<Page>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-06044
Morgan Stanley European Growth Fund Inc.
(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: October 31, 2003
Date of reporting period: April 30, 2003
<Page>
Item 1. Report to Stockholders.
Morgan Stanley European Growth Fund Inc.
LETTER TO THE SHAREHOLDERS / / APRIL 30, 2003
Dear Shareholder:
The six-month period ended April 30, 2003, was a mixed one for European
equities. After a recovery at the beginning of the period, many equity markets
reached new lows as geopolitical developments and weakening macroeconomic trends
dominated investors' agendas. On the various domestic fronts, Germany, the
European Union's largest economy, faced recession. Other leading economies such
as France and Italy slowed significantly. To add to the gloom, there was growing
mistrust of CEO compensation levels and concerns about accounting
irregularities. Nonetheless, U.S. dollar returns were positive on the back of a
recovery in the value of the euro. In this challenging environment, previously
beaten down sectors such as telecommunications services and information
technology performed much better than defensive ones. Investors rewarded the
new-found focus on balance-sheet rebuilding and debt reduction. With improving
cash flow generation, these cyclical sectors were expected to benefit from a
moderate upturn in demand for their products and services.
Performance and Portfolio Strategy
For the six-month period ended April 30, 2003, Morgan Stanley European Growth
Fund's Class A, B, C and D shares returned 0.61 percent, 0.36 percent,
0.27 percent and 0.85 percent, respectively. During the same period, the Morgan
Stanley Capital International (MSCI) Europe Index(1) returned 4.17 percent, the
MSCI World Index(2) returned 3.62 percent and the Lipper European Region Fund
Index(3) returned 3.17 percent. THE PERFORMANCE OF THE FUND'S FOUR SHARE CLASSES
VARIES BECAUSE EACH HAS DIFFERENT EXPENSES. THE TOTAL RETURN FIGURES GIVEN
ASSUME THE REINVESTMENT OF ALL DISTRIBUTIONS BUT DO NOT REFLECT THE DEDUCTION OF
ANY APPLICABLE SALES CHARGES. IF SALES CHARGES WERE INCLUDED, PERFORMANCE WOULD
BE LOWER.
Stock selection in the industrial, consumer staple, consumer discretionary,
health-care and financial sectors was the primary reason for the Fund's
underperformance. The Fund benefited from overweighted positions
- ----------------
(1) The Morgan Stanley Capital International (MSCI) Europe Index measures the
performance of a diverse range of global stock markets within Austria, Belgium,
Denmark, Finland, France, Germany, Ireland, Italy, the Netherlands, Norway,
Portugal, Spain, Sweden, Switzerland and the United Kingdom. The performance of
the Index is listed in U.S. dollars and assumes reinvestment of net dividends.
"Net dividends" reflects a reduction in dividends after taking into account
withholding of taxes by certain foreign countries represented in the Index. The
Index does not include any expenses, fees or charges. The Index is unmanaged and
one cannot invest directly in an index.
(2) The Morgan Stanley Capital International (MSCI) World Index measures
performance from a diverse range of global stock markets including securities
representative of the market structure of 22 developed market countries in North
America, Europe, and the Asia/Pacific region. The performance of the Index is
listed in U.S. dollars and assumes reinvestment of net dividends. "Net
dividends" reflects a reduction in dividends after taking into account
withholding of taxes by certain foreign countries represented in the Index. The
Index does not include any expenses, fees or charges. The Index is unmanaged and
one cannot invest directly in an index.
(3) The Lipper European Region Fund Index is an equally weighted performance
index of the largest qualifying funds (based on net assets) in the Lipper
European Region Funds classification. The Index, which is adjusted for capital
gains distributions and income dividends, is unmanaged and one cannot invest
directly in an index. There are currently 30 funds represented in this Index.
<Page>
Morgan Stanley European Growth Fund Inc.
LETTER TO THE SHAREHOLDERS / / APRIL 30, 2003 CONTINUED
in telecommunications services and information technology. Another positive was
strong stock selection per se in telecommunications services.
We have continued to add to the Fund's weighting in health-care stocks. Negative
sentiment on new drug development and the threat of generics has driven the
prices of a number of what we consider strong pharmaceutical franchises down,
creating an opportunity to increase exposure to long-term-growth stocks at
attractive valuations. The dramatic declines in many economically sensitive
sectors such as telecommunications services, information technology and consumer
discretionary issues gave rise to opportunities to add stocks in those areas at
very attractive prices.
We appreciate your ongoing support of Morgan Stanley European Growth Fund and
look forward to continuing to serve your investment needs.
Very truly yours,
[/S/ CHARLES A. FIUMEFREDDO] [/S/ MITCHELL M. MERIN]
Charles A. Fiumefreddo Mitchell M. Merin
CHAIRMAN OF THE BOARD PRESIDENT
2
<Page>
Morgan Stanley European Growth Fund Inc.
FUND PERFORMANCE / / APRIL 30, 2003
<Table>
<Caption>
Average Annual Total Returns -- Period Ended April 30, 2003
------------------------------------------------------------------------------------------------------------------------------
Class A Shares* Class B Shares**
----------------------------------------------------------- -----------------------------------------------------------------
1 Year (17.46)%(1) (21.80)%(2) 1 Year (18.00)%(1) (22.10)%(2)
5 Years (3.56)%(1) (4.59)%(2) 5 Years (4.28)%(1) (4.53)%(2)
Since Inception
(07/28/97) 0.67%(1) (0.27)%(2) 10 Years 9.02%(1) 9.02%(2)
</Table>
<Table>
<Caption>
Class C Shares+ Class D Shares++
----------------------------------------------------------- -----------------------------------------------------------------
1 Year (18.09)%(1) (18.91)%(2) 1 Year (17.15)%(1)
5 Years (4.28)%(1) (4.28)%(2) 5 Years (3.33)%(1)
Since Inception
(07/28/97) (0.08)%(1) (0.08)%(2) Since Inception (07/28/97) 1.10%(1)
</Table>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE. WHEN YOU SELL FUND SHARES, THEY MAY BE WORTH
LESS THAN THEIR ORIGINAL COST. THE TABLE DOES 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.
- ---------------------
(1) FIGURE SHOWN ASSUMES REINVESTMENT OF ALL DISTRIBUTIONS AND DOES NOT REFLECT
THE DEDUCTION OF ANY SALES CHARGES.
