Filed Pursuant to Rule 497(c)
                                                Registration File No.: 333-29721



                                                           [MORGAN STANLEY LOGO]

                                                                  Morgan Stanley
                                                              S&P 500 Index Fund

                          A mutual fund that seeks to provide investment results
                           that, before expenses, correspond to the total return
                           (i.e., the combination of capital changes and income)
                                 of the Standard & Poor's (Registered Trademark)
                                                 500 Composite Stock Price Index


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[MORGAN STANLEY LOGO]



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





     Prospectus
October 29, 2004





Contents

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THE FUND

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

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

      Principal Risks...................................................... 2

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

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

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

      Additional Risk Information.......................................... 6

      Fund Management...................................................... 7

SHAREHOLDER INFORMATION

      Pricing Fund Shares.................................................. 9

      How to Buy Shares.................................................... 9

      How to Exchange Shares.............................................. 11

      How to Sell Shares.................................................. 13


      Distributions....................................................... 15


      Tax Consequences.................................................... 15


      Share Class Arrangements............................................ 16

      Additional Information...............................................24

FINANCIAL HIGHLIGHTS...................................................... 25


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

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INVESTMENT OBJECTIVE

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Morgan Stanley S&P 500 Index Fund seeks to provide investment results that,
before expenses, correspond to the total return (i.e., the combination of
capital changes and income) of the Standard & Poor's (Registered Trademark) 500
Composite Stock Price Index ("S&P 500 Index").

(sidebar)
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TOTAL RETURN

An investment objective having the goal of selecting securities with the
potential to rise in price and pay out income.

(end sidebar)

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PRINCIPAL INVESTMENT STRATEGIES

The Fund will normally invest at least 80% of its assets in common stocks of
companies included in the S&P 500 Index. The "Investment Manager," Morgan
Stanley Investment Advisors Inc., "passively" manages the Fund's assets by
investing in stocks in approximately the same proportion as they are represented
in the Index. For example, if the common stock of a specific company represents
five percent of the Index, the Investment Manager typically will invest the same
percentage of the Fund's assets in that stock. The S&P 500 Index is a well-known
stock market index that includes common stocks of 500 companies representing a
significant portion of the market value of all common stocks publicly traded in
the United States. The Fund may invest in foreign companies that are included in
the S&P 500 Index.

The Investment Manager seeks a correlation between the performance of the Fund,
before expenses, and that of the S&P 500 Index of 95% or better. A figure of
100% would indicate perfect correlation.


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 may invest in stock index futures on the S&P 500 Index and
Standard & Poor's Depositary Receipts ("SPDRs"). The Fund may also make
temporary investments in money market instruments to manage cash flows into and
out of the Fund.




                              -------------------

"Standard & Poor's (Registered Trademark) ," "S&P (Registered Trademark) ," "S&P
500 (Registered Trademark) ," "Standard & Poor's 500" and "500" are trademarks
of The McGraw-Hill Companies, Inc. and have been licensed for use by the Fund.
The Fund is not sponsored, endorsed, sold or promoted by S&P, and S&P makes no
representation regarding the advisability of investing in the Fund.



                                                                               1




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PRINCIPAL RISKS


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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.


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.


Another risk of investing in the Fund arises from its operation as a "passively"
managed index fund. As such, the adverse performance of a particular stock
ordinarily will not result in the elimination of the stock from the Fund's
portfolio. The Fund will remain invested in common stocks even when stock prices
are generally falling. Ordinarily, the Investment Manager will not sell the
Fund's portfolio securities except to reflect additions or deletions of the
stocks that comprise the S&P 500 Index, or as may be necessary to raise cash to
pay Fund shareholders who sell Fund shares.


The performance of the S&P 500 Index is a hypothetical number which does not
take into account brokerage commissions and other transaction costs, custody and
other costs which will be borne by the Fund (e.g., management fee, transfer
agency and accounting costs).


The Fund's ability to correlate its performance, before expenses, with the S&P
500 Index may be affected by, among other things, changes in securities markets,
the manner in which the S&P 500 Index is calculated and the timing of purchases
and sales. The Fund's ability to correlate its performance to the Index also
depends to some extent on the size of the Fund's portfolio, the size of cash
flows into and out of the Fund and differences between how and when the Fund and
the Index are valued. The Investment Manager regularly monitors the correlation
and, in the event the desired correlation is not achieved, the Investment
Manager will determine what additional investment changes may need to be made.



The performance of the Fund also will depend on whether the Investment Manager
is successful in pursuing the Fund's investment strategy, including the
Investment Manager's ability to manage cash flows (primarily from purchases and
sales, and distributions from the Fund's investments). The Fund is also subject
to other risks from its other permissible investments, including risks
associated with stock index futures, SPDRs and foreign securities. 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




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PAST PERFORMANCE

(sidebar)
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ANNUAL TOTAL RETURNS
This chart shows the performance of the Fund's Class B shares has varied from
year to year over the past six calendar years.

(end sidebar)


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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


[GRAPHIC OMITTED]





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. Year-to-date total return as of September 30, 2004 was 0.43%.


During the periods shown in the bar chart, the highest return for a calendar
quarter was 21.06% (quarter ended December 31, 1998) and the lowest return for a
calendar quarter was -17.47% (quarter ended September 30, 2002).



                                                                               3






AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 2003)



(sidebar)

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AVERAGE ANNUAL TOTAL RETURNS

This table compares the Fund's average annual total returns with those of a
broad measure of market performance 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)





                                                                                                 LIFE OF FUND
                                                                PAST 1 YEAR    PAST 5 YEARS   (SINCE 09/26/97)

  Class A -- Return Before Taxes                                21.11%          -2.34%          2.54%
  Class B -- Return Before Taxes                                21.84%          -2.44%          2.62%
  Class B -- Return After Taxes on Distributions(1)             21.79%          -2.46%          2.59%
  Class B -- Return After Taxes on Distributions and Sale of
  Fund Shares                                                   3.25%          -2.06%          2.24%
  Class C -- Return Before Taxes                                25.91%          -2.03%          2.63%
  Class D -- Return Before Taxes                                28.04%          -1.06%          3.65%
  Standard and Poor's 500 Index(2)                              28.68%          -0.57%          4.14%
  Lipper S&P 500 Funds Index(3)                                 28.03%          -0.88%          3.83%



(1)   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.

(2)   Standard and Poor's 500 Index (S&P 500 (Registered Trademark) ) is a
      broad-based index, the performance of which is based on the performance
      of 500 widely-held common 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.

(3)   Lipper S&P 500 Funds Index is an equally weighted performance index of
      the largest qualifying funds (based on net assets) in the Lipper S&P 500
      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.



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 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.



4




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FEES AND EXPENSES



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  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. See the "Share Class
Arrangements" section for further fee and expense information.

SHAREHOLDER FEES


(sidebar)

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

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

These expenses are deducted from the Fund's assets and are based on expenses
paid for the fiscal year ended August 31, 2004.

(end sidebar)




                                                       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

  Management fee                            0.20%       0.20%       0.20%       0.20%
  Distribution and service (12b-1) fees     0.24%       1.00%       1.00%         None
  Other expenses                            0.20%       0.20%       0.20%       0.20%
  Total annual Fund operating expenses(5)   0.64%       1.40%       1.40%       0.40%



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


(2)   Effective December 1, 2004, 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)   Effective May 1, 2004, the Investment Manager has agreed to assume all
      expenses (except for brokerage and 12b-1 fees) and to waive the
      compensation provided for in its Investment Management Agreement to the
      extent that such expenses and compensation on an annualized basis exceed
      0.40% of the daily net assets of the Fund and will continue to do so on a
      permanent basis. The fees and expenses disclosed above reflect the
      assumption of such expenses and waiver of compensation by the Investment
      Manager to the extent that such expenses and compensation on an
      annualized basis exceed 0.40% of the daily net assets of the Fund. For
      the year ended August 31, 2004, the Fund's expenses for Class A, Class B,
      Class C and Class D were 0.70%, 1.46%, 1.46% and 0.46%, respectively.



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



                                                                               5




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      $  587      $  719      $  863    $  1,281     $  587      $  719      $  863   $   1,281
---------- --   ------      ------      ------    --------     ------      ------      ------   ---------
   Class B      $  643      $  743      $  966    $  1,680     $  143      $  443      $  766   $   1,680
   Class C      $  243      $  443      $  766    $  1,680     $  143      $  443      $  766   $   1,680
   Class D      $   41      $  128      $  224    $    505     $   41      $  128      $  224   $     505



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.

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


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  This section provides additional information relating to the Fund's principal
investment strategies.

STOCK INDEX FUTURES.  The Fund may invest in stock index futures with respect
to the S&P 500 Index. Stock index futures may be used to simulate investment in
the S&P 500 Index while retaining a cash balance for fund management purposes,
to facilitate trading, to reduce transaction costs or to seek higher investment
returns.


SPDRS.  The Fund may invest in securities referred to as SPDRs (known as
"spiders") that are designed to track the S&P 500 Index. SPDRs represent an
ownership interest in the SPDR Trust, which holds a portfolio of common stocks
that closely tracks the price performance and dividend yield of the S&P 500
Index. SPDRs trade on the American Stock Exchange like shares of common stock.


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


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

FOREIGN SECURITIES.  The Fund's investments in the common stocks of foreign
corporations (including American Depositary Receipts) may involve risks in
addition to the risks associated with domestic securities. Foreign securities
are affected by changes in currency rates. Foreign securities also have risks
related to political and economic developments abroad. Foreign companies, in
general, are not subject to the regulatory requirements of


6






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.


STOCK INDEX FUTURES.  If the Fund invests in futures, its participation in
these markets would subject the Fund's portfolio to certain risks. The
Investment Manager's predictions of movements in the direction of the stock
market may be inaccurate, and the adverse consequences to the Fund (e.g., a
reduction in the Fund's net asset value or a reduction in the amount of income
available for distribution) may leave the Fund in a worse position than if
these strategies were not used. Other risks inherent in the use of futures
include, for example, the possible imperfect correlation between the price of
futures contracts and movements in the prices of the securities.



SPDRS.  SPDRs, which the Fund may hold, have many of the same risks as direct
investments in common stocks. The market value of SPDRs is expected to rise and
fall as the S&P 500 Index rises and falls. If the Fund invests in SPDRs, it
would, in addition to its own expenses, indirectly bear its ratable share of
the SPDR's expenses.

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


(sidebar)

----------------
MORGAN STANLEY
INVESTMENT ADVISORS INC.

The Investment Manager is widely recognized as a leader in the mutual fund
industry and had approximately $110 billion in assets under management or
administration as of September 30, 2004.

