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Welcome Shareholder,

We are pleased to provide this annual report, in which you will learn how your investment in Active Assets Government Securities Trust performed during the latest twelve-month period. It includes an overview of the market conditions and discusses some of the factors that affected performance during the reporting period. In addition, the report contains financial statements and a list of portfolio holdings.

Morgan Stanley Investment Management is a client-centric, investor-led organization. Our global presence, intellectual capital, and breadth of products and services enable us to partner with investors to meet the evolving challenges of today’s financial markets. We aim to deliver superior investment service and to empower our clients to make the informed decisions that help them reach their investment goals.

As always, we thank you for selecting Morgan Stanley Investment Management, and look forward to working with you in the months and years ahead.

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 a mutual fund will achieve its investment objective. An investment in a money market fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Fund seeks to preserve the value of an investment at $1.00 per share, it is possible to lose money by investing in the Fund. Please see the prospectus for more complete information on investment risks.

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Fund Report (unaudited)

For the year ended June 30, 2013

Market Conditions

Overall economic growth in the U.S. remained lackluster in the 12-month period ended June 30, 2013. Gross domestic product (GDP) growth averaged 1.60 percent in the second half of 2012, but growth on a quarter-over-quarter basis painted a different picture. Third quarter GDP growth registered 3.1 percent, but fourth quarter growth slowed considerably to only 0.4 percent. While first quarter 2013 GDP growth improved to 1.8 percent, a sustainable trend in economic growth remains elusive. Average monthly job gains strengthened in the third and fourth quarters of 2012, averaging 152,000 and 208,000, respectively. The trend continued into 2013 with first quarter average jobs gains of 207,000, with 332,000 jobs created during February alone, the best level in a year. Second quarter 2013 started out with slightly weaker job data but revisions added a combined 70,000 jobs to April and May, lifting average job gains to 196,000 for the quarter. The unemployment rate gradually declined over the much of the period, from 8.2 percent in July 2012 to 7.6 percent in June 2013. However, the rate itself still is elevated and will continue to be a focus of Federal Reserve (Fed) policy.

Toward the end of 2012, market sentiment focused on several regulatory developments. The first was the possible expiration of the Federal Deposit Insurance Corporation ( FDIC)-insured non-interest bearing transaction accounts (TAG) at the end of 2012. Ultimately, Congress did not act to extend the program and FDIC insurance for these accounts expired on December 31, 2012, leaving account holders with direct bank risk as opposed to FDIC (government) risk. While TAG account holders faced many factors that influenced their decision whether to hold bank credit risk or not, market data suggests that a large portion of the accounts remained uninsured post TAG expiration.

The market’s other regulatory concern during the period was the year-end expiration of the Fed’s “Operation Twist” program and the front-end supply that Twist sales provided the market. There was clear anticipation that at its December Federal Open Market Committee (FOMC) meeting, the Fed would convey to the market its intention to implement a policy of outright Treasury purchases. At the December meeting, the Fed in fact took another step down the path of unprecedented policy accommodation. It changed from calendar-based guidance to economic data guidance, dropping the pledge to keep the target fed funds rate exceptionally low until mid-2015 and replacing it with data-based triggers. Namely, the Fed plans to keep rates exceptionally low as long as the unemployment rate is above 6.5 percent and inflation remains below 2.5 percent. In addition, as expected, the Fed’s Operation Twist program ended and was replaced/supplemented by additional asset purchases on top of its previously announced $40 billion per month of mortgage-backed securities purchases. The Fed began to purchase $45 billion per month of Treasury securities and plans to continue these purchases until the labor market “improves substantially.”

Released in February, the January 2013 FOMC meeting minutes proved to be somewhat hawkish, focusing on balance sheet expansion and the need to be prepared to alter the size of the Fed’s monthly quantitative easing (QE)

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purchases. Several committee members suggested a tapering approach as they raised concern over heightened asset valuations and excessive risk taking. In his semi-annual testimony to Congress, Chairman Bernanke had a more dovish tone and reiterated his commitment to QE until substantial labor market improvements are seen. At its March meeting, the FOMC announced its intention to continue its $85 billion per month QE program with increased discussion on market conditions that could warrant a tapering of asset purchases. At its April meeting, the FOMC responded to an economic soft patch by turning the tables on potential QE tapering by stating it is “prepared to increase or reduce the pace of its purchases to maintain appropriate policy accommodation.” With inflation substantially below its 2 percent, target, the FOMC has the flexibility to adjust bond purchases either positively or negatively in response to economic data. In a press conference after the June FOMC meeting, Chairman Bernanke said the Fed may start to scale back the QE program this year and end it in mid-2014 if the Fed is confident economic gains can be sustained. His comments regarding tapering QE purchases contributed to the rise in long-term interest rates experienced in late June.

