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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, 2006
Date of reporting period: April 30, 2006
Item 1 - Report to Shareholders
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Welcome, Shareholder:
In this report, you'll learn about how your investment in Morgan Stanley
International Fund performed during the semiannual 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.
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Fund Report
For the six months ended April 30, 2006
TOTAL RETURN FOR THE 6 MONTHS ENDED APRIL 30, 2006
MORGAN
STANLEY LIPPER
CAPITAL INTERNATIONAL
INTERNATIONAL LARGE-CAP
(MSCI) EAFE CORE FUNDS
CLASS A CLASS B CLASS C CLASS D INDEX(1) INDEX(2)
- ------- ------- ------- ------- ------------- -------------
23.50% 23.04% 23.10% 23.71% 22.89% 23.63%
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
Although the "Goldilocks" scenario (a "just right" pace of economic growth) has
been somewhat dampened by higher oil prices, increasing geopolitical risks, and
rising bond yields and rates, global corporate earnings growth forecasts for
2006 and 2007 were solid in all regions, and U.S. first quarter earnings were
again above expectations.
Against this backdrop, international equities were strong for the six-month
period ended April 30, 2006, with strong currency moves augmenting gains. During
this period, Japanese equities posted a particularly solid return, and the yen
gained about 2 percent. During the first quarter, the Bank of Japan announced a
gradual end to quantitative easing -- but reaffirmed a slow approach to
normalizing interest rates. Japanese economic numbers were mixed, but generally
positive. Economic consensus 2006 GDP numbers have risen, business and consumer
confidence remain at high levels and inflation data has improved.
Euro area equities rose briskly as well, and the euro rose 5.2 percent. In
Germany, April business surveys continued to make new cycle highs, industrial
production rose above expectations, and yet core inflation data remained
favorable. That said, March retail sales in France and Germany were below
expectations, and Continental job growth was sluggish. United Kingdom equities
also advanced at a good pace, though somewhat short of the euro area, and the
sterling was up 2.7 percent.
Emerging markets led the developed markets, broadly speaking. While the Asia
ex-Japan region did not match the performance of the emerging markets, the
former delivered good results as well, with mixed currency returns. China
benefited from robust year-over-year growth and increased fixed investment. The
tightening of bank lending rates by China in April was -- we believe -- an
attempt to refocus lending and growth to the consumer and a precaution against
speculative overinvestment.
PERFORMANCE ANALYSIS
Morgan Stanley International Fund Class A, B and C shares outperformed the
Morgan Stanley Capital International (MSCI) EAFE Index and underperformed the
Lipper International Large-Cap Core Funds Index, while Class D shares
outperformed both indexes for the six months ended April 30, 2006, assuming no
deduction of applicable sales charges.
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The largest positive contributors to relative performance were the Fund's
overweight to Japan relative to the MSCI EAFE Index and exposure to emerging
markets. Unlike the MSCI EAFE Index, which does not include emerging markets,
the Fund included a modest stake in these countries. As of the close of the
period, emerging markets represented about 5.5 percent of holdings.
The relative underweight to the United Kingdom and Continental Europe produced
mixed results. The strength of both sterling and the euro hurt portfolio
performance. (Because U.S. investors such as the Fund purchase shares of foreign
stocks in local currencies, the investments are subject to fluctuations in
currency exchange rates. If a foreign currency rises relative to the U.S.
dollar, the cost to the U.S. investor increases, which detracts from the
investors' total return.)
For the six-month period, the Fund's investment strategy did not change
materially. The portfolio was fully invested and remained focused on Japan and
Asia. The Fund's positioning reflected our belief that Japan is in the early
stages of reflation and that the upside to economic growth and earnings may
still be underestimated. We were encouraged by Japan's constructive monetary
stance, combined with the political pragmatism of Prime Minister Koizumi (that
is, less taxes and smaller government).
THERE IS NO GUARANTEE THAT ANY SECTORS MENTIONED WILL CONTINUE TO PERFORM AS
DISCUSSED HEREIN OR THAT SECURITIES IN SUCH SECTORS WILL BE HELD BY THE FUND IN
THE FUTURE.
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TOP 10 HOLDINGS
BP PLC 2.0%
Toyota Motor Corp 1.9
GlaxoSmithKline PLC 1.4
Mitsubishi UFJ Financial Group, Inc. 1.2
HSBC Holdings PLC 1.2
Total S.A. 1.2
Nestle S.A. (Registered Shares) 1.1
Vodafone Group PLC 1.1
UBS AG (Registered Shares) 1.0
Royal Dutch Shell PLC (A Shares) 1.0
TOP FIVE COUNTRIES
Japan 29.7%
United Kingdom 19.8
Germany 9.5
France 7.7
Switzerland 5.5
DATA AS OF APRIL 30, 2006. 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. THE SEMIANNUAL REPORTS AND THE ANNUAL REPORTS ARE
FILED ELECTRONICALLY WITH THE SECURITIES AND EXCHANGE COMMISSION (SEC) ON FORM
N-CSRS AND FORM N-CSR, RESPECTIVELY. 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 E-MAIL ADDRESS
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(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
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PERFORMANCE SUMMARY
AVERAGE ANNUAL TOTAL RETURNS--PERIOD ENDED APRIL 30, 2006
<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 35.53%(3) 34.51%(3) 34.59%(3) 35.97%(3)
28.42(4) 29.51(4) 33.59(4) --
5 YEARS 8.79(3) 7.94(3) 7.98(3) 9.02(3)
7.62(4) 7.64(4) 7.98(4) --
SINCE INCEPTION 5.66(3) 4.85(3) 4.88(3) 5.90(3)
4.83(4) 4.85(4) 4.88(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 TABLE DOES NOT REFLECT THE DEDUCTION
OF TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF
FUND SHARES. PERFORMANCE FOR CLASS A, CLASS B, CLASS C, AND CLASS D SHARES WILL
VARY DUE TO DIFFERENCES IN SALES CHARGES AND EXPENSES.
* 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 1.0% 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.
6
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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 11/01/05 - 04/30/06.
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 *
------------- ------------- ---------------
11/01/05 -
11/01/05 04/30/06 04/30/06
------------- ------------- ---------------
CLASS A
Actual (23.50% return) $1,000.00 $1,235.00 $ 7.20
Hypothetical (5% annual return before expenses) $1,000.00 $1,018.35 $ 6.51
CLASS B
Actual (23.04% return) $1,000.00 $1,230.40 $11.34
Hypothetical (5% annual return before expenses) $1,000.00 $1,014.63 $10.24
CLASS C
Actual (23.10% return) $1,000.00 $1,231.00 $11.17
Hypothetical (5% annual return before expenses) $1,000.00 $1,014.78 $10.09
CLASS D
Actual (23.71% return) $1,000.00 $1,237.10 $ 5.82
Hypothetical (5% annual return before expenses) $1,000.00 $1,019.59 $ 5.26
</Table>
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* EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO OF 1.30%, 2.05%,
2.02% AND 1.05% FOR CLASS A, CLASS B, CLASS C AND CLASS D SHARES,
RESPECTIVELY, MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD,
MULTIPLIED BY 181/365 (TO REFLECT THE ONE-HALF YEAR PERIOD). IF THE FUND
HAD BORNE ALL OF ITS EXPENSES THAT WERE REIMBURSED OR WAIVED BY THE
INVESTMENT ADVISER AND ADMINISTRATOR, THE ANNUALIZED EXPENSE RATIOS WOUL
HAVE BEEN 1.35%, 2.10%, 2.07% AND 1.10% FOR CLASS A, CLASS B, CLASS C AND
CLASS D SHARES, RESPECTIVELY.
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Investment Advisory Agreement Approval
NATURE, EXTENT AND QUALITY OF SERVICES
The Board reviewed and considered the nature and extent of the investment
advisory services provided by the Investment Adviser under the Advisory
Agreement, including portfolio management, investment research and equity and
fixed income securities trading. The Board also reviewed and considered the
nature and extent of the non-advisory, administrative services provided by the
Fund's Administrator under the Administration Agreement, including accounting,
clerical, bookkeeping, compliance, business management and planning, and the
provision of supplies, office space and utilities at the Investment Adviser's
expense. (The Investment Adviser and the Administrator together are referred to
as the "Adviser" and the Advisory and Administration Agreements together are
referred to as the "Management Agreement.") The Board also compared the nature
of the services provided by the Adviser with similar services provided by
non-affiliated advisers as reported to the Board by Lipper Inc. ("Lipper").
The Board reviewed and considered the qualifications of the portfolio managers,
the senior administrative managers and other key personnel of the Adviser who
provide the administrative and advisory services to the Fund. The Board
determined that the Adviser's portfolio managers and key personnel are well
qualified by education and/or training and experience to perform the services in
an efficient and professional manner. The Board concluded that the nature and
extent of the advisory and administrative services provided were necessary and
appropriate for the conduct of the business and investment activities of the
Fund. The Board also concluded that the overall quality of the advisory and
administrative services was satisfactory.
PERFORMANCE RELATIVE TO COMPARABLE FUNDS MANAGED BY OTHER ADVISERS
On a regular basis, the Board reviews the performance of all funds in the Morgan
Stanley Fund Complex, including the Fund, compared to their peers, paying
specific attention to the underperforming funds. In addition, the Board
specifically reviewed the Fund's performance for the one-, three- and five-year
periods ended November 30, 2005, as shown in a report provided by Lipper (the
"Lipper Report"), compared to the performance of comparable funds selected by
Lipper (the "performance peer group"). The Board also discussed with the Adviser
the performance goals and the actual results achieved in managing the Fund. The
Board concluded that the Fund's performance was competitive with that of its
performance peer group.
FEES RELATIVE TO OTHER PROPRIETARY FUNDS MANAGED BY THE ADVISER WITH COMPARABLE
INVESTMENT STRATEGIES
The Board reviewed the advisory and administrative fee (together, the
"management fee") rate paid by the Fund under the Management Agreement. The
Board noted that the management fee rate was comparable to the management fee
rates charged by the Adviser to other proprietary funds it manages with
investment strategies comparable to those of the Fund.
8
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FEES AND EXPENSES RELATIVE TO COMPARABLE FUNDS MANAGED BY OTHER ADVISERS
The Board reviewed the management fee rate and total expense ratio of the Fund
as compared to the average management fee rate and average total expense ratio
for funds, selected by Lipper (the "expense peer group"), managed by other
advisers with investment strategies comparable to those of the Fund, as shown in
the Lipper Report. The Board concluded that the Fund's management fee rate and
total expense ratio were competitive with those of its expense peer group.
BREAKPOINTS AND ECONOMIES OF SCALE
The Board reviewed the structure of the Fund's management fee schedule under the
Management Agreement and noted that it includes a breakpoint in the management
fee schedule. The Board also reviewed the level of the Fund's management fee and
noted that the fee, as a percentage of the Fund's net assets, would decrease as
net assets increase because of the breakpoint. The Board concluded that the
Fund's management fee would reflect economies of scale as assets increase.
PROFITABILITY OF THE ADVISER AND AFFILIATES
The Board considered information concerning the costs incurred and profits
realized by the Adviser and affiliates during the last year from their
relationship with the Fund and during the last two years from their relationship
with the Morgan Stanley Fund Complex and reviewed with the Adviser the cost
allocation methodology used to determine the profitability of the Adviser and
affiliates. Based on its review of the information it received, the Board
concluded that the profits earned by the Adviser and affiliates were not
excessive in light of the advisory, administrative and other services provided
to the Fund.
FALL-OUT BENEFITS
The Board considered so-called "fall-out benefits" derived by the Adviser and
affiliates from their relationship with the Fund and the Morgan Stanley Fund
Complex, such as sales charges on sales of Class A shares and "float" benefits
derived from handling of checks for purchases and sales of Fund shares, through
a broker-dealer affiliate of the Adviser and "soft dollar" benefits (discussed
in the next section). The Board also considered that a broker-dealer affiliate
of the Adviser receives from the Fund 12b-1 fees for distribution and
shareholder services. The Board also considered that an affiliate of the
Adviser, through a joint venture, receives revenue in connection with trading
done on behalf of the Fund through an electronic trading system network ("ECN").
The Board concluded that the float benefits and the above-referenced ECN-related
revenue were relatively small and that the sales charges and 12b-1 fees were
competitive with those of other broker-dealers.
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SOFT DOLLAR BENEFITS
The Board considered whether the Adviser realizes any benefits as a result of
brokerage transactions executed through "soft dollar" arrangements. Under such
arrangements, brokerage commissions paid by the Fund and/or other funds managed
by the Adviser would be used to pay for research that a securities broker
obtains from third parties, or to pay for both research and execution services
from securities brokers who effect transactions for the Fund. The Adviser
informed the Board that it does not use Fund commissions to pay for third party
research. It does use commissions to pay for research which is bundled with
execution services. The Board recognized that the receipt of such research from
brokers may reduce the Adviser's costs, but concluded that the receipt of such
research strengthens the investment management resources of the Adviser, which
may ultimately benefit the Fund and other funds in the Morgan Stanley Fund
Complex.
ADVISER FINANCIALLY SOUND AND FINANCIALLY CAPABLE OF MEETING THE FUND'S NEEDS
The Board considered whether the Adviser is financially sound and has the
resources necessary to perform its obligations under the Management Agreement.
The Board noted that the Adviser's operations remain profitable, although
increased expenses in recent years have reduced the Adviser's profitability. The
Board concluded that the Adviser has the financial resources necessary to
fulfill its obligations under the Management Agreement.
HISTORICAL RELATIONSHIP BETWEEN THE FUND AND THE ADVISER
The Board also reviewed and considered the historical relationship between the
Fund and the Adviser, including the organizational structure of the Adviser, the
policies and procedures formulated and adopted by the Adviser for managing the
Fund's operations and the Board's confidence in the competence and integrity of
the senior managers and key personnel of the Adviser. The Board concluded that
it is beneficial for the Fund to continue its relationship with the Adviser.
OTHER FACTORS AND CURRENT TRENDS
The Board considered the controls and procedures adopted and implemented by the
Adviser and monitored by the Fund's Chief Compliance Officer and concluded that
the conduct of business by the Adviser indicates a good faith effort on its part
to adhere to high ethical standards in the conduct of the Fund's business.
GENERAL CONCLUSION
After considering and weighing all of the above factors, the Board concluded
that it would be in the best interest of the Fund and its shareholders to
approve renewal of the Management Agreement for another year.
