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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: 811-08283
Morgan Stanley Multi-Asset Class Fund - Domestic Portfolio
(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: September 30, 2005
Date of reporting period: September 30, 2005
Item 1 - Report to Shareholders
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WELCOME, SHAREHOLDER:
IN THIS REPORT, YOU'LL LEARN ABOUT HOW YOUR INVESTMENT IN MORGAN STANLEY
MULTI-ASSET CLASS FUND -- DOMESTIC PORTFOLIO (FORMERLY MORGAN STANLEY FUND OF
FUNDS -- DOMESTIC PORTFOLIO)* 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. PLEASE SEE THE PROSPECTUS FOR MORE COMPLETE
INFORMATION ON INVESTMENT RISKS.
* THE FUND'S NAME CHANGED EFFECTIVE AUGUST 1, 2005
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FUND REPORT
For the year ended September 30, 2005
TOTAL RETURN FOR THE 12 MONTHS ENDED SEPTEMBER 30, 2005
<Table>
<Caption>
LIPPER
S&P FLEXIBLE
500(R) PORTFOLIO
CLASS A CLASS B CLASS C CLASS D INDEX(1) FUNDS INDEX(2)
15.21% 14.32% 14.47% 15.58% 12.24% 12.41%
</Table>
THE PERFORMANCE OF THE FUND'S FOUR SHARE CLASSES VARIES BECAUSE EACH HAS
DIFFERENT EXPENSES. THE FUND'S TOTAL RETURNS ASSUME THE REINVESTMENT OF ALL
DISTRIBUTIONS BUT DO NOT REFLECT THE DEDUCTION OF ANY APPLICABLE SALES CHARGES.
SUCH COSTS WOULD LOWER PERFORMANCE. SEE PERFORMANCE SUMMARY FOR STANDARDIZED
PERFORMANCE AND BENCHMARK INFORMATION.
MARKET CONDITIONS
For the 12-month period ended September 30, 2005, equity markets posted
double-digit returns, with a total return of 12.2 percent for the S&P 500(R)
Index. The bulk of the equity returns over the period were realized in a strong
fourth-quarter rally in 2004, when the S&P 500(R) advanced 9.2 percent. In the
first three quarters of 2005, however, the markets slowed their pace but managed
to eke out modest gains. The dominant themes over the period were persistently
high energy prices, continued unrest in the Middle East, growing inflation
pressures, and the continuation of the tightening cycle that the Federal Open
Market Committee (the Fed) began in June of 2004.
For the annual reporting period, energy was the dominant sector leader across
the market capitalization spectrum. Large-cap energy stocks surged 48.5 percent
on a total return basis, while small and mid-cap energy companies rose even
further. Strong global demand and widespread speculation pushed oil prices to
new highs. The price per barrel of crude oil soared over the period, spiking to
new heights as hurricanes ravaged the Gulf of Mexico in late summer of 2005.
Beyond energy, equity sector returns were largely positive across market caps.
Driven by attractive dividend yields and boosted by high oil and natural gas
prices, utilities were the second best performing sector over the period. Within
the S&P 500(R) Index, only the telecommunication services and materials sectors
posted negative returns for the period. Higher interest rates squeezed profit
margins for the financials sector, which underperformed the broader market.
The Fed continued to raise the federal funds target rate at a "measured" pace of
25 basis points per meeting. After eight hikes during the period, the federal
funds rate stood at 3.75 percent at the end of September 2005. Although Fed
policy was consistent and transparent, the bond market nevertheless experienced
significant volatility over the period. The yield on the 10-year Treasury
reached a high of 4.6 percent in March and a low of 3.8 percent in June, ending
the period just 20 basis points higher than the start of the period. Yields on
short term instruments continued to rise, and the yield curve flattened
substantially over the period.
PERFORMANCE ANALYSIS
AT ITS APRIL 2005 MEETING, THE BOARD OF TRUSTEES OF THE FUND APPROVED A NAME
CHANGE FOR THE MORGAN STANLEY FUND OF FUNDS -- DOMESTIC PORTFOLIO TO THE MORGAN
STANLEY MULTI-ASSET CLASS FUND -- DOMESTIC PORTFOLIO.
2
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The Morgan Stanley Multi-Asset Class Fund -- Domestic Portfolio outperformed
both the S&P 500(R) Index and the Lipper FlexibLE Portfolio Funds Index for the
12 months ended September 30, 2005, assuming no deduction of applicable sales
charges. The Fund focused on several key themes, including the persistence of
small and mid-cap outperformance, rising interest rates, and strength in global
markets. The Fund adjusts its position within underlying style, size, and sector
funds in order to gain exposure to strategies associated with its themes and to
maximize total returns.
Relative to its peers and its benchmark, the Morgan Stanley Multi-Asset Class
Fund -- Domestic Portfolio held a significant position in underlying funds with
exposure to small and mid-cap stocks. Over the period, roughly 20 percent of the
Fund was comprised of the Morgan Stanley Special Growth Fund, the Morgan Stanley
Developing Growth Securities Trust and the Morgan Stanley Equally-Weighted S&P
500 Fund, all of which have a bias toward smaller-capitalization stocks. As the
Fed continued raising rates at a measured pace, the Fund gradually reduced its
weightings in both the Morgan Stanley Real Estate Fund and the Morgan Stanley
Financial Services Trust, which have primary exposure to interest rate-sensitive
sectors. Towards the end of the period, the Fund began increasing its allocation
to the Morgan Stanley Global Advantage Fund in order to capitalize on the strong
fundamentals and broad strength of international markets.
Other notable changes in the period included a reduction in exposure to health
care and biotechnology. Headline risk, modest product pipelines, and a
contrarian view on the sector contributed to the Fund's decision to trim its
allocation. The Fund took advantage of a buying opportunity late in the second
quarter of 2005 to raise its convertible securities allocation. Even with this
higher allocation to fixed income securities, the Multi-Asset Class Fund --
Domestic Portfolio continued to maintain a strong overweight position in
equities relative to bonds.
THERE IS NO GUARANTEE THAT ANY SECTORS MENTIONED WILL CONTINUE TO PERFORM WELL
OR THAT SECURITIES IN SUCH SECTORS WILL BE HELD BY THE FUND IN THE FUTURE.
TOP FIVE FUNDS
<Table>
Morgan Stanley S&P 500 Index Fund 11.4%
Morgan Stanley Equally-Weighted S&P 500 Fund 10.9
Morgan Stanley Value Fund 10.7
Morgan Stanley Information Fund 9.8
Morgan Stanley Dividend Growth Securities Inc. 8.7
</Table>
DATA AS OF SEPTEMBER 30, 2005. SUBJECT TO CHANGE DAILY. ALL PERCENTAGES FOR TOP
FIVE FUNDS ARE AS A PERCENTAGE OF NET ASSETS. THESE DATA ARE 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.
3
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INVESTMENT STRATEGY
THE MULTI-ASSET CLASS FUND -- DOMESTIC PORTFOLIO NORMALLY INVESTS AT LEAST 80
PERCENT OF ITS ASSETS IN SHARES OF THE UNDERLYING MORGAN STANLEY FUNDS INTENDED
TO GIVE THE FUND BROAD EXPOSURE TO THE EQUITY AND FIXED-INCOME MARKETS. AT ANY
TIME THE FUND'S "INVESTMENT ADVISER," MORGAN STANLEY INVESTMENT ADVISORS INC.,
MAY ADD OR SUBSTITUTE UNDERLYING FUNDS IN WHICH THE FUND MAY INVEST. IN DECIDING
HOW TO ALLOCATE THE FUND'S ASSETS AMONG THE SELECTED UNDERLYING FUNDS, THE
INVESTMENT ADVISER CONSIDERS ITS OUTLOOK FOR THE GLOBAL ECONOMY AND FINANCIAL
MARKETS, AND THE RELATIVE MARKET VALUATIONS OF THE UNDERLYING FUNDS. THE FUND
NORMALLY EXPECTS TO INVEST BETWEEN 50 PERCENT AND 100 PERCENT OF ITS NET ASSETS
IN UNDERLYING FUNDS WHICH INVEST PRIMARILY IN EQUITY SECURITIES AND BETWEEN 0
PERCENT AND 50 PERCENT OF ITS NET ASSETS IN UNDERLYING FUNDS WHICH INVEST
PRIMARILY IN FIXED-INCOME SECURITIES. THERE ARE NO MINIMUM OR MAXIMUM
PERCENTAGES IN WHICH THE FUND MUST INVEST IN ANY UNDERLYING FUND.
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 (800) SEC-0330. YOU CAN ALSO REQUEST COPIES OF THESE
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.
PROXY VOTING POLICY AND PROCEDURES AND PROXY VOTING RECORD
YOU MAY OBTAIN A COPY OF THE FUND'S PROXY VOTING POLICY AND PROCEDURES WITHOUT
CHARGE, UPON REQUEST, BY CALLING TOLL FREE (800) 869-NEWS OR BY VISITING THE
MUTUAL FUND CENTER ON OUR WEB SITE AT www.morganstanley.com. IT IS ALSO
AVAILABLE ON THE SECURITIES AND EXCHANGE COMMISSION'S WEB SITE AT
http://www.sec.gov.
