497 1 file001.htm 497C

Filed pursuant to Rule 497c
Registration No. 333-29721

MORGAN STANLEY FUNDS

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(R) 500 Composite Stock Price Index

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[MORGAN STANLEY LOGO]

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

Prospectus
December 29, 2005

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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.......................................... 7

Portfolio Holdings....................................................7

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

SHAREHOLDER INFORMATION

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

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

Limited Portability..................................................12

How to Exchange Shares.............................................. 13

How to Sell Shares.................................................. 15

Distributions....................................................... 17

Frequent Purchases and Redemptions of Fund Shares....................18

Tax Consequences.................................................... 19

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

Additional Information...............................................28

FINANCIAL HIGHLIGHTS...................................................... 29

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

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

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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 (R) 500 Composite Stock
Price Index ("S&P 500 Index").

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PRINCIPAL INVESTMENT STRATEGIES

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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.
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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 Adviser," 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 Adviser 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, including those
that are in emerging market countries, that are included in the S&P 500 Index.

The Investment Adviser 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.

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"Standard & Poor's(R)," "S&P(R)," "S&P 500(R)," "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.

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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 Adviser 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, and 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 Adviser regularly monitors the correlation
and, in the event the desired correlation is not achieved, the Investment
Adviser will determine what additional investment changes may need to be made.

The performance of the Fund also will depend on whether or not the Investment
Adviser is successful in pursuing the Fund's investment strategy, including the
Investment Adviser'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.

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PAST PERFORMANCE

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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 seven calendar years.
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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

[BARCHART OMITTED]

1998 26.84%
1999 19.03%
2000 -10.36%
2001 -13.21%
2002 -23.21%
2003 26.84%
2004 9.35%

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. The
year-to-date total return as of September 30, 2005 was 1.73%.

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).

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

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AVERAGE ANNUAL TOTAL RETURNS

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

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LIFE OF FUND
PAST 1 YEAR PAST 5 YEARS (SINCE 09/26/97)
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Class A -- Return Before Taxes 4.34% -4.00% 3.55%
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Class B -- Return Before Taxes 4.35% -4.08% 3.52%
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Class B -- Return After Taxes on Distributions(1) 4.26% -4.10% 3.48%
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Class B -- Return After Taxes on Distributions and Sale of
Fund Shares 2.95% -3.42% 3.03%
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Class C -- Return Before Taxes 8.31% -3.69% 3.52%
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Class D -- Return Before Taxes 10.45% -2.73% 4.56%
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Standard & Poor's 500 (Registered Trademark) Index(2) 10.88% -2.30% 5.04%
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Lipper S&P 500 Objective Funds Index(3) 10.56% -2.59% 4.73%
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(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) The Standard & 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) The Lipper S&P 500 Objective Funds Index is an equally weighted
performance index of the largest qualifying funds (based on net assets)
in the Lipper S&P 500 Objective 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.

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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. However, certain
shareholders may be charged an order processing fee by the broker-dealer
through which shares are purchased, as described below. See the "Share Class
Arrangements" section for further fee and expense information.

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SHAREHOLDER FEES
These fees are paid directly from your investment.

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ANNUAL FUND
OPERATING EXPENSES

These expenses are deducted from the Fund's assets.

[end sidebar]

SHAREHOLDER FEES

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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
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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
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Redemption fee(5) 2.00% 2.00% 2.00% 2.00%
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ANNUAL FUND OPERATING EXPENSES

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CLASS A CLASS B CLASS C CLASS D

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Advisory fee* 0.12% 0.12% 0.12% 0.12%
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Distribution and service (12b-1) fees(6) 0.24% 1.00% 0.94% None
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Other expenses* 0.28% 0.28% 0.28% 0.28%
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Total annual Fund operating expenses*(7) 0.64% 1.40% 1.34% 0.40%
------------------------------------------------------------------------------------------------

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

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

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

(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) Payable to the Fund on shares redeemed within seven days of purchase. See
"Shareholder Information -- How to Sell Shares" for more information on
redemption fees.

(6) The Fund has adopted a Rule 12b-1 Distribution Plan pursuant to which it
reimburses the distributor for distribution-related expenses (including
personal services to shareholders) incurred on behalf of Class A, Class B
and Class C shares in an amount each month up to an annual rate of 0.25%,
1.00% and 1.00% of the average daily net assets of Class A, Class B and
Class C, respectively.

(7) The Investment Adviser has agreed to cap the Fund's operating expenses
(except for brokerage and 12b-1 fees) by assuming the Fund's "other
expenses" and/or waiving the Fund's advisory fees, and the Fund's
administrator has agreed to waive the Fund's administrative fees, to the
extent such operating expenses exceed 0.40% of the average daily net
assets of the Fund on an annualized basis 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
Adviser and administrator 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 fiscal year ended August 31, 2005, the Fund's total
operating expenses (prior to any expense reimbursement and/or fee waiver)
for Class A, Class B, Class C and Class D were 0.65%, 1.41%, 1.35% and
0.41%, 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 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:
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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
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Class B $ 643 $ 743 $ 966 $ 1,680 $ 143 $ 443 $ 766 $ 1,680
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Class C $ 236 $ 425 $ 734 $ 1,613 $ 136 $ 425 $ 734 $ 1,613
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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.

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

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ADDITIONAL INVESTMENT STRATEGY INFORMATION

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

STOCK INDEX FUTURES. The Fund may invest in stock index futures with respect
to the S&P 500 (Registered Trademark) Index. Stock index futures may be used
to simulate investment in the S&P 500 (Registered Trademark) 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 (Registered Trademark)
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 (Registered Trademark) 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 or reduce its borrowings, 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.

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ADDITIONAL RISK INFORMATION

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This section provides additional information relating to the 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 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.

The foreign securities in which the Fund may invest may be issued by companies
located in emerging market countries. Compared to the United States and other
developed countries, emerging market countries may have relatively unstable
governments, economies based on only a few industries and securities markets
that trade a small number of securities. Securities issued by companies located
in these countries tend to be especially volatile and may be less liquid than
securities traded in developed countries. In the past, securities in these
countries have been characterized by greater potential loss than securities of
companies located in developed countries.

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 Adviser'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.

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PORTFOLIO HOLDINGS

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

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FUND MANAGEMENT

[sidebar]
MORGAN STANLEY
INVESTMENT ADVISORS INC.

The Investment Adviser is widely recognized as a leader in the mutual fund
industry and had approximately $95 billion in assets under management or
administration as of November 30, 2005.
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The Fund has retained the Investment Adviser--Morgan Stanley Investment Advisors
Inc.--to provide investment advisory services. The Investment Adviser is a
wholly-owned subsidiary of Morgan Stanley, a preeminent global financial
services firm that maintains leading market positions in each of its three
primary businesses: securities, asset management and credit services. Morgan
Stanley is a full service securities firm engaged in securities trading and
brokerage activities, as well as providing investment banking, research and
analysis, financing and financial advisory services. The Investment Adviser's
address is 1221 Avenue of the Americas, New York, NY 10020.

The Fund is managed within the Investment Adviser's Systematic Strategies team.
The current member of the team primarily responsible for the day-to-day
management of the Fund and for the execution of the overall strategy of the
Fund is Kevin Jung, an Executive Director of the Investment Adviser. Mr. Jung
has been associated with the Investment Adviser in an investment management
capacity since 1997 and began managing the Fund in October 1998.

The Fund's Statement of Additional Information provides additional information
about the portfolio manager's compensation structure, other accounts managed by
the portfolio manager and the portfolio manager's ownership of securities in
the Fund. The composition of the team may change without notice from time to
time.

Prior to November 1, 2004, the Fund had retained the Investment Adviser to
provide administrative services and to manage the investment of the Fund's
assets pursuant to an investment management agreement ("Management Agreement")
pursuant to which the Fund paid the Investment Adviser a monthly management fee
as full compensation for the services and facilities furnished to the Fund, and
for Fund expenses assumed by the Investment Adviser at the annual rate of 0.20%
of the daily net assets. Effective November 1, 2004, the Board of Trustees
approved an amended and restated investment advisory agreement ("Investment
Advisory Agreement") to remove the administrative services component from the
Management Agreement and to reduce the investment advisory fee to 0.12% of
daily net assets. The administrative services previously provided to the Fund
by the Investment Adviser are being provided by Morgan Stanley Services Company
Inc. ("Administrator") pursuant to a separate administration agreement entered
into by the Fund with the Administrator. Such change resulted in a 0.08%
reduction in the investment advisory fee concurrent with the implication of a
0.08% administration fee pursuant to the new administration agreement.

Although the entities providing administration services to the Fund have
changed, the Morgan Stanley personnel performing such services remain the same.
Furthermore, the changes have not resulted 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.

Effective May 1, 2004, the Investment Adviser 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). Effective
June 1, 2005, the Board of Trustees approved an amendment to the existing
advisory arrangement of the Fund to further reduce the fee payable by the Fund
to 0.12% of the portion of the daily net assets not exceeding $2 billion; and
0.10% of the portion of the daily net assets exceeding $2 billion.

For the fiscal year ended August 31, 2005, the Fund paid total compensation to
the Investment Adviser amounting to 0.13% of the Fund's average daily net
assets.

A discussion regarding the basis for the Board of Trustees' approval of the
Investment Advisory Agreement is available in the Fund's annual report to
shareholders for the fiscal year ended August 31, 2005.

Shareholder Information

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PRICING FUND SHARES

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

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

The value of the Fund's portfolio securities is based on the securities' market
price when available. When a market price is not readily available, including
circumstances under which the Investment Adviser determines that a security's
market price is not accurate, a portfolio security is valued at its fair value,
as determined under procedures established by the Fund's Board of Trustees.

In addition, with respect to securities that primarily are listed on foreign
exchanges, when an event occurs after the close of such exchanges that is
likely to have changed the value of the securities (for example, a percentage
change in value of one or more U.S. securities indices in excess of specified
thresholds), such securities will be valued at their fair value, as determined
under procedures established by the Fund's Board of Trustees. Securities also
may be fair valued in the event of a significant development affecting a
country or region or an issuer-specific development which is likely to have
changed the value of the security. In these cases, the Fund's net asset value
will reflect certain portfolio securities' fair value rather than their market
price. Fair value pricing involves subjective judgment and it is possible that
the fair value determined for a security is materially different than the value
that could be realized upon the sale of that security. With respect to
securities that are primarily listed on foreign exchanges, the value of the
Fund's portfolio securities may change on days when you will not be able to
purchase or sell your shares.

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.

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HOW TO BUY SHARES

[sidebar]
CONTACTING A
FINANCIAL ADVISOR

If you are new to the Morgan Stanley Funds and would like to contact a Morgan
Stanley Financial Advisor, call toll-free 1-866-MORGAN8 for the telephone
number of the Morgan Stanley office nearest you. You may also access our office
locator on our Internet site at: www.morganstanley.com/funds
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You may open a new account to buy Fund shares or buy additional Fund shares for
an existing account by contacting your Morgan Stanley Financial Advisor or other
authorized financial representative. Your Financial Advisor will assist you,
step-by-step, with the procedures to invest in the Fund. The Fund's transfer
agent, Morgan Stanley Trust ("Transfer Agent"), in its sole discretion, may
allow you to purchase shares directly by calling and requesting an application.

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

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

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

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

MINIMUM INVESTMENT AMOUNTS

[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.

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

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

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

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

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

SUBSEQUENT INVESTMENTS SENT DIRECTLY TO THE FUND. In addition to buying
additional Fund shares for an existing account by contacting your Morgan
Stanley Financial Advisor, you may send a check directly to the Fund. To buy
additional shares in this manner:
o Write a "letter of instruction" to the Fund specifying the name(s) on the
account, the account number, the social security or tax identification
number, the Class of shares you wish to purchase and the investment amount
(which would include any applicable front-end sales charge). The letter
must be signed by the account owner(s).

o Make out a check for the total amount payable to: Morgan Stanley S&P 500
Index Fund.

