<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: November 30, 2003
Item 1 - Report to Shareholders
<Page>
Welcome, Shareholder:
In this report, you'll learn about how your investment in Morgan Stanley KLD
Social Index 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 November 30, 2003
TOTAL RETURN FOR THE 12-MONTHS ENDED NOVEMBER 30, 2003
<Table>
<Caption>
KLD LIPPER LARGE-
LCSI CAP CORE
CLASS A CLASS B CLASS C CLASS D INDEX(1) FUNDS INDEX(2)
------- ------- ------- ------- -------- ---------------
16.72% 15.75% 15.81% 17.05% 17.96% 12.81%
</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 equity markets enjoyed strong performance during the period, rebounding
sharply off of their March lows. Several key positive economic indicators
supported this strong performance. Both fiscal and monetary policy were
extremely accommodative, as the Federal Reserve Bank indicated its intent to
keep interest rates low for a considerable period of time and a series of tax
cuts were signed into law. Corporate profits continued to rise during the
period, and auto sales were robust as fuel prices drifted lower. Signs of
recovery were also evident in the ISI NAPM figures, a measure of business
orders, which showed growth for several consecutive months at the end of the
period. These positive forces were reflected in U.S. economic figures, which
turned in 8.2 percent annualized GDP growth in the third quarter of 2003.
Performance across sectors was generally positive, with only telecommunications
continuing its previous pattern of posting losses. The technology sector enjoyed
the most robust gains as the combination of low, post-bear market valuations and
signs of a pick-up in capital spending by corporations attracted investors.
Financial services stocks also performed well during the period, as these
companies benefited from low interest rates and improving capital markets. Small
capitalization stocks handily outperformed large cap stocks as investors combed
the market for undervalued stocks with great growth potential.
PERFORMANCE ANALYSIS
The KLD Social Index Fund underperformed the KLD Large Cap Social(SM) Index,*
yet outperformed the Lipper Large Cap Core Funds Index during the 12-month
period. Much of its underperformance stemmed from the statistical sampling
methodology used earlier in the period. We adjusted the strategy to incorporate
more stocks in order to bring the portfolio more closely into alignment with its
target benchmark. By the end of the period, the number of holdings in the
portfolio had grown from under 300 stocks to well over 400.
* THE KLD LARGE CAP SOCIAL(SM) INDEX BEGINS WITH THE RUSSELL 1000 INDEX.
COMPANIES ON THE KLD LARGE CAP SOCIAL(SM) INDEX 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(SM) INDEX (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
<Page>
TOP 10 HOLDINGS
<Table>
Microsoft Corp. 2.9%
Intel Corp. 2.9
Cisco Systems Inc. 2.1
Johnson & Johnson 1.9
Int'l Business Mach Corp. 1.9
American Intl Group Inc. 1.7
Procter & Gamble Co. 1.6
Bank America Corp. 1.4
Coca Cola Co. 1.3
Wells Fargo & Co. 1.3
</Table>
TOP FIVE INDUSTRIES
<Table>
Major Banks 6.0%
Semiconductors 5.4
Packaged Software 4.5
Major Telecommunications 3.4
Household/Personal Care 3.3
</Table>
SUBJECT TO CHANGE DAILY. ALL PERCENTAGES ARE AS A PERCENTAGE OF NET ASSETS.
PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE DEEMED AS A
RECOMMENDATION TO BUY OR SELL THE SECURITIES MENTIONED. MORGAN STANLEY IS A
FULL-SERVICE SECURITIES FIRM ENGAGED IN SECURITIES TRADING AND BROKERAGE
ACTIVITIES, INVESTMENT BANKING, RESEARCH AND ANALYSIS, FINANCING AND FINANCIAL
ADVISORY SERVICES.
INVESTMENT STRATEGY
1. THE FUND NORMALLY INVESTS AT LEAST 80 PERCENT OF ITS ASSETS IN COMMON STOCKS
OF COMPANIES INCLUDED IN THE KLD LARGE CAP SOCIAL(SM) INDEX, AN INDEX
COMPRISED OF STOCKS THAT MEET CERTAIN SOCIAL AND ENVIRONMENTAL CRITERIA.
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. THIS INFORMATION IS ALSO
AVAILABLE ON THE SECURITIES AND EXCHANGE COMMISSION'S WEBSITE AT
http://www.sec.gov.
3
<Page>
PERFORMANCE SUMMARY
[CHART]
PERFORMANCE OF A $10,000 INVESTMENT
<Table>
<Caption>
CLASS A~ CLASS B~ CLASS C~ CLASS D~ KLD INDEX(1) LIPPER(2)
Jul 13, 2001 $ 9,475 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000
Aug 31, 2001 $ 8,783 $ 9,260 $ 9,260 $ 9,270 $ 9,272 $ 9,403
Nov 30, 2001 $ 8,897 $ 9,360 $ 9,360 $ 9,400 $ 9,407 $ 9,477
Feb 28, 2002 $ 8,524 $ 8,945 $ 8,946 $ 9,004 $ 9,015 $ 9,275
May 31, 2002 $ 8,334 $ 8,735 $ 8,736 $ 8,812 $ 8,822 $ 9,023
Aug 31, 2002 $ 7,048 $ 7,374 $ 7,382 $ 7,464 $ 7,485 $ 7,840
Nov 30, 2002 $ 7,362 $ 7,684 $ 7,279 $ 7,378 $ 7,436 $ 7,551
Feb 28, 2003 $ 6,638 $ 6,908 $ 6,551 $ 6,656 $ 6,708 $ 6,873
May 31, 2003 $ 7,635 $ 7,936 $ 7,529 $ 7,665 $ 7,772 $ 7,802
Aug 31, 2003 $ 8,061 $ 8,360 $ 7,922 $ 8,092 $ 8,227 $ 8,158
Nov 30, 2003 $ 8,593 $ 8,894 $ 8,431 $ 8,635 $ 8,772 $ 8,518
</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.
4
<Page>
AVERAGE ANNUAL TOTAL RETURNS--PERIOD ENDED NOVEMBER 30, 2003
<Table>
<Caption>
CLASS A SHARES* CLASS B SHARES** CLASS C SHARES+ CLASS D SHARES++
(SINCE 07/13/01) (SINCE 07/13/01) (SINCE 07/13/01) (SINCE 07/13/01)
SYMBOL SIXAX SIXBX SIXCX SIXDX
1 YEAR 16.72%(3) 15.75%(3) 15.81%(3) 17.05%(3)
10.59(4) 10.75(4) 14.81(4) --
SINCE INCEPTION (4.02)(3) (4.80)(3) (4.79)(3) (3.82)(3)
(6.17)(4) (6.00)(4) (4.79)(4) --
</Table>
Notes on Performance
(1) THE KLD LARGE CAP SOCIAL(SM) INDEX BEGINS WITH THE RUSSELL 1000(R) INDEX.
COMPANIES ON THE KLD LARGE CAP SOCIAL(SM) INDEX ARE COMPANIES THAT PASS
KLD'S MULTIPLE PROPRIETARY ENVIRONMENTAL AND SOCIAL SCREENS. THE 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 LARGE CAP CORE FUNDS 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.
(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 NOVEMBER 30, 2003.
