N-CSR

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: 811-10273

Morgan Stanley International Value Equity Fund

(Exact name of registrant as specified in charter)

522 Fifth Avenue, New York, New York 10036
(Address of principal executive offices) (Zip code)

Randy Takian
522 Fifth Avenue, New York, New York 10036
(Name and address of agent for service)

Registrant’s telephone number, including area code: 212-296-6990

Date of fiscal year end: August 31, 2009

Date of reporting period: August 31, 2009

INVESTMENT MANAGEMENT

Welcome, Shareholder:

In this report, you’ll learn about how your investment in Morgan Stanley International Value Equity Fund performed during the annual period. We will provide an overview of the market conditions, and discuss some of the factors that affected performance during the reporting period. In addition, this report includes the Fund’s financial statements and a list of Fund investments.

This material must be preceded or accompanied by a prospectus for the fund being offered.

Market forecasts provided in this report may not necessarily come to pass. There is no assurance that the Fund will achieve its investment objective. The Fund is subject to market risk, which is the possibility that market values of securities owned by the Fund will decline and, therefore, the value of the Fund’s shares may be less than what you paid for them. Accordingly, you can lose money investing in this Fund. Please see the prospectus for more complete information on investment risks.

Fund Report

For the year ended August 31, 2009

Total Return for the 12 Months Ended August 31, 2009

						Morgan
						Stanley
						Capital	Lipper
						International	International
						(MSCI)	Large Cap
						EAFE	Value Funds
Class A	Class B	Class C	Class I	Class R	Class W	Index1	Average2
–11.70%	–11.61%	–12.38%	–11.44%	–11.94%	–11.83%	–14.95%	–15.96%

The performance of the Fund’s six 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.

Because Class B shares incurred lower expenses under the 12b-1 Plan than did Class A shares for the fiscal period ended August 31, 2009, the total operating expense ratio for Class B shares was lower and, as a result, the performance of Class B shares was higher than that of the Class A shares. There can be no assurance that this will continue to occur in the future as the maximum fees payable by Class B shares under the 12b-1 Plan are higher than those payable by Class A shares.

Currently, the Distributor has agreed to waive the 12b-1 fee on Class B shares to the extent it exceeds 0.24% of the average daily net assets of such shares on an annualized basis. The Distributor may discontinue this waiver in the future.

Market Conditions

The international markets, as represented by the MSCI EAFE Index (the “Index”), declined 14.95 percent for the 12 months ended August 31, 2009. During this period, all markets within the Index experienced a roller coaster ride with the Index initially plunging 26 percent from December 31, 2008 through March 9, 2009, breaching the lows of November 2008 to reach a new low in March 2009. From there the markets rallied, returning 25.4 percent for the second quarter of 2009. This powerful rally continued to show little sign of faltering as the Index closed the month of August 67 percent above the market trough reached in March 2009, resulting in a year-to-date return of 24.2 percent as of August 31, 2009. While all international markets declined for the full 12-month period, on a year-to-date basis, the Nordic markets, Australia and Greece were the best performing markets. The U.K. also performed well, helped by the market’s greater exposure to oil and metal stocks. While the Pacific ex-Japan markets also showed strength year-to-date, Japan underperformed, weighed down by a barrage of poor economic data.

On a sector basis, all sectors within the Index declined over the 12-month period; however, towards the latter half of the period there was a clear rotation in performance with defensives (those stocks with less economic sensitivity) outperforming cyclicals (those with greater economic sensitivity). In particular, consumer staples, telecommunications and health care were the best performing sectors, benefiting from positive quarterly earnings data during the second half of the period. Materials, information technology, financials and utilities were the worst performing sectors over the full 12-month period. Materials and financials have been the best performing sectors year-to-date on rising metal prices in anticipation of restocking, a resumption of demand in China and renewed expectations of economic recovery. However, the gains realized were not enough to offset either sector’s prior weak performance as a result of the fallout from the global financial crisis of 2008.

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Performance Analysis

All share classes of Morgan Stanley International Value Equity Fund outperformed the Morgan Stanley Capital International (MSCI) EAFE Index (the “Index”) and the Lipper International Large Cap Value Funds Average for the 12 months ended August 31, 2009, assuming no deduction of applicable sales charges.

Stock selection in and an overweight to the materials and information technology sectors were the most significant contributors to relative performance over the 12-month period. The Fund also benefited from the overweight allocation to consumer staples. Also adding value were positive stock selection in industrials and the modest overweight to the energy sector, which has performed well recently on the back of stabilizing oil prices.

In contrast, the most significant detractor from relative performance was stock selection in financials. The Fund failed to keep pace with the sector’s strong rally since March 2009, as our underweight exposure to European banks and the persistent underperformance of our Japanese financials continued to be extremely costly in terms of relative performance. Stock selection in utilities was also a negative influence.

The preference of the market has been for leveraged balance sheets, leveraged profit structures and cyclical sectors — in every case the opposite of the portfolio’s position. The market’s preference suggests that the worst of the recession may have past and economic activity is returning to normal. We heartily disagree. Even if a breakdown of the financial system has been averted by globally coordinated central bank intervention, we believe this does not change the fact that massive and wrenching readjustments are still outstanding in the western financial system and individual consumer balance sheets. Our focus on earnings quality often leads us to scrutinize the question of pricing power. It is one of the key tools with which we distinguish good from bad earnings structures and with which we assess profit erosion. Nothing enhances the value of a company like gaining pricing power and nothing damages it as much as its loss. To that end, we spend a great deal of time in our stock research asking the question, “will this company have better or worse pricing power in a year or more time?”. In the vast majority of cases today, we believe the answer is “worse” and, in some cases substantially worse. Any company that can swim against this prevailing tide and retain or improve pricing power should be incredibly valuable in our opinion, yet the extraordinary feature of the market today is that these companies are cheaper than they have been for a very long time. There are often long periods when we feel more nuanced about markets and other periods where our conviction levels are higher. Today, we are convinced that markets have overlooked something hugely significant relating to the pricing of quality. Given the degree to which low quality stocks have re-priced up since March, current market rally appears vulnerable in our view.

In short, while we remain bearish about the overall potential for equity markets, we are unusually bullish about the relative return potential for the portfolio. The huge divergence in performance between cyclicals and defensives over the year has opened up a large chasm in valuations and we continue to reduce our exposure in the cyclical sectors in favor of greater value opportunities in the high quality, defensive laggards.

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 as of 08/31/09
Unilever N.V.	4	.0%
British American Tobacco PLC	3	.9
Nestle SA (Registered Shares)	3	.8
Imperial Tobacco Group PLC	3	.6
Reckitt Benckiser Group PLC	3	.2
Vodafone Group PLC	2	.5
Bayer AG	2	.1
Electricite de France (EDF)	2	.1
Roche Holding AG	2	.1
Novartis AG (Registered Shares)	2	.1

TOP FIVE COUNTRIES as of 08/31/09
United Kingdom	31	.5%
Japan	22	.6
Switzerland	8	.0
France	7	.7
Netherlands	6	.5

Subject to change daily. Provided for informational purposes only and should not be deemed as a recommendation to buy or sell the securities mentioned above. Top 10 holdings and top five countries are as a percentage of net assets. 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 80 percent of its assets in a diversified portfolio of common stocks and other equity securities, including depositary receipts and securities convertible into common stock, of companies located outside of the United States. These companies may be of any asset size and may be located in developed or emerging market countries. The Fund invests in at least three different countries located outside of the United States. The Fund’s “Sub-Adviser,” Morgan Stanley Investment Management Limited, may consider an issuer to be from a particular country or geographic region if (i) its principal securities trading market is in that country or geographic region; (ii) alone or on a consolidated basis it derives 50 percent or more of its annual revenue from goods produced, sales made or services performed in that country or geographic region; or (iii) it is organized under the laws of, or has a principal office in, that country or geographic region. By applying this test, it is possible that a particular issuer could be deemed to be from more than one country or geographic region. The Fund may also use derivative instruments as discussed in the Fund’s prospectus. These derivative instruments will be counted toward the 80 percent policy discussed above to the extent they have economic characteristics similar to the securities included within that policy.

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

4

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 (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) 869-NEWS, 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.

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Performance Summary

Performance of $10,000 Investment

Since inception

6

Average Annual Total Returns — Period Ended August 31, 2009

	Class A Shares	*	Class B Shares	**	Class C Shares	†	Class I Shares	††	Class R Shares	#	Class W Shares	##
	(since 04/26/01	)	(since 04/26/01	)	(since 04/26/01	)	(since 04/26/01	)	(since 03/31/08	)	(since 03/31/08	)
Symbol	IVQAX		IVQBX		IVQCX		IVQDX		IVQRX		IVQWX
1 Year	–11.70	%3	–11.61	%3	–12.38	%3	–11.44	%3	–11.94	%3	–11.83	%3
	–16.34	4	–15.43	4	–13.15	4	—		—		—
5 Years	4.56	3	4.20	3	3.82	3	4.82	3	—		—
	3.44	4	3.97	4	3.82	4	—		—		—
Since Inception	5.07	3	4.52	3	4.29	3	5.32	3	–13.95	3	–13.82	3
	4.39	4	4.52	4	4.29	4	—		—		—

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/im or speak with your Financial Advisor. Investment returns and principal value will fluctuate and fund shares, when redeemed, may be worth more or less than their original cost. The graph and table do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Performance for Class A, Class B, Class C, Class I, Class R, and Class W shares will vary due to differences in sales charges and expenses. See the Fund’s current prospectus for complete details on fees and sales charges.

*	The maximum front-end sales charge for Class A is 5.25%.
**	The maximum contingent deferred sales charge (CDSC) for Class B is 5.0%. The CDSC declines to 0% after six years. For periods greater than eight years, returns do not reflect conversion to Class A shares eight years after the end of the calendar month in which shares were purchased. The conversion feature is currently suspended because the total annual operating expense ratio of Class B is currently lower than that of Class A. See “Conversion Feature” for Class B shares in “Share Class Arrangements” of the Prospectus for more information.
†	The maximum contingent deferred sales charge for Class C is 1.0% for shares redeemed within one year of purchase.
††	Class I has no sales charge.
#	Class R has no sales charge.
##	Class W has no sales charge.
(1)	The Morgan Stanley Capital International (MSCI) EAFE Index (Europe, Australasia, Far East) is a free float-adjusted market capitalization index that is designed to measure the international equity market performance of developed markets, excluding the U.S. & Canada. The term “free float” represents the portion of shares outstanding that are deemed to be available for purchase in the public equity markets by investors. The MSCI EAFE Index currently consists of 21 developed market country indices. The performance of the Index is listed in U.S. dollars and assumes reinvestment of net dividends. The Index is unmanaged and its 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 Value Funds Average tracks the performance of all funds in the Lipper International Large-Cap Value Funds classification. The Average, which is adjusted for capital gains distributions and income dividends, is unmanaged and should not be considered an investment. The Fund was in the Lipper International Large-Cap Value Funds classification as of the date of this report.
(3)	Figure shown assumes reinvestment of all distributions and does not reflect the deduction of any sales charges.
(4)	Figure shown assumes reinvestment of all distributions and the deduction of the maximum applicable sales charge. See the Fund’s current prospectus for complete details on fees and sales charges.
‡	Ending value assuming a complete redemption on August 31, 2009.

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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 03/01/09 – 08/31/09.

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.

					Expenses Paid
	Beginning		Ending		During Period@
	Account Value		Account Value		03/01/09 –
	03/01/09		08/31/09		08/31/09
Class A
Actual (38.87% return)	$	1,000.00	$	1,388.70	$	9.75
Hypothetical (5% annual return before expenses)	$	1,000.00	$	1,017.04	$	8.24
Class B
Actual (38.83% return)	$	1,000.00	$	1,388.30	$	9.33
Hypothetical (5% annual return before expenses)	$	1,000.00	$	1,017.39	$	7.88
Class C
Actual (38.32% return)	$	1,000.00	$	1,383.20	$	14.24
Hypothetical (5% annual return before expenses)	$	1,000.00	$	1,013.26	$	12.03
Class I
Actual (38.91% return)	$	1,000.00	$	1,389.10	$	8.25
Hypothetical (5% annual return before expenses)	$	1,000.00	$	1,018.30	$	6.97
Class R
Actual (38.48% return)	$	1,000.00	$	1,384.80	$	11.24
Hypothetical (5% annual return before expenses)	$	1,000.00	$	1,015.78	$	9.50
Class W
Actual (38.65% return)	$	1,000.00	$	1,386.50	$	10.35
Hypothetical (5% annual return before expenses)	$	1,000.00	$	1,016.53	$	8.74

@	Expenses are equal to the Fund’s annualized expense ratios of 1.62%, 1.55%, 2.37%, 1.37%, 1.87%, and 1.72% for Class A, Class B, Class C, Class I, Class R, and Class W shares, respectively, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period).
	Currently, the Distributor has agreed to waive the 12b-1 fee on Class B shares to the extent it exceeds 0.24% of the average daily net assets of such shares on an annualized basis. The Distributor may discontinue this waiver in the future.

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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 (as defined herein) under the advisory agreement, including portfolio management, investment research and equity and fixed income securities trading. The Board reviewed similar information and factors regarding each Sub-Adviser (as defined herein), to the extent applicable. The Board also reviewed and considered the nature and extent of the non-advisory, administrative services provided by the Fund’s Administrator (as defined herein) 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 Adviser, Sub-Advisers and Administrator together are referred to as the “Adviser” and the advisory, sub-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, Fees and Expenses of the Fund

The Board reviewed the performance, fees and expenses of the Fund compared to its peers, as determined by Lipper, and to appropriate benchmarks where applicable. The Board discussed with the Adviser the performance goals and the actual results achieved in managing the Fund. When considering a fund’s performance, the Board and the Adviser place emphasis on trends and longer-term returns (focusing on one-year, three-year and five-year performance, as of December 31, 2008, as applicable). When a fund underperforms its benchmark and/or its peer group average, the Board and the Adviser discuss the causes of such underperformance and, where necessary, they discuss specific changes to investment strategy or investment personnel. The Board noted that the Fund’s performance was better than its peer group average for the one-, three- and five-year periods. The Board discussed with the Adviser the level of the advisory and administration fees (together, the “management fee”) for this Fund relative to comparable funds advised by the Adviser and compared to its peers as determined by Lipper. In addition to the management fee, the

9

Board also reviewed the Fund’s total expense ratio. The Board noted that while the management fee was higher than the peer group average, the total expense ratio was lower than the peer group average. After discussion, the Board concluded that the management fee, although higher than the peer group average, was acceptable because the total expense ratio was competitive with the peer group average. The Board also concluded that the Fund’s performance was competitive with the peer group average.

Economies of Scale

The Board considered the size and growth prospects of the Fund and how that relates to the Fund’s total expense ratio and particularly the Fund’s management fee rate, which does not include breakpoints. In conjunction with its review of the Adviser’s profitability, the Board discussed with the Adviser how a change in assets can affect the efficiency or effectiveness of managing the Fund and whether the management fee level is appropriate relative to current and projected asset levels and/or whether the management fee structure reflects economies of scale as asset levels change. The Board has determined that its review of the actual and potential economies of scale of the Fund support its decision to approve the Management Agreement.

Profitability of the Adviser and Affiliates

The Board considered information concerning the costs incurred and profits realized by the Adviser and its 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. The Board has determined that its review of the analysis of the Adviser’s expenses and profitability supports its decision to approve the Management Agreement.

