised its federal funds
target rate on two separate occasions, August 10 and September 21, by 25 basis
points each time. At the September 21 FOMC meeting, the Fed stated that future
increases in its federal funds target rate would continue to be at a "measured
pace." The FOMC's formal risk assessment for economic growth and price stability
remained balanced. As of the end of October, the federal funds target rate stood
at 1.75%.
The Portfolio was launched during the third quarter of 2004. During the third
quarter, preliminary numbers showed that gross domestic product ("GDP") expanded
at an estimated 3.9%, up slightly from 3.3% in the second quarter, and 4.5% in
the first quarter of 2004. October's unemployment rate was 5.5%, up 0.1% from
September. Non-farm payrolls rose 337,000 during October, more than double the
trailing-year average of +152,000 per month. Stronger-than-expected October
non-farm payrolls combined with higher-than-forecast inflation for the same
month caused money market rates to increase slightly in anticipation of
continued action by the Fed to bring monetary policy to a neutral posture.
MANAGEMENT STRATEGY
As of October 31, 2004, the Portfolio had net assets of $190.0 million and a
weighted average maturity of 17 days. As of the end of October, approximately
85% of the Portfolio was invested in overnight and term repurchase agreements,
14% in Treasury bills, and 1% in a Treasury note.
Since launching the Portfolio in early August 2004, we have primarily followed a
strategy of concentrating investments maturing near the next FOMC meeting date
in order to capitalize on higher expected money market interest rates. This has
primarily been achieved by investing in overnight and term repurchase agreements
backed by Treasury collateral. In order to diversify the maturity structure of
the Portfolio and take advantage of steepness in the money market yield curve,
we have also selectively added several positions in six-month Treasury bills and
a ten-month Treasury note.
EXPENSE EXAMPLE
As a shareholder of the Portfolio, you incur ongoing costs, including management
fees and other Portfolio expenses. This example is intended to help you
understand your ongoing costs (in dollars) of investing in the Portfolio 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 from August 9, 2004 to
October 31, 2004 and held for the entire period.
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.
16
<Page>
2004 ANNUAL REPORT
October 31, 2004
INVESTMENT OVERVIEW (CONT'D)
TREASURY PORTFOLIO
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line of the table below provides information about hypothetical
account values and hypothetical expenses based on the Portfolio's actual expense
ratio and an assumed rate of return of 5% per year before expenses, which is not
the Portfolio'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 costs of
investing in the Portfolio 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.
<Table>
<Caption>
EXPENSES PAID
ENDING ACCOUNT DURING PERIOD*
BEGINNING VALUE AUGUST 9, 2004
ACCOUNT VALUE OCTOBER 31, -- OCTOBER 31,
AUGUST 9, 2004 2004 2004
- ----------------------------------------------------------------------------------------------
INSTITUTIONAL CLASS
Actual $ 1,000.00 $ 1,003.60 $ 0.11
Hypothetical (5% average
annual return before 1,000.00 1,011.36 0.12
expenses)
ADVISORY CLASS
Actual 1,000.00 1,003.00 0.69
Hypothetical (5% average
annual return before 1,000.00 1,010.79 0.69
expenses)
</Table>
* Expenses are equal to the Institutional Class' and Advisory Class'
annualized net expense ratio of 0.05% and 0.30%, respectively, multiplied by
the average account value over the period, multiplied by 84/366 (to reflect
the period).
GRAPHIC PRESENTATION OF PORTFOLIO HOLDINGS
The following graph depicts the Portfolio's holdings by investment type, as a
percentage of total investments.
[CHART]
<Table>
Repurchase Agreements 85.4%
U.S. Treasury Bills 14.1%
Others 0.5
</Table>
* Investment types which represent less than 3% of total investments are
included in the category labeled "Other".
17
<Page>
2004 ANNUAL REPORT
October 31, 2004
PORTFOLIO OF INVESTMENTS
TREASURY PORTFOLIO
<Table>
<Caption>
FACE
AMOUNT VALUE
(000) (000)
- -----------------------------------------------------------------------------------------------------------
U.S. TREASURY SECURITIES (14.7%)
U.S. Treasury Bills (14.2%)
U.S. Treasury Bills
1.47%, 11/18/04 $ 1,000 $ 999
1.50%, 11/26/04 1,500 1,498
1.51%, 12/9/04 1,500 1,498
1.54%, 12/23/04 2,000 1,996
1.57%, 12/30/04 2,000 1,995
1.61%, 1/6/05 1,500 1,496
1.63%, 1/13/05 1,500 1,495
1.68%, 2/10/05 1,500 1,493
1.72%, 1/20/05 1,000 996
1.73%, 2/17/05 1,000 995
1.75%, 2/24/05 1,000 994
1.90%, 3/17/05 2,000 1,986
1.92%, 3/24/05 2,000 1,985
1.96%, 3/31/05 - 4/14/05 3,500 3,470
1.97%, 4/7/05 2,000 1,983
2.00%, 3/10/05 2,000 1,986
- -----------------------------------------------------------------------------------------------------------
26,865
===========================================================================================================
U.S. TREASURY NOTE (0.5%)
U.S. Treasury Note
1.50%, 7/31/05 1,000 995
- -----------------------------------------------------------------------------------------------------------
TOTAL U.S. TREASURY SECURITIES (COST $27,860) 27,860
===========================================================================================================
REPURCHASE AGREEMENTS (85.4%)
Bear Stearns Cos., Inc., 1.77%,
dated 10/29/04, due 11/1/04,
repurchase price $37,005 (c)37,000 37,000
CS First Boston LLC, 1.77%,
dated 10/29/04, due 11/1/04,
repurchase price $37,631 (c)37,625 37,625
Deutsche Bank Securities, Inc., 1.77%,
dated 10/29/04, due 11/1/04,
repurchase price $37,005 (c)37,000 37,000
Goldman Sachs Group, Inc., 1.72%,
dated 10/14/04, due 11/4/04,
repurchase price $15,015 (c)15,000 15,000
UBS Securities LLC, 1.76%,
dated 10/29/04, due 11/1/04,
repurchase price $35,705 (c)35,700 35,700
===========================================================================================================
TOTAL REPURCHASE AGREEMENTS (COST $162,325) 162,325
===========================================================================================================
TOTAL INVESTMENTS (100.1%) (COST $190,185) 190,185
- -----------------------------------------------------------------------------------------------------------
LIABILITIES LESS OTHER ASSETS (-0.1%) (208)
- -----------------------------------------------------------------------------------------------------------
NET ASSETS (100%) $ 189,977
===========================================================================================================
</Table>
(c) The repurchase agreement is fully collateralized by U.S. government
obligations based on market prices at the date of this portfolio of
investments.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
18
<Page>
2004 ANNUAL REPORT
October 31, 2004
INVESTMENT OVERVIEW
TAX-EXEMPT PORTFOLIO
The Tax-Exempt Portfolio seeks to maximize current income exempt from federal
income tax to the extent consistent with preservation of capital and maintenance
of liquidity. The Portfolio seeks to maintain a stable net asset value of $1.00
per share by investing at least 80% of its assets in high quality short-term
municipal obligations, the interest of which is exempt from federal income taxes
and is not subject to the federal alternative minimum tax.
PERFORMANCE
From the Portfolio's launch date of February 2 through the fiscal year ended
October 31, 2004, the Portfolio's Institutional Share Class had a total return
of 0.84% compared to 0.67% for the Lipper Institutional Tax-Exempt Money Market
Fund Average. For the seven-day period ended October 31, 2004, the Portfolio's
Institutional Share Class provided an annualized current yield of 1.65%, while
its 30-day annualized moving average yield was 1.59%.
FACTORS AFFECTING PERFORMANCE
Tax-free money market yields remained relatively stable during the first half of
2004, which was in line with prevailing monetary policy.
Beginning in June, four consecutive increases to the Federal Funds target rate
and the anticipation of more have pushed short-term tax-exempt yields to their
highest levels in two years. This has also produced a flat yield curve
relationship between variable rate securities and one-year fixed rate
instruments.
Demand for tax-exempt money market instruments remains strong as investors seek
to preserve capital in a rising interest rate environment.
MANAGEMENT STRATEGY
Since launching the Portfolio in early 2004, we have maintained an emphasis on
variable rate securities. Among fixed-rate instruments, we have sought to
maintain a laddered maturity structure providing some of the benefits of the
more positive slope of the money market yield curve while limiting the risks
associated with longer maturity paper.
We remain cautious in managing the Portfolio's average maturity, preferring to
avoid the one-year segment of the money market in anticipation of further
increases in yields.
EXPENSE EXAMPLE
As a shareholder of the Portfolio, you incur ongoing costs, including management
fees and other Portfolio expenses. This example is intended to help you
understand your ongoing costs (in dollars) of investing in the Portfolio 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 from May 1, 2004 to
October 31, 2004 for the Institutional Class, June 8, 2004 to October 31, 2004
for the Investor Class and June 15, 2004 to October 31, 2004 for the Advisory
Class and held for the entire period.
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
account values and hypothetical expenses based on the Portfolio's actual expense
ratio and an assumed rate of return of 5% per year before expenses, which is not
the Portfolio'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 costs of
investing in the Portfolio 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.
