AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 27, 2005
                                                        REGISTRATION NO. 2-66269
                                                                        811-2978
================================================================================
                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549
                              ---------------------
                                    FORM N-1A
                             REGISTRATION STATEMENT
                        UNDER THE SECURITIES ACT OF 1933                     [X]
                           PRE-EFFECTIVE AMENDMENT NO.                       [ ]
                         POST-EFFECTIVE AMENDMENT NO. 31                     [X]
                                     AND/OR
               REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
                                   ACT OF 1940                               [X]
                                AMENDMENT NO. 32                             [X]
                              ---------------------
                   MORGAN STANLEY AMERICAN OPPORTUNITIES FUND
                        (A MASSACHUSETTS BUSINESS TRUST)
               (EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)

                           1221 AVENUE OF THE AMERICAS
                            NEW YORK, NEW YORK 10020
                     (ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)

       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (800) 869-6397

                              AMY R. DOBERMAN, ESQ.
                           1221 AVENUE OF THE AMERICAS
                            NEW YORK, NEW YORK 10020
                     (NAME AND ADDRESS OF AGENT FOR SERVICE)
                              ---------------------
                                    COPY TO:

         CARL FRISCHLING, ESQ.                        STUART M. STRAUSS, ESQ.
  KRAMER LEVIN NAFTALIS & FRANKEL LLP                 CLIFFORD CHANCE US LLP
      1177 AVENUE OF THE AMERICAS                       31 WEST 52ND STREET
       NEW YORK, NEW YORK 10036                      NEW YORK, NEW YORK 10019

                             ---------------------
                  APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
  As soon as practicable after this Post-Effective Amendment becomes effective.

 IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (CHECK APPROPRIATE BOX):

          [ ]  Immediately upon filing pursuant to paragraph (b)
          [X]  On April 29, 2005 pursuant to paragraph (b)
          [ ]  60 days after filing pursuant to paragraph (a)(1)
          [ ]  On (date) pursuant to paragraph a(1)
          [ ]  75 days after filing pursuant to paragraph (a)(2)
          [ ]  On (date) pursuant to paragraph (a) (2) of Rule 485.

            AMENDING THE PROSPECTUS AND UPDATING FINANCIAL STATEMENTS

                    IF APPROPRIATE, CHECK THE FOLLOWING BOX:
          [ ]  This post-effective amendment designates a new effective
               date for a previously filed post-effective amendment.
================================================================================




                                                     [MORGAN STANLEY FUNDS LOGO]




                                                                  Morgan Stanley
                                                                       American
                                                             Opportunities Fund

          A mutual fund that seeks long-term capital growth consistent
                       with an effort to reduce volatility

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

[MORGAN STANLEY FUNDS 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
                                                                  April 29, 2005





Contents

THE FUND

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

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

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

      Past Performance......................................................   4

      Fees and Expenses.....................................................   6

      Additional Investment Strategy Information............................   7

      Additional Risk Information...........................................   8

      Portfolio Holdings....................................................   9

      Fund Management.......................................................  10

SHAREHOLDER INFORMATION


      Pricing Fund Shares...................................................  12

      How to Buy Shares.....................................................  13

      How to Exchange Shares................................................  14

      How to Sell Shares....................................................  17

      Distributions.........................................................  19

      Frequent Purchases and Redemptions of Fund Shares.....................  19

      Tax Consequences......................................................  20

      Share Class Arrangements..............................................  21

      Additional Information................................................  29

FINANCIAL HIGHLIGHTS......................................................... 30


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

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



The Fund

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INVESTMENT OBJECTIVE
[GRAPHIC OMITTED]

Morgan Stanley American Opportunities Fund seeks long-term capital growth
consistent with an effort to reduce volatility.

(sidebar)
CAPITAL GROWTH
An investment objective having the goal of selecting securities with the
potential to rise in price rather than pay out income.
(end sidebar)

--------------------------------------------------------------------------------
PRINCIPAL INVESTMENT STRATEGIES
[GRAPHIC OMITTED]

The Fund normally invests at least 65% of its assets in a diversified portfolio
of common stocks (including depositary receipts). At least 80% of the Fund's
assets are invested in securities issued by companies traded on a U.S.
securities exchange or issued by the U.S. Government, its agencies or
instrumentalities. The Fund's "Investment Adviser," Morgan Stanley Investment
Advisors Inc., follows a flexible investment program in seeking to achieve the
Fund's investment objective. The Investment Adviser focuses on companies it
believes have consistent or rising earnings growth records, potential for strong
free cash flow and compelling business strategies. In this regard, the
Investment Adviser studies company developments, including business strategy and
financial results. Valuation is viewed in the context of prospects for
sustainable earnings and cash flow growth. The Investment Adviser generally
considers selling a portfolio holding when it determines that the holding no
longer satisfies its investment criteria.


As part of this process, the Investment Adviser may attempt to identify
long-term trends, such as shifting demographics or technological developments,
and the sectors that could benefit in the long term from these trends. Also
considered are competitive industry variables, such as supply and demand,
pricing trends and new product cycles.


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. A depositary receipt is generally issued by a bank or financial
institution and represents an ownership interest in the common stock or other
equity securities of a foreign company. For the purpose of this Fund, companies
traded on a U.S. exchange include companies listed on Nasdaq.

The remaining 35% of the Fund's assets may be invested in convertible
securities, preferred securities, fixed-income securities and options and
futures. Up to 20% of the Fund's assets may be invested in foreign securities
(that are not traded in the United States on a national securities exchange),
including emerging market securities. The Fund may also utilize forward foreign
currency exchange contracts.


                                                                               1


--------------------------------------------------------------------------------
PRINCIPAL RISKS
[GRAPHIC OMITTED]

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

COMMON STOCKS. A principal risk of investing in the Fund is associated with its
common stock investments. In general, stock values fluctuate in response to
activities specific to the company as well as general market, economic and
political conditions. Stock prices can fluctuate widely in response to these
factors. The Fund's emphasis on industries may cause its performance to be more
sensitive to developments affecting particular industries than a fund that
places primary emphasis on individual companies.

While the Fund principally invests in large, established companies, the Fund may
invest in medium-sized companies and small-sized companies. Investing in
securities of medium and small-sized growth companies involves greater risk than
is customarily associated with investing in more established companies. These
stocks may be more volatile and have returns that vary, sometimes significantly,
from the overall stock market.

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

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

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

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


2



Certain foreign securities in which the Fund may invest may be issued by
companies located in developing or emerging countries. Compared to the United
States and other developed countries, developing or emerging countries may have
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 offered greater potential loss than securities of companies
located in developed countries.

OTHER RISKS. The performance of the Fund also will depend on whether or not the
Investment Adviser is successful in applying the Fund's investment strategies.
The Fund is also subject to other risks from its permissible investments,
including the risks associated with its convertible securities, preferred
securities, fixed-income securities, options and futures investments and forward
foreign currency exchange contracts. 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.


                                                                               3


(sidebar)
ANNUAL TOTAL RETURNS
This chart shows how the performance of the Fund's Class B shares has varied
from year to year over the past 10 calendar years.
(end sidebar)


--------------------------------------------------------------------------------
PAST PERFORMANCE
[GRAPHIC OMITTED]


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

ANNUAL TOTAL RETURNS -- CALENDAR YEARS


1995                42.20%
1996                10.53%
1997                31.55%
1998                31.07%
1999                46.12%
2000                -9.93%
2001               -27.30%
2002               -23.09%
2003                18.49%
2004                 7.45%


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 March 31, 2005 was -4.51%.

During the periods shown in the bar chart, the highest return for a calendar
quarter was 34.93% (quarter ended December 31, 1999), and the lowest return for
a calendar quarter was -20.28% (quarter ended March 31, 2001).


4



(sidebar)
AVERAGE ANNUAL TOTAL RETURNS
This table compares the Fund's average annual total returns with those of
indices that represent a broad measure of market performance, as well as indices
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).
(end sidebar)

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



-------------------------------------------------------------------------------------------------
                                                   PAST 1      PAST 5     PAST 10      LIFE OF
                                                    YEAR        YEARS       YEARS       FUND*
-------------------------------------------------------------------------------------------------

  Class A(1): Return Before Taxes                    2.61%      -8.83%         --       3.74%
-------------------------------------------------------------------------------------------------
       Russell 1000 Growth Index(2)                  6.30%      -9.29%         --       1.98%
-------------------------------------------------------------------------------------------------
       S&P 500 Index (Registered Trademark)(3)      10.88%      -2.30%         --       5.10%
-------------------------------------------------------------------------------------------------
       Lipper Large-Cap Growth Funds Index(4)        7.45%      -9.72%         --       1.59%
-------------------------------------------------------------------------------------------------
       Lipper Large-Cap Core Funds Index(5)          8.29%      -2.98%         --       4.12%
-------------------------------------------------------------------------------------------------
  Class B(1): Return Before Taxes                    2.45%      -8.82%       9.76         --
-------------------------------------------------------------------------------------------------
       Return After Taxes on Distributions(6)        2.45%      -9.71%       6.76         --
-------------------------------------------------------------------------------------------------
       Return After Taxes on Distributions and
         Sale of Fund Shares                         1.59%      -7.57%       6.93         --
-------------------------------------------------------------------------------------------------
       Russell 1000 Growth Index(2)                  6.30%      -9.29%       9.59         --
-------------------------------------------------------------------------------------------------
       S&P 500 Index (Registered Trademark)(3)      10.88%      -2.30%      12.07         --
-------------------------------------------------------------------------------------------------
       Lipper Large-Cap Growth Funds Index(4)        7.45%      -9.72%       8.64%        --
-------------------------------------------------------------------------------------------------
       Lipper Large-Cap Core Funds Index(5)          8.29%      -2.98%      10.26         --
-------------------------------------------------------------------------------------------------
  Class C(1): Return Before Taxes                    6.48%      -8.54%         --       3.70%
-------------------------------------------------------------------------------------------------
       Russell 1000 Growth Index(2)                  6.30%      -9.29%         --       1.98%
-------------------------------------------------------------------------------------------------
       S&P 500 Index (Registered Trademark)(3)      10.88%      -2.30%         --       5.10%
-------------------------------------------------------------------------------------------------
       Lipper Large-Cap Growth Funds Index(4)        7.45%      -9.72%         --       1.59%
-------------------------------------------------------------------------------------------------
       Lipper Large-Cap Core Funds Index(5)          8.29%      -2.98%         --       4.12%
-------------------------------------------------------------------------------------------------
  Class D(1): Return Before Taxes                    8.54%      -7.64%         --       4.73%
-------------------------------------------------------------------------------------------------
       Russell 1000 Growth Index(2)                  6.30%      -9.29%         --       1.98%
-------------------------------------------------------------------------------------------------
       S&P 500 Index (Registered Trademark)(3)      10.88%      -2.30%         --       5.10%
-------------------------------------------------------------------------------------------------
       Lipper Large-Cap Growth Funds Index(4)        7.45%      -9.72%         --       1.59%
-------------------------------------------------------------------------------------------------
       Lipper Large-Cap Core Funds Index(5)          8.29%      -2.98%         --       4.12%
-------------------------------------------------------------------------------------------------



*    Only shown for shares classes with less than a ten year history.


(1)  Classes A, C and D commenced operations on July 28, 1997. Class B commenced
     operations on March 27, 1980.

(2)  The Russell 1000 Growth Index measures the performance of those companies
     in the Russell 1000 Index with higher price-to-book ratios and higher
     forecasted growth values. Indexes are unmanaged and their returns do not
     include any sales charges or fees. Such costs would lower performance. It
     is not possible to invest directly in an index. The Fund's benchmark was
     changed from the S&P 500 to the Russell 1000 Growth Index to more
     accurately reflect the Fund's investable universe.

(3)  The Standard & Poor's 500 Index (S&P 500 Index (R)) 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.

(4)  The Lipper Large-Cap Growth Funds Index is an equally weighted performance
     index of the largest qualifying funds (based on net assets) in the Lipper
     Large-Cap Growth Funds classification. The Index, which is adjusted for
     capital gains distributions and income dividends, is unmanaged and should
     not be considered an investment. There are currently 30 funds represented
     in this Index. As of December 31, 2004, the Fund is in the Lipper Large-Cap
     Growth Funds classification.

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

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

                                                                               5


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

(sidebar)
SHAREHOLDER FEES
These fees are paid directly from your investment.

ANNUAL FUND OPERATING EXPENSES
These expenses are deducted from the Fund's assets.
(end sidebar)

--------------------------------------------------------------------------------
FEES AND EXPENSES
[GRAPHIC OMITTED]

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



SHAREHOLDER FEES
--------------------------------------------------------------------------------------------------------------
                                                          CLASS A        CLASS B       CLASS C       CLASS D
--------------------------------------------------------------------------------------------------------------

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






ANNUAL FUND OPERATING EXPENSES
--------------------------------------------------------------------------------------------------------------
                                                          CLASS A        CLASS B       CLASS C       CLASS D
--------------------------------------------------------------------------------------------------------------

  Advisory fee*                                            0.41%         0.41%         0.41%          0.41%
--------------------------------------------------------------------------------------------------------------
  Distribution and service (12b-1) fees                    0.24%         1.00%         0.98%          None
--------------------------------------------------------------------------------------------------------------
  Other expenses*                                          0.32%         0.32%         0.32%          0.32%
--------------------------------------------------------------------------------------------------------------
  Total annual Fund operating expenses                     0.97%         1.73%         1.71%          0.73%
--------------------------------------------------------------------------------------------------------------



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

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

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

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


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


6



EXAMPLE


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

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





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

   Class A      $  619      $  818    $  1,033     $  1,652     $  619      $  818    $  1,033    $  1,652
------------------------------------------------------------------------------------------------------------
   Class B      $  676      $  845    $  1,139     $  2,041     $  176      $  545    $    939    $  2,041
------------------------------------------------------------------------------------------------------------
   Class C      $  274      $  539    $    928     $  2,019     $  174      $  539    $    928    $  2,019
------------------------------------------------------------------------------------------------------------
   Class D      $   75      $  233    $    406     $    906     $   75      $  233    $    406    $    906
------------------------------------------------------------------------------------------------------------



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


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


--------------------------------------------------------------------------------
ADDITIONAL INVESTMENT STRATEGY INFORMATION
[GRAPHIC OMITTED]

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

OPTIONS AND FUTURES. The Fund may purchase and sell stock index futures
contracts and may purchase put options on stock indexes and stock index futures.
Stock index futures and options on stock indexes and stock index futures may be
used to facilitate trading, to increase or decrease the Fund's market exposure,
to seek higher investment returns, or to seek to protect against a decline in
the value of the Fund's securities or an increase in prices of securities that
may be purchased.

OTHER INVESTMENTS. The Fund may invest up to 35% of its assets in convertible
securities, preferred securities and fixed-income securities, such as U.S.
government securities and investment grade corporate debt securities. The Fund's
fixed-income investments may include zero coupon securities which are purchased
at a discount and accrue interest, but make no interest payments until maturity.
Up to 5% of the Fund's assets may be invested in convertible securities rated
below investment grade.