Other Benefits of the Relationship

The Board considered other benefits to the Adviser and its affiliates derived from their relationship with the Fund and other funds advised by the Adviser. These benefits may include, among other things, “float” benefits derived from handling of checks for purchases and sales, research received by the Adviser generated from commission dollars spent on funds’ portfolio trading and fees for distribution and/or shareholder servicing. The Board reviewed with the Adviser each of these arrangements and the reasonableness of its costs relative to the services performed. The Board has determined that its review of the other benefits received by the Adviser or its affiliates supports its decision to approve the Management Agreement.

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Resources of the Adviser and Historical Relationship Between the Fund and the Adviser

The Board considered whether the Adviser is financially sound and has the resources necessary to perform its obligations under the Management Agreement. 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 the Adviser has the financial resources necessary to fulfill its obligations under the Management Agreement and 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. In reaching this conclusion the Board did not give particular weight to any single factor referenced above. The Board considered these factors over the course of numerous meetings, some of which were in executive session with only the Independent Board members and their counsel present. It is possible that individual Board members may have weighed these factors differently in reaching their individual decisions to approve the Management Agreement.

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Morgan Stanley International Value Equity Fund

Portfolio of Investments - August 31, 2009

NUMBER OF
SHARES			VALUE
		Common Stocks (96.9%)
		Australia (a) (4.0%)
		Chemicals
	68,672	Orica Ltd.	$	1,309,607
		Insurance
	836,613	AMP Ltd.		4,493,325
		Metals & Mining
	2,726,838	OZ Minerals Ltd. (b) (c)		2,456,562
		Oil, Gas & Consumable Fuels
	289,529	Santos Ltd.		3,862,097
		Total Australia		12,121,591
		Austria (a) (0.9%)
		Diversified Telecommunication Services
	164,237	Telekom Austria AG		2,871,325
		Canada (1.0%)
		Oil, Gas & Consumable Fuels
	55,545	EnCana Corp. (c)		2,895,088
		Denmark (a) (0.3%)
		Pharmaceuticals
	13,827	Novo Nordisk A/S (B Shares)		845,000
		Finland (a) (0.4%)
		Communications Equipment
	88,589	Nokia OYJ		1,241,409
		France (a) (7.7%)
		Diversified Telecommunication Services
	110,271	France Telecom SA (c)		2,811,328
		Electric Utilities
	122,842	Electricite de France (EDF)		6,454,004
		Electrical Equipment
	187,195	Legrand SA (c)		4,600,585
		Machinery
	32,683	Vallourec SA (c)		4,983,076
		Oil, Gas & Consumable Fuels
	76,739	Total SA (c)		4,411,867
		Total France		23,260,860
		Germany (a) (4.9%)
		Electric Utilities
	141,556	E.ON AG		5,998,673
		Multi-Utilities
	27,205	RWE AG		2,523,685
		Pharmaceuticals
	105,269	Bayer AG		6,472,827
		Total Germany		14,995,185
		Greece (a) (0.5%)
		Hotels, Restaurants & Leisure
	68,520	OPAP SA		1,672,187
		Hong Kong (a) (0.5%)
		Specialty Retail
	262,500	Esprit Holdings Ltd.		1,600,478
		Ireland (a) (1.8%)
		Construction Materials
	209,099	CRH PLC		5,384,109
		Italy (a) (1.6%)
		Oil, Gas & Consumable Fuels
	201,683	ENI SpA		4,787,926
		Japan (a) (22.6%)
		Auto Components
	326,000	NGK Spark Plug Co., Ltd. (c)		4,109,351
		Automobiles
	54,000	Toyota Motor Corp.		2,302,789
		Chemicals
	124,400	JSR Corp. (c)		2,186,264
	46,700	Nitto Denko Corp.		1,407,283
	177,000	Taiyo Nippon Sanso Corp. (c)		1,864,116
				5,457,663
		Commercial Banks
	398,000	Chiba Bank Ltd. (The)		2,504,520
	37,600	Sumitomo Mitsui Financial Group, Inc. (c)		1,611,636
	276,000	Sumitomo Trust & Banking Co., Ltd. (The)		1,674,648
				5,790,804

See Notes to Financial Statements

12

Morgan Stanley International Value Equity Fund

Portfolio of Investments - August 31, 2009 continued

NUMBER OF
SHARES			VALUE
		Electrical Equipment
	275,000	Mitsubishi Electric Corp.	$	2,032,975
		Electronic Equipment, Instruments & Components
	100,500	HOYA Corp.		2,257,559
	26,000	Keyence Corp. (c)		5,464,787
	18,300	TDK Corp.		1,057,384
				8,779,730
		Household Durables
	408,000	Sekisui House Ltd.		3,900,957
		Household Products
	189,000	Kao Corp.		4,796,107
		Insurance
	185,000	Mitsui Sumitomo Insurance Group Holdings, Inc. (c)		5,184,262
	199,350	T&D Holdings, Inc. (b)(c)		5,949,574
				11,133,836
		Leisure Equipment & Products
	135,400	Sega Sammy Holdings, Inc. (c)		1,763,919
		Media
	63,300	Asatsu-DK, Inc. (c)		1,366,812
		Oil, Gas & Consumable Fuels
	237	INPEX Corp.		1,922,530
		Pharmaceuticals
	129,600	Astellas Pharma, Inc.		5,177,406
		Real Estate Management & Development
	266,000	Mitsubishi Estate Co., Ltd.		4,382,013
		Software
	8,500	Nintendo Co., Ltd.		2,292,349
		Wireless Telecommunication Services
	2,078	NTT DoCoMo, Inc.		3,197,777
		Total Japan		68,407,018
		Luxembourg (a) (0.5%)
		Metals & Mining
	39,617	ArcelorMittal (c)		1,428,913
		Netherlands (a) (6.5%)
		Chemicals
	92,669	Akzo Nobel (c)		5,252,331
		Food Products
	96,120	CSM		2,093,543
	436,803	Unilever N.V.		12,212,383
				14,305,926
		Total Netherlands		19,558,257
		Russia (0.3%)
		Oil, Gas & Consumable Fuels
	50,450	Gazprom OAO (ADR)		1,049,496
		Spain (a) (2.0%)
		Diversified Telecommunication Services
	244,320	Telefonica SA		6,168,784
		Sweden (a) (0.3%)
		Metals & Mining
	54,658	SSAB AB (Class A)		800,520
		Switzerland (a) (8.0%)
		Food Products
	277,679	Nestle SA (Registered Shares)		11,541,215
		Pharmaceuticals
	136,114	Novartis AG (Registered Shares)		6,320,333
	40,295	Roche Holding AG		6,411,863
				12,732,196
		Total Switzerland		24,273,411
		United Kingdom (a) (31.5%)
		Beverages
	214,560	Diageo PLC		3,331,865
		Commercial Banks
	256,165	Barclays PLC (b)		1,570,103
		Electric Utilities
	216,528	Scottish & Southern Energy PLC		3,934,937
		Food Products
	270,764	Cadbury PLC		2,552,835
		Hotels, Restaurants & Leisure
	246,004	Intercontinental Hotels Group PLC		3,050,875

See Notes to Financial Statements

13

Morgan Stanley International Value Equity Fund

Portfolio of Investments - August 31, 2009 continued

NUMBER OF
SHARES			VALUE
		Household Products
	208,050	Reckitt Benckiser Group PLC	$	9,636,213
		Industrial Conglomerates
	272,732	Smiths Group PLC		3,542,174
		Media
	736,555	Reed Elsevier PLC		5,360,776
		Metals & Mining
	238,471	BHP Billiton PLC		6,257,381
	73,588	Lonmin PLC (b)		1,732,858
				7,990,239
		Multi-Utilities
	158,722	National Grid PLC		1,529,995
		Oil, Gas & Consumable Fuels
	156,142	BG Group PLC		2,575,828
	552,315	BP PLC		4,753,937
	58,140	Royal Dutch Shell PLC (Class A) (e)		1,613,241
				8,943,006
		Professional Services
	2,715,509	Hays PLC		4,570,229
		Real Estate Investment Trusts (REITs)
	367,593	British Land Co. PLC		2,877,438
		Tobacco
	387,811	British American Tobacco PLC		11,791,870
	390,908	Imperial Tobacco Group PLC		10,966,163
				22,758,033
		Trading Companies & Distributors
	257,871	Wolseley PLC (b)		6,030,454
		Wireless Telecommunication Services
	3,545,085	Vodafone Group PLC		7,641,773
		Total United Kingdom		95,320,945
		United States (1.6%)
		Beverages
	178,803	Dr Pepper Snapple Group, Inc. (b)		4,727,561
		Total Common Stocks (Cost $317,651,549)		293,410,063
PRINCIPAL
AMOUNT IN
THOUSANDS			VALUE
		Short-Term Investments (11.0%)
		Securities Held as Collateral on Loaned Securities (8.8%)
		Repurchase Agreements (2.1%)
	$4,615	Banc of America Securities LLC (0.22% dated 08/31/09, due 09/01/09; proceeds $4,615,076; fully collateralized by U.S. Government Agency security at the date of this Portfolio of Investments as follows: Federal National Mortgage Association 5.00%, due 07/01/35; valued at $4,707,349)	$	4,615,048
	1,560	Citigroup (0.53% dated 08/31/09, due 09/01/09; proceeds $1,560,356; fully collateralized by common stock at the date of this Portfolio of Investments as follows: PowerShares QQQ; valued at $1,638,351) (See Note 6)		1,560,332
		Total Repurchase Agreements (Cost $6,175,380)		6,175,380
NUMBER OF
SHARES (000)
		Investment Company (6.7%)
	20,390	Morgan Stanley Institutional Liquidity Funds – Money Market Portfolio – Institutional Class (Cost $20,390,011) (See Note 6)		20,390,011
		Total Securities Held as Collateral on Loaned Securities (Cost $26,565,391)		26,565,391

See Notes to Financial Statements

14

Morgan Stanley International Value Equity Fund

Portfolio of Investments - August 31, 2009 continued

NUMBER OF
SHARES (000)						VALUE
		Investment Company (2.2%)
	6,675	Morgan Stanley Institutional Liquidity Funds – Money Market Portfolio – Institutional Class (See Note 6) (Cost $6,674,723)				$	6,674,723
		Total Short-Term Investments (Cost $33,240,114)					33,240,114
Total Investments (Cost $350,891,663) (d) (f)			107.9		%		326,650,177
Liabilities in Excess of Other Assets			(7.9	)			(23,969,599	)
Net Assets			100.0		%	$	302,680,578

ADR	American Depositary Receipt
(a)	Securities with a total market value equal to $283,124,677 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. Such fair value measurements may be level 2 measurements if observable inputs are available. See Note 2.
(b)	Non-income producing security.
(c)	All or a portion of this security was on loan at August 31, 2009.
(d)	Securities have been designated as collateral in connection with open forward foreign currency contracts.
(e)	Security noted was not fair valued in accordance with (a) above.
(f)	The aggregate cost for federal income tax purposes is $357,415,631. The aggregate gross unrealized appreciation is $22,942,667 and the aggregate gross unrealized depreciation is $53,708,121 resulting in net unrealized depreciation of $30,765,454.

Forward Foreign Currency Contracts Open at August 31, 2009:

		IN
CONTRACTS		EXCHANGE		DELIVERY	UNREALIZED
TO DELIVER		FOR		DATE	APPRECIATION
GBP	7,110,000	EUR	8,384,137	11/16/2009	$	445,677
EUR	42,736	$	61,390	09/01/2009		123
		Total Unrealized Appreciation			$	445,800

Currency Abbreviations:
GBP	British Pounds.
EUR	Euro.

See Notes to Financial Statements

15

Morgan Stanley International Value Equity Fund

Summary of Investments - August 31, 2009

			PERCENT OF
			TOTAL
INDUSTRY	VALUE		INVESTMENTS
Food Products	$	28,399,976		9.5	%
Oil, Gas & Consumable Fuels		27,872,010		9.3
Pharmaceuticals		25,227,429		8.4
Tobacco		22,758,033		7.6
Electric Utilities		16,387,614		5.5
Insurance		15,627,161		5.2
Household Products		14,432,320		4.8
Metals & Mining		12,676,234		4.2
Chemicals		12,019,601		4.0
Diversified Telecommunication Services		11,851,437		3.9
Wireless Telecommunication Services		10,839,550		3.6
Electronic Equipment, Instruments & Components		8,779,730		2.9
Beverages		8,059,426		2.7
Commercial Banks		7,360,907		2.4
Media		6,727,588		2.2
Investment Company		6,674,723		2.2
Electrical Equipment		6,633,560		2.2
Trading Companies & Distributors		6,030,454		2.0
Construction Materials		5,384,109		1.8
Machinery		4,983,076		1.7
Hotels, Restaurants & Leisure		4,723,062		1.6
Professional Services		4,570,229		1.5
Real Estate Management & Development		4,382,013		1.5
Auto Components		4,109,351		1.4
Multi-Utilities		4,053,680		1.3
Household Durables		3,900,957		1.3
Industrial Conglomerates		3,542,174		1.2
Real Estate Investment Trusts (REITs)		2,877,438		1.0
Automobiles		2,302,789		0.8
Software		2,292,349		0.8
Leisure Equipment & Products		1,763,919		0.6
Specialty Retail		1,600,478		0.5
Communications Equipment		1,241,409		0.4
	$	300,084,786		100.0	%

Does not include open forward foreign currency contracts with net unrealized appreciation of $445,800, also does not reflect the value of securities held as collateral on loaned securities.

