<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: 811-10353

Morgan Stanley KLD Social Index 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: November 30, 2003

Date of reporting period: May 31, 2003
<Page>
Item 1. Report to Stockholders.
Morgan Stanley KLD Social Index Fund
LETTER TO THE SHAREHOLDERS / / MAY 31, 2003

Dear Shareholder:
During the six-month period ended May 31, 2003, investor uncertainty regarding
world and economic events set the direction for the U.S. stock markets. War with
Iraq seemed imminent, though its economic and political impact was not so
apparent. There was concern for its effect on gas prices, world diplomacy, and
the U.S. dollar. Furthermore, weaker-than-expected consumer spending during the
holiday season had dampened hope for a market recovery.

As these issues became increasingly predictable, U.S. equity markets took a turn
for the better. Renewed investor confidence propelled equity markets, bolstered
by a combination of positive earnings and a three-week war led by coalition
forces. By the end of May, the Russell 1000-Registered Trademark- Index was at
its highest level in 10 months.

Performance
For the six-month period ended May 31, 2003, Morgan Stanley KLD Social Index
Fund's Class A, B, C and D shares returned 3.71 percent, 3.28 percent,
3.43 percent and 3.90 percent, respectively. For the same period, the KLD Large
Cap Social Index(SM)(1) (KLD Index) and Russell 1000 Index(2) returned
4.51 percent and 4.60 percent, respectively. The Lipper Large-Cap Core Fund
Index(3) returned 3.33 percent over the period. 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.

The Fund seeks to provide investment results that correspond, before expenses,
to the total return of the KLD Index, which is composed of medium- to
large-capitalization stocks that meet certain social and environmental criteria.
As of May 31, 2003, about 700 companies met KLD's broad-based screens. The
Investment Manager is using statistical sampling in an attempt to recreate the
portfolio characteristics of

- ------------------
(1) The KLD Large Cap Social Index(SM) begins with the Russell 1000 Index.
Companies on the KLD Large Cap Social Index(SM) are companies that pass KLD's
multiple proprietary environmental and social screens. Indexes are unmanaged and
their returns do not include any sales charges or fees. It is not possible to
invest directly in an index. The KLD Large Cap Social Index(SM) (KLD Index) is a
service mark of KLD Research & Analytics, Inc. (KLD). Morgan Stanley KLD Social
Index Fund is not promoted or endorsed by, or in any way affiliated with KLD.
KLD is not responsible for and has not reviewed the Fund or any associated
literature or publications. KLD makes no representation or warranty, express or
implied, as to their accuracy or completeness, or otherwise. The KLD Index is
derived from the constituents of the Russell 1000 Index. The Russell 1000 Index
is a trademark/service mark of the Frank Russell Company (FRC). The use of the
Russell 1000 Index as the universe for the KLD Index in no way suggests or
implies an opinion by FRC as to the attractiveness of the KLD Index or of the
investment in any or all of the securities upon which the Russell 1000 Index or
KLD Index are based.

(2) The Russell 1000-Registered Trademark- Index is a capitalization-weighted
index that comprises the 1,000 largest stocks included in the Russell 3000
Index. Indexes are unmanaged and their returns do not include any sales charges
or fees. It is not possible to invest directly in an index.

(3) The Lipper Large-Cap Core Fund Index is an equally weighted performance
index of the largest qualifying funds (based on net assets) in the Lipper
Large-Cap Core 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.
<Page>
Morgan Stanley KLD Social Index Fund
LETTER TO THE SHAREHOLDERS / / MAY 31, 2003 CONTINUED

the KLD Index. As of May 31, 2003 the Fund's portfolio consisted of
approximately 250 companies. Because the Fund's portfolio is intended to
replicate the KLD Index based on market capitalization, certain sectors are
either under- or overrepresented in the Fund. The financial services sector
accounted for the largest weighting of the Fund's portfolio, followed by
technology, health care and consumer discretionary. The utilities, materials and
energy sectors were among the lowest weightings.

We appreciate your ongoing support of Morgan Stanley KLD Social Index 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

Proxy Voting Policies and Procedures
A description of the Fund's policies and procedures with respect to the voting
of proxies relating to the Fund's portfolio securities is available without
charge, upon request, by calling (800) 869-NEWS. This information is also
available on the Securities and Exchange Commission's website at
http://www.sec.gov.

2
<Page>
Morgan Stanley KLD Social Index Fund
FUND PERFORMANCE / / MAY 31, 2003

<Table>
<Caption>
Average Annual Total Returns -- Period Ended May 31, 2003
------------------------------------------------------------------------------------------------------------------------------
Class A Shares* Class B Shares**
----------------------------------------------------------- -----------------------------------------------------------------

1 Year (8.38)%(1) (13.19)%(2) 1 Year (9.14)%(1) (13.65)%(2)
Since Inception
(07/13/01) (10.84)%(1) (13.36)%(2) Since Inception (07/13/01) (11.56)%(1) (13.45)%(2)
</Table>

<Table>
<Caption>
Class C Shares+ Class D Shares++
----------------------------------------------------------- -----------------------------------------------------------------

1 Year (9.04)%(1) (9.94)%(2) 1 Year (8.20)%(1)
Since Inception
(07/13/01) (11.51)%(1) (11.51)%(2) Since Inception (07/13/01) (10.66)%(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 KLD Social Index Fund
PORTFOLIO OF INVESTMENTS / / MAY 31, 2003 (UNAUDITED)

<Table>
<Caption>
NUMBER OF
SHARES VALUE

- ---------------------------------------------------------------

Common Stocks (98.9%)
ADVERTISING/MARKETING SERVICES (0.3%)
727 Interpublic Group of Companies, Inc..... $ 9,996
330 Omnicom Group, Inc...................... 23,037
----------
33,033
----------
AIR FREIGHT/COURIERS (0.9%)
610 FedEx Corp.............................. 39,028
700 United Parcel Service, Inc. (Class B)... 43,701
----------
82,729
----------
AIRLINES (0.3%)
1,753 Southwest Airlines Co................... 28,171
----------
APPAREL/FOOTWEAR (0.4%)
319 Cintas Corp............................. 11,809
226 Coach, Inc.*............................ 11,103
200 Liz Claiborne, Inc...................... 6,778
175 VF Corp................................. 6,662
----------
36,352
----------
APPAREL/FOOTWEAR RETAIL (0.4%)
600 Gap, Inc. (The)......................... 10,200
202 Ross Stores, Inc........................ 8,526
1,100 TJX Companies, Inc. (The)............... 20,020
----------
38,746
----------
AUTO PARTS: O.E.M. (0.3%)
1,203 Delphi Corp............................. 10,610
200 Johnson Controls, Inc................... 16,650
----------
27,260
----------
BEVERAGES: NON-ALCOHOLIC (1.7%)
3,400 Coca-Cola Co. (The)..................... 154,938
596 Coca-Cola Enterprises Inc............... 11,175
----------
166,113
----------
BIOTECHNOLOGY (2.4%)
2,250 Amgen Inc.*............................. 145,597
250 Biogen, Inc.*........................... 10,610
504 Genzyme Corp. (General Division)*....... 23,935
350 Gilead Sciences, Inc.*.................. 18,466