                                                                               7


DEFENSIVE INVESTING. The Fund may take temporary "defensive" positions in
attempting to respond to adverse market conditions. The Fund may invest any
amount of its assets in cash or money market instruments in a defensive posture
when the Investment Adviser believes it is advisable to do so. Although taking a
defensive posture is designed to protect the Fund from an anticipated market
downturn, it could have the effect of reducing the benefit from any upswing in
the market. When the Fund takes a defensive position, it may not achieve its
investment objective.

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

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

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

--------------------------------------------------------------------------------
ADDITIONAL RISK INFORMATION
[GRAPHIC OMITTED]

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

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

CONVERTIBLE SECURITIES. The Fund also may invest a portion of its assets in
convertible securities, which are securities that generally pay interest and may
be converted into common stock. These securities may carry risks associated with
both common stock and fixed-income securities. To the extent that a convertible
security's investment value is greater than its conversion value, its price will
be likely to increase when interest rates fall and


8



decrease when interest rates rise, as with a fixed-income security. If the
conversion value exceeds the investment value, the price of the convertible
security will tend to fluctuate directly with the price of the underlying equity
security. A portion of the Fund's convertible investments may be rated below
investment grade. Securities rated below investment grade are commonly known as
"junk bonds" and have speculative credit risk characteristics.

OPTIONS AND FUTURES. If the Fund invests in stock index futures or options on
stock indexes or stock index futures, its participation in these markets would
subject the Fund to certain risks. If the Investment Adviser's predictions of
movements in the direction of the stock index are inaccurate, 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 stock index futures and options on stock indexes and stock index
futures include, for example, the possible imperfect correlation between the
price of futures contracts and movements in the prices of the securities, and
the possible absence of a liquid secondary market for any particular instrument.

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

--------------------------------------------------------------------------------
PORTFOLIO HOLDINGS
[GRAPHIC OMITTED]

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.


                                                                               9


(sidebar)
MORGAN STANLEY INVESTMENT ADVISORS INC.
The Investment Adviser is widely recognized as a leader in the mutual fund
industry and had approximately $105 billion in assets under management or
administration as of March 31, 2005.
(end sidebar)

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

FUND MANAGEMENT
[GRAPHIC OMITTED]


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

The Fund is managed within the Investment Adviser's U.S. Growth team. Current
members of the team include Michelle S. Kaufman, Dennis P. Lynch and David S.
Cohen, Managing Directors of the Investment Adviser and Sam G. Chainani, an
Executive Director of the Investment Adviser. Michelle S. Kaufman has worked for
the Investment Adviser since 1993 and began managing the Fund in 1999. Dennis P.
Lynch has worked for the Investment Adviser since 1998 and began managing the
Fund in 2004. David S. Cohen has worked for the Investment Adviser since 1993
and began managing the Fund in 2004. Sam G. Chainani has worked for the
Investment Adviser since 1996 and began managing the Fund in 2004. Michelle S.
Kaufman is the lead portfolio manager. Dennis P. Lynch, David S. Cohen and Sam
G. Chainani are co-portfolio managers. Members of the team collaborate to manage
the assets of the Fund.

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

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

Prior to November 1, 2004, the Fund had retained the Investment Adviser to
provide administrative services and to manage the investment of the Fund's
assets pursuant to an investment management agreement (the "Management
Agreement") pursuant to which the Fund paid the Investment Adviser a monthly
management fee as compensation for the services and facilities furnished to the
Fund, and for Fund expenses assumed by the Investment Adviser at the following
annual rate: 0.625% of the portion of daily net assets not exceeding $250
million; 0.50% of the portion of daily net assets exceeding $250 million but not
exceeding $2.5 billion; 0.475% of the portion of daily net assets exceeding $2.5
billion but not exceeding $3.5 billion; 0.45% of the portion of daily net assets
exceeding $3.5 billion but not exceeding $4.5 billion; and 0.425% of the portion
of daily net assets exceeding $4.5 billion. For the fiscal year ended December
31, 2004, the Fund paid total compensation to the Investment Adviser amounting
to 0.48% of the Fund's average daily net assets.


Effective November 1, 2004, the Board of Trustees approved an amended and
restated investment advisory agreement to remove the administrative services
component from the Management Agreement and to reduce the investment advisory
fee to the annual rate of 0.545% of the


10



portion of the daily net assets not exceeding $250 million; 0.42% of the
portion of the daily net assets exceeding $250 million but not exceeding $2.5
billion; 0.395% of the portion of the daily net assets exceeding $2.5 billion
but not exceeding $3.5 billion; 0.37% of the portion of the daily net assets
exceeding $3.5 billion but not exceeding $4.5 billion; and 0.345% of the
portion of the daily net assets exceeding $4.5 billion. The administrative
services previously provided to the Fund by the Investment Adviser are being
provided by Morgan Stanley Services Company Inc. ("Administrator") pursuant to
a separate administration agreement entered into by the Fund with the
Administrator. Such change resulted in a 0.08% reduction in the advisory fee
concurrent with the implementation of a 0.08% administration fee pursuant to
the new administration agreement.


                                                                              11


Shareholder Information


--------------------------------------------------------------------------------
PRICING FUND SHARES
[GRAPHIC OMITTED]

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

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


The value of the Fund's portfolio securities is based on the securities' market
price when available. When a market price is not readily available, including
circumstances under which the Investment Adviser determines that a security's
market price is not accurate, a portfolio security is valued at its fair value,
as determined under procedures established by the Fund's Board of Trustees. In
addition, with respect to securities that primarily are listed on foreign
exchanges, when an event occurs after the close of such exchanges that is likely
to have changed the value of the securities (for example, a percentage change in
value of one or more U.S. securities indices in excess of specified thresholds),
such securities will be valued at their fair value, as determined under
procedures established by the Fund's Board of Trustees. Securities also may be
fair valued in the event of a significant development affecting a country or
region or an issuer-specific development which is likely to have changed the
value of the security. In these cases, the Fund's net asset value will reflect
certain portfolio securities' fair value rather than their market price. Fair
value pricing involves subjective judgement 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.


12



(sidebar)
CONTACTING A FINANCIAL ADVISOR
If you are new to the Morgan Stanley Funds and would like to contact a Morgan
Stanley Financial Advisor, call toll-free 1-866-MORGAN8 for the telephone
number of the Morgan Stanley office nearest you. You may also access our office
locator on our Internet site at: www.morganstanley.com/funds
(end sidebar)


--------------------------------------------------------------------------------
HOW TO BUY SHARES
[GRAPHIC OMITTED]

You may open a new account to buy Fund shares or buy additional Fund shares for
an existing account by contacting your Morgan Stanley Financial Advisor or other
authorized financial representative. Your Financial Advisor will assist you,
step-by-step, with the procedures to invest in the Fund. The Fund's transfer
agent, 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.



                                                                              13


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



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

  Regular Account                                                                $   1,000     $    100
----------------------------------------------------------------------------------------------------------
  Individual Retirement Account                                                  $   1,000     $    100
----------------------------------------------------------------------------------------------------------
  Coverdell Education Savings Account                                            $     500     $    100
----------------------------------------------------------------------------------------------------------
  EasyInvest (R)
  (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 American
     Opportunities Fund.

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

--------------------------------------------------------------------------------
HOW TO EXCHANGE SHARES
[GRAPHIC OMITTED]


PERMISSIBLE FUND EXCHANGES. You may exchange shares of any Class of the Fund for
the same Class of any other continuously offered Multi-Class Fund, or for shares
of a No-Load Fund, a Money Market Fund or the Limited Duration U.S. Treasury
Trust, without the imposition of an exchange fee. 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


14




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


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

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

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

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

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

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

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


                                                                              15


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

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. Generally, all shareholders are limited to a maximum of eight
exchanges per calendar year. Exchange privileges will be suspended if more than
eight exchanges out of the Fund are made by a shareholder in a calendar year and
further exchange requests will not be processed during that year. This
limitation does not apply to the Investment Adviser's asset allocation program
or employer-sponsored retirement plans. The Fund reserves the right to reject an
exchange request for any reason.

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

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


16



--------------------------------------------------------------------------------
HOW TO SELL SHARES
[GRAPHIC OMITTED]

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



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

Contact Your       To sell your shares, simply call your Morgan Stanley Financial Advisor or other authorized
Financial Advisor  financial representative. Payment will be sent to the address to which the account is registered
                   or deposited in your brokerage account.
--------------------------------------------------------------------------------------------------------------------
By Letter          You can also sell your shares by writing a "letter of instruction" that includes:

                   o   your account number;

                   o   the name of the Fund;

                   o   the dollar amount or the number of shares you wish to sell;

                   o   the Class of shares you wish to sell; and

                   o   the signature of each owner as it appears on the account.

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

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

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

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


                                                                              17




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

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


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

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


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.


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

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

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

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

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


18



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

--------------------------------------------------------------------------------
DISTRIBUTIONS
[GRAPHIC OMITTED]

The Fund passes substantially all of its earnings from income and capital gains
along to its investors as "distributions." The Fund earns income from stocks and
interest from fixed-income investments. These amounts are passed along to Fund
shareholders as "income dividend distributions." The Fund realizes capital gains
whenever it sells securities for a higher price than it paid for them. These
amounts 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
semi-annually. Capital gains, if any, are usually distributed in June and
December. The Fund, however, may retain and reinvest any long-term capital
gains. The Fund may at times make payments from sources other than income or
capital gains that represent a return of a portion of your investment.

Distributions are reinvested automatically in additional shares of the same
Class and automatically credited to your account, unless you request in writing
that all distributions be paid in cash. If you elect the cash option, the Fund
will mail a check to you no later than seven business days after the
distribution is declared. However, if you purchase Fund shares through a Morgan
Stanley Financial Advisor or other authorized financial representative within
three business days prior to the record date for the distribution, the
distribution will automatically be paid to you in cash, even if you did not
request to receive all distributions in cash. No interest will accrue on
uncashed checks. If you wish to change how your distributions are paid, your
request should be received by the Transfer Agent at least five business days
prior to the record date of the distributions.

--------------------------------------------------------------------------------
FREQUENT PURCHASES AND REDEMPTIONS OF FUND SHARES
[GRAPHIC OMITTED]


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


                                                                              19


market timer would redeem the Fund's shares the next day when the Fund's share
price would reflect the increased prices in foreign markets, for a quick profit
at the expense of long-term fund shareholders.


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

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 omnibus accounts, the Fund's policies
regarding frequent trading of Fund shares are applied uniformly to all
shareholders. With respect to trades that occur through omnibus accounts at
intermediaries, such as investment advisers, broker-dealers, transfer agents and
third party administrators, the Fund (i) has requested assurance that such
intermediaries currently selling Fund shares have in place internal policies and
procedures reasonably designed to address market timing concerns and has
instructed such intermediaries to notify the Fund immediately if they are unable
to comply with such policies and procedures and (ii) requires all prospective
intermediaries to agree to cooperate in enforcing the Fund's policies with
respect to frequent purchases, redemptions and exchanges of Fund shares. Omnibus
accounts generally do not identify customers' trading activity to the Fund on an
individual basis. The ability of the Fund to monitor exchanges made by the
underlying shareholders in omnibus accounts, therefore, is severely limited.
Consequently, the Fund must rely on the financial intermediary to monitor
frequent short-term trading within the Fund by the financial intermediary's
customers. There can be no assurance that the Fund will be able to eliminate all
market-timing activities.


--------------------------------------------------------------------------------
TAX CONSEQUENCES
[GRAPHIC OMITTED]

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

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

o    The Fund makes distributions; and

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

20



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 a federal backup withholding tax on
taxable distributions and redemption proceeds (as of the date of this Prospectus
this rate is 28%). Any withheld amount would be sent to the IRS as an advance
payment of your taxes due on your income.

--------------------------------------------------------------------------------
SHARE CLASS ARRANGEMENTS
[GRAPHIC OMITTED]


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

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


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



                                                                              21


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




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

    A      Maximum 5.25% initial sales charge reduced for purchase of $25,000 or more; shares
           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 the first year                                                                 1.00%
----------------------------------------------------------------------------------------------------------------------------------
    D      None                                                                                             None
----------------------------------------------------------------------------------------------------------------------------------



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

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

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


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



22



(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)


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:



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

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


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

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

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

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


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


o    Tax-exempt organizations.

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

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

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


                                                                              23



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


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

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

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

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

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

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

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

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

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


24


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.

(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)

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.

--------------------------------------------------------------------------------
 YEAR SINCE PURCHASE PAYMENT MADE       CDSC AS A PERCENTAGE OF AMOUNT REDEEMED
--------------------------------------------------------------------------------
  First                                                     5.0%
--------------------------------------------------------------------------------
  Second                                                    4.0%
--------------------------------------------------------------------------------
  Third                                                     3.0%
--------------------------------------------------------------------------------
  Fourth                                                    2.0%
--------------------------------------------------------------------------------
  Fifth                                                     2.0%
--------------------------------------------------------------------------------
  Sixth                                                     1.0%
--------------------------------------------------------------------------------
  Seventh and thereafter                                    None
--------------------------------------------------------------------------------

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


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 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., a "living trust"); or (b) you and your spouse are the settlors
     and that is revocable by you or your spouse (i.e., a "joint living trust");
     or (iii) held in a qualified corporate or self-employed retirement plan,
     IRA or 403(b) Custodial Account; provided, in each case, that the sale is
     requested within one year after your death or initial determination of
     disability.



                                                                              25


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

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

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

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


DISTRIBUTION FEE. Class B shares are subject to an annual distribution and
shareholder services (12b-1) fee of up to 1.00% of the lesser of: (a) the
average daily aggregate gross purchases by all shareholders of the Fund's Class
B shares since the inception of the 12b-1 plan on April 30, 1984 (not including
reinvestment of dividends or capital gains distributions), less the average
daily aggregate net asset value of the Fund's Class B shares sold by all
shareholders since the inception of the 12b-1 plan upon which a CDSC has been
imposed or waived, or (b) the average daily net assets attributable to Class B
shares issued, net of related shares sold, since inception of the 12b-1 plan.
The maximum annual 12b-1 fee payable by Class B shares fee 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.



26



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 1.0% on sales made within one year after
the last day of the month of purchase. The CDSC will be assessed in the same
manner and with the same CDSC waivers as with Class B shares.

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 1.0% of the average daily net assets
of that Class. The maximum annual 12b-1 fee payable by Class C shares fee is
higher than the maximum annual 12b-1 fee payable by Class A shares. Unlike Class
B shares, Class C shares



                                                                              27



have no conversion feature and, accordingly, an investor that purchases Class C
shares may be subject to distribution and shareholder services (12b-1) fees
applicable to Class C shares for as long as the investor owns such shares.


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

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

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

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

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

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

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

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

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

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

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.


28



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


PLAN OF DISTRIBUTION (RULE 12b-1 FEES) The Fund has adopted a Plan of
Distribution in accordance with Rule 12b-1 under the Investment Company Act with
respect to the Class A, Class B and Class C shares. (Class D shares are offered
without any 12b-1 fee.) The Plan allows the Fund to pay distribution fees for
the sale and distribution of 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


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.