5
<Page>
MORGAN STANLEY KLD SOCIAL INDEX FUND
PORTFOLIO OF INVESTMENTS - NOVEMBER 30, 2003
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------------------------------
COMMON STOCKS (90.4%)
ADVERTISING/MARKETING
SERVICES (0.2%)
53 Lamar Advertising Co.* $ 1,866
405 Omnicom Group, Inc. 32,262
------------
34,128
------------
AIR FREIGHT/COURIERS (0.9%)
126 C.H. Robinson Worldwide, Inc. 4,956
139 Expeditors International of Washington, Inc. 5,427
610 FedEx Corp. 44,347
1,176 United Parcel Service, Inc. (Class B) 85,578
------------
140,308
------------
AIRLINES (0.3%)
458 JetBlue Airways Corp.* 16,680
1,753 Southwest Airlines Co. 31,519
------------
48,199
------------
APPAREL/FOOTWEAR (0.4%)
319 Cintas Corp. 14,910
452 Coach, Inc.* 18,008
340 Liz Claiborne, Inc. 11,903
300 V.F. Corp. 12,381
------------
57,202
------------
APPAREL/FOOTWEAR RETAIL (0.6%)
74 Chico's FAS, Inc.* 2,840
600 Foot Locker, Inc. 13,260
1,233 Gap, Inc. (The) 26,509
280 Nordstrom, Inc. 9,660
202 Ross Stores, Inc. 11,066
1,100 TJX Companies, Inc. (The) 24,849
------------
88,184
------------
AUTO PARTS: O.E.M. (0.4%)
190 Autoliv, Inc. 6,357
1,203 Delphi Corp. 10,562
49 Gentex Corp. 2,065
255 Johnson Controls, Inc. 27,907
305 Lear Corp.* 18,038
------------
64,929
------------
BEVERAGES:
NON-ALCOHOLIC (1.5%)
4,278 Coca-Cola Co. (The) $ 198,927
596 Coca-Cola Enterprises Inc. 12,307
700 Pepsi Bottling Group, Inc. (The) 16,156
------------
227,390
------------
BIOTECHNOLOGY (1.9%)
2,486 Amgen Inc.* 142,970
108 Amylin Pharmaceuticals, Inc.* 2,826
683 Biogen Idec Inc.* 26,077
620 Genzyme Corp.* 28,979
403 Gilead Sciences, Inc.* 23,648
315 Invitrogen Corp.* 21,474
529 MedImmune, Inc.* 12,590
600 Millennium Pharmaceuticals, Inc.* 9,462
570 SICOR Inc.* 15,755
------------
283,781
------------
BROADCASTING (0.2%)
350 Radio One, Inc. (Class D)* 6,121
456 Univision Communications Inc. (Class A)* 16,452
240 Westwood One, Inc.* 7,286
------------
29,859
------------
BUILDING PRODUCTS (0.3%)
189 American Standard Companies, Inc.* 18,843
888 Masco Corp. 24,154
------------
42,997
------------
CABLE/SATELLITE TV (1.2%)
4,244 Comcast Corp. (Class A)* 133,177
4,771 Liberty Media Corp. (Class A)* 52,720
------------
185,897
------------
CHEMICALS: MAJOR DIVERSIFIED (0.2%)
420 Engelhard Corp. 12,524
270 Rohm & Haas Co. 10,840
------------
23,364
------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
6
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------------------------------
CHEMICALS: SPECIALTY (0.5%)
467 Air Products & Chemicals, Inc. $ 22,388
480 Praxair, Inc. 34,454
200 Sigma-Aldrich Corp. 10,714
------------
67,556
------------
COMMERCIAL PRINTING/FORMS (0.1%)
273 Donnelley (R.R.) & Sons Co. 7,660
------------
COMPUTER COMMUNICATIONS (2.4%)
833 3Com Corp.* 6,231
1,150 Avaya Inc.* 15,640
190 Avocent Corp.* 7,275
14,000 Cisco Systems, Inc.* 317,240
700 Juniper Networks, Inc.* 13,209
------------
359,595
------------
COMPUTER PERIPHERALS (0.8%)
4,429 EMC Corp.* 60,854
270 Lexmark International, Inc.* 20,898
296 Maxtor Corp.* 3,303
700 Network Appliance, Inc.* 16,177
300 Storage Technology Corp.* 7,560
900 Western Digital Corp.* 11,196
------------
119,988
------------
COMPUTER PROCESSING HARDWARE (2.2%)
821 Apple Computer, Inc.* 17,175
4,500 Dell Inc.* 155,250
6,135 Hewlett-Packard Co. 133,068
108 NCR Corp.* 3,769
6,307 Sun Microsystems, Inc.* 26,931
------------
336,193
------------
CONSTRUCTION MATERIALS (0.1%)
400 Vulcan Materials Co. 17,788
------------
CONTAINERS/PACKAGING (0.2%)
187 Pactiv Corp.* 4,196
400 Sealed Air Corp.* 21,108
57 Temple-Inland, Inc. 3,222
------------
28,526
------------
CONTRACT DRILLING (0.1%)
300 ENSCO International Inc. $ 7,590
------------
DATA PROCESSING SERVICES (1.1%)
1,200 Automatic Data Processing, Inc. 45,876
223 Ceridian Corp.* 4,734
250 CheckFree Corp.* 6,905
1,048 Concord EFS, Inc.* 12,042
700 Convergys Corp.* 10,738
388 DST Systems, Inc.* 14,480
336 Fiserv, Inc.* 12,600
878 Paychex, Inc. 33,777
990 SunGard Data Systems Inc.* 26,750
------------
167,902
------------
DEPARTMENT STORES (0.6%)
584 Kohl's Corp.* 28,219
700 May Department Stores Co. 20,755
372 Penney (J.C.) Co., Inc. 9,255
610 Sears, Roebuck & Co. 33,648
------------
91,877
------------
DISCOUNT STORES (0.9%)
877 Costco Wholesale Corp.* 31,414
739 Dollar General Corp. 15,608
250 Dollar Tree Stores, Inc.* 7,937
370 Family Dollar Stores, Inc. 14,275
1,800 Target Corp. 69,696
------------
138,930
------------
DRUGSTORE CHAINS (0.7%)
1,020 CVS Corp. 38,209
1,942 Walgreen Co. 71,485
------------
109,694
------------
ELECTRIC UTILITIES (0.2%)
1,100 AES Corp. (The)* 9,757
500 OGE Energy Corp. 11,910
600 Pepco Holdings, Inc. 11,016
------------
32,683
------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
7
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------------------------------
ELECTRICAL PRODUCTS (0.6%)
800 American Power Conversion Corp. $ 17,488
800 Emerson Electric Co. 48,832
147 Energizer Holdings, Inc.* 5,570
360 Molex Inc. 11,578
------------
83,468
------------
ELECTRONIC COMPONENTS (0.4%)
255 Jabil Circuit, Inc.* 7,015
255 QLogic Corp.* 14,492
180 SanDisk Corp.* 14,555
1,490 Solectron Corp.* 8,716
700 Vishay Intertechnology, Inc.* 14,707
------------
59,485
------------
ELECTRONIC DISTRIBUTORS (0.0%)
36 CDW Corp. 2,151
------------
ELECTRONIC EQUIPMENT/INSTRUMENTS (0.6%)
181 Diebold, Inc. 9,602
3,900 JDS Uniphase Corp.* 13,416
360 Scientific-Atlanta, Inc. 10,397
627 Symbol Technologies, Inc. 8,747
460 Thermo Electron Corp.* 10,994
580 Waters Corp.* 18,548
1,925 Xerox Corp.* 23,446
------------
95,150
------------
ELECTRONIC PRODUCTION EQUIPMENT (0.9%)
3,048 Applied Materials, Inc.* 74,066
388 Cadence Design Systems, Inc.* 6,491
513 KLA-Tencor Corp.* 30,067
105 Lam Research Corp.* 3,360
372 Novellus Systems, Inc.* 16,279
213 Synopsys, Inc.* 6,381
------------
136,644
------------
ELECTRONICS/APPLIANCE STORES (0.3%)
540 Best Buy Co., Inc.* 33,480
429 RadioShack Corp. 13,363
------------
46,843
------------
ELECTRONICS/APPLIANCES (0.2%)
125 Harman International Industries, Inc. $ 17,034
208 Whirlpool Corp. 14,211
------------
31,245
------------
FINANCE/RENTAL/LEASING (2.6%)
136 Allied Capital Corp. 3,710
540 Capital One Financial Corp. 32,249
303 CIT Group, Inc. 10,566
350 Countrywide Financial Corp. 36,960
225 Doral Financial Corp. 11,378
1,891 Fannie Mae 132,370
1,387 Freddie Mac 75,481
2,230 MBNA Corp. 54,680
470 Providian Financial Corp.* 5,311
900 SLM Corp. 33,417
------------
396,122
------------
FINANCIAL CONGLOMERATES (2.4%)
2,473 American Express Co. 113,041
3,807 J.P. Morgan Chase & Co. 134,616
786 Principal Financial Group, Inc. 26,024
1,140 Prudential Financial, Inc. 44,585
687 State Street Corp. 35,010
------------
353,276
------------
FINANCIAL PUBLISHING/SERVICES (0.4%)
230 Dun & Bradstreet Corp.* 11,097
