485BPOS

As filed with the Securities and Exchange Commission on May 28, 2008

Registration Nos.:    33-56853
811-7245

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM N-1A

REGISTRATION STATEMENT

UNDER THE SECURITIES ACT OF 1933

Pre-Effective Amendment No.    

Post-Effective Amendment No. 18

and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY

ACT OF 1940

Amendment No. 19

Morgan Stanley Balanced Fund

(a Massachusetts business trust)

(Exact Name of Registrant as Specified in Charter)

522 Fifth Avenue
New York, New York 10036

(Address of Principal Executive Office)

Registrant’s Telephone Number, Including Area Code: (800) 869-6397

Amy R. Doberman, Esq.
522 Fifth Avenue
New York, New York 10036

(Name and Address of Agent for Service)

Copy to:

Carl Frischling, Esq. Kramer Levin Naftalis & Frankel LLP 1177 Avenue of the Americas New York, New York 10036			Stuart M. Strauss, Esq. Clifford Chance US LLP 31 West 52nd Street New York, New York 10019

Approximate Date of Proposed Public Offering:
As soon as practicable after this Post-Effective Amendment becomes effective.

It is proposed that this filing will become effective (check appropriate box):

    Immediately upon filing pursuant to paragraph (b)
   X       On May 30, 2008 pursuant to paragraph (b)
    60 days after filing pursuant to paragraph (a)(1)
    On (date) pursuant to paragraph (a)(1)
    75 days after filing pursuant to paragraph (a)(2)
    On (date) pursuant to paragraph (a)(2) of Rule 485.

Amending the Prospectus and Updating Financial Statements

If appropriate, check the following box:

   The post-effective amendment designates a new effective date for a
            previously filed post-effective amendment.

Morgan Stanley Funds

Morgan Stanley
Balanced Fund

A mutual fund that seeks to provide capital growth with reasonable current income

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

May 30, 2008

Contents

The Fund

	Investment Objective		1

	Principal Investment Strategies		1

	Principal Risks		3

	Past Performance		8

	Fees and Expenses		9

	Additional Investment Strategy Information		11

	Additional Risk Information		13

	Portfolio Holdings		16

	Fund Management		16

Shareholder Information

	Pricing Fund Shares		18

	How to Buy Shares		19

	How to Exchange Shares		20

	How to Sell Shares		22

	Distributions		26

	Frequent Purchases and Redemptions of Fund Shares		27

	Tax Consequences		28

	Share Class Arrangements		29

	Additional Information		37

	Financial Highlights		38

	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 Objective

Morgan Stanley Balanced Fund seeks to provide capital growth with reasonable current income.

Principal Investment Strategies

The Fund will normally invest at least 60% of its assets in common stocks and securities convertible into common stocks and at least 25% of its assets in fixed-income securities. Within these limitations, the Fund’s ‘‘Investment Adviser,’’ Morgan Stanley Investment Advisors Inc., may purchase or sell securities in any proportion it believes desirable based on its assessment of business, economic and investment conditions.

The two groups of Fund investments in more detail are:

Common Stocks/Convertible Securities.The Fund invests in common stocks and may also invest in securities convertible into common stocks — including ‘‘exchangeable,’’ ‘‘synthetic’’ and ‘‘Rule 144A’’ convertibles. The Fund may invest up to 20% of its net assets in foreign securities (held directly or listed in the United States on a national securities exchange and in the form of depositary receipts). A depositary receipt is generally issued by a bank or financial institution and represents an ownership interest in the common stock or other equity securities of a foreign company.

Common stock is a share ownership or equity interest in a corporation. It may or may not pay dividends, as some companies reinvest all of their profits back into their businesses, while others pay out some of their profits to shareholders as dividends. A convertible security is a bond, preferred stock or other security that may be converted into a prescribed amount of common stock at a prestated price.

The Fund may invest up to 25% of its net assets in ‘‘exchangeable’’ convertible securities. ‘‘Exchangeable’’ convertible securities offer holders the opportunity to obtain higher current income than would be available from a traditional equity security issued by the same company, in return for reduced participation or a cap on appreciation in the underlying common stock of the issuer, which the holder can realize. In addition, in many cases, ‘‘exchangeable’’ convertible

 

Growth & Income

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

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securities are convertible into the underlying common stock of the issuer automatically at maturity, unlike traditional convertible securities which are convertible only at the option of the security holder.

The Fund may invest up to 10% of its net assets in ‘‘synthetic’’ convertible securities. Unlike traditional convertible securities whose conversion values are based on the common stock of the issuer of the convertible security, ‘‘synthetic’’ convertible securities are preferred stocks or debt obligations of an issuer which are combined with an equity component whose conversion value is based on the value of the common stock of a different issuer or a particular benchmark (which may include a foreign issuer or basket of foreign stocks, or a company whose stock is not yet publicly traded). In many cases, ‘‘synthetic’’ convertible securities are not convertible prior to maturity, at which time the value of the security is paid in cash by the issuer.

The Fund’s convertible securities may include lower rated fixed-income securities, commonly known as ‘‘junk bonds.’’

Foreign Securities.The Fund may invest up to 20% of its net assets in foreign securities. Foreign securities may include common stocks and securities convertible into common stocks (held directly or listed in the United States on a national securities exchange and in the form of depositary receipts), as well as Yankee dollar obligations and sovereign debt.

Fixed-Income Securities.The Fund's fixed-income securities (including zero coupon securities) are limited to investment grade corporate debt securities, Yankee dollar obligations, sovereign debt, bank obligations, investment grade mortgage-backed securities, including collateralized mortgage obligations, investment grade asset-backed securities and U.S. government securities. The U.S. government securities may include:

▪

U.S. Treasury bills, notes and bonds, all of which are direct obligations of the U.S. Government.

▪

Securities (including mortgage-backed securities) issued by agencies and instrumentalities of the U.S. Government which are backed by the full faith and credit of the United States. Among the agencies and instrumentalities issuing these obligations are the Government National Mortgage Association and the Federal Housing Administration.

▪

Securities (including mortgage-backed securities) issued by agencies and instrumentalities which are not backed by the full faith and credit of the United States, but whose issuing agency or instrumentality has the right to borrow, to meet its obligations, from the U.S. Treasury. Among these agencies and instrumentalities are the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation.

▪

Securities issued by agencies and instrumentalities which are backed solely by the credit of the issuing agency or instrumentality. Among these agencies and instrumentalities is the Federal Home Loan Bank.

Fixed-income securities are debt securities such as 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. The Fund’s fixed-income investments may include zero coupon securities, which are purchased at a discount and generally accrue interest, but make no payments until maturity.

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Yankee dollar obligations are dollar-denominated obligations issued in the U.S. capital markets by foreign issuers such as corporations and banks. Sovereign debt securities are issued or guaranteed by foreign government entities.

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 mortgage loans. 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. Mortgage pass-through securities may be collateralized by mortgages with fixed rates of interest or adjustable rates.

The securitization techniques used to develop mortgage-backed securities are also applied to asset-backed securities. Asset-backed securities represent an interest in a pool of assets, such as automobile and credit card receivables or home equity loans, that have been securitized in pass-through structures similar to mortgage-backed securities. These types of 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 receivables.

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 fixed or floating 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 allocation, 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 a CMO.

*    *    *

The Fund may invest up to 15% of its net assets in real estate investment trusts (‘‘REITs’’). The Fund may also invest in options and futures, commercial mortgage-backed securities (‘‘CMBS’’), forward foreign currency exchange contracts, structured products, stripped mortgage-backed securities, inverse floating obligations (‘‘inverse floaters’’) and swaps.

In pursuing the Fund’s investment objective, the Investment Adviser 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 Adviser in its discretion may determine to use some permitted trading strategies while not using others.

Principal Risks

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

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Common Stocks.A principal risk of investing in the Fund is associated with its common stock investments. In general, stock values fluctuate in response to activities specific to the company as well as general market, economic and political conditions. Stock prices can fluctuate widely in response to these factors.

Fixed-Income Securities.Principal risks of investing in the Fund are also associated with its fixed-income investments. 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. While the Fund invests in investment grade securities, certain of these securities have speculative characteristics.

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 fixed-income investment securities to fall substantially.

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 likely 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. There are also special risks associated with the Fund’s investments in ‘‘exchangeable’’ and ‘‘synthetic’’ convertible securities. These securities may be more volatile and less liquid than traditional convertible secu rities.

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

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

Securities of foreign issuers may be less liquid than comparable securities of U.S. issuers and, as such, their price changes may be more volatile. Furthermore, foreign exchanges and broker-dealers are generally subject to less

4

 

government and exchange scrutiny and regulation than their U.S. counterparts. In addition, differences in clearance and settlement procedures in foreign markets may cause delays in settlement of the Fund’s trades effected in those markets and could result in losses to the Fund due to subsequent declines in the value of the securities subject to the trades.

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

Yankee Dollar Obligations.Yankee dollar obligations are subject to the same risks as domestic issues, notably credit risk, market risk and liquidity risk. To a limited extent, they are also subject to certain sovereign risks. One such risk is the possibility that a sovereign country might prevent capital, in the form of dollars, from flowing across its borders. Other risks include adverse political and economic developments; the extent and quality of government regulations of financial markets and institutions; the imposition of foreign withholding taxes; and the expropriation or nationalization of foreign issuers. The Fund may consider Yankee dollar obligations to be domestic securities for purposes of its investment policy.

Sovereign Debt.Investments in sovereign debt are subject to the risk that a government entity may delay or refuse to pay interest or repay principal on its sovereign debt. Some of these reasons may include cash flow problems, insufficient foreign currency reserves, political considerations, the relative size of its debt position to its economy or its failure to put in place economic reforms required by the International Monetary Fund or other multilateral agencies. If a government entity defaults, it may ask for more time in which to pay or for further loans. There is no legal process for collecting on a sovereign debt that a government does not pay or bankruptcy proceeding by which all or part of sovereign debt that a government entity has not repaid may be collected.

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 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 Adviser, 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.

5

 

To the extent the Fund invests in mortgage securities offered by non-governmental issuers, such as commercial banks, savings and loan institutions, private mortgage insurance companies, mortgage bankers and other secondary market issuers, the Fund may be subject to additional risks. Timely payment of interest and principal of non-governmental issuers are supported by various forms of private insurance or guarantees, including individual loan, title, pool and hazard insurance purchased by the issuer. There can be no assurance that the private insurers can meet their obligations under the policies. An unexpectedly high rate of defaults on the mortgages held by a mortgage pool may adversely affect the value of a mortgage-backed security and could result in losses to the Fund. The risk of such defaults is generally higher in the case of mortgage pools that include subprime mortgages. Subprime mortgages refer to loans made to borrowers with weakened credit histories or with a lower capacity to make timely payment s on their mortgages.

Collateralized Mortgage Obligations.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 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 chang es 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&nb sp;insufficient to make payments, the Fund could sustain a loss.

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 card 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.

Lower Rated Fixed-Income Securities (‘‘Junk Bonds’’).The Fund’s investments in fixed-income securities rated lower than investment grade, or if unrated, of comparable quality as determined by the Investment Adviser (commonly known as ‘‘junk bonds’’) pose significant risks. The prices of junk bonds are likely to be more sensitive to adverse economic changes or individual corporate developments than higher rated securities. During an

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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 secondary market for junk bonds may be less liquid than the market for higher quality securities and, as such, may have an adverse effect on the market prices of certain securities. Many junk bonds are issued as Rule 144A securities. 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. The illiquidity of the market may also adversely affect the ability of the Fund’s Trustees to arrive at a fair value for certain junk bonds at certain ti mes and could make it difficult for the Fund to sell certain 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.

REITs.REITs generally derive their income from rents on the underlying properties or interest on the underlying loans, and their value is impacted by changes in the value of the underlying property or changes in interest rates affecting the underlying loans owned by the REITs. REITs are more susceptible to risks associated with the ownership of real estate and the real estate industry in general. These risks can include fluctuations in the value of underlying properties; defaults by borrowers or tenants; market saturation; changes in general and local economic conditions; decreases in market rates for rents; increases in competition, property taxes, capital expenditures or operating expenses; and other economic, political or regulatory occurrences affecting the real estate industry. In addition, REITs depend upon specialized m anagement skills, may not be diversified (which may increase the volatility of a REIT’s value), may have less trading volume and may be subject to more abrupt or erratic price movements than the overall securities market. Furthermore, investments in REITs may involve duplication of management fees and certain other expenses, as the Fund indirectly bears its proportionate share of any expenses paid by REITs in which it invests. U.S. REITs are not taxed on income distributed to shareholders provided they comply with several requirements of the Internal Revenue Code of 1986, as amended (the ‘‘Code’’). U.S. REITs are subject to the risk of failing to qualify for tax-free pass-through of income under the Code.

Other Risks.The performance of the Fund also will depend on whether or not the Investment Adviser is successful in applying the Fund’s investment strategies. The Fund is also subject to other risks from its permissible investments, including the risks associated with its investments in options and futures, commercial mortgage-backed securities (‘‘CMBS’’), forward foreign currency exchange contracts, structured products, stripped mortgage-backed securities, inverse floating obligations (‘‘inverse floaters’’) and swaps. 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.

7

Annual Total Returns

This chart shows how the performance of the Fund’s Class C shares has varied from year to year over the past
ten calendar years.

 

Past Performance

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

The bar chart reflects the performance of Class C shares; the performance of the other Classes will differ because the Classes have different ongoing fees. The performance information in the bar chart does not reflect the deduction of sales charges; if these amounts were reflected, returns would be less than shown. The year-to-date total return as of March 31, 2008 was −7.31%.

During the periods shown in the bar chart, the highest return for a calendar quarter was 12.02% (quarter ended June 30, 2003) and the lowest return for a calendar quarter was −11.69% (quarter ended September 30, 2002).

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Average Annual Total Returns (as of December 31, 2007)

	Past 1 Year					Past 5 Years					Past 10 Years
Class A: Return Before Taxes	−1.71%							9.31	%				5.70	%
Class B: Return Before Taxes	−1.91%							9.39	%				5.62	%**
Class C: Return Before Taxes			1.97	%				9.66	%				5.48	%
Return After Taxes on Distributions1			0.97	%				9.01	%				4.18	%
Return After Taxes on Distributions and Sale of Fund Shares			2.46	%				8.34	%				4.18	%
Class I2:   Return Before Taxes			4.01	%				10.77	%				6.53	%
Russell 1000® Value Index3	−0.17%							14.63	%				7.68	%
Lehman Brothers U.S. Government/Credit Index4			7.23	%				4.44	%				6.01	%
Lipper Mixed-Asset Target Allocation Growth Funds Index5			6.53	%				11.45	%				6.62	%

(1)

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

(2)

Effective March 31, 2008, Class D shares were renamed Class I shares.

(3)

The Russell 1000^® Value Index measures the performance of those companies in the Russell 1000® Index with lower price-to-book ratios and lower forecasted growth values. The Index is unmanaged and its returns do not include any sales charges or fees. Such costs would lower performance. It is not possible to invest directly in an index.

(4)

The Lehman Brothers 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. The Index is unmanaged and its returns do not include any sales charges or fees. Such costs would lower performance. It is not possible to invest directly in an index.

(5)

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

**

Effective April 2005, Class B shares will generally convert to Class A shares approximately eight years after the end of the calendar month in which the shares were purchased. The ‘‘Past 10 Years’’ performance for Class B shares reflects this conversion.

Included in the table above are the after-tax returns for the Fund’s Class C shares. The after-tax returns for the Fund’s other Classes will vary from the Class C 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.

Fees and Expenses

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 I (formerly Class D shares). Each Class has a different combination of fees, expenses and

 

Average Annual Total Returns

 

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

9

Shareholder Fees

These fees are paid directly from your investment.

Annual Fund
Operating Expenses

These expenses are deducted from the Fund’s assets and are based on expenses paid for the fiscal
year ended
January 31, 2008.

 

other features, which should be considered in selecting a Class of shares. The Fund does not charge account or exchange fees. However, certain shareholders may be charged an order processing fee by the broker-dealer through which shares are purchased, as described below. See the ‘‘Share Class Arrangements’’ section for further fee and expense information.

Shareholder Fees

	Class A	Class B					Class C					Class I
Maximum sales charge (load) imposed on purchases (as a percentage of offering price)	5.25%1	None					None					None
Maximum deferred sales charge (load) (as a percentage based on the lesser of the offering price or net asset value at redemption)	None2			5.00	%3				1.00	%4		None
Redemption fee5	2.00%			2.00	%				2.00	%		2.00%

Annual Fund Operating Expenses

	Class A	Class B	Class C	Class I
Advisory fee	0.52%	0.52%	0.52%	0.52%
Distribution and service (12b-1) fees6	0.25%	1.00%	1.00%	None
Other expenses	0.27%	0.27%	0.27%	0.27%
Total annual Fund operating expenses	1.04%	1.79%	1.79%	0.79%

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 (except for the ten-year amounts for Class B shares which reflect the conversion to Class A shares eight years after the end of the calendar month in which shares were purchased). Although your actual costs may be higher or lower, the tables below show your costs at the end of each period based on these assumptions, depending upon whether or not you sell your shares at the end of each period.

	If You SOLD Your Shares:																				If You HELD Your Shares:
	1 Year					3 Years					5 Years					10 Years					1 Year					3 Years					5 Years					10 Years
Class A		$	625				$	839				$	1,069				$	1,729				$	625				$	839				$	1,069				$	1,729
Class B		$	682				$	863				$	1,170				$	1,908	*			$	182				$	563				$	970				$	1,908	*
Class C		$	282				$	563				$	970				$	2,105				$	182				$	563				$	970				$	2,105
Class I		$	81				$	252				$	439				$	978				$	81				$	252				$	439				$	978

*

Based on a conversion to Class A shares eight years after the end of the calendar month in which shares were purchased.

(1)

Reduced for purchases of $25,000 and over.

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(2)

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

(3)

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

(4)

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

(5)

Payable to the Fund on shares redeemed or exchanged within seven days of purchase. The redemption fee is based on the redemption proceeds. See ‘‘Shareholder Information — How to Sell Shares’’ for more information on redemption fees.

(6)

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

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

Order Processing Fees.Your financial intermediary may charge processing or other fees in connection with the purchase or sale of the Fund’s shares. For example, Morgan Stanley & Co. Incorporated (‘‘Morgan Stanley & Co.’’) charges clients an order processing fee of $5.25 (except in certain circumstances, including, but not limited to, activity in fee-based accounts, exchanges, dividend reinvestments and systematic investment and withdrawal plans) when a client buys or redeems shares of the Fund. Please consult your financial representative for more information regarding any such fees.

Additional Investment Strategy Information

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

Options and Futures.The Fund may invest in futures with respect to stock indices, financial instruments and interest rate indices and may purchase and sell options on instruments such as securities, securities indices, currencies, swaps and stock index futures. Futures and options may be used to facilitate trading, to increase or decrease the Fund’s market exposure or to seek to protect against a decline in the value of the Fund’s securities or an increase in prices of securities that may be purchased.

CMBS.The Fund may invest in CMBS. The Fund invests in CMBS that are rated investment grade by at least one nationally-recognized statistical rating organization (e.g., Baa or better by Moody’s Investors Service, Inc. or BBB or better by Standard & Poor’s Ratings Group, a division of The McGraw-Hill Companies, Inc.). 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&rsquo ;’ 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.

11

 

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. The Fund may also enter into cross currency hedges, which involve the sale of one currency against the positive exposure to a different currency. Cross currency hedges may be used for hedging purposes or to establish an active exposure to the exchange rate between any two currencies.

Structured Products.   The Fund may invest a portion of its assets in structured investments, structured notes and other types of similarly structured products consistent with the Fund’s investment objective and policies. Generally, structured investments are interests in entities organized and operated for the purpose of restructuring the investment characteristics of underlying investment interests or securities. These investment entities may be structured as trusts or other types of pooled investment vehicles. This type of restructuring generally involves the deposit with or purchase by an entity of the underlying investments and the issuance by that entity of one or more classes of securities backed by, or representing interests in, the underlying investments or referencing an indicator related to such investments. The cash flow or rate of return on the underlying investments may be apportioned among the newly issued securities to create different investment characteristics, such as varying maturities, credit quality, payment priorities and interest rate provisions. The cash flow or rate of return on a structured investment may be determined by applying a multiplier to the rate of total return on the underlying investments or referenced indicator.

Structured notes are derivative securities for which the amount of principal repayment and/or interest payments is based on the movement of one or more ‘‘factors.’’ These factors include, but are not limited to, currency exchange rates, interest rates (such as the prime lending rate or LIBOR), referenced bonds and stock indices. Some of these factors may or may not correlate to the total rate of return on one or more underlying instruments referenced in such notes. In some cases, the impact of the movements of these factors may increase or decrease through the use of multiplier or deflators. The Fund will use structured notes consistent with its investment objective and policies.

Stripped Mortgage-Backed Securities.The Fund may invest up to 10% of its net assets in stripped mortgage-backed securities. Stripped mortgage-backed securities 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).

Inverse Floaters.The Fund may invest up to 10% of its net assets in inverse floaters. An inverse floater has a coupon rate that moves in the direction opposite to that of a designated interest rate index.

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 notional 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

12

 

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. The Fund may enter into credit default swap contracts for hedging purposes, to add leverage to its portfolio or to gain exposure to a credit in which the Fund may otherwise invest.

The Fund may write (sell) and purchase put and call swap options. A swap option is a contract that gives a counterparty the right (but not the obligation) to enter into a new swap agreement or to shorten, extend, cancel or otherwise modify an existing swap agreement, at some designated future time on specified terms. The Fund may use swap options for hedging purposes or to manage and mitigate the credit and interest rate risk of the Fund.

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

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

* * *

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

Additional Risk Information

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

Options and Futures.If the Fund invests in futures on stock indices, financial instruments and interest rate indices or options on securities, securities indices, currencies, swaps and stock index futures, its participation in these markets may subject it to certain risks. The Investment Adviser’s predictions of movements in the direction of the stock, bond, stock index or interest rate markets may be inaccurate, and the adverse consequences to the Fund

13

 

(e.g., a reduction in the Fund’s net asset value or a reduction in the amount of income available for distribution) may leave the Fund in a worse position than if these strategies were not used. Other risks inherent in the use of futures and options include, for example, the possible imperfect correlation between the price of options and futures contracts and the 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.

CMBS.CMBS are subject to credit risk and prepayment risk. Although prepayment risk is present, it is of a lesser degree in the CMBS market 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).

Forward Foreign Currency Exchange Contracts.Use of forward foreign currency exchange contracts involves risks. If the Investment Adviser employs a strategy that does not correlate well with the Fund’s investments or the currencies in which the investments are denominated, currency contracts could result in a loss. The contracts also may increase the Fund’s volatility and, thus, could involve a significant risk. For cross currency hedges, there is an additional risk to the extent that these transactions create exposure to currencies in which the Fund’s securities are not denominated.

Structured Products.   The cash flow or rate of return on a structured investment may be determined by applying a multiplier to the rate of total return on the underlying investments or referenced indicator. Application of a multiplier is comparable to the use of financial leverage, a speculative technique. Leverage magnifies the potential for gain and the risk of loss. As a result, a relatively small decline in the value of the underlying investments or referenced indicator could result in a relatively large loss in the value of a structured product. Holders of structured products bear risks of the underlying investments, index or reference obligation and are subject to counterparty risk. The Fund may have the right to receive payments to which it is entitled only from the structured product, and generally does not have direct rights against the issuer. While certain structured investment vehicles enable the investor to acquire interests in a pool of securities without the brokerage and other expenses associated with directly holding the same securities, investors in structured vehicles generally pay their share of the investment vehicle’s administrative and other expenses. Certain structured products may be thinly traded or have a limited trading market and may have the effect of increasing the Fund’s illiquidity to the extent that the Fund, at a particular point in time, may be unable to find qualified buyers for these securities.

Investments in structured notes involve risks including interest rate risk, credit risk and market risk. Where the Fund’s investments in structured notes are based upon the movement of one or more factors, including currency exchange rates, interest rates, referenced bonds and stock indices, depending on the factor used and the use of multipliers or deflators, changes in interest rates and movement of the factor may cause significant price fluctuations. Additionally, changes in the reference instrument or security may cause the interest rate on the structured note to be reduced to zero and any further changes in the reference instrument may then reduce the principal amount payable on maturity. Structured notes may be less liquid than other types of securities and more volatile than the reference instrument or security underlying the note.

14

 

Stripped Mortgage-Backed Securities.Investments in each class of stripped mortgage-backed securities are extremely sensitive to changes in interest rates. 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 prepayment decreases. If the Fund invests in stripped mortgage-backed securities and interest rates move in a manner not anticipated by Fund management, it is possible that the Fund could lose all or substantially all of its investment.

Inverse Floaters.Investments in inverse floaters are subject to certain risks. Like most other fixed-income securities, the value of inverse floaters will decrease as interest rates increase. They are more volatile, however, than most other fixed-income securities because the coupon rate on an inverse floater typically changes at a multiple of the change in the relevant index rate. Thus, any rise in the index rate (as a consequence of an increase in interest rates) causes a correspondingly greater drop in the coupon rate of an inverse floater while a drop in the index rate causes a correspondingly greater increase in the coupon of an inverse floater. Some inverse floaters may also increase or decrease substantially because of changes in the rate of prepayments.

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, 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’s investments in credit default swap contracts involves risks. Where the Fund is the buyer of a credit default swap contract, it would be entitled to receive the par (or other agreed-upon) value of a referenced debt obligation from the counterparty to the contract only in the event of a default by a third party on the debt obligation. If no default occurs, the Fund would have paid to the counterparty a periodic stream of payments over the term of the contract and received no benefit from the contract. When the Fund is the seller of a credit default swap contract, it receives the stream of payments but is obligated to pay upon default of the referenced debt obligation.

The use of swap options involves risks, including, among others (i) changes in the market value of securities held by the Fund, and of swap options relating to those securities, may not be proportionate, (ii) there may not be a liquid market to sell a swap option, which could result in difficulty closing a position, (iii) swap options can magnify the extent of losses incurred due to change in the market value of the securities to which they relate and (iv) counterparty risk.

15

Morgan Stanley
Investment Advisors Inc.

The Investment Adviser, together with its affiliated asset management companies, had approximately $568.3 billion in assets under management or supervision as of March 31, 2008.

 

Portfolio Holdings

A description of the Fund’s policies and procedures with respect to the disclosure of the Fund’s portfolio securities is available in the Fund’s Statement of Additional Information (‘‘SAI’’).

Fund Management

The Fund has retained the Investment Adviser — Morgan Stanley Investment Advisors Inc. — to provide investment advisory services. The Investment Adviser is a wholly-owned subsidiary of Morgan Stanley, a preeminent global financial services firm engaged in securities trading and brokerage activities, as well as providing investment banking, research and analysis, financing and financial advisory services. The Investment Adviser’s address is 522 Fifth Avenue, New York, NY 10036.

The Fund is managed within the Equity Income and Taxable Fixed Income teams. The teams consist of portfolio managers and analysts.

Current members of the Equity Income team jointly and primarily responsible for the day-to-day management of the Fund’s portfolio are James A. Gilligan and Thomas B. Bastian, each a Managing Director of the Investment Adviser, and James O. Roeder, Mark Laskin and Sergio Marcheli, each an Executive Director of the Investment Adviser.

Mr. Gilligan has been associated with the Investment Adviser in an investment management capacity since August 1985 and began managing the Fund in September 2002. Mr. Bastian has been associated with the Investment Adviser in an investment management capacity since March 2003 and began managing the Fund in April 2003. Mr. Roeder has been associated with the Investment Adviser in an investment management capacity since May 1999 and began managing the Fund in September 2002. Mr. Laskin has been associated with the Investment Adviser in an investment management capacity since October 2000 and began managing the Fund in January 2007. Mr. Marcheli was associated with the Investment Adviser in a research capacity from 1995 to 2002. Since 2002, Mr. Marcheli has been associated with the Investment Adviser in an investment management capacity and began managing the Fund in April 2003.

Current members of the Taxable Fixed Income team jointly and primarily responsible for the day-to-day management of the Fund are W. David Armstrong and Steven K. Kreider, each a Managing Director of the Investment Adviser, and Stefania Perrucci, an Executive Director of the Investment Adviser.

Mr. Armstrong has been associated with the Investment Adviser in an investment management capacity since February 1998 and began managing the Fund in April 2005. Mr. Kreider has been associated with the Investment Adviser in an investment management capacity since February

16

 

1998 and began managing the Fund in February 2007. Ms. Perrucci has been associated with the Investment Adviser in an investment management capacity since September 2000 and began managing the Fund in April 2005.

Mr. Gilligan and Mr. Bastian are the co-managers of the Fund. Each member of the Equity Income team is responsible for specific sectors, except Mr. Marcheli who aids in providing research in all sectors as needed and also manages the cash position in the Fund. Mr. Gilligan and Mr. Bastian are responsible for the execution of the overall strategy of the Fund.

Each member of the Taxable Fixed Income team is responsible for specific sectors and for the day-to-day management of the fixed-income portion of the Fund.

The Fund’s SAI provides additional information about the portfolio managers’ compensation structure, other accounts managed by the portfolio managers and the portfolio managers’ ownership of securities in the Fund.

The composition of the teams may change from time to time.

The Fund pays the Investment Adviser a monthly advisory fee as full compensation for the services and the facilities furnished to the Fund, and for Fund expenses assumed by the Investment Adviser. The fee is based on the Fund’s daily net assets. For the fiscal year ended January 31, 2008, the Fund accrued total compensation to the Investment Adviser amounting to 0.52% of the Fund’s daily net assets.

A discussion regarding the Board of Trustees’ approval of the investment advisory agreement is available in the Fund’s semiannual report to shareholders for the period ended July 31, 2007.

17

Shareholder Information

 

Pricing Fund Shares

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 (‘‘NYSE’’) is open (or, on days when the NYSE closes prior to 4:00 p.m., at such earlier time). Shares will not be priced on days that the NYSE is closed.

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

In addition, with respect to securities that primarily are listed on foreign exchanges, when an event occurs after the close of such exchanges that is likely to have changed the value of the securities (for example, a percentage change in value of one or more U.S. securities indices in excess of specified thresholds), such securities will be valued at their fair value, as determined under procedures established by the Fund’s Board of Trustees. Securities also may be fair valued in the event of a significant development affecting a country or region or an issuer-specific development which is likely to have changed the value of the security.

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

To the extent the Fund invests in open-end management companies that are registered under the Investment Company Act of 1940, as amended (‘‘Investment Company Act’’), the Fund’s net asset value is calculated based upon the net asset value of such funds. The prospectuses for such funds explain the circumstances under which they will use fair value pricing and its effects.

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.

18

 

How To Buy Shares

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

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

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 I. Class I shares are only offered to a limited group of investors. Each Class of shares offers a distinct structure of sales charges, distribution and service fees, and other features that are designed to address a variety of needs. Your Morgan Stanley Financial Advisor or other authorized financial representative can help you decide which Class may be most appropriate for you. When purchasing Fund shares, you must specify which Class of shares you wish to purchase.

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

Order Processing Fees.Your financial intermediary may charge processing or other fees in connection with the purchase or sale of the Fund’s shares. For example, Morgan Stanley & Co. charges clients an order processing fee of $5.25 (except in certain circumstances, including, but not limited to, activity in fee-based accounts, exchanges, dividend reinvestments and systematic investment and withdrawal plans) when a client buys or redeems shares of the Fund. Please consult your financial representative for more information regarding any such fees.

 

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/msim

19

EasyInvest^®

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

 

Minimum Investment Amounts

	Minimum Investment
Investment Options	Initial					Additional
Regular Account		$	1,000				$	100
Individual Retirement Account		$	1,000				$	100
Coverdell Education Savings Account	$500						$	100
EasyInvest® (Automatically from your checking or savings account or Money Market Fund)	$100*						$	100	*

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

There is no minimum investment amount if you purchase Fund shares through: (1) the Investment Adviser's mutual fund asset allocation program; (2) a program, approved by the Fund's distributor, in which you pay an asset-based fee for advisory, administrative and/or brokerage services; (3) the following programs approved by the Fund’s distributor: (i) qualified state tuition plans described in Section 529 of the Code or (ii) certain other investment programs that do not charge an asset-based fee; (4) employer-sponsored employee benefit plan account; (5) certain deferred compensation programs established by the Investment Adviser or its affiliates for their employees or the Fund’s Trustees; or (6) the reinvestment of dividends in additional Fund shares.

Investment Options for Certain Institutional and Other Investors/Class I Shares. To be eligible to purchase Class I 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:

▪

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).

▪

Make out a check for the total amount payable to: Morgan Stanley Balanced Fund.

▪

Mail the letter and check to Morgan Stanley Trust at P.O. Box 219885, Kansas City, MO 64121-9885.

How To Exchange Shares

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. Government

20

 

Trust, without the imposition of an exchange fee. Front-end sales charges are not imposed on exchanges of Class A shares. See the inside back cover of this Prospectus for each Morgan Stanley Fund's designation as a Multi-Class Fund, No-Load Fund or Money Market Fund. If a Morgan Stanley Fund is not listed, consult the inside back cover of that fund's current prospectus for its designation.

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

Exchange Procedures.   You can process an exchange by contacting your Morgan Stanley Financial Advisor or other authorized financial representative. You may also write the Transfer Agent or call toll-free (800) 869-NEWS, our automated telephone system (which is generally accessible 24 hours a day, seven days a week), to place an exchange order. You automatically have the telephone exchange privilege unless you indicate otherwise by checking the applicable box on the new account application form. If you hold share certificates, no exchanges may be processed until we have received all applicable share certificates.

Exchange requests received on a business day prior to the time shares of the funds involved in the request are priced will be processed on the date of receipt. ‘‘Processing’’ a request means that shares of the fund which you are exchanging will be redeemed at the net asset value per share next determined on the date of receipt. Shares of the fund that you are purchasing will also normally be purchased at the net asset value per share, plus any applicable sales charge, next determined on the date of receipt. Exchange requests received on a business day after the time that shares of the funds involved in the request are priced will be processed on the next business day in the manner described herein.

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

Telephone Exchanges.   Morgan Stanley and its subsidiaries, including the Transfer Agent, and the Fund employ procedures considered by them to be reasonable to confirm that instructions communicated by telephone are genuine. Such procedures may include requiring certain personal identification information prior to acting upon telephone instructions, tape-recording telephone communications and providing written confirmation of instructions communicated by telephone. If reasonable procedures are employed, none of Morgan Stanley, the Transfer Agent or the Fund will be liable for following telephone instructions which it reasonably believes to be genuine. Telephone exchanges may not be available if you cannot reach the Transfer Agent by telephone, whether because all telephone lines are busy or for any other reason; in such case, a shareholder would have to use the Fund’s other exchange procedures described in this section.

21

 

Telephone instructions will be accepted if received by the Transfer Agent between 9:00 a.m. and 4:00 p.m. Eastern time on any day the NYSE 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 previous exchanges or purchase or sale transactions. The Fund reserves the right to reject an exchange request for any reason.

CDSC Calculations on Exchanges.   See the ‘‘Share Class Arrangements’’ section of this Prospectus for a discussion of how applicable CDSCs are calculated for shares of one Morgan Stanley Fund that are exchanged for shares of another.

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

How To Sell Shares

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.

22

 

Options	Procedures
Contact Your Financial Advisor	To sell your shares, simply call your Morgan Stanley Financial Advisor or other authorized financial representative. Payment will be sent to the address to which the account is registered or deposited in your brokerage account.
By Telephone	You can sell your shares by telephone and have the proceeds sent to the address of record or your bank account on record. You automatically have the telephone redemption privilege unless you indicate otherwise by checking the applicable box on the new account application form.
	Before processing a telephone redemption, keep the following information in mind: ▪ You can establish this option at the time you open the account by completing the Morgan Stanley Funds New Account Application or subsequently by calling toll-free (800) 869-NEWS. ▪ Call toll-free (800) 869-NEWS to process a telephone redemption using our automated telephone system which is generally accessible 24 hours a day, seven days a week. ▪ Your request must be received prior to market close, generally 4:00 p.m. Eastern time. ▪ If your account has multiple owners, Morgan Stanley Trust may rely on the instructions of any one owner. ▪ Proceeds must be made payable to the name(s) and address in which the account is registered. ▪ You may redeem amounts of $50,000 or less daily if the proceeds are to be paid by check or by Automated Clearing House. ▪ This privilege is not available if the address on your account has changed within 15 calendar days prior to your telephone redemption request. ▪ Telephone redemption is available for most accounts other than accounts with shares represented by certificates.
	If you request to sell shares that were recently purchased by check, the proceeds of that sale may not be sent to you until it has been verified that the check has cleared, which may take up to 15 calendar days from the date of purchase.
	Morgan Stanley and its subsidiaries, including the Transfer Agent, employ procedures considered by them to be reasonable to confirm that instructions communicated by telephone are genuine. Such procedures may include requiring certain personal identification information prior to acting upon telephone instructions, tape-recording telephone communications and providing written confirmation of instructions communicated by telephone. If reasonable procedures are employed, neither Morgan Stanley nor the Transfer Agent will be liable for following telephone instructions which it reasonably believes to be genuine. Telephone redemptions may not be available if a shareholder cannot reach the Transfer Agent by telephone, whether because all telephone lines are busy or for any other reason; in such case, a shareholder would have to use the Fund’s other redemption procedures previously described in this section.

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Options	Procedures
By Letter	You can also sell your shares by writing a ‘‘letter of instruction’’ that includes: ▪ your account number; ▪ the name of the Fund; ▪ the dollar amount or the number of shares you wish to sell; ▪ 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 the Transfer Agent. (You should contact the Transfer Agent toll-free at (800) 869-NEWS for a determination as to whether a particular institution is an eligible guarantor.) A notary public cannot provide a signature guarantee. Additional documentation may be required for shares held by a corporation, partnership, trustee or executor.
	Mail the letter to Morgan Stanley Trust at P.O. Box 219886, Kansas City, MO 64121-9886. If you hold share certificates, you must return the certificates, along with the letter and any required additional documentation.
	A check will be mailed to the name(s) and address in which the account is registered, or otherwise according to your instructions.
Systematic Withdrawal Plan	If your investment in all of the Morgan Stanley Funds has a total market value of at least $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 toll-free (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.

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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, the proceeds of the sale may not be sent to you until it has been verified that the check has cleared, which may take up to 15 calendar days from the date of purchase.

Payments-in-Kind.   If we determine that it is in the best interest of other shareholders not to pay redemption proceeds in cash, we may pay you partly or entirely by distributing to you readily marketable securities held by the fund from which you are redeeming. You may incur brokerage charges and capital gains when you sell those securities.

Order Processing Fees.   Your financial intermediary may charge processing or other fees in connection with the purchase or sale of the Fund’s shares. For example, Morgan Stanley & Co. charges clients an order processing fee of $5.25 (except in certain circumstances, including, but not limited to, activity in fee-based accounts, exchanges, dividend reinvestments and systematic investment and withdrawal plans) when a client buys or redeems shares of the Fund. Please consult your financial representative for more information regarding any such fees.

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

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

Involuntary Sales.   The Fund reserves the right, on 60 days' notice, to sell the shares of any shareholder (other than shares held in an individual retirement account (‘‘IRA’’) or 403(b) Custodial Account) whose shares, due to sales by the shareholder, have a value below $100, or in the case of an account opened through EasyInvest^®, 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.

Redemption Fee.   Fund shares redeemed within seven days of purchase will be subject to a 2% redemption fee, payable to the Fund. The redemption fee is designed to protect the Fund and its remaining shareholders from the effects of short-term trading. The redemption fee is not imposed on redemptions made: (i) through systematic withdrawal/exchange plans, (ii) through pre-approved asset allocation programs, (iii) of shares received by reinvesting income dividends or capital gain distributions, (iv) through certain collective trust funds or other pooled vehicles, (v) on behalf of advisory accounts where client allocations are solely at the discretion of the Morgan Stanley Investment Management investment team or (vi) by participant-directed retirement plans (such as 401(k) plans, 457 plans and employer-sponsored 4 03(b) plans) where the application of such a fee would cause the Fund or an asset allocation program of which the Fund is a part to fail to be considered a ‘‘qualified default

25

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.

 

investment alternative’’ under the Employee Retirement Income Security Act of 1974, as amended, and the rules and regulations thereunder. The redemption fee is based on, and deducted from, the redemption proceeds. Each time you redeem or exchange shares, the shares held the longest will be redeemed or exchanged first.

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

Distributions

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

The Fund declares income dividends separately for each Class. Distributions paid on Class A and Class I 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 quarterly. Capital gains, if any, are usually distributed in June and December. The Fund, however, may retain and reinvest any long-term capital gains. The Fund may at times make payments from sources other than income or capital gains that represent a return of a portion of your investment. These payments would not be taxable to you as a shareholder, but would have the effect of reducing your basis in the Fund.

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

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Frequent Purchases and Redemptions of Fund Shares

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

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

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’s policies with respect to valuing portfolio securities are described in ‘‘Shareholders Information—Pricing Fund Shares.’’

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

Omnibus accounts generally do not identify customers’ trading activity to the Fund on an individual ongoing basis. Therefore, with respect to trades that occur through omnibus accounts at financial intermediaries, to some extent, the Fund relies on the financial intermediary to monitor frequent short-term trading within the Fund by the

27

 

financial intermediary’s customers. However, the Fund or the distributor has entered into agreements with financial intermediaries whereby intermediaries are required to provide certain customer identification and transaction information upon the Fund’s request. The Fund may use this information to help identify and prevent market-timing activity in the Fund. There can be no assurance that the Fund will be able to identify or prevent all market-timing activities.

Tax Consequences

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:

▪

The Fund makes distributions; and

▪

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

Taxes on Distributions.   Your distributions are normally subject to federal and state income tax when they are paid, whether you take them in cash or reinvest them in Fund shares. A distribution also may be subject to local income tax. Any income dividend distributions and any short-term capital gain distributions are taxable to you as ordinary income. Any long-term capital gain distributions are taxable as long-term capital gains, no matter how long you have owned shares in the Fund. Under current law, a portion of the income dividends you receive may be taxed at the same rate as long-term capital gains. However, even if income received in the form of 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 p urposes. For example, you generally will not be permitted to offset 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 ordinary 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.

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Share Class Arrangements

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 I 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.

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

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

Class	Sales Charge	Maximum Annual 12b-1 Fee
A	Maximum 5.25% initial sales charge reduced for purchases of $25,000 or more; shares purchased without an initial sales charge are generally subject to a 1.00% CDSC if sold during the first 18 months	0.25%
B	Maximum 5.00% CDSC during the first year decreasing to 0% after six years	1.00%
C	1.00% CDSC during the first year	1.00%
I	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 the Transfer Agent 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 & Co. or other authorized dealer of Fund shares, or the Transfer Agent does not confirm your represented holdings .

In order to obtain a reduced sales charge (i.e., breakpoint discount) or to meet an eligibility minimum, it may be necessary at the time of purchase for you to inform your Morgan Stanley Financial Advisor or other authorized financial representative (or the Transfer Agent 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,

29

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.

 

www.morganstanley.com, information regarding applicable sales loads, reduced sales charges (i.e., breakpoint discounts), sales load waivers and eligibility minimums. The web site includes hyperlinks that facilitate access to the information.

CLASS A SHARESClass A shares are sold at net asset value plus an initial sales charge of up to 5.25% of the public offering price. The initial sales charge is reduced for purchases of $25,000 or more according to the schedule below. Investments of $1 million or more are not subject to an initial sales charge, but are generally subject to a CDSC of 1.00% on sales made within 18 months after the last day of the month of purchase. The CDSC will be assessed in the same manner and with the same CDSC waivers as with Class B shares. In addition, the CDSC on Class A shares will be waived in connection with sales of Class A shares for which no commission or transaction fee was paid by the distributor to authorized dealers at the time of purchase of s uch shares. Class A shares are also subject to a distribution and shareholder services (12b-1) fee of up to 0.25% of the average daily net assets of the Class. The maximum annual 12b-1 fee payable by Class A shares is lower than the maximum annual 12b-1 fee payable by Class B or Class C shares.

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

	Front-End Sales Charge
Amount of Single Transaction	Percentage of Public Offering Price	Approximate Percentage of Net Amount Invested
Less than $25,000	5.25%	5.54%
$25,000 but less than $50,000	4.75%	4.99%
$50,000 but less than $100,000	4.00%	4.17%
$100,000 but less than $250,000	3.00%	3.09%
$250,000 but less than $500,000	2.50%	2.56%
$500,000 but less than $1 million	2.00%	2.04%
$1 million and over	0.00%	0.00%

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

▪

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

▪

A family member account (limited to spouse, and children under the age of 21).

▪

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

▪

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

▪

Tax-exempt organizations.

▪

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

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Combined Purchase Privilege.   You will have the benefit of reduced sales charges by combining purchases of Class A shares of the Fund for any related account in a single transaction with purchases of any class of shares of other Morgan Stanley Multi-Class Funds for the related account or any other related account. For the purpose of this combined purchase privilege, a ‘‘related account’’ is:

▪

A single account (including an individual account, a joint account and a trust account established solely for the benefit of the individual).

▪

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

▪

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

▪

An UGMA/UTMA account.

Right of Accumulation.   You may benefit from a reduced sales charge if the cumulative net asset value of Class A shares of the Fund purchased in a single transaction, together with the net asset value of all classes of shares of Morgan Stanley Multi-Class Funds (including shares of Morgan Stanley Non-Multi-Class Funds which resulted from an exchange from Morgan Stanley Multi-Class Funds) held in related accounts, amounts to $25,000 or more. For the purposes of the right of accumulation privilege, a related account is any one of the accounts listed under ‘‘Combined Purchase Privilege’’ above.

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

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

Letter of Intent.   The above schedule of reduced sales charges for larger purchases also will be available to you if you enter into a written ‘‘Letter of Intent.’’ A Letter of Intent provides for the purchase of Class A shares of the Fund or other Multi-Class Funds within a 13-month period. The initial purchase under a Letter of Intent must be at least 5% of the stated investment goal. The Letter of Intent does not preclude the Fund (or any other Multi-Class Fund) from discontinuing sales of its shares. To determine the applicable sales charge reduction, you

31

 

may also include: (1) the cost of shares of other Morgan Stanley Funds which were previously purchased at a price including a front-end sales charge during the 90-day period prior to the distributor receiving the Letter of Intent, and (2) the historical cost of shares of other funds you currently own acquired in exchange for shares of funds purchased during that period at a price including a front-end sales charge. You may combine purchases and exchanges by family members (limited to spouse, and children under the age of 21) during the periods referenced in (1) and (2) above. You should retain any records necessary to substantiate historical costs because the Fund, the Transfer Agent and any financial intermediaries may not maintain this information. You can obtain a Letter of Intent by contacting your Morgan Stanley Financial Advisor or other authorized financial representative, or by calling toll-free (800) 869-NEWS. If you do not achieve the stated investment goal within the 13-month period, you are requi red 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:

▪

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

▪

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.

▪

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.

▪

Employer-sponsored employee benefit plans, whether or not qualified under the Internal Revenue Code, for 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’’).

▪

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.

▪

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

▪

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.

▪

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.

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

Year Since Purchase Payment Made	CDSC as a Percentage of Amount Redeemed
First			5.0	%
Second			4.0	%
Third			3.0	%
Fourth			2.0	%
Fifth			2.0	%
Sixth			1.0	%
Seventh and thereafter	None

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

Brokers, dealers or other financial intermediaries may impose a limit on the dollar value of a Class B share purchase order that they will accept. You should discuss with your financial advisor which share class is most appropriate for you, based on the size of your investment, your expected time horizon for holding the shares and other factors, bearing in mind the availability of reduced sales loads on Class A share purchases of $25,000 or more and for existing shareholders who hold over $25,000 in Morgan Stanley Funds.

Special CDSC Considerations for Fund Shares Held Prior to July 28, 1997.If you held Fund shares prior to July 28, 1997 that were acquired in exchange for shares of Morgan Stanley Dean Witter Global Short-Term Income Fund, Dean Witter National Municipal Trust or Dean Witter High Income Securities that have been designated Class B shares, these Fund shares are subject to the other fund's lower CDSC schedule, with two exceptions. First, if you subsequently exchange these Class B shares for shares of a fund with a higher CDSC schedule, the higher CDSC schedule will apply. Second, if you exchange the Class B shares for shares of a Money Market Fund and re-exchange back into the Fund, the CDSC schedule set forth in the above table will apply.

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

▪

Sales of shares held at the time you die or become disabled (within the definition in Section 72(m)(7) of the Internal Revenue Code which relates to the ability to engage in gainful employment), if the shares are: (i) registered either in your individual name or in the names of you and your spouse as joint tenants with right of survivorship; (ii) registered in the name of a

 

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.

33

 

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

▪

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 59½); (ii) distributions from an IRA or 403(b) Custodial Account following attainment of age 59½; 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).

▪

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.

▪

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

The Fund’s distributor may require confirmation of your entitlement before granting a CDSC waiver. If you believe you are eligible for a CDSC waiver, please contact your Morgan Stanley Financial Advisor or other authorized financial representative or call toll-free (800) 869-NEWS.

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

Conversion Feature.   After eight years, Class B shares generally will convert automatically to Class A shares of the Fund with no initial sales charge. The eight-year period runs from the last day of the month in which the shares were purchased or, in the case of Class B shares acquired through an exchange, from the last day of the month in which the original Class B shares were purchased; the shares will convert to Class A shares based on their relative net asset values in the month following the eight-year period. At the same time, an equal proportion of Class B shares acquired through automatically reinvested distributions will convert to Class A shares on the same basis. This conversion will be suspended during any period in which the expense ratio of the Class B shares of the Fund is lower than the expense ratio of the Class A shares of the Fund.

34

 

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

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

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

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

In addition, shares that are exchanged into or from a Morgan Stanley Fund subject to a higher CDSC rate will be subject to the higher rate, even if the shares are re-exchanged into a fund with a lower CDSC rate.

CLASS C SHARESClass C shares are sold at net asset value with no initial sales charge, but are subject to a CDSC of 1.00% on sales made within one year after the last day of the month of purchase. The CDSC will be assessed in the same manner and with the same CDSC waivers as with Class B shares.

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

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

35

 

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

CLASS I SHARESClass I shares (formerly Class D shares) are offered without any sales charge on purchases or sales and without any distribution and shareholder services (12b-1) fee. Class I 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:

▪

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

▪

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.

▪

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

▪

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

▪

Certain unit investment trusts sponsored by Morgan Stanley & Co. or its affiliates.

▪

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

▪

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.

▪

The Investment Adviser and its affiliates with respect to shares held in connection with certain deferred compensation programs established for their employees or the Fund’s Trustees.

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

Class I shares are not offered for investments made through Section 529 plans, donor-advised charitable gift funds and insurance company separate accounts (regardless of the size of the investment).

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

36

 

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

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

Additional Information

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

37

Financial Highlights

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

This information has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, whose report, along with the Fund's financial statements, are incorporated by reference in the SAI from the Fund’s annual report, which is available upon request.

Class A Shares

FOR THE YEAR ENDED JANUARY 31,	2008					2007					2006					2005					2004
Selected Per Share Data:
Net asset value, beginning of period		$	14.89				$	14.57				$	13.76				$	12.98				$	10.73
Income (loss) from investment operations:
Net investment income‡			0.32					0.30					0.24					0.21					0.18
Net realized and unrealized gain (loss)			(0.35	)				1.20					1.21					0.79					2.30
Total income (loss) from investment operations			(0.03	)				1.50					1.45					1.00					2.48
Less dividends and distributions from:
Net investment income			(0.35	)				(0.29	)				(0.27	)				(0.22	)				(0.23	)
Net realized gain			(0.68	)				(0.89	)				(0.37	)				—					—
Total dividends and distributions			(1.03	)				(1.18	)				(0.64	)				(0.22	)				(0.23	)
Net asset value, end of period		$	13.83				$	14.89				$	14.57				$	13.76				$	12.98
Total Return†			(0.42	)%				10.54	%				10.99	%				7.80	%				23.37	%
Ratios to Average Net Assets(1):
Total expenses (before expense offset)			1.04	%(2)				1.14	%				1.13	%				1.13	%				1.12	%
Net investment income			2.10	%(2)				2.06	%				1.70	%				1.61	%				1.58	%
Supplemental Data:
Net assets, end of period, in thousands		$	114,929				$	125,180				$	33,217				$	7,017				$	6,663
Portfolio turnover rate	64 %							56	%				52	%				64	%				117	%

‡

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)

Reflects waivers of certain Fund expenses in connection with the investments in Morgan Stanley Institutional Liquidity Money Market Portfolio – Institutional Class during the period. As a result of such waivers the expenses as a percentage of its net assets had an effect of less than 0.005%.