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

--------------------------------------------------------------------------------
LIMITED PORTABILITY

[GRAPHIC OMITTED]

Most Fund shareholders hold their shares with Morgan Stanley DW. Please note
that your ability to transfer your Fund shares to a brokerage account at
another securities dealer may be limited. Fund shares may only be transferred
to accounts held at a limited number of securities dealers or financial
intermediaries that have entered into agreements with the Fund's distributor.
After a transfer, you may purchase additional shares of the Morgan Stanley
Funds you owned before the transfer, but you may not be able to purchase shares
of any other Morgan

Stanley Funds or exchange shares of the fund(s) you own for shares of other
Morgan Stanley Funds (as described below under "How to Exchange Shares"). If
you wish to transfer Fund shares to a securities dealer or other financial
intermediary that has not entered into an agreement with the Fund's
distributor, you may request that the securities dealer or financial
intermediary maintain the shares in an account at the Transfer Agent registered
in the name of such securities dealer or financial intermediary for your
benefit. You may also hold your Fund shares in your own name directly with the
Transfer Agent. Other options may also be available; please check with the
respective securities dealer or financial intermediary. If you choose not to
hold your shares with the Transfer Agent, either directly or through a
securities dealer or other financial intermediary, you must redeem your shares
and pay any applicable CDSC.

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

[GRAPHIC OMITTED]

PERMISSIBLE FUND EXCHANGES. You may exchange shares of any Class of the Fund for
the same Class of any other continuously offered Multi-Class Fund, or for shares
of a No-Load Fund, a Money Market Fund or the Limited Duration U.S. Treasury
Trust, without the imposition of an exchange fee. Front-end sales charges are
not imposed on exchanges of Class A shares. See the inside back cover of this
Prospectus for each Morgan Stanley Fund's designation as a Multi-Class Fund,
No-Load Fund or Money Market Fund. If a Morgan Stanley Fund is not listed,
consult the inside back cover of that fund's current prospectus for its
designation.

The current prospectus for each fund describes its investment objective(s),
policies and investment minimums, and should be read before investment. Since
exchanges are available only into continuously offered Morgan Stanley Funds,
exchanges are not available into any new Morgan Stanley Fund during its initial
offering period, or when shares of a particular Morgan Stanley Fund are not
being offered for purchase. An exchange of Fund shares held for less than seven
days from the date of purchase will be subject to the 2% redemption fee
described under the section "How to Sell Shares."

EXCHANGE PROCEDURES. You can process an exchange by contacting your Morgan
Stanley Financial Advisor or other authorized financial representative.
Otherwise, you must forward an exchange privilege authorization form to the
Transfer Agent and then write the Transfer Agent or call toll-free (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 toll-free (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, as described above, are received. When exchanging
into a Money Market Fund, the Fund's shares are sold at their next calculated
net asset value and the Money Market Fund's shares are purchased at their net
asset value on the following business day.

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

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

Telephone instructions will be accepted if received by the 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 rejecting, limiting or prohibiting, at its sole discretion,
and without prior notice, additional purchases and/or exchanges and may result
in a shareholder's account being closed. Determinations in this regard may be
made based on the frequency or dollar amount of the previous exchanges or
purchase or sale transactions. The Fund reserves the right to reject an
exchange request for any reason.

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

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

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

[GRAPHIC OMITTED]

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

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

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

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 toll-free 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.

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

Systematic To sign up for the systematic withdrawal plan, contact your Morgan Stanley Financial Advisor
Withdrawal Plan or call toll-free (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 as permitted by law. 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 individual
retirement account ("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.

REDEMPTION FEE. Fund shares redeemed within seven days of purchase will be
subject to a 2% redemption fee, payable to the Fund. The redemption fee is
designed to protect the Fund and its remaining shareholders from the effects of
short-term trading. The redemption fee is not imposed on redemptions made: (i)
through systematic

withdrawal/exchange plans, (ii) through pre-approved asset allocation programs,
(iii) of shares received by reinvesting income dividends or capital gain
distributions, (iv) through certain collective trust funds or other pooled
vehicles and (v) on behalf of advisory accounts where client allocations are
solely at the discretion of the Morgan Stanley Investment Management investment
team. The redemption fee is based on, and deducted from, the redemption
proceeds. Each time you redeem or exchange shares, the shares held the longest
will be redeemed or exchanged first.

The redemption fee may not be imposed on transactions that occur through
certain omnibus accounts at financial intermediaries. Moreover, certain
financial intermediaries may apply different methodologies than those described
above in assessing redemption fees, may impose their own redemption fee that
may differ from the Fund's redemption fee or may impose certain trading
restrictions to deter market timing and frequent trading. If you invest in the
Fund through a financial intermediary, please read that financial
intermediary's materials carefully to learn about any other restrictions or
fees that may apply.

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

[sidebar]
TARGETED DIVIDENDSSM
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 Transfer Agent at least five business days
prior to the record date of the distributions.

[GRAPHIC OMITTED]

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

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

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

The Fund's policies with respect to valuing portfolio securities are described
in "Shareholder Information--Pricing Fund Shares."

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

Omnibus accounts generally do not identify customers' trading activity to the
Fund on an individual basis. Therefore, with respect to trades that occur
through omnibus accounts at intermediaries, the Fund is currently limited in
its ability to monitor trading activity or enforce the redemption fee with
respect to customers of such intermediaries. The ability of the Fund to monitor
exchanges made by the underlying shareholders in omnibus accounts, therefore,
is severely limited. Consequently, the Fund must rely on the financial
intermediary to monitor frequent short-term trading within the Fund by the
financial intermediary's customers. Certain intermediaries may not have the
ability to assess a redemption fee. There can be no assurance that the Fund
will be able to eliminate all market-timing activities.

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

[GRAPHIC OMITTED]

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

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

o The Fund makes distributions; and

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

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

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

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

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

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

[GRAPHIC OMITTED]

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

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

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

The chart below compares the sales charge and 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 purchases of $25,000 or more; shares
purchased without an initial sales charge are generally subject to a 1.00% CDSC if
sold during the first 18 months 0.25%
B Maximum 5.00% CDSC during the first year decreasing to 0% after six years 1.00%
C 1.00% CDSC during first year 1.00%
D None None

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 or other authorized dealer of Fund shares, or the Transfer Agent
does not confirm your represented holdings.

In order to obtain a reduced sales charge (i.e., breakpoint discount) or to
meet an eligibility minimum, it may be necessary at the time of purchase for
you to inform your Morgan Stanley Financial Advisor or other authorized
financial representative (or Morgan Stanley Trust if you purchase shares
directly through the Fund) of the existence of other accounts in which there
are holdings eligible to be aggregated to meet the sales load breakpoints or
eligibility minimums. In order to verify your eligibility, you may be required
to provide account statements and/or confirmations regarding shares of the Fund
or other Morgan Stanley funds held in all related accounts described below at
Morgan Stanley or by other authorized dealers, as well as shares held by
related parties, such as members of the same family or household, in order to
determine whether you have met a sales load breakpoint or eligibility minimum.
The Fund makes available, in a clear and prominent format, free of charge, on
its web site, www.morganstanley.com, information regarding applicable sales
loads, reduced sales charges (i.e., breakpoint discounts), sales load waivers
and eligibility minimums. The web site includes hyperlinks that facilitate
access to the information.

CLASS A SHARES Class A shares are sold at net asset value plus an initial sales
charge of up to 5.25% of the public offering price. The initial sales charge is
reduced for purchases of $25,000 or more according to the schedule below.
Investments of $1 million or more are not subject to an initial sales charge,
but are generally subject to a CDSC of 1.00% on sales made within 18 months
after the last day of the month of purchase. The CDSC will be assessed in the
same manner and with the same CDSC waivers as with Class B shares. Class A
shares are also subject to a distribution and shareholder services (12b-1) fee
of up to 0.25% of the average daily net assets of the Class. The maximum annual
12b-1 fee payable by Class A shares is lower than the maximum annual 12b-1 fee
payable by Class B or Class C 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 A family member account (limited to spouse, and children under the age of
21).

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

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

o Tax-exempt organizations.

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

COMBINED PURCHASE PRIVILEGE. You will have the benefit of reduced sales
charges by combining purchases of Class A shares of the Fund for any related
account in a single transaction

with purchases of any class of shares of other Morgan Stanley Multi-Class Funds
for the related account or any other related account. For the purpose of this
combined purchase privilege, a "related account" is:
o A single account (including an individual account, a joint account and a
trust account established solely for the benefit of the individual).

o A family member account (limited to spouse, and children under the age of 21,
but including trust accounts established solely for the benefit of a spouse,
or children under the age of 21).

o An IRA and single participant retirement account (such as a Keogh).

o An UGMA/UTMA account.

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 the net asset value of all classes of shares of
Morgan Stanley Multi-Class Funds (including shares of Morgan Stanley
Non-Multi-Class Funds which resulted from an exchange from Morgan Stanley
Multi-Class Funds) held in related accounts, amounts to $25,000 or more. For
the purposes of the rights of accumulation privilege, a related account is any
one of the accounts listed under "Combined Purchase Privilege" above.

NOTIFICATION. 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 is placed that
the purchase qualifies for a reduced sales charge under any of the privileges
discussed above. Similar notification must be made in writing when an order is
placed by mail. The reduced sales charge will not be granted if: (i)
notification is not furnished at the time of the order; or (ii) a review of the
records of Morgan Stanley DW or other authorized dealer of Fund shares or the
Transfer Agent does not confirm your represented holdings.

In order to obtain a reduced sales charge under any of the privileges discussed
above, 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 breakpoint and/or right of accumulation
threshold. 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 above 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 the sales load breakpoint and/or right of accumulation
threshold. 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 and reduced sales charges (i.e., breakpoint discounts).
The web site includes hyperlinks that facilitate access to the information.

LETTER OF INTENT. The above schedule of reduced sales charges for larger
purchases also will be available to you if you enter into a written "Letter of
Intent." A Letter of Intent provides for the purchase of Class A shares of the
Fund or other Multi-Class Funds within a 13-month period. The initial purchase
under a Letter of Intent must be at least 5% of the stated investment goal. The
Letter of Intent does not preclude the Fund (or any other Multi-Class Fund)
from discontinuing sales of its shares. To determine the applicable sales
charge reduction, you may also include: (1) the cost of shares of other Morgan
Stanley Funds which were previously purchased at a price

including a front-end sales charge during the 90-day period prior to the
distributor receiving the Letter of Intent, and (2) the historical cost of
shares of other funds you currently own acquired in exchange for shares of
funds purchased during that period at a price including a front-end sales
charge. You may combine purchases and exchanges by family members (limited to
spouse, and 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 toll-free (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 Adviser provides
discretionary trustee services.

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

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

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

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

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

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

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

[sidebar]
CONTINGENT DEFERRED SALES CHARGE OR CDSC

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

[end sidebar]

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

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

The CDSC is assessed on an amount equal to the lesser of the then market value
of the shares or the historical cost of the shares (which is the amount
actually paid for the shares at the time of original purchase) being redeemed.
Accordingly, no sales charge is imposed on increases in net asset value above
the initial purchase price. In determining whether a CDSC applies to a
redemption, it is assumed that the shares being redeemed first are any shares
in the shareholder's Fund account that are not subject to a CDSC, followed by
shares held the longest in the shareholder's account.

Broker-dealers or other financial intermediaries may impose a limit on the
dollar value of a Class B share purchase order that they will accept. For
example, a Morgan Stanley Financial Advisor generally will not accept purchase
orders for Class B shares that in the aggregate amount to $25,000 or more over
a 90-day period. You should discuss with your financial advisor which share
class is most appropriate for you, based on the size of your investment, your
expected time horizon for holding the shares and other factors, bearing in mind
the availability of reduced sales loads on Class A share purchases of $25,000
or more and for existing shareholders who hold over $25,000 in Morgan Stanley
Funds.

