<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: 811-08471
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, 2003
Date of reporting period: July 31, 2003
Item 1 - Report to Shareholders
<Page>
WELCOME, SHAREHOLDER:
IN THIS REPORT, YOU'LL LEARN ABOUT HOW YOUR INVESTMENT IN MORGAN STANLEY
AGGRESSIVE EQUITY FUND PERFORMED DURING THE ANNUAL PERIOD. THE PORTFOLIO
MANAGEMENT TEAM WILL PROVIDE AN OVERVIEW OF THE MARKET CLIMATE, AND DISCUSS SOME
OF THE FACTORS THAT HELPED OR HINDERED PERFORMANCE DURING THE REPORTING PERIOD.
IN ADDITION, THIS REPORT INCLUDES THE FUND'S FINANCIAL STATEMENTS AND A LIST OF
FUND INVESTMENTS, AS WELL AS OTHER INFORMATION.
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 THE MARKET
VALUES OF SECURITIES OWNED BY THE FUND WILL DECLINE AND, THEREFORE, THE VALUE OF
THE FUND SHARES MAY BE LESS THAN WHAT YOU PAID FOR THEM. ACCORDINGLY, YOU CAN
LOSE MONEY INVESTING IN THIS FUND.
<Page>
FUND REPORT
For the year ended July 31, 2003
TOTAL RETURN FOR THE 12-MONTH PERIOD ENDED JULY 31, 2003
<Table>
<Caption>
LIPPER
S&P MULTI-CAP
500 GROWTH FUNDS
CLASS A CLASS B CLASS C CLASS D INDEX(1) INDEX(2)
2.66% 1.78% 1.78% 2.90% 10.65% 15.61%
</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 NO 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
Throughout the fiscal year ended July 31, 2003, economic conditions in the
United States and around the world remained weak, with GDP growth averaging
about 2 percent. During the first half of the fiscal year investor confidence
wavered due to concerns about corporate governance and the perceived lack of
balance-sheet integrity. During the second half, investor sentiment was
initially dampened by geopolitical tensions leading up to the war in Iraq.
Beginning in March, the market rallied sharply as investors began to discount a
rebound in the global economy due to accommodative fiscal and monetary policy.
Credit spreads tightened meaningfully.
As a result, the markets ended the first half of calendar year 2003 with gains,
the first time this has occurred since 1999. The best performing groups included
cyclical sectors such as technology and consumer cyclicals and beneficiaries of
looser financial conditions such as the electric power companies.
PERFORMANCE ANALYSIS
The Fund's underperformance is largely due to its generally conservative
construction. The Fund was held back by its continued focus on high quality
companies that were outpaced by more speculative companies during the period.
The Fund did benefit from its exposure to healthcare, particularly medical
devices and biotechnology, which are enjoying strong new product cycles. The
Fund also benefited from its exposure to wireless telecommunications providers,
as the leaders enjoyed gains in market share and margin improvement.
2
<Page>
TOP 10 HOLDINGS
<Table>
Citigroup Inc. 3.1%
Bank of America Corp. 2.3%
Cisco Systems Inc. 2.2%
Pfizer, Inc. 2.2%
Wal-Mart Stores Inc. 2.2%
Intel Corp. 2.0%
Newmont Mining Corp. 2.0%
Yahoo Inc. 1.8%
Genetech Inc. 1.6%
Aetna Inc. 1.5%
</Table>
TOP FIVE INDUSTRIES
<Table>
Biotechnology 6.5%
Financial Conglomerates 6.2%
Semiconductors 6.0%
Packaged Software 4.2%
Managed Health Care 3.9%
</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 THE SECURITIES MENTIONED. MORGAN STANLEY IS A FULL-SERVICE
SECURITIES FIRM ENGAGED IN SECURITIES TRADING AND BROKERAGE ACTIVITIES,
INVESTMENT BANKING, RESEARCH AND ANALYSIS, FINANCING AND FINANCIAL ADVISORY
SERVICES.
INVESTMENT STRATEGY
- - THE 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.
- - 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.
- - THE FUND MAY INVEST IN SMALL AND MEDIUM-SIZED COMPANIES IN ADDITION TO LARGER
MORE ESTABLISHED COMPANIES.
ANNUAL HOUSEHOLDING NOTICE
TO REDUCE PRINTING AND MAILING COSTS, THE FUND ATTEMPTS TO ELIMINATE DUPLICATE
MAILINGS TO THE SAME ADDRESS. THE FUND DELIVERS A SINGLE COPY OF CERTAIN
SHAREHOLDER DOCUMENTS INCLUDING SHAREHOLDER REPORTS, PROSPECTUSES AND PROXY
MATERIALS TO INVESTORS WITH THE SAME LAST NAME AND WHO RESIDE AT THE SAME
ADDRESS. YOUR PARTICIPATION IN THIS PROGRAM WILL CONTINUE FOR AN UNLIMITED
PERIOD OF TIME, UNLESS YOU INSTRUCT US OTHERWISE. YOU CAN REQUEST MULTIPLE
COPIES OF THESE DOCUMENTS BY CALLING (800) 350-6414, 8:00 AM TO 8:00 PM, ET.
ONCE OUR CUSTOMER SERVICE CENTER HAS RECEIVED YOUR INSTRUCTIONS, WE WILL BEGIN
SENDING INDIVIDUAL COPIES FOR EACH ACCOUNT WITHIN 30 DAYS.
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
<Page>
PERFORMANCE SUMMARY
[CHART]
PERFORMANCE OF A $10,000 INVESTMENT
($ IN THOUSANDS)
<Table>
<Caption>
CLASS A CLASS B CLASS C CLASS D S&P 500(1) LIPPER(2)
24-Feb-99 $ 9,475 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000
30-Apr-99 $ 10,138 $ 10,680 $ 10,680 $ 10,700 $ 10,677 $ 10,620
31-Jul-99 $ 10,299 $ 10,840 $ 10,840 $ 10,890 $ 10,661 $ 10,892
31-Oct-99 $ 11,162 $ 11,720 $ 11,720 $ 11,800 $ 10,970 $ 11,477
31-Jan-00 $ 14,137 $ 14,820 $ 14,820 $ 14,960 $ 11,256 $ 14,125
30-Apr-00 $ 14,241 $ 14,900 $ 14,900 $ 15,080 $ 11,759 $ 14,950
31-Jul-00 $ 14,440 $ 15,080 $ 15,080 $ 15,300 $ 11,617 $ 14,844
31-Oct-00 $ 14,989 $ 15,620 $ 15,620 $ 15,880 $ 11,637 $ 14,554
31-Jan-01 $ 13,160 $ 13,687 $ 13,687 $ 13,950 $ 11,154 $ 12,804
30-Apr-01 $ 11,288 $ 11,719 $ 11,719 $ 11,963 $ 10,233 $ 10,949
31-Jul-01 $ 10,352 $ 10,718 $ 10,718 $ 10,976 $ 9,952 $ 10,119
31-Oct-01 $ 9,265 $ 9,580 $ 9,580 $ 9,841 $ 8,739 $ 8,435
31-Jan-02 $ 9,806 $ 10,118 $ 10,118 $ 10,412 $ 9,354 $ 9,127
30-Apr-02 $ 9,666 $ 9,958 $ 9,970 $ 10,275 $ 8,942 $ 8,520
31-Jul-02 $ 8,111 $ 8,348 $ 8,360 $ 8,635 $ 7,602 $ 6,797
31-Oct-02 $ 7,927 $ 8,143 $ 8,143 $ 8,441 $ 7,420 $ 6,697
31-Jan-03 $ 7,484 $ 7,663 $ 7,674 $ 7,974 $ 7,202 $ 6,482
30-Apr-03 $ 7,722 $ 7,891 $ 7,903 $ 8,225 $ 7,753 $ 7,018
31-Jul-03 $ 8,327@ $ 8,348@ $ 8,508@ $ 8,886@ $ 8,411 $ 7,858
</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 GRAPH AND TABLE DO NOT REFLECT THE DEDUCTION
OF TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF
FUND SHARES. PERFORMANCE FOR CLASS A, CLASS B, CLASS C, AND CLASS D SHARES WILL
VARY DUE TO DIFFERENCES IN SALES CHARGES AND EXPENSES.
