<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, 2005
Date of reporting period: October 31, 2005
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. PLEASE SEE THE PROSPECTUS FOR MORE COMPLETE
INFORMATION ON INVESTMENT RISKS.
<Page>
FUND REPORT
For the year ended October 31, 2005
TOTAL RETURN FOR THE 12 MONTHS ENDED OCTOBER 31, 2005
<Table>
<Caption>
MORGAN
STANLEY
CAPITAL
INTERNA- LIPPER
TIONAL INTERNATIONAL
(MSCI) LARGE-CAP
EAFE CORE FUNDS
CLASS A CLASS B CLASS C CLASS D INDEX(1) INDEX(2)
17.65% 16.88% 16.81% 18.03% 18.09% 17.64%
</Table>
THE PERFORMANCE OF THE FUND'S FOUR SHARE CLASSES VARIES BECAUSE EACH HAS
DIFFERENT EXPENSES. THE FUND'S TOTAL RETURNS ASSUME THE REINVESTMENT OF ALL
DISTRIBUTIONS BUT DO NOT REFLECT THE DEDUCTION OF ANY APPLICABLE SALES CHARGES.
SUCH COSTS WOULD LOWER PERFORMANCE. SEE PERFORMANCE SUMMARY FOR STANDARDIZED
PERFORMANCE AND BENCHMARK INFORMATION.
MARKET CONDITIONS
For the 12-month period ended October 31, 2005, international equity markets (as
measured by the MSCI EAFE Index) gained 15.3 percent in local currency and 18.1
percent in U.S. dollars. Throughout most of the period, monetary tightening in
the United States and high oil prices were a source of concern for the global
markets. More recently, renewed worries about inflation weighed on equities and
bonds.
One developed market that proved somewhat impervious to these factors was Japan,
which charged ahead in the final months of the reporting period. A nascent
recovery in real estate, firming corporate profitability, improved quality of
banks' balance sheets, rising employment and a clear popular mandate for change
were among the factors supporting the surge in Japanese equities. While not
matching the impressive gains of Japan, Europe and the United Kingdom provided
solid returns for the period. Despite pockets of weakness and country-specific
political uncertainty, European economic numbers and business sentiment were
generally better than expected. In contrast, the Asia ex-Japan region lagged,
with Hong Kong and Singapore posting disappointing returns.
The U.S. dollar was strong versus the euro, the U.K. sterling and the Japanese
yen. This dollar strength hurt U.S. dollar-based international investors.
PERFORMANCE ANALYSIS
Morgan Stanley International Fund underperformed the Morgan Stanley Capital
International (MSCI) EAFE Index for the 12 months ended October 31, 2005,
assuming no deduction of applicable sales charges. Class A and Class D shares
outperformed the Lipper International Large-Cap Core Funds Index while Class B
and Class C shares underperformed this Index for the 12 months ended October 31,
2005, assuming no deduction of applicable sales charges. The most significant
positive contributors to the Fund's performance were its overweighted positions
versus the MSCI benchmark in Japan and in Japanese financial stocks. In
contrast, significant detractors were above-benchmark allocations to Germany,
Hong Kong and Singapore.
Our investment strategy during these 12 months was fairly constant. The Fund
maintained overweightings versus the MSCI benchmark in Asia (particularly Japan)
and in the materials and energy sectors. As of the end of the reporting period,
our analysis suggests that
2
<Page>
continued Japanese corporate and fiscal restructuring, strong anticipated
growth from China, and steady U.S. economic growth may help Japanese equities
move higher. In contrast, the Fund was underweighted in both the United Kingdom
and the euro bloc. Although we believe there are many positive fundamentals in
the Europe ex-U.K. region, we are vigilant of the growing potential for policy
error. While the MSCI EAFE Index comprises only developed markets, the Fund
included exposure to emerging markets. At the end of the period, emerging
markets represented approximately 4 percent of assets, with positions in Brazil,
Mexico, Poland, Russia and Turkey.
THERE IS NO GUARANTEE THAT ANY SECTORS MENTIONED WILL CONTINUE TO PERFORM WELL
OR THAT SECURITIES IN SUCH SECTORS WILL BE HELD BY THE FUND IN THE FUTURE.
3
<Page>
TOP 10 HOLDINGS
<Table>
BP PLC 2.0%
Toyota Motor Corp. 2.0
HSBC Holdings PLC 1.4
Mitsubishi UFJ Financial Group, Inc. 1.4
Vodafone Group PLC 1.4
GlaxoSmithKline PLC 1.4
Total S.A. 1.3
Nestle S.A. (Registered Shares) 1.2
Novartis AG (Registered Shares) 1.2
Royal Dutch Shell PLC (A Shares) 1.2
</Table>
TOP FIVE COUNTRIES
<Table>
Japan 30.5%
United Kingdom 20.7
France 7.5
Germany 6.3
Switzerland 5.8
</Table>
DATA AS OF OCTOBER 31, 2005. 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 ADVISER," 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 ALSO REQUEST COPIES OF THESE
MATERIALS, UPON PAYMENT OF A DUPLICATING FEE, BY ELECTRONIC REQUEST AT THE SEC'S
4
<Page>
E-MAIL ADDRESS (publicinfo@sec.gov) OR BY WRITING THE PUBLIC REFERENCE SECTION
OF THE SEC, WASHINGTON, DC 20549-0102.
PROXY VOTING POLICY AND PROCEDURES AND PROXY VOTING RECORD
YOU MAY OBTAIN A COPY OF THE FUND'S PROXY VOTING POLICY AND PROCEDURES WITHOUT
CHARGE, UPON REQUEST, BY CALLING TOLL FREE (800) 869-NEWS OR BY VISITING THE
MUTUAL FUND CENTER ON OUR WEB SITE AT www.morganstanley.com. IT IS ALSO
AVAILABLE ON THE SECURITIES AND EXCHANGE COMMISSION'S WEB SITE AT
http://www.sec.gov.
YOU MAY OBTAIN INFORMATION REGARDING HOW THE FUND VOTED PROXIES RELATING TO
PORTFOLIO SECURITIES DURING THE MOST RECENT TWELVE-MONTH PERIOD ENDED JUNE 30
WITHOUT CHARGE 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.
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.
5
<Page>
PERFORMANCE SUMMARY
[CHART]
PERFORMANCE OF $10,000 INVESTMENT
($ IN THOUSANDS)
<Table>
<Caption>
CLASS A^ CLASS B^ CLASS C^ CLASS D^ MSCI EAFE INDEX(1) LIPPER INT'L LARGE-CAP CORE FUNDS INDEX(2)
--------- --------- --------- --------- ------------------ ------------------------------------------
28-Jun-1999 $ 9,475 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000
31-Jul-1999 $ 9,608 $ 10,130 $ 10,130 $ 10,140 $ 10,243 $ 10,273
31-Oct-1999 $ 10,015 $ 10,550 $ 10,550 $ 10,580 $ 10,773 $ 10,766
31-Jan-2000 $ 10,603 $ 11,140 $ 11,140 $ 11,200 $ 11,375 $ 12,236
30-Apr-2000 $ 10,631 $ 11,150 $ 11,150 $ 11,240 $ 11,496 $ 12,385
31-Jul-2000 $ 10,356 $ 10,850 $ 10,850 $ 10,960 $ 11,165 $ 12,346
31-Oct-2000 $ 9,750 $ 10,190 $ 10,190 $ 10,320 $ 10,461 $ 11,446
31-Jan-2001 $ 9,674 $ 10,089 $ 10,089 $ 10,250 $ 10,421 $ 11,511
30-Apr-2001 $ 9,064 $ 9,435 $ 9,435 $ 9,607 $ 9,622 $ 10,630
31-Jul-2001 $ 8,454 $ 8,781 $ 8,781 $ 8,964 $ 8,741 $ 9,711
31-Oct-2001 $ 7,765 $ 8,042 $ 8,042 $ 8,225 $ 7,853 $ 8,726
31-Jan-2002 $ 7,599 $ 7,862 $ 7,862 $ 8,066 $ 7,755 $ 8,754
30-Apr-2002 $ 8,164 $ 8,422 $ 8,432 $ 8,664 $ 8,287 $ 9,387
31-Jul-2002 $ 7,235 $ 7,451 $ 7,461 $ 7,682 $ 7,262 $ 8,209
31-Oct-2002 $ 6,761 $ 6,944 $ 6,955 $ 7,181 $ 6,815 $ 7,789
31-Jan-2003 $ 6,506 $ 6,680 $ 6,682 $ 6,918 $ 6,598 $ 7,495
30-Apr-2003 $ 6,731 $ 6,892 $ 6,904 $ 7,157 $ 6,939 $ 7,817
31-Jul-2003 $ 7,354 $ 7,514 $ 7,517 $ 7,817 $ 7,720 $ 8,659
31-Oct-2003 $ 8,202 $ 8,369 $ 8,374 $ 8,737 $ 8,658 $ 9,564
31-Jan-2004 $ 9,102 $ 9,263 $ 9,271 $ 9,694 $ 9,677 $ 10,635
30-Apr-2004 $ 9,082 $ 9,231 $ 9,249 $ 9,683 $ 9,730 $ 10,553
31-Jul-2004 $ 8,947 $ 9,072 $ 9,090 $ 9,541 $ 9,653 $ 10,285
31-Oct-2004 $ 9,505 $ 9,613 $ 9,632 $ 10,133 $ 10,289 $ 11,004
31-Jan-2005 $ 10,295 $ 10,395 $ 10,408 $ 10,982 $ 11,263 $ 11,952
30-Apr-2005 $ 10,190 $ 10,278 $ 10,291 $ 10,882 $ 11,185 $ 11,879
31-Jul-2005 $ 10,577 $ 10,650 $ 10,664 $ 11,315 $ 11,687 $ 12,472
31-Oct-2005 $ 11,183 $ 11,236 $ 11,251 $ 11,960 $ 12,150 $ 12,945
</Table>
6
<Page>
AVERAGE ANNUAL TOTAL RETURNS--PERIOD ENDED OCTOBER 31, 2005
<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 17.65%(3) 16.88%(3) 16.81%(3) 18.03%(3)
11.48(4) 11.88(4) 15.81(4) --
5 YEARS 2.78(3) 1.97(3) 2.00(3) 2.99(3)
1.68(4) 1.60(4) 2.00(4) --
SINCE INCEPTION 2.65(3) 1.85(3) 1.88(3) 2.86(3)
1.78(4) 1.85(4) 1.88(4) --
</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 most recent month-end performance figures, please visit
www.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.
(3) FIGURE SHOWN ASSUMES REINVESTMENT OF ALL DISTRIBUTIONS AND DOES NOT REFLECT
THE DEDUCTION OF ANY SALES CHARGES.
(4) FIGURE SHOWN ASSUMES REINVESTMENT OF ALL DISTRIBUTIONS AND THE DEDUCTION OF
THE MAXIMUM APPLICABLE SALES CHARGE. SEE THE FUND'S CURRENT PROSPECTUS FOR
COMPLETE DETAILS ON FEES AND SALES CHARGES.
^ ENDING VALUE ASSUMING A COMPLETE REDEMPTION ON OCTOBER 31, 2005.
7
<Page>
EXPENSE EXAMPLE
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, including sales charges (loads) on purchase payments and redemption fees;
and (2) ongoing costs, including advisory 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 05/01/05 - 10/31/05.
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 and do not reflect any transactional costs, such as sales
charges (loads) and redemption fees. 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. In addition, if these transactional costs
were included, your costs would have been higher.
<Table>
<Caption>
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD *
------------- ------------- ---------------
05/01/05 -
05/01/05 10/31/05 10/31/05
------------- ------------- ---------------
CLASS A
Actual (9.74% return) $ 1,000.00 $ 1,097.40 $ 7.03
Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,018.50 $ 6.77
CLASS B
Actual (9.33% return) $ 1,000.00 $ 1,093.30 $ 10.97
Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,014.72 $ 10.56
CLASS C
Actual (9.34% return) $ 1,000.00 $ 1,093.40 $ 10.98
Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,014.72 $ 10.56
CLASS D
Actual (9.91% return) $ 1,000.00 $ 1,099.10 $ 5.71
Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,019.76 $ 5.50
</Table>
- ----------
* EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO OF 1.33%, 2.08%,
2.08% AND 1.08% FOR CLASS A, CLASS B, CLASS C AND CLASS D SHARES,
RESPECTIVELY, MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD,
MULTIPLIED BY 184/365 (TO REFLECT THE ONE-HALF YEAR PERIOD).