<Caption>
NUMBER OF
SHARES VALUE

- ---------------------------------------------------------------

200 IDEC Pharmaceuticals Corp.*............. $ 7,634
529 MedImmune, Inc.*........................ 18,753
----------
224,995
----------
BROADCASTING (0.2%)
456 Univision Communications, Inc. (Class
A)*.................................... 13,612
240 Westwood One, Inc.*..................... 8,126
----------
21,738
----------
BUILDING PRODUCTS (0.4%)
189 American Standard Companies, Inc.*...... 13,984
888 Masco Corp.............................. 21,845
----------
35,829
----------
CABLE/SATELLITE TV (1.8%)
4,100 Comcast Corp. (Class A)*................ 123,451
4,300 Liberty Media Corp. (Class A)*.......... 50,310
----------
173,761
----------
CHEMICALS: MAJOR DIVERSIFIED (0.1%)
270 Rohm & Haas Co.......................... 8,756
----------
CHEMICALS: SPECIALTY (0.5%)
467 Air Products & Chemicals, Inc........... 20,357
480 Praxair, Inc............................ 28,795
----------
49,152
----------
COMPUTER COMMUNICATIONS (2.2%)
12,100 Cisco Systems, Inc.*.................... 196,988
700 Juniper Networks, Inc.*................. 9,716
----------
206,704
----------
COMPUTER PERIPHERALS (0.7%)
3,900 EMC Corp.*.............................. 42,198
270 Lexmark International, Inc.*............ 20,088
----------
62,286
----------
COMPUTER PROCESSING HARDWARE (2.7%)
821 Apple Computer, Inc.*................... 14,753
3,950 Dell Computer Corp.*.................... 123,595
4,800 Hewlett-Packard Co...................... 93,600
5,982 Sun Microsystems, Inc.*................. 25,902
----------
257,850
----------
</Table>

SEE NOTES TO FINANCIAL STATEMENTS
4
<Page>
Morgan Stanley KLD Social Index Fund
PORTFOLIO OF INVESTMENTS / / MAY 31, 2003 (UNAUDITED) CONTINUED

<Table>
<Caption>
NUMBER OF
SHARES VALUE

- ---------------------------------------------------------------

CONTRACT DRILLING (0.1%)
300 ENSCO International Inc................. $ 9,000
----------
DATA PROCESSING SERVICES (1.4%)
1,200 Automatic Data Processing, Inc.......... 41,880
250 CheckFree Corp.*........................ 6,120
1,048 Concord EFS, Inc.*...................... 15,846
388 DST Systems, Inc.*...................... 13,704
336 Fiserv, Inc.*........................... 11,118
878 Paychex, Inc............................ 26,797
990 SunGard Data Systems Inc.*.............. 22,770
----------
138,235
----------
DEPARTMENT STORES (0.6%)
584 Kohl's Corp.*........................... 30,572
700 May Department Stores Co................ 15,183
400 Sears, Roebuck & Co..................... 11,992
----------
57,747
----------
DISCOUNT STORES (1.2%)
877 Costco Wholesale Corp.*................. 32,493
739 Dollar General Corp..................... 13,819
250 Family Dollar Stores, Inc............... 9,112
1,650 Target Corp............................. 60,439
----------
115,863
----------
DRUGSTORE CHAINS (0.8%)
832 CVS Corp................................ 21,715
1,800 Walgreen Co............................. 55,422
----------
77,137
----------
ELECTRICAL PRODUCTS (0.4%)
750 Emerson Electric Co..................... 39,225
----------
ELECTRONIC COMPONENTS (0.1%)
255 QLogic Corp.*........................... 12,773
----------
ELECTRONIC EQUIPMENT/ INSTRUMENTS (0.4%)
627 Symbol Technologies, Inc................ 8,402
361 Waters Corp.*........................... 10,238
1,925 Xerox Corp.*............................ 21,040
----------
39,680
----------
ELECTRONIC PRODUCTION EQUIPMENT (0.8%)
2,800 Applied Materials, Inc.*................ 43,568

<Caption>
NUMBER OF
SHARES VALUE

- ---------------------------------------------------------------

513 KLA-Tencor Corp.*....................... $ 23,716
372 Novellus Systems, Inc.*................. 12,890
----------
80,174
----------
ELECTRONICS/APPLIANCE STORES (0.3%)
540 Best Buy Co., Inc.*..................... 20,898
429 RadioShack Corp......................... 10,339
----------
31,237
----------
ELECTRONICS/APPLIANCES (0.1%)
208 Whirlpool Corp.......................... 11,835
----------
FINANCE/RENTAL/LEASING (3.4%)
460 Capital One Financial Corp.............. 22,158
279 Countrywide Financial Corp.............. 20,548
1,760 Fannie Mae.............................. 130,240
1,220 Freddie Mac............................. 72,968
2,026 MBNA Corp............................... 40,621
300 SLM Corp................................ 36,000
----------
322,535
----------
FINANCIAL CONGLOMERATES (3.0%)
2,473 American Express Co..................... 103,025
2,900 J.P. Morgan Chase & Co.................. 95,294
786 Principal Financial Group, Inc.......... 24,963
1,140 Prudential Financial, Inc............... 38,213
687 State Street Corp....................... 26,319
----------
287,814
----------
FINANCIAL PUBLISHING/ SERVICES (0.2%)
340 McGraw-Hill Companies, Inc. (The)....... 21,491
----------
FOOD DISTRIBUTORS (0.4%)
348 Supervalu, Inc.......................... 6,908
1,150 SYSCO Corp.............................. 35,581
----------
42,489
----------
FOOD RETAIL (0.5%)
650 Albertson's, Inc........................ 13,565
1,600 Kroger Co.*............................. 25,680
400 Safeway Inc.*........................... 7,536
----------
46,781
----------
FOOD: MAJOR DIVERSIFIED (2.1%)
700 General Mills, Inc...................... 32,746
</Table>