4
<Page>
AVERAGE ANNUAL TOTAL RETURNS--PERIOD ENDED JULY 31, 2003
<Table>
<Caption>
CLASS A SHARES* CLASS B SHARES** CLASS C SHARES+ CLASS D SHARES++
02/24/99 02/24/99 02/24/99 02/24/99
SYMBOL AEQAX AEQBX AEQCX AEQDX
1 YEAR 2.66%(3) 1.78%(3) 1.78%(3) 2.90%(3)
(2.73)(4) (3.22)(4) 0.78(4)
SINCE INCEPTION (2.87)(3) (3.61)(3) (3.58)(3) (2.63)(3)
(4.05)(4) (3.99)(4) (3.58)(4)
</Table>
- ----------
Notes on Performance
(1) THE STANDARD AND POOR'S 500 INDEX (S&P 500(R)) IS A BROAD-BASED INDEX, THE
PERFORMANCE OF WHICH IS BASED ON THE PERFORMANCE OF 500 WIDELY-HELD COMMON
STOCKS CHOSEN FOR MARKET SIZE, LIQUIDITY AND INDUSTRY GROUP REPRESENTATION.
THE INDEX DOES NOT INCLUDE ANY EXPENSES, FEES OR SALES CHARGES. 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 1.0% FOR SHARES
REDEEMED WITHIN ONE YEAR OF PURCHASE.
++ CLASS D HAS NO SALES CHARGE.
@ CLOSING VALUE ASSUMING A COMPLETE REDEMPTION ON JULY 31, 2003.
5
<Page>
MORGAN STANLEY AGGRESSIVE EQUITY FUND
PORTFOLIO OF INVESTMENTS - JULY 31, 2003
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------
COMMON STOCKS (96.3%)
ADVERTISING/MARKETING
SERVICES (0.2%)
22,600 Getty Images, Inc.* $ 861,738
------------
AIR FREIGHT/COURIERS (0.7%)
51,000 FedEx Corp. 3,283,890
------------
AIRLINES (0.6%)
53,800 JetBlue Airways Corp.* 2,451,128
------------
APPAREL/FOOTWEAR (0.3%)
24,900 Coach, Inc.* 1,319,700
------------
APPAREL/FOOTWEAR
RETAIL (1.6%)
28,000 Abercrombie & Fitch Co.
(Class A)* 898,520
89,400 Chico's FAS, Inc.* 2,427,210
126,700 Hot Topic, Inc.* 3,661,630
------------
6,987,360
------------
AUTO PARTS: O.E.M. (1.1%)
30,100 Eaton Corp. 2,533,517
23,200 Johnson Controls, Inc. 2,241,352
------------
4,774,869
------------
BEVERAGES: ALCOHOLIC (0.5%)
40,350 Anheuser-Busch
Companies, Inc. 2,090,937
------------
BIOTECHNOLOGY (6.5%)
56,100 Amgen Inc.* 3,903,438
42,200 Amylin Pharmaceuticals, Inc.* 1,011,534
60,100 CV Therapeutics, Inc.* 2,144,969
90,600 Genentech, Inc.* 7,315,950
26,100 Genzyme Corp.* 1,316,484
83,900 Gilead Sciences, Inc.* 5,751,345
63,300 ICOS Corp.* 2,761,146
42,700 Neurocrine Biosciences, Inc.* 2,292,136
100,400 NPS Pharmaceuticals, Inc.* 2,563,212
------------
29,060,214
------------
BROADCASTING (0.5%)
74,200 Univision Communications Inc.
(Class A)* 2,315,040
------------
CABLE/SATELLITE TV (0.8%)
115,800 Comcast Corp. (Class A)* $ 3,511,056
------------
CASINO/GAMING (1.2%)
48,200 GTECH Holdings Corp. 1,859,074
69,200 International Game
Technology 1,761,140
53,200 MGM Mirage* 1,824,760
------------
5,444,974
------------
CHEMICALS: SPECIALTY (1.1%)
34,100 Air Products & Chemicals,
Inc. 1,584,968
49,600 Praxair, Inc. 3,207,136
------------
4,792,104
------------
COMPUTER
COMMUNICATIONS (2.6%)
516,600 Cisco Systems, Inc.* 10,084,032
63,000 Juniper Networks, Inc.* 909,090
37,200 NetScreen Technologies, Inc.* 804,636
------------
11,797,758
------------
COMPUTER PERIPHERALS (3.0%)
133,900 ATI Technologies Inc.
(Canada)* 1,663,038
259,600 Maxtor Corp.* 2,596,000
97,900 Network Appliance, Inc.* 1,564,442
220,800 Seagate Technology
(Cayman Islands) 4,813,440
36,700 Zebra Technologies Corp.
(Class A)* 2,847,186
------------
13,484,106
------------
COMPUTER PROCESSING
HARDWARE (2.2%)
154,800 Dell Inc.* 5,213,664
211,900 Hewlett-Packard Co. 4,485,923
------------
9,699,587
------------
CONTRACT DRILLING (0.8%)
35,900 ENSCO International Inc. 900,013
105,700 Pride International, Inc.* 1,741,936
40,100 Rowan Companies, Inc.* 880,195
------------
3,522,144
------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
6
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------
DEPARTMENT STORES (0.8%)
40,200 Federated Department
Stores, Inc. $ 1,608,402
52,700 Neiman Marcus Group,
Inc. (The) (Class A)* 2,071,110
------------
3,679,512
------------
DISCOUNT STORES (2.2%)
174,500 Wal-Mart Stores, Inc.** 9,756,295
------------
ELECTRONIC COMPONENTS (0.2%)
23,800 OmniVision Technologies, Inc.* 966,042
------------
ELECTRONIC EQUIPMENT/
INSTRUMENTS (0.8%)
131,900 Rockwell Automation, Inc. 3,408,296
------------
ELECTRONIC PRODUCTION
EQUIPMENT (0.4%)
86,400 Applied Materials, Inc.* 1,684,800
------------
ELECTRONICS/APPLIANCE
STORES (0.4%)
44,000 Best Buy Co., Inc.* 1,920,600
------------
FINANCE/RENTAL/LEASING (1.2%)
131,600 MBNA Corp. 2,933,364
61,500 SLM Corp. 2,549,790
------------
5,483,154
------------
FINANCIAL CONGLOMERATES (6.2%)
91,100 American Express Co. 4,023,887
312,700 Citigroup Inc. 14,008,960
119,300 J.P. Morgan Chase & Co. 4,181,465
49,200 State Street Corp. 2,258,280
36,600 UBS AG (ADR)
(Registered Shares)
(Switzerland) 2,133,780
24,100 UBS AG (Registered Shares)
(Switzerland) 1,412,995
------------
28,019,367
------------
FOOD: MEAT/FISH/DAIRY (0.4%)
56,650 Dean Foods Co.* 1,695,535
------------
HOME IMPROVEMENT
CHAINS (0.6%)
52,800 Lowe's Companies, Inc. 2,511,168
------------
HOTELS/RESORTS/
CRUISELINES (1.0%)
109,400 Hilton Hotels Corp. $ 1,597,240
54,600 Royal Caribbean Cruises Ltd.
(Liberia) 1,597,050
46,100 Starwood Hotels & Resorts
Worldwide, Inc. 1,502,860
------------
4,697,150
------------
HOUSEHOLD/PERSONAL
CARE (1.8%)
59,900 Avon Products, Inc. 3,737,161
50,800 Procter & Gamble Co. (The) 4,463,796
------------
8,200,957
------------
INDUSTRIAL CONGLOMERATES (0.9%)
42,300 Ingersoll-Rand Co., Ltd.