(2) FIGURE SHOWN ASSUMES REINVESTMENT OF ALL DISTRIBUTIONS AND THE DEDUCTION OF
THE MAXIMUM APPLICABLE SALES CHARGE. SEE THE FUND'S CURRENT PROSPECTUS FOR
COMPLETE DETAILS ON FEES AND SALES CHARGES.
* THE MAXIMUM FRONT-END SALES CHARGE FOR CLASS A IS 5.25%.
** THE MAXIMUM CONTINGENT DEFERRED SALES CHARGE (CDSC) FOR CLASS B IS 5.0%.
THE CDSC DECLINES TO 0% AFTER SIX YEARS.
+ THE MAXIMUM CDSC FOR CLASS C IS 1.0% FOR SHARES REDEEMED WITHIN ONE YEAR OF
PURCHASE.
++ CLASS D HAS NO SALES CHARGE.
3
<Page>
Morgan Stanley European Growth Fund Inc.
PORTFOLIO OF INVESTMENTS / / APRIL 30, 2003 (UNAUDITED)
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------
Common Stocks (96.2%)
Finland (4.9%)
TELECOMMUNICATION EQUIPMENT
2,432,273 Nokia Oyj............................... $ 41,198,492
------------
France (14.3%)
HOUSEHOLD/PERSONAL CARE
96,313 L'Oreal S.A............................. 6,892,453
------------
INFORMATION TECHNOLOGY SERVICES
370,077 Cap Gemini S.A.*........................ 11,528,018
------------
MAJOR BANKS
329,933 BNP Paribas S.A......................... 15,504,752
------------
MAJOR TELECOMMUNICATIONS
391,813 France Telecom S.A...................... 9,061,894
162,450 France Telecom S.A. (New)*.............. 3,740,826
------------
12,802,720
------------
OIL REFINING/MARKETING
248,996 Total Fina Elf S.A...................... 32,688,880
------------
PHARMACEUTICALS: MAJOR
609,679 Aventis S.A............................. 31,001,155
178,520 Sanofi-Synthelabo S.A................... 10,661,158
------------
41,662,313
------------
Total France............................ 121,079,136
------------
Germany (4.3%)
INDUSTRIAL CONGLOMERATES
333,768 Siemens AG.............................. 16,658,291
------------
MAJOR TELECOMMUNICATIONS
894,634 Deutsche Telekom AG (Registered
Shares)................................ 11,974,903
------------
MOTOR VEHICLES
112,917 Volkswagen AG........................... 3,974,108
------------
PHARMACEUTICALS: MAJOR
98,051 Schering AG............................. 4,376,618
------------
Total Germany........................... 36,983,920
------------
<Caption>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------
Italy (3.2%)
BROADCASTING
814,326 Mediaset SpA............................ $ 6,969,424
------------
INTEGRATED OIL
724,005 ENI SpA................................. 10,330,046
------------
MAJOR BANKS
2,221,974 Unicredito Italiano SpA................. 9,731,837
------------
Total Italy............................. 27,031,307
------------
Netherlands (11.0%)
APPAREL/FOOTWEAR
57,388 Gucci Group NV.......................... 5,527,111
------------
BEVERAGES: ALCOHOLIC
166,554 Heineken NV............................. 6,191,240
------------
FINANCIAL CONGLOMERATES
846,599 ING Groep NV (Share Certificates)....... 13,762,919
------------
INDUSTRIAL CONGLOMERATES
931,702 Koninklijke (Royal) Philips Electronics
NV..................................... 17,353,314
------------
INDUSTRIAL SPECIALTIES
302,279 Akzo Nobel NV........................... 6,727,708
------------
INTEGRATED OIL
897,579 Royal Dutch Petroleum Co................ 36,755,003
------------
MAJOR TELECOMMUNICATIONS
1,109,445 Koninklijke (Royal) KPN NV*............. 7,387,914
------------
Total Netherlands....................... 93,705,209
------------
Portugal (0.8%)
MAJOR TELECOMMUNICATIONS
905,093 Portugal Telecom, S.A. (Registered
Shares)................................ 6,482,179
------------
Spain (2.2%)
MAJOR TELECOMMUNICATIONS
1,637,327 Telefonica S.A.*........................ 18,129,210
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
4
<Page>
Morgan Stanley European Growth Fund Inc.
PORTFOLIO OF INVESTMENTS / / APRIL 30, 2003 (UNAUDITED) CONTINUED
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------
1,869,673 Telefonica S.A. (Bonus Rights)*......... $ 414,037
------------
Total Spain............................. 18,543,247
------------
Sweden (2.1%)
INDUSTRIAL MACHINERY
773,586 Assa Abloy AB (B Shares)................ 7,389,682
------------
MISCELLANEOUS COMMERCIAL SERVICES
891,773 Securitas AB (B Shares)................. 10,484,509
------------
Total Sweden............................ 17,874,191
------------
Switzerland (17.6%)
CHEMICALS: AGRICULTURAL
196,011 Syngenta AG*............................ 10,123,041
------------
FINANCIAL CONGLOMERATES
522,587 UBS AG (Registered Shares).............. 24,810,737
------------
FOOD: MAJOR DIVERSIFIED
180,450 Nestle S.A. (Registered Shares)......... 36,811,587
------------
MAJOR BANKS
416,558 Credit Suisse Group*.................... 9,957,562
------------
MAJOR TELECOMMUNICATIONS
14,435 Swisscom AG (Registered Shares)......... 4,467,672
------------
MISCELLANEOUS MANUFACTURING
23,232 Kaba Holding AG - Reg B................. 3,299,513
------------
PERSONNEL SERVICES
329,311 Adecco SA............................... 12,634,036
------------
PHARMACEUTICALS: MAJOR
1,205,076 Novartis AG (Registered Shares)......... 47,566,450
------------
Total Switzerland....................... 149,670,598
------------
United Kingdom (35.8%)
ADVERTISING/MARKETING SERVICES
1,837,714 WPP Group PLC........................... 13,077,964
------------
<Caption>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------
BEVERAGES: ALCOHOLIC
2,357,465 Allied Domecq PLC....................... $ 13,225,456
912,612 Diageo PLC.............................. 10,122,877
------------
23,348,333
------------
CHEMICALS: SPECIALTY
353,337 BOC Group PLC........................... 4,455,787
------------
ELECTRONIC EQUIPMENT/ INSTRUMENTS
5,522,318 Invensys PLC............................ 1,301,882
------------
ELECTRONICS/APPLIANCE STORES
2,428,427 HMV Group PLC........................... 4,541,185
------------
FOOD DISTRIBUTORS
2,275,964 Compass Group PLC....................... 10,476,499
------------
FOOD: SPECIALTY/CANDY
1,204,539 Cadbury Schweppes PLC................... 6,709,373
------------
INTEGRATED OIL
2,113,462 Shell Transport & Trading Co. PLC....... 12,658,854
------------
INVESTMENT MANAGERS
1,521,537 Amvescap PLC............................ 8,268,367
------------
LIFE/HEALTH INSURANCE
705,600 Prudential PLC.......................... 4,319,323
------------
MAJOR BANKS
3,105,251 Barclays PLC............................ 21,453,098
3,108,011 HSBC Holdings PLC....................... 34,052,445
------------
55,505,543
------------
MISCELLANEOUS COMMERCIAL SERVICES
6,871,645 Hays PLC................................ 9,170,763
2,218,022 Rentokil Initial PLC.................... 6,629,271
------------
15,800,034
------------
PHARMACEUTICALS: MAJOR
502,678 AstraZeneca PLC......................... 19,724,213
2,600,398 GlaxoSmithKline PLC..................... 52,118,950
------------
71,843,163
------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
5
<Page>
Morgan Stanley European Growth Fund Inc.
