AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 4, 2003
REGISTRATION NO.
================================================================================
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549
---------------------

FORM N-14

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933 [X]

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

PRE-EFFECTIVE AMENDMENT NO. [ ]
POST-EFFECTIVE AMENDMENT NO. [ ]

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

MORGAN STANLEY
DEVELOPING GROWTH SECURITIES TRUST
A Massachusetts business trust
(Exact Name of Registrant as Specified in Charter)

1221 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10020
(Address of Principal Executive Offices)

(800) 869-6397
(Registrant's Telephone Number)

BARRY FINK, ESQ.
1221 AVENUE OF THE AMERICAS,
NEW YORK, NEW YORK 10020
(Name and Address of Agent for Service)

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

COPY TO:
STUART M. STRAUSS, ESQ.
Mayer, Brown, Rowe & Maw LLP
1675 Broadway
New York, New York 10019

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

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THE REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.

The Exhibit Index is located on page [ ]

PURSUANT TO RULE 429, THIS REGISTRATION STATEMENT RELATES TO SHARES
PREVIOUSLY REGISTERED BY THE REGISTRANT ON FORM N-1A
(REGISTRATION NOS. 2-81151; 811-3639).

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

MORGAN STANLEY NEXT GENERATION TRUST

1221 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10020
(800) 869-NEWS

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD DECEMBER 16, 2003

TO THE SHAREHOLDERS OF MORGAN STANLEY NEXT GENERATION TRUST

Notice is hereby given of a Special Meeting of the Shareholders of Morgan
Stanley Next Generation Trust ("Next Generation") to be held in Conference Room
209, 2nd Floor, 1221 Avenue of the Americas, New York, New York 10020, at 9:30
a.m., New York time, on December 16, 2003, and any adjournments thereof (the
"Meeting"), for the following purposes:

1. To consider and vote upon an Agreement and Plan of Reorganization, dated
July 31, 2003 (the "Reorganization Agreement"), between Next Generation
and Morgan Stanley Developing Growth Securities Trust ("Developing
Growth"), pursuant to which substantially all of the assets of Next
Generation would be combined with those of Developing Growth and
shareholders of Next Generation would become shareholders of Developing
Growth receiving shares of Developing Growth with a value equal to the
value of their holdings in Next Generation (the "Reorganization"); and

2. To act upon such other matters as may properly come before the Meeting.

The Reorganization is more fully described in the accompanying Proxy
Statement and Prospectus and a copy of the Reorganization Agreement is attached
as Exhibit A thereto. Shareholders of record at the close of business on
September 30, 2003 are entitled to notice of, and to vote at, the Meeting.
Please read the Proxy Statement and Prospectus carefully before telling us,
through your proxy or in person, how you wish your shares to be voted.
Alternatively, if you are eligible to vote telephonically by touchtone
telephone or electronically on the Internet (as discussed in the enclosed Proxy
Statement) you may do so in lieu of attending the Meeting in person. THE BOARD
OF TRUSTEES OF NEXT GENERATION RECOMMENDS YOU VOTE IN FAVOR OF THE
REORGANIZATION. WE URGE YOU TO SIGN, DATE AND MAIL THE ENCLOSED PROXY PROMPTLY.

By Order of the Board of Trustees,

BARRY FINK,
Secretary

, 2003

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

YOU CAN HELP AVOID THE NECESSITY AND EXPENSE OF SENDING FOLLOW-UP LETTERS TO
ENSURE A QUORUM BY PROMPTLY RETURNING THE ENCLOSED PROXY. IF YOU ARE UNABLE
TO BE PRESENT IN PERSON, PLEASE FILL IN, SIGN AND RETURN THE ENCLOSED PROXY
IN ORDER THAT THE NECESSARY QUORUM BE REPRESENTED AT THE MEETING. THE
ENCLOSED ENVELOPE REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
SHAREHOLDERS WILL BE ABLE TO VOTE TELEPHONICALLY BY TOUCHTONE TELEPHONE OR
ELECTRONICALLY ON THE INTERNET BY FOLLOWING INSTRUCTIONS ON THEIR PROXY
CARDS OR ON THE ENCLOSED VOTING INFORMATION CARD.

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

MORGAN STANLEY DEVELOPING GROWTH SECURITIES TRUST

1221 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10020
(800) 869-NEWS

ACQUISITION OF THE ASSETS OF
MORGAN STANLEY NEXT GENERATION TRUST

BY AND IN EXCHANGE FOR SHARES OF
MORGAN STANLEY DEVELOPING GROWTH SECURITIES TRUST

This Proxy Statement and Prospectus is being furnished to shareholders of
Morgan Stanley Next Generation Trust ("Next Generation") in connection with an
Agreement and Plan of Reorganization, dated July 31, 2003 (the "Reorganization
Agreement"), pursuant to which substantially all the assets of Next Generation
will be combined with those of Morgan Stanley Developing Growth Securities
Trust ("Developing Growth") in exchange for shares of Developing Growth (the
"Reorganization"). As a result of this transaction, shareholders of Next
Generation will become shareholders of Developing Growth and will receive
shares of Developing Growth with a value equal to the value of their holdings
in Next Generation. The terms and conditions of this transaction are more fully
described in this Proxy Statement and Prospectus and in the Reorganization
Agreement between Next Generation and Developing Growth, attached hereto as
Exhibit A. The address of Next Generation is that of Developing Growth set
forth above. This Proxy Statement also constitutes a Prospectus of Developing
Growth, which is dated , 2003, filed by Developing Growth with the
Securities and Exchange Commission (the "Commission") as part of its
Registration Statement on Form N-14 (the "Registration Statement").

Developing Growth is an open-end diversified management investment company
whose investment objective is to seek long-term capital growth. The fund
normally invests at least 65% of its assets in common stocks (including
depositary receipts) and other equity securities. In deciding which of these
securities to buy, hold or sell, the fund's Investment Manager, Morgan Stanley
Investment Advisors Inc., analyzes a company's potential to grow much more
rapidly than the economy.

This Proxy Statement and Prospectus sets forth concisely information about
Developing Growth that shareholders of Next Generation should know before
voting on the Reorganization Agreement. A copy of the Prospectus for Developing
Growth dated November 29, 2002, is attached as Exhibit B and incorporated
herein by reference. Also enclosed and incorporated herein by reference is
Developing Growth's Annual Report for the fiscal year ended September 30, 2002
and succeeding Semi-Annual Report for the six months ended March 31, 2003. A
Statement of Additional Information relating to the Reorganization, described
in this Proxy Statement and Prospectus, dated , 2003, has been filed
with the Commission and is also incorporated herein by reference. Also
incorporated herein by reference are Next Generation's Prospectus, dated
September 30, 2002, and Annual Report for its fiscal year ended July 31, 2003.
Such documents are available without charge by calling (800) 869-NEWS
(toll-free).

Investors are advised to read and retain this Proxy Statement and Prospectus
for future reference.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED ON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.

THIS PROXY STATEMENT AND PROSPECTUS IS DATED , 2003.

TABLE OF CONTENTS
PROXY STATEMENT AND PROSPECTUS

PAGE
----
INTRODUCTION ............................................................... 1
General .................................................................. 1
Record Date; Share Information ........................................... 1
Proxies .................................................................. 2
Expenses of Solicitation ................................................. 3
Vote Required ............................................................ 4
SYNOPSIS ................................................................... 4
The Reorganization ....................................................... 4
Fee Table ................................................................ 5
Tax Consequences of the Reorganization ................................... 8
Comparison of Next Generation and Developing Growth ...................... 8
PRINCIPAL RISK FACTORS ..................................................... 11
THE REORGANIZATION ......................................................... 13
The Proposal ............................................................. 13
The Board's Consideration ................................................ 13
The Reorganization Agreement ............................................. 14
Tax Aspects of the Reorganization ........................................ 16
Description of Shares .................................................... 17
Capitalization Table (unaudited) ......................................... 18
Appraisal Rights ......................................................... 18
COMPARISON OF INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS ............. 18
Investment Objectives and Policies ....................................... 18
Investment Restrictions .................................................. 19
ADDITIONAL INFORMATION ABOUT NEXT GENERATION AND DEVELOPING
GROWTH .................................................................... 20
General .................................................................. 20
Financial Information .................................................... 20
Management ............................................................... 20
Description of Securities and Shareholder Inquiries ...................... 21
Dividends, Distributions and Taxes ....................................... 21
Purchases, Repurchases and Redemptions ................................... 21
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE ................................ 21
FINANCIAL STATEMENTS AND EXPERTS ........................................... 21
LEGAL MATTERS .............................................................. 21
AVAILABLE INFORMATION ...................................................... 21
OTHER BUSINESS ............................................................. 22
Exhibit A - Agreement and Plan of Reorganization, dated July 31, 2003,
by and between Next Generation and Developing Growth ...................... A-1
Exhibit B - Prospectus of Developing Growth dated November 29, 2002 ........ B-1

MORGAN STANLEY NEXT GENERATION TRUST
1221 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10020
(800) 869-NEWS

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

PROXY STATEMENT AND PROSPECTUS

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

SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD DECEMBER 16, 2003

INTRODUCTION

GENERAL

This Proxy Statement and Prospectus is being furnished to the shareholders
of Morgan Stanley Next Generation Trust ("Next Generation"), an open-end
diversified management investment company, in connection with the solicitation
by the Board of Trustees of Next Generation (the "Board") of proxies to be used
at the Special Meeting of Shareholders of Next Generation to be held in
Conference Room 209, 2nd Floor, 1221 Avenue of the Americas, New York, New York
10020, at 9:30 a.m., New York time, on, December 16, 2003 and any adjournments
thereof (the "Meeting"). It is expected that the first mailing of this Proxy
Statement and Prospectus will be made on or about October 15, 2003.

At the Meeting, Next Generation shareholders ("Shareholders") will
consider and vote upon an Agreement and Plan of Reorganization, dated July 31,
2003 (the "Reorganization Agreement"), between Next Generation and Morgan
Stanley Developing Growth Securities Trust ("Developing Growth"), pursuant to
which substantially all of the assets of Next Generation will be combined with
those of Developing Growth in exchange for shares of Developing Growth. As a
result of this transaction, Shareholders will become shareholders of Developing
Growth and will receive shares of Developing Growth equal to the value of their
holdings in Next Generation on the date of such transaction (the
"Reorganization"). Pursuant to the Reorganization, each Shareholder will
receive the class of shares of Developing Growth that corresponds to the class
of shares of Next Generation currently held by that Shareholder. Accordingly,
as a result of the Reorganization, each Class A, Class B, Class C and Class D
Shareholder of Next Generation will receive Class A, Class B, Class C or Class
D shares of Developing Growth, respectively. The shares to be issued by
Developing Growth pursuant to the Reorganization (the "Developing Growth
Shares") will be issued at net asset value without an initial sales charge.
Further information relating to Developing Growth is set forth herein and in
Developing Growth's current Prospectus, dated November 29, 2002 ("Developing
Growth's Prospectus"), attached to this Proxy Statement and Prospectus and
incorporated herein by reference.

The information concerning Next Generation contained herein has been
supplied by Next Generation and the information concerning Developing Growth
contained herein has been supplied by Developing Growth.

RECORD DATE; SHARE INFORMATION

The Board has fixed the close of business on September 30, 2003 as the
record date (the "Record Date") for the determination of the Shareholders
entitled to notice of, and to vote at, the Meeting. As of the Record

Date, there were shares of Next Generation issued and
outstanding. Shareholders on the Record Date are entitled to one vote per share
and a fractional vote for a fractional share on each matter submitted to a vote
at the Meeting. A majority of the outstanding shares entitled to vote,
represented in person or by proxy, will constitute a quorum at the Meeting.

The following persons were known to own of record or beneficially 5% or
more of the outstanding shares of a Class of Next Generation as of the Record
Date:

NAME AND ADDRESS % OF OWNERSHIP NATURE OF OWNERSHIP
------------------ ---------------- --------------------

Class A ..........
Class B ..........
Class C ..........
Class D ..........

As of the Record Date, the trustees and officers of Next Generation, as a
group, owned less than 1% of the outstanding shares of Next Generation.

The following persons were known to own of record or beneficially 5% or
more of the outstanding shares of a Class of Developing Growth as of the Record
Date:

NAME AND ADDRESS % OF OWNERSHIP NATURE OF OWNERSHIP
------------------ ---------------- --------------------

Class A ..........
Class B ..........
Class C ..........
Class D ..........

As of the Record Date, the trustees and officers of Developing Growth, as
a group, owned less than 1% of the outstanding shares of Developing Growth.

PROXIES

The enclosed form of proxy, if properly executed and returned, will be
voted in accordance with the choice specified thereon. The proxy will be voted
in favor of the Reorganization Agreement unless a choice is indicated to vote
against or to abstain from voting on the Reorganization Agreement. The Board
knows of no business, other than that set forth in the Notice of Special
Meeting of Shareholders, to be presented for consideration at the Meeting.
However, the proxy confers discretionary authority upon the persons named
therein to vote as they determine on other business, not currently
contemplated, which may come before the Meeting. Abstentions and, if
applicable, broker "non-votes" will not count as votes in favor of the
Reorganization Agreement, and broker "non-votes" will not be deemed to be
present at the meeting for purposes of determining whether the Reorganization
Agreement has been approved. Broker "non-votes" are shares held in street name
for which the broker indicates that instructions have not been received from
the beneficial owners or other persons entitled to vote and for which the
broker does not have discretionary voting authority. If a Shareholder executes
and returns a proxy but fails to indicate how the votes should be cast, the
proxy will be voted in favor of the Reorganization Agreement. The proxy may be
revoked at any time prior to the voting thereof by: (i) delivering written
notice of revocation to the Secretary of Next Generation, 1221 Avenue of the
Americas, New York, New York 10020; (ii) attending the Meeting and voting in
person; or (iii) completing and returning a new proxy (whether by mail or, as
discussed below, by touchtone telephone or the Internet) (if returned and
received in time to be voted). Attendance at the Meeting will not in and of
itself revoke a proxy.

In the event that the necessary quorum to transact business or the vote
required to approve or reject the Reorganization Agreement is not obtained at
the Meeting, the persons named as proxies may propose one or more adjournments
of the Meeting to permit further solicitation of proxies. Any such adjournment
will require the affirmative vote of the holders of a majority of shares of
Next Generation present in person or by proxy at the Meeting. The persons named
as proxies will vote in favor of such adjournment those proxies which they are
entitled to vote in favor of the Reorganization Agreement and will vote against
any such adjournment those proxies required to be voted against the
Reorganization Agreement. Abstentions and, if applicable, broker "non votes"
will not be counted for purposes of approving an adjournment.

EXPENSES OF SOLICITATION

All expenses of this solicitation, including the cost of preparing and
mailing this Proxy Statement and Prospectus, will be borne by Next Generation,
which expenses are expected to approximate $116,000. Next Generation and
Developing Growth will bear all of their respective other expenses associated
with the Reorganization.

The solicitation of proxies will be by mail, which may be supplemented by
solicitation by mail, telephone or otherwise through officers of Next
Generation or officers and regular employees of Morgan Stanley Investment
Advisors Inc. ("Morgan Stanley Investment Advisors" or the "Investment
Manager"), Morgan Stanley Trust (or the "Transfer Agent"), Morgan Stanley
Services Company Inc. ("Morgan Stanley Services") and/or Morgan Stanley DW Inc.
("Morgan Stanley DW"), without special compensation therefor. As described
below, Next Generation will employ Alamo Direct Mail Services Inc. ("Alamo") to
make telephone calls to Shareholders to remind them to vote. In addition, Next
Generation may also employ D.F. King & Co., Inc. ("D.F. King") as proxy
solicitor if it appears that the required number of votes to achieve quorum
will not be received. In the event of a solicitation by D.F. King, Next
Generation would pay D.F. King $3,000 and the expenses outlined below.

Shareholders will be able to vote their shares by touchtone telephone or
by Internet by following the instructions on the proxy card or on the Voting
Information Card accompanying this Proxy Statement. To vote by Internet or by
telephone, Shareholders can access the website or call the toll-free number
listed on the proxy card or noted in the enclosed voting instructions. To vote
by Internet or by telephone, Shareholders will need the "control number" that
appears on the proxy card.

In certain instances Morgan Stanley Trust, Alamo and/or D.F. King may call
Shareholders to ask if they would be willing to have their votes recorded by
telephone. The telephone voting procedure is designed to authenticate
Shareholders' identities, to allow Shareholders to authorize the voting of
their shares in accordance with their instructions and to confirm that their
instructions have been recorded properly. No recommendation will be made as to
how a Shareholder should vote on any Proposal other than to refer to the
recommendations of the Board. Next Generation has been advised by counsel that
these procedures are consistent with the requirements of applicable law.
Shareholders voting by telephone in this manner will be asked for their social
security number or other identifying information and will be given an
opportunity to authorize proxies to vote their shares in accordance with their
instructions. To ensure that the Shareholders' instructions have been recorded
correctly they will receive a confirmation of their instructions in the mail. A
special toll-free number set forth in the confirmation will be available in
case the information contained in the confirmation is incorrect. Although a
Shareholder's vote may be taken by telephone, each Shareholder will receive a
copy of this Proxy Statement and may vote by mail using the enclosed proxy card
or by touchtone telephone or the Internet as set forth above. The last proxy
vote received in time to be voted, whether by proxy card, touchtone telephone
or Internet, will be the last vote that is counted and will revoke all previous
votes by the Shareholder. With respect to telephone calls by Alamo, expenses
would be approximately $1.00 per outbound telephone contact. With respect to
the solicitation of a telephonic vote by D.F. King, approximate

additional expenses may include $6.00 per telephone vote transacted, $3.25 per
outbound or inbound telephone contact and costs relating to obtaining
Shareholders' telephone numbers and providing additional materials upon
shareholder request which would be borne by Next Generation.

VOTE REQUIRED

Approval of the Reorganization Agreement by the Shareholders requires the
affirmative vote of a majority (i.e., more than 50%) of the shares of Next
Generation represented in person or by proxy and entitled to vote at the
Meeting, provided a quorum is present at the Meeting. If the Reorganization
Agreement is not approved by Shareholders, Next Generation will continue in
existence and the Board will consider alternative actions.

SYNOPSIS

The following is a synopsis of certain information contained in or
incorporated by reference in this Proxy Statement and Prospectus. This synopsis
is only a summary and is qualified in its entirety by the more detailed
information contained or incorporated by reference in this Proxy Statement and
Prospectus and the Reorganization Agreement. Shareholders should carefully
review this Proxy Statement and Prospectus and Reorganization Agreement in
their entirety and, in particular, Developing Growth's Prospectus, which is
attached to this Proxy Statement and incorporated herein by reference.

THE REORGANIZATION

The Reorganization Agreement provides for the transfer of substantially
all the assets of Next Generation, subject to stated liabilities, to Developing
Growth in exchange for the Developing Growth Shares. The aggregate net asset
value of the Developing Growth Shares issued in the exchange will equal the
aggregate value of the net assets of Next Generation received by Developing
Growth. On or after the closing date scheduled for the Reorganization (the
"Closing Date"), Next Generation will distribute the Developing Growth Shares
received by Next Generation to Shareholders as of the Valuation Date (as
defined below under "The Reorganization Agreement") in complete liquidation of
Next Generation and Next Generation will thereafter be dissolved and
deregistered under the Investment Company Act of 1940, as amended (the "1940
Act"). As a result of the Reorganization, each Shareholder will receive that
number of full and fractional Developing Growth Shares equal in value to such
Shareholder's pro rata interest in the net assets of Next Generation
transferred to Developing Growth. Pursuant to the Reorganization, each
Shareholder will receive the class of shares of Developing Growth that
corresponds to the class of shares of Next Generation currently held by that
Shareholder. Accordingly, as a result of the Reorganization, each Class A,
Class B, Class C and Class D Shareholder of Next Generation will become a
holder of Class A, Class B, Class C or Class D shares of Developing Growth,
respectively. Shareholders holding their shares of Next Generation in
certificate form will be asked to surrender their certificates in connection
with the Reorganization. Shareholders who do not surrender their certificates
prior to the Closing Date will still receive their shares of Developing Growth;
however, such Shareholders will not be able to redeem, transfer or exchange the
Developing Growth Shares received until the old certificates have been
surrendered. The Board has determined that the interests of Shareholders will
not be diluted as a result of the Reorganization.

At least one but not more than 20 business days prior to the Valuation
Date, Next Generation will declare and pay a dividend or dividends which,
together with all previous such dividends, will have the effect of distributing
to Shareholders all of Next Generation's investment company taxable income for
all periods since the inception of Next Generation through and including the
Valuation Date (computed without regard to any dividends paid deduction), and
all of Next Generation's net capital gain, if any, realized in such periods
(after reduction for any capital loss carryforward).

FOR THE REASONS SET FORTH BELOW UNDER "THE REORGANIZATION -- THE BOARD'S
CONSIDERATION," THE BOARD, INCLUDING THE TRUSTEES WHO ARE NOT "INTERESTED
PERSONS" OF NEXT GENERATION ("INDEPENDENT TRUSTEES"), AS THAT TERM IS DEFINED
IN THE 1940 ACT, HAS CONCLUDED THAT THE REORGANIZATION IS IN THE BEST INTERESTS
OF NEXT GENERATION AND ITS SHAREHOLDERS AND RECOMMENDS APPROVAL OF THE
REORGANIZATION AGREEMENT.

FEE TABLE

The following table briefly describes the fees and expenses that a
shareholder of Next Generation and Developing Growth may pay if they buy and
hold shares of each respective fund. These expenses are deducted from each
respective fund's assets and reflect information for Next Generation for its
fiscal year ended July 31, 2003, and for Developing Growth for its fiscal year
ended September 30, 2002. The Annual Fund Operating Expenses do not reflect
voluntary fee waivers and/or expense reimbursements from the Investment
Manager, which are described in the footnotes to the table. Next Generation and
Developing Growth each pay expenses for management of their assets,
distribution of their shares and other services, and those expenses are
reflected in the net asset value per share of each fund. The table also sets
forth pro forma fees for the surviving combined fund (Developing Growth)
reflecting what the fee schedule would have been on March 31, 2003, if the
Reorganization had been consummated twelve (12) months prior to that date.

