AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 29, 2004
                                                   REGISTRATION NOS.:  33-44782
                                                                        811-6515
================================================================================
                       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. 17                    [X]
                                     AND/OR
               REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
                                   ACT OF 1940                              [X]
                                AMENDMENT NO. 18                            [X]

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

                      MORGAN STANLEY FLEXIBLE INCOME 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, ESQ.
                           1221 AVENUE OF THE AMERICAS
                            NEW YORK, NEW YORK 10020
                     (NAME AND ADDRESS OF AGENT FOR SERVICE)

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

                                    COPY TO:

         CARL FRISCHLING, ESQ.                   STUART M. STRAUSS, ESQ.
  KRAMER LEVIN NAFTALIS & FRANKEL LLP            CLIFFORD CHANCE US LLP
            919 THIRD AVENUE                       31 WEST 52ND STREET
       NEW YORK, NEW YORK 10022                  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 December 30, 2004 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.

================================================================================



 ---                                                            ---


[GRAPHIC OMITTED]




                                                            MORGAN STANLEY FUNDS






                                                                 MORGAN STANLEY
                                                          FLEXIBLE INCOME TRUST







    A mutual fund whose primary investment objective is a high level of current
        income;as a secondary objective, the Fund seeks to maximize total return
                   but only to the extent consistent with its primary objective


[MORGAN STANLEY GRAPHIC OMITTED]


The Securities and Exchange Commission has not approved or
disapproved these securities or passed upon the adequacy of
this Prospectus. Any representation to the contrary is a
criminal offense.                                                   PROSPECTUS
                                                              DECEMBER 30, 2004







 ----                                                                  ----


          CONTENTS

THE FUND

      Investment Objectives................................................ 1

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

      Principal Risks...................................................... 3

      Past Performance..................................................... 6

      Fees and Expenses.................................................... 8

      Additional Investment Strategy Information........................... 9

      Additional Risk Information......................................... 11

      Portfolio Holdings...................................................12

      Fund Management..................................................... 13


SHAREHOLDER INFORMATION

      Pricing Fund Shares................................................. 14

      How to Buy Shares................................................... 15

      How to Exchange Shares.............................................. 16

      How to Sell Shares.................................................. 18

      Distributions....................................................... 20

      Frequent Purchases and Redemptions of Fund Shares....................20

      Tax Consequences.................................................... 21

      Share Class Arrangements............................................ 22

      Additional Information...............................................30

FINANCIAL HIGHLIGHTS...................................................... 31

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


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

 ----                                                                  ----




 ----                                                                  ----


THE FUND

--------------------------------------------------------------------------------
INVESTMENT OBJECTIVES


[GRAPHIC OMITTED]


Morgan Stanley Flexible Income Trust seeks a high level of current income as its
primary investment objective. As a secondary objective, the Fund seeks to
maximize total return but only to the extent consistent with its primary
objective.

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

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

[GRAPHIC OMITTED]

The Fund will normally invest at least 80% of its assets in a portfolio of
fixed-income securities. The Fund's "Investment Manager," Morgan Stanley
Investment Advisors Inc., will allocate the Fund's securities investments among
the following asset classes or market segments: (1) investment grade global
securities, (2) mortgage-backed securities and U.S. government securities, (3)
high yield securities, and (4) emerging market securities. The amount of the
Fund's assets committed to any one asset class or market segment will fluctuate
and there are no percentage limitations with respect to the amount of the Fund's
assets tha.9t may be invested in any such asset class or market segment other than
those relating to high yield and emerging market debt securities as set forth
below. The Investment Manager has the flexibility to select any combination of
the aforementioned groups depending upon market conditions and the current
economic environment and, as a result, at any given time the Fund's assets may
be invested in certain groups and not others.

(1) GLOBAL SECURITIES.

o   Fixed-income securities issued or guaranteed by the U.S. government, its
    agencies or instrumentalities or fixed-income securities issued or
    guaranteed by a foreign government or supranational organization or any of
    their instrumentalities or fixed-income securities issued by a corporation,
    all of which are rated in one of the four highest bond rating categories by
    either Standard & Poor's ("S&P") or Moody's Investors Service ("Moody's")
    or, if unrated, are determined by the Investment Manager to be of equivalent
    quality;

o   Certificates of deposit and bankers' acceptances (a) issued or guaranteed
    by, or time deposits maintained at, banks and (b) rated in the two highest
    short-term rating categories by either S&P, Moody's or Duff & Phelps or, if
    unrated, are determined by the Investment Manager to be of high
    creditworthiness; and

o   Commercial paper rated in the two highest short-term rating categories by
    either S&P, Moody's or Duff & Phelps or, if unrated, issued by U.S. or
    foreign companies having outstanding debt securities rated A or higher by
    S&P or Moody's.


                                                                               1
 ----                                                                  ----




 ----                                                                  ----

(2) MORTGAGE-BACKED SECURITIES AND U.S. GOVERNMENT SECURITIES.

o   Fixed-rate and adjustable rate mortgage-backed securities that are issued or
    guaranteed by the U.S. government, its agencies or instrumentalities or by
    private issuers that are rated in the highest bond rating category by
    Moody's or S&P or, if not rated, are determined to be of comparable quality
    by the Investment Manager; the mortgage-backed securities in which the Fund
    may invest include mortgage pass-through securities, collateralized mortgage
    obligations (CMOs) and commercial mortgage-backed securities ("CMBS");

o   U.S. Treasury securities, such as bills, notes, bonds and zero coupon
    securities (without restrictions as to remaining maturity at time of
    purchase); and

o   U.S. government agency securities, such as discount notes, medium-term
    notes, debentures and zero coupon securities, which are purchased at a
    discount and generally accrue interest, but make no payments until maturity
    (without restrictions as to remaining maturity at time of purchase).

(3) HIGH YIELD SECURITIES. The Fund may invest in high yield, high risk,
 fixed-income securities rated Baa or lower by Moody's or BBB or lower by S&P
 or, if not rated, are determined by the Investment Manager to be of
 comparable quality. Fixed-income securities rated Ba or lower by Moody's or
 BB or lower by S&P are considered speculative investments and are commonly
 known as "junk bonds." The securities in this group may include both
 convertible and non-convertible debt securities and preferred stock. They
 also may include "Rule 144A" securities, which are subject to resale
 restrictions. The Fund does not have any minimum quality rating standard for
 this group of investments. Thus, the Fund may invest in fixed-income
 securities that may already be in default on payment of interest or
 principal. The Fund's investments in junk bonds not including emerging
 market securities as set forth below may not exceed 331/3% of its assets.

(4) EMERGING MARKET SECURITIES. The Fund may invest up to 15% of its assets in
 debt securities of companies or foreign governments or supranational
 organizations or any of their instrumentalities located in emerging market
 countries. These securities may be rated below investment grade and may be
 considered high yield securities. Emerging market countries are countries
 that major financial institutions such as the World Bank generally consider
 to be less economically mature than developed nations. Emerging market
 countries can include every nation in the world except the United States,
 Canada, Japan, Hong Kong, Singapore, Australia, New Zealand and most nations
 located in Western Europe. The Fund's investments in emerging market
 securities may include Brady Bonds which are securities that are created by
 exchanging existing commercial bank loans to foreign entities for new
 obligations for the purpose of restructuring the issuers' debts.

                                      * * *

Fixed-income securities are debt securities and can take the form of bonds,
notes or commercial paper. The issuer of the debt security borrows money from
the investor who buys the security. Most debt securities pay either fixed or
adjustable rates of interest at regular intervals until they mature, at which
point investors get their principal back.

In addition to the three groups of fixed-income securities, the Fund may also
invest in options and futures, swaps, forward foreign currency exchange
contracts, common stock, warrants and convertible securities.


2
 ----                                                                  ----



 ----                                                                  ----

In pursuing the Fund's investment objectives, the Investment Manager has
considerable leeway in deciding which investments it buys, holds or sells on a
day-to-day basis -- and which trading strategies it uses. For example, the
Investment Manager in its discretion may determine to use some permitted
trading strategies while not using others.

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

[GRAPHIC OMITTED]

There is no assurance that the Fund will achieve its investment objectives. The
Fund's share price and yield will fluctuate with changes in the market value
and/or yield of the Fund's portfolio securities. Neither the value nor the yield
of the U.S. government securities that the Fund invests in (or the value or
yield of the Fund's shares) is guaranteed by the U.S. government. 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.

FIXED-INCOME SECURITIES. All fixed-income securities are subject to two types
of risk: credit risk and interest rate risk. Credit risk refers to the
possibility that the issuer of a security will be unable to make interest
payments and/or repay the principal on its debt.

Interest rate risk refers to fluctuations in the value of a fixed-income
security resulting from changes in the general level of interest rates. When
the general level of interest rates goes up, the prices of most fixed-income
securities go down. When the general level of interest rates goes down, the
prices of most fixed-income securities go up. (Zero coupon securities are
typically subject to greater price fluctuations than comparable securities that
pay current interest.)

The Fund is not limited as to the maturities of the securities 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.

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

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

The foreign securities in which the Fund invests may be issued by companies
located in emerging market countries. Compared to the United States and other
developed countries, emerging market countries may have relatively


                                                                               3
 ----                                                                  ----




 ----                                                                  ----


unstable governments, economies based on only a few industries and securities
markets that trade a small number of securities. Securities issued by companies
located in these countries tend to be especially volatile and may be less
liquid than securities traded in developed countries. In the past, securities
in these countries have been characterized by greater potential loss than
securities of companies located in developed countries.

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

MORTGAGE-BACKED SECURITIES. Mortgage-backed securities in which the Fund may
invest have different risk characteristics than traditional debt securities.
Although generally the value of fixed-income securities increases during
periods of falling interest rates and decreases during periods of rising
interest rates, this is not always the case with mortgage-backed securities.
This is due to the fact that principal on underlying mortgages may be prepaid
at any time as well as other factors. Generally, prepayments will increase
during a period of falling interest rates and decrease during a period of
rising interest rates. The rate of prepayments also may be influenced by
economic and other factors. Prepayment risk includes the possibility that, as
interest rates fall, securities with stated interest rates may have the
principal prepaid earlier than expected, requiring the Fund to invest the
proceeds at generally lower interest rates.

Investments in mortgage-backed securities are made based upon, among other
things, expectations regarding the rate of prepayments on underlying mortgage
pools. Rates of prepayment, faster or slower than expected by the Investment
Manager, could reduce the Fund's yield, increase the volatility of the Fund
and/or cause a decline in net asset value. Certain mortgage-backed securities
may be more volatile and less liquid than other traditional types of debt
securities.

The Fund may invest in mortgage pass-through securities that are issued or
guaranteed by the U.S. government. These securities are either direct
obligations of the U.S. government or the issuing agency or instrumentality has
the right to borrow from the U.S. Treasury to meet its obligations although it
is not legally required to extend credit to the agency or instrumentality.
Certain of the U.S. government securities purchased by the Fund, such as those
issued by the Federal National Mortgage Association ("Fannie Mae") and Federal
Home Loan Mortgage Corporation ("Freddie Mac"), are not backed by the full
faith and credit of the United States and there is a risk that the U.S.
government will not provide financial support to these agencies if it is not
obligated to do so by law. The maximum potential liability of the issuers of
some U.S. government securities held by the Fund may greatly exceed their
current resources, including their legal right to support from the U.S.
Treasury. It is possible that these issuers will not have the funds to meet
their payment obligations in the future.


COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS"). The principal and interest on the
mortgage assets comprising a CMO may be allocated among the several classes of
a CMO in many ways. The general goal in allocating cash flows on mortgage
assets to the various classes of a CMO is to create certain tranches on which
the expected cash flows have a higher degree of predictability than do the
underlying mortgage assets. As a general


4
 ----                                                                  ----




 ----                                                                  ----


matter, the more predictable the cash flow is on a particular CMO tranche, the
lower the anticipated yield on that tranche at the time of issue will be
relative to the prevailing market yields on the mortgage assets. As part of the
process of creating more predictable cash flows on certain tranches of a CMO,
one or more tranches generally must be created that absorb most of the changes
in the cash flows on the underlying mortgage assets. The yields on these
tranches are generally higher than prevailing market yields on other mortgage
related securities with similar average lives. Principal prepayments on the
underlying mortgage assets may cause the CMOs to be retired substantially
earlier than their stated maturities or final distribution dates. Because of
the uncertainty of the cash flows on these tranches, the market prices and
yields of these tranches are more volatile and may increase or decrease in
value substantially with changes in interest rates and/or the rates of
prepayment. Due to the possibility that prepayments (on home mortgages and
other collateral) will alter the cash flow on CMOs, it is not possible to
determine in advance the final maturity date or average life. Faster prepayment
will shorten the average life and slower prepayments will lengthen it. In
addition, if the collateral securing CMOs or any third party guarantees are
insufficient to make payments, the Fund could sustain a loss.



COMMERCIAL MORTGAGE-BACKED SECURITIES. The Fund may invest in CMBS. CMBS are
generally multi-class or pass-through securities backed by a mortgage loan or a
pool of mortgage loans secured by commercial property, such as industrial and
warehouse properties, office buildings, retail space and shopping malls,
multifamily properties and cooperative apartments. The commercial mortgage
loans that underlie CMBS are generally not amortizing or not fully amortizing.
That is, at their maturity date, repayment of their remaining principal balance
or "balloon" is due and is repaid through the attainment of an additional loan
or sale of the property. An extension of a final payment on commercial
mortgages will increase the average life of the CMBS, generally resulting in
lower yield for discount bonds and a higher yield for premium bonds.

CMBS are subject to credit risk and prepayment risk. The Fund invests in CMBS
that are rated in the top rating category by a nationally-recognized
statistical rating organization (e.g., AAA by S&P or Aaa by Moody's). Although
prepayment risk is present, it is of a lesser degree in the CMBS than in the
residential mortgage market; commercial real estate property loans often
contain provisions which substantially reduce the likelihood that such
securities will be prepaid (e.g. significant prepayment penalties on loans and,
in some cases, prohibition on principal payments for several years following
origination).