YOU MAY OBTAIN INFORMATION REGARDING HOW THE FUND VOTED PROXIES RELATING TO
PORTFOLIO SECURITIES DURING THE MOST RECENT TWELVE-MONTH PERIOD ENDED JUNE 30 BY
VISITING THE MUTUAL FUND CENTER ON OUR WEB SITE AT www.morganstanley.com. THIS
INFORMATION IS ALSO AVAILABLE ON THE SECURITIES AND EXCHANGE COMMISSION'S WEB
SITE AT http://www.sec.gov.
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 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 A.M. TO 8:00 P.M., ET. ONCE OUR
CUSTOMER SERVICE CENTER HAS RECEIVED YOUR INSTRUCTIONS, WE WILL BEGIN SENDING
INDIVIDUAL COPIES FOR EACH ACCOUNT WITHIN 30 DAYS.
4
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(This page has been left blank intentionally.)
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PERFORMANCE SUMMARY
[CHART]
PERFORMANCE OF $10,000 INVESTMENT
($ IN THOUSANDS)
<Table>
<Caption>
CLASS A++ CLASS B++ CLASS C++ CLASS D++ S&P 500(R)(1) LIPPER(2)
Nov 25, 1997 $ 9,475 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000
Dec 31, 1997 $ 9,635 $ 10,169 $ 10,169 $ 10,169 $ 10,227 $ 10,179
Mar 31, 1998 $ 10,539 $ 11,113 $ 11,103 $ 11,134 $ 11,654 $ 11,098
Jun 30, 1998 $ 10,435 $ 10,973 $ 10,973 $ 11,023 $ 12,038 $ 11,269
Sep 30, 1998 $ 9,254 $ 9,717 $ 9,717 $ 9,787 $ 10,841 $ 10,457
Dec 31, 1998 $ 10,795 $ 11,309 $ 11,314 $ 11,424 $ 13,149 $ 11,860
Mar 31, 1999 $ 11,046 $ 11,551 $ 11,598 $ 11,699 $ 13,804 $ 12,048
Jun 30, 1999 $ 11,848 $ 12,371 $ 12,417 $ 12,559 $ 14,777 $ 12,539
Sep 30, 1999 $ 11,567 $ 12,045 $ 12,102 $ 12,262 $ 13,854 $ 12,072
Dec 31, 1999 $ 13,022 $ 13,537 $ 13,596 $ 13,809 $ 15,915 $ 13,025
Mar 31, 2000 $ 13,191 $ 13,689 $ 13,749 $ 14,000 $ 16,280 $ 13,347
Jun 30, 2000 $ 13,034 $ 13,502 $ 13,561 $ 13,833 $ 15,848 $ 13,162
Sep 30, 2000 $ 13,899 $ 14,368 $ 14,430 $ 14,762 $ 15,693 $ 13,359
Dec 31, 2000 $ 13,417 $ 13,837 $ 13,898 $ 14,250 $ 14,465 $ 12,941
Mar 31, 2001 $ 11,932 $ 12,285 $ 12,339 $ 12,686 $ 12,750 $ 11,879
Jun 30, 2001 $ 12,959 $ 13,324 $ 13,383 $ 13,790 $ 13,496 $ 12,380
Sep 30, 2001 $ 10,112 $ 10,374 $ 10,420 $ 10,767 $ 11,515 $ 11,141
Dec 31, 2001 $ 12,092 $ 12,380 $ 12,437 $ 12,876 $ 12,747 $ 12,008
Mar 31, 2002 $ 11,805 $ 12,072 $ 12,127 $ 12,584 $ 12,783 $ 12,007
Jun 30, 2002 $ 10,420 $ 10,633 $ 10,684 $ 11,122 $ 11,071 $ 10,972
Sep 30, 2002 $ 8,349 $ 8,502 $ 8,545 $ 8,916 $ 9,158 $ 9,684
Dec 31, 2002 $ 8,848 $ 9,002 $ 9,034 $ 9,461 $ 9,931 $ 10,242
Mar 31, 2003 $ 8,648 $ 8,771 $ 8,815 $ 9,249 $ 9,619 $ 10,030
Jun 30, 2003 $ 10,121 $ 10,248 $ 10,297 $ 10,830 $ 11,099 $ 11,239
Sep 30, 2003 $ 10,732 $ 10,839 $ 10,890 $ 11,481 $ 11,393 $ 11,533
Dec 31, 2003 $ 11,818 $ 11,930 $ 11,973 $ 12,664 $ 12,780 $ 12,601
Mar 31, 2004 $ 12,167 $ 12,251 $ 12,308 $ 13,036 $ 12,996 $ 12,899
Jun 30, 2004 $ 12,279 $ 12,341 $ 12,385 $ 13,155 $ 13,220 $ 12,885
Sep 30, 2004 $ 12,229 $ 12,264 $ 12,308 $ 13,116 $ 12,973 $ 12,804
Dec 31, 2004 $ 13,484 $ 13,493 $ 13,547 $ 14,472 $ 14,171 $ 13,798
Mar 31, 2005 $ 12,992 $ 12,978 $ 13,044 $ 13,961 $ 13,866 $ 13,588
Jun 30, 2005 $ 13,396 $ 13,351 $ 13,418 $ 14,392 $ 14,056 $ 13,748
Sep 30, 2005 $ 14,090 $ 14,020 $ 14,089 $ 15,159 $ 14,561 $ 14,393
</Table>
6
<Page>
AVERAGE ANNUAL TOTAL RETURNS--PERIOD ENDED SEPTEMBER 30, 2005
<Table>
<Caption>
CLASS A SHARES* CLASS B SHARES** CLASS C SHARES+ CLASS D SHARES^
(SINCE 11/25/97) (SINCE 11/25/97) (SINCE 11/25/97) (SINCE 11/25/97)
SYMBOL MAFAX MAFBX MAFCX MAFDX
1 YEAR 15.21%(3) 14.32%(3) 14.47%(3) 15.58%(3)
9.16(4) 9.32(4) 13.47(4) --
5 YEARS 0.27(3) (0.49)(3) (0.48)(3) 0.53(3)
(0.80)(4) (0.85)(4) (0.48)(4) --
SINCE INCEPTION 5.19(3) 4.40(3) 4.47(3) 5.44(3)
4.47(4) 4.40(4) 4.47(4) --
</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
www.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 than their original cost. The graph and table do not reflect the
deduction of taxes that a shareholder would pay on fund distributions or the
redemption of fund shares. Performance for Class A, Class B, Class C, and Class
D shares will vary due to differences in sales charges and expenses.
* THE MAXIMUM FRONT-END SALES CHARGE FOR CLASS A IS 5.25%.
** THE MAXIMUM CONTINGENT DEFERRED SALES CHARGE (CDSC) FOR CLASS B IS 5.0%.
THE CDSC DECLINES TO 0% AFTER SIX YEARS.
+ THE MAXIMUM CONTINGENT DEFERRED SALES CHARGE FOR CLASS C IS 1% FOR SHARES
REDEEMED WITHIN ONE YEAR OF PURCHASE.
^ CLASS D HAS NO SALES CHARGE.
(1) THE STANDARD & POOR'S 500 INDEX (S&P 500(R)) IS A BROAD-BASED INDEX, THE
PERFORMANCE OF WHICH IS BASED ON THE PERFORMANCE OF 500 WIDELY-HELD COMMON
STOCKS CHOSEN FOR MARKET SIZE, LIQUIDITY AND INDUSTRY GROUP REPRESENTATION.
INDEXES ARE UNMANAGED AND THEIR RETURNS DO NOT INCLUDE ANY SALES CHARGES OR
FEES. SUCH COSTS WOULD LOWER PERFORMANCE. IT IS NOT POSSIBLE TO INVEST
DIRECTLY IN AN INDEX.
(2) THE LIPPER FLEXIBLE PORTFOLIO FUNDS INDEX IS AN EQUALLY WEIGHTED
PERFORMANCE INDEX OF THE LARGEST QUALIFYING FUNDS (BASED ON NET ASSETS) IN
THE LIPPER FLEXIBLE PORTFOLIO FUNDS CLASSIFICATION. THE INDEX, WHICH IS
ADJUSTED FOR CAPITAL GAINS DISTRIBUTIONS AND INCOME DIVIDENDS, IS UNMANAGED
AND SHOULD NOT BE CONSIDERED AN INVESTMENT. THERE ARE CURRENTLY 30 FUNDS
REPRESENTED IN THIS INDEX.
(3) FIGURE SHOWN ASSUMES REINVESTMENT OF ALL DISTRIBUTIONS AND DOES NOT REFLECT
THE DEDUCTION OF ANY SALES CHARGES.
(4) FIGURE SHOWN ASSUMES REINVESTMENT OF ALL DISTRIBUTIONS AND THE DEDUCTION OF
THE MAXIMUM APPLICABLE SALES CHARGE. SEE THE FUND'S CURRENT PROSPECTUS FOR
COMPLETE DETAILS ON FEES AND SALES CHARGES.
++ ENDING VALUE ASSUMING A COMPLETE REDEMPTION ON SEPTEMBER 30, 2005.
