When this Administration took office, the President charged us with a mission - to challenge the status quo, and prepare the Department of Defense to meet the new threats our nation will face as the 21st century unfolds. - U.S. Secretary of Defense, Donald H. Rumsfeld The Department of Defenses’ transformative mission is planned against the backdrop of a global war on terrorism. As a result, THE ANNUAL DEFENSE REPORT represents the latest defense strategy with an innovative approach to balancing risks and rewards of a retooled national security policy. This report encompasses information on Operational, Institutional and Force Management Risk and its Future Challenges. Also incorporated are reports from the Secretaries of the Army, Navy & Air Force. Appendices include detailed budget tables, resources allocated to mission and support activities, and a summary of the Goldwater-Nichols Act Implementation Report.