HIGH YIELD SECURITIES. The Fund's investments in high yield securities,
commonly known as "junk bonds," pose significant risks. The prices of high
yield securities are likely to be more sensitive to adverse economic changes or
individual corporate developments than higher rated securities. During an
economic downturn or substantial period of rising interest rates, junk bond
issuers and, in particular, highly leveraged issuers may experience financial
stress that would adversely affect their ability to service their principal and
interest payment obligations, to meet their projected business goals or to
obtain additional financing. In the event of a default, the Fund may incur
additional expenses to seek recovery. The Rule 144A securities could have the
effect of increasing the level of Fund illiquidity to the extent the Fund may
be unable to find qualified institutional buyers interested in purchasing the
securities. In addition, periods of economic uncertainty and change probably
would result in an increased volatility of market prices of high yield
securities and a corresponding volatility in the Fund's net asset value.


                                                                               5
----                                                                   ----




----                                                                   ----



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



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

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


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


[GRAPHIC OMITTED]


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


ANNUAL TOTAL RETURNS--CALENDAR YEARS






-1.31%   12.71%     8.36%     6.04%     2.48%    -2.78%    -8.68%    -5.80%     9.81%

1994      1995      1996      1997      1998      1999      2000      2001       2002      2003





The bar chart reflects the performance of Class B shares; the performance of
the other Classes will differ because the Classes have different ongoing fees.
The performance information in the bar chart does not reflect the deduction of
sales charges; if these amounts were reflected, returns would be less than
shown. Year-to-date total return as of September 30, 2004 was  %.

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   ).


6
----                                                                   ----




----                                                                   ----


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

(sidebar)
----------------
AVERAGE ANNUAL
TOTAL RETURNS

This table compares the Fund's average annual total returns with those of two
broad measures of market performance over time. The Fund's returns include the
maximum applicable sales charge for each Class and assume you sold your shares
at the end of each period (unless otherwise noted).
(/sidebar)




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

  Class A(1): Return Before Taxes                                       %         %                     %
-----------------------------------------------------------------------------------------------------------
  Lehman Brothers Intermediate U.S. Government Credit Index(2)          %         %                     %
-----------------------------------------------------------------------------------------------------------
  Lipper Multi-Sector Income Funds Average(3)                           %         %                     %
-----------------------------------------------------------------------------------------------------------
  Class B(1): Returns Before Taxes                                      %         %           %
-----------------------------------------------------------------------------------------------------------
  Returns After Taxes on Distributions(4)                               %         %           %
-----------------------------------------------------------------------------------------------------------
  Returns After Taxes on Distributions and Sale of Fund Shares          %         %           %
-----------------------------------------------------------------------------------------------------------
  Lehman Brothers Intermediate U.S. Government Credit Index(2)          %         %           %
-----------------------------------------------------------------------------------------------------------
  Lipper Multi-Sector Income Funds Average(3)                           %         %         --
-----------------------------------------------------------------------------------------------------------
  Class C(1): Return Before Taxes                                       %         %         --          %
-----------------------------------------------------------------------------------------------------------
  Lehman Brothers Intermediate U.S. Government Credit Index(2)          %         %         --          %
-----------------------------------------------------------------------------------------------------------
  Lipper Multi-Sector Income Funds Average(3)                           %         %         --          %
-----------------------------------------------------------------------------------------------------------
  Class D(1): Return Before Taxes                                       %         %         --          %
-----------------------------------------------------------------------------------------------------------
  Lehman Brothers Intermediate U.S. Government Credit Index(2)          %         %         --          %
-----------------------------------------------------------------------------------------------------------
  Lipper Multi-Sector Income Funds Average(3)                           %         %         --          %
-----------------------------------------------------------------------------------------------------------


(1)   Class A, C and D commenced operations on July 28, 1997; Class B commenced
      operations on April 9, 1992.
(2)   The Lehman Brothers Intermediate U.S. Government/Credit Index tracks the
      performance of government and corporate obligations, including U.S.
      government agency and Treasury securities, and corporate and Yankee bonds
      with maturities of 1 to 10 years. Indexes are unmanaged and their returns
      do not include any sales charges or fees. Such costs would lower
      performance. It is not possible to invest directly in an index.
(3)   The Lipper Multi-Sector Income Funds Average tracks the performance of
      all funds in the Lipper Multi-Sector Income Funds classification. The
      Average, which is adjusted for capital gains distributions and income
      dividends, is unmanaged and should not be cosidered an investment.
(4)   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.



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



                                                                               7
----                                                                   ----




----                                                                   ----


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

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

(/sidebar)


(sidebar)

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

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


(sidebar)


SHAREHOLDER FEES



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

  Management fee                                  %                 %                %                %
--------------------------------------------------------------------------------------------------------------
  Distribution and service (12b-1) fees           %                 %                %            None
--------------------------------------------------------------------------------------------------------------
  Other expenses                                  %                 %                %                %
--------------------------------------------------------------------------------------------------------------
  Total annual Fund operating expenses            %                 %                %                %
--------------------------------------------------------------------------------------------------------------


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

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


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

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


EXAMPLE

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


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



8
----                                                                   ----




----                                                                   ----






                         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.

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


[GRAPHIC OMITTED]


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

MORTGAGE-BACKED SECURITIES. One type of mortgage-backed security, in which the
Fund may invest, is a mortgage pass-through security. These securities
represent a participation interest in a pool of residential mortgage loans
originated by U.S. governmental or private lenders such as banks. They differ
from conventional debt securities, which provide for periodic payment of
interest in fixed amounts and principal payments at maturity or on specified
call dates. Mortgage pass-through securities provide for monthly payments that
are a "pass-through" of the monthly interest and principal payments made by the
individual borrowers on the pooled mortgage loans.

The Fund may invest in mortgage pass-through securities that are issued or
guaranteed by the Government National Mortgage Association, the Federal
National Mortgage Association and the Federal Home Loan Mortgage Corporation.
These securities are either direct obligations of the U.S. government, or the
issuing agency/instrumentality has the right to borrow from the U.S. Treasury
to meet its obligations, although the Treasury is not legally required to
extend credit to the agency/instrumentality.

Private mortgage pass-through securities also can be Fund investments. They are
issued by private originators of and investors in mortgage loans, including
savings and loan associations and mortgage banks. Since private mortgage
pass-through securities typically are not guaranteed by an entity having the
credit status of a U.S. government agency, the securities generally are
structured with one or more type of credit enhancement such as third party
guarantees.


OPTIONS AND FUTURES. The Fund may invest in options and futures including
interest rate futures and options on underlying portfolio securities and
currencies and may invest in put and call options with respect to foreign
currencies and futures on interest rate indexes. Options and futures may be
used to manage the interest rate sensitivity of the Fund's portfolio securities
or to seek to protect against a decline in securities or currency prices or an
increase in prices of securities or currencies that may be purchased.



                                                                               9
----                                                                   ----




----                                                                   ----




SWAPS. Swap transactions are contracts in which the Fund agrees to exchange the
return or interest rate on one instrument for the return or interest rate on
another instrument. The payment streams are calculated by reference to a
specified index and agreed upon notational amount. A "specified index" may
include currencies, interest rates, fixed-income indices, securities indices,
total return on interest rate indices or commodity indices. Swaps may be used
to manage the maturity and duration of a fixed-income portfolio, or to gain
exposure to a market without directly investing in securities traded in that
market. Currency swaps generally involve an agreement to pay interest streams
in one currency based on a specified index in exchange for receiving interest
streams denominated in another currency. Interest rate caps, floors and collars
are swaps in which one party pays a single or periodic fixed amount or premium
and the other party pays periodic amounts based on the movement of a specified
index.


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

COMMON STOCK AND WARRANTS. The Fund may invest up to 20% of its assets in
common stocks. The Fund may acquire stock, among other ways, directly or upon
exercise of warrants attached to other securities or included in a unit with
fixed-income securities or acquired upon conversions of fixed-income
securities.

CONVERTIBLE SECURITIES. The Fund may invest in convertible securities which are
securities that generally pay dividends or interest and may be converted into
common stock. These securities may carry risks associated with both
fixed-income securities and common stocks. To the extent that a convertible
security's investment value is greater than its conversion value, its price
will be likely to increase when interest rates fall and decrease when interest
rates rise, as with a fixed-income security. If the conversion value exceeds
the investment value, the price of the convertible security will tend to
fluctuate directly with the price of the underlying equity security.

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

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

PORTFOLIO TURNOVER. The Fund may engage in active and frequent trading of its
portfolio securities. The Financial Highlights Table at the end of this
Prospectus shows the Fund's portfolio turnover rates during recent fiscal


10
----                                                                   ----




----                                                                   ----


years. A portfolio turnover rate of 200%, for example, is equivalent to the
Fund buying and selling all of its securities two times during the course of
the year. A high portfolio turnover rate (over 100%) could result in high
brokerage costs and an increase in taxable capital gains distributions to the
Fund's shareholders. See the sections on "Distributions" and "Tax
Consequences."

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

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


[GRAPHIC OMITTED]


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

OPTIONS AND FUTURES. If the Fund invests in options and/or futures, its
participation in these markets would subject the Fund's portfolio to certain
risks. The Investment Manager's predictions of movements in the direction of
the bond, currency or interest rate markets may be inaccurate, and the adverse
consequences to the Fund (e.g., a reduction in the Fund's net asset value or a
reduction in the amount of income available for distribution) may leave the
Fund in a worse position than if these strategies were not used. Other risks
inherent in the use of options and futures include, for example, the possible
imperfect correlation between the price of options and futures contracts and
movements in the prices of the securities being hedged, and the possible
absence of a liquid secondary market for any particular instrument. Certain
options may be over-the-counter options, which are options negotiated with
dealers; there is no secondary market for these investments.


SWAPS. Swaps do not involve the delivery of securities, other underlying assets
or principal. Accordingly, the risk of loss with respect to swaps is limited to
the net amount of payments that the Fund is contractually obligated to make,
or, in the case of the other party to a swap defaulting, the net amount of
payments that the Fund is contractually entitled to receive. Currency swaps
usually involve the delivery of the entire principal value of one designated
currency in exchange for the other designated currency. Therefore, the entire
principal value of a currency swap is subject to the risk that the other party
to the swap will default on its contractual delivery obligations. If there is a
default by the counterparty, the Fund may have contractual remedies pursuant to
the agreements related to the transaction. The swap market has grown
substantially in recent years with a large number of banks and investment
banking firms acting both as principals and as agents utilizing standardized
swap documentation. As a result, the swap market has become relatively liquid.
Caps, floors and collars are more recent innovations for which standardized
documentation has not yet been fully developed and, accordingly, they are less
liquid than swaps.



                                                                              11
----                                                                   ----




----                                                                   ----


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

COMMON STOCKS AND WARRANTS. The Fund's investment in common stocks and warrants
involve risks. In general, stock values fluctuate in response to activities
specific to the company as well as general market, economic and political
conditions. Stock prices can fluctuate widely in response to these factors.

CONVERTIBLE SECURITIES. The Fund's investments in convertible securities
subject the Fund to the risks associated with both fixed-income securities and
common stocks. To the extent that a convertible security's investment value is
greater than its conversion value, its price will be likely to increase when
interest rates fall and decrease when interest rates rise, as with a
fixed-income security. If the conversion value exceeds the investment value,
the price of the convertible security will tend to fluctuate directly with the
price of the underlying equity security. Because there are no credit quality
restrictions concerning the Fund's convertible securities investments, these
investments may be speculative in nature.

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

PORTFOLIO HOLDINGS



A description of the Fund's policies and procedures with respect to the
disclosure of the Fund's portfolio securities is available (i) in the Fund's
Statement of Additional Information; and (ii) on the Fund's website
www.morganstanley.com/funds.

The Fund discloses portfolio holdings on its public website as follows:
[description of where on the public website the information or a prominent
hyperlink (or series of prominent hyperlinks) to follow.]

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

o   Complete portfolio holdings information or other disclosure of holdings as
    required by applicable legal or regulatory requirements on a fiscal quarter
    basis with a minimum lag of 30 calendar days; and

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

This information remains available until it is included in the Fund's next
  shareholder report or quarterly report.

12
----                                                                   ----




----                                                                   ----


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

(sidebar)

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

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

(/sidebar)

[GRAPHIC OMITTED]


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

The Fund's portfolio is managed within the Taxable Fixed-Income team. Current
members of the team include Abigail L. McKenna and Sheila Finnerty, Managing
Directors of the Investment Manager, and Paul F. O'Brien and Neil Stone,
Executive Directors of the Investment Manager.

The Fund pays the Investment Manager a monthly management fee as full
compensation for the services and facilities furnished to the Fund, and for
Fund expenses assumed by the Investment Manager. The fee is based on the Fund's
average daily net assets. For the fiscal year ended October 31, 2004, the Fund
accrued total compensation to the Investment Manager amounting to  % of the
Fund's average daily net assets.


                                                                              13
----                                                                   ----




----                                                                   ----


SHAREHOLDER INFORMATION

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


[GRAPHIC OMITTED]


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

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


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

          In these cases, the Fund's net asset value will reflect certain
          portfolio securities' fair value rather than their market price. With
          respect to securities that are primarily listed on foreign exchanges,
          the values of the Fund's portfolio securities may change on days when
          you will not be able to purchase or sell your shares. Fair value
          pricing involves subjective judgments and it is possible that the fair
          value determined for a security is materially different than the value
          that could be realized upon the sale of that security.

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


14
----                                                                   ----




----                                                                   ----


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

(sidebar)
----------------
CONTACTING A FINANCIAL ADVISOR

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

(/sidebar)

(sidebar)

----------------
EasyInvest (Registered Tracemark)

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.
(/sidebar)


[GRAPHIC OMITTED]



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


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

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

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



MINIMUM INVESTMENT AMOUNTS





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

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


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



There is no minimum investment amount if you purchase Fund shares through: (1)
the Investment Manager's mutual fund asset allocation program; (2) a program,
approved by the


                                                                              15
----                                                                   ----




----                                                                   ----


          Fund's distributor, in which you pay an asset-based fee for advisory,
          administrative and/or brokerage services; (3) the following programs
          approved by the Fund's distributor: (i) qualified state tuition plans
          described in Section 529 of the Internal Revenue Code or (ii) certain
          other investment programs that do not charge an asset-based fee; or
          (4) employer-sponsored employee benefit plan accounts.

