AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 23, 2005
                                                        REGISTRATION NO. 2-66268
                                                                        811-2979
================================================================================

                      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. 28                    [X]
                                     AND/OR
               REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
                                   ACT OF 1940                             [X]
                                AMENDMENT NO. 29                           [X]

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

                   MORGAN STANLEY TAX-EXEMPT SECURITIES TRUST
                       (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
                          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
           919 THIRD AVENUE                         31 WEST 52ND STREET
       NEW YORK, NEW YORK 10019                  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)
                    ---
                        on (date) pursuant to paragraph (b)
                    ---
                        60 days after filing pursuant to paragraph (a)(1)
                    ---
                     X  On April 29, 2005 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



                                                                  Morgan Stanley
                                                                      Tax-Exempt
                                                                Securities Trust




              A mutual fund that seeks to provide a high level of current income
     exempt from federal income tax, consistent with the preservation of capital




MORGAN STANLEY



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....................................................8



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



SHAREHOLDER INFORMATION



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


      How to Buy Shares....................................................10


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


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


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


      Frequent Purchases and Redemptions of Fund Shares....................16


      Tax Consequences.....................................................17


      Share Class Arrangements.............................................18


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



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



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

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




The Fund

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INVESTMENT OBJECTIVE


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  Morgan Stanley Tax-Exempt Securities Trust seeks to provide a high level of
current income exempt from federal income tax, consistent with the
preservation of capital.

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PRINCIPAL INVESTMENT STRATEGIES

----------------
INCOME
An investment objective having the goal of selecting securities to pay out
income rather than rise in price.


[GRAPHIC OMITTED]


  The Fund will normally invest at least 80% of its assets in securities that
pay interest exempt from federal income taxes. This policy is fundamental
and may not be changed without shareholder approval. The Fund's "Investment
Adviser," Morgan Stanley Investment Advisors Inc., generally invests the Fund's
assets in municipal obligations. Municipal obligations are bonds, notes or
short-term commercial paper issued by state governments, local governments,
and/or their respective agencies. At least 75% of these municipal obligations
will have the following ratings at the time of purchase:

o    municipal bonds -- within the three highest grades by Moody's Investors
     Service Inc. ("Moody's"), Standard & Poor's Corporation ("S&P"), or Fitch
     IBCA Inc. ("Fitch");

o    municipal notes -- within the two highest grades or, if not rated, have
     outstanding bonds within the three highest grades by Moody's, S&P or Fitch;
     and

o    municipal commercial paper -- within the highest grade by Moody's, S&P or
     Fitch.

The Fund may invest up to 25% of its net assets in municipal obligations that
are rated below the limits stated above or are not rated by those rating
agencies. However, the Fund may only invest up to 5% of its net assets in
municipal obligations rated below investment grade or, if unrated, of
comparable quality as determined by the Investment Adviser (commonly known as
"junk bonds").


The Fund may invest up to 10% of its net assets in inverse floating rate
municipal obligations. The interest rates on these obligations generally move
in the reverse direction of market interest rates. If market interest rates
fall, the interest rate on the obligations will increase and if market interest
rates increase, the interest rate on the obligations will fall.


The Fund may invest up to 20% of its assets in taxable money market instruments
or securities that pay interest income subject to the "alternative minimum
tax," and some taxpayers may have to pay tax on a Fund distribution of this
income. The Fund therefore may not be a suitable investment for these
investors. See the "Tax Consequences" section for more details.

                                                                               1





Municipal bonds, notes and commercial paper are commonly classified as either
"general obligation" or "revenue." General obligation bonds, notes, and
commercial paper are secured by the issuer's faith and credit including its
taxing power, for payment of principal and interest. Revenue bonds, notes and
commercial paper, however, are generally payable from a specific revenue
source. They are issued to fund a wide variety of public and private projects
in sectors such as public utilities, hospitals, housing, airports and highways,
and educational facilities. The Fund's municipal obligation investments may
include zero coupon securities, which are purchased at a discount and accrue
interest, but make no interest payments until maturity. In addition, the Fund
may invest in lease obligations and private activity bonds. Lease obligations
may take the form of a lease or an installment purchase contract issued by
public authorities to acquire a wide variety of equipment and facilities.
Private activity bonds are issued by, or on behalf of, public authorities to
finance privately operated facilities.


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


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  There is no assurance that the Fund will achieve its investment objective.
The Fund's share price and yield will fluctuate with changes in the market
value and/or yield 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.


CREDIT AND INTEREST RATE RISKS.  Municipal obligations, like other debt
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. In the
case of revenue bonds, notes or commercial paper, for example, the credit risk
is the possibility that the user fees from a project or other specified revenue
sources are insufficient to meet interest and/or principal payment obligations.
The issuers of private activity bonds, used to finance such projects as
industrial development and pollution control, also may be negatively impacted
by the general credit of the user of the project.


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 current interest.


The Fund is not limited as to the maturities of the municipal obligations in
which it may invest. Thus, a rise in the general level of interest rates may
cause the price of the Fund's portfolio securities to fall substantially.


LEASE OBLIGATIONS.  Lease obligations may have risks not normally associated
with general obligation or other revenue bonds. Leases and installment purchase
or conditional sale contracts (which may provide for title to the leased asset
to pass eventually to the issuer) have developed, in part, as a means for
governmental issuers to acquire property and equipment without the necessity of
complying with the constitutional and statutory requirements generally
applicable for the issuance of debt. Certain lease obligations contain
"non-appropriation" clauses that provide that the governmental issuer has no
obligation to make future payments under the lease or contract unless

2




money is appropriated for that purpose by the appropriate legislative body on
an annual or other periodic basis. Consequently, continued lease payments on
those lease obligations containing "non-appropriation" clauses are dependent on
future legislative actions. If these legislative actions do not occur, the
holders of the lease obligation may experience difficulty in exercising their
rights, including disposition of the property.


PRIVATE ACTIVITY BONDS.  The issuers of private activity bonds in which the
Fund may invest may be negatively impacted by conditions affecting either the
general credit of the user of the private activity project or the project
itself. Conditions such as regulatory and environmental restrictions and
economic downturns may lower the need for these facilities and the ability of
users of the project to pay for the facilities. This could cause a decline in
the Fund's value. The Fund's private activity bond holdings also may pay
interest subject to the alternative minimum tax. See the "Tax Consequences"
section for more details.


INVERSE FLOATING RATE MUNICIPAL OBLIGATIONS.  The inverse floating rate
municipal obligations in which the Fund may invest are typically created
through a division of a fixed rate municipal obligation into two separate
instruments, a short-term obligation and a long-term obligation. The interest
rate on the short-term obligation is set at periodic auctions. The interest
rate on the long-term obligation which the Fund may purchase is the rate the
issuer would have paid on the fixed-income obligation: (i) plus the difference
between such fixed rate and the rate on the short-term obligation, if the
short-term rate is lower than the fixed rate; or (ii) minus such difference if
the interest rate on the short-term obligation is higher than the fixed rate.
Inverse floating rate municipal obligations offer the potential for higher
income than is available from fixed rate obligations of comparable maturity and
credit rating. They also carry greater risks. In particular, the prices of
inverse floating rate municipal obligations are more volatile, i.e., they
increase and decrease in response to changes in interest rates to a greater
extent than comparable fixed rate obligations.



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
investment strategies. 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




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

----------------
ANNUAL TOTAL RETURNS
This chart shows how the performance of the Fund's Class D shares has varied
from year to year over the past 10 calendar years.


[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

[GRAPHIC OMITTED]


20%

     17.37%

15%

                                             11.44%
10%                   8.73%                                   9.21%
                             6.11%                                   5.67%

 5%           3.61%                                   4.31%


 0%

                                     -2.71%
-5%


-10%



     1995    1996   1997    1998     1999     2000    2001   2002   2003    2004




The bar chart reflects the performance of Class D shares. All shares held prior
to the Fund adopting its Multi-Class Structure on July 28, 1997 were designated
Class D Shares. Prior to that date, shares were subject to a front-end sales
charge, which is not reflected in the bar chart. The performance of the other
Classes will differ because the Classes have different ongoing fees. The
year-to-date return as of March 31, 2005 was      %.



During the periods shown in the bar chart, the highest return for a calendar
quarter was    % (quarter ended   ) and the lowest return for a calendar
quarter was      % (quarter ended   ).


4





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


----------------
AVERAGE ANNUAL
TOTAL RETURNS

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





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

  Class A1: Return Before Taxes                                              %           %          %       --
            Return After Taxes on Distributions(2)                           %           %          %       --
            Return After Taxes on Distributions and Sale of Fund Shares      %           %          %       --
            Lehman Brothers Municipal Bond Index(3)                          %           %          %       --
            Lipper General Municipal Debt Funds Index(4)                     %           %          %       --
  Class B5: Return Before Taxes                                              %           %       --            %
            Lehman Brothers Municipal Bond Index(3)                          %           %       --            %(7)
            Lipper General Municipal Debt Funds Index(4)                     %           %       --            %
  Class C5: Return Before Taxes                                              %           %       --            %
            Lehman Brothers Municipal Bond Index(3)                          %           %       --            %(7)
            Lipper General Municipal Debt Funds Index(4)                     %           %       --            %
  Class D6: Return Before Taxes                                              %           %          %      --
            Return After Taxes on Distributions(2)                           %           %          %      --
            Return After Taxes on Distributions and Sale of Fund Shares      %           %          %      --
            Lehman Brothers Municipal Bond Index(3)                          %           %          %      --
            Lipper General Municipal Debt Funds Index(4)                     %           %          %      --




(1)   Prior to July 28, 1997, the Fund offered only one class of shares.
      Because the distribution arrangement for Class A most closely resembled
      the distribution arrangement applicable prior to the implementation of
      multiple classes (i.e., Class A is sold with a front-end sales charge),
      historical performance information has been restated to reflect the
      actual maximum sales charge applicable to Class A (i.e., 4.25%) as
      compared to the 4.00% sales charge in effect prior to July 28, 1997. In
      addition, Class A shares are now subject to an ongoing 12b-1 fee which is
      reflected in the restated performance for that class.


(2)   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.

(3)   The Lehman Brothers Municipal Bond Index tracks the performance of
      municipal bonds rated at least Baa or BBB by Moody's Investor Service,
      Inc. or Standard & Poor's Corporation, respectively, and with maturities
      of 2 years or greater. 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 General Municipal Debt Funds Index is an equally weighted
      performance index of the largest qualifying funds (based on net assets)
      in the Lipper General Municipal Debt 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.

(5)   Classes B and C commenced operations on July 28, 1997.

(6)   Because all shares of the Fund held prior to July 28, 1997 were
      designated Class D shares, the Fund's historical performance has been
      restated to reflect the absence of any sales charge.


(7)   For the period July 31, 1997 through December 31, 2004.


Included in the table above are the after-tax returns for the Fund's Class A
and Class D shares. The after-tax returns for the Fund's other Classes will
vary from the Class A and Class D 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.

                                                                               5





After-tax returns may be higher than before-tax returns due to foreign tax
credits and/or an assumed benefit from capital losses that would have been
realized had Fund shares been sold at the end of the relevant periods, as
applicable.

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


[GRAPHIC OMITTED]



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

SHAREHOLDER FEES

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



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

These expenses are deducted from the Fund's assets.




                                                                   CLASS A       CLASS B       CLASS C     CLASS D

  Maximum sales charge (load) imposed on purchases (as a
  percentage of offering price)                                    4.25%(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*                                   %          %          %           %
  Distribution and service (12b-1) fees           %          %          %      None
  Other expenses*                                 %          %          %           %
  Total annual Fund operating expenses*           %          %          %           %




*     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 charge 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 (redeem) 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     $          $           $           $           $          $           $            $
   Class B     $          $           $           $           $          $           $            $
   Class C     $          $           $           $           $          $           $            $
   Class D     $          $           $           $           $          $           $            $


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.
Effective March 1, 2005, Morgan Stanley DW Inc. ("Morgan Stanley DW") will
charge 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.


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 taxable securities, or in tax-exempt securities subject
to the federal alternative minimum tax for individual shareholders 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 Fund's ability to provide
tax-exempt income. When the Fund takes a defensive position, it may not achieve
its investment objective.



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 will generally 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. Unless otherwise indicated, the Fund may change its
principal investment strategies without shareholder approval; however, you
would be notified of any changes.

                                                                               7





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


[GRAPHIC OMITTED]


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


BOND INSURANCE RISK.  Many of the municipal obligations the Fund invests in
will be covered by insurance at the time of issuance or at a later date. Such
insurance guarantees that interest payments on a bond will be made on time and
that principal will be repaid when the bond matures. Insured municipal
obligations would generally be assigned a lower rating if the rating were based
primarily on the credit quality of the issuer without regard to the insurance
feature. If the claims-paying ability of the insurer were downgraded, the
ratings on the municipal obligations it insures may also be downgraded.

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

PORTFOLIO HOLDINGS


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


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

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


The Investment Adviser is widely recognized as a leader in the mutual fund
industry and had approximately $    billion in assets under management or
administration as of March 31, 2005.


[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 by the Municipal Fixed-Income team. Current members of the
team include James F. Willison, a Managing Director of the Investment Adviser,
Joseph R. Arcieri, an Executive Director of the Investment Adviser, and Robert
W. Wimmel, a Vice President of the Investment Adviser.