In early June, the Securities and Exchange Commission (SEC) proposed potential modifications to money market fund regulation which included two principal structural changes that could be adopted alone or in combination and some additional diversification and disclosure measures that would apply under either alternative. Under the first option, prime and municipal institutional money market funds would be required to transact at a floating net asset value (NAV), instead of at a $1.00 stable share price. Under the second option, money market funds would continue to transact at a stable prime and municipal share price, but would be required to use liquidity fees and redemption gates in certain times of stress (liquidity fees and redemption gates would be optional for government funds). The proposed reforms are designed to reduce the susceptibility to heavy redemptions during times of market stress and improve money market funds’ ability to manage and mitigate potential contagion from high levels of redemptions, while preserving the benefits of money market funds and increasing transparency.

The SEC’s rulemaking process involves multiple steps that take into account public opinions and research to evaluate whether to reject, approve, or modify the proposal. From there, the SEC will decide if it is advisable to move forward with drafting and voting on a final rule proposal. Should they be in favor of such action, a majority of the five SEC commissioners must approve the rule proposal. After any final approval, the SEC will determine an appropriate implementation period, considering feedback from the industry and analyzing the cost and complexity of the changes. The process is to be conducted over many months, and we continue to monitor the situation closely.

Performance Analysis

As of June 30, 2013, Active Assets Government Securities Trust had net assets of approximately $398 million and an average portfolio maturity of 22 days. For the 12-month period ended June 30, 2013, the Fund provided a total return of 0.01 percent. For the seven-day period ended June 30, 2013, the Fund

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provided an effective annualized yield of 0.01 percent (subsidized) and –0.56 percent (non-subsidized) and a current yield of 0.01 percent (subsidized) and –0.56 percent (non-subsidized), while its 30-day moving average yield for June was 0.01 percent (subsidized) and –0.56 percent (non-subsidized). Yield quotations more closely reflect the current earnings of the Fund. The non-subsidized yield reflects what the yield would have been had a fee and/or expense waiver not been in place during the period shown. Past performance is no guarantee of future results.

We continued to maintain a conservative investment profile with high levels of liquidity and a short duration. We allocated a significant portion of the portfolio to overnight repurchase agreements with the remaining holdings in government agency and Treasury obligations. Our management strategy for the portfolio remained consistent with our long-term focus on capital preservation and a high degree of liquidity. Our investment process and focus on liquidity and risk management, combined with the short duration position of the Fund, we believe has put us in a favorable position to respond to market uncertainty.

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.

Subject to change daily. Provided for informational purposes only and should not be deemed as a recommendation to buy or sell the securities mentioned above. Portfolio composition and maturity schedule are as a percentage of total investments.

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 invests at least 80 percent of its assets in high quality, short-term U.S. government securities. In selecting investments, the “Adviser” Morgan Stanley Investment Management Inc., seeks to maintain the Fund’s share price at $1.00. The U.S. government securities that the Fund may purchase include: U.S. Treasury bills, notes and bonds, all of which are direct obligations of the U.S. Government; securities issued by agencies and instrumentalities of the U.S. Government, which are backed by the full faith and credit of the United States; securities issued by agencies and instrumentalities which are not backed by the full faith and credit of the United States, but whose issuing agency or instrumentality has the right to borrow from the U.S. Treasury to meet its obligations; securities issued by agencies and instrumentalities which are backed solely by the credit of the issuing agency or instrumentality; and securities guaranteed under the FDIC Temporary Liquidity Guarantee Program. The Fund also may invest up to 10 percent of its assets in FDIC insured certificates of deposit of banks and savings and loan institutions. In addition, the Fund may invest in repurchase agreements.

An investment in the Fund is not insured or guaranteed by the FDIC or any other government agency. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Fund.

For More Information About Portfolio Holdings

Each Morgan Stanley fund provides a complete schedule of portfolio holdings in its semiannual and annual reports within 60 days of the end of the fund’s second and fourth fiscal quarters. 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 and monthly holdings for each money market fund on Form N-MFP. Morgan Stanley does not deliver these reports to shareholders, nor are the first and third fiscal quarter reports posted to the Morgan Stanley public web site. However, the holdings for each money market fund are posted to the Morgan Stanley public web site. You may obtain the Form N-Q filings (as well as the Form N-CSR, N-CSRS and N-MFP 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 20549-1520.

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) 869-NEWS, 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.

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Expense Example (unaudited)

As a shareholder of the Fund, you incur costs, including advisory fees; administration fees; distribution and services (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.

This example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period 01/01/13 – 06/30/13.