38

CLASS B SHARES

FOR THE YEAR ENDED JANUARY 31,	2008					2007					2006					2005					2004
Selected Per Share Data:
Net asset value, beginning of period.		$	14.90				$	14.56				$	13.75				$	12.97				$	10.73
Income (loss) from investment operations:
Net investment income‡			0.20					0.19					0.14					0.11					0.10
Net realized and unrealized gain (loss)			(0.35	)				1.22					1.20					0.79					2.28
Total income (loss) from investment operations			(0.15	)				1.41					1.34					0.90					2.38
Less dividends and distributions from:
Net investment income			(0.23	)				(0.18	)				(0.16	)				(0.12	)				(0.14	)
Net realized gain			(0.68	)				(0.89	)				(0.37	)				—					—
Total dividends and distributions			(0.91	)				(1.07	)				(0.53	)				(0.12	)				(0.14	)
Net asset value, end of period		$	13.84				$	14.90				$	14.56				$	13.75				$	12.97
Total Return†			(1.20	)%				9.80	%				10.12	%				6.99	%				22.37	%
Ratios to Average Net Assets(1):
Total expenses (before expense offset)			1.79	%(2)				1.89	%				1.89	%				1.89	%				1.88	%
Net investment income			1.35	%(2)				1.31	%				0.94	%				0.85	%				0.82	%
Supplemental Data:
Net assets, end of period, in thousands		$	123,951				$	185,534				$	84,568				$	110,875				$	114,960
Portfolio turnover rate			64	%				56	%				52	%				64	%				117	%

‡

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)

Reflects waivers of certain Fund expenses in connection with the investments in Morgan Stanley Institutional Liquidity Money Market Portfolio – Institutional Class during the period. As a result of such waivers the expenses as a percentage of its net assets had an effect of less than 0.005%.

39

Financial Highlights (Continued)

CLASS C SHARES

FOR THE YEAR ENDED JANUARY 31,	2008					2007					2006					2005					2004
Selected Per Share Data:
Net asset value, beginning of period		$	14.90				$	14.57				$	13.76				$	12.98				$	10.73
Income (loss) from investment operations:
Net investment income‡			0.20					0.19					0.14					0.11					0.10
Net realized and unrealized gain (loss)			(0.34	)				1.21					1.20					0.79					2.29
Total income (loss) from investment operations			(0.14	)				1.40					1.34					0.90					2.39
Less dividends and distributions from:
Net investment income			(0.24	)				(0.18	)				(0.16	)				(0.12	)				(0.14	)
Net realized gain			(0.68	)				(0.89	)				(0.37	)				—					—
Total dividends and distributions			(0.92	)				(1.07	)				(0.53	)				(0.12	)				(0.14	)
Net asset value, end of period		$	13.84				$	14.90				$	14.57				$	13.76				$	12.98
Total Return†			(1.19	)%				9.75	%				10.15	%				6.98	%				22.43	%
Ratios to Average Net Assets(1):
Total expenses (before expense offset)			1.79	%(2)				1.89	%				1.89	%				1.87	%				1.88	%
Net investment income			1.35	%(2)				1.31	%				0.94	%				0.87	%				0.82	%
Supplemental Data:
Net assets, end of period, in thousands		$	99,121				$	123,508				$	81,339				$	81,606				$	84,840
Portfolio turnover rate			64	%				56	%				52	%				64	%				117	%

‡

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)

Reflects waivers of certain Fund expenses in connection with the investments in Morgan Stanley Institutional Liquidity Money Market Portfolio – Institutional Class during the period. As a result of such waivers the expenses as a percentage of its net assets had an effect of less than 0.005%.

40

CLASS I SHARES*

FOR THE YEAR ENDED JANUARY 31,	2008					2007					2006					2005					2004
Selected Per Share Data:
Net asset value, beginning of period		$	14.89				$	14.56				$	13.76				$	12.97				$	10.73
Income (loss) from investment operations:
Net investment income‡			0.36					0.34					0.28					0.24					0.22
Net realized and unrealized gain (loss)			(0.36	)				1.21					1.19					0.80					2.28
Total income (loss) from investment operations			0.00					1.55					1.47					1.04					2.50
Less dividends and distributions from:
Net investment income			(0.39	)				(0.33	)				(0.30	)				(0.25	)				(0.26	)
Net realized gain			(0.68	)				(0.89	)				(0.37	)				—					—
Total dividends and distributions			(1.07	)				(1.22	)				(0.67	)				(0.25	)				(0.26	)
Net asset value, end of period		$	13.82				$	14.89				$	14.56				$	13.76				$	12.97
Total Return†			(0.23	)%				10.89	%				11.17	%				8.14	%				23.56	%
Ratios to Average Net Assets(1):
Total expenses (before expense offset)			0.79	%(2)				0.89	%				0.89	%				0.89	%				0.88	%
Net investment income			2.35	%(2)				2.31	%				1.94	%				1.85	%				1.82	%
Supplemental Data:
Net assets, end of period, in thousands		$	481				$	2,181				$	909				$	1,083				$	1,151
Portfolio turnover rate			64	%				56	%				52	%				64	%				117	%

‡

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

†

Calculated based on the net asset value as of the last business day of the period.

(1)

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

(2)

Reflects waivers of certain Fund expenses in connection with the investments in Morgan Stanley Institutional Liquidity Money Market Portfolio – Institutional Class during the period. As a result of such waivers the expenses as a percentage of its net assets had an effect of less than 0.005%.

*

Formerly Class D shares.

41

Notes

42

Morgan Stanley Funds

EQUITY

BLEND/CORE

Diversified Large Cap Equity Fund

Dividend Growth Securities

Institutional Strategies Fund

Multi-Asset Class Fund

DOMESTIC HYBRID

Allocator Fund

Balanced Fund

Strategist Fund

Global/International

Diversified International Equity Fund

European Equity Fund

Global Advantage Fund

Global Dividend Growth Securities

International Fund

International SmallCap Fund

International Value Equity Fund

Japan Fund

Pacific Growth Fund

Growth

Capital Opportunities Trust

Focus Growth Fund

Mid Cap Growth Fund

Special Growth Fund

INDEX

Equally-Weighted S&P 500 Fund

Nasdaq-100 Index Fund

S&P 500 Index Fund

Total Market Index Fund

Specialty

Commodities Alpha Fund

Convertible Securities Trust

Financial Services Trust

FX Alpha Plus Strategy Portfolio

FX Alpha Strategy Portfolio

Health Sciences Trust

Natural Resource Development Securities

Real Estate Fund

Technology Fund

Utilities Fund

VALUE

Fundamental Value Fund

Mid-Cap Value Fund

Small-Mid Special Value Fund

Special Value Fund

Value Fund

FIXED INCOME

TAXABLE SHORT TERM

Limited Duration Fund*†

Limited Duration U.S. Government Trust*

TAXABLE INTERMEDIATE TERM

Flexible Income Trust

High Yield Securities

Income Trust

Mortgage Securities Trust

U.S. Government Securities Trust

Tax-Free

California Tax-Free Income Fund

Limited Term Municipal Trust*†

New York Tax-Free Income Fund

Tax-Exempt Securities Trust

MONEY MARKET*

TAXABLE

Liquid Asset Fund

U.S. Government Money Market Trust

TAX-FREE

California Tax-Free Daily Income Trust

New York Municipal Money Market Trust

Tax-Free Daily Income Trust

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

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

*

Single-Class Fund(s)

†

No-Load (Mutual) Fund

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

The Fund’s SAI also provides additional information about the Fund. The SAI is incorporated herein by reference (legally is part of this Prospectus). For a free copy of any of these documents, to request other information about the Fund, or to make shareholder inquiries, please call toll-free (800) 869-NEWS. Free copies of these documents are also available from our Internet site at: www.morganstanley.com/msim.

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

Information about the Fund (including the SAI) can be viewed and copied at the Securities and Exchange Commission’s (the ‘‘SEC’’) Public Reference Room in Washington, DC. Information about the Reference Room’s operations may be obtained by calling the SEC at (202) 551-8090. Reports and other information about the Fund are available on the EDGAR Database on the SEC’s Internet site at: 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:	BGRAX		Class B:	BGRBX
Class C:	BGRCX		Class I:	BGRDX

(THE FUND’S INVESTMENT COMPANY ACT FILE NO. IS 811-7245)

Morgan Stanley Distributors Inc., member FINRA.
© 2008 Morgan Stanley

BGRPRO-00

Morgan Stanley Funds

Morgan Stanley
Balanced Fund

37896   05/08

Prospectus
May 30, 2008

Morgan Stanley  
Balanced Fund

STATEMENT OF ADDITIONAL INFORMATION

May 30, 2008

This Statement of Additional Information(‘‘SAI’’) is not a prospectus. The Prospectus (dated May 30, 2008) for Morgan Stanley Balanced Fund may be obtained without charge from the Fund at its address or telephone number listed below or from Morgan Stanley & Co. Incorporated at any of its branch offices.

The Fund’s audited financial statements for the fiscal year ended January 31, 2008, 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 SAI.

Morgan Stanley
Balanced Fund
522 Fifth Avenue
New York, New York 10036
(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				21
D.     Disclosure of Portfolio Holdings				23
III.Management of the Fund				26
A.     Board of Trustees				26
B.     Management Information				27
C.     Compensation				35
IV.Control Persons and Principal Holders of Securities				37
V.Investment Advisory and Other Services				37
A.     Investment Adviser and Administrator				37
B.     Principal Underwriter				37
C.     Services Provided by the Investment Adviser and Administrator				38
D.     Dealer Reallowances				39
E.     Rule 12b-1 Plan				39
F.      Other Service Providers				42
G.     Fund Management				42
H.     Codes of Ethics				44
I.       Proxy Voting Policy and Proxy Voting Record				44
J.     Revenue Sharing				44
VI.Brokerage Allocation and Other Practices				46
A.     Brokerage Transactions				46
B.     Commissions				46
C.     Brokerage Selection				46
D.     Directed Brokerage				47
E.     Regular Broker-Dealers				47
VII.Capital Stock and Other Securities				47
VIII.Purchase, Redemption and Pricing of Shares				48
A.     Purchase/Redemption of Shares				48
B.     Offering Price				49
IX.Taxation of the Fund and Shareholders				50
X.Underwriters				52
XI.Performance Data				53
XII.Financial Statements				53
XIII.Fund Counsel				54
Appendix A – Proxy Voting Policy and Procedures				A-1

2

Glossary of Selected Defined Terms

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

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

‘‘Custodian’’ — State Street Bank and Trust Company.

‘‘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 Balanced Fund, a registered open-end investment company.

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

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

‘‘Morgan Stanley & Co.’’ — Morgan Stanley & Co. Incorporated, a wholly-owned broker-dealer subsidiary of Morgan Stanley.

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

‘‘Transfer Agent’’ — Morgan Stanley Trust, a wholly-owned transfer agent subsidiary of Morgan Stanley.

‘‘Trustees’’ — The Board of Trustees of the Fund.

3

I.    FUND HISTORY

The Fund was organized as a Massachusetts business trust, under a Declaration of Trust, on November 23, 1994, with the name Dean Witter Balanced Growth Fund. Effective June 22, 1998, the Fund’s name was changed to Morgan Stanley Dean Witter Balanced Growth Fund. Effective June 18, 2001, the Fund’s name was changed to Morgan Stanley Balanced Growth Fund. Effective September 18, 2006, the Fund’s name was changed to Morgan Stanley Balanced Fund.

II.    DESCRIPTION OF THE FUND AND ITS INVESTMENTS AND RISKS

A.    Classification

The Fund is an open-end, diversified management investment company whose investment objective is to provide capital growth with reasonable current income.

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.’’

Options and Futures Transactions.    The Fund may engage in transactions in listed and over-the-counter (‘‘OTC’’) options with respect to equities, fixed-income and index-based securities. 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 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 Un ited States) or other clearing corporation or exchange, the underlying security 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 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 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. 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 alone. Moreover, the premium received will offset a portion of the potential loss incurred by the Fund if the securities underlying the option decline in value.

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

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

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Options written by the Fund normally have expiration dates of 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. 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 s ame 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 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 call and put options on securities and stock indexes in amounts equaling up to 10% of its total assets. The Fund may purchase put options on securities which it holds (or has the right to acquire) in its portfolio only to protect itself against a decline in the value of the security. The Fund may also purchase put options to close out written put positions in a manner similar to call option closing purchase transactions. 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 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 during the term of the option.

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, primary dealers in U.S. government securities or with affiliates of such banks or dealers. Certain OTC options are considered to be illiquid investments.

The Fund treats purchased OTC options and assets used to deliver written OTC options as illiquid securities; however, if the Fund enters into an agreement with a dealer pursuant to which it may repurchase the option at a price under a formula, then assets used to cover the OTC option will be considered illiquid only to the extent that the maximum repurchase price under the formula exceeds the intrinsic value 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.

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.

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Risks of Options Transactions.    The successful use of options depends on the ability of the Investment Adviser to forecast correctly interest rates and/or market movements. If the market value of the portfolio securities 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 increase, but has retained the risk of loss should the price of the underlying security 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 th e 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 a liquid secondary market will exist, particularly in the case of OTC options.

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

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.

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

All Options Transactions.    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 options contracts entered into under the circumstances set forth above. If the value of such 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.

Futures Contracts.    The Fund may purchase and sell interest rate and stock index futures contracts that are traded on U.S. commodity exchanges on such underlying securities as U.S. Treasury bonds, notes, bills and GNMA Certificates and such indexes as the S&P 500® Index, the Moody’s Investment-Grade Corporate Bond Index and the New York Stock Exchange Composite Index.

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 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 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

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contracts provide for the delivery of an amount of cash equal to a specified dollar amount times the difference between the index value at the open or close of the last trading day of the contract and the futures contract price. A futures contract sale is closed out by effecting a futures contract purchase for the same aggregate amount of the specific type of security and the same delivery date. If the sale price exceeds the offsetting purchase price, the seller would be paid the difference and would realize a gain. If the offsetting purchase price exceeds the sale price, the seller would pay the difference and would realize a loss. Similarly, a futures contract purchase is closed out by effecting a futures contract sale for the same aggregate amount of the specific type of security and the same delivery date. If the offsetting sale price exceeds the purchase price, the purchaser would realize a gain, whereas if the purchase price exceeds the offsetting sale price, the purchaser would realize a loss. There i s 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 le ss 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 eliminated limitations on futures trading by certain regulated entities, including registered investment companies, and consequently registered investment companies may engage in unlimited futures transactions and options thereon provided that the investment adviser to the company claims an exclusion from regulation as a commodity pool operator. In connection with its management of the Fund, the Investment Adviser has claimed such an exclusion from registration as a commodity pool operator under the Commodity Exchange Act (‘‘CEA’’). Therefore, it is not subject to the registration and regulatory requirements of the CEA. Therefore, there are no limitations on the extent to which the Fund may engage in non-hedging transactions involving futures and options thereon ex cept 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. Also, prices of futures contracts may not move in tandem with the changes in prevailing interest rates and market movements 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

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

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

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

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purposes or when assuming a temporary defensive position, which among others may include commercial paper, bankers’ acceptances, bank obligations, corporate debt securities, certificates of deposit, U.S. government securities, obligations of savings institutions and repurchase agreements. Such securities are limited to:

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

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

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

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

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 Rating Group, a division of The McGraw-Hill Companies, Inc. (‘‘S&P’’), or by Moody’s Investors Service, Inc. (‘‘Moody’s’’) or, if not rated, issued by a company having an outstanding debt issue rated at least AA by S&P or Aa by Moody’s; and

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

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

Zero Coupon Securities.    A portion of the fixed-income securities purchased by the Fund may be zero coupon securities. Such securities are purchased at a discount from their face amount, giving the

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purchaser the right to receive their full value at maturity. The interest earned on such securities is, implicitly, automatically compounded and paid out at maturity. While such compounding at a constant rate eliminates the risk of receiving lower yields upon reinvestment of interest if prevailing interest rates decline, the owner of a zero coupon security will be unable to participate in higher yields upon reinvestment of interest received on interest-paying securities if prevailing interest rates rise.

A zero coupon security pays no interest to its holder during its life. Therefore, to the extent the Fund invests in zero coupon securities, it will not receive current cash available for distribution to shareholders. In addition, zero coupon securities are subject to substantially greater market price fluctuations during periods of changing prevailing interest rates than are comparable debt securities which make current distributions on interest. Current federal tax law requires that a holder (such as the Fund) of a zero coupon security accrue a portion of the discount at which the security was purchased as income each year even though the Fund receives no interest payments in cash on the security during the year.

Borrowing.    The Fund has an operating policy, which may be changed by the Fund’s Board of Trustees, not to borrow except from a bank for temporary or emergency purposes in amounts not exceeding 5% (taken at the lower of cost or current value) or its total assets (not including the amount borrowed). Should the Board of Trustees remove this operating policy, the Fund would be permitted to borrow money from banks in accordance with the Investment Company Act or the rules and regulations promulgated by the United States Securities and Exchange Commission (‘‘SEC’’) thereunder. Currently, the Investment Company Act permits a fund to borrow money from banks in an amount up to 33 1/3% of its total assets (including the amount borrowed) less its liabilities (not including any borrowings but including the fair market value at the time of computation of any other senior securities then outstanding). The Fund may also borrow an additional 5% of its total assets without regard to the foregoing limitation for temporary purposes such as clearance of portfolio transactions. The Fund will only borrow when the Investment Adviser believes that such borrowings will benefit the Fund after taking into account considerations such as interest income and possible gains or losses upon liquidation. The Fund will maintain asset coverage in accordance with the Investment Company Act.

Borrowing by the Fund creates an opportunity for increased net income but, at the same time, creates special risks. For example, leveraging may exaggerate changes in and increase the volatility of the net asset value of Fund shares. This is because leverage tends to exaggerate the effect of any increase or decrease in the value of the Fund’s portfolio securities. The use of leverage also may cause the Fund to liquidate portfolio positions when it may not be advantageous to do so to satisfy its obligations or to maintain asset coverage.

In general, the Fund may not issue any class of senior security, except that the Fund may (i) borrow from banks, provided that immediately following any such borrowing there is an asset coverage of at least 300% for all Fund borrowings and in the event such asset coverage falls below 300% the Fund will within three days or such longer period as the SEC may prescribe by rules and regulations, reduce the amount of its borrowings to an extent that the asset coverage of such borrowings shall be at least 300%, and (ii) engage in trading practices which could be deemed to involve the issuance of a senior security, including but not limited to options, futures, forward contracts and reverse repurchase agreements, provided that the Fund earmarks or segregates liquid assets in accordance with applicable SEC regulations and interpretations.

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 OTC secondary market. The Fund will only invest in Brady Bonds consistent with quality specifications.

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

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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. 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.

Commercial Mortgage-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

11

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 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 a 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 s ignificant 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 investment grade by at least one nationally-recognized statistical rating organization (e.g., Baa or better by Moody’s or BBB or better by S&P. 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).

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

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

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

The Investment Adviser may consider an issuer to be from a particular country (including the United States) or geographic region if (i) its principal securities trading market is in that country or geographic region; (ii) alone or on a consolidated basis it derives 50% or more of its annual revenue from goods produced, sales made or services performed in that country or geographic region; or (iii) it is organized under the laws of, or has a principal office in that country or geographic region. By applying these tests, it is possible that a particular issuer could be deemed to be from more than one country or geographic region.

Emerging Market Securities.    An emerging market security is one issued by a foreign government or private issuer that has one or more of the following characteristics: (i) its principal securities trading market is in an emerging market or developing country, (ii) alone or on a consolidated basis it derives 50% or more of its annual revenue from goods produced, sales made or services performed in emerging markets or (iii) it is organized under the laws of, or has a principal office in, an emerging market or developing country. Based on these criteria it is possible for a security to be considered issued by an

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issuer in more than one country. Therefore, it is possible for the securities of any issuer that has one or more of these characteristics in connection with any emerging market or developing country not to be considered an emerging market security if it has one or more of these characteristics in connection with a developed country.

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

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

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

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

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

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

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use in the U.S. securities market and Depositary Receipts in bearer form are designed for use in securities markets outside the United States.

Depositary Receipts may be ‘‘sponsored’’ or ‘‘unsponsored.’’ Sponsored Depositary Receipts are established jointly by a depositary and the underlying issuer, whereas unsponsored Depositary Receipts may be established by a depositary without participation by the underlying issuer. Holders of unsponsored Depositary Receipts generally bear all the costs associated with establishing unsponsored Depositary Receipts. In addition, the issuers of the securities underlying unsponsored Depositary Receipts are not obligated to disclose material information in the United States and, therefore, there may be less information available regarding such issuers and there may not be a correlation between such information and the market value of the Depositary Receipts. For purposes of the Fund’s investment policies, the Fund’s investments in Depositary Receipts will be deemed to be an investment in the underlying securities, except that ADR s may be deemed to be issued by a U.S. issuer.

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

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

The Investment Adviser also may from time to time utilize forward contracts for other purposes. For example, they may be used to hedge a foreign security held in the portfolio or a security which pays out principal tied to an exchange rate between the U.S. dollar and a foreign currency, against a decline in value of the applicable foreign currency. They also may be used to lock in the current exchange rate of the currency in which those securities anticipated to be purchased are denominated. At times, the Fund may enter into ‘‘cross-currency’’ hedging transactions, which involve the sale of one currency against the positive exposure to a different currency. Cross currency hedges may be used for hedging purposes or to establish an active exposure to the exchange rate between any two currencies. For cross currency hedges, there is an additional risk to the extent that these transactions create exposure to currencies in which the Fund’s securities are no t denominated.

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

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

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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 of 1986, as amended (the ‘‘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.

Collateralized Mortgage Obligations (‘‘CMOs’’).    The Fund may invest in CMOs. 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.

Stripped Mortgage-Backed Securities.    In addition, the Fund may invest up to 10% of its net assets in 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 prepayment decreases.

Inverse Floaters.    The Fund may invest up to 10% of its net assets in inverse floating obligations (‘‘inverse floaters’’). An inverse floater has a coupon rate that moves in the direction opposite to that of a designated interest rate index. Like most other fixed-income securities, the value of inverse floaters will decrease as interest rates increase. They are more volatile, however, than most other fixed-income securities because the coupon rate on an inverse floater typically changes at a multiple of the change in the relevant index rate. Thus, any rise in the index rate (as a consequence of an increase in interest rates) causes a correspondingly greater drop in the coupon rate of an inverse floater while a drop in the index rate causes a correspondingly greater increase in the coupon of an inverse floater. Some inverse floaters may also increase or decrease subs tantially because of changes in the rate of prepayments.

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 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.

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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 may engage in swap options for hedging purposes or to manage and mitigate the credit and interest rate risk of the Fund. A swap option is a contract that gives a counterparty the right (but not the obligation) to enter into a new swap agreement or to shorten, extend, cancel or otherwise modify an existing swap agreement, at some designated future time on specified terms. The Fund may write (sell) and purchase put and call swap options. The use of swap options involves risks, including, among others, changes in the market value of securities held by the Fund, and of swap options relating to those securities may not be proportionate, (ii) there may not be a liquid market for the Fund to sell a swap option, which could result in difficulty closing a position, (iii) swap options can magnify the extent of losses incurred due to changes in the market value of the securities to which they relate and (iv) counterparty risk.

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. 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 Adviser 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, collat eralization 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 Adviser 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.

The Fund may enter into credit default swap contracts for hedging purposes, to add leverage to its portfolio or to gain exposure to a credit in which the Fund may otherwise invest. As the seller in a credit

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default swap contract, the Fund would be required to pay the par (or other agreed-upon) value of a referenced debt obligation to the counterparty in the event of a default by a third party, such as a U.S. or foreign corporate issuer, on the debt obligation. In return, the Fund would receive from the counterparty a periodic stream of payments over the term of the contract provided that no event of default has occurred. If no default occurs, the Fund would keep the stream of payments and would have no payment obligations. As the seller, the Fund would effectively add leverage to the Fund because, in addition to its total net assets, the Fund would be subject to investment exposure on the notional amount of the swap.

The Fund may also purchase credit default swap contracts in order to hedge against the risk of default of debt securities held in the Fund, in which case the Fund would function as the counterparty referenced in the preceding paragraph. This would involve the risk that the investment may expire worthless and would generate income only in the event of an actual default by the issuer of the underlying obligation (as opposed to a credit downgrade or other indication of financial instability). It would also involve credit risk that the seller may fail to satisfy its payment obligations to the Fund in the event of a default.

The Fund will earmark or segregate assets in the form of cash and cash equivalents in an amount equal to the aggregate market value of the credit default swaps of which it is the seller, marked to market on a daily basis.

Structured Products.    The Fund may invest a portion of its assets in structured investments, structured notes and other types of similarly structured products consistent with the Fund’s investment objectives and policies. Generally, structured investments are interests in entities organized and operated for the purpose of restructuring the investment characteristics of underlying investment interests or securities. These investment entities may be structured as trusts or other types of pooled investment vehicles. This type of restructuring generally involves the deposit with or purchase by an entity of the underlying investments and the issuance by that entity of one or more classes of securities backed by, or representing interests in, the underlying investments or referencing an indicator related to such investments. The cash flow or rate of return on the underlying investments may be apportioned among the newly issued securities to create different investment characteristics, such as varying maturities, credit quality, payment priorities and interest rate provisions. The cash flow or rate of return on a structured investment may be determined by applying a multiplier to the rate of total return on the underlying investments or referenced indicator.

Structured notes are derivative securities for which the amount of principal repayment and/or interest payments is based on the movement of one or more ‘‘factors.’’ These factors include, but are not limited to, currency exchange rates, interest rates (such as the prime lending rate or LIBOR), referenced bonds and stock indices. Some of these factors may or may not correlate to the total rate of return on one or more underlying instruments referenced in such notes. In some cases, the impact of the movements of these factors may increase or decrease through the use of multipliers or deflators. The Fund will use structured notes consistent with its investment objective and policies.

The cash flow or rate of return on a structured investment may be determined by applying a multiplier to the rate of total return on the underlying investments or referenced indicator. Application of a multiplier is comparable to the use of financial leverage, a speculative technique. Leverage magnifies the potential for gain and the risk of loss. As a result, a relatively small decline in the value of the underlying investments or referenced indicator could result in a relatively large loss in the value of a structured product. Holders of structured products bear risks of the underlying investments, index or reference obligation and are subject to counterparty risk. The Fund may have the right to receive payments to which it is entitled only from the structured product, and generally does not have direct rights against the issuer. While certain structured investment vehicles enable the investor to acquire interests in a pool of securities without the brokerage and other expenses associated with directly holding the same securities, investors in structured vehicles generally pay their share of the investment vehicle’s administrative and other expenses. Certain structured products may be thinly traded or have a limited trading market and may have the effect of increasing the Fund’s illiquidity to the extent that the Fund, at a particular point in time, may be unable to find qualified buyers for these securities.

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Investments in structured notes involve risks including interest rate risk, credit risk and market risk. Where the Fund’s investments in structured notes are based upon the movement of one or more factors, including currency exchange rates, interest rates, referenced bonds and stock indices, depending on the factor used and the use of multipliers or deflators, changes in interest rates and movement of the factor may cause significant price fluctuations. Additionally, changes in the reference instrument or security may cause the interest rate on the structured note to be reduced to zero and any further changes in the reference instrument may then reduce the principal amount payable on maturity. Structured notes may be less liquid than other types of securities and more volatile than the reference instrument or security underlying the note.

Loans of Portfolio Securities.    The Fund may lend its portfolio securities to brokers, dealers, banks and other institutional investors. By lending its portfolio securities, the Fund attempts to increase its net investment income through the receipt of interest on the cash collateral with respect to the loan or fees received from the borrower in connection with the loan. Any gain or loss in the market price of the securities loaned that might occur during the term of the loan would be for the account of the Fund. The Fund employs an agent to implement the securities lending program and the agent receives a fee from the Fund for its services. The Fund will not lend more than 33 1/3% of the value of its total assets.

The Fund may lend its portfolio securities so long as the terms, structure and the aggregate amount of such loans are not inconsistent with the Investment Company Act or the rules and regulations or interpretations of the SEC thereunder, which currently require that (i) the borrower pledge and maintain with the Fund collateral consisting of liquid, unencumbered assets having a value at all times not less than 100% of the value of the securities loaned; (ii) the borrower add to such collateral whenever the price of the securities loaned rises (i.e., the borrower ‘‘marks to market’’ on a daily basis); (iii) the loan be made subject to termination by the Fund at any time; and (iv) the Fund receive a reasonable return on the loan (which may include the Fund investing any cash collateral in interest bearing short-term investments), any distributions on the loaned securities and any increase in their market value. In addition, voting rights may pass with the loan ed securities, but the Fund will retain the right to call any security in anticipation of a vote that the Investment Adviser deems material to the security on loan.

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

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

To the extent that a convertible security’s investment value is greater than its conversion value, its price will be primarily a reflection of such investment value and its price will be likely to increase when interest rates fall and decrease when interest rates rise, as with a fixed-income security (the credit standing of the issuer and other factors may also have an effect on the convertible security’s value). If the conversion value exceeds the investment value, the price of the convertible security will rise above its investment value and, in addition, will sell at some premium over its conversion value. (This premium represents the price investors are willing to pay for the privilege of purchasing a fixed-income security

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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. 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.

Real Estate Investment Trusts (‘‘REITs’’).    REITs pool investors’ funds for investment primarily in real estate properties or real-estate related loans. REITs generally derive their income from rents on the underlying properties or interest on the underlying loans, and their value is impacted by changes in the value of the underlying property or changes in interest rates affecting the underlying loans owned by the REITs. REITs are more susceptible to risks associated with the ownership of real estate and the real estate industry in general. These risks can include fluctuations in the value of underlying properties; defaults by borrowers or tenants; market saturation; changes in general and local economic conditions; decreases in market rates for rents; increases in competition, property taxes, capital expenditures or operating expenses; and other economic, pol itical or regulatory occurrences affecting the real estate industry. In addition, REITs depend upon specialized management skills, may not be diversified (which may increase the volatility of a REIT’s value), may have less trading volume and may be subject to more abrupt or erratic price movements than the overall securities market. Furthermore, investments in REITs may involve duplication of management fees and certain other expenses, as the Fund indirectly bears its proportionate share of any expenses paid by REITs in which it invests. U.S. REITs are not taxed on income distributed to shareholders provided they comply with several requirements of the Code. U.S.  REITs are subject to the risk of failing to qualify for tax-free pass-through of income under the Code.

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

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

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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.

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 and Restricted Securities.    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, as amended (the ‘‘Securities Act’’), or which are otherwise not readily marketable. (Securities eligible for resale pursuant to Rule 144A under the Securities Act, and determined to be liquid pursuant to the procedures discussed in the following paragraph, are not subject to the foregoing restriction.) These securities are generally referred to as private placements or restricted securities. Limitations on the resale of these securities may have an adverse effect on their marketability, and may prevent the Fund from disposing of them promptly at reasonable prices. The Fund may have to bear the expense of registering the securities for resale and the risk of substantial delays in effecting the registration.

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

Private Investments in Public Equity.    The Fund may purchase equity securities in a private placement that are issued by issuers who have outstanding, publicly-traded equity securities of the same class (‘‘private investments in public equity’’ or ‘‘PIPES’’). Shares in PIPES generally are not registered with the SEC until after a certain time period from the date the private sale is completed. This restricted period can last many months. Until the public registration process is completed, PIPES are restricted as to resale and the Fund cannot freely trade the securities. Generally, such restrictions cause the PIPES to be illiquid during this time. PIPES may contain provisions that the issuer will pay specified financial penalties to the holder if the issuer does not publicly register the restricted equity securities within a specified period o f time, but there is no assurance that the restricted equity securities will be publicly registered, or that the registration will remain in effect.

Limited Partnerships.    A limited partnership interest entitles the Fund to participate in the investment return of the partnership’s assets as defined by the agreement among the partners. As a limited partner, the Fund generally is not permitted to participate in the management of the partnership. However, unlike a general partner whose liability is not limited, a limited partner’s liability generally is limited to the amount of its commitment to the partnership.

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

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

Investment Company Securities.    Investment company securities are securities of other open-end, closed-end and unregistered investment companies, including foreign investment companies and exchange-traded funds. The Fund may invest in investment company securities as may be permitted by (i) the Investment Company Act, as amended from time to time; (ii) the rules and regulations promulgated

20

by the SEC under the Investment Company Act, as amended from time to time; or (iii) an exemption or other relief applicable to the Fund from provisions of the Investment Company Act, as amended from time to time. The Investment Company Act generally prohibits an investment company from acquiring more than 3% of the outstanding voting shares of an investment company and limits such investments to no more than 5% of a portfolio’s total assets in any one investment company, and no more than 10% in any combination of investment companies. The Fund may invest in investment company securities of investment companies managed by the Investment Adviser or its affiliates to the extent permitted under the Investment Company Act or as otherwise authorized by the SEC. To the extent the Fund invests a portion of its assets in investment company securities, those assets will be subject to the risks of the purchased investment company’s portfolio securities, and a shareholder in the Fund will bear not only his p roportionate share of the expenses of the Fund, but also, indirectly the expenses of the purchased investment company.

To the extent permitted by applicable law, the Fund may invest all or some of its short term cash investments in any money market fund advised or managed by the Investment Adviser or its affiliates. In connection with any such investments, the Fund, to the extent permitted by the Investment Company Act, will pay its share of all expenses (other than advisory and administrative fees) of a money market fund in which it invests which may result in the Fund bearing some additional expenses.

Exchange-Traded Funds (ETFs).    The Fund may invest in shares of various ETFs, including exchange-traded index and bond funds. Exchange-traded index funds seek to track the performance of various securities indices. Shares of ETFs have many of the same risks as direct investments in common stocks or bonds. In addition, their market value is expected to rise and fall as the value of the underlying index or bond rises and falls. The market value of their shares may differ from the net asset value of the particular fund. As a shareholder in an ETF (as with other investment companies), the Fund would bear its ratable share of that entity’s expenses. At the same time, the Fund would continue to pay its own investment management fees and other expenses. As a result, the Fund and its shareholders, in effect, will be absorbing duplicate levels of fees with respect to investments in other investment companies.

C.    Fund Policies/Investment Restrictions

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

The Fund will:

1.	Seek to provide capital growth with reasonable current income.

The Fund will not:

1.

Invest in a manner inconsistent with its classification as a ‘‘diversified company’’ as provided by (i) the Investment Company Act, as amended from time to time, (ii) the rules and regulations promulgated by the SEC under the Investment Company Act, as amended from time to time, or (iii) an exemption or other relief applicable to the Fund from the provisions of the Investment Company Act, as amended from time to time.

2.	Borrow money, except the Fund may borrow money to the extent permitted by (i) the Investment Company Act, as amended from time to time, (ii) the rules and regulations promulgated by the SEC under the Investment Company Act, as amended from time to time, or (iii) an exemption or other relief applicable to the Fund from the provisions of the Investment Company Act, as amended from time to time.

21

3.

Make loans of money or property to any person, except (a) to the extent that securities or interests in which the Fund may invest are considered to be loans, (b) through the loan of portfolio securities, (c) by engaging in repurchase agreements or (d) as may otherwise be permitted by (i) the Investment Company Act, as amended from time to time, (ii) the rules and regulations promulgated by the SEC under the Investment Company Act, as amended from time to time, or (iii) an exemption or other relief applicable to the Fund from the provision of the Investment Company Act, as amended from time to time.

4.

Purchase or sell physical commodities unless acquired as a result of ownership of securities or other instruments; provided that this restriction shall not prohibit the Fund from purchasing or selling options, futures contracts and related options thereon, forward contracts, swaps, caps, floors, collars and any other financial instruments or from investing in securities or other instruments backed by physical commodities or as otherwise permitted by (i) the Investment Company Act, as amended from time to time, (ii) the rules and regulations promulgated by the SEC under the Investment Company Act, as amended from time to time, or (iii) an exemption or other relief applicable to the Fund from the provisions of the Investment Company Act, as amended from time to time.

5.

Issue senior securities, except the Fund may issue senior securities to the extent permitted by (i) the Investment Company Act, as amended from time to time, (ii) the rules and regulations promulgated by the SEC under the Investment Company Act, as amended from time to time, or (iii) an exemption or other relief applicable to the Fund from the provisions of the Investment Company Act, as amended from time to time.

6.	Purchase or sell real estate or interests therein (including limited partnership interests), although the Fund may purchase securities of issuers which engage in real estate operations and securities secured by real estate or interests therein.

7.	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.

8.	Invest 25% or more of the value of its total assets in securities of issuers in any one industry. This restriction does not apply to obligations issued or guaranteed by the United States Government, its agencies or instrumentalities.

In addition, as non-fundamental policies, which can be changed with Board approval and without shareholder vote, the Fund will not:

1.    Invest more than 5% of the value of its net assets in warrants, including not more than 2% of such assets in warrants not listed on the New York or American Stock Exchange. However, the acquisition of warrants attached to other securities is not subject to this restriction.

2.    Invest in other investment companies in reliance on Sections 12(d)(1)(F), 12(d)(1)(G) or 12(d)(1)(J) of the Investment Company Act.

3.    Make short sales of securities, except short sales against the box.

4.    Invest its assets in the securities of any investment company except as may be permitted by (i) the Investment Company Act, as amended from time to time; (ii) the rules and regulations promulgated by the SEC under the Investment Company Act, as amended from time to time; or (iii) an exemption or other relief applicable to the Fund from the provisions of the Investment Company Act, as amended from time to time.

The Fund has an operating policy, which may be changed by the Fund’s Board of Trustees, not to borrow except from a bank for temporary or emergency purposes in amounts not exceeding 5% (taken at the lower of cost or current value) of its total assets (not including the amount borrowed).

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

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D.    Disclosure of Portfolio Holdings

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

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

•	complete portfolio holdings information quarterly, at least 31 calendar days after the end of each calendar quarter; and

•	top 10 (or top 15) holdings monthly, at least 15 business days after the end of each month.

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

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

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

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

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

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

23

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

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

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

Name

Information Disclosed

Frequency(1)

Lag Time

Service Providers

Institutional Shareholder Services (ISS) (proxy voting agent)(*)

Complete portfolio holdings

Daily

(2)

FT Interactive Data Pricing Service Provider(*)

Complete portfolio holdings

As needed

(2)

Morgan Stanley Trust(*)

Complete portfolio holdings

As needed

(2)

State Street Bank and Trust Company(*)

Complete portfolio holdings

As needed

(2)

Fund Rating Agencies

Lipper(*)

Top ten and complete portfolio holdings

Quarterly basis

Approximately 15 days after quarter end and approximately 30 days after quarter end

Morningstar(**)

Top ten and complete portfolio holdings

Quarterly basis

Approximately 15 days after quarter end and approximately 30 days after quarter end

Standard & Poor’s(*)

Complete portfolio holdings

Quarterly basis

Approximately 15 day lag

Investment Company Institute(**)

Top ten portfolio holdings

Quarterly basis

Approximately 15 days after quarter end

Consultants and Analysts

Americh Massena & Associates, Inc.(*)

Top ten and complete portfolio holdings

Quarterly basis(5)

Approximately 10-12 days after quarter end

Bloomberg(**)

Complete portfolio holdings

Quarterly basis

Approximately 30 days after quarter end

Callan Associates(*)

Top ten and complete portfolio holdings

Monthly and quarterly basis, respectively(5)

Approximately 10-12 days after month/quarter end

Cambridge Associates(*)

Top ten and complete portfolio holdings

Quarterly basis(5)

Approximately 10-12 days after quarter end

Citigroup(*)

Complete portfolio holdings

Quarterly basis(5)

At least one day after quarter end

Credit Suisse First Boston(*)

Top ten and complete portfolio holdings

Monthly and quarterly basis, respectively

Approximately 10-12 days after month/quarter end

CTC Consulting, Inc.(**)

Top ten and complete portfolio holdings

Quarterly basis

Approximately 15 days after quarter end and approximately 30 days after quarter end, respectively

24

Name

Information Disclosed

Frequency(1)

Lag Time

Evaluation Associates(*)

Top ten and complete portfolio holdings

Monthly and quarterly basis, respectively(5)

Approximately 10-12 days after month/quarter end

Fund Evaluation Group(**)

Top ten portfolio holdings(3)

Quarterly basis

At least 15 days after quarter end

Jeffrey Slocum & Associates(*)

Complete portfolio holdings(4)

Quarterly basis(5)

Approximately 10-12 days after quarter end

Hammond Associates(**)

Complete portfolio holdings(4)

Quarterly basis

At least 30 days after quarter end

Hartland & Co.(**)

Complete portfolio holdings(4)

Quarterly basis

At least 30 days after quarter end

Hewitt Associates(*)

Top ten and complete portfolio holdings

Monthly and quarterly basis, respectively(5)

Approximately 10-12 days after month/quarter end

Merrill Lynch(*)

Top ten and complete portfolio holdings

Monthly and quarterly basis, respectively(5)

Approximately 10-12 days after month/quarter end

Mobius(**)

Top ten portfolio holdings(3)

Monthly basis

At least 15 days after month end

Nelsons(**)

Top ten portfolio holdings(3)

Quarterly basis

At least 15 days after quarter end

Prime Buchholz & Associates, Inc.(**)

Complete portfolio holdings(4)

Quarterly basis

At least 30 days after quarter end

PSN(**)

Top ten portfolio holdings(3)

Quarterly basis

At least 15 days after quarter end

PFM Asset Management LLC(*)

Top ten and complete portfolio holdings

Quarterly basis(5)

Approximately 10-12 days after quarter end

Russell Investment Group/Russell/Mellon Analytical Services, Inc.(**)

Top ten and complete portfolio holdings

Monthly and quarterly basis

At least 15 days after month end and at least 30 days after quarter end, respectively

Stratford Advisory Group, Inc.(*)

Top ten portfolio holdings(6)

Quarterly basis(5)

Approximately 10-12 days after quarter end

Thompson Financial(**)

Complete portfolio holdings(4)

Quarterly basis

At least 30 days after quarter end

Watershed Investment Consultants, Inc.(*)

Top ten and complete portfolio holdings

Quarterly basis(5)

Approximately 10-12 days after quarter end

Yanni Partners(**)

Top ten portfolio holdings(3)

Quarterly basis

At least 15 days after quarter end

Portfolio Analytics Providers

Fact Set(*)

Complete portfolio holdings

Daily

One day

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

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

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

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

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

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

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

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

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

All selective disclosures of non-public portfolio holdings information made to third parties pursuant to the exemptions set forth in the Policy must be pre-approved by both the PHRC and the Fund’s Board

25

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

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

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

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

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

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

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

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

III.    MANAGEMENT OF THE FUND

A.    Board of Trustees

The Board of Trustees of the Fund oversees the management of the Fund but does not itself manage the Fund. The Trustees review various services provided by or under the direction of the Investment Adviser to ensure that the Fund’s general investment policies and programs are properly

26

carried out. The Trustees also conduct their review to ensure that administrative services are provided to the Fund in a satisfactory manner.

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

B.    Management Information

Trustees and Officers.    The Board of the Fund consists of 10 Trustees. These same individuals also serve as directors or trustees for certain of the funds advised by the Investment Adviser (the ‘‘Retail Funds’’) and certain of the funds advised by Morgan Stanley Investment Management Inc. and Morgan Stanley AIP GP LP (the ‘‘Institutional Funds’’). Nine Trustees have no affiliation or business connection with the Investment Adviser or any of its affiliated persons and do not own any stock or other securities issued by the Investment Adviser’s parent company, Morgan Stanley. These are the ‘‘non-interested’’ or ‘‘Independent’’ Trustees. The other Trustee (the ‘‘Interested Trustee’’) is affiliated with the Investment Adviser.

Independent Trustees.    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, 2007) and other directorships, if any, held by the Trustees, are shown below. The Fund Complex includes all open-end and closed-end funds (including all of their portfolios) advised by the Investment Adviser and any funds that have an investment adviser that is an affiliated person of the Investment Adviser (including, but not limited to, Morgan Stanley Investment Management Inc.).

Independent Trustees:

Name, Age and Address of Independent Trustee

Position(s) Held with Registrant

Length of Time Served*

Principal Occupation(s) During Past 5 Years

Number of Portfolios in Fund Complex Overseen by Independent Trustee

Other Directorships Held by Independent Trustee

Frank L. Bowman (63) c/o Kramer Levin Naftalis & Frankel LLP Counsel to the Independent Trustees 1177 Avenue of the Americas New York, NY 10036

Trustee

Since August 2006

President and Chief Executive Officer, Nuclear Energy Institute (policy organization) (since February 2005); Director or Trustee of various Retail Funds and Institutional Funds (since August 2006); Chairperson of the Insurance Sub-Committee of the Insurance, Valuation and Compliance Committee (since February 2007); formerly, variously, Admiral in the U.S. Navy, Director of Naval Nuclear Propulsion Program and Deputy Administrator – Naval Reactors in the National Nuclear Security Administration at the U.S. Department of Energy (1996- 2004). Honorary Knight Commander of the Most Excellent Order of the British Empire.

180

Director of the National Energy Foundation, the U.S. Energy Association, the American Council for Capital Formation and the Armed Services YMCA of the USA.

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

27

Name, Age and Address of Independent Trustee

Position(s) Held with Registrant

Length of Time Served*

Principal Occupation(s) During Past 5 Years

Number of Portfolios in Fund Complex Overseen by Independent Trustee

Other Directorships Held by Independent Trustee

Michael Bozic (67) c/o Kramer Levin Naftalis & Frankel LLP Counsel to the Independent Trustees 1177 Avenue of the Americas New York, NY 10036

Trustee

Since April 1994

Private investor; Chairperson of the Insurance, Valuation and Compliance Committee (since October 2006); Director or Trustee of the Retail Funds (since April 1994) and the Institutional Funds (since July 2003); formerly, Chairperson of the Insurance Committee (July 2006-September 2006); Vice Chairman of Kmart Corporation (December 1998-October 2000), Chairman and Chief Executive Officer of Levitz Furniture Corporation (November 1995-November 1998) and President and Chief Executive Officer of Hills Department Stores (May 1991-July 1995); variously Chairman, Chief Executive Officer, President and Chief Operating Officer (1987- 1991) of the Sears Merchandise Group of Sears, Roebuck & Co.

182

Director of various business organizations.

Kathleen A. Dennis (54) c/o Kramer Levin Naftalis & Frankel LLP Counsel to the Independent Trustees 1177 Avenue of the Americas New York, NY 10036

Trustee

Since August 2006

President, Cedarwood Associates (mutual fund and investment management) (since July 2006); Chairperson of the Money Market and Alternatives Sub-Committee of the Investment Committee (since October 2006) and Director or Trustee of various Retail Funds and Institutional Funds (since August 2006); formerly, Senior Managing Director of Victory Capital Management (1993-2006).

180

Director of various non-profit organizations.

Dr. Manuel H. Johnson (59) c/o Johnson Smick Group, Inc. 888 16th Street, N.W. Suite 740 Washington, D.C. 20006

Trustee

Since July 1991

Senior Partner, Johnson Smick International, Inc. (consulting firm); Chairperson of the Investment Committee (since October 2006) and Director or Trustee of the Retail Funds (since July 1991) and Institutional Funds (since July 2003); Co-Chairman and a founder of the Group of Seven Council (G7C) (international economic commission); formerly, Chairperson of the Audit Committee (July 1991-September 2006); Vice Chairman of the Board of Governors of the Federal Reserve System and Assistant Secretary of the U.S. Treasury.

182

Director of NVR, Inc. (home construction); Director of Evergreen Energy.

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

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Name, Age and Address of Independent Trustee

Position(s) Held with Registrant

Length of Time Served*

Principal Occupation(s) During Past 5 Years

Number of Portfolios in Fund Complex Overseen by Independent Trustee

Other Directorships Held by Independent Trustee

Joseph J. Kearns (65) c/o Kearns & Associates LLC PMB754 23852 Pacific Coast Highway Malibu, CA 90265

Trustee

Since August 1994

President, Kearns & Associates LLC (investment consulting); Chairperson of the Audit Committee (since October 2006) and Director or Trustee of the Retail Funds (since July 2003) and the Institutional Funds (since August 1994); formerly, Deputy Chairperson of the Audit Committee (July 2003-September 2006) and Chairperson of the Audit Committee of the Institutional Funds (October 2001-July 2003); CFO of the J. Paul Getty Trust.

183

Director of Electro Rent Corporation (equipment leasing) and The Ford Family Foundation.

Michael F. Klein (49) c/o Kramer Levin Naftalis & Frankel LLP Counsel to the Independent Trustees 1177 Avenue of the Americas New York, NY 10036

Trustee

Since August 2006

Managing Director, Aetos Capital, LLC (since March 2000) and Co-President, Aetos Alternatives Management, LLC (since January 2004); Chairperson of the Fixed Income Sub-Committee of the Investment Committee (since October 2006) and Director or Trustee of various Retail Funds and Institutional Funds (since August 2006); formerly, Managing Director, Morgan Stanley & Co. Inc. and Morgan Stanley Dean Witter Investment Management, President, Morgan Stanley Institutional Funds (June 1998- March 2000) and Principal, Morgan Stanley & Co. Inc. and Morgan Stanley Dean Witter Investment Management (August 1997-December 1999).

180

Director of certain investment funds managed or sponsored by Aetos Capital, LLC. Director of Sanitized AG and Sanitized Marketing AG (specialty chemicals).

Michael E. Nugent (72) c/o Triumph Capital, L.P. 445 Park Avenue New York, NY 10022

Chairperson of the Board and Trustee

Chairperson of the Boards since July 2006 and Trustee since July 1991

General Partner, Triumph Capital, L.P. (private investment partnership); Chairperson of the Boards of the Retail Funds and Institutional Funds (since July 2006); Director or Trustee of the Retail Funds (since July 1991) and Institutional Funds (since July 2001); formerly, Chairperson of the Insurance Committee (until July 2006).

182

None.

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

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Name, Age and Address of Independent Trustee

Position(s) Held with Registrant

Length of Time Served*

Principal Occupation(s) During Past 5 Years

Number of Portfolios in Fund Complex Overseen by Independent Trustee

Other Directorships Held by Independent Trustee

W. Allen Reed (61) c/o Kramer Levin Naftalis & Frankel LLP Counsel to the Independent Trustees 1177 Avenue of the Americas New York, NY 10036

Trustee

Since August 2006

Chairperson of the Equity Sub-Committee of the Investment Committee (since October 2006) and Director or Trustee of various Retail Funds and Institutional Funds (since August 2006); formerly, President and CEO of General Motors Asset Management; Chairman and Chief Executive Officer of the GM Trust Bank and Corporate Vice President of General Motors Corporation (August 1994- December 2005).

180

Director of Temple-Inland Industries (packaging and forest products); Director of Legg Mason, Inc. and Director of the Auburn University Foundation.

Fergus Reid (75) c/o Lumelite Plastics Corporation 85 Charles Colman Blvd. Pawling, NY 12564

Trustee

Since June 1992

Chairman of Lumelite Plastics Corporation; Chairperson of the Governance Committee and Director or Trustee of the Retail Funds (since July 2003) and Institutional Funds (since June 1992).

183

Trustee and Director of certain investment companies in the JPMorgan Funds complex managed by J.P. Morgan Investment Management Inc.

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

The Trustee who is affiliated with the Investment Adviser or affiliates of the Investment Adviser (as set forth below) and executive officers of the Fund, their age, address, term of office and length of time served, their principal business occupations during the past five years, the number of portfolios in the Fund Complex overseen by the Interested Trustee (as of December 31, 2007) and the other directorships, if any, held by the Interested Trustee, are shown below.

Interested Trustee:

Name, Age and Address of Interested Trustee

Position(s) Held with Registrant

Length of Time Served*

Principal Occupation(s) During Past 5 Years

Number of Portfolios in Fund Complex Overseen by Interested Trustee

Other Directorships Held by Interested Trustee

James F. Higgins (60) c/o Morgan Stanley Trust Harborside Financial Center Plaza Two Jersey City, NJ 07311

Trustee

Since June 2000

Director or Trustee of the Retail Funds (since June 2000) and Institutional Funds (since July 2003); Senior Advisor of Morgan Stanley (since August 2000).

181

Director of AXA Financial, Inc. and The Equitable Life Assurance Society of the United States (financial services).

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

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Executive Officers:

Name, Age and Address of Executive Officer

Position(s) Held with Registrant

Length of Time Served*

Principal Occupation(s) During Past 5 Years

Ronald E. Robison (69) 522 Fifth Avenue New York, NY 10036

President and Principal Executive Officer

President since September 2005 and Principal Executive Officer since May 2003

President (since September 2005) and Principal Executive Officer (since May 2003) of funds in the Fund Complex; President (since September 2005) and Principal Executive Officer (since May 2003) of the Van Kampen Funds; Managing Director, Director and/or Officer of the Investment Adviser and various entities affiliated with the Investment Adviser; Director of Morgan Stanley SICAV (since May 2004). Formerly, Executive Vice President (July 2003 to September 2005) of funds in the Fund Complex and the Van Kampen Funds; President and Director of the Institutional Funds (March 2001 to July 2003); Chief Administrative Officer of the Investment Adviser; Chief Administrative Officer of Morgan Stanley Services Company Inc.