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

o Sales in connection with the following retirement plan "distributions": (i)
lump-sum or other distributions from a qualified corporate or self-employed
retirement plan following retirement (or, in the case of a "key employee" of
a "top heavy" plan, following attainment of age 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 Adviser's mutual fund asset
allocation program, pursuant to which investors pay an asset-based fee. Any
shares acquired in connection with the Investment Adviser's mutual fund
asset allocation program are subject to all of the terms and conditions of
that program, including termination fees, and mandatory sale or transfer
restrictions on termination.

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

DISTRIBUTION FEE. Class B shares are also subject to an annual distribution
and shareholder services (12b-1) fee of up to 1.00% of the average daily net
assets of Class B shares. The maximum annual 12b-1 fee payable by Class B
shares is higher than the maximum annual 12b-1 fee payable by Class A shares.

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

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

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

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

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

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 1.00% 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.

Brokers, dealers or other financial intermediaries may impose a limit on the
dollar value of a Class C share purchase order that they will accept. For
example, a Morgan Stanley Financial Advisor generally will not accept purchase
orders for Class C shares that in the aggregate amount to $250,000 or more over
a 90-day period. You should discuss with your financial advisor which share
class is most appropriate for you based on the size of your investment, your
expected time horizon for holding the shares and other factors, bearing in mind
the availability of reduced sales loads on Class A share purchases of $25,000
or more and for existing shareholders who hold over $25,000 in Morgan Stanley
Funds.

DISTRIBUTION FEE. Class C shares are subject to an annual distribution and
shareholder services (12b-1) fee of up to 1.00% of the average daily net assets
of that Class. The maximum annual 12b-1 fee payable by Class C shares is higher
than the maximum annual 12b-1 fee payable by Class A shares. Unlike Class B
shares, Class C shares have no conversion feature and, accordingly, an investor
that purchases Class C shares may be subject to distribution and shareholder
services (12b-1) fees applicable to Class C shares for as long as the investor
owns such shares.

CLASS D SHARES Class D shares are offered without any sales charge on purchases
or sales and without any distribution and shareholder services (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 Adviser's or an affiliate's mutual
fund asset allocation program (subject to all of its terms and conditions,
including termination fees, and mandatory sale or transfer restrictions on
termination) pursuant to which they pay an asset-based fee.

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

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

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

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

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

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

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

A purchase order that meets the requirements for investment in Class D shares
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
(regardless of the size of the investment).

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

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

PLAN OF DISTRIBUTION (RULE 12B-1 FEES) The Fund has adopted a Plan of
Distribution in accordance with Rule 12b-1 under the Investment Company Act of
1940 with respect to the Class A, Class B and Class C shares. (Class D shares
are offered without any 12b-1 fee.) The Plan allows the Fund to pay distribution
fees for the sale and distribution of 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 and reduce your return in
these Classes and may cost you more than paying other types of sales charges.

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

[GRAPHIC OMITTED]

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

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, 2005 2004 2003 2002 2001

SELECTED PER SHARE DATA:
Net asset value, beginning of period $ 12.03 $ 10.97 $ 9.91 $ 12.17 $16.20
--------- ------- ------- -------- -------
Income (loss) from investment operations:
Net investment income++ 0.19 0.12 0.11 0.08 0.08
Net realized and unrealized gain (loss) 1.23 1.05 1.01 (2.34) (4.11)
--------- ------- ------- -------- -------
Total income (loss) from investment operations 1.42 1.17 1.12 (2.26) (4.03)
--------- ------- ------- -------- -------
Less dividends from net investment income (0.18) (0.11) (0.06) -- --
--------- ------- ------- -------- --------
Net asset value, end of period $ 13.27 $ 12.03 $ 10.97 $ 9.91 $ 12.17
------------------------------------------------ --------- ------- ------- -------- -------
TOTAL RETURN+ 11.81% 10.70% 11.36% (18.57)% (24.83)%
------------------------------------------------ --------- ------- ------- -------- --------
RATIOS TO AVERAGE NET ASSETS(1)(2):
Expenses 0.64% 0.70% 0.70% 0.73% 0.69%
Net investment income 1.52% 1.03% 1.11% 0.73% 0.59%
SUPPLEMENTAL DATA:
Net assets, end of period, in millions $401 $301 $233 $161 $159
Portfolio turnover rate 3% 2% 2% 12% 4%
--------------------------------------------------------------------------------------------------------------------

++ 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 Adviser, the annualized expense and net investment
income ratios would have been as follows:

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

August 31, 2005 0.65% 1.51%
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

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

Financial Highlights (Continued)

CLASS B SHARES

--------------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED AUGUST 31, 2005 2004 2003 2002 2001

SELECTED PER SHARE DATA:
Net asset value, beginning of period $ 11.62 $ 10.60 $ 9.60 $ 11.88 $ 15.94
--------- ------- ------- -------- -------
Income (loss) from investment operations:
Net investment income (loss)++ 0.10 0.03 0.03 (0.01) (0.03)
Net realized and unrealized gain (loss) 1.18 1.02 0.97 (2.27) (4.03)
--------- ------- ------- -------- -------
Total income (loss) from investment operations 1.28 1.05 1.00 (2.28) (4.06)
--------- ------- ------- -------- -------
Less dividends from net investment income (0.07) ( 0.03) -- -- --
--------- ------- -------- -------- --------
Net asset value, end of period $ 12.83 $ 11.62 $ 10.60 $ 9.60 $ 11.88
------------------------------------------------ --------- ------- ------- -------- -------
TOTAL RETURN+ 11.04% 9.88% 10.42% (19.19)% (25.47)%
------------------------------------------------ --------- ------- ------- -------- --------
RATIOS TO AVERAGE NET ASSETS(1)(2):
Expenses 1.40% 1.46% 1.50% 1.50% 1.50%
Net investment income (loss) 0.76% 0.27% 0.31% (0.04)% (0.22)%
SUPPLEMENTAL DATA:
Net assets, end of period, in millions $815 $1,108 $1,160 $1,169 $1,544
Portfolio turnover rate 3% 2% 2% 12% 4%
--------------------------------------------------------------------------------------------------------------------

++ 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 Adviser, 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, 2005 1.41% 0.75%
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)

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

CLASS C SHARES

--------------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED AUGUST 31, 2005 2004 2003 2002 2001

SELECTED PER SHARE DATA:
Net asset value, beginning of period $ 11.61 $ 10.60 $ 9.60 $ 11.88 $ 15.94
--------- ------- ------- -------- -------
Income (loss) from investment operations:
Net investment income (loss)++ 0.10 0.03 0.03 0.00 (0.03)
Net realized and unrealized gain (loss) 1.20 1.01 0.97 (2.28) (4.03)
--------- ------- ------- -------- -------
Total income (loss) from investment operations 1.30 1.04 1.00 (2.28) (4.06)
--------- ------- ------- -------- -------
Less dividends from net investment income (0.08) ( 0.03) -- -- --
--------- ------- -------- -------- --------
Net asset value, end of period $ 12.83 $ 11.61 $ 10.60 $ 9.60 $ 11.88
------------------------------------------------ --------- ------- ------- -------- -------
TOTAL RETURN+ 11.18% 9.85% 10.42% (19.19)% (25.47)%
------------------------------------------------ --------- ------- ------- -------- --------
RATIOS TO AVERAGE NET ASSETS(1)(2):
Expenses 1.34% 1.46% 1.49% 1.49% 1.50%
Net investment income (loss) 0.82% 0.27% 0.32% (0.03)% (0.22)%
SUPPLEMENTAL DATA:
Net assets, end of period, in millions $154 $173 $161 $147 $169
Portfolio turnover rate 3% 2% 2% 12% 4%
--------------------------------------------------------------------------------------------------------------------

++ 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 Adviser, 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, 2005 1.35% 0.81%
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)

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

Financial Highlights (Continued)

CLASS D SHARES

--------------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED AUGUST 31, 2005 2004 2003 2002 2001

SELECTED PER SHARE DATA:
Net asset value, beginning of period $ 12.14 $ 11.06 $ 10.00 $ 12.26 $ 16.28
--------- ------- ------- -------- -------
Income (loss) from investment operations:
Net investment income++ 0.23 0.15 0.13 0.11 0.11
Net realized and unrealized gain (loss) 1.24 1.06 1.02 (2.37) (4.13)
--------- ------- ------- -------- -------
Total income (loss) from investment operations 1.47 1.21 1.15 (2.26) (4.02)
--------- ------- ------- -------- -------
Less dividends from net investment income (0.21) ( 0.13) ( 0.09) -- --
--------- ------- ------- -------- --------
Net asset value, end of period $ 13.40 $ 12.14 $ 11.06 $ 10.00 $ 12.26
------------------------------------------------ --------- ------- ------- -------- -------
TOTAL RETURN+ 12.11% 10.97% 11.59% (18.43)% (24.69)%
------------------------------------------------ --------- ------- ------- -------- --------
RATIOS TO AVERAGE NET ASSETS(1)(2):
Expenses 0.40% 0.46% 0.50% 0.50% 0.50%
Net investment income 1.76% 1.27% 1.31% 0.96% 0.78%
SUPPLEMENTAL DATA:
Net assets, end of period, in millions $188 $198 $180 $136 $118
Portfolio turnover rate 3% 2% 2% 12% 4%
--------------------------------------------------------------------------------------------------------------------

++ 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 Adviser, the annualized expense and net investment
income ratios would have been as follows:

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

August 31, 2005 0.41% 1.75%
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

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

Morgan Stanley Funds

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

Dividend Growth Securities
Multi-Asset Class -- Domestic Portfolio Fund
Total Return Trust
------------------------
DOMESTIC HYBRID

Allocator Fund
Balanced Growth Fund
Balanced Income Fund
Income Builder Fund
Strategist Fund
------------------------
GLOBAL/INTERNATIONAL

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

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

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

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

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

Fundamental Value Fund
Mid-Cap Value Fund
Small-Mid Special Value Fund
Special Value Fund
Value Fund

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

Limited Duration Fund*+
Limited Duration U.S. Treasury Trust*
------------------------
TAXABLE INTERMEDIATE TERM

Flexible Income Trust
High Yield Securities
Income Trust
Mortgage Securities Trust
U.S. Government Securities Trust
------------------------
TAX-FREE

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

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

Liquid Asset Fund
U.S. Government Money Market
------------------------
TAX-FREE

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

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

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

* Single-Class Fund(s)

+ No-Load (Mutual) Fund

[GRAPHIC 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
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 toll-free (800) 869-NEWS. Free
copies of these documents are also available from our Internet site at:
WWW.MORGANSTANLEY.COM/FUNDS.

Morgan Stanley
S&P 500 Index Fund
36007 12/05

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

Information about the Fund (including the Statement of Additional Information)
can be viewed and copied at the Securities and Exchange Commission's (the
"SEC") Public Reference Room in Washington, DC. Information about the Reference
Room's operations may be obtained by calling the SEC at (202) 551-8090. 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:
------------------
[GRAPHIC OMITTED]

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

(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) 2005 Morgan Stanley
Prospectus
December 29, 2005
[GRAPHIC OMITTED]

STATEMENT OF ADDITIONAL INFORMATION

MORGAN STANLEY
S&P 500 INDEX FUND

December 29, 2005

--------------------------------------------------------------------------------
This Statement of Additional Information is not a prospectus. The
Prospectus (dated December 29, 2005) 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.

The Fund's audited financial statements for the fiscal year ended August
31, 2005, 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.