(end sidebar)


[GRAPHIC OMITTED]



The Fund has retained the Investment Manager--Morgan Stanley Investment Advisors
Inc.--to provide administrative services, manage its business affairs and invest
its assets, including the placing of orders for the purchase and sale of
portfolio securities. The Investment Manager 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 Manager's address is 1221 Avenue of the
Americas, New York, NY 10020.



The Fund is managed within the Index Team. Kevin Jung, an Executive Director of
the Investment Manager, is a current member of the team.



The Fund pays the Investment Manager a monthly management fee as full
compensation for the services and facilities furnished to the Fund, and for Fund
expenses assumed by the Investment Manager calculated daily by applying the
annual rate of 0.20% to the Fund's average daily net assets. The fee is based on
the Fund's average daily net assets. Effective May 1, 2004, the Investment
Manager has agreed, on a permanent basis, to assume the Fund's operating
expenses (except for brokerage and 12b-1 fees) to the extent such operating
expenses exceed on an annualized basis 0.40% of the average daily net assets of
the Fund (0.50% prior to May 1, 2004), which may reduce the investment
management fee below 0.20% of the Fund's average daily net assets. For example,
if "other expenses" are 0.30% of the Fund's average daily net assets, then the
investment management fee rate paid by the Fund would equal 0.10% of the Fund's



                                                                               7






average daily net assets. Alternatively, if "other expenses" were to decline to
0.20% of the Fund's average daily net assets, the investment management fee paid
by the Fund would equal 0.20% of the Fund's average daily net assets. For the
fiscal year ended August 31, 2004, the Fund accrued total compensation to the
Investment Manager amounting to 0.27% of the Fund's average daily net assets.


The Board of Trustees of the Fund approved amending and restating, effective
November 1, 2004, the existing investment management agreement for the Fund
("Current Investment Management Agreement") to remove the administration
services component from the Current Investment Management Agreement. The Fund's
Investment Manager will continue to provide investment advisory services under
the amended and restated investment advisory agreement. The administration
services previously provided to the Fund by the Investment Manager will be
provided by Morgan Stanley Services Company Inc. ("Administrator") pursuant to a
separate administration agreement entered into by the Fund with the
Administrator for a fee of 0.08% of the Fund's daily net assets.


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



8




Shareholder Information

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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 Manager 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
these cases, the Fund's net asset value will reflect certain portfolio
securities' fair value rather than their market price.


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.

(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)

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HOW TO BUY SHARES


[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, 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



                                                                               9




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 (less 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.


(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)





MINIMUM INVESTMENT AMOUNTS

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

  Regular Accounts                                                             $  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 twelve months.



There is no minimum investment amount if you purchase Fund shares through: (1)
the Investment Manager'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; or (4) employer-sponsored
employee benefit plan accounts.



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.


10




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 S&P 500
  Index Fund.

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. In addition, Class A shares of
the Fund may be exchanged for shares of an FSC Fund (funds subject to a
front-end sales charge). See the inside back cover of this Prospectus for each
Morgan Stanley Fund's designation as a Multi-Class Fund, No-Load Fund, Money
Market Fund or an FSC Fund. If a Morgan Stanley Fund is not listed, consult the
inside back cover of that fund's 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 acquired by
exchange or dividend reinvestment. The current prospectus for each fund
describes its investment objective(s), policies and investment minimum, 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
Fund's transfer agent--Morgan Stanley Trust--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.
The check writing privilege is not available for Money Market Fund shares you
acquire in an exchange.


                                                                              11





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 the Fund's
shares--and the exchange into the other fund is considered a purchase. As a
result, you may realize a capital gain or loss.



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 past exchanges and/or purchase
or sale transactions involving the Fund or other Morgan Stanley Funds may
result in the Fund limiting or prohibiting, at its discretion, additional
purchases and/or exchanges. Determinations in this regard may be made based on
the frequency or dollar amount of the previous exchanges or purchase or sale
transactions. You will be notified in advance of limitations on your exchange
privileges.


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.



12



--------------------------------------------------------------------------------

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.

                   If you are requesting payment to anyone other than the registered owner(s) or that payment be
                   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.



                                                                              13







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

Systematic         To sign up for the Systematic Withdrawal Plan, contact your Morgan Stanley Financial Advisor
Withdrawal Plan    or call (800) 869-NEWS. You may terminate or suspend your plan at any time. Please
(continued)        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 instructions 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.


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.



14




--------------------------------------------------------------------------------
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 temporary 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 may be 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 annually.
Capital gains, if any, are usually distributed in 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 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 Fund's transfer agent, Morgan Stanley Trust,
at least five business days prior to the record date of the distributions.

--------------------------------------------------------------------------------
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


                                                                              15





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 a 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.


--------------------------------------------------------------------------------
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.



16



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





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

   A      Maximum 5.25% initial sales charge reduced for purchase of $25,000 or more; shares sold
          without an initial sales charge are generally subject to a 1.0% CDSC during the first 18
          months*                                                                                      0.25%
   B      Maximum 5.0% CDSC during the first year decreasing to 0% after six years                     1.00%
   C      1.0% CDSC during first year                                                                  1.00%
   D      None                                                                                         None




*     Shares purchased without an initial sales charge prior to December 1,
      2004 will be subject to a 1.0% 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 Class 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 Inc. ("Morgan Stanley DW")
or other authorized dealer of Fund shares, or the Fund's 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 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.
Effective December 1, 2004, investments of $1 million or more are not subject to
an initial sales charge, but are generally subject to a contingent deferred
sales charge, or CDSC, of 1.00% on sales made within eighteen 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



                                                                              17




shares are also subject to a distribution (12b-1) fee of up to 0.25% of the
average daily net assets of the Class. This fee is lower than the distribution
fee paid by Class B or Class C.


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 PUBLIC    APPROXIMATE PERCENTAGE
 AMOUNT OF SINGLE TRANSACTION              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 to children under the age
   of 21).


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

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 and
shares of FSC Funds. Shareholders also may combine such purchases made in a
single-transaction by family members (limited to spouse and to 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



18





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 or shares of FSC 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 to 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.


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 Manager 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.



                                                                              19



o A client of a Morgan Stanley Financial Advisor who joined us from another
  investment firm within six months prior to the date of purchase of Fund
  shares, and who used the proceeds from the sale of shares of a proprietary
  mutual fund of that Financial Advisor's previous firm that imposed either a
  front-end or deferred sales charge to purchase Class A shares, provided that:
  (1) the client sold the shares not more than 60 days prior to purchase, and
  (2) the sale proceeds were maintained in the interim in cash or a Money Market
  Fund.


o Current or retired Directors or Trustees of the Morgan Stanley Funds, such
  persons' spouses and such persons' 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 such persons' 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


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 name (not a trust) or in the names of you and your
  spouse as joint tenants with right of survivorship; or (ii) held in a
  qualified


20



 corporate or self-employed retirement plan, IRA or 403(b) Custodial Account,
 provided in either case that the sale is requested within one year of 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 591/2); (ii) distributions from
  an IRA or 403(b) Custodial Account following attainment of age 591/2; 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 Manager's mutual fund asset
  allocation program, pursuant to which investors pay an asset-based fee. Any
  shares acquired in connection with the Investment Manager'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 also subject to an annual distribution
(12b-1) fee of up to 1.0% of the average daily net assets of Class B shares.
This fee is higher than the annual distribution fee paid by Class A.


CONVERSION FEATURE.  After 10 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 acquired in exchange for
shares of another Morgan Stanley Fund originally purchased 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 shares 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



                                                                              21




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.


Currently, the Class B share conversion is not a taxable event; the conversion
feature may be cancelled if it is deemed a taxable event in the future by the
Internal Revenue Service.


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 distribution (12b-1) fees you paid
on those shares while in that fund up to the amount of any applicable CDSC.



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 (12b-1)
fee of up to 1.0% of the average daily net assets of that Class. This fee is
higher than the annual distribution 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 (12b-1) fees applicable
to Class C shares for an indefinite period.


22



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 categories of
investors:

o Investors participating in the Investment Manager'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 Manager 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.


Class D shares are not offered for investments made through Section 529 plans,
donor-advised charitable gift funds and insurance company separate accounts
that have been approved by the Fund's distributor (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 and
shares of FSC 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.


                                                                              23



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 of
1940 with respect to the distribution of Class A, Class B and Class C shares.
(Class D shares are offered without any distribution fee.) The Plan allows the
Fund to pay distribution fees for the sale and distribution of these 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 in
these Classes and may cost you more than paying other types of sales charges.

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


The Investment Manager and/or the distributor may pay additional compensation
(out of their own funds and not as an expense of the Fund) to selected
affiliated or unaffiliated brokers or other service providers in connection with
the sale, distribution, retention and/or servicing of shares of the Fund. Such
compensation may be significant in amount and the prospect of receiving any such
additional compensation may provide affiliated or unaffiliated entities with an
incentive to favor sales 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.



24



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 AUGUST 31,                       2004        2003         2002          2001         2000

SELECTED PER SHARE DATA:
Net asset value, beginning of period             $   10.97     $  9.91    $ 12.17       $ 16.20       $ 14.05
                                                 ---------     -------    --------      --------      -------
Income (loss) from investment operations:
  Net investment income[+/+]                         0.12        0.11       0.08          0.08          0.08
  Net realized and unrealized gain (loss)            1.05        1.01      (2.34)        (4.11)         2.10
                                                 ---------     -------    --------      --------      -------
Total income (loss) from investment operations       1.17        1.12      (2.26)        (4.03)         2.18
                                                 ---------     -------    --------      --------      -------
Less dividends and distributions from:
  Net investment income                             (0.11)      (0.06)        --            --          --
  Net realized gain                                    --          --         --            --         (0.03)
                                                 ----------    --------   --------      --------      -------
Total dividends and distributions                   (0.11)      (0.06)        --            --         (0.03)
                                                 ---------     -------    --------      --------      -------
Net asset value, end of period                   $   12.03     $ 10.97    $  9.91       $ 12.17       $ 16.20
-------------------------------------------------------------------------------------------------------------
TOTAL RETURN+                                       10.70%      11.36%    (18.57)%      (24.83)%       15.49%
-------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS(1)(2):
Expenses                                             0.70%       0.70%      0.73%         0.69%         0.75%
Net investment income                                1.03%       1.11%      0.73%         0.59%         0.49%
SUPPLEMENTAL DATA:
Net assets, end of period, in millions           $    301      $  233     $   161       $   159       $  183
Portfolio turnover rate                                 2%          2%        12%            4%            5%




[+/+] 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)   If the Fund had borne all of its expenses that were reimbursed or waived
      by the Investment Manager, the annualized expense and net investment
      income ratios would have been as follows:





                     Expense   Net Investment
   Period Ended:      Ratio     Income Ratio
------------------- --------- ---------------

  August 31, 2004      0.77%     0.96%
  August 31, 2003      0.82%     0.99%
  August 31, 2002      0.80%     0.66%
  August 31, 2001      0.72%     0.56%
  August 31, 2000      0.76%     0.48%




