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: 811-08471
Morgan Stanley Aggressive Equity Fund
(Exact name of registrant as specified in charter)
1221 Avenue of the Americas, New York, New York 10020
(Address of principal executive offices) (Zip code)
Ronald E. Robison
1221 Avenue of the Americas, New York, New York 10020
(Name and address of agent for service)
Registrant's telephone number, including area code: 212-762-4000
Date of fiscal year end: July 31, 2004
Date of reporting period: January 31, 2004
Item 1 - Report to Shareholders
Welcome, Shareholder:
In this report, you'll learn about how your investment in Morgan Stanley
Aggressive Equity Fund performed during the semiannual period. We will provide
an overview of the market conditions, and discuss some of the factors that
affected performance during the reporting period. In addition, this report
includes the Fund's financial statements and a list of Fund investments.
This material must be preceded or accompanied by a prospectus for the Fund being
offered. Market forecasts provided in this report may not necessarily come to
pass. There is no assurance that the Fund will achieve its investment objective.
The Fund is subject to market risk, which is the possibility that market values
of securities owned by the Fund will decline and, therefore, the value of the
Fund's shares may be less than what you paid for them. Accordingly, you can lose
money investing in this Fund.
FUND REPORT
For the six-month period ended January 31, 2004
TOTAL RETURN FOR THE SIX MONTHS ENDED JANUARY 31, 2004
<Table>
<Caption>
LIPPER MULTI-CAP
S&P 500 GROWTH FUNDS
CLASS A CLASS B CLASS C CLASS D INDEX(1) INDEX(2)
15.69% 15.19% 15.17% 15.64% 15.22% 16.39%
</Table>
The performance of the Fund's four share classes varies because each has
different expenses. The Fund's total return figures assume the reinvestment of
all distributions, but do not reflect the deduction of any applicable sales
charges. Such costs would lower performance. Past performance is no guarantee of
future results. See Performance Summary for standardized performance
information.
MARKET CONDITIONS
The six-month period ended January 31, 2004, was marked by a combination of
strong economic growth, robust earnings increases and positive equity
performance. The U.S. growth domestic product (GDP) rate topped 8 percent in the
third quarter and 4 percent in the fourth, while corporate profits and forecasts
grew increasingly positive. This setting fueled strong gains among such
economically sensitive sectors as technology, basic materials and industrials.
The traditionally more defensive sectors like consumer staples, health care and
utilities lagged in the rally through the end of the year. The U.S. dollar fell
throughout the period, leading to strength in precious metals stocks, which have
historically been viewed as a hedge against currency instability.
The market's tone changed somewhat in the last month of the period as the sector
leadership shifted. Telecommunications, a sector that lagged the broader market
in 2003, assumed the lead for the month of the January. The U.S. dollar also
gained during the month, which had the effect of reversing some of the previous
year's gains in precious metals.
PERFORMANCE ANALYSIS
Morgan Stanley Aggressive Equity Fund performed in line with the S&P 500 Index
and underperformed the Lipper Multi-Cap Growth Funds Index for the six-month
period ended January 31, 2004. Performance benefited from a shift early in the
period toward such cyclical sectors as information technology, basic materials
and industrials. These outperformed strongly as the economy rebounded, and the
Fund gained as a result.
Two of the Fund's overweighted positions relative to the S&P 500 were
particularly beneficial. The Fund's holdings in gold and industrial metals
stocks gained sharply as a result of their perceived strength as hedges against
the falling U.S. dollar. We decided to trim these positions in January to a more
modest overweighting. The Fund also benefitted from our overweighted position in
technology stocks.
The primary limitation on the Fund's performance came from the industrials
sector, where weak stock selection held the Fund back relative to the S&P 500.
We focused during the period on mid-cap industrial companies that we believed
were poised for strong earnings growth. While we still believe in these
companies' prospects, the leading performers in the sector during the period
were stocks with much higher capitalizations.
2
<Table>
<Caption>
TOP 10 HOLDINGS
Cisco Systems Inc. 3.6%
Smith International Inc. 2.7
Microsoft Corp. 1.8
Intel Corp. 1.8
Yahoo Inc. 1.7
Guidant Corp. 1.6
Lehman Brothers Hldgs Inc. 1.6
Goldman Sachs Group Inc. 1.5
Citigroup Inc. 1.5
Dell Inc. 1.4
</Table>
<Table>
<Caption>
TOP FIVE INDUSTRIES
Packaged Software 8.6%
Semiconductors 7.6
Medical Specialties 6.9
Investment Banks/Brokers 5.4
Computer Communications 4.5
</Table>
Subject to change daily. All percentages are as a percentage of net assets.
Provided for informational purposes only and should not be deemed as a
recommendation to buy or sell the securities mentioned. Morgan Stanley is a
full-service securities firm engaged in securities trading and brokerage
activities, investment banking, research and analysis, financing and financial
advisory services.
INVESTMENT STRATEGY
1. THE INVESTMENT MANAGER UTILIZES A SECTOR ROTATION PROCESS THAT EMPHASIZES
INDUSTRY SELECTION OVER INDIVIDUAL COMPANY SELECTION. THE INVESTMENT MANAGER
INVESTS IN THOSE INDUSTRIES THAT IT BELIEVES WILL HAVE THE STRONGEST RELATIVE
EARNINGS GROWTH POTENTIAL GIVEN THE PROJECTED ECONOMIC OUTLOOK.
2. AFTER SELECTING TARGET INDUSTRIES, THE INVESTMENT MANAGER SELECTS SPECIFIC
COMPANIES WITHIN THOSE INDUSTRIES WHOSE PROSPECTS ARE DEEMED ATTRACTIVE AFTER
ASSESSING COMPANY FUNDAMENTALS AND VALUATION SCREENS.
3. THE FUND MAY INVEST IN SMALL AND MEDIUM-SIZED COMPANIES IN ADDITION TO LARGER
MORE ESTABLISHED COMPANIES.
PROXY VOTING POLICIES AND PROCEDURES
A DESCRIPTION OF THE FUND'S POLICIES AND PROCEDURES WITH RESPECT TO THE VOTING
OF PROXIES RELATING TO THE FUND'S PORTFOLIO SECURITIES IS AVAILABLE WITHOUT
CHARGE, UPON REQUEST, BY CALLING (800) 869-NEWS. THIS INFORMATION IS ALSO
AVAILABLE ON THE SECURITIES AND EXCHANGE COMMISSION'S WEBSITE AT
HTTP://WWW.SEC.GOV.
3
PERFORMANCE SUMMARY
AVERAGE ANNUAL TOTAL RETURNS -- PERIOD ENDED JANUARY 31, 2004
<Table>
<Caption>
CLASS A SHARES* CLASS B SHARES** CLASS C SHARES(+) CLASS D SHARES(++)
(since 02/24/99) (since 02/24/99) (since 02/24/99) (since 02/24/99)
SYMBOL AEQAX AEQBX AEQCX AEQDX
1 YEAR 28.72%(3) 27.72%(3) 27.68%(3) 28.86%(3)
21.96(4) 22.72(4) 26.68(4) --
SINCE INCEPTION 0.34(3) (0.44)(3) (0.41)(3) 0.55(3)
(0.75)(4) (0.79)(4) (0.41)(4) --
</Table>
Past performance is not predictive of future returns. Investment return and
principal value will fluctuate. When you sell fund shares, they may be worth
less than their original cost. The table does not reflect the deduction of taxes
that a shareholder would pay on fund distributions or the redemption of fund
shares. Performance for Class A, Class B, Class C, and Class D shares will vary
due to differences in sales charges and expenses.