Dennis F. Shea (55) 522 Fifth Avenue New York, NY 10036

Vice President

Since February 2006

Managing Director and (since February 2006) Chief Investment Officer – Global Equity of Morgan Stanley Investment Management; Vice President of the Retail Funds and Institutional Funds (since February 2006). Formerly, Managing Director and Director of Global Equity Research at Morgan Stanley.

Amy R. Doberman (46) 522 Fifth Avenue New York, NY 10036

Vice President

Since July 2004

Managing Director and General Counsel, U.S. Investment Management of Morgan Stanley Investment Management (since July 2004); Vice President of the Retail Funds and Institutional Funds (since July 2004); Vice President of the Van Kampen Funds (since August 2004); Secretary (since February 2006) and Managing Director (since July 2004) of the Investment Adviser and various entities affiliated with the Investment Adviser. Formerly, Managing Director and General Counsel – Americas, UBS Global Asset Management (July 2000 to July 2004).

Carsten Otto (44) 522 Fifth Avenue New York, NY 10036

Chief Compliance Officer

Since October 2004

Managing Director and Global Head of Compliance for Morgan Stanley Investment Management (since April 2007) and Chief Compliance Officer of the Retail Funds and Institutional Funds (since October 2004). Formerly, U.S. Director of Compliance (October 2004-April 2007) and Assistant Secretary and Assistant General Counsel of the Retail Funds.

Stefanie V. Chang Yu (41) 522 Fifth Avenue New York, NY 10036

Vice President

Since December 1997

Managing Director of the Investment Adviser and various entities affiliated with the Investment Adviser; Vice President of the Retail Funds (since July 2002) and the Institutional Funds (since December 1997). Formerly, Secretary of various entities affiliated with the Investment Adviser.

Francis J. Smith (42) c/o Morgan Stanley Trust Harborside Financial Center Plaza Two Jersey City, NJ 07311

Treasurer and Chief Financial Officer

Treasurer since July 2003 and Chief Financial Officer since September 2002

Executive Director of the Investment Adviser and various entities affiliated with the Investment Adviser; Treasurer and Chief Financial Officer of the Retail Funds (since July 2003). Formerly, Vice President of the Retail Funds (September 2002 to July 2003).

Mary E. Mullin (41) 522 Fifth Avenue New York, NY 10036

Secretary

Since June 1999

Executive Director of the Investment Adviser and various entities affiliated with the Investment Adviser; Secretary of the Retail Funds (since July 2003) and the Institutional Funds (since June 1999).

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

In addition, the following individuals who are officers of the Investment Adviser or its affiliates serve as assistant secretaries of the Fund: Joanne Antico, Joseph C. Benedetti, Daniel E. Burton, Joanne Doldo, Tara A. Farrelly, Alice J. Gerstel, Eric C. Griffith, Lou Anne D. McInnis, Edward J. Meehan, Elisa Mitchell, Elizabeth Nelson, Debra Rubano, Sheri L. Schreck and Julien H. Yoo.

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For each Trustee, the dollar range of equity securities beneficially owned by the Trustee in the Fund and in the Family of Investment Companies (Family of Investment Companies includes all of the registered investment companies advised by the Investment Adviser, Morgan Stanley Investment Management Inc. and Morgan Stanley AIP GP LP) for the calendar year ended December 31, 2007, is set forth in the table below.

Name of Trustee				Dollar Range of Equity Securities in the Fund (As of December 31, 2007)				Aggregate Dollar Range of Equity Securities in All Registered Investment Companies Overseen by Trustee in Family of Investment Companies (As of December 31, 2007)
Independent:
Frank L. Bowman(1)				None				over $100,000
Michael Bozic				None				over $100,000
Kathleen A. Dennis				None				over $100,000
Manuel H. Johnson				None				over $100,000
Joseph J. Kearns(1)				None				over $100,000
Michael F. Klein				None				over $100,000
Michael E. Nugent				over $100,000				over $100,000
W. Allen Reed(1)				None				over $100,000
Fergus Reid(1)				None				over $100,000
Interested:
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 a portfolio thereof) that are offered as investment options under the plan.

As to each Independent Trustee and his immediate family members, no person owned beneficially or of record securities in an investment adviser 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 adviser 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. The Board has four Committees: (1) Audit Committee, (2) Governance Committee, (3) Insurance, Valuation and Compliance Committee and (4) Investment Committee. Three of the Independent Trustees serve as members of the Audit Committee, three Independent Trustees serve as members of the Governance Committee, four Trustees, includ ing three Independent Trustees, serve as members of the Insurance, Valuation and Compliance Committee and all of the Trustees serve as members of the Investment Committee.

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

The Board of Trustees has a separately-designated standing Audit Committee established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended. The Audit Committee is charged with recommending to the full Board the engagement or discharge of the Fund’s independent registered public accounting firm; directing investigations into matters within the scope of the independent registered public accounting firm’s duties, including the power to retain outside

32

specialists; reviewing with the independent registered public accounting firm the audit plan and results of the auditing engagement; approving professional services provided by the independent registered public accounting firm and other accounting firms prior to the performance of the services; reviewing the independence of the independent registered public accounting firm; considering the range of audit and non-audit fees; reviewing the adequacy of the Fund’s system of internal controls; and preparing and submitting committee meeting minutes to the full Board. The Fund has adopted a formal, written Audit Committee Charter. During the Fund’s fiscal year ended January 31, 2008, the Audit Committee held seven meetings.

The members of the Audit Committee of the Fund are Joseph J. Kearns, Michael E. Nugent and W. Allen Reed. None of the members of the Fund’s Audit Committee is an ‘‘interested person,’’ as defined under the Investment Company Act, of the Fund (with such disinterested Trustees being ‘‘Independent Trustees’’ or individually ‘‘Independent Trustee’’). Each Independent Trustee is also ‘‘independent’’ from the Fund under the listing standards of the New York Stock Exchange, Inc. (‘‘NYSE’’). The Chairperson of the Audit Committee of the Fund is Joseph J. Kearns.

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 Kathleen A. Dennis, Michael F. Klein and Fergus Reid, each of whom is an Independent Trustee. The Chairperson of the Governance Committee is Fergus Reid. During the Fund’s fiscal year ended January 31, 2008, the Governance Committee held four meetings.

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

The Board formed an Insurance, Valuation and Compliance Committee to review the valuation process, address insurance coverage and oversee the compliance function for the Fund and the Board. The Insurance, Valuation and Compliance Committee consists of Frank L. Bowman, Michael Bozic, Manuel H. Johnson, and James F. Higgins. Frank L. Bowman, Michael Bozic and Manuel H. Johnson are Independent Trustees. The Chairperson of the Insurance, Valuation and Compliance Committee is Michael Bozic. The Insurance, Valuation and Compliance Committee has an Insurance Sub-Committee to review and monitor the insurance coverage maintained by the Fund. The Chairperson of the Insurance Sub-Committee is Frank L. Bowman. The Insurance, Valuation and Compliance Committee and the Insurance Sub-Committee were formed in October 2006 and February 2007, respectively. During the

33

Fund’s fiscal year ended January 31, 2008, the Insurance, Valuation and Compliance Committee and Insurance Sub-Committee of the Insurance, Valuation and Compliance Committee held four meetings and one meeting, respectively.

The Investment Committee oversees the portfolio investment process for and reviews the performance of the Fund. The Investment Committee also recommends to the Board to approve or renew the Fund’s Investment Advisory and Administration Agreements. The members of the Investment Committee are Frank L. Bowman, Michael Bozic, Kathleen A. Dennis, James F. Higgins, Manuel H. Johnson, Joseph J. Kearns, Michael F. Klein, Michael E. Nugent, W. Allen Reed and Fergus Reid. The Chairperson of the Investment Committee is Manuel H. Johnson.

The Investment Committee has three Sub-Committees, each with its own Chairperson. Each Sub-Committee focuses on the funds’ primary areas of investment, namely equities, fixed income and alternatives. The Sub-Committees and their members are as follows:

(1) Equity – W. Allen Reed (Chairperson), Frank L. Bowman and Michael E. Nugent.

(2) Fixed Income – Michael F. Klein (Chairperson), Michael Bozic and Fergus Reid.

(3) Money Market and Alternatives – Kathleen A. Dennis (Chairperson), James F. Higgins and Joseph J. Kearns.

During the Fund’s fiscal year ended January 31, 2008, the Investment Committee and Sub-Committees of the Investment Committee each held four meetings, with the exception of the Money Market and Alternatives Sub-Committee which held five meetings.

There were eight meetings of the Board of Trustees of the Fund held during the fiscal year ended January 31, 2008.

Advantages of Having Same Individuals as Trustees for the Retail Funds and Institutional Funds.    The Independent Trustees and the Fund’s management believe that having the same Independent Trustees for each of the Retail Funds and Institutional Funds avoids the duplication of effort that would arise from having different groups of individuals serving as Independent Trustees for each of the funds or even of sub-groups of funds. They believe that having the same individuals serve as Independent Trustees of all the Retail Funds and Institutional Funds tends to increase their knowledge and expertise regarding matters which affect the Fund Complex generally and enhances their ability to negotiate on behalf of each fund with the fund’s service providers. This arrangement also precludes the possibility of separate groups of Independent Trustees arriving at conflicting decisions regard ing 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

34

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 October 1, 2007, each Trustee (except for the Chairperson of the Boards) receives an annual retainer fee of $200,000 for serving the Retail Funds and the Institutional Funds. Prior to October 1, 2007, each Trustee (except for the Chairperson of the Boards) received an annual retainer fee of $180,000 for serving the Retail Funds and the Institutional Funds.

The Chairperson of the Audit Committee receives an additional annual retainer fee of $75,000 and the Investment Committee Chairperson receives an additional annual retainer fee of $60,000. Other Committee Chairpersons receive an additional annual retainer fee of $30,000 and the Sub-Committee Chairpersons receive an additional annual retainer fee of $15,000. The aggregate compensation paid to each Trustee is paid by the Retail Funds and the Institutional Funds, and is allocated on a pro rata basis among each of the operational funds/portfolios of the Retail Funds and the Institutional Funds based on the relative net assets of each of the funds/portfolios. Michael E. Nugent receives a total annual retainer fee of $400,000 ($360,000 prior to October 1, 2007) for his services as Chairperson of the Boards of the Retail Funds and the Institutional Funds and for administrative services provided to each Board.

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

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

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

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The following table shows aggregate compensation payable to each of the Fund’s Trustees from the Fund for the fiscal year ended January 31, 2008 and the aggregate compensation payable to each of the funds’ Trustees by the Fund Complex (which includes all of the Retail Funds and Institutional Funds) for the calendar year ended December 31, 2007.

Compensation⁽¹⁾

Name of Independent Trustee:				Aggregate Compensation from the Fund(2)				Total Compensation from Fund and Fund Complex Paid to Trustee(3)
Frank L. Bowman(2)				$520				$  197,500
Michael Bozic				549				215,000
Kathleen A. Dennis				517				200,000
Manuel H. Johnson				624				245,000
Joseph J. Kearns(2)				663				268,125
Michael F. Klein				517				200,000
Michael E. Nugent				947				370,000
W. Allen Reed(2)				516				200,000
Fergus Reid				549				223,125
Name of Interested Trustee:
James F. Higgins(4)				474				140,000

(1)	Includes all amounts paid for serving as director/trustee of the funds, as well as serving as Chairperson of the Boards or a Chairperson of a Committee or Sub-Committee.

(2)	The amounts shown in this column represent the aggregate compensation before deferral with respect to the Fund’s fiscal year. The following Trustees deferred compensation from the Fund during the fiscal year ended January 31, 2008: Mr. Bowman, $520; Mr. Kearns, $331; Mr. Reed, $516.

(3)

The amounts shown in this column represent the aggregate compensation paid by all of the funds in the Fund Complex as of December 31, 2007 before deferral by the Trustees under the DC Plan. As of December 31, 2007, the value (including interest) of the deferral accounts across the Fund Complex for Messrs. Bowman, Kearns, Reed and Reid pursuant to the deferred compensation plans was $280,314, $1,090,394, $207,268 and $904,961, respectively. Because the funds in the Fund Complex have different fiscal year ends, the amounts shown in this column are presented on a calendar year basis.

(4)	Mr. Higgins was approved to receive an annual retainer at the February 20-21, 2007 Board Meeting.

Prior to December 31, 2003, 49 of the Retail Funds (the ‘‘Adopting Funds’’), not including the Fund, had adopted a retirement program under which an Independent Trustee who retired after serving for at least five years as an Independent Trustee of any such fund (an ‘‘Eligible Trustee’’) would have been entitled to retirement payments, based on factors such as length of service, upon reaching the eligible retirement age. On December 31, 2003, the amount of accrued retirement benefits for each Eligible Trustee was frozen, and will be payable, together with a return of 8% per annum, at or following each such Eligible Trustee’s retirement as shown in the table below.

The following table illustrates the retirement benefits accrued to the Fund’s Independent Trustees by the Adopting Funds for the calendar year ended December 31, 2007, and the estimated retirement benefits for the Independent Trustees from the Adopting Funds for each calendar year following retirement. Only the Trustees listed below participated in the retirement program.

Name of Independent Trustee:				Retirement benefits accrued as fund expenses By all Adopting Funds				Estimated annual benefits upon retirement(1) From all Adopting Funds
Michael Bozic				$17,614				$45,874
Manuel H. Johnson				18,586				67,179
Michael E. Nugent				29,524				60,077

(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.

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IV.    CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES

The following owned beneficially or of record 5% or more of the outstanding Class A shares of the Fund as of May 1, 2008: Morgan Stanley & Co., Harborside Financial Center, Jersey City, NJ 07311 — 81.20%. The following owned beneficially or of record 5% or more of the outstanding Class B shares of the Fund as of May 1, 2008: Morgan Stanley & Co., Harborside Financial Center, Jersey City, NJ 07311 — 80.42%. The following owned beneficially or of record 5% or more of the outstanding Class C shares of the Fund as of May 1, 2008: Morgan Stanley & Co., Harborside Financial Center, Jersey City, NJ 07311 — 88.90%. The following owned beneficially or of record 5% or more of the outstanding Class I shares of the Fund as of May 1, 2008: Morgan Stanley & Co., Harborside Financial Center, Jersey City, NJ 07311 — 81.58%.

The percentage ownership of shares of the Fund changes from time to time depending on purchases and redemptions by shareholders and the total number of shares outstanding.

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

V.    INVESTMENT ADVISORY AND OTHER SERVICES

A.    Investment Adviser and Administrator

The Investment Adviser to the Fund is Morgan Stanley Investment Advisors Inc., a Delaware corporation, whose address is 522 Fifth Avenue, New York, NY 10036. The Investment Adviser is a wholly-owned subsidiary of Morgan Stanley, a Delaware corporation. Morgan Stanley is a preeminent global financial services firm engaged in securities trading and brokerage activities, as well as providing investment banking, research and analysis, financing and financial advisory services.

Pursuant to an Amended and Restated Investment Advisory Agreement (the ‘‘Investment Advisory Agreement’’) with the Investment Adviser, the Fund has retained the Investment Adviser 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 Adviser monthly compensation calculated daily by applying the following annual rates to the average daily net assets of the Fund determined as of the close of each business day: 0.52% of the portion of daily net assets not exceeding $500 million; and 0.495% of the portion of daily net assets exceeding $500 million. The investment advisory fee is allocated among the Classes pro rata based on the net assets of the Fund attributable to each Class.

Administration services are provided to the Fund by Morgan Stanley Services Company Inc. (‘‘Administrator’’), a wholly-owned subsidiary of the Investment Adviser, pursuant to a separate administration agreement (‘‘Administration Agreement’’) entered into by the Fund with the Administrator. The Fund pays the Administrator monthly compensation of 0.08% of daily net assets.

For the fiscal years ended January 31, 2006, 2007 and 2008, the Fund accrued total compensation under the Investment Advisory Agreement in the amounts of $1,042,870, $1,481,702 and $2,072,030, respectively.

For the fiscal years ended January 31, 2006, 2007 and 2008, the Fund accrued compensation under the Administration Agreement in the amounts of $160,442, $227,954 and $318,774, respectively.

B.    Principal Underwriter

The Fund’s principal underwriter is the Distributor (which has the same address as the Investment Adviser). In this capacity, the Fund’s shares are distributed by the Distributor. The Distributor has entered into a selected dealer agreement with Morgan Stanley & Co., 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

37

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

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

C.    Services Provided by the Investment Adviser and Administrator

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

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

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

38

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

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

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

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

D.    Dealer Reallowances

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

E.    Rule 12b-1 Plan

The Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under the Investment Company Act (the ‘‘Plan’’) pursuant to which each Class, other than Class I (formerly Class D shares) pays the Distributor compensation accrued daily and payable monthly at the following maximum annual rates: 0.25%, 1.00% and 1.00% of the average daily net assets of Class A, Class B and Class C shares, respectively.

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 & Co. received the proceeds of CDSCs and FSCs, for the last three fiscal years ended January 31, in approximate amounts as provided in the table below.

				2008								2007								2006
Class A				FSCs:(1)				$	54,477			FSCs:(1)				$	61,371			FSCs:(1)				$	54,073
				CDSCs:				$	179			CDSCs:				$	3,622			CDSCs:				$	4
Class B				CDSCs:				$	287,998			CDSCs:				$	290,066			CDSCs:				$	196,226
Class C				CDSCs:				$	7,518			CDSCs:				$	4,501			CDSCs:				$	3,971

(1)	FSCs apply to Class A only.

The entire fee payable by Class A and a portion of the fees payable by each of Class B and Class C each year pursuant to the Plan equal to 0.25% of such Class’ average daily net assets are currently each characterized as a ‘‘service fee’’ under the Rules of the Financial Industry Regulatory Authority (‘‘FINRA’’) (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 FINRA.

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

39

the Plan and the purpose for which such expenditures were made. For the fiscal year ended January 31, 2008, Class A, Class B and Class C shares of the Fund accrued payments under the Plan amounting to $310,433, $1,588,215 and $1,139,546, respectively, which amounts are equal to 0.25%, 1.00% and 1.00% of the average daily net assets of Class A, Class B and Class C, respectively, for the fiscal year.

The Plan was adopted in order to permit the implementation of the Fund’s method of distribution. Under this distribution method the Fund offers four Classes, each with a different distribution arrangement.

With respect to Class A shares, the Distributor generally compensates authorized dealers, from proceeds of the FSC, commissions for the sale of Class A shares, currently a gross sales credit of up to 5.00% of the amount sold and an annual residual commission, currently a residual of up to 0.25% of the current value of the respective accounts for which they are dealers of record in all cases.

With respect to sales of Class B and Class C shares of the Fund, a commission or transaction fee generally will be compensated by the Distributor at the time of purchase directly out of the Distributor’s assets (and not out of the Fund’s assets) to authorized dealers who initiate and are responsible for such purchases computed based on a percentage of the dollar value of such shares sold of up to 4.00% on Class B shares and up to 1.00% on Class C shares.

Proceeds from any CDSC and any distribution fees on Class B and Class C shares of the Fund are paid to the Distributor and are used by the Distributor to defray its distribution related expenses in connection with the sale of the Fund’s shares, such as the payment to authorized dealers for selling such shares. With respect to Class C shares, the authorized dealers generally receive from the Distributor ongoing distribution fees of up to 1.00% of the average daily net assets of the Fund’s Class C shares annually commencing in the second year after purchase.

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. 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 CDSCs received by the Distributor upon redemption of shares of the Fund. No other interest charge is included as a distribution expense in the Distri butor’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 may reimburse expenses incurred or to be incurred in promoting the distribution of the Fund’s Class A, Class B and Class C shares and in servicing shareholder accounts. Reimbursement will be made through payments at the end of each month. The amount of each monthly payment may in no event exceed an amount equal to a payment at the annual rate of 0.25%, in the case of Class A, and 1.00%, in the case of Class B and 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.

Each Class paid 100% of the amounts accrued under the Plan with respect to that Class for the fiscal year ended January 31, 2008 to the Distributor. It is estimated that the Distributor spent this amount in approximately the following ways: (i) 0.00% ($0) — advertising and promotional expenses; (ii) 0.00% ($0) — printing and mailing of prospectuses for distribution to other than current shareholders; and (iii) 100.00% ($1,713,366) — other expenses, including the gross sales credit and the carrying charge, of which 73.73% ($1,263,212) represents carrying charges, 10.88% ($186,364) represents commission credits to Morgan Stanley & Co. branch offices and other selected broker-dealers for payments of commissions to Financial Advisors and other authorized financial representatives and 15.39% ($263,790) represents overhead and other branch office distribution-related expenses. The amounts accru ed by Class A and a portion of the amounts accrued by Class C under the Plan during the fiscal year ended January 31, 2008 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.

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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 & Co. 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 $21,399,263 as of January 31, 2008 (the end of the Fu nd’s fiscal year), which was equal to approximately 17.26% 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.

In the case of Class A and Class C shares, expenses incurred pursuant to the Plan in any calendar year in excess of 0.25% or 1.00% of the average daily net assets of Class A or Class C shares 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 $3,404 in the case of Class C at December 31, 2007 (the end of the calendar year) which amount was equal to approximately 0.0032% 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 Adviser, Morgan Stanley & Co., 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 brok ers and the reimbursement of distribution and account maintenance expenses of Morgan Stanley & Co. branch offices made possible by the 12b-1 fees, Morgan Stanley & Co. 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.

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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 Disbursing Agent

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

(2)    Custodian and Independent Registered Public Accounting Firm

State Street Bank and Trust Company, One Lincoln Street, Boston, MA 02111, is the Custodian of the Fund’s assets. Any of the Fund’s cash balances with the Custodian in excess of $100,000 are unprotected by federal deposit insurance. These balances may, at times, be substantial.

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

(3)    Affiliated Persons

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

G.    Fund Management

Other Accounts Managed by the Portfolio Managers

As of January 31, 2008:

W. David Armstrong managed 17 registered investment companies with a total of approximately $25.2 billion in assets; no pooled investment vehicles other than registered investment companies; and six other accounts with a total of approximately $2.3 billion in assets.

Thomas B. Bastian managed 19 registered investment companies with a total of approximately $35.7 billion in assets; no pooled investment vehicles other than registered investment companies; and three other accounts with a total of approximately $660.8 million in assets.

James A. Gilligan managed 19 registered investment companies with a total of approximately $35.7 billion in assets; no pooled investment vehicles other than registered investment companies; and three other accounts with a total of approximately $660.8 million in assets.

Steven K. Kreider managed 42 registered investment companies with a total of approximately $32.2  billion in assets; no pooled investment vehicles other than registered investment companies; and 62 other accounts with a total of approximately $11.4 billion in assets. Of these other accounts, three accounts with a total of approximately $1.3 billion in assets had performance-based fees.

Sergio Marcheli managed 19 registered investment companies with a total of approximately $35.7 billion in assets; no pooled investment vehicles other than registered investment companies; and two other accounts with a total of approximately $536.1 million in assets.

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Stefania Perrucci managed five registered investment companies with a total of approximately $20.0 billion in assets; no pooled investment vehicles other than registered investment companies; and no other accounts.

James O. Roeder managed 19 registered investment companies with a total of approximately $35.7 billion in assets; no pooled investment vehicles other than registered investment companies; and three other accounts with a total of approximately $660.8 million in assets.

Because the portfolio managers may manage assets for other investment companies, pooled investment vehicles, and/or other accounts (including institutional clients, pension plans and certain high net worth individuals), there may be an incentive to favor one client over another resulting in conflicts of interest. For instance, the Investment Adviser may receive fees from certain accounts that are higher than the fee it receives from the Fund, or it may receive a performance-based fee on certain accounts. In those instances, the portfolio managers may have an incentive to favor the higher and/or performance-based fee accounts over the Fund. In addition, a conflict of interest could exist to the extent the Investment Adviser has proprietary investments in certain accounts, where portfolio managers have personal investments in certain accounts or when certain accounts are investment options in the Investment Adviser’s employee benefits and/or deferred compensation plans. The po rtfolio managers may have an incentive to favor these accounts over others. If the Investment Adviser manages accounts that engage in short sales of securities of the type in which the Fund invests, the Investment Adviser could be seen as harming the performance of the Fund for the benefit of the accounts engaging in short sales if the short sales cause the market value of the securities to fall. The Investment Adviser has adopted trade allocation and other policies and procedures that it believes are reasonably designed to address these and other conflicts of interest.

Portfolio Manager Compensation Structure

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

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

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

Discretionary compensation can include:

•	Cash Bonus.

•	Morgan Stanley’s Long Term Incentive Compensation awards — a mandatory program that defers a portion of discretionary year-end compensation into restricted stock units or other awards based on Morgan Stanley common stock or other investments that are subject to vesting and other conditions.

•

Investment Management Alignment Plan (IMAP) awards — a mandatory program that defers a portion of discretionary year-end compensation and notionally invests it in designated funds advised by the Investment Adviser or its affiliates. The award is subject to vesting and other conditions. Portfolio managers must notionally invest a minimum of 25% to a maximum of 100% of the IMAP deferral into a combination of the designated funds they manage that are included in the IMAP fund menu, which may or may not include the Fund.

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

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

•	Investment performance. A portfolio manager’s compensation is linked to the pre-tax investment

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	performance of the funds/accounts managed by the portfolio manager. Investment performance is calculated for one-, three- and five-year periods measured against a fund’s/account’s primary benchmark (as set forth in the fund’s prospectus), indices and/or peer groups where applicable. Generally, the greatest weight is placed on the three- and five-year periods.

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

•	Contribution to the business objectives of the Investment Adviser.

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

•	Market compensation survey research by independent third parties.

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

•	Performance of Morgan Stanley and Morgan Stanley Investment Management, and the overall performance of the investment team(s) of which the portfolio manager is a member.

Securities Ownership of Portfolio Managers

As of January 31, 2008, none of the portfolio managers beneficially owned securities in the Fund.

H.    Codes of Ethics

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

I.    Proxy Voting Policy and Proxy Voting Record

The Board of Trustees believes that the voting of proxies on securities held by the Fund is an important element of the overall investment process. As such, the Trustees have delegated the responsibility to vote such proxies to Morgan Stanley Investment Management and its advisory affiliates (‘‘MSIM’’).

A copy of MSIM’s Proxy Voting Policy (‘‘Proxy Policy’’) is attached hereto as Appendix A. In addition, a copy of the Proxy Policy, as well as the Fund’s most recent proxy voting record for the 12-month period ended June 30, filed with the SEC, are available without charge on our web site at www.morganstanley.com/msim. The Fund’s proxy voting record is also available without charge on the SEC’s web site at www.sec.gov.

J.    Revenue Sharing

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

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With respect to Morgan Stanley & Co., these payments currently include the following amounts, which are paid in accordance with the applicable compensation structure:

(1)	On $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 & Co. receives a gross sales credit of up to 1.00% of the amount sold.*

(2)	On Class A, B and C shares (excluding shares, if any, held by participants in the Morgan Stanley Fund SolutionSM Program, the Morgan Stanley Personal PortfolioSM Program and Morgan Stanley Corporate Retirement Solutions):

•	An amount up to 0.11% of the value (at the time of sale) of gross sales of such shares; and

•	An ongoing annual fee in an amount up to 0.03% of the total average monthly net asset value of such shares, which is paid only to the extent assets held in certain Morgan Stanley Funds exceed $9 billion).

(3)

On Class I shares (other than shares held by participants in the Morgan Stanley Funds Portfolio ArchitectSM Program, the Morgan Stanley Fund SolutionSM Program, the Morgan Stanley Personal PortfolioSM Program and Morgan Stanley Corporate Retirement Solutions), Morgan Stanley & Co. receives a gross sales credit of 0.25% of the amount sold and an ongoing annual fee of up to 0.15% of the value of the Class I shares held in the applicable accounts. There is a chargeback of 100 % of the gross sales credit amount paid if the Class I 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.

(4)	An ongoing annual fee in an amount up to 0.20% of the value of Fund shares held through certain 401(k) platforms in Morgan Stanley Corporate Retirement Solutions.

With respect to other Intermediaries, these payments currently include the following amounts, which are paid in accordance with the applicable compensation structure for each Intermediary:

(1)	On $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, Intermediaries receive a gross sales credit of up to 1.00% of the amount sold.*

(2)	On Class A, B and C shares, an ongoing annual fee in an amount up to 0.15% of the total average monthly net asset value of such shares.

(3)

On Class I shares, Intermediaries receive a gross sales credit of 0.25% of the amount sold and an ongoing annual fee of up to 0.15% of the value of the Class I shares held in the applicable accounts. There is a chargeback of 100% of the gross sales credit amount paid if the Class I 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.

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

The prospect of receiving, or the receipt of, additional compensation, as described above, by Morgan Stanley & Co. or other Intermediaries may provide Morgan Stanley & Co. or other Intermediaries with an incentive to favor sales of shares of the Fund over other investment options with respect to which Morgan Stanley & Co. 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.

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

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

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VI.    BROKERAGE ALLOCATION AND OTHER PRACTICES

A.    Brokerage Transactions

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

For the fiscal years ended January 31, 2006, 2007 and 2008, the Fund paid a total of $103,100, $119,913 and $165,275, respectively, in brokerage commissions.

B.    Commissions

Pursuant to an order issued by the SEC, the Fund is permitted to engage in principal transactions involving money market instruments, subject to certain conditions, with Morgan Stanley & Co., a broker-dealer affiliated with the Fund's Investment Adviser.

Brokerage transactions in securities listed on exchanges or admitted to unlisted trading privileges, as well as transactions in futures contracts and options on futures contracts, may be effected through 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 Truste es, have adopted procedures which are reasonably designed to provide that any commissions, fees or other remuneration paid to an affiliated broker or dealer are consistent with the foregoing standard. The Fund does not reduce the management fee it pays to the Investment Adviser by any amount of the brokerage commissions it may pay to an affiliated broker or dealer.

During the fiscal years ended January 31, 2006, 2007 and 2008, the Fund paid a total of $0, $0 and $2,161, respectively, in brokerage commissions to 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. The Investment Adviser is prohibited from directing brokerage transactions on the basis of the referral of clients or the sale of shares of investment companies for which it acts as investment adviser. Consistent with this policy, when securities transactions are effected on a stock exchange, the Fund’s policy is to pay commissions which are considered fair and reasonable without necessarily determining that the lowest possible commissions are paid in all circumstances. The Fund believes that a requirement always to seek the lowest possible commission cost could impede effective portfolio management and preclude the Fund and the Investment Adviser from obtaining a high quality of brokerage and research services. In seeking to determine the reasonableness of brokerage c ommissions paid in any transaction, the Investment Adviser relies upon its experience and knowledge regarding commissions generally charged by various brokers and on its judgment in evaluating the brokerage and research services received from the broker effecting the transaction. These determinations are necessarily subjective and imprecise, as in most cases an exact dollar value for those services is not ascertainable.

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In seeking to implement the Fund’s policies, the Investment Adviser effects transactions with those broker-dealers that the Investment Adviser believes provide the most favorable prices and are capable of providing efficient executions. The Investment Adviser may place portfolio transactions with those broker-dealers that also furnish research and other services to the Fund or the Investment Adviser. The services may include, but are not limited to, any one or more of the following: information as to the availability of securities for purchase or sale; statistical or factual information or opinions pertaining to investment; wire services; and appraisals or evaluations of portfolio securities. In certain instances, the Investment Adviser may instruct certain brokers to pay for research provided by executing brokers or third-party research providers, which are selected independently by the Investment Adviser. The information and services received by the Investment Adviser from broker-dealers may be utilized by the Investment Adviser and any of its asset management affiliates in the management of accounts of some of their other clients and may not in all cases benefit the Fund directly or at all. To the extent that the Investment Adviser receives these services from broker-dealers, it will not have to pay for these services itself.

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

D.    Directed Brokerage

During the fiscal year ended January 31, 2008, the Fund paid $4,951 in brokerage commissions in connection with transactions in the aggregate amount of $4,871,698 to brokers because of research services provided.

E.    Regular Broker-Dealers

During the fiscal year ended January 31, 2008, the Fund purchased securities issued by Banc of America Corp., Bear Stearns Co., Inc., Citigroup Global Markets LLC, Goldman Sachs Group, Inc., J.P. Morgan Chase & Co., Lehman Brothers Holdings, Inc. and Merrill Lynch & Co., Inc., which issuers were among the ten brokers or ten dealers which executed transactions for or with the Fund in the largest dollar amounts during the period. At January 31, 2008, the Fund held securities issued by Banc of America Corp., Bear Stearns Co., Inc., Citigroup Global Markets LLC, Goldman Sachs Group, Inc., J.P. Morgan Chase & Co., Lehman Brothers Holdings, Inc. and Merrill Lynch & Co., Inc., with market values of $3,579,737, $5,889,455, $5,395,085, $521,599, $8,286,158, $1,781,184 and $2,119,696, respectively.

VII.    CAPITAL STOCK AND OTHER SECURITIES

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

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

The Fund is not required to hold annual meetings of shareholders and in ordinary circumstances the Fund does not intend to hold such meetings. The Trustees may call special meetings of shareholders for action by shareholder vote as may be required by the Investment Company Act or the Declaration of Trust. Under certain circumstances, the Trustees may be removed by the actions of the Trustees. In addition, under certain circumstances, the shareholders may call a meeting to remove the Trustees and the Fund is required to provide assistance in communicating with shareholders about such a meeting. The voting rights of shareholders are not cumulative, so that holders of more than 50% of the shares voting can, if they choose, elect all Trustees being selected, while the holders of the remaining shares would be unable to elect any Trustees.

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

The Trustees themselves have the power to alter the number and the terms of office of the Trustees (as provided for in the Declaration of Trust), and they may at any time lengthen or shorten their own terms or make their terms of unlimited duration and appoint their own successors, provided that always at least a majority of the Trustees has been elected by the shareholders of the Fund.

VIII.    PURCHASE, REDEMPTION AND PRICING OF SHARES

A.    Purchase/Redemption of Shares

Information concerning how Fund shares are offered to the public (and how they are redeemed and exchanged) is provided in the Fund’s Prospectus.    

Suspension of Redemptions.    Redemptions are not made on days during which the NYSE is closed. The right of redemption may be suspended and the payment therefore may be postponed for more than seven days during any period when (a) the NYSE is closed for other than customary weekends or holidays; (b) the SEC determines trading on the NYSE is restricted; (c) the SEC determines an emergency exists as a result of which disposal by the Fund of securities owned by it is not reasonably practicable or it is not reasonably practicable for the Fund to fairly determine the value of its net assets; or (d) the SEC, by order, so permits.

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.

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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/Limited Portability.     Most Fund shareholders hold their shares with Morgan Stanley & Co. Please note that your ability to transfer your Fund shares to a brokerage account at another securities dealer may be limited. Fund shares may only be transferred to accounts held at securities dealers or financial intermediaries that have entered into agreements with the Distributor. After a transfer, you may purchase additional shares of the Morgan Stanley Fund(s) you owned before the transfer and, in most instances, you will also be able to purchase shares of most other Morgan Stanley Funds. If you transfer shares of a fund that is not a Multi-Class Fund (for example, a Money Market Fund) you will not be able to exchange shares of that fund for any other Morgan Stanley Fund after the transfer.

If you wish to transfer Fund shares to a securities dealer or other financial intermediary that has not entered into an agreement with the Distributor, you may request that the securities dealer or financial intermediary maintain the shares in an account at the Transfer Agent registered in the name of such securities dealer or financial intermediary for your benefit. You may also hold your Fund shares in your own name directly with the Transfer Agent. In either case, you will continue to have the ability to purchase additional Morgan Stanley Funds and will have full exchange privileges. Other options may also be available; please check with the respective securities dealer or financial intermediary. If you choose not to hold your shares with the Transfer Agent, either directly or through a securities dealer or other financial intermediary, you must redeem your shares and pay any applicable CDSC.

B.    Offering Price

The Fund’s Class B, Class C and Class I 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 & Co. and other authorized dealers as described in Section ‘‘V. Investment Advisory and Other Services — E. Rule 12b-1 Plan.’’ The price of Fund shares, called ‘‘net asset value,’’ is based on the value of the Fund’s portfolio securities. Net asset value per share of each Class is calculated by dividing the value of the portion of the Fund’s securities and other assets attributable to that Class, less the liabilities attributable to that Class, by the number of shares of that Class outstanding. The assets of each Class of shares are invested in a single portfolio. The net asset value of each Class, however, will differ because the Classes have different ongoing f ees.

In the calculation of the Fund’s net asset value: (1) an equity portfolio security listed or traded on the NYSE 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 OTC 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 closing price or the latest bid price may be used if there were no sales on a particular day. When market quotations are not readily available, including circumstances under which it is determined by the Investment Adviser that the sale price, the bid price or the mean between the last reported bid and asked price are not reflective of a security’s market value, portfolio securities are valued at their fair value as determined in

49

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 price does not reflect the securities’ market value, in which case these securities will be valued at their fair value as determined by the Trustees.

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

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

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

IX.    TAXATION OF THE FUND AND SHAREHOLDERS

The Fund generally will make two basic types of distributions: ordinary dividends and long-term capital gain distributions. These two types of distributions are reported differently on a shareholder’s income tax return. The tax treatment of the investment activities of the Fund will affect the amount, timing and character of the distributions made by the Fund. The following discussion is only a summary of certain tax considerations generally affecting the Fund and shareholders of the Fund, and is not intended as a substitute for careful tax planning. Tax issues relating to the Fund are not generally a consideration for shareholders such as tax-exempt entities and tax-advantaged retirement vehicles such as an IRA or 401(k) plan. Shareholders are urged to consult their own tax professionals regarding specific questions as to federal, state or local taxes.

Investment Company Taxation.    The Fund intends to continue to qualify as a regulated investment company under Subchapter M of the Code. 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

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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.’’ 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 instead of capital gain or capital loss instead of ordinary loss. The application of these special rules would therefore also affect the character of distributions made by the Fund.

The Fund may make investments in which it recognizes income or gain prior to receiving cash with respect to such investment. For example, 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 makes such investments, it generally would be required to pay out such income or gain as a distribution in each year to avoid taxation at the Fund level. Such distributions will be made from the available cash of the Fund or by liquidation of portfolio securities if necessary. If a distribution of cash necessitates the liquidation of portfolio securities, the Investment Adviser will select which securities to sell. The Fund may realize a gain or loss from such sales. In the event the Fund realizes net capital gains from such transactions, its shareholders may receive a larger capital gain di stribution, 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 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 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 income dividends with capital losses. Short-term capital gain distributions will continue to be taxed at ordinary income rates.

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

Shareholders are generally taxed on any income 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 to shareholders of record of such month in January then such amounts will be treated for tax purposes as received by the shareholders on December 31.

Subject to certain exceptions, a corporate shareholder may be eligible for a 70% dividends received deduction to the extent that the Fund earns and distributes qualifying dividends from its investments. Distributions of net capital gains by the Fund will not be eligible for the dividends received deduction.

Shareholders who are not citizens or residents of the United States and certain foreign entities may be subject to withholding of U.S. tax on distributions made by the Fund of investment income and short-term capital gains. Distributions attributable to gains from ‘‘U.S. real property interests’’ (including gains from the disposition of certain U.S. real property holding corporations, which may include certain REITs and certain capital gains distributions from REITs) will generally be subject to federal withholding tax and may give rise to an obligation on the part of the foreign shareholder to file a U.S. tax return. Also, such gain may be subject to a 30% branch profits tax in the hands of a foreign shareholder that is a corporation. Prospective investors are urged to consult their tax advisors regarding the specific tax consequences discussed above.

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

Purchases and Redemptions and Exchanges of Fund Shares.    Any dividend or capital gains distribution received by a shareholder from any investment company will have the effect of reducing the net asset value of the shareholder’s stock in that company by the exact amount of the ordinary 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 ordinary 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 .

Shareholders normally will be subject to federal income taxes, and/or local income taxes, on the sale or disposition of Fund shares. 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 generally is 15%. Without future congressional action, the maximum tax rate on long-term capital gains will return to 20% in 2011. 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 of cash received (or the fair market value of any property received) and the adjusted tax basis of the shares. Shareholders should keep records of investments made (including shares acquired through reinvestment of dividends and distributions) so they can compute the tax basis of their shares. Under certain circumstances a shareholder may compute and use an average cost basis in determining the gain or loss on the sale or redemption of shares.

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

The ability to deduct capital losses may be limited. In addition, if a shareholder realizes a loss on the redemption or exchange of a fund’s shares and receives securities that are considered substantially identical to that fund’s shares or reinvests in that fund’s shares or substantially identical 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.’’

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XI.    PERFORMANCE DATA

Average annual returns assuming deduction of maximum sales charge
Period Ended January 31, 2008

Class				Inception Date				1 Year				5 Years				10 Years				Life of Fund
Class A					07/28/97				−5.64	%			9.01	%			5.31	%			5.51	%
Class B					07/28/97				−5.84	%			9.08	%			5.22	%**			5.44	%**
Class C					03/28/95				−2.11	%			9.37	%			5.08	%			8.12	%
Class I*					07/28/97				−0.23	%			10.45	%			6.12	%			6.30	%

Average annual returns assuming NO deduction of sales charge
Period Ended January 31, 2008

Class				Inception Date				1 Year				5 Years				10 Years				Life of Fund
Class A					07/28/97				−0.42	%			10.20	%			5.88	%			6.05	%
Class B					07/28/97				−1.20	%			9.36	%			5.22	%**			5.44	%**
Class C					03/28/95				−1.19	%			9.37	%			5.08	%			8.12	%
Class I*					07/28/97				−0.23	%			10.45	%			6.12	%			6.30	%

Aggregate total returns assuming NO deduction of sales charge
Period Ended January 31, 2008

Class				Inception Date				1 Year				5 Years				10 Years				Life of Fund
Class A					07/28/97				−0.42	%			62.50	%			76.99	%			85.44	%
Class B					07/28/97				−1.20	%			56.39	%			66.35	%**			74.42	%**
Class C					03/28/95				−1.19	%			56.46	%			64.18	%			172.54	%
Class I*					07/28/97				−0.23	%			64.36	%			81.12	%			89.96	%

Average annual after-tax returns assuming deduction of maximum sales charge
Class C
Period Ended January 31, 2008

Calculation Methodology				Inception Date				1 Year				5 Years				10 Years				Life of Fund
After taxes on distributions					03/28/95				−3.07	%			8.71	%			3.79	%			6.73	%
After taxes on distributions and redemptions					03/28/95				−0.18	%			8.10	%			3.85	%			6.52	%

*	Effective March 31, 2008, Class D shares were renamed Class I shares.

**	Effective April 2005, Class B shares will generally convert to Class A shares approximately eight years after the end of the calendar month in which the shares were purchased. Performance for periods greater than eight years for Class B shares reflects this conversion.

XII.    FINANCIAL STATEMENTS

The Fund’s audited financial statements for the fiscal year ended January 31, 2008, 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 SAI.

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XIII.    FUND COUNSEL

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

*  *  *  *  *

This SAI 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.

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Appendix A

MORGAN STANLEY INVESTMENT MANAGEMENT
PROXY VOTING POLICY AND PROCEDURES

I.    POLICY STATEMENT

Introduction — Morgan Stanley Investment Management’s (‘‘MSIM’’) policy and procedures for voting proxies (‘‘Policy’’) 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 authority to vote proxies. This Policy is reviewed and updated as necessary to address new and evolving proxy voting issues and standards.

The MSIM entities covered by this Policy currently include the following: Morgan Stanley Investment Advisors Inc., Morgan Stanley AIP GP LP, Morgan Stanley Investment Management 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, Van Kampen Asset Management, and Van Kampen Advisors Inc. (each an ‘‘MSIM Affiliate’’ and collectively referred to as the ‘‘MSIM Affiliates’’ or as ‘‘we’’ below).

Each MSIM Affiliate will use its best efforts to 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 herein as the ‘‘MSIM Funds’’), each MSIM Affiliate will vote proxies under this Policy pursuant to authority granted under its applicable investment advisory agreement or, in the absence of such authority, as authorized by the Board of Directors/Trustees of the MSIM Funds. An 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 or investment advisory agreement does not authorize the MSIM Affiliate to vote proxies. MSIM Affiliates will vote proxies in a prudent and diligent manner and in the best interests of c lients, including beneficiaries of and participants in a client’s benefit plan(s) for which the MSIM Affiliates 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 an MSIM Affiliate with a proxy voting policy. In these situations, the MSIM Affiliate will comply with the client’s policy.

Proxy Research Services — RiskMetrics Group ISS Governance Services (‘‘ISS’’) and Glass Lewis (together with other proxy research providers as we may retain from time to time, the ‘‘Research Providers’’) 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 include in-depth research, global issuer analysis, and voting recommendations. While we may review and utilize the recommendations of the Research Providers in making proxy voting decisions, we are in no way obligated to follow such recommendations. In addition to research, ISS provides vote execution, reporting, and recordkeeping.

Voting Proxies for Certain Non-U.S. Companies — Voting proxies of companies located in some jurisdictions, particularly emerging markets, may involve several problems that can restrict or prevent the ability to vote such proxies or entail significant costs. 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 our voting instructions. As a result, we vote clients’ non-U .S. proxies on a best efforts basis only, after weighing the costs and benefits of voting such proxies, consistent with the Client Proxy Standard. ISS has been retained to provide assistance in connection with voting non-U.S. proxies.

A-1

II.    GENERAL PROXY VOTING GUIDELINES

To promote consistency in voting proxies on behalf of its clients, we follow this Policy (subject to any exception set forth herein), including the guidelines set forth below. These guidelines address a broad range of issues, and provide general voting parameters on proposals that arise most frequently. However, details of specific proposals vary, and those details affect particular voting decisions, as do factors specific to a given company. Pursuant to the procedures set forth herein, we may vote in a manner that is not in accordance with the following general guidelines, provided the vote is approved by the Proxy Review Committee (see Section III for description) and is consistent with the Client Proxy Standard. Morgan Stanley AIP GP LP will follow the procedures as described in Appendix A.

We endeavor to integrate governance and proxy voting policy with investment goals and to follow the Client Proxy Standard for each client. At times, this may result in split votes, for example when different clients have varying economic interests in the outcome of a particular voting matter (such as a case in which varied ownership interests in two companies involved in a merger result in different stakes in the outcome). We also may split votes at times based on differing views of portfolio managers, but such a split vote must be approved by the Proxy Review Committee.

We may abstain on matters for which disclosure is inadequate.

A.    Routine Matters

We generally support routine management proposals. The following are examples of routine management proposals:

•	Approval of financial statements and auditor reports.

•	General updating/corrective amendments to the charter, articles of association or bylaws.

•

Most proposals related to the conduct of the annual meeting, with the following exceptions. We generally oppose proposals that relate to ‘‘the transaction of such other business which may come before the meeting,’’ and open-ended requests for adjournment. However, where management specifically states the reason for requesting an adjournment and the requested adjournment would facilitate passage of a proposal that would otherwise be supported under this Policy (i.e. an uncontested corporate transaction), the adjournment request will be supported.

We generally support shareholder proposals advocating confidential voting procedures and independent tabulation of voting results.

B.    Board of Directors

1.	Election of directors:    In the absence of a proxy contest, we generally support the board’s nominees for director except as follows:

	a.	We consider withholding support from or voting against interested directors if the company’s board does not meet market standards for director independence, or if otherwise we believe board independence is insufficient. We refer to prevalent market standards as promulgated by a stock exchange or other authority within a given market (e.g., New York Stock Exchange or Nasdaq rules for most U.S. companies, and The Combined Code on Corporate Governance in the United Kingdom). Thus, for a NYSE company with no controlling shareholder, we would expect that at a minimum a majority of directors should be independent as defined by NYSE. Where we view market standards as inadequate, we may withhold votes based on stronger independence standards. Market standards notwithstanding, we generally do not vie w long board tenure alone as a basis to classify a director as non-independent, although lack of board turnover and fresh perspective can be a negative factor in voting on directors.

	i.	At a company with a shareholder or group that controls the company by virtue of a majority economic interest in the company, we have a reduced expectation for board

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		independence, although we believe the presence of independent directors can be helpful, particularly in staffing the audit committee, and at times we may withhold support from or vote against a nominee on the view the board or its committees are not sufficiently independent.

	ii.	We consider withholding support from or voting against a nominee if he or she is affiliated with a major shareholder that has representation on a board disproportionate to its economic interest.

	b.	Depending on market standards, we consider withholding support from or voting against a nominee who is interested and who is standing for election as a member of the company’s compensation, nominating or audit committee.

	c.	We consider withholding support from or voting against a nominee if we believe a direct conflict exists between the interests of the nominee and the public shareholders, including failure to meet fiduciary standards of care and loyalty. We may oppose directors where we conclude that actions of directors are unlawful, unethical or negligent. We consider opposing individual board members or an entire slate if we believe the board is entrenched and/or dealing inadequately with performance problems, and/or acting with insufficient independence between the board and management.

	d.	We consider withholding support from or voting against a nominee standing for election if the board has not taken action to implement generally accepted governance practices for which there is a ‘‘bright line’’ test. For example, in the context of the U.S. market, failure to eliminate a dead hand or slow hand poison pills would be seen as a basis for opposing one or more incumbent nominees.

	e.	In markets that encourage designated audit committee financial experts, we consider voting against members of an audit committee if no members are designated as such.

	f.	We consider withholding support from or voting against a nominee who has failed to attend at least 75% of board meetings within a given year without a reasonable excuse.

	g.	We consider withholding support from or voting against a nominee who serves on the board of directors of more than six companies (excluding investment companies). We also consider voting against a director who otherwise appears to have too many commitments to serve adequately on the board of the company.

2.	Board independence:    We generally support U.S. shareholder proposals requiring that a certain percentage (up to 66 2/3%) of the company’s board members be independent directors, and promoting all-independent audit, compensation and nominating/governance committees.

3.	Board diversity:    We consider on a case-by-case basis shareholder proposals urging diversity of board membership with respect to social, religious or ethnic group.

4.	Majority voting:    We generally support proposals requesting or requiring majority voting policies in election of directors, so long as there is a carve-out for plurality voting in the case of contested elections.

5.	Proxy access:    We consider on a case-by-case basis shareholder proposals to provide procedures for inclusion of shareholder nominees in company proxy statements.

6.	Proposals to elect all directors annually:    We generally support proposals to elect all directors annually at public companies (to ‘‘declassify’’ the Board of Directors) where such action is supported by the board, and otherwise consider the issue on a case-by-case basis based in part on overall takeover defenses at a company.

7.

Cumulative voting:    We generally support proposals to eliminate cumulative voting in the U.S. market context. (Cumulative voting provides that shareholders may concentrate their votes for one or a handful of candidates, a system that can enable a minority bloc to place representation on a board). U.S. proposals to establish cumulative voting in the election of directors generally will not be supported.

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8.

Separation of Chairman and CEO positions:    We vote on shareholder proposals to separate the Chairman and CEO positions and/or to appoint a non-executive Chairman based in part on prevailing practice in particular markets, since the context for such a practice varies. In many non-U.S. markets, we view separation of the roles as a market standard practice, and support division of the roles in that context.

9.	Director retirement age and term limits:    Proposals recommending set director retirement ages or director term limits are voted on a case-by-case basis.

10.	Proposals to limit directors’ liability and/or broaden indemnification of directors.    Generally, we will support such proposals provided that the officers and directors are eligible for indemnification and liability protection if they have acted in good faith on company business and were found innocent of any civil or criminal charges for duties performed on behalf of the company.

C.    Corporate transactions and proxy fights.

We examine proposals relating to mergers, acquisitions and other special corporate transactions (i.e., takeovers, spin-offs, sales of assets, reorganizations, restructurings and recapitalizations) on a case-by-case basis. However, proposals for mergers or other significant transactions that are friendly and approved by the Research Providers generally will be supported and in those instances will not need to be reviewed by the Proxy Review Committee, where there is no portfolio manager objection and where there is no material conflict of interest. We also analyze proxy contests on a case-by-case basis.

D.    Changes in capital structure.

1.	We generally support the following:

	•	Management and shareholder proposals aimed at eliminating unequal voting rights, assuming fair economic treatment of classes of shares we hold.

	•	Management proposals to increase the authorization of existing classes of common stock (or securities convertible into common stock) if: (i) a clear business purpose is stated that we can support and the number of shares requested is reasonable in relation to the purpose for which authorization is requested; and/or (ii) the authorization does not exceed 100% of shares currently authorized and at least 30% of the total new authorization will be outstanding.