SEE NOTES TO FINANCIAL STATEMENTS
5
<Page>
Morgan Stanley KLD Social Index Fund
PORTFOLIO OF INVESTMENTS / / MAY 31, 2003 (UNAUDITED) CONTINUED

<Table>
<Caption>
NUMBER OF
SHARES VALUE

- ---------------------------------------------------------------

650 Heinz (H.J.) Co......................... $ 21,495
339 Kellogg Co.............................. 11,933
2,960 PepsiCo, Inc............................ 130,832
----------
197,006
----------
FOOD: SPECIALTY/CANDY (0.3%)
200 Hershey Foods Corp...................... 14,220
280 Wrigley (Wm.) Jr. Co. (Class A)......... 15,820
----------
30,040
----------
GAS DISTRIBUTORS (0.4%)
330 KeySpan Corp............................ 11,623
180 Kinder Morgan, Inc...................... 9,189
771 NiSource Inc............................ 15,119
----------
35,931
----------
HOME BUILDING (0.3%)
140 Centex Corp............................. 10,868
227 D.R. Horton, Inc........................ 5,968
113 Lennar Corp............................. 7,577
99 Pulte Homes, Inc........................ 6,493
----------
30,906
----------
HOME FURNISHINGS (0.3%)
353 Leggett & Platt, Inc.................... 7,791
670 Newell Rubbermaid, Inc.................. 19,095
----------
26,886
----------
HOME IMPROVEMENT CHAINS (2.1%)
4,300 Home Depot, Inc. (The).................. 139,707
1,400 Lowe's Companies, Inc................... 59,164
----------
198,871
----------
HOSPITAL/NURSING MANAGEMENT (0.1%)
554 Health Management Associates, Inc.
(Class A).............................. 10,332
----------
HOUSEHOLD/PERSONAL CARE (4.4%)
522 Avon Products, Inc...................... 31,811
940 Colgate-Palmolive Co.................... 56,043
1,900 Gillette Co. (The)...................... 63,859
1,050 Kimberly-Clark Corp..................... 54,526
2,340 Procter & Gamble Co. (The).............. 214,859
----------
421,098
----------

<Caption>
NUMBER OF
SHARES VALUE

- ---------------------------------------------------------------

INDUSTRIAL CONGLOMERATES (0.9%)
700 3M Co................................... $ 88,529
----------
INDUSTRIAL MACHINERY (0.2%)
350 Illinois Tool Works Inc................. 21,717
----------
INDUSTRIAL SPECIALTIES (0.2%)
300 Ecolab, Inc............................. 16,125
----------
INFORMATION TECHNOLOGY SERVICES (2.8%)
600 Electronic Data Systems Corp............ 12,090
2,890 International Business Machines Corp.... 254,436
----------
266,526
----------
INSURANCE BROKERS/ SERVICES (0.5%)
936 Marsh & McLennan Companies, Inc......... 46,922
----------
INTERNET RETAIL (0.4%)
505 Amazon.com, Inc.*....................... 18,150
449 USA Interactive, Inc.*.................. 17,264
----------
35,414
----------
INTERNET SOFTWARE/ SERVICES (0.3%)
900 BEA Systems, Inc.*...................... 9,756
700 Yahoo! Inc.*............................ 20,895
----------
30,651
----------
INVESTMENT BANKS/ BROKERS (1.3%)
450 Goldman Sachs Group, Inc. (The)......... 36,675
1,500 Merrill Lynch & Co., Inc................ 64,950
2,327 Schwab (Charles) Corp. (The)............ 22,572
----------
124,197
----------
INVESTMENT MANAGERS (0.5%)
320 Franklin Resources, Inc................. 11,958
902 Janus Capital Group Inc................. 14,026
745 Mellon Financial Corp................... 20,242
----------
46,226
----------
LIFE/HEALTH INSURANCE (0.7%)
1,168 AFLAC, Inc.............................. 38,439
200 Jefferson-Pilot Corp.................... 8,438
</Table>

SEE NOTES TO FINANCIAL STATEMENTS
6
<Page>
Morgan Stanley KLD Social Index Fund
PORTFOLIO OF INVESTMENTS / / MAY 31, 2003 (UNAUDITED) CONTINUED

<Table>
<Caption>
NUMBER OF
SHARES VALUE

- ---------------------------------------------------------------

437 Lincoln National Corp................... $ 15,208
593 UnumProvident Corp...................... 7,650
----------
69,735
----------
MAJOR BANKS (7.7%)
2,620 Bank of America Corp.................... 194,404
2,230 Bank One Corp........................... 83,313
950 BB&T Corp............................... 32,480
2,000 FleetBoston Financial Corp.............. 59,140
500 KeyCorp................................. 13,200
1,119 National City Corp...................... 37,845
550 PNC Financial Services Group............ 27,087
376 Popular, Inc............................ 14,849
402 SunTrust Banks, Inc..................... 23,839
2,453 Wachovia Corp........................... 98,562
3,100 Wells Fargo & Co........................ 149,730
----------
734,449
----------
MAJOR TELECOMMUNICATIONS (5.1%)
808 ALLTEL Corp............................. 38,687
1,500 AT&T Corp............................... 29,235
3,400 BellSouth Corp.......................... 90,134
5,520 SBC Communications, Inc................. 140,539
1,540 Sprint Corp. (FON Group)................ 20,882
4,470 Verizon Communications Inc.............. 169,189
----------
488,666
----------
MANAGED HEALTH CARE (1.6%)
276 Aetna Inc............................... 15,848
270 Anthem, Inc.*........................... 19,804
798 Caremark Rx, Inc.*...................... 18,019
302 CIGNA Corp.............................. 16,942
273 Oxford Health Plans, Inc.*.............. 10,109
520 UnitedHealth Group Inc.................. 49,889
250 WellPoint Health Networks, Inc.*........ 21,335
----------
151,946
----------
MEDIA CONGLOMERATES (2.0%)
7,580 AOL Time Warner Inc.*................... 115,368
4,000 Disney (Walt) Co. (The)................. 78,600
----------
193,968
----------