Shareholder Fees

PRO FORMA
DEVELOPING COMBINED
NEXT GENERATION GROWTH (DEVELOPING GROWTH)
----------------- --------------- --------------------

MAXIMUM SALES CHARGE (LOAD) IMPOSED ON PURCHASES
(AS A PERCENTAGE OF OFFERING PRICE)
Class A ............................................... 5.25%(1) 5.25%(1) 5.25%(1)
Class B ............................................... none none none
Class C ............................................... none none none
Class D ............................................... none none none
MAXIMUM SALES CHARGE (LOAD) IMPOSED ON REINVESTED
DIVIDENDS
Class A ............................................... none none none
Class B ............................................... none none none
Class C ............................................... none none none
Class D ............................................... 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)
Class A ............................................... none(2) none(2) none(2)
Class B ............................................... 5.00%(3) 5.00%(3) 5.00%(3)
Class C ............................................... 1.00%(4) 1.00%(4) 1.00%(4)
Class D ............................................... none none none
REDEMPTION FEES
Class A ............................................... none none none
Class B ............................................... none none none
Class C ............................................... none none none
Class D ............................................... none none none
EXCHANGE FEE
Class A ............................................... none none none
Class B ............................................... none none none
Class C ............................................... none none none
Class D ............................................... none none none

Annual Fund Operating Expenses (expenses that are deducted from fund assets)

PRO FORMA
DEVELOPING COMBINED
NEXT GENERATION GROWTH (DEVELOPING GROWTH)(5)
----------------- ------------ -----------------------

MANAGEMENT FEES
Class A ...................................... 0.75% 0.50% 0.50%
Class B ...................................... 0.75% 0.50% 0.50%
Class C ...................................... 0.75% 0.50% 0.50%
Class D ...................................... 0.75% 0.50% 0.50%
DISTRIBUTION AND SERVICE (12b-1) FEES
Class A ...................................... 0.24% 0.22% 0.20%
Class B ...................................... 1.00% 1.00% 1.00%
Class C ...................................... 0.97% 1.00% 0.97%
Class D ...................................... none none none
OTHER EXPENSES(6)
Class A ...................................... 1.32% 0.30% 0.39%
Class B ...................................... 1.32% 0.30% 0.39%
Class C ...................................... 1.32% 0.30% 0.39%
Class D ...................................... 1.32% 0.30% 0.39%
TOTAL ANNUAL FUND OPERATING EXPENSES .........
Class A ...................................... 2.31%(7) 1.02% 1.09%
Class B ...................................... 3.07%(7) 1.80% 1.89%
Class C ...................................... 3.04%(7) 1.80% 1.86%
Class D ...................................... 2.07%(7) 0.80% 0.89%

- ----------

(1) Reduced for purchases of $25,000 and over (see "Share Class Arrangements --
Class A Shares" in each fund's Prospectus).

(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 on redemptions made within one year after
purchase, except for certain specific circumstances (see "Purchases,
Exchanges and Redemptions" below and "Share Class Arrangements -- Class A
Shares" in each fund's Prospectus).

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

(4) Only applicable if you sell your shares within one year after purchase (see
"Purchases, Exchanges and Redemptions" below and "Share Class Arrangements
-- Class C Shares" in each fund's Prospectus).

(5) The Pro Forma operating expenses of the combined fund (Developing Growth)
reflect an increase in "Other expenses" and a corresponding increase in
"Total annual fund operating expenses" primarily due to a reduction in
assets of Developing Growth within the measuring period of such Pro Formas.

(6) Upon completion of the Reorganization, the Investment Manager has agreed to
reimburse or waive $87,000 in expenses of the Combined Fund for the first
year of combined operations.

(7) The Investment Manager has agreed to assume all operating expenses (except
for brokerage and 12b-1 fees) and to waive the compensation provided in its
Management Agreement until such time as Next Generation has $50 million in
net assets or until December 31, 2003, whichever occurs first. The expenses
and fees disclosed above do not reflect the assumption of any expenses or
the waiver of any compensation by the Investment Manager. Taking the
waiver/assumption of expenses into account, the total operating expenses of
Class A, Class B, Class C and Class D would have been 0.24%, 1.00%, 0.97%
and 0.00%, respectively.

EXAMPLE

To attempt to show the effect of these expenses on an investment over
time, the hypotheticals shown below have been created. The Example assumes that
an investor invests $10,000 in either Next Generation, Developing Growth or the
new combined fund (Developing Growth), that the investment has a 5% return each
year and that the operating expenses for each fund remain the same (as set
forth in the chart above). Although a shareholder's actual costs may be higher
or lower, the tables below show a shareholder's costs at the end of each period
based on these assumptions depending upon whether or not a shareholder sold his
shares at the end of each period.

If a Shareholder SOLD His Shares:

1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- --------- --------- ---------

Next Generation
Class A ...................... $747 $1,209 $1,695 $3,032
Class B ...................... 810 1,248 1,811 3,383
Class C ...................... 407 939 1,596 3,355
Class D ...................... 210 649 1,114 2,400
Developing Growth
Class A ...................... $624 $ 833 $1,059 $1,707
Class B ...................... 683 866 1,175 2,116
Class C ...................... 283 566 975 2,116
Class D ...................... 82 255 444 990
Pro Forma Combined
Class A ...................... $630 $ 853 $1,094 $1,784
Class B ...................... 692 894 1,221 2,212
Class C ...................... 289 585 1,006 2,180
Class D ...................... 91 284 493 1,096

If a Shareholder HELD His Shares:

1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- --------- --------- ---------

Next Generation
Class A ...................... $747 $1,209 $1,695 $3,032
Class B ...................... 310 948 1,611 3,383
Class C ...................... 307 939 1,596 3,355
Class D ...................... 210 649 1,114 2,400
Developing Growth
Class A ...................... $624 $ 833 $1,059 $1,707
Class B ...................... 183 566 975 2,116
Class C ...................... 183 566 975 2,116
Class D ...................... 82 255 444 990
Pro Forma Combined
Class A ...................... $630 $ 853 $1,094 $1,784
Class B ...................... 192 594 1,021 2,212
Class C ...................... 189 585 1,006 2,180
Class D ...................... 91 284 493 1,096

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.

The purpose of the foregoing fee table and example is to assist the
investor or shareholder in understanding the various costs and expenses that an
investor or shareholder in each fund will bear directly or indirectly. For a
more complete description of these costs and expenses, see "Comparison of Next
Generation and Developing Growth -- Investment Management and Distribution Plan
Fees; Other Significant Fees; and Purchases, Exchanges and Redemptions" below.

TAX CONSEQUENCES OF THE REORGANIZATION

As a condition to the Reorganization, Next Generation will receive an
opinion of Mayer, Brown, Rowe & Maw LLP to the effect that the Reorganization
will constitute a tax-free reorganization for federal income tax purposes, and
that no gain or loss will be recognized by Next Generation or the Shareholders
of Next Generation for federal income tax purposes as a result of the
transactions included in the Reorganization. For further information about the
tax consequences of the Reorganization, see "The Reorganization -- Tax Aspects
of the Reorganization" below.

COMPARISON OF NEXT GENERATION AND DEVELOPING GROWTH

INVESTMENT OBJECTIVES AND POLICIES. The investment objective of Next
Generation is to seek long-term growth of capital. Similarly, the investment
objective of Developing Growth is to seek long-term capital growth.

Next Generation seeks to achieve its investment objective by normally
investing at least 65% of its assets in common stocks of companies of any asset
size which manufacture products or provide services, or which develop or assist
in the development of products and services, which, in the opinion of the
Investment Manager may be used by or appeal to, children, teenagers and/or
young adults. Up to 35% of Next Generation's net assets may be invested in
foreign securities, including emerging market securities. This percentage
limitation, however, does not apply to securities of foreign companies,
including depositary receipts, that are listed in the United States on a
national securities exchange. The remaining 35% of Next Generation's assets may
be invested in fixed-income securities. Developing Growth seeks to achieve its
investment objective by normally investing at least 65% of its assets in common
stocks (including depositary receipts) and other equity securities. Up to 10%
of the fund's net assets may be invested in foreign securities. This percentage
limitation, however, does not apply to securities of foreign companies that are
listed in the United States on a national securities exchange. The remaining
35% of Developing Growth's assets may be invested in fixed-income securities
issued or guaranteed by the United States government, its agencies or
instrumentalities and investment grade debt securities.

Next Generation's Investment Manager invests in companies which it
believes have growth potential. Next Generation's portfolio will be diversified
among many different companies in a variety of industry groups. In deciding
which securities to buy, hold or sell, Next Generation's portfolio managers
emphasize individual security selection. Individual companies are chosen based
on such factors as potential growth in earnings, quality of management and
business prospects.

In deciding which securities to buy, hold or sell, Developing Growth's
Investment Manager analyzes a company's potential to grow much more rapidly
than the economy. Developing Growth's other equity securities may include
convertible securities and preferred stocks. Developing Growth will invest
primarily in smaller and medium-sized companies. Developing Growth's Investment
Manager focuses its securities selection upon a

diversified group of emerging growth companies that it believes have prospects
of achieving significant profit gains. Developing Growth may also invest in
securities issued in initial public offerings ("IPOs").

The principal differences between the funds' investment policies are more
fully described under "Comparison of Investment Objectives, Policies and
Restrictions" below.

The investment policies of both Next Generation and Developing Growth are
not fundamental and may be changed by their respective Boards of Trustees.

INVESTMENT MANAGEMENT AND DISTRIBUTION PLAN FEES. Next Generation and
Developing Growth obtain management services from Morgan Stanley Investment
Advisors Inc. For the fiscal year ended July 31, 2003, Next Generation paid
Morgan Stanley Investment Advisors monthly compensation calculated daily at an
annual rate of 0.75%(1) of the fund's average daily net assets. With respect to
Developing Growth, for the fiscal year ended September 30, 2002, the fund paid
Morgan Stanley Investment Advisors monthly compensation calculated daily by
applying the annual rate of 0.50% to the fund's average daily net assets. Each
class of both funds' shares is subject to the same management fee rates
applicable to the respective fund.

Both Next Generation and Developing Growth have adopted similar
distribution plans ("Plans") pursuant to Rule 12b-1 under the 1940 Act. In the
case of Class A and Class C shares, each fund's Plan provides that the fund
will reimburse Morgan Stanley Distributors Inc. (the "Distributor") and others
for the expenses of certain activities and services incurred by them in
connection with the distribution of the Class A and Class C shares of the fund.
Reimbursement for these expenses is made in monthly payments by each fund to
the Distributor which will in no event exceed amounts equal to payments at the
annual rates of 0.25% and 1.0% of the average daily net assets of Class A and
Class C shares, respectively. In the case of Class B shares, Next Generation's
Plan provides that the fund will pay the Distributor a fee, which is accrued
daily and paid monthly, at the annual rate of 1.0%. Developing Growth's Plan
provides that, with respect to Class B, the fund will pay the Distributor a
fee, which is accrued daily and paid monthly, at the annual rate of 1.0% of the
lesser of: (a) the average daily aggregate gross sales of the fund's Class B
shares since the inception of the plan of distribution adopted by the fund (not
including reinvestment of dividends or capital gains distributions), less the
average daily aggregate net asset value of the fund's Class B shares redeemed
since the fund's inception upon which a contingent deferred sales charge has
been imposed or upon which such charge has been waived; or (b) the average
daily net assets of Class B shares attributable to shares issued, net of shares
redeemed, since the inception of the Plan. The 12b-1 fee is paid for the
services provided and the expenses borne by the Distributor and others in
connection with the distribution of each fund's Class B shares. There are no
12b-1 fees applicable to each fund's Class D shares. For further information
relating to the 12b-1 fees applicable to each class of Developing Growth's
shares, see the section entitled "Share Class Arrangements" in Developing
Growth's Prospectus, attached hereto. The Distributor also receives the
proceeds of any CDSC paid by the funds' shareholders at the time of redemption.
The CDSC schedules applicable to each of Next Generation and Developing Growth
are set forth below under "Purchases, Exchanges and Redemptions."

OTHER SIGNIFICANT FEES. Both Next Generation and Developing Growth pay
additional fees in connection with their operations, including legal, auditing,
transfer agent, trustees fees and custodial fees. See "Synopsis -- Fee Table"
above for the percentage of average net assets represented by such "Other
Expenses."

- ----------
(1) The Investment Manager has agreed to waive the compensation provided in its
Management Agreement until such time as Next Generation has $50 million in
net assets or until December 31, 2003, whichever occurs first. The annual
rate disclosed above does not reflect the waiver of any compensation by the
Investment Manager.

PURCHASES, EXCHANGES AND REDEMPTIONS. Class A shares of each fund are sold
at net asset value plus an initial sales charge of up to 5.25%. The initial
sales charge is reduced for certain purchases. Investments of $1 million or
more (and investment by certain other limited categories of investors) are not
subject to any sales charges at the time of purchase, but generally are subject
to a CDSC of 1.0% on redemptions made within one year after purchase (except
for certain specific circumstances fully described in each fund's Prospectus).

Class B shares of each fund are offered at net asset value with no initial
sales charge, but are subject to the same CDSC schedule set forth below:

CLASS B SHARES OF NEXT GENERATION AND
YEAR SINCE PURCHASE PAYMENT MADE DEVELOPING GROWTH
- ------------------------------------- --------------------------------------

First ............................... 5.0%
Second .............................. 4.0%
Third ............................... 3.0%
Fourth .............................. 2.0%
Fifth ............................... 2.0%
Sixth ............................... 1.0%
Seventh and thereafter .............. none

Class C shares of each fund are sold at net asset value with no initial
sales charge, but are subject to a CDSC of 1.0% on redemptions made within one
year after purchase. The CDSC may be waived for certain redemptions (which are
fully described under the section "Share Class Arrangements" in each fund's
Prospectus).

Class D shares of each fund are available only to limited categories of
investors and are sold at net asset value with no initial sales charge or CDSC.

The CDSC charge is paid to the Distributor. Shares of Developing Growth
and Next Generation are distributed by the Distributor and offered by Morgan
Stanley DW and other dealers who have entered into selected dealer agreements
with the Distributor. For further information relating to the CDSC schedules
applicable to each of the classes of shares of Next Generation and Developing
Growth, see the section entitled "Share Class Arrangements" in each fund's
Prospectus.

Shares of each class of Next Generation and Developing Growth may be
exchanged for shares of the same class of any other continuously offered
Multi-Class Fund, or for shares of a No-Load Fund, a Money Market Fund or
Limited Duration U.S. Treasury Trust (each, an "Exchange Fund"), without the
imposition of an exchange fee. In addition, Class A shares of each fund may be
exchanged for shares of an FSC Fund (funds subject to a front-end sales charge)
(also, an "Exchange Fund"). See the inside back cover of the Developing Growth
Prospectus for each Morgan Stanley Fund's designation as a Multi-Class Fund,
No-Load Fund, Money Market Fund or an FSC Fund. Upon consummation of the
Reorganization, the foregoing exchange privileges will still be applicable to
shareholders of the combined fund (Developing Growth).

Developing Growth shares distributed to Shareholders as a result of the
Reorganization will not be subject to an initial sales charge.

With respect to both funds, no CDSC is imposed at the time of any
exchange, although any applicable CDSC will be imposed upon ultimate
redemption. For purposes of calculating the holding period in determining any
applicable CDSC upon redemption of shares received as a result of the
Reorganization, any period during which the Shareholder held shares of a fund
that charged a CDSC (e.g., Next Generation) will be counted. During the period
of time a Developing Growth or Next Generation Shareholder remains in an

Exchange Fund, the holding period (for purposes of determining the CDSC rate)
is frozen. Both Next Generation and Developing Growth provide telephone
exchange privileges to their shareholders. For greater details relating to
exchange privileges applicable to Developing Growth, see the section entitled
"How to Exchange Shares" in Developing Growth's Prospectus.

Shareholders of Next Generation and Developing Growth may redeem their
shares for cash at any time at the net asset value per share next determined;
however, such redemption proceeds may be reduced by the amount of any
applicable CDSC. Both Next Generation and Developing Growth offer a
reinstatement privilege whereby a shareholder who has not previously exercised
such privilege whose shares have been redeemed or repurchased may, within
thirty-five days after the date of redemption or repurchase, reinstate any
portion or all of the proceeds thereof in shares of the same class from which
such shares were redeemed or repurchased and receive a pro rata credit for any
CDSC paid in connection with such redemption or repurchase. Next Generation and
Developing Growth may redeem involuntarily, at net asset value, most accounts
valued at less than $100.

DIVIDENDS. Each fund declares dividends separately for each of its
classes. Next Generation and Developing Growth pay dividends from net
investment income annually. Both funds usually distribute net capital gains, if
any, in December. Each fund, however, may determine either to distribute or to
retain all or part of any net long-term capital gains in any year for
reinvestment. With respect to each fund, dividends and capital gains
distributions are automatically reinvested in additional shares of the same
class of shares of the fund at net asset value unless the shareholder elects to
receive cash.

PRINCIPAL RISK FACTORS

The share price and return of Developing Growth and Next Generation will
fluctuate with changes in the market value of their respective portfolio
securities. The market value of the funds' portfolio securities will increase
or decrease due to a variety of economic, market and political factors which
cannot be predicted.

Both funds invest in common stocks and Developing Growth also invests in
other equity securities. In general, stock and other equity security values
fluctuate in response to activities specific to the company as well as general
market, economic and political conditions. These prices can fluctuate widely in
response to these factors.

Both funds may invest in foreign securities. With respect to Next
Generation, the fund may invest up to 35% of its net assets in foreign
securities, including emerging market securities. Developing Growth may invest
up to 10% of its net assets in such foreign securities. With respect to both
funds, the percentage limitation does not apply to securities of foreign
companies that are listed in the United States on a national securities
exchange. Investments in foreign securities involve risks 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 funds
generally 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 government and exchange scrutiny and regulation than their U.S.
counterparts. In addition, differences in clearance and settlement procedures
in foreign markets may occasion delays in settlement of the funds' trades
effected in those markets and could result in losses to a fund due to
subsequent declines in the value of the securities subject to the trades.

Depositary receipts involve substantially identical risks to 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.

Certain foreign securities in which Next Generation may invest may be
issued by companies located in developing or emerging countries. Compared to
the United States and other developed countries, developing or emerging
countries may have unstable governments, economies based on only a few
industries and securities markets that trade a small number of securities.
Securities issued by companies located in these countries tend to be especially
volatile and may be less liquid than securities traded in developed countries.
In the past, securities in these countries have offered greater potential loss
(as well as gain) than securities of companies located in developed countries.

Developing Growth invests primarily in stocks of small and medium-sized
companies. Developing Growth's investments in smaller and medium-sized
companies carry more risk than investments in larger companies. While some of
Developing Growth's holdings in these companies may be listed on a national
securities exchange, such securities are more likely to be traded in the
over-the-counter market. The low market liquidity of these securities may have
an adverse impact on Developing Growth's ability to sell certain securities at
favorable prices and may also make it difficult for Developing Growth to obtain
market quotations based on actual trades for purposes of valuing Developing
Growth's securities. Investing in lesser-known, smaller and medium
capitalization companies involves greater risk of volatility of Developing
Growth's net asset value than is customarily associated with larger, more
established companies. Often smaller and medium capitalization companies and
the industries in which they are focused are still evolving and, while this may
offer better growth potential than larger, more established companies, it also
may make them more sensitive to changing market conditions.

In addition, Developing Growth may invest in securities issued in IPOs.
Purchases of shares issued in IPOs expose Developing Growth to the additional
risks associated with companies that have little operating history as public
companies, as well as to the risks inherent in those sectors of the market
where these new issuers operate. The market for IPO issuers has been volatile,
and share prices of certain newly-public companies have fluctuated in
significant amounts over short periods of time. In addition, the Investment
Manager cannot guarantee continued access to IPOs.

Each fund may also invest in fixed-income securities, which are subject to
two types of risk: credit risk and interest rate risk. Credit risk refers to
the possibility that the issuer of a security will be unable to make interest
payments and/or repay the principal on its debt. Interest rate risk refers to
fluctuations in the value of a fixed-income security resulting from changes in
the general level of interest rates. When the general level of interest rates
goes up, the prices of most fixed-income securities go down. When the general
level of interest rates goes down, the prices of most fixed-income securities
go up. (Zero coupon securities are typically subject to greater price
fluctuations than comparable securities that pay interest.) A portion of Next
Generation's fixed-income securities has speculative characteristics.

Developing Growth may invest in convertible securities, which are
securities that generally pay interest and may be converted into common stock.
These securities may carry risks associated with both common stock

and fixed-income securities. To the extent that a convertible security's
investment value is greater than its conversion value, its price will 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. Because there are no credit
quality restrictions concerning Developing Growth's convertible securities
investments, these investments may be speculative in nature.

The foregoing discussion is a summary of the principal risk factors. For a
more complete discussion of the risks of each fund, see "Principal Risks" and
"Additional Risk Information" in the Prospectus of Next Generation and in the
Prospectus of Developing Growth, both of which are incorporated herein by
reference.

THE REORGANIZATION

THE PROPOSAL

The Board of Trustees of Next Generation, including the Independent
Trustees, having reviewed the financial position of Next Generation and the
prospects for achieving economies of scale through the Reorganization and
having determined that the Reorganization is in the best interests of Next
Generation and its Shareholders and that the interests of Shareholders will not
be diluted as a result thereof, recommends approval of the Reorganization by
Shareholders of Next Generation.

THE BOARD'S CONSIDERATION

At a meeting held on July 31, 2003, the Board, including the Independent
Trustees, unanimously approved the Reorganization Agreement and determined to
recommend that Shareholders approve the Reorganization Agreement. In reaching
this decision, the Board made an extensive inquiry into a number of factors,
particularly the comparative expenses currently incurred in the operations of
Next Generation and Developing Growth. The Board also considered other factors,
including, but not limited to: Next Generation's inability to grow assets as
expected; the general compatibility of the investment objectives, policies and
restrictions of Next Generation and Developing Growth; the terms and conditions
of the Reorganization which would affect the price of shares to be issued in
the Reorganization; the tax-free nature of the Reorganization; and any direct
or indirect costs to be incurred by Next Generation and Developing Growth in
connection with the Reorganization.

In recommending the Reorganization to Shareholders, the Board of Next
Generation considered that the Reorganization would have the following benefits
to Shareholders:

1. Once the Reorganization is consummated, the expenses which would be
borne by shareholders of each class of the combined fund (Developing Growth)
will be lower on a percentage basis than the expenses per share of each
corresponding class of Next Generation, without consideration of the assumption
of any expenses or the waiver of any investment management fee, which will
expire no later than December 31, 2003. This is attributable to the fact that
the investment management fee rate paid by Developing Growth for its last
fiscal year (0.50%) is substantially lower than the investment management fee
rate paid by Next Generation for the last fiscal year (0.75%). The Board also
noted that Developing Growth's "Other expenses" for its last fiscal year
(0.30%) were substantially lower than Next Generation's "Other expenses" for
its last fiscal year (1.32%). The Board also considered that, upon completion
of the Reorganization, the Investment Manager has agreed to reimburse or waive
$87,000 in expenses of the combined fund for the first year of combined
operations. Further, to the extent that the Reorganization would result in
Shareholders becoming shareholders of a combined larger fund, further economies
of scale could be achieved since various fixed expenses (e.g., auditing and
legal) can be spread over a larger number of shares.

2. Shareholders would have continued participation in a fund that invests
principally in common stocks.

3. The Reorganization is intended to qualify as a tax-free reorganization
for federal income tax purposes, pursuant to which no gain or loss will be
recognized by Next Generation or its Shareholders for federal income tax
purposes as a result of transactions included in the Reorganization.