	•	Management proposals to create a new class of preferred stock or for issuances of preferred stock up to 50% of issued capital, unless we have concerns about use of the authority for anti-takeover purposes.

	•	Management proposals to authorize share repurchase plans, except in some cases in which we believe there are insufficient protections against use of an authorization for anti-takeover purposes.

	•	Management proposals to reduce the number of authorized shares of common or preferred stock, or to eliminate classes of preferred stock.

	•	Management proposals to effect stock splits.

	•	Management 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 generally will be approved if the resulting increase in authorized shares coincides with the proxy guidelines set forth above for common stock increases.

	•	Management proposals for higher dividend payouts.

2.	We generally oppose the following (notwithstanding management support):

	•	Proposals to add classes of stock that would substantially dilute the voting interests of existing shareholders.

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	•	Proposals to increase the authorized or issued number of shares of existing classes of stock that are unreasonably dilutive, particularly if there are no preemptive rights for existing shareholders.

	•	Proposals that authorize share issuance at a discount to market rates, except where authority for such issuance is de minimis, or if there is a special situation that we believe justifies such authorization (as may be the case, for example, at a company under severe stress and risk of bankruptcy).

	•	Proposals relating to changes in capitalization by 100% or more.

We consider on a case-by-case basis shareholder proposals to increase dividend payout ratios, in light of market practice and perceived market weaknesses, as well as individual company payout history and current circumstances. For example, currently we perceive low payouts to shareholders as a concern at some Japanese companies, but may deem a low payout ratio as appropriate for a growth company making good use of its cash, notwithstanding the broader market concern.

E.    Takeover Defenses and Shareholder Rights

1.

Shareholder rights plans:    We generally support proposals to require shareholder approval or ratification of shareholder rights plans (poison pills). In voting on rights plans or similar takeover defenses, we consider on a case-by-case basis whether the company has demonstrated a need for the defense in the context of promoting long-term share value; whether provisions of the defense are in line with generally accepted governance principles; and the specific context if the proposal is made in the midst of a takeover bid or contest for control.

2.	Supermajority voting requirements:    We generally oppose requirements for supermajority votes to amend the charter or bylaws, unless the provisions protect minority shareholders where there is a large shareholder. In line with this view, in the absence of a large shareholder we support reasonable shareholder proposals to limit such supermajority voting requirements.

3.	Shareholder rights to call meetings:    We consider proposals to enhance shareholder rights to call meetings on a case-by-case basis.

4.	Reincorporation:    We consider management and shareholder proposals to reincorporate to a different jurisdiction on a case-by-case basis. We oppose such proposals if we believe the main purpose is to take advantage of laws or judicial precedents that reduce shareholder rights.

5.

Anti-greenmail provisions:    Proposals relating to the adoption of anti-greenmail provisions will be supported, provided that the proposal: (i) defines greenmail; (ii) prohibits buyback offers to large block holders (holders of at least 1% of the outstanding shares and in certain cases, a greater amount, as determined by the Proxy Review Committee) 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.

6.	Bundled proposals:    We may consider opposing or abstaining on proposals if disparate issues are ‘‘bundled’’ and presented for a single vote.

F.    Auditors.

We generally support management proposals for selection or ratification of independent auditors. However, we may consider opposing such proposals with reference to incumbent audit firms if the company has suffered from serious accounting irregularities and we believe rotation of the audit firm is appropriate, or if fees paid to the auditor for non-audit-related services are excessive. Generally, to determine if non-audit fees are excessive, a 50% test will be applied (i.e., non-audit-related fees should be less than 50% of the total fees paid to the auditor). We generally vote against proposals to indemnify auditors.

G.	Executive and Director Remuneration.

1.	We generally support the following proposals:

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	•	Proposals for employee equity compensation plans and other employee ownership plans, provided that our research does not indicate that approval of the plan would be against shareholder interest. Such approval may be against shareholder interest if it authorizes excessive dilution and shareholder cost, particularly in the context of high usage (‘‘run rate’’) of equity compensation in the recent past; or if there are objectionable plan design and provisions.

	•	Proposals relating to fees to outside directors, provided the amounts are not excessive relative to other companies in the country or industry, and provided that the structure is appropriate within the market context. While stock-based compensation to outside directors is positive if moderate and appropriately structured, we are wary of significant stock option awards or other performance-based awards for outside directors, as well as provisions that could result in significant forfeiture of value on a director’s decision to resign from a board (such forfeiture can undercut director independence).

	•	Proposals for 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.

	•	Proposals for the establishment of employee retirement and severance plans, provided that our research does not indicate that approval of the plan would be against shareholder interest.

2.

Shareholder proposals requiring shareholder approval of all severance agreements will not be supported, but proposals that require shareholder approval for agreements in excess of three times the annual compensation (salary and bonus) generally will be supported. We generally oppose shareholder proposals that would establish arbitrary caps on pay. We consider on a case-by-case basis shareholder proposals that seek to limit Supplemental Executive Retirement Plans (SERPs), but support such proposals where we consider SERPs to be excessive.

3.

Shareholder proposals advocating stronger and/or particular pay-for-performance models will be evaluated on a case-by-case basis, with consideration of the merits of the individual proposal within the context of the particular company and its labor markets, and the company’s current and past practices. While we generally support emphasis on long-term components of senior executive pay and strong linkage of pay to performance, we consider whether a proposal may be overly prescriptive, and the impact of the proposal, if implemented as written, on recruitment and retention.

4.	We consider shareholder proposals for U.K.-style advisory votes on pay on a case-by-case basis.

5.	We generally support proposals advocating reasonable senior executive and director stock ownership guidelines and holding requirements for shares gained in option exercises.

6.

Management proposals effectively to re-price stock options are considered on a case-by-case basis. Considerations include the company’s reasons and justifications for a re-pricing, the company’s competitive position, whether senior executives and outside directors are excluded, potential cost to shareholders, whether the re-pricing or share exchange is on a value-for-value basis, and whether vesting requirements are extended.

H.    Social, Political and Environmental Issues.

We consider proposals relating to social, political and environmental issues on a case-by-case basis to determine whether they will have a financial impact on shareholder value. However, we generally vote against proposals requesting reports that are duplicative, related to matters not material to the business, or that would impose unnecessary or excessive costs. We may abstain from voting on proposals that do not have a readily determinable financial impact on shareholder value. We generally oppose proposals requiring adherence to workplace standards that are not required or customary in market(s) to which the proposals relate.

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I.    Fund of Funds.

Certain Funds advised by an MSIM Affiliate invest only in other MSIM Funds. If an underlying fund has a shareholder meeting, in order to avoid any potential conflict of interest, such proposals will be voted in the same proportion as the votes of the other shareholders of the underlying fund, unless otherwise determined by the Proxy Review Committee.

III.    ADMINISTRATION OF POLICY

The MSIM Proxy Review Committee (the ‘‘Committee’’) has overall responsibility for creating and implementing the Policy, working with an MSIM staff group (the ‘‘Corporate Governance Team’’). The Committee, which is appointed by MSIM’s Chief Investment Officer of Global Equities (‘‘CIO’’), consists of senior investment professionals who represent the different investment disciplines and geographic locations of the firm. Because proxy voting is an investment responsibility and impacts shareholder value, and because of their knowledge of companies and markets, portfolio managers and other members of investment staff play a key role in proxy voting, although the Committee has final authority over proxy votes.

The Committee Chairperson is the head of the Corporate Governance Team, and is responsible for identifying issues that require Committee deliberation or ratification. The Corporate Governance Team, working with advice of investment teams and the Committee, is responsible for voting on routine items and on matters that can be addressed in line with these Policy guidelines. The Corporate Governance Team has responsibility for voting case-by-case where guidelines and precedent provide adequate guidance, and to refer other case-by-case decisions to the Proxy Review Committee.

The Committee will periodically review and have the authority to amend, as necessary, the Policy and establish and direct voting positions consistent with the Client Proxy Standard.

A.    Committee Procedures

The Committee will meet at least monthly to (among other matters) address any outstanding issues relating to the Policy or its implementation. The Corporate Governance Team will timely communicate to ISS MSIM’s Policy (and any amendments and/or any additional guidelines or procedures the Committee may adopt).

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 Policy); (2) review and approve upcoming votes, as appropriate, for matters for which specific direction has been provided in this Policy; and (3) determine how to vote matters for which specific direction has not been provided in this Policy.

Members of the Committee may take into account Research Providers’ recommendations and research as well as any other relevant information they may request or receive, including portfolio manager and/or analyst research, as applicable. Generally, proxies related to securities held in accounts that are managed pursuant to quantitative, index or index-like strategies (‘‘Index Strategies’’) will be voted in the same manner as those held in actively managed accounts, unless economic interests of the accounts differ. Because accounts managed using Index Strategies are passively managed accounts, research from portfolio managers and/or analysts related to securities held in these accounts may not be available. If the affected securities are held only in accounts that are managed pursuant to Index Strategies, and the proxy relates to a matter that is not described in this Policy, the Committee will consider all available information from the Researc h Providers, and to the extent that the holdings are significant, from the portfolio managers and/or analysts.

B.    Material Conflicts of Interest

In addition to the procedures discussed above, if the Committee determines that an issue raises a material conflict of interest, the Committee will request a special committee to review, and recommend a course of action with respect to, the conflict(s) in question (‘‘Special Committee’’).

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The Special Committee shall be comprised of the Chairperson of the Proxy Review Committee, the Chief Compliance Officer or his/her designee, a senior portfolio manager (if practicable, one who is a member of the Proxy Review Committee) designated by the Proxy Review Committee, and MSIM’s relevant Chief Investment Officer or his/her designee, and any other persons deemed necessary by the Chairperson. The Special Committee may request the assistance of MSIM’s General Counsel or his/her designee who will have sole discretion to cast a vote. In addition to the research provided by Research Providers, the Special Committee may request analysis from MSIM Affiliate investment professionals and outside sources to the extent it deems appropriate.

C.    Identification of Material Conflicts of Interest

A potential material conflict of interest could exist in the following situations, among others:

1.	The issuer soliciting the vote is a client of MSIM or an affiliate of MSIM and the vote is on a material matter affecting the issuer.

2.	The proxy relates to Morgan Stanley common stock or any other security issued by Morgan Stanley or its affiliates except if echo voting is used, as with MSIM Funds, as described herein.

3.	Morgan Stanley has a material pecuniary interest in the matter submitted for a vote (e.g., acting as a financial advisor to a party to a merger or acquisition for which Morgan Stanley will be paid a success fee if completed).

If the Chairperson of the Committee determines that an issue raises a potential material conflict of interest, depending on the facts and circumstances, the Chairperson will address the issue as follows:

1.	If the matter relates to a topic that is discussed in this Policy, the proposal will be voted as per the Policy.

2.	If the matter is not discussed in this Policy or the Policy indicates that the issue is to be decided case-by-case, the proposal will be voted in a manner consistent with the Research Providers, provided that all the Research Providers have the same recommendation, no portfolio manager objects to that vote, and the vote is consistent with MSIM’s Client Proxy Standard.

3.

If the Research Providers’ recommendations differ, the Chairperson will refer the matter to the Committee to vote on the proposal. If the Committee determines that an issue raises a material conflict of interest, the Committee will request a Special Committee to review and recommend a course of action, as described above. Notwithstanding the above, the Chairperson of the Committee may request a Special Committee to review a matter at any time as he/she deems necessary to resolve a conflict.

D.    Proxy Voting Reporting

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 Fund, the Committee and Special Committee, or their designee(s), will report their decisions to each applicable Board of Trustees/Directors of those Funds 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.

The Corporate Governance Team will timely communicate to applicable portfolio managers and to ISS, decisions of the Committee and Special Committee so that, among other things, ISS will vote proxies consistent with their decisions.

MSIM will promptly provide a copy of this Policy to any client requesting it. MSIM will also, upon client request, promptly provide a report indicating how each proxy was voted with respect to securities held in that client’s account.

MSIM’s Legal Department is responsible for filing an annual Form N-PX on behalf of each MSIM Fund for which such filing is required, indicating how all proxies were voted with respect to such Fund’s holdings.

[APPENDIX A and APPENDIX B intentionally omitted.]

Revised February 27, 2008

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                          MORGAN STANLEY BALANCED FUND

                                     PART C
                               OTHER INFORMATION

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

  a(1).     Declaration of Trust of the Registrant, dated November 22, 1994, is
            incorporated herein by reference to Exhibit 1 of the Initial
            Registration Statement on Form N-1A, filed on December 14, 1994.

   (2).     Instrument Establishing and Designating Additional Classes, dated
            July 28, 1997, is incorporated herein by reference to Exhibit 1 of
            Post-Effective Amendment No. 4 to the Registration Statement on Form
            N-1A, filed on July 16, 1997.

   (3).     Amendment to the Declaration of Trust of the Registrant, dated June
            22, 1998, is incorporated herein by reference to Exhibit 1 of
            Post-Effective Amendment No. 6 to the Registration Statement on Form
            N-1A, filed on March 31, 1999.

   (4).     Amendment to the Declaration of Trust of the Registrant, dated June
            18, 2001, is incorporated herein by reference to Exhibit 1(d) of
            Post-Effective Amendment No. 10 to the Registration Statement on
            Form N-1A, filed on March 28, 2002.

   (5).     Amendment to the Declaration of Trust of the Registrant, dated March
            26, 2008, filed herein.

(b).        Amended and Restated By-Laws of the Registrant, dated February 27,
            2008, filed herein.

(c).        Not Applicable.

(d).        Amended and Restated Investment Advisory Agreement, dated
            November 1, 2004, is incorporated by reference to Exhibit (d) (1) of
            Post-Effective Amendment No. 3 to the Registration Statement on
            Form N-1A of Morgan Stanley Small-Mid Special Value Fund, filed on
            June 24, 2005.

  e(1).     Amended Distribution Agreement between the Registrant and Morgan
            Stanley Distributors Inc., dated July 31, 2006, is incorporated
            herein by reference to Exhibit e(1) of Post-Effective Amendment No.
            23 to the Registration Statement on Form N-1A of Morgan Stanley
            Equally-Weighted S&P 500 Fund, filed on October 25, 2006.

   (2).     Selected Dealer Agreement between Morgan Stanley Distributors Inc.
            and Morgan Stanley & Co. Incorporated, is incorporated herein by
            reference to Exhibit e(2) of Post-Effective Amendment No. 4 to the
            Registration Statement on Form N-1A of Morgan Stanley Fundamental
            Value Fund, filed on January 25, 2006.

   (3).     Addendum No. 1 to the Selected Dealer Agreement, is incorporated
            herein by reference to Exhibit (e)(3) of Post-Effective Amendment
            No. 24 to the Registration Statement on Form N-1A of Morgan Stanley
            Strategist Fund, filed on September 26, 2007.

   (4).     Form of Dealer Agreement is incorporated herein by reference to
            Exhibit e(3) of Post-Effective Amendment No. 10 to the Registration
            Statement on Form N-1A of Morgan Stanley Aggressive Equity Fund,
            filed November 22, 2006.

(f).        Not Applicable.

  g(1).     Custody Agreement between State Street Bank and Trust Company and
            the Registrant, dated March 7, 2008, filed herein.

  g(2).     Data Access Services Agreement between the Registrant and State
            Street Bank and Trust Company, filed herein.

  h(1).     Amended and Restated Transfer Agency and Service Agreement, dated
            November 1, 2004, between the Registrant and Morgan Stanley Trust,
            is incorporated herein by reference to Exhibit (h)(1) of
            Post-Effective Amendment No. 13 to the Registration Statement on
            Form N-1A, filed on March 29, 2005.

   (2).     Administration Agreement, dated November 1, 2004, between Morgan
            Stanley Services Company Inc. and the Registrant, is incorporated
            herein by reference to Exhibit (h)(2) of Post-Effective Amendment
            No. 13 to the Registration Statement on Form N-1A, filed on March
            29, 2005.

  i(1).     Opinion of Clifford Chance US LLP, is incorporated herein by
            reference to Exhibit i(1) of Post-Effective Amendment No. 14 to the
            Registration Statement on Form N-1A, filed on May 27, 2005.

   (2).     Consent of Clifford Chance US LLP, filed herein.

   (3).     Opinion of Dechert LLP, Massachusetts Counsel, is incorporated
            herein by reference to Exhibit i(2) of Post-Effective Amendment
            No. 14 to the Registration Statement on Form N-1A, filed on May 27,
            2005.

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

(k).        Not Applicable.

(l).        Not Applicable.

(m).        Amended and Restated Plan of Distribution, Pursuant to Rule 12b-1,
            dated May 1, 2004, is incorporated herein by reference to Exhibit
            (m) of Post-Effective Amendment No. 13 to the Registration Statement
            on Form N-1A, filed on March 29, 2005.

(n).        Amended and Restated Multi-Class Plan pursuant to Rule 18f-3, dated
            September 26, 2007, is incorporated herein by reference to Exhibit
            (n) of Post-Effective Amendment No. 17 to the Registration Statement
            on Form N-1A of Morgan Stanley Special Value Fund, filed on November
            29, 2007.

(o).        Not Applicable.

  p(1).     Code of Ethics of Morgan Stanley Investment Management, dated
            May 12, 2008, is filed herein.

   (2).     Code of Ethics of the Morgan Stanley Funds, is incorporated herein
            by reference to Exhibit (p)(2) of Post-Effective Amendment No. 13 to
            the Registration Statement on Form N-1A, filed on March 29, 2005.

(q).        Power of Attorneys of Trustees, dated April 25, 2008, is
            filed herein.


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

     None

ITEM 25.     INDEMNIFICATION

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

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

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

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

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

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



ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER

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

             Set forth below is the name and principal business address of each
company for which directors or officers of Morgan Stanley Investment Advisors
serve as directors, officers or employees:

Morgan Stanley Distribution, Inc.
Morgan Stanley Distributors Inc.
Morgan Stanley Investment Advisors
Morgan Stanley Investment Management Inc.
Morgan Stanley Services Company Inc.
Van Kampen Advisors Inc.
Van Kampen Asset Management
Van Kampen Investments Inc.
522 Fifth Avenue, New York, New York 10036

Van Kampen Investor Services Inc.
2800 Post Oak Blvd., Houston, Texas 77056

Morgan Stanley Trust Company
Harborside Financial Center, Plaza Two, Jersey City, New Jersey 07311

Listed below are the officers and Directors of Morgan Stanley Investment
Advisors.




       NAME AND POSITION WITH
     MORGAN STANLEY INVESTMENT                             OTHER SUBSTANTIAL
           ADVISORS INC.                           BUSINESS, PROFESSION, OR VOCATION
- -----------------------------------   -----------------------------------------------------------

Stuart Bohart                         President; Managing Director and Director of Morgan
President, Managing Director          Stanley Investment Management Inc., Van Kampen
and Director                          Advisors Inc. and Van Kampen Asset Management,
                                      Director and Managing Director of Van Kampen
                                      Investments Inc., Head of Global Fixed Income Group
                                      of Morgan Stanley Investment Management.

Ronald E. Robison                     Managing Director and Director of Van Kampen Asset
Managing Director and Director        Management, Morgan Stanley Distributors Inc., Morgan
                                      Stanley Distribution, Inc. and Morgan Stanley Investment
                                      Management Inc., President, Chief Executive Officer and
                                      Director of Morgan Stanley Services Company Inc.,
                                      Director of Morgan Stanley Trust, Van Kampen Investments
                                      Inc., Van Kampen Investor Services Inc. and Managing
                                      Director of Van Kampen Advisors Inc.

Amy R. Doberman                       Managing Director and General Counsel, U.S. Investment
Managing Director and Secretary       Management of Morgan Stanley Investment Management

Dennis F. Shea                        Managing Director and Chief Investment Officer - Global
Managing Director and Chief           Equity Group of Morgan Stanley Investment Management
Investment Officer - Global Equity
Group

Carsten Otto                          Managing Director and Global Head of Compliance for Morgan
Managing Director                     Stanley Investment Management and Chief Compliance
                                      Officer of Morgan Stanley Retail Funds and Institutional
                                      Funds.

Mary Ann Picciotto                    Chief Compliance Officer of Morgan Stanley Investment
Executive Director and                Management Inc., Van Kampen Asset Management and
Chief Compliance Officer              Van Kampen Advisors Inc.

       NAME AND POSITION WITH
      MORGAN STANLEY INVESTMENT                            OTHER SUBSTANTIAL
            ADVISORS INC.                          BUSINESS, PROFESSION, OR VOCATION
- ------------------------------------   ---------------------------------------------------------

Kenneth Castiglia                      Managing Director, Chief Financial Officer and Treasurer
Managing Director, Chief Financial     of Morgan Stanley Investment Management
Officer and Treasurer


For information as to the business, profession, vocation or employment of a
substantial nature of additional officers of the Investment Adviser, reference
is made to the Investment Adviser's current Form ADV (File No. 801-42061) filed
under the Investment Advisers Act of 1940, incorporated herein by reference.


ITEM 27. PRINCIPAL UNDERWRITERS

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

(1) Active Assets California Tax-Free Trust

(2) Active Assets Government Securities Trust

(3) Active Assets Institutional Government Securities Trust

(4) Active Assets Institutional Money Trust

(5) Active Assets Money Trust

(6) Active Assets Tax-Free Trust

(7) Morgan Stanley Allocator Fund

(8) Morgan Stanley Balanced Growth Fund

(9) Morgan Stanley California Tax-Free Daily Income Trust

(10) Morgan Stanley California Tax-Free Income Fund

(11) Morgan Stanley Capital Opportunities Trust

(12) Morgan Stanley Convertible Securities Trust

(13) Morgan Stanley Dividend Growth Securities Inc.

(14) Morgan Stanley Equally-Weighted S&P 500 Fund

(15) Morgan Stanley European Equity Fund Inc.

(16) Morgan Stanley Financial Services Trust

(17) Morgan Stanley Flexible Income Trust

(18) Morgan Stanley Focus Growth Fund

(19) Morgan Stanley Fundamental Value Fund

(20) Morgan Stanley FX Series Funds

(21) Morgan Stanley Global Advantage Fund

(22) Morgan Stanley Global Dividend Growth Securities

(23) Morgan Stanley Health Sciences Trust

(24) Morgan Stanley High Yield Securities Inc.

(25) Morgan Stanley Income Trust

(26) Morgan Stanley Institutional Strategies Fund

(27) Morgan Stanley International Fund

(28) Morgan Stanley International SmallCap Fund

(29) Morgan Stanley International Value Equity Fund

(30) Morgan Stanley Japan Fund

(31) Morgan Stanley Limited Duration Fund

(32) Morgan Stanley Limited Duration U.S. Government Trust

(33) Morgan Stanley Limited Term Municipal Trust

(34) Morgan Stanley Liquid Asset Fund Inc.

(35) Morgan Stanley Mid Cap Growth Fund

(36) Morgan Stanley Mid-Cap Value Fund

(37) Morgan Stanley Mortgage Securities Trust

(38) Morgan Stanley Multi-Asset Class Fund

(39) Morgan Stanley Nasdaq-100 Index Fund

(40) Morgan Stanley Natural Resource Development Securities Inc.

(41) Morgan Stanley New York Municipal Money Market Trust

(42) Morgan Stanley New York Tax-Free Income Fund

(43) Morgan Stanley Pacific Growth Fund Inc.

(44) Morgan Stanley Prime Income Trust

(45) Morgan Stanley Real Estate Fund

(46) Morgan Stanley S&P 500 Index Fund

(47) Morgan Stanley Select Dimensions Investment Series

(48) Morgan Stanley Series Funds

(49) Morgan Stanley Small-Mid Special Value Fund

(50) Morgan Stanley Special Growth Fund

(51) Morgan Stanley Special Value Fund

(52) Morgan Stanley Strategist Fund

(53) Morgan Stanley Tax-Exempt Securities Trust

(54) Morgan Stanley Tax-Free Daily Income Trust

(55) Morgan Stanley Technology Fund

(56) Morgan Stanley Total Market Index Fund

(57) Morgan Stanley U.S. Government Money Market Trust

(58) Morgan Stanley U.S. Government Securities Trust

(59) Morgan Stanley Utilities Fund

(60) Morgan Stanley Value Fund

(61) Morgan Stanley Variable Investment Series

(b) The following information is given regarding directors and officers of
Morgan Stanley Distributors not listed in Item 25 above. The principal address
of Morgan Stanley Distributors is 522 Fifth Avenue, New York, New York 10036.
None of the following persons has any position or office with the Registrant.






     NAME AND PRINCIPAL          POSITIONS AND OFFICES WITH            POSITIONS AND OFFICES
      BUSINESS ADDRESS                   UNDERWRITER                      WITH REGISTRANT
- ----------------------------   ------------------------------   ----------------------------------

Ronald E. Robison              Director                         President and Principal Executive
                                                                Officer

Kenneth Castiglia              Director, Chief Financial        None
                               Officer and Treasurer

Jerry Miller                   Director and President           None

Brian Binder                   Chief Administrative Officer     None

Stefanie Chang Yu              Secretary                        Vice President

Evan Gordon                    Vice President and Chief         None
                               Compliance Officer

Gina Gallagher                 Chief AML Office                 None

Joseph D' Auria                Financial and Operations         None
                               Principal


(c) Not applicable.


ITEM 28. LOCATION OF ACCOUNTS AND RECORDS

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

State Street Bank and Trust Company
One Lincoln Street, Boston, Massachusetts 02111
(records relating to its function as custodian)

Morgan Stanley Investment Advisors Inc.
522 Fifth Avenue
New York, New York 10036
(records relating to its function as investment adviser)

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

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


ITEM 29. MANAGEMENT SERVICES


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


ITEM 30. UNDERTAKINGS


None.

                                   SIGNATURES
                                   ----------

             Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness pursuant to Rule 485(b) under the Securities
Act of 1933 and has duly caused this Post-Effective Amendment to the
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of New York and State of New York on the 28th day
of May, 2008.

                                MORGAN STANLEY BALANCED FUND

                                By /s/ Ronald E. Robison
                                   ------------------------------------------
                                       Ronald E. Robison
                                       President and Principal Executive Officer

     Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 18 has been signed below by the following persons
in the capacities and on the dates indicated.

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

(1) Principal Executive Officer      President and
                                     Principal Executive
By /s/ Ronald E. Robison             Officer                        May 28, 2008
   ------------------------------
       Ronald E. Robison

(2) Principal Financial Officer      Chief Financial Officer


By /s/ Francis J. Smith                                             May 28, 2008
   ------------------------------
       Francis J. Smith

(3) Majority of the Trustees

    James F. Higgins

By /s/ Stefanie V. Chang Yu                                         May 28, 2008
   ------------------------------
       Stefanie V. Chang Yu
       Attorney-in-Fact


     Frank L. Bowman       Joseph J. Kearns
     Michael Bozic         Michael F. Klein
     Kathleen A. Dennis    Michael E. Nugent (Chairperson)
     Manuel H. Johnson     W. Allen Reed
                           Fergus Reid

By /s/ Carl Frischling                                              May 28, 2008
   ------------------------------
       Carl Frischling
       Attorney-in-Fact

                          MORGAN STANLEY BALANCED FUND
                                 Exhibit Index

(a)(5) Amendment to the Declaration of Trust, dated March 26, 2008.

(b)    Amended and Restated By-Laws of the Registrant, dated February 27, 2008.

(g)(1) Custody Agreement, dated March 7, 2008.

(g)(2) Data Access Services Agreement.

(i)(2) Consent of Clifford Chance US LLP.

(j)    Consent of Independent Registered Public Accounting Firm.

(p)(1) Code of Ethics of Morgan Stanley Investment Management, dated May 12,
       2008.

(q)    Power of Attorneys of Trustees, dated April 25, 2008.

EX-99.(A)(5)

                                   CERTIFICATE

         The undersigned hereby certifies that she is the Secretary of Morgan
Stanley Balanced Fund (the "Trust"), an unincorporated business trust organized
under the laws of the Commonwealth of Massachusetts, that annexed hereto is an
Amendment to the Declaration of Trust duly adopted by the Trustees of the Trust
on March 26, 2008 as provided in Section 9.3 of the Declaration of Trust of the
Trust, said Amendment to take effect on March 31, 2008 and I do hereby further
certify that such Amendment has not been amended and is on the date hereof in
full force and effect.

         Dated this 26th day of March, 2008




                                               /s/ Mary E. Mullin
                                               ------------------
                                               Mary E. Mullin
                                               Secretary

                                    AMENDMENT



Dated:                     March 26, 2008
To be Effective:           March 31, 2008






                                       TO

                          MORGAN STANLEY BALANCED FUND

                              DECLARATION OF TRUST

                                      DATED

                                November 22, 1994

                    AMENDMENT TO THE DECLARATION OF TRUST OF

                          MORGAN STANLEY BALANCED FUND


WHEREAS, Morgan Stanley Balanced Fund (the "Trust") was established by the
Declaration of Trust dated November 22, 1994, as amended from time to time (the
"Declaration"), under the laws of the Commonwealth of Massachusetts;

WHEREAS, Section 9.3 of the Declaration provides that the Trustees may amend the
Declaration without the vote or consent of Shareholders to change the name of
the Trust or any Series or Classes of Shares;

WHEREAS, the Trustees of the Trust have deemed it advisable to redesignate the
Class D Shares of the Trust as the Class I Shares, such changes to be effective
on March 31, 2008;

NOW, THEREFORE:

1. The Declaration is hereby amended to redesignate Class D Shares of the Trust
as "Class I Shares."

2. The Trustees of the Trust hereby reaffirm the Declaration, as amended, in all
respects.

3. This amendment may be executed in more than one counterpart, each of which
shall be deemed an original, but all of which together shall constitute one and
the same document.

IN WITNESS THEREOF, the undersigned, the Trustees of the Trust, have executed
this instrument this 26th day of March 2008. [Executed in counterparts]





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

/s/ Frank L. Bowman                                          /s/ Michael Bozic
- ------------------------------------                         -----------------------------------
Frank L. Bowman, as Trustee, and not individually            Michael Bozic, as Trustee, and not individually
c/o Kramer Levin Naftalis & Frankel LLP                      c/o Kramer Levin Naftalis & Frankel LLP
Counsel to the Independent Trustees                          Counsel to the Independent Trustees
1177 Avenue of the Americas                                  1177 Avenue of the Americas
New York, NY 10036                                           New York, NY 10036
- ------------------------------------------------------------ ---------------------------------------------------------


/s/ Kathleen A. Dennis                                       /s/ Manuel H. Johnson
- ------------------------------------                         -----------------------------------
Kathleen A. Dennis, as Trustee, and not individually         Dr. Manuel H. Johnson, as Trustee, and not individually
c/o Kramer Levin Naftalis & Frankel LLP                      c/o Johnson Smick Group, Inc.
Counsel to the Independent Trustees                          888 16th Street, N.W., Suite 740
1177 Avenue of the Americas                                  Washington, D.C. 20006
New York, NY 10036
- ------------------------------------------------------------ ---------------------------------------------------------


/s/ James F. Higgins                                         /s/ Joseph J. Kearns
- ------------------------------------                         -----------------------------------
James F. Higgins, as Trustee, and not individually           Joseph J. Kearns, as Trustee, and not individually
c/o Morgan Stanley Trust                                     c/o Kearns & Associates LLC
Harborside Financial Center, Plaza Two                       PMB754
Jersey City, NJ 07311                                        23852 Pacific Coast Highway
                                                             Malibu, CA 90265

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


/s/ Michael F. Klein                                         /s/ Michael E. Nugent
- ------------------------------------                         -----------------------------------
Michael F. Klein, as Trustee, and not individually           Michael E. Nugent, as Trustee, and not individually
c/o Kramer Levin Naftalis & Frankel LLP                      c/o Triumph Capital, L.P.
Counsel to the Independent Trustees                          445 Park Avenue
1177 Avenue of the Americas                                  New York, NY 10022
New York, NY 10036

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


/s/ W. Allen Reed                                            /s/ Fergus Reid
- ------------------------------------                         -----------------------------------
W. Allen Reed, as Trustee, and not individually              Fergus Reid, as Trustee, and not individually
c/o Kramer Levin Naftalis & Frankel LLP                      c/o Lumelite Plastics Corporation
Counsel to the Independent Trustees                          85 Charles Colman Blvd.
1177 Avenue of the Americas                                  Pawling, NY 12564
New York, NY 10036

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

STATE OF NEW YORK )
                                    )ss:
COUNTY OF NEW YORK         )


     On this 26th day of March 2008, FRANK L. BOWMAN, MICHAEL BOZIC, KATHLEEN A.
DENNIS, MANUEL H. JOHNSON, JAMES F. HIGGINS, JOSEPH J. KEARNS, MICHAEL F. KLEIN,
MICHAEL E. NUGENT, W. ALLEN REED AND FERGUS REID, known to me to be the
individuals described in and who executed the foregoing instrument, personally
appeared before me and they severally acknowledged the foregoing instrument to
be their free act and deed.



                                         /s/ Indira Alli
                                         ------------------------------------
                                         Notary Public


My Commission expires:  February 7, 2009    Indira Alli
                                            Notary Public, State of New York
                                            No. 01Al6122206
                                            Qualified in Queens County
                                            Commission Expires February 7, 2009

EX-99.(B)

                                     BY-LAWS

                                       OF

                          MORGAN STANLEY BALANCED FUND
                  AMENDED AND RESTATED AS OF FEBRUARY 27, 2008

                                    ARTICLE I
                                   DEFINITIONS

     The terms "Commission," "Declaration," "Distributor," "Investment Adviser,"
"Majority Shareholder Vote," "1940 Act," "Shareholder," "Shares," "Transfer
Agent," "Trust," "Trust Property," and "Trustees" have the respective meanings
given them in the Declaration of Trust of Morgan Stanley Balanced Fund dated
November 23, 1994, as amended from time to time.

                                   ARTICLE II
                                     OFFICES

     SECTION 2.1. Principal Office. Until changed by the Trustees, the principal
office of the Trust in the Commonwealth of Massachusetts shall be in the City of
Boston, County of Suffolk.

     SECTION 2.2. Other Offices. In addition to its principal office in the
Commonwealth of Massachusetts, the Trust may have an office or offices in the
City of New York, State of New York, and at such other places within and without
the Commonwealth as the Trustees may from time to time designate or the business
of the Trust may require.

                                   ARTICLE III
                             SHAREHOLDERS' MEETINGS

     SECTION 3.1. Place of Meetings. Meetings of Shareholders shall be held at
such place, within or without the Commonwealth of Massachusetts, as may be
designated from time to time by the Trustees.

     SECTION 3.2. Meetings. Meetings of Shareholders of the Trust shall be held
whenever called by the Trustees or the President of the Trust and whenever
election of a Trustee or Trustees by Shareholders is required by the provisions
of Section 16(a) of the 1940 Act, for that purpose. Meetings of Shareholders
shall also be called by the Secretary upon the written request of the holders of
Shares entitled to vote as otherwise required by Section 16(c) of the 1940 Act
and to the extent required by the corporate or business statute of any state in
which the Shares of the Trust are sold, as made applicable to the Trust by the
provisions of Section 2.3 of the Declaration. Such request shall state the
purpose or purposes of such meeting and the matters proposed to be acted on
thereat. Except to the extent otherwise required by Section 16(c) of the 1940
Act, as made applicable to the Trust by the provisions of Section 2.3 of the
Declaration, the Secretary shall inform such Shareholders of the reasonable
estimated cost of preparing and mailing such notice of the meeting, and upon
payment to the Trust of such costs, the Secretary shall give notice stating the
purpose or purposes of the meeting to all entitled to vote at such meeting. No
meeting need be called upon the request of the holders of Shares entitled to
cast less than a majority of all votes entitled to be cast at such meeting, to
consider any matter which is substantially the same as a matter voted upon at
any meeting of Shareholders held during the preceding twelve months.

     SECTION 3.3. Notice of Meetings. Written or printed notice of every
Shareholders' meeting stating the place, date, and purpose or purposes thereof,
shall be given by the Secretary not less than ten (10) nor more than ninety (90)
days before such meeting to each Shareholder entitled to vote at such meeting.
Such notice shall be deemed to be given when deposited in the United States
mail, postage prepaid, directed to the Shareholder at his address as it appears
on the records of the Trust.



                                       1

     SECTION 3.4 Quorum and Adjournment of Meetings. Except as otherwise
provided by law, by the Declaration or by these By-Laws, at all meetings of
Shareholders, the holders of a majority of the Shares issued and outstanding and
entitled to vote thereat, present in person or represented by proxy, shall be
requisite and shall constitute a quorum for the transaction of business. In the
absence of a quorum, the Shareholders present or represented by proxy and
entitled to vote thereat shall have the power to adjourn the meeting from time
to time. The Shareholders present in person or represented by proxy at any
meeting and entitled to vote thereat also shall have the power to adjourn the
meeting from time to time if the vote required to approve or reject any proposal
described in the original notice of such meeting is not obtained (with proxies
being voted for or against adjournment consistent with the votes for and against
the proposal for which the required vote has not been obtained). The affirmative
vote of the holders of a majority of the Shares then present in person or
represented by proxy shall be required to adjourn any meeting. Any adjourned
meeting may be reconvened without further notice or change in record date. At
any reconvened meeting at which a quorum shall be present, any business may be
transacted that might have been transacted at the meeting as originally called.

     SECTION 3.5. Voting Rights, Proxies. At each meeting of Shareholders, each
holder of record of Shares entitled to vote thereat shall be entitled to one
vote in person or by proxy for each Share of beneficial interest of the Trust
and for the fractional portion of one vote for each fractional Share entitled to
vote so registered in his or her name on the records of the Trust on the date
fixed as the record date for the determination of Shareholders entitled to vote
at such meeting. Without limiting the manner in which a Shareholder may
authorize another person or persons to act for such Shareholder as proxy
pursuant hereto, the following shall constitute a valid means by which a
Shareholder may grant such authority:

     (i) A Shareholder may execute a writing authorizing another person or
     persons to act for such Shareholder as proxy. Execution may be accomplished
     by the Shareholder or such Shareholder's authorized officer, director,
     employee, attorney-in-fact or another agent signing such writing or causing
     such person's signature to be affixed to such writing by any reasonable
     means including, but not limited to, by facsimile or telecopy signature. No
     written evidence of authority of a Shareholder's authorized officer,
     director, employee, attorney-in-fact or other agent shall be required; and

     (ii) A Shareholder may authorize another person or persons to act for such
     Shareholder as proxy by transmitting or authorizing the transmission of a
     telegram or cablegram or by other means of telephonic, electronic or
     computer transmission to the person who will be the holder of the proxy or
     to a proxy solicitation firm, proxy support service organization or like
     agent duly authorized by the person who will be the holder of the proxy to
     receive such transmission, provided that any such telegram or cablegram or
     other means of telephonic, electronic or computer transmission must either
     set forth or be submitted with information from which it can be determined
     that the telegram, cablegram or other transmission was authorized by the
     Shareholder.

No proxy shall be valid after eleven months from its date, unless otherwise
provided in the proxy. At all meetings of Shareholders, unless the voting is
conducted by inspectors, all questions relating to the qualification of voters
and the validity of proxies and the acceptance or rejection of votes shall be
decided by the chairman of the meeting. In determining whether a telegram,
cablegram or other electronic transmission is valid, the chairman or inspector,
as the case may be, shall specify the information upon which he or she relied.
Pursuant to a resolution of a majority of the Trustees, proxies may be solicited
in the name of one or more Trustees or Officers of the Trust. Proxy
solicitations may be made in writing or by using telephonic or other electronic
solicitation procedures that include appropriate methods of verifying the
identity of the Shareholder and confirming any instructions given thereby.

     SECTION 3.6. Vote Required. Except as otherwise provided by law, by the
Declaration of Trust, or by these By-Laws, at each meeting of Shareholders at
which a quorum is present, all matters shall be decided by Majority Shareholder
Vote.



                                       2

     SECTION 3.7. Inspectors of Election. In advance of any meeting of
Shareholders, the Trustees may appoint Inspectors of Election to act at the
meeting or any adjournment thereof. If Inspectors of Election are not so
appointed, the chairman of any meeting of Shareholders may, and on the request
of any Shareholder or his proxy shall, appoint Inspectors of Election of the
meeting. In case any person appointed as Inspector fails to appear or fails or
refuses to act, the vacancy may be filled by appointment made by the Trustees in
advance of the convening of the meeting or at the meeting by the person acting
as chairman. The Inspectors of Election shall determine the number of Shares
outstanding, the Shares represented at the meeting, the existence of a quorum,
the authenticity, validity and effect of proxies, shall receive votes, ballots
or consents, shall hear and determine all challenges and questions in any way
arising in connection with the right to vote, shall count and tabulate all votes
or consents, determine the results, and do such other acts as may be proper to
conduct the election or vote with fairness to all Shareholders. On request of
the chairman of the meeting, or of any Shareholder or his proxy, the Inspectors
of Election shall make a report in writing of any challenge or question or
matter determined by them and shall execute a certificate of any facts found by
them.

     SECTION 3.8. Inspection of Books and Records. Shareholders shall have such
rights and procedures of inspection of the books and records of the Trust as are
granted to Shareholders under Section 32 of the Business Corporation Law of the
Commonwealth of Massachusetts.

     SECTION 3.9. Action by Shareholders Without Meeting. Except as otherwise
provided by law, the provisions of these By-Laws relating to notices and
meetings to the contrary notwithstanding, any action required or permitted to be
taken at any meeting of Shareholders may be taken without a meeting if a
majority of the Shareholders entitled to vote upon the action consent to the
action in writing and such consents are filed with the records of the Trust.
Such consent shall be treated for all purposes as a vote taken at a meeting of
Shareholders.

     SECTION 3.10. Presence at Meetings. Presence at meetings of shareholders
requires physical attendance by the shareholder or his or her proxy at the
meeting site and does not encompass attendance by telephonic or other electronic
means.

                                   ARTICLE IV
                                    TRUSTEES

     SECTION 4.1. Meetings of the Trustees. The Trustees may in their discretion
provide for regular or special meetings of the Trustees. Regular meetings of the
Trustees may be held at such time and place as shall be determined from time to
time by the Trustees without further notice. Special meetings of the Trustees
may be called at any time by the Chairman and shall be called by the Chairman or
the Secretary upon the written request of any two (2) Trustees.

     SECTION 4.2. Notice of Special Meetings. Written notice of special meetings
of the Trustees, stating the place, date and time thereof, shall be given not
less than two (2) days before such meeting to each Trustee, personally, by
telegram, by mail, or by leaving such notice at his place of residence or usual
place of business. If mailed, such notice shall be deemed to be given when
deposited in the United States mail, postage prepaid, directed to the Trustee at
his address as it appears on the records of the Trust. Subject to the provisions
of the 1940 Act, notice or waiver of notice need not specify the purpose of any
special meeting.

     SECTION 4.3. Telephone Meetings. Subject to the provisions of the 1940 Act,
any Trustee, or any member or members of any committee designated by the
Trustees, may participate in a meeting of the Trustees, or any such committee,
as the case may be, by means of a conference telephone or similar communications
equipment if all persons participating in the meeting can hear each other at the
same time. Participation in a meeting by these means constitutes presence in
person at the meeting.




                                       3

     SECTION 4.4. Quorum, Voting and Adjournment of Meetings. At all meetings of
the Trustees, a majority of the Trustees shall be requisite to and shall
constitute a quorum for the transaction of business. If a quorum is present, the
affirmative vote of a majority of the Trustees present shall be the act of the
Trustees, unless the concurrence of a greater proportion is expressly required
for such action by law, the Declaration or these By-Laws. If at any meeting of
the Trustees there be less than a quorum present, the Trustees present thereat
may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall have been obtained.


                                       4

     SECTION 4.5. Action by Trustees Without Meeting. The provisions of these
By-Laws covering notices and meetings to the contrary notwithstanding, and
except as required by law, any action required or permitted to be taken at any
meeting of the Trustees may be taken without a meeting if a consent in writing
setting forth the action shall be signed by all of the Trustees entitled to vote
upon the action and such written consent is filed with the minutes of
proceedings of the Trustees.

     SECTION 4.6. Expenses and Fees. Each Trustee may be allowed expenses, if
any, for attendance at each regular or special meeting of the Trustees, and each
Trustee who is not an officer or employee of the Trust or of its investment
manager or underwriter or of any corporate affiliate of any of said persons
shall receive for services rendered as a Trustee of the Trust such compensation
as may be fixed by the Trustees. Nothing herein contained shall be construed to
preclude any Trustee from serving the Trust in any other capacity and receiving
compensation therefor.

     SECTION 4.7. Execution of Instruments and Documents and Signing of Checks
and Other Obligations and Transfers. All instruments, documents and other papers
shall be executed in the name and on behalf of the Trust and all checks, notes,
drafts and other obligations for the payment of money by the Trust shall be
signed, and all transfer of securities standing in the name of the Trust shall
be executed, by the Chairman, the President, any Vice President or the Treasurer
or by any one or more officers or agents of the Trust as shall be designated for
that purpose by vote of the Trustees; notwithstanding the above, nothing in this
Section 4.7 shall be deemed to preclude the electronic authorization, by
designated persons, of the Trust's Custodian (as described herein in Section
9.1) to transfer assets of the Trust, as provided for herein in Section 9.1.


     SECTION 4.8. Indemnification of Trustees, Officers, Employees and Agents.
(a) The Trust shall indemnify any person who was or is a party or is threatened
to be made a party to any threatened, pending, or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other than
an action by or in the right of the Trust) by reason of the fact that he is or
was a Trustee, officer, employee, or agent of the Trust. The indemnification
shall be against expenses, including attorneys' fees, judgments, fines, and
amounts paid in settlement, actually and reasonably incurred by him in
connection with the action, suit, or proceeding, if he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best interests
of the Trust, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the Trust,
and, with respect to any criminal action or proceeding, had reasonable cause to
believe that his conduct was unlawful.

     (b) The Trust shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or on behalf of the Trust to obtain a judgment or decree in its favor by
reason of the fact that he is or was a Trustee, officer, employee, or agent of
the Trust. The indemnification shall be against expenses, including attorneys'
fees actually and reasonably incurred by him in connection with the defense or
settlement of the action or suit, if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the Trust;
except that no indemnification shall be made in respect of any claim, issue, or
matter as to which the person has been adjudged to be liable for negligence or
misconduct in the performance of his duty to the Trust, except to the extent
that the court in which the action or suit was brought, or a court of equity in
the county in which the Trust has its principal office, determines upon
application that, despite the adjudication of liability but in view of all
circumstances of the case, the person is fairly and reasonably entitled to
indemnity for those expenses which the court shall deem proper, provided such
Trustee, officer, employee or agent is not adjudged to be liable by reason of
his willful misfeasance, bad faith, gross negligence or reckless disregard of
the duties involved in the conduct of his office.

                                       5

     (c) To the extent that a Trustee, officer, employee, or agent of the Trust
has been successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in subsection (a) or (b) or in defense of any claim,
issue or matter therein, he shall be indemnified against expenses, including
attorneys' fees, actually and reasonably incurred by him in connection
therewith.

     (d) (1) Unless a court orders otherwise, any indemnification under
subsections (a) or (b) of this section may be made by the Trust only as
authorized in the specific case after a determination that indemnification of
the Trustee, officer, employee, or agent is proper in the circumstances because
he has met the applicable standard of conduct set forth in subsections (a) or
(b).

          (2) The determination shall be made:

            (i) By the Trustees, by a majority vote of a quorum which consists
      of Trustees who were not parties to the action, suit or proceeding; or

            (ii) If the required quorum is not obtainable, or if a quorum of
      disinterested Trustees so directs, by independent legal counsel in a
      written opinion; or

           (iii) By the Shareholders.

          (3) Notwithstanding any provision of this Section 4.8, no person shall
     be entitled to indemnification for any liability, whether or not there is
     an adjudication of liability, arising by reason of willful misfeasance, bad
     faith, gross negligence, or reckless disregard of duties as described in
     Section 17(h) and (i) of the Investment Company Act of 1940 ("disabling
     conduct"). A person shall be deemed not liable by reason of disabling
     conduct if, either:

            (i) a final decision on the merits is made by a court or other body
      before whom the proceeding was brought that the person to be indemnified
      ("indemnitee") was not liable by reason of disabling conduct; or

            (ii) in the absence of such a decision, a reasonable determination,
      based upon a review of the facts, that the indemnitee was not liable by
      reason of disabling conduct, is made by either--

                 (A) a majority of a quorum of Trustees who are neither
            "interested persons" of the Trust, as defined in Section 2(a)(19) of
            the Investment Company Act of 1940, nor parties to the action, suit
            or proceeding, or

                 (B) an independent legal counsel in a written opinion.

     (e) Expenses, including attorneys' fees, incurred by a Trustee, officer,
employee or agent of the Trust in defending a civil or criminal action, suit or
proceeding may be paid by the Trust in advance of the final disposition thereof
if:

              (1) authorized in the specific case by the Trustees; and

              (2) the Trust receives an undertaking by or on behalf of the
        Trustee, officer, employee or agent of the Trust to repay the advance if
        it is not ultimately determined that such person is entitled to be
        indemnified by the Trust; and

              (3) either, (i) such person provides a security for his
        undertaking, or

                  (ii) the Trust is insured against losses by reason of any
lawful advances, or

                 (iii) a determination, based on a review of readily available
            facts, that there is reason to believe that such person ultimately
            will be found entitled to indemnification, is made by either--

                       (A) a majority of a quorum which consists of Trustees who
                  are neither "interested persons" of the Trust, as defined in
                  Section 2(a)(19) of the 1940 Act, nor parties to the action,
                  suit or proceeding, or

                       (B) an independent legal counsel in a written opinion.


                                       6

     (f) The indemnification provided by this Section shall not be deemed
exclusive of any other rights to which a person may be entitled under any
by-law, agreement, vote of Shareholders or disinterested Trustees or otherwise,
both as to action in his official capacity and as to action in another capacity
while holding the office, and shall continue as to a person who has ceased to be
a Trustee, officer, employee, or agent and inure to the benefit of the heirs,
executors and administrators of such person; provided that no person may satisfy
any right of indemnity or reimbursement granted herein or to which he may be
otherwise entitled except out of the property of the Trust, and no Shareholder
shall be personally liable with respect to any claim for indemnity or
reimbursement or otherwise.

     (g) The Trust may purchase and maintain insurance on behalf of any person
who is or was a Trustee, officer, employee, or agent of the Trust, against any
liability asserted against him and incurred by him in any such capacity, or
arising out of his status as such. However, in no event will the Trust purchase
insurance to indemnify any officer or Trustee against liability for any act for
which the Trust itself is not permitted to indemnify him.

     (h) Nothing contained in this Section shall be construed to protect any
Trustee or officer of the Trust against any liability to the Trust or to its
security holders to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office.

                                    ARTICLE V
                                   COMMITTEES

     SECTION 5.1. Executive and Other Committees. The Trustees, by resolution
adopted by a majority of the Trustees, may designate an Executive Committee
and/or committees, each committee to consist of two (2) or more of the Trustees
of the Trust and may delegate to such committees, in the intervals between
meetings of the Trustees, any or all of the powers of the Trustees in the
management of the business and affairs of the Trust. In the absence of any
member of any such committee, the members thereof present at any meeting,
whether or not they constitute a quorum, may appoint a Trustee to act in place
of such absent member. Each such committee shall keep a record of its
proceedings.

     The Executive Committee and any other committee shall fix its own rules or
procedure, but the presence of at least fifty percent (50%) of the members of
the whole committee shall in each case be necessary to constitute a quorum of
the committee and the affirmative vote of the majority of the members of the
committee present at the meeting shall be necessary to take action.

     All actions of the Executive Committee shall be reported to the Trustees at
the meeting thereof next succeeding to the taking of such action.

     SECTION 5.2. Advisory Committee. The Trustees may appoint an advisory
committee which shall be composed of persons who do not serve the Trust in any
other capacity and which shall have advisory functions with respect to the
investments of the Trust but which shall have no power to determine that any
security or other investment shall be purchased, sold or otherwise disposed of
by the Trust. The number of persons constituting any such advisory committee
shall be determined from time to time by the Trustees. The members of any such
advisory committee may receive compensation for their services and may be
allowed such fees and expenses for the attendance at meetings as the Trustees
may from time to time determine to be appropriate.

     SECTION 5.3. Committee Action Without Meeting. The provisions of these
By-Laws covering notices and meetings to the contrary notwithstanding, and
except as required by law, any action required or permitted to be taken at any
meeting of any Committee of the Trustees appointed pursuant to Section 5.1 of
these By-Laws may be taken without a meeting if a consent in writing setting
forth the action shall be signed by all members of the Committee entitled to
vote upon the action and such written consent is filed with the records of the
proceedings of the Committee.