- --------------------------------------------------------------------------------
Notes on Performance
(1) The Standard & Poor's 500 Index (S&P 500 (R)) is a broad-based index, the
performance of which is based on the performance of 500 widely-held common
stocks chosen for market size, liquidity and industry group representation.
Indexes are unmanaged and their returns do not include any sales charges or
fees. Such costs would lower performance. It is not possible to invest
directly in an index.
(2) The Lipper Multi-Cap Growth Funds Index is an equally weighted performance
index of the largest qualifying funds (based on net assets) in the Lipper
Multi-Cap Growth Funds classification. The Index, which is adjusted for
capital gains distributions and income dividends, is unmanaged and should
not be considered an investment. There are currently 30 funds represented
in this Index.
(3) Figure shown assumes reinvestment of all distributions and does not reflect
the deduction of any sales charges.
(4) Figure shown assumes reinvestment of all distributions and the deduction of
the maximum applicable sales charge. See the Fund's current prospectus for
complete details on fees and sales charges.
* The maximum front-end sales charge for Class A is 5.25%.
** The maximum contingent deferred sales charge (CDSC) for Class B is 5.0%. The
CDSC declines to 0% after six years.
+ The maximum contingent deferred sales charge for Class C is 1% for shares
redeemed within one year of purchase.
++ Class D has no sales charge.
4
Morgan Stanley Aggressive Equity Fund
PORTFOLIO OF INVESTMENTS - JANUARY 31, 2004
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------
Common Stocks (96.8%)
Advertising/Marketing
Services (0.5%)
27,300 Omnicom Group, Inc....... $ 2,249,520
------------
Apparel/Footwear (0.4%)
52,100 Coach, Inc.*............. 1,845,903
------------
Apparel/Footwear Retail
(2.1%)
92,200 Chico's FAS, Inc.*....... 3,396,648
89,850 Hot Topic, Inc.*......... 2,737,729
84,100 Nordstrom, Inc........... 3,305,130
------------
9,439,507
------------
Auto Parts: O.E.M. (0.7%)
27,200 Eaton Corp............... 3,159,280
------------
Beverages: Non-Alcoholic
(0.7%)
24,200 Coca-Cola Co. (The)...... 1,191,608
67,500 Cott Corp. (Canada)*..... 1,885,275
------------
3,076,883
------------
Biotechnology (2.3%)
35,900 Amgen Inc.*.............. 2,315,191
28,000 Genentech, Inc.*......... 2,674,000
179,200 Nabi
Biopharmaceuticals*..... 2,897,664
16,600 Neurocrine Biosciences,
Inc.*................... 939,394
52,300 NPS Pharmaceuticals,
Inc.*................... 1,804,873
------------
10,631,122
------------
Broadcasting (1.4%)
24,800 Clear Channel
Communications, Inc..... 1,115,752
53,200 Cumulus Media, Inc.
(Class A)*.............. 1,087,408
49,700 Radio One, Inc. (Class
A)*..................... 914,977
92,300 Univision Communications
Inc. (Class A)*......... 3,264,651
------------
6,382,788
------------
</Table>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------
Building Products (0.4%)
17,800 American Standard
Companies, Inc.*........ $ 1,890,360
------------
Casino/Gaming (1.9%)
63,400 GTECH Holdings Corp...... 3,525,674
66,800 International Game
Technology.............. 2,502,328
78,000 Wynn Resorts, Ltd.*...... 2,296,320
------------
8,324,322
------------
Computer Communications
(4.5%)
644,200 Cisco Systems, Inc.*..... 16,517,288
141,600 Juniper Networks,
Inc.*................... 4,090,824
------------
20,608,112
------------
Computer Peripherals
(2.1%)
237,900 EMC Corp.*............... 3,340,116
82,100 Network Appliance,
Inc.*................... 1,835,756
70,850 Zebra Technologies Corp.
(Class A)*.............. 4,576,910
------------
9,752,782
------------
Computer Processing
Hardware (1.4%)
195,000 Dell Inc.*............... 6,526,650
------------
Data Processing Services
(1.3%)
151,100 Paychex, Inc............. 5,663,228
------------
Department Stores (0.9%)
78,000 Neiman Marcus Group, Inc.
(The) (Class A)*........ 4,305,600
------------
Electrical Products
(1.9%)
46,200 Cooper Industries Ltd.
(Class A)............... 2,601,060
35,000 Emerson Electric Co...... 2,236,500
91,700 Energizer Holdings,
Inc.*................... 3,804,633
------------
8,642,193
------------
</Table>
5
See Notes to Financial Statements
Morgan Stanley Aggressive Equity Fund
PORTFOLIO OF INVESTMENTS - JANUARY 31, 2004 continued
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------
Electronic Equipment/
Instruments (0.9%)
132,600 Rockwell Automation,
Inc..................... $ 4,318,782
------------
Electronic Production
Equipment (0.7%)
102,800 Applied Materials,
Inc.*................... 2,236,928
60,900 ASML Holding N.V.
(Netherlands)*.......... 1,172,934
------------
3,409,862
------------
Electronics/ Appliances
(0.3%)
20,800 Harman International
Industries, Inc......... 1,543,984
------------
Engineering &
Construction (0.6%)
91,900 Chicago Bridge & Iron
Company N.V. (ADR)
(Netherlands)........... 2,808,464
------------
Finance/Rental/Leasing
(0.7%)
48,300 Capital One Financial
Corp.................... 3,433,164
------------
Financial Conglomerates
(1.5%)
135,500 Citigroup Inc............ 6,704,540
------------
Food Distributors (0.4%)
53,100 SYSCO Corp............... 2,014,083
------------
Home Furnishings (0.4%)
103,500 Tempur-Pedic
International*.......... 1,676,700
------------
Hospital/Nursing
Management (0.3%)
41,000 Manor Care, Inc.......... 1,463,700
------------
Hotels/Resorts/
Cruiselines (0.8%)
82,500 Royal Caribbean Cruises
Ltd. (Liberia).......... 3,495,525
------------
</Table>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------
Household/Personal Care
(0.9%)
40,000 Procter & Gamble Co.
(The)................... $ 4,043,200
------------
Industrial Conglomerates
(0.9%)
60,200 Ingersoll-Rand Co. Ltd.
(Class A) (Bermuda)..... 4,005,106
------------
Industrial Machinery
(0.5%)
42,300 Parker-Hannifin Corp..... 2,326,077
------------
Industrial Specialties
(0.5%)
43,800 Nitto Denko Corp.