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 ........................... 11
D. Disclosure of Portfolio Holdings ................................ 12
III. Management of the Fund ............................................... 16
A. Board of Trustees ............................................... 16
B. Management Information .......................................... 16
C. Compensation .................................................... 22
IV. Control Persons and Principal Holders of Securities .................. 24
V. Investment Advisory and Other Services ............................... 24
A. Investment Adviser and Administrator ............................ 24
B. Principal Underwriter ........................................... 25
C. Services Provided by the Investment Adviser and Administrator ... 26
D. Dealer Reallowances ............................................. 27
E. Rule 12b-1 Plan ................................................. 27
F. Other Service Providers ......................................... 30
G. Fund Management ................................................. 31
H. Codes of Ethics ................................................. 32
I. Proxy Voting Policy and Proxy Voting Record ..................... 32
J. Revenue Sharing ................................................. 33
VI. Brokerage Allocation and Other Practices .............................. 34
A. Brokerage Transactions .......................................... 34
B. Commissions ..................................................... 35
C. Brokerage Selection ............................................. 35
D. Directed Brokerage .............................................. 36
E. Regular Broker-Dealers .......................................... 36
VII. Capital Stock and Other Securities ................................... 36
VIII. Purchase, Redemption and Pricing of Shares ........................... 37
A. Purchase/Redemption of Shares ................................... 37
B. Offering Price .................................................. 38
IX. Taxation of the Fund and Shareholders ................................. 39
X. Underwriters .......................................................... 41
XI. Performance Data ...................................................... 41
XII. Financial Statements .................................................. 42
XIII. Fund Counsel .......................................................... 42

GLOSSARY OF SELECTED DEFINED TERMS

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

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

"Custodian" - The Bank of New York.

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

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

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

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

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

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

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

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

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(R) 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

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 adviser to the company claims
an exclusion from regulation as a commodity pool operator. In connection with
its management of the Fund, the Investment Adviser 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 Adviser 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 meet daily
variation margin requirements at a time when it may be disadvantageous to do
so. In addition,

the Fund may be required to take or make delivery of the instruments underlying
interest rate futures contracts it holds at a time when it is 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. The Fund may invest in repurchase agreements. When
cash may be available for only a few days, it may be invested by the Fund in
repurchase agreements until such time as it may otherwise be invested or used
for payments of obligations of the Fund. These agreements, which may be viewed
as a type of secured lending by the Fund, typically involve the acquisition by
the Fund of debt securities from a selling financial institution such as a
bank, savings and loan association or broker-dealer. The agreement provides
that the Fund will sell back to the institution, and that the institution will
repurchase, the underlying security serving as collateral at a specified price
and at a fixed time in the future, usually not more than seven days from the
date of purchase. The collateral will be marked-to-market daily to determine
that the value of the collateral, as specified in the agreement, does not
decrease below the purchase price plus accrued interest. If such decrease
occurs, additional

collateral will be requested and, when received, added to the account to
maintain full collateralization. The Fund will accrue interest from the
institution until the time when the repurchase is to occur. Although this date
is deemed by the Fund to be the maturity date of a repurchase agreement, the
maturities of securities subject to repurchase agreements are not subject to
any limits.

While repurchase agreements involve certain risks not associated with
direct investments in debt securities, the Fund follows procedures approved by
the Trustees that are designed to minimize such risks. These procedures include
effecting repurchase transactions only with large, well-capitalized and
well-established financial institutions whose financial condition will be
continually monitored by the Investment Adviser. In addition, as described
above, the value of the collateral underlying the repurchase agreement will be
at least equal to the repurchase price, including any accrued interest earned
on the repurchase agreement. In the event of a default or bankruptcy by a
selling financial institution, the Fund will seek to liquidate such collateral.
However, the exercising of the Fund's right to liquidate such collateral could
involve certain costs or delays and, to the extent that proceeds from any sale
upon a default of the obligation to repurchase were less than the repurchase
price, the Fund could suffer a loss. It is the current policy of the Fund not
to invest in repurchase agreements that do not mature within seven days if any
such investment, together with any other illiquid assets held by the Fund,
amounts to more than 15% of its 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 90% of its taxable income for each taxable
year. Generally, REITs can be classified as Equity REITs, Mortgage REITs or
Hybrid REITs. Equity REITs invest the majority of their assets directly in real
property and derive their income primarily from rents and capital gains from
appreciation realized through property sales. Equity REITs are further
categorized according to the types of real 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.

In addition, investment in REITs may involve duplication of management
fees and certain other expenses, as the Fund indirectly bears its proportionate
share of any expenses paid by the REIT in which it invests. 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.

LOANS OF PORTFOLIO SECURITIES. The Fund may lend its portfolio securities
to brokers, dealers, banks and other institutional investors. By lending its
portfolio securities, the Fund attempts to increase its net investment income
through the receipt of interest on the cash collateral with respect to the loan
or fees received from the borrower in connection with the loan. Any gain or
loss in the market price of the securities loaned that might occur during the
term of the loan would be for the account of the Fund. The Fund employs an
agent to implement the securities lending program and the agent receives a fee
from the Fund for its services. The Fund will not lend more than 331|M/3% of
the value of its total assets.

The Fund may lend its portfolio securities so long as the terms, structure
and the aggregate amount of such loans are not inconsistent with the Investment
Company Act or the rules and regulations or interpretations of the SEC
thereunder, which currently require that (i) the borrower pledge and maintain
with the Fund collateral consisting of liquid, unencumbered assets having a
value at all times not less

than 100% of the value of the securities loaned; (ii) the borrower add to such
collateral whenever the price of the securities loaned rises (i.e., the
borrower "marks to market" on a daily basis); (iii) the loan be made subject to
termination by the Fund at any time; and (iv) the Fund receive a reasonable
return on the loan (which may include the Fund investing any cash collateral in
interest bearing short-term investments), any distributions on the loaned
securities and any increase in their market value. In addition, voting rights
may pass with the loaned securities, but the Fund will retain the right to call
any security in anticipation of a vote that the Investment Adviser deems
material to the security on loan.

There may be risks of delay and costs involved in recovery of securities
or even loss of rights in the collateral should the borrower of the securities
fail financially. These delays and costs could be greater for foreign
securities. However, loans will be made only to borrowers deemed by the
Investment Adviser to be creditworthy and when, in the judgment of the
Investment Adviser, the income which can be earned from such securities loans
justifies the attendant risk. All relevant facts and circumstances, including
the creditworthiness of the broker, dealer, bank or institution, will be
considered in making decisions with respect to the lending of securities,
subject to review by the Fund's Board of Trustees. The Fund also bears the risk
that the reinvestment of collateral will result in a principal loss. Finally,
there is the risk that the price of the securities will increase while they are
on loan and the collateral will not be adequate to cover their value.

FOREIGN INVESTMENT. Investing in foreign securities involves certain
special considerations which are not typically associated with investments in
the securities of U.S. issuers. Foreign issuers are not generally subject to
uniform accounting, auditing and financial reporting standards and may have
policies that are not comparable to those of domestic issuers. As a result,
there may be less information available about foreign issuers than about
domestic issuers. Securities of some foreign issuers are generally less liquid
and more volatile than securities of comparable domestic issuers. There is
generally less government supervision and regulation of stock exchanges,
brokers and listed issuers than in the United States. In addition, with respect
to certain foreign countries, there is a possibility of expropriation or
confiscatory taxation, political and social instability, or diplomatic
development which could affect U.S. investments in those countries. The costs
of investing in foreign countries frequently is higher than the costs of
investing in the United States. Although the Investment Adviser endeavors to
achieve the most favorable execution costs in portfolio transactions, fixed
commissions on many foreign stock exchanges are generally higher than
negotiated commissions on U.S. exchanges.

Investments in securities of foreign issuers generally are denominated in
foreign currencies. Accordingly, the value of the Fund's assets, as measured in
U.S. dollars may be affected favorably or unfavorably by changes in currency
exchange rates and in exchange control regulations. The Fund may incur costs in
connection with conversions between various currencies.

Certain foreign governments levy withholding or other taxes on dividend
and interest income. Although in some countries a portion of these taxes are
recoverable, the non-recovered portion of foreign withholding taxes will reduce
the income received from investments in such countries.

EMERGING MARKET SECURITIES. An emerging market security is one issued by a
foreign government or private issuer that has one or more of the following
characteristics: (i) its principal securities trading market is in an emerging
market country, (ii) alone or on a consolidated basis it derives 50% or more of
its annual revenue from either goods produced, sales made or services performed
in emerging markets, or (iii) it is organized under the laws of, or has a
principal office in, an emerging market country. Based on these criteria it is
possible for a security to be considered issued by an issuer in more than one
country. Therefore, it is possible for the securities of an issuer that has one
or more of these characteristics in connection with any emerging market country
not to be considered an emerging market security if it also has one or more of
these characteristics in connection with a developed country.

Emerging market describes any country which is generally considered to be
an emerging or developing country by major organizations in the international
financial community, such as the International Bank for Reconstruction and
Development (more commonly known as the World Bank) and the International
Finance Corporation. Emerging markets can include every nation in the world
except the United States, Canada, Japan, Australia, New Zealand and most
nations located in Western Europe.

The economies of individual emerging market countries may differ favorably
or unfavorably from the U.S. economy in such respects as growth of gross
domestic product, rate of inflation, currency depreciation, capital
reinvestment, resource self-sufficiency and balance of payments position.
Further, the economies of developing countries generally are heavily dependent
upon international trade and, accordingly, have been, and may continue to be,
adversely affected by trade barriers, exchange controls, managed adjustments in
relative currency values and other protectionist measures. These economies also
have been, and may continue to be, adversely affected by economic conditions in
the countries with which they trade.

Prior governmental approval for foreign investments may be required under
certain circumstances in some emerging market countries, and the extent of
foreign investment in certain fixed income securities and domestic companies
may be subject to limitation in other emerging market countries. Foreign
ownership limitations also may be imposed by the charters of individual
companies in emerging market countries to prevent, among other concerns,
violation of foreign investment limitations. Repatriation of investment income,
capital and the proceeds of sales by foreign investors may require governmental
registration and/or approval in some emerging countries. The Fund could be
adversely affected by delays in, or a refusal to grant, any required
governmental registration or approval for such repatriation. Any investment
subject to such repatriation controls will be considered illiquid if it appears
reasonably likely that this process will take more than seven days.

Investment in emerging market countries may entail purchasing securities
issued by or on behalf of entities that are insolvent, bankrupt, in default or
otherwise engaged in an attempt to reorganize or reschedule their obligations
and in entities that have little or no proven credit rating or credit history.
In any such case, the issuer's poor or deteriorating financial condition may
increase the likelihood that the Fund will experience losses or diminution in
available gains due to bankruptcy, insolvency or fraud. Emerging market
countries also pose the risk of nationalization, expropriation or confiscatory
taxation, political changes, government regulation, social instability or
diplomatic development (including war) that could affect adversely the
economies of such countries or the value of a fund's investments in those
countries. In addition, it may be difficult to obtain and enforce a judgment in
a court outside the United States.

Investments in emerging markets may also be exposed to an extra degree of
custodial and/or market risk, especially where the securities purchased are not
traded on an official exchange or where ownership records regarding the
securities are maintained by an unregulated entity (or even the issuer itself).

DEPOSITARY RECEIPTS. Depositary Receipts represent an ownership interest
in securities of foreign companies (an "underlying issuer") that are deposited
with a depositary. Depositary Receipts are not necessarily denominated in the
same currency as the underlying securities. Depositary Receipts include
American Depositary Receipts ("ADRs"), Global Depositary Receipts ("GDRs") and
other types of Depositary Receipts (which, together with ADRs and GDRs, are
hereinafter collectively referred to as "Depositary Receipts"). ADRs are
dollar-denominated Depositary Receipts typically issued by a U.S. financial
institution which evidence an ownership interest in a security or pool of
securities issued by a foreign issuer. ADRs are listed and traded in the United
States. GDRs and other types of Depositary Receipts are typically issued by
foreign banks or trust companies, although they also may be issued by U.S.
financial institutions, and evidence ownership interests in a security or pool
of securities issued by either a foreign or a U.S. corporation. Generally,
Depositary Receipts in registered form are designed for use in the U.S.
securities market and Depositary Receipts in bearer form are designed for use
in securities markets outside the United States.