8
<Page>
MORGAN STANLEY INTERNATIONAL FUND
PORTFOLIO OF INVESTMENTS - OCTOBER 31, 2005
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------
COMMON STOCKS (97.4%)
AUSTRALIA^ (3.8%)
ALUMINUM
63,489 Alumina Ltd. $ 275,331
---------------
BEVERAGES: ALCOHOLIC
53,861 Foster's Group Ltd. 234,060
---------------
BEVERAGES: NON-ALCOHOLIC
13,775 Coca-Cola Amatil Ltd. 78,852
---------------
BIOTECHNOLOGY
2,542 CSL Ltd. 71,508
---------------
BUILDING PRODUCTS
52,983 CSR Ltd. 116,103
---------------
CASINO/GAMING
10,705 TABCORP Holdings Ltd. 128,318
---------------
CHEMICALS: MAJOR DIVERSIFIED
15,675 Orica Ltd. 225,068
---------------
CONSTRUCTION MATERIALS
32,661 Boral Ltd. 185,363
26,116 James Hardie Industries NV 166,501
52,107 Rinker Group Ltd. 591,321
---------------
943,185
---------------
CONTAINERS/PACKAGING
49,299 Amcor Ltd. 247,421
---------------
ENGINEERING & CONSTRUCTION
6,362 Leighton Holdings Ltd. 72,756
---------------
FINANCIAL CONGLOMERATES
35,087 AMP Ltd. 191,871
5,514 Macquarie Bank Ltd. 268,002
14,549 Suncorp-Metway Ltd. 210,297
---------------
670,170
---------------
FOOD RETAIL
28,340 Coles Myer Ltd. 212,982
26,481 Woolworths Ltd. 323,851
---------------
536,833
---------------
GAS DISTRIBUTORS
12,269 Australian Gas Light Co. Ltd. 139,228
139,194 Origin Energy Ltd. 699,806
---------------
839,034
---------------
HOSPITAL/NURSING MANAGEMENT
23,756 Mayne Group Ltd. $ 92,920
---------------
INDUSTRIAL CONGLOMERATES
4,915 Ansell Ltd. 38,787
9,914 Wesfarmers Ltd. 265,413
---------------
304,200
---------------
INVESTMENT TRUSTS/MUTUAL FUNDS
59,709 Macquarie Infrastructure Group
(Stapled Securities)** 153,692
---------------
MAJOR BANKS
38,149 Australia and New Zealand
Banking Group Ltd. 673,825
31,523 Commonwealth
Bank of Australia 918,102
42,208 National Australia Bank Ltd. 1,044,598
44,581 Westpac Banking Corp. 693,614
---------------
3,330,139
---------------
MAJOR TELECOMMUNICATIONS
56,951 Telstra Corp., Ltd. 179,211
---------------
MEDICAL/NURSING SERVICES
3,619 Sonic Healthcare Ltd. 39,690
---------------
MISCELLANEOUS COMMERCIAL
SERVICES
26,119 Brambles Industries Ltd. 165,603
---------------
MULTI-LINE INSURANCE
44,840 Insurance Australia
Group Ltd. 174,284
---------------
OIL & GAS PRODUCTION
104,256 Santos Ltd. 855,028
83,179 Woodside Petroleum Ltd. 1,965,861
---------------
2,820,889
---------------
OTHER METALS/MINERALS
196,302 BHP Billiton Ltd. 3,047,324
17,027 Rio Tinto Ltd. 719,419
---------------
3,766,743
---------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
9
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------
OTHER TRANSPORTATION
24,582 Patrick Corp., Ltd. $ 125,998
14,956 Transurban Group 71,790
---------------
197,788
---------------
PRECIOUS METALS
18,184 Newcrest Mining Ltd. 248,523
---------------
PROPERTY - CASUALTY INSURERS
18,321 QBE Insurance Group Ltd. 244,795
---------------
PUBLISHING: NEWSPAPERS
26,471 John Fairfax Holdings Ltd. 81,746
---------------
PULP & PAPER
25,238 PaperlinX Ltd. 58,174
---------------
REAL ESTATE DEVELOPMENT
11,181 Lend Lease Corp., Ltd. 114,242
---------------
REAL ESTATE INVESTMENT TRUSTS
28 Stockland* 127
1,272 Stockland (Stapled
Securities)** 5,826
---------------
5,953
---------------
STEEL
40,111 Blue Scope Steel Ltd. 254,886
31,092 OneSteel Ltd. 82,239
---------------
337,125
---------------
TOTAL AUSTRALIA 16,754,356
---------------
AUSTRIA^ (0.9%)
BUILDING PRODUCTS
3,760 Wienerberger AG 145,376
---------------
CONSTRUCTION MATERIALS
1,538 RHI AG* 42,665
---------------
ELECTRIC UTILITIES
688 Oesterreichische
Elektrizitaetswirtschafts AG
(Verbund) (A Shares) 219,368
---------------
MAJOR BANKS
3,161 Bank Austria Creditanstalt 347,309
18,408 Erste Bank der
Oesterreichischen
Sparkassen AG 957,218
---------------
1,304,527
---------------
MAJOR TELECOMMUNICATIONS
28,092 Telekom Austria AG $ 580,222
---------------
OIL REFINING/MARKETING
17,611 OMV AG 950,528
---------------
OTHER TRANSPORTATION
1,083 Flughafen Wien AG 70,108
---------------
REAL ESTATE DEVELOPMENT
32,634 Immofinanz Immobilien
Anlagen AG* 315,667
---------------
STEEL
392 Boehler-Uddeholm AG 59,421
747 Voestalpine AG 62,231
---------------
121,652
---------------
TOTAL AUSTRIA 3,750,113
---------------
BELGIUM^ (0.9%)
CHEMICALS: SPECIALTY
2,374 Solvay S.A. (A Shares) 276,324
---------------
ELECTRIC UTILITIES
820 Electrabel S.A. 405,787
---------------
ELECTRONIC EQUIPMENT/
INSTRUMENTS
2,712 Agfa Gevaert NV 58,420
---------------
FINANCIAL CONGLOMERATES
58,137 Fortis 1,655,147
---------------
MAJOR BANKS
32,803 Dexia 708,560
4,510 KBC GROEP NV 367,450
---------------
1,076,010
---------------
MAJOR TELECOMMUNICATIONS
5,240 Belgacom S.A. 175,723
---------------
METAL FABRICATIONS
283 Bekaert NV 23,558
---------------
OTHER METALS/MINERALS
856 Umicore 85,679
---------------
PHARMACEUTICALS: OTHER
4,505 UCB S.A. 222,615
---------------
TOTAL BELGIUM 3,979,263
---------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
10
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------
BERMUDA^ (0.1%)
APPAREL/FOOTWEAR
54,000 Yue Yuen Industrial
(Holdings) Ltd. $ 136,342
---------------
CONSTRUCTION MATERIALS
56,000 Cheung Kong Infrastructure
Holdings Ltd. 174,425
---------------
TOTAL BERMUDA 310,767
---------------
BRAZIL (0.0%)
BEVERAGES: ALCOHOLIC
112,339 Companhia de Bebidas das
Americas 31,679
---------------
STEEL
2,604 Companhia Siderurgica
Nacional S.A. 50,015
---------------
TOBACCO
3,000 Souza Cruz S.A. 35,572
---------------
TOTAL BRAZIL 117,266
---------------
CAYMAN ISLANDS^ (0.1%)
INDUSTRIAL SPECIALTIES
51,000 Kingboard Chemical
Holdings Ltd. 108,270
---------------
MAJOR TELECOMMUNICATIONS
148,000 Hutchison Telecommunications
International Ltd.* 187,502
---------------
TOTAL CAYMAN ISLANDS 295,772
---------------
DENMARK^ (0.7%)
BIOTECHNOLOGY
1,950 Novozymes A/S (B Shares) 101,979
---------------
ELECTRICAL PRODUCTS
7,600 Vestas Wind Systems A/S* 164,598
---------------
MAJOR BANKS
29,244 Danske Bank A/S 917,310
---------------
MAJOR TELECOMMUNICATIONS
8,500 TDC A/S 475,980
---------------
MARINE SHIPPING
55 A P Moller - Maersk A/S $ 497,515
---------------
PHARMACEUTICALS: MAJOR
11,850 Novo Nordisk A/S (Series B) 608,723
---------------
TELECOMMUNICATION EQUIPMENT
15,500 GN Store Nord A/S 186,691
---------------
TRUCKING
1,000 DSV A/S 97,488
---------------
TOTAL DENMARK 3,050,284
---------------
FINLAND^ (1.4%)
BUILDING PRODUCTS
1,348 Uponor Oyj 29,070
---------------
ENGINEERING & CONSTRUCTION
1,749 Kone Oyj (B Shares)* 117,882
---------------
FOOD RETAIL
13,310 Kesko Oyj (B Shares) 365,924
---------------
INDUSTRIAL MACHINERY
9,688 Metso Oyj 252,216
---------------
INFORMATION TECHNOLOGY
SERVICES
6,820 TietoEnator Oyj 216,524
---------------
MARINE SHIPPING
1,749 Cargotec Corp. (B Shares)* 51,763
---------------
MULTI-LINE INSURANCE
15,210 Sampo Oyj (A Shares) 233,294
---------------
OIL REFINING/MARKETING
14,253 Fortum Oyj 252,354
---------------
OTHER METALS/MINERALS
8,878 Outokumpu Oyj 113,985
---------------
PULP & PAPER
21,623 Stora Enso Oyj
(Registered Shares) 276,839
19,009 UPM-Kymmene Oyj 367,109
---------------
643,948
---------------
SPECIALTY STORES
4,513 Neste Oil Oyj* 140,000
---------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
11
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------
TELECOMMUNICATION EQUIPMENT
218,080 Nokia Oyj $ 3,659,863
---------------
TRUCKS/CONSTRUCTION/FARM
MACHINERY
2,118 Wartsila Oyj (B Shares) 58,780
---------------
TOTAL FINLAND 6,135,603
---------------
FRANCE^ (7.5%)
ADVERTISING/MARKETING SERVICES
3,041 Publicis Groupe 100,613
---------------
AEROSPACE & DEFENSE
4,996 Thales S.A. 215,247
464 Zodiac S.A. 25,283
---------------
240,530
---------------
APPAREL/FOOTWEAR
322 Hermes International 72,268
7,574 LVMH Moet Hennessy
Louis Vuitton S.A. 613,331
---------------
685,599
---------------
AUTO PARTS: O.E.M.
3,643 Valeo S.A. 136,471
---------------
AUTOMOTIVE AFTERMARKET
3,287 Compagnie Generale des
Etablissements Michelin
(B Shares) 177,396
---------------
BROADCASTING
3,747 Societe Television Francaise 1 96,077
---------------
BUILDING PRODUCTS
12,512 Compagnie de Saint-Gobain 685,441
---------------
CHEMICALS: SPECIALTY
3,845 L'Air Liquide S.A. 699,304
---------------
CONSTRUCTION MATERIALS
13,159 Bouygues S.A. 649,423
1,272 Imerys S.A. 87,979
5,985 Lafarge S.A. 492,258
---------------
1,229,660
---------------
DATA PROCESSING SERVICES
757 Atos Origin S.A.* 52,063
---------------
DEPARTMENT STORES
1,949 PPR S.A. $ 204,777
---------------
ELECTRIC UTILITIES
27,639 Suez S.A. 748,384
---------------
ELECTRICAL PRODUCTS
4,597 Alstom* 220,236
8,687 Schneider Electric S.A. 713,383
---------------
933,619
---------------
ELECTRONICS/APPLIANCES
7,551 Thomson 142,383
---------------
ENGINEERING & CONSTRUCTION
5,727 Vinci S.A. 447,373
---------------
FOOD DISTRIBUTORS
6,156 Sodexho Alliance S.A. 239,545
---------------
FOOD RETAIL
17,856 Carrefour S.A. 793,714
2,353 Casino Guichard Perrachon 160,770
---------------
954,484
---------------
FOOD: MAJOR DIVERSIFIED
7,724 Groupe Danone 784,481
---------------
HOTELS/RESORTS/CRUISELINES
11,955 Accor S.A. Ltd. 596,706
---------------
INFORMATION TECHNOLOGY
SERVICES
5,810 CapGemini S.A.* 213,476
---------------
INTEGRATED OIL
22,549 Total S.A. 5,678,784
---------------
INTERNET SOFTWARE/SERVICES
2,289 Business Objects S.A.* 78,447
---------------
LIFE/HEALTH INSURANCE
3,819 CNP Assurances 265,704
---------------
MAJOR BANKS
41,066 BNP Paribas S.A. 3,113,796
16,197 Societe Generale 1,849,477
---------------
4,963,273
---------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
12
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------
MAJOR TELECOMMUNICATIONS
58,736 France Telecom S.A. $ 1,527,004
---------------
MEDIA CONGLOMERATES
27,300 Vivendi Universal S.A. 857,933
---------------
MEDICAL SPECIALTIES
1,666 Essilor International S.A. 137,137
---------------
MOTOR VEHICLES
3,743 PSA Peugeot Citroen 227,276
3,853 Renault S.A. 333,484
---------------
560,760
---------------
MULTI-LINE INSURANCE
91,617 Axa 2,653,592
---------------
OFFICE EQUIPMENT/SUPPLIES
1,650 Neopost S.A. 159,213
---------------
OILFIELD SERVICES/EQUIPMENT
1,080 Technip S.A. 58,811
---------------
OTHER CONSUMER SPECIALTIES
302 Societe BIC S.A. 17,154
---------------
OTHER TRANSPORTATION
3,764 Autoroutes du Sud de la France 210,002
---------------
PACKAGED SOFTWARE
2,132 Dassault Systemes S.A. 109,962
---------------
PHARMACEUTICALS: MAJOR
42,238 Sanofi-Aventis 3,382,392
---------------
PUBLISHING: BOOKS/MAGAZINES
4,369 Lagardere S.C.A. 300,215
---------------
REAL ESTATE DEVELOPMENT
2,217 Gecina S.A. 245,006
1,869 Klepierre 175,192
3,023 Unibail 399,343
---------------
819,541
---------------
REGIONAL BANKS
18,777 Credit Agricole S.A. 550,388
---------------
TELECOMMUNICATION EQUIPMENT
58,772 Alcatel S.A.* 689,845
2,685 Safran S.A. 53,427
---------------
743,272
---------------
WATER UTILITIES
5,984 Veolia Environnement $ 249,523
---------------
TOTAL FRANCE 32,691,489
---------------
GERMANY^ (6.2%)
AIR FREIGHT/COURIERS
24,860 Deutsche Post AG
(Registered Shares) 554,161
---------------
AIRLINES
9,924 Deutsche Lufthansa AG
(Registered Shares) 132,709
---------------
APPAREL/FOOTWEAR
1,513 Adidas-Salomon AG 253,782
502 Puma AG 127,122
---------------
380,904
---------------
AUTO PARTS: O.E.M.
2,689 Continental AG 205,556
---------------
CHEMICALS: MAJOR DIVERSIFIED
19,016 BASF AG 1,371,026
23,067 Bayer AG 801,001
---------------
2,172,027
---------------
CHEMICALS: SPECIALTY
3,208 Linde AG 228,565
---------------
DEPARTMENT STORES
593 KarstadtQuelle AG* 6,992
5,916 Metro AG 269,097
---------------
276,089
---------------
ELECTRIC UTILITIES
22,387 E.ON AG 2,028,888
13,331 RWE AG 851,520
---------------
2,880,408
---------------
ELECTRONIC COMPONENTS
2,245 Epcos AG* 27,094
---------------
ELECTRONIC EQUIPMENT/
INSTRUMENTS
850 Wincor Nixdorf AG 74,805
---------------
FINANCIAL CONGLOMERATES
8,394 Hypo Real Estate Holding AG 405,733
---------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
13
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------
HOUSEHOLD/PERSONAL CARE
1,721 Beiersdorf AG $ 185,908
---------------
INDUSTRIAL CONGLOMERATES
4,653 MAN AG 216,048
32,788 Siemens AG (Registered
Shares) 2,438,683
13,020 ThyssenKrupp AG 264,402
---------------
2,919,133
---------------
INVESTMENT BANKS/BROKERS
9,677 Deutsche Boerse AG 910,607
---------------
MAJOR BANKS
36,991 Bayerische Hypo - und
Vereinsbank AG* 1,033,616
44,366 Commerzbank AG 1,161,037
30,657 Deutsche Bank AG
(Registered Shares) 2,871,628
---------------
5,066,281
---------------
MAJOR TELECOMMUNICATIONS
128,581 Deutsche Telekom AG
(Registered Shares) 2,273,438
---------------
MEDICAL DISTRIBUTORS
1,657 Celesio AG 143,226
---------------
MEDICAL/NURSING SERVICES
2,949 Fresenius Medical Care AG 265,332
---------------
MOTOR VEHICLES
18,445 DaimlerChrysler AG
(Registered Shares) 923,511
4,810 Volkswagen AG 262,085
---------------
1,185,596
---------------
MULTI-LINE INSURANCE
23,417 Allianz AG (Registered Shares) 3,307,766
5,672 Muenchener Rueckver AG
(Registered Shares) 666,327
---------------
3,974,093
---------------
OTHER CONSUMER SERVICES
8,432 TUI AG 163,850
---------------
PACKAGED SOFTWARE
8,217 SAP AG 1,404,999
---------------
PHARMACEUTICALS: MAJOR
2,878 Merck KGaA $ 238,147
7,989 Schering AG 493,647
---------------
731,794
---------------
PHARMACEUTICALS: OTHER
4,101 Altana AG 231,047
---------------
SEMICONDUCTORS
13,778 Infineon Technologies AG* 128,842
---------------
SPECIALTY STORES
871 Douglas Holding AG 33,092
---------------
TOTAL GERMANY 26,955,289
---------------
GREECE^ (0.3%)
CASINO/GAMING
9,500 Greek Organization of Football
Prognostics S.A. 274,522
---------------
CONSTRUCTION MATERIALS
2,100 Titan Cement Co. 71,845
---------------
MAJOR BANKS
11,981 National Bank of Greece S.A. 467,904
---------------
REGIONAL BANKS
9,428 Alpha Bank A.E. 270,693
5,516 EFG Eurobank Ergasias 166,048
---------------
436,741
---------------
TOTAL GREECE 1,251,012
---------------
HONG KONG^ (3.7%)
AIRLINES
113,000 Cathay Pacific Airways Ltd. 177,492
---------------
APPAREL/FOOTWEAR RETAIL
108,500 Esprit Holdings Ltd. 766,273
---------------
BROADCASTING
31,000 Television Broadcasts Ltd. 172,403
---------------
ELECTRIC UTILITIES
184,300 CLP Holdings Ltd. 1,058,028
157,500 Hong Kong Electric
Holdings Ltd. 744,600
---------------
1,802,628
---------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
14
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------
ELECTRONIC PRODUCTION
EQUIPMENT
3,000 ASM Pacific Technology Ltd. $ 13,923
---------------
ENGINEERING & CONSTRUCTION
69,000 Hopewell Holdings Ltd. 168,613
253,447 New World Development
Co., Ltd. 313,295
---------------
481,908
---------------
FINANCIAL CONGLOMERATES
141,000 Wharf (Holdings) Ltd. (The) 482,243
---------------
GAS DISTRIBUTORS
442,483 Hong Kong & China Gas
Co., Ltd. 914,131
---------------
HOTELS/RESORTS/CRUISELINES
112,642 Shangri-La Asia Ltd. 158,062
---------------
INDUSTRIAL CONGLOMERATES
237,900 Hutchison Whampoa Ltd. 2,257,982
97,000 Swire Pacific Ltd. (Class A) 871,169
---------------
3,129,151
---------------
INVESTMENT BANKS/BROKERS
117,000 Hong Kong Exchanges &
Clearing Ltd. 391,998
---------------
MAJOR BANKS
181,687 Bank of East Asia, Ltd. (The) 531,713
413,500 BOC Hong Kong (Holdings) Ltd. 772,091
77,100 Hang Seng Bank Ltd. 1,000,215
---------------
2,304,019
---------------
MAJOR TELECOMMUNICATIONS
409,611 PCCW Ltd. 251,536
---------------
MISCELLANEOUS MANUFACTURING
175,500 Johnson Electric Holdings Ltd. 158,742
---------------
PUBLISHING: NEWSPAPERS
24,000 SCMP Group Ltd. 8,912
---------------
RAILROADS
154,801 MTR Corp., Ltd. 293,005
---------------
REAL ESTATE DEVELOPMENT
177,000 Cheung Kong (Holdings) Ltd. $ 1,846,676
215,000 Hang Lung Properties Ltd. 309,232
77,000 Henderson Land Development
Co., Ltd. 343,971
71,577 Hysan Development Co., Ltd. 155,565
33,249 Kerry Properties Ltd. 83,385
142,948 Sino Land Co., Ltd. 158,963
142,000 Sun Hung Kai Properties Ltd. 1,346,023
---------------
4,243,815
---------------
TOOLS/HARDWARE
99,000 Techtronic Industries Co., Ltd. 244,260
---------------
WHOLESALE DISTRIBUTORS
180,000 Li & Fung Ltd. 385,260
---------------
TOTAL HONG KONG 16,379,761
---------------
IRELAND^ (0.5%)
CONSTRUCTION MATERIALS
19,292 CRH PLC 482,993
---------------
FINANCIAL CONGLOMERATES
2,000 Irish Life & Permanent PLC 35,245
---------------
INDUSTRIAL CONGLOMERATES
1,450 DCC PLC 26,937
---------------
MAJOR BANKS
38,727 Allied Irish Banks PLC 816,762
45,092 Bank of Ireland 682,642
---------------
1,499,404
---------------
PHARMACEUTICALS: OTHER
16,100 Elan Corporation PLC* 132,096
---------------
PUBLISHING: NEWSPAPERS
11,500 Independent News &
Media PLC 31,160
---------------
WHOLESALE DISTRIBUTORS
11,350 Grafton Group PLC (Units)+* 111,827
---------------
TOTAL IRELAND 2,319,662
---------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
15
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------
ITALY^ (1.3%)
AEROSPACE & DEFENSE
7,157 Finmeccanica SpA $ 130,173
---------------
APPAREL/FOOTWEAR
1,582 Benetton Group SpA 16,727
---------------
BROADCASTING
7,130 Mediaset SpA 78,308
---------------
COMMERCIAL PRINTING/FORMS
37,044 Seat Pagine Gialle SpA* 17,202
---------------
CONSTRUCTION MATERIALS
873 Italcementi SpA 14,316
---------------
CONSUMER SUNDRIES
2,882 Luxottica Group SpA 69,732
---------------
ELECTRIC UTILITIES
26,802 Enel SpA 216,282
---------------
FINANCIAL CONGLOMERATES
1,412 Banca Fideuram SpA 7,628
61,006 Pirelli & C. SpA 54,210
---------------
61,838
---------------
INTEGRATED OIL
80,476 ENI SpA 2,152,754
---------------
INVESTMENT BANKS/BROKERS
2,393 Mediobanca SpA 42,380
---------------
LIFE/HEALTH INSURANCE
4,754 Alleanza Assicurazioni SpA 54,899
8,041 Assicurazioni Generali SpA 239,222
2,246 Mediolanum SpA 14,222
---------------
308,343
---------------
MAJOR BANKS
66,010 Banca Intesa SpA 308,289
3,712 Banca Intesa SpA - RNC 16,079
2,686 Banca Monte dei Paschi di
Siena SpA 12,199
5,768 Banca Nazionale del
Lavoro SpA* 18,598
27,670 SanPaolo IMI SpA 399,134
81,946 UniCredito Italiano SpA 457,643
---------------
1,211,942
---------------
MAJOR TELECOMMUNICATIONS
243,558 Telecom Italia SpA $ 704,694
139,445 Telecom Italia SpA - RNC 337,062
---------------
1,041,756
---------------
MOTOR VEHICLES
6,586 Fiat SpA* 53,588
---------------
MULTI-LINE INSURANCE
2,872 Riunione Adriatica di
Sicurta SpA 65,314
---------------
OIL & GAS PIPELINES
4,486 Snam Rete Gas SpA 24,633
---------------
OTHER TRANSPORTATION
7,935 Autostrade SpA 181,528
---------------
REGIONAL BANKS
1,034 Banca Popolare di Milano 9,851
6,590 Banco Popolare di Verona e
Novara 121,628
---------------
131,479
---------------
RESTAURANTS
3,967 Autogrill SpA 54,151
---------------
SPECIALTY TELECOMMUNICATIONS
3,531 Tiscali SpA* 12,270
---------------
TOTAL ITALY 5,884,716
---------------
JAPAN^ (30.5%)
ADVERTISING/MARKETING SERVICES
2,450 Asatsu - DK Inc. 77,669
---------------
AGRICULTURAL COMMODITIES/
MILLING
11,000 Nisshin Seifun Group Inc. 111,955
---------------
AIR FREIGHT/COURIERS
50,500 Nippon Express Co., Ltd. 277,391
17,035 Yamato Transport Co., Ltd. 281,205
---------------
558,596
---------------
AIRLINES
54,000 Japan Airlines Corp. 142,002
---------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
16
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------
APPAREL/FOOTWEAR
10,546 Onward Kashiyama Co., Ltd. $ 168,690
4,000 Wacoal Corp. 56,673
---------------
225,363
---------------
APPAREL/FOOTWEAR RETAIL
5,000 Fast Retailing Co., Ltd. 352,467
1,600 Shimamura Co., Ltd. 205,995
---------------
558,462
---------------
AUTO PARTS: O.E.M.