                                       7

                                   ARTICLE VI
                                    OFFICERS

     SECTION 6.1. Executive Officers. The executive officers of the Trust shall
be a Chairman, a Principal Executive Officer, a President, a Chief Financial
Officer, one or more Vice Presidents, a Secretary and a Treasurer. The Chairman
shall be selected from among the Trustees but none of the other executive
officers need be a Trustee. Two or more offices, except those of President and
any Vice President, may be held by the same person, but no officer shall
execute, acknowledge or verify any instrument in more than one capacity. The
executive officers of the Trust shall be elected annually by the Trustees and
each executive officer so elected shall hold office until his or her successor
is elected and has qualified.

     SECTION 6.2. Other Officers and Agents. The Trustees may also elect one or
more Assistant Vice Presidents, Assistant Secretaries and Assistant Treasurers
and may elect, or may delegate to the Chairman the power to appoint, such other
officers and agents as the Trustees shall at any time or from time to time deem
advisable.

     SECTION 6.3. Term and Removal and Vacancies. Each officer of the Trust
shall hold office until his or her successor is elected and has qualified. Any
officer or agent of the Trust may be removed by the Trustees whenever, in their
judgment, the best interests of the Trust will be served thereby, but such
removal shall be without prejudice to the contractual rights, if any, of the
person so removed.

     SECTION 6.4. Compensation of Officers. The compensation of officers and
agents of the Trust shall be fixed by the Trustees, or by the Chairman to the
extent provided by the Trustees with respect to officers appointed by the
Chairman.

     SECTION 6.5. Powers and Duties. All officers and agents of the Trust, as
between themselves and the Trust, shall have such authority and perform such
duties in the management of the Trust as may be provided in or pursuant to these
By-Laws or, to the extent not so provided, as may be prescribed by the Trustees;
provided that no rights of any third party shall be affected or impaired by any
such By-Law or resolution of the Trustees unless such third party has knowledge
thereof.

     SECTION 6.6. The Chairman. The Chairman shall preside at all meetings of
the Shareholders and of the Trustees and shall perform such other duties as the
Trustees may from time to time prescribe.

     SECTION 6.7. The President. The President shall have general and active
management of the business of the Trust. He or she shall see that all orders and
resolutions of the Board of Trustees are carried into effect. He or she shall
have such other duties as may be prescribed from time to time by the Board of
Trustees. The President shall be authorized to delegate to one or more Vice
Presidents such of his or her powers and duties at such times and in such manner
as he or she may deem advisable.

     SECTION 6.7.1. The Principal Executive Officer. The Principal Executive
Officer shall be considered the principal executive officer of the Trust for
purposes of Section 6 of the Securities Act of 1933, as amended, and shall have
the responsibility conferred upon the principal executive officer of an issuer
under the Sarbanes-Oxley Act of 2002.

     SECTION 6.8. The Vice Presidents. The Vice Presidents shall be of such
number and shall have such titles as may be determined from time to time by the
Trustees. The Vice President, or, if there shall be more than one, the Vice
Presidents in such order as may be determined from time to time by the Trustees
or the Chairman, shall, in the absence or disability of the President, exercise
the powers and perform the duties of the President, and shall perform such other
duties as the Trustees or the Chairman may from time to time prescribe.


                                       8

     SECTION 6.9. The Assistant Vice Presidents. The Assistant Vice President,
or, if there shall be more than one, the Assistant Vice Presidents in such order
as may be determined from time to time by the Trustees or the Chairman, shall
perform such duties and have such powers as may be assigned them from time to
time by the Trustees or the Chairman.

     SECTION 6.10. The Secretary. The Secretary shall attend all meetings of the
Trustees and all meetings of the Shareholders and record all the proceedings of
the meetings of the Shareholders and of the Trustees in a book to be kept for
that purpose, and shall perform like duties for the standing committees when
required. He or she shall give, or cause to be given, notice of all meetings of
the Shareholders and special meetings of the Trustees, and shall perform such
other duties and have such powers as the Trustees or the Chairman may from time
to time prescribe. He or she shall keep in safe custody the seal of the Trust
and affix or cause the same to be affixed to any instrument requiring it, and,
when so affixed, it shall be attested by his or her signature or by the
signature of an Assistant Secretary.


                                       9

     SECTION 6.11. The Assistant Secretaries. The Assistant Secretary, or, if
there shall be more than one, the Assistant Secretaries in such order as may be
determined from time to time by the Trustees or the Chairman, shall, in the
absence or disability of the Secretary, perform the duties and exercise the
powers of the Secretary and shall perform such duties and have such other powers
as the Trustees or the Chairman may from time to time prescribe.

     SECTION 6.12. The Treasurer. The Treasurer shall perform such duties as the
Board of Trustees or the President may from time to time prescribe.

     SECTION 6.13. The Assistant Treasurers. The Assistant Treasurer, or, if
there shall be more than one, the Assistant Treasurers in such order as may be
determined from time to time by the Trustees or the Chairman, shall, in the
absence or disability of the Treasurer, perform the duties and exercise the
powers of the Treasurer and shall perform such other duties and have such other
powers as the Trustees or the Chairman may from time to time prescribe.

     SECTION 6.14. The Chief Financial Officer. The Chief Financial Officer
shall keep or cause to be kept full and accurate accounts of receipts and
disbursements in books belonging to the Trust, and he or she shall render to the
Trustees and the President, whenever any of them require it, an account of his
or her transactions as Chief Financial Officer and of the financial condition of
the Trust, and he or she shall perform such other duties as the Trustees or the
President may from time to time prescribe. He or she shall be considered the
principal financial officer of the Trust for purposes of Section 6 of the
Securities Act of 1933, as amended, and shall have the responsibility conferred
upon the principal financial officer of an issuer under the Sarbanes-Oxley Act
of 2002.

     SECTION 6.15. Delegation of Duties. Whenever an officer is absent or
disabled, or whenever for any reason the Trustees may deem it desirable, the
Trustees may delegate the powers and duties of an officer or officers to any
other officer or officers or to any Trustee or Trustees.

                                   ARTICLE VII
                           DIVIDENDS AND DISTRIBUTIONS

     Subject to any applicable provisions of law and the Declaration, dividends
and distributions upon the Shares may be declared at such intervals as the
Trustees may determine, in cash, in securities or other property, or in Shares,
from any sources permitted by law, all as the Trustees shall from time to time
determine.

     Inasmuch as the computation of net income and net profits from the sales of
securities or other properties for federal income tax purposes may vary from the
computation thereof on the records of the Trust, the Trustees shall have power,
in their discretion, to distribute as income dividends and as capital gain
distributions, respectively, amounts sufficient to enable the Trust to avoid or
reduce liability for federal income taxes.

                                  ARTICLE VIII
                             CERTIFICATES OF SHARES

     SECTION 8.1. Certificates of Shares. Certificates for Shares of each series
or class of Shares shall be in such form and of such design as the Trustees
shall approve, subject to the right of the Trustees to change such form and
design at any time or from time to time, and shall be entered in the records of
the Trust as they are issued. Each such certificate shall bear a distinguishing
number; shall exhibit the holder's name and certify the number of full Shares
owned by such holder; shall be signed by or in the name of the Trust by the
Chairman, the President, or a Vice President, and countersigned by the Secretary
or an Assistant Secretary or the Treasurer and an Assistant Treasurer of the
Trust; and shall contain such recitals as may be required by law. Where any
certificate is signed by a Transfer Agent or by a Registrar, the signature of
such officers may be facsimile, printed or engraved. The Trust may, at its
option, determine not to issue a certificate or certificates to evidence Shares
owned of record by any Shareholder.


                                       10

     In case any officer or officers who shall have signed, or whose facsimile
signature or signatures shall appear on, any such certificate or certificates
shall cease to be such officer or officers of the Trust, whether because of
death, resignation or otherwise, before such certificate or certificates shall
have been delivered by the Trust, such certificate or certificates shall,
nevertheless, be adopted by the Trust and be issued and delivered as though the
person or persons who signed such certificate or certificates or whose facsimile
signature or signatures shall appear therein had not ceased to be such officer
or officers of the Trust.

     No certificate shall be issued for any share until such share is fully
paid.

     SECTION 8.2. Lost, Stolen, Destroyed and Mutilated Certificates. The
Trustees may direct a new certificate or certificates to be issued in place of
any certificate or certificates theretofore issued by the Trust alleged to have
been lost, stolen or destroyed, upon satisfactory proof of such loss, theft, or
destruction; and the Trustees may, in their discretion, require the owner of the
lost, stolen or destroyed certificate, or his legal representative, to give to
the Trust and to such Registrar, Transfer Agent and/or Transfer Clerk as may be
authorized or required to countersign such new certificate or certificates, a
bond in such sum and of such type as they may direct, and with such surety or
sureties, as they may direct, as indemnity against any claim that may be against
them or any of them on account of or in connection with the alleged loss, theft
or destruction of any such certificate.

                                   ARTICLE IX
                                    CUSTODIAN

     SECTION 9.1. Appointment and Duties. The Trust shall at times employ a bank
or trust company having capital, surplus and undivided profits of at least five
million dollars ($5,000,000) as custodian with authority as its agent, but
subject to such restrictions, limitations and other requirements, if any, as may
be contained in these By-Laws and the 1940 Act:


      (1) to receive and hold the securities owned by the Trust and deliver the
      same upon written or electronically transmitted order.

      (2) to receive and receipt for any moneys due to the Trust and deposit the
      same in its own banking department or elsewhere as the Trustees may
      direct;

      (3) to disburse such funds upon orders or vouchers;

all upon such basis of compensation as may be agreed upon between the Trustees
and the custodian. If so directed by a Majority Shareholder Vote, the custodian
shall deliver and pay over all property of the Trust held by it as specified in
such vote.

     The Trustees may also authorize the custodian to employ one or more
sub-custodians from time to time to perform such of the acts and services of the
custodian and upon such terms and conditions as may be agreed upon between the
custodian and such sub-custodian and approved by the Trustees.

     SECTION 9.2. Central Certificate System. Subject to such rules, regulations
and orders as the Commission may adopt, the Trustees may direct the custodian to
deposit all or any part of the securities owned by the Trust in a system for the
central handling of securities established by a national securities exchange or
a national securities association registered with the Commission under the
Securities Exchange Act of 1934, or such other person as may be permitted by the
Commission, or otherwise in accordance with the 1940 Act, pursuant to which
system all securities of any particular class or series of any issuer deposited
within the system are treated as fungible and may be transferred or pledged by
bookkeeping entry without physical delivery of such securities, provided that
all such deposits shall be subject to withdrawal only upon the order of the
Trust.


                                       11

                                    ARTICLE X
                                WAIVER OF NOTICE

     Whenever any notice of the time, place or purpose of any meeting of
Shareholders, Trustees, or of any committee is required to be given in
accordance with law or under the provisions of the Declaration or these By-Laws,
a waiver thereof in writing, signed by the person or persons entitled to such
notice and filed with the records of the meeting, whether before or after the
holding thereof, or actual attendance at the meeting of shareholders, Trustees
or committee, as the case may be, in person, shall be deemed equivalent to the
giving of such notice to such person.

                                   ARTICLE XI
                                  MISCELLANEOUS

     SECTION 11.1. Location of Books and Records. The books and records of the
Trust may be kept outside the Commonwealth of Massachusetts at such place or
places as the Trustees may from time to time determine, except as otherwise
required by law.

     SECTION 11.2 Record Date. The Trustees may fix in advance a date as the
record date for the purpose of determining the Shareholders entitled to (i)
receive notice of, or to vote at, any meeting of Shareholders, or (ii) receive
payment of any dividend or the allotment of any rights, or in order to make a
determination of Shareholders for any other proper purpose. The record date, in
any case, shall not be more than one hundred eighty (180) days, and in the case
of a meeting of Shareholders not less than ten (10) days, prior to the date on
which such meeting is to be held or the date on which such other particular
action requiring determination of Shareholders is to be taken, as the case may
be. In the case of a meeting of Shareholders, the meeting date set forth in the
notice to Shareholders accompanying the proxy statement shall be the date used
for purposes of calculating the 180 day or 10 day period, and any adjourned
meeting may be reconvened without a change in record date. In lieu of fixing a
record date, the Trustees may provide that the transfer books shall be closed
for a stated period but not to exceed, in any case, twenty (20) days. If the
transfer books are closed for the purpose of determining Shareholders entitled
to notice of a vote at a meeting of Shareholders, such books shall be closed for
at least ten (10) days immediately preceding the meeting.

     SECTION 11.3. Seal. The Trustees shall adopt a seal, which shall be in such
form and shall have such inscription thereon as the Trustees may from time to
time provide. The seal of the Trust may be affixed to any document, and the seal
and its attestation may be lithographed, engraved or otherwise printed on any
document with the same force and effect as if it had been imprinted and attested
manually in the same manner and with the same effect as if done by a
Massachusetts business corporation under Massachusetts law.

     SECTION 11.4. Fiscal Year. The fiscal year of the Trust shall end on such
date as the Trustees may by resolution specify, and the Trustees may by
resolution change such date for future fiscal years at any time and from time to
time.

     SECTION 11.5. Orders for Payment of Money. All orders or instructions for
the payment of money of the Trust, and all notes or other evidences of
indebtedness issued in the name of the Trust, shall be signed by such officer or
officers or such other person or persons as the Trustees may from time to time
designate, or as may be specified in or pursuant to the agreement between the
Trust and the bank or trust company appointed as Custodian of the securities and
funds of the Trust.


                                       12

                                   ARTICLE XII
                       COMPLIANCE WITH FEDERAL REGULATIONS

     The Trustees are hereby empowered to take such action as they may deem to
be necessary, desirable or appropriate so that the Trust is or shall be in
compliance with any federal or state statute, rule or regulation with which
compliance by the Trust is required.

                                  ARTICLE XIII
                                   AMENDMENTS

     These By-Laws may be amended, altered, or repealed, or new By-Laws may be
adopted, (a) by a Majority Shareholder Vote, or (b) by the Trustees; provided,
however, that no By-Law may be amended, adopted or repealed by the Trustees if
such amendment, adoption or repeal requires, pursuant to law, the Declaration,
or these By-Laws, a vote of the Shareholders. The Trustees shall in no event
adopt By-Laws which are in conflict with the Declaration, and any apparent
inconsistency shall be construed in favor of the related provisions in the
Declaration.

                                   ARTICLE XIV
                              DECLARATION OF TRUST


     The Declaration of Trust establishing Morgan Stanley Balanced Fund, dated
November 23, 1994, a copy of which, together with all amendments thereto, is on
file in the office of the Secretary of the Commonwealth of Massachusetts,
provides that the name Morgan Stanley Balanced Fund refers to the Trustees under
the Declaration collectively as Trustees, but not as individuals or personally;
and no Trustee, Shareholder, officer, employee or agent of Morgan Stanley
Balanced Fund shall be held to any personal liability, nor shall resort be had
to their private property for the satisfaction of any obligation or claim or
otherwise, in connection with the affairs of said Morgan Stanley Balanced Fund,
but the Trust Estate only shall be liable.




                                       13

EX-99.(G)(1)

                               CUSTODIAN CONTRACT

     This Contract dated as of March 7, 2008, between each fund or series of a
fund listed on Appendix A, severally and not jointly, which evidences its
agreement to be bound hereby by executing a copy of this Contract (each such
Fund is individually hereinafter referred to as the "Fund"), and State Street
Bank and Trust Company, a Massachusetts trust company, having its principal
place of business at One Lincoln Street, Boston, Massachusetts, 02111
(hereinafter called the "Custodian"), to be effective as of the dates on
Appendix A,

     WITNESSETH THAT, in consideration of the mutual covenants and agreements
hereinafter contained, the parties hereto agree as follows:

1.   Employment of Custodian and Property to be Held by It

     Each Fund hereby employs the Custodian as the custodian of the assets of
the Fund, including securities which the Fund desires to be held in places
within the United States ("domestic securities") and securities it desires to be
held outside the United States ("foreign securities") pursuant to the provisions
of the Fund's governing documents. Each Fund agrees to deliver to the Custodian
all securities and cash of the Fund, and all payments of income, payments of
principal or capital distributions received by it with respect to all securities
owned by the Fund from time to time, and the cash consideration received by it
for such new or treasury shares of capital stock or beneficial interest, as
applicable, of the Fund representing interests in the Fund ("Shares") as may be
issued or sold from time to time. The Custodian shall not be responsible for any
property of a Fund held or received by the Fund and not delivered to the
Custodian.

     Upon receipt of "Proper Instructions" (within the meaning of Article 6 of
this Contract), the Custodian shall on behalf of the applicable Fund from time
to time employ one or more sub-custodians, located in the United States but only
in accordance with an applicable vote by the Board of Trustees/Directors of the
applicable Fund (the "Board") and provided that the Custodian shall have no more
or less responsibility or liability to the Fund on account of any actions or
omissions of any sub-custodian so employed than any such sub-custodian has to
the Custodian and provided, further, that the foregoing shall not affect the
responsibility of the Custodian as set forth in Section 14 hereof. The Custodian
may employ as sub-custodian for the Fund's foreign securities the foreign
banking institutions and foreign securities depositories designated in Schedules
A and B hereto but only in accordance with the provisions of Articles 3 and 4.

2.   Duties of the Custodian with Respect to Property of the Fund Held By the
     Custodian in the United States

2.1  Holding Securities. The Custodian shall hold and physically segregate for
     the account of each Fund all non-cash property, to be held by it in the
     United States including all domestic securities owned by such Fund, other
     than securities which are maintained pursuant to Section 2.10 in a clearing
     agency which acts as a securities depository or in a book-entry

     system authorized by the U.S. Department of the Treasury and certain
     federal agencies (collectively referred to herein as a "U.S. Securities
     System").

2.2  Delivery of Securities. The Custodian shall release and deliver domestic
     securities owned by a Fund held by the Custodian or in a U.S. Securities
     System account of the Custodian only upon receipt of Proper Instructions
     from the Fund, which may be continuing instructions when deemed appropriate
     by the parties, and only in the following cases:

     1)   Upon sale of such securities for the account of the Fund in accordance
          with customary or established market practices and procedures,
          including, without limitation, delivery to the purchaser thereof or to
          a dealer therefor (or an agent of such purchaser or dealer) against
          payment;

     2)   Upon the receipt of payment in connection with any repurchase
          agreement related to such securities entered into by the Fund;

     3)   In the case of a sale effected through a U.S. Securities System, in
          accordance with the provisions of Section 2.10 hereof;

     4)   To the depository agent in connection with tender or other similar
          offers for securities of the Fund;

     5)   To the issuer thereof or its agent when such securities are called,
          redeemed, retired or otherwise become payable; provided that, in any
          such case, the cash or other consideration is to be delivered to the
          Custodian;

     6)   To the issuer thereof, or its agent, for transfer into the name of the
          Fund or into the name of any nominee or nominees of the Custodian or
          into the name or nominee name of any agent appointed pursuant to
          Section 2.9 or into the name or nominee name of any sub-custodian
          appointed pursuant to Article 1; or for exchange for a different
          number of bonds, certificates or other evidence representing the same
          aggregate face amount or number of units; provided that, in any such
          case, the new securities are to be delivered to the Custodian;

     7)   Upon the sale of such securities for the account of the Fund, to the
          broker or its clearing agent, against a receipt, for examination in
          accordance with "street delivery" custom; provided that in any such
          case, the Custodian shall have no responsibility or liability for any
          loss arising from the delivery of such securities prior to receiving
          payment for such securities except as may arise from the Custodian's
          own negligence or willful misconduct;

     8)   For exchange or conversion pursuant to any plan of merger,
          consolidation, recapitalization, reorganization or readjustment of the
          securities of the issuer of such securities, or pursuant to provisions
          for conversion contained in such securities, or


                                        2

          pursuant to any deposit agreement; provided that, in any such case,
          the new securities and cash, if any, are to be delivered to the
          Custodian;

     9)   In the case of warrants, rights or similar securities, the surrender
          thereof in the exercise of such warrants, rights or similar securities
          or the surrender of interim receipts or temporary securities for
          definitive securities; provided that, in any such case, the new
          securities and cash, if any, are to be delivered to the Custodian;

     10)  For delivery in connection with any loans of securities made by the
          Fund, but only against receipt of adequate collateral as agreed upon
          from time to time by the Custodian and the Fund, which may be in the
          form of cash or obligations issued by the United States government,
          its agencies or instrumentalities, except that in connection with any
          loans for which collateral is to be credited to the Custodian's
          account in the book-entry system authorized by the U.S. Department of
          the Treasury, the Custodian will not be held liable or responsible for
          the delivery of securities owned by the Fund prior to the receipt of
          such collateral;

     11)  For delivery as security in connection with any borrowings by the Fund
          requiring a pledge of assets by the Fund, but only against receipt of
          amounts borrowed;

     12)  For delivery in accordance with the provisions of any agreement among
          the Fund, the Custodian and a broker-dealer registered under the
          Securities Exchange Act of 1934 (the "Exchange Act") and a member of
          the Financial Industry Regulatory Authority ("FINRA"), relating to
          compliance with the rules of The Options Clearing Corporation and of
          any registered national securities exchange, or of any similar
          organization or organizations, regarding escrow or other arrangements
          in connection with transactions by the Fund;

     13)  For delivery in accordance with the provisions of any agreement among
          the Fund, the Custodian, and a Futures Commission Merchant registered
          under the Commodity Exchange Act, relating to compliance with the
          rules of the Commodity Futures Trading Commission and/or any Contract
          Market, or any similar organization or organizations, regarding
          account deposits in connection with transactions by the Fund;

     14)  Upon receipt of instructions from the transfer agent ("Transfer
          Agent") for the Fund, for delivery to such Transfer Agent or to the
          holders of shares in connection with distributions in kind, as may be
          described from time to time in the currently effective prospectus and
          statement of additional information of the Fund ("Prospectus"), in
          satisfaction of requests by holders of Shares for repurchase or
          redemption;


                                        3

     15)  For delivery of initial or variation margin in connection with trading
          in futures and options on futures contracts entered into by the Fund;

     16)  For any other purpose, but only upon receipt of Proper Instructions
          from the Fund, specifying the securities of the Fund to be delivered
          and naming the person or persons to whom delivery of such securities
          shall be made; and;

     17)  Upon termination of the Contract.

2.3  Registration of Securities. Domestic securities held by the Custodian
     (other than bearer securities) shall be registered on the books and records
     of the Custodian in the name of the Fund or in the name of any nominee of
     the Fund or of any nominee of the Custodian which nominee shall be assigned
     exclusively to the Fund, unless the Fund has authorized in writing the
     appointment of a nominee to be used in common with other registered
     investment companies having the same investment adviser or investment
     manager as the Fund, or in the name or nominee name of any agent appointed
     pursuant to Section 2.9 or in the name or nominee name of any sub-custodian
     appointed pursuant to Article 1. All securities accepted by the Custodian
     on behalf of the Fund under the terms of this Contract shall be in "street
     name" or other good delivery form. If, however, the Fund directs the
     Custodian to maintain securities in "street name", the Custodian shall
     utilize its best efforts to promptly (i) collect income due the Fund on
     such securities and (ii) notify the Fund of relevant corporate actions
     including, without limitation, pendency of calls, maturities, tender or
     exchange offers.

2.4  Bank Accounts. The Custodian shall open and maintain a separate bank
     account or accounts in the United States in the name of each Fund, subject
     only to draft or order by the Custodian acting pursuant to the terms of
     this Contract, and shall hold in such account or accounts, subject to the
     provisions hereof, all cash received by it from or for the account of the
     Fund, other than cash maintained by the Fund in a bank account established
     and used in accordance with Rule 17f-3 under the Investment Company Act of
     1940, as amended (the "1940 Act"). Funds held by the Custodian for a Fund
     may be deposited by it to its credit as Custodian in the Banking Department
     of the Custodian or in such other banks or trust companies as it may in its
     discretion deem necessary or desirable; provided, however, that every such
     bank or trust company shall be qualified to act as a custodian under the
     1940 Actand that each such bank or trust company and the funds to be
     deposited with each such bank or trust company shall on behalf of each
     applicable Fund be approved by vote of a majority of the Board of the Fund.
     Such funds shall be deposited by the Custodian in its capacity as Custodian
     and shall be withdrawable by the Custodian only in that capacity.

2.5  Availability of Federal Funds. Upon mutual agreement between the Fund and
     the Custodian, the Custodian shall, upon the receipt of Proper Instructions
     from the Fund, make federal funds available to such Fund as of specified
     times agreed upon from time to time by the Fund and the Custodian in the
     amount of checks received in payment for Shares of such Fund which are
     deposited into the Fund's account.


                                        4

2.6  Collection of Income. Subject to the provisions of Section 2.3, the
     Custodian shall collect on a timely basis all income and other payments
     with respect to registered domestic securities held hereunder to which the
     Fund shall be entitled either by law or pursuant to custom in the
     securities business, and shall collect on a timely basis all income and
     other payments with respect to bearer domestic securities if, on the date
     of payment by the issuer, such securities are held by the Custodian or its
     agent. Without limiting the generality of the foregoing, the Custodian
     shall detach and present for payment all coupons and other income items
     requiring presentation as and when they become due and shall collect
     interest when due on securities held hereunder. The Custodian shall credit
     income to the Fund as such income is received or in accordance with
     Custodian's then current payable date income schedule. Any credit to the
     Fund in advance of receipt may be reversed when the Custodian determines
     that payment will not occur in due course and the Fund may be charged at
     the Custodian's applicable rate for time credited. Income due each Fund on
     securities loaned pursuant to the provisions of Section 2.2 (10) shall be
     the responsibility of the Fund. The Custodian will have no duty or
     responsibility in connection therewith, other than to provide the Fund with
     such information or data as may be necessary to assist the Fund in
     arranging for the timely delivery to the Custodian of the income to which
     the Fund is properly entitled.

2.7  Payment of Fund Monies. The Custodian shall pay out monies of the Fund as
     provided in Section 24 and otherwise upon receipt of Proper Instructions
     from the Fund, which may be continuing instructions when deemed appropriate
     by the parties, in the following cases only:

     1)   Upon the purchase of domestic securities, options, futures contracts
          or options on futures contracts for the account of the Fund but only
          (a) in accordance with customary or established market practices and
          procedures, including, without limitation, against delivery of such
          securities or evidence of title to such options, futures contracts or
          options on futures contracts to the Custodian (or any bank, banking
          firm or trust company doing business in the United States or abroad
          which is qualified under the Investment Company Act of 1940, as
          amended, to act as a custodian and has been designated by the
          Custodian as its agent for this purpose) registered in the name of the
          Fund or in the name of a nominee of the Custodian referred to in
          Section 2.3 hereof or in proper form for transfer; (b) in the case of
          a purchase effected through a U.S. Securities System, in accordance
          with the conditions set forth in Section 2.10 hereof; (c) in the case
          of repurchase agreements entered into between the Fund and the
          Custodian, or another bank, or a broker-dealer which is a member of
          FINRA, (i) against delivery of the securities either in certificate
          form or through an entry crediting the Custodian's account at the
          Federal Reserve Bank with such securities or (ii) against delivery of
          the receipt evidencing purchase by the Fund of securities owned by the
          Custodian along with written evidence of the agreement by the
          Custodian to repurchase such securities from the Fund or (d) for
          transfer to a time deposit account of the Fund in any bank, whether
          domestic or foreign; such transfer may be effected prior to receipt of
          a confirmation


                                        5

          confirmation from a broker and/or the applicable bank pursuant to
          Proper Instructions from the Fund as defined in Article 6;

     2)   In connection with conversion, exchange or surrender of securities
          owned by the Fund as set forth in Section 2.2 hereof;

     3)   For the redemption or repurchase of Shares issued by the Fund as set
          forth in Article 5 hereof;

     4)   For the payment of any expense or liability incurred by the Fund,
          including but not limited to the following payments for the account of
          the Fund: interest, taxes, management, accounting, transfer agent and
          legal fees, and operating expenses of the Fund whether or not such
          expenses are to be in whole or part capitalized or treated as deferred
          expenses;

     5)   For the payment of any dividends on Shares of the Fund declared
          pursuant to the governing documents of the Fund;

     6)   For payment of the amount of dividends received in respect of
          securities sold short;

     7)   For the payment of initial or variation margin in connection with
          trading in futures and options on futures contracts entered into by
          the Fund;

     8)   For any other purpose, but only upon receipt of Proper Instructions
          from the Fund, specifying the amount of such payment and naming the
          person or persons to whom such payment is to be made; and

     9)   Upon termination of this Contract.

2.8  Liability for Payment in Advance of Receipt of Securities Purchased. Except
     as specifically stated otherwise in this Contract, in any and every case
     where payment for purchase of domestic securities for the account of a Fund
     is made by the Custodian in advance of receipt of the securities purchased
     in the absence of specific written instructions from the Fund to so pay in
     advance, the Custodian shall be absolutely liable to the Fund for such
     securities to the same extent as if the securities had been received by the
     Custodian.

2.9  Appointment of Agents. The Custodian may at any time or times in its
     discretion appoint (and may at any time remove) any other bank or trust
     company which is itself qualified under the 1940 Act, to act as a
     custodian, as its agent to carry out such of the provisions of this Article
     2 as the Custodian may from time to time direct; provided, however, that
     the appointment of any agent shall not relieve the Custodian of its
     responsibilities or liabilities hereunder.


                                        6

2.10 Deposit of Fund Assets in U.S. Securities Systems. The Custodian may
     deposit and/or maintain securities owned by a Fund in a U.S. Securities
     System in compliance with the conditions of Rule 17f-4 under the 1940 Act,
     from time to time.

2.11 [Reserved.]

2.12 Segregated Account. The Custodian shall upon receipt of Proper Instructions
     from the Fund establish and maintain a segregated account or accounts for
     and on behalf of each such Fund, into which account or accounts may be
     transferred cash and/or securities, including securities maintained in an
     account by the Custodian pursuant to Section 2.10 hereof, (i) in accordance
     with the provisions of any agreement among the Fund, the Custodian and a
     broker-dealer registered under the Exchange Act and a member of FINRA (or
     any futures commission merchant registered under the Commodity Exchange
     Act), relating to compliance with the rules of The Options Clearing
     Corporation and of any registered national securities exchange (or the
     Commodity Futures Trading Commission or any registered contract market), or
     of any similar organization or organizations, regarding escrow or other
     arrangements in connection with transactions by the Fund, (ii) for purposes
     of segregating cash or government securities in connection with options
     purchased, sold or written by the Fund or commodity futures contracts or
     options thereon purchased or sold by the Fund, (iii) for the purposes of
     compliance by the Fund with the procedures required by Investment Company
     Act Release No. 10666, or any subsequent release or releases of the
     Securities and Exchange Commission (the "SEC") or interpretative opinion of
     the staff of the SEC relating to the maintenance of segregated accounts by
     registered investment companies and (iv) for any other purpose, upon
     receipt of Proper Instructions from the Fund.

2.13 Ownership Certificates for Tax Purposes. The Custodian shall execute
     ownership and other certificates and affidavits for all federal and state
     tax purposes in connection with receipt of income or other payments with
     respect to domestic securities of each Fund held by it and in connection
     with transfers of securities.

2.14 Proxies. The Custodian shall, with respect to the domestic securities held
     hereunder, cause to be promptly executed by the registered holder of such
     securities, if the securities are registered otherwise than in the name of
     the Fund or a nominee of the Fund, all proxies, without indication of the
     manner in which such proxies are to be voted, and shall promptly deliver to
     the Fund such proxies, all proxy soliciting materials and all notices
     relating to such securities.

2.15 Communications Relating to Fund Securities. Subject to the provisions of
     Section 2.3, the Custodian shall transmit promptly to the Fund all written
     information (including, without limitation, pendency of calls and
     maturities of domestic securities and expirations of rights in connection
     therewith and notices of exercise of call and put options written by the
     Fund and the maturity of futures contracts purchased or sold by the Fund)
     received by the


                                        7

     Custodian from issuers of the securities being held for the Fund. With
     respect to tender or exchange offers, the Custodian shall transmit promptly
     to the Fund all written information received by the Custodian from issuers
     of the securities whose tender or exchange is sought and from the party (or
     its agents) making the tender or exchange offer. If the Fund desires to
     take action with respect to any tender offer, exchange offer or any other
     similar transaction, the Fund shall notify the Custodian at least three
     business days prior to the date on which the Custodian is to take such
     action.

3.   Provisions Relating to Rules 17f-5 and 17f-7 of the 1940 Act

3.1. Definitions. Capitalized terms in this Contract shall have the following
     meanings:

"Country Risk" means all factors reasonably related to the systemic risk of
holding Foreign Assets in a particular country including, but not limited to,
such country's political environment, economic and financial infrastructure
(including any Eligible Securities Depository operating in the country),
prevailing or developing custody and settlement practices, and laws and
regulations applicable to the safekeeping and recovery of Foreign Assets held in
custody in that country.

"Eligible Foreign Custodian" has the meaning set forth in section (a)(1) of Rule
17f-5, including a majority-owned direct or indirect subsidiary of a U.S. Bank
(as defined in Rule 17f-5), a bank holding company meeting the requirements of
an Eligible Foreign Custodian (as set forth in Rule 17f-5 or by other
appropriate action of the SEC, or a foreign branch of a Bank (as defined in
Section 2(a)(5) of the 1940 Act) meeting the requirements of a custodian under
Section 17(f) of the 1940 Act; the term does not include any Eligible Securities
Depository.

"Eligible Securities Depository" has the meaning set forth in section (b)(1) of
Rule 17f-7.

"Foreign Assets" means any of the Funds' investments (including foreign
currencies) for which the primary market is outside the United States and such
cash and cash equivalents as are reasonably necessary to effect the Funds'
transactions in such investments.

"Foreign Custody Manager" has the meaning set forth in section (a)(3) of Rule
17f-5.

3.2. The Custodian as Foreign Custody Manager.

     3.2.1 Delegation to the Custodian as Foreign Custody Manager. The Fund, by
resolution adopted by its Board, hereby delegates to the Custodian, subject to
Section (b) of Rule 17f-5, the responsibilities set forth in this Section 3.2
with respect to Foreign Assets of the Funds held outside the United States, and
the Custodian hereby accepts such delegation as Foreign Custody Manager with
respect to the Funds.

     3.2.2 Countries Covered. The Foreign Custody Manager shall be responsible
for performing the delegated responsibilities defined below only with respect to
the countries and custody arrangements for each such country listed on Schedule
A to this Contract, which list of countries may be amended from time to time by
the Fund with the agreement of the Foreign


                                        8

Custody Manager. The Foreign Custody Manager shall list on Schedule A the
Eligible Foreign Custodians selected by the Foreign Custody Manager to maintain
the assets of the Funds, which list of Eligible Foreign Custodians may be
amended from time to time in the sole discretion of the Foreign Custody Manager.
The Foreign Custody Manager will provide amended versions of Schedule A in
accordance with Section 3.2.5 hereof.

Upon the receipt by the Foreign Custody Manager of Proper Instructions to open
an account or to place or maintain Foreign Assets in a country listed on
Schedule A, and the fulfillment by the Fund of the applicable account opening
requirements for such country, the Foreign Custody Manager shall be deemed to
have been delegated by the Board on behalf of the Funds responsibility as
Foreign Custody Manager with respect to that country and to have accepted such
delegation. Execution of this Contract by the Fund shall be deemed to be a
Proper Instruction to open an account, or to place or maintain Foreign Assets,
in each country listed on Schedule A in which the Custodian has previously
placed or currently maintains Foreign Assets pursuant to the terms of the
Contract. Following the receipt of Proper Instructions directing the Foreign
Custody Manager to close the account of a Fund with the Eligible Foreign
Custodian selected by the Foreign Custody Manager in a designated country, the
delegation by the Board on behalf of the Funds to the Custodian as Foreign
Custody Manager for that country shall be deemed to have been withdrawn and the
Custodian shall immediately cease to be the Foreign Custody Manager of the Funds
with respect to that country.

The Foreign Custody Manager may withdraw its acceptance of delegated
responsibilities with respect to a designated country upon prior written notice
to the Fund. Sixty (60) days (or such longer period to which the parties agree
in writing) after receipt of any such notice by the Fund, the Custodian shall
have no further responsibility in its capacity as Foreign Custody Manager to the
Fund with respect to the country as to which the Custodian's acceptance of
delegation is withdrawn.

     3.2.3 Scope of Delegated Responsibilities:

          (a) Selection of Eligible Foreign Custodians. Subject to the
provisions of this Section 3.2, the Foreign Custody Manager may place and
maintain the Foreign Assets in the care of the Eligible Foreign Custodian
selected by the Foreign Custody Manager in each country listed on Schedule A, as
amended from time to time. In performing its delegated responsibilities as
Foreign Custody Manager to place or maintain Foreign Assets in the care of an
Eligible Foreign Custodian, the Foreign Custody Manager shall determine that the
Foreign Assets will be subject to reasonable care, based on the standards
applicable to custodians in the relevant market in which the Foreign Assets will
be maintained by that Eligible Foreign Custodian, after considering all factors
relevant to the safekeeping of such assets, including, without limitation the
factors specified in Rule 17f-5(c)(1).

          (b) Contracts With Eligible Foreign Custodians. The Foreign Custody
Manager shall determine that the contract governing the foreign custody
arrangements with each


                                        9

Eligible Foreign Custodian selected by the Foreign Custody Manager will satisfy
the requirements of Rule 17f-5(c)(2).

          (c) Monitoring. In each case in which the Foreign Custody Manager
maintains Foreign Assets with an Eligible Foreign Custodian selected by the
Foreign Custody Manager, the Foreign Custody Manager shall establish a system to
monitor (i) the appropriateness of maintaining the Foreign Assets with such
Eligible Foreign Custodian and (ii) performance of the contract governing the
custody arrangements established by the Foreign Custody Manager with the
Eligible Foreign Custodian. In the event the Foreign Custody Manager determines
that the custody arrangements with an Eligible Foreign Custodian it has selected
no longer meets the requirements of Rule 17f-5, the Foreign Custody Manager
shall notify the Board in accordance with Section 3.2.5 hereunder.

     3.2.4 Guidelines for the Exercise of Delegated Authority. For purposes of
this Section 3.2, subject to Section 3.2.6 hereunder, the Board shall be deemed
to have considered and determined to accept such Country Risk as is incurred by
placing and maintaining the Foreign Assets in each country for which the
Custodian is serving as Foreign Custody Manager of the Funds.

     3.2.5 Reporting Requirements. The Foreign Custody Manager shall report the
withdrawal of the Foreign Assets from an Eligible Foreign Custodian and the
placement of such Foreign Assets with another Eligible Foreign Custodian by
providing to the Board an amended Schedule A at the end of the calendar quarter
in which an amendment to such Schedule has occurred. The Foreign Custody Manager
shall make written reports notifying the Board of any other material change in
the foreign custody arrangements of the Funds described in this Section 3.2 with
reasonable promptness after the occurrence of the material change.

     3.2.6 Standard of Care as Foreign Custody Manager of a Fund. In performing
the responsibilities delegated to it, the Foreign Custody Manager agrees to
exercise reasonable care, prudence and diligence such as a person having
responsibility for the safekeeping of the Fund's Foreign Assets would exercise.

     3.2.7 Representations with Respect to Rule 17f-5. The Foreign Custody
Manager represents to the Fund that it is a U.S. Bank as defined in section
(a)(7) of Rule 17f-5. The Fund represents to the Custodian that the Board has
determined that it is reasonable for the Board to rely on the Custodian to
perform the responsibilities delegated pursuant to this Contract to the
Custodian as the Foreign Custody Manager of the Funds.

     3.2.8 Effective Date and Termination of the Custodian as Foreign Custody
Manager. The Board's delegation to the Custodian as Foreign Custody Manager of
the Funds shall be effective as of the date hereof and shall remain in effect
until terminated at any time, without penalty, by written notice from the
terminating party to the non-terminating party. Termination will become
effective thirty (30) days after receipt by the non-terminating party of such
notice. The provisions of Section 3.2.2 hereof shall govern the delegation to
and termination of the Custodian as Foreign Custody Manager of the Funds with
respect to designated countries.


                                       10

3.3  Eligible Securities Depositories.

     3.3.1 Analysis and Monitoring. The Custodian shall (a) provide the Fund (or
its duly-authorized investment manager or investment adviser) with an analysis
of the custody risks associated with maintaining assets with the Eligible
Securities Depositories set forth on Schedule B hereto in accordance with
section (a)(1)(i)(A) of Rule 17f-7, and (b) monitor such risks on a continuing
basis, and promptly notify the Fund (or its duly-authorized investment manager
or investment adviser) of any material change in such risks, in accordance with
section (a)(1)(i)(B) of Rule 17f-7.

     3.3.2 Standard of Care. The Custodian agrees to exercise reasonable care,
prudence and diligence in performing the duties set forth in Section 3.3.1.

4.   Duties of the Custodian with Respect to Property of the Funds Held Outside
     the United States.

4.1 Definitions. Capitalized terms in this Article 4 shall have the following
meanings:

"Foreign Securities System" means an Eligible Securities Depository listed on
Schedule B hereto.

"Foreign Sub-Custodian" means a foreign banking institution serving as an
Eligible Foreign Custodian.

4.2. Holding Securities. The Custodian shall identify on its books as belonging
to the Funds the foreign securities held by each Foreign Sub-Custodian or
Foreign Securities System. The Custodian may hold foreign securities for all of
its customers, including the Funds, with any Foreign Sub-Custodian in an account
that is identified as belonging to the Custodian for the benefit of its
customers, provided however, that (i) the records of the Custodian with respect
to foreign securities of the Funds which are maintained in such account shall
identify those securities as belonging to the Funds and (ii) except where it is
otherwise required by applicable law or market practice, the Custodian will
require each Sub-Custodian to identify in its own records that securities held
at such Sub-Custodian by the Custodian on behalf of the Funds belong to the
Sub-Custodian's customers, such that it is readily apparent that the securities
do not belong to the Sub-Custodian, and the Custodian shall require that
securities so held by the Foreign Sub-Custodian be held separately from any
assets of such Foreign Sub-Custodian or of other customers of such Foreign
Sub-Custodian.

4.3. Foreign Securities Systems. Foreign securities shall be maintained in a
Foreign Securities System in a designated country through arrangements
implemented by the Custodian or a Foreign Sub-Custodian, as applicable, in such
country.


                                       11

4.4. Transactions in Foreign Custody Account.

     4.4.1. Delivery of Foreign Assets. The Custodian or a Foreign Sub-Custodian
shall release and deliver foreign securities of the Funds held by the Custodian
or such Foreign Sub-Custodian, or in a Foreign Securities System account, only
upon receipt of Proper Instructions, which may be continuing instructions when
deemed appropriate by the parties, and only in the following cases:

     (i)    upon the sale of such foreign securities for the Fund in accordance
            with commercially reasonable market practice in the country where
            such foreign securities are held or traded, including, without
            limitation: (A) delivery against expectation of receiving later
            payment; or (B) in the case of a sale effected through a Foreign
            Securities System, in accordance with the rules governing the
            operation of the Foreign Securities System;

     (ii)   in connection with any repurchase agreement related to foreign
            securities;

     (iii)  to the depository agent in connection with tender or other similar
            offers for foreign securities of the Funds;

     (iv)   to the issuer thereof or its agent when such foreign securities are
            called, redeemed, retired or otherwise become payable;

     (v)    to the issuer thereof, or its agent, for transfer into the name of
            the Custodian (or the name of the respective Foreign Sub-Custodian
            or of any nominee of the Custodian or such Foreign Sub-Custodian) or
            for exchange for a different number of bonds, certificates or other
            evidence representing the same aggregate face amount or number of
            units;

     (vi)   to brokers, clearing banks or other clearing agents for examination
            or trade execution in accordance with market custom; provided that
            in any such case the Foreign Sub-Custodian shall have no
            responsibility or liability for any loss arising from the delivery
            of such securities prior to receiving payment for such securities
            except as may arise from the Foreign Sub-Custodian's own negligence
            or willful misconduct;

     (vii)  for exchange or conversion pursuant to any plan of merger,
            consolidation, recapitalization, reorganization or readjustment of
            the securities of the issuer of such securities, or pursuant to
            provisions for conversion contained in such securities, or pursuant
            to any deposit agreement;

     (viii) in the case of warrants, rights or similar foreign securities, the
            surrender thereof in the exercise of such warrants, rights or
            similar securities or the surrender of interim receipts or temporary
            securities for definitive securities;


                                       12

     (ix)   for delivery as security in connection with any borrowing by the
            Funds requiring a pledge of assets by the Funds;

     (x)    in connection with trading in options and futures contracts,
            including delivery as original margin and variation margin;

     (xi)   in connection with the lending of foreign securities; and

     (xii)  for any other purpose, but only upon receipt of Proper Instructions
            specifying the foreign securities to be delivered and naming the
            person or persons to whom delivery of such securities shall be made.

     4.4.2. Payment of Fund Monies. Upon receipt of Proper Instructions, which
may be continuing instructions when deemed appropriate by the parties, the
Custodian shall pay out, or direct the respective Foreign Sub-Custodian or the
respective Foreign Securities System to pay out, monies of a Fund in the
following cases only:

     (i)    upon the purchase of foreign securities for the Fund, unless
            otherwise directed by Proper Instructions, in accordance with
            customary or established market practices and procedures, including
            without limitation, delivering money to the seller thereof or to a
            dealer therefor (or an agent for such seller or dealer) against
            expectation of receiving later delivery of such foreign securities;
            or in the case of a purchase effected through a Foreign Securities
            System, in accordance with the rules governing the operation of such
            Foreign Securities System;

     (ii)   in connection with the conversion, exchange or surrender of foreign
            securities of the Fund;

     (iii)  for the payment of any expense or liability of the Fund, including
            but not limited to the following payments: interest, taxes,
            investment advisory fees, transfer agency fees, fees under this
            Contract, legal fees, accounting fees, and other operating expenses;

     (iv)   for the purchase or sale of foreign exchange or foreign exchange
            contracts for the Fund, including transactions executed with or
            through the Custodian or its Foreign Sub-Custodians;

     (v)    in connection with trading in options and futures contracts,
            including delivery as original margin and variation margin;

     (vi)   for payment of part or all of the dividends received in respect of
            securities sold short;


                                       13

     (vii)  in connection with the borrowing or lending of foreign securities;
            and

     (viii) for any other purpose, but only upon receipt of Proper Instructions
            specifying the amount of such payment and naming the person or
            persons to whom such payment is to be made.

     4.4.3. Market Conditions. Notwithstanding any provision of this Contract to
the contrary, settlement and payment for Foreign Assets received for the account
of the Funds and delivery of Foreign Assets maintained for the account of the
Funds may be effected in accordance with the customary established securities
trading or processing practices and procedures in the country or market in which
the transaction occurs, including, without limitation, delivering Foreign Assets
to the purchaser thereof or to a dealer therefor (or an agent for such purchaser
or dealer) with the expectation of receiving later payment for such Foreign
Assets from such purchaser or dealer.

     The Custodian shall provide to the Board the information with respect to
custody and settlement practices in countries in which the Custodian employs a
Foreign Sub-Custodian described on Schedule C hereto at the time or times set
forth on such Schedule. The Custodian may revise Schedule C from time to time,
provided that no such revision shall result in the Board being provided with
substantively less information than had been previously provided hereunder.

4.5. Registration of Foreign Securities. The foreign securities maintained in
the custody of a Foreign Sub-Custodian (other than bearer securities) shall be
registered in the name of the applicable Fund or in the name of the Custodian or
in the name of any Foreign Sub-Custodian or in the name of any nominee of the
foregoing, and the Fund agrees to hold any such nominee harmless from any
liability as a holder of record of such foreign securities. The Custodian or a
Foreign Sub-Custodian shall not be obligated to accept securities on behalf of a
Fund under the terms of this Contract unless the form of such securities and the
manner in which they are delivered are in accordance with reasonable market
practice.

4.6. Bank Accounts. The Custodian shall identify on its books as belonging to
the Fund cash (including cash denominated in foreign currencies) deposited with
the Custodian. Where the Custodian is unable to maintain, or market practice
does not facilitate the maintenance of, cash on the books of the Custodian, a
bank account or bank accounts shall be opened and maintained outside the United
States on behalf of a Fund with a Foreign Sub-Custodian. All accounts referred
to in this Section shall be subject only to draft or order by the Custodian (or,
if applicable, such Foreign Sub-Custodian) acting pursuant to the terms of this
Contract to hold cash received by or from or for the account of the Fund. Cash
maintained on the books of the Custodian (including its branches, subsidiaries
and affiliates), regardless of currency denomination, is maintained in bank
accounts established under, and subject to the laws of, The Commonwealth of
Massachusetts.

4.7. Collection of Income. The Custodian shall use reasonable commercial efforts
to collect on a timely basis all income and other payments with respect to the
Foreign Assets held hereunder to which the Funds shall be entitled. In the event
that extraordinary measures are


                                       14

required to collect such income, the Fund and the Custodian shall consult as to
such measures and as to the compensation and expenses of the Custodian relating
to such measures. The Custodian shall credit income to the applicable Fund as
such income is received or in accordance with Custodian's then current payable
date income schedule. Any credit to the Fund in advance of receipt may be
reversed when the Custodian determines that payment will not occur in due course
and the Fund may be charged at the Custodian's applicable rate for time
credited. Income on securities loaned other than from the Custodian's securities
lending program shall be credited as received.

4.8. Shareholder Rights. With respect to the foreign securities held pursuant to
this Article 4, the Custodian will use reasonable commercial efforts to
facilitate the exercise of voting and other shareholder rights, subject always
to the laws, regulations and practical constraints that may exist in the country
where such securities are issued. The Fund acknowledges that local conditions,
including lack of regulation, onerous procedural obligations, lack of notice and
other factors may have the effect of severely limiting the ability of the Fund
to exercise shareholder rights.

4.9. Communications Relating to Foreign Securities. The Custodian shall transmit
promptly to the Fund written information with respect to materials received by
the Custodian via the Foreign Sub-Custodians from issuers of the foreign
securities being held for the account of the Funds (including, without
limitation, pendency of calls and maturities of foreign securities and
expirations of rights in connection therewith). With respect to tender or
exchange offers, the Custodian shall transmit promptly to the Fund written
information with respect to materials so received by the Custodian from issuers
of the foreign securities whose tender or exchange is sought or from the party
(or its agents) making the tender or exchange offer. Subject to the foregoing,
the Custodian shall not be liable for any untimely exercise of any tender,
exchange or other right or power in connection with foreign securities or other
property of the Funds at any time held by it unless (i) the Custodian or the
respective Foreign Sub-Custodian is in actual possession of such foreign
securities or property and (ii) the Custodian receives Proper Instructions with
regard to the exercise of any such right or power, and both (i) and (ii) occur
at least three business days prior to the date on which the Custodian is to take
action to exercise such right or power.

4.10. Liability of Foreign Sub-Custodians. Each agreement pursuant to which the
Custodian employs a Foreign Sub-Custodian shall require the Foreign
Sub-Custodian to exercise reasonable care, based on the standards applicable to
custodians in the relevant market, in the performance of its duties, and to
indemnify, and hold harmless, the Custodian from and against any loss, damage,
cost, expense, liability or claim arising out of or in connection with the
Foreign Sub-Custodian's performance of such obligations. At the Fund's election,
the Funds shall be entitled to be subrogated to the rights of the Custodian with
respect to any claims against a Foreign Sub-Custodian as a consequence of any
such loss, damage, cost, expense, liability or claim if and to the extent that
the Funds have not been made whole for any such loss, damage, cost, expense,
liability or claim.


                                       15

4.11. Tax Law. The Custodian shall have no responsibility or liability for any
obligations now or hereafter imposed on the Fund, the Funds or the Custodian as
custodian of the Funds by the tax law of the United States or of any state or
political subdivision thereof. It shall be the responsibility of the Fund to
notify the Custodian of the obligations imposed on the Fund or the Custodian as
custodian of the Fund by the tax law of countries other than those mentioned in
the above sentence, including responsibility for withholding and other taxes,
assessments or other governmental charges, certifications and governmental
reporting. The sole responsibility of the Custodian with regard to such tax law
shall be to use reasonable efforts to assist the Fund with respect to any claim
for exemption or refund under the tax law of countries for which the Fund has
provided such information.

4.12. Liability of Custodian. Except as may arise from the Custodian's own
negligence or willful misconduct or the negligence or willful misconduct of a
Foreign Sub-Custodian, the Custodian shall be without liability to the Fund for
any loss, liability, claim or expense resulting from or caused by anything which
is part of Country Risk. The Custodian shall be liable for the acts or omissions
of a Foreign Sub-Custodian to the same extent as set forth with respect to
sub-custodians generally in the Contract and, regardless of whether assets are
maintained in the custody of a Foreign Sub-Custodian or a Foreign Securities
System, the Custodian shall not be liable for any loss, damage, cost, expense,
liability or claim resulting from nationalization, expropriation, currency
restrictions, or acts of war or terrorism, or any other loss where the
Sub-Custodian has otherwise acted with reasonable care.