<Table>
<Caption>
EXPENSES PAID
ENDING ACCOUNT DURING PERIOD*
BEGINNING VALUE MAY 1, 2004 --
ACCOUNT VALUE OCTOBER 31, OCTOBER 31,
MAY 1, 2004 2004 2004
- ----------------------------------------------------------------------------------------------
INSTITUTIONAL CLASS
Actual $ 1,000.00 $ 1,006.00 $ 0.35
Hypothetical (5% average
annual return before expenses) 1,000.00 1,024.78 0.36
</Table>
* Expenses are equal to the Portfolio's annualized net expense ratio of 0.07%,
multiplied by the average account value over the period, multiplied by 184/366
(to reflect the one-half year period).
<Table>
<Caption>
EXPENSES PAID
ENDING ACCOUNT DURING PERIOD*
BEGINNING VALUE JUNE 8, 2004 --
ACCOUNT VALUE OCTOBER 31, OCTOBER 31,
JUNE 8, 2004 2004 2004
- ----------------------------------------------------------------------------------------------
INVESTOR CLASS
Actual $ 1,000.00 $ 1,004.50 $ 0.68
Hypothetical (5% average
annual return before expenses) 1,000.00 1,019.27 0.68
</Table>
* Expenses are equal to the Portfolio's annualized net expense ratio of 0.17%,
multiplied by the average account value over the period, multiplied by 146/366
(to reflect the period).
19
<Page>
2004 ANNUAL REPORT
October 31, 2004
INVESTMENT OVERVIEW (CONT'D)
TAX-EXEMPT PORTFOLIO
<Table>
<Caption>
EXPENSES PAID
BEGINNING ENDING ACCOUNT DURING PERIOD*
ACCOUNT VALUE VALUE JUNE 15, 2004
JUNE 15, OCTOBER 31, -- OCTOBER 31,
2004 2004 2004
- ----------------------------------------------------------------------------------------------
ADVISORY CLASS
Actual $ 1,000.00 $ 1,002.40 $ 1.25
Hypothetical (5% average
annual return before expenses) 1,000.00 1,017.74 1.26
</Table>
* Expenses are equal to the Portfolio's annualized net expense ratio of 0.33%,
multiplied by the average account value over the period, multiplied by
139/366 (to reflect the period).
GRAPHIC PRESENTATION OF PORTFOLIO HOLDINGS
The following graph depicts the Portfolio's holdings by investment type, as a
percentage of total investments.
[CHART]
<Table>
Weekly Variable Rate Bonds 72.1%
Daily Variable Rate Bonds 10.2%
Commercial Paper 9.9%
Municipal Bonds & Notes 7.2%
Other* 0.6%
</Table>
* Investment types which represent less than 3% of total investments are
included in the category labeled "Other".
20
<Page>
2004 ANNUAL REPORT
October 31, 2004
PORTFOLIO OF INVESTMENTS
TAX-EXEMPT PORTFOLIO
<Table>
<Caption>
FACE
AMOUNT VALUE
(000) (000)
- -----------------------------------------------------------------------------------------------------------
TAX-EXEMPT INSTRUMENTS (100.0%)
COMMERCIAL PAPER (9.9%)
Austin, TX, Combined Utility Systems, Series 2004
1.76%, 12/14/04 $ 1,560 $ 1,560
Broward County, FL, Sales Tax, Series A
1.25%, 11/5/04 1,650 1,650
Dallas Area Rapid Transit Authority, TX, Series 2004
1.75%, 11/30/04 1,000 1,000
Massachusetts Health & Educational Facilities
Authority, Harvard University, Series EE
1.77%, 12/7/04 1,000 1,000
Metropolitan Government of Nashville & Davidson
County Health & Educational Facilities Board, TN,
Vanderbilt University, Series 2004 A
1.76%, 11/29/04 4,000 4,000
New Hampshire, Series 1998 A BANs
1.72%, 12/9/04 1,000 1,000
Rochester, MN, Mayo Foundation, Series 1992 C
1.35%, 11/17/04 1,000 1,000
San Antonio, TX, Electric & Gas, Series 1995 A
1.73%, 11/23/04 2,200 2,200
Texas Public Finance Authority, TX, Series 2003
1.62%, 12/8/04 2,000 2,000
University of Texas, TX, Series A
1.30%, 11/22/04 1,000 1,000
- -----------------------------------------------------------------------------------------------------------
16,410
===========================================================================================================
DAILY VARIABLE RATE BONDS (10.2%)
Breckinridge County, KY, Kentucky Association
of Counties Leasing Trust 2002, Series A
1.74%, 2/1/32 5,390 5,390
Clarksville Public Building Authority, TN, Pooled
Financing, Series 2003
1.75%, 1/1/33 200 200
Harris County Health Facilities Development Authority,
TX, Methodist Hospital, Series 2002
1.74%, 12/1/32 5,400 5,400
Harris County Health Facilities Development Authority,
TX, YMCA of Greater Houston, Series 2002
1.74%, 7/1/37 1,000 1,000
Illinois Health Facilities Authority, NorthWestern
Memorial Hospital, Series 2002 C
1.74%, 8/15/32 2,900 2,900
Missouri Development Finance Board, MO, The
Nelson Gallery Foundation, Series 2001 B (MBIA)
1.74%, 12/1/31 300 300
Murray City, UT, IHC Health Services, Inc.,
Series 2003 C
1.74%, 5/15/36 340 340
Rhode Island Health & Educational Building Corp.,
RI, Care New England, Series 2002 A
1.75%, 9/1/32 200 200
University of Missouri, MO, Series 2000
1.74%, 11/1/30 1,200 1,200
- -----------------------------------------------------------------------------------------------------------
16,930
===========================================================================================================
MUNICIPAL BONDS & NOTES (7.2%)
California, Series 2004 A RANs
3.00%, 6/30/05 $ 1,000 $ 1,008
Central Ohio Solid Waste Authority, OH,
Series 2004 BANs
2.50%, 12/10/04 1,000 1,001
Cobb County School District, GA, Series 2004
1.75%, 12/31/04 1,000 1,000
Illinois Finance Authority, School Notes,
Series 2004 A
1.80%, 12/1/04 1,000 1,000
Indiana Bond Bank, IN, Midyear Funding Program
Notes, Series 2004 A
2.50%, 1/26/05 1,000 1,003
Indianapolis Local Public Improvement Bond Bank,
Series 2004 F
2.00%, 1/6/05 1,400 1,402
Kentucky Association of Counties, KY,
Series 2004 A TRANs
3.00%, 6/30/05 1,000 1,009
Orono Independent School District No. 278, MN,
Series 2004 A
2.75%, 8/29/05 1,000 1,008
Pioneer Valley Transit Authority, MA,
Series 2004 RANs
2.75%, 8/5/05 1,000 1,006
Spencer Van Etten Central School District, NY,
Series 2004 BANs
3.00%, 6/17/05 515 519
Waldwick, NJ, Series 2004 TANs
2.50%, 2/15/05 300 301
Youngstown City School District, OH, Series 2004
BANs
2.00%, 3/9/05 1,750 1,753
- -----------------------------------------------------------------------------------------------------------
12,010
===========================================================================================================
PUT OPTION BONDS (0.6%)
Jacksonville Economic Development Commission,
FL, Proton Therapy Institute, Series 2003 A
1.23%, 9/1/23 1,000 1,000
- -----------------------------------------------------------------------------------------------------------
WEEKLY VARIABLE RATE BONDS (72.1%)
American Public Energy Agency, NE, National
Public Gas Agency, 2003, Series A
1.79%, 2/1/14 4,000 4,000
Arizona Tourism & Sports Authority,
Series 2004 ROCs R-2134 (MBIA)
1.81%, 7/1/21 1,800 1,800