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Morgan Stanley International Fund
PORTFOLIO OF INVESTMENTS - APRIL 30, 2006 (UNAUDITED)
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------
Common Stocks (96.6%)
Australia (3.9%)
ALUMINUM
44,214 Alumina Ltd. $ 240,405
----------
BEVERAGES: ALCOHOLIC
37,487 Foster's Group Ltd. 167,390
----------
BEVERAGES: NON-ALCOHOLIC
9,820 Coca-Cola Amatil Ltd. 54,289
----------
BIOTECHNOLOGY
1,766 CSL Ltd. 77,382
----------
BUILDING PRODUCTS
36,849 CSR Ltd. 113,332
----------
CASINO/GAMING
7,441 TABCORP Holdings Ltd. 86,456
----------
CHEMICALS: MAJOR DIVERSIFIED
10,913 Orica Ltd. 201,879
----------
CONSTRUCTION MATERIALS
22,732 Boral Ltd. 164,513
18,172 James Hardie Industries NV 130,408
36,310 Rinker Group Ltd. 584,565
----------
879,486
----------
CONTAINERS/PACKAGING
34,325 Amcor Ltd. 188,460
----------
ENGINEERING & CONSTRUCTION
4,416 Leighton Holdings Ltd. 56,071
----------
FINANCIAL CONGLOMERATES
24,422 AMP Ltd. 167,100
3,839 Macquarie Bank Ltd. 208,155
10,126 Suncorp-Metway Ltd. 156,408
----------
531,663
----------
FOOD RETAIL
19,725 Coles Myer Ltd. 160,427
18,727 Woolworths Ltd. 265,374
----------
425,801
----------
GAS DISTRIBUTORS
8,535 Australian Gas Light Co. Ltd. 125,741
108,362 Origin Energy Ltd. 580,145
----------
705,886
----------
HOSPITAL/NURSING MANAGEMENT
17,492 Symbion Health Ltd. $ 45,430
----------
INDUSTRIAL CONGLOMERATES
3,619 Ansell Ltd. 31,330
6,903 Wesfarmers Ltd. 189,765
----------
221,095
----------
INVESTMENT TRUSTS/ MUTUAL FUNDS
42,758 Macquarie Infrastructure Group (Stapled
Securities)** 115,919
----------
MAJOR BANKS
26,584 Australia and New Zealand Banking Group Ltd. 564,252
21,970 Commonwealth Bank of Australia 784,149
29,418 National Australia Bank Ltd. 840,209
31,067 Westpac Banking Corp. 592,166
----------
2,780,776
----------
MAJOR TELECOMMUNICATIONS
39,612 Telstra Corp., Ltd. 118,521
----------
MEDICAL/NURSING SERVICES
2,665 Sonic Healthcare Ltd. 30,317
----------
MISCELLANEOUS COMMERCIAL SERVICES
18,177 Brambles Industries Ltd. 154,048
----------
MULTI-LINE INSURANCE
31,198 Insurance Australia Group Ltd. 133,858
----------
OIL & GAS PRODUCTION
79,581 Santos Ltd. 714,328
43,545 Woodside Petroleum Ltd. 1,547,586
----------
2,261,914
----------
OIL REFINING/MARKETING
15,113 Caltex Australia Ltd. 231,258
----------
OTHER METALS/MINERALS
136,846 BHP Billiton Ltd. 3,044,881
SEE NOTES TO FINANCIAL STATEMENTS
11
<Page>
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------
11,867 Rio Tinto Ltd. $ 708,778
-----------
3,753,659
-----------
OTHER TRANSPORTATION
17,095 Patrick Corp., Ltd. 110,606
10,772 Transurban Group 53,990
-----------
164,596
-----------
PHARMACEUTICALS: OTHER
17,492 Mayne Pharma Ltd.* 39,319
-----------
PRECIOUS METALS
12,662 Newcrest Mining Ltd. 219,234
-----------
PROPERTY - CASUALTY INSURERS
12,758 QBE Insurance Group Ltd. 216,827
-----------
PUBLISHING: NEWSPAPERS
18,368 John Fairfax Holdings Ltd. 54,400
-----------
PULP & PAPER
18,583 PaperlinX Ltd. 47,275
-----------
REAL ESTATE DEVELOPMENT
7,770 Lend Lease Corp., Ltd. 84,201
-----------
REAL ESTATE INVESTMENT TRUSTS
40 Stockland* 211
1,300 Stockland
(Stapled Securities)** 6,792
-----------
7,003
-----------
STEEL
27,916 BlueScope Steel Ltd. 162,811
21,586 OneSteel Ltd. 65,078
-----------
227,889
-----------
Total Australia 14,636,039
-----------
Austria (0.9%)
BUILDING PRODUCTS
3,590 Wienerberger AG 189,816
-----------
CONTAINERS/PACKAGING
255 Mayr-Melnhof Karton AG 47,082
-----------
ELECTRIC UTILITIES
455 Oesterreichische Elektrizitaetswirtschafts
AG (Verbund) (A Shares) 216,271
-----------
INDUSTRIAL MACHINERY
416 Andritz AG $ 72,940
-----------
MAJOR BANKS
1,872 Bank Austria Creditanstalt 245,217
10,985 Erste Bank der Oesterreichischen Sparkassen AG 666,602
1,617 Raiffeisen International Bank Holdings* 140,944
-----------
1,052,763
-----------
MAJOR TELECOMMUNICATIONS
19,779 Telekom Austria AG 485,339
-----------
MULTI-LINE INSURANCE
1,329 Wiener Staedtische Allgemeine Versicherung AG 85,141
-----------
OIL REFINING/MARKETING
9,704 OMV AG 674,688
-----------
OTHER TRANSPORTATION
625 Flughafen Wien AG 47,673
-----------
REAL ESTATE DEVELOPMENT
20,208 Immofinanz Immobilien Anlagen AG* 221,292
6,631 Meinl European Land Ltd.* 130,923
-----------
352,215
-----------
STEEL
534 Boehler-Uddeholm AG 121,137
1,084 Voestalpine AG 158,269
-----------
279,406
-----------
Total Austria 3,503,334
-----------
Belgium (0.9%)
CHEMICALS: SPECIALTY
1,975 Solvay S.A. 230,977
-----------
ELECTRONIC EQUIPMENT/INSTRUMENTS
1,997 Agfa Gevaert NV 40,487
-----------
See Notes to Financial Statements
12
<Page>
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------
FINANCIAL CONGLOMERATES
42,807 Fortis $1,604,498
----------
MAJOR BANKS
24,154 Dexia 637,184
3,321 KBC GROEP NV 385,250
----------
1,022,434
----------
MAJOR TELECOMMUNICATIONS
3,180 Belgacom S.A. 104,068
----------
METAL FABRICATIONS
209 Bekaert NV 24,008
----------
OTHER METALS/MINERALS
840 Umicore 133,952
----------
PHARMACEUTICALS: OTHER
3,318 UCB S.A. 170,872
----------
Total Belgium 3,331,296
----------
Bermuda (0.0%)
APPAREL/FOOTWEAR
32,500 Yue Yuen Industrial
(Holdings) Ltd. 95,350
----------
CONSTRUCTION MATERIALS
31,000 Cheung Kong Infrastructure
Holdings Ltd. 101,144
----------
Total Bermuda 196,494
----------
Brazil (0.0%)
BEVERAGES: ALCOHOLIC
82,339 Companhia de Bebidas
das Americas 33,905
----------
FOOD RETAIL
500 Companhia Brasileira de
Distribuicao Grupo Pao de
Acucar (Sponsored ADR) 19,680
----------
STEEL
2,105 Arcelor Brasil, S.A. 38,804
1,604 Companhia Siderurgica
Nacional S.A. 56,296
----------
95,100
----------
TOBACCO
2,200 Souza Cruz S.A. $ 41,820
----------
Total Brazil 190,505
----------
Cayman Islands (0.1%)
INDUSTRIAL SPECIALTIES
37,500 Kingboard Chemical
Holdings Ltd. 98,897
----------
MAJOR TELECOMMUNICATIONS
76,000 Hutchison Telecommunications
International Ltd.* 133,784
----------
Total Cayman Islands 232,681
----------
Denmark (0.4%)
BIOTECHNOLOGY
1,550 Novozymes A/S (B Shares) 120,940
----------
ELECTRICAL PRODUCTS
1,700 Vestas Wind Systems A/S* 46,131
----------
MAJOR BANKS
11,444 Danske Bank A/S 455,171
----------
MARINE SHIPPING
41 A P Moller - Maersk A/S 352,140
----------
PHARMACEUTICALS: MAJOR
4,450 Novo Nordisk A/S (Series B) 288,907
----------
TELECOMMUNICATION EQUIPMENT
4,500 GN Store Nord A/S 64,099
----------
TRUCKING
225 DSV A/S 36,824
----------
Total Denmark 1,364,212
----------
Finland (1.7%)
BUILDING PRODUCTS
948 Uponor Oyj 29,075
----------
ENGINEERING & CONSTRUCTION
2,578 Kone Oyj (B Shares) 120,306
----------
FOOD RETAIL
9,810 Kesko Oyj (B Shares) 338,615
----------
SEE NOTES TO FINANCIAL STATEMENTS
13
<Page>
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------
INDUSTRIAL MACHINERY
7,088 Metso Oyj $ 281,680
----------
INFORMATION TECHNOLOGY SERVICES
5,020 TietoEnator Oyj 157,634
----------
MARINE SHIPPING
1,289 Cargotec Corp. (B Shares) 62,658
----------
MULTI-LINE INSURANCE
11,210 Sampo Oyj (A Shares) 231,372
----------
OIL REFINING/MARKETING
10,453 Fortum Oyj 264,014
----------
OTHER METALS/MINERALS
6,478 Outokumpu Oyj 156,098
----------
PULP & PAPER
19,556 Stora Enso Oyj
(Registered Shares) 306,424
17,023 UPM-Kymmene Oyj 399,458
----------
705,882
----------
SPECIALTY STORES
3,313 Neste Oil Oyj 115,610
----------
STEEL
2,962 Rautaruukki Oyj 103,885
----------
TELECOMMUNICATION EQUIPMENT
160,580 Nokia Oyj 3,656,709
----------
TRUCKS/CONSTRUCTION/FARM
MACHINERY
1,518 Wartsila Oyj (B Shares) 64,692
----------
Total Finland 6,288,230
----------
France (7.7%)
ADVERTISING/MARKETING SERVICES
2,240 Publicis Groupe 93,116
----------
AEROSPACE & DEFENSE
3,679 Thales S.A. 158,087
342 Zodiac S.A. 22,134
----------
180,221
----------
APPAREL/FOOTWEAR
238 Hermes International $ 61,073
5,577 LVMH Moet Hennessy
Louis Vuitton S.A. 587,149
----------
648,222
----------
AUTO PARTS: O.E.M.
2,683 Valeo S.A. 114,950
----------
AUTOMOTIVE AFTERMARKET
2,421 Compagnie Generale des
Etablissements Michelin
(B Shares) 174,708
----------
BROADCASTING
2,759 Societe Television
Francaise 1 91,544
----------
BUILDING PRODUCTS
9,213 Compagnie de Saint-Gobain 690,995
----------
CHEMICALS: SPECIALTY
3,435 Air Liquide S.A. 743,212
----------
CONSTRUCTION MATERIALS
7,982 Bouygues S.A. 435,531
1,038 Imerys S.A. 89,180
5,520 Lafarge S.A. 678,993
----------
1,203,704
----------
DATA PROCESSING SERVICES
558 Atos Origin S.A.* 41,851
----------
DEPARTMENT STORES
1,436 PPR S.A. 186,238
----------
ELECTRIC UTILITIES
3,280 Suez S.A.
(Brussels Exchange) 128,652
20,351 Suez S.A. (Paris Exchange) 800,798
3,280 Suez-Strip VVPR *++ 0
----------
929,450
----------
ELECTRICAL PRODUCTS
6,397 Schneider Electric S.A. 724,323
----------
ELECTRONICS/APPLIANCES
5,560 Thomson 115,038
----------
SEE NOTES TO FINANCIAL STATEMENTS
14
<Page>
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------
ENGINEERING & CONSTRUCTION
4,217 Vinci S.A. $ 418,963
-----------
FOOD DISTRIBUTORS
4,533 Sodexho Alliance S.A. 218,173
-----------
FOOD RETAIL
13,148 Carrefour S.A. 762,694
1,733 Casino Guichard Perrachon 138,068
-----------
900,762
-----------
FOOD: MAJOR DIVERSIFIED
5,688 Groupe Danone 709,705
-----------
HOTELS/RESORTS/CRUISELINES
8,803 Accor S.A. 554,072
-----------
INDUSTRIAL CONGLOMERATES
3,385 Alstom* 306,623
-----------
INFORMATION TECHNOLOGY SERVICES
4,278 CapGemini S.A.* 228,946
-----------
INTEGRATED OIL
15,940 Total S.A. 4,408,091
-----------
INTERNET SOFTWARE/SERVICES
1,686 Business Objects S.A.* 54,750
-----------
LIFE/HEALTH INSURANCE
2,812 CNP Assurances 304,031
-----------
MAJOR BANKS
30,238 BNP Paribas S.A. 2,857,305
11,926 Societe Generale 1,822,051
-----------
4,679,356
-----------
MAJOR TELECOMMUNICATIONS
41,719 France Telecom S.A. 974,231
-----------
MEDIA CONGLOMERATES
20,102 Vivendi S.A. 733,938
-----------
MEDICAL SPECIALTIES
1,227 Essilor International S.A. 123,065
-----------
MOTOR VEHICLES
2,756 PSA Peugeot Citroen 181,150
2,837 Renault S.A. 329,283
-----------
510,433
-----------
MULTI-LINE INSURANCE
67,459 Axa $ 2,475,742
-----------
OFFICE EQUIPMENT/SUPPLIES
1,215 Neopost S.A. 137,419
-----------
OILFIELD SERVICES/EQUIPMENT
796 Technip S.A. 50,262
-----------
OTHER CONSUMER SPECIALTIES
302 Societe BIC S.A. 21,222
-----------
OTHER TRANSPORTATION
2,772 Autoroutes du Sud de la France 178,355
-----------
PACKAGED SOFTWARE
1,570 Dassault Systemes S.A. 85,171
-----------
PHARMACEUTICALS: MAJOR
27,606 Sanofi-Aventis 2,603,373
-----------
PUBLISHING: BOOKS/MAGAZINES
3,217 Lagardere S.C.A. 265,836
-----------
REAL ESTATE DEVELOPMENT
1,633 Gecina S.A. 214,466
1,377 Klepierre 161,475
2,226 Unibail 387,829
-----------
763,770
-----------
REGIONAL BANKS
13,826 Credit Agricole S.A. 557,126
-----------
TELECOMMUNICATION EQUIPMENT
43,275 Alcatel S.A.* 624,029
1,977 Safran S.A. 50,757
-----------
674,786
-----------
WATER UTILITIES
4,407 Veolia Environnement 263,316
-----------
Total France 29,139,089
-----------
GERMANY (9.2%)
AIR FREIGHT/COURIERS
31,940 Deutsche Post AG (Registered Shares) 851,444
-----------
AIRLINES
10,158 Deutsche Lufthansa AG (Registered Shares) 187,360
-----------
SEE NOTES TO FINANCIAL STATEMENTS
15
<Page>
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------
APPAREL/FOOTWEAR
2,315 Adidas-Salomon AG $ 488,763
520 Puma AG 209,609
-----------
698,372
-----------
AUTO PARTS: O.E.M.
