<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: October 31, 2003
Item 1 - Report to Shareholders
<Page>
WELCOME, SHAREHOLDER:
IN THIS REPORT, YOU'LL LEARN ABOUT HOW YOUR INVESTMENT IN MORGAN STANLEY
EUROPEAN GROWTH FUND PERFORMED DURING THE ANNUAL PERIOD. WE WILL PROVIDE AN
OVERVIEW OF THE MARKET CONDITIONS, AND DISCUSS SOME OF THE FACTORS THAT AFFECTED
PERFORMANCE DURING THE REPORTING PERIOD. IN ADDITION, THIS REPORT INCLUDES THE
FUND'S FINANCIAL STATEMENTS AND A LIST OF FUND INVESTMENTS.
THIS MATERIAL MUST BE PRECEDED OR ACCOMPANIED BY A PROSPECTUS FOR THE FUND BEING
OFFERED. MARKET FORECASTS PROVIDED IN THIS REPORT MAY NOT NECESSARILY COME TO
PASS. THERE IS NO ASSURANCE THAT THE FUND WILL ACHIEVE ITS INVESTMENT OBJECTIVE.
THE FUND IS SUBJECT TO MARKET RISK, WHICH IS THE POSSIBILITY THAT MARKET VALUES
OF SECURITIES OWNED BY THE FUND WILL DECLINE AND, THEREFORE, THE VALUE OF THE
FUND SHARES MAY BE LESS THAN WHAT YOU PAID FOR THEM. ACCORDINGLY, YOU CAN LOSE
MONEY INVESTING IN THIS FUND.
<Page>
Fund Report
For the Year Ended October 31, 2003
TOTAL RETURN FOR THE 12 MONTHS ENDED OCTOBER 31, 2003
<Table>
<Caption>
MORGAN
STANLEY
CAPITAL
INTERNATIONAL LIPPER
(MSCI) EUROPEAN
CLASS CLASS CLASS CLASS EUROPE REGION FUNDS
A B C D INDEX(1) INDEX(2)
- --------------------------------------------------------------------
15.55% 15.02% 14.67% 15.81% 24.16% 24.62%
</Table>
THE PERFORMANCE OF THE FUND'S FOUR SHARE CLASSES VARIES BECAUSE EACH HAS
DIFFERENT EXPENSES. THE FUND'S TOTAL RETURN FIGURES ASSUME THE REINVESTMENT OF
ALL DISTRIBUTIONS BUT DO NOT REFLECT THE DEDUCTION OF ANY APPLICABLE SALES
CHARGES. SUCH COSTS WOULD LOWER PERFORMANCE. PAST PERFORMANCE IS NO GUARANTEE OF
FUTURE RESULTS. SEE PERFORMANCE SUMMARY FOR STANDARDIZED PERFORMANCE
INFORMATION.
MARKET CONDITIONS
The European market followed trends in the U.S. and global markets closely,
demonstrating two distinct phases. Geopolitical uncertainties such as the war
with Iraq as well as downward trends throughout world economies continued to
influence the European markets negatively. Within the region, concerns about
core economies led to increasingly negative investor sentiment toward European
assets. Germany, for instance, was bogged down by negative views on its
competitive positioning with regard to labor laws and labor market flexibility.
In March, however, the market saw a dramatic reversal. With the surprisingly
quick resolution to the Iraq conflict, macroeconomic indicators began a global
upturn. At the same time, growing optimism in regional business centers led to a
recovery in the European market, where many assets were perceived as oversold
and undervalued. The sectors that had suffered most heavily during the bear
market, such as information technology and other economically sensitive
industries, were the ones to experience the sharpest recovery.
In addition, the European recovery was aided by the appreciation of its domestic
currencies, led by the euro, against the U.S. dollar and Japanese yen. Since its
introduction in 1999, the euro has generally performed poorly relative to other
major currencies. This pattern reversed itself early in this period, however, in
part due to a U.S. pullback from its "strong dollar" policy in an attempt to
increase U.S. companies' ability to export and aid the national economy's
recovery. The dollar's fall had a substantial impact on all dollar-based
investors in European equities.
PERFORMANCE ANALYSIS
The Fund underperformed its benchmarks for the period, primarily based on stock
selection and the Fund's defensive posture toward economically sensitive
companies. The Fund's overall investment strategy emphasizes companies that are
well positioned for consistent, long-term growth and less affected by cyclical
factors. From a sector standpoint the Fund was overweighted in business services
and consumer discretionary industries, relative to the MSCI Europe Index, both
of which lagged in the period's rally, which was one involving more-speculative
issues. While the portfolio gained from its overweighted position in
industrials, relative to the MSCI Europe Index, we focused on the sector's
least-cyclical elements, which lagged other industrials and capital goods.
Health care and information technology stocks emerged as negative contributors.
Our overweighted position in information technologies, relative to the
2
<Page>
MSCI Europe Index, was successful, but the Fund's stocks underperformed.
Because the technology sector recovered so sharply, the companies that were
weakest from the perspective of sustained growth benefited the most. The Fund's
investment philosophy leads its managers to avoid exposure to the risks involved
with these volatile companies, and therefore our information technology picks
lagged.
Several positions proved very successful, however, led by top performers Adecco
and Phillips Electronics. Our holdings of Adecco, the world's largest temporary
employment agency, benefited from the economic recovery and the ongoing trend
toward outsourcing--especially in Europe, where stiff labor laws lead to a
greater need for temporary employment. Phillips, a well-diversified consumer and
capital goods manufacturer, was well placed to make gains when consumer
purchases turned up and semiconductor demand increased. Our underweighted
position in utilities relative to the MSCI Europe Index turned out to be
beneficial but lagged the recovery. Not only are utilities with long-term growth
potential difficult to find, but because they performed reasonably well during
the bear market they were not attractive from a valuation perspective.
3
<Page>
TOP 10 HOLDINGS
<Table>
GlaxoSmithKline PLC 4.0%
Novartis A.G. (Registered Shares) 3.7
Nokia OYJ 3.6
UBS A.G. (Registered Shares) 3.6
Vodafone Group PLC 3.4
Shell Transport & Trading Co. PLC 3.3
Total S.A. 3.2
Royal Bank of Scotland Group PLC 2.6
BNP Paribas S.A. 2.6
Koninklijke (Royal) Phillips Electronics NV 2.6
</Table>
TOP FIVE COUNTRIES
<Table>
United Kingdom 37.4%
France 14.9
Netherlands 11.7
Switzerland 10.1
Germany 9.3
</Table>
SUBJECT TO CHANGE DAILY. ALL PERCENTAGES ARE AS A PERCENTAGE OF NET ASSETS.
PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE DEEMED A
RECOMMENDATION TO BUY THE SECURITIES MENTIONED. MORGAN STANLEY IS A FULL-SERVICE
SECURITIES FIRM ENGAGED IN SECURITIES TRADING AND BROKERAGE ACTIVITIES,
INVESTMENT BANKING, RESEARCH AND ANALYSIS, FINANCING AND FINANCIAL ADVISORY
SERVICES.
INVESTMENT STRATEGY
1. THE FUND WILL NORMALLY INVEST AT LEAST 80 PERCENT OF ITS ASSETS IN SECURITIES
ISSUED BY COMPANIES LOCATED IN EUROPEAN COUNTRIES.
2. THE PRINCIPAL COUNTRIES IN WHICH THE FUND INVESTS ARE FRANCE, THE UNITED
KINGDOM, GERMANY, THE NETHERLANDS, SPAIN, SWEDEN, SWITZERLAND AND ITALY.
3. THE FUND INVESTS PRINCIPALLY IN COMMON STOCKS AND OTHER EQUITY SECURITIES BUT
MAY ALSO INVEST WITHOUT LIMITATION IN FIXED-INCOME SECURITIES (INCLUDING
ZERO-COUPON SECURITIES) ISSUED OR GUARANTEED BY EUROPEAN GOVERNMENTS.
4. THE FUND GENERALLY INVESTS IN COMPANIES ITS MANAGEMENT BELIEVES TO HAVE A
HIGH RATE OF EARNINGS GROWTH POTENTIAL. THE MANAGEMENT ATTEMPTS TO SELECT
SECURITIES THAT IN THEIR VIEW POSSESS ATTRACTIVE PRICE/EARNINGS, PRICE/CASH
FLOW AND PRICE/REVENUE RATIOS.
