<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, 2004
Date of reporting period: July 31, 2004
Item 1 - Report to Shareholders
<Page>
WELCOME, SHAREHOLDER:
IN THIS REPORT, YOU'LL LEARN ABOUT HOW YOUR INVESTMENT IN MORGAN STANLEY
AGGRESSIVE EQUITY FUND PERFORMED DURING THE ANNUAL PERIOD. WE WILL PROVIDE AN
OVERVIEW OF THE MARKET CONDITIONS, AND DISCUSS SOME OF THE FACTORS THAT AFFECTED
PERFORMANCE DURING THE REPORTING PERIOD. IN ADDITION, THIS REPORT INCLUDES THE
FUND'S FINANCIAL STATEMENTS AND A LIST OF FUND INVESTMENTS.
THIS MATERIAL MUST BE PRECEDED OR ACCOMPANIED BY A PROSPECTUS FOR THE FUND BEING
OFFERED. MARKET FORECASTS PROVIDED IN THIS REPORT MAY NOT NECESSARILY COME TO
PASS. THERE IS NO ASSURANCE THAT THE FUND WILL ACHIEVE ITS INVESTMENT OBJECTIVE.
THE FUND IS SUBJECT TO MARKET RISK, WHICH IS THE POSSIBILITY THAT MARKET VALUES
OF SECURITIES OWNED BY THE FUND WILL DECLINE AND, THEREFORE, THE VALUE OF THE
FUND'S SHARES MAY BE LESS THAN WHAT YOU PAID FOR THEM. ACCORDINGLY, YOU CAN LOSE
MONEY INVESTING IN THIS FUND.
<Page>
FUND REPORT
For the year ended July 31, 2004
TOTAL RETURN FOR THE 12-MONTH PERIOD ENDED JULY 31, 2004
<Table>
<Caption>
LIPPER
RUSSELL MULTI-CAP
3000 S&P GROWTH
GROWTH 500 FUNDS
CLASS A CLASS B CLASS C CLASS D INDEX(1) INDEX(2) INDEX(3)
8.17% 7.26% 7.25% 8.33% 8.69% 13.17% 10.42%
</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 first half of the 12-month period was marked by a combination of strong
economic growth, strong earnings growth and positive equity performance. The
U.S. GDP growth rate topped eight percent in the third quarter of 2003 and four
percent in the fourth, while corporate profits and forecasts grew increasingly
positive. This fueled strong gains among economically sensitive sectors such as
technology, basic materials and industrials. More traditionally defensive
sectors such as consumer staples, health care and utilities lagged in the rally
through the end of 2003.
After this strong beginning, the equity market trended steadily downward through
July 2004. This downward trend was reinforced by growing concern among investors
over decelerating earnings growth and the potential for rising inflation. Sector
leadership shifted from economically sensitive sectors to those most likely to
benefit from rising inflation, including energy and basic materials. The worst
performers in this environment included technology, which fell behind the market
as several bellwether companies released poor earnings reports. Health care
stocks also lagged on uncertainty over the fall-out from the upcoming U.S.
presidential election. Inflation beneficiaries such as energy, industrials and
basic materials performed well.
PERFORMANCE ANALYSIS
Morgan Stanley Aggressive Equity Fund underperformed the Russell 3000 Growth
Index, the S&P 500 Index and the Lipper Multi-Cap Growth Funds Index for the
12-month period ended July 31, 2004. The Fund's underperformance largely stemmed
from its overweighted positions relative to the Russell 3000 Growth Index in the
industrials and basic materials sectors. Within industrials, the Fund's holdings
for much of the period emphasized mid-cap companies that didn't benefit from the
same rapid growth as the larger-cap companies that dominate the market
benchmarks. Moreover, education stocks (considered part of the industrials
sector) were dragged down by the ongoing scandals plaguing the group.
The Fund entered the review period with a significant overweight to the precious
metals industry within the basic materials sector. The Fund's management had
established this position as a hedge against the falling dollar, and took some
profits after the stocks performed strongly in the first half of the period.
Even with this reduction, however, the Fund retained a slight overweighted
position relative to the Russell 3000 Growth Index. This posture hurt
performance when precious metals prices corrected sharply in the spring of 2004.
Several of the Fund's other positions were more beneficial. The portfolio
benefited from an overweighted
2
<Page>
position relative to the Russell 3000 Growth Index and from stock selection in
the energy sector. An underweighted position in the lagging financials sector
relative to the Russell 3000 Growth Index also helped performance, as did strong
stock selection there. Stock selection in health care was also a boon.
TOP 10 HOLDINGS
<Table>
Ultra Petroleum Corp 4.0%
Cisco Systems Inc. 3.7
Yahoo Inc. 3.6
Newmont Mining Corp. Holding Co 3.4
Microsoft Corporation 2.9
QUALCOMM Inc 2.6
Ebay Inc. 2.3
Smith International 2.2
Electronic Arts 2.1
International Game Technology 2.1
</Table>
TOP FIVE INDUSTRIES
<Table>
Medical Specialties 8.4%
Packaged Software 8.2
Casino/Gaming 4.9
Internet Software/Services 4.7
Biotechnology 4.4
</Table>
DATA AS OF JULY 31, 2004. SUBJECT TO CHANGE DAILY. ALL PERCENTAGES FOR TOP 10
HOLDINGS AND TOP FIVE INDUSTRIES ARE AS A PERCENTAGE OF NET ASSETS. PROVIDED FOR
INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE DEEMED A RECOMMENDATION TO BUY OR
SELL THE SECURITIES MENTIONED. MORGAN STANLEY IS A FULL-SERVICE SECURITIES FIRM
ENGAGED IN SECURITIES TRADING AND BROKERAGE ACTIVITIES, INVESTMENT BANKING,
RESEARCH AND ANALYSIS, FINANCING AND FINANCIAL ADVISORY SERVICES.
INVESTMENT STRATEGY
THE FUND NORMALLY INVESTS AT LEAST 80% OF ITS ASSETS IN COMMON STOCKS AND OTHER
EQUITY SECURITIES OF U.S. OR FOREIGN COMPANIES THAT OFFER THE POTENTIAL FOR
SUPERIOR EARNINGS GROWTH IN THE OPINION OF THE FUND'S "INVESTMENT MANAGER,"
MORGAN STANLEY INVESTMENT ADVISORS INC. THE FUND'S OTHER EQUITY SECURITIES MAY
INCLUDE PREFERRED STOCK, DEPOSITARY RECEIPTS OR SECURITIES CONVERTIBLE INTO
COMMON STOCK.
FOR MORE INFORMATION
ABOUT PORTFOLIO HOLDINGS
EACH MORGAN STANLEY FUND PROVIDES A COMPLETE SCHEDULE OF PORTFOLIO HOLDINGS IN
ITS SEMIANNUAL AND ANNUAL REPORTS WITHIN 60 DAYS OF THE END OF THE FUND'S SECOND
AND FOURTH FISCAL QUARTERS BY FILING THE SCHEDULE ELECTRONICALLY WITH THE
SECURITIES AND EXCHANGE COMMISSION (SEC). THE SEMIANNUAL REPORTS ARE FILED ON
FORM N-CSRS AND THE ANNUAL REPORTS ARE FILED ON FORM N-CSR. MORGAN STANLEY ALSO
DELIVERS THE SEMIANNUAL AND ANNUAL REPORTS TO FUND SHAREHOLDERS, AND MAKES THESE
REPORTS AVAILABLE ON ITS PUBLIC WEB SITE, www.morganstanley.com. EACH MORGAN
STANLEY FUND ALSO FILES A COMPLETE SCHEDULE OF PORTFOLIO HOLDINGS WITH THE SEC
FOR THE FUND'S FIRST AND THIRD FISCAL QUARTERS ON FORM N-Q. MORGAN STANLEY DOES
NOT DELIVER THE REPORTS FOR THE FIRST AND THIRD FISCAL QUARTERS TO SHAREHOLDERS,
NOR ARE THE REPORTS POSTED TO THE MORGAN STANLEY PUBLIC WEB SITE. YOU MAY,
HOWEVER, OBTAIN THE FORM N-Q FILINGS (AS WELL AS THE FORM N-CSR AND N-CSRS
FILINGS) BY ACCESSING THE SEC'S WEB SITE, http://www.sec.gov. YOU MAY ALSO
REVIEW AND COPY THEM AT THE SEC'S PUBLIC REFERENCE ROOM IN WASHINGTON, DC.
INFORMATION ON THE OPERATION OF THE SEC'S PUBLIC REFERENCE ROOM MAY BE OBTAINED
BY CALLING THE SEC AT 1-800-SEC-0330. YOU CAN ALSO REQUEST COPIES OF THESE
3
<Page>
MATERIALS, UPON PAYMENT OF A DUPLICATING FEE, BY ELECTRONIC REQUEST AT THE SEC'S
E-MAIL ADDRESS (publicinfo@sec.gov) OR BY WRITING THE PUBLIC REFERENCE SECTION
OF THE SEC, WASHINGTON, DC 20549-0102. YOU MAY OBTAIN COPIES OF A FUND'S FISCAL
QUARTER FILINGS BY CONTACTING MORGAN STANLEY CLIENT RELATIONS AT (800) 847-2424.
PROXY VOTING POLICIES AND PROCEDURES
A DESCRIPTION OF (1) THE FUND'S POLICIES AND PROCEDURES WITH RESPECT TO THE
VOTING OF PROXIES RELATING TO THE FUND'S PORTFOLIO SECURITIES; AND (2) HOW THE
FUND VOTED PROXIES RELATING TO PORTFOLIO SECURITIES DURING THE MOST RECENT
TWELVE-MONTH PERIOD ENDED JULY 31 IS AVAILABLE WITHOUT CHARGE, UPON REQUEST, BY
CALLING (800) 869-NEWS OR BY VISITING THE MUTUAL FUND CENTER ON OUR WEBSITE AT
www.morganstanley.com. THIS INFORMATION IS ALSO AVAILABLE ON THE SECURITIES AND
EXCHANGE COMMISSION'S WEBSITE AT http://www.sec.gov.