PORTFOLIO OF INVESTMENTS / / APRIL 30, 2003 (UNAUDITED) CONTINUED
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------
PUBLISHING: BOOKS/ MAGAZINES
1,683,308 Reed Elsevier PLC....................... $ 13,425,252
------------
TOBACCO
1,214,809 British American Tobacco PLC............ 11,649,775
------------
WIRELESS TELECOMMUNICATIONS
23,621,097 Vodafone Group PLC...................... 46,625,695
------------
Total United Kingdom.................... 304,007,029
------------
Total Common Stocks
(COST $779,633,425).................... 816,575,308
------------
<Caption>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ------------------------------------------------------------------
Short-Term Investment (2.9%)
Repurchase Agreement
$ 24,598 Joint repurchase agreement account 1.34%
due 05/01/03 (dated 04/30/03; proceeds
$24,598,916)(a) (Cost $24,598,000)...... $ 24,598,000
------------
</Table>
<Table>
Total Investments
(COST $804,231,425) (b)................ 99.1% 841,173,308
Other Assets in Excess of Liabilities... 0.9 8,039,710
------ ------------
Net Assets.............................. 100.0% $849,213,018
====== ============
</Table>
- ---------------------------------------------------
* NON-INCOME PRODUCING SECURITY.
(a) COLLATERALIZED BY FEDERAL AGENCY AND U.S. TREASURY OBLIGATIONS.
(b) THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES APPROXIMATES THE
AGGREGATE COST FOR BOOK PURPOSES. THE AGGREGATE GROSS UNREALIZED
APPRECIATION IS $94,708,754 AND THE AGGREGATE GROSS UNREALIZED
DEPRECIATION IS $57,766,871, RESULTING IN NET UNREALIZED APPRECIATION OF
$36,941,883.
SEE NOTES TO FINANCIAL STATEMENTS
6
<Page>
Morgan Stanley European Growth Fund Inc.
SUMMARY OF INVESTMENTS / / APRIL 30, 2003 (UNAUDITED)
<Table>
<Caption>
PERCENT OF
INDUSTRY VALUE NET ASSETS
- ------------------------------------------------------------------
Advertising/Marketing Services.......... $ 13,077,964 1.5%
Apparel/Footwear........................ 5,527,111 0.6
Beverages: Alcoholic.................... 29,539,573 3.5
Broadcasting............................ 6,969,424 0.8
Chemicals: Agricultural................. 10,123,041 1.2
Chemicals: Specialty.................... 4,455,787 0.5
Electronic Equipment/ Instruments....... 1,301,882 0.2
Electronics/Appliance Stores............ 4,541,185 0.5
Financial Conglomerates................. 38,573,656 4.5
Food Distributors....................... 10,476,499 1.2
Food: Major Diversified................. 36,811,587 4.3
Food: Specialty/Candy................... 6,709,373 0.8
Household/Personal Care................. 6,892,453 0.8
Industrial Conglomerates................ 34,011,605 4.0
Industrial Machinery.................... 7,389,682 0.9
Industrial Specialties.................. 6,727,708 0.8
Information Technology Services......... 11,528,018 1.4
Integrated Oil.......................... 59,743,903 7.0
Investment Managers..................... 8,268,367 1.0
Life/Health Insurance................... 4,319,323 0.5
Major Banks............................. 90,699,694 10.7
Major Telecommunications................ 61,658,636 7.3
<Caption>
PERCENT OF
INDUSTRY VALUE NET ASSETS
- ------------------------------------------------------------------
Miscellaneous Commercial Services....... $ 26,284,543 3.1%
Miscellaneous Manufacturing............. 3,299,513 0.4
Motor Vehicles.......................... 3,974,108 0.5
Oil Refining/Marketing.................. 32,688,880 3.8
Personnel Services...................... 12,634,036 1.5
Pharmaceuticals: Major.................. 165,448,543 19.5
Publishing: Books/Magazines............. 13,425,252 1.6
Repurchase Agreement.................... 24,598,000 2.9
Telecommunication Equipment............. 41,198,492 4.9
Tobacco................................. 11,649,775 1.4
Wireless Telecommunications............. 46,625,695 5.5
------------ -------
$841,173,308 99.1%
============ =======
<Caption>
PERCENT OF
TYPE OF INVESTMENT VALUE NET ASSETS
- ------------------------------------------------------------------
Common Stocks........................... $816,161,271 96.1%
Rights.................................. 414,037 0.1
Short-Term Investments.................. 24,598,000 2.9
------------ -------
$841,173,308 99.1%
============ =======
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
7
<Page>
Morgan Stanley European Growth Fund Inc.
