Filed Pursuant to Rule 497(c)
                                                 Registration File No.: 33-63685


                                                [MORGAN STANLEY GRAPHIC OMITTED]

                                                            MORGAN STANLEY FUNDS

                                                                  Morgan Stanley
                                                     Capital Opportunities Trust

                         A mutual fund that seeks long-term capital appreciation

[MORGAN STANLEY LOGO OMITTED]

The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this Prospectus. Any representation
to the contrary is a criminal offense.
                                                                      Prospectus
                                                                  March 30, 2005




Contents

THE FUND

      Investment Objective................................................. 1


      Principal Investment Strategies...................................... 1


      Principal Risks...................................................... 1


      Past Performance..................................................... 3

      Fees and Expenses.................................................... 5

      Additional Investment Strategy Information............................6

      Additional Risk Information.......................................... 7

      Portfolio Holdings....................................................8

      Fund Management...................................................... 8

SHAREHOLDER INFORMATION

      Pricing Fund Shares..................................................10

      How to Buy Shares....................................................11

      How to Exchange Shares...............................................12

      How to Sell Shares...................................................14

      Distributions........................................................16

      Frequent Purchases and Redemptions of Fund Shares....................17

      Tax Consequences.....................................................18

      Share Class Arrangements.............................................19

      Additional Information...............................................26


FINANCIAL HIGHLIGHTS.......................................................27


MORGAN STANLEY FUNDS....................................... Inside Back Cover

This Prospectus contains important information about the Fund. Please read it
carefully and keep it for future reference.




The Fund

- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE


[GRAPHIC OMITTED]

Morgan Stanley Capital Opportunities Trust seeks long-term capital appreciation.

- --------------------------------------------------------------------------------
PRINCIPAL INVESTMENT STRATEGIES

[SIDEBAR]
- ----------------
CAPITAL APPRECIATION
An investment objective having the goal of selecting securities with the
potential to rise in price rather than pay out income.
[END SIDEBAR]

[GRAPHIC OMITTED]



The Fund will normally invest at least 65% of its assets in a portfolio of
common stocks of companies with market capitalizations, at the time of purchase,
within the capitalization range of the companies comprising the Lipper Multi-Cap
Growth Funds Index, which as of February 28, 2005 was approximately $32.3
million to $405.2 billion. The Fund's "Investment Adviser," Morgan Stanley
Investment Advisors Inc., follows a flexible investment program in seeking to
achieve the Fund's investment objective. The Investment Adviser focuses on
companies it believes have consistent or rising earnings growth records,
potential for strong free cash flow and compelling business strategies. In this
regard, the Investment Adviser studies company developments, including business
strategy and financial results. Valuation is viewed in the context of prospects
for sustainable earnings and cash flow growth. The Investment Adviser generally
considers selling a portfolio holding when it determines that the holding no
longer satisfies its investment criteria.


Common stock is a share ownership or equity interest in a corporation. It may
or may not pay dividends, as some companies reinvest all of their profits back
into their businesses, while others pay out some of their profits to
shareholders as dividends.


In addition, the Fund's investments may include foreign securities, investment
grade fixed-income securities and forward foreign currency exchange contracts.


- --------------------------------------------------------------------------------
PRINCIPAL RISKS


[GRAPHIC OMITTED]

There is no assurance that the Fund will achieve its investment objective. The
Fund's share price and return will fluctuate with changes in the market value of
the Fund's portfolio securities. When you sell Fund shares, they may be worth
less than what you paid for them and, accordingly, you can lose money investing
in this Fund.


                                                                               1




COMMON STOCKS.  A principal risk of investing in the Fund is associated with
its common stock investments. In general, stock values fluctuate in response to
activities specific to the company as well as general market, economic and
political conditions. Stock prices can fluctuate widely in response to these
factors.

Investing in securities of small- and medium-sized companies may involve
greater risk than is customarily associated with investing in more established
companies. Often, small- and medium-sized companies and the industries in which
they are focused are still evolving, and they are more sensitive to changing
market conditions than larger companies in more established industries. Their
securities may be more volatile and have returns that vary, sometimes
significantly, from the overall stock market.


OTHER RISKS. The performance of the Fund also will depend on whether or not the
Investment Adviser is successful in applying the Fund's investment strategies.
The Fund is also subject to other risks from its permissible investments,
including the risks associated with its investments in foreign securities,
forward foreign currency exchange contracts and its fixed-income investments.
For more information about these risks, see the "Additional Risk Information"
section.


Shares of the Fund are not bank deposits and are not guaranteed or insured by
the FDIC or any other government agency.


2




- --------------------------------------------------------------------------------
PAST PERFORMANCE

[SIDEBAR]
- ----------------
ANNUAL TOTAL RETURNS
This chart shows how the performance of the Fund's Class B shares has varied
from year to year over the past eight calendar years.
[END SIDEBAR]

[GRAPHIC OMITTED]


The bar chart and table below provide some indication of the risks of investing
in the Fund. The Fund's past performance (before and after taxes) does not
indicate how the Fund will perform in the future.

ANNUAL TOTAL RETURNS -- CALENDAR YEARS


[BAR CHART OMITTED]

1997              10.97%
1998              62.71%
1999             124.60%
2000             -35.73%
2001             -39.37%
2002             -46.54%
2003              39.91%
2004              21.52%


The bar chart reflects the performance of Class B shares; the performance of
the other Classes will differ because the Classes have different ongoing fees.
The performance information in the bar chart does not reflect the deduction of
sales charges; if these amounts were reflected, returns would be less than
shown.



During the periods shown in the bar chart, the highest return for a calendar
quarter was 62.22% (quarter ended December 31, 1999) and the lowest return for
a calendar quarter was -40.43% (quarter ended September 30, 2001).



                                                                               3






AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 2004)



[SIDEBAR]
- ----------------
AVERAGE ANNUAL
TOTAL RETURNS

This table compares the Fund's average annual total returns with those of an
index that represents a broad measure of market performance, as well as indices
that represent a group of similar mutual funds, over time. The Fund's returns
include the maximum applicable sales charge for each Class and assume you sold
your shares at the end of each period (unless otherwise noted).
[END SIDEBAR]





                                                  PAST 1 YEAR    PAST 5 YEARS    LIFE OF FUND
                                                -------------- --------------- --------------

  Class A(1): Return Before Taxes                    16.00%         -19.02%        4.35%
     Russell 3000 Growth Index(2)                     6.93%          -8.87%        2.01%
     S&P MidCap 400 Index(3)                         16.48%           9.54%       11.85%(7)
     Lipper Multi-Cap Growth Funds Index(4)          11.26%          -7.00%        3.60%
     Lipper Mid-Cap Growth Funds Index(5)            14.03%          -6.07%        5.41%
  Class B(1): Returns Before Taxes                   16.52%         -19.07%        4.63%
     Returns After Taxes on Distributions(6)         16.52%         -19.07%        4.57%
     Returns After Taxes on Distributions and
     Sale of Fund Shares                             10.74%         -14.95%        4.07%
     Russell 3000 Growth Index(2)                     6.93%          -8.87%        6.05%
     S&P MidCap 400 Index(3)                         16.48%           9.54%       14.22%(8)
     Lipper Multi-Cap Growth Funds Index(4)          11.26%          -7.00%        6.52%
     Lipper Mid-Cap Growth Funds Index(5)            14.03%          -6.07%        6.46%
  Class C(1): Return Before Taxes                    20.44%         -18.76%        4.32%
     Russell 3000 Growth Index(2)                     6.93%          -8.87%        2.01%
     S&P MidCap 400 Index(3)                         16.48%           9.54%       11.85%(7)
     Lipper Multi-Cap Growth Funds Index(4)          11.26%          -7.00%        3.60%
     Lipper Mid-Cap Growth Funds Index(5)            14.03%          -6.07%        5.41%
  Class D(1): Return Before Taxes                    22.70%         -17.97%        5.31%
     Russell 3000 Growth Index(2)                     6.93%          -8.87%        2.01%
     S&P MidCap 400 Index(3)                         16.48%           9.54%       11.85%(7)
     Lipper Multi-Cap Growth Funds Index(4)          11.26%          -7.00%        3.60%
     Lipper Mid-Cap Growth Funds Index(5)            14.03%          -6.07%        5.41%



(1)   Classes A, C and D commenced operations on July 28, 1997. Class B
      commenced operations on February 27, 1996.

(2)   The Russell 3000 Growth Index measures the performance of those companies
      in the Russell 3000 Index with higher price-to-book ratios and higher
      forecasted growth values. Indexes are unmanaged and their returns do not
      include any sales charges or fees. Such costs would lower performance. It
      is not possible to invest directly in an index. The Fund's benchmark was
      changed from the Standard and Poor's MidCap 400 Index to the Russell 3000
      Growth Index to more accurately reflect the Fund's investable universe.

(3)   The Standard and Poor's MidCap 400 Index (S&P MidCap 400) is a
      market-value weighted index, the performance of which is based on the
      performance of 400 domestic stocks chosen for market size, liquidity and
      industry group representation. Indexes are unmanaged and their returns do
      not include any sales charges or fees. Such costs would lower
      performance. It is not possible to invest directly in an index.


(4)   The Lipper Multi-Cap Growth Funds Index is an equally weighted
      performance index of the largest qualifying funds (based on net assets)
      in the Lipper Multi-Cap Growth Funds classification. The Index, which is
      adjusted for capital gains distributions and income dividends, is
      unmanaged and should not be considered an investment. There are currently
      30 funds represented in this Index. As of February 28, 2005, the Fund is
      in the Lipper Multi-Cap Growth Funds classification.

(5)   The Lipper Mid-Cap Growth Funds Index is an equally weighted performance
      index of the largest qualifying funds (based on net assets) in the Lipper
      Mid-Cap Growth Funds classification. The Index, which is adjusted for
      capital gains distributions and income dividends, is unmanaged and should
      not be considered an investment. There are currently 30 funds represented
      in this Index.

(6)   These returns do not reflect any tax consequences from a sale of your
      shares at the end of each period, but they do reflect any applicable
      sales charges on such a sale.

(7)   For the period 7/31/1997 -- 12/31/2004.

(8)   For the period 2/29/1996 -- 12/31/2004.


4






Included in the table above are the after-tax returns for the Fund's Class B
shares. The after-tax returns for the Fund's other Classes will vary from the
Class B shares' returns. After-tax returns are calculated using the historical
highest individual federal marginal income tax rates during the period shown
and do not reflect the impact of state and local taxes. Actual after-tax
returns depend on an investor's tax situation and may differ from those shown,
and after-tax returns are not relevant to investors who hold their Fund shares
through tax-deferred arrangements, such as 401(k) plans or individual
retirement accounts. After-tax returns may be higher than before-tax returns
due to foreign tax credits and/or an assumed benefit from capital losses that
would have been realized had Fund shares been sold at the end of the relevant
periods, as applicable.

- --------------------------------------------------------------------------------
FEES AND EXPENSES


[GRAPHIC OMITTED]



The table below briefly describes the fees and expenses that you may pay if you
buy and hold shares of the Fund. The Fund offers four Classes of shares: Classes
A, B, C and D. Each Class has a different combination of fees, expenses and
other features, which should be considered in selecting a Class of shares. The
Fund does not charge account or exchange fees. However, certain shareholders may
be charged an order processing fee by the broker-dealer through which shares are
purchased, as described below. See the "Share Class Arrangements" section for
further fee and expense information.



[SIDEBAR]
- ----------------
SHAREHOLDER FEES
These fees are paid directly from your investment.


- ----------------
ANNUAL FUND
OPERATING EXPENSES

These expenses are deducted from the Fund's assets.
[END SIDEBAR]



SHAREHOLDER FEES



                                                              CLASS A         CLASS B         CLASS C         CLASS D
                                                              -------         -------         -------         -------

  Maximum sales charge (load) imposed on purchases (as
  a percentage of offering price)                             5.25%(1)         None             None            None
  Maximum deferred sales charge (load) (as a percentage
  based on the lesser of the offering price or net asset
  value at redemption)                                        None(2)          5.00%(3)         1.00%(4)        None



ANNUAL FUND OPERATING EXPENSES





                                             CLASS A       CLASS B      CLASS C        CLASS D
                                             -------       -------      -------        -------

  Advisory fee*                               0.67%         0.67%         0.67%         0.67%
  Distribution and service (12b-1) fees       0.23%         1.00%         0.99%          None
  Other expenses*                             0.57%         0.57%         0.57%         0.57%
  Total annual Fund operating expenses        1.47%         2.24%         2.23%         1.24%



*     Expense information in the table has been restated to reflect current
      fees (see "Fund Management").

(1)   Reduced for purchases of $25,000 and over.

(2)   Investments that are not subject to any sales charges at the time of
      purchase are subject to a contingent deferred sales charge ("CDSC") of
      1.00% that will be imposed if you sell your shares within 18 months after
      purchase, except for certain specific circumstances. With respect to
      shares purchased prior to December 1, 2004, a CDSC of 1.00% will be
      imposed if you sell your shares within one year after purchase, except
      for certain specific circumstances.

(3)   The CDSC is scaled down to 1.00% during the sixth year, reaching zero
      thereafter. See "Share Class Arrangements" for a complete discussion of
      the CDSC.

(4)   Only applicable if you sell your shares within one year after purchase.


                                                                               5





EXAMPLE
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.


The example assumes that you invest $10,000 in the Fund, your investment has a
5% return each year and the Fund's operating expenses remain the same. Although
your actual costs may be higher or lower, the tables below show your costs at
the end of each period based on these assumptions, depending upon whether or
not you sell your shares at the end of each period.





                         IF YOU SOLD YOUR SHARES:                       IF YOU HELD YOUR SHARES:
              ---------------------------------------------- ----------------------------------------------
                 1 YEAR     3 YEARS     5 YEARS    10 YEARS     1 YEAR     3 YEARS     5 YEARS   10 YEARS
              ---------- ----------- ----------- ----------- ---------- ----------- ----------- -----------

   Class A        $667     $  965       $1,286      $2,190       $667        $965       $1,286    $2,190
   Class B        $727     $1,000       $1,400      $2,575       $227        $700       $1,200    $2,575
   Class C        $326     $  697       $1,195      $2,565       $226        $697       $1,195    $2,565
   Class D        $126     $  393       $  681      $1,500       $126        $393       $  681    $1,500



While Class B and Class C shares do not have any front-end sales charges, their
higher ongoing annual expenses (due to higher 12b-1 fees) mean that over time
you could end up paying more for these shares than if you were to pay front-end
sales charges for Class A shares.



ORDER PROCESSING FEE. Morgan Stanley DW Inc. ("Morgan Stanley DW") charges
clients an order processing fee of $5.25 (except in certain circumstances,
including, but not limited to, activity in fee-based accounts, exchanges,
dividend reinvestments and systematic investment and withdrawal plans) when a
client buys or redeems shares of the Fund. Please consult your Morgan Stanley
Financial Advisor for more information regarding this fee.


- --------------------------------------------------------------------------------
ADDITIONAL INVESTMENT STRATEGY INFORMATION


[GRAPHIC OMITTED]
This section provides additional information relating to the Fund's principal
investment strategies.

OTHER INVESTMENTS. The Fund also may invest up to 35% of its net assets in
investment grade fixed-income securities. It also may invest up to 25% of its
net assets in foreign equity securities (including depositary receipts).

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. The Fund's investments also may
include forward foreign currency exchange contracts, which involve the purchase
or sale of a specific amount of foreign currency at the current price with
delivery at a specified future date. The Fund may use these contracts to hedge
against adverse movements in the foreign currencies in which portfolio
securities are denominated. In addition, the Fund may use these instruments to
modify its exposure to various currency markets.

DEFENSIVE INVESTING. The Fund may take temporary "defensive" positions in
attempting to respond to adverse market conditions. The Fund may invest any
amount of its assets in cash or money market instruments in a defensive posture
when the Investment Adviser believes it is advisable to do so. Although taking
a defensive posture


6





is designed to protect the Fund from an anticipated market downturn, it could
have the effect of reducing the benefit from any upswing in the market. When
the Fund takes a defensive position, it may not achieve its investment
objective.

PORTFOLIO TURNOVER. The Fund may engage in active and frequent trading of its
portfolio securities. The Financial Highlights Table at the end of this
Prospectus shows the Fund's portfolio turnover rates during recent fiscal
years. A portfolio turnover rate of 200%, for example, is equivalent to the
Fund buying and selling all of its securities two times during the course of
the year. A high portfolio turnover rate (over 100%) could result in high
brokerage costs and an increase in taxable capital gains distributions to the
Fund's shareholders. See the sections on "Distributions" and "Tax
Consequences."

The percentage limitations relating to the composition of the Fund's portfolio
apply at the time the Fund acquires an investment. Subsequent percentage
changes that result from market fluctuations generally will not require the
Fund to sell any portfolio security. However, the Fund may be required to sell
its illiquid securities holdings, if any, in response to fluctuations in the
value of such holdings. The Fund may change its principal investment strategies
without shareholder approval; however, you would be notified of any changes.

- --------------------------------------------------------------------------------
ADDITIONAL RISK INFORMATION

[GRAPHIC OMITTED]

This section provides additional information relating to the principal risks of
investing in the Fund.

FIXED-INCOME SECURITIES. All fixed-income securities are subject to two types
of risk: credit risk and interest rate risk. Credit risk refers to the
possibility that the issuer of a security will be unable to make interest
payments and/or repay the principal on its debt. Interest rate risk refers to
fluctuations in the value of a fixed-income security resulting from changes in
the general level of interest rates. When the general level of interest rates
goes up, the prices of most fixed-income securities goes down. When the general
level of interest rates goes down, the prices of most fixed-income securities
goes up.

FOREIGN SECURITIES. The Fund's investments in foreign securities involve risks
that are in addition to the risks associated with domestic securities. One
additional risk is currency risk. While the price of Fund shares is quoted in
U.S. dollars, the Fund generally converts U.S. dollars to a foreign market's
local currency to purchase a security in that market. If the value of that
local currency falls relative to the U.S. dollar, the U.S. dollar value of the
foreign security will decrease. This is true even if the foreign security's
local price remains unchanged.

Foreign securities also have risks related to economic and political
developments abroad, including expropriations, confiscatory taxation, exchange
control regulation, limitations on the use or transfer of Fund assets and any
effects of foreign social, economic or political instability. Foreign
companies, in general, are not subject to the regulatory requirements of U.S.
companies and, as such, there may be less publicly available information about
these companies. Moreover, foreign accounting, auditing and financial reporting
standards generally are different from those applicable to U.S. companies.
Finally, in the event of a default of any foreign debt obligations, it may be
more difficult for the Fund to obtain or enforce a judgment against the issuers
of the securities.


                                                                               7





Securities of foreign issuers may be less liquid than comparable securities of
U.S. issuers and, as such, their price changes may be more volatile.
Furthermore, foreign exchanges and broker-dealers are generally subject to less
government and exchange scrutiny and regulation than their U.S. counterparts.
In addition, differences in clearance and settlement procedures in foreign
markets may occasion delays in settlement of the Fund's trades effected in
those markets and could result in losses to the Fund due to subsequent declines
in the value of the securities subject to the trades.

Despositary receipts involve many of the same risks as those associated with
direct investment in foreign securities. In addition, the underlying issuers of
certain depositary receipts, particularly unsponsored or unregistered
depositary receipts, are under no obligation to distribute shareholder
communications to the holders of such receipts, or to pass through to them any
voting rights with respect to the deposited securities.

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. Use of forward foreign currency
exchange contracts involves risks. If the Investment Adviser employs a strategy
that does not correlate well with the Fund's investments or the currencies in
which the investments are denominated, currency contracts could result in a
loss. The contracts also may increase the Fund's volatility and, thus, could
involve a significant risk.

- --------------------------------------------------------------------------------
PORTFOLIO HOLDINGS


A description of the Fund's policies and procedures with respect to the
disclosure of the Fund's portfolio securities is available in the Fund's
Statement of Additional Information.


- --------------------------------------------------------------------------------
FUND MANAGEMENT

[SIDEBAR]
- ----------------
MORGAN STANLEY
INVESTMENT ADVISORS INC.

The Investment Adviser is widely recognized as a leader in the mutual fund
industry and had approximately $110 billion in assets under management or
administration as of February 28, 2005.
[END SIDEBAR]


[GRAPHIC OMITTED]


The Fund has retained the Investment Adviser -- Morgan Stanley Investment
Advisors Inc. -- to provide investment advisory services. The Investment Adviser
is a wholly-owned subsidiary of Morgan Stanley, a preeminent global financial
services firm that maintains leading market positions in each of its three
primary businesses: securities, asset management and credit services. Morgan
Stanley is a full service securities firm engaged in securities trading and
brokerage activities, as well as providing investment banking, research and
analysis, financing and financial advisory services. The Investment Adviser's
address is 1221 Avenue of the Americas, New York, NY 10020.

The Fund's portfolio is managed within the Investment Manager's U.S. Growth
team. Current members of the team include Dennis P. Lynch and David S. Cohen,
Managing Directors of the Investment Adviser and Sam Chainani, an Executive
Director of the Investment Adviser.

Dennis P. Lynch has worked for the Investment Adviser since 1998 and began
managing the Fund in October 2002. David S. Cohen has worked for the Investment
Adviser since 1993 and



8






began managing the Fund in October 2002. Sam Chainani has worked for the
Investment Adviser since 1996 and began managing the Fund in October 2002.

Dennis Lynch is the lead portfolio manager of the Fund. David Cohen and Sam
Chainani are co-portfolio managers. Members of the team collaborate to manage
the assets of the Fund.

The Fund's Statement of Additional Information provides additional information
about the portfolio managers' compensation, other accounts managed by the
portfolio managers and the portfolio managers' ownership of securities in the
Fund.

The composition of the team may change without notice from time to time.

Prior to November 1, 2004, the Fund had retained the Investment Adviser to
provide administrative services and to manage the investment of the Fund's
assets pursuant to an investment management agreement (the "Management
Agreement") pursuant to which the Fund paid the Investment Adviser a monthly
management fee as full compensation for the services and facilities furnished
to the Fund, and for Fund expenses assumed by the Investment Adviser at the
following annual rate: 0.75% of the portion of daily net assets not exceeding
$500 million; 0.725% of the portion of daily net assets exceeding $500 million
but not exceeding $2 billion; 0.70% of the portion of daily net assets
exceeding $2 billion but not exceeding $3 billion; and 0.675% of the portion of
daily net assets exceeding $3 billion. For the fiscal year ended November 30,
2004, the Fund paid total compensation to the Investment Adviser amounting to
0.74% of the Fund's average daily net assets.


Effective November 1, 2004, the Board of Trustees approved an amended and
restated investment advisory agreement to remove the administrative services
component from the Management Agreement and to reduce the investment advisory
fee to the annual rate of 0.67% of the portion of daily net assets not
exceeding $500 million; 0.645% of the portion of daily net assets exceeding
$500 million but not exceeding $2 billion; 0.62% of the portion of daily net
assets exceeding $2 billion but not exceeding $3 billion; and 0.595% of the
portion of daily net assets exceeding $3 billion. The administrative services
previously provided to the Fund by the Investment Adviser are being provided by
Morgan Stanley Services Company Inc. ("Administrator") pursuant to a separate
administration agreement entered into by the Fund with the Administrator. Such
change resulted in a 0.08% reduction in the advisory fee concurrent with the
implementation of a 0.08% administration fee pursuant to the new administration
agreement.


                                                                               9




Shareholder Information

- --------------------------------------------------------------------------------
PRICING FUND SHARES

[GRAPHIC OMITTED]

The price of Fund shares (excluding sales charges), called "net asset value," is
based on the value of the Fund's portfolio securities. While the assets of each
Class are invested in a single portfolio of securities, the net asset value of
each Class will differ because the Classes have different ongoing distribution
fees.

The net asset value per share of the Fund is determined once daily at 4:00 p.m.
Eastern time on each day that the New York Stock Exchange is open (or, on days
when the New York Stock Exchange closes prior to 4:00 p.m., at such earlier
time). Shares will not be priced on days that the New York Stock Exchange is
closed.


The value of the Fund's portfolio securities is based on the securities' market
price when available. When a market price is not readily available, including
circumstances under which the Investment Adviser determines that a security's
market price is not accurate, a portfolio security is valued at its fair value,
as determined under procedures established by the Fund's Board of Trustees. In
addition, with respect to securities that primarily are listed on foreign
exchanges, when an event occurs after the close of such exchanges that is likely
to have changed the value of the securities (for example, a percentage change in
value of one or more U.S. securities indices in excess of specified thresholds),
such securities will be valued at their fair value, as determined under
procedures established by the Fund's Board of Trustees. Securities also may be
fair valued in the event of a significant development affecting a country or
region or an issuer-specific development which is likely to have changed the
value of the security. In these cases, the Fund's net asset value will reflect
certain portfolio securities' fair value rather than their market price. Fair
value pricing involves subjective judgements and it is possible that the fair
value determined for a security is materially different than the value that
could be realized upon the sale of that security. With respect to securities
that are primarily listed on foreign exchanges, the value of the Fund's
portfolio securities may change on days when you will not be able to purchase or
sell your shares. To the extent the Fund invests in open-end management
companies that are registered under the Investment Company Act of 1940, as
amended ("Investment Company Act") the Fund's net asset value is calculated
based upon the net asset value of such fund. The prospectuses for such funds
explain the circumstances under which they will use fair value pricing and its
effects.


An exception to the Fund's general policy of using market prices concerns its
short-term debt portfolio securities. Debt securities with remaining maturities
of 60 days or less at the time of purchase are valued at amortized cost.
However, if the cost does not reflect the securities' market value, these
securities will be valued at their fair value.


10




- --------------------------------------------------------------------------------
HOW TO BUY SHARES

[SIDEBAR]
- ----------------
CONTACTING A
FINANCIAL ADVISOR

If you are new to the Morgan Stanley Funds and would like to contact a Morgan
Stanley Financial Advisor, call toll-free 1-866-MORGAN8 for the telephone
number of the Morgan Stanley office nearest you. You may also access our office
locator on our Internet site at: www.morganstanley.com/funds
[END SIDEBAR]

[GRAPHIC OMITTED]


You may open a new account to buy Fund shares or buy additional Fund shares for
an existing account by contacting your Morgan Stanley Financial Advisor or other
authorized financial representative. Your Financial Advisor will assist you,
step-by-step, with the procedures to invest in the Fund. The Fund's transfer
agent, Morgan Stanley Trust ("Transfer Agent"), in its sole discretion, may
allow you to purchase shares directly by calling and requesting an application.


To help the government fight the funding of terrorism and money laundering
activities, federal law requires all financial institutions to obtain, verify
and record information that identifies each person who opens an account. What
this means to you: When you open an account, we will ask your name, address,
date of birth and other information that will allow us to identify you. If we
are unable to verify your identity, we reserve the right to restrict additional
transactions and/or liquidate your account at the next calculated net asset
value after your account is closed (less any applicable sales/account charges
and/or tax penalties) or take any other action required by law.

Because every investor has different immediate financial needs and long-term
investment goals, the Fund offers investors four Classes of shares: Classes A,
B, C and D. Class D shares are only offered to a limited group of investors.
Each Class of shares offers a distinct structure of sales charges, distribution
and service fees, and other features that are designed to address a variety of
needs. Your Morgan Stanley Financial Advisor or other authorized financial
representative can help you decide which Class may be most appropriate for you.
When purchasing Fund shares, you must specify which Class of shares you wish to
purchase.


When you buy Fund shares, the shares are purchased at the next share price
calculated (plus any applicable front-end sales charge for Class A shares)
after we receive your purchase order. Your payment is due on the third business
day after you place your purchase order. The Fund, in its sole discretion, may
waive the minimum initial and additional investment amounts in certain cases.
We reserve the right to reject any order for the purchase of Fund shares for
any reason.

ORDER PROCESSING FEE. Morgan Stanley DW charges clients an order processing fee
of $5.25 (except in certain circumstances, including, but not limited to,
activity in fee-based accounts, exchanges, dividend reinvestments and systematic
investment and withdrawal plans) when a client buys or redeems shares of the
Fund. Please consult your Morgan Stanley Financial Advisor for more information
regarding this fee.



                                                                              11





MINIMUM INVESTMENT AMOUNTS



                                                                                   MINIMUM INVESTMENT
                                                                               ---------------------------
 INVESTMENT OPTIONS                                                             INITIAL        ADDITIONAL
 ------------------                                                             -------        ----------

  Regular Account                                                               $1,000           $100
  Individual Retirement Account                                                 $1,000           $100
  Coverdell Education Savings Account                                           $  500           $100
  EasyInvest (Registered Trademark)
  (Automatically from your checking or savings account or Money Market Fund)    $  100*          $100*


*    Provided your schedule of investments totals $1,000 in 12 months.

[SIDEBAR]
- ----------------
EasyInvest (Registered Trademark)
A purchase plan that allows you to transfer money automatically from your
checking or savings account or from a Money Market Fund on a semi-monthly,
monthly or quarterly basis. Contact your Morgan Stanley Financial Advisor for
further information about
this service.