ANNUAL HOUSEHOLDING NOTICE
TO REDUCE PRINTING AND MAILING COSTS, THE FUND ATTEMPTS TO ELIMINATE DUPLICATE
MAILINGS TO THE SAME ADDRESS. THE FUND DELIVERS A SINGLE COPY OF CERTAIN
SHAREHOLDER DOCUMENTS INCLUDING SHAREHOLDER REPORTS, PROSPECTUSES AND PROXY
MATERIALS TO INVESTORS WITH THE SAME LAST NAME AND WHO RESIDE AT THE SAME
ADDRESS. YOUR PARTICIPATION IN THIS PROGRAM WILL CONTINUE FOR AN UNLIMITED
PERIOD OF TIME, UNLESS YOU INSTRUCT US OTHERWISE. YOU CAN REQUEST MULTIPLE
COPIES OF THESE DOCUMENTS BY CALLING (800) 350-6414, 8:00 AM TO 8:00 PM, ET.
ONCE OUR CUSTOMER SERVICE CENTER HAS RECEIVED YOUR INSTRUCTIONS, WE WILL BEGIN
SENDING INDIVIDUAL COPIES FOR EACH ACCOUNT WITHIN 30 DAYS.
4
<Page>
(This page has been left blank intentionally.)
5
<Page>
PERFORMANCE SUMMARY
[CHART]
PERFORMANCE OF A $10,000 INVESTMENT
<Table>
<Caption>
CLASS A++ CLASS B++ CLASS C++ CLASS D++ RUSSELL(1) S&P 500(2) Lipper(3)
------------ ------------ ------------ ------------ ------------ ------------ ------------
Feb 24, 99 $ 9,475 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000
Apr 30, 99 $ 10,138 $ 10,680 $ 10,680 $ 10,700 $ 10,424 $ 10,677 $ 10,620
Jul 31, 99 $ 10,299 $ 10,840 $ 10,840 $ 10,890 $ 10,481 $ 10,661 $ 10,892
Oct 31, 99 $ 11,162 $ 11,720 $ 11,720 $ 11,800 $ 11,168 $ 10,970 $ 11,477
Jan 31, 2000 $ 14,137 $ 14,820 $ 14,820 $ 14,960 $ 12,516 $ 11,256 $ 14,125
Apr 30, 2000 $ 14,241 $ 14,900 $ 14,900 $ 15,080 $ 13,328 $ 11,759 $ 14,950
Jul 31, 2000 $ 14,440 $ 15,080 $ 15,080 $ 15,300 $ 13,014 $ 11,617 $ 14,844
Oct 31, 2000 $ 14,989 $ 15,620 $ 15,620 $ 15,880 $ 12,263 $ 11,637 $ 14,554
Jan 31, 2001 $ 13,160 $ 13,687 $ 13,687 $ 13,950 $ 7,872 $ 11,154 $ 12,804
Apr 30, 2001 $ 11,288 $ 11,719 $ 11,719 $ 11,963 $ 9,096 $ 10,233 $ 10,949
Jul 31, 2001 $ 10,352 $ 10,718 $ 10,718 $ 10,976 $ 8,557 $ 9,952 $ 10,119
Oct 31, 2001 $ 9,265 $ 9,580 $ 9,580 $ 9,841 $ 7,439 $ 8,739 $ 8,435
Jan 31, 2002 $ 9,806 $ 10,118 $ 10,118 $ 10,412 $ 8,012 $ 9,354 $ 9,127
Apr 30, 2002 $ 9,666 $ 9,958 $ 9,970 $ 10,275 $ 7,342 $ 8,942 $ 8,520
Jul 31, 2002 $ 8,111 $ 8,348 $ 8,360 $ 8,635 $ 6,088 $ 7,602 $ 6,797
Oct 31, 2002 $ 7,927 $ 8,143 $ 8,143 $ 8,441 $ 5,972 $ 7,420 $ 6,697
Jan 31, 2003 $ 7,484 $ 7,663 $ 7,674 $ 7,974 $ 5,733 $ 7,202 $ 6,482
Apr 30, 2003 $ 7,722 $ 7,891 $ 7,903 $ 8,225 $ 6,240 $ 7,753 $ 7,018
Jul 31, 2003 $ 8,327 $ 8,497 $ 8,508 $ 8,886 $ 6,859 $ 8,411 $ 7,858
Oct 31, 2003 $ 9,072 $ 9,239 $ 9,250 $ 9,672 $ 7,367 $ 8,964 $ 8,582
Jan 31, 2004 $ 9,634 $ 9,787 $ 9,798 $ 10,275 $ 7,872 $ 9,692 $ 9,146
Apr 30, 2004 $ 9,342 $ 9,479 $ 9,490 $ 9,979 $ 7,671 $ 9,526 $ 8,929
Jul 31, 2004 $ 9,007 $ 9,033 $ 9,125 $ 9,626 $ 7,455 $ 9,519 $ 8,676
</Table>
6
<Page>
AVERAGE ANNUAL TOTAL RETURNS--PERIOD ENDED JULY 31, 2004
<Table>
<Caption>
CLASS A SHARES* CLASS B SHARES** CLASS C SHARES+ CLASS D SHARES^^
(SINCE 02/24/99) (SINCE 02/24/99) (SINCE 02/24/99) (SINCE 02/24/99)
SYMBOL AEQAX AEQBX AEQCX AEQDX
1 YEAR 8.17%(4) 7.26%(4) 7.25%(4) 8.33%(4)
2.49(5) 2.26(5) 6.25(5) --
5 YEARS (2.65)(4) (3.41)(4) (3.39)(4) (2.44)(4)
(3.69)(5) (3.75)(5) (3.39)(5) --
SINCE INCEPTION (0.93)(4) (1.69)(4) (1.67)(4) (0.70)(4)
(1.91)(5) (1.85)(5) (1.67)(5) --
</Table>
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH IS NO GUARANTEE OF
FUTURE RESULTS AND CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE FIGURES
SHOWN. FOR THE MOST RECENT MONTH-END PERFORMANCE FIGURES, PLEASE VISIT
MORGANSTANLEY.COM OR SPEAK WITH YOUR FINANCIAL ADVISOR. INVESTMENT RETURNS AND
PRINCIPAL VALUE WILL FLUCTUATE AND FUND SHARES, WHEN REDEEMED, MAY BE WORTH MORE
OR LESS THEIR ORIGINAL COST. THE GRAPH AND TABLE DO NOT REFLECT THE DEDUCTION OF
TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF
FUND SHARES. PERFORMANCE FOR CLASS A, CLASS B, CLASS C, AND CLASS D SHARES WILL
VARY DUE TO DIFFERENCES IN SALES CHARGES AND EXPENSES.
* THE MAXIMUM FRONT-END SALES CHARGE FOR CLASS A IS 5.25%.
** THE MAXIMUM CONTINGENT DEFERRED SALES CHARGE (CDSC) FOR CLASS B IS 5.0%.
THE CDSC DECLINES TO 0% AFTER SIX YEARS.
+ THE MAXIMUM CONTINGENT DEFERRED SALES CHARGE FOR CLASS C IS 1.0% FOR
SHARES REDEEMED WITHIN ONE YEAR OF PURCHASE.
^^ CLASS D HAS NO SALES CHARGE.
(1) THE RUSSELL 3000 GROWTH INDEX MEASURES THE PERFORMANCE OF THOSE COMPANIES
IN THE RUSSELL 3000 INDEX WITH HIGHER PRICE-TO-BOOK RATIOS AND HIGHER
FORECASTED GROWTH VALUES. 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. THE FUND'S BENCHMARK WAS
CHANGED FROM THE S&P 500 TO THE RUSSELL 3000 GROWTH INDEX TO MORE
ACCURATELY REFLECT THE FUND'S INVESTABLE UNIVERSE.
(2) 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 CHARGES.
SUCH COSTS WOULD LOWER PERFORMANCE. IT IS NOT POSSIBLE TO INVEST DIRECTLY
IN AN INDEX.
(3) 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.
(4) FIGURE SHOWN ASSUMES REINVESTMENT OF ALL DISTRIBUTIONS AND DOES NOT
REFLECT THE DEDUCTION OF ANY SALES CHARGES.
(5) FIGURE SHOWN ASSUMES REINVESTMENT OF ALL DISTRIBUTIONS AND THE DEDUCTION
OF THE MAXIMUM APPLICABLE SALES CHARGE. SEE THE FUND'S CURRENT PROSPECTUS
FOR COMPLETE DETAILS ON FEES AND SALES CHARGES.
++ ENDING VALUE ASSUMING A COMPLETE REDEMPTION ON JULY 31, 2004.
7
<Page>
EXPENSE EXAMPLE
As a shareholder of the Fund, you incur ongoing costs, including management
fees; distribution and service (12b-1) fees; and other Fund expenses. This
example is intended to help you understand your ongoing costs (in dollars) of
investing in the Fund and to compare these costs with the ongoing costs of
investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period 02/01/04 - 07/31/04.
ACTUAL EXPENSES
The first line of the table below provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, to estimate the expenses that you paid over the
period. Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000 = 8.6), then multiply the result by the number
in the first line under the heading entitled "Expenses Paid During Period" to
estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line of the table below provides information about hypothetical
expenses based on the Fund's actual expense ratio and an assumed rate of return
of 5% per year before expenses, which is not the Fund's actual return. The
hypothetical account values and expenses may not be used to estimate the actual
ending account balance or expenses you paid for the period. You may use this
information to compare the ongoing cost of investing in the Fund and other
funds. To do so, compare this 5% hypothetical example with the 5% hypothetical
examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only. Therefore, the second line of the table is useful in
comparing ongoing costs, and will not help you determine the relative total cost
of owning different funds that have transactional costs, such as sales charges
(loads), and redemption fees, or exchange fees.
<Table>
<Caption>
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD *
---------------- ---------------- ----------------
02/01/04 -
02/01/04 07/31/04 07/31/04
---------------- ---------------- ----------------
CLASS A
Actual $ 1,000.00 $ 935.00 $ 6.45
Hypothetical (5% return before expenses) $ 1,000.00 $ 1,018.20 $ 6.72
CLASS B
Actual $ 1,000.00 $ 931.20 $ 10.13
Hypothetical (5% return before expenses) $ 1,000.00 $ 1,014.37 $ 10.57
CLASS C
Actual $ 1,000.00 $ 931.20 $ 10.13
Hypothetical (5% return before expenses) $ 1,000.00 $ 1,014.37 $ 10.57
CLASS D
Actual $ 1,000.00 $ 936.80 $ 5.35
Hypothetical (5% return before expenses) $ 1,000.00 $ 1,019.34 $ 5.57
</Table>
- ----------
* EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO OF 1.34%, 2.11%,
2.11% AND 1.11% RESPECTIVELY, MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER
THE PERIOD, MULTIPLIED BY 182/366 (TO REFLECT THE ONE-HALF YEAR PERIOD).