ANNUAL HOUSEHOLDING NOTICE
TO REDUCE PRINTING AND MAILING COSTS, THE FUND ATTEMPTS TO ELIMINATE DUPLICATE
MAILINGS TO THE SAME ADDRESS. THE FUND DELIVERS A SINGLE COPY OF CERTAIN
SHAREHOLDER DOCUMENTS, INCLUDING SHAREHOLDER REPORTS, PROSPECTUSES AND PROXY
MATERIALS, TO INVESTORS WITH THE SAME LAST NAME WHO RESIDE AT THE SAME ADDRESS.
YOUR PARTICIPATION IN THIS PROGRAM WILL CONTINUE FOR AN UNLIMITED PERIOD OF TIME
UNLESS YOU INSTRUCT US OTHERWISE. YOU CAN REQUEST MULTIPLE COPIES OF THESE
DOCUMENTS BY CALLING (800) 350-6414, 8:00 A.M. TO 8:00 P.M. ET. ONCE OUR
CUSTOMER SERVICE CENTER HAS RECEIVED YOUR INSTRUCTIONS, WE WILL BEGIN SENDING
INDIVIDUAL COPIES FOR EACH ACCOUNT WITHIN 30 DAYS.
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 (6397). THIS INFORMATION IS ALSO
AVAILABLE ON THE SECURITIES AND EXCHANGE COMMISSION'S WEB SITE AT
http://www.sec.gov.
4
<Page>
(This page has been left blank intentionally.)
<Page>
PERFORMANCE SUMMARY
[CHART]
PERFORMANCE OF A $10,000 INVESTMENT--CLASS B
($ IN THOUSANDS)
<Table>
<Caption>
FUND@@ MSCI EUROPE(1) LIPPER(2)
October 31, 1993 $ 10,000 $ 10,000 $ 10,000
October 31, 1994 $ 11,561 $ 11,124 $ 11,178
October 31, 1995 $ 13,507 $ 12,594 $ 12,209
October 31, 1996 $ 16,515 $ 14,794 $ 14,411
October 31, 1997 $ 19,719 $ 18,638 $ 17,704
October 31, 1998 $ 22,810 $ 22,935 $ 20,418
October 31, 1999 $ 26,424 $ 25,807 $ 23,845
October 31, 2000 $ 29,079 $ 26,050 $ 27,573
October 31, 2001 $ 22,775 $ 20,098 $ 20,362
October 31, 2002 $ 19,788 $ 17,309 $ 17,761
October 31, 2003 $ 22,760 $ 21,491 $ 22,134
</Table>
ENDING VALUE
<Table>
<Caption>
FUND@@ MSCI EUROPE(1) LIPPER(2)
-------- --------------- --------
$ 22,760 $ 21,491 $ 22,134
</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 GRAPH AND TABLE DO NOT REFLECT THE DEDUCTION
OF TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF
FUND SHARES. PERFORMANCE FOR CLASS A, CLASS B, CLASS C, AND CLASS D SHARES WILL
VARY DUE TO DIFFERENCES IN SALES CHARGES AND EXPENSES.
6
<Page>
AVERAGE ANNUAL TOTAL RETURNS--PERIOD ENDED OCTOBER 31, 2003
<Table>
<Caption>
CLASS A SHARES* CLASS B SHARES** CLASS C SHARES+ CLASS D SHARES++
07/28/97 06/01/90 07/28/97 07/28/97
SYMBOL EUGAX EUGBX EUGCX EUGDX
1 YEAR 15.55%(3) 15.02%(3) 14.67%(3) 15.81%
9.49(4) 10.02(4) 13.67(4) -
5 YEARS 0.68(3) (0.04)(3) (0.08)(3) 0.89
(0.40)(4) (0.31)(4) (0.08)(4) -
10 YEARS - 8.57(3) - -
- 8.57(4) - -
SINCE INCEPTION 2.87(3) 8.21(3) 2.09(3) 3.27
1.98(4) 8.21(4) 2.09(4) -
</Table>
- ----------
Notes on Performance
(1) THE MORGAN STANLEY CAPITAL INTERNATIONAL (MSCI) EUROPE INDEX MEASURES THE
PERFORMANCE FOR A DIVERSE RANGE OF GLOBAL STOCK MARKETS WITHIN AUSTRIA,
BELGIUM, DENMARK, FINLAND, FRANCE, GERMANY, ITALY, THE NETHERLANDS, NORWAY,
SPAIN, SWEDEN, SWITZERLAND, IRELAND, PORTUGAL, 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. INDEXES ARE UNMANAGED AND THEIR RETURNS DO NOT
INCLUDE ANY SALES CHARGES OR FEES. SUCH COSTS WOULD LOWER PERFORMANCE. IT IS
NOT POSSIBLE TO INVEST DIRECTLY IN AN INDEX.
(2) THE LIPPER EUROPEAN REGION FUNDS 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 SHOULD
NOT BE CONSIDERED AN INVESTMENT. THERE ARE CURRENTLY 30 FUNDS REPRESENTED IN
THIS INDEX.
(3) FIGURE SHOWN ASSUMES REINVESTMENT OF ALL DISTRIBUTIONS AND DOES NOT REFLECT
THE DEDUCTION OF ANY SALES CHARGES.
(4) FIGURE SHOWN ASSUMES REINVESTMENT OF ALL DISTRIBUTIONS AND THE DEDUCTION OF
THE MAXIMUM APPLICABLE SALES CHARGE. SEE THE FUND'S CURRENT PROSPECTUS FOR
COMPLETE DETAILS ON FEES AND SALES CHARGES.
* THE MAXIMUM FRONT-END SALES CHARGE FOR CLASS A IS 5.25%.
** THE MAXIMUM CONTINGENT DEFERRED SALES CHARGE (CDSC) FOR CLASS B IS 5.0%. THE
CDSC DECLINES TO 0% AFTER SIX YEARS.
+ THE MAXIMUM CONTINGENT DEFERRED SALES CHARGE FOR CLASS C IS 1% FOR SHARES
REDEEMED WITHIN ONE YEAR OF PURCHASE.
++ CLASS D HAS NO SALES CHARGE.
@@ CLOSING VALUE ASSUMING A COMPLETE REDEMPTION ON OCTOBER 31, 2003.
7
<Page>
MORGAN STANLEY EUROPEAN GROWTH FUND INC.