[END SIDEBAR]



There is no minimum investment amount if you purchase Fund shares through: (1)
the Investment Adviser's mutual fund asset allocation program; (2) a program,
approved by the Fund's distributor, in which you pay an asset-based fee for
advisory, administrative and/or brokerage services; (3) the following programs
approved by the Fund's distributor: (i) qualified state tuition plans described
in Section 529 of the Internal Revenue Code or (ii) certain other investment
programs that do not charge an asset-based fee; (4) employer-sponsored employee
benefit plan accounts; or (5) the reinvestment of dividends in additional Fund
shares.



INVESTMENT OPTIONS FOR CERTAIN INSTITUTIONAL AND OTHER INVESTORS/CLASS D
SHARES.  To be eligible to purchase Class D shares, you must qualify under one
of the investor categories specified in the "Share Class Arrangements" section
of this Prospectus.


SUBSEQUENT INVESTMENTS SENT DIRECTLY TO THE FUND.  In addition to buying
additional Fund shares for an existing account by contacting your Morgan
Stanley Financial Advisor, you may send a check directly to the Fund. To buy
additional shares in this manner:

o    Write a "letter of instruction" to the Fund specifying the name(s) on the
     account, the account number, the social security or tax identification
     number, the Class of shares you wish to purchase and the investment amount
     (which would include any applicable front-end sales charge). The letter
     must be signed by the account owner(s).

o    Make out a check for the total amount payable to: Morgan Stanley Capital
     Opportunities Trust.

o    Mail the letter and check to Morgan Stanley Trust at P.O. Box 1040, Jersey
     City, NJ 07303.

- --------------------------------------------------------------------------------
HOW TO EXCHANGE SHARES



[GRAPHIC OMITTED]
PERMISSIBLE FUND EXCHANGES. You may exchange shares of any Class of the Fund for
the same Class of any other continuously offered Multi-Class Fund, or for shares
of a No-Load Fund, a Money Market Fund or the Limited Duration U.S. Treasury
Trust, without the imposition of an exchange fee. Front-end sales charges are
not imposed on exchanges of Class A shares. See the inside back cover of this
Prospectus for each Morgan Stanley Fund's



12





designation as a Multi-Class Fund, No-Load Fund or Money Market Fund. If a
Morgan Stanley Fund is not listed, consult the inside back cover of that fund's
current prospectus for its designation.

Exchanges may be made after shares of the fund acquired by purchase have been
held for 30 days. There is no waiting period for exchanges of shares (i)
acquired by exchange or dividend reinvestment, (ii) purchased through the
automatic investment plan and (iii) purchased by wrap-fee accounts that have an
automatic rebalancing feature. The current prospectus for each fund describes
its investment objective(s), policies and investment minimums and should be
read before investment. Since exchanges are available only into continuously
offered Morgan Stanley Funds, exchanges are not available into any new Morgan
Stanley Fund during its initial offering period, or when shares of a particular
Morgan Stanley Fund are not being offered for purchase.


EXCHANGE PROCEDURES.  You can process an exchange by contacting your Morgan
Stanley Financial Advisor or other authorized financial representative.
Otherwise, you must forward an exchange privilege authorization form to the
Transfer Agent and then write the Transfer Agent or call (800) 869-NEWS to
place an exchange order. You can obtain an exchange privilege authorization
form by contacting your Morgan Stanley Financial Advisor or other authorized
financial representative or by calling (800) 869-NEWS. If you hold share
certificates, no exchanges may be processed until we have received all
applicable share certificates.

An exchange to any Morgan Stanley Fund (except a Money Market Fund) is made on
the basis of the next calculated net asset values of the funds involved after
the exchange instructions are accepted. When exchanging into a Money Market
Fund, the Fund's shares are sold at their next calculated net asset value and
the Money Market Fund's shares are purchased at their net asset value on the
following business day.

The Fund may terminate or revise the exchange privilege upon required notice or
in certain cases without notice. See "Limitations on Exchanges." The check
writing privilege is not available for Money Market Fund shares you acquire in
an exchange.

TELEPHONE EXCHANGES.  For your protection when calling Morgan Stanley Trust, we
will employ reasonable procedures to confirm that exchange instructions
communicated over the telephone are genuine. These procedures may include
requiring various forms of personal identification such as name, mailing
address, social security or other tax identification number. Telephone
instructions also may be recorded.

Telephone instructions will be accepted if received by the Fund's transfer
agent between 9:00 a.m. and 4:00 p.m. Eastern time on any day the New York
Stock Exchange is open for business. During periods of drastic economic or
market changes, it is possible that the telephone exchange procedures may be
difficult to implement, although this has not been the case with the Fund in
the past.

MARGIN ACCOUNTS.  If you have pledged your Fund shares in a margin account,
contact your Morgan Stanley Financial Advisor or other authorized financial
representative regarding restrictions on the exchange of such shares.


TAX CONSIDERATIONS OF EXCHANGES.  If you exchange shares of the Fund for shares
of another Morgan Stanley Fund, there are important tax considerations. For tax
purposes, the exchange out of the Fund is considered a sale of Fund shares --
and the exchange into the other fund is considered a purchase. As a result, you
may realize a capital gain or loss.



                                                                              13





You should review the "Tax Consequences" section and consult your own tax
professional about the tax consequences of an exchange.

LIMITATIONS ON EXCHANGES.  Certain patterns of exchanges and/or purchase or
sale transactions involving the Fund or other Morgan Stanley Funds may result
in the Fund rejecting, limiting or prohibiting, at its sole discretion, and
without prior notice, additional purchases and/or exchanges and may result in a
shareholder's account being closed. Determinations in this regard may be made
based on the frequency or dollar amount of previous exchanges or purchase or
sale transactions. Generally, all shareholders are limited to a maximum of
eight exchanges per calendar year. Exchange privileges will be suspended if
more than eight exchanges out of the Fund are made by a shareholder in a
calendar year and further exchange requests will not be processed during that
year. This limitation does not apply to the Investment Adviser's asset
allocation program or employer-sponsored retirement plans. The Fund reserves
the right to reject an exchange request for any reason.

CDSC CALCULATIONS ON EXCHANGES.  See the "Share Class Arrangements" section of
this Prospectus for a discussion of how applicable contingent deferred sales
charges (CDSCs) are calculated for shares of one Morgan Stanley Fund that are
exchanged for shares of another.

For further information regarding exchange privileges, you should contact your
Morgan Stanley Financial Advisor or call (800) 869-NEWS.

- --------------------------------------------------------------------------------
HOW TO SELL SHARES


[GRAPHIC OMITTED]


You can sell some or all of your Fund shares at any time. If you sell Class A,
Class B or Class C shares, your net sale proceeds are reduced by the amount of
any applicable CDSC. Your shares will be sold at the next price calculated after
we receive your order to sell as described below.





OPTIONS            PROCEDURES
- ------------------ -------------------------------------------------------------------------------------------------

Contact Your       To sell your shares, simply call your Morgan Stanley Financial Advisor or other authorized
Financial Advisor  financial representative. Payment will be sent to the address to which the account is registered
                   or deposited in your brokerage account.
- --------------------------------------------------------------------------------------------------------------------
By Letter          You can also sell your shares by writing a "letter of instruction" that includes:
                   o your account number;
                   o the name of the Fund;
                   o the dollar amount or the number of shares you wish to sell;
                   o the Class of shares you wish to sell; and
                   o the signature of each owner as it appears on the account.


14






OPTIONS          PROCEDURES
- ---------------- ------------------------------------------------------------------------------------------------

By Letter        If you are requesting payment to anyone other than the registered owner(s) or that payment be
(Continued)      sent to any address other than the address of the registered owner(s) or pre-designated bank
                 account, you will need a signature guarantee. You can obtain a signature guarantee from an
                 eligible guarantor acceptable to Morgan Stanley Trust. (You should contact Morgan Stanley
                 Trust at (800) 869-NEWS for a determination as to whether a particular institution is an
                 eligible guarantor.) A notary public cannot provide a signature guarantee. Additional
                 documentation may be required for shares held by a corporation, partnership, trustee
                 or executor.

                 Mail the letter to Morgan Stanley Trust at P.O. Box 983, Jersey City, NJ 07303. If you hold
                 share certificates, you must return the certificates, along with the letter and any required
                 additional documentation.

                 A check will be mailed to the name(s) and address in which the account is registered, or
                 otherwise according to your instructions.
- -----------------------------------------------------------------------------------------------------------------
Systematic       If your investment in all of the Morgan Stanley Funds has a total market value of at least
Withdrawal Plan  $10,000, you may elect to withdraw amounts of $25 or more, or in any whole percentage of a
                 fund's balance (provided the amount is at least $25), on a monthly, quarterly, semi-annual or
                 annual basis, from any fund with a balance of at least $1,000. Each time you add a fund to the
                 plan, you must meet the plan requirements.

                 Amounts withdrawn are subject to any applicable CDSC. A CDSC may be waived under
                 certain circumstances. See the Class B waiver categories listed in the "Share Class
                 Arrangements" section of this Prospectus.

                 To sign up for the systematic withdrawal plan, contact your Morgan Stanley Financial Advisor
                 or call (800) 869-NEWS. You may terminate or suspend your plan at any time. Please
                 remember that withdrawals from the plan are sales of shares, not Fund "distributions," and
                 ultimately may exhaust your account balance. The Fund may terminate or revise the plan at
                 any time.
- -----------------------------------------------------------------------------------------------------------------


PAYMENT FOR SOLD SHARES.  After we receive your complete instruction to sell as
described above, a check will be mailed to you within seven days, although we
will attempt to make payment within one business day. Payment may also be sent
to your brokerage account.


Payment may be postponed or the right to sell your shares suspended under
unusual circumstances. If you request to sell shares that were recently
purchased by check, your sale will not be effected until it has been verified
that the check has been honored.



ORDER PROCESSING FEE. Morgan Stanley DW Inc. charges clients an order
processing fee of $5.25 (except in certain circumstances, including, but not
limited to, activity in fee-based accounts, exchanges, dividend reinvestments
and systematic investment and withdrawal plans) when a client buys or redeems
shares of the Fund. Please consult your Morgan Stanley Financial Advisor for
more information regarding this fee.



                                                                              15





TAX CONSIDERATIONS.  Normally, your sale of Fund shares is subject to federal
and state income tax. You should review the "Tax Consequences" section of this
Prospectus and consult your own tax professional about the tax consequences of
a sale.

REINSTATEMENT PRIVILEGE.  If you sell Fund shares and have not previously
exercised the reinstatement privilege, you may, within 35 days after the date
of sale, invest any portion of the proceeds in the same Class of Fund shares at
their net asset value and receive a pro rata credit for any CDSC paid in
connection with the sale.

INVOLUNTARY SALES.  The Fund reserves the right, on 60 days' notice, to sell
the shares of any shareholder (other than shares held in an IRA or 403(b)
Custodial Account) whose shares, due to sales by the shareholder, have a value
below $100, or in the case of an account opened through EasyInvest (Registered
Trademark), if after 12 months the shareholder has invested less than $1,000
in the account.

However, before the Fund sells your shares in this manner, we will notify you
and allow you 60 days to make an additional investment in an amount that will
increase the value of your account to at least the required amount before the
sale is processed. No CDSC will be imposed on any involuntary sale.

MARGIN ACCOUNTS.  If you have pledged your Fund shares in a margin account,
contact your Morgan Stanley Financial Advisor or other authorized financial
representative regarding restrictions on the sale of such shares.

- --------------------------------------------------------------------------------
DISTRIBUTIONS

[SIDEBAR]
- ----------------
TARGETED DIVIDENDS(SM)
You may select to have your Fund distributions automatically invested in other
Classes of Fund shares or Classes of another Morgan Stanley Fund that you own.
Contact your Morgan Stanley Financial Advisor for further information about
this service.
[END SIDEBAR]


[GRAPHIC OMITTED]
The Fund passes substantially all of its earnings from income and capital gains
along to its investors as "distributions." The Fund earns income from stocks and
interest from fixed-income investments. These amounts are passed along to Fund
shareholders as "income dividend distributions." The Fund realizes capital gains
whenever it sells securities for a higher price than it paid for them. These
amounts are passed along as "capital gain distributions."

The Fund declares income dividends separately for each Class. Distributions
paid on Class A and Class D shares usually will be higher than for Class B and
Class C shares because distribution fees that Class B and Class C shares pay
are higher. Normally, income dividends are distributed to shareholders
semi-annually. Capital gains, if any, are usually distributed in June and
December. The Fund, however, may retain and reinvest any long-term capital
gains. The Fund may at times make payments from sources other than income or
capital gains that represent a return of a portion of your investment.

Distributions are reinvested automatically in additional shares of the same
Class and automatically credited to your account, unless you request in writing
that all distributions be paid in cash. If you elect the cash option, the Fund
will mail a check to you no later than seven business days after the
distribution is declared. However, if you purchase Fund shares through a


16




Morgan Stanley Financial Advisor or other authorized financial representative
within three business days prior to the record date for the distribution, the
distribution will automatically be paid to you in cash, even if you did not
request to receive all distributions in cash. No interest will accrue on
uncashed checks. If you wish to change how your distributions are paid, your
request should be received by the Transfer Agent at least five business days
prior to the record date of the distributions.

- --------------------------------------------------------------------------------
FREQUENT PURCHASES AND REDEMPTIONS OF FUND SHARES


Frequent purchases and redemptions of Fund shares by Fund shareholders are
referred to as "market-timing" or "short-term trading" and may present risks
for other shareholders of the Fund, which may include, among other things,
dilution in the value of Fund shares held by long-term shareholders,
interference with the efficient management of the Fund's portfolio, increased
brokerage and administrative costs, incurring unwanted taxable gains and
forcing the Fund to hold excess levels of cash.

In addition, the Fund is subject to the risk that market timers and/or
short-term traders may take advantage of time zone differences between the
foreign markets on which the Fund's portfolio securities trade and the time as
of which the Fund's net asset value is calculated ("time-zone arbitrage"). For
example, a market timer may purchase shares of the Fund based on events
occurring after foreign market closing prices are established, but before the
Fund's net asset value calculation, that are likely to result in higher prices
in foreign markets the following day. The market timer would redeem the Fund's
shares the next day when the Fund's share price would reflect the increased
prices in foreign markets, for a quick profit at the expense of long-term fund
shareholders.

Investments in other types of securities also may be susceptible to short-term
trading strategies. These investments include securities that are, among other
things, thinly traded, traded infrequently, or relatively illiquid, which have
the risk that the current market price for the securities may not accurately
reflect current market values. A shareholder may seek to engage in short-term
trading to take advantage of these pricing differences (referred to as "price
arbitrage"). Investments in certain fixed-income securities may be adversely
affected by price arbitrage trading strategies.


The Fund discourages and does not accommodate frequent purchases and
redemptions of Fund shares by Fund shareholders and the Fund's Board of
Trustees has adopted policies and procedures with respect to such frequent
purchases and redemptions. The Fund's policies with respect to purchases,
redemptions and exchanges of Fund shares are described in the "How to Buy
Shares," "How to Exchange Shares" and "How to Sell Shares" sections of this
Prospectus. Except as described in each of these sections, and with respect to
omnibus accounts, the Fund's policies regarding frequent trading of Fund shares
are applied uniformly to all shareholders. With respect to trades that occur
through omnibus accounts at intermediaries, such as investment managers,
broker-dealers, transfer agents and third party administrators, the Fund (i)
has requested assurance that such intermediaries currently selling Fund shares
have in place internal policies and procedures reasonably designed to address
market timing concerns and has instructed such intermediaries to notify the
Fund immediately if they are unable to comply with such policies and procedures
and (ii) requires all prospective intermediaries to agree to cooperate in
enforcing the Fund's policies with respect to frequent purchases, redemptions
and exchanges of Fund shares. Omnibus accounts generally do not identify
customers' trading activity to the Fund on an individual basis. The ability of
the Fund to monitor



                                                                              17




exchanges made by the underlying shareholders in omnibus accounts, therefore,
is severely limited. Consequently, the Fund must rely on the financial
intermediary to monitor frequent short-term trading within the Fund by the
financial intermediary's customers. There can be no assurance that the Fund
will be able to eliminate all market-timing activities.

- --------------------------------------------------------------------------------
TAX CONSEQUENCES


[GRAPHIC OMITTED]

As with any investment, you should consider how your Fund investment will be
taxed. The tax information in this Prospectus is provided as general
information. You should consult your own tax professional about the tax
consequences of an investment in the Fund.

Unless your investment in the Fund is through a tax-deferred retirement
account, such as a 401(k) plan or IRA, you need to be aware of the possible tax
consequences when:

o The Fund makes distributions; and

o You sell Fund shares, including an exchange to another Morgan Stanley Fund.

TAXES ON DISTRIBUTIONS. Your distributions are normally subject to federal and
state income tax when they are paid, whether you take them in cash or reinvest
them in Fund shares. A distribution also may be subject to local income tax.
Any income dividend distributions and any short-term capital gain distributions
are taxable to you as ordinary income. Any long-term capital gain distributions
are taxable as long-term capital gains, no matter how long you have owned
shares in the Fund. Under current law, a portion of the ordinary income
dividends you receive may be taxed at the same rate as long-term capital gains.
However, even if income received in the form of ordinary income dividends is
taxed at the same rates as long-term capital gains, such income will not be
considered long-term capital gains for other federal income tax purposes. For
example, you generally will not be permitted to offset ordinary income
dividends with capital losses. Short-term capital gain distributions will
continue to be taxed at ordinary income rates.

Every January, you will be sent a statement (IRS Form 1099-DIV) showing the
taxable distributions paid to you in the previous year. The statement provides
information on your dividends and capital gains for tax purposes.

TAXES ON SALES.  Your sale of Fund shares normally is subject to federal and
state income tax and may result in a taxable gain or loss to you. A sale also
may be subject to local income tax. Your exchange of Fund shares for shares of
another Morgan Stanley Fund is treated for tax purposes like a sale of your
original shares and a purchase of your new shares. Thus, the exchange may, like
a sale, result in a taxable gain or loss to you and will give you a new tax
basis for your new shares.

When you open your Fund account, you should provide your social security or tax
identification number on your investment application. By providing this
information, you will avoid being subject to federal backup withholding tax on
taxable distributions and redemption proceeds (as of the date of this
Prospectus this rate is 28%). Any withheld amount would be sent to the IRS as
an advance payment of your taxes due on your income.


18




- --------------------------------------------------------------------------------
SHARE CLASS ARRANGEMENTS


[GRAPHIC OMITTED]

The Fund offers several Classes of shares having different distribution
arrangements designed to provide you with different purchase options according
to your investment needs. Your Morgan Stanley Financial Advisor or other
authorized financial representative can help you decide which Class may be
appropriate for you.

The general public is offered three Classes: Class A shares, Class B shares and
Class C shares, which differ principally in terms of sales charges and ongoing
expenses. A fourth Class, Class D shares, is offered only to a limited category
of investors. Shares that you acquire through reinvested distributions will not
be subject to any front-end sales charge or CDSC -- contingent deferred sales
charge.

Sales personnel may receive different compensation for selling each Class of
shares. The sales charges applicable to each Class provide for the distribution
financing of shares of that Class.

The chart below compares the sales charge and annual 12b-1 fee applicable to
each Class:





                                                                                                                  MAXIMUM ANNUAL
  CLASS         SALES CHARGE                                                                                       12b-1 FEE
  -----         ------------                                                                                      --------------

   A            Maximum 5.25% initial sales charge reduced for purchase of $25,000 or more; shares
                purchased without an initial sales charge are generally subject to a 1.00% CDSC if sold during       0.25%
                the first 18 months*

   B            Maximum 5.00% CDSC during the first year decreasing to 0% after six years                            1.00%

   C            1.00% CDSC during the first year                                                                     1.00%

   D            None                                                                                                  None



*     Shares purchased without an initial sales charge prior to December 1,
      2004 will be subject to a 1.00% CDSC if sold during the first year.


Certain shareholders may be eligible for reduced sales charges (i.e.,
breakpoint discounts), CDSC waivers and eligibility minimums. Please see the
information for each Class set forth below for specific eligibility
requirements. You must notify your Morgan Stanley Financial Advisor or other
authorized financial representative (or Morgan Stanley Trust if you purchase
shares directly through the Fund) at the time a purchase order (or in the case
of Class B or C shares, a redemption order) is placed, that the purchase (or
redemption) qualifies for a reduced sales charge (i.e., breakpoint discount),
CDSC waiver or eligibility minimum. Similar notification must be made in
writing when an order is placed by mail. The reduced sales charge, CDSC waiver
or eligibility minimum will not be granted if: (i) notification is not
furnished at the time of order; or (ii) a review of the records of Morgan
Stanley DW or other authorized dealer of Fund shares, or the Transfer Agent
does not confirm your represented holdings.



In order to obtain a reduced sales charge (i.e., breakpoint discount) or to
meet an eligibility minimum, it may be necessary at the time of purchase for
you to inform your Morgan Stanley Financial Advisor or other authorized
financial representative (or Morgan Stanley Trust if you purchase shares
directly through the Fund) of the existence of other accounts in which there
are holdings eligible to be aggregated to meet the sales load breakpoints or
eligibility minimums. In order to verify your eligibility, you may be required
to provide account statements and/or confirmations regarding shares of the Fund
or other Morgan Stanley Funds held in all related accounts described below at
Morgan Stanley or by other authorized dealers, as well as shares held by
related parties, such as members of the same family or household, in order to
determine whether you have met a sales load breakpoint or eligibility


                                                                              19




minimum. The Fund makes available, in a clear and prominent format, free of
charge, on its web site, www.morganstanley.com, information regarding
applicable sales loads, reduced sales charges (i.e., breakpoint discounts),
sales load waivers and eligibility minimums. The web site includes hyperlinks
that facilitate access to the information.



CLASS A SHARES Class A shares are sold at net asset value plus an initial sales
charge of up to 5.25% of the public offering price. The initial sales charge is
reduced for purchases of $25,000 or more according to the schedule below.
Investments of $1 million or more are not subject to an initial sales charge,
but are generally subject to a CDSC of 1.00% on sales made within 18 months
after the last day of the month of purchase. With respect to shares purchased
prior to December 1, 2004, investments of $1 million or more are not subject to
an initial sales charge, but are generally subject to a CDSC of 1.00% on sales
made within one year after the last day of the month of purchase. The CDSC will
be assessed in the same manner and with the same CDSC waivers as with Class B
shares. Class A shares are also subject to a 12b-1 fee of up to 0.25% of the
average daily net assets of the Class. This fee is lower than the 12b-1 fee paid
by Class B or Class C shares.



The Fund will not accept a purchase order for Class A shares that qualifies for
investment in Class D shares.


The offering price of Class A shares includes a sales charge (expressed as a
percentage of the public offering price) on a single transaction as shown in
the following table:

[SIDEBAR]
- ----------------
FRONT-END SALES
CHARGE OR FSC

An initial sales charge you pay when purchasing Class A shares that is based on
a percentage of the offering price. The percentage declines based upon the
dollar value of Class A shares you purchase. We offer three ways to reduce your
Class A sales charges -- the Combined Purchase Privilege, Right of Accumulation
and Letter of Intent.
[END SIDEBAR]



                                                   FRONT-END SALES CHARGE
                                      -------------------------------------------------
                                           PERCENTAGE OF       APPROXIMATE PERCENTAGE
AMOUNT OF SINGLE TRANSACTION           PUBLIC OFFERING PRICE   OF NET AMOUNT INVESTED
- ----------------------------           ---------------------   ----------------------

  Less than $25,000                          5.25%                     5.54%
  $25,000 but less than $50,000              4.75%                     4.99%
  $50,000 but less than $100,000             4.00%                     4.17%
  $100,000 but less than $250,000            3.00%                     3.09%
  $250,000 but less than $500,000            2.50%                     2.56%
  $500,000 but less than $1 million          2.00%                     2.04%
  $1 million and over                        0.00%                     0.00%


You may benefit from a reduced sales charge schedule (i.e., breakpoint
discount) for purchases of Class A shares of the Fund, by combining, in a
single transaction, your purchase with purchases of Class A shares of the Fund
by the following related accounts:

o    A single account (including an individual, trust or fiduciary account).

o    Family member accounts (limited to spouse, and children under the age of
     21).


o    Pension, profit sharing or other employee benefit plans of companies and
     their affiliates.

20




o    Employer sponsored and individual retirement accounts (including IRA,
     Keogh, 401(k), 403(b), 408(k), and 457(b) plans).

o    Tax-exempt organizations.

o    Groups organized for a purpose other than to buy mutual fund shares.


COMBINED PURCHASE PRIVILEGE. You will have the benefit of reduced sales charges
by combining purchases of Class A shares of the Fund in a single transaction
with purchases of Class A shares of other Multi-Class Funds. Shareholders also
may combine such purchases made in a single transaction by family members
(limited to spouse, and children under the age of 21).


RIGHT OF ACCUMULATION.  You may benefit from a reduced sales charge if the
cumulative net asset value of Class A shares of the Fund purchased in a single
transaction, together with shares of other Morgan Stanley Funds previously
purchased at a price including a front-end sales charge (or Class A shares
purchased at $1 million or more), and shares acquired through reinvestment of
distributions, which are currently held, amounts to $25,000 or more. Also, if
you have a cumulative net asset value of all your Class A and Class D shares of
other Multi-Class Funds and shares of FSC Funds equal to at least $5 million
(or $25 million for certain employee benefit plans), you are eligible to
purchase Class D shares of any fund subject to the fund's minimum initial
investment requirement.

Existing holdings of family members or other related accounts of a shareholder
may not be combined for purposes of determining eligibility.


LETTER OF INTENT. The above schedule of reduced sales charges for larger
purchases also will be available to you if you enter into a written "Letter of
Intent." A Letter of Intent provides for the purchase of Class A shares of the
Fund or other Multi-Class Funds within a 13-month period. The initial purchase
under a Letter of Intent must be at least 5% of the stated investment goal. The
Letter of Intent does not preclude the Fund (or any other Multi-Class Fund)
from discontinuing sales of its shares. To determine the applicable sales
charge reduction, you may also include: (1) the cost of shares of other Morgan
Stanley Funds which were previously purchased at a price including a front-end
sales charge during the 90-day period prior to the distributor receiving the
Letter of Intent, and (2) the historical cost of shares of other funds you
currently own acquired in exchange for shares of funds purchased during that
period at a price including a front-end sales charge. You may combine purchases
and exchanges by family members (limited to spouse, and children under the age
of 21) during the periods referenced in (1) and (2) above. You should retain
any records necessary to substantiate historical costs because the Fund, its
Transfer Agent and any financial intermediaries may not maintain this
information. You can obtain a Letter of Intent by contacting your Morgan
Stanley Financial Advisor or other authorized financial representative, or by
calling (800) 869-NEWS. If you do not achieve the stated investment goal within
the 13-month period, you are required to pay the difference between the sales
charges otherwise applicable and sales charges actually paid, which may be
deducted from your investment. Shares acquired through reinvestment of
distributions are not aggregated to achieve the stated investment goal.



                                                                              21




OTHER SALES CHARGE WAIVERS.  In addition to investments of $1 million or more,
your purchase of Class A shares is not subject to a front-end sales charge (or
a CDSC upon sale) if your account qualifies under one of the following
categories:

o    A trust for which a banking affiliate of the Investment Adviser provides
     discretionary trustee services.

o    Persons participating in a fee-based investment program (subject to all of
     its terms and conditions, including termination fees, and mandatory sale or
     transfer restrictions on termination) approved by the Fund's distributor,
     pursuant to which they pay an asset-based fee for investment advisory,
     administrative and/or brokerage services.

o    Qualified state tuition plans described in Section 529 of the Internal
     Revenue Code and donor-advised charitable gift funds (subject to all
     applicable terms and conditions) and certain other investment programs that
     do not charge an asset-based fee and have been approved by the Fund's
     distributor.

o    Employer-sponsored employee benefit plans, whether or not qualified under
     the Internal Revenue Code, for which an entity independent from Morgan
     Stanley serves as recordkeeper under an alliance or similar agreement with
     Morgan Stanley's Retirement Plan Solutions ("Morgan Stanley Eligible
     Plans").

o    A Morgan Stanley Eligible Plan whose Class B shares have converted to Class
     A shares, regardless of the plan's asset size or number of eligible
     employees.

o    Insurance company separate accounts that have been approved by the Fund's
     distributor.

o    Current or retired Directors or Trustees of the Morgan Stanley Funds, such
     persons' spouses and children under the age of 21, and trust accounts for
     which any of such persons is a beneficiary.

o    Current or retired directors, officers and employees of Morgan Stanley and
     any of its subsidiaries, such persons' spouses and children under the age
     of 21, and trust accounts for which any of such persons is a beneficiary.