8
<Page>
MORGAN STANLEY AGGRESSIVE EQUITY FUND
PORTFOLIO OF INVESTMENTS - JULY 31, 2004
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------------------------------
COMMON STOCKS (99.3%)
ADVERTISING/MARKETING SERVICES (1.5%)
136,200 Lamar Advertising Co.
(Class A)* $ 5,476,602
---------------
AIR FREIGHT/COURIERS (0.5%)
40,600 C.H. Robinson
Worldwide, Inc. 1,775,438
---------------
APPAREL/FOOTWEAR (0.8%)
67,600 Coach, Inc.* 2,892,604
---------------
APPAREL/FOOTWEAR RETAIL (1.1%)
92,200 Chico's FAS, Inc.* 3,860,414
---------------
BEVERAGES:
NON-ALCOHOLIC (0.8%)
103,500 Cott Corp. (Canada)* 2,895,930
---------------
BIOTECHNOLOGY (4.4%)
133,900 Amgen Inc.* 7,616,232
73,600 Biogen Idec Inc.* 4,416,000
61,400 Gilead Sciences, Inc.* 3,968,896
---------------
16,001,128
---------------
BROADCASTING (2.6%)
131,200 Radio One, Inc. (Class D)* 1,995,552
254,900 Univision Communications Inc.
(Class A)* 7,384,453
---------------
9,380,005
---------------
CASINO/GAMING (4.9%)
155,400 GTECH Holdings Corp. 6,584,298
238,900 International Game
Technology 7,726,026
99,800 Wynn Resorts, Ltd.* 3,570,844
---------------
17,881,168
---------------
COMPUTER
COMMUNICATIONS (3.7%)
658,300 Cisco Systems, Inc.* 13,732,138
---------------
COMPUTER PROCESSING
HARDWARE (1.6%)
164,600 Dell Inc.* 5,838,362
---------------
CONSTRUCTION MATERIALS (2.0%)
126,500 Rinker Group Ltd.
(ADR) (Australia) $ 7,337,000
---------------
DATA PROCESSING
SERVICES (0.5%)
48,100 Automatic Data
Processing, Inc. 2,019,238
---------------
DISCOUNT STORES (0.5%)
71,600 Dollar Tree Stores, Inc.* 1,926,756
---------------
ENGINEERING &
CONSTRUCTION (0.7%)
91,900 Chicago Bridge & Iron
Company N.V. (Netherlands) 2,682,561
---------------
FINANCE/RENTAL/LEASING (1.6%)
71,100 Capital One Financial Corp. 4,928,652
39,600 MBNA Corp. 977,724
---------------
5,906,376
---------------
FINANCIAL
CONGLOMERATES (1.0%)
130,600 Brascan Corp. (Class A)
(Canada) 3,608,478
---------------
FINANCIAL PUBLISHING/
SERVICES (0.4%)
21,090 Moody's Corp. 1,436,229
---------------
FOOD: MAJOR DIVERSIFIED (1.0%)
46,900 Kellogg Co. 1,953,854
31,600 PepsiCo, Inc. 1,580,000
---------------
3,533,854
---------------
HOME IMPROVEMENT
CHAINS (0.4%)
46,200 Home Depot, Inc. (The) 1,557,864
---------------
HOTELS/RESORTS/
CRUISELINES (2.6%)
163,000 Carnival Corp. (Panama) 7,597,430
41,700 Royal Caribbean Cruises Ltd.
(Liberia) 1,782,675
---------------
9,380,105
---------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
9
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------------------------------
INDUSTRIAL
CONGLOMERATES (1.6%)
35,600 Danaher Corp. $ 1,803,140
60,200 Ingersoll-Rand Co. Ltd.
(Class A) (Bermuda) 4,135,138
---------------
5,938,278
---------------
INSURANCE BROKERS/
SERVICES (0.8%)
68,600 ChoicePoint Inc.* 2,881,200
---------------
INTERNET RETAIL (0.9%)
126,900 IAC/InterActiveCorp.* 3,464,370
---------------
INTERNET SOFTWARE/
SERVICES (4.7%)
118,100 Akamai Technologies, Inc.* 1,763,233
114,700 Check Point Software
Technologies Ltd. (Israel)* 2,281,383
425,800 Yahoo! Inc.* 13,114,640
---------------
17,159,256
---------------
INVESTMENT BANKS/
BROKERS (1.7%)
127,800 Greenhill & Co., Inc.* 2,613,510
45,900 Legg Mason, Inc. 3,604,986
---------------
6,218,496
---------------
MEDIA CONGLOMERATES (0.3%)
75,000 Time Warner Inc.* 1,248,750
---------------
MEDICAL SPECIALTIES (8.4%)
47,000 Alcon, Inc. (Switzerland) 3,600,200
44,400 Bard (C.R.), Inc. 2,450,880
45,500 Boston Scientific Corp.* 1,740,830
75,300 Dade Behring Holdings Inc.* 3,741,657
122,900 Guidant Corp. 6,798,828
58,300 INAMED Corp.* 3,158,694
103,900 Kinetic Concepts, Inc.* 4,667,188
61,400 Zimmer Holdings, Inc.* 4,685,434
---------------
30,843,711
---------------
MEDICAL/NURSING SERVICES (1.2%)
103,000 VCA Antech, Inc.* 4,329,090
---------------
MISCELLANEOUS COMMERCIAL
SERVICES (1.6%)
134,400 Iron Mountain Inc.* $ 4,337,088
43,000 Laureate Education Inc.* 1,517,900
---------------
5,854,988
---------------
OIL & GAS PRODUCTION (4.0%)
328,100 Ultra Petroleum Corp.
(Canada)* 14,721,847
---------------
OILFIELD SERVICES/
EQUIPMENT (2.2%)
135,600 Smith International, Inc.* 7,902,768
---------------
OTHER CONSUMER
SERVICES (4.0%)
75,100 Apollo Group, Inc. (Class A)* 6,274,605
108,100 eBay Inc.* 8,467,473
---------------
14,742,078
---------------
PACKAGED SOFTWARE (8.2%)
43,500 Adobe Systems, Inc. 1,834,830
67,800 Autodesk, Inc. 2,725,560
137,200 FileNET Corp.* 2,606,800
137,800 McAfee Inc. 2,477,644
96,700 Mercury Interactive Corp.* 3,535,352
370,600 Microsoft Corp. 10,547,276
142,700 Red Hat, Inc.* 2,443,024
41,800 SAP AG (ADR) (Germany) 1,672,418
48,200 Symantec Corp.* 2,253,832
---------------
30,096,736
---------------
PERSONNEL SERVICES (0.9%)
77,400 Manpower, Inc. 3,370,770
---------------
PHARMACEUTICALS:
MAJOR (1.1%)
73,900 Johnson & Johnson 4,084,453
---------------
PHARMACEUTICALS:
OTHER (0.3%)
24,500 Forest Laboratories, Inc.* 1,232,105
---------------
PRECIOUS METALS (3.4%)
305,500 Newmont Mining Corp. 12,363,585
---------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
10
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------------------------------
PROPERTY - CASUALTY
INSURERS (1.5%)
1,842 Berkshire Hathaway, Inc.
(Class B)* $ 5,330,748
---------------
RECREATIONAL PRODUCTS (4.1%)
156,900 Electronic Arts Inc.* 7,865,397
256,800 WMS Industries, Inc.* 6,995,232
---------------
14,860,629
---------------
RESTAURANTS (1.9%)
104,700 Applebee's International, Inc. 2,789,208
81,000 Sonic Corp.* 1,863,000
51,000 Starbucks Corp.* 2,394,960
---------------
7,047,168
---------------
SEMICONDUCTORS (1.5%)
153,100 Advanced Micro
Devices, Inc.* 1,912,219
160,400 Marvell Technology Group Ltd.
(Bermuda)* 3,724,488
---------------
5,636,707
---------------
SPECIALTY STORES (2.8%)
45,000 Guitar Center, Inc.* 2,022,750
148,940 PETsMART, Inc. 4,618,629
113,600 Tuesday Morning Corp.* 3,653,376
---------------
10,294,755
---------------
SPECIALTY
TELECOMMUNICATIONS (2.7%)
459,900 Crown Castle International
Corp.* 6,493,788
67,100 NTL, Inc.* 3,497,252
---------------
9,991,040
---------------
TELECOMMUNICATION
EQUIPMENT (3.4%)
247,800 Corning Inc.* 3,062,808
135,800 QUALCOMM Inc. 9,381,064
---------------
12,443,872
---------------
WHOLESALE DISTRIBUTORS (3.0%)
130,100 Fisher Scientific
International, Inc.* $ 7,571,820
84,500 SCP Pool Corp. 3,483,935
---------------
11,055,755
---------------
WIRELESS TELECOMMUNICATIONS (0.5%)
83,800 Nextel Communications, Inc.
(Class A)* 1,907,288
---------------
TOTAL COMMON STOCKS
(COST $349,933,259) 364,142,693
---------------
<Caption>
PRINCIPAL
AMOUNT IN
THOUSANDS
- ------------
SHORT-TERM INVESTMENT (1.2%)
REPURCHASE AGREEMENT
$ 4,223 Joint repurchase agreement
account 1.35% due
08/02/04 (dated 07/30/04;
proceeds $4,223,477) (a)
(COST $4,223,000) 4,223,000
---------------
TOTAL INVESTMENTS
(COST $354,156,259) (b) 100.5% 368,365,693
LIABILITIES IN EXCESS OF OTHER
ASSETS (0.5) (1,806,253)
----- ---------------
NET ASSETS 100.0% $ 366,559,440
===== ===============
</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 IS $354,465,904.
THE AGGREGATE GROSS UNREALIZED APPRECIATION IS $24,337,055 AND THE
AGGREGATE GROSS UNREALIZED DEPRECIATION IS $10,437,266, RESULTING IN
NET UNREALIZED APPRECIATION OF $13,899,789.