40,600 Denso Corporation 1,158,890
14,059 NGK Spark Plug Co., Ltd. 226,471
2,000 Sanden Corp. 10,065
4,400 Stanley Electric Co., Ltd. 67,885
800 Toyoda Gosei Co., Ltd. 14,991
6,050 Toyota Industries Corp. 203,649
---------------
1,681,951
---------------
AUTOMOTIVE AFTERMARKET
56,000 Bridgestone Corp. 1,146,461
---------------
BEVERAGES: ALCOHOLIC
24,300 Asahi Breweries, Ltd. 303,683
54,051 Kirin Brewery Co., Ltd. 598,696
14,000 Sapporo Holdings, Ltd. 69,179
9,000 Takara Holdings Inc. 53,257
---------------
1,024,815
---------------
BEVERAGES: NON-ALCOHOLIC
1,100 Coca-Cola West Japan
Co., Ltd. 24,392
1,500 ITO EN, Ltd. 72,171
---------------
96,563
---------------
BROADCASTING
27 Fuji Television Network, Inc. 60,127
6,500 Tokyo Broadcasting
System, Inc. 183,987
---------------
244,114
---------------
BUILDING PRODUCTS
14,762 JS Group Corp. 250,630
25,000 Nippon Sheet Glass
Company, Ltd. 106,860
28,500 Toto Ltd. 218,211
---------------
575,701
---------------
CHEMICALS: AGRICULTURAL
8,500 Nissan Chemical
Industries, Ltd. $ 98,613
---------------
CHEMICALS: MAJOR DIVERSIFIED
70,000 Asahi Kasei Corp. 375,440
18,000 Ishihara Sangyo Kaisha, Ltd. 34,403
49,250 Mitsubishi Chemical Corp.* 306,384
---------------
716,227
---------------
CHEMICALS: SPECIALTY
12,000 Daicel Chemical Industries, Ltd. 77,695
42,588 Dainippon Ink & Chemicals, Inc. 127,163
28,546 Denki Kagaku Kogyo
Kabushiki Kaisha 104,528
9,108 JSR Corp. 214,530
15,000 Kaneka Corp. 185,447
21,056 Kuraray Co., Ltd. 199,891
34,599 Mitsubishi Rayon Co., Ltd. 160,747
30,500 Mitsui Chemicals, Inc. 182,571
22,397 Shin-Etsu Chemical Co., Ltd. 1,078,241
36,000 Showa Denko K.K. 115,729
9,000 Sumitomo Bakelite Co., Ltd. 59,652
78,000 Sumitomo Chemical Co., Ltd. 460,594
32,500 Tosoh Corp. 144,513
---------------
3,111,301
---------------
COMMERCIAL PRINTING/FORMS
25,000 Dai Nippon Printing Co., Ltd. 408,463
26,000 Toppan Printing Co., Ltd. 251,311
---------------
659,774
---------------
COMPUTER PROCESSING HARDWARE
102,000 Fujitsu Ltd. 676,253
---------------
CONSTRUCTION MATERIALS
32,000 Taiheyo Cement Corp. 116,051
---------------
CONTAINERS/PACKAGING
11,417 Toyo Seikan Kaisha, Ltd. 161,220
---------------
DEPARTMENT STORES
17,000 Daimaru, Inc. (The) 208,181
6,000 Hankyu Department
Stores, Inc. 47,809
11,814 Isetan Co., Ltd. 211,880
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
17
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------
25,207 Marui Co., Ltd. $ 418,083
26,716 Mitsukoshi, Ltd. 116,295
22,040 Takashimaya Co., Ltd. 295,053
---------------
1,297,301
---------------
ELECTRIC UTILITIES
25,900 Chubu Electric Power Co., Inc. 642,731
39,700 Kansai Electric Power Co.,
Inc. (The) 873,239
15,500 Kyushu Electric Power Co., Inc. 332,393
29,600 Tohoku Electric Power Co., Inc. 603,834
46,500 Tokyo Electric Power Co.,
Inc. (The) 1,156,000
---------------
3,608,197
---------------
ELECTRICAL PRODUCTS
10,000 Fuji Electric Holdings Co., Ltd. 44,717
14,000 Fujikura Ltd. 90,767
37,500 Furukawa Electric Co.,
Ltd. (The)* 179,279
1,800 Mabuchi Motor Co., Ltd. 87,626
18,000 Matsushita Electric Works, Ltd. 168,664
22,560 NGK Insulators, Ltd. 268,698
2,504 Nidec Corp. 146,597
2,704 Nidec Corp. (Bonus
Shares) (WI)* 149,861
39,600 Sumitomo Electric
Industries, Ltd. 522,356
2,000 Ushio Inc. 37,230
---------------
1,695,795
---------------
ELECTRONIC COMPONENTS
10,600 Alps Electric Co., Ltd. 168,413
17,500 Citizen Watch Co., Ltd. 132,973
1,900 Hirose Electric Co., Ltd. 217,827
5,400 Hoya Corp. 189,853
18,600 Hoya Corp. (Bonus
Shares) (WI)* 644,080
13,100 Murata Manufacturing Co., Ltd. 657,575
5,000 Taiyo Yuden Co., Ltd. 49,434
7,052 TDK Corp. 478,012
---------------
2,538,167
---------------
ELECTRONIC EQUIPMENT/
INSTRUMENTS
46,004 Canon Inc. $ 2,435,093
21,800 Casio Computer Co., Ltd. 328,744
1,747 Keyence Corp. 404,138
26,530 Konica Minolta Holdings, Inc. 219,590
9,300 Kyocera Corp. 602,904
115,500 Matsushita Electric Industrial
Co., Ltd. 2,120,615
125,552 Mitsubishi Electric Corp. 755,559
93,500 NEC Corp. 465,089
37,000 Oki Electric Industry Co., Ltd. 115,933
12,504 Omron Corp. 295,157
38,432 Ricoh Co., Ltd. 609,036
99,000 Sanyo Electric Co., Ltd.* 207,125
6,000 Seiko Epson Corp. 147,889
163,026 Toshiba Corp. 758,897
13,500 Yokogawa Electric Corp. 198,843
---------------
9,664,612
---------------
ELECTRONIC PRODUCTION
EQUIPMENT
4,250 Advantest Corp. 306,674
10,300 Tokyo Electron Ltd. 515,965
---------------
822,639
---------------
ELECTRONICS/APPLIANCE STORES
6,600 Yamada Denki Co., Ltd. 583,666
---------------
ELECTRONICS/APPLIANCES
24,800 Fuji Photo Film Co., Ltd. 792,136
18,000 Nikon Corp. 230,364
10,104 Pioneer Corp. 127,256
47,500 Sharp Corp. 653,030
40,696 Sony Corp. 1,327,470
---------------
3,130,256
---------------
ENGINEERING & CONSTRUCTION
12,000 Chiyoda Corp. 206,727
10,000 Comsys Holdings Corp. 113,367
16,546 JGC Corp. 272,086
76,000 Kajima Corp. 396,701
51,571 Obayashi Corp. 377,552
14,000 Okumura Corp. 87,640
55,000 Shimizu Corporation 375,271
74,000 Taisei Corp. 329,243
---------------
2,158,587
---------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
18
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------
FINANCE/RENTAL/LEASING
5,440 Acom Co., Ltd. $ 354,348
1,300 Aeon Credit Service Co., Ltd. 102,173
4,850 Aiful Corp. 362,586
10,300 Credit Saison Co., Ltd. 468,036
8,100 Orix Corp. 1,518,820
6,700 Promise Co., Ltd. 425,862
4,760 Takefuji Corp. 334,594
---------------
3,566,419
---------------
FINANCIAL CONGLOMERATES
596 Mizuho Financial Group, Inc. 4,004,204
---------------
FOOD RETAIL
26,603 Aeon Co., Ltd. 554,454
3,952 FamilyMart Co., Ltd. 117,745
3,603 Lawson, Inc. 137,911
42,800 Seven & I Holdings Co., Ltd.* 1,397,491
---------------
2,207,601
---------------
FOOD: MEAT/FISH/DAIRY
13,000 Meiji Dairies Corp. 69,859
13,000 Nippon Meat Packers, Inc. 144,146
7,000 Yakult Honsha Co., Ltd. 170,739
---------------
384,744
---------------
FOOD: SPECIALTY/CANDY
40,000 Ajinomoto Co., Inc. 389,233
900 House Foods Corp. 13,378
8,500 Kikkoman Corp. 81,584
15,000 Meiji Seika Kaisha, Ltd. 78,009
4,950 Nissin Food Products Co., Ltd. 129,906
7,000 Yamazaki Baking Co., Ltd. 58,309
---------------
750,419
---------------
GAS DISTRIBUTORS
81,000 Osaka Gas Co., Ltd. 296,267
92,000 Tokyo Gas Co., Ltd. 362,505
---------------
658,772
---------------
HOME BUILDING
9,506 Daito Trust Construction
Co., Ltd. 469,847
50,000 Daiwa House Industry Co., Ltd. 671,640
30,572 Sekisui Chemical Co., Ltd. 193,001
58,046 Sekisui House, Ltd. 722,521
---------------
2,057,009
---------------
HOUSEHOLD/PERSONAL CARE
32,000 Kao Corp. $ 764,403
21,000 Shiseido Company, Ltd. 336,401
2,700 Uni-Charm Corp. 122,200
---------------
1,223,004
---------------
INDUSTRIAL CONGLOMERATES
181,000 Hitachi, Ltd. 1,113,263
64,000 Kawasaki Heavy Industries, Ltd. 167,970
---------------
1,281,233
---------------
INDUSTRIAL MACHINERY
17,053 Amada Co., Ltd. 130,160
10,600 Daikin Industries, Ltd. 275,999
11,150 Fanuc Ltd. 881,499
63,530 Ishikawajima-Harima Heavy
Industries Co., Ltd.* 147,540
211,550 Mitsubishi Heavy
Industries, Ltd. 804,328
3,905 SMC Corporation 521,690
25,000 Sumitomo Heavy
Industries, Ltd. 174,663
2,300 THK Co., Ltd. 52,150
---------------
2,988,029
---------------
INDUSTRIAL SPECIALTIES
72,500 Asahi Glass Company, Ltd. 786,347
11,500 Nitto Denko Corp. 696,389
---------------
1,482,736
---------------
INFORMATION TECHNOLOGY SERVICES
5,300 CSK Holdings Corp. 206,126
2,700 Itochu Techno-Science Corp. 103,677
40 Net One Systems Co., Ltd. 76,433
1,600 Nomura Research Institute, Ltd. 166,886
94 NTT Data Corp. 329,818
14,600 Softbank Corp. 830,384
3,200 TIS Inc. 75,002
---------------
1,788,326
---------------
INTERNET SOFTWARE/SERVICES
231 Yahoo Japan Corp. 244,658
248 Yahoo Japan Corp. (Bonus
Shares) (WI)* 266,369
---------------
511,027
---------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
19
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------
INVESTMENT BANKS/BROKERS
202,000 Daiwa Securities Group Inc. $ 1,669,224
35,000 Nikko Cordial Corp. 428,135
122,150 Nomura Holdings, Inc. 1,881,406
---------------
3,978,765
---------------
LIFE/HEALTH INSURANCE
14,200 T&D Holdings, Inc. 900,143
---------------
MAJOR BANKS
98,000 Bank of Yokohama, Ltd. (The) 797,830
59,000 Chiba Bank, Ltd. (The) 527,717
52,000 Joyo Bank, Ltd. (The) 348,825
500 Mitsubishi UFJ Financial
Group, Inc. 6,301,813
49,123 Mitsui Trust Holdings, Inc. 593,460
362 Resona Holdings, Inc.* 1,056,225
69,000 Shinsei Bank, Ltd. 402,348
47,000 Shizuoka Bank, Ltd. (The) 496,431
286 Sumitomo Mitsui Financial
Group, Inc. 2,664,062
78,081 Sumitomo Trust & Banking
Co., Ltd. (The) 663,539
---------------
13,852,250
---------------
MAJOR TELECOMMUNICATIONS
372 Nippon Telegraph &
Telephone Corp. 1,773,087
---------------
MARINE SHIPPING
3,000 Kamigumi Co., Ltd. 24,799
5,000 Kawasaki Kisen Kaisha, Ltd. 31,353
8,000 Mitsui O.S.K. Lines, Ltd. 56,531
66,015 Nippon Yusen Kabushiki Kaisha 399,766
---------------
512,449
---------------
MEDICAL SPECIALTIES
8,400 Olympus Corp. 186,455
11,550 Terumo Corp. 350,439
---------------
536,894
---------------
METAL FABRICATIONS
22,000 Minebea Co., Ltd. 85,906
107,000 Mitsubishi Materials Corp. 369,946
64,604 Mitsui Mining & Smelting
Co., Ltd. $ 367,451
41,553 NSK Ltd. 242,815
29,551 NTN Corp. 201,075
---------------
1,267,193
---------------
MISCELLANEOUS COMMERCIAL
SERVICES
700 OBIC Co., Ltd. 114,377
14,985 Secom Co., Ltd. 751,273
2,410 USS Co., Ltd. 165,163
---------------
1,030,813
---------------
MISCELLANEOUS MANUFACTURING
23,527 Ebara Corp. 97,113
4,800 Kurita Water Industries Ltd. 80,489
6,500 Takuma Co., Ltd. 49,961
---------------
227,563
---------------
MOTOR VEHICLES
57,009 Honda Motor Co., Ltd. 3,167,090
169,205 Nissan Motor Co., Ltd. 1,768,849
183,955 Toyota Motor Corp. 8,542,569
2,000 Yamaha Motor Co., Ltd. 43,054
---------------
13,521,562