362 McGraw-Hill Companies, Inc. (The) 24,797
270 Moody's Corp. 15,466
400 SEI Investments Co. 11,220
------------
62,580
------------
FOOD DISTRIBUTORS (0.3%)
1,440 SYSCO Corp. 52,301
------------
FOOD RETAIL (0.5%)
650 Albertson's, Inc. 13,832
1,990 Kroger Co.* 37,531
669 Safeway Inc.* 13,882
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
8
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------------------------------
640 Supervalu, Inc. $ 16,525
------------
81,770
------------
FOOD: MAJOR DIVERSIFIED (1.7%)
510 Campbell Soup Co. 13,061
736 General Mills, Inc. 33,127
930 Heinz (H.J.) Co. 33,573
510 Kellogg Co. 18,243
3,290 PepsiCo, Inc. 158,315
------------
256,319
------------
FOOD: MEAT/FISH/DAIRY (0.0%)
114 Dean Foods Co.* 3,740
------------
FOOD: SPECIALTY/CANDY (0.2%)
200 Hershey Foods Corp. 15,540
77 McCormick & Co., Inc. (Non-Voting) 2,209
280 Wrigley (Wm.) Jr. Co. (Class A) 15,434
------------
33,183
------------
GAS DISTRIBUTORS (0.3%)
430 KeySpan Corp. 15,149
180 Kinder Morgan, Inc. 9,810
771 NiSource Inc. 15,998
270 UGI Corp. 8,734
------------
49,691
------------
HOME BUILDING (0.6%)
140 Centex Corp. 15,316
227 D.R. Horton, Inc. 9,920
130 KB HOME 8,954
200 Lennar Corp. (Class A) 19,580
190 Pulte Homes, Inc. 18,153
400 Toll Brothers, Inc.* 16,564
------------
88,487
------------
HOME FURNISHINGS (0.2%)
353 Leggett & Platt, Inc. 7,180
160 Mohawk Industries, Inc.* 11,533
670 Newell Rubbermaid, Inc. 15,323
------------
34,036
------------
HOME IMPROVEMENT CHAINS (1.6%)
4,474 Home Depot, Inc. (The) $ 164,464
1,400 Lowe's Companies, Inc. 81,620
------------
246,084
------------
HOSPITAL/NURSING MANAGEMENT (0.1%)
554 Health Management Associates, Inc. (Class A) 14,238
101 Manor Care, Inc. 3,567
------------
17,805
------------
HOUSEHOLD/PERSONAL CARE (3.3%)
522 Avon Products, Inc. 35,757
370 Clorox Co. (The) 17,360
1,005 Colgate-Palmolive Co. 52,762
310 Estee Lauder Companies, Inc. (The) (Class A) 11,780
2,090 Gillette Co. (The) 70,496
1,050 Kimberly-Clark Corp. 56,931
2,524 Procter & Gamble Co. (The) 242,910
------------
487,996
------------
INDUSTRIAL CONGLOMERATES (0.9%)
1,600 3M Co. 126,464
400 ALLETE, Inc. 11,908
66 SPX Corp.* 3,584
------------
141,956
------------
INDUSTRIAL MACHINERY (0.2%)
475 Illinois Tool Works Inc. 37,097
------------
INDUSTRIAL SPECIALTIES (0.1%)
600 Ecolab Inc. 15,732
------------
INFORMATION TECHNOLOGY SERVICES (2.4%)
900 Citrix Systems, Inc.* 21,618
240 Cognizant Technology Solutions Corp.* 11,009
1,020 Electronic Data Systems Corp. 22,052
3,102 International Business Machines Corp. 280,855
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
9
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------------------------------
780 PeopleSoft, Inc.* $ 16,497
485 Unisys Corp.* 7,915
------------
359,946
------------
INSURANCE BROKERS/SERVICES (0.4%)
550 AON Corp. 12,067
45 Gallagher (Arthur J.) & Co. 1,408
936 Marsh & McLennan Companies, Inc. 41,596
------------
55,071
------------
INTERNET RETAIL (0.3%)
505 Amazon.com, Inc.* 27,300
700 InterActiveCorp.* 22,995
------------
50,295
------------
INTERNET SOFTWARE/SERVICES (0.5%)
900 BEA Systems, Inc.* 11,430
604 Siebel Systems, Inc.* 7,961
730 VeriSign, Inc.* 11,833
1,090 Yahoo! Inc.* 46,848
------------
78,072
------------
INVESTMENT BANKS/BROKERS (1.3%)
97 AmeriTrade Holding Corp. (Class A)* 1,219
530 Goldman Sachs Group, Inc. (The) 50,922
45 Legg Mason, Inc. 3,587
1,764 Merrill Lynch & Co., Inc. 100,107
2,700 Schwab (Charles) Corp. (The) 31,320
------------
187,155
------------
INVESTMENT MANAGERS (0.4%)
320 Franklin Resources, Inc. 15,306
902 Janus Capital Group Inc. 12,547
745 Mellon Financial Corp. 21,456
200 Price (T.) Rowe Group, Inc. 8,408
------------
57,717
------------
LIFE/HEALTH INSURANCE (0.6%)
1,168 AFLAC, Inc. $ 42,013
460 Jefferson-Pilot Corp. 22,324
437 Lincoln National Corp. 17,135
593 UnumProvident Corp. 8,853
------------
90,325
------------
MAJOR BANKS (6.0%)
2,809 Bank of America Corp. 211,883
2,230 Bank One Corp. 96,693
1,180 BB&T Corp. 46,445
328 Comerica, Inc. 17,105
2,000 FleetBoston Financial Corp. 81,200
642 KeyCorp 17,841
1,119 National City Corp. 37,542
550 PNC Financial Services Group 29,898
500 Popular, Inc. 23,580
402 SunTrust Banks, Inc. 28,562
170 UnionBanCal Corp. 9,683
2,453 Wachovia Corp. 112,225
3,312 Wells Fargo & Co. 189,877
------------
902,534
------------
MAJOR TELECOMMUNICATIONS (3.4%)
808 ALLTEL Corp. 36,691
1,534 AT&T Corp. 30,419
3,400 BellSouth Corp. 88,502
6,300 SBC Communications, Inc. 146,664
2,000 Sprint Corp. (FON Group) 29,980
5,293 Verizon Communications Inc. 173,452
------------
505,708
------------
MANAGED HEALTH CARE (1.4%)
400 Aetna Inc. 25,752
270 Anthem, Inc.* 19,472
798 Caremark Rx, Inc.* 21,307
302 CIGNA Corp. 16,202
60 Health Net Inc.* 1,962
600 Humana, Inc.* 13,398
230 Mid Atlantic Medical Services, Inc.* 14,122
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
10
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------------------------------
273 Oxford Health Plans, Inc.* $ 11,963
1,040 UnitedHealth Group Inc. 56,056
340 WellPoint Health Networks, Inc.* 31,787
------------
212,021
------------
MEDIA CONGLOMERATES (1.5%)
8,453 Time Warner Inc.* 137,615
4,000 Walt Disney Co. (The) 92,360
------------
229,975
------------
MEDICAL DISTRIBUTORS (0.5%)
830 Cardinal Health, Inc. 50,746
660 McKesson Corp. 19,272
63 Patterson Dental Co.* 4,290
------------
74,308
------------
MEDICAL SPECIALTIES (2.7%)
584 Applera Corp. - Applied Biosystems Group 12,538
176 Bard (C.R.), Inc. 13,306
36 Bausch & Lomb, Inc. 1,808
1,137 Baxter International, Inc. 31,631
106 Beckman Coulter, Inc. 5,422
600 Becton, Dickinson & Co. 24,018
474 Biomet, Inc. 16,955
1,220 Boston Scientific Corp.* 43,786
770 Guidant Corp. 43,713
115 Hillenbrand Industries, Inc. 6,601
2,353 Medtronic, Inc. 106,356
321 St. Jude Medical, Inc.* 20,332
330 Stryker Corp. 26,730
390 Varian Medical Systems, Inc.* 26,914
460 Zimmer Holdings, Inc.* 30,323
------------
410,433
------------
MEDICAL/NURSING SERVICES (0.2%)
390 DaVita, Inc.* 14,890
290 Lincare Holdings, Inc.* 8,651
------------
23,541
------------
MISCELLANEOUS COMMERCIAL SERVICES (0.0%)
267 Sabre Holdings Corp. $ 5,567
------------
MISCELLANEOUS MANUFACTURING (0.1%)
260 Pentair, Inc. 11,336
------------
MOTOR VEHICLES (0.2%)
720 Harley-Davidson, Inc. 33,962
------------
MULTI-LINE INSURANCE (2.0%)
4,504 American International Group, Inc. 261,007
601 Hartford Financial Services Group, Inc. (The) 33,055
268 Safeco Corp. 10,031
------------
304,093
------------
OFFICE EQUIPMENT/SUPPLIES (0.2%)
175 Avery Dennison Corp. 9,639
420 Pitney Bowes, Inc. 16,695
------------
26,334
------------
OIL & GAS PIPELINES (0.1%)
220 Western Gas Resources, Inc. 9,746
1,200 Williams Companies, Inc. (The) 11,256
------------
21,002
------------
OIL & GAS PRODUCTION (0.9%)
