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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
(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, 2006
Date of reporting period: September 30, 2006
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 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.
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FUND REPORT
FOR THE YEAR ENDED SEPTEMBER 30, 2006
TOTAL RETURN FOR THE 12 MONTHS ENDED SEPTEMBER 30, 2006
LIPPER FLEXIBLE
S&P PORTFOLIO
CLASS A CLASS B CLASS C CLASS D 500(R)(1) FUNDS INDEX(2)
7.33% 6.65% 6.57% 7.61% 10.79% 8.47%
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, 2006, U.S. equity markets posted
broadly positive returns. The S&P 500(R) returned 10.79 percent, including
dividends. After many years of outperformance, small- and mid-cap equity indexes
lagged their large-cap counterparts. The technology-sensitive Nasdaq-100 Index
lagged other broad equity market measures, with a modestly positive return over
the period.
Although all S&P 500 sectors posted positive returns over the 12-month period,
telecommunication services was by far the strongest large-cap sector, gaining
26.05 percent. Despite rising interest rates, financial services also posted
strong returns, advancing 20.53 percent. The sector's strength can largely be
attributed to phenomenal performance by both the real estate and diversified
financials sub-sectors. Information technology produced the weakest sector
returns over the period. Dragged down by semiconductors, technology hardware and
equipment, and software and services, the sector returned a modest 3.26 percent.
After several years of outperformance, the energy sector struggled over the
period. The price of crude oil surged to a new all-time high of $77.23 per
barrel in the second week of July, ahead of the hurricane season. As storm
season passed with relatively little incident, oil prices fell precipitously
through the balance of the period. Energy stocks struggled against falling oil
prices through the last quarter of the period, and the sector advanced only 3.51
percent over the 12-month period.
In response to strong economic fundamentals, the Federal Open Market Committee
(the "Fed") raised rates six times over the period. Cooling commodity prices and
moderating economic growth in the last quarter of the period led the Fed to
pause its monetary tightening over the final two meetings of the period. As of
September 30, 2006, the target federal funds rate was 5.25 percent.
PERFORMANCE ANALYSIS
Morgan Stanley Multi-Asset Class Fund underperformed the S&P 500(R) and the
Lipper Flexible Portfolio Funds Index for the 12 months ended September 30,
2006, assuming no deduction of applicable sales charges.
Although the Fund made several tactical moves, it nonetheless retained a high
allocation to the information technology sector over the period through
positions in both the Technology Fund and the Nasdaq-100 Index Fund. As
technology stocks struggled throughout the period, the Fund's performance was
adversely affected
2
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by these allocations. A relative underweight in the financial services sector to
the S&P 500, contributed to underperformance. Partly based on management's
belief that rising interest rates would create a difficult environment for
financial services, the Fund maintained small allocations to both the Financial
Services Trust and the Real Estate Fund.
Entering into the early summer equity market correction, the Fund significantly
reduced its allocation to high beta and small-cap sensitive funds. (Beta is a
measure of price volatility relative to the broad market's movements. The higher
the beta, the more volatile a stock's or fund's price movement.) Specifically,
the Fund reduced its allocation to technology-oriented funds such as the
Nasdaq-100 Index Fund and the small-cap Special Growth Fund. The proceeds from
the sales of market-sensitive funds were held in cash for the duration of the
volatile summer period. As markets began to recover, the Fund reinvested its
cash across a wide range of underlying funds.
Over the latter half of the period, the Fund began to assume a less aggressive
market posture and reallocated to more defensive sectors and funds. Although the
Fund maintained a clear bias toward equities over the period, the Fund began
gradually to increase its investments in both the Convertible Securities Trust
and the U.S. Government Securities Trust. Based on the belief that the
seven-year period of small- and mid-cap outperformance was approaching an end,
the Fund gradually reduced its exposure to small- and mid-cap funds during the
year. Specifically, the Fund reduced its allocation to the Special Value Fund,
the Special Growth Fund, and the Equally-Weighted S&P 500 Fund.
THERE IS NO GUARANTEE THAT ANY SECTORS MENTIONED WILL CONTINUE TO PERFORM AS
DISCUSSED HEREIN OR THAT SECURITIES IN SUCH SECTORS WILL BE HELD BY THE FUND IN
THE FUTURE.
TOP FIVE FUNDS
Morgan Stanley S&P 500 Index Fund 15.6%
Morgan Stanley Convertible Securities Trust 9.0
Morgan Stanley Global Advantage Fund 8.7
Morgan Stanley Dividend Growth Securities Inc. 7.9
Morgan Stanley Natural Resource Development Securities Inc. 7.6
DATA AS OF SEPTEMBER 30, 2006. 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.
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INVESTMENT STRATEGY
THE FUND NORMALLY INVESTS AT LEAST 80 PERCENT OF ITS ASSETS IN SHARES OF
AFFILIATED MUTUAL FUNDS ("UNDERLYING FUNDS"). IN DECIDING HOW TO ALLOCATE FUND
ASSETS AMONG UNDERLYING FUNDS, THE FUND'S "INVESTMENT ADVISER," MORGAN STANLEY
INVESTMENT ADVISORS INC., CONSIDERS ITS OUTLOOK FOR THE U.S. AND GLOBAL
ECONOMIES 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 U.S.
EQUITY SECURITIES, BETWEEN 0 PERCENT AND 50 PERCENT OF ITS NET ASSETS IN
UNDERLYING FUNDS WHICH INVEST PRIMARILY IN NON-U.S. EQUITY SECURITIES AND
BETWEEN 0 PERCENT AND 50 PERCENT OF ITS NET ASSETS IN UNDERLYING FUNDS WHICH
INVEST PRIMARILY IN FIXED INCOME SECURITIES. THE INVESTMENT ADVISER THEN
DETERMINES THE COMBINATION OF UNDERLYING FUNDS THAT IT BELIEVES BEST REPRESENTS
THE SELECTED ASSET ALLOCATION STRATEGY. THE INVESTMENT ADVISER CONTINUOUSLY
MONITORS THE FUND'S ASSET ALLOCATION STRATEGY AND THE SELECTION OF INDIVIDUAL
UNDERLYING FUNDS AND MAY MAKE ADJUSTMENTS TO BOTH AS MARKET CHANGES WARRANT. THE
FUND GENERALLY SELLS THE SECURITIES OF AN UNDERLYING FUND WHEN SUCH UNDERLYING
FUND IS NO LONGER REPRESENTATIVE OF THE SELECTED ASSET ALLOCATION STRATEGY.
THERE ARE NO MINIMUM OR MAXIMUM PERCENTAGES IN WHICH THE FUND MUST INVEST IN ANY
UNDERLYING FUND. THE INVESTMENT ADVISER FOR EACH UNDERLYING FUND IS RESPONSIBLE
FOR DECIDING WHICH SECURITIES TO PURCHASE AND SELL FOR EACH RESPECTIVE
UNDERLYING FUND. FOR MORE INFORMATION ABOUT THE UNDERLYING FUNDS, SEE "FUND
MANAGEMENT --MANAGEMENT OF THE UNDERLYING FUNDS" IN THE FUND'S PROSPECTUS. IN
ADDITION, THE FUND MAY INVEST UP TO 20 PERCENT OF ITS ASSETS DIRECTLY IN
GOVERNMENT SECURITIES AND CASH EQUIVALENTS WHEN THE INVESTMENT ADVISER BELIEVES
MARKET CONDITIONS SO WARRANT.
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. THE SEMIANNUAL REPORTS AND THE ANNUAL REPORTS ARE
FILED ELECTRONICALLY WITH THE SECURITIES AND EXCHANGE COMMISSION (SEC) ON FORM
N-CSRS AND FORM N-CSR, RESPECTIVELY. 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.