SEE NOTES TO FINANCIAL STATEMENTS
11
<Page>
MORGAN STANLEY AGGRESSIVE EQUITY FUND
SUMMARY OF INVESTMENTS - JULY 31, 2004
<Table>
<Caption>
PERCENT OF
INDUSTRY VALUE NET ASSETS
- -----------------------------------------------------------------------
Medical Specialties $ 30,843,711 8.4%
Packaged Software 30,096,736 8.2
Casino/Gaming 17,881,168 4.9
Internet Software/Services 17,159,256 4.7
Biotechnology 16,001,128 4.4
Recreational Products 14,860,629 4.1
Other Consumer Services 14,742,078 4.0
Oil & Gas Production 14,721,847 4.0
Computer Communications 13,732,138 3.7
Telecommunication Equipment 12,443,872 3.4
Precious Metals 12,363,585 3.4
Wholesale Distributors 11,055,755 3.0
Specialty Stores 10,294,755 2.8
Specialty Telecommunications 9,991,040 2.7
Hotels/Resorts/Cruiselines 9,380,105 2.6
Broadcasting 9,380,005 2.6
Oilfield Services/Equipment 7,902,768 2.2
Construction Materials 7,337,000 2.0
Restaurants 7,047,168 1.9
Investment Banks/Brokers 6,218,496 1.7
Industrial Conglomerates 5,938,278 1.6
Finance/Rental/Leasing 5,906,376 1.6
Miscellaneous Commercial Services 5,854,988 1.6
Computer Processing Hardware 5,838,362 1.6
Semiconductors 5,636,707 1.5
Advertising/Marketing Services 5,476,602 1.5
Property - Casualty Insurers 5,330,748 1.5
Medical/Nursing Services 4,329,090 1.2
Repurchase Agreement 4,223,000 1.2
Pharmaceuticals: Major 4,084,453 1.1
Apparel/Footwear Retail 3,860,414 1.1
Financial Conglomerates 3,608,478 1.0
Food: Major Diversified 3,533,854 1.0
Internet Retail 3,464,370 0.9
Personnel Services 3,370,770 0.9
Beverages: Non-Alcoholic 2,895,930 0.8
Apparel/Footwear 2,892,604 0.8
Insurance Brokers/Services $ 2,881,200 0.8%
Engineering & Construction 2,682,561 0.7
Data Processing Services 2,019,238 0.5
Discount Stores 1,926,756 0.5
Wireless Telecommunications 1,907,288 0.5
Air Freight/Couriers 1,775,438 0.5
Home Improvement Chains 1,557,864 0.4
Financial Publishing/Services 1,436,229 0.4
Media Conglomerates 1,248,750 0.3
Pharmaceuticals: Other 1,232,105 0.3
--------------- -----
$ 368,365,693 100.5%
=============== =====
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
12
<Page>
MORGAN STANLEY AGGRESSIVE EQUITY FUND
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
JULY 31, 2004
<Table>
ASSETS:
Investments in securities, at value
(cost $354,156,259) $ 368,365,693
Receivable for:
Investments sold 1,717,284
Dividends 61,231
Shares of beneficial interest sold 13,034
Foreign withholding taxes reclaimed 7,392
Prepaid expenses and other assets 29,580
---------------
TOTAL ASSETS 370,194,214
---------------
LIABILITIES:
Payable for:
Investments purchased 2,603,940
Shares of beneficial interest redeemed 397,803
Distribution fee 308,847
Investment management fee 241,137
Accrued expenses and other payables 83,047
---------------
TOTAL LIABILITIES 3,634,774
---------------
NET ASSETS $ 366,559,440
---------------
COMPOSITION OF NET ASSETS:
Paid-in-capital $ 795,361,518
Net unrealized appreciation 14,211,315
Accumulated net investment loss (215)
Accumulated net realized loss (443,013,178)
---------------
NET ASSETS $ 366,559,440
===============
CLASS A SHARES:
Net Assets $ 16,563,526
Shares Outstanding
(UNLIMITED AUTHORIZED, $.01 PAR VALUE) 1,987,001
NET ASSET VALUE PER SHARE $ 8.34
===============
MAXIMUM OFFERING PRICE PER SHARE,
(net asset value plus 5.54%
of net asset value) $ 8.80
===============
CLASS B SHARES:
Net Assets $ 314,194,683
Shares Outstanding (UNLIMITED AUTHORIZED,
$.01 PAR VALUE) 39,353,437
NET ASSET VALUE PER SHARE $ 7.98
===============
CLASS C SHARES:
Net Assets $ 33,710,397
Shares Outstanding (UNLIMITED AUTHORIZED,
$.01 PAR VALUE) 4,217,320
NET ASSET VALUE PER SHARE $ 7.99
===============
CLASS D SHARES:
Net Assets $ 2,090,834
Shares Outstanding (UNLIMITED AUTHORIZED,
$.01 PAR VALUE) 247,494
NET ASSET VALUE PER SHARE $ 8.45
===============
</Table>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JULY 31, 2004
<Table>
NET INVESTMENT LOSS:
INCOME
Dividends (net of $58,763 foreign
withholding tax) $ 2,495,008
Interest 126,122
---------------
TOTAL INCOME 2,621,130
---------------
EXPENSES
Distribution fee (Class A shares) 45,226
Distribution fee (Class B shares) 3,749,172
Distribution fee (Class C shares) 394,947
Investment management fee 3,267,361
Transfer agent fees and expenses 1,326,003
Shareholder reports and notices 109,755
Registration fees 67,144
Professional fees 63,223
Custodian fees 49,964
Trustees' fees and expenses 3,418
Other 15,727
---------------
TOTAL EXPENSES 9,091,940
---------------
NET INVESTMENT LOSS (6,470,810)
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
NET REALIZED GAIN/LOSS ON:
Investments 72,974,891
Futures contracts (4,142,692)
Foreign exchange transactions (399)
---------------
NET REALIZED GAIN 68,831,800
---------------
NET CHANGE IN UNREALIZED
APPRECIATION/DEPRECIATION ON:
Investments (26,306,876)
Futures contracts 345,407
Translation of forward foreign currency
contracts, other assets and liabilities
denominated in foreign currencies 262
---------------
NET DEPRECIATION (25,961,207)
---------------
NET GAIN 42,870,593
---------------
NET INCREASE $ 36,399,783
===============
</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, 2004 JULY 31, 2003
------------- -------------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment loss $ (6,470,810) $ (5,012,355)
Net realized gain (loss) 68,831,800 (52,263,309)
Net change in unrealized appreciation/depreciation (25,961,207) 60,084,888
------------- -------------
NET INCREASE 36,399,783 2,809,224
Net decrease from transactions in shares of beneficial interest (118,954,439) (120,803,468)
------------- -------------
NET DECREASE (82,554,656) (117,994,244)
NET ASSETS:
Beginning of period 449,114,096 567,108,340
------------- -------------
END OF PERIOD
(INCLUDING ACCUMULATED NET INVESTMENT LOSSES OF
$215 AND $27,306, RESPECTIVELY) $ 366,559,440 $ 449,114,096
============= =============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
14
<Page>
MORGAN STANLEY AGGRESSIVE EQUITY FUND
NOTES TO FINANCIAL STATEMENTS - JULY 31, 2004
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 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 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;
and (7) certain portfolio securities may be valued by an outside pricing
15
<Page>
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 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.
16
<Page>
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 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 -- up to 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
17
<Page>
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 $23,740,292 at July 31, 2004.
In the case of Class A shares and Class C shares, expenses incurred pursuant to
the Plan in any calendar year in excess of 0.25% or 1.0% of the average daily
net assets of Class A or Class C, respectively, will not be reimbursed by the
Fund through payments in any subsequent year, except that expenses representing
a gross sales credit to Morgan Stanley Financial Advisors or other selected
broker-dealer representatives may be reimbursed in the subsequent calendar year.
For the year ended July 31, 2004, the distribution fee was accrued for Class A
shares and Class C shares at the annual rate of 0.24% and 0.99%, respectively.
The Distributor has informed the Fund that for the year ended July 31, 2004, it
received contingent deferred sales charges from certain redemptions of the
Fund's Class A shares, Class B shares and Class C shares of $3, $943,619 and
$3,094, respectively and received $21,872 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, 2004 aggregated $930,436,531
and $1,045,182,066, respectively. Included in the aforementioned are purchases
and sales with other Morgan Stanley funds of $8,312,865 and $1,131,540,
respectively including a net realized loss of $239,484.
For the year ended July 31, 2004, the Fund incurred brokerage commissions of
$329,217 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, 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 July 31, 2004, the Fund had transfer agent fees
and expenses payable of approximately $7,800.
Effective April 1, 2004, the Fund began an unfunded Deferred Compensation Plan
(the "Compensation Plan") which allows each independent Trustee to defer payment
of all, or a portion, of the fees he receives for serving on the Board of
Trustees. Each eligible Trustee generally may elect to have the
18
<Page>
deferred amounts credited with a return equal to the total return on one or more
of the Morgan Stanley funds that are offered as investment options under the
Compensation Plan. Appreciation/depreciation and distributions received from
these investments are recorded with an offsetting increase/decrease in the
deferred compensation obligation and do not affect the net asset value of the
Fund.
5. 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, 2004, the tax-basis components of accumulated losses were as
follows:
<Table>
Net accumulated earnings --
Capital loss carryforward* $ (442,703,533)
Post-October losses (215)
Net unrealized appreciation 13,901,670
--------------
Total accumulated losses $ (428,802,078)
==============
</Table>
*During the year ended July 31, 2004, the Fund utilized $44,380,443 of its net
capital loss carryforward. As of July 31, 2004, the Fund had a net capital loss
carryforward of $442,703,533 of which $321,646,810 will expire on July 31, 2010
and $121,056,723 will expire on July 31, 2011 to offset future capital gains to
the extent provided by regulations.
As of July 31, 2004, the Fund had temporary book/tax differences attributable to
post-October losses (foreign currency 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 $6,498,300, accumulated net investment loss was credited $6,497,901 and
accumulated net realized loss was credited $399.