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 rate of
0.50% of the portion of the daily net assets not exceeding $500 million; 0.425%
of the portion of the daily net assets exceeding $500 million but not exceeding
$750 million; 0.375% of the portion of the daily net assets exceeding $750
million but not exceeding $1 billion; 0.35%


8






of the portion of the daily net assets exceeding $1 billion but not exceeding
$1.25 billion; and 0.325% of the portion of the daily net assets exceeding
$1.25 billion. For the fiscal year ended December 31, 2004, the Fund paid total
compensation to the Investment Adviser amounting to      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 0.42% of the portion of the daily net assets not
exceeding $500 million; 0.345% of the portion of the daily net assets exceeding
$500 million but not exceeding $750 million; 0.295% of the portion of the daily
net assets exceeding $750 million but not exceeding $1 billion; 0.27% of the
portion of the daily net assets exceeding $1 billion but not exceeding $1.25
billion; 0.245% of the portion of the daily net assets exceeding $1.25 billion
but not exceeding $2.5 billion; 0.22% of the portion of the daily net assets
exceeding $2.5 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 Administration. Such change resulted in a
0.08% reduction in the advisory fee concurrent with the implementation of a
0.08% administration fee pursuant to the new administration agreement.

                                                                               9






Shareholder Information

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


[GRAPHIC OMITTED]


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


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


The Fund's portfolio securities (except for short-term taxable debt securities
and certain other investments) are valued by an outside independent pricing
service. The service uses a computerized grid matrix of tax-exempt securities
and its evaluations in determining what it believes is the fair value of the
portfolio securities. The Fund's Board of Trustees believes that timely and
reliable market quotations are generally not readily available to the Fund to
value tax-exempt securities and the valuations that the pricing service
supplies are more likely to approximate the fair value of the securities.


An exception to the Fund's general pricing policy concerns its short-term debt
portfolio securities.

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

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.

--------------------------------------------------------------------------------
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. Your Financial Advisor or other authorized financial representative
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

10





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 and additional investment amounts in certain cases. If you
purchase Fund shares through a Financial Advisor, you begin earning dividends
on the fourth business day following placement of your purchase order. If you
purchase Fund shares through the Fund's transfer agent, you begin earning
dividends on the next business day following placement of your order. We
reserve the right to reject any order for the purchase of Fund shares for any
reason.


ORDER PROCESSING FEE.  Effective March 1, 2005, Morgan Stanley DW will charge
clients an order processing fee of $5.25 (except in certain circumstances,
including, but not limited to, activity in fee-based acounts, 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.


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

MINIMUM INVESTMENT AMOUNTS




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

  Regular Accounts                                                                $  1,000      $    100
  EasyInvest (Registered Trademark)
  (Automatically from your checking or savings account or Money Market Fund)      $    100*     $    100*



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


There is no minimum investment amount if you purchase Fund shares through: (1)
the Investment Adviser's mutual fund asset allocation program; (2) a program,
approved by the Fund's distributor, in which you pay an asset-based fee for
advisory, administrative and/or brokerage services; (3) certain investment
programs approved by the Fund's distributor that do

                                                                              11





not charge an asset-based fee; (4) employer-sponsored employee benefit plan
accounts; (5) the reinvestment option offered to holders of certain unit
investment trusts or (6) 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 Tax-Exempt
     Securities Trust.

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

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



[GRAPHIC OMITTED]

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


12




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



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



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


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


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


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


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 further 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.

                                                                              13





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

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


[GRAPHIC OMITTED]


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




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

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

                   o your account number;
                   o the name of the Fund;
                   o the dollar amount or the number of shares you wish to sell;
                   o the Class of shares you wish to sell; and
                   o the signature of each owner as it appears on the account.

                   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.



14








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.  Effective March 1, 2005, Morgan Stanley DW will charge
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.



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.

                                                                              15




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

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


[GRAPHIC OMITTED]


  The Fund passes substantially all of its earnings from income and capital
gains along to its investors as "distributions." The Fund earns 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 declared on each day the New York
Stock Exchange is open for business, and are distributed to shareholders
monthly. 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,
processing of your dividend checks begins immediately following the monthly
payment date, and the Fund will mail a monthly dividend check to you normally
during the first seven days of the following month. No interest will accrue on
uncashed checks. If you wish to change how your distributions are paid, your
request should be received by the Transfer Agent at least five business days
prior to the record date of the distributions.

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


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


The Fund discourages 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, the Fund's policies regarding frequent trading of Fund shares are
applied uniformly to all shareholders. With respect to trades that occur
through omnibus accounts at intermediaries, such as investment managers,
broker-dealers, transfer agents and third party administrators, the


16






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.


You need to be aware of the possible tax consequences when:

o    The Fund makes distributions; and

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

TAXES ON DISTRIBUTIONS.  Your income dividend distributions are normally exempt
from federal income taxes -- to the extent they are derived from municipal
obligations. Income derived from other portfolio securities may be subject to
federal, state and/or local income taxes.


Income derived from some municipal securities is subject to the federal
"alternative minimum tax." Certain tax-exempt securities whose proceeds are
used to finance private, for-profit organizations are subject to this special
tax system that ensures that individuals pay at least some federal taxes.
Although interest on these securities is generally exempt from federal income
tax, some taxpayers who have many tax deductions or exemptions nevertheless may
have to pay tax on the income.


If you borrow money to purchase shares of the Fund, the interest on the
borrowed money is generally not deductible for income tax purposes.


If the Fund makes any capital gain distributions, those distributions will
normally be subject to federal income tax when they are paid, whether you take
them in cash or reinvest them in the Fund shares. Any long-term capital gain
distributions are taxable to you as long-term capital gains, no matter how long
you have owned shares in the Fund.


The Fund may derive gains in part from municipal obligations the Fund purchased
below their principal or face values. All, or a portion, of these gains may be
taxable to you as ordinary income rather than capital gains.

                                                                              17





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
full 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.


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 4.25% initial sales charge reduced for purchases of
           $25,000 or more; shares purchased without an initial sales
           charge are generally subject to a 1.00% CDSC if sold during the
           first 18 months*                                                                  0.25%

   B       Maximum 5.00% CDSC during the first year decreasing to 0%
           after six years                                                                   0.60%

   C       1.00% CDSC during the first year                                                  0.70%

   D          None                                                                           None




*     Sales 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


18






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 4.25% 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 1.0% 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 distribution (12b-1) fee of up to
0.25% of the average daily net assets of the Class. This fee is lower than the
distribution fee paid by Class B or Class C shares.

                                                                              19





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 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.




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

  Less than $25,000                             4.25%                   4.44%
  $25,000 but less than $50,000                 4.00%                   4.17%
  $50,000 but less than $100,000                3.50%                   3.63%
  $100,000 but less than $250,000               2.75%                   2.83%
  $250,000 but less than $500,000               2.25%                   2.30%
  $500,000 but less than $1 million             1.75%                   1.78%
  $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    Tax-exempt organizations.

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


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, 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.


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


20




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

o    Holders of the following UITs for which the Fund serves as an investment
     option for reinvesting UIT distributions: (i) Morgan Stanley Select
     Municipal Trust, and (ii) certain UITs held (in street name) by Morgan
     Stanley DW Inc. Class A shares of the Fund may in the future also be
     offered at net asset value without a sales charge or CDSC to holders of
     other UITs. Holders may elect to reinvest UIT distributions in Class A
     shares of the Fund, or may elect to reinvest only the interest portion or
     the principal portion of the distributions. At any time such holders may
     change the type of distributions that are reinvested in Class A shares of
     the Fund (e.g., from reinvesting interest distributions only to reinvesting
     all distributions) by notifying their broker or, in the case of holders of
     units of Morgan Stanley Select Municipal Trust, by notifying the UIT's
     Trustee in writing. If you are a holder and wish to participate in this
     reinvestment option, you should notify your broker. UIT distributions will
     be invested in Class A shares of the Fund no later than the next business
     day after the distribution is made.

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.

                                                                              21




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


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

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




 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. A lower CDSC schedule applies in most cases to shares of the
Fund acquired in connection with the reorganization of Dean Witter National
Municipal Trust and the Fund on November 7, 1997.

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


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

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

o    Sales in connection with the following retirement plan "distributions": (i)
     lump-sum or other distributions from a qualified corporate or self-employed
     retirement plan following retirement (or, in the case of a "key employee"
     of a "top heavy" plan, following attainment of age 591/2); (ii)
     distributions from an IRA or 403(b) Custodial Account following attainment
     of age 591/2;
22





     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 termintation.


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


DISTRIBUTION FEE.  Class B shares are also subject to an annual distribution
(12b-1) and shareholder services fee of up to 0.60% of the average daily net
assets of Class B. This fee is higher than the annual distribution fee paid by
Class A shares.

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

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


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.

                                                                              23




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

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


DISTRIBUTION FEE.  Class C shares are subject to an annual distribution (12b-1)
fee of up to 0.70% of the average daily net assets of that Class. This fee is
higher than the annual distribution fee paid by Class A. Unlike Class B shares,
Class C shares have no conversion feature and, accordingly, an investor that
purchases Class C shares may be subject to distribution (12b-1) fees applicable
to Class C shares for 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 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.

24




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

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.


MEETING CLASS D ELIGIBILITY MINIMUMS.  To meet the $5 million 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.

                                                                              25




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


PLAN OF DISTRIBUTION (RULE 12B-1 FEES) The Fund has adopted a Plan of
Distribution in accordance with Rule 12b-1 under the Investment Company Act of
1940 with respect to the distribution of Class A, Class B and Class C shares.
(Class D shares are offered without any distribution fee). The Plan allows the
Fund to pay distribution fees for the sale and distribution of these shares. It
also allows the Fund to pay for services to shareholders of Class A, Class B and
Class C shares. Because these fees are paid out of the Fund's assets on an
ongoing basis, over time these fees will increase the cost of your investment
and reduce your return in these Classes and may cost you more than paying other
types of sales charges.

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

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


26




Financial Highlights


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


This information has been audited by      , 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          $ 11.97     $ 11.88      $ 11.50     $ 11.71        $ 11.08
                                              -------     --------     --------    -------        -------
Income (loss) from investment operations:
  Net investment income                          0.53        0.54         0.56        0.59           0.58
  Net realized and unrealized gain (loss)       (0.09)       0.10         0.46       (0.12)          0.63
                                              -------     --------     --------    -------        -------
Total income from investment operations          0.44        0.64         1.02        0.47           1.21
                                              -------     --------     --------    -------        -------
Less dividends and distributions from:
  Net investment income                         (0.53)      (0.54)       (0.56)      (0.58)         (0.58)
  Net realized gain                             (0.06)      (0.01)       (0.08)      (0.10)            --
                                              -------     --------     --------    -------        -------
Total dividends and distributions               (0.59)      (0.55)       (0.64)      (0.68)         (0.58)
                                              -------     --------     --------    -------        -------
Net asset value, end of period                $ 11.82     $ 11.97      $ 11.88     $ 11.50        $ 11.71
---------------------------------------------------------------------------------------------------------
TOTAL RETURN(+)                                  3.82%       5.53%        9.03%      4.05%         11.21%
---------------------------------------------------------------------------------------------------------

RATIOS TO AVERAGE NET ASSETS(2):
Expenses (before expense offset)                 0.65%       0.70%        0.67%       0.66%(1)      0.72%
Net investment income                            4.48%       4.58%        4.74%       4.97%         5.14%

SUPPLEMENTAL DATA:
Net assets, end of period, in thousands     $ 128,578    $119,199     $120,659     $26,984       $21,685
Portfolio turnover rate                            14%         15%          13%         17%           17%
---------------------------------------------------------------------------------------------------------




+    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)  Does not reflect the effect of expense offset of 0.01%.
(2)  Reflects overall Fund ratios for investment income and non-class specific
     expenses.

                                                                              27





Financial Highlights (Continued)


CLASS B SHARES






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

SELECTED PER SHARE DATA:
Net asset value, beginning of period         $  12.02     $ 11.93      $ 11.56        $  11.76        $ 11.13
                                             --------     --------     --------       --------        -------
Income (loss) from investment operations:
  Net investment income                          0.48        0.50         0.51            0.54           0.54
  Net realized and unrealized gain (loss)       (0.09)       0.09         0.45           (0.11)          0.63
                                             --------     --------     --------       --------        -------
Total income from investment operations          0.39        0.59         0.96            0.43           1.17
                                             --------     --------     --------       --------        -------
Less dividends and distributions from:
  Net investment income                         (0.48)      (0.49)       (0.51)          (0.53)         (0.54)
  Net realized gain                             (0.06)      (0.01)       (0.08)          (0.10)            --
                                             --------     --------     --------       --------        -------                                                                                                   ----------
Total dividends and distributions               (0.54)      (0.50)       (0.59)          (0.63)         (0.54)
                                             --------     --------     --------       --------        --------
Net asset value, end of period               $  11.87     $ 12.02      $ 11.93        $  11.56        $ 11.76
--------------------------------------------------------------------------------------------------------------
TOTAL RETURN(+)                                  3.34%       5.12%        8.44%           3.68%         10.75%
--------------------------------------------------------------------------------------------------------------

RATIOS TO AVERAGE NET ASSETS(2):
Expenses (before expense offset)                 1.11%       1.09%        1.09%           1.09%(1)       1.11%
Net investment income                            4.02%       4.19%        4.32%           4.54%          4.75%

SUPPLEMENTAL DATA:
Net assets, end of period, in thousands      $195,859     $231,146     $235,358       $200,293       $156,972
Portfolio turnover rate                            14%          15%          13%           17%             17%
---------------------------------------------------------------------------------------------------------------




+    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)  Does not reflect the effect of expense offset of 0.01%.
(2)  Reflects overall Fund ratios for investment income and non-class specific
     expenses.