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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
WITHOUT CHARGE 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.
5
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PERFORMANCE SUMMARY
PERFORMANCE OF A $10,000 INVESTMENT
($ IN THOUSANDS)
<Table>
<Caption>
S&P 500 LIPPER FLEXIBLE
CLASS A+++ CLASS B+++ CLASS C+++ CLASS D+++ (R)(1) PORTFOLIO FUNDS INDEX(2)
---------- ---------- ---------- ---------- ------- ------------------------
Nov-97 $ 9,475 $10,000 $10,000 $10,000 $10,000 $10,000
Dec-97 $ 9,635 $10,169 $10,169 $10,169 $10,227 $10,179
Mar-98 $10,539 $11,113 $11,103 $11,134 $11,654 $11,0s98
Jun-98 $10,435 $10,973 $10,973 $11,023 $12,038 $11,269
Sep-98 $ 9,254 $ 9,717 $ 9,717 $ 9,787 $10,841 $10,457
Dec-98 $10,795 $11,309 $11,314 $11,424 $13,149 $11,860
Mar-99 $11,046 $11,551 $11,598 $11,699 $13,804 $12,048
Jun-99 $11,848 $12,371 $12,417 $12,559 $14,777 $12,539
Sep-99 $11,567 $12,045 $12,102 $12,262 $13,854 $12,072
Dec-99 $13,022 $13,537 $13,596 $13,809 $15,915 $13,025
Mar-00 $13,191 $13,689 $13,749 $14,000 $16,280 $13,347
Jun-00 $13,034 $13,502 $13,561 $13,833 $15,848 $13,162
Sep-00 $13,899 $14,368 $14,430 $14,762 $15,693 $13,359
Dec-00 $13,417 $13,837 $13,898 $14,250 $14,465 $12,941
Mar-01 $11,932 $12,285 $12,339 $12,686 $12,750 $11,879
Jun-01 $12,959 $13,324 $13,383 $13,790 $13,496 $12,380
Sep-01 $10,112 $10,374 $10,420 $10,767 $11,515 $11,141
Dec-01 $12,092 $12,380 $12,437 $12,876 $12,747 $12,008
Mar-02 $11,805 $12,072 $12,127 $12,584 $12,783 $12,007
Jun-02 $10,420 $10,633 $10,684 $11,122 $11,071 $10,972
Sep-02 $ 8,349 $ 8,502 $ 8,545 $ 8,916 $ 9,158 $ 9,684
Dec-02 $ 8,848 $ 9,002 $ 9,034 $ 9,461 $ 9,931 $10,242
Mar-03 $ 8,648 $ 8,771 $ 8,815 $ 9,249 $ 9,619 $10,030
Jun-03 $10,121 $10,248 $10,297 $10,830 $11,099 $11,239
Sep-03 $10,732 $10,839 $10,890 $11,481 $11,393 $11,533
Dec-03 $11,818 $11,930 $11,973 $12,664 $12,780 $12,601
Mar-04 $12,167 $12,251 $12,308 $13,036 $12,996 $12,899
Jun-04 $12,279 $12,341 $12,385 $13,155 $13,220 $12,885
Sep-04 $12,229 $12,264 $12,308 $13,116 $12,973 $12,804
Dec-04 $13,484 $13,493 $13,547 $14,472 $14,171 $13,798
Mar-05 $12,992 $12,978 $13,044 $13,961 $13,866 $13,588
Jun-05 $13,396 $13,351 $13,418 $14,392 $14,056 $13,748
Sep-05 $14,090 $14,020 $14,089 $15,159 $14,563 $14,393
Dec-05 $14,523 $14,425 $14,497 $15,631 $14,867 $14,673
Mar-06 $15,225 $15,095 $15,170 $16,394 $15,492 $15,322
Jun-06 $14,702 $14,554 $14,626 $15,849 $15,269 $15,124
Sep-06 $15,123 $14,953 $15,014 $16,312 $16,134 $15,612
</Table>
6
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AVERAGE ANNUAL TOTAL RETURNS--PERIOD ENDED SEPTEMBER 30, 2006
<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 7.33%(3) 6.65%(3) 6.57%(3) 7.61%(3)
1.70(4) 1.65(4) 5.57(4) --
5 YEARS 8.38(3) 7.59(3) 7.58(3) 8.66(3)
7.22(4) 7.29(4) 7.58(4) --
SINCE INCEPTION 5.43(3) 4.65(3) 4.70(3) 5.69(3)
4.79(4) 4.65(4) 4.70(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 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 1.0% 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, 2006.
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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 04/01/06 - 09/30/06.
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 *
------------- ------------- ---------------
04/01/06 -
04/01/06 09/30/06 09/30/06
------------- ------------- ---------------
CLASS A
Actual (-0.67% return) $1,000.00 $ 993.30 $1.25
Hypothetical (5% annual return before expenses) $1,000.00 $1,023.82 $1.27
CLASS B
Actual (-0.94% return) $1,000.00 $ 990.60 $4.99
Hypothetical (5% annual return before expenses) $1,000.00 $1,020.05 $5.06
CLASS C
Actual (-1.02% return) $1,000.00 $ 989.80 $4.99
Hypothetical (5% annual return before expenses) $1,000.00 $1,020.05 $5.06
CLASS D
Actual (-0.50% return) $1,000.00 $ 995.00 $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 RATIOS 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 ANNUALIZED EXPENSE RATIOS WOULD HAVE
BEEN 1.00%, 1.75%, 1.75% AND 0.75% 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 at the Investment Adviser's
expense. (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 advisory and administrative 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
On a regular basis, the Board reviews the performance of all funds in the Morgan
Stanley Fund Complex, including the Fund, compared to their peers, paying
specific attention to the underperforming funds. In addition, the Board
specifically reviewed the Fund's performance for the one-, three- and five-year
periods ended November 30, 2005, as shown in a report provided by Lipper (the
"Lipper Report"), compared to the performance of comparable funds selected by
Lipper (the "performance peer group"). The Board also discussed with the Adviser
the performance goals and the actual results achieved in managing the Fund. The
Board concluded that the Fund's performance was competitive with that of its
performance peer group.
FEES RELATIVE TO OTHER PROPRIETARY FUNDS MANAGED BY THE ADVISER WITH COMPARABLE
INVESTMENT STRATEGIES
The Board noted that the Adviser did not manage any other proprietary funds with
investment strategies comparable to those of the Fund.
FEES AND EXPENSES RELATIVE TO COMPARABLE FUNDS MANAGED BY OTHER ADVISERS
The Board reviewed the advisory and administrative fee (together, the
"management fee") rate paid by the Fund under the Management Agreement and the
total expense ratio of the Fund. The Board noted that the Fund was not
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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, 2007. The Board concluded that the management fee
rate and total expense ratio were satisfactory at the present time.
BREAKPOINTS AND ECONOMIES OF SCALE
The Board noted that the Adviser does not receive a management fee from the
Fund.
PROFITABILITY OF THE ADVISER AND AFFILIATES
The Board considered information concerning the costs incurred and profits
realized by the Adviser and affiliates during the last year from their
relationship with the Fund and during the last two years from their relationship
with the Morgan Stanley Fund Complex and reviewed with the Adviser the cost
allocation methodology used to determine the profitability of the Adviser and
affiliates. Based on its review of the information it received, the Board
concluded that the profits earned by the Adviser and affiliates were not
excessive in light of the advisory, administrative and other services provided
to the Fund.