CLASS B SHARES Class B shares are offered at net asset value with no initial
sales charge but are subject to a contingent deferred sales charge, or CDSC, as
set forth in the table below. For the purpose of calculating the CDSC, shares
are deemed to have been purchased on the last day of the month during which they
were purchased.


[SIDEBAR]
- ----------------
CONTINGENT DEFERRED SALES CHARGE
OR CDSC

A fee you pay when you sell shares of certain Morgan Stanley Funds purchased
without an initial sales charge. This fee declines the longer you hold your
shares as set forth in the table.
[END SIDEBAR]



 YEAR SINCE PURCHASE PAYMENT MADE        CDSC AS A PERCENTAGE OF AMOUNT REDEEMED
 --------------------------------        ---------------------------------------

First                                                   5.0%
Second                                                  4.0%
Third                                                   3.0%
Fourth                                                  2.0%
Fifth                                                   2.0%
Sixth                                                   1.0%
Seventh and thereafter                                  None


22




Each time you place an order to sell or exchange shares, shares with no CDSC
will be sold or exchanged first, then shares with the lowest CDSC will be sold
or exchanged next. For any shares subject to a CDSC, the CDSC will be assessed
on an amount equal to the lesser of the current market value or the cost of the
shares being sold.


The Fund will generally not accept a purchase order for Class B shares in the
amount of $100,000 or more.



CDSC WAIVERS.  A CDSC, if otherwise applicable, will be waived in the case of:

o Sales of shares held at the time you die or become disabled (within the
  definition in Section 72(m)(7) of the Internal Revenue Code which relates to
  the ability to engage in gainful employment), if the shares are: (i)
  registered either in your individual name or in the names of you and your
  spouse as joint tenants with right of survivorship; (ii) registered in the
  name of a trust of which (a) you are the settlor and that is revocable by
  you (i.e., a "living trust"); or (b) you and your spouse are the settlors
  and that is revocable by you or your spouse (i.e., a "joint living trust");
  or (iii) held in a qualified corporate or self-employed retirement plan, IRA
  or 403(b) Custodial Account; provided, in each case, that the sale is
  requested within one year after your death or initial determination of
  disability.


o Sales in connection with the following retirement plan "distributions": (i)
  lump-sum or other distributions from a qualified corporate or self-employed
  retirement plan following retirement (or, in the case of a "key employee" of
  a "top heavy" plan, following attainment of age 59 1/2); (ii) distributions
  from an IRA or 403(b) Custodial Account following attainment of age 59 1/2;
  or (iii) a tax-free return of an excess IRA contribution (a "distribution"
  does not include a direct transfer of IRA, 403(b) Custodial Account or
  retirement plan assets to a successor custodian or trustee).

o Sales of shares in connection with the Systematic Withdrawal Plan of up to
  12% annually of the value of each fund from which plan sales are made. The
  percentage is determined on the date you establish the Systematic Withdrawal
  Plan and based on the next calculated share price. You may have this CDSC
  waiver applied in amounts up to 1% per month, 3% per quarter, 6%
  semi-annually or 12% annually. Shares with no CDSC will be sold first,
  followed by those with the lowest CDSC. As such, the waiver benefit will be
  reduced by the amount of your shares that are not subject to a CDSC. If you
  suspend your participation in the plan, you may later resume plan payments
  without requiring a new determination of the account value for the 12% CDSC
  waiver.

o Sales of shares purchased prior to April 1, 2004 or acquired in exchange for
  shares purchased prior to April 1, 2004, if you simultaneously invest the
  proceeds from such sale in the Investment Adviser's mutual fund asset
  allocation program, pursuant to which investors pay an asset-based fee. Any
  shares acquired in connection with the Investment Adviser's mutual fund
  asset allocation program are subject to all of the terms and conditions of
  that program, including termination fees, and mandatory sale or transfer
  restrictions on termination.

All waivers will be granted only following the Fund's distributor receiving
confirmation of your entitlement. If you believe you are eligible for a CDSC
waiver, please contact your Morgan Stanley Financial Advisor or other
authorized financial representative or call (800) 869-NEWS.



DISTRIBUTION FEE.  Class B shares are subject to an annual distribution and
shareholder services (12b-1) fee of up to 1.00% of the lesser of: (a) the
average daily aggregate gross purchases by all shareholders of the Fund's Class
B shares since the inception of the Fund (not including reinvestments of
dividends or capital gains distributions),



                                                                              23






less the average daily aggregate net asset value of the Fund's Class B shares
sold by all shareholders since the Fund's inception upon which a CDSC has been
imposed or waived, or (b) the average daily net assets of Class B shares. This
fee is higher than the annual 12b-1 fee paid by Class A shares.


CONVERSION FEATURE.  After ten years, Class B shares will convert automatically
to Class A shares of the Fund with no initial sales charge. The ten year period
runs from the last day of the month in which the shares were purchased, or in
the case of Class B shares acquired through an exchange, from the last day of
the month in which the original Class B shares were purchased; the shares will
convert to Class A shares based on their relative net asset values in the month
following the ten year period. At the same time, an equal proportion of Class B
shares acquired through automatically reinvested distributions will convert to
Class A shares on the same basis. (Class B shares held before May 1, 1997,
however, will convert to Class A shares in May 2005.)

Effective May 1, 2005, after eight years, Class B shares will convert
automatically to Class A shares of the Fund with no initial sales charge. The
eight-year period runs from the last day of the month in which the shares were
purchased or, in the case of Class B shares acquired through an exchange, from
the last day of the month in which the original Class B shares were purchased;
the shares will convert to Class A shares based on their relative net asset
values in the month following the eight-year period. At the same time, an equal
proportion of Class B shares acquired through automatically reinvested
distributions will convert to Class A shares on the same basis.


In the case of Class B shares held in a Morgan Stanley Eligible Plan, the plan
is treated as a single investor and all Class B shares will convert to Class A
shares on the conversion date of the Class B shares of a Morgan Stanley Fund
purchased by that plan.


If you exchange your Class B shares for shares of a Money Market Fund, a
No-Load Fund or the Limited Duration U.S. Treasury Trust, the holding period
for conversion is frozen as of the last day of the month of the exchange and
resumes on the last day of the month you exchange back into Class B shares.

EXCHANGING SHARES SUBJECT TO A CDSC.  There are special considerations when you
exchange Fund shares that are subject to a CDSC. When determining the length of
time you held the shares and the corresponding CDSC rate, any period (starting
at the end of the month) during which you held shares of a fund that does not
charge a CDSC will not be counted. Thus, in effect the "holding period" for
purposes of calculating the CDSC is frozen upon exchanging into a fund that
does not charge a CDSC.


For example, if you held Class B shares of the Fund for one year, exchanged to
Class B of another Morgan Stanley Multi-Class Fund for another year, then sold
your shares, a CDSC rate of 4% would be imposed on the shares based on a
two-year holding period -- one year for each fund. However, if you had
exchanged the shares of the Fund for a Money Market Fund (which does not charge
a CDSC) instead of the Multi-Class Fund, then sold your shares, a CDSC rate of
5% would be imposed on the shares based on a one-year holding period. The one
year in the Money Market Fund would not be counted. Nevertheless, if shares
subject to a CDSC are exchanged for a fund that does not charge a CDSC, you
will receive a credit when you sell the shares equal to the 12b-1 fees, if any,
you paid on those shares while in that fund up to the amount of any applicable
CDSC.



24





In addition, shares that are exchanged into or from a Morgan Stanley Fund
subject to a higher CDSC rate will be subject to the higher rate, even if the
shares are re-exchanged into a fund with a lower CDSC rate.

CLASS C SHARES Class C shares are sold at net asset value with no initial sales
charge, but are subject to a CDSC of 1.0% on sales made within one year after
the last day of the month of purchase. The CDSC will be assessed in the same
manner and with the same CDSC waivers as with Class B shares. The Fund will not
accept a purchase order for Class C shares in the amount of $1 million or more.


DISTRIBUTION FEE.  Class C shares are subject to an annual distribution and
shareholder services (12b-1) fee of up to 1.0% of the average daily net assets
of that Class. This fee is higher than the annual 12b-1 fee paid by Class A.
Unlike Class B shares, Class C shares have no conversion feature and,
accordingly, an investor that purchases Class C shares may be subject to
distribution and shareholder services (12b-1) fees applicable to Class C shares
for as long as the investor owns such shares.


CLASS D SHARES Class D shares are offered without any sales charge on purchases
or sales and without any distribution (12b-1) fee. Class D shares are offered
only to investors meeting an initial investment minimum of $5 million ($25
million for Morgan Stanley Eligible Plans) and the following investor
categories:

o Investors participating in the Investment Adviser's or an affiliate's mutual
  fund asset allocation program (subject to all of its terms and conditions,
  including termination fees, and mandatory sale or transfer restrictions on
  termination) pursuant to which they pay an asset-based fee.


o Persons participating in a fee-based investment program (subject to all of
  its terms and conditions, including termination fees, and mandatory sale or
  transfer restrictions on termination) approved by the Fund's distributor
  pursuant to which they pay an asset-based fee for investment advisory,
  administrative and/or brokerage services. With respect to Class D shares
  held through the Morgan Stanley Choice Program, at such time as those Fund
  shares are no longer held through the program, the shares will be
  automatically converted into Class A shares (which are subject to higher
  expenses than Class D shares) based on the then current relative net asset
  values of the two Classes.

o Certain investment programs that do not charge an asset-based fee and have
  been approved by the Fund's distributor.

o Employee benefit plans maintained by Morgan Stanley or any of its
  subsidiaries for the benefit of certain employees of Morgan Stanley and its
  subsidiaries.

o Certain unit investment trusts sponsored by Morgan Stanley DW or its
  affiliates.

o Certain other open-end investment companies whose shares are distributed by
  the Fund's distributor.

o Investors who were shareholders of the Dean Witter Retirement Series on
  September 11, 1998 for additional purchases for their former Dean Witter
  Retirement Series accounts.

o The Investment Adviser and its affiliates with respect to shares held in
  connection with certain deferred compensation programs established for their
  employees.

A purchase order that meets the requirements for investment in Class D can be
made only in Class D shares.

                                                                              25





Class D shares are not offered for investments made through Section 529 plans,
donor-advised charitable gift funds and insurance company separate accounts
(regardless of the size of the investment).


MEETING CLASS D ELIGIBILITY MINIMUMS.  To meet the $5 million ($25 million for
Morgan Stanley Eligible Plans) initial investment to qualify to purchase Class
D shares you may combine: (1) purchases in a single transaction of Class D
shares of the Fund and other Morgan Stanley Multi-Class Funds; and/or (2)
previous purchases of Class A and Class D shares of Multi-Class Funds you
currently own, along with shares of Morgan Stanley Funds you currently own that
you acquired in exchange for those shares. Shareholders cannot combine
purchases made by family members or a shareholder's other related accounts in a
single transaction for purposes of meeting the $5 million initial investment
minimum requirement to qualify to purchase Class D shares.


NO SALES CHARGES FOR REINVESTED CASH DISTRIBUTIONS If you receive a cash payment
representing an income dividend or capital gain and you reinvest that amount in
the applicable Class of shares by returning the check within 30 days of the
payment date, the purchased shares would not be subject to an initial sales
charge or CDSC.


PLAN OF DISTRIBUTION (RULE 12B-1 FEES) The Fund has adopted a Plan of
Distribution in accordance with Rule 12b-1 under the Investment Company Act with
respect to the Class A, Class B and Class C shares, (Class D shares are offered
without any 12b-1 fee.) The Plan allows the Fund to pay distribution fees for
the sale and distribution of Class B and Class C shares. It also allows the Fund
to pay for services to shareholders of Class A, Class B and Class C shares.
Because these fees are paid out of the Fund's assets on an ongoing basis, over
time these fees will increase the cost of your investment and reduce your return
in these Classes and may cost you more than paying other types of sales charges.


- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION


The Investment Adviser and/or distributor may pay compensation (out of their
own funds and not as an expense of the Fund) to certain affiliated or
unaffiliated brokers, dealers or other financial intermediaries or service
providers in connection with the sale or retention of Fund shares and/or
shareholder servicing. Such compensation may be significant in amount and the
prospect of receiving any such additional compensation may provide such
affiliated or unaffiliated entities with an incentive to favor sales of shares
of the Fund over other investment options. Any such payments will not change
the net asset value or the price of the Fund's shares. For more information,
please see the Fund's Statement of Additional Information.


26



Financial Highlights

The financial highlights table is intended to help you understand the Fund's
financial performance for the periods indicated. Certain information reflects
financial results for a single Fund share throughout each period. The total
returns in the table represent the rate an investor would have earned or lost
on an investment in the Fund (assuming reinvestment of all dividends and
distributions).


This information has been audited by Deloitte & Touche LLP, an independent
registered public accounting firm, whose report, along with the Fund's
financial statements, are incorporated by reference in the Statement of
Additional Information from the Fund's annual report, which is available upon
request.

CLASS A SHARES




 FOR THE YEAR ENDED NOVEMBER 30,                   2004         2003          2002          2001          2000
 -------------------------------                   ----         ----          ----          ----          ----

SELECTED PER SHARE DATA:
Net asset value, beginning of period                $12.35       $9.53      $15.97        $26.86        $33.83
                                                 ---------     --------    ---------     ---------     ---------
Income (loss) from investment operations:
  Net investment loss[+/+]                           (0.12)      (0.12)      (0.16)        (0.20)        (0.33)
  Net realized and unrealized gain (loss)             2.53        2.94       (6.28)       (10.69)        (5.76)
                                                 ---------      -------     --------      --------      --------
Total income (loss) from investment operations        2.41        2.82       (6.44)       (10.89)        (6.09)
                                                 ---------      -------     --------      --------      --------
Less distributions from:
  Net realized gain                                   --            --          --            --         (0.77)
  Paid-in-capital                                     --            --          --            --         (0.11)
                                                 ---------      --------    --------      --------      --------
Total distributions                                   --            --          --            --         (0.88)
                                                 ---------      --------    --------      --------     ---------
Net asset value, end of period                      $14.76      $12.35       $9.53        $15.97        $26.86
- ----------------------------------------------------------------------------------------------------------------
TOTAL RETURN+                                        19.51%      29.59%     (40.33)%      (40.54)%      (18.72)%
- ----------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS(1):
Expenses                                              1.47%       1.52%       1.43%         1.13%         1.11%
Net investment loss                                 (0.93)%      (1.22)%     (1.26)%       (1.02)%       (0.82)%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands            $11,290     $10,826      $9,339       $21,509       $48,068
Portfolio turnover rate                                120%        179%         94%           25%           17%
- ----------------------------------------------------------------------------------------------------------------


[+/+] The per share amounts were computed using an average number of shares
      outstanding during the period.

+     Does not reflect the deduction of sales charge. Calculated based on the
      net asset value as of the last business day of the period.

(1)   Reflects overall Fund ratios for investment income and non-class specific
      expenses.

                                                                              27




          Financial Highlights (Continued)

CLASS B SHARES




 FOR THE YEAR ENDED NOVEMBER 30,                      2004          2003        2002          2001            2000
 -------------------------------                   ---------      --------    --------      --------       ----------

SELECTED PER SHARE DATA:
Net asset value, beginning of period                 $11.83         $9.19      $15.53        $26.35           $33.36
                                                  ---------      --------    --------      --------       ----------
Income (loss) from investment operations:
  Net investment loss[+/+]                            (0.21)        (0.19)      (0.25)        (0.37)           (0.51)
  Net realized and unrealized gain (loss)              2.40          2.83       (6.09)       (10.45)           (5.62)
                                                  ---------      --------    --------      --------       ----------
Total income (loss) from investment operations         2.19          2.64       (6.34)       (10.82)           (6.13)
                                                  ---------      --------    --------      --------       ----------
Less distributions from:
  Net realized gain                                     --            --          --            --             (0.77)
  Paid-in-capital                                       --            --          --            --             (0.11)
                                                  ----------     ---------   ---------     ---------       ----------
Total distributions                                     --            --          --            --             (0.88)
                                                  ----------     ---------   ---------     ---------       ----------
Net asset value, end of period                       $14.02        $11.83       $9.19        $15.53            $26.35
- ---------------------------------------------------------------------------------------------------------------------
TOTAL RETURN+                                         18.51%        28.73%     (40.82)%      (41.06)%          (19.12)%
- ---------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS(1):
Expenses                                               2.24%         2.29%       2.20%         2.02%             1.58%
Net investment loss                                   (1.70)%       (1.99)%     (2.03)%       (1.91)%           (1.29)%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands           $ 270,955      $296,711    $292,533      $705,388        $1,413,820
Portfolio turnover rate                                 120%          179%         94%           25%              17%


[+/+] The per share amounts were computed using an average number of shares
      outstanding during the period.

+     Does not reflect the deduction of sales charge. Calculated based on the
      net asset value as of the last business day of the period.

(1)   Reflects overall Fund ratios for investment income and non-class specific
      expenses.

28





CLASS C SHARES



 FOR THE YEAR ENDED NOVEMBER 30,                       2004          2003        2002         2001           2000
 -------------------------------                    ---------      --------    --------     --------      ----------

SELECTED PER SHARE DATA:
Net asset value, beginning of period                  $11.77        $9.15      $15.43        $26.19         $33.24
Income (loss) from investment operations:
  Net investment loss[+/+]                             (0.21)       (0.19)      (0.22)        (0.37)         (0.62)
  Net realized and unrealized gain (loss)               2.40         2.81      ( 6.06)       (10.39)         (5.55)
                                                   ---------      -------     --------      --------      --------
Total income (loss) from investment operations          2.19         2.62       (6.28)       (10.76)         (6.17)
                                                   ---------      -------     --------      --------      --------
Less distributions from:
  Net realized gain                                     --            --          --            --           (0.77)
  Paid-in-capital                                       --            --          --            --           (0.11)
                                                   ---------      --------    --------      --------       --------
Total distributions                                     --            --          --            --           (0.88)
                                                   ---------      --------    --------      --------       --------
Net asset value, end of period                        $13.96       $11.77       $9.15        $15.43         $26.19
- --------------------------------------------------------------------------------------------------------------------
TOTAL RETURN+                                          18.61%       28.63%     (40.70)%      (41.08)%       (19.31)%
- --------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS(1):
Expenses                                                2.23%        2.29%       1.98%          2.02%          1.86%
Net investment loss                                   (1.69)%      (1.99)%     (1.81)%        (1.91)%        (1.56)%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands              $15,837       $16,069     14,701        $32,016        $61,822
Portfolio turnover rate                                 120%          179%        94%             25%            17%


[+/+] The per share amounts were computed using an average number of shares
      outstanding during the period.

+     Does not reflect the deduction of sales charge. Calculated based on the
      net asset value as of the last business day of the period.

(1)   Reflects overall Fund ratios for investment income and non-class specific
      expenses.

                                                                              29




          Financial Highlights (Continued)

CLASS D SHARES




 FOR THE YEAR ENDED NOVEMBER 30,                     2004          2003        2002         2001           2000
 -------------------------------                  ---------      --------    --------     --------      ----------

SELECTED PER SHARE DATA:
Net asset value, beginning of period                $12.51        $9.62      $16.10        $27.04        $33.97
Income (loss) from investment operations:
  Net investment loss[+/+]                           (0.09)       (0.10)      (0.12)        (0.18)        (0.24)
  Net realized and unrealized gain (loss)             2.56         2.99       (6.36)       (10.76)        (5.81)
                                                 ---------      -------     --------      --------      --------
Total income (loss) from investment operations        2.47         2.89       (6.48)       (10.94)        (6.05)
                                                 ---------      -------     --------      --------      --------
Less distributions from:
  Net realized gain                                   --            --          --            --          (0.77)
  Paid-in-capital                                     --            --          --            --          (0.11)
                                                 ---------      --------    --------      --------      --------
Total distributions                                   --            --          --            --          (0.88)
                                                 ---------      --------    --------      --------      --------
Net asset value, end of period                      $14.98       $12.51      $9.62         $16.10        $27.04
- ----------------------------------------------------------------------------------------------------------------
TOTAL RETURN+                                        19.74%       30.04%    (40.25)%       (40.46)%      (18.52)%
- ----------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS(1):
Expenses                                             1.24%         1.29%      1.20%         1.02%         0.86%
Net investment loss                                 (0.70)%       (0.99)%    (1.03)%       (0.91)%       (0.57)%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands          $ 90,844       $98,359     $85,534       $94,203       $23,815
Portfolio turnover rate                               120%          179%         94%           25%           17%


[+/+] The per share amounts were computed using an average number of shares
      outstanding during the period.

+     Calculated based on the net asset value as of the last business day of the
      period.

(1)   Reflects overall Fund ratios for investment income and non-class specific
      expenses.

30




Notes
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                                                                              31




Notes (Continued)
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32




Morgan Stanley Funds


EQUITY
- ------------------------
BLEND/CORE

Total Return Trust
Fund of Funds - Domestic Portfolio

- ------------------------
DOMESTIC HYBRID

Allocator Fund
Balanced Growth Fund
Balanced Income Fund
Income Builder Fund
Strategist Fund

- ------------------------
GLOBAL/INTERNATIONAL

European Equity Fund
Global Advantage Fund
Global Dividend Growth Securities
International Fund
International SmallCap Fund
International Value Equity Fund
Japan Fund
Pacific Growth Fund

- ------------------------
GROWTH

Aggressive Equity Fund
American Opportunities Fund
Capital Opportunities Trust
Developing Growth Securities Trust
Growth Fund
Special Growth Fund


- ------------------------
INDEX

Equally-Weighted S&P 500 Fund
KLD Social Index Fund
Nasdaq-100 Index Fund
S&P 500 Index Fund
Total Market Index Fund

- ------------------------
SPECIALTY

Biotechnology Fund
Convertible Securities Trust
Financial Services Trust
Global Utilities Fund
Health Sciences Trust
Information Fund
Natural Resource Development Securities
Real Estate Fund
Utilities Fund

- ------------------------
VALUE

Dividend Growth Securities
Fundamental Value Fund
Mid-Cap Value Fund
Small-Mid Special Value Fund
Special Value Fund
Value Fund

FIXED INCOME
- ------------------------
TAXABLE SHORT TERM

Limited Duration Fund*+
Limited Duration U.S. Treasury Trust*

- ------------------------
TAXABLE INTERMEDIATE TERM

Federal Securities Trust
Flexible Income Trust
High Yield Securities
Quality Income Trust
U.S. Government Securities Trust

- ------------------------
TAX-FREE

California Tax-Free Income Fund
Limited Term Municipal Trust*+
New York Tax-Free Income Fund
Tax-Exempt Securities Trust


MONEY MARKET*
- ------------------------
TAXABLE

Liquid Asset Fund
U.S. Government Money Market

- ------------------------
TAX-FREE

California Tax-Free Daily Income Trust
New York Municipal Money Market Trust
Tax-Free Daily Income Trust

There may be funds created or terminated after this Prospectus was published.
Please consult the inside back cover of a new fund's prospectus for its
designations, e.g., Multi-Class Fund or Money Market Fund.

Unless otherwise noted, each listed Morgan Stanley Fund is a Multi-Class Fund.
A Multi-Class Fund is a mutual fund offering multiple classes of shares.

*     Single-Class Fund(s)

+     No-Load (Mutual) Fund





Additional information about the Fund's investments is available in the Fund's
Annual and Semi-Annual Reports to Shareholders. In the Fund's Annual Report, you
will find a discussion of the market conditions and investment strategies that
significantly affected the Fund's performance during its last fiscal year.

MORGAN STANLEY FUNDS


The Fund's Statement of Additional Information also provides additional
information about the Fund. The Statement of Additional Information is
incorporated herein by reference (legally is part of this Prospectus). For a
free copy of any of these documents, to request other information about the
Fund, or to make shareholder inquiries, please call (800) 869-NEWS. A free copy
of these documents is also available from our Internet site at:
WWW.MORGANSTANLEY.COM/FUNDS



You also may obtain information about the Fund by calling your Morgan Stanley
Financial Advisor or by visiting our Internet site.


Information about the Fund (including the Statement of Additional Information)
can be viewed and copied at the Securities and Exchange Commission's (the
"SEC") Public Reference Room in Washington, DC. Information about the Reference
Room's operations may be obtained by calling the SEC at (202) 942-8090. Reports
and other information about the Fund are available on the EDGAR Database on the
SEC's Internet site (www.sec.gov) and copies of this information may be
obtained, after paying a duplicating fee, by electronic request at the
following E-mail address: publicinfo@sec.gov, or by writing the Public
Reference Section of the SEC, Washington, DC 20549-0102.




 TICKER SYMBOLS:
- ------------------

CLASS A:     CPOAX    CLASS B:    CPOBX
- ---------- -------    ---------- ------


CLASS C:     CPOCX    CLASS D:    CPODX
- ---------- -------    ---------- ------



(THE FUND'S INVESTMENT COMPANY ACT FILE NO. IS 811-7377)

Investments and services offered through Morgan Stanley DW Inc., member SIPC.
Morgan Stanley Distributors Inc., member NASD.


 (Copyright)  2005 Morgan Stanley

[MORGAN STANLEY LOGO OMITTED]

CLF# 38568 PRO-00

[GRAPHIC OMITTED]
Morgan Stanley
Capital Opportunities Trust
38568 04/05
[MORGAN STANLEY LOGO OMITTED]
Prospectus
March 30, 2005

STATEMENT OF ADDITIONAL INFORMATION

                                                                  MORGAN STANLEY
                                                     CAPITAL OPPORTUNITIES TRUST


MARCH 30, 2005



- --------------------------------------------------------------------------------
     This Statement of Additional Information is not a prospectus. The
Prospectus (dated March 30, 2005) for Morgan Stanley Capital Opportunities
Trust may be obtained without charge from the Fund at its address or telephone
number listed below or from Morgan Stanley DW Inc. at any of its branch
offices.



Morgan Stanley
Capital Opportunities Trust
1221 Avenue of the Americas
New York, NY 10020
(800) 869-NEWS




TABLE OF CONTENTS
- --------------------------------------------------------------------------------


I.    Fund History ..........................................................  4
II.   Description of the Fund and Its Investments and Risks .................  4
      A. Classification .....................................................  4
      B. Investment Strategies and Risks ....................................  4
      C. Fund Policies/Investment Restrictions ..............................  9
      D. Disclosure of Portfolio Holdings ................................... 10
III.  Management of the Fund ................................................ 14
      A. Board of Trustees .................................................. 14
      B. Management Information ............................................. 14
      C. Compensation ....................................................... 21
IV.   Control Persons and Principal Holders of Securities ................... 24
V.    Investment Advisory and Other Services ................................ 24
      A. Investment Adviser and Administrator ............................... 24
      B. Principal Underwriter .............................................. 25
      C. Services Provided by the Investment Adviser and the Administrator .. 26
      D. Dealer Reallowances ................................................ 27
      E. Rule 12b-1 Plan .................................................... 27
      F. Other Service Providers ............................................ 30
      G. Fund Management .................................................... 31
      H. Codes of Ethics .................................................... 33
      I. Proxy Voting Policy and Proxy Voting Record ........................ 33
      J. Revenue Sharing .................................................... 34
VI.   Brokerage Allocation and Other Practices .............................. 35
      A. Brokerage Transactions ............................................. 35
      B. Commissions ........................................................ 35
      C. Brokerage Selection ................................................ 36
      D. Directed Brokerage ................................................. 37
      E. Regular Broker-Dealers ............................................. 37
VII.  Capital Stock and Other Securities .................................... 37
VIII. Purchase, Redemption and Pricing of Shares ............................ 38
      A. Purchase/Redemption of Shares ...................................... 38
      B. Offering Price ..................................................... 38
IX.   Taxation of the Fund and Shareholders ................................. 39
X.    Underwriters .......................................................... 42
XI.   Performance Data ...................................................... 42
XII.  Financial Statements .................................................. 42
XIII. Fund Counsel .......................................................... 43



                                       2



                      GLOSSARY OF SELECTED DEFINED TERMS

     The terms defined in this glossary are frequently used in this Statement
of Additional Information (other terms used occasionally are defined in the
text of the document).


     "Administrator" or "Morgan Stanley Services" - Morgan Stanley Services
Company Inc., a wholly-owned fund services subsidiary of the Investment
Adviser.


     "Custodian " - The Bank of New York.


     "Distributor " - Morgan Stanley Distributors Inc., a wholly-owned
broker-dealer subsidiary of Morgan Stanley.


     "Financial Advisors" - Morgan Stanley authorized financial services
representatives.


     "Fund " - Morgan Stanley Capital Opportunities Trust, a registered
open-end investment company.


     "Independent Trustees" - Trustees who are not "interested persons" (as
defined by the Investment Company Act of 1940, as amended ("Investment Company
Act")) of the Fund.


     "Investment Adviser " - Morgan Stanley Investment Advisors Inc., a
wholly-owned investment adviser subsidiary of Morgan Stanley.


     "Morgan Stanley & Co." - Morgan Stanley & Co. Incorporated, a wholly-owned
broker-dealer subsidiary of Morgan Stanley.