(Japan)................. 2,313,322
------------
Information Technology
Services (1.5%)
55,200 Accenture Ltd. (Class A)
(Bermuda)*.............. 1,306,584
101,900 Cognizant Technology
Solutions Corp.*........ 5,505,657
------------
6,812,241
------------
Internet Retail (1.0%)
43,400 Amazon.com, Inc.*........ 2,190,832
67,600 InterActiveCorp*......... 2,190,240
------------
4,381,072
------------
Internet Software/
Services (2.8%)
64,900 Akamai Technologies,
Inc.*................... 838,508
80,300 Business Objects S.A.
(ADR) (France)*......... 2,783,198
23,900 MicroStrategy Inc. (Class
A)*..................... 1,491,121
169,100 Yahoo! Inc.*............. 7,922,335
------------
13,035,162
------------
Investment Banks/ Brokers
(5.4%)
116,900 AmeriTrade Holding
Corp.*.................. 1,852,865
70,200 Goldman Sachs Group, Inc.
(The)................... 6,988,410
</Table>
6
See Notes to Financial Statements
Morgan Stanley Aggressive Equity Fund
PORTFOLIO OF INVESTMENTS - JANUARY 31, 2004 continued
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------
36,700 Legg Mason, Inc.......... $ 3,249,785
86,800 Lehman Brothers Holdings
Inc..................... 7,126,280
95,500 Merrill Lynch & Co.,
Inc..................... 5,614,445
------------
24,831,785
------------
Investment Managers
(2.0%)
96,900 Franklin Resources,
Inc..................... 5,597,913
69,200 Price (T.) Rowe Group,
Inc..................... 3,607,396
------------
9,205,309
------------
Managed Health Care
(2.5%)
54,800 Anthem, Inc.*............ 4,481,544
109,700 Caremark Rx, Inc.*....... 2,934,475
64,000 UnitedHealth Group
Inc..................... 3,896,320
------------
11,312,339
------------
Media Conglomerates
(1.4%)
154,026 News Corp., Ltd. (The)
(Australia)............. 1,400,159
86,506 News Corp., Ltd. (The)
(ADR) (Australia)....... 3,185,151
100,900 Time Warner Inc.*........ 1,772,813
------------
6,358,123
------------
Medical Specialties
(6.9%)
42,500 Alcon, Inc.
(Switzerland)........... 2,720,425
22,200 Bard (C.R.), Inc......... 2,091,240
22,100 Becton, Dickinson &
Co...................... 995,826
97,900 Boston Scientific
Corp.*.................. 3,993,341
114,700 Guidant Corp............. 7,327,036
58,300 INAMED Corp.*............ 3,004,782
23,400 Medtronic, Inc........... 1,151,748
78,200 St. Jude Medical,
Inc.*................... 5,618,670
61,400 Zimmer Holdings, Inc.*... 4,697,100
------------
31,600,168
------------
Miscellaneous
Manufacturing (0.5%)
27,100 Danaher Corp............. 2,481,005
------------
Oil & Gas Production
(0.7%)
82,620 Apache Corp.............. 3,179,218
------------
</Table>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------
Oilfield Services/
Equipment (3.2%)
43,900 Schlumberger Ltd......... $ 2,685,802
251,100 Smith International,
Inc.*................... 12,168,306
------------
14,854,108
------------
Other Consumer Services
(2.0%)
45,850 Apollo Group, Inc. (Class
A)*..................... 3,404,821
60,100 eBay Inc.*............... 4,028,503
27,800 ITT Educational Services,
Inc.*................... 1,539,286
------------
8,972,610
------------
Other Metals/ Minerals
(1.0%)
60,900 Phelps Dodge Corp.*...... 4,608,303
------------
Packaged Software (8.6%)
75,700 Autodesk, Inc............ 1,934,135
137,200 FileNET Corp.*........... 4,019,960
113,300 Mercury Interactive
Corp.*.................. 5,318,302
293,500 Microsoft Corp........... 8,115,275
225,900 Novell, Inc.*............ 2,868,930
170,300 Oracle Corp.*............ 2,351,843
245,800 Red Hat, Inc.*........... 4,677,574
111,600 SAP AG (ADR) (Germany)... 4,626,936
93,300 Symantec Corp.*.......... 3,620,040
55,100 VERITAS Software
Corp.*.................. 1,810,586
------------
39,343,581
------------
Personnel Services (1.5%)
91,900 Manpower, Inc............ 4,262,322
103,700 Robert Half
International, Inc.*.... 2,435,913
------------
6,698,235
------------
Pharmaceuticals: Generic
Drugs (0.6%)
57,300 Watson Pharmaceuticals,
Inc.*................... 2,665,023
------------
</Table>
7
See Notes to Financial Statements
Morgan Stanley Aggressive Equity Fund
PORTFOLIO OF INVESTMENTS - JANUARY 31, 2004 continued
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------
Pharmaceuticals: Major
(1.1%)
132,800 Pfizer Inc............... $ 4,864,464
------------
Pharmaceuticals: Other
(1.8%)
56,500 Dr. Reddy's Laboratories
Ltd. (ADR) (India)...... 1,692,175
48,300 Forest Laboratories,
Inc.*................... 3,597,867
50,800 Teva Pharmaceutical
Industries Ltd. (ADR)
(Israel)................ 3,179,572
------------
8,469,614
------------
Precious Metals (1.0%)
108,600 Newmont Mining Corp...... 4,524,276
------------
Publishing: Newspapers
(0.3%)
14,500 Scripps (E.W.) Co. (Class
A)...................... 1,379,095
------------
Railroads (0.1%)
14,100 Genesee & Wyoming Inc.
(Class A)*.............. 464,595
------------
Restaurants (1.4%)
45,000 Applebee's International,
Inc..................... 1,715,400
68,600 Starbucks Corp.*......... 2,521,736
57,200 Wendy's International,
Inc..................... 2,272,556
------------
6,509,692
------------
Semiconductors (7.6%)
64,100 Analog Devices, Inc...... 3,067,185
113,300 Broadcom Corp. (Class
A)*..................... 4,598,847
80,900 Cypress Semiconductor
Corp.*.................. 1,715,080
58,100 Fairchild Semiconductor
Corp. (Class A)*........ 1,423,450
264,400 Intel Corp............... 8,090,640
83,400 Linear Technology
Corp.................... 3,336,000
19,500 Maxim Integrated
Products, Inc........... 997,425
</Table>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------
34,700 National Semiconductor
Corp.*.................. $ 1,334,215
12,800 NEC Electronics Corp.
(Japan)................. 910,658
100,100 PMC - Sierra, Inc.*...... 2,193,191
148,700 Texas Instruments Inc.... 4,661,745
63,500 Xilinx, Inc.*............ 2,661,285
------------
34,989,721
------------
Services to the Health
Industry (1.4%)
87,800 Medco Health Solutions
Inc.*................... 3,235,430
72,300 Omnicare, Inc............ 3,183,369
------------
6,418,799
------------
Specialty Stores (2.0%)
36,500 Dick's Sporting Goods,
Inc.*................... 1,815,875
83,200 PETSMART, Inc............ 1,952,704
117,850 Staples, Inc.*........... 3,135,989
71,300 Tuesday Morning Corp.*... 2,253,793
------------
9,158,361
------------
Telecommunication
Equipment (4.1%)
156,800 Alcatel SA (ADR)
(France)*............... 2,626,400
99,400 Corning Inc.*............ 1,284,248
343,600 Lucent Technologies
Inc.*................... 1,539,328
100,800 Netopia, Inc.*........... 1,387,008
144,500 Nokia Corp. (ADR)
(Finland)............... 2,985,370
489,800 Nortel Networks Corp.