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



          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
               Flexible Income 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. In addition, Class A shares of the Fund may be
          exchanged for shares of an FSC Fund (funds subject to a front-end
          sales charge). See the inside back cover of this Prospectus for each
          Morgan Stanley Fund's designation as a Multi-Class Fund, No-Load Fund,
          Money Market Fund or an FSC Fund. If a Morgan Stanley Fund is not
          listed, consult the inside back cover of that fund's 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.



16
----                                                                   ----




----                                                                   ----



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

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

The Fund may terminate or revise the exchange privilege upon required notice.
The check writing privilege is not available for Money Market Fund shares you
acquire in an exchange.

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



                                                                              17
----                                                                   ----




----                                                                   ----



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 Manager's asset allocation program or employer-sponsored retirement
plans.

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


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


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


[GRAPHIC OMITTED]


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





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

Contact Your       To sell your shares, simply call your Morgan Stanley Financial Advisor or other authorized
Financial Advisor  financial representative.

                   Payment will be sent to the address to which the account is registered, or deposited in your
                   brokerage account.
------------------ ----------------------------------------------------------------------------------------------
By Letter          You can also sell your shares by writing a "letter of instruction" that includes:
                   o  your account number;
                   o  the name of the Fund;
                   o  the dollar amount or the number of shares you wish to sell;
                   o  the Class of shares you wish to sell; and
                    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.
------------------ ----------------------------------------------------------------------------------------------


18
----                                                                   ----




----                                                                   ----




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

Systematic       If your investment in all of the Morgan Stanley Funds has a total market value of at least
Withdrawal Plan  $10,000, you may elect to withdraw amounts of $25 or more, or in any whole percentage of a
                 fund's balance (provided the amount is at least $25), on a monthly, quarterly, semi-annual or
                 annual basis, from any fund with a balance of at least $1,000. Each time you add a fund to the
                 plan, you must meet the plan requirements.
                 Amounts withdrawn are subject to any applicable CDSC.  A CDSC may be waived under
                 certain circumstances. See the Class B waiver categories listed in the "Share Class
                 Arrangements" section of this Prospectus.
                 To sign up for the Systematic Withdrawal Plan, contact your Morgan Stanley Financial Advisor

                 or call (800) 869-NEWS. You may terminate or suspend your plan at any time. Please
                 remember that withdrawals from the plan are sales of shares, not Fund "distributions," and
                 ultimately may exhaust your account balance. The Fund may terminate or revise the plan at
                 any time.
---------------- ------------------------------------------------------------------------------------------------




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


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

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

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

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

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


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



                                                                              19
----                                                                   ----




----                                                                   ----



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


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


[GRAPHIC OMITTED]


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


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


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

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


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

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


20
----                                                                   ----




----                                                                   ----



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

Investments in other types of securities also may be susceptible to short-term
trading strategies. These investments include securities that are, among other
things, thinly traded, traded infrequently, or relatively illiquid, which have
the risk that the current market price for the securities may not accurately
reflect current market values. A shareholder may seek to engage in short-term
trading to take advantage of these pricing differences (referred to as "price
arbitrage"). Investments in certain fixed-income securities, such as high yield
bonds, may be adversely affected by price arbitrage trading strategies. 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 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, exchanges and
redemptions of Fund shares. Omnibus accounts generally do not identify
customers' trading activity to the Fund on an individual basis. The ability of
the Fund to monitor exchanges made by the underlying shareholders in omnibus
accounts, therefore, is severely limited. Consequently, the Fund must rely on
the financial intermediary to monitor frequent short-term trading within the
Fund by the financial intermediary's customers. There can be no assurance that
the Fund will be able to eliminate all market-timing activities.


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


[GRAPHIC OMITTED]


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

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

o   The Fund makes distributions; and

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


TAXES ON DISTRIBUTIONS. Your distributions are normally subject to federal and
state income tax when they are paid, whether you take them in cash or reinvest
them in Fund shares. A distribution also may be subject to local income tax.
Any income dividend distributions and any short-term capital gain distributions
are taxable to you as ordinary income. Any long-term capital gain distributions
are taxable as long-term capital gains no matter how long you have owned shares
in the Fund. Under recently enacted legislation, a portion of the ordinary
income



                                                                              21
----                                                                   ----




----                                                           ----



dividends you receive may be taxed at the same rate as long-term capital gains.
However, even if income received in the form of ordinary income dividends is
taxed at the same rates as long-term capital gains, such income will not be
considered long-term capital gains for other federal income tax purposes. For
example, you generally will not be permitted to offset ordinary income
dividends with capital losses. Short-term capital gain distributions will
continue to be taxed at ordinary income rates.


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

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


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


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


[GRAPHIC OMITTED]


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

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

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


22
----                                                                   ----




----                                                                   ----



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




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

       A         Maximum 4.25% initial sales charge reduced for purchase of
                 $25,000 or more; shares sold without an initial sales charge are
                 generally subject to a 1.0% CDSC during the first 18 months                         0.25%
-------------------------------------------------------------------------------------------------------------------
       B         Maximum 5.0% CDSC during the first year decreasing to 0% after six
                 years                                                                               0.85%
-------------------------------------------------------------------------------------------------------------------
       C         1.0% CDSC during the first year                                                     0.85%
-------------------------------------------------------------------------------------------------------------------
       D         None                                                                                 None
-------------------------------------------------------------------------------------------------------------------




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

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



                                                                              23
----                                                                   ----




----                                                                   ----



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 contingent deferred sales charge, or CDSC, of
1.00% on sales made within 18 months after the last day of the month of
purchase. With respect to shares purchased prior to December 1, 2004,
investments of $1 million or more are not subject to an initial sales charge,
but are generally subject to a CDSC of 1.00% on sales made within one year after
the last day of the month of purchase. The CDSC will be assessed in the same
manner and with the same CDSC waivers as with Class B shares. Class A shares are
also subject to a distribution (12b-1) fee of up to 0.25% of the average daily
net assets of the Class. This fee is lower than the distribution fee paid by
Class B or Class C.


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

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


(sidebar)
----------------
FRONT-END SALES
CHARGE OR FSC

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




-----------------------------------------------------------------------------------------
                                                    FRONT-END SALES CHARGE
                                      ---------------------------------------------------
                                          PERCENTAGE OF PUBLIC     APPROXIMATE PERCENTAGE
 AMOUNT OF SINGLE TRANSACTION               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 living in the same
    household and under the age of 21).

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

o   Tax-exempt organizations.

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

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


24
----                                                                   ----




----                                                                   ----


A shares of other Multi-Class Funds and shares of FSC Funds. Shareholders also
may combine such purchases made in a single transaction by family members
(limited to spouse, and children living in the same household and 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
and shares of FSC Funds equal to at least $5 million (or $25 million for
certain employee benefit plans), you are eligible to purchase Class D shares of
any fund subject to the fund's minimum initial investment requirement.

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

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


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

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

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

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


                                                                              25
----                                                                   ----




----                                                                   ----



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


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

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

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

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

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


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

(sidebar)
----------------
CONTINGENT DEFERRED
SALES CHARGE
OR CDSC

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




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

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


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


26
----                                                                   ----




----                                                                   ----



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

CDSC WAIVERS. A CDSC, if otherwise applicable, will be waived in the case of:
o   Sales of shares held at the time you die or become disabled (within the
    definition in Section 72(m)(7) of the Internal Revenue Code which relates to
    the ability to engage in gainful employment), if the shares are: (i)
    registered either in your name (not a trust) or in the names of you and your
    spouse as joint tenants with right of survivorship; or (ii) held in a
    qualified corporate or self-employed retirement plan, IRA or 403(b)
    Custodial Account, provided in either case that the sale is requested within
    one year of your death or initial determination of disability.

o   Sales in connection with the following retirement plan "distributions:" (i)
    lump-sum or other distributions from a qualified corporate or self-employed
    retirement plan following retirement (or, in the case of a "key employee" of
    a "top heavy" plan, following attainment of age 591/2); (ii) distributions
    from an IRA or 403(b) Custodial Account following attainment of age 591/2;
    or (iii) a tax-free return of an excess IRA contribution (a "distribution"
    does not include a direct transfer of IRA, 403(b) Custodial Account or
    retirement plan assets to a successor custodian or trustee).


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


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


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



DISTRIBUTION FEE. Class B shares are also subject to an annual distribution
(12b-1) fee of up to 0.85% of the lesser of: (a) the average daily aggregate
gross purchases by all shareholders of the Fund's Class B shares since the
inception of the Fund (not including reinvestments of dividends or capital
gains distributions), less the average daily aggregate net asset value of the
Fund's Class B shares sold by all shareholders since the Fund's inception upon
which a CDSC has been imposed or waived, or (b) the average daily net assets of
Class B. This fee is higher than the annual distribution fee paid by Class A.



                                                                              27
----                                                                   ----




----                                                                   ----



CONVERSION FEATURE. After 10 years, Class B shares will convert automatically
to Class A shares of the Fund with no initial sales charge. The ten year period
runs from the last day of the month in which the shares were purchased, or in
the case of Class B shares acquired through an exchange, from the last day of
the month in which the original Class B shares were purchased; the shares will
convert to Class A shares based on their relative net asset values in the month
following the ten year period. At the same time, an equal proportion of Class B
shares acquired through automatically reinvested distributions will convert to
Class A shares on the same basis. (Class B shares 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 intial sales charge. The
eight-year period runs from the last day of the month in which the shares were
purchased, or in the case of Class B shares acquired through an exchange, from
the last day of the month in which the original Class B shares were purchased;
the shares will convert to Class A shares based on their relative net asset
values in the month following the eight-year period. At the same time, an equal
proportion of Class B shares acquired through automatically reinvested
distributions will convert to Class A shares on the same basis.


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

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

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

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


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


28
----                                                                   ----




----                                                                   ----



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 0.85% of the average daily net assets of that Class. This fee is
higher than the annual distribution fee paid by Class A. Unlike Class B shares,
Class C shares have no conversion feature and, accordingly, an investor that
purchases Class C shares may be subject to distribution (12b-1) fees applicable
to Class C shares for an indefinite period.

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

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

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

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

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

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

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

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


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


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

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


                                                                              29
----                                                                   ----




----                                                                   ----




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


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

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


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


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


30
----                                                                   ----




----                                                                   ----


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.











                                   [TO COME]












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

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

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

(2)   If the Fund had borne all expenses that were waived by the Investment
      Manager, the expense and net investment income ratios would have been
      0.78% and 8.76%, respectively.















                                                                              31
----                                                                   ----




----                                                                   ----




FINANCIAL HIGHLIGHTS (CONTINUED)


                                    [TO COME]























32
----                                                                   ----




----                                                                   ----





                                   [TO COME]
























                                                                              33
----                                                                   ----




----                                                                   ----



FINANCIAL HIGHLIGHTS (CONTINUED)


                                   [TO COME]























34
----                                                                   ----




----                                                                   ----


NOTES


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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














                                                                              35
----                                                                   ----




----                                                                   ----


NOTES (CONTINUED)


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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






36
----                                                                   ----




----                                                                   ----



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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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








                                                                              37
----                                                                   ----




---                                                                    ---


MORGAN STANLEY FUNDS


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

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

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

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

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


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

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

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

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

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

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

Limited Duration Fund(NL)
Limited Duration U.S. Treasury Trust
------------------------
TAXABLE INTERMEDIATE TERM

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

California Tax-Free Income Fund
Limited Term Municipal Trust(NL)
New York Tax-Free Income Fund
Tax-Exempt Securities Trust


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

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

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

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

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


---                                                                    ---




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



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


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


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


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

 TICKER SYMBOLS:
------------------ -----------------
CLASS A:     DINAX CLASS B:    DINBX
------------------ -----------------
CLASS C:     DINCX CLASS D:    DINDX
-----------------  -----------------

(THE FUND'S INVESTMENT COMPANY ACT FILE NO. IS 811-6515)


CLF NO. 37937PRO-00

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

(Copyright)  2004 Morgan Stanley


[MORGAN STANLEY GRAPHIC OMITTED]




                               MORGAN STANLEY FUNDS





                                     MORGAN STANLEY
                              FLEXIBLE INCOME TRUST

                                    \   37937 12/04



                   [MORGAN STANLEY GRAPHIC OMITTED]






                                         PROSPECTUS
                                  DECEMBER 30, 2004





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

STATEMENT OF ADDITIONAL INFORMATION


                                                MORGAN STANLEY
DECEMBER 30, 2004                               FLEXIBLE INCOME TRUST






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


     This Statement of Additional Information is not a prospectus. The
Prospectus (dated December 30, 2004) for Morgan Stanley Flexible Income 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
Flexible Income 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 .........................  17

      D. Disclosure of Portfolio Holdings ..............................  18

III.  Management of the Fund ...........................................  20

      A. Board of Trustees .............................................  20

      B. Management Information ........................................  21

      C. Compensation ..................................................  28

IV.   Control Persons and Principal Holders of Securities ..............  31

V.    Investment Management and Other Services .........................  31

      A. Investment Manager ............................................  31

      B. Principal Underwriter .........................................  31

      C. Services Provided by the Investment Manager  ..................  32

      D. Dealer Reallowances ...........................................  33

      E. Rule 12b-1 Plan ...............................................  33

      F. Other Service Providers .......................................  36

      G. Codes of Ethics ...............................................  37

      H. Proxy Voting Policies and Procedures and Proxy Voting Record ..  37

VI.   Brokerage Allocation and Other Practices .........................  37

      A. Brokerage Transactions ........................................  37

      B. Commissions ...................................................  38

      C. Brokerage Selection ...........................................  38

      D. Directed Brokerage ............................................  39

      E. Regular Broker-Dealers ........................................  39

      F. Revenue Sharing ...............................................  39

VII.  Capital Stock and Other Securities ...............................  40

VIII. Purchase, Redemption and Pricing of Shares .......................  41

      A. Purchase/Redemption of Shares .................................  41

      B. Offering Price ................................................  41

IX.   Taxation of the Fund and Shareholders ............................  43

X.    Underwriters......................................................  45

XI.   Performance Data .................................................  45

XII. Financial Statements...............................................  46

XIII. Fund Counsel......................................................  46

Appendix A. Morgan Stanley Investment Management Proxy Voting Policy
  and Procedures ....................................................... A-1




                                        2




                       GLOSSARY OF SELECTED DEFINED TERMS

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

     "Custodian" - The Bank of New York is the Custodian of the Fund's assets as
described in groupings 2 and 3 in the Fund's Prospectus. The JPMorgan Chase Bank
is the Custodian of the Fund's assets as described in grouping 1 and 4 in the
Prospectus.