Actual Expenses

The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.

Hypothetical Example for Comparison Purposes

The second line of the table below provides information about hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing cost of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only. Therefore, the second line of the table is useful in comparing ongoing costs, and will not help you determine the relative total cost of owning different funds that have transactional costs, such as sales charges (loads) or exchange fees.

  @  Expenses are equal to the Fund’s annualized expense ratio of 0.12% multiplied by the average account value over the period, multiplied by 179 @@ /365 (to reflect the one-half year period). If the fund had borne all of its expenses, the annualized expense ratio would have been 0.66%.

  @@  Adjusted to reflect non-business day accruals.

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Investment Advisory Agreement Approval (unaudited)

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 (as defined herein) 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 (as defined herein) 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 Administrator together are referred to as the “Adviser” and the advisory and administration agreements together are referred to as the “Management Agreement.”) The Board also compared the nature of the services provided by the Adviser with similar services provided by non-affiliated advisers as reported to the Board by Lipper, Inc. (“Lipper”).

The Board reviewed and considered the qualifications of the portfolio managers, the senior administrative managers and other key personnel of the Adviser who provide the administrative and advisory services to the Fund. The Board determined that the Adviser’s portfolio managers and key personnel are well qualified by education and/or training and experience to perform the services in an efficient and professional manner. The Board concluded that the nature and extent of the advisory and administrative services provided were necessary and appropriate for the conduct of the business and investment activities of the Fund and supported its decision to approve the Management Agreement.

Performance, Fees and Expenses of the Fund

The Board reviewed the performance, fees and expenses of the Fund compared to its peers, as determined by Lipper, and to appropriate benchmarks where applicable. The Board discussed with the Adviser the performance goals and the actual results achieved in managing the Fund. When considering a fund’s performance, the Board and the Adviser place emphasis on trends and longer-term returns (focusing on one-year, three-year and five-year performance, as of December 31, 2012, or since inception, as applicable). When a fund underperforms its benchmark and/or its peer group average, the Board and the Adviser discuss the causes of such underperformance and, where necessary, they discuss specific changes to investment strategy or investment personnel. The Board noted that the Fund’s performance was better than its peer group average for the five-year period and equal to its peer group average for the one- and three- year periods. The Board discussed with the Adviser the level of the advisory and administration fees (together, the “management fee”) for this Fund relative to comparable funds and/or other accounts advised by the Adviser and/or compared to its peers as determined by Lipper. In addition to the management fee, the Board also reviewed the Fund’s total expense ratio. The Board noted that both the Fund’s management fee and total expense ratio were lower than its peer group averages. After discussion, the Board concluded that the Fund’s performance, management fee and total expense ratio were competitive with its peer group averages.

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Economies of Scale

The Board considered the size and growth prospects of the Fund and how that relates to the Fund’s total expense ratio and particularly the Fund’s management fee rate, which includes breakpoints. In conjunction with its review of the Adviser’s profitability, the Board discussed with the Adviser how a change in assets can affect the efficiency or effectiveness of managing the Fund and whether the management fee level is appropriate relative to current and projected asset levels and/or whether the management fee structure reflects economies of scale as asset levels change. The Board has determined that its review of the actual and potential economies of scale of the Fund supports its decision to approve the Management Agreement.

Profitability of the Adviser and Affiliates

The Board considered information concerning the costs incurred and profits realized by the Adviser and its 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. The Board has determined that its review of the analysis of the Adviser’s expenses and profitability supports its decision to approve the Management Agreement.

Other Benefits of the Relationship

The Board considered other benefits to the Adviser and its affiliates derived from their relationship with the Fund and other funds advised by the Adviser. These benefits may include, among other things, “float” benefits derived from handling of checks for purchases and sales, research received by the Adviser generated from commission dollars spent on funds’ portfolio trading and fees for distribution and/or shareholder servicing. The Board reviewed with the Adviser each of these arrangements and the reasonableness of the Adviser’s costs relative to the services performed. The Board has determined that its review of the other benefits received by the Adviser or its affiliates supports its decision to approve the Management Agreement.

Resources of the Adviser and Historical Relationship Between the Fund and the Adviser

The Board considered whether the Adviser is financially sound and has the resources necessary to perform its obligations under the Management Agreement. 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 the Adviser has the financial resources necessary to fulfill its obligations under the Management Agreement and that it is beneficial for the Fund to continue its relationship with the Adviser.

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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. In reaching this conclusion the Board did not give particular weight to any single factor referenced above. The Board considered these factors over the course of numerous meetings, some of which were in executive session with only the independent Board members and their counsel present. It is possible that individual Board members may have weighed these factors differently in reaching their individual decisions to approve the Management Agreement.

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