                                                                              29


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 DECEMBER 31,                      2004         2003         2002          2001           2000
---------------------------------------------------------------------------------------------------------------------

SELECTED PER SHARE DATA:
Net asset value, beginning of period                $22.55       $18.88       $24.36        $33.77         $43.35
                                                    ------       ------       ------        ------         ------
Income (loss) from investment operations:
  Net investment income++                             0.07         0.03         0.04          0.18           0.16
  Net realized and unrealized gain (loss)             1.80         3.64        (5.52)        (9.17)         (4.40)
                                                    ------       ------       ------        ------         ------
Total income (loss) from investment operations        1.87         3.67        (5.48)        (8.99)         (4.24)
                                                    ------       ------       ------        ------         ------
Less distributions from net realized gain               --           --           --         (0.42)         (5.34)
                                                    ------       ------       ------        ------         ------
Net asset value, end of period                      $24.42       $22.55       $18.88        $24.36         $33.77
---------------------------------------------------------------------------------------------------------------------
TOTAL RETURN+                                         8.29%       19.44%      (22.50)%      (26.72)%        (9.51)%
---------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS(1):
Expenses                                              0.97%        0.91%        0.89%         0.81%          0.80%
Net investment income                                 0.29%        0.14%        0.19%         0.68%          0.37%

SUPPLEMENTAL DATA:
Net assets, end of period, in thousands           $259,778     $289,619     $224,296      $298,624       $397,887
Portfolio turnover rate                                131%         264%         306%          380%           425%
---------------------------------------------------------------------------------------------------------------------




++   The per share amounts were computed using an average number of shares
     outstanding during the period.
+    Does not reflect the deduction of sales charge. Calculated based on the
     net asset value as of the last business day of the period.
(1)  Reflects overall Fund ratios for investment income and non-class specific
     expenses.


30



CLASS B SHARES



-----------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31,                     2004        2003        2002          2001           2000
-----------------------------------------------------------------------------------------------------------------

SELECTED PER SHARE DATA:
Net asset value, beginning of period               $21.47      $18.12      $23.56        $32.94         $42.63
                                                   ------      ------      ------        ------         ------
Income (loss) from investment operations:
  Net investment loss++                             (0.10)      (0.13)      (0.12)        (0.03)         (0.05)
  Net realized and unrealized gain (loss)            1.70        3.48       (5.32)        (8.93)         (4.30)
                                                   ------      ------      ------        ------         ------
Total income (loss) from investment operations       1.60        3.35       (5.44)        (8.96)         (4.35)
                                                   ------      ------      ------        ------         ------
Less distributions from net realized gain              --          --          --         (0.42)         (5.34)
                                                   ------      ------      ------        ------         ------
Net asset value, end of period                     $23.07      $21.47      $18.12        $23.56         $32.94
-----------------------------------------------------------------------------------------------------------------
TOTAL RETURN+                                        7.45%      18.49%     (23.09)%      (27.30)%        (9.93)%
-----------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS(1):
Expenses                                             1.73%       1.71%       1.67%         1.61%          1.28%
Net investment loss                                 (0.47)%     (0.66)%     (0.59)%       (0.12)%        (0.11)%

SUPPLEMENTAL DATA:
Net assets, end of period, in millions             $2,968      $3,952      $3,886        $6,192        $10,151
Portfolio turnover rate                               131%        264%        306%          380%           425%
-----------------------------------------------------------------------------------------------------------------




++   The per share amounts were computed using an average number of shares
     outstanding during the period.
+    Does not reflect the deduction of sales charge. Calculated based on the
     net asset value as of the last business day of the period.
(1)  Reflects overall Fund ratios for investment income and non-class specific
     expenses.


                                                                              31


Financial Highlights (Continued)

CLASS C SHARES




----------------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31,                      2004          2003         2002          2001          2000
----------------------------------------------------------------------------------------------------------------------

SELECTED PER SHARE DATA:
Net asset value, beginning of period                $21.25        $17.93       $23.31        $32.58        $42.35
                                                    ------        ------       ------        ------        ------
Income (loss) from investment operations:
  Net investment loss++                              (0.10)        (0.13)       (0.11)        (0.03)        (0.15)
  Net realized and unrealized gain (loss)             1.69          3.45        (5.27)        (8.82)        (4.28)
                                                    ------        ------       ------        ------        ------
Total income (loss) from investment operations        1.59          3.32        (5.38)        (8.85)        (4.43)
                                                    ------        ------       ------        ------        ------
Less distributions from net realized gain               --            --           --         (0.42)        (5.34)
                                                    ------        ------       ------        ------        ------
Net asset value, end of period                      $22.84        $21.25       $17.93        $23.31        $32.58
----------------------------------------------------------------------------------------------------------------------
TOTAL RETURN+                                         7.48%        18.52%      (23.08)%      (27.29)%      (10.17)%
----------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS(1):
Expenses                                              1.71%         1.71%        1.59%         1.61%         1.55%
Net investment loss                                  (0.45)%       (0.66)%      (0.51)%       (0.12)%       (0.38)%

SUPPLEMENTAL DATA:
Net assets, end of period, in thousands           $154,078      $197,578     $154,426      $227,574      $348,180
Portfolio turnover rate                                131%          264%         306%          380%          425%
----------------------------------------------------------------------------------------------------------------------




++   The per share amounts were computed using an average number of shares
     outstanding during the period.
+    Does not reflect the deduction of sales charge. Calculated based on the
     net asset value as of the last business day of the period.
(1)  Reflects overall Fund ratios for investment income and non-class specific
     expenses.


32


CLASS D SHARES




--------------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31,                      2004         2003         2002          2001           2000
--------------------------------------------------------------------------------------------------------------------

SELECTED PER SHARE DATA:
Net asset value, beginning of period                $22.95       $19.18       $24.69        $34.15         $43.66
                                                    ------       ------       ------        ------         ------
Income (loss) from investment operations:
  Net investment income++                             0.13         0.07         0.09          0.23           0.28
  Net realized and unrealized gain (loss)             1.83         3.70        (5.60)        (9.27)         (4.45)
                                                    ------       ------       ------        ------         ------
Total income (loss) from investment operations        1.96         3.77        (5.51)        (9.04)         (4.17)
                                                    ------       ------       ------        ------         ------
Less distributions from net realized gain               --           --           --         (0.42)         (5.34)
                                                    ------       ------       ------        ------         ------
Net asset value, end of period                      $24.91       $22.95       $19.18        $24.69         $34.15
--------------------------------------------------------------------------------------------------------------------
TOTAL RETURN+                                         8.54%       19.66%      (22.32)%      (26.56)%        (9.28)%
--------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS(1):
Expenses                                              0.73%        0.71%        0.67%         0.61%          0.55%
Net investment income                                 0.53%        0.34%        0.41%         0.88%          0.62%

SUPPLEMENTAL DATA:
Net assets, end of period, in thousands           $626,205     $720,903     $458,680      $431,754       $569,203
Portfolio turnover rate                                131%         264%         306%          380%           425%
--------------------------------------------------------------------------------------------------------------------




++   The per share amounts were computed using an average number of shares
     outstanding during the period.
+    Calculated based on the net asset value as of the last business day of
     the period.
(1)  Reflects overall Fund ratios for investment income and non-class specific
     expenses.


                                                                              33


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34





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Notes (Continued)



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36


Morgan Stanley Funds





EQUITY                                                                             FIXED INCOME
-------------------------------------    -------------------------------------     -------------------------------------
BLEND/CORE                               INDEX                                     TAXABLE SHORT TERM

Total Return Trust                       Equally-Weighted S&P 500 Fund             Limited Duration Fund*+
Fund of Funds - Domestic Portfolio       KLD Social Index Fund                     Limited Duration U.S. Treasury Trust*
                                         Nasdaq-100 Index Fund
-------------------------------------    S&P 500 Index Fund                        -------------------------------------
DOMESTIC HYBRID                          Total Market Index Fund                   TAXABLE INTERMEDIATE TERM

Allocator Fund                           -------------------------------------     Federal Securities Trust
Balanced Growth Fund                     SPECIALTY                                 Flexible Income Trust
Balanced Income Fund                                                               High Yield Securities
Income Builder Fund                      Biotechnology Fund                        Income Trust
Strategist Fund                          Convertible Securities Trust              U.S. Government Securities Trust
                                         Financial Services Trust
-------------------------------------    Global Utilities Fund                     -------------------------------------
GLOBAL/INTERNATIONAL                     Health Sciences Trust                     TAX-FREE
                                         Information Fund
European Equity Fund                     Natural Resource Development Securities   California Tax-Free Income Fund
Global Advantage Fund                    Real Estate Fund                          Limited Term Municipal Trust*+
Global Dividend Growth Securities        Utilities Fund                            New York Tax-Free Income Fund
International Fund                                                                 Tax-Exempt Securities Trust
International SmallCap Fund              -------------------------------------
International Value Equity Fund          VALUE                                     MONEY MARKET*
Japan Fund                                                                         -------------------------------------
Pacific Growth Fund                      Dividend Growth Securities                TAXABLE
                                         Fundamental Value Fund
-------------------------------------    Mid-Cap Value Fund                        Liquid Asset Fund
GROWTH                                   Small-Mid Special Value Fund              U.S. Government Money Market
                                         Special Value Fund
Aggressive Equity Fund                   Value Fund                                -------------------------------------
American Opportunities Fund                                                        TAX-FREE
Capital Opportunities Trust
Developing Growth Securities Trust                                                 California Tax-Free Daily Income Trust
Growth Fund                                                                        New York Municipal Money Market Trust
Special Growth Fund                                                                Tax-Free Daily Income Trust



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

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

*    Single-Class Fund(s)

+    No-Load (Mutual) Fund



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


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



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


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

TICKER SYMBOLS:

CLASS A:     AMOAX    CLASS B:    AMOBX
------------------    -----------------
CLASS C:     AMOCX    CLASS D:    AMODX
------------------    -----------------

(THE FUND'S INVESTMENT COMPANY ACT FILE NO. IS 811-2978)

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

(Copyright)  2005 Morgan Stanley

[MORGAN STANLEY LOGO]

CLF# 37920PRO-00

                                                     [MORGAN STANLEY FUNDS LOGO]

                                                                  Morgan Stanley
                                                                        American
                                                              Opportunities Fund

                                                                     37920 04/05
                                                                      Prospectus
                                                                  April 29, 2005
[MORGAN STANLEY LOGO]

STATEMENT OF ADDITIONAL INFORMATION                       Morgan Stanley
                                                          American Opportunities
                                                          Fund


April 29, 2005

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


     This Statement of Additional Information is not a prospectus. The
Prospectus (dated April 29, 2005) for Morgan Stanley American Opportunities Fund
may be obtained without charge from the Fund at its address or telephone number
listed below or from Morgan Stanley DW Inc. at any of its branch offices.




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




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





I.    Fund History .........................................................   4
II.   Description of the Fund and Its Investments and Risks ................   4
          A. Classification ................................................   4
          B. Investment Strategies and Risks ...............................   4
          C. Fund Policies/Investment Restrictions .........................  14
          D. Disclosure of Portfolio Holdings ..............................  16
III.  Management of the Fund ...............................................  20
          A. Board of Trustees .............................................  20
          B. Management Information ........................................  20
          C. Compensation ..................................................  26
IV.   Control Persons and Principal Holders of Securities ..................  29
V.    Investment Advisory and Other Services ...............................  29
          A. Investment Adviser and Administrator ..........................  29
          B. Principal Underwriter .........................................  30
          C. Services Provided by the Investment Adviser and the
               Administrator ...............................................  30
          D. Dealer Reallowances ...........................................  31
          E. Rule 12b-1 Plan ...............................................  32
          F. Other Service Providers .......................................  35
          G. Fund Management ...............................................  36
          H. Codes of Ethics ...............................................  37
          I. Proxy Voting Policy and Proxy Voting Record ...................  38
          J. Revenue Sharing ...............................................  39
VI.   Brokerage Allocation and Other Practices .............................  40
          A. Brokerage Transactions ........................................  40
          B. Commissions ...................................................  40
          C. Brokerage Selection ...........................................  41
          D. Directed Brokerage ............................................  42
          E. Regular Broker-Dealers ........................................  42
VII.  Capital Stock and Other Securities ...................................  42
VIII. Purchase, Redemption and Pricing of Shares ...........................  43
          A. Purchase/Redemption of Shares .................................  43
          B. Offering Price ................................................  43
IX.   Taxation of the Fund and Shareholders ................................  44
X.    Underwriters .........................................................  47
XI.   Performance Data .....................................................  47
XII.  Financial Statements .................................................  48
XIII. Fund Counsel .........................................................  48




                                       2



                      GLOSSARY OF SELECTED DEFINED TERMS

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

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

     "Custodian" - The Bank of New York.

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

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

     "Fund" - Morgan Stanley American Opportunities 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.



                                       3



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

     The Fund was incorporated in the State of Maryland on December 13, 1979
under the name InterCapital Industry-Valued Securities Inc. Effective March 21,
1983, the Fund's name was changed to Dean Witter Industry-Valued Securities Inc.
On April 6, 1987, the Fund was reorganized as a Massachusetts business trust,
under a Declaration of Trust, with the name Dean Witter American Value Fund.
Effective June 22, 1998, the Fund's name was changed to Morgan Stanley Dean
Witter American Value Fund. Effective April 26, 1999, the Fund's name was
changed to Morgan Stanley Dean Witter American Opportunities Fund. Effective
June 18, 2001, the Fund's name was changed to Morgan Stanley American
Opportunities 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 long-term capital growth consistent with an effort to
reduce volatility.

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."

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

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

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

     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)


                                       4


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.

     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.


                                       5



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 Depository 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.

     OPTION AND FUTURES TRANSACTIONS. The Fund may engage in transactions in
listed and OTC options. Listed options are issued or guaranteed by the exchange
on which they are traded or by a clearing corporation such as the Options
Clearing Corporation ("OCC"). Ownership of a listed call option gives the Fund
the right to buy from the OCC (in the United States) or other clearing
corporation or exchange, the underlying security or currency covered by the
option at the stated exercise price (the price per unit of the underlying
security) by filing an exercise notice prior to the expiration date of the
option. The writer (seller) of the option would then have the obligation to sell
to the OCC (in the United States) or other clearing corporation or exchange, the
underlying security or currency at that exercise price prior to the expiration
date of the option, regardless of its then current market price. Ownership of a
listed put option would give the Fund the right to sell the underlying security
or currency to the OCC (in the United States) or other clearing corporation or
exchange, at the stated exercise price. Upon notice of exercise of the put
option, the writer of the put would have the obligation to purchase the
underlying security or currency from the OCC (in the United States) or other
clearing corporation or exchange, at the exercise price.


     Covered Call Writing. The Fund is permitted to write covered call options
on portfolio securities and on the U.S. dollar and foreign currencies in which
they are denominated, without limit. The Fund will receive from the purchaser,
in return for a call it has written, a "premium;" i.e., the price of the option.
Receipt of these premiums may better enable the Fund to earn a higher level of
current income than it would earn from holding the underlying securities (or
currencies) alone. Moreover, the premium received will offset a portion of the
potential loss incurred by the Fund if the securities (or currencies) underlying
the option decline in value.


     The Fund may be required, at any time during the option period, to deliver
the underlying security (or currency) against payment of the exercise price on
any calls it has written. This obligation is terminated upon the expiration of
the option period or at such earlier time as the writer effects a closing
purchase transaction. A closing purchase transaction is accomplished by
purchasing an option of the same series as the option previously written.
However, once the Fund has been assigned an exercise notice, the Fund will be
unable to effect a closing purchase transaction.