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


                                                                              25



Financial Highlights (Continued)

--------------------------------------------------------------------------------

CLASS B SHARES







 FOR THE YEAR ENDED AUGUST 31,                       2004        2003         2002          2001         2000

SELECTED PER SHARE DATA:
Net asset value, beginning of period             $   10.60     $  9.60    $ 11.88       $ 15.94       $ 13.93
                                                 ---------     -------    --------      --------      -------
Income (loss) from investment operations:
  Net investment income (loss)[+/+]                  0.03        0.03      (0.01)        (0.03)        (0.04)
  Net realized and unrealized gain (loss)            1.02        0.97      (2.27)        (4.03)         2.08
                                                 ---------     -------    --------      --------      -------
Total income (loss) from investment operations       1.05        1.00      (2.28)        (4.06)         2.04
                                                 ---------     -------    --------      --------      -------
Less dividends and distributions from:
  Net investment income                             (0.03)        --          --            --           --
  Net realized gain                                    --          --         --            --         (0.03)
                                                 ----------    --------   --------      --------      -------
Total dividends and distributions                   (0.03)         --         --            --         (0.03)
                                                 ---------     --------   --------      --------      -------
Net asset value, end of period                   $   11.62     $ 10.60    $  9.60       $ 11.88       $ 15.94
-------------------------------------------------------------------------------------------------------------
TOTAL RETURN+                                        9.88%      10.42%    (19.19)%      (25.47)%       14.69%
-------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS(1)(2):
Expenses                                             1.46%       1.50%      1.50%         1.50%         1.50%
Net investment income (loss)                         0.27%       0.31%     (0.04)%       (0.22)%       (0.26)%
SUPPLEMENTAL DATA:
Net assets, end of period, in millions           $  1,108      $1,160     $ 1,169       $ 1,544       $2,036
Portfolio turnover rate                                 2%          2%        12%            4%           5%




[+/+] 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)   If the Fund had borne all of its expenses that were reimbursed or waived
      by the Investment Manager, the annualized expense and net investment
      income (loss) ratios would have been as follows:





                     Expense     Net Investment
   Period Ended:      Ratio    Income (Loss) Ratio
------------------- --------- --------------------

  August 31, 2004   1.53%       0.20%
  August 31, 2003   1.62%       0.19%
  August 31, 2002   1.57%      (0.11)%
  August 31, 2001   1.53%      (0.25)%
  August 31, 2000   1.51%      (0.27)%




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


26



CLASS C SHARES







FOR THE YEAR ENDED AUGUST 31,                        2004        2003         2002          2001         2000

SELECTED PER SHARE DATA:
Net asset value, beginning of period             $   10.60     $  9.60    $ 11.88       $ 15.94       $ 13.93
                                                 ---------     -------    --------      --------      -------
Income (loss) from investment operations:
  Net investment income (loss)[+/+]                  0.03        0.03       0.00         (0.03)        (0.04)
  Net realized and unrealized gain (loss)            1.01        0.97      (2.28)        (4.03)         2.08
                                                 ---------     -------    --------      --------      -------
Total income (loss) from investment operations       1.04        1.00      (2.28)        (4.06)         2.04
                                                 ---------     -------    --------      --------      -------
Less dividends and distributions from:
  Net investment income                             (0.03)        --          --            --           --
  Net realized gain                                    --          --         --            --         (0.03)
                                                 ----------    --------   --------      --------      -------
Total dividends and distributions                   (0.03)         --         --            --         (0.03)
                                                 ---------     --------   --------      --------      -------
Net asset value, end of period                   $   11.61     $ 10.60    $  9.60       $ 11.88       $ 15.94
-------------------------------------------------------------------------------------------------------------
TOTAL RETURN+                                        9.85%      10.42%    (19.19)%      (25.47)%       14.69%
-------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS(1)(2):
Expenses                                             1.46%       1.49%      1.49%         1.50%         1.50%
Net investment income (loss)                         0.27%       0.32%     (0.03)%       (0.22)%       (0.26)%
SUPPLEMENTAL DATA:
Net assets, end of period, in millions           $    173      $  161     $   147       $   169       $  211
Portfolio turnover rate                                 2%          2%        12%            4%           5%




[+/+] 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)   If the Fund had borne all of its expenses that were reimbursed or waived
      by the Investment Manager, the annualized expense and net investment
      income (loss) ratios would have been as follows:





                     Expense     Net Investment
   Period Ended:      Ratio    Income (Loss) Ratio
------------------- --------- --------------------

  August 31, 2004      1.53%       0.20%
  August 31, 2003      1.61%       0.20%
  August 31, 2002      1.56%      (0.10)%
  August 31, 2001      1.53%      (0.25)%
  August 31, 2000      1.51%      (0.27)%




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


                                                                              27



Financial Highlights (Continued)

--------------------------------------------------------------------------------
CLASS D SHARES







FOR THE YEAR ENDED AUGUST 31,                       2004         2003         2002          2001         2000

SELECTED PER SHARE DATA:
Net asset value, beginning of period             $   11.06     $ 10.00     $ 12.26       $ 16.28       $ 14.09
                                                 ---------     -------     --------      --------      -------
Income (loss) from investment operations:
  Net investment income[+/+]                         0.15        0.13        0.11          0.11          0.11
  Net realized and unrealized gain (loss)            1.06        1.02       (2.37)        (4.13)         2.11
                                                 ---------     -------     --------      --------      -------
Total income (loss) from investment operations       1.21        1.15       (2.26)        (4.02)         2.22
                                                 ---------     -------     --------      --------      -------
Less dividends and distributions from:
  Net investment income                             (0.13)      (0.09)         --            --          --
  Net realized gain                                    --          --          --            --         (0.03)
                                                 ----------    --------    --------      --------      -------
Total dividends and distributions                   (0.13)      (0.09)         --            --         (0.03)
                                                 ---------     -------     --------      --------      -------
Net asset value, end of period                   $   12.14     $ 11.06     $ 10.00       $ 12.26       $ 16.28
-------------------------------------------------------------------------------------------------------------
TOTAL RETURN+                                       10.97%      11.59%     (18.43)%      (24.69)%       15.81%
-------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS(1)(2):
Expenses                                             0.46%       0.50%       0.50%         0.50%         0.50%
Net investment income                                1.27%       1.31%       0.96%         0.78%         0.74%
SUPPLEMENTAL DATA:
Net assets, end of period, in millions           $    198      $  180      $   136       $   118       $   92
Portfolio turnover rate                                 2%          2%         12%            4%            5%




[+/+] 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)   If the Fund had borne all of its expenses that were reimbursed or waived
      by the Investment Manager, the annualized expense and net investment
      income ratios would have been as follows:





                     Expense   Net Investment
   Period Ended:      Ratio     Income Ratio
------------------- --------- ---------------

  August 31, 2004      0.53%      1.20%
  August 31, 2003      0.62%      1.19%
  August 31, 2002      0.57%      0.89%
  August 31, 2001      0.53%      0.75%
  August 31, 2000      0.51%      0.73%




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


28



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 Growth 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(NL)
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(NL)
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, except for the Limited
Duration U.S. Treasury Trust, is a Multi-Class Fund. A Multi-Class Fund is a
mutual fund offering multiple classes of shares. The other types of funds are:
NL -- No-Load (Mutual) Funds and Money Market Funds.




[MORGAN STANLEY LOGO OMITTED]

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 MORGAN STANLEY FUNDS during its
last fiscal year.

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



You also may obtain information about the Fund by calling your Morgan Stanley
Financial Advisor or by visiting our Internet site at:
WWW.MORGANSTANLEY.COM/FUNDS

                                  Morgan Stanley
                                 S&P 500 Index Fund
                                        36007 10/04





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:     SPIAX CLASS B:    SPIBX
---------- ------- ---------- ------
CLASS C:     SPICX CLASS D:    SPIDX
---------- ------- ---------- ------


[MORGAN STANLEY LOGO OMITTED]

(THE FUND'S INVESTMENT COMPANY ACT FILE NO. IS 811-8265)


CLF# 36007PRO-00

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

(Copyright)  2004 Morgan Stanley


[MORGAN STANLEY LOGO OMITTED]



          Prospectus
    October 29, 2004

STATEMENT OF ADDITIONAL INFORMATION                   MORGAN STANLEY
                                                      S&P 500 INDEX FUND


OCTOBER 29, 2004


--------------------------------------------------------------------------------

     This Statement of Additional Information is not a prospectus. The
Prospectus (dated October 29, 2004) for Morgan Stanley S&P 500 Index Fund 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
S&P 500 Index Fund
1221 Avenue of the Americas
New York, New York 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 ..........................   8
III.      Management of the Fund ........................................   9
      A. Board of Trustees ..............................................   9
      B. Management Information .........................................   9
      C. Compensation ...................................................  17
IV.      Control Persons and Principal Holders of Securities ............  20
V.       Investment Management and Other Services .......................  20
      A. Investment Manager .............................................  20
      B. Principal Underwriter ..........................................  21
      C. Services Provided by the Investment Manager ....................  21
      D. Dealer Reallowances ............................................  22
      E. Rule 12b-1 Plan ................................................  22
      F.  Litigation Involving the Investment Manager and Distributor ...  26
      G.  Other Service Providers .......................................  26
      H.  Codes of Ethics ...............................................  26
      I. Proxy Voting Policies and Procedures and Proxy Voting Record ...  27
VI.      Brokerage Allocation and Other Practices .......................  27
      A. Brokerage Transactions .........................................  27
      B. Commissions ....................................................  27
      C. Brokerage Selection ............................................  28
      D. Directed Brokerage .............................................  28
      E. Regular Broker-Dealers .........................................  28
      F. Revenue Sharing ................................................  28
VII.      Capital Stock and Other Securities ............................  29
VIII.      Purchase, Redemption and Pricing of Shares ...................  30
      A. Purchase/Redemption of Shares ..................................  30
      B. Offering Price .................................................  31
IX.      Taxation of the Fund and Shareholders ..........................  32
X.       Underwriters ...................................................  34
XI.      Performance Data ...............................................  34
XII.      Financial Statements ..........................................  35
XIII.      Fund Counsel .................................................  35
Appendix A. Morgan Stanley Investment Management Proxy Voting
             Policy and Procedures ...................................... A-1




                                       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).


     "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 S&P 500 Index Fund, 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 Manager" - Morgan Stanley Investment Advisors Inc., a
wholly-owned investment advisor 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 Manager serves as the investment advisor and that hold themselves
out to investors as related companies for investment and investor services.


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


     "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 June 18, 1997, with the name Dean Witter S&P 500 Index
Fund. Effective June 22, 1998, the Fund's name was changed to Morgan Stanley
Dean Witter S&P 500 Index Fund. Effective June 18, 2001, the Fund's name was
changed to Morgan Stanley S&P 500 Index Fund.