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
APRIL 30, 2003 (UNAUDITED)
<Table>
Assets:
Investments in securities, at value (cost
$804,231,425).................................... $ 841,173,308
Receivable for:
Investments sold................................ 8,586,115
Foreign withholding taxes reclaimed............. 5,040,948
Dividends....................................... 3,691,585
Capital stock sold.............................. 209,655
Prepaid expenses and other assets................. 96,160
-------------
Total Assets.................................. 858,797,771
-------------
Liabilities:
Payable for:
Investments purchased........................... 5,217,703
Capital stock redeemed.......................... 2,917,412
Investment management fee....................... 622,255
Distribution fee................................ 622,122
Accrued expenses and other payables............... 205,261
-------------
Total Liabilities............................. 9,584,753
-------------
Net Assets.................................... $ 849,213,018
=============
Composition of Net Assets:
Paid-in-capital................................... $1,178,340,427
Net unrealized appreciation....................... 37,709,907
Accumulated undistributed net investment income... 1,492,825
Accumulated net realized loss..................... (368,330,141)
-------------
Net Assets.................................... $ 849,213,018
=============
Class A Shares:
Net Assets........................................ $25,688,742
Shares Outstanding (500,000,000 AUTHORIZED, $.01
PAR VALUE)....................................... 2,217,736
Net Asset Value Per Share..................... $ 11.58
=============
Maximum Offering Price Per Share,
(NET ASSET VALUE PLUS 5.54% OF NET ASSET
VALUE)....................................... $ 12.22
=============
Class B Shares:
Net Assets........................................ $762,646,549
Shares Outstanding (500,000,000 AUTHORIZED, $.01
PAR VALUE)....................................... 68,365,149
Net Asset Value Per Share..................... $ 11.16
=============
Class C Shares:
Net Assets........................................ $18,203,492
Shares Outstanding (500,000,000 AUTHORIZED, $.01
PAR VALUE)....................................... 1,633,681
Net Asset Value Per Share..................... $ 11.14
=============
Class D Shares:
Net Assets........................................ $42,674,235
Shares Outstanding (500,000,000 AUTHORIZED, $.01
PAR VALUE)....................................... 3,578,623
Net Asset Value Per Share..................... $ 11.92
=============
</Table>
Statement of Operations
FOR THE SIX MONTHS ENDED APRIL 30, 2003 (UNAUDITED)
<Table>
Net Investment Income:
Income
Dividends (net of $1,628,474 foreign withholding
tax)............................................. $ 10,687,727
Interest.......................................... 129,161
------------
Total Income.................................. 10,816,888
------------
Expenses
Investment management fee......................... 4,008,790
Distribution fee (Class A shares)................. 19,498
Distribution fee (Class B shares)................. 3,916,593
Distribution fee (Class C shares)................. 93,497
Transfer agent fees and expenses.................. 916,933
Custodian fees.................................... 166,779
Shareholder reports and notices................... 63,214
Professional fees................................. 32,539
Registration fees................................. 26,801
Directors' fees and expenses...................... 10,498
Other............................................. 11,427
------------
Total Expenses................................ 9,266,569
------------
Net Investment Income......................... 1,550,319
------------
Net Realized and Unrealized Gain (Loss):
Net Realized Loss on:
Investments..................................... (66,927,952)
Foreign exchange transactions................... (225,653)
------------
Net Realized Loss............................. (67,153,605)
------------
Net Change in Unrealized Appreciation/
Depreciation on:
Investments..................................... 65,411,650
Translation of other assets and liabilities
denominated in foreign currencies.............. 470,639
------------
Net Appreciation.............................. 65,882,289
------------
Net Loss...................................... (1,271,316)
------------
Net Increase...................................... $ 279,003
============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
8
<Page>
Morgan Stanley European Growth Fund Inc.
FINANCIAL STATEMENTS CONTINUED
Statement of Changes in Net Assets
<Table>
<Caption>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
APRIL 30, 2003 OCTOBER 31, 2002
-------------- ----------------
(UNAUDITED)
Increase (Decrease) in Net Assets:
Operations:
Net investment income (loss)............ $ 1,550,319 $ (3,884,292)
Net realized loss....................... (67,153,605) (105,304,885)
Net change in unrealized appreciation
(depreciation)......................... 65,882,289 (35,632,902)
-------------- --------------
Net Increase (Decrease)............. 279,003 (144,822,079)
-------------- --------------
Dividends to Shareholders from Net
Investment Income:
Class A shares.......................... -- (384,980)
Class B shares.......................... -- (8,390,397)
Class C shares.......................... -- (190,827)
Class D shares.......................... -- (949,255)
-------------- --------------
Total Dividends..................... -- (9,915,459)
-------------- --------------
Net decrease from capital stock
transactions........................... (99,885,072) (333,059,661)
-------------- --------------
Net Decrease........................ (99,606,069) (487,797,199)
Net Assets:
Beginning of period..................... 948,819,087 1,436,616,286
-------------- --------------
END OF PERIOD
(INCLUDING ACCUMULATED UNDISTRIBUTED
NET INVESTMENT INCOME OF $1,492,825 AND
AN ACCUMULATED NET INVESTMENT LOSS OF
$57,494, RESPECTIVELY)................. $ 849,213,018 $ 948,819,087
============== ==============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
9
<Page>
Morgan Stanley European Growth Fund Inc.
NOTES TO FINANCIAL STATEMENTS / / APRIL 30, 2003 (UNAUDITED)
1. Organization and Accounting Policies
Morgan Stanley European Growth Fund Inc. (the "Fund") is registered under the
Investment Company Act of 1940, as amended (the "Act"), as a diversified,
open-end management investment company. The Fund's investment objective is to
maximize the capital appreciation of its investments. The Fund was incorporated
in Maryland on February 13, 1990 and commenced operations on June 1, 1990. On
July 28, 1997, the Fund converted to a multiple class share structure.
The Fund offers Class A shares, Class B shares, Class C shares and Class D
shares. The four classes are substantially the same except that most Class A
shares are subject to a sales charge imposed at the time of purchase and some
Class A shares, and most Class B shares and Class C shares are subject to a
contingent deferred sales charge imposed on shares redeemed within one year, six
years and one year, respectively. Class D shares are not subject to a sales
charge. Additionally, Class A shares, Class B shares and Class C shares incur
distribution expenses.