7
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EXPENSE EXAMPLE
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, including sales charges (loads) on purchase payments and redemption fees;
and (2) ongoing costs, including 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 04/01/05 - 09/30/05.
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 and do not reflect any transactional costs, such as sales
charges (loads) and redemption fees. 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. In addition, if these transactional costs
were included, your costs would have been higher.
<Table>
<Caption>
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD *
------------- ------------- ---------------
04/01/05 -
04/01/05 09/30/05 09/30/05
------------- ------------- ---------------
CLASS A
Actual (8.45% return) $ 1,000.00 $ 1,084.50 $ 1.31
Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,023.82 $ 1.27
CLASS B
Actual (8.04% return) $ 1,000.00 $ 1,080.40 $ 5.22
Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,020.05 $ 5.06
CLASS C
Actual (8.01% return) $ 1,000.00 $ 1,080.10 $ 5.21
Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,020.05 $ 5.06
CLASS D
Actual (8.58% return) $ 1,000.00 $ 1,085.80 $ 0.00
Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,025.07 $ 0.00
</Table>
- ----------
* EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO OF 0.25%, 1.00%,
1.00% AND 0.00% FOR CLASS A, CLASS B, CLASS C AND CLASS D SHARES,
RESPECTIVELY, MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD,
MULTIPLIED BY 183/365 (TO REFLECT THE ONE-HALF YEAR PERIOD). IF THE FUND
HAD BORNE ALL OF ITS EXPENSES, THE EXPENSE RATIOS WOULD HAVE BEEN 0.79%,
1.54%, 1.54% AND 0.54% FOR CLASS A, CLASS B, CLASS C AND CLASS D SHARES,
RESPECTIVELY.
8
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INVESTMENT ADVISORY AGREEMENT APPROVAL
NATURE, EXTENT AND QUALITY OF SERVICES
The Board reviewed and considered the nature and extent of the investment
advisory services provided by the Investment Adviser under the Advisory
Agreement, including portfolio management, investment research and equity and
fixed income securities trading. The Board also reviewed and considered the
nature and extent of the non-advisory, administrative services provided by the
Fund's Administrator under the Administration Agreement, including accounting,
clerical, bookkeeping, compliance, business management and planning, and the
provision of supplies, office space and utilities. (The Investment Adviser and
the Administrator together are referred to as the "Adviser" and the Advisory and
Administration Agreements together are referred to as the "Management
Agreement.") The Board also compared the nature of the services provided by the
Adviser with similar services provided by non-affiliated advisers as reported to
the Board by Lipper Inc. ("Lipper").
The Board reviewed and considered the qualifications of the portfolio managers,
the senior administrative managers and other key personnel of the Adviser who
provide the administrative and investment advisory services to the Fund. The
Board determined that the Adviser's portfolio managers and key personnel are
well qualified by education and/or training and experience to perform the
services in an efficient and professional manner. The Board concluded that the
nature and extent of the advisory and administrative services provided were
necessary and appropriate for the conduct of the business and investment
activities of the Fund. The Board also concluded that the overall quality of the
advisory and administrative services was satisfactory.
PERFORMANCE RELATIVE TO COMPARABLE FUNDS MANAGED BY OTHER ADVISERS
The Board reviewed the Fund's performance for the one-, three- and five-year
periods ended November 30, 2004, as shown in reports provided by Lipper (the
"Lipper Reports"), compared to the performance of comparable funds selected by
Lipper (the "performance peer group"), and noted that the Fund's performance was
lower than its performance peer group average for the three- and five-year
periods, but better for the one-year period. The Board discussed with the
Adviser the reasons for the improvement. The Board concluded that the overall
performance was satisfactory in view of the improvement during the most recent
year.
FEES AND EXPENSES RELATIVE TO COMPARABLE FUNDS MANAGED BY OTHER ADVISERS
The Board reviewed the advisory and administrative fees (together, the
"management fee") paid by the Fund under the Management Agreement and the total
expense ratio of the Fund. The Board noted that the Fund was not paying any
management fee and did not incur expenses, other than brokerage and 12b-1 fees,
during the periods measured in the Lipper Report since the Adviser had agreed to
waive all fees and assume all expenses, excluding brokerage and 12b-1 fees,
until April 30, 2006. The Board concluded that the management fee arrangement at
this time was satisfactory.
9
<Page>
BREAKPOINTS AND ECONOMIES OF SCALE
The Board reviewed the structure of the Fund's management fee schedule under the
Management Agreement and noted that it does not include any breakpoints. The
Board considered that the Fund's assets were small. The Board concluded that it
would be premature to consider economies of scale as a factor in approving the
Management Agreement.
PROFITABILITY OF ADVISER AND AFFILIATES
The Board considered and reviewed information concerning the costs incurred and
profits realized by the Adviser and its affiliates during the last two years
from their relationship with the Fund and the Morgan Stanley Fund Complex and
reviewed with the Controller of the Adviser the cost allocation methodology used
to determine the Adviser's profitability. Based on their review of the
information they received, the Board concluded that the Adviser made no profit
from its operation of the Fund.
FALL-OUT BENEFITS
The Board considered so-called "fall-out benefits" derived by the Adviser and
its affiliates from their relationship with the Fund and the Morgan Stanley Fund
Complex, such as "float" benefits derived from handling of checks for purchases
and redemptions of Fund shares through a broker-dealer affiliate of the Adviser
and "soft dollar" benefits (discussed in the next section). The Board also
considered that a broker-dealer affiliate of the Adviser receives from the Fund
12b-1 fees for distribution and shareholder services. The Board also considered
that an affiliate of the Adviser, through a joint venture, receives revenue in
connection with trading done on behalf of the Fund through an electronic trading
system network ("ECN"). The Board concluded that the float benefits and the
above-referenced ECN-related revenue were relatively small and that the 12b-1
fees were competitive with those of other broker-dealer affiliates of investment
advisers of mutual funds.
SOFT DOLLAR BENEFITS
The Board considered whether the Adviser realizes any benefits as a result of
brokerage transactions executed through "soft dollar" arrangements. Under such
arrangements, brokerage commissions paid by the Fund and/or other funds managed
by the Adviser would be used to pay for research that a securities broker
obtains from third parties, or to pay for both research and execution services
from securities brokers who effect transactions for the Fund. The Adviser
informed the Board that it does not use Fund commissions to pay for third party
research. It does use commissions to pay for research which is bundled with
execution services. The Board recognized that the receipt of such research from
brokers may reduce the Adviser's costs but concluded that the receipt of such
research strengthens the investment management resources of the Adviser, which
may ultimately benefit the Fund and other funds in the Fund Complex.
10
<Page>
ADVISER FINANCIALLY SOUND AND FINANCIALLY CAPABLE OF MEETING THE PORTFOLIO'S
NEEDS
The Board considered whether the Adviser is financially sound and has the
resources necessary to perform its #obligations under the Management Agreement.
The Board noted that the Adviser's operations remain profitable, although
increased expenses in recent years have reduced the Adviser's profitability. The
Board concluded that the Adviser has the financial resources necessary to
fulfill its obligations under the Management Agreement.
HISTORICAL RELATIONSHIP BETWEEN THE FUND AND THE ADVISER
The Board also reviewed and considered the historical relationship between the
Fund and the Adviser, including the organizational structure of the Adviser, the
policies and procedures formulated and adopted by the Adviser for managing the
Fund's operations and the Board's confidence in the competence and integrity of
the senior managers and key personnel of the Adviser. The Board concluded that
it is beneficial for the Fund to continue its relationship with the Adviser.
OTHER FACTORS AND CURRENT TRENDS
The Board considered the controls and procedures adopted and implemented by the
Adviser and monitored by the Fund's Chief Compliance Officer and concluded that
the conduct of business by the Adviser indicates a good faith effort on its part
to adhere to high ethical standards in the conduct of the Fund's business.
GENERAL CONCLUSION
After considering and weighing all of the above factors, the Board concluded it
would be in the best interest of the Fund and its shareholders to approve
renewal of the Management Agreement for another year.