<Caption>
NUMBER OF
SHARES VALUE

- ---------------------------------------------------------------

MEDICAL DISTRIBUTORS (0.7%)
830 Cardinal Health, Inc.................... $ 47,899
530 McKesson Corp........................... 16,070
----------
63,969
----------
MEDICAL SPECIALTIES (3.1%)
584 Applera Corp. - Applied Biosystems
Group.................................. 11,370
176 Bard (C.R.), Inc........................ 12,346
1,137 Baxter International, Inc............... 28,812
600 Becton, Dickinson & Co.................. 24,000
474 Biomet, Inc............................. 13,035
508 Boston Scientific Corp.*................ 26,467
527 Guidant Corp............................ 22,282
2,000 Medtronic, Inc.......................... 97,460
295 St. Jude Medical, Inc.*................. 16,549
330 Stryker Corp............................ 22,222
170 Varian Medical Systems, Inc.*........... 9,477
335 Zimmer Holdings, Inc.*.................. 15,028
----------
299,048
----------
MOTOR VEHICLES (0.3%)
600 Harley-Davidson, Inc.................... 25,296
----------
MULTI-LINE INSURANCE (2.7%)
3,900 American International Group, Inc....... 225,732
601 Hartford Financial Services Group, Inc.
(The).................................. 28,031
----------
253,763
----------
OFFICE EQUIPMENT/ SUPPLIES (0.3%)
175 Avery Dennison Corp..................... 9,709
420 Pitney Bowes, Inc....................... 16,132
----------
25,841
----------
OIL & GAS PRODUCTION (0.9%)
714 Anadarko Petroleum Corp................. 35,186
320 Apache Corp............................. 21,094
600 Devon Energy Corp....................... 31,200
----------
87,480
----------
OIL REFINING/MARKETING (0.1%)
130 Valero Energy Corp...................... 4,875
----------
</Table>

SEE NOTES TO FINANCIAL STATEMENTS
7
<Page>
Morgan Stanley KLD Social Index Fund
PORTFOLIO OF INVESTMENTS / / MAY 31, 2003 (UNAUDITED) CONTINUED

<Table>
<Caption>
NUMBER OF
SHARES VALUE

- ---------------------------------------------------------------

OILFIELD SERVICES/ EQUIPMENT (0.2%)
700 Baker Hughes Inc........................ $ 23,135
----------
OTHER CONSUMER SERVICES (0.5%)
303 Apollo Group, Inc. (Class A)*........... 17,701
300 eBay, Inc.*............................. 30,513
----------
48,214
----------
PACKAGED SOFTWARE (5.6%)
535 Adobe Systems, Inc...................... 18,880
400 BMC Software, Inc.*..................... 6,784
306 Mercury Interactive Corp.*.............. 12,029
14,600 Microsoft Corp. **...................... 359,306
6,940 Oracle Corp.*........................... 90,289
410 Symantec Corp.*......................... 18,540
1,100 VERITAS Software Corp.*................. 30,525
----------
536,353
----------
PHARMACEUTICALS: GENERIC DRUGS (0.1%)
400 Mylan Laboratories, Inc................. 11,552
----------
PHARMACEUTICALS: MAJOR (5.2%)
5,000 Johnson & Johnson....................... 271,750
4,050 Merck & Co., Inc........................ 225,099
----------
496,849
----------
PHARMACEUTICALS: OTHER (0.6%)
250 Allergan, Inc........................... 18,028
722 Forest Laboratories, Inc.*.............. 36,461
----------
54,489
----------
PROPERTY - CASUALTY INSURERS (0.4%)
292 Chubb Corp. (The)....................... 18,697
310 Progressive Corp. (The)................. 22,320
----------
41,017
----------
PUBLISHING: NEWSPAPERS (0.2%)
400 Tribune Co.............................. 19,952
----------
RAILROADS (0.2%)
971 Norfolk Southern Corp................... 21,284
----------
REAL ESTATE INVESTMENT TRUSTS (1.2%)
440 Archstone-Smith Trust................... 10,454

<Caption>
NUMBER OF
SHARES VALUE

- ---------------------------------------------------------------

770 Equity Office Properties Trust.......... $ 20,721
1,037 Highwoods Properties, Inc............... 22,161
300 Hospitality Properties Trust............ 9,477
757 Plum Creek Timber Co., Inc.............. 19,985
450 ProLogis Trust.......................... 12,101
490 Simon Property Group, Inc............... 18,434
----------
113,333
----------
RECREATIONAL PRODUCTS (0.4%)
276 Electronic Arts Inc.*................... 18,923
950 Mattel, Inc............................. 20,435
----------
39,358
----------
REGIONAL BANKS (2.5%)
850 AmSouth Bancorporation.................. 18,972
970 Fifth Third Bancorp..................... 55,775
300 First Tennessee National Corp........... 14,028
408 North Fork Bancorporation, Inc.......... 13,493
394 Northern Trust Corp..................... 15,035
500 Regions Financial Corp.................. 17,520
548 Synovus Financial Corp.................. 12,505
3,296 U.S. Bancorp............................ 78,115
489 Union Planters Corp..................... 15,736
----------
241,179
----------
RESTAURANTS (0.7%)
450 Darden Restaurants, Inc................. 8,915
2,200 McDonald's Corp......................... 41,206
750 Starbucks Corp.*........................ 18,481
----------
68,602
----------
SAVINGS BANKS (1.4%)
400 Charter One Financial, Inc.............. 12,184
250 Golden West Financial Corp.............. 19,448
308 GreenPoint Financial Corp............... 15,613
1,119 Sovereign Bancorp, Inc.................. 18,262
1,720 Washington Mutual, Inc.................. 70,142
----------
135,649
----------
SEMICONDUCTORS (4.3%)
1,126 Altera Corp.*........................... 21,709
700 Analog Devices, Inc.*................... 26,985
11,550 Intel Corp.............................. 240,702
705 Maxim Integrated Products, Inc.......... 27,643
1,154 Micron Technology, Inc.*................ 13,063
</Table>

SEE NOTES TO FINANCIAL STATEMENTS
8
<Page>
Morgan Stanley KLD Social Index Fund
PORTFOLIO OF INVESTMENTS / / MAY 31, 2003 (UNAUDITED) CONTINUED