FALL-OUT BENEFITS
The Board considered so-called "fall-out benefits" derived by the Adviser and
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 sales of Fund shares, through a broker-dealer affiliate of the Adviser. 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
concluded that the float benefits were relatively small and the 12b-1 fees were
competitive with those of other broker-dealers.
SOFT DOLLAR BENEFITS
The Board considered whether the Adviser realizes any benefits from commissions
paid to brokers who execute securities transactions for the Fund ("soft
dollars"). The Board noted that the Fund invests only in other Morgan Stanley
funds and fixed income securities, which do not generate soft dollars.
ADVISER FINANCIALLY SOUND AND FINANCIALLY CAPABLE OF MEETING THE FUND'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.
10
<Page>
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
that 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
PORTFOLIO OF INVESTMENTS - SEPTEMBER 30, 2006
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------------------------------------
Common Stocks (95.1%)
INVESTMENT TRUSTS/MUTUAL FUNDS
337 Morgan Stanley Aggressive Equity Fund* $ 4,116
182,514 Morgan Stanley Convertible Securities Trust 3,153,837
26,735 Morgan Stanley Developing Growth Securities Trust* 739,497
95,998 Morgan Stanley Dividend Growth Securities Inc. 2,775,294
96 Morgan Stanley Equally-Weighted S&P 500 Fund 4,018
92,890 Morgan Stanley Financial Services Trust 1,408,209
302,401 Morgan Stanley Global Advantage Fund* 3,045,177
88,500 Morgan Stanley Global Utilities Fund 1,505,385
85,322 Morgan Stanley Growth Fund* 1,249,971
99,965 Morgan Stanley Health Sciences Trust* 1,833,353
180,072 Morgan Stanley Technology Fund* 1,838,531
400 Morgan Stanley Japan Fund* 3,744
196,800 Morgan Stanley Limited Duration Fund 1,773,168
197,205 Morgan Stanley Nasdaq-100 Index Fund* 1,873,449
107,870 Morgan Stanley Natural Resource Development Securities Inc. 2,682,738
81,500 Morgan Stanley Real Estate Fund 1,480,044
373,952 Morgan Stanley S&P 500 Index Fund 5,489,616
179 Morgan Stanley Special Growth Fund* 3,605
180 Morgan Stanley Special Value Fund* 3,958
280,558 Morgan Stanley U. S. Government Securities Trust 2,525,020
220 Morgan Stanley Utilities Fund 3,304
203 Morgan Stanley Value Fund 3,052
-----------
Total Common Stocks (COST $31,823,214) 33,399,086
-----------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
12
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ----------------------------------------------------------------------------------------
Short-Term Investments (7.6%)
Repurchase Agreements
$2,545 Joint repurchase agreement account 5.325% due 10/02/06
(dated 09/29/06; proceeds $2,546,129) (a) $ 2,545,000
131 The Bank of New York 5.313% due 10/02/06
(dated 09/29/06; proceeds $130,601) (b) 130,543
-----------
TOTAL SHORT-TERM INVESTMENTS (COST $2,675,543) 2,675,543
-----------
TOTAL INVESTMENTS (COST $34,498,757) (c) 102.7% 36,074,629
LIABILITIES IN EXCESS OF OTHER ASSETS (2.7) (940,663)
----- -----------
NET ASSETS 100.0% $35,133,966
===== ===========
</Table>
- ----------
* NON-INCOME PRODUCING SECURITY.
(a) COLLATERALIZED BY FEDERAL AGENCY AND U.S. TREASURY OBLIGATIONS.
(b) COLLATERALIZED BY FEDERAL NATIONAL MORTGAGE ASSOC. 6.0% DUE 08/01/36 VALUED
AT $133,154.
(c) THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES IS $34,654,682. THE
AGGREGATE GROSS UNREALIZED APPRECIATION IS $2,657,678 AND THE AGGREGATE
GROSS UNREALIZED DEPRECIATION IS $1,237,731, RESULTING IN NET UNREALIZED
APPRECIATION OF $1,419,947.
SEE NOTES TO FINANCIAL STATEMENTS
13
<Page>
Statement of Assets and Liabilities
SEPTEMBER 30, 2006
Assets:
Investments in securities, at value (cost $34,498,757) $36,074,629
Cash 178,681
Receivable for:
Dividends 17,140
Shares of beneficial interest sold 2,540
Prepaid expenses and other assets 35,050
Receivable from affiliate 40,409
-----------
Total Assets 36,348,449
-----------
Liabilities:
Payable for:
Investments purchased 1,054,516
Shares of beneficial interest redeemed 64,537
Distribution fee 20,670
Transfer agent fee 8,783
Accrued expenses and other payables 65,977
-----------
Total Liabilities 1,214,483
-----------
Net Assets $35,133,966
===========
Composition of Net Assets:
Paid-in-capital $31,637,806
Net unrealized appreciation 1,575,872
Accumulated undistributed net investment income 325,635
Accumulated undistributed net realized gain 1,594,653
-----------
Net Assets $35,133,966
===========
Class A Shares:
Net Assets $12,609,195
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE) 1,062,728
Net Asset Value Per Share $ 11.86
===========
Maximum Offering Price Per Share,
(NET ASSET VALUE PLUS 5.54% OF NET ASSET VALUE) $ 12.52
===========
Class B Shares:
Net Assets $17,692,643
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE) 1,524,550
Net Asset Value Per Share $ 11.61
===========
Class C Shares:
Net Assets $ 4,125,565
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE) 355,513
Net Asset Value Per Share $ 11.60
===========
Class D Shares:
Net Assets $ 706,563
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE) 59,025
Net Asset Value Per Share $ 11.97
===========
SEE NOTES TO FINANCIAL STATEMENTS
14
<Page>
Statement of Operations
FOR THE YEAR ENDED SEPTEMBER 30, 2006
Net Investment Income:
Income
Dividends $ 518,946
Interest 97,662
-----------
Total Income 616,608
-----------
Expenses
Distribution fee (Class A shares) 28,752
Distribution fee (Class B shares) 213,177
Distribution fee (Class C shares) 42,877
Professional fees 81,036
Registration fees 72,186
Transfer agent fees and expenses 68,905
Shareholder reports and notices 45,080
Custodian fees 3,893
Other 9,429
-----------
Total Expenses 565,335
Less: amounts waived/reimbursed (280,454)
Less: expense offset (75)
-----------
Net Expenses 284,806
-----------
Net Investment Income 331,802
-----------
Net Realized and Unrealized Gain:
Net realized gain 6,320,704
Capital gain distribution received 1,283,446
-----------
Net Realized Gain 7,604,150
-----------
Net Change in Unrealized Appreciation (5,439,112)
-----------
Net Gain 2,165,038
-----------
Net Increase $ 2,496,840
===========
SEE NOTES TO FINANCIAL STATEMENTS
15
<Page>
Statements of Changes in Net Assets
<Table>
<Caption>
FOR THE YEAR ENDED FOR THE YEAR ENDED
SEPTEMBER 30, 2006 SEPTEMBER 30, 2005
------------------ ------------------
Increase (Decrease) in Net Assets:
Operations:
Net investment income $ 331,802 $ 270,395
Net realized gain 7,604,150 1,336,820
Net change in unrealized appreciation (5,439,112) 3,753,230
----------- -----------
Net Increase 2,496,840 5,360,445
----------- -----------
Dividends to Shareholders from Net Investment Income:
Class A shares (119,004) (22,825)
Class B shares (8,653) (87,702)
Class C shares (14,600) (4,678)
Class D shares (8,386) (4,548)
----------- -----------
Total Dividends (150,643) (119,753)
----------- -----------
Net decrease from transactions in shares of beneficial interest (6,548,924) (4,766,662)
----------- -----------
Net Increase (Decrease) (4,202,727) 474,030
Net Assets:
Beginning of period 39,336,693 38,862,663
----------- -----------
End of Period
(INCLUDING ACCUMULATED UNDISTRIBUTED NET INVESTMENT INCOME OF
$325,635 AND $150,642, RESPECTIVELY) $35,133,966 $39,336,693
=========== ===========
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
16
<Page>
Morgan Stanley Multi-Asset Class Fund
NOTES TO FINANCIAL STATEMENTS - SEPTEMBER 30, 2006
1. Organization and Accounting Policies
Morgan Stanley Multi-Asset Class Fund (the "Fund") 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. 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.