(Canada)*............... 3,830,236
86,500 QUALCOMM Inc............. 5,053,330
------------
18,705,920
------------
Trucks/Construction/Farm
Machinery (1.7%)
154,100 Joy Global Inc........... 4,057,453
79,300 Navistar International
Corp.*.................. 3,770,715
------------
7,828,168
------------
</Table>
8
See Notes to Financial Statements
Morgan Stanley Aggressive Equity Fund
PORTFOLIO OF INVESTMENTS - JANUARY 31, 2004 continued
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------
Wireless
Telecommunications (0.8%)
144,700 Vodafone Group PLC (ADR)
(United Kingdom)........ $ 3,704,320
------------
Total Common Stocks
(Cost $382,135,709)...... 443,410,066
------------
<Caption>
PRINCIPAL
AMOUNT IN
THOUSANDS
- -----------
Short-Term Investment (2.1%)
Repurchase Agreement
$ 9,628 Joint repurchase
agreement account 1.02%
due 02/02/04 (dated
01/31/04; proceeds
$9,628,818) (a)
(Cost $9,628,000) 9,628,000
------------
</Table>
<Table>
Total Investments
(Cost $391,763,709)
(b)(c)...................... 98.9% 453,038,066
Other Assets in Excess of
Liabilities................. 1.1 5,216,853
----- ------------
Net Assets.................. 100.0% $458,254,919
===== ============
</Table>
- ---------------------
<Table>
ADR American Depository Receipt.
* Non-income producing security.
(a) Collateralized by federal agency and U.S. Treasury
obligations.
(b) The aggregate cost for federal income tax purposes
approximates the aggregate cost for book purposes.
The aggregate gross unrealized appreciation is
$63,973,238 and the aggregate gross unrealized
depreciation is $2,698,881, resulting in net
unrealized appreciation of $61,274,357.
</Table>
9
See Notes to Financial Statements
Morgan Stanley Aggressive Equity Fund
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
January 31, 2004 (unaudited)
<Table>
Assets:
Investments in securities, at value
(cost $391,763,709)....................................... $453,038,066
Receivable for:
Investments sold........................................ 11,366,131
Dividends............................................... 255,332
Shares of beneficial interest sold...................... 167,397
Prepaid expenses and other assets........................... 83,118
-------------
Total Assets............................................ 464,910,044
-------------
Liabilities:
Payable for:
Investments purchased................................... 5,407,761
Shares of beneficial interest redeemed.................. 444,405
Distribution fee........................................ 378,936
Investment management fee............................... 295,467
Accrued expenses and other payables......................... 128,556
-------------
Total Liabilities....................................... 6,655,125
-------------
Net Assets.............................................. $458,254,919
=============
Composition of Net Assets:
Paid-in-capital............................................. $865,703,169
Net unrealized appreciation................................. 61,276,844
Accumulated net investment loss............................. (3,240,021)
Accumulated net realized loss............................... (465,485,073)
-------------
Net Assets.............................................. $458,254,919
=============
Class A Shares:
Net Assets.................................................. $19,517,821
Shares Outstanding (unlimited authorized, $.01 par value)... 2,189,403
Net Asset Value Per Share............................... $8.91
=============
Maximum Offering Price Per Share,
(net asset value plus 5.54% of net asset value)....... $9.40
=============
Class B Shares:
Net Assets.................................................. $394,171,134
Shares Outstanding (unlimited authorized, $.01 par value)... 45,989,907
Net Asset Value Per Share............................... $8.57
=============
Class C Shares:
Net Assets.................................................. $41,769,455
Shares Outstanding (unlimited authorized, $.01 par value)... 4,867,761
Net Asset Value Per Share............................... $8.58
=============
Class D Shares:
Net Assets.................................................. $2,796,509
Shares Outstanding (unlimited authorized, $.01 par value)... 309,895
Net Asset Value Per Share............................... $9.02
=============
</Table>
10
See Notes to Financial Statements
Morgan Stanley Aggressive Equity Fund
FINANCIAL STATEMENTS continued
Statement of Operations
For the six months ended January 31, 2004 (unaudited)
<Table>
Net Investment Loss:
Income
Dividends (net of $18,328 foreign withholding tax).......... $ 1,526,257
Interest.................................................... 63,924
-----------
Total Income............................................ 1,590,181
-----------
Expenses
Distribution fee (Class A shares)........................... 24,083
Distribution fee (Class B shares)........................... 1,966,831
Distribution fee (Class C shares)........................... 206,124
Investment management fee................................... 1,711,866
Transfer agent fees and expenses............................ 736,101
Shareholder reports and notices............................. 50,215
Custodian fees.............................................. 34,672
Registration fees........................................... 30,785
Professional fees........................................... 29,566
Trustees' fees and expenses................................. 2,784
Other....................................................... 9,869
-----------
Total Expenses.......................................... 4,802,896
-----------
Net Investment Loss..................................... (3,212,715)
-----------
Net Realized and Unrealized Gain (Loss):
Net Realized Gain/Loss on:
Investments................................................. 50,502,996
Futures contracts........................................... (4,142,692)
-----------
Net Realized Gain....................................... 46,360,304
-----------
Net Change in Unrealized Appreciation/Depreciation on:
Investments................................................. 20,758,915
Futures contracts........................................... 345,407
-----------
Net Appreciation........................................ 21,104,322
-----------
Net Gain................................................ 67,464,626
-----------
Net Increase................................................ $64,251,911
===========
</Table>
11
See Notes to Financial Statements
Morgan Stanley Aggressive Equity Fund
FINANCIAL STATEMENTS continued
Statement of Changes in Net Assets
<Table>
<Caption>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
JANUARY 31, 2004 JULY 31, 2003
---------------- -------------
(unaudited)
Increase (Decrease) in Net Assets:
Operations:
Net investment loss......................................... $ (3,212,715) $ (5,012,355)
Net realized gain (loss).................................... 46,360,304 (52,263,309)
Net change in unrealized appreciation....................... 21,104,322 60,084,888
------------ -------------
Net Increase............................................ 64,251,911 2,809,224
Net decrease from transactions in shares of beneficial
interest.................................................. (55,111,088) (120,803,468)
------------ -------------
Net Increase (Decrease)................................. 9,140,823 (117,994,244)
Net Assets:
Beginning of period......................................... 449,114,096 567,108,340
------------ -------------
End of Period
(Including accumulated net investment losses of $3,240,021
and $27,306, respectively).................................. $458,254,919 $ 449,114,096
============ =============
</Table>
12
See Notes to Financial Statements
Morgan Stanley Aggressive Equity Fund
NOTES TO FINANCIAL STATEMENTS - JANUARY 31, 2004 (UNAUDITED)
1. Organization and Accounting Policies
Morgan Stanley Aggressive Equity Fund (the "Fund") is registered under the
Investment Company Act of 1940, as amended (the "Act"), as a diversified,
open-end management investment company. The Fund's investment objective is
capital growth. The Fund seeks to achieve its objective by primarily investing
in equity securities of U.S. or foreign companies that offer the potential for
superior earnings growth. The Fund was organized as a Massachusetts business
trust on October 29, 1997 and commenced operations on February 24, 1999.