28





CLASS C SHARES




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

SELECTED PER SHARE DATA:
Net asset value, beginning of period        $  11.99      $ 11.90     $ 11.53      $ 11.73         $ 11.10
                                            --------      -------     -------      -------         -------
Income (loss) from investment operations:
  Net investment income                         0.46         0.49        0.50         0.52            0.52
  Net realized and unrealized gain (loss)      (0.09)        0.09        0.44        (0.10)           0.63
                                            --------      -------     -------      -------         -------
Total income from investment operations         0.37         0.58        0.94         0.42            1.15
                                            --------      -------     -------      -------         -------
Less dividends and distributions from:
  Net investment income                       (0.46)        (0.48)      (0.49)       (0.52)          (0.52)
  Net realized gain                           (0.06)        (0.01)      (0.08)       (0.10)             --
                                            --------      -------     -------      -------         -------
Total dividends and distributions             (0.52)        (0.49)      (0.57)       (0.62)          (0.52)
                                            --------      -------     -------      -------         -------
Net asset value, end of period              $ 11.84       $ 11.99     $ 11.90      $ 11.53         $ 11.73
----------------------------------------------------------------------------------------------------------
TOTAL RETURN(+)                                3.24%         5.02%       8.34%        3.58%          10.66%
----------------------------------------------------------------------------------------------------------

RATIOS TO AVERAGE NET ASSETS(2):
Expenses (before expense offset)               1.21%         1.19%       1.19%        1.19%(1)        1.21%
Net investment income                          3.92%         4.09%       4.22%        4.44%           4.65%

SUPPLEMENTAL DATA:
Net assets, end of period, in thousands     $35,265       $41,661     $29,648      $16,270         $11,578
Portfolio turnover rate                          14%           15%         13%          17%             17%




+    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)  Does not reflect the effect of expense offset of 0.01%.
(2)  Reflects overall Fund ratios for investment income and non-class specific
     expenses.


                                                                              29




Financial Highlights (Continued)


CLASS D SHARES




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

SELECTED PER SHARE DATA:
Net asset value, beginning of period         $  11.96       $  11.88      $  11.50          $  11.70      $ 11.07
                                             --------       ---------     ---------         ---------     -------
Income (loss) from investment operations:
  Net investment income                          0.55           0.57          0.58              0.61         0.60
  Net realized and unrealized gain (loss)       (0.08)          0.08          0.46             (0.11)        0.63
                                             --------       ---------     ---------         ---------     -------
Total income from investment operations          0.47           0.65          1.04              0.50         1.23
                                             --------       ---------     ---------         ---------     -------
Less dividends and distributions from:
  Net investment income                         (0.55)         (0.56)        (0.58)            (0.60)       (0.60)
  Net realized gain                             (0.06)         (0.01)        (0.08)            (0.10)          --
                                             --------       ---------     ---------         ---------     -------

Total dividends and distributions               (0.61)         (0.57)        (0.66)            (0.70)       (0.60)
                                             --------       ---------     ---------         ---------   ----------
Net asset value, end of period               $  11.82       $  11.96      $  11.88          $  11.50      $ 11.70
------------------------------------------------------------------------------------------------------------------
TOTAL RETURN(+)                                  4.05%          5.67%         9.21%             4.31%       11.44%
------------------------------------------------------------------------------------------------------------------

RATIOS TO AVERAGE NET ASSETS(2):
Expenses (before expense offset)                 0.51%          0.49%         0.49%             0.49%(1)     0.51%
Net investment income                            4.62%          4.79%         4.92%             5.14%        5.35%

SUPPLEMENTAL DATA:
Net assets, end of period, in thousands      $950,792      $1,067,805   $1,152,783         $1,189,492    $852,950
Portfolio turnover rate                            14%             15%          13%                17%         17%




+    Calculated based on the net asset value as of the last business day of the
     period.
(1)  Does not reflect the effect of expense offset of 0.01%.
(2)  Reflects overall Fund ratios for investment income and non-class specific
     expenses.


30




Notes

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                                                                              31





Notes (Continued)

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32




Morgan Stanley Funds

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

Total Return Trust
Fund of Funds - Domestic Portfolio
------------------------
DOMESTIC HYBRID

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

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

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


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

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

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

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

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


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

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

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

California Tax-Free Income Fund

Limited Term Municipal Trust*+

New York Tax-Free Income Fund
Tax-Exempt Securities Trust


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

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

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

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


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

*    Single-Class Fund(s)

+    No-Load (mutual) Fund








[MORGAN STANLEY FUNDS GRAPHIC OMITTED]



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

The Fund's Statement of Additional Information also provides additional
information about the Fund. The Statement of Additional Information is
incorporated herein by reference (legally is part of this Prospectus). For a
free copy of any of these documents, to request other information about the
Fund, or to make shareholder inquiries, please call (800) 869-NEWS



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

                                                       Morgan Stanley Tax-Exempt
                                                                Securities Trust
                                                                     37950 04/05

Internet site at: WWW.MORGANSTANLEY.COM/FUNDS



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:
------------------
[GRAPHIC OMITTED]





CLASS A:     TAXAX CLASS B:    TAXBX
---------- ------- ---------- ------
CLASS C:     TAXCX CLASS D:    TAXDX
---------- ------- ---------- ------


(THE FUND'S INVESTMENT COMPANY ACT FILE NO. IS 811-2979)
CLF# 37950PRO-00
Investments and services offered through Morgan Stanley DW Inc., member SIPC.
Morgan Stanley Distributors Inc., member NASD.

(Copyright)  2005 Morgan Stanley

                                                                      Prospectus
                                                                  April 29, 2005

[GRAPHIC OMITTED]

STATEMENT OF ADDITIONAL INFORMATION       Morgan Stanley
                                          Tax-Exempt Securities Trust


April 29, 2005



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

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



Morgan Stanley
Tax-Exempt Securities Trust
1221 Avenue of the Americas
New York, NY 10020
(800) 869-NEWS



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




I.    Fund History .........................................................  4
II.   Description of the Fund and Its Investments and Risks ................  4
        A. Classification ..................................................  4
        B. Investment Strategies and Risks .................................  4
        C. Fund Policies/Investment Restrictions ...........................  9
        D. Disclosure of Portfolio Holdings ................................ 10
III.  Management of the Fund ............................................... 14
        A. Board of Trustees ............................................... 14
        B. Management Information .......................................... 14
        C. Compensation .................................................... 21
IV.   Control Persons and Principal Holders of Securities .................. 23
V.    Investment Management and Other Services ............................. 23
        A. Investment Adviser and Administrator ............................ 23
        B. Principal Underwriter ........................................... 24
        C. Services Provided by the Investment Adviser and the Administrator 25
        D. Dealer Reallowances ............................................. 26
        E. Rule 12b-1 Plan ................................................. 26
        F. Other Service Providers ......................................... 29
        G. Codes of Ethics ................................................. 30
        H. Proxy Voting Policy and Proxy Voting Record ..................... 30
        I. Revenue Sharing ................................................. 31
VI.   Brokerage Allocation and Other Practices ............................. 32
        A. Brokerage Transactions .......................................... 32
        B. Commissions ..................................................... 33
        C. Brokerage Selection ............................................. 33
        D. Directed Brokerage .............................................. 34
        E. Regular Broker-Dealers .......................................... 34
VII.  Capital Stock and Other Securities ................................... 34
VIII. Purchase, Redemption and Pricing of Shares ........................... 35
        A. Purchase/Redemption of Shares ................................... 35
        B. Offering Price .................................................. 36
IX.   Taxation of the Fund and Shareholders ................................ 37
X.    Underwriters ......................................................... 39
XI.   Performance Data ..................................................... 40
XII.  Financial Statements ................................................. 41
XIII. Fund Counsel ......................................................... 41
Appendix A Ratings of Investments ..........................................A-1


                                       2



                      GLOSSARY OF SELECTED DEFINED TERMS

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


     "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 is the Custodian of the Fund's assets.

     "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 Tax-Exempt Securities Trust, a registered open-end
investment company.

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

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

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

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

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

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

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

                                       3


I. FUND HISTORY
--------------------------------------------------------------------------------
     The Fund was incorporated in the State of Maryland on December 31, 1979
under the name InterCapital Tax-Exempt Securities Inc. On March 17, 1983, the
Fund's shareholders approved a change in the Fund's name, effective March 21,
1983, to Dean Witter Tax-Exempt Securities Inc. On April 30, 1987, the Fund
reorganized as a Massachusetts business trust, with the name Dean Witter
Tax-Exempt Securities Trust. Effective June 22, 1998, the Fund's name was
changed to Morgan Stanley Dean Witter Tax-Exempt Securities Trust. Effective
June 18, 2001, the Fund's name was changed to Morgan Stanley Tax-Exempt
Securities Trust.

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

     The Fund is an open-end, diversified management investment company whose
investment objective is to provide a high level of current income exempt from
federal income tax, consistent with the preservation of capital.

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."


     TAXABLE SECURITIES. The Fund may invest up to 20% of its total assets, or
more than 20% of its total assets when assuming a temporary defensive position,
in taxable money market instruments or in tax-exempt securities subject to the
federal alternative minimum tax for individual shareholders. Investments in
taxable money market instruments would generally be made under any one of the
following circumstances: (a) pending investment of proceeds of the sale of the
Fund's shares or of portfolio securities, (b) pending settlement of purchases
of portfolio securities and (c) to maintain liquidity for the purpose of
meeting anticipated redemptions.

     The types of taxable money market instruments in which the Fund may invest
are limited to the following short-term fixed-income securities (maturing in
one year or less from the time of purchase): (i) obligations of the U.S.
Government, its agencies, instrumentalities or authorities; (ii) commercial
paper rated P-1 by Moody's Investors Services, Inc. ("Moody's") or A-1 by
Standard & Poor's Corporation ("S&P"); (iii) certificates of deposit of
domestic banks with assets of $1 billion or more; and (iv) repurchase
agreements with respect to portfolio securities.

     VARIABLE RATE AND FLOATING RATE OBLIGATIONS. The Fund may invest in
Municipal Bonds and Municipal Notes ("Municipal Obligations") of the type
called variable rate. The interest rate payable on a variable rate obligation
is adjusted either at predesignated periodic intervals or whenever there is a
change in the market rate of interest on which the interest rate payable is
based. Other features may include the right whereby the Fund may demand
prepayment of the principal amount of the obligation prior to its stated
maturity (a "demand feature") and the right of the issue to prepay the
principal amount prior to maturity. The principal benefit of a variable rate
obligation is that the interest rate adjustment minimizes changes in the market
value of the obligation. The principal benefit to the Fund of purchasing
obligations with a demand feature is that liquidity, and the ability of the
Fund to obtain repayment of the full principal amount of an obligation prior to
maturity, is enhanced.

     FUTURES CONTRACTS AND OPTIONS ON FUTURES. The Fund may invest in financial
futures contracts ("futures contracts") and related options thereon. These
futures contracts and related options thereon will be used only as a hedge
against anticipated interest rate changes. A futures contract sale creates an
obligation by the Fund, as seller, to deliver the specific type of instrument
called for in the contract at a specified future time for a specified price. A
futures contract purchase would create an obligation by the Fund, as purchaser,
to take delivery of the specific type of financial instrument at a specified
future time at a specified price. The specific securities delivered or taken,
respectively, at settlement date, would not be determined until on or near that
date. The determination would be in accordance with the rules of the exchange
on which the futures contract sale or purchase was effected.


                                       4



     Although the terms of futures contracts specify actual delivery or receipt
of securities, in most instances the contracts are closed out before the
settlement date without the making or taking of delivery of the securities.
Closing out of a futures contract is usually effected by entering into an
offsetting transaction. An offsetting transaction for a futures contract sale
is effected by the Fund entering into a futures contract purchase for the same
aggregate amount of the specific type of financial instrument at the same
delivery date. If the price in the sale exceeds the price in the offsetting
purchase, the Fund is immediately paid the difference and thus realizes a gain.
If the offsetting purchase price exceeds the sale price, the Fund pays the
difference and realizes a loss. Similarly, the closing out of a futures
contract purchase is effected by the Fund entering into a futures contract
sale. If the offsetting sale price exceeds the purchase price, the Fund
realizes a gain, and if the offsetting sale price is less than the purchase
price, the Fund realizes a loss.

     Unlike a futures contract, which requires the parties to buy and sell a
security on a set date, an option on a futures contract entitles its holder to
decide on or before a future date whether to enter into such a contract (a long
position in the case of a call option and a short position in the case of a put
option). If the holder decides not to enter into the contract, the premium paid
for the contract is lost. Since the value of the option is fixed as the point
of sale, there are no daily payments of cash to reflect the change in the value
of the underlying contract, as discussed below for futures contracts. The value
of the option change is reflected in the net asset value of the particular Fund
holding the options.

     The Fund is required to maintain margin deposits with brokerage firms
through which it effects futures contracts and options thereon. The initial
margin requirements vary according to the type of the underlying security. In
addition, due to current industry practice, daily variations in gains and
losses on open contracts are required to be reflected in cash in the form of
variation margin payments. The Fund may be required to make additional margin
payments during the term of the contract.

     Currently, futures contracts can be purchased on debt securities such as
U.S. Treasury Bills and Bonds, U.S. Treasury Notes with maturities between
61|M/2 and 10 years, Certificates of the Government National Mortgage
Association, Bank Certificates of Deposit and on a municipal bond index. The
Fund may invest in interest rate futures contracts covering these types of
financial instruments as well as in new types of contracts that become
available in the future.