     A call option is "covered" if the Fund owns the underlying security subject
to the option or has an absolute and immediate right to acquire that security
without additional cash consideration (or for additional consideration (in cash,
Treasury bills or other liquid portfolio securities) held in a segregated
account on the Fund's books) upon conversion or exchange of other securities
held in its portfolio. A call option is also covered if the Fund holds a call on
the same security as the call written where the exercise price of the call held
is (i) equal to or less than the exercise price of the call written or (ii)
greater than the exercise price of the call written if the difference is
maintained by the Fund in cash, Treasury bills or other liquid portfolio
securities in a segregated account on the Fund's books.


                                       6


     Options written by the Fund normally have expiration dates of from up to 18
months from the date written. The exercise price of a call option may be below,
equal to or above the current market value of the underlying security at the
time the option is written.

     Covered Put Writing. A writer of a covered put option incurs an obligation
to buy the security underlying the option from the purchaser of the put, at the
option's exercise price at any time during the option period, at the purchaser's
election. Through the writing of a put option, the Fund would receive income
from the premium paid by purchasers. The potential gain on a covered put option
is limited to the premium received on the option (less the commissions paid on
the transaction). During the option period, the Fund may be required, at any
time, to make payment of the exercise price against delivery of the underlying
security (or currency). A put option is "covered" if the Fund maintains cash,
Treasury bills or other liquid portfolio securities with a value equal to the
exercise price in a segregated account on the Fund's books, or holds a put on
the same security as the put written where the exercise price of the put held is
equal to or greater than the exercise price of the put written. The aggregate
value of the obligations underlying puts may not exceed 50% of the Fund's
assets. The operation of and limitations on covered put options in other
respects are substantially identical to those of call options.

     Purchasing Call and Put Options. The Fund may purchase listed and OTC call
and put options in amounts equaling up to 5% of its total assets. The purchase
of a call option would enable the Fund, in return for the premium paid to lock
in a purchase price for a security or currency during the term of the option.
The purchase of a put option would enable the Fund, in return for a premium
paid, to lock in a price at which it may sell a security or currency during the
term of the option.

     Options on Foreign Currencies. The Fund may purchase and write options on
foreign currencies for purposes similar to those involved with investing in
forward foreign currency exchange contracts.

     OTC Options. OTC options are purchased from or sold (written) to dealers or
financial institutions which have entered into direct agreements with the Fund.
With OTC options, such variables as expiration date, exercise price and premium
will be agreed upon between the Fund and the transacting dealer, without the
intermediation of a third party such as the OCC. The Fund will engage in OTC
option transactions only with member banks of the Federal Reserve Bank System or
primary dealers in U.S. government securities or with affiliates of such banks
or dealers.

     Risks of Options Transactions. The successful use of options depends on the
ability of the Investment Adviser to forecast correctly interest rates, currency
exchange rates and/or market movements. If the market value of the portfolio
securities (or the currencies in which they are denominated) upon which call
options have been written increases, the Fund may receive a lower total return
from the portion of its portfolio upon which calls have been written than it
would have had such calls not been written. During the option period, the
covered call writer has, in return for the premium on the option, given up the
opportunity for capital appreciation above the exercise price should the market
price of the underlying security (or the value of its denominated currency)
increase, but has retained the risk of loss should the price of the underlying
security (or the value of its denominated currency) decline. The covered put
writer also retains the risk of loss should the market value of the underlying
security decline below the exercise price of the option less the premium
received on the sale of the option. In both cases, the writer has no control
over the time when it may be required to fulfill its obligation as a writer of
the option. Prior to exercise or expiration, an option position can only be
terminated by entering into a closing purchase or sale transaction. Once an
option writer has received an exercise notice, it cannot effect a closing
purchase transaction in order to terminate its obligation under the option and
must deliver or receive the underlying securities at the exercise price.

     The Fund's ability to close out its position as a writer of an option is
dependent upon the existence of a liquid secondary market on option exchanges.
There is no assurance that such a market will exist, particularly in the case of
OTC options.

     In the event of the bankruptcy of a broker through which the Fund engages
in transactions in options, 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. In the case of OTC
options, if the transacting dealer fails to make or take delivery of the
securities underlying an option


                                       7


it has written, in accordance with the terms of that option, due to insolvency
or otherwise, the Fund would lose the premium paid for the option as well as
any anticipated benefit of the transaction.

     Each of the exchanges has established limitations governing the maximum
number of call or put options on the same underlying security which may be
written by a single investor, whether acting alone or in concert with others
(regardless of whether such options are written on the same or different
exchanges or are held or written on one or more accounts or through one or more
brokers). An exchange may order the liquidation of positions found to be in
violation of these limits and it may impose other sanctions or restrictions.
These position limits may restrict the number of listed options which the Fund
may write.

     The hours of trading for options may not conform to the hours during which
the underlying securities are traded. To the extent that the option markets
close before the markets for the underlying securities, significant price and
rate movements can take place in the underlying markets that cannot be reflected
in the option markets.

     The markets in foreign currency options are relatively new and the Fund's
ability to establish and close out positions on such options is subject to the
maintenance of a liquid secondary market. There can be no assurance that a
liquid secondary market will exist for a particular option at any specific time.

     The value of a foreign currency option depends upon the value of the
underlying currency relative to the U.S. dollar. As a result, the price of the
option position may vary with changes in the value of either or both currencies
and have no relationship to the investment merits of a foreign security. Because
foreign currency transactions occurring in the interbank market involve
substantially larger amounts than those that may be involved in the use of
foreign currency options, investors may be disadvantaged by having to deal in an
odd lot market (generally consisting of transactions of less than $1 million)
for the underlying foreign currencies at prices that are less favorable than for
round lots.

     There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available through
dealers or other market sources be firm or revised on a timely basis. Quotation
information available is generally representative of very large transactions in
the interbank market and thus may not reflect relatively smaller transactions
(i.e., less than $1 million) where rates may be less favorable. The interbank
market in foreign currencies is a global, around-the-clock market. To the extent
that the U.S. options markets are closed while the markets for the underlying
currencies remain open, significant price and rate movements may take place in
the underlying markets that are not reflected in the options market.

     Stock Index Options. The Fund may invest in options on broadly based
indexes. Options on stock indexes are similar to options on stocks except that,
rather than the right to take or make delivery of stock at a specified price, an
option on a stock index gives the holder the right to receive, upon exercise of
the option, an amount of cash if the closing level of the stock index upon which
the option is based is greater than, in the case of a call, or less than, in the
case of a put, the exercise price of the option. This amount of cash is equal to
such difference between the closing price of the index and the exercise price of
the option expressed in dollars times a specified multiple. The writer of the
option is obligated, in return for the premium received, to make delivery of
this amount.

     Risks of Options on Indexes. Because exercises of stock index options are
settled in cash, the Fund could not, if it wrote a call option, provide in
advance for its potential settlement obligations by acquiring and holding the
underlying securities. A call writer can offset some of the risk of its writing
position by holding a diversified portfolio of stocks similar to those on which
the underlying index is based. However, most investors cannot, as a practical
matter, acquire and hold a portfolio containing exactly the same stocks as the
underlying index, and, as a result, bear a risk that the value of the securities
held will vary from the value of the index. Even if an index call writer could
assemble a stock portfolio that exactly reproduced the composition of the
underlying index, the writer still would not be fully covered from a risk
standpoint because of the "timing risk" inherent in writing index options.

     When an index option is exercised, the amount of cash that the holder is
entitled to receive is determined by the difference between the exercise price
and the closing index level on the date when the option is exercised. As with
other kinds of options, the writer will not learn that it had been assigned


                                       8


until the next business day, at the earliest. The time lag between exercise and
notice of assignment poses no risk for the writer of a covered call on a
specific underlying security, such as a common stock, because there the
writer's obligation is to deliver the underlying security, not to pay its value
as of a fixed time in the past. So long as the writer already owns the
underlying security, it can satisfy its settlement obligations by simply
delivering it, and the risk that its value may have declined since the exercise
date is borne by the exercising holder. In contrast, even if the writer of an
index call holds stocks that exactly match the composition of the underlying
index, it will not be able to satisfy its assignment obligations by delivering
those stocks against payment of the exercise price. Instead, it will be
required to pay cash in an amount based on the closing index value on the
exercise date; and by the time it learns that it has been assigned, the index
may have declined, with a corresponding decrease in the value of its stock
portfolio. This "timing risk" is an inherent limitation on the ability of index
call writers to cover their risk exposure by holding stock positions.

     A holder of an index option who exercises it before the closing index value
for that day is available runs the risk that the level of the underlying index
may subsequently change. If a change causes the exercised option to fall
out-of-the-money, the exercising holder will be required to pay the difference
between the closing index value and the exercise price of the option (times the
applicable multiplier) to the assigned writer.

     If dissemination of the current level of an underlying index is
interrupted, or if trading is interrupted in stocks accounting for a substantial
portion of the value of an index, the trading of options on that index will
ordinarily be halted. If the trading of options on an underlying index is
halted, an exchange may impose restrictions prohibiting the exercise of such
options.

     Futures Contracts. The Fund may purchase and sell interest rate, currency
and index futures contracts that are traded on U.S. and foreign commodity
exchanges on such underlying securities as U.S. Treasury bonds, notes, bills and
GNMA Certificates and/or any foreign government fixed-income security, on
various currencies and on such indexes of U.S. and foreign securities as may
exist or come into existence.

     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. The purchase of a futures
contract enables the Fund, during the term of the contract, to lock in a price
at which it may purchase a security or currency and protect against a rise in
prices pending purchase of portfolio securities. The sale of a futures contract
enables the Fund to lock in a price at which it may sell a security or currency
and protect against declines in the value of portfolio securities.

     Although most futures contracts call for actual delivery or acceptance of
securities, the contracts usually are closed out before the settlement date
without the making or taking of delivery. 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 (currency) 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 (currency) 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.


                                       9


     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.

     Options on Futures Contracts. The Fund may purchase and write call and put
options on futures contracts and enter into closing transactions with respect to
such options to terminate an existing position. An option on a futures contract
gives the purchaser the right (in return for the premium paid), and the writer
the obligation, to assume a position in a futures contract (a long position if
the option is a call and a short position if the option is a put) at a specified
exercise price at any time during the term of the option. Upon exercise of the
option, the delivery of the futures position by the writer of the option to the
holder of the option is accompanied by delivery of the accumulated balance in
the writer's futures margin account, which represents the amount by which the
market price of the futures contract at the time of exercise exceeds (in the
case of a call) or is less than (in the case of a put) the exercise price of the
option on the futures contract.

     The writer of an option on a futures contract is required to deposit
initial and variation margin pursuant to requirements similar to those
applicable to futures contracts. Premiums received from the writing of an option
on a futures contract are included in initial margin deposits.

     Limitations on Futures Contracts and Options on Futures. 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 and Related Options. The prices
of securities and 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 (and the currencies in which they are
denominated). Also, prices of futures contracts may not move in tandem with the
changes in prevailing interest rates, market movements and/or currency exchange
rates against which the Fund seeks a hedge. 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 of interest rate, currency
exchange rate and/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 and related options 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 contracts might cause the Fund to make or take delivery
of the underlying securities (currencies) at a time when it may be
disadvantageous to do so.


                                       10


     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.

     Futures contracts and options thereon which are purchased or sold on
foreign commodities exchanges may have greater price volatility than their U.S.
counterparts. Furthermore, foreign commodities exchanges may be less regulated
and under less governmental scrutiny than U.S. exchanges. Brokerage commissions,
clearing costs and other transaction costs may be higher on foreign exchanges.
Greater margin requirements may limit the Fund's ability to enter into certain
commodity transactions on foreign exchanges. Moreover, differences in clearance
and delivery requirements on foreign exchanges may occasion delays in the
settlement of the Fund's transactions effected on foreign exchanges.

     In the event of the bankruptcy of a broker through which the Fund engages
in transactions in futures or options thereon, 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 or has sold a
call option on 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 or the exercise price of the option.
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), or by holding a call
option permitting the Fund to purchase the same contract at a price no higher
than the price at which the short position was established.

     In addition, if the Fund holds a long position in a futures contract or has
sold a put option on a futures contract, it will hold cash, U.S. government
securities or other liquid portfolio securities equal to the purchase price of
the contract or the exercise price of the put option (less the amount of initial
or variation margin on deposit) in a segregated account maintained on the books
of the Fund. Alternatively, the Fund could cover its long position by purchasing
a put option on the same futures contract with an exercise price as high or
higher than the price of the contract held by the Fund.

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

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

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

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

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

                                       11


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


     Commercial Paper. Commercial paper rated within the two highest grades by
Standard & Poor's Ratings Group, a division of The McGraw Hill Companies, Inc.
("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 AA by S&P or
Aa by Moody's; and


     Repurchase Agreements. The Fund may invest in repurchase agreements. When
cash may be available for only a few days, it may be invested by the Fund in
repurchase agreements until such time as it may otherwise be invested or used
for payments of obligations of the Fund. These agreements, which may be viewed
as a type of secured lending by the Fund, typically involve the acquisition by
the Fund of debt securities from a selling financial institution such as a bank,
savings and loan association or broker-dealer. The agreement provides that the
Fund will sell back to the institution, and that the institution will
repurchase, the underlying security serving as collateral at a specified price
and at a fixed time in the future, usually not more than seven days from the
date of purchase. The collateral will be marked-to-market daily to determine
that the value of the collateral, as specified in the agreement, does not
decrease below the purchase price plus accrued interest. If such decrease
occurs, additional collateral will be requested and, when received, added to the
account to maintain full collateralization. The Fund will accrue interest from
the institution until the time when the repurchase is to occur. Although this
date is deemed by the Fund to be the maturity date of a repurchase agreement,
the maturities of securities subject to repurchase agreements are not subject to
any limits.

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

     ZERO COUPON SECURITIES. A portion of the fixed-income securities purchased
by the Fund may be "zero coupon" securities. These are debt securities which
have been stripped of their unmatured interest coupons and receipts or which are
certificates representing interests in such stripped debt obligations and
coupons. Such securities are purchased at a discount from their face amount,
giving the purchaser the right to receive their full value at maturity. A zero
coupon security pays no interest to its holder during its life. Its value to an
investor consists of the difference between its face value at the time of
maturity and the price for which it was acquired, which is generally an amount
significantly less than its face value (sometimes referred to as a "deep
discount" price).

     The interest earned on such securities is, implicitly, automatically
compounded and paid out at maturity. While such compounding at a constant rate
eliminates the risk of receiving lower yields upon reinvestment of interest if
prevailing interest rates decline, the owner of a zero coupon security will be
unable to participate in higher yields upon reinvestment of interest received if
prevailing interest rates rise. For this reason, zero coupon securities are
subject to substantially greater market price fluctuations during periods of
changing prevailing interest rates than are comparable debt securities which
make current distributions of interest. Current federal tax law requires that a
holder (such as the Fund) of a zero coupon security accrue a portion of the
discount at which the security was purchased as income each year even though the
Fund receives no interest payments in cash on the security during the year.