---------------
MOVIES/ENTERTAINMENT
3,500 Oriental Land Co., Ltd. 194,823
5,550 TOHO Co., Ltd. 106,137
---------------
300,960
---------------
OFFICE EQUIPMENT/SUPPLIES
4,500 Kokuyo Co., Ltd. 67,391
---------------
OIL & GAS PRODUCTION
19 Inpex Corp. 133,168
9,000 Teikoku Oil Co., Ltd. 86,902
---------------
220,070
---------------
OIL REFINING/MARKETING
89,000 Nippon Oil Corp. 755,771
11,100 Showa Shell Sekiyu K.K. 137,673
18,000 TonenGeneral Sekiyu K.K. 200,496
---------------
1,093,940
---------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
20
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------
OTHER CONSUMER SERVICES
3,554 Benesse Corp. $ 125,835
---------------
OTHER METALS/MINERALS
33,095 Dowa Mining Co., Ltd. 266,267
28,000 Nippon Mining Holdings, Inc. 206,070
60,500 Sumitomo Metal Mining
Co., Ltd. 553,117
---------------
1,025,454
---------------
OTHER TRANSPORTATION
6,000 Mitsubishi Logistics Corp. 82,556
---------------
PACKAGED SOFTWARE
2,850 Oracle Corp. Japan 119,752
6,700 Trend Micro Inc. 209,945
---------------
329,697
---------------
PERSONNEL SERVICES
2,100 Meitec Corp. 68,038
---------------
PHARMACEUTICALS: MAJOR
51,300 Takeda Pharmaceutical
Co., Ltd. 2,821,599
---------------
PHARMACEUTICALS: OTHER
27,600 Astellas Pharma Inc. 987,166
13,306 Chugai Pharmaceutical
Co., Ltd. 292,378
39,900 Daiichi Sankyo Co., Ltd.* 723,397
15,603 Eisai Co., Ltd. 612,806
32 Kyowa Hakko Kogyo Co., Ltd 248
19,181 Shionogi & Co., Ltd. 233,286
9,959 Taisho Pharmaceutical Co., Ltd. 178,932
---------------
3,028,213
---------------
PROPERTY - CASUALTY INSURERS
91 Millea Holdings, Inc. 1,655,488
75,000 Mitsui Sumitomo Insurance
Co., Ltd. 968,539
50,000 Sompo Japan Insurance Inc. 752,109
---------------
3,376,136
---------------
PULP & PAPER
59 Nippon Paper Group, Inc. 201,543
64,000 Oji Paper Co., Ltd. 325,405
---------------
526,948
---------------
RAILROADS
82 Central Japan Railway Co. $ 696,939
204 East Japan Railway Co. 1,216,344
24,500 Keihin Electric Express Railway
Co., Ltd. 156,582
14,000 Keio Corp. 80,713
94,550 Kintetsu Corp. 346,805
51,500 Tobu Railway Co., Ltd. 220,831
58,000 Tokyu Corp. 318,715
28 West Japan Railway Co. 99,565
---------------
3,136,494
---------------
REAL ESTATE DEVELOPMENT
12,000 Leopalace21 Corp. 310,547
120,000 Mitsubishi Estate Co., Ltd. 1,783,547
85,500 Mitsui Fudosan Co., Ltd. 1,410,215
50,500 Sumitomo Realty &
Development Co., Ltd. 822,686
18,000 Tokyo Tatemono Co., Ltd. 150,291
---------------
4,477,286
---------------
REAL ESTATE INVESTMENT TRUSTS
36 Japan Real Estate
Investment Corp. 274,313
33 Japan Retail Fund
Investment Corp. 238,334
43 Nippon Building Fund Inc. 341,529
---------------
854,176
---------------
RECREATIONAL PRODUCTS
6,600 Konami Corp. 135,870
1,200 Namco Bandai Holdings Inc.* 18,055
6,308 Nintendo Co., Ltd. 708,238
5,850 Shimano Inc. 145,515
7,000 Yamaha Corp. 124,077
---------------
1,131,755
---------------
REGIONAL BANKS
23,000 77 Bank, Ltd. (The) 183,859
44,000 Bank of Fukuoka, Ltd. (The) 343,944
16,000 Bank of Kyoto, Ltd. (The) 176,313
80,000 Hokuhoku Financial Group, Inc. 333,099
40,000 Nishi-Nippon City Bank,
Ltd. (The) 235,165
---------------
1,272,380
---------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
21
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------
RESTAURANTS
8,207 Skylark Co., Ltd. $ 135,552
---------------
SEMICONDUCTORS
2,000 NEC Electronics Corp. 54,008
6,005 Rohm Co., Ltd. 486,977
---------------
540,985
---------------
SPECIALTY STORES
4,300 Shimachu Co., Ltd. 121,634
9,000 UNY Co., Ltd. 112,110
---------------
233,744
---------------
STEEL
19,700 JFE Holdings, Inc. 609,611
101,000 Kobe Steel, Ltd. 297,611
258,108 Nippon Steel Corp. 920,321
153,000 Sumitomo Metal
Industries, Ltd. 530,997
---------------
2,358,540
---------------
TELECOMMUNICATION EQUIPMENT
4,000 Uniden Corp. 68,862
---------------
TEXTILES
5,571 Nisshinbo Industries, Inc. 54,715
49,608 Teijin Ltd. 297,042
70,000 Toray Industries, Inc. 388,459
---------------
740,216
---------------
TOBACCO
46 Japan Tobacco Inc. 728,335
---------------
TRUCKS/CONSTRUCTION/
FARM MACHINERY
1,900 Hitachi Construction
Machinery Co., Ltd. 36,159
65,500 Komatsu Ltd. 882,110
89,000 Kubota Corp. 647,343
---------------
1,565,612
---------------
WHOLESALE DISTRIBUTORS
82,051 Itochu Corp. 564,044
80,550 Marubeni Corporation 376,943
73,600 Mitsubishi Corp. 1,441,624
89,000 Mitsui & Co., Ltd. 1,091,416
54,000 Sumitomo Corporation $ 607,851
---------------
4,081,878
---------------
WIRELESS TELECOMMUNICATIONS
494 NTT DoCoMo, Inc. 855,308
---------------
TOTAL JAPAN 133,234,513
---------------
LUXEMBOURG^ (0.1%)
STEEL
17,882 Arcelor 424,665
---------------
MEXICO (0.5%)
BEVERAGES: ALCOHOLIC
14,000 Grupo Modelo, S.A. de C.V.
(Series C) 42,945
---------------
BEVERAGES: NON-ALCOHOLIC
4,000 Coca-Cola Femsa, S.A. de
C.V. (Series L) 10,250
17,000 Fomento Economico Mexicano,
S.A. de C.V. (Units)+ 115,288
---------------
125,538
---------------
BROADCASTING
57,000 Grupo Televisa S.A.
(Series CPO) 205,952
---------------
CONSTRUCTION MATERIALS
79,000 Cemex S.A. de C.V.
(Series CPO) (Units)+ 410,304
---------------
DISCOUNT STORES
50,000 Wal-Mart de Mexico S.A. de
C.V. (Series V) 243,195
---------------
HOME BUILDING
3,000 Urbi, Desarrollos Urbanos,
S.A. de C.V.* 18,916
---------------
HOUSEHOLD/PERSONAL CARE
14,000 Kimberly-Clark de Mexico,
S.A. de C.V. (A Shares) 46,304
---------------
INDUSTRIAL CONGLOMERATES
9,000 Alfa, S.A. (Class A) 52,197
---------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
22
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------
MAJOR TELECOMMUNICATIONS
328,000 Telefonos de Mexico S.A. de
C.V. (Series L) $ 328,188
---------------
MISCELLANEOUS MANUFACTURING
20,000 Grupo Carso S.A. de C.V.
(Series A1) 42,654
---------------
OTHER METALS/MINERALS
29,000 Grupo Mexico S.A. de C.V.
(Series B) 55,884
---------------
REAL ESTATE DEVELOPMENT
10,000 Corporacion GEO, S.A. de C.V.
(Series B)* 30,851
---------------
REGIONAL BANKS
9,000 Grupo Financiero Banorte S.A.
de C.V. (O Shares) 76,669
---------------
WIRELESS TELECOMMUNICATIONS
487,000 America Movil S.A. de C.V.
(Series L) 635,268
---------------
TOTAL MEXICO 2,314,865
---------------
NETHERLANDS^ (3.2%)
AEROSPACE & DEFENSE
11,694 European Aeronautic Defense
and Space Co.* 404,926
---------------
AIR FREIGHT/COURIERS
28,552 TNT NV 674,062
---------------
BEVERAGES: ALCOHOLIC
28,134 Heineken NV 891,133
---------------
CHEMICALS: MAJOR DIVERSIFIED
5,345 Koninklijke DSM NV 191,929
---------------
ELECTRONIC EQUIPMENT/
INSTRUMENTS
4,702 Oce NV 67,291
---------------
ELECTRONIC PRODUCTION EQUIPMENT
21,945 ASML Holding NV* 371,131
---------------
FINANCIAL CONGLOMERATES
84,755 ING Groep NV
(Share Certificates) 2,444,585
---------------
FOOD: MAJOR DIVERSIFIED
27,379 Unilever NV
(Share Certificates) $ 1,927,149
---------------
INDUSTRIAL CONGLOMERATES
37,526 Koninklijke (Royal) Philips
Electronics NV 981,229
---------------
INDUSTRIAL SPECIALTIES
9,730 Akzo Nobel NV 419,879
---------------
INVESTMENT BANKS/BROKERS
5,278 Euronext NV 224,281
---------------
LIFE/HEALTH INSURANCE
89,622 Aegon NV 1,348,820
---------------
MAJOR BANKS
80,011 ABN AMRO Holding NV 1,891,720
---------------
MAJOR TELECOMMUNICATIONS
82,463 Koninklijke (Royal) KPN NV 782,419
---------------
PERSONNEL SERVICES
1,070 Vedior NV (Share Certificates) 14,293
---------------
PUBLISHING: BOOKS/MAGAZINES
17,395 Reed Elsevier NV 234,320
6,552 VNU NV 208,314
9,172 Wolters Kluwer NV
(Share Certificates) 170,133
---------------
612,767
---------------
REAL ESTATE DEVELOPMENT
2,978 Rodamco Europe NV 236,996
---------------
REAL ESTATE INVESTMENT TRUSTS
3,628 Corio NV 206,034
1,478 Wereldhave NV 142,958
---------------
348,992
---------------
SEMICONDUCTORS
12,177 STMicroelectronics NV 200,451
---------------
TOTAL NETHERLANDS 14,034,053
---------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
23
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------
NEW ZEALAND^ (0.0%)
FOREST PRODUCTS
47,022 Carter Holt Harvey Ltd. $ 82,258
---------------
MAJOR TELECOMMUNICATIONS
23,290 Telecom Corporation of
New Zealand Ltd. 95,227
---------------
TOTAL NEW ZEALAND 177,485
---------------
NORWAY^ (0.5%)
CHEMICALS: AGRICULTURAL
7,467 Yara International ASA 122,885
---------------
FINANCIAL CONGLOMERATES
12,353 DNB NOR ASA 126,293
---------------
FOOD: SPECIALTY/CANDY
11,900 Orkla ASA 416,500
---------------
INDUSTRIAL CONGLOMERATES
6,367 Norsk Hydro ASA 631,437
---------------
INTEGRATED OIL
26,000 Statoil ASA 577,194
---------------
MAJOR TELECOMMUNICATIONS
34,300 Telenor ASA 334,955
---------------
MISCELLANEOUS MANUFACTURING
515 Tomra Systems ASA 3,527
---------------
TELECOMMUNICATION EQUIPMENT
7,100 Tandberg ASA 69,650
3,600 Tandberg Television ASA* 44,794
---------------
114,444
---------------
TOTAL NORWAY 2,327,235
---------------
POLAND^ (0.5%)
ALUMINUM
118 Grupa Kety S.A. 4,687
---------------
INFORMATION TECHNOLOGY SERVICES
1,033 Prokom Software S.A. 37,752
---------------
MAJOR TELECOMMUNICATIONS
64,114 Telekomunikacja Polska
S.A. 460,174
---------------
OIL REFINING/MARKETING
27,725 Polski Koncern Naftowy
Orlen S.A. 490,251
---------------
OTHER METALS/MINERALS
11,825 KGHM Polska Miedz S.A. $ 166,062
---------------
PUBLISHING: NEWSPAPERS
3,417 Agora S.A. 64,799
---------------
REGIONAL BANKS
7,278 Bank Pekao S.A. 344,825
866 Bank Przemyslowo-Handlowy
BPH 164,861
2,384 Bank Zachodni WBK S.A. 80,311
34,656 Powszechna Kasa Oszczednosci
Bank Polski S.A. 291,022
---------------
881,019
---------------
TOTAL POLAND 2,104,744
---------------
PORTUGAL^ (0.2%)
CABLE/SATELLITE TV
2,488 PT Multimedia - Servicos de
Telecomunicacoes e
Multimedia, SGPS, S.A. 26,601
---------------
ELECTRIC UTILITIES
34,241 Energias de Portugal, S.A. 96,885
---------------
MAJOR TELECOMMUNICATIONS
31,476 Portugal Telecom, SGPS, S.A.