5.   Payments for Sales or Repurchases or Redemptions of Shares of the Fund

     The Custodian shall receive from the distributor for the Shares or from the
Transfer Agent of the Fund and deposit into the account of the appropriate Fund
such payments as are received for Shares of that Fund issued or sold from time
to time by the Fund. The Custodian will provide timely notification to the Fund
on behalf of each such Fund and the Transfer Agent of any receipt by it of
payments for Shares of such Fund.

     From such funds as may be available for the purpose but subject to the
limitations of the applicable Fund's governing documents and any applicable
votes of the Board of the Fund pursuant thereto, the Custodian shall, upon
receipt of instructions from the Transfer Agent, make funds available for
payment to holders of Shares who have delivered to the Transfer Agent a request
for redemption or repurchase of their Shares. In connection with the redemption
or repurchase of Shares of a Fund, the Custodian is authorized upon receipt of
instructions from the Transfer Agent to wire funds to or through a commercial
bank designated by the redeeming shareholders. In connection with the redemption
or repurchase of Shares of the Fund, the Custodian shall honor checks drawn on
the Custodian by a holder of Shares, which checks have been furnished by the
Fund to the holder of Shares, when presented to the Custodian in accordance with
such procedures and controls as are mutually agreed upon from time to time
between the Fund and the Custodian.


                                       16

6.   Proper Instructions

     "Proper Instructions", which may also be standing instructions, as used
throughout this Contract shall mean instructions received by the Custodian from
the Fund, the Fund's investment adviser or investment manager or subadviser, as
duly authorized by the Fund. Such instructions may be in writing signed by the
authorized person or persons or may be in a tested communication or in a
communication utilizing access codes effected between electro-mechanical or
electronic devices or may be by such other means and utilizing such intermediary
systems and utilities as may be agreed to from time to time by the Custodian and
the person or entity giving such instructions, provided that the Fund has
followed any security procedures agreed to from time to time by the Fund and the
Custodian, including, but not limited to, the security procedures selected by
the Fund in the Funds Transfer Addendum to this Contract. Oral instructions will
be considered Proper Instructions if the Custodian reasonably believes them to
have been given by a person authorized to give such instructions with respect to
the transaction involved. The Fund shall cause all oral instructions to be
confirmed in writing. For purposes of this Section, Proper Instructions shall
include instructions received by the Custodian pursuant to any multi-party
agreement, which requires a segregated asset account in accordance with Section
2.12 of this Contract. The Fund or the Fund's investment adviser or investment
manager shall cause its duly authorized officer to certify to the Custodian in
writing the names and specimen signatures of persons authorized to give Proper
Instructions. The Custodian shall be entitled to rely upon the identity and
authority of such persons until it receives notice from the Fund to the
contrary.

7.   Actions Permitted without Express Authority

     The Custodian may in its discretion, without express authority from the
Fund:

     1)   make payments to itself or others for minor expenses of handling
          securities or other similar items relating to its duties under this
          Contract, provided that all such payments shall be accounted for to
          the Fund;

     2)   surrender securities in temporary form for securities in definitive
          form;

     3)   endorse for collection, in the name of the Fund, checks, drafts and
          other negotiable instruments; and

     4)   in general, attend to all non-discretionary details in connection with
          the sale, exchange, substitution, purchase, transfer and other
          dealings with the securities and property of the Fund except as
          otherwise directed by the Board of the Fund.

8.   Evidence of Authority

     The Custodian shall be protected in acting upon any instructions, notice,
request, consent, certificate or other instrument or paper reasonably believed
by it to be genuine and to have been


                                       17

properly executed by or on behalf of the Fund. The Custodian may receive and
accept a certified copy of a resolution of the Board of the Fund as conclusive
evidence (a) of the authority of any person to act in accordance with such
resolution or (b) of any determination or of any action by the Board pursuant to
the governing documents of the Fund as described in such resolution, and such
resolution may be considered as in full force and effect until receipt by the
Custodian of written notice to the contrary.

9.   Duties of Custodian with Respect to the Books of Account and Calculation of
     Net Asset Value

     The Custodian shall cooperate with and supply necessary information to the
entity or entities appointed by the Board of the Fund to keep the books of
account of each Fund and/or compute the net asset value per share of the
outstanding shares of the Fund.

10.  Records

     The Custodian shall with respect to each Fund create and maintain all
records relating to its activities and obligations under this Contract in such
manner as will meet the obligations of the Fund under the 1940 Act, with
particular attention to Section 31 thereof and Rules 31a-I and 31a-2 thereunder.
All such records shall be the property of the Fund and shall at all times during
the regular business hours of the Custodian be open for inspection by duly
authorized officers, employees or agents of the Fund and employees and agents of
the SEC. The Custodian shall, at the Fund's request, supply the Fund with a
tabulation of securities owned by each Fund and held by the Custodian and shall,
when requested to do so by the Fund and for such compensation as shall be agreed
upon between the Fund and the Custodian, include certificate numbers in such
tabulations.

11.  Opinion of Fund's Independent Registered Public Accounting Firm

     The Custodian shall take all reasonable action, as the Fund may from time
to time request, to obtain from year to year favorable opinions from the Fund's
independent registered public accounting firm with respect to its activities
hereunder in connection with the preparation of the Fund's Form N-1A, and Form
N-SAR or other annual reports to the SEC and with respect to any other
requirements of the SEC.

12.  Reports to Fund by Independent Registered Public Accounting Firm

     The Custodian shall provide the Fund, at such times as the Fund may
reasonably require, with reports by independent registered public accounting
firms on the accounting system, internal accounting control and procedures for
safeguarding securities, futures contracts and options on futures contracts,
including securities deposited and/or maintained in a U.S. or Foreign Securities
System, relating to the services provided by the Custodian under this Contract;
such reports, shall be of sufficient scope and in sufficient detail, as may
reasonably be required by the Fund to provide reasonable assurance that any
material inadequacies would be disclosed by such examination, and, if there are
no such inadequacies, the reports shall so state.


                                       18

13.  Compensation of Custodian

     The Custodian shall be entitled to reasonable compensation for its services
and expenses as Custodian, as agreed upon from time to time between the Fund and
the Custodian.

14.  Responsibility of Custodian

     So long as and to the extent that it is in the exercise of reasonable care,
the Custodian shall not be responsible for the title, validity or genuineness of
any property or evidence of title thereto received by it or delivered by it
pursuant to this Contract and shall be held harmless in acting upon any notice,
request, consent, certificate or other instrument reasonably believed by it to
be genuine and to be signed by the proper party or parties, including any
futures commission merchant acting pursuant to the terms of a three-party
futures or options agreement. The Custodian shall be held to the exercise of
reasonable care in carrying out the provisions of this Contract, but shall be
kept indemnified by and shall be without liability to the Fund for any action
taken or omitted by it in good faith without negligence. It shall be entitled to
rely on and may act upon written advice of counsel (who may be counsel for the
Fund) on all matters, and shall be without liability for any action reasonably
taken or omitted pursuant to such advice.

     Except as may arise from the Custodian's own negligence or willful
misconduct or the negligence or willful misconduct of a sub-custodian or agent,
the Custodian shall be without liability to the Fund for any loss, liability,
claim or expense resulting from or caused by; (i) events or circumstances beyond
the reasonable control of the Custodian or any sub-custodian or U.S. or Foreign
Securities System or any agent or nominee of any of the foregoing, including,
without limitation, nationalization or expropriation, imposition of currency
controls or restrictions, the interruption, suspension or restriction of trading
on or the closure of any securities market, power or other mechanical or
technological failures or interruptions, computer viruses or communications
disruptions, acts of war or terrorism, riots, revolutions, work stoppages,
natural disasters or other similar events or acts; (ii) errors by the Fund or
the Investment Adviser in their instructions to the Custodian provided such
instructions have been in accordance with this Contract; (iii) the insolvency of
or acts or omissions by a U.S. or Foreign Securities System; (iv) any delay or
failure of any broker, agent or intermediary, central bank or other commercially
prevalent payment or clearing system to deliver to the Custodian's sub-custodian
or agent securities purchased or in the remittance or payment made in connection
with securities sold; (v) any delay or failure of any company, corporation, or
other body in charge of registering or transferring securities in the name of
the Custodian, the Fund, the Custodian's sub-custodians, nominees or agents or
any consequential losses arising out of such delay or failure to transfer such
securities including non-receipt of bonus, dividends and rights and other
accretions or benefits; (vi) delays or inability to perform its duties due to
any disorder in market infrastructure with respect to any particular security or
U.S. or Foreign Securities System; and (vii) any provision of any present or
future law or regulation or order of the United States, or any state thereof, or
any other country, or political subdivision thereof or of any court of competent
jurisdiction.


                                       19

     The Custodian shall be liable for the acts or omissions of a foreign
banking institution to the same extent as set forth with respect to
sub-custodians generally in this Contract.

     If the Fund requires the Custodian to take any action with respect to
securities, which action involves the payment of money or which action may, in
the opinion of the Custodian, result in the Custodian or its nominee assigned to
the Fund being liable for the payment of money or incurring liability of some
other form, the Fund, as a prerequisite to requiring the Custodian to take such
action, shall provide indemnity to the Custodian in an amount and form
satisfactory to it.

     If the Fund requires the Custodian, its affiliates, subsidiaries or agents,
to advance cash or securities for any purpose (including but not limited to
securities settlements, foreign exchange contracts and assumed settlement) or in
the event that the Custodian or its nominee shall incur or be assessed any
taxes, charges, expenses, assessments, claims or liabilities in connection with
the performance of this Contract, except such as may arise from its or its
nominee's own negligent action, negligent failure to act or willful misconduct,
any property at any time held for the account of the applicable Fund shall be
security therefor and should the Fund fail to repay the Custodian promptly, the
Custodian shall be entitled to utilize available cash and to dispose of such
Fund's assets to the extent necessary to obtain reimbursement.

     In no event shall either party be liable to the other for indirect, special
or consequential damages.

15.  Effective Period, Termination and Amendment

     This Contract shall become effective as of its execution, shall continue in
full force and effect until terminated as hereinafter provided, may be amended
at any time by mutual agreement of the parties hereto and may be terminated by
either party by an instrument in writing delivered or mailed, postage prepaid to
the other party, such termination to take effect not sooner than thirty (30)
days after the date of such delivery or mailing; provided, however, that the
Fund shall not amend or terminate this Contract in contravention of any
applicable federal or state regulations, or any provision of the Fund's
governing documents, and further provided, that the Fund may at any time by
action of its Board (i) substitute another bank or trust company for the
Custodian by giving notice as described above to the Custodian, or (ii)
immediately terminate this Contract in the event of the appointment of a
conservator or receiver for the Custodian by the Comptroller of the Currency or
upon the happening of a like event at the direction of an appropriate regulatory
agency or court of competent jurisdiction.

     Upon termination of the Contract with respect to a Fund, the applicable
Fund shall pay to the Custodian such compensation as may be due as of the date
of such termination and shall likewise reimburse the Custodian for its costs,
expenses and disbursements.

16.  Successor Custodian

     If a successor custodian for a Fund shall be appointed by the Board of such
Fund, the Custodian shall, upon termination, deliver to such successor custodian
at the office of the


                                       20

Custodian, duly endorsed and in the form for transfer, all securities, funds and
other properties of the Fund then held by it hereunder and shall transfer to an
account of the successor custodian all of the securities of each such Fund held
in a U.S or Foreign Securities System.

     If no such successor custodian shall be appointed, the Custodian shall, in
like manner, upon receipt of a certified copy of a resolution of the Board of
the Fund, deliver at the office of the Custodian and transfer such securities,
funds and other properties in accordance with such resolution.

     In the event that no written order designating a successor custodian or
certified copy of a resolution of the Board shall have been delivered to the
Custodian on or before the date when such termination shall become effective,
then the Custodian shall have the right to deliver to a bank or trust company,
which is a "bank" as defined in the 1940 Act, doing business in New York, New
York, of its own selection, having an aggregate capital, surplus, and undivided
profits, as shown by its last published report, of not less than $25,000,000,
all securities, funds and other properties held by the Custodian on behalf of
each applicable Fund and all instruments held by the Custodian relative thereto
and all other property held by it under this Contract on behalf of each
applicable Fund and to transfer to an account of such successor custodian all of
the securities of each such Fund held in any U.S. or Foreign Securities System.
Thereafter, such bank or trust company shall be the successor of the Custodian
under this Contract.

     In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof with respect to
a Fund owing to failure of the Fund to procure the certified copy of the
resolution referred to or of the Board to appoint a successor custodian, the
Custodian shall be entitled to fair compensation for its services during such
period as the Custodian retains possession of such securities, funds and other
properties and the provisions of this Contract relating to the duties and
obligations of the Custodian shall remain in full force and effect.

17.  Interpretive and Additional Provisions

     In connection with the operation of this Contract, the Custodian and the
Fund may from time to time agree on such provisions interpretive of or in
addition to the provisions of this Contract as may in their joint opinion be
consistent with the general tenor of this Contract. Any such interpretive or
additional provisions shall be in a writing signed by both parties and shall be
annexed hereto, provided that no such interpretive or additional provisions
shall contravene any applicable federal or state regulations or any provision of
the governing documents of the Fund. No interpretive or additional provisions
made as provided in the preceding sentence shall be deemed to be an amendment of
this Contract.


                                       21

18.  Additional Funds

     In the event that any Morgan Stanley fund registered under the 1940 Act in
addition to the Funds listed on Appendix A desires to have the Custodian render
services as custodian under the terms hereof, the Custodian shall be notified in
writing, and if the Custodian agrees in writing to provide such services, such
fund shall become a Fund hereunder, subject to the delivery by the new Fund of
resolutions authorizing the appointment of the Custodian and such other
supporting or related documentation as the Custodian may request. All references
herein to the "Fund" are to each of the Funds listed on Appendix A individually,
as if this Contract were between each such individual Fund and the Custodian.
With respect to any Fund which issues shares in separate classes or series, each
class or series of such Fund shall be treated as a separate Fund hereunder.

19.  New York Law to Apply

     This Contract shall be construed and the provisions thereof interpreted
under and in accordance with laws of the State of New York, without regard to
conflicts of laws principals thereof.

20.  Prior Contracts

     This Contract supersedes and terminates, as of the date hereof, all prior
contracts between the Funds and the Custodian relating to the custody of the
Funds' assets.

21.  Reproduction of Documents

     This Contract and all schedules, exhibits, addenda, attachments and
amendments hereto may be reproduced by any photographic, photostatic, microfilm,
micro-card, miniature photographic or other similar process. The parties hereto
all/each agree that any such reproduction shall be admissible in evidence as the
original itself in any judicial or administrative proceeding, whether or not the
original is in existence and whether or not such reproduction was made by a
party in the regular course of business, and that any enlargement, facsimile or
further reproduction of such reproduction shall likewise be admissible in
evidence.

22.  Shareholder Communications

     SEC Rule 14b-2 requires banks which hold securities for the account of
customers to respond to requests by issuers of securities for the names,
addresses and holdings of beneficial owners of securities of that issuer held by
the bank unless the beneficial owner has expressly objected to disclosure of
this information. In order to comply with the rule, the Custodian needs the Fund
to indicate whether the Fund authorizes the Custodian to provide the Fund's
name, address, and share position to requesting companies whose stock the Fund
owns. If the Fund tells the Custodian "no", the Custodian will not provide this
information to requesting companies. If the Fund tells the Custodian "yes" or do
not check either "yes" or "no" below, the Custodian is required by the rule to
treat the Fund as consenting to disclosure of this information for all
securities owned by the Fund or any funds or accounts established by the Fund.
For the Fund's protection, the Rule


                                       22

prohibits the requesting company from using the Fund's name and address for any
purpose other than corporate communications. Please indicate below whether the
Fund consents or objects by checking one of the alternatives below.

     YES [_]   The Custodian is authorized to release the Fund's name, address,
               and share positions.

     NO [X]    The Custodian is not authorized to release the Fund's name,
               address, and share positions.

23.  Limitation of Liability.

     The execution of this Contract has been authorized by each Fund's Board.
This Contract is executed on behalf of the Trustees/Directors of each Fund as
Trustees/Directors and not individually. The obligations of the Funds under this
Contract are not binding upon any of the Fund's Trustees/Directors, officers or
shareholders individually but are binding only upon the assets and property of
the respective Fund. A copy of the Declaration of Trust of each Fund organized
as a business trust (or a series thereof) is on file with the Secretary of State
of the Commonwealth of Massachusetts.

24.  Contractual Settlement Services (Purchases / Sales)

     The Custodian shall, in accordance with the terms set out in this Section,
debit or credit the appropriate cash account of the Fund in connection with (i)
the purchase of securities for the Fund, and (ii) proceeds of the sale of
securities held on behalf of the Fund, on a contractual settlement basis (the
"Contractual Settlement Services"). The Contractual Settlement Services shall be
provided for such instruments and in such markets as the Custodian may advise
from time to time. The Custodian in good faith may terminate or suspend any part
of the provision of the Contractual Settlement Services under this Contract upon
reasonable notice under the circumstances to the Fund, including, without
limitation, in the event of force majeure events affecting settlement, any
disorder in markets, or other changed external business circumstances affecting
the markets or the Fund.

     The consideration payable in connection with a purchase transaction shall
be debited from the appropriate cash account of the Fund as of the time and date
that monies would ordinarily be required to settle such transaction in the
applicable market. The Custodian shall promptly recredit such amount at the time
that the Fund notifies the Custodian by Proper Instruction that such transaction
has been cancelled.

     With respect to the settlement of a sale of securities, a provisional
credit of an amount equal to the net sale price for the transaction (the
"Settlement Amount") shall be made to the account of the Fund as if the
Settlement Amount had been received as of the close of business on the date that
monies would ordinarily be available in good funds in the applicable market.
Such provisional


                                       23

credit will be made conditional upon the Custodian having received Proper
Instructions with respect to, or reasonable notice of, the transaction, as
applicable; and the Custodian or its agents having possession of the asset(s)
(which shall exclude assets subject to any third party lending arrangement
entered into by the Fund) associated with the transaction in good deliverable
form and not being aware of any facts which would lead them to believe that the
transaction will not settle in the time period ordinarily applicable to such
transactions in the applicable market.

     The Custodian shall have the right to reverse any provisional credit or
debit given in connection with the Contractual Settlement Services at any time
when the Custodian believes, in its reasonable judgment, that such transaction
will not settle in accordance with its terms or amounts due pursuant thereto
will not be collectable or where the Custodian has not been provided Proper
Instructions with respect thereto, as applicable, and the Fund shall be
responsible for any costs or liabilities resulting from such reversal. Upon such
reversal, a sum equal to the credited or debited amount shall become immediately
payable by the Fund to the Custodian and may be debited from any cash account
held for benefit of the Fund.

     In the event that the Custodian is unable to debit an account of the Fund,
and the Fund fails to pay any amount due to the Custodian at the time such
amount becomes payable in accordance with this Contract, (i) the Custodian may
charge the Fund for costs and expenses associated with providing the provisional
credit, including without limitation the cost of funds associated therewith,
(ii) the amount of any accrued dividends, interest and other distributions with
respect to assets associated with such transaction may be set off against the
credited amount, (iii) the provisional credit and any such costs and expenses
shall be considered an advance of cash for purposes of this Contract and (iv)
the Custodian shall have the right to setoff against any property and the
discretion to sell, exchange, convey, transfer or otherwise dispose of any
property at any time held for the account of the Fund to the full extent
necessary for the Custodian to make itself whole.

25.  Data Access Services Agreement.

     The Custodian and each Fund agree to be bound by the terms of that certain
Data Access Services Agreement dated March 7, 2008, with respect to the
Custodian's services hereunder. In the event of any conflict between this
Agreement and the Data Access Services Agreement, this Agreement shall govern.

26.  Notices.

     Any notice, instruction or other instrument required to be given hereunder
may be delivered in person to the offices of the parties as set forth herein
during normal business hours or delivered prepaid registered mail or by telex,
cable or telecopy to the parties at the following addresses or such other
addresses as may be notified by any party from time to time.

                To the Funds:     Morgan Stanley Investment Management
                                  522 Fifth Avenue
                                  NewYork, NY 10036
                                  Attention: General Counsel


                                       24

                                  Telephone: 800-869-6397
                                  Telecopy: 212-507-1989

                To the Custodian: State Street Bank and Trust Company
                                  1200 Crown Colony Drive
                                  Crown Colony Office ParkQuincy, MA 02169
                                  Attention: Matt Malkasian
                                  Telephone: 617-537-4685
                                  Telecopy: 617-451-4786

     Such notice, instruction or other instrument shall be deemed to have been
served in the case of a registered letter at the expiration of five business
days after posting, in the case of cable twenty four hours after dispatch and,
in the case of telex, immediately on dispatch and if delivered outside normal
business hours it shall be deemed to have been received at the next time after
delivery when normal business hours commence and in the case of cable, telex or
telecopy on the business day after the receipt thereof. Evidence that the notice
was properly addressed, stamped and put into the post shall be conclusive
evidence of posting.

27. Confidentiality. "Confidential Material" of the Custodian and each Fund
shall mean any proprietary computer software, programs, source or object codes,
databases, specifications, techniques, technical information, know-how,
strategic business information, marketing and business plans, product
information, client information, financial data, or other information or
materials which such party (collectively, "Proprietor") discloses to the other
party ("Recipient"), including, without limitation, all portfolio, investment
and trading data and other information and materials disclosed by the Fund to
the Custodian in connection with this Contract, and all accounts, records and
other materials produced by the Custodian pursuant to this Contract; provided
that the Fund shall be deemed "Proprietor" and the Custodian shall be deemed
"Recipient" with respect to all accounts and records produced by the Custodian
pursuant to this Contract. Confidential Material shall not include information
which (i) is generally available and known to the public, or (ii) becomes
generally available and known to the public other than as the result of a
disclosure by Recipient in violation of this Contract, or (iii) becomes
available to Recipient from a source other than the Proprietor without
obligation of confidentiality, provided such source did not, to Recipient's
knowledge, obtain such information or make such disclosure to Recipient in
violation of an agreement with the Proprietor or through other improper action
or inaction, or (iv) is independently developed by Recipient without use of or
reference to the Confidential Material, and such independent development is
evidenced or otherwise confirmed by written documentation. Confidential Material
will be used by Recipient solely for the purpose of carrying out this Contract
and will be kept in strict confidence by Recipient; provided, however any
Confidential Material may be disclosed to employees and agents of Recipient who
reasonably need to know such information for the purpose of carrying out this
Contract (it being understood that all such employees and agents shall be
informed of the confidential nature of such Confidential Material and shall be
directed not to disclose such Confidential Material and to use such Confidential
Material solely for the purpose of carrying out this Contract). The Recipient


                                       25

Recipient will use commercially reasonable efforts to prevent any breach of this
Contract by its employees or any other person who obtains access to or
possession of any of the Proprietor's Confidential Information from or through
the Recipient. In addition, the Custodian may aggregate the Fund's nonpublic
portfolio holdings information with similar data of other clients of the
Custodian and may report and use such aggregated data without specific reference
to the Fund so long as such aggregated data is sufficiently large a sample that
no Confidential Material can be identified either directly or by inference or
implication. Without limiting the foregoing, Recipient expressly agrees that it
shall not use the Confidential Material as a basis for making any investment
recommendations or decisions (a) regarding specific portfolio holdings, or any
instruments derived from the value of such holdings, and (b) to purchase or sell
the shares of a Fund for the purpose of taking advantage of any real or
perceived discrepancy between the value of the portfolio holdings and the stated
net asset value of a Fund's shares. Nothing herein shall prevent the disclosure
of Confidential Material that is required to be disclosed (i) by Recipient to
its regulatory authorities, or (ii) by order of a court of competent
jurisdiction, subpoena or other legal process; provided, that Recipient shall
give Proprietor prompt notice of such requirement so Proprietor may seek an
appropriate protective order. Recipient specifically agrees that money damages
would not be a sufficient remedy for any breach of this Section 27 and
Proprietor shall be entitled to specific performance as a remedy for any such
breach. Specific performance shall not be deemed to be the exclusive remedy for
any breach of this Section 27, but shall be in addition to all other remedies
available at law or in equity. The obligations and agreements set forth in this
Section 27 shall survive the termination of this Contract.

     Subject to the terms of this Contract, the Custodian agrees that during the
term of this Contract it will maintain policies reasonably designed to prohibit
the dissemination or use of the Fund's nonpublic portfolio holdings information
by the Custodian or its employees, unless such dissemination or use is: (i) for
the purposes set forth in or contemplated by this Contract, (ii) at the
direction of the Fund, (iii) in the case of any Fund that is or becomes a
securities lending client of the Custodian, disclosed to borrowers and
borrowers' affiliates in connection with loans made pursuant to that certain
Securities Lending Agreement between such Fund and the Custodian, or (iv)
requested or required in any legal or regulatory proceeding, investigation,
audit, examination, subpoena, civil investigative demand or other similar
process, or required by operation of law or regulation (provided that, with
regard to disclosures pursuant to clause (iv), if permitted by applicable law
the Custodian will give the Funds reasonable notice prior to any such
dissemination or use).

                           [Signature Page Follows]


                                       26

     IN WITNESS WHEREOF, each of the parties has caused this instrument to be
executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed as of the date mentioned above.

ATTEST                              EACH OF THE FUNDS LISTED ON APPENDIX A


/s/ Alice J. Stein                  By /s/ Ronald E. Robison
- ---------------------------------      -----------------------------------------
Name: Alice J. Stein (Gerstel)         Ronald E. Robison
Title: Assistant Secretary             President and Principal Executive Officer


ATTEST                              STATE STREET BANK AND TRUST COMPANY


/s/ Marvin Rau                      By /s/ Joseph L. Hooley
- ---------------------------------      -----------------------------------------
Marvin Rau                             Joseph L. Hooley
Vice President                         Vice Chairman


                                       27

                    APPENDIX A, EFFECTIVE AS OF MARCH 7, 2008
                                  List of Funds

Morgan Stanley Series Funds
     o    Commodities Alpha Fund

                     APPENDIX A, EFFECTIVE AS OF MAY 2, 2008
                                  List of Funds

OPEN-END RETAIL FUNDS

     TAXABLE MONEY MARKET FUNDS

1.   Active Assets Government Securities Trust
2.   Active Assets Institutional Government Securities Trust
3.   Active Assets Institutional Money Trust
4.   Active Assets Money Trust
5.   Morgan Stanley Liquid Asset Fund Inc.
6.   Morgan Stanley U.S. Government Money Market Trust

     TAX-EXEMPT MONEY MARKET FUNDS

7.   Active Assets California Tax-Free Trust
8.   Active Assets Tax-Free Trust
9.   Morgan Stanley California Tax-Free Daily Income Trust
10.  Morgan Stanley New York Municipal Money Market Trust
11.  Morgan Stanley Tax-Free Daily Income Trust

     EQUITY FUNDS

12.  Morgan Stanley Allocator Fund
13.  Morgan Stanley Capital Opportunities Trust
14.  Morgan Stanley Convertible Securities Trust
15.  Morgan Stanley Dividend Growth Securities Inc.
16.  Morgan Stanley Equally-Weighted S&P 500 Fund
17.  Morgan Stanley European Equity Fund Inc.
18.  Morgan Stanley Financial Services Trust
19.  Morgan Stanley Focus Growth Fund
20.  Morgan Stanley Fundamental Value Fund
21.  Morgan Stanley Global Advantage Fund
22.  Morgan Stanley Global Dividend Growth Securities
23.  Morgan Stanley Health Sciences Trust
24.  Morgan Stanley Institutional Strategies Fund
25.  Morgan Stanley International Fund
26.  Morgan Stanley International SmallCap Fund
27.  Morgan Stanley International Value Equity Fund
28.  Morgan Stanley Japan Fund
29.  Morgan Stanley Mid Cap Growth Fund
30.  Morgan Stanley Mid-Cap Value Fund
31.  Morgan Stanley Multi-Asset Class Fund
32.  Morgan Stanley Nasdaq-100 Index Fund
33.  Morgan Stanley Natural Resource Development Securities Inc.
34.  Morgan Stanley Pacific Growth Fund Inc.
35.  Morgan Stanley Real Estate Fund


                                       28

36.  Morgan Stanley Small-Mid Special Value Fund
37.  Morgan Stanley Series Funds
     o    Diversified International Equity Fund
     o    Diversified Large Cap Equity Fund
     o    Commodities Alpha Fund
38.  Morgan Stanley S&P 500 Index Fund
39.  Morgan Stanley Special Growth Fund
40.  Morgan Stanley Special Value Fund
41.  Morgan Stanley Technology Fund
42.  Morgan Stanley Total Market Index Fund
43.  Morgan Stanley Utilities Fund
44.  Morgan Stanley Value Fund

     BALANCED FUNDS

45.  Morgan Stanley Balanced Fund

     ASSET ALLOCATION FUND

46.  Morgan Stanley Strategist Fund

     SPECIALTY FUNDS

47.  Morgan Stanley FX Series Funds
     o    FX Alpha Strategy Portfolio
     o    FX Alpha Plus Strategy Portfolio

     TAXABLE FIXED-INCOME FUNDS

48.  Morgan Stanley Flexible Income Trust
49.  Morgan Stanley Income Trust
50.  Morgan Stanley High Yield Securities Inc.
51.  Morgan Stanley Limited Duration Fund
52.  Morgan Stanley Mortgage Securities Trust
53.  Morgan Stanley Limited Duration U.S. Government Trust
54.  Morgan Stanley U.S. Government Securities Trust

(1)  Fund is not yet effective

     TAX-EXEMPT FIXED-INCOME FUNDS

55.  Morgan Stanley California Tax-Free Income Fund
56.  Morgan Stanley Limited Term Municipal Trust
57.  Morgan Stanley New York Tax-Free Income Fund
58.  Morgan Stanley Tax-Exempt Securities Trust

     SPECIAL PURPOSE FUNDS

59.  Morgan Stanley Select Dimensions Investment Series
        o    Balanced Portfolio
        o    Capital Growth Portfolio


                                       29

        o    Capital Opportunities Portfolio
        o    Developing Growth Portfolio
        o    Dividend Growth Portfolio
        o    Equally-Weighted S&P 500 Portfolio
        o    Focus Growth Portfolio
        o    Flexible Income Portfolio
        o    Global Equity Portfolio
        o    Money Market Portfolio
        o    Utilities Portfolio

60.  Morgan Stanley Variable Investment Series

        o    Aggressive Equity Portfolio
        o    Capital Opportunities Portfolio
        o    Dividend Growth Portfolio
        o    European Equity Portfolio
        o    Global Advantage Portfolio
        o    Global Dividend Growth Portfolio
        o    High Yield Portfolio
        o    Income Builder Portfolio
        o    Limited Duration Portfolio
        o    Money Market Portfolio
        o    Income Plus Portfolio
        o    S&P 500 Index Portfolio
        o    Strategist Portfolio
        o    Utilities Portfolio

CLOSED-END RETAIL FUNDS

     TAXABLE FIXED-INCOME CLOSED-END FUNDS

61.  Morgan Stanley Income Securities Inc.
62.  Morgan Stanley Prime Income Trust

     TAX-EXEMPT FIXED-INCOME CLOSED-END FUNDS

63.  Morgan Stanley California Insured Municipal Income Trust
64.  Morgan Stanley California Quality Municipal Securities
65.  Morgan Stanley Insured California Municipal Securities
66.  Morgan Stanley Insured Municipal Bond Trust
67.  Morgan Stanley Insured Municipal Income Trust
68.  Morgan Stanley Insured Municipal Securities
69.  Morgan Stanley Insured Municipal Trust
70.  Morgan Stanley Municipal Income Opportunities Trust
71.  Morgan Stanley Municipal Income Opportunities Trust II
72.  Morgan Stanley Municipal Income Opportunities Trust III
73.  Morgan Stanley Municipal Premium Income Trust
74.  Morgan Stanley New York Quality Municipal Securities
75.  Morgan Stanley Quality Municipal Income Trust
76.  Morgan Stanley Quality Municipal Investment Trust
77.  Morgan Stanley Quality Municipal Securities


                                       30

                                                                      SCHEDULE A

                                  STATE STREET
                             GLOBAL CUSTODY NETWORK
                                  SUBCUSTODIANS

COUNTRY                   SUBCUSTODIAN
- -----------------------   ------------------------------------------------------
Argentina                 Citibank, N.A.

Australia                 The Hongkong and Shanghai Banking Corporation Limited
                          Citibank Pty. Limited

Austria                   Erste Bank der osterreichischen Sparkassen AG

Bahrain                   HSBC Bank Middle East Limited
                          (as delegate of the Hongkong and Shanghai Banking
                          Corporation Limited)

Bangladesh                Standard Chartered Bank

Belgium                   Deutsche Bank AG, Netherlands (operating through its
                          Amsterdam branch)

Benin                     via Societe Generale de Banques en Cote d'Ivoire,
                          Abidjan, Ivory Coast

Bermuda                   Bank of Bermuda Limited

Botswana                  Barclays Bank of Botswana Limited

Brazil                    Citibank, N.A.

Bulgaria                  ING Bank N.V.

Burkina Faso              via Societe Generale de Banques en Cote d'Ivoire,
                          Abidjan, Ivory Coast

Canada                    State Street Trust Company Canada

Cayman Islands            Scotiabank & Trust (Cayman) Limited

Chile                     Banco Itau Chile

12/31/07


                                        1

                                                                      SCHEDULE A

                                  STATE STREET
                             GLOBAL CUSTODY NETWORK
                                  SUBCUSTODIANS

COUNTRY                   SUBCUSTODIAN
- -----------------------   ------------------------------------------------------
People's Republic of      HSBC Bank (China) Company Limited
China (Shanghai and       (as delegate of The Hongkong and Shanghai Banking
Shenzhen)                 Corporation Limited)

Colombia                  Cititrust Colombia S.A. Sociedad Fiduciaria

Costa Rica                Banco BCT S.A.

Croatia                   Privredna Banka Zagreb d.d

Cyprus                    Marfin Popular Bank Public Company Limited

Czech Republic            Ceskoslovenska Obchodni Banka, a.s.

Denmark                   Skandinaviska Enskilda Bankken AB, Sweden
                          (operating through its Copenhagen branch)

Ecuador                   Banco de la Produccion S.A. PRODUBANCO

Egypt                     HSBC Bank Egypt S.A.E.
                          (as delegate of The Hongkong and Shanghai Banking
                          Corporation Limited)

Estonia                   AS Hansabank

Finland                   Skandinaviska Enskilda Bankken AB, Sweden (operating
                          through its Helsinki branch)

France                    Deutsche Bank AG, Netherlands (operating through its
                          Paris branch)

Germany                   Deutsche Bank AG

Ghana                     Barclays Bank of Ghana Limited

Greece                    National Bank of Greece S.A.

12/31/07


                                        2

                                                                      SCHEDULE A

                                  STATE STREET
                             GLOBAL CUSTODY NETWORK
                                  SUBCUSTODIANS

COUNTRY                   SUBCUSTODIAN
- -----------------------   ------------------------------------------------------
Guinea-Bissau             via Societe Generale de Banques en Cote d'Ivoire,
                          Abidjan, Ivory Coast

Hong Kong                 Standard Chartered Bank (Hong Kong) Limited

Hungary                   UniCredit Bank Hungary Zrt.

Iceland                   Kaupthing Bank hf.

India                     Deutsche Bank AG
                          The Hongkong and Shanghai Banking Corporation Limited

Indonesia                 Deutsche Bank AG

Ireland                   Bank of Ireland

Israel                    Bank Hapoalim B.M.

Italy                     Deutsche Bank S.p.A.

Ivory Coast               Societe Generale de Banques en Cote d'Ivoire

Jamaica                   Bank of Nova Scotia Jamaica Limited

Japan                     Mizuho Corporate Bank Ltd.
                          Sumitomo Mitsui Banking Corporation

Jordan                    HSBC Bank Middle East Limited
                          (as delegate of the Hongkong and Shanghai Banking
                          Corporation Limited)

Kazakhstan                SB HSBC Bank Kazakhstan JSC
                          (as delegate of the Hongkong and Shanghai Banking
                          Corporation Limited)

Kenya                     Barclays Bank of Kenya Limited

12/31/07


                                        3

                                                                      SCHEDULE A

                                  STATE STREET
                             GLOBAL CUSTODY NETWORK
                                  SUBCUSTODIANS

COUNTRY                   SUBCUSTODIAN
- -----------------------   ------------------------------------------------------
Republic of Korea         Deutsche Bank AG
                          The Hongkong and Shanghai Banking Corporation Limited

Kuwait                    HSBC Bank Middle East Limited
                          (as delegate of The Hongkong and Shanghai Banking
                          Corporation Limited)

Latvia                    A/s Hansabanka

Lebanon                   HSBC Bank Middle East
                          (as delegate of The Hongkong and Shanghai Banking
                          Corporation Limited)

Lithuania                 SEB Vilniaus Bankas AB

Malaysia                  Standard Chartered Bank Malaysia Berhad

Mali                      via Societe Generale de Banques en Cote d'Ivoire,
                          Abidjan, Ivory Coast

Malta                     The Hongkong and Shanghai Banking Corporation Limited

Mauritius                 The Hongkong and Shanghai Banking Corporation Limited

Mexico                    Banco Nacional de Mexico S.A.

Morocco                   Attijariwafa bank

Namibia                   Standard Bank Namibia Limited

Netherlands               Deutsche Bank AG

New Zealand               The Hongkong and Shanghai Banking Corporation Limited

Niger                     via Societe Generale de Banques en Cote d'Ivoire,
                          Abidjan, Ivory Coast

12/31/07


                                        4

                                                                      SCHEDULE A

                                  STATE STREET
                             GLOBAL CUSTODY NETWORK
                                  SUBCUSTODIANS

COUNTRY                   SUBCUSTODIAN
- -----------------------   ------------------------------------------------------
Nigeria                   IBTC Chartered Bank Plc.

Norway                    Skandinaviska Enskilda Bankken AB, Sweden (operating
                          through its Oslo branch)

Oman                      HSBC Bank Middle East Limited
                          (as delegate of The Hongkong and Shanghai Banking
                          Corporation Limited)

Pakistan                  Deutsche Bank AG

Palestine                 HSBC Bank Middle East Limited
                          (as delegate of The Hongkong and Shanghai Banking
                          Corporation Limited)

Panama                    HSBC Bank (Panama) S.A.

Peru                      Citibank del Peru, S.A.

Philippines               Standard Chartered Bank

Poland                    Bank Handlowy w Warszawie S.A.

Portugal                  Banco Comercial Portugues S.A.

Puerto Rico               Citibank N.A.

Qatar                     HSBC Bank Middle East Limited
                          (as delegate of The Hongkong and Shanghai Banking
                          Corporation Limited)

Romania                   ING Bank N.V.

Russia                    ING Bank (Eurasia) ZAO, Moscow

Saudi Arabia              Saudi British Bank
                          (as delegate of The Hongkong and Shanghai Banking
                          Corporation Limited)

12/31/07


                                        5

                                                                      SCHEDULE A

                                  STATE STREET
                             GLOBAL CUSTODY NETWORK
                                  SUBCUSTODIANS

COUNTRY                   SUBCUSTODIAN
- -----------------------   ------------------------------------------------------
Senegal                   via Societe Generale de Banques en Cote d'Ivoire,
                          Abidjan, Ivory Coast

Serbia                    Unicredit Bank Serbia JSC

Singapore                 DBS Bank Limited
                          United Overseas Bank Limited

Slovak Republic           Ceskoslovenska Obchodni Banka, a.s., pobocka
                          zahranicnej banky v SR

Slovenia                  Unicredit Bank Slovenija d.d.

South Africa              Nedbank Limited Standard Bank of
                          South Africa Limited

Spain                     Deutsche Bank S.A.E.

Sri Lanka                 The Hongkong and Shanghai Banking Corporation Limited

Swaziland                 Standard Bank Swaziland Limited

Sweden                    Skandinaviska Enskilda Banken AB

Switzerland               UBS AG

Taiwan - R.O.C.           Bank of Taiwan

Thailand                  Standard Chartered Bank (Thai) Public Company Limited

Togo                      via Societe Generale de Banques en Cote d'Ivoire,
                          Abidjan, Ivory Coast

Trinidad & Tobago         Republic Bank Limited

Tunisia                   Banque Internationale Arabe de Tunisie

12/31/07


                                        6

                                                                      SCHEDULE A

                                  STATE STREET
                             GLOBAL CUSTODY NETWORK
                                  SUBCUSTODIANS

COUNTRY                   SUBCUSTODIAN
- -----------------------   ------------------------------------------------------
Turkey                    Citibank, A.S.

Uganda                    Barclays Bank of Uganda Limited

Ukraine                   ING Bank Ukraine

United Arab Emirates      HSBC Bank Middle East Limited
- -Dubai Financial Market   (as delegate of The Hongkong and Shanghai Banking
                          Corporation Limited)

United Arab Emirates      HSBC Bank Middle East Limited
- -Dubai International      (as delegate of The Hongkong and Shanghai Banking
Financial Center          Corporation Limited)

United Kingdom            State Street Bank and Trust Company, United Kingdom
                          branch

Uruguay                   Bank Itau Uruguay S.A.

Venezuela                 Citibank, N.A.

Vietnam                   The Hongkong and Shanghai Banking Corporation Limited

Zambia                    Barclays Bank of Zambia Plc.

Zimbabwe                  Barclays Bank of Zimbabwe Limited

12/31/07


                                        7

                                                                      SCHEDULE B

                                  STATE STREET
                             GLOBAL CUSTODY NETWORK
                    DEPOSITORIES OPERATING IN NETWORK MARKETS

COUNTRY                   DEPOSITORIES
- -----------------------   ------------------------------------------------------
Argentina                 Caja de Valores S.A.

Australia                 Austraclear Limited

Austria                   Oesterreichische Kontrollbank AG (Wertpapiersammelbank
                          Division)

Bahrain                   Clearing, Settlement, and Depository System of the
                          Bahrain Stock Exchange

Bangladesh                Central Depository Bangladesh Limited

Belgium                   Banque Nationale de Belgique
                          Euroclear Belgium

Benin                     Depositaire Central - Banque de Reglement

Bermuda                   Bermuda Securities Depository

Brazil                    Central de Custodia e de Liquidacao Financeira de
                          Titulos Privados (CETIP)
                          Companhia Brasileira de Liquidacao e Custodia
                          Sistema Especial de Liquidacao e de Custodia (SELIC)

Bulgaria                  Bulgarian National Bank
                          Central Depository AD

Burkina Faso              Depositaire Central - Banque de Reglement

Canada                    The Canadian Depository for Securities Limited

Chile                     Deposito Central de Valores S.A.

People's Republic         China Securities Depository and Clearing Corporation
of China                  Limited, Shanghai Branch
                          China Securities Depository and Clearing Corporation
                          Limited Shenzhen Branch

12/31/07


                                        1

                                                                      SCHEDULE B

                                  STATE STREET
                             GLOBAL CUSTODY NETWORK
                    DEPOSITORIES OPERATING IN NETWORK MARKETS

COUNTRY                   DEPOSITORIES
- -----------------------   ------------------------------------------------------
Colombia                  Deposito Central de Valores
                          Deposito Centralizado de Valores de Colombia S..A.
                          (DECEVAL)

Costa Rica                Central de Valores S.A.

Croatia                   Sredisnja depozitarna agencija d.d.

Cyprus                    Central Depository and Central Registry

Czech Republic            Czech National Bank
                          Stredisko cennych papiru - Ceska republika

Denmark                   Vaerdipapircentralen

Dubai International       Central Securities Depository department of the Dubai
Financial Center          International Financial Exchange

Egypt                     Misr for Clearing, Settlement, and Depository S.A.E.
                          Central Bank of Egypt

Estonia                   AS Eesti Vaartpaberikeskus

Finland                   Suomen Arvopaperikeskus Oy

France                    Euroclear France

Germany                   Clearstream Banking AG, Frankfurt

Greece                    Apothetirion Titlon AE
                          Bank of Greece, System for Monitoring Transactions in
                          Securities in Book-Entry Form

Guinea-Bissau             Depositaire Central - Banque de Reglement

12/31/07


                                        2

                                                                      SCHEDULE B

                                  STATE STREET
                             GLOBAL CUSTODY NETWORK
                   DEPOSITORIES OPERATING IN NETWORK MARKETS

COUNTRY                   DEPOSITORIES
- -----------------------   ------------------------------------------------------
Hong Kong                 Central Moneymarkets Unit
                          Hong Kong Securities Clearing Company Limited

Hungary                   Kozponti Elszamolohaz es Ertektar (Budapest)
                          Zrt. (KELER)

Iceland                   Icelandic Securities Depository Limited

India                     Central Depository Services (India) Limited
                          National Securities Depository Limited
                          Reserve Bank of India

Indonesia                 Bank Indonesia
                          PT Kustodian Sentral Efek Indonesia

Israel                    Tel Aviv Stock Exchange Clearing House Ltd.
                          (TASE Clearing House)

Italy                     Monte Titoli S.p.A.

Ivory Coast               Depositaire Central - Banque de Reglement

Jamaica                   Jamaica Central Securities Depository

Japan                     Bank of Japan - Net System
                          Japan Securities Depository Center (JASDEC)
                          Incorporated

Jordan                    Securities Depository Center

Kazakhstan                Central Securities Depository

Kenya                     Central Depository and Settlement Corporation Limited
                          Central Bank of Kenya

Republic of Korea         Korea Securities Depository

12/31/07


                                       3

                                                                      SCHEDULE B

                                  STATE STREET
                             GLOBAL CUSTODY NETWORK
                    DEPOSITORIES OPERATING IN NETWORK MARKETS

COUNTRY                   DEPOSITORIES
- -----------------------   ------------------------------------------------------
Kuwait                    Kuwait Clearing Company

Latvia                    Latvian Central Depository

Lebanon                   Banque du Liban
                          Custodian and Clearing Center of Financial Instruments
                          for Lebanon and the Middle East (Midclear) S.A.L.

Lithuania                 Central Securities Depository of Lithuania

Malaysia                  Bank Negara Malaysia
                          Bursa Malaysia Depository Sdn. Bhd.

Mali                      Depositaire Central - Banque de Reglement

Malta                     Central Securities Depository of the Malta
                          Stock Exchange

Mauritius                 Bank of Mauritius
                          Central Depository and Settlement Co. Ltd.

Mexico                    S.D. INDEVAL, S.A. de C.V.

Morocco                   Maroclear

Namibia                   Bank of Namibia

Netherlands               Euroclear Nederland

New Zealand               New Zealand Central Securities Depository Limited

Niger                     Depositaire Central - Banque de Reglement

Nigeria                   Central Securities Clearing System Limited

12/31/07


                                        4

                                                                      SCHEDULE B

                                  STATE STREET
                             GLOBAL CUSTODY NETWORK
                    DEPOSITORIES OPERATING IN NETWORK MARKETS

COUNTRY                   DEPOSITORIES
- -----------------------   ------------------------------------------------------
Norway                    Verdipapirsentralen

Oman                      Muscat Depository & Securities Registration Company,
                          SAOC

Pakistan                  Central Depository Company of Pakistan Limited
                          State Bank of Pakistan

Palestine                 Clearing, Depository and Settlement, a department
                          of the Palestine Securities Exchange

Panama                    Central Latinoamericana de Valores, S.A. (LatinClear)

Peru                      Caja de Valores y Liquidaciones, Institucion de
                          Compensacion y Liquidacion de Valores S.A

Philippines               Philippine Depository & Trust Corporation
                          Registry of Scripless Securities (ROSS) of the Bureau
                          of Treasury

Poland                    Rejestr Papierow Wartosciowych
                          Krajowy Depozyt Papierow Wartosciowych S.A.

Portugal                  INTERBOLSA - Sociedade Gestora de Sistemas de
                          Liquidacao e de Sistemas Centralizados de Valores
                          Mobiliarios, S.A.

Qatar                     Central Clearing and Registration (CCR), a
                          department of the Doha Securities Market

Romania                   S.C. Depozitarul Central S.A.
                          National Bank of Romania

Russia                    Vneshtorgbank, Bank for Foreign Trade of the Russian
                          Federation National Depository Center

Saudi Arabia              Tadawul Central Securities Depository

12/31/07


                                        5

                                                                      SCHEDULE B

                                  STATE STREET
                             GLOBAL CUSTODY NETWORK
                    DEPOSITORIES OPERATING IN NETWORK MARKETS

COUNTRY                   DEPOSITORIES
- -----------------------   ------------------------------------------------------
Senegal                   Depositaire Central - Banque de Reglement

Serbia                    Central Registrar and Central Depository for
                          Securities

Singapore                 The Central Depository (Pte) Limited
                          Monetary Authority of Singapore

Slovak Republic           Naodna banka slovenska
                          Centralny depozitar cennych papierov SR, a.s.

Slovenia                  KDD - Centralna klirinsko depotna druzba d.d.

South Africa              Strate Ltd.

Spain                     IBERCLEAR

Sri Lanka                 Central Depository System (Pvt) Limited

Sweden                    Vardepapperscentralen VPC AB

Switzerland               SegaIntersettle AG (SIS)

Taiwan - R.O.C.           Taiwan Depository and Clearing Corporation

Thailand                  Thailand Securities Depository Company Limited

Togo                      Depositaire Central - Banque de Reglement

Trinidad and Tobago       Central Bank of Trinidad and Tobago

Tunisia                   Societe Tunisienne Interprofessionelle pour la
                          Compensation et de Depots des Valeurs Mobilieres
                          (STICODEVAM)

12/31/07


                                        6

                                                                      SCHEDULE B

                                  STATE STREET
                             GLOBAL CUSTODY NETWORK
                    DEPOSITORIES OPERATING IN NETWORK MARKETS

COUNTRY                   DEPOSITORIES
- -----------------------   ------------------------------------------------------
Turkey                    Central Bank of Turkey
                          Central Registry Agency

Uganda                    Bank of Uganda

Ukraine                   Mizhregionalny Fondovy Souz
                          National Bank of Ukraine

United Arab Emirates      Clearing and Depository System, a department of the
                          Dubai Financial Market Dubai International Financial
                          Exchange Ltd. central securities depository

United Kingdom            Euroclear UK & Ireland Limited

Uruguay                   Banco Central del Uruguay

Venezuela                 Banco Central de Venezuela
                          Caja Venezolana de Valores

Vietnam                   Vietnam Securities Depository

Zambia                    Bank of Zambia
                          LuSE Central Shares Depository Limited

TRANSNATIONAL

Euroclear Bank S.A./N.V.
Clearstream Banking, S.A.

12/31/07


                                        7

                             FUNDS TRANSFER ADDENDUM

                                                             [STATE STREET LOGO]
                                  Serving Institutional Investors Worldwide (SM)

OPERATING GUIDELINES

1. OBLIGATION OF THE SENDER: State Street is authorized to promptly debit
Client's account(s) upon the receipt of a payment order in compliance with the
selected Security Procedure chosen for funds transfer and in the amount of money
that State Street has been instructed to transfer. State Street shall execute
payment orders in compliance with the Security Procedure and with the Client's
instructions on the execution date provided that such payment order is received
by the customary deadline for processing such a request, unless the payment
order specifies a later time. All payment orders and communications received
after this time will be deemed to have been received on the next business day.

2. SECURITY PROCEDURE: The Client acknowledges that the Security Procedure it
has designated on the Selection Form was selected by the Client from Security
Procedures offered by State Street. The Client agrees that the Security
Procedures are reasonable and adequate for its wire transfer transactions and
agrees to be bound by any payment orders, amendments and cancellations, whether
or not authorized, issued in its name and accepted by State Street after being
confirmed by any of the selected Security Procedures. The Client also agrees to
be bound by any other valid and authorized payment order accepted by State
Street. The Client shall restrict access to confidential information relating to
the Security Procedure to authorized persons as communicated in writing to State
Street. The Client must notify State Street immediately if it has reason to
believe unauthorized persons may have obtained access to such information or of
any change in the Client's authorized personnel. State Street shall verify the
authenticity of all instructions according to the Security Procedure.

3. ACCOUNT NUMBERS: State Street shall process all payment orders on the basis
of the account number contained in the payment order. In the event of a
discrepancy between any name indicated on the payment order and the account
number, the account number shall take precedence and govern. Financial
institutions that receive payment orders initiated by State Street at the
instruction of the Client may also process payment orders on the basis of
account numbers, regardless of any name included in the payment order. State
Street will also rely on any financial institution identification numbers
included in any payment order, regardless of any financial institution name
included in the payment order.