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 to provide investment results that, before
expenses, correspond to the total return (i.e., the combination of capital
changes and income) of the Standard & Poor's(Reg. TM) 500 Composite Stock Price
Index ("S&P 500 Index").


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."

     ADDITIONAL INFORMATION CONCERNING THE S&P 500 Index. The Fund is not
sponsored, endorsed, sold or promoted by Standard & Poor's, a division of The
McGraw-Hill Companies Inc. ("S&P"). S&P makes no representation or warranty,
express or implied, to the owners of shares of the Fund or any member of the
public regarding the advisability of investing in securities generally or in the
Fund particularly or the ability of the S&P 500 Index to track general stock
market performance. S&P's only relationship to the Fund is the licensing of
certain trademarks and trade names of S&P and of the S&P 500 Index which is
determined, composed and calculated by S&P without regard to the Fund. S&P has
no obligation to take the needs of the Fund or the owners of shares of the Fund
into consideration in determining, composing or calculating the S&P 500 Index.
S&P is not responsible for and has not participated in the determination of the
prices and amount of the Fund or the timing of the issuance of sale of shares of
the Fund. S&P has no obligation or liability in connection with the
administration, marketing or trading of the Fund.

     S&P does not guarantee the accuracy and/or the completeness of the S&P 500
Index or any data included therein and S&P shall have no liability for any
errors, omissions, or interruptions therein. S&P makes no warranty, express or
implied, as to results to be obtained by the Fund, owners of shares of the Fund,
or any other person or entity from the use of the S&P 500 Index or any data
included therein. S&P makes no express or implied warranties, and expressly
disclaims all warranties of merchantability or fitness for a particular purpose
or use with respect to the S&P 500 Index or any data included therein. Without
limiting any of the foregoing, in no event shall S&P have any liability for any
special, punitive, indirect, or consequential damages (including lost profits),
even if notified of the possibility of such damages.

     STOCK INDEX FUTURES TRANSACTIONS. The Fund may invest in stock index
futures.

     A futures contract purchaser incurs an obligation to take delivery of a
specified amount of the obligation underlying the contract at a specified time
in the future for a specified price. A seller of a futures contract incurs an
obligation to deliver the specified amount of the underlying obligation at a
specified time in return for an agreed upon price.

     Index futures contracts provide for the delivery of an amount of cash equal
to a specified dollar amount times the difference between the index value at the
open or close of the last trading day of the contract and the futures contract
price. A futures contract sale is closed out by effecting a futures contract
purchase for the same aggregate amount of the specific type of security and the
same delivery date. If the sale price exceeds the offsetting purchase price, the
seller would be paid the difference and would realize a gain. If the offsetting
purchase price exceeds the sale price, the seller would pay the difference


                                       4



and would realize a loss. Similarly, a futures contract purchase is closed out
by effecting a futures contract sale for the same aggregate amount of the
specific type of security and the same delivery date. If the offsetting sale
price exceeds the purchase price, the purchaser would realize a gain, whereas if
the purchase price exceeds the offsetting sale price, the purchaser would
realize a loss. There is no assurance that the Fund will be able to enter into a
closing transaction.

     Margin. If the Fund enters into a futures contract, it is initially
required to deposit an "initial margin" of cash, U.S. government securities or
other liquid portfolio securities ranging from approximately 2% to 5% of the
contract amount. Initial margin requirements are established by the exchanges on
which futures contracts trade and may, from time to time, change. In addition,
brokers may establish margin deposit requirements in excess of those required by
the exchanges.

     Initial margin in futures transactions is different from margin in
securities transactions in that initial margin does not involve the borrowing of
funds by a broker's client but is, rather, a good faith deposit on the futures
contract which will be returned to the Fund upon the proper termination of the
futures contract. The margin deposits made are marked-to-market daily and the
Fund may be required to make subsequent deposits of cash, U.S. government
securities or other liquid portfolio securities, called "variation margin,"
which are reflective of price fluctuations in the futures contract.


     Limitations on Futures Contracts. The Commodity Futures Trading Commission
recently eliminated limitations on futures trading by certain regulated
entities, including registered investment companies, and consequently registered
investment companies may engage in unlimited futures transactions and options
thereon provided that the investment manager to the company claims an exclusion
from regulation as a commodity pool operator. In connection with its management
of the Fund, the Investment Manager has claimed such an exclusion from
registration as a commodity pool operator under the Commodity Exchange Act
("CEA"). Therefore, it is not subject to the registration and regulatory
requirements of the CEA. Therefore there are no limitations on the extent to
which the Fund may engage in non-hedging transactions involving futures and
options thereon except as set forth in the Fund's Prospectus or Statement of
Additional Information. There is no overall limitation on the percentage of the
Fund's net assets which may be subject to a hedge position.


     Risks of Transactions in Futures Contracts. The prices of indexes subject
to futures contracts (and thereby the futures contract prices) may correlate
imperfectly with the behavior of the cash prices of the Fund's portfolio
securities. A correlation may also be distorted (a) temporarily, by short-term
traders' seeking to profit from the difference between a contract or security
price objective and their cost of borrowed funds; (b) by investors in futures
contracts electing to close out their contracts through offsetting transactions
rather than meet margin deposit requirements; (c) by investors in futures
contracts opting to make or take delivery of underlying securities rather than
engage in closing transactions, thereby reducing liquidity of the futures
market; and (d) temporarily, by speculators who view the deposit requirements in
the futures markets as less onerous than margin requirements in the cash market.
Due to the possibility of price distortion in the futures market and because of
the possible imperfect correlation between movements in the prices of securities
and movements in the prices of futures contracts, a correct forecast or market
movement trends by the Investment Manager may still not result in a successful
hedging transaction.

     There is no assurance that a liquid secondary market will exist for futures
contracts in which the Fund may invest. In the event a liquid market does not
exist, it may not be possible to close out a futures position and, in the event
of adverse price movements, the Fund would continue to be required to make daily
cash payments of variation margin. The absence of a liquid market in futures
conracts might cause the Fund to make or take delivery of the underlying
securities at a time when it may be disadvantageous to do so.

     Exchanges also limit the amount by which the price of a futures contract
may move on any day. If the price moves equal to the daily limit on successive
days, then it may prove impossible to liquidate a futures position until the
daily limit moves have ceased. In the event of adverse price movements, the Fund
would continue to be required to make daily cash payments of variation margin on
open futures positions. In these situations, if the Fund has insufficient cash,
it may have to sell portfolio securities to


                                       5



meet daily variation margin requirements at a time when it may be
disadvantageous to do so. The inability to close out options and futures
positions could also have an adverse impact on the Fund's ability to effectively
hedge its portfolio.


     In the event of the bankruptcy of a broker through which the Fund engages
in transactions in futures, the Fund could experience delays and/or losses in
liquidating open positions purchased or sold through the broker and/or incur a
loss of all or part of its margin deposits with the broker.


     If the Fund maintains a short position in a futures contract it will cover
this position by holding, in a segregated account maintained on the books of the
Fund, cash, U.S. government securities or other liquid portfolio securities
equal in value (when added to any initial or variation margin on deposit) to the
market value of the securities underlying the futures contract. Such a position
may also be covered by owning the securities underlying the futures contract (in
the case of a stock index futures contract a portfolio of securities
substantially replicating the relevant index).

     In addition, if the Fund holds a long position in a futures contract it
will hold cash, U.S. government securities or other liquid portfolio securities
equal to the purchase price of the contract (less the amount of initial or
variation margin on deposit) in a segregated account maintained on the books of
the Fund.

     MONEY MARKET SECURITIES. The Fund may invest in various money market
securities for cash management purposes, 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 15% 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
S&P or by Moody's Investors Service, Inc. ("Moody's") or, if not rated, issued
by a company having an outstanding debt issue rated at least AAA by S&P or Aaa
by Moody's; and


     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 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


                                       6



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 Manager. 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 total assets.

     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 95% 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 state 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 mortgages 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 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 20% of the
value of its total assets.

     A loan may be terminated by the borrower on one business day's notice, or
by the Fund on four business days' notice. If the borrower fails to deliver the
loaned securities within four days after receipt of notice, the Fund could use
the collateral to replace the securities while holding the borrower liable for


                                       7



any excess of replacement cost over collateral. 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.


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; 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 to provide investment results that, before expenses, correspond to
       the total return (i.e., the combination of capital changes and income)
       of the Standard & Poor's 500 Composite Stock Price Index.


     The Fund may not:

   1.  With respect to 75% of its total 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 U.S. Government, its
       agencies or instrumentalities), except that the Fund may invest all or
       substantially all of its assets in another registered investment company
       having the same investment objective and policies and substantially the
       same investment restrictions as the Fund.

   2.  With respect to 75% of its total assets, purchase more than 10% of all
       outstanding voting securities or any class of securities of any one
       issuer, except that the Fund may invest all or substantially all of its
       assets in another registered investment company having the same
       investment objective and policies and substantially the same investment
       restrictions as the Fund.

   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 or its agencies
       or instrumentalities.

   4.  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.

   5.  Purchase or sell commodities or commodities contracts except that the
       Fund may purchase or sell index futures contracts.

   6.  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 such
       programs.


                                       8



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

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

   9.  Issue senior securities as defined in the 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 or selling
       futures contracts or options; (c) borrowing money in accordance with
       restrictions described above; (d) purchasing any securities on a
       when-issued or delayed delivery basis; or (e) lending portfolio
       securities.

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

   11. Make short sales of securities.

   12. Purchase securities on margin, except for such short-term loans as are
       necessary for the clearance of portfolio securities. The deposit or
       payment by the Fund of initial or variation margin in connection with
       futures contracts or related options thereon is not considered the
       purchase of a security on margin.

   13. Invest more than 15% of its total assets in "illiquid securities"
       (securities for which market quotations are not readily available),
       restricted securities and repurchase agreements which have a maturity of
       longer than seven days.

   14. Engage in the underwriting of securities, except insofar as the Fund
       may be deemed an underwriter under the Securities Act of 1933 in
       disposing of a portfolio security.

   15. Invest for the purpose of exercising control or management of any other
       issuer, except that the Fund may invest all or substantially all of its
       assets in another registered investment company having the same
       investment objective and policies and substantially the same investment
       restrictions as the Fund.

     As a non-fundamental policy, the Fund may not invest in other investment
companies in reliance on Sections 12(d)(1)(F), 12(d)(1)(G) or 12(d)(1)(J) of
the Investment Company Act.



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 Manager 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


     Effective July 31, 2003, the Board of Directors/Trustees (for ease of
reference referred to herein as "Trustees") of the Fund elected Joseph J. Kearns
and Fergus Reid to serve as Independent Trustees on the Board of the Fund,
thereby consolidating the existing Board of the Fund with the Board of
Directors/Trustees of the open-end and closed-end registered investment
companies managed by Morgan Stanley Investment Management Inc.