The Board of Trustees of Developing Growth, including a majority of the
Independent Trustees of Developing Growth, also has determined that the
Reorganization is in the best interests of Developing Growth and its
shareholders and that the interests of existing shareholders of Developing
Growth will not be diluted as a result thereof. The transaction will enable
Developing Growth to acquire investment securities which are consistent with
Developing Growth's investment objective, without the brokerage costs attendant
to the purchase of such securities in the market. Finally, the Board considered
that even if the benefits enumerated above are not realized, the costs to the
fund are sufficiently minor to warrant taking the opportunity to realize those
benefits.

THE REORGANIZATION AGREEMENT

The terms and conditions under which the Reorganization would be
consummated, as summarized below, are set forth in the Reorganization
Agreement. This summary is qualified in its entirety by reference to the
Reorganization Agreement, a copy of which is attached as Exhibit A to this
Proxy Statement and Prospectus.

The Reorganization Agreement provides that (i) Next Generation will
transfer all of its assets, including portfolio securities, cash (other than
cash amounts retained by Next Generation as a "Cash Reserve" in the amount
sufficient to discharge its liabilities not discharged prior to the Valuation
Date (as defined below) and for expenses of the dissolution), cash equivalents
and receivables to Developing Growth on the Closing Date in exchange for the
assumption by Developing Growth of stated liabilities of Next Generation,
including all expenses, costs, charges and reserves, as reflected on an
unaudited statement of assets and liabilities of Next Generation prepared by
the Treasurer of Next Generation as of the Valuation Date (as defined below) in
accordance with generally accepted accounting principles consistently applied
from the prior audited period, and the delivery of the Developing Growth
Shares; (ii) such Developing Growth Shares would be distributed to Shareholders
on the Closing Date or as soon as practicable thereafter; (iii) Next Generation
would be dissolved; and (iv) the outstanding shares of Next Generation would be
canceled.

The number of Developing Growth Shares to be delivered to Next Generation
will be determined by dividing the aggregate net asset value of each class of
shares of Next Generation acquired by Developing Growth by the net asset value
per share of the corresponding class of shares of Developing Growth; these
values will be calculated as of the close of business of the New York Stock
Exchange on the third business day following the receipt of the requisite
approval by Shareholders of the Reorganization Agreement or at such other time
as Next Generation and Developing Growth may agree (the "Valuation Date"). As
an illustration, assume that on the Valuation Date, Class B shares of Next
Generation had an aggregate net asset value (not including any Cash Reserve of
Next Generation) of $100,000. If the net asset value per Class B share of
Developing Growth were $10 per share at the close of business on the Valuation
Date, the number of Class B shares of Developing Growth to be issued would be
10,000 ($100,000 (divided by) $10). These 10,000 Class B shares of Developing
Growth would be distributed to the former Class B Shareholders of Next
Generation. This example is given for illustration purposes only and does not
bear any relationship to the dollar amounts or shares expected to be involved
in the Reorganization.

On the Closing Date or as soon as practicable thereafter, Next Generation
will distribute pro rata to its Shareholders of record as of the close of
business on the Valuation Date, the Developing Growth Shares it receives. Each
Shareholder will receive the class of shares of Developing Growth that
corresponds to the class

of shares of Next Generation currently held by that Shareholder. Accordingly,
the Developing Growth Shares will be distributed as follows: each of the Class
A, Class B, Class C and Class D shares of Developing Growth will be distributed
to holders of Class A, Class B, Class C and Class D shares of Next Generation,
respectively. Developing Growth will cause its transfer agent to credit and
confirm an appropriate number of Developing Growth Shares to each Shareholder.
Certificates for Developing Growth Shares will be issued only upon written
request of a Shareholder and only for whole shares, with fractional shares
credited to the name of the Shareholder on the books of Developing Growth.
Shareholders who wish to receive certificates representing their Developing
Growth Shares must, after receipt of their confirmations, make a written
request to Developing Growth's transfer agent, Morgan Stanley Trust, 1221
Avenue of the Americas, New York, New York 10020. Shareholders of Next
Generation holding their shares in certificate form will be asked to surrender
such certificates in connection with the Reorganization. Shareholders who do
not surrender their certificates prior to the Closing Date will still receive
their shares of Developing Growth; however, such Shareholders will not be able
to redeem, transfer or exchange the Developing Growth Shares received until the
old certificates have been surrendered.

The Closing Date will be on the Valuation Date or in no event later than
the next business day following the Valuation Date. The consummation of the
Reorganization is contingent upon the approval of the Reorganization by the
Shareholders and the receipt of the other opinions and certificates set forth
in Sections 6, 7 and 8 of the Reorganization Agreement and the occurrence of
the events described in those Sections, certain of which may be waived by Next
Generation or Developing Growth. The Reorganization Agreement may be amended in
any mutually agreeable manner.

The Reorganization Agreement may be terminated and the Reorganization
abandoned at any time, before or after approval by Shareholders or by mutual
consent of Next Generation and Developing Growth. In addition, either party may
terminate the Reorganization Agreement upon the occurrence of a material breach
of the Reorganization Agreement by the other party or if, by May 31, 2004, any
condition set forth in the Reorganization Agreement has not been fulfilled or
waived by the party entitled to its benefits.

Under the Reorganization Agreement, within one year after the Closing
Date, Next Generation shall: either pay or make provision for all of its
liabilities and distribute any remaining amount of the Cash Reserve (after
paying or making provision for such liabilities and the estimated cost of
making the distribution) to former Shareholders of Next Generation that
received Developing Growth Shares. Next Generation shall be dissolved and
deregistered as an investment company promptly following the distributions of
shares of Developing Growth to Shareholders of record of Next Generation.

The effect of the Reorganization is that Shareholders who vote their
shares in favor of the Reorganization Agreement are electing to sell their
shares of Next Generation (at net asset value on the Valuation Date calculated
after subtracting any Cash Reserve) and reinvest the proceeds in Developing
Growth Shares at net asset value and without recognition of taxable gain or
loss for Federal income tax purposes. See "Tax Aspects of the Reorganization"
below. As noted in "Tax Aspects of the Reorganization" below, if Next
Generation recognizes net gain from the sale of securities prior to the Closing
Date, such gain, to the extent not offset by capital loss carryforwards, will
be distributed to Shareholders prior to the Closing Date and will be taxable to
Shareholders as capital gain.

Shareholders will continue to be able to redeem their shares of Next
Generation at net asset value next determined after receipt of the redemption
request (subject to any applicable CDSC) until the close of business on the
business day next preceding the Closing Date. Redemption requests received by
Next Generation thereafter will be treated as requests for redemption of shares
of Developing Growth.

TAX ASPECTS OF THE REORGANIZATION

TAX CONSEQUENCES OF THE REORGANIZATION TO THE SHAREHOLDERS. The
Reorganization is intended to qualify for federal income tax purposes as a
tax-free reorganization under Section 368(a)(1)(C) of the Internal Revenue Code
of 1986, as amended (the "Code").

As a condition to the Reorganization, Next Generation and Developing
Growth will receive an opinion of Mayer, Brown, Rowe & Maw LLP to the effect
that, based on certain assumptions, facts, the terms of the Reorganization
Agreement and representations set forth in the Reorganization Agreement or
otherwise provided by Next Generation and Developing Growth (including a
representation to the effect that Developing Growth has no plan or intention to
sell or otherwise dispose of more than sixty-six percent of the assets of Next
Generation acquired in the Reorganization except for dispositions made in the
ordinary course of business):

1. The transfer of Next Generation's assets in exchange for the Developing
Growth Shares and the assumption by Developing Growth of certain stated
liabilities of Next Generation followed by the distribution by Next Generation
of the Developing Growth Shares to Shareholders in exchange for their Next
Generation shares pursuant to and in accordance with the terms of the
Reorganization Agreement will constitute a "reorganization" within the meaning
of Section 368(a)(1)(C) of the Code, and Next Generation and Developing Growth
will each be a "party to a reorganization" within the meaning of Section 368(b)
of the Code;

2. No gain or loss will be recognized by Developing Growth upon the
receipt of the assets of Next Generation solely in exchange for the Developing
Growth Shares and the assumption by Developing Growth of the stated liabilities
of Next Generation;

3. No gain or loss will be recognized by Next Generation upon the transfer
of the assets of Next Generation to Developing Growth in exchange for the
Developing Growth Shares and the assumption by Developing Growth of the stated
liabilities or upon the distribution of Developing Growth Shares to
Shareholders in exchange for their Next Generation shares;

4. No gain or loss will be recognized by Shareholders upon the exchange of
the shares of Next Generation for the Developing Growth Shares;

5. The aggregate tax basis for the Developing Growth Shares received by
each of the Shareholders pursuant to the Reorganization will be the same as the
aggregate tax basis of the shares in Next Generation held by each such
Shareholder immediately prior to the Reorganization;

6. The holding period of the Developing Growth Shares to be received by
each Shareholder will include the period during which the shares in Next
Generation surrendered in exchange therefor were held (provided such shares in
Next Generation were held as capital assets on the date of the Reorganization);

7. The tax basis of the assets of Next Generation acquired by Developing
Growth will be the same as the tax basis of such assets of Next Generation
immediately prior to the Reorganization; and

8. The holding period of the assets of Next Generation in the hands of
Developing Growth will include the period during which those assets were held
by Next Generation.

The advice of Counsel is not binding on the Internal Revenue Service or
the courts and neither Next Generation nor Developing Growth has sought a
ruling with respect to the tax treatment of the Reorganization.

SHAREHOLDERS SHOULD CONSULT THEIR TAX ADVISORS REGARDING THE EFFECT, IF
ANY, OF THE PROPOSED TRANSACTION IN LIGHT OF THEIR INDIVIDUAL CIRCUMSTANCES.
BECAUSE THE FOREGOING DISCUSSION ONLY RELATES TO THE FEDERAL INCOME TAX
CONSEQUENCES OF THE PROPOSED TRANSACTION, SHAREHOLDERS SHOULD ALSO CONSULT
THEIR TAX ADVISORS AS TO STATE AND LOCAL TAX CONSEQUENCES, IF ANY, OF THE
PROPOSED TRANSACTION.

TAX CONSEQUENCES OF THE REORGANIZATION TO NEXT GENERATION AND DEVELOPING
GROWTH. Under the Code, the Reorganization may result in limitations on the
utilization of the capital loss carryovers of Next Generation. The effect of
any such limitations will depend on the existence and amount of Next Generation
and Developing Growth capital loss carryovers, built-in capital losses and
built-in capital gains at the time of the Reorganization. A fund will have
built-in capital gains if the aggregate fair market value of its assets on the
date of the Reorganization exceeds its aggregate tax basis in such assets and a
fund will have built-in capital losses if its aggregate tax basis in its assets
exceeds the aggregate fair market value of such assets on the date of the
Reorganization.

As of July 31, 2002, Next Generation had capital loss carryovers of
approximately $23 million and it is estimated that as of July 31, 2003, Next
Generation had capital loss carryovers of approximately $26 million. As of
September 30, 2002, Developing Growth had capital loss carryovers of
approximately $222 million. Developing Growth's capital loss carryovers will be
available to offset any capital gains recognized on the disposition of (i)
assets acquired by the combined fund after the date of the Reorganization; (ii)
assets of Next Generation held by the combined fund, but only to the extent
such capital gains are attributable to an increase in the value of such assets
above fair market value of such assets on the date of the Reorganization; and
(iii) assets of Developing Growth held by the combined fund. However, the
combined fund will be unable to utilize Developing Growth's capital loss
carryovers to offset any capital gains recognized on the disposition of Next
Generation's assets acquired in the Reorganization to the extent such capital
gains are attributable to the built-in capital gains of such assets on the date
of the Reorganization. As of June 30, 2003, Next Generation had net unrealized
capital gains of approximately $3 million.

Additionally, subject to the limitation described in the succeeding
paragraph, Next Generation's capital loss carryovers will be available to
offset any capital gains recognized on the disposition of (i) assets acquired
by the combined fund after the date of the Reorganization; (ii) assets of
Developing Growth held by the combined fund, but only to the extent such
capital gains are attributable to an increase in the value of such assets above
fair market value of such assets on the date of the Reorganization; and (iii)
assets of Next Generation held by the combined fund. However, the combined fund
will be unable to utilize Next Generation's capital loss carryovers to offset
any capital gains recognized on the disposition of assets held by Developing
Growth as of the date of the Reorganization to the extent such capital gains
are attributable to the built-in capital gains of such assets on the date of
the Reorganization. As of June 30, 2003, Developing Growth had net unrealized
capital gains of approximately $41 million.

In addition, under the Code, there will be a limitation on the amount of
Next Generation's capital loss carryovers which can be used to offset capital
gains of the combined fund. While the actual amount of such limitation will be
determined at the time of the Reorganization, if, for example, the
Reorganization had occurred on June 27, 2003, each year approximately $900,000
of Next Generation's capital loss carryovers would have been able to be
utilized in any year by the combined fund. Thus, as a result of the
Reorganization, a significant portion of the capital loss carryforwards of Next
Generation will not be able to be utilized. However, the overall effect of this
limitation may be minimized by the fact that, other than as described above,
Developing Growth's $222 million capital loss carryforward may be utilized by
the combined fund.

DESCRIPTION OF SHARES

Developing Growth shares to be issued pursuant to the Reorganization
Agreement will, when issued, be fully paid and non-assessable by Developing
Growth and transferable without restrictions and will have no preemptive
rights. Class B shares of Developing Growth, like Class B shares of Next
Generation, have a conversion feature pursuant to which approximately ten (10)
years after the date of the original purchase of such shares, the shares will
convert automatically to Class A shares, based on the relative net asset values
of

the two classes with no additional sales charge. For greater details regarding
the conversion feature, including the method by which the 10 year period is
calculated and the treatment of reinvested dividends, see "Share Class
Arrangements" in each fund's Prospectus.

CAPITALIZATION TABLE (UNAUDITED)

The following table sets forth the capitalization of Developing Growth and
Next Generation as of June 30, 2003 and on a pro forma combined basis as if the
Reorganization had occurred on that date:

NET ASSET
SHARES VALUE
NET ASSETS OUTSTANDING PER SHARE
------------ ------------- ----------

CLASS A
- -------------------------------------------------------
Next Generation ....................................... $ 1,400,378 225,866 $ 6.20
Developing Growth ..................................... $ 21,714,589 1,411,703 $15.38
Combined Fund (Developing Growth) (pro forma) ......... $ 23,114,967 1,502,755 $15.38

CLASS B
- -------------------------------------------------------
Next Generation ....................................... $ 15,753,349 2,608,616 $ 6.04
Developing Growth ..................................... $282,253,074 19,494,583 $14.48
Combined Fund (Developing Growth) (pro forma) ......... $298,006,423 20,582,521 $14.48

CLASS C
- -------------------------------------------------------
Next Generation ....................................... $ 2,316,132 383,551 $ 6.04
Developing Growth ..................................... $ 6,258,978 431,183 $14.52
Combined Fund (Developing Growth) (pro forma) ......... $ 8,575,110 590,696 $14.52

CLASS D
- -------------------------------------------------------
Next Generation ....................................... $ 820,214 131,336 $ 6.25
Developing Growth ..................................... $ 93,033,016 5,945,474 $15.65
Combined Fund (pro forma) ............................. $ 93,853,230 5,997,884 $15.65

TOTAL CLASS A, B, C, D
- -------------------------------------------------------
Next Generation ....................................... $ 20,290,073 - - --
Developing Growth ..................................... $403,259,657 -- --
Combined Fund (Developing Growth) (pro forma) ......... $423,549,730 -- --

APPRAISAL RIGHTS

Shareholders will have no appraisal rights in connection with the
Reorganization.

COMPARISON OF INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS

INVESTMENT OBJECTIVES AND POLICIES

Next Generation's investment objective is to seek long-term growth of
capital. Similarly, Developing Growth's investment objective is to seek
long-term capital growth.

may be used by, or appeal to, children, teenagers and/or young adults. These
products and services may include such areas as clothing, toys, computer
technology and software, consumer electronics, Internet, telecommunications,
entertainment, personal care, sports, publishing and education. The fund's
Investment Manager invests in companies which it believes have growth
potential. The fund's portfolio will be diversified among many different
companies in a variety of industry groups. In deciding which securities to buy,
hold or sell, the fund's portfolio managers emphasize individual security
selection. Individual companies are chosen based on such factors as potential
growth in earnings, quality of management and business prospects.

Up to 35% of the fund's net assets may be invested in foreign securities,
including emerging market securities. This percentage limitation, however, does
not apply to securities of foreign companies, including depositary receipts,
that are listed in the U.S. on a national securities exchange.

The remaining 35% of the fund's assets may be invested in fixed-income
securities (as discussed under "Principal Risk Factors" above).

Developing Growth seeks to achieve its investment objective by normally
investing at least 65% of its assets in common stocks (including depositary
receipts) and other equity securities. In deciding which of these securities to
buy, hold or sell, the fund's Investment Manager analyzes a company's potential
to grow much more rapidly than the economy. The fund's other equity securities
may include convertible securities and preferred stocks. The fund will invest
primarily in smaller and medium-sized companies. The Investment Manager focuses
its securities selection upon a diversified group of emerging growth companies
that it believes have prospects of achieving significant profit gains. The fund
may also invest in securities issued in IPOs.

The fund may invest up to 10% of its net assets in foreign securities.
This percentage limitation, however, does not apply to securities of foreign
companies that are listed in the United States on a national securities
exchange.

The remaining 35% of the fund's assets may be invested in fixed-income
securities issued or guaranteed by the United States government, its agencies
or instrumentalities and investment grade debt securities (as discussed under
"Principal Risk Factors" above).

During periods in which, in the opinion of each fund's Investment Manager,
market conditions warrant a reduction of some or all of the respective funds'
securities holdings, the funds may take temporary "defensive" positions that
are inconsistent with each fund's principal investment strategies in which the
funds may invest any amount of their total assets in cash or money market
instruments.

Each of the funds may engage in active and frequent trading of portfolio
securities. The Financial Highlights Table at the end of each fund's Prospectus
shows each fund's portfolio turnover during recent fiscal years. A portfolio
turnover of 200%, for example, is equivalent to the fund buying and selling all
of its securities two times during the course of the year. A high portfolio
turnover rate (over 100%) could result in high brokerage costs and an increase
in taxable capital gains distributions to the fund's shareholders.

The investment policies of both Next Generation and Developing Growth are
not fundamental and may be changed by their respective Boards. The foregoing
discussion is a summary of the principal differences and similarities between
the investment policies of the funds. For a more complete discussion of each
fund's policies, see "Principal Investment Strategies" and "Additional
Investment Strategy Information" in each fund's Prospectus and "Description of
the Fund and Its Investments and Risks" in each fund's Statement of Additional
Information.

INVESTMENT RESTRICTIONS

The investment restrictions adopted by Next Generation and Developing
Growth as fundamental policies are substantially similar and are summarized
under the caption "Description of the Fund and Its Investments

and Risks -- Fund Policies/Investment Restrictions" in their respective
Statements of Additional Information. A fundamental investment restriction
cannot be changed without the vote of the majority of the outstanding voting
securities of a fund, as defined in the 1940 Act. The material differences are
as follows: (a) Developing Growth may not (i) invest more than 5% of the value
of its total assets in the securities of any one issuer (other than obligations
issued, or guaranteed, by the United States government, its agencies or
instrumentalities), and (ii) purchase more than 10% of all outstanding voting
securities or any class of securities of any one issuer. Next Generation may
not do so as to 75% of its total assets; (b) Developing Growth and Next
Generation may not purchase or sell commodity or commodity futures contracts,
except that Next Generation may purchase or sell futures contracts or options
thereon; (c) Developing Growth may not (i) purchase securities of other
investment companies, except in connection with a merger, consolidation,
reorganization or acquisition of assets; (ii) invest more than 5% of the value
of its total assets in securities of issuers having a record, together with
predecessors, of less than 3 years of continuous operation. This restriction
shall not apply to any obligation of the U.S. Government, its agencies or
instrumentalities; (iii) invest in securities of any issuer if, to the
knowledge of the fund, any officer or trustee of the fund or of the Investment
Manager owns more than 1/2 of 1% of the outstanding securities of the issuer,
and the officers and trustees who own more than 1/2 of 1% own in the aggregate
more than 5% of the outstanding securities of the issuer; (iv) purchase oil,
gas or other mineral leases, rights or royalty contracts or exploration or
development programs, except that the fund may invest in the securities of
companies which operate, invest in, or sponsor these programs; (v) write,
purchase or sell puts, calls or combinations thereof; (vi) invest more than 5%
of its total assets in warrants, including not more than 2% of such assets in
warrants not listed on either the New York or American Stock Exchange. The
acquisition of warrants attached to other securities is not subject to this
restriction; (vii) pledge its assets or assign or otherwise encumber them
except to secure permitted borrowings. To meet the requirements of regulations
in certain states, the fund as a matter of operating policy but not as a matter
of fundamental policy, will limit any pledge of its assets to 5% of its net
assets so long as shares of the fund are being sold in those states; (viii)
make short sales of securities; and (ix) purchase securities on margin, expect
for short-term loans as are necessary for the clearance of portfolio
securities. Furthermore, as a non-fundamental policy, Next Generation may not
invest in other investment companies in reliance on Section 12(d)(1)(F),
12(d)(1)(G) or 12(d)(1)(J) of the 1940 Act.

ADDITIONAL INFORMATION ABOUT NEXT GENERATION
AND DEVELOPING GROWTH

GENERAL

For a discussion of the organization and operation of Developing Growth
and Next Generation, see "Fund Management," "Investment Objective" and
"Principal Investment Strategies" in their respective Prospectuses, and "Fund
History" in their respective Statements of Additional Information.

FINANCIAL INFORMATION

For certain financial information about Developing Growth and Next
Generation, see "Financial Highlights" and "Past Performance" in their
respective Prospectuses.

MANAGEMENT

For information about the respective Board of Trustees, Investment Manager
and the Distributor of Developing Growth and Next Generation, see "Fund
Management" in their respective Prospectuses and "Management of the Fund" in
their respective Statements of Additional Information.

DESCRIPTION OF SECURITIES AND SHAREHOLDER INQUIRIES

For a description of the nature and most significant attributes of shares
of Next Generation and Developing Growth, and information regarding shareholder
inquiries, see "Capital Stock and Other Securities" in their respective
Statements of Additional Information.

DIVIDENDS, DISTRIBUTIONS AND TAXES

For a discussion of Developing Growth's and Next Generation's policies
with respect to dividends, distributions and taxes, see "Distributions" and
"Tax Consequences" in their respective Prospectuses as well as the discussion
herein under "Synopsis -- Purchases, Exchanges and Redemptions."

PURCHASES, REPURCHASES AND REDEMPTIONS

For a discussion of how Developing Growth's and Next Generation's shares
may be purchased, repurchased and redeemed, see "How to Buy Shares," "How to
Exchange Shares" and "How to Sell Shares" in their respective Prospectuses.

MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE

For a discussion of Developing Growth's performance, see management's
letter to shareholders in its Annual Report for its fiscal year ended September
30, 2002 and its succeeding Semi-Annual Report for the six-months ended March
31, 2003 accompanying this Proxy Statement and Prospectus. For a discussion of
the performance of Next Generation, see its Annual Report for its fiscal year
ended July 31, 2003.

FINANCIAL STATEMENTS AND EXPERTS

The financial statements of Developing Growth, for the fiscal year ended
September 30, 2002, and Next Generation, for the fiscal year ended July 31,
2003, that are incorporated by reference in the Statement of Additional
Information relating to the Registration Statement on Form N-14 of which this
Proxy Statement and Prospectus forms a part, have been audited by Deloitte &
Touche LLP, independent auditors. The financial statements have been
incorporated by reference in reliance upon such reports given upon the
authority of said firm as experts in accounting and auditing.

LEGAL MATTERS

Certain legal matters concerning the issuance of shares of Developing
Growth will be passed upon by Mayer, Brown, Rowe & Maw LLP, New York, New York.
Such firm will rely on Massachusetts counsel as to matters of Massachusetts
law.

AVAILABLE INFORMATION

Additional information about Next Generation and Developing Growth is
available, as applicable, in the following documents which are incorporated
herein by reference: (i) Developing Growth's Prospectus dated November 29, 2002
attached to this Proxy Statement and Prospectus as Exhibit B, which Prospectus
forms a part of Post-Effective Amendment No. 22 to Developing Growth's
Registration Statement on Form N-1A (File Nos. 2-81151; 811-3639); (ii)
Developing Growth's Annual Report for its fiscal year ended September 30, 2002,
accompanying this Proxy Statement and Prospectus; (iii) Developing Growth's
succeeding Semi-Annual Report for the six months ended March 31, 2003; (iv)
Next Generation's Prospectus dated September 30, 2002

which Prospectus forms a part of Post-Effective Amendment No. 3 to Next
Generation's Registration Statement on Form N-1A (File Nos. 333-82729;
811-9441); and (v) Next Generation's Annual Report for its fiscal year ended
July 31, 2003. The foregoing documents may be obtained without charge by
calling (800) 869-NEWS (toll-free).

Next Generation and Developing Growth are subject to the informational
requirements of the Securities Exchange Act of 1934, as amended, and in
accordance therewith, file reports and other information with the Commission.
Proxy material, reports and other information about Next Generation and
Developing Growth which are of public record can be viewed and copied at the
Commission's Public Reference Room in Washington, D.C. Information about the
Reference Room's operations may be obtained by calling the Commission at (202)
942-8090. Reports and other information about each fund are available on the
EDGAR Database on the Commission's Internet site (www.sec.gov) and copies of
this information may be obtained, after paying a duplicating fee, by electronic
request at the following E-mail address: publicinfo@sec.gov, or by writing the
Public Reference Section of the Commission, Washington, D.C. 20549-0102.

OTHER BUSINESS

Management of Next Generation knows of no business other than the matters
specified above which will be presented at the Meeting. Since matters not known
at the time of the solicitation may come before the Meeting, the proxy as
solicited confers discretionary authority with respect to such matters as
properly come before the Meeting, including any adjournment or adjournments
thereof, and it is the intention of the persons named as attorneys-in-fact in
the proxy to vote this proxy in accordance with their judgment on such matters.

By Order of the Board of Trustees

Barry Fink,
Secretary

, 2003

EXHIBIT A

AGREEMENT AND PLAN OF REORGANIZATION

THIS AGREEMENT AND PLAN OF REORGANIZATION ("Agreement") is made as of this
31st day of July, 2003, by and between MORGAN STANLEY DEVELOPING GROWTH
SECURITIES TRUST, a Massachusetts business trust ("Developing Growth") and
MORGAN STANLEY NEXT GENERATION TRUST, a Massachusetts business trust ("Next
Generation").

This Agreement is intended to be and is adopted as a "plan of
reorganization" within the meaning of Treas. Reg. 1.368-2(g), for a
reorganization under Section 368(a)(1) of the Internal Revenue Code of 1986, as
amended (the "Code"). The reorganization ("Reorganization") will consist of the
transfer to Developing Growth of substantially all of the assets of Next
Generation in exchange for the assumption by Developing Growth of all stated
liabilities of Next Generation and the issuance by Developing Growth of shares
of beneficial interest, par value $0.01 per share (the "Developing Growth
Shares"), to be distributed, after the Closing Date hereinafter referred to, to
the shareholders of Next Generation in liquidation of Next Generation as
provided herein, all upon the terms and conditions hereinafter set forth in
this Agreement.

In consideration of the premises and of the covenants and agreements
hereinafter set forth, the parties hereto covenant and agree as follows:

1. THE REORGANIZATION AND LIQUIDATION OF NEW DISCOVERIES

1.1 Subject to the terms and conditions herein set forth and on the basis
of the representations and warranties contained herein, Next Generation agrees
to assign, deliver and otherwise transfer the Next Generation Assets (as
defined in paragraph 1.2) to Developing Growth and Developing Growth agrees in
exchange therefor to assume all of Next Generation's stated liabilities on the
Closing Date as set forth in paragraph 1.3(a) and to deliver to Next Generation
the number of Developing Growth Shares, including fractional Developing Growth
Shares, determined in the manner set forth in paragraph 2.3. Such transactions
shall take place at the closing provided for in paragraph 3.1 ("Closing").

1.2 (a) The "Next Generation Assets" shall consist of all property,
including without limitation, all cash (other than the "Cash Reserve" (as
defined in paragraph 1.3(b)), cash equivalents, securities and dividend and
interest receivables owned by Next Generation, and any deferred or prepaid
expenses shown as an asset on Next Generation's books on the Valuation Date.

(b) On or prior to the Valuation Date, Next Generation will provide
Developing Growth with a list of all of Next Generation's assets to be
assigned, delivered and otherwise transferred to Developing Growth and a list
of the stated liabilities to be assumed by Developing Growth pursuant to this
Agreement. Next Generation reserves the right to sell any of the securities on
such list but will not, without the prior approval of Developing Growth,
acquire any additional securities other than securities of the type in which
Developing Growth is permitted to invest and in amounts agreed to in writing by
Developing Growth. Developing Growth will, within a reasonable time prior to
the Valuation Date, furnish Next Generation with a statement of Developing
Growth's investment objectives, policies and restrictions and a list of the
securities, if any, on the list referred to in the first sentence of this
paragraph that do not conform to Developing Growth's investment objective,
policies and restrictions. In the event that Next Generation holds any
investments that Developing Growth is not permitted to hold, Next Generation
will dispose of such securities on or prior to the Valuation Date. In addition,
if it is determined that the portfolios of Next Generation and Developing
Growth, when aggregated, would contain investments exceeding certain percentage
limitations imposed upon Developing Growth with respect to such investments,
Next Generation if requested by Developing Growth will, on or prior

A-1

to the Valuation Date, dispose of and/or reinvest a sufficient amount of such
investments as may be necessary to avoid violating such limitations as of the
Closing Date (as defined in paragraph 3.1).

1.3 (a) Next Generation will endeavor to discharge all of its liabilities
and obligations on or prior to the Valuation Date. Developing Growth will
assume all stated liabilities, which includes, without limitation, all
expenses, costs, charges and reserves reflected on an unaudited Statement of
Assets and Liabilities of Next Generation prepared by the Treasurer of Next
Generation as of the Valuation Date in accordance with generally accepted
accounting principles consistently applied from the prior audited period.

(b) On the Valuation Date, Next Generation may establish a cash reserve,
which shall not exceed 5% of Next Generation's net assets as of the close of
business on the Valuation Date ("Cash Reserve") to be retained by Next
Generation and used for the payment of its liabilities not discharged prior to
the Valuation Date and for the expenses of dissolution.

1.4 In order for Next Generation to comply with Section 852(a)(1) of the
Code and to avoid having any investment company taxable income or net capital
gain (as defined in Sections 852(b)(2) and 1222(11) of the Code, respectively)
in the short taxable year ending with its dissolution, Next Generation will on
or before the Valuation Date (a) declare a dividend in an amount large enough
so that it will have declared dividends of all of its investment company
taxable income and net capital gain, if any, for such taxable year (determined
without regard to any deduction for dividends paid) and (b) distribute such
dividend.

1.5 On the Closing Date or as soon as practicable thereafter, Next
Generation will distribute Developing Growth Shares received by Next Generation
pursuant to paragraph 1.1 pro rata to its shareholders of record determined as
of the close of business on the Valuation Date ("Next Generation
Shareholders"). Each Next Generation Shareholder will receive the class of
shares of Developing Growth that corresponds to the class of shares of Next
Generation currently held by that Next Generation Shareholder. Accordingly, the
Developing Growth Shares will be distributed as follows: each of the Class A,
Class B, Class C and Class D shares of Developing Growth will be distributed to
holders of Class A, Class B, Class C and Class D shares of Next Generation,
respectively. Such distribution will be accomplished by an instruction, signed
by Next Generation's Secretary, to transfer Developing Growth Shares then
credited to Next Generation's account on the books of Developing Growth to open
accounts on the books of Developing Growth in the names of the Next Generation
Shareholders and representing the respective pro rata number of Developing
Growth Shares due such Next Generation Shareholders. All issued and outstanding
shares of Next Generation simultaneously will be canceled on Next Generation's
books; however, share certificates representing interests in Next Generation
will represent a number of Developing Growth Shares after the Closing Date as
determined in accordance with paragraph 2.3. Developing Growth will issue
certificates representing Developing Growth Shares in connection with such
exchange only upon the written request of a Next Generation Shareholder.

1.6 Ownership of Developing Growth Shares will be shown on the books of
Developing Growth's transfer agent. Developing Growth Shares will be issued in
the manner described in Developing Growth's current Prospectus and Statement of
Additional Information.

1.7 Any transfer taxes payable upon issuance of Developing Growth Shares
in a name other than the registered holder of Developing Growth Shares on Next
Generation's books as of the close of business on the Valuation Date shall, as
a condition of such issuance and transfer, be paid by the person to whom
Developing Growth Shares are to be issued and transferred.

1.8 Any reporting responsibility of Next Generation is and shall remain
the responsibility of Next Generation up to and including the date on which
Next Generation is dissolved and deregistered pursuant to paragraph 1.9.

A-2

1.9 Within one year after the Closing Date, Next Generation shall pay or
make provision for the payment of all its liabilities and taxes, and distribute
to the shareholders of Next Generation as of the close of business on the
Valuation Date any remaining amount of the Cash Reserve (as reduced by the
estimated cost of distributing it to shareholders). If and to the extent that
any trust, escrow account, or other similar entity continues after the close of
such one-year period in connection either with making provision for payment of
liabilities or taxes or with distributions to shareholders of Next Generation,
such entity shall either (i) qualify as a liquidating trust under Section 7701
of the Code (and applicable Treasury Regulations thereunder) or other entity
which does not constitute a continuation of Next Generation for federal income
tax purposes, or (ii) be subject to a waiver under Section 368(a)(2)(G)(ii) of
the complete distribution requirement of Section 368(a)(2)(G)(i) of the Code.
Next Generation shall be dissolved as a Massachusetts business trust and
deregistered as an investment company under the Investment Company Act of 1940,
as amended ("1940 Act"), promptly following the making of all distributions
pursuant to paragraph 1.5 (and, in any event, within one year after the Closing
Date).

1.10 Copies of all books and records maintained on behalf of Next
Generation in connection with its obligations under the 1940 Act, the Code,
state blue sky laws or otherwise in connection with this Agreement will
promptly after the Closing be delivered to officers of Developing Growth or
their designee and Developing Growth or its designee shall comply with
applicable record retention requirements to which Next Generation is subject
under the 1940 Act.

2. VALUATION

2.1 The value of the Next Generation Assets shall be the value of such
assets computed as of 4:00 p.m. on the New York Stock Exchange on the third
business day following the receipt of the requisite approval by shareholders of
Next Generation of this Agreement or at such time on such earlier or later date
after such approval as may be mutually agreed upon in writing (such time and
date being hereinafter called the "Valuation Date"), using the valuation
procedures set forth in Developing Growth's then current Prospectus and
Statement of Additional Information.

2.2 The net asset value of a Developing Growth Share shall be the net
asset value per share computed on the Valuation Date, using the valuation
procedures set forth in Developing Growth's then current Prospectus and
Statement of Additional Information.

2.3 The number of Developing Growth Shares (including fractional shares,
if any) to be issued hereunder shall be determined, with respect to each class,
by dividing the aggregate net asset value of each class of Next Generation
shares (determined in accordance with paragraph 2.1) by the net asset value per
share of the corresponding class of shares of Developing Growth (determined in
accordance with paragraph 2.2). For purposes of this paragraph, the aggregate
net asset value of each class of shares of Next Generation shall not include
the amount of the Cash Reserve.

2.4 All computations of value shall be made by Morgan Stanley Services
Company Inc. ("Morgan Stanley Services") in accordance with its regular
practice in pricing Developing Growth. Developing Growth shall cause Morgan
Stanley Services to deliver a copy of its valuation report at the Closing.

3. CLOSING AND CLOSING DATE

3.1 The Closing shall take place on the Valuation Date or in no event
later than the next business day following the Valuation Date (the "Closing
Date"). The Closing shall be held as of 9:00 a.m. Eastern time, or at such
other time as the parties may agree. The Closing shall be held in a location
mutually agreeable to the parties hereto. All acts taking place at the Closing
shall be deemed to take place simultaneously as of 9:00 a.m. Eastern time on
the Closing Date unless otherwise provided.

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3.2 Portfolio securities held by Next Generation and represented by a
certificate or other written instrument shall be presented by it or on its
behalf to The Bank of New York (the "Custodian"), as custodian for Developing
Growth, for examination no later than five business days preceding the
Valuation Date. Such portfolio securities (together with any cash or other
assets) shall be delivered by Next Generation to the Custodian for the account
of Developing Growth on or before the Closing Date in conformity with
applicable custody provisions under the 1940 Act and duly endorsed in proper
form for transfer in such condition as to constitute good delivery thereof in
accordance with the custom of brokers. The portfolio securities shall be
accompanied by all necessary federal and state stock transfer stamps or a check
for the appropriate purchase price of such stamps. Portfolio securities and
instruments deposited with a securities depository (as defined in Rule 17f-4
under the 1940 Act) shall be delivered on or before the Closing Date by
book-entry in accordance with customary practices of such depository and the
Custodian. The cash delivered shall be in the form of a Federal Funds wire,
payable to the order of "The Bank of New York, Custodian for Morgan Stanley
Developing Growth Securities Trust."

3.3 In the event that on the Valuation Date, (a) the New York Stock
Exchange shall be closed to trading or trading thereon shall be restricted or
(b) trading or the reporting of trading on such Exchange or elsewhere shall be
disrupted so that, in the judgment of both Developing Growth and Next
Generation, accurate appraisal of the value of the net assets of Developing
Growth or the Next Generation Assets is impracticable, the Valuation Date shall
be postponed until the first business day after the day when trading shall have
been fully resumed without restriction or disruption and reporting shall have
been restored.

3.4 If requested, Next Generation shall deliver to Developing Growth or
its designee (a) at the Closing, a list, certified by its Secretary, of the
names, addresses and taxpayer identification numbers of the Next Generation
Shareholders and the number and percentage ownership of outstanding Next
Generation shares owned by each such Next Generation Shareholder, all as of the
Valuation Date, and (b) as soon as practicable after the Closing, all original
documentation (including Internal Revenue Service forms, certificates,
certifications and correspondence) relating to the Next Generation
Shareholders' taxpayer identification numbers and their liability for or
exemption from back-up withholding. Developing Growth shall issue and deliver
to such Secretary a confirmation evidencing delivery of Developing Growth
Shares to be credited on the Closing Date to Next Generation or provide
evidence satisfactory to Next Generation that such Developing Growth Shares
have been credited to Next Generation's account on the books of Developing
Growth. At the Closing, each party shall deliver to the other such bills of
sale, checks, assignments, share certificates, if any, receipts or other
documents as such other party or its counsel may reasonably request.

4. COVENANTS OF DEVELOPING GROWTH AND NEXT GENERATION

4.1 Except as otherwise expressly provided herein with respect to Next
Generation, Developing Growth and Next Generation each will operate its
business in the ordinary course between the date hereof and the Closing Date,
it being understood that such ordinary course of business will include
customary dividends and other distributions.

4.2 Developing Growth will prepare and file with the Securities and
Exchange Commission ("Commission") a registration statement on Form N-14 under
the Securities Act of 1933, as amended ("1933 Act"), relating to Developing
Growth Shares ("Registration Statement"). Next Generation will provide
Developing Growth with the Proxy Materials as described in paragraph 4.3 below,
for inclusion in the Registration Statement. Next Generation will further
provide Developing Growth with such other information and documents relating to
Next Generation as are reasonably necessary for the preparation of the
Registration Statement.

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4.3 Next Generation will call a meeting of its shareholders to consider
and act upon this Agreement and to take all other action necessary to obtain
approval of the transactions contemplated herein. Next Generation will prepare
the notice of meeting, form of proxy and proxy statement (collectively, "Proxy
Materials") to be used in connection with such meeting; provided that
Developing Growth will furnish Next Generation with its currently effective
prospectus for inclusion in the Proxy Materials and with such other information
relating to Developing Growth as is reasonably necessary for the preparation of
the Proxy Materials.

4.4 Next Generation will assist Developing Growth in obtaining such
information as Developing Growth reasonably requests concerning the beneficial
ownership of Next Generation shares.

4.5 Subject to the provisions of this Agreement, Developing Growth and
Next Generation will each take, or cause to be taken, all action, and do or
cause to be done, all things reasonably necessary, proper or advisable to
consummate and make effective the transactions contemplated by this Agreement.

4.6 Next Generation shall furnish or cause to be furnished to Developing
Growth within 30 days after the Closing Date a statement of Next Generation's
assets and liabilities as of the Closing Date, which statement shall be
certified by Next Generation's Treasurer and shall be in accordance with
generally accepted accounting principles consistently applied. As promptly as
practicable, but in any case within 60 days after the Closing Date, Next
Generation shall furnish Developing Growth, in such form as is reasonably
satisfactory to Developing Growth, a statement certified by Next Generation's
Treasurer of Next Generation's earnings and profits for federal income tax
purposes that will be carried over to Developing Growth pursuant to Section 381
of the Code.

4.7 As soon after the Closing Date as is reasonably practicable, Next
Generation (a) shall prepare and file all federal and other tax returns and
reports of Next Generation required by law to be filed with respect to all
periods ending on or before the Closing Date but not theretofore filed and (b)
shall pay all federal and other taxes shown as due thereon and/or all federal
and other taxes that were unpaid as of the Closing Date, including without
limitation, all taxes for which the provision for payment was made as of the
Closing Date (as represented in paragraph 5.2(k)).

4.8 Developing Growth agrees to use all reasonable efforts to obtain the
approvals and authorizations required by the 1933 Act and the 1940 Act and to
make such filings required by the state Blue Sky and securities laws as it may
deem appropriate in order to continue its operations after the Closing Date.

5. REPRESENTATIONS AND WARRANTIES

5.1 Developing Growth represents and warrants to Next Generation as
follows:

(a) Developing Growth is a validly existing Massachusetts business trust
with full power to carry on its business as presently conducted;

(b) Developing Growth is a duly registered, open-end, management
investment company, and its registration with the Commission as an
investment company under the 1940 Act and the registration of its shares
under the 1933 Act are in full force and effect;

(c) All of the issued and outstanding shares of Developing Growth have
been offered and sold in compliance in all material respects with
applicable registration requirements of the 1933 Act and state securities
laws. Shares of Developing Growth are registered in all jurisdictions in
which they are required to be registered under state securities laws and
other laws, and said registrations, including any periodic reports or
supplemental filings, are complete and current, all fees required to be
paid have been paid, and Developing Growth is not subject to any stop order
and is fully qualified to sell its shares in each state in which its shares
have been registered;

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(d) The current Prospectus and Statement of Additional Information of
Developing Growth conform in all material respects to the applicable
requirements of the 1933 Act and the 1940 Act and the regulations
thereunder and do not include any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which
they were made, not misleading;

(e) Developing Growth is not in, and the execution, delivery and
performance of this Agreement will not result in a, material violation of
any provision of Developing Growth's Declaration of Trust or By-Laws or of
any agreement, indenture, instrument, contract, lease or other undertaking
to which Developing Growth is a party or by which it is bound;

(f) No litigation or administrative proceeding or investigation of or
before any court or governmental body is presently pending or, to its
knowledge, threatened against Developing Growth or any of its properties or
assets which, if adversely determined, would materially and adversely
affect its financial condition or the conduct of its business; and
Developing Growth knows of no facts that might form the basis for the
institution of such proceedings and is not a party to or subject to the
provisions of any order, decree or judgment of any court or governmental
body which materially and adversely affects, or is reasonably likely to
materially and adversely effect, its business or its ability to consummate
the transactions herein contemplated;

(g) The Statement of Assets and Liabilities, Statement of Operations,
Statement of Changes in Net Assets and Financial Highlights for the year
ended September 30, 2002, of Developing Growth audited by Deloitte & Touche
LLP (copies of which have been furnished to Next Generation), fairly
present, in all material respects, Developing Growth's financial condition
as of such date in accordance with generally accepted accounting
principles, and its results of such operations, changes in its net assets
and financial highlights for such period, and as of such date there were no
known liabilities of Developing Growth (contingent or otherwise) not
disclosed therein that would be required in accordance with generally
accepted accounting principles to be disclosed therein;

(h) All issued and outstanding Developing Growth Shares are, and at the
Closing Date will be, duly and validly issued and outstanding, fully paid
and nonassessable with no personal liability attaching to the ownership
thereof, except as set forth under the caption "Capital Stock and Other
Securities" in Developing Growth's current Statement of Additional
Information incorporated by reference in the Registration Statement.
Developing Growth does not have outstanding any options, warrants or other
rights to subscribe for or purchase any of its shares;

(i) The execution, delivery and performance of this Agreement have been
duly authorized by all necessary action on the part of Developing Growth,
and this Agreement constitutes a valid and binding obligation of Developing
Growth enforceable in accordance with its terms, subject as to enforcement,
to bankruptcy, insolvency, reorganization, moratorium and other laws
relating to or affecting creditors rights and to general equity principles.
No other consents, authorizations or approvals are necessary in connection
with Developing Growth's performance of this Agreement;

(j) Developing Growth Shares to be issued and delivered to Next
Generation, for the account of the Next Generation Shareholders, pursuant
to the terms of this Agreement will at the Closing Date have been duly
authorized and, when so issued and delivered, will be duly and validly
issued Developing Growth Shares, and will be fully paid and non-assessable
with no personal liability attaching to the ownership thereof, except as
set forth under the caption "Capital Stock and Other Securities" in
Developing Growth's current Statement of Additional Information
incorporated by reference in the Statement of Additional Information to
this Registration Statement;

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(k) All material federal and other tax returns and reports of Developing
Growth required by law to be filed on or before the Closing Date have been
filed and are correct, and all federal and other taxes shown as due or
required to be shown as due on said returns and reports have been paid or
provision has been made for the payment thereof, and to the best of
Developing Growth's knowledge, no such return is currently under audit and
no assessment has been asserted with respect to any such return;

(l) For each taxable year since its inception, Developing Growth has met
the requirements of Subchapter M of the Code for qualification and
treatment as a "regulated investment company" and neither the execution or
delivery of nor the performance of its obligations under this Agreement
will adversely affect, and no other events are foreseen, or are reasonably
likely to occur which will adversely affect the ability of Developing
Growth to continue to meet the requirements of Subchapter M of the Code;

(m) Since September 30, 2002 there has been no change by Developing
Growth in accounting methods, principles, or practices, including those
required by generally accepted accounting principles;

(n) The information furnished or to be furnished by Developing Growth for
use in registration statements, proxy materials and other documents which
may be necessary in connection with the transactions contemplated hereby
shall be accurate and complete in all material respects and shall comply in
all material respects with federal securities and other laws and
regulations applicable thereto; and

(o) The Proxy Materials to be included in the Registration Statement
(only insofar as they relate to Developing Growth) will, on the effective
date of the Registration Statement and on the Closing Date, not contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which such statements were made, not
materially misleading.