17
<Page>
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 of the Underlying Funds.
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
distribution fees) until April 30, 2007. At September 30, 2006, included in the
Statements of Assets and Liabilities are receivables 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.
18
<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 $3,543,551
at September 30, 2006.
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 and other authorized
financial representatives at the time of sale may be reimbursed in the
subsequent calendar year. For the year ended September 30, 2006, the
distribution fee was accrued for Class A shares and Class C shares at the annual
rate of 0.24% and 0.97%, respectively.
The Distributor has informed the Fund that for the year ended September 30,
2006, it received contingent deferred sales charges from certain redemptions of
the Fund's Class A shares, Class B shares and Class C shares of $758, $60,247
and $992, respectively and received $16,183 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, 2006 aggregated
$31,861,144 and $38,441,611, respectively.
Morgan Stanley Trust, an affiliate of the Investment Adviser, Administrator and
Distributor, is the Funds transfer agent.
The Fund began an unfunded Deferred Compensation Plan (the "Compensation Plan")
which allows each independent Trustee to defer payment of all, or a portion, of
the fees he or she 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
19
<Page>
from these investments are recorded with an offsetting increase/decrease in the
deferred compensation obligation and do not affect the net asset value of the
Fund.
5. Expense Offset
The expense offset represents a reduction of the fees and expenses for interest
earned on cash balances maintained by the Fund with the transfer agent.
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.
The tax character of distributions paid was as follows:
FOR THE YEAR FOR THE YEAR
ENDED ENDED
SEPTEMBER 30, 2006 SEPTEMBER 30, 2005
------------------ ------------------
Ordinary income $ 150,643 $119,753
========== ========
As of September 30, 2006, the tax-basis components of accumulated earnings were
as follows:
Undistributed ordinary income $ 325,635
Undistributed long-term gains 1,750,578
----------
Net accumulated earnings 2,076,213
Net unrealized appreciation 1,419,947
----------
Total accumulated earnings $3,496,160
==========
During the year ended September 30, 2006, the Fund utilized its net capital loss
carryforward of $5,710,107.
As of September 30, 2006, the Fund had temporary book/tax differences
attributable to capital loss deferrals on wash sales and permanent book/tax
differences attributable to recharacterization of distributions received from an
Underlying Fund. To reflect reclassifications arising from the permanent
differences, accumulated undistributed net investment income was charged and
accumulated undistributed net realized gain was credited $6,166.
20
<Page>
7. Shares of Beneficial Interest
<Table>
<Caption>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
SEPTEMBER 30, 2006 SEPTEMBER 30, 2005
---------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
-------- ----------- ---------- ------------
CLASS A SHARES
Sold 133,957 $ 1,561,078 80,674 $ 857,579
Conversion from Class B 407,348 4,721,300 587,622 5,936,471
Reinvestment of dividends 9,504 108,246 2,046 21,874
Redeemed (245,662) (2,843,626) (106,287) (1,136,265)
-------- ----------- ---------- ------------
Net increase -- Class A 305,147 3,546,998 564,055 5,679,659
-------- ----------- ---------- ------------
CLASS B SHARES
Sold 165,562 1,881,521 459,041 4,661,249
Conversion to Class A (416,747) (4,721,300) (600,804) (5,936,471)
Reinvestment of dividends 708 7,937 7,564 79,269
Redeemed (587,210) (6,650,042) (887,262) (9,055,258)
-------- ----------- ---------- ------------
Net decrease -- Class B (837,687) (9,481,884) (1,021,461) (10,251,211)
-------- ----------- ---------- ------------
CLASS C SHARES
Sold 40,193 455,602 95,068 965,554
Reinvestment of dividends 1,167 13,076 395 4,148
Redeemed (92,970) (1,055,805) (139,876) (1,438,752)
-------- ----------- ---------- ------------
Net decrease -- Class C (51,610) (587,127) (44,413) (469,050)
-------- ----------- ---------- ------------
CLASS D SHARES
Sold 2,801 33,180 40,412 417,085
Reinvestment of dividends 724 8,302 399 4,293
Redeemed (5,977) (68,393) (14,137) (147,438)
-------- ----------- ---------- ------------
Net increase (decrease) -- Class D (2,452) (26,911) 26,674 273,940
-------- ----------- ---------- ------------
Net decrease in Fund (586,602) $(6,548,924) (475,145) $ (4,766,662)
======== =========== ========== ============
</Table>
8. 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, were named as
defendants in a consolidated class action. This consolidated action also named
as defendants certain individual Trustees and Directors of the Morgan Stanley
funds. The consolidated amended complaint, filed in the United States District
Court for the Southern District of New York on April 16, 2004, generally alleged
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,
21
<Page>
including the Fund, allegedly paid excessive commissions to brokers in return
for their alleged efforts to recommend these funds to investors. The complaint
sought, among other things, unspecified compensatory damages, rescissionary
damages, fees and costs. On July 2, 2004, defendants moved to dismiss the
action. On March 9, 2005, plaintiffs filed a Motion for Leave to File a
Supplemental Pleading that would, among other things, expand the allegations and
alleged class. On April 14, 2006, the Court granted defendants' motion to
dismiss in its entirety, with prejudice. Additionally, plaintiffs' Motion for
Leave to File a Supplemental Pleading was denied. The time for plaintiffs to
appeal the orders granting defendants' motion to dismiss and denying plaintiffs'
motion for supplemental pleading has expired. This case is now concluded.
9. New Accounting Pronouncements
In July 2006, the Financial Accounting Standards Board (FASB) issued
Interpretation 48, Accounting for Uncertainty in Income Taxes - an
interpretation of FASB Statement 109 (FIN 48). FIN 48 clarifies the accounting
for income taxes by prescribing the minimum recognition threshold a tax position
must meet before being recognized in the financial statements. FIN 48 is
effective for fiscal years beginning after December 15, 2006. The Fund will
adopt FIN 48 for the fiscal year ending 2008 and the impact to the Fund's
financial statements, if any, is currently being assessed.
In addition, in September 2006, Statement of Financial Accounting Standards No.
157, FAIR VALUE MEASUREMENTS (SFAS 157), was issued and is effective for fiscal
years beginning after November 15, 2007. SFAS 157 defines fair value,
establishes a framework for measuring fair value and expands disclosures about
fair value measurements. Management is currently evaluating the impact the
adoption of SFAS 157 will have on the Fund's financial statement disclosures.