     Financial futures contracts are traded in an auction environment on the
floors of several Exchanges - principally, the Chicago Board of Trade, the
Chicago Mercantile Exchange and the New York Futures Exchange. Each Exchange
guarantees performance under contract provisions through a clearing
corporation, a nonprofit organization managed by the Exchange membership which
is also responsible for handling daily accounting of deposits or withdrawals of
margin. A risk in employing futures contracts may correlate imperfectly with
the behavior of the cash prices of the Fund's portfolio securities. The
correlation may be distorted by the fact that the futures market is dominated
by short-term traders seeking to profit from the difference between a contract
or security price objective and a short time period. The correlation may be
further distorted since the futures contracts that are being used to hedge are
not based on municipal obligations.


     Another risk is that the Fund's Investment Adviser could be incorrect in
its expectations as to the direction or extent of various interest rate
movements or the time span within which the movements take place. For example,
if the Fund sold futures contracts for the sale of securities in anticipation
of an increase in interest rates, and the interest rates went down instead,
causing bond prices to rise, the Fund would lose money on the sale. Put and
call options on financial futures have characteristics similar to Exchange
traded options.


     In addition to the risks associated in investing in options on securities,
there are particular risks associated with investing in options on futures. In
particular, the ability to establish and close out positions on such options
will be subject to the development and maintenance of a liquid secondary
market. It is not certain that such a market will develop.


     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



                                       5




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.


     MUNICIPAL BOND INDEX FUTURES. The Fund may utilize municipal bond index
futures contracts for hedging purposes. The strategies in employing such
contracts will be similar to that discussed above with respect to financial
futures and options thereon. A municipal bond index is a method of reflecting
in a single number the market value of many different municipal bonds and is
designed to be representative of the municipal bond market generally. The index
fluctuates in response to changes in the market values of the bonds included
within the index. Unlike futures contracts on particular financial instruments,
transactions in futures on a municipal bond index will be settled in cash, if
held until the close of trading in the contract. However, like any other
futures contract, a position in the contract may be closed out by a purchase or
sale of an offsetting contract for the same delivery month prior to expiration
of the contract.

     OPTIONS. The Fund may purchase or sell (write) options on debt securities
as a means of achieving additional return or hedging the value of the Fund's
portfolio. The Fund will only buy options listed on national securities
exchanges. The Fund will not purchase options if, as a result, the aggregate
cost of all outstanding options exceeds 10% of the Fund's total assets.


     [Presently there are no options on tax-exempt securities traded on
national securities exchanges. The Fund will not invest in options on debt
securities in the coming year or until such time as they become available on
national securities exchanges.]


     A call option is a contract that gives the holder of the option the right
to buy from the writer of the call option, in return for a premium, the
security underlying the option at a specified exercise price at any time during
the term of the option. The writer of the call option has the obligation, upon
exercise of the option, to deliver the underlying security upon payment of the
exercise price during the option period. A put option is a contract that gives
the holder of the option the right to sell to the writer, in return for a
premium, the underlying security at a specified price during the term of the
option. The writer of the put has the obligation to buy the underlying security
upon exercise, at the exercise price during the option period.

     The Fund will only write covered call or covered put options listed on
national exchanges. The Fund may not write covered options in an amount
exceeding 20% of the value of the total assets of the Fund. 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. 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.

     If the Fund has written an option, it may terminate its obligation by
effecting a closing purchase transaction. This 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. Similarly, if the Fund is the holder of an
option, it may liquidate its position by effecting a closing sale transaction.
This is accomplished by selling an option of the same fund as the option
previously purchased. There can be no assurance that either a closing purchase
or sale transaction on behalf of the Fund can be effected when the Fund so
desires.

                                       6



     The Fund will realize a profit from a closing transaction if the price of
the transaction is less than the premium received from writing the option or is
more than the premium paid to purchase the option; the Fund will realize a loss
from a closing transaction if the price of the transaction is more than the
premium received from writing the option or is less than the premium paid to
purchase the option. Since call option prices generally reflect increases in
the price of the underlying security, any loss resulting from the purchase of a
call option may also be wholly or partially offset by unrealized appreciation
of the underlying security. If a put option written by the Fund is exercised,
the Fund may incur a loss equal to the difference between the exercise price of
the option and the sum of the sale price of the underlying security plus the
premiums received from the sale of the option. Other principal factors
affecting the market value of a put or a call option include supply and demand,
interest rates, the current market price and price volatility of the underlying
security and the time remaining until the expiration date.

     An option position may be closed out only on an exchange which provides a
secondary market for an option of the same series. Although the Fund will
generally purchase or write only those options for which there appears to be an
active secondary market, there is no assurance that a liquid secondary market
on an exchange will exist for any particular option. In such event, it might
not be possible to effect closing transactions in particular options, so that
the Fund would have to exercise its options in order to realize any profit and
would incur brokerage commission upon the exercise of call options and upon
covered call option writer is unable to effect a closing purchase transaction
in a secondary market, it will not be able to sell the underlying security
until the option expires or it delivers the underlying security upon exercise.

     If the Fund maintains a short position in a futures contract or has sold a
call option in a futures contract, it will cover this position by holding, in a
segregated account maintained on the books of the Fund, cash, U.S. government
securities or other liquid portfolio securities equal in value (when added to
any initial or variation margin on deposit) to the market value of the
securities underlying the futures contract 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.

     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



                                       7




Investment Adviser subject to procedures established by the Trustees. 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 form 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 10% of its net
assets.


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


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


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



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



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



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

                                       8



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 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.

C. FUND POLICIES/INVESTMENT RESTRICTIONS

     The investment objective, policies and restrictions listed below have been
adopted by the Fund as fundamental policies. Under the Investment Company Act,
a fundamental policy may not be changed without the vote of a majority of the
outstanding voting securities of the Fund. The Investment Company Act defines a
majority as the lesser of (a) 67% or more of the shares present at a meeting of
shareholders, if the holders of 50% of the outstanding shares of the Fund are
present or represented by proxy; or (b) more than 50% of the outstanding shares
of the Fund.


     In addition, for purposes of the following restrictions: (a) an "issuer"
of a security is the entity whose assets and revenues are committed to the
payment of interest and principal on that particular security, provided that
the guarantee of a security will be considered a separate security and provided
further that a guarantee of a security shall not be deemed a security issued by
the guarantor if the value of all securities guaranteed by the guarantor and
owned by the Fund does not exceed 10% of the value of the total assets of the
Fund; (b) a "taxable security" is any security the interest on which is subject
to federal income tax; and (c) all percentage limitations apply immediately
after a purchase or initial investment, except in the case of borrowing and
investments in illiquid securities and any subsequent change in any applicable
percentage resulting from market fluctuations or other changes in total or net
assets does not require elimination of any security from the portfolio.


     The Fund will:

     1.   Seek to provide a high level of current income exempt from federal
          income tax, consistent with the preservation of capital.

     2.   Invest, under normal circumstances, at least 80% of its assets in
          securities that pay interest normally exempt from federal income
          taxes.

     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 taxable debt securities of
          any one issuer (other than obligations issued, or guaranteed as to
          principal and interest by, the U.S. Government, its agencies or
          instrumentalities).

     3.   Invest more than 25% of the value of its total assets in taxable
          securities of issuers in any one industry (industrial development and
          pollution control bonds are grouped into industries based upon the
          business in which the issuers of such obligations are engaged). This
          restriction does not apply to obligations issued or guaranteed by the
          U.S. Government, its agencies or instrumentalities or to cash
          equivalents.

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

     5.   Invest in common stock.

                                       9



     6.   Write, purchase or sell puts, calls, or combinations thereof, except
          for options on futures contracts or options on debt securities.

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

     8.   Purchase or sell real estate or interests therein, although it may
          purchase securities secured by real estate or interests therein.

     9.   Purchase or sell commodities except that the Fund may purchase
          financial futures contracts and related options.

     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 the value of its total assets
          (not including the amount borrowed).

     11.  Pledge its assets or assign or otherwise encumber them except to
          secure permitted borrowing. However, for the purpose of this
          restriction, collateral arrangements with respect to the writing of
          options and collateral arrangements with respect to initial 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)
          purchasing any securities on a when-issued or delayed delivery basis;
          (c) purchasing or selling any financial futures contracts; (d)
          borrowing money; or (e) lending portfolio securities.

     13.  Make loans of money or securities, except: (a) by the purchase of debt
          obligations and (b) by investment in repurchase agreements.

     14.  Make short sales of securities.

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

     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.

     18.  Purchase oil, gas or other mineral leases, rights or royalty
          contracts, or exploration or development programs.

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

     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.


                                       10




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

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

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

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

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


     In addition, persons who owe a duty of trust or confidence to the
Investment Adviser or the Fund (such as legal counsel) may receive non-public
portfolio holdings information without entering into a nondisclosure agreement.


                                       11




     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, service providers and asset
allocators.


     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(*)
Fund Rating Agencies
     Lipper(*)                   Complete portfolio holdings      Quarterly basis          Approximately 30 days after
                                                                                           quarter end
Morningstar(**)                  Complete portfolio holdings      Quarterly basis          Approximately 30 days after
                                                                                           quarter end
Standard & Poor's(*)             Complete portfolio holdings      Quarterly basis          Approximately 15 day lag
Consultants and Analysts
Americh Massena &                Top Ten and Complete             Quarterly basis(5)       Approximately 10-12 days after
 Associates, Inc.(*)             portfolio holdings                                        quarter end
  Bloomberg(**)                  Complete portfolio holdings      Quarterly basis          Approximately 30 days after
                                                                                           quarter end
Callan Associates(*)             Top Ten and Complete             Monthly and quarterly    Approximately 10-12 days after
                                 portfolio holdings               basis, respectively(5)   month/quarter end
Cambridge Associates(*)          Top Ten and Complete             Quarterly basis(5)       Approximately 10-12 days after
                                 portfolio holdings                                        quarter end
CTC Consulting, Inc.(**)         Top Ten and Complete             Quarterly basis          Approximately 15 days after
                                 portfolio holdings                                        quarter end and approximately
                                                                                           30 days after quarter end,
                                                                                           respectively
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
     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


                                       12







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

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




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

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

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

     The Fund may also provide Fund portfolio holdings information, as part of
its normal business activities, to the Fund's independent registered public
accounting firm (as of the Fund's fiscal year end and on an as needed basis),
the Fund's Administrator (on an as needed basis), the Fund's custodian (on an
as needed basis), counsel to the Fund (on an as needed basis), counsel to the
independent trustees (on an as needed basis) and 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.

     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).


                                       13




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

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

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


III. MANAGEMENT OF THE FUND
--------------------------------------------------------------------------------

A. BOARD OF TRUSTEES



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


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


B. MANAGEMENT INFORMATION

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

                                       14




     The Independent Trustees of the Fund, their age, address, term of office
and length of time served, their principal business occupations during the past
five years, the number of portfolios in the Fund Complex (defined below)
overseen by each Independent Trustee (as of December 31, 2004) and other
directorships, if any, held by the Trustees, are shown below. The Fund Complex
includes all open-end and closed-end funds (including all of their portfolios)
advised by the Investment Adviser and any funds that have an investment advisor
that is an affiliated person of the Investment Adviser (including but not
limited to Morgan Stanley Investment Management Inc.).






                                 Position(s)    Length of
     Name, Age and Address        Held with       Time
     of Independent Trustee       Registrant     Served*
------------------------------- ------------- ------------

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

Edwin J. Garn (72)              Trustee       Since
c/o Summit Ventures LLC                       January
1031 N. Chartwell Court                       1993
Salt Lake City, UT 84111-2215

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




                                                                       Number of
                                                                      Portfolios
                                                                        in Fund
                                                                        Complex
     Name, Age and Address             Principal Occupation(s)         Overseen         Other Directorships Held
     of Independent Trustee             During Past 5 Years**         by Trustee               by Trustee
------------------------------- ------------------------------------ ------------ -----------------------------------

Michael Bozic (64)              Private Investor; Director or            197      None.
c/o Kramer Levin Naftalis &     Trustee of the Retail Funds (since
Frankel LLP                     April 1994) and the Institutional
Counsel to the Independent      Funds (since July 2003); formerly
Trustees                        Vice Chairman of Kmart
919 Third Avenue                Corporation (December 1998-
New York, NY 10022              October 2000), Chairman and
                                Chief Executive Officer of Levitz
                                Furniture Corporation (November
                                1995-November 1998) and
                                President and Chief Executive
                                Officer of Hills Department Stores
                                (May 1991-July 1995); formerly
                                variously Chairman, Chief
                                Executive Officer, President and
                                Chief Operating Officer (1987-
                                1991) of the Sears Merchandise
                                Group of Sears, Roebuck & Co.

Edwin J. Garn (72)              Consultant. Director or Trustee of       197      Director of Franklin Covey (time
c/o Summit Ventures LLC         the Retail Funds (since January                   management systems), BMW
1031 N. Chartwell Court         1993) and the Institutional Funds                 Bank of North America, Inc.
Salt Lake City, UT 84111-2215   (since July 2003); member of the Utah             (industrial loan corporation),
                                Regional Advisory Board of                        Escrow Bank USA (industrial
                                Pacific Corp.; formerly Managing                  loan corporation) United Space
                                Director of Summit Ventures LLC                   Alliance (joint venture between
                                (2000-2004); United States                        Lockheed Martin and the
                                Senator (R-Utah)(1974-1992) and                   Boeing Company) and Nuskin
                                Chairman,Senate Banking                           Asia Pacific (multilevel
                                Committee(1980-1986), Mayor of                    marketing); member of the
                                Salt Lake City, Utah (1971-1974),                 board of various civic and
                                Astronaut, Space Shuttle                          charitable organizations.
                                Discovery (April 12-19, 1985),
                                and Vice Chairman, Huntsman
                                Corporation (chemical company).