PORTFOLIO OF INVESTMENTS - OCTOBER 31, 2003
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------
COMMON AND PREFERRED STOCKS (98.6%)
BELGIUM (0.0%)
ELECTRONIC EQUIPMENT/INSTRUMENTS
2,599 Agfa Gevaert NV $ 64,206
--------------
DENMARK (1.0%)
PHARMACEUTICALS: MAJOR
245,330 Novo Nordisk AS (Series B) 8,782,241
--------------
FINLAND (4.0%)
INFORMATION TECHNOLOGY SERVICES
115,727 TietoEnator Oyj 3,053,096
--------------
TELECOMMUNICATION EQUIPMENT
1,844,628 Nokia Oyj 31,183,862
--------------
TOTAL FINLAND 34,236,958
--------------
FRANCE (14.9%)
ELECTRICAL PRODUCTS
327,871 Schneider Electric S.A. 19,101,760
--------------
FOOD RETAIL
216,679 Carrefour S.A. 11,322,482
--------------
INTEGRATED OIL
179,462 Total S.A. 27,763,538
--------------
MAJOR BANKS
423,661 BNP Paribas S.A. 22,157,860
126,413 Societe Generale 9,346,812
--------------
31,504,672
--------------
MAJOR TELECOMMUNICATIONS
552,567 France Telecom S.A.* 13,311,793
--------------
MULTI-LINE INSURANCE
868,576 AXA 16,381,977
--------------
OILFIELD SERVICES/EQUIPMENT
80,558 Technip S.A. 7,923,161
--------------
TOTAL FRANCE 127,309,383
--------------
GERMANY (9.3%)
APPAREL/FOOTWEAR
106,039 Adidas-Salomon AG 9,779,009
--------------
ELECTRIC UTILITIES
156,653 E. ON AG $ 7,881,323
--------------
INDUSTRIAL CONGLOMERATES
296,101 Siemens AG 19,871,871
--------------
INVESTMENT BANKS/BROKERS
234,915 Deutsche Boerse AG 12,998,440
--------------
MAJOR TELECOMMUNICATIONS
852,120 Deutsche Telekom AG
(Registered Shares)* 13,360,138
--------------
MOTOR VEHICLES
11,235 Porsche AG (Pref.) 5,492,768
--------------
PACKAGED SOFTWARE
68,422 SAP AG 9,908,263
--------------
TOTAL GERMANY 79,291,812
--------------
IRELAND (0.8%)
MAJOR BANKS
542,349 Bank of Ireland 6,652,052
--------------
ITALY (3.9%)
INTEGRATED OIL
689,601 ENI SpA 10,899,824
--------------
MAJOR BANKS
2,534,353 Unicredito Italiano SpA 12,433,799
--------------
MAJOR TELECOMMUNICATIONS
4,012,597 Telecom Italia SpA* 10,423,481
--------------
TOTAL ITALY 33,757,104
--------------
NETHERLANDS (11.7%)
FINANCIAL CONGLOMERATES
335,723 ING Groep NV 6,937,986
(Share Certificates) --------------
FOOD: MAJOR DIVERSIFIED
224,906 Unilever NV 13,004,130
(Share Certificates) --------------
INDUSTRIAL CONGLOMERATES
815,967 Koninklijke (Royal) Philips 21,894,964
Electronics NV --------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
8
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------
INTEGRATED OIL
482,150 Royal Dutch Petroleum Co. $ 21,294,881
--------------
LIFE/HEALTH INSURANCE
686,661 Aegon NV 8,962,360
--------------
MAJOR TELECOMMUNICATIONS
1,669,726 Koninklijke (Royal) KPN NV* 12,635,541
--------------
SEMICONDUCTORS
565,344 STMicroelectronics NV 14,980,254
--------------
TOTAL NETHERLANDS 99,710,116
--------------
NORWAY (0.6%)
REGIONAL BANKS
857,760 DnB Holding ASA 4,977,517
--------------
SPAIN (2.8%)
APPAREL/FOOTWEAR RETAIL
205,416 Industria de Diseno Textil, S.A. 4,223,695
--------------
MAJOR BANKS
786,918 Banco Bilbao Vizcaya Argentaria, S.A. 8,987,058
--------------
MAJOR TELECOMMUNICATIONS
879,645 Telefonica S.A.* 10,890,889
--------------
TOTAL SPAIN 24,101,642
--------------
SWEDEN (2.1%)
INDUSTRIAL MACHINERY
991,265 Assa Abloy AB (B Shares) 9,719,769
--------------
MISCELLANEOUS COMMERCIAL
SERVICES
680,187 Securitas AB (B Shares) 8,315,245
--------------
TOTAL SWEDEN 18,035,014
--------------
SWITZERLAND (10.1%)
CHEMICALS: AGRICULTURAL
138,317 Syngenta AG 7,373,403
--------------
FINANCIAL CONGLOMERATES
500,093 UBS AG (Registered Shares) 30,552,545
--------------
PERSONNEL SERVICES
101,558 Adecco SA $ 5,958,644
--------------
PHARMACEUTICALS: MAJOR
826,111 Novartis AG (Registered Shares) 31,328,453
131,797 Roche Holdings AG 10,850,521
--------------
42,178,974
--------------
TOTAL SWITZERLAND 86,063,566
--------------
UNITED KINGDOM (37.4%)
ADVERTISING/MARKETING SERVICES
760,914 WPP Group PLC 7,234,251
2,198,714 Yell Group PLC* 10,684,615
--------------
17,918,866
--------------
BEVERAGES: ALCOHOLIC
994,823 Diageo PLC 11,673,130
--------------
BIOTECHNOLOGY
485,865 Celltech Group PLC* 3,776,040
--------------
CABLE/SATELLITE TV
633,514 British Sky Broadcasting 6,865,062
Group PLC* --------------
CHEMICALS: SPECIALTY
669,051 BOC Group PLC 9,102,347
--------------
DEPARTMENT STORES
2,549,142 Marks & Spencer 12,419,886
Group PLC --------------
ELECTRIC UTILITIES
1,220,136 National Grid Transco PLC 7,773,078
--------------
FINANCIAL CONGLOMERATES
1,893,853 Lloyds TSB Group PLC 13,123,305
--------------
FOOD RETAIL
2,389,693 Tesco PLC 9,559,214
--------------
INTEGRATED OIL
1,335,450 BP PLC 9,248,242
4,565,758 Shell Transport & Trading 28,449,129
Co. PLC --------------
37,697,371
--------------
INVESTMENT MANAGERS
851,213 Amvescap PLC 6,723,542
--------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
9
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------
LIFE/HEALTH INSURANCE
1,377,477 Prudential PLC $ 10,664,643
--------------
MAJOR BANKS
1,497,757 Barclays PLC 12,603,931
1,340,390 HSBC Holdings PLC 20,085,503
838,259 Royal Bank of Scotland
Group PLC 22,411,381
--------------
55,100,815
--------------
MEDICAL SPECIALTIES
1,350,837 Smith & Nephew PLC 10,709,988
--------------
MISCELLANEOUS COMMERCIAL
SERVICES
3,220,970 Hays PLC 6,653,571
--------------
PHARMACEUTICALS: MAJOR
1,601,345 GlaxoSmithKline PLC 34,217,835
--------------
PUBLISHING: BOOKS/MAGAZINES
635,524 EMAP PLC 8,613,934
2,081,702 Reed Elsevier PLC 16,143,299
--------------
24,757,233
--------------
RESTAURANTS
2,167,811 Compass Group PLC 12,470,651
--------------
WIRELESS TELECOMMUNICATIONS
13,763,287 Vodafone Group PLC 28,838,697
--------------
TOTAL UNITED KINGDOM 320,045,274
--------------
TOTAL COMMON AND
PREFERRED STOCKS
(COST $719,235,274) 843,026,885
--------------
<Caption>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ------------------------------------------------------------------------
SHORT-TERM INVESTMENT (1.0%)
REPURCHASE AGREEMENT
$ 8,799 Joint repurchase agreement
account 1.05% due
11/03/03 (dated 10/31/03;
proceeds $8,799,770) (a)
(COST $8,799,000) $ 8,799,000
--------------
TOTAL INVESTMENTS
(COST $728,034,274) (b) 99.6% 851,825,885
OTHER ASSETS IN EXCESS OF
LIABILITIES 0.4 3,386,718
----- --------------
NET ASSETS 100.0% $ 855,212,603
===== ==============
</Table>
- ----------
ADR AMERICAN DEPOSITORY RECEIPT.
* NON-INCOME PRODUCING SECURITY.
(a) COLLATERIZED BY FEDERAL AGENCY AND U.S. TREASURY OBLIGATIONS.
(b) THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES IS $744,743,321. THE
AGGREGATE GROSS UNREALIZED APPRECIATION IS $113,400,195 AND THE AGGREGATE
GROSS UNREALIZED DEPRECIATION IS $6,317,631, RESULTING IN NET UNREALIZED
APPRECIATION OF $107,082,564.
FORWARD FOREIGN CURRENCY CONTRACTS OPEN AT OCTOBER 31, 2003:
<Table>
<Caption>
CONTRACTS IN EXCHANGE DELIVERY UNREALIZED
TO DELIVER FOR DATE APPRECIATION
- ------------------------------------------------------
EUR 99,736 $ 117,110 11/03/03 $ 1,705
GBP 4,354,946 $ 7,425,619 11/03/03 51,824
---------
Total unrealized appreciation $ 53,529
=========
</Table>
CURRENCY ABBREVIATIONS:
EUR Euro.
GBP British Pound.
SEE NOTES TO FINANCIAL STATEMENTS
10
<Page>
MORGAN STANLEY EUROPEAN GROWTH FUND INC.