See Notes to Financial Statements

16

Morgan Stanley International Value Equity Fund

Financial Statements

Statement of Assets and Liabilities

August 31, 2009

Assets:
Investments in securities, at value (cost $322,266,597) (including $25,166,574 for securities loaned)	$	298,025,111
Investment in affiliate, at value (cost $28,625,066)		28,625,066
Unrealized appreciation on open forward foreign currency contracts		445,800
Foreign cash (cost of $891,684)		891,412
Receivable for:
Dividends		804,405
Investments sold		480,845
Foreign withholding taxes reclaimed		394,408
Shares of beneficial interest sold		290,799
Dividends from affiliate		771
Receivable from Distributor		102,432
Prepaid expenses and other assets		53,204
Total Assets		330,114,253
Liabilities:
Collateral on securities loaned, at value		26,565,391
Payable for:
Shares of beneficial interest redeemed		369,504
Investment advisory fee		202,301
Distribution fee		96,803
Transfer agent fee		54,790
Administration fee		20,380
Accrued expenses and other payables		124,506
Total Liabilities		27,433,675
Net Assets	$	302,680,578
Composition of Net Assets:
Paid-in-capital	$	416,697,190
Net unrealized depreciation		(23,783,169	)
Accumulated undistributed net investment income		7,079,586
Accumulated net realized loss		(97,313,029	)
Net Assets	$	302,680,578
Class A Shares:
Net Assets		$57,938,894
Shares Outstanding (unlimited shares authorized, $.01 par value)		7,374,115
Net Asset Value Per Share		$7.86
Maximum Offering Price Per Share, (net asset value plus 5.54% of net asset value)		$8.30
Class B Shares:
Net Assets		$75,249,980
Shares Outstanding (unlimited shares authorized, $.01 par value)		9,614,458
Net Asset Value Per Share		$7.83
Class C Shares:
Net Assets		$25,217,272
Shares Outstanding (unlimited shares authorized, $.01 par value)		3,250,703
Net Asset Value Per Share		$7.76
Class I Shares:
Net Assets		$144,112,616
Shares Outstanding (unlimited shares authorized, $.01 par value)		18,274,515
Net Asset Value Per Share		$7.89
Class R Shares
Net Assets		$80,821
Shares Outstanding (unlimited shares authorized, $.01 par value)		10,347
Net Asset Value Per Share		$7.81
Class W Shares
Net Assets		$80,995
Shares Outstanding (unlimited shares authorized, $.01 par value)		10,356
Net Asset Value Per Share		$7.82

See Notes to Financial Statements

17

Morgan Stanley International Value Equity Fund

Financial Statements continued

Statement of Operations

For the year ended August 31, 2009

Net Investment Income:
Income
Dividends (net of $1,162,537 foreign withholding tax)	$	10,670,355
Income from securities loaned – net		386,018
Dividends from affiliate		56,245
Total Income		11,112,618
Expenses
Investment advisory fee		2,544,787
Transfer agent fees and expenses		715,825
Distribution fee (Class A shares)		140,248
Distribution fee (Class B shares)		67,860
Distribution fee (Class C shares)		258,259
Distribution fee (Class R shares)		349
Distribution fee (Class W shares)		244
Administration fee		254,479
Shareholder reports and notices		124,585
Professional fees		101,878
Custodian fees		99,312
Registration fees		71,438
Trustees’ fees and expenses		7,611
Other		55,378
Total Expenses		4,442,253
Less: rebate from Morgan Stanley affiliated cash sweep (Note 6)		(8,394	)
Net Expenses		4,433,859
Net Investment Income		6,678,759
Realized and Unrealized Gain (Loss)
Realized Gain (Loss) on:
Investments		(95,359,003	)
Forward foreign currency contracts		1,014,338
Foreign currency translation		117,352
Net Realized Loss		(94,227,313	)
Change in Unrealized Appreciation/Depreciation on:
Investments		(2,720,517	)
Forward foreign currency contracts		377,012
Foreign currency translation		105,534
Net Change in Unrealized Appreciation/Depreciation		(2,237,971	)
Net Loss		(96,465,284	)
Net Decrease	$	(89,786,525	)

See Notes to Financial Statements

18

Morgan Stanley International Value Equity Fund

Financial Statements continued

Statements of Changes in Net Assets

	FOR THE YEAR			FOR THE YEAR
	ENDED			ENDED
	AUGUST 31, 2009			AUGUST 31, 2008
Increase (Decrease) in Net Assets:
Operations:
Net investment income	$	6,678,759		$	12,738,971
Net realized gain (loss)		(94,227,313	)		69,250,963
Net change in unrealized appreciation/depreciation		(2,237,971	)		(162,316,639	)
Net Decrease		(89,786,525	)		(80,326,705	)
Dividends and Distribution to Shareholders from:
Net investment income
Class A shares		(1,950,468	)		(1,290,793	)
Class B shares		(2,895,655	)		(622,625	)
Class C shares		(525,938	)		(151,372	)
Class I shares		(6,684,888	)		(4,982,919	)
Class R shares		(2,508	)		—
Class W shares		(2,570	)		—
Net realized gain
Class A shares		(5,387,957	)		(20,309,133	)
Class B shares		(7,509,840	)		(28,209,767	)
Class C shares		(2,583,937	)		(10,128,947	)
Class I shares		(16,094,297	)		(63,790,183	)
Class R shares		(6,540	)		—
Class W shares		(6,540	)		—
Total Dividends and Distributions		(43,651,138	)		(129,485,739	)
Net decrease from transactions in shares of beneficial interest		(101,485,660	)		(65,458,165	)
Net Decrease		(234,923,323	)		(275,270,609	)
Net Assets:
Beginning of period		537,603,901			812,874,510
End of Period (including accumulated undistributed net investment income of $7,079,586 and $11,330,047, respectively)	$	302,680,578		$	537,603,901

See Notes to Financial Statements

19

Morgan Stanley International Value Equity Fund

Notes to Financial Statements - August 31, 2009

1. Organization and Accounting Policies

Morgan Stanley International Value Equity 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 to seek long-term capital appreciation. The Fund was organized as a Massachusetts business trust on January 11, 2001 and commenced operations on April 26, 2001.

The Fund offers Class A shares, Class B shares, Class C shares, Class I shares, Class R shares and Class W shares. The six 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 I shares, Class R shares, and Class W shares are not subject to a sales charge. Additionally, Class A shares, Class B shares, Class C shares, Class R shares and Class W shares incur distribution expenses.

The Fund will assess a 2% redemption fee, on Class A shares, Class B shares, Class C shares, Class I shares, Class R shares and Class W shares, which is paid directly to the Fund, for shares redeemed or exchanged 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 ask 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 ask 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 ask 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) when market quotations are not readily available including circumstances under which Morgan Stanley Investment Advisors Inc. (the “Investment Adviser”) or Morgan Stanley Investment Management Limited (the “Sub-Adviser”), a wholly owned subsidiary of Morgan Stanley, 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

20

Morgan Stanley International Value Equity Fund

Notes to Financial Statements - August 31, 2009 continued

securities and other assets may occur between the times at which valuations of such securities are determined (that is, close of the foreign market on which the securities trade) and the close of business on the NYSE. If developments occur during such periods that are expected to materially affect the value of such securities, such valuations may be adjusted to reflect the estimated fair value of such securities as of the close of the NYSE, as determined in good faith by the Fund’s Trustees or by the Investment Adviser using a pricing service and/or procedures approved by the Trustees of the Fund; (6) certain portfolio securities may be valued by an outside pricing service approved by the Fund’s Trustees; (7) investments in open-end mutual funds, including the Morgan Stanley Institutional Liquidity Funds, are valued at the net asset value as of the close of each business day; 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, which approximates market value.

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 and are included in interest income. Interest income is accrued daily as earned.

C. 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.

D. Foreign Currency Translation and Forward Foreign Currency Contracts — The books and records of the Fund are maintained in U.S. dollars as follows: (1) the foreign currency market value of investment securities, other assets and liabilities and forward foreign currency contracts (“forward contracts”) are translated at the exchange rates prevailing at the end of the period; and (2) purchases, sales, income and expenses are translated at the exchange rates prevailing on the respective dates of such transactions. The resultant exchange gains and losses are recorded as realized and unrealized gains/losses on forward foreign exchange contracts and foreign currency translation. Pursuant to U.S. federal income tax regulations, certain foreign exchange gains/losses included in realized and unrealized gains/losses 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 gains or losses.

21

Morgan Stanley International Value Equity Fund

Notes to Financial Statements - August 31, 2009 continued

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.

E. Federal Income Tax Policy — It is the Fund’s policy to comply with the requirements of Subchapter M of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all of its taxable income to its shareholders. Therefore, no federal income tax provision is required. The Fund files tax returns with the U.S. Internal Revenue Service, New York State and New York City. The Fund follows the provisions of the Financial Accounting Standards Board (“FASB”) Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“FIN 48”). FIN 48 sets forth a minimum threshold for financial statement recognition of the benefit of a tax position taken or expected to be taken in a tax return. There are no unrecognized tax benefits in the accompanying financial statements. If applicable, the Fund recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in other expenses in the Statement of Operations. Each of the tax years in the four year period ended August 31, 2009, remains subject to examination by taxing authorities.

F. Security Lending — The Fund may lend securities to qualified financial institutions, such as broker-dealers, to earn additional income. Any increase or decrease in the fair value of the securities loaned that might occur and any interest earned or dividends declared on those securities during the term of the loan would remain in the Fund. The Fund receives cash or securities as collateral in an amount equal to or exceeding 100% of the current fair value of the loaned securities. The collateral is marked-to-market daily, by the securities lending agent, to ensure that a minimum of 100% collateral coverage is maintained.

Based on pre-established guidelines, the securities lending agent invests any cash collateral that is received in high-quality short-term investments. Securities lending income is generated from the earnings on the invested collateral and borrowing fees, less any rebates owed to the borrowers and compensation to the lending agent.

The value of loaned securities and related collateral outstanding at August 31, 2009 were $25,166,574 and $26,633,271 respectively. The Fund received cash collateral of $26,565,391, which was subsequently invested in repurchase agreements and Morgan Stanley Institutional Liquidity Funds as reported in the Portfolio of Investments. The remaining collateral of $67,880 was received in the form of U.S. Government Obligations, which the Fund cannot sell or re-pledge and accordingly are not reflected in the Portfolio of Investments. The Fund has the right under the lending agreement to recover the securities from the borrower on demand.

G. Dividends and Distributions to Shareholders — Dividends and distributions to shareholders are recorded on the ex-dividend date.

22

Morgan Stanley International Value Equity Fund

Notes to Financial Statements - August 31, 2009 continued

H. Use of Estimates — The preparation of financial statements in accordance with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the reported amounts and disclosures. Actual results could differ from those estimates.

I. Subsequent Events — The Fund considers events or transactions that occur after the date of the Statement of Assets and Liabilities but before the financial statements are issued to provide additional evidence relative to certain estimates or to identify matters that require additional disclosure. Subsequent events have been evaluated through October 29, 2009, the date of issuance of these financial statements.

2. Fair Valuation Measurements

The Fund adopted FASB Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“SFAS 157”), effective September 1, 2008. In accordance with SFAS 157, fair value is defined as the price that the Fund would receive to sell an investment or pay to transfer a liability in a timely transaction with an independent buyer in the principal market, or in the absence of a principal market the most advantageous market for the investment or liability. SFAS 157 establishes a three-tier hierarchy to distinguish between (1) inputs that reflect the assumptions market participants would use in pricing an asset or liability developed based on market data obtained from sources independent of the reporting entity (observable inputs) and (2) inputs that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing an asset or liability developed based on the best information available in the circumstances (unobservable inputs) and to establish classification of fair value measurements for disclosure purposes. Various inputs are used in determining the value of the Fund’s investments. The inputs are summarized in the three broad levels listed below.

•  Level 1 — unadjusted quoted prices in active markets for identical investments

•  Level 2 — other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.)

•  Level 3 — significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments)

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities and the determination of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to each security.

23

Morgan Stanley International Value Equity Fund

Notes to Financial Statements - August 31, 2009 continued

The following is the summary of the inputs used as of August 31, 2009 in valuing the Fund’s investments carried at value:

			FAIR VALUE MEASUREMENTS AT AUGUST 31, 2009 USING
			UNADJUSTED
			QUOTED PRICES IN		SIGNIFICANT		SIGNIFICANT
			ACTIVE MARKET FOR		OTHER OBSERVABLE		UNOBSERVABLE
			IDENTICAL INVESTMENTS		INPUTS		INPUTS
INVESTMENT TYPE	TOTAL		(LEVEL 1)		(LEVEL 2)		(LEVEL 3)
Common Stocks
Auto Components	$	4,109,351		—	$	4,109,351		—
Automobiles		2,302,789		—		2,302,789		—
Beverages		8,059,426	$	4,727,561		3,331,865		—
Chemicals		12,019,601		—		12,019,601		—
Commercial Banks		7,360,907		—		7,360,907		—
Communications Equipment		1,241,409		—		1,241,409		—
Construction Materials		5,384,109		—		5,384,109		—
Diversified Telecommunication Services		11,851,437		—		11,851,437		—
Electric Utilities		16,387,614		—		16,387,614		—
Electrical Equipment		6,633,560		—		6,633,560		—
Electronic Equipment, Instruments & Components		8,779,730		—		8,779,730		—
Food Products		28,399,976		—		28,399,976		—
Hotels, Restaurants & Leisure		4,723,062		—		4,723,062		—
Household Durables		3,900,957		—		3,900,957		—
Household Products		14,432,320		—		14,432,320		—
Industrial Conglomerates		3,542,174		—		3,542,174		—
Insurance		15,627,161		—		15,627,161		—
Leisure Equipment & Products		1,763,919		—		1,763,919		—
Machinery		4,983,076		—		4,983,076		—
Media		6,727,588		—		6,727,588		—
Metals & Mining		12,676,234		—		12,676,234		—
Multi-Utilities		4,053,680		—		4,053,680		—
Oil, Gas & Consumable Fuels		27,872,010		5,557,825		22,314,185		—
Pharmaceuticals		25,227,429		—		25,227,429		—
Professional Services		4,570,229		—		4,570,229		—
Real Estate Investment Trusts (REITs)		2,877,438		—		2,877,438		—
Real Estate Management & Development		4,382,013		—		4,382,013		—
Software		2,292,349		—		2,292,349		—
Specialty Retail		1,600,478		—		1,600,478		—
Tobacco		22,758,033		—		22,758,033		—
Trading Companies & Distributors		6,030,454		—		6,030,454		—
Wireless Telecommunication Services		10,839,550		—		10,839,550		—
Total Common Stocks		293,410,063		10,285,386		283,124,677		—
Short-Term Investments
Investment Company		27,064,734		27,064,734		—		—
Repurchase Agreements		6,175,380		—		6,175,380		—
Total Short-Term Investments		33,240,114		27,064,734		6,175,380		—
Forward Foreign Currency Contracts		445,800		—		445,800		—
Total	$	327,095,977	$	37,350,120	$	289,745,857		—

24

Morgan Stanley International Value Equity Fund

Notes to Financial Statements - August 31, 2009 continued

On April 9, 2009, FASB issued Staff Position No. 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly (“FSP 157-4”). FSP 157-4 provides additional guidance for estimating fair value in accordance with SFAS 157, when the volume and level of activity for the asset or liability have significantly decreased. FSP 157-4 also requires additional disaggregation of the current SFAS 157 required disclosures. FSP 157-4 is effective for interim and annual reporting periods ending after June 15, 2009. The Fund has adopted the provisions of FSP 157-4 as of August 31, 2009 and it did not have a material impact on the Fund’s financial statements.

3. Derivative Financial Instruments

The Fund adopted FASB Standard No. 161, Disclosures about Derivative Instruments and Hedging Activities (“SFAS 161”), effective March 1, 2009. SFAS 161 is intended to improve financial reporting about derivative instruments by requiring enhanced disclosures to enable investors to better understand how and why the Fund uses derivative instruments, how these derivative instruments are accounted for and their effects on the Fund’s financial position and results of operations.

A derivative financial instrument in very general terms refers to a security whose value is “derived” from the value of an underlying asset, reference rate or index.

The Fund may use derivative instruments for a variety of reasons, such as to attempt to protect the Fund against possible changes in the market value of its portfolio or to manage the Fund’s foreign currency exposure or to generate potential gain. All of the Fund’s portfolio holdings, including derivative instruments, are marked-to-market each day with the change in value reflected in unrealized appreciation/depreciation. Upon disposition, a realized gain or loss is recognized accordingly, except when taking delivery of a security underlying a contract. In these instances, the recognition of gain or loss is postponed until the disposal of the security underlying the contract. Risk may arise as a result of the potential inability of the counterparties to meet the terms of their contracts.

Summarized below is a specific type of derivative financial instrument used by the Fund.

Forward Foreign Currency Contracts  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. Forward contracts involve elements of market risk in excess of the amount reflected in the Statement of Assets and Liabilities. The Fund bears the risk of an unfavorable change in the foreign exchange rates underlying the forward contracts. Risks may also arise upon entering into these contracts from the potential inability of the counterparties to meet the terms of their contracts.

During the year ended August 31, 2009, the cost of purchases and the proceeds from sales of forward foreign currency contracts were $373,384,109 and $518,455,023, respectively.

25

Morgan Stanley International Value Equity Fund

Notes to Financial Statements - August 31, 2009 continued

The following table sets forth the fair value of the Fund’s derivative contracts by primary risk exposure as of August 31, 2009.