The Fund offers Class A shares, Class B shares, Class C shares and Class D
shares. The four classes are substantially the same except that most Class A
shares are subject to a sales charge imposed at the time of purchase and some
Class A shares, and most Class B shares and Class C shares are subject to a
contingent deferred sales charge imposed on shares redeemed within one year, six
years and one year, respectively. Class D shares are not subject to a sales
charge. Additionally, Class A shares, Class B shares and Class C shares incur
distribution expenses.
The following is a summary of significant accounting policies:
A. Valuation of Investments -- (1) an equity portfolio security listed or traded
on the New York Stock Exchange ("NYSE") or American Stock Exchange or other
exchange is valued at its latest sale price prior to the time when assets are
valued; if there were no sales that day, the security is valued at the mean
between the last reported bid and asked price; (2) an equity portfolio security
listed or traded on the Nasdaq is valued at the Nasdaq Official Closing Price;
if there were no sales that day, the security is valued at the mean between the
last reported bid and asked price; (3) all other portfolio securities for which
over-the-counter market quotations are readily available are valued at the mean
between the last reported bid and asked price. In cases where a security is
traded on more than one exchange, the security is valued on the exchange
designated as the primary market; (4) for equity securities traded on foreign
exchanges, the last reported sale price or the latest bid price may be used if
there were no sales on a particular day; (5) futures are valued at the latest
price published by the commodities exchange on which they trade; (6) when market
quotations are not readily available or Morgan Stanley Investment Advisors Inc.
(the "Investment Manager") determines that the latest sale price, the bid price
or the mean between the last reported bid and asked price do not reflect a
security's market value, portfolio securities are valued at their fair value as
determined in good faith under procedures established by and under the general
supervision of the Fund's Trustees. Occasionally, developments affecting the
closing prices of securities and other assets may occur between the times at
which valuations of such securities are determined (that is, close of the
foreign market on which the securities trade) and the close of business on the
NYSE. If developments occur during such periods that are expected to materially
affect the value of such
13
Morgan Stanley Aggressive Equity Fund
NOTES TO FINANCIAL STATEMENTS - JANUARY 31, 2004 (UNAUDITED) continued
securities, such valuations may be adjusted to reflect the estimated fair value
of such securities as of the close of the NYSE, as determined in good faith by
the Fund's Trustees or by the Investment Manager using a pricing service and/or
procedures approved by the Trustees of the Fund; (7) certain portfolio
securities may be valued by an outside pricing service approved by the Fund's
Trustees; and (8) short-term debt securities having a maturity date of more than
sixty days at time of purchase are valued on a mark-to-market basis until sixty
days prior to maturity and thereafter at amortized cost based on their value on
the 61st day. Short-term debt securities having a maturity date of sixty days or
less at the time of purchase are valued at amortized cost.
B. Accounting for Investments -- Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined by the identified cost method.
Dividend income and other distributions are recorded on the ex-dividend date.
Discounts are accreted and premiums are amortized over the life of the
respective securities. Interest income is accrued daily.
C. Repurchase Agreements -- Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the Fund, along with other affiliated
entities managed by the Investment Manager, may transfer uninvested cash
balances into one or more joint repurchase agreement accounts. These balances
are invested in one or more repurchase agreements and are collateralized by
cash, U.S. Treasury or federal agency obligations. The Fund may also invest
directly with institutions in repurchase agreements. The Fund's custodian
receives the collateral, which is marked-to-market daily to determine that the
value of the collateral does not decrease below the repurchase price plus
accrued interest.
D. Multiple Class Allocations -- Investment income, expenses (other than
distribution fees), and realized and unrealized gains and losses are allocated
to each class of shares based upon the relative net asset value on the date such
items are recognized. Distribution fees are charged directly to the respective
class.
E. Foreign Currency Translation and Forward Foreign Currency Contracts -- The
books and records of the Fund are maintained in U.S. dollars as follows: (1) the
foreign currency market value of investment securities, other assets and
liabilities and forward foreign currency contracts ("forward contracts") are
translated at the exchange rates prevailing at the end of the period; and (2)
purchases, sales, income and expenses are translated at the exchange rates
prevailing on the respective dates of such transactions. The resultant exchange
gains and losses are recorded as realized and unrealized gain/loss on foreign
exchange transactions. Pursuant to U.S. federal income tax regulations, certain
foreign exchange gains/losses included in realized and unrealized gain/loss are
included in or are a reduction of ordinary income for federal income tax
purposes. The Fund
14
Morgan Stanley Aggressive Equity Fund
NOTES TO FINANCIAL STATEMENTS - JANUARY 31, 2004 (UNAUDITED) continued
does not isolate that portion of the results of operations arising as a result
of changes in the foreign exchange rates from the changes in the market prices
of the securities. Forward contracts are valued daily at the appropriate
exchange rates. The resultant unrealized exchange gains and losses are recorded
as unrealized foreign currency gain or loss. The Fund records realized gains or
losses on delivery of the currency or at the time the forward contract is
extinguished (compensated) by entering into a closing transaction prior to
delivery.
F. Futures Contracts -- A futures contract is an agreement between two parties
to buy and sell financial instruments or contracts based on financial indices at
a set price on a future date. Upon entering into such a contract, the Fund is
required to pledge to the broker cash, U.S. Government securities or other
liquid portfolio securities equal to the minimum initial margin requirements of
the applicable futures exchange. Pursuant to the contract, the Fund agrees to
receive from or pay to the broker an amount of cash equal to the daily
fluctuation in the value of the contract. Such receipts or payments known as
variation margin are recorded by the Fund as unrealized gains and losses. Upon
closing of the contract, the Fund realizes a gain or loss equal to the
difference between the value of the contract at the time it was opened and the
value at the time it was closed.
G. Federal Income Tax Policy -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute substantially all of its taxable income to its
shareholders. Accordingly, no federal income tax provision is required.
H. Dividends and Distributions to Shareholders -- Dividends and distributions to
shareholders are recorded on the ex-dividend date.
I. Use of Estimates -- The preparation of financial statements in accordance
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures.
Actual results could differ from those estimates.
2. Investment Management Agreement
Pursuant to an Investment Management Agreement, the Fund pays a management fee,
accrued daily and payable monthly, by applying the following annual rates to the
net assets of the Fund determined as of the close of each business day: 0.75% to
the portion of daily net assets not exceeding $2 billion; and 0.725% to the
portion of daily net assets exceeding $2 billion.
3. Plan of Distribution
Shares of the Fund are distributed by Morgan Stanley Distributors Inc. (the
"Distributor"), an affiliate of the Investment Manager. The Fund has adopted a
Plan of Distribution (the "Plan") pursuant to Rule 12b-1 under the Act. The Plan
provides that the Fund will pay the Distributor a fee which is
15
Morgan Stanley Aggressive Equity Fund
NOTES TO FINANCIAL STATEMENTS - JANUARY 31, 2004 (UNAUDITED) continued
accrued daily and paid monthly at the following annual rates: (i) Class A -- up
to 0.25% of the average daily net assets of Class A; (ii) Class B -- 1.0% of the
average daily net assets of Class B; and (iii) Class C -- up to 1.0% of the
average daily net assets of Class C.