Bexar County Housing Finance Corp., TX,
Multi-Family, PT-2082
1.80%, 1/20/10 1,500 1,500
Brownsville, TX, Utility System Sub Lien,
Series 2003 B (MBIA)
1.76%, 9/1/27 360 360
Centerra Metropolitan District No.1, Series 2004
1.83%, 12/1/29 2,000 2,000
</Table>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
21
<Page>
2004 ANNUAL REPORT
October 31, 2004
PORTFOLIO OF INVESTMENTS (CONT'D)
TAX-EXEMPT PORTFOLIO
<Table>
<Caption>
FACE
AMOUNT VALUE
(000) (000)
- -----------------------------------------------------------------------------------------------------------
WEEKLY VARIABLE RATE BONDS (CONT'D)
Charlotte, NC, Convention Facility,
Series 2003 B COPs
1.82%, 12/1/21 $ 4,600 $ 4,600
Chicago, IL, Series 1997
1.76%, 1/1/12 1,810 1,810
Clackamas County Hospital Facility Authority, OR,
Legacy Health System, Series 2003
1.76%, 2/15/30 4,000 4,000
Colorado Health Facilities Authority, Sisters of Charity of
Leavenworth Health System, Series 2002
1.77%, 12/1/32 1,200 1,200
De Kalb County Housing Authority, GA, Multi-Family,
Series 1995
1.76%, 6/1/25 4,000 4,000
Denver Urban Renewal Authority, Colorado,
Series PT 999
1.86%, 10/7/06 1,500 1,500
Detroit Water Supply System, MI, Series 2001 C (FGIC)
1.77%, 7/1/29 1,400 1,400
District of Columbia, Public Welfare Foundation,
Series 2000
1.77%, 3/1/25 3,500 3,500
Fort Wayne Health Care Facilities, IN,
Series 1993 A (FHA)
1.94%, 8/1/13 1,600 1,600
Franklin Community Multi-School Building Corp.,
IN, Series 2004 ROCs R-2140 (FGIC)
1.81%, 7/15/21 1,170 1,170
Georgia, PUTTERs, Series 2004-440
1.78%, 5/1/10 1,995 1,995
Hamilton County, OH, Twin Towers and Twin Lakes,
Series 2003 A
1.79%, 7/1/23 1,500 1,500
Harris County Industrial Development Corp., TX,
Baytank, Inc., Series 1998
1.76%, 2/1/20 300 300
Hawaii, Airports System, Series 2003
1.76%, 7/1/13 5,000 5,000
Houston, TX, Combined Utility System, MERLOTS,
Series 2004 C-13 (MBIA)
1.84%, 5/15/25 1,310 1,310
Illinois Development Financial Authority, Jewish
Federation Projects, Series 1999 (AMBAC)
1.77%, 9/1/24 2,820 2,820
Illinois Housing Development Authority, Village
Center Apartments, Series 2004
1.76%, 3/1/20 1,900 1,900
Illinois, PUTTERs, Series 409
1.80%, 3/1/12 930 930
King County, WA, Harborview Medical Center,
Series 2004 ROCs R-5036 (AMBAC)
1.81%, 12/1/13 1,835 1,835
Maine Health & Higher Education Facilities Authority,
ME, VHA New England, Inc. Series 1985 B (AMBAC)
1.78%, 12/1/25 1,300 1,300
Maryland Health & Higher Educational
Facilities Authority, Catholic Health
Initiatives, Series 1997 B
1.73%, 12/1/15 $ 2,700 $ 2,700
Merrillville Health Care Facilities, IND,
Series 1992 A-1 (FHA)
1.94%, 7/1/11 770 770
Missouri State Health & Educational Facilities
Authority, MO, Washington University, Series 1985 A
1.76%, 9/1/10 900 900
Municipal Securities Pool Trust, Various States,
Series 2004 SG P-18
1.91%, 1/1/35 890 890
North Carolina Capital Facilities Finance Agency, NC,
Barton College, Series 2004
1.80%, 7/1/19 3,500 3,500
North Carolina Medical Care Commission, Mission
St. Joseph's Health System, Series 2003
1.82%, 10/1/18 5,845 5,845
North East Independent School District, TX,
PUTTERs, Series 393 (PSFG)
1.80%, 2/1/12 695 695
Oak Forest, IL, Homewood South Suburban Mayors
& Managers Association, Series 1989
1.76%, 7/1/24 2,050 2,050
Oakland University, MI, Series 2001 (FGIC)
1.75%, 3/1/31 1,610 1,610
Omaha, NE, Eagle #2004-001, Class A
1.81%, 4/1/27 1,000 1,000
Oregon Health & Science University, OSHU
Medical Group, Series 2004 A
1.79%, 7/1/33 4,600 4,600
Palm Beach County School Board, FL,
Series 2004 (FGIC)
1.81%, 8/1/22 4,195 4,195
Palm Beach County, FL, Hospice of Palm Beach
County, Series 2001
1.79%, 10/1/31 1,900 1,900
Philadelphia Hospitals & Higher Education Facilities
Authority, PA, Temple University, Series 2003
1.76%, 11/15/33 5,250 5,250
Portland Housing Authority, OR, New Market West,
Series 2004
1.79%, 4/1/34 675 675
Rhode Island Convention Center Authority, RI,
Series 2001 A (MBIA)
1.76%, 5/15/27 4,000 4,000
Sayre Health Care Facilities Authority, PA, VHA
of Pennsylvania, Inc., Capital Asset Financing,
Series 1985 B (AMBAC)
1.78%, 12/1/20 1,700 1,700
Snohomish County Public Utility District No. 1, WA,
Series 2004 ROCs R-4059 (FSA)
1.81%, 12/1/20 660 660
</Table>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
22
<Page>
2004 ANNUAL REPORT
October 31, 2004
PORTFOLIO OF INVESTMENTS (CONT'D)
TAX-EXEMPT PORTFOLIO
<Table>
<Caption>
FACE
AMOUNT VALUE
(000) (000)
- -----------------------------------------------------------------------------------------------------------
WEEKLY VARIABLE RATE BONDS (CONT'D)
South Carolina Jobs-Economic Development Authority,
Boros & Chapin Business Pk, Series 2002
1.82%, 5/1/32 $ 5,300 $ 5,300
South Jordan Municipal Building Authority Lease
Revenue, UT, Series 2004
1.79%, 2/1/29 2,200 2,200
Texas Department of Housing & Community
Affairs, High Point III, Series 1993 A
1.78%, 2/1/23 4,000 4,000
Texas, Series 2004 TRANs Floater TRs L61J
1.80%, 8/31/05 1,500 1,500
University of Arizona, AZ, Student Union Bookstore,
Series 1999 (AMBAC)
1.76%, 6/1/24 300 300
University of Minnesota Regents, Series 1999 A
1.78%, 1/1/34 1,120 1,120
Utah County, UT, IHC Health Services, Inc.,
Series 2002 B
1.77%, 5/15/35 1,500 1,500
Vermont Housing Finance Agency, VT, West Block,
University of Vermont, Series 2004 A
1.79%, 7/1/37 5,000 5,000
Virginia Public Building Authority, VA,
Series 2004 ROCs R-6027
1.81%, 8/1/14 1,400 1,400
Williamsburg, KY, Cumberland College,
Series 2002
1.76%, 9/1/32 1,395 1,395
- -----------------------------------------------------------------------------------------------------------
119,985
===========================================================================================================
TOTAL TAX-EXEMPT INSTRUMENTS (COST $166,335) 166,335
===========================================================================================================
TOTAL INVESTMENTS (100.0%) (COST $166,335) 166,335
===========================================================================================================
OTHER ASSETS LESS LIABILITIES (0.0%) 78
- -----------------------------------------------------------------------------------------------------------
NET ASSETS (100%) $ 166,413
===========================================================================================================
</Table>
AMBAC -- Ambac Assurance Corporation
FGIC -- Financial Guaranty Insurance Company
FHA -- Federal Housing Administration
FSA -- Financial Security Assurance Inc.
