<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: 811-09081 Morgan Stanley International 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: October 31, 2004 Date of reporting period: October 31, 2004 Item 1 - Report to Shareholders <Page> WELCOME, SHAREHOLDER: IN THIS REPORT, YOU'LL LEARN ABOUT HOW YOUR INVESTMENT IN MORGAN STANLEY INTERNATIONAL 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'S 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, 2004 TOTAL RETURN FOR THE 12 MONTHS ENDED OCTOBER 31, 2004 <Table> <Caption> MORGAN STANLEY LIPPER CAPITAL INTERNATIONAL LIPPER INTERNATIONAL LARGE-CAP INTERNATIONAL (MSCI) CORE FUNDS FUNDS CLASS A CLASS B CLASS C CLASS D EAFE INDEX(1) INDEX(2) INDEX(3) 15.89% 14.87% 15.03% 15.97% 18.84% 15.06% 16.54% </Table> PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH IS NO GUARANTEE OF FUTURE RESULTS, AND CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE FIGURES SHOWN. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE AND FUND SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. SEE PERFORMANCE SUMMARY FOR ADDITIONAL PERFORMANCE INFORMATION AND INDEX DEFINITION. 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. MARKET CONDITIONS The international equity markets produced positive results for the 12-month period ended October 31, 2004, though gains were largely concentrated in the first months of the period. Equities rose sharply in the fourth calendar quarter of 2003, rising 17 percent on improving economic conditions and still-low interest rates. For the remainder of the period, which included most of 2004, returns were largely flat as rising oil prices, rising U.S. interest rates and the impending U.S. election weighed on the markets. Investors were also concerned about the prospect of an overheated economy in China as well as a lack of transparency in that government's policies. Most countries within the MSCI EAFE Index provided strong returns for the 12-month period, with only Finland posting a single-digit return. Both Europe and Asia ex-Japan rose more than 25 percent, with Japan lagging its global peers with an 11 percent return. PERFORMANCE ANALYSIS Morgan Stanley International Fund underperformed both the MSCI EAFE Index and the Lipper International Funds Index for the 12 months ended October 31, 2004. The Fund's Class A and D shares outperformed the Lipper International Large-Cap Core Funds Index, while its Class B and C shares did not. An underweighted position in Australian equities relative to the MSCI EAFE Index was one major detractor from performance. This country allocation hurt the Fund because not only did Australian equities post strong returns in local currency terms, but the Australian dollar also gained roughly 6 percent for the period. As the Australian market's return to U.S. dollar investors was then greater than 24 percent, the Fund's inadequate exposure there represented a missed opportunity. From a sector perspective, the Fund's allocation to information technology (IT) further hindered performance, as the shift to an underweighted position late in fourth-quarter 2003 was made just prior to the sector's sharp rally in January. A lack of emphasis on financials stocks during the period further hurt the Fund. Although a number of positions were unfavorable for performance, others provided considerable gains. The Fund's exposure to emerging markets, concentrated in Asian equities, contributed greatly to its positive returns for the period. These markets performed especially well because of their economies' strong fundamentals such as current-account surpluses and high savings rates, and as a result of their proximity to China, which bolstered 2 <Page> their exports. While an underweighted position in the consumer staples sector relative to the MSCI EAFE Index hurt performance in the first half of the period, this allocation was positive for the Fund over the full year. THERE IS NO GUARANTEE THAT ANY SECURITIES MENTIONED WILL CONTINUE TO PERFORM WELL OR BE HELD BY THE FUND IN THE FUTURE. TOP 10 HOLDINGS <Table> BP 2.3% HSBC Holdings 2.0 Vodafone Group 1.9 Toyota Motor 1.6 Total 1.6 Telefonica 1.6 Royal Dutch Petroleum 1.5 GlaxoSmithKline 1.2 Novartis 1.1 Nokia 0.9 </Table> TOP FIVE COUNTRIES <Table> Japan 25.6% United Kingdom 21.2 France 8.2 Germany 5.9 Netherlands 5.1 </Table> DATA AS OF OCTOBER 31, 2004. SUBJECT TO CHANGE DAILY. ALL PERCENTAGES FOR TOP 10 HOLDINGS AND TOP FIVE COUNTRIES ARE AS A PERCENTAGE OF NET ASSETS. THESE DATA ARE PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE DEEMED 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 THE FUND WILL NORMALLY INVEST AT LEAST 65 PERCENT OF ITS ASSETS IN A DIVERSIFIED PORTFOLIO OF INTERNATIONAL COMMON STOCKS AND OTHER EQUITY SECURITIES. THE FUND'S "INVESTMENT MANAGER," MORGAN STANLEY INVESTMENT ADVISORS INC., USES A "TOP-DOWN" APPROACH THAT EMPHASIZES COUNTRY AND SECTOR SELECTION AND WEIGHTINGS OVER INDIVIDUAL STOCK SELECTION. FOR MORE INFORMATION ABOUT PORTFOLIO HOLDINGS EACH MORGAN STANLEY FUND PROVIDES A COMPLETE SCHEDULE OF PORTFOLIO HOLDINGS IN ITS SEMIANNUAL AND ANNUAL REPORTS WITHIN 60 DAYS OF THE END OF THE FUND'S SECOND AND FOURTH FISCAL QUARTERS BY FILING THE SCHEDULE ELECTRONICALLY WITH THE SECURITIES AND EXCHANGE COMMISSION (SEC). THE SEMIANNUAL REPORTS ARE FILED ON FORM N-CSRS AND THE ANNUAL REPORTS ARE FILED ON FORM N-CSR. MORGAN STANLEY ALSO DELIVERS THE SEMIANNUAL AND ANNUAL REPORTS TO FUND SHAREHOLDERS AND MAKES THESE REPORTS AVAILABLE ON ITS PUBLIC WEB SITE, www.morganstanley.com. EACH MORGAN STANLEY FUND ALSO FILES A COMPLETE SCHEDULE OF PORTFOLIO HOLDINGS WITH THE SEC FOR THE FUND'S FIRST AND THIRD FISCAL QUARTERS ON FORM N-Q. MORGAN STANLEY DOES NOT DELIVER THE REPORTS FOR THE FIRST AND THIRD FISCAL QUARTERS TO SHAREHOLDERS, NOR ARE THE REPORTS POSTED TO THE MORGAN STANLEY PUBLIC WEB SITE. YOU MAY, HOWEVER, OBTAIN THE FORM N-Q FILINGS (AS WELL AS THE FORM N-CSR AND N-CSRS FILINGS) BY ACCESSING THE SEC'S WEB SITE, http://www.sec.gov. YOU MAY ALSO REVIEW AND COPY THEM AT THE SEC'S PUBLIC REFERENCE ROOM IN WASHINGTON, DC. INFORMATION ON THE OPERATION OF THE SEC'S PUBLIC REFERENCE ROOM MAY BE OBTAINED BY CALLING THE SEC AT (800) SEC-0330. YOU CAN 3 <Page> ALSO REQUEST COPIES OF THESE MATERIALS, UPON PAYMENT OF A DUPLICATING FEE, BY ELECTRONIC REQUEST AT THE SEC'S E-MAIL ADDRESS (publicinfo@sec.gov) OR BY WRITING THE PUBLIC REFERENCE SECTION OF THE SEC, WASHINGTON, DC 20549-0102. YOU MAY OBTAIN COPIES OF A FUND'S FISCAL QUARTER FILINGS BY CONTACTING MORGAN STANLEY CLIENT RELATIONS AT (800) 869-NEWS. PROXY VOTING POLICIES AND PROCEDURES A DESCRIPTION OF (1) THE FUND'S POLICIES AND PROCEDURES WITH RESPECT TO THE VOTING OF PROXIES RELATING TO THE FUND'S PORTFOLIO SECURITIES AND (2) HOW THE FUND VOTED PROXIES RELATING TO PORTFOLIO SECURITIES DURING THE MOST RECENT 12-MONTH PERIOD ENDED OCTOBER 31, 2004, IS AVAILABLE WITHOUT CHARGE, UPON REQUEST, BY CALLING (800) 869-NEWS OR BY VISITING THE MUTUAL FUND CENTER ON OUR WEB SITE AT www.morganstanley.com. THIS INFORMATION IS ALSO AVAILABLE ON THE SECURITIES AND EXCHANGE COMMISSION'S WEB SITE AT http://www.sec.gov. 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. 4 <Page> (This page has been left blank intentionally.) 5 <Page> PERFORMANCE SUMMARY [CHART] PERFORMANCE OF A $10,000 INVESTMENT ($ IN THOUSANDS) <Table> <Caption> CLASS A^ CLASS B^ CLASS C^ CLASS D^ MSCI EAFE(1) LIPPER INT'L LARGE-CAP CORE(2) LIPPER INT'L(3) Jun-1999 $ 9,475 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 Jul-1999 $ 9,608 $ 10,130 $ 10,130 $ 10,140 $ 10,243 $ 10,273 $ 10,232 Oct-1999 $ 10,015 $ 10,550 $ 10,550 $ 10,580 $ 10,773 $ 10,766 $ 10,707 Jan-2000 $ 10,603 $ 11,140 $ 11,140 $ 11,200 $ 11,375 $ 12,236 $ 12,149 Apr-2000 $ 10,631 $ 11,150 $ 11,150 $ 11,240 $ 11,496 $ 12,385 $ 12,160 Jul-2000 $ 10,356 $ 10,850 $ 10,850 $ 10,960 $ 11,165 $ 12,346 $ 11,973 Oct-2000 $ 9,750 $ 10,190 $ 10,190 $ 10,320 $ 10,461 $ 11,446 $ 11,077 Jan-2001 $ 9,674 $ 10,089 $ 10,089 $ 10,250 $ 10,421 $ 11,511 $ 11,070 Apr-2001 $ 9,064 $ 9,435 $ 9,435 $ 9,607 $ 9,622 $ 10,630 $ 10,152 Jul-2001 $ 8,454 $ 8,781 $ 8,781 $ 8,964 $ 8,741 $ 9,711 $ 9,376 Oct-2001 $ 7,765 $ 8,042 $ 8,042 $ 8,225 $ 7,853 $ 8,726 $ 8,408 Jan-2002 $ 7,599 $ 7,862 $ 7,862 $ 8,066 $ 7,755 $ 8,754 $ 8,519 Apr-2002 $ 8,164 $ 8,422 $ 8,432 $ 8,664 $ 8,287 $ 9,387 $ 9,160 Jul-2002 $ 7,235 $ 7,451 $ 7,461 $ 7,682 $ 7,262 $ 8,209 $ 8,033 Oct-2002 $ 6,761 $ 6,944 $ 6,955 $ 7,181 $ 6,815 $ 7,789 $ 7,546 Jan-2003 $ 6,506 $ 6,680 $ 6,682 $ 6,918 $ 6,598 $ 7,495 $ 7,370 Apr-2003 $ 6,731 $ 6,892 $ 6,904 $ 7,157 $ 6,939 $ 7,817 $ 7,667 Jul-2003 $ 7,354 $ 7,514 $ 7,517 $ 7,817 $ 7,720 $ 8,659 $ 8,587 Oct-2003 $ 8,202 $ 8,369 $ 8,374 $ 8,737 $ 8,658 $ 9,564 $ 9,549 Jan-2004 $ 9,102 $ 9,263 $ 9,271 $ 9,694 $ 9,677 $ 10,635 $ 10,627 Apr-2004 $ 9,082 $ 9,231 $ 9,249 $ 9,683 $ 9,730 $ 10,553 $ 10,598 Jul-2004 $ 8,947 $ 9,072 $ 9,090 $ 9,541 $ 9,653 $ 10,285 $ 10,451 Oct-2004 $ 9,505 $ 9,523 $ 9,632 $ 10,133 $ 10,289 $ 11,004 $ 11,129 Ending Value CLASS A^ CLASS B^ CLASS C^ CLASS D^ MSCI EAFE(1) LIPPER INT'L LARGE-CAP CORE(2) LIPPER INT'L(3) $9,505 $9,523 $9,632 $10,133 $10,289 $11,004 $11,129 </Table> 6 <Page> AVERAGE ANNUAL TOTAL RETURNS--PERIOD ENDED OCTOBER 31, 2004 <Table> <Caption> CLASS A SHARES* CLASS B SHARES** CLASS C SHARES+ CLASS D SHARES++ (SINCE 06/28/99) (SINCE 06/28/99) (SINCE 06/28/99) (SINCE 06/28/99) SYMBOL INLAX INLBX INLCX INLDX 1 YEAR 15.89%(4) 14.87%(4) 15.03%(4) 15.97%(4) 9.80(5) 9.87(5) 14.03(5) -- 5 YEARS (1.04)(4) (1.84)(4) (1.80)(4) (0.86)(4) (2.10)(5) (2.22)(5) (1.80)(5) -- SINCE INCEPTION 0.06(4) (0.74)(4) (0.70)(4) 0.25(4) (0.95)(5) (0.91)(5) (0.70)(5) -- </Table> PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH IS NO GUARANTEE OF FUTURE RESULTS AND CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE FIGURES SHOWN. FOR THE MOST RECENT MONTH-END PERFORMANCE FIGURES, PLEASE VISIT morganstanley.com OR SPEAK WITH YOUR FINANCIAL ADVISOR. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE AND FUND SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR 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. * 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. (1) THE MORGAN STANLEY CAPITAL INTERNATIONAL (MSCI) EAFE INDEX MEASURES THE PERFORMANCE FOR A DIVERSE RANGE OF GLOBAL STOCK MARKETS WITHIN EUROPE, AUSTRALASIA, AND THE FAR EAST. 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 INTERNATIONAL LARGE-CAP CORE FUNDS INDEX IS AN EQUALLY WEIGHTED PERFORMANCE INDEX OF THE LARGEST QUALIFYING FUNDS (BASED ON NET ASSETS) IN THE LIPPER INTERNATIONAL 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 10 FUNDS REPRESENTED IN THIS INDEX. LIPPER INTRODUCED NEW CLASSIFICATIONS IN JUNE 2004 THAT CATEGORIZE INTERNATIONAL AND GLOBAL FUNDS BASED ON THE SIZE AND STYLE OF THE ACTUAL STOCKS IN THEIR PORTFOLIO, RATHER THAN ON STATED OBJECTIVES. THE FUND IS IN THE INTERNATIONAL LARGE-CAP CORE FUNDS CLASSIFICATION AS OF OCTOBER 31, 2004. (3) THE LIPPER INTERNATIONAL FUNDS INDEX IS AN EQUALLY WEIGHTED PERFORMANCE INDEX OF THE LARGEST QUALIFYING FUNDS (BASED ON NET ASSETS) IN THE LIPPER INTERNATIONAL 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. (4) FIGURE SHOWN ASSUMES REINVESTMENT OF ALL DISTRIBUTIONS AND DOES NOT REFLECT THE DEDUCTION OF ANY SALES CHARGES. (5) 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. ^ ENDING VALUE ASSUMING A COMPLETE REDEMPTION ON OCTOBER 31, 2004. 7 <Page> EXPENSE EXAMPLE As a shareholder of the Fund, you incur ongoing costs, including management fees, distribution and service (12b-1) fees, and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period 05/01/04 - 10/31/04. ACTUAL EXPENSES The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The second line of the table below provides information about hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing cost of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only. Therefore, the second line of the table is useful in comparing ongoing costs, and will not help you determine the relative total cost of owning different funds that have transactional costs, such as sales charges (loads), and redemption fees, or exchange fees. <Table> <Caption> BEGINNING ENDING EXPENSES PAID ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD * ------------- ------------- --------------- 05/01/04 - 05/01/04 10/31/04 10/31/04 ------------- ------------- --------------- CLASS A Actual (4.66% return) $ 1,000.00 $ 1,046.60 $ 8.13 Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,017.19 $ 8.01 CLASS B Actual (4.14% return) $ 1,000.00 $ 1,041.40 $ 11.96 Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,013.42 $ 11.79 CLASS C Actual (4.14% return) $ 1,000.00 $ 1,041.40 $ 11.96 Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,013.42 $ 11.79 CLASS D Actual (4.64% return) $ 1,000.00 $ 1,046.40 $ 6.84 Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,018.45 $ 6.75 </Table> - ---------- * EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO OF 1.58%, 2.33%, 2.33% AND 1.33% RESPECTIVELY, MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 184/366 (TO REFLECT THE ONE-HALF YEAR PERIOD). 8 <Page> MORGAN STANLEY INTERNATIONAL FUND PORTFOLIO OF INVESTMENTS - OCTOBER 31, 2004 <Table> <Caption> NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------- COMMON AND PREFERRED STOCKS (95.1%) AUSTRALIA (3.2%) ALUMINUM 66,059 Alumina Ltd. $ 271,658 --------------- BEVERAGES: ALCOHOLIC 61,573 Foster's Group Ltd. 232,493 21,483 Southcorp Ltd.* 57,826 --------------- 290,319 --------------- BEVERAGES: NON-ALCOHOLIC 15,483 Coca-Cola Amatil Ltd. 85,204 --------------- BIOTECHNOLOGY 2,905 CSL Ltd. 62,556 --------------- BUILDING PRODUCTS 52,200 CSR Ltd. 105,381 --------------- CASINO/GAMING 12,237 TABCORP Holdings Ltd. 137,244 --------------- CHEMICALS: MAJOR DIVERSIFIED 15,386 Orica Ltd. 195,340 --------------- CONSTRUCTION MATERIALS 33,414 Boral Ltd. 165,891 53,839 Rinker Group Ltd. 349,417 --------------- 515,308 --------------- CONTAINERS/PACKAGING 50,014 Amcor Ltd. 285,327 --------------- ENGINEERING & CONSTRUCTION 7,273 Leighton Holdings Ltd. 60,797 --------------- FINANCIAL CONGLOMERATES 40,111 AMP Ltd. 191,043 6,303 Macquarie Bank Ltd. 186,578 16,632 Suncorp-Metway Ltd. 212,900 --------------- 590,521 --------------- FOOD RETAIL 32,398 Coles Myer Ltd. 231,097 29,811 Woolworths Ltd. 298,236 --------------- 529,333 --------------- GAS DISTRIBUTORS 14,025 Australian Gas Light Co. Ltd. $ 137,373 9,450 Origin Energy Ltd. 47,694 --------------- 185,067 --------------- HOSPITAL/NURSING MANAGEMENT 27,157 Mayne Group Ltd. 89,343 --------------- INDUSTRIAL CONGLOMERATES 5,618 Ansell Ltd. 37,637 11,333 Wesfarmers Ltd. 294,461 --------------- 332,098 --------------- INVESTMENT TRUSTS/ MUTUAL FUNDS 57,659 Macquarie Infrastructure Group (Stapled Securities)** 159,944 --------------- MAJOR BANKS 43,611 Australia and New Zealand Banking Group Ltd. 665,202 36,037 Commonwealth Bank of Australia 864,930 45,459 National Australia Bank Ltd. 960,889 50,964 Westpac Banking Corp. 719,437 --------------- 3,210,458 --------------- MAJOR TELECOMMUNICATIONS 65,106 Telstra Corp., Ltd. 227,334 --------------- MEDIA CONGLOMERATES 61,377 News Corp., Ltd. (Pref. Ordinary) 481,862 42,956 News Corp., Ltd. 345,913 --------------- 827,775 --------------- MEDICAL/NURSING SERVICES 4,137 Sonic Healthcare Ltd. 31,396 --------------- MISCELLANEOUS COMMERCIAL SERVICES 29,859 Brambles Industries Ltd. 158,288 --------------- MULTI-LINE INSURANCE 51,260 Insurance Australia Group Ltd. 206,583 --------------- </Table> SEE NOTES TO FINANCIAL STATEMENTS 9 <Page> <Table> <Caption> NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------- OIL & GAS PRODUCTION 18,851 Santos Ltd. $ 116,988 14,379 Woodside Petroleum Ltd. 209,325 --------------- 326,313 --------------- OTHER METALS/MINERALS 214,158 BHP Billiton Ltd. 2,217,744 17,740 Rio Tinto Ltd. 485,470 65,935 WMC Resources Ltd. 332,772 --------------- 3,035,986 --------------- OTHER TRANSPORTATION 28,101 Patrick Corp., Ltd. 116,822 17,097 Transurban Group 81,175 --------------- 197,997 --------------- PRECIOUS METALS 18,717 Newcrest Mining Ltd. 233,152 --------------- PROPERTY - CASUALTY INSURERS 20,121 QBE Insurance Group Ltd. 206,561 --------------- PUBLISHING: NEWSPAPERS 30,261 John Fairfax Holdings Ltd. 97,066 --------------- PULP & PAPER 25,414 PaperlinX Ltd. 91,590 --------------- REAL ESTATE DEVELOPMENT 12,506 Lend Lease Corp., Ltd. 107,907 32,906 Westfield