(Bermuda) 2,294,352
25,800 United Technologies Corp. 1,940,934
------------
4,235,286
------------
INDUSTRIAL SPECIALTIES (0.9%)
73,500 Ecolab Inc. 1,816,185
63,000 Nitto Denko Corp. (Japan) 2,292,143
------------
4,108,328
------------
INFORMATION TECHNOLOGY
SERVICES (1.2%)
120,700 Accenture Ltd. (Class A)
(Bermuda)* 2,343,994
101,900 Citrix Systems, Inc.* 1,849,485
40,600 Cognizant Technology
Solutions Corp.* 1,249,668
------------
5,443,147
------------
INTEGRATED OIL (0.3%)
28,600 Murphy Oil Corp. 1,412,268
------------
INTERNET RETAIL (1.9%)
44,500 Amazon.com, Inc.* 1,856,540
167,000 InterActiveCorp* 6,758,490
------------
8,615,030
------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
7
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------
INTERNET SOFTWARE/
SERVICES (2.0%)
24,300 MicroStrategy Inc.
(Class A)* $ 1,059,966
254,100 Yahoo! Inc.* 7,910,133
------------
8,970,099
------------
INVESTMENT BANKS/
BROKERS (3.8%)
17,800 Chicago Mercantile Exchange
(The) 1,310,970
43,400 Goldman Sachs Group, Inc.
(The) 3,781,876
37,700 Jefferies Group, Inc. 2,238,249
43,700 Legg Mason, Inc. 3,059,000
34,200 Lehman Brothers Holdings, Inc. 2,163,834
82,700 Merrill Lynch & Co., Inc. 4,496,399
------------
17,050,328
------------
INVESTMENT MANAGERS (0.4%)
40,600 Franklin Resources, Inc. 1,764,070
------------
MAJOR BANKS (2.3%)
122,700 Bank of America Corp. 10,131,339
------------
MANAGED HEALTH CARE (3.9%)
112,600 Aetna Inc. 6,938,412
46,500 Anthem, Inc.* 3,511,215
113,600 UnitedHealth Group Inc. 5,917,424
12,800 WellPoint Health Networks,
Inc.* 1,070,720
------------
17,437,771
------------
MEDIA CONGLOMERATES (1.4%)
110,400 AOL Time Warner Inc.* 1,703,472
81,400 News Corporation Ltd.
(The) (ADR) (Australia) 2,475,374
50,900 Viacom, Inc. (Class B)
(Non-Voting)* 2,215,168
------------
6,394,014
------------
MEDICAL SPECIALTIES (3.7%)
31,000 Boston Scientific Corp.* 1,960,130
108,300 Guidant Corp. 5,113,926
76,400 Medtronic, Inc. 3,934,600
50,600 St. Jude Medical, Inc.* 2,714,690
44,500 Varian Medical Systems, Inc.* $ 2,730,520
------------
16,453,866
------------
METAL FABRICATIONS (0.5%)
93,600 Chicago Bridge & Iron
Company N.V. (ADR)
(Netherlands) 2,308,176
------------
MISCELLANEOUS COMMERCIAL
SERVICES (0.3%)
25,500 Fair Isaac Corp. 1,378,020
------------
MOVIES/ENTERTAINMENT (0.2%)
26,100 Fox Entertainment Group,
Inc. (Class A)* 790,047
------------
OIL & GAS PRODUCTION (1.4%)
35,410 Apache Corp. 2,194,004
31,200 Burlington Resources Inc. 1,440,504
18,900 Devon Energy Corp. 895,293
42,500 Pogo Producing Co. 1,797,750
------------
6,327,551
------------
OILFIELD SERVICES/
EQUIPMENT (0.8%)
27,000 BJ Services Co.* 924,750
17,700 Cooper Cameron Corp.* 846,237
21,400 Schlumberger Ltd. 964,498
29,900 Smith International, Inc.* 1,071,616
------------
3,807,101
------------
OTHER CONSUMER
SERVICES (2.6%)
52,750 Apollo Group, Inc. (Class A)* 3,416,090
12,100 Career Education Corp.* 1,009,140
32,200 Corinthian Colleges, Inc.* 1,758,442
40,200 eBay Inc.* 4,309,440
29,800 ITT Educational Services, Inc.* 1,169,054
------------
11,662,166
------------
OTHER METALS/MINERALS (0.7%)
37,700 Inco Ltd. (Canada)* 878,787
28,700 Phelps Dodge Corp.* 1,210,853
54,301 Rio Tinto PLC (ADR)
(United Kingdom) 1,127,427
------------
3,217,067
------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
8
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------
PACKAGED SOFTWARE (4.2%)
40,400 Cognos, Inc. (ADR) (Canada)* $ 1,093,224
101,200 Computer Associates
International, Inc. 2,575,540
85,500 Mercury Interactive Corp.* 3,365,280
90,900 Microsoft Corp. 2,399,760
210,200 Oracle Corp.* 2,522,400
3,750 SAP AG (Germany) 442,136
92,000 Sybase, Inc.* 1,444,400
43,000 Symantec Corp.* 2,011,110
100,500 VERITAS Software Corp.* 3,095,400
------------
18,949,250
------------
PERSONNEL SERVICES (0.7%)
35,900 Manpower, Inc. 1,367,790
62,800 Monster Worldwide Inc.* 1,667,340
------------
3,035,130
------------
PHARMACEUTICALS: GENERIC
DRUGS (0.2%)
22,500 Watson Pharmaceuticals, Inc.* 898,650
------------
PHARMACEUTICALS: MAJOR (3.6%)
57,900 Lilly (Eli) & Co. 3,812,136
297,200 Pfizer Inc. 9,914,592
51,000 Wyeth 2,324,580
------------
16,051,308
------------
PHARMACEUTICALS: OTHER (1.5%)
88,300 Dr. Reddy's Laboratories Ltd.
(ADR) (India) 2,211,032
77,400 Teva Pharmaceutical Industries
Ltd. (ADR) (Israel) 4,438,116
------------
6,649,148
------------
PRECIOUS METALS (3.0%)
102,900 Freeport-McMoRan
Copper & Gold, Inc.
(Class B) 2,756,691
139,000 Glamis Gold Ltd. (ADR)
(Canada)* 1,751,400
249,200 Newmont Mining Corp. 8,996,120
------------
13,504,211
------------
PROPERTY - CASUALTY
INSURERS (0.7%)
27,800 Everest Re Group, Ltd. (ADR)
(Bermuda) $ 2,100,846
11,400 XL Capital Ltd. (Class A)
(ADR) (Bermuda) 906,300
------------
3,007,146
------------
RESTAURANTS (0.6%)
8,700 Applebee's International, Inc. 277,530
88,000 Starbucks Corp.* 2,405,040
------------
2,682,570
------------
SEMICONDUCTORS (6.0%)
29,700 Analog Devices, Inc.* 1,127,115
101,000 GlobespanVirata, Inc.* 696,900
140,800 Integrated Circuit Systems,
Inc.* 4,231,040
367,000 Intel Corp. 9,156,650
72,500 Intersil Corp. (Class A)* 1,787,850
51,600 Linear Technology Corp. 1,903,008
86,000 Marvell Technology Group
Ltd. (Bermuda)* 3,023,760
30,600 Maxim Integrated Products,
Inc. 1,195,848
13,000 NEC Electronics Corp.