Depositary Receipts may be "sponsored" or "unsponsored." Sponsored
Depositary Receipts are established jointly by a depositary and the underlying
issuer, whereas unsponsored Depositary Receipts may be established by a
depositary without participation by the underlying issuer. Holders of
unsponsored Depositary Receipts generally bear all the costs associated with
establishing unsponsored Depositary Receipts. In addition, the issuers of the
securities underlying unsponsored Depositary Receipts are not obligated to
disclose material information in the United States and, therefore, there may be
less information available regarding such issuers and there may not be a
correlation between such

information and the market value of the Depositary Receipts. For purposes of
the Fund's investment policies, the Fund's investments in Depositary Receipts
will be deemed to be an investment in the underlying securities, except that
ADRs may be deemed to be issued by a U.S. issuer.

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

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

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

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

When required by law, the Fund will cause its custodian bank to earmark
cash, U.S. government securities or other appropriate liquid portfolio
securities in an amount equal to the value of the Fund's total assets committed
to the consummation of forward contracts entered into under the circumstances
set forth above. If the value of the securities so earmarked declines,
additional cash or securities will be earmarked on a daily basis so that the
value of such securities will equal the amount of the Fund's commitments with
respect to such contracts.

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

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

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

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, except in the case of borrowing
and investments in illiquid securities.

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.

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.

D. DISCLOSURE OF PORTFOLIO HOLDINGS

The Fund's Board of Trustees and the Investment Adviser have adopted
policies and procedures regarding disclosure of portfolio holdings (the
"Policy"). Pursuant to the Policy, the Investment Adviser may disclose
information concerning Fund portfolio holdings only if such disclosure is
consistent with the antifraud provisions of the federal securities laws and the
Fund's and the Investment Adviser's fiduciary duties to Fund shareholders. The
Investment Adviser may not receive compensation or any other consideration in
connection with the disclosure of information about the portfolio securities of
the Fund. Consideration includes any agreement to maintain assets in the Fund
or in other investment companies or accounts managed by the Investment Adviser
or by any affiliated person of the Investment Adviser. Non-public information
concerning portfolio holdings may be divulged to third parties only when the
Fund has a legitimate business purpose for doing so and the recipients of the
information are subject to a duty of confidentiality. Under no circumstances
shall current or prospective Fund shareholders receive non-public portfolio
holdings information, except as described below.

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

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

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

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

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

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

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

Fund shareholders may elect in some circumstances to redeem their shares
of the Fund in exchange for their pro rata share of the securities held by the
Fund. Under such circumstances, Fund shareholders may receive a complete
listing of the holdings of the Fund up to seven calendar days prior to making
the redemption request provided that they represent orally or in writing that
they agree not to disclose or trade on the basis of the portfolio holdings
information.

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

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

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

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

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

SERVICE PROVIDERS
Institutional Shareholder Complete portfolio holdings Twice a month (2)
Services (ISS) (proxy
voting agent)(*)
FT Interactive Data Pricing Complete portfolio holdings As needed (2)
Service Provider(*)
Morgan Stanley Trust(*) Complete portfolio holdings As needed (2)
The Bank of New York(*) Complete portfolio holdings As needed (2)
FUND RATING AGENCIES
Lipper(*) Top Ten and Complete Quarterly basis Approximately 15 days after quarter end
portfolio holdings and approximately 30 days after quarter
end

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

Morningstar(**) Top Ten and Complete Quarterly basis Approximately 15 days after quarter end
portfolio holdings and approximately 30 days after quarter
Standard & Poor's(*) Complete portfolio holdings end
Investment Company Top Ten portfolio holdings Quarterly basis Approximately 15 day lag
Institute(**) Quarterly basis Approximately 15 days after quarter end
CONSULTANTS AND ANALYSTS
Americh Massena & Top Ten and Complete
Associates, Inc.(*) portfolio holdings Quarterly basis(5) Approximately 10-12 days after quarter end
Bloomberg(**) Complete portfolio holdings
Callan Associates(*) Top Ten and Complete Quarterly basis Approximately 30 days after quarter end
portfolio holdings Monthly and quarterly Approximately 10-12 days after
Cambridge Associates(*) Top Ten and Complete basis, respectively(5) month/quarter end
portfolio holdings Quarterly basis(5) Approximately 10-12 days after quarter end
Citigroup(*) Complete portfolio holdings Quarterly basis(5) At least one day after quarter end
CTC Consulting, Inc.(**) Top Ten and Complete Quarterly basis Approximately 15 days after quarter end
portfolio holdings and approximately 30 days after quarter
Evaluation Associates(*) Top Ten and Complete end, respectively
portfolio holdings Monthly and quarterly Approximately 10-12 days after
Fund Evaluation Group(**) Top Ten portfolio holdings(3) basis, respectively(5) month/quarter end
Jeffrey Slocum & Complete portfolio holdings(4) Quarterly basis At least 15 days after quarter end
Associates(*) Quarterly basis(5) Approximately 10-12 days after quarter end
Hammond Associates(**) Complete portfolio holdings(4)
Hartland & Co.(**) Complete portfolio holdings(4) Quarterly basis At least 30 days after quarter end
Hewitt Associates(*) Top Ten and Complete Quarterly basis At least 30 days after quarter end
portfolio holdings Monthly and quarterly Approximately 10-12 days after
Merrill Lynch(*) Top Ten and Full portfolio basis, respectively(5) month/quarter end
holdings Monthly and quarterly Approximately 10-12 days after
Mobius(**) Top Ten portfolio holdings(3) basis, respectively(5) month/quarter end
Nelsons(**) Top Ten portfolio holdings(3) Monthly basis At least 15 days after month end
Prime Buchholz & Complete portfolio holdings(4) Quarterly basis At least 15 days after quarter end
Associates, Inc.(**) Quarterly basis At least 30 days after quarter end
PSN(**) Top Ten portfolio holdings(3)
PFM Asset Management Top Ten and Complete Quarterly basis At least 15 days after quarter end
LLC(*) portfolio holdings Quarterly basis(5) Approximately 10-12 days after quarter end
Russell Investment Top Ten and Complete
Group/Russell/Mellon portfolio holdings Monthly and quarterly At least 15 days after month end and at
Analytical Services, Inc.(**) basis least 30 days after quarter end,
Stratford Advisory Group, Top Ten portfolio holdings(6) respectively
Inc.(*) Quarterly basis(5) Approximately 10-12 days after quarter end
Thompson Financial(**) Complete portfolio holdings(4)
Watershed Investment Top Ten and Complete Quarterly basis At least 30 days after quarter end
Consultants, Inc.(*) portfolio holdings Quarterly basis(5) Approximately 10-12 days after quarter end
Yanni Partners(**) Top Ten portfolio holdings(3)
PORTFOLIO ANALYTICS Quarterly basis At least 15 days after quarter end
PROVIDERS
Fact Set(*) Complete portfolio holdings Daily One Day

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(c) The PHRC will meet at least quarterly to (among other matters): (1)
address any outstanding issues relating to the Policy, including matters
relating to (i) disclosures made to third parties pursuant to ongoing
arrangements (described above); (ii) broker-dealer interest lists; (iii)
shareholder in-kind distributions; (iv) attribution analyses; or (v) in
connection with transition managers; (2) review non-disclosure agreements that
have been executed with third parties and determine whether the third parties
will receive portfolio holdings information; and (3) generally review the
procedures that the Investment Adviser employs to ensure that disclosure of
information about portfolio securities is in the best interests of Fund
shareholders, including procedures to address conflicts between the interests
of Fund shareholders, on the one hand, and those of the Investment Adviser, the
Distributor or any affiliated person of the Fund, the Investment Adviser or the
Distributor on the other.

(d) Any member of the PHRC may call a Special Meeting of the PHRC to
consider whether a third-party that is not listed in (c) above may receive
non-public portfolio holdings information pursuant to a validly executed
nondisclosure agreement. At least three members of the PHRC, or their
designees, and one member of the Fund's Audit Committee, or his or her
designee, shall be present at the Special Meeting in order to constitute a
quorum. At any Special Meeting at which a quorum is present, the decision of a
majority of the PHRC members present and voting shall be determinative as to
any matter submitted to a vote; provided, however, that the Audit Committee
member, or his or her designee, must concur in the determination in order for
it to become effective.

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

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

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

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

B. MANAGEMENT INFORMATION

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

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, 2004) and other
directorships, if any, held by the Trustees, are shown below. The Fund Complex
includes all open-end and closed-end funds (including all of their portfolios)
advised by the Investment Adviser and any funds that have an investment advisor
that is an affiliated person of the Investment Adviser (including, but not
limited to, Morgan Stanley Investment Management Inc.).

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

Michael Bozic (64) Trustee Since
c/o Kramer Levin Naftalis & April 1994
Frankel LLP
Counsel to the
Independent Trustees
1177 Avenue of the Americas
New York, NY 10036

Edwin J. Garn (73) Trustee Since
1031 N. Chartwell Court January
Salt Lake City, UT 84103 1993

Wayne E. Hedien (71) Trustee Since
c/o Kramer Levin Naftalis & September
Frankel LLP 1997
Counsel to the
Independent Trustees
1177 Avenue of the Americas
New York, NY 10036

Dr. Manuel H. Johnson (56) Trustee Since
c/o Johnson Smick July 1991
Group Inc.
888 16th Street, NW
Suite 740
Washington, D.C. 20006

Joseph J. Kearns (63) Trustee Since
c/o Kearns & Associates LLC July 2003
PMB754
23852 Pacific Coast Highway
Malibu, CA 90265

Michael E. Nugent (69) Trustee Since
c/o Triumph Capital, L.P. July 1991
445 Park Avenue
New York, NY 10022

Fergus Reid (73) Trustee Since
c/o Lumelite Plastics July 2003
Corporation
85 Charles Colman Blvd.
Pawling, NY 12564

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

Michael Bozic (64) Private Investor; Director or the Retail 197 Director of various business
c/o Kramer Levin Naftalis & Funds (since April 1994) and the organizations.
Frankel LLP Institutional Funds (since July 2003);
Counsel to the formerly Vice Chairman of Kmart
Independent Trustees Corporation (December 1998-October
1177 Avenue of the Americas 2000), Chairman and Chief Executive
New York, NY 10036 Officer of Levitz Furniture Corporation
(November 1995- November 1998) and
President and Chief Executive Officer of
Hills Department Stores (May 1991-July
1995); formerly variously Chairman,
Chief Executive Officer, President and
Chief Operating Officer (1987-1991) of
the Sears Merchandise Group of Sears,
Roebuck & Co.

Edwin J. Garn (73) Consultant; Director or Trustee of the 197 Director of Franklin Covey
1031 N. Chartwell Court Retail Funds (since January 1993) and (time management systems),
Salt Lake City, UT 84103 the Institutional Funds (since July 2003); BMW Bank of North America,
member of the Utah Regional Advisory Inc. (industrial loan
Board of Pacific Corp. (utility company); corporation), Escrow Bank
formerly Managing Director of Summit USA (industrial loan
Ventures LLC (2000-2004) (lobbying and corporation), United Space
consulting firm); United States Senator Alliance (joint venture
(R-Utah) (1974-1992) and Chairman, between Lockheed Martin and
Senate Banking Committee (1980-1986), the Boeing Company) and
Mayor of Salt Lake City, Utah (1971- Nuskin Asia Pacific (multilevel
1974), Astronaut, Space Shuttle marketing); member of the
Discovery (April 12-19, 1985), and Vice board of various civic and
Chairman, Huntsman Corporation charitable organizations.
(chemical company).

Wayne E. Hedien (71) Retired; Director or Trustee of the Retail 197 Director of The PMI Group
c/o Kramer Levin Naftalis & Funds (since September 1997) and the Inc. (private mortgage
Frankel LLP Institutional Funds (since July 2003); insurance); Trustee and Vice
Counsel to the formerly associated with the Allstate Chairman of The Field
Independent Trustees Companies (1966-1994), most recently as Museum of Natural History;
1177 Avenue of the Americas Chairman of The Allstate Corporation director of various other
New York, NY 10036 (March 1993-December 1994) and business and charitable
Chairman and Chief Executive Officer of organizations.
its wholly-owned subsidiary, Allstate
Insurance Company (July 1989-
December 1994).