Group (Stapled Securities)** * 369,058 --------------- 476,965 --------------- REAL ESTATE INVESTMENT TRUSTS 22,659 Centro Properties Group (Stapled Securities)** 82,000 48,547 CFS Gandel Retail Trust (Units)++ 56,989 1,746 CFS Gandel Retail Trust (Units) (New)++* 1,958 59,716 General Property Trust (Units)++ 166,097 38,688 Investa Property Group (Stapled Securities)** 60,168 24,387 Mirvac Group (Stapled Securities)** 82,601 36,411 Stockland (Stapled Securities)** $ 160,352 1,281 Stockland (Units) (New)++* 5,622 --------------- 615,787 --------------- STEEL 41,723 Blue Scope Steel Ltd. 241,147 31,613 OneSteel Ltd. 62,165 --------------- 303,312 --------------- TOTAL AUSTRALIA 14,142,003 --------------- AUSTRIA (0.7%) BUILDING PRODUCTS 6,115 Wienerberger AG 243,179 --------------- CONSTRUCTION MATERIALS 1,538 RHI AG* 36,088 --------------- ELECTRIC UTILITIES 876 Oesterreichische Elektrizitaetswirtschafts AG (Verbund) (A Shares) 172,076 --------------- MAJOR BANKS 5,752 Bank Austria Creditanstalt 426,668 18,408 Erste Bank der Oesterreichischen Sparkassen AG 821,252 --------------- 1,247,920 --------------- MAJOR TELECOMMUNICATIONS 31,013 Telekom Austria AG 473,100 --------------- OIL REFINING/MARKETING 1,983 OMV AG 477,313 --------------- OTHER TRANSPORTATION 1,083 Flughafen Wien AG 71,374 --------------- REAL ESTATE DEVELOPMENT 32,785 Immofinanz Immobilien Anlagen AG* 283,394 --------------- STEEL 1,009 Boehler-Uddeholm AG 96,765 3,092 Voestalpine AG 180,449 --------------- 277,214 --------------- TOTAL AUSTRIA 3,281,658 --------------- </Table> SEE NOTES TO FINANCIAL STATEMENTS 10 <Page> <Table> <Caption> NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------- BELGIUM (1.0%) CHEMICALS: SPECIALTY 3,487 Solvay S.A. (A Shares) $ 352,247 --------------- ELECTRIC UTILITIES 1,216 Electrabel S.A. 455,585 --------------- ELECTRONIC EQUIPMENT/ INSTRUMENTS 11,838 Agfa Gevaert NV 373,890 --------------- FINANCIAL CONGLOMERATES 67,652 Fortis 1,722,347 --------------- MAJOR BANKS 41,052 Dexia 824,143 5,663 KBC Bankverzekeringsholding 416,011 --------------- 1,240,154 --------------- MAJOR TELECOMMUNICATIONS 2,051 Belgacom* 75,531 --------------- METAL FABRICATIONS 401 Bekaert NV 26,151 --------------- OTHER METALS/MINERALS 336 Umicore 26,015 --------------- PHARMACEUTICALS: OTHER 3,616 UCB S.A. 191,517 --------------- TOTAL BELGIUM 4,463,437 --------------- BRAZIL (1.1%) AEROSPACE & DEFENSE 23,000 Empresa Brasileira de Aeronautica S.A. (Pref.) 152,837 --------------- BEVERAGES: ALCOHOLIC 1,162,000 Companhia de Bebidas das Americas (Pref.) 288,536 --------------- ELECTRIC UTILITIES 7,996,000 Centrais Electricas Brasileiras S.A. (Class B) (Pref.) 118,545 6,648,000 Companhia Energetica de Minas Gerais (Pref.) 153,456 --------------- 272,001 --------------- FOOD RETAIL 1,000 Companhia Brasileira de Distribuicao Grupo Pao de Acucar (Sponsored ADR) (Pref.) $ 23,800 --------------- FOOD: MEAT/FISH/DAIRY 33,000 Sadia S.A. (Pref.) 59,669 --------------- INTEGRATED OIL 37,000 Petroleo Brasileiro S.A. (Pref.) 1,208,639 --------------- MAJOR TELECOMMUNICATIONS 15,878,000 Brasil Telecom Participacoes S.A. (Pref.) 97,736 --------------- OTHER METALS/MINERALS 39,000 Companhia Vale do Rio Doce (Pref.) (Class A) 706,549 --------------- PULP & PAPER 30,000 Aracruz Celulose S.A. (Pref.) (B Shares) 101,145 41,000 Klabin S.A. (Pref.) 67,395 1,107,000 Votorantim Celulose e Papel S.A. (Pref.) 76,620 --------------- 245,160 --------------- REGIONAL BANKS 4,000 Banco Bradesco S.A. (Pref.) 241,602 2,867 Banco Itau Holding Financeira S.A. (Pref.) 346,436 5,300 Unibanco-Uniao de Bancos Brasileiros S.A. (GDR) (Units)++ 140,185 --------------- 728,223 --------------- SPECIALTY TELECOMMUNICATIONS 14,194,000 Embratel Participacoes S.A. (Pref.) 25,417 19,113 Tele Norte Leste Participacoes S.A. (Pref.) 250,807 --------------- 276,224 --------------- </Table> SEE NOTES TO FINANCIAL STATEMENTS 11 <Page> <Table> <Caption> NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------- STEEL 111,000 Caemi Mineracao e Metalurgia S.A. (Pref.)* $ 66,385 7,000 Companhia Siderurgica Nacional S.A. 103,436 971,000 Companhia Siderurgica de Tubarao (Pref.) 39,139 10,000 Gerdau S.A. (Pref.) 147,731 7,000 Usinas Siderurgicas de Minas Gerais S.A. (Class A) (Pref.) 105,884 --------------- 462,575 --------------- TOBACCO 6,000 Souza Cruz S.A. 67,150 --------------- WIRELESS TELECOMMUNICATIONS 16,270,680 Tele Centro Oeste Celular Participacoes S.A. (Pref.)* 49,963 28,556,000 Telesp Celular Participacoes S.A. (Pref.)* 68,113 --------------- 118,076 --------------- TOTAL BRAZIL 4,707,175 --------------- CHINA (1.0%) AIR FREIGHT/COURIERS 179,000 Sinotrans Limited 57,490 --------------- AIRLINES 118,000 China Southern Airlines Co., Ltd.* 40,930 --------------- ALUMINUM 330,000 Aluminum Corp. of China Ltd. 188,656 --------------- CHEMICALS: SPECIALTY 234,000 Sinopec Shanghai Petrochemical Co. Ltd. 81,918 --------------- COAL 122,000 Yanzhou Coal Mining Co., Ltd. 160,650 --------------- CONTRACT DRILLING 154,000 China Oilfield Services Ltd. 45,009 --------------- ELECTRIC UTILITIES 144,000 Huadian Power International Corp., Ltd. $ 46,249 306,000 Huaneng Power International, Inc. 229,972 --------------- 276,221 --------------- ELECTRICAL PRODUCTS 15,000 BYD Company Ltd. 42,202 --------------- INTEGRATED OIL 1,678,000 China Petroleum & Chemical Corp. 635,933 1,758,000 PetroChina Co., Ltd. 920,330 --------------- 1,556,263 --------------- LIFE/HEALTH INSURANCE 744,000 China Life Insurance Co., Ltd.* 492,240 --------------- MAJOR TELECOMMUNICATIONS 1,388,000 China Telecom Corp. Ltd. 445,786 --------------- MARINE SHIPPING 213,000 China Shipping Container Lines Company Ltd.* 88,932 130,000 China Shipping Development Co., Ltd. 108,556 --------------- 197,488 --------------- MULTI-LINE INSURANCE 262,500 Ping An Insurance (Group) Co. of China Ltd.* 413,107 --------------- OIL REFINING/MARKETING 72,000 Sinopec Zhenhai Refining & Chemical Co., Ltd. 68,911 --------------- OTHER METALS/MINERALS 116,000 Jiangxi Copper Co., Ltd. 61,472 --------------- OTHER TRANSPORTATION 134,000 Beijing Capital International Airport Co., Ltd. 48,201 122,000 Jiangsu Expressway Co., Ltd. 51,721 </Table> SEE NOTES TO FINANCIAL STATEMENTS 12 <Page> <Table> <Caption> NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------- 144,000 Zhejiang Expressway Co., Ltd. $ 97,122 --------------- 197,044 --------------- PROPERTY - CASUALTY INSURERS 346,000 PICC Property & Casualty Company Ltd.* 124,460 --------------- STEEL 90,000 Angang New Steel Co., Ltd. 36,421 174,000 Maanshan Iron & Steel Co., Ltd. 60,913 --------------- 97,334 --------------- TEXTILES 34,500 Weiqiao Textile Co., Ltd. 50,305 --------------- TOTAL CHINA 4,597,486 --------------- DENMARK (0.4%) BIOTECHNOLOGY 1,350 Novozymes A/S (B Shares) 60,175 --------------- ELECTRICAL PRODUCTS 2,400 Vestas Wind Systems A/S* 29,842 --------------- MAJOR BANKS 36,544 Danske Bank A/S 1,023,567 --------------- MAJOR TELECOMMUNICATIONS 1,900 TDC A/S 70,466 --------------- MISCELLANEOUS COMMERCIAL SERVICES 2,000 Falck A/S* 16,625 1,100 ISS A/S 58,686 --------------- 75,311 --------------- PHARMACEUTICALS: MAJOR 10,550 Novo Nordisk A/S (Series B) 525,630 --------------- TOTAL DENMARK 1,784,991 --------------- FINLAND (1.6%) BUILDING PRODUCTS 1,178 Uponor Oyj 41,423 --------------- ENGINEERING & CONSTRUCTION 3,675 Kone Oyj (B Shares) $ 236,371 --------------- FOOD RETAIL 16,110 Kesko Oyj (B Shares) 361,527 --------------- INDUSTRIAL MACHINERY 17,131 Metso Oyj 241,836 --------------- INFORMATION TECHNOLOGY SERVICES 8,260 TietoEnator Oyj 232,365 --------------- MULTI-LINE INSURANCE 18,410 Sampo Oyj (A Shares) 219,872 --------------- OIL REFINING/MARKETING 21,853 Fortum Oyj 335,321 --------------- OTHER METALS/MINERALS 10,878 Outokumpu Oyj 187,920 --------------- PULP & PAPER 39,857 Stora Enso Oyj (Registered Shares) 570,300 30,171 UPM-Kymmene Oyj 597,985 --------------- 1,168,285 --------------- TELECOMMUNICATION EQUIPMENT 266,997 Nokia Oyj 4,127,636 --------------- TRUCKS/CONSTRUCTION/FARM MACHINERY 3,297 Wartsila Oyj (B Shares) 89,798 --------------- TOTAL FINLAND 7,242,354 --------------- FRANCE (8.2%) ADVERTISING/MARKETING SERVICES 5,525 Publicis Groupe 165,175 --------------- AEROSPACE & DEFENSE 11,782 THALES 425,906 715 Zodiac S.A. 27,739 --------------- 453,645 --------------- APPAREL/FOOTWEAR 21,989 LVMH Moet Hennessy Louis Vuitton S.A. 1,509,901 --------------- </Table> SEE NOTES TO FINANCIAL STATEMENTS 13 <Page> <Table> <Caption> NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------- AUTO PARTS: O.E.M. 4,022 Valeo S.A. $ 148,888 --------------- AUTOMOTIVE AFTERMARKET 7,399 Compagnie Generale des Etablissements Michelin (B Shares) 403,516 --------------- BROADCASTING 6,704 Societe Television Francaise 1 202,223 --------------- BUILDING PRODUCTS 22,618 Compagnie de Saint-Gobain 1,245,076 --------------- CHEMICALS: SPECIALTY 7,077 L'Air Liquide S.A. 1,145,649 --------------- CONSTRUCTION MATERIALS 3,124 Imerys S.A. 220,106 9,635 Lafarge S.A. 881,516 --------------- 1,101,622 --------------- DATA PROCESSING SERVICES 757 Atos Origin S.A.* 47,440 --------------- ELECTRIC UTILITIES 36,915 Suez S.A. 864,763 --------------- ELECTRICAL PRODUCTS 4,176 Alstom* 2,830 9,987 Schneider Electric S.A. 662,783 --------------- 665,613 --------------- ELECTRONICS/APPLIANCES 15,729 Thomson 356,799 --------------- ENGINEERING & CONSTRUCTION 21,786 Bouygues S.A. 860,248 4,370 Vinci S.A. 521,632 --------------- 1,381,880 --------------- FOOD DISTRIBUTORS 6,222 Sodexho Alliance S.A. 157,610 --------------- FOOD RETAIL 18,709 Carrefour S.A. 821,283 2,465 Casino Guichard Perrachon 170,681 --------------- 991,964 --------------- FOOD: MAJOR DIVERSIFIED 8,092 Groupe Danone $ 678,779 --------------- HOTELS/RESORTS/CRUISELINES 11,064 Accor S.A. Ltd. 460,361 --------------- INFORMATION TECHNOLOGY SERVICES 6,087 Cap Gemini S.A.* 153,567 --------------- INTEGRATED OIL 34,131 Total S.A. 7,113,859 --------------- INTERNET SOFTWARE/SERVICES 2,289 Business Objects S.A.* 58,539 --------------- LIFE/HEALTH INSURANCE 4,001 CNP Assurances 272,943 --------------- MAJOR BANKS 48,423 BNP Paribas 3,303,351 19,003 Societe Generale 1,766,547 --------------- 5,069,898 --------------- MAJOR TELECOMMUNICATIONS 66,280 France Telecom S.A.* 1,901,840 --------------- MEDIA CONGLOMERATES 52,516 Vivendi Universal* 1,437,729 --------------- MEDICAL SPECIALTIES 1,745 Essilor International S.A. 118,707 --------------- MOTOR VEHICLES 10,155 PSA Peugeot Citroen 625,497 9,166 Renault S.A. 768,869 --------------- 1,394,366 --------------- MULTI-LINE INSURANCE 80,387 AXA 1,734,082 --------------- OILFIELD SERVICES/EQUIPMENT 270 Technip S.A. 42,431 --------------- OTHER CONSUMER SPECIALTIES 3,632 Societe BIC S.A. 168,772 --------------- PACKAGED SOFTWARE 2,132 Dassault Systemes S.A. 108,448 --------------- </Table> SEE NOTES TO FINANCIAL STATEMENTS 14 <Page> <Table> <Caption> NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------- PHARMACEUTICALS: MAJOR 37,625 Sanofi-Aventis $ 2,756,765 --------------- PUBLISHING: BOOKS/MAGAZINES 7,187 Lagardere S.C.A. 464,096 --------------- REGIONAL BANKS 20,076 Credit Agricole S.A. 589,667 --------------- TELECOMMUNICATION EQUIPMENT 69,060 Alcatel* 1,011,998 1,111 Sagem S.A. 101,362 --------------- 1,113,360 --------------- WATER UTILITIES 7,990 Veolia Environnement 242,649 --------------- TOTAL FRANCE 36,722,622 --------------- GERMANY (5.9%) AIR FREIGHT/COURIERS 24,210 Deutsche Post AG (Registered Shares) 474,266 --------------- AIRLINES 9,924 Deutsche Lufthansa AG (Registered Shares)* 131,086 --------------- APPAREL/FOOTWEAR 713 Adidas-Salomon AG 99,860 352 Puma AG 88,355 --------------- 188,215 --------------- AUTO PARTS: O.E.M. 5,689 Continental AG 311,350 --------------- BROADCASTING 3,613 ProSiebenSat.1 Media AG (Pref.) 64,864 --------------- CHEMICALS: MAJOR DIVERSIFIED 25,066 BASF AG 1,567,338 30,817 Bayer AG 875,201 --------------- 2,442,539 --------------- CHEMICALS: SPECIALTY 5,258 Linde AG 318,353 --------------- CONSTRUCTION MATERIALS 1,705 HeidelbergCement AG $ 84,111 --------------- DEPARTMENT STORES 3,143 KarstadtQuelle AG 35,729 5,916 Metro AG 283,150 --------------- 318,879 --------------- ELECTRIC UTILITIES 28,538 E. ON AG 2,327,430 16,993 RWE AG 902,186 --------------- 3,229,616 --------------- ELECTRONIC COMPONENTS 2,245 Epcos AG* 34,132 --------------- HOUSEHOLD/PERSONAL CARE 1,721 Beiersdorf AG 163,794 1,974 Henkel KGaA - Vorzug (Pref.) 148,092 --------------- 311,886 --------------- INDUSTRIAL CONGLOMERATES 5,153 MAN AG 178,566 42,138 Siemens AG (Registered Shares) 3,144,007 17,270 ThyssenKrupp AG 324,622 --------------- 3,647,195 --------------- INVESTMENT BANKS/BROKERS 9,677 Deutsche Boerse AG 484,441 --------------- MAJOR BANKS 36,991 Bayerische Hypo - und Vereinsbank AG* 725,115 44,366 Commerzbank AG* 812,952 39,631 Deutsche Bank AG (Registered Shares) 3,019,792 --------------- 4,557,859 --------------- MAJOR TELECOMMUNICATIONS 139,131 Deutsche Telekom AG (Registered Shares)* 2,672,160 --------------- MEDICAL DISTRIBUTORS 1,657 Celesio AG 120,412 --------------- </Table> SEE NOTES TO FINANCIAL STATEMENTS 15 <Page> <Table> <Caption> NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------- MEDICAL/NURSING SERVICES 2,949 Fresenius Medical Care AG $ 226,253 --------------- MOTOR VEHICLES 38,795 DaimlerChrysler AG (Registered Shares) 1,606,280 350 Porsche AG (Pref.) 223,307 10,260 Volkswagen AG 456,820 5,105 Volkswagen AG (Pref.) 164,369 --------------- 2,450,776 --------------- MULTI-LINE INSURANCE 13,116 Allianz AG (Registered Shares) 1,398,402 2,189 Muenchener Rueckver AG (Registered Shares) 214,633 --------------- 1,613,035 --------------- OTHER CONSUMER SERVICES 5,732 TUI AG 119,764 --------------- PACKAGED SOFTWARE 8,217 SAP AG 1,403,010 --------------- PHARMACEUTICALS: MAJOR 2,302 Merck KGaA 128,546 6,839 Schering AG 440,662 --------------- 569,208 --------------- PHARMACEUTICALS: OTHER 2,901 Altana AG 146,934 --------------- SEMICONDUCTORS 22,728 Infineon Technologies AG* 248,192 --------------- SPECIALTY STORES 2,321 Douglas Holding AG 71,674 --------------- TOTAL GERMANY 26,240,210 --------------- GREECE (0.2%) CONSTRUCTION MATERIALS 2,600 Titan Cement Co. 68,554 --------------- MAJOR BANKS 14,881 National Bank of Greece S.A. 416,340 --------------- REGIONAL BANKS 9,840 Alpha Bank A.E. 282,601 6,896 EFG Eurobank Ergasias $ 189,056 --------------- 471,657 --------------- TOTAL GREECE 956,551 --------------- HONG KONG (1.8%) AIRLINES 66,000 Cathay Pacific Airways Ltd. 114,466 --------------- APPAREL/FOOTWEAR 30,500 Yue Yuen Industrial (Holdings) Ltd. 76,603 --------------- APPAREL/FOOTWEAR RETAIL 56,500 Esprit Holdings Ltd. 301,953 --------------- BROADCASTING 10,000 Television Broadcasts Ltd. 42,780 --------------- CONSTRUCTION MATERIALS 36,000 Cheung Kong Infrastructure Holdings Ltd. 95,966 --------------- ELECTRIC UTILITIES 114,300 CLP Holdings Ltd. 656,373 144,000 Datang International Power Generation Co., Ltd. 114,697 89,000 Hong Kong Electric Holdings Ltd. 397,893 --------------- 1,168,963 --------------- ELECTRONIC PRODUCTION EQUIPMENT 3,000 ASM Pacific Technology Ltd. 9,732 --------------- ENGINEERING & CONSTRUCTION 21,000 Hopewell Holdings Ltd. 45,189 88,252 New World Development Co., Ltd. 77,096 --------------- 122,285 --------------- FINANCIAL CONGLOMERATES 80,000 Wharf (Holdings) Ltd. (The) 263,104 --------------- GAS DISTRIBUTORS 250,483 Hong Kong & China Gas Co., Ltd. 482,688 --------------- </Table> SEE NOTES TO FINANCIAL STATEMENTS 16 <Page> <Table> <Caption> NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------- HOTELS/RESORTS/CRUISELINES 73,872 Shangri-La Asia Ltd. $ 84,938 --------------- INDUSTRIAL CONGLOMERATES 141,900 Hutchison Whampoa Ltd. 1,089,225 61,000 Swire Pacific Ltd. (Class A) 431,012 --------------- 1,520,237 --------------- INVESTMENT BANKS/BROKERS 67,000 Hong Kong Exchanges & Clearing Ltd. 152,351 --------------- MAJOR BANKS 94,222 Bank of East Asia, Ltd. (The) 269,932 171,500 BOC Hong Kong (Holdings) Ltd. 311,758 46,000 Hang Seng Bank Ltd. 611,639 --------------- 1,193,329 --------------- MAJOR TELECOMMUNICATIONS 201,611 PCCW Ltd.