(Registered Shares) 284,483
---------------
OTHER TRANSPORTATION
18,426 Brisa-Auto Estradas de Portugal,
S.A. (Private Shares) 145,758
---------------
REGIONAL BANKS
82,362 Banco Comercial Portugues,
S.A. (Registered Shares) 208,322
---------------
TOTAL PORTUGAL 762,049
---------------
RUSSIA (1.2%)
ELECTRIC UTILITIES
6,870 RAO Unified Energy System
(Registered Shares) (GDR) 243,885
---------------
INTEGRATED OIL
41,800 Lukoil (Sponsored ADR) 2,299,000
---------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
24
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------
OIL & GAS PIPELINES
5,120 Gazprom (Sponsored ADR)
(Registered Shares $ 303,360
---------------
OIL & GAS PRODUCTION
11,600 Surgutneftegaz
(Sponsored ADR) 548,100
5,300 Tatneft (Sponsored ADR) 336,815
---------------
884,915
---------------
OTHER METALS/MINERALS
6,300 JSC MMC Norilsk
Nickel (ADR) 463,050
---------------
WIRELESS TELECOMMUNICATIONS
10,700 Mobile Telesystems
(Sponsored ADR) 395,793
12,700 OAO VimpelCom
(Sponsored ADR)* 508,000
---------------
903,793
---------------
TOTAL RUSSIA 5,098,003
---------------
SINGAPORE^ (1.5%)
AEROSPACE & DEFENSE
113,334 Singapore Technologies
Engineering Ltd. 170,703
---------------
AIR FREIGHT/COURIERS
141,000 Singapore Post Ltd. 95,118
---------------
AIRLINES
46,000 Singapore Airlines Ltd. 305,218
---------------
COMPUTER PERIPHERALS
4,843 Creative Technology Ltd. 35,553
---------------
ELECTRONIC COMPONENTS
23,696 Venture Corp., Ltd. 175,189
---------------
ELECTRONIC PRODUCTION
EQUIPMENT
109,000 STATS ChipPAC Ltd.* 60,747
---------------
FINANCIAL CONGLOMERATES
46,000 Keppel Corp., Ltd. 315,821
---------------
HOSPITAL/NURSING MANAGEMENT
55,000 Parkway Holdings Ltd. 64,423
---------------
HOTELS/RESORTS/CRUISELINES
5,962 Overseas Union
Enterprise Ltd. $ 34,880
---------------
INDUSTRIAL CONGLOMERATES
15,000 Fraser & Neave Ltd. 148,954
---------------
INVESTMENT BANKS/BROKERS
69,479 Singapore Exchange Ltd. 111,026
---------------
MAJOR BANKS
90,393 DBS Group Holdings Ltd. 817,753
212,078 Oversea-Chinese Banking
Corp., Ltd. 789,931
---------------
1,607,684
---------------
MAJOR TELECOMMUNICATIONS
559,632 Singapore Telecommunications
Ltd. 771,274
---------------
MARINE SHIPPING
42,000 Neptune Orient Lines Ltd. 75,521
---------------
OTHER TRANSPORTATION
148,068 ComfortDelgro Corp. Ltd. 129,398
---------------
PUBLISHING: NEWSPAPERS
132,328 Singapore Press Holdings
Ltd. 350,621
---------------
REAL ESTATE DEVELOPMENT
90,000 Capitaland Ltd. 169,407
53,455 City Developments Ltd. 278,229
33,000 Keppel Land Ltd. 74,595
13,000 Singapore Land Ltd. 39,608
45,674 United Overseas Land Ltd. 63,175
---------------
625,014
---------------
REAL ESTATE INVESTMENT TRUSTS
83,000 Ascendas Real Estate
Investment Trust 98,471
65,700 CapitaMall Trust 89,807
---------------
188,278
---------------
REGIONAL BANKS
97,489 United Overseas Bank Ltd. 796,321
---------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
25
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------
SEMICONDUCTORS
98,000 Chartered Semiconductor
Manufacturing Ltd.* $ 61,264
---------------
SPECIALTY STORES
10,032 Jardine Cycle & Carriage
Ltd. 62,414
---------------
TRUCKS/CONSTRUCTION/
FARM MACHINERY
73,512 SembCorp Industries Ltd. 117,119
48,000 SembCorp Marine Ltd. 77,849
---------------
194,968
---------------
TOTAL SINGAPORE 6,380,389
---------------
SPAIN^ (2.9%)
APPAREL/FOOTWEAR RETAIL
6,981 Industria de Diseno Textil,
S.A. 206,601
---------------
BANKING
29,305 Banco Popular Espanol S.A. 355,866
---------------
CABLE/SATELLITE TV
1,829 Antena 3 Television S.A. 35,551
---------------
ELECTRIC UTILITIES
24,774 Endesa, S.A. 616,237
20,312 Iberdrola S.A. 543,674
5,241 Union Fenosa, S.A. 173,546
---------------
1,333,457
---------------
ENGINEERING & CONSTRUCTION
1,044 Acciona S.A. 114,214
9,117 ACS, Actividades de
Construccion y Servicios,
S.A. 260,644
7,130 Cintra Concesiones de
Infraestructuras de
Transporte S.A. 84,535
1,148 Fomento de Construcciones y
Contratas S.A. 62,981
2,329 Grupo Ferrovial, S.A. 172,007
---------------
694,381
---------------
GAS DISTRIBUTORS
44,584 Gas Natural SDG, S.A. 1,218,175
---------------
INFORMATION TECHNOLOGY SERVICES
2,223 Indra Sistemas S.A. $ 45,564
---------------
INTEGRATED OIL
31,955 Repsol YPF, S.A. 952,615
---------------
MAJOR BANKS
104,008 Banco Bilbao Vizcaya
Argentaria, S.A. 1,832,848
145,833 Banco Santander Central
Hispano S.A. 1,860,054
---------------
3,692,902
---------------
MAJOR TELECOMMUNICATIONS
197,798 Telefonica S.A. 3,155,859
---------------
OTHER TRANSPORTATION
13,967 Abertis Infraestructuras
S.A. 381,717
---------------
REAL ESTATE DEVELOPMENT
2,582 Sacyr Vallehermoso S.A. 68,410
---------------
STEEL
6,511 Acerinox, S.A. 85,307
---------------
TOBACCO
10,812 Altadis, S.A. 458,812
---------------
WATER UTILITIES
5,779 Sociedad General de Aguas de
Barcelona, S.A. (Class A) 133,292
---------------
TOTAL SPAIN 12,818,509
---------------
SWEDEN^ (1.9%)
ADVERTISING/MARKETING SERVICES
4,500 Eniro AB 49,172
---------------
APPAREL/FOOTWEAR RETAIL
13,400 Hennes & Mauritz AB
(B Shares) 434,860
---------------
BROADCASTING
1,400 Modern Times Group MTG AB
(B Shares)* 53,538
---------------
ELECTRONICS/APPLIANCES
8,600 Electrolux AB (Series B) 200,254
---------------
ENGINEERING & CONSTRUCTION
16,080 Skanska AB (B Shares) 225,169
---------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
26
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------
HOUSEHOLD/PERSONAL CARE
6,986 Svenska Cellulosa AB
(B Shares) $ 235,474
---------------
INDUSTRIAL MACHINERY
950 Alfa Laval AB 18,001
13,800 Assa Abloy AB (B Shares) 197,509
15,160 Atlas Copco AB (A Shares) 276,839
10,107 Atlas Copco AB (B Shares) 165,024
8,509 Sandvik AB 409,087
---------------
1,066,460
---------------
INFORMATION TECHNOLOGY SERVICES
14,375 WM-data AB (B Shares) 39,539
---------------
LIFE/HEALTH INSURANCE
21,962 Skandia Forsakrings AB 109,465
---------------
MAJOR BANKS
20,200 Skandinaviska Enskilda
Banken AB (A Shares) 376,724
33,300 Svenska Handelsbanken
AB (A Shares) 759,044
---------------
1,135,768
---------------
MAJOR TELECOMMUNICATIONS
6,855 Tele2 AB (B Shares) 64,966
70,848 TeliaSonera AB 345,961
---------------
410,927
---------------
MEDICAL SPECIALTIES
7,000 Getinge AB (B Shares) 87,432
---------------
METAL FABRICATIONS
11,408 SKF AB (B Shares) 143,994
---------------
MISCELLANEOUS COMMERCIAL
SERVICES
2,800 Securitas AB (B Shares) 42,549
---------------
PULP & PAPER
2,250 Holmen AB (B Shares) 65,535
---------------
REGIONAL BANKS
117,984 Nordea Bank AB 1,155,738
---------------
STEEL
1,600 SSAB Svenskt Stal AB
(Series A) 47,728
---------------
TELECOMMUNICATION EQUIPMENT
636,552 Telefonaktiebolaget LM
Ericsson (B Shares) $ 2,088,273
---------------
TOBACCO
23,400 Swedish Match AB 265,958
---------------
TRUCKS/CONSTRUCTION/FARM
MACHINERY
4,200 Scania AB (B Shares) 141,375
4,357 Volvo AB (A Shares) 172,820
9,130 Volvo AB (B Shares) 375,540
---------------
689,735
---------------
TOTAL SWEDEN 8,547,568
---------------
SWITZERLAND^ (5.8%)
BIOTECHNOLOGY
450 Serono SA (B Shares) 291,474
---------------
BUILDING PRODUCTS
170 Geberit AG (Registered
Shares) 117,749
360 Schindler Holding AG 137,219
---------------
254,968
---------------
CHEMICALS: AGRICULTURAL
3,875 Syngenta AG* 415,499
---------------
CHEMICALS: SPECIALTY
2,531 Ciba Specialty Chemicals AG
(Registered Shares) 145,434
8,124 Clariant AG (Registered
Shares)* 108,431
1,344 Lonza Group AG
(Registered Shares) 77,438
---------------
331,303
---------------
COMPUTER PERIPHERALS
3,537 Logitech International SA
(Registered Shares)* 135,302
---------------
CONSTRUCTION MATERIALS
6,880 Holcim Ltd. (Registered
Shares) 428,167
---------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
27
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT/
INSTRUMENTS
1,634 Kudelski S.A. - Bearer $ 57,939
---------------
FINANCIAL CONGLOMERATES
45,488 UBS AG
(Registered Shares) 3,862,328
---------------
FOOD: MAJOR DIVERSIFIED
18,112 Nestle S.A. (Registered
Shares) 5,392,565
---------------
HOUSEHOLD/PERSONAL CARE
257 Givaudan S.A. (Registered
Shares) 165,713
---------------
INDUSTRIAL CONGLOMERATES
72,235 ABB Ltd.* 557,732
---------------
MAJOR BANKS
33,023 Credit Suisse Group
(Registered Shares) 1,461,175
---------------
MAJOR TELECOMMUNICATIONS
898 Swisscom AG
(Registered Shares) 295,750
---------------
MEDICAL SPECIALTIES
1,121 Nobel Biocare Holding AG 258,508
506 Straumann AG
(Registered Shares) 117,984
2,379 Synthes, Inc. 251,858
---------------
628,350
---------------
MISCELLANEOUS COMMERCIAL
SERVICES
22 SGS SA 16,216
---------------
MULTI-LINE INSURANCE
2,287 Zurich Financial Services AG
(Registered Shares)* 390,214
---------------
OTHER CONSUMER SPECIALTIES
15,723 Compagnie Financiere
Richemont AG
(Series A) (Units)+ 598,511
1,010 Swatch Group AG
(B Shares) 140,035
2,074 Swatch Group AG
(Registered Shares) 58,978
---------------
797,524
---------------
PERSONNEL SERVICES
288 Adecco S.A.
(Registered Shares) $ 12,284
---------------
PHARMACEUTICALS: MAJOR
97,564 Novartis AG (Registered
Shares) 5,249,552
29,680 Roche Holding AG 4,435,338
---------------
9,684,890
---------------
PROPERTY - CASUALTY INSURERS
3,068 Swiss Re (Registered
Shares) 207,214
---------------
SPECIALTY STORES
82 Valora Holding AG* 14,628
---------------
TOTAL SWITZERLAND 25,401,235
---------------
TURKEY^ (0.5%)
BEVERAGES: ALCOHOLIC
1,403 Anadolu Efes Biracilik ve
Malt Sanayii A.S. 34,235
---------------
ELECTRONICS/APPLIANCES
11,931 Arcelik A.S. 71,042
---------------
FINANCIAL CONGLOMERATES
29,092 Haci Omer Sabanci
Holding A.S. 135,731
---------------
FOOD RETAIL
8,375 Migros Turk TAS 73,122
---------------
INDUSTRIAL SPECIALTIES
3,014 Trakya Cam Sanayii A.S. 10,652
8,987 Turk Sise ve Cam
Fabrikalari A.S. 25,790
---------------
36,442
---------------
MISCELLANEOUS MANUFACTURING
25,818 Dogan Sirketler Grubu
Holding A.S.* 64,611
---------------
MOTOR VEHICLES
7,260 Ford Otomotiv Sanayi A.S. 51,826
20,812 Koc Holding A.S. 77,712
---------------
129,538
---------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
28
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------
OIL REFINING/MARKETING
8,590 Tupras-Turkiye Petrol
Rafinerileri A.S. $ 146,741
---------------
PUBLISHING: NEWSPAPERS
15,971 Dogan Yayin Holding A.S.* 40,400
9,074 Hurriyet Gazetecilik ve
Matbaacilik A.S. 25,505
---------------
65,905
---------------
REGIONAL BANKS
49,772 Akbank T.A.S. 309,263
75,651 Turkiye Garanti Bankasi
A.S.* 224,823
52,983 Turkiye Is Bankasi 366,891
25,367 Yapi ve Kredi Bankasi
A.S.* 94,672
---------------
995,649
---------------
STEEL
27,936 Eregli Demir ve Celik
Fabrikalari T.A.S. 151,021
---------------
WIRELESS TELECOMMUNICATIONS
29,038 Turkcell Iletisim
Hizmetleri A.S. 152,478
---------------
TOTAL TURKEY 2,056,515
---------------
UNITED KINGDOM^ (20.7%)
ADVERTISING/MARKETING SERVICES
33,860 Aegis Group PLC 74,614
29,397 WPP Group PLC 289,071
19,564 Yell Group PLC 153,159
---------------
516,844
---------------
AEROSPACE & DEFENSE
134,654 BAE Systems PLC 787,282
45,739 Cobham PLC 124,592
21,391 Meggitt PLC 114,489
77,640 Rolls-Royce Group PLC* 501,633
2,637,464 Rolls-Royce Group PLC
(B Shares)* 4,668
---------------
1,532,664
---------------
AIR FREIGHT/COURIERS
18,532 Exel PLC 395,622
---------------
AIRLINES
28,167 British Airways PLC* $ 150,578
---------------
BEVERAGES: ALCOHOLIC
153,943 Diageo PLC 2,275,320
---------------
BROADCASTING
115,203 ITV PLC 211,965
---------------
CABLE/SATELLITE TV
33,369 British Sky Broadcasting
Group PLC 301,242
---------------
CASINO/GAMING
102,502 Hilton Group PLC 615,118
26,261 William Hill PLC 248,283
---------------
863,401
---------------
CATALOG/SPECIALTY DISTRIBUTION
27,935 GUS PLC 416,599
---------------
CHEMICALS: MAJOR DIVERSIFIED
41,554 Imperial Chemical
Industries PLC 211,482
7,691 Johnson Matthey PLC 159,290
---------------
370,772
---------------
CHEMICALS: SPECIALTY
17,506 BOC Group PLC 344,913
---------------
COMMERCIAL PRINTING/FORMS
22,605 De La Rue PLC 156,054
---------------
CONSTRUCTION MATERIALS
23,219 BPB PLC 300,436
25,178 Hanson PLC 255,194
---------------
555,630
---------------
CONTAINERS/PACKAGING
19,535 Rexam PLC 166,401
---------------
DEPARTMENT STORES
48,886 Marks & Spencer Group PLC 361,095
7,683 Next PLC 181,303
---------------
542,398
---------------
DRUGSTORE CHAINS
28,826 Boots Group PLC 314,041
---------------
ELECTRIC UTILITIES
124,638 National Grid PLC 1,139,574
39,791 Scottish & Southern
Energy PLC 690,267
84,468 Scottish Power PLC 826,822
---------------
2,656,663
---------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
29
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT/
INSTRUMENTS
59,525 Invensys PLC* $ 13,691
---------------
ELECTRONICS/APPLIANCE STORES
57,918 DSG International PLC 147,541
7,934 Kesa Electricals PLC 33,687
---------------
181,228
---------------
ENGINEERING & CONSTRUCTION
10,369 AMEC PLC 62,552
22,393 Balfour Beatty PLC 120,701
---------------
183,253
---------------
FINANCIAL CONGLOMERATES
177,237 Lloyds TSB Group PLC 1,452,939
---------------
FINANCIAL PUBLISHING/SERVICES
44,509 Reuters Group PLC 282,850
---------------
FOOD RETAIL
51,189 Sainsbury (J) PLC 252,802
275,137 Tesco PLC 1,464,688
---------------
1,717,490
---------------
FOOD: MAJOR DIVERSIFIED
140,360 Unilever PLC 1,422,958
---------------
FOOD: SPECIALTY/CANDY
95,939 Cadbury Schweppes PLC 944,213
33,674 Tate & Lyle PLC 276,109
---------------
1,220,322
---------------
GAS DISTRIBUTORS
98,100 Centrica PLC 414,367
---------------
HOME BUILDING
7,542 Barratt Developments PLC 100,928
3,439 Bellway PLC 52,932
3,603 Berkeley Group Holdings PLC
(The) (Units)+* 55,489
8,489 Persimmon PLC 129,536
18,448 Taylor Woodrow PLC 102,212
12,333 Wimpey (George) PLC 89,229
---------------
530,326
---------------
HOME IMPROVEMENT CHAINS
35,013 Kingfisher PLC 131,312
---------------
HOTELS/RESORTS/CRUISELINES
11,013 Carnival PLC $ 558,684
29,968 InterContinental Hotels
Group PLC 374,264
---------------
932,948
---------------
HOUSEHOLD/PERSONAL CARE
44,678 Reckitt Benckiser PLC 1,350,038
---------------
INDUSTRIAL CONGLOMERATES
22,818 Smiths Group PLC 368,391
39,781 Tomkins PLC 185,242
---------------
553,633
---------------
INDUSTRIAL MACHINERY
8,278 FKI PLC 14,948
---------------
INDUSTRIAL SPECIALTIES
75,386 Pilkington PLC 204,545
---------------
INFORMATION TECHNOLOGY SERVICES
37,547 LogicaCMG PLC 94,378
25,072 Misys PLC 91,104
---------------
185,482
---------------
INTEGRATED OIL
133,464 BG Group PLC 1,171,069
775,195 BP PLC 8,579,172
165,371 Royal Dutch Shell PLC
(A Shares) 5,100,038
127,378 Royal Dutch Shell PLC
(B Shares) 4,155,346
---------------
19,005,625
---------------
LIFE/HEALTH INSURANCE
81,479 Friends Provident PLC 254,207
73,058 Prudential PLC 613,001
---------------
867,208
---------------
MAJOR BANKS
234,920 Barclays PLC 2,327,338
127,354 HBOS PLC 1,880,120
402,240 HSBC Holdings PLC 6,329,498
100,993 Royal Bank of Scotland
Group PLC 2,795,944
---------------
13,332,900
---------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
30
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------
MAJOR TELECOMMUNICATIONS
325,199 BT Group PLC $ 1,227,373
103,922 Cable & Wireless PLC 212,289
---------------
1,439,662
---------------
MARINE SHIPPING
13,971 Associated British Ports
Holdings PLC 135,368
41,850 Peninsular & Oriental Steam
Navigation Co. (The) 299,084
---------------
434,452
---------------
MEDICAL SPECIALTIES
28,638 Smith & Nephew PLC 242,307
---------------
MISCELLANEOUS COMMERCIAL
SERVICES
23,723 BBA Group PLC 122,118
47,360 Brambles Industries PLC 273,508
4,573 Davis Service Group
PLC (The) 36,896
20,627 GKN PLC 101,599
28,792 Group 4 Securicor PLC 76,644
148,006 Rentokil Initial PLC 402,162
38,257 Serco Group PLC 179,540
---------------
1,192,467
---------------
MISCELLANEOUS MANUFACTURING
17,854 IMI PLC 133,743
---------------
MOTOR VEHICLES
2,453 TI Automotive Ltd.* 0
---------------
MOVIES/ENTERTAINMENT
25,394 EMI Group PLC 96,094
38,588 Rank Group PLC 202,195
---------------
298,289
---------------
MULTI-LINE INSURANCE
106,902 Aviva PLC 1,262,176
268,555 Legal & General Group
PLC 509,879
109,314 Royal & Sun Alliance Insurance
Group PLC 186,317
---------------
1,958,372
---------------
OTHER METALS/MINERALS
48,579 Anglo American PLC $ 1,435,043
85,251 BHP Billiton PLC 1,255,923
36,936 Rio Tinto PLC 1,410,747
---------------
4,101,713
---------------
OTHER TRANSPORTATION
7,008 Arriva PLC 71,460
50,540 BAA PLC 548,829
17,827 FirstGroup PLC 103,430
27,544 Stagecoach Group PLC 52,247
---------------
775,966
---------------
PACKAGED SOFTWARE
55,520 Sage Group PLC (The) 211,047
---------------
PERSONNEL SERVICES
56,325 Capita Group PLC 388,616
136,112 Hays PLC 275,890
---------------
664,506
---------------
PHARMACEUTICALS: MAJOR
68,248 AstraZeneca PLC 3,062,865
230,846 GlaxoSmithKline PLC 6,005,264
---------------
9,068,129
---------------
PUBLISHING: BOOKS/MAGAZINES
8,057 EMAP PLC 116,582
24,012 Pearson PLC 266,936
37,897 Reed Elsevier PLC 345,911
---------------
729,429
---------------
PUBLISHING: NEWSPAPERS
9,639 Daily Mail and General Trust 106,813
8,734 United Business Media
PLC 82,867
---------------
189,680
---------------
PULP & PAPER
16,053 Bunzl PLC 160,443
---------------
RAILROADS
6,707 National Express Group
PLC 97,525
---------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
31
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------
REAL ESTATE DEVELOPMENT
35,201 British Land Company PLC $ 554,576
19,302 Hammerson PLC 304,768
30,808 Land Securities Group PLC 757,474
17,019 Liberty International PLC 280,317
27,279 Slough Estates PLC 244,823
---------------
2,141,958
---------------
RESTAURANTS
132,837 Compass Group PLC 446,778
22,633 Enterprise Inns PLC 312,026
33,830 Mitchells & Butlers PLC 217,240
16,193 Punch Taverns PLC 209,386
16,518 Whitbread PLC 274,633
---------------
1,460,063
---------------
SEMICONDUCTORS
44,751 ARM Holdings PLC 86,151
---------------
SPECIALTY STORES
9,191 MFI Furniture Group PLC 13,339
46,574 Signet Group PLC 83,821
---------------
97,160
---------------
STEEL
155,105 Corus Group PLC 131,143
---------------
TOBACCO
45,441 British American Tobacco PLC 999,949
19,317 Imperial Tobacco Group PLC 553,929
---------------
1,553,878
---------------
WATER UTILITIES
23,582 Kelda Group PLC 290,381
20,637 Severn Trent PLC 349,598
---------------
639,979
---------------
WHOLESALE DISTRIBUTORS
23,760 Electrocomponents PLC 95,903
24,211 Wolseley PLC 492,441
---------------
588,344
---------------
WIRELESS TELECOMMUNICATIONS
2,375,633 Vodafone Group PLC 6,234,384
---------------
TOTAL UNITED KINGDOM 90,399,960
---------------
TOTAL COMMON STOCKS
(COST $343,289,987) 425,957,141
---------------
PREFERRED STOCKS (1.1%)
BRAZIL (0.9%)
AEROSPACE & DEFENSE
11,422 Empresa Brasileira de
Aeronautica S.A. $ 110,071
---------------
BEVERAGES: ALCOHOLIC
561,692 Companhia de Bebidas
das Americas 200,301
---------------
CONTAINERS/PACKAGING
20,500 Klabin S.A. 39,146
---------------
ELECTRIC UTILITIES
3,772,027 Centrais Eletricas Brasileiras
S.A. (Class B) 65,162
3,324,000 Companhia Energetica
de Minas Gerais 121,045
---------------
186,207
---------------
FOOD RETAIL
500 Companhia Brasileira de
Distribuicao Grupo Pao de
Acucar (Sponsored ADR) 13,780
---------------
FOOD: MEAT/FISH/DAIRY
16,500 Sadia S.A. 40,741
---------------
INTEGRATED OIL
74,004 Petroleo Brasileiro S.A. 1,058,562
---------------
MAJOR TELECOMMUNICATIONS
7,939,010 Brasil Telecom
Participacoes S.A. 64,695
---------------
OTHER METALS/MINERALS
18,777 Companhia Vale do Rio Doce
(Class A) 691,192
---------------
PERSONNEL SERVICES
9,556 Contax Participacoes S.A. 7,214
---------------
PULP & PAPER
14,988 Aracruz Celulose S.A.