                                       12



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


     A shareholder in the Fund, by investing in REITs indirectly through the
Fund, will bear not only his proportionate share of the expenses of the Fund,
but also, indirectly, the management expenses of the underlying REITs. REITs may
be affected by changes in the value of their underlying properties and by
defaults by borrowers or tenants. Mortgage REITs may be affected by the quality
of the credit extended. Furthermore, REITs are dependent on specialized
management skills. Some REITs may have limited diversification and may be
subject to risks inherent in investments in a limited number of properties, in a
narrow geographic area, or in a single property type. REITs depend generally on
their ability to generate cash flow to make distributions to shareholders or
unitholders, and may be subject to defaults by borrowers and to
self-liquidations. In addition, the performance of a REIT may be affected by its
failure to qualify for tax-free pass-through of income, or its failure to
maintain exemption from registration under the Investment Company Act.

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

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

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

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

     At the time the Fund makes the commitment to purchase or sell securities on
a when-issued, delayed delivery or forward commitment basis, it will record the
transaction and thereafter reflect the


                                       13


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

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

     The value of the Fund's commitments to purchase the securities of any one
issuer, together with the value of all securities of such issuer owned by the
Fund, may not exceed 5% of the value of the Fund's total assets at the time the
initial commitment to purchase such securities is made. An increase in the
percentage of the Fund's total assets committed to the purchase of securities on
a "when, as and if issued" basis may increase the volatility of its net asset
value. The Fund may also sell securities on a "when, as and if issued" basis
provided that the issuance of the security will result automatically from the
exchange or conversion of a security owned by the Fund at the time of sale.

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

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

     WARRANTS AND SUBSCRIPTION RIGHTS. The Fund may acquire warrants and
subscription rights attached to other securities. A warrant is, in effect, an
option to purchase equity securities at a specific price, generally valid for a
specific period of time, and has no voting rights, pays no dividends and has no
rights with respect to the corporation issuing it.

     A subscription right is a privilege granted to existing shareholders of a
corporation to subscribe to shares of a new issue of common stock before it is
offered to the public. A subscription right normally has a life of two to four
weeks and a subscription price lower than the current market value of the common
stock.

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


                                       14


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

     The Fund will:

      1. Seek long-term capital growth consistent with an effort to reduce
         volatility.

     The Fund may not:

      1. 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).

      2. Purchase more than 10% of all outstanding voting securities or any
         class of securities of any one issuer.

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

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

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

      6. Invest in securities of any issuer if, to the knowledge of the Fund,
         any officer or trustee of the Fund or of the Investment Adviser owns
         more than 1/2 of 1% of the outstanding securities of the issuer, and
         the officers and trustees who own more than 1/2 of 1% own in the
         aggregate more than 5% of the outstanding securities of the issuer.

      7. 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.

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

      9. Purchase or sell commodities, except that the Fund may purchase or sell
         (write) futures contracts and related options thereon.

     10. 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).

     11. Pledge its assets or assign or otherwise encumber them except to secure
         permitted borrowings. For the purpose of this restriction, collateral
         arrangements with respect to the writing of options and collateral
         arrangements with respect to initial or variation margin for futures
         are not deemed to be pledges of assets.

     12. Issue senior securities as defined in the Investment Company Act,
         except insofar as the Fund may be deemed to have issued a senior
         security by reason of: (a) entering into any repurchase agreement; (b)
         borrowing money in accordance with restrictions described above; or (c)
         lending portfolio securities.


                                       15


     13. Make loans of money or securities, except: (a) by the purchase of debt
         obligations in which the Fund may invest consistent with its investment
         objective and policies; (b) by investment in repurchase agreements; or
         (c) by lending its portfolio securities.

     14. Make short sales of securities.

     15. Purchase securities on margin, except for 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.

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

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

     Notwithstanding any other investment policy or restriction, the Fund may
seek to achieve its investment objective by investing all or substantially all
of its assets in another investment company having substantially the same
investment objective and policies as the Fund.


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; and

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

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

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

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

     The Investment Adviser may provide interest lists to broker-dealers who
execute securities transactions for the Fund without entering into a
nondisclosure agreement with the broker-dealers,



                                       16



provided that the interest list satisfies all of the following criteria: (1) the
interest list must contain only the cusip numbers and/or ticker symbols of
securities held in all registered management investment companies advised by the
Investment Adviser or any affiliate of the Investment Adviser (the "MSIM Funds")
on an aggregate, rather than a fund-by-fund basis; (2) the interest list must
not contain information about the number or value of shares owned by a specified
MSIM Fund; (3) the interest list may identify the investment strategy, but not
the particular MSIM Funds, to which the list relates; and (4) the interest list
may not identify the portfolio manager or team members responsible for managing
the MSIM Funds.

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

     The Fund may discuss or otherwise disclose performance attribution
nalyses (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          Monthly basis        Approximately 15 days after quarter end and
                                    portfolio holdings                                 approximately 15 days after month end
Morningstar(**)                     Top Ten and Complete          Quarterly basis      Approximately 15 days after quarter end and
                                    portfolio holdings                                 approximately 30 days after quarter end
Standard & Poor's(*)                Complete portfolio holdings   Quarterly basis      Approximately 15 day lag
Investment Company Institute (**)   Top Ten portfolio holdings    Quarterly            Approximately 15 days after quarter end.
Consultants and Analysts
Americh Massena &                   Top Ten and Complete          Quarterly basis(5)   Approximately 10-12 days after
 Associates, Inc.(*)                portfolio holdings                                 quarter end



                                       17







Name                                       Information Disclosed            Frequency(1)                     Lag Time
------------------------------------ -------------------------------- ------------------------ -----------------------------------

Bloomberg(*)                         Complete portfolio holdings      Quarterly basis(5)       Approximately 30 days after
                                                                                               quarter end
Callan Associates(*)                 Top Ten and Complete             Monthly and quarterly    Approximately 10-12 days after
                                     portfolio holdings               basis, respectively(5)   month/quarter end
Cambridge Associates(*)              Top Ten and Complete             Quarterly basis(5)       Approximately 10-12 days after
                                     portfolio holdings                                        quarter end
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
                                     portfolio holdings                                        quarter end and approximately
                                                                                               30 days after quarter end,
                                                                                               respectively
Evaluation Associates(*)             Top Ten and complete             Monthly and quarterly    Approximately 10-12 days after
                                     portfolio holdings               basis, respectively(5)   month/quarter end
Fund Evaluation Group(**)            Top Ten portfolio holdings(3)    Quarterly basis          At least 15 days after quarter
                                                                                               end
Jeffrey Slocum &                     Complete portfolio holdings(4)   Quarterly basis(5)       Approximately 10-12 days after
 Associates(*)                                                                                 quarter end
Hammond Associates(**)               Complete portfolio holdings(4)   Quarterly basis          At least 30 days after quarter
                                                                                               end
Hartland & Co.(**)                   Complete portfolio holdings(4)   Quarterly basis          At least 30 days after quarter
                                                                                               end
Hewitt Associates(*)                 Top Ten and Complete             Monthly and quarterly    Approximately 10-12 days after
                                     portfolio holdings               basis, respectively(5)   month/quarter end
Merrill Lynch(*)                     Top Ten and complete             Monthly and quarterly    Approximately 10-12 days after
                                     portfolio holdings               basis, respectively(5)   month/quarter end
Mobius(**)                           Top Ten portfolio holdings(3)    Monthly basis            At least 15 days after month end
Nelsons(**)                          Top Ten holdings(3)              Quarterly basis          At least 15 days after quarter
                                                                                               end
Prime Buchholz &                     Complete portfolio holdings(4)   Quarterly basis          At least 30 days after quarter
 Associates, Inc.(**)                                                                          end
PSN(**)                              Top Ten holdings(3)              Quarterly basis          At least 15 days after quarter
                                                                                               end
PFM Asset Management                 Top Ten and Complete             Quarterly basis(5)       Approximately 10-12 days after
  LLC(*)                             portfolio holdings                                        quarter end
Russell Investment                   Top Ten and Complete             Monthly and quarterly    At least 15 days after month end
 Group/Russell/Mellon                portfolio holdings               basis                    and at least 30 days after quarter
 Analytical Services, Inc.(**)                                                                 end, respectively
Stratford Advisory Group,            Top Ten portfolio holdings(6)    Quarterly basis(5)       Approximately 10-12 days after
 Inc.(*)                                                                                       quarter end
Thompson Financial(**)               Complete portfolio holdings(4)   Quarterly basis          At least 30 days after quarter
                                                                                               end
Watershed Investment                 Top Ten and Complete             Quarterly basis(5)       Approximately 10-12 days after
 Consultants, Inc.(*)                portfolio holdings                                        quarter end
Yanni Partners(**)                   Top Ten portfolio holdings(3)    Quarterly basis          At least 15 days after quarter
                                                                                               end
PORTFOLIO ANALYTICS 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)  Full portfolio holdings will also be provided upon request from time to
     time on a quarterly basis, with at least a 30 day lag.

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

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

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



                                       18




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

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

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

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

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

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

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

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

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



                                       19


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 adviser
that is an affiliated person of the Investment Adviser (including, but not
limited to, Morgan Stanley Investment Management Inc.).






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

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



                                       20





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

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

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

Dr. Manuel H. Johnson (57)    Trustee       Since        Senior Partner, Johnson Smick           197      Director of NVR, Inc.
c/o Johnson Smick                           July 1991    International, Inc., a consulting                (home construction);
Group Inc.                                               firm; Chairman of the Audit                      Director of KFX Energy;
888 16th Street, NW                                      Committee and Director or                        Director of RBS Greenwich
Suite 740                                                Trustee of the Retail Funds                      Capital Holdings
Washington, D.C. 20006                                   (since July 1991) and the                        (financial holding
                                                         Institutional Funds (since July                  company).
                                                         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 (62)         Trustee       Since        President, Kearns & Associates          198      Director of Electro Rent
c/o Kearns & Associates LLC                 July 2003    LLC (investment consulting);                     Corporation (equipment
PMB754                                                   Deputy Chairman of the Audit                     leasing), The Ford Family
23852 Pacific Coast                                      Committee and Director or                        Foundation, and the UCLA
Highway                                                  Trustee of the Retail Funds                      Foundation.
Malibu, CA 90265                                         (since July 2003) and the
                                                         Institutional Funds (since August
                                                         1994); previously Chairman of
                                                         the Audit Committee of the
                                                         Institutional Funds (October
                                                         2001-July 2003); formerly CFO
                                                         of the J. Paul Getty Trust.




                                       21






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

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

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



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

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

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



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

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


                                       22






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

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

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

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

Barry Fink (50)                Vice President    Since              General Counsel (since May 2000) and Managing Director (since
1221 Avenue of the Americas                      February 1997      December 2000) of Morgan Stanley Investment Management; Managing
New York, NY 10020                                                  Director (since December 2000), Secretary (since February 1997)
                                                                    and Director (since July 1998) of the Investment Adviser and the
                                                                    Administrator; 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 of the Retail Funds (February 1997-July 2003) and
                                                                    General Counsel (February 1997-April 2004) of the Retail Funds;
                                                                    previously Vice President and Assistant General Counsel of the
                                                                    Investment Adviser and the Administrator (February 1997-December
                                                                    2001).

Amy R. Doberman (43)           Vice President    Since July         Managing Director and General Counsel, U.S. Investment
1221 Avenue of the Americas                      2004               Management; Managing Director of Morgan Stanley Investment
New York, NY 10020                                                  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 (41)              Chief             Since October      Executive Director and U.S. Director of Compliance for Morgan
1221 Avenue of the             Compliance        2004 (since        Stanley Investment Management (since October 2004); Executive
Americas                       Officer           December           Director of the Investment Adviser and Morgan Stanley Investment
New York, NY 10020                               1997)              Management Inc.; formerly Assistant Secretary and Assistant
                                                                    General Counsel of the Morgan Stanley Retail Funds.

Stefanie V. Chang (38)         Vice President    Since July         Executive Director of Morgan Stanley & Co. Incorporated, Morgan
1221 Avenue of the Americas                      2003               Stanley Investment Management Inc. and the Investment Adviser;
New York, NY 10020                                                  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). Executive Director of the Investment Adviser and
                                                                    the Administrator (since

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

Thomas F. Caloia (59)          Vice President    Since July         Executive Director (since December 2002) and Assistant Treasurer
c/o Morgan Stanley Trust                         2003               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 Investment
Jersey City, NJ 07311                                               Adviser, the Distributor and the Administrator.


                                       23







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

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



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

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


     In addition, the following individuals who are officers of the Investment
Adviser or its affiliates serve as assistant secretaries of the Fund: Lou Anne
D. McInnis, Joseph Benedetti, Joanne Antico, Daniel Burton, Marilyn K. Cranney,
Joanne Doldo, Tara A. Farrelly, Alice J. Gerstel, Edward J. Meehan, Elisa
Mitchell, Elizabeth Nelson, Debra Rubano, Rita Rubin and Julien 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                            $50,001 - $100,000                                   over $100,000
Wayne E. Hedien                                 None                                          over $100,000
Dr. Manuel H. Johnson                           None                                          over $100,000
Joseph J. Kearns(1)                        over $100,000                                      over $100,000
Michael E. Nugent                           $1 - $10,000                                      over $100,000
Fergus Reid(1)                                  None                                          over $100,000

INTERESTED:
Charles A. Fiumefreddo                   $50,001 - $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, Messrs. Kearns and Reid had deferred a total of
      $584,856 and $667,002, respectively, pursuant to the deferred
      compensation plan.

     As to each Independent Trustee and his immediate family members, no person
owned beneficially or of record securities in an investment 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.


                                       24



     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
December 31, 2004, the Audit Committee held nine meetings.


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


     The Board of Trustees of the Fund also has a Governance Committee. The
Governance Committee identifies individuals qualified to serve as Independent
Trustees on the Fund's Board and on committees of such Board and recommends such
qualified individuals for nomination by the Fund's Independent Trustees as
candidates for election as Independent Trustees, advises the Fund's Board with
respect to Board composition, procedures and committees, develops and recommends
to the Fund's Board a set of corporate governance principles applicable to the
Fund, monitors and makes recommendations on corporate governance matters and
policies and procedures of the Fund's Board of Trustees and any Board committees
and oversees periodic evaluations of the Fund's Board and its committees. The
members of the Governance Committee of the Fund are currently Michael Bozic,
Edwin J. Garn and Fergus Reid, each of whom is an Independent Trustee. The
current Chairman of the Governance Committee is Fergus Reid. During the Fund's
fiscal year ended December 31, 2004, the Governance Committee held two meetings.


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


                                       25



own resources an ample number of qualified candidates for the Fund's Board as
they deem appropriate, they will consider nominations from shareholders to the
Board. Nominations from shareholders should be in writing and sent to the
Independent Trustees as described below.


     There were 26 meetings of the Board of Trustees of the Fund held during the
fiscal year ended December 31, 2004. The Independent Trustees of the Fund also
met four times during that time, in addition to the 26 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 December 31, 2004,
the Insurance Committee held six meetings.


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


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


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

C. COMPENSATION

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


                                       26



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 paid to the Fund's
Trustees from the Fund for the fiscal year ended December 31, 2004.