<Table>
<Caption>
NUMBER OF
SHARES VALUE

- ---------------------------------------------------------------

3,100 Texas Instruments, Inc.................. $ 63,550
570 Xilinx, Inc.*........................... 17,026
----------
410,678
----------
SERVICES TO THE HEALTH INDUSTRY (0.2%)
161 Express Scripts, Inc. (Class A)*........ 10,536
557 IMS Health Inc.......................... 9,937
----------
20,473
----------
SPECIALTY INSURANCE (0.6%)
251 Ambac Financial Group, Inc.............. 16,744
325 Fidelity National Financial, Inc........ 10,098
150 MBIA, Inc............................... 7,508
131 MGIC Investment Corp.................... 7,077
319 Radian Group, Inc....................... 12,846
----------
54,273
----------
SPECIALTY STORES (0.9%)
176 AutoZone, Inc.*......................... 14,728
695 Bed Bath & Beyond Inc.*................. 29,079
170 Carmax Inc.*............................ 3,953
823 Office Depot, Inc.*..................... 11,028
968 Staples, Inc.*.......................... 18,770
339 Williams-Sonoma, Inc.*.................. 9,638
----------
87,196
----------
STEEL (0.2%)
304 Nucor Corp.............................. 14,483
----------
TELECOMMUNICATION EQUIPMENT (1.2%)
2,574 Corning Inc.*........................... 18,816
9,425 Lucent Technologies Inc.*............... 20,829
3,800 Motorola, Inc........................... 32,376
1,300 QUALCOMM Inc............................ 43,654
----------
115,675
----------
TOOLS/HARDWARE (0.1%)
150 Black & Decker Corp. (The).............. 6,497
----------
TRUCKS/CONSTRUCTION/FARM
MACHINERY (0.2%)
450 Deere & Co.............................. 19,652
----------

<Caption>
NUMBER OF
SHARES VALUE

- ---------------------------------------------------------------

WHOLESALE DISTRIBUTORS (0.1%)
300 Genuine Parts Co........................ $ 9,861
----------
WIRELESS TELECOMMUNICATIONS (0.6%)
4,400 AT&T Wireless Services Inc.*............ 34,188
1,430 Nextel Communications, Inc. (Class
A)*.................................... 21,436
----------
55,624
----------
</Table>

<Table>

Total Investments
(COST $11,081,890) (A)................. 98.9% 9,459,282
Other Assets in Excess of Liabilities... 1.1 109,106
------ ----------
Net Assets.............................. 100.0% $9,568,388
====== ==========
</Table>

- ---------------------------------------------------

* NON-INCOME PRODUCING SECURITY.
** A PORTION OF THIS SECURITY IS PHYSICALLY SEGREGATED IN CONNECTION WITH
OPEN FUTURES CONTRACTS.
(A) THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES APPROXIMATES THE
AGGREGATE COST FOR BOOK PURPOSES. THE AGGREGATE GROSS UNREALIZED
APPRECIATION IS $555,505 AND THE AGGREGATE GROSS UNREALIZED DEPRECIATION
IS $2,178,113, RESULTING IN NET UNREALIZED DEPRECIATION OF $1,622,608.

<Table>
<Caption>
Futures Contracts Open at May 31, 2003:
DESCRIPTION, UNDERLYING
DELIVERY FACE
NUMBER OF LONG/ MONTH, AMOUNT UNREALIZED
CONTRACTS SHORT AND YEAR AT VALUE APPRECIATION
- --------------------------------------------------------------------------------

1 Long S&P Index
EMINI
June 2003 $48,165 $ 549
1 Long Nasdaq 100
Index EMINI
June 2003 23,980 1,287
------
Total unrealized appreciation.......... $1,836
======
</Table>

SEE NOTES TO FINANCIAL STATEMENTS
9
<Page>
Morgan Stanley KLD Social Index Fund
FINANCIAL STATEMENTS

Statement of Assets and Liabilities
MAY 31, 2003 (UNAUDITED)

<Table>

Assets:
Investments in securities, at value (cost
$11,081,890)..................................... $9,459,282
Cash.............................................. 47,058
Receivable for:
Shares of beneficial interest sold.............. 61,638
Dividends....................................... 7,719
Variation margin................................ 1,105
Prepaid expenses and other assets................. 860
Receivable from affiliate......................... 81,276
----------
Total Assets.................................. 9,658,938
----------
Liabilities:
Payable for:
Distribution fee................................ 6,176
Shares of beneficial interest redeemed.......... 2,238
Accrued expenses and other payables............... 82,136
----------
Total Liabilities............................. 90,550
----------
Net Assets.................................... $9,568,388
==========
Composition of Net Assets:
Paid-in-capital................................... $14,347,131
Net unrealized depreciation....................... (1,620,772)
Accumulated undistributed net investment income... 33,154
Accumulated net realized loss..................... (3,191,125)
----------
Net Assets.................................... $9,568,388
==========
Class A Shares:
Net Assets........................................ $987,167
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR
VALUE)........................................... 125,060
Net Asset Value Per Share..................... $ 7.89
==========
Maximum Offering Price Per Share,
(NET ASSET VALUE PLUS 5.54% OF NET ASSET
VALUE)....................................... $ 8.33
==========
Class B Shares:
Net Assets........................................ $6,245,965
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR
VALUE)........................................... 793,210
Net Asset Value Per Share..................... $ 7.87
==========
Class C Shares:
Net Assets........................................ $1,038,063
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR
VALUE)........................................... 132,292
Net Asset Value Per Share..................... $ 7.85
==========
Class D Shares:
Net Assets........................................ $1,297,193
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR
VALUE)........................................... 164,160
Net Asset Value Per Share..................... $ 7.90
==========
</Table>

SEE NOTES TO FINANCIAL STATEMENTS
10
<Page>
Morgan Stanley KLD Social Index Fund
FINANCIAL STATEMENTS CONTINUED

Statement of Operations
FOR THE SIX MONTHS ENDED MAY 31, 2003 (UNAUDITED)

<Table>

Net Investment Income:
Dividend Income................................... $ 77,806
---------
Expenses
Shareholder reports and notices................... 38,755
Professional fees................................. 27,541
Distribution fee (Class A shares)................. 426
Distribution fee (Class B shares)................. 27,481
Distribution fee (Class C shares)................. 4,651
KLD licensing fee................................. 22,215
Investment management fee......................... 19,965
Transfer agent fees and expenses.................. 6,824
Other............................................. 3,275
---------
Total Expenses................................ 151,133
Less: amounts waived/reimbursed................... (118,574)
---------
Net Expenses.................................. 32,559
---------
Net Investment Income......................... 45,247
---------

Net Realized and Unrealized Gain (Loss):
Net Realized Loss on:
Investments..................................... (950,923)
Futures contracts............................... (3,185)
---------
Net Realized Loss............................. (954,108)
---------
Net Change in Unrealized Appreciation/Depreciation
on:
Investments..................................... 1,087,617
Futures contracts............................... (160)
---------
Net Appreciation.............................. 1,087,457
---------
Net Gain...................................... 133,349
---------
Net Increase...................................... $ 178,596
=========
</Table>