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



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


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

                                       15







                               Position(s)   Length of
    Name, Age and Address       Held with       Time
    of Independent Trustee      Registrant    Served*
----------------------------- ------------- -----------

Dr. Manuel H. Johnson (56)    Trustee       Since
c/o Johnson Smick                           July 1991
International, Inc.
2099 Pennsylvania Avenue,
N.W.
Suite 950
Washington, D.C. 20006

Joseph J. Kearns (62)         Trustee       Since
c/o Kearns & Associates LLC                 July 2003
PMB754
23852 Pacific Coast Highway
Malibu, CA 90265

Michael E. Nugent (68)        Trustee       Since
c/o Triumph Capital, L.P.                   July 1991
445 Park Avenue
New York, NY 10022

Fergus Reid (72)              Trustee       Since
c/o Lumelite Plastics                       July 2003
Corporation
85 Charles Colman Blvd.
Pawling, NY 12564




                                                                      Number of
                                                                     Portfolios
                                                                       in Fund
                                                                       Complex
    Name, Age and Address            Principal Occupation(s)          Overseen       Other Directorships Held
    of Independent Trustee            During Past 5 Years**          by Trustee             by Trustee
----------------------------- ------------------------------------- ------------ -------------------------------

Dr. Manuel H. Johnson (56)    Senior Partner, Johnson Smick             197      Director of NVR, Inc. (home
c/o Johnson Smick             International, Inc., a consulting                  construction); Director of KFX
International, Inc.           firm; Chairman of the Audit                        Energy; Director of RBS
2099 Pennsylvania Avenue,     Committee and Director or                          Greenwich Capital Holdings
N.W.                          Trustee of the Retail Funds (since                 (financial holding company).
Suite 950                     July 1991) and the Institutional
Washington, D.C. 20006        Funds (since July 2003);
                              Co-Chairman and a founder of
                              the Group of Seven Council
                              (G7C), an international economic
                              commission; formerly Vice
                              Chairman of the Board of
                              Governors of the Federal Reserve
                              System and Assistant Secretary
                              of the U.S. Treasury.

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

Michael E. Nugent (68)        General Partner of Triumph                197      Director of various business
c/o Triumph Capital, L.P.     Capital, L.P., a private investment                organizations.
445 Park Avenue               partnership; Chairman of the
New York, NY 10022            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)              Chairman of Lumelite Plastics             198      Trustee and Director of
c/o Lumelite Plastics         Corporation; Chairman of the                       certain investment companies
Corporation                   Governance Committee and                           in the JPMorgan Funds
85 Charles Colman Blvd.       Director or Trustee of the Retail                  complex managed by J.P.
Pawling, NY 12564             Funds (since July 2003) and the                    Morgan Investment
                              Institutional Funds (since                         Management Inc.
                              June 1992).



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


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


                                       16




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






                                Position(s)   Length of
   Name, Age and Address of      Held with       Time
      Management Trustee         Registrant    Served*
------------------------------ ------------- -----------

Charles A. Fiumefreddo (71)    Chairman      Since
c/o Morgan Stanley Trust       of the        July 1991
Harborside Financial Center,   Board and
Plaza Two,                     Trustee
Jersey City, NJ 07311

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




                                                                        Number of
                                                                       Portfolios
                                                                         in Fund
                                                                         Complex
                                                                       Overseen by
   Name, Age and Address of        Principal Occupation(s) During      Management     Other Directorships Held by
      Management Trustee                   Past 5 Years**                Trustee                Trustee
------------------------------ -------------------------------------- ------------ --------------------------------

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

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



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



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






                                 Position(s)     Length of
   Name, Age and Address of       Held with         Time
      Executive Officer          Registrant       Served*
----------------------------- ---------------- -------------

Mitchell M. Merin (51)        President        Since May
1221 Avenue of the Americas                    1999
New York, NY 10020

Ronald E. Robison (66)        Executive Vice   Since April
1221 Avenue of the Americas   President and    2003
New York, NY 10020            Principal
                              Executive
                              Officer




   Name, Age and Address of
      Executive Officer                      Principal Occupation(s) During Past 5 Years**
----------------------------- --------------------------------------------------------------------------

Mitchell M. Merin (51)        President and Chief Operating Officer of Morgan Stanley Investment
1221 Avenue of the Americas   Management Inc.; President, Director and Chief Executive Officer of the
New York, NY 10020            Investment Adviser and the Administrator; Chairman and Director of the
                              Distributor; Chairman and Director of the Transfer Agent; Director of
                              various Morgan Stanley subsidiaries; President of the Institutional Funds
                              (since July 2003) and President of the Retail Funds (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)        Principal Executive Officer of funds in the Fund Complex since May
1221 Avenue of the Americas   2003; Managing Director of Morgan Stanley & Co. Incorporated, Morgan
New York, NY 10020            Stanley investment Management Inc. and Morgan Stanley; Managing
                              Director, Chief Administrative 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
                              Institutional Funds (March 2001-July 2003) and Chief Global Operations
                              Officer and Managing Director of Morgan Stanley Investment
                              Management Inc.



----------


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

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



                                       17







                                  Position(s)        Length of
   Name, Age and Address of        Held with            Time
       Executive Officer           Registrant         Served*
------------------------------ ----------------- -----------------

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

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

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

Carston Otto (41)              Chief             Since October
1221 Avenue of the Americas    Compliance        2004
New York, NY 10020             Officer

Stefanie V. Chang (38)         Vice President    Since July
1221 Avenue of the Americas                      2003
New York, NY 10020

Francis J. Smith (39)          Treasurer and     Treasurer since
c/o Morgan Stanley Trust       Chief Financial   July 2003 and
Harborside Financial Center,   Officer           Chief Financial
Plaza Two,                                       Officer since
Jersey City, NJ 07311                            September 2002

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

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




   Name, Age and Address of
       Executive Officer                      Principal Occupation(s) During Past 5 Years**
------------------------------ ---------------------------------------------------------------------------

Joseph J. McAlinden (62)       Managing Director and Chief Investment Officer of the Investment
1221 Avenue of the Americas    Adviser and Morgan Stanley Investment Management Inc.; Director of
New York, NY                   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)                General Counsel (since May 2000) and Managing Director (since
1221 Avenue of the Americas    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); previously Vice
                               President and Assistant General Counsel of the Investment Adviser and
                               the Administrator (February 1997-December 2001).

Amy R. Doberman (43)           Managing Director and General Counsel, U.S. Investment Management;
1221 Avenue of the Americas    Manging Director of Morgan Stanley Investment Management Inc. and
New York, NY 10020             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).

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

Stefanie V. Chang (38)         Executive Director of Morgan Stanley & Co. Incorporated and Morgan
1221 Avenue of the Americas    Stanley Investment Management Inc. and the Investment Adviser; Vice
New York, NY 10020             President of the Institutional Funds (since December 1997) and the
                               Retail Funds (since July 2003); formerly practiced law with the New York
                               law firm of Rogers & Wells (now Clifford Chance US LLP).

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

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

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



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

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

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

     For each Trustee, the dollar range of equity securities beneficially owned
by the Trustee in the Fund and in the Family of Investment Companies (Family of
Investment Companies includes all of the


                                       18




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 by Trustee in Family of
                            Dollar Range of Equity Securities in the Fund                Investment Companies
     Name of Trustee                  (As of December 31, 2004)                        (As of December 31, 2004)
------------------------   -----------------------------------------------   --------------------------------------------
Independent:

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


     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


                                       19




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
meetings.

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

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

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

     There were    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      times during that time, in addition to the    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     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


                                       20




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 the
relative net assets of each of the funds/portfolios. Mr. Fiumefreddo receives
an annual fee for his services as Chairman of the Boards of the Retail Funds
and the Institutional Funds and for administrative services provided to each
Board.

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

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

     Prior to April 1, 2004, the Institutional Funds maintained a similar
Deferred Compensation Plan (the "Prior DC Plan"), which also allowed each
Independent Trustee to defer payment of all, or a portion, of


                                       21




the fees he or she received for serving on the Board of Trustees throughout the
year. The DC Plan amends and supersedes the Prior DC Plan and all amounts
payable under the Prior DC Plan are now subject to the terms of the DC Plan
(except for amounts due to be paid during the calendar year 2004 which 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



NAME OF TRUSTEE                          AGGREGATE COMPENSATION FROM FUND(4)
-------------------------------------   ------------------------------------

Michael Bozic(1)(3) .................   $

Charles A. Fiumefreddo*(2) ..........

Edwin J. Garn(1)(3) .................

Wayne E. Hedien(1)(2) ...............

James F. Higgins* ...................

Dr. Manuel H. Johnson(1) ............

Joseph J. Kearns(1)(4) ..............

Michael E. Nugent(1)(2) .............

Fergus Reid(1)(3) ...................



----------


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

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

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

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

(4)  The total amount of deferred compensation (including interest) under the DC
     Plan and the Prior DC Plan payable or accrued by Mr. Kearns was $ .


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



                      CASH COMPENSATION FROM FUND COMPLEX




                                   NUMBER OF PORTFOLIOS IN THE FUND    TOTAL COMPENSATION
                                    COMPLEX FROM WHICH THE TRUSTEE    FROM THE FUND COMPLEX
NAME OF TRUSTEE                          RECEIVED 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                         219,903
Michael E. Nugent ...............                197                         208,000
Fergus Reid(1) ..................                198                         221,376



----------

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

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


                                       22




     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, 2004, 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 by the 48 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 48 Adopting
Funds for each calendar year following retirement. Messrs. Kearns and Reid did
not participate in the retirement program.








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

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



----------

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


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



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

     As of March   , 2005, no person was known to own 5% or more of the
outstanding shares of the Fund.


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


V. INVESTMENT MANAGEMENT AND OTHER SERVICES
--------------------------------------------------------------------------------

A. INVESTMENT 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 following annual rates to
the net assets of the fund determined as of the close of each business day:
0.50% of the portion of the daily net assets not


                                       23




exceeding $500 million; 0.425% of the portion of the daily net assets exceeding
$500 million but not exceeding $750 million; 0.375% of the portion of the daily
net assets exceeding $750 million but not exceeding $1 billion; 0.35% of the
portion of the daily net assets exceeding $1 billion but not exceeding $1.25
billion; and 0.325% of the portion of the daily net assets exceeding $1.25
billion. For the fiscal years ended December 31, 2002, 2003 and 2004, the
Investment Adviser accrued total compensation under the Management Agreement in
the amount of $6,041,228, $6,182,000 and $    , respectively.

     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 0.42% of the portion of the
daily net assets not exceeding $500 million; 0.345% of the portion of the daily
net assets exceeding $500 million but not exceeding $750 million; 0.295% of the
portion of the daily net assets exceeding $750 million but not exceeding $1
billion; 0.27% of the portion of the daily net assets exceeding $1 billion but
not exceeding $1.25 billion; 0.245% of the portion of the daily net assets
exceeding $1.25 billion but not exceeding $2.5 billion; and 0.22% of the
portion of the daily net assets exceeding $2.5 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.

     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 Manager; the performance, fees and expenses of the
Fund compared to other similar investment companies; the Investment Manager's
expenses in providing the services; the profitability of the Investment Manager
and its affiliated companies and other benefits they derive from their
relationship with the Fund; and the extent to which economies of scale are
shared with the Fund. The Independent Trustees met with and reviewed reports
from third parties about the foregoing factors and changes, if any, in such
items since the preceding year's deliberations. In evaluating the
reasonableness of the management fee, the Independent Trustees noted that the
effective management fee, at the level of assets 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 performance and noted that it was better than its
peer group average for one, three and five year periods. The Independent
Trustees noted their confidence in the capability and integrity of the senior
management and staff of the Investment Manager and the financial strength of
the Investment Manager and its affiliated companies. The Independent Trustees
weighed the foregoing factors in light of the advice given to them by their
legal counsel as to the law applicable to the review of investment advisory
contracts. Based upon its review, the Board of Trustees, including all of the
Independent Trustees, determined, in the exercise of its business judgment,
that approval of the 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

                                       24



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 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
Investment Adviser, 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


                                       25



custodial fees) may be allocated directly to that Class, provided that such
expenses are reasonably identified as specifically attributable to that Class
and the direct allocation to that Class is approved by the Trustees.


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

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

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



D. DEALER REALLOWANCES

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


E. RULE 12b-1 PLAN


     The Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under
the Investment Company Act (the "Plan") pursuant to which each Class, other
than Class D, pays the Distributor compensation accrued daily and payable
monthly at the following maximum annual rates: 0.25%, 0.60% and 0.70% of the
average daily net assets of Class A, Class B and Class C, respectively.

     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) $             FSCs:(1) $306,700      FSCs:(1) $405,578
                      CDSCs: $             CDSCs:   $ 74,023      CDSCs:   $     500
Class B ..........    CDSCs: $             CDSCs:   $361,466      CDSCs:   $366,966
Class C ..........    CDSCs: $             CDSCs:   $  9,369      CDSCs:   $ 12,424



----------
(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 0.15% of the average

                                       26



daily net assets of Class B and 0.25% of the average daily net assets of Class
C 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 $    . This amount is equal to   % of the
average daily net assets of Class B for the fiscal year. For the fiscal year
ended December 31, 2004, Class A and Class C shares of the Fund accrued
payments under the Plan amounting to $        and $       , respectively, which
amounts are equal to     % and     % 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 credit of up to 4.0% of the
amount sold and an annual residual commission, currently a residual of up to
0.15% 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 0.15% 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 0.70% 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 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.