5,780 Continental AG 688,151
-----------
CHEMICALS: MAJOR DIVERSIFIED
23,802 BASF AG* 2,040,744
29,135 Bayer AG 1,345,663
-----------
3,386,407
-----------
CHEMICALS: SPECIALTY
3,463 Linde AG 310,019
-----------
DEPARTMENT STORES
3,543 KarstadtQuelle AG* 106,517
6,406 Metro AG 362,873
-----------
469,390
-----------
ELECTRIC UTILITIES
27,534 E.ON AG* 3,353,152
18,416 RWE AG 1,596,615
-----------
4,949,767
-----------
ENGINEERING & CONSTRUCTION
2,443 HOCHTIEF AG 167,049
-----------
FINANCIAL CONGLOMERATES
6,031 Hypo Real Estate Holding AG 421,675
-----------
HOTELS/RESORTS/CRUISELINES
10,209 TUI AG 217,409
-----------
HOUSEHOLD/PERSONAL CARE
768 Beiersdorf AG 116,221
-----------
INDUSTRIAL CONGLOMERATES
5,727 MAN AG 434,161
35,793 Siemens AG (Registered Shares) 3,386,734
16,237 ThyssenKrupp AG 535,263
-----------
4,356,158
-----------
INDUSTRIAL MACHINERY
2,350 Heidelberger Druckmaschinen AG 118,590
-----------
INVESTMENT BANKS/BROKERS
4,526 Deutsche Boerse AG $ 654,537
-----------
MAJOR BANKS
26,218 Commerzbank AG 1,086,567
21,923 Deutsche Bank AG (Registered Shares) 2,691,682
2,314 Deutsche Post AG 176,912
-----------
3,955,161
-----------
MAJOR TELECOMMUNICATIONS
121,948 Deutsche Telekom AG (Registered Shares)* 2,203,126
-----------
MEDICAL DISTRIBUTORS
1,771 Celesio AG 166,678
-----------
MEDICAL/NURSING SERVICES
2,872 Fresenius Medical Care AG & Co. KGaA 344,614
-----------
MOTOR VEHICLES
40,482 DaimlerChrysler AG (Registered Shares) 2,219,593
7,842 Volkswagen AG* 605,579
-----------
2,825,172
-----------
MULTI-LINE INSURANCE
17,293 Allianz AG (Registered Shares) 2,895,096
8,727 Muenchener Rueckver AG (Registered Shares) 1,236,641
-----------
4,131,737
-----------
PACKAGED SOFTWARE
9,901 SAP AG 2,163,459
-----------
PHARMACEUTICALS: MAJOR
2,220 Merck KGaA* 235,263
7,333 Schering AG 787,472
-----------
1,022,735
-----------
PHARMACEUTICALS: OTHER
3,220 Altana AG 206,652
-----------
SEMICONDUCTORS
28,495 Infineon Technologies AG* 348,349
-----------
Total Germany 34,960,232
-----------
SEE NOTES TO FINANCIAL STATEMENTS
16
<Page>
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------
Greece (0.3%)
CASINO/GAMING
6,990 Greek Organisation of Football Prognostics S.A. $ 258,385
----------
CONSTRUCTION MATERIALS
1,850 Titan Cement Co. 94,105
----------
MAJOR BANKS
8,821 National Bank of Greece S.A. 438,021
----------
REGIONAL BANKS
6,938 Alpha Bank A.E. 262,589
4,066 EFG Eurobank Ergasias 161,995
----------
424,584
----------
Total Greece 1,215,095
----------
Hong Kong (2.5%)
AIRLINES
57,000 Cathay Pacific Airways Ltd. 101,808
----------
APPAREL/FOOTWEAR RETAIL
52,500 Esprit Holdings Ltd. 419,090
----------
BROADCASTING
16,000 Television Broadcasts Ltd. 99,970
----------
ELECTRIC UTILITIES
95,300 CLP Holdings Ltd. 555,506
76,000 Hong Kong Electric Holdings Ltd. 374,399
----------
929,905
----------
ELECTRONIC PRODUCTION EQUIPMENT
1,000 ASM Pacific Technology Ltd. 5,823
----------
ENGINEERING & CONSTRUCTION
35,000 Hopewell Holdings Ltd. 102,008
126,797 New World Development Co., Ltd. 227,291
----------
329,299
----------
FINANCIAL CONGLOMERATES
68,000 Wharf (Holdings) Ltd. (The) 272,726
----------
GAS DISTRIBUTORS
207,483 Hong Kong & China Gas Co., Ltd. $ 495,007
----------
HOTELS/RESORTS/CRUISELINES
58,642 Shangri-La Asia Ltd. 103,985
----------
INDUSTRIAL CONGLOMERATES
114,900 Hutchison Whampoa Ltd. 1,127,618
50,000 Swire Pacific Ltd. (ClassA) 511,329
----------
1,638,947
----------
INVESTMENT BANKS/BROKERS
57,000 Hong Kong Exchanges & Clearing Ltd. 409,805
----------
MAJOR BANKS
83,393 Bank of East Asia, Ltd. (The) 348,443
200,500 BOC Hong Kong (Holdings) Ltd. 413,706
39,000 Hang Seng Bank Ltd. 504,959
----------
1,267,108
----------
MAJOR TELECOMMUNICATIONS
203,611 PCCW Ltd. 135,228
----------
MISCELLANEOUS MANUFACTURING
87,000 Johnson Electric Holdings Ltd. 73,488
----------
PUBLISHING: NEWSPAPERS
10,000 SCMP Group Ltd. 3,740
----------
RAILROADS
76,301 MTR Corp., Ltd. 203,193
----------
REAL ESTATE DEVELOPMENT
83,000 Cheung Kong (Holdings) Ltd. 934,972
104,000 Hang Lung Properties Ltd. 209,226
40,000 Henderson Land Development Co., Ltd. 234,966
36,577 Hysan Development Co., Ltd. 105,189
23,090 Kerry Properties Ltd. 81,738
64,923 Sino Land Co., Ltd. 108,005
71,000 Sun Hung Kai Properties Ltd. 811,240
----------
2,485,336
----------
SEE NOTES TO FINANCIAL STATEMENTS
17
<Page>
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUSTS
90,500 Link REIT* $ 199,573
----------
TOOLS/HARDWARE
51,000 Techtronic Industries Co., Ltd. 85,501
----------
WHOLESALE DISTRIBUTORS
92,000 Li & Fung Ltd. 218,305
----------
Total Hong Kong 9,477,837
----------
Ireland (0.1%)
FINANCIAL CONGLOMERATES
14,226 Depfa Bank PLC 267,059
----------
PHARMACEUTICALS: OTHER
5,750 Elan Corporation PLC* 84,511
----------
Total Ireland 351,570
----------
Japan(29.7%)
ADVERTISING/MARKETING SERVICES
1,650 Asatsu - DK Inc. 58,012
----------
AGRICULTURAL COMMODITIES/MILLING
8,000 Nisshin Seifun Group Inc. 85,717
----------
AIR FREIGHT/COURIERS
34,500 Nippon Express Co., Ltd. 182,249
12,035 Yamato Holdings Co., Ltd. 240,129
----------
422,378
----------
AIRLINES
36,000 Japan Airlines Corp.* 95,561
----------
APPAREL/FOOTWEAR
6,546 Onward Kashiyama Co., Ltd. 110,586
3,000 Wacoal Holdings Corp. 40,582
----------
151,168
----------
APPAREL/FOOTWEAR RETAIL
3,400 Fast Retailing Co., Ltd. 323,354
1,100 Shimamura Co., Ltd. 135,748
----------
459,102
----------
AUTO PARTS: O.E.M.
27,100 Denso Corporation $1,064,753
9,059 NGK Spark Plug Co., Ltd. 199,064
3,200 Stanley Electric Co., Ltd. 74,536
4,050 Toyota Industries Corp. 180,839
----------
1,519,192
----------
AUTOMOTIVE AFTERMARKET
37,000 Bridgestone Corp. 902,479
----------
BEVERAGES: ALCOHOLIC
16,200 Asahi Breweries, Ltd. 231,957
36,051 Kirin Brewery Co., Ltd. 534,887
10,000 Sapporo Holdings, Ltd. 51,683
7,000 Takara Holdings Inc. 43,315
----------
861,842
----------
BEVERAGES: NON-ALCOHOLIC
2,200 ITO EN, Ltd. 81,023
----------
BROADCASTING
20 Fuji Television Network, Inc. 49,750
4,400 Tokyo Broadcasting System,Inc. 122,598
----------
172,348
----------
BUILDING PRODUCTS
9,862 JS Group Corp. 219,743
16,000 Nippon Sheet Glass Company, Ltd. 95,069
18,500 Toto Ltd. 192,691
----------
507,503
----------
CHEMICALS: AGRICULTURAL
5,500 Nissan Chemical Industries, Ltd. 93,302
----------
CHEMICALS: MAJOR DIVERSIFIED
47,000 Asahi Kasei Corp. 347,842
32,500 Mitsubishi Chemical Holdings Corp.* 205,678
----------
553,520
----------
CHEMICALS: SPECIALTY
8,000 Daicel Chemical Industries, Ltd. 68,770
28,588 Dainippon Ink & Chemicals, Inc. 114,834
SEE NOTES TO FINANCIAL STATEMENTS
18
<Page>
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------
18,546 Denki Kagaku Kogyo Kabushiki Kaisha $ 85,093
6,108 JSR Corp. 188,442
10,000 Kaneka Corp. 112,859
14,056 Kuraray Co., Ltd. 173,584
23,599 Mitsubishi Rayon Co., Ltd. 217,591
20,500 Mitsui Chemicals, Inc. 148,475
14,997 Shin-Etsu Chemical Co., Ltd. 867,366
24,000 Showa Denko K.K. 106,320
6,000 Sumitomo Bakelite Co., Ltd. 56,060
52,000 Sumitomo Chemical Co., Ltd. 456,148
21,500 Tosoh Corp. 105,450
----------
2,700,992
----------
COMMERCIAL PRINTING/FORMS
16,000 Dai Nippon Printing Co., Ltd. 286,895
17,000 Toppan Printing Co., Ltd. 227,274
----------
514,169
----------
COMPUTER PROCESSING HARDWARE
68,000 Fujitsu Ltd. 567,215
----------
CONSTRUCTION MATERIALS
22,000 Taiheiyo Cement Corp. 107,128
----------
CONTAINERS/PACKAGING
7,617 Toyo Seikan Kaisha, Ltd. 147,961
----------
DEPARTMENT STORES
12,000 Daimaru, Inc.(The) 174,879
4,000 Hankyu Department Stores, Inc. 36,565
7,914 Isetan Co., Ltd. 162,426
16,907 Marui Co., Ltd. 326,935
17,716 Mitsukoshi, Ltd. 103,085
15,040 Takashimaya Co., Ltd. 219,843
----------
1,023,733
----------
ELECTRIC UTILITIES
17,300 Chubu Electric Power Co., Inc. 454,663
26,500 Kansai Electric Power Co., Inc. (The) 620,748
10,300 Kyushu Electric Power Co., Inc. $ 240,819
19,800 Tohoku Electric Power Co., Inc. 456,843
31,000 Tokyo Electric Power Co., Inc.(The) 797,003
----------
2,570,076
----------
ELECTRICAL PRODUCTS
7,000 Fuji Electric Holdings Co., Ltd. 40,608
9,000 Fujikura Ltd. 104,184
24,500 Furukawa Electric Co., Ltd. (The)* 195,750
1,300 Mabuchi Motor Co., Ltd. 73,359
12,000 Matsushita Electric Works, Ltd. 145,768
14,560 NGK Insulators, Ltd. 208,731
4,504 Nidec Corp. 347,588
26,500 Sumitomo Electric Industries, Ltd. 421,130
1,500 Ushio Inc. 34,609
----------
1,571,727
----------
ELECTRONIC COMPONENTS
7,100 Alps Electric Co., Ltd. 124,751
15,100 Citizen Watch Co., Ltd. 147,589
2,200 Hirose Electric Co., Ltd. 323,126
21,200 Hoya Corp. 859,031
4,400 Ibiden Co., Ltd. 209,229
8,700 Murata Manufacturing Co., Ltd. 633,937
7,000 Nippon Electric Glass Co., Ltd. 158,126
4,000 Taiyo Yuden Co., Ltd. 65,782
4,652 TDK Corp. 389,677
----------
2,911,248
----------
ELECTRONIC EQUIPMENT/INSTRUMENTS
30,704 Canon Inc. 2,350,636
14,600 Casio Computer Co., Ltd. 274,624
2,347 Keyence Corp. 616,405
SEE NOTES TO FINANCIAL STATEMENTS
19
<Page>
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------
21,530 Konica Minolta Holdings, Inc. $ 283,862
6,400 Kyocera Corp. 597,978
77,500 Matsushita Electric Industrial Co., Ltd. 1,873,297
83,552 Mitsubishi ElectricCorp. 727,784
86,500 NEC Corp. 605,964
24,000 Oki Electric Industry Co., Ltd. 74,255
8,304 Omron Corp. 232,106
25,432 Ricoh Co., Ltd. 505,198
66,000 Sanyo Electric Co., Ltd.* 175,196
4,400 Seiko Epson Corp. 138,842
130,026 Toshiba Corp. 828,591
9,000 Yokogawa Electric Corp. 142,709
----------
9,427,447
----------
ELECTRONIC PRODUCTION EQUIPMENT
4,150 Advantest Corp. 478,580
8,900 Tokyo Electron Ltd. 641,470
----------
1,120,050
----------
ELECTRONICS/APPLIANCE STORES
4,400 Yamada Denki Co., Ltd. 479,951
----------
ELECTRONICS/APPLIANCES
16,600 Fuji Photo Film Co., Ltd. 564,666
12,000 Nikon Corp. 236,266
6,704 Pioneer Corp. 118,736
31,500 Sharp Corp. 553,472
27,196 Sony Corp. 1,367,330
----------
2,840,470
----------
ENGINEERING & CONSTRUCTION
8,000 Chiyoda Corp. 180,012
6,000 Comsys Holdings Corp. 80,531
11,546 JGC Corp. 202,463
51,000 Kajima Corp. 288,688
34,571 Obayashi Corp. 264,669
10,000 Okumura Corp. 55,551
36,000 Shimizu Corporation 249,345
49,000 Taisei Corp. 219,223
----------
1,540,482
----------
FINANCE/RENTAL/LEASING
840 Acom Co., Ltd. 49,025
700 Aeon Credit Service Co., Ltd. $ 19,381
800 Aiful Corp. 47,816
2,000 Credit Saison Co., Ltd. 104,949
1,040 Orix Corp. 312,631
1,100 Promise Co., Ltd. 67,874
1,360 Takefuji Corp. 88,459
----------
690,135
----------
FINANCIAL CONGLOMERATES
366 Mizuho Financial Group, Inc. 3,123,723
----------
FOOD RETAIL
17,803 Aeon Co., Ltd. 443,628
2,652 FamilyMart Co., Ltd. 76,924
2,403 Lawson, Inc. 91,245
28,600 Seven & I Holdings Co., Ltd.* 1,108,605
----------
1,720,402
----------
FOOD: MEAT/FISH/DAIRY
10,000 Meiji Dairies Corp. 63,549
9,000 Nippon Meat Packers, Inc. 106,557
4,700 Yakult Honsha Co., Ltd. 122,695
----------
292,801
----------
FOOD: SPECIALTY/CANDY
26,000 Ajinomoto Co., Inc. 324,057
5,500 Kikkoman Corp. 64,973
11,000 Meiji Seika Kaisha, Ltd. 57,238
3,350 Nissin Food Products Co., Ltd. 106,887
5,000 Yamazaki Baking Co., Ltd. 44,783
----------
597,938
----------
GAS DISTRIBUTORS
54,000 Osaka Gas Co., Ltd. 202,197
62,000 Tokyo Gas Co., Ltd. 300,272
----------
502,469
----------
HOME BUILDING
6,306 Daito Trust Construction Co., Ltd. 328,131
34,000 Daiwa House Industry Co., Ltd. 580,065
20,572 Sekisui Chemical Co., Ltd. 177,928
39,046 Sekisui House, Ltd. 605,064
----------
1,691,188
----------
SEE NOTES TO FINANCIAL STATEMENTS
20
<Page>
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------
HOUSEHOLD/PERSONAL CARE
22,000 Kao Corp. $ 591,720
14,000 Shiseido Company, Ltd. 271,337
1,800 Uni-Charm Corp. 103,314
-----------
966,371
-----------
INDUSTRIAL CONGLOMERATES
130,000 Hitachi, Ltd. 967,830
43,000 Kawasaki Heavy Industries, Ltd. 156,096
-----------
1,123,926
-----------
INDUSTRIAL MACHINERY
12,053 Amada Co., Ltd. 132,004
7,100 Daikin Industries, Ltd. 247,754
7,450 Fanuc Ltd. 705,252
42,530 Ishikawajima-Harima Heavy Industries Co., Ltd. 151,773
141,550 Mitsubishi Heavy Industries, Ltd. 701,716