The following is a summary of significant accounting policies:
A. Valuation of Investments -- (1) an equity portfolio security listed or traded
on the New York or American Stock Exchange or other exchange is valued at its
latest sale price prior to the time when assets are valued; if there were no
sales that day, the security is valued at the mean between the last reported bid
and asked price; (2) an equity portfolio security listed or traded on the Nasdaq
is valued at the Nasdaq Official Closing Price; if there were no sales that day,
the security is valued at the mean between the last reported bid and asked
price; (3) all other equity portfolio securities for which over-the-counter
market quotations are readily available are valued at the mean between the last
reported bid and asked price. In cases where a security is traded on more than
one exchange, the security is valued on the exchange designated as the primary
market; (4) for equity securities traded on foreign exchanges, the last reported
sale price or the latest bid price may be used if there were no sales on a
particular day; (5) when market quotations are not readily available or Morgan
Stanley Investment Advisors Inc. (the "Investment Manager") or Morgan Stanley
Investment Management Inc. (the "Sub-Advisor"), an affiliate of the Investment
Manager, determines that the latest sale price, the bid price or the mean
between the last reported bid and asked price do not reflect a security's market
value, portfolio securities are valued at their fair value as determined in good
faith under procedures established by and under the general supervision of the
Fund's Directors; (6) certain portfolio securities may be valued by an outside
pricing service approved by the Fund's Directors; and (7) 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
10
<Page>
Morgan Stanley European Growth Fund Inc.
NOTES TO FINANCIAL STATEMENTS / / APRIL 30, 2003 (UNAUDITED) CONTINUED
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
except for certain dividends on foreign securities which are recorded as soon as
the Fund is informed after the ex-dividend date. Discounts are accreted and
premiums are amortized over the life of the respective securities. Interest
income is accrued daily.
C. Repurchase Agreements -- Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the Fund, along with other affiliated
entities managed by the Investment Manager, may transfer uninvested cash
balances into one or more joint repurchase agreement accounts. These balances
are invested in one or more repurchase agreements and are collateralized by
cash, U.S. Treasury or federal agency obligations. The Fund may also invest
directly with institutions in repurchase agreements. The Fund's custodian
receives the collateral, which is marked-to-market daily to determine that the
value of the collateral does not decrease below the repurchase price plus
accrued interest.
D. Multiple Class Allocations -- Investment income, expenses (other than
distribution fees), and realized and unrealized gains and losses are allocated
to each class of shares based upon the relative net asset value on the date such
items are recognized. Distribution fees are charged directly to the respective
class.
E. Foreign Currency Translation and Forward Foreign Currency Contracts -- The
books and records of the Fund are maintained in U.S. dollars as follows: (1) the
foreign currency market value of investment securities, other assets and
liabilities and forward foreign currency contracts ("forward contracts") are
translated at the exchange rates prevailing at the end of the period; and (2)
purchases, sales, income and expenses are translated at the exchange rates
prevailing on the respective dates of such transactions. The resultant exchange
gains and losses are recorded as realized and unrealized gain/loss on foreign
exchange transactions. Pursuant to U.S. Federal income tax regulations, certain
foreign exchange gains/losses included in realized and unrealized gain/loss are
included in or are a reduction of ordinary income for federal income tax
purposes. The Fund does not isolate that portion of the results of operations
arising as a result of changes in the foreign exchange rates from the changes in
the market prices of the securities. Forward contracts are valued daily at the
appropriate exchange rates. The resultant unrealized exchange gains and losses
are recorded as unrealized foreign currency gain or loss. The Fund records
realized gains or losses on delivery of the currency or at the time the forward
contract is extinguished (compensated) by entering into a closing transaction
prior to delivery.
11
<Page>
Morgan Stanley European Growth Fund Inc.
NOTES TO FINANCIAL STATEMENTS / / APRIL 30, 2003 (UNAUDITED) CONTINUED
F. 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.
G. Dividends and Distributions to Shareholders -- Dividends and distributions to
shareholders are recorded on the ex-dividend date. 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 financial
reporting purposes but not for tax purposes are reported as dividends in excess
of net investment income or distributions in excess of net realized capital
gains. To the extent they exceed net investment income and net realized capital
gains for tax purposes, they are reported as distributions of paid-in-capital.
H. Use of Estimates -- The preparation of financial statements in accordance
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures.
Actual results could differ from those estimates.
2. Investment Management and Sub-Advisory Agreements
Pursuant to an Investment Management Agreement, the Fund pays the Investment
Manager a management fee, accrued daily and payable monthly, by applying the
following annual rates to the net assets of the Fund determined as of the close
of each business day: 0.95% to the portion of net assets not exceeding $500
million; 0.90% to the portion of daily net assets exceeding $500 million but not
exceeding $2 billion; 0.85% to the portion of daily net assets exceeding $2
billion but not exceeding $3 billion; and 0.825% to the portion of daily net
assets in excess of $3 billion.
Under a Sub-Advisory Agreement between the Sub-Advisor and the Investment
Manager, the Sub-Advisor provides the Fund with investment advice and portfolio
management relating to the Fund's investments in securities, subject to the
overall supervision of the Investment Manager. As compensation for its services
provided pursuant to the Sub-Advisory Agreement, the Investment Manager pays the
Sub-Advisor compensation equal to 40% of its monthly compensation.
12
<Page>
Morgan Stanley European Growth Fund Inc.
NOTES TO FINANCIAL STATEMENTS / / APRIL 30, 2003 (UNAUDITED) CONTINUED
3. Plan of Distribution
Shares of the Fund are distributed by Morgan Stanley Distributors Inc. (the
"Distributor"), an affiliate of the Investment Manager and Sub-Advisor. The Fund
has adopted a Plan of Distribution (the "Plan") pursuant to Rule 12b-1 under the
Act. The Plan provides that the Fund will pay the Distributor a fee which is
accrued daily and paid monthly at the following annual rates: (i) Class A -- up
to 0.25% of the average daily net assets of Class A; (ii) Class B -- 1.0% of the
lesser of: (a) the average daily aggregate gross sales of the Class B shares
since the inception of the Fund (not including reinvestment of dividend or
capital gain distributions) less the average daily aggregate net asset value of
the Class B shares redeemed since the Fund's inception upon which a contingent
deferred sales charge has been imposed or waived; or (b) the average daily net
assets of Class B; and (iii) Class C -- up to 1.0% of the average daily net
assets of Class C.