* 122,381 --------------- MISCELLANEOUS MANUFACTURING 95,500 Johnson Electric Holdings Ltd. 95,083 --------------- PUBLISHING: NEWSPAPERS 24,000 SCMP Group Ltd. 9,635 --------------- RAILROADS 91,472 MTR Corp., Ltd. 136,902 --------------- REAL ESTATE DEVELOPMENT 98,000 Cheung Kong (Holdings) Ltd. 812,050 79,000 Hang Lung Properties Ltd. 117,221 44,000 Henderson Land Development Co., Ltd. 204,060 15,443 Hysan Development Co., Ltd. 25,593 63,597 Sino Land Co., Ltd. 54,332 86,000 Sun Hung Kai Properties Ltd. 795,478 --------------- 2,008,734 --------------- TOOLS/HARDWARE 59,000 Techtronic Industries Co., Ltd. 117,485 --------------- WHOLESALE DISTRIBUTORS 104,000 Li & Fung Ltd. $ 153,649 --------------- TOTAL HONG KONG 8,273,264 --------------- IRELAND (0.6%) CONSTRUCTION MATERIALS 12,892 CRH PLC 308,270 --------------- FINANCIAL CONGLOMERATES 2,000 Irish Life & Permanent PLC 33,758 --------------- INDUSTRIAL CONGLOMERATES 2,150 DCC PLC 43,712 --------------- MAJOR BANKS 48,178 Allied Irish Banks PLC 840,911 56,372 Bank of Ireland 774,891 --------------- 1,615,802 --------------- PHARMACEUTICALS: OTHER 16,100 Elan Corporation PLC* 415,859 --------------- PUBLISHING: NEWSPAPERS 21,900 Independent News & Media PLC 63,848 --------------- WHOLESALE DISTRIBUTORS 4,250 Grafton Group PLC (Units)++* 38,313 --------------- TOTAL IRELAND 2,519,562 --------------- ITALY (2.1%) AEROSPACE & DEFENSE 87,085 Finmeccanica SpA 69,375 --------------- APPAREL/FOOTWEAR 1,582 Benetton Group SpA 18,307 --------------- BROADCASTING 20,223 Mediaset SpA 231,181 --------------- COMMERCIAL PRINTING/FORMS 109,717 Seat Pagine Gialle SpA 37,248 --------------- CONSTRUCTION MATERIALS 1,767 Italcementi SpA 27,204 --------------- ELECTRIC UTILITIES 65,980 Enel SpA 598,174 --------------- </Table> SEE NOTES TO FINANCIAL STATEMENTS 17 <Page> <Table> <Caption> NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------- FINANCIAL CONGLOMERATES 2,989 Banca Fideuram SpA $ 15,097 53,638 Pirelli & C. SpA 59,808 --------------- 74,905 --------------- INTEGRATED OIL 76,536 ENI SpA 1,742,025 --------------- INVESTMENT BANKS/BROKERS 4,683 Mediobanca SpA 65,031 --------------- LIFE/HEALTH INSURANCE 5,636 Alleanza Assicurazioni SpA 66,662 8,121 Assicurazioni Generali SpA 241,643 2,246 Mediolanum SpA 14,130 --------------- 322,435 --------------- MAJOR BANKS 127,353 Banca Intesa SpA 522,737 7,450 Banca Intesa SpA - RNC 25,149 5,524 Banca Monte dei Paschi di Siena SpA 16,529 11,535 Banca Nazionale del Lavoro SpA* 26,771 60,947 SanPaolo IMI SpA 774,653 158,005 UniCredito Italiano SpA 850,593 --------------- 2,216,432 --------------- MAJOR TELECOMMUNICATIONS 457,034 Telecom Italia SpA 1,525,308 277,497 Telecom Italia SpA - RNC 691,929 --------------- 2,217,237 --------------- MOTOR VEHICLES 14,779 Fiat SpA* 107,718 --------------- MULTI-LINE INSURANCE 2,833 Riunione Adriatica di Sicurta SpA 59,990 --------------- OIL & GAS PIPELINES 11,337 Snam Rete Gas SpA 57,697 --------------- REGIONAL BANKS 2,130 Banca Popolare di Milano Scrl 15,007 12,764 Banco Popolare di Verona e Novara Scrl $ 226,866 --------------- 241,873 --------------- RESTAURANTS 2,053 Autogrill SpA* 30,294 --------------- SPECIALTY TELECOMMUNICATIONS 3,531 Tiscali SpA* 14,448 --------------- WIRELESS TELECOMMUNICATIONS 193,673 Telecom Italia Mobile SpA (T.I.M.) 1,144,141 --------------- TOTAL ITALY 9,275,715 --------------- JAPAN (25.6%) ADVERTISING/MARKETING SERVICES 2,950 Asatsu - DK Inc. 83,872 --------------- AGRICULTURAL COMMODITIES/ MILLING 10,000 Nisshin Seifun Group Inc. 100,028 --------------- AIR FREIGHT/COURIERS 62,500 Nippon Express Co., Ltd. 301,667 21,035 Yamato Transport Co., Ltd. 283,924 --------------- 585,591 --------------- AIRLINES 67,000 Japan Airlines Corp.* 183,527 --------------- APPAREL/FOOTWEAR 12,546 Onward Kashiyama Co., Ltd. 163,535 6,000 Wacoal Corp. 68,008 --------------- 231,543 --------------- APPAREL/FOOTWEAR RETAIL 5,400 Fast Retailing Co., Ltd. 343,780 2,300 Shimamura Co., Ltd. 168,801 2,500 World Co., Ltd. 73,203 --------------- 585,784 --------------- AUTO PARTS: O.E.M. 47,000 Denso Corporation 1,127,609 17,059 NGK Spark Plug Co., Ltd. 167,899 </Table> SEE NOTES TO FINANCIAL STATEMENTS 18 <Page> <Table> <Caption> NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------- 2,000 Sanden Corp. $ 13,073 2,900 Stanley Electric Co., Ltd. 44,786 800 Toyoda Gosei Co., Ltd. 15,264 6,850 Toyota Industries Corp. 155,608 --------------- 1,524,239 --------------- AUTOMOTIVE AFTERMARKET 58,000 Bridgestone Corp. 1,051,856 --------------- BEVERAGES: ALCOHOLIC 26,800 Asahi Breweries, Ltd. 276,430 67,051 Kirin Brewery Co., Ltd. 602,933 14,000 Sapporo Holdings, Ltd. 55,937 9,000 Takara Holdings Inc. 58,317 --------------- 993,617 --------------- BEVERAGES: NON-ALCOHOLIC 1,100 Coca-Cola West Japan Co., Ltd. 26,703 1,500 ITO EN, Ltd. 67,866 --------------- 94,569 --------------- BROADCASTING 31 Fuji Television Network, Inc. 69,982 7,300 Tokyo Broadcasting System, Inc. 117,081 --------------- 187,063 --------------- BUILDING PRODUCTS 13,462 JS Group Corp. 239,816 26,000 Nippon Sheet Glass Company, Ltd. 87,674 33,500 Toto Ltd. 300,605 --------------- 628,095 --------------- CHEMICALS: AGRICULTURAL 10,500 Nissan Chemical Industries, Ltd. 85,392 --------------- CHEMICALS: MAJOR DIVERSIFIED 91,000 Asahi Kasei Corp. 388,514 18,000 Ishihara Sangyo Kaisha, Ltd.* 37,744 130,500 Mitsubishi Chemical Corp. 378,422 --------------- 804,680 --------------- CHEMICALS: SPECIALTY 12,000 Daicel Chemical Industries, Ltd. $ 56,787 52,588 Dainippon Ink & Chemicals, Inc. 118,717 33,546 Denki Kagaku Kogyo Kabushiki Kaisha 102,029 12,008 JSR Corp. 218,678 20,000 Kaneka Corp. 208,747 28,056 Kuraray Co., Ltd. 219,424 43,599 Mitsubishi Rayon Co., Ltd. 139,194 40,500 Mitsui Chemicals, Inc. 198,158 27,097 Shin-Etsu Chemical Co., Ltd. 1,031,462 16,000 Showa Denko K.K. 38,689 11,000 Sumitomo Bakelite Co., Ltd. 64,834 102,000 Sumitomo Chemical Co., Ltd. 495,211 40,500 Tosoh Corp. 171,763 --------------- 3,063,693 --------------- COMMERCIAL PRINTING/FORMS 32,000 Dai Nippon Printing Co., Ltd. 438,576 31,000 Toppan Printing Co., Ltd. 299,839 --------------- 738,415 --------------- COMPUTER PROCESSING HARDWARE 138,000 Fujitsu Ltd. 822,499 --------------- CONSTRUCTION MATERIALS 13,000 Taiheyo Cement Corp. 29,470 --------------- CONTAINERS/PACKAGING 14,417 Toyo Seikan Kaisha, Ltd. 224,827 --------------- DEPARTMENT STORES 24,000 Daimaru, Inc. (The) 178,634 6,000 Hankyu Department Stores, Inc. 41,938 16,814 Isetan Co., Ltd. 171,523 31,107 Marui Co., Ltd. 390,490 40,716 Mitsukoshi, Ltd. 180,755 28,040 Takashimaya Co., Ltd. 240,487 --------------- 1,203,827 --------------- </Table> SEE NOTES TO FINANCIAL STATEMENTS 19 <Page> <Table> <Caption> NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------- ELECTRIC UTILITIES 10,700 Chubu Electric Power Co. $ 232,960 32,300 Kansai Electric Power Co., Inc. (The) 606,521 6,200 Kyushu Electric Power Co., Inc. 122,981 17,600 Tohoku Electric Power Co., Inc. 300,731 48,200 Tokyo Electric Power Co., Inc. (The) 1,092,661 --------------- 2,355,854 --------------- ELECTRICAL PRODUCTS 14,000 Fujikura Ltd. 61,623 42,500 Furukawa Electric Co., Ltd. (The)* 178,237 2,400 Mabuchi Motor Co., Ltd. 178,407 13,000 Matsushita Electric Works, Ltd. 107,320 28,560 NGK Insulators, Ltd. 230,919 3,604 Nidec Corp. 390,799 42,000 Sumitomo Electric Industries, Ltd. 398,697 1,000 Ushio Inc. 17,342 --------------- 1,563,344 --------------- ELECTRONIC COMPONENTS 13,000 Alps Electric Co. Ltd. 156,806 22,500 Citizen Watch Co., Ltd. 211,675 2,600 Hirose Electric Co., Ltd. 258,109 8,000 Hoya Corp. 822,140 17,900 Murata Manufacturing Co., Ltd. 853,830 7,000 Taiyo Yuden Co., Ltd. 73,127 9,452 TDK Corp. 657,096 --------------- 3,032,783 --------------- ELECTRONIC EQUIPMENT/ INSTRUMENTS 63,904 Canon, Inc. 3,156,871 27,500 Casio Computer Co., Ltd. 327,028 2,447 Keyence Corp. 551,944 34,030 Konica Minolta Holdings, Inc. 454,505 12,500 Kyocera Corp. $ 907,953 145,500 Matsushita Electric Industrial Co., Ltd. 2,112,341 132,552 Mitsubishi Electric Corp. 621,005 125,500 NEC Corp. 697,025 48,000 OKi Electric Industry Co., Ltd.* 164,579 16,504 Omron Corp. 374,914 51,432 Ricoh Co., Ltd. 961,891 121,000 Sanyo Electric Co. Ltd. 387,447 8,200 Seiko Epson Corp. 339,246 222,026 Toshiba Corp. 895,486 17,000 Yokogawa Electric Corp. 221,914 --------------- 12,174,149 --------------- ELECTRONIC PRODUCTION EQUIPMENT 5,850 Advantest Corp. 409,450 23,000 Nikon Corp.* 226,155 13,200 Tokyo Electron Ltd. 716,917 --------------- 1,352,522 --------------- ELECTRONICS/APPLIANCE STORES 8,800 Yamada Denki Co., Ltd. 312,534 --------------- ELECTRONICS/APPLIANCES 27,000 Fuji Photo Film Co., Ltd. 923,208 12,104 Pioneer Corp. 219,397 60,500 Sharp Corp. 836,611 51,496 Sony Corp. 1,794,845 --------------- 3,774,061 --------------- ENGINEERING & CONSTRUCTION 11,546 JGC Corp. 122,472 81,000 Kajima Corp. 306,036 42,571 Obayashi Corp. 229,201 63,000 Shimizu Corporation 267,781 39,000 Taisei Corp. 139,615 --------------- 1,065,105 --------------- FINANCE/RENTAL/LEASING 2,600 Acom Co., Ltd. 163,313 1,550 Aiful Corp. 154,898 4,900 Credit Saison Co., Ltd. 156,900 </Table> SEE NOTES TO FINANCIAL STATEMENTS 20 <Page> <Table> <Caption> NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------- 2,900 Orix Corp. $ 340,484 3,200 Promise Co., Ltd. 203,722 2,390 Takefuji Corp. 151,252 --------------- 1,170,569 --------------- FINANCIAL CONGLOMERATES 439 Mizuho Financial Group, Inc. 1,695,957 --------------- FOOD RETAIL 30,606 Aeon Co., Ltd. 490,297 4,452 FamilyMart Co., Ltd. 119,637 22,507 Ito-Yokado Co., Ltd. 807,845 4,003 Lawson, Inc. 133,849 26,000 Seven - Eleven Japan Co., Ltd. 753,944 --------------- 2,305,572 --------------- FOOD: MEAT/FISH/DAIRY 13,000 Meiji Dairies Corp. 74,166 15,000 Nippon Meat Packers, Inc. 187,305 7,000 Yakult Honsha Co., Ltd. 110,881 --------------- 372,352 --------------- FOOD: SPECIALTY/CANDY 42,000 Ajinomoto Co., Inc. 465,741 900 House Foods Corp. 12,343 8,500 Kikkoman Corp. 74,828 16,000 Meiji Seika Kaisha Ltd. 65,892 5,150 Nissin Food Products Co., Ltd. 125,746 7,000 Yamazaki Baking Co., Ltd. 61,821 --------------- 806,371 --------------- GAS DISTRIBUTORS 84,000 Osaka Gas Co., Ltd. 243,582 95,000 Tokyo Gas Co., Ltd. 354,444 --------------- 598,026 --------------- HOME BUILDING 8,106 Daito Trust Construction Co., Ltd. 343,014 42,000 Daiwa House Industry Co., Ltd. 430,037 24,572 Sekisui Chemical Co., Ltd. $ 156,433 48,046 Sekisui House, Ltd. 496,480 --------------- 1,425,964 --------------- HOUSEHOLD/PERSONAL CARE 34,000 Kao Corp. 785,208 26,000 Shiseido Company, Ltd. 339,643 3,100 Uni-Charm Corp. 156,947 --------------- 1,281,798 --------------- INDUSTRIAL CONGLOMERATES 249,000 Hitachi, Ltd. 1,568,745 62,000 Kawasaki Heavy Industries, Ltd. 98,385 --------------- 1,667,130 --------------- INDUSTRIAL MACHINERY 19,053 Amada Co., Ltd. 101,501 10,400 Daikin Industries Ltd. 253,443 12,050 Fanuc Ltd. 728,441 67,530 Ishikawajima-Harima Heavy Industries Co., Ltd. 88,662 229,550 Mitsubishi Heavy Industries, Ltd. 646,131 4,305 SMC Corporation 461,526 1,800 THK Co., Ltd. 31,318 --------------- 2,311,022 --------------- INDUSTRIAL SPECIALTIES 79,500 Asahi Glass Company, Ltd. 731,397 12,400 Nitto Denko Corp. 589,138 --------------- 1,320,535 --------------- INFORMATION TECHNOLOGY SERVICES 5,900 CSK Corp. 239,076 2,700 Itochu Techno-Science Corp. 109,153 40 Net One Systems Co., Ltd. 152,640 1,700 Nomura Research Institute, Ltd. 148,692 107 NTT Data Corp. 294,106 17,300 Softbank Corp. 784,358 3,200 TIS Inc. 108,208 --------------- 1,836,233 --------------- </Table> SEE NOTES TO FINANCIAL STATEMENTS 21 <Page> <Table> <Caption> NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------- INTERNET SOFTWARE/SERVICES 62 Yahoo Japan Corp.* $ 280,514 62 Yahoo Japan Corp. (Bonus Shares) (WI)* 269,973 --------------- 550,487 --------------- INVESTMENT BANKS/BROKERS 211,000 Daiwa Securities Group Inc. 1,295,457 75,000 Nikko Cordial Corp. 335,789 138,550 Nomura Holdings, Inc. 1,701,285 --------------- 3,332,531 --------------- MAJOR BANKS 413 Mitsubishi Tokyo Financial Group, Inc. 3,510,910 63,123 Mitsui Trust Holdings, Inc. 434,653 183 Sumitomo Mitsui Financial Group, Inc. 1,190,961 94,081 Sumitomo Trust & Banking Co., Ltd. (The) 549,184 236 UFJ Holdings, Inc.* 1,096,741 --------------- 6,782,449 --------------- MAJOR TELECOMMUNICATIONS 470 Nippon Telegraph & Telephone Corp. 1,997,733 --------------- MARINE SHIPPING 3,000 Kamigumi Co. Ltd. 21,309 5,000 Kawasaki Kisen Kaisha, Ltd. 33,390 8,000 Mitsui O.S.K. Lines, Ltd. 47,454 78,015 Nippon Yusen Kabushiki Kaisha 392,765 --------------- 494,918 --------------- MEDICAL SPECIALTIES 10,400 Olympus Corp. 201,870 14,750 Terumo Corp. 367,810 --------------- 569,680 --------------- METAL FABRICATIONS 22,000 Minebea Co., Ltd. 93,511 8,000 Mitsubishi Materials Corp. 16,095 42,604 Mitsui Mining & Smelting Co., Ltd. 168,613 50,553 NSK Ltd. $ 217,740 31,551 NTN Corp. 165,995 --------------- 661,954 --------------- MISCELLANEOUS COMMERCIAL SERVICES 220 Bellsystem 24, Inc. 56,730 700 OBIC Co., Ltd. 131,510 10,485 Secom Co., Ltd. 381,291 3,500 USS Co. Ltd. 283,319 --------------- 852,850 --------------- MISCELLANEOUS MANUFACTURING 25,527 Ebara Corp. 118,147 1,000 Hitachi Chemical Co., Ltd. 15,812 5,400 Kurita Water Industries Ltd. 79,773 7,500 Takuma Co., Ltd. 55,256 --------------- 268,988 --------------- MOTOR VEHICLES 64,709 Honda Motor Co., Ltd. 3,129,405 194,305 Nissan Motor Co., Ltd. 2,193,204 188,355 Toyota Motor Corp. 7,347,749 2,000 Yamaha Motor Co., Ltd. 30,471 --------------- 12,700,829 --------------- MOVIES/ENTERTAINMENT 600 Namco Ltd. 7,016 600 Namco Ltd. (Bonus Shares) (WI)* 7,022 3,600 Oriental Land Co. Ltd. 214,905 6,250 TOHO Co., Ltd. 90,146 --------------- 319,089 --------------- OFFICE EQUIPMENT/SUPPLIES 5,200 Kokuyo Co., Ltd. 55,502 --------------- OIL & GAS PRODUCTION 12,000 Teikoku Oil Co., Ltd. 65,968 --------------- OIL REFINING/MARKETING 113,000 Nippon Oil Corp. 718,324 13,800 Showa Shell Sekiyu K.K. 123,831 8,000 TonenGeneral Sekiyu K.K. 69,821 --------------- 911,976 --------------- </Table> SEE NOTES TO FINANCIAL STATEMENTS 22 <Page> <Table> <Caption> NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------- OTHER CONSUMER SERVICES 4,254 Benesse Corp. $ 118,535 --------------- OTHER METALS/MINERALS 20,095 Dowa Mining Co., Ltd. 121,477 24,000 Nippon Mining Holdings, Inc. 114,253 39,500 Sumitomo Metal Mining Co., Ltd. 266,766 --------------- 502,496 --------------- OTHER TRANSPORTATION 6,000 Mitsubishi Logistics Corp. 53,556 --------------- PACKAGED SOFTWARE 3,050 Oracle Corp. 153,263 7,200 Trend Micro Inc. 345,480 --------------- 498,743 --------------- PERSONNEL SERVICES 2,100 Meitec Corp. 79,144 --------------- PHARMACEUTICALS: MAJOR 34,900 Sankyo Co., Ltd. 725,229 64,000 Takeda Pharmaceutical Co., Ltd. 3,095,117 --------------- 3,820,346 --------------- PHARMACEUTICALS: OTHER 20,800 Chugai Pharmaceutical Co., Ltd. 326,136 17,100 Daiichi Pharmaceutical Co., Ltd. 333,536 18,200 Eisai Co., Ltd. 524,322 12,200 Fujisawa Pharmaceutical Co., Ltd. 319,203 2,000 Kaken Pharmaceutical Co., Ltd. 11,712 28,000 Kyowa Hakko Kogyo Co., Ltd. 196,241 22,000 Shionogi & Co., Ltd. 341,834 22,000 Taisho Pharmaceutical Co., Ltd. 397,733 25,000 Yamanouchi Pharmaceutical Co., Ltd. 918,579 --------------- 3,369,296 --------------- PROPERTY - CASUALTY INSURERS 106 Millea Holdings, Inc. $ 1,401,719 172,000 Mitsui Sumitomo Insurance Co., Ltd. 1,413,432 63,000 Sompo Japan Insurance Inc. 549,844 --------------- 3,364,995 --------------- PULP & PAPER 61 Nippon Paper Group, Inc. 271,380 81,000 Oji Paper Co. Ltd. 462,879 --------------- 734,259 --------------- RAILROADS 101 Central Japan Railway Co. 818,532 240 East Japan Railway Co. 1,262,681 29,500 Keihin Electric Express Railway Co., Ltd. 170,530 15,000 Keio Electric Railway Co., Ltd. 79,484 116,550 Kintetsu Corp. 370,996 64,500 Tobu Railway Co., Ltd. 229,683 73,000 Tokyu Corp. 330,972 28 West Japan Railway Co. 111,873 --------------- 3,374,751 --------------- REAL ESTATE DEVELOPMENT 108,000 Mitsubishi Estate Co., Ltd. 1,141,513 92,500 Mitsui Fudosan Co., Ltd. 982,927 36,500 Sumitomo Realty & Development Co., Ltd. 401,648 --------------- 2,526,088 --------------- REAL ESTATE INVESTMENT TRUSTS 23 Japan Real Estate Investments Corp. 184,226 22 Nippon Building Fund Inc. 185,359 --------------- 369,585 --------------- RECREATIONAL PRODUCTS 6,900 Konami Corp. 155,767 7,508 Nintendo Co., Ltd. 848,169 7,350 Shimano, Inc. 180,852 7,900 Yamaha Corp. 120,809 --------------- 1,305,597 --------------- </Table> SEE NOTES TO FINANCIAL STATEMENTS 23 <Page> <Table> <Caption> NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------- RESTAURANTS 9,807 Skylark Co., Ltd. $ 162,663 --------------- SEMICONDUCTORS 3,000 NEC Electronics Corp. 146,784 8,205 Rohm Co., Ltd. 843,208 --------------- 989,992 --------------- SPECIALTY STORES 4,300 Shimachu Co., Ltd. 100,118 10,000 UNY Co., Ltd. 100,217 --------------- 200,335 --------------- STEEL 31,800 JFE Holdings, Inc. 854,548 22,000 Kobe Steel Ltd. 30,755 445,108 Nippon Steel Corp. 1,042,663 7,000 Nisshin Steel Co., Ltd. 15,340 60,000 Sumitomo Metal Industries, Ltd. 72,542 --------------- 2,015,848 --------------- TELECOMMUNICATION EQUIPMENT 5,000 Uniden Corp. 108,388 --------------- TEXTILES 6,571 Nisshinbo Industries, Inc. 43,509 66,608 Teijin Ltd. 259,209 91,000 Toray Industries, Inc. 425,475 --------------- 728,193 --------------- TOBACCO 62 Japan Tobacco, Inc. 545,216 --------------- TRUCKS/CONSTRUCTION/FARM MACHINERY 73,500 Komatsu Ltd. 492,222 89,000 Kubota Corp. 406,036 --------------- 898,258 --------------- WHOLESALE DISTRIBUTORS 85,051 Itochu Corp.