4. REJECTION: State Street reserves the right to decline to process or delay the
processing of a payment order which (a) is in excess of the collected balance in
the account to be charged at the time of State Street's receipt of such payment
order; (b) if initiating such payment order would cause State Street, in State
Street's sole judgment, to exceed any volume, aggregate dollar, network, time,
credit or similar limits upon wire transfers which are applicable to State
Street; or (c) if State Street, in good faith, is unable to satisfy itself that
the transaction has been properly authorized.

5. CANCELLATION OR AMENDMENT: State Street shall use reasonable efforts to act
on all authorized requests to cancel or amend payment orders received in
compliance with the Security Procedure provided that such requests are received
in a timely manner affording State Street reasonable opportunity to act.
However, State Street assumes no liability if the request for amendment or
cancellation cannot be satisfied.

6. ERRORS: State Street shall assume no responsibility for failure to detect any
erroneous payment order provided that State Street complies with the payment
order instructions as received and State Street complies with the Security
Procedure. The Security Procedure is established for the purpose of
authenticating payment orders only and not for the detection of errors in
payment orders.

7. INTEREST AND LIABILITY LIMITS: State Street shall assume no responsibility
for lost interest with respect to the refundable amount of any unauthorized
payment order, unless State Street is notified of the unauthorized payment order
within thirty (30) days of notification by State Street of the acceptance of
such payment order. In no event shall State Street be liable for special,
indirect or consequential damages, even if advised of the possibility of such
damages and even for failure to execute a payment order.

8. AUTOMATED CLEARING HOUSE ("ACH") CREDIT ENTRIES/PROVISIONAL PAYMENTS: When a
Client initiates or receives ACH credit and debit entries pursuant to these
Guidelines and the rules of the National Automated Clearing House Association
and the New England Clearing House Association, State Street will act as an
Originating Depository Financial Institution and/or Receiving Depository
Institution, as the case may be, with respect to such entries. Credits given by
State Street with respect to an ACH credit entry are provisional until State
Street receives final settlement for such entry from the Federal Reserve Bank.
If State Street does not receive such final settlement, the Client agrees that
State Street shall receive a refund of the amount credited to the Client in
connection with such entry, and the party making payment to the Client via such
entry shall not be deemed to have paid the amount of the entry.

9. CONFIRMATION STATEMENTS: Confirmation of State Street's execution of payment
orders shall ordinarily be provided within 24 hours. Notice may be delivered
through State Street's proprietary information systems, such as, but not limited
to Horizon and GlobalQuest(R), account statements, advices, or by facsimile or
callback. The Client must report any objections to the execution of a payment
order within 30 days.

                                                             [STATE STREET LOGO]
                                  Serving Institutional Investors Worldwide (SM)

                            FUNDS TRANSFER ADDENDUM

10. LIABILITY ON FOREIGN ACCOUNTS: State Street shall not be required to repay
any deposit made at a non-U.S. branch of State Street, or any deposit made with
State Street and denominated in a non-U.S. dollar currency, if repayment of such
deposit or the use of assets denominated in the non-U.S. dollar currency is
prevented, prohibited or otherwise blocked due to: (a) an act of war,
insurrection or civil strife; (b) any action by a non-U.S. government or
instrumentality or authority asserting governmental, military or police power of
any kind, whether such authority be recognized as a defacto or a dejure
government, or by any entity, political or revolutionary movement or otherwise
that usurps, supervenes or otherwise materially impairs the normal operation of
civil authority; or(c) the closure of a non-U.S. branch of State Street in order
to prevent, in the reasonable judgment of State Street, harm to the employees or
property of State Street. The obligation to repay any such deposit shall not be
transferred to and may not be enforced against any other branch of State Street.

The foregoing provisions constitute the disclosure required by Massachusetts
General Laws, Chapter 167D, Section 36.

While State Street is not obligated to repay any deposit made at a non-U.S.
branch or any deposit denominated in a non-U.S. currency during the period in
which its repayment has been prevented, prohibited or otherwise blocked, State
Street will repay such deposit when and if all circumstances preventing,
prohibiting or otherwise blocking repayment cease to exist.

11. MISCELLANEOUS: State Street and the Client agree to cooperate to attempt to
recover any funds erroneously paid to the wrong party or parties, regardless of
any fault of State Street or the Client, but the party responsible for the
erroneous payment shall bear all costs and expenses incurred in trying to effect
such recovery. These Guidelines may not be amended except by a written agreement
signed by the parties.

                                                             [STATE STREET LOGO]
                                  Serving Institutional Investors Worldwide (SM)

                             FUNDS TRANSFER ADDENDUM

Security Procedure(s) Selection Form

Please select one or more of the funds transfer security procedures indicated
below.

[_] SWIFT

SWIFT (Society for Worldwide Interbank Financial Telecommunication) is a
cooperative society owned and operated by member financial institutions that
provides telecommunication services for its membership. Participation is limited
to securities brokers and dealers, clearing and depository institutions,
recognized exchanges for securities, and investment management institutions.
SWIFT provides a number of security features through encryption and
authentication to protect against unauthorized access, loss or wrong delivery of
messages, transmission errors, loss of confidentiality and fraudulent changes to
messages. SWIFT is considered to be one of the most secure and efficient
networks for the delivery of funds transfer instructions.

Selection of this security procedure would be most appropriate for existing
SWIFT members.

[_] STANDING INSTRUCTIONS

Standing Instructions may be used where funds are transferred to a broker on the
Client's established list of brokers with which it engages in foreign exchange
transactions. Only the date, the currency and the currency amount are variable.
In order to establish this procedure, State Street will send to the Client a
list of the brokers that State Street has determined are used by the Client. The
Client will confirm the list in writing, and State Street will verify the
written confirmation by telephone. Standing Instructions will be subject to a
mutually agreed upon limit. If the payment order exceeds the established limit,
the Standing Instruction will be confirmed by telephone prior to execution.

[_]REMOTE BATCH TRANSMISSION

Wire transfer instructions are delivered via Computer-to-Computer (CPU-CPU) data
communications between the Client and State Street. Security procedures include
encryption and or the use of a test key by those individuals authorized as
Automated Batch Verifiers.

Clients selecting this option should have an existing facility for completing
CPU-CPU transmissions. This delivery mechanism is typically used for high-volume
business.

[_] GLOBAL HORIZON INTERCHANGE(SM) FUNDS TRANSFER SERVICE

Global Horizon Interchange Funds Transfer Service (FTS) is a State Street
proprietary microcomputer-based wire initiation system. FTS enables Clients to
electronically transmit authenticated Fedwire, CHIPS or internal book transfer
instructions to State Street.

This delivery mechanism is most appropriate for Clients with a low-to-medium
number of transactions (5-75 per day), allowing Clients to enter, batch, and
review wire transfer instructions on their PC prior to release to State Street.

[_] TELEPHONE CONFIRMATION (CALLBACK)

Telephone confirmation will be used to verify all non-repetitive funds transfer
instructions received via untested facsimile or phone. This procedure requires
Clients to designate individuals as authorized initiators and authorized
verifiers. State Street will verify that the instruction contains the signature
of an authorized person and prior to execution, will contact someone other than
the originator at the Client's location to authenticate the instruction.

Selection of this alternative is appropriate for Clients who do not have the
capability to use other security procedures.

[_] REPETITIVE WIRES

For situations where funds are transferred periodically (minimum of one
instruction per calendar quarter) from an existing authorized account to the
same payee (destination bank and account number) and only the date and currency
amount are variable, a repetitive wire may be implemented. Repetitive wires will
be subject to a mutually agreed upon limit. If the payment order exceeds the
established limit, the instruction will be confirmed by telephone prior to
execution. Telephone confirmation is used to establish this process. Repetitive
wire instructions must be reconfirmed annually.

This alternative is recommended whenever funds are frequently transferred
between the same two accounts.

[_] TRANSFERS INITIATED BY FACSIMILE

The Client faxes wire transfer instructions directly to State Street Mutual Fund
Services. Standard security procedure requires the use of a random number test
key for all transfers. Every six months the Client receives test key logs from
State Street. The test key contains alpha-numeric characters, which the Client
puts on each document faxed to State Street. This procedure ensures all wire
instructions received via fax are authorized by the Client.

We provide this option for Clients who wish to batch wire instructions and
transmit these as a group to State Street Mutual Fund Services once or several
times a day.

                                                             [STATE STREET LOGO]
                                  Serving Institutional Investors Worldwide (SM)

                             FUNDS TRANSFER ADDENDUM

[_] INSTRUCT

Instruct is a State Street web-based application designed to provide
internet-enabled remote access that allows for the capturing, verification and
processing of various instruction types, including securities, cash and foreign
exchange transactions. Instruct is designed using industry standard formats to
facilitate straight-through processing. Instruct provides a number of security
features through user entitlements, industry standard encryption protocols,
digital security certificates and multiple tiers of user authentication
requirements.

[_] SECURE TRANSPORT

Secure Transport is a file transfer application based upon the Secure File
Transfer Protocol standard that is designed to enable State Street clients/
investment managers to send file based transfer and transaction instructions
over the internet. Secure Transport features multi-factor authenticators such as
SecurID and digital certificates, and incorporates industry-standard encryption
protocols.

[_] AUTOMATED CLEARING HOUSE (ACH)

State Street receives an automated transmission or a magnetic tape from a Client
for the initiation of payment (credit) or collection (debit) transactions
through the ACH network. The transactions contained on each transmission or tape
must be authenticated by the Client. Clients using ACH must select one or more
of the following delivery options:

[_] GLOBAL HORIZON INTERCHANGE AUTOMATED CLEARING HOUSE SERVICE

Transactions are created on a microcomputer, assembled into batches and
delivered to State Street via fully authenticated electronic transmissions in
standard NACHA formats.

[_] Transmission from Client PC to State Street Mainframe with Telephone
    Callback

[_] Transmission from Client Mainframe to State Street Mainframe with
    Telephone Callback

[_] Transmission from DST Systems to State Street Mainframe with Encryption

[_] Magnetic Tape Delivered to State Street with Telephone Callback

State Street is hereby instructed to accept funds transfer instructions only via
the delivery methods and security procedures indicated.
The selected delivery methods and security procedure(s) will be
effective _______________________ for payment orders initiated by our
organization.

KEY CONTACT INFORMATION

Whom shall we contact to implement your selection(s)?

CLIENT OPERATIONS CONTACT                             ALTERNATE CONTACT

- -------------------------------------   ----------------------------------------
                  Name                                  Name

- -------------------------------------   ----------------------------------------
                 Address                               Address

- -------------------------------------   ----------------------------------------
          City/State/Zip Code                      City/State/Zip Code

- -------------------------------------   ----------------------------------------
           Telephone Number                         Telephone Number

- -------------------------------------   ----------------------------------------
           Facsimile Number                         Facsimile Number

- -------------------------------------
            SWIFT Number

- -------------------------------------
            Telex Number

                                                             [STATE STREET LOGO]
                                  Serving Institutional Investors Worldwide (SM)

                             FUNDS TRANSFER ADDENDUM

INSTRUCTION(S)

TELEPHONE CONFIRMATION

FUND ___________________________________________________________________________

INVESTMENT ADVISER _____________________________________________________________

AUTHORIZED INITIATORS
   Please Type or Print

Please provide a listing of Fund officers or other individuals who are currently
authorized to INITIATE wire transfer instructions to State Street:

                          TITLE (Specify whether
                          position is with Fund or
NAME                      Investment Adviser)         SPECIMEN SIGNATURE
- ------------------------  --------------------------  --------------------------

________________________  __________________________  __________________________

________________________  __________________________  __________________________

________________________  __________________________  __________________________

________________________  __________________________  __________________________

________________________  __________________________  __________________________

AUTHORIZED VERIFIERS
   Please Type or Print

Please provide a listing of Fund officers or other individuals who will be
CALLED BACK to verify the initiation of repetitive wires of $10 million or more
and all non-repetitive wire instructions:

NAME                      CALLBACK PHONE NUMBER       DOLLAR LIMITATION (IF ANY)
- ------------------------  --------------------------  --------------------------

________________________  __________________________  __________________________

________________________  __________________________  __________________________

________________________  __________________________  __________________________

________________________  __________________________  __________________________

________________________  __________________________  __________________________

                                   SCHEDULE C

                               MARKET INFORMATION

PUBLICATION/TYPE OF INFORMATION                    BRIEF DESCRIPTION
- -------------------------------------  -----------------------------------------
(SCHEDULED FREQUENCY)

The Guide to Custody in World Markets  An overview of settlement and safekeeping
(hardcopy annually and regular         procedures, custody practices and foreign
website updates)                       investor considerations for the markets
                                       in which State Street offers custodial
                                       services.

Global Custody Network Review          Information relating to Foreign
(annually)                             Sub-Custodians in State Street's Global
                                       Custody Network. The Review stands as an
                                       integral part of the materials that State
                                       Street provides to its U.S. mutual fund
                                       clients to assist them in complying with
                                       SEC Rule 17f-5. The Review also gives
                                       insight into State Street's market
                                       expansion and Foreign Sub-Custodian
                                       selection processes, as well as the
                                       procedures and controls used to monitor
                                       the financial condition and performance
                                       of our Foreign Sub-Custodian banks.

Securities Depository Review           Custody risk analyses of the Foreign
(annually)                             Securities Depositories presently
                                       operating in Network markets. This
                                       publication is an integral part of the
                                       materials that State Street provides to
                                       its U.S. mutual fund clients to meet
                                       informational obligations created by SEC
                                       Rule 17f-7.

Global Legal Survey                    With respect to each market in which
(annually)                             State Street offers custodial services,
                                       opinions relating to whether local law
                                       restricts (i) access of a fund's
                                       independent public accountants to books
                                       and records of a Foreign Sub-Custodian or
                                       Foreign Securities System, (ii) a fund's
                                       ability to recover in the event of
                                       bankruptcy or insolvency of a Foreign
                                       Sub-Custodian or Foreign Securities
                                       System, (iii) a fund's ability to recover
                                       in the event of a loss by a Foreign
                                       Sub-Custodian or Foreign Securities
                                       System, and (iv) the ability of a foreign
                                       investor to convert cash and cash
                                       equivalents to U.S. dollars.

Subcustodian Agreements                Copies of the contracts that State Street
(annually)                             has entered into with each Foreign
                                       Sub-Custodian that maintains U.S. mutual
                                       fund assets in the markets in which State
                                       Street offers custodial services.

Global Market Bulletin                 Information on changing settlement and
(daily or as necessary)                custody conditions in markets where State
                                       Street offers custodial services.
                                       Includes changes in market and tax
                                       regulations, depository developments,
                                       dematerialization information, as well as
                                       other market changes that may impact
                                       State Street's clients.

Foreign Custody Advisories             For those markets where State Street
(as necessary)                         offers custodial services that exhibit
                                       special risks or infrastructures
                                       impacting custody, State Street issues
                                       market advisories to highlight those
                                       unique market factors which might impact
                                       our ability to offer recognized custody
                                       service levels.

Material Change Notices                Informational letters and accompanying
(presently on a quarterly              materials confirming State Street's
basis or as otherwise                  foreign custody arrangements, including a
necessary)                             summary of material changes with Foreign
                                       Sub-Custodians that have occurred during
                                       the previous quarter. The notices also
                                       identify any material changes in the
                                       custodial risks associated with
                                       maintaining assets with Foreign
                                       Securities Depositories.

EX-99.(G)(2)

DATA ACCESS SERVICES AGREEMENT

Reference is made to that certain Custodian Contract, dated as of March 7, 2008 (the “Agreement”) between each fund or series of a fund listed on Appendix A which evidences its agreement to be bound hereby by executing a copy of this Agreement (each such fund is individually hereinafter referred to as, the “Customer”) and STATE STREET BANKAND TRUST COMPANY, including its subsidiaries and affiliates (“State Street”). Th is Data Access Services Agreement (“DAS Agreement”) is entered into by the Customer and State Street to be effective as of the dates on Appendix A.

PREAMBLE

State Street has developed and utilizes, and permits its affiliates to utilize, proprietary accounting and other systems in connection with the provision of custody and other services by it or by its affiliates, and maintains (or its affiliates maintain) certain Customer related data (“Customer Data”) in databases under its control and ownership (the “System”) and State Street makes available certain tools that allow the Customer to obtain access to data in the System remotely for reporting and analysis and to perform certain reporting and analysis functions therewith (the “Data Access Services”). The term “System” shall include additional and successor systems through which State Street may from time to time provide Data Access Services to its customers.

State Street makes available to the Customer certain Data Access Services solely for the benefit of the Customer, and intends to provide additional services, consistent with the terms and conditions of the Agreement.

1. SYSTEM AND DATA ACCESS SERVICES

a. System. Subject to the terms and conditions of this DAS Agreement, State Street hereby agrees to provide the Customer and its designated investment advisors, consultants and third parties authorized by State Street (“Authorized Designees”) with access to the System, on a remote basis solely on computer hardware, system software and telecommunication links of the Customer or the Authorized Designees and solely with respect to the Customer Data (the “Designated Configuration”).

b. Data Access Services. State Street agrees to make available to the Customer and its Authorized Designees the Data Access Services subject to the terms and conditions of this DAS Agreement.

2. NO USE OF THIRD PARTY SYSTEMS-LEVEL SOFTWARE

State Street and the Customer acknowledge that in connection with the Data Access Services provided under this DAS Agreement, the Customer and its Authorized Designees will have access, through the Data Access Services, to Customer Data and to functions of State Street’s proprietary systems; provided, however that in no event will the Customer or its Authorized Designees have direct access to any third party systems-level software that retrieves data for, stores data from, or otherwise supports the System.

3. LIMITATION ON SCOPE OF USE

a. Designated Equipment; Designated Locations. The System and the Data Access Services shall be used and accessed solely on and through the Designated Configuration at the offices of the Customer and/or its Authorized Designees (as specified in Annex A) (hereinafter referred to as the “Designated Locations”).

b. Designated Configuration; Trained Personnel. State Street and the Customer agree that each will engage or retain the services of trained personnel and, with respect to the Customer, will cause its Authorized Designees to retain the services of trained personnel, to enable the parties to perform their respective obligations under this DAS Agreement. State Street agrees to use commercially reasonable efforts to maintain the System so that it remains serviceable for Customer’s use as contemplated herein, provided, however, that State Street does not guarantee or assure uninterrupted remote access use of the System.

c. Scope of Use. The Customer and its Authorized Designees will use the System and the Data Access Services only for accessing books of account for the Customer and retrieving data for purposes of reporting and analysis. The Customer, its employees and agents shall not, and the Customer shall cause its Authorized Designees not to, (i) permit any third party to use the System or the Data Access Services, (ii) sell, rent, license or otherwise use the System or the Data Access Services in the operation of a service bureau or for any purpose other than as expressly authorized under this DAS Agreement, (iii) use the System or the Data Access Services for any fund, trust or other investment vehicle other than the Customer, (iv) allow access to the System or the Data Access Services through terminals or any other computer or telecommunications facilities located outside the Designated Locations, (v) allow or cause any information (other than portfolio holdings, valuations of portfolio holdings, and other information reasonably necessary for the management or distribution of the assets of the Customer) transmitted from State Street’s databases, including data from third party sources, available through use of the System or the Data Access Services to be redistributed or retransmitted to another computer, terminal or other device other than use for or on behalf of the Customer or (vi) modify the System in any way.

d. Other Locations. In the event of an emergency or System shutdown, the Customer may use any back-up site included in the Designated Locations or any other back-up site, upon State Street’s prior written approval, which approval will not be unreasonably withheld. Such back-up access by the Customer to the System or the Data Access Services shall be accessed through computer and telecommunications facilities or devices complying with the Designated Configuration.

e. Title. Title and all ownership and proprietary rights to the System, including any enhancements or modifications thereto, whether or not made by State Street, are and shall remain with State Street.

2

f. No Modification. Without the prior written consent of State Street, the Customer and its Authorized Designees shall not modify, enhance or otherwise create derivative works based upon the System, nor shall the Customer or its Authorized Designees reverse engineer, decompile or otherwise attempt to secure the source code for all or any part of the System.

g. Security Procedures. The Customer and its Authorized Designees shall comply with data access operating standards and procedures and with user identification or other password control requirements and other security procedures as may be reasonably issued from time to time by State Street for use of the System on a remote basis and to access the Data Access Services. The Customer and its Authorized Designees shall have access only to the Customer Data and authorized transactions as permitted by Section 3(c) herein. Upon notice from State Street, the Customer and its Authorized Designees shall discontinue remote use of the System and access to Data Access Services for any security reasons cited by State Street; provided that in such event State Street shall continue to provide accounting and custody services under the terms of the Agreement. State Street shall use commercially reasonable efforts to restore Customer’s remote access to and use of the System as quickly as possible.

h. Inspections. On an annual basis, or more frequently if upon Customer’s prior written consent, which consent shall not be unreasonably withheld, State Street shall have the right to inspect the use of the System and the Data Access Services by the Customer and its Authorized Designees to ensure compliance with this DAS Agreement. The on-site inspections shall be upon prior written notice to the Customer and the Authorized Designees and at reasonably convenient times and frequencies so as not to result in an unreasonable disruption of the Customer’s or the Authorized Designee’s business. Such inspections shall be conducted only by State Street employees bound by an obligation to maintain the confidentiality of the Customer Data and other Customer information in the manner set forth in Section 4 of this DAS Agreement.

4. PROPRIETARY INFORMATION

a. State Street Confidential Information. The Customer acknowledges, based upon State Street’s representations that the System and the databases, computer programs, screen formats, report formats, interactive design techniques, documentation and other information made available to the Customer and its Authorized Designees by State Street as part of the Data Access Services and through the use of the System constitute copyrighted, trade secret, or other proprietary information of substantial value to State Street. Any and all such information provided by State Street to the Customer and its Authorized Designees shall be deemed proprietary and confidential information of State Street (hereinafter “State Street Confidential Information”). The Customer agrees that it will hold, and shall cause its Authorized Designees to hold, such State Street Confidential Information in strictest confidence and secure and protect it in a manner which shall be measured by the manner consistent with its own procedures for the protection of its own confidential information of a similar nature and to take appropriate action by instruction or agreement with its employees who are permitted access to the State Street Confidential Information to satisfy its obligations hereunder. The Customer shall, and shall cause its Authorized Designees to, use all commercially reasonable efforts to assist State Street in identifying and preventing any unauthorized use, copying or disclosure of the Proprietary Information or any portions thereof or any of the logic, formats or designs contained therein.

3

b. Customer Confidential Information. As used herein, “Customer Confidential Information” shall include the Customer Data and all information of the Customer to which State Street has had access in connection with the performance of this DAS Agreement and the Agreement whether in oral, written, graphic or machine-readable form, including without limitation, specifications, user operations or systems manuals, diagrams, graphs, models, sketches, technical data, research, business or financial information, plans, strategies, forecasts, forecast assumptions, business practices, marketing information and material, customer names, proprietary ideas, concepts, know-how, methodologies and all other information related to the Customer’s business. Customer Confidential Information shall also include confidential information received by the Customer from a third party. State Street agrees that it will hold such Customer Confidential Information in strictest confidence and secure and protect it in a manner consistent with its own procedures for the protection of its own confidential information and to take appropriate action by instruction or agreement with its employees who are permitted access to the Customer Confidential Information to satisfy its obligations hereunder. State Street shall use all commercially reasonable efforts to assist the Customer in identifying and preventing any unauthorized use, copying or disclosure of the Proprietary Information or any portions thereof or any of the logic, formats or designs contained therein.

c. Proprietary Information. The Customer Confidential Information and State Street Confidential Information shall hereinafter be referred to as “Proprietary Information”. Notwithstanding anything to the contrary contained in this DAS Agreement, Proprietary Information shall not include information which: (i) is in the public domain at the time of disclosure; (ii) was in the possession of or demonstrably known by the recipient prior to its receipt from the disclosing party; (iii) is independently developed by recipient without use of the Proprietary Information; or (iv) becomes known to recipient from a source other than disclosing party without breach of this DAS Agreement.

If the receiving party is requested or required to disclose Proprietary Information pursuant to a subpoena, court order or other similar process (“Court Order”), it is agreed that the receiving party shall provide the disclosing party with notice of such request(s) so that the disclosing party may seek an appropriate protective order. In the event that the disclosing party is, in the opinion of its counsel, compelled to disclose the Confidential Information under pain of liability for contempt of court or other censure or penalty, the receiving party may disclose such information in accordance with and for the limited purpose of compliance with the Court Order, without liability hereunder.

d. Cooperation. Without limitation of the foregoing, each of the parties hereto shall advise the other immediately upon learning or having reason to believe that any person with access to the Proprietary Information (including, without limitation, any Authorized Designees), or any portion thereof, has violated or intends to violate the terms of this DAS Agreement, and each of the parties hereto will, at its expense, reasonably cooperate with the other in seeking injunctive or other equitable relief in the name of the Customer or State Street against any such person.

e. Injunctive Relief. Each of the parties hereto acknowledges that the disclosure of any Proprietary Information, or of any information which at law or equity ought to remain confidential, may immediately give rise to continuing irreparable injury to the other

4

inadequately compensable in damages at law. In addition, each of the parties hereto shall be entitled to seek immediate injunctive relief against the breach or threatened breach of any of the foregoing undertakings, in addition to any other legal remedies which may be available.

f. Survival. The provisions of this Section 4 shall survive the termination of the Agreement and this DAS Agreement.

5. LIMITATION ON LIABILITY

a. Limitation on Amount and Time for Bringing Action. The Customer agrees that any liability of State Street to the Customer or its Authorized Designees arising out of State Street’s provision of Data Access Services or the System under this DAS Agreement shall be limited to the maximum amount of three million dollars in total for any losses, damages and costs for the term of this DAS Agreement, for the particular system product services that give rise to such losses, damages and costs, regardless of frequency of incidents which may result in such losses, damages and costs. State Street agrees that any liability of the Customer to State Street or any third party arising out of the Customer’s access to and use of Data Access Services or the System under this DAS Agreement shall be limited to the maximum amount of three million dollars in total for any losses, damages and costs for the term of this DAS Agreement for the particular system product services that give rise to such losses, damages and costs, regardless of frequency of incidents which may result in such losses, damages and costs. No action, regardless of form, arising out of this DAS Agreement may be brought by either party more than two years after such party has knowledge that the cause of action has arisen, provided however, that the limitations set forth in this Section 5(a) shall not apply to any amounts for which either party is or becomes liable under Section 4 or Section 8 of this DAS Agreement, or due to personal injury or property damage arising out of either party’s performance of its obligations hereunder.

b. NO OTHER WARRANTIES, WHETHER EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, ARE MADE BY STATE STREET.

c. Third-Party Data. Organizations from which State Street may obtain certain data included in the System or the Data Access Services are solely responsible for the contents of such data, and State Street shall have no liability for claims under this DAS Agreement arising out of the contents of such third-party data, including, but not limited to, the accuracy thereof.

d. Regulatory Requirements. As between State Street and the Customer, the Customer shall be solely responsible for the accuracy of any accounting statements or reports produced by the Customer or its Authorized Designees using the Data Access Services and the System and the conformity thereof with any requirements of law.

e. Force Majeure. Neither party shall be liable under this DAS Agreement for any costs or damages due to delay or nonperformance under this DAS Agreement arising out of any cause or event beyond such party’s control, including without limitation, cessation of services hereunder or any damages resulting therefrom to the other party, or the Customer as a result of work stoppage, power or other mechanical failure, computer virus, natural disaster, governmental action, or communication disruption.

5

6. SYSTEM INTEGRITY

State Street represents, warrants and covenants that: (a) immediately prior to delivery of any component of the Data Access Services (a “Deliverable”), it shall use the then current version of one of the leading commercially available virus detection software programs, to test the Deliverable to ensure that the Deliverable does not contain any computer code designed to disrupt, disable, harm, or otherwise impede, including esthetical disruptions or distortions, the operation of the Data Access Services, or any of Customer’s other associated software, firmware, hardware, computer system or network (sometimes referred to as “viruses” or “worms”), (b) the Deliverables shall not contain any computer code that would disable the Data Access Services or impair in any way its operation based on the elapsing of a period of time, advancement to a particular date or other numeral (sometimes referred to as “time bombs”, “time locks”, or “drop dead” devices), and (c) the Deliverables shall not contain any computer code that would permit the unauthorized access to the Data Access Services or Customer’s computer systems (sometimes referred to as “traps”, “access codes” or “Trap door” devices) or any other harmful, malicious or hidden procedures, routines or mechanisms that which would cause the Data Access Services to cease functioning or to damage or corrupt data, storage media, programs, equipment or communications, or otherwise interfere with operations.

7. TITLE

State Street represents and warrants that it has title to its proprietary systems being accessed hereunder. As such title holder, State Street has the right to grant the Customer access to State Street’s proprietary systems pursuant to this DAS Agreement.

8. INTELLECTUAL PROPERTY INDEMNIFICATION

a. State Street agrees to defend and/or handle at its own expense, any claim or action against the Customer for actual or alleged infringement of any intellectual or industrial property right, including without limitation, trademarks, service marks, patents, copyrights, misappropriation of trade secrets or any similar property rights, based upon the System, any portion thereof and/or Customer’s use thereof. State Street further agrees to indemnify and hold Customer harmless from and against any and all liabilities, costs, losses, damages and expenses (including reasonable attorney’s fees) associated with such claim or action. Customer shall promptly notify State Street of any such claim or action. Customer shall reasonably cooperate with State Street in the defense of such claim or action at State Street’s expense.

b. State Street shall have the sole right to conduct the defense of any such claim or action and all negotiations for its settlement or compromise. In the event that State Street receives a complaint naming the Customer as defendant or codefendant, State Street shall notify the Customer promptly. State Street shall be further obligated to notify the Customer five (5) days prior to the date the first appearance or answer is due under such complaint in the event that State Street has not appointed counsel. Upon such notice, the Customer may elect to appoint its own representation for purposes of entering the Customer’s appearance or answer, as applicable, in response to such complaint at State Street’s expense.

6

c. If the System becomes or in State Street’s reasonable opinion is likely to become the subject of any such claim or action, then, State Street shall either: (i) procure for Customer the right to continue using the System as contemplated hereunder; (ii) modify the System to render the same non-infringing (provided such modification does not adversely affect Customer’s use as reasonably determined by State Street) or (iii) replace same with equally suitable, functionally equivalent, compatible non-infringing system. If none of the foregoing is possible and if such System is found to infringe, State Street shall have the right to terminate this DAS Agreement.

9. FEES

Fees and charges for the use of the System and the Data Access Services and related payment terms shall be as set forth in the Customer’s Fee Schedule in effect from time to time between the parties (the “Fee Schedule”). Any tariffs, duties or taxes imposed or levied by any government or governmental agency by reason of the transactions contemplated by this DAS Agreement, including, without limitation, federal, state and local taxes, use, value added and personal property taxes (other than income, franchise or similar taxes which may be imposed or assessed against State Street) shall be borne by the Customer. Any claimed exemption from such tariffs, duties or taxes shall be supported by proper documentary evidence delivered to State Street.

10. TRAINING AND SUPPORT

a. Training. State Street agrees to provide training, at a designated State Street training facility or at a Designated Location, to the Customer’s and Authorized Designees’ personnel in connection with the use of the System on the Designated Configuration as reasonably requested by the Customer. The Customer agrees that it will, and will cause its Authorized Designees to, set aside, during regular business hours or at other times agreed upon by both parties, sufficient time to enable all operators of the System and the Data Access Services, designated by the Customer or its Authorized Designees, to receive the training offered by State Street pursuant to this DAS Agreement.

b. Support. During the term of this DAS Agreement, State Street agrees to provide the support services set out in Attachment A to this DAS Agreement. However, the Customer shall be solely responsible for the timely acquisition and maintenance of the hardware and software that attach to the Designated Configuration in order to use the Data Access Services at the Designated Locations.

11. TERM OF AGREEMENT

a. Term of Agreement. This DAS Agreement shall become effective as of the date of the execution of the Agreement by State Street and the Customer and shall remain in full force and effect until the DAS Agreement terminated as herein provided.

7

b. Termination of Agreement. Any party may terminate this DAS Agreement (i) for any reason by giving the other parties at least one-hundred and eighty (180) days’ prior written notice in the case of notice of termination by State Street or thirty (30) days’ notice in the case of notice from the Customer to State Street of termination; or (ii) immediately where the other party, having failed to comply with any material term and condition of the DAS Agreement, fails to cure such non-compliance within thirty (30) days after written notice thereof provided however that State Street shall have the right to immediately suspend services in the event of a known or suspected security breach. In the event the Customer shall cease doing business, shall become subject to proceedings under the bankruptcy laws (other than a petition for reorganization or similar proceeding) or shall be adjudicated bankrupt, this DAS Agreement and the rights granted hereunder shall, at the option of State Street, immediately terminate with notice to the Customer. This DAS Agreement shall in any event terminate as to the Customer within ninety (90) days after the termination of the Agreement.

c. Termination of the Right to Use. Upon termination of this DAS Agreement for any reason, any right to use the System and access to the Data Access Services shall terminate and the Customer and its Authorized Designees shall immediately cease use of the System and the Data Access Services. Immediately upon termination of this DAS Agreement for any reason, the Customer and its Authorized Designees shall return to State Street all copies of documentation and other Proprietary Information in its possession; provided, however, that in the event that either party terminates this DAS Agreement or the Agreement for any reason other than the Customer’s breach, State Street shall provide the Data Access Services for a period of time and at a price to be agreed upon by the parties.

12. MISCELLANEOUS

a. Assignment; Successors. This DAS Agreement and the rights and obligations of the Customer and State Street hereunder shall not be assigned by a party without the prior written consent of the other parties, except that a party may assign this DAS Agreement to a successor of all or a substantial portion of its business, or to a party controlling, controlled by, or under common control with State Street or the Customer, as applicable; provided, however, that Customer may not assign this DAS Agreement and/or the rights and obligations hereunder to any competitor of State Street.

b. Survival. All provisions regarding indemnification, warranty, liability and limits thereon, and confidentiality and/or protection of proprietary rights and trade secrets shall survive the termination of this DAS Agreement.

c. Entire Agreement. This DAS Agreement and the attachments hereto constitute the entire understanding of the parties hereto with respect to the Data Access Services and the use of the System and supersedes any and all prior or contemporaneous representations or agreements, whether oral or written, between the parties as such may relate to the Data Access Services or the System, and cannot be modified or altered except in a writing duly executed by the parties. This DAS Agreement is not intended to supersede or modify the duties and liabilities of the parties hereto under the Agreement or any other agreement between the parties hereto. No single waiver or any right hereunder shall be deemed to be a continuing waiver.

8

d. Severability. If any provision or provisions of this DAS Agreement shall be held to be invalid, unlawful, or unenforceable, the validity, legality, and enforceability of the remaining provisions shall not in any way be affected or impaired.

e. Governing Law. This DAS Agreement shall be interpreted and construed in accordance with the internal laws of the State of New York without regard to the conflict of laws provisions thereof.

f. Personnel. The personnel of each party, when on the premises of the other, shall comply with the security and other personnel regulations of the party on whose premises such person is on.

g. No Waiver. Any forbearance or delay on the part of either party in enforcing any provision of this DAS Agreement or any of its rights hereunder shall not be construed as a waiver of such provision or of a right to enforce same for such occurrence or any future occurrence.

h. Independent Contractor. State Street acknowledges that it is acting as an independent contractor and that nothing in this DAS Agreement shall be construed to create an employment relationship between State Street and the Customer. State Street is not authorized to enter into contracts or agreements on behalf of Customer or to otherwise create obligations of Customer to third parties except as contemplated in the Agreement. Subject to Section 9, State Street shall be responsible for and shall maintain adequate records of expenses it shall incur in the course of performing any services hereunder and shall be solely responsible for and shall file, on a timely basis, tax returns and payments required to be filed with or made to any federal or state or local tax authority with respect to its performance of any services hereunder. Neither federal, nor state nor local income tax of any kind shall be withheld or paid by Customer on behalf of State Street or the employees of State Street. State Street’s personnel shall not be treated as employees of Customer.

i. Duplication. Customer may duplicate all manuals and other documentation provided by State Street for use solely in accordance with the terms of the DAS Agreement. In so doing, Customer agrees that any copyright and other proprietary notices on such manuals and other documentation will be reproduced.

j. Modification and Notice. No modifications of this DAS Agreement shall be valid or binding on either party except by a written agreement signed by the parties hereto. All notices or other communications given or permitted hereunder shall be in writing and mailed by registered or certified mail, sent to the address set forth below or such other addresses as a party shall have theretofore designated by notice in writing. Notice shall be deemed given on the date such notice is deposited in the United States mail, duly addressed, and with postage prepaid by the sending party.

To the Customer:	Morgan Stanley Investment Management
	522 Fifth Avenue
	NewYork, NY 10036
	Attention: General Counsel
	Telephone: 800-869-6397
	Telecopy: 212-507-1989

9

To State Street:	State Street Bank and Trust Company
	1200 Crown Colony Drive
	Crown Colony Office ParkQuincy, MA 02169
	Attention: Matt Malkasian
	Telephone: 617-537-4685
	Telecopy: 617-451-4786

k. Injunctive Relief. In addition to any other rights and remedies available to the parties hereunder, each of State Street and the Customer hereto acknowledges and agrees that certain of its obligations to the other party hereunder are of a unique character and agrees that any breach of such obligations may result in irreparable and continuing damage to the other party for which there may be no adequate remedy in damages. Notwithstanding anything to the contrary in this DAS Agreement, the other party may be entitled to seek injunctive relief and/or other equitable relief, and such further relief as may be proper from a court with competent jurisdiction.

l. Authorized Designees. By its execution of the Agreement, the Customer (a) confirms to State Street that it informs all Authorized Designees of the terms of this DAS Agreement and (b) accepts responsibility for its Authorized Designees’ compliance with the terms of this Agreement.

IN WITNESS WHEREOF, each of the parties has caused this instrument to be executed in its name and behalf by its duly authorized representative as of the 7th day of March, 2008.

ATTEST		EACH CUSTOMER LISTED ON APPENDIX A
	/s/ Alice J. Stein	By	/s/ Ronald E. Robison
Name:	Alice J. Stein (Gerstel)		Ronald E. Robison
Title:	Assistant Secretary		President and Principal Executive Officer

ATTEST	STATE STREET BANK AND TRUST COMPANY
/s/ Marvin Rau	By	/s/ Joseph L. Hooley
Marvin Rau		Joseph L. Hooley
Vice President		Vice Chairman

10

Appendix A, effective as of March 7, 2008

List of Funds

Morgan Stanley Series Funds

• Commodities Alpha Fund

Appendix A, effective as of May 2, 2008

List of Funds

Open-End Retail Funds

Taxable Money Market Funds

1. Active Assets Government Securities Trust

2. Active Assets Institutional Government Securities Trust

3. Active Assets Institutional Money Trust

4. Active Assets Money Trust

5. Morgan Stanley Liquid Asset Fund Inc.

6. Morgan Stanley U.S. Government Money Market Trust

Tax-Exempt Money Market Funds

7. Active Assets California Tax-Free Trust

8. Active Assets Tax-Free Trust

9. Morgan Stanley California Tax-Free Daily Income Trust

10. Morgan Stanley New York Municipal Money Market Trust

11. Morgan Stanley Tax-Free Daily Income Trust

Equity Funds

12. Morgan Stanley Allocator Fund

13. Morgan Stanley Capital Opportunities Trust

14. Morgan Stanley Convertible Securities Trust

15. Morgan Stanley Dividend Growth Securities Inc.

16. Morgan Stanley Equally-Weighted S&P 500 Fund

17. Morgan Stanley European Equity Fund Inc.

18. Morgan Stanley Financial Services Trust

19. Morgan Stanley Focus Growth Fund

20. Morgan Stanley Fundamental Value Fund

21. Morgan Stanley Global Advantage Fund

22. Morgan Stanley Global Dividend Growth Securities

23. Morgan Stanley Health Sciences Trust

24. Morgan Stanley Institutional Strategies Fund

25. Morgan Stanley International Fund

26. Morgan Stanley International SmallCap Fund

27. Morgan Stanley International Value Equity Fund

28. Morgan Stanley Japan Fund

29. Morgan Stanley Mid Cap Growth Fund

30. Morgan Stanley Mid-Cap Value Fund

31. Morgan Stanley Multi-Asset Class Fund

11

32. Morgan Stanley Nasdaq-100 Index Fund

33. Morgan Stanley Natural Resource Development Securities Inc.

34. Morgan Stanley Pacific Growth Fund Inc.

35. Morgan Stanley Real Estate Fund

36. Morgan Stanley Small-Mid Special Value Fund

37. Morgan Stanley Series Funds

• Diversified International Equity Fund

• Diversified Large Cap Equity Fund

• Commodities Alpha Fund

38. Morgan Stanley S&P 500 Index Fund

39. Morgan Stanley Special Growth Fund

40. Morgan Stanley Special Value Fund

41. Morgan Stanley Technology Fund

42. Morgan Stanley Total Market Index Fund

43. Morgan Stanley Utilities Fund

44. Morgan Stanley Value Fund

Balanced Funds

45. Morgan Stanley Balanced Fund

Asset Allocation Fund

46. Morgan Stanley Strategist Fund

Specialty Funds

47. Morgan Stanley FX Series Funds

• FX Alpha Strategy Portfolio

• FX Alpha Plus Strategy Portfolio

Taxable Fixed-Income Funds

48. Morgan Stanley Flexible Income Trust

49. Morgan Stanley Income Trust

50. Morgan Stanley High Yield Securities Inc.

51. Morgan Stanley Limited Duration Fund

52. Morgan Stanley Mortgage Securities Trust

53. Morgan Stanley Limited Duration U.S. Government Trust

54. Morgan Stanley U.S. Government Securities Trust

⁽¹⁾ Fund is not yet effective

Tax-Exempt Fixed-Income Funds

55. Morgan Stanley California Tax-Free Income Fund

56. Morgan Stanley Limited Term Municipal Trust

57. Morgan Stanley New York Tax-Free Income Fund

58. Morgan Stanley Tax-Exempt Securities Trust

Special Purpose Funds

59. Morgan Stanley Select Dimensions Investment Series

• Balanced Portfolio

12

• Capital Growth Portfolio

• Capital Opportunities Portfolio

• Developing Growth Portfolio

• Dividend Growth Portfolio

• Equally-Weighted S&P 500 Portfolio

• Focus Growth Portfolio

• Flexible Income Portfolio

• Global Equity Portfolio

• Money Market Portfolio

• Utilities Portfolio

60. Morgan Stanley Variable Investment Series

• Aggressive Equity Portfolio

• Capital Opportunities Portfolio

• Dividend Growth Portfolio

• European Equity Portfolio

• Global Advantage Portfolio

• Global Dividend Growth Portfolio

• High Yield Portfolio

• Income Builder Portfolio

• Limited Duration Portfolio

• Money Market Portfolio

• Income Plus Portfolio

• S&P 500 Index Portfolio

• Strategist Portfolio

• Utilities Portfolio

Closed-End Retail Funds

Taxable Fixed-Income Closed-End Funds

61. Morgan Stanley Income Securities Inc.

62. Morgan Stanley Prime Income Trust

Tax-Exempt Fixed-Income Closed-End Funds

63. Morgan Stanley California Insured Municipal Income Trust

64. Morgan Stanley California Quality Municipal Securities

65. Morgan Stanley Insured California Municipal Securities

66. Morgan Stanley Insured Municipal Bond Trust

67. Morgan Stanley Insured Municipal Income Trust

68. Morgan Stanley Insured Municipal Securities

69. Morgan Stanley Insured Municipal Trust

70. Morgan Stanley Municipal Income Opportunities Trust

71. Morgan Stanley Municipal Income Opportunities Trust II

72. Morgan Stanley Municipal Income Opportunities Trust III

73. Morgan Stanley Municipal Premium Income Trust

74. Morgan Stanley New York Quality Municipal Securities

75. Morgan Stanley Quality Municipal Income Trust

76. Morgan Stanley Quality Municipal Investment Trust

77. Morgan Stanley Quality Municipal Securities

13

ATTACHMENT A

SUPPORT SERVICES

During the term of this DAS Agreement, State Street agrees to provide the following on-going support services, as amended from time to time by State Street:

a. Telephone Support. The Customer Designated Persons may contact State Street’s customer support between the hours of 7:00 a.m. and 7:00 p.m. (EST) on all business days for the purpose of obtaining answers to questions about the use of the System, or to report apparent problems with the System. The Customer shall provide to State Street a list of persons who shall be permitted to use the System and the Data Access Services (such persons being referred to as “the Customer Designated Persons”).

b. Technical Support. State Street will provide technical support to assist the Customer in using the System through the Data Access Services. Technical support for installation and providing training at the time of installation is subject to the fees and other terms set forth in the Fee Schedule.

c. Maintenance Support. State Street shall use commercially reasonable efforts to correct System functions that prevent Customer from using the System or the Data Access Services in accordance with the documentation provided to Customer by State Street or that cause the System or the Data Access Services to provide incorrect information or to create incorrect results.

d. Customer Modifications. In the event the Customer desires custom modifications in connection with its use of the System, the Customer shall make a written request to State Street providing specifications for the desired modification. Any custom modifications may be undertaken by State Street in its sole discretion and may be subject to negotiation of the Fee Schedule.

e. Limitation on Support. State Street shall have no obligation to support the Customer’s use of the System: (i) for use on any computer equipment or telecommunication facilities which does not conform to the Designated Configuration or (ii) in the event the Customer has modified the System in breach of this DAS Agreement.

14

ANNEX A

DESIGNATED LOCATIONS

MORGAN STANLEY SERVICES COMPANY INC.

1221 Avenue of the Americas

New York, NY 10020

MORGAN STANLEY SERVICES COMPANY INC.

Harborside Financial Center

Plaza Two

Jersey City, NJ 07311-3911

MORGAN STANLEY INVESTMENT MANAGEMENT

522 Fifth Avenue

New York, NY 10036

15

EX-99.(I)(2)

                        CONSENT OF CLIFFORD CHANCE US LLP

We hereby consent to the reference to our firm under the caption "Fund Counsel"
in the Statement of Additional Information comprising a part of Post-Effective
Amendment No. 18 to the Form N-1A Registration Statement of Morgan Stanley
Balanced Fund, File No. 33-56853. We do not thereby admit that we are within the
category of persons whose consent is required under Section 7 of the Securities
Act of 1933 or the rules and regulations of the Securities and Exchange
Commission thereunder.


/s/ Clifford Chance US LLP

New York, New York
May 28, 2008

EX-99.(J)

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


We consent to the incorporation by reference in this Post-Effective Amendment
No. 18 to Registration Statement No. 33-56853 on Form N-1A of our report dated
March 26, 2008, relating to the financial statements and financial highlights of
Morgan Stanley Balanced Fund (the "Fund") appearing in the Annual Report on Form
N-CSR of the Fund for the year ended January 31, 2008, and to the references to
us on the cover page of the Statement of Additional Information and under the
captions "Financial Highlights" in the Prospectus and "Custodian and Independent
Registered Public Accounting Firm" and "Financial Statements" in the Statement
of Additional Information, which are part of such Registration Statement.



Deloitte & Touche LLP
New York, New York
May 27, 2008

EX-99.(P)(1)

                 CODE OF ETHICS AND PERSONAL TRADING GUIDELINES

                    MORGAN STANLEY INVESTMENT MANAGEMENT(1)

                             EFFECTIVE MAY 12, 2008

- ----------
(1)  Ex-Merchant Banking and FrontPoint Partners.

                             TABLE OF CONTENTS (2)



I.    INTRODUCTION...............................................................    3
      A.   GENERAL...............................................................    3
      B.   STANDARDS OF BUSINESS CONDUCT.........................................    3
      C.   OVERVIEW OF CODE REQUIREMENTS.........................................    4
      D.   DEFINITIONS...........................................................    4
      E.   GROUNDS FOR DISQUALIFICATION FROM EMPLOYMENT..........................    8
      F.   OTHER POLICIES AND PROCEDURES.........................................    9

II.   PRE-CLEARANCE REQUIREMENTS.................................................    9
      A.   EMPLOYEE SECURITIES ACCOUNTS..........................................    9
      B.   PERSONAL TRADING......................................................   12
      C.   OTHER PRE-CLEARANCE REQUIREMENTS......................................   17

III.  REPORTING REQUIREMENTS.....................................................   17
      A.   INITIAL HOLDINGS AND BROKERAGE ACCOUNT(S) REPORTS AND CERTIFICATION...   17
      B.   QUARTERLY TRANSACTIONS REPORT.........................................   18
      C.   ANNUAL HOLDINGS REPORT AND CERTIFICATION OF COMPLIANCE................   19

IV.   OUTSIDE ACTIVITIES AND PRIVATE PLACEMENTS..................................   19
      A.   APPROVAL TO ENGAGE IN AN OUTSIDE ACTIVITY.............................   19
      B.   APPROVAL TO INVEST IN A PRIVATE PLACEMENT.............................   20
      C.   APPROVAL PROCESS......................................................   20
      D.   CLIENT INVESTMENT INTO PRIVATE PLACEMENT..............................   20

V.    POLITICAL CONTRIBUTIONS....................................................   21

VI.   GIFTS AND ENTERTAINMENT....................................................   21

VII.  CONSULTANTS AND TEMPORARY EMPLOYEES........................................   22

VIII. REVIEW, INTERPRETATIONS AND EXCEPTIONS.....................................   22

IX.   ENFORCEMENT AND SANCTIONS..................................................   22


- ----------
(2)  Previous versions: August 16, 2002, February 24, 2004, June 15, 2004,
     December 31, 2004 and December 15, 2006.


                                        2

1. INTRODUCTION(3)

     A.   GENERAL

          The Morgan Stanley Investment Management ("MSIM") Code of Ethics (the
          "Code") is reasonably designed to prevent legal, business and ethical
          conflicts, to guard against the misuse of confidential information,
          and to avoid even the appearance of impropriety that may arise in
          connection with your personal trading and outside activities as an
          MSIM employee. It is very important for you to read the "Definitions"
          section below to understand the scope of this Code, including the
          individuals, accounts, securities and transactions it covers. You are
          required to acknowledge receipt and your understanding of this Code at
          the start of your employment at MSIM or when you become a Covered
          Person, as defined below, when amendments are made, and annually.

     B.   STANDARDS OF BUSINESS CONDUCT

          MSIM seeks to comply with the Federal securities laws and regulations
          applicable to its business. This Code is designed to assist you in
          fulfilling your regulatory and fiduciary duties as an MSIM employee as
          they relate to your personal securities transactions.

          o    Fiduciary Duties.

               As an MSIM employee, you owe a fiduciary duty to MSIM's Clients.
               This means that in every decision relating to personal
               investments, you must recognize the needs and interests of
               Clients and place those ahead of any personal interest or
               interest of the Firm.

          o    Personal Securities Transactions and Relationship to MSIM's
               Clients.

               MSIM generally prohibits you from engaging in personal trading in
               a manner that would distract you from your daily
               responsibilities. MSIM strongly encourages you to invest for the
               long term and discourages short-term, speculative trading. You
               are cautioned that short-term strategies may attract a higher
               level of regulatory and other scrutiny. Excessive or
               inappropriate trading that interferes with job performance or
               that compromises the duty that MSIM owes to its Clients will not
               be tolerated.

- ----------
(3)  This Code is intended to fulfill MSIM's requirements under Rule 204A-1 of
     the Investment Advisers Act of 1940 (Advisers Act) and Rule 17j-1 under the
     Investment Company Act of 1940 (Company Act). Please note that there is a
     separate Fund Code for each of the Morgan Stanley and Van Kampen fund
     families.


                                        3

     If you become aware that you or someone else may have violated any aspect
     of this Code, you must report the suspected violation to Compliance
     immediately.

     C.   OVERVIEW OF CODE REQUIREMENTS

          Compliance with the Code is a matter of understanding its basic
          requirements and making sure the steps you take regarding activities
          covered by the Code are in accordance with the letter and spirit of
          the Code. Generally, you have the following obligations:




          ACTIVITY                              CODE REQUIREMENTS
          ------------------------------------  ----------------------------------------

          Employee Securities Account(s)        -Pre-clearance, Reporting
          Personal Trading                      -Pre-clearance, Holding Period, Reporting
          Participating in an Outside Activity  -Pre-clearance, Reporting
          Investing in a Private Placement      -Pre-clearance, Reporting
          Political Contributions               -Pre-clearance, Reporting
          Gifts and Entertainment               -Reporting


          You must examine the specific provisions of the Code for more details
          on each of these activities and are strongly urged to consult with
          Compliance if you have any questions.