SEE NOTES TO FINANCIAL STATEMENTS
11
<Page>
Morgan Stanley KLD Social Index Fund
FINANCIAL STATEMENTS CONTINUED

Statement of Changes in Net Assets

<Table>
<Caption>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
MAY 31, 2003 NOVEMBER 30, 2002
------------ -----------------
(UNAUDITED)

Increase (Decrease) in Net Assets:
Operations:
Net investment income................... $ 45,247 $ 134,324
Net realized loss....................... (954,108) (2,093,630)
Net change in unrealized depreciation... 1,087,457 (1,568,271)
----------- -----------

Net Increase (Decrease)............. 178,596 (3,527,577)
----------- -----------

Dividends to Shareholders from Net
Investment Income:
Class A shares.......................... (11,379) (1,868)
Class B shares.......................... (41,845) (2,692)
Class C shares.......................... (8,411) (1,886)
Class D shares.......................... (70,365) (79,073)
----------- -----------

Total Dividends..................... (132,000) (85,519)
----------- -----------

Net decrease from transactions in shares
of beneficial interest................. (2,303,474) (3,480,546)
----------- -----------

Net Decrease........................ (2,256,878) (7,093,642)

Net Assets:
Beginning of period..................... 11,825,266 18,918,908
----------- -----------

End of Period
(Including accumulated undistributed
net investment income of $33,154 and
$119,907, respectively)................ $ 9,568,388 $11,825,266
=========== ===========
</Table>

SEE NOTES TO FINANCIAL STATEMENTS
12
<Page>
Morgan Stanley KLD Social Index Fund
NOTES TO FINANCIAL STATEMENTS / / MAY 31, 2003 (UNAUDITED)

1. Organization and Accounting Policies
Morgan Stanley KLD Social Index 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's investment objective is to
provide investment results that before expenses corresponds to the total return
of the KLD Large Cap Social Index(SM) ("KLD Index"). The Fund seeks to achieve
its objective by investing, under normal circumstances, at least 80% of the
value of its net assets in common stocks of companies included in the KLD Index.
The Fund was organized as a Massachusetts business trust on April 6, 2001 and
commenced operations on July 13, 2001.

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) futures are valued at the latest price published by the
commodities exchange on which they trade; (6) when market quotations are not
readily available or Morgan Stanley Investment Advisors Inc. (the "Investment
Manager") determines that the latest sale price, the bid price or the mean
between the last reported bid and asked price do not reflect a security's market
value, portfolio securities are valued at their fair value as determined in good
faith under procedures established by and under the general supervision of the
Fund's Trustees; and (7) short-term debt securities having a maturity date of
more than sixty days at time of purchase are valued on a

13
<Page>
Morgan Stanley KLD Social Index Fund
NOTES TO FINANCIAL STATEMENTS / / MAY 31, 2003 (UNAUDITED) CONTINUED

mark-to-market basis until sixty days prior to maturity and thereafter at
amortized cost based on their value on the 61st day. Short-term debt securities
having a maturity date of sixty days or less at the time of purchase are valued
at amortized cost.

B. Accounting for Investments -- Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined by the identified cost method.
Dividend income and other distributions are recorded on the ex-dividend date.
Discounts are accreted and premiums are amortized over the life of the
respective securities. Interest income is accrued daily.

C. Repurchase Agreements -- Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the Fund, along with other affiliated
entities managed by the Investment Manager, may transfer uninvested cash
balances into one or more joint repurchase agreement accounts. These balances
are invested in one or more repurchase agreements and are collateralized by
cash, U.S. Treasury or federal agency obligations. The Fund may also invest
directly with institutions in repurchase agreements. The Fund's custodian
receives the collateral, which is marked-to-market daily to determine that the
value of the collateral does not decrease below the repurchase price plus
accrued interest.

D. Multiple Class Allocations -- Investment income, expenses (other than
distribution fees), and realized and unrealized gains and losses are allocated
to each class of shares based upon the relative net asset value on the date such
items are recognized. Distribution fees are charged directly to the respective
class.

E. Futures Contracts -- A futures contract is an agreement between two parties
to buy and sell financial instruments or contracts based on financial indices at
a set price on a future date. Upon entering into such a contract, the Fund is
required to pledge to the broker cash, U.S. Government securities or other
liquid portfolio securities equal to the minimum initial margin requirements of
the applicable futures exchange. Pursuant to the contract, the Fund agrees to
receive from or pay to the broker an amount of cash equal to the daily
fluctuation in the value of the contract. Such receipts or payments known as
variation margin are recorded by the Fund as unrealized gains and losses. Upon
closing of the contract, the Fund realizes a gain or loss equal to the
difference between the value of the contract at the time it was opened and the
value at the time it was closed.

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.

14
<Page>
Morgan Stanley KLD Social Index Fund
NOTES TO FINANCIAL STATEMENTS / / MAY 31, 2003 (UNAUDITED) CONTINUED

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 Agreement
Pursuant to an Investment Management Agreement, the Fund pays the Investment
Manager a management fee, accrued daily and payable monthly, by applying the
annual rate of 0.40% to the average net assets of the Fund determined as of the
close of each business day.

The Investment Manager has agreed to waive its fee and assume all operating
expenses (except for distribution fees) until such time as the Fund has $50
million of net assets or December 31, 2003, whichever occurs first. Thereafter,
the Investment Manager has agreed to assume all operating expenses (except for
distribution fees) and to waive the compensation provided for in its Investment
Management Agreement to the extent that such expenses and compensation on an
annual basis exceed 0.60% of the daily net assets of the Fund. At May 31, 2003,
included in the Statement of Assets and Liabilities is a receivable from
affiliate, which represents 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 Manager. The Fund has adopted a
Plan of Distribution (the "Plan") pursuant to Rule 12b-1 under the Act. The Plan
provides that the Fund will pay the Distributor a fee which is accrued daily and
paid monthly at the following annual rates: (i) Class A -- up to 0.25% of the
average daily net assets of

15
<Page>
Morgan Stanley KLD Social Index Fund
NOTES TO FINANCIAL STATEMENTS / / MAY 31, 2003 (UNAUDITED) CONTINUED

Class A; (ii) Class B -- 1.0% of the average daily net assets of Class B; and
(iii) Class C -- up to 1.0% of the average daily net assets of Class C.

In the case of Class B shares, provided that the Plan continues in effect, any
cumulative expenses incurred by the Distributor but not yet recovered may be
recovered through the payment of future distribution fees from the Fund pursuant
to the Plan and contingent deferred sales charges paid by 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 $1,103,826
at May 31, 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 May 31, 2003, the distribution fee was accrued for
Class A shares and Class C shares at the annual rate of 0.11% and 1.0%,
respectively.