22
<Page>
Morgan Stanley Multi-Asset Class Fund
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<Table>
<Caption>
FOR THE YEAR ENDED SEPTEMBER 30,
--------------------------------------------
2006 2005 2004 2003 2002
------- ------ ------ ------ -------
Class A Shares
Selected Per Share Data:
Net asset value, beginning of period $ 11.17 $ 9.80 $ 8.60 $ 6.69 $ 8.17
------- ------ ------ ------ -------
Income (loss) from investment operations:
Net investment income+++ 0.16 0.14 0.06 0.01 0.05
Net realized and unrealized gain (loss) 0.65 1.35 1.14 1.90 (1.45)
------- ------ ------ ------ -------
Total income (loss) from investment operations 0.81 1.49 1.20 1.91 (1.40)
------- ------ ------ ------ -------
Less dividends from net investment income (0.12) (0.12) -- -- (0.08)
------- ------ ------ ------ -------
Net asset value, end of period $ 11.86 $11.17 $ 9.80 $ 8.60 $ 6.69
======= ====== ====== ====== =======
Total Return+ 7.33% 15.21% 13.95% 28.55% (17.44)%
Ratios to Average Net Assets(1)(2)(3):
Total expenses (before expense offset) 0.24% 0.24% 0.24% 0.23% 0.24%
Net investment income 1.37% 1.33% 0.72% 0.16% 0.50%
Supplemental Data:
Net assets, end of period, in thousands $12,609 $8,462 $1,896 $ 890 $ 846
Portfolio turnover rate 88% 12% 46% 87% 163%
</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 AND ADMINISTRATOR, THE ANNUALIZED EXPENSE AND NET
INVESTMENT INCOME (LOSS) RATIOS WOULD HAVE BEEN AS FOLLOWS:
NET INVESTMENT
PERIOD ENDED EXPENSE RATIO INCOME (LOSS) RATIO
- ------------------ ------------- -------------------
SEPTEMBER 30, 2006 0.97% 0.64%
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
SEE NOTES TO FINANCIAL STATEMENTS
23
<Page>
<Table>
<Caption>
FOR THE YEAR ENDED SEPTEMBER 30,
-------------------------------------------------
2006 2005 2004 2003 2002
------- ------- ------- ------- -------
Class B Shares
Selected Per Share Data:
Net asset value, beginning of period $ 10.89 $ 9.55 $ 8.44 $ 6.62 $ 8.09
------- ------- ------- ------- -------
Income (loss) from investment operations:
Net investment income (loss)+++ 0.07 0.07 0.00 (0.05) (0.02)
Net realized and unrealized gain (loss) 0.65 1.30 1.11 1.87 (1.44)
------- ------- ------- ------- -------
Total income (loss) from investment operations 0.72 1.37 1.11 1.82 (1.46)
------- ------- ------- ------- -------
Less dividends from net investment income -- (0.03) -- -- (0.01)
------- ------- ------- ------- -------
Net asset value, end of period $ 11.61 $ 10.89 $ 9.55 $ 8.44 $ 6.62
======= ======= ======= ======= =======
Total Return+ 6.65% 14.32% 13.15% 27.49% (18.05)%
Ratios to Average Net Assets(1)(2)(3):
Total expenses (before expense offset) 1.00% 1.00% 1.00% 1.00% 1.00%
Net investment income (loss) 0.61% 0.57% (0.04)% (0.61)% (0.26)%
Supplemental Data:
Net assets, end of period, in thousands $17,693 $25,736 $32,309 $21,804 $18,474
Portfolio turnover rate 88% 12% 46% 87% 163%
</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 AND ADMINISTRATOR, THE ANNUALIZED EXPENSE AND NET
INVESTMENT LOSS RATIOS WOULD HAVE BEEN AS FOLLOWS:
EXPENSE NET INVESTMENT
PERIOD ENDED RATIO LOSS RATIO
- ------------------ ------- --------------
SEPTEMBER 30, 2006 1.73% (0.12)%
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)
SEE NOTES TO FINANCIAL STATEMENTS
24
<Page>
<Table>
<Caption>
FOR THE YEAR ENDED SEPTEMBER 30,
---------------------------------------------
2006 2005 2004 2003 2002
------ ------ ------ ------ -------
Class C Shares
Selected Per Share Data:
Net asset value, beginning of period $10.92 $ 9.55 $ 8.45 $ 6.63 $ 8.08
------ ------ ------ ------ -------
Income (loss) from investment operations:
Net investment income (loss)+++ 0.07 0.06 0.00 (0.05) (0.02)
Net realized and unrealized gain (loss) 0.65 1.32 1.10 1.87 (1.42)
------ ------ ------ ------ -------
Total income (loss) from investment operations 0.72 1.38 1.10 1.82 (1.44)
------ ------ ------ ------ -------
Less dividends from net investment income (0.04) (0.01) -- -- (0.01)
------ ------ ------ ------ -------
Net asset value, end of period $11.60 $10.92 $ 9.55 $ 8.45 $ 6.63
====== ====== ====== ====== =======
Total Return+ 6.57% 14.47% 13.02% 27.45% (18.00)%
Ratios to Average Net Assets(1)(2)(3):
Total expenses (before expense offset) 0.97% 0.95% 1.00% 1.00% 1.00%
Net investment income (loss) 0.64% 0.62% (0.04)% (0.61)% (0.26)%
Supplemental Data:
Net assets, end of period, in thousands $4,126 $4,447 $4,314 $2,623 $ 2,218
Portfolio turnover rate 88% 12% 46% 87% 163%
</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 AND ADMINISTRATOR, THE ANNUALIZED EXPENSE AND NET
INVESTMENT LOSS RATIOS WOULD HAVE BEEN AS FOLLOWS:
EXPENSE NET INVESTMENT
PERIOD ENDED RATIO LOSS RATIO
- ------------------ ------- --------------
SEPTEMBER 30, 2006 1.70% (0.09)%
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)
SEE NOTES TO FINANCIAL STATEMENTS
25
<Page>
<Table>
<Caption>
FOR THE YEAR ENDED SEPTEMBER 30,
-------------------------------------------
2006 2005 2004 2003 2002
------ ------ ------ ------ -------
Class D Shares
Selected Per Share Data:
Net asset value, beginning of period $11.26 $ 9.87 $ 8.64 $ 6.71 $ 8.19
------ ------ ------ ------ -------
Income (loss) from investment operations:
Net investment income+++ 0.19 0.15 0.09 0.03 0.07
Net realized and unrealized gain (loss) 0.66 1.38 1.14 1.90 (1.45)
------ ------ ------ ------ -------
Total income (loss) from investment operations 0.85 1.53 1.23 1.93 (1.38)
------ ------ ------ ------ -------
Less dividends from net investment income (0.14) (0.14) -- -- (0.10)
------ ------ ------ ------ -------
Net asset value, end of period $11.97 $11.26 $ 9.87 $ 8.64 $ 6.71
====== ====== ====== ====== =======
Total Return+ 7.61% 15.58% 14.24% 28.76% (17.18)%
Ratios to Average Net Assets(1)(2)(3):
Total expenses (before expense offset) --% --% --% --% --%
Net investment income 1.61% 1.57% 0.96% 0.39% 0.74%
Supplemental Data:
Net assets, end of period, in thousands $ 707 $ 692 $ 344 $ 70 $ 100
Portfolio turnover rate 88% 12% 46% 87% 163%
</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 AND ADMINISTRATOR, THE ANNUALIZED EXPENSE AND NET
INVESTMENT INCOME (LOSS) RATIOS WOULD HAVE BEEN AS FOLLOWS:
EXPENSE NET INVESTMENT
PERIOD ENDED RATIO INCOME (LOSS) RATIO
- ------------------ ------- -------------------
SEPTEMBER 30, 2006 0.73% 0.88%
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
SEE NOTES TO FINANCIAL STATEMENTS
26
<Page>
Morgan Stanley Multi-Asset Class Fund
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Trustees of
Morgan Stanley Multi-Asset Class Fund:
We have audited the accompanying statement of assets and liabilities of Morgan
Stanley Multi-Asset Class Fund (the "Fund"), including the portfolio of