(Japan) 618,432
265,600 RF Micro Devices, Inc.* 1,952,160
39,300 Silicon Laboratories Inc.* 1,442,703
------------
27,135,466
------------
SPECIALTY STORES (1.2%)
102,150 Staples, Inc.* 2,057,301
102,100 Tiffany & Co. 3,508,156
------------
5,565,457
------------
TELECOMMUNICATION
EQUIPMENT (1.2%)
18,700 ADTRAN, Inc.* 913,308
81,601 Alcatel S.A. (France) 817,483
87,000 UTStarcom, Inc.* 3,703,590
------------
5,434,381
------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
9
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------
TOBACCO (1.0%)
79,600 Altria Group, Inc. $ 3,184,796
43,900 Loews Corp. - Carolina Group 1,101,012
------------
4,285,808
------------
TRUCKING (0.2%)
14,300 Landstar System, Inc.* 917,488
------------
TRUCKS/CONSTRUCTION/
FARM MACHINERY (1.4%)
18,600 Deere & Co. 944,508
134,800 Joy Global Inc.* 2,128,492
43,300 PACCAR, Inc. 3,342,760
------------
6,415,760
------------
WHOLESALE DISTRIBUTORS (0.2%)
26,900 United Stationers, Inc.* 1,030,808
------------
WIRELESS
TELECOMMUNICATIONS (1.7%)
267,800 AT&T Wireless Services Inc.* 2,284,334
80,100 Nextel Communications,
Inc. (Class A)* 1,462,626
214,700 Vodafone Group PLC (ADR)
(United Kingdom) 4,075,006
------------
7,821,966
------------
Total Common Stocks
(COST $391,793,391) 432,309,702
------------
<Caption>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ------------------------------------------------------------------
SHORT-TERM INVESTMENTS (1.7%)
REPURCHASE AGREEMENT
$ 7,823 Joint repurchase agreement
account 1.11% due 08/01/03
(dated 07/31/03; proceeds
$7,823,241) (a)
(COST $7,823,000) $ 7,823,000
-------------
TOTAL INVESTMENTS
(COST $399,616,391) (b)(c) 98.0% $ 440,132,702
OTHER ASSETS IN EXCESS OF
LIABILITIES 2.0 8,981,394
----- -------------
NET ASSETS 100.0% $ 449,114,096
===== =============
</Table>
- ----------
ADR AMERICAN DEPOSITORY RECEIPT.
* NON-INCOME PRODUCING SECURITY.
** A PORTION OF THIS SECURITY HAS BEEN PHYSICALLY SEGREGATED IN CONNECTION
WITH OPEN FUTURES CONTRACTS.
(a) COLLATERALIZED BY FEDERAL AGENCY AND U.S. TREASURY OBLIGATIONS.
(b) SECURITIES HAVE BEEN DESIGNATED AS COLLATERAL IN A AMOUNT EQUAL TO
$17,341,506 IN CONNECTION WITH OPEN FUTURES CONTRACTS.
(c) THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES IS $402,977,875. THE
AGGREGATE GROSS UNREALIZED APPRECIATION IS $41,685,614 AND THE AGGREGATE
GROSS UNREALIZED DEPRECIATION IS $4,530,787, RESULTING IN NET UNREALIZED
APPRECIATION OF $37,154,827.
SEE NOTES TO FINANCIAL STATEMENTS
10
<Page>
FUTURES CONTRACTS OPEN AT JULY 31, 2003:
<Table>
<Caption>
NUMBER OF DESCRIPTION, DELIVERY UNDERLYING FACE UNREALIZED
CONTRACTS LONG/SHORT MONTH, AND YEAR AMOUNT AT VALUE DEPRECIATION
- ---------------------------------------------------------------------------------------------------------------
185 Short S&P 500 Index E-Mini September/2003 $ (9,151,025) $ (57,241)
31 Short Nasdaq 100 September/2003 (3,964,900) (76,973)
560 Short Nasdaq 100 E-Mini September/2003 (14,324,800) (211,193)
----------
Total unrealized depreciation $ (345,407)
==========
</Table>
FORWARD FOREIGN CURRENCY CONTRACTS OPEN AT JULY 31, 2003:
<Table>
<Caption>
CONTRACTS UNREALIZED
TO DELIVER IN EXCHANGE FOR DELIVERY DATE APPRECIATION
- -------------------------------------------------------------------------------------------------------------
EUR 1,213,599 $ 1,390,299 08/01/03 $ 27,306
</Table>
CURRENCY ABBREVIATION:
EUR Euro.
SEE NOTES TO FINANCIAL STATEMENTS
11
<Page>
MORGAN STANLEY AGGRESSIVE EQUITY FUND
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
JULY 31, 2003
<Table>
ASSETS:
Investments in securities, at value (cost $399,616,391) $ 440,132,702
Unrealized appreciation on open forward foreign currency contracts 27,306
Receivable for:
Investments sold 15,593,988
Dividends 315,308
Shares of beneficial interest sold 78,978
Prepaid expenses and other assets 47,270
-------------
TOTAL ASSETS 456,195,552
-------------
LIABILITIES:
Payable for:
Investments purchased 4,307,977
Shares of beneficial interest redeemed 386,030
Distribution fee 371,970
Investment management fee 289,410
Variation margin 232,325
Payable to bank 1,389,847
Accrued expenses and other payables 103,897
-------------
TOTAL LIABILITIES 7,081,456
-------------
NET ASSETS $ 449,114,096
=============
COMPOSITION OF NET ASSETS:
Paid-in-capital $ 920,814,257
Net unrealized appreciation 40,172,522
Accumulated net investment loss (27,306)
Accumulated net realized loss (511,845,377)
-------------
NET ASSETS $ 449,114,096
=============
CLASS A SHARES:
Net Assets $ 18,339,725
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE) 2,378,206
NET ASSET VALUE PER SHARE $ 7.71
=============
MAXIMUM OFFERING PRICE PER SHARE,
(NET ASSET VALUE PLUS 5.54% OF NET ASSET VALUE) $ 8.14
=============
CLASS B SHARES:
Net Assets $ 387,751,380
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE) 52,102,896
NET ASSET VALUE PER SHARE $ 7.44
=============
CLASS C SHARES:
Net Assets $ 40,554,943
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE) 5,443,070
NET ASSET VALUE PER SHARE $ 7.45
=============
CLASS D SHARES:
Net Assets $ 2,468,048
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE) 316,568
NET ASSET VALUE PER SHARE $ 7.80
=============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
12
<Page>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JULY 31, 2003
<Table>
NET INVESTMENT LOSS:
INCOME
Dividends (net of $35,842 foreign withholding tax) $ 4,540,204
Interest 654,811
-------------
TOTAL INCOME 5,195,015
-------------
EXPENSES
Distribution fee (Class A shares) 48,065
Distribution fee (Class B shares) 4,184,778
Distribution fee (Class C shares) 429,215
Investment management fee 3,624,368
Transfer agent fees and expenses 1,601,106
Shareholder reports and notices 127,714
Professional fees 58,137
Registration fees 53,511
Custodian fees 52,221
Trustees' fees and expenses 15,268
Other 12,987
-------------
TOTAL EXPENSES 10,207,370
-------------
NET INVESTMENT LOSS (5,012,355)
-------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
NET REALIZED GAIN (LOSS) ON:
Investments (52,973,171)
Futures contracts 710,061
Foreign exchange transactions (199)
-------------
NET REALIZED LOSS (52,263,309)
-------------
NET CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION ON:
Investments 60,429,291
Futures contracts (345,407)
Net translation of other assets and liabilities denominated
in foreign currencies 1,004
-------------
NET APPRECIATION 60,084,888
-------------
NET GAIN 7,821,579
-------------
NET INCREASE $ 2,809,224
=============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
13
<Page>
STATEMENT OF CHANGES IN NET ASSETS
<Table>
<Caption>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
JULY 31, 2003 JULY 31, 2002
--------------- ---------------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment loss $ (5,012,355) $ (8,834,458)
Net realized loss (52,263,309) (138,241,555)
Net change in unrealized appreciation 60,084,888 (40,612,651)
--------------- ---------------
NET INCREASE (DECREASE) 2,809,224 (187,688,664)
--------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS FROM NET REALIZED GAIN:
Class A shares -- (114,705)
Class B shares -- (2,747,516)
Class C shares -- (266,345)
Class D shares -- (14,751)
--------------- ---------------
TOTAL DISTRIBUTIONS -- (3,143,317)
--------------- ---------------
Net decrease from transactions in shares of beneficial interest (120,803,468) (251,550,782)
--------------- ---------------
NET DECREASE (117,994,244) (442,382,763)
NET ASSETS:
Beginning of period 567,108,340 1,009,491,103
--------------- ---------------
END OF PERIOD
(Including an accumulated net investment loss of $27,306 and
undistributed net investment income of $4,875, respectively) $ 449,114,096 $ 567,108,340
=============== ===============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
14
<Page>
MORGAN STANLEY AGGRESSIVE EQUITY FUND
NOTES TO FINANCIAL STATEMENTS - JULY 31, 2003
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 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 equity 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; (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.
15
<Page>
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 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
16
<Page>
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 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
$27,086,041 at July 31, 2003.