MBIA -- MBIA Insurance Corporation
PSFG -- Permanent School Fund Guaranteed
TRANs -- Tax and Revenue Anticipation Notes
SUMMARY OF TAX-EXEMPT INSTRUMENTS BY STATE/TERRITORY
<Table>
<Caption>
PERCENT
VALUE OF NET
STATE/TERRITORY (000) ASSETS
- -----------------------------------------------------------------------------------------------------------
Texas $ 23,825 14.3%
North Carolina 13,945 8.4
Illinois 13,410 8.1
Oregon 9,275 5.6
Florida 8,745 5.3
Kentucky 7,794 4.7
Georgia 6,995 4.2
South Carolina 5,300 3.2
Philadelphia 5,250 3.2
Hawaii 5,000 3.0
Nebraska 5,000 3.0
Vermont 5,000 3.0
Colorado 4,700 2.8
Indiana 4,543 2.7
Ohio 4,254 2.6
Rhode Island 4,200 2.5
Tennessee 4,200 2.5
Utah 4,040 2.4
District of Columbia 3,500 2.1
Minnesota 3,128 1.9
Michigan 3,010 1.8
Maryland 2,700 1.6
Washington 2,495 1.5
Missouri 2,400 1.5
Arizona 2,100 1.3
Massachusetts 2,006 1.2
Pennsylvania 1,700 1.0
Indianapolis 1,402 0.8
Virginia 1,400 0.8
Maine 1,300 0.8
California 1,008 0.6
New Hampshire 1,000 0.6
Delaware 890 0.5
New York 519 0.3
New Jersey 301 0.2
- -----------------------------------------------------------------------------------------------------------
$ 166,335 100.0%
===========================================================================================================
</Table>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
23
<Page>
2004 ANNUAL REPORT
October 31, 2004
STATEMENTS OF ASSETS AND LIABILITIES
<Table>
<Caption>
MONEY MARKET PRIME GOVERNMENT TREASURY TAX-EXEMPT
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
(000) (000) (000) (000) (000)
- ----------------------------------------------------------------------------------------------------------------------------------
ASSETS:
Investments, at Cost: $ 3,081,114 $ 8,908,041 $ 548,290 $ 190,185 $ 166,335
==================================================================================================================================
Investments, at Value: 2,618,264 7,670,386 213,170 27,860 166,335
Repurchase Agreements, at Value 462,850 1,237,655 335,120 162,325 --
Cash -- 3 4 997 17
Interest Receivable 3,144 5,632 461 38 373
Receivable from Investment Adviser -- 158 114 75 --
Receivable for Investments Sold -- -- -- -- 5
Other 86 221 4 6 3
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS 3,084,344 8,914,055 548,873 191,301 166,733
- ----------------------------------------------------------------------------------------------------------------------------------
LIABILITIES:
Payable for Investments Purchased -- 150,000 -- 993 --
Dividends Declared 4,493 13,189 661 273 180
Investment Advisory Fees Payable 48 -- -- -- 93
Overdraft Payable 696 -- -- -- --
Payable for Administrative Fees 132 382 19 8 6
Payable for Custodian Fees 41 101 3 2 4
Shareholder Administration Plan
Fees Payable -- Investor Class -- -- 9 -- --@
Service and Shareholder Administration
Plan Fees Payable -- Advisory Class --@ 4 5 3 4
Other Liabilities 401 1,167 83 45 33
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 5,811 164,843 780 1,324 320
- ----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS $ 3,078,533 $ 8,749,212 $ 548,093 $ 189,977 $ 166,413
==================================================================================================================================
NET ASSETS CONSIST OF:
Paid-in Capital $ 3,078,535 $ 8,749,227 $ 548,093 $ 189,977 $ 166,413
Accumulated Net Realized Gain (Loss) (2) (15) --@ -- --
==================================================================================================================================
NET ASSETS $ 3,078,533 $ 8,749,212 $ 548,093 $ 189,977 $ 166,413
==================================================================================================================================
INSTITUTIONAL CLASS:
NET ASSETS $ 3,077,029 $ 8,732,862 $ 414,567 $ 187,770 $ 109,292
SHARES OUTSTANDING $0.01 par value
shares of beneficial interest
(unlimited number of shares
authorized) (not in 000's) 3,077,028,867 8,732,878,348 414,567,365 187,769,368 109,292,149
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER SHARE $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
==================================================================================================================================
INVESTOR CLASS:
NET ASSETS -- -- $ 109,776 -- $ 1,121
SHARES OUTSTANDING $0.01 par value
shares of beneficial interest
(unlimited number of shares
authorized) (not in 000's) -- -- 109,775,824 -- 1,120,477
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER SHARE -- -- $ 1.00 -- $ 1.00
==================================================================================================================================
ADVISORY CLASS:
NET ASSETS $ 1,504 $ 16,350 $ 23,750 $ 2,207 $ 56,000
SHARES OUTSTANDING $0.01 par value
shares of beneficial interest
(unlimited number of shares
authorized) (not in 000's) 1,504,608 16,349,838 23,749,400 2,207,294 56,000,000
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER SHARE $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
==================================================================================================================================
</Table>
@ Amount is less than $500.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
24
<Page>
2004 ANNUAL REPORT
October 31, 2004
STATEMENTS OF OPERATIONS
For the Period Ended October 31, 2004
<Table>
<Caption>
MONEY MARKET PRIME GOVERNMENT TREASURY TAX-EXEMPT
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
(000)* (000)* (000)** (000)** (000)*
- ----------------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest $ 20,052 $ 52,054 $ 1,063 $ 773 $ 781
EXPENSES:
Investment Advisory Fees 2,036 5,232 92 72 93
Administrative Fees 687 1,757 30 24 34
Shareholder Reporting Fees 6 15 --@ --@ --@
Professional Fees 59 104 24 23 25
Custodian Fees 64 156 4 2 8
Trustees' Fees and Expenses 11 28 --@ --@ 2
Registration and Filing Fees 404 1,160 85 48 45
Shareholder Administration Plan
Fees -- Investor Class 3 -- 24 -- 2
Service and Shareholder Administration
Plan Fees -- Advisory Class 1 18 5 11 4
Other Expenses 29 73 1 2 3
- ----------------------------------------------------------------------------------------------------------------------------------
Total Expenses 3,300 8,543 265 182 216
- ----------------------------------------------------------------------------------------------------------------------------------
Waiver of Investment Advisory Fees (2,036) (5,232) (92) (72) (93)
Expenses Reimbursed by Adviser (214) (513) (114) (75) (77)
- ----------------------------------------------------------------------------------------------------------------------------------
Net Expenses 1,050 2,798 59 35 46
- ----------------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) 19,002 49,256 1,004 738 735
- ----------------------------------------------------------------------------------------------------------------------------------
REALIZED GAIN (LOSS):
Investments (2) (15) --@ -- --
==================================================================================================================================
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $ 19,000 $ 49,241 $ 1,004 $ 738 $ 735
==================================================================================================================================
</Table>
* For the period from February 2, 2004
** For the period from August 9, 2004
@ Amount is less than $500.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
25
<Page>
2004 ANNUAL REPORT
October 31, 2004
STATEMENTS OF CHANGES IN NET ASSETS
For the Period ended October 31, 2004
<Table>
<Caption>
MONEY MARKET PRIME GOVERNMENT TREASURY TAX-EXEMPT
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
(000)* (000)* (000)** (000)** (000)*
- ----------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 19,002 $ 49,256 $ 1,004 $ 738 $ 735
Net Realized Gain (Loss) (2) (15) --@ -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations 19,000 49,241 1,004 738 735
- ----------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS FROM AND/OR IN EXCESS
OF:
INSTITUTIONAL CLASS:
Net Investment Income (18,959) (49,172) (612) (679) (694)
INVESTOR CLASS:
Net Investment Income (37) -- (362) -- (18)
ADVISORY CLASS:
Net Investment Income (6) (84) (30) (59) (23)
- ----------------------------------------------------------------------------------------------------------------------------------
Total Distributions (19,002) (49,256) (1,004) (738) (735)
- ----------------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:(1)
INSTITUTIONAL CLASS:
Subscribed 11,439,898 33,974,259 456,075 365,647 296,506
Distributions Reinvested 8,193 24,233 5 298 368
Redeemed (8,371,061) (25,265,715) (41,512) (178,175) (187,582)
INVESTOR CLASS:^
Subscribed 50,004 -- 875,167 -- 6,106
Distributions Reinvested 37 -- 16 -- 16
Redeemed (50,041) -- (765,407) -- (5,001)
ADVISORY CLASS: +
Subscribed 4,832 70,860 85,813 24,325 62,003
Distributions Reinvested -- 62 -- 41 3
Redeemed (3,327) (54,572) (62,064) (22,159) (6,006)
- ----------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Capital Share
Transactions 3,078,535 8,749,127 548,093 189,977 166,413
- ----------------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) in Net
Assets 3,078,533 8,749,112 548,093 189,977 166,413
NET ASSETS:
Beginning of Period -- 100 -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
End of Period $ 3,078,533 $ 8,749,212 $ 548,093 $ 189,977 $ 166,413
==================================================================================================================================
(1) CAPITAL SHARE TRANSACTIONS:
INSTITUTIONAL CLASS:
Shares Subscribed 11,439,897 33,974,258 456,074 365,647 296,506
Shares Issued on Distributions
Reinvested 8,193 24,233 5 298 368
Shares Redeemed (8,371,061) (25,265,713) (41,512) (178,176) (187,582)
- ----------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in
Institutional Class Shares
Outstanding 3,077,029 8,732,778 414,567 187,769 109,292
==================================================================================================================================
INVESTOR CLASS: ^
Shares Subscribed 50,004 -- 875,167 -- 6,106
Shares Issued on Distributions
Reinvested 37 -- 16 -- 16
Shares Redeemed (50,041) -- (765,407) -- (5,001)
- ----------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Investor
Class Shares Outstanding -- -- 109,776 -- 1,121
- ----------------------------------------------------------------------------------------------------------------------------------
ADVISORY CLASS: +
Shares Subscribed 4,832 70,838 85,813 24,325 62,003
Shares Issued on Distributions
Reinvested -- 84 -- 41 3
Shares Redeemed (3,327) (54,572) (62,064) (22,159) (6,006)
- ----------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Advisory
Class Shares Outstanding 1,505 16,350 23,749 2,207 56,000
==================================================================================================================================
</Table>
* For the period from February 2, 2004
** For the period from August 9, 2004
^ Reflects activity from June 16, 2004, August 9, 2004 and June 8, 2004 (dates
the Portfolios' Investor Classes commenced offering), for the Money Market,
Government and Tax-Exempt Portfolios, respectively.
+ Reflects activity from February 6, 2004, April 29, 2004, October 1, 2004,
August 9, 2004 and June 15, 2004 (dates the Portfolios' Advisory Classes
commenced offering), for the Money Market, Prime, Government, Treasury and
Tax-Exempt Portfolios, respectively.