SUMMARY OF INVESTMENTS - OCTOBER 31, 2003
<Table>
<Caption>
PERCENT OF
INDUSTRY VALUE NET ASSETS
- ----------------------------------------------------------------------------
Advertising/Marketing Services $ 17,918,866 2.1%
Apparel/Footwear 9,779,009 1.1
Apparel/Footwear Retail 4,223,695 0.5
Beverages: Alcoholic 11,673,130 1.4
Biotechnology 3,776,040 0.4
Cable/Satellite TV 6,865,062 0.8
Chemicals: Agricultural 7,373,403 0.9
Chemicals: Specialty 9,102,347 1.1
Department Stores 12,419,886 1.5
Electric Utilities 15,654,401 1.8
Electrical Products 19,101,760 2.2
Electronic Equipment/Instruments 64,206 0.0
Financial Conglomerates 50,613,836 5.9
Food Retail 20,881,696 2.4
Food: Major Diversified 13,004,130 1.5
Industrial Conglomerates 41,766,835 4.9
Industrial Machinery 9,719,769 1.1
Information Technology Services 3,053,096 0.4
Integrated Oil 97,655,614 11.4
Investment Banks/Brokers 12,998,440 1.5
Investment Managers 6,723,542 0.8
Life/Health Insurance 19,627,003 2.3
Major Banks 114,678,396 13.4
Major Telecommunications $ 60,621,842 7.1%
Medical Specialties 10,709,988 1.3
Miscellaneous Commercial Services 14,968,816 1.7
Motor Vehicles 5,492,768 0.6
Multi-Line Insurance 16,381,977 1.9
Oilfield Services/Equipment 7,923,161 0.9
Packaged Software 9,908,263 1.2
Personnel Services 5,958,644 0.7
Pharmaceuticals: Major 85,179,050 10.0
Publishing: Books/Magazines 24,757,233 2.9
Regional Banks 4,977,517 0.6
Repurchase Agreement 8,799,000 1.0
Restaurants 12,470,651 1.5
Semiconductors 14,980,254 1.8
Telecommunication Equipment 31,183,862 3.6
Wireless Telecommunications 28,838,697 3.4
--------------- ----
$ 851,825,885 99.6%
=============== ====
<Caption>
PERCENT OF
TYPE OF INVESTMENT VALUE NET ASSETS
- ----------------------------------------------------------------------------
Common Stocks $ 837,534,117 98.0%
Preferred Stocks 5,492,768 0.6
Short-Term Investment 8,799,000 1.0
--------------- ----
$ 851,825,885 99.6%
=============== ====
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
11
<Page>
MORGAN STANLEY EUROPEAN GROWTH FUND INC.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 2003
<Table>
ASSETS:
Investments in securities, at value (cost $728,034,274) $ 851,825,885
Unrealized appreciation on open forward foreign
currency contracts 53,529
Cash (including $995,969 in foreign currency) 1,123,901
Receivable for:
Investments sold 8,738,667
Foreign withholding taxes reclaimed 899,700
Dividends 744,494
Capital stock sold 245,853
Prepaid expenses and other assets 64,261
Receivable from affiliate 524,116
---------------
TOTAL ASSETS 864,220,406
---------------
LIABILITIES:
Payable for:
Investments purchased 6,532,863
Capital stock redeemed 882,900
Distribution fee 684,530
Investment management fee 679,806
Accrued expenses and other payables 227,704
---------------
TOTAL LIABILITIES 9,007,803
---------------
NET ASSETS $ 855,212,603
===============
COMPOSITION OF NET ASSETS:
Paid-in-capital $ 1,064,685,583
Accumulated net unrealized appreciation 123,881,666
Accumulated undistributed net investment income 3,010,119
Accumulated net realized loss (336,364,765)
---------------
NET ASSETS $ 855,212,603
===============
CLASS A SHARES:
Net Assets $ 16,612,472
Shares Outstanding (500,000,000 AUTHORIZED, $.01 PAR VALUE) 1,248,965
NET ASSET VALUE PER SHARE $ 13.30
===============
MAXIMUM OFFERING PRICE PER SHARE,
(NET ASSET VALUE PLUS 5.54% OF NET ASSET VALUE) $ 14.04
===============
CLASS B SHARES:
Net Assets $ 777,564,664
Shares Outstanding (500,000,000 AUTHORIZED, $.01 PAR VALUE) 60,809,910
NET ASSET VALUE PER SHARE $ 12.79
===============
CLASS C SHARES:
Net Assets $ 18,581,287
Shares Outstanding (500,000,000 AUTHORIZED, $.01 PAR VALUE) 1,458,613
NET ASSET VALUE PER SHARE $ 12.74
===============
CLASS D SHARES:
Net Assets $ 42,454,180
Shares Outstanding (500,000,000 AUTHORIZED, $.01 PAR VALUE) 3,098,367
NET ASSET VALUE PER SHARE $ 13.70
===============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
12
<Page>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 2003
<Table>
NET INVESTMENT INCOME:
INCOME
Dividends (net of $2,800,984 foreign withholding tax) $ 19,234,742
Interest 200,667
---------------
TOTAL INCOME 19,435,409
---------------
EXPENSES
Investment management fee 8,059,991
Distribution fee (Class A shares) 53,007
Distribution fee (Class B shares) 7,848,617
Distribution fee (Class C shares) 187,900
Transfer agent fees and expenses 1,747,338
Custodian fees 281,566
Shareholder reports and notices 132,362
Professional fees 67,697
Registration fees 56,523
Directors' fees and expenses 21,873
Other 22,585
---------------
TOTAL EXPENSES 18,479,459
Less: distribution fee rebate (Class B shares) (1,989,012)
---------------
NET EXPENSES 16,490,447
---------------
NET INVESTMENT INCOME 2,944,962
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
NET REALIZED GAIN/LOSS ON:
Investments (35,188,229)
Foreign exchange transactions 122,651
---------------
NET REALIZED LOSS (35,065,578)
---------------
NET CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION ON:
Investments 152,261,378
Translation of forward foreign currency contracts, other
assets and liabilities denominated in foreign currencies (207,330)
---------------
NET APPRECIATION 152,054,048
---------------
NET GAIN 116,988,470
---------------
NET INCREASE $ 119,933,432
===============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
13
<Page>
STATEMENT OF CHANGES IN NET ASSETS
<Table>
<Caption>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
OCTOBER 31, 2003 OCTOBER 31, 2002
---------------- ----------------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income (loss) $ 2,944,962 $ (3,884,292)
Net realized loss (35,065,578) (105,304,885)
Net change in unrealized appreciation (depreciation) 152,054,048 (35,632,902)
---------------- ----------------
NET INCREASE (DECREASE) 119,933,432 (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 (213,539,916) (333,059,661)
---------------- ----------------
NET DECREASE (93,606,484) (487,797,199)
NET ASSETS:
Beginning of period 948,819,087 1,436,616,286
---------------- ----------------
END OF PERIOD
(INCLUDING AN ACCUMULATED UNDISTRIBUTED NET INVESTMENT INCOME
OF $3,010,119 AND A NET INVESTMENT LOSS OF $57,494, RESPECTIVELY) $ 855,212,603 $ 948,819,087
================ ================
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
14
<Page>
MORGAN STANLEY EUROPEAN GROWTH FUND INC.
NOTES TO FINANCIAL STATEMENTS - OCTOBER 31, 2003
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 Limited (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 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.
15
<Page>
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.
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.
16
<Page>
G. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- Dividends and distributions to
shareholders are recorded on the ex-dividend date.
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.
Effective August 11, 2003, the Investment Manager entered into a new
Sub-Advisory Agreement with the Sub-Advisor, thereby replacing the previous
Sub-Advisory Agreement with Morgan Stanley Investment Management Inc. (the
"Former Sub- Advisor"). Under both the current and the former Sub-Advisory
Agreements, the Sub-Advisor invests the Fund's assets including the placing of
orders for the purchase and sale of portfolio securities. As compensation for
its services provided pursuant to the Sub-Advisory Agreements, the Investment
Manager paid the Sub-Advisor compensation of $716,939 for the period August 11,
2003 through October 31, 2003 and paid the Former Sub-Advisor compensation of
$2,507,058 for the period November 1, 2002 through August 10, 2003.
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.
17
<Page>
In the case of Class B shares, provided that the Plan continues in effect, any
cumulative expenses incurred by the Distributor but not yet recovered may be
recovered through the payment of future distribution fees from the Fund pursuant
to the Plan and contingent deferred sales charges paid by investors upon
redemption of Class B shares. Although there is no legal obligation for the Fund
to pay expenses incurred in excess of payments made to the Distributor under the
Plan and the proceeds of contingent deferred sales charges paid by investors
upon redemption of shares, if for any reason the Plan is terminated, the
Directors will consider at that time the manner in which to treat such expenses.
The Distributor has advised the Fund that there were no excess expenses as of
October 31, 2003.
For the year ended October 31, 2003, the Distributor rebated a portion of the
distribution fees paid by the Fund on Class B shares in the amount of
$1,989,012. Included in the Statement of Assets and Liabilities is a receivable
from affiliate which represents distribution fee rebates due to the Fund.
In the case of Class A shares and Class C shares, expenses incurred pursuant to
the Plan in any calendar year in excess of 0.25% or 1.0% of the average daily
net assets of Class A or Class C, respectively, will not be reimbursed by the
Fund through payments in any subsequent year, except that expenses representing
a gross sales credit to Morgan Stanley Financial Advisors or other selected
broker-dealer representatives may be reimbursed in the subsequent calendar year.