714 Anadarko Petroleum Corp. 32,080
400 Apache Corp. 28,720
1,120 Chesapeake Energy Corp. 13,664
3 Cross Timbers Royalty Trust 81
700 Devon Energy Corp. 34,552
240 EOG Resources, Inc. 10,066
200 Pogo Producing Co. 8,710
420 XTO Energy Inc. 10,618
------------
138,491
------------
OIL REFINING/MARKETING (0.1%)
350 Sunoco, Inc. 16,803
130 Valero Energy Corp. 5,603
------------
22,406
------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
11
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------------------------------
OILFIELD SERVICES/EQUIPMENT (0.2%)
870 Baker Hughes Inc. $ 25,108
480 FMC Technologies, Inc.* 10,214
------------
35,322
------------
OTHER CONSUMER SERVICES (0.7%)
303 Apollo Group, Inc. (Class A)* 20,916
270 Career Education Corp.* 13,805
100 Corinthian Colleges, Inc.* 6,393
777 eBay Inc.* 43,395
260 ITT Educational Services, Inc.* 14,568
150 University of Phoenix Online* 11,297
------------
110,374
------------
PACKAGED SOFTWARE (4.5%)
535 Adobe Systems Inc. 22,106
400 BMC Software, Inc.* 6,652
190 Fair Isaac Corp. 10,480
400 Intuit Inc.* 20,112
306 Mercury Interactive Corp.* 14,321
17,093 Microsoft Corp.** 439,290
524 Novell, Inc.* 4,978
7,396 Oracle Corp.* 88,826
820 Symantec Corp.* 26,921
1,100 VERITAS Software Corp.* 41,823
------------
675,509
------------
PERSONNEL SERVICES (0.1%)
70 Manpower, Inc. 3,286
168 Monster Worldwide Inc.* 4,042
138 Robert Half International, Inc.* 3,072
------------
10,400
------------
PHARMACEUTICALS: GENERIC DRUGS (0.4%)
89 Barr Laboratories, Inc.* 7,346
480 IVAX Corp.* 10,296
1,005 Mylan Laboratories, Inc. 25,447
380 Watson Pharmaceuticals, Inc.* 17,913
------------
61,002
------------
PHARMACEUTICALS: MAJOR (3.2%)
5,835 Johnson & Johnson $ 287,607
4,536 Merck & Co., Inc. 184,162
------------
471,769
------------
PHARMACEUTICALS: OTHER (0.5%)
250 Allergan, Inc. 18,683
722 Forest Laboratories, Inc.* 39,450
401 King Pharmaceuticals, Inc.* 5,177
370 Sepracor, Inc.* 9,169
------------
72,479
------------
PROPERTY - CASUALTY INSURERS (0.8%)
400 Berkley (W.R.) Corp. 13,660
292 Chubb Corp. (The) 19,111
200 Cincinnati Financial Corp. 8,106
410 Progressive Corp. (The) 32,021
350 St. Paul Companies, Inc. (The) 12,985
1,920 Travelers Property Casualty Corp. (Class B) 29,952
------------
115,835
------------
PUBLISHING: NEWSPAPERS (0.3%)
86 New York Times Co. (The) (Class A) 3,947
36 Scripps (E.W.) Co. (Class A) 3,314
400 Tribune Co. 19,540
17 Washington Post Co. (The) (Class B) 13,659
------------
40,460
------------
PULP & PAPER (0.1%)
500 MeadWestvaco Corp. 12,760
------------
RAILROADS (0.1%)
1,013 Norfolk Southern Corp. 21,688
------------
REAL ESTATE DEVELOPMENT (0.1%)
370 Catellus Development Corp. 8,695
------------
REAL ESTATE INVESTMENT TRUSTS (2.3%)
440 Archstone-Smith Trust 12,091
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
12
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------------------------------
340 Boston Properties, Inc. $ 15,725
200 CBL & Associates Properties, Inc. 11,250
390 Chelsea Property Group, Inc. 21,060
468 Duke Realty Corp. 14,414
898 Equity Office Properties Trust 24,902
476 Equity Residential 13,975
380 General Growth Properties, Inc. 30,628
225 Health Care Property Investors, Inc. 10,539
300 Hospitality Properties Trust 11,865
1,400 Host Marriott Corp.* 15,610
560 iStar Financial Inc. 21,857
380 Kimco Realty Corp. 16,720
196 Liberty Property Trust 7,415
757 Plum Creek Timber Co., Inc. 20,159
695 ProLogis Trust 21,198
300 Public Storage, Inc. 13,320
276 Rouse Co. (The) 12,693
490 Simon Property Group, Inc. 23,251
340 Vornado Realty Trust 18,601
------------
337,273
------------
RECREATIONAL PRODUCTS (0.4%)
430 Brunswick Corp. 12,922
552 Electronic Arts Inc.* 24,415
950 Mattel, Inc. 19,228
------------
56,565
------------
REGIONAL BANKS (2.2%)
850 AmSouth Bancorporation 20,392
500 Banknorth Group, Inc. 16,385
400 Charter One Financial, Inc. 13,288
69 Compass Bancshares, Inc. 2,699
970 Fifth Third Bancorp 56,386
300 First Tennessee National Corp. 13,380
349 Hibernia Corp. (Class A) 7,975
408 North Fork Bancorporation, Inc. 16,291
394 Northern Trust Corp. 17,671
500 Regions Financial Corp. 18,555
548 Synovus Financial Corp. $ 15,706
250 TCF Financial Corp. 13,185
3,641 U.S. Bancorp 100,892
489 Union Planters Corp. 16,875
66 Zions Bancorporation 4,070
------------
333,750
------------
RESTAURANTS (0.8%)
450 Darden Restaurants, Inc. 9,320
113 Krispy Kreme Doughnuts, Inc.* 4,675
2,531 McDonald's Corp. 64,870
172 Outback Steakhouse, Inc. 7,697
990 Starbucks Corp.* 31,749
227 Wendy's International, Inc. 8,814
------------
127,125
------------
SAVINGS BANKS (1.2%)
110 Astoria Financial Corp. 4,112
250 Golden West Financial Corp. 25,225
462 GreenPoint Financial Corp. 15,699
470 New York Community Bancorp, Inc.* 18,260
1,119 Sovereign Bancorp, Inc. 25,357
1,895 Washington Mutual, Inc. 86,810
------------
175,463
------------
SEMICONDUCTORS (5.4%)
721 Advanced Micro Devices, Inc.* 12,964
4,100 Agere Systems, Inc. (Class B)* 13,858
1,126 Altera Corp.* 28,522
700 Analog Devices, Inc. 34,825
750 Broadcom Corp. (Class A)* 27,323
239 Cypress Semiconductor Corp.* 5,349
280 Integrated Circuit Systems, Inc.* 8,330
12,843 Intel Corp. 429,341
105 International Rectifier Corp.* 5,735
350 Intersil Corp. (Class A) 9,244
665 LSI Logic Corp.* 6,231
705 Maxim Integrated Products, Inc. 36,716
460 Microchip Technology Inc. 15,824
1,154 Micron Technology, Inc.* 15,014
500 National Semiconductor Corp.* 22,360
155 NVIDIA Corp.* 3,278
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
13
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------------------------------
500 PMC - Sierra, Inc.* $ 10,185
3,195 Texas Instruments Inc. 95,083
570 Xilinx, Inc.* 21,426
------------
801,608
------------
SERVICES TO THE HEALTH INDUSTRY (0.4%)
100 AdvancePCS* 5,566
161 Express Scripts, Inc. (Class A)* 10,422
557 IMS Health Inc. 12,828
536 Medco Health Solutions Inc.* 19,526
137 Omnicare, Inc. 5,469
------------
53,811
------------
SPECIALTY INSURANCE (0.6%)
251 Ambac Financial Group, Inc. 17,256
500 Fidelity National Financial, Inc. 17,665
370 MBIA Inc. 21,504
131 MGIC Investment Corp. 6,936
69 PMI Group, Inc. (The) 2,569
420 Radian Group, Inc. 20,727
------------
86,657
------------
SPECIALTY STORES (1.0%)
176 AutoZone, Inc.* 16,836
695 Bed Bath & Beyond Inc.* 29,357
170 CarMax Inc.* 5,598
200 Michaels Stores, Inc. 9,450
823 Office Depot, Inc.* 13,045
179 PETSMART, Inc. 4,325
400 Regis Corp. 16,380
1,170 Staples, Inc.* 31,766
310 Tiffany & Co. 14,059
150 Toys 'R' Us, Inc.* 1,761
339 Williams-Sonoma, Inc.* 12,218
------------
154,795
------------
SPECIALTY TELECOMMUNICATIONS (0.2%)
500 CenturyTel, Inc. 16,350
684 Citizens Communications Co.* 7,428
117 NTL, Inc.* $ 7,624
------------
31,402
------------
STEEL (0.1%)
304 Nucor Corp. 17,057
------------
TELECOMMUNICATION EQUIPMENT (1.6%)