     "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 Flexible Income 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 Manager" - Morgan Stanley Investment Advisors Inc., a
wholly-owned investment advisor subsidiary of Morgan Stanley.

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

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

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

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

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

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














                                        3





I.   FUND HISTORY
--------------------------------------------------------------------------------
     The Fund was organized as a Massachusetts business trust, under a
Declaration of Trust, on December 20, 1991, with the name Dean Witter
Diversified Income Trust. Effective June 22, 1998, the Fund's name was changed
to Morgan Stanley Dean Witter Diversified Income Trust. Effective June 18, 2001,
the Fund's name was changed to Morgan Stanley Diversified Income Trust.
Effective April 22, 2003, the Fund's name was changed to Morgan Stanley Flexible
Income Trust.


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

A.   CLASSIFICATION

     The Fund is an open-end, diversified management investment company whose
primary investment objective is a high level of current income. As a secondary
objective, the Fund seeks to maximize total return but only to the extent
consistent with its primary objective.

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."

     Other Global Securities. The Fund may invest in loan participation
interests and may also invest in notes and commercial paper, the principal
amount of which is indexed to certain specific currency exchange rates. The Fund
may purchase these indexed obligations to generate current income or for hedging
purposes.

     Collateralized Mortgage Obligations. The Fund may invest in CMOs -
collateralized mortgage obligations. CMOs are debt obligations collateralized by
mortgage loans or mortgage pass-through securities (collectively "Mortgage
Assets"). Payments of principal and interest on the Mortgage Assets and any
reinvestment income are used to make payments on the CMOs. CMOs are issued in
multiple classes. Each class has a specific fixed or floating coupon rate and a
stated maturity or final distribution date. The principal and interest on the
Mortgage Assets may be allocated among the classes in a number of different
ways. Certain classes will, as a result of the collection, have more predictable
cash flows than others. As a general matter, the more predictable the cash flow,
the lower the yield relative to other Mortgage Assets. The less predictable the
cash flow, the higher the yield and the greater the risk. The Fund may invest in
any class of CMO.

     Certain mortgage-backed securities in which the Fund may invest (e.g.,
certain classes of CMOs) may increase or decrease in value substantially with
changes in interest rates and/or the rates of prepayment. In addition, if the
collateral securing CMOs or any third party guarantees are insufficient to make
payments, the Fund could sustain a loss.

     In addition, the Fund may purchase stripped mortgage-backed securities,
which are usually structured in two classes. One class entitles the holder to
receive all or most of the interest but little or none of the principal of a
pool of Mortgage Assets (the interest-only or "IO" Class), while the other class
entitles the holder to receive all or most of the principal but little or none
of the interest (the principal-only or "PO" Class). IOs tend to decrease in
value substantially if interest rates decline and prepayment rates become more
rapid. POs tend to decrease in value substantially if interest rates increase
and the rate of repayment decreases.


     Commercial Mortgaged-Backed Securities ("CMBS"). CMBS are generally
multi-class or pass-through securities issued by special purpose entities that
represent an undivided interest in a portfolio of mortgage loans backed by
commercial properties, including, but not limited to, industrial and warehouse
properties, office buildings, retail space and shopping malls, hotels,
healthcare facilities, multifamily properties and cooperative apartments.
Private lenders, such as banks or insurance companies, originate these loans and
then sell the loans directly into a CMBS trust or other entity. The


                                        4






commercial mortgage loans that underlie CMBS are generally not amortizing or not
fully amortizing. That is, at their maturity date, repayment of the remaining
principal balance or "balloon" is due and is repaid through the attainment of an
additional loan or sale of this property. An extension of the final payment on
commercial mortgages will increase the average life of the CMBS, generally
resulting in lower yield for discount bonds and a higher yield for premium
bonds. Unlike most single family residential mortgages, commercial real estate
property loans often contain provisions which substantially reduce the
likelihood that such securities will be prepaid. The provisions generally impose
significant prepayment penalties on loans and, in some cases, there may be
prohibitions on principal prepayments for several years following origination.

     CMBS are subject to credit risk and prepayment risk. The Fund invests in
CMBS that are rated in the top rating category by a nationally-recognized
statistical rating organization (e.g., AAA by S&P or Aaa by Moody's). Although
prepayment risk is present, it is of a lesser degree in the CMBS than in the
residential mortgage market; commercial real estate property loans often contain
provisions which substantially reduce the likelihood that such securities will
be prepaid (e.g. significant prepayment penalties on loans and, in some cases,
prohibition on principal payments for several years following origination).


     ASSET-BACKED SECURITIES. The Fund may invest in asset-backed securities.
Asset-backed securities have risk characteristics similar to mortgage-backed
securities. Like mortgage-backed securities, they generally decrease in value as
a result of interest rate increases, but may benefit less than other
fixed-income securities from declining interest rates, principally because of
prepayments. Also, as in the case of mortgage-backed securities, prepayments
generally increase during a period of declining interest rates although other
factors, such as changes in credit use and payment patterns, may also influence
prepayment rates. Asset-backed securities also involve the risk that various
federal and state consumer laws and other legal and economic factors may result
in the collateral backing the securities being insufficient to support payment
on the securities.

     The securitization techniques used to develop mortgage-backed securities
are also applied to a broad range of other assets. Various types of assets,
primarily automobile and credit card receivables and home equity loans, are
being securitized in pass-through structures similar to the mortgage
pass-through structures. New instruments and variations of existing
mortgage-backed securities and asset-backed securities continue to be developed.
The Fund may invest in any of these instruments or variations.

     EMERGING MARKET SECURITIES. Investing in emerging market countries may
entail purchasing securities issued by or on behalf of entities that are
insolvent, bankrupt, in default or otherwise engaged in an attempt to reorganize
or reschedule their obligations, and in entities that have little or no proven
credit rating or credit history. In any such case, the issuer's poor or
deteriorating financial condition may increase the likelihood that the Fund will
experience losses or diminution in available gains due to bankruptcy, insolvency
or fraud. With respect to any emerging market country, there is the possibility
of nationalization, expropriation or confiscatory taxation, political changes,
government regulation, social instability or diplomatic developments (including
war) that could affect adversely the economies of such countries or the value of
a Fund's investments in those countries. It may be difficult to obtain and
enforce a judgment in a court outside the United States. Investments in emerging
markets may also expose the Fund to an extra degree of custodial and/or market
risk, especially where the securities purchased are not traded on an official
exchange or where ownership records regarding the securities are maintained by
an unregulated entity (or even the issuer itself).

     BRADY BONDS. Brady Bonds are Emerging Market Securities. They are created
by exchanging existing commercial bank loans to foreign entities for new
obligations for the purpose of restructuring the issuers' debts under a plan
introduced by former U.S. Secretary of the Treasury, Nicholas F. Brady (the
Brady Plan). Brady Bonds have been issued fairly recently, and, accordingly, do
not have a long payment history. They may be collateralized or uncollateralized
and issued in various currencies (although most are dollar-denominated). They
are actively traded in the over-the-counter secondary market. The Fund will only
invest in Brady Bonds consistent with quality specifications.


                                        5




     Dollar-denominated, collateralized Brady Bonds may be fixed rate par bonds
or floating rate discount bonds. These Brady Bonds are generally collateralized
in full as to principal due at maturity by U.S. Treasury Zero Coupon Obligations
having the same maturity as the Brady Bonds. Interest payments on these Brady
Bonds generally are collateralized by cash or securities in an amount that, in
the case of fixed rate bonds, is equal to at least one year of rolling interest
payments or, in the case of floating rate bonds, initially is equal to at least
one year's rolling interest payments based on the applicable interest rate at
that time and is adjusted at regular intervals thereafter. Certain Brady Bonds
are entitled to "value recovery payments" in certain circumstances, which in
effect constitute supplemental interest payments but generally are not
collateralized.

     Brady Bonds are often viewed as having three or four valuation components:
(i) the collateralized repayment of principal at final maturity; (ii) the
collateralized interest payments; (iii) the uncollateralized interest payments;
and (iv) any uncollateralized repayment of principal at maturity (these
uncollateralized amounts constitute the "residual risk"). In the event of a
default with respect to collateralized Brady Bonds as a result of which the
payment obligations of the issuer are accelerated, the U.S. Treasury Zero Coupon
Obligations held as collateral for the payment of principal will not be
distributed to investors, nor will such obligations be sold and the proceeds
distributed. The collateral will be held by the collateral agent to the
scheduled maturity of the defaulted Brady Bonds, which will continue to be
outstanding, at which time the face amount of the collateral will equal the
principal payments due on the Brady Bonds in the normal course. In light of the
residual risk of the Brady Bonds and, among other factors, the history of
default with respect to commercial bank loans by public and private entities of
countries issuing Brady Bonds, investments in Brady Bonds generally are viewed
as speculative.

     SOVEREIGN DEBT. Debt obligations known as "sovereign debt" are obligations
of governmental issuers in emerging market countries and industrialized
countries.

     Certain emerging market countries are among the largest debtors to
commercial banks and foreign governments. The issuer or governmental authority
that controls the repayment of sovereign debt may not be willing or able to
repay the principal and/or pay interest when due in accordance with the terms of
such obligations.

     A governmental entity's willingness or ability to repay principal and pay
interest due in a timely manner may be affected by, among other factors, its
cash flow situation, the extent of its foreign reserves, the availability of
sufficient foreign exchange on the date a payment is due, the relative size of
the debt service burden to the economy as a whole, the government's dependence
on expected disbursements from third parties, the government's policy toward the
International Monetary Fund and the political constraints to which a government
may be subject. Governmental entities may also be dependent on expected
disbursements from foreign governments, multilateral agencies and others abroad
to reduce principal and interest arrearages on their debt. The commitment on the
part of these governments, agencies and others to make such disbursements may be
conditioned on a debtor's implementation of economic reforms or economic
performance and the timely service of such debtor's obligations. Failure to
implement such reforms, achieve such levels of economic performance or repay
principal or interest when due may result in the cancellation of such third
parties' commitments to lend funds to the government debtor, which may further
impair such debtor's ability or willingness to timely service its debts. Holders
of sovereign debt may be requested to participate in the rescheduling of such
debt and to extend further loans to governmental entities. In addition, no
assurance can be given that the holders of commercial bank debt will not contest
payments to the holders of other foreign government debt obligations in the
event of default under their commercial bank loan agreements. The issuers of the
government debt securities in which the Fund may invest have in the past
experienced substantial difficulties in servicing their external debt
obligations, which led to defaults on certain obligations and the restructuring
of certain indebtedness. Restructuring arrangements have included, among other
things, reducing and rescheduling interest and principal payments by negotiating
new or amended credit agreements or converting outstanding principal and unpaid
interest to Brady Bonds, and obtaining new credit to finance interest payments.
There can be no assurance that the Brady Bonds and other foreign government debt
securities in which the Fund may invest will not be subject to similar
restructuring arrangements or to requests for new credit, which may adversely
affect the Fund's holdings.


                                        6





Furthermore, certain participants in the secondary market for such debt may be
directly involved in negotiating the terms of these arrangements and may
therefore have access to information not available to other market participants.

     COMMON STOCKS. The Fund may invest in common stocks in an amount up to 20%
of its total assets. The Fund may acquire common stocks when attached to or
included in a unit with fixed-income securities, or when acquired upon
conversion of fixed-income securities or upon exercise of warrants attached to
fixed-income securities and may purchase common stocks directly when such
acquisitions are determined by the Investment Manager to further the Fund's
investment objectives. For example, the Fund may purchase the common stock of
companies involved in takeovers or recapitalizations where the issuer, or a
controlling stockholder, has offered, or pursuant to a "going private"
transaction is effecting, an exchange of its common stock for newly-issued
fixed-income securities. By purchasing the common stock of the company issuing
the fixed-income securities prior to the consummation of the transaction or
exchange offer, the Fund will be able to obtain the fixed-income securities
directly from the issuer at their face value, eliminating the payment of a
dealer's mark-up otherwise payable when fixed-income securities are acquired
from third parties, thereby increasing the net yield to the shareholders of the
Fund. While the Fund will incur brokerage commissions in connection with its
purchase of common stocks, it is anticipated that the amount of such commissions
will be significantly less than the amount of such mark-up.

     Fixed-income securities acquired by the Fund through the purchase of common
stocks under the circumstances described in the preceding paragraph are subject
to the general credit risks and interest rate risks to which all fixed-income
securities purchased by the Fund are subject. Such securities generally will be
rated Baa/BBB or lower as are the other high yield, high risk fixed income
securities in which the Fund may invest. In addition, since corporations
involved in takeover situations are often highly leveraged, that factor will be
evaluated by the Investment Manager as part of its credit risk determination
with respect to the purchase of particular common stocks for the Fund's
investment portfolio. In the event the Fund purchases common stock of a
corporation in anticipation of a transaction (pursuant to which the common stock
is to be exchanged for fixed-income securities) which fails to take place, the
Investment Manager will continue to hold such common stocks for the Fund's
portfolio only if it determines that continuing to hold such common stock under
those circumstances is consistent with the Fund's investment objectives.


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


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

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


                                        7




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

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

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

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

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

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

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

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


                                        8




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.

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

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

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

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

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

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

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

     In the event of the bankruptcy of a broker through which the Fund engages
in transactions in options, the Fund could experience delays and/or losses in
liquidating open positions purchased or sold


                                        9




through the broker and/or incur a loss of all or part of its margin deposits
with the broker. In the case of OTC options, if the transacting dealer fails to
make or take delivery of the securities underlying an option it has written, in
accordance with the terms of that option, due to insolvency or otherwise, the
Fund would lose the premium paid for the option as well as any anticipated
benefit of the transaction.