investments, as of September 30, 2006, 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, 2006, 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 as of September 30, 2006, 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, 2006
27
<Page>
Morgan Stanley Multi-Asset Class Fund
RESULTS OF SPECIAL SHAREHOLDER MEETING (UNAUDITED)
On August 1, 2006, a Special Meeting of Shareholders of the Fund was scheduled
in order to vote on the proposals set forth below. The proposals failed to
obtain the necessary quorum in order to hold the meeting, and, therefore, the
meeting was adjourned until August 23, 2006 to permit further solicitation of
proxies. The meeting was held on August 23, 2006 and the voting results with
respect to these proposals were as follows:
(1) Election of Trustees:
FOR WITHHOLD ABSTAIN BNV*
--------- -------- ------- ----
Frank L. Bowman 1,701,014 65,013 0 0
Kathleen A. Dennis 1,700,777 65,250 0 0
James F. Higgins 1,700,777 65,250 0 0
Joseph J. Kearns 1,700,777 65,250 0 0
Michael F. Klein 1,702,250 63,777 0 0
W. Allen Reed 1,701,458 64,569 0 0
Fergus Reid 1,701,458 64,569 0 0
(2) Elimination of certain fundamental investment restrictions:
<Table>
<Caption>
FOR AGAINST ABSTAIN BNV*
--------- ------- ------- -------
Elimination of the fundamental policy restricting
the Fund's ability to pledge assets 1,404,003 99,997 37,583 224,444
Elimination of the fundamental policy restricting
purchases of securities on margin 1,405,001 98,365 38,217 224,444
Elimination of the fundamental policy prohibiting
investments for purposes of exercising control 1,398,091 98,475 45,017 224,444
</Table>
(3) Modify certain fundamental investment restrictions:
<Table>
<Caption>
FOR AGAINST ABSTAIN BNV*
--------- ------- ------- -------
Modify fundamental policy regarding borrowing money 1,398,783 95,052 47,748 224,444
Modify fundamental policy regarding loans 1,389,246 105,832 46,505 224,444
Modify fundamental policy regarding investment in
commodities, commodity contracts and futures contracts 1,390,441 104,992 46,150 224,444
Modify fundamental policy regarding issuance of senior securities 1,392,404 106,783 42,396 224,444
</Table>
(4) Reclassify certain fundamental policies as non-fundamental policies:
<Table>
<Caption>
FOR AGAINST ABSTAIN BNV*
--------- ------- ------- -------
Reclassification as non-fundamental the fundamental policy
regarding the short sale of securities 1,392,082 104,762 44,739 224,444
</Table>
- ----------
* BROKER "NON-VOTES" ARE SHARES HELD IN STREET NAME FOR WHICH THE BROKER
INDICATES THAT INSTRUCTIONS HAVE NOT BEEN RECEIVED FROM THE BENEFICIAL
OWNERS OR OTHER PERSONS ENTITLED TO VOTE AND FOR WHICH THE BROKER DOES NOT
HAVE DISCRETIONARY VOTING AUTHORITY.
28
<Page>
Morgan Stanley Multi-Asset Class Fund
TRUSTEE AND OFFICER INFORMATION
Independent Trustees:
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
TERM OF FUND COMPLEX
POSITION(S) OFFICE AND OVERSEEN BY
NAME, AGE AND ADDRESS OF HELD WITH LENGTH OF PRINCIPAL OCCUPATION(S) DURING INDEPENDENT OTHER DIRECTORSHIPS HELD
INDEPENDENT TRUSTEE REGISTRANT TIME SERVED* PAST 5 YEARS TRUSTEE** BY INDEPENDENT TRUSTEE
- --------------------------- ----------- ------------ -------------------------------- ------------- --------------------------
Frank L. Bowman (61) Trustee Since President and Chief Executive 161 Director of the National
c/o Kramer Levin Naftalis & August 2006 Officer of the Nuclear Energy Energy Foundation, the
Frankel LLP Institute (policy organization) U.S. Energy Association,
Counsel to the Independent (since February 2005); Director the American Council for
Trustees or Trustee of various Retail and Capital Formation and the
1177 Avenue of the Americas Institutional Funds (since Armed Services YMCA of the
New York, NY 10036 August 2006) formerly variously, USA.
Admiral in the U.S. Navy,
Director of Naval Nuclear
Propulsion Program and Deputy
Administrator - Naval Reactors
in the National Nuclear Security
Administration at the U.S.
Department of Energy
(1996-2004). Honorary Knight
Commander of the Most Excellent
Order of the British Empire.
Michael Bozic (65) Trustee Since Private investor; Chairperson of 175 Director of various
c/o Kramer Levin Naftalis & April 1994 the Valuation, Insurance and business organizations.
Frankel LLP Compliance Committee (since
Counsel to the Independent October 2006); Director or
Trustees Trustee of the Retail Funds
1177 Avenue of the Americas (since April 1994) and the
New York, NY 10036 Institutional Funds (since July
2003); formerly Chairperson of
the Insurance Committee (July
2006-September 2006); 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);
variously Chairman, Chief
Executive Officer, President and
Chief Operating Officer
(1987-1991) of the Sears
Merchandise Group of Sears,
Roebuck & Co.
Kathleen A. Dennis (53) Trustee Since President, Cedarwood Associates 161 None.
c/o Kramer Levin Naftalis & August 2006 (mutual fund consulting) (since
Frankel LLP July 2006); Chairperson of the
Counsel to the Independent Closed-End, Money Market and
Trustees Alternatives Sub-Committee of
1177 Avenue of the Americas the Investment Committee (since
New York, NY 10036 October 2006) and Director or
Trustee of various Retail and
Institutional Funds (since
August 2006); formerly, Senior
Managing Director of Victory
Capital Management (1993-2006).
</Table>
29
<Page>
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
TERM OF FUND COMPLEX
POSITION(S) OFFICE AND OVERSEEN BY
NAME, AGE AND ADDRESS OF HELD WITH LENGTH OF PRINCIPAL OCCUPATION(S) DURING INDEPENDENT OTHER DIRECTORSHIPS HELD
INDEPENDENT TRUSTEE REGISTRANT TIME SERVED* PAST 5 YEARS TRUSTEE** BY INDEPENDENT TRUSTEE
- --------------------------- ----------- ------------ -------------------------------- ------------- --------------------------
Edwin J. Garn (73) Trustee Since Consultant; Director or Trustee 175 Director of Franklin Covey
1031 N. Chartwell Court January 1993 of the Retail Funds (since (time management systems),
Salt Lake City, UT 84103 January 1993) and the BMW Bank of North America,
Institutional Funds (since July Inc. (industrial loan
2003); Member of the Utah corporation), Escrow Bank
Regional Advisory Board of USA (industrial loan
Pacific Corp. (utility company); corporation); United Space
formerly Managing Director of Alliance (joint venture
Summit Ventures LLC; (lobbying between Lockheed Martin
and consulting firm) and the Boeing Company)
(2000-2004); United States and Nuskin Asia Pacific
Senator (R-Utah) (1974-1992) and (multilevel marketing);
Chairman, Senate Banking member of the board of
Committee (1980-1986), Mayor of various civic and
Salt Lake City, Utah charitable organizations.
(1971-1974), Astronaut, Space
Shuttle Discovery (April 12-19,
1985), and Vice Chairman,
Huntsman Corporation (chemical
company).