19
<Page>
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 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 YEAR FOR THE YEAR
ENDED ENDED
JULY 31, 2004 JULY 31, 2003
---------------------------------- ----------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------- --------------- --------------- ---------------
CLASS A SHARES
Sold 220,437 $ 1,847,474 264,713 $ 1,930,674
Redeemed (611,642) (5,246,780) (799,231) (5,776,834)
--------------- --------------- --------------- ---------------
Net decrease -- Class A (391,205) (3,399,306) (534,518) (3,846,160)
--------------- --------------- --------------- ---------------
CLASS B SHARES
Sold 1,388,713 11,363,567 3,071,097 21,709,526
Redeemed (14,138,172) (116,228,250) (18,434,124) (129,022,330)
--------------- --------------- --------------- ---------------
Net decrease -- Class B (12,749,459) (104,864,683) (15,363,027) (107,312,804)
--------------- --------------- --------------- ---------------
CLASS C SHARES
Sold 226,518 1,868,007 440,521 3,123,524
Redeemed (1,452,268) (11,955,602) (1,783,133) (12,566,889)
--------------- --------------- --------------- ---------------
Net decrease -- Class C (1,225,750) (10,087,595) (1,342,612) (9,443,365)
--------------- --------------- --------------- ---------------
CLASS D SHARES
Sold 110,174 951,405 95,835 713,440
Redeemed (179,248) (1,554,260) (125,309) (914,579)
--------------- --------------- --------------- ---------------
Net decrease -- Class D (69,074) (602,855) (29,474) (201,139)
--------------- --------------- --------------- ---------------
Net decrease in Fund (14,435,488) $ (118,954,439) (17,269,631) $ (120,803,468)
=============== =============== =============== ===============
</Table>
20
<Page>
8. LEGAL MATTERS
The Investment Manager, certain affiliates of the Investment Manager, certain
officers of such affiliates and certain investment companies advised by the
Investment Manager or its affiliates, including the Fund, are named as
defendants in a number of similar class action complaints which were recently
consolidated. This consolidated action also names as defendants certain
individual Trustees and Directors of the Morgan Stanley funds. The consolidated
amended complaint generally alleges that defendants, including the Fund,
violated their statutory disclosure obligations and fiduciary duties by failing
properly to disclose (i) that the Investment Manager and certain affiliates of
the Investment Manager allegedly offered economic incentives to brokers and
others to recommend the funds advised by the Investment Manager or its
affiliates to investors rather than funds managed by other companies, and (ii)
that the funds advised by the Investment Manager or its affiliates, including
the Fund, allegedly paid excessive commissions to brokers in return for their
efforts to recommend these funds to investors. The complaint seeks, among other
things, unspecified compensatory damages, rescissionary damages, fees and costs.
The defendants have moved to dismiss the action and intend to otherwise
vigorously defend it. While the Fund believes that it has meritorious defenses,
the ultimate outcome of this matter is not presently determinable at this early
stage of the litigation, and no provision has been made in the Fund's financial
statements for the effect, if any, of this matter.
21
<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 YEAR ENDED JULY 31,
------------------------------------------------------------------
2004 2003 2002 2001 2000
--------- --------- --------- --------- -----------
CLASS A SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period $ 7.71 $ 7.51 $ 9.62 $ 15.24 $ 10.87
--------- --------- --------- --------- -----------
Income (loss) from investment operations:
Net investment loss++ (0.07) (0.02) (0.03) 0.00 (0.08)
Net realized and unrealized gain (loss) 0.70 0.22 (2.05) (3.90) 4.45
--------- --------- --------- --------- -----------
Total income (loss) from investment operations 0.63 0.20 (2.08) (3.90) 4.37
--------- --------- --------- --------- -----------
Less distributions from net realized gains - - (0.03) (1.72) -
--------- --------- --------- --------- -----------
Net asset value, end of period $ 8.34 $ 7.71 $ 7.51 $ 9.62 $ 15.24
========= ========= ========= ========= ===========
TOTAL RETURN+ 8.17% 2.66% (21.65)% (28.31)% 40.20%
RATIOS TO AVERAGE NET ASSETS(1):
Expenses 1.37% 1.40% 1.29 % 1.16% 1.18%
Net investment loss (0.77)% (0.32)% (0.39)% (0.03)% (0.55)%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands $ 16,564 $ 18,340 $ 21,888 $ 39,662 $ 67,267
Portfolio turnover rate 219% 263% 325% 399% 432%
</Table>
- ----------
++ THE PER SHARE AMOUNTS WERE COMPUTED USING AN AVERAGE NUMBER OF SHARES
OUTSTANDING DURING THE PERIOD.
+ DOES NOT REFLECT THE DEDUCTION OF SALES CHARGE. CALCULATED BASED ON THE NET
ASSET VALUE AS OF THE LAST BUSINESS DAY OF THE PERIOD.
(1) REFLECTS OVERALL FUND RATIOS FOR INVESTMENT INCOME AND NON-CLASS SPECIFIC
EXPENSES.
SEE NOTES TO FINANCIAL STATEMENTS
22
<Page>
<Table>
<Caption>
FOR THE YEAR ENDED JULY 31,
------------------------------------------------------------------
2004 2003 2002 2001 2000
--------- --------- --------- --------- -----------
CLASS B SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period $ 7.44 $ 7.31 $ 9.42 $ 15.08 $ 10.84
--------- --------- --------- --------- -----------
Income (loss) from investment operations:
Net investment loss++ (0.12) (0.08) (0.10) (0.10) (0.19)
Net realized and unrealized gain (loss) 0.66 0.21 (1.98) (3.84) 4.43
--------- --------- --------- --------- -----------
Total income (loss) from investment operations 0.54 0.13 (2.08) (3.94) 4.24
--------- --------- --------- --------- -----------
Less distributions from net realized gains - - (0.03) (1.72) -
--------- --------- --------- --------- -----------
Net asset value, end of period $ 7.98 $ 7.44 $ 7.31 $ 9.42 $ 15.08
========= ========= ========= ========= ===========
TOTAL RETURN+ 7.26% 1.78% (22.11)% (28.93)% 39.11%
RATIOS TO AVERAGE NET ASSETS(1):
Expenses 2.13% 2.15% 2.05% 1.94% 1.93%
Net investment loss (1.53) (1.07)% (1.15)% (0.81)% (1.30)%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands $ 314,195 $ 387,751 $ 492,959 $ 881,115 $ 1,364,482
Portfolio turnover rate 219% 263% 325% 399% 432%
</Table>
- ----------
++ THE PER SHARE AMOUNTS WERE COMPUTED USING AN AVERAGE NUMBER OF SHARES
OUTSTANDING DURING THE PERIOD.
+ DOES NOT REFLECT THE DEDUCTION OF SALES CHARGE. CALCULATED BASED ON THE NET
ASSET VALUE AS OF THE LAST BUSINESS DAY OF THE PERIOD.
(1) REFLECTS OVERALL FUND RATIOS FOR INVESTMENT INCOME AND NON-CLASS SPECIFIC
EXPENSES.
SEE NOTES TO FINANCIAL STATEMENTS
23
<Page>
<Table>
<Caption>
FOR THE YEAR ENDED JULY 31,
------------------------------------------------------------------
2004 2003 2002 2001 2000
--------- --------- --------- --------- -----------
CLASS C SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period $ 7.45 $ 7.32 $ 9.42 $ 15.08 $ 10.84
--------- --------- --------- --------- -----------
Income (loss) from investment operations:
Net investment loss++ (0.12) (0.08) (0.09) (0.10) (0.19)
Net realized and unrealized gain (loss) 0.66 0.21 (1.98) (3.84) 4.43
--------- --------- --------- --------- -----------
Total income (loss) from investment operations 0.54 0.13 (2.07) (3.94) 4.24
--------- --------- --------- --------- -----------
Less distributions from net realized gains - - (0.03) (1.72) -
--------- --------- --------- --------- -----------
Net asset value, end of period $ 7.99 $ 7.45 $ 7.32 $ 9.42 $ 15.08
========= ========= ========= ========= ===========
TOTAL RETURN+ 7.25% 1.78% (22.00)% (28.93)% 39.11%
RATIOS TO AVERAGE NET ASSETS(1):
Expenses 2.12% 2.15% 1.93% 1.94% 1.93%
Net investment loss (1.52) (1.07)% (1.03)% (0.81)% (1.30)%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands $ 33,710 $ 40,555 $ 49,639 $ 83,603 $ 127,180
Portfolio turnover rate 219% 263% 325% 399% 432%
</Table>
- ----------
++ THE PER SHARE AMOUNTS WERE COMPUTED USING AN AVERAGE NUMBER OF SHARES
OUTSTANDING DURING THE PERIOD.
+ DOES NOT REFLECT THE DEDUCTION OF SALES CHARGE. CALCULATED BASED ON THE NET
ASSET VALUE AS OF THE LAST BUSINESS DAY OF THE PERIOD.
(1) REFLECTS OVERALL FUND RATIOS FOR INVESTMENT INCOME AND NON-CLASS SPECIFIC
EXPENSES.
SEE NOTES TO FINANCIAL STATEMENTS
24
<Page>
<Table>
<Caption>
FOR THE YEAR ENDED JULY 31,
------------------------------------------------------------------
2004 2003 2002 2001 2000
--------- --------- --------- --------- -----------
CLASS D SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period $ 7.80 $ 7.58 $ 9.68 $ 15.30 $ 10.89
--------- --------- --------- --------- -----------
Income (loss) from investment operations:
Net investment income (loss)++ (0.04) (0.01) (0.01) 0.02 (0.06)
Net realized and unrealized gain (loss) 0.69 0.23 (2.06) (3.92) 4.47
--------- --------- --------- --------- -----------
Total income (loss) from investment operations 0.65 0.22 (2.07) (3.90) 4.41
--------- --------- --------- --------- -----------
Less distributions from net realized gains - - (0.03) (1.72) -
--------- --------- --------- --------- -----------
Net asset value, end of period $ 8.45 $ 7.80 $ 7.58 $ 9.68 $ 15.30
========= ========= ========= ========= ===========
TOTAL RETURN+ 8.33% 2.90% (21.33)% (28.26)% 40.50%
RATIOS TO AVERAGE NET ASSETS(1):
Expenses 1.13% 1.15% 1.05% 0.94% 0.93%
Net investment income (loss) (0.53)% (0.07)% (0.15)% 0.19 % (0.30)%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands $ 2,091 $ 2,468 $ 2,622 $ 5,111 $ 4,581
Portfolio turnover rate 219% 263% 325% 399% 432%
</Table>
- ----------
++ THE PER SHARE AMOUNTS WERE COMPUTED USING AN AVERAGE NUMBER OF SHARES
OUTSTANDING DURING THE PERIOD.
+ CALCULATED BASED ON THE NET ASSET VALUE AS OF THE LAST BUSINESS DAY OF THE
PERIOD.
(1) REFLECTS OVERALL FUND RATIOS FOR INVESTMENT INCOME AND NON-CLASS SPECIFIC
EXPENSES.
SEE NOTES TO FINANCIAL STATEMENTS
25
<Page>
MORGAN STANLEY AGGRESSIVE EQUITY FUND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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, 2004, and the related statements of operations for
the year then ended and changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the years in the
five year period then ended. These financial statements and financial highlights
are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of July 31, 2004, by correspondence with the custodian and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Morgan
Stanley Aggressive Equity Fund as of July 31, 2004, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each of
the years in the five year period then ended, in conformity with accounting
principles generally accepted in the United States of America.