11
<Page>
MORGAN STANLEY MULTI-ASSET CLASS FUND -- DOMESTIC PORTFOLIO
PORTFOLIO OF INVESTMENT - SEPTEMBER 30, 2005
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------
COMMON STOCKS (99.4%)
INVESTMENT TRUSTS/MUTUAL FUNDS (99.4%)
70,187 Morgan Stanley Aggressive Equity Fund* $ 774,166
27,594 Morgan Stanley Biotechnology Fund* 453,106
76,521 Morgan Stanley Capital Opportunities Trust* 1,329,931
120,314 Morgan Stanley Convertible Securities Trust 1,980,364
101,835 Morgan Stanley Developing Growth Securities Trust* 2,622,257
95,998 Morgan Stanley Dividend Growth Securities Inc. 3,434,798
108,791 Morgan Stanley Equally-Weighted S&P 500 Fund 4,304,860
33,589 Morgan Stanley Financial Services Trust* 496,457
210,550 Morgan Stanley Global Advantage Fund* 1,903,380
143,422 Morgan Stanley Growth Fund* 2,000,740
22,065 Morgan Stanley Health Sciences Trust* 429,821
99,940 Morgan Stanley Income Builder Fund 1,173,295
367,472 Morgan Stanley Information Fund* 3,836,404
103,110 Morgan Stanley Nasdaq-100 Index Fund* 948,613
29,970 Morgan Stanley Natural Resource Development Securities Inc.* 800,810
52,529 Morgan Stanley Real Estate Fund 997,005
332,652 Morgan Stanley S&P 500 Index Fund 4,494,129
92,204 Morgan Stanley Special Growth Fund* 1,766,622
85,658 Morgan Stanley U. S. Government Securities Trust 780,342
22,220 Morgan Stanley Utilities Fund 351,738
313,923 Morgan Stanley Value Fund 4,219,123
------------
TOTAL COMMON STOCKS (COST $32,082,977) 39,097,961
------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
12
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENT (1.0%)
REPURCHASE AGREEMENT
$ 386 Joint repurchase agreement account 3.825% due 10/03/05
(dated 09/30/05; proceeds $386,123) (a) (COST $386,000) $ 386,000
------------
TOTAL INVESTMENTS (COST $32,468,977) (b) 100.4% 39,483,961
LIABILITIES IN EXCESS OF OTHER ASSETS (0.4) (147,268)
----- ------------
NET ASSETS 100.0% $ 39,336,693
===== ============
</Table>
- ----------
* NON-INCOME PRODUCING SECURITY.
(a) COLLATERALIZED BY FEDERAL AGENCY AND U.S. TREASURY OBLIGATIONS.
(b) THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES IS $32,768,367. THE
AGGREGATE GROSS UNREALIZED APPRECIATION IS $7,171,495 AND THE AGGREGATE
GROSS UNREALIZED DEPRECIATION IS $455,901, RESULTING IN NET UNREALIZED
APPRECIATION OF $6,715,594.
SEE NOTES TO FINANCIAL STATEMENTS
13
<Page>
MORGAN STANLEY MULTI-ASSET CLASS FUND -- DOMESTIC PORTFOLIO
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 2005
<Table>
ASSETS:
Investments in securities, at value
(cost $32,468,977) $ 39,483,961
Cash 43,303
Receivable for:
Investments sold 946,680
Shares of beneficial interest sold 18,822
Prepaid expenses and other assets 26,980
Receivable from affiliate 1,788
--------------
TOTAL ASSETS 40,521,534
--------------
LIABILITIES:
Payable for:
Investments purchased 1,096,552
Shares of beneficial interest redeemed 33,158
Distribution fee 26,581
Transfer agent fee 6,022
Accrued expenses and other payables 22,528
--------------
TOTAL LIABILITIES 1,184,841
--------------
NET ASSETS $ 39,336,693
==============
COMPOSITION OF NET ASSETS:
Paid-in-capital $ 38,186,730
Net unrealized appreciation 7,014,984
Accumulated undistributed net
investment income 150,642
Accumulated net realized loss (6,015,663)
--------------
NET ASSETS $ 39,336,693
==============
CLASS A SHARES:
Net Assets $ 8,462,109
Shares Outstanding (UNLIMITED
AUTHORIZED, $.01 PAR VALUE) 757,581
NET ASSET VALUE PER SHARE $ 11.17
==============
MAXIMUM OFFERING PRICE PER SHARE,
(NET ASSET VALUE PLUS 5.54% OF NET
ASSET VALUE) $ 11.79
==============
CLASS B SHARES:
Net Assets $ 25,735,733
Shares Outstanding (UNLIMITED
AUTHORIZED, $.01 PAR VALUE) 2,362,237
NET ASSET VALUE PER SHARE $ 10.89
==============
CLASS C SHARES:
Net Assets $ 4,446,741
Shares Outstanding (UNLIMITED
AUTHORIZED, $.01 PAR VALUE) 407,123
NET ASSET VALUE PER SHARE $ 10.92
==============
CLASS D SHARES:
Net Assets $ 692,110
Shares Outstanding (UNLIMITED
AUTHORIZED, $.01 PAR VALUE) 61,477
NET ASSET VALUE PER SHARE $ 11.26
==============
</Table>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 2005
<Table>
NET INVESTMENT INCOME:
INCOME
Dividends $ 618,936
Interest 7,167
--------------
TOTAL INCOME 626,103
--------------
EXPENSES
Distribution fee (Class A shares) 11,585
Distribution fee (Class B shares) 302,207
Distribution fee (Class C shares) 41,916
Shareholder reports and notices 74,573
Transfer agent fees and expenses 67,633
Professional fees 55,223
Registration fees 42,522
Custodian fees 3,395
Other 7,857
--------------
TOTAL EXPENSES 606,911
Less: amounts waived/reimbursed (251,203)
--------------
NET EXPENSES 355,708
--------------
NET INVESTMENT INCOME 270,395
--------------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain 550,516
Capital gain distributions received 786,304
--------------
NET REALIZED GAIN 1,336,820
--------------
NET CHANGE IN UNREALIZED APPRECIATION 3,753,230
--------------
NET GAIN 5,090,050
--------------
NET INCREASE $ 5,360,445
==============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
14
<Page>
STATEMENT OF CHANGES IN NET ASSETS
<Table>
<Caption>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
SEPTEMBER 30, 2005 SEPTEMBER 30, 2004
------------------ ------------------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income $ 270,395 $ 822
Net realized gain 1,336,820 1,902,121
Net change in unrealized appreciation 3,753,230 1,748,826
-------------- --------------
NET INCREASE 5,360,445 3,651,769
-------------- --------------
DIVIDENDS TO SHAREHOLDERS FROM NET INVESTMENT INCOME:
Class A shares (22,825) --
Class B shares (87,702) --
Class C shares (4,678) --
Class D shares (4,548) --
-------------- --------------
TOTAL DIVIDENDS (119,753) --
-------------- --------------
Net increase (decrease) from transactions in shares of beneficial interest (4,766,662) 9,823,966
-------------- --------------
NET INCREASE 474,030 13,475,735
NET ASSETS:
Beginning of period 38,862,663 25,386,928
-------------- --------------
END OF PERIOD
(INCLUDING ACCUMULATED UNDISTRIBUTED NET INVESTMENT INCOME OF
$150,642 AND $822, RESPECTIVELY) $ 39,336,693 $ 38,862,663
============== ==============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
15
<Page>
MORGAN STANLEY MULTI-ASSET CLASS FUND -- DOMESTIC PORTFOLIO
NOTES TO FINANCIAL STATEMENTS - SEPTEMBER 30, 2005
1. ORGANIZATION AND ACCOUNTING POLICIES
Morgan Stanley Multi-Asset Class Fund -- Domestic Portfolio (the "Fund"),
formerly Morgan Stanley Fund of Funds -- Domestic Portfolio, (the Fund's name
changed effective August 1, 2005) is registered under the Investment Company Act
of 1940, as amended (the "Act"), as a non-diversified, open-end management
investment company. The Fund will invest in Class D shares of other open-end
management investment companies that are either members of the Morgan Stanley
Family of Funds or managed by an investment advisor that is an affiliate of
Morgan Stanley Investment Advisors, Inc. (the "Investment Adviser")
(individually, an "Underlying Fund" and collectively, the "Underlying Funds").
The Fund's investment objective is to maximize total investment return. The Fund
was organized as a Massachusetts business trust on July 3, 1997 and commenced
operations on November 25, 1997.
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 eighteen
months, 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) Investments are valued at the net asset value
per share of each Underlying Fund determined as of the close of the New York
Stock Exchange on valuation date; and (2) 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 Adviser, 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.
16
<Page>
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. 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.
F. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- Dividends and distributions to
shareholders are recorded on the ex-dividend date.
G. 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 ADVISORY/ADMINISTRATION AGREEMENTS
Pursuant to an Investment Advisory Agreement, the Fund pays no investment
advisory fee. However, the Fund, through its investments in the Underlying
Funds, will pay its pro rata share of the advisory or sub-advisory fees to the
Investment Adviser and/or Sub-Advisers or Adviser of the Underlying Funds.
Effective November 1, 2004, pursuant to an Administration Agreement with Morgan
Stanley Services Company Inc. (the "Administrator"), an affiliate of the
Investment Adviser, the Fund pays no administration fee. However, the Fund
through its investments in the Underlying Funds, will pay its pro rata share of
the administration fee to the Administrator.
The Investment Adviser agreed to assume all operating expenses (except for
brokerage and 12b-1 fees) until April 30, 2006. At September 30, 2005, included
in the Statements of Assets and Liabilities is a receivable from an affiliate
which represent expense reimbursements due to the Fund.
3. PLAN OF DISTRIBUTION
Shares of the Fund are distributed by Morgan Stanley Distributors Inc. (the
"Distributor"), an affiliate of the Investment Adviser and Administrator. 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.
17
<Page>
In the case of Class B shares, provided that the Plan continues in effect, any
cumulative expenses incurred by the Distributor but not yet recovered may be
recovered through the payment of future distribution fees from the Fund pursuant
to the Plan and contingent deferred sales charges paid by investors upon
redemption of Class B shares. Although there is no legal obligation for the Fund
to pay expenses incurred in excess of payments made to the Distributor under the
Plan and the proceeds of contingent deferred sales charges paid by investors
upon redemption of shares, if for any reason the Plan is terminated, the
Trustees will consider at that time the manner in which to treat such expenses.