     "Morgan Stanley DW " - Morgan Stanley DW Inc., a wholly-owned
broker-dealer subsidiary of Morgan Stanley.


     "Morgan Stanley Funds " - Registered investment companies for which the
Investment Adviser serves as the investment adviser and that hold themselves
out to investors as related companies for investment and investor services.


     "Transfer Agent " - Morgan Stanley Trust, a wholly-owned transfer agent
subsidiary of Morgan Stanley.


     "Trustees" - The Board of Trustees of the Fund.

                                       3




I. FUND HISTORY
- --------------------------------------------------------------------------------

     The Fund was organized as a Massachusetts business trust under a
Declaration of Trust on October 17, 1995 with the name "TCW/DW Mid-Cap Equity
Trust." On February 25, 1999, the Fund's Trustees adopted an Amendment to the
Fund's Declaration of Trust changing the name of the Fund to Morgan Stanley
Dean Witter Mid-Cap Equity Trust, effective June 28, 1999. Effective June 18,
2001, the Fund's name was changed to Morgan Stanley Mid-Cap Equity Trust.
Effective January 29, 2002, the Fund's name was changed to Morgan Stanley
Capital Opportunities Trust.



II. DESCRIPTION OF THE FUND AND ITS INVESTMENTS AND RISKS
- --------------------------------------------------------------------------------
A. CLASSIFICATION

     The Fund is an open-end, diversified management investment company whose
investment objective is to seek long-term capital appreciation.

B. INVESTMENT STRATEGIES AND RISKS

     The following discussion of the Fund's investment strategies and risks
should be read with the sections of the Fund's Prospectus titled "Principal
Investment Strategies," "Principal Risks," "Additional Investment Strategy
Information" and "Additional Risk Information."

     FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. The Fund may enter into
forward foreign currency exchange contracts ("forward contracts") as a hedge
against fluctuations in future foreign exchange rates. The Fund may conduct its
foreign currency exchange transactions either on a spot (i.e., cash) basis at
the spot rate prevailing in the foreign currency exchange market, or through
entering into forward contracts to purchase or sell foreign currencies. A
forward contract involves an obligation to purchase or sell a specific currency
at a future date, which may be any fixed number of days from the date of the
contract agreed upon by the parties, at a price set at the time of the
contract. These contracts are traded in the interbank market conducted directly
between currency traders (usually large, commercial and investment banks) and
their customers. Forward contracts only will be entered into with U.S. banks
and their foreign branches, insurance companies and other dealers or foreign
banks whose assets total $1 billion or more. A forward contract generally has
no deposit requirement, and no commissions are charged at any stage for trades.


     The Fund may enter into forward contracts under various circumstances. The
typical use of a forward contract is to "lock in" the price of a security in
U.S. dollars or some other foreign currency which the Fund is holding in its
portfolio. By entering into a forward contract for the purchase or sale, for a
fixed amount of dollars or other currency, of the amount of foreign currency
involved in the underlying security transactions, the Fund may be able to
protect itself against a possible loss resulting from an adverse change in the
relationship between the U.S. dollar or other currency which is being used for
the security purchase and the foreign currency in which the security is
denominated during the period between the date on which the security is
purchased or sold and the date on which payment is made or received.

     The Investment Adviser also may from time to time utilize forward
contracts for other purposes. For example, they may be used to hedge a foreign
security held in the portfolio or a security which pays out principal tied to
an exchange rate between the U.S. dollar and a foreign currency, against a
decline in value of the applicable foreign currency. They also may be used to
lock in the current exchange rate of the currency in which those securities
anticipated to be purchased are denominated. At times, the Fund may enter into
"cross-currency" hedging transactions involving currencies other than those in
which securities are held or proposed to be purchased are denominated.

     The Fund will not enter into forward contracts or maintain a net exposure
to these contracts where the consummation of the contracts would obligate the
Fund to deliver an amount of foreign currency in excess of the value of the
Fund's portfolio securities.

     When required by law, the Fund will cause its custodian bank to earmark
cash, U.S. government securities or other appropriate liquid portfolio
securities in an amount equal to the value of the Fund's


                                       4




total assets committed to the consummation of forward contracts entered into
under the circumstances set forth above. If the value of the securities so
earmarked declines, additional cash or securities will be earmarked on a daily
basis so that the value of such securities will equal the amount of the Fund's
commitments with respect to such contracts.

     Although the Fund values its assets daily in terms of U.S. dollars, it
does not intent to convert the holdings of foreign currencies into U.S. dollars
on a daily basis. It will, however, do so from time to time, and investors
should be aware of the costs of currency conversion. Although foreign exchange
dealers do not charge a fee for conversion, they do realize a profit based on
the spread between the prices at which they are buying and selling various
currencies. Thus, a dealer may offer to sell a foreign currency to the Fund at
one rate, while offering a lesser rate of exchange should the Fund desire to
resell that currency to the dealer.

     The Fund may be limited in its ability to enter into hedging transactions
involving forward contracts by the Internal Revenue Code requirements relating
to qualification as a regulated investment company.

     Forward contracts may limit gains on portfolio securities that could
otherwise be realized had they not been utilized and could result in losses.
These contracts also may increase the Fund's volatility and may involve a
significant amount of risk relative to the investment of cash.

     MONEY MARKET SECURITIES. The Fund may invest in various money market
securities for cash management purposes or when assuming a temporary defensive
position, which among others may include commercial paper, bankers'
acceptances, bank obligations, corporate debt securities, certificates of
deposit, U.S. government securities, obligations of savings institutions and
repurchase agreements. Such securities are limited to:

     U.S. Government Securities. Obligations issued or guaranteed as to
principal and interest by the United States or its agencies (such as the
Export-Import Bank of the United States, Federal Housing Administration and
Government National Mortgage Association) or its instrumentalities (such as the
Federal Home Loan Bank), including Treasury bills, notes and bonds;

     Bank Obligations. Obligations (including certificates of deposit, time
deposits and bankers' acceptances) of banks subject to regulation by the U.S.
Government and having total assets of $1 billion or more, and instruments
secured by such obligations, not including obligations of foreign branches of
domestic banks except to the extent below;

     Eurodollar Certificates of Deposit. Eurodollar certificates of deposit
issued by foreign branches of domestic banks having total assets of $1 billion
or more;

     Obligations of Savings Institutions. Certificates of deposit of savings
banks and savings and loan associations, having total assets of $1 billion or
more;

     Fully Insured Certificates of Deposit. Certificates of deposit of banks
and savings institutions, having total assets of less than $1 billion, if the
principal amount of the obligation is federally insured by the Bank Insurance
Fund or the Savings Association Insurance Fund (each of which is administered
by the FDIC), limited to $100,000 principal amount per certificate and to 10%
or less of the Fund's total assets in all such obligations and in all illiquid
assets, in the aggregate;


     Commercial Paper. Commercial paper rated within the two highest grades by
Standard & Poor's Rating Group, a division of the McGraw Hill Companies, Inc.
("S&P") or by Moody's Investor's Service, Inc. ("Moody's") or, if not rated,
issued by a company having an outstanding debt issue rated at least AA by S&P
or Aa by Moody's; and


     Repurchase Agreements. The Fund may invest in repurchase agreements. When
cash may be available for only a few days, it may be invested by the Fund in
repurchase agreements until such time as it may otherwise be invested or used
for payments of obligations of the Fund. These agreements, which may be viewed
as a type of secured lending by the Fund, typically involve the acquisition by
the Fund of debt securities from a selling financial institution such as a
bank, savings and loan association or broker-dealer. The agreement provides
that the Fund will sell back to the institution, and that the institution will
repurchase, the underlying security serving as collateral at a specified price
and at a fixed


                                       5




time in the future, usually not more than seven days from the date of purchase.
The collateral will be marked-to-market daily to determine that the value of
the collateral, as specified in the agreement, does not decrease below the
purchase price plus accrued interest. If such decrease occurs, additional
collateral will be requested and, when received, added to the account to
maintain full collateralization. The Fund will accrue interest from the
institution until the time when the repurchase is to occur. Although this date
is deemed by the Fund to be the maturity date of a repurchase agreement, the
maturities of securities subject to repurchase agreements are not subject to
any limits.

     While repurchase agreements involve certain risks not associated with
direct investments in debt securities, the Fund follows procedures approved by
the Trustees that are designed to minimize such risks. These procedures include
effecting repurchase transactions only with large, well-capitalized and
well-established financial institutions whose financial condition will be
continually monitored by the Investment Adviser. In addition, as described
above, the value of the collateral underlying the repurchase agreement will be
at least equal to the repurchase price, including any accrued interest earned
on the repurchase agreement. In the event of a default or bankruptcy by a
selling financial institution, the Fund will seek to liquidate such collateral.
However, the exercising of the Fund's right to liquidate such collateral could
involve certain costs or delays and, to the extent that proceeds from any sale
upon a default of the obligation to repurchase were less than the repurchase
price, the Fund could suffer a loss. It is the current policy of the Fund not
to invest in repurchase agreements that do not mature within seven days if any
such investment, together with any other illiquid assets held by the Fund,
amounts to more than 15% of its net assets.

     ZERO COUPON SECURITIES. A portion of the fixed-income securities purchased
by the Fund may be zero coupon securities. Such securities are purchased at a
discount from their face amount, giving the purchaser the right to receive
their full value at maturity. The interest earned on such securities is,
implicitly, automatically compounded and paid out at maturity. While such
compounding at a constant rate eliminates the risk of receiving lower yields
upon reinvestment of interest if prevailing interest rates decline, the owner
of a zero coupon security will be unable to participate in higher yields upon
reinvestment of interest received on interest-paying securities if prevailing
interest rates rise.

     A zero coupon security pays no interest to its holder during its life.
Therefore, to the extent the Fund invests in zero coupon securities, it will
not receive current cash available for distribution to shareholders. In
addition, zero coupon securities are subject to substantially greater price
fluctuations during periods of changing prevailing interest rates than are
comparable securities which pay interest on a current basis. Current federal
tax law requires that a holder (such as the Fund) of a zero coupon security
accrue a portion of the discount at which the security was purchased as income
each year even though the Fund receives no interest payments in cash on the
security during the year.


     INVESTMENT IN REAL ESTATE INVESTMENT TRUSTS. Real Estate Investment Trusts
("REITs") pool investors' funds for investment primarily in income producing
real estate or real estate related loans or interests. A REIT is not taxed on
income distributed to its shareholders or unitholders if it complies with
regulatory requirements relating to its organization, ownership, assets and
income, and with a regulatory requirement that it distribute to its
shareholders or unitholders at least 90% of its taxable income for each taxable
year. Generally, REITs can be classified as Equity REITs, Mortgage REITs or
Hybrid REITs. Equity REITs invest the majority of their assets directly in real
property and derive their income primarily from rents and capital gains from
appreciation realized through property sales. Equity REITs are further
categorized according to the types of real estate securities they own, e.g.,
apartment properties, retail shopping centers, office and industrial
properties, hotels, health-care facilities, manufactured housing and
mixed-property types. Mortgage REITs invest the majority of their assets in
real estate mortgaqes and derive their income primarily from interest payments.
Hybrid REITs combine the characteristics of both Equity and Mortgage REITs.


     A shareholder in the Fund, by investing in REITs indirectly through the
Fund, will bear not only his proportionate share of the expenses of the Fund,
but also, indirectly, the management expenses of the underlying REITs. REITs
may be affected by changes in the value of their underlying properties and by
defaults by borrowers or tenants. Mortgage REITs may be affected by the quality
of the credit extended. Furthermore, REITs are dependent on specialized
management skills. Some REITs may have limited


                                       6





diversification and may be subject to risks inherent in investments in a
limited number of properties, in a narrow geographic area, or in a single
property type. REITs depend generally on their ability to generate cash flow to
make distributions to shareholders or unitholders, and may be subject to
defaults by borrowers and to self-liquidations. In addition, the performance of
a REIT may be affected by its failure to qualify for tax-free pass-through of
income, or its failure to maintain exemption from registration under the
Investment Company Act.


     LENDING PORTFOLIO SECURITIES. The Fund may lend its portfolio securities
to brokers, dealers and other financial institutions, provided that the loans
are callable at any time by the Fund, and are at all times secured by cash or
cash equivalents, which are maintained in a segregated account pursuant to
applicable regulations and that are equal to at least 100% of the market value,
determined daily, of the loaned securities. The advantage of these loans is
that the Fund continues to receive the income on the loaned securities while at
the same time earning interest on the cash amounts deposited as collateral,
which will be invested in short-term obligations. The Fund will not lend more
than 25% of the value of its net assets.

     As with any extensions of credit, there are risks of delay in recovery
and, in some cases, even loss of rights in the collateral should the borrower
of the securities fail financially. However, these loans of portfolio
securities will only be made to firms deemed by the Fund's management to be
creditworthy and when the income which can be earned from such loans justifies
the attendant risks. Upon termination of the loan, the borrower is required to
return the securities to the Fund. Any gain or loss in the market price during
the loan period would inure to the Fund.

     When voting or consent rights which accompany loaned securities pass to
the borrower, the Fund will follow the policy of calling the loaned securities,
to be delivered within one day after notice, to permit the exercise of the
rights if the matters involved would have a material effect on the Fund's
investment in the loaned securities. The Fund will pay reasonable finder's,
administrative and custodial fees in connection with a loan of its securities.

     WHEN-ISSUED AND DELAYED DELIVERY SECURITIES AND FORWARD COMMITMENTS. From
time to time, the Fund may purchase securities on a when-issued or delayed
delivery basis or may purchase or sell securities on a forward commitment
basis. When these transactions are negotiated, the price is fixed at the time
of the commitment, but delivery and payment may take place a month or more
after the date of commitment. The Fund may sell the securities before the
settlement date, if it is deemed advisable. The securities so purchased or sold
are subject to market fluctuation and no interest or dividends accrue to the
purchaser prior to the settlement date.

     At the time the Fund makes the commitment to purchase or sell securities
on a when-issued, delayed delivery or forward commitment basis, it will record
the transaction and thereafter reflect the value, each day, of such security
purchased, or if a sale, the proceeds to be received, in determining its net
asset value. At the time of delivery of the securities, their value may be more
or less than the purchase or sale price. An increase in the percentage of the
Fund's assets committed to the purchase of securities on a when-issued, delayed
delivery or forward commitment basis may increase the volatility of its net
asset value. The Fund will also establish a segregated account on the Fund's
books in which it will continually maintain cash or cash equivalents or other
liquid portfolio securities equal in value to commitments to purchase
securities on a when-issued, delayed delivery or forward commitment basis.

     WHEN, AS AND IF ISSUED SECURITIES. The Fund may purchase securities on a
"when, as and if issued" basis, under which the issuance of the security
depends upon the occurrence of a subsequent event, such as approval of a
merger, corporate reorganization or debt restructuring. The commitment for the
purchase of any such security will not be recognized in the portfolio of the
Fund until the Investment Adviser determines that issuance of the security is
probable. At that time, the Fund will record the transaction and, in
determining its net asset value, will reflect the value of the security daily.
At that time, the Fund will also establish a segregated account on the Fund's
books in which it will maintain cash, cash equivalents or other liquid
portfolio securities equal in value to recognized commitments for such
securities.

     An increase in the percentage of the Fund's assets committed to the
purchase of securities on a "when, as and if issued" basis may increase the
volatility of its net asset value. The Fund may also sell


                                       7




securities on a "when, as and if issued" basis provided that the issuance of
the security will result automatically from the exchange or conversion of a
security owned by the Fund at the time of sale.

     PRIVATE PLACEMENTS AND RESTRICTED SECURITIES. The Fund may invest up to
15% of its net assets in securities which are subject to restrictions on resale
because they have not been registered under the Securities Act of 1933 (the
"Securities Act"), or which are otherwise not readily marketable. (Securities
eligible for resale pursuant to Rule 144A under the Securities Act, and
determined to be liquid pursuant to the procedures discussed in the following
paragraph, are not subject to the foregoing restriction.) These securities are
generally referred to as private placements or restricted securities.
Limitations on the resale of these securities may have an adverse effect on
their marketability, and may prevent the Fund from disposing of them promptly
at reasonable prices. The Fund may have to bear the expense of registering the
securities for resale and the risk of substantial delays in effecting the
registration.

     Rule 144A permits the Fund to sell restricted securities to qualified
institutional buyers without limitation. The Investment Adviser, pursuant to
procedures adopted by the Trustees, will make a determination as to the
liquidity of each restricted security purchased by the Fund. If a restricted
security is determined to be "liquid," the security will not be included within
the category "illiquid securities," which may not exceed 15% of the Fund's net
assets. However, investing in Rule 144A securities could have the effect of
increasing the level of Fund illiquidity to the extent the Fund, at a
particular point in time, may be unable to find qualified institutional buyers
interested in purchasing such securities.

     CONVERTIBLE SECURITIES. The Fund may invest in securities which are
convertible into common stock or other securities of the same or a different
issuer or into cash within a particular period of time at a specified price or
formula. Convertible securities are generally fixed income securities (but may
include preferred stock) and generally rank senior to common stocks in a
corporation's capital structure and, therefore, entail less risk than the
corporation's common stock. The value of a convertible security is a function
of its "investment value" (its value as if it did not have a conversion
privilege), and its "conversion value" (the security's worth if it were to be
exchanged for the underlying security, at market value, pursuant to its
conversion privilege).

     To the extent that a convertible security's investment value is greater
than its conversion value, its price will be primarily a reflection of such
investment value and its price will be likely to increase when interest rates
fall and decrease when interest rates rise, as with a fixed-income security
(the credit standing of the issuer and other factors may also have an effect on
the convertible security's value). If the conversion value exceeds the
investment value, the price of the convertible security will rise above its
investment value and, in addition, will sell at some premium over its
conversion value. (This premium represents the price investors are willing to
pay for the privilege of purchasing a fixed-income security with a possibility
of capital appreciation due to the conversion privilege.) At such times the
price of the convertible security will tend to fluctuate directly with the
price of the underlying equity security. Convertible securities may be
purchased by the Fund at varying price levels above their investment values
and/or their conversion values in keeping with the Fund's objective.


     Up to 5% of the Fund's net assets may be invested in convertible
securities and other fixed-income securities that are below investment grade.
Debt securities rated below investment grade are commonly known as "junk
bonds." Although the Fund selects these securities primarily on the basis of
their equity characteristics, investors should be aware that convertible
securities rated in these categories are considered high risk securities; the
rating agencies consider them speculative with respect to the issuer's
continuing ability to make timely payments of interest and principal. Thus, to
the extent that such convertible securities are acquired by the Fund, there is
a greater risk as to the timely repayment of the principal of, and timely
payment of interest or dividends on, such securities than in the case of
higher-rated convertible securities.


     WARRANTS AND SUBSCRIPTION RIGHTS. The Fund may acquire warrants and
subscription rights attached to other securities. The Fund may invest up to 5%
of the value of its net assets in warrants, including not more than 2% in
warrants not listed on either the New York or American Stock Exchange. A
warrant is, in effect, an option to purchase equity securities at a specific
price, generally valid for a specific period of time, and has no voting rights,
pays no dividends and has no rights with respect to the corporation issuing it.



                                       8




     A subscription right is a privilege granted to existing shareholders of a
corporation to subscribe to shares of a new issue of common stock before it is
offered to the public. A subscription right normally has a life of two to four
weeks and a subscription price lower than the current market value of the
common stock. The Fund may invest up to 5% of the value of its net assets in
rights.

     HIGH YIELD, HIGH RISK SECURITIES. Because of the ability of the Fund to
invest in certain high yield, high risk convertible and other fixed-income
securities (commonly known as "junk bonds"), the Investment Adviser must take
into account the special nature of such securities and certain special
considerations in assessing the risks associated with such investments.
Although the growth of the high yield securities market in the 1980s had
paralleled a long economic expansion, since that time many issuers have been
affected by adverse economic and market conditions. It should be recognized
that an economic downturn or increase in interest rates is likely to have a
negative effect on the high yield bond market and on the value of the high
yield securities held by the Fund, as well as on the ability of the securities'
issuers to repay principal and interest on their borrowings.

     The prices of high yield securities have been found to be less sensitive
to changes in prevailing interest rates than higher-rated investments but more
sensitive to adverse economic changes or individual corporate developments.
During an economic downturn or substantial period of rising interest rates,
highly leveraged issuers may experience financial stress which would adversely
affect their ability to service their principal and interest payment
obligations, to meet their projected business goals or to obtain additional
financing. If the issuer of a fixed-income security owned by the Fund defaults,
the Fund may incur additional expenses to seek recovery. In addition, periods
of economic uncertainty and change can be expected to result in an increased
volatility of market prices of high yield securities and a corresponding
volatility in the net asset value of a share of the Fund.

     The secondary market for high yield securities may be less liquid than the
markets for higher quality securities and, as such, may have an adverse effect
on the market prices of certain securities. The limited liquidity of the market
may also adversely affect the ability of the Trustees to arrive at a fair value
for certain high yield securities at certain times and could make it difficult
for the Fund to sell certain securities. In addition, new laws and potential
new laws may have an adverse effect upon the value of high yield securities and
a corresponding negative impact upon the net asset value of a share of the
Fund.


C. FUND POLICIES/INVESTMENT RESTRICTIONS

     The investment objective, policies and restrictions listed below have been
adopted by the Fund as fundamental policies. Under the Investment Company Act,
a fundamental policy may not be changed without the vote of a majority of the
outstanding voting securities of the Fund. The Investment Company Act defines a
majority as the lesser of (a) 67% or more of the shares present at a meeting of
shareholders, if the holders of 50% of the outstanding shares of the Fund are
present or represented by proxy; or (b) more than 50% of the outstanding shares
of the Fund. For purposes of the following restrictions: (i) all percentage
limitations apply immediately after a purchase or initial investment, except in
the case of borrowing and investments in illiquid securities; and (ii) any
subsequent change in any applicable percentage resulting from market
fluctuations or other changes in total or net assets does not require
elimination of any security from the portfolio.

     The Fund will:

    1.  Seek long-term capital appreciation.

     The Fund may not:

    1.   As to 75% of its assets, invest more than 5% of the value of its total
         assets in the securities of any one issuer (other than obligations
         issued, or guaranteed by, the United States Government, its agencies or
         instrumentalities).

    2.   As to 75% of its assets, purchase more than 10% of all outstanding
         voting securities or any class of securities of any one issuer.


                                       9





    3.   Invest 25% or more of the value of its total assets in securities of
         issuers in any one industry. This restriction does not apply to
         obligations issued or guaranteed by the U.S. Government, its agencies
         or instrumentalities or to cash equivalents.

    4.   Invest more than 5% of the value of its total assets in securities of
         issuers having a record, together with predecessors, of less than 3
         years of continuous operation. This restriction does not apply to any
         obligation of the U.S. Government, its agencies or instrumentalities.


    5.   Purchase securities of other investment companies, except in connection
         with a merger, consolidation, reorganization or acquisition of assets.

    6.   Purchase or sell real estate or interests therein (including limited
         partnership interests), although the Fund may purchase securities of
         issuers which engage in real estate operations and securities secured
         by real estate or interests therein.

    7.   Purchase oil, gas or other mineral leases, rights or royalty contracts,
         or exploration or development programs, except that the Fund may invest
         in the securities of companies which operate, invest in, or sponsor
         these programs.

    8.   Purchase or sell commodities or commodities contracts.

    9.   Borrow money, except that the Fund may borrow from a bank for temporary
         or emergency purposes, in amounts not exceeding 5% of its total assets
         (not including the amount borrowed).

    10.  Pledge its assets or assign or otherwise encumber them except to secure
         permitted borrowings.

    11.  Issue senior securities as defined in the Investment Company Act,
         except insofar as the Fund may be deemed to have issued a senior
         security by reason of: (a) entering into any repurchase agreement; (b)
         purchasing any securities on a when-issued or delayed delivery basis;
         (c) borrowing money; or (d) lending portfolio securities.

    12.  Make loans of money or securities, except: (a) by the purchase of
         portfolio securities; (b) by investment in repurchase agreements; or
         (c) by lending its portfolio securities.

    13.  Make short sales of securities.

    14.  Purchase securities on margin, except for short-term loans as are
         necessary for the clearance of portfolio securities.

    15.  Engage in the underwriting of securities, except insofar as the Fund
         may be deemed an underwriter under the Securities Act in disposing of a
         portfolio security.

    16.  Invest for the purpose of exercising control or management of any other
         issuer.

    17.  Purchase warrants if, as a result, the Fund would then have either more
         than 5% of its net assets invested in warrants or more than 2% of its
         net assets invested in warrants not listed on the New York or American
         Stock Exchange.

    18.  Invest in options or futures contracts.


     If a percentage restriction is adhered to at the time of investment, a
later increase or decrease in percentage resulting from a change in values of
portfolio securities or amount of total or net assets will not be considered a
violation of any of the foregoing restrictions.



D. DISCLOSURE OF PORTFOLIO HOLDINGS

     The Fund's Board of Trustees and the Investment Adviser have adopted
policies and procedures regarding disclosure of portfolio holdings (the
"Policy"). Pursuant to the Policy, the Investment Adviser may disclose
information concerning Fund portfolio holdings only if such disclosure is
consistent with the antifraud provisions of the federal securities laws and the
Fund's and the Investment Adviser's fiduciary duties to Fund shareholders. The
Investment Adviser may not receive compensation or any other consideration in
connection with the disclosure of information about the portfolio securities of
the Fund.


                                       10




Consideration includes any agreement to maintain assets in the Fund or in other
investment companies or accounts managed by the Investment Adviser or by any
affiliated person of the Investment Adviser. Non-public information concerning
portfolio holdings may be divulged to third parties only when the Fund has a
legitimate business purpose for doing so and the recipients of the information
are subject to a duty of confidentiality. Under no circumstances shall current
or prospective Fund shareholders receive non-public portfolio holdings
information, except as described below.

     The Fund makes available on its public website the following portfolio
holdings information:


     o   Complete portfolio holdings information quarterly on a calendar quarter
         basis with a minimum 30 calendar day lag; and


     o   Top 10 (or top 15) holdings monthly with a minimum 15 calendar day lag.

     The Fund provides a complete schedule of portfolio holdings for the second
and fourth fiscal quarters in its semiannual and annual reports, and for the
first and third fiscal quarter in its filings with the SEC on Form N-Q.

     All other portfolio holdings information that has not been disseminated in
a manner making it available to investors generally as described above is
non-public information for purposes of the Policy.


     The Fund may make selective disclosure of non-public portfolio holdings.
Third parties eligible to receive such disclosures currently include fund
rating agencies, information exchange subscribers, consultants and analysts,
portfolio analytics providers and service providers, provided that the third
party expressly agrees to maintain the disclosed information in confidence and
not to trade portfolio securities based on the non-public information.
Non-public portfolio holdings information may not be disclosed to a third party
unless and until the arrangement has been reviewed and approved pursuant to the
requirements set forth in the Policy. Subject to the terms and conditions of
any agreement between the Investment Adviser or the Fund and the third party
recipient, if these conditions for disclosure are satisfied, there shall be no
restriction on the frequency with which Fund non-public portfolio holdings
information is released, and no lag period shall apply (unless otherwise
indicated below).


     The Investment Adviser may provide interest lists to broker-dealers who
execute securities transactions for the Fund without entering into a
nondisclosure agreement with the broker-dealers, provided that the interest
list satisfies all of the following criteria: (1) the interest list must
contain only the cusip numbers and/or ticker symbols of securities held in all
registered management investment companies advised by the Investment Adviser or
any affiliate of the Investment Adviser (the "MSIM Funds") on an aggregate,
rather than a fund-by-fund basis; (2) the interest list must not contain
information about the number or value of shares owned by a specified MSIM Fund;
(3) the interest list may identify the investment strategy, but not the
particular MSIM Funds, to which the list relates; and (4) the interest list may
not identify the portfolio manager or team members responsible for managing the
MSIM Funds.

     Fund shareholders may elect in some circumstances to redeem their shares
of the Fund in exchange for their pro rata share of the securities held by the
Fund. Under such circumstances, Fund shareholders may receive a complete
listing of the holdings of the Fund up to seven (7) calendar days prior to
making the redemption request provided that they represent orally or in writing
that they agree to maintain the confidentiality of the portfolio holdings
information.

     The Fund may discuss or otherwise disclose performance attribution
analyses (i.e., mention the effects of having a particular security in the
portfolio(s)) where such discussion is not contemporaneously made public,
provided that the particular holding has been disclosed publicly. Additionally,
any discussion of the analyses may not be more current than the date the
holding was disclosed publicly.


     The Fund may disclose portfolio holdings to transition managers, provided
that the Fund has entered into a non-disclosure or confidentiality agreement
with the party requesting that the information be provided to the transition
manager and the party to the non-disclosure agreement has, in turn, entered
into a non-disclosure or confidentiality agreement with the transition manager.