                                FUND COMPENSATION




                                                                     Aggregate
                                                                    Compensation
Name of Trustee                                                      from Fund
---------------                                                      ---------

Michael Bozic(1)(3) ............................................      $ 5,973
Charles A. Fiumefreddo*(2) .....................................       12,001
Edwin J. Garn(1)(3) ............................................        5,973
Wayne E. Hedien(1)(2) ..........................................        5,973
James F. Higgins* ..............................................            0
Manuel H. Johnson(1) ...........................................        7,972
Joseph J. Kearns(1)(4) .........................................        6,885
Michael Nugent(1)(2) ...........................................        6,973
Fergus Reid(1)(3) ..............................................        6,973



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

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

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

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


(4)  Includes $2,443 of compensation deferred at the election of the Trustee
     under the DC Plan.

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



                                       27



                      CASH COMPENSATION FROM FUND COMPLEX




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

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



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


(1)   The total amounts of deferred compensation (including interest) under the
      DC Plan and prior DC Plan payable or accrued by Messrs. Kearns and Reid
      was $211,000 and $213,000, respectively.


     Prior to December 31, 2003, 49 of the Retail Funds (the "Adopting Funds"),
including the Fund, had adopted a retirement program under which an Independent
Trustee who retired after serving for at least five years as an Independent
Trustee of any such fund (an "Eligible Trustee") would have been entitled to
retirement payments based on factors such as length of service, upon reaching
the eligible retirement age. On December 31, 2003, the amount of accrued
retirement benefits for each Eligible Trustee was frozen, and will be payable,
together with a return of 8% per annum, at or following each such Eligible
Trustee's retirement as shown in the table below.

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




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

Michael Bozic .................      $385          $19,437          $  967         $46,871
Edwin J. Garn .................       575           28,779             985          46,917
Wayne E. Hedien ...............       749           37,860             837          40,020
Dr. Manuel H. Johnson .........       417           19,701           1,420          68,630
Michael E. Nugent .............       746           35,471           1,269          61,377



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


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


                                       28



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


     The following owned 5% or more of the outstanding shares of Class A of the
Fund as of April 1, 2005: State Street Bank and Trust Co., FBO ADP/Morgan
Stanley Alliance 105 Rosemont Avenue, Westwood MA 02090-2318 - 63.37%.

     The following owned 5% or more of the outstanding shares of Class D of the
Fund as of April 1, 2005: MAC & Co Mutual Funds Operations, Morgan Stanley
DPSP/Start Plan P.O. Box 3198, Pittsburgh, PA 15230-3198 - 10.13%.


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


V. INVESTMENT ADVISORY AND OTHER SERVICES

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

A. INVESTMENT ADVISER AND ADMINISTRATOR

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

     Prior to November 1, 2004, pursuant to an investment management agreement
(the "Management Agreement") with the Investment Adviser, the Fund had retained
the Investment Adviser to provide administrative services and to manage the
investment of the Fund's assets, including the placing of orders for the
purchase and sale of portfolio securities. The Fund paid the Investment Adviser
monthly compensation calculated daily by applying the annual rate of 0.625% of
the portion of daily net assets not exceeding $250 million; 0.50% of the portion
of daily net assets exceeding $250 million but not exceeding $2.5 billion;
0.475% of the portion of daily net assets exceeding $2.5 billion but not
exceeding $3.5 billion; 0.45% of the portion of daily net assets exceeding $3.5
billion but not exceeding $4.5 billion; and 0.425% of the portion of daily net
assets exceeding $4.5 billion. The management fee was allocated among the
Classes pro rata based on the net assets of the Fund attributable to each Class.

     The Board of Trustees of the Fund approved amending and restating,
effective November 1, 2004, the Management Agreement to remove the
administration services component from the Management Agreement and to reduce
the investment advisory fee to the annual rate of 0.545% of the portion of the
daily net assets not exceeding $250 million; 0.42% of the portion of the daily
net assets exceeding $250 million but not exceeding $2.5 billion; 0.395% of the
portion of the daily net assets exceeding $2.5 billion but not exceeding $3.5
billion; 0.37% of the portion of the daily net assets exceeding $3.5 billion but
not exceeding $4.5 billion; and 0.345% of the portion of the daily net assets
exceeding $4.5 billion. The advisory fee is allocated among the Classes pro rata
based on the net assets of the Fund attributable to each Class. The Fund's
Investment Adviser will continue to provide investment advisory services under
an Amended and Restated Investment Advisory Agreement ("Investment Advisory
Agreement"). The administration services previously provided to the Fund by the
Investment Adviser will be provided by Morgan Stanley Services Company Inc.
("Administrator"), a wholly-owned subsidiary of the Investment Adviser, pursuant
to a separate administration agreement ("Administration Agreement") entered into
by the Fund with the Administrator. Such change resulted in a 0.08% reduction in
the advisory fee concurrent with the implementation of a 0.08% administration
fee pursuant to the new administration agreement. Under the terms of the
Administration Agreement, the Administrator will provide the same administrative
services previously provided by the Investment Adviser.


     For the fiscal years ended December 31, 2002, 2003 and 2004, the Investment
Adviser accrued total compensation under the Management Agreement and the
Investment Advisory Agreement in the amount of $27,848,219, $23,236,808 and
$21,147,179, respectively.


     In approving the advisory agreements, the Board of Trustees, including the
Independent Trustees, considered the nature, quality and scope of the services
provided by the Investment Adviser; the


                                       29




performance, fees and expenses of the Fund compared to other similar investment
companies; the Investment Adviser's expenses in providing the services; the
profitability of the Investment Adviser and its affiliated companies and other
benefits they derive from their relationship with the Fund; and the extent to
which economies of scale are shared with the Fund. The Independent Trustees met
with and reviewed reports from third parties about the foregoing factors and
changes, if any, in such items since the preceding year's deliberations. In
evaluating the reasonableness of the management fee, the Independent Trustees
noted that the effective management fee on November 30, 2003 and the total
expense ratio were lower than the Fund's peer group average. They also noted
that the management fee schedule included breakpoints. The Independent Trustees
evaluated the Fund's investment performance and noted that it was lower than its
peer group average for the one- and three-year periods but better for the
five-year period and that the portfolio manager had been recently replaced by a
new portfolio manager. The Independent Trustees noted their confidence in the
capability and integrity of the senior management and staff of the Investment
Adviser and the financial strength of the Investment Adviser and its affiliated
companies. The Independent Trustees weighed the foregoing factors in light of
the advice given to them by their legal counsel as to the law applicable to the
review of investment advisory contracts. Based upon its review, the Board of
Trustees, including all of the Independent Trustees, determined, in the exercise
of its business judgment, that approval of the advisory agreements was in the
best interests of the Fund and its shareholders.


B. PRINCIPAL UNDERWRITER

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

     The Distributor bears all expenses it may incur in providing services under
the Distribution Agreement. These expenses include the payment of commissions
for sales of the Fund's shares and incentive compensation to Financial Advisors,
the cost 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 THE ADMINISTRATOR

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

                                       30




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.


                                       31



E. RULE 12b-1 PLAN

     The Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under
the Investment Company Act (the "Plan") pursuant to which each Class, other than
Class D, pays the Distributor compensation accrued daily and payable monthly at
the following maximum annual rates: 0.25% and 1.0% of the average daily net
assets of Class A and Class C, respectively, and, with respect to Class B, 1.0%
of the lesser of: (a) the average daily aggregate gross sales of the Fund's
Class B shares since the inception of the plan of distribution adopted by the
Fund (the "Prior Plan") on April 30, 1984 (not including reinvestment of
dividends or capital gains distributions), less the average daily aggregate net
asset value of the Fund's Class B shares redeemed since the Prior Plan's
inception upon which a contingent deferred sales charge has been imposed or upon
which such charge has been waived; or (b) the average daily net assets of Class
B shares attributable to shares issued, net of shares redeemed, since the
inception of the Prior Plan.

     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 December 31, in approximate amounts as provided in the table below (the
Distributor did not retain any of these amounts).




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

Class A ..........   FSCs:(1)     $  153,349      FSCs:(1)     $  336,002      FSCs:(1)     $  361,640
                     CDSCs:       $    4,567      CDSCs:       $    4,144      CDSCs:       $      721
Class B ..........   CDSCs:       $5,722,907      CDSCs:       $5,455,037      CDSCs:       $8,574,348
Class C ..........   CDSCs:       $   22,520      CDSCs:       $   29,631      CDSCs:       $   40,584



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

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


     Under the Plan and as required by Rule 12b-1, the Trustees receive and
review promptly after the end of each calendar quarter a written report provided
by the Distributor of the amounts expended under the Plan and the purpose for
which such expenditures were made. Class B shares of the Fund accrued amounts
payable to the Distributor under the Plan, during the fiscal year ended December
31, 2004, of $33,348,722. This amount is equal to 1.00% of the average daily net
sales and was calculated pursuant to clause (b) of the compensation formula
under the Plan. For the fiscal year ended December 31, 2004, Class A and Class C
shares of the Fund accrued payments under the Plan amounting to $627,950 and
$1,663,820, respectively, which amounts are equal to 0.24% and 0.98% of the
average daily net assets of Class A 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


                                       32



credit of up to 5.0% of the amount sold and an annual residual commission,
currently a residual of up to 0.25% of the current value of the respective
accounts for which they are the Financial Advisors or dealers of record in all
cases.

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

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

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

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

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


                                       33



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 December 31, 2004 to the Distributor. The
Distributor and Morgan Stanley DW estimate that they have spent, pursuant to
the Plan, $614,306,614 on behalf of Class B since the inception of the Prior
Plan. It is estimated that this amount was spent in approximately the following
ways: (i) 4.17% ($25,626,861)-advertising and promotional expenses; (ii) 0.20%
($1,222,798)-printing and mailing of prospectuses for distribution to other
than current shareholders; and (iii) 95.63% ($587,456,955)-other expenses,
including the gross sales credit and the carrying charge, of which 5.88%
($34,527,083) represents carrying charges, 34.24% ($201,129,290) 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, 48.46% ($284,690,250) represents overhead
and other branch office distribution-related expenses and 11.42% ($67,110,332)
represents excess distribution expenses of Morgan Stanley Dean Witter Capital
Appreciation Fund, the net assets of which were combined with those of the Fund
on March 15, 1999 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 December 31, 2004 were service
fees. The remainder of the amounts accrued by Class C were for expenses which
relate to compensation of sales personnel and associated overhead expenses.

     In the case of Class B shares, at any given time, the expenses of
distributing shares of the Fund may be more or less than the total of (i) the
payments made by the Fund pursuant to the Plan; and (ii) the proceeds of CDSCs
paid by investors upon redemption of shares. For example, if $1 million in
expenses in distributing Class B shares of the Fund had been incurred and
$750,000 had been received as described in (i) and (ii) above, the excess
expense would amount to $250,000. The Distributor has advised the Fund that in
the case of Class B shares the excess distribution expenses, including the
carrying charge designed to approximate the opportunity costs incurred by
Morgan Stanley DW which arise from it having advanced monies without having
received the amount of any sales charges imposed at the time of sale of the
Fund's Class B shares, totaled $71,118,347 as of December 31, 2004 (the end of
the Fund's fiscal year), which was equal to 2.40% of the net assets of Class B
on such date. Because there is no requirement under the Plan that the
Distributor be reimbursed for all distribution expenses with respect to Class B
shares or any requirement that the Plan be continued from year to year, this
excess amount does not constitute a liability of the Fund. Although there is no
legal obligation for the Fund to pay expenses incurred in excess of payments
made to the Distributor under the Plan and the proceeds of CDSCs paid by
investors upon redemption of shares, if for any reason the Plan is terminated,
the Trustees will consider at that time the manner in which to treat such
expenses. Any cumulative expenses incurred, but not yet recovered through
distribution fees or CDSCs, may or may not be recovered through future
distribution fees or CDSCs.

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

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


                                       34



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

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


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


F. OTHER SERVICE PROVIDERS


     (1) TRANSFER AGENT/DIVIDEND-PAYING AGENT

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

     (2) CUSTODIAN AND INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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


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


     (3) AFFILIATED PERSONS

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


                                       35




lists. For these services, the Transfer Agent receives a per shareholder
account fee from the Fund and is reimbursed for its out-of-pocket expenses in
connection with such services.

G. FUND MANAGEMENT

OTHER ACCOUNTS MANAGED BY THE PORTFOLIO MANAGERS

     As of December 31, 2004:

     Michelle S. Kaufman managed three mutual funds with a total of
approximately $4.9 billion in assets; Ms. Kaufman managed no other accounts.

     Dennis P. Lynch managed 34 mutual funds with a total of approximately $14.9
billion in assets; two pooled investment vehicles other than mutual funds with a
total of approximately $350.9 million in assets; and 316 other accounts with a
total of approximately $1.4 billion in assets.

     David S. Cohen managed 34 mutual funds with a total of approximately $14.9
billion in assets; two pooled investment vehicles other than mutual funds with a
total of approximately $350.9 million in assets; and 316 other accounts with a
total of approximately $1.4 billion in assets.

     Sam G. Chainani managed 34 mutual funds with a total of approximately $14.9
billion in assets; two pooled investment vehicles other than mutual funds with a
total of approximately $350.9 million in assets; and 316 other accounts with a
total of approximately $1.4 billion in assets.

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

PORTFOLIO MANAGER COMPENSATION STRUCTURE

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

     B(THE FUND'S INVESTMENT COMPANY ACT FILE NO. IS 811-2978)

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;



                                       36




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

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

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

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

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

     o   Contribution to the business objectives of the Investment Adviser.

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

     o   Market compensation survey research by independent third parties.

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

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

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

SECURITIES OWNERSHIP OF PORTFOLIO MANAGERS

     As of December 31, 2004, the dollar range of securities beneficially owned
(either directly or notionally through certain defined contribution and/or
deferred compensation programs) by each portfolio manager in the Fund is shown
below:





Sam G. Chainani ...........................................                None
David S. Cohen ............................................                None
Michelle S. Kaufman .......................................   $150,001-$200,000
Dennis P. Lynch ...........................................                None




H. CODES OF ETHICS


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


I. PROXY VOTING POLICY AND PROXY VOTING RECORD

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



                                       37




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

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

     o   Routine proposals will be voted in support of management.

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

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

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

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

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

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

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

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



                                       38




CONFLICTS OF INTEREST

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

THIRD PARTIES

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

FURTHER INFORMATION

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

J. REVENUE SHARING


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

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

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

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


                                       39



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


         o     An amount up to 0.20% of gross sales of Fund shares; and

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

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


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


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



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

A. BROKERAGE TRANSACTIONS

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


     For the fiscal years ended December 31, 2002, 2003 and 2004, the Fund paid
a total of $41,174,486, $34,385,430 and $14,459,836, respectively, in brokerage
commissions.


B. COMMISSIONS

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

     During the fiscal years ended December 31, 2002, 2003 and 2004, the Fund
did not effect any principal transactions with Morgan Stanley DW.

     Brokerage transactions in securities listed on exchanges or admitted to
unlisted trading privileges may be effected through Morgan Stanley DW, Morgan
Stanley & Co. and other affiliated brokers and dealers. In order for an
affiliated broker or dealer to effect any portfolio transactions on an exchange
for the Fund, the commissions, fees or other remuneration received by the
affiliated broker or dealer must be reasonable and fair compared to the
commissions, fees or other remuneration paid to other brokers in connection
with comparable transactions involving similar securities being purchased or
sold on an exchange during a comparable period of time. This standard would
allow the affiliated broker or dealer


                                       40



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 December 31, 2002, 2003 and 2004, the Fund
paid a total of $32,054, $0 and $0, respectively, in brokerage commissions to
Morgan Stanley DW.