Wayne E. Hedien (72) Trustee Since Retired; Director or Trustee of 175 Director of The PMI Group
c/o Kramer Levin Naftalis & September the Retail Funds; (Since Inc. (private mortgage
Frankel LLP 1997 September 1997) and the insurance); Trustee and
Counsel to the Independent Institutional Funds (since July Vice Chairman of The Field
Trustees 2003); formerly associated with Museum of Natural History;
1177 Avenue of the Americas the Allstate Companies director of various other
New York, NY 10036 (1966-1994), most recently as business and charitable
Chairman of The Allstate organizations.
Corporation (March 1993-December
1994) and Chairman and Chief
Executive Officer of its
wholly-owned subsidiary,
Allstate Insurance Company (July
1989-December 1994).
Dr. Manuel H. Johnson (57) Trustee Since Senior Partner, Johnson Smick 175 Director of NVR, Inc.
c/o Johnson Smick July 1991 International, Inc., (consulting (home construction);
Group, Inc. firm); Chairperson of the Director of KFX Energy;
888 16th Street, N.W. Investment Committee (since Director of RBS Greenwich
Suite 740 October 2006) and Director or Capital Holdings
Washington, D.C. 20006 Trustee of the Retail Funds (financial holding
(since July 1991) and the company).
Institutional Funds (since July
2003); Co-Chairman and a founder
of the Group of Seven Council
(G7C), an international economic
commission; formerly Chairman of
the Audit Committee (July
1991-September 2006); Vice
Chairman of the Board of
Governors of the Federal Reserve
System and Assistant Secretary
of the U.S. Treasury.
</Table>
30
<Page>
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
TERM OF FUND COMPLEX
POSITION(S) OFFICE AND OVERSEEN BY
NAME, AGE AND ADDRESS OF HELD WITH LENGTH OF PRINCIPAL OCCUPATION(S) DURING INDEPENDENT OTHER DIRECTORSHIPS HELD
INDEPENDENT TRUSTEE REGISTRANT TIME SERVED* PAST 5 YEARS TRUSTEE** BY INDEPENDENT TRUSTEE
- --------------------------- ----------- ------------ -------------------------------- ------------- --------------------------
Joseph J. Kearns (64) Trustee Since President, Kearns & Associates 176 Director of Electro Rent
c/o Kearns & Associates LLC July 2003 LLC (investment consulting); Corporation (equipment
PMB754 Chairperson of the Audit leasing), The Ford Family
23852 Pacific Coast Highway Committee (since October 2006) Foundation, and the UCLA
Malibu, CA 90265 and Director or Trustee of the Foundation.
Retail Funds (since July 2003)
and the Institutional Funds
(since August 1994); formerly
Deputy Chairperson of the Audit
Committee (July 2003-September
2006) and Chairperson of the
Audit Committee of the
Institutional Funds (October
2001-July 2003); formerly CFO of
the J. Paul Getty Trust.
Michael F. Klein (47) Trustee Since Chief Operating Officer and 161 Director of certain
c/o Kramer Levin August 2006 Managing Director, Aetos investment funds managed
Naftalis & Frankel LLP Capital, LLC (since March 2000); or sponsored by Aetos
Counsel to the Independent Chairman of the Fixed-Income Capital LLC.
Trustees Sub-Committee of the Investment
1177 Avenue of the Americas Committee (since October 2006)
New York, NY 10036 and Director or Trustee (since
August 2006) of various Retail
and Institutional Funds;
formerly Managing Director,
Morgan Stanley & Co. Inc. and
Morgan Stanley Dean Witter
Investment Management,
President, Morgan Stanley
Institutional Funds (June
1998-March 2000) and Principal,
Morgan Stanley & Co. Inc. and
Morgan Stanley Dean Witter
Investment Management (August
1997-December 1999).
Michael E. Nugent (70) Chairman of Chairman of General Partner of Triumph 175 None.
c/o Triumph Capital, L.P. the Board the Board Capital, L.P., a private
445 Park Avenue and Trustee since July investment partnership; Chairman
New York, NY 10022 2006 and of the Board of the Retail Funds
Trustee and Institutional Funds (since
since July July 2006) and Director or
1991 Trustee of the Retail Funds
(since July 1991) and the
Institutional Funds (since July
2001); formerly Chairman of the
Insurance Committee (until July
2006); Vice President, Bankers
Trust Company and BT Capital
Corporation (1984-1988).
</Table>
31
<Page>
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
TERM OF FUND COMPLEX
POSITION(S) OFFICE AND OVERSEEN BY
NAME, AGE AND ADDRESS OF HELD WITH LENGTH OF PRINCIPAL OCCUPATION(S) DURING INDEPENDENT OTHER DIRECTORSHIPS HELD
INDEPENDENT TRUSTEE REGISTRANT TIME SERVED* PAST 5 YEARS TRUSTEE** BY INDEPENDENT TRUSTEE
- --------------------------- ----------- ------------ -------------------------------- ------------- --------------------------
W. Allen Reed (59) Trustee Since Chairperson of the Equity 161 Director of GMAC
c/o Kramer Levin Naftalis & August 2006 Sub-Commitee of the Investment (financial services), GMAC
Frankel LLP Committee (since October 2006) Insurance Holdings and
Counsel to the Independent and Director or Trustee (since Temple-Inland Industries
Trustees August 2006) of various Retail (Packaging, Banking and
1177 Avenue of the Americas and Institutional Funds. Forrest Products); member
New York, NY 10036 President and CEO of General of the Board of Executives
Motors Asset Management; of the Morgan Stanley
Chairman and Chief Executive Capital International
Officer of the GM Trust Bank and Editorial Board; Director
Corporate Vice President of of Legg Mason and Director
General Motors Corporation of various investment fund
(August 1994-December 2005). advisory boards.
Fergus Reid (74) Trustee Since Chairman of Lumelite Plastics 176 Trustee and Director of
c/o Lumelite Plastics July 2003 Corporation; Chairperson of the certain investment
Corporation Governance Committee and companies in the JPMorgan
85 Charles Colman Blvd. Director or Trustee of the Funds complex managed by
Pawling, NY 12564 Retail Funds (since July 2003) J.P. Morgan Investment
and the Institutional Funds Management Inc.
(since June 1992).
</Table>
32
<Page>
Interested Trustee:
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
TERM OF FUND COMPLEX
POSITION(S) OFFICE AND OVERSEEN BY
NAME, AGE AND ADDRESS OF HELD WITH LENGTH OF PRINCIPAL OCCUPATION(S) DURING INTERESTED OTHER DIRECTORSHIPS HELD
INTERESTED TRUSTEE REGISTRANT TIME SERVED* PAST 5 YEARS TRUSTEE** BY INTERESTED TRUSTEE
- -------------------------- ----------- ------------ -------------------------------- ------------- --------------------------
James F. Higgins (58) Trustee Since Director or Trustee of the 175 Director of AXA Financial,
c/o Morgan Stanley Trust June 2000 Retail Funds (since June 2000) Inc. and The Equitable
Harborside Financial Center and the Institutional Funds Life Assurance Society of
Plaza Two (since July 2003); Senior the United States
Jersey City, NJ 07311 Advisor of Morgan Stanley (since (financial services).
August 2000).
</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") OR THE FUNDS ADVISED BY MORGAN STANLEY INVESTMENT
MANAGEMENT INC. AND MORGAN STANLEY AIP GP LP (THE "INSTITUTIONAL FUNDS").
** 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.) AS OF OCTOBER 2, 2006.
33
<Page>
Executive 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 (67) President and President since President (since September 2005) and Principal Executive Officer
1221 Avenue of the Americas Principal September 2005 (since May 2003) of funds in the Fund Complex; President (since
New York, NY 10020 Executive and Principal September 2005) and Principal Executive Officer (since May 2003) of
Officer Executive the Van Kampen Funds; Managing Director, Director and/or Officer of
Officer since the Investment Adviser and various entities affiliated with the
May 2003 Investment Adviser; Director of Morgan Stanley SICAV (since May 2004).