In the case of Class B shares, provided that the Plan continues in effect, any
cumulative expenses incurred by the Distributor but not yet recovered may be
recovered through the payment of future distribution fees from the Fund pursuant
to the Plan and contingent deferred sales charges paid by investors upon
redemption of Class B shares. Although there is no legal obligation for the Fund
to pay expenses incurred in excess of payments made to the Distributor under the
Plan and the proceeds of contingent deferred sales charges paid by investors
upon redemption of shares, if for any reason the Plan is terminated, the
Directors will consider at that time the manner in which to treat such expenses.
The Distributor has advised the Fund that such excess amounts totaled $748,823
at April 30, 2003.
In the case of Class A shares and Class C shares, expenses incurred pursuant to
the Plan in any calendar year in excess of 0.25% or 1.0% of the average daily
net assets of Class A or Class C, respectively, will not be reimbursed by the
Fund through payments in any subsequent year, except that expenses representing
a gross sales credit to Morgan Stanley Financial Advisors or other selected
broker-dealer representatives may be reimbursed in the subsequent calendar year.
For the six months ended April 30, 2003, the distribution fee was accrued for
Class A shares and Class C shares at the annual rate of 0.20% and 1.0%,
respectively.
The Distributor has informed the Fund that for the six months ended April 30,
2003, it received contingent deferred sales charges from certain redemptions of
the Fund's Class A shares, Class B shares and Class C shares of $25,516,
$399,475 and $1,623, respectively and received $4,525 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.
13
<Page>
Morgan Stanley European Growth Fund Inc.
NOTES TO FINANCIAL STATEMENTS / / APRIL 30, 2003 (UNAUDITED) CONTINUED
4. Security Transactions and Transactions with Affiliates
The cost of purchases and proceeds from sales of portfolio securities, excluding
short-term investments, for the six months ended April 30, 2003 aggregated
$247,748,694 and $362,802,750, respectively.
At April 30, 2003, Morgan Stanley Fund of Funds - International Portfolio, an
affiliate of the Investment Manager, Sub-Advisor and Distributor, owned
3,035,392 Class D shares of capital stock of the Fund.
Morgan Stanley Trust, an affiliate of the Investment Manager, Sub-Advisor, and
Distributor, is the Fund's transfer agent. At April 30, 2003, the Fund had
transfer agent fees and expenses payable of approximately $5,500.
The Fund has an unfunded noncontributory defined benefit pension plan covering
all independent Directors of the Fund who will have served as independent
Directors for at least five years at the time of retirement. Benefits under this
plan are based on years of service and compensation during the last five years
of service. Aggregate pension costs for the six months ended April 30, 2003
included in Directors' fees and expenses in the Statement of Operations amounted
to $3,530. At April 30, 2003, the Fund had an accrued pension liability of
$58,380 which is included in accrued expenses in the Statement of Assets and
Liabilities.
5. Federal Income Tax Status
At October 31, 2002, the Fund had a net capital loss carryover of approximately
$264,830,000 of which $162,064,000 will be available through October 31, 2009
and $102,766,000 will be available through October 31, 2010 to offset future
capital gains to the extent provided by regulations.
As of October 31, 2002, the Fund had temporary book/tax differences primarily
attributable to capital loss deferrals on wash sales.
6. Purposes of and Risks Relating to Certain Financial Instruments
The Fund may enter into forward contracts to facilitate settlement of foreign
currency denominated portfolio transactions or to manage foreign currency
exposure associated with foreign currency denominated securities.
Forward contracts involve elements of market risk in excess of the amounts
reflected in the Statement of Assets and Liabilities. The Fund bears the risk of
an unfavorable change in the foreign exchange rates underlying the forward
contracts. Risks may also arise upon entering into these contracts from the
potential inability of the counterparties to meet the terms of their contracts.
14
<Page>
Morgan Stanley European Growth Fund Inc.
NOTES TO FINANCIAL STATEMENTS / / APRIL 30, 2003 (UNAUDITED) CONTINUED
At April 30, 2003, there were no outstanding forward contracts.
At April 30, 2003, investments in securities of issuers in the United Kingdom
represented 35.8% of the Fund's net assets. These investments, as well as other
non-U.S. investments, which involve risks and considerations not present with
respect to U.S. securities, may be affected by economic or political
developments in this region.
7. Capital Stock
Transactions in capital stock were as follows:
<Table>
<Caption>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
APRIL 30, 2003 OCTOBER 31, 2002
-------------------------- --------------------------
(UNAUDITED)
SHARES AMOUNT SHARES AMOUNT
----------- ------------- ----------- -------------
CLASS A SHARES
Sold.......................... 9,632,676 $ 105,148,393 9,833,843 $ 121,583,658
Reinvestment of dividends..... -- -- 25,008 345,855
Redeemed...................... (9,004,562) (99,191,374) (9,961,813) (125,116,664)
----------- ------------- ----------- -------------
Net increase (decrease) --
Class A...................... 628,114 5,957,019 (102,962) (3,187,151)
----------- ------------- ----------- -------------
CLASS B SHARES
Sold.......................... 1,837,520 19,686,185 7,792,547 98,323,416
Reinvestment of dividends..... -- -- 568,379 7,650,380
Redeemed...................... (11,706,844) (125,103,828) (33,838,980) (426,664,386)
----------- ------------- ----------- -------------
Net decrease -- Class B....... (9,869,324) (105,417,643) (25,478,054) (320,690,590)
----------- ------------- ----------- -------------
CLASS C SHARES
Sold.......................... 469,179 4,962,721 2,512,493 31,290,984
Reinvestment of dividends..... -- -- 13,268 178,189
Redeemed...................... (715,547) (7,643,608) (2,907,554) (36,516,640)
----------- ------------- ----------- -------------
Net decrease -- Class C....... (246,368) (2,680,887) (381,793) (5,047,467)
----------- ------------- ----------- -------------
CLASS D SHARES
Sold.......................... 4,366,337 49,380,879 4,390,707 52,522,878
Reinvestment of dividends..... -- -- 7,170 101,747
Redeemed...................... (4,145,448) (47,124,440) (4,647,865) (56,759,078)
----------- ------------- ----------- -------------
Net increase (decrease) --
Class D...................... 220,889 2,256,439 (249,988) (4,134,453)
----------- ------------- ----------- -------------
Net decrease in Fund.......... (9,266,689) $ (99,885,072) (26,212,797) $(333,059,661)
=========== ============= =========== =============
</Table>
15
<Page>
Morgan Stanley European Growth Fund Inc.