(B Shares) 57,774
2,768 Votorantim Celulose
e Papel S.A. 33,189
---------------
90,963
---------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
32
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------
REGIONAL BANKS
6,000 Banco Bradesco S.A. $ 308,820
14,330 Banco Itau Holding
Financeira S.A. 343,072
2,650 Unibanco-Uniao de
Bancos Brasileiros
S.A. (GDR) (Units)+ 138,595
---------------
790,487
---------------
SPECIALTY TELECOMMUNICATIONS
4,139,422 Embratel Participacoes
S.A.* 9,963
9,556 Tele Norte Leste
Participacoes S.A. 167,287
---------------
177,250
---------------
STEEL
55,500 Caemi Mineracao e
Metalurgia S.A. 88,236
485,504 Companhia Siderurgica de
Tubarao 29,754
7,500 Gerdau S.A. 101,719
3,500 Usinas Siderurgicas de
Minas Gerais S.A.
(Class A) 70,706
---------------
290,415
---------------
WIRELESS TELECOMMUNICATIONS
2,712 Tele Centro Oeste 24,087
5,711 Telesp Celular
Participacoes S.A.* 20,290
---------------
44,377
---------------
TOTAL BRAZIL 3,805,401
---------------
GERMANY^ (0.1%)
BROADCASTING
1,963 ProSiebenSat.1 Media AG 33,833
---------------
HOUSEHOLD/PERSONAL CARE
1,974 Henkel KGaA - Vorzug 170,137
---------------
MOTOR VEHICLES
150 Porsche AG $ 108,125
2,455 Volkswagen AG 99,765
---------------
207,890
---------------
TOTAL GERMANY 411,860
---------------
RUSSIA (0.1%)
OIL & GAS PRODUCTION
5,600 Surgutneftegaz
(Sponsored ADR) 416,080
---------------
TOTAL PREFERRED STOCKS
(COST $2,630,241) 4,633,341
---------------
TOTAL INVESTMENTS
(COST $345,920,228) (a) (b) 98.5% 430,590,482
OTHER ASSETS IN EXCESS OF
LIABILITIES 1.5 6,550,613
----- ---------------
NET ASSETS 100.0% $ 437,141,095
===== ===============
</Table>
- ----------
ADR AMERICAN DEPOSITARY RECEIPT.
GDR GLOBAL DEPOSITARY RECEIPT.
* NON-INCOME PRODUCING SECURITY.
** COMPRISED OF SECURITIES IN SEPARATE ENTITIES THAT ARE TRADED AS A
SINGLE STAPLED SECURITY. WI SECURITY RECEIVED ON A WHEN-ISSUED BASIS.
+ CONSISTS OF ONE OR MORE CLASS OF SECURITIES TRADED TOGETHER AS A UNIT;
STOCKS WITH ATTACHED WARRANTS.
^ SECURITIES WITH TOTAL MARKET VALUE EQUAL TO $418,838,867 HAVE BEEN
VALUED AT THEIR FAIR VALUE AS DETERMINED IN GOOD FAITH UNDER PROCEDURES
ESTABLISHED BY AND UNDER THE GENERAL SUPERVISION OF THE FUND'S
TRUSTEES.
(a) SECURITIES HAVE BEEN DESIGNATED AS COLLATERAL IN AN AMOUNT EQUAL TO
$78,247,928 IN CONNECTION WITH OPEN FORWARD FOREIGN CURRENCY CONTRACTS
AND OPEN FUTURES CONTRACTS.
(b) THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES IS $352,658,656. THE
AGGREGATE GROSS UNREALIZED APPRECIATION IS $91,409,930 AND THE
AGGREGATE GROSS UNREALIZED DEPRECIATION IS $13,478,104 RESULTING IN NET
UNREALIZED APPRECIATION OF $77,931,826.
SEE NOTES TO FINANCIAL STATEMENTS
33
<Page>
FUTURES CONTRACTS OPEN AT OCTOBER 31, 2005:
<Table>
<Caption>
UNREALIZED
NUMBER OF DESCRIPTION, DELIVERY UNDERYLING FACE APPRECIATION
CONTRACTS LONG/SHORT MONTH AND YEAR AMOUNT AT VALUE (DEPRECIATION)
- -----------------------------------------------------------------------------------------------------------
29 Long EURX DAX Index Future $ 4,281,489 $ (93,786)
December/2005
11 Long TOPIX Index Future 1,370,510 52,468
December/2005
----------
NET UNREALIZED DEPRECIATION $ (41,318)
==========
</Table>
FORWARD FOREIGN CURRENCY CONTRACTS OPEN AT OCTOBER 31, 2005:
<Table>
<Caption>
UNREALIZED
CONTRACTS IN EXCHANGE DELIVERY APPRECIATION
TO DELIVER FOR DATE (DEPRECIATION)
- -----------------------------------------------------------------------------------------------------------
JPY 898,160,484 $ 8,263,050 11/17/05 $ 530,886
JPY 649,488,263 $ 5,775,000 11/17/05 183,627
JPY 171,890,772 $ 1,524,435 11/17/05 44,647
JPY 1,724,726,670 $ 15,169,100 11/17/05 321,119
$ 7,565,000 JPY 869,778,310 11/17/05 (77,175)
EUR 6,200,664 $ 7,645,977 12/15/05 195,569
$ 2,336,642 EUR 1,896,117 12/15/05 (58,363)
$ 309,670 EUR 250,989 12/15/05 (8,094)
$ 19,617,060 EUR 15,913,509 12/15/05 (496,183)
$ 21,253,246 EUR 17,232,408 12/15/05 (547,646)
$ 6,709,714 EUR 5,444,650 12/15/05 (167,695)
EUR 770,175 $ 949,418 12/15/05 24,014
$ 13,980,061 EUR 11,329,704 12/15/05 (366,856)
EUR 41,535,543 $ 51,154,759 12/15/05 1,247,728
$ 3,027,793 JPY 331,587,265 12/15/05 (163,480)
JPY 195,037,265 $ 1,776,975 12/15/05 92,206
JPY 136,550,000 $ 1,245,479 12/15/05 65,935
JPY 530,857,671 $ 4,637,000 01/20/06 31,259
----------
NET UNREALIZED APPRECIATION $ 851,498
==========
</Table>
CURRENCY ABBREVIATIONS:
EUR Euro.
JPY Japanese Yen.
SEE NOTES TO FINANCIAL STATEMENTS
34
<Page>
MORGAN STANLEY INTERNATIONAL FUND
SUMMARY OF INVESTMENTS - OCTOBER 31, 2005
<Table>
<Caption>
PERCENT OF
INDUSTRY VALUE NET ASSETS
- ----------------------------------------------------------------------
Major Banks $ 59,115,208 13.5%
Integrated Oil 31,724,534 7.3
Pharmaceuticals: Major 26,297,527 6.0
Major Telecommunications 16,889,072 3.9
Motor Vehicles 15,658,934 3.6
Financial Conglomerates 15,652,277 3.6
Electric Utilities 14,398,151 3.3
Real Estate Development 13,073,780 3.0
Industrial Conglomerates 10,585,836 2.4
Other Metals/Minerals 10,469,762 2.4
Electronic Equipment/
Instruments 9,936,758 2.3
Food: Major Diversified 9,527,153 2.2
Multi-Line Insurance 9,449,163 2.2
Wireless
Telecommunications 8,825,608 2.0
Regional Banks 7,295,193 1.7
Telecommunication
Equipment 6,861,405 1.6
Food Retail 5,869,234 1.3
Investment Banks/Brokers 5,659,057 1.3
Wholesale Distributors 5,167,309 1.2
Chemicals: Specialty 4,991,710 1.1
Beverages: Alcoholic 4,734,488 1.1
Construction Materials 4,469,241 1.0
Engineering & Construction 4,381,309 1.0
Oil & Gas Production 4,341,954 1.0
Industrial Machinery 4,321,653 1.0
Gas Distributors 4,044,479 0.9
Steel 3,997,611 0.9
Property - Casualty Insurers 3,828,145 0.9
Life/Health Insurance 3,799,683 0.9
Chemicals: Major Diversified 3,676,023 0.8
Pharmaceuticals: Other 3,613,971 0.8
Finance/Rental/Leasing 3,566,419 0.8
Electronics/Appliances 3,543,935 0.8
Railroads 3,527,024 0.8
Household/Personal Care 3,376,578 0.8
Tobacco 3,042,555 0.7
Oil Refining/Marketing 2,933,814 0.7
Electrical Products 2,794,012 0.6
Electronic Components $ 2,740,450 0.6%
Home Building 2,606,251 0.6
Aerospace & Defense 2,589,067 0.6
Information Technology
Services 2,526,663 0.6
Trucks/Construction/
Farm Machinery 2,509,095 0.6
Miscellaneous Commercial
Services 2,447,648 0.6
Food: Specialty/Candy 2,387,241 0.5
Department Stores 2,320,565 0.5
Air Freight/Couriers 2,277,559 0.5
Industrial Specialties 2,251,872 0.5
Other Transportation 2,174,821 0.5
Packaged Software 2,055,705 0.5
Auto Parts: O.E.M 2,023,978 0.5
Apparel/Footwear Retail 1,966,196 0.4
Building Products 1,806,659 0.4
Hotels/Resorts/Cruiselines 1,722,596 0.4
Restaurants 1,649,766 0.4
Publishing: Books/Magazines 1,642,411 0.4
Medical Specialties 1,632,120 0.4
Marine Shipping 1,571,700 0.4
Pulp & Paper 1,546,011 0.3
Apparel/Footwear 1,444,935 0.3
Metal Fabrications 1,434,745 0.3
Real Estate Investment
Trusts 1,397,399 0.3
Automotive Aftermarket 1,323,857 0.3
Electronic Production
Equipment 1,268,440 0.3
Casino/Gaming 1,266,241 0.3
Recreational Products 1,131,755 0.3
Broadcasting 1,096,190 0.2
Water Utilities 1,022,794 0.2
Semiconductors 1,017,693 0.2
Airlines 907,999 0.2
Media Conglomerates 857,933 0.2
Commercial Printing/Forms 833,030 0.2
Other Consumer Specialties 814,678 0.2
Publishing: Newspapers 792,823 0.2
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
35
<Page>
<Table>
<Caption>
PERCENT OF
INDUSTRY VALUE NET ASSETS
- ----------------------------------------------------------------------
Personnel Services $ 766,335 0.2%
Electronics/Appliance Stores 764,894 0.2
Advertising/Marketing
Services 744,298 0.2
Textiles 740,216 0.2
Computer Processing
Hardware 676,253 0.2
Chemicals: Agricultural 636,997 0.1
Miscellaneous Manufacturing 630,840 0.1
Containers/Packaging 614,188 0.1
Movies/Entertainment 599,249 0.1
Internet Software/Services 589,474 0.1
Specialty Stores 581,038 0.1
Biotechnology 464,961 0.1
Food: Meat/Fish/Dairy 425,485 0.1
Catalog/Specialty
Distribution 416,599 0.1
Cable/Satellite TV 363,394 0.1
Banking 355,866 0.1
Oil & Gas Pipelines 327,993 0.1
Drugstore Chains 314,041 0.1
Medical/Nursing Services 305,022 0.1
Beverages: Non-Alcoholic 300,953 0.1
Other Consumer Services 289,685 0.1
Financial Publishing/
Services 282,850 0.1
Aluminum 280,018 0.1
Precious Metals $ 248,523 0.1%
Tools/Hardware 244,260 0.1
Discount Stores 243,195 0.1
Food Distributors 239,545 0.1
Office Equipment/Supplies 226,604 0.0
Specialty
Telecommunications 189,520 0.0
Computer Peripherals 170,855 0.0
Hospital/Nursing
Management 157,343 0.0
Investment Trusts/
Mutual Funds 153,692 0.0
Medical Distributors 143,226 0.0
Home Improvement Chains 131,312 0.0
Agricultural Commodities/
Milling 111,955 0.0
Trucking 97,488 0.0
Forest Products 82,258 0.0
Consumer Sundries 69,732 0.0
Oilfield Services/Equipment 58,811 0.0
Data Processing Services 52,063 0.0
------------- -----
$ 430,590,482* 98.5%
============= =====
</Table>
- ----------
* DOES NOT INCLUDE OPEN LONG FUTURES CONTRACTS WITH UNDERLYING FACE
AMOUNT OF $5,651,999 WITH NET UNREALIZED DEPRECIATION OF $41,318 AND
OPEN FORWARD FOREIGN CURRENCY CONTRACTS WITH NET UNREALIZED
APPRECIATION OF $851,498.