2,605 SMC Corporation 396,119
16,000 Sumitomo Heavy Industries, Ltd. 168,762
1,700 THK Co., Ltd. 55,586
-----------
2,558,966
-----------
INDUSTRIAL SPECIALTIES
48,500 Asahi Glass Company, Ltd. 685,488
7,700 Nitto Denko Corp. 646,348
-----------
1,331,836
-----------
INFORMATION TECHNOLOGY SERVICES
3,000 CSK Holdings Corp. 143,975
1,300 Itochu Techno-Science Corp. 53,248
24 Net One Systems Co., Ltd. 52,738
1,000 Nomura Research Institute, Ltd. 124,286
58 NTT Data Corp. 268,665
33,700 Softbank Corp. 867,900
1,400 TIS Inc. 42,085
-----------
1,552,897
-----------
INTERNET SOFTWARE/SERVICES
692 Yahoo Japan Corp. $ 403,874
-----------
INVESTMENT BANKS/BROKERS
135,000 Daiwa Securities Group Inc. 1,873,649
84 E*TRADE Securities Co., Ltd. 153,573
5,900 Matsui Securities Co., Ltd. 78,981
18,000 Mitsubishi UFJ Securities Co., Ltd. 283,836
55,500 Nikko Cordial Corp. 899,064
130,950 Nomura Holdings, Inc. 2,963,842
16,000 Shinko Securities Co., Ltd. 85,084
-----------
6,338,029
-----------
LIFE/HEALTH INSURANCE
9,500 T&D Holdings, Inc. 728,971
-----------
MAJOR BANKS
54,000 Bank of Yokohama, Ltd. (The) 423,855
32,000 Chiba Bank, Ltd. (The) 289,989
34,000 Joyo Bank, Ltd. (The) 228,320
300 Mitsubishi UFJ Financial Group, Inc. 4,720,049
25,123 Mitsui Trust Holdings, Inc. 347,354
179 Resona Holdings, Inc. 610,460
45,000 Shinsei Bank, Ltd. 315,241
27,000 Shizuoka Bank, Ltd. (The) 285,497
227 Sumitomo Mitsui Financial Group, Inc. 2,494,067
56,081 Sumitomo Trust& Banking Co., Ltd. (The) 597,435
-----------
10,312,267
-----------
MAJOR TELECOMMUNICATIONS
72 Nippon Telegraph & Telephone Corp. 322,756
-----------
MARINE SHIPPING
5,000 Mitsui O.S.K. Lines, Ltd. 35,818
44,015 Nippon Yusen Kabushiki Kaisha 270,040
-----------
305,858
-----------
SEE NOTES TO FINANCIAL STATEMENTS
21
<Page>
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------
MEDICAL SPECIALTIES
5,400 Olympus Corp. $ 154,733
7,750 Terumo Corp. 277,929
-----------
432,662
-----------
METAL FABRICATIONS
16,000 Minebea Co., Ltd. 103,648
72,000 Mitsubishi Materials Corp. 389,206
43,604 Mitsui Mining & Smelting Co., Ltd. 303,545
27,553 NSK Ltd. 249,447
19,551 NTN Corp. 161,536
-----------
1,207,382
-----------
MISCELLANEOUS COMMERCIAL SERVICES
350 OBIC Co., Ltd. 71,803
9,985 Secom Co., Ltd. 545,019
1,610 USS Co., Ltd. 120,570
-----------
737,392
-----------
MISCELLANEOUS MANUFACTURING
15,527 Ebara Corp. 88,983
3,500 Kurita Water Industries Ltd. 71,372
4,500 Takuma Co., Ltd. 38,169
-----------
198,524
-----------
MOTOR VEHICLES
38,109 Honda Motor Co., Ltd. 2,709,869
113,005 Nissan Motor Co., Ltd. 1,486,934
122,855 Toyota Motor Corp. 7,191,828
1,500 Yamaha Motor Co., Ltd. 41,399
-----------
11,430,030
-----------
MOVIES/ENTERTAINMENT
2,400 Oriental Land Co., Ltd. 144,291
3,650 TOHO Co., Ltd. 70,741
-----------
215,032
-----------
OFFICE EQUIPMENT/SUPPLIES
3,300 Kokuyo Co., Ltd. 56,242
-----------
OIL & GAS PRODUCTION
21 INPEX Holdings Inc.* 197,817
-----------
OIL REFINING/MARKETING
60,000 Nippon Oil Corp. $ 475,169
7,400 Showa Shell Sekiyu K.K. 91,841
12,000 TonenGeneral Sekiyu K.K. 130,474
-----------
697,484
-----------
OTHER CONSUMER SERVICES
2,454 Benesse Corp. 89,083
-----------
OTHER METALS/MINERALS
22,095 Dowa Mining Co., Ltd. 252,470
18,500 Nippon Mining Holdings, Inc. 171,227
40,500 Sumitomo Metal Mining Co., Ltd. 589,149
-----------
1,012,846
-----------
OTHER TRANSPORTATION
4,000 Mitsubishi Logistics Corp. 61,035
-----------
PACKAGED SOFTWARE
1,400 Fuji Soft ABC Inc. 43,808
1,450 Oracle Corp. Japan 74,049
4,200 Trend Micro Inc. 162,802
-----------
280,659
-----------
PERSONNEL SERVICES
1,500 Meitec Corp. 51,156
-----------
PHARMACEUTICALS: MAJOR
42,300 Takeda Pharmaceutical Co., Ltd. 2,587,747
-----------
PHARMACEUTICALS: OTHER
24,600 Astellas Pharma Inc. 1,027,072
12,606 Chugai Pharmaceutical Co., Ltd. 273,128
32,700 Daiichi Sankyo Co., Ltd.* 843,584
13,203 Eisai Co., Ltd. 604,620
12,032 Kyowa Hakko Kogyo Co., Ltd 83,971
15,181 Shionogi & Co., Ltd. 256,330
8,959 Taisho Pharmaceutical Co., Ltd. 182,692
-----------
3,271,397
-----------
SEE NOTES TO FINANCIAL STATEMENTS
22
<Page>
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------
PROPERTY - CASUALTY INSURERS
62 Millea Holdings, Inc. $1,237,057
50,000 Mitsui Sumitomo Insurance Co., Ltd. 674,607
34,000 Sompo Japan Insurance Inc. 493,100
----------
2,404,764
----------
PULP & PAPER
40 Nippon Paper Group, Inc. 171,223
43,000 Oji Paper Co., Ltd. 257,010
----------
428,233
----------
RAILROADS
56 Central Japan Railway Co. 575,899
137 East Japan Railway Co. 1,070,519
16,500 Keihin Electric Express Railway Co., Ltd. 135,458
10,000 Keio Corp. 70,229
63,550 Kintetsu Corp. 237,956
34,500 Tobu Railway Co., Ltd. 171,029
39,000 Tokyu Corp. 275,266
21 West Japan Railway Co. 93,399
----------
2,629,755
----------
REAL ESTATE DEVELOPMENT
8,000 Leopalace21 Corp. 312,209
80,000 Mitsubishi Estate Co., Ltd. 1,750,901
56,500 Mitsui Fudosan Co., Ltd. 1,266,371
34,500 Sumitomo Realty & Development Co., Ltd. 915,795
12,000 Tokyo Tatemono Co., Ltd. 138,701
----------
4,383,977
----------
REAL ESTATE INVESTMENT TRUSTS
25 Japan Real Estate Investment Corp. 228,531
23 Japan Retail Fund Investment Corp. 190,841
30 Nippon Building Fund Inc. 284,785
----------
704,157
----------
RECREATIONAL PRODUCTS
4,100 Konami Corp. 105,050
4,508 Nintendo Co., Ltd. 673,605
3,950 Shimano Inc. $ 130,197
4,700 Yamaha Corp. 86,961
----------
995,813
----------
REGIONAL BANKS
15,000 77 Bank, Ltd. (The) 118,133
26,000 Bank of Fukuoka, Ltd. (The) 224,189
13,000 Bank of Kyoto, Ltd. (The) 150,716
53,000 Hokuhoku Financial Group, Inc. 216,155
25,000 Nishi-Nippon City Bank, Ltd. (The) 127,011
----------
836,204
----------
RESTAURANTS
5,407 Skylark Co., Ltd. 98,853
----------
SEMICONDUCTORS
2,000 NEC Electronics Corp.* 73,833
5,805 Rohm Co., Ltd. 618,411
5,000 Sanken Electric Co., Ltd 75,591
----------
767,835
----------
SPECIALTY STORES
2,900 Shimachu Co., Ltd. 79,019
6,000 UNY Co., Ltd. 107,322
----------
186,341
----------
SPECIALTY TELECOMMUNICATIONS
39 INDEX CORP. 52,448
----------
STEEL
13,200 JFE Holdings, Inc. 512,824
67,000 Kobe Steel, Ltd. 227,907
172,108 Nippon Steel Corp. 635,364
102,000 Sumitomo Metal Industries, Ltd. 430,342
----------
1,806,437
----------
TELECOMMUNICATION EQUIPMENT
3,000 Uniden Corp. 47,359
----------
TEXTILES
4,571 Nisshinbo Industries, Inc. 53,717
33,608 Teijin Ltd. 230,710
47,000 Toray Industries, Inc. 440,793
----------
725,220
----------
SEE NOTES TO FINANCIAL STATEMENTS
23
<Page>
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------
TOBACCO
155 Japan Tobacco Inc. $ 623,978
------------
TRUCKS/CONSTRUCTION/FARM MACHINERY
1,400 Hitachi Construction Machinery Co., Ltd. 38,270
43,500 Komatsu Ltd. 931,023
60,000 Kubota Corp. 678,738
------------
1,648,031
------------
WHOLESALE DISTRIBUTORS
54,051 Itochu Corp. 491,243
53,550 Marubeni Corporation 308,770
49,200 Mitsubishi Corp. 1,191,404
60,000 Mitsui & Co., Ltd. 907,621
36,000 Sumitomo Corporation 539,826
------------
3,438,864
------------
WIRELESS TELECOMMUNICATIONS
95 NTT DoCoMo, Inc. 141,953
------------
Total Japan 112,496,913
------------
Luxembourg (0.2%)
STEEL
15,514 Arcelor 638,062
------------
MEXICO (0.6%)
BEVERAGES: ALCOHOLIC
10,300 Grupo Modelo, S.A. de C.V. (Series C) 39,350
------------
BEVERAGES: NON-ALCOHOLIC
4,000 Coca-Cola Femsa, S.A. de C.V. (Series L) 12,864
12,500 Fomento Economico Mexicano, S.A. de C.V. (Series UBD)
(Units)+ 115,859
------------
128,723
------------
BROADCASTING
42,000 Grupo Televisa S.A. (Series CPO) 178,707
------------
CONSTRUCTION MATERIALS
58,200 Cemex S.A. de C.V. (Series CPO) (Units)+ $ 393,538
------------
DISCOUNT STORES
73,600 Wal-Mart de Mexico S.A. de C.V. (Series V) 209,773
------------
HOME BUILDING
2,000 Urbi, Desarrollos Urbanos, S.A. de C.V.* 16,405
------------
HOUSEHOLD/PERSONAL CARE
10,300 Kimberly-Clark de Mexico, S.A. de C.V. (A Shares) 36,335
------------
INDUSTRIAL CONGLOMERATES
6,600 Alfa, S.A. (Class A) 33,151
------------
MAJOR TELECOMMUNICATIONS
241,500 Telefonos de Mexico S.A. de C.V. (Series L) 265,946
------------
MISCELLANEOUS MANUFACTURING
14,700 Grupo Carso S.A. de C.V. (Series A1) 35,191
------------
OTHER METALS/MINERALS
21,400 Grupo Mexico S.A. de C.V. (Series B) 75,010
------------
REAL ESTATE DEVELOPMENT
7,400 Corporacion GEO, S.A. de C.V. (Series B)* 27,736
------------
REGIONAL BANKS
26,400 Grupo Financiero Banorte S.A. de C.V. (O Shares) 68,805
------------
WIRELESS TELECOMMUNICATIONS
359,000 America Movil S.A. de C.V. (Series L) 662,250
------------
Total Mexico 2,170,920
------------
Netherlands (3.3%)
AEROSPACE & DEFENSE
8,611 European Aeronautic Defence and Space Co.* 339,815
------------
SEE NOTES TO FINANCIAL STATEMENTS
24
<Page>
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------
AIR FREIGHT/COURIERS
19,746 TNT NV $ 710,976
-----------
BEVERAGES: ALCOHOLIC
19,457 Heineken NV 788,203
-----------
CHEMICALS: MAJOR DIVERSIFIED
4,421 Koninklijke DSM NV 201,684
-----------
ELECTRONIC EQUIPMENT/
INSTRUMENTS
3,463 Oce NV 57,670
-----------
ELECTRONIC PRODUCTION
EQUIPMENT
15,175 ASML Holding NV* 321,632
-----------
FINANCIAL CONGLOMERATES
58,616 ING Groep NV (Share Certificates) 2,385,625
-----------
FOOD: MAJOR DIVERSIFIED
18,935 Unilever NV
(Share Certificates) 1,367,611
-----------
INDUSTRIAL CONGLOMERATES
25,952 Koninklijke (Royal)
Philips Electronics NV 895,468
-----------
INDUSTRIAL SPECIALTIES
8,069 Akzo Nobel NV 464,608
-----------
INVESTMENT BANKS/BROKERS
3,887 Euronext NV 347,437
-----------
LIFE/HEALTH INSURANCE
61,981 Aegon NV 1,131,485
-----------
MAJOR BANKS
55,335 ABN AMRO Holding NV 1,653,814
-----------
MAJOR TELECOMMUNICATIONS
46,978 Koninklijke (Royal) KPN NV 551,780
-----------
PERSONNEL SERVICES
1,070 Vedior NV
(Share Cerrificates) 24,946
-----------
PUBLISHING: BOOKS/MAGAZINES
12,027 Reed Elsevier NV 178,286
4,530 VNU NV 155,506
6,341 Wolters Kluwer NV (Share Certificates) $ 165,196
-----------
498,988
-----------
REAL ESTATE DEVELOPMENT
2,059 Rodamco Europe NV 221,578
-----------
REAL ESTATE INVESTMENT TRUSTS
2,509 Corio NV 158,743
1,022 Wereldhave NV 106,630
-----------
265,373
-----------
SEMICONDUCTORS
8,967 STMicroelectronics NV 164,827
-----------
Total Netherlands 12,393,520
-----------
Norway (0.6%)
CHEMICALS: AGRICULTURAL
6,967 Yara International ASA 112,065
-----------
FINANCIAL CONGLOMERATES
9,153 DNB NOR ASA 126,830
-----------
FOOD: SPECIALTY/CANDY
8,750 Orkla ASA 460,168
-----------
INDUSTRIAL CONGLOMERATES
4,687 Norsk Hydro ASA 720,867
-----------
INTEGRATED OIL
18,400 Statoil ASA 605,351
-----------
MAJOR TELECOMMUNICATIONS
20,900 Telenor ASA 242,184
-----------
MISCELLANEOUS MANUFACTURING
515 Tomra Systems ASA 5,112
-----------
PULP& PAPER
5,700 Norske Skogindustrier ASA 87,759
-----------
TELECOMMUNICATION EQUIPMENT
5,200 Tandberg ASA 52,882
2,700 Tandberg Television ASA* 54,260
-----------
107,142
-----------
Total Norway 2,467,478
-----------
Poland (0.6%)
ALUMINUM
118 Grupa Kety S.A. 5,382
-----------
SEE NOTES TO FINANCIAL STATEMENTS
25
<Page>
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------
INFORMATION TECHNOLOGY SERVICES
733 Prokom Software S.A. $ 35,223
----------
MAJOR TELECOMMUNICATIONS
47,214 Telekomunikacja
Polska S.A. 346,087
----------
OIL REFINING/MARKETING
20,425 Polski Koncern Naftowy
Orlen S.A. 425,867
----------
OTHER METALS/MINERALS
8,725 KGHM Polska Miedz S.A. 319,779
----------
PUBLISHING: NEWSPAPERS
2,517 Agora S.A. 36,654
----------
REGIONAL BANKS
5,378 Bank Pekao S.A. 360,928
666 Bank Przemyslowo-
Handlowy BPH 171,843
1,784 Bank Zachodni WBK S.A. 108,104
25,556 Powszechna Kasa Oszczednosci Bank Polski S.A. 321,375
----------
962,250
----------
Total Poland 2,131,242
----------
Portugal (0.2%)
CABLE/SATELLITE TV
1,832 PT Multimedia - Servicos de
Telecomunicacoes
e Multimedia, SGPS, S.A. 22,373
----------
ELECTRIC UTILITIES
25,212 Energias de Portugal, S.A. 99,239
----------
MAJOR TELECOMMUNICATIONS
19,095 Portugal Telecom, SGPS, S.A. (Registered Shares) 243,071
----------
OTHER TRANSPORTATION
13,568 Brisa-Auto Estradas de
Portugal, S.A.