In the case of Class B shares, provided that the Plan continues in effect, any
cumulative expenses incurred by the Distributor but not yet recovered may be
recovered through the payment of future distribution fees from the Fund pursuant
to the Plan and contingent deferred sales charges paid by investors upon
redemption of Class B shares. Although there is no legal obligation for the Fund
to pay expenses incurred in excess of payments made to the Distributor under the
Plan and the proceeds of contingent deferred sales charges paid by investors
upon redemption of shares, if for any reason the Plan is terminated, the
Trustees will consider at that time the manner in which to treat such expenses.
The Distributor has advised the Fund that such excess amounts totaled
$25,346,299 at January 31, 2004.
In the case of Class A shares and Class C shares, expenses incurred pursuant to
the Plan in any calendar year in excess of 0.25% or 1.0% of the average daily
net assets of Class A or Class C, respectively, will not be reimbursed by the
Fund through payments in any subsequent year, except that expenses representing
a gross sales credit to Morgan Stanley Financial Advisors or other selected
broker-dealer representatives may be reimbursed in the subsequent calendar year.
For the six months ended January 31, 2004, the distribution fee was accrued for
Class A shares and Class C shares at the annual rate of 0.25% and 1.0%,
respectively.
The Distributor has informed the Fund that for the six months ended January 31,
2004, it received contingent deferred sales charges from certain redemptions of
the Fund's Class B shares and Class C shares of $498,160, and $1,690,
respectively and received $10,516 in front-end sales charges from sales of the
Fund's Class A shares. The respective shareholders pay such charges which are
not an expense of the Fund.
4. Security Transactions and Transactions with Affiliates
The cost of purchases and proceeds from sales of portfolio securities, excluding
short-term investments, for the six months ended January 31, 2004 aggregated
$507,130,094 and $567,289,815, respectively. Included in the aforementioned are
purchases and sales with other Morgan Stanley funds of $529,691 and $580,000,
respectively including a net realized loss of $60,912.
For the six months ended January 31, 2004, the Fund incurred brokerage
commissions of $205,927 with Morgan Stanley & Co., Inc., an affiliate of the
Investment Manager and Distributor, for
16
Morgan Stanley Aggressive Equity Fund
NOTES TO FINANCIAL STATEMENTS - JANUARY 31, 2004 (UNAUDITED) continued
portfolio transactions executed on behalf of the Fund. At January 31, 2004, the
Fund's payable for investments purchased included an unsettled trade with Morgan
Stanley & Co., Inc. of $914,150.
At January 31, 2004, Morgan Stanley Fund of Funds -- Domestic Portfolio, an
affiliate of the Investment Manager and Distributor, held 70,187 Class D shares
of beneficial interest of the Fund.
Morgan Stanley Trust, an affiliate of the Investment Manager and Distributor, is
the Fund's transfer agent. At January 31, 2004, the Fund had transfer agent fees
and expenses payable of approximately $54,000.
5. Federal Income Tax Status
The amount of dividends and distributions from net investment income and net
realized capital gains are determined in accordance with federal income tax
regulations which may differ from generally accepted accounting principles.
These "book/tax" differences are either considered temporary or permanent in
nature. To the extent these differences are permanent in nature, such amounts
are reclassified within the capital accounts based on their federal tax-basis
treatment; temporary differences do not require reclassification. Dividends and
distributions which exceed net investment income and net realized capital gains
for tax purposes are reported as distributions of paid-in-capital.
As of July 31, 2003, the Fund had a net capital loss carryforward of
$487,082,590 of which $366,027,253 will expire on July 31, 2010 and $121,055,337
will expire on July 31, 2011 to offset future capital gains to the extent
provided by regulations.
As of July 31, 2003, the Fund had temporary book/tax differences primarily
attributable to post-October losses (capital losses incurred after October 31
within the taxable year which are deemed to arise on the first business day of
the Fund's next taxable year) and capital loss deferrals on wash sales.
6. Purposes of and Risks Relating to Certain Financial Instruments
The Fund may enter into forward contracts to facilitate settlement of foreign
currency denominated portfolio transactions or to manage foreign currency
exposure associated with foreign currency denominated securities.
To hedge against adverse interest rate, foreign currency and market risks, the
Fund may purchase and sell interest rate, currency and index futures ("futures
contracts").
Forward contracts and futures contracts involve elements of market risk in
excess of the amount reflected in the Statement of Assets and Liabilities. The
Fund bears the risk of an unfavorable change in the value of the underlying
securities or in the foreign exchange rates underlying the
17
Morgan Stanley Aggressive Equity Fund
NOTES TO FINANCIAL STATEMENTS - JANUARY 31, 2004 (UNAUDITED) continued
forward contracts. Risks may also rise upon entering into these contracts from
the potential inability of the counterparties to meet the terms of their
contracts.
7. Shares of Beneficial Interest
Transactions in shares of beneficial interest were as follows:
<Table>
<Caption>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
JANUARY 31, 2004 JULY 31, 2003
------------------------- ---------------------------
(unaudited)
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ----------- -------------
CLASS A SHARES
Sold............................................... 158,572 $ 1,301,657 264,713 $ 1,930,674
Redeemed........................................... (347,375) (2,911,468) (799,231) (5,776,834)
---------- ------------ ----------- -------------
Net decrease - Class A............................. (188,803) (1,609,811) (534,518) (3,846,160)
---------- ------------ ----------- -------------
CLASS B SHARES
Sold............................................... 818,473 6,527,980 3,071,097 21,709,526
Redeemed........................................... (6,931,462) (55,401,364) (18,434,124) (129,022,330)
---------- ------------ ----------- -------------
Net decrease - Class B............................. (6,112,989) (48,873,384) (15,363,027) (107,312,804)
---------- ------------ ----------- -------------
CLASS C SHARES
Sold............................................... 143,535 1,164,096 440,521 3,123,524
Redeemed........................................... (718,844) (5,745,539) (1,783,133) (12,566,889)
---------- ------------ ----------- -------------
Net decrease - Class C............................. (575,309) (4,581,443) (1,342,612) (9,443,365)
---------- ------------ ----------- -------------
CLASS D SHARES
Sold............................................... 101,216 870,860 95,835 713,440
Redeemed........................................... (107,889) (917,310) (125,309) (914,579)
---------- ------------ ----------- -------------
Net decrease - Class D............................. (6,673) (46,450) (29,474) (201,139)
---------- ------------ ----------- -------------
Net decrease in Fund............................... (6,883,774) $(55,111,088) (17,269,631) $(120,803,468)
========== ============ =========== =============
</Table>
8. Legal Matters
The Investment Manager, certain affiliates of the Investment Manager and certain
investment companies advised by the Investment Manager or its affiliates,
including the Fund, are named as defendants in a number of recently filed,
similar class action complaints. These complaints generally allege that
defendants, including the Fund, violated their statutory disclosure obligations
and fiduciary duties by failing properly to disclose (i) that the Investment
Manager and certain affiliates of the Investment Manager allegedly offered
economic incentives to brokers and others to steer investors to the funds
advised by the Investment Manager or its affiliates rather than funds managed by
other companies, and (ii) that the funds advised by the Investment Manager or
its affiliates, including the
18
Morgan Stanley Aggressive Equity Fund
NOTES TO FINANCIAL STATEMENTS - JANUARY 31, 2004 (UNAUDITED) continued
Fund, allegedly paid excessive commissions to brokers in return for their
alleged efforts to steer investors to these funds. The complaints seek, among
other things, unspecified compensatory damages, rescissionary damages, fees and
costs. The defendants intend to move to dismiss these actions and otherwise
vigorously to defend them. While the Fund believes that it has meritorious
defenses, the ultimate outcome of these matters is not presently determinable at
this early stage of the litigation, and no provision has been made in the Fund's
financial statements for the effect, if any, of these matters.