     The Investment Adviser and/or the Fund have entered into ongoing
arrangements to make available public and/or non-public information about the
Fund's portfolio securities. Provided that the recipient of


                                       11





the information falls into one or more of the categories listed below, and the
recipient has entered into a nondisclosure agreement with the Fund, or owes a
duty of trust or confidence to the Investment Adviser or the Fund, the
recipient may receive portfolio holdings information pursuant to such agreement
without obtaining pre-approval from either the Portfolio Holdings Review
Committee ("PHRC") or the Fund's Board of Trustees. In all such instances,
however, the PHRC will be responsible for reporting to the Fund's Board of
Trustees, or designated Committee thereof, material information concerning the
ongoing arrangements at each Board's next regularly scheduled Board meeting.
Categories of parties eligible to receive information pursuant to such ongoing
arrangements include fund rating agencies, information exchange subscribers,
consultants and analysts, portfolio analytics providers and service providers.


     The Investment Adviser and/or the Fund currently have entered into ongoing
arrangements with the following parties:







NAME                                   INFORMATION DISCLOSED            FREQUENCY(1)                  LAG TIME
- -------------------------------- -------------------------------- ------------------------ ---------------------------------

SERVICE PROVIDERS
Institutional Shareholder        Complete portfolio holdings      Twice a month                      (2)
 Services (ISS) (proxy
 voting agent)(*)
FT Interactive Data Pricing      Complete portfolio holdings      As needed                          (2)
 Service Provider(*)
Morgan Stanley                   Complete portfolio               As needed                          (2)
Trust(*)                         holdings
Bank of New                      Complete portfolio               As needed                          (2)
York(*)                          holdings
FUND RATING AGENCIES
Lipper(*)                        Complete portfolio holdings      Monthly basis            Approximately 15 days after
                                                                                           month end
Morningstar(**)                  Complete portfolio holdings      Quarterly basis          Approximately 30 days after
                                                                                           quarter end
Standard & Poor's(*)             Complete portfolio holdings      Quarterly basis          Approximately 15 day lag
CONSULTANTS AND ANALYSTS
Americh Massena &                Top Ten and Complete             Quarterly basis(5)       Approximately 10-12 days after
 Associates, Inc.(*)             portfolio holdings                                        quarter end
Bloomberg(*)                     Complete portfolio holdings      Quarterly basis(5)       Approximately 30 days after
                                                                                           quarter end
Callan Associates(*)             Top Ten and Complete             Monthly and quarterly    Approximately 10-12 days after
                                 portfolio holdings               basis, respectively(5)   month/quarter end
Cambridge Associates(*)          Top Ten and Complete             Quarterly basis(5)       Approximately 10-12 days after
                                 portfolio holdings                                        quarter end
CTC Consulting, Inc.(**)         Top Ten and Complete             Quarterly basis          Approximately 15 days after
                                 portfolio holdings                                        quarter end and approximately
                                                                                           30 days after quarter end,
                                                                                           respectively
Evaluation Associates(*)         Top Ten and Full portfolio       Monthly and quarterly    Approximately 10-12 days after
                                 holdings                         basis, respectively(5)   month/quarter end
Fund Evaluation Group(**)        Top Ten portfolio holdings(3)    Quarterly basis          At least 15 days after quarter
                                                                                           end
Jeffrey Slocum &                 Complete portfolio holdings(4)   Quarterly basis(5)       Approximately 10-12 days after
 Associates(*)                                                                             quarter end
Hammond Associates(**)           Complete portfolio holdings(4)   Quarterly basis          At least 30 days after quarter
                                                                                           end
Hartland & Co.(**)               Complete portfolio holdings(4)   Quarterly basis          At least 30 days after quarter
                                                                                           end
Hewitt Associates(*)             Top Ten and Complete             Monthly and quarterly    Approximately 10-12 days after
                                 portfolio holdings               basis, respectively(5)   month/quarter end
Merrill Lynch(*)                 Top Ten and Full portfolio       Monthly and quarterly    Approximately 10-12 days after
                                 holdings                         basis, respectively(5)   month/quarter end
Mobius(**)                       Top Ten portfolio holdings(3)    Monthly basis            At least 15 days after month end
Nelsons(**)                      Top Ten holdings(3)              Quarterly basis          At least 15 days after quarter
                                                                                           end











                                       12








NAME                                      INFORMATION DISCLOSED            FREQUENCY(1)                    LAG TIME
- ----------------------------------- -------------------------------- ----------------------- -----------------------------------

Prime Buchholz &                    Complete portfolio holdings(4)   Quarterly basis         At least 30 days after quarter
 Associates, Inc.(**)                                                                        end
PSN(**)                             Top Ten holdings(3)              Quarterly basis         At least 15 days after quarter
                                                                                             end
PFM Asset Management                Top Ten and Complete             Quarterly basis(5)      Approximately 10-12 days after
 LLC(*)                             portfolio holdings                                       quarter end
Russell Investment                  Top Ten and Complete             Monthly and quarterly   At least 15 days after month end
 Group/Russell/Mellon               portfolio holdings               basis                   and at least 30 days after quarter
 Analytical Services, Inc.(**)                                                               end, respectively
Stratford Advisory Group,           Top Ten portfolio holdings(6)    Quarterly basis(5)      Approximately 10-12 days after
   Inc.(*)                                                                                   quarter end
Thompson Financial(**)              Complete portfolio holdings(4)   Quarterly basis         At least 30 days after quarter
                                                                                             end
Watershed Investment                Top Ten and Complete             Quarterly basis(5)      Approximately 10-12 days after
 Consultants, Inc.(*)               portfolio holdings                                       quarter end
Yanni Partners(**)                  Top Ten portfolio holdings(3)    Quarterly basis         At least 15 days after quarter
                                                                                             end




- ----------
(*)   This entity has agreed to maintain Fund non-public portfolio holdings
      information in confidence and not to trade portfolio securities based on
      the non-public portfolio holdings information.


(**)  The Fund does not currently have a non-disclosure agreement in place with
      this entity and therefore the entity can only receive publicly available
      information.


(1)   Dissemination of portfolio holdings information to entities listed above
      may occur less frequently than indicated (or not at all).


(2)   Information will typically be provided on a real time basis or as soon
      thereafter as possible.


(3)   Full portfolio holdings will also be provided upon request from time to
      time on a quarterly basis, with at least a 30 day lag.


(4)   Top Ten portfolio holdings will also be provided upon request from time
      to time, with at least a 15 day lag.


(5)   This information will also be provided upon request from time to time.


(6)   Full portfolio holdings will also be provided upon request from time to
      time.


     In addition, persons who owe a duty of trust or confidence to the
Investment Adviser or the Fund may receive non-public portfolio holdings
information without entering into a non disclosure agreement. Currently, these
persons include, (i) the Fund's independent registered public accounting firm
(as of the Fund's fiscal year end and on an as needed basis), (ii) counsel to
the Fund (on an as needed basis), (iii) counsel to the independent trustees (on
an as needed basis) and (iv) members of the Board of Trustees (on an as needed
basis).


     All selective disclosures of non-public portfolio holdings information
made to third parties pursuant to the exemptions set forth in the Policy must
be pre-approved by both the PHRC and the Fund's Board of Trustees (or
designated Committee thereof), except for (i) disclosures made to third parties
pursuant to ongoing arrangements (discussed above); (ii) disclosures made to
third parties pursuant to Special Meetings of the PHRC; (iii) broker-dealer
interest lists; (iv) shareholder in-kind distributions; (v) attribution
analysis; or (vi) in connection with transition managers. The Investment
Adviser shall report quarterly to the Board of Trustees (or a designated
Committee thereof) information concerning all parties receiving non-public
portfolio holdings information pursuant to an exemption. Procedures to monitor
the use of such non-public portfolio holdings information may include requiring
annual certifications that the recipients have utilized such information only
pursuant to the terms of the agreement between the recipient and the Investment
Manager and, for those recipients receiving information electronically,
acceptance of the information will constitute reaffirmation that the third
party expressly agrees to maintain the disclosed information in confidence and
not to trade portfolio securities based on the nonpublic information.

     In no instance may the Investment Adviser or the Fund receive any
compensation or consideration in exchange for the portfolio holdings
information.


     The PHRC is responsible for creating and implementing the Policy and, in
this regard, has expressly adopted it. The following are some of the functions
and responsibilities of the PHRC:


                                       13






     (a) The PHRC, which will consist of executive officers of the Fund and the
Investment Adviser or their designees, is responsible for establishing
portfolio holdings disclosure policies and guidelines and determining how
portfolio holdings information will be disclosed on an ongoing basis.

     (b) The PHRC will periodically review and have the authority to amend as
necessary the Fund's portfolio holdings disclosure policies and guidelines (as
expressed by the Policy).

     (c) The PHRC will meet at least quarterly to (among other matters): (1)
address any outstanding issues relating to the Policy; (2) review non-disclosure
agreements that have been executed with third parties and determine whether the
third parties will receive portfolio holdings information; and (3) generally
review the procedures that the Investment Adviser employs to ensure that
disclosure of information about portfolio securities is in the best interests of
Fund shareholders, including procedures to address conflicts between the
interests of Fund shareholders, on the one hand, and those of the Investment
Adviser, the Distributor or any affiliated person of the Fund, the Investment
Adviser or the Distributor on the other.


     (d) Any member of the PHRC may call a Special Meeting of the PHRC to
consider whether a third-party may receive non-public portfolio holdings
information pursuant to a validly executed nondisclosure agreement. At least
three members of the PHRC, or their designees, and one member of the Fund's
Audit Committee, or his or her designee, shall be present at the Special
Meeting in order to constitute a quorum. At any Special Meeting at which a
quorum is present, the decision of a majority of the PHRC members present and
voting shall be determinative as to any matter submitted to a vote; provided,
however, that the Audit Committee member, or his or her designee, must concur
in the determination in order for it to become effective.

     (e) The PHRC, or its designee(s), will document in writing all of their
decisions and actions, which documentation will be maintained by the PHRC, or
its designee(s) for a period of at least six years. The PHRC, or its
designee(s), will report their decisions to the Board of Trustees at each
Board's next regularly scheduled Board meeting. The report will contain
information concerning decisions made by the PHRC during the most recently
ended calendar quarter immediately preceding the Board meeting.


III. MANAGEMENT OF THE FUND
- --------------------------------------------------------------------------------
A. BOARD OF TRUSTEES


     The Board of Trustees of the Fund oversees the management of the Fund, but
does not itself manage the Fund. The Trustees review various services provided
by or under the direction of the Investment Adviser to ensure that the Fund's
general investment policies and programs are properly carried out. The Trustees
also conduct their review to ensure that administrative services are provided
to the Fund in a satisfactory manner.

     Under state law, the duties of the Trustees are generally characterized as
a duty of loyalty and a duty of care. The duty of loyalty requires a Trustee to
exercise his or her powers in the interest of the Fund and not the Trustee's
own interest or the interest of another person or organization. A Trustee
satisfies his or her duty of care by acting in good faith with the care of an
ordinarily prudent person and in a manner the Trustee reasonably believes to be
in the best interest of the Fund and its shareholders.



B. MANAGEMENT INFORMATION


     TRUSTEES AND OFFICERS. The Board of the Fund consists of nine Trustees.
These same individuals also serve as directors or trustees for all of the funds
advised by the Investment Adviser (the "Retail Funds") and certain of the funds
advised by Morgan Stanley Investment Management Inc. and Morgan Stanley AIP GP
LP (the "Institutional Funds"). Seven Trustees have no affiliation or business
connection with the Investment Adviser or any of its affiliated persons and do
not own any stock or other securities issued by the Investment Adviser's parent
company, Morgan Stanley. These are the "non-interested" or "Independent"
Trustees. The other two Trustees (the "Management Trustees") are affiliated
with the Investment Adviser.



                                       14






     The Independent Trustees of the Fund, their age, address, term of office
and length of time served, their principal business occupations during the pt
five years, the number of portfolios in the Fund Complex (defined below)
overseen by each Independent Trustee (as of December 31, 2004) and other
directorships, if any, held by the Trustees, are shown below. 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.).




                              POSITION(S)     LENGTH OF
   NAME, AGE AND ADDRESS OF     HELD WITH       TIME
     INDEPENDENT TRUSTEE        REGISTRANT     SERVED*
- ----------------------------- ------------- ------------

Michael Bozic (64)            Trustee       Since
c/o Kramer Levin Naftalis &                 April 1994
Frankel LLP
Counsel to the
Independent Trustees
919 Third Avenue
New York, NY 10022-3902

Edwin J. Garn (72)            Trustee       Since
1031 N. Chartwell Court                     January
Salt Lake City, UT 84103                    1993

Wayne E. Hedien (71)          Trustee       Since
c/o Kramer Levin Naftalis &                 September
Frankel LLP                                 1997
Counsel to the
Independent Trustees
919 Third Avenue
New York, NY 10022-3902




                                                                     NUMBER OF
                                                                    PORTFOLIOS
                                                                      IN FUND
                                                                      COMPLEX
   NAME, AGE AND ADDRESS OF      PRINCIPAL OCCUPATION(S) DURING      OVERSEEN     OTHER DIRECTORSHIPS HELD
     INDEPENDENT TRUSTEE                 PAST 5 YEARS**             BY TRUSTEE           BY TRUSTEE
- ----------------------------- ------------------------------------ ------------ ---------------------------

Michael Bozic (64)            Private investor; Director or        197          Director of various
c/o Kramer Levin Naftalis &   Trustee of the Retail Funds                       business organizations.
Frankel LLP                   (since April 1994) and the
Counsel to the                Institutional Funds (since July
Independent Trustees          2003); formerly Vice Chairman of
919 Third Avenue              Kmart Corporation (December
New York, NY 10022-3902       1998- October 2000), Chairman
                              and Chief Executive Officer of
                              Levitz Furniture Corporation
                              (November 1995- November
                              1998) and President and Chief
                              Executive Officer of Hills
                              Department Stores (May 1991-
                              July 1995); formerly variously
                              Chairman, Chief Executive
                              Officer, President and Chief
                              Operating Officer (1987-1991) of
                              the Sears Merchandise Group of
                              Sears, Roebuck & Co.

Edwin J. Garn (72)            Consultant; Director or Trustee of   197          Director of Franklin Covey
1031 N. Chartwell Court       the Retail Funds (since January                   (time management
Salt Lake City, UT 84103      1993) and the Institutional Funds                 systems), BMW Bank of
                              (since July 2003); member of the                  North America, Inc.
                              Utah Regional Advisory Board of                   (industrial loan
                              Pacific Corp.; formerly Managing                  corporation), Escrow Bank
                              Director of Summit Ventures LLC                   USA (industrial loan
                              (2000-2004); United States                        corporation), United Space
                              Senator (R-Utah) (1974-1992)                      Alliance (joint venture
                              and Chairman, Senate Banking                      between Lockheed Martin
                              Committee (1980-1986), Mayor                      and the Boeing Company)
                              of Salt Lake City, Utah                           and Nuskin Asia Pacific
                              (1971-1974), Astronaut, Space                     (multilevel marketing);
                              Shuttle Discovery (April 12-19,                   member of the board of
                              1985), and Vice Chairman,                         various civic and
                              Huntsman Corporation (chemical                    charitable organizations.
                              company).

Wayne E. Hedien (71)          Retired; Director or Trustee         197          Director of The PMI Group
c/o Kramer Levin Naftalis &   of the Retail Funds (since                        Inc. (private mortgage
Frankel LLP                   September 1997) and the                           insurance); Trustee and
Counsel to the                Institutional Funds (since                        Vice Chairman of The
Independent Trustees          July 2003); formerly                              Field Museum of Natural
919 Third Avenue              associated with the Allstate                      History; director of
New York, NY 10022-3902       Companies (1966-1994), most                       various other business
                              recently as Chairman of The                       and charitable
                              Allstate Corporation (March                       organizations.
                              1993-December 1994) and
                              Chairman and Chief Executive
                              Officer of its wholly-owned
                              subsidiary, Allstate Insurance
                              Company (July 1989-December
                              1994).



- ----------
*     This is the earliest date the Trustee began serving the Retail Funds.
      Each Trustee serves an indefinite term, until his or her successor is
      elected.


**    The dates referenced below indicating commencement of service as
      Director/Trustee for the Retail Funds and the Institutional Funds reflect
      the earliest date the Director/Trustee began serving the Retail or
      Institutional Funds, as applicable.


                                       15









                                                                                           NUMBER OF
                                                                                          PORTFOLIOS
                                                                                            IN FUND
                               POSITION(S)   LENGTH OF                                      COMPLEX
   NAME, AGE AND ADDRESS OF     HELD WITH       TIME     PRINCIPAL OCCUPATION(S) DURING    OVERSEEN    OTHER DIRECTORSHIPS HELD
     INDEPENDENT TRUSTEE        REGISTRANT    SERVED*            PAST 5 YEARS**           BY TRUSTEE          BY TRUSTEE
- ----------------------------- ------------- ----------- -------------------------------- ------------ --------------------------

Dr. Manuel H. Johnson (56)    Trustee       Since       Senior Partner, Johnson Smick        197      Director of NVR, Inc.
c/o Johnson Smick                           July 1991   International, Inc., a                        (home construction);
Group Inc.                                              consulting firm; Chairman of                  Director of KFX Energy;
888 16th Street, NW                                     the Audit Committee and                       Director of RBS
Suite 740                                               Director or Trustee of the                    Greenwich
Washington, D.C. 20006                                  Retail Funds (since July 1991)                Capital Holdings
                                                        and the Institutional Funds                   (financial holding
                                                        (since July 2003); Co-Chairman                company).
                                                        and a founder of the Group of
                                                        Seven Council (G7C), an
                                                        international economic
                                                        commission; formerly Vice
                                                        Chairman of the Board of
                                                        Governors of the Federal
                                                        Reserve System and Assistant
                                                        Secretary of the U.S.Treasury.

Joseph J. Kearns (62)         Trustee       Since       President, Kearns & Associates       198      Director of Electro Rent
c/o Kearns & Associates LLC                 July 2003   LLC (investment consulting);                  Corporation (equipment
PMB754                                                  Deputy Chairman of the Audit                  leasing), The Ford Family
23852 Pacific Coast Highway                             Committee and Director or                     Foundation, and the UCLA
Malibu, CA 90265                                        Trustee of the Retail Funds                   Foundation.
                                                        (since July 2003) and the
                                                        Institutional Funds (since
                                                        August 1994); previously
                                                        Chairman of the Audit
                                                        Committee of the Institutional
                                                        Funds (October 2001-July
                                                        2003); formerly CFO of the J.
                                                        Paul Getty Trust.

Michael E. Nugent (68)        Trustee       Since       General Partner of Triumph           197      Director of various
c/o Triumph Capital, L.P.                   July 1991   Capital, L.P., a private                      business organizations.
445 Park Avenue                                         investment partnership;
New York, NY 10022                                      Chairman of the Insurance
                                                        Committee and Director or
                                                        Trustee of the Retail Funds
                                                        (since July 1991) and the
                                                        Institutional Funds (since
                                                        July 2001); formerly Vice
                                                        President, Bankers Trust
                                                        Company and BT Capital
                                                        Corporation (1984-1988).

Fergus Reid (72)              Trustee       Since       Chairman of Lumelite Plastics        198      Trustee and Director of
c/o Lumelite Plastics                       July 2003   Corporation; Chairman of the                  certain investment
Corporation                                             Governance Committee and                      companies in the
85 Charles Colman Blvd.                                 Director or Trustee of the                    JPMorgan Funds complex
Pawling, NY 12564                                       Retail Funds (since July 2003)                managed by J.P. Morgan
                                                        and the Institutional Funds                   Investment Management
                                                        (since June 1992).                            Inc.




- ----------
*     This is the earliest date the Trustee began serving the Retail Funds.
      Each Trustee serves an indefinite term, until his or her successor is
      elected.



**    The dates referenced below indicating commencement of service as
      Director/Trustee for the Retail Funds and the Institutional Funds reflect
      the earliest date the Director/Trustee began serving the Retail or
      Institutional Funds, as applicable.



                                       16





     The Trustees who are affiliated with the Investment Adviser or affiliates
of the Investment Adviser (as set forth below) and executive officers of the
Fund, their age, address, term of office and length of time served, their
principal business occupations during the past five years, the number of
portfolios in the Fund Complex overseen by each Management Trustee (as of
December 31, 2004) and the other directorships, if any, held by the Trustee,
are shown below.






                                                                                            NUMBER OF
                                                                                           PORTFOLIOS
                                                                                             IN FUND
                                                                                             COMPLEX
                                POSITION(S)   LENGTH OF                                    OVERSEEN BY
   NAME, AGE AND ADDRESS OF      HELD WITH       TIME     PRINCIPAL OCCUPATION(S) DURING   MANAGEMENT   OTHER DIRECTORSHIPS HELD
      MANAGEMENT TRUSTEE         REGISTRANT    SERVED*            PAST 5 YEARS**             TRUSTEE           BY TRUSTEE
- ------------------------------ ------------- ----------- -------------------------------- ------------ -------------------------

Charles A. Fiumefreddo (71)    Chairman      Since       Chairman and Director or             197      None.
c/o Morgan Stanley Trust       of the        July 1991   Trustee of the Retail Funds
Harborside Financial Center,   Board                     (since July 1991) and the
Plaza Two,                     and                       Institutional Funds (since
Jersey City, NJ 07311          Trustee                   July 2003); formerly Chief
                                                         Executive Officer of the
                                                         Retail Funds (until September
                                                         2002).

James F. Higgins (57)          Trustee       Since       Director or Trustee of the           197      Director of AXA
c/o Morgan Stanley Trust                     June        Retail Funds (since June 2000)                Financial, Inc. and The
Harborside Financial                         2000        and the Institutional Funds                   Equitable Life Assurance
Center,                                                  (since July 2003); Senior                     Society of the United
Plaza Two,                                               Advisor of Morgan Stanley                     States (financial
Jersey City, NJ 07311                                    (since August 2000); Director                 services).
                                                         of the Distributor and Dean
                                                         Witter Realty Inc.; previously
                                                         President and Chief Operating
                                                         Officer of the Private Client
                                                         Group of Morgan Stanley (May
                                                         1999-August 2000), and
                                                         President and Chief Operating
                                                         Officer of Individual
                                                         Securities of Morgan Stanley
                                                         (February 1997-May 1999).



- ----------
*     This is the earliest date the Trustee began serving the Retail Funds.
      Each Trustee serves an indefinite term, until his or her successor is
      elected.


**    The dates referenced below indicating commencement of service as
      Director/Trustee for the Retail Funds and the Institutional Funds reflect
      the earliest date the Director/Trustee began serving the Retail or
      Institutional Funds, as applicable.





                              POSITION(S)         LENGTH
 NAME, AGE AND ADDRESS OF      HELD WITH          OF TIME                    PRINCIPAL OCCUPATION(S) DURING
     EXECUTIVE OFFICER         REGISTRANT         SERVED*                            PAST 5 YEARS**
- --------------------------   -------------   ----------------   -------------------------------------------------------

Mitchell M. Merin (51)       President       Since May 1999     President and Chief Operating Officer of Morgan
1221 Avenue of the                                              Stanley Investment Management Inc.; President,
Americas                                                        Director and Chief Executive Officer of the
New York, NY 10020                                              Investment Adviser and the Administrator; Chairman
                                                                and Director of the Distributor; Chairman and
                                                                Director of the Transfer Agent; Director of various
                                                                Morgan Stanley subsidiaries; President of the
                                                                Institutional Funds (since July 2003) and President of
                                                                the Retail Funds; Trustee (since July 2003) and
                                                                President (since December 2002) of the Van
                                                                Kampen Closed-End Funds; Trustee and President
                                                                (since October 2002) of the Van Kampen Open-End
                                                                Funds.


- ----------
*     This is the earliest date the Officer began serving the Retail Funds.
      Each Officer serves an indefinite term, until his or her successor is
      elected.


**    The dates referenced below indicating commencement of service as an
      Officer for the Retail and Institutional Funds reflect the earliest date
      the Officer began serving the Retail or Institutional Funds, as
      applicable.


                                       17








                                POSITION(S)            LENGTH
 NAME, AGE AND ADDRESS OF        HELD WITH             OF TIME                       PRINCIPAL OCCUPATION(S) DURING
     EXECUTIVE OFFICER          REGISTRANT             SERVED*                               PAST 5 YEARS**
- --------------------------   ----------------   --------------------   ---------------------------------------------------------

Ronald E. Robison (66)       Executive          Since April            Principal Executive Officer of Funds in the Fund
1221 Avenue of the           Vice President     2003                   Complex (since May 2003); Managing Director of
Americas                     and                                       Morgan Stanley & Co. Incorporated, Morgan Stanley
New York, NY 10020           Principal                                 Investment Management Inc. and Morgan Stanley;
                             Executive                                 Managing Director, Chief Administrative Officer and
                             Officer                                   Director of the Investment Adviser and the
                                                                       Administrator; Director of the Transfer Agent;
                                                                       Managing Director and Director of the Distributor;
                                                                       Executive Vice President and Principal Executive
                                                                       Officer of the Institutional Funds (since July 2003) and
                                                                       the Retail Funds (since April 2003); Director of
                                                                       Morgan Stanley SICAV (since May 2004); previously
                                                                       President and Director of the Retail Funds (March
                                                                       2001-July 2003) and Chief Global Operations Officer
                                                                       of Morgan Stanley Investment Management Inc.

Joseph J. McAlinden (62)     Vice President     Since July 1995        Managing Director and Chief Investment Officer of the
1221 Avenue of the                                                     Investment Adviser and Morgan Stanley Investment
Americas                                                               Management Inc.; Director of the Transfer Agent,
New York, NY 10020                                                     Chief Investment Officer of the Van Kampen Funds;
                                                                       Vice President of the Institutional Funds (since July
                                                                       2003) and the Retail Funds (since July 1995).

Barry Fink (50)              Vice President     Since February         General Counsel (since May 2000) and Managing
1221 Avenue of the                              1997                   Director (since December 2000) of Morgan Stanley
Americas                                                               Investment Management; Managing Director (since
New York, NY 10020                                                     December 2000), Secretary (since February 1997)
                                                                       and Director of the Investment Adviser and the
                                                                       Administrator; Vice President of the Retail Funds;
                                                                       Assistant Secretary of Morgan Stanley DW; Vice
                                                                       President of the Institutional Funds (since July 2003);
                                                                       Managing Director, Secretary and Director of the
                                                                       Distributor; previously Secretary (February 1997-July
                                                                       2003) and General Counsel of the Retail Funds
                                                                       (February 1997-April 2004); Vice President and
                                                                       Assistant General Counsel of the Investment Adviser
                                                                       and the Administrator (February 1997-December
                                                                       2001).

Amy R. Doberman (42)         Vice President     Since July 2004        Managing Director and General Counsel, U.S.
1221 Avenue of the                                                     Investment Management; Managing Director of
Americas                                                               Morgan Stanley Investment Management Inc. and the
New York, NY 10020                                                     Investment Adviser, Vice President of the Institutional
                                                                       and Retail Funds (since July 2004); Vice President of
                                                                       the Van Kampen Funds (since August 2004);
                                                                       previously, Managing Director and General Counsel
                                                                       - Americas, UBS Global Asset Management (July
                                                                       2000-July 2004) and General Counsel, Aeltus
                                                                       Investment Management, Inc. (January 1997-July
                                                                       2000).

Carsten Otto (41)            Chief              Since October 2004     Executive Director and U.S. Director of Compliance
1221 Avenue of the           Compliance                                for Morgan Stanley Investment Management (since
Americas                     Officer                                   October 2004); Executive Director of the Investment
New York, NY 10020                                                     Adviser and Morgan Stanley Investment Management
                                                                       Inc.; formerly Assistant Secretary and Assistant
                                                                       General Counsel of the Morgan Stanley Retail Funds.

Stefanie V. Chang (38)       Vice President     Since July 2003        Executive Director of Morgan Stanley & Co.
1221 Avenue of the                                                     Incorporated, Morgan Stanley Investment
Americas                                                               Management Inc. and the Investment Adviser; Vice
New York, NY 10020                                                     President of the Institutional Funds and the Retail
                                                                       Funds (since July 2003); formerly practiced law with
                                                                       the New York law firm of Rogers & Wells (now Clifford
                                                                       Chance US LLP).

Francis J. Smith (39)        Treasurer          Treasurer since        Executive Director of the Investment Adviser and the
c/o Morgan Stanley Trust     and Chief          July 2003 and          Administrator (since December 2001); previously, Vice
Harborside Financial         Financial          Chief Financial        President of the Retail Funds (September 2002-July
Center,                      Officer            Officer since          2003); Vice President of the Investment Adviser and
Plaza Two,                                      September 2002         the Administrator (August 2000-November 2001) and
Jersey City, NJ 07311                                                  Senior Manager at PricewaterhouseCoopers LLP
                                                                       (January 1998-August 2000).



- ----------
*     This is the earliest date the Officer began serving the Retail Funds.
      Each Officer serves an indefinite term, until his or her successor is
      elected.