SEE NOTES TO FINANCIAL STATEMENTS
36
<Page>
MORGAN STANLEY INTERNATIONAL FUND
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 2005
<Table>
ASSETS:
Investments in securities, at value (cost $345,920,228) $ 430,590,482
Cash (including $1,559,002 in foreign currency, at value with cost of
$1,563,838 and $2,475,273 in segregation) 4,034,275
Unrealized appreciation on open forward foreign currency contracts 2,736,990
Receivable for:
Investments sold 4,623,179
Dividends 672,431
Shares of beneficial interest sold 443,289
Foreign withholding taxes reclaimed 162,072
Prepaid expenses and other assets 34,834
--------------
TOTAL ASSETS 443,297,552
--------------
LIABILITIES:
Unrealized depreciation on open forward foreign currency contracts 1,885,492
Payable for:
Investments purchased 2,235,105
Shares of beneficial interest redeemed 821,871
Compensated forward foreign currency contracts 410,042
Investment advisory fee 242,572
Distribution fee 183,983
Administration fee 29,855
Transfer agent fee 11,705
Payable to bank 186,605
Accrued expenses and other payables 149,227
--------------
TOTAL LIABILITIES 6,156,457
--------------
NET ASSETS $ 437,141,095
==============
COMPOSITION OF NET ASSETS:
Paid-in-capital $ 499,097,016
Net unrealized appreciation 85,455,042
Accumulated undistributed net investment income 2,670,996
Accumulated net realized loss (150,081,959)
--------------
NET ASSETS $ 437,141,095
==============
CLASS A SHARES:
Net Assets $ 115,679,921
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE) 10,810,247
NET ASSET VALUE PER SHARE $ 10.70
==============
MAXIMUM OFFERING PRICE PER SHARE,
(NET ASSET VALUE PLUS 5.54% OF NET ASSET VALUE) $ 11.29
==============
CLASS B SHARES:
Net Assets $ 163,974,375
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE) 15,545,035
NET ASSET VALUE PER SHARE $ 10.55
==============
CLASS C SHARES:
Net Assets $ 22,855,511
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE) 2,168,136
NET ASSET VALUE PER SHARE $ 10.54
==============
CLASS D SHARES:
Net Assets $ 134,631,288
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE) 12,508,672
NET ASSET VALUE PER SHARE $ 10.76
==============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
37
<Page>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 2005
<Table>
NET INVESTMENT INCOME:
INCOME
Dividends (net of $899,329 foreign withholding tax) $ 11,080,031
Interest 634,887
--------------
TOTAL INCOME 11,714,918
--------------
EXPENSES
Investment advisory fee 2,963,511
Distribution fee (Class A shares) 253,659
Distribution fee (Class B shares) 1,852,326
Distribution fee (Class C shares) 239,691
Transfer agent fees and expenses 837,580
Administration fee 364,740
Custodian fees 205,682
Shareholder reports and notices 152,459
Professional fees 88,149
Registration fees 64,999
Trustees' fees and expenses 5,632
Other 119,070
--------------
TOTAL EXPENSES 7,147,498
--------------
NET INVESTMENT INCOME 4,567,420
--------------
NET REALIZED AND UNREALIZED GAIN:
NET REALIZED GAIN/LOSS ON:
Investments 27,475,768
Futures contracts 4,753,478
Foreign exchange transactions (408,538)
--------------
NET REALIZED GAIN 31,820,708
--------------
NET CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION ON:
Investments 37,254,407
Futures contracts (162,349)
Translation of forward foreign currency contracts and other assets
and liabilities denominated in foreign currencies (322,339)
--------------
NET APPRECIATION 36,769,719
--------------
NET GAIN 68,590,427
--------------
NET INCREASE $ 73,157,847
==============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
38
<Page>
STATEMENT OF CHANGES IN NET ASSETS
<Table>
<Caption>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
OCTOBER 31, 2005 OCTOBER 31, 2004
---------------- ----------------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income $ 4,567,420 $ 1,584,158
Net realized gain 31,820,708 15,527,795
Net change in unrealized appreciation 36,769,719 46,522,794
---------------- ----------------
NET INCREASE 73,157,847 63,634,747
---------------- ----------------
DIVIDENDS TO SHAREHOLDERS FROM NET INVESTMENT INCOME:
Class A shares (1,047,932) (765,430)
Class B shares (769,484) (1,153,468)
Class C shares (106,040) (145,401)
Class D shares (2,076,588) (1,794,154)
---------------- ----------------
TOTAL DIVIDENDS (4,000,044) (3,858,453)
---------------- ----------------
Net decrease from transactions in shares of beneficial interest (77,996,207) (40,776,673)
---------------- ----------------
NET INCREASE (DECREASE) (8,838,404) 18,999,621
NET ASSETS:
Beginning of period 445,979,499 426,979,878
---------------- ----------------
END OF PERIOD
(INCLUDING ACCUMULATED UNDISTRIBUTED NET INVESTMENT INCOME OF
$2,670,996 AND $2,046,837, RESPECTIVELY) $ 437,141,095 $ 445,979,499
================ ================
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
39
<Page>
MORGAN STANLEY INTERNATIONAL FUND
NOTES TO FINANCIAL STATEMENTS - OCTOBER 31, 2005
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 eighteen
months, 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.
Effective August 29, 2005, the Board of Trustees of the Fund approved the
implementation of a 2% redemption fee on Class A shares, Class B shares, Class C
shares, and Class D shares, which is paid directly to the Fund, for shares
redeemed within thirty days of purchase. The redemption fee is designed to
protect the Fund and its remaining shareholders from the effects of short-term
trading.
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 Adviser"), 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
40
<Page>
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 Adviser 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 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 Adviser, 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
41
<Page>
securities, other assets and liabilities and forward foreign currency contracts
("forward contracts") are translated at the exchange rates prevailing at the end
of the period; and (2) purchases, sales, income and expenses are translated at
the exchange rates prevailing on the respective dates of such transactions. The
resultant exchange gains and losses are recorded as realized and unrealized
gain/loss on foreign exchange transactions. Pursuant to U.S. federal income tax
regulations, certain foreign exchange gains/losses included in realized and
unrealized gain/loss are included in or are a reduction of ordinary income for
federal income tax purposes. The Fund does not isolate that portion of the
results of operations arising as a result of changes in the foreign exchange
rates from the changes in the market prices of the securities. Forward contracts
are valued daily at the appropriate exchange rates. The resultant unrealized
exchange gains and losses are recorded as unrealized foreign currency gain or
loss. The Fund records realized gains or losses on delivery of the currency or
at the time the forward contract is extinguished (compensated) by entering into
a closing transaction prior to delivery.
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.
I. 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 ADVISORY/ADMINISTRATION AGREEMENTS
Effective June 1, 2005, pursuant to an Investment Advisory Agreement, the Fund
pays the Investment Adviser an advisory fee, accrued daily and payable monthly,
by applying the following annual rates to the net assets of the Fund determined
as of the close of each business day: 0.65% to the portion of the daily net
assets not exceeding $1 billion and 0.60% to the portion of the daily net assets
in excess of $1 billion.
For the period November 1, 2004 to May 31, 2005, the Fund paid the Investment
Adviser an advisory fee, accrued daily and payable monthly, by applying the
annual rate of 0.65% to the Fund's daily net assets.
Pursuant to an Administration Agreement with Morgan Stanley Services Company
Inc. ("the Administrator"), an affiliate of the Investment Adviser, the Fund
pays an administration fee, accrued daily and payable monthly, by applying the
annual rate of 0.08% to the Fund's daily net assets.
Effective November 18, 2005, the Investment Adviser has agreed to cap the Fund's
operating expenses (except for brokerage and 12b-1 fees) for one year by
assuming the Fund's "other expenses" and/or waiving the Fund's advisory fees,
and the Administrator has agreed to waive the Fund's administrative fees,
42
<Page>
to the extent such operating expenses on an annualized basis exceed 1.05% of the
average daily net assets of the Fund.
3. PLAN OF DISTRIBUTION
Shares of the Fund are distributed by Morgan Stanley Distributors Inc. (the
"Distributor"), an affiliate of the Investment Adviser and Administrator. 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
$19,429,474 at October 31, 2005.
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, 2005, the distribution fee was accrued for Class
A shares and Class C shares at the annual rate of 0.25% and 1.0%, respectively.
The Distributor has informed the Fund that for the year ended October 31, 2005,
it received contingent deferred sales charges from certain redemptions of the
Fund's Class B shares and Class C shares of $341,984 and $2,396, respectively
and received $51,277 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, 2005 aggregated
$93,916,888 and $151,515,852, respectively.
43
<Page>
Morgan Stanley Trust, an affiliate of the Investment Adviser, Administrator, and
Distributor, is the Fund's transfer agent.
The Fund has 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, 2005 OCTOBER 31, 2004
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
------------ ------------- ------------ -------------
CLASS A SHARES
Sold 3,595,078 $ 36,126,830 5,568,257 $ 48,803,046
Conversion from Class B 1,883,593 18,568,503 -- --
Reinvestment of dividends 104,282 1,035,517 88,825 753,234
Redeemed (3,882,885) (39,231,669) (4,442,745) (38,827,899)
------------ ------------- ------------ -------------
Net increase -- Class A 1,700,068 16,499,181 1,214,337 10,728,381
------------ ------------- ------------ -------------
CLASS B SHARES
Sold 1,622,872 16,071,848 2,029,109 17,561,668
Conversion to Class A (1,903,425) (18,568,503) -- --
Reinvestment of dividends 69,959 689,091 123,296 1,036,918
Redeemed (5,633,706) (56,144,759) (6,691,618) (57,927,196)
------------ ------------- ------------ -------------
Net decrease -- Class B (5,844,300) (57,952,323) (4,539,213) (39,328,610)
------------ ------------- ------------ -------------
CLASS C SHARES
Sold 214,201 2,116,614 284,158 2,452,466
Reinvestment of dividends 9,864 97,057 16,051 134,827
Redeemed (763,836) (7,543,916) (806,681) (6,943,031)
------------ ------------- ------------ -------------
Net decrease -- Class C (539,771) (5,330,245) (506,472) (4,355,738)
------------ ------------- ------------ -------------
CLASS D SHARES
Sold 1,200,361 12,017,377 3,339,028 29,357,682
Reinvestment of dividends 177,714 1,770,033 177,395 1,507,858
Redeemed (4,437,463) (45,000,230) (4,380,962) (38,686,246)
------------ ------------- ------------ -------------
Net decrease -- Class D (3,059,388) (31,212,820) (864,539) (7,820,706)
------------ ------------- ------------ -------------
Net decrease in Fund (7,743,391) $ (77,996,207) (4,695,887) $ (40,776,673)
============ ============= ============ =============
</Table>
44
<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.
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
securities underlying the futures contracts. Risks may also arise upon entering
into these contracts from the potential inability of the counterparties to meet
the terms of their contracts.
At October 31, 2005, investments in securities of issuers in Japan and United
Kingdom represented 30.5% and 20.7% respectively, 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, 2005, 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.
45
<Page>
The tax character of distributions paid was as follows:
<Table>
<Caption>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
OCTOBER 31, 2005 OCTOBER 31, 2004
---------------- ----------------
Ordinary income $ 4,000,044 $ 3,858,453
============= ===========
</Table>
As of October 31, 2005, the tax-basis components of accumulated losses were as
follows:
<Table>
Undistributed ordinary income $ 4,471,172
Undistributed long-term gains --
-------------
Net accumulated earnings 4,471,172
Foreign tax credit pass-through 896,571
Capital loss carryforward* (144,220,196)
Temporary differences (943,176)
Net unrealized appreciation 77,839,708
-------------
Total accumulated losses $ (61,955,921)
=============
</Table>
*During the year ended October 31, 2005, the Fund utilized $28,351,612 of its
net capital loss carryforward. As of October 31, 2005, the Fund had a net
capital loss carryforward of $144,220,196 of which $89,773,119 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, 2005, 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 primarily attributable to foreign currency losses and tax
adjustments on PFICs sold by the Fund. To reflect reclassifications arising from
the permanent differences, paid-in-capital was charged $2,673, accumulated net
realized loss was charged $54,110 and accumulated undistributed net investment
income was credited $56,783.
8. LEGAL MATTERS
The Investment Adviser, certain affiliates of the Investment Adviser, certain
officers of such affiliates and certain investment companies advised by the
Investment Adviser or its affiliates, including the Fund, are named as
defendants in a consolidated class action. This consolidated action also names
as defendants certain individual Trustees and Directors of the Morgan Stanley
funds. The consolidated amended complaint, filed in the United States District
Court Southern District of New York on April 16, 2004, generally alleges that
defendants, including the Fund, violated their statutory disclosure obligations
and fiduciary duties by failing properly to disclose (i) that the Investment
Adviser and certain affiliates of the Investment Adviser allegedly offered
economic incentives to brokers and others to recommend the funds
46
<Page>
advised by the Investment Adviser or its affiliates to investors rather than
funds managed by other companies, and (ii) that the funds advised by the
Investment Adviser 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. On
March 9, 2005, Plaintiffs sought leave to supplement their complaint to assert
claims on behalf of other investors. While the Fund and Adviser believe that
each has meritorious defenses, the ultimate outcome of this matter is not
presently determinable at this stage of the litigation, and no provision has
been made in the Fund's financial statements for the effect, if any, of this
matter.