17
<Page>
In the case of Class A shares and Class C shares, expenses incurred pursuant to
the Plan in any calendar year in excess of 0.25% or 1.0% of the average daily
net assets of Class A or Class C, respectively, will not be reimbursed by the
Fund through payments in any subsequent year, except that expenses representing
a gross sales credit to Morgan Stanley Financial Advisors or other selected
broker-dealer representatives may be reimbursed in the subsequent calendar year.
For the year ended July 31, 2003, 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 year ended July 31, 2003, it
received contingent deferred sales charges from certain redemptions of the
Fund's Class A shares, Class B shares and Class C shares of $15, $1,158,423 and
$3,429, respectively and received $29,595 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 year ended July 31, 2003 aggregated
$1,179,775,039 and $1,313,388,673, respectively. Included in the aforementioned
are purchases and sales of U.S. Government Securities of $15,009,579 and
$30,853,734, respectively and purchases and sales with other Morgan Stanley
Funds $876,557 and $1,274,714, respectively including a net realized loss of
$116,999.
For the year ended July 31, 2003, the Fund incurred brokerage commissions of
$304,240 with Morgan Stanley & Co., Inc., an affiliate of the Investment Manager
and Distributor, for portfolio transactions executed on behalf of the Fund. At
July 31, 2003, the Fund's receivable for investments sold included unsettled
trades with Morgan Stanley & Co., Inc. of $3,806,499.
Morgan Stanley Trust, an affiliate of the Investment Manager and Distributor, is
the Fund's transfer agent. At July 31, 2003, the Fund had transfer agent fees
and expenses payable of approximately $12,300.
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
18
<Page>
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 tax-basis components of accumulated losses were as
follows:
<Table>
Net accumulated earnings --
Capital loss carryforward* $ (487,082,590)
Post-October losses (21,746,710)
Net unrealized appreciation 37,129,138
--------------
Total accumulated losses $ (471,700,162)
==============
</Table>
*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 and
permanent book/tax differences primarily attributable to a net operating loss.
To reflect reclassifications arising from the permanent differences,
paid-in-capital was charged $4,980,373, accumulated net investment loss was
credited $4,980,174 and accumulated net realized loss was credited $199.
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 foreign exchange rates
underlying the 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.
At July 31, 2003, the Fund had outstanding forward and futures contracts.
19
<Page>
7. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<Table>
<Caption>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
JULY 31, 2003 JULY 31, 2002
----------------------------------- -----------------------------------
SHARES AMOUNT SHARES AMOUNT
---------------- ---------------- ---------------- ----------------
CLASS A SHARES
Sold 264,713 $ 1,930,674 437,368 $ 3,925,327
Reinvestment of distributions -- -- 12,178 110,085
Redeemed (799,231) (5,776,834) (1,661,067) (14,617,471)
---------------- ---------------- ---------------- ----------------
Net decrease -- Class A (534,518) (3,846,160) (1,211,521) (10,582,059)
---------------- ---------------- ---------------- ----------------
CLASS B SHARES
Sold 3,071,097 21,709,526 4,348,044 37,730,988
Reinvestment of distributions -- -- 292,670 2,584,265
Redeemed (18,434,124) (129,022,330) (30,680,709) (261,807,117)
---------------- ---------------- ---------------- ----------------
Net decrease -- Class B (15,363,027) (107,312,804) (26,039,995) (221,491,864)
---------------- ---------------- ---------------- ----------------
CLASS C SHARES
Sold 440,521 3,123,524 748,331 6,433,495
Reinvestment of distributions -- -- 28,425 250,995
Redeemed (1,783,133) (12,566,889) (2,863,253) (24,554,200)
---------------- ---------------- ---------------- ----------------
Net decrease -- Class C (1,342,612) (9,443,365) (2,086,497) (17,869,710)
---------------- ---------------- ---------------- ----------------
CLASS D SHARES
Sold 95,835 713,440 145,241 1,212,179
Reinvestment of distributions -- -- 1,567 14,259
Redeemed (125,309) (914,579) (328,990) (2,833,587)
---------------- ---------------- ---------------- ----------------
Net decrease -- Class D (29,474) (201,139) (182,182) (1,607,149)
---------------- ---------------- ---------------- ----------------
Net decrease in Fund (17,269,631) $ (120,803,468) (29,520,195) $ (251,550,782)
================ ================ ================ ================
</Table>
20
<Page>
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 YEAR ENDED JULY 31 FEBRUARY 24, 1999*
----------------------------------------------------------- THROUGH
2003 2002 2001 2000 JULY 31, 1999
----------- ----------- ----------- ----------- ------------------
Class A Shares
Selected Per Share Data:
Net asset value, beginning of period $ 7.51 $ 9.62 $ 15.24 $ 10.87 $ 10.00
----------- ----------- ----------- ----------- -----------
Income (loss) from investment operations:
Net investment loss++ (0.02) (0.03) - (0.08) (0.01)
Net realized and unrealized gain (loss) 0.22 (2.05) (3.90) 4.45 0.88
----------- ----------- ----------- ----------- -----------
Total income (loss) from investment
operations 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 $ 7.71 $ 7.51 $ 9.62 $ 15.24 $ 10.87
=========== =========== =========== =========== ===========
Total Return+ 2.66% (21.65)% (28.31)% 40.20% 8.70%(1)
Ratios to Average Net Assets(3):
Expenses 1.40% 1.29% 1.16% 1.18% 1.31%(2)
Net investment loss (0.32)% (0.39)% (0.03)% (0.55)% (0.16)%(2)
Supplemental Data:
Net assets, end of period, in thousands $ 18,340 $ 21,888 $ 39,662 $ 67,267 $ 32,165
Portfolio turnover rate 263% 325% 399% 432% 177%(1)
</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.
SEE NOTES TO FINANCIAL STATEMENTS
21
<Page>
<Table>
<Caption>
FOR THE PERIOD
FOR THE YEAR ENDED JULY 31 FEBRUARY 24, 1999*
----------------------------------------------------------- THROUGH
2003 2002 2001 2000 JULY 31, 1999
----------- ----------- ----------- ----------- ------------------
Class B Shares
Selected Per Share Data:
Net asset value, beginning of
period $ 7.31 $ 9.42 $ 15.08 $ 10.84 $ 10.00
----------- ----------- ----------- ----------- -----------
Income (loss) from investment operations:
Net investment loss++ (0.08) (0.10) (0.10) (0.19) (0.04)
Net realized and unrealized
gain (loss) 0.21 (1.98) (3.84) 4.43 0.88
----------- ----------- ----------- ----------- -----------
Total income (loss) from investment
operations 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 $ 7.44 $ 7.31 $ 9.42 $ 15.08 $ 10.84
=========== =========== =========== =========== ===========
Total Return+ 1.78% (22.11)% (28.93)% 39.11% 8.40%(1)
Ratios to Average Net Assets(3):
Expenses 2.15% 2.05% 1.94% 1.93% 2.06%(2)
Net investment loss (1.07)% (1.15)% (0.81)% (1.30)% (0.91)%(2)
Supplemental Data:
Net assets, end of period,
in thousands $ 387,751 $ 492,959 $ 881,115 $ 1,364,482 $ 665,848
Portfolio turnover rate 263% 325% 399% 432% 177%(1)
</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.
SEE NOTES TO FINANCIAL STATEMENTS
22
<Page>
<Table>
<Caption>
FOR THE PERIOD
FOR THE YEAR ENDED JULY 31 FEBRUARY 24, 1999*
----------------------------------------------------------- THROUGH
2003 2002 2001 2000 JULY 31, 1999
----------- ----------- ----------- ----------- ------------------
Class C Shares
Selected Per Share Data:
Net asset value, beginning of period $ 7.32 $ 9.42 $ 15.08 $ 10.84 $ 10.00
----------- ----------- ----------- ----------- -----------
Income (loss) from investment operations:
Net investment loss++ (0.08) (0.09) (0.10) (0.19) (0.04)
Net realized and unrealized gain (loss) 0.21 (1.98) (3.84) 4.43 0.88
----------- ----------- ----------- ----------- -----------
Total income (loss) from investment
operations 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 $ 7.45 $ 7.32 $ 9.42 $ 15.08 $ 10.84
=========== =========== =========== =========== ===========
Total Return+ 1.78% (22.00)% (28.93)% 39.11% 8.40%(1)
Ratios to Average Net Assets(3):
Expenses 2.15% 1.93% 1.94% 1.93% 2.06%(2)
Net investment loss (1.07)% (1.03)% (0.81)% (1.30)% (0.91)%(2)
Supplemental Data:
Net assets, end of period, in thousands $ 40,555 $ 49,639 $ 83,603 $ 127,180 $ 64,053
Portfolio turnover rate 263% 325% 399% 432% 177%(1)
</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.