The Distributor has advised the Fund that such excess amounts totaled $3,710,889
at September 30, 2005.
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 September 30, 2005, the distribution fee was accrued for
Class A shares and Class C shares at the annual rate of 0.24% and 0.95%,
respectively.
The Distributor has informed the Fund that for the year ended September 30,
2005, it received contingent deferred sales charges from certain redemptions of
the Fund's Class B shares and Class C shares of $58,351 and $1,286, respectively
and received $18,218 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 September 30, 2005 aggregated
$4,749,637 and $8,647,272, respectively.
Morgan Stanley Trust, an affiliate of the Investment Adviser, Administrator and
Distributor, is the Fund's transfer agent.
The Fund has 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 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.
18
<Page>
5. SHARES OF BENEFICIAL INTEREST
<Table>
<Caption>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
SEPTEMBER 30, 2005 SEPTEMBER 30, 2004
-------------------------------- --------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------- -------------- -------------- --------------
CLASS A SHARES
Sold 80,674 $ 857,579 169,650 $ 1,603,045
Conversion from Class B 587,622 5,936,471 -- --
Reinvestment of dividends 2,046 21,874 -- --
Redeemed (106,287) (1,136,265) (79,710) (761,520)
-------------- -------------- -------------- --------------
Net increase -- Class A 564,055 5,679,659 89,940 841,525
-------------- -------------- -------------- --------------
CLASS B SHARES
Sold 459,041 4,661,249 1,660,602 15,444,499
Conversion to Class A (600,804) (5,936,471) -- --
Reinvestment of dividends 7,564 79,269 -- --
Redeemed (887,262) (9,055,258) (859,474) (7,998,992)
-------------- -------------- -------------- --------------
Net increase (decrease) -- Class B (1,021,461) (10,251,211) 801,128 7,445,507
-------------- -------------- -------------- --------------
CLASS C SHARES
Sold 95,068 965,554 279,197 2,567,087
Reinvestment of dividends 395 4,148 -- --
Redeemed (139,876) (1,438,752) (138,060) (1,293,226)
-------------- -------------- -------------- --------------
Net increase (decrease) -- Class C (44,413) (469,050) 141,137 1,273,861
-------------- -------------- -------------- --------------
CLASS D SHARES
Sold 40,412 417,085 49,710 482,507
Reinvestment of dividends 399 4,293 -- --
Redeemed (14,137) (147,438) (23,014) (219,434)
-------------- -------------- -------------- --------------
Net increase -- Class D 26,674 273,940 26,696 263,073
-------------- -------------- -------------- --------------
Net increase (decrease) in Fund (475,145) $ (4,766,662) 1,058,901 $ 9,823,966
============== ============== ============== ==============
</Table>
6. 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.
19
<Page>
The tax character of distributions paid was as follows:
<Table>
<Caption>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
SEPTEMBER 30, 2005 SEPTEMBER 30, 2004
------------------ ------------------
Ordinary income $ 119,753 --
================== ==================
</Table>
As of September 30, 2005, the tax-basis components of accumulated earnings were
as follows:
<Table>
Undistributed ordinary income $ 150,642
Undistributed long-term gains --
------------
Net accumulated earnings 150,642
Capital loss carryforward* (5,716,273)
Net unrealized appreciation 6,715,594
------------
Total accumulated earnings $ 1,149,963
============
</Table>
*During the year ended September 30, 2005, the Fund utilized $1,336,820 of its
net capital loss carryforward. As of September 30, 2005, the Fund had a net
capital loss carryforward of $5,716,273 which will expire on September 30, 2011
to offset future capital gains to the extent provided by regulations.
As of September 30, 2005, the Fund had temporary book/tax differences
attributable to capital loss deferrals on wash sales and permanent book/tax
differences primarily attributable to recharacterization of distributions
received from an Underlying Fund. To reflect reclassifications arising from the
permanent differences, paid-in-capital was charged $1,219, accumulated
undistributed net investment income was charged $822 and accumulated net
realized loss was credited $2,041.
7. LEGAL MATTERS
The Investment Adviser, certain affiliates of the Investment Adviser, certain
officers of such affiliates and certain investment companies advised by the
Investment Adviser or its affiliates, including the Fund, are named as
defendants in a consolidated class action. This consolidated action also names
as defendants certain individual Trustees and Directors of the Morgan Stanley
funds. The consolidated amended complaint, filed in the United States District
Court Southern District of New York on April 16, 2004, generally alleges that
defendants, including the Fund, violated their statutory disclosure obligations
and fiduciary duties by failing properly to disclose (i) that the Investment
Adviser and certain affiliates of the Investment Adviser allegedly offered
economic incentives to brokers and others to recommend the funds advised by the
Investment Adviser or its affiliates to investors rather than funds managed by
other companies, and (ii) that the funds advised by the Investment Adviser 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
20
<Page>
compensatory damages, rescissionary damages, fees and costs. The defendants have
moved to dismiss the action and intend to otherwise vigorously defend it. On
March 9, 2005, Plaintiffs sought leave to supplement their complaint to assert
claims on behalf of other investors. While the Fund and Adviser believe that
each 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 MULTI-ASSET CLASS FUND -- DOMESTIC PORTFOLIO
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<Table>
<Caption>
FOR THE YEAR ENDED SEPTEMBER 30,
--------------------------------------------------------------------
2005 2004 2003 2002 2001
---------- ---------- ---------- ---------- ----------
CLASS A SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period $ 9.80 $ 8.60 $ 6.69 $ 8.17 $ 12.37
---------- ---------- ---------- ---------- ----------
Income (loss) from investment operations:
Net investment income++ 0.14 0.06 0.01 0.05 0.11
Net realized and unrealized gain (loss) 1.35 1.14 1.90 (1.45) (3.21)
---------- ---------- ---------- ---------- ----------
Total income (loss) from investment operations 1.49 1.20 1.91 (1.40) (3.10)
---------- ---------- ---------- ---------- ----------
Less dividends and distributions from:
Net investment income (0.12) - - (0.08) (0.31)
Net realized gain - - - - (0.79)
---------- ---------- ---------- ---------- ----------
Total dividends and distributions (0.12) - - (0.08) (1.10)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 11.17 $ 9.80 $ 8.60 $ 6.69 $ 8.17
========== ========== ========== ========== ==========
TOTAL RETURN+ 15.21% 13.95% 28.55% (17.44)% (27.24)%
RATIOS TO AVERAGE NET ASSETS(1)(2)(3):
Expenses 0.24% 0.24% 0.23% 0.24% 0.23%
Net investment income 1.33% 0.72% 0.16% 0.50% 0.91%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands $ 8,462 $ 1,896 $ 890 $ 846 $ 976
Portfolio turnover rate 12% 46% 87% 163% 177%
</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) DOES NOT INCLUDE ANY EXPENSES INCURRED AS A RESULT OF INVESTMENT IN THE
UNDERLYING FUNDS.
(2) REFLECTS OVERALL FUND RATIOS FOR INVESTMENT INCOME AND NON-CLASS SPECIFIC
EXPENSES.
(3) IF THE FUND HAD BORNE ALL OF ITS EXPENSES THAT WERE REIMBURSED OR WAIVED BY
THE INVESTMENT ADVISER, THE ANNUALIZED EXPENSE AND NET INVESTMENT INCOME
(LOSS) RATIOS WOULD HAVE BEEN AS FOLLOWS:
<Table>
<Caption>
EXPENSE NET INVESTMENT
PERIOD ENDED: RATIO INCOME (LOSS) RATIO
------------------ ------- -------------------
SEPTEMBER 30, 2005 0.87% 0.70%
SEPTEMBER 30, 2004 0.64 0.32
SEPTEMBER 30, 2003 0.67 (0.28)
SEPTEMBER 30, 2002 0.63 0.11
SEPTEMBER 30, 2001 0.57 0.57
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
22
<Page>
<Table>
<Caption>
FOR THE YEAR ENDED SEPTEMBER 30,
--------------------------------------------------------------------
2005 2004 2003 2002 2001
---------- ---------- ---------- ---------- ----------
CLASS B SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period $ 9.55 $ 8.44 $ 6.62 $ 8.09 $ 12.28
---------- ---------- ---------- ---------- ----------
Income (loss) from investment operations:
Net investment income (loss)++ 0.07 0.00 (0.05) (0.02) 0.01
Net realized and unrealized gain (loss) 1.30 1.11 1.87 (1.44) (3.16)
---------- ---------- ---------- ---------- ----------
Total income (loss) from investment operations 1.37 1.11 1.82 (1.46) (3.15)
---------- ---------- ---------- ---------- ----------
Less dividends and distributions from:
Net investment income (0.03) - - (0.01) (0.25)
Net realized gain - - - - (0.79)
---------- ---------- ---------- ---------- ----------
Total dividends and distributions (0.03) - - (0.01) (1.04)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 10.89 $ 9.55 $ 8.44 $ 6.62 $ 8.09
========== ========== ========== ========== ==========
TOTAL RETURN+ 14.32% 13.15% 27.49% (18.05)% (27.79)%
RATIOS TO AVERAGE NET ASSETS(1)(2)(3):
Expenses 1.00% 1.00% 1.00% 1.00% 1.00%
Net investment income (loss) 0.57% (0.04)% (0.61)% (0.26)% 0.14%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands $ 25,736 $ 32,309 $ 21,804 $ 18,474 $ 26,364
Portfolio turnover rate 12% 46% 87% 163% 177%
</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) DOES NOT INCLUDE ANY EXPENSES INCURRED AS A RESULT OF INVESTMENT IN THE
UNDERLYING FUNDS.