	ASSET DERIVATIVES			LIABILITY DERIVATIVES
PRIMARY RISK EXPOSURE	BALANCE SHEET LOCATION	FAIR VALUE		BALANCE SHEET LOCATION	FAIR VALUE
Foreign Exchange Risk	Unrealized appreciation on open forward foreign currency contracts	$	445,800	Unrealized depreciation on open forward foreign currency contracts		—

The following tables set forth by primary risk exposure the Fund’s realized gains (losses) and change in unrealized gains (losses) by type of derivative contract for the year ended August 31, 2009 in accordance with SFAS 161.

AMOUNT OF REALIZED GAIN (LOSS) ON DERIVATIVE CONTRACTS
PRIMARY RISK EXPOSURE	FORWARD FOREIGN CURRENCY
Foreign Exchange Risk	$	1,014,338

CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION ON DERIVATIVES CONTRACTS
PRIMARY RISK EXPOSURE	FORWARD FOREIGN CURRENCY
Foreign Exchange Risk	$	377,012

4. Investment Advisory/Administration and Sub-Advisory Agreements

Pursuant to an Investment Advisory Agreement, the Fund pays the Investment Adviser an advisory fee, accrued daily and payable monthly, by applying the annual rate of 0.80% to the net assets of the Fund determined as of the close of each business day.

Pursuant to an Administration Agreement with Morgan Stanley Services Company Inc. (the “Administrator”), an affiliate of the Investment Adviser and Sub-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.

Under the Sub-Advisory Agreement between the Investment Adviser and the Sub-Adviser, the Sub-Adviser provides the Fund with investment advisory services, subject to the overall supervision of the Investment Adviser and the Fund’s Officers and Trustees. The Investment Adviser pays the Sub-Adviser on a monthly basis a portion of the net advisory fees the Investment Adviser receives from the Fund.

Under an agreement between the Administrator and State Street Bank and Trust Company (“State Street”), State Street provides certain administrative services to the Fund. For such services, the Administrator pays State Street a portion of the fee the Administrator receives from the Fund.

26

Morgan Stanley International Value Equity Fund

Notes to Financial Statements - August 31, 2009 continued

5. Plan of Distribution

Shares of the Fund are distributed by Morgan Stanley Distributors Inc. (the “Distributor”), an affiliate of the Investment Adviser, Administrator and Sub-Adviser. 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 shares; (ii) Class B — up to 1.0% of the average daily net assets of Class B shares; (iii) Class C — up to 1.0% of the average daily net assets of Class C shares; (iv) Class R — up to 0.50% of the average daily net assets of Class R shares; and (v) Class W — up to 0.35% of the average daily net assets of Class W shares.

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 there were no such expenses as of August 31, 2009.

Currently, the Distributor has agreed to waive the 12b-1 fee on Class B shares to the extent it exceeds 0.24% of the average daily net assets of such shares on an annualized basis. The Distributor may discontinue this waiver at any time.

At August 31, 2009, included in the Statement of Assets and Liabilities, is a receivable from the Fund’s Distributor which represents payments due to be reimbursed to the Fund under the Plan. Because the Plan is what is referred to as a “reimbursement plan”, the Distributor reimburses to the Fund any 12b-1 fees collected in excess of the actual distribution expenses incurred. This receivable represents this excess amount as of August 31, 2009. For the year ended August 31, 2009, the distribution fee was accrued for Class B at an annual rate of 0.09%.

In the case of Class A, Class C, Class R and Class W shares, expenses incurred pursuant to the Plan in any calendar year in excess of 0.25%, 1.0%, 0.50% or 0.35% of the average daily net assets of Class A, Class C, Class R or Class W, 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 and other authorized financial representatives at the time of sale may be reimbursed in the subsequent calendar year. For the year ended August 31, 2009, the distribution fee was accrued for Class A, Class C, Class R and Class W shares at the annual rate of 0.25%, 1.0%, 0.50% and 0.35% respectively.

27

Morgan Stanley International Value Equity Fund

Notes to Financial Statements - August 31, 2009 continued

The Distributor has informed the Fund that for the year ended August 31, 2009, it received contingent deferred sales charges from certain redemptions of the Fund’s Class A shares, Class B shares and Class C shares of $1,353, $109,252 and $1,289, respectively and received $5,425 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.

6. Security Transactions and Transactions with Affiliates

The Fund invests in Morgan Stanley Institutional Liquidity Funds – Money Market Portfolio – Institutional Class, an open-end management investment company managed by an affiliate of the Investment Adviser, both directly, and as a portion of the securities held as collateral on loaned securities. Investment advisory fees paid by the Fund are reduced by an amount equal to the advisory and administrative service fees paid by Morgan Stanley Institutional Liquidity Funds – Money Market Portfolio – Institutional Class with respect to assets invested by the Fund in Morgan Stanley Institutional Liquidity Funds – Money Market Portfolio – Institutional Class. For the year ended August 31, 2009, advisory fees paid were reduced by $8,394 relating to the Fund’s investment in Morgan Stanley Institutional Liquidity Funds – Money Market Portfolio – Institutional Class. Income distributions earned by the Fund are recorded as “dividends from affiliate” in the Statement of Operations and totaled $56,245 for year ended August 31, 2009. During the year ended August 31, 2009, the cost of purchases and sales of investments in Morgan Stanley Institutional Liquidity Funds – Money Market Portfolio – Institutional Class aggregated $114,873,246 and $119,292,922, respectively.

The cost of purchases and proceeds from sales of portfolio securities, excluding short-term investments, for the year ended August 31, 2009 aggregated $79,715,443, and $211,604,614 respectively.

For year ended August 31, 2009, the Fund incurred brokerage commissions of $523 with Morgan Stanley & Co., Inc., an affiliate of the Investment Adviser, Administrator and Distributor, for portfolio transactions executed on behalf of the Fund.

For the period June 1, 2009 (the date on which Citigroup, Inc. became an affiliate of the Investment Adviser, Administrator and Distributor) through August 31, 2009, the Fund incurred brokerage commissions of $632 with Citigroup, Inc., for portfolio transactions executed on behalf of the Fund.

At August 31, 2009, the Fund held a repurchase agreement with Citigroup Inc., an affiliate of the Investment Adviser, Sub-Adviser, Administrator and Distributor since June 1, 2009, with a value of $1,560,332 in connection with cash collateral received from securities lending.

Morgan Stanley Trust, an affiliate of the Investment Adviser, Administrator, Sub-Adviser and Distributor, is the Fund’s transfer agent.

28

Morgan Stanley International Value Equity Fund

Notes to Financial Statements - August 31, 2009 continued

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 or she 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.

7. Expense Offset

The expense offset represents a reduction of the fees and expenses for interest earned on cash balances maintained by the Fund with the transfer agent. For the year ended August 31, 2009, the Fund did not have an expense offset.

8. Purposes of and Risks Relating to Certain Financial Instruments

The Fund may lend securities to qualified financial institutions, such as broker-dealers, to earn additional income. Risks in securities lending transactions are that a borrower may not provide additional collateral when required or return the securities when due, and that the value of the short-term investments will be less than the amount of cash collateral plus any rebate that is required to be returned to the borrower.

At August 31, 2009, investments in securities of issuers in the United Kingdom and Japan were 31.5% and 22.6%, respectively, of the Fund’s net assets. These investments, as well as other non-U.S. securities, may be affected by economic or political developments in these countries.

At August 31, 2009, the Fund’s cash balance consisted principally of interest bearing deposits with State Street, the Fund’s custodian.

29

Morgan Stanley International Value Equity Fund

Notes to Financial Statements - August 31, 2009 continued

9. Shares of Beneficial Interest@@

Transactions in shares of beneficial interest were as follows:

	FOR THE YEAR						FOR THE YEAR
	ENDED						ENDED
	AUGUST 31, 2009						AUGUST 31, 2008
	SHARES			AMOUNT			SHARES			AMOUNT
CLASS A SHARES
Sold		669,924		$	4,806,282			1,519,140		$	21,356,643
Conversion from Class B		—			—			1,152			15,333
Reinvestment of dividends and distributions		1,108,495			7,227,389			1,624,311			19,264,329
Redeemed		(3,155,550	)		(22,696,103	)		(3,304,664	)		(40,975,046	)
Net decrease – Class A		(1,377,131	)		(10,662,432	)		(160,061	)		(338,741	)
CLASS B SHARES
Sold		154,549			1,043,326			330,312			4,217,081
Conversion to Class A		—			—			(1,161	)		(15,333	)
Reinvestment of dividends and distributions		1,557,332			10,107,086			2,160,292			25,534,657
Redeemed		(4,062,930	)		(28,970,092	)		(3,713,327	)		(44,166,523	)
Net decrease – Class B		(2,351,049	)		(17,819,680	)		(1,223,884	)		(14,430,118	)
CLASS C SHARES
Sold		105,605			726,802			150,681			1,811,891
Reinvestment of dividends and distributions		472,014			3,053,929			814,036			9,507,938
Redeemed		(1,500,860	)		(10,442,714	)		(1,595,746	)		(18,753,937	)
Net decrease – Class C		(923,241	)		(6,661,983	)		(631,029	)		(7,434,108	)
CLASS I SHARES
Sold		1,646,151			11,912,246			2,193,598			26,541,939
Reinvestment of dividends and distributions		3,463,562			22,617,063			4,992,190			59,456,990
Redeemed		(14,272,112	)		(100,889,034	)		(10,598,002	)		(129,454,127	)
Net decrease – Class I		(9,162,399	)		(66,359,725	)		(3,412,214	)		(43,455,198	)
CLASS R SHARES
Sold		—			—			8,953			100,000
Reinvestment of dividends and distributions		1,394			9,049			—			—
Net increase – Class R		1,394			9,049			8,953			100,000
CLASS W SHARES
Sold		—			—			8,953			100,000
Reinvestment of dividends and distributions		1,403			9,111			—			—
Net increase – Class W		1,403			9,111			8,953			100,000
Net decrease in Fund		(13,811,023	)	$	(101,485,660	)		(5,409,282	)	$	(65,458,165	)

@@ The Fund will suspend offering its shares to new investors when the Fund’s assets reach $1 billion. Following the general suspension of the offering of the Fund’s shares to new investors, the Fund will continue to offer its shares to existing shareholders and may recommence offering its shares to other new investors in the future.

30

Morgan Stanley International Value Equity Fund

Notes to Financial Statements - August 31, 2009 continued

10. Federal Income Tax Status

The amount of dividends and distributions from net investment income and net realized capital gains are determined in accordance with federal income tax regulations which may differ from generally accepted accounting principles. These “book/tax” differences are either considered temporary or permanent in nature. To the extent these differences are permanent in nature, such amounts are reclassified within the capital accounts based on their federal tax-basis treatment; temporary differences do not require reclassification. Dividends and distributions which exceed net investment income and net realized capital gains for tax purposes are reported as distributions of paid-in-capital.

The tax character of distributions paid was as follows:

	FOR THE YEAR		FOR THE YEAR
	ENDED		ENDED
	AUGUST 31, 2009		AUGUST 31, 2008
Ordinary income	$	12,122,882	$	17,857,753
Long-term capital gains		31,528,256		123,627,986
Total distributions	$	43,651,138	$	141,485,739

As of August 31, 2009, the tax-basis components of accumulated losses were as follows:

Undistributed ordinary income	$	7,534,927
Undistributed long-term gains		—
Net accumulated earnings		7,534,927
Foreign tax credit pass-through		538,280
Capital loss carryforward		(10,922,777	)
Post-October losses		(79,866,285	)
Temporary differences		(547,943	)
Net unrealized depreciation		(30,752,814	)
Total accumulated losses	$	(114,016,612	)

As of August 31, 2009, the Fund had a net capital loss carryforward of $10,922,777, to offset future capital gains to the extent provided by regulations, which will expire on August 31, 2017.

As of August 31, 2009, the Fund had temporary book/tax differences primarily attributable to post-October losses (capital losses incurred after October 31 within the taxable year which are deemed to arise on the first business day of the Fund’s next taxable year), capital loss deferrals on wash sales, foreign tax credit pass-through and mark-to-market of open forward foreign currency exchange contracts.

31

Morgan Stanley International Value Equity Fund

Notes to Financial Statements - August 31, 2009 continued

Permanent differences, primarily due to foreign currency gains and equalization debits, resulted in the following reclassifications among the Fund’s components of net assets at August 31, 2009:

ACCUMULATED
UNDISTRIBUTED	ACCUMULATED
NET INVESTMENT	NET REALIZED
INCOME	LOSS	PAID-IN-CAPITAL
$1,132,807	$(6,132,807)	$5,000,000

11. Accounting Pronouncements

In May 2009, FASB issued Statement of Financial Accounting Standards No. 165, Subsequent Events (“SFAS 165”), which is intended to establish general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. SFAS 165 is effective for interim or annual financial periods ending after June 15, 2009. The Fund has adopted the provisions of SFAS 165 as of August 31, 2009. Although the adoption of SFAS 165 did not materially impact its financial position, results of operations or changes in net assets, the Fund is now required to provide additional disclosures, which are included in Note 1.

In June 2009, FASB issued SFAS No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles — a replacement of FASB Statement No. 162 (“SFAS 168”). SFAS 168 will become the source of authoritative U.S. Generally Accepted Accounting Principles recognized by the FASB to be applied by nongovernmental entities. Once in effect, all of the Codification’s content will carry the same level of authority, effectively superseding FASB Statement No. 162. SFAS 168 is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The Fund does not anticipate that SFAS 168 will have a material impact on its financial statements.

32

Morgan Stanley International Value Equity Fund

Financial Highlights

Selected ratios and per share data for a share of beneficial interest outstanding throughout each period:

	FOR THE YEAR ENDED AUGUST 31,
	2009				2008				2007				2006				2005
Class A Shares
Selected Per Share Data:
Net asset value, beginning of period		$10.26				$14.09				$14.06				$13.13				$11.73
Income (loss) from investment operations:
Net investment income(1)		0.14				0.21				0.21				0.26				0.19
Net realized and unrealized gain (loss)		(1.55	)			(1.63	)			1.88				1.73				2.11
Total income (loss) from investment operations		(1.41	)			(1.42	)			2.09				1.99				2.30
Less dividends and distributions from:
Net investment income		(0.26	)			(0.14	)			(0.22	)			(0.18	)			(0.10	)
Net realized gain		(0.73	)			(2.27	)			(1.84	)			(0.88	)			(0.80	)
Total dividends and distributions		(0.99	)			(2.41	)			(2.06	)			(1.06	)			(0.90	)
Net asset value, end of period		$7.86				$10.26				$14.09				$14.06				$13.13
Total Return(2)		(11.70	)	%		(12.36	)	%		15.93		%		16.15		%		19.95		%
Ratios to Average Net Assets:(3)
Total expenses (before expense offset)		1.50%(4	)			1.36%(4	)			1.36%(4	)			1.37		%		1.39		%
Net investment income		1.99%(4	)			1.72%(4	)			1.51%(4	)			1.89		%		1.24		%
Rebate from Morgan Stanley affiliate		0.00%(5	)			0.00%(5	)			0.00%(5	)			—				—
Supplemental Data:
Net assets, end of period, in thousands		$57,939				$89,770				$125,527				$113,122				$96,963
Portfolio turnover rate		25		%		36		%		29		%		36		%		34		%

(1)	The per share amounts were computed using an average number of shares outstanding during the period.
(2)	Does not reflect the deduction of sales charge. Calculated based on the net asset value as of the last business day of the period.
(3)	Reflects overall Fund ratios for investment income and non-class specific expenses.
(4)	The ratios reflect the rebate of certain Fund expenses in connection with investments in a Morgan Stanley affiliate during the period. The effect of the rebate on the ratios is disclosed in the above table as “Rebate from Morgan Stanley affiliate.”
(5)	Amount is less than 0.005%.