(Private Shares) 142,759
----------
REGIONAL BANKS
60,644 Banco Comercial Portugues,
S.A. (Registered Shares) 185,151
----------
Total Portugal 692,593
----------
Russia (1.4%)
ELECTRIC UTILITIES
4,070 RAO Unified Energy System (Registered Shares) (GDR) $ 311,355
----------
INTEGRATED OIL
24,900 Lukoil (Sponsored ADR) 2,248,470
----------
OIL & GAS PIPELINES
10,360 Gazprom (Sponsored ADR)
(Registered Shares) 471,380
----------
OIL & GAS PRODUCTION
6,900 Surgutneftegaz
(Sponsored ADR) 598,575
3,200 Tatneft (Sponsored ADR) 381,760
----------
980,335
----------
OTHER METALS/MINERALS
3,700 JSC MMC Norilsk
Nickel (ADR) 486,550
----------
PRECIOUS METALS
4,600 ZAO Polyus Gold Co. (Non-
registered Shares)*# 218,500
----------
WIRELESS TELECOMMUNICATIONS
6,400 Mobile Telesystems
(Sponsored ADR) 209,024
7,600 OAO VimpelCom
(Sponsored ADR)* 353,780
----------
562,804
----------
Total Russia 5,279,394
----------
Singapore (1.6%)
AEROSPACE & DEFENSE
83,334 Singapore Technologies
Engineering Ltd. 164,444
----------
AIR FREIGHT/COURIERS
104,000 Singapore Post Ltd. 74,328
----------
AIRLINES
34,000 Singapore Airlines Ltd. 305,357
----------
COMPUTER PERIPHERALS
3,543 Creative Technology Ltd. 23,081
----------
SEE NOTES TO FINANCIAL STATEMENTS
26
<Page>
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------
ELECTRONIC COMPONENTS
17,696 Venture Corp., Ltd. $ 151,095
----------
ELECTRONIC PRODUCTION EQUIPMENT
80,000 STATS ChipPAC Ltd.* 68,307
----------
HOSPITAL/NURSING MANAGEMENT
40,000 Parkway Holdings Ltd. 66,030
----------
HOTELS/RESORTS/CRUISELINES
3,962 Overseas Union Enterprise Ltd. 23,179
----------
INDUSTRIAL CONGLOMERATES
11,000 Fraser & Neave Ltd. 153,754
34,000 Keppel Corp., Ltd. 329,011
----------
482,765
----------
INVESTMENT BANKS/BROKERS
51,479 Singapore Exchange Ltd. 140,004
----------
MAJOR BANKS
66,393 DBS Group Holdings Ltd. 747,451
156,078 Oversea-Chinese Banking Corp., Ltd. 671,261
----------
1,418,712
----------
MAJOR TELECOMMUNICATIONS
411,632 Singapore Telecommunications Ltd. 713,346
----------
MARINE SHIPPING
48,000 Cosco Corp Ltd. 43,413
31,000 Neptune Orient Lines Ltd. 44,703
----------
88,116
----------
OTHER TRANSPORTATION
109,068 ComfortDelGro Corp. Ltd. 111,062
----------
PUBLISHING: NEWSPAPERS
97,328 Singapore Press Holdings Ltd. 263,465
----------
REAL ESTATE DEVELOPMENT
66,000 Capitaland Ltd. 204,541
33,455 City Developments Ltd. 213,709
24,000 Keppel Land Ltd. 71,950
10,000 Singapore Land Ltd. 43,641
33,673 United Overseas Land Ltd. 65,169
----------
599,010
----------
REAL ESTATE INVESTMENT TRUSTS
61,000 Ascendas Real Estate Investment Trust $ 87,964
48,700 CapitaMall Trust 73,615
4,800 K-REIT Asia* 4,523
----------
166,102
----------
REGIONAL BANKS
71,489 United Overseas Bank Ltd. 737,000
----------
SEMICONDUCTORS
72,000 Chartered Semiconductor Manufacturing Ltd.* 81,968
----------
SPECIALTY STORES
7,031 Jardine Cycle & Carriage Ltd. 49,805
----------
TRUCKS/CONSTRUCTION/FARM MACHINERY
54,511 SembCorp Industries Ltd. 124,116
35,000 SembCorp Marine Ltd. 67,738
----------
191,854
----------
Total Singapore 5,919,030
----------
Spain (1.5%)
APPAREL/FOOTWEAR RETAIL
2,894 Industria de Diseno Textil, S.A. 117,747
----------
BANKING
12,150 Banco Popular Espanol S.A. 183,481
----------
BROADCASTING
759 Antena 3 Television S.A. 19,994
----------
ELECTRIC UTILITIES
10,272 Endesa, S.A. 341,085
8,421 Iberdrola S.A. 274,310
2,173 Union Fenosa, S.A. 84,026
----------
699,421
----------
ENGINEERING & CONSTRUCTION
433 Acciona S.A. 74,484
3,780 ACS, Actividades de Construccion y Servicios, S.A. 156,943
SEE NOTES TO FINANCIAL STATEMENTS
27
<Page>
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------
2,956 Cintra Concesiones de
Infraestructuras de Transporte S.A. $ 40,090
476 Fomento de Construcciones y Contratas S.A. 38,614
966 Grupo Ferrovial, S.A. 79,277
----------
389,408
----------
GAS DISTRIBUTORS
18,484 Gas Natural SDG, S.A. 563,863
----------
INFORMATION TECHNOLOGY SERVICES
921 Indra Sistemas S.A. 18,963
----------
INTEGRATED OIL
12,719 Repsol YPF, S.A. 379,976
----------
MAJOR BANKS
43,120 Banco Bilbao Vizcaya Argentaria, S.A. 952,547
60,460 Banco Santander Central Hispano S.A. 937,436
----------
1,889,983
----------
MAJOR TELECOMMUNICATIONS
67,551 Telefonica S.A. 1,082,324
----------
OTHER TRANSPORTATION
5,791 Abertis Infraestructuras S.A. 152,840
----------
REAL ESTATE DEVELOPMENT
1,071 Sacyr Vallehermoso S.A. 37,103
----------
STEEL
3,562 Acerinox, S.A. 59,903
----------
TOBACCO
4,483 Altadis, S.A. 212,769
----------
WATER UTILITIES
2,396 Sociedad General de Aguas de Barcelona, S.A. (Class A) 66,955
----------
Total Spain 5,874,730
----------
Sweden (2.1%)
ADVERTISING/MARKETING SERVICES
3,300 Eniro AB 36,184
----------
APPAREL/FOOTWEAR RETAIL
9,850 Hennes & Mauritz AB (B Shares) $ 373,831
----------
BROADCASTING
1,050 Modern Times Group MTG AB (B Shares)* 57,601
----------
ELECTRONICS/APPLIANCES
6,300 Electrolux AB (Series B) 188,628
----------
ENGINEERING & CONSTRUCTION
12,080 Skanska AB (B Shares) 209,138
----------
HOUSEHOLD/PERSONAL CARE
6,086 Svenska Cellulosa AB (B Shares) 275,603
----------
INDUSTRIAL MACHINERY
650 Alfa Laval AB 21,139
10,200 Assa Abloy AB (B Shares) 197,366
11,160 Atlas Copco AB (A Shares) 329,595
7,407 Atlas Copco AB (B Shares) 202,160
6,309 Sandvik AB 410,348
----------
1,160,608
----------
INFORMATION TECHNOLOGY SERVICES
10,375 WM-data AB (B Shares) 35,361
----------
LIFE/HEALTH INSURANCE
15,962 Skandia Forsakrings AB 105,120
----------
MAJOR BANKS
14,800 Skandinaviska Enskilda Banken AB (A Shares) 372,788
24,500 Svenska Handelsbanken AB (A Shares) 703,612
----------
1,076,400
----------
MAJOR TELECOMMUNICATIONS
4,105 Tele2 AB (B Shares) 51,978
42,848 TeliaSonera AB 265,891
----------
317,869
----------
MEDICAL SPECIALTIES
5,000 Getinge AB (B Shares) 86,564
----------
SEE NOTES TO FINANCIAL STATEMENTS
28
<Page>
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------
METAL FABRICATIONS
8,408 SKF AB (B Shares) $ 144,424
-----------
MISCELLANEOUS COMMERCIAL SERVICES
2,000 Securitas AB (B Shares) 41,686
-----------
PULP & PAPER
1,650 Holmen AB (B Shares) 71,471
-----------
REGIONAL BANKS
86,984 Nordea Bank AB 1,119,117
-----------
STEEL
1,900 SSAB Svenskt Stal AB (Series A) 111,970
1,900 SSAB Svenskt Stal AB (Series A) (Rights)* ++ 658
-----------
112,628
-----------
TELECOMMUNICATION EQUIPMENT
468,552 Telefonaktiebolaget LM Ericsson (B Shares) 1,666,924
-----------
TOBACCO
17,400 Swedish Match AB 261,077
-----------
TRUCKS/CONSTRUCTION/FARM MACHINERY
3,100 Scania AB (B Shares) 144,171
3,257 Volvo AB (A Shares) 160,539
6,730 Volvo AB (B Shares) 338,122
-----------
642,832
-----------
Total Sweden 7,983,066
-----------
Switzerland (5.5%)
BIOTECHNOLOGY
162 Serono SA (B Shares) 106,268
-----------
BUILDING PRODUCTS
126 Geberit AG (Registered Shares) 146,927
2,660 Schindler Holding AG 145,765
-----------
292,692
-----------
CHEMICALS: AGRICULTURAL
3,314 Syngenta AG (Registered Shares)* 462,021
-----------
CHEMICALS: SPECIALTY
2,064 Ciba Specialty Chemicals AG (Registered Shares) $ 126,578
7,002 Clariant AG (Registered Shares)* 108,904
1,180 Lonza Group AG (Registered Shares) 83,681
-----------
319,163
-----------
COMPUTER PERIPHERALS
2,605 Logitech International SA (Registered Shares)* 108,113
-----------
CONSTRUCTION MATERIALS
6,156 Holcim Ltd. (Registered Shares) 515,935
-----------
ELECTRONIC EQUIPMENT/INSTRUMENTS
1,204 Kudelski S.A. - Bearer 31,485
-----------
FINANCIAL CONGLOMERATES
33,494 UBS AG (Registered Shares) 3,967,780
-----------
FOOD: MAJOR DIVERSIFIED
13,337 Nestle S.A. (Registered Shares) 4,065,372
-----------
HOUSEHOLD/PERSONAL CARE
220 Givaudan S.A. (Registered Shares) 184,560
-----------
INDUSTRIAL CONGLOMERATES
53,188 ABB Ltd. (Registered Shares)* 758,665
-----------
MAJOR BANKS
24,316 Credit Suisse Group (Registered Shares) 1,526,486
-----------
MAJOR TELECOMMUNICATIONS
551 Swisscom AG (Registered Shares) 183,718
-----------
MEDICAL SPECIALTIES
826 Nobel Biocare Holding AG Bearer* 204,020
SEE NOTES TO FINANCIAL STATEMENTS
29
<Page>
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------
373 Straumann Holding AG (Registered Shares) $ 91,679
1,752 Synthes, Inc. 217,429
-----------
513,128
-----------
MISCELLANEOUS COMMERCIAL SERVICES
22 SGS SA (Registered Shares) 21,754
-----------
MULTI-LINE INSURANCE
1,684 Zurich Financial Services AG (Registered Shares)* 409,499
-----------
OTHER CONSUMER SPECIALTIES
11,577 Compagnie Financiere Richemont AG (Series A) (Units)+ 599,422
744 Swatch Group AG (B Shares) 133,343
1,528 Swatch Group AG (Registered Shares) 56,027
-----------
788,792
-----------
PERSONNEL SERVICES
288 Adecco S.A. (Registered Shares) 17,848
-----------
PHARMACEUTICALS: MAJOR
61,698 Novartis AG (Registered Shares) 3,537,604
18,564 Roche Holding AG 2,852,893
-----------
6,390,497
-----------
PROPERTY - CASUALTY INSURERS
2,259 Swiss Re (Registered Shares) 164,751
-----------
SPECIALTY STORES
82 Valora Holding AG (Registered Shares)* 19,610
-----------
Total Switzerland 20,848,137
-----------
Thailand (0.5%)
AIRLINES
31,900 Thai Airways International PCL (Alien Shares) 40,369
-----------
CHEMICALS: SPECIALTY
17,000 PTT Chemical PCL (Alien Shares) $ 39,177
-----------
COAL
8,200 Banpu PCL (Alien Shares) 33,643
-----------
CONSTRUCTION MATERIALS
8,300 Siam Cement PCL (The)* 52,628
18,800 Siam Cement PCL (The) (Alien Shares) 127,220
2,100 Siam City Cement PCL (Alien Shares) 15,106
-----------
194,954
-----------
ELECTRIC UTILITIES
20,700 Rarchaburi Electricity Generating Holding PCL (Alien
Shares) 21,370
-----------
ELECTRONIC COMPONENTS
34,900 Hana Microelectronics PCL (Alien Shares) 26,732
-----------
ENGINEERING & CONSTRUCTION
62,200 Italian-Thai Development PCL (Alien Shares) 11,931
-----------
FINANCE/RENTAL/LEASING
41,500 Thanachart Capital PCL* 17,911
20,700 TISCO Bank PCL* 15,717
-----------
33,628
-----------
HOME BUILDING
92,800 Land & Houses PCL* 20,891
128,900 Land & Houses PCL (Alien Shares) 30,220
-----------
51,111
-----------
MAJOR BANKS
28,200 Kasikornbank PCL* 49,586
72,700 Kasikornbank PCL (Alien Shares) 131,706
-----------
181,292
-----------
OIL & GAS PRODUCTION
77,500 PTT Exploration and Production PCL (Alien Shares) 260,157
-----------
SEE NOTES TO FINANCIAL STATEMENTS
30
<Page>
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------
OIL REFINING/MARKETING
47,700 PTT PCL (Alien Shares) $ 327,870
----------
OTHER TRANSPORTATION
26,800 Airports of Thailand PCL (Alien Shares) 41,769
----------
REGIONAL BANKS
18,700 Bangkok Bank PCL* 56,297
51,800 Bangkok Bank PCL (Alien Shares) 164,225
174,800 Krung Thai Bank PCL (Alien Shares) 57,281
49,700 Siam Commercial Bank PCL (Alien Shares) 86,066
----------
363,869
----------
SPECIALTY TELECOMMUNICATIONS
104,000 True Corp. PCL (Alien Shares)* 27,292
----------
TELECOMMUNICATION EQUIPMENT
88,100 Shin Corporation PCL (Allien Shares)* 88,605
----------
WIRELESS TELECOMMUNICATIONS
46,600 Advanced Info Service PCL (Alien Shares) 110,494
----------
Total Thailand 1,854,263
----------
Turkey (1.3%)
AIRLINES
5,378 Turk Hava Yollari Anonim Ortakligi* 29,460
----------
BEVERAGES: ALCOHOLIC
2,410 Anadolu Efes Biracilik ve Malt Sanayii A.S. 80,576
----------
ELECTRONICS/APPLIANCES
20,980 Arcelik A.S. 177,541
----------
FINANCIAL CONGLOMERATES
73,928 Haci Omer Sabanci Holding A.S. 349,110
----------
FOOD RETAIL
14,382 Migros Turk TAS 199,946
----------
INDUSTRIAL SPECIALTIES
5,176 Trakya Cam Sanayii A.S. $ 23,074
15,503 Turk Sise ve Cam Fabrikalari A.S. 68,525
----------
91,599
----------
MISCELLANEOUS MANUFACTURING
44,112 Dogan Sirketler Grubu Holding A.S.* 209,978
----------
MOTOR VEHICLES
12,467 Ford Otomotiv Sanayi A.S. 124,340
35,135 Koc Holding A.S. 192,466
----------
316,806
----------
OIL REFINING/MARKETING