For the year ended October 31, 2003, the distribution fee was accrued for Class
A shares and Class C shares at the annual rate of 0.25% and 1.0%, respectively.
The Distributor has informed the Fund that for year ended October 31, 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 $124,687, $667,531
and $2,810, respectively and received $15,526 in front-end sales charges from
sales of the Fund's Class A shares. The respective shareholders pay such charges
which are not an expense of the Fund.
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities, excluding
short-term investments, for the year ended October 31, 2003 aggregated
$750,872,498 and $956,895,221, respectively.
At October 31, 2003, Morgan Stanley Fund of Funds -- International Portfolio, an
affiliate of the Investment Manager, Sub-Advisor and Distributor, owned
2,539,146 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 October 31, 2003, the Fund had
transfer agent fees and expenses payable of approximately $14,000.
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
18
<Page>
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 year ended October 31, 2003 included in Directors' fees and expenses in the
Statement of Operations amounted to $7,007. At October 31, 2003, the Fund had an
accrued pension liability of $59,363 which is included in accrued expenses in
the Statement of Assets and Liabilities.
5. FEDERAL INCOME TAX STATUS
The amount of dividends and distributions from net investment income and net
realized capital gains are determined in accordance with federal income tax
regulations which may differ from generally accepted accounting principles.
These "book/tax" differences are either considered temporary or permanent in
nature. To the extent these differences are permanent in nature, such amounts
are reclassified within the capital accounts based on their federal tax-basis
treatment, temporary differences do not require reclassification. Dividends and
distributions which exceed net investment income and net realized capital gains
for tax purposes are reported as distributions of paid-in-capital.
The tax character of distributions paid was as follows:
<Table>
<Caption>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
OCTOBER 31, 2003 OCTOBER 31, 2002
---------------- ----------------
Ordinary income -- $ 9,915,402
</Table>
As of October 31, 2003, the tax-basis components of accumulated losses were as
follows:
<Table>
Undistributed ordinary income $ 3,214,003
Undistributed long-term gains --
----------------
Net accumulated earnings 3,214,003
Foreign tax credit pass-through 2,709,992
Capital loss carryforward* (319,655,718)
Temporary differences (2,860,347)
Net unrealized appreciation 107,119,090
----------------
Total accumulated losses $ (209,472,980)
================
</Table>
- ----------
* As of October 31, 2003, the Fund had a net capital loss carryforward of
$319,655,718 of which $162,858,416 will expire on October 31, 2009, $102,923,112
will expire on October 31, 2010 and $53,874,190 will expire on October 31, 2011
to offset future capital gains to the extent provided by regulations.
19
<Page>
As of October 31, 2003, the Fund had temporary book/tax differences primarily
attributable to capital loss deferrals on wash sales and foreign tax credit
pass-through and permanent book/tax differences attributable to foreign currency
gains. To reflect reclassifications arising from the permanent differences,
accumulated net realized loss was charged and accumulated undistributed net
investment income was credited $122,651.
6. CAPITAL STOCK
Transactions in capital stock were as follows:
<Table>
<Caption>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
OCTOBER 31, 2003 OCTOBER 31, 2002
------------------------------- -------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------- -------------- -------------- --------------
CLASS A SHARES
Sold 20,595,524 $ 240,024,811 9,833,843 $ 121,583,658
Reinvestment of dividends -- -- 25,008 345,855
Redeemed (20,936,181) (248,059,299) (9,961,813) (125,116,664)
-------------- -------------- -------------- --------------
Net decrease -- Class A (340,657) (8,034,488) (102,962) (3,187,151)
-------------- -------------- -------------- --------------
CLASS B SHARES
Sold 2,602,222 28,926,477 7,792,547 98,323,416
Reinvestment of dividends -- -- 568,379 7,650,380
Redeemed (20,026,785) (225,759,996) (33,838,980) (426,664,386)
-------------- -------------- -------------- --------------
Net decrease -- Class B (17,424,563) (196,833,519) (25,478,054) (320,690,590)
-------------- -------------- -------------- --------------
CLASS C SHARES
Sold 818,242 9,094,822 2,512,493 31,290,984
Reinvestment of dividends -- -- 13,268 178,189
Redeemed (1,239,678) (13,947,336) (2,907,554) (36,516,640)
-------------- -------------- -------------- --------------
Net decrease -- Class C (421,436) (4,852,514) (381,793) (5,047,467)
-------------- -------------- -------------- --------------
CLASS D SHARES
Sold 4,540,208 51,606,931 4,390,707 52,522,878
Reinvestment of dividends -- -- 7,170 101,747
Redeemed (4,799,575) (55,426,326) (4,647,865) (56,759,078)
-------------- -------------- -------------- --------------
Net decrease -- Class D (259,367) (3,819,395) (249,988) (4,134,453)
-------------- -------------- -------------- --------------
Net decrease in Fund (18,446,023) $ (213,539,916) (26,212,797) $ (333,059,661)
============== ============== ============== ==============
</Table>
20
<Page>
7. 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.
At October 31, 2003, there were outstanding forward contracts.
At October 31, 2003, investments in securities of issuers in the United Kingdom
represented 37.4% 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.
21
<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 YEAR ENDED OCTOBER 31
------------------------------------------------------
2003 2002 2001 2000 1999
-------- -------- -------- -------- --------
CLASS A SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period $ 11.51 $ 13.35 $ 20.17 $ 20.70 $ 19.45
-------- -------- -------- -------- --------
Income (loss) from investment operations:
Net investment income@@ 0.12 0.06 0.07 0.05 0.10
Net realized and unrealized gain (loss) 1.67 (1.67) (3.71) 2.34 3.03
-------- -------- -------- -------- --------
Total income (loss) from investment operations 1.79 (1.61) (3.64) 2.39 3.13
-------- -------- -------- -------- --------
Less dividends and distributions from:
Net investment income - (0.23) - - -
Net realized gain - - (3.18) (2.92) (1.88)
-------- -------- -------- -------- --------
Total dividends and distributions - (0.23) (3.18) (2.92) (1.88)
-------- -------- -------- -------- --------
Net asset value, end of period $ 13.30 $ 11.51 $ 13.35 $ 20.17 $ 20.70
======== ======== ======== ======== ========
TOTAL RETURN+ 15.55% (12.41)% (21.07)% 10.92% 16.75%
RATIOS TO AVERAGE NET ASSETS(1):
Expenses 1.45% 1.38% 1.27% 1.29% 1.36%
Net investment income 0.79% 0.41% 0.43% 0.23% 0.44%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands $ 16,612 $ 18,294 $ 22,604 $ 53,012 $ 26,600
Portfolio turnover rate 89% 51% 86% 71% 56%
</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) REFLECTS OVERALL FUND RATIOS FOR INVESTMENT INCOME AND NON-CLASS SPECIFIC
EXPENSES.
SEE NOTES TO FINANCIAL STATEMENTS
22
<Page>
<Table>
<Caption>
FOR THE YEAR ENDED OCTOBER 31
------------------------------------------------------
2003 2002 2001 2000 1999
-------- -------- -------- -------- --------
CLASS B SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period $ 11.12 $ 12.88 $ 19.70 $ 20.41 $ 19.34
-------- -------- -------- -------- --------
Income (loss) from for investment operations:
Net investment income (loss)@@ 0.03 (0.05) (0.06) (0.11) (0.07)
Net realized and unrealized gain (loss) 1.64 (1.62) (3.58) 2.32 3.02
-------- -------- -------- -------- --------
Total income (loss) from investment operations 1.67 (1.67) (3.64) 2.21 2.95
-------- -------- -------- -------- --------
Less dividends and distributions from:
Net investment income - (0.09) - - -
Net realized gain - - (3.18) (2.92) (1.88)
-------- -------- -------- -------- --------
Total dividends and distributions - (0.09) (3.18) (2.92) (1.88)
-------- -------- -------- -------- --------
Net asset value, end of period $ 12.79 $ 11.12 $ 12.88 $ 19.70 $ 20.41
======== ======== ======== ======== ========
TOTAL RETURN+ 15.02% (13.11)% (21.68)% 10.05% 15.84%
RATIOS TO AVERAGE NET ASSETS(1):
Expenses 1.94%(2) 2.15% 2.10% 2.05% 2.13%
Net investment income (loss) 0.30%(2) (0.36)% (0.40)% (0.53)% (0.33)%
SUPPLEMENTAL DATA:
Net assets, end of period, in millions $ 778 $ 870 $ 1,335 $ 2,206 $ 2,090
Portfolio turnover rate 89% 51% 86% 71% 56%
</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) REFLECTS OVERALL FUND RATIOS FOR INVESTMENT INCOME AND NON-CLASS SPECIFIC
EXPENSES.