See Notes to Financial Statements

33

Morgan Stanley International Value Equity Fund

Financial Highlights continued

	FOR THE YEAR ENDED AUGUST 31,
	2009				2008				2007				2006				2005
Class B Shares
Selected Per Share Data:
Net asset value, beginning of period		$10.24				$13.95				$13.89				$12.96				$11.62
Income (loss) from investment operations:
Net investment income(1)		0.15				0.22				0.14				0.14				0.05
Net realized and unrealized gain (loss)		(1.55	)			(1.61	)			1.85				1.72				2.13
Total income (loss) from investment operations		(1.40	)			(1.39	)			1.99				1.86				2.18
Less dividends and distributions from:
Net investment income		(0.28	)			(0.05	)			(0.09	)			(0.05	)			(0.04	)
Net realized gain		(0.73	)			(2.27	)			(1.84	)			(0.88	)			(0.80	)
Total dividends and distributions		(1.01	)			(2.32	)			(1.93	)			(0.93	)			(0.84	)
Net asset value, end of period		$7.83				$10.24				$13.95				$13.89				$12.96
Total Return(2)		(11.61	)	%		(12.18	)	%		15.32		%		15.22		%		19.09		%
Ratios to Average Net Assets:(3)
Total expenses (before expense offset)		1.34%(4	)			1.25%(4	)			1.89%(4	)			2.13		%		2.15		%
Net investment income		2.15%(4	)			1.83%(4	)			0.98%(4	)			1.13		%		0.48		%
Rebate from Morgan Stanley affiliate		0.00%(5	)			0.00%(5	)			0.00%(5	)			—				—
Supplemental Data:
Net assets, end of period, in thousands		$75,250				$122,494				$184,035				$209,878				$238,781
Portfolio turnover rate		25		%		36		%		29		%		36		%		34		%

(1)	The per share amounts were computed using an average number of shares outstanding during the period.
(2)	Does not reflect the deduction of sales charge. Calculated based on the net asset value as of the last business day of the period.
(3)	Reflects overall Fund ratios for investment income and non-class specific expenses.
(4)	The ratios reflect the rebate of certain Fund expenses in connection with investments in a Morgan Stanley affiliate during the period. The effect of the rebate on the ratios is disclosed in the above table as “Rebate from Morgan Stanley affiliate.”
(5)	Amount is less than 0.005%.

See Notes to Financial Statements

34

Morgan Stanley International Value Equity Fund

Financial Highlights continued

	FOR THE YEAR ENDED AUGUST 31,
	2009				2008				2007				2006				2005
Class C Shares
Selected Per Share Data:
Net asset value, beginning of period		$10.06				$13.84				$13.83				$12.92				$11.59
Income (loss) from investment operations:
Net investment income(1)		0.09				0.12				0.11				0.15				0.06
Net realized and unrealized gain (loss)		(1.51	)			(1.60	)			1.85				1.71				2.12
Total income (loss) from investment operations		(1.42	)			(1.48	)			1.96				1.86				2.18
Less dividends and distributions from:
Net investment income		(0.15	)			(0.03	)			(0.11	)			(0.07	)			(0.05	)
Net realized gain		(0.73	)			(2.27	)			(1.84	)			(0.88	)			(0.80	)
Total dividends and distributions		(0.88	)			(2.30	)			(1.95	)			(0.95	)			(0.85	)
Net asset value, end of period		$7.76				$10.06				$13.84				$13.83				$12.92
Total Return(2)		(12.38	)	%		(12.97	)	%		15.17		%		15.30		%		19.11		%
Ratios to Average Net Assets:(3)
Total expenses (before expense offset)		2.25%(4	)			2.08%(4	)			2.06%(4	)			2.04		%		2.15		%
Net investment income		1.24%(4	)			1.00%(4	)			0.81%(4	)			1.22		%		0.48		%
Rebate from Morgan Stanley affiliate		0.00%(5	)			0.00%(5	)			0.00%(5	)			—				—
Supplemental Data:
Net assets, end of period, in thousands		$25,217				$41,975				$66,486				$65,822				$73,598
Portfolio turnover rate		25		%		36		%		29		%		36		%		34		%

(1)	The per share amounts were computed using an average number of shares outstanding during the period.
(2)	Does not reflect the deduction of sales charge. Calculated based on the net asset value as of the last business day of the period.
(3)	Reflects overall Fund ratios for investment income and non-class specific expenses.
(4)	The ratios reflect the rebate of certain Fund expenses in connection with investments in a Morgan Stanley affiliate during the period. The effect of the rebate on the ratios is disclosed in the above table as “Rebate from Morgan Stanley affiliate.”
(5)	Amount is less than 0.005%.

See Notes to Financial Statements

35

Morgan Stanley International Value Equity Fund

Financial Highlights continued

	FOR THE YEAR ENDED AUGUST 31,
	2009				2008				2007				2006				2005
Class I Shares
Selected Per Share Data:
Net asset value, beginning of period		$10.32				$14.16				$14.12				$13.17				$11.75
Income (loss) from investment operations:
Net investment income(1)		0.16				0.24				0.25				0.29				0.19
Net realized and unrealized gain (loss)		(1.56	)			(1.63	)			1.88				1.74				2.14
Total income (loss) from investment operations		(1.40	)			(1.39	)			2.13				2.03				2.33
Less dividends and distributions from:
Net investment income		(0.30	)			(0.18	)			(0.25	)			(0.20	)			(0.11	)
Net realized gain		(0.73	)			(2.27	)			(1.84	)			(0.88	)			(0.80	)
Total dividends and distributions		(1.03	)			(2.45	)			(2.09	)			(1.08	)			(0.91	)
Net asset value, end of period		$7.89				$10.32				$14.16				$14.12				$13.17
Total Return(2)		(11.44	)	%		(12.14	)	%		16.20		%		16.42		%		20.21		%
Ratios to Average Net Assets:(3)
Total expenses (before expense offset)		1.25%(4	)			1.11%(4	)			1.12%(4	)			1.13		%		1.15		%
Net investment income		2.24%(4	)			1.97%(4	)			1.75%(4	)			2.13		%		1.48		%
Rebate from Morgan Stanley affiliate		0.00%(5	)			0.00%(5	)			0.00%(5	)			—				—
Supplemental Data:
Net assets, end of period, in thousands		$144,113				$283,181				$436,827				$442,481				$463,132
Portfolio turnover rate		25		%		36		%		29		%		36		%		34		%

(1)	The per share amounts were computed using an average number of shares outstanding during the period.
(2)	Calculated based on the net asset value as of the last business day of the period.
(3)	Reflects overall Fund ratios for investment income and non-class specific expenses.
(4)	The ratios reflect the rebate of certain Fund expenses in connection with investments in a Morgan Stanley affiliate during the period. The effect of the rebate on the ratios is disclosed in the above table as “Rebate from Morgan Stanley affiliate.”
(5)	Amount is less than 0.005%.

See Notes to Financial Statements

36

Morgan Stanley International Value Equity Fund

Financial Highlights continued

					FOR THE PERIOD
	FOR THE YEAR				MARCH 31, 2008(1)
	ENDED				THROUGH
	AUGUST 31, 2009				AUGUST 31, 2008
Class R Shares
Selected Per Share Data:
Net asset value, beginning of period		$10.25				$11.17
Income (loss) from investment operations:
Net investment income(2)		0.13				0.10
Net realized and unrealized loss		(1.56	)			(1.02	)
Total loss from investment operations		(1.43	)			(0.92	)
Less dividends and distributions from:
Net investment income		(0.28	)			—
Net realized gain		(0.73	)			—
Total dividends and distributions		(1.01	)			—
Net asset value, end of period		$7.81				$10.25
Total return(3)		(11.94	)	%		(8.24	)	%(8)
Ratios to Average Net Assets:(4)
Total expenses (before expense offset)		1.75%(5	)			1.61%(5	)(7)
Net investment income		1.74%(5	)			2.18%(5	)(7)
Rebate from Morgan Stanley affiliate		0.00%(6	)			0.00%(6	)(7)
Supplemental Data:
Net assets, end of period, in thousands		$81				$92
Portfolio turnover rate		25		%		36%(8	)

(1)	The date shares were first issued.
(2)	The per share amounts were computed using an average number of shares outstanding during the period.
(3)	Calculated based on the net asset value as of the last business day of the period.
(4)	Reflects overall Fund ratios for investment income and non-class specific expenses.
(5)	The ratios reflect the rebate of certain Fund expenses in connection with investments in a Morgan Stanley affiliate during the period. The effect of the rebate on the ratios is disclosed in the above table as “Rebate from Morgan Stanley affiliate.”
(6)	Amount is less than 0.005%.
(7)	Annualized.
(8)	Not annualized.

See Notes to Financial Statements

37

Morgan Stanley International Value Equity Fund

Financial Highlights continued

					FOR THE PERIOD
	FOR THE YEAR				MARCH 31,2008(1)
	ENDED				THROUGH
	AUGUST 31, 2009				AUGUST 31, 2008
Class W Shares
Selected Per Share Data:
Net asset value, beginning of period		$10.26				$11.17
Income (loss) from investment operations:
Net investment income(2)		0.14				0.11
Net realized and unrealized loss		(1.56	)			(1.02	)
Total loss from investment operations		(1.42	)			(0.91	)
Less dividends and distributions from:
Net investment income		(0.29	)			—
Net realized gain		(0.73	)			—
Total dividends and distributions		(1.02	)			—
Net asset value, end of period		$7.82				$10.26
Total return(3)		(11.83	)	%		(8.15	)	%(8)
Ratios to Average Net Assets:(4)
Total expenses (before expense offset)		1.60%(5	)			1.46%(5	)(7)
Net investment income		1.89%(5	)			2.33%(5	)(7)
Rebate from Morgan Stanley affiliate		0.00%(6	)			0.00%(6	)(7)
Supplemental Data:
Net assets, end of period, in thousands		$81				$92
Portfolio turnover rate		25		%		36%(8	)

(1)	The date shares were first issued.
(2)	The per share amounts were computed using an average number of shares outstanding during the period.
(3)	Calculated based on the net asset value as of the last business day of the period.
(4)	Reflects overall Fund ratios for investment income and non-class specific expenses.
(5)	The ratios reflect the rebate of certain Fund expenses in connection with investments in a Morgan Stanley affiliate during the period. The effect of the rebate on the ratios is disclosed in the above table as “Rebate from Morgan Stanley affiliate.”
(6)	Amount is less than 0.005%.
(7)	Annualized.
(8)	Not annualized.

See Notes to Financial Statements

38

Morgan Stanley International Value Equity Fund

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Trustees of
Morgan Stanley International Value Equity Fund:

We have audited the accompanying statement of assets and liabilities of Morgan Stanley International Value Equity Fund (the “Fund”), including the portfolio of investments, as of August 31, 2009, and the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods presented. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of August 31, 2009, by correspondence with the custodian and brokers; where replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Morgan Stanley International Value Equity Fund as of August 31, 2009, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the periods presented, in conformity with accounting principles generally accepted in the United States of America.

Deloitte & Touche LLP
New York, New York
October 29, 2009

39

Morgan Stanley International Value Equity Fund

An Important Notice Concerning Our U.S. Privacy Policy (unaudited)

We are required by federal law to provide you with a copy of our privacy policy (“Policy”) annually.

This Policy applies to current and former individual clients of Morgan Stanley Distributors Inc., as well as current and former individual investors in Morgan Stanley mutual funds and related companies.

This Policy is not applicable to partnerships, corporations, trusts or other non-individual clients or account holders, nor is this Policy applicable to individuals who are either beneficiaries of a trust for which we serve as trustee or participants in an employee benefit plan administered or advised by us. This Policy is, however, applicable to individuals who select us to be a custodian of securities or assets in individual retirement accounts, 401(k) accounts, 529 Educational Savings Accounts, accounts subject to the Uniform Gifts to Minors Act, or similar accounts. We may amend this Policy at any time, and will inform you of any changes to this Policy as required by law.

We Respect Your Privacy

We appreciate that you have provided us with your personal financial information and understand your concerns about safeguarding such information. We strive to maintain the privacy of such information while we help you achieve your financial objectives. This Policy describes what non-public personal information we collect about you, how we collect it, when we may share it with others, and how others may use it. It discusses the steps you may take to limit our sharing of information about you with affiliated Morgan Stanley companies (“affiliated companies”). It also discloses how you may limit our affiliates’ use of shared information for marketing purposes. Throughout this Policy, we refer to the non-public information that personally identifies you or your accounts as “personal information.”

1.  What Personal Information Do We Collect About You?

To better serve you and manage our business, it is important that we collect and maintain accurate information about you. We obtain this information from applications and other forms you submit to us, from your dealings with us, from consumer reporting agencies, from our websites and from third parties and other sources.

For example:

•  We collect information such as your name, address, e-mail address, telephone/fax numbers, assets, income and investment objectives through application forms you submit to us.

•  We may obtain information about account balances, your use of account(s) and the types of products and services you prefer to receive from us through your dealings and transactions with us and other sources.

•  We may obtain information about your creditworthiness and credit history from consumer reporting agencies.

40

Morgan Stanley International Value Equity Fund

An Important Notice Concerning Our U.S. Privacy Policy (unaudited) continued

•  We may collect background information from and through third-party vendors to verify representations you have made and to comply with various regulatory requirements.

•  If you interact with us through our public and private Web sites, we may collect information that you provide directly through online communications (such as an e-mail address). We may also collect information about your Internet service provider, your domain name, your computer’s operating system and Web browser, your use of our Web sites and your product and service preferences, through the use of “cookies.” “Cookies” recognize your computer each time you return to one of our sites, and help to improve our sites’ content and personalize your experience on our sites by, for example, suggesting offerings that may interest you. Please consult the Terms of Use of these sites for more details on our use of cookies.

2.  When Do We Disclose Personal Information We Collect About You?

To provide you with the products and services you request, to better serve you, to manage our business and as otherwise required or permitted by law, we may disclose personal information we collect about you to other affiliated companies and to non-affiliated third parties.

A. Information We Disclose to Our Affiliated Companies.  In order to manage your account(s) effectively, including servicing and processing your transactions, to let you know about products and services offered by us and affiliated companies, to manage our business, and as otherwise required or permitted by law, we may disclose personal information about you to other affiliated companies. Offers for products and services from affiliated companies are developed under conditions designed to safeguard your personal information.

B. Information We Disclose to Third Parties.  We do not disclose personal information that we collect about you to non-affiliated third parties except to enable them to provide marketing services on our behalf, to perform joint marketing agreements with other financial institutions, and as otherwise required or permitted by law. For example, some instances where we may disclose information about you to third parties include: for servicing and processing transactions, to offer our own products and services, to protect against fraud, for institutional risk control, to respond to judicial process or to perform services on our behalf. When we share personal information with a non-affiliated third party, they are required to limit their use of personal information about you to the particular purpose for which it was shared and they are not allowed to share personal information about you with others except to fulfill that limited purpose or as may be required by law.