                                       27




     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 0.70%, in the case of Class C, of the average net assets of the
respective Class during the month. No interest or other financing charges, if
any, incurred on any distribution expenses on behalf of Class A and Class C
will be reimbursable under the Plan. With respect to Class A, in the case of
all expenses other than expenses representing the service fee, and, with
respect to Class C, in the case of all expenses other than expenses
representing a gross sales credit or a residual to Financial Advisors and other
authorized financial representatives, such amounts shall be determined at the
beginning of each calendar quarter by the Trustees, including, a majority of
the Independent Trustees. Expenses representing the service fee (for Class A)
or a gross sales credit or a residual to Financial Advisors and other
authorized financial representatives (for Class C) may be reimbursed without
prior Board determination. In the event that the Distributor proposes that
monies shall be reimbursed for other than such expenses, then in making
quarterly determinations of the amounts that may be reimbursed by the Fund, the
Distributor will provide and the Trustees will review a quarterly budget of
projected distribution expenses to be incurred on behalf of the Fund, together
with a report explaining the purposes and anticipated benefits of incurring
such expenses. The Trustees will determine which particular expenses, and the
portions thereof, that may be borne by the Fund, and in making such a
determination shall consider the scope of the Distributor's commitment to
promoting the distribution of the Fund's Class A and Class C shares.


     Each Class paid 100% of the amounts accrued under the Plan with respect to
that Class for the fiscal year ended December 31, 2004 to the Distributor. The
Distributor and Morgan Stanley DW estimate that they have spent, pursuant to
the Plan, $15,515,125 on behalf of Class B since the inception of the Plan. It
is estimated that this amount was spent in approximately the following ways:
(i) 15.24% ($2,364,600)-advertising and promotional expenses; (ii) 0.68%
($105,879)-printing and mailing of prospectuses for distribution to other than
current shareholders; and (iii) 84.08% ($13,044,646)-other expenses, including
the gross sales credit and the carrying charge, of which 7.58% ($989,259)
represents carrying charges, 30.47% ($3,974,279) represents commission credits
to Morgan Stanley DW branch offices and other selected broker-dealers for
payments of commissions to Financial Advisors and other authorized financial
representatives, 43.13% ($5,625,571) represents overhead and other branch
office distribution-related expenses and 18.82% ($2,455,436) represents excess
distribution expenses of the Massachusetts Series, Michigan Series, Minnesota
Series and Ohio Series of Morgan Stanley Multi-State Municipal Series Trust,
the net assets of which were combined with those of the Fund on July 21, 2000
pursuant to an Agreement and Plan of Reorganization. The amounts accrued by
Class A and a portion of the amounts accrued by Class C under the Plan during
the fiscal year ended 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 $5,700,376 as of December 31, 2004 (the end of
the Fund's fiscal year), which was equal to 2.91% 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


                                       28



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     % 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 0.70% 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. No interest or
other financing charges will be incurred on any Class A or Class C distribution
expenses incurred by the Distributor under the Plan or on any unreimbursed
expenses due to the Distributor pursuant to the Plan.

     No interested person of the Fund nor any Independent Trustee has any
direct financial interest in the operation of the Plan except to the extent
that the Distributor, the Investment Adviser, Morgan 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

                                       29



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.


          , is the independent registered public accounting firm of the Fund.
The Fund's independent registered public accounting firm is responsible for
auditing the annual financial statements.


  (3) AFFILIATED PERSONS


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



G. 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.


H. PROXY VOTING POLICY AND PROXY VOTING RECORD

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

     The Investment Adviser uses its best efforts to vote proxies on securities
held in the Fund as part of its authority to manage, acquire and dispose of
Fund assets. In this regard, the Investment Adviser has formed a Proxy Voting
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 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.


                                       30





     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 company's 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.

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.

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
on our web site at www.morganstanley.com/funds and (ii) on the SEC's web site
at www.sec.gov.


I. 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


                                       31




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.

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

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

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

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

     The prospect of receiving, or the receipt of, additional compensation, as
described above, by Morgan Stanley DW or other Intermediaries may provide
Morgan Stanley DW or other Intermediaries and/or Financial Advisors and other
salespersons with an incentive to favor sales of shares of the Fund over other
investment options with respect to which Morgan Stanley DW or an Intermediary
does not receive additional compensation (or receives lower levels of
additional compensation). These payment arrangements, however, will not change
the price that an investor pays for shares of the Fund. 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 Board of 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. The Fund expects that the primary market for the
securities in which it intends to invest will generally be the over-the-counter
market. 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 expects that securities will be purchased at times in
underwritten offerings where the price includes a fixed amount of compensation,
generally


                                       32



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 year ended December 31, 2002, the Fund paid no brokerage
commissions. For the fiscal years ended December 31, 2003 and 2004, the Fund
paid a total of $      and $     , 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 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
did not effect any securities transactions through any affiliated brokers or
dealers.



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.

     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


                                       33




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

     The Investment Adviser and certain of its affiliates currently serves as
investment adviser to a number of clients, including other investment
companies, and may in the future act as investment adviser 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 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 did not pay any
brokerage commissions to brokers because of research services provided.


E. REGULAR BROKER-DEALERS


     During the fiscal year ended December 31, 2004, the Fund did not purchase
securities issued by brokers or dealers that were among the ten brokers or the
ten dealers that executed transactions for or with the Fund in the largest
dollar amounts during the year. As of December 31, 2004, the Fund did not own
any securities issued by any of such issuers.


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

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

     The Fund is not required to hold annual meetings of shareholders and in
ordinary circumstances the Fund does not intend to hold such meetings. The
Trustees may call special meetings of shareholders for action by shareholder
vote as may be required by the Investment Company Act or the Declaration of
Trust. Under certain circumstances, the Trustees may be removed by 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.

                                       34



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

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

     In the case of Class B shares of the Fund issued in exchange for shares of
Dean Witter National Municipal Trust ("National Municipal") in connection with
the reorganization of National Municipal with the Fund on November 7, 1997
pursuant to an Agreement and Plan of Reorganization (the "Reorganization"),
that were subject to the lower CDSC schedule of National Municipal (as
described below), will continue to be subject to that lower CDSC schedule
unless (i) such shares are subsequently exchanged for shares of a fund with a
higher CDSC schedule or (ii) having been exchanged for shares of Morgan Stanley
North American Government Income Trust, Morgan Stanley Global Short-Term Income
Fund Inc. or Morgan Stanley Limited Duration U.S. Treasury Trust, Morgan
Stanley Limited Term Municipal Trust, Morgan Stanley Limited Duration Fund, and
the five Morgan Stanley Funds which are money market funds (the "Exchange
Funds") are re-exchanged back into the Fund. Under such circumstances, the CDSC
schedule applicable to shares of the fund with the higher CDSC schedule
acquired in the exchange will apply to redemptions of such fund's shares or, in
the case of shares of any of the Exchange Funds acquired in an exchange and
then subsequently re-exchanged back into the Fund, the CDSC schedule set forth
in the prospectus will apply to redemptions of any of such shares. The CDSC
schedule applicable to National Municipal was as follows: Shares held for three
years or more after purchase (calculated as described in the paragraph above)
are not subject to any CDSC upon redemption. However, shares redeemed earlier
than three years after purchase may be subject to a CDSC (calculated as
described in the paragraph above), the percentage of which depends on how long
the shares have been held, as set forth in the following table:






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

First ............................           3.0%
Second ...........................           2.0%
Third ............................           1.0%
Fourth and thereafter ............           None


     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

                                       35



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
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.

     Portfolio securities (other than short-term debt securities and futures
and options) are valued for the Fund by an outside independent pricing service
approved by the Trustees. The pricing service has informed the Fund that in
valuing the portfolio securities for the Fund it uses both a computerized grid
matrix of tax-exempt securities and evaluations by its staff, in each case
based on information concerning market transactions and quotations from dealers
which reflect the bid side of the market each day. The portfolio securities for
the Fund are thus valued by reference to a combination of transactions and
quotations for the same or other securities believed to be comparable in
quality, coupon, maturity, type of issue, call provisions, trading
characteristics and other features deemed to be relevant. The Trustees believe
that timely and reliable market quotations are generally not readily available
to the Fund for purposes of valuing tax-exempt securities and that the
valuations supplied by the pricing service, using the procedures outlined above
and subject to periodic review, are more likely to approximate the fair value
of such securities. The Investment Manager will periodically review and
evaluate the procedures, methods and quality of services provided by the
pricing service then being used by the Fund and may, from time to time,
recommend to the Trustees the use of other pricing services or discontinuance
of the use of any pricing service in whole or part. The Trustees may determine
to approve such recommendation or take other provisions for pricing of the
portfolio securities for the Fund.


     Short-term taxable debt securities with remaining maturities of 60 days or
less at time of purchase are valued at amortized cost, unless the Trustees
determine such does not reflect the securities' market


                                       36



value, in which case these securities will be valued at their fair value as
determined by the Trustees. Other taxable short-term debt securities with
maturities of more than 60 days will be valued on a market to market basis
until such time as they reach a maturity of 60 days, whereupon they will be
valued at amortized cost using their value on the 61st day unless the Trustees
determine such does not reflect the securities' fair value, in which case these
securities will be valued at their fair market value as determined by the
Trustees. 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 closing bid and asked prices. Unlisted options on debt securities are
valued at the mean between their latest bid and asked price. Futures are valued
at the latest sale price on the commodities exchange on which they trade unless
the Trustees determine 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. All
other securities and other assets are 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 three basic types of distributions:
tax-exempt dividends, ordinary dividends and long-term capital gain
distributions. These 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. 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 options and
futures transactions. Those special tax rules can, among other things, affect
the treatment of capital gain or loss as long-term or short term. The
application of these special rules would therefore also affect the character of
distributions made by the Fund.


     In computing net investment income, the Fund will amortize any premiums
and original issue discounts on securities owned, if applicable. Capital gains
or losses realized upon sale or maturity of such securities will be based on
their amortized cost.

     All or a portion of any gain from tax-exempt obligations purchased at a
market discount may be treated as ordinary income rather than capital gain.

     From time to time, proposals have been introduced before Congress for the
purpose of restricting or eliminating the federal income tax exemption for
interest on municipal securities. Similar proposals may be introduced in the
future. If such a proposal were enacted, the availability of municipal
securities for investment by the Fund could be affected. In that event, the
Fund would re-evaluate its investment objective and policies.

     TAXATION OF DIVIDENDS AND DISTRIBUTIONS. The Fund intends to qualify to
pay "exempt-interest dividends" to its shareholders by maintaining, as of the
close of each quarter end of its taxable years, at

                                       37



least 50% of the value of its assets in tax-exempt securities. An exempt-
interest dividend is that part of the dividend distributions made by the Fund
which consists of interest received by the Fund on tax-exempt securities upon
which the shareholder incurs no federal income taxes. Exempt-interest dividends
are included, however, in determining what portion, if any, of a person's Social
Security benefits are subject to federal income tax.

     The Fund intends to invest a portion of its assets in certain "private
activity bonds". As a result, a portion of the exempt-interest dividends paid
by the Fund will be an item of tax preference to shareholders subject to the
alternative minimum tax. Certain corporations which are subject to the
alternative minimum tax may also have to include exempt-interest dividends in
calculating their alternative minimum taxable income in situations where the
"adjusted current earnings" of the corporation exceeds its alternative minimum
taxable income.


     Shareholders normally will be subject to federal income tax on dividends
paid from interest income derived from taxable securities and on distributions
of net short-term capital gains. Such dividends and distributions are taxable
to the shareholder as ordinary dividend income regardless of whether the
shareholder receives such distributions in additional shares or in cash. Under
recently enacted legislation, 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 or 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 as
long-term capital gains, regardless of how long the shareholder has held the
Fund 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 dividends
would move to 35% in 2009 and 39.6% in 2011. Since the income of the Fund is
expected to be derived entirely from interest rather than dividends, it is
anticipated that no portion of such dividend distributions will be eligible for
the federal dividends received deduction available to corporations.

     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.

     Individuals are often exempt from state and local personal income taxes on
distributions of tax-exempt dividends derived from assets located in the state
in which they reside, but are usually subject to state and local taxes on
distributions of tax-exempt dividends derived from assets located in other
states. Shareholders should consult their tax advisers as to any other state
and local taxes that apply to the dividends and distributions received from the
Fund.


     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 any taxable interest 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 will
give rise to an obligation on the part of the foreign shareholder to file a
U.S. tax return. Also, such gain may be subject to a 30% branch profit tax in
the hands of a foreign shareholder that is a corporation. The provisions
contained in the legislation relating to distributions to foreign persons
generally would apply to distributions with respect to taxable years of
regulated investment companies beginning after December 31, 2004 and before
January 1,


                                       38




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 percentage of any distributions which constitute an item
of tax preference for purposes of the alternative minimum tax.

     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, capital gains distributions and some portion of the dividends may
be subject to federal income taxes. If a shareholder of the Fund receives
exempt-interest dividends with respect to any share and if such share is held
by the shareholder for six months or less, then any loss on the sale or
exchange of such share may, to the extent of such exempt-interest dividends, be
disallowed. 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 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, includes
shares of other Morgan Stanley Funds, are also subject to similar tax
treatment. Such an exchange is treated for tax purposes as a sale of the
original shares in the Fund, followed by the purchase of shares in the other
fund.


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


     Other Considerations. Interest on indebtedness incurred by shareholders to
purchase or carry shares of the Fund is not deductible. Furthermore, entities
or persons who are "substantial users" (or related persons) of facilities
financed by industrial development bonds should consult their tax advisers
before purchasing shares of the Fund. "Substantial user" is defined generally
by Treasury Regulation Section 1.103-11(b) as including a "non-exempt person"
who regularly uses in a trade or business a part of a facility financed from
the proceeds of industrial development bonds.