(2) REFLECTS OVERALL FUND RATIOS FOR INVESTMENT INCOME AND NON-CLASS SPECIFIC
EXPENSES.
(3) IF THE FUND HAD BORNE ALL OF ITS EXPENSES THAT WERE REIMBURSED OR WAIVED BY
THE INVESTMENT ADVISER, THE ANNUALIZED EXPENSE AND NET INVESTMENT LOSS
RATIOS WOULD HAVE BEEN AS FOLLOWS:
<Table>
<Caption>
EXPENSE NET INVESTMENT
PERIOD ENDED: RATIO LOSS RATIO
------------------ ------- --------------
SEPTEMBER 30, 2005 1.63% (0.06)%
SEPTEMBER 30, 2004 1.40 (0.44)
SEPTEMBER 30, 2003 1.44 (1.05)
SEPTEMBER 30, 2002 1.39 (0.65)
SEPTEMBER 30, 2001 1.34 (0.20)
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
23
<Page>
<Table>
<Caption>
FOR THE YEAR ENDED SEPTEMBER 30,
--------------------------------------------------------------------
2005 2004 2003 2002 2001
---------- ---------- ---------- ---------- ----------
CLASS C SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period $ 9.55 $ 8.45 $ 6.63 $ 8.08 $ 12.29
---------- ---------- ---------- ---------- ----------
Income (loss) from investment operations:
Net investment income (loss)++ 0.06 0.00 (0.05) (0.02) 0.01
Net realized and unrealized gain (loss) 1.32 1.10 1.87 (1.42) (3.17)
---------- ---------- ---------- ---------- ----------
Total income (loss) from investment operations 1.38 1.10 1.82 (1.44) (3.16)
---------- ---------- ---------- ---------- ----------
Less dividends and distributions from:
Net investment income (0.01) - - (0.01) (0.26)
Net realized gain - - - - (0.79)
---------- ---------- ---------- ---------- ----------
Total dividends and distributions (0.01) - - (0.01) (1.05)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 10.92 $ 9.55 $ 8.45 $ 6.63 $ 8.08
========== ========== ========== ========== ==========
TOTAL RETURN+ 14.47% 13.02% 27.45% (18.00)% (27.79)%
RATIOS TO AVERAGE NET ASSETS(1)(2)(3):
Expenses 0.95% 1.00% 1.00% 1.00% 1.00%
Net investment income (loss) 0.62% (0.04)% (0.61)% (0.26)% 0.14%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands $ 4,447 $ 4,314 $ 2,623 $ 2,218 $ 2,643
Portfolio turnover rate 12% 46% 87% 163% 177%
</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) DOES NOT INCLUDE ANY EXPENSES INCURRED AS A RESULT OF INVESTMENT IN THE
UNDERLYING FUNDS.
(2) REFLECTS OVERALL FUND RATIOS FOR INVESTMENT INCOME AND NON-CLASS SPECIFIC
EXPENSES.
(3) IF THE FUND HAD BORNE ALL OF ITS EXPENSES THAT WERE REIMBURSED OR WAIVED BY
THE INVESTMENT ADVISER, THE ANNUALIZED EXPENSE AND NET INVESTMENT LOSS
RATIOS WOULD HAVE BEEN AS FOLLOWS:
<Table>
<Caption>
EXPENSE NET INVESTMENT
PERIOD ENDED: RATIO LOSS RATIO
------------------ ------- --------------
SEPTEMBER 30, 2005 1.58% (0.01)%
SEPTEMBER 30, 2004 1.40 (0.44)
SEPTEMBER 30, 2003 1.44 (1.05)
SEPTEMBER 30, 2002 1.39 (0.65)
SEPTEMBER 30, 2001 1.34 (0.20)
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
24
<Page>
<Table>
<Caption>
FOR THE YEAR ENDED SEPTEMBER 30,
--------------------------------------------------------------------
2005 2004 2003 2002 2001
---------- ---------- ---------- ---------- ----------
CLASS D SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period $ 9.87 $ 8.64 $ 6.71 $ 8.19 $ 12.39
---------- ---------- ---------- ---------- ----------
Income (loss) from investment operations:
Net investment income++ 0.15 0.09 0.03 0.07 0.13
Net realized and unrealized gain (loss) 1.38 1.14 1.90 (1.45) (3.21)
---------- ---------- ---------- ---------- ----------
Total income (loss) from investment operations 1.53 1.23 1.93 (1.38) (3.08)
---------- ---------- ---------- ---------- ----------
Less dividends and distributions from:
Net investment income (0.14) - - (0.10) (0.33)
Net realized gain - - - - (0.79)
---------- ---------- ---------- ---------- ----------
Total dividends and distributions (0.14) - - (0.10) (1.12)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 11.26 $ 9.87 $ 8.64 $ 6.71 $ 8.19
========== ========== ========== ========== ==========
TOTAL RETURN+ 15.58% 14.24% 28.76% (17.18)% (27.07)%
RATIOS TO AVERAGE NET ASSETS(1)(2)(3):
Expenses -% -% -% -% -%
Net investment income 1.57% 0.96% 0.39% 0.74% 1.14%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands $ 692 $ 344 $ 70 $ 100 $ 93
Portfolio turnover rate 12% 46% 87% 163% 177%
</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) DOES NOT INCLUDE ANY EXPENSES INCURRED AS A RESULT OF INVESTMENT IN THE
UNDERLYING FUNDS.
(2) REFLECTS OVERALL FUND RATIOS FOR INVESTMENT INCOME AND NON-CLASS SPECIFIC
EXPENSES.
(3) IF THE FUND HAD BORNE ALL OF ITS EXPENSES THAT WERE REIMBURSED OR WAIVED BY
THE INVESTMENT ADVISER, THE ANNUALIZED EXPENSE AND NET INVESTMENT INCOME
(LOSS) RATIOS WOULD HAVE BEEN AS FOLLOWS:
<Table>
<Caption>
EXPENSE NET INVESTMENT
PERIOD ENDED: RATIO INCOME (LOSS) RATIO
------------------ ------- -------------------
SEPTEMBER 30, 2005 0.63% 0.94%
SEPTEMBER 30, 2004 0.40 0.56
SEPTEMBER 30, 2003 0.44 (0.05)
SEPTEMBER 30, 2002 0.39 0.35
SEPTEMBER 30, 2001 0.34 0.80
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
25
<Page>
MORGAN STANLEY MULTI-ASSET CLASS FUND -- DOMESTIC PORTFOLIO
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE SHAREHOLDERS AND BOARD OF
TRUSTEES OF MORGAN STANLEY MULTI-ASSET CLASS FUND -- DOMESTIC PORTFOLIO:
We have audited the accompanying statement of assets and liabilities of Morgan
Stanley Multi-Asset Class Fund -- Domestic Portfolio, formerly Morgan Stanley
Fund of Funds -- Domestic Portfolio (the "Fund"), including the portfolio of
investments, as of September 30, 2005, 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 five years
in the 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. The Fund
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Fund's internal control over
financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. Our procedures included confirmation
of securities owned as of September 30, 2005, by correspondence with the
custodian and brokers. 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 Multi-Asset Class Fund -- Domestic Portfolio as of September 30, 2005,
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 five years in the period then ended, in conformity
with accounting principles generally accepted in the United States of America.
Deloitte & Touche LLP
NEW YORK, NEW YORK
NOVEMBER 21, 2005
26
<Page>
MORGAN STANLEY MULTI-ASSET CLASS FUND -- DOMESTIC PORTFOLIO
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 OTHER DIRECTORSHIPS
INDEPENDENT TRUSTEE REGISTRANT TIME SERVED* DURING PAST 5 YEARS** BY TRUSTEE*** HELD BY TRUSTEE
- --------------------------------------- ----------- ------------ ----------------------- ------------- ------------------------
Michael Bozic (64) Trustee Since Private Investor; 197 Director of various
c/o Kramer Levin Naftalis & Frankel LLP April 1994 Director or Trustee of business organizations.
Counsel to the Independent Trustees the Retail Funds (since
1177 Avenue of the Americas April 1994) and the
New York, NY 10036 Institutional Funds
(since 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 (73) Trustee Since Consultant; Director or 197 Director of Franklin
1031 N. Chartwell Court January 1993 Trustee of the Retail Covey (time management
Salt Lake City, UT 84103 Funds (since systems), BMW Bank of
January 1993) and the North America, Inc.
Institutional Funds (industrial loan
(since July 2003); corporation), Escrow
member of the Utah Bank USA (industrial
Regional Advisory Board loan corporation),
of Pacific Corp. United Space Alliance
(utility company); (joint venture between
formerly Managing Lockheed Martin and the
Director of Summit Boeing Company) and
Ventures LLC Nuskin Asia Pacific
(2000-2004) (lobbying (multilevel marketing);
and consulting firm); member of the board of
United States Senator various civic and
(R-Utah) (1974-1992) charitable
and Chairman, Senate organizations.