(2) IF THE DISTRIBUTOR HAD NOT REBATED A PORTION OF ITS FEES TO THE FUND, THE
EXPENSE AND NET INVESTMENTS INCOME RATIOS WOULD HAVE BEEN 2.20% AND 0.04%,
RESPECTIVELY.
SEE NOTES TO FINANCIAL STATEMENTS
23
<Page>
<Table>
<Caption>
FOR THE YEAR ENDED OCTOBER 31
------------------------------------------------------
2003 2002 2001 2000 1999
-------- -------- -------- -------- --------
CLASS C SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period $ 11.11 $ 12.85 $ 19.67 $ 20.38 $ 19.31
-------- -------- -------- -------- --------
Income (loss) from investment operations:
Net investment income (loss)@@ 0.00 (0.04) (0.06) (0.11) (0.05)
Net realized and unrealized gain (loss) 1.63 (1.61) (3.58) 2.32 3.00
-------- -------- -------- -------- --------
Total income (loss) from investment operations 1.63 (1.65) (3.64) 2.21 2.95
-------- -------- -------- -------- --------
Less dividends and distributions from:
Net investment income - (0.09) - - -
Net realized gain - - (3.18) (2.92) (1.88)
-------- -------- -------- -------- --------
Total dividends and distributions - (0.09) (3.18) (2.92) (1.88)
-------- -------- -------- -------- --------
Net asset value, end of period $ 12.74 $ 11.11 $ 12.85 $ 19.67 $ 20.38
======== ======== ======== ======== ========
TOTAL RETURN+ 14.67% (12.98)% (21.76)% 10.11% 15.87%
RATIOS TO AVERAGE NET ASSETS(1):
Expenses 2.20% 2.08% 2.10% 2.05% 2.13%
Net investment income (loss) 0.04% (0.29)% (0.40)% (0.53)% (0.33)%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands $ 18,581 $ 20,881 $ 29,075 $ 46,886 $ 31,211
Portfolio turnover rate 89% 51% 86% 71% 56%
</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) REFLECTS OVERALL FUND RATIOS FOR INVESTMENT INCOME AND NON-CLASS SPECIFIC
EXPENSES.
SEE NOTES TO FINANCIAL STATEMENTS
24
<Page>
<Table>
<Caption>
FOR THE YEAR ENDED OCTOBER 31
------------------------------------------------------
2003 2002 2001 2000 1999
-------- -------- -------- -------- --------
CLASS D SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period $ 11.83 $ 13.73 $ 20.61 $ 21.05 $ 19.72
-------- -------- -------- -------- --------
Income (loss) from investment operations:
Net investment income@@ 0.13 0.09 0.10 0.12 0.13
Net realized and unrealized gain (loss) 1.74 (1.72) (3.80) 2.36 3.08
-------- -------- -------- -------- --------
Total income (loss) from investment operations 1.87 (1.63) (3.70) 2.48 3.21
-------- -------- -------- -------- --------
Less dividends and distributions from:
Net investment income - (0.27) - - -
Net realized gain - - (3.18) (2.92) (1.88)
-------- -------- -------- -------- --------
Total dividends and distributions - (0.27) (3.18) (2.92) (1.88)
-------- -------- -------- -------- --------
Net asset value, end of period $ 13.70 $ 11.83 $ 13.73 $ 20.61 $ 21.05
======== ======== ======== ======== ========
TOTAL RETURN+ 15.81% (12.20)% (20.95)% 11.19% 16.93%
RATIOS TO AVERAGE NET ASSETS(1):
Expenses 1.20% 1.15% 1.10% 1.05% 1.13%
Net investment income 1.04% 0.64% 0.60% 0.47% 0.67%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands $ 42,454 $ 39,716 $ 49,539 $ 54,016 $ 5,657
Portfolio turnover rate 89% 51% 86% 71% 56%
</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) REFLECTS OVERALL FUND RATIOS FOR INVESTMENT INCOME AND NON-CLASS SPECIFIC
EXPENSES.
SEE NOTES TO FINANCIAL STATEMENTS
25
<Page>
MORGAN STANLEY EUROPEAN GROWTH FUND INC.
INDEPENDENT AUDITORS' REPORT
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF
MORGAN STANLEY EUROPEAN GROWTH FUND INC.:
We have audited the accompanying statement of assets and liabilities of Morgan
Stanley European Growth Fund Inc. (the "Fund"), including the portfolio of
investments, as of October 31, 2003, and the related statements of operations
for the year then ended and changes in net assets for each of the two years in
the period then ended, and the financial highlights for each of the five years
in the period then ended. These financial statements and financial highlights
are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of October 31, 2003, by correspondence with the custodian
and brokers; where replies were not received from brokers, we performed other
auditing procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Morgan
Stanley European Growth Fund Inc. as of October 31, 2003, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each of
the five years in the period then ended, in conformity with accounting
principles generally accepted in the United States of America.
Deloitte & Touche LLP
NEW YORK, NEW YORK
DECEMBER 17, 2003
26
<Page>
MORGAN STANLEY EUROPEAN GROWTH FUND INC.
DIRECTOR AND OFFICER INFORMATION
INDEPENDENT DIRECTOR:
<Table>
<Caption>
NUMBER OF
PORTFOLIOS
TERM OF IN FUND
POSITION(S) OFFICE AND COMPLEX
NAME, AGE AND ADDRESS OF HELD WITH LENGTH OF PRINCIPAL OCCUPATION(S) DURING OVERSEEN OTHER DIRECTORSHIPS
INDEPENDENT DIRECTOR REGISTRANT TIME SERVED* PAST 5 YEARS** BY DIRECTOR*** HELD BY DIRECTOR
- ---------------------------- ----------- ------------ ------------------------------------- -------------- -------------------
Michael Bozic (62) Director Since Retired; Director or Trustee of 211 Director of Weirton
c/o Mayer, Brown, Rowe & Maw April 1994 the Retail Funds and TCW/DW Term Steel Corporation.
LLP Trust 2003 (since April 1994) and
Counsel to the Independent the Institutional Funds (since
Directors July 2003); formerly Vice Chairman
1675 Broadway of Kmart Corporation (December
New York, NY 1998-October 2000), Chairman and
Chief Executive Officer of Levitz
Furniture Corporation (November
1995-November 1998) and President
and Chief Executive Officer of
Hills Department Stores (May 1991-
July 1995); formerly variously
Chairman, Chief Executive Officer,
President and Chief Operating
Officer (1987-1991) of the Sears
Merchandise Group of Sears,
Roebuck & Co.
Edwin J. Garn (71) Director Since Director or Trustee of the Retail 211 Director of
c/o Summit Ventures LLC January 1993 Funds and TCW/DW Term Trust 2003 Franklin Covey
1 Utah Center (since January 1993) and the (time management
201 S. Main Street Institutional Funds (since July systems), BMW Bank
Salt Lake City, UT 2003); member of the Utah Regional of North America,
Advisory Board of Pacific Corp.; Inc. (industrial
formerly United States Senator loan corporation),
(R-Utah) (1974-1992) and Chairman, United Space
Senate Banking Committee Alliance (joint
(1980-1986), Mayor of Salt Lake venture between
City, Utah (1971-1974), Astronaut, Lockheed Martin and
Space Shuttle Discovery (April the Boeing Company)
12-19, 1985), and Vice Chairman, and Nuskin Asia
Huntsman Corporation (chemical Pacific (multilevel
company). marketing); member
of the board of
various civic and
charitable
organizations.
Wayne E. Hedien (69) Director Since Retired; Director or Trustee of 211 Director of The PMI
c/o Mayer, Brown, Rowe & Maw September the Retail Funds and TCW/DW Term Group Inc. (private
LLP 1997 Trust 2003; (Since September 1997) Mortgage Insurance);
Counsel to the Independent and the Institutional Funds (since Trustee and Vice
Directors July 2003); formerly associated Chairman of The
1675 Broadway with the Allstate Companies Field Museum of
New York, NY (1966-1994), most recently as Natural History;
Chairman of The Allstate director of various
Corporation (March 1993-December other business and
1994) and Chairman and Chief charitable
Executive Officer of its wholly- organizations.
owned subsidiary, Allstate
Insurance Company (July
1989-December 1994).