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of capital stock outstanding
throughout each period:
<Table>
<Caption>
FOR THE SIX FOR THE YEAR ENDED OCTOBER 31
MONTHS ENDED -----------------------------------------------------------------------------------
APRIL 30, 2003 2002 2001 2000 1999 1998
--------------- --------------- --------------- --------------- --------------- ---------------
(UNAUDITED)
Class A Shares
Selected Per Share Data:
Net asset value,
beginning of period.... $11.51 $13.35 $20.17 $20.70 $19.45 $18.46
------ ------ ------ ------ ------ ------
Income (loss) from
investment operations:
Net investment
income++............. 0.08 0.06 0.07 0.05 0.10 0.08
Net realized and
unrealized gain
(loss)............... (0.01) (1.67) (3.71) 2.34 3.03 2.70
------ ------ ------ ------ ------ ------
Total income (loss) from
investment
operations............. 0.07 (1.61) (3.64) 2.39 3.13 2.78
------ ------ ------ ------ ------ ------
Less dividends and
distributions from:
Net investment
income............... - (0.23) - - - (0.22)
Net realized gain...... - - (3.18) (2.92) (1.88) (1.57)
------ ------ ------ ------ ------ ------
Total dividends and
distributions.......... - (0.23) (3.18) (2.92) (1.88) (1.79)
------ ------ ------ ------ ------ ------
Net asset value, end of
period................. $11.58 $11.51 $13.35 $20.17 $20.70 $19.45
====== ====== ====== ====== ====== ======
Total Return+............ 0.61%((1)) (12.41)% (21.07)% 10.92% 16.75% 16.50%
Ratios to Average Net
Assets((3)):
Expenses................. 1.41%((2)) 1.38 % 1.27 % 1.29% 1.36% 1.44%
Net investment income.... 1.10%((2)) 0.41 % 0.43 % 0.23% 0.44% 0.40%
Supplemental Data:
Net assets, end of
period, in thousands... $25,689 $18,294 $22,604 $53,012 $26,600 $14,133
Portfolio turnover
rate................... 29%((1)) 51 % 86 % 71% 56% 50%
</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) NOT ANNUALIZED.
(2) ANNUALIZED.
(3) REFLECTS OVERALL FUND RATIOS FOR INVESTMENT INCOME AND NON-CLASS
SPECIFIC EXPENSES.
SEE NOTES TO FINANCIAL STATEMENTS
16
<Page>
Morgan Stanley European Growth Fund Inc.
FINANCIAL HIGHLIGHTS CONTINUED
<Table>
<Caption>
FOR THE SIX FOR THE YEAR ENDED OCTOBER 31
MONTHS ENDED -----------------------------------------------------------------------------------
APRIL 30, 2003 2002 2001 2000 1999 1998
--------------- --------------- --------------- --------------- --------------- ---------------
(UNAUDITED)
Class B Shares
Selected Per Share Data:
Net asset value,
beginning of period.... $11.12 $12.88 $19.70 $20.41 $19.34 $18.43
------ ------ ------ ------ ------ ------
Income (loss) from
investment operations:
Net investment income
(loss)++............. 0.02 (0.05) (0.06) (0.11) (0.07) (0.05)
Net realized and
unrealized gain
(loss)............... 0.02 (1.62) (3.58) 2.32 3.02 2.69
------ ------ ------ ------ ------ ------
Total income (loss) from
investment
operations............. 0.04 (1.67) (3.64) 2.21 2.95 2.64
------ ------ ------ ------ ------ ------
Less dividends and
distributions from:
Net investment
income............... - (0.09) - - - (0.16)
Net realized gain...... - - (3.18) (2.92) (1.88) (1.57)
------ ------ ------ ------ ------ ------
Total dividends and
distributions.......... - (0.09) (3.18) (2.92) (1.88) (1.73)
------ ------ ------ ------ ------ ------
Net asset value, end of
period................. $11.16 $11.12 $12.88 $19.70 $20.41 $19.34
====== ====== ====== ====== ====== ======
Total Return+............ 0.36%((1)) (13.11)% (21.68)% 10.05 % 15.84 % 15.67 %
Ratios to Average Net
Assets((3)):
Expenses................. 2.21%((2)) 2.15 % 2.10 % 2.05 % 2.13 % 2.10 %
Net investment income
(loss)................. 0.30%((2)) (0.36)% (0.40)% (0.53)% (0.33)% (0.26)%
Supplemental Data:
Net assets, end of
period, in millions.... $763 $870 $1,335 $2,206 $2,090 $2,059
Portfolio turnover
rate................... 29%((1)) 51 % 86 % 71 % 56 % 50 %
</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) NOT ANNUALIZED.
(2) ANNUALIZED.
(3) REFLECTS OVERALL FUND RATIOS FOR INVESTMENT INCOME AND NON-CLASS
SPECIFIC EXPENSES.
SEE NOTES TO FINANCIAL STATEMENTS
17
<Page>
Morgan Stanley European Growth Fund Inc.
FINANCIAL HIGHLIGHTS CONTINUED
<Table>
<Caption>
FOR THE SIX FOR THE YEAR ENDED OCTOBER 31
MONTHS ENDED -----------------------------------------------------------------------------------
APRIL 30, 2003 2002 2001 2000 1999 1998
--------------- --------------- --------------- --------------- --------------- ---------------
(UNAUDITED)
Class C Shares
Selected Per Share Data:
Net asset value,
beginning of period.... $11.11 $12.85 $19.67 $20.38 $19.31 $18.43
------ ------ ------ ------ ------ ------
Income (loss) from
investment operations:
Net investment income
(loss)++............. 0.02 (0.04) (0.06) (0.11) (0.05) (0.08)
Net realized and
unrealized gain
(loss)............... 0.01 (1.61) (3.58) 2.32 3.00 2.71
------ ------ ------ ------ ------ ------
Total income (loss) from
investment
operations............. 0.03 (1.65) (3.64) 2.21 2.95 2.63
------ ------ ------ ------ ------ ------
Less dividends and
distributions from:
Net investment
income............... - (0.09) - - - (0.18)
Net realized gain...... - - (3.18) (2.92) (1.88) (1.57)
------ ------ ------ ------ ------ ------
Total dividends and
distributions.......... - (0.09) (3.18) (2.92) (1.88) (1.75)
------ ------ ------ ------ ------ ------
Net asset value, end of
period................. $11.14 $11.11 $12.85 $19.67 $20.38 $19.31
====== ====== ====== ====== ====== ======
Total Return+............ 0.27%((1)) (12.98)% (21.76)% 10.11 % 15.87 % 15.57 %
Ratios to Average Net
Assets((3)):
Expenses................. 2.21%((2)) 2.08 % 2.10 % 2.05 % 2.13 % 2.19 %
Net investment income
(loss)................. 0.30%((2)) (0.29)% (0.40)% (0.53)% (0.33)% (0.35)%
Supplemental Data:
Net assets, end of
period, in thousands... $18,203 $20,881 $29,075 $46,886 $31,211 $22,159
Portfolio turnover
rate................... 29%((1)) 51 % 86 % 71 % 56 % 50 %
</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) NOT ANNUALIZED.