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

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

     The markets in foreign currency options are relatively new and the Fund's
ability to establish and close out positions on such options is subject to the
maintenance of a liquid secondary market.

     There can be no assurance that a liquid secondary market will exist for a
particular option at any specific time.

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

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


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


     A futures contract purchaser incurs an obligation to take delivery of a
specified amount of the obligation underlying the contract at a specified time
in the future for a specified price. A seller of a futures contract incurs an
obligation to deliver the specified amount of the underlying obligation at a
specified time in return for an agreed upon price. The purchase of a futures
contract enables the Fund, during the term of the contract, to lock in a price
at which it may purchase a security or currency and protect against a rise in
prices pending purchase of portfolio securities. The sale of a futures contract
enables the Fund to lock in a price at which it may sell a security or currency
and protect against declines in the value of portfolio securities.

     Although most futures contracts call for actual delivery or acceptance of
securities, the contracts usually are closed out before the settlement date
without the making or taking of delivery. Index futures contracts provide for
the delivery of an amount of cash equal to a specified dollar amount times the


                                       10




difference between the index value at the open or close of the last trading day
of the contract and the futures contract price. A futures contract sale is
closed out by effecting a futures contract purchase for the same aggregate
amount of the specific type of security (currency) and the same delivery date.
If the sale price exceeds the offsetting purchase price, the seller would be
paid the difference and would realize a gain. If the offsetting purchase price
exceeds the sale price, the seller would pay the difference and would realize a
loss. Similarly, a futures contract purchase is closed out by effecting a
futures contract sale for the same aggregate amount of the specific type of
security (currency) and the same delivery date. If the offsetting sale price
exceeds the purchase price, the purchaser would realize a gain, whereas if the
purchase price exceeds the offsetting sale price, the purchaser would realize a
loss. There is no assurance that the Fund will be able to enter into a closing
transaction.

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

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

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

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


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


     Risks of Transactions in Futures Contracts and Related Options. The prices
of securities and indexes subject to futures contracts (and thereby the futures
contract prices) may correlate imperfectly with the behavior of the cash prices
of the Fund's portfolio securities (and the currencies in which they are
denominated). Also, prices of futures contracts may not move in tandem with the
changes in prevailing interest rates, market movements and/or currency exchange
rates against which the Fund seeks a hedge. A correlation may also be distorted
(a) temporarily, by short-term traders' seeking to profit from the difference
between a contract or security price objective and their cost of borrowed funds;
(b) by


                                       11





investors in futures contracts electing to close out their contracts through
offsetting transactions rather than meet margin deposit requirements; (c) by
investors in futures contracts opting to make or take delivery of underlying
securities rather than engage in closing transactions, thereby reducing
liquidity of the futures market; and (d) temporarily, by speculators who view
the deposit requirements in the futures markets as less onerous than margin
requirements in the cash market. Due to the possibility of price distortion in
the futures market and because of the possible imperfect correlation between
movements in the prices of securities and movements in the prices of futures
contracts, a correct forecast of interest rate, currency exchange rate and/or
market movement trends by the Investment Manager may still not result in a
successful hedging transaction.

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

     Exchanges also limit the amount by which the price of a futures contract
may move on any day. If the price moves equal to the daily limit on successive
days, then it may prove impossible to liquidate a futures position until the
daily limit moves have ceased. In the event of adverse price movements, the Fund
would continue to be required to make daily cash payments of variation margin on
open futures positions. In these situations, if the Fund has insufficient cash,
it may have to sell portfolio securities to meet daily variation margin
requirements at a time when it may be disadvantageous to do so. In addition, the
Fund may be required to take or make delivery of the instruments underlying
interest rate futures contracts it holds at a time when it is disadvantageous to
do so. The inability to close out options and futures positions could also have
an adverse impact on the Fund's ability to effectively hedge its portfolio.

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

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

     If the Fund maintains a short position in a futures contract or has sold a
call option on a futures contract, it will cover this position by holding, in a
segregated account maintained on the books of the Fund, cash, U.S. government
securities or other liquid portfolio securities equal in value (when added to
any initial or variation margin on deposit) to the market value of the
securities underlying the futures contract or the exercise price of the option.
Such a position may also be covered by owning the securities underlying the
futures contract (in the case of a stock index futures contract a portfolio of
securities substantially replicating the relevant index), or by holding a call
option permitting the Fund to purchase the same contract at a price no higher
than the price at which the short position was established.

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


     Swaps. A swap is a derivative in the form of an agreement to exchange the
return generated by one instrument for the return generated by another
instrument. The payment streams are calculated by


                                       12




reference to a specified index and agreed upon notional amount. The term
"specified index" includes currencies, fixed interest rates, prices, total
return on interest rate indices, fixed income indices, stock indices and
commodity indices (as well as amounts derived from arithmetic operations on
these indices). For example, the Fund may agree to swap the return generated by
a fixed income index for the return generated by a second fixed income index.
The currency swaps in which the Fund may enter will generally involve an
agreement to pay interest streams in one currency based on a specified index in
exchange for receiving interest streams denominated in another currency. Such
swaps may involve initial and final exchanges that correspond to the agreed upon
notional amount.


     The swaps in which the Fund may engage also include rate caps, floors and
collars under which one party pays a single or periodic fixed amount(s) (or
premium), and the other party pays periodic amounts based on the movement of a
specified index. Swaps do not involve the delivery of securities, other
underlying assets, or principal. Accordingly, the risk of loss with respect to
swaps is limited to the net amount of payments that the Fund is contractually
obligated to make. If the other party to a swap defaults, the Fund's risk of
loss consists of the net amount of payments that the Fund is contractually
entitled to receive. Currency swaps usually involve the delivery of the entire
principal value of one designated currency in exchange for the other designated
currency. Therefore, the entire principal value of a currency swap is subject to
the risk that the other party to the swap will default on its contractual
delivery obligations. If there is a default by the counterparty, the Fund may
have contractual remedies pursuant to the agreements related to the transaction.
The swap market has grown substantially in recent years with a large number of
banks and investment banking firms acting both as principals and as agents
utilizing standardized swap documentation. As a result, the swap market has
become relatively liquid. Caps, floors, and collars are more recent innovations
for which standardized documentation has not yet been fully developed and,
accordingly, they are less liquid than swaps.


     The Fund will usually enter into swaps on a net basis, i.e., the two
payment streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the Fund receiving or paying, as the case may
be, only the net amount of the two payments. The Fund's obligations under a swap
agreement will be accrued daily (offset against any amounts owing to the Fund)
and any accrued but unpaid net amounts owed to a swap Counterparty will be
covered by the maintenance of a segregated account consisting of cash or liquid
securities to avoid any potential leveraging of the Fund. To the extent that
these swaps, caps, floors, and collars are entered into for hedging purposes,
the Investment Manager believes such obligations do not constitute "senior
securities" under the Investment Company Act and, accordingly, will not treat
them as being subject to the Fund's borrowing restrictions. The Fund may enter
into OTC Derivatives transactions (swaps, caps, floors, puts, etc., but
excluding foreign exchange contracts) with counterparties that are approved by
the Investment Manager in accordance with guidelines established by the Board.
These guidelines provide for a minimum credit rating for each counterparty and
various credit enhancement techniques (for example, collateralization of amounts
due from counterparties) to limit exposure to counterparties with ratings below
AA.


     Interest rate and total rate of return swaps do not involve the delivery of
securities, other underlying assets, or principal. Accordingly, the risk of loss
with respect to interest rate and total rate of return swaps is limited to the
net amount of interest payments that the Fund is contractually obligated to
make. If the other party to an interest rate or total rate of return swap
defaults, the Fund's risk of loss consists of the net amount of interest
payments that the Fund is contractually entitled to receive. In contrast,
currency swaps may involve the delivery of the entire principal value of one
designated currency in exchange for the other designated currency. Therefore,
the entire principal value of a currency swap may be subject to the risk that
the other party to the swap will default on its contractual delivery
obligations. If there is a default by the counterparty, the Fund may have
contractual remedies pursuant to the agreements related to the transaction.


     The use of swaps is a highly specialized activity which involves investment
techniques and risks different from those associated with ordinary fund
securities transactions. If the Investment Manager is incorrect in its forecasts
of market values, interest rates, and currency exchange rates, the investment
performance of the Fund would be less favorable than it would have been if this
investment technique were not used.


                                       13





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

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

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

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

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

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

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

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


     While repurchase agreements involve certain risks not associated with
direct investments in debt securities, the Fund follows procedures approved by
the Trustees that are designed to minimize such risks. These procedures include
effecting repurchase transactions only with large, well-capitalized and
well-established financial institutions whose financial condition will be
continually monitored by the Investment Manager. In addition, as described
above, the value of the collateral underlying the repurchase agreement will be
at least equal to the repurchase price, including any accrued interest earned on
the repurchase agreement. In the event of a default or bankruptcy by a selling
financial institution, the Fund will seek to liquidate such collateral. However,
the exercising of the Fund's right to liquidate such collateral could involve
certain costs or delays and, to the extent that proceeds from any sale upon a
default of the obligation to repurchase were less than the repurchase price, the
Fund could suffer a loss.



                                       14




     REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLLS. The Fund may invest up to
25% of its total assets in reverse repurchase agreements and dollar rolls.

     Reverse repurchase agreements involve sales by the Fund of portfolio assets
concurrently with an agreement by the Fund to repurchase the same assets at a
later date at a fixed price. Generally, the effect of such a transaction is that
the Fund can recover all or most of the cash invested in the portfolio
securities involved during the term of the reverse repurchase agreement, while
it will be able to keep the interest income associated with those portfolio
securities.

     The Fund may enter into dollar rolls in which the Fund sells securities for
delivery in the current month and simultaneously contracts to repurchase
substantially similar (same type and coupon) securities on a specified future
date. The Fund is compensated by the difference between the current sales price
and the lower forward price for the future purchase (often referred to as the
"drop") as well as by the interest earned on the cash proceeds of the initial
sale.

     The Fund will establish a segregated account in which it will maintain
cash, U.S. government securities or other liquid portfolio securities equal in
value to its obligations in respect of reverse repurchase agreements and dollar
rolls. Reverse repurchase agreements and dollar rolls involve the risk that the
market value of the securities the Fund is obligated to repurchase under the
agreement may decline below the repurchase price. In the event the buyer of
securities under a reverse repurchase agreement or dollar roll files for
bankruptcy or becomes insolvent, the Fund's use of the proceeds of the agreement
may be restricted pending a determination by the other party, or its trustee or
receiver, whether to enforce the Fund's obligation to repurchase the securities.
Reverse repurchase agreements and dollar rolls are speculative techniques
involving leverage, and are considered borrowings by the Fund.

     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 can take place a month or more after the
date of commitment. While the Fund will only purchase securities on a
when-issued, delayed delivery or forward commitment basis with the intention of
acquiring the securities, 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


                                       15




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 Manager determines that issuance of the security is probable. At
that time, the Fund will record the transaction and, in determining its net
asset value, will reflect the value of the security daily. At that time, the
Fund will also establish a segregated account on the Fund's books in which it
will maintain cash, cash equivalents or other liquid portfolio securities equal
in value to recognized commitments for such securities.

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

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

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

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

     To the extent that a convertible security's investment value is greater
than its conversion value, its price will be primarily a reflection of such
investment value and its price will be likely to increase when interest rates
fall and decrease when interest rates rise, as with a fixed-income security (the
credit standing of the issuer and other factors may also have an effect on the
convertible security's value). If the conversion value exceeds the investment
value, the price of the convertible security will rise above


                                       16




its investment value and, in addition, will sell at some premium over its
conversion value. (This premium represents the price investors are willing to
pay for the privilege of purchasing a fixed-income security with a possibility
of capital appreciation due to the conversion privilege.) At such times the
price of the convertible security will tend to fluctuate directly with the price
of the underlying equity security. Convertible securities may be purchased by
the Fund at varying price levels above their investment values and/or their
conversion values in keeping with the Fund's objective.

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


C. FUND POLICIES/INVESTMENT RESTRICTIONS

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

     The Fund will:

     1.   As a primary objective, seek a high level of current income. 2. As a
          secondary objective, seek to maximize total return but only to the
          extent consistent with its primary objective.

     The Fund may not:

     1.   Invest more than 5% of the value of its total assets in the securities
          of any one issuer (other than obligations issued, or guaranteed by,
          the U.S. government, its agencies or instrumentalities).

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

     3.   Invest more than 25% of the value of its total assets in securities of
          issuers in any one industry, except that the Fund will invest at least
          25% of its total assets in Mortgage-Backed Securities under normal
          market conditions. This restriction does not apply to obligations
          issued or guaranteed by the U.S. government, its agencies or
          instrumentalities.

     4.   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 1/2 of 1% of the outstanding securities of the issuer, and
          the officers and trustees who own more than 1/2 of 1% own in the
          aggregate more than 5% of the outstanding securities of the issuer.

     5.   Purchase or sell real estate or interests therein, although the Fund
          may purchase securities of issuers which engage in real estate
          operations and securities secured by real estate or interests therein.

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

     7.   Borrow money in excess of 331|M/3% of the Fund's total assets
          (including the proceeds of the borrowings).


                                       17




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

     9.   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 or reverse
          repurchase agreement; (b) purchasing any securities on a when-issued
          or delayed delivery basis; (c) purchasing or selling futures
          contracts, forward foreign exchange contracts or options; (d)
          borrowing money; or (e) lending portfolio securities.

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

     11.  Make short sales of securities.

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

     13.  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.

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

     15.  Invest more than 5% of its net assets in warrants, including not more
          than 2% of such assets which are not listed on the New York or
          American Stock Exchange. However, warrants acquired by the Fund in
          units or attached to other securities may be deemed to be without
          value.

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

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

     18.  Purchase securities of other investment companies, except in
          connection with a merger, consolidation, reorganization or acquisition
          of assets. For this purpose, Mortgage-Backed Securities and
          Asset-Backed Securities are not deemed to be investment companies.

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


     [For the fiscal years ended 2003 and 2004, the Fund's portfolio turnover
rates were 309% and %, respectively. This variation resulted from greater use of
mortgage rolls which generally involves selling mortgages prior to settlement
and to subsequent repurchase at a more favorable price and coupon.]