@ Amount is less than $500.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
26
<Page>
2004 ANNUAL REPORT
October 31, 2004
FINANCIAL HIGHLIGHTS
<Table>
<Caption>
MONEY MARKET PRIME GOVERNMENT TREASURY TAX-EXEMPT
INSTITUTIONAL CLASS PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
---------------------------------------------------------------------------------------
PERIOD FROM PERIOD FROM PERIOD FROM PERIOD FROM PERIOD FROM
FEBRUARY 2, FEBRUARY 2, AUGUST 9, AUGUST 9, FEBRUARY 2,
2004** TO 2004** TO 2004** TO 2004** TO 2004** TO
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
SELECTED PER SHARE DATA AND RATIOS 2004 2004 2004 2004 2004
- ----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
==================================================================================================================================
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.009 0.009 0.004 0.004 0.008
- ----------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS FROM AND/OR IN EXCESS OF:
Net Investment Income (0.009) (0.009) (0.004) (0.004) (0.008)
- ----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
==================================================================================================================================
TOTAL RETURN 0.95%# 0.94%# 0.38%# 0.36%# 0.84%#
==================================================================================================================================
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $ 3,077,029 $ 8,732,862 $ 414,567 $ 187,770 $ 109,292
Ratio of Expenses to Average Net
Assets(1)+ 0.07%* 0.08%* 0.05%* 0.05%* 0.06%*
Ratio of Net Investment Income to
Average Net Assets(1) 1.41%* 1.41%* 1.73%* 1.57%* 1.19%*
- ----------------------------------------------------------------------------------------------------------------------------------
(1) RATIOS BEFORE EXPENSE LIMITATION:
Expenses to Average Net Assets+ 0.24%* 0.24%* 0.37%* 0.35%* 0.35%*
Net Investment Income to Average
Net Assets 1.24%* 1.25%* 1.41%* 1.27%* 0.90%*
- ----------------------------------------------------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
GOVERNMENT TAX-EXEMPT
INVESTOR CLASS PORTFOLIO PORTFOLIO
---------------------------------
PERIOD FROM PERIOD FROM
AUGUST 9, JUNE 8,
2004^ TO 2004^ TO
OCTOBER 31, OCTOBER 31,
SELECTED PER SHARE DATA AND RATIOS 2004 2004
- ----------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.000 $ 1.000
==============================================================================================
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.004 0.005
- ----------------------------------------------------------------------------------------------
DISTRIBUTIONS FROM AND/OR IN EXCESS OF:
Net Investment Income (0.004) (0.005)
- ----------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 1.000 $ 1.000
==============================================================================================
TOTAL RETURN 0.35%# 0.45%#
==============================================================================================
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $ 109,776 $ 1,121
Ratio of Expenses to Average Net Assets(2)+ 0.15%* 0.17%*
Ratio of Net Investment Income to Average Net
Assets(2) 1.53%* 1.06%*
- ----------------------------------------------------------------------------------------------
(2) RATIOS BEFORE EXPENSE LIMITATION:
Expenses to Average Net Assets+ 0.53%* 0.38%*
Net Investment Income to Average Net Assets 1.15%* 0.85%*
- ----------------------------------------------------------------------------------------------
</Table>
# Not Annualized
* Annualized
** Commencement of Operations
^ Date the Portfolio's Investor Class commenced offering.
+ Ratios of Expenses to Average Net Assets before and after Expense
Limitations may vary among share classes by more or less than the service
and shareholder administration plan fees due to different periods of
operation for each share class as well as fluctuations in daily net asset
amounts.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
27
<Page>
2004 ANNUAL REPORT
October 31, 2004
FINANCIAL HIGHLIGHTS
<Table>
<Caption>
ADVISORY CLASS MONEY MARKET PRIME GOVERNMENT TREASURY TAX-EXEMPT
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
---------------------------------------------------------------------------------
PERIOD FROM PERIOD FROM PERIOD FROM PERIOD FROM PERIOD FROM
FEBRUARY 6, APRIL 29, OCTOBER 1, AUGUST 9, JUNE 15,
2004^^ TO 2004^^ TO 2004^^ TO 2004^^ TO 2004^^ TO
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
SELECTED PER SHARE DATA AND RATIOS 2004 2004 2004 2004 2004(1)
- ----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
==================================================================================================================================
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.008 0.006 0.001 0.003 0.002
- ----------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS FROM AND/OR IN EXCESS OF:
Net Investment Income (0.008) (0.006) (0.001) (0.003) (0.002)
- ----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
==================================================================================================================================
TOTAL RETURN 0.76%# 0.57%# 0.13%# 0.30%# 0.24%#
==================================================================================================================================
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $ 1,504 $ 16,350 $ 23,750 $ 2,207 $ 56,000
Ratio of Expenses to Average Net
Assets(2) + 0.31%* 0.33%* 0.30%* 0.30%* 0.33%*
Ratio of Net Investment Income to
Average Net Assets(2) 1.12%* 1.14%* 1.53%* 1.30%* 1.32%*
- ----------------------------------------------------------------------------------------------------------------------------------
(2) RATIOS BEFORE EXPENSE LIMITATION:
Expenses to Average Net Assets+ 0.50%* 0.49%* 0.55%* 0.67%* 0.55%*
Net Investment Income to Average Net Assets 0.93%* 0.98%* 1.28%* 0.93%* 1.10%*
- ----------------------------------------------------------------------------------------------------------------------------------
</Table>
(1) There were no Tax-Exempt Portfolio Advisory shares outstanding during the
periods June 30, 2004 to July 22, 2004, July 30, 2004 to August 9, 2004,
August 30, 2004 to August 31, 2004 and September 2, 2004 to September 21,
2004.
# Not Annualized
* Annualized
^^ Date the Portfolio's Advisory Class commenced offering.
+ Ratios of Expenses to Average Net Assets before and after Expense
Limitations may vary among share classes by more or less than the service
and shareholder administration plan fees due to different periods of
operation for each share class as well as fluctuations in daily net asset
amounts.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
28
<Page>
2004 ANNUAL REPORT
October 31, 2004
NOTES TO FINANCIAL STATEMENTS
Morgan Stanley Institutional Liquidity Funds (the "Fund") is registered under
the Investment Company Act of 1940 (the "1940 Act"), as amended, as a
Massachusetts business trust. The Fund is comprised of five separate, active,
diversified portfolios (individually referred to as a "Portfolio", collectively
as the "Portfolios"). Each Portfolio currently offers three classes of shares -
Institutional Class, Investor Class and Advisory Class. All classes of shares
have identical voting rights (except that shareholders of a Class have exclusive
voting rights regarding any matter relating solely to that Class of shares),
dividend, liquidation and other rights.
For detailed descriptions of the investment objectives of each of the Portfolios
and other related information, please refer to the Prospectuses of the Fund.
Generally, the investment objective of the Portfolios is to seek preservation of
capital, daily liquidity and maximum current income (exempt from federal income
tax in the case of Tax-Exempt Portfolio).
A. ACCOUNTING POLICIES: The following significant accounting policies are in
conformity with U.S. generally accepted accounting principles for investment
companies. Such policies are consistently followed by the Fund in the
preparation of the financial statements. U.S. generally accepted accounting
principles may require management to make estimates and assumptions that
affect the reported amounts and disclosures in the financial statements.
Actual results may differ from those estimates.
1. SECURITY VALUATION: Securities owned by the Portfolios are stated at
amortized cost which approximates market value.
2. REPURCHASE AGREEMENTS: Certain Portfolios may enter into repurchase
agreements under which a Portfolio lends excess cash and takes possession of
securities with an agreement that the counterparty will repurchase such
securities. In connection with transactions in repurchase agreements, a bank
as custodian for the Fund takes possession of the underlying securities
which are held as collateral, with a market value at least equal to the
amount of the repurchase transaction, including principal and accrued
interest. To the extent that any repurchase transaction exceeds one business
day, the value of the collateral is marked-to-market on a daily basis to
determine the adequacy of the collateral. In the event of default on the
obligation to repurchase, the Fund has the right to liquidate the collateral
and apply the proceeds in satisfaction of the obligation. In the event of
default or bankruptcy by the counterparty to the agreement, realization
and/or retention of the collateral or proceeds may be subject to legal
proceedings. The Portfolios, along with other affiliated investment
companies, may utilize a joint trading account for the purpose of entering
into repurchase agreements.
3. OTHER: Security transactions are accounted for on the date the securities
are purchased or sold. Realized gains and losses on the sale of investment
securities are determined on a "first-in-first-out" basis. Interest income
is recognized on the accrual basis except where collection is in doubt.
Discounts and premiums on securities purchased are amortized over their
respective lives. Most expenses of the Fund can be directly attributed to a
particular Portfolio. Expenses which cannot be directly attributed are
apportioned among the Portfolios based upon relative net assets. Income,
expenses (other than class specific expenses) and realized and unrealized
gains or losses are allocated to each class of shares based upon their
relative net assets. Dividends to the shareholders of the Portfolios are
accrued daily and are distributed on the last business day of each month.
B. INVESTMENT ADVISORY FEES: Morgan Stanley Investment Management, Inc. (the
"Adviser" or "MSIM"), a wholly-owned subsidiary of Morgan Stanley, provides the
Fund with investment advisory services under the terms of an Investment Advisory
and Management Agreement (the "Agreement") at the annual rates of average daily
net assets indicated below. The Adviser has voluntarily agreed to reduce its
advisory fee and/or absorb other expenses so that the total operating expenses
of each share class will not exceed the amounts noted below in the first year of
operations. After the first year of operations, this fee and expense waiver may
be discontinued at any time.
<Table>
<Caption>
MAXIMUM
EXPENSE RATIO
---------------------------------------
ADVISORY INSTITUTIONAL INVESTOR ADVISORY
PORTFOLIO FEE CLASS CLASS CLASS
- --------------------------------------------------------------------------------
Money Market 0.15% 0.20% 0.30% 0.45%
Prime 0.15 0.20 0.30 0.45
Government 0.15 0.20 0.30 0.45
Treasury 0.15 0.20 0.30 0.45
Tax-Exempt 0.15 0.20 0.30 0.45
</Table>
The Ratio of Expenses to Average Net Assets disclosed in the Portfolios'
Financial Highlights may be lower than the maximum ratios indicated in the table
above due to additional voluntary expense limitations imposed by the Adviser.