(2) ANNUALIZED.
(3) REFLECTS OVERALL FUND RATIOS FOR INVESTMENT INCOME AND NON-CLASS
SPECIFIC EXPENSES.
SEE NOTES TO FINANCIAL STATEMENTS
18
<Page>
Morgan Stanley European Growth Fund Inc.
FINANCIAL HIGHLIGHTS CONTINUED
<Table>
<Caption>
FOR THE SIX FOR THE YEAR ENDED OCTOBER 31
MONTHS ENDED -----------------------------------------------------------------------------------
APRIL 30, 2003 2002 2001 2000 1999 1998
--------------- --------------- --------------- --------------- --------------- ---------------
(UNAUDITED)
Class D Shares
Selected Per Share Data:
Net asset value,
beginning of period.... $11.83 $13.73 $20.61 $21.05 $19.72 $18.47
------ ------ ------ ------ ------ ------
Income (loss) from
investment operations:
Net investment
income++............. 0.08 0.09 0.10 0.12 0.13 0.16
Net realized and
unrealized gain
(loss)............... 0.01 (1.72) (3.80) 2.36 3.08 2.89
------ ------ ------ ------ ------ ------
Total income (loss) from
investment operations.. 0.09 (1.63) (3.70) 2.48 3.21 3.05
------ ------ ------ ------ ------ ------
Less dividends and
distributions from:
Net investment
income............... - (0.27) - - - (0.23)
Net realized gain...... - - (3.18) (2.92) (1.88) (1.57)
------ ------ ------ ------ ------ ------
Total dividends and
distributions.......... - (0.27) (3.18) (2.92) (1.88) (1.80)
------ ------ ------ ------ ------ ------
Net asset value, end of
period................. $11.92 $11.83 $13.73 $20.61 $21.05 $19.72
====== ====== ====== ====== ====== ======
Total Return+............ 0.85%((1)) (12.20)% (20.95)% 11.19% 16.93% 18.12%
Ratios to Average Net
Assets((3)):
Expenses................. 1.21%((2)) 1.15 % 1.10 % 1.05% 1.13% 1.19%
Net investment income.... 1.30%((2)) 0.64 % 0.60 % 0.47% 0.67% 0.65%
Supplemental Data:
Net assets, end of
period, in thousands... $42,674 $39,716 $49,539 $54,016 $5,657 $2,575
Portfolio turnover
rate................... 29%((1)) 51 % 86 % 71% 56% 50%
</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) NOT ANNUALIZED.
(2) ANNUALIZED.
(3) REFLECTS OVERALL FUND RATIOS FOR INVESTMENT INCOME AND NON-CLASS
SPECIFIC EXPENSES.
SEE NOTES TO FINANCIAL STATEMENTS
19
<Page>
DIRECTORS
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
Wayne E. Hedien
James F. Higgins
Dr. Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell
OFFICERS
Charles A. Fiumefreddo
Chairman of the Board
Mitchell M. Merin
President
Ronald E. Robison
Executive Vice President and Principal Executive Officer
Barry Fink
Vice President, Secretary and General Counsel
Joseph J. McAlinden
Vice President
Francis Smith
Vice President and Chief Financial Officer
Thomas F. Caloia
Treasurer
TRANSFER AGENT
Morgan Stanley Trust
Harborside Financial Center - Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT AUDITORS
Deloitte & Touche LLP
Two World Financial Center
New York, New York 10281
INVESTMENT MANAGER
Morgan Stanley Investment Advisors Inc.
1221 Avenue of the Americas
New York, New York 10020
SUB-ADVISOR
Morgan Stanley Investment Management Inc.
1221 Avenue of the Americas
New York, New York 10020
The financial statements included herein have been taken from the records of
the Fund without examination by the independent auditors and accordingly they
do not express an opinion thereon.
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 directors. 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 Funds are distributed by Morgan Stanley Distributors Inc.
Morgan Stanley Distributors Inc., member NASD.
[MORGAN STANLEY LOGO]
[GRAPHIC]
Morgan Stanley
European Growth Fund
Semiannual Report
April 30, 2003
37908RPT-11187F03-AP-6/03
<Page>
Item 9 - Controls and Procedures
The Trust's principal executive officer and principal financial officer
have concluded that the Trust's disclosure controls and procedures are
sufficient to ensure that information required to be disclosed by the Trust
in this Form N-CSR was recorded, processed, summarized and reported within
the time periods specified in the Securities and Exchange Commission's rules
and forms, based upon such officers' evaluation of these controls and
procedures as of a date within 90 days of the filing date of the report.
There were no significant changes or corrective actions with regard to
siginficant deficiencies or material weaknesses in the Trust's internal controls
or in other factors that could significantly affect the Trust's internal
controls subsequent to the date of their evaluation.
<Page>
Item 10b Exhibits
A separate certification for each principal executive officer and principal
financial officer of the registrant are attached hereto as part of EX-99.CERT.
Items 2 - 8 and Item 10a are not applicable
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 European Growth Fund Inc.
Ronald E. Robison
Principal Executive Officer
June 20, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed by the following
persons on behalf of the registrant and in the capacities and on the dates
indicated.
Ronald E. Robison
Principal Executive Officer
June 20, 2003
Francis Smith
Principal Financial Officer
June 20, 2003