19
Morgan Stanley Aggressive Equity Fund
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<Table>
<Caption>
FOR THE PERIOD
FOR THE SIX FOR THE YEAR ENDED JULY 31, FEBRUARY 24, 1999*
MONTHS ENDED ----------------------------------------- THROUGH
JANUARY 31, 2004 2003 2002 2001 2000 JULY 31, 1999
---------------- -------- -------- -------- -------- ------------------
(unaudited)
Class A Shares
Selected Per Share Data:
Net asset value, beginning of period... $ 7.71 $ 7.51 $ 9.62 $15.24 $10.87 $10.00
------ ------ ------ ------ ------ ------
Income (loss) from investment
operations:
Net investment loss++.............. (0.03) (0.02) (0.03) 0.00 (0.08) (0.01)
Net realized and unrealized gain
(loss)............................. 1.23 0.22 (2.05) (3.90) 4.45 0.88
------ ------ ------ ------ ------ ------
Total income (loss) from investment
operations............................ 1.20 0.20 (2.08) (3.90) 4.37 0.87
------ ------ ------ ------ ------ ------
Less distributions from net realized
gains................................. -- -- (0.03) (1.72) -- --
------ ------ ------ ------ ------ ------
Net asset value, end of period......... $ 8.91 $ 7.71 $ 7.51 $ 9.62 $15.24 $10.87
====== ====== ====== ====== ====== ======
Total Return+.......................... 15.69 %(1) 2.66% (21.65)% (28.31)% 40.20% 8.70 %(1)
Ratios to Average Net Assets(3):
Expenses............................... 1.39 %(2) 1.40% 1.29% 1.16% 1.18% 1.31 %(2)
Net investment loss.................... (0.69)%(2) (0.32)% (0.39)% (0.03)% (0.55)% (0.16)%(2)
Supplemental Data:
Net assets, end of period, in
thousands............................. $19,518 $18,340 $21,888 $39,662 $67,267 $32,165
Portfolio turnover rate................ 115 %(1) 263% 325% 399% 432% 177 %(1)
</Table>
- ---------------------
<Table>
* Commencement of operations.
++ The per share amounts were computed using an average number
of shares outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated
based on the net asset value as of the last business day of
the period.
(1) Not annualized.
(2) Annualized.
(3) Reflects overall Fund ratios for investment income and
non-class specific expenses.
</Table>
20
See Notes to Financial Statements
Morgan Stanley Aggressive Equity Fund
FINANCIAL HIGHLIGHTS continued
<Table>
<Caption>
FOR THE PERIOD
FOR THE SIX FOR THE YEAR ENDED JULY 31, FEBRUARY 24, 1999*
MONTHS ENDED ----------------------------------------------- THROUGH
JANUARY 31, 2004 2003 2002 2001 2000 JULY 31, 1999
---------------- --------- --------- --------- ----------- ------------------
(unaudited)
Class B Shares
Selected Per Share Data:
Net asset value,
beginning of
period................. $7.44 $7.31 $9.42 $15.08 $10.84 $10.00
----- ----- ----- ------ ------ ------
Income (loss) from
investment operations:
Net investment
loss++.............. (0.06) (0.08) (0.10) (0.10) (0.19) (0.04)
Net realized and
unrealized gain
(loss).............. 1.19 0.21 (1.98) (3.84) 4.43 0.88
----- ----- ----- ------ ------ ------
Total income (loss) from
investment
operations............. 1.13 0.13 (2.08) (3.94) 4.24 0.84
----- ----- ----- ------ ------ ------
Less distributions from
net realized gains..... -- -- (0.03) (1.72) -- --
----- ----- ----- ------ ------ ------
Net asset value, end of
period................. $8.57 $7.44 $7.31 $ 9.42 $15.08 $10.84
===== ===== ===== ====== ====== ======
Total Return+........... 15.19 %(1) 1.78% (22.11)% (28.93)% 39.11% 8.40 %(1)
Ratios to Average Net
Assets(3):
Expenses................ 2.14 %(2) 2.15% 2.05% 1.94% 1.93% 2.06 %(2)
Net investment loss..... (1.44)%(2) (1.07)% (1.15)% (0.81)% (1.30)% (0.91)%(2)
Supplemental Data:
Net assets, end of
period, in
thousands............. $394,171 $387,751 $492,959 $881,115 $1,364,482 $665,848
Portfolio turnover
rate.................. 115 %(1) 263% 325% 399% 432% 177 %(1)
</Table>
- ---------------------
<Table>
* Commencement of operations.
++ The per share amounts were computed using an average number
of shares outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated
based on the net asset value as of the last business day of
the period.
(1) Not annualized.
(2) Annualized.
(3) Reflects overall Fund ratios for investment income and
non-class specific expenses.
</Table>
21
See Notes to Financial Statements
Morgan Stanley Aggressive Equity Fund
FINANCIAL HIGHLIGHTS continued
<Table>
<Caption>
FOR THE PERIOD
FOR THE SIX FOR THE YEAR ENDED JULY 31, FEBRUARY 24, 1999*
MONTHS ENDED ------------------------------------------ THROUGH
JANUARY 31, 2004 2003 2002 2001 2000 JULY 31, 1999
---------------- -------- -------- --------- -------- ------------------
(unaudited)
Class C Shares
Selected Per Share Data:
Net asset value,
beginning of period.... $ 7.45 $ 7.32 $ 9.42 $15.08 $10.84 $10.00
------ ------ ------ ------ ------ ------
Income (loss) from
investment operations:
Net investment
loss++.............. (0.06) (0.08) (0.09) (0.10) (0.19) (0.04)
Net realized and
unrealized gain
(loss).............. 1.19 0.21 (1.98) (3.84) 4.43 0.88
------ ------ ------ ------ ------ ------
Total income (loss) from
investment
operations............. 1.13 0.13 (2.07) (3.94) 4.24 0.84
------ ------ ------ ------ ------ ------
Less distributions from
net realized gains..... -- -- (0.03) (1.72) -- --
------ ------ ------ ------ ------ ------
Net asset value, end of
period................. $ 8.58 $ 7.45 $ 7.32 $ 9.42 $15.08 $10.84
====== ====== ====== ====== ====== ======
Total Return+........... 15.17 %(1) 1.78% (22.00)% (28.93)% 39.11% 8.40 %(1)
Ratios to Average Net
Assets(3):
Expenses................ 2.14 %(2) 2.15% 1.93% 1.94% 1.93% 2.06 %(2)
Net investment loss..... (1.44)%(2) (1.07)% (1.03)% (0.81)% (1.30)% (0.91)%(2)
Supplemental Data:
Net assets, end of
period, in thousands... $41,769 $40,555 $49,639 $83,603 $127,180 $64,053
Portfolio turnover
rate................... 115 %(1) 263% 325% 399% 432% 177 %(1)
</Table>
- ---------------------
<Table>
* Commencement of operations.