The Adviser may terminate these additional voluntary limitations at any time at
its sole discretion.
The Adviser has entered into a Sub-Advisory Agreement with Morgan Stanley
Investment Advisors Inc. (the "Sub-Adviser"), a wholly-owned subsidiary of
Morgan Stanley. The Sub-Adviser, subject to the control and supervision of the
Fund, its officers, Trustees and the Adviser, and in accordance with the
investment objectives, policies and restrictions of the Portfolios, makes
day-to-day investment decisions for the Portfolios and places the Portfolios'
purchase and sales orders. The Adviser pays the Sub-Adviser on a monthly basis a
portion of the net advisory fees the Adviser receives from the Portfolios.
C. ADMINISTRATOR: MSIM (the "Administrator") serves as Administrator to the Fund
pursuant to an Administration Agreement. Under the agreement, MSIM receives an
annual fee, accrued daily and payable monthly, of 0.05% of each Portfolio's
average daily net assets, plus reimbursement of out-of-pocket expenses. J.P.
Morgan Investor Services Co. ("JPMIS"), a corporate affiliate of JPMorgan Chase
Bank, provides fund accounting and other services pursuant to a
sub-administration agreement with MSIM and receives compensation for these
services. JPMIS also serves as the Transfer Agent to the Fund pursuant to a
Transfer Agency Agreement. An employee of JPMIS is an officer of the Fund.
D. DISTRIBUTION AND SERVICE AND SHAREHOLDER ADMINISTRATION FEES: Morgan Stanley
& Co. Incorporated (the "Distributor"), a wholly-owned subsidiary of Morgan
Stanley, and an affiliate of
29
<Page>
2004 ANNUAL REPORT
October 31, 2004
NOTES TO FINANCIAL STATEMENTS (CONT'D)
MSIM, serves as the distributor of the Fund. The Fund has entered into an
Administration Plan with respect to its Investor Class shares pursuant to which
its Investor Class shares pay the Distributor a monthly or quarterly fee at an
annual rate of up to 0.10% of the average daily net assets of such class of
shares, to compensate certain financial intermediaries who provide
administrative services to shareholders. The Fund has also entered into a
Service and Shareholder Administration Plan with respect to its Advisory Class
shares pursuant to which its Advisory Class shares pays the Distributor a
monthly or quarterly fee at an annual rate of up to 0.25% of the average daily
net assets of such class of shares, to compensate certain financial
intermediaries who provide administrative services, personal and account
maintenance services to shareholders.
E. CUSTODIAN FEES: JPMorgan Chase Bank serves as custodian for the Fund in
accordance with a custodian agreement. The Custodian holds cash, securities,
and other assets of the fund as required by the 1940 Act.
F. FEDERAL INCOME TAXES: It is each Portfolio's intention to qualify as a
regulated investment company and distribute all of its taxable and tax-exempt
income. Accordingly, no provision for Federal income taxes is required in the
financial statements. The tax character of distributions paid may differ from
the character of distributions shown on the Statements of Changes in Net
Assets due to short-term capital gains being treated as ordinary income for
tax purposes. The tax character of distributions paid during fiscal 2004 were
as follows:
<Table>
<Caption>
2004
DISTRIBUTIONS
PAID FROM:
------------------------
ORDINARY LONG-TERM
INCOME CAPITAL GAIN
PORTFOLIO (000) (000)
- --------------------------------------------------------------------------------
Money Market $ 19,002 $ --
Prime 49,256 --
Government 1,004 --
Treasury 738 --
Tax-Exempt 735* --
</Table>
* Distributions are tax-exempt
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations which may differ from U.S. generally
accepted accounting principles.
At October 31, 2004, the components of distributable earnings on a tax basis
were as follows:
<Table>
<Caption>
UNDISTRIBUTED
ORDINARY
INCOME
PORTFOLIO (000)
- ------------------------------------------------
Money Market $ 4,494
Prime 13,192
Government 661
Treasury 273
Tax-Exempt 180
</Table>
At October 31, 2004, cost for U.S. Federal income tax purposes for the
investments of the Portfolios were as follows:
<Table>
<Caption>
COST
PORTFOLIO (000)
- ------------------------------------------------
Money Market $ 3,081,114
Prime 8,908,041
Government 548,290
Treasury 190,185
Tax-Exempt 166,335
</Table>
At October 31, 2004, the Money Market Portfolio and Prime Portfolio had capital
loss carryforwards for U.S. Federal income tax purposes of approximately $2,000
and $15,000, respectively, available to offset future capital gains which will
expire on October 31, 2012.
G. CONTRACTUAL OBLIGATIONS: The Fund enters into contracts that contain a
variety of indemnifications. The Fund's maximum exposure under these
arrangements is unknown. However, the Fund has not had prior claims or losses
pursuant to these contracts and expects the risk of loss to be remote.
H. ORGANIZATION AND/OR OFFERING COSTS: The Adviser has agreed to absorb any
organization and/or offering costs associated with the opening of the Fund.
I. OTHER: A portion of the securities of the Tax-Exempt Portfolio are insured
by certain companies specializing in the insurance of municipal debt
obligations. At October 31, 2004, approximately 14.9% of the net assets of the
Tax-Exempt Portfolio are covered by such insurance. The insurers and their
obligations are as follows:
<Table>
<Caption>
PERCENTAGE OF
INSURER NET ASSETS
------------------------------------------
AMBAC 4.8%
FGIC 5.0
FSA 0.4
MBIA 4.7
</Table>
At October 31, 2004, certain Portfolios had otherwise unaffiliated record owners
of 10% or greater. Investment activities of these shareholders could have a
material impact on these Portfolios. These Portfolios and the aggregate
percentage of such owners were as follows:
<Table>
<Caption>
PERCENTAGE OF OWNERSHIP
--------------------------------------------
INSTITUTIONAL INVESTOR ADVISORY
PORTFOLIO CLASS CLASS CLASS
- --------------------------------------------------------------------------
Money Market -- -- 100.0%
Prime 44.1% -- 100.0
Government 82.0 92.9% 92.8
Treasury 55.0 -- 100.0
Tax-Exempt 68.3 99.6 100.0
</Table>
30
<Page>
2004 ANNUAL REPORT
October 31, 2004
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES OF
MORGAN STANLEY INSTITUTIONAL LIQUIDITY FUNDS
We have audited the accompanying statements of assets and liabilities, including
the portfolios of investments, of the Money Market Portfolio, Prime Portfolio,
Government Portfolio, Treasury Portfolio and Tax-Exempt Portfolio (the "Funds")
(the five portfolios constituting Morgan Stanley Institutional Liquidity Funds)
as of October 31, 2004, and the related statements of operations, statements of
changes in net assets and the financial highlights for each of the periods
indicated therein. These financial statements and financial highlights are the
responsibility of the Funds' 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 and financial highlights. Our procedures
included confirmation of securities owned as of October 31, 2004 by
correspondence with the custodian and brokers or by other appropriate auditing
procedures where replies from brokers were not received. 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 each
of the portfolios constituting Morgan Stanley Institutional Liquidity Funds at
October 31, 2004, the results of their operations, the changes in their net
assets and the financial highlights for each of the periods indicated therein,
in conformity with U.S. generally accepted accounting principles.
/s/ Ernst & Young LLP
Boston, Massachusetts
December 10, 2004
31
<Page>
2004 ANNUAL REPORT
October 31, 2004
FEDERAL TAX INFORMATION (UNAUDITED)
For the year ended October 31, 2004, the percentage of income earned from direct
U.S. Treasury Obligations for the Government Portfolio and Treasury Portfolio is
31.3% and 20.1%, respectively.
For the year ended October 31, 2004, the percentage of exempt interest dividends
paid by the Tax- Exempt Portfolio is 100.0%.
32
<Page>
2004 ANNUAL REPORT
October 31, 2004
TRUSTEE AND OFFICER INFORMATION (UNAUDITED)
INDEPENDENT TRUSTEES:
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
TERM OF OFFICE FUND COMPLEX
NAME, AGE AND ADDRESS OF POSITION(S) HELD AND LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN BY OTHER DIRECTORSHIPS HELD
TRUSTEE WITH REGISTRANT TIME SERVED* DURING PAST 5 YEARS TRUSTEE** BY TRUSTEE
- -----------------------------------------------------------------------------------------------------------------------------------
Michael Bozic (63) Trustee Trustee since Private Investor; 208 Director of Weirton Steel
c/o Kramer Levin Naftalis & July 2003 Director or Trustee of Corporation.