14,625 Tupras-Turkiye Petrol Rafinerileri A.S. 309,407
----------
PUBLISHING: NEWSPAPERS
26,467 Dogan Yayin Holding A.S.* 133,985
15,186 Hurriyet Gazetecilik ve Matbaacilik A.S. 55,650
----------
189,635
----------
REGIONAL BANKS
84,559 Akbank T.A.S. 702,795
130,530 Turkiye Garanti Bankasi A.S. 537,505
90,546 Turkiye Is Bankasi 759,396
105,970 Yapi ve Kredi Bankasi A.S.* 248,212
----------
2,247,908
----------
STEEL
47,688 Eregli Demir ve Celik Fabrikalari T.A.S. 284,651
----------
WIRELESS TELECOMMUNICATIONS
48,927 Turkcell Iletisim
Hizmetleri A.S. 310,530
----------
Total Turkey 4,797,147
----------
United Kingdom (19.8%)
ADVERTISING/MARKETING SERVICES
24,932 Aegis Group PLC 62,051
21,369 WPP Group PLC 263,773
14,406 Yell Group PLC 135,010
----------
460,834
----------
SEE NOTES TO FINANCIAL STATEMENTS
31
<Page>
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------
AEROSPACE & DEFENSE
110,713 BAE Systems PLC $ 842,778
38,156 Cobham PLC 128,878
17,474 Meggitt PLC 107,210
62,758 Rolls-Royce Group PLC* 545,243
3,376,380 Rolls-Royce Group PLC (B Shares) 6,341
----------
1,630,450
----------
AIRLINES
22,904 British Airways PLC* 140,421
----------
APPAREL/FOOTWEAR
6,273 Burberry Group PLC 53,928
17,462 GUS PLC 327,299
----------
381,227
----------
BEVERAGES: ALCOHOLIC
111,898 Diageo PLC 1,846,414
----------
BROADCASTING
83,738 ITV PLC 175,581
----------
CABLE/SATELLITE TV
24,255 British Sky Broadcasting Group PLC 232,398
----------
CASINO/GAMING
26,296 Ladbrokes PLC 201,133
19,089 William Hill PLC 220,838
----------
421,971
----------
CHEMICALS: MAJOR DIVERSIFIED
34,966 Imperial Chemical Industries PLC 227,919
6,540 Johnson Matthey PLC 175,646
----------
403,565
----------
CHEMICALS: SPECIALTY
14,729 BOC Group PLC 418,407
----------
CONSTRUCTION MATERIALS
21,216 Hanson PLC 283,354
----------
CONTAINERS/PACKAGING
16,590 Rexam PLC 164,855
----------
DEPARTMENT STORES
35,535 Marks & Spencer Group PLC $ 379,351
5,586 Next PLC 164,181
----------
543,532
----------
DRUGSTORE CHAINS
14,089 Boots Group PLC 180,076
----------
ELECTRIC UTILITIES
5,887 International Power PLC 31,960
101,431 National Grid PLC 1,064,325
32,355 Scottish & Southern Energy PLC 663,670
68,853 Scottish Power PLC 703,650
3,486 United Utilities PLC 42,649
----------
2,506,254
----------
ELECTRONIC EQUIPMENT/INSTRUMENTS
82,250 Invensys PLC* 35,617
----------
ELECTRONICS/APPLIANCE STORES
42,646 DSG International PLC 142,877
5,842 Kesa Electricals PLC 33,766
----------
176,643
----------
ENGINEERING & CONSTRUCTION
8,965 AMEC PLC 64,321
18,194 Balfour Beatty PLC 119,092
----------
183,413
----------
FINANCE/RENTAL/LEASING
1,021 Provident Financial PLC 11,579
----------
FINANCIAL CONGLOMERATES
520 Close Brother Group PLC 10,169
130,312 Lloyds TSB Group PLC 1,267,585
----------
1,277,754
----------
FINANCIAL PUBLISHING/SERVICES
32,353 Reuters Group PLC 229,468
----------
FOOD RETAIL
37,208 Sainsbury (J) PLC 226,760
199,991 Tesco PLC 1,165,036
----------
1,391,796
----------
SEE NOTES TO FINANCIAL STATEMENTS
32
<Page>
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------
FOOD: MAJOR DIVERSIFIED
102,025 Unilever PLC $ 1,083,579
-----------
FOOD: SPECIALTY/CANDY
69,736 Cadbury Schweppes PLC 691,694
24,477 Tate & Lyle PLC 247,690
-----------
939,384
-----------
GAS DISTRIBUTORS
86,007 Centrica PLC 468,489
-----------
HOME BUILDING
5,554 Barratt Developments PLC 100,456
2,533 Bellway PLC 55,421
2,653 Berkeley Group Holdings
PLC (The) (Units) +* 55,676
6,251 Persimmon PLC 149,307
13,584 Taylor Woodrow PLC 94,860
9,081 Wimpey (George) PLC 86,678
-----------
542,398
-----------
HOME IMPROVEMENT CHAINS
25,781 Kingfisher PLC 105,882
-----------
HOTELS/RESORTS/CRUISELINES
8,005 Carnival PLC 396,706
21,783 InterContinental Hotels
Group PLC 384,063
-----------
780,769
-----------
HOUSEHOLD/PERSONAL CARE
32,476 Reckitt Benckiser PLC 1,183,678
-----------
INDUSTRIAL CONGLOMERATES
18,841 Smiths Group PLC 350,227
32,006 Tomkins PLC 197,683
-----------
547,910
-----------
INDUSTRIAL MACHINERY
8,278 FKI PLC 17,697
-----------
INDUSTRIAL SPECIALTIES
59,683 Pilkington PLC 177,105
-----------
INFORMATION TECHNOLOGY SERVICES
32,226 LogicaCMG PLC 105,176
18,461 Misys PLC 70,013
-----------
175,189
-----------
INTEGRATED OIL
102,822 BG Group PLC $ 1,381,693
600,455 BP PLC 7,406,387
114,485 Royal Dutch Shell PLC
(A Shares) 3,915,972
79,987 Royal Dutch Shell PLC
(B Shares) 2,859,928
-----------
15,563,980
-----------
INVESTMENT BANKS/BROKERS
1,939 ICAP PLC 18,419
1,017 London Stock Exchange PLC 22,938
-----------
41,357
-----------
INVESTMENT MANAGERS
2,241 3I GROUP PLC 36,447
2,920 Amvescap PLC 31,918
1,177 Man Group PLC 54,230
497 Schroders PLC 10,231
-----------
132,826
-----------
LIFE/HEALTH INSURANCE
66,764 Friends Provident PLC 239,505
62,790 Prudential PLC 736,711
-----------
976,216
-----------
MAJOR BANKS
162,879 Barclays PLC 2,034,294
93,435 HBOS PLC 1,639,715
267,808 HSBC Holdings PLC 4,626,589
70,690 Royal Bank of Scotland
Group PLC 2,308,403
-----------
10,609,001
-----------
MAJOR TELECOMMUNICATIONS
231,894 BT Group PLC 927,016
-----------
MARINE SHIPPING
11,499 Associated British Ports
Holdings PLC 153,262
-----------
MEDICAL DISTRIBUTORS
1,010 Alliance Unichem PLC 16,362
-----------
MEDICAL SPECIALTIES
24,569 Smith & Nephew PLC 203,153
-----------
SEE NOTES TO FINANCIAL STATEMENTS
33
<Page>
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------
MISCELLANEOUS COMMERCIAL
SERVICES
19,407 BBA Group PLC $ 92,885
2,895 Brambles Industries PLC 23,938
15,188 GKN PLC 86,815
4,556 Group 4 Securicor PLC 15,783
7,234 Rentokil Initial PLC 21,071
1,852 Serco Group PLC 11,346
----------
251,838
----------
MISCELLANEOUS MANUFACTURING
14,539 IMI PLC 149,113
----------
MOTOR VEHICLES
2,453 TI Automotive Ltd. ++* 0
----------
MOVIES/ENTERTAINMENT
18,698 EMI Group PLC 96,140
----------
MULTI-LINE INSURANCE
87,206 Aviva PLC 1,273,612
221,199 Legal & General Group PLC 558,587
793 Resolution PLC 9,051
91,117 Royal & Sun Alliance
Insurance Group PLC 229,264
----------
2,070,514
----------
OTHER METALS/MINERALS
40,982 Anglo American PLC 1,744,770
71,829 BHP Billiton PLC 1,478,604
31,121 Rio Tinto PLC 1,711,366
----------
4,934,740
----------
OTHER TRANSPORTATION
5,161 Arriva PLC 54,531
41,037 BAA PLC 634,123
14,700 FirstGroup PLC 111,498
20,281 Stagecoach Group PLC 40,122
----------
840,274
----------
PACKAGED SOFTWARE
45,488 Sage Group PLC (The) 207,346
----------
PERSONNEL SERVICES
2,643 Capita Group PLC 22,444
6,365 Hays PLC 19,613
----------
42,057
----------
PHARMACEUTICALS: MAJOR
56,025 AstraZeneca PLC $3,095,157
191,109 GlaxoSmithKline PLC 5,421,867
----------
8,517,024
----------
PUBLISHING: BOOKS/MAGAZINES
5,933 EMAP PLC 95,087
17,454 Pearson PLC 241,861
27,547 Reed Elsevier PLC 273,734
----------
610,682
----------
PUBLISHING: NEWSPAPERS
7,098 Daily Mail and
General Trust 88,263
6,431 United Business Media PLC 83,897
----------
172,160
----------
PULP & PAPER
13,191 Bunzl PLC 167,035
----------
RAILROADS
4,939 National Express
Group PLC 80,642
----------
REAL ESTATE DEVELOPMENT
12,909 British Land Company PLC 295,624
7,096 Hammerson PLC 150,600
11,528 Land Securities Group PLC 389,692
6,211 Liberty International PLC 129,213
10,122 Slough Estates PLC 112,947
----------
1,078,076
----------
RESTAURANTS
96,556 Compass Group PLC 416,360
16,452 Enterprise Inns PLC 279,871
24,591 Mitchells & Butlers PLC 220,709
11,771 Punch Taverns PLC 188,008
12,007 Whitbread PLC 245,194
----------
1,350,142
----------
SEMICONDUCTORS
38,464 ARM Holdings PLC 95,379
----------
SPECIALTY STORES
9,191 MFI Furniture Group PLC 18,434
34,293 Signet Group PLC 66,278
----------
84,712
----------
SEE NOTES TO FINANCIAL STATEMENTS
34
<Page>
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------
STEEL
131,975 Corus Group PLC $ 203,332
------------
TOBACCO
33,030 British American Tobacco PLC 844,335
14,042 Imperial Tobacco Group PLC 436,271
------------
1,280,606
------------
WATER UTILITIES
18,643 Kelda Group PLC 261,057
16,390 Severn Trent PLC 345,757
------------
606,814
------------
WHOLESALE DISTRIBUTORS
19,234 Electrocomponents PLC 93,898
19,965 Wolseley PLC 499,802
------------
593,700
------------
WIRELESS TELECOMMUNICATIONS
1,699,108 Vodafone Group PLC 4,011,889
------------
Total United Kingdom 75,185,077
------------
Total Common Stocks (COST $254,391,945) 365,618,186
------------
Preferred Stocks (1.4%)
Brazil (1.0%)
AEROSPACE & DEFENSE
8,422 Empresa Brasileira de Aeronautica S.A. 81,256
------------
BEVERAGES: ALCOHOLIC
413,692 Companhia de Bebidas das Americas 190,158
------------
CONTAINERS/PACKAGING
15,500 Klabin S.A. 39,706
------------
ELECTRIC UTILITIES
2,777,027 Centrais Eletricas Brasileiras S.A. (Class B) 72,866
2,447,000 Companhia Energetica de Minas Gerais 117,798
------------
190,664
------------
FOOD: MEAT/FISH/DAIRY
12,500 Sadia S.A. $ 33,517
------------
INTEGRATED OIL
54,504 Petroleo Brasileiro S.A. 1,206,473
------------
MAJOR TELECOMMUNICATIONS
5,846,010 Brasil Telecom Participacoes S.A. 46,802
------------
OTHER METALS/MINERALS
13,777 Companhia Vale do Rio Doce (Class A) 610,186
------------
PERSONNEL SERVICES
9,556 Contax Participacoes S.A. 10,981
------------
PULP & PAPER
10,988 Aracruz Celulose S.A. (B Shares) 60,241
1,768 Votorantim Celulose e Papel S.A. 28,571
------------
88,812
------------
REGIONAL BANKS
8,000 Banco Bradesco S.A. 304,908
10,530 Banco Itau Holding Financeira S.A. 331,757
1,950 Unibanco-Uniao de Bancos Brasileiros S.A. (GDR)
(Units) + 154,733
------------
791,398
------------
SPECIALTY TELECOMMUNICATIONS
4,139,422 Embratel Participacoes S.A. 11,000
6,556 Tele Norte Leste Participacoes S.A. 118,658
------------
129,658
------------
STEEL
40,500 Caemi Mineracao e Metalurgia S.A. 74,465
8,250 Gerdau S.A. 142,444
2,600 Usinas Siderurgicas de Minas Gerais S.A. (Class A) 98,971
------------
315,880
------------
SEE NOTES TO FINANCIAL STATEMENTS
35
<Page>
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATIONS
8,989 Vivo Participacoes S.A.* $ 37,187
----------
Total Brazil 3,772,678
----------
Germany (0.3%)
ELECTRIC UTILITIES
1,600 RWE AG NV 124,828
----------
HOUSEHOLD/PERSONAL CARE
2,704 Henkel KGaA - Vorzug 325,171
----------
MOTOR VEHICLES
361 Porsche AG 360,023
4,658 Volkswagen AG 258,567
----------
618,590
----------
Total Germany 1,068,589
----------
Russia (0.1%)
OIL & GAS PRODUCTION
3,300 Surgutneftegaz (Sponsored ADR) 440,550
----------
Total Preferred Stocks (COST $2,548,610) 5,281,817
----------
PRINCIPAL
AMOUNT IN
THOUSANDS
- ---------
Short-Term Investment (0.7%)
Repurchase Agreement
$ 2,785 Joint repurchase agreement account 4.78% due 05/01/06
(dated 04/28/06; proceeds $2,786,109) (a)
(COST $2,785,000) 2,785,000
---------
Total Investments
(COST $259,725,555)(b)(c) 98.7% 373,685,003
Other Assets in Excess of
Liabilities 1.3 4,928,138
----- ------------
Net Assets 100.0% $378,613,141
===== ============
- ----------
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.
+ CONSISTS OF ONE OR MORE CLASS OF SECURITIES TRADED TOGETHER AS A UNIT;
STOCKS WITH ATTACHED WARRANTS.
++ SECURITIES WITH TOTAL MARKET VALUE EQUAL TO $658 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.
# ACQUIRED THROUGH CORPORATE ACTION. PENDING LISTING.
(a) COLLATERALIZED BY FEDERAL AGENCY AND U.S. TREASURY OBLIGATIONS.
(b) SECURITIES HAVE BEEN DESIGNATED AS COLLATERAL IN AN AMOUNT EQUAL TO
$114,421,741 IN CONNECTION WITH OPEN FORWARD FOREIGN CURRENCY CONTRACTS AND
OPEN FUTURES CONTRACTS.
(c) THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES APPROXIMATES THE
AGGREGATE COST FOR BOOK PURPOSES. THE AGGREGATE GROSS UNREALIZED
APPRECIATION IS $117,858,027 AND THE AGGREGATE GROSS UNREALIZED
DEPRECIATION IS $3,898,579 RESULTING IN NET UNREALIZED APPRECIATION OF
$113,959,448.