**    The dates referenced below indicating commencement of service as an
      Officer for the Retail and Institutional Funds reflect the earliest date
      the Officer began serving the Retail or Institutional Funds as
      applicable.


                                       18








                                POSITION(S)           LENGTH
 NAME, AGE AND ADDRESS OF        HELD WITH           OF TIME                    PRINCIPAL OCCUPATION(S) DURING
     EXECUTIVE OFFICER          REGISTRANT           SERVED*                            PAST 5 YEARS**
- --------------------------   ----------------   -----------------   ------------------------------------------------------

Thomas F. Caloia (59)        Vice President     Since July 2003     Executive Director (since December 2002) and
c/o Morgan Stanley Trust                                            Assistant Treasurer of the Investment Adviser, the
Harborside Financial                                                Distributor and the Administrator; previously
Center,                                                             Treasurer of the Retail Funds (April 1989-July 2003);
Plaza Two,                                                          formerly First Vice President of the Investment
Jersey City, NJ 07311                                               Adviser, the Distributor and the Administrator.

Mary E. Mullin (38)          Secretary          Since July 2003     Executive Director of Morgan Stanley & Co.
1221 Avenue of the                                                  Incorporated, Morgan Stanley Investment
Americas                                                            Management Inc. and the Investment Adviser;
New York, NY 10020                                                  Secretary of the Institutional Funds and the Retail
                                                                    Funds (since July 2003); formerly practiced law with
                                                                    the New York law firms of McDermott, Will & Emery
                                                                    and Skadden, Arps, Slate, Meagher & Flom LLP.



- ----------
*     This is the earliest date the Officer began serving the Retail Funds.
      Each Officer serves an indefinite term, until his or her successor is
      elected.


**    The dates referenced below indicating commencement of service as an
      Officer for the Retail and Institutional Funds reflect the earliest date
      the Officer began serving the Retail or Institutional Funds, as
      applicable.


     In addition, the following individuals who are officers of the Investment
Adviser or its affiliates serve as assistant secretaries of the Fund: Lou Anne
D. McInnis, Joseph Benedetti, Daniel Burton, Marilyn K. Cranney, Joanne Doldo,
Tara A. Farrelly, Alice J. Gerstel, Edward J. Meehan, Elisa Mitchell, Elizabeth
Nelson, Debra Rubano, Rita Rubin and Sheldon Winicour.

     For each Trustee, the dollar range of equity securities beneficially owned
by the Trustee in the Fund and in the Family of Investment Companies (Family of
Investment Companies includes all of the registered investment companies
advised by the Investment Adviser, Morgan Stanley Investment Management Inc.
and Morgan Stanley AIP GP LP) for the calendar year ended December 31, 2004 is
shown below.






                                                                              AGGREGATE DOLLAR RANGE OF EQUITY SECURITIES IN
                                                                               ALL REGISTERED INVESTMENT COMPANIES OVERSEEN
                            DOLLAR RANGE OF EQUITY SECURITIES IN THE FUND      BY TRUSTEE IN FAMILY OF INVESTMENT COMPANIES
     NAME OF TRUSTEE                  (AS OF DECEMBER 31, 2004)                         (AS OF DECEMBER 31, 2004)
- ------------------------   -----------------------------------------------   -----------------------------------------------
INDEPENDENT:

Michael Bozic                                    None                                         over $100,000
Edwin J. Garn                                    None                                         over $100,000
Wayne E. Hedien                                  None                                         over $100,000
Dr. Manuel H. Johnson                            None                                         over $100,000
Joseph J. Kearns(1)                              None                                         over $100,000
Michael E. Nugent                                None                                         over $100,000
Fergus Reid(1)                                   None                                         over $100,000
INTERESTED:
Charles A. Fiumefreddo                           None                                         over $100,000
James F. Higgins                                 None                                         over $100,000



- ----------
(1)   Includes the total amount of compensation deferred by the Trustee at his
      election pursuant to a deferred compensation plan. Such deferred
      compensation is placed in a deferral account and deemed to be invested in
      one or more of the Retail Funds or Institutional Funds (or portfolio
      thereof) that are offered as investment options under the plan. As of
      December 31, 2004, Messrs. Kearns and Reid had deferred a total of
      $584,856 and $667,002, respectively, pursuant to the deferred
      compensation plan.


     As to each Independent Trustee and his immediate family members, no person
owned beneficially or of record securities in an investment adviser or
principal underwriter of the Fund, or a person (other than a registered
investment company) directly or indirectly controlling, controlled by or under
common control with an investment advisor or principal underwriter of the Fund.


     INDEPENDENT TRUSTEES AND THE COMMITTEES. Law and regulation establish both
general guidelines and specific duties for the Independent Trustees. The Retail
Funds seek as Independent Trustees individuals of distinction and experience in
business and finance, government service or academia; these are people whose
advice and counsel are in demand by others and for whom there is often
competition. To accept a position on the Retail Funds' boards, such individuals
may reject other attractive assignments because the Retail Funds make
substantial demands on their time. All of the Independent


                                       19




Trustees serve as members of the Audit Committee. In addition, three Trustees,
including two Independent Trustees, serve as members of the Insurance
Committee, and three Independent Trustees serve as members of the Governance
Committee.

     The Independent Trustees are charged with recommending to the full Board
approval of management, advisory and administration contracts, Rule 12b-1 plans
and distribution and underwriting agreements; continually reviewing fund
performance; checking on the pricing of portfolio securities, brokerage
commissions, transfer agent costs and performance and trading among funds in
the same complex; and approving fidelity bond and related insurance coverage
and allocations, as well as other matters that arise from time to time. The
Independent Trustees are required to select and nominate individuals to fill
any Independent Trustee vacancy on the board of any fund that has a Rule 12b-1
plan of distribution. Most of the Retail Funds have a Rule 12b-1 plan.

     The Board of Trustees has a separately-designated standing Audit Committee
established in accordance with Section 3(a)(58)(A) of the Securities Exchange
Act of 1934, as amended. The Audit Committee is charged with recommending to
the full Board the engagement or discharge of the Fund's independent registered
public accounting firm; directing investigations into matters within the scope
of the independent registered public accounting firm's duties, including the
power to retain outside specialists; reviewing with the independent registered
public accounting firm the audit plan and results of the auditing engagement;
approving professional services provided by the independent registered public
accounting firm and other accounting firms prior to the performance of the
services; reviewing the independence of the independent registered public
accounting firm; considering the range of audit and non-audit fees; reviewing
the adequacy of the Fund's system of internal controls; and preparing and
submitting Committee meeting minutes to the full Board. The Fund has adopted a
formal, written Audit Committee Charter. During the Fund's fiscal year ended
November 30, 2004, the Audit Committee held eight meetings.

     The members of the Audit Committee of the Fund are currently Michael
Bozic, Edwin J. Garn, Wayne E. Hedien, Dr. Manuel H. Johnson, Joseph J. Kearns,
Michael E. Nugent and Fergus Reid. None of the members of the Fund's Audit
Committee is an "interested person," as defined under the Investment Company
Act, of any of the Funds (with such disinterested Trustees being Independent
Trustees or individually Independent Trustee). Each Independent Trustee is also
"independent" from the Fund under the listing standards of the New York Stock
Exchange, Inc. (NYSE). The current Chairman of the Audit Committee of the Fund
is Dr. Manuel H. Johnson.

     The Board of Trustees of the Fund also has a Governance Committee. The
Governance Committee identifies individuals qualified to serve as Independent
Trustees on the Fund's Board and on committees of such Board and recommends
such qualified individuals for nomination by the Fund's Independent Trustees as
candidates for election as Independent Trustees, advises the Fund's Board with
respect to Board composition, procedures and committees, develops and
recommends to the Fund's Board a set of corporate governance principles
applicable to the Fund, monitors and makes recommendations on corporate
governance matters and policies and procedures of the Fund's Board of Trustees
and any Board committees and oversees periodic evaluations of the Fund's Board
and its committees. The members of the Governance Committee of the Fund are
currently Michael Bozic, Edwin J. Garn and Fergus Reid, each of whom is an
Independent Trustee. The current Chairman of the Governance Committee is Fergus
Reid. During the Fund's fiscal year ended November 30, 2004, the Governance
Committee held two meetings.

     The Fund does not have a separate nominating committee. While the Fund's
Governance Committee recommends qualified candidates for nominations as
Independent Trustees, the Board of Trustees of the Fund believes that the task
of nominating prospective Independent Trustees is important enough to require
the participation of all current Independent Trustees, rather than a separate
committee consisting of only certain Independent Trustees. Accordingly, each
current Independent Trustee (Michael Bozic, Edwin J. Garn, Wayne E. Hedien, Dr.
Manuel H. Johnson, Joseph J. Kearns, Michael E. Nugent and Fergus Reid)
participates in the election and nomination of candidates for election as
Independent Trustees for the Fund. Persons recommended by the Fund's Governance
Committee as candidates for nomination as Independent Trustees shall possess
such knowledge, experience, skills, expertise and


                                       20




diversity so as to enhance the Board's ability to manage and direct the affairs
and business of the Fund, including, when applicable, to enhance the ability of
committees of the Board to fulfill their duties and/or to satisfy any
independence requirements imposed by law, regulation or any listing
requirements of the NYSE. While the Independent Trustees of the Fund expect to
be able to continue to identify from their own resources an ample number of
qualified candidates for the Fund's Board as they deem appropriate, they will
consider nominations from shareholders to the Board. Nominations from
shareholders should be in writing and sent to the Independent Trustees as
described below.

     There were 27 meetings of the Board of Trustees of the Fund held during
the fiscal year ended November 30, 2004. The Independent Trustees of the Fund
also met four times during that time, in addition to the 27 meetings of the
full Board.

     Finally, the Board has formed an Insurance Committee to review and monitor
the insurance coverage maintained by the Fund. The Insurance Committee
currently consists of Messrs. Nugent, Fiumefreddo and Hedien. Messrs. Nugent
and Hedien are Independent Trustees. During the Fund's fiscal year ended
November 30, 2004, the Insurance Committee held five meetings.

     ADVANTAGES OF HAVING SAME INDIVIDUALS AS TRUSTEES FOR THE RETAIL FUNDS AND
INSTITUTIONAL FUNDS. The Independent Trustees and the funds' management believe
that having the same Independent Trustees for each of the Retail Funds and
Institutional Funds avoids the duplication of effort that would arise from
having different groups of individuals serving as Independent Trustees for each
of the Funds or even of sub-groups of funds. They believe that having the same
individuals serve as Independent Trustees of all the Retail Funds and
Institutional Funds tends to increase their knowledge and expertise regarding
matters which affect the Fund Complex generally and enhances their ability to
negotiate on behalf of each fund with the fund's service providers. This
arrangement also precludes the possibility of separate groups of Independent
Trustees arriving at conflicting decisions regarding operations and management
of the funds and avoids the cost and confusion that would likely ensue.
Finally, having the same Independent Trustees serve on all fund boards enhances
the ability of each Fund to obtain, at modest cost to each separate fund, the
services of Independent Trustees, of the caliber, experience and business
acumen of the individuals who serve as Independent Trustees of the Retail Funds
and Institutional Funds.

     TRUSTEE AND OFFICER INDEMNIFICATION. The Fund's Declaration of Trust
provides that no Trustee, Officer, employee or agent of the Fund is liable to
the Fund or to a shareholder, nor is any Trustee, Officer, employee or agent
liable to any third persons in connection with the affairs of the Fund, except
as such liability may arise from his/her or its own bad faith, willful
misfeasance, gross negligence or reckless disregard of his/her or its duties.
It also provides that all third persons shall look solely to Fund property for
satisfaction of claims arising in connection with the affairs of the Fund. With
the exceptions stated, the Declaration of Trust provides that a Trustee,
Officer, employee or agent is entitled to be indemnified against all liability
in connection with the affairs of the Fund.

     SHAREHOLDER COMMUNICATIONS. Shareholders may send communications to the
Fund's Board of Trustees. Shareholders should send communications intended for
the Fund's Board by addressing the communications directly to the Board (or
individual Board members) and/or otherwise clearly indicating in the salutation
that the communication is for the Board (or individual Board members) and by
sending the communication to either the Fund's office or directly to such Board
member(s) at the address specified for each Trustee previously noted. Other
shareholder communications received by the Fund not directly addressed and sent
to the Board will be reviewed and generally responded to by management, and
will be forwarded to the Board only at management's discretion based on the
matters contained therein.

C. COMPENSATION


     Each Independent Trustee receives an annual retainer fee of $168,000 for
serving the Retail Funds and the Institutional Funds. In addition, each
Independent Trustee receives $2,000 for attending each of the four quarterly
board meetings and two performance meetings that occur each year, so that an
Independent Trustee who attended all six meetings would receive total
compensation of $180,000 for serving the funds. The Chairman of the Audit
Committee receives an additional annual retainer fee of



                                       21




$60,000. Other Committee Chairmen and the Deputy Chairman of the Audit
Committee receive an additional annual retainer fee of $30,000. The aggregate
compensation paid to each Independent Trustee is paid by the Retail Funds and
the Institutional Funds, and is allocated on a pro rata basis among each of the
operational funds/portfolios of the Retail Funds and the Institutional Funds
based on the relative net assets of each of the funds/portfolios. Mr.
Fiumefreddo receives an annual fee for his services as Chairman of the Boards
of the Retail Funds and the Institutional Funds and for administrative services
provided to each Board.



     The Fund also reimburses such Trustees for travel and other out-of-pocket
expenses incurred by them in connection with attending such meetings. Trustees
and officers of the Fund who are employed by the Investment Adviser or an
affiliated company receive no compensation or expense reimbursement from the
Fund for their services as Trustee.



     Effective April 1, 2004, the Fund began a Deferred Compensation Plan (the
"DC 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
throughout the year. 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 Retail Funds or Institutional Funds (or portfolios thereof) that
are offered as investment options under the Plan. At the Trustee's election,
distributions are either in one lump sum payment, or in the form of equal
annual installments over a period of five years. The rights of an eligible
Trustee and the beneficiaries to the amounts held under the DC Plan are
unsecured and such amounts are subject to the claims of the creditors of the
Fund.


     Prior to April 1, 2004, the Institutional Funds maintained a similar
Deferred Compensation Plan (the "Prior DC Plan"), which also allowed each
Independent Trustee to defer payment of all, or a portion, of the fees he or
she received for serving on the Board of Trustees throughout the year. The DC
Plan amends and supersedes the Prior DC Plan and all amounts payable under the
Prior DC Plan are now subject to the terms of the DC Plan (except for amounts
paid during the calendar year 2004, which remain subject to the terms of the
Prior DC Plan).


     The following table shows aggregate compensation paid to the Fund's
Trustees from the Fund for the fiscal year ended November 30, 2004.


                               FUND COMPENSATION





                                         AGGREGATE
                                        COMPENSATION
NAME OF TRUSTEE                           FROM FUND
- ------------------------------------   -------------

Michael Bozic(1)(3) ................       $  518
Charles A. Fiumefreddo*(2) .........        1,041
Edwin J. Garn(1)(3) ................          518
Wayne E. Hedien(1)(2) ..............          518
James F. Higgins* ..................            0
Dr. Manuel H. Johnson(1) ...........          691
Joseph J. Kearns(1)(4) .............          597
Michael E. Nugent(1)(2) ............          605
Fergus Reid(1)(3) ..................          605



- ----------

*     Messrs. Fiumefreddo and Higgins are deemed to be "interested persons" of
      the Fund as that term is defined in the Investment Company Act.


(1)   Member of the Audit Committee. Dr. Johnson is the Chairman of the Audit
      Committee and Mr. Kearns is the Deputy Chairman of the Audit Committee.

(2)   Member of the Insurance Committee. Mr. Nugent is the Chairman of the
      Insurance Committee.

(3)   Member of the Governance Committee. Mr. Reid is the Chairman of the
      Governance Committee.


(4)   Includes $216 of compensation deferred at the election of the Trustee
      under the DC Plan.



                                       22




     The following table shows aggregate compensation paid to each of the
Fund's Trustees by the Fund Complex (which includes all of the Retail and
Institutional Funds) for the calendar year ended December 31, 2004. Because the
funds in the Fund Complex have different fiscal year ends, the amounts shown in
this table are presented on a calendar-year basis.


                      CASH COMPENSATION FROM FUND COMPLEX





                                         NUMBER OF
                                     PORTFOLIOS IN THE
                                       FUND COMPLEX       TOTAL COMPENSATION
                                      FROM WHICH THE        FROM THE FUND
                                     TRUSTEE RECEIVED      COMPLEX PAYABLE
NAME OF TRUSTEE                        COMPENSATION          TO TRUSTEES
- ---------------------------------   ------------------   -------------------

Michael Bozic ...................          197                    $178,000
Charles A. Fiumefreddo* .........          197                     360,000
Edwin J. Garn ...................          197                     178,000
Wayne E. Hedien .................          197                     178,000
James F. Higgins* ...............          197                           0
Dr. Manuel H. Johnson ...........          197                     238,000
Joseph J. Kearns(1) .............          198                     211,000
Michael E. Nugent ...............          197                     208,000
Fergus Reid(1) ..................          198                     213,000



- ----------
*     Messrs. Fiumefreddo and Higgins are deemed to be "interested persons" of
      the Fund as that term is defined in the Investment Company Act.

(1)   The total amounts of deferred compensation under the DC Plan and the
      Prior DC Plan (including interest) payable or accrued by Messrs. Kearns
      and Reid are $584,856 and $667,002, respectively.


     Prior to December 48, 2003, 48 of the Retail Funds (the "Adopting Funds"),
not including the Fund, had adopted a retirement program under which an
Independent Trustee who retired after serving for at least five years as an
Independent Trustee of any such fund (an "Eligible Trustee") would have been
entitled to retirement payments, based on factors such as length of service,
upon reaching the eligible retirement age. On December 31, 2003, the amount of
accrued retirement benefits for each Eligible Trustee was frozen, and will be
payable, together with a return of 8% per annum, at or following each such
Eligible Trustee's retirement as shown in the table below.



     The following table illustrates the retirement benefits accrued to the
Fund's Independent Trustees by the Adopting Funds for the calendar year ended
December 31, 2004, and the estimated retirement benefits for the Independent
Trustees from the Adopting Funds for each calendar year following retirement.
Messrs. Kearns and Reid did not participate in the retirement program.





                                  RETIREMENT BENEFITS ACCRUED AS     ESTIMATED ANNUAL BENEFITS UPON
                                            FUND EXPENSES                     RETIREMENT(1)
                                  --------------------------------   -------------------------------
                                           BY ALL ADOPTING                  FROM ALL ADOPTING
NAME OF INDEPENDENT TRUSTEE                     FUNDS                             FUNDS
- -------------------------------   --------------------------------   -------------------------------

Michael Bozic .................                $19,437                           $46,871
Edwin J. Garn .................                 28,779                            46,917
Wayne E. Hedien ...............                 37,860                            40,020
Dr. Manuel H. Johnson .........                 19,701                            68,630
Michael E. Nugent .............                 35,471                            61,377


- ----------

(1)   Total compensation accrued under the retirement plan, together with a
      return of 8% per annum, will be paid annually commencing upon retirement
      and continuing for the remainder of the Trustee's life.


     In addition, Messrs. Bozic, Garn, Hedien, Johnson and Nugent received a
lump sum benefit payment from the liquidation of a fund in the Plan in 2004 in
the amount of $3,639, $6,935, $5,361, $2,915 and $6,951, respectively.



                                       23




IV. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
- --------------------------------------------------------------------------------

     The following owned 5% or more of the outstanding Class A shares of the
Fund as of March 1, 2005: State Street Bank and Trust Co. FBO ADP/Morgan
Stanley Alliance, 105 Rosemont Avenue, Westwood, MA 02090-2318-32.69%.


     As of the date of this Statement of Additional Information, the aggregate
number of shares of beneficial interest of the Fund owned by the Fund's
officers and Trustees as a group was less than 1% of the Fund's shares of
beneficial interest outstanding.



V. INVESTMENT ADVISORY AND OTHER SERVICES

- --------------------------------------------------------------------------------
A. INVESTMENT ADVISER AND ADMINISTRATOR


     The Investment Adviser to the Fund is Morgan Stanley Investment Advisors
Inc., a Delaware corporation, whose address is 1221 Avenue of the Americas, New
York, NY 10020. The Investment Adviser is a wholly-owned subsidiary of Morgan
Stanley, a Delaware corporation. Morgan Stanley is a preeminent global
financial services firm that maintains leading market positions in each of its
three primary businesses: securities, asset management and credit services.


     Prior to November 1, 2004, pursuant to an investment management agreement
(the "Management Agreement") with the Investment Adviser, the Fund had retained
the Investment Adviser to provide administrative services and to manage the
investment of the Fund's assets, including the placing of orders for the
purchase and sale of portfolio securities. The Fund paid the Investment Adviser
monthly compensation calculated daily by applying the annual rate of 0.75% of
the portion of daily net assets not exceeding $500 million; 0.725% of the
portion of daily net assets exceeding $500 million but not exceeding $2
billion; 0.70% of the portion of daily net assets exceeding $2 billion but not
exceeding $3 billion; and 0.675% of the portion of daily net assets exceeding
$3 billion. The management fee was allocated among the Classes pro rata based
on the net assets of the Fund attributable to each Class.

     The Board of Trustees of the Fund approved amending and restating,
effective November 1, 2004, the Management Agreement to remove the
administration services component from the Management Agreement and to reduce
the investment advisory fee to the annual rate of 0.67% of the portion of daily
net assets not exceeding $500 million; 0.645% of the portion of daily net
assets exceeding $500 million but not exceeding $2 billion; 0.62% of the
portion of daily net assets exceeding $2 billion but not exceeding $3 billion;
and 0.595% of the portion of daily net assets exceeding $3 billion. The
advisory fee is allocated among the Classes pro rata based on the net assets of
the Fund attributable to each Class. The Fund's Investment Adviser will
continue to provide investment advisory services under an Amended and Restated
Investment Advisory Agreement ("Investment Advisory Agreement"). The
administration services previously provided to the Fund by the Investment
Adviser will be provided by Morgan Stanley Services Company Inc.
("Administrator"), a wholly-owned subsidiary of the Investment Adviser,
pursuant to a separate administration agreement ("Administration Agreement")
entered into by the Fund with the Administrator. Such change resulted in a
0.08% reduction in the advisory fee concurrent with the implementation of a
0.08% administration fee pursuant to the new administration agreement. Under
the terms of the Administration Agreement, the Administrator will provide the
same administrative services previously provided by the Investment Adviser.

     For the fiscal years ended November 30, 2002, 2003 and 2004, the
Investment Adviser accrued total compensation under the Management Agreement
and the Investment Advisory Agreement in the amount of $4,588,484, $2,847,838
and $2,971,692, respectively.


     Under a former Sub-Advisory Agreement (the "Sub-Advisory Agreement") in
effect for the fiscal period December 1, 2001 through September 30, 2002,
between TCW Investment Management Company ("TCW") and the Investment Adviser,
TCW provided the Fund with investment advice and portfolio management relating
to the Fund's investments in securities, subject to the overall supervision of
the Investment Adviser. The Investment Adviser paid TCW monthly compensation
equal to 40% of the Investment Adviser's fee. For the fiscal period December 1,
2001 through September 30, 2002, the Investment Adviser paid $1,640,755 in
sub-advisory fees to TCW.


                                       24




     Although the entities providing administrative services to the fund have
changed, the Morgan Stanley personnel performing such services will remain the
same. Furthermore, the changes did not result in any increase in the amount of
total combined fees paid by the Fund for investment advisory and administrative
services, or any decrease in the nature or quality of the investment advisory
or administrative services received by the Fund.


     In approving the advisory agreements, the Board of Trustees, including the
Independent Trustees, considered the nature, quality and scope of the services
provided by the Investment Adviser; the performance, fees and expenses of the
Fund compared to other similar investment companies; the Investment Adviser's
expenses in providing the services; the profitability of the Investment Adviser
and its affiliated companies and other benefits they derive from their
relationship with the Fund; and the extent to which economies of scale are
shared with the Fund. The Independent Trustees met with and reviewed reports
from third parties about the foregoing factors and changes, if any, in such
items since the preceding year's deliberations. In evaluating the reasonableness
of the management fee, the Independent Trustees noted that the effective
management fee, at asset levels as of the fiscal year ended November 30, 2003,
was higher than the average management fee of the Fund's peer group because
several funds in the peer group were waiving part of their contractual
management fee, but the Fund's contractual fee was lower than that of the peer
group average. The Independent Trustees also evaluated the performance of the
Fund relative to its peer group and noted that its three and five year
performance was lower than the peer group average, but that the Fund's
performance for the one year period and for the period since the change in the
portfolio management team on October 31, 2002, was better than its peer group
average. The Independent Trustees noted their confidence in the capability and
integrity of the senior management and staff of the Investment Adviser and the
financial strength of the Investment Adviser and its affiliated companies. The
Independent Trustees weighed the foregoing factors in light of the advice given
to them by their legal counsel as to the law applicable to the review of
investment advisory contracts. Based upon its review, the Board of Trustees,
including all of the Independent Trustees, determined, in the exercise of its
business judgment, that approval of the advisory agreements was in the best
interests of the Fund and its shareholders.



B. PRINCIPAL UNDERWRITER

     The Fund's principal underwriter is the Distributor (which has the same
address as the Investment Adviser). In this capacity, the Fund's shares are
distributed by the Distributor. The Distributor has entered into a Selected
Dealer Agreement with Morgan Stanley DW, which through its own sales
organization sells shares of the Fund. In addition, the Distributor may enter
into similar agreements with other selected broker-dealers. The Distributor, a
Delaware corporation, is a wholly-owned subsidiary of Morgan Stanley.

     The Distributor bears all expenses it may incur in providing services
under the Distribution Agreement. These expenses include the payment of
commissions for sales of the Fund's shares and incentive compensation to
Financial Advisors, the costs of educational and/or business-related trips and
educational and/or promotional and business-related expenses. The Distributor
also pays certain expenses in connection with the distribution of the Fund's
shares, including the costs of preparing, printing and distributing advertising
or promotional materials, and the costs of printing and distributing
prospectuses and supplements thereto used in connection with the offering and
sale of the Fund's shares. The Fund bears the costs of initial typesetting,
printing and distribution of prospectuses and supplements thereto to
shareholders. The Fund also bears the costs of registering the Fund and its
shares under federal and state securities laws and pays filing fees in
accordance with state securities laws.

     The Fund and the Distributor have agreed to indemnify each other against
certain liabilities, including liabilities under the Securities Act. Under the
Distribution Agreement, the Distributor uses its best efforts in rendering
services to the Fund, but in the absence of willful misfeasance, bad faith,
gross negligence or reckless disregard of its obligations, the Distributor is
not liable to the Fund or any of its shareholders for any error of judgment or
mistake of law or for any act or omission or for any losses sustained by the
Fund or its shareholders.


                                       25




C. SERVICES PROVIDED BY THE INVESTMENT ADVISER AND THE ADMINISTRATOR

     The Investment Adviser manages the investment of the Fund's assets,
including the placing of orders for the purchase and sale of portfolio
securities. The Investment Adviser obtains and evaluates the information and
advice relating to the economy, securities markets, and specific securities as
it considers necessary or useful to continuously oversee the management of the
assets of the Fund in a manner consistent with its investment objective.


     Under the terms of the Administration Agreement, the Administrator
maintains certain of the Fund's books and records and furnishes, at its own
expense, the office space, facilities, equipment, clerical help and bookkeeping
as the Fund may reasonably require in the conduct of its business. The
Administrator also assists in the preparation of prospectuses, proxy statements
and reports required to be filed with federal and state securities commissions
(except insofar as the participation or assistance of the independent
registered public accounting firm and attorneys is, in the opinion of the
Administrator, necessary or desirable). The Administrator also bears the cost
of telephone service, heat, light, power and other utilities provided to the
Fund.

     Expenses not expressly assumed by the Investment Adviser under the
Investment Advisory Agreement or by the Administrator under the Administration
Agreement or by the Distributor will be paid by the Fund. These expenses will
be allocated among the four Classes of shares pro rata based on the net assets
of the Fund attributable to each Class, except as described below. Such
expenses include, but are not limited to: expenses of the Plan of Distribution
pursuant to Rule 12b-1; charges and expenses of any registrar, custodian, stock
transfer and dividend disbursing agent; brokerage commissions; taxes; engraving
and printing share certificates; registration costs of the Fund and its shares
under federal and state securities laws; the cost and expense of printing,
including typesetting, and distributing prospectuses of the Fund and
supplements thereto to the Fund's shareholders; all expenses of shareholders'
and Trustees' meetings and of preparing, printing and mailing of proxy
statements and reports to shareholders; fees and travel expenses of Trustees or
members of any advisory board or committee who are not employees of the
Investment Adviser or any corporate affiliate of the Investment Adviser; all
expenses incident to any dividend, withdrawal or redemption options; charges
and expenses of any outside service used for pricing of the Fund's shares; fees
and expenses of legal counsel, including counsel to the Trustees who are not
interested persons of the Fund or of the Investment Adviser (not including
compensation or expenses of attorneys who are employees of the Investment
Adviser); fees and expenses of the Fund's independent registered public
accounting firm; membership dues of industry associations; interest on Fund
borrowings; postage; insurance premiums on property or personnel (including
officers and Trustees) of the Fund which inure to its benefit; extraordinary
expenses (including, but not limited to, legal claims and liabilities and
litigation costs and any indemnification relating thereto); and all other costs
of the Fund's operation. The 12b-1 fees relating to a particular Class will be
allocated directly to that Class. In addition, other expenses associated with a
particular Class (except advisory or custodial fees) may be allocated directly
to that Class, provided that such expenses are reasonably identified as
specifically attributable to that Class and the direct allocation to that Class
is approved by the Trustees.