3.  How Do We Protect The Security and Confidentiality Of Personal Information We Collect About You?

We maintain physical, electronic and procedural security measures to help safeguard the personal information we collect about you. We have internal policies governing the proper handling of client information. Third parties that provide support or marketing services on our behalf may also receive personal information about you, and we require them to adhere to confidentiality standards with respect to such information.

41

Morgan Stanley International Value Equity Fund

An Important Notice Concerning Our U.S. Privacy Policy (unaudited) continued

4.  How Can You Limit Our Sharing Of Certain Personal Information About You With Our Affiliated Companies For Eligibility Determination?

We respect your privacy and offer you choices as to whether we share with our affiliated companies personal information that was collected to determine your eligibility for products and services such as credit reports and other information that you have provided to us or that we may obtain from third parties (“eligibility information”). Please note that, even if you direct us not to share certain eligibility information with our affiliated companies, we may still share your personal information, including eligibility information, with those companies under circumstances that are permitted under applicable law, such as to process transactions or to service your account. We may also share certain other types of personal information with affiliated companies — such as your name, address, telephone number, e-mail address and account number(s), and information about your transactions and experiences with us.

5.  How Can You Limit the Use of Certain Personal Information About You by our Affiliated Companies for Marketing?

You may limit our affiliated companies from using certain personal information about you that we may share with them for marketing their products or services to you. This information includes our transactions and other experiences with you such as your assets and account history. Please note that, even if you choose to limit our affiliated companies from using certain personal information about you that we may share with them for marketing their products and services to you, we may still share such personal information about you with them, including our transactions and experiences with you, for other purposes as permitted under applicable law.

6.  How Can You Send Us an Opt-Out Instruction?

If you wish to limit our sharing of certain personal information about you with our affiliated companies for “eligibility purposes” and for our affiliated companies’ use in marketing products and services to you as described in this notice, you may do so by:

•  Calling us at (800) 869-6397
Monday-Friday between 8a.m. and 8p.m. (EST)

•  Writing to us at the following address:
Morgan Stanley Privacy Department
Harborside Financial Center, Plaza Two, 3rd Floor
Jersey City, NJ 07311

If you choose to write to us, your written request should include: your name, address, telephone number and account number(s) to which the opt-out applies and should not be sent with any other correspondence. In order to process your request, we require that the request be provided by you directly and not through a third party. Once you have informed us about your privacy preferences, your opt-out preference will remain in effect with respect to this Policy (as it may be amended) until you notify us otherwise. If you are a joint

42

Morgan Stanley International Value Equity Fund

An Important Notice Concerning Our U.S. Privacy Policy (unaudited) continued

account owner, we will accept instructions from any one of you and apply those instructions to the entire account. Please allow approximately 30 days from our receipt of your opt-out for your instructions to become effective.

Please understand that if you opt-out, you and any joint account holders may not receive certain Morgan Stanley or our affiliated companies’ products and services that could help you manage your financial resources and achieve your investment objectives.

If you have more than one account with us or our affiliates, you may receive multiple privacy policies from us, and would need to follow the directions stated in each particular policy for each account you have with us.

Special Notice To Residents Of Vermont

This section supplements our Policy with respect to our individual clients who have a Vermont address and supersedes anything to the contrary in the above Policy with respect to those clients only.

The State of Vermont requires financial institutions to obtain your consent prior to sharing personal information that they collect about you with affiliated companies and non-affiliated third parties other than in certain limited circumstances. Except as permitted by law, we will not share personal information we collect about you with nonaffiliated third parties or other affiliated companies unless you provide us with your written consent to share such information (“opt-in”).

If you wish to receive offers for investment products and services offered by or through other affiliated companies, please notify us in writing at the following address:

Morgan Stanley Privacy Department
Harborside Financial Center, Plaza Two, 3rd Floor
Jersey City, NJ 07311

Your authorization should include: your name, address, telephone number and account number(s) to which the opt-in applies and should not be sent with any other correspondence. In order to process your authorization, we require that the authorization be provided by you directly and not through a third-party.

43

Morgan Stanley International Value Equity Fund

Trustee and Officer Information (unaudited)

Independent Trustees:

				Number of
				Portfolios
				in Fund
		Term of		Complex
		Office and		Overseen
	Position(s)	Length of		by
Name, Age and Address of	Held with	Time	Principal Occupation(s)	Independent		Other Directorships
Independent Trustee	Registrant	Served*	During Past 5 Years	Trustee**		Held by Independent Trustee
Frank L. Bowman (64) c/o Kramer Levin Naftalis & Frankel LLP Counsel to the Independent Trustees 1177 Avenue of the Americas New York, NY 10036	Trustee	Since August 2006	President, Strategic Decisions, LLC (consulting) (since February 2009); Director or Trustee of various Retail Funds and Institutional Funds (since August 2006); Chairperson of the Insurance Sub-Committee of the Compliance and Insurance Committee (since February 2007); served as President and Chief Executive Officer of the Nuclear Energy Institute (policy organization) through November 2008; retired as Admiral, U.S. Navy in January 2005 after serving over 8 years as Director of the Naval Nuclear Propulsion Program and Deputy Administrator–Naval Reactors in the National Nuclear Security Administration at the U.S. Department of Energy (1996-2004), Knighted as Honorary Knight Commander of the Most Excellent Order of the British Empire; Awarded the Officer de l’Orde National du Mérite by the French Government.		168	Director of the Armed Services YMCA of the USA; member, BP America External Advisory Council (energy); member, National Academy of Engineers.
Michael Bozic (68) c/o Kramer Levin Naftalis & Frankel LLP Counsel to the Independent Trustees 1177 Avenue of the Americas New York, NY 10036	Trustee	Since April 1994	Private investor; Chairperson of the Compliance and Insurance Committee (since October 2006); Director or Trustee of the Retail Funds (since April 1994) and Institutional Funds (since July 2003); formerly, Chairperson of the Insurance Committee (July 2006-September 2006); Vice Chairman of Kmart Corporation (December 1998-October 2000), Chairman and Chief Executive Officer of Levitz Furniture Corporation (November 1995-November 1998) and President and Chief Executive Officer of Hills Department Stores (May 1991-July 1995); variously Chairman, Chief Executive Officer, President and Chief Operating Officer (1987-1991) of the Sears Merchandise Group of Sears, Roebuck & Co.		170	Director of various business organizations.

44

Morgan Stanley International Value Equity Fund

Trustee and Officer Information (unaudited) continued

				Number of
				Portfolios
				in Fund
		Term of		Complex
		Office and		Overseen
	Position(s)	Length of		by
Name, Age and Address of	Held with	Time	Principal Occupation(s)	Independent		Other Directorships
Independent Trustee	Registrant	Served*	During Past 5 Years	Trustee**		Held by Independent Trustee
Kathleen A. Dennis (56) c/o Kramer Levin Naftalis & Frankel LLP Counsel to the Independent Trustees 1177 Avenue of the Americas New York, NY 10036	Trustee	Since August 2006	President, Cedarwood Associates (mutual fund and investment management consulting) (since July 2006); Chairperson of the Money Market and Alternatives Sub-Committee of the Investment Committee (since October 2006) and Director or Trustee of various Retail Funds and Institutional Funds (since August 2006); formerly, Senior Managing Director of Victory Capital Management (1993-2006).		168	Director of various non-profit organizations.
Dr. Manuel H. Johnson (60) c/o Johnson Smick Group, Inc. 888 16th Street, N.W. Suite 740 Washington, D.C. 20006	Trustee	Since July 1991	Senior Partner, Johnson Smick International, Inc. (consulting firm); Chairperson of the Investment Committee (since October 2006) and Director or Trustee of the Retail Funds (since July 1991) and Institutional Funds (since July 2003); Co-Chairman and a founder of the Group of Seven Council (G7C) (international economic commission); formerly, Chairperson of the Audit Committee (July 1991-September 2006); Vice Chairman of the Board of Governors of the Federal Reserve System and Assistant Secretary of the U.S. Treasury.		170	Director of NVR, Inc. (home construction); Director of Evergreen Energy.
Joseph J. Kearns (67) c/o Kearns & Associates LLC PMB754 23852 Pacific Coast Highway Malibu, CA 90265	Trustee	Since August 1994	President, Kearns & Associates LLC (investment consulting); Chairperson of the Audit Committee (since October 2006) and Director or Trustee of the Retail Funds (since July 2003) and Institutional Funds (since August 1994); formerly, Deputy Chairperson of the Audit Committee (July 2003-September 2006) and Chairperson of the Audit Committee of Institutional Funds (October 2001-July 2003); CFO of the J. Paul Getty Trust.		171	Director of Electro Rent Corporation (equipment leasing) and The Ford Family Foundation.

45

Morgan Stanley International Value Equity Fund

Trustee and Officer Information (unaudited) continued

				Number of
				Portfolios
				in Fund
		Term of		Complex
		Office and		Overseen
	Position(s)	Length of		by
Name, Age and Address of	Held with	Time	Principal Occupation(s)	Independent		Other Directorships
Independent Trustee	Registrant	Served*	During Past 5 Years	Trustee**		Held by Independent Trustee
Michael F. Klein (50) c/o Kramer Levin Naftalis & Frankel LLP Counsel to the Independent Trustees 1177 Avenue of the Americas New York, NY 10036	Trustee	Since August 2006	Managing Director, Aetos Capital, LLC (since March 2000) and Co-President, Aetos Alternatives Management, LLC (since January 2004); Chairperson of the Fixed Income Sub-Committee of the Investment Committee (since October 2006) and Director or Trustee of various Retail Funds and Institutional Funds (since August 2006); formerly, Managing Director, Morgan Stanley & Co. Inc. and Morgan Stanley Dean Witter Investment Management, President, Morgan Stanley Institutional Funds (June 1998-March 2000) and Principal, Morgan Stanley & Co. Inc. and Morgan Stanley Dean Witter Investment Management (August 1997-December 1999).		168	Director of certain investment funds managed or sponsored by Aetos Capital, LLC. Director of Sanitized AG and Sanitized Marketing AG (specialty chemicals).
Michael E. Nugent (73) c/o Triumph Capital, L.P. 445 Park Avenue New York, NY 10022	Chairperson of the Board and Trustee	Chairperson of the Boards since July 2006 and Trustee since July 1991	General Partner, Triumph Capital, L.P. (private investment partnership); Chairperson of the Boards of the Retail Funds and Institutional Funds (since July 2006); Director or Trustee of the Retail Funds (since July 1991) and Institutional Funds (since July 2001); formerly, Chairperson of the Insurance Committee (until July 2006).		170	None.
W. Allen Reed (62)† c/o Kramer Levin Naftalis & Frankel LLP Counsel to the Independent Trustees 1177 Avenue of the Americas New York, NY 10036	Trustee	Since August 2006	Chairperson of the Equity Sub-Committee of the Investment Committee (since October 2006) and Director or Trustee of various Retail Funds and Institutional Funds (since August 2006); formerly, President and CEO of General Motors Asset Management; Chairman and Chief Executive Officer of the GM Trust Bank and Corporate Vice President of General Motors Corporation (August 1994-December 2005).		168	Director of Temple-Inland Industries (packaging and forest products); Director of Legg Mason, Inc. and Director of the Auburn University Foundation.

46

Morgan Stanley International Value Equity Fund

Trustee and Officer Information (unaudited) continued

				Number of
				Portfolios
				in Fund
		Term of		Complex
		Office and		Overseen
	Position(s)	Length of		by
Name, Age and Address of	Held with	Time	Principal Occupation(s)	Independent		Other Directorships
Independent Trustee	Registrant	Served*	During Past 5 Years	Trustee**		Held by Independent Trustee
Fergus Reid (77) c/o Lumelite Plastics Corporation 85 Charles Colman Blvd. Pawling, NY 12564	Trustee	Since June 1992	Chairman of Lumelite Plastics Corporation; Chairperson of the Governance Committee and Director or Trustee of the Retail Funds (since July 2003) and Institutional Funds (since June 1992).		171	Trustee and Director of certain investment companies in the JPMorgan Funds complex managed by JP Morgan Investment Management Inc.

Interested Trustee:

				Number of
				Portfolios
				in Fund
		Term of		Complex
		Office and		Overseen
	Position(s)	Length of		by
Name, Age and Address of	Held with	Time	Principal Occupation(s)	Interested		Other Directorships
Interested Trustee	Registrant	Served*	During Past 5 Years	Trustee**		Held by Interested Trustee
James F. Higgins (61) c/o Morgan Stanley Trust  Harborside Financial Center Plaza Two Jersey City, NJ 07311	Trustee	Since June 2000	Director or Trustee of the Retail Funds (since June 2000) and Institutional Funds (since July 2003); Senior Advisor of Morgan Stanley (since August 2000).		169	Director of AXA Financial, Inc. and The Equitable Life Assurance Society of the United States (financial services).

*	This is the earliest date the Trustee began serving the funds advised by Morgan Stanley Investment Advisors Inc. (the “Investment Adviser”) (the “Retail Funds”) or the funds advised by Morgan Stanley Investment Management Inc. and Morgan Stanley AIP GP LP (the “Institutional Funds”).
**	The Fund Complex includes all open-end and closed-end funds (including all of their portfolios) advised by the Investment Adviser and any funds that have an investment adviser that is an affiliated person of the Investment Adviser (including, but not limited to, Morgan Stanley Investment Management Inc.).
†	For the period September 26, 2008 through February 5, 2009, W. Allen Reed was an interested Trustee. At all other times covered by this report, Mr. Reed was an Independent Trustee.

47

Morgan Stanley International Value Equity Fund

Trustee and Officer Information (unaudited) continued

Executive Officers:

		Term of
		Office and
	Position(s)	Length of
Name, Age and Address of	Held with	Time
Executive Officer	Registrant	Served*	Principal Occupation(s) During Past 5 Years
Randy Takian (35) 522 Fifth Avenue New York, NY 10036	President and Principal Executive Officer	Since September 2008	President and Principal Executive Officer (since September 2008) of funds in the Fund Complex; President and Chief Executive Officer of Morgan Stanley Services Company Inc. (since September 2008). President of the Investment Adviser (since July 2008). Head of the Retail and Intermediary business within Morgan Stanley Investment Management (since July 2008). Head of Liquidity and Bank Trust business (since July 2008) and the Latin American franchise (since July 2008) at Morgan Stanley Investment Management. Managing Director, Director and/or Officer of the Investment Adviser and various entities affiliated with the Investment Adviser. Formerly Head of Strategy and Product Development for the Alternatives Group and Senior Loan Investment Management. Formerly with Bank of America (July 1996-March 2006), most recently as Head of the Strategy, Mergers and Acquisitions team for Global Wealth and Investment Management.
Kevin Klingert (47) 522 Fifth Avenue New York, NY 10036	Vice President	Since June 2008	Global Head, Chief Operating Officer and acting Chief Investment Officer of the Global Fixed Income Group of Morgan Stanley Investment Management Inc. and the Investment Adviser (since March 2008). Head of Global Liquidity Portfolio Management and co-Head of Liquidity Credit Research of Morgan Stanley Investment Management (since December 2007). Managing Director of Morgan Stanley Investment Management Inc. and the Investment Adviser (since December 2007). Previously, Managing Director on the Management Committee and head of Municipal Portfolio Management and Liquidity at BlackRock (October 1991 to January 2007).
Carsten Otto (45) 522 Fifth Avenue New York, NY 10036	Chief Compliance Officer	Since October 2004	Managing Director and Global Head of Compliance for Morgan Stanley Investment Management (since April 2007) and Chief Compliance Officer of the Retail Funds and Institutional Funds (since October 2004). Formerly, U.S. Director of Compliance (October 2004-April 2007) and Assistant Secretary and Assistant General Counsel of the Retail Funds.
Stefanie V. Chang Yu (42) 522 Fifth Avenue New York, NY 10036	Vice President	Since December 1997	Managing Director and Secretary of the Investment Adviser and various entities affiliated with the Investment Adviser; Vice President of the Retail Funds (since July 2002) and Institutional Funds (since December 1997).