Deloitte & Touche LLP
NEW YORK, NEW YORK
SEPTEMBER 14, 2004
26
<Page>
MORGAN STANLEY AGGRESSIVE EQUITY FUND
TRUSTEE AND OFFICER INFORMATION
INDEPENDENT TRUSTEES:
<Table>
<Caption>
NUMBER OF
PORTFOLIOS
TERM OF IN FUND
POSITION(S) OFFICE AND COMPLEX
NAME, AGE AND ADDRESS OF HELD WITH LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN
INDEPENDENT TRUSTEE REGISTRANT TIME SERVED* DURING PAST 5 YEARS** BY TRUSTEE*** OTHER DIRECTORSHIPS HELD BY TRUSTEE
- -------------------------- ------------ ------------ ----------------------- ------------- ---------------------------------------
Michael Bozic (63) Trustee Since Private Investor; 208 Director of Weirton Steel Corporation.
c/o Kramer Levin Naftalis April 1994 Director or Trustee of
& Frankel LLP the Retail Funds
Counsel to (since April 1994) and
the Independent Trustees the Institutional
919 Third Avenue Funds (since
New York, NY July 2003); formerly
Vice Chairman of Kmart
Corporation (December
1998-October 2000),
Chairman and Chief
Executive Officer of
Levitz Furniture
Corporation (November
1995-November 1998)
and President and Chief
Executive Officer of
Hills Department
Stores (May 1991-
July 1995); formerly
variously Chairman,
Chief Executive
Officer, President and
Chief Operating
Officer (1987-1991) of
the Sears Merchandise
Group of Sears,
Roebuck & Co.
Edwin J. Garn (71) Trustee Since Managing Director of 208 Director of Franklin Covey (time
c/o Summit Ventures LLC January 1993 Summit Ventures LLC; management systems), BMW Bank of
1 Utah Center Director or Trustee of North America, Inc. (industrial loan
201 S. Main Street the Retail Funds corporation), United Space Alliance
Salt Lake City, UT (since January 1993) (joint venture between Lockheed
and the Institutional Martin and the Boeing Company) and
Funds (since Nuskin Asia Pacific (multilevel
July 2003); member of marketing); member of the board of
the Utah Regional various civic and charitable
Advisory Board of organizations.
Pacific Corp.;
formerly United States
Senator (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 (70) Trustee Since Retired; Director or 208 Director of The PMI Group Inc. (private
c/o Kramer Levin Naftalis September Trustee of the Retail mortgage insurance); Trustee and Vice
& Frankel LLP 1997 Funds (since Chairman of The Field Museum of
Counsel to September 1997) and the Natural History; director of various
the Independent Trustees Institutional Funds other business and charitable
919 Third Avenue (since July 2003); organizations.
New York, NY formerly associated
with the Allstate
Companies (1966-1994),
most recently as
Chairman of The
Allstate Corporation
(March 1993-
December 1994) and
Chairman and Chief
Executive Officer of
its wholly-owned
subsidiary, Allstate
Insurance Company
(July 1989-December
1994).
</Table>
27
<Page>
<Table>
<Caption>
NUMBER OF
PORTFOLIOS
TERM OF IN FUND
POSITION(S) OFFICE AND COMPLEX
NAME, AGE AND ADDRESS OF HELD WITH LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN
INDEPENDENT TRUSTEE REGISTRANT TIME SERVED* DURING PAST 5 YEARS** BY TRUSTEE*** OTHER DIRECTORSHIPS HELD BY TRUSTEE
- -------------------------- ------------ ------------ ----------------------- ------------- ---------------------------------------
Dr. Manuel H. Johnson (55) Trustee Since Senior Partner, 208 Director of NVR, Inc. (home
c/o Johnson Smick July 1991 Johnson Smick construction); Chairman and Trustee of
International, Inc. International, Inc., a the Financial Accounting Foundation
2099 Pennsylvania Avenue, consulting firm; (oversight organization of the Financial
N.W. Suite 950 Chairman of the Audit Accounting Standards Board); Director
Washington, D.C. Committee and Director of RBS Greenwich Capital Holdings
or Trustee of the (financial holding company).
Retail Funds (since
July 1991) and the
Institutional Funds
(since July 2003);
Co-Chairman and a
founder of the Group
of Seven Council
(G7C), an
international economic
commission; formerly
Vice Chairman of the
Board of Governors of
the Federal Reserve
System and Assistant
Secretary of the U.S.
Treasury.
Joseph J. Kearns (61) Trustee Since President, Kearns & 209 Director of Electro Rent Corporation
PMB754 July 2003 Associates LLC (equipment leasing), The Ford Family
23852 Pacific Coast Highway (investment Foundation, and the UCLA Foundation.
Malibu, CA consulting); Deputy
Chairman of the Audit
Committee and Director
or Trustee of the
Retail Funds (since
July 2003) and the
Institutional Funds
(since August 1994);
previously Chairman of
the Audit Committee of
the Institutional
Funds (October 2001-
July 2003); formerly
CFO of the J. Paul
Getty Trust.
Michael E. Nugent (68) Trustee Since General Partner of 208 Director of various business
c/o Triumph Capital, L.P. July 1991 Triumph Capital, L.P., organizations.
445 Park Avenue a private investment
New York, NY partnership; Chairman
of the Insurance
Committee and Director
or Trustee of the
Retail Funds (since
July 1991) and the
Institutional Funds
(since July 2001);
formerly Vice
President, Bankers
Trust Company and BT
Capital Corporation
(1984-1988).
Fergus Reid (71) Trustee Since Chairman of Lumelite 209 Trustee and Director of certain
c/o Lumelite Plastics July 2003 Plastics Corporation; investment companies in the
Corporation Chairman of the JPMorganFunds complex managed
85 Charles Colman Blvd. Governance Committee by J.P. Morgan Investment
Pawling, NY and Director or Trustee Management Inc.
of the Retail Funds
(since July 2003) and
the Institutional
Funds (since June
1992).
</Table>
28
<Page>
INSERTED TRUSTEES:
<Table>
<Caption>
NUMBER OF
PORTFOLIOS
TERM OF IN FUND
POSITION(S) OFFICE AND COMPLEX
NAME, AGE AND ADDRESS OF HELD WITH LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN
INTERESTED TRUSTEE REGISTRANT TIME SERVED* DURING PAST 5 YEARS** BY TRUSTEE*** OTHER DIRECTORSHIPS HELD BY TRUSTEE
- -------------------------- ------------ ------------ ----------------------- ------------- ---------------------------------------
Charles A. Fiumefreddo Chairman of Since Chairman and Director 208 None
(71) the Board July 1991 or Trustee of the
c/o Morgan Stanley Trust and Trustee Retail Funds (since
Harborside Financial July 1991) and the
Center, Institutional Funds
Plaza Two, (since July 2003);
Jersey City, NJ formerly Chief
Executive Officer of
the Retail Funds
(until September 2002).
James F. Higgins (56) Trustee Since Director or Trustee of 208 Director of AXA Financial, Inc.
c/o Morgan Stanley Trust June 2000 the Retail Funds and The Equitable Life
Harborside Financial (since June 2000) and Assurance Society of the
Center, the Institutional United States (financial
Plaza Two, Funds (since July services).
Jersey City, NJ 2003); Senior Advisor
of Morgan Stanley
(since August 2000);
Director of the
Distributor and Dean
Witter Realty Inc.;
previously President
and Chief Operating
Officer of the Private
Client Group of Morgan
Stanley (May 1999-
August 2000), and
President and Chief
Operating Officer of
Individual Securities
of Morgan Stanley
(February 1997-May
1999).
</Table>
- ---------
* THIS IS THE EARLIEST DATE THE TRUSTEE BEGAN SERVING THE FUNDS ADVISED
BY MORGAN STANLEY INVESTMENT ADVISORS INC. (THE "INVESTMENT MANAGER ")
(THE "RETAIL FUNDS ").
** THE DATES REFERENCED BELOW INDICATING COMMENCEMENT OF SERVICES AS
DIRECTOR/TRUSTEE FOR THE RETAIL FUNDS AND THE FUNDS ADVISED BY MORGAN
STANLEY INVESTMENT MANAGEMENT INC. AND MORGAN STANLEY AIP GP LP (THE
"INSTITUTIONAL FUNDS") REFLECT THE EARLIEST DATE THE DIRECTOR/TRUSTEE
BEGAN SERVING THE RETAIL OR INSTITUTIONAL FUNDS AS APPLICABLE.
*** THE FUND COMPLEX INCLUDES ALL OPEN-END AND CLOSED-END FUNDS
(INCLUDING ALL OF THEIR PORTFOLIOS) ADVISED BY THE INVESTMENT MANAGER
AND ANY FUNDS THAT HAVE AN INVESTMENT ADVISOR THAT IS AN AFFILIATED
PERSON OF THE INVESTMENT MANAGER (INCLUDING BUT NOT LIMITED TO MORGAN
STANLEY INVESTMENT MANAGEMENT INC.).
29
<Page>
OFFICERS:
<Table>
<Caption>
TERM OF
POSITION(S) OFFICE AND
NAME, AGE AND ADDRESS OF HELD WITH LENGTH OF
EXECUTIVE OFFICER REGISTRANT TIME SERVED* PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS**
- --------------------------- --------------- --------------- ---------------------------------------------------------
Mitchell M. Merin (50) President Since May 1999 President and Chief Operating Officer of Morgan Stanley
1221 Avenue of the Americas Investment Management Inc.; President, Director and Chief
New York, NY Executive Officer of the Investment Manager and Morgan
Stanley Services; Chairman and Director of the
Distributor; Chairman and Director of the Transfer Agent;
Director of various Morgan Stanley subsidiaries;
President of the Institutional Funds (since July 2003) and
President of the Retail Funds (since May 1999); Trustee
(since July 2003) and President (since December 2002) of
the Van Kampen Closed-End Funds; Trustee (since May 1999)
and President (since October 2002) of the Van Kampen
Open-End Funds.