* 366,329 84,550 Marubeni Corporation 222,017 67,000 Mitsubishi Corp. 741,069 30,000 Mitsui & Co., Ltd. 252,479 57,000 Sumitomo Corporation 424,795 --------------- 2,006,689 --------------- WIRELESS TELECOMMUNICATIONS 580 NTT DoCoMo, Inc. $ 1,024,464 --------------- Total Japan 114,006,859 --------------- Luxembourg (0.1%) STEEL 21,473 Arcelor 401,978 --------------- Malaysia (0.7%) AGRICULTURAL COMMODITIES/ MILLING 60,000 IOI Corporation Berhad 149,980 31,400 Kuala Lumpur Kepong Berhad 54,943 --------------- 204,923 --------------- BUILDING PRODUCTS 6,600 O.Y.L. Industries Berhad 67,728 --------------- CABLE/SATELLITE TV 87,700 Astro All Asia Networks PLC* 119,995 --------------- CASINO/GAMING 63,300 Berjaya Sports Toto Berhad 64,957 30,400 Genting Berhad 135,182 53,400 Magnum Corporation Berhad 35,267 22,100 Tanjong PLC 75,014 --------------- 310,420 --------------- ELECTRIC UTILITIES 51,000 Malakoff Berhad 89,238 74,000 Tenaga Nasional Berhad 216,129 70,000 YTL Corp. Berhad 83,989 --------------- 389,356 --------------- ENGINEERING & CONSTRUCTION 36,000 Gamuda Berhad 47,362 --------------- FINANCIAL CONGLOMERATES 119,000 AMMB Holdings Berhad 103,329 --------------- FOODS & BEVERAGES 9,000 Nestle (Malaysia) Berhad 53,282 --------------- HOTELS/RESORTS/CRUISELINES 39,800 Resorts World Berhad 100,011 --------------- </Table> SEE NOTES TO FINANCIAL STATEMENTS 24 <Page> <Table> <Caption> NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------- MAJOR BANKS 144,100 Malayan Banking Berhad $ 417,077 --------------- MAJOR TELECOMMUNICATIONS 72,000 Telekom Malaysia Berhad 217,866 --------------- MARINE SHIPPING 46,100 Malaysian International Shipping Berhad 163,755 --------------- MOTOR VEHICLES 22,000 Proton Holdings Berhad 49,204 --------------- OIL & GAS PIPELINES 12,000 Petronas Gas Berhad 22,102 --------------- OTHER TRANSPORTATION 139,000 Plus Expressways Berhad 93,996 --------------- REAL ESTATE DEVELOPMENT 64,500 SP Setia Berhad 64,492 --------------- REGIONAL BANKS 114,000 Commerce Asset- Holdings Berhad 137,982 60,600 Hong Leong Bank Berhad 83,713 84,000 Public Bank Berhad 153,611 112,000 RHB Capital Berhad 61,297 --------------- 436,603 --------------- TOBACCO 13,400 British American Tobacco Berhad 160,426 --------------- WHOLESALE DISTRIBUTORS 116,700 Sime Darby Berhad 175,027 --------------- WIRELESS TELECOMMUNICATIONS 61,000 Maxis Communications Berhad 138,034 --------------- Total Malaysia 3,334,988 --------------- Netherlands (5.1%) AEROSPACE & DEFENSE 17,588 European Aeronautic Defense and Space Co.* 502,646 --------------- AIR FREIGHT/COURIERS 34,466 TPG NV 834,718 --------------- BEVERAGES: ALCOHOLIC 33,961 Heineken NV $ 1,070,015 --------------- CHEMICALS: SPECIALTY 2,492 DSM NV 135,937 --------------- CONSTRUCTION MATERIALS 26,134 James Hardie Industries NV 123,104 --------------- ELECTRONIC EQUIPMENT/ INSTRUMENTS 4,702 OCE NV 65,476 --------------- ELECTRONIC PRODUCTION EQUIPMENT 26,490 ASML Holding NV* 378,359 --------------- FINANCIAL CONGLOMERATES 102,313 ING Groep NV (Share Certificates) 2,714,673 --------------- FOOD: MAJOR DIVERSIFIED 33,051 Unilever NV (Share Certificates) 1,927,162 --------------- INDUSTRIAL CONGLOMERATES 74,860 Koninklijke (Royal) Philips Electronics NV 1,775,671 --------------- INDUSTRIAL SPECIALTIES 13,830 Akzo Nobel NV 521,514 --------------- INTEGRATED OIL 121,919 Royal Dutch Petroleum Co. 6,639,688 --------------- INVESTMENT BANKS/BROKERS 5,529 Euronext NV 160,487 --------------- LIFE/HEALTH INSURANCE 84,184 Aegon NV 923,603 --------------- MAJOR BANKS 94,977 ABN AMRO Holding NV 2,277,133 --------------- MAJOR TELECOMMUNICATIONS 100,456 Koninklijke (Royal) KPN NV 805,401 --------------- PERSONNEL SERVICES 11,320 Vedior NV 166,751 --------------- PUBLISHING: BOOKS/MAGAZINES 26,385 Reed Elsevier NV 347,507 </Table> SEE NOTES TO FINANCIAL STATEMENTS 25 <Page> <Table> <Caption> NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------- 10,664 VNU NV $ 291,948 13,073 Wolters Kluwer NV (Share Certificates) 238,878 --------------- 878,333 --------------- SEMICONDUCTORS 33,494 STMicroelectronics NV 618,876 --------------- WHOLESALE DISTRIBUTORS 5,168 Hagemeyer NV* 9,450 --------------- TOTAL NETHERLANDS 22,528,997 --------------- NEW ZEALAND (0.0%) FOREST PRODUCTS 47,022 Carter Holt Harvey Ltd. 69,171 --------------- MAJOR TELECOMMUNICATIONS 23,290 Telecom Corporation of New Zealand Ltd. 91,945 --------------- TOTAL NEW ZEALAND 161,116 --------------- NORWAY (0.4%) CHEMICALS: AGRICULTURAL 10,967 Yara International ASA* 117,611 --------------- FINANCIAL CONGLOMERATES 14,953 DnB NOR ASA 126,876 --------------- FOOD: SPECIALTY/CANDY 11,900 Orkla ASA 339,375 --------------- INDUSTRIAL CONGLOMERATES 8,467 Norsk Hydro ASA 623,963 --------------- INTEGRATED OIL 14,200 Statoil ASA 205,831 --------------- MAJOR TELECOMMUNICATIONS 8,200 Telenor ASA 65,389 --------------- MISCELLANEOUS MANUFACTURING 6,715 Tomra Systems ASA 29,649 --------------- PULP & PAPER 6,700 Norske Skogindustrier ASA 122,121 --------------- TELECOMMUNICATION EQUIPMENT 1,300 Tandberg ASA 12,256 --------------- TOTAL NORWAY 1,643,071 --------------- PORTUGAL (0.2%) CABLE/SATELLITE TV 1,829 PT Multimedia Servieos de Telecomunicacoes e Multimedia SGPS S.A. $ 42,752 --------------- ELECTRIC UTILITIES 43,649 Energias de Portugal, S.A. 129,488 --------------- MAJOR TELECOMMUNICATIONS 60,523 Portugal Telecom, SGPS, S.A. (Registered Shares) 683,360 --------------- REGIONAL BANKS 102,901 Banco Comercial Portugues, S.A. 243,422 --------------- TOTAL PORTUGAL 1,099,022 --------------- RUSSIA (0.6%) ELECTRIC UTILITIES 4,000 A Tatneft (Sponsored ADR) 136,200 4,900 RAO Unified Energy Systems (Sponsored ADR) 154,044 --------------- 290,244 --------------- INTEGRATED OIL 7,100 Lukoil (Sponsored ADR) 887,500 7,402 YUKOS Corp. (ADR)* 122,318 --------------- 1,009,818 --------------- OIL & GAS PIPELINES 4,352 OAO Gazprom (Sponsored ADR) (Registered Shares) 162,384 --------------- OIL & GAS PRODUCTION 5,600 Surgutneftegaz (Sponsored ADR) 223,300 7,900 Surgutneftegaz (Sponsored ADR) (Pref.) 421,070 --------------- 644,370 --------------- OTHER METALS/MINERALS 4,500 JSC MMC Norilsk Nickel (ADR) 279,000 --------------- </Table> SEE NOTES TO FINANCIAL STATEMENTS 26 <Page> <Table> <Caption> NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------- SPECIALTY TELECOMMUNICATIONS 7,900 Rostelecom (Sponsored ADR) $ 111,390 --------------- TOTAL RUSSIA 2,497,206 --------------- SINGAPORE (1.6%) AEROSPACE & DEFENSE 154,334 Singapore Technologies Engineering Ltd. 193,962 --------------- AIR FREIGHT/COURIERS 201,000 Singapore Post Ltd. 97,297 --------------- AIRLINES 61,000 Singapore Airlines Ltd. 392,483 --------------- BEVERAGES: ALCOHOLIC 19,000 Fraser & Neave Ltd. 156,524 --------------- COMPUTER PERIPHERALS 6,843 Creative Technology, Ltd. 77,359 --------------- ELECTRONIC COMPONENTS 26,696 Venture Corp., Ltd. 253,636 --------------- FINANCIAL CONGLOMERATES 63,000 Keppel Corp., Ltd. 303,067 --------------- HOTELS/RESORTS/CRUISELINES 8,962 Overseas Union Enterprise Ltd. 39,340 --------------- INVESTMENT BANKS/BROKERS 129,479 Singapore Exchange Ltd. 137,031 --------------- MAJOR BANKS 121,393 DBS Group Holdings Ltd. 1,138,744 106,039 Oversea - Chinese Banking Corp., Ltd. 879,939 --------------- 2,018,683 --------------- MAJOR TELECOMMUNICATIONS 586,633 Singapore Telecommunications 853,669 --------------- MARINE SHIPPING 118,000 Neptune Orient Lines Ltd. 210,740 --------------- OTHER TRANSPORTATION 216,068 ComfortDelgro Corp. Ltd. $ 185,795 --------------- PUBLISHING: NEWSPAPERS 180,329 Singapore Press Holdings Ltd. 509,648 --------------- REAL ESTATE DEVELOPMENT 123,000 Capitaland Ltd. 136,831 72,455 City Developments Ltd. 274,484 53,925 United Overseas Land, Ltd. 72,959 --------------- 484,274 --------------- REAL ESTATE INVESTMENT TRUSTS 75,000 Ascendas Real Estate Investment Trust 70,355 68,700 Capitamall Trust 69,815 --------------- 140,170 --------------- REGIONAL BANKS 131,489 United Overseas Bank, Ltd. 1,067,409 --------------- SEMICONDUCTORS 134,000 Chartered Semiconductor Manufacturing Ltd.* 81,383 --------------- TRUCKS/CONSTRUCTION/FARM MACHINERY 105,353 SembCorp Industries Ltd. 96,927 --------------- TOTAL SINGAPORE 7,299,397 --------------- SPAIN (4.5%) BROADCASTING 648 Antena 3 Television, S.A.* 41,720 --------------- ELECTRIC UTILITIES 44,750 Endesa S.A. 910,399 36,690 Iberdrola S.A. 805,070 9,466 Union Fenosa, S.A. 231,190 --------------- 1,946,659 --------------- ENGINEERING & CONSTRUCTION 25,802 ACS Actividades de Construccion y Servicios S.A. 501,164 5,704 Grupo Ferrovial, S.A. 253,164 </Table> SEE NOTES TO FINANCIAL STATEMENTS 27 <Page> <Table> <Caption> NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------- 11,156 Sacyr Vallehermoso S.A. $ 171,753 --------------- 926,081 --------------- GAS DISTRIBUTORS 80,532 Gas Natural SDG, S.A. 2,195,454 --------------- INFORMATION TECHNOLOGY SERVICES 3,151 Indra Sistemas S.A. 46,819 --------------- INTEGRATED OIL 57,439 Repsol YPF, S.A. 1,247,869 --------------- MAJOR BANKS 149,602 Banco Bilbao Vizcaya Argentaria, S.A. 2,352,942 209,535 Banco Santander Central Hispano, S.A. 2,344,409 --------------- 4,697,351 --------------- MAJOR TELECOMMUNICATIONS 428,889 Telefonica S.A. 7,096,560 --------------- MISCELLANEOUS COMMERCIAL SERVICES 37,298 Amadeus Global Travel Distribution S.A. (A Shares) 306,666 --------------- OTHER TRANSPORTATION 19,792 Abertis Infraestructuras, S.A. 371,269 --------------- REGIONAL BANKS 8,305 Banco Popular Espanol S.A. 472,360 --------------- STEEL 12,440 Acerinox S.A. 173,228 --------------- TOBACCO 15,320 Altadis, S.A. 563,595 --------------- WATER UTILITIES 10,437 Sociedad General de Aguas de Barcelona, S.A. 185,106 --------------- TOTAL SPAIN 20,270,737 --------------- SWEDEN (2.6%) ADVERTISING/MARKETING SERVICES 9,200 Eniro AB 77,977 --------------- APPAREL/FOOTWEAR RETAIL 37,700 Hennes & Mauritz AB (B Shares) $ 1,099,739 --------------- BROADCASTING 2,900 Modern Times Group MTG AB (B Shares)* 64,522 --------------- ELECTRONICS/APPLIANCES 30,400 Electrolux AB (Series B) 564,713 --------------- ENGINEERING & CONSTRUCTION 48,480 Skanska AB (B Shares) 529,041 --------------- HOUSEHOLD/PERSONAL CARE 12,086 Svenska Cellulosa AB (B Shares) 450,728 --------------- INDUSTRIAL MACHINERY 1,350 Alfa Laval AB 18,975 15,700 Assa Abloy AB (B Shares) 212,357 4,320 Atlas Copco AB (A Shares) 179,110 69 Atlas Copco AB (B Shares) 2,641 11,109 Sandvik AB 416,646 --------------- 829,729 --------------- INFORMATION TECHNOLOGY SERVICES 15,675 WM-Data AB (B Shares) 31,000 --------------- LIFE/HEALTH INSURANCE 19,662 Skandia Forsakrings AB 73,326 --------------- MAJOR BANKS 25,500 Skandinaviska Enskilda Banken AB 425,060 41,500 Svenska Handelsbanken AB (A Shares) 899,880 --------------- 1,324,940 --------------- MAJOR TELECOMMUNICATIONS 5,185 Tele2 AB (B Shares) 172,492 115,848 TeliaSonera AB 621,871 --------------- 794,363 --------------- METAL FABRICATIONS 6,727 SKF AB (B Shares) 261,326 --------------- </Table> SEE NOTES TO FINANCIAL STATEMENTS 28 <Page> <Table> <Caption> NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------- MISCELLANEOUS COMMERCIAL SERVICES 43,200 Securitas AB (B Shares) $ 591,948 --------------- PULP & PAPER 5,550 Holmen AB (B Shares) 172,482 --------------- REGIONAL BANKS 148,484 Nordea Bank AB 1,284,736 --------------- STEEL 6,700 SSAB Svenskt Stal AB (Series A) 132,978 --------------- TELECOMMUNICATION EQUIPMENT 789,052 Telefonaktiebolaget LM Ericsson (B Shares)* 2,296,154 --------------- TOBACCO 25,600 Swedish Match AB 282,978 --------------- TRUCKS/CONSTRUCTION/FARM MACHINERY 4,157 Volvo AB (A Shares) 152,386 10,430 Volvo AB (B Shares) 395,600 --------------- 547,986 --------------- TOTAL SWEDEN 11,410,666 --------------- SWITZERLAND (3.7%) BUILDING PRODUCTS 45 Geberit AG 29,380 91 Schindler Holding AG 29,192 --------------- 58,572 --------------- CHEMICALS: AGRICULTURAL 2,993 Syngenta AG 286,097 --------------- CHEMICALS: SPECIALTY 1,918 Ciba Specialty Chemicals AG (Registered Shares) 132,207 3,629 Clariant AG (Registered Shares)* 49,209 1,110 Lonza Group AG (Registered Shares) 54,353 --------------- 235,769 --------------- COMPUTER PERIPHERALS 1,251 Logitech International S.A. (Registered Shares)* $ 65,079 --------------- CONSTRUCTION MATERIALS 4,155 Holcim Ltd. (Regular Shares) 222,583 --------------- ELECTRONIC EQUIPMENT/ INSTRUMENTS 329 Kudelski S.A. - Bearer* 9,996 --------------- FINANCIAL CONGLOMERATES 37,182 UBS AG (Registered Shares) 2,685,868 --------------- FOOD: MAJOR DIVERSIFIED 7,883 Nestle S.A. (Registered Shares) 1,868,971 --------------- HOUSEHOLD/PERSONAL CARE 259 Givaudan S.A. (Registered Shares) 162,268 --------------- INDUSTRIAL CONGLOMERATES 22,960 ABB Ltd.* 132,990 38 Sulzer AG (Registered Shares) 12,850 --------------- 145,840 --------------- MAJOR BANKS 35,965 Credit Suisse Group 1,232,750 --------------- MAJOR TELECOMMUNICATIONS 847 Swisscom AG (Registered Shares) 305,741 --------------- MISCELLANEOUS COMMERCIAL SERVICES 281 SGS S.A. 179,462 --------------- MULTI-LINE INSURANCE 2,415 Zurich Financial Services AG 344,653 --------------- OTHER CONSUMER SPECIALTIES 3,879 Compagnie Financiere Richemont AG (Series A) 110,230 899 Swatch Group AG (B Shares) 120,775 928 Swatch Group AG (Registered Shares) 25,633 --------------- 256,638 --------------- </Table> SEE NOTES TO FINANCIAL STATEMENTS 29 <Page> <Table> <Caption> NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------- PERSONNEL SERVICES 3,741 Adecco S.A. (Registered Shares) $ 180,521 --------------- PHARMACEUTICALS: MAJOR 98,978 Novartis AG (Registered Shares) 4,730,597 29,110 Roche Holding AG 2,982,392 --------------- 7,712,989 --------------- PHARMACEUTICALS: OTHER 490 Serono S.A. (B Shares) 305,353 --------------- PROPERTY - CASUALTY INSURERS 3,341 Swiss Re (Registered Shares) 205,544 --------------- SPECIALTY STORES 162 Valora Holding AG 37,154 --------------- TOTAL SWITZERLAND 16,501,848 --------------- THAILAND (1.0%) AGRICULTURAL COMMODITIES/ MILLING 561,072 Charoen Pokphand Foods PCL (Alien Shares) 47,832 --------------- BROADCASTING 225,000 BEC World PCL (Alien Shares) 86,043 --------------- CONSTRUCTION MATERIALS 25,100 Siam City Cement PCL (Alien Shares) 124,720 42,694 The Siam Cement PCL* 239,182 77,200 The Siam Cement PCL (Alien Shares) 481,384 --------------- 845,286 --------------- ELECTRIC UTILITIES 43,076 Electricity Generating PCL* 69,249 --------------- ELECTRONIC COMPONENTS 79,600 Delta Electronics PCL (Alien Shares) 32,573 48,280 Hana Microelectronics PCL (Alien Shares) $ 22,461 --------------- 55,034 --------------- FINANCE/RENTAL/LEASING 96,500 TISCO Finance PCL (Alien Shares) 53,121 --------------- FINANCIAL CONGLOMERATES 160,800 National Finance PCL (Alien Shares) 45,825 --------------- HOME BUILDING 438,533 Land & Houses PCL* 96,134 327,808 Land & Houses PCL (Alien Shares) 79,846 --------------- 175,980 --------------- MAJOR BANKS 142,500 Kasikornbank PCL* 158,796 213,422 Kasikornbank PCL (Alien Shares)* 244,327 --------------- 403,123 --------------- OIL & GAS PRODUCTION 25,839 PTT Exploration & Production PCL (Alien Shares) 200,141 --------------- OIL REFINING/MARKETING 186,600 PTT PCL (Alien Shares) 772,671 --------------- REGIONAL BANKS 88,500 Bangkok Bank PCL* 201,553 170,200 Bangkok Bank PCL (Alien Shares)* 397,983 126,200 Siam Commercial Bank PCL (Alien Shares) 132,179 59,939 Siam Commercial Bank PCL (Conv Pref.) (Alien Shares) 65,699 --------------- 797,414 --------------- STEEL 106,000 Sahaviriya Steel Industries PCL (Alien Shares)* 68,420 --------------- </Table> SEE NOTES TO FINANCIAL STATEMENTS 30 <Page> <Table> <Caption> NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------- TELECOMMUNICATION EQUIPMENT 290,100 Shin Corp. PCL (Alien Shares) $ 256,147 --------------- WIRELESS TELECOMMUNICATIONS 223,800 Advanced Info Service PCL (Alien Shares) 509,689 --------------- TOTAL THAILAND 4,385,975 --------------- UNITED KINGDOM (21.2%) ADVERTISING/MARKETING SERVICES 64,393 Aegis Group PLC 120,656 68,678 WPP Group PLC 689,473 26,592 Yell Group PLC 178,789 --------------- 988,918 --------------- AEROSPACE & DEFENSE 172,327 BAE Systems PLC 754,215 2,600 Cobham PLC 66,055 161,733 Rolls-Royce Group PLC* 770,241 5,143,109 Rolls-Royce Group PLC (Class B)* 9,448 --------------- 1,599,959 --------------- AIR FREIGHT/COURIERS 20,342 Exel PLC 264,380 --------------- AIRLINES 28,648 British Airways PLC* 113,278 --------------- AUTO PARTS: O.E.M. 48,219 GKN PLC 189,336 --------------- BEVERAGES: ALCOHOLIC 175,637 Diageo PLC 2,350,470 --------------- BROADCASTING 240,962 ITV PLC 473,632 --------------- CABLE/SATELLITE TV 78,629 British Sky Broadcasting Group PLC 734,485 --------------- CASINO/GAMING 89,835 Hilton Group PLC 425,357 31,377 William Hill PLC 281,857 --------------- 707,214 --------------- CATALOG/SPECIALTY DISTRIBUTION 80,548 GUS PLC $ 1,318,383 --------------- CHEMICALS: MAJOR DIVERSIFIED 66,418 Imperial Chemical Industries PLC 255,611 13,091 Johnson Matthey PLC 228,217 --------------- 483,828 --------------- CHEMICALS: SPECIALTY 27,154 BOC Group PLC 437,464 --------------- COMMERCIAL PRINTING/FORMS 37,374 De La Rue PLC 221,759 --------------- CONSTRUCTION MATERIALS 22,069 BPB PLC 170,373 39,922 Hanson PLC 294,814 12,369 RMC Group PLC 193,249 --------------- 658,436 --------------- CONTAINERS/PACKAGING 26,814 Rexam PLC 212,053 --------------- DEPARTMENT STORES 167,609 Marks & Spencer Group PLC 1,105,353 --------------- DRUGSTORE CHAINS 42,338 Boots Group PLC 511,759 --------------- ELECTRIC UTILITIES 182,053 National Grid Transco PLC 1,583,532 43,680 Scottish & Southern Energy PLC 669,604 102,848 Scottish Power PLC 830,827 --------------- 3,083,963 --------------- ELECTRONIC EQUIPMENT/ INSTRUMENTS 81,642 Invensys PLC* 22,871 --------------- ELECTRONICS/APPLIANCE STORES 125,355 Dixons Group PLC 395,501 18,192 Kesa Electricals PLC 90,899 --------------- 486,400 --------------- </Table> SEE NOTES TO FINANCIAL STATEMENTS 31 <Page> <Table> <Caption> NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------- ENGINEERING & CONSTRUCTION 12,246 AMEC PLC $ 71,312 10,062 Balfour Beatty PLC 50,138 --------------- 121,450 --------------- FINANCIAL CONGLOMERATES 238,770 Lloyds TSB Group PLC 1,890,454 --------------- FINANCIAL PUBLISHING/SERVICES 82,975 Reuters Group PLC 565,116 --------------- FOOD RETAIL 82,073 Sainsbury (J) PLC 388,605 473,191 Tesco PLC 2,494,753 --------------- 2,883,358 --------------- FOOD: MAJOR DIVERSIFIED 155,305 Unilever PLC 1,309,505 --------------- FOOD: SPECIALTY/CANDY 105,319 Cadbury Schweppes PLC 875,456 36,964 Tate & Lyle PLC 288,078 --------------- 1,163,534 --------------- GAS DISTRIBUTORS 107,692 Centrica PLC 476,277 --------------- HOME BUILDING 12,147 Persimmon PLC 137,901 14,425 Taylor Woodrow PLC 61,345 --------------- 199,246 --------------- HOME IMPROVEMENT CHAINS 13,565 Barratt Developments PLC 126,090 76,557 Kingfisher PLC 425,070 23,647 Wimpey (George), PLC 152,038 --------------- 703,198 --------------- HOTELS/RESORTS/CRUISELINES 9,367 Carnival PLC 495,911 42,398 InterContinental Hotels Group PLC 519,104 --------------- 1,015,015 --------------- HOUSEHOLD/PERSONAL CARE 53,917 Reckitt Benckiser PLC 1,479,740 --------------- INDUSTRIAL CONGLOMERATES 22,388 Smiths Group PLC $ 306,600 21,749 Tomkins PLC 99,483 --------------- 406,083 --------------- INDUSTRIAL MACHINERY 11,498 Fki PLC 25,241 --------------- INDUSTRIAL SPECIALTIES 35,014 Pilkington PLC 55,477 --------------- INFORMATION TECHNOLOGY SERVICES 38,188 LogicaCMG PLC 123,817 25,500 Misys PLC 100,831 --------------- 224,648 --------------- INTEGRATED OIL 179,129 BG Group PLC 1,168,163 1,042,342 BP PLC 10,100,476 458,143 Shell Transport & Trading Co. PLC 3,608,397 --------------- 14,877,036 --------------- LIFE/HEALTH INSURANCE 82,836 Friends Provident PLC 206,951 71,626 Prudential PLC 526,966 --------------- 733,917 --------------- MAJOR BANKS 279,321 Barclays PLC 2,729,759 139,807 HBOS PLC 1,873,542 561,665 HSBC Holdings PLC 9,074,493 124,470 Royal Bank of Scotland Group PLC 3,669,855 --------------- 17,347,649 --------------- MAJOR TELECOMMUNICATIONS 467,501 BT Group PLC 1,595,220 116,225 Cable & Wireless PLC 223,113 --------------- 1,818,333 --------------- MARINE SHIPPING 45,942 Peninsular & Oriental Steam Navigation Co. (The) 226,180 --------------- </Table> SEE NOTES TO FINANCIAL STATEMENTS 32 <Page> <Table> <Caption> NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------- MEDICAL SPECIALTIES 31,437 Smith & Nephew PLC $ 267,093 --------------- MISCELLANEOUS COMMERCIAL SERVICES 67,482 Brambles Industries PLC 326,026 5,488 Davis Service Group PLC (The) 36,495 29,284 Group 4 Securicor* 62,671 179,222 Hays PLC 423,885 203,065 Rentokil Initial PLC 578,197 51,166 Serco Group PLC 204,902 --------------- 1,632,176 --------------- MISCELLANEOUS MANUFACTURING 17,620 IMI PLC 112,964 28,765 Kidde PLC 88,773 2,230 Novar PLC 4,875 --------------- 206,612 --------------- MOTOR VEHICLES 2,453 TI Automotive Ltd.* 0 --------------- MOVIES/ENTERTAINMENT 46,358 EMI Group PLC 180,326 37,809 Rank Group PLC 198,642 --------------- 378,968 --------------- MULTI-LINE INSURANCE 108,215 Aviva PLC 1,083,411 264,718 Legal & General Group PLC 481,424 109,576 Royal & Sun Alliance Insurance Group PLC 150,465 --------------- 1,715,300 --------------- OTHER METALS/MINERALS 132,657 BHP Billiton PLC 1,348,829 58,569 Rio Tinto PLC 1,532,099 --------------- 2,880,928 --------------- PACKAGED SOFTWARE 60,947 Sage Group (The) PLC 205,446 --------------- PERSONNEL SERVICES 74,586 Capita Group PLC $ 481,948 --------------- PHARMACEUTICALS: MAJOR 69,362 AstraZeneca PLC 2,843,970 244,929 GlaxoSmithKline PLC 5,160,750 --------------- 8,004,720 --------------- PUBLISHING: BOOKS/MAGAZINES 14,919 EMAP PLC 215,413 44,358 Pearson PLC 487,284 69,120 Reed Elsevier PLC 617,726 --------------- 1,320,423 --------------- PUBLISHING: NEWSPAPERS 17,687 Daily Mail and General Trust 235,397 19,879 United Business Media PLC 174,190 --------------- 409,587 --------------- PULP & PAPER 26,988 Bunzl PLC 204,629 --------------- RESTAURANTS 119,186 Compass Group PLC 492,626 20,247 Enterprise Inns PLC 230,229 42,484 Mitchells & Butlers PLC 222,228 20,653 Whitbread PLC 308,069 --------------- 1,253,152 --------------- SEMICONDUCTORS 45,515 ARM Holdings PLC 81,312 --------------- SPECIALTY STORES 9,191 MFI Furniture Group PLC 17,306 --------------- TOBACCO 76,206 British American Tobacco PLC 1,147,921 32,190 Imperial Tobacco Group PLC 752,172 --------------- 1,900,093 --------------- WATER UTILITIES 29,920 Kelda Group PLC 307,518 26,082 Severn Trent PLC 438,640 --------------- 746,158 --------------- </Table> SEE NOTES TO FINANCIAL STATEMENTS 33 <Page> <Table> <Caption> NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------- WHOLESALE DISTRIBUTORS 24,166 Electrocomponents PLC $ 129,072 40,034 Wolseley PLC 692,035 --------------- 821,107 --------------- WIRELESS TELECOMMUNICATIONS 3,253,004 Vodafone Group PLC 8,336,197 --------------- TOTAL UNITED KINGDOM 94,348,553 --------------- TOTAL COMMON AND PREFERRRED STOCKS (COST $376,681,595) 424,097,441 --------------- <Caption> PRINCIPAL AMOUNT IN THOUSANDS - ------------ SHORT-TERM INVESTMENT (0.5%) REPURCHASE AGREEMENT $ 2,398 Joint repurchase agreement account 1.82% due 11/01/04 (dated 10/29/04; proceeds $2,398,364) (a) (COST $2,398,000) 2,398,000 --------------- TOTAL INVESTMENTS (COST $379,079,595) (b)(c) 95.6% $ 426,495,441 OTHER ASSETS IN EXCESS OF LIABILITIES 4.4 19,484,058 ----- --------------- NET ASSETS 100.0% $ 445,979,499 ===== =============== </Table> - ---------- ADR AMERICAN DEPOSITORY RECEIPT. GDR GLOBAL DEPOSITORY RECEIPT. * NON-INCOME PRODUCING SECURITY. ** COMPRISED OF SECURITIES IN SEPARATE ENTITIES THAT ARE TRADED AS A SINGLE STAPLED SECURITY. WI SECURITY PURCHASED ON A WHEN-ISSUED BASIS. ++ CONSISTS OF ONE OR MORE CLASS OF SECURITIES TRADED TOGETHER AS A UNIT; STOCKS WITH ATTACHED WARRANTS. (a) COLLATERALIZED BY FEDERAL AGENCY AND U.S. TREASURY OBLIGATIONS. (b) SECURITIES HAVE BEEN DESIGNATED AS COLLATERAL IN AN AMOUNT EQUAL TO $102,290,414, IN CONNECTION WITH OPEN FORWARD FOREIGN CURRENCY CONTRACTS, OPEN FUTURES CONTRACTS AND SECURITIES PURCHASED ON A WHEN-ISSUED BASIS. (c) THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES IS $389,451,257. THE AGGREGATE GROSS UNREALIZED APPRECIATION IS $59,904,720 AND THE AGGREGATE GROSS UNREALIZED DEPRECIATION IS $22,860,536, RESULTING IN NET UNREALIZED APPRECIATION OF $37,044,184. FUTURES CONTRACTS OPEN AT OCTOBER 31, 2004: <Table> <Caption> UNREALIZED NUMBER OF DESCRIPTION/DELIVERY UNDERLYING FACE APPRECIATION CONTRACTS LONG/SHORT MONTH, AND YEAR AMOUNT AT VALUE (DEPRECIATION) - ----------------------------------------------------------------------------------------- 80 Long EURX CAC40 10 EURO Future December/2004 $ 3,796,716 $ (2,184) 110 Long EURX DAX Index Future December/2004 13,983,064 59,851 37 Long HANG SENG Index Future November/2004 3,099,178 69,536 -------------- Net unrealized appreciation $ 127,203 ============== </Table> SEE NOTES TO FINANCIAL STATEMENTS 34 <Page> FORWARD FOREIGN CURRENCY CONTRACTS OPEN AT OCTOBER 31, 2004: <Table> <Caption> UNREALIZED CONTRACTS IN EXCHANGE DELIVERY APPRECIATION TO DELIVER FOR DATE (DEPRECIATION) - ---------------------------------------------------------------- $ 1,628,788 JPY 173,024,554 11/02/04 $ 5,523 EUR 46,635,778 $ 57,184,792 12/16/04 (2,443,715) EUR 3,586,664 $ 4,394,492 12/16/04 (191,417) EUR 817,790 $ 1,002,790 12/16/04 (42,836) $ 7,059,132 EUR 5,749,650 12/16/04 292,370 $ 15,279,900 EUR 12,479,704 12/16/04 676,650 $ 16,085,456 EUR 13,096,133 12/16/04 659,259 $ 18,265,006 EUR 14,931,539 12/16/04 826,461 $ 18,603,097 EUR 15,179,511 12/16/04 805,425 $ 4,377,845 EUR 3,442,000 12/16/04 23,096 -------------- Net unrealized appreciation $ 610,816 ============== </Table> CURRENCY ABBREVIATIONS: EUR Euro. JPY Japanese Yen. SEE NOTES TO FINANCIAL STATEMENTS 35 <Page> MORGAN STANLEY INTERNATIONAL FUND SUMMARY OF INVESTMENTS - OCTOBER 31, 2004 <Table> <Caption> PERCENT OF INDUSTRY VALUE NET ASSETS - ----------------------------------------------------------------- Major Banks $ 58,292,914 13.1% Integrated Oil 35,601,028 8.0 Pharmaceuticals: Major 23,389,658 5.2 Major Telecommunications 23,033,931 5.2 Motor Vehicles 16,702,893 3.7 Electric Utilities 15,302,212 3.4 Electronic Equipment/Instruments 12,646,382 2.8 Financial Conglomerates 12,250,684 2.7 Wireless Telecommunications 11,270,601 2.5 Industrial Conglomerates 10,161,929 2.3 Telecommunication Equipment 7,913,941 1.8 Other Metals/Minerals 7,680,366 1.7 Food Retail 7,095,554 1.6 Regional Banks 6,333,364 1.4 Multi-Line Insurance 6,306,622 1.4 Real Estate Development 5,843,947 1.3 Food: Major Diversified 5,784,417 1.3 Chemicals: Specialty 5,771,030 1.3 Beverages: Alcoholic 5,149,481 1.1 Electronics/Appliances 4,695,573 1.0 Engineering & Construction 4,490,372 1.0 Pharmaceuticals: Other 4,428,959 1.0 Investment Banks/Brokers 4,331,872 1.0 Construction Materials 4,116,002 0.9 Gas Distributors 3,937,512 0.9 Steel 3,932,887 0.9 Chemicals: Major Diversified 3,926,387 0.9 Property - Casualty Insurers 3,901,560 0.9 Miscellaneous Commercial Services 3,796,701 0.9 Household/Personal Care 3,686,420 0.8 Tobacco 3,519,458 0.8 Railroads 3,511,653 0.8 Industrial Machinery 3,407,828 0.8 Electronic Components 3,375,585 0.8 Wholesale Distributors 3,204,235 0.7 Aerospace & Defense 2,972,424 0.7 Life/Health Insurance 2,818,464 0.6 Pulp & Paper 2,738,526 0.6 Publishing: Books/Magazines $ 2,662,852 0.6% Department Stores 2,628,059 0.6 Oil Refining/Marketing 2,566,192 0.6 Information Technology Services 2,524,632 0.6 Repurchase Agreement 2,398,000 0.5 Building Products 2,389,454 0.5 Air Freight/Couriers 2,313,742 0.5 Food: Specialty/Candy 2,309,280 0.5 Electrical Products 2,301,001 0.5 Media Conglomerates 2,265,504 0.5 Packaged Software 2,215,647 0.5 Auto Parts: O.E.M. 2,173,813 0.5 Apparel/Footwear 2,024,569 0.5 Semiconductors 2,019,755 0.5 Apparel/Footwear Retail 1,987,476 0.4 Industrial Specialties 1,897,526 0.4 Home Building 1,801,190 0.4 Electronic Production Equipment 1,740,613 0.4 Hotels/Resorts/Cruiselines 1,699,665 0.4 Trucks/Construction/Farm Machinery 1,632,969 0.4 Automotive Aftermarket 1,455,372 0.3 Restaurants 1,446,109 0.3 Broadcasting 1,394,028 0.3 Catalog/Specialty Distribution 1,318,383 0.3 Advertising/Marketing Services 1,315,942 0.3 Recreational Products 1,305,597 0.3 Marine Shipping 1,293,081 0.3 Oil & Gas Production 1,236,792 0.3 Finance/Rental/Leasing 1,223,690 0.3 Water Utilities 1,173,913 0.3 Other Transportation 1,171,031 0.3 Casino/Gaming 1,154,878 0.3 Real Estate Investment Trusts 1,125,542 0.3 </Table> SEE NOTES TO FINANCIAL STATEMENTS 36 <Page> <Table> <Caption> PERCENT OF INDUSTRY VALUE NET ASSETS - ----------------------------------------------------------------- Publishing: Newspapers $ 1,089,784 0.2% Commercial Printing/Forms 997,422 0.2 Airlines 975,770 0.2 Medical Specialties 955,480 0.2 Metal Fabrications 949,431 0.2 Personnel Services 908,364 0.2 Cable/Satellite TV 897,232 0.2 Computer Processing Hardware 822,499 0.2 Electronics/Appliance Stores 798,934 0.2 Textiles 778,498 0.2 Containers/Packaging 722,207 0.2 Home Improvement Chains 703,198 0.2 Movies/Entertainment 698,057 0.2 Internet Software/Services 609,026 0.1 Miscellaneous Manufacturing 600,332 0.1 Financial Publishing/Services 565,116 0.1 Drugstore Chains 511,759 0.1 Chemicals: Agricultural 489,100 0.1 Aluminum 460,314 0.1 Food: Meat/Fish/Dairy 432,021 0.1 Other Consumer Specialties 425,410 0.1 Specialty Telecommunications 402,062 0.1 Agricultural Commodities/Milling 352,783 0.1 Specialty Stores 326,469 0.1 Medical/Nursing Services 257,649 0.1 Oil & Gas Pipelines 242,183 0.1 Other Consumer Services 238,299 0.1 Precious Metals 233,152 0.1 Beverages: Non-Alcoholic 179,773 0.0 Coal 160,650 0.0 Investment Trusts/Mutual Funds 159,944 0.0 Food Distributors 157,610 0.0 Computer Peripherals 142,438 0.0 Biotechnology 122,731 0.0 Medical Distributors 120,412 0.0 Tools/Hardware $ 117,485 0.0% Hospital/Nursing Management 89,343 0.0 Forest Products 69,171 0.0 Office Equipment/Supplies 55,502 0.0 Foods & Beverages 53,282 0.0 Data Processing Services 47,440 0.0 Contract Drilling 45,009 0.0 Oilfield Services/Equipment 42,431 0.0 ------------- ---- $ 426,495,441* 95.6% ============= ==== </Table> <Table> <Caption> PERCENT OF TYPE OF INVESTMENT VALUE NET ASSETS - ----------------------------------------------------------------- Common Stocks $ 418,131,774 93.8% Preferred Stocks 5,965,667 1.3 Short-Term Investment 2,398,000 0.5 ------------- ---- $ 426,495,441* 95.6% ============= ==== </Table> - ---------- * DOES NOT INCLUDE OPEN LONG FUTURES CONTRACTS WITH AN UNDERLYING FACE AMOUNT OF $20,878,958 AND NET UNREALIZED APPRECIATION OF $127,203 AND OPEN FORWARD FOREIGN CURRENCY CONTRACTS WITH NET UNREALIZED APPRECIATION OF $610,816. SEE NOTES TO FINANCIAL STATEMENTS 37 <Page> MORGAN STANLEY INTERNATIONAL FUND FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 2004 <Table> ASSETS: Investments in securities, at value (cost $379,079,595) $ 426,495,441 Cash (including $17,760,294 in foreign currency, at value with a cost of $17,264,553 and $2,737,540 in segregation) 20,498,200 Unrealized appreciation on forward foreign currency contracts 610,816 Receivable for: Dividends 692,461 Shares of beneficial interest sold 393,151 Foreign withholding taxes reclaimed 311,365 Compensated forward foreign currency contracts 74,266 Variation margin 24,885 Prepaid expenses and other assets 28,190 -------------- TOTAL ASSETS 449,128,775 -------------- LIABILITIES: Payable for: Investments purchased 1,634,311 Shares of beneficial interest redeemed 702,474 Investment management fee 374,111 Distribution fee 201,205 Compensated forward foreign currency contracts 96,625 Accrued expenses and other payables 140,550 -------------- TOTAL LIABILITIES 3,149,276 -------------- NET ASSETS $ 