5.2 Next Generation represents and warrants to Developing Growth as
follows:

(a) Next Generation is a validly existing Massachusetts business trust
with full power to carry on its business as presently conducted;

(b) Next Generation is a duly registered, open-end, management investment
company, and its registration with the Commission as an investment company
under the 1940 Act and the registration of its shares under the 1933 Act
are in full force and effect;

(c) All of the issued and outstanding shares of beneficial interest of
Next Generation have been offered and sold in compliance in all material
respects with applicable requirements of the 1933 Act and state securities
laws. Shares of Next Generation are registered in all jurisdictions in
which they are required to be registered and said registrations, including
any periodic reports or supplemental filings, are complete and current, all
fees required to be paid have been paid, and Next Generation is not subject
to any stop order and is fully qualified to sell its shares in each state
in which its shares have been registered;

(d) The current Prospectus and Statement of Additional Information of
Next Generation conform in all material respects to the applicable
requirements of the 1933 Act and the 1940 Act and the regulations
thereunder and do not include any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which
they were made, not misleading;

(e) Next Generation is not, and the execution, delivery and performance
of this Agreement will not result, in a material violation of any provision
of Next Generation's Declaration of Trust or By-Laws or of any agreement,
indenture, instrument, contract, lease or other undertaking to which Next
Generation is a party or by which it is bound;

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(f) No litigation or administrative proceeding or investigation of or
before any court or governmental body is presently pending or, to its
knowledge, threatened against Next Generation or any of its properties or
assets which, if adversely determined, would materially and adversely
affect its financial condition or the conduct of its business; and Next
Generation knows of no facts that might form the basis for the institution
of such proceedings and is not a party to or subject to the provisions of
any order, decree or judgment of any court or governmental body which
materially and adversely affects, or is reasonably likely to materially and
adversely effect, its business or its ability to consummate the
transactions herein contemplated;

(g) The Statement of Assets and Liabilities, Statement of Operations,
Statement of Changes in Net Assets and Financial Highlights of Next
Generation for the year ended July 31, 2003, audited by Deloitte & Touche
LLP (copies of which have been or will be furnished to Developing Growth)
fairly present, in all material respects, Next Generation's financial
condition as of such date, and its results of operations, changes in its
net assets and financial highlights for such period in accordance with
generally accepted accounting principles, and as of such date there were no
known liabilities of Next Generation (contingent or otherwise) not
disclosed therein that would be required in accordance with generally
accepted accounting principles to be disclosed therein;

(h) Next Generation has no material contracts or other commitments (other
than this Agreement) that will be terminated with liability to it prior to
the Closing Date;

(i) All issued and outstanding shares of Next Generation are, and at the
Closing Date will be, duly and validly issued and outstanding, fully paid
and nonassessable with no personal liability attaching to the ownership
thereof, except as set forth under the caption "Capital Stock and Other
Securities" in Next Generation's current Statement of Additional
Information incorporated by reference in the Statement of Additional
Information to this Registration Statement. Next Generation does not have
outstanding any options, warrants or other rights to subscribe for or
purchase any of its shares, nor is there outstanding any security
convertible to any of its shares. All such shares will, at the time of
Closing, be held by the persons and in the amounts set forth in the list of
shareholders submitted to Developing Growth pursuant to paragraph 3.4;

(j) The execution, delivery and performance of this Agreement will have
been duly authorized prior to the Closing Date by all necessary action on
the part of Next Generation, and subject to the approval of Next
Generation's shareholders, this Agreement constitutes a valid and binding
obligation of Next Generation, enforceable in accordance with its terms,
subject as to enforcement to bankruptcy, insolvency, reorganization,
moratorium and other laws relating to or affecting creditors rights and to
general equity principles. No other consents, authorizations or approvals
are necessary in connection with Next Generation's performance of this
Agreement;

(k) All material federal and other tax returns and reports of Next
Generation required by law to be filed on or before the Closing Date shall
have been filed and are correct and all federal and other taxes shown as
due or required to be shown as due on said returns and reports have been
paid or provision has been made for the payment thereof, and to the best of
Next Generation's knowledge, no such return is currently under audit and no
assessment has been asserted with respect to any such return;

(l) For each taxable year since its inception, Next Generation has met
all the requirements of Subchapter M of the Code for qualification and
treatment as a "regulated investment company" and neither the execution or
delivery of nor the performance of its obligations under this Agreement
will adversely affect, and no other events are foreseen, or are reasonably
likely to occur which will adversely affect the ability of Next Generation
to continue to meet the requirements of Subchapter M of the Code;

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(m) At the Closing Date, Next Generation will have good and valid title
to the Next Generation Assets, subject to no liens (other than the
obligation, if any, to pay the purchase price of portfolio securities
purchased by Next Generation which have not settled prior to the Closing
Date), security interests or other encumbrances, and full right, power and
authority to assign, deliver and otherwise transfer such assets hereunder,
and upon delivery and payment for such assets, Developing Growth will
acquire good and marketable title thereto, subject to no restrictions on
the full transfer thereof, including any restrictions as might arise under
the 1933 Act;

(n) On the effective date of the Registration Statement, at the time of
the meeting of Next Generation's shareholders and on the Closing Date, the
Proxy Materials (exclusive of the currently effective Developing Growth
Prospectus contained therein) will (i) comply in all material respects with
the provisions of the 1933 Act, the Securities Exchange Act of 1934, as
amended ("1934 Act") and the 1940 Act and the regulations thereunder and
(ii) not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading. Any other information furnished by Next
Generation for use in the Registration Statement or in any other manner
that may be necessary in connection with the transactions contemplated
hereby shall be accurate and complete and shall comply in all material
respects with applicable federal securities and other laws and regulations
thereunder;

(o) Next Generation will, on or prior to the Valuation Date, declare one
or more dividends or other distributions to shareholders that, together
with all previous dividends and other distributions to shareholders, shall
have the effect of distributing to the shareholders all of its investment
company taxable income and net capital gain, if any, through the Valuation
Date (computed without regard to any deduction for dividends paid);

(p) Next Generation has maintained or has caused to be maintained on its
behalf all books and accounts as required of a registered investment company
in compliance with the requirements of Section 31 of the 1940 Act and the
Rules thereunder; and

(q) Next Generation is not acquiring Developing Growth Shares to be
issued hereunder for the purpose of making any distribution thereof other
than in accordance with the terms of this Agreement.

6. CONDITIONS PRECEDENT TO OBLIGATIONS OF NEXT GENERATION

The obligations of Next Generation to consummate the transactions provided
for herein shall be subject, at its election, to the performance by Developing
Growth of all the obligations to be performed by it hereunder on or before the
Closing Date and, in addition thereto, the following conditions:

6.1 All representations and warranties of Developing Growth contained in
this Agreement shall be true and correct in all material respects as of the
date hereof and, except as they may be affected by the transactions
contemplated by this Agreement, as of the Closing Date with the same force and
effect as if made on and as of the Closing Date;

6.2 Developing Growth shall have delivered to Next Generation a
certificate of its President and Treasurer, in a form reasonably satisfactory
to Next Generation and dated as of the Closing Date, to the effect that the
representations and warranties of Developing Growth made in this Agreement are
true and correct at and as of the Closing Date, except as they may be affected
by the transactions contemplated by this Agreement, and as to such other
matters as Next Generation shall reasonably request;

6.3 Next Generation shall have received a favorable opinion from Mayer,
Brown, Rowe & Maw LLP, counsel to Developing Growth, dated as of the Closing
Date, to the effect that:

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(a) Developing Growth is a validly existing Massachusetts business trust,
and has the power to own all of its properties and assets and to carry on
its business as presently conducted (Massachusetts counsel may be relied
upon in delivering such opinion); (b) Developing Growth is a duly
registered, open-end, management investment company, and its registration
with the Commission as an investment company under the 1940 Act is in full
force and effect; (c) this Agreement has been duly authorized, executed and
delivered by Developing Growth and, assuming that the Registration
Statement complies with the 1933 Act, the 1934 Act and the 1940 Act and
regulations thereunder and assuming due authorization, execution and
delivery of this Agreement by Next Generation, is a valid and binding
obligation of Developing Growth enforceable against Developing Growth in
accordance with its terms, subject as to enforcement, to bankruptcy,
insolvency, reorganization, moratorium and other laws relating to or
affecting creditors rights and to general equity principles; (d) Developing
Growth Shares to be issued to Next Generation Shareholders as provided by
this Agreement are duly authorized and upon such delivery will be validly
issued, fully paid and non-assessable (except as set forth under the
caption "Capital Stock and Other Securities" in Developing Growth's
Statement of Additional Information), and no shareholder of Developing
Growth has any preemptive rights to subscription or purchase in respect
thereof (Massachusetts counsel may be relied upon in delivering such
opinion); (e) the execution and delivery of this Agreement did not, and the
consummation of the transactions contemplated hereby will not, violate
Developing Growth's Declaration of Trust or By-Laws; and (f) to the
knowledge of such counsel, no consent, approval, authorization or order of
any court or governmental authority of the United States or any state is
required for the consummation by Developing Growth's of the transactions
contemplated herein, except such as have been obtained under the 1933 Act,
the 1934 Act and the 1940 Act and such as may be required under state
securities laws; and

6.4 As of the Closing Date, there shall have been no material change in
the investment objective, policies and restrictions nor any increase in the
investment management fees or annual fees pursuant to Developing Growth's 12b-1
plan of distribution from those described in Developing Growth's Prospectus
dated November 29, 2002 and Statement of Additional Information dated November
29, 2002.

7. CONDITIONS PRECEDENT TO OBLIGATIONS OF DEVELOPING GROWTH

The obligations of Developing Growth to complete the transactions provided
for herein shall be subject, at its election, to the performance by Next
Generation of all the obligations to be performed by it hereunder on or before
the Closing Date and, in addition thereto, the following conditions:

7.1 All representations and warranties of Next Generation contained in
this Agreement shall be true and correct in all material respects as of the
date hereof and, except as they may be affected by the transactions
contemplated by this Agreement, as of the Closing Date with the same force and
effect as if made on and as of the Closing Date;

7.2 Next Generation shall have delivered to Developing Growth at the
Closing a certificate of its President and its Treasurer, in form and substance
satisfactory to Developing Growth and dated as of the Closing Date, to the
effect that the representations and warranties of Next Generation made in this
Agreement are true and correct at and as of the Closing Date, except as they
may be affected by the transactions contemplated by this Agreement, and as to
such other matters as Developing Growth shall reasonably request;

7.3 Next Generation shall have delivered to Developing Growth a statement
of the Next Generation Assets and its liabilities, together with a list of Next
Generation's portfolio securities and other assets showing the respective
adjusted bases and holding periods thereof for income tax purposes, as of the
Closing Date, certified by the Treasurer of Next Generation;

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7.4 Next Generation shall have delivered to Developing Growth within three
business days after the Closing a letter from Deloitte & Touche LLP for the
taxable period November 26, 1999 (commencement of operations) through July 31,
2000 and the taxable years ended July 31, 2003, 2002 and 2001, each dated as of
the Closing Date stating that, (a) such firm has performed a limited review of
the federal and state income tax returns of Next Generation for each of the
respective taxable years and, based on such limited review, nothing came to
their attention that caused them to believe that such returns did not properly
reflect, in all material respects, the federal and state income tax liabilities
of Next Generation for the periods covered thereby, (b) for the period from
July 31, 2003 to and including the Closing Date, Deloitte & Touche LLP has
performed a limited review (based on unaudited financial data) to ascertain the
amount of applicable federal, state and local taxes and has determined that
same either have been paid or reserves have been established for payment of
such taxes, and, based on such limited review, nothing came to their attention
that caused them to believe that the taxes paid or reserves set aside for
payment of such taxes were not adequate in all material respects for the
satisfaction of all federal, state and local tax liabilities for the period
from July 31, 2003 to and including the Closing Date and (c) based on such
limited reviews, nothing came to their attention that caused them to believe
that Next Generation would not qualify as a regulated investment company for
federal income tax purposes for any such year or period;

7.5 Developing Growth shall have received at the Closing a favorable
opinion from Mayer, Brown, Rowe & Maw, counsel to Next Generation, dated as of
the Closing Date to the effect that:

(a) Next Generation is a validly existing Massachusetts business trust
and has the power to own all of its properties and assets and to carry on
its business as presently conducted (Massachusetts counsel may be relied
upon in delivering such opinion); (b) Next Generation is a duly registered,
open-end, management investment company under the 1940 Act, and its
registration with the Commission as an investment company under the 1940
Act is in full force and effect; (c) this Agreement has been duly
authorized, executed and delivered by Next Generation and, assuming that
the Registration Statement complies with the 1933 Act, the 1934 Act and the
1940 Act and the regulations thereunder and assuming due authorization,
execution and delivery of this Agreement by Developing Growth, is a valid
and binding obligation of Next Generation enforceable against Next
Generation in accordance with its terms, subject as to enforcement, to
bankruptcy, insolvency, reorganization, moratorium and other laws relating
to or affecting creditors rights and to general equity principles; (d) the
execution and delivery of this Agreement did not, and the consummation of
the transactions contemplated hereby will not, violate Next Generation's
Declaration of Trust or By-Laws; and (e) to the knowledge of such counsel,
no consent, approval, authorization or order of any court or governmental
authority of the United States or any state is required for the
consummation by Next Generation of the transactions contemplated herein,
except such as have been obtained under the 1933 Act, the 1934 Act and the
1940 Act and such as may be required under state securities laws; and

7.6 On the Closing Date, the Next Generation Assets shall include no
assets that Developing Growth, by reason of limitations of the fund's
Declaration of Trust or otherwise, may not properly acquire.

8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF DEVELOPING GROWTH AND NEXT
GENERATION

The obligations of Next Generation and Developing Growth hereunder are
each subject to the further conditions that on or before the Closing Date:

8.1 This Agreement and the transactions contemplated herein shall have
been approved by the requisite vote of the holders of the outstanding shares of
Next Generation in accordance with the provisions of Next Generation's
Declaration of Trust, and certified copies of the resolutions evidencing such
approval shall have been delivered to Developing Growth;

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8.2 On the Closing Date, no action, suit or other proceeding shall be
pending before any court or governmental agency in which it is sought to
restrain or prohibit, or obtain damages or other relief in connection with,
this Agreement or the transactions contemplated herein;

8.3 All consents of other parties and all other consents, orders and
permits of federal, state and local regulatory authorities (including those of
the Commission and of state Blue Sky and securities authorities, including
"no-action" positions of and exemptive orders from such federal and state
authorities) deemed necessary by Developing Growth or Next Generation to permit
consummation, in all material respects, of the transactions contemplated herein
shall have been obtained, except where failure to obtain any such consent,
order or permit would not involve risk of a material adverse effect on the
assets or properties of Developing Growth or Next Generation;

8.4 The Registration Statement shall have become effective under the 1933
Act, no stop orders suspending the effectiveness thereof shall have been issued
and, to the best knowledge of the parties hereto, no investigation or
proceeding for that purpose shall have been instituted or be pending,
threatened or contemplated under the 1933 Act;

8.5 Next Generation shall have declared and paid a dividend or dividends
and/or other distribution or distributions that, together with all previous
such dividends or distributions, shall have the effect of distributing to the
Next Generation Shareholders all of Next Generation's investment company
taxable income (computed without regard to any deduction for dividends paid)
and all of its net capital gain (after reduction for any capital loss
carry-forward and computed without regard to any deduction for dividends paid)
for all taxable years ending on or before the Closing Date; and

8.6 The parties shall have received the opinion of the law firm of Mayer,
Brown, Rowe & Maw LLP (based on such representations as such law firm shall
reasonably request), addressed to Developing Growth and Next Generation, which
opinion may be relied upon by the shareholders of Next Generation,
substantially to the effect that, for federal income tax purposes:

(a) The transfer of Next Generation's assets in exchange for Developing
Growth Shares and the assumption by Developing Growth of certain stated
liabilities of Next Generation followed by the distribution by Next
Generation of Developing Growth Shares to the Next Generation Shareholders
in exchange for their Next Generation shares pursuant to and in accordance
with the terms of the Reorganization Agreement will constitute a
"reorganization" within the meaning of Section 368(a)(1)(C) of the Code,
and Next Generation and Developing Growth will each be a "party to a
reorganization" within the meaning of Section 368(b) of the Code;

(b) No gain or loss will be recognized by Developing Growth upon the
receipt of the assets of Next Generation solely in exchange for Developing
Growth Shares and the assumption by Developing Growth of the stated
liabilities of Next Generation;

(c) No gain or loss will be recognized by Next Generation upon the
transfer of the assets of Next Generation to Developing Growth in exchange
for Developing Growth Shares and the assumption by Developing Growth of the
stated liabilities or upon the distribution of Developing Growth Shares to
the Next Generation Shareholders in exchange for their Next Generation
shares;

(d) No gain or loss will be recognized by the Next Generation
Shareholders upon the exchange of the Next Generation shares for Developing
Growth Shares;

(e) The aggregate tax basis for Developing Growth Shares received by each
Next Generation Shareholder pursuant to the reorganization will be the same
as the aggregate tax basis of the Next Generation shares held by each such
Next Generation Shareholder immediately prior to the Reorganization;

A-12

(f) The holding period of Developing Growth Shares to be received by each
Next Generation Shareholder will include the period during which the Next
Generation shares surrendered in exchange therefor were held (provided such
Next Generation shares were held as capital assets on the date of the
Reorganization);

(g) The tax basis of the assets of Next Generation acquired by Developing
Growth will be the same as the tax basis of such assets to Next Generation
immediately prior to the Reorganization; and

(h) The holding period of the assets of Next Generation in the hands of
Developing Growth will include the period during which those assets were
held by Next Generation.

Notwithstanding anything herein to the contrary, neither Developing Growth
nor Next Generation may waive the conditions set forth in this paragraph 8.6.

9. FEES AND EXPENSES

9.1 (a) Developing Growth shall bear its expenses incurred in connection
with the entering into, and carrying out of, the provisions of this
Agreement, including legal, accounting, Commission registration fees and Blue
Sky expenses. Next Generation shall bear its expenses incurred in connection
with the entering into and carrying out of the provisions of this Agreement,
including legal and accounting fees, printing, filing and proxy solicitation
expenses and portfolio transfer taxes (if any) incurred in connection with
the consummation of the transactions contemplated herein.

(b) In the event the transactions contemplated herein are not consummated
by reason of Next Generation being either unwilling or unable to go forward
(other than by reason of the nonfulfillment or failure of any condition to
Next Generation's obligations specified in this Agreement), Next
Generation's only obligation hereunder shall be to reimburse Developing
Growth for all reasonable out-of-pocket fees and expenses incurred by
Developing Growth in connection with those transactions.

(c) In the event the transactions contemplated herein are not consummated
by reason of Developing Growth being either unwilling or unable to go
forward (other than by reason of the nonfulfillment or failure of any
condition to Developing Growth's obligations specified in this Agreement),
Developing Growth's only obligation hereunder shall be to reimburse Next
Generation for all reasonable out-of-pocket fees and expenses incurred by
Next Generation in connection with those transactions.

10. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES

10.1 This Agreement constitutes the entire agreement between the parties.

10.2 The representations, warranties and covenants contained in this
Agreement or in any document delivered pursuant hereto or in connection
herewith shall survive the consummation of the transactions contemplated
herein, except that the representations, warranties and covenants of Next
Generation hereunder shall not survive the dissolution and complete liquidation
of Next Generation in accordance with Section 1.9.

11. TERMINATION

11.1 This Agreement may be terminated and the transactions contemplated
hereby may be abandoned at any time prior to the Closing:

(a) by the mutual written consent of Next Generation and Developing
Growth;

A-13

(b) by either Developing Growth or Next Generation by notice to the
other, without liability to the terminating party on account of such
termination (providing the terminating party is not otherwise in material
default or breach of this Agreement) if the Closing shall not have occurred
on or before May 31, 2004; or

(c) by either Developing Growth or Next Generation, in writing without
liability to the terminating party on account of such termination (provided
the terminating party is not otherwise in material default or breach of
this Agreement), if (i) the other party shall fail to perform in any
material respect its agreements contained herein required to be performed
on or prior to the Closing Date, (ii) the other party materially breaches
any of its representations, warranties or covenants contained herein, (iii)
the Next Generation Shareholders fail to approve this Agreement at any
meeting called for such purpose at which a quorum was present or (iv) any
other condition herein expressed to be precedent to the obligations of the
terminating party has not been met and it reasonably appears that it will
not or cannot be met.

11.2 (a) Termination of this Agreement pursuant to paragraphs 11.1 (a) or
(b) shall terminate all obligations of the parties hereunder and there
shall be no liability for damages on the part of Developing Growth or Next
Generation, or the trustees or officers of Developing Growth or Next
Generation, to any other party or its trustees or officers.

(b) Termination of this Agreement pursuant to paragraph 11.1 (c) shall
terminate all obligations of the parties hereunder and there shall be no
liability for damages on the part of Developing Growth or Next Generation,
or the trustees or officers of Developing Growth or Next Generation, except
that any party in breach of this Agreement shall, upon demand, reimburse
the non-breaching party for all reasonable out-of-pocket fees and expenses
incurred in connection with the transactions contemplated by this
Agreement, including legal, accounting and filing fees.

12. AMENDMENTS

This Agreement may be amended, modified or supplemented in such manner as
may be mutually agreed upon in writing by the parties.

13. MISCELLANEOUS

13.1 The article and paragraph headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.

13.2 This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original.

13.3 This Agreement shall be governed by and construed in accordance with
the laws of The Commonwealth of Massachusetts.

13.4 This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment or
transfer hereof or of any rights or obligations hereunder shall be made by any
party without the written consent of the other party. Nothing herein expressed
or implied is intended or shall be construed to confer upon or give any person,
firm or corporation, other than the parties hereto and their respective
successors and assigns, any rights or remedies under or by reason of this
Agreement.