Formerly, Executive Vice President (July 2003 to September 2005) of
funds in the Fund Complex and the Van Kampen Funds; President and
Director of the Institutional Funds (March 2001 to July 2003); Chief
Global Operating Officer of Morgan Stanley Investment Management Inc.;
Chief Administrative Officer of Morgan Stanley Investment Advisors
Inc.; Chief Administrative Officer of Morgan Stanley Services Company
Inc.
J. David Germany (52) Vice Since Managing Director and (since December 2005) Chief Investment Officer -
Morgan Stanley Investment President February 2006 Global Fixed Income of Morgan Stanley Investment Management; Managing
Management Ltd. Director and Director of Morgan Stanley Investment Management Limited;
25 Cabot Square Vice President of the Retail and Institutional Funds (since February
Canary Wharf, London 2006).
United Kingdom E144QA
Dennis F. Shea (53) Vice Since Managing Director and (since February 2006) Chief Investment Officer -
1221 Avenue of the Americas President February 2006 Global Equity of Morgan Stanley Investment Management; Vice President
New York, NY 10020 of the Retail and Institutional Funds (since February 2006). Formerly,
Managing Director and Director of Global Equity Research at Morgan
Stanley.
Barry Fink (51) Vice Since Managing Director and General Counsel of Morgan Stanley Investment
1221 Avenue of the Americas President February 1997 Management; Managing Director of the Investment Adviser and various
New York, NY 10020 entities affiliated with the Investment Adviser; Vice President of the
Retail Funds and (since July 2003) the Institutional Funds. Formerly,
Secretary, General Counsel and/or Director of the Investment Adviser
and various entities affiliated with the Investment Adviser; Secretary
and General Counsel of the Retail Funds.
Amy R. Doberman (44) Vice Since Managing Director and General Counsel, U.S. Investment Management of
1221 Avenue of the Americas President July 2004 Morgan Stanley Investment Management (since July 2004); Vice President
New York, NY 10020 of the Retail Funds and the Institutional Funds (since July 2004);
Vice President of the Van Kampen Funds (since August 2004); Secretary
(since February 2006) and Managing Director (since July 2004) of the
Investment Adviser and various entities affiliated with the Investment
Adviser. Formerly, Managing Director and General Counsel - Americas,
UBS Global Asset Management (July 2000 to July 2004).
Carsten Otto (42) Chief Since Managing Director and U.S. Director of Compliance for Morgan Stanley
1221 Avenue of the Americas Compliance October 2004 Investment Management (since October 2004); Managing Director and
New York, NY 10020 Officer Chief Compliance Officer of Morgan Stanley Investment Management.
Formerly, Assistant Secretary and Assistant General Counsel of the
Retail Funds.
</Table>
34
<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 Yu (39) Vice Since Executive Director of the Investment Adviser and various entities
1221 Avenue of the Americas President December 1997 affiliated with the Investment Adviser; Vice President of the Retail
New York, NY 10020 Funds (since July 2002) and the Institutional Funds (since December
1997). Formerly, Secretary of various entities affiliated with the
Investment Adviser.
Francis J. Smith (41) Treasurer and Treasurer since Executive Director of the Investment Adviser and various entities
c/o Morgan Stanley Trust Chief July 2003 and affiliated with the Investment Adviser; Treasurer and Chief Financial
Harborside Financial Center Financial Chief Financial Officer of the Retail Funds (since July 2003). Formerly, Vice
Plaza Two Officer Officer since President of the Retail Funds (September 2002 to July 2003).
Jersey City, NJ 07311 September 2002
Mary E. Mullin (39) Secretary Since June 1999 Executive Director of the Investment Adviser and various entities
1221 Avenue of the Americas affiliated with the Investment Adviser; Secretary of the Retail Funds
New York, NY 10020 (since July 2003) and the Institutional Funds (since June 1999).
</Table>
- ----------
* THIS IS THE EARLIEST DATE THE OFFICER BEGAN SERVING THE RETAIL FUNDS OR THE
INSTITUTIONAL FUNDS.
2006 FEDERAL TAX NOTICE (UNAUDITED)
During the fiscal year ended September 30, 2006, 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, 2006 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, 5.67% 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.
35
<Page>
TRUSTEES
Frank L. Bowman
Michael Bozic
Kathleen A. Dennis
Edwin J. Garn
Wayne E. Hedien
James F. Higgins
Dr. Manuel H. Johnson
Joseph J. Kearns
Michael F. Klein
Michael E. Nugent
W. Allen Reed
Fergus Reid
OFFICERS
Michael E. Nugent
CHAIRMAN OF THE BOARD
Ronald E. Robison
PRESIDENT AND PRINCIPAL EXECUTIVE OFFICER
J. David Germany
VICE PRESIDENT
Dennis F. Shea
VICE PRESIDENT
Barry Fink
VICE PRESIDENT
Amy R. Doberman
VICE PRESIDENT
Carsten Otto
CHIEF COMPLIANCE OFFICER
Stefanie V. Chang Yu
VICE PRESIDENT
Francis J. Smith
TREASURER AND CHIEF FINANCIAL OFFICER
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) 2006 Morgan Stanley
MORGAN STANLEY
MORGAN STANLEY FUNDS
Morgan Stanley
Multi-Asset Class Fund
Annual Report
September 30, 2006
MORGAN STANLEY
MAFRPT-RA06-01020P-Y09/06
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Item 2. Code of Ethics.
(a) The Fund has adopted a code of ethics (the "Code of Ethics") that applies to
its principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar functions,
regardless of whether these individuals are employed by the Fund or a third
party.
(b) No information need be disclosed pursuant to this paragraph.
(c) Not applicable.
(d) Not applicable.
(e) Not applicable.
(f)
(1) The Fund's Code of Ethics is attached hereto as Exhibit 12 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.
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Item 4. Principal Accountant Fees and Services.
(a)(b)(c)(d) and (g). Based on fees billed for the periods shown:
2006
REGISTRANT COVERED ENTITIES(1)
AUDIT FEES $ 9,600 N/A
NON-AUDIT FEES
AUDIT-RELATED FEES $ 531(2) $5,328,768(2)
TAX FEES $ 5,700(3) $1,640,675(4)
ALL OTHER FEES $ -- $ --(5)
TOTAL NON-AUDIT FEES $ 6,231 $6,969,443
TOTAL $15,831 $6,969,443
2005
REGISTRANT COVERED ENTITIES(1)
AUDIT FEES $10,563 N/A
NON-AUDIT FEES
AUDIT-RELATED FEES $ 540(2) $3,215,745(2)
TAX FEES $ 5,824(3) $ 24,000(4)
ALL OTHER FEES $ -- $ --(5)
TOTAL NON-AUDIT FEES $ 6,364 $3,239,745
TOTAL $16,927 $3,239,745
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.
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(1) This Audit Committee Audit and Non-Audit Services Pre-Approval Policy and
Procedures (the "POLICY"), adopted as of the date above, 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
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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/Directors 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.
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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 second fiscal quarter of the period covered
by this 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.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Morgan Stanley Multi-Asset Class Fund
/s/ Ronald E. Robison
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Ronald E. Robison
Principal Executive Officer
November 21, 2006
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
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Ronald E. Robison
Principal Executive Officer
November 21, 2006
/s/ Francis Smith
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Francis Smith
Principal Financial Officer
November 21, 2006