445,979,499 ============== COMPOSITION OF NET ASSETS: Paid-in-capital $ 577,095,896 Net unrealized appreciation 48,685,323 Accumulated undistributed net investment income 2,046,837 Accumulated net realized loss (181,848,557) -------------- NET ASSETS $ 445,979,499 ============== CLASS A SHARES: Net Assets $ 83,766,525 Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE) 9,110,179 NET ASSET VALUE PER SHARE $ 9.19 ============== MAXIMUM OFFERING PRICE PER SHARE, (NET ASSET VALUE PLUS 5.54% OF NET ASSET VALUE) $ 9.70 ============== CLASS B SHARES: Net Assets $ 193,795,719 Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE) 21,389,335 NET ASSET VALUE PER SHARE $ 9.06 ============== CLASS C SHARES: Net Assets $ 24,526,687 Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE) 2,707,907 NET ASSET VALUE PER SHARE $ 9.06 ============== CLASS D SHARES: Net Assets $ 143,890,568 Shares Outstanding (unlimited authorized, $.01 par value) 15,568,060 NET ASSET VALUE PER SHARE $ 9.24 ============== </Table> SEE NOTES TO FINANCIAL STATEMENTS 38 <Page> STATEMENT OF OPERATIONS FOR THE YEAR ENDED OCTOBER 31, 2004 <Table> NET INVESTMENT INCOME: INCOME Dividends (net of $887,920 foreign withholding tax) $ 9,879,946 Interest 176,290 -------------- TOTAL INCOME 10,056,236 -------------- EXPENSES Investment management fee 4,495,700 Distribution fee (Class A shares) 181,262 Distribution fee (Class B shares) 2,058,701 Distribution fee (Class C shares) 250,485 Transfer agent fees and expenses 844,531 Custodian fees 251,252 Shareholder reports and notices 142,613 Registration fees 81,818 Professional fees 70,386 Trustees' fees and expenses 4,587 Other 90,743 -------------- TOTAL EXPENSES 8,472,078 -------------- NET INVESTMENT INCOME 1,584,158 -------------- NET REALIZED AND UNREALIZED GAIN: NET REALIZED GAIN ON: Investments 13,337,091 Futures contracts 1,065,699 Foreign exchange transactions 1,125,005 -------------- NET REALIZED GAIN 15,527,795 -------------- NET CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION ON: Investments 45,888,364 Futures contracts (114,655) Translation of forward foreign currency contracts and other assets and liabilities denominated in foreign currencies 749,085 -------------- NET APPRECIATION 46,522,794 -------------- NET GAIN 62,050,589 -------------- NET INCREASE $ 63,634,747 ============== </Table> SEE NOTES TO FINANCIAL STATEMENTS 39 <Page> STATEMENT OF CHANGES IN NET ASSETS <Table> <Caption> FOR THE YEAR FOR THE YEAR ENDED ENDED OCTOBER 31, 2004 OCTOBER 31, 2003 ---------------- ---------------- INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment income $ 1,584,158 $ 2,520,960 Net realized gain (loss) 15,527,795 (52,203,505) Net change in unrealized appreciation 46,522,794 128,004,797 ---------------- ---------------- NET INCREASE 63,634,747 78,322,252 ---------------- ---------------- DIVIDENDS TO SHAREHOLDERS FROM NET INVESTMENT INCOME: Class A shares (765,430) (569,363) Class B shares (1,153,468) -- Class C shares (145,401) (47,598) Class D shares (1,794,154) (1,783,043) ---------------- ---------------- TOTAL DIVIDENDS (3,858,453) (2,400,004) ---------------- ---------------- Net decrease from transactions in shares of beneficial interest (40,776,673) (57,055,643) ---------------- ---------------- NET INCREASE 18,999,621 18,866,605 NET ASSETS: Beginning of period 426,979,878 408,113,273 ---------------- ---------------- END OF PERIOD (INCLUDING ACCUMULATED UNDISTRIBUTED NET INVESTMENT INCOME OF $2,046,837 AND $3,089,884, RESPECTIVELY) $ 445,979,499 $ 426,979,878 ================ ================ </Table> SEE NOTES TO FINANCIAL STATEMENTS 40 <Page> MORGAN STANLEY INTERNATIONAL FUND NOTES TO FINANCIAL STATEMENTS - OCTOBER 31, 2004 1. ORGANIZATION AND ACCOUNTING POLICIES Morgan Stanley International Fund (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 long-term capital growth. The Fund was organized as a Massachusetts business trust on October 23, 1998 and commenced operations June 28, 1999. 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 Stock Exchange ("NYSE") 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. Occasionally, developments affecting the closing prices of securities and other assets may occur between the times at which valuations of such securities are determined (that is, close of the foreign market on which the securities trade) and the close of business on the NYSE. If developments occur during such periods that are expected to materially affect the value of such securities, such valuations may be adjusted to reflect the estimated fair value of such securities as of the close of the NYSE, as determined in good faith by the Fund's Trustees or by the Investment Manager using a pricing service and/or procedures approved by the Trustees of the Fund; (7) certain portfolio securities may be valued by an outside pricing service 41 <Page> approved by the Fund's Trustees; and (8) 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. 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. 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. 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 42 <Page> 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. G. 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. H. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- Dividends and distributions to shareholders are recorded on the ex-dividend date. 1. 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 at the close of each business day: 1.0% to the portion of daily net assets not exceeding $1 billion and 0.95% to the portion of daily net assets in excess of $1 billion. Effective November 1, 2004, the annual rate will be reduced to 0.65% and will be applied to all the net assets of the Fund. Prior to December 30, 2003, under a Sub-Advisory Agreement between Morgan Stanley Investment Management Inc. ("the Sub-Advisor") and the Investment Manager, the Sub-Advisor provided the Fund with investment advice and portfolio management relating to the Fund's investments in securities, subject to the overall supervision of the Investment Manager. Effective December 30, 2003, the Investment Manager assumed the Sub-Advisor's responsibility. For the period November 1, 2003 through December 29, 2003, the Investment Manager paid the Sub-Advisor compensation of $281,312. 43 <Page> 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 -- up to 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 $20,632,566 at October 31, 2004. 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, 2004, the distribution fee was accrued for Class A shares and Class C shares at the annual rate of 0.24% and 0.98%, respectively. The Distributor has informed the Fund that for the year ended October 31, 2004, it received contingent deferred sales charges from certain redemptions of the Fund's Class A shares, Class B shares and Class C shares of $7,144, $481,868 and $2,302 , respectively and received $56,556 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, 2004 aggregated $139,701,631 and $194,565,734, respectively. Morgan Stanley Trust, an affiliate of the Investment Manager, Sub-Advisor and Distributor, is the Fund's transfer agent. At October 31, 2004, the Fund had transfer agent fees and expenses payable of approximately $2,200. 44 <Page> Effective April 1, 2004, the Fund began an unfunded Deferred Compensation Plan (the "Compensation Plan") which allows each independent Trustee to defer payment of all, or a portion, of the fees he receives for serving on the Board of Trustees. Each eligible Trustee generally may elect to have the deferred amounts credited with a return equal to the total return on one or more of the Morgan Stanley funds that are offered as investment options under the Compensation Plan. Appreciation/depreciation and distributions received from these investments are recorded with an offsetting increase/decrease in the deferred compensation obligation and do not affect the net asset value of the Fund. 5. SHARES OF BENEFICIAL INTEREST Transactions in shares of beneficial interest were as follows: <Table> <Caption> FOR THE YEAR FOR THE YEAR ENDED ENDED OCTOBER 31, 2004 OCTOBER 31, 2003 ----------------------------- ----------------------------- SHARES AMOUNT SHARES AMOUNT ------------ ------------- ------------ ------------- CLASS A SHARES Sold 5,568,257 $ 48,803,046 33,698,871 $ 228,777,057 Reinvestment of dividends 88,825 753,234 83,954 552,418 Redeemed (4,442,745) (38,827,899) (32,511,231) (223,778,567) ------------ ------------- ------------ ------------- Net increase -- Class A 1,214,337 10,728,381 1,271,594 5,550,908 ------------ ------------- ------------ ------------- CLASS B SHARES Sold 2,029,109 17,561,668 2,174,402 14,869,053 Reinvestment of dividends 123,296 1,036,918 -- -- Redeemed (6,691,618) (57,927,196) (9,245,751) (62,480,968) ------------ ------------- ------------ ------------- Net decrease -- Class B (4,539,213) (39,328,610) (7,071,349) (47,611,915) ------------ ------------- ------------ ------------- CLASS C SHARES Sold 284,158 2,452,466 1,380,301 9,030,658 Reinvestment of dividends 16,051 134,827 6,602 43,180 Redeemed (806,681) (6,943,031) (2,146,478) (14,221,194) ------------ ------------- ------------ ------------- Net decrease -- Class C (506,472) (4,355,738) (759,575) (5,147,356) ------------ ------------- ------------ ------------- CLASS D SHARES Sold 3,339,028 29,357,682 11,129,166 73,840,652 Reinvestment of dividends 177,395 1,507,858 222,220 1,466,651 Redeemed (4,380,962) (38,686,246) (12,802,046) (85,154,583) ------------ ------------- ------------ ------------- Net decrease -- Class D (864,539) (7,820,706) (1,450,660) (9,847,280) ------------ ------------- ------------ ------------- Net decrease in Fund (4,695,887) $ (40,776,673) (8,009,990) $ (57,055,643) ============ ============= ============ ============= </Table> 45 <Page> 6. PURPOSES OF AND RISKS RELATING TO CERTAIN FINANCIAL INSTRUMENTS The Fund may enter into forward contracts to facilitate settlement of foreign currency denominated portfolio transactions or to manage foreign currency exposure associated with foreign currency denominated securities. The Fund may also purchase and sell interest rate, currency and index futures contracts ("futures contracts") that are traded on U.S. and foreign commodity exchanges on such underlying securities as U.S. Treasury bonds, notes, bills and GNMA certificates and/or any foreign government fixed-income security, on various currencies and on such indexes of U.S. and foreign securities as may exist or come into existence. Forward contracts and futures 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 or 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 counterparties to meet the terms of their contracts. At October 31, 2004, investments in securities of issuers in Japan represented 25.6% 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. At October 31, 2004, the Fund's cash balance consisted principally of interest bearing deposits with J.P. Morgan Chase, the Fund's custodian. 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. 46 <Page> The tax character of distributions paid was as follows: <Table> <Caption> FOR THE YEAR FOR THE YEAR ENDED ENDED OCTOBER 31, 2004 OCTOBER 31, 2003 ---------------- ---------------- Ordinary Income $ 3,858,453 $ 2,400,004 ================ ================ </Table> As of October 31, 2004, the tax-basis components of accumulated losses were as follows: <Table> Undistributed ordinary income $ 3,207,377 Undistributed long-term gains -- ---------------- Net accumulated earnings 3,207,377 Foreign tax credit pass-through 894,041 Capital loss carryforward* (171,982,273) Temporary differences (938,387) Net unrealized appreciation 37,702,845 ---------------- Total accumulated losses $ (131,116,397) ================ </Table> *During the year ended October 31, 2004, the Fund utilized $11,679,252 of its net capital loss carryforward. As of October 31, 2004, the Fund had a net capital loss carryforward of $171,982,273 of which $23,562,966 will expire on October 31, 2009, $93,972,230 will expire on October 31, 2010 and $54,447,077 will expire on October 31, 2011 to offset future capital gains to the extent provided by regulations. As of October 31, 2004, the Fund had temporary book/tax differences primarily attributable to the mark-to-market of open forward foreign currency exchange contracts and passive foreign investment companies ("PFICs"), foreign tax credit pass-through and capital loss deferrals on wash sales and permanent book/tax differences attributable to foreign currency gains and tax adjustments on PFICs sold by the Fund. To reflect reclassifications arising from the permanent differences, accumulated net realized loss was charged and accumulated undistributed net investment income was credited $1,231,248. 8. LEGAL MATTERS The Investment Manager, certain affiliates of the Investment Manager, certain officers of such affiliates and certain investment companies advised by the Investment Manager or its affiliates, including the Fund, are named as defendants in a number of similar class action complaints which were recently consolidated. This consolidated action also names as defendants certain individual Trustees and Directors of the Morgan Stanley funds. The consolidated amended complaint generally alleges that 47 <Page> 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 recommend the funds advised by the Investment Manager or its affiliates to investors 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 efforts to recommend these funds to investors. The complaint seeks, among other things, unspecified compensatory damages, rescissionary damages, fees and costs. The defendants have moved to dismiss the action and intend to otherwise vigorously defend it. While the Fund believes that it has meritorious defenses, the ultimate outcome of this matter 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 this matter. 48 <Page> MORGAN STANLEY INTERNATIONAL FUND FINANCIAL HIGHLIGHTS Selected ratios and per share data for a share of beneficial interest outstanding throughout each period: <Table> <Caption> FOR THE YEAR ENDED OCTOBER 31, --------------------------------------------------------------------- 2004 2003 2002 2001 2000 ---------- ---------- ---------- ---------- ---------- CLASS A SHARES SELECTED PER SHARE DATA: Net asset value, beginning of period $ 8.03 $ 6.70 $ 7.77 $ 10.29 $ 10.57 ---------- ---------- ---------- ---------- ---------- Income (loss) from investment operations: Net investment income++ 0.06 0.08 0.04 0.06 0.11 Net realized and unrealized gain (loss) 1.20 1.33 (1.03) (2.07) (0.39) ---------- ---------- ---------- ---------- ---------- Total income (loss) from investment operations 1.26 1.41 (0.99) (2.01) (0.28) ---------- ---------- ---------- ---------- ---------- Less dividends and distributions from: Net investment income (0.10) (0.08) (0.08) - - Net realized gain - - - (0.51) - ---------- ---------- ---------- ---------- ---------- Total dividends and distributions (0.10) (0.08) (0.08) (0.51) - ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 9.19 $ 8.03 $ 6.70 $ 7.77 $ 10.29 ========== ========== ========== ========== ========== TOTAL RETURN+ 15.89% 21.31% (12.93)% (20.36)% (2.65)% RATIOS TO AVERAGE NET ASSETS(1): Expenses 1.57% 1.58% 1.56% 1.46%(2) 1.47% Net investment income 0.67% 1.02% 0.54% 0.73% 0.95% SUPPLEMENTAL DATA: Net assets, end of period, in thousands $ 83,766 $ 63,422 $ 44,373 $ 37,974 $ 46,535 Portfolio turnover rate 33% 43% 39% 37% 84% </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) DOES NOT REFLECT THE EFFECT OF EXPENSE OFFSET OF 0.01%. SEE NOTES TO FINANCIAL STATEMENTS 49 <Page> <Table> <Caption> FOR THE YEAR ENDED OCTOBER 31, --------------------------------------------------------------------- 2004 2003 2002 2001 2000 ---------- ---------- ---------- ---------- ---------- CLASS B SHARES SELECTED PER SHARE DATA: Net asset value, beginning of period $ 7.93 $ 6.58 $ 7.62 $ 10.19 $ 10.55 ---------- ---------- ---------- ---------- ---------- Income (loss) from investment operations: Net investment income (loss)++ (0.01) 0.01 (0.02) 0.00 0.02 Net realized and unrealized gain (loss) 1.19 1.34 (1.02) (2.06) (0.38) ---------- ---------- ---------- ---------- ---------- Total income (loss) from investment operations 1.18 1.35 (1.04) (2.06) (0.36) ---------- ---------- ---------- ---------- ---------- Less dividends and distributions from: Net