                                       9




     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 Manager (the "Retail Funds") and certain of the funds
advised by Morgan Stanley Investment Management Inc., Morgan Stanley Investments
LP and Morgan Stanley AIP GP LP (the "Institutional Funds"). Seven Trustees have
no affiliation or business connection with the Investment Manager or any of its
affiliated persons and do not own any stock or other securities issued by the
Investment Manager'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 Manager.


     The Independent Trustees 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 (defined below)
overseen by each Independent Trustee (as of December 31, 2003) 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 Manager and any funds that have an investment advisor
that is an affiliated person of the Investment Manager (including but not
limited to Morgan Stanley Investment Management Inc.).



                                       10







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

Michael Bozic (63)            Trustee       Since
c/o Kramer Levin Naftalis &                 April 1994
Frankel LLP
Counsel to the
Independent Trustees
919 Third Avenue
New York, NY

Edwin J. Garn (72)            Trustee       Since
c/o Summit Ventures LLC                     January
One Utah Center                             1993
201 South Main Street
Salt Lake City, UT

Wayne E. Hedien (70)          Trustee       Since
c/o Kramer Levin Naftalis &                 September
Frankel LLP                                 1997
Counsel to the
Independent Trustees
919 Third Avenue
New York, NY




                                                                     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 (63)            Private Investor; Director or the        208      Director of Weirton
c/o Kramer Levin Naftalis &   Retail Funds (since April 1994)                   Trustee of Steel Corporation
Frankel LLP                   and the Institutional Funds (since
Counsel to the                July 2003); formerly Vice
Independent Trustees          Chairman of Kmart Corporation
919 Third Avenue              (December 1998- October 2000),
New York, NY                  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)            Managing Director of Summit              208      Director of Franklin Covey
c/o Summit Ventures LLC       Ventures LLC; Director or                         (time management
One Utah Center               Trustee of the Retail Funds                       systems), BMW Bank of
201 South Main Street         (since January 1993) and the                      North America, Inc.
Salt Lake City, UT            Institutional Funds (since July                   (industrial loan
                              2003); member of the Utah                         corporation), United Space
                              Regional Advisory Board of                        Alliance (joint venture
                              Pacific Corp.; formerly United                    between Lockheed Martin
                              States Senator (R-Utah)                           and the Boeing Company)
                              (1974-1992) and Chairman,                         and Nuskin Asia Pacific
                              Senate Banking Committee                          (multilevel marketing);
                              (1980-1986), Mayor of Salt Lake                   member of the board of
                              City, Utah (1971-1974),                           various civic and
                              Astronaut, Space Shuttle                          charitable organizations.
                              Discovery (April 12-19, 1985),
                              and Vice Chairman, Huntsman
                              Corporation (chemical company).

Wayne E. Hedien (70)          Retired; Director or Trustee             208      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                  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.



                                       11







                                                                                          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 (55)    Trustee       Since       Senior Partner, Johnson Smick        208      Director of NVR, Inc.
c/o Johnson Smick                           July 1991   International, Inc., a                        (home construction);
International, Inc.                                     consulting firm; Chairman of                  Chairman and Trustee of
2099 Pennsylvania                                       the Audit Committee and                       the Financial Accounting
Avenue, N.W.                                            Director or Trustee of the                    Foundation (oversight
Suite 950                                               Retail Funds (since July 1991)                organization of the
Washington, D.C.                                        and the Institutional Funds                   Financial Accounting
                                                        (since July 2003); Co-Chairman                Standards Board);
                                                        and a founder of the Group of                 Director of RBS
                                                        Seven Council (G7C), an                       Greenwich
                                                        international economic                        Capital Holdings
                                                        commission; formerly Vice                     (financial holding
                                                        Chairman of the Board of                      company).
                                                        Governors of the Federal
                                                        Reserve System and Assistant
                                                        Secretary of the U.S.Treasury.

Joseph J. Kearns (62)         Trustee       Since       President, Kearns & Associates       209      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                                              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           208      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                                            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        209      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                                             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.


     The Trustees who are affiliated with the Investment Manager or affiliates
of the Investment Manager (as set forth below) and executive officers of the
Fund, their 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, 2003) and the
other directorships, if any, held by the Trustee, are shown below.



                                       12







                                                                                            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
      INDEPENDENT TRUSTEE        REGISTRANT    SERVED*            PAST 5 YEARS**             TRUSTEE           BY TRUSTEE
------------------------------ ------------- ----------- -------------------------------- ------------ -------------------------

Charles A. Fiumefreddo (71)    Chairman      Since       Chairman and Director or             208      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                Trustee                   July 2003); formerly Chief
                                                         Executive Officer of the
                                                         Retail Funds (until September
                                                         2002).
James F. Higgins (56)          Trustee       Since       Director or Trustee of the           208      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                                          (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                                                    Investment Manager and Morgan Stanley Services;
                                                                Chairman and Director of the Distributor; Chairman
                                                                and Director of the Transfer Agent; Director of
                                                                various Morgan Stanley subsidiaries; President of the
                                                                Institutional Funds (since July 2003) and President of
                                                                the Retail Funds (since May 1999); Trustee (since
                                                                July 2003) and President (since December 2002) of
                                                                the Van Kampen Closed-End Funds; Trustee (since
                                                                May 1999) and President (since October 2002) of the
                                                                Van Kampen Open-End Funds.




----------
*     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.



                                       13







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

Barry Fink (49)              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                                                        December 2000), Secretary (since February 1997)
                                                                    and Director (since July 1998) of the Investment
                                                                    Manager and Morgan Stanley Services; Vice
                                                                    President of the Retail Funds; Assistant Secretary of
                                                                    Morgan Stanley DW; Vice President of the
                                                                    Institutional Funds (since July 2003); Managing
                                                                    Director, Secretary and Director of the Distributor;
                                                                    previously Secretary (February 1997-July 2003) and
                                                                    General Counsel of the Retail Funds; Vice President
                                                                    and Assistant General Counsel of the Investment
                                                                    Manager and Morgan Stanley Services (February
                                                                    1997-December 2001).

Ronald E. Robison (65)       Executive          Since April         Principal Executive Officer - Office of the Funds
1221 Avenue of the           Vice President     2003                (since November 2003); Managing Director of
Americas                     and                                    Morgan Stanley & Co. Incorporated, Morgan Stanley
New York, NY                 Principal                              Investment Management Inc. and Morgan Stanley;
                             Executive                              Managing Director, Chief Administrative Officer and
                             Officer                                Director of the Investment Manager and Morgan
                                                                    Stanley Services; Chief Executive Officer and
                                                                    Director of the Transfer Agent; Managing Director
                                                                    and Director of the Distributor; Executive Vice
                                                                    President and Principal Executive Officer of the
                                                                    Institutional Funds (since July 2003) and the Retail
                                                                    Funds (since April 2003); Director of Morgan Stanley
                                                                    SICAV (since May 2004); previously President and
                                                                    Director of the Institutional Funds (March 2001-July
                                                                    2003) and Chief Global Operations Officer of Morgan
                                                                    Stanley Investment Management Inc.

Joseph J. McAlinden (61)     Vice President     Since July 1995     Managing Director and Chief Investment Officer of
1221 Avenue of the                                                  the Investment Manager and Morgan Stanley
Americas                                                            Investment Management Inc.; Director of the Transfer
New York, NY                                                        Agent, Chief Investment Officer of the Van Kampen
                                                                    Funds; Vice President of the Institutional Funds
                                                                    (since July 2003) and the Retail Funds (since July
                                                                    1995).

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
New York, NY                                                        the Investment Manager, Vice President of the
                                                                    Institutional and Retail Funds (since July 2004); Vice
                                                                    President of the Van Kampen Funds; 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).

Stefanie V. Chang (37)       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 Manager; Vice
New York, NY                                                        President of the Institutional Funds (since December
                                                                    1997) and the Retail Funds (since July 2003);
                                                                    formerly practiced law with the New York law firm of
                                                                    Rogers & Wells (now Clifford Chance US LLP).

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



                                       14







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

Mary E. Mullin (37)          Secretary          Since July 2003     Executive Director of Morgan Stanley & Co.
1221 Avenue of the                                                  Incorporated, Morgan Stanley Investment
Americas                                                            Management Inc. and the Investment Manager;
New York, NY                                                        Secretary of the Institutional Funds (since June
                                                                    1999) and the Retail Funds (since July 2003);
                                                                    formerly practiced law with the New York law firms of
                                                                    McDermott, Will & Emery and Skadden, Arps, Slate,
                                                                    Meagher & Flom LLP.




----------
*     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
Manager or its affiliates serve as assistant secretaries of the Fund: Lou Anne
D. McInnis, Joseph Benedetti, Daniel Burton, Marilyn K. Cranney, Joanne Doldo,
Elisa Mitchell, Elizabeth Nelson, Sheldon Winicour and Bennett MacDougall.

     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 Manager, Morgan Stanley Investment Management Inc. and Morgan
Stanley AIP GP LP) for the calendar year ended December 31, 2003 is shown below.
Messrs. Kearns and Reid began serving as Trustees of the Fund on July 31, 2003.







                                                                              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, 2003)                         (AS OF DECEMBER 31, 2003)
------------------------   -----------------------------------------------   -----------------------------------------------
Independent:

Michael Bozic                                   None                                          over $100,000
Edwin J. Garn                                   None                                          over $100,000
Wayne E. Hedien                          $10,001 - $50,000                                    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                     over $100,000                                      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, 2003, Messrs. Kearns and Reid had deferred a total of
      $430,361 and $600,512, 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 advisor 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 Trustees serve as
members of the Audit Committee. In addition, three Trustees, including two


                                       15




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 of the Fund 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
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 August 31, 2004, the Audit Committee held six 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 the Fund.
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 August 31, 2004, the Governance Committee held one meeting.


     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 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



                                       16




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 25 meetings of the Board of Trustees of the Fund held during the
fiscal year ended August 31, 2004. The Independent Trustees of the Fund also met
seven times during that time, in addition to the 25 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. During the Fund's fiscal
year ended August 31, 2004, the Insurance Committee held eight 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

     Effective August 1, 2003, 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 Director 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 $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



                                       17




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 or have been employed by the Investment Manager
or an affiliated company receive no compensation or expense reimbursement from
the Fund for their services as Trustee or Officer.

     Prior to August 1, 2003, the Fund paid each Independent Trustee an annual
fee of $800 plus a per meeting fee of $50 for meetings of the Board of Trustees,
the Independent Trustees or Committees of the Board of Trustees attended by the
Trustee (the Fund paid the Chairman of the Audit Committee an additional annual
fee of $750 and the Chairmen of the Derivatives and Insurance Committees
additional annual fees of $500). With the exception of an Audit Committee
Meeting, if a Board meeting and a meeting of the Independent Trustees and/or one
or more Committee meetings took place on a single day, the Trustees were paid a
single meeting fee by the Fund.