980 CIENA Corp.* 6,938
287 Comverse Technology, Inc.* 5,519
2,574 Corning Inc.* 29,498
280 InterDigital Communications Corp.* 5,734
10,225 Lucent Technologies Inc.* 32,720
5,000 Motorola, Inc. 70,200
1,610 QUALCOMM Inc. 71,726
616 Tellabs, Inc.* 4,928
200 UTStarcom, Inc.* 7,576
------------
234,839
------------
TOOLS/HARDWARE (0.0%)
150 Black & Decker Corp. (The) 6,959
------------
TRUCKS/CONSTRUCTION/FARM MACHINERY (0.2%)
450 Deere & Co. 27,554
------------
WHOLESALE DISTRIBUTORS (0.1%)
200 Fisher Scientific International, Inc.* 8,054
300 Genuine Parts Co. 9,444
------------
17,498
------------
WIRELESS TELECOMMUNICATIONS (0.6%)
5,340 AT&T Wireless Services Inc.* 40,050
1,910 Nextel Communications, Inc. (Class A)* 48,380
1,258 Sprint Corp. (PCS Group)* 5,774
------------
94,204
------------
TOTAL COMMON STOCKS
(COST $13,883,497) 13,518,526
------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
14
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- -------------------------------------------------------------------------------
SHORT-TERM INVESTMENT (9.4%) REPURCHASE AGREEMENT
$ 1,402 Joint repurchase agreement account 1.06% due
12/01/03 (dated 11/28/03; proceeds $1,402,124) (a)
(COST $1,402,000) $ 1,402,000
------------
TOTAL INVESTMENTS (COST $15,285,497) (b)(c) 99.8% 14,920,526
OTHER ASSETS IN EXCESS OF LIABILITIES 0.2 37,098
----- ------------
NET ASSETS 100.0% $ 14,957,624
===== ============
</Table>
- ----------
* NON-INCOME PRODUCING SECURITY.
** A PORTION OF THIS SECURITY IS PHYSICALLY SEGREGATED IN CONNECTION WITH
OPEN FUTURES CONTRACTS.
(a) COLLATERALIZED BY FEDERAL AGENCY AND U.S. TREASURY OBLIGATIONS.
(b) SECURITIES HAVE BEEN DESIGNATED AS COLLATERAL IN AN AMOUNT EQUAL TO
$1,155,251 IN CONNECTION WITH OPEN FUTURES CONTRACTS.
(c) THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES IS $15,286,552. THE
AGGREGATE GROSS UNREALIZED APPRECIATION IS $1,418,760 AND THE AGGREGATE
GROSS UNREALIZED DEPRECIATION IS $1,784,786, RESULTING IN NET UNREALIZED
DEPRECIATION OF $366,026.
FUTURES CONTRACTS OPEN AT NOVEMBER 30, 2003:
<Table>
<Caption>
DESCRIPTION, UNDERLYING
DELIVERY FACE
NUMBER OF LONG/ MONTH, AND AMOUNT AT UNREALIZED
CONTRACTS SHORT YEAR VALUE APPRECIATION
- ----------------------------------------------------------------------------
23 Long S&P 500 Index
EMINI
December 2003 $ 1,216,470 $ 25,650
8 Long Nasdaq 100
Index EMINI
December 2003 228,000 6,192
---------
Total unrealized appreciation $ 31,842
=========
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
15
<Page>
MORGAN STANLEY KLD SOCIAL INDEX FUND
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 2003
<Table>
ASSETS:
Investments in securities, at value (cost $15,285,497) $ 14,920,526
Receivable for:
Shares of beneficial interest sold 29,679
Dividends 13,272
Variation margin 1,905
Prepaid expenses and other assets 5,675
Receivable from affiliate 59,662
---------------
TOTAL ASSETS 15,030,719
---------------
LIABILITIES:
Distribution fee payable 8,493
Accrued expenses and other payables 64,602
---------------
TOTAL LIABILITIES 73,095
---------------
NET ASSETS $ 14,957,624
===============
COMPOSITION OF NET ASSETS:
Paid-in-capital $ 18,376,668
Net unrealized depreciation (333,129)
Accumulated undistributed net investment income 71,237
Accumulated net realized loss (3,157,152)
---------------
NET ASSETS $ 14,957,624
===============
CLASS A SHARES:
Net Assets $ 2,102,898
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE) 236,902
NET ASSET VALUE PER SHARE $ 8.88
===============
MAXIMUM OFFERING PRICE PER SHARE,
(NET ASSET VALUE PLUS 5.54% OF NET ASSET VALUE) $ 9.37
===============
CLASS B SHARES:
Net Assets $ 8,546,436
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE) 968,818
NET ASSET VALUE PER SHARE $ 8.82
===============
CLASS C SHARES:
Net Assets $ 1,503,341
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE) 171,022
NET ASSET VALUE PER SHARE $ 8.79
===============
CLASS D SHARES:
Net Assets $ 2,804,949
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE) 315,283
NET ASSET VALUE PER SHARE $ 8.90
===============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
16
<Page>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED NOVEMBER 30, 2003
<Table>
NET INVESTMENT INCOME:
INCOME
Dividends $ 159,999
Interest 3,584
---------------
TOTAL INCOME 163,583
---------------
EXPENSES
Distribution fee (Class A shares) 2,332
Distribution fee (Class B shares) 63,392
Distribution fee (Class C shares) 11,009
Shareholder reports and notices 58,741
Professional fees 48,173
KLD licensing fee 44,625
Investment management fee 43,770
Transfer agent fees and expenses 17,383
---------------
TOTAL EXPENSES 289,425
Less: amounts waived/reimbursed (212,692)
---------------
NET EXPENSES 76,733
---------------
NET INVESTMENT INCOME 86,850
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
NET REALIZED GAIN/LOSS ON:
Investments (967,101)
Futures contracts 43,447
---------------
NET REALIZED LOSS (923,654)
---------------
NET CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION ON:
Investments 2,345,255
Futures contracts 29,845
---------------
NET APPRECIATION 2,375,100
---------------
NET GAIN 1,451,446
---------------
NET INCREASE $ 1,538,296
===============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
17
<Page>
STATEMENT OF CHANGES IN NET ASSETS
<Table>
<Caption>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
NOVEMBER 30, 2003 NOVEMBER 30, 2002
----------------- -----------------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income $ 86,850 $ 134,324
Net realized loss (923,654) (2,093,630)
Net change in unrealized depreciation 2,375,100 (1,568,271)
------------- -------------
NET INCREASE (DECREASE) 1,538,296 (3,527,577)
------------- -------------
DIVIDENDS TO SHAREHOLDERS FROM NET INVESTMENT INCOME:
Class A shares (11,380) (1,868)
Class B shares (41,845) (2,692)
Class C shares (8,410) (1,886)
Class D shares (70,366) (79,073)
------------- -------------
TOTAL DIVIDENDS (132,001) (85,519)
------------- -------------
Net increase (decrease) from transactions in shares of beneficial
interest 1,726,063 (3,480,546)
------------- -------------
NET INCREASE (DECREASE) 3,132,358 (7,093,642)
NET ASSETS:
Beginning of period 11,825,266 18,918,908
------------- -------------
END OF PERIOD
(INCLUDING ACCUMULATED UNDISTRIBUTED NET INVESTMENT INCOME OF
$71,237 AND $119,907, RESPECTIVELY) $ 14,957,624 $ 11,825,266
============= =============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
18
<Page>
MORGAN STANLEY KLD SOCIAL INDEX FUND
NOTES TO FINANCIAL STATEMENTS - NOVEMBER 30, 2003
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(SM) Index ("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 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 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.