Frankel LLP the Retail Funds (since
Counsel to the Independent April 1994) and the
Directors Institutional Funds
919 Third Avenue (since July 2003);
New York, NY 10022-3902 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 (72) Trustee Trustee since Managing Director of 208 Director of Franklin
c/o Summit Ventures LLC July 2003 Summit Ventures LLC; Covey (time management
One Utah Center Director or Trustee of systems), BMW Bank of
201 South Main Street the Retail Funds (since North America, Inc.
Salt Lake City, UT 84111- January 1993) and the (industrial loan
2215 Institutional Funds corporation), United
(since July 2003); member Space Alliance (joint
of the Utah Regional venture between Lockheed
Advisory Board of Pacific Martin and The Boeing
Corp.; formerly United Company) and Nuskin Asia
States Senator (R-Utah) Pacific (multilevel
(1974-1992) and Chairman, marketing); member of the
Senate Banking Committee board of various civic
(1980-1986), Mayor of and charitable
Salt Lake City, Utah organizations.
(1971-1974), Astronaut,
Space Shuttle Discovery
(April 12-19, 1985), and
Vice Chairman, Huntsman
Corporation (chemical
company).
Wayne E. Hedien (70) Trustee Trustee since Retired; Director or 208 Director of the PMI Group
c/o Kramer Levin Naftalis & July 2003 Trustee of the Retail Inc. (private mortgage
Frankel LLP Funds (since September insurance); Trustee and
Counsel to the 1997) and the Vice Chairman of The
Independent Directors Institutional Funds Field Museum of Natural
919 Third Avenue (since July 2003); History; director of
New York, NY 10022-3902 formerly associated with various other business
the Allstate Companies and charitable
(1966-1994), most organizations.
recently as Chairman of
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).
Dr. Manuel H. Johnson (55) Trustee Trustee since Senior Partner, Johnson 208 Director of NVR, Inc.
c/o Johnson Smick July 2003 Smick International, (home construction);
International, Inc. Inc., a consulting firm; Director of RBS Greenwich
2099 Pennsylvania Avenue, Chairman of the Audit Capital Holdings
NW Suite 950 Committee and Director or (financial holdings
Washington, D.C. 20006 Trustee of the Retail company).
Funds (since July 1991)
and the Institutional
Funds (since July 2003);
Co-Chairman and a founder
of the Group of Seven
Council (G7C), an
international economic
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 (62) Trustee Trustee since President, Kearns & 209 Director of Electro Rent
c/o Kearns & Associates LLC August 1994 Associates LLC Corporation (equipment
PMB754 (investment consulting); leasing), The Ford Family
23852 Pacific Coast Highway Deputy Chairman of the Foundation and the UCLA
Malibu, CA 90265 Audit Committee and Foundation.
Director or Trustee of
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 Nugent (68) Trustee Trustee since General Partner of 208 Director of various
c/o Triumph Capital, L.P. July 2001 Triumph Capital, L.P., a business organizations.
445 Park Avenue, 10th Floor private investment
New York, NY 10022 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 (72) Trustee Trustee since Chairman of Lumelite 209 Trustee and Director of
c/o Lumelite Plastics June 1992 Plastics Corporation; certain investment
Corporation Chairman of the companies in the J.P.
85 Charles Coleman Blvd. Governance Committee and Morgan Funds complex
Pawling, NY 12564 Director or Trustee of managed by J.P. Morgan
the Retail Funds (since Investment Management
July 2003) and the Inc.
Institutional Funds
(since June 1992).
</Table>
33
<Page>
2004 ANNUAL REPORT
October 31, 2004
TRUSTEE AND OFFICER INFORMATION (CONT'D)
INTERESTED TRUSTEES:
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
TERM OF OFFICE FUND COMPLEX
NAME, AGE AND ADDRESS OF POSITION(S) HELD AND LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN BY OTHER DIRECTORSHIPS HELD
TRUSTEE WITH REGISTRANT TIME SERVED* DURING PAST 5 YEARS TRUSTEE** BY TRUSTEE
- -----------------------------------------------------------------------------------------------------------------------------------
Charles A. Fiumefreddo (71) Chairman and Chairman of Chairman and Director or 208 None
c/o Morgan Stanley Trust Trustee of the the Board and Trustee of the Retail
Harborside Financial Center Board Trustee since Funds (since July 1991)
Plaza Two 3rd Floor July 2003 and the Institutional
Jersey City, NJ 07311 Funds (since July 2003);
formerly Chief Executive
Officer of the Retail
Funds (until September
2002).
James F. Higgins (56) Trustee Trustee since Director or Trustee of 208 Director of AXA
c/o Morgan Stanley Trust July 2003 the Retail Funds (since Financial, Inc. and The
Harborside Financial Center June 2000) and the Equitable Life Assurance
Plaza Two 2nd Floor Institutional Funds Society of the United
Jersey City, NJ 07311 (since July 2003); Senior States (financial
Advisor of Morgan Stanley services).
(since August 2000);
Director of Morgan
Stanley Distributors Inc.
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 Institutional
Funds. Each Trustee serves an indefinite term, until his or her successor
is elected.
** The Fund Complex includes all funds advised by Morgan Stanley Investment
Management Inc. and funds that have an investment advisor that is an
affiliated entity of Morgan Stanley Investment Management Inc. (including,
but not limited to, Morgan Stanley Investments LP and Morgan Stanley
Investment Advisors Inc.).
Additional information about the Fund's Trustees can be found in the Fund's
Statement of Additional Information (SAI). The SAI may be obtained without
charge upon request, by calling the Fund at 1-888-378-1630 or by accessing the
Morgan Stanley Investment Management's website at www.morganstanley.com/im. You
may also retrieve this information on-line at the Securities and Exchange
Commission's web site at www.sec.gov.
34
<Page>
2004 ANNUAL REPORT
October 31, 2004
TRUSTEE AND OFFICER INFORMATION (CONT'D)
OFFICERS:
<Table>
<Caption>
POSITION(S) TERM OF OFFICE
HELD WITH AND LENGTH OF
NAME, AGE AND ADDRESS OF EXECUTIVE OFFICER REGISTRANT TIME SERVED* PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
- ------------------------------------------------------------------------------------------------------------------------------------
Mitchell M. Merin (51) President President President and Chief Operating Officer of Morgan
Morgan Stanley Investment Management Inc. since July Stanley Investment Management Inc.; President,
1221 Avenue of the Americas 33rd Floor 2003 Director and Chief Executive Officer of Morgan
New York, NY 10020 Stanley Investment Advisors Inc. and Morgan
Stanley Services Company Inc.; Chairman and
Director of Morgan Stanley Distributors Inc.;
Chairman and Director of Morgan Stanley Trust;
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.
Ronald E. Robison (65) Executive Executive Vice Principal Executive Officer--Office of the Funds
Morgan Stanley Investment Management Inc. Vice President President and (since November 2003); Managing Director of Morgan
1221 Avenue of the Americas 34th Floor and Principal Principal Stanley & Co. Incorporated, Managing Director of
New York, NY 10020 Executive Executive Morgan Stanley; Managing Director, Chief
Officer Officer since Administrative Officer and Director of Morgan
July 2003 Stanley Investment Advisors Inc. and Morgan
Stanley Services Company Inc.; Chief Executive
Officer and Director of Morgan Stanley Trust;
Managing Director and Director of Morgan Stanley
Distributors Inc.; Executive Vice President and
Principal Executive Officer of the Retail Funds
(since April 2003) and the Institutional Funds
(since July 2003); 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 Vice President Managing Director and Chief Investment Officer of
Morgan Stanley Investment Management Inc. since July Morgan Stanley Investment Advisors Inc. and Morgan
1221 Avenue of the Americas 33rd Floor 2003 Stanley Investment Management Inc.; Director of
New York, NY 10020 Morgan Stanley Trust; Chief Investment Officer of
the Van Kampen Funds; Vice President of the
Institutional Funds (since July 2003) and the
Retail Funds (since July 1995).
Barry Fink (49) Vice President Vice President General Counsel (since May 2000) and Managing
Morgan Stanley Investment Management Inc. since July Director (since December 2000) of Morgan Stanley
1221 Avenue of the Americas 22nd Floor 2003 Investment Management; Managing Director (since
New York, NY 10020 December 2000), Secretary (since February 1997)
and Director (since July 1998) of Morgan Stanley
Investment Advisors Inc. and Morgan Stanley
Services Company Inc.; Vice President and General
Counsel of the Retail Funds; Assistant Secretary
of Morgan Stanley DW Inc.; Vice President of the
Institutional Funds (since July 2003); Managing
Director, Secretary and Director of Morgan Stanley
Distributors Inc.; previously Secretary of the
Retail Funds (February 1997- July 2003) and Vice
President and Assistant General Counsel of Morgan
Stanley Investment Advisors Inc. and Morgan
Stanley Services Company Inc. (February 1997-
December 2001).
Amy R. Doberman (42) Vice President Vice President Managing Director and General Counsel - U.S.
Morgan Stanley Investment Management Inc. since July Investment Management; Managing Director of the
1221 Avenue of the Americas 22nd Floor 2004 Investment Manager and Morgan Stanley Investment
New York, NY 10020 Advisor Inc.; Vice President of the Institutional
and Retail Funds (since July 2004); previously,
Managing Director and General Counsel - Americas,
UBS Global Asset Management (July 2000-July 2004)
and General Counsel, Aeltus Investment Management,
Inc. (January 1997-July 2000).