48

Morgan Stanley International Value Equity Fund

Trustee and Officer Information (unaudited) continued

		Term of
		Office and
	Position(s)	Length of
Name, Age and Address of	Held with	Time
Executive Officer	Registrant	Served*	Principal Occupation(s) During Past 5 Years
Francis J. Smith (44) c/o Morgan Stanley Trust  Harborside Financial Center Plaza Two Jersey City, NJ 07311	Treasurer and Chief Financial Officer	Treasurer since July 2003 and Chief Financial Officer since September 2002	Executive Director of the Investment Adviser and various entities affiliated with the Investment Adviser; Treasurer and Chief Financial Officer of the Retail Funds (since July 2003).
Mary E. Mullin (42) 522 Fifth Avenue New York, NY 10036	Secretary	Since June 1999	Executive Director of the Investment Adviser and various entities affiliated with the Investment Adviser; Secretary of the Retail Funds (since July 2003) and Institutional Funds (since June 1999).

* This is the earliest date the Officer began serving the Retail Funds or Institutional Funds.

2009 Federal Tax Notice (unaudited)

For Federal income tax purposes, the following information is furnished with respect to the distributions paid by the Fund during its taxable year ended August 31, 2009. The Fund designated and paid $31,528,256 as a long-term capital gain distribution.

For Federal income tax purposes, the following information is furnished with respect to the Fund’s earnings for its taxable year ended August 31, 2009. When distributed, certain earnings may be subject to a maximum tax rate of 15% as provided for by the Jobs and Growth Tax Relief Reconciliation Act of 2003. The Fund designated up to a maximum of $8,496,317 as taxable at this lower rate. For non-U.S. residents, the Fund may designate up to a maximum of $60,243 as qualifying as short-term capital gain dividends.

For the taxable year ended August 31, 2009, the Fund intends to pass through foreign tax credits of $538,280, and has derived net income from sources within foreign countries of $3,807,900.

In January, the Fund provides tax information to shareholders for the preceding calendar year.

49

Trustees

Frank L. Bowman

Michael Bozic

Kathleen A. Dennis

James F. Higgins

Dr. Manuel H. Johnson

Joseph J. Kearns

Michael F. Klein

Michael E. Nugent

W. Allen Reed

Fergus Reid

Officers

Michael E. Nugent

Chairperson of the Board

Randy Takian

President and Principal Executive Officer

Kevin Klingert

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

Legal Counsel

Dechert LLP

1095 Avenue of the Americas

New York, New York 10036

Counsel to the Independent Trustees

Kramer Levin Naftalis & Frankel LLP

1177 Avenue of the Americas

New York, New York 10036

Investment Adviser

Morgan Stanley Investment Advisors Inc.

522 Fifth Avenue

New York, New York 10036

Sub-Adviser

Morgan Stanley Investment Management Limited

25 Cabot Square, Canary Wharf

London E14 4QA England

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.

Morgan Stanley Distributors Inc., member FINRA.

(c)  2009 Morgan Stanley

INVESTMENT MANAGEMENT

Morgan Stanley

International Value
Equity Fund

Annual Report

August 31, 2009

IVQANN

IU09-04453P-Y08/09

Item 1 — Report to Shareholders

Item 2. Code of Ethics.

(a) The Fund has adopted a code of ethics (the “Code of Ethics”) that applies to its principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the Fund or a third party.

(b) No information need be disclosed pursuant to this paragraph.

(c) Not applicable.

(d) Not applicable.

(e) Not applicable.

(f)

(1)	The Fund’s Code of Ethics is attached hereto as Exhibit 12 A.
(2)	Not applicable.
(3)	Not applicable.

Item 3. Audit Committee Financial Expert.

The Fund’s Board of Trustees has determined that Joseph J. Kearns, an “independent” Trustee, is an “audit committee financial expert” serving on its audit committee. Under applicable securities laws, a person who is determined to be an audit committee financial expert will not be deemed an “expert” for any purpose, including without limitation for the purposes of Section 11 of the Securities Act of 1933, as a result of being designated or identified as an audit committee financial expert. The designation or identification of a person as an audit committee financial expert does not impose on such person any duties, obligations, or liabilities that are greater than the duties, obligations, and liabilities imposed on such person as a member of the audit committee and Board of Trustees in the absence of such designation or identification

2

Item 4. Principal Accountant Fees and Services.

(a)(b)(c)(d) and (g). Based on fees billed for the periods shown:

     2009

	Registrant			Covered Entities(1)
Audit Fees	$	43,680			N/A
Non-Audit Fees
Audit-Related Fees	$	—	(2)	$	6,418,000	(2)
Tax Fees	$	6,338	(3)	$	881,000	(4)
All Other Fees	$	—		$	—
Total Non-Audit Fees	$	6,338		$	7,299,000
Total	$	49,938		$	7,299,000

     2008

	Registrant			Covered Entities(1)
Audit Fees	$	43,600			N/A
Non-Audit Fees
Audit-Related Fees	$	325	(2)	$	4,555,000	(2)
Tax Fees	$	6,063	(3)	$	747,000	(4)
All Other Fees	$			$		(5)
Total Non-Audit Fees	$	6,388		$	5,302,000
Total	$	49,998		$	5,302,000

N/A- Not applicable, as not required by Item 4.
(1)	Covered Entities include the Adviser (excluding sub-advisors) and any entity controlling, controlled by or under common control with the Adviser that provides ongoing services to the Registrant.
(2)	Audit-Related Fees represent assurance and related services provided that are reasonably related to the performance of the audit of the financial statements of the Covered Entities’ and funds advised by the Adviser or its affiliates, specifically data verification and agreed-upon procedures related to asset securitizations and agreed-upon procedures engagements.
(3)	Tax Fees represent tax compliance, tax planning and tax advice services provided in connection with the preparation and review of the Registrant’s tax returns.
(4)	Tax Fees represent tax compliance, tax planning and tax advice services provided in connection with the review of Covered Entities’ tax returns.
(5)	All other fees represent project management for future business applications and improving business and operational processes.

3

(e)(1) The audit committee’s pre-approval policies and procedures are as follows:

APPENDIX A

AUDIT COMMITTEE
AUDIT AND NON-AUDIT SERVICES
PRE-APPROVAL POLICY AND PROCEDURES
OF THE
MORGAN STANLEY RETAIL AND INSTITUTIONAL FUNDS

AS ADOPTED AND AMENDED JULY 23, 2004,¹

     1. Statement of Principles

The Audit Committee of the Board is required to review and, in its sole discretion, pre-approve all Covered Services to be provided by the Independent Auditors to the Fund and Covered Entities in order to assure that services performed by the Independent Auditors do not impair the auditor’s independence from the Fund.

The SEC has issued rules specifying the types of services that an independent auditor may not provide to its audit client, as well as the audit committee’s administration of the engagement of the independent auditor. The SEC’s rules establish two different approaches to pre-approving services, which the SEC considers to be equally valid. Proposed services either: may be pre-approved without consideration of specific case-by-case services by the Audit Committee (“general pre-approval”); or require the specific pre-approval of the Audit Committee or its delegate (“specific pre-approval”). The Audit Committee believes that the combination of these two approaches in this Policy will result in an effective and efficient procedure to pre-approve services performed by the Independent Auditors. As set forth in this Policy, unless a type of service has received general pre-approval, it will require specific pre-approval by the Audit Committee (or by any member of the Audit Committee to which pre-approval authority has been delegated) if it is to be provided by the Independent Auditors. Any proposed services exceeding pre-approved cost levels or budgeted amounts will also require specific pre-approval by the Audit Committee.

The appendices to this Policy describe the Audit, Audit-related, Tax and All Other services that have the general pre-approval of the Audit Committee. The term of any general pre-approval is 12 months from the date of pre-approval, unless the Audit Committee considers and provides a different period and states otherwise. The Audit Committee will annually review and pre-approve the services that may be provided by the Independent Auditors without obtaining specific pre-approval from the Audit Committee. The Audit Committee will add to or subtract from the list of general pre-approved services from time to time, based on subsequent determinations.

¹ This Audit Committee Audit and Non-Audit Services Pre-Approval Policy and Procedures (the “Policy”), adopted as of the date above, supersedes and replaces all prior versions that may have been adopted from time to time.

4

The purpose of this Policy is to set forth the policy and procedures by which the Audit Committee intends to fulfill its responsibilities. It does not delegate the Audit Committee’s responsibilities to pre-approve services performed by the Independent Auditors to management.

The Fund’s Independent Auditors have reviewed this Policy and believes that implementation of the Policy will not adversely affect the Independent Auditors’ independence.

     2. Delegation

As provided in the Act and the SEC’s rules, the Audit Committee may delegate either type of pre-approval authority to one or more of its members. The member to whom such authority is delegated must report, for informational purposes only, any pre-approval decisions to the Audit Committee at its next scheduled meeting.

     3. Audit Services

The annual Audit services engagement terms and fees are subject to the specific pre-approval of the Audit Committee. Audit services include the annual financial statement audit and other procedures required to be performed by the Independent Auditors to be able to form an opinion on the Fund’s financial statements. These other procedures include information systems and procedural reviews and testing performed in order to understand and place reliance on the systems of internal control, and consultations relating to the audit. The Audit Committee will approve, if necessary, any changes in terms, conditions and fees resulting from changes in audit scope, Fund structure or other items.

In addition to the annual Audit services engagement approved by the Audit Committee, the Audit Committee may grant general pre-approval to other Audit services, which are those services that only the Independent Auditors reasonably can provide. Other Audit services may include statutory audits and services associated with SEC registration statements (on Forms N-1A, N-2, N-3, N-4, etc.), periodic reports and other documents filed with the SEC or other documents issued in connection with securities offerings.

The Audit Committee has pre-approved the Audit services in Appendix B.1. All other Audit services not listed in Appendix B.1 must be specifically pre-approved by the Audit Committee (or by any member of the Audit Committee to which pre-approval has been delegated).

     4. Audit-related Services

Audit-related services are assurance and related services that are reasonably related to the performance of the audit or review of the Fund’s financial statements and, to the extent they are Covered Services, the Covered Entities or that are traditionally performed by the Independent Auditors. Because the Audit Committee believes that the provision of Audit-related services does not impair the independence of the auditor and is consistent with the SEC’s rules on auditor independence, the Audit Committee may grant general pre-approval to Audit-related services. Audit-related services include, among others, accounting consultations related to accounting, financial reporting or disclosure matters

5

not classified as “Audit services”; assistance with understanding and implementing new accounting and financial reporting guidance from rulemaking authorities; agreed-upon or expanded audit procedures related to accounting and/or billing records required to respond to or comply with financial, accounting or regulatory reporting matters; and assistance with internal control reporting requirements under Forms N-SAR and/or N-CSR.

The Audit Committee has pre-approved the Audit-related services in Appendix B.2. All other Audit-related services not listed in Appendix B.2 must be specifically pre-approved by the Audit Committee (or by any member of the Audit Committee to which pre-approval has been delegated).

     5. Tax Services

The Audit Committee believes that the Independent Auditors can provide Tax services to the Fund and, to the extent they are Covered Services, the Covered Entities, such as tax compliance, tax planning and tax advice without impairing the auditor’s independence, and the SEC has stated that the Independent Auditors may provide such services.

Pursuant to the preceding paragraph, the Audit Committee has pre-approved the Tax Services in Appendix B.3. All Tax services in Appendix B.3 must be specifically pre-approved by the Audit Committee (or by any member of the Audit Committee to which pre-approval has been delegated).

     6. All Other Services

The Audit Committee believes, based on the SEC’s rules prohibiting the Independent Auditors from providing specific non-audit services, that other types of non-audit services are permitted. Accordingly, the Audit Committee believes it may grant general pre-approval to those permissible non-audit services classified as All Other services that it believes are routine and recurring services, would not impair the independence of the auditor and are consistent with the SEC’s rules on auditor independence.

The Audit Committee has pre-approved the All Other services in Appendix B.4. Permissible All Other services not listed in Appendix B.4 must be specifically pre-approved by the Audit Committee (or by any member of the Audit Committee to which pre-approval has been delegated).

     7. Pre-Approval Fee Levels or Budgeted Amounts

Pre-approval fee levels or budgeted amounts for all services to be provided by the Independent Auditors will be established annually by the Audit Committee. Any proposed services exceeding these levels or amounts will require specific pre-approval by the Audit Committee. The Audit Committee is mindful of the overall relationship of fees for audit and non-audit services in determining whether to pre-approve any such services.

     8. Procedures

All requests or applications for services to be provided by the Independent Auditors that do not require specific approval by the Audit Committee will be submitted to the Fund’s Chief Financial Officer and must include a detailed description of the services to be

6

rendered. The Fund’s Chief Financial Officer will determine whether such services are included within the list of services that have received the general pre-approval of the Audit Committee. The Audit Committee will be informed on a timely basis of any such services rendered by the Independent Auditors. Requests or applications to provide services that require specific approval by the Audit Committee will be submitted to the Audit Committee by both the Independent Auditors and the Fund’s Chief Financial Officer, and must include a joint statement as to whether, in their view, the request or application is consistent with the SEC’s rules on auditor independence.

The Audit Committee has designated the Fund’s Chief Financial Officer to monitor the performance of all services provided by the Independent Auditors and to determine whether such services are in compliance with this Policy. The Fund’s Chief Financial Officer will report to the Audit Committee on a periodic basis on the results of its monitoring. Both the Fund’s Chief Financial Officer and management will immediately report to the chairman of the Audit Committee any breach of this Policy that comes to the attention of the Fund’s Chief Financial Officer or any member of management.

     9. Additional Requirements

The Audit Committee has determined to take additional measures on an annual basis to meet its responsibility to oversee the work of the Independent Auditors and to assure the auditor’s independence from the Fund, such as reviewing a formal written statement from the Independent Auditors delineating all relationships between the Independent Auditors and the Fund, consistent with Independence Standards Board No. 1, and discussing with the Independent Auditors its methods and procedures for ensuring independence.

     10. Covered Entities

Covered Entities include the Fund’s investment adviser(s) and any entity controlling, controlled by or under common control with the Fund’s investment adviser(s) that provides ongoing services to the Fund(s). Beginning with non-audit service contracts entered into on or after May 6, 2003, the Fund’s audit committee must pre-approve non-audit services provided not only to the Fund but also to the Covered Entities if the engagements relate directly to the operations and financial reporting of the Fund. This list of Covered Entities would include:

     Morgan Stanley Retail Funds
     Morgan Stanley Investment Advisors Inc.
     Morgan Stanley & Co. Incorporated
     Morgan Stanley DW Inc.
     Morgan Stanley Investment Management Inc.
     Morgan Stanley Investment Management Limited
     Morgan Stanley Investment Management Private Limited
     Morgan Stanley Asset & Investment Trust Management Co., Limited
     Morgan Stanley Investment Management Company
     Van Kampen Asset Management
     Morgan Stanley Services Company, Inc.
     Morgan Stanley Distributors Inc.
     Morgan Stanley Trust FSB

7

     Morgan Stanley Institutional Funds
     Morgan Stanley Investment Management Inc.
     Morgan Stanley Investment Advisors Inc.
     Morgan Stanley Investment Management Limited
     Morgan Stanley Investment Management Private Limited
     Morgan Stanley Asset & Investment Trust Management Co., Limited
     Morgan Stanley Investment Management Company
     Morgan Stanley & Co. Incorporated
     Morgan Stanley Distribution, Inc.
     Morgan Stanley AIP GP LP
     Morgan Stanley Alternative Investment Partners LP

(e)(2) Beginning with non-audit service contracts entered into on or after May 6, 2003, the audit committee also is required to pre-approve services to Covered Entities to the extent that the services are determined to have a direct impact on the operations or financial reporting of the Registrant. 100% of such services were pre-approved by the audit committee pursuant to the Audit Committee’s pre-approval policies and procedures (attached hereto).