     The Investment Advisory Agreement provides that in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations thereunder, the Investment Adviser is not liable to the Fund or any
of its investors for any act or omission by the Investment Adviser or for any
losses sustained by the Fund or its investors.

     The Investment Advisory Agreement will remain in effect from year to year,
provided continuance of the Management Agreement is approved at least annually
by the vote of the holders of a majority, as defined in the Investment Company
Act, of the outstanding shares of the Fund, or by the Trustees; provided that
in either event such continuance is approved annually by the vote of a majority
of the Independent Trustees.

     The Administration Agreement provides that in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations thereunder, the Administrator is not liable to the Fund or any of
its investors for any act of omission by the Administrator or for any losses
sustained by the Fund


                                       26




or its investors. The Administration Agreement will continue unless terminated
by either party by written notice delivered to the other party within 30 days.

D. DEALER REALLOWANCES

     Upon notice to selected broker-dealers, the Distributor may reallow up to
the full applicable front-end sales charge during periods specified in such
notice. During periods when 90% or more of the sales charge is reallowed, such
selected broker-dealers may be deemed to be underwriters as that term is
defined in the Securities Act.

E. RULE 12b-1 PLAN

     The Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under
the Investment Company Act (the "Plan") pursuant to which each Class, other
than Class D, pays the Distributor compensation accrued daily and payable
monthly at the following maximum annual rates: 0.25% and 1.0% of the average
daily net assets of Class A and Class C, respectively, and, with respect to
Class B, 1.0% of the lesser of: (a) the average daily aggregate gross sales of
the Fund's Class B shares since the inception of the Fund (not including
reinvestment of dividends or capital gains distributions), less the average
daily aggregate net asset value of the Fund's Class B shares redeemed since the
Fund's inception upon which a contingent deferred sales charge has been imposed
or upon which such charge has been waived; or (b) the average daily net assets
of Class B shares.

     Effective May 1, 2004, the Board approved an Amended and Restated Plan of
Distribution Pursuant to Rule 12b-1 (the "Amended Plan") converting the Plan
with respect to Class B shares from a "compensation" to a "reimbursement" plan
similar to that of Class A and Class C. Except as otherwise described below,
the terms of the Plan remain unchanged.

     The Distributor also receives the proceeds of front-end sales charges
("FSCs") and of contingent deferred sales charges ("CDSCs") imposed on certain
redemptions of shares, which are separate and apart from payments made pursuant
to the Plan. The Distributor has informed the Fund that it and/or Morgan
Stanley DW received the proceeds of CDSCs and FSCs, for the last three fiscal
years ended November 30, in approximate amounts as provided in the table below
(the Distributor did not retain any of these amounts).





                               2004                       2003                        2002
                     ------------------------   ------------------------   ---------------------------

Class A ..........    FSCs:(1)     $ 21,676      FSCs:(1)     $ 23,201      FSCs:(1)     $   37,309
                     CDSCs:        $      4     CDSCs:        $    152     CDSCs:        $       45
Class B ..........   CDSCs:        $478,759     CDSCs:        $539,089     CDSCs:        $1,268,824
Class C ..........   CDSCs:        $  1,597     CDSCs:        $  3,043     CDSCs:        $    5,906



- ----------
(1)   FSCs apply to Class A only.


     The Distributor has informed the Fund that the entire fee payable by Class
A and a portion of the fees payable by each of Class B and Class C each year
pursuant to the Plan equal to 0.25% of such Class' average daily net assets are
currently each characterized as a "service fee" under the Rules of the NASD (of
which the Distributor is a member). The "service fee" is a payment made for
personal service and/or the maintenance of shareholder accounts. The remaining
portion of the Plan fees payable by a Class, if any, is characterized as an
"asset-based sales charge" as such is defined by the Rules of the NASD.


     Under the Plan and as required by Rule 12b-1, the Trustees receive and
review promptly after the end of each calendar quarter a written report
provided by the Distributor of the amounts expended under the Plan and the
purpose for which such expenditures were made. Class B shares of the Fund
accrued amounts payable to the Distributor under the Plan, during the fiscal
year ended November 30, 2004, of $2,783,963. This amount is equal to 1.00% of
the average daily net assets of Class B for the fiscal year and was calculated
pursuant to clause (b) of the compensation formula under the Plan. For the
fiscal year ended November 30, 2004, Class A and Class C shares of the Fund
accrued payments under the Plan amounting to $25,247 and $156,665,
respectively, which amounts are equal to 0.23% and 0.99% of the average daily
net assets of Class A and Class C, respectively, for the fiscal year.



                                       27




     The Plan was adopted in order to permit the implementation of the Fund's
method of distribution. Under this distribution method the Fund offers four
Classes, each with a different distribution arrangement.

     With respect to Class A shares, Morgan Stanley DW compensates its
Financial Advisors by paying them, from proceeds of the FSC, commissions for
the sale of Class A shares, currently a gross sales credit of up to 5.0% of the
amount sold and an annual residual commission, currently a residual of up to
0.25% of the current value of the respective accounts for which they are the
Financial Advisors or dealers of record in all cases.

     With respect to Class B shares, Morgan Stanley DW compensates its
Financial Advisors by paying them, from its own funds, commissions for the sale
of Class B shares, currently a gross sales credit of up to 4.0% of the amount
sold and an annual residual commission, currently a residual of up to 0.25% of
the current value (not including reinvested dividends or distributions) of the
amount sold in all cases.

     With respect to Class C shares, Morgan Stanley DW compensates its
Financial Advisors by paying them, from its own funds, commissions for the sale
of Class C shares, currently a gross sales credit of up to 1.0% of the amount
sold and an annual residual commission, currently up to 1.0% of the current
value of the respective accounts for which they are the Financial Advisors of
record.

     The gross sales credit is a charge which reflects commissions paid by
Morgan Stanley DW to its Financial Advisors and Morgan Stanley DW's
Fund-associated distribution-related expenses, including sales compensation,
and overhead and other branch office distribution-related expenses including
(a) the expenses of operating Morgan Stanley DW's branch offices in connection
with the sale of Fund shares, including lease costs, the salaries and employee
benefits of operations and sales support personnel, utility costs,
communications costs and the costs of stationery and supplies; (b) the costs of
client sales seminars; (c) travel expenses of mutual fund sales coordinators to
promote the sale of Fund shares; and (d) other expenses relating to branch
promotion of Fund sales.

     The distribution fee that the Distributor receives from the Fund under the
Plan, in effect, offsets distribution expenses incurred under the Plan on
behalf of the Fund and, in the case of Class B shares, opportunity costs, such
as the gross sales credit and an assumed interest charge thereon ("carrying
charge"). These expenses may include the cost of Fund-related educational
and/or business-related trips or payment of Fund-related educational and/or
promotional expenses of Financial Advisors. For example, the Distributor has
implemented a compensation program available only to Financial Advisors meeting
specified criteria under which certain marketing and/or promotional expenses of
those Financial Advisors are paid by the Distributor out of compensation it
receives under the Plan. In the Distributor's reporting of the distribution
expenses to the Fund, in the case of Class B shares, such assumed interest
(computed at the "broker's call rate") has been calculated on the gross credit
as it is reduced by amounts received by the Distributor under the Plan and any
contingent deferred sales charges received by the Distributor upon redemption
of shares of the Fund. No other interest charge is included as a distribution
expense in the Distributor's calculation of its distribution costs for this
purpose. The broker's call rate is the interest rate charged to securities
brokers on loans secured by exchange-listed securities.

     The Fund is authorized to reimburse expenses incurred or to be incurred in
promoting the distribution of the Fund's Class A and Class C shares and in
servicing shareholder accounts. Reimbursement will be made through payments at
the end of each month. The amount of each monthly payment may in no event
exceed an amount equal to a payment at the annual rate of 0.25%, in the case of
Class A, and 1.0%, in the case of Class C, of the average net assets of the
respective Class during the month. No interest or other financing charges, if
any, incurred on any distribution expenses on behalf of Class A and Class C
will be reimbursable under the Plan. With respect to Class A, in the case of
all expenses other than expenses representing the service fee, and, with
respect to Class C, in the case of all expenses other than expenses
representing a gross sales credit or a residual to Financial Advisors and other
authorized financial representatives, such amounts shall be determined at the
beginning of each calendar quarter by the Trustees, including, a majority of
the Independent Trustees. Expenses representing the service fee (for Class A)
or a gross sales credit or a residual to Financial Advisors and other
authorized financial representatives (for Class C) may be reimbursed without
prior Board determination. In the event that the Distributor proposes that
monies shall be reimbursed for other than


                                       28




such expenses, then in making quarterly determinations of the amounts that may
be reimbursed by the Fund, the Distributor will provide and the Trustees will
review a quarterly budget of projected distribution expenses to be incurred on
behalf of the Fund, together with a report explaining the purposes and
anticipated benefits of incurring such expenses. The Trustees will determine
which particular expenses, and the portions thereof, that may be borne by the
Fund, and in making such a determination shall consider the scope of the
Distributor's commitment to promoting the distribution of the Fund's Class A
and Class C shares.

     Each Class paid 100% of the amounts accrued under the Plan with respect to
that Class for the fiscal year ended November 30, 2004 to the Distributor. The
Distributor and Morgan Stanley DW estimate that they have spent, pursuant to
the Plan, $111,285,397 on behalf of Class B since the inception of the Plan. It
is estimated that this amount was spent in approximately the following ways:
(i) 11.09% ($12,338,791)-advertising and promotional expenses; (ii) 0.19%
($214,336)-printing and mailing of prospectuses for distribution to other than
current shareholders; and (iii) 88.72% ($98,732,270)-other expenses, including
the gross sales credit and the carrying charge, of which 7.39% ($7,295,227)
represents carrying charges, 24.21% ($23,907,857) represents commission credits
to Morgan Stanley DW's branch offices and other selected broker-dealers for
payments of commissions to Financial Advisors and other authorized financial
representatives, and 34.28% ($33,840,589) represents overhead and other branch
office distribution-related expenses and 34.12% ($33,688,597) represents excess
distribution expenses of Morgan Stanley Dean Witter Mid-Cap Dividend Growth
Securities, the net assets of which were combined with those of the Fund on
July 24, 2000 pursuant to an Agreement and Plan of Reorganization. The amounts
accrued by Class A and a portion of the amounts accrued by Class C under the
Plan during the fiscal year ended November 30, 2004 were service fees. The
remainder of the amounts accrued by Class C were for expenses which relate to
compensation of sales personnel and associated overhead expenses.

     In the case of Class B shares, at any given time, the expenses of
distributing shares of the Fund may be more or less than the total of (i) the
payments made by the Fund pursuant to the Plan; and (ii) the proceeds of CDSCs
paid by investors upon redemption of shares. For example, if $1 million in
expenses in distributing Class B shares of the Fund had been incurred and
$750,000 had been received as described in (i) and (ii) above, the excess
expense would amount to $250,000. The Distributor has advised the Fund that in
the case of Class B shares the excess distribution expenses, including the
carrying charge designed to approximate the opportunity costs incurred by
Morgan Stanley DW which arise from it having advanced monies without having
received the amount of any sales charges imposed at the time of sale of the
Fund's Class B shares, totaled $58,525,461 as of November 30, 2004 (the end of
the Fund's fiscal year), which was equal to 21.60% of the net assets of Class B
on such date. Because there is no requirement under the Plan that the
Distributor be reimbursed for all distribution expenses with respect to Class B
shares or any requirement that the Plan be continued from year to year, this
excess amount does not constitute a liability of the Fund. 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 CDSCs 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. Any cumulative expenses incurred, but not yet recovered through
distribution fees or CDSCs, may or may not be recovered through future
distribution fees or CDSCs.

     Under the Amended Plan, the Fund is authorized to reimburse the
Distributor for its actual distribution expenses incurred on behalf of Class B
shares and from unreimbursed distribution expenses, on a monthly basis, the
amount of which may in no event exceed an amount equal to payment at the annual
rate of 1.00% of average daily net assets of Class B.

     In the case of Class A and Class C shares, expenses incurred pursuant to
the Plan in any calendar year in excess of 0.25% or 1.0% of the average daily
net assets of Class A or Class C, respectively, will not be reimbursed by the
Fund through payments in any subsequent year, except that expenses representing
a gross sales commission credited to Morgan Stanley Financial Advisors and
other authorized financial representatives at the time of sale may be
reimbursed in the subsequent calendar year. The Distributor has advised the
Fund that there were no such expenses that may be reimbursed in the subsequent
year in the case of Class C at December 31, 2004 (the end of the calendar
year). No


                                       29




interest or other financing charges will be incurred on any Class A or Class C
distribution expenses incurred by the Distributor under the Plan or on any
unreimbursed expenses due to the Distributor pursuant to the Plan.

     No interested person of the Fund nor any Independent Trustee has any
direct financial interest in the operation of the Plan except to the extent
that the Distributor, the Investment Adviser, Morgan Stanley DW, Morgan Stanley
Services or certain of their employees may be deemed to have such an interest
as a result of benefits derived from the successful operation of the Plan or as
a result of receiving a portion of the amounts expended thereunder by the Fund.


     On an annual basis, the Trustees, including a majority of the Independent
Trustees, consider whether the Plan should be continued. Prior to approving the
last continuation of the Plan, the Trustees requested and received from the
Distributor and reviewed all the information which they deemed necessary to
arrive at an informed determination. In making their determination to continue
the Plan, the Trustees considered: (1) the Fund's experience under the Plan and
whether such experience indicates that the Plan is operating as anticipated;
(2) the benefits the Fund had obtained, was obtaining and would be likely to
obtain under the Plan, including that: (a) the Plan is essential in order to
give Fund investors a choice of alternatives for payment of distribution and
service charges and to enable the Fund to continue to grow and avoid a pattern
of net redemptions which, in turn, are essential for effective investment
management; and (b) without the compensation to individual brokers and the
reimbursement of distribution and account maintenance expenses of Morgan
Stanley DW's branch offices made possible by the 12b-1 fees, Morgan Stanley DW
could not establish and maintain an effective system for distribution,
servicing of Fund shareholders and maintenance of shareholder accounts; and (3)
what services had been provided and were continuing to be provided under the
Plan to the Fund and its shareholders. Based upon their review, the Trustees,
including each of the Independent Trustees, determined that continuation of the
Plan would be in the best interest of the Fund and would have a reasonable
likelihood of continuing to benefit the Fund and its shareholders.

     The Plan may not be amended to increase materially the amount to be spent
for the services described therein without approval by the shareholders of the
affected Class or Classes of the Fund, and all material amendments to the Plan
must also be approved by the Trustees. The Plan may be terminated at any time,
without payment of any penalty, by vote of a majority of the Independent
Trustees or by a vote of a majority of the outstanding voting securities of the
Fund (as defined in the Investment Company Act) on not more than 30 days'
written notice to any other party to the Plan. So long as the Plan is in
effect, the election and nomination of Independent Trustees shall be committed
to the discretion of the Independent Trustees.

F. OTHER SERVICE PROVIDERS

     (1) TRANSFER AGENT/DIVIDEND-PAYING AGENT

     Morgan Stanley Trust is the Transfer Agent for the Fund's shares and the
Dividend Disbursing Agent for payment of dividends and distributions on Fund
shares and Agent for shareholders under various investment plans. The principal
business address of the Transfer Agent is Harborside Financial Center, Plaza
Two, 2nd Floor, Jersey City, NJ 07311.

     (2) CUSTODIAN AND INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

     The Bank of New York, 100 Church Street, New York, NY 10286, is the
Custodian of the Fund's assets. Any of the Fund's cash balances with the
Custodian in excess of $100,000 are unprotected by federal deposit insurance.
These balances may, at times, be substantial.


     Deloitte & Touche LLP, Two World Financial Center, New York, NY 10281, is
the independent registered public accounting firm of the Fund. The Fund's
independent registered public accounting firm is responsible for auditing the
annual financial statements.


     (3) AFFILIATED PERSONS

     The Transfer Agent is an affiliate of the Investment Adviser and the
Distributor. As Transfer Agent and Dividend Disbursing Agent, the Transfer
Agent's responsibilities include maintaining shareholder


                                       30





accounts, disbursing cash dividends and reinvesting dividends, processing
account registration changes, handling purchase and redemption transactions,
mailing prospectuses and reports, mailing and tabulating proxies, processing
share certificate transactions, and maintaining shareholder records and lists.
For these services, the Transfer Agent receives a per shareholder account fee
from the Fund and is reimbursed for its out-of-pocket expenses in connection
with such services.

G. FUND MANAGEMENT

OTHER ACCOUNTS MANAGED BY THE PORTFOLIO MANAGERS

     As of November 30, 2004, Dennis P. Lynch managed 34 registered investment
companies with a total of $14.8 billion in assets; two pooled investment
vehicles other than registered investment companies with a total of $339
million in assets; and 313 other accounts with a total of $1.4 billion in
assets.

     As of November 30, 2004, David S. Cohen managed 34 registered investment
companies with a total of $14.8 billion in assets; two pooled investment
vehicles other than registered investment companies with a total of $339
million in assets; and 313 other accounts with a total of $1.4 billion in
assets.

     As of November 30, 2004, Sam Chainani managed 34 registered investment
companies with a total of $14.8 billion in assets; two pooled investment
vehicles other than registered investment companies with a total of $339
million in assets; and 313 other accounts with a total of $1.4 billion in
assets.

     Messrs. Lynch, Cohen and Chainani manage such registered investment
companies, pooled investment vehicles, and other accounts pursuant to six
primary investment strategies.

     Because the portfolio managers manage assets for other investment
companies, pooled investment vehicles, and/or other accounts (including
institutional clients, pension plans and certain high net worth individuals),
there may be an incentive to favor one client over another resulting in
conflicts of interest. For instance, the Investment Adviser may receive fees
from certain accounts that are higher than the fee it receives from the Fund,
or it may receive a performance-based fee on certain accounts. In those
instances, the portfolio managers may have an incentive to favor the higher
and/or performance-based fee accounts over the Fund. The Investment Adviser has
adopted trade allocation and other policies and procedures that it believes are
reasonably designed to address these and other conflicts of interest.

PORTFOLIO MANAGER COMPENSATION STRUCTURE

     Portfolio managers receive a combination of base compensation and
discretionary compensation, comprising a cash bonus and several deferred
compensation programs described below. The methodology used to determine
portfolio manager compensation is applied across all accounts managed by the
portfolio manager.

     BASE SALARY COMPENSATION. Generally, portfolio managers receive base
salary compensation based on the level of their position with the Investment
Adviser.

     DISCRETIONARY COMPENSATION. In addition to base compensation, portfolio
managers may receive discretionary compensation.

Discretionary compensation can include:

   o  Cash Bonus;

   o  Morgan Stanley's Equity Incentive Compensation Program (EICP) awards-a
      mandatory program that defers a portion of discretionary year-end
      compensation into restricted stock units or other awards based on Morgan
      Stanley common stock that are subject to vesting and other conditions;



                                       31





   o  Investment Management Deferred Compensation Plan (IMDCP) awards-a
      mandatory program that defers a portion of discretionary year-end
      compensation and notionally invests it in designated funds advised by the
      Investment Adviser or its affiliates. The award is subject to vesting and
      other conditions. Portfolio Managers must notionally invest a minimum of
      25% to a maximum of 50% of the IMDCP deferral into a combination of the
      designated funds they manage that are included in the IMDCP fund menu,
      which may or may not include the Fund;

   o  Select Employees' Capital Accumulation Program (SECAP) awards-a
      voluntary program that permits employees to elect to defer a portion of
      their discretionary compensation and notionally invest the deferred
      amount across a range of designated investment funds, including funds
      advised by the Investment Adviser or its affiliates; and

   o  Voluntary Equity Incentive Compensation Program (VEICP) awards-a
      voluntary program that permits employees to elect to defer a portion of
      their discretionary compensation to invest in Morgan Stanley stock units.


     Several factors determine discretionary compensation, which can vary by
portfolio management team and circumstances. In order of relative importance,
these factors include:

   o  Investment performance. A portfolio manager's compensation is linked to
      the pre-tax investment performance of the accounts managed by the
      portfolio manager. Investment performance is calculated for one-, three-
      and five-year periods measured against a fund's primary benchmark (as set
      forth in the fund's prospectus), indices and/or peer groups. Generally,
      the greatest weight is placed on the three- and five-year periods.

   o  Revenues generated by the investment companies, pooled investment
      vehicles and other accounts managed by the portfolio manager.

   o  Contribution to the business objectives of the Investment Adviser.

   o  The dollar amount of assets managed by the portfolio manager.

   o  Market compensation survey research by independent third parties.

   o  Other qualitative factors, such as contributions to client objectives.

   o  Performance of Morgan Stanley and Morgan Stanley Investment Management,
      and the overall performance of the Global Investor Group, a department
      within Morgan Stanley Investment Management that includes all investment
      professionals.

     Occasionally, to attract new hires or to retain key employees, the total
amount of compensation will be guaranteed in advance of the fiscal year end
based on current market levels. In limited circumstances, the guarantee may
continue for more than one year. The guaranteed compensation is based on the
same factors as those comprising overall compensation described above.


SECURITIES OWNERSHIP OF PORTFOLIO MANAGERS

     As of January 31, 2005, the dollar range of securities beneficially owned
by each portfolio manager in the Fund is shown below:


     Dennis Lynch
         X  None


     David Cohen
         X  None


     Sam Chainani
         X  None


                                       32





H. CODES OF ETHICS


     The Fund, the Investment Adviser and the Distributor have each adopted a
Code of Ethics pursuant to Rule 17j-1 under the Investment Company Act. The
Codes of Ethics are designed to detect and prevent improper personal trading.
The Codes of Ethics permit personnel subject to the Codes to invest in
securities, including securities that may be purchased, sold or held by the
Fund, subject to a number of restrictions and controls, including prohibitions
against purchases of securities in an Initial Public Offering and a
preclearance requirement with respect to personal securities transactions.


I. PROXY VOTING POLICY AND PROXY VOTING RECORD

     The Board of Trustees believes that the voting of proxies on securities
held by the Fund is an important element of the overall investment process. As
such, the Board has delegated the responsibility to vote such proxies to the
Investment Adviser. The following is a summary of the Investment Adviser's
Proxy Voting Policy ("Policy").

     The Investment Adviser uses its best efforts to vote proxies on securities
held in the Fund as part of its authority to manage, acquire and dispose of
Fund assets. In this regard, the Investment Adviser has formed a Proxy Review
Committee ("Committee") comprised of senior investment professionals that is
responsible for creating and implementing the Policy. The Committee meets
monthly but may meet more frequently as conditions warrant. The Policy provides
that the Investment Adviser will vote proxies in the best interests of clients
consistent with the objective of maximizing long-term investment returns. The
Policy provides that the Investment Adviser will generally vote proxies in
accordance with pre-determined guidelines contained in the Policy. The
Investment Adviser may vote in a manner that is not consistent with the
pre-determined guidelines, provided that the vote is approved by the Committee.

     The Policy provides that, unless otherwise determined by the Committee,
votes will be cast in the manner described below:

   o  Routine proposals will be voted in support of management.

   o  With regard to the election of directors, where no conflict exists and
      where no specific governance deficiency has been noted, votes will be
      cast in support of management's nominees.

   o  The Investment Adviser will vote in accordance with management's
      recommendation with respect to certain non-routine proposals (i.e.,
      reasonable capitalization changes, stock repurchase programs, stock
      splits, certain compensation-related matters, certain anti-takeover
      measures, etc.) which potentially may have a substantive financial or
      best interest impact on a shareholder.

   o  The Investment Adviser will vote against certain non-routine proposals
      (i.e., unreasonable capitalization changes, establishment of cumulative
      voting rights for the election of directors, requiring supermajority
      shareholder votes to amend by-laws, indemnification of auditors, etc.)
      which potentially may have a substantive financial or best interest
      impact on a shareholder (notwithstanding management support).

   o  The Investment Adviser will vote in its discretion with respect to
      certain non-routine proposals (i.e., mergers, acquisitions, take-overs,
      spin-offs, etc.) which may have a substantive financial or best interest
      impact on an issuer.

   o  The Investment Adviser will vote for certain shareholder proposals it
      believes call for reasonable charter provisions or corporate governance
      practices (i.e., requiring auditors to attend annual shareholder
      meetings, requiring that members of compensation, nominating and audit
      committees be independent, requiring diversity of board membership
      relating to broad based social, religious or ethnic groups, reducing or
      eliminating supermajority voting requirements, etc).

   o  The Investment Adviser will vote against certain shareholder proposals
      it believes call for unreasonable charter provisions or corporate
      governance practices (i.e., proposals to declassify boards, proposals to
      require a company to prepare reports that are costly to provide or that
      would require duplicative efforts or expenditure that are of a
      non-business nature or would



                                       33





      provide no pertinent information from the perspective of institutional
      shareholders, proposals requiring inappropriate endorsements or corporate
      actions, etc.)

   o  Certain other shareholder proposals (i.e., proposals that limit the
      tenure of directors, proposals that limit golden parachutes, proposals
      requiring directors to own large amounts of company stock to be eligible
      for election, proposals that limit retirement benefits or executive
      compensation, etc.) generally are evaluated by the Committee based on the
      nature of the proposal and the likely impact on shareholders.

While the proxy voting process is well-established in the United States and
other developed markets with a number of tools and services available to assist
an investment manager, voting proxies of non-U.S. companies located in certain
jurisdictions, particularly emerging markets, may involve a number of problems
that may restrict or prevent the Investment Adviser's ability to vote such
proxies. As a result, non-U.S. proxies will be voted on a best efforts basis
only, after weighing the costs and benefits to the Fund of voting such proxies.

CONFLICTS OF INTEREST

     If the Committee determines that an issue raises a material conflict of
interest, or gives rise to a potential material conflict of interest, the
Committee will request a special committee to review, and recommend a course of
action with respect to, the conflict in question and that the Committee will
have sole discretion to cast a vote.

THIRD PARTIES

     To assist the Investment Adviser in its responsibility for voting proxies,
Institutional Shareholder Services ("ISS") has been retained as experts in the
proxy voting and corporate governance area. The services provided to the
Investment Adviser include in-depth research, global issuer analysis, and
voting recommendations. While the Investment Adviser may review and utilize the
ISS recommendations in making proxy voting decisions, it is in no way obligated
to follow the ISS recommendations. In addition to research, ISS provides vote
execution, reporting, and recordkeeping. The Committee carefully monitors and
supervises the services provided by the proxy research services.

FURTHER INFORMATION

     A copy of the Policy, as well as the Fund's proxy voting record for the
most recent twelve-month period ended June 30, are available (i) without charge
by calling (800) 869-NEWS or by visiting the Mutual Fund Center on our web site
at www.morganstanley.com/funds and (ii) on the SEC's web site at www.sec.gov.

J. REVENUE SHARING


     The Investment Adviser and/or Distributor may pay compensation, out of
their own funds and not as an expense of the Fund, to Morgan Stanley DW and
certain unaffiliated brokers, dealers or other financial Intermediaries
("Intermediaries") in connection with the sale or retention of Fund shares
and/or shareholder servicing. For example, the Investment Adviser or the
Distributor may pay additional compensation to Morgan Stanley DW and to
Intermediaries for the purpose of promoting the sale of Fund shares,
maintaining share balances and/or for sub-accounting, administrative or
shareholder processing services. Such payments are in addition to any
distribution fees, service fees and/or transfer agency fees that may be payable
by the Fund. The additional payments may be based on factors, including level
of sales (based on gross or net sales or some specified minimum sales or some
other similar criteria related to sales of the Fund and/or some or all other
Morgan Stanley Funds), amount of assets invested by the Intermediary's
customers (which could include current or aged assets of the Fund and/or some
or all other Morgan Stanley Funds), the Fund's advisory fees, some other agreed
upon amount, or other measures as determined from time to time by the
Investment Adviser and/or Distributor. The amount of these payments, as
determined from time to time by the Investment Adviser or the Distributor, may
be different for different Intermediaries.