19
<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.
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.
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.
20
<Page>
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, 2004, 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 November 30,
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 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 $1,130,656
at November 30, 2003.
In the case of Class A shares and Class C shares, expenses incurred pursuant to
the Plan in any calendar year in excess of 0.25% or 1.0% of the average daily
net assets of Class A or Class C, respectively, will not be reimbursed by the
Fund through payments in any subsequent year, except that expenses representing
a gross sales credit to Morgan Stanley Financial Advisors or other selected
broker-dealer representatives may be reimbursed in the subsequent calendar year.
For the year ended November 30, 2003, the distribution fee was accrued for Class
A shares and Class C shares at the annual rate of 0.20% and 1.0%, respectively.
21
<Page>
The Distributor has informed the Fund that for the year ended November 30, 2003,
it received contingent deferred sales charges from certain redemptions of the
Fund's Class B shares and Class C shares of $16,514 and $68, respectively and
received $28,091 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 November 30, 2003, aggregated
$3,007,198 and $2,521,084, respectively.
Morgan Stanley Trust, an affiliate of the Investment Manager and Distributor, is
the Fund's transfer agent. At November 30, 2003, the Fund had transfer agent
fees and expenses payable of approximately $1,600.
5. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<Table>
<Caption>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
NOVEMBER 30, 2003 NOVEMBER 30, 2002
------------------------ ------------------------
SHARES AMOUNT SHARES AMOUNT
-------- ------------ -------- ------------
CLASS A SHARES
Sold 182,321 $ 1,452,634 78,538 $ 650,574
Reinvestment of dividends 1,546 11,206 199 1,868
Redeemed (44,830) (331,078) (15,868) (121,933)
-------- ------------ -------- ------------
Net increase -- Class A 139,037 1,132,762 62,869 530,509
-------- ------------ -------- ------------
CLASS B SHARES
Sold 344,034 2,744,983 354,989 3,046,133
Reinvestment of dividends 5,149 37,382 255 2,389
Redeemed (118,946) (914,768) (88,137) (678,301)
-------- ------------ -------- ------------
Net increase -- Class B 230,237 1,867,597 267,107 2,370,221
-------- ------------ -------- ------------
CLASS C SHARES
Sold 66,178 531,198 78,785 674,914
Reinvestment of dividends 984 7,124 160 1,494
Redeemed (24,046) (182,495) (9,086) (72,352)
-------- ------------ -------- ------------
Net increase -- Class C 43,116 355,827 69,859 604,056
-------- ------------ -------- ------------
CLASS D SHARES
Sold 230,463 1,880,364 96,739 787,983
Reinvestment of dividends 9,298 67,503 8,438 79,063
Redeemed (495,319) (3,577,990) (985,266) (7,852,378)
-------- ------------ -------- ------------
Net decrease -- Class D (255,558) (1,630,123) (880,089) (6,985,332)
-------- ------------ -------- ------------
Net increase (decrease) in Fund 156,832 $ 1,726,063 (480,254) $ (3,480,546)
======== ============ ======== ============
</Table>
22
<Page>
6. 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.
7. 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
NOVEMBER 30, 2003 NOVEMBER 30, 2002
----------------- -----------------
Ordinary income $ 132,001 $ 85,519
As of November 30, 2003, the
tax-basis components of
accumulated losses were as
follows:
<Caption>
Undistributed ordinary income $ 70,304
Undistributed long-term gains --
------------
Net accumulated earnings 70,304
Capital loss carryforward* (3,123,322)
Net unrealized depreciation (366,026)
------------
Total accumulated losses $ (3,419,044)
============
</Table>
* As of November 30, 2003, the Fund had a net capital loss carryforward of
$3,123,322 of which $19,969 will expire on November 30, 2009, $2,198,221 will
expire on November 30, 2010 and $905,132 will expire on November 30, 2011 to
offset future capital gains to the extent provided by regulations.
23
<Page>
As of November 30, 2003, the Fund had temporary book/tax differences primarily
attributable to capital loss deferrals on wash sales and mark-to-market of open
futures contracts and permanent book/tax differences attributable to tax
adjustments on real estate investment trusts held by the Fund. To reflect
reclassifications arising from the permanent differences, accumulated
undistributed net investment income was charged and accumulated net realized
loss was credited $3,519.
8. LEGAL MATTERS
The Investment Manager, certain affiliates of the Investment Manager and certain
investment companies advised by the Investment Manager or its affiliates,
including the Fund, are named as defendants in a number of recently filed,
similar class action complaints. These complaints generally allege that
defendants, including the Fund, violated their statutory disclosure obligations
and fiduciary duties by failing properly to disclose (i) that the Investment
Manager and certain affiliates of the Investment Manager allegedly offered
economic incentives to brokers and others to steer investors to the funds
advised by the Investment Manager or its affiliates rather than funds managed by
other companies, and (ii) that the funds advised by the Investment Manager or
its affiliates, including the Fund, allegedly paid excessive commissions to
brokers in return for their alleged efforts to steer investors to these funds.
The complaints seek, among other things, unspecified compensatory damages,
rescissionary damages, fees and costs. The defendants intend to move to dismiss
these actions and otherwise vigorously to defend them. While the Fund believes
that it has meritorious defenses, the ultimate outcome of these matters is not
presently determinable at this early stage of the litigation, and no provision
has been made in the Fund's financial statements for the effect, if any, of
these matters.