SEE NOTES TO FINANCIAL STATEMENTS
23
<Page>
<Table>
<Caption>
FOR THE PERIOD
FOR THE YEAR ENDED JULY 31 FEBRUARY 24, 1999*
----------------------------------------------------------- THROUGH
2003 2002 2001 2000 JULY 31, 1999
----------- ----------- ----------- ----------- ------------------
Class D Shares
Selected Per Share Data:
Net asset value, beginning of period $ 7.58 $ 9.68 $ 15.30 $ 10.89 $ 10.00
----------- ----------- ----------- ----------- -----------
Income (loss) from investment operations:
Net investment income (loss)++ (0.01) (0.01) 0.02 (0.06) -
Net realized and unrealized gain (loss) 0.23 (2.06) (3.92) 4.47 0.89
----------- ----------- ----------- ----------- -----------
Total income (loss) from investment
operations 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 $ 7.80 $ 7.58 $ 9.68 $ 15.30 $ 10.89
=========== =========== =========== =========== ===========
Total Return+ 2.90% (21.33)% (28.26)% 40.50% 8.90%(1)
Ratios to Average Net Assets(3):
Expenses 1.15% 1.05% 0.94% 0.93% 1.06%(2)
Net investment income (loss) (0.07)% (0.15)% 0.19% (0.30)% 0.09%(2)
Supplemental Data:
Net assets, end of period, in thousands $ 2,468 $ 2,622 $ 5,111 $ 4,581 $ 316
Portfolio turnover rate 263% 325% 399% 432% 177%(1)
</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.
SEE NOTES TO FINANCIAL STATEMENTS
24
<Page>
MORGAN STANLEY AGGRESSIVE EQUITY FUND
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Trustees of
Morgan Stanley Aggressive Equity Fund:
We have audited the accompanying statement of assets and liabilities of Morgan
Stanley Aggressive Equity Fund (the "Fund"), including the portfolio of
investments, as of July 31, 2003, and the related statements of operations for
the year then ended and changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the periods
presented. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of July 31, 2003, by correspondence with the custodian and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Morgan
Stanley Aggressive Equity Fund as of July 31, 2003, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each of
the periods presented, in conformity with accounting principles generally
accepted in the United States of America.
Deloitte & Touche LLP
NEW YORK, NEW YORK
SEPTEMBER 10, 2003
25
<Page>
MORGAN STANLEY AGGRESSIVE EQUITY FUND
TRUSTEE AND OFFICER INFORMATION
INDEPENDENT TRUSTEES:
<Table>
<Caption>
TERM OF
POSITION(S) OFFICE AND
NAME, AGE AND ADDRESS OF HELD WITH LENGTH OF
INDEPENDENT TRUSTEE REGISTRANT TIME SERVED* PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS**
- ------------------------- ----------- ------------- -----------------------------------------------------------
Michael Bozic (62) Trustee Since April Retired; Director or Trustee of the Retail Funds and TCW/DW
c/o Mayer, Brown, Rowe & 1994 Term Trust 2003 (since April 1994) and the Institutional
Maw LLP Funds (since July 2003); formerly Vice Chairman of Kmart
Counsel to the Corporation (December 1998-October 2000), Chairman and
Independent Directors Chief Executive Officer of Levitz Furniture Corporation
1675 Broadway (November 1995-November 1998) and President and Chief
New York, NY 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 (70) Trustee Since January Director or Trustee of the Retail Funds and TCW/DW Term
c/o Summit Ventures LLC 1993 Trust 2003 (since January 1993) and the Institutional Funds
1 Utah Center (since July 2003); member of the Utah Regional Advisory
201 S. Main Street Board of Pacific Corp.; formerly United States Senator
Salt Lake City, UT (R-Utah) (1974-1992) and Chairman, Senate Banking Committee
(1980-1986), Mayor of Salt Lake City, Utah (1971-1974),
Astronaut, Space Shuttle Discovery (April 12-19, 1985), and
Vice Chairman, Huntsman Corporation (chemical company).
Wayne E. Hedien (69) Trustee Since Retired; Director or Trustee of the Retail Funds and TCW/DW
c/o Mayer, Brown, Rowe & September Term Trust 2003; (Since September 1997) and the
Maw LLP 1997 Institutional Funds (since July 2003); formerly associated
Counsel to the with the Allstate Companies (1966-1994), most recently as
Independent Directors Chairman of The Allstate Corporation (March 1993-December
1675 Broadway 1994) and Chairman and Chief Executive Officer of its
New York, NY wholly-owned subsidiary, Allstate Insurance Company (July
1989-December 1994).
<Caption>
NUMBER OF
PORTFOLIOS
IN FUND
COMPLEX
NAME, AGE AND ADDRESS OF OVERSEEN
INDEPENDENT TRUSTEE BY TRUSTEE*** OTHER DIRECTORSHIPS HELD BY TRUSTEE
- ------------------------- ------------- --------------------------------------------
Michael Bozic (62) 216 Director of Weirton Steel Corporation.
c/o Mayer, Brown, Rowe &
Maw LLP
Counsel to the
Independent Directors
1675 Broadway
New York, NY
Edwin J. Garn (70) 216 Director of Franklin Covey (time management
c/o Summit Ventures LLC systems), BMW Bank of North America, Inc.
1 Utah Center (industrial loan corporation), United Space
201 S. Main Street Alliance (joint venture between Lockheed
Salt Lake City, UT Martin and the Boeing Company) and Nuskin
Asia Pacific (multilevel marketing); member
of the board of various civic and charitable
organizations.
Wayne E. Hedien (69) 216 Director of The PMI Group Inc. (private
c/o Mayer, Brown, Rowe & mortgage insurance); Trustee and Vice
Maw LLP Chairman of The Field Museum of Natural
Counsel to the History; director of various other business
Independent Directors and charitable organizations.
1675 Broadway
New York, NY
</Table>
26
<Page>
<Table>
<Caption>
TERM OF
POSITION(S) OFFICE AND
NAME, AGE AND ADDRESS OF HELD WITH LENGTH OF
INDEPENDENT TRUSTEE REGISTRANT TIME SERVED* PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS**
- ------------------------- ----------- ------------- -----------------------------------------------------------
Dr. Manuel H. Johnson (54) Trustee Since July Chairman of the Audit Committee and Director or Trustee of
c/o Johnson Smick 1991 the Retail Funds and TCW/DW Term Trust 2003 (since July
International, Inc. 1991) and the Institutional Funds (since July 2003); Senior
2099 Pennsylvania Avenue, Partner, Johnson Smick International, Inc., a consulting
N.W. firm; Co-Chairman and a founder of the Group of Seven
Suite 950 Council (G7C), an international economic commission;
Washington, D.C. formerly Vice Chairman of the Board of Governors of the
Federal Reserve System and Assistant Secretary of the U.S.
Treasury.
Joseph J. Kearns (60) Trustee Since July Deputy Chairman of the Audit Committee and Director or
PMB754 23852 2003 Trustee of the Retail Funds and TCW/DW Term Trust 2003
Pacific Coast Highway (since July 2003) and the Institutional Funds (since August
Malibu, CA 1994); previously Chairman of the Audit Committee of the
Institutional Funds (October 2001-July 2003); President,
Kearns & Associates LLC (investment consulting); formerly
CFO of the J. Paul Getty Trust.