D. DISCLOSURE OF PORTFOLIO HOLDINGS

     The Fund's Board of Trustees and the Investment Manager have adopted
policies and procedures regarding disclosure of portfolio holdings (the
"Policy"). Pursuant to the Policy, the Investment Manager 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 Manager's fiduciary duties to Fund shareholders. The
Investment Manager 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 Manager or
by any affiliated person of the Investment Manager. 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.


                                       18






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

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

       o  Complete portfolio holdings information or other disclosure of
          holdings as required by applicable legal or regulatory requirements on
          a fiscal quarterly basis with a minimum lag of 30 calendar days; and

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

     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 include, but are
not limited to, 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 nonpublic 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 Manager 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.

     The Investment Manager may provide interest lists (description to come) 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 Manager
or any affiliate of the Investment Manager (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.

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

     The Investment Manager and/or the Fund have entered into ongoing
arrangements to make available public and/or non-public information about the
Fund's portfolio securities. In no instance may the Investment Manager or the
Fund receive any compensation or consideration in exchange for the portfolio
holdings. 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 Manager 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.


                                       19






     The Investment Manager and/or the Fund currently have entered into ongoing
arrangements with the following parties: [To come.]]

     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 disclosures made to third parties pursuant to
ongoing arrangements (discussed below) and disclosures made to third parties
pursuant to Special Meetings of the PHRC. The Investment Manager 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 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.]

     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 Manager or their designees, is responsible for establishing portfolio
holdings disclosure policies and guidelines and determining how portfolio
holdings information will be disclosed on an ongoing basis.

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

     (c) The PHRC will meet at least quarterly to (among other matters): (1)
address any outstanding issues relating to the Policy; (2) review non-disclosure
agreements that have been executed with third parties and determine whether the
third parties will receive portfolio holdings information; and (3) generally
review the procedures that the Investment Manager 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
Manager; the Distributor; or any affiliated person of the Fund, the Investment
Manager, 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 Funds 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 6 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 Manager to ensure that the Fund's
general investment policies and programs are properly carried out. The Trustees
also conduct their review to ensure that administrative services are provided to
the Fund in a satisfactory manner.


                                       20




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


B. MANAGEMENT INFORMATION

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

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

     The Independent Trustees of the Fund, their age, address, term of office
and length of time served, their principal business occupations during the past
five years, the number of portfolios in the Fund Complex (defined below)
overseen by each Independent Trustee (as of December 31, 2003) and other
directorships, if any, held by the Trustees, are shown below. The Fund Complex
includes all open-end and closed-end funds (including all of their portfolios)
advised by the Investment Manager and any funds that have an investment advisor
that is an affiliated person of the Investment Manager (including but not
limited to Morgan Stanley Investment Management Inc.).





















                                       21







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

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

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

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




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

Michael Bozic (63)            Private Investor; Director or the    208            Director of Weirton
c/o Kramer Levin Naftalis &   Retail Funds (since April 1994)                     Trustee of Steel
Frankel LLP                   and the Institutional Funds (since                  Corporation.
Counsel to the                July 2003); formerly Vice
Independent Trustees          Chairman of Kmart Corporation
919 Third Avenue              (December 1998- October 2000),
New York, NY                  Chairman and Chief Executive
                              Officer of Levitz Furniture
                              Corporation (November 1995-
                              November 1998) and President and
                              Chief Executive Officer of Hills
                              Department Stores (May 1991-
                              July 1995); formerly variously
                              Chairman, Chief Executive Officer,
                              President and Chief Operating
                              Officer (1987-1991) of the Sears
                              Merchandise Group of Sears,
                              Roebuck & Co.

Edwin J. Garn (72)            Managing Director of Summit          208            Director of Franklin Covey
c/o Summit Ventures LLC       Ventures LLC; Director or                           (time management
One Utah Center               Trustee of the Retail Funds                         systems), BMW Bank of
201 South Main Street         (since January 1993) and the                        North America, Inc.
Salt Lake City, UT            Institutional Funds (since July                     (industrial loan
                              2003); member of the Utah                           corporation), United Space
                              Regional Advisory Board of                          Alliance (joint venture
                              Pacific Corp.; formerly United                      between Lockheed Martin
                              States Senator (R-Utah)                             and the Boeing Company)
                              (1974-1992) and Chairman,                           and Nuskin Asia Pacific
                              Senate Banking Committee                            (multilevel marketing);
                              (1980-1986), Mayor of Salt Lake                     member of the board of
                              City, Utah (1971-1974),                             various civic and
                              Astronaut, Space Shuttle                            charitable organizations.
                              Discovery (April 12-19, 1985),
                              and Vice Chairman, Huntsman
                              Corporation (chemical company).

Wayne E. Hedien (70)          Retired; Director or Trustee         208            Director of The PMI Group
c/o Kramer Levin Naftalis &   of the Retail Funds (since                          Inc. (private mortgage
Frankel LLP                   September 1997) and the                             insurance); Trustee and
Counsel to the                Institutional Funds (since                          Vice Chairman of The
Independent Trustees          July 2003); formerly                                Field Museum of Natural
919 Third Avenue              associated with the Allstate                        History; director of
New York, NY                  Companies (1966-1994), most                         various other business
                              recently as Chairman of The                         and charitable
                              Allstate Corporation (March                         organizations.
                              1993-December 1994) and
                              Chairman and Chief Executive
                              Officer of its wholly-owned
                              subsidiary, Allstate Insurance
                              Company (July 1989-December
                              1994).




----------

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

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





                                       22






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

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

Joseph J. Kearns (62)         Trustee       Since       President, Kearns & Associates   209          Director of Electro Rent
c/o Kearns & Associates LLC                 July 2003   LLC (investment consulting);                  Corporation (equipment
PMB754                                                  Deputy Chairman of the Audit                  leasing), The Ford Family
23852 Pacific Coast Highway                             Committee and Director or                     Foundation, and the UCLA
Malibu, CA                                              Trustee of the Retail Funds                   Foundation.
                                                        (since July 2003) and the
                                                        Institutional Funds (since
                                                        August 1994); previously
                                                        Chairman of the Audit
                                                        Committee of the Institutional
                                                        Funds (October 2001-July
                                                        2003); formerly CFO of the J.
                                                        Paul Getty Trust.

Michael E. Nugent (68)        Trustee       Since       General Partner of Triumph       208          Director of various
c/o Triumph Capital, L.P.                   July 1991   Capital, L.P., a private                      business organizations.
445 Park Avenue                                         investment partnership;
New York, NY                                            Chairman of the Insurance
                                                        Committee and Director
                                                        or Trustee of the Retail
                                                        Funds (since July 1991)
                                                        and the Institutional
                                                        Funds (since July 2001);
                                                        formerly Vice President,
                                                        Bankers Trust Company
                                                        and BT Capital
                                                        Corporation (1984-1988).

Fergus Reid (71)              Trustee       Since       Chairman of Lumelite Plastics    209          Trustee and Director of
c/o Lumelite Plastics                       July 2003   Corporation; Chairman of the                  certain investment
Corporation                                             Governance Committee and                      companies in the
85 Charles Colman Blvd.                                 Director or Trustee of the                    JPMorgan Funds complex
Pawling, NY                                             Retail Funds (since July 2003)                managed by J.P. Morgan
                                                        and the Institutional Funds                   Investment Management
                                                        (since June 1992).                            Inc.


----------

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

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

     The Trustees who are affiliated with the Investment Manager or affiliates
of the Investment Manager (as set forth below) and executive officers of the
Fund, their term of office and length of time served, their principal business
occupations during the past five years, the number of portfolios in the Fund
Complex overseen by each Management Trustee (as of December 31, 2003) and the
other directorships, if any, held by the Trustee, are shown below.


                                       23







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

Charles A. Fiumefreddo (71)    Chairman      Since       Chairman and Director or         208          None.
c/o Morgan Stanley Trust       of the        July 1991   Trustee of the Retail Funds
Harborside Financial Center,   Board                     (since July 1991) and the
Plaza Two,                     and                       Institutional Funds (since
Jersey City, NJ                Trustee                   July 2003); formerly Chief
                                                         Executive Officer of the
                                                         Retail Funds (until September
                                                         2002).

James F. Higgins (56)          Trustee       Since       Director or Trustee of the       208          Director of AXA
c/o Morgan Stanley Trust                     June        Retail Funds (since June 2000)                Financial, Inc. and The
Harborside Financial                         2000        and the Institutional Funds                   Equitable Life Assurance
Center,                                                  (since July 2003); Senior                     Society of the United
Plaza Two,                                               Advisor of Morgan Stanley                     States (financial
Jersey City, NJ                                          (since August 2000); Director                 services).
                                                         of the Distributor and Dean
                                                         Witter Realty Inc.; previously
                                                         President and Chief Operating
                                                         Officer of the Private Client
                                                         Group of Morgan Stanley (May
                                                         1999-August 2000), and
                                                         President and Chief Operating
                                                         Officer of Individual
                                                         Securities of Morgan Stanley
                                                         (February 1997-May 1999).




----------

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

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





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

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






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

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


                                       24







                                Position(s)           Length
 Name, Age and Address of        Held with           of Time                     Principal Occupation(s) During
     Executive Officer          Registrant           Served*                             Past 5 Years**
--------------------------   ----------------   -----------------   -------------------------------------------------------

Barry Fink (49)              Vice               Since February      General Counsel (since May 2000) and Managing
1221 Avenue of the           President          1997                Director (since December 2000) of Morgan Stanley
Americas                                                            Investment Management; Managing Director (since
New York, NY                                                        December 2000), Secretary (since February 1997) and
                                                                    Director (since July 1998) of the Investment
                                                                    Manager and Morgan Stanley Services; Vice President
                                                                    of the Retail Funds; Assistant Secretary of Morgan
                                                                    Stanley DW; Vice President of the Institutional
                                                                    Funds (since July 2003); Managing Director,
                                                                    Secretary and Director of the Distributor;
                                                                    previously Secretary (February 1997-July 2003) and
                                                                    General Counsel of the Retail Funds (February
                                                                    1997-April 2004); Vice President and Assistant
                                                                    General Counsel of the Investment Manager and
                                                                    Morgan Stanley Services (February 1997-December
                                                                    2001).

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

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

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

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

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




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

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


                                       25






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

Thomas F. Caloia (58)        Vice President     Since July 2003     Executive Director (since December 2002) and
c/o Morgan Stanley Trust                                            Assistant Treasurer of the Investment Manager, the
Harborside Financial                                                Distributor and Morgan Stanley Services; previously
Center,                                                             Treasurer of the Retail Funds (April 1989-July 2003);
Plaza Two,                                                          formerly First Vice President of the Investment
Jersey City, NJ                                                     Manager, the Distributor and Morgan Stanley
                                                                       Services.
Mary E. Mullin (37)          Secretary          Since July 2003     Executive Director of Morgan Stanley & Co.
1221 Avenue of the                                                  Incorporated, Morgan Stanley Investment
Americas                                                            Management Inc. and the Investment Manager;
New York, NY                                                        Secretary of the Institutional Funds (since June
                                                                    1999) and the Retail Funds (since July 2003);
                                                                    formerly practiced law with the New York law firms
                                                                    of McDermott, Will & Emery and Skadden, Arps,
                                                                    Slate, Meagher & Flom LLP.





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

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

     In addition, the following individuals who are officers of the Investment
Manager or its affiliates serve as assistant secretaries of the Fund: Lou Anne
D. McInnis, Joseph Benedetti, Daniel Burton, Marilyn K. Cranney, Joanne Doldo,
Elisa Mitchell, Elizabeth Nelson, Sheldon Winicour and Bennett MacDougall.

     For each Trustee, the dollar range of equity securities beneficially owned
by the Trustee in the Fund and in the Family of Investment Companies (Family of
Investment Companies includes all of the registered investment companies advised
by the Investment Manager, Morgan Stanley Investment Management Inc. and Morgan
Stanley AIP GP LP) for the calendar year ended December 31, 2003 is shown below.
Messrs. Kearns and Reid began serving as Trustees of the Fund on July 31, 2003.





                                                                              AGGREGATE DOLLAR RANGE OF EQUITY SECURITIES IN
                                                                               ALL REGISTERED INVESTMENT COMPANIES OVERSEEN
                            DOLLAR RANGE OF EQUITY SECURITIES IN THE FUND      BY TRUSTEE IN FAMILY OF INVESTMENT COMPANIES
     NAME OF TRUSTEE                  (AS OF DECEMBER 31, 2003)                         (AS OF DECEMBER 31, 2003)
------------------------   -----------------------------------------------   -----------------------------------------------
INDEPENDENT:

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




----------
(1)   Includes the total amount of compensation deferred by the Trustee at his
      election pursuant to a deferred compensation plan. Such deferred
      compensation is placed in a deferral account and deemed to be invested in
      one or more of the Retail Funds or Institutional Funds (or portfolio
      thereof) that are offered as investment options under the plan. As of
      December 31, 2003, Messrs. Kearns and Reid had deferred a total of
      $430,361 and $600,512, respectively, pursuant to the deferred compensation
      plan.

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

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


                                       26




Independent Trustees, serve as members of the Insurance Committee, and three
Independent Trustees serve as members of the Governance Committee.

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

     The Board of Trustees of the Fund has a separately-designated standing
Audit Committee established in accordance with section 3(a)(58)(A) of the
Securities Exchange Act of 1934, as amended. The Audit Committee is charged with
recommending to the full Board the engagement or discharge of the Fund's
independent registered public accounting firm; directing investigations into
matters within the scope of the independent registered public accounting firm's
duties, including the power to retain outside specialists; reviewing with the
registered public accounting firm the audit plan and results of the auditing
engagement; approving professional services provided by the independent
registered public accounting firm and other accounting firms prior to the
performance of the services; reviewing the independence of the independent
registered public accounting firm; considering the range of audit and non-audit
fees; reviewing the adequacy of the Fund's system of internal controls; and
preparing and submitting Committee meeting minutes to the full Board. The Fund
has adopted a formal, written Audit Committee Charter. During the Fund's fiscal
year ended October 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 October 31, 2004, the Governance Committee held meeting.