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

Joseph J. Kearns (63) President, Kearns & Associates LLC 198 Director of Electro Rent
c/o Kearns & Associates LLC (investment consulting); Deputy Chairman Corporation (equipment
PMB754 of the Audit Committee and Director or leasing), The Ford Family
23852 Pacific Coast Highway Trustee of the Retail Funds (since July Foundation, and the UCLA
Malibu, CA 90265 2003) and the Institutional Funds (since Foundation.
August 1994); previously Chairman of the
Audit Committee of the Institutional Funds
(October 2001-July 2003); formerly CFO
of the J. Paul Getty Trust.

Michael E. Nugent (69) General Partner of Triumph Capital, L.P., 197
c/o Triumph Capital, L.P. a private investment partnership;
445 Park Avenue Chairman of the Insurance Committee
New York, NY 10022 and Director or Trustee of the Retail
Funds (since July 1991) and the
Institutional Funds (since July 2001);
formerly Vice President, Bankers Trust
Company and BT Capital Corporation
( 1984-1988).

Fergus Reid (73) Chairman of Lumelite Plastics 198 Trustee and Director of
c/o Lumelite Plastics Corporation; Chairman of the Governance certain investment
Corporation Committee and Director or Trustee of the companies in the JPMorgan
85 Charles Colman Blvd. Retail Funds (since July 2003) and the Funds complex managed by
Pawling, NY 12564 Institutional Funds (since June 1992). J.P. Morgan Investment
Management 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 Adviser or affiliates
of the Investment Adviser (as set forth below) and executive officers of the
Fund, their age, address, term of office and length of time served, their
principal business occupations during the past five years, the number of
portfolios in the Fund Complex overseen by each Management Trustee (as of
December 31, 2004) and the other directorships, if any, held by the Trustee,
are shown below.

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

Charles A. Fiumefreddo (72) Chairman Since
c/o Morgan Stanley Trust of the July 1991
Harborside Financial Center, Board
Plaza Two, and
Jersey City, NJ 07311 Trustee

James F. Higgins (57) Trustee Since
c/o Morgan Stanley Trust June
Harborside Financial Center, 2000
Plaza Two,
Jersey City, NJ 07311

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

Charles A. Fiumefreddo (72) Chairman and Director or Trustee of 197 None.
c/o Morgan Stanley Trust the Retail Funds (since July 1991)
Harborside Financial Center, and the Institutional Funds (since July
Plaza Two, 2003); formerly Chief Executive
Jersey City, NJ 07311 Officer of the Retail Funds (until
September 2002).

James F. Higgins (57) Director or Trustee of the Retail 197 Director of AXA Financial, Inc.
c/o Morgan Stanley Trust Funds (since June 2000) and the and The Equitable Life
Harborside Financial Center, Institutional Funds (since July 2003); Assurance Society of the
Plaza Two, Senior Advisor of Morgan Stanley United States (financial
Jersey City, NJ 07311 (since August 2000); Director of the services).
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.

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

Ronald E. Robison (66) President President (since
1221 Avenue of the Americas and September 2005)
New York, NY 10020 Principal and Principal
Executive Executive Officer
Officer (since May 2003)

Joseph J. McAlinden (62) Vice President Since July 1995
1221 Avenue of the Americas
New York, NY 10020

Barry Fink (50) Vice President Since February
1221 Avenue of the Americas 1997
New York, NY 10020

Amy R. Doberman (43) Vice President Since July 2004
1221 Avenue of the Americas
New York, NY 10020

Carsten Otto (42) Chief Since October 2004
1221 Avenue of the Americas Compliance
New York, NY 10020 Officer

Stefanie V. Chang (39) Vice President Since July 2003
1221 Avenue of the Americas
New York, NY 10020

Francis J. Smith (40) Treasurer Treasurer since
c/o Morgan Stanley Trust and Chief July 2003 and
Harborside Financial Center, Financial Chief Financial
Plaza Two, Officer Officer since
Jersey City, NJ 07311 September 2002

Thomas F. Caloia (59) Vice President Since July 2003
c/o Morgan Stanley Trust
Harborside Financial Center,
Plaza Two,
Jersey City, NJ 07311

Mary E. Mullin (38) Secretary Since July 2003
1221 Avenue of the Americas
New York, NY 10020

NAME, AGE AND ADDRESS OF PRINCIPAL OCCUPATION(S) DURING
EXECUTIVE OFFICER PAST 5 YEARS**
------------------------------ ---------------------------------------------------------------

Ronald E. Robison (66) President (since September 2005) and Principal Executive
1221 Avenue of the Americas Officer of funds in the Fund Complex (since May 2003);
New York, NY 10020 Managing Director of Morgan Stanley & Co. Incorporated
and Morgan Stanley; Managing Director and Director of
Morgan Stanley Investment Management Inc., Morgan
Stanley Distribution Inc. and Morgan Stanley Distributors
Inc.; Managing Director, Chief Administrative Officer and
Director of Morgan Stanley Investment Advisors Inc. and
Morgan Stanley Services Company Inc.; Chief Executive
Officer and Director of Morgan Stanley Trust; Director of
Morgan Stanley SICAV (since May 2004); President (since
September 2005) and Principal Executive Officer (since May
2003) of the Van Kampen Funds; previously, Executive Vice
President (July 2003-September 2005) of funds in the Fund
Complex and the Van Kampen Funds. He was also
previously President and Director of the Institutional Funds
(March 2001-July 2003), Chief Global Operations Officer of
Morgan Stanley Investment Management Inc. and Chief
Executive Officer and Chairman of Van Kampen Investor
Services.

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

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

Amy R. Doberman (43) Managing Director and General Counsel, U.S. Investment
1221 Avenue of the Americas Management; Managing Director of Morgan Stanley
New York, NY 10020 Investment Management Inc. and the Investment Adviser,
Vice President of the Institutional and Retail Funds (since
July 2004); Vice President of the Van Kampen Funds (since
August 2004); previously, Managing Director and General
Counsel - Americas, UBS Global Asset Management (July
2000-July 2004) and General Counsel, Aeltus Investment
Management, Inc. (January 1997-July 2000).

Carsten Otto (42) Executive Director and U.S. Director of Compliance for
1221 Avenue of the Americas Morgan Stanley Investment Management (since October
New York, NY 10020 2004); Executive Director of the Investment Adviser and
Morgan Stanley investment Management Inc.; formerly
Assistant Secretary and Assistant General Counsel of the
Morgan Stanley Retail Funds.

Stefanie V. Chang (39) Executive Director of Morgan Stanley & Co. Incorporated,
1221 Avenue of the Americas Morgan Stanley Investment Management Inc. and the
New York, NY 10020 Investment Adviser; Vice 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 (40) Executive Director of the Investment Adviser and the
c/o Morgan Stanley Trust Administrator (since December 2001); previously, Vice
Harborside Financial Center, President of the Retail Funds (September 2002-July 2003);
Plaza Two, Vice President of the Investment Adviser and the
Jersey City, NJ 07311 Administrator (August 2000-November 2001).

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

Mary E. Mullin (38) Executive Director of Morgan Stanley & Co. Incorporated,
1221 Avenue of the Americas Morgan Stanley Investment Management Inc. and the
New York, NY 10020 Investment Adviser; 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
Adviser or its affiliates serve as assistant secretaries of the Fund: Lou Anne
D. McInnis, Joseph Benedetti, Joanne Antico, Daniel Burton, Joanne Doldo, Tara
A. Farrelly, Alice J. Gerstel, Eric C. Griffith, Edward S. Meehan, Elisa
Mitchell, Elizabeth Nelson, Debra Rubano, Rita Rubin, Sheri L. Schreck and
Julien H. Yoo.

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

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

INDEPENDENT:
Michael Bozic None over $100,000
Edwin J. Garn None over $100,000
Wayne E. Hedien $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, 2004, the value (including interest) of the deferral
accounts for Messrs. Kearns and Reid was $584,856 and $667,002,
respectively, pursuant to the deferred compensation plan.

As to each Independent Trustee and his immediate family members, no person
owned beneficially or of record securities in an investment 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
Independent Trustees, serve as members of the Insurance Committee, and three
Independent Trustees serve as members of the Governance Committee.

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

The Board of Trustees has a separately-designated standing Audit Committee
established in accordance with Section 3(a)(58)(A) of the Securities Exchange
Act of 1934, as amended. The Audit Committee is charged with recommending to
the full Board the engagement or discharge of the Fund's independent registered
public accounting firm; directing investigations into matters within the scope
of the independent registered public accounting firm's duties, including the
power to retain outside specialists; reviewing with the independent registered
public accounting firm the audit plan and results of the auditing engagement;
approving professional services provided by the independent registered public
accounting firm and other accounting firms prior to the performance of the
services; reviewing the independence of the independent registered public
accounting firm; considering the range of audit and

non-audit fees; reviewing the adequacy of the Fund's system of internal
controls; and preparing and submitting Committee meeting minutes to the full
Board. The Fund has adopted a formal, written Audit Committee Charter. During
the Fund's fiscal year ended August 31, 2005, the Audit Committee held eight
meetings.

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

The Board of Trustees of the Fund also has a Governance Committee. The
Governance Committee identifies individuals qualified to serve as Independent
Trustees on the Fund's Board and on committees of such Board and recommends
such qualified individuals for nomination by the Fund's Independent Trustees as
candidates for election as Independent Trustees, advises the Fund's Board with
respect to Board composition, procedures and committees, develops and
recommends to the Fund's Board a set of corporate governance principles
applicable to the Fund, monitors and makes recommendations on corporate
governance matters and policies and procedures of the Fund's Board of Trustees
and any Board committees and oversees periodic evaluations of the Fund's Board
and its committees. The members of the Governance Committee of the Fund are
currently Michael Bozic, Edwin J. Garn and Fergus Reid, each of whom is an
Independent Trustee. The current Chairman of the Governance Committee is Fergus
Reid. During the Fund's fiscal year ended August 31, 2005, the Governance
Committee held three meetings.

The Fund does not have a separate nominating committee. While the Fund's
Governance Committee recommends qualified candidates for nominations as
Independent Trustees, the Board of Trustees of the Fund believes that the task
of nominating prospective Independent Trustees is important enough to require
the participation of all current Independent Trustees, rather than a separate
committee consisting of only certain Independent Trustees. Accordingly, each
current Independent Trustee (Michael Bozic, Edwin J. Garn, Wayne E. Hedien, Dr.
Manuel H. Johnson, Joseph J. Kearns, Michael E. Nugent and Fergus Reid)
participates in the election and nomination of candidates for election as
Independent Trustees for the Fund. Persons recommended by the Fund's Governance
Committee as candidates for nomination as Independent Trustees shall possess
such knowledge, experience, skills, expertise and diversity so as to enhance
the Board's ability to manage and direct the affairs and business of the Fund,
including, when applicable, to enhance the ability of committees of the Board
to fulfill their duties and/or to satisfy any independence requirements imposed
by law, regulation or any listing requirements of the NYSE. While the
Independent Trustees of the Fund expect to be able to continue to identify from
their own resources an ample number of qualified candidates for the Fund's
Board as they deem appropriate, they will consider nominations from
shareholders to the Board. Nominations from shareholders should be in writing
and sent to the Independent Trustees as described below under the caption
"Shareholder Communications".

There were 15 meetings of the Board of Trustees of the Fund held during
the fiscal year ended August 31, 2005. The Independent Trustees of the Fund
also met six times during that time, in addition to the 15 meetings of the
full Board.

Finally, the Board has formed an Insurance Committee to review and monitor
the insurance coverage maintained by the Fund. The Insurance Committee
currently consists of Messrs. Nugent, Fiumefreddo and Hedien. Messrs. Nugent
and Hedien are Independent Trustees. During the Fund's fiscal year ended August
31, 2005, the Insurance Committee held seven meetings.