Michael E. Nugent (67) Trustee Since July Chairman of the Insurance Committee and Director or Trustee
c/o Triumph Capital, L.P. 1991 of the Retail Funds and TCW/DW Term Trust 2003 (since July
445 Park Avenue 1991) and the Institutional Funds (since July 2001);
New York, NY General Partner of Triumph Capital, L.P., a private
investment partnership; formerly Vice President, Bankers
Trust Company and BT Capital Corporation (1984-1988).
Fergus Reid (70) Trustee Since July Chairman of the Governance Committee and Director or
85 Charles Colman Blvd. 2003 Trustee of the Retail Funds and TCW/DW Term Trust 2003
Pawling, NY (since July 2003) and the Institutional Funds (since June
1992); Chairman of Lumelite Plastics Corporation.
<Caption>
NUMBER OF
PORTFOLIOS
IN FUND
COMPLEX
NAME, AGE AND ADDRESS OF OVERSEEN
INDEPENDENT TRUSTEE BY TRUSTEE*** OTHER DIRECTORSHIPS HELD BY TRUSTEE
- ------------------------- ------------- --------------------------------------------
Dr. Manuel H. Johnson (54) 216 Director of NVR, Inc. (home construction);
c/o Johnson Smick Chairman and Trustee of the Financial
International, Inc. Accounting Foundation (oversight
2099 Pennsylvania Avenue, organization of the Financial Accounting
N.W. Standards Board); Director of RBS Greenwich
Suite 950 Capital Holdings (financial holding
Washington, D.C. company).
Joseph J. Kearns (60) 217 Director of Electro Rent Corporation
PMB754 23852 (equipment leasing), The Ford Family
Pacific Coast Highway Foundation, and the UCLA Foundation.
Malibu, CA
Michael E. Nugent (67) 216 Director of various business organizations.
c/o Triumph Capital, L.P.
445 Park Avenue
New York, NY
Fergus Reid (70) 217 Trustee and Director of certain investment
85 Charles Colman Blvd. companies in the JPMorgan Funds complex
Pawling, NY managed by JP Morgan Investment Management
Inc.
</Table>
27
<Page>
INTERESTED TRUSTEES:
<Table>
<Caption>
TERM OF
POSITION(S) OFFICE AND
NAME, AGE AND ADDRESS OF HELD WITH LENGTH OF
INTERESTED TRUSTEE REGISTRANT TIME SERVED* PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS**
- ------------------------- ----------- ------------- -----------------------------------------------------------
Charles A. Fiumefreddo Chairman of Since July Chairman and Director or Trustee of the Retail Funds and
(70) the Board 1991 TCW/DW Term Trust 2003 (since July 1991) and the
c/o Morgan Stanley Trust and Trustee Institutional Funds (since July 2003); formerly Chief
Harborside Financial Executive Officer of the Retail Funds and the TCW/DW Term
Center, Trust 2003 (until September 2002).
Plaza Two,
Jersey City, NJ
James F. Higgins (55) Trustee Since June Director or Trustee of the Retail Funds and TCW/DW Term
c/o Morgan Stanley Trust 2000 Trust 2003 (since June 2000) and the Institutional Funds
Harborside Financial (since July 2003); Senior Advisor of Morgan Stanley (since
Center, August 2000); Director of the Distributor and Dean Witter
Plaza Two, Realty Inc.; previously President and Chief Operating
Jersey City, NJ 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).
Philip J. Purcell (59) Trustee Since April Director or Trustee of the Retail Funds and TCW/DW Term
1585 Broadway 1994 Trust 2003 (since April 1994) and the Institutional Funds
New York, NY (since July 2003); Chairman of the Board of Directors and
Chief Executive Officer of Morgan Stanley and Morgan
Stanley DW Inc.; Director of the Distributor; Chairman of
the Board of Directors and Chief Executive Officer of Novus
Credit Services Inc.; Director and/or officer of various
Morgan Stanley subsidiaries.
<Caption>
NUMBER OF
PORTFOLIOS
IN FUND
COMPLEX
NAME, AGE AND ADDRESS OF OVERSEEN
INTERESTED TRUSTEE BY TRUSTEE*** OTHER DIRECTORSHIPS HELD BY TRUSTEE
- ------------------------- ------------- --------------------------------------------
Charles A. Fiumefreddo 216 None
(70)
c/o Morgan Stanley Trust
Harborside Financial
Center,
Plaza Two,
Jersey City, NJ
James F. Higgins (55) 216 Director of AXA Financial, Inc. and The
c/o Morgan Stanley Trust Equitable Life Assurance Society of the
Harborside Financial United States (financial services).
Center,
Plaza Two,
Jersey City, NJ
Philip J. Purcell (59) 216 Director of American Airlines, Inc. and its
1585 Broadway parent company, AMR Corporation.
New York, NY
</Table>
- ----------
* THIS IS THE EARLIEST DATE THE TRUSTEE BEGAN SERVING THE FUNDS ADVISED BY
MORGAN STANLEY INVESTMENT ADVISORS INC. (THE "INVESTMENT MANAGER") (THE
"RETAIL FUNDS").
** THE DATES REFERENCED BELOW INDICATING COMMENCEMENT OF SERVICES AS
DIRECTOR/TRUSTEE FOR THE RETAIL FUNDS AND THE FUNDS ADVISED BY MORGAN
STANLEY INVESTMENT MANAGEMENT INC., MORGAN STANLEY INVESTMENTS LP AND
MORGAN STANLEY AIP GP LP (THE "INSTITUTIONAL FUNDS") REFLECT THE EARLIEST
DATE THE DIRECTOR/TRUSTEE BEGAN SERVING THE RETAIL OR INSTITUTIONAL FUNDS
AS APPLICABLE.
*** THE FUND COMPLEX INCLUDES ALL OPEN-END AND CLOSED-END FUNDS (INCLUDING ALL
OF THEIR PORTFOLIOS) ADVISED BY THE INVESTMENT MANAGER AND ANY FUNDS THAT
HAVE AN INVESTMENT ADVISOR THAT IS AN AFFILIATED PERSON OF THE INVESTMENT
MANAGER (INCLUDING BUT NOT LIMITED TO MORGAN STANLEY INVESTMENT MANAGEMENT
INC. AND MORGAN STANLEY INVESTMENTS LP).
28
<Page>
OFFICERS:
<Table>
<Caption>
TERM OF
POSITION(S) OFFICE AND
NAME, AGE AND ADDRESS OF HELD WITH LENGTH OF
EXECUTIVE OFFICER REGISTRANT TIME SERVED* PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS**
- ------------------------ ----------- ------------ -----------------------------------------------------------------
Mitchell M. Merin (49) President Since May President and Chief Operating Officer of Morgan Stanley
1221 Avenue of the 1999 Investment Management Inc.; President, Director and Chief
Americas Executive Officer of the Investment Manager and Morgan Stanley
New York, NY Services; Chairman, Chief Executive Officer and Director of the
Distributor; Chairman and Director of the Transfer Agent;
Director of various Morgan Stanley subsidiaries; President
Morgan Stanley Investments LP (since February 2003); President of
the Institutional Funds (since July 2003) and President of the
Retail Funds and TCW/DW Term Trust 2003 (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 (64) Executive Since April Chief Global Operations Officer and Managing Director of Morgan
1221 Avenue of the Vice 2003 Stanley Investment Management Inc.; Managing Director of Morgan
Americas President and Stanley & Co. Incorporated; Managing Director of Morgan Stanley;
New York, NY Principal Managing Director, Chief Administrative Officer and Director of
Executive the Investment Manager and Morgan Stanley Services; Chief
Officer Executive Officer and Director of the Transfer Agent; Executive
Vice President and Principal Executive Officer of the
Institutional Funds (since July 2003); and the TCW/DW Term Trust
2003 (since April 2003); previously President of the
Institutional Funds (March 2001-July 2003) and Director of the
Institutional Funds (March 2001-July 2003).
Barry Fink (48) Vice President, Since February General Counsel (since May 2000) and Managing Director (since
1221 Avenue of the and General 1997 December 2000) of Morgan Stanley Investment Management; Managing
Americas Counsel Director (since December 2000), Secretary (since February 1997)
New York, NY and Director (since July 1998) of the Investment Manager and
Morgan Stanley Services; Assistant Secretary of Morgan Stanley
DW; Chief Legal Officer of Morgan Stanley Investments LP (since
July 2002); Vice President of the Institutional Funds (since
July 2003); Vice President and Secretary of the Distributor;
previously Secretary of the Retail Funds (February 1997-July 2003);
previously Vice President and Assistant General Counsel of the
Investment Manager and Morgan Stanley Services (February 1997-
December 2001).