++ The per share amounts were computed using an average number
of shares outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated
based on the net asset value as of the last business day of
the period.
(1) Not annualized.
(2) Annualized.
(3) Reflects overall Fund ratios for investment income and
non-class specific expenses.
</Table>
22
See Notes to Financial Statements
Morgan Stanley Aggressive Equity Fund
FINANCIAL HIGHLIGHTS continued
<Table>
<Caption>
FOR THE PERIOD
FOR THE SIX FOR THE YEAR ENDED JULY 31, FEBRUARY 24, 1999*
MONTHS ENDED -------------------------------------------------- THROUGH
JANUARY 31, 2004 2003 2002 2001 2000 JULY 31, 1999
---------------- -------- -------- -------- -------- ------------------
(unaudited)
Class D Shares
Selected Per Share Data:
Net asset value,
beginning of period.... $7.80 $7.58 $9.68 $15.30 $10.89 $10.00
----- ----- ----- ------ ------ ------
Income (loss) from
investment operations:
Net investment
income (loss)++..... (0.02) (0.01) (0.01) 0.02 (0.06) 0.00
Net realized and
unrealized gain
(loss).............. 1.24 0.23 (2.06) (3.92) 4.47 0.89
----- ----- ----- ------ ------ ------
Total income (loss) from
investment operations.. 1.22 0.22 (2.07) (3.90) 4.41 0.89
----- ----- ----- ------ ------ ------
Less distributions from
net realized gains..... -- -- (0.03) (1.72) -- --
----- ----- ----- ------ ------ ------
Net asset value, end of
period................. $9.02 $7.80 $7.58 $ 9.68 $15.30 $10.89
===== ===== ===== ====== ====== ======
Total Return+........... 15.64 %(1) 2.90% (21.33)% (28.26)% 40.50% 8.90%(1)
Ratios to Average Net
Assets(3):
Expenses................ 1.14 %(2) 1.15% 1.05% 0.94% 0.93% 1.06%(2)
Net investment income
(loss)................. (0.44)%(2) (0.07)% (0.15)% 0.19% (0.30)% 0.09%(2)
Supplemental Data:
Net assets, end of
period, in thousands... $2,797 $2,468 $2,622 $5,111 $4,581 $316
Portfolio turnover
rate................... 115 %(1) 263% 325% 399% 432% 177%(1)
</Table>
- ---------------------
<Table>
* Commencement of operations.
++ The per share amounts were computed using an average number
of shares outstanding during the period.
+ Calculated based on the net asset value as of the last
business day of the period.
(1) Not annualized.
(2) Annualized.
(3) Reflects overall Fund ratios for investment income and
non-class specific expenses.
</Table>
23
See Notes to Financial Statements
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
Wayne E. Hedien
James F. Higgins
Dr. Manuel H. Johnson
Joseph J. Kearns
Michael E. Nugent
Philip J. Purcell
Fergus Reid
OFFICERS
Charles A. Fiumefreddo
Chairman of the Board
Mitchell M. Merin
President
Ronald E. Robison
Executive Vice President and Principal Executive Officer
Barry Fink
Vice President and General Counsel
Joseph McAlinden
Vice President
Stefanie V. Chang
Vice President
Francis J. Smith
Treasurer and Chief Financial Officer
Thomas F. Caloia
Vice President
Mary E. Mullin
Secretary
TRANSFER AGENT
Morgan Stanley Trust
Harborside Financial Center, Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT AUDITORS
Deloitte & Touche LLP
Two World Financial Center
New York, New York 10281
INVESTMENT MANAGER
Morgan Stanley Investment Advisors Inc.
1221 Avenue of the Americas
New York, New York 10020
The financial statements included herein have been taken from the records of the
Fund without examination by the independent auditors and accordingly they do not
express an opinion thereon.
This report is submitted for the general information of shareholders of the
Fund. For more detailed information about the Fund, its fees and expenses and
other pertinent information, please read its Prospectus. The Fund's Statement of
Additional Information contains additional information about the Fund, including
its trustees. It is available, without charge, by calling (800) 869-NEWS.
This report is not authorized for distribution to prospective investors in the
Fund unless preceded or accompanied by an effective Prospectus. Read the
Prospectus carefully before investing.
Investments and services offered through Morgan Stanley DW Inc., member SIPC.
Morgan Stanley Distributors Inc., member NASD.
(c) 2004 Morgan Stanley
[MORGAN STANLEY LOGO]
MORGAN STANLEY FUNDS
Morgan Stanley
Aggressive Equity Fund
Semiannual Report
January 31, 2004
[MORGAN STANLEY LOGO]
36052RPT-00-13915C04-AP-3/04
Item 2. Code of Ethics.
Not applicable for semiannual reports.
Item 3. Audit Committee Financial Expert.
Not applicable for semiannual reports.
Item 4. Principal Accountant Fees and Services
Not applicable for semiannual reports.
Item 5. Audit Committee of Listed Registrants.
Not applicable for semiannual reports.
Item 6. [Reserved.]
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
Not applicable for semiannual reports.
Item 8. [Reserved.]
Item 9 - Controls and Procedures
(a) The Fund's principal executive officer and principal financial officer have
concluded that the Fund's disclosure controls and procedures are sufficient to
ensure that information required to be disclosed by the Fund in this Form N-CSR
was recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission's rules and forms, based
upon such officers' evaluation of these controls and procedures as of a date
within 90 days of the filing date of the report.
There were no significant changes or corrective actions with regard to
significant deficiencies or material weaknesses in the Fund's internal controls
or in other factors that could significantly affect the Fund's internal controls
subsequent to the date of their evaluation.
(b) There were no changes in the registrant's internal control over financial
reporting that occurred during the registrant's most recent fiscal half-year
(the registrant's second fiscal half-year in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
Item 10 Exhibits
(a) Code of Ethics - Not applicable for semiannual reports.
(b) A separate certification for each principal executive officer and principal
financial officer of the registrant are attached hereto as part of EX-99.CERT.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
Morgan Stanley Aggressive Equity Fund
/s/ Ronald E. Robison
Ronald E. Robison
Principal Executive Officer
March 19, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, this report has been signed by the following
persons on behalf of the registrant and in the capacities and on the dates
indicated.
/s/ Ronald E. Robison
Ronald E. Robison
Principal Executive Officer
March 19, 2004
/s/ Francis Smith
Francis Smith
Principal Financial Officer
March 19, 2004
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