</Table>
27
<Page>
<Table>
<Caption>
NUMBER OF
PORTFOLIOS
TERM OF IN FUND
POSITION(S) OFFICE AND COMPLEX
NAME, AGE AND ADDRESS OF HELD WITH LENGTH OF PRINCIPAL OCCUPATION(S) DURING OVERSEEN OTHER DIRECTORSHIPS
INDEPENDENT DIRECTOR REGISTRANT TIME SERVED* PAST 5 YEARS** BY DIRECTOR*** HELD BY DIRECTOR
- ---------------------------- ----------- ------------ ------------------------------------- -------------- -------------------
Dr.Manuel H. Johnson (54) Director Since Chairman of the Audit Committee 211 Director of NVR,
c/o Johnson Smick July 1991 and Director or Trustee of the Inc. (home
International, Inc. Retail Funds and TCW/DW Term Trust construction);
2099 Pennsylvania Avenue, 2003 (since July 1991) and the Chairman and
N.W. Institutional Funds (since July Trustee of the
Suite 950 2003); Senior Partner, Johnson Financial
Washington, D.C. Smick International, Inc., a Accounting
consulting firm; Co-Chairman and a Foundation
founder of the Group of Seven (oversight
Council (G7C), an international organization of the
economic commission; formerly Vice Financial
Chairman of the Board of Governors Accounting
of the Federal Reserve System and Standards Board);
Assistant Secretary of the U.S. Director of RBS
Treasury. Greenwich Capital
Holdings (financial
holding company).
Joseph J. Kearns (61) Director Since Deputy Chairman of the Audit 212 Director of Electro
PMB754 July 2003 Committee and Director or Trustee Rent Corporation
23852 Pacific Coast Highway of the Retail Funds and TCW/DW (equipment leasing),
Malibu, CA Term Trust 2003 (since July 2003) The Ford Family
and the Institutional Funds (since Foundation, and the
August 1994); previously Chairman UCLA Foundation.
of the Audit Committee of the
Institutional Funds (October
2001-July 2003); President,
Kearns & Associates LLC (investment
consulting); formerly CFO of the
J. Paul Getty Trust.
Michael E. Nugent (67) Director Since Chairman of the Insurance 211 Director of various
c/o Triumph Capital, L.P. July 1991 Committee and Director or Trustee business
445 Park Avenue of the Retail Funds and TCW/DW organizations.
New York, NY Term Trust 2003 (since July 1991)
and the Institutional Funds (since
July 2001); General Partner of
Triumph Capital, L.P., a private
investment partnership; formerly
Vice President, Bankers Trust
Company and BT Capital Corporation
(1984-1988).
Fergus Reid (71) Director Since Chairman of the Governance 212 Trustee and
85 Charles Colman Blvd. July 2003 Committee and Director or Trustee Director of certain
Pawling, NY of the Retail Funds and TCW/DW investment
Term Trust 2003 (since July 2003) companies in the
and the Institutional Funds (since JPMorgan Funds
June 1992); Chairman of Lumelite complex managed by
Plastics Corporation. JP Morgan
Investment
Management Inc.
</Table>
28
<Page>
INTERESTED DIRECTOR:
<Table>
<Caption>
NUMBER OF
PORTFOLIOS
TERM OF IN FUND
POSITION(S) OFFICE AND COMPLEX
NAME, AGE AND ADDRESS OF HELD WITH LENGTH OF PRINCIPAL OCCUPATION(S) DURING OVERSEEN OTHER DIRECTORSHIPS
INDEPENDENT DIRECTOR REGISTRANT TIME SERVED* PAST 5 YEARS** BY DIRECTOR*** HELD BY DIRECTOR
- ---------------------------- ----------- ------------ ------------------------------------- -------------- -------------------
Charles A. Fiumefreddo (70) Chairman Since Chairman and Director or Trustee 211 None
c/o Morgan Stanley Trust of the July 1991 of the Retail Funds and TCW/DW
Harborside Financial Center, Board and Term Trust 2003 (since July 1991)
Plaza Two, Director and the Institutional Funds (since
Jersey City, NJ July 2003); formerly Chief
Executive Officer of the Retail
Funds and the TCW/DW Term Trust
2003 (until September 2002).
James F. Higgins (55) Director Since Director or Trustee of the Retail 211 Director of AXA
c/o Morgan Stanley Trust June 2000 Funds and TCW/DW Term Trust 2003 Financial, Inc. and
Harborside Financial Center, (since June 2000) and the The Equitable Life
Plaza Two, Institutional Funds (since July Assurance Society
Jersey City, NJ 2003); Senior Advisor of Morgan of the United
Stanley (since August 2000); States (financial
Director of the Distributor and services).
Dean Witter Realty Inc.;
previously President and Chief
Operating Officer of the Private
Client Group of Morgan Stanley
(May 1999-August 2000), and
President and Chief Operating
Officer of Individual Securities
of Morgan Stanley (February
1997-May 1999).
Philip J. Purcell (60) Director Since Director or Trustee of the Retail 211 Director of
1585 Broadway April 1994 Funds and TCW/DW Term Trust 2003 American Airlines,
New York, NY (since April 1994) and the Inc. and its parent
Institutional Funds (since July company, AMR
2003); Chairman of the Board of Corporation.
Directors and Chief Executive
Officer of Morgan Stanley and
Morgan Stanley DW Inc.; Director
of the Distributor; Chairman of
the Board of Directors and Chief
Executive Officer of Novus Credit
Services Inc.; Director and/or
officer of various Morgan Stanley
subsidiaries.
</Table>
- ----------
* THIS IS THE EARLIEST DATE THE DIRECTOR BEGAN SERVING THE FUNDS ADVISED BY
MORGAN STANLEY INVESTMENT ADVISORS INC. (THE "INVESTMENT MANAGER ") (THE
"RETAIL FUNDS").
** THE DATES REFERENCED BELOW INDICATING COMMENCEMENT OF SERVICES AS
DIRECTOR/TRUSTEE FOR THE RETAIL FUNDS AND THE FUNDS ADVISED BY MORGAN
STANLEY INVESTMENT MANAGEMENT INC., MORGAN STANLEY INVESTMENTS LP AND
MORGAN STANLEY AIP GP LP (THE "INSTITUTIONAL FUNDS") REFLECT THE EARLIEST
DATE THE DIRECTOR/TRUSTEE BEGAN SERVING THE RETAIL OR INSTITUTIONAL FUNDS
AS APPLICABLE.
*** THE FUND COMPLEX INCLUDES ALL OPEN-END AND CLOSED-END FUNDS (INCLUDING ALL
OF THEIR PORTFOLIOS) ADVISED BY THE INVESTMENT MANAGER AND ANY FUNDS THAT
HAVE AN INVESTMENT ADVISOR THAT IS AN AFFILIATED PERSON OF THE INVESTMENT
MANAGER (INCLUDING BUT NOT LIMITED TO MORGAN STANLEY INVESTMENT MANAGEMENT
INC. AND MORGAN STANLEY INVESTMENTS LP).
29
<Page>
OFFICERS:
<Table>
<Caption>
TERM OF
POSITION(S) OFFICE AND
NAME, AGE AND ADDRESS OF HELD WITH LENGTH OF
EXECUTIVE OFFICER REGISTRANT TIME SERVED* PRINCIPAL OCCUPATION(S)DURING PAST 5 YEARS**
- ---------------------------- ----------------- -------------------- ------------------------------------------------------------
Mitchell M. Merin (50) President Since May 1999 President and Chief Operating Officer of Morgan Stanley
1221 Avenue of the Americas Investment Management Inc.; President, Director and Chief
New York, NY Executive Officer of the Investment Manager and Morgan
Stanley Services; Chairman, Chief Executive Officer and
Director of the Distributor; Chairman and Director of the
Transfer Agent; Director of various Morgan Stanley
subsidiaries; President Morgan Stanley Investments LP (since
February 2003); President of the Institutional Funds (since
July 2003) and President of the Retail Funds and TCW/DW Term
Trust 2003 (since May 1999); Trustee (since July 2003) and
President (since December 2002) of the Van Kampen Closed-End
Funds; Trustee (since May 1999) and President (since October
2002) of the Van Kampen Open-End Funds.