Joseph J. McAlinden (60) Vice President Since July Managing Director and Chief Investment Officer of the Investment
1221 Avenue of the 1995 Manager, Morgan Stanley Investment Management Inc. and Morgan
Americas Stanley Investments LP; Director of the Transfer Agent, Chief
New York, NY Investment Officer of the Van Kampen Funds; Vice President of
the Institutional Funds (since July 2003) and the Retail Funds
(since July 1995).
Stefanie V. Chang (36) Vice President Since July Executive Director of Morgan Stanley & Co. and Morgan Stanley
1221 Avenue of the 2003 Investment Management Inc. and Vice President of the
Americas Institutional Funds (since December 1997) and the Retail Funds
New York, NY (since July 2003); formerly practiced law with the New York law
firm of Rogers & Wells (now Clifford Chance LLP).
</Table>
29
<Page>
<Table>
<Caption>
TERM OF
POSITION(S) OFFICE AND
NAME, AGE AND ADDRESS OF HELD WITH LENGTH OF
EXECUTIVE OFFICER REGISTRANT TIME SERVED* PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS**
- ------------------------ ------------ ------------ -----------------------------------------------------------------
Francis Smith (37) Treasurer Treasurer since Executive Director of the Investment Manager and Morgan
c/o Morgan Stanley Trust and Chief July 2003 and Stanley Services (since December 2001); previously Vice
Harborside Financial Financial Chief Financial President of the Retail Funds (September 2002-July 2003);
Center, Officer Officer since previously Vice President of the Investment Manager and Morgan
Plaza Two, September 2002 Stanley Services (August 2000-November 2001) and Senior Manager
Jersey City, NJ at PricewaterhouseCoopers LLP (January 1998-August 2000).
Thomas F. Caloia (57) Vice Since July 2003 Executive Director (since December 2002) and Assistant
c/o Morgan Stanley Trust President Treasurer of the Investment Manager, the Distributor and
Harborside Financial Morgan Stanley Services; previously Treasurer of the Retail
Center, Funds (April 1989-July 2003); formerly First Vice President of
Plaza Two, the Investment Manager, the Distributor and Morgan Stanley
Jersey City, NJ Services.
Mary E. Mullin (36) Secretary Since July 2003 Vice President of Morgan Stanley & Co. Incorporated and Morgan
1221 Avenue of the Stanley Investment Management Inc.; Secretary of the
Americas Institutional Funds (since June 1999) and the Retail Funds
New York, NY (since July 2003); formerly practiced law with the New York law
firms of McDermott, Will & Emery and Skadden, Arps, Slate,
Meagher & Flom LLP.
</Table>
- ----------
* THIS IS THE EARLIEST DATE THE OFFICER BEGAN SERVING THE RETAIL FUNDS. EACH
OFFICER SERVES AN INDEFINITE TERM, UNTIL HIS OR HER SUCCESSOR IS ELECTED.
** THE DATES REFERENCED BELOW INDICATING COMMENCEMENT OF SERVICE AS AN OFFICER
FOR THE RETAIL AND INSTITUTIONAL FUNDS REFLECT THE EARLIEST DATE THE OFFICER
BEGAN SERVING THE RETAIL OR INSTITUTIONAL FUNDS AS APPLICABLE.
30
<Page>
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
Wayne E. Hedien
James F. Higgins
Dr. Manuel H. Johnson
Joseph J. Kearns
Michael E. Nugent
Philip J. Purcell
Fergus Reid
OFFICERS
Charles A. Fiumefreddo
CHAIRMAN OF THE BOARD
Mitchell M. Merin
PRESIDENT
Ronald E. Robison
EXECUTIVE VICE PRESIDENT and PRINCIPAL EXECUTIVE OFFICER
Barry Fink
VICE PRESIDENT and GENERAL COUNSEL
Joseph J. McAlinden
VICE PRESIDENT
Stefanie V. Chang
VICE PRESIDENT
Francis 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
This report is submitted for the general information of the shareholders of the
Fund. For more detailed information about the Fund, its fees and expenses and
other pertinent information, please read its Prospectus. The Fund's Statement of
Additional Information contains additional information about the Fund, including
its trustees. It is available, without charge, by calling (800) 869-NEWS.
This report is not authorized for distribution to prospective investors in the
Fund unless preceded or accompanied by an effective Prospectus. Read the
Prospectus carefully before investing.
Investments and services offered through Morgan Stanley DW Inc., member SIPC.
Morgan Stanley Distributors Inc., member NASD.
(C) 2003 Morgan Stanley
[MORGAN STANLEY LOGO]
[GRAPHIC]
MORGAN STANLEY
AGGRESSIVE EQUITY
FUND
ANNUAL REPORT
JULY 31, 2003
[MORGAN STANLEY LOGO]
36052RPT-12118I03-AP-9/03
<Page>
Item 2. Code of Ethics.
(a) The Fund has adopted a code of ethics (the "Code of Ethics") that applies
to its principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar functions,
regardless of whether these individuals are employed by the Fund or a third
party.
(b) No information need be disclosed pursuant to this paragraph.
(c) Not applicable.
(d) Not applicable.
(e) Not applicable.
(f)
(1) The Fund's Code of Ethics is attached hereto as Exhibit A.
(2) Not applicable.
(3) Not applicable.
Item 3. Audit Committee Financial Expert.
The Fund's Board of Trustees has determined that it has two "audit committee
financial experts" serving on its audit committee, each of whom are
"independent" Trustees: Dr. Manuel H. Johnson and Joseph J. Kearns. Under
applicable securities laws, a person who is determined to be an audit committee
financial expert will not be deemed an "expert" for any purpose, including
without limitation for the purposes of Section 11 of the Securities Act of 1933,
as a result of being designated or identified as an audit committee financial
expert. The designation or identification of a person as an audit committee
financial expert does not impose on such person any duties, obligations, or
liabilities that are greater than the duties, obligations, and liabilities
imposed on such person as a member of the audit committee and Board of Trustees
in the absence of such designation or identification.
Item 4. Principal Accountant Fees and Services
Applicable only for reports covering fiscal years ending on or after December
15, 2003.
<Page>
Item 5. Audit Committee of Listed Registrants.
Applicable only for reports covering periods ending on or after the earlier of
(i) the first annual shareholder meeting after January 15, 2004 or (ii) October
31, 2004.
Item 6. [Reserved.]
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
Applicable only to annual reports filed by closed-end funds.
Item 8. [Reserved.]
Item 9 - Controls and Procedures
(a) The Fund's principal executive officer and principal financial officer
have concluded that the Fund's disclosure controls and procedures are sufficient
to ensure that information required to be disclosed by the Fund in this Form
N-CSR was recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission's rules and forms, based
upon such officers' evaluation of these controls and procedures as of a date
within 90 days of the filing date of the report.
There were no significant changes or corrective actions with regard to
significant deficiencies or material weaknesses in the Fund's internal controls
or in other factors that could significantly affect the Fund's internal controls
subsequent to the date of their evaluation.
(b) There were no changes in the registrant's internal control over financial
reporting that occurred during the registrant's most recent fiscal half-year
(the registrant's second fiscal half-year in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
<Page>
Item 10 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.
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
September 22, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934
and the Investment Company Act of 1940, this report has been signed by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
/s/ Ronald E. Robison
Ronald E. Robison
Principal Executive Officer
September 22, 2003
/s/ Francis Smith
Francis Smith
Principal Financial Officer
September 22, 2003
<Page>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934
and the Investment Company Act of 1940, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
Morgan Stanley Aggressive Equity Fund
/s/ Ronald E. Robison
Ronald E. Robison
Principal Executive Officer
December 8, 2003
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
December 8, 2003
/s/ Francis Smith
Francis Smith
Principal Financial Officer
December 8, 2003