Carsten Otto (41) Chief Chief Executive Director and U.S. Director of Compliance
Morgan Stanley Investment Management Inc. Compliance Compliance for Morgan Stanley Investment Management (since
1221 Avenue of the Americas 22nd Floor Officer Officer since October 2004); Executive Director of Morgan
New York, NY 10020 2004 Stanley Investment Advisors Inc. and Morgan
Stanley Investment Management Inc.; formerly
Assistant Secretary and Assistant General Counsel
of the Morgan Stanley Retail Funds.
Stefanie V. Chang (38) Vice President Vice President Executive Director of Morgan Stanley & Co.
Morgan Stanley Investment Management Inc. since Incorporated, Morgan Stanley Investment Management
1221 Avenue of the Americas 22nd Floor December Inc. and Morgan Stanley Investment Advisors Inc.;
New York, NY 10020 1997 Vice President of the Institutional Funds and the
Retail Funds; formerly practiced law with the New
York law firm of Rogers & Wells (now Clifford
Chance US LLP).
James W. Garrett (35) Treasurer and Treasurer Executive Director of Morgan Stanley & Co.
Morgan Stanley Investment Management Inc. Chief since February Incorporated, Morgan Stanley Investment Management
1221 Avenue of the Americas 34th Floor Financial 2002 CFO Inc.; Treasurer and Chief Financial Officer of the
New York, NY 10020 Officer since July Institutional Funds; Previously with
2003 PriceWaterhouse LLP (now PriceWaterhouseCoopers
LLP).
Michael J. Leary (38) Assistant Assistant Assistant Director and Vice President of Fund
J.P. Morgan Investor Services Co. Treasurer Treasurer Administration, JPMorgan Investor Services Co.
73 Tremont Street since March (formerly Chase Global Funds Services Company);
Boston, MA 02108 2003 formerly Audit Manager at Ernst & Young LLP.
Mary E. Mullin (37) Secretary Secretary Executive Director of Morgan Stanley & Co.
Morgan Stanley Investment Management Inc. since June Incorporated, Morgan Stanley Investment Management
1221 Avenue of the Americas 22nd Floor 1999 Inc. and Morgan Stanley Investment Advisors Inc.;
New York, NY 10020 Secretary of the 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 date the Officer began serving the Institutional Funds. Each
Officer serves an indefinite term, until his or her successor is elected.
35
<Page>
2004 ANNUAL REPORT
October 31, 2004
INVESTMENT ADVISER AND ADMINISTRATOR
Morgan Stanley Investment Management Inc.
1221 Avenue of the Americas
New York, NY 10020
DISTRIBUTOR
Morgan Stanley & Co., Incorporated
1221 Avenue of the Americas
New York, NY 10020
CUSTODIAN
JPMorgan Chase Bank
270 Park Avenue
New York, NY 10017
LEGAL COUNSEL
Clifford Chance US LLP
31 West 52nd Street
New York, NY 10166
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Ernst & Young LLP
200 Clarendon Street
Boston, MA 02116-5072
REPORTING TO SHAREHOLDERS
Each Morgan Stanley fund provides a complete schedule of portfolio holdings in
its semi-annual 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 semi-annual reports are filed on
Form N-CSRS and the annual reports are filed on Form N-CSR. Morgan Stanley also
delivers the semi-annual and annual reports to fund shareholders and makes these
reports available on its public website, 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 website. 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 website, www.sec.gov. You may also review and
copy them at the SEC's Public Reference Room in Washington, DC. Information on
the operation of the SEC's Public Reference Room may be obtained by calling the
SEC at 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 email address
(publicinfo@sec.gov) or by writing the Public Reference section of the SEC,
Washington, DC 20549-0102.
PROXY VOTING POLICIES AND PROCEDURES AND PROXY VOTING RECORD
A copy 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 October 31 is available without charge, upon request, by calling
1-888-378-1630 or by visiting our website at www.morganstanley.com/im. This
information is also available on the Securities and Exchange Commission's
website at www.sec.gov.
This report is authorized for distribution only when preceded or accompanied by
the prospectuses of the Morgan Stanley Institutional Liquidity Funds which
describes in detail each Investment Portfolio's investment policies, risks, fees
and expenses. Please read the prospectus carefully before you invest or send
money. For additional information, including information regarding the
investments comprising the Portfolio, please visit our website at
www.morganstanley.com/im or call 1-888-378-1630.
36
<Page>
Printed in U.S.A.
This Report has been prepared for shareholders and may be distributed to others
only if preceded or accompanied by a current prospectus.
Morgan Stanley Investment Management Inc.
1221 Avenue of the Americas
New York, NY 10020
MSILF: (888) 378-1630
(C) 2004 Morgan Stanley
[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) The Fund has amended its Code of Ethics during the period covered by the
shareholder report presented in Item 1 hereto to delete from the end of the
following paragraph on page 2 of the Code the phrase "to the detriment of the
Fund.":
"Each Covered Officer must not use his personal influence or personal
relationship improperly to influence investment decisions or financial reporting
by the Fund whereby the Covered Officer would benefit personally (directly or
indirectly)."
(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 Directors has determined that it has two "audit committee
financial experts" serving on its audit committee, each of whom are
"independent" Directors: 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 Directors
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>
2004 REGISTRANT COVERED ENTITIES(1)
AUDIT FEES $ 100,000 N/A
NON-AUDIT FEES
AUDIT-RELATED FEES $ $ 115,000(2)
TAX FEES $ 10,500(3) $ 42,141(4)
ALL OTHER FEES $ $ 140,435(5)
TOTAL NON-AUDIT FEES $ 10,500 $ 297,576
TOTAL $ 110,500 $ 297,576
</Table>
<Table>
<Caption>
2003 REGISTRANT COVERED ENTITIES(1)
AUDIT FEES $ N/A
NON-AUDIT FEES
AUDIT-RELATED FEES $ $ 93,000(2)
TAX FEES $ $ 70,314(4)
ALL OTHER FEES $ $ 262,325(6)
TOTAL NON-AUDIT FEES $ $ 425,639
TOTAL $ $ 425,639
</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 attestation services provided in connection with a SAS
70 Report.
(3) Tax Fees represent tax advice and compliance services provided in
connection with the review of the Registrant's tax returns.
(4) Tax Fees represent tax advice services provided to Covered Entities,
including research and identification of PFIC entities.
2
<Page>
(5) All Other Fees represent attestation services provided in connection with
performance presentation standards.
(6) All Other Fees represent attestation services provided in connection with
performance presentation standards, general industry education seminars
provided, and a regulatory review project performed.
(e)(1) The audit committee's pre-approval policies and procedures are as
follows:
3
<Page>
AUDIT COMMITTEE
AUDIT AND NON-AUDIT SERVICES
PRE-APPROVAL POLICY AND PROCEDURES
OF THE
MORGAN STANLEY RETAIL AND INSTITUTIONAL FUNDS
AS ADOPTED AND AMENDED JULY 23, 2004,(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, supersedes 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. - 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.
- - 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).
- - Audit-related Services
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
<Page>
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).
- - 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).
- - 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.
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).
- - 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.
- - 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
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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.
- - 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. 1, and discussing with the Independent Auditors
its methods and procedures for ensuring independence.
- - 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 Inc.
Morgan Stanley Investment Management Limited
Morgan Stanley Investment Management Private Limited
Morgan Stanley Asset & Investment Trust Management Co., Limited
Morgan Stanley Investment Management Company
Van Kampen Asset Management
Morgan Stanley Services Company, Inc.
Morgan Stanley Distributors Inc.
Morgan Stanley Trust FSB
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MORGAN STANLEY INSTITUTIONAL FUNDS
Morgan Stanley Investment Management Inc.
Morgan Stanley Investment Advisors Inc.
Morgan Stanley Investment Management Limited
Morgan Stanley Investment Management Private Limited
Morgan Stanley Asset & Investment Trust Management Co., Limited
Morgan Stanley Investment Management Company
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 Directors has considered whether the
provision of services other than audit services performed by the auditors to the
Registrant and Covered Entities is compatible with maintaining the auditors'
independence in performing audit services.
Item 5. Audit Committee of Listed Registrants.
(a) The Fund has a separately-designated standing audit committee established
in accordance with Section 3(a)(58)(A) of the Exchange Act whose members are:
Michael Bozic, Edwin J. Garn, Wayne E. Hedien, Manual H. Johnson, Joseph J.
Kearns, Michael Nugent and Fergus Reid.
(b) Not applicable.
Item 6. Schedule of Investments
Refer to Item 1.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
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Applicable only to annual reports filed by closed-end funds.
Item 8. Closed-End Fund Repurchases
Applicable to reports filed by closed-end funds.
Item 9. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 10. Controls and Procedures
(a) The Fund's principal executive officer and principal financial officer have
concluded that the Fund's disclosure controls and procedures are sufficient to
ensure that information required to be disclosed by the Fund in this Form N-CSR
was recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission's rules and forms, based
upon such officers' evaluation of these controls and procedures as of a date
within 90 days of the filing date of the report.
(b) There were no changes in the registrant's internal control over financial
reporting that occurred during the registrant's most recent fiscal half-year
(the registrant's second fiscal half-year in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
Item 11. Exhibits
(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.
9