     During the fiscal years ended December 31, 2002, 2003 and 2004, the Fund
paid a total of $4,472,134, $3,482,372 and $2,156,635, respectively, in
brokerage commissions to Morgan Stanley & Co. During the fiscal year ended
December 31, 2004, the brokerage commissions paid to Morgan Stanley & Co.
represented approximately 14.91% of the total brokerage commissions paid by the
Fund for the year and were paid on account of transactions having an aggregate
dollar value equal to approximately 16.30% of the aggregate dollar value of all
portfolio transactions of the Fund during the year for which commissions were
paid.


C. BROKERAGE SELECTION

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

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

     The Investment Adviser and certain of its affiliates currently serve as
investment adviser to a number of clients, including other investment
companies, and may in the future act as investment adviser or advisor to
others. It is the practice of the Investment Adviser and its affiliates to
cause purchase and sale transactions 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


                                       41



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 December 31, 2004, the Fund paid $11,664,252
in brokerage commissions in connection with transactions in the aggregate
amount of $9,665,058,583 to brokers because of research services provided.


E. REGULAR BROKER-DEALERS


     During the fiscal year ended December 31, 2004, the Fund purchased
securities issued by Banc of America Securities LLC, CitiGroup Global Markets
Inc., Goldman Sachs & Co., J.P. Morgan Chase & Co., Lehman Brothers Inc. and
Merrill Lynch, Pierce, Fenner & Smith Inc., which issuers were among the ten
brokers or the ten dealers that executed transactions for or with the Fund in
the largest dollar amounts during the year. At December 31, 2004, the Fund held
securities issued by Banc of America Securities LLC, CitiGroup Global Markets
Inc. and Goldman Sachs & Co., with market values of $67,360,165, $17,848,281
and $66,593,403, 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 the 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


                                       42



personal liability, and the nature of the Fund's assets and operations, the
possibility of the Fund being unable to meet its obligations is remote and thus,
in the opinion of Massachusetts counsel to the Fund, the risk to Fund
shareholders of personal liability is remote.

     All of the Trustees, except for James F. Higgins, Joseph J. Kearns and
Fergus Reid, have been elected by the shareholders of the Fund, most recently at
a Special Meeting of Shareholders held on May 21, 1997. 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 transaction pursuant to the exchange privilege.

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

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

B. OFFERING PRICE

     The Fund's Class B, Class C and Class D shares are offered at net asset
value per share and the Class A shares are offered at net asset value per share
plus any applicable FSC which is distributed among the Fund's Distributor,
Morgan Stanley DW and other authorized dealers as described in Section "V.
Investment Management and Other Services-E. Rule 12b-1 Plan." The price of Fund
shares, called "net asset value," is based on the value of the Fund's portfolio
securities. Net asset value per share of each Class is calculated by dividing
the value of the portion of the Fund's securities and other assets


                                       43




attributable to that Class, less the liabilities attributable to that Class, by
the number of shares of that Class outstanding. The assets of each Class of
shares are invested in a single portfolio. The net asset value of each Class,
however, will differ because the Classes have different ongoing fees.

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

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

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

     Listed options on debt securities are valued at the latest sale price on
the exchange on which they are listed unless no sales of such options have taken
place that day, in which case they will be valued at the mean between their
latest bid and asked prices. Unlisted options on debt securities and all options
on equity securities are valued at the mean between their latest bid and asked
prices. 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. Tax issues relating
to the Fund are not generally a


                                       44



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 of distributions made by the Fund.

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

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

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

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


                                       45



     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. Distributions attributable to gains from "U.S. real
property interests" (including certain U.S. real property holding corporations)
will generally be subject to federal withholding tax and may give rise to an
obligation on the part of the foreign shareholder to file a U.S. tax return.
Also, such gains may be subject to a 30% branch profits tax in the hands of a
foreign shareholder that is a corporation. The provisions contained in the
legislation relating to distributions to foreign persons generally would apply
to distributions with respect to taxable years of regulated investment companies
beginning after December 31, 2004 and before January 1, 2008. Prospective
investors are urged to consult their tax advisors regarding the specific tax
consequences relating to the legislation.


     After the end of each calendar year, shareholders will be sent 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 the Fund will have the
effect of reducing the net asset value of the shareholder's stock in the Fund 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 shares of the Fund 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. Shares of the Fund held for a
period of one year or less at the time of such sale or redemption will, for tax
purposes, generally result in short-term capital gains or losses and those held
for more than one year will generally result in long-term capital gains or
losses. Under current law, the maximum tax rate on long-term capital gains
available to non-corporate shareholders generally is 15%. Without future
congressional action, the maximum tax rate on long-term capital gains would
return to 20% in 2009. Any loss realized by shareholders upon a sale or
redemption of shares within six months of the date of their purchase will be
treated as a long-term capital loss to the extent of any distributions of net
long-term capital gains with respect to such shares during the six-month period.

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

     Exchanges of shares in the Fund 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.


                                       46



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

X. UNDERWRITERS
--------------------------------------------------------------------------------

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


XI. PERFORMANCE DATA
--------------------------------------------------------------------------------

       AVERAGE ANNUAL RETURNS ASSUMING DEDUCTION OF MAXIMUM SALES CHARGE
                        PERIOD ENDED DECEMBER 31, 2004





                      Inception
Class                   Date        1 Year       5 Years      10 Years     Life of Fund
------------------   ----------   ----------   -----------   ----------   -------------

Class A ..........   07/28/97         2.61%        -8.83%           -          3.74%
Class B ..........   03/27/80         2.45%        -8.82%        9.76%        11.64%
Class C ..........   07/28/97         6.48%        -8.54%           -          3.70%
Class D ..........   07/28/97         8.54%        -7.64%           -          4.73%



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





                      Inception
Class                   Date        1 Year       5 Years      10 Years     Life of Fund
------------------   ----------   ----------   -----------   ----------   -------------

Class A ..........   07/28/97         8.29%        -7.84%           -          4.50%
Class B ..........   03/27/80         7.45%        -8.51%        9.76%        11.64%
Class C ..........   07/28/97         7.48%        -8.54%           -          3.70%
Class D ..........   07/28/97         8.54%        -7.64%           -          4.73%



         AGGREGATE TOTAL RETURNS ASSUMING NO DEDUCTION OF SALES CHARGE
                        PERIOD ENDED DECEMBER 31, 2004





                      Inception
Class                   Date        1 Year        5 Years       10 Years      Life of Fund
------------------   ----------   ----------   ------------   ------------   -------------

Class A ..........   07/28/97         8.29%        -33.52%             -           38.64%
Class B ..........   03/27/80         7.45%        -35.89%        153.89%       1,429.08%
Class C ..........   07/28/97         7.48%        -36.00%             -           31.01%
Class D ..........   07/28/97         8.54%        -32.79%             -           40.97%




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






                                                           Inception
Calculation Methodology                                      Date        1 Year       5 Years      10 Years     Life of Fund
-------------------------------------------------------   ----------   ----------   -----------   ----------   -------------

After taxes on distributions ..........................   03/27/80         2.45%        -9.71%        6.76%         8.78%
After taxes on distributions and redemptions ..........   03/27/80         1.59%        -7.57%        6.93%         8.70%



                                       47



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


     The Fund's audited financial statements for the fiscal year ended December
31, 2004, including notes thereto and the report of Deloitte & Touche LLP, are
herein incorporated by reference from the Fund's annual report. A copy of the
Fund's Annual Report to Shareholders must accompany the delivery of this
Statement of Additional Information.


XIII. FUND COUNSEL
--------------------------------------------------------------------------------

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

                                    * * * * *

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


                                       48

                   MORGAN STANLEY AMERICAN OPPORTUNITIES FUND

                                     PART C
                               OTHER INFORMATION

Item 23.  Exhibits
--------  --------

(a)(1).   Declaration of Trust of the Registrant, dated April 6, 1987, is
          incorporated by reference to Exhibit 1 of Post-Effective Amendment No.
          19 to the Registration Statement on Form N-1A, filed on February 23,
          1996.

   (2).   Instrument Establishing and Designating Additional Classes of Shares,
          dated July 28, 1997, is incorporated by reference to Exhibit 1 of
          Post-Effective Amendment No. 21 to the Registration Statement on Form
          N-1A, filed on July 21, 1997.

   (3).   Amendment to the Declaration of Trust, dated June 22, 1998, of the
          Registrant is incorporated by reference to Exhibit 1 of Post-Effective
          Amendment No. 23 to the Registration Statement on Form N-1A, filed on
          February 24, 1999.

   (4).   Amendment to the Declaration of Trust of the Registrant, dated June
          18, 2001, is incorporated by reference to Exhibit 1(d) of Post-
          Effective Amendment No. 26 to the Registration Statement on Form N-1A,
          filed on February 28, 2002.

(b).      Amended and Restated By-Laws of the Registrant, dated April 24, 2003,
          is incorporated herein by reference to exhibit (b) of Post-Effective
          Amendment No. 28 to the Registration Statement on Form N-1A, filed on
          March 18, 2004.

(c).      Not applicable.

(d).      Amended and Restated Investment Advisory Agreement, dated November 1,
          2004, is incorporated by reference to Exhibit (d) of Post-Effective
          Amendment No. 29 to the Registration Statement on Form N-1A, filed
          on February 18, 2005.

(e)(1).   Amended Distribution Agreement between the Registrant and Morgan
          Stanley Distributors Inc., dated June 22, 1998, is incorporated by
          reference to Exhibit 5(a) of Post-Effective Amendment No. 23 to the
          Registration Statement on Form N-1A, filed on February 24, 1999.

   (2).   Selected Dealers Agreement between Morgan Stanley Distributors Inc.
          and Morgan Stanley DW Inc., dated January 4, 1993, is incorporated by
          reference to Exhibit 6 of Post-Effective Amendment No. 19 to the
          Registration Statement on Form N-1A, filed on February 23, 1996.

   (3).   Omnibus Selected Dealer Agreement between Morgan Stanley Distributors
          Inc. and National Financial Services Corporation, dated October 17,
          1998, is incorporated by reference to Exhibit 5(b) of Post-Effective
          Amendment No. 23 to the Registration Statement on Form N-1A, filed on
          February 24, 1999.

(f).      Second Amended and Restated Retirement Plan for Non-Interested
          Trustees or Directors, dated May 8, 1997,is incorporated by reference
          to Exhibit 6 of Post-Effective Amendment No. 24 to the Registration
          Statement on Form N-1A, filed on April 27, 2000.

(g)(1).   Custodian Agreement between The Bank of New York and the Registrant,
          dated September 20, 1991, is incorporated by reference to Exhibit 8 of
          Post-Effective Amendment No. 19 to the Registration Statement on Form
          N-1A, filed on February 23, 1996.

                                       1



   (2).   Amendment to the Custody Agreement between The Bank of New York and
          the Registrant, dated April 17, 1996, is incorporated by reference to
          Exhibit 8 of Post-Effective Amendment No. 20 to the Registration
          Statement on Form N-1A, filed on March 31, 1997.

   (3).   Amendment dated June 15, 2001 to the Custody Agreement of the
          Registrant, is incorporated by reference to Exhibit 7(c) of Post-
          Effective Amendment No. 26 to the Registration Statement on Form N-1A,
          filed on February 28, 2002.

   (4).   Foreign Custody Manager Agreement between the Bank of New York and the
          Registrant, dated June 15, 2001, is incorporated by reference to
          Exhibit 7(d) of Post-Effective Amendment No. 26 to the Registration
          Statement on Form N-1A, filed on February 28, 2002.

(h)(1).   Amended and Restated Transfer Agency and Service Agreement between the
          Registrant and Morgan Stanley Trust dated November 1, 2004, is
          incorporated by reference to Exhibit (h)(1) of Post-Effective
          Amendment No. 29 to the Registration Statement on Form N-1A, filed
          on February 18, 2005.

   (2).   Administration Agreement, dated November 1, 2004, between Morgan
          Stanley Services Company Inc. and the Registrant, is incorporated by
          reference to Exhibit (h)(2) of Post-Effective Amendment No. 29 to the
          Registration Statement on Form N-1A, filed on February 18, 2005.

(i)(1).   Opinion and Consent of Clifford Chance US LLP, filed herein.

   (2).   Opinion of Dechert LLP, Massachusetts Counsel, filed herein.

(j).      Consent of Independent Registered Public Accounting Firm, filed
          herein.

(k).      Not applicable.

(l).      Not applicable.

(m).      Amended and Restated Plan of Distribution, Pursuant to Rule 12b-1,
          dated May 1, 2004, is incorporated by reference to Exhibit (m) of
          Post-Effective Amendment No. 29 to the Registration Statement on Form
          N-1A, filed on February 18, 2005.

(n).      Amended Multi-Class Plan pursuant to Rule 18f-3, dated October 28,
          2004, is incorporated by reference to Exhibit (n) of Post-Effective
          Amendment No. 29 to the Registration Statement on Form N-1A, filed on
          February 18, 2005.

(o).      Not applicable.

(p)(1).   Code of Ethics of Morgan Stanley Investment Management, is
          incorporated by reference to Exhibit (p)(1) of Post-Effective
          Amendment No. 29 to the Registration Statement on Form N-1A, filed on
          February 18, 2005.

   (2).   Code of Ethics of Morgan Stanley Funds, is incorporated by
          reference to Exhibit (p)(2) of Post-Effective Amendment No. 29 to the
          Registration Statement on Form N-1A, filed on February 18, 2005.

(q).      Power of Attorneys of Trustees, dated January 27, 2005, is
          incorporated by reference to Exhibit (q) of Post-Effective Amendment
          No. 29 to the Registration Statement on Form N-1A, filed on February
          18, 2005.


                                       2

ITEM 24.     PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE FUND.

             None

ITEM 25.     INDEMNIFICATION.

             Pursuant to Section 5.3 of the Registrant's Declaration of Trust
and under Section 4.8 of the Registrant's By-Laws, the indemnification of the
Registrant's trustees, officers, employees and agents is permitted if it is
determined that they acted under the belief that their actions were in or not
opposed to the best interest of the Registrant, and, with respect to any
criminal proceeding, they had reasonable cause to believe their conduct was not
unlawful. In addition, indemnification is permitted only if it is determined
that the actions in question did not render them liable by reason of willful
misfeasance, bad faith or gross negligence in the performance of their duties or
by reason of reckless disregard of their obligations and duties to the
Registrant. Trustees, officers, employees and agents will be indemnified for the
expense of litigation if it is determined that they are entitled to
indemnification against any liability established in such litigation. The
Registrant may also advance money for these expenses provided that they give
their undertakings to repay the Registrant unless their conduct is later
determined to permit indemnification.