     None of the funds has 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


                                       27





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

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

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

C. COMPENSATION

     Effective August 1, 2003, each Independent Trustee receives an annual
retainer fee of $168,000 for serving the Retail Funds and the Institutional
Funds. In addition, each Independent Trustee receives $2,000 for attending each
of the four quarterly board meetings and two performance meetings that occur
each year, so that an Independent Director who attended all six meetings would
receive total compensation of $180,000 for serving the Funds. The Chairman of
the Audit Committee receives an additional annual retainer fee of $60,000. Other
Committee Chairmen and the Deputy Chairman of the Audit Committee receive an
additional annual retainer fee of $30,000. The aggregate compensation paid to
each Independent Trustee is paid by the Retail Funds and the Institutional
Funds, and is allocated on


                                       28




a pro rata basis among each of the operational funds/portfolios of the Retail
Funds and the Institutional Funds based on the relative net assets of each of
the funds/portfolios. Mr. Fiumefreddo receives an annual fee for his services as
Chairman of the Boards of the Retail Funds and the Institutional Funds and for
administrative services provided to each Board.

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

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

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

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

     The following table shows aggregate compensation paid to the Fund's
Trustees from the Fund for the fiscal year ended October 31, 2004.




                                FUND COMPENSATION





                                                       Aggregate
                                                      Compensation
Name of Trustee                                        From Fund
------------------------------------                 -------------

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

     The following table shows aggregate compensation paid to each of the Fund's
Trustees by the Fund Complex (which includes all of the Retail and Institutional
Funds) for the calendar year ended


                                       29





     December 31, 2003. Because the funds in the Fund Complex have different
fiscal year ends, the amounts shown in this table are presented on a
calendar-year basis. Messrs. Bozic, Fiumefreddo, Garn, Hedien, Johnson and
Higgins began serving as Trustees of the Institutional Funds on July 31, 2003,
and served as Trustees of the Retail Funds during the calendar year ended
December 31, 2003. Messrs. Kearns and Reid began serving as Trustees of the
Retail Funds on July 31, 2003, and served as Trustees of the Institutional Funds
during the calendar year ended December 31, 2003. Mr. Nugent served as Trustee
of both the Institutional Funds and the Retail Funds during the calendar year
ended December 31, 2003.



                       Cash Compensation from Fund Complex






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

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




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



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


     The following table illustrates the retirement benefits accrued to the
Fund's Independent Trustees by the Fund for the fiscal year ended October 31,
2003 and by the 49 Retail Funds for the calendar year ended December 31, 2003,
and the estimated retirement benefits for the Independent Trustee from the Fund
as of the fiscal year ended October 31, 2003 and from the 49 Retail Funds for
each calendar year following retirement. Messrs. Kearns and Reid did not
participate in the retirement program.





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

Michael Bozic .................                    $19,842                            $47,838
Edwin J. Garn .................                     35,306                             47,877
Wayne E. Hedien ...............                     38,649                             40,839
Dr. Manuel H. Johnson .........                     20,125                             70,050
Michael E. Nugent .............                     36,265                             62,646




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


                                       30





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

     As of December , 2004, 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 MANAGER


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


     Pursuant to an Investment Management Agreement (the "Management Agreement")
with the Investment Manager, the Fund has retained the Investment Manager to
provide administrative services and to manage the investment of the Fund's
assets, including the placing of orders for the purchase and sale of portfolio
securities. The Fund pays the Investment Manager monthly compensation calculated
daily at the annual rate of 0.40% of the net assets of the Fund, determined as
of the close of each business day. The management fee is allocated among the
Classes pro rata based on the net assets of the Fund attributable to each Class.
For the fiscal years ended October 31, 2002, 2003 and 2004, the Investment
Manager accrued total compensation under the Management Agreement in the amounts
of $1,789,730, $1,687,779 and $ , respectively.


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

     In approving the Management Agreement, the Board of Trustees, including the
Independent Trustees, considered the nature, quality and scope of the services
provided by the Investment Manager; the performance, fees and expenses of the
Fund compared to other similar investment companies; the Investment Manager's
expenses in providing the services; the profitability of the Investment Manager
and its affiliated companies and other benefits they derive from their
relationship with the Fund; and the extent to which economies of scale are
shared with the Fund. The Independent Trustees met with and reviewed reports
from third parties about the foregoing factors and changes, if any, in such
items since the preceding year's deliberations. The Independent Trustees noted
their confidence in the capability and integrity of the senior management and
staff of the Investment Manager and the financial strength of the Investment
Manager and its affiliated companies. The Independent Trustees weighed the
foregoing factors in light of the advice given to them by their legal counsel as
to the law applicable to the review of investment advisory contracts. Based upon
its review, the Board of Trustees, including all of the Independent Trustees,
determined, in the exercise of its business judgment, that approval of the
Management Agreement was in the best interests of the Fund and its shareholders.


B. PRINCIPAL UNDERWRITER

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

     The Distributor bears all expenses it may incur in providing services under
the Distribution Agreement. These expenses include the payment of commissions
for sales of the Fund's shares and


                                       31



incentive compensation to Financial Advisors, the cost of educational and/or
business-related trips, and educational and/or promotional and business-related
expenses. The Distributor also pays certain expenses in connection with the
distribution of the Fund's shares, including the costs of preparing, printing
and distributing advertising or promotional materials, and the costs of printing
and distributing prospectuses and supplements thereto used in connection with
the offering and sale of the Fund's shares. The Fund bears the costs of initial
typesetting, printing and distribution of prospectuses and supplements thereto
to shareholders. The Fund also bears the costs of registering the Fund and its
shares under federal and state securities laws and pays filing fees in
accordance with state securities laws.

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

C. SERVICES PROVIDED BY THE INVESTMENT MANAGER

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


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

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


                                       32





Class, provided that such expenses are reasonably identified as specifically
attributable to that Class and the direct allocation to that Class is approved
by the Trustees.

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


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


D. DEALER REALLOWANCES

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

E. RULE 12B-1 PLAN

     The Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under
the Investment Company Act (the "Plan") pursuant to which each Class, other than
Class D, pays the Distributor compensation accrued daily and payable monthly at
the following maximum annual rates: 0.25% and 0.85% of the average daily net
assets of Class A and Class C, respectively, and, with respect to Class B, 0.85%
of the lesser of: (a) the average daily aggregate gross sales of the Fund's
Class B shares since the inception of the Fund (not including reinvestment of
dividends or capital gains distributions), less the average daily aggregate net
asset value of the Fund's Class B shares redeemed since the Fund's inception
upon which a contingent deferred sales charge has been imposed or upon which
such charge has been waived, or (b) the average daily net assets of Class B.


     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 October 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) $ 96,180        FSCs:(1) $ 73,837
                          CDSCs:   $          CDSCs:   $ 47,012       CDSCs:    $ 10,077
Class B ...........       CDSCs:   $          CDSCs:   $697,530       CDSCs:    $900,787
Class C. ..........       CDSCs:   $          CDSCs:   $  6,257       CDSCs:    $ 11,523



----------
(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 0.20% of the average 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.


                                       33





     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 October
31, 2004, of $ . This amount is equal to % of the average daily net assets of
Class B for the fiscal year and was calculated pursuant to clause (b) of the
compensation formula under the Plan. For the fiscal year ended October 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 0% and 0% 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 0.20% 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 0.20% 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 0.85% of the current value of the
respective accounts for which they are the Financial Advisors of record.

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

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

     The Fund is authorized to reimburse expenses incurred or to be incurred in
promoting the distribution of the Fund's Class A and Class C shares and in
servicing shareholder accounts. Reimbursement will be made through payments at
the end of each month. The amount of each monthly payment may in no event exceed
an amount equal to a payment at the annual rate of 0.25%, in the case


                                       34





of Class A, and 0.85%, 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 October 31, 2004 to the Distributor. The
Distributor and Morgan Stanley DW estimate that they have spent, pursuant to the
Plan, $ 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) % ($
)-advertising and promotional expenses; (ii) % ($ )-printing of prospectuses for
distribution to other than current shareholders; and (iii) % ($ )-other
expenses, including the gross sales credit and the carrying charge, of which %
($ ) represents carrying charges, % ($ ) represents commission credits to Morgan
Stanley DW's branch offices and other selected broker-dealers for payments of
commissions to Financial Advisors and other authorized financial
representatives, % ($ ) represents overhead and other branch office
distribution-related expenses and % ($ ) represents excess distribution expenses
of Morgan Stanley Dean Witter World Wide Income Trust, the net assets of which
were combined with those of the Fund on April 9, 2001 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 October
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 $ as of October 31, 2004 (the end of the Fund's fiscal year),
which was equal to % of the net assets of Class B on such date. Because there is
no requirement under the Plan that the Distributor be reimbursed for all
distribution expenses with respect to Class B shares or any requirement that the
Plan be continued from year to year, this excess amount does not constitute a
liability of the Fund. Although there is no legal obligation for the Fund to pay
expenses incurred in excess of payments made to the Distributor under the Plan
and the proceeds of CDSCs paid by investors upon redemption of shares, if for
any reason the Plan is terminated, the Trustees will consider at that time the
manner in which to treat such expenses. Any cumulative expenses incurred, but
not yet recovered through distribution fees or CDSCs, may or may not be
recovered through future distribution fees or CDSCs.

     Under the Amended Plan, the Fund is authorized to reimburse the Distributor
for its actual distribution expenses incurred on behalf of Class B shares and
from unreimbursed distribution expenses,


                                       35





on a monthly basis, the amount of which may in no event exceed an amount equal
to payment at the annual rate of 1.00% of average daily net assets of Class B.

     In the case of Class A and Class C shares, expenses incurred pursuant to
the Plan in any calendar year in excess of 0.25% or 1.0% of the average daily
net assets of Class A or Class C, respectively, will not be reimbursed by the
Fund through payments in any subsequent year, except that expenses representing
a gross sales commission credited to Morgan Stanley Financial Advisors and other
authorized financial representatives at the time of sale may be reimbursed in
the subsequent calendar year. The Distributor has advised the Fund that
unreimbursed expenses representing a gross sales commission credited to Morgan
Stanley Financial Advisors and other authorized financial representatives at the
time of sale totaled $ in the case of Class C at December 31, 2003 (the end of
the calendar year), which amount was equal to approximately % of the net assets
of Class C on such date, and that there were no such expenses that may be
reimbursed in the subsequent year in the case of Class A on such date. No
interest or other financing charges will be incurred on any Class A or Class C
distribution expenses incurred by the Distributor under the Plan or on any
unreimbursed expenses due to the Distributor pursuant to the Plan.

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



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

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


F. OTHER SERVICE PROVIDERS

    (1) TRANSFER AGENT/DIVIDEND-PAYING AGENT

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


                                       36





     (2) CUSTODIAN AND INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

     The Bank of New York, 100 Church Street, New York, NY 10286, is the
Custodian for the portion of the Fund's assets in groupings 2 and 3 in the
Fund's Prospectus. is the Custodian for the portion of the Fund's assets in
grouping 1 in the Prospectus. As Custodian, JPMorgan Chase Bank has contracted
with various foreign banks and depositaries to hold portfolio securities of
non-U.S. issuers on behalf of the Fund. Any of the Fund's cash balances with
either 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 Manager and the
Distributor. As Transfer Agent and Dividend Disbursing Agent, the Transfer
Agent's responsibilities include maintaining shareholder accounts, disbursing
cash dividends and reinvesting dividends, processing account registration
changes, handling purchase and redemption transactions, mailing prospectuses and
reports, mailing and tabulating proxies, processing share certificate
transactions, and maintaining shareholder records and lists. For these services,
the Transfer Agent receives a per shareholder account fee from the Fund and is
reimbursed for its out-of-pocket expenses in connection with such services.


G. CODES OF ETHICS

     The Fund, the Investment Manager and the Distributor have each adopted a
Code of Ethics pursuant to Rule 17j-1 under the Investment Company Act. The
Codes of Ethics are designed to detect 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 POLICIES AND PROCEDURES AND PROXY VOTING RECORD

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


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

A. BROKERAGE TRANSACTIONS

     Subject to the general supervision of the Board of Trustees, the Investment
Manager is responsible for decisions to buy and sell securities for the Fund,
the selection of brokers and dealers to effect the transactions, and the
negotiation of brokerage commissions, if any. Purchases and sales of securities
on a stock exchange are effected through brokers who charge a commission for
their services. 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
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.


                                       37





     For the fiscal years ended October 31, 2002, 2003 and 2004, the Fund paid a
total of $41,068, $38,079 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 October 31, 2002, 2003 and 2004, the Fund did
not effect any principal transactions with Morgan Stanley DW.


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


     During the fiscal years ended October 31, 2002, 2003 and 2004, the Fund
paid no brokerage commissions to either Morgan Stanley DW or Morgan Stanley &
Co.


C. BROKERAGE SELECTION

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

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


                                       38




information or opinions pertaining to investment; wire services; and appraisals
or evaluations of portfolio securities. The information and services received by
the Investment Manager from brokers and dealers may be utilized by the
Investment Manager and any of its asset management affiliates in the management
of accounts of some of their other clients and may not in all cases benefit the
Fund directly.

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


D. DIRECTED BROKERAGE


     During the fiscal year ended October 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 October 31, 2004, the Fund purchased
securities issued by which issuers were among the top ten brokers or top ten
dealers which executed transactions for or with the Fund in the largest dollar
amounts during the period. At October 31, 2004, the Fund held securities issued
by in the amounts of $ , $ and $ , respectively.


F. REVENUE SHARING

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

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

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

     (2)  On sales of Class D shares other than shares held by participants in
          the Investment Manager's mutual fund asset allocation program and in
          the Morgan Stanley Choice Program, Morgan Stanley DW and other
          Intermediaries receive a gross sales credit of 0.25% of the amount
          sold


                                       39






      and an annual residual commission of up to 0.10% of the current value of
      the accounts which is paid to Financial Advisors and Intermediaries'
      salespersons in accordance with the applicable compensation structure.
      There is a chargeback of 100% of the gross sales credit amount paid if the
      Class D shares are redeemed in the first year and a chargeback of 50% of
      the gross sales credit amount paid if the shares are redeemed in the
      second year.