Ronald E. Robison (64) Executive Vice Since April 2003 Chief Global Operations Officer and Managing Director of
1221 Avenue of the Americas President and Morgan Stanley Investment Management Inc.; Managing Director
New York, NY Principal of Morgan Stanley & Co. Incorporated; Managing Director of
Executive Officer Morgan Stanley; Managing Director, Chief Administrative
Officer and Director of the Investment Manager and Morgan
Stanley Services; Chief Executive Officer and Director of
the Transfer Agent; Executive Vice President and Principal
Executive Officer of the Institutional Funds (since July
2003); and the TCW/DW Term Trust 2003 (since April 2003);
previously President of the Institutional Funds (March
2001-July 2003) and Director of the Institutional Funds
(March 2001-July 2003).
Barry Fink (48) Vice President Since February 1997 General Counsel (since May 2000) and Managing Director
1221 Avenue of the Americas and General (since December 2000) of Morgan Stanley Investment
New York, NY Counsel Management; Managing Director (since December 2000),
Secretary (since February 1997) and Director (since July
1998) of the Investment Manager and Morgan Stanley Services;
Assistant Secretary of Morgan Stanley DW; Chief Legal
Officer of Morgan Stanley Investments LP (since July 2002);
Vice President of the Institutional Funds (since July 2003);
Vice President and Secretary of the Distributor; previously
Secretary of the Retail Funds (February 1997-July 2003);
previously Vice President and Assistant General Counsel of
the Investment Manager and Morgan Stanley Services (February
1997-December 2001).
Joseph J. McAlinden (60) Vice President Since July 1995 Managing Director and Chief Investment Officer of the
1221 Avenue of the Americas Investment Manager, Morgan Stanley Investment Management
New York, NY Inc. and Morgan Stanley Investments LP; Director of the
Transfer Agent, Chief Investment Officer of the Van Kampen
Funds; Vice President of the Institutional Funds (since July
2003) and the Retail Funds (since July 1995).
Stefanie V. Chang (36) Vice President Since July 2003 Executive Director of Morgan Stanley & Co. and Morgan Stanley
1221 Avenue of the Americas Investment Management Inc. and Vice President of the
New York, NY Institutional Funds (since December 1997) and the Retail
Funds (since July 2003); formerly practiced law with the
New York law firm of Rogers & Wells (now Clifford Chance
LLP).
</Table>
30
<Page>
<Table>
<Caption>
TERM OF
POSITION(S) OFFICE AND
NAME, AGE AND ADDRESS OF HELD WITH LENGTH OF
EXECUTIVE OFFICER REGISTRANT TIME SERVED* PRINCIPAL OCCUPATION(S)DURING PAST 5 YEARS**
- ---------------------------- ----------------- -------------------- ------------------------------------------------------------
Francis J. Smith (38) Treasurer and Treasurer since July Executive Director of the Investment Manager and Morgan
c/o Morgan Stanley Trust Chief Financial 2003 and Chief Stanley Services (since December 2001); previously Vice
Harborside Financial Center, Officer Financial Officer President of the Retail Funds (September 2002-July 2003);
Plaza Two, Since September 2002 previously Vice President of the Investment Manager and
Jersey City, NJ Morgan Stanley Services (August 2000-November 2001) and
Senior Manager at PricewaterhouseCoopers LLP (January
1998-August 2000).
Thomas F. Caloia (57) Vice President Since July 2003 Executive Director (since December 2002) and Assistant
c/o Morgan Stanley Trust Treasurer of the Investment Manager, the Distributor and
Harborside Financial Center, Morgan Stanley Services; previously Treasurer of the Retail
Plaza Two, Funds (April 1989-July 2003); formerly First Vice President
Jersey City, NJ of the Investment Manager, the Distributor and Morgan
Stanley Services.
Mary E. Mullin (36) Secretary Since July 2003 Vice President of Morgan Stanley & Co. Incorporated and
1221 Avenue of the Americas Morgan Stanley Investment Management Inc.; Secretary of the
New York, NY Institutional Funds (since June 1999) and the Retail Funds
(since July 2003); formerly practiced law with the New York
law firms of McDermott, Will & Emery and Skadden, Arps,
Slate, Meagher & Flom LLP.
</Table>
- ----------
* THIS IS THE EARLIEST DATE THE OFFICER BEGAN SERVING THE RETAIL FUNDS. EACH
OFFICER SERVES AN INDEFINITE TERM, UNTIL HIS OR HER SUCCESSOR IS ELECTED.
** THE DATES REFERENCED BELOW INDICATING COMMENCEMENT OF SERVICE AS AN OFFICER
FOR THE RETAIL AND INSTITUTIONAL FUNDS REFLECT THE EARLIEST DATE THE OFFICER
BEGAN SERVING THE RETAIL OR INSTITUTIONAL FUNDS AS APPLICABLE.
31
<Page>
DIRECTORS
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
Wayne E. Hedien
James F. Higgins
Dr. Manuel H. Johnson
Joseph J. Kearns
Michael E. Nugent
Philip J. Purcell
Fergus Reid
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 and GENERAL COUNSEL
Joseph J. McAlinden
VICE PRESIDENT
Stefanie V. Chang
VICE PRESIDENT
Francis J. Smith
TREASURER and CHIEF FINANCIAL OFFICER
Thomas F. Caloia
VICE PRESIDENT
Mary E. Mullin
SECRETARY
TRANSFER AGENT
Morgan Stanley Trust
Harborside Financial Center, Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT 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 Limited
25 Cabot Square, Canary Wharf
London, United Kingdom E14 4QA
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 Distributors Inc., member NASD.
(C) 2003 Morgan Stanley
[MORGAN STANLEY LOGO]
MORGAN STANLEY FUNDS
MORGAN STANLEY EUROPEAN GROWTH FUND
ANNUAL REPORT
OCTOBER 31,2003
[MORGAN STANLEY LOGO]
37908RPT-00-13124L03-OP-12/03
<Page>
Item 2. Code of Ethics.
(a) The Fund has adopted a code of ethics (the "Code of Ethics") that applies
to its principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar functions,
regardless of whether these individuals are employed by the Fund or a third
party.
(b) No information need be disclosed pursuant to this paragraph.
(c) Not applicable.
(d) Not applicable.
(e) Not applicable.
(f)
(1) The Fund's Code of Ethics is attached hereto as Exhibit A.
(2) Not applicable.
(3) Not applicable.
Item 3. Audit Committee Financial Expert.
The Fund's Board of Directors has determined that it has two "audit committee
financial experts" serving on its audit committee, each of whom are
"independent" Directors: Dr. Manuel H. Johnson and Joseph J. Kearns. Under
applicable securities laws, a person who is determined to be an audit committee
financial expert will not be deemed an "expert" for any purpose, including
without limitation for the purposes of Section 11 of the Securities Act of 1933,
as a result of being designated or identified as an audit committee financial
expert. The designation or identification of a person as an audit committee
financial expert does not impose on such person any duties, obligations, or
liabilities that are greater than the duties, obligations, and liabilities
imposed on such person as a member of the audit committee and Board of Directors
in the absence of such designation or identification.
Item 4. Principal Accountant Fees and Services
Applicable only for reports covering fiscal years ending on or after December
15, 2003.
<Page>
Item 5. Audit Committee of Listed Registrants.
Applicable only for reports covering periods ending on or after the earlier of
(i) the first annual shareholder meeting after January 15, 2004 or (ii) October
31, 2004.
Item 6. [Reserved.]
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
Applicable only to annual reports filed by closed-end funds.
Item 8. [Reserved.]
Item 9 - Controls and Procedures
(a) The Fund's principal executive officer and principal financial officer have
concluded that the Fund's disclosure controls and procedures are sufficient to
ensure that information required to be disclosed by the Fund in this Form N-CSR
was recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission's rules and forms, based
upon such officers' evaluation of these controls and procedures as of a date
within 90 days of the filing date of the report.
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.
(b) There were no changes in the registrant's internal control over financial
reporting that occurred during the registrant's most recent fiscal half-year
(the registrant's second fiscal half-year in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
<Page>
Item 10 Exhibits
(a) The Code of Ethics for Principal Executive and Senior Financial Officers is
attached hereto.
(b) A separate certification for each principal executive officer and principal
financial officer of the registrant are attached hereto as part of EX-99.CERT.
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.
/s/ Ronald E. Robison
Ronald E. Robison
Principal Executive Officer
December 18, 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.
/s/ Ronald E. Robison
Ronald E. Robison
Principal Executive Officer
December 18, 2003
/s/ Francis Smith
Francis Smith
Principal Financial Officer
December 18, 2003