24
<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 YEAR FOR THE YEAR JULY 13, 2001*
ENDED ENDED THROUGH
NOVEMBER 30, 2003 NOVEMBER 30, 2002 NOVEMBER 30, 2001
----------------- ----------------- -----------------
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++ 0.10 0.09 0.03
Net realized and unrealized gain (loss) 1.17 (1.70) (0.64)
-------- -------- --------
Total income (loss) from investment operations 1.27 (1.61) (0.61)
-------- -------- --------
Less dividends from net investment income (0.12) (0.05) -
-------- -------- --------
Net asset value, end of period $ 8.88 $ 7.73 $ 9.39
======== ======== ========
TOTAL RETURN+ 16.72% (17.25)% (6.10)%(1)
RATIOS TO AVERAGE NET ASSETS(3)(4):
Expenses 0.20% 0.24% 0.25%(2)
Net investment income 1.29% 1.01% 0.85%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands $ 2,103 $ 756 $ 329
Portfolio turnover rate 24% 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>
NET INVESTMENT
PERIOD ENDED EXPENSE RATIO LOSS RATIO
------------ --------------- ----------------
November 30, 2003 2.14% (0.65)%
November 30, 2002 2.14% (0.89)%
November 30, 2001 2.35% (1.25)%
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
25
<Page>
<Table>
<Caption>
FOR THE PERIOD
FOR THE YEAR FOR THE YEAR JULY 13, 2001*
ENDED ENDED THROUGH
NOVEMBER 30, 2003 NOVEMBER 30, 2002 NOVEMBER 30, 2001
----------------- ----------------- -----------------
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++ 0.04 0.02 0.00
Net realized and unrealized gain (loss) 1.16 (1.69) (0.64)
-------- -------- --------
Total income (loss) from investment operations 1.20 (1.67) (0.64)
-------- -------- --------
Less dividends from net investment income (0.06) (0.01) -
-------- -------- --------
Net asset value, end of period $ 8.82 $ 7.68 $ 9.36
======== ======== ========
TOTAL RETURN+ 15.75% (17.90)% (6.40)%(1)
RATIOS TO AVERAGE NET ASSETS(3)(4):
Expenses 1.00% 1.00% 1.00%(2)
Net investment income 0.49% 0.25% 0.10%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands $ 8,547 $ 5,670 $ 4,413
Portfolio turnover rate 24% 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>
NET INVESTMENT
PERIOD ENDED EXPENSE RATIO LOSS RATIO
------------ --------------- ----------------
November 30, 2003 2.94% (1.45)%
November 30, 2002 2.90% (1.65)%
November 30, 2001 3.10% (2.00)%
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
26
<Page>
<Table>
<Caption>
FOR THE PERIOD
FOR THE YEAR FOR THE YEAR JULY 13, 2001*
ENDED ENDED THROUGH
NOVEMBER 30, 2003 NOVEMBER 30, 2002 NOVEMBER 30, 2001
----------------- ----------------- -----------------
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++ 0.04 0.02 0.00
Net realized and unrealized gain (loss) 1.16 (1.69) (0.64)
-------- -------- --------
Total income (loss) from investment operations 1.20 (1.67) (0.64)
-------- -------- --------
Less dividends from net investment income (0.07) (0.03) -
-------- -------- --------
Net asset value, end of period $ 8.79 $ 7.66 $ 9.36
======== ======== ========
TOTAL RETURN+ 15.81% (17.92)% (6.40)%(1)
RATIOS TO AVERAGE NET ASSETS(3)(4):
Expenses 1.00% 1.00% 1.00%(2)
Net investment income 0.49% 0.25% 0.10%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands $ 1,503 $ 980 $ 544
Portfolio turnover rate 24% 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>
NET INVESTMENT
PERIOD ENDED EXPENSE RATIO LOSS RATIO
------------ --------------- ----------------
November 30, 2003 2.94% (1.45)%
November 30, 2002 2.90% (1.65)%
November 30, 2001 3.10% (2.00)%
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
27
<Page>
<Table>
<Caption>
FOR THE PERIOD
FOR THE YEAR FOR THE YEAR JULY 13, 2001*
ENDED ENDED THROUGH
NOVEMBER 30, 2003 NOVEMBER 30, 2002 NOVEMBER 30, 2001
----------------- ----------------- -----------------
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++ 0.12 0.11 0.04
Net realized and unrealized gain (loss) 1.17 (1.71) (0.64)
-------- -------- --------
Total income (loss) from investment operations 1.29 (1.60) (0.60)
-------- -------- --------
Less dividends from net investment income (0.13) (0.06) -
-------- -------- --------
Net asset value, end of period $ 8.90 $ 7.74 $ 9.40
======== ======== ========
TOTAL RETURN+ 17.05% (17.17)% (6.00)%(1)
RATIOS TO AVERAGE NET ASSETS(3)(4):
Expenses 0.00% 0.00% 0.00%(2)
Net investment income 1.49% 1.25% 1.10%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands $ 2,805 $ 4,419 $ 13,634
Portfolio turnover rate 24% 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>
NET INVESTMENT
PERIOD ENDED EXPENSE RATIO LOSS RATIO
------------ --------------- ----------------
November 30, 2003 1.94% (0.45)%
November 30, 2002 1.90% (0.65)%
November 30, 2001 2.10% (1.00)%
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
28
<Page>
MORGAN STANLEY KLD SOCIAL INDEX FUND
INDEPENDENT AUDITORS' REPORT
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES OF
MORGAN STANLEY KLD SOCIAL INDEX FUND:
We have audited the accompanying statement of assets and liabilities of Morgan
Stanley KLD Social Index Fund (the "Fund"), including the portfolio of
investments, as of November 30, 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 periods
presented. 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 November 30, 2003, by correspondence with the custodian
and broker. 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 KLD Social Index Fund as of November 30, 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 periods presented, in conformity with accounting principles generally
accepted in the United States of America.
Deloitte & Touche LLP
NEW YORK, NEW YORK
JANUARY 16, 2004
2003 FEDERAL TAX NOTICE (UNAUDITED)
During the fiscal year ended November 30, 2003, 100% of the income
dividends paid qualified for the dividends received deduction
available to corporations. Additionally, please note that 100% of the
Fund's income dividends paid during the fiscal year ended November 30,
2003 qualified for the lower income tax rate available to individuals
under the Jobs and Growth Tax Relief Reconciliation Act of 2003.
29
<Page>
MORGAN STANLEY KLD SOCIAL INDEX FUND
TRUSTEE AND OFFICER INFORMATION
INDEPENDENT TRUSTEES:
<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 TRUSTEE REGISTRANT TIME SERVED* PAST 5 YEARS** BY TRUSTEE*** HELD BY TRUSTEE
- ----------------------------- ----------- ------------ ------------------------------ ------------- ---------------------------
Michael Bozic (62) Trustee Since Retired; Director or Trustee 216 Director of Weirton Steel
c/o Mayer, Brown, Rowe & Maw April 1994 of the Retail Funds and TCW/DW Corporation.
LLP Term Trust 2003 (since April
Counsel to the Independent 1994) and the Institutional
Directors Funds (since July 2003);
1675 Broadway formerly Vice Chairman of
New York, NY Kmart Corporation (December
1998-October 2000), Chairman
and Chief Executive Officer of
Levitz Furniture Corporation
(November 1995-November 1998)
and President and Chief
Executive Officer of Hills
Department Stores (May
1991-July 1995); 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) Trustee Since Director or Trustee of the 216 Director of Franklin Covey
c/o Summit Ventures LLC January 1993 Retail Funds and TCW/DW Term (time management systems),
1 Utah Center Trust 2003 (since January BMW Bank of North America,
201 S. Main Street 1993) and the Institutional Inc. (industrial loan
Salt Lake City, UT Funds (since July 2003); corporation), United Space
member of the Utah Regional Alliance (joint venture
Advisory Board of Pacific between Lockheed Martin and
Corp.; formerly United States the Boeing Company) and
Senator (R-Utah) (1974-1992) Nuskin Asia Pacific
and Chairman, Senate Banking (multilevel marketing);
Committee (1980-1986), Mayor member of the board of
of Salt Lake City, Utah various civic and
(1971-1974), Astronaut, Space charitable organizations.
Shuttle Discovery (April
12-19, 1985), and Vice
Chairman, Huntsman Corporation
(chemical company).
Wayne E. Hedien (69) Trustee Since Retired; Director or Trustee 216 Director of The PMI Group
c/o Mayer, Brown, Rowe & Maw September of the Retail Funds and TCW/DW Inc. (private mortgage
LLP 1997 Term Trust 2003; (Since insurance); Trustee and
Counsel to the Independent September 1997) and the Vice Chairman of The Field
Directors Institutional Funds (since Museum of Natural History;
1675 Broadway July 2003); formerly director of various other
New York, NY associated with the Allstate business and charitable
Companies (1966-1994), most organizations.
recently as Chairman of The
Allstate Corporation (March
1993-December 1994) and
Chairman and Chief Executive
Officer of its wholly- owned
subsidiary, Allstate Insurance
Company (July 1989-December
1994).