SEE NOTES TO FINANCIAL STATEMENTS
36
<Page>
FUTURES CONTRACTS OPEN AT APRIL 30, 2006:
<Table>
<Caption>
NUMBER OF DESCRIPTION, DELIVERY UNDERLYING FACE UNREALIZED
CONTRACTS LONG/SHORT MONTH AND YEAR AMOUNT AT VALUE APPRECIATION
- --------------------------------------------------------------------------------------
12 Long EURX DAX Index Future
June 2006 $2,281,288 $ 52,936
67 Long FTSE/JSE Top 40 Index Future
June 2006 2,134,115 229,362
6 Long TOPIX Index Future
June 2006 909,203 59,519
--------
Total Unrealized Appreciation $341,817
========
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
37
<Page>
FORWARD FOREIGN CURRENCY CONTRACTS OPEN AT APRIL 30, 2006:
UNREALIZED
CONTRACTS IN EXCHANGE DELIVERY APPRECIATION
TO DELIVER FOR DATE (DEPRECIATION)
- --------------------------------------------------------------
CHF 70,000 $ 56,392 05/02/06 $ (18)
GBP 185,000 $ 337,090 05/02/06 (220)
GBP 911,375 $ 1,660,043 05/04/06 (1,668)
$ 2,470,078 AUD 3,331,955 05/19/06 59,276
$ 2,507,000 AUD 3,399,553 05/19/06 73,668
$ 7,476,889 EUR 6,252,886 05/19/06 423,571
$ 2,584,706 GBP 1,495,260 05/19/06 142,438
$ 1,165,992 GBP 673,229 05/19/06 61,883
$ 3,516,538 HKD 27,253,167 05/19/06 (1,125)
HKD 100,288,882 $ 12,941,698 05/19/06 5,337
JPY 171,890,772 $ 1,482,865 05/19/06 (32,566)
$ 6,329,057 JPY 730,797,200 05/19/06 113,829
$ 6,413,131 JPY 742,833,000 05/19/06 135,865
$ 893,787 JPY 103,432,639 05/19/06 18,100
JPY 1,140,050,981 $ 9,823,876 05/19/06 (227,091)
JPY 2,087,089,124 $ 17,683,000 05/19/06 (717,285)
$ 2,274,810 EUR 1,896,117 06/15/06 124,954
$ 20,674,237 EUR 17,232,408 06/15/06 1,135,443
$ 19,418,897 EUR 16,164,498 06/15/06 1,039,216
$ 13,587,317 EUR 11,329,704 06/15/06 751,783
EUR 770,175 $ 923,940 06/15/06 (50,808)
EUR 41,535,543 $ 49,811,084 06/15/06 (2,757,129)
EUR 6,200,664 $ 7,438,069 06/15/06 (409,616)
$ 6,537,554 EUR 5,444,650 06/15/06 353,303
$ 7,283,236 JPY 856,545,000 06/15/06 297,345
$ 1,794,676 ZAR 11,300,000 06/15/06 73,234
-----------
Net Unrealized Appreciation $ 611,719
===========
CURRENCY ABBREVIATIONS:
AUD AUSTRALIAN DOLLAR.
GBP BRITISH POUND.
EUR EURO.
HKD HONG KONG DOLLAR.
JPY JAPANESE YEN.
CHF SWISS FRANC.
ZAR SOUTH AFRICAN RAND.
SEE NOTES TO FINANCIAL STATEMENTS
38
<Page>
Morgan Stanley International Fund
SUMMARY OF INVESTMENTS - APRIL 30, 2006 (UNAUDITED)
PERCENT OF
INDUSTRY VALUE NET ASSETS
- --------------------------------------------------------------------------------
Major Banks $44,318,745 11.7%
Integrated Oil 24,412,341 6.4
Pharmaceuticals: Major 21,410,283 5.7
Motor Vehicles 15,701,031 4.1
Financial Conglomerates 14,328,443 3.8
Electric Utilities 13,548,600 3.6
Other Metals/Minerals 11,482,820 3.0
Industrial Conglomerates 11,085,575 2.9
Real Estate Development 10,033,002 2.6
Electronic Equipment/Instruments 9,592,706 2.5
Multi-Line Insurance 9,537,863 2.5
Major Telecommunications 9,397,196 2.5
Regional Banks 8,293,412 2.2
Investment Banks/Brokers 7,931,169 2.1
Food: Major Diversified 7,226,267 1.9
Telecommunication Equipment 6,305,624 1.7
Wireless Telecommunications 5,837,107 1.5
Food Retail 4,997,002 1.3
Chemicals: Specialty 4,761,947 1.3
Chemicals: Major Diversified 4,747,055 1.3
Wholesale Distributors 4,250,869 1.1
Industrial Machinery 4,210,481 1.1
Oil & Gas Production 4,140,773 1.1
Steel 4,127,173 1.1
Beverages: Alcoholic 4,007,838 1.1
Construction Materials 3,773,348 1.0
Pharmaceuticals: Other 3,772,751 1.0
Engineering & Construction 3,426,060 0.9
Electronics/Appliances 3,321,677 0.9
Life/Health Insurance 3,245,823 0.9
Electronic Components 3,089,075 0.8
Household/Personal Care 3,087,939 0.8
Oil Refining/Marketing 2,930,588 0.8
Railroads 2,913,590 0.8
Property - Casualty Insurers 2,786,342 0.7
Repurchase Agreement 2,785,000 0.7
Packaged Software 2,736,635 0.7
Gas Distributors 2,735,714 0.7
Trucks/Construction/Farm Machinery $ 2,547,409 0.7%
Tobacco 2,420,250 0.6
Aerospace & Defense 2,396,186 0.6
Electrical Products 2,342,181 0.6
Auto Parts: O.E.M. 2,322,293 0.6
Home Building 2,301,102 0.6
Department Stores 2,222,893 0.6
Information Technology Services 2,204,213 0.6
Industrial Specialties 2,164,045 0.6
Air Freight/Couriers 2,059,126 0.5
Food: Specialty/Candy 1,997,490 0.5
Apparel/Footwear 1,974,339 0.5
Building Products 1,823,413 0.5
Other Transportation 1,740,363 0.5
Hotels/Resorts/Cruiselines 1,679,414 0.4
Pulp & Paper 1,596,467 0.4
Electronic Production Equipment 1,515,812 0.4
Semiconductors 1,458,358 0.4
Restaurants 1,448,995 0.4
Metal Fabrications 1,375,814 0.4
Publishing: Books/Magazines 1,375,506 0.4
Apparel/Footwear Retail 1,369,770 0.4
Medical Specialties 1,358,572 0.4
Real Estate Investment Trusts 1,342,208 0.4
Miscellaneous Commercial Services 1,206,718 0.3
Automotive Aftermarket 1,077,187 0.3
Recreational Products 995,813 0.3
Marine Shipping 962,034 0.3
Water Utilities 937,085 0.2
Airlines 900,336 0.2
Other Consumer Specialties 810,014 0.2
Broadcasting 795,745 0.2
Casino/Gaming 766,812 0.2
Finance/Rental/Leasing 735,342 0.2
Media Conglomerates 733,938 0.2
Textiles 725,220 0.2
SEE NOTES TO FINANCIAL STATEMENTS
39
<Page>
PERCENT OF
INDUSTRY VALUE NET ASSETS
- ------------------------------------------------------------
Publishing: Newspapers $ 720,054 0.2%
Miscellaneous Manufacturing 671,406 0.2
Chemicals: Agricultural 667,388 0.2
Electronics/Appliance Stores 656,594 0.2
Advertising/Marketing Services 648,146 0.2
Containers/Packaging 588,064 0.2
Computer Processing Hardware 567,215 0.2
Commercial Printing/Forms 514,169 0.1
Oil & Gas Pipelines 471,380 0.1
Internet Software/Services 458,624 0.1
Specialty Stores 456,078 0.1
Precious Metals 437,734 0.1
Medical/Nursing Services 374,931 0.1
Food: Meat/Fish/Dairy 326,318 0.1
Movies/Entertainment 311,172 0.1
Biotechnology 304,590 0.1
Beverages: Non-Alcoholic 264,035 0.1
Cable/Satellite TV 254,771 0.1
Aluminum 245,787 0.1
Financial Publishing/
Services 229,468 0.1
Food Distributors 218,173 0.1
Discount Stores 209,773 0.1
Specialty Telecommunications 209,398 0.1
Office Equipment/Supplies $ 193,661 0.1%
Banking 183,481 0.0
Medical Distributors 183,040 0.0
Drugstore Chains 180,076 0.0
Personnel Services 146,988 0.0
Investment Managers 132,826 0.0
Computer Peripherals 131,194 0.0
Investment Trusts/Mutual Funds 115,919 0.0
Hospital/Nursing Management 111,460 0.0
Home Improvement Chains 105,882 0.0
Other Consumer Services 89,083 0.0
Agricultural Commodities/Milling 85,717 0.0
Tools/Hardware 85,501 0.0
Oilfield Services/Equipment 50,262 0.0
Data Processing Services 41,851 0.0
Trucking 36,824 0.0
Coal 33,643 0.0
------------ ----
$373,685,003* 98.7%
============ ====
- ----------
* DOES NOT INCLUDE OPEN LONG FUTURES CONTRACTS WITH UNDERLYING FACE AMOUNT OF
$5,324,606 WITH NET UNREALIZED APPRECIATION OF $341,817 AND OPEN FORWARD
FOREIGN CURRENCY CONTRACTS WITH NET UNREALIZED APPRECIATION OF $611,719.
SEE NOTES TO FINANCIAL STATEMENTS
40
<Page>
Morgan Stanley International Fund
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
APRIL 30, 2006 (UNAUDITED)
Assets:
Investments in securities, at value (cost $259,725,555) $ 373,685,003
Unrealized appreciation on open forward foreign currency
contracts 4,802,783
Cash (including $315,733 in foreign currency, at value
with cost of $305,934 and $389,237 in segregation) 705,517
Receivable for:
Investments sold 2,421,258
Dividends 1,338,521
Variation margin 439,023
Compensated forward foreign currency contracts 414,114
Shares of beneficial interest sold 361,196
Foreign withholding taxes reclaimed 225,658
Interest 1,109
Prepaid expenses and other assets 38,020
-------------
Total Assets 384,432,202
-------------
Liabilities:
Unrealized depreciation on open forward foreign currency
contracts 4,191,064
Payable for:
Shares of beneficial interest redeemed 764,069
Compensated forward foreign currency contracts 300,065
Distribution fee 200,900
Investment advisory fee 195,992
Transfer agent fee 25,663
Administration fee 24,409
Investments purchased 4,585
Accrued expenses and other payables 112,314
-------------
Total Liabilities 5,819,061
-------------
Net Assets $ 378,613,141
=============
Composition of Net Assets:
Paid-in-capital $ 369,201,781
Net unrealized appreciation 115,014,781
Accumulated net investment loss (1,300,010)
Accumulated net realized loss (104,303,411)
-------------
Net Assets $ 378,613,141
=============
Class A Shares:
Net Assets $ 139,533,549
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE) 10,765,099
Net Asset Value Per Share $ 12.96
=============
Maximum Offering Price Per Share,
(NET ASSET VALUE PLUS 5.54% OF NET ASSET VALUE) $ 13.68
=============
Class B Shares:
Net Assets $ 183,463,467
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE) 14,289,415
Net Asset Value Per Share $ 12.84
=============
Class C Shares:
Net Assets $ 30,813,630
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE) 2,405,761
Net Asset Value Per Share $ 12.81
=============
Class D Shares:
Net Assets $ 24,802,495
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE) 1,903,842
Net Asset Value Per Share $ 13.03
=============
SEE NOTES TO FINANCIAL STATEMENTS
41
<Page>
Statement of Operations
FOR THE SIX MONTHS ENDED APRIL 30, 2006 (UNAUDITED)
Net Investment Income:
Income
Dividends (net of $276,360 foreign withholding tax) $ 4,054,171
Interest 120,637
-----------
Total Income 4,174,808
-----------
Expenses
Investment advisory fee 1,170,824
Distribution fee (Class A shares) 157,515
Distribution fee (Class B shares) 862,053
Distribution fee (Class C shares) 132,495
Transfer agent fees and expenses 321,333
Administration fee 144,101
Custodian fees 121,211
Shareholder reports and notices 89,367
Professional fees 40,306
Registration fees 29,534
Trustees' fees and expenses 2,262
Other 65,612
-----------
Total Expenses 3,136,613
Less: amounts waived/reimbursed (90,130)
Less: expense offset (670)
-----------
Net Expenses 3,045,813
-----------
Net Investment Income 1,128,995
-----------
Net Realized and Unrealized Gain (Loss):
Net Realized Gain (Loss) on:
Investments 45,502,800
Futures contracts 355,401
Foreign exchange transactions (79,653)
-----------
Net Realized Gain 45,778,548
-----------
Net Change in Unrealized Appreciation/Depreciation on:
Investments 29,289,194
Futures contracts 393,157
Translation of forward foreign currency contracts, other
assets and liabilities denominated in foreign currencies (122,612)
-----------
Net Appreciation 29,559,739
-----------
Net Gain 75,338,287
-----------
Net Increase $76,467,282
===========
SEE NOTES TO FINANCIAL STATEMENTS
42
<Page>
Statements of Changes in Net Assets
<Table>
<Caption>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
APRIL 30, 2006 OCTOBER 31, 2005
-------------- ----------------
(UNAUDITED)
Increase (Decrease) in Net Assets:
Operations:
Net investment income $ 1,128,995 $ 4,567,420
Net realized gain 45,778,548 31,820,708
Net change in unrealized appreciation 29,559,739 36,769,719
-------------- ------------
Net Increase 76,467,282 73,157,847
-------------- ------------
Dividends to Shareholders from Net Investment Income:
Class A shares (2,410,830) (1,047,932)
Class B shares (1,853,783) (769,484)
Class C shares (338,879) (106,040)
Class D shares (496,509) (2,076,588)
-------------- ------------
Total Dividends (5,100,001) (4,000,044)
-------------- ------------
Net decrease from transactions in shares of beneficial interest (129,895,235) (77,996,207)
-------------- ------------
Net Decrease (58,527,954) (8,838,404)
Net Assets:
Beginning of period 437,141,095 445,979,499
-------------- ------------
End of Period
(INCLUDING AN ACCUMULATED NET INVESTMENT LOSS OF $1,300,010 AND ACCUMULATED
UNDISTRIBUTED NET INVESTMENT INCOME OF $2,670,996, RESPECTIVELY) $ 378,613,141 $437,141,095
============== ============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
43
<Page>
Morgan Stanley International Fund
NOTES TO FINANCIAL STATEMENTS - APRIL 30, 2006 (UNAUDITED)
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.
The Fund will assess 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, subject to certain exceptions.
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) 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; (2) 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; (3) 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; (4) 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; (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
44
<Page>
during such periods that are expected to materially affect the value of such
securities, such valuations may be adjusted to reflect the estimated fair value
of such securities as of the close of the NYSE, as determined in good faith by
the Fund's Trustees or by the Investment 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
45
<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
Pursuant to an Investment Advisory Agreement with the Investment Adviser, the
Fund pays 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.
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, to the
extent such operating expenses on an annualized basis exceed 1.05% of the
average daily net assets of the fund.
46
<Page>
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
$19,034,087 at April 30, 2006.
In the case of Class A shares and Class C shares, expenses incurred pursuant to
the Plan in any calendar year in excess of 0.25% or 1.0% of the average daily
net assets of Class A or Class C, respectively, will not be reimbursed by the
Fund through payments in any subsequent year, except that expenses representing
a gross sales credit to Morgan Stanley Financial Advisors or other selected
broker-dealer representatives may be reimbursed in the subsequent calendar year.
For the six months ended April 30, 2006, the distribution fee was accrued for
Class A shares and Class C shares at the annual rate of 0.25% and 0.97%,
respectively.
The Distributor has informed the Fund that for the six months ended April 30,
2006, it received contingent deferred sales charges from certain redemptions of
the Fund's Class B shares and Class C shares of $91,523 and $713, respectively
and received $55,575 in front-end sales charges from sales of the Fund's Class A
shares. The respective shareholders pay such charges which are not an expense of
the Fund.
4. Security Transactions and Transactions with Affiliates
The cost of purchases and proceeds from sales of portfolio securities, excluding
short-term investments, for the six months ended April 30, 2006 aggregated
$37,584,797 and $171,433,012, respectively. Included in the aforementioned
transactions are sales of $114,190,174 with other Morgan Stanley funds,
including realized gains of $30,745,070.
Morgan Stanley Trust, an affiliate of the Investment Adviser, Administrator, and
Distributor, is the Fund's transfer agent.