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

                                       39



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
--------------------------------------------------------------------------------
     Prior to July 28, 1997, the Fund offered only one Class of shares subject
to a maximum sales charge of 4.0% and no 12b-1 fee. Because the distribution
arrangement for Class A most closely resembles the distribution arrangement
applicable prior to the implementation of multiple classes (i.e. Class A is
sold with a front-end sales charge), historical performance information has
been restated to reflect (i) the actual maximum sales charges applicable to
Class A (i.e., 4.25%) and (ii) the ongoing 12b-1 fee applicable to Class A
Shares. Furthermore, because all shares of the Fund held prior to July 28, 1997
have been designated Class D shares, the Fund's historical performance has also
been restated to reflect the absence of any sales charge in the case of Class D
shares.


     For the 30-day period ended December 31, 2004, the yield was     %,     %,
    % and     % for Class A, Class B, Class C and Class D, respectively.

     The tax-equivalent yield for Class A, Class B, Class C and Class D shares,
based upon a federal personal income tax bracket of [35%] (the highest current
individual marginal tax rate), for the 30-day period ended December 31, 2004
was     %,     %,     % and     %, respectively, based upon the yield quoted
above.



       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 ..........   03/27/80 (1)         %          %               %        %
Class B ..........   07/28/97             %          %             -          %
Class C ..........   07/28/97             %          %             -          %
Class D ..........   03/27/80 (2)         %          %               %        %




          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 ..........   03/27/80 (1)         %          %               %        %
Class B ..........   07/28/97             %          %             -          %
Class C ..........   07/28/97             %          %             -          %
Class D ..........   03/27/80 (2)         %          %               %        %




         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 ..........    03/27/80(1)            %          %               %        %
Class B ..........    07/28/97               %          %             -          %
Class C ..........    07/28/97               %          %             -          %
Class D ..........    03/27/80 (2)           %          %               %        %



----------
(1)   For purposes of restating the performance of Class A, the inception date
      set forth in this table is the inception date of the Fund. However, Class
      A did not actually commence operations until July 28, 1997.

(2)   Because all shares of the Fund held prior to July 28, 1997 were
      designated Class D shares, the Fund's historical performance has been
      restated to reflect the absence of any sales charge.

                                       40




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





                                          INCEPTION
CALCULATION METHODOLOGY                     DATE       1 YEAR     5 YEARS     10 YEARS     LIFE OF FUND
--------------------------------------   ----------   --------   ---------   ----------   -------------

After taxes on distributions .........   3/27/80          %          %           %            %
After taxes on distributions and
 redemptions .........................   3/27/80          %          %           %            %



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

     The Fund's audited financial statements for the fiscal year ended December
31, 2004, including notes thereto and the report of      , 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.


                                   * * * * *

     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.


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.

                                     41




APPENDIX A

RATINGS OF INVESTMENTS
--------------------------------------------------------------------------------

MOODY'S INVESTORS SERVICE INC. ("MOODY'S")


                             MUNICIPAL BOND RATINGS



Aaa     Bonds which are rated Aaa are judged to be of the best quality. They carry the smallest degree
        of investment risk and are generally referred to as "gilt edge." Interest payments are protected
        by a large or by an exceptionally stable margin and principal is secure. While the various
        protective elements are likely to change, such changes as can be visualized are most unlikely
        to impair the fundamentally strong position of such issues.

Aa      Bonds which are rated Aa are judged to be of high quality by all standards. Together with the Aaa
        group they comprise what are generally known as high grade bonds. They are rated lower than
        the best bonds because margins of protection may not be as large as in Aaa securities or
        fluctuation of protective elements may be of greater amplitude or there may be other elements
        present which make the long-term risks appear somewhat larger than in Aaa securities.

A       Bonds which are rated A possess many favorable investment attributes and are to be considered
        as upper medium grade obligations. Factors giving security to principal and interest are
        considered adequate, but elements may be present which suggest a susceptibility to impairment
        sometime in the future.

Baa     Bonds which are rated Baa are considered as medium grade obligations; i.e., they are neither
        highly protected nor poorly secured. Interest payments and principal security appear adequate
        for the present but certain protective elements may be lacking or may be characteristically
        unreliable over any great length of time. Such bonds lack outstanding investment characteristics
        and in fact have speculative characteristics as well.

        Bonds rated Aaa, Aa, A and Baa are considered investment grade bonds.

Ba      Bonds which are rated Ba are judged to have speculative elements; their future cannot be
        considered as well assured. Often the protection of interest and principal payments may be very
        moderate, and therefore not well safeguarded during both good and bad times in the future.
        Uncertainty of position characterizes bonds in this class.

B       Bonds which are rated B generally lack characteristics of a desirable investment. Assurance of
        interest and principal payments or of maintenance of other terms of the contract over any long
        period of time may be small.

Caa     Bonds which are rated Caa are of poor standing. Such issues may be in default or there may be
        present elements of danger with respect to principal or interest.

Ca      Bonds which are rated Ca present obligations which are speculative in a high degree. Such
        issues are often in default or have other marked shortcomings.

C       Bonds which are rated C are the lowest rated class of bonds, and issues so rated can be
        regarded as having extremely poor prospects of ever attaining any real investment standing.


     Conditional Rating: Bonds for which the security depends upon the
completion of some act or the fulfillment of some condition are rated
conditionally. These bonds are secured by (a) earnings of projects under
construction, (b) earnings of projects unseasoned in operation experience, (c)
rentals which begin when facilities are completed or (d) payments to which some
other limiting condition attaches. Parenthetical rating denotes probable credit
stature upon completion of construction or elimination of basis of condition.

     Rating Refinements: Moody's may apply numerical modifiers, 1, 2, and 3 in
each generic rating classification from Aa through B in its municipal bond
rating system. The modifier 1 indicates that the

                                      A-1



security ranks in the higher end of its generic rating category; the modifier 2
indicates a mid-range ranking; and a modifier 3 indicates that the issue ranks
in the lower end of its generic rating category.


                            MUNICIPAL NOTE RATINGS

     Moody's ratings for state and municipal note and other short-term loans
are designated Moody's Investment Grade (MIG). MIG 1 denotes best quality and
means there is present strong protection for established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing. MIG 2 denotes high quality and means that margins of protection
are ample although not as large as in MIG 1. MIG 3 denotes favorable quality
and means that all security elements are accounted for but that the undeniable
strength of the previous grades, MIG 1 and MIG 2, is lacking. MIG 4 denotes
adequate quality and means that the protection commonly regarded as required of
an investment security is present and that while the notes are not distinctly
or predominantly speculative, there is specific risk.


                       VARIABLE RATE DEMAND OBLIGATIONS

     A short-term rating, in addition to the Bond or MIG ratings, designated
VMIG may also be assigned to an issue having a demand feature. The assignment
of the VMIG symbol reflects such characteristics as payment upon periodic
demand rather than fixed maturity dates and payment relying on external
liquidity. The VMIG rating criteria are identical to the MIG criteria discussed
above.


                           COMMERCIAL PAPER RATINGS

     Moody's Commercial Paper ratings are opinions of the ability to repay
punctually promissory obligations not having an original maturity in excess of
nine months. These ratings apply to Municipal Commercial Paper as well as
taxable Commercial Paper. Moody's employs the following three designations, all
judged to be investment grade, to indicate the relative repayment capacity of
rated issuers: Prime-1, Prime-2, Prime-3.

     Issuers rated Prime-1 have a superior capacity for repayment of short-term
promissory obligations. Issuers rated Prime-2 have a strong capacity for
repayment of short-term promissory obligations; and Issuers rated Prime-3 have
an acceptable capacity for repayment of short-term promissory obligations.
Issuers rated Not Prime do not fall within any of the Prime rating categories.


STANDARD & POOR'S CORPORATION ("STANDARD & POOR'S")


                            MUNICIPAL BOND RATINGS

     A Standard & Poor's municipal bond rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation. This
assessment may take into consideration obligors such as guarantors, insurers or
lessees.

     The ratings are based on current information furnished by the issuer or
obtained by Standard & Poor's from other sources it considers reliable. The
ratings are based, in varying degrees, on the following considerations: (1)
likelihood of default-capacity and willingness of the obligor as to the timely
payment of interest and repayment of principal in accordance with the terms of
the obligation; (2) nature of and provisions of the obligation; and (3)
protection afforded by, and relative position of the obligation in the event of
bankruptcy, reorganization or other arrangement under the laws of bankruptcy
and other laws affecting creditors' rights.

     Standard & Poor's does not perform an audit in connection with any rating
and may, on occasion, rely on unaudited financial information. The ratings may
be changed, suspended or withdrawn as a result of changes in, or unavailability
of, such information, or for other reasons.





AAA     Debt rated "AAA" has the highest rating assigned by Standard & Poor's. Capacity to pay interest
        and repay principal is extremely strong.


                                      A-2





AA      Debt rated "AA" has a very strong capacity to pay interest and repay principal and differs from
        the highest-rated issues only in small degree.

A       Debt rated "A" has a strong capacity to pay interest and repay principal although they are
        somewhat more susceptible to the adverse effects of changes in circumstances and economic
        conditions than debt in higher-rated categories.

BBB     Debt rated "BBB" is regarded as having an adequate capacity to pay interest and repay
        principal. Whereas it normally exhibits adequate protection parameters, adverse economic
        conditions or changing circumstances are more likely to lead to a weakened capacity to pay
        interest and repay principal for debt in this category than for debt in higher-rated categories.
        Bonds rated AAA, AA, A and BBB are considered investment grade bonds.

BB      Debt rated "BB" has less near-term vulnerability to default than other speculative grade debt.
        However, it faces major ongoing uncertainties or exposure to adverse business, financial or
        economic conditions which would lead to inadequate capacity or willingness to pay interest and
        repay principal.

B       Debt rated "B" has a greater vulnerability to default but presently has the capacity to meet
        interest payments and principal repayments. Adverse business, financial or economic conditions
        would likely impair capacity or willingness to pay interest and repay principal.

CCC     Debt rated "CCC" has a current identifiable vulnerability to default, and is dependent upon
        favorable business, financial and economic conditions to meet timely payments of interest and
        repayments of principal. In the event of adverse business, financial or economic conditions, it is
        not likely to have the capacity to pay interest and repay principal.

CC      The rating "CC" is typically applied to debt subordinated to senior debt which is assigned an
        actual or implied "CCC" rating.

C       The rating "C" is typically applied to debt subordinated to senior debt which is assigned an actual
        or implied "CCC-" debt rating.

Cl      The rating "Cl" is reserved for income bonds on which no interest is being paid.

D       Debt rated "D" is in payment default. The `D' rating category is used when interest payments or
        principal payments are not made on the date due even if the applicable grace period has not
        expired, unless S&P believes that such payments will be made during such grace period. The
        `D' rating also will be used upon the filing of a bankruptcy petition if debt service payments are
        jeopardized.

NR      Indicates that no rating has been requested, that there is insufficient information on which to
        base a rating or that Standard & Poor's does not rate a particular type of obligation as a matter
        of policy.

        Bonds rated "BB", "B", "CCC", "CC" and "C" are regarded as having predominantly speculative
        characteristics with respect to capacity to pay interest and repay principal. "BB" indicates the
        least degree of speculation and "C" the highest degree of speculation. While such debt will likely
        have some quality and protective characteristics, these are outweighed by large uncertainties or
        major risk exposures to adverse conditions.

        Plus (+) or minus(-): The ratings from "AA" to "CCC" may be modified by the addition of a plus
        or minus sign to show relative standing within the major ratings categories.

                                      A-3






        The foregoing ratings are sometimes followed by a "p" which indicates that the rating is
        provisional. A provisional rating assumes the successful completion of the project being financed
        by the bonds being rated and indicates that payment of debt service requirements is largely or
        entirely dependent upon the successful and timely completion of the project. This rating,
        however, while addressing credit quality subsequent to completion of the project, makes no
        comment on the likelihood or risk of default upon failure of such completion.



                            MUNICIPAL NOTE RATINGS

     Commencing on July 27, 1984, Standard & Poor's instituted a new rating
category with respect to certain municipal note issues with a maturity of less
than three years. The new note ratings denote the following:

         SP-1 denotes a very strong or strong capacity to pay principal and
     interest. Issues determined to possess overwhelming safety characteristics
     are given a plus (+) designation (SP-1+).

         SP-2 denotes a satisfactory capacity to pay principal and interest.

         SP-3 denotes a speculative capacity to pay principal and interest.


                           COMMERCIAL PAPER RATINGS

     Standard and Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more
than 365 days. The commercial paper rating is not a recommendation to purchase
or sell a security. The ratings are based upon current information furnished by
the issuer or obtained by S&P from other sources it considers reliable. The
ratings may be changed, suspended, or withdrawn as a result of changes in or
unavailability of such information. Ratings are graded into group categories,
ranging from "A" for the highest quality obligations to "D" for the lowest.
Ratings are applicable to both taxable and tax-exempt commercial paper. The
categories are as follows:

     Issues assigned A ratings are regarded as having the greatest capacity
   for timely payment. Issues in this category are further refined with the
   designation 1, 2 and 3 to indicate the relative degree of safety.

         A-1 indicates that the degree of safety regarding timely payments is
   very strong.

         A-2 indicates capacity for timely payment on issues with this
   designation is strong. However, the relative degree of safety is not as
   overwhelming as for issues designated "A-1".

       A-3 indicates a satisfactory capacity for timely payment. Obligations
   carrying this designation are, however, somewhat more vulnerable to the
   adverse effects of changes in circumstances than obligations carrying the
   higher designations.