investment income (0.05) - - - - Net realized gain - - - (0.51) - ---------- ---------- ---------- ---------- ---------- Total dividends and distributions (0.05) - - (0.51) - ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 9.06 $ 7.93 $ 6.58 $ 7.62 $ 10.19 ========== ========== ========== ========== ========== TOTAL RETURN+ 14.87% 20.52% (13.65)% (21.08)% (3.41)% RATIOS TO AVERAGE NET ASSETS(1): Expenses 2.33% 2.37% 2.32% 2.24%(2) 2.22% Net investment income (loss) (0.09)% 0.23% (0.22)% (0.06)% 0.20% SUPPLEMENTAL DATA: Net assets, end of period, in thousands $ 193,796 $ 205,544 $ 217,216 $ 340,158 $ 561,375 Portfolio turnover rate 33% 43% 39% 37% 84% </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) DOES NOT REFLECT THE EFFECT OF EXPENSE OFFSET OF 0.01%. SEE NOTES TO FINANCIAL STATEMENTS 50 <Page> <Table> <Caption> FOR THE YEAR ENDED OCTOBER 31, --------------------------------------------------------------------- 2004 2003 2002 2001 2000 ---------- ---------- ---------- ---------- ---------- CLASS C SHARES SELECTED PER SHARE DATA: Net asset value, beginning of period $ 7.92 $ 6.59 $ 7.62 $ 10.19 $ 10.55 ---------- ---------- ---------- ---------- ---------- Income (loss) from investment operations: Net investment income (loss)++ (0.01) 0.01 (0.01) (0.01) 0.02 Net realized and unrealized gain (loss) 1.20 1.33 (1.02) (2.05) (0.38) ---------- ---------- ---------- ---------- ---------- Total income (loss) from investment operations 1.19 1.34 (1.03) (2.06) (0.36) ---------- ---------- ---------- ---------- ---------- Less dividends and distributions from: Net investment income (0.05) (0.01) - - - Net realized gain - - - (0.51) - ---------- ---------- ---------- ---------- ---------- Total dividends and distributions (0.05) (0.01) - (0.51) - ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 9.06 $ 7.92 $ 6.59 $ 7.62 $ 10.19 ========== ========== ========== ========== ========== TOTAL RETURN+ 15.03% 20.40% (13.52)% (21.08)% (3.41)% RATIOS TO AVERAGE NET ASSETS(1): Expenses 2.31% 2.37% 2.18% 2.24%(2) 2.22% Net investment income (loss) (0.07)% 0.23% (0.08)% (0.06)% 0.20% SUPPLEMENTAL DATA: Net assets, end of period, in thousands $ 24,527 $ 25,471 $ 26,195 $ 39,079 $ 69,640 Portfolio turnover rate 33% 43% 39% 37% 84% </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) DOES NOT REFLECT THE EFFECT OF EXPENSE OFFSET OF 0.01%. SEE NOTES TO FINANCIAL STATEMENTS 51 <Page> <Table> <Caption> FOR THE YEAR ENDED OCTOBER 31, --------------------------------------------------------------------- 2004 2003 2002 2001 2000 ---------- ---------- ---------- ---------- ---------- CLASS D SHARES SELECTED PER SHARE DATA: Net asset value, beginning of period $ 8.07 $ 6.73 $ 7.80 $ 10.32 $ 10.58 ---------- ---------- ---------- ---------- ---------- Income (loss) from investment operations: Net investment income++ 0.08 0.08 0.06 0.08 0.15 Net realized and unrealized gain (loss) 1.20 1.36 (1.04) (2.09) (0.41) ---------- ---------- ---------- ---------- ---------- Total income (loss) from investment operations 1.28 1.44 (0.98) (2.01) (0.26) ---------- ---------- ---------- ---------- ---------- Less dividends and distributions from: Net investment income (0.11) (0.10) (0.09) - - Net realized gain - - - (0.51) - ---------- ---------- ---------- ---------- ---------- Total dividends and distributions (0.11) (0.10) (0.09) (0.51) - ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 9.24 $ 8.07 $ 6.73 $ 7.80 $ 10.32 ========== ========== ========== ========== ========== TOTAL RETURN+ 15.97% 21.68% (12.70)% (20.30)% (2.46)% RATIOS TO AVERAGE NET ASSETS(1): Expenses 1.33% 1.37% 1.32% 1.24%(2) 1.22% Net investment income 0.91% 1.23% 0.78% 0.94% 1.20% SUPPLEMENTAL DATA: Net assets, end of period, in thousands $ 143,890 $ 132,544 $ 120,329 $ 124,065 $ 98,465 Portfolio turnover rate 33% 43% 39% 37% 84% </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. (2) DOES NOT REFLECT THE EFFECT OF EXPENSE OFFSET OF 0.01%. SEE NOTES TO FINANCIAL STATEMENTS 52 <Page> MORGAN STANLEY INTERNATIONAL FUND REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM TO THE SHAREHOLDERS AND BOARD OF TRUSTEES OF MORGAN STANLEY INTERNATIONAL FUND: We have audited the accompanying statement of assets and liabilities of Morgan Stanley International Fund (the "Fund"), including the portfolio of investments, as of October 31, 2004, 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 the standards of the Public Company Accounting Oversight Board (United States). 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, 2004, 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 International Fund as of October 31, 2004, 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, 2004 2004 FEDERAL TAX NOTICE (UNAUDITED) Of the amounts paid by the Fund during the fiscal year ended October 31, 2004 that were reported to individuals as ordinary dividends, 100% qualified for the lower income tax rate available to individuals under the Jobs and Growth Tax Relief Reconciliation Act of 2003. Additionally, the Fund had elected, pursuant to section 853 of the Internal Revenue Code, to pass through foreign taxes of $0.02 per share to its shareholders, of which 100% would be allowable as a credit. The Fund generated net foreign source income of $0.08 per share with respect to this election. 53 <Page> MORGAN STANLEY INTERNATIONAL 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) OVERSEEN OTHER DIRECTORSHIPS INDEPENDENT TRUSTEE REGISTRANT TIME SERVED* DURING PAST 5 YEARS** BY TRUSTEE*** HELD BY TRUSTEE - --------------------------------------- ----------- ------------ ------------------------- ------------- --------------------- Michael Bozic (63) Trustee Since Private Investor; 208 Director of Weirton c/o Kramer Levin Naftalis & Frankel LLP April 1994 Director or Trustee of Steel Corporation. Counsel to the Independent Trustees the Retail Funds (since 919 Third Avenue April 1994) and the New York, NY Institutional Funds (since July 2003); formerly Vice Chairman of 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 (72) Trustee Since Managing Director of 208 Director of Franklin c/o Summit Ventures LLC January 1993 Summit Ventures LLC; Covey (time 1 Utah Center Director or Trustee of management systems), 201 S. Main Street the Retail Funds (since BMW Bank of North Salt Lake City, UT January 1993) and the America, Inc. Institutional Funds (industrial loan (since July 2003); member corporation), United of the Utah Regional Space Alliance (joint Advisory Board of Pacific venture between Corp.; formerly United Lockheed Martin and States Senator (R-Utah) the Boeing Company) (1974-1992) and Chairman, and Nuskin Asia Senate Banking Committee Pacific (multilevel (1980-1986), Mayor of marketing); member of Salt Lake City, Utah the board of various (1971-1974), Astronaut, civic and charitable Space Shuttle Discovery organizations. (April 12-19, 1985), and Vice Chairman, Huntsman Corporation (chemical company). Wayne E. Hedien (70) Trustee Since Retired; Director or 208 Director of The PMI c/o Kramer Levin Naftalis & Frankel LLP September Trustee of the Retail Group Inc. (private Counsel to the Independent Trustees 1997 Funds (since September mortgage insurance); 919 Third Avenue 1997) and the Trustee and Vice New York, NY Institutional Funds Chairman of The Field (since July 2003); Museum of Natural formerly associated with History; director of the Allstate Companies various other (1966-1994), most business and recently as Chairman of charitable The Allstate Corporation organizations. (March 1993-December 1994) and Chairman and Chief Executive Officer of its wholly-owned subsidiary, Allstate Insurance Company (July 1989-December 1994). </Table> 54 <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) OVERSEEN OTHER DIRECTORSHIPS INDEPENDENT TRUSTEE REGISTRANT TIME SERVED* DURING PAST 5 YEARS** BY TRUSTEE*** HELD BY TRUSTEE - --------------------------------------- ----------- ------------ ------------------------- ------------- --------------------- Dr. Manuel H. Johnson (55) Trustee Since Senior Partner, Johnson 208 Director of NVR, Inc. c/o Johnson Smick International, Inc. July 1991 Smick International, (home construction); 2099 Pennsylvania Avenue, N.W. Inc., a consulting firm; Chairman and Trustee Suite 950 Chairman of the Audit of the Financial Washington, D.C. Committee and Director or Accounting Foundation Trustee of the Retail (oversight Funds (since July 1991) organization of the and the Institutional Financial Accounting Funds (since July 2003); Standards Board); Co-Chairman and a founder Director of RBS of the Group of Seven Greenwich Capital Council (G7C), an Holdings (financial international economic holding company). 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 (62) Trustee Since President, Kearns & 209 Director of Electro PMB754 July 2003 Associates LLC Rent Corporation 23852 Pacific Coast Highway (investment consulting); (equipment leasing), Malibu, CA Deputy Chairman of the The Ford Family Audit Committee and Foundation, and the Director or Trustee of UCLA Foundation. the Retail Funds (since July 2003) and the Institutional Funds (since August 1994); previously Chairman of the Audit Committee of the Institutional Funds (October 2001-July 2003); formerly CFO of the J. Paul Getty Trust. Michael E. Nugent (68) Trustee Since General Partner of 208 Director of various c/o Triumph Capital, L.P. July 1991 Triumph Capital, L.P., a business 445 Park Avenue private investment organizations. New York, NY partnership; Chairman of the Insurance Committee and Director or Trustee of the Retail Funds (since July 1991) and the Institutional Funds (since July 2001); formerly Vice President, Bankers Trust Company and BT Capital Corporation (1984-1988). Fergus Reid (72) Trustee Since Chairman of Lumelite 209 Trustee and Director c/o Lumelite Plastics Corporation July 2003 Plastics Corporation; of certain investment 85 Charles Colman Blvd. Chairman of the companies in the Pawling, NY Governance Committee and JPMorgan Funds Director or Trustee of complex managed by the Retail Funds (since J.P. Morgan July 2003) and the Investment Management Institutional Funds Inc. (since June 1992). </Table> 55 <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) OVERSEEN OTHER DIRECTORSHIPS INTERESTED TRUSTEE REGISTRANT TIME SERVED* DURING PAST 5 YEARS** BY TRUSTEE*** HELD BY TRUSTEE - --------------------------------------- ----------- ------------ ------------------------- ------------- --------------------- Charles A. Fiumefreddo (71) Chairman of Since Chairman and Director or 208 None c/o Morgan Stanley Trust the Board July 1991 Trustee of the Retail Harborside Financial Center, and Trustee Funds (since July 1991) Plaza Two, and the Institutional Jersey City, NJ Funds (since July 2003); formerly Chief Executive Officer of the Retail Funds (until September 2002). James F. Higgins (56) Trustee Since Director or Trustee of 208 Director of AXA c/o Morgan Stanley Trust June 2000 the Retail Funds (since Financial, Inc. and Harborside Financial Center, June 2000) and the The Equitable Life Plaza Two, Institutional Funds Assurance Society of Jersey City, NJ (since July 2003); Senior the United States Advisor of Morgan Stanley (financial services). (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). </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. 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.). 56 <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 (51) 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 and Director of the Distributor; Chairman and Director of the Transfer Agent; Director of various Morgan Stanley subsidiaries; President of the Institutional Funds (since July 2003) and President of the Retail Funds (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 (65) Executive Vice Since Principal Executive Officer-Office of the Funds (since 1221 Avenue of the Americas President and April 2003 November 2003); Managing Director of Morgan Stanley & Co. New York, NY Principal Incorporated, Managing Director of Morgan Stanley; Managing Executive Director, Chief Administrative Officer and Director of the Officer Investment Manager and Morgan Stanley Services; Chief Executive Officer and Director of the Transfer Agent; Managing Director and Director of the Distributor; Executive Vice President and Principal Executive Officer of the Institutional Funds (since July 2003) and the Retail Funds (since April 2003); Director of Morgan Stanley SICAV (since May 2004); previously President and Director of the Retail Funds (March 2001-July 2003) and Chief Global Operations Officer and Managing Director of Morgan Stanley Investment Management Inc. Joseph J. McAlinden (61) Vice President Since July 1995 Managing Director and Chief Investment Officer of the 1221 Avenue of the Americas Investment Manager and Morgan Stanley Investment Management New York, NY Inc., 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). Barry Fink (49) Vice President Since General Counsel (since May 2000) and Managing Director 1221 Avenue of the Americas February 1997 (since December 2000) of Morgan Stanley Investment New York, NY Management; Managing Director (since December 2000), Secretary (since February 1997) and Director (since July 1998) of the Investment Manager and Morgan Stanley Services; Vice President of the Retail Funds; Assistant Secretary of Morgan Stanley DW; Vice President of the Institutional Funds (since July 2003); Managing Director, Secretary and Director of the Distributor; previously Secretary (February 1997-July 2003) and General Counsel (February 1997-April 2004) of the Retail Funds; Vice President and Assistant General Counsel of the Investment Manager and Morgan Stanley Services (February 1997-December 2001). Amy R. Doberman (42) Vice President Since July 2004 Managing Director and General Counsel, U.S. Investment 1221 Avenue of the Americas Management; Managing Director of Morgan Stanley Investment New York, NY Management Inc. and the Investment Manager, Vice President of the Institutional and Retail Funds (since July 2004); previously, Managing Director and General Counsel - Americas, UBS Global Asset Management (July 2000 - July 2004) and General Counsel, Aeltus Investment Management, Inc. (January 1997 - July 2000). Carsten Otto (41) Chief Since October Executive Director and U.S. Director of Compliance for 1221 Avenue of the Americas Compliance 2004 Morgan Stanley Investment Management (since October 2004); New York, NY 10020 Officer Executive Director of the Investment Adviser and Morgan Stanley Investment Management Inc.; formerly Assistant Secretary and Assistant General Counsel of the Morgan Stanley Retail Funds. </Table> 57 <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** - ---------------------------- --------------- --------------- ------------------------------------------------------------ Stefanie V. Chang (37) Vice President Since July 2003 Executive Director of Morgan Stanley & Co. Incorporated, 1221 Avenue of the Americas Morgan Stanley Investment Management Inc., and the New York, NY Investment Manager; Vice President of the 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 US LLP). Francis J. Smith (39) Treasurer and Treasurer since Executive Director of the Investment Manager and Morgan c/o Morgan Stanley Trust Chief Financial July 2003 and Stanley Services (since December 2001); previously, Vice Harborside Financial Center, Officer Chief Financial President of the Retail Funds (September 2002-July 2003), Plaza Two, Officer since and Vice President of the Investment Manager and Morgan Jersey City, NJ September 2002 Stanley Services (August 2000-November 2001) and Senior Manager at PricewaterhouseCoopers LLP (January 1998-August 2000). Thomas F. Caloia (58) 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 (37) Secretary Since July 2003 Executive Director of Morgan Stanley & Co. Incorporated, 1221 Avenue of the Americas Morgan Stanley Investment Management Inc. and the Investment New York, NY Manager; Secretary of the 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. 