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 (71) Trustee Since Retired; Director or 197 Director of The PMI
c/o Kramer Levin Naftalis & Frankel LLP September Trustee of the Retail Group Inc. (private
Counsel to the Independent Trustees 1997 Funds (since mortgage insurance);
1177 Avenue of the Americas September 1997) and the Trustee and Vice
New York, NY 10036 Institutional Funds Chairman of The Field
(since July 2003); Museum of Natural
formerly associated History; director of
with the Allstate various other business
Companies (1966-1994), and charitable
most recently as organizations.
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 OTHER DIRECTORSHIPS
INDEPENDENT TRUSTEE REGISTRANT TIME SERVED* DURING PAST 5 YEARS** BY TRUSTEE*** HELD BY TRUSTEE
- --------------------------------------- ----------- ------------ ----------------------- ------------- ------------------------
Dr. Manuel H. Johnson (56) Trustee Since Senior Partner, Johnson 197 Director of NVR, Inc.
c/o Johnson Smick Group, Inc. July 1991 Smick International, (home construction);
888 16th Street, NW Inc., a consulting Director of KFX Energy;
Suite 740 firm; Chairman of the Director of RBS
Washington, D.C. 20006 Audit Committee and Greenwich Capital
Director or Trustee of Holdings (financial
the Retail Funds (since holding company).
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 (63) Trustee Since President, Kearns& 198 Director of Electro Rent
c/o Kearns & Associates LLC July 2003 Associates LLC Corporation (equipment
PMB754 (investment leasing), The Ford
23852 Pacific Coast Highway consulting); Deputy Family Foundation, and
Malibu, CA 90265 Chairman of the Audit the UCLA Foundation.
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 (69) Trustee Since General Partner of 197 None
c/o Triumph Capital, L.P. July 1991 Triumph Capital, L.P.,
445 Park Avenue a private investment
New York, NY 10022 partnership; Chairman
of the Insurance
Committee and Director
or Trustee of the
Retail Funds (since
July 1991) and the
Institutional Funds
(since July 2001);
formerly Vice
President, Bankers
Trust Company and BT
Capital Corporation
(1984-1988).
Fergus Reid (73) Trustee Since Chairman of Lumelite 198 Trustee and Director of
c/o Lumelite Plastics Corporation July 2003 Plastics Corporation; certain investment
85 Charles Colman Blvd. Chairman of the companies in the
Pawling, NY 12564 Governance Committee JPMorgan Funds complex
and Director or Trustee managed by J.P. Morgan
of the Retail Funds Investment Management
(since July 2003) and Inc.
the Institutional Funds
(since June 1992).
</Table>
28
<Page>
INTERESTED 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 OTHER DIRECTORSHIPS
INTERESTED TRUSTEE REGISTRANT TIME SERVED* DURING PAST 5 YEARS** BY TRUSTEE*** HELD BY TRUSTEE
- --------------------------------------- ----------- ------------ ----------------------- ------------- ------------------------
Charles A. Fiumefreddo (72) Chairman of Since Chairman and Director 197 None
c/o Morgan Stanley Trust the Board July 1991 or Trustee of the
Harborside Financial Center, and Trustee Retail Funds (since
Plaza Two, July 1991) and the
Jersey City, NJ 07311 Institutional Funds
(since July 2003);
formerly Chief
Executive Officer of
the Retail Funds (until
September 2002).
James F. Higgins (57) Trustee Since Director or Trustee of 197 Director of AXA
c/o Morgan Stanley Trust June 2000 the Retail Funds (since Financial, Inc. and The
Harborside Financial Center, June 2000) and the Equitable Life Assurance
Plaza Two, Institutional Funds Society of the United
Jersey City, NJ 07311 (since July 2003); States (financial
Senior Advisor of services).
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 ADVISER") (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 ADVISER AND ANY FUNDS THAT
HAVE AN INVESTMENT ADVISER THAT IS AN AFFILIATED PERSON OF THE INVESTMENT
ADVISER (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**
- --------------------------------------- -------------- ------------------ ----------------------------------------------------
Ronald E. Robison (66) President Since May 2003 President (since September 2005) and Principal
1221 Avenue of the Americas and Executive Officer of funds in the Fund Complex
New York, NY 10020 Principal (since May 2003); Managing Director of Morgan
Executive Stanley & Co. Incorporated and Morgan Stanley;
Officer Managing Director and Director of Morgan Stanley
Investment Management Inc., Morgan Stanley
Distribution Inc. and Morgan Stanley Distributors
Inc.; Managing Director, Chief Administrative
Officer and Director of Morgan Stanley Investment
Advisors Inc. and Morgan Stanley Services Company
Inc.; Chief Executive Officer and Director of Morgan
Stanley Trust; Director of Morgan Stanley SICAV
(since May 2004); President (since September 2005)
and Principal Executive Officer (since May 2003) of
the Van Kampen Funds; previously, Executive Vice
President (July 2003-September 2005) of funds in the
Fund Complex and the Van Kampen Funds. He was also
previously President and Director of the
Institutional Funds (March 2001-July 2003), Chief
Global Operations Officer of Morgan Stanley
Investment Management Inc. and Chief Executive
Officer and Chairman of Van Kampen Investor
Services.
Joseph J. McAlinden (62) Vice President Since July 1995 Managing Director and Chief Investment Officer of
1221 Avenue of the Americas the Investment Adviser and Morgan Stanley Investment
New York, NY 10020 Management Inc.; Chief Investment Officer of the Van
Kampen Funds; Vice President of the Institutional
Funds (since July 2003) and the Retail Funds (since
July 1995).
Barry Fink (50) Vice President Since February 1997 General Counsel (since May 2000) and Managing
1221 Avenue of the Americas Director (since December 2000) of Morgan Stanley
New York, NY 10020 Investment Management; Managing Director (since
December 2000), Secretary (since February 1997) and
Director of the Investment Adviser and the
Administrator; 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 Adviser and the Administrator
(February 1997-December 2001).
Amy R. Doberman (43) Vice President Since July 2004 Managing Director and General Counsel, U.S.
1221 Avenue of the Americas Investment Management; Managing Director of Morgan
New York, NY 10020 Stanley Investment Management Inc. and the
Investment Adviser, Vice President of the
Institutional and Retail Funds (since July 2004);
Vice President of the Van Kampen Funds (since August
2004); previously, Managing Director and General
Counsel - Americas, UBS Global Asset Management
(July 2000-July 2004) and General Counsel, Aeltus
Investment Management, Inc. (January 1997-July
2000).
Carsten Otto (41) Chief Since October 2004 Executive Director and U.S. Director of Compliance
1221 Avenue of the Americas Compliance for Morgan Stanley Investment Management (since
New York, NY 10020 Officer October 2004); Executive Director of the Investment
Adviser and Morgan Stanley Investment Management
Inc.; formerly Assistant Secretary and Assistant
General Counsel of the Morgan Stanley Retail Funds.
</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**
- --------------------------------------- -------------- ------------------ ----------------------------------------------------
Stefanie V. Chang (38) Vice President Since July 2003 Executive Director of Morgan Stanley & Co.
1221 Avenue of the Americas Incorporated, Morgan Stanley Investment Management
New York, NY 10020 Inc. and the Investment Adviser; 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).
Francis J. Smith (40) Treasurer and Treasurer since Executive Director of the Investment Adviser and the
c/o Morgan Stanley Trust Chief July 2003 and Administration (since December 2001); previously,
Harborside Financial Center, Financial Chief Financial Vice President of the Retail Funds
Plaza Two, Officer Officer since (September 2002-July 2003); Vice President of the
Jersey City, NJ 07311 September 2002 Investment Adviser and the Administrator
(August 2000-November 2001).
Thomas F. Caloia (59) Vice President Since July 2003 Executive Director (since December 2002) and
c/o Morgan Stanley Trust Assistant Treasurer of the Investment Adviser, the
Harborside Financial Center, Distributor and the Administrator; previously
Plaza Two, Treasurer of the Retail Funds (April 1989-July
Jersey City, NJ 07311 2003); formerly First Vice President of the
Investment Adviser, the Distributor and the
Administrator.
Mary E. Mullin (38) Secretary Since July 2003 Executive Director of Morgan Stanley & Co.
1221 Avenue of the Americas Incorporated, Morgan Stanley Investment Management
New York, NY 10020 Inc. and the Investment Adviser; 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.
2005 FEDERAL TAX NOTICE (UNAUDITED)
During the fiscal year ended September 30, 2005, 100% of the ordinary
dividends paid by the Fund qualified for the dividends received
deduction available to corporations. Additionally, please note that
100% of the Fund's ordinary dividends paid during the fiscal year
ended September 30, 2005 qualified for the lower income tax rate
available to individuals under the Jobs and Growth Tax Relief
Reconciliation Act of 2003.
Of the Fund's ordinary dividends paid during the fiscal year, 3.78%
was attributable to qualifying Federal obligations. Please consult
your tax advisor to determine if any portion of the dividends you
received is exempt from state income tax.