     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 due to
be paid during the calendar year 2004 which will 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 August 31, 2004.


                               FUND COMPENSATION






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

Michael Bozic(1)(3) ................       $2,380
Charles A. Fiumefreddo*(2) .........        4,780
Edwin J. Garn(1)(3) ................        2,380
Wayne E. Hedien(1)(2) ..............        2,380
James F. Higgins* ..................            0
Dr. Manuel H. Johnson(1) ...........        3,176
Joseph J. Kearns(1)(4) .............        2,745
Michael E. Nugent(1)(2) ............        2,778
Fergus Reid(1)(3) ..................        2,778




----------
(*)   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 $692 of compensation deferred at the election of the Trustee
      under the DC Plan.



                                       18




     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, 2003. 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. Messrs. Bozic, Fiumefreddo,
Garn, Hedien, Johnson and Higgins began serving as Trustees of the
Institutional Funds on July 31, 2003, and served as Trustees of the Retail
Funds during the calendar year ended December 31, 2003. Messrs. Kearns and Reid
began serving as Trustees of the Retail Funds on July 31, 2003, and served as
Trustees of the Institutional Funds during the calendar year ended December 31,
2003. Mr. Nugent served as Trustee of both the Institutional Funds and the
Retail Funds during the calendar year ended December 31, 2003.


                      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 ..................   208                        $164,400
Charles A. Fiumefreddo .........   208                         360,000
Edwin J. Garn ..................   208                         164,400
Wayne E. Hedien ................   208                         164,300
James F. Higgins ...............   208                               0
Dr. Manuel H. Johnson ..........   208                         228,213
Joseph J. Kearns(1) ............   209                         166,710
Michael E. Nugent ..............   208                         277,441
Fergus Reid(1) .................   209                         149,299




----------
(1)   Includes amounts deferred at the election of the Trustees under the Prior
      DC Plan. The total amounts of deferred compensation (including interest)
      payable or accrued by Messrs. Kearns and Reid are $430,361 and $600,512,
      respectively.


     Prior to December 31, 2003, 49 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 Director 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 49 Retail Funds for the calendar year ended
December 31, 2003, and the estimated retirement benefits for the Independent
Trustee from the 49 Retail 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 .................                $19,842                           $47,838
Edwin J. Garn .................                 35,306                            47,877
Wayne E. Hedien ...............                 38,649                            40,839
Dr. Manuel H. Johnson .........                 20,125                            70,050
Michael E. Nugent .............                 36,265                            62,646




----------
(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.



                                       19



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

     The following owned 5% or more of the outstanding Class A shares of the
Fund on October 7, 2004: State Street Bank and Trust Co., FBO ADP/Morgan Stanley
Alliance, 105 Rosemont Avenue, Westwood, MA 02090-2318-66.38%. The following
owned 5% or more of the outstanding Class D shares of the Fund on October 7,
2004: State Street Bank and Trust Co., FBO ADP/Morgan Stanley Alliance, 105
Rosemont Avenue, Westwood, MA 02090-2318-7.65% and Blush & Co., FBO IN-CARTADM,
P.O. Box 976, New York, NY 10268-0976-5.88%.


     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 MANAGEMENT AND OTHER SERVICES
--------------------------------------------------------------------------------
A. INVESTMENT MANAGER


     The Investment Manager 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 Manager 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.


     Pursuant to an Investment Management Agreement (the "Management Agreement")
with the Investment Manager, the Fund has retained the Investment Manager 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. Effective May 1, 2004, the investment management fee was reduced to
0.20% of the daily net assets of the Fund. Prior to May 1, 2004, the Fund paid
the Investment Manager monthly compensation calculated daily by applying the
following annual rates to the net assets of the Fund determined as of the close
of each business day: 0.40% to the portion of daily net assets not exceeding
$1.5 billion; 0.375% to the portion of daily net assets exceeding $1.5 billion
but not exceeding $3 billion; and 0.350% to the portion of such daily net assets
exceeding $3 billion. The Investment Manager has agreed, under its Management
Agreement with the Fund, to assume the Fund's operating expenses (except for
brokerage and 12b-1 fees) to the extent such operating expenses exceed on an
annualized basis 40% (prior to May 1, 2004 the annual rate was 50%) of the
average daily net assets of the Fund, and will continue to do so on a permanent
basis. The management fee is allocated among the Classes pro rata based on the
net assets of the Fund attributable to each Class. Taking into account the
Investment Manager's assumption of expenses, for the fiscal years ended August
31, 2002, 2003 and 2004, the Investment Manager was paid compensation under the
Management Agreement in the amounts of $6,157,376, $4,450,513 and $4,865,522,
respectively.


     The Investment Manager has retained its wholly-owned subsidiary, Morgan
Stanley Services, to perform administrative services for the Fund.

     In approving the Management Agreement, the Board of Trustees, including the
Independent Trustees, considered the nature, quality and scope of the services
provided by the Investment Manager; the performance, fees and expenses of the
Fund compared to other similar investment companies; the Investment Manager's
expenses in providing the services; the profitability of the Investment Manager
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. The Independent Trustees noted
their confidence in the capability and integrity of the senior management and
staff of the Investment Manager and the financial strength of the Investment
Manager 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
Management Agreement was in the best interests of the Fund and its shareholders.


                                       20




     The Board of Trustees of the Fund approved amending and restating,
effective November 1, 2004, the existing investment management agreement for the
Fund ("Current Investment Management Agreement") to remove the administration
services component from the Current Investment Management Agreement. The Fund's
Investment Manager 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 Manager will be provided by Morgan Stanley Services Company Inc.
("Administrator") pursuant to a separate administration agreement
("Administration Agreement") entered into by the Fund with the Administrator.
Under the terms of the Administration Agreement, the Administrator will provide
the same administration services previously provided by the Investment Manager.

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



B. PRINCIPAL UNDERWRITER

     The Fund's principal underwriter is the Distributor (which has the same
address as the Investment Manager). 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.


C. SERVICES PROVIDED BY THE INVESTMENT MANAGER

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

     Under the terms of the Management Agreement, in addition to managing the
Fund's investments, the Investment Manager maintains certain of the Fund's books
and records and furnishes, at its own expense, the office space, facilities,
equipment, clerical help, bookkeeping and certain legal services as the Fund may
reasonably require in the conduct of its business, including the preparation of


                                       21




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 Investment Manager, necessary or desirable). The
Investment Manager also bears the cost of telephone service, heat, light, power
and other utilities provided to the Fund.

     Expenses not expressly assumed by the Investment Manager under the
Management 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 Manager or any corporate affiliate of the Investment Manager; 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 Manager (not including
compensation or expenses of attorneys who are employees of the Investment
Manager); 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 Management Agreement provides that in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations thereunder, the Investment Manager is not liable to the Fund or any
of its investors for any act or omission by the Investment Manager or for any
losses sustained by the Fund or its investors.


     The Management 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.



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 maximum annual rate of 0.25% of the average daily net assets of Class A and
1.0% of the average daily net assets of each of Class B and Class C.


     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



                                       22




"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 August 31, 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)      $  386,752      FSCs:(1)      $  274,408      FSCs:(1)      $  400,482
                     CDSCs:        $   11,816      CDSCs:        $    2,378      CDSCs:        $   14,313
Class B ..........   CDSCs:        $2,387,733      CDSCs:        $2,846,110      CDSCs:        $3,987,033
Class C ..........   CDSCs:        $   41,456      CDSCs:        $   33,705      CDSCs:        $   54,235



----------
(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. For the fiscal year ended August 31, 2004,
Class A, Class B and Class C shares of the Fund accrued payments under the Plan
amounting to $655,430, $11,988,849 and $1,770,268, respectively, which amounts
are equal to 0.24%, 1.00% and 1.00% of the average daily net assets of Class A,
Class B and Class C, respectively, for the fiscal year.


     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


                                       23




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 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 August 31, 2004 to the Distributor. The
Distributor and Morgan Stanley DW estimate that they have spent, pursuant to the
Plan, $152,817,654 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)
4.82% ($7,367,875)-advertising and promotional expenses; (ii) 0.19%
($292,509)-printing of prospectuses for distribution to other than current
shareholders; and (iii) 94.99% ($145,157,270)-other expenses, including the
gross sales credit and the carrying charge, of which 5.86% ($8,499,745)
represents carrying charges, 37.61% ($54,592,694) 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, 53.23% ($77,273,716) represents overhead and other branch
office distribution-related expenses and 3.30% ($4,791,115) represents excess
distribution expenses of Morgan Stanley S&P 500 Select Fund, the net assets of
which were combined with those of the Fund on July 15, 2003, 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



                                       24




August 31, 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 $42,265,099 as of August 31, 2004 (the end of the Fund's
fiscal year), which was equal to approximately 3.82% 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 A or Class C at December 31, 2003 (end of the calender year). No
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 Manager, Morgan Staley 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,


                                       25




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. LITIGATION INVOLVING THE INVESTMENT MANAGER AND DISTRIBUTOR


     On August 6, 2003, a shareholder derivative action(1) was filed in the U.S.
District Court for the Southern District of New York against the Fund's
Investment Manager and Distributor, alleging breach of fiduciary duty in respect
of the defendants' compensation.

     Plaintiff alleges the Fund trustees are not independent as required and
seeks a declaration that the investment management and distribution agreements
between the Fund and the defendants are void. Plaintiff also alleges that the
investment management and distribution fees were excessive and seeks damages
equivalent to the investment management and distribution fees paid to the
defendants. The defendants believe that the lawsuit has no merit. Defendant's
motion to dismiss the complaint was granted, a decision that Plaintiff appealed.
The ultimate outcome of this matter is not presently determinable and no
provision has been made in the Fund's financial statements for the effect, if
any, of such a matter.


G. 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 Manager and the
Distributor. As Transfer Agent and Dividend Disbursing Agent, the Transfer
Agent's responsibilities include maintaining shareholder 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.

H. CODES OF ETHICS

     The Fund, the Investment Manager 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

----------

(1)   Lionel Amron v. Morgan Stanley Investment Advisors Inc. and Morgan
      Stanley Distributors Inc.



                                       26



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 POLICIES AND PROCEDURES AND PROXY VOTING RECORD

     The Fund's policies and procedures with respect to the voting of proxies
relating to the Fund's portfolio securities are attached as Appendix A.
Information on how the Fund voted proxies relating to portfolio securities
during the most recent twelve-month period ended June 30 is available without
charge, upon request, by calling (800) 869-NEWS or by visiting the Mutual Fund
Center on our web site at www.morganstanley.com. This information is also
available on the Securities and Exchange Commission's (the "SEC") web site at
http://www.sec.gov.