(f) Not applicable.

(g) See table above.

(h) The audit committee of the Board of Trustees has considered whether the provision of services other than audit services performed by the auditors to the Registrant and Covered Entities is compatible with maintaining the auditors’ independence in performing audit services.

Item 5. Audit Committee of Listed Registrants.

(a) The Fund has a separately-designated standing audit committee established in accordance with Section 3(a)(58)(A) of the Exchange Act whose members are: Joseph Kearns, Michael Nugent and Allen Reed.

(b) Not applicable.

Item 6. Schedule of Investments

(a) Refer to Item 1.

(b) Not applicable.

8

Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.

Applicable only to reports filed by closed-end funds.

Item 8. Portfolio Managers of Closed-End Management Investment Companies

Applicable only to reports filed by closed-end funds.

Item 9. Closed-End Fund Repurchases

Applicable only to reports filed by closed-end funds.

Item 10. Submission of Matters to a Vote of Security Holders

Not applicable.

Item 11. Controls and Procedures

(a) The Fund’s principal executive officer and principal financial officer have concluded that the Fund’s disclosure controls and procedures are sufficient to ensure that information required to be disclosed by the Fund in this Form N-CSR was recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, based upon such officers’ evaluation of these controls and procedures as of a date within 90 days of the filing date of the report.

(b) There were no changes in the registrant’s internal control over financial reporting that
occurred during the 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) The Code of Ethics for Principal Executive and Senior Financial Officers is attached hereto.

(b) A separate certification for each principal executive officer and principal financial officer of the registrant are attached hereto as part of EX-99.CERT.

9

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 Value Equity
 

/s/ Randy Takian  

Randy Takian 

Principal Executive Officer 

October 22, 2009 

          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/ Randy Takian  

Randy Takian 

Principal Executive Officer 

October 22, 2009 

/s/ Francis Smith  

Francis Smith 

Principal Financial Officer 

October 22, 2009 

10

EX-99.CODE ETH

EXHIBIT 12 A

CODE OF ETHICS FOR PRINCIPAL EXECUTIVE AND SENIOR FINANCIAL OFFICERS
ADOPTED SEPTEMBER 28, 2004, AS AMENDED SEPTEMBER 20, 2005,
DECEMBER 1, 2006, JANUARY 1, 2008 , SEPTEMBER 25, 2008 AND APRIL 23, 2009

I. This Code of Ethics (the “Code”) for the investment companies within the Morgan Stanley complex identified in Exhibit A (collectively, “Funds” and each, a “Fund”) applies to each Fund’s Principal Executive Officer, President, Principal Financial Officer and Treasurer (or persons performing similar functions) (“Covered Officers” each of whom are set forth in Exhibit B) for the purpose of promoting:

• honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships.

• full, fair, accurate, timely and understandable disclosure in reports and documents that a company files with, or submits to, the Securities and Exchange Commission (“SEC”) and in other public communications made by the Fund;

• compliance with applicable laws and governmental rules and regulations;

• prompt internal reporting of violations of the Code to an appropriate person or persons identified in the Code; and

• accountability for adherence to the Code.

                    Each Covered Officer should adhere to a high standard of business ethics and should be sensitive to situations that may give rise to actual as well as apparent conflicts of interest. Any question about the application of the Code should be referred to the General Counsel or his/her designee (who is set forth in Exhibit C).

II. Covered Officers Should Handle Ethically Actual and Apparent Conflicts of Interest

     Overview. A “conflict of interest” occurs when a Covered Officer’s private interest interferes, or appears to interfere, with the interests of, or his service to, the Fund. For example, a conflict of interest would arise if a Covered Officer, or a member of his family, receives improper personal benefits as a result of his position with the Fund.

11

     Certain conflicts of interest arise out of the relationships between Covered Officers and the Fund and already are subject to conflict of interest provisions in the Investment Company Act of 1940 (“Investment Company Act”) and the Investment Advisers Act of 1940 (“Investment Advisers Act”). For example, Covered Officers may not individually engage in certain transactions (such as the purchase or sale of securities or other property) with the Fund because of their status as “affiliated persons” (as defined in the Investment Company Act) of the Fund. The Fund’s and its investment adviser’s compliance programs and procedures are designed to prevent, or identify and correct, violations of these provisions. This Code does not, and is not intended to, repeat or replace these programs and procedures, and such conflicts fall outside the parameters of this Code, unless or until the General Counsel determines that any violation of such programs and procedures is also a violation of this Code.

     Although typically not presenting an opportunity for improper personal benefit, conflicts may arise from, or as a result of, the contractual relationship between the Fund and its investment adviser of which the Covered Officers are also officers or employees. As a result, this Code recognizes that the Covered Officers will, in the normal course of their duties (whether formally for the Fund or for the investment adviser, or for both), be involved in establishing policies and implementing decisions that will have different effects on the Fund and its investment adviser. The participation of the Covered Officers in such activities is inherent in the contractual relationship between the Fund and the investment adviser and is consistent with the performance by the Covered Officers of their duties as officers of the Fund. Thus, if performed in conformity with the provisions of the Investment Company Act and the Investment Advisers Act, such activities will be deemed to have been handled ethically. In addition, it is recognized by the Funds’ Boards of Directors/Trustees (“Boards”) that the Covered Officers may also be officers or employees of one or more other investment companies covered by this or other codes.

     Other conflicts of interest are covered by the Code, even if such conflicts of interest are not subject to provisions in the Investment Company Act and the Investment Advisers Act. The following list provides examples of conflicts of interest under the Code, but Covered Officers should keep in mind that these examples are not exhaustive. The overarching principle is that the personal interest of a Covered Officer should not be placed improperly before the interest of the Fund.

     Each Covered Officer must not:

• use his personal influence or personal relationships improperly to influence investment decisions or financial reporting by the Fund whereby the Covered Officer would benefit personally (directly or indirectly);

• cause the Fund to take action, or fail to take action, for the individual personal benefit of the Covered Officer rather than the benefit of the Fund; or

• use material non-public knowledge of portfolio transactions made or contemplated for, or actions proposed to be taken by, the Fund to trade

12

personally or cause others to trade personally in contemplation of the market effect of such transactions.

     Each Covered Officer must, at the time of signing this Code, report to the General Counsel all affiliations or significant business relationships outside the Morgan Stanley complex and must update the report annually.

     Conflict of interest situations should always be approved by the General Counsel and communicated to the relevant Fund or Fund’s Board. Any activity or relationship that would present such a conflict for a Covered Officer would likely also present a conflict for the Covered Officer if an immediate member of the Covered Officer’s family living in the same household engages in such an activity or has such a relationship. Examples of these include:

• service or significant business relationships as a director on the board of any public or private company;

• accepting directly or indirectly, anything of value, including gifts and gratuities in excess of $100 per year from any person or entity with which the Fund has current or prospective business dealings, not including occasional meals or tickets for theatre or sporting events or other similar entertainment; provided it is business-related, reasonable in cost, appropriate as to time and place, and not so frequent as to raise any question of impropriety;

• any ownership interest in, or any consulting or employment relationship with, any of the Fund’s service providers, other than its investment adviser, principal underwriter, or any affiliated person thereof; and

• a direct or indirect financial interest in commissions, transaction charges or spreads paid by the Fund for effecting portfolio transactions or for selling or redeeming shares other than an interest arising from the Covered Officer’s employment, such as compensation or equity ownership.

III. Disclosure and Compliance

• Each Covered Officer should familiarize himself/herself with the disclosure and compliance requirements generally applicable to the Funds;

• each Covered Officer must not knowingly misrepresent, or cause others to misrepresent, facts about the Fund to others, whether within or outside the Fund, including to the Fund’s Directors/Trustees and auditors, or to governmental regulators and self-regulatory organizations;

• each Covered Officer should, to the extent appropriate within his area of responsibility, consult with other officers and employees of the Funds and their investment advisers with the goal of promoting full, fair, accurate,

13

	timely and understandable disclosure in the reports and documents the Funds file with, or submit to, the SEC and in other public communications made by the Funds; and
•	it is the responsibility of each Covered Officer to promote compliance with the standards and restrictions imposed by applicable laws, rules and regulations.

IV. Reporting and Accountability

     Each Covered Officer must:

• upon adoption of the Code (thereafter as applicable, upon becoming a Covered Officer), affirm in writing to the Boards that he has received, read and understands the Code;

• annually thereafter affirm to the Boards that he has complied with the requirements of the Code;

• not retaliate against any other Covered Officer, other officer or any employee of the Funds or their affiliated persons for reports of potential violations that are made in good faith; and

• notify the General Counsel promptly if he/she knows or suspects of any violation of this Code. Failure to do so is itself a violation of this Code.

     The General Counsel is responsible for applying this Code to specific situations in which questions are presented under it and has the authority to interpret this Code in any particular situation. However, any waivers² sought by a Covered Officer must be considered by the Board of the relevant Fund or Funds.

     The Funds will follow these procedures in investigating and enforcing this Code:

• the General Counsel will take all appropriate action to investigate any potential violations reported to him;

• if, after such investigation, the General Counsel believes that no violation has occurred, the General Counsel is not required to take any further action;

• any matter that the General Counsel believes is a violation will be reported to the relevant Fund’s Audit Committee;

² Item 2 of Form N-CSR defines “waiver” as “the approval by the registrant of a material departure from a provision of the code of ethics.”

14

• if the directors/trustees/managing general partners who are not “interested persons” as defined by the Investment Company Act (the “Independent Directors/Trustees/Managing General Partners”) of the relevant Fund concur that a violation has occurred, they will consider appropriate action, which may include review of, and appropriate modifications to, applicable policies and procedures; notification to appropriate personnel of the investment adviser or its board; or a recommendation to dismiss the Covered Officer or other appropriate disciplinary actions;

• the Independent Directors/Trustees/Managing General Partners of the relevant Fund will be responsible for granting waivers of this Code, as appropriate; and

• any changes to or waivers of this Code will, to the extent required, be disclosed as provided by SEC rules.

V. Other Policies and Procedures

     This Code shall be the sole code of ethics adopted by the Funds for purposes of Section 406 of the Sarbanes-Oxley Act of 2002 and the rules and forms applicable to registered investment companies thereunder. Insofar as other policies or procedures of the Funds, the Funds’ investment advisers, principal underwriters, or other service providers govern or purport to govern the behavior or activities of the Covered Officers who are subject to this Code, they are superseded by this Code to the extent that they overlap or conflict with the provisions of this Code unless any provision of this Code conflicts with any applicable federal or state law, in which case the requirements of such law will govern. The Funds’ and their investment advisers’ and principal underwriters’ codes of ethics under Rule 17j-1 under the Investment Company Act and Morgan Stanley’s Code of Ethics are separate requirements applying to the Covered Officers and others, and are not part of this Code.

VI. Amendments

     Any amendments to this Code, other than amendments to Exhibits A, B

or C, must be approved or ratified by a majority vote of the Board of each Fund, including a majority of Independent Directors/Trustees/Managing General Partners.

VII. Confidentiality

     All reports and records prepared or maintained pursuant to this Code will be considered confidential and shall be maintained and protected accordingly. Except as otherwise required by law or this Code, such matters shall not be disclosed to anyone other than the Independent Directors/Trustees/Managing General Partners of the relevant Fund or Funds and their counsel, the relevant Fund or Funds and their counsel and the relevant investment adviser and its counsel.

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VIII. Internal Use

     The Code is intended solely for the internal use by the Funds and does not constitute an admission, by or on behalf of any Fund, as to any fact, circumstance, or legal conclusion

I have read and understand the terms of the above Code. I recognize the responsibilities and obligations incurred by me as a result of my being subject to the Code. I hereby agree to abide by the above Code.

______________________

Date:__________________

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EXHIBIT A

MORGAN STANLEY

RETAIL AND INSTITUTIONAL FUNDS
at
March 31, 2009

For a current list of the Morgan Stanley Retail and Institutional Funds, please contact the Legal Department.

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EXHIBIT B

Institutional Funds
Covered Officers

Randy Takian —President and Principal Executive Officer
James W. Garrett — Chief Financial Officer and Treasurer

Retail Funds
Covered Officers

Randy Takian —President and Principal Executive Officer
Frank Smith — Chief Financial Officer and Treasurer

Morgan Stanley India Investment Fund, Inc.
Covered Officers

Randy Takian — President and Principal Executive Officer
James W. Garrett — Chief Financial Officer and Treasurer

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EXHIBIT C

Chief Legal Officer

Stefanie Chang Yu

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EX-99.CERT

EXHIBIT 12 B1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

CERTIFICATIONS

I, Randy Takian, certify that:

1.	I have reviewed this report on Form N-CSR of Morgan Stanley International Value Equity Fund;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have:
a)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)	evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and
d)	disclosed in this report any change 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; and
5.	The registrant’s other certifying officer(s) and I have disclosed to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

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a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and
b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

Date: October 22, 2009

/s/ Randy Takian  

Randy Takian 

Principal Executive Officer 

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EXHIBIT 12 B2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

CERTIFICATIONS

I, Francis Smith, certify that:

1.	I have reviewed this report on Form N-CSR of Morgan Stanley International Value Equity Fund;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have:
a)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)	evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and
d)	disclosed in this report any change 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; and
5.	The registrant’s other certifying officer(s) and I have disclosed to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

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a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and
b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

Date: October 22, 2009
	/s/ Francis Smith
	Francis Smith
	Principal Financial Officer

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EX-99.906CERT

SECTION 906 CERTIFICATION

Certification Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002

Morgan Stanley International Value Equity Fund

     In connection with the Report on Form N-CSR (the “Report”) of the above-named issuer for the period ended August 31, 2009 that is accompanied by this certification, the undersigned hereby certifies that:

1.	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Issuer.

Date: October 22, 2009	/s/ Randy Takian
	Randy Takian
	Principal Executive Officer

A signed original of this written statement required by Section 906 has been provided to Morgan Stanley International Value Equity Fund and will be retained by Morgan Stanley International Value Equity Fund and furnished to the Securities and Exchange Commission or its staff upon request.

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SECTION 906 CERTIFICATION

Certification Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002

Morgan Stanley International Value Equity Fund

     In connection with the Report on Form N-CSR (the “Report”) of the above-named issuer for the period ended August 31, 2009 that is accompanied by this certification, the undersigned hereby certifies that:

1.	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Issuer.

Date: October 22, 2009	/s/ Francis Smith
	Francis Smith
	Principal Financial Officer

A signed original of this written statement required by Section 906 has been provided to Morgan Stanley International Value Equity Fund and will be retained by Morgan Stanley International Value Equity Fund and furnished to the Securities and Exchange Commission or its staff upon request.

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