13.5 The obligations and liabilities of Developing Growth hereunder are
solely those of Developing Growth. It is expressly agreed that no shareholder,
nominee, trustee, officer, agent, or employee of Developing Growth shall be
personally liable hereunder. The execution and delivery of this Agreement have
been

A-14

authorized by the trustees of Developing Growth and signed by authorized
officers of Developing Growth acting as such, and neither such authorization by
such trustees nor such execution and delivery by such officers shall be deemed
to have been made by any of them individually or to impose any liability on any
of them personally.

13.6 The obligations and liabilities of Next Generation hereunder are
solely those of Next Generation. It is expressly agreed that no shareholder,
nominee, trustee, officer, agent, or employee of Next Generation shall be
personally liable hereunder. The execution and delivery of this Agreement have
been authorized by the trustees of Next Generation and signed by authorized
officers of Next Generation acting as such, and neither such authorization by
such trustees nor such execution and delivery by such officers shall be deemed
to have been made by any of them individually or to impose any liability on any
of them personally.

IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed by a duly authorized officer.

MORGAN STANLEY NEXT GENERATION TRUST

By: /s/ CHARLES A. FIUMEFREDDO
--------------------------------------------------

Name: Charles A. Fiumefreddo

Title: Chairman

MORGAN STANLEY DEVELOPING GROWTH SECURITIES TRUST

By: /s/ BARRY FINK
--------------------------------------------------

Name: Barry Fink

Title: Vice President

A-15

EXHIBIT B

[MORGAN STANLEY LOGO]

[GRAPHIC OMITTED]

Morgan Stanley Developing Growth Securities Trust

A mutual fund that seeks long-term capital growth

Prospectus | November 29, 2002

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.

CONTENTS

THE FUND INVESTMENT OBJECTIVE ........................................ 1

PRINCIPAL INVESTMENT STRATEGIES ............................. 1

PRINCIPAL RISKS ............................................. 1

PAST PERFORMANCE ............................................ 4

FEES AND EXPENSES ........................................... 6

ADDITIONAL INVESTMENT STRATEGY INFORMATION .................. 7

ADDITIONAL RISK INFORMATION ................................. 7

FUND MANAGEMENT ............................................. 8

SHAREHOLDER INFORMATION PRICING FUND SHARES ......................................... 9

HOW TO BUY SHARES ........................................... 9

HOW TO EXCHANGE SHARES ...................................... 11

HOW TO SELL SHARES .......................................... 12

DISTRIBUTIONS ............................................... 14

TAX CONSEQUENCES ............................................ 15

SHARE CLASS ARRANGEMENTS .................................... 16

FINANCIAL HIGHLIGHTS ............................................................. 24

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

[GRAPHIC OMITTED]
INVESTMENT OBJECTIVE
- --------------------
Morgan Stanley Developing Growth Securities Trust seeks long-term capital
growth.

[GRAPHIC OMITTED]
PRINCIPAL INVESTMENT STRATEGIES
- -------------------------------
The Fund will normally invest at least 65% of its assets in common stocks
(including depositary receipts) and other equity securities. In deciding which
of these securities to buy, hold or sell, the Fund's "Investment Manager,"
Morgan Stanley Investment Advisors Inc., analyzes a company's potential to grow
much more rapidly than the economy. The Fund's other equity securities may
include convertible securities and preferred stocks. The Fund will invest
primarily in smaller and medium-sized companies. The Investment Manager focuses
its securities selection upon a diversified group of emerging growth companies
that it believes have prospects of achieving significant profit gains. The Fund
may also invest in securities issued in initial public offerings ("IPOs").

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

The Fund may invest up to 10% of its net assets in foreign securities. This
percentage limitation, however, does not apply to securities of foreign
companies that are listed in the U.S. on a national securities exchange.

Common stock is a share ownership or equity interest in a corporation. It may
or may not pay dividends, as some companies reinvest all of their profits back
into their businesses, while others pay out some of their profits to
shareholders as dividends. A depositary receipt is generally issued by a bank
or financial institution and represents an ownership interest in the common
stock or other equity securities of a foreign company.

The remaining 35% of the Fund's assets may be invested in fixed-income
securities issued or guaranteed by the United States government, its agencies
or instrumentalities and investment grade debt securities.

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

[GRAPHIC OMITTED]
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.

COMMON STOCKS AND OTHER EQUITY SECURITIES. A principal risk of investing in the
Fund is associated with its investments in common stocks and other equity
securities. In general, stock and other equity security values fluctuate in
response to activities specific to the company as well as general market,
economic and political conditions. These prices can fluctuate widely.

SMALL & MEDIUM CAPITALIZATION COMPANIES. The Fund's investments in smaller and
medium-sized companies carry more risk than investments in larger companies.
While some of the Fund's holdings in these companies may be listed on a
national securities exchange, such securities are more likely to be traded in
the over-the-counter market. The low market liquidity of these securities may
have an adverse impact on the Fund's ability to sell certain securities at
favorable prices and may also make it difficult for the Fund to obtain market
quotations based on actual trades for purposes of valuing the Fund's
securities. Investing in lesser-known, smaller and medium capitalization
companies involves greater risk of volatility of the Fund's net asset value
than is customarily associated with larger, more established companies. Often
smaller and medium capitalization companies and the industries in which they
are focused are still evolving and, while this may offer better growth
potential than larger, more established companies, it also may make them more
sensitive to changing market conditions.

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

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

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

In addition, differences in clearance and settlement procedures in foreign
markets may occasion delays in settlement of the Fund's trades effected in
those markets and could result in losses to the Fund due to subsequent declines
in the value of the securities subject to the trades.

Depositary receipts involve substantially identical risks to 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.

SHARES OF IPOS. Fund purchases of shares issued in IPOs expose the Fund to the
additional risks associated with companies that have little operating history
as public companies, as well as to the risks inherent in those sectors of the
market where these new issuers operate. The market for IPO issuers has been
volatile, and share prices of certain newly-public companies have fluctuated in
significant amounts over short periods of time. In addition, the Investment
Manager cannot guarantee continued access to IPOs.

OTHER RISKS. The performance of the Fund also will depend on whether the
Investment Manager is successful in applying the Fund's investment strategies.
The Fund is also subject to other risks from its permissible investments
including the risks associated with fixed-income securities.

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

[GRAPHIC OMITTED]
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

[BARCHART]
1992 -2.54
'93 30.8
'94 -4.61
'95 47.69
'96 12.25
'97 13.34
'98 7.81
'99 98.98
2000 -23.28
'01 -26.81

The bar chart reflects the performance of Class B shares; the performance of the
other Classes will differ because the Classes have different ongoing fees. The
performance information in the bar chart does not reflect the deduction of sales
charges; if these amounts were reflected, returns would be less than shown.
Year-to-date total return as of September 30, 2002 was -31.80%.

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

During the periods shown in the bar chart, the highest return for a calendar
quarter was 59.25% (quarter ended December 31, 1999) and the lowest return for
a calendar quarter was -25.93% (quarter ended March 31, 2001).

AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 2001)

----------------------------------------------------------------------------
PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS
----------------------------------------------------------------------------

Class A(1) -30.08% -- --
----------------------------------------------------------------------------
Class C(1) -27.53% -- --
----------------------------------------------------------------------------
Class D(1) -26.08% -- --
----------------------------------------------------------------------------
Class B -- Returns Before
Taxes -30.47% 6.19% 10.66%
----------------------------------------------------------------------------
Class B -- Returns After
Taxes on Distributions(2) -30.47% 3.39% 8.25%
----------------------------------------------------------------------------
Class B -- Returns After
Taxes on Distributions
and Sale of Fund Shares -18.56% 4.98% 8.59%
----------------------------------------------------------------------------
Russell 2500 Index(3) 1.22% 10.34% 13.13%
----------------------------------------------------------------------------
Russell 2500 Growth
Index(4) -10.83% 6.60% 9.49%
----------------------------------------------------------------------------

(1) Classes A, C and D commenced operations on July 28, 1997.

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

(3) The Russell 2500 Index measures the performance of the 2,500 smallest
companies in the Russell 3000 Index. The Index does not include any
expenses, fees or charges. The Index is unmanaged and should not be
considered an investment.

(4) The Fund's benchmark was changed from the Russell 2500 Index to the Russell
2500 Growth Index to more accurately reflect the Fund's investable universe.
The Russell 2500 Growth Index measures the performance of those 2,500
companies in the Russell 2500 Index with higher price-to-book ratios and
higher forecasted growth values. The Index does not include any expenses,
fees or charges. The Index is unmanaged and should not be considered an
investment.

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

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

[GRAPHIC OMITTED]
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 D. Each Class has a different combination of fees, expenses
and other features, which should be considered in selecting a Class of Shares.
The Fund does not charge account or exchange fees. See the "Share Class
Arrangements" section for further fee and expense information.

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

(sidebar)
ANNUAL FUND OPERATING EXPENSES
These expenses are deducted from the Fund's assets and are based on expenses
paid for the fiscal year ended September 30, 2002.
(end sidebar)

CLASS A CLASS B CLASS C CLASS D
------------------------------------------------------------------------------------------------

SHAREHOLDER FEES
------------------------------------------------------------------------------------------------
Maximum sales charge (load) imposed on
purchases (as a percentage of offering price) 5.25%(1) None None None
------------------------------------------------------------------------------------------------
Maximum deferred sales charge (load) (as a
percentage based on the lesser of the offering
price or net asset value at redemption) None(2) 5.00%(3) 1.00%(4) None
------------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
------------------------------------------------------------------------------------------------
Management fee 0.50% 0.50% 0.50% 0.50%
------------------------------------------------------------------------------------------------
Distribution and service (12b-1) fees 0.22% 1.00% 1.00% None
------------------------------------------------------------------------------------------------
Other expenses 0.30% 0.30% 0.30% 0.30%
------------------------------------------------------------------------------------------------
Total annual Fund operating expenses 1.02% 1.80% 1.80% 0.80%
------------------------------------------------------------------------------------------------

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

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

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

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

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

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

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 $624 $833 $1,059 $1,707 $624 $833 $1,059 $1,707
- ---------------------------------------------------------- --------------------------------------------
Class B $683 $866 $1,175 $2,116 $183 $566 $ 975 $2,116
- ---------------------------------------------------------- --------------------------------------------
Class C $283 $566 $ 975 $2,116 $183 $566 $ 975 $2,116
- ---------------------------------------------------------- --------------------------------------------
Class D $ 82 $255 $ 444 $ 990 $ 82 $255 $ 444 $ 990
- ---------------------------------------------------------- --------------------------------------------

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.

[GRAPHIC OMITTED]
ADDITIONAL INVESTMENT STRATEGY INFORMATION
- ------------------------------------------
This section provides additional information relating to the Fund's principal
investment strategies.

FIXED-INCOME SECURITIES. The Fund may invest up to 35% of its assets in
fixed-income securities issued or guaranteed by the United States government,
its agencies or instrumentalities, and corporate debt securities rated Baa or
better by Moody's Investors Service or BBB or better by Standard & Poor's or,
if not rated, judged to be of comparable quality by the Investment Manager.

DEFENSIVE INVESTING. The Fund may take temporary "defensive" positions in
attempting to respond to adverse market conditions. The Fund may invest any
amount of its assets in cash or money market instruments in a defensive posture
when the Investment Manager believes it is advisable to do so. Although taking
a defensive posture is designed to protect the Fund from an anticipated market
downturn, it could have the effect of reducing the benefit from any upswing in
the market. When the Fund takes a defensive position, it may not achieve its
investment 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 200%, for example, is equivalent to the
Fund buying and selling all of its securities two times during the course of
the year. A high portfolio turnover rate (over 100%) could result in high
brokerage costs and an increase in taxable capital gains distributions to the
Fund's shareholders. See the sections on "Distributions" and "Tax
Consequences."

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

[GRAPHIC OMITTED]
ADDITIONAL RISK INFORMATION
- ---------------------------
This section provides additional information relating to the principal risks of
investing in the Fund.

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

Interest rate risk refers to fluctuations in the value of a fixed-income
security resulting from changes in the general level of interest rates. When
the general level of interest rates goes up, the prices of most fixed-income
securities go down. When the general level of interest rates goes down, the
prices of most fixed-income securities go up. Accordingly, a rise in the
general level of interest rates may cause the price of the Fund's fixed-income
securities to fall substantially. Fixed-income securities rated Baa by Moody's
Investors Service or BBB by Standard & Poor's have speculative characteristics.

[GRAPHIC OMITTED]
FUND MANAGEMENT
- ---------------
The Fund has retained the Investment Manager -- Morgan Stanley Investment
Advisors Inc. -- to provide administrative services, manage its business affairs
and invest its assets, including the placing of orders for the purchase and sale
of portfolio securities. The Investment Manager is a wholly-owned subsidiary of
Morgan Stanley, a preeminent global financial services firm that maintains
leading market positions in each of its three primary businesses: securities,
asset management and credit services. Its address is 1221 Avenue of the
Americas, New York, NY 10020.

(sidebar)
MORGAN STANLEY INVESTMENT ADVISORS INC.
The Investment Manager is widely recognized as a leader in the mutual fund
industry and together with Morgan Stanley Services Company Inc., its
wholly-owned subsidiary, had approximately $120 billion in assets under
management as of October 31, 2002.
(end sidebar)

The Fund's portfolio is managed by the Small/Mid Cap Growth team. Current
members of the team include Dennis Lynch, an Executive Director of the
Investment Manager, and John Roscoe, a Vice President of the Investment Manager.

The Fund pays the Investment Manager a monthly management fee as full
compensation for the services and facilities furnished to the Fund, and for
Fund expenses assumed by the Investment Manager. The fee is based on the Fund's
average daily net assets. For the fiscal year ended September 30, 2002, the
Fund accrued total compensation to the Investment Manager amounting to 0.50% of
the Fund's average daily net assets.

SHAREHOLDER INFORMATION

[GRAPHIC OMITTED]
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 is open (or, on days
when the New York Stock Exchange closes prior to 4:00 p.m., at such earlier
time). Shares will not be priced on days that the New York Stock Exchange is
closed.

The value of the Fund's portfolio securities is based on the securities' market
price when available. When a market price is not readily available, including
circumstances under which the Investment Manager determines that a security's
market price is not accurate, a portfolio security is valued at its fair value,
as determined under procedures established by the Fund's Board of Trustees. In
these cases, the Fund's net asset value will reflect certain portfolio
securities' fair value rather than their market price. With respect to
securities that are primarily listed on foreign exchanges, the value of the
Fund's portfolio securities may change on days when you will not be able to
purchase or sell your shares.

An exception to the Fund's general policy of using market prices concerns its
short-term debt portfolio securities. Debt securities with remaining maturities
of sixty 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.

[GRAPHIC OMITTED]
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. You may also purchase
shares directly by calling the Fund's transfer agent and requesting an
application.

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

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

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

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

MINIMUM INVESTMENT AMOUNTS

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

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

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

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

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

SUBSEQUENT INVESTMENTS SENT DIRECTLY TO THE FUND. In addition to buying
additional Fund shares for an existing account by contacting your Morgan
Stanley Financial Advisor, you may send a check directly to the Fund. To buy
additional shares in this manner:

o Write a "letter of instruction" to the Fund specifying the name(s) on the
account, the account number, the social security or tax identification
number, the Class of shares you wish to purchase and the investment amount
(which would include any applicable front-end sales charge). The letter must
be signed by the account owner(s).

o Make out a check for the total amount payable to: Morgan Stanley Developing
Growth Securities Trust.

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

[GRAPHIC OMITTED]
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 Limited Duration U.S. Treasury
Trust, without the imposition of an exchange fee. In addition, Class A shares
of the Fund may be exchanged for shares of an FSC Fund (funds subject to a
front-end sales charge). See the inside back cover of this Prospectus for each
Morgan Stanley Fund's designation as a Multi-Class Fund, No-Load Fund, Money
Market Fund or an FSC Fund. If a Morgan Stanley Fund is not listed, consult the
inside back cover of that fund's prospectus for its designation.

Exchanges may be made after shares of the fund acquired by purchase have been
held for thirty days. There is no waiting period for exchanges of shares
acquired by exchange or dividend reinvestment. The current prospectus for each
fund describes its investment objective(s), policies and investment minimums,
and should be read before investment. Since exchanges are available only into
continuously offered Morgan Stanley Funds, exchanges are not available into any
new Morgan Stanley Fund during its initial offering period, or when shares of a
particular Morgan Stanley Fund are not being offered for purchase.

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

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

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

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

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

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

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

You should review the "Tax Consequences" section and consult your own tax
professional about the tax consequences of an exchange.

LIMITATIONS ON EXCHANGES. Certain patterns of past exchanges and/or purchase or
sale transactions involving the Fund or other Morgan Stanley Funds may result
in the Fund limiting or prohibiting, at its discretion, additional purchases
and/or exchanges. Determinations in this regard may be made based on the
frequency or dollar amount of the previous exchanges or purchase or sale
transactions. You will be notified in advance of limitations on your exchange
privileges.

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

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

[GRAPHIC OMITTED]
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.

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

Contact Your To sell your shares, simply call your Morgan Stanley Financial Advisor or other authorized
Financial Advisor financial representative.
--------------------------------------------------------------------------------------------
[GRAPHIC OMITTED] Payment will be sent to the address to which the account is registered or deposited in your
brokerage account.
- ---------------------------------------------------------------------------------------------------------------

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

By Letter You can also sell your shares by writing a "letter of instruction" that includes:
[GRAPHIC OMITTED] o your account number;
o the name of the Fund;
o the dollar amount or the number of shares you wish to sell;
o the Class of shares you wish to sell; and
o the signature of each owner as it appears on the account.
--------------------------------------------------------------------------------------------------
If you are requesting payment to anyone other than the registered owner(s) or that payment be
sent to any address other than the address of the registered owner(s) or pre-designated bank
account, you will need a signature guarantee. You can obtain a signature guarantee from an
eligible guarantor acceptable to Morgan Stanley Trust. (You should contact Morgan Stanley Trust
at (800) 869-NEWS for a determination as to whether a particular institution is an eligible
guarantor.) A notary public cannot provide a signature guarantee. Additional documentation may
be required for shares held by a corporation, partnership, trustee or executor.
--------------------------------------------------------------------------------------------------
Mail the letter to Morgan Stanley Trust at P.O. Box 983, Jersey City, NJ 07303. If you hold share
certificates, you must return the certificates, along with the letter and any required additional
documentation.
--------------------------------------------------------------------------------------------------
A check will be mailed to the name(s) and address in which the account is registered, or
otherwise according to your instructions.
--------------------------------------------------------------------------------------------------
Systematic If your investment in all of the Morgan Stanley Funds has a total market value of at least
Withdrawal Plan $10,000, you may elect to withdraw amounts of $25 or more, or in any whole percentage of a
fund's balance (provided the amount is at least $25), on a monthly, quarterly, semi-annual or
[GRAPHIC OMITTED] annual basis, from any fund with a balance of at least $1,000. Each time you add a fund to the
plan, you must meet the plan requirements.
--------------------------------------------------------------------------------------------------
Amounts withdrawn are subject to any applicable CDSC. A CDSC may be waived under certain
circumstances. See the Class B waiver categories listed in the "Share Class Arrangements"
section of this Prospectus.
--------------------------------------------------------------------------------------------------
To sign up for the Systematic Withdrawal Plan, contact your Morgan Stanley Financial Advisor or
call (800) 869-NEWS. You may terminate or suspend your plan at any time. Please remember
that withdrawals from the plan are sales of shares, not Fund "distributions," and ultimately may
exhaust your account balance. The Fund may terminate or revise the plan at any time.
- --------------------------------------------------------------------------------------------------------------------

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

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

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

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

INVOLUNTARY SALES. The Fund reserves the right, on sixty days' notice, to sell
the shares of any shareholder (other than shares held in an IRA or 403(b)
Custodial Account) whose shares, due to sales by the shareholder, have a value
below $100, or in the case of an account opened through EasyInvest(SM), 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 sixty 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.

[GRAPHIC OMITTED]
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."

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

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

Distributions are reinvested automatically in additional shares of the same
Class and automatically credited to your account, unless you request in writing
that all distributions be paid in cash. If you elect the cash option, the Fund
will mail a check to you no later than seven business days after the
distribution is declared. However, if you purchase Fund shares through a
Financial Advisor within three business days prior to the record date for the
distribution, the distribution will automatically be paid to you in cash, even
if you did not request to receive all distributions in cash. No interest will
accrue on

uncashed checks. If you wish to change how your distributions are paid, your
request should be received by the Fund's transfer agent, Morgan Stanley Trust,
at least five business days prior to the record date of the distributions.

[GRAPHIC OMITTED]
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:

o The Fund makes distributions; and

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

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

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

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

When you open your Fund account, you should provide your social security or tax
identification number on your investment application. By providing this
information, you will avoid being subject to a federal backup withholding tax
(approximately 30% currently) on taxable distributions and redemption proceeds.
Any withheld amount would be sent to the IRS as an advance tax payment.

[GRAPHIC OMITTED]
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 D shares, is offered only to a limited category
of investors. Shares that you acquire through reinvested distributions will not
be subject to any front-end sales charge or CDSC -- contingent deferred sales
charge.

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

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

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

A Maximum 5.25% initial sales charge reduced for purchase of $25,000 or more;
shares sold without an initial sales charge are generally subject to a 1.0% CDSC
during the first year 0.25%
- --------------------------------------------------------------------------------------------------------------
B Maximum 5.0% CDSC during the first year decreasing to 0% after six years 1.00%
- --------------------------------------------------------------------------------------------------------------
C 1.0% CDSC during the first year 1.00%
- --------------------------------------------------------------------------------------------------------------
D None None
- --------------------------------------------------------------------------------------------------------------

CLASS A SHARES Class A shares are sold at net asset value plus an initial sales
charge of up to 5.25%. The initial sales charge is reduced for purchases of
$25,000 or more according to the schedule below. Investments of $1 million or
more are not subject to an initial sales charge, but are generally subject to a
contingent deferred sales charge, or CDSC, of 1.0% on sales made within one year
after the last day of the month of purchase. The CDSC will be assessed in the
same manner and with the same CDSC waivers as with Class B shares. Class A
shares are also subject to a distribution (12b-1) fee of up to 0.25% of the
average daily net assets of the Class. This fee is lower than the distribution
fee paid by Class B or Class C shares.

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

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

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

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

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

The reduced sales charge schedule is applicable to purchases of Class A shares
in a single transaction by:

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

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

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

o Tax-exempt organizations.

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

COMBINED PURCHASE PRIVILEGE. You also will have the benefit of reduced sales
charges by combining purchases of Class A shares of the Fund in a single
transaction with purchases of Class A shares of other Multi-Class Funds and
shares of FSC Funds.