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

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

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

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

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


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

     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 communication with shareholders about such a meeting. The voting
rights of shareholders are not cumulative, so that holders of more than 50% of
the shares voting can, if they choose, elect all Trustees being selected, while
the holders of the remaining shares would be unable to elect any Trustees.

     Under Massachusetts law, shareholders of a business trust may, under
certain limited circumstances, be held personally liable as partners for the
obligations of the Fund. However, the Declaration of Trust contains an express
disclaimer of shareholder liability for acts or obligations of the Fund,
requires that notice of such Fund obligations include such disclaimer, and
provides for indemnification out of the Fund's property for any shareholder held
personally liable for the obligations of the Fund. Thus, the risk


                                       40




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.

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

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

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

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


B. OFFERING PRICE

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


                                       41




"net asset value," is based on the value of the Fund's portfolio securities. Net
asset value per share of each Class is calculated by dividing the value of the
portion of the Fund's securities and other assets attributable to that Class,
less the liabilities attributable to that Class, by the number of shares of that
Class outstanding. The assets of each Class of shares are invested in a single
portfolio. The net asset value of each Class, however, will differ because the
Classes have different ongoing fees.


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


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

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

     Listed options on debt securities are valued at the latest sale price on
the exchange on which they are listed unless no sales of such options have taken
place that day, in which case they will be valued at the mean between their
latest bid and asked prices. Unlisted options on debt securities and all options
on equity securities are valued at the mean between their latest bid and asked
prices. Futures are valued at the latest price published by the commodities
exchange on which they trade unless it is determined that such price does not
reflect their market value, in which case they will be valued at their fair
value as determined in good faith under procedures established by and under the
supervision of the Trustees.


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



                                       42




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


     INVESTMENT COMPANY TAXATION. The Fund intends to continue to qualify as a
regulated investment company under Subchapter M of the Internal Revenue Code of
1986, as amended. As such, the Fund will not be subject to federal income tax on
its net investment income and capital gains, if any, to the extent that it
timely distributes such income and capital gains to its shareholders.

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


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


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


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


     Distributions of net long-term capital gains, if any, are taxable to
shareholders as long-term capital gains regardless of how long a shareholder has
held the Fund's shares and regardless of whether the distribution is received in
additional shares or in cash. Under current law the maximum tax rate on


                                       43






long-term capital gains available to non-corporate shareholders generally is
15%. Without future congressional action, the maximum tax rate on long-term
capital gains would return to 20% in 2009, and the maximum rate on all dividends
would move to 35% in 2009 and 39.6% in 2011.


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


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


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

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


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

     Gain or loss on the sale or redemption of shares in the Fund is measured by
the difference between the amount received and the tax adjusted 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.


                                       44





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

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


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


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


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



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







                      INCEPTION
CLASS                   DATE       1 YEAR     5 YEARS     10 YEARS     LIFE OF FUND
------------------   ----------   --------   ---------   ----------   -------------

Class A ..........   07/28/97           %          %            %             %
Class B ..........   04/09/92           %          %            %             %
Class C ..........   07/28/97           %          %            %             %
Class D ..........   07/28/97           %          %            %             %




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






                      INCEPTION
CLASS                   DATE       1 YEAR     5 YEARS     10 YEARS     LIFE OF FUND
------------------   ----------   --------   ---------   ----------   -------------

Class A ..........   07/28/97           %         %            %              %
Class B ..........   04/09/92           %         %            %              %
Class C ..........   07/28/97           %         %            %              %
Class D ..........   07/28/97           %         %            %              %




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






                      INCEPTION
CLASS                   DATE       1 YEAR     5 YEARS     10 YEARS     LIFE OF FUND
------------------   ----------   --------   ---------   ----------   -------------

Class A ..........   07/28/97     %              %             %              %
Class B ..........   04/09/92     %              %             %              %
Class C ..........   07/28/97     %              %             %              %
Class D ..........   07/28/97     %              %             %              %


                                       45








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





                                           INCEPTION
CALCULATION METHODOLOGY                      DATE       1 YEAR     5 YEARS     10 YEARS
---------------------------------------   ----------   --------   ---------   ---------

After taxes on distributions ..........   04/09/92          %          %           %
After taxes on distributions and
 redemptions ..........................   04/09/92          %          %           %


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

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



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

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



                                    * * * * *

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


                                       46





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

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

I. POLICY STATEMENT

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

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

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

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


                                       A-1




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


II. GENERAL PROXY VOTING GUIDELINES

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


III. GUIDELINES

A.   MANAGEMENT PROPOSALS

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

          o    Selection or ratification of auditors.

          o    Approval of financial statements, director and auditor reports.

          o    Election of Directors.

          o    Limiting Directors' liability and broadening indemnification of
               Directors.

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

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

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

          o    General updating/corrective amendments to the charter.

          o    Elimination of cumulative voting.

          o    Elimination of preemptive rights.

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

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

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


          Capitalization changes

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

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


                                       A-2



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

          o    Proposals for share repurchase plans.

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

          o    Proposals to effect stock splits.

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

          Compensation

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

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

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

          Anti-Takeover Matters

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

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

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

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

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

          o    Creation of "blank check" preferred stock.

          o    Changes in capitalization by 100% or more.

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

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

          o    Proposals to indemnify auditors.


                                       A-3





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


          Corporate Transactions


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

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

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

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

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

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

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


          Anti-Takeover Provisions


          o    Proposals requiring shareholder ratification of poison pills.

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

B. SHAREHOLDER PROPOSALS


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

          o    Requiring auditors to attend the annual meeting of shareholders.

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

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

          o    Confidential voting.

          o    Reduction or elimination of supermajority vote requirements.


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

          o    Proposals that limit tenure of directors.

          o    Proposals to limit golden parachutes.

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

          o    Restoring cumulative voting in the election of directors.


                                       A-4




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

          o    Proposals that limit retirement benefits or executive
               compensation.

          o    Requiring shareholder approval for bylaw or charter amendments.

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

          o    Requiring shareholder approval of golden parachutes.

          o    Elimination of certain anti-takeover related provisions.

          o    Prohibit payment of greenmail.

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

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

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

          o    Proposals that require inappropriate endorsements or corporate
               actions.

IV. ADMINISTRATION OF PROXY POLICIES AND PROCEDURES

A. PROXY REVIEW COMMITTEE

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

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

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

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

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


                                       A-5






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

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

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

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


                                       A-6

                      MORGAN STANLEY FLEXIBLE INCOME TRUST

                           PART C OTHER INFORMATION

Item 22.  Exhibits
--------  --------

a(1).     Declaration of Trust of the Registrant, dated December 18, 1991, is
          incorporated by reference to Exhibit 1 of Post-Effective Amendment No.
          4 to the Registration Statement on Form N-1A, filed on January 25,
          1996.

 (2).     Instrument Establishing and Designating Additional Classes, dated July
          28, 1997, is incorporated by reference to Exhibit 1 of Post-Effective
          Amendment No. 6 to the Registration Statement on Form N-1A, filed on
          July 14, 1997.

 (3).     Amendment to the Declaration of Trust of the Registrant, dated June
          22, 1998, is incorporated by reference to Exhibit 1 of Post-Effective
          Amendment No. 8 to the Registration Statement on Form N-1A, filed on
          December 28, 1998.

 (4).     Amendment to the Declaration of Trust of the Registrant, dated June
          18, 2001, is incorporated by reference to Exhibit 1(d) of Post-
          Effective Amendment No. 13 to the Registration Statement on Form N-1A,
          filed on December 28, 2001.

b.        Amended and Restated By-Laws of the Registrant, dated April 24, 2003,
          is incorporated by reference to Exhibit b of Post-Effective Amendment
          No. 16 to the Registration Statement on Form N-1A filed on
          December 29, 2003.

c.        Not Applicable.

d.        Amended and Restated Investment Management Agreement, dated May 1,
          2004, filed herein.

e(1).     Amended Distribution Agreement, dated June 22, 1998, is incorporated
          by reference to Exhibit 6(a) of Post-Effective Amendment No. 8 to the
          Registration Statement on Form N-1A, filed on December 28, 1998.

 (2).     Selected Dealers Agreement between Morgan Stanley Distributors Inc.
          and Morgan Stanley DW Inc., is incorporated by reference to Exhibit
          6(b) of Post-Effective Amendment No. 2 to the Registration Statement
          on Form N-1A, filed on December 30, 1993.

 (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 6(b) of Post-Effective
          Amendment No. 8 to the Registration Statement on Form N-1A, filed on
          December 28, 1998.

f.        Second Amended and Restated Retirement Plan for Non-Interested
          Directors or Trustees, dated May 8, 1997, is incorporated by reference
          to Exhibit 8 of Post-Effective Amendment No. 10 to the Registration
          Statement on Form N-1A, filed on January 31, 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.
          4 to the Registration Statement on Form N-1A, filed on January 25,
          1996.

                                       1


 (2).     Amendment to the Custody Agreement between The Bank of New York and
          the Registrant is incorporated by reference to Exhibit 8 of
          Post-Effective Amendment No. 5 to the Registration Statement on Form
          N-1A, filed on December 24, 1996.

 (3).     Amendment dated June 15, 2001 to the Custody Agreement of the
          Registrant, is incorporated by reference to Exhibit 7(c) of Post-
          Effective Amendment No. 13 to the Registration Statement on Form N-1A,
          filed on December 28, 2001.

 (4).     Foreign Custody Manager Agreement between the Bank of New York and the
          Registrant, dated June 15, 2001, is incorporated by reference to
          Exhibit 7(d) of Post-Effective Amendment No. 13 to the Registration
          Statement on Form N-1A, filed on December 28, 2001.

h(1).     Amended and Restated Transfer Agency and Service Agreement between the
          Registrant and Morgan Stanley Trust, dated September 1, 2000, is
          incorporated by reference to Exhibit 8(a) of Post-Effective Amendment
          No. 12 to the Registration Statement on Form N-1A, filed on October
          27, 2000.

 (2).     Amended Services Agreement between Morgan Stanley Investment Advisors
          Inc. and Morgan Stanley Services Company Inc., dated June 22, 1998, is
          incorporated by reference to Exhibit 8(b) of Post-Effective Amendment
          No. 5 to the Registration Statement on Form N-1A, filed on August 31,
          1999.

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

i(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
          between the Registrant and Morgan Stanley Distributors Inc., dated
          May 1, 2004, filed herein.

n.        Amended and Restated Multiple Class Plan pursuant to Rule 18f-3, dated
          March 12, 2001, is incorporated by reference to Exhibit 14 of Post-
          Effective Amendment No. 18 to the Registration Statement on Form N-1A,
          filed on December 28, 2001.

o.        Not applicable.

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

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

Other.    Powers of Attorney of Trustees dated January 30, 2004, filed herein.

ITEM 23.  PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE FUND.

          None.

ITEM 24.  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

                                       2





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
and paragraph 8 of the Registrant's Investment Management Agreement, 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.

             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 Manager, the
Registrant's Trustees, and other registered investment management companies
managed by the Investment Manager, 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 25. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISOR

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


                                       3



THE PRINCIPAL ADDRESSES ARE AS FOLLOWS:

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.
MORGAN STANLEY INVESTMENT GROUP INC. ("MORGAN STANLEY INVESTMENT GROUP")
THE UNIVERSAL INSTITUTIONAL FUNDS, INC. ("UNIVERSAL INSTITUTIONAL FUNDS")
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.

MORGAN STANLEY INSTITUTIONAL FUND TRUST
MORGAN STANLEY DISTRIBUTION, INC.
One Tower Bridge, West Conshohocken, PA 19428.

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

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


                                       4






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

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

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

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

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

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

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

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

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


                                       5


ITEM 26. PRINCIPAL UNDERWRITERS

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

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


                                       6



(30) Morgan Stanley Health Sciences Trust
(31) Morgan Stanley High Yield Securities Inc.
(32) Morgan Stanley Income Builder Fund
(33) Morgan Stanley 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


                                       7



(61) Morgan Stanley Total Market Index Fund
(62) Morgan Stanley Total Return Trust
(63) Morgan Stanley U.S. Government Money Market Trust
(64) Morgan Stanley U.S. Government Securities Trust
(65) Morgan Stanley Utilities Fund
(66) Morgan Stanley Value Fund
(67) 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
----                       ----------------------------------------------
John Schaeffer                               Director

Fred Gonfiantini           Executive Director and Financial Operations
                           Principal of MS Distributors Inc.

ITEM 27. LOCATION OF ACCOUNTS AND RECORDS

     All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the Rules thereunder are
maintained by the Investment Manager at its offices, except records relating to
holders of shares issued by the Registrant, which are maintained by the
Registrant's Transfer Agent, at its place of business as shown in the
prospectus.

ITEM 28. MANAGEMENT SERVICES

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

ITEM 29. UNDERTAKINGS

     Registrant hereby undertakes to furnish each person to whom a prospectus
is delivered with a copy of the Registrant's latest annual report to
shareholders, upon request and without charge.


                                       8




                                   SIGNATURES

         Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that 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 29th day of October, 2004.

                                       MORGAN STANLEY FLEXIBLE INCOME 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. 17 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                                                        10/29/04
     ------------------------------
         Ronald E. Robison


(2) Principal Financial Officer             Chief Financial Officer

By       /s/ Francis J. Smith                                                         10/29/04
     ------------------------------
         Francis J. Smith


(3) Majority of the Trustees

         Charles A. Fiumefreddo (Chairman)
         James F. Higgins

By       /s/ Barry Fink                                                               10/29/04
    --------------------------------
         Barry Fink
         Attorney-in-Fact

         Michael Bozic         Joseph J. Kearns
         Edwin J. Garn         Michael E. Nugent
         Wayne E. Hedien       Stuart M. Strauss
         Manuel H. Johnson

By       /s/ Carl Frischling                                                          10/29/04
     -------------------------------
         Carl Frischling
         Attorney-in-Fact




                                        9


                      MORGAN STANLEY FLEXIBLE INCOME TRUST

                                  EXHIBIT INDEX

d.      --  Amended and Restated Investment Management Agreement, dated May 1,
            2004.

m.      --  Amended and Restated 12b-1 Plan pursuant to Rule 12b-1.

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

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

Other   --  Powers of Attorney for Directors dated January 30, 2004.




                                       10