The Distributor has informed the Fund that for the six months ended May 31,
2003, it received contingent deferred sales charges from certain redemptions of
the Fund's Class B shares and Class C shares of $10,631 and $17, respectively
and received $7,190 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 six months ended May 31, 2003 aggregated
$155,014 and $2,486,625, respectively.

Morgan Stanley Trust, an affiliate of the Investment Manager and Distributor, is
the Fund's transfer agent.

5. Federal Income Tax Status
At November 30, 2002, the Fund had a net capital loss carryover of approximately
$2,221,000 of which $20,000 will be available through November 30, 2009, and
$2,201,000 will be available through November 30, 2010 to offset future capital
gains to the extent provided by regulations.

16
<Page>
Morgan Stanley KLD Social Index Fund
NOTES TO FINANCIAL STATEMENTS / / MAY 31, 2003 (UNAUDITED) CONTINUED

Capital losses incurred after October 31 ("post-October losses") within the
taxable year are deemed to arise on the first business day of the Fund's next
taxable year. The Fund incurred and will elect to defer net capital losses of
approximately $11,000 during fiscal 2002.

As of November 30, 2002, the Fund had temporary book/tax differences
attributable to post-October losses, the mark-to-market of open futures
contracts and capital loss deferrals on wash sales.

6. Shares of Beneficial Interest
Transactions in shares of beneficial interest were as follows:

<Table>
<Caption>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
MAY 31, 2003 NOVEMBER 30, 2002
--------------------- ---------------------
(UNAUDITED)
SHARES AMOUNT SHARES AMOUNT
-------- ----------- -------- -----------

CLASS A SHARES
Sold.......................... 56,822 $ 395,725 78,538 $ 650,574
Reinvestment of dividends..... 1,546 11,206 199 1,868
Redeemed...................... (31,173) (215,001) (15,868) (121,933)
-------- ----------- -------- -----------
Net increase -- Class A....... 27,195 191,930 62,869 530,509
-------- ----------- -------- -----------
CLASS B SHARES
Sold.......................... 116,789 826,742 354,989 3,046,133
Reinvestment of dividends..... 5,149 37,382 255 2,389
Redeemed...................... (67,309) (484,642) (88,137) (678,301)
-------- ----------- -------- -----------
Net increase -- Class B....... 54,629 379,482 267,107 2,370,221
-------- ----------- -------- -----------
CLASS C SHARES
Sold.......................... 16,441 120,393 78,785 674,914
Reinvestment of dividends..... 984 7,124 160 1,494
Redeemed...................... (13,039) (92,433) (9,086) (72,352)
-------- ----------- -------- -----------
Net increase -- Class C....... 4,386 35,084 69,859 604,056
-------- ----------- -------- -----------
CLASS D SHARES
Sold.......................... 61,009 445,735 96,739 787,983
Reinvestment of dividends..... 9,298 67,503 8,438 79,063
Redeemed...................... (476,988) (3,423,208) (985,266) (7,852,378)
-------- ----------- -------- -----------
Net decrease -- Class D....... (406,681) (2,909,970) (880,089) (6,985,332)
-------- ----------- -------- -----------
Net decrease in Fund.......... (320,471) $(2,303,474) (480,254) $(3,480,546)
======== =========== ======== ===========
</Table>

17
<Page>
Morgan Stanley KLD Social Index Fund
NOTES TO FINANCIAL STATEMENTS / / MAY 31, 2003 (UNAUDITED) CONTINUED

7. Purposes Of And Risks Relating To Certain Financial Instruments
The Fund may purchase and sell stock index futures ("futures contracts") for the
following reasons: to simulate full investment in the KLD Index while retaining
a cash balance for fund management purposes; to facilitate trading; to reduce
transaction costs; or to seek higher investment returns when a futures contract
is priced more attractively than stocks comprising the KLD Index.

These futures contracts involve elements of market risk in excess of the amount
reflected in the Statement of Assets and Liabilities. The Fund bears the risk of
an unfavorable change in the value of the underlying securities. Risks may also
arise upon entering into these contracts from the potential inability of the
counter parties to meet the terms of their contracts.

At May 31, 2003, the Fund had outstanding futures contracts.

18
<Page>
Morgan Stanley KLD Social Index Fund
FINANCIAL HIGHLIGHTS

Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:

<Table>
<Caption>
FOR THE PERIOD
FOR THE SIX FOR THE YEAR JULY 13, 2001*
MONTHS ENDED ENDED THROUGH
MAY 31, 2003 NOVEMBER 30, 2002 NOVEMBER 30, 2001
--------------- ----------------- -----------------
(UNAUDITED)

Class A Shares
Selected Per Share Data:
Net asset value, beginning of
period............................ $ 7.73 $ 9.39 $10.00
------ ------ ------
Income (loss) from investment
operations:
Net investment income++.......... 0.05 0.09 0.03
Net realized and unrealized gain
(loss).......................... 0.23 (1.70) (0.64)
------ ------ ------
Total income (loss) from investment
operations........................ 0.28 (1.61) (0.61)
------ ------ ------

Less dividends from net investment
income............................ (0.12) (0.05) -
------ ------ ------

Net asset value, end of period..... $ 7.89 $ 7.73 $ 9.39
====== ====== ======

Total Return+...................... 3.71%(1) (17.25)% (6.10)%(1)

Ratios to Average Net Assets(3)(4):
Expenses........................... 0.11%(2) 0.24 % 0.25 %(2)
Net investment income.............. 1.45%(2) 1.01 % 0.85 %(2)
Supplemental Data:
Net assets, end of period, in
thousands......................... $987 $756 $329
Portfolio turnover rate............ 2%(1) 13 % 3 %(1)
</Table>

- ---------------------

* COMMENCEMENT OF OPERATIONS.
++ 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.
(4) IF THE FUND HAD BORNE ALL ITS EXPENSES THAT WERE REIMBURSED OR WAIVED BY
THE INVESTMENT MANAGER, THE ANNUALIZED EXPENSE AND NET INVESTMENT LOSS
RATIOS WOULD HAVE BEEN AS FOLLOWS:

<Table>
<Caption>
EXPENSE NET INVESTMENT
PERIOD ENDED RATIO LOSS RATIO
------------ --------- -----------------

MAY 31, 2003................................................ 2.49% (0.93)%
NOVEMBER 30, 2002........................................... 2.14% (0.89)%
NOVEMBER 30, 2001........................................... 2.35% (1.25)%
</Table>