FITCH IBCA INC. ("FITCH")


                             MUNICIPAL BOND RATINGS

     Fitch investment grade bond ratings provide a guide to investors in
determining the credit risk associated with a particular security. The rating
represents Fitch's assessment of the issuer's ability to meet the obligations
of a specific debt issue or class of debt in a timely manner.

     The rating takes into consideration special features of the issue, its
relationship to other obligations of the issuer, the current and prospective
financial condition and operating performance of the issuer and any guarantor,
as well as the economic and political environment that might affect the
issuer's future financial strength and credit quality.

     Fitch ratings do not reflect any credit enhancement that may be provided
by insurance policies or financial guarantees unless otherwise indicated.

     Bonds carrying the same rating are of similar but not necessarily
identical credit quality since the rating categories do not fully reflect small
differences in the degrees of credit risk.

                                      A-4



     Fitch ratings are not recommendations to buy, sell, or hold any security.
Ratings do not comment on the adequacy of market price, the suitability of any
security for a particular investor, or the tax-exempt nature or taxability of
payments made in respect of any security.


     Fitch ratings are based on information obtained from issuers, other
obligors, underwriters, their experts, and other sources Fitch believes to be
reliable. Fitch does not audit or verify the truth or accuracy of such
information. Ratings may be changed, suspended, or withdrawn as a result of
changes in, or the unavailability of, information or for other reasons.



AAA               Bonds considered to be investment grade and of the highest credit quality. The obligor
                  has an exceptionally strong ability to pay interest and repay principal, which is unlikely
                  to be affected by reasonably foreseeable events.

AA                Bonds considered to be investment grade and of very high credit quality. The obligor's
                  ability to pay interest and repay principal is very strong, although not quite as strong
                  as bonds rated "AAA." Because bonds rated in the "AAA" and "AA" categories are not
                  significantly vulnerable to foreseeable future developments, short-term debt of these
                  issuers is generally rated "F-1+."

A                 Bonds considered to be investment grade and of high credit quality. The obligor's
                  ability to pay interest and repay principal is considered to be strong, but may be more
                  vulnerable to adverse changes in economic conditions and circumstances than bonds
                  with higher ratings.

BBB               Bonds considered to be investment grade and of satisfactory credit quality. The
                  obligor's ability to pay interest and repay principal is considered to be adequate.
                  Adverse changes in economic conditions and circumstances, however, are more
                  likely to have adverse impact on these bonds, and therefore impair timely payment.
                  The likelihood that the ratings of these bonds will fall below investment grade is higher
                  than for bonds with higher ratings.

Plus (+) or       Plus and minus signs are used with a rating symbol to indicate the relative position of
Minus (-)         a credit within the rating category. Plus and minus signs, however, are not used in the
                  "AAA" category.

NR                Indicates that Fitch does not rate the specific issue.

Conditional       A conditional rating is premised on the successful completion of a project or the
                  occurrence of a specific event.

Suspended         A rating is suspended when Fitch deems the amount of information available from the
                  issuer to be inadequate for rating purposes.

Withdrawn         A rating will be withdrawn when an issue matures or is called or refinanced and, at
                  Fitch's discretion, when an issuer fails to furnish proper and timely information.

FitchAlert        Ratings are placed on FitchAlert to notify investors of an occurrence that is likely to
                  result in a rating change and the likely direction of such change. These are designated
                  as "Positive," indicating a potential upgrade, "Negative," for potential downgrade, or
                  "Evolving," where ratings may be raised or lowered. FitchAlert is relatively short-term,
                  and should be resolved within 12 months.

Ratings Outlook   An outlook is used to describe the most likely direction of any rating change over the
                  intermediate term. It is described as "Positive" or "Negative." The absence of a
                  designation indicates a stable outlook.


     Speculative Grade Bond Ratings: Fitch speculative grade bond ratings
provide a guide to investors in determining the credit risk associated with a
particular security. The ratings ("BB" to "C") represent Fitch's assessment of
the likelihood of timely payment of principal and interest in accordance

                                      A-5



with the terms of obligation for bond issues not in default. For defaulted
bonds, the rating ("DDD" to "D") is an assessment of the ultimate recovery
value through reorganization or liquidation.


     The rating takes into consideration special features of the issue, its
relationship to other obligations of the issuer, the current and prospective
financial condition and operating performance of the issuer and any guarantor,
as well as the economic and political environment that might affect the
issuer's future financial strength.


     Bonds that have the rating are of similar but not necessarily identical
credit quality since rating categories cannot fully reflect the differences in
degrees of credit risk.





BB            Bonds are considered speculative. The obligor's ability to pay interest and repay
              principal may be affected over time by adverse economic changes. However,
              business and financial alternatives can be identified which could assist the obligor in
              satisfying its debt service requirements.

B             Bonds are considered highly speculative. While bonds in this class are currently
              meeting debt service requirements, the probability of continued timely payment of
              principal and interest reflects the obligor's limited margin of safety and the need for
              reasonable business and economic activity throughout the life of the issue.

CCC           Bonds have certain identifiable characteristics which, if not remedied, may lead to
              default. The ability to meet obligations requires an advantageous business and
              economic environment.

CC            Bonds are minimally protected. Default in payment of interest and/or principal seems
              probable over time.

C             Bonds are in imminent default in payment of interest or principal.

DDD           Bonds are in default on interest and/or principal payments. Such bonds are extremely
DD and D      speculative and should be valued on the basis of their ultimate recovery value in
              liquidation or reorganization of the obligor. "DDD" represents the highest potential for
              recovery on these bonds, and "D" represents the lowest potential for recovery.

Plus (+) or   Plus and minus signs are used with a rating symbol to indicate the relative position
Minus (-)     of a credit within the rating category. Plus and minus signs, however, are not used in
              the "DDD," "DD," or "D" categories.


                               SHORT-TERM RATINGS


     Fitch's short-term ratings apply to debt obligations that are payable on
demand or have original maturities of up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes.


     The short-term rating places greater emphasis than a long-term rating on
the existence of liquidity necessary to meet the issuer's obligations in a
timely manner.


     Fitch short-term ratings are as follows:





F-1+   Exceptionally Strong Credit Quality. Issues assigned this rating are regarded as
       having the strongest degree of assurance for timely payment.

F-1    Very Strong Credit Quality. Issues assigned this rating reflect an assurance of timely
       payment only slightly less in degree than issues rated "F-1+."

F-2    Good Credit Quality. Issues assigned this rating have a satisfactory degree of
       assurance for timely payment, but the margin of safety is not as great as for issues
       assigned "F-1+" and "F-1" ratings.

                                      A-6






F-3   Fair Credit Quality. Issues assigned this rating have characteristics suggesting that
      the degree of assurance for timely payment is adequate; however, near-term adverse
      changes could cause these securities to be rated below investment grade.

F-S   Weak Credit Quality. Issues assigned this rating have characteristics suggesting a
      minimal degree of assurance for timely payment and are vulnerable to near-term
      adverse changes in financial and economic conditions.

D     Default. Issues assigned this rating are in actual or imminent payment default.

LOC   The symbol "LOC" indicates that the rating is based on a letter of credit issued by a
      commercial bank.


                                      A-7

                   MORGAN STANLEY TAX-EXEMPT SECURITIES TRUST

                            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. 18 to the Registration Statement on Form
                  N-1A, filed on February 22, 1996.

   (2)            Instrument Establishing and Designating Additional Classes, dated July 28, 1997, is
                  incorporated by reference to Exhibit 1 of Post-Effective Amendment No. 20 to the
                  Registration Statement on Form N-1A, filed on July 3, 1997.

   (3)            Amendment to the Declaration of Trust, dated June 22, 1998, is incorporated by reference
                  to Exhibit 1 of Post-Effective Amendment No. 22 to the Registration Statement on Form
                  N-1A, filed on February 26, 1999.

   (4)            Amendment to the Declaration of Trust of the Registrant, dated June 18, 2001, is incorporated
                  by reference to Exhibit 1 of Post-Effective Amendment No. 25 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. 27 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, filed herein.

(e)(1)            Amended Distribution Agreement, dated June 22, 1998, is incorporated by reference to
                  Exhibit 5(a) of Post-Effective Amendment No. 22 to the Registration Statement on Form
                  N-1A, filed on February 26, 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 2 of Post-Effective
                  Amendment No. 18 to the Registration Statement on Form N-1A, filed on February 22, 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. 22 to the Registration Statement on Form
                  N-1A, filed on February 26, 1999.

(f)               Second Amended and Restated Retirement Plan for Non-Interested Directors or Trustees,
                  dated May 8, 1997, is incorporated by reference to Exhibit 6 of Post-Effective Amendment
                  No. 23 to the Registration on Form N-1A, filed on February 24, 2000.

(g)(1)            Custody Agreement between The Bank of New York and the Registrant is incorporated by
                  reference to Exhibit 8 of Post-Effective Amendment No. 18 to the Registration Statement on
                  Form N-1A, filed on February 22, 1996.

   (2)            Amendment to the Custodian Agreement, dated April 17, 1996, between the Bank of New York
                  and the Registrant, is incorporated by reference to Exhibit 8 of Post-Effective Amendment
                  No. 19 to the Registration Statement on Form N-1A, filed on March 24, 1997.

                                       1


   (3)            Amendment dated June 15, 2001 to the Custody Agreement of the Registrant, is incorporated
                  by reference to Exhibit 7 of Post-Effective Amendment No. 25 to the Registration Statement
                  on Form N-1A, filed 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 of Post-Effective Amendment
                  No. 25 to the Registration Statement on Form N-1A, filed February 28, 2002.

(h)(1)            Amended and Restated Transfer Agency and Service Agreement between the Registrant and Morgan
                  Stanley Trust, dated November 1, 2004, filed herein.

   (2)            Administration Agreement, dated November 1, 2004, between Morgan Stanley Services Company
                  Inc. and the Registrant, filed herein.

(i)(1)            Opinion and Consent of Clifford Chance US LLP, to be filed by further amendment.

   (2)            Opinion of Dechert LLP, Massachusetts Counsel, to be filed by further amendment.

(j)               Consent of Independent Registered Public Accounting Firm, to be filed by further amendment.

(k)               Not Applicable.

(l)               Not Applicable.

(m)               Amended and Restated Plan of Distribution, Pursuant to Rule 12b-1, dated May 1, 2004, filed
                  herein.

(n)               Amended Multi-Class Plan pursuant to Rule 18f-3, dated October 28, 2004, filed herein.

(o)               Not Applicable.

(p)(1)            Code of Ethics of Morgan Stanley Investment Management, filed herein.

   (2)            Code of Ethics of Morgan Stanley Funds, filed herein.

(q)               Power of Attorneys of Trustees, dated January 27, 2005, filed herein.



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

             None


                                       2


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. 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







      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 of funds in the Fund Complex; Managing
Managing Director,                                Director, Chief Administrative Officer and Director of Morgan
Chief Administrative Officer and                  Stanley Services; Director of Morgan Stanley Trust; Managing Director
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.




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





(30) Morgan Stanley Health Sciences Trust
(31) Morgan Stanley High Yield Securities Inc.
(32) Morgan Stanley Income Builder Fund
(33) Morgan Stanley Information Fund
(34) Morgan Stanley International Fund
(35) Morgan Stanley International SmallCap Fund
(36) Morgan Stanley International Value Equity Fund
(37) Morgan Stanley Japan Fund
(38) Morgan Stanley KLD Social Index Fund
(39) Morgan Stanley Limited Duration Fund
(40) Morgan Stanley Limited Duration U.S. Treasury Trust
(41) Morgan Stanley Limited Term Municipal Trust
(42) Morgan Stanley Liquid Asset Fund Inc.
(43) Morgan Stanley Mid-Cap Value Fund
(44) Morgan Stanley Nasdaq-100 Index Fund
(45) Morgan Stanley Natural Resource Development Securities Inc.
(46) Morgan Stanley New York Municipal Money Market Trust
(47) Morgan Stanley New York Tax-Free Income Fund
(48) Morgan Stanley Pacific Growth Fund Inc.
(49) Morgan Stanley Prime Income Trust
(50) Morgan Stanley Quality 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





(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

     Not applicable.






                                   SIGNATURES

Pursuant to the requirements of the securities Act of 1933 and the Investment
Company Act of 1940, the Registrant 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 23rd day of February, 2005.


                                   MORGAN STANLEY TAX-EXEMPT SECURITIES TRUST



                                   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. 28 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 Officer

By  /s/  RONALD E. ROBISON                                                             February 23, 2005
    ---------------------------
         Ronald E. Robison

(2) Principal Financial Officer             Chief Financial Officer


By  /s/  FRANCIS J. SMITH                                                              February 23, 2005
    -----------------------
         Francis J. Smith

(3) Majority of the Trustees

    Charles A. Fiumefreddo (Chairman)
    James F. Higgins

By  /s/  BARRY FINK                                                                    February 23, 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 FRISHLING                                                                February 23, 2005
    -----------------------
         Carl Frishling
         Attorney-in-Fact






                   MORGAN STANLEY TAX-EXEMPT SECURITIES TRUST

                                 Exhibit Index


(d)    Amended and Restated Investment Advisory Agreement, dated November 1,
       2004.

(h)(1) Amended and Restated Transfer Agency and Service Agreement, dated
       November 1, 2004.

   (2) Administration Agreement, dated November 1, 2004.

(m)    Amended and Restated Plan of Distribution Pursuant to Rule 12b-1, dated
       May 1, 2004.

(n)    Amended Multi-Class Plan Pursuant to Rule 18f-3, dated October 28, 2004.

(p)(1) Code of Ethics of Morgan Stanley Investment Management.

   (2) Code of Ethics of the Morgan Stanley Funds.

(q)    Powers of Attorney of Trustees, dated January 27, 2005.