Barry Fink (49) Vice President Since General Counsel (since May 2000) and Managing Director
1221 Avenue of the Americas February 1997 (since December 2000) of Morgan Stanley Investment
New York, NY Management; Managing Director (since December 2000),
Secretary (since February 1997) and Director (since July
1998) of the Investment Manager and Morgan Stanley
Services; Vice President of the Retail Funds; Assistant
Secretary of Morgan Stanley DW; Vice President of the
Institutional Funds (since July 2003); Managing Director,
Secretary and Director of the Distributor; previously
Secretary (February 1997-July 2003) and General Counsel
(February 1997-April 2004) of the Retail Funds; Vice
President and Assistant General Counsel of the Investment
Manager and Morgan Stanley Services (February 1997-December
2001).
Ronald E. Robison (65) Executive Vice Since Principal Executive Officer-Office of the Funds (since
1221 Avenue of the Americas President and April 2003 November 2003); Managing Director of Morgan Stanley & Co.
New York, NY Principal Incorporated, Managing Director of Morgan Stanley;
Executive Managing Director, Chief Administrative Officer and
Officer Director of the Investment Manager and Morgan Stanley
Services; Chief Executive Officer and Director of the
Transfer Agent; Managing Director and Director of the
Distributor; Executive Vice President and Principal
Executive Officer of the Institutional Funds (since July
2003) and the Retail Funds (since April 2003); Director
of Morgan Stanley SICAV (since May 2004); previously
President and Director of the Institutional Funds (March
2001-July 2003) and Chief Global Operations Officer and
Managing Director of Morgan Stanley Investment Management
Inc.
Joseph J. McAlinden (61) Vice President Since July 1995 Managing Director and Chief Investment Officer of the
1221 Avenue of the Americas Investment Manager and Morgan Stanley Investment
New York, NY Management Inc., Director of the Transfer Agent, Chief
Investment Officer of the Van Kampen Funds; Vice
President of the Institutional Funds (since July 2003)
and the Retail Funds (since July 1995).
Stefanie V. Chang (37) Vice President Since July 2003 Executive Director of Morgan Stanley & Co. Incorporated,
1221 Avenue of the Americas Morgan Stanley Investment Management Inc., and the
New York, NY Investment Manager; Vice President of the Institutional
Funds (since December 1997) and the Retail Funds (since
July 2003); formerly practiced law with the New York law
firm of Rogers & Wells (now Clifford Chance US LLP).
</Table>
30
<Page>
<Table>
<Caption>
TERM OF
POSITION(S) OFFICE AND
NAME, AGE AND ADDRESS OF HELD WITH LENGTH OF
EXECUTIVE OFFICER REGISTRANT TIME SERVED* PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS**
- --------------------------- --------------- --------------- ---------------------------------------------------------
Francis J. Smith (38) Treasurer and Treasurer since Executive Director of the Investment Manager and Morgan
c/o Morgan Stanley Trust Chief Financial July 2003 and Stanley Services (since December 2001); previously Vice
Harborside Financial Center, Officer Chief Financial President of the Retail Funds (September 2002-July
Plaza Two, Officer since 2003), and Vice President of the Investment Manager and
Jersey City, NJ September 2002 Morgan Stanley Services (August 2000-November 2001) and
Senior Manager at PricewaterhouseCoopers LLP (January
1998-August 2000).
Thomas F. Caloia (58) Vice President Since July 2003 Executive Director (since December 2002) and Assistant
c/o Morgan Stanley Trust Treasurer of the Investment Manager, the Distributor and
Harborside Financial Center, Morgan Stanley Services; previously Treasurer of the
Plaza Two, Retail Funds (April 1989-July 2003); formerly First Vice
Jersey City, NJ President of the Investment Manager, the Distributor and
Morgan Stanley Services.
Mary E. Mullin (37) Secretary Since July 2003 Executive Director of Morgan Stanley & Co. Incorporated,
1221 Avenue of the Americas Morgan Stanley Investment Management Inc. and the
New York, NY Investment Manager; Secretary of the Institutional Funds
(since June 1999) and the Retail Funds (since July 2003);
formerly practiced law with the New York law firms of
McDermott, Will & Emery and Skadden, Arps, Slate, Meagher &
Flom LLP.
</Table>
- ----------
* THIS IS THE 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.
31
<Page>
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
Wayne E. Hedien
James F. Higgins
Dr. Manuel H. Johnson
Joseph J. Kearns
Michael E. Nugent
Fergus Reid
OFFICERS
Charles A. Fiumefreddo
CHAIRMAN OF THE BOARD
Mitchell M. Merin
PRESIDENT
Ronald E. Robison
EXECUTIVE VICE PRESIDENT and PRINCIPAL EXECUTIVE OFFICER
Barry Fink
VICE PRESIDENT
Joseph J. McAlinden
VICE PRESIDENT
Stefanie V. Chang
VICE PRESIDENT
Francis J. Smith
TREASURER and CHIEF FINANCIAL OFFICER
Thomas F. Caloia
VICE PRESIDENT
Mary E. Mullin
SECRETARY
TRANSFER AGENT
Morgan Stanley Trust
Harborside Financial Center, Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP
Two World Financial Center
New York, New York 10281
INVESTMENT MANAGER
Morgan Stanley Investment Advisors Inc.
1221 Avenue of the Americas
New York, New York 10020
This report is submitted for the general information of the shareholders of the
Fund. For more detailed information about the Fund, its fees and expenses and
other pertinent information, please read its Prospectus. The Fund's Statement of
Additional Information contains additional information about the Fund, including
its trustees. It is available, without charge, by calling (800) 869-NEWS.
This report is not authorized for distribution to prospective investors in the
Fund unless preceded or accompanied by an effective Prospectus. Read the
Prospectus carefully before investing.
Investments and services offered through Morgan Stanley DW Inc., member SIPC.
Morgan Stanley Distributors Inc., member NASD.
(C) 2004 Morgan Stanley
[MORGAN STANLEY LOGO]
36052RPT-RA04-00540P-Y07/04
[GRAPHIC]
MORGAN STANLEY FUNDS
MORGAN STANLEY
AGGRESSIVE
EQUITY FUND
ANNUAL REPORT
JULY 31, 2004
[MORGAN STANLEY LOGO]
<Page>
Item 2. Code of Ethics.
(a) The Fund has adopted a code of ethics (the "Code of Ethics") that applies
to its principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar functions,
regardless of whether these individuals are employed by the Fund or a third
party.
(b) No information need be disclosed pursuant to this paragraph.
(c) Not applicable.
(d) Not applicable.
(e) Not applicable.
(f)
(1) The Fund's Code of Ethics is attached hereto as Exhibit A.
(2) Not applicable.
(3) Not applicable.
Item 3. Audit Committee Financial Expert.
The Fund's Board of Trustees has determined that it has two "audit committee
financial experts" serving on its audit committee, each of whom are
"independent" Trustees: Dr. Manuel H. Johnson and Joseph J. Kearns. Under
applicable securities laws, a person who is determined to be an audit committee
financial expert will not be deemed an "expert" for any purpose, including
without limitation for the purposes of Section 11 of the Securities Act of 1933,
as a result of being designated or identified as an audit committee financial
expert. The designation or identification of a person as an audit committee
financial expert does not impose on such person any duties, obligations, or
liabilities that are greater than the duties, obligations, and liabilities
imposed on such person as a member of the audit committee and Board of Trustees
in the absence of such designation or identification.
<Page>
Item 4. Principal Accountant Fees and Services.
(a)(b)(c)(d) and (g). Based on fees billed for the periods shown:
2004
<Table>
<Caption>
REGISTRANT COVERED ENTITIES(1)
AUDIT FEES $ 31,230 N/A
NON-AUDIT FEES
AUDIT-RELATED FEES $ 452(2) $ 3,225,276(2)
TAX FEES $ 4,889(3) $ 610,053(4)
ALL OTHER FEES $ - $ -
TOTAL NON-AUDIT FEES $ 5,341 $ 3,835,329
TOTAL $ 36,571 $ 3,835,329
</Table>
2003
<Table>
<Caption>
REGISTRANT COVERED ENTITIES(1)
AUDIT FEES $ 29,450 N/A
NON-AUDIT FEES
AUDIT-RELATED FEES $ 684(2) $ 739,996(2)
TAX FEES $ 4,770(3) $ 187,500(4)
ALL OTHER FEES $ 5,454 $ -(5)
TOTAL NON-AUDIT FEES $ $ 927,496
TOTAL $ 34,904 $ 927,496
</Table>
N/A- Not applicable, as not required by Item 4.
(1) Covered Entities include the Adviser (excluding sub-advisors) and
any entity controlling, controlled by or under common control
with the Adviser that provides ongoing services to the
Registrant.
(2) Audit-Related Fees represent assurance and related services
provided that are reasonably related to the performance of the
audit of the financial statements of the Covered Entities' and
funds advised by the Adviser or its affiliates, specifically data
verification and agreed-upon procedures related to asset
securitizations and agreed-upon procedures engagements.
(3) Tax Fees represent tax compliance, tax planning and tax advice
services provided in connection with the preparation and review
of the Registrant's tax returns.
(4) Tax Fees represent tax compliance, tax planning and tax advice
services provided in connection with the review of Covered
Entities' tax returns.
(5) All other fees represent project management for future business
applications and improving business and operational processes.
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(e)(1) The audit committee's pre-approval policies and procedures are as
follows:
AUDIT COMMITTEE
AUDIT AND NON-AUDIT SERVICES
PRE-APPROVAL POLICY AND PROCEDURES
OF THE
MORGAN STANLEY RETAIL AND INSTITUTIONAL FUNDS
AS ADOPTED JULY 31, 2003(1)
1. STATEMENT OF PRINCIPLES
The Audit Committee of the Board is required to review and, in its sole
discretion, pre-approve all Covered Services to be provided by the Independent
Auditors to the Fund and Covered Entities in order to assure that services
performed by the Independent Auditors do not impair the auditor's independence
from the Fund.
The SEC has issued rules specifying the types of services that an
independent auditor may not provide to its audit client, as well as the audit
committee's administration of the engagement of the independent auditor. The
SEC's rules establish two different approaches to pre-approving services, which
the SEC considers to be equally valid. Proposed services either: may be
pre-approved without consideration of specific case-by-case services by the
Audit Committee ("GENERAL PRE-APPROVAL"); or require the specific pre-approval
of the Audit Committee or its delegate ("SPECIFIC PRE-APPROVAL"). The Audit
Committee believes that the combination of these two approaches in this Policy
will result in an effective and efficient procedure to pre-approve services
performed by the Independent Auditors. As set forth in this Policy, unless a
type of service has received general pre-approval, it will require specific
pre-approval by the Audit Committee (or by any member of the Audit Committee to
which pre-approval authority has been delegated) if it is to be provided by the
Independent Auditors. Any proposed services exceeding pre-approved cost levels
or budgeted amounts will also require specific pre-approval by the Audit
Committee.