SEE NOTES TO FINANCIAL STATEMENTS
19
<Page>
Morgan Stanley KLD Social Index Fund
FINANCIAL HIGHLIGHTS CONTINUED

Class B Shares
Selected Per Share Data:
Net asset value, beginning of
period............................ $ 7.68 $ 9.36 $10.00
------ ------ ------
Income (loss) from investment
operations:
Net investment income++.......... 0.02 0.02 0.00
Net realized and unrealized gain
(loss).......................... 0.23 (1.69) (0.64)
------ ------ ------
Total income (loss) from investment
operations........................ 0.25 (1.67) (0.64)
------ ------ ------

Less dividends from net investment
income............................ (0.06) (0.01) -
------ ------ ------

Net asset value, end of period..... $ 7.87 $ 7.68 $ 9.36
====== ====== ======

Total Return+...................... 3.28%(1) (17.90)% (6.40)%(1)

Ratios to Average Net Assets(3)(4):
Expenses........................... 1.00%(2) 1.00 % 1.00 %(2)
Net investment income.............. 0.56%(2) 0.25 % 0.10 %(2)
Supplemental Data:
Net assets, end of period, in
thousands......................... $6,246 $5,670 $4,413
Portfolio turnover rate............ 2%(1) 13 % 3 %(1)
</Table>

- ---------------------

<Table>
<Caption>
EXPENSE NET INVESTMENT
PERIOD ENDED RATIO LOSS RATIO
------------ --------- -----------------

MAY 31, 2003................................................ 3.38% (1.82)%
NOVEMBER 30, 2002........................................... 2.90% (1.65)%
NOVEMBER 30, 2001........................................... 3.10% (2.00)%
</Table>

SEE NOTES TO FINANCIAL STATEMENTS
20
<Page>
Morgan Stanley KLD Social Index Fund
FINANCIAL HIGHLIGHTS CONTINUED

Class C Shares
Selected Per Share Data:
Net asset value, beginning of
period............................ $ 7.66 $ 9.36 $10.00
------ ------ ------
Income (loss) from investment
operations:
Net investment income++.......... 0.02 0.02 0.00
Net realized and unrealized gain
(loss).......................... 0.24 (1.69) (0.64)
------ ------ ------
Total income (loss) from investment
operations........................ 0.26 (1.67) (0.64)
------ ------ ------

Less dividends from net investment
income............................ (0.07) (0.03) -
------ ------ ------

Net asset value, end of period..... $ 7.85 $ 7.66 $ 9.36
====== ====== ======

Total Return+...................... 3.43%(1) (17.92)% (6.40)%(1)

Ratios to Average Net Assets(3)(4):
Expenses........................... 1.00%(2) 1.00 % 1.00 %(2)
Net investment income.............. 0.56%(2) 0.25 % 0.10 %(2)
Supplemental Data:
Net assets, end of period, in
thousands......................... $1,038 $980 $544
Portfolio turnover rate............ 2%(1) 13 % 3 %(1)
</Table>

- ---------------------

<Table>
<Caption>
EXPENSE NET INVESTMENT
PERIOD ENDED RATIO LOSS RATIO
------------ --------- -----------------

SEE NOTES TO FINANCIAL STATEMENTS
21
<Page>
Morgan Stanley KLD Social Index Fund
FINANCIAL HIGHLIGHTS CONTINUED

Class D Shares
Selected Per Share Data:
Net asset value, beginning of
period............................ $ 7.74 $ 9.40 $10.00
------ ------ ------
Income (loss) from investment
operations:
Net investment income++.......... 0.06 0.11 0.04
Net realized and unrealized gain
(loss).......................... 0.23 (1.71) (0.64)
------ ------ ------
Total income (loss) from investment
operations........................ 0.29 (1.60) (0.60)
------ ------ ------

Less dividends from net investment
income............................ (0.13) (0.06) -
------ ------ ------

Net asset value, end of period..... $ 7.90 $ 7.74 $ 9.40
====== ====== ======

Total Return+...................... 3.90%(1) (17.17)% (6.00)%(1)

Ratios to Average Net Assets(3)(4):
Expenses........................... 0.00%(2) 0.00 % 0.00 %(2)
Net investment income.............. 1.56%(2) 1.25 % 1.10 %(2)
Supplemental Data:
Net assets, end of period, in
thousands......................... $1,297 $4,419 $13,634
Portfolio turnover rate............ 2%(1) 13 % 3 %(1)
</Table>

- ---------------------

* COMMENCEMENT OF OPERATIONS.
++ 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.
(4) IF THE FUND HAD BORNE ALL ITS EXPENSES THAT WERE REIMBURSED OR WAIVED BY
THE INVESTMENT MANAGER, THE ANNUALIZED EXPENSE AND NET INVESTMENT LOSS
RATIOS WOULD HAVE BEEN AS FOLLOWS:

<Table>
<Caption>
EXPENSE NET INVESTMENT
PERIOD ENDED RATIO LOSS RATIO
------------ --------- -----------------

MAY 31, 2003................................................ 2.38% (0.82)%
NOVEMBER 30, 2002........................................... 1.90% (0.65)%
NOVEMBER 30, 2001........................................... 2.10% (1.00)%
</Table>

SEE NOTES TO FINANCIAL STATEMENTS
22
<Page>

TRUSTEES
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

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 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 Funds are distributed by Morgan Stanley Distributors Inc.

Morgan Stanley Distributors Inc., member NASD.

39908RPT-11435F03-AP-6/03

[MORGAN STANLEY LOGO]

[PHOTO]

MORGAN STANLEY
KLD SOCIAL INDEX FUND

SEMIANNUAL REPORT
MAY 31, 2003

<Page>

Item 9 - Controls and Procedures

The Fund's principal executive officer and principal financial officer have
concluded that the Fund's disclosure controls and procedures are sufficient to
ensure that information required to be disclosed by the Fund in this Form N-CSR
was recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission's rules and forms, based
upon such officers' evaluation of these controls and procedures as of a date
within 90 days of the filing date of the report.

There were no significant changes or corrective actions with regard to
significant deficiencies or material weaknesses in the Fund's internal controls
or in other factors that could significantly affect the Fund's internal controls
subsequent to the date of their evaluation.

<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 KLD Social Index Fund

Ronald E. Robison
Principal Executive Officer
July 22, 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
July 22, 2003

Francis Smith
Principal Financial Officer
July 22, 2003