ADVANTAGES OF HAVING SAME INDIVIDUALS AS TRUSTEES FOR THE RETAIL FUNDS AND
INSTITUTIONAL FUNDS. The Independent Trustees and the Fund's management believe
that having the same Independent Trustees for each of the Retail Funds and
Institutional Funds avoids the duplication of effort that would arise from
having different groups of individuals serving as Independent Trustees for each
of the funds or even of sub-groups of funds. They believe that having the same
individuals serve as Independent Trustees of all the Retail Funds and
Institutional Funds tends to increase their knowledge and expertise regarding
matters which affect the Fund Complex generally and enhances their ability to

negotiate on behalf of each fund with the fund's service providers. This
arrangement also precludes the possibility of separate groups of Independent
Trustees arriving at conflicting decisions regarding operations and management
of the funds and avoids the cost and confusion that would likely ensue.
Finally, having the same Independent Trustees serve on all fund boards enhances
the ability of each fund to obtain, at modest cost to each separate fund, the
services of Independent Trustees, of the caliber, experience and business
acumen of the individuals who serve as Independent Trustees of the Retail Funds
and Institutional Funds.

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

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

C. COMPENSATION

Each Independent Trustee receives an annual retainer fee of $168,000 for
serving the Retail Funds and the Institutional Funds. In addition, each
Independent Trustee receives $2,000 for attending each of the four quarterly
board meetings and two performance meetings that occur each year, so that an
Independent 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 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
of the Fund who are employed by the Investment Adviser or an affiliated company
receive no compensation or expense reimbursement from the Fund for their
services as Trustee.

Effective April 1, 2004, the Fund began a Deferred Compensation Plan (the
"DC Plan"), which allows each Independent Trustee to defer payment of all, or a
portion, of the fees he or she receives for serving on the Board of Trustees
throughout the year. Each eligible Trustee generally may elect to have the
deferred amounts credited with a return equal to the total return on one or
more of the Retail Funds or Institutional Funds (or portfolios thereof) that
are offered as investment options under the DC Plan. At the Trustee's election,
distributions are either in one lump sum payment, or in the form of equal
annual installments over a period of five years. The rights of an eligible
Trustee and the beneficiaries to the amounts held under the DC Plan are
unsecured and such amounts are subject to the claims of the creditors of the
Fund.

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

The following table shows aggregate compensation payable to each of the
Fund's Trustees from the Fund for the fiscal year ended August 31, 2005 and the
aggregate compensation payable to each of the Fund's Trustees by the Fund
Complex (which includes all of the Retail and Institutional Funds) for the
calendar year ended December 31, 2004.

COMPENSATION

NUMBER OF
PORTFOLIOS IN THE
FUND COMPLEX
TOTAL FROM WHICH THE TOTAL COMPENSATION
COMPENSATION TRUSTEE RECEIVED FROM THE FUND
NAME OF INDEPENDENT TRUSTEE: FROM THE FUND COMPENSATION(5) COMPLEX(5)
----------------------------- -------------- ------------------ -------------------

Michael Bozic(1)(3) ........ $2,110 197 $178,000
Edwin J. Garn(1)(3) ........ 2,084 197 178,000
Wayne E. Hedien(1)(2) ...... 2,110 197 178,000
Dr. Manuel H. Johnson(1) ... 2,817 197 238,000
Joseph J. Kearns(1)(4) ..... 2,451 198 211,000
Michael E. Nugent(1)(2) .... 2,463 197 208,000
Fergus Reid(1)(3) .......... 2,463 198 213,000
NAME OF INTERESTED TRUSTEE:
----------------------------
Charles A. Fiumefreddo(2) .. 4,243 197 360,000
James F. Higgins ........... 0 197 0

----------
(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 the amounts deferred at the election of the Trustee under the DC
Plan.

(5) Because the funds in the Fund Complex have different fiscal year ends,
the amounts shown in these columns are presented on a calendar year
basis.

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 Adopting Funds for the calendar year ended
December 31, 2004, and the estimated retirement benefits for the Independent
Trustee from the Adopting Funds for each calendar year following retirement.
Messrs. Kearns and Reid did not participate in the retirement program.

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

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

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

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

IV. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
--------------------------------------------------------------------------------
The following owned 5% or more of the outstanding Class A shares of the
Fund as of December 1, 2005: State Street Bank and Trust Co. FBO ADP/Morgan
Stanley Alliance, 105 Rosemont Avenue, Westwood, MA 02090-2318-43.82%.

The following owned 5% or more of the outstanding Class D shares of the
Fund as of December 1, 2005: State Street Bank and Trust Co. FBO ADP/Morgan
Stanley Alliance, 105 Rosemont Avenue, Westwood, MA 02090-2318-8.26%.

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

V. INVESTMENT ADVISORY AND OTHER SERVICES
--------------------------------------------------------------------------------

A. INVESTMENT ADVISER AND ADMINISTRATOR

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

Prior to November 1, 2004 pursuant to an investment management agreement
(the "Management Agreement") with the Investment Adviser, the Fund had retained
the Investment Adviser to provide administrative services and to manage the
investment of the Fund's assets, including the placing of orders for the
purchase and sale of portfolio securities. 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 Adviser 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% of
the portion of daily net assets not exceeding $1.5 billion; 0.375% of the
portion of daily net assets exceeding $1.5 billion but not exceeding $3
billion; and 0.350% of the portion of such daily net assets exceeding $3
billion. The Investment Adviser had agreed, under its Management Agreement with
the Fund, to assume on a permanent basis 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. The management fee was allocated among
the Classes pro rata based on the net assets of the Fund attributable to each
Class.

The Board of Trustees of the Fund approved amending and restating,
effective November 1, 2004, the Management Agreement to remove the
administration services component from the Management Agreement and to reduce
the investment advisory fee to the annual rate of 0.12% of the portion of the
daily net assets. Effective June 1, 2005, the Board of Trustees approved an
amendment to the existing advisory arrangement of the Fund to reduce the fee
payable by the Fund to 0.12% of the portion of daily net assets not exceeding
$2 billion; and 0.10% of the portion of daily net assets exceeding $2 billion.
The Investment Adviser 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 which may reduce the investment advisory and administration
fees below 0.20% of the Fund's average daily net assets. The Fund's Investment
Adviser continues to provide investment advisory services under an amended and
restated investment advisory agreement ("Investment Advisory Agreement"). The
administration services previously provided to the Fund by the Investment
Adviser are being 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 provides the
same administration services previously provided by the Investment Adviser.

For the fiscal years ended August 31, 2003, 2004 and 2005, the Fund
accrued total compensation under the Management Agreement and the Investment
Advisory Agreement in the amounts of $4,450,513, $4,865,522, and $2,291,352,
respectively.

For the period November 1, 2004 through August 31, 2005, the Administrator
accrued compensation under the Administration Agreement in the amount of
$1,132,755.

Although the entities providing administration services to the Fund have
changed, the Morgan Stanley personnel performing such services remains the
same. Furthermore, the changes did not result in any increase in the amount of
total combined fees paid by the Fund for investment advisory and 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 Adviser). In this capacity, the Fund's shares are
distributed by the Distributor. The Distributor has entered into a selected
dealer agreement with Morgan Stanley DW, which through its own sales
organization sells shares of the Fund. In addition, the Distributor may enter
into similar agreements with other selected broker-dealers. The Distributor, a
Delaware corporation, is a wholly-owned subsidiary of Morgan Stanley.

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

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

C. SERVICES PROVIDED BY THE INVESTMENT ADVISER AND ADMINISTRATOR

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

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

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

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

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

The Administration Agreement provides that in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations thereunder, the Administrator is not liable to the Fund or any of
its investors for any act or omission by the Administrator or for any losses
sustained by the Fund or its investors. The Administration Agreement will
continue unless terminated by either party by written notice delivered to the
other party within 30 days.

D. DEALER REALLOWANCES

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

E. RULE 12b-1 PLAN

The Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under
the Investment Company Act (the "Plan") pursuant to which each Class, other
than Class D, pays the Distributor compensation accrued daily and payable
monthly at the maximum annual rate of 0.25% of the average daily net assets of
Class A and 1.00% 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 "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).

2005 2004 2003
--------------------------- --------------------------- ---------------------------

Class A .......... FSCs:(1) $ 164,303 FSCs:(1) $ 386,752 FSCs:(1) $ 274,408
CDSCs: $ 1,186 CDSCs: $ 11,816 CDSCs: $ 2,378
Class B .......... CDSCs: $2,186,308 CDSCs: $2,387,733 CDSCs: $2,846,110
Class C .......... CDSCs: $ 25,330 CDSCs: $ 41,456 CDSCs: $ 33,705

----------
(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, 2005, Class A, Class B and Class C shares of the Fund accrued payments
under the Plan amounting to $832,622, $9,976,186 and $1,567,589, respectively,
which amounts are equal to 0.24%, 1.00% and 0.94% 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 5.00% 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 4.00% of the amount
sold and an annual residual commission, currently a residual of up to 0.25% of
the current value 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 1.00% of the amount
sold and an annual residual commission, currently up to 1.00% of the current
value of the respective accounts for which they are the Financial Advisors of
record.

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

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

The Fund is authorized to reimburse expenses incurred or to be incurred in
promoting the distribution of the Fund's Class A and Class C shares and in
servicing shareholder accounts. Reimbursement will be made through payments at
the end of each month. The amount of each monthly payment may in no event
exceed an amount equal to a payment at the annual rate of 0.25%, in the case of
Class A, and 1.00%, 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, 2005 to the Distributor. The
Distributor and Morgan Stanley DW estimate that they have spent, pursuant to
the Plan, $156,566,830 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) 4.66% ($7,292,324)-advertising and promotional expenses; (ii) 0.18%
($287,682)-printing and mailing of prospectuses for distribution to other than
current shareholders; and (iii) 95.16% ($148,986,824)-other expenses, including
the gross sales credit and the carrying charge, of which 5.93% ($8,836,151)
represents carrying charges, 37.61% ($56,038,857) represents commission credits
to Morgan Stanley DW's branch offices and other selected broker-dealers for
payments of commissions to Financial Advisors and other authorized financial
representatives, 53.24% ($79,320,701) represents overhead and other branch
office distribution-related expenses and 3.22% ($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 August 31, 2005 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 $33,660,332 as of August 31, 2005 (the end of
the Fund's fiscal year), which was equal to approximately 4.13% 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 1.00% 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, 2004 (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 Adviser, 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, determined that continuation of the
Plan would be in the best interest of the Fund and would have a reasonable
likelihood of continuing to benefit the Fund and its shareholders.

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

F. OTHER SERVICE PROVIDERS

(1) TRANSFER AGENT/DIVIDEND-PAYING AGENT

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

(2) CUSTODIAN AND INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

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

(3) AFFILIATED PERSONS

The Transfer Agent is an affiliate of the Investment Adviser and the
Distributor. As Transfer Agent and Dividend Disbursing Agent, the Transfer
Agent's responsibilities include maintaining shareholder accounts, disbursing
cash dividends and reinvesting dividends, processing account registration
changes, handling purchase and redemption transactions, mailing prospectuses
and reports, mailing and

tabulating proxies, processing share certificate transactions, and maintaining
shareholder records and lists. For these services, the Transfer Agent receives
a per shareholder account fee from the Fund and is reimbursed for its
out-of-pocket expenses in connection with such services.

G. FUND MANAGEMENT

OTHER ACCOUNTS MANAGED BY THE PORTFOLIO MANAGER

As of August 31, 2005, Kevin Jung managed nine mutual funds with a total
of approximately $6.1 billion in assets; no pooled investment vehicles; and no
other accounts.

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

PORTFOLIO MANAGER COMPENSATION STRUCTURE

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

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

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

Discretionary compensation can include:

o Cash Bonus;

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

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

o Voluntary Deferred Compensation Plans-voluntary programs that permit
certain employees to elect to defer a portion of their discretionary
year-end compensation and directly or notionally invest the deferred
amount: (1) across a range of designated investment funds, including
funds advised by the Adviser or its affiliates; and/or (2) in Morgan
Stanley stock units.

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

o Investment performance. A portfolio manager's compensation is linked to
the pre-tax investment performance of the funds/accounts managed by the
portfolio manager. Investment performance is calculated for one-, three-
and five-year periods measured against a fund's/account's primary

benchmark (as set forth in the Fund's prospectus) indices and/or peer
groups, where applicable. Generally, the greatest weight is placed on the
three- and five-year periods.