47
<Page>
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 SIX FOR THE YEAR
MONTHS ENDED ENDED
APRIL 30, 2006 OCTOBER 31, 2005
--------------------------- -------------------------
(UNAUDITED)
SHARES AMOUNT SHARES AMOUNT
----------- ------------- ---------- ------------
CLASS A SHARES
Sold 2,058,786 $ 24,161,917 3,595,078 $ 36,126,830
Conversion from Class B 255,529 3,072,857 1,883,593 18,568,503
Reinvestment of dividends 206,798 2,345,089 104,282 1,035,517
Redeemed (2,566,261) (30,286,428) (3,882,885) (39,231,669)
----------- ------------- ---------- ------------
Net increase (decrease) -- Class A (45,148) (706,565) 1,700,068 16,499,181
----------- ------------- ---------- ------------
CLASS B SHARES
Sold 1,005,576 11,771,847 1,622,872 16,071,848
Conversion to Class A (257,770) (3,072,857) (1,903,425) (18,568,503)
Reinvestment of dividends 146,771 1,652,647 69,959 689,091
Redeemed (2,150,197) (25,026,984) (5,633,706) (56,144,759)
----------- ------------- ---------- ------------
Net decrease -- Class B (1,255,620) (14,675,347) (5,844,300) (57,952,323)
----------- ------------- ---------- ------------
CLASS C SHARES
Sold 452,184 5,119,697 214,201 2,116,614
Reinvestment of dividends 27,741 311,530 9,864 97,057
Redeemed (242,300) (2,828,803) (763,836) (7,543,916)
----------- ------------- ---------- ------------
Net increase (decrease) -- Class C 237,625 2,602,424 (539,771) (5,330,245)
----------- ------------- ---------- ------------
CLASS D SHARES
Sold 104,801 1,236,086 1,200,361 12,017,377
Reinvestment of dividends 37,562 427,455 177,714 1,770,033
Redeemed (10,747,193) (118,779,288) (4,437,463) (45,000,230)
----------- ------------- ---------- ------------
Net decrease -- Class D (10,604,830) (117,115,747) (3,059,388) (31,212,820)
----------- ------------- ---------- ------------
Net decrease in Fund (11,667,973) $(129,895,235) (7,743,391) $(77,996,207)
=========== ============= ========== ============
</Table>
48
<Page>
6. Purposes of and Risks Relating to Certain Financial Instruments
The Fund may enter into forward contracts for many purposes, including to
facilitate settlement of foreign currency denominated portfolio transactions or
to manage foreign currency exposure associated with foreign currency denominated
securities.
To hedge against adverse interest rate, foreign currency and market risks, the
Fund may purchase and sell interest rate, currency and index futures ("futures
contracts").
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 April 30, 2006, investments in securities of issuers in Japan and United
Kingdom represented 29.7% and 19.8%, 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 these regions.
At April 30, 2006, the Fund's cash balance consisted principally of interest
bearing deposits with J.P. Morgan Chase, the Fund's custodian.
7. Expense Offset
The expense offset represents a reduction of the custodian and transfer agent
fees and expenses for earnings on cash balances maintained by the Fund.
8. 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.
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.
49
<Page>
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.
9. 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 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. On March 9, 2005, Plaintiffs sought leave to supplement their complaint
to assert claims on behalf of other investors, which motion defendants opposed.
On April 14, 2006, the Court granted defendants' motion to dismiss in its
entirety. Additionally, the Court denied Plaintiff's motion to supplement their
complaint. This matter is now concluded.
50
<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 SIX FOR THE YEAR ENDED OCTOBER 31,
MONTHS ENDED -------------------------------------------------
APRIL 30, 2006 2005 2004 2003 2002 2001
-------------- -------- ------- ------- ------- -------
(UNAUDITED)
Class A Shares
Selected Per Share Data:
Net asset value, beginning of period $ 10.70 $ 9.19 $ 8.03 $ 6.70 $ 7.77 $ 10.29
-------- -------- ------- ------- ------- -------
Income (loss) from investment operations:
Net investment income++ 0.06 0.13 0.06 0.08 0.04 0.06
Net realized and unrealized gain (loss) 2.42 1.50 1.20 1.33 (1.03) (2.07)
-------- -------- ------- ------- ------- -------
Total income (loss) from investment
operations 2.48 1.63 1.26 1.41 (0.99) (2.01)
-------- -------- ------- ------- ------- -------
Less dividends and distributions from:
Net investment income (0.22) (0.12) (0.10) (0.08) (0.08) --
Net realized gain -- -- -- -- -- (0.51)
-------- -------- ------- ------- ------- -------
Total dividends and distributions (0.22) (0.12) (0.10) (0.08) (0.08) (0.51)
-------- -------- ------- ------- ------- -------
Net asset value, end of period $ 12.96 $ 10.70 $ 9.19 $ 8.03 $ 6.70 $ 7.77
======== ======== ======= ======= ======= =======
Total Return+ 23.50%(1) 17.65% 15.89% 21.31% (12.93)% (20.36)%
Ratios to Average Net Assets(3):
Expenses 1.30%(2)(5) 1.30% 1.57% 1.58% 1.56% 1.46%(4)
Net investment income 1.02%(2)(5) 1.27% 0.67% 1.02% 0.54% 0.73%
Supplemental Data:
Net assets, end of period, in thousands $139,534 $115,680 $83,766 $63,422 $44,373 $37,974
Portfolio turnover rate 10%(1) 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) NOT ANNUALIZED.
(2) ANNUALIZED.
(3) REFLECTS OVERALL FUND RATIOS FOR INVESTMENT INCOME AND NON-CLASS SPECIFIC
EXPENSES.
(4) DOES NOT REFLECT THE EFFECT OF EXPENSE OFFSET OF 0.01%.
(5) IF THE FUND HAD BORNE ALL ITS EXPENSES THAT WERE REIMBURSED OR WAIVED BY
THE INVESTMENT ADVISER AND ADMINISTRATOR, THE ANNUALIZED EXPENSE AND NET
INVESTMENT INCOME RATIOS WOULD HAVE BEEN 1.35% AND 0.97%, RESPECTIVELY.
SEE NOTES TO FINANCIAL STATEMENTS
51
<Page>
<Table>
<Caption>
FOR THE SIX FOR THE YEAR ENDED OCTOBER 31,
MONTHS ENDED --------------------------------------------------------
APRIL 30, 2006 2005 2004 2003 2002 2001
-------------- -------- -------- -------- -------- --------
(UNAUDITED)
Class B Shares
Selected Per Share Data:
Net asset value, beginning of period $ 10.55 $ 9.06 $ 7.93 $ 6.58 $ 7.62 $ 10.19
-------- -------- -------- -------- -------- --------
Income (loss) from investment operations:
Net investment income (loss)++ 0.02 0.05 (0.01) 0.01 (0.02) 0.00
Net realized and unrealized gain (loss) 2.39 1.48 1.19 1.34 (1.02) (2.06)
-------- -------- -------- -------- -------- --------
Total income (loss) from investment
operations 2.41 1.53 1.18 1.35 (1.04) (2.06)
-------- -------- -------- -------- -------- --------
Less dividends and distributions from:
Net investment income (0.12) (0.04) (0.05) -- -- --
Net realized gain -- -- -- -- -- (0.51)
-------- -------- -------- -------- -------- --------
Total dividends and distributions (0.12) (0.04) (0.05) -- -- (0.51)
-------- -------- -------- -------- -------- --------
Net asset value, end of period $ 12.84 $ 10.55 $ 9.06 $ 7.93 $ 6.58 $ 7.62
======== ======== ======== ======== ======== ========
Total Return+ 23.04%(1) 16.88% 14.87% 20.52% (13.65)% (21.08)%
Ratios to Average Net Assets(3):
Expenses 2.05%(2)(5) 2.05% 2.33% 2.37% 2.32% 2.24%(4)
Net investment income (loss) 0.27%(2)(5) 0.52% (0.09)% 0.23% (0.22)% (0.06)%
Supplemental Data:
Net assets, end of period, in thousands $183,463 $163,974 $193,796 $205,544 $217,216 $340,158
Portfolio turnover rate 10%(1) 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) NOT ANNUALIZED.
(2) ANNUALIZED.
(3) REFLECTS OVERALL FUND RATIOS FOR INVESTMENT INCOME AND NON-CLASS SPECIFIC
EXPENSES.
(4) DOES NOT REFLECT THE EFFECT OF EXPENSE OFFSET OF 0.01%.
(5) IF THE FUND HAD BORNE ALL ITS EXPENSES THAT WERE REIMBURSED OR WAIVED BY
THE INVESTMENT ADVISER AND ADMINISTRATOR, THE ANNUALIZED EXPENSE AND NET
INVESTMENT INCOME RATIOS WOULD HAVE BEEN 2.10% AND 0.22%, RESPECTIVELY.
SEE NOTES TO FINANCIAL STATEMENTS
52
<Page>
<Table>
<Caption>
FOR THE SIX FOR THE YEAR ENDED OCTOBER 31,
MONTHS ENDED -------------------------------------------------
APRIL 30, 2006 2005 2004 2003 2002 2001
-------------- ------- ------- ------- ------- -------
(UNAUDITED)
Class C Shares
Selected Per Share Data:
Net asset value, beginning of period $ 10.54 $ 9.06 $ 7.92 $ 6.59 $ 7.62 $ 10.19
------- ------- ------- ------- ------- -------
Income (loss) from investment operations:
Net investment income (loss)++ 0.02 0.05 (0.01) 0.01 (0.01) (0.01)
Net realized and unrealized gain (loss) 2.39 1.47 1.20 1.33 (1.02) (2.05)
------- ------- ------- ------- ------- -------
Total income (loss) from investment
operations 2.41 1.52 1.19 1.34 (1.03) (2.06)
------- ------- ------- ------- ------- -------
Less dividends and distributions from:
Net investment income (0.14) (0.04) (0.05) (0.01) -- --
Net realized gain -- -- -- -- -- (0.51)
------- ------- ------- ------- ------- -------
Total dividends and distributions (0.14) (0.04) (0.05) (0.01) -- (0.51)
------- ------- ------- ------- ------- -------
Net asset value, end of period $ 12.81 $ 10.54 $ 9.06 $ 7.92 $ 6.59 $ 7.62
======= ======= ======= ======= ====== =======
Total Return+ 23.10%(1) 16.81% 15.03% 20.40% (13.52)% (21.08)%
Ratios to Average Net Assets(3):
Expenses 2.02%(2)(5) 2.05% 2.31% 2.37% 2.18% 2.24%(4)
Net investment income (loss) 0.30%(2)(5) 0.52% (0.07)% 0.23% (0.08)% (0.06)%
Supplemental Data:
Net assets, end of period, in thousands $30,814 $22,856 $24,527 $25,471 $26,195 $39,079
Portfolio turnover rate 10%(1) 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) NOT ANNUALIZED.
(2) ANNUALIZED.
(3) REFLECTS OVERALL FUND RATIOS FOR INVESTMENT INCOME AND NON-CLASS SPECIFIC
EXPENSES.
(4) DOES NOT REFLECT THE EFFECT OF EXPENSE OFFSET OF 0.01%.
(5) IF THE FUND HAD BORNE ALL ITS EXPENSES THAT WERE REIMBURSED OR WAIVED BY
THE INVESTMENT ADVISER AND ADMINISTRATOR, THE ANNUALIZED EXPENSE AND NET
INVESTMENT INCOME RATIOS WOULD HAVE BEEN 2.07% AND 0.25%, RESPECTIVELY.
SEE NOTES TO FINANCIAL STATEMENTS
53
<Page>
<Table>
<Caption>
FOR THE SIX FOR THE YEAR ENDED OCTOBER 31,
MONTHS ENDED ----------------------------------------------------
APRIL 30, 2006 2005 2004 2003 2002 2001
------------- -------- -------- -------- -------- --------
(UNAUDITED)
Class D Shares
Selected Per Share Data:
Net asset value, beginning of period $ 10.76 $ 9.24 $ 8.07 $ 6.73 $ 7.80 $ 10.32
------- -------- -------- ------ ------ --------
Income (loss) from
investment operations:
Net investment income++ 0.06 0.15 0.08 0.08 0.06 0.08
Net realized and
unrealized gain (loss) 2.46 1.51 1.20 1.36 (1.04) (2.09)
------- -------- -------- ------ ------ --------
Total income (loss) from investment
operations 2.52 1.66 1.28 1.44 (0.98) (2.01)
------- -------- -------- ------ ------ --------
Less dividends and distributions from:
Net investment income (0.25) (0.14) (0.11) (0.10) (0.09) --
Net realized gain -- -- -- -- -- (0.51)
------- -------- -------- ------ ------ --------
Total dividends and distributions (0.25) (0.14) (0.11) (0.10) (0.09) (0.51)
------- -------- -------- ------ ------ --------
Net asset value, end of period $ 13.03 $ 10.76 $ 9.24 $ 8.07 $ 6.73 $ 7.80
======= ======== ======== ====== ====== ========
Total Return+ 23.71%(1) 18.03% 15.97% 21.68% (12.70)% (20.30)%
Ratios to Average Net Assets(3):
Expenses 1.05%(2)(5) 1.05% 1.33% 1.37% 1.32% 1.24%(4)
Net investment income 1.27%(2)(5) 1.52% 0.91% 1.23% 0.78% 0.94%
Supplemental Data:
Net assets, end of period,
in thousands $24,802 $134,631 $143,890 $132,544 $120,329 $124,065
Portfolio turnover rate 10%(1) 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) NOT ANNUALIZED.
(2) ANNUALIZED.
(3) REFLECTS OVERALL FUND RATIOS FOR INVESTMENT INCOME AND NON-CLASS SPECIFIC
EXPENSES.
(4) DOES NOT REFLECT THE EFFECT OF EXPENSE OFFSET OF 0.01%.
(5) IF THE FUND HAD BORNE ALL ITS EXPENSES THAT WERE REIMBURSED OR WAIVED BY
THE INVESTMENT ADVISER AND ADMINISTRATOR, THE ANNUALIZED EXPENSE AND NET
INVESTMENT INCOME RATIOS WOULD HAVE BEEN 1.10% AND 1.22%, RESPECTIVELY.
SEE NOTES TO FINANCIAL STATEMENTS
54
<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
J. David Germany
VICE PRESIDENT
Dennis F. Shea
VICE PRESIDENT
Barry Fink
VICE PRESIDENT
Amy R. Doberman
VICE PRESIDENT
Carsten Otto
CHIEF COMPLIANCE OFFICER
Stefanie V. Chang Yu
VICE PRESIDENT
Francis J. Smith
TREASURER and CHIEF FINANCIAL OFFICER
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
The financial statements included herein have been taken from the records of the
Fund without examination by the independent auditors and accordingly they do not
express an opinion thereon.
This report is submitted for the general information of the shareholders of the
Fund. For more detailed information about the Fund, its fees and expenses and
other pertinent information, please read its Prospectus. The Fund's Statement of
Additional Information contains additional information about the Fund, including
its trustees. It is available, without charge, by calling (800) 869-NEWS.
This report is not authorized for distribution to prospective investors in the
Fund unless preceded or accompanied by an effective Prospectus. Read the
Prospectus carefully before investing.
Investments and services offered through Morgan Stanley DW Inc., member SIPC.
Morgan Stanley Distributors Inc., member NASD
(C) 2006 Morgan Stanley
[Morgan Stanley LOGO]
MORGAN STANLEY FUNDS
Morgan Stanley
International Fund
Semiannual Report
April 30, 2006
[Morgan Stanley LOGO]
INLRPT-36075RPT-RA06-00498P-Y04/06
<Page>
Item 2. Code of Ethics.
Not applicable for semiannual reports.
Item 3. Audit Committee Financial Expert.
Not applicable for semiannual reports.
Item 4. Principal Accountant Fees and Services
Not applicable for semiannual reports.
Item 5. Audit Committee of Listed Registrants.
Not applicable for semiannual reports.
Item 6.
Refer to Item 1.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
Not applicable for semiannual reports.
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 to reports filed by closed-end funds.
Item 10. Submission of Matters to a Vote of Security Holders
Not applicable.
<Page>
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 second fiscal quarter of the
period covered by this report that has materially affected, or is reasonably
likely to materially affect, the registrant's internal control over financial
reporting.
Item 12. Exhibits
(a) Code of Ethics - Not applicable for semiannual reports.
(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
June 20, 2006
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
June 20, 2006
/s/ Francis Smith
Francis Smith
Principal Financial Officer
June 30, 2006