The appendices to this Policy describe the Audit, Audit-related, Tax and
All Other services that have the general pre-approval of the Audit Committee.
The term of any general pre-approval is 12 months from the date of pre-approval,
unless the Audit Committee considers and provides a different period and states
otherwise. The Audit Committee will annually review and pre-approve the services
that may be provided by the Independent Auditors without obtaining specific
pre-approval from the Audit Committee. The Audit Committee will add to or
subtract from the list of general pre-approved services from time to time, based
on subsequent determinations.
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(1) This Audit Committee Audit and Non-Audit Services Pre-Approval Policy and
Procedures (the "POLICY"), adopted as of the date above, supercedes and
replaces all prior versions that may have been adopted from time to time.
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The purpose of this Policy is to set forth the policy and procedures by
which the Audit Committee intends to fulfill its responsibilities. It does not
delegate the Audit Committee's responsibilities to pre-approve services
performed by the Independent Auditors to management.
The Fund's Independent Auditors have reviewed this Policy and believes
that implementation of the Policy will not adversely affect the Independent
Auditors' independence.
2. DELEGATION
As provided in the Act and the SEC's rules, the Audit Committee may
delegate either type of pre-approval authority to one or more of its members.
The member to whom such authority is delegated must report, for informational
purposes only, any pre-approval decisions to the Audit Committee at its next
scheduled meeting.
3. AUDIT SERVICES
The annual Audit services engagement terms and fees are subject to the
specific pre-approval of the Audit Committee. Audit services include the annual
financial statement audit and other procedures required to be performed by the
Independent Auditors to be able to form an opinion on the Fund's financial
statements. These other procedures include information systems and procedural
reviews and testing performed in order to understand and place reliance on the
systems of internal control, and consultations relating to the audit. The Audit
Committee will approve, if necessary, any changes in terms, conditions and fees
resulting from changes in audit scope, Fund structure or other items.
In addition to the annual Audit services engagement approved by the Audit
Committee, the Audit Committee may grant general pre-approval to other Audit
services, which are those services that only the Independent Auditors reasonably
can provide. Other Audit services may include statutory audits and services
associated with SEC registration statements (on Forms N-1A, N-2, N-3, N-4,
etc.), periodic reports and other documents filed with the SEC or other
documents issued in connection with securities offerings.
The Audit Committee has pre-approved the Audit services in Appendix B.1.
All other Audit services not listed in Appendix B.1 must be specifically
pre-approved by the Audit Committee (or by any member of the Audit Committee to
which pre-approval has been delegated).
4. AUDIT-RELATED SERVICES
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Audit-related services are assurance and related services that are
reasonably related to the performance of the audit or review of the Fund's
financial statements and, to the extent they are Covered Services, the Covered
Entities or that are traditionally performed by the Independent Auditors.
Because the Audit Committee believes that the provision of Audit-related
services does not impair the independence of the auditor and is consistent with
the SEC's rules on auditor independence, the Audit Committee may grant general
pre-approval to Audit-related services. Audit-related services include, among
others, accounting consultations related to accounting, financial reporting or
disclosure matters not classified as "Audit services"; assistance with
understanding and implementing new accounting and financial reporting guidance
from rulemaking authorities; agreed-upon or expanded audit procedures related to
accounting and/or billing records required to respond to or comply with
financial, accounting or regulatory reporting matters; and assistance with
internal control reporting requirements under Forms N-SAR and/or N-CSR.
The Audit Committee has pre-approved the Audit-related services in
Appendix B.2. All other Audit-related services not listed in Appendix B.2 must
be specifically pre-approved by the Audit Committee (or by any member of the
Audit Committee to which pre-approval has been delegated).
5. TAX SERVICES
The Audit Committee believes that the Independent Auditors can provide Tax
services to the Fund and, to the extent they are Covered Services, the Covered
Entities, such as tax compliance, tax planning and tax advice without impairing
the auditor's independence, and the SEC has stated that the Independent Auditors
may provide such services.
Pursuant to the preceding paragraph, the Audit Committee has pre-approved
the Tax Services in Appendix B.3. All Tax services in Appendix B.3 must be
specifically pre-approved by the Audit Committee (or by any member of the Audit
Committee to which pre-approval has been delegated).
6. ALL OTHER SERVICES
The Audit Committee believes, based on the SEC's rules prohibiting the
Independent Auditors from providing specific non-audit services, that other
types of non-audit services are permitted. Accordingly, the Audit Committee
believes it may grant general pre-approval to those permissible non-audit
services classified as All Other services that it believes are routine and
recurring services, would not impair the independence of the auditor and are
consistent with the SEC's rules on auditor independence.
<Page>
The Audit Committee has pre-approved the All Other services in Appendix
B.4. Permissible All Other services not listed in Appendix B.4 must be
specifically pre-approved by the Audit Committee (or by any member of the Audit
Committee to which pre-approval has been delegated).
7. PRE-APPROVAL FEE LEVELS OR BUDGETED AMOUNTS
Pre-approval fee levels or budgeted amounts for all services to be
provided by the Independent Auditors will be established annually by the Audit
Committee. Any proposed services exceeding these levels or amounts will require
specific pre-approval by the Audit Committee. The Audit Committee is mindful of
the overall relationship of fees for audit and non-audit services in determining
whether to pre-approve any such services.
8. PROCEDURES
All requests or applications for services to be provided by the
Independent Auditors that do not require specific approval by the Audit
Committee will be submitted to the Fund's Chief Financial Officer and must
include a detailed description of the services to be rendered. The Fund's Chief
Financial Officer will determine whether such services are included within the
list of services that have received the general pre-approval of the Audit
Committee. The Audit Committee will be informed on a timely basis of any such
services rendered by the Independent Auditors. Requests or applications to
provide services that require specific approval by the Audit Committee will be
submitted to the Audit Committee by both the Independent Auditors and the Fund's
Chief Financial Officer, and must include a joint statement as to whether, in
their view, the request or application is consistent with the SEC's rules on
auditor independence.
The Audit Committee has designated the Fund's Chief Financial Officer to
monitor the performance of all services provided by the Independent Auditors and
to determine whether such services are in compliance with this Policy. The
Fund's Chief Financial Officer will report to the Audit Committee on a periodic
basis on the results of its monitoring. Both the Fund's Chief Financial Officer
and management will immediately report to the chairman of the Audit Committee
any breach of this Policy that comes to the attention of the Fund's Chief
Financial Officer or any member of management.
9. ADDITIONAL REQUIREMENTS
The Audit Committee has determined to take additional measures on an
annual basis to meet its responsibility to oversee the work of the Independent
Auditors and to assure the auditor's independence from the Fund, such as
reviewing a formal written statement from the Independent Auditors delineating
all relationships between the Independent Auditors and the Fund, consistent with
Independence Standards Board No. 1,
<Page>
and discussing with the Independent Auditors its methods and procedures for
ensuring independence.
10. COVERED ENTITIES
Covered Entities include the Fund's investment adviser(s) and any entity
controlling, controlled by or under common control with the Fund's investment
adviser(s) that provides ongoing services to the Fund(s). Beginning with
non-audit service contracts entered into on or after May 6, 2003, the Fund's
audit committee must pre-approve non-audit services provided not only to the
Fund but also to the Covered Entities if the engagements relate directly to the
operations and financial reporting of the Fund. This list of Covered Entities
would include:
MORGAN STANLEY RETAIL FUNDS
Morgan Stanley Investment Advisors Inc.
Morgan Stanley & Co. Incorporated
Morgan Stanley DW Inc.
Morgan Stanley Investment Management
Morgan Stanley Investments LP
Van Kampen Asset Management Inc.
Morgan Stanley Services Company, Inc.
Morgan Stanley Distributors Inc.
Morgan Stanley Trust FSB
MORGAN STANLEY INSTITUTIONAL FUNDS
Morgan Stanley Investment Management Inc.
Morgan Stanley Investments LP
Morgan Stanley & Co. Incorporated
Morgan Stanley Distribution, Inc.
Morgan Stanley AIP GP LP
Morgan Stanley Alternative Investment Partners LP
(e)(2) Beginning with non-audit service contracts entered into on or after May
6, 2003, the audit committee also is required to pre-approve services to Covered
Entities to the extent that the services are determined to have a direct impact
on the operations or financial reporting of the Registrant. 100% of such
services were pre-approved by the audit committee pursuant to the Audit
Committee's pre-approval policies and procedures (attached hereto).
(f) Not applicable.
(g) See table above.
(h) The audit committee of the Board of Trustees has considered whether the
provision of services other than audit services performed by the auditors to the
Registrant and
<Page>
Covered Entities is compatible with maintaining the auditors' independence in
performing audit services.
Item 5. Audit Committee of Listed Registrants.
Applicable only for reports covering periods ending on or after the earlier of
(i) the first annual shareholder meeting after January 15, 2004 or (ii) October
31, 2004.
Item 6. [Reserved.]
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
Applicable only to annual reports filed by closed-end funds.
Item 8. [Reserved.]
Item 9 - Controls and Procedures
(a) The Fund's principal executive officer and principal financial officer have
concluded that the Fund's disclosure controls and procedures are sufficient to
ensure that information required to be disclosed by the Fund in this Form N-CSR
was recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission's rules and forms, based
upon such officers' evaluation of these controls and procedures as of a date
within 90 days of the filing date of the report.
There were no significant changes or corrective actions with regard to
significant deficiencies or material weaknesses in the Fund's internal controls
or in other factors that could significantly affect the Fund's internal controls
subsequent to the date of their evaluation.
(b) There were no changes in the registrant's internal control over financial
reporting that occurred during the registrant's most recent fiscal half-year
(the registrant's second fiscal half-year in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
Item 10 Exhibits
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(a) The Code of Ethics for Principal Executive and Senior Financial Officers is
attached hereto.
(b) A separate certification for each principal executive officer and principal
financial officer of the registrant are attached hereto as part of EX-99.CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
Morgan Stanley Aggressive Equity Fund
/s/ Ronald E. Robison
Ronald E. Robison
Principal Executive Officer
September 20, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, this report has been signed by the following
persons on behalf of the registrant and in the capacities and on the dates
indicated.
/s/ Ronald E. Robison
Ronald E. Robison
Principal Executive Officer
September 20, 2004
/s/ Francis Smith
Francis Smith
Principal Financial Officer
September 20, 2004