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

You must notify your Morgan Stanley Financial Advisor or other authorized
financial representative (or Morgan Stanley Trust if you purchase directly
through the Fund), at the time a purchase order is placed, that the purchase
qualifies for the reduced sales charge under the Right of Accumulation. Similar
notification must be made in writing when an order is placed by mail. The
reduced sales charge will not be granted if: (i) notification is not furnished
at the time of the order; or (ii) a review of the records of

Morgan Stanley DW Inc. ("Morgan Stanley DW") or other authorized dealer of Fund
shares or the Fund's transfer agent does not confirm your represented holdings.

LETTER OF INTENT. The schedule of reduced sales charges for larger purchases
also will be available to you if you enter into a written "Letter of Intent." A
Letter of Intent provides for the purchase of Class A shares of the Fund or
other Multi-Class Funds or shares of FSC Funds within a thirteen-month period.
The initial purchase under a Letter of Intent must be at least 5% of the stated
investment goal. To determine the applicable sales charge reduction, you may
also include: (1) the cost of shares of other Morgan Stanley Funds which were
previously purchased at a price including a front-end sales charge during the
90-day period prior to the distributor receiving the Letter of Intent, and (2)
the 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 can obtain a Letter of Intent by contacting your Morgan
Stanley Financial Advisor or other authorized financial representative, or by
calling (800) 869-NEWS. If you do not achieve the stated investment goal within
the thirteen-month period, you are required to pay the difference between the
sales charges otherwise applicable and sales charges actually paid, which may
be deducted from your investment.

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

o A trust for which Morgan Stanley Trust provides discretionary trustee
services.

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

o Employer-sponsored employee benefit plans, whether or not qualified under
the Internal Revenue Code, for which (i) Morgan Stanley Trust serves as
trustee, (ii) Morgan Stanley's Retirement Plan Services serves as
recordkeeper under a written Recordkeeping Services Agreement or (iii) an
entity independent from Morgan Stanley serves as recordkeeper under an
alliance or similar agreement with Morgan Stanley's Retirement Plan Services
(together "Morgan Stanley Eligible Plans"), provided that, in the case of
(i) and (ii) above, any such plan has at least 200 eligible employees.

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

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

o A client of a Morgan Stanley Financial Advisor who joined us from another
investment firm within six months prior to the date of purchase of Fund
shares, and who used the proceeds from the sale of

shares of a proprietary mutual fund of that Financial Advisor's previous
firm that imposed either a front-end or deferred sales charge to purchase
Class A shares, provided that: (1) the client sold the shares not more than
60 days prior to the purchase of Fund shares, and (2) the sale proceeds were
maintained in the interim in cash or a Money Market Fund.

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

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

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

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

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

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

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

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

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

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

o Sales of shares held for you as a participant in a Morgan Stanley Eligible
Plan.

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

o Sales of shares that are attributable to reinvested distributions from, or
the proceeds of, certain unit investment trusts sponsored by Morgan Stanley
DW.

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

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

DISTRIBUTION FEE. Class B shares are subject to an annual distribution (12b-1)
fee of 1.0% of the lesser of: (a) the average daily aggregate gross sales of
the Fund's Class B shares since the inception of the Fund (not including
reinvestments of dividends or capital gains distributions), less the average
daily aggregate net asset value of the Fund's Class B shares redeemed since the
Fund's inception upon which a CDSC has been imposed or waived, or (b) the
average daily net assets of Class B. This fee is higher than the annual
distribution fee paid by Class A.

CONVERSION FEATURE. After ten (10) years, Class B shares will convert
automatically to Class A shares of the Fund with no initial sales charge. The
ten year period runs from the last day of the month in which the shares were
purchased, or in the case of Class B shares acquired through an exchange, from
the last day of the month in which the original Class B shares were purchased;
the shares will convert to Class A shares based on their relative net asset
values in the month following the ten year period. At the same time, an equal
proportion of Class B shares acquired through automatically reinvested
distributions will convert to Class A shares on the same basis. (Class B shares
held before May 1, 1997, however, will convert to Class A shares in May 2007.)

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

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

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

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

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

CLASS C SHARES Class C shares are sold at net asset value with no initial sales
charge but are subject to a CDSC of 1.0% on sales made within one year after the
last day of the month of purchase. The CDSC will be assessed in the same manner
and with the same CDSC waivers as with Class B shares. The Fund will not accept
a purchase order for Class C shares in the amount of $1 million or more.

DISTRIBUTION FEE. Class C shares are subject to an annual distribution (12b-1)
fee of up to 1.0% of the average daily net assets of that Class. This fee is
higher than the annual distribution fee paid by Class A. Unlike Class B shares,
Class C shares have no conversion feature and, accordingly, an investor that
purchases Class C shares may be subject to distribution (12b-1) fees applicable
to Class C shares for an indefinite period.

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

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

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

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

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

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

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

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

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

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

MEETING CLASS D ELIGIBILITY MINIMUMS. To meet the $5 million ($25 million for
Morgan Stanley Eligible Plans) initial investment to qualify to purchase Class
D shares you may combine: (1) purchases in a single transaction of Class D
shares of the Fund and other Morgan Stanley Multi-Class Funds; and/or (2)
previous purchases of Class A and Class D shares of Multi-Class Funds and
shares of FSC Funds you currently own, along with shares of Morgan Stanley
Funds you currently own that you acquired in exchange for those shares.

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

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

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, independent
auditors, whose report, along with the Fund's financial statements, is included
in the annual report, which is available upon request.

- ----------------------------------------------------------------------------------------------------------------------------
CLASS A SHARES
FOR THE YEAR ENDED SEPTEMBER 30,
----------------------------------------------------------------------
2002 2001 2000 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------

SELECTED PER SHARE DATA:
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $15.20 $37.74 $31.44 $20.38 $27.50
- ----------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment loss[+/+] (0.11) 0.00 (0.12) (0.07) (0.06)
Net realized and unrealized gain (loss) (2.57) (14.40) 12.89 11.50 (4.75)
------ ------ ------ ------ ------
Total income (loss) from investment operations (2.68) (14.40) 12.77 11.43 (4.81)
- ----------------------------------------------------------------------------------------------------------------------------
Less distributions from net realized gain -- (8.14) (6.47) (0.37) (2.31)
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $12.52 $15.20 $37.74 $31.44 $20.38
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN+ (17.63)% (45.93)% 40.16% 56.81% (18.26)%
- ----------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS(1):
- ----------------------------------------------------------------------------------------------------------------------------
Expenses 1.02% 0.88% 0.85% 0.90% 0.94%
- ----------------------------------------------------------------------------------------------------------------------------
Net investment loss (0.68)% 0.00% (0.35)% (0.25)% (0.23)%
- ----------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
- ----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period, in thousands $14,826 $17,906 $44,008 $15,246 $5,822
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 237% 213% 184% 172% 178%
- ----------------------------------------------------------------------------------------------------------------------------

[+/+] 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.

CLASS B SHARES
FOR THE YEAR ENDED SEPTEMBER 30,
-----------------------------------------------------------------------
2002 2001 2000 1999 1998
- --------------------------------------------------------------------------------------------------------------------------

SELECTED PER SHARE DATA:
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $14.51 $36.70 $30.90 $20.19 $27.46
- --------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment loss[+/+] (0.23) (0.18) (0.44) (0.27) (0.20)
Net realized and unrealized gain (loss) (2.42) (13.87) 12.71 11.35 (4.76)
------ ------ ------ ------ ------
Total income (loss) from investment operations (2.65) (14.05) 12.27 11.08 (4.96)
- --------------------------------------------------------------------------------------------------------------------------
Less distributions from net realized gain -- (8.14) (6.47) (0.37) (2.31)
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $11.86 $14.51 $36.70 $30.90 $20.19
- --------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN+ (18.26)% (46.37)% 39.12% 55.59% (18.88)%
- --------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS(1):
- --------------------------------------------------------------------------------------------------------------------------
Expenses 1.80% 1.70% 1.61% 1.70% 1.69%
- --------------------------------------------------------------------------------------------------------------------------
Net investment loss (1.46)% (0.82)% (1.11)% (1.05)% (0.98)%
- --------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
- --------------------------------------------------------------------------------------------------------------------------
Net assets, end of period, in thousands $276,387 $443,652 $1,056,116 $770,392 $596,834
- --------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 237% 213% 184% 172% 178%
- --------------------------------------------------------------------------------------------------------------------------

[+/+] 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.

CLASS C SHARES
FOR THE YEAR ENDED SEPTEMBER 30,
---------------------------------------------------------------------------
2002 2001 2000 1999 1998
- -------------------------------------------------------------------------------------------------------------------------------

SELECTED PER SHARE DATA:
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $14.54 $36.76 $30.95 $20.19 $27.46
- -------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment loss[+/+] (0.23) (0.18) (0.42) (0.25) (0.23)
Net realized and unrealized gain (loss) (2.43) (13.90) 12.70 11.38 (4.73)
------ ------ ------ ------ ------
Total income (loss) from investment operations (2.66) (14.08) 12.28 11.13 (4.96)
- -------------------------------------------------------------------------------------------------------------------------------
Less distributions from net realized gain -- (8.14) (6.47) (0.37) (2.31)
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $11.88 $14.54 $36.76 $30.95 $20.19
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN+ (18.29)% (46.37)% 39.09% 55.84% (18.88)%
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS(1):
- -------------------------------------------------------------------------------------------------------------------------------
Expenses 1.80% 1.70% 1.61% 1.58% 1.69%
- -------------------------------------------------------------------------------------------------------------------------------
Net investment loss (1.46)% (0.82)% (1.11)% (0.93)% (0.98)%
- -------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
- -------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period, in thousands $5,986 $7,793 $17,007 $4,728 $2,185
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 237% 213% 184% 172% 178%
- -------------------------------------------------------------------------------------------------------------------------------

[+/+] 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.

CLASS D SHARES
FOR THE YEAR ENDED SEPTEMBER 30,
----------------------------------------------------------------------
2002 2001 2000 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------

SELECTED PER SHARE DATA:
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $15.41 $38.07 $31.60 $20.44 $27.51
- ----------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss)[+/+] (0.07) 0.03 0.03 (0.01) 0.01
Net realized and unrealized gain (loss) (2.62) (14.55) 12.91 11.54 (4.77)
------ ------ ------ ------ ------
Total income (loss) from investment operations (2.69) (14.52) 12.94 11.53 (4.76)
- ----------------------------------------------------------------------------------------------------------------------------
Less distributions from net realized gain -- (8.14) (6.47) (0.37) (2.31)
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $12.72 $15.41 $38.07 $31.60 $20.44
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN+ (17.46)% (45.83)% 40.53% 57.14% (18.05)%
- ----------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS(1):
- ----------------------------------------------------------------------------------------------------------------------------
Expenses 0.80% 0.70% 0.61% 0.70% 0.69%
- ----------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (0.46)% 0.18% (0.11)% (0.05)% 0.02%
- ----------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
- ----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period, in thousands $62,606 $57,436 $66,696 $6,625 $3,291
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 237% 213% 184% 172% 178%
- ----------------------------------------------------------------------------------------------------------------------------

[+/+] 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.

NOTES

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

MORGAN STANLEY FUNDS
- --------------------------------------------------------------------------------

o GLOBAL/INTERNATIONAL FUNDS

European Growth Fund

Fund of Funds - International Portfolio

Global Advantage Fund

Global Dividend Growth Securities

Global Utilities Fund

International Fund

International SmallCap Fund

International Value Equity Fund

Japan Fund

Latin American Growth Fund

Pacific Growth Fund

o GROWTH FUNDS

21st Century Trend Fund

Aggressive Equity Fund

All Star Growth Fund

American Opportunities Fund

Biotechnology Fund

Capital Opportunities Trust

Developing Growth Securities Trust

Financial Services Trust

Growth Fund

Health Sciences Trust

Information Fund

KLD Social Index Fund

Market Leader Trust
Nasdaq-100 Index Fund

Natural Resource Development Securities

New Discoveries Fund

Next Generation Trust

Small-Mid Special Value Fund

Special Growth Fund

Special Value Fund

Tax-Managed Growth Fund

Technology Fund

o GROWTH + INCOME FUNDS

Balanced Growth Fund

Balanced Income Fund

Convertible Securities Trust

Dividend Growth Securities

Equity Fund

Fund of Funds - Domestic Portfolio

Fundamental Value Fund

Income Builder Fund

Mid-Cap Value Fund

Real Estate Fund

S&P 500 Index Fund

Strategist Fund

Total Market Index Fund

Total Return Trust

Utilities Fund

Value Fund

Value-Added Market Series/ Equity Portfolio

o INCOME FUNDS

Diversified Income Trust

Federal Securities Trust

High Yield Securities

Intermediate Income Securities

Limited Duration Fund(NL)

Limited Duration U.S. Treasury Trust

Liquid Asset Fund(MM)

North American Government Income Trust

U.S. Government Money Market Trust(MM)

U.S. Government Securities Trust

o TAX-FREE INCOME FUNDS

California Tax-Free Daily Income Trust(MM)

California Tax-Free Income Fund

Hawaii Municipal Trust(FSC)

Limited Term Municipal Trust(NL)

Multi-State Municipal Series Trust(FSC)

New York Municipal Money Market Trust(MM)

New York Tax-Free Income Fund

Tax-Exempt Securities Trust

Tax-Free Daily Income Trust(MM)

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

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

Unless otherwise noted, each listed Morgan Stanley Fund, except for Limited
Duration U.S. Treasury Trust, is a Multi-Class Fund. A Multi-Class Fund is a
mutual fund offering multiple Classes of shares. The other types of funds
are: NL -- No-Load (Mutual) Fund; MM -- Money Market Fund; FSC -- A mutual
fund sold with a front-end sales charge and a distribution (12b-1) fee.

Additional information about the Fund's investments is available in the Fund's
Annual and Semi-Annual Reports to Shareholders. In the Fund's Annual Report,
you will find a discussion of the market conditions and investment strategies
that significantly affected the Fund's performance during its last fiscal year.
The Fund's Statement of Additional Information also provides additional
information about the Fund. The Statement of Additional Information is
incorporated herein by reference (legally is part of this Prospectus). For a
free copy of any of these documents, to request other information about the
Fund, or to make shareholder inquiries, please call:

(800) 869-NEWS

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

www.morganstanley.com/funds

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

TICKER SYMBOLS:

Class A: DGRAX Class C: DGRCX
- ------------------------------ ------------------------------
Class B: DGRBX Class D: DGRDX
- ------------------------------ ------------------------------

(THE FUND'S INVESTMENT COMPANY ACT FILE NO. IS 811-3639)
CLF#37905

[MORGAN STANLEY LOGO]
[GRAPHIC OMITTED]

Morgan Stanley Developing
Growth Securities Trust

A mutual fund that seeks long-term capital growth

Prospectus | November 29, 2002

MORGAN STANLEY DEVELOPING GROWTH SECURITIES TRUST
LETTER TO THE SHAREHOLDERS o MARCH 31, 2003

DEAR SHAREHOLDER:

The six-month period ended March 31, 2003 remained a volatile environment for
growth investors. Following a broad-based decline during the third quarter of
2002, the markets, led by technology stocks, rebounded during the fourth
quarter. Most of the market strength occurred in October and November, led by
semiconductors, software and telecommunications. The market seemed to react
favorably to several factors including more positive third-quarter earnings
announcements, the Federal Reserve's decision to cut short-term interest rates
by 50 basis points, as well as mid-term election results, in which the
Republican Party increased its House majority and gained control of the Senate.
However, stocks gave back some of their gains during December and January, amid
escalating geopolitical uncertainty with respect to Iraq and North Korea.
Concerns remained about the psychology of the consumer, especially in light of
unemployment levels, which hit an eight-year high of six percent. In addition,
energy prices rose sharply triggered by increased tensions with Iraq and an oil
strike in Venezuela.

The first quarter of 2003 began under a continued cloud of global uncertainty.
Once it became clear that diplomacy would not resolve the Iraq situation and war
was imminent, the market rallied as many sidelined investors decided to
participate. From that point on, day-to-day market volatility appeared to be
highly correlated to the latest war report. Consumer sentiment, measured by the
University of Michigan, improved during February and March, but remains
historically low. Mortgage refinance applications averaged roughly 8,800 over
the last three weeks of the quarter, exceeding prior record levels of 6,800
reached last October.

PERFORMANCE AND PORTFOLIO STRATEGY

For the six months ended March 31, 2003, Morgan Stanley Developing Growth
Securities Trust's Class A, B, C, and D shares returned 4.71 percent, 4.30
percent, 4.38 percent, and 4.80 percent, respectively. For the same period, the
Russell 2500 Growth Index(1) returned 4.81 percent. Performance varies among the
Fund's four classes as a result of different expenses associated with the
various classes. These figures assume the reinvestment of all distributions but
do not reflect the deduction of any applicable sales charges. Past performance
is no guarantee of future results.

The Fund performed in line with its benchmark index. Sector allocation detracted
from performance while stock selection contributed positively. The largest
detractor from performance was the underweight and stock selection in the
technology sector, where Intuit, UTStarcom, and Flextronics International had
the most significant negative impact on performance. Stock selection in the
producer durables sector also had a negative impact on performance, where
agricultural equipment manufacturer AGCO detracted.

- --------------
(1) The Russell 2500 Growth Index measures the performance of those companies
in the Russell 2500 Index with higher price-to-book ratios and higher
forecasted growth values. The Index does not include any expenses, fees, or
charges. The Index is unmanaged and should not be considered an investment.

MORGAN STANLEY DEVELOPING GROWTH SECURITIES TRUST
LETTER TO THE SHAREHOLDERS o MARCH 31, 2003 continued

The strongest contribution to performance came from health care. In general, the
Fund benefited from our emphasis on more stable growth companies. The top
contributor was Varian Medical Systems, which designs and manufactures radiation
equipment for treating cancer. The company has experienced strong earnings
growth, reflecting continued adoption of its IMRT technology. Other solid
performers included the biotechnology company, Scios, and the medical waste
company, Stericycle. In addition, the energy sector also contributed to
performance primarily due to stock selection and a moderate overweight position.
Within the energy sector, the main contributors to performance were E&P Company
and XTO Energy while oil services companies such as BJ Services and Key Energy
Services also positively impacted performance. Additional performance resulted
from an overweight and stock selection in utilities, one of the best performing
sectors in the Index.

LOOKING AHEAD

The commencement of the war and subsequent end of armed conflict in Iraq
eliminated one major uncertainty hampering the markets. However, we await
reports of stronger economic data to confirm the strength that we are witnessing
in some parts of the economy. The war did cause some companies across all
sectors of the economy to restrain their spending, which appears to be a brief
pause indicating its impact on corporate fundamentals are only transitory. We
are now about halfway through the March reporting period for corporate earnings.
While some companies are still cautious in their outlook, many have reported
earnings that have exceeded the expectations of Wall Street. Although it may
still be too soon to be outright bullish, we are growing more optimistic about
the economy and have begun to incrementally shift the portfolio toward more
cyclical growth stocks. As always, we remain very focused on fundamental company
research.

We appreciate your ongoing support of the Morgan Stanley Developing Growth
Securities Trust and look forward to the opportunity to meet your investment
needs.

Very truly yours,

[SIGNATURE OMITTED] [SIGNATURE OMITTED]
/s/ Charles A. Fiumefreddo /s/ Mitchell M. Merin
Chairman of the Board President and CEO

MORGAN STANLEY DEVELOPING GROWTH SECURITIES TRUST
FUND PERFORMANCE o MARCH 31, 2003

AVERAGE ANNUAL TOTAL RETURNS - PERIOD ENDED MARCH 31, 2003
- --------------------------------------------------------------------------------
CLASS A SHARES*
- --------------------------------------------------------------------------------
1 Year (25.64)%(1) (29.54)%(2)
5 Years (4.44)%(1) (5.47)%(2)
Since Inception (7/28/97) (1.16)%(1) (2.10)%(2)

CLASS B SHARES**
- --------------------------------------------------------------------------------
1 Year (26.19)%(1) (29.88)%(2)
5 Years (5.19)%(1) (5.42)%(2)
10 Years 6.83 %(1) 6.83 %(2)

CLASS C SHARES+
- --------------------------------------------------------------------------------
1 Year (26.19)%(1) (26.93)%(2)
5 Years (5.16)%(1) (5.16)%(2)
Since Inception (7/28/97) (1.90)%(1) (1.90)%(2)

CLASS D SHARES++
- --------------------------------------------------------------------------------
1 Year (25.45)%(1)
5 Years (4.23)%(1)
Since Inception (7/28/97) (0.95)%(1)

PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE. WHEN YOU SELL FUND SHARES, THEY MAY BE WORTH
LESS THAN THEIR ORIGINAL COST. THE TABLE DOES NOT REFLECT THE DEDUCTION OF TAXES
THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND
SHARES. PERFORMANCE FOR CLASS A, CLASS B, CLASS C, AND CLASS D SHARES WILL VARY
DUE TO DIFFERENCES IN SALES CHARGES AND EXPENSES.

- --------------
(1) Figure shown assumes reinvestment of all distributions and does not reflect
the deduction of any sales charges.
(2) Figure shown assumes reinvestment of all distributions and the deduction of
the maximum applicable sales charge. See the Fund's current prospectus for
complete details on fees and sales charges.
* The maximum front-end sales charge for Class A is 5.25%.
** The maximum contingent deferred sales charge (CDSC) for Class B is 5.0%.
The CDSC declines to 0% after six years.
+ The maximum CDSC for Class C is 1.0% for shares redeemed within one year of
purchase.
++ Class D has no sales charge.