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
Ronald E. Robison
PRESIDENT and PRINCIPAL EXECUTIVE OFFICER
Joseph J. McAlinden
VICE PRESIDENT
Barry Fink
VICE PRESIDENT
Amy R. Doberman
VICE PRESIDENT
Carsten Otto
CHIEF COMPLIANCE OFFICER
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 ADVISER
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) 2005 Morgan Stanley
[MORGAN STANLEY LOGO]
36016RPT-RA05-00946P-Y09/05
[GRAPHIC]
MORGAN STANLEY FUNDS
MORGAN STANLEY
MULTI-ASSET CLASS FUND --
DOMESTIC PORTFOLIO
ANNUAL REPORT
SEPTEMBER 30, 2005
[MORGAN STANLEY LOGO]
<Page>
Item 2. Code of Ethics.
(a) The Fund has adopted a code of ethics (the "Code of Ethics") that
applies to its principal executive officer, principal financial officer,
principal accounting officer or controller, or persons performing similar
functions, regardless of whether these individuals are employed by the Fund or a
third party.
(b) No information need be disclosed pursuant to this paragraph.
(c) The Fund has amended its Code of Ethics during the period covered by the
shareholder report presented in Item 1 hereto to delete from the end of the
following paragraph on page 2 of the Code the phrase "to the detriment of the
Fund.":
"Each Covered Officer must not use his personal influence or personal
relationship improperly to influence investment decisions or financial reporting
by the Fund whereby the Covered Officer would benefit personally (directly or
indirectly)."
Additionally, Exhibit B was amended to remove Mitchell M. Merin as a covered
officer.
(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:
2005
<Table>
<Caption>
REGISTRANT COVERED ENTITIES(1)
AUDIT FEES $ 10,563 N/A
NON-AUDIT FEES
AUDIT-RELATED FEES $ 540(2) $ (2)
TAX FEES $ 5,824(3) $ (4)
ALL OTHER FEES $ - $ -
TOTAL NON-AUDIT FEES $ 6,364 $
TOTAL $ 16,927 $
</Table>
2004
<Table>
<Caption>
REGISTRANT COVERED ENTITIES(1)
AUDIT FEES $ 10,064 N/A
NON-AUDIT FEES
AUDIT-RELATED FEES $ 452(2) $ 5,067,400(2)
TAX FEES $ 5,215(3) $ 545,053(4)
ALL OTHER FEES $ - $ -(5)
TOTAL NON-AUDIT FEES $ 5,667 $ 5,612,453
TOTAL $ 15,731 $ 5,612,453
</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:
APPENDIX A
AUDIT COMMITTEE
AUDIT AND NON-AUDIT SERVICES
PRE-APPROVAL POLICY AND PROCEDURES
OF THE
MORGAN STANLEY RETAIL AND INSTITUTIONAL FUNDS
AS ADOPTED AND AMENDED JULY 23, 2004,(1)
1. STATEMENT OF PRINCIPLES
The Audit Committee of the Board is required to review and, in its sole
discretion, pre-approve all Covered Services to be provided by the Independent
Auditors to the Fund and Covered Entities in order to assure that services
performed by the Independent Auditors do not impair the auditor's independence
from the Fund.
The SEC has issued rules specifying the types of services that an independent
auditor may not provide to its audit client, as well as the audit committee's
administration of the engagement of the independent auditor. The SEC's rules
establish two different approaches to pre-approving services, which the SEC
considers to be equally valid. Proposed services either: may be pre-approved
without consideration of specific case-by-case services by the Audit Committee
("GENERAL PRE-APPROVAL"); or require the specific pre-approval of the Audit
Committee or its delegate ("SPECIFIC PRE-APPROVAL"). The Audit Committee
believes that the combination of these two approaches in this Policy will result
in an effective and efficient procedure to pre-approve services performed by the
Independent Auditors. As set forth in this Policy, unless a type of service has
received general pre-approval, it will require specific pre-approval by the
Audit Committee (or by any member of the Audit Committee to which pre-approval
authority has been delegated) if it is to be provided by the Independent
Auditors. Any proposed services exceeding pre-approved cost levels or budgeted
amounts will also require specific pre-approval by the Audit Committee.
The appendices to this Policy describe the Audit, Audit-related, Tax and All
Other services that have the general pre-approval of the Audit Committee. The
term of any general pre-approval is 12 months from the date of pre-approval,
unless the Audit Committee considers and provides a different period and states
otherwise. The Audit Committee will annually review and pre-approve the services
that may be provided by the Independent Auditors without obtaining specific
pre-approval from the Audit Committee. The Audit Committee will add to or
subtract from the list of general pre-approved services from time to time, based
on subsequent determinations.
- ----------
(1) This Audit Committee Audit and Non-Audit Services Pre-Approval Policy and
Procedures (the "POLICY"), adopted as of the date above, supersedes and
replaces all prior versions that may have been adopted from time to time.
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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
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
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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.
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
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rendered. The Fund's Chief Financial Officer will determine whether such
services are included within the list of services that have received the general
pre-approval of the Audit Committee. The Audit Committee will be informed on a
timely basis of any such services rendered by the Independent Auditors. Requests
or applications to provide services that require specific approval by the Audit
Committee will be submitted to the Audit Committee by both the Independent
Auditors and the Fund's Chief Financial Officer, and must include a joint
statement as to whether, in their view, the request or application is consistent
with the SEC's rules on auditor independence.
The Audit Committee has designated the Fund's Chief Financial Officer to monitor
the performance of all services provided by the Independent Auditors and to
determine whether such services are in compliance with this Policy. The Fund's
Chief Financial Officer will report to the Audit Committee on a periodic basis
on the results of its monitoring. Both the Fund's Chief Financial Officer and
management will immediately report to the chairman of the Audit Committee any
breach of this Policy that comes to the attention of the Fund's Chief Financial
Officer or any member of management.
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, 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 Inc.
Morgan Stanley Investment Management Limited
Morgan Stanley Investment Management Private Limited
Morgan Stanley Asset & Investment Trust Management Co., Limited
Morgan Stanley Investment Management Company
Van Kampen Asset Management
Morgan Stanley Services Company, Inc.
Morgan Stanley Distributors Inc.
Morgan Stanley Trust FSB
<Page>
MORGAN STANLEY INSTITUTIONAL FUNDS
Morgan Stanley Investment Management Inc.
Morgan Stanley Investment Advisors Inc.
Morgan Stanley Investment Management Limited
Morgan Stanley Investment Management Private Limited
Morgan Stanley Asset & Investment Trust Management Co., Limited
Morgan Stanley Investment Management Company
Morgan Stanley & Co. Incorporated
Morgan Stanley Distribution, Inc.
Morgan Stanley AIP GP LP
Morgan Stanley Alternative Investment Partners LP
(e)(2) Beginning with non-audit service contracts entered into on or after May
6, 2003, the audit committee also is required to pre-approve services to Covered
Entities to the extent that the services are determined to have a direct impact
on the operations or financial reporting of the Registrant. 100% of such
services were pre-approved by the audit committee pursuant to the Audit
Committee's pre-approval policies and procedures (attached hereto).
(f) Not applicable.
(g) See table above.
(h) The audit committee of the Board of Trustees has considered whether the
provision of services other than audit services performed by the auditors to the
Registrant and Covered Entities is compatible with maintaining the auditors'
independence in performing audit services.
Item 5. Audit Committee of Listed Registrants.
(a) The Fund has a separately-designated standing audit committee established in
accordance with Section 3(a)(58)(A) of the Exchange Act whose members are:
Michael Bozic, Edwin J. Garn, Wayne E. Hedien, Manual H. Johnson, Joseph J.
Kearns, Michael Nugent and Fergus Reid.
(b) Not applicable.
Item 6. Schedule of Investments
Refer to Item 1.
<Page>
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
Applicable only to reports filed by closed-end funds.
Item 8. Portfolio Managers of Closed-End Management Investment Companies
Applicable only to reports filed by closed-end funds.
Item 9. Closed-End Fund Repurchases
Applicable only to reports filed by closed-end funds.
Item 10. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 11. Controls and Procedures
(a) The Fund's principal executive officer and principal financial officer have
concluded that the Fund's disclosure controls and procedures are sufficient to
ensure that information required to be disclosed by the Fund in this Form N-CSR
was recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission's rules and forms, based
upon such officers' evaluation of these controls and procedures as of a date
within 90 days of the filing date of the report.
(b) There were no changes in the registrant's internal control over financial
reporting that occurred during the registrant's most recent fiscal half-year
(the registrant's second fiscal half-year in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
Item 12. Exhibits
(a) The Code of Ethics for Principal Executive and Senior Financial Officers is
attached hereto.
(b) A separate certification for each principal executive officer and principal
financial officer of the registrant are attached hereto as part of EX-99.CERT.
<Page>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Morgan Stanley Multi-Asset Fund - Domestic Portfolio
/s/ Ronald E. Robison
Ronald E. Robison
Principal Executive Officer
November 21, 2005
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
November 21, 2005
/s/ Francis Smith
Francis Smith
Principal Financial Officer
November 21, 2005