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


     Subject to the general supervision of the Trustees, the Investment Manager
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.


     During the fiscal years ended August 31, 2002, 2003 and 2004, the Fund paid
a total of $271,513, $125,479 and $93,240 in brokerage commissions,
respectively.



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.


     During the fiscal years ended August 31, 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 Manager by any amount of the brokerage
commissions it may pay to an affiliated broker or dealer.


     During the fiscal years ended August 31, 2002, 2003 and 2004, the Fund did
not pay any brokerage commissions to an affiliated broker or dealer.



                                       27



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. 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 Manager 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 Manager 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.

     In seeking to implement the Fund's policies, the Investment Manager effects
transactions with those brokers and dealers who the Investment Manager believes
provide the most favorable prices and are capable of providing efficient
executions. If the Investment Manager 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 Manager. 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 information
and services received by the Investment Manager from brokers and dealers may be
utilized by the Investment Manager 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 Manager and certain of its affiliates currently serves as
investment manager to a number of clients, including other investment companies,
and may in the future act as investment manager or advisor to others. It is the
practice of the Investment Manager 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 Manager 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 August 31, 2004, the Fund did not pay any
brokerage commissions to brokers because of research services provided.



E. REGULAR BROKER-DEALERS


     During the fiscal year ended August 31, 2004, the Fund purchased securities
issued by Citigroup Inc., J.P. Morgan & Chase Co., Goldman Sachs Group Inc.
(The) and the Bank of New York (The), the ten brokers or the ten dealers which
executed transactions for or with the Fund in the largest dollar amounts during
year. At August 31, 2004, the Fund held securities issued by Citigroup Inc.,
Bank of America Corp., J.P. Morgan & Chase Co., Goldman Sachs Inc. (The),
Prudential Financial, Inc., Bank of New York (The) with market values of
$41,414,511, $31,532,689, $24,247,697, $7,437,992, $4,176,150 and $3,983,575,
respectively.



                                       28




F.  REVENUE SHARING

     The Investment Manager and/or the Distributor may pay compensation, out of
their own resources and not as an additional charge to the Fund, to Morgan
Stanley DW and certain unaffiliated brokers, dealers or other financial
intermediaries ("Intermediaries") in connection with the sale, distribution,
retention and/or servicing of Fund shares. For example, the Investment Manager
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-related
or transfer agency/shareholder servicing fees that may be payable by the Fund or
by the Distributor. The additional payments may be based on current assets,
gross sales, the Fund's advisory fee or other measures as determined from time
to time by the Investment Advisor or the Distributor. The amount of these
payments, as determined from time to time by the Investment Manager or the
Distributor, may be substantial and 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:

   (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 Manager'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 0.20% of gross sales of Fund shares; and

         o For those shares purchased beginning January 1, 2001, 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 or the amount that the
Fund receives to invest on behalf of an investor. Investors may wish to take
such payment arrangements into account when considering and evaluating any
recommendations relating to Fund shares.



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.


                                       29



     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.

     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.

     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 Funds 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 transactions 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 a 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


                                       30



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 among the Fund's Distributor,
Morgan Stanley DW and other authorized dealers as described in Section "V.
Investment Management 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; and (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 Manager 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.


     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.

     Futures are valued at the latest price published by the commodities
exchange on which they trade unless it is determined that such price does not
reflect their market value, in which case they will be valued at their fair
value as determined in good faith under procedures established by and under the
supervision of the Trustees.


     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.



                                       31



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, 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, options, futures transactions, 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 or 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 Manager 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


                                       32




congressional action, the maximum tax rate on long-term capital gains would
return to 20% in 2009, and the maximum rate on all 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 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 that 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. Capital gains distributions attributable to gains from
U.S. real property interests (including certain U.S. real property holding
corporations) will generally be subject to federal withholding tax and will give
rise to an obligation on the part of the foreign shareholder to file a U.S. tax
return. 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 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 realized by
non-corporate shareholders is generally 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



                                       33



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 another fund, including shares of
other Morgan Stanley Funds, 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.



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 AUGUST 31, 2004








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

Class A .........   09/26/97         4.88%        -3.76%         2.29%
Class B .........   09/26/97         4.88%        -3.86%         2.29%
Class C .........   09/26/97         8.85%        -3.48%         2.28%
Class D .........   09/26/97        10.97%        -2.51%         3.32%




          AVERAGE ANNUAL RETURNS ASSUMING NO DEDUCTION OF SALES CHARGE
                          PERIOD ENDED AUGUST 31, 2004








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

Class A .........   09/26/97         10.70%        -2.71%         3.09%
Class B .........   09/26/97          9.88%        -3.47%         2.29%
Class C .........   09/26/97          9.85%        -3.48%         2.28%
Class D .........   09/26/97         10.97%        -2.51%         3.32%




           AVERAGE TOTAL RETURNS ASSUMING NO DEDUCTION OF SALES CHARGE
                          PERIOD ENDED AUGUST 31, 2004








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

Class A .........   09/26/97         10.70%        -12.85%         23.46%
Class B .........   09/26/97          9.88%        -16.20%         16.98%
Class C .........   09/26/97          9.85%        -16.22%         16.95%
Class D .........   09/26/97         10.97%        -11.91%         25.38%



                                       34




   AVERAGE ANNUAL AFTER-TAX RETURNS ASSUMING DEDUCTION OF MAXIMUM SALES CHARGE
                                     CLASS B
                          PERIOD ENDED AUGUST 31, 2004








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

After taxes on distributions ..........   09/26/97         4.84%        -3.88%         2.26%
After taxes on distributions and
 redemptions ..........................   09/26/97         3.22%        -3.24%         1.95%




XII. FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

     The Fund's audited financial statements for the fiscal year ended August
31, 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.


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.


                                       35




APPENDIX A. MORGAN STANLEY INVESTMENT MANAGEMENT
            PROXY VOTING POLICY AND PROCEDURES

--------------------------------------------------------------------------------
I. POLICY STATEMENT

     INTRODUCTION. Morgan Stanley Investment Management's ("MSIM") policies and
procedures for voting proxies with respect to securities held in the accounts
of clients applies to those MSIM entities that provide discretionary Investment
Management services and for which a MSIM entity has the authority to vote their
proxies. The policies and procedures and general guidelines in this section
will be reviewed and, as necessary, updated periodically to address new or
revised proxy voting issues. The MSIM entities covered by these policies and
procedures currently include the following: Morgan Stanley Investment Advisors
Inc., Morgan Stanley Alternative Investment Partners, L.P., Morgan Stanley AIP
GP LP, Morgan Stanley Investment Management Inc., Morgan Stanley Investment
Group Inc., Morgan Stanley Investment Management Limited, Morgan Stanley
Investment Management Company, Morgan Stanley Asset & Investment Trust
Management Co., Limited, Morgan Stanley Investment Management Private Limited,
Morgan Stanley Investments LP, Morgan Stanley Hedge Fund Partners GP LP, Morgan
Stanley Hedge Fund Partners LP, Van Kampen Investment Advisory Corp., Van
Kampen Asset Management Inc., and Van Kampen Advisors Inc. (each a "MSIM
Affiliate" and collectively referred to as the "MSIM Affiliates").

     Each MSIM Affiliate will vote proxies as part of its authority to manage,
acquire and dispose of account assets. With respect to the MSIM registered
management investment companies (Van Kampen, Institutional and Advisor
Funds)(collectively referred to as the "MSIM Funds"), each MSIM Fund will vote
proxies pursuant to authority granted under its applicable investment advisory
agreement or, in the absence of such authority, as authorized by its Board of
Directors or Trustees. A MSIM Affiliate will not vote proxies if the "named
fiduciary" for an ERISA account has reserved the authority for itself, or in
the case of an account not governed by ERISA, the Investment Management
Agreement does not authorize the MSIM Affiliate to vote proxies. MSIM
Affiliates will, in a prudent and diligent manner, vote proxies in the best
interests of clients, including beneficiaries of and participants in a client's
benefit plan(s) for which we manage assets, consistent with the objective of
maximizing long-term investment returns ("Client Proxy Standard"). In certain
situations, a client or its fiduciary may provide a MSIM Affiliate with a
statement of proxy voting policy. In these situations, the MSIM Affiliate will
comply with the client's policy unless to do so would be inconsistent with
applicable laws or regulations or the MSIM Affiliate's fiduciary
responsibility.

     PROXY RESEARCH SERVICES. To assist the MSIM Affiliates in their
responsibility for voting proxies and the overall global proxy voting process,
Institutional Shareholder Services ("ISS") and the Investor Responsibility
Research Center ("IRRC") have been retained as experts in the proxy voting and
corporate governance area. ISS and IRRC are independent advisers that
specialize in providing a variety of fiduciary-level proxy-related services to
institutional investment managers, plan sponsors, custodians, consultants, and
other institutional investors. The services provided to MSIM Affiliates include
in-depth research, global issuer analysis, and voting recommendations. In
addition to research, ISS provides vote execution, reporting, and
recordkeeping. MSIM's Proxy Review Committee (see Section IV.A. below) will
carefully monitor and supervise the services provided by the proxy research
services.

     VOTING PROXIES FOR CERTAIN NON-US COMPANIES. 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-US companies located in certain jurisdictions,
particularly emerging markets, may involve a number of problems that may
restrict or prevent a MSIM Affiliate's ability to vote such proxies. These
problems include, but are not limited to: (i) proxy statements and ballots
being written in a language other than English; (ii) untimely and/or inadequate
notice of shareholder meetings; (iii) restrictions on the ability of holders
outside the issuer's jurisdiction of organization to exercise votes; (iv)
requirements to vote proxies in person, (v) the imposition of restrictions on
the sale of the securities for a period of time in proximity to the shareholder
meeting; and (vi) requirements to provide local agents with power of attorney
to facilitate the MSIM Affiliate's voting instructions. As a result, clients'
non-U.S. proxies will be voted on a best efforts basis


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only, consistent with the Client Proxy Standard. ISS has been retained to
provide assistance to the MSIM Affiliates in connection with voting their
clients' non-US proxies.


II. GENERAL PROXY VOTING GUIDELINES

     To ensure consistency in voting proxies on behalf of its clients, MSIM
Affiliates will follow (subject to any exception set forth herein) these Proxy
Voting Policies and Procedures, including the guidelines set forth below. These
guidelines address a broad range of issues, including board size and
composition, executive compensation, anti-takeover proposals, capital structure
proposals and social responsibility issues and are meant to be general voting
parameters on issues that arise most frequently. The MSIM Affiliates, however,
may vote in a manner that is contrary to the following general guidelines,
pursuant to the procedures set forth in Section IV. below, provided the vote is
consistent with the Client Proxy Standard.