58 <Page> (This page has been left blank intentionally.) <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 Fergus Reid OFFICERS Charles A. Fiumefreddo CHAIRMAN OF THE BOARD Mitchell M. Merin PRESIDENT Ronald E. Robison EXECUTIVE VICE PRESIDENT AND PRINCIPAL EXECUTIVE OFFICER Joseph J. McAlinden VICE PRESIDENT Barry Fink VICE PRESIDENT Amy R. Doberman VICE PRESIDENT Carsten Otto CHIEF COMPLIANCE OFFICER 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 REGISTERED PUBLIC ACCOUNTING FIRM 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) 2004 Morgan Stanley [MORGAN STANLEY LOGO] [GRAPHIC] MORGAN STANLEY FUNDS MORGAN STANLEY INTERNATIONAL FUND ANNUAL REPORT OCTOBER 31, 2004 [MORGAN STANLEY LOGO] 36075RPT-RA04-00910P-Y10/04 <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) The Fund has amended its Code of Ethics during the period covered by the shareholder report presented in Item 1 hereto to delete from the end of the following paragraph on page 2 of the Code the phrase "to the detriment of the Fund": "Each Covered Officer must not use his personal influence or personal relationship improperly to influence investment decisions or financial reporting by the Fund whereby the Covered Officer would benefit personally (directly or indirectly)." (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. <Page> Item 4. Principal Accountant Fees and Services. (a)(b)(c)(d) and (g). Based on fees billed for the periods shown: 2004 <Table> <Caption> REGISTRANT COVERED ENTITIES(1) AUDIT FEES $ 31,217 N/A NON-AUDIT FEES AUDIT-RELATED FEES $ 452 (2) $ 5,067,400 (2) TAX FEES $ 6,084 (3) $ 545,053 (4) ALL OTHER FEES $ - $ - TOTAL NON-AUDIT FEES $ 6,536 $ 5,612,453 TOTAL $ 37,753 $ 5,612,453 </Table> 2003 <Table> <Caption> REGISTRANT COVERED ENTITIES(1) AUDIT FEES $ 29,499 N/A NON-AUDIT FEES AUDIT-RELATED FEES $ 684 (2) $ 1,086,576 (2) TAX FEES $ 5,936 (3) $ 252,500 (4) ALL OTHER FEES $ - $ - (5) TOTAL NON-AUDIT FEES $ 6,620 $ 1,339,076 TOTAL $ 36,119 $ 1,339,076 </Table> N/A- Not applicable, as not required by Item 4. (1) Covered Entities include the Adviser (excluding sub-advisors) and any entity controlling, controlled by or under common control with the Adviser that provides ongoing services to the Registrant. (2) Audit-Related Fees represent assurance and related services provided that are reasonably related to the performance of the audit of the financial statements of the Covered Entities' and funds advised by the Adviser or its affiliates, specifically data verification and agreed-upon procedures related to asset securitizations and agreed-upon procedures engagements. (3) Tax Fees represent tax compliance, tax planning and tax advice services provided in connection with the preparation and review of the Registrant's tax returns. (4) Tax Fees represent tax compliance, tax planning and tax advice services provided in connection with the review of Covered Entities' tax returns. (5) All other fees represent project management for future business applications and improving business and operational processes. <Page> (e)(1) The audit committee's pre-approval policies and procedures are as follows: APPENDIX A AUDIT COMMITTEE AUDIT AND NON-AUDIT SERVICES PRE-APPROVAL POLICY AND PROCEDURES OF THE MORGAN STANLEY RETAIL AND INSTITUTIONAL FUNDS AS ADOPTED AND AMENDED JULY 23, 2004,(1) 1. STATEMENT OF PRINCIPLES The Audit Committee of the Board is required to review and, in its sole discretion, pre-approve all Covered Services to be provided by the Independent Auditors to the Fund and Covered Entities in order to assure that services performed by the Independent Auditors do not impair the auditor's independence from the Fund. The SEC has issued rules specifying the types of services that an independent auditor may not provide to its audit client, as well as the audit committee's administration of the engagement of the independent auditor. The SEC's rules establish two different approaches to pre-approving services, which the SEC considers to be equally valid. Proposed services either: may be pre-approved without consideration of specific case-by-case services by the Audit Committee ("GENERAL PRE-APPROVAL"); or require the specific pre-approval of the Audit Committee or its delegate ("SPECIFIC PRE-APPROVAL"). The Audit Committee believes that the combination of these two approaches in this Policy will result in an effective and efficient procedure to pre-approve services performed by the Independent Auditors. As set forth in this Policy, unless a type of service has received general pre-approval, it will require specific pre-approval by the Audit Committee (or by any member of the Audit Committee to which pre-approval authority has been delegated) if it is to be provided by the Independent Auditors. Any proposed services exceeding pre-approved cost levels or budgeted amounts will also require specific pre-approval by the Audit Committee. The appendices to this Policy describe the Audit, Audit-related, Tax and All Other services that have the general pre-approval of the Audit Committee. The term of any general pre-approval is 12 months from the date of pre-approval, unless the Audit Committee considers and provides a different period and states otherwise. The Audit Committee will annually review and pre-approve the services that may be provided by the Independent Auditors without obtaining specific pre-approval from the Audit Committee. The Audit Committee will add to or subtract from the list of general pre-approved services from time to time, based on subsequent determinations. - ---------- (1) This Audit Committee Audit and Non-Audit Services Pre-Approval Policy and Procedures (the "POLICY"), adopted as of the date above, supersedes and replaces all prior versions that may have been adopted from time to time. <Page> The purpose of this Policy is to set forth the policy and procedures by which the Audit Committee intends to fulfill its responsibilities. It does not delegate the Audit Committee's responsibilities to pre-approve services performed by the Independent Auditors to management. The Fund's Independent Auditors have reviewed this Policy and believes that implementation of the Policy will not adversely affect the Independent Auditors' independence. 2. DELEGATION As provided in the Act and the SEC's rules, the Audit Committee may delegate either type of pre-approval authority to one or more of its members. The member to whom such authority is delegated must report, for informational purposes only, any pre-approval decisions to the Audit Committee at its next scheduled meeting. 3. AUDIT SERVICES The annual Audit services engagement terms and fees are subject to the specific pre-approval of the Audit Committee. Audit services include the annual financial statement audit and other procedures required to be performed by the Independent Auditors to be able to form an opinion on the Fund's financial statements. These other procedures include information systems and procedural reviews and testing performed in order to understand and place reliance on the systems of internal control, and consultations relating to the audit. The Audit Committee will approve, if necessary, any changes in terms, conditions and fees resulting from changes in audit scope, Fund structure or other items. In addition to the annual Audit services engagement approved by the Audit Committee, the Audit Committee may grant general pre-approval to other Audit services, which are those services that only the Independent Auditors reasonably can provide. Other Audit services may include statutory audits and services associated with SEC registration statements (on Forms N-1A, N-2, N-3, N-4, etc.), periodic reports and other documents filed with the SEC or other documents issued in connection with securities offerings. The Audit Committee has pre-approved the Audit services in Appendix B.1. All other Audit services not listed in Appendix B.1 must be specifically pre-approved by the Audit Committee (or by any member of the Audit Committee to which pre-approval has been delegated). 4. AUDIT-RELATED SERVICES Audit-related services are assurance and related services that are reasonably related to the performance of the audit or review of the Fund's financial statements and, to the extent they are Covered Services, the Covered Entities or that are traditionally performed by the Independent Auditors. Because the Audit Committee believes that the provision of Audit-related services does not impair the independence of the auditor and is consistent with the SEC's rules on auditor independence, the Audit Committee may grant general pre-approval to Audit-related services. Audit-related services include, among others, accounting consultations related to accounting, financial reporting or disclosure matters <Page> not classified as "Audit services"; assistance with understanding and implementing new accounting and financial reporting guidance from rulemaking authorities; agreed-upon or expanded audit procedures related to accounting and/or billing records required to respond to or comply with financial, accounting or regulatory reporting matters; and assistance with internal control reporting requirements under Forms N-SAR and/or N-CSR. The Audit Committee has pre-approved the Audit-related services in Appendix B.2. All other Audit-related services not listed in Appendix B.2 must be specifically pre-approved by the Audit Committee (or by any member of the Audit Committee to which pre-approval has been delegated). 5. TAX SERVICES The Audit Committee believes that the Independent Auditors can provide Tax services to the Fund and, to the extent they are Covered Services, the Covered Entities, such as tax compliance, tax planning and tax advice without impairing the auditor's independence, and the SEC has stated that the Independent Auditors may provide such services. Pursuant to the preceding paragraph, the Audit Committee has pre-approved the Tax Services in Appendix B.3. All Tax services in Appendix B.3 must be specifically pre-approved by the Audit Committee (or by any member of the Audit Committee to which pre-approval has been delegated). 6. ALL OTHER SERVICES The Audit Committee believes, based on the SEC's rules prohibiting the Independent Auditors from providing specific non-audit services, that other types of non-audit services are permitted. Accordingly, the Audit Committee believes it may grant general pre-approval to those permissible non-audit services classified as All Other services that it believes are routine and recurring services, would not impair the independence of the auditor and are consistent with the SEC's rules on auditor independence. The Audit Committee has pre-approved the All Other services in Appendix B.4. Permissible All Other services not listed in Appendix B.4 must be specifically pre-approved by the Audit Committee (or by any member of the Audit Committee to which pre-approval has been delegated). 7. PRE-APPROVAL FEE LEVELS OR BUDGETED AMOUNTS Pre-approval fee levels or budgeted amounts for all services to be provided by the Independent Auditors will be established annually by the Audit Committee. Any proposed services exceeding these levels or amounts will require specific pre-approval by the Audit Committee. The Audit Committee is mindful of the overall relationship of fees for audit and non-audit services in determining whether to pre-approve any such services. 8. PROCEDURES All requests or applications for services to be provided by the Independent Auditors that do not require specific approval by the Audit Committee will be submitted to the Fund's Chief Financial Officer and must include a detailed description of the services to be <Page> rendered. The Fund's Chief Financial Officer will determine whether such services are included within the list of services that have received the general pre-approval of the Audit Committee. The Audit Committee will be informed on a timely basis of any such services rendered by the Independent Auditors. Requests or applications to provide services that require specific approval by the Audit Committee will be submitted to the Audit Committee by both the Independent Auditors and the Fund's Chief Financial Officer, and must include a joint statement as to whether, in their view, the request or application is consistent with the SEC's rules on auditor independence. The Audit Committee has designated the Fund's Chief Financial Officer to monitor the performance of all services provided by the Independent Auditors and to determine whether such services are in compliance with this Policy. The Fund's Chief Financial Officer will report to the Audit Committee on a periodic basis on the results of its monitoring. Both the Fund's Chief Financial Officer and management will immediately report to the chairman of the Audit Committee any breach of this Policy that comes to the attention of the Fund's Chief Financial Officer or any member of management. 9. ADDITIONAL REQUIREMENTS The Audit Committee has determined to take additional measures on an annual basis to meet its responsibility to oversee the work of the Independent Auditors and to assure the auditor's independence from the Fund, such as reviewing a formal written statement from the Independent Auditors delineating all relationships between the Independent Auditors and the Fund, consistent with Independence Standards Board No. 1, and discussing with the Independent Auditors its methods and procedures for ensuring independence. 10. COVERED ENTITIES Covered Entities include the Fund's investment adviser(s) and any entity controlling, controlled by or under common control with the Fund's investment adviser(s) that provides ongoing services to the Fund(s). Beginning with non-audit service contracts entered into on or after May 6, 2003, the Fund's audit committee must pre-approve non-audit services provided not only to the Fund but also to the Covered Entities if the engagements relate directly to the operations and financial reporting of the Fund. This list of Covered Entities would include: MORGAN STANLEY RETAIL FUNDS Morgan Stanley Investment Advisors Inc. Morgan Stanley & Co. Incorporated Morgan Stanley DW Inc. Morgan Stanley Investment Management Inc. Morgan Stanley Investment Management Limited Morgan Stanley Investment Management Private Limited Morgan Stanley Asset & Investment Trust Management Co., Limited Morgan Stanley Investment Management Company Van Kampen Asset Management Morgan Stanley Services Company, Inc. Morgan Stanley Distributors Inc. Morgan Stanley Trust FSB <Page> MORGAN STANLEY INSTITUTIONAL FUNDS Morgan Stanley Investment Management Inc. Morgan Stanley Investment Advisors Inc. Morgan Stanley Investment Management Limited Morgan Stanley Investment Management Private Limited Morgan Stanley Asset & Investment Trust Management Co., Limited Morgan Stanley Investment Management Company Morgan Stanley & Co. Incorporated Morgan Stanley Distribution, Inc. Morgan Stanley AIP GP LP Morgan Stanley Alternative Investment Partners LP (e)(2) Beginning with non-audit service contracts entered into on or after May 6, 2003, the audit committee also is required to pre-approve services to Covered Entities to the extent that the services are determined to have a direct impact on the operations or financial reporting of the Registrant. 100% of such services were pre-approved by the audit committee pursuant to the Audit Committee's pre-approval policies and procedures (attached hereto). (f) Not applicable. (g) See table above. (h) The audit committee of the Board of Trustees has considered whether the provision of services other than audit services performed by the auditors to the Registrant and Covered Entities is compatible with maintaining the auditors' independence in performing audit services. Item 5. Audit Committee of Listed Registrants. (a) The Fund has a separately-designated standing audit committee established in accordance with Section 3(a)(58)(A) of the Exchange Act whose members are: Michael Bozic, Edwin J. Garn, Wayne E. Hedien, Manuel H. Johnson, Joseph J. Kearns, Michael Nugent and Fergus Reid. (b) Not applicable. Item 6. Schedule of Investments Refer to Item 1. 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. <Page> Item 8. Closed-End Fund Repurchases Applicable to reports filed by closed-end funds. Item 9. Submission of Matters to a Vote of Security Holders Not applicable. Item 10 - 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. (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 11 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 International Fund /s/ Ronald E. Robison Ronald E. Robison Principal Executive Officer December 14, 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 December 14, 2004 /s/ Francis Smith Francis Smith Principal Financial Officer December 14, 2004