47
<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,
--------------------------------------------------------------------------------
2005 2004 2003 2002 2001
------------ ------------ ------------ ------------ ------------
CLASS A SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period $ 9.19 $ 8.03 $ 6.70 $ 7.77 $ 10.29
------------ ------------ ------------ ------------ ------------
Income (loss) from investment operations:
Net investment income^ 0.13 0.06 0.08 0.04 0.06
Net realized and unrealized gain (loss) 1.50 1.20 1.33 (1.03) (2.07)
------------ ------------ ------------ ------------ ------------
Total income (loss) from investment
operations 1.63 1.26 1.41 (0.99) (2.01)
------------ ------------ ------------ ------------ ------------
Less dividends and distributions from:
Net investment income (0.12) (0.10) (0.08) (0.08) -
Net realized gain - - - - (0.51)
------------ ------------ ------------ ------------ ------------
Total dividends and distributions (0.12) (0.10) (0.08) (0.08) (0.51)
------------ ------------ ------------ ------------ ------------
Net asset value, end of period $ 10.70 $ 9.19 $ 8.03 $ 6.70 $ 7.77
============ ============ ============ ============ ============
TOTAL RETURN+ 17.65% 15.89% 21.31% (12.93)% (20.36)%
RATIOS TO AVERAGE NET ASSETS(1):
Expenses 1.30% 1.57% 1.58% 1.56% 1.46%(2)
Net investment income 1.27% 0.67% 1.02% 0.54% 0.73%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands $ 115,680 $ 83,766 $ 63,422 $ 44,373 $ 37,974
Portfolio turnover rate 22% 33% 43% 39% 37%
</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
48
<Page>
<Table>
<Caption>
FOR THE YEAR ENDED OCTOBER 31,
-------------------------------------------------------------------------------
2005 2004 2003 2002 2001
------------ ------------ ------------ ------------ ------------
CLASS B SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period $ 9.06 $ 7.93 $ 6.58 $ 7.62 $ 10.19
------------ ------------ ------------ ------------ ------------
Income (loss) from investment operations:
Net investment income (loss)^ 0.05 (0.01) 0.01 (0.02) 0.00
Net realized and unrealized gain (loss) 1.48 1.19 1.34 (1.02) (2.06)
------------ ------------ ------------ ------------ ------------
Total income (loss) from investment
operations 1.53 1.18 1.35 (1.04) (2.06)
------------ ------------ ------------ ------------ ------------
Less dividends and distributions from:
Net investment income (0.04) (0.05) - - -
Net realized gain - - - - (0.51)
------------ ------------ ------------ ------------ ------------
Total dividends and distributions (0.04) (0.05) - - (0.51)
------------ ------------ ------------ ------------ ------------
Net asset value, end of period $ 10.55 $ 9.06 $ 7.93 $ 6.58 $ 7.62
============ ============ ============ ============ ============
TOTAL RETURN+ 16.88% 14.87% 20.52% (13.65)% (21.08)%
RATIOS TO AVERAGE NET ASSETS(1):
Expenses 2.05% 2.33% 2.37% 2.32% 2.24%(2)
Net investment income (loss) 0.52% (0.09)% 0.23% (0.22)% (0.06)%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands $ 163,974 $ 193,796 $ 205,544 $ 217,216 $ 340,158
Portfolio turnover rate 22% 33% 43% 39% 37%
</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,
--------------------------------------------------------------------------------
2005 2004 2003 2002 2001
------------ ------------ ------------ ------------ ------------
CLASS C SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period $ 9.06 $ 7.92 $ 6.59 $ 7.62 $ 10.19
------------ ------------ ------------ ------------ ------------
Income (loss) from investment operations:
Net investment income (loss)^ 0.05 (0.01) 0.01 (0.01) (0.01)
Net realized and unrealized gain (loss) 1.47 1.20 1.33 (1.02) (2.05)
------------ ------------ ------------ ------------ ------------
Total income (loss) from investment
operations 1.52 1.19 1.34 (1.03) (2.06)
------------ ------------ ------------ ------------ ------------
Less dividends and distributions from:
Net investment income (0.04) (0.05) (0.01) - -
Net realized gain - - - - (0.51)
------------ ------------ ------------ ------------ ------------
Total dividends and distributions (0.04) (0.05) (0.01) - (0.51)
------------ ------------ ------------ ------------ ------------
Net asset value, end of period $ 10.54 $ 9.06 $ 7.92 $ 6.59 $ 7.62
============ ============ ============ ============ ============
TOTAL RETURN+ 16.81% 15.03% 20.40% (13.52)% (21.08)%
RATIOS TO AVERAGE NET ASSETS(1):
Expenses 2.05% 2.31% 2.37% 2.18% 2.24%(2)
Net investment income (loss) 0.52% (0.07)% 0.23% (0.08)% (0.06)%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands $ 22,856 $ 24,527 $ 25,471 $ 26,195 $ 39,079
Portfolio turnover rate 22% 33% 43% 39% 37%
</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,
--------------------------------------------------------------------------------
2005 2004 2003 2002 2001
------------ ------------ ------------ ------------ ------------
CLASS D SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period $ 9.24 $ 8.07 $ 6.73 $ 7.80 $ 10.32
------------ ------------ ------------ ------------ ------------
Income (loss) from investment operations:
Net investment income^ 0.15 0.08 0.08 0.06 0.08
Net realized and unrealized gain (loss) 1.51 1.20 1.36 (1.04) (2.09)
------------ ------------ ------------ ------------ ------------
Total income (loss) from investment
operations 1.66 1.28 1.44 (0.98) (2.01)
------------ ------------ ------------ ------------ ------------
Less dividends and distributions from:
Net investment income (0.14) (0.11) (0.10) (0.09) -
Net realized gain - - - - (0.51)
------------ ------------ ------------ ------------ ------------
Total dividends and distributions (0.14) (0.11) (0.10) (0.09) (0.51)
------------ ------------ ------------ ------------ ------------
Net asset value, end of period $ 10.76 $ 9.24 $ 8.07 $ 6.73 $ 7.80
============ ============ ============ ============ ============
TOTAL RETURN+ 18.03% 15.97% 21.68% (12.70)% (20.30)%
RATIOS TO AVERAGE NET ASSETS(1):
Expenses 1.05% 1.33% 1.37% 1.32% 1.24%(2)
Net investment income 1.52% 0.91% 1.23% 0.78% 0.94%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands $ 134,631 $ 143,890 $ 132,544 $ 120,329 $ 124,065
Portfolio turnover rate 22% 33% 43% 39% 37%
</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
51
<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, 2005, 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. The Fund
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Fund's internal control over
financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. Our procedures included confirmation
of securities owned as of October 31, 2005, by correspondence with the custodian
and brokers; where replies were not received from brokers, we performed other
auditing procedures. 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, 2005, 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 19, 2005
52
<Page>
MORGAN STANLEY INTERNATIONAL FUND
TRUSTEE AND OFFICER INFORMATION
INDEPENDENT TRUSTEES:
<Table>
<Caption>
NUMBER OF
PORTFOLIOS
IN FUND
TERM OF COMPLEX
POSITION(S) OFFICE AND OVERSEEN
NAME, AGE AND ADDRESS OF HELD WITH LENGTH OF PRINCIPAL OCCUPATION(S) BY OTHER DIRECTORSHIPS HELD BY
INDEPENDENT TRUSTEE REGISTRANT TIME SERVED* DURING PAST 5 YEARS** TRUSTEE*** TRUSTEE
- ------------------------------- ----------- ------------- ------------------------------- ----------- -----------------------------
Michael Bozic (64) Trustee Since April Private Investor; Director or 197 Director of various
c/o Kramer Levin Naftalis & 1994 Trustee of the Retail Funds business organizations.
Frankel LLP (since April 1994) and the
Counsel to the Independent Institutional Funds (since
Trustees July 2003); formerly Vice
1177 Avenue of the Americas Chairman of Kmart Corporation
New York, NY 10036 (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 (73) Trustee Since Consultant; Director or 197 Director of Franklin Covey
1031 N. Chartwell Court January 1993 Trustee of the Retail Funds (time management systems),
Salt Lake City, UT 84103 (since January 1993) and the BMW Bank of North America,
Institutional Funds (since Inc. (industrial loan
July 2003); member of the corporation), Escrow Bank
Utah Regional Advisory Board USA (industrial loan
of Pacific Corp. (utility corporation), United Space
company); formerly Managing Alliance (joint venture
Director of Summit Ventures between Lockheed Martin and
LLC (2000-2004) (lobbying and the Boeing Company) and
consulting firm); United Nuskin Asia Pacific
States Senator (R-Utah) (multilevel marketing);
(1974-1992) and Chairman, member of the board of
Senate Banking Committee various civic and
(1980-1986), Mayor of Salt charitable organizations.
Lake City, Utah (1971-1974),
Astronaut, Space Shuttle
Discovery (April 12-19,
1985), and Vice Chairman,
Huntsman Corporation
(chemical company).
Wayne E. Hedien (71) Trustee Since Retired; Director or Trustee 197 Director of The PMI Group
c/o Kramer Levin Naftalis & September of the Retail Funds (since Inc. (private mortgage
Frankel LLP 1997 September 1997) and the insurance); Trustee and
Counsel to the Independent Institutional Funds (since Vice Chairman of The Field
Trustees July 2003); formerly Museum of Natural History;
1177 Avenue of the Americas associated with the Allstate director of various other
New York, NY 10036 Companies (1966-1994), most business and charitable
recently as Chairman of The organizations.
Allstate Corporation (March
1993-December 1994) and
Chairman and Chief Executive
Officer of its wholly-owned
subsidiary, Allstate
Insurance Company (July
1989-December 1994).
</Table>
53
<Page>
<Table>
<Caption>
NUMBER OF
PORTFOLIOS
IN FUND
TERM OF COMPLEX
POSITION(S) OFFICE AND OVERSEEN
NAME, AGE AND ADDRESS OF HELD WITH LENGTH OF PRINCIPAL OCCUPATION(S) BY OTHER DIRECTORSHIPS HELD BY
INDEPENDENT TRUSTEE REGISTRANT TIME SERVED* DURING PAST 5 YEARS** TRUSTEE*** TRUSTEE
- ------------------------------- ----------- ------------- ------------------------------- ----------- -----------------------------
Dr. Manuel H. Johnson (56) Trustee Since July Senior Partner, Johnson Smick 197 Director of NVR, Inc. (home
c/o Johnson Smick Group, Inc. 1991 International, Inc., a construction); Director of
888 16th Street, NW consulting firm; Chairman of KFX Energy; Director of RBS
Suite 740 the Audit Committee and Greenwich Capital Holdings
Washington, D.C. 20006 Director or Trustee of the (financial holding company).
Retail Funds (since July
1991) and the Institutional
Funds (since July 2003);
Co-Chairman and a founder of
the Group of Seven Council
(G7C), an international
economic commission; formerly
Vice Chairman of the Board of
Governors of the Federal
Reserve System and Assistant
Secretary of the U.S.
Treasury.
Joseph J. Kearns (63) Trustee Since July President, Kearns & 198 Director of Electro Rent
c/o Kearns & Associates LLC 2003 Associates LLC (investment Corporation (equipment
PMB754 consulting); Deputy Chairman leasing), The Ford Family
23852 Pacific Coast Highway of the Audit Committee and Foundation, and the UCLA
Malibu, CA 90265 Director or Trustee of the Foundation.
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 (69) Trustee Since July General Partner of Triumph 197
c/o Triumph Capital, L.P. 1991 Capital, L.P., a private
445 Park Avenue investment partnership;
New York, NY 10022 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 (73) Trustee Since July Chairman of Lumelite Plastics 198 Trustee and Director of
c/o Lumelite Plastics 2003 Corporation; Chairman of the certain investment
Corporation Governance Committee and companies in the JPMorgan
85 Charles Colman Blvd. Director or Trustee of the Funds complex managed by
Pawling, NY 12564 Retail Funds (since July J.P. Morgan Investment
2003) and the Institutional Management Inc.
Funds (since June 1992).
</Table>
54
<Page>
INTERESTED TRUSTEES:
<Table>
<Caption>
NUMBER OF
PORTFOLIOS
IN FUND
TERM OF COMPLEX
POSITION(S) OFFICE AND OVERSEEN
NAME, AGE AND ADDRESS OF HELD WITH LENGTH OF PRINCIPAL OCCUPATION(S) BY OTHER DIRECTORSHIPS HELD BY
INTERESTED TRUSTEE REGISTRANT TIME SERVED* DURING PAST 5 YEARS** TRUSTEE*** TRUSTEE
- ------------------------------- ----------- ------------- ------------------------------- ----------- -----------------------------
Charles A. Fiumefreddo (72) Chairman Since July Chairman and Director or 197 None
c/o Morgan Stanley Trust of 1991 Trustee of the Retail Funds
Harborside Financial Center, the Board (since July 1991) and the
Plaza Two, and Institutional Funds (since
Jersey City, NJ 07311 Trustee July 2003); formerly Chief
Executive Officer of the
Retail Funds (until September
2002).
James F. Higgins (57) Trustee Since June Director or Trustee of the 197 Director of AXA Financial,
c/o Morgan Stanley Trust 2000 Retail Funds (since June Inc. and The Equitable Life
Harborside Financial Center, 2000) and the Institutional Assurance Society of the
Plaza Two, Funds (since July 2003); United States (financial
Jersey City, NJ 07311 Senior Advisor of Morgan services).
Stanley (since August 2000);
Director of the Distributor
and Dean Witter Realty Inc.;
previously President and
Chief Operating Officer of
the Private Client Group of
Morgan Stanley (May 1999-
August 2000), and President
and Chief Operating Officer
of Individual Securities of
Morgan Stanley (February
1997-May 1999).
</Table>
- ----------
* THIS IS THE EARLIEST DATE THE TRUSTEE BEGAN SERVING THE FUNDS ADVISED BY
MORGAN STANLEY INVESTMENT ADVISORS INC. (THE "INVESTMENT ADVISER") (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 ADVISER AND ANY FUNDS THAT
HAVE AN INVESTMENT ADVISER THAT IS AN AFFILIATED PERSON OF THE INVESTMENT
ADVISER (INCLUDING, BUT NOT LIMITED TO, MORGAN STANLEY INVESTMENT
MANAGEMENT INC.).
55
<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**
- --------------------------- -------------- ---------------- -----------------------------------------------------------------------
Ronald E. Robison (66) President Since May 2003 President (since September 2005) and Principal Executive Officer of
1221 Avenue of the and funds in the Fund Complex (since May 2003); Managing Director of
Americas Principal Morgan Stanley & Co. Incorporated and Morgan Stanley; Managing
New York, NY 10020 Executive Director and Director of Morgan Stanley Investment Management Inc.,
Officer Morgan Stanley Distribution Inc. and Morgan Stanley Distributors
Inc.; Managing Director, Chief Administrative Officer and Director of
Morgan Stanley Investment Advisors Inc. and Morgan Stanley Services
Company Inc.; Chief Executive Officer and Director of Morgan Stanley
Trust; Director of Morgan Stanley SICAV (since May 2004); President
(since September 2005) and Principal Executive Officer (since May
2003) of the Van Kampen Funds; previously, Executive Vice President
(July 2003-September 2005) of funds in the Fund Complex and the Van
Kampen Funds. He was also previously President and Director of the
Institutional Funds (March 2001-July 2003), Chief Global Operations
Officer of Morgan Stanley Investment Management Inc. and Chief
Executive Officer and Chairman of Van Kampen Investor Services.
Joseph J. McAlinden (62) Vice Since July Managing Director and Chief Investment Officer of the Investment
1221 Avenue of the President 1995 Adviser and Morgan Stanley Investment Management Inc.; Chief
Americas Investment Officer of the Van Kampen Funds; Vice President of the
New York, NY 10020 Institutional Funds (since July 2003) and the Retail Funds (since
July 1995).
Barry Fink (50) Vice Since General Counsel (since May 2000) and Managing Director (since
1221 Avenue of the President February 1997 December 2000) of Morgan Stanley Investment Management; Managing
Americas Director (since December 2000), Secretary (since February 1997) and
New York, NY 10020 Director of the Investment Adviser and the Administrator; 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 Adviser and the
Administrator (February 1997-December 2001).
Amy R. Doberman (43) Vice Since July Managing Director and General Counsel, U.S. Investment Management;
1221 Avenue of the President 2004 Managing Director of Morgan Stanley Investment Management Inc. and
Americas the Investment Adviser, Vice President of the Institutional and
New York, NY 10020 Retail Funds (since July 2004); Vice President of the Van Kampen
Funds (since August 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 Morgan Stanley
1221 Avenue of the Compliance 2004 Investment Management (since October 2004); Executive Director of the
Americas Officer Investment Adviser and Morgan Stanley Investment Management Inc.;
New York, NY 10020 formerly Assistant Secretary and Assistant General Counsel of the
Morgan Stanley Retail Funds.
</Table>
56
<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 (38) Vice Since July Executive Director of Morgan Stanley & Co. Incorporated, Morgan
1221 Avenue of the President 2003 Stanley Investment Management Inc. and the Investment Adviser; Vice
Americas President of the Institutional Funds (since December 1997) and the
New York, NY 10020 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 (40) Treasurer Treasurer Executive Director of the Investment Adviser and the Administration
c/o Morgan Stanley Trust and Chief since (since December 2001); previously, Vice President of the Retail Funds
Harborside Financial Financial July 2003 and (September 2002-July 2003); Vice President of the Investment Adviser
Center, Officer Chief and the Administrator (August 2000-November 2001).
Plaza Two, Financial
Jersey City, NJ 07311 Officer since
September 2002
Thomas F. Caloia (59) Vice Since July Executive Director (since December 2002) and Assistant Treasurer of
c/o Morgan Stanley Trust President 2003 the Investment Adviser, the Distributor and the Administrator;
Harborside Financial previously Treasurer of the Retail Funds (April 1989-July 2003);
Center, formerly First Vice President of the Investment Adviser, the
Plaza Two, Distributor and the Administrator.
Jersey City, NJ 07311
Mary E. Mullin (38) Secretary Since July Executive Director of Morgan Stanley & Co. Incorporated, Morgan
1221 Avenue of the 2003 Stanley Investment Management Inc. and the Investment Adviser;
Americas Secretary of the Institutional Funds (since June 1999) and the Retail
New York, NY 10020 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.
2005 FEDERAL TAX NOTICE (UNAUDITED)
Of the amounts paid by the Fund during the fiscal year ended October
31, 2005 that were reported 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 has 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 $0.05 per
share with respect to this election.
57
<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
Ronald E. Robison
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 ADVISER
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)2005 Morgan Stanley
[MORGAN STANLEY LOGO]
36075RPT-RA05-01060P-Y10/05
[GRAPHIC]
MORGAN STANLEY FUNDS
MORGAN STANLEY
INTERNATIONAL FUND
ANNUAL REPORT
OCTOBER 31, 2005
[MORGAN STANLEY LOGO]
<Page>
Item 2. Code of Ethics.
(a) The Fund has adopted a code of ethics (the "Code of Ethics") that applies
to its principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar functions,
regardless of whether these individuals are employed by the Fund or a third
party.
(b) No information need be disclosed pursuant to this paragraph.
(c) 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)."
Additionally, Exhibit B was amended to remove Mitchell M. Merin as a covered
officer.
(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.
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Item 4. Principal Accountant Fees and Services.
(a)(b)(c)(d) and (g). Based on fees billed for the periods shown:
2005
<Table>
<Caption>
REGISTRANT COVERED ENTITIES(1)
AUDIT FEES $ 32,787 N/A
NON-AUDIT FEES
AUDIT-RELATED FEES $ 540(2) $ (2)
TAX FEES $ 7,001(3) $ (4)
ALL OTHER FEES $ - $ -
TOTAL NON-AUDIT FEES $ 7,541 $
TOTAL $ 40,328 $
</Table>
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 $ - $ -(5)
TOTAL NON-AUDIT FEES $ 6,536 $ 5,612,453
TOTAL $ 37,753 $ 5,612,453
</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, Manual H. Johnson, Joseph J.
Kearns, Michael Nugent and Fergus Reid.
(b) Not applicable.
Item 6. Schedule of Investments
Refer to Item 1.
<Page>
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
Applicable only to reports filed by closed-end funds.
Item 8. Portfolio Managers of Closed-End Management Investment Companies
Applicable only to reports filed by closed-end funds.
Item 9. Closed-End Fund Repurchases
Applicable only to reports filed by closed-end funds.
Item 10. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 11. 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 12. 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 19, 2005
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 19, 2005
/s/ Francis Smith
Francis Smith
Principal Financial Officer
December 19, 2005