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

o Contribution to the business objectives of the Investment Adviser.

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

o Market compensation survey research by independent third parties.

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

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

SECURITIES OWNERSHIP OF PORTFOLIO MANAGER

As of August 31, 2005, the dollar range of securities beneficially owned
(either directly or notionally) through certain deferred compensation programs
by Kevin Jung in the Fund was $100,001 - $500,000.

H. CODES OF ETHICS

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

I. PROXY VOTING POLICY AND PROXY VOTING RECORD

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

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

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

o Generally, routine proposals will be voted in support of management.

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

o The Investment Adviser will vote in accordance with management's
recommendation with respect to certain non-routine proposals (i.e.,
reasonable capitalization changes, stock repurchase programs, stock
splits, certain compensation-related matters, certain anti-takeover
measures, etc.).

o The Investment Adviser will vote against certain non-routine proposals
(i.e., unreasonable capitalization changes, establishment of cumulative
voting rights for the election of directors, requiring supermajority
shareholder votes to amend by-laws, indemnification of auditors, etc.).

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

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

o The Investment Adviser will vote against certain proposals it believes
call for unreasonable charter provisions or corporate governance
practices (i.e., proposals to declassify boards, proposals to require a
company to prepare reports that are costly to provide or that would
require duplicative efforts or expenditure that are of a non-business
nature or would provide no pertinent information from the perspective of
institutional shareholders, etc.).

o Certain other proposals (i.e., proposals requiring directors to own
large amounts of company stock to be eligible for election, requiring
diversity of board membership relating to broad based social, religious
or ethnic groups, etc.) generally are evaluated by the Committee based on
the nature of the proposal and the likely impact on shareholders.

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

CONFLICTS OF INTEREST

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

THIRD PARTIES

To assist in its responsibility for voting proxies, the Investment Adviser
may retain third-party services as experts in the proxy voting and corporate
governance area. These proxy research providers are referred to herein as
"Research Providers." The services provided to the Investment Adviser by the
Research Providers include in-depth research, global issuer analysis, and
voting recommendations. While the Investment Adviser may review and utilize
recommendations made by the Research Providers in making proxy voting
decisions, it is in no way obligated to follow such recommendations. In
addition to research, the Research Providers provide vote execution, reporting
and recordkeeping. The Committee carefully monitors and supervises the services
provided by the Research Providers.

FURTHER INFORMATION

A copy of the Proxy Policy, as well as the Fund's most recent proxy voting
record for the 12-month period ended June 30, filed with the SEC are available
without charge on our web site at www.morganstanley.com/funds. The Fund's proxy
voting record is also available without charge on the SEC's web site at
www.sec.gov.

J. REVENUE SHARING

The Investment Adviser and/or Distributor may pay compensation, out of
their own funds and not as an expense of the Fund, to Morgan Stanley DW and
certain unaffiliated brokers, dealers or other financial

Intermediaries ("Intermediaries") in connection with the sale or retention of
Fund shares and/or shareholder servicing. For example, the Investment Adviser
or the Distributor may pay additional compensation to Morgan Stanley DW and to
Intermediaries for the purpose of promoting the sale of Fund shares,
maintaining share balances and/or for sub-accounting, administrative or
shareholder processing services. Such payments are in addition to any
distribution fees, service fees and/or transfer agency fees that may be payable
by the Fund. The additional payments may be based on factors, including level
of sales (based on gross or net sales or some specified minimum sales or some
other similar criteria related to sales of the Fund and/or some or all other
Morgan Stanley Funds), amount of assets invested by the Intermediary's
customers (which could include current or aged assets of the Fund and/or some
or all other Morgan Stanley Funds), the Fund's advisory fees, some other agreed
upon amount, or other measures as determined from time to time by the
Investment Adviser and/or Distributor.

These payments currently include the following amounts which are paid to
Morgan Stanley DW and other 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 Morgan Stanley Portfolio Architectsm Program, the Morgan Stanley
Fund Solutionsm Program, the Morgan Stanley Personal Portfoliosm
Program and Morgan Stanley Corporate Retirement Solutions), Morgan
Stanley DW and other Intermediaries receive a payment of up to 0.25% of
the amount sold and an annual fee of up to 0.15% of the current value
of the Class D shares held in the applicable 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 of Class A, B and C shares (except purchases through 401(k)
platforms or shares, if any, held by participants in the Morgan
Stanley Fund Solutionsm Program, the Morgan Stanley Personal
Portfoliosm Program and Morgan Stanley Corporate Retirement Solutions)
through Morgan Stanley DW's Mutual Fund Network:

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

o An annual fee in an amount up to 0.03% of the value of such Fund
shares in excess of $9 billion.

(4) An annual fee in an amount equal to 0.20% of the value of Fund shares
held through 401(k) platforms.

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

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

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

Subject to the general supervision of the Trustees, the Investment Adviser
is responsible for decisions to buy and sell securities for the Fund, the
selection of brokers and dealers to effect the

----------
* Commissions or transaction fees paid to Morgan Stanley DW or other
Intermediaries who initiate and are responsible for purchases of $1
million or more are computed on a percentage of the dollar value of such
shares sold as follows: 1.00% on sales of $1 million to $2 million, plus
0.75% on the next $1 million, plus 0.50% on the next $2 million, plus
0.25% on the excess over $5 million.

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, 2003, 2004 and 2005, the Fund
paid a total of $125,479, $93,240 and $161,792, 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, 2003, 2004 and 2005, the Fund did
not effect any principal transactions with Morgan Stanley DW.

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

During the fiscal years ended August 31, 2003, 2004 and 2005, the Fund did
not pay any brokerage commissions to an affiliated broker or dealer.

C. BROKERAGE SELECTION

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

In seeking to implement the Fund's policies, the Investment Adviser
effects transactions with those brokers and dealers who the Investment Adviser
believes provide the most favorable prices and are

capable of providing efficient executions. If the Investment Adviser believes
the prices and executions are obtainable from more than one broker or dealer,
it may give consideration to placing portfolio transactions with those brokers
and dealers who also furnish research and other services to the Fund or the
Investment Adviser. The services may include, but are not limited to, any one
or more of the following: information as to the availability of securities for
purchase or sale; statistical or factual information or opinions pertaining to
investment; wire services; and appraisals or evaluations of portfolio
securities. The information and services received by the Investment Adviser
from brokers and dealers may be utilized by the Investment Adviser and any of
its asset management affiliates in the management of accounts of some of their
other clients and may not in all cases benefit the Fund directly.

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

D. DIRECTED BROKERAGE

During the fiscal year ended August 31, 2005, 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, 2005, the Fund purchased
securities issued by J.P. Morgan Chase & Co., Prudential Financial, Inc.,
Goldman Sachs Group Inc., Lehman Brothers Holdings Inc., Morgan Stanley & Co.
Inc. and Bank of America Corp., 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, 2005, the Fund held securities issued by J.P. Morgan Chase
& Co., Prudential Financial, Inc., Goldman Sachs Inc., Lehman Brothers Holdings
Inc., Bank of America Corp. and Bank of New York, Inc. (The) with market values
of $16,455,967, $4,636,829, $6,779,534, $4,032,937, $23,880,101 and $3,283,860,
respectively.

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

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

The Fund is not required to hold annual meetings of shareholders and in
ordinary circumstances the Fund does not intend to hold such meetings. The
Trustees may call special meetings of shareholders for action by shareholder
vote as may be required by the Investment Company Act or the Declaration of
Trust. Under certain circumstances, the Trustees may be removed by the actions
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 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 Advisory 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 Adviser that the sale price, the bid price or the mean between the
last reported bid and asked price are not reflective of a security's market
value, portfolio securities are valued at their fair value as determined in
good faith under procedures established by and under the general supervision of
the Fund's Trustees.

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 price does not reflect the securities' market value, in which
case these securities will be valued at their fair value as determined by the
Trustees. Short-term debt securities having a maturity date of more than 60
days at the time of purchase are valued on a mark-to-market basis until 60 days
prior to maturity and thereafter at amortized cost based on their value on the
61st day.

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.

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. The
following discussion is only a summary of certain tax considerations generally
affecting the Fund and shareholders of the Fund and is not intended as a
substitute for careful tax planning. 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 Adviser will select which securities to sell. The Fund may realize a
gain or loss from such sales. In the event the Fund realizes net capital gains
from such transactions, its shareholders may receive a larger capital gain
distribution, if any, than they would in the absence of such transactions.

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

Distributions of net long-term capital gains, if any, are taxable to
shareholders as long-term capital gains regardless of how long a shareholder
has held the Fund's shares and regardless of whether the

distribution is received in additional shares or in cash. Under current law,
the maximum tax rate on long-term capital gains available to non-corporate
shareholders generally is 15%. Without future congressional action, the maximum
tax rate on long-term capital gains would return to 20% in 2009, and the
maximum rate on all 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 to shareholders of record of such month and paid in January then such
amounts will be treated for tax purposes as received by the shareholders on
December 31.

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. Currently, however, the Fund will continue
to withhold these amounts regardless of the fact that it is no longer required
to do so. Distributions attributable to gains from "U.S. real property
interests" (including certain U.S. real property holding corporations and which
may include certain REITs and certain REIT capital gain dividends) will
generally be subject to federal withholding tax and may give rise to an
obligation on the part of the foreign shareholder to file a U.S. tax return.
Also, such gain may be subject to a 30% branch profit tax in the hands of a
foreign shareholder that is a corporation. The provisions contained in the
legislation relating to distributions to foreign persons generally would apply
to distributions with respect to taxable years of regulated investment
companies beginning after December 31, 2004 and before January 1, 2008.
Prospective investors are urged to consult their tax advisors regarding the
specific tax consequences relating to the legislation.

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

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

In general, a sale of shares results in capital gain or loss, and for
individual shareholders, is taxable at a federal rate dependent upon the length
of time the shares were held. A redemption of a shareholder's Fund shares is
normally treated as a sale for tax purposes. Fund shares held for a period of
one year or less at the time of such sale or redemption will, for tax purposes,
generally result in short-term capital gains or losses and those held for more
than one year will generally result in long-term capital gains or losses. Under
current law, the maximum tax rate on long-term capital gains available to
non-corporate shareholders 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 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 ability 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, 2005

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

Class A ......... 09/26/97 5.94% -4.38% 3.44%
Class B ......... 09/26/97 6.04% -4.48% 3.35%
Class C ......... 09/26/97 10.18% -4.08% 3.37%
Class D ......... 09/26/97 12.11% -3.14% 4.39%

AVERAGE ANNUAL RETURNS ASSUMING NO DEDUCTION OF SALES CHARGE
PERIOD ENDED AUGUST 31, 2005

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

Class A ......... 09/26/97 11.81% -3.34% 4.15%
Class B ......... 09/26/97 11.04% -4.09% 3.35%
Class C ......... 09/26/97 11.18% -4.08% 3.37%
Class D ......... 09/26/97 12.11% -3.14% 4.39%

AVERAGE TOTAL RETURNS ASSUMING NO DEDUCTION OF SALES CHARGE
PERIOD ENDED AUGUST 31, 2005

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

Class A ......... 09/26/97 11.81% -15.64% 38.04%
Class B ......... 09/26/97 11.04% -18.86% 29.90%
Class C ......... 09/26/97 11.18% -18.79% 30.02%
Class D ......... 09/26/97 12.11% -14.73% 40.55%

AVERAGE ANNUAL AFTER-TAX RETURNS ASSUMING DEDUCTION OF MAXIMUM SALES CHARGE
CLASS B
PERIOD ENDED AUGUST 31, 2005

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

After taxes on distributions .......... 09/26/97 5.95% -4.50% 3.32%
After taxes on distributions and
redemptions .......................... 09/26/97 4.05% -3.75% 2.89%

XII. FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
The Fund's audited financial statements for the fiscal year ended August
31, 2005, 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
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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.