Pursuant to Section 5.2 of the Registrant's Declaration of Trust, neither the
Investment Manager nor any trustee, officer, employee or agent of the Registrant
shall be liable for any action or failure to act, except in the case of bad
faith, willful misfeasance, gross negligence or reckless disregard of duties to
the Registrant. Pursuant to Section 9 of the Registrant's Investment Advisory
Agreement, in the absence of willful misfeasance, bad faith, gross negligence or
reckless disregard of its obligations under the Agreement, the Investment
Adviser shall not be liable to the Registrant or any of its investors for any
error of judgment or mistake of law or for any act or omission by the Investment
Adviser or for any losses sustained by the Registrant or its investors. Pursuant
to Section 7 of the Registrant's Administration Agreement, the Administrator
will use its best efforts in the performance of administrative activities on
behalf of each fund, but in the absence of willful misfeasance, bad faith, gross
negligence or reckless disregard of its obligations hereunder, the Administrator
shall not be liable to the Fund or any of its investors for any error of
judgment or mistake of law or for any act or omission by the Administrator or
for any losses sustained by the Fund or its investors.

Pursuant to Section 7 of the Registrant's Underwriting Agreement, the Registrant
shall indemnify and hold harmless the Underwriter and each person, if any, who
controls the Underwriter against any loss, liability, claim, damage or expense
(including the reasonable cost of investigating or defending any alleged loss,
liability, claim, damage or expense and reasonable counsel fees incurred in
connection therewith) arising by reason of any person acquiring any Shares,
which may be based upon the 1933 Act, or on any other statute or at common law,
on the grounds that the Registration Statement or related Prospectus and
Statement of Additional Information, as from time to time amended and
supplemented, or the annual or interim reports to shareholders of the
Registrant, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary in order to make the
statements therein not misleading, unless such statement or omission was made in
reliance upon, and in conformity with, information furnished to the Registrant
in connection therewith by or on behalf of the Underwriter; provided, however,
that in no case (i) is the indemnity of the Registrant in favor of the
Underwriter and any such controlling persons to be deemed to protect the
Underwriter or any such controlling persons thereof against any liability to the
Registrant or its security holders to which the Underwriter or any such
controlling persons would otherwise be subject by reason of willful misfeasance,
bad faith or gross negligence in the performance of its duties or by reason of
reckless disregard of its obligations and duties under this Agreement; or (ii)
is the Registrant to be liable under its indemnity agreement contained in this
paragraph with respect to any claim made against the Underwriter or any such
controlling persons, unless the Underwriter or any such controlling persons, as
the case may be, shall have notified the Registrant in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon the
Underwriter or such controlling persons (or after the Underwriter or such
controlling persons shall have received notice of such service on any designated
agent), but failure to notify the Registrant of any such claim shall not relieve
it from any liability which it may have to the person against whom such action
is brought otherwise than on account of its indemnity agreement contained in
this paragraph.

             Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to trustees, officers and
controlling persons of the Registrant pursuant to the foregoing provisions or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a trustee, officer, or controlling
person of the Registrant in connection with the successful defense of any
action, suit or proceeding) is asserted against the Registrant by such trustee,
officer or controlling person in connection with the shares being registered,
the Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act, and will be governed by the final adjudication of such
issue.

             The Registrant hereby undertakes that it will apply the
indemnification provision of its by-laws in a manner consistent with Release
11330 of the Securities and Exchange Commission under the Investment Company Act
of 1940, so long as the interpretation of Sections 17(h) and 17(i) of such Act
remains in effect.

             The Registrant, in conjunction with the Investment Adviser, the
Registrant's Trustees, and other registered investment management companies
managed by the Investment Adviser, maintains insurance on behalf of any person
who is or was a Trustee, officer, employee, or agent of the Registrant, or who
is or was serving at the request of the Registrant as a trustee, director,
officer, employee or agent of another trust or corporation, against any
liability asserted against him and incurred by him or arising out of his
position. However, in no event will Registrant maintain insurance to indemnify
any such person for any act for which the Registrant itself is not permitted to
indemnify him.


ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER

     See "Fund Management" in the Prospectus regarding the business of the
investment adviser. The following information is given regarding directors and
officers of Morgan Stanley Investment Advisors Inc. ("Morgan Stanley Investment
Advisors"). Morgan Stanley Investment Advisors is a wholly-owned subsidiary of
Morgan Stanley & Co. Incorporated.


                                       3


Set forth below is the name and principal business address of each company for
which each director or officer of Morgan Stanley Investment Advisors serves as a
director, officer or employee:

MORGAN STANLEY SERVICES COMPANY INC. ("MORGAN STANLEY SERVICES")
c/o Morgan Stanley Trust, Harborside Financial Center, Plaza Two, Jersey City,
New Jersey 07311

MORGAN STANLEY DISTRIBUTORS INC. ("MORGAN STANLEY DISTRIBUTORS")
MORGAN STANLEY DW INC. ("MORGAN STANLEY DW")
MORGAN STANLEY FUNDS
MORGAN STANLEY INVESTMENT ADVISORS INC.
MORGAN STANLEY INVESTMENT MANAGEMENT
MORGAN STANLEY INVESTMENT MANAGEMENT INC.
1221 Avenue of the Americas, New York, New York 10020.

MORGAN STANLEY DEAN WITTER INVESTMENT MANAGEMENT LTD.
MORGAN STANLEY & CO. INTERNATIONAL LIMITED ("MORGAN STANLEY & CO.
INTERNATIONAL")
25 Cabot Square, London, England

VAN KAMPEN INVESTMENT ASSET MANAGEMENT INC. ("VAN KAMPEN")
1 Parkview Plaza, P.O. Box 5555, Oakbrook Terrace, IL 60181

MORGAN STANLEY TRUST ("MORGAN STANLEY TRUST")
Harborside Financial Center, Plaza Two, Jersey City, New Jersey 07311


                                       4




      NAME AND POSITION WITH                      OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION OR EMPLOYMENT,
MORGAN STANLEY INVESTMENT ADVISORS                  INCLUDING NAME, PRINCIPAL ADDRESS AND NATURE OF CONNECTION
----------------------------------                ----------------------------------------------------------------

Mitchell M. Merin                                 President and Chief Operating Officer of Morgan Stanley
President, Chief Executive Officer                Investment Management; Chairman and Director of Morgan Stanley
and Director                                      Distributors; Chairman and Director of Morgan Stanley Trust;
                                                  President, Chief Executive Officer and Director of Morgan
                                                  Stanley Services; President of the Morgan Stanley Retail Funds
                                                  and the Institutional Funds; Director of Morgan Stanley
                                                  Investment Management Inc.; Director of various Morgan Stanley
                                                  subsidiaries; Trustee, President and Chief Executive Officer of
                                                  the Van Kampen Open-End Funds; President and Chief Executive
                                                  Officer of the Van Kampen Closed-End Funds.

Barry Fink                                        Managing Director and General Counsel of Morgan Stanley
Managing Director and                             Investment Management; Managing Director and Director of Morgan
Director                                          Stanley Services; Managing Director, Secretary, and Director of
                                                  Morgan Stanley Distributors; Vice President of the Morgan Stanley
                                                  Funds.

Joseph J. McAlinden                               Chief Investment Officer and Managing Director of Morgan Stanley
Managing Director and                             Investment Management Inc.; Director of Morgan Stanley Trust.
Chief Investment Officer

Ronald E. Robison                                 Principal Executive Officer -- Office of the Funds; Managing
Managing Director,                                Director, Chief Administrative Officer and Director of Morgan
Chief Administrative Officer and                  Stanley Services; Chief Executive Officer and Director of Morgan
Director                                          Stanley Trust; Managing Director of Morgan Stanley Distributors;
                                                  Executive Vice President and Principal Executive Officer of the
                                                  Morgan Stanley Funds; Director of Morgan Stanley SICAV.

P. Dominic Caldecott                              Managing Director of Morgan Stanley Investment Management Inc.,
Managing Director                                 and Morgan Stanley Dean Witter Investment Management Limited.;
                                                  Vice President and Investment Manager of Morgan Stanley & Co.
                                                  International.

Rajesh K. Gupta                                   Managing Director and Chief Administrative Officer-Investments
Managing Director and                             of Morgan Stanley Investment Management Inc.
Chief Administrative Officer-
Investments

John B. Kemp, III                                 President and Chief Executive Officer of Morgan Stanley
Executive Director                                Distributors.

Francis J. Smith                                  Executive Director of Morgan Stanley Services; Vice President
Executive Director                                and Chief Financial Officer of the Morgan Stanley Funds.



                                       5


ITEM 27. PRINCIPAL UNDERWRITERS

(a)      Morgan Stanley Distributors Inc., a Delaware corporation, is the
principal underwriter of the Registrant. Morgan Stanley Distributors is also the
principal underwriter of the following investment companies:

(1)  Active Assets California Tax-Free Trust
(2)  Active Assets Government Securities Trust
(3)  Active Assets Institutional Government Securities Trust
(4)  Active Assets Institutional Money Trust
(5)  Active Assets Money Trust
(6)  Active Assets Tax-Free Trust
(7)  Morgan Stanley Aggressive Equity Fund
(8)  Morgan Stanley Allocator Fund
(9)  Morgan Stanley American Opportunities Fund
(10) Morgan Stanley Balanced Growth Fund
(11) Morgan Stanley Balanced Income Fund
(12) Morgan Stanley Biotechnology Fund
(13) Morgan Stanley California Tax-Free Daily Income Trust
(14) Morgan Stanley California Tax-Free Income Fund
(15) Morgan Stanley Capital Opportunities Trust
(16) Morgan Stanley Convertible Securities Trust
(17) Morgan Stanley Developing Growth Securities Trust
(18) Morgan Stanley Dividend Growth Securities Inc.
(19) Morgan Stanley European Equity Fund Inc.
(20) Morgan Stanley Equally-Weighted S&P 500 Fund
(21) Morgan Stanley Federal Securities Trust
(22) Morgan Stanley Financial Services Trust
(23) Morgan Stanley Flexible Income Trust
(24) Morgan Stanley Fund of Funds
(25) Morgan Stanley Fundamental Value Fund
(26) Morgan Stanley Global Advantage Fund
(27) Morgan Stanley Global Dividend Growth Securities
(28) Morgan Stanley Global Utilities Fund
(29) Morgan Stanley Growth Fund


                                       6


(30) Morgan Stanley Health Sciences Trust
(31) Morgan Stanley High Yield Securities Inc.
(32) Morgan Stanley Income Builder Fund
(33) Morgan Stanley Income Trust
(34) Morgan Stanley Information Fund
(35) Morgan Stanley International Fund
(36) Morgan Stanley International SmallCap Fund
(37) Morgan Stanley International Value Equity Fund
(38) Morgan Stanley Japan Fund
(39) Morgan Stanley KLD Social Index Fund
(40) Morgan Stanley Limited Duration Fund
(41) Morgan Stanley Limited Duration U.S. Treasury Trust
(42) Morgan Stanley Limited Term Municipal Trust
(43) Morgan Stanley Liquid Asset Fund Inc.
(44) Morgan Stanley Mid-Cap Value Fund
(45) Morgan Stanley Nasdaq-100 Index Fund
(46) Morgan Stanley Natural Resource Development Securities Inc.
(47) Morgan Stanley New York Municipal Money Market Trust
(48) Morgan Stanley New York Tax-Free Income Fund
(49) Morgan Stanley Pacific Growth Fund Inc.
(50) Morgan Stanley Prime Income Trust
(51) Morgan Stanley Real Estate Fund
(52) Morgan Stanley S&P 500 Index Fund
(53) Morgan Stanley Select Dimensions Investment Series
(54) Morgan Stanley Small-Mid Special Value Fund
(55) Morgan Stanley Special Growth Fund
(56) Morgan Stanley Special Value Fund
(57) Morgan Stanley Strategist Fund
(58) Morgan Stanley Tax-Exempt Securities Trust
(59) Morgan Stanley Tax-Free Daily Income Trust


                                       7


(60) Morgan Stanley Total Market Index Fund
(61) Morgan Stanley Total Return Trust
(62) Morgan Stanley U.S. Government Money Market Trust
(63) Morgan Stanley U.S. Government Securities Trust
(64) Morgan Stanley Utilities Fund
(65) Morgan Stanley Value Fund
(66) Morgan Stanley Variable Investment Series

(b)      The following information is given regarding directors and officers of
Morgan Stanley Distributors not listed in Item 26 above. The principal address
of Morgan Stanley Distributors is 1221 Avenue of the Americas, New York, New
York 10020. None of the following persons has any position or office with the
Registrant.

                                    POSITIONS AND OFFICE WITH
NAME                               MORGAN STANLEY DISTRIBUTORS
----                       ----------------------------------------------
Fred Gonfiantini           Executive Director and Financial Operations
                           Principal of Morgan Stanley Distributors Inc.

(c)      Not applicable.

ITEM 28. LOCATION OF ACCOUNTS AND RECORDS

     Books or other documents required to be maintained by Section 31(a) of the
Investment Company Act of 1940, and the rules promulgated thereunder, are
maintained as follows:

          The Bank of New York
          100 Church Street
          New York, New York 10286
          (records relating to its function as custodian)

          Morgan Stanley Investment Advisors Inc.
          1221 Avenue of the Americas
          New York, New York 10020
          (records relating to its function as investment adviser)

          Morgan Stanley Trust
          Harborside Financial Center, Plaza Two
          2nd Floor
          Jersey City, New Jersey 07311
          (records relating to its function as transfer agent and dividend
          disbursing agent)

          Morgan Stanley Services Company Inc.
          Harborside Financial Center, Plaza Two
          7th Floor
          Jersey City, New Jersey 07311
          (records relating to its function as administrator)

ITEM 29. MANAGEMENT SERVICES

     Registrant is not a party to any such management-related service contract.

ITEM 30. UNDERTAKINGS

     None.

                                       8


                                   SIGNATURES
                                   ----------

         Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all the
requirements for effectiveness of this Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this Post-Effective
Amendment to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York and State of New
York on the 27th day of April, 2005.

                                   MORGAN STANLEY AMERICAN OPPORTUNITIES FUND

                                   By /s/ Amy R. Doberman
                                      -------------------------------
                                          Amy R. Doberman
                                          Vice President


         Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 31 has been signed below by the following persons
in the capacities and on the dates indicated.




         Signatures                               Title                      Date
         ----------                               -----                      ----

(1) Principal Executive Officer          Executive Vice President
                                         and Principal Executive
By  /s/ Ronald E. Robison                Officer                        April 27, 2005
    --------------------------
        Ronald E. Robison

(2) Principal Financial Officer          Chief Financial Officer


By  /s/ Francis Smith                                                   April 27, 2005
    -----------------------
        Francis Smith

(3) Majority of the Trustees

    Charles A. Fiumefreddo (Chairman)
    James F. Higgins

By  /s/ Barry Fink                                                      April 27, 2005
    --------------------------------
        Barry Fink
        Attorney-in-Fact

    Michael Bozic               Joseph J. Kearns
    Edwin J. Garn               Michael E. Nugent
    Wayne E. Hedien             Fergus Reid
    Manuel H. Johnson

By  /s/ Carl Frischling                                                 April 27, 2005
    ---------------------
        Carl Frischling
        Attorney-in-Fact






                   MORGAN STANLEY AMERICAN OPPORTUNITIES FUND

                                  Exhibit Index


(i)(1). --  Opinion and Consent of Clifford Chance US LLP.

   (2). --  Opinion of Dechert LLP, Massachusetts Counsel.

(j).    --  Consent of Independent Registered Public Accounting Firm.