</Table>
30
<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 TRUSTEE REGISTRANT TIME SERVED* PAST 5 YEARS** BY TRUSTEE*** HELD BY TRUSTEE
- ----------------------------- ----------- ------------ ------------------------------ ------------- ---------------------------
Dr.Manuel H. Johnson (54) Trustee Since Chairman of the Audit 216 Director of NVR, Inc. (home
c/o Johnson Smick July 1991 Committee and Director or construction); Chairman and
International, Inc. Trustee of the Retail Funds Trustee of the Financial
2099 Pennsylvania Avenue, and TCW/DW Term Trust 2003 Accounting Foundation
N.W. (since July 1991) and the (oversight organization of
Suite 950 Institutional Funds (since the Financial Accounting
Washington, D.C. July 2003); Senior Partner, Standards Board); Director
Johnson Smick International, of RBS Greenwich Capital
Inc., a consulting firm; Holdings (financial holding
Co-Chairman and a founder of company).
the Group of Seven Council
(G7C), an international
economic commission; formerly
Vice Chairman of the Board of
Governors of the Federal
Reserve System and Assistant
Secretary of the U.S.
Treasury.
Joseph J. Kearns (61) Trustee Since Deputy Chairman of the Audit 217 Director of Electro Rent
PMB754 July 2003 Committee and Director or Corporation (equipment
23852 Pacific Coast Highway Trustee of the Retail Funds leasing), The Ford Family
Malibu, CA and TCW/DW Term Trust 2003 Foundation, and the UCLA
(since July 2003) and the Foundation.
Institutional Funds (since
August 1994); previously
Chairman 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) Trustee Since Chairman of the Insurance 216 Director of various
c/o Triumph Capital, L.P. July 1991 Committee and Director or business organizations.
445 Park Avenue Trustee of the Retail Funds
New York, NY and TCW/DW 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) Trustee Since Chairman of the Governance 217 Trustee and Director of
85 Charles Colman Blvd. July 2003 Committee and Director or certain investment
Pawling, NY Trustee of the Retail Funds companies in the JPMorgan
and TCW/DW Term Trust 2003 Funds complex managed by JP
(since July 2003) and the Morgan Investment
Institutional Funds (since Management Inc.
June 1992); Chairman of
Lumelite Plastics Corporation.
</Table>
31
<Page>
INTERESTED TRUSTEES:
<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
INTERESTED TRUSTEE REGISTRANT TIME SERVED* PAST 5 YEARS** BY TRUSTEE*** HELD BY TRUSTEE
- ----------------------------- ----------- ------------ ------------------------------ ------------- ---------------------------
Charles A. Fiumefreddo (70) Chairman of Since Chairman and Director or 216 None
c/o Morgan Stanley Trust the Board July 1991 Trustee of the Retail Funds
Harborside Financial Center, and Trustee and TCW/DW Term Trust 2003
Plaza Two, (since July 1991) and the
Jersey City, NJ Institutional Funds (since
July 2003); formerly Chief
Executive Officer of the
Retail Funds and the TCW/DW
Term Trust 2003 (until
September 2002).
James F. Higgins (55) Trustee Since Director or Trustee of the 216 Director of AXA Financial,
c/o Morgan Stanley Trust June 2000 Retail Funds and TCW/DW Term Inc. and The Equitable Life
Harborside Financial Center, Trust 2003 (since June 2000) Assurance Society of the
Plaza Two, and the Institutional Funds United States (financial
Jersey City, NJ (since July 2003); Senior services).
Advisor of Morgan Stanley
(since August 2000); Director
of the Distributor and 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) Trustee Since Director or Trustee of the 216 Director of American
1585 Broadway April 1994 Retail Funds and TCW/DW Term Airlines, Inc. and its
New York, NY Trust 2003 (since April 1994) parent company, AMR
and the Institutional Funds Corporation.
(since July 2003); Chairman
of the Board of 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 TRUSTEE 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).
32
<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 Since April 2003 Chief Global Operations Officer and Managing Director of Morgan
1221 Avenue of the Americas Vice Stanley Investment Management Inc.; Managing DIrector of Morgan
New York, NY President and Stanley & Co. Incorporated; Managing DIrector of Morgan Stanley;
Principal Managing Director, Chief Administrative Officer and Director of
Executive the Investment Manager and Morgan Stanley Services; Chief
Officer 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 Since February General Counsel (since May 2000) and Managing Director (since
1221 Avenue of the Americas President 1997 December 2000) of Morgan Stanley Investment Management; Managing
New York, NY and General Director (since December 2000), Secretary (since February 1997)
Counsel 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 Since July 1995 Managing Director and Chief Investment Officer of the Investment
1221 Avenue of the Americas President Manager, Morgan Stanley Investment Management Inc. and Morgan
New York, NY 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 (37) Vice Since July 2003 Executive Director of Morgan Stanley & Co. and Morgan Stanley
1221 Avenue of the Americas President 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>
33
<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 Executive Director of the Investment Manager and Morgan Stanley
c/o Morgan Stanley Trust Chief July 2003 and Services (since December 2001); previously Vice President of the
Harborside Financial Center, Financial Chief Financial Retail Funds (September 2002-July 2003); previously Vice
Plaza Two, Officer Officer since President of the Investment Manager and Morgan Stanley Services
Jersey City, NJ September 2002 (August 2000-November 2001) and Senior Manager at
PricewaterhouseCoopers LLP (January 1998-August 2000).
Thomas F. Caloia (57) Vice Since July 2003 Executive Director (since December 2002) and Assistant Treasurer
c/o Morgan Stanley Trust President of the Investment Manager, the Distributor and Morgan Stanley
Harborside Financial Center, Services; previously Treasurer of the Retail Funds
Plaza Two, (April 1989-July 2003); formerly First Vice President of the
Jersey City, NJ Investment Manager, the Distributor and Morgan Stanley Services.
Mary E. Mullin (36) Secretary Since July 2003 Vice President of Morgan Stanley & Co. Incorporated and Morgan
1221 Avenue of the Americas 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.
34
<Page>
TRUSTEES
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
This report is submitted for the general information of the shareholders of the
Fund. For more detailed information about the Fund, its fees and expenses and
other pertinent information, please read its Prospectus. The Fund's Statement of
Additional Information contains additional information about the Fund, including
its trustees. It is available, without charge, by calling (800) 869-NEWS.
This report is not authorized for distribution to prospective investors in the
Fund unless preceded or accompanied by an effective Prospectus. Read the
Prospectus carefully before investing.
Investments and services offered through Morgan Stanley DW Inc., member SIPC.
Morgan Stanley Distributors Inc., member NASD.
(C) 2003 Morgan Stanley
39908RPT-00-13268A04-AP-1/04
[MORGAN STANLEY LOGO]
[GRAPHIC]
MORGAN STANLEY FUNDS
MORGAN STANLEY
KLD SOCIAL
INDEX FUND
ANNUAL REPORT
NOVEMBER 30, 2003
[MORGAN STANLEY LOGO]
<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 Trustees has determined that it has two "audit committee
financial experts" serving on its audit committee, each of whom are
"independent" Trustees: Dr. Manuel H. Johnson and Joseph J. Kearns. Under
applicable securities laws, a person who is determined to be an audit committee
financial expert will not be deemed an "expert" for any purpose, including
without limitation for the purposes of Section 11 of the Securities Act of 1933,
as a result of being designated or identified as an audit committee financial
expert. The designation or identification of a person as an audit committee
financial expert does not impose on such person any duties, obligations, or
liabilities that are greater than the duties, obligations, and liabilities
imposed on such person as a member of the audit committee and Board of Trustees
in the absence of such designation or identification.
Item 4. Principal Accountant Fees and Services
Applicable only for reports covering fiscal years ending on or after December
15, 2003.
Item 5. Audit Committee of Listed Registrants.
<Page>
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.
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.
<Page>
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
/s/ Ronald E. Robison
Ronald E. Robison
Principal Executive Officer
January 22, 2004
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
January 22, 2004
/s/ Francis Smith
Francis Smith
Principal Financial Officer
January 22, 2004