     These payments currently include the following amounts which are paid to
Financial Advisors and Intermediaries or their salespersons in accordance with
the applicable compensation structure:


                                       34




   (1)   On sales of $1 million or more of Class A shares (for which no sales
         charge was paid) or net asset value purchases by certain employee
         benefit plans, Morgan Stanley DW and other Intermediaries receive a
         gross sales credit of up to 1.00% of the amount sold.

   (2)   On sales of Class D shares other than shares held by participants in
         the Investment Adviser's mutual fund asset allocation program and in
         the Morgan Stanley Choice Program, Morgan Stanley DW and other
         Intermediaries receive a gross sales credit of 0.25% of the amount
         sold and an annual residual commission of up to 0.10% of the current
         value of the accounts. There is a chargeback of 100% of the gross
         sales credit amount paid if the Class D shares are redeemed in the
         first year and a chargeback of 50% of the gross sales credit amount
         paid if the shares are redeemed in the second year.

   (3)   On sales (except purchases through 401(k) platforms) through Morgan
         Stanley DW's Mutual Fund Network:


         o  An amount equal to 0.11% of gross sales of Fund shares; and

         o  For those shares purchased beginning April 1, 2005, an annual fee
            in an amount up to 0.04% of the value of such shares.

         o  For those shares purchased between January 1, 2001 and March 31,
            2005, an annual fee in an amount up to 0.05% of the value of such
            Fund shares held for a one-year period or more.


   (4)   An amount equal to 0.20% on the value of shares sold through 401(k)
         platforms.

     The prospect of receiving, or the receipt of, additional compensation, as
described above, by Morgan Stanley DW or other Intermediaries may provide
Morgan Stanley DW or other Intermediaries and/or Financial Advisors and other
salespersons with an incentive to favor sales of shares of the Fund over other
investment options with respect to which Morgan Stanley DW or an Intermediary
does not receive additional compensation (or receives lower levels of
additional compensation). These payment arrangements, however, will not change
the price that an investor pays for shares of the Fund. Investors may wish to
take such payment arrangements into account when considering and evaluating any
recommendations relating to Fund shares.

     You should review carefully any disclosure by such brokers, dealers or
other Intermediaries as to their compensation.



VI. BROKERAGE ALLOCATION AND OTHER PRACTICES
- --------------------------------------------------------------------------------
A. BROKERAGE TRANSACTIONS


     Subject to the general supervision of the Trustees, the Investment Adviser
is responsible for decisions to buy and sell securities for the Fund, the
selection of brokers and dealers to effect the transactions, and the
negotiation of brokerage commissions, if any. Purchases and sales of securities
on a stock exchange are effected through brokers who charge a commission for
their services. In the over-the-counter market, securities are generally traded
on a "net" basis with dealers acting as principal for their own accounts
without a stated commission, although the price of the security usually
includes a profit to the dealer. The Fund also expects that securities will be
purchased at times in underwritten offerings where the price includes a fixed
amount of compensation, generally referred to as the underwriter's concession
or discount. On occasion, the Fund may also purchase certain money market
instruments directly from an issuer, in which case no commissions or discounts
are paid.


     For the fiscal years ended November 30, 2002, 2003 and 2004, the Fund paid
a total of $2,766,020, $2,429,532 and $1,215,734, respectively, in brokerage
commissions.



B. COMMISSIONS

     Pursuant to an order of the SEC, the Fund may effect principal
transactions in certain money market instruments with Morgan Stanley DW. The
Fund will limit its transactions with Morgan Stanley DW to U.S. government and
government agency securities, bank money instruments (i.e., certificates of
deposit and bankers' acceptances) and commercial paper. The transactions will
be effected with Morgan Stanley DW only when the price available from Morgan
Stanley DW is better than that available from other dealers.


                                       35




     During the fiscal years ended November 30, 2002, 2003 and 2004, the Fund
did not effect any principal transactions with Morgan Stanley DW.

     Brokerage transactions in securities listed on exchanges or admitted to
unlisted trading privileges may be effected through Morgan Stanley DW, Morgan
Stanley & Co. and other affiliated brokers and dealers. In order for an
affiliated broker or dealer to effect any portfolio transactions on an exchange
for the Fund, the commissions, fees or other remuneration received by the
affiliated broker or dealer must be reasonable and fair compared to the
commissions, fees or other remuneration paid to other brokers in connection
with comparable transactions involving similar securities being purchased or
sold on an exchange during a comparable period of time. This standard would
allow the affiliated broker or dealer to receive no more than the remuneration
which would be expected to be received by an unaffiliated broker in a
commensurate arm's-length transaction. Furthermore, the Trustees, including the
Independent Trustees, have adopted procedures which are reasonably designed to
provide that any commissions, fees or other remuneration paid to an affiliated
broker or dealer are consistent with the foregoing standard. The Fund does not
reduce the management fee it pays to the Investment Adviser by any amount of
the brokerage commissions it may pay to an affiliated broker or dealer.

     During the fiscal years ended November 30, 2002, 2003 and 2004, the Fund
did not pay any brokerage commissions to Morgan Stanley DW.


     During the fiscal years ended November 30, 2002, 2003 and 2004, the Fund
paid a total of $100,059, $43,632 and $94,689, respectively, in brokerage
commissions to Morgan Stanley & Co. During the fiscal year ended November 30,
2004, the brokerage commissions paid to Morgan Stanley & Co. represented
approximately 7.79% of the total brokerage commissions paid by the Fund during
the year and were paid on account of transactions having an aggregate dollar
value equal to approximately 7.23% of the aggregate dollar value of all
portfolio transactions of the Fund during the year for which commissions were
paid.



C. BROKERAGE SELECTION

     The policy of the Fund regarding purchases and sales of securities for its
portfolio is that primary consideration will be given to obtaining the most
favorable prices and efficient executions of transactions. The Investment
Adviser is prohibited from directing brokerage transactions on the basis of the
referral of clients or the sale of shares of advised investment companies.
Consistent with this policy, when securities transactions are effected on a
stock exchange, the Fund's policy is to pay commissions which are considered
fair and reasonable without necessarily determining that the lowest possible
commissions are paid in all circumstances. The Fund believes that a requirement
always to seek the lowest possible commission cost could impede effective
portfolio management and preclude the Fund and the Investment Adviser from
obtaining a high quality of brokerage and research services. In seeking to
determine the reasonableness of brokerage commissions paid in any transaction,
the Investment Adviser relies upon its experience and knowledge regarding
commissions generally charged by various brokers and on its judgment in
evaluating the brokerage and research services received from the broker
effecting the transaction. These determinations are necessarily subjective and
imprecise, as in most cases an exact dollar value for those services is not
ascertainable. The Fund anticipates that certain of its transactions involving
foreign securities will be effected on foreign securities exchanges. Fixed
commissions on such transactions are generally higher than negotiated
commissions on domestic transactions. There is also generally less government
supervision and regulation of foreign securities exchanges and brokers than in
the United States.

     In seeking to implement the Fund's policies, the Investment Adviser
effects transactions with those brokers and dealers who the Investment Adviser
believes provide the most favorable prices and are capable of providing
efficient executions. If the Investment Adviser believes the prices and
executions are obtainable from more than one broker or dealer, it may give
consideration to placing portfolio transactions with those brokers and dealers
who also furnish research and other services to the Fund or the Investment
Adviser. The services may include, but are not limited to, any one or more of
the following: information as to the availability of securities for purchase or
sale; statistical or factual information or opinions pertaining to investment;
wire services; and appraisals or evaluations of portfolio securities. The


                                       36




information and services received by the Investment Adviser from brokers and
dealers may be utilized by the Investment Adviser and any of its asset
management affiliates in the management of accounts of some of their other
clients and may not in all cases benefit the Fund directly.


     The Investment Adviser and certain of its affiliates currently serve as
investment advisers to a number of clients, including other investment
companies, and may in the future act as investment adviser or adviser to
others. It is the practice of the Investment Adviser, and its affiliates, to
cause purchase and sale transactions (including transactions in certain initial
and secondary public offerings) to be allocated among clients whose assets they
manage (including the Fund) in such manner they deem equitable. In making such
allocations among the Fund and other client accounts, various factors may be
considered, including the respective investment objectives, the relative size
of portfolio holdings of the same or comparable securities, the availability of
cash for investment, the size of investment commitments generally held and the
opinions of the persons responsible for managing the portfolios of the Fund and
other client accounts. The Investment Adviser and its affiliates may operate
one or more order placement facilities and each facility will implement order
allocation in accordance with the procedures described above. From time to
time, each facility may transact in a security at the same time as other
facilities are trading in that security.



D. DIRECTED BROKERAGE


     During the fiscal year ended November 30, 2004, the Fund paid $1,031,200
in brokerage commissions in connection with transactions in the aggregate
amount of $826,136,811 to brokers because of research services provided.



E. REGULAR BROKER-DEALERS


     During the fiscal year ended November 30, 2004, the Fund did not purchase
securities issued by brokers or dealers that were among the ten brokers or the
ten dealers that executed transactions for or with the Fund in the largest
dollar amounts during the year. At November 30, 2004, the Fund did not own any
securities issued by any of these issuers.




VII. CAPITAL STOCK AND OTHER SECURITIES
- --------------------------------------------------------------------------------
     The shareholders of the Fund are entitled to a full vote for each full
share of beneficial interest held. The Fund is authorized to issue an unlimited
number of shares of beneficial interest. All shares of beneficial interest of
the Fund are of $0.01 par value and are equal as to earnings, assets and voting
privileges except that each Class will have exclusive voting privileges with
respect to matters relating to distribution expenses borne solely by such Class
or any other matter in which the interests of one Class differ from the
interests of any other Class. In addition, Class B shareholders will have the
right to vote on any proposed material increase in Class A's expenses, if such
proposal is submitted separately to Class A shareholders. Also, Class A, Class
B and Class C bear expenses related to the distribution of their respective
shares.

     The Fund's Declaration of Trust permits the Trustees to authorize the
creation of additional series of shares (the proceeds of which would be
invested in separate, independently managed portfolios) and additional Classes
of shares within any series. The Trustees have not presently authorized any
such additional series or Classes of shares other than as set forth in the
Prospectus.

     The Fund is not required to hold annual meetings of shareholders and in
ordinary circumstances the Fund does not intend to hold such meetings. The
Trustees may call special meetings of shareholders for action by shareholder
vote as may be required by the Investment Company Act or the Declaration of
Trust. Under certain circumstances, the Trustees may be removed by action of
the Trustees. In addition, under certain circumstances, the shareholders may
call a meeting to remove Trustees and the Fund is required to provide
assistance in communicating with shareholders about such a meeting. The voting
rights of shareholders are not cumulative, so that holders of more than 50% of
the shares voting can, if they choose, elect all Trustees being selected, while
the holders of the remaining shares would be unable to elect any Trustees.


                                       37




     Under Massachusetts law, shareholders of a business trust may, under
certain limited circumstances, be held personally liable as partners for the
obligations of the Fund. However, the Declaration of Trust contains an express
disclaimer of shareholder liability for acts or obligations of the Fund,
requires that notice of such Fund obligations include such disclaimer, and
provides for indemnification out of the Fund's property for any shareholder
held personally liable for the obligations of the Fund. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Fund itself would be unable to meet its
obligations. Given the above limitations on shareholder personal liability, and
the nature of the Fund's assets and operations, the possibility of the Fund
being unable to meet its obligations is remote and thus, in the opinion of
Massachusetts counsel to the Fund, the risk to Fund shareholders of personal
liability is remote.

     All of the Trustees, except for James F. Higgins, Joseph J. Kearns and
Fergus Reid, have been elected by the shareholders of the Fund, most recently
at a Special Meeting of Shareholders held on June 8, 1999. The Trustees
themselves have the power to alter the number and the terms of office of the
Trustees (as provided for in the Declaration of Trust), and they may at any
time lengthen or shorten their own terms or make their terms of unlimited
duration and appoint their own successors, provided that always at least a
majority of the Trustees has been elected by the shareholders of the Fund.

VIII. PURCHASE, REDEMPTION AND PRICING OF SHARES
- --------------------------------------------------------------------------------
A. PURCHASE/REDEMPTION OF SHARES

     Information concerning how Fund shares are offered to the public (and how
they are redeemed and exchanged) is provided in the Fund's Prospectus.

     TRANSFER AGENT AS AGENT. With respect to the redemption or repurchase of
Fund shares, the application of proceeds to the purchase of new shares in the
Fund or any other Morgan Stanley Fund and the general administration of the
exchange privilege, the Transfer Agent acts as agent for the Distributor and
for the shareholder's authorized broker-dealer, if any, in the performance of
such functions. With respect to exchanges, redemptions or repurchases, the
Transfer Agent is liable for its own negligence and not for the default or
negligence of its correspondents or for losses in transit. The Fund is not
liable for any default or negligence of the Transfer Agent, the Distributor or
any authorized broker-dealer.

     The Distributor and any authorized broker-dealer have appointed the
Transfer Agent to act as their agent in connection with the application of
proceeds of any redemption of Fund shares to the purchase of shares of any
other Morgan Stanley Fund and the general administration of the exchange
privilege. No commission or discounts will be paid to the Distributor or any
authorized broker-dealer for any transaction pursuant to the exchange
privilege.

     TRANSFERS OF SHARES. In the event a shareholder requests a transfer of
Fund shares to a new registration, the shares will be transferred without sales
charge at the time of transfer. With regard to the status of shares which are
either subject to the CDSC or free of such charge (and with regard to the
length of time shares subject to the charge have been held), any transfer
involving less than all of the shares in an account will be made on a pro rata
basis (that is, by transferring shares in the same proportion that the
transferred shares bear to the total shares in the account immediately prior to
the transfer). The transferred shares will continue to be subject to any
applicable CDSC as if they had not been so transferred.

     OUTSIDE BROKERAGE ACCOUNTS. If a shareholder wishes to maintain his or her
fund account through a brokerage company other than Morgan Stanley DW, he or
she may do so only if the Distributor has entered into a selected dealer
agreement with that brokerage company. Accounts maintained through a brokerage
company other than Morgan Stanley DW may be subject to certain restrictions on
subsequent purchases and exchanges. Please contact your brokerage company or
the Transfer Agent for more information.

B. OFFERING PRICE

     The Fund's Class B, Class C and Class D shares are offered at net asset
value per share and the Class A shares are offered at net asset value per share
plus any applicable FSC which is distributed


                                       38




among the Fund's Distributor, Morgan Stanley DW and other authorized dealers as
described in Section "V. Management, Investment Advice and Other Services-E.
Rule 12b-1 Plan." The price of Fund shares, called "net asset value," is based
on the value of the Fund's portfolio securities. Net asset value per share of
each Class is calculated by dividing the value of the portion of the Fund's
securities and other assets attributable to that Class, less the liabilities
attributable to that Class, by the number of shares of that Class outstanding.
The assets of each Class of shares are invested in a single portfolio. The net
asset value of each Class, however, will differ because the Classes have
different ongoing fees.

     In the calculation of the Fund's net asset value: (1) an equity portfolio
security listed or traded on the New York or American Stock Exchange, or other
exchange is valued at its latest sale price, prior to the time when assets are
valued; if there were no sales that day, the security is valued at the mean
between the last reported bid and asked price; (2) an equity portfolio security
listed or traded on the Nasdaq is valued at the Nasdaq Official Closing Price;
if there were no sales that day, the security is valued at the mean between the
last reported bid and asked price; and (3) all other portfolio securities for
which over-the-counter market quotations are readily available are valued at
the mean between the last reported bid and asked price. In cases where a
security is traded on more than one exchange, the security is valued on the
exchange designated as the primary market. 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. When market quotations are not
readily available, including circumstances under which it is determined by the
Investment Adviser that the sale price, the bid price or the mean between the
last reported bid and asked price are not reflective of 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. For valuation purposes, quotations of foreign portfolio
securities, other assets and liabilities and forward contracts stated in
foreign currency are translated into U.S. dollar equivalents at the prevailing
market rates prior to the close of the NYSE.

     Short-term debt securities with remaining maturities of 60 days or less at
the time of purchase are valued at amortized cost, unless the Trustees
determine such does not reflect the securities' market value, in which case
these securities will be valued at their fair value as determined by the
Trustees.

     Certain of the Fund's portfolio securities may be valued by an outside
pricing service approved by the Fund's Trustees. The pricing service may
utilize a matrix system incorporating security quality, maturity and coupon as
the evaluation model parameters, and/or research evaluations by its staff,
including review of broker-dealer market price quotations in determining what
it believes is the fair valuation of the portfolio securities valued by such
pricing service.

     Generally, trading in foreign securities, as well as corporate bonds, U.S.
government securities and money market instruments, is substantially completed
each day at various times prior to the close of the NYSE. The values of such
securities used in computing the net asset value of the Fund's shares are
determined as of such times. Foreign currency exchange rates are also generally
determined prior to the close of the NYSE. Occasionally, events which may
affect the values of such securities and such exchange rates may occur between
the times at which they are determined and the close of the NYSE and will
therefore not be reflected in the computation of the Fund's net asset value. If
events that may affect the value of such securities occur during such period,
then these securities may be valued at their fair value as determined in good
faith under procedures established by and under the supervision of the
Trustees.

IX. TAXATION OF THE FUND AND SHAREHOLDERS
- --------------------------------------------------------------------------------
     The Fund generally will make two basic types of distributions: ordinary
dividends and long-term capital gain distributions. These two types of
distributions are reported differently on a shareholder's income tax return.
The tax treatment of the investment activities of the Fund will affect the
amount, timing and character of the distributions made by the Fund. Tax issues
relating to the Fund are not generally a consideration for shareholders such as
tax-exempt entities and tax-advantaged retirement vehicles such as an IRA or
401(k) plan. Shareholders are urged to consult their own tax professionals
regarding specific questions as to federal, state or local taxes.

     INVESTMENT COMPANY TAXATION. The Fund intends to continue to qualify as a
regulated investment company under Subchapter M of the Internal Revenue Code of
1986, as amended. As such,


                                       39




the Fund will not be subject to federal income tax on its net investment income
and capital gains, if any, to the extent that it timely distributes such income
and capital gains to its shareholders.

     The Fund generally intends to distribute sufficient income and gains so
that the Fund will not pay corporate income tax on its earnings. The Fund also
generally intends to distribute to its shareholders in each calendar year a
sufficient amount of ordinary income and capital gains to avoid the imposition
of a 4% excise tax. However, the Fund may instead determine to retain all or
part of any net long-term capital gains in any year for reinvestment. In such
event, the Fund will pay federal income tax (and possibly excise tax) on such
retained gains.

     Gains or losses on sales of securities by the Fund will generally be
long-term capital gains or losses if the securities have a tax holding period
of more than one year at the time of such sale. Gains or losses on the sale of
securities with a tax holding period of one year or less will be short-term
capital gains or losses. Special tax rules may change the normal treatment of
gains and losses recognized by the Fund when the Fund invests in forward
foreign currency exchange contracts and non-U.S. corporations classified as
"passive foreign investment companies" ("PFICs"). Those special tax rules can,
among other things, affect the treatment of capital gain or loss as long-term
or short-term and may result in ordinary income or loss rather than capital
gain or loss. The application of these special rules would therefore also
affect the character of distributions made by the Fund.

     Under certain tax rules, the Fund may be required to accrue a portion of
any discount at which certain securities are purchased as income each year even
though the Fund receives no payments in cash on the security during the year.
To the extent that the Fund invests in such securities, it would be required to
pay out such income as an income distribution in each year in order to avoid
taxation at the Fund level. Such distributions will be made from the available
cash of the Fund or by liquidation of portfolio securities if necessary. If a
distribution of cash necessitates the liquidation of portfolio securities, the
Investment Adviser will select which securities to sell. The Fund may realize a
gain or loss from such sales. In the event the Fund realizes net capital gains
from such transactions, its shareholders may receive a larger capital gain
distribution, if any, than they would in the absence of such transactions.

     TAXATION OF DIVIDENDS AND DISTRIBUTIONS. Shareholders normally will be
subject to federal income taxes, and any state and/or local income taxes, on
the dividends and other distributions they receive from the Fund. Such
dividends and distributions, to the extent that they are derived from net
investment income or short-term capital gains, are generally taxable to the
shareholder as ordinary income regardless of whether the shareholder receives
such payments in additional shares or in cash. Under current law, a portion of
the ordinary income dividends received by a shareholder may be taxed at the
same rate as long-term capital gains. However, even if income received in the
form of ordinary income dividends is taxed at the same rates as long-term
capital gains, such income will not be considered long-term capital gains for
other federal income tax purposes. For example, you generally will not be
permitted to offset ordinary income dividends with capital losses. Short-term
capital gain distributions will continue to be taxed at ordinary income rates.

     Distributions of net long-term capital gains, if any, are taxable to
shareholders as long-term capital gains regardless of how long a shareholder
has held the Fund's shares and regardless of whether the distribution is
received in additional shares or in cash. Under current law, the maximum tax
rate on long-term capital gains available to non-corporate shareholders
generally is 15%. Without future congressional action, the maximum tax rate on
long-term capital gains would return to 20% in 2009, and the maximum rate on
all ordinary income dividends would move to 35% in 2009 and 39.6% in 2011.

     Shareholders are generally taxed on any ordinary dividend or capital gain
distributions from the Fund in the year they are actually distributed. However,
if any such dividends or distributions are declared in October, November or
December and paid in January then such amounts will be treated for tax purposes
as received by the shareholders on December 31, to shareholders of record of
such month.

     Subject to certain exceptions, a corporate shareholder may be eligible for
a 70% dividends received deduction to the extent that the Fund earns and
distributes qualifying dividends from its investments. Distributions of net
capital gains by the Fund will not be eligible for the dividends received
deduction.

     Shareholders who are not citizens or residents of the United States and
certain foreign entities may be subject to withholding of United States tax on
distributions made by the Fund of investment income


                                       40




and short term capital gains. Recently enacted legislation amends certain rules
relating to regulated investment companies. This legislation, among other
things, modifies the federal income tax treatment of certain distributions to
foreign investors. The Fund will no longer be required to withhold any amounts
with respect to distributions to foreign shareholders only if and to the extent
that they are properly designated by the Fund as "interest-related dividends"
or "short-term capital gain dividends," provided that the income would not be
subject to federal income tax if earned directly by the foreign shareholder.
Distributions attributable to gains from "U.S. real property interests"
(including certain U.S. real property holding corporations) may generally be
subject to federal withholding tax and may give rise to an obligation on the
part of the foreign shareholder to file a U.S. tax return. Also, such gains may
be subject to a 30% branch profits tax in the hands of a foreign shareholder
that is a corporation. The provisions contained in the legislation relating to
distributions to foreign persons generally would apply to distributions with
respect to taxable years of regulated investment companies beginning after
December 31, 2004 and before January 1, 2008. Prospective investors are urged
to consult their tax advisors regarding the specific tax consequences relating
to the legislation.

     After the end of each calendar year, shareholders will be sent full
information on their dividends and capital gain distributions for tax purposes,
including the portion taxable as ordinary income, the portion taxable as
long-term capital gains, and the amount of any dividends eligible for the
federal dividends received deduction for corporations.

     PURCHASES AND REDEMPTIONS AND EXCHANGES OF FUND SHARES. Any dividend or
capital gains distribution received by a shareholder from any investment
company will have the effect of reducing the net asset value of the
shareholder's stock in that company by the exact amount of the dividend or
capital gains distribution. Furthermore, such dividends and capital gains
distributions are subject to federal income taxes. If the net asset value of
the shares should be reduced below a shareholder's cost as a result of the
payment of dividends or the distribution of realized long-term capital gains,
such payment or distribution would be in part a return of the shareholder's
investment but nonetheless would be taxable to the shareholder. Therefore, an
investor should consider the tax implications of purchasing Fund shares
immediately prior to a distribution record date.

     In general, a sale of shares results in capital gain or loss, and for
individual shareholders, is taxable at a federal rate dependent upon the length
of time the shares were held. A redemption of a shareholder's Fund shares is
normally treated as a sale for tax purposes. Fund shares held for a period of
one year or less at the time of such sale or redemption will, for tax purposes,
generally result in short-term capital gains or losses and those held for more
than one year will generally result in long-term capital gains or losses. Under
current law, the maximum tax rate on long-term capital gains available to
non-corporate shareholders generally is 15%. Without future congressional
action, the maximum tax rate on long-term capital gains would return to 20% in
2009. Any loss realized by shareholders upon a sale or redemption of shares
within six months of the date of their purchase will be treated as a long-term
capital loss to the extent of any distributions of net long-term capital gains
with respect to such shares during the six-month period.

     Gain or loss on the sale or redemption of shares in the Fund is measured
by the difference between the amount received and the adjusted tax basis of the
shares. Shareholders should keep records of investments made (including shares
acquired through reinvestment of dividends and distributions) so they can
compute the tax basis of their shares. Under certain circumstances a
shareholder may compute and use an average cost basis in determining the gain
or loss on the sale or redemption of shares.

     Exchanges of Fund shares for shares of any other continuously offered
Morgan Stanley Fund are also subject to similar tax treatment. Such an exchange
is treated for tax purposes as a sale of the original shares in the Fund,
followed by the purchase of shares in the other fund.

     The availability to deduct capital losses may be limited. In addition, if
a shareholder realizes a loss on the redemption or exchange of a fund's shares
and reinvests in that fund's shares or substantially identical shares within 30
days before or after the redemption or exchange, the transactions may be
subject to the "wash sale" rules, resulting in a postponement of the
recognition of such loss for tax purposes.


                                       41




X. UNDERWRITERS
- --------------------------------------------------------------------------------
     The Fund's shares are offered to the public on a continuous basis. The
Distributor, as the principal underwriter of the shares, has certain
obligations under the Distribution Agreement concerning the distribution of the
shares. These obligations and the compensation the Distributor receives are
described above in the sections titled "Principal Underwriter" and "Rule 12b-1
Plan."



XI. PERFORMANCE DATA
- --------------------------------------------------------------------------------
       AVERAGE ANNUAL RETURNS ASSUMING DEDUCTION OF MAXIMUM SALES CHARGE
                        PERIOD ENDED NOVEMBER 30, 2004






                      INCEPTION
CLASS                   DATE         1 YEAR        5 YEARS      LIFE OF FUND
- ------------------   ----------   -----------   ------------   -------------

Class A ..........    07/28/97       13.24%        -15.80%         3.85%
Class B ..........    02/27/96       13.51%        -15.85%         4.22%
Class C ..........    07/28/97       17.61%        -15.53%         3.83%
Class D ..........    07/28/97       19.74%        -14.71%         4.82%



          AVERAGE ANNUAL RETURNS ASSUMING NO DEDUCTION OF SALES CHARGE
                        PERIOD ENDED NOVEMBER 30, 2004






                      INCEPTION
CLASS                   DATE         1 YEAR        5 YEARS      LIFE OF FUND
- ------------------   ----------   -----------   ------------   -------------

Class A ..........    07/28/97       19.51%        -14.89%         4.62%
Class B ..........    02/27/96       18.51%        -15.52%         4.22%
Class C ..........    07/28/97       18.61%        -15.53%         3.83%
Class D ..........    07/28/97       19.74%        -14.71%         4.82%



         AGGREGATE TOTAL RETURNS ASSUMING NO DEDUCTION OF SALES CHARGE
                        PERIOD ENDED NOVEMBER 30, 2004






                      INCEPTION
CLASS                   DATE         1 YEAR        5 YEARS      LIFE OF FUND
- ------------------   ----------   -----------   ------------   -------------

Class A ..........    07/28/97       19.51%        -55.34%         39.28%
Class B ..........    02/27/96       18.51%        -56.96%         43.59%
Class C ..........    07/28/97       18.61%        -56.99%         31.79%
Class D ..........    07/28/97       19.74%        -54.86%         41.34%




  AVERAGE ANNUAL AFTER-TAX RETURNS ASSUMING DEDUCTION OF MAXIMUM SALES CHARGE
                                    CLASS B
                        PERIOD ENDED NOVEMBER 30, 2004







                                                           INCEPTION
CALCULATION METHODOLOGY                                      DATE         1 YEAR        5 YEARS      LIFE OF FUND
- -------------------------------------------------------   ----------   -----------   ------------   -------------

After taxes on distributions ..........................    02/27/96        13.51%        -15.93%         4.16%
After taxes on distributions and redemptions ..........    02/27/96         8.78%        -12.60%         3.71%



XII. FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

     The Fund's audited financial statements for the fiscal year ended November
30, 2004, including notes thereto and the report of Deloitte & Touche LLP, are
herein incorporated by reference from the Fund's annual report. A copy of the
Fund's Annual Report to Shareholders must accompany the delivery of this
Statement of Additional Information.



                                       42




XIII. FUND COUNSEL
- --------------------------------------------------------------------------------
     Clifford Chance US LLP, located at 31 West 52nd Street, New York, NY
10019, acts as the Fund's legal counsel.


                                   * * * * *

     This Statement of Additional Information and the Prospectus do not contain
all of the information set forth in the Registration Statement the Fund has
filed with the SEC. The complete Registration Statement may be obtained from
the SEC.


                                       43