III. GUIDELINES


A. MANAGEMENT PROPOSALS

   1.  When voting on routine ballot items the following proposals are
       generally voted in support of management, subject to the review and
       approval of the Proxy Review Committee, as appropriate.

       o  Selection or ratification of auditors.

       o  Approval of financial statements, director and auditor reports.

       o  Election of Directors.

       o  Limiting Directors' liability and broadening indemnification of
          Directors.

       o  Requirement that a certain percentage (up to 662|M/3%) of its Board's
          members be comprised of independent and unaffiliated Directors.

       o  Requirement that members of the company's compensation, nominating and
          audit committees be comprised of independent or unaffiliated
          Directors.

       o  Recommendations to set retirement ages or require specific levels of
          stock ownership by Directors.

       o  General updating/corrective amendments to the charter.

       o  Elimination of cumulative voting.

       o  Elimination of preemptive rights.

       o  Provisions for confidential voting and independent tabulation of
          voting results.

       o  Proposals related to the conduct of the annual meeting except those
          proposals that relate to the "transaction of such other business which
          may come before the meeting."

   2.  The following non-routine proposals, which potentially may have a
       substantive financial or best interest impact on a shareholder, are
       generally voted in support of management, subject to the review and
       approval of the Proxy Review Committee, as appropriate.


       Capitalization changes

       o  Capitalization changes that eliminate other classes of stock and
          voting rights.

       o  Proposals to increase the authorization of existing classes of common
          stock (or securities convertible into common stock) if: (i) a clear
          and legitimate business purpose is stated; (ii) the number of shares
          requested is reasonable in relation to the purpose for which
          authorization is requested; and (iii) the authorization does not
          exceed 100% of shares currently authorized and at least 30% of the
          new authorization will be outstanding.


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       o  Proposals to create a new class of preferred stock or for issuances of
          preferred stock up to 50% of issued capital.


       o  Proposals for share repurchase plans.


       o  Proposals to reduce the number of authorized shares of common or
          preferred stock, or to eliminate classes of preferred stock.


       o  Proposals to effect stock splits.


       o  Proposals to effect reverse stock splits if management proportionately
          reduces the authorized share amount set forth in the corporate
          charter. Reverse stock splits that do not adjust proportionately to
          the authorized share amount will generally be approved if the
          resulting increase in authorized shares coincides with the proxy
          guidelines set forth above for common stock increases.


       Compensation


       o  Director fees, provided the amounts are not excessive relative to
          other companies in the country or industry.


       o  Employee stock purchase plans that permit discounts up to 15%, but
          only for grants that are part of a broad based employee plan,
          including all non-executive employees.


       o  Establishment of Employee Stock Option Plans and other employee
          ownership plans.


       Anti-Takeover Matters


       o  Modify or rescind existing supermajority vote requirements to amend
          the charters or bylaws.


       o  Adoption of anti-greenmail provisions provided that the proposal: (i)
          defines greenmail; (ii) prohibits buyback offers to large block
          holders not made to all shareholders or not approved by disinterested
          shareholders; and (iii) contains no anti-takeover measures or other
          provisions restricting the rights of shareholders.


   3.  The following non-routine proposals, which potentially may have a
       substantive financial or best interest impact on the shareholder, are
       generally voted against (notwithstanding management support), subject to
       the review and approval of the Proxy Review Committee, as appropriate.


       o  Capitalization changes that add classes of stock which substantially
          dilute the voting interests of existing shareholders.


       o  Proposals to increase the authorized number of shares of existing
          classes of stock that carry preemptive rights or supervoting rights.


       o  Creation of "blank check" preferred stock.


       o  Changes in capitalization by 100% or more.


       o  Compensation proposals that allow for discounted stock options which
          have not been offered to employees in general.


       o  Amendments to bylaws that would require a supermajority shareholder
          vote to pass or repeal certain provisions.


       o  Proposals to indemnify auditors.


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   4.  The following types of non-routine proposals, which potentially may
       have a potential financial or best interest impact on an issuer, are
       voted as determined by the Proxy Review Committee.


       Corporate Transactions


       o  Mergers, acquisitions and other special corporate transactions (i.e.,
          takeovers, spin-offs, sales of assets, reorganizations, restructurings
          and recapitalizations) will be examined on a case-by-case basis. In
          all cases, ISS and IRRC research and analysis will be used along with
          MSIM Affiliates' research and analysis, based on, among other things,
          MSIM internal company-specific knowledge.

       o  Change-in-control provisions in non-salary compensation plans,
          employment contracts, and severance agreements that benefit management
          and would be costly to shareholders if triggered.

       o  Shareholders rights plans that allow appropriate offers to
          shareholders to be blocked by the board or trigger provisions that
          prevent legitimate offers from proceeding.

       o  Executive/Director stock option plans. Generally, stock option plans
          should meet the following criteria:

          (i)        Whether the stock option plan is incentive based;

          (ii)       For mature companies, should be no more than 5% of the
                     issued capital at the time of approval;

          (iii)      For growth companies, should be no more than 10% of the
                     issued capital at the time of approval.


       Anti-Takeover Provisions


       o  Proposals requiring shareholder ratification of poison pills.

       o  Anti-takeover and related provisions that serve to prevent the
          majority of shareholders from exercising their rights or effectively
          deter the appropriate tender offers and other offers.


B. Shareholder Proposals


   1.  The following shareholder proposals are generally supported, subject to
       the review and approval of the Proxy Review Committee, as appropriate:

       o  Requiring auditors to attend the annual meeting of shareholders.

       o  Requirement that members of the company's compensation, nominating and
          audit committees be comprised of independent or unaffiliated
          Directors.

       o  Requirement that a certain percentage of its Board's members be
          comprised of independent and unaffiliated Directors.

       o  Confidential voting.

       o  Reduction or elimination of supermajority vote requirements.


   2.  The following shareholder proposals will be voted as determined by the
       Proxy Review Committee.

       o  Proposals that limit tenure of directors.

       o  Proposals to limit golden parachutes.

       o  Proposals requiring directors to own large amounts of stock to be
          eligible for election.

       o  Restoring cumulative voting in the election of directors.


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       o  Proposals that request or require disclosure of executive compensation
          in addition to the disclosure required by the Securities and Exchange
          Commission ("SEC") regulations.

       o  Proposals that limit retirement benefits or executive compensation.

       o  Requiring shareholder approval for bylaw or charter amendments.

       o  Requiring shareholder approval for shareholder rights plan or poison
          pill.

       o  Requiring shareholder approval of golden parachutes.

       o  Elimination of certain anti-takeover related provisions.

       o  Prohibit payment of greenmail.

   3.  The following shareholder proposals are generally not supported,
       subject to the review and approval of the Committee, as appropriate.

       o  Requirements that the issuer prepare reports that are costly to
          provide or that would require duplicative efforts or expenditures that
          are of a non-business nature or would provide no pertinent information
          from the perspective of institutional shareholders.

       o  Restrictions related to social, political or special interest issues
          that impact the ability of the company to do business or be
          competitive and that have a significant financial or best interest
          impact to the shareholders.

       o  Proposals that require inappropriate endorsements or corporate
          actions.


IV. ADMINISTRATION OF PROXY POLICIES AND PROCEDURES


A. Proxy Review Committee

   1.  The MSIM Proxy Review Committee ("Committee") is responsible for
       creating and implementing MSIM's Proxy Voting Policy and Procedures and,
       in this regard, has expressly adopted them. Following are some of the
       functions and responsibilities of the Committee.

       (a)        The Committee, which will consist of members designated by
                  MSIM's Chief Investment Officer, is responsible for
                  establishing MSIM's proxy voting policies and guidelines and
                  determining how MSIM will vote proxies on an ongoing basis.

       (b)        The Committee will periodically review and have the authority
                  to amend as necessary MSIM's proxy voting policies and
                  guidelines (as expressed in these Proxy Voting Policy and
                  Procedures) and establish and direct voting positions
                  consistent with the Client Proxy Standard.

       (c)        The Committee will meet at least monthly to (among other
                  matters): (1) address any outstanding issues relating to
                  MSIM's Proxy Voting Policy and Procedures; and (2) generally
                  review proposals at upcoming shareholder meetings of MSIM
                  portfolio companies in accordance with this Policy and
                  Procedures including, as appropriate, the voting results of
                  prior shareholder meetings of the same issuer where a similar
                  proposal was presented to shareholders. The Committee, or its
                  designee, will timely communicate to ISS MSIM's Proxy Voting
                  Policy and Procedures (and any amendments to them and/or any
                  additional guidelines or procedures it may adopt).

       (d)        The Committee will meet on an ad hoc basis to (among other
                  matters): (1) authorize "split voting" (i.e., allowing
                  certain shares of the same issuer that are the subject of the
                  same proxy solicitation and held by one or more MSIM
                  portfolios to be voted differently than other shares) and/or
                  "override voting" (i.e., voting all MSIM portfolio shares in
                  a manner contrary to the Procedures); (2) review and approve
                  upcoming votes, as appropriate, for matters for which
                  specific direction has been provided in Sections I, II, and
                  III above; and (3) determine how to vote matters for which
                  specific direction has not been provided in Sections I, II
                  and III above. Split votes will generally not be approved
                  within a single Global Investor Group


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                  team. The Committee may take into account ISS
                  recommendations and the research provided by IRRC as well as
                  any other relevant information they may request or receive.


       (e)        In addition to the procedures discussed above, if the
                  Committee determines that an issue raises a potential
                  material conflict of interest, or gives rise to the
                  appearance of a potential material conflict of interest, the
                  Committee will designate a special committee to review, and
                  recommend a course of action with respect to, the conflict(s)
                  in question ("Special Committee"). The Special Committee may
                  request the assistance of the Law and Compliance Departments
                  and will have sole discretion to cast a vote. In addition to
                  the research provided by ISS and IRRC, the Special Committee
                  may request analysis from MSIM Affiliate investment
                  professionals and outside sources to the extent it deems
                  appropriate.


       (f)        The Committee and the Special Committee, or their
                  designee(s), will document in writing all of their decisions
                  and actions, which documentation will be maintained by the
                  Committee and the Special Committee, or their designee(s) for
                  a period of at least 6 years. To the extent these decisions
                  relate to a security held by a MSIM U.S. registered
                  investment company, the Committee and Special Committee, or
                  their designee(s), will report their decisions to each
                  applicable Board of Trustees/Directors of those investment
                  companies at each Board's next regularly Scheduled Board
                  meeting. The report will contain information concerning
                  decisions made by the Committee and Special Committee during
                  the most recently ended calendar quarter immediately
                  preceding the Board meeting.


       (g)        The Committee and Special Committee, or their designee(s),
                  will timely communicate to applicable PMs, the Compliance
                  Departments and, as necessary to ISS, decisions of the
                  Committee and Special Committee so that, among other things,
                  ISS will vote proxies consistent with their decisions.


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