     D.   DEFINITIONS

          These definitions are here to help you understand the application of
          the Code to various activities undertaken by you and other persons
          related to you who may be covered by the Code. They are an integral
          part of the Code and a proper understanding of them is essential.
          Please refer back to these Definitions as you read the Code.

          o    "Access Persons," as defined in the Morgan Stanley Code of
               Conduct for purposes of transacting in Morgan Stanley stock
               includes:

               o    all Morgan Stanley Management Committee and Operating
                    Committee members

               o    all other Managing Directors

               o    if your business unit or department has a title structure
                    that does not include Managing Director, the person(s) with
                    the highest available title in that unit

               o    individuals notified by Compliance that, due to their job
                    responsibilities, they are considered to be Access Persons.


                                        4

          o    "Client" means and includes shareholders or limited partners of
               registered and unregistered investment companies and other
               investment vehicles, institutional, high net worth and retail
               separate account clients, employee benefit trusts and all other
               types of clients advised by MSIM.

          o    "Compliance" means your local Compliance group (New York, London,
               Singapore, Tokyo and Mumbai).

          o    "Consultant" means a non-employee of MSIM who falls under the
               definition of a Covered Person.

          o    "Covered Persons"(4) means and includes:

               o    All MSIM employees;

               o    All directors, officers and partners of MSIM;

               o    Any person who provides investment advice on behalf of MSIM,
                    is subject to the supervision and control of MSIM and who
                    has access to nonpublic information regarding any Client's
                    purchase or sale of securities, or who is involved in making
                    securities recommendations to Clients, or who has access to
                    such recommendations that are nonpublic (such as certain
                    consultants, leased workers or temporary employees).

               o    Any personnel with responsibilities related to MSIM or who
                    support MSIM as a business and have frequent interaction
                    with Covered Persons or Investment Personnel as determined
                    by Compliance (e.g., IT, Internal Audit, Legal, Compliance,
                    Operations, Corporate Services and Human Resources).

                    THE DEFINITION OF "COVERED PERSON" MAY VARY BY LOCATION.
                    PLEASE CONTACT COMPLIANCE IF YOU HAVE ANY QUESTION AS TO
                    YOUR STATUS AS A COVERED PERSON.

               o    Any other persons falling within such definition under Rule
                    17j-1 of the Company Act or Rule 204A-1 under the Advisers
                    Act and such other persons that may be so deemed by
                    Compliance from time to time.

          o    "Covered Securities" includes generally all equity or debt
               securities, including derivatives of securities (such as options,
               warrants and

- ----------
(4)  The term "Access Person" is now made consistent with the Morgan Stanley
     Code of Conduct to avoid confusion.


                                        5

               ADRs), futures, commodities, securities indices, exchange-traded
               funds, open-end mutual funds for which MSIM acts as adviser or
               sub-adviser, closed-end funds, corporate and municipal bonds and
               similar instruments, but do not include "Exempt Securities," as
               defined below. Please refer to Schedule A for application of the
               Code to various security types.

          o    "Employees" means MSIM employees. For purposes of this Code, all
               Employees are considered Covered Persons.

          o    "Employee Securities Account" is any account in your own name and
               other accounts you could be expected to influence or control, in
               whole or in part, directly or indirectly, whether for securities
               or other financial instruments, and that are capable of
               holding Covered Securities, as defined below. This includes
               accounts owned by you and:

               o    accounts of your spouse or domestic partner;

               o    accounts of your children or other relatives of you or your
                    spouse or domestic partner who reside in the same household
                    as you and to whom you contribute substantial financial
                    support (e.g., a child in college that is claimed as a
                    dependent on your income tax return or who receives health
                    benefits through you);

               o    accounts where you obtain benefits substantially equivalent
                    to ownership of securities;

               o    accounts that you or the persons described above could be
                    expected to influence or control, such as:

                    o    joint accounts;

                    o    family accounts;

                    o    retirement accounts ;

                    o    corporate accounts;

                    o    trust accounts for which you act as trustee where you
                         have the power to effect investment decisions or that
                         you otherwise guide or influence;

                    o    arrangements similar to trust accounts that benefit you
                         directly;

                    o    accounts for which you act as custodian; and

                    o    partnership accounts.

               o    "Exempt Securities" are securities that are not subject to
                    the pre-clearance, holding and reporting requirements of the
                    Code, such as:


                                        6

                    o    Bankers' acceptances, bank certificates of deposit and
                         commercial paper;

                    o    Investment grade, short-term debt instruments,
                         including repurchase agreements (which for these
                         purposes are repurchase agreements and any instrument
                         that has a maturity at issuance of fewer than 366 days
                         that is rated in one of the two highest categories by a
                         nationally recognized statistical rating organization);

                    o    Direct obligations of the U.S. Government(5);

                    o    Shares held in money market funds;

                    o    Variable insurance products that invest in funds for
                         which MSIM does not act as adviser or sub-adviser; and

                    o    Open-end mutual funds for which MSIM does not act as
                         adviser or sub-adviser.

               Please refer to Schedule A for application of the Code to various
               security types.

          o    "Firm" means Morgan Stanley, MSIM's parent company.

          o    "Investment Personnel" means and includes:

                    o    Employees in the Global Equity, Global Fixed Income and
                         Alternative Investments Groups, including portfolio
                         managers, traders, research analysts, support staff,
                         etc., and any other Covered Person who obtains or has
                         access to information concerning investment
                         recommendations made to any Client; and

                    o    Any persons designated as Investment Personnel by
                         Compliance.

          o    "IPO" means an initial public offering of equity securities
               registered with the U.S. Securities and Exchange Commission or a
               foreign financial regulatory authority.

          o    "Morgan Stanley Broker" means a broker-dealer affiliated with
               Morgan Stanley.

- ----------
(5)  Includes securities that are backed by the full faith and credit of the
     U.S. Government for the timely payment of principal and interest, such as
     Ginnie Maes, U.S. Savings Bonds, and U.S. Treasuries, and equivalent
     securities issued by non-U.S. governments.


                                        7

          o    "Morgan Stanley Investment Management" or "MSIM" means the
               companies and businesses comprising Morgan Stanley's Investment
               Management Division. See Schedule B.

          o    "Mutual Funds" includes all open-end mutual funds and similar
               pooled investment vehicles established in non-U.S. jurisdictions,
               such as registered investment trusts in Japan, but do not include
               shares of open-end money market mutual funds (unless otherwise
               directed by Compliance).

          o    "Outside Activity" means any organized or business activity
               conducted outside of MSIM. This includes, but is not limited to,
               participation on a board of a charitable organization, part-time
               employment or formation of a limited partnership.

          o    "Portfolio Managers" are Employees who are primarily responsible
               for the day-to-day management of a Client portfolio.

          o    "Private Placement" means a securities offering that is exempt
               from registration under certain provisions of the U.S. securities
               laws and/or similar laws of non-U.S. jurisdictions. If you are
               unsure whether the securities are issued in a private placement,
               please consult with Compliance.

          o    "Proprietary or Sub-advised Mutual Fund" means any open-end
               Mutual Fund for which MSIM acts as investment adviser or
               sub-adviser.

          o    "Research Analysts" are Employees whose assigned duties solely
               are to make investment recommendations to or for the benefit of
               any Client portfolio.

          o    "Senior Loan Employee" means any Employee who has knowledge of,
               or has access to, investment decisions of any MSIM senior loan
               fund.

          o    "Unit Investment Trust(s)" or "UIT(s)" include registered trusts
               in which a fixed, unmanaged portfolio of securities is purchased.

     E.   GROUNDS FOR DISQUALIFICATION FROM EMPLOYMENT

          Pursuant to the terms of Section 9 of the Advisers Act, no director,
          officer or employee of MSIM may become, or continue to remain, an
          officer, director or employee without an exemptive order issued by the
          U.S. Securities and Exchange Commission if such director, officer or
          employee:


                                       8

               o    within the past ten years has been convicted of any felony
                    or misdemeanor (i) involving the purchase or sale of any
                    security; or (ii) arising out of his or her conduct as an
                    underwriter, broker, dealer, investment adviser, municipal
                    securities dealer, government securities broker, government
                    securities dealer, transfer agent, or entity or person
                    required to be registered under the U.S. Commodity Exchange
                    Act, or as an affiliated person, salesman or employee of any
                    investment company, bank, insurance company or entity or
                    person required to be registered under the U.S. Commodity
                    Exchange Act; or

               o    is or becomes permanently or temporarily enjoined by any
                    court from: (i) acting as an underwriter, broker, dealer,
                    investment adviser, municipal securities dealer, government
                    securities broker, government securities dealer, transfer
                    agent, or entity or person required to be registered under
                    the U.S. Commodity Exchange Act, or as an affiliated person,
                    salesman or employee of any investment company, bank,
                    insurance company or entity or person required to be
                    registered under the U.S. Commodity Exchange Act; or (ii)
                    engaging in or continuing any conduct or practice in
                    connection with any such activity or in connection with the
                    purchase or sale of any security.

          You are obligated to report any conviction or injunction described
          here to Compliance immediately.

     F.   OTHER POLICIES AND PROCEDURES

          In addition to this Code, you are also subject to the Morgan Stanley
          Investment Management Compliance Manuals and the Morgan Stanley Code
          of Conduct.

          Please contact Compliance for additional policies applicable in your
          region.

II. PRE-CLEARANCE REQUIREMENTS

     A.   EMPLOYEE SECURITIES ACCOUNTS

          Generally, you must maintain all Employee Securities Accounts that may
          invest in Covered Securities at a Morgan Stanley Broker. Situations in
          non-U.S. offices may vary. New Employees must transfer, at their
          expense, their Employee Securities Account(s) to a Morgan Stanley
          Broker as soon as


                                       9

          practical (generally within 30 days of becoming a Covered Person).
          FAILURE TO DO SO WILL BE CONSIDERED A SIGNIFICANT VIOLATION OF THIS
          CODE.

          o    Process for Opening a Morgan Stanley Brokerage Account.

               When opening an account with a Morgan Stanley Broker, you must
               notify the Broker that you are an MSIM Employee and that all
               Employee Securities Accounts opened by you must be coded as an
               employee or employee-related account. You are responsible for
               reporting your Morgan Stanley Brokerage account number to
               Compliance during the Quarterly Transactions Reporting process.
               Prior approval from Compliance is not required. The process in
               non-U.S. offices may vary.

          o    Non-Morgan Stanley Accounts by Special Permission only.

               Exceptions to the requirement to maintain Employee Securities
               Accounts at a Morgan Stanley Broker are rare and will be granted
               only with the prior written approval of Compliance. If your
               request is approved, you will be required to ensure that
               duplicate confirmations and statements are sent to Compliance.
               Situations in non-U.S. offices may vary.

               If you maintain an outside account without appropriate approval,
               you must immediately disclose this to Compliance.

          o    Individual Savings Accounts ("ISAs" for employees of MSIM Ltd.)

               MSIM Ltd. employees are permitted to establish ISAs with outside
               managers but details may require pre-clearance. The degree of
               reporting that will be required will depend on the type of ISA
               held. Fully discretionary managed ISAs (i.e. an independent
               manager makes the investment decisions) may be established and
               maintained without the prior approval of Compliance, provided
               that you exercise no influence or control on stock selection or
               other investment decisions. Once an ISA is established, details
               must be disclosed via the Firm's Outside Business Interests
               system ("OBI"). Non-discretionary ISAs (including single company
               ISAs) where an employee makes investment decisions may only be
               established and maintained if pre-clearance from Compliance is
               sought, duplicate statements are supplied to Compliance and the
               Code of Ethics quarterly and annual reporting requirements are
               met.


                                       10

          o    Mutual Fund Accounts

               You may open an account for the exclusive purchase of open-end
               Mutual Funds, including Proprietary Mutual Funds (i.e. an account
               directly with a fund transfer agent) without prior approval from
               Compliance. If the account is opened for the purchase of
               Sub-Advised Mutual Funds, duplicate confirmations of all
               transactions and account statements must be sent to Compliance.

               MSIM Private Limited Employees. Refer to your local Employee
               Trading Policy for specific restrictions applicable in your
               region. See Schedule C.

          o    Discretionary Managed Accounts.

               You may open a fully discretionary managed account
               ("Discretionary Managed Account") at Morgan Stanley if the
               account meets the standards set forth below. In certain
               circumstances and with the prior written approval of Compliance,
               you may appoint non-Morgan Stanley managers (e.g., trust
               companies, banks or registered investment advisers) to manage
               your account.

               In order to establish a Discretionary Managed Account, you must
               grant to the manager COMPLETE INVESTMENT DISCRETION over your
               account. Pre-clearance is not required for trades in this
               account; however, you may not participate, directly or
               indirectly, in individual investment decisions or be made aware
               of such decisions before transactions are executed. This
               restriction does not preclude you from establishing investment
               guidelines for the manager, such as indicating industries in
               which you desire to invest, the types of securities you want to
               purchase or your overall investment objectives. However, those
               guidelines may not be changed so frequently as to give the
               appearance that you are actually directing account investments.

               To open a Morgan Stanley Discretionary Managed Account, you must
               submit the appropriate Discretionary Managed Account form, along
               with the required documentation (i.e. the advisory agreement or
               contract with the manager) to Compliance. See Schedule C. If it
               is managed by a non-Morgan Stanley manager, please submit the
               request in the OBI system and arrange for duplicate copies of
               trade confirmations and statements to be sent to Compliance.


                                       11

          o    Issuer Purchase Plans.

               You may open an account directly with an issuer to purchase its
               shares, such as a dividend reinvestment plan, or "DRIP," by
               submitting the DRIP form to your local Compliance group and by
               pre-clearing the initial purchase and any sales of shares. See
               Schedule C. You must also report holdings annually to Compliance.

          o    Other Morgan Stanley Accounts:
               Employee Stock Purchase Plan (ESPP)
               Employee Stock Ownership Plan (ESOP)
               Employee Incentive Compensation Plan (EICP)
               Morgan Stanley 401(k) (401(k)).

               You do not have to pre-clear participation in the Morgan Stanley
               ESPP, ESOP, EICP or 401(k) Plan with Compliance. However, you
               must disclose participation in any of these plans (quarterly,
               upon initial participation, and on annual certifications).

               NOTE: PARTICIPATION IN A NON-MORGAN STANLEY 401(K) PLAN OR
               SIMILAR ACCOUNT THAT PERMITS YOU TO TRADE COVERED SECURITIES MUST
               BE PRE-APPROVED BY COMPLIANCE.

          o    Investment Clubs

               You may not participate in or solicit transactions on behalf of
               investment clubs in which members pool their funds to make
               investments in securities or other financial products.

          o    529 Plans

               You do not have to pre-clear participation in a 529 Plan with
               Compliance.

     B.   PERSONAL TRADING

          You are required to obtain pre-clearance of personal securities
          transactions in Covered Securities, other than transactions in
          Proprietary or Sub-advised Mutual Funds. Exempt Securities do not
          require pre-clearance. Please see the Securities Transaction Matrix
          attached as Schedule A for additional information about when
          pre-clearance is or may not be required.

          o    Initiating a Transaction.

               Pre-clearance must be obtained by entering the trade request into
               the Trade Pre-Clearance System by typing "TPC" into your internet
               browser. For regions without access to TPC, please contact


                                       12

               Compliance. See Schedule C. Once Compliance has performed the
               necessary checks, Compliance will notify you promptly regarding
               your request.

          o    Pre-Clearance Valid for One Day Only.

               If your request is approved, such approval is valid only for the
               day it is granted. Any transaction not completed on that day will
               require a new approval. This means that open orders, such as
               limit orders and stop-loss orders, must be pre-cleared each day
               until the transaction is effected. (6)

          o    Holding Requirement and Repurchase Limitations

               Proprietary or Sub-advised Mutual Funds

               You may not redeem or exchange Proprietary Mutual Funds (i.e.,
               Morgan Stanley or Van Kampen funds) until at least 30 calendar
               days from the purchase trade date.

               Sub-advised Mutual Funds are not subject to a holding period but
               do carry a reporting requirement, as detailed below.

               All other Covered Securities

               You may not sell a Covered Security until you have held it for at
               least 30 days.

               If you sell a Covered Security, you may not repurchase the same
               security for at least 30 days.

               MSAITM Employees. In case of selling equity and equity-linked
               notes, Covered Persons at MSAITM must hold such instruments for
               at least six months; however, Compliance may grant an exception
               if the instruments are held for at least 30 calendar days from
               the date of purchase. This includes transactions in MS stock.

               MSIM Private Limited Employees. Refer to your local Employee
               Trading Policy for specific restrictions applicable in your
               region. See Schedule C.

          o    Restrictions and Requirements for Portfolio Managers and
               Investment Personnel.

               Blackout Period. No purchase or sale transaction may be made in
               any Covered Security or a related investment (i.e., derivatives)
               by a

- ----------
(6)  In the case of trades in international markets where the market has already
     closed, transactions must be executed by the next close of trading in that
     market.


                                       13

               Portfolio Manager for a period of seven calendar days before or
               seven calendar days after the Portfolio Manager purchases or
               sells the security on behalf of a Client. A Portfolio Manager may
               request an exception from the blackout period if the Covered
               Security was traded for an index fund or index portfolio.

               In addition, Investment Personnel who have knowledge of a
               Portfolio Manager's trading activity are subject to the same
               blackout period.

               Investment Personnel must also obtain an additional signature
               from their manager prior to pre-clearance.

               MSIM Private Limited Employees. Refer to your local Employee
               Trading Policy for specific restrictions applicable in your
               region. See Schedule C.

               UITs. Investment Personnel involved in determining the
               composition of a UIT portfolio, or who have knowledge of the
               composition of a UIT portfolio prior to deposit, are considered
               Portfolio Managers and may not buy or sell a Covered Security
               within seven calendar days before or seven calendar days after
               such Covered Security is included in the initial deposit of a UIT
               portfolio.

               Closed-End Funds. Portfolio Managers are permitted to purchase
               closed-end funds that they manage and that are not traded on an
               exchange with prior approval from Compliance.

          o    Restrictions for Research Analysts

               Research Analysts may not own or trade any Covered Security for
               which he or she provides research coverage. If a Research Analyst
               commences research coverage for a Covered Security that he or she
               already owns, the Research Analyst may be asked to sell the
               Covered Security to avoid any potential or actual conflict of
               interest.

          o    Restrictions for Senior Loan Employees

               Senior Loan Employees may not purchase any Covered Security
               issued by any company that has a loan or loans held in any senior
               loan fund.

               As a reminder, Senior Loan Employees are also subject to the MSIM
               Senior Loan Firewall Procedures.


                                       14

          o    Transactions in Morgan Stanley (MS) Stock

               You may only transact in MS stock during designated window
               periods. This includes the gifting of MS Stock. If you are
               transacting in MS stock through a brokerage account, YOU ARE NO
               LONGER REQUIRED TO PRE-CLEAR THE TRANSACTION THROUGH COMPLIANCE.
               Similarly, you do not have to pre-clear transactions in MS stock
               sold out of your EICP, ESOP, ESPP or 401(k) Plan. All other
               holding and reporting requirements for Covered Securities still
               apply.

               For MSAITM employees, as noted above, a six-month holding period
               applies.

          o    Additional Restrictions for "Access Persons."

               Morgan Stanley imposes additional restrictions on selling MS
               stock for Access Persons, as defined above.

               Firm policy requires Access Persons, among other things, to hold
               a position in MS stock for a minimum of six months in their
               employee and employee-related accounts. If you are an Access
               Person, please consult the Window Period Announcement on the Firm
               intranet before transacting in MS stock.

               As always, employees may never buy or sell MS stock if in
               possession of material, non-public information regarding Morgan
               Stanley.

          o    Trading Derivatives

               You may not trade forward contracts, physical commodities and
               related derivatives, currencies, over-the-counter warrants or
               swaps. In addition, you may not trade futures under this Code.

               The following is a list of permitted options trading:

               Call Options.

               LISTED CALL OPTIONS. You may purchase a listed call option only
               if the call option has a period to expiration of at least 30 days
               from the date of purchase and you hold the call option for at
               least 30 days prior to sale. If you choose to exercise the
               option, you must also hold the underlying security delivered
               pursuant to the exercise for 30 days.


                                       15

               COVERED CALLS. You may also sell (or "write") a call option only
               if you have held the underlying security (in the corresponding
               quantity) for at least 30 days.

               Put Options.

               LISTED PUT OPTIONS. You may purchase a listed put option only if
               the put option has a period to expiration of at least 30 days
               from the date of purchase and you hold the put option for at
               least 30 days prior to sale. If you purchase a put option on a
               security you already own, you may only exercise the put once you
               have held the underlying security for 30 days.

               SELLING PUTS. You may not sell ("write") a put.

               PLEASE NOTE THAT YOU MUST OBTAIN PRE-CLEARANCE TO EXERCISE AN
               OPTION AS WELL AS TO PURCHASE OR SELL AN OPTION.

          o    Other Restrictions

               PRIMARY AND SECONDARY PUBLIC OFFERINGS. Consistent with the Code
               of Conduct, you and your Employee Securities Account(s) are
               prohibited from purchasing any equity security in an initial
               public offering. In addition, unless otherwise notified, you may
               not purchase an equity security that is part of a primary or
               secondary offering that the Firm is underwriting or selling until
               the distribution has been completed. Accordingly, you must
               consult Compliance prior to purchasing an equity security in a
               primary or secondary public offering to determine whether any
               restrictions apply.

               Please note that this restriction applies to your immediate
               family as well, REGARDLESS of whether the accounts used to
               purchase these securities are considered Employee Securities
               Accounts.

               Purchases of new issue debt are permitted, provided such
               purchases are pre-cleared and meet other relevant requirements of
               the Code.

               MSIM Private Limited Employees. Refer to your local Employee
               Trading Policy for specific restrictions applicable in your
               region. See Schedule C.

               OPEN CLIENT ORDERS. Personal trade requests will be denied if
               there is an open order for any Client in the same security or
               related security. Exemptions are granted if the Covered Security
               is being purchased or sold for a passively-managed index fund or
               index portfolio.


                                       16

               SHORT SALES. You may not engage in short selling of Covered
               Securities.

               RESTRICTED LIST. You may not transact in Covered Securities that
               appear on the Firmwide Restricted List. Compliance will check the
               Restricted List as part of its pre-clearance process.

          o    Other Criteria Considered in Pre-Clearance

               In spite of adhering to the requirements specified throughout
               this Section, Compliance, in keeping with the general principles
               and objectives of the Code, may refuse to grant pre-clearance of
               a Personal Securities Transaction in its sole discretion without
               being required to specify any reason for the refusal.

          o    Reversal and Disgorgement

               Any transaction that is prohibited by this Section may be
               required to be reversed and any profits (or any differential
               between the sale price of the Personal Security Transaction and
               the subsequent purchase or sale price by a relevant Client during
               the enumerated period) will be subject to disgorgement at the
               discretion of Compliance. Please see the Code Section regarding
               Enforcement and Sanctions below.

     C.   OTHER PRE-CLEARANCE REQUIREMENTS

          Please note that the following activities also require pre-clearance
          under the Code:

          o    Outside Activities

          o    Investments in Private Placements

          o    Political Contributions

          Please refer to the Sections below for more details on the additional
          Code requirements regarding these activities.

III. REPORTING REQUIREMENTS

     A.   INITIAL HOLDINGS AND BROKERAGE ACCOUNT(S) REPORTS AND CERTIFICATION

          When you begin employment with MSIM or you otherwise become a Covered
          Person, you must provide an Initial Listing of Securities Holdings and
          Brokerage Accounts Report to Compliance no later than 10 days after
          you become a Covered Person. The information must not be more than 45
          days old from the day you became a Covered Person and must include:


                                       17

               o    the title and type, and as applicable the exchange ticker
                    symbol or CUSIP number, number of shares and principal
                    amount of any Covered Security;

               o    the name of any broker-dealer, bank or financial institution
                    where you hold an Employee Securities Account;

               o    any Outside Activities; and

               o    the date you submitted the Initial Holdings Report.

          o    Certification

               All new Covered Persons will receive training on the principles
               and procedures of the Code. As a Covered Person, you must also
               certify that you have read, understand and agree to abide by the
               terms of the Code. See Schedule C.

     B.   QUARTERLY TRANSACTIONS REPORT

          You must submit a Quarterly Transaction Report no later than 10
          calendar days after the end of each calendar quarter to Compliance.
          The report must contain the following information about each
          transaction involving a Covered Security:

               o    the date of the transaction, the title, and as applicable
                    the exchange ticker symbol or CUSIP number, interest rate
                    and maturity date, number of shares and principal amount of
                    any Covered Security;

               o    the nature of the transaction (i.e. purchase, sale or other
                    type of acquisition or disposition);

               o    the price of the security at which the transaction was
                    effected;

               o    the name of the broker-dealer or bank with or through which
                    the transaction was effected; and

               o    the date you submitted the Quarterly Report.

          o    Exceptions

               You do not have to submit a Quarterly Transactions Report if it
               would duplicate information in broker trade confirmations or
               account statements Compliance already receives or may access,
               such as Morgan Stanley brokerage accounts, direct accounts for
               the


                                       18

               purchase of Proprietary Mutual Funds and employee-benefit related
               accounts (i.e. Morgan Stanley 401(k), ESPP, ESOP, and EICP). For
               non-Morgan Stanley confirmations and account statements,
               Compliance must receive this information no later than 30 days
               after the end of the applicable calendar quarter.

               A reminder to complete the Quarterly Transaction Report will be
               provided to you by Compliance at the end of each calendar
               quarter. See Schedule C.

     C.   ANNUAL HOLDINGS REPORT AND CERTIFICATION OF COMPLIANCE

          Annually, you must report holdings and transactions in Covered
          Securities by completing the Annual Holdings Report and Certification
          of Compliance, which includes the following information:

               o    a listing of your current Morgan Stanley brokerage
                    account(s);

               o    a listing of all securities beneficially owned by you in
                    these account(s);

               o    all your approved Outside Activities, including non-Morgan
                    Stanley brokerage accounts, Private Placements and Outside
                    Activities; and

               o    all other investments you hold outside of Morgan Stanley
                    (such as DRIPs, other 401(k)s and any securities held in
                    certificate form).

          The information must not be more than 45 days old on the day you
          submit the information to Compliance. You must also certify that you
          have read and agree to abide by the requirements of the Code and that
          you are in compliance with the Code. The Report must be submitted
          within 30 days after the end of each year.

          The link to the Annual Holdings Report and Certification of Compliance
          will be provided to you by Compliance. See Schedule C.

IV. OUTSIDE ACTIVITIES AND PRIVATE PLACEMENTS

     A.   APPROVAL TO ENGAGE IN AN OUTSIDE ACTIVITY

          You may not engage in any Outside Activity, REGARDLESS OF WHETHER OR
          NOT YOU RECEIVE COMPENSATION, without prior approval from Compliance.
          If you receive approval, it is your responsibility to notify
          Compliance


                                       19

          immediately if any conflict or potential conflict of interest arises
          in the course of the Outside Activity.

          Examples of an Outside Activity include providing consulting services,
          organizing a company, giving a formal lecture or publishing a book or
          article, accepting compensation from any person or organization other
          than the Firm, serving as an officer, employee, director, partner,
          member, or advisory board member of a company or organization not
          affiliated with the Firm, whether or not related to the financial
          services industry (including charitable organizations or activities
          for which you do not receive compensation). Generally, you will not be
          approved for any Outside Activity related to the securities or
          financial services industry other than activities that reflect the
          interests of the industry as a whole and that are not competitive with
          those of the Firm.

          A request to serve on the board of any company, especially the board
          of a public company, will be granted in very limited instances only.
          If you receive an approval, your directorship will be subject to the
          implementation of information barrier procedures to isolate you from
          making investment decisions for Clients concerning the company in
          question, as applicable.

     B.   APPROVAL TO INVEST IN A PRIVATE PLACEMENT

          You may not invest in a Private Placement of any kind without prior
          approval from Compliance. Private Placements include investments in
          privately held corporations, limited partnerships, tax shelter
          programs and hedge funds (including those sponsored by Morgan Stanley
          or its affiliates).

          MSIM Private Limited Employees. Refer to your local Employee Trading
          Policy for specific restrictions applicable in your region. See
          Schedule C.

     C.   APPROVAL PROCESS

          You must request pre-clearance of Outside Activities and Private
          Placements online through the Outside Business Interest system by
          typing "OBI" into your intranet browser..

     D.   CLIENT INVESTMENT INTO PRIVATE PLACEMENT

          If you have a personal position in an issuer through a Private
          Placement, you must contact Compliance immediately if you are involved
          in considering any subsequent investment decision on behalf of a
          Client regarding any security of that issuer or its affiliate. In
          these instances, the relevant Chief Investment Officer will make an
          independent determination


                                       20

          of the final investment decision and document the same, with a copy to
          Compliance.

V. POLITICAL CONTRIBUTIONS

     Morgan Stanley places certain restrictions and obligations on its employees
     in connection with their political contributions and solicitation
     activities. Morgan Stanley's Policy on U.S. Political Contributions and
     Activities (the "Policy") is designed to permit Employees, Morgan Stanley
     and the Morgan Stanley Political Action Committee to pursue legitimate
     political activities and to make political contributions to the extent
     permitted under applicable regulations. The Policy prohibits any political
     contributions, whether in cash or in kind, to state or local officials or
     candidates in the United States that are intended or may appear to
     influence the awarding of municipal finance business to Morgan Stanley or
     the retention of that business.

     You are required to obtain pre-clearance from Compliance prior to making
     any political contribution to or participating in any political
     solicitation activity on behalf of a U.S. federal, state or local political
     candidate, official, party or organization by completing a Political
     Contributions Pre-Clearance Form. See Schedule C.

     Restricted Persons, as defined in the Policy, and certain executive
     officers are required to report to Compliance, on a quarterly basis, all
     state and local political contributions. Compliance will distribute
     disclosure forms to the relevant individuals each quarter. The information
     included on these forms will be used by Morgan Stanley to ensure compliance
     with the Policy and with any applicable rules, regulations and
     requirements. In addition, as required by applicable rules, Morgan Stanley
     will disclose to the appropriate regulators on a quarterly basis any
     reported political contributions by Restricted Persons.

     VIOLATIONS OF THIS POLICY CAN HAVE SERIOUS IMPLICATIONS ON MORGAN STANLEY'S
     ABILITY TO DO BUSINESS IN CERTAIN JURISDICTIONS. CONTACT COMPLIANCE IF YOU
     HAVE ANY QUESTIONS.

VI. GIFTS AND ENTERTAINMENT

     Morgan Stanley's Code of Conduct sets forth specific conditions under which
     employees and their family members may accept or give gifts or
     entertainment. In general, employees and their families may not accept or
     give gifts or special favors (other than an occasional non-cash gift of
     nominal value) from or to any person or organization with which Morgan
     Stanley has a current or potential business relationship. Please contact
     Compliance for your region's Gifts and Entertainment policy.


                                       21

VII. CONSULTANTS AND TEMPORARY EMPLOYEES

     Consultants and other temporary employees who fall under the definition of
     a Covered Person by virtue of their duties and responsibilities with MSIM
     (i.e. any person who provides investment advice on behalf of MSIM, is
     subject to the supervision and control of MSIM and who has access to
     nonpublic information regarding any Client's purchase or sale of
     securities, or who is involved in making securities recommendations to
     Clients, or who has access to such recommendations that are nonpublic) must
     adhere to the following Code provisions:

          o    Reporting on an initial, quarterly and annual basis;

          o    Duplicate confirmations and statements sent to Compliance for
               transactions in any Covered Security;

          o    Restriction from participating in any IPOs;

          o    Pre-clearance of any Outside Activities and Private Placements.

     Only consultants or temporary employees hired for more than one year are
     required to transfer any brokerage accounts to Morgan Stanley.

VIII. REVIEW, INTERPRETATIONS AND EXCEPTIONS

     Compliance is responsible for administering the Code and reviewing your
     Initial, Quarterly and Annual Reports. Compliance has the authority to make
     final decisions regarding Code policies and may grant an exception to a
     policy as long as it determines that no abuse or potential abuse is
     involved. Compliance will grant exceptions only in rare and unusual
     circumstances, such as financial hardship. You must contact Compliance with
     any questions regarding the applicability, meaning or administration of the
     Code, including requests for an exception, in advance of any contemplated
     transaction.

IX. ENFORCEMENT AND SANCTIONS

     Violations of this Code may be reported to the Chief Compliance Officer and
     on a quarterly basis to senior management and the applicable funds' board
     of directors. MSIM may issue letters of warning or impose sanctions as
     appropriate, including notifying the Covered Person's manager, issuing a
     reprimand (orally or in writing), monetary fine, demotion, suspension or
     termination of employment. The following is a schedule of sanctions that
     may be imposed for failure to abide by the requirements of the Code.
     VIOLATIONS ARE CONSIDERED ON A CUMULATIVE BASIS.

     These sanctions are intended to be guidelines only. Compliance, in its
     discretion, may recommend alternative actions, including imposition of more
     severe sanctions, if deemed warranted by the facts and circumstances of
     each situation. Senior


                                       22

     management at MSIM, including the Chief Compliance Officer, are authorized
     to determine the choice of actions to be taken in specific cases.

     Sanctions may vary based on regulatory concerns in your jurisdiction.


                                       23

                           VIOLATION                                                      SANCTION
- ------------------------------------------------------------------------------------------------------------------------

FAILING TO COMPLETE DOCUMENTATION OR MEET  REPORTING              1st Offense   Letter of Warning
REQUIREMENTS (I.E. ANNUAL CERTIFICATION OR CODE OF ETHICS         ------------------------------------------------------
ACKNOWLEDGEMENT; PROVISION OF STATEMENTS AND CONFIRMS) IN A       2nd Offense   Violation Letter PLUS
TIMELY MANNER                                                                   $200 Fine
                                                                  ------------------------------------------------------
                                                                  3rd Offense   Violation Letter and
                                                                                $300 Fine PLUS 3-month trading ban
- ------------------------------------------------------------------------------------------------------------------------
FAILING TO OBTAIN  AUTHORIZATION  FOR A TRADE OR TRADING ON DAY   1st Offense   Letter of Warning; possible reversal
AFTER  PRE-CLEARANCE  IS  GRANTED  FOR  A  PERSONAL  SECURITIES                 of trade with any profits donated to
TRANSACTION                                                                     charity
                                                                  ------------------------------------------------------
                                                                  2nd Offense   Violation Letter; possible reversal of
                                                                                trade with any profits donated to
                                                                                charity  PLUS a fine representing 5%
                                                                                of net trade amount donated to charity
                                                                  ------------------------------------------------------
                                                                  3rd Offense   Violation Letter; possible reversal of
                                                                                trade with any profits donated to
                                                                                charity  and a fine representing 5% of
                                                                                net trade amount donated to charity
                                                                                PLUS a 3-month trading ban
- ------------------------------------------------------------------------------------------------------------------------
TRADING  WITHIN 30 DAY HOLDING  PERIOD (6 MONTHS FOR MSAITM) OR   1st Offense   Letter of Warning; mandatory reversal
TRADING MS STOCK OUTSIDE DESIGNATED WINDOW PERIODS                              of trade with any profits donated to
                                                                                charity
                                                                  ------------------------------------------------------
                                                                  2nd Offense   Violation Letter; mandatory reversal
                                                                                of trade with any profits donated to
                                                                                charity PLUS a fine representing 5% of
                                                                                net trade amount donated to charity
                                                                  ------------------------------------------------------
                                                                  3rd Offense   Violation Letter; mandatory reversal
                                                                                of trade with any profits donated to
                                                                                charity and a fine representing 5% of
                                                                                net trade amount donated to charity,
                                                                                PLUS a 3-month trading ban.
- ------------------------------------------------------------------------------------------------------------------------



                                       24

                           VIOLATION                                                       SANCTION
- ------------------------------------------------------------------------------------------------------------------------

FAILING TO GET OUTSIDE BROKERAGE ACCOUNT APPROVED                 1st Offense   Letter of Warning; account moved to a
                                                                                MS Broker immediately
                                                                  ------------------------------------------------------
                                                                  2nd Offense   Violation Letter; account moved to a
                                                                                MS Broker immediately, PLUS $200 fine
                                                                  ------------------------------------------------------
                                                                  3rd Offense   Violation Letter; account moved to a
                                                                                MS Broker immediately, PLUS $300 fine
- ------------------------------------------------------------------------------------------------------------------------
FAILING TO GET AN OUTSIDE ACTIVITY OR PRIVATE PLACEMENT           1st Offense   Letter of Warning; possible
PRE-APPROVED)                                                                   termination of OBI
                                                                  ------------------------------------------------------
                                                                  2nd Offense   Violation Letter; possible termination
                                                                                of OBI PLUS $200 fine
                                                                  ------------------------------------------------------
                                                                  3rd Offense   Violation Letter; termination of OBI
                                                                                PLUS $300 fine
- ------------------------------------------------------------------------------------------------------------------------
TRADING IN SEVEN DAY BLACKOUT PERIOD                              1st Offense   Letter of Warning; reversal of trade
OR PURCHASING AN IPO                                                            with any profits donated to charity
                                                                  ------------------------------------------------------
                                                                  2nd Offense   Violation Letter, reversal of trade
                                                                                with any profits donated to charity,
                                                                                PLUS a fine representing 5% of net
                                                                                trade amount donated to charity and a
                                                                                ban from trading for three months
                                                                  ------------------------------------------------------
                                                                  3rd Offense   Violation Letter, reversal of trade
                                                                                with any profits donated to charity, a
                                                                                fine representing 5% of net trade
                                                                                amount donated to charity and a ban
                                                                                from trading for SIX months
- ------------------------------------------------------------------------------------------------------------------------
FRONT RUNNING (TRADING AHEAD OF A CLIENT)                         Each case to be considered on its merits.
                                                                  Possible termination and reporting to regulatory
                                                                  authorities.
- ------------------------------------------------------------------------------------------------------------------------
INSIDER TRADING (TRADING ON MATERIAL NON-PUBLIC INFORMATION)      Each case to be considered on its merits.
                                                                  Possible termination and reporting to regulatory
                                                                  authorities.
- ------------------------------------------------------------------------------------------------------------------------



                                       25

                                                                     SCHEDULE A

                          SECURITIES TRANSACTION MATRIX



                                                   Pre-Clearance   Reporting    Holding
                TYPE OF SECURITY                      Required      Required   Required
- ------------------------------------------------   -------------   ---------   --------

              COVERED SECURITIES

Pooled Investment Vehicles:
Closed-End Funds                                        Yes           Yes         Yes
Open-End Mutual Funds advised by MSIM                    No           Yes         Yes
Open-End Mutual Funds sub-advised by MSIM                No           Yes          No
Unit Investment Trusts                                   No           Yes          No
Exchange Traded Funds (ETFs)                            Yes           Yes         Yes

Equities:
MS Stock(7)                                              No           Yes         Yes
Common Stocks                                           Yes           Yes         Yes
Listed depository receipts e.g. ADRs, ADSs, GDRs        Yes           Yes         Yes
DRIPs(8)                                                Yes           Yes         Yes
Stock Splits                                             No           Yes         Yes
Rights                                                  Yes           Yes         Yes
Stock Dividend                                           No           Yes         Yes
Warrants (Exercised)                                    Yes           Yes         Yes
Preferred Stock                                         Yes           Yes         Yes
Initial Public Offerings (equity IPOs)                         PROHIBITED
Hedge Funds                                             Yes           Yes          No

Derivatives
MS (stock options)                                      Yes           Yes         Yes
Common Stock Options                                    Yes           Yes         Yes
Forward Contracts                                              PROHIBITED
Commodities                                                    PROHIBITED
Currencies                                                     PROHIBITED
OTC warrants or swaps                                          PROHIBITED
Futures                                                        PROHIBITED


- ----------
(7)  Employees may only transact in MS stock during designated window periods.

(8)  Automatic purchases for dividend reinvestment plan are not subject to
     pre-approval requirements.

Fixed Income Instruments:
Fannie Mae                                              Yes           Yes         Yes
Freddie Mac                                             Yes           Yes         Yes
Corporate Bonds                                         Yes           Yes         Yes
Convertible Bonds (converted)                           Yes           Yes         Yes
Municipal Bonds                                         Yes           Yes         Yes
New Issues (fixed income)                               Yes           Yes         Yes

Private Placements (e.g. limited partnerships)          Yes           Yes         N/A
Outside Activities                                      Yes           Yes         N/A
Investment Clubs                                               PROHIBITED

               EXEMPT SECURITIES

Mutual Funds (open-end) not advised or sub-advised
   by MSIM                                               No            No          No
US Treasury(9)                                           No            No          No
CDs                                                      No            No          No
Money Markets                                            No            No          No
GNMA                                                     No            No          No
Commercial Paper                                         No            No          No
Bankers' Acceptances                                     No            No          No
Investment Grade Short-Term Debt Instruments(10)         No            No          No


- ----------
(9)  For international offices, the equivalent shares in fixed income securities
     issued by the government of their respective jurisdiction (i.e.
     international government debt).

(10) For these purposes, repurchase agreements and any instrument that has a
     maturity at issuance of fewer than 366 days that is rated as investment
     grade by a nationally recognized statistical rating organization.

                                                                      SCHEDULE B

                                 MSIM AFFILIATES

Registered Investment Advisers

Morgan Stanley Investment Advisors Inc.
Morgan Stanley Investment Management Inc.
Morgan Stanley AIP GP LP
Morgan Stanley Alternative Investment Partners LP
Private Investment Partners, Inc.
Van Kampen Asset Management
Van Kampen Advisors Inc.

Morgan Stanley Investment Management Limited (London)
Morgan Stanley Investment Management Company (Singapore)
Morgan Stanley Asset & Investment Trust Management Co., Limited (Tokyo)
Morgan Stanley Investment Management Private Limited (Mumbai)*
Morgan Stanley Investment Management Proprietary (Pty) Limited (Australia)*

Broker-Dealers

Morgan Stanley Distributors Inc.
Morgan Stanley Distribution Inc.

Transfer Agent

Morgan Stanley Services Company Inc.
Morgan Stanley Trust Co.
Van Kampen Investments, Inc.
Van Kampen Funds Inc.
Van Kampen Investor Services Inc.

*    Not registered with the Securities and Exchange Commission.

                                                                      SCHEDULE C

                              CODE OF ETHICS FORMS
                Procedures and Forms in non-U.S. offices may vary

Account Opening Forms

Morgan Stanley Discretionary Managed Account
Non-Morgan Stanley Discretionary Managed Account (OBI)
Dividend Reinvestment Plan (DRIPs)
     o    As per the Code of Ethics, you must pre-clear the initial purchase in
          a DRIP Plan (TPC)

Transaction Pre-Clearance

Trade Pre-Clearance System (TPC)
Personal Securities Transaction Form for non-US regions (Please contact your
local Compliance group)
Outside Business Interest System (Outside Activities and Private
Placements)(OBI)
Political Contributions (PCT)

Reporting Forms

Initial Holdings Report
Quarterly Transactions Report (QTR Form)
Annual Holdings Report and Certification of Compliance (Please contact your
local Compliance group)

Code of Ethics Certifications

Initial Certification (Please contact your local Compliance group)
Certification of Amended Code (Please contact your local Compliance group)
Annual Certification (Please contact your local Compliance group)

Regional Information

MSIM India Employee Trading Policy

EX-99.(Q)

                                POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that Manuel H. Johnson, whose signature appears
below, constitutes and appoints Carl Frischling, Susan Penry-Williams, Jay Baris
and Jacqueline Edwards, or any of them, his true and lawful attorneys-in-fact
and agents, with full power of substitution among himself and each of the
persons appointed herein, for him and in his name, place and stead, in any and
all capacities, to sign the registration statement or amendment(s) to the
registration statement set forth opposite the name of each MORGAN STANLEY FUND
SET FORTH IN APPENDIX A HERETO, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or either of them, may lawfully do or cause to be done by virtue hereof
during the period May 2, 2008 through June 30, 2008.

Dated:        April 25, 2008


                                        /s/ Manuel H. Johnson
                                        ---------------------
                                        Manuel H. Johnson

                                POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that W. Allen Reed, whose signature appears
below, constitutes and appoints Carl Frischling, Susan Penry-Williams, Jay Baris
and Jacqueline Edwards, or any of them, his true and lawful attorneys-in-fact
and agents, with full power of substitution among himself and each of the
persons appointed herein, for him and in his name, place and stead, in any and
all capacities, to sign the registration statement or amendment(s) to the
registration statement set forth opposite the name of each MORGAN STANLEY FUND
SET FORTH IN APPENDIX A HERETO, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or either of them, may lawfully do or cause to be done by virtue hereof
during the period May 2, 2008 through June 30, 2008.


Dated:        April 25, 2008


                                        /s/ W. Allen Reed
                                        -----------------
                                        W. Allen Reed

                                POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that Michael E. Nugent, whose signature appears
below, constitutes and appoints Carl Frischling, Susan Penry-Williams, Jay Baris
and Jacqueline Edwards, or any of them, his true and lawful attorneys-in-fact
and agents, with full power of substitution among himself and each of the
persons appointed herein, for him and in his name, place and stead, in any and
all capacities, to sign the registration statement or amendment(s) to the
registration statement set forth opposite the name of each MORGAN STANLEY FUND
SET FORTH IN APPENDIX A HERETO, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or either of them, may lawfully do or cause to be done by virtue hereof
during the period May 2, 2008 through June 30, 2008.


Dated:        April 25, 2008


                                        /s/ Michael E. Nugent
                                        ---------------------
                                        Michael E. Nugent

                                POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that Michael Bozic, whose signature appears
below, constitutes and appoints Carl Frischling, Susan Penry-Williams, Jay Baris
and Jacqueline Edwards, or any of them, his true and lawful attorneys-in-fact
and agents, with full power of substitution among himself and each of the
persons appointed herein, for him and in his name, place and stead, in any and
all capacities, to sign the registration statement or amendment(s) to the
registration statement set forth opposite the name of each MORGAN STANLEY FUND
SET FORTH IN APPENDIX A HERETO, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or either of them, may lawfully do or cause to be done by virtue hereof
during the period May 2, 2008 through June 30, 2008.

Dated:  April 25, 2008


                                        /s/ Michael Bozic
                                        -----------------
                                        Michael Bozic

                                POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that Joseph J. Kearns, whose signature appears
below, constitutes and appoints Carl Frischling, Susan Penry-Williams, Jay Baris
and Jacqueline Edwards, or any of them, his true and lawful attorneys-in-fact
and agents, with full power of substitution among himself and each of the
persons appointed herein, for him and in his name, place and stead, in any and
all capacities, to sign the registration statement or amendment(s) to the
registration statement set forth opposite the name of each MORGAN STANLEY FUND
SET FORTH IN APPENDIX A HERETO, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or either of them, may lawfully do or cause to be done by virtue hereof
during the period May 2, 2008 through June 30, 2008.


Dated: April 25, 2008


                                        /s/ Joseph J. Kearns
                                        --------------------
                                        Joseph J. Kearns

                                POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that Fergus Reid, whose signature appears below,
constitutes and appoints Carl Frischling, Susan Penry-Williams, Jay Baris, and
Jacqueline Edwards, or any of them, his true and lawful attorneys-in-fact and
agents, with full power of substitution among himself and each of the persons
appointed herein, for him and in his name, place and stead, in any and all
capacities, to sign the registration statement or amendment(s) to the
registration statement set forth opposite the name of each MORGAN STANLEY FUND
SET FORTH IN APPENDIX A HERETO, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or either of them, may lawfully do or cause to be done by virtue hereof
during the period May 2, 2008 through June 30, 2008.

Dated: April 25, 2008


                                        /s/ Fergus Reid
                                        ---------------
                                        Fergus Reid

                                POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that James F. Higgins, whose signature appears
below, constitutes and appoints Barry Fink, Amy R. Doberman, Ronald E. Robison,
Stefanie V. Chang Yu and Mary E. Mullin, or any of them, his true and lawful
attorneys-in-fact and agents, with full power of substitution among himself and
each of the persons appointed herein, for him and in his name, place and stead,
in any and all capacities, to sign the registration statement or amendment(s) to
the registration statement set forth opposite the name of each MORGAN STANLEY
FUND SET FORTH IN APPENDIX A HERETO, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents, or any of them, may lawfully do or cause to be done by virtue hereof
during the period May 2, 2008 through June 30, 2008.


Dated: April 25, 2008


                                        /s/James F. Higgins
                                        -------------------
                                        James F. Higgins

                                POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that Kathleen A. Dennis, whose signature appears
below, constitutes and appoints Carl Frischling, Susan Penry-Williams, Jay
Baris, and Jacqueline Edwards, or any of them, her true and lawful
attorneys-in-fact and agents, with full power of substitution among herself and
each of the persons appointed herein, for her and in her name, place and stead,
in any and all capacities, to sign the registration statement or amendment(s) to
the registration statement set forth opposite the name of each MORGAN STANLEY
FUND SET FORTH IN APPENDIX A HERETO, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, as fully to all intents and purposes as she might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents, or either of them, may lawfully do or cause to be done by virtue
hereof during the period May 2, 2008 through June 30, 2008.


Dated: April 25, 2008


                                        /s/ Kathleen A. Dennis
                                        ----------------------
                                        Kathleen A. Dennis

                                POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that Michael F. Klein, whose signature appears
below, constitutes and appoints Carl Frischling, Susan Penry-Williams, Jay
Baris, and Jacqueline Edwards, or any of them, his true and lawful
attorneys-in-fact and agents, with full power of substitution among himself and
each of the persons appointed herein, for him and in his name, place and stead,
in any and all capacities, to sign the registration statement or amendment(s) to
the registration statement set forth opposite the name of each MORGAN STANLEY
FUND SET FORTH IN APPENDIX A HERETO, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents, or either of them, may lawfully do or cause to be done by virtue
hereof during the period May 2, 2008 through June 30, 2008.


Dated: April 25, 2008


                                        /s/ Michael F. Klein
                                        --------------------
                                        Michael F. Klein

                                POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that Frank L. Bowman, whose signature appears
below, constitutes and appoints Carl Frischling, Susan Penry-Williams, Jay
Baris, and Jacqueline Edwards, or any of them, his true and lawful
attorneys-in-fact and agents, with full power of substitution among himself and
each of the persons appointed herein, for him and in his name, place and stead,
in any and all capacities, to sign the registration statement or amendment(s) to
the registration statement set forth opposite the name of each MORGAN STANLEY
FUND SET FORTH IN APPENDIX A HERETO, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents, or either of them, may lawfully do or cause to be done by virtue
hereof during the period May 2, 2008 through June 30, 2008.


Dated: April 25, 2008


                                        /s/ Frank L. Bowman
                                        -------------------
                                        Frank L. Bowman

                            APPENDIX A

MORGAN STANLEY RETAIL FUNDS:
FUND:                                                              FILING:
- -----                                                              -------
Morgan Stanley Balanced Fund                                       Post-Effective Amendment No. 18 to Form N-1A
Morgan Stanley U.S. Government Money Market Trust                  Post-Effective Amendment No. 31 to Form N-1A
Morgan Stanley Allocator Fund                                      Post-Effective Amendment No. 7 to Form N-1A
Morgan Stanley Dividend Growth Securities Inc.                     Post-Effective Amendment No. 34 to Form N-1A
Morgan Stanley Special Growth Fund                                 Post-Effective Amendment No. 21 to Form N-1A
Morgan Stanley Natural Resource Development Securities Inc.        Post-Effective Amendment No. 37 to Form N-1A
Morgan Stanley Series Fund                                         Post-Effective Amendment No. 4  and No. 5 to Form N-1A
Morgan Stanley Prime Income Trust                                  Post-Effective Amendment No. 14 to Form 2
MORGAN STANLEY INSTITUTIONAL FUNDS:
Morgan Stanley Institutional Fund, Inc.                            Post-Effective Amendment No. 76 to Form N-1A
Morgan Stanley Institutional Fund Trust                            Post-Effective Amendment No. 84 and 85 to Form N-1A
HEDGE FUNDS
Morgan Stanley Global Long/Short Fund A                            Post-Effective Amendment No. 1 and 2 to Form N-2
Morgan Stanley Global Long/Short Fund P                            Post-Effective Amendment No. 1 and 2 to Form N-2
Alternative Investment Partners Absolute Return Fund II A          Pre-Effective Amendment Nos. 1 and 2 to Form N-2
                                                                   Post-Effective Amendment Nos. 1 and 2 to Form N-2
Alternative Investment Partners Absolute Return Fund II P          Pre-Effective Amendment Nos. 1 and 2 to Form N-2
                                                                   Post-Effective Amendment Nos. 1 and 2 to Form N-2
Alternative Investment Partners Absolute Return Fund               Post-Effective Amendment Nos. 6, 7 and 8 to Form N-2
Alternative Investment Partners Absolute Return Fund STS           Post-Effective Amendment Nos. 7,  8 and 9 on Form N-2