MORGAN STANLEY DEVELOPING GROWTH SECURITIES TRUST
PORTFOLIO OF INVESTMENTS o MARCH 31, 2003 (UNAUDITED)

NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------

Common Stocks (94.3%)
Aerospace & Defense (0.8%)
35,100 Alliant Techsystems, Inc.* ....... $ 1,895,751
180,600 Orbital Sciences Corp.* .......... 933,702
------------
2,829,453
------------
Air Freight/Couriers (2.5%)
90,500 C.H. Robinson Worldwide,
Inc. ........................... 2,959,350
160,700 Expeditors International of
Washington, Inc. ............... 5,777,165
------------
8,736,515
------------
Airlines (0.4%)
53,600 JetBlue Airways Corp.* ........... 1,485,256
------------
Apparel/Footwear (0.5%)
49,800 Coach, Inc.* ..................... 1,908,834
------------
Apparel/Footwear Retail (4.3%)
247,925 Abercrombie & Fitch Co.
(Class A)* ..................... 7,445,188
184,825 Chico's FAS, Inc.* ............... 3,696,500
119,600 Hot Topic, Inc.* ................. 2,787,876
27,800 Ross Stores, Inc. ................ 1,004,970
------------
14,934,534
------------
Biotechnology (7.0%)
76,400 Affymetrix, Inc.* ................ 1,986,400
48,500 Amylin Pharmaceuticals,
Inc.* .......................... 785,700
152,200 BioMarin Pharmaceutical,
Inc.* .......................... 1,727,470
106,550 Celgene Corp.* ................... 2,778,824
272,450 Dendreon Corp.* .................. 1,277,790
91,900 Gen-Probe Inc.* .................. 2,080,616
77,600 Genzyme Corp. (General
Division)* ..................... 2,828,520
111,650 IDEC Pharmaceuticals Corp.*....... 3,842,881
103,200 MedImmune, Inc.* ................. 3,388,056
184,500 NPS Pharmaceuticals, Inc.* ....... 2,852,370
31,400 Techne Corp.* .................... 649,038
------------
24,197,665
------------

NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------

Broadcasting (2.6%)
203,100 Radio One, Inc. (Class D)* ....... $ 2,689,044
57,000 Univision Communications,
Inc. (Class A)* ................ 1,397,070
133,125 Westwood One, Inc.* .............. 4,158,825
150,200 XM Satellite Radio Holdings
Inc. (Class A)* ................ 884,678
------------
9,129,617
------------
Cable/Satellite TV (0.9%)
104,000 EchoStar Communications
Corp. (Class A)* ............... 3,003,520
------------
Casino/Gaming (3.5%)
270,390 GTECH Holdings Corp.* ............ 8,830,937
191,250 Penn National Gaming, Inc.* ...... 3,394,687
------------
12,225,624
------------
Commercial Printing/Forms (1.1%)
99,600 Deluxe Corp. ..................... 3,996,948
------------
Computer Communications (1.1%)
102,400 Emulex Corp.* .................... 1,960,960
233,600 Juniper Networks, Inc.* .......... 1,908,512
------------
3,869,472
------------
Computer Peripherals (1.6%)
171,850 Storage Technology Corp.* ........ 3,474,807
33,350 Zebra Technologies Corp.
(Class A)* ..................... 2,147,740
------------
5,622,547
------------
Contract Drilling (0.5%)
51,700 Patterson-UTI Energy, Inc.* ...... 1,673,012
------------
Data Processing Services (1.1%)
19,600 Affiliated Computer Services,
Inc. (Class A)* ................ 867,496
52,200 BISYS Group, Inc. (The)* ......... 851,904
87,100 CheckFree Corp.* ................. 1,958,008
------------
3,677,408
------------
Discount Stores (1.8%)
215,600 Dollar Tree Stores, Inc.* ........ 4,290,440
71,600 Fred's, Inc. ..................... 1,994,060
------------
6,284,500
------------

See Notes to Financial Statements

MORGAN STANLEY DEVELOPING GROWTH SECURITIES TRUST
PORTFOLIO OF INVESTMENTS o MARCH 31, 2003 (UNAUDITED) continued

NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------

Electronic Components (0.4%)
37,150 QLogic Corp.* .................... $ 1,379,751
------------
Electronic Distributors (0.2%)
156,100 CompuCom Systems, inc.* .......... 546,350
------------
Electronic Production Equipment (1.4%)
24,900 KLA-Tencor Corp.* ................ 894,956
84,350 Lam Research Corp.* .............. 960,662
60,500 MKS Instruments, Inc.* ........... 756,250
39,150 Novellus Systems, Inc.* .......... 1,067,620
24,000 Synopsys, Inc.* .................. 1,021,440
------------
4,700,928
------------
Engineering & Construction (0.5%)
42,600 Jacobs Engineering Group,
Inc.* .......................... 1,789,626
------------
Finance/Rental/Leasing (0.8%)
6,500 Comdisco Holding Company,
Inc.* .......................... 875,225
53,000 Doral Financial Corp. ............ 1,873,550
------------
2,748,775
------------
Financial Publishing/Services (0.9%)
78,500 Dun & Bradstreet Corp.* .......... 3,002,625
------------
Food: Major Diversified (0.5%)
213,000 Del Monte Foods Co.* ............. 1,588,980
------------
Food: Specialty/Candy (1.8%)
52,500 Hershey Foods Corp. .............. 3,289,650
169,950 Peet's Coffee & Tea, Inc.* ....... 2,817,771
------------
6,107,421
------------
Gas Distributors (0.6%)
47,300 UGI Corp. ........................ 2,161,610
------------
Home Building (1.0%)
10,600 NVR, Inc.* ....................... 3,487,400
------------
Hotels/Resorts/Cruiselines (1.8%)
414,400 Royal Caribbean Cruises Ltd....... 6,228,432
------------
Information Technology Services (0.4%)
96,900 PeopleSoft, Inc.* ................ 1,482,570
------------
Insurance Brokers/Services (0.9%)
102,850 Hilb, Rogal & Hamilton Co. ....... 3,213,034
------------

NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------

Internet Software/Services (0.4%)
127,750 BEA Systems, Inc.* ............... $ 1,301,772
------------
Managed Health Care (1.7%)
252,800 Caremark Rx, Inc.* ............... 4,588,320
30,700 Mid Atlantic Medical Services,
Inc.* .......................... 1,244,885
------------
5,833,205
------------
Medical Specialties (6.6%)
45,700 Beckman Coulter, Inc. ............ 1,555,171
45,600 DENTSPLY International, Inc....... 1,586,424
128,250 Merit Medical Systems, Inc.*...... 2,443,162
66,100 St. Jude Medical, Inc.* .......... 3,222,375
59,300 SurModics, Inc. * ................ 1,832,963
212,850 Varian Medical Systems,
Inc.* .......................... 11,479,001
14,600 Zimmer Holdings, Inc.* ........... 709,998
------------
22,829,094
------------
Miscellaneous Commercial
Services (2.1%)
101,900 Corporate Executive Board
Co. (The)* ..................... 3,629,678
72,850 Fair, Isaac, Inc. ................ 3,702,237
------------
7,331,915
------------
Movies/Entertainment (0.5%)
34,250 Pixar, Inc.* ..................... 1,852,240
------------
Office Equipment/Supplies (0.4%)
24,300 Avery Dennison Corp. ............. 1,425,681
------------
Oil & Gas Production (1.6%)
8,700 Apache Corp. ..................... 537,138
194,500 Hurricane Hydrocarbons Ltd.
(Class A) (Canada)* ............ 1,968,340
11,000 Kerr-McGee Corp. ................. 446,710
145,733 XTO Energy Inc. .................. 2,768,927
------------
5,721,115
------------
Oil Refining/Marketing (0.5%)
44,600 Valero Energy Corp. .............. 1,845,548
------------
Oilfield Services/Equipment (1.7%)
33,700 BJ Services Co.* ................. 1,158,943
66,000 Halliburton Co. .................. 1,368,180
90,050 Key Energy Services, Inc.* ....... 907,704

See Notes to Financial Statements

MORGAN STANLEY DEVELOPING GROWTH SECURITIES TRUST
PORTFOLIO OF INVESTMENTS o MARCH 31, 2003 (UNAUDITED) continued

NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------

53,200 Lone Star Technologies, Inc.*....... $ 1,123,584
38,650 Smith International, Inc.* ......... 1,361,640
------------
5,920,051
------------
Other Consumer Services (4.4%)
100,750 Block (H.&R.), Inc. ................ 4,301,018
23,100 Career Education Corp.* ............ 1,130,052
94,050 Corinthian Colleges, Inc.* ......... 3,714,975
16,500 Expedia, Inc. * .................... 852,390
20,000 Hotels.com (Class A)* .............. 1,153,500
92,500 Weight Watchers International,
Inc.* ............................ 4,259,625
------------
15,411,560
------------
Packaged Software (2.9%)
80,350 Intuit Inc.* ....................... 2,989,020
54,000 Mercury Interactive Corp.* ......... 1,602,720
84,150 Symantec Corp.* .................... 3,296,997
119,700 VERITAS Software Corp.* ............ 2,104,326
------------
9,993,063
------------
Pharmaceuticals: Other (1.3%)
28,900 Altana AG (ADR) (Germany)* ......... 1,366,681
12,900 Atlana AG (Germany)* ............... 605,011
63,800 Teva Pharmaceutical
Industries Ltd. (ADR)
(Israel) ......................... 2,657,270
------------
4,628,962
------------
Property - Casualty Insurers (0.5%)
46,150 RenaissanceRe Holdings Ltd.
(Bermuda) ........................ 1,848,308
------------
Publishing: Newspapers (0.6%)
39,350 Media General, Inc. (Class A)....... 1,937,594
------------
Recreational Products (1.5%)
65,500 International Game
Technology* ...................... 5,364,450
------------
Regional Banks (0.9%)
77,150 Banknorth Group, Inc. .............. 1,682,642
33,600 UCBH Holdings, Inc. ................ 1,477,728
------------
3,160,370
------------

NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------

Restaurants (5.1%)
76,700 Brinker International, Inc.* ....... $ 2,339,350
107,100 Chicago Pizza & Brewery,
Inc.* ............................ 751,842
81,950 Outback Steakhouse, Inc.
(The) ............................ 2,899,391
49,250 P.F. Chang's China Bistro,
Inc.* ............................ 1,822,250
218,550 Sonic Corp.* ....................... 5,564,283
126,100 Starbucks Corp.* ................... 3,248,336
42,150 Wendy's International, Inc. ........ 1,159,547
------------
17,784,999
------------
Savings Banks (2.5%)
60,350 New York Community
Bancorp, Inc. .................... 1,798,430
237,300 Provident Financial Services,
Inc.* ............................ 3,751,713
185,400 TierOne Corp.* ..................... 3,049,830
------------
8,599,973
------------
Semiconductors (5.0%)
242,700 Altera Corp.* ...................... 3,286,158
294,600 Exar Corp.* ........................ 3,744,366
65,500 International Rectifier Corp.*...... 1,288,385
92,200 Marvell Technology Group Ltd.
(Bermuda)* ....................... 1,953,718
51,000 Maxim Integrated Products,
Inc. ............................. 1,842,120
115,662 Microchip Technology Inc. .......... 2,301,674
134,000 Xilinx, Inc.* ...................... 3,136,940
------------
17,553,361
------------
Services to the Health Industry (4.1%)
45,100 Accredo Health, Inc.* .............. 1,097,689
62,000 Laboratory Corp. of America
Holdings* ........................ 1,838,300
301,700 Stericycle, Inc.* .................. 11,340,903
------------
14,276,892
------------
Specialty Stores (2.9%)
90,350 Bed Bath & Beyond Inc.* ............ 3,120,689
100,100 Dick's Sporting Goods, Inc.*........ 2,293,291
140,300 Tractor Supply Company* ............ 4,632,706
------------
10,046,686
------------

See Notes to Financial Statements

MORGAN STANLEY DEVELOPING GROWTH SECURITIES TRUST
PORTFOLIO OF INVESTMENTS o MARCH 31, 2003 (UNAUDITED) continued

NUMBER OF
SHARES VALUE
- -------------------------------------------------------------

Specialty Telecommunications (0.9%)
107,000 Boston Communications
Group, Inc.* ................... $ 1,675,620
98,400 IDT Corp. (Class B)* ............. 1,484,856
-----------
3,160,476
-----------
Telecommunication Equipment (2.0%)
30,800 Garmin Ltd. (Cayman
Islands)* ...................... 1,102,640
58,400 Trimble Navigation Ltd.* ......... 1,106,096
235,200 UTStarcom, Inc.* ................. 4,701,648
-----------
6,910,384
-----------
Trucking (0.5%)
27,600 Landstar System, Inc.* ........... 1,587,000
-----------
Water Utilities (1.6%)
249,050 Philadelphia Suburban Corp. ...... 5,466,648
-----------
Wireless Telecommunications (1.2%)
315,100 Nextel Communications, Inc.
(Class A)* ..................... 4,219,189
-----------
Total Common Stocks
(Cost $322,968,899)............... 328,022,943
-----------
PRINCIPAL
AMOUNT IN
THOUSANDS
- -----------
Convertible Bonds (2.1%)

Cable/Satellite TV (1.2%)
$ 4,240 EchoStar Communications
Corp. 4.875% due
01/01/07 ................. 4,107,500
------------
Oilfield Services/Equipment (0.1%)
380 Key Energy Group, Inc. 5.00%
due 09/15/04 ............. 370,975
------------

PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ----------- ---------------

Semiconductors (0.8%)
$ 2,900 ASM Lithography Holding N.V.
- 144A** (Netherlands)
4.25% due 11/30/04 .......... $ 2,657,270
------------
Total Convertible Bonds
(Cost $6,897,362)............ 7,135,745
------------
Short-Term Investment (3.9%)
Repurchase Agreement

13,607 Joint repurchase agreement
account 1.345% due
04/01/03 (dated
03/31/03; proceeds
$ 13,607,508) (a)
(Cost $13,607,000).......... 13,607,000
------------
Total Investments
(Cost $343,473,261) (b)......... 100.3 % 348,765,688

Liabilities in Excess of Other
Assets ......................... (0.3) (1,072,978)
----- ------------
Net Assets ..................... 100.0 % $347,692,710
===== ============

- ---------------------------
ADR American Depository Receipt.
* Non-income producing security.
** Resale is restricted to qualified institutional investors.
(a) Collateralized by federal agency and U.S. Treasury obligations.
(b) The aggregate cost for federal income tax purposes approximates the
aggregate cost for book purposes. The aggregate gross unrealized
appreciation is $24,114,755 and the aggregate gross unrealized depreciation
is $18,822,328, resulting in net unrealized appreciation of $5,292,427.

See Notes to Financial Statements

MORGAN STANLEY DEVELOPING GROWTH SECURITIES TRUST
FINANCIAL STATEMENTS

Statement of Assets and Liabilities
March 31, 2003 (unaudited)

Assets:

Investments in securities, at value
(cost $343,473,261)............................ $348,765,688
Receivable for:
Investments sold ........................... 10,809,557
Shares of beneficial interest sold ......... 642,514
Interest ................................... 94,448
Dividends .................................. 90,100
Prepaid expenses and other assets ............... 93,554
------------
Total Assets ................................. 360,495,861
------------
Liabilities:
Payable for:
Investments purchased ...................... 11,787,963
Shares of beneficial interest
redeemed ................................ 474,166
Distribution fee ........................... 222,232
Investment management fee .................. 147,238
Accrued expenses and other payables ............. 171,552
------------
Total Liabilities ............................ 12,803,151
------------
Net Assets ................................... $347,692,710
============
Composition of Net Assets:
Paid-in-capital ................................. $685,320,421
Net unrealized appreciation ..................... 5,292,427
Accumulated net investment loss ................. (2,153,092)
Accumulated net realized loss ................... (340,767,046)
------------
Net Assets ................................... $347,692,710
============
Class A Shares:
Net Assets ...................................... $17,348,304
Shares Outstanding (unlimited authorized,
$.01 par value)................................ 1,322,907
Net Asset Value Per Share .................... $13.11
======
Maximum Offering Price Per Share,
(net asset value plus 5.54% of net
asset value) ............................ $13.84
======
Class B Shares:
Net Assets ...................................... $251,134,607
Shares Outstanding (unlimited authorized,
$.01 par value)................................ 20,307,650
Net Asset Value Per Share .................... $12.37
======
Class C Shares:
Net Assets ...................................... $5,542,624
Shares Outstanding (unlimited authorized,
$.01 par value)................................ 447,041
Net Asset Value Per Share .................... $12.40
======
Class D Shares:
Net Assets ...................................... $73,667,175
Shares Outstanding (unlimited authorized,
$.01 par value)................................ 5,525,618
Net Asset Value Per Share .................... $13.33
======

Statement of Operations
For the six months ended March 31, 2003 (Unaudited)

Net Investment Loss:

Income
Dividends (net of $3,111 foreign
withholding tax) ............................ $ 713,982
Interest ...................................... 225,348
-----------
Total Income ............................... 939,330
-----------
Expenses
Distribution fee (Class A shares) ............. 10,724
Distribution fee (Class B shares) ............. 1,354,443
Distribution fee (Class C shares) ............. 27,280
Investment management fee ..................... 909,574
Transfer agent fees and expenses .............. 597,311
Shareholder reports and notices ............... 39,536
Registration fees ............................. 28,938
Professional fees ............................. 26,131
Custodian fees ................................ 23,645
Trustees' fees and expenses ................... 10,532
Other ......................................... 6,747
-----------
Total Expenses ............................. 3,034,861
-----------
Net Investment Loss ........................ (2,095,531)
-----------
Net Realized and Unrealized Gain (Loss):
Net realized loss ............................. (26,966,263)
Net change in unrealized appreciation ......... 44,616,046
-----------
Net Gain ................................... 17,649,783
-----------
Net Increase .................................. $15,554,252
===========

See Notes to Financial Statements

MORGAN STANLEY DEVELOPING GROWTH SECURITIES TRUST
FINANCIAL STATEMENTS continued

STATEMENT OF CHANGES IN NET ASSETS

FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
MARCH 31, 2003 SEPTEMBER 30, 2002
---------------- -------------------

(unaudited)
Increase (Decrease) in Net Assets:

Operations:
Net investment loss ..................................................................... $ (2,095,531) $ (6,715,489)
Net realized loss ....................................................................... (26,966,263) (100,007,116)
Net change in unrealized appreciation (depreciation) .................................... 44,616,046 31,007,492
---------------- -------------------
Net Increase (Decrease) ............................................................... 15,554,252 (75,715,113)

Net decrease from transactions in shares of beneficial interest ......................... (27,666,419) (91,266,754)
---------------- -------------------

Net Decrease .......................................................................... (12,112,167) (166,981,867)

Net Assets:
Beginning of period ..................................................................... 359,804,877 526,786,744
---------------- -------------------
End of Period
(Including accumulated net investment losses of $2,153,092 and $57,561, respectively).... $ 347,692,710 $ 359,804,877
================ ===================

See Notes to Financial Statements

MORGAN STANLEY DEVELOPING GROWTH SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS o MARCH 31, 2003 (UNAUDITED)

1. ORGANIZATION AND ACCOUNTING POLICIES

Morgan Stanley Developing Growth Securities Trust (the "Fund") is registered
under the Investment Company Act of 1940, as amended (the "Act"), as a
diversified, open-end management investment company. The Fund's investment
objective is long-term capital growth. The Fund was organized as a Massachusetts
business trust on December 28, 1982 and commenced operations on April 29, 1983.
On July 28, 1997, the Fund converted to a multiple class share structure.

The Fund offers Class A shares, Class B shares, Class C shares and Class D
shares. The four classes are substantially the same except that most Class A
shares are subject to a sales charge imposed at the time of purchase and some
Class A shares, and most Class B shares and Class C shares are subject to a
contingent deferred sales charge imposed on shares redeemed within one year, six
years and one year, respectively. Class D shares are not subject to a sales
charge. Additionally, Class A shares, Class B shares and Class C shares incur
distribution expenses.

The following is a summary of significant accounting policies:

A. VALUATION OF INVESTMENTS -- (1) an equity portfolio security listed or traded
on the New York or American Stock Exchange, Nasdaq, 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 latest bid price (in cases
where securities are traded on more than one exchange, the securities are valued
on the exchange designated as the primary market pursuant to procedures adopted
by the Trustees); (2) all other portfolio securities for which over-the-counter
market quotations are readily available are valued at the latest available bid
price; (3) when market quotations are not readily available, including
circumstances under which it is determined by Morgan Stanley Investment Advisors
Inc. (the "Investment Manager") that sale and bid prices are not reflective of a
security's market value, portfolio securities are valued at their fair value as
determined in good faith under procedures established by and under the general
supervision of the Trustees; (4) certain portfolio securities may be valued by
an outside pricing service approved by the Trustees; and (5) short-term debt
securities having a maturity date of more than sixty days at time of purchase
are valued on a mark-to-market basis until sixty days prior to maturity and
thereafter at amortized cost based on their value on the 61st day. Short-term
debt securities having a maturity date of sixty days or less at the time of
purchase are valued at amortized cost.

B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined by the identified cost method.
Dividend income and other distributions are recorded on the ex-dividend date.
Discounts are accreted and premiums are amortized over the life of the
respective securities. Interest income is accrued daily.

MORGAN STANLEY DEVELOPING GROWTH SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS o MARCH 31, 2003 (UNAUDITED) continued

C. REPURCHASE AGREEMENTS -- Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the Fund, along with other affiliated
entities managed by the Investment Manager, may transfer uninvested cash
balances into one or more joint repurchase agreement accounts. These balances
are invested in one or more repurchase agreements and are collateralized by
cash, U.S. Treasury or federal agency obligations. The Fund may also invest
directly with institutions in repurchase agreements. The Fund's custodian
receives the collateral, which is marked-to-market daily to determine that the
value of the collateral does not decrease below the repurchase price plus
accrued interest.

D. MULTIPLE CLASS ALLOCATIONS -- Investment income, expenses (other than
distribution fees), and realized and unrealized gains and losses are allocated
to each class of shares based upon the relative net asset value on the date such
items are recognized. Distribution fees are charged directly to the respective
class.

E. FOREIGN CURRENCY TRANSLATION AND FORWARD FOREIGN CURRENCY CONTRACTS -- The
books and records of the Fund are maintained in U.S. dollars as follows: (1) the
foreign currency market value of investment securities, other assets and
liabilities and forward foreign currency contracts ("forward contracts") are
translated at the exchange rates prevailing at the end of the period; and (2)
purchases, sales, income and expenses are translated at the exchange rates
prevailing on the respective dates of such transactions. The resultant exchange
gains and losses are recorded as realized and unrealized gain/loss on foreign
exchange transactions. Pursuant to U.S. Federal income tax regulations, certain
foreign exchange gains/losses included in realized and unrealized gain/loss are
included in or are a reduction of ordinary income for federal income tax
purposes. The Fund does not isolate that portion of the results of operations
arising as a result of changes in the foreign exchange rates from the changes in
the market prices of the securities. Forward contracts are valued daily at the
appropriate exchange rates. The resultant unrealized exchange gains and losses
are recorded as unrealized foreign currency gain or loss. The Fund records
realized gains or losses on delivery of the currency or at the time the forward
contract is extinguished (compensated) by entering into a closing transaction
prior to delivery.

F. FEDERAL INCOME TAX POLICY -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute substantially all of its taxable income to its
shareholders. Accordingly, no federal income tax provision is required.

G. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- Dividends and distributions to
shareholders are recorded on the ex-dividend date. The amount of dividends and
distributions from net investment income and net realized capital gains are
determined in accordance with federal income tax regulations which may differ
from generally accepted accounting principles. These "book/tax" differences are
either considered temporary or permanent in nature. To the extent these
differences are permanent in nature, such amounts

MORGAN STANLEY DEVELOPING GROWTH SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS o MARCH 31, 2003 (UNAUDITED) continued

are reclassified within the capital accounts based on their federal tax-basis
treatment; temporary differences do not require reclassification. Dividends and
distributions which exceed net investment income and net realized capital gains
for financial reporting purposes but not for tax purposes are reported as
dividends in excess of net investment income or distributions in excess of net
realized capital gains. To the extent they exceed net investment income and net
realized capital gains for tax purposes, they are reported as distributions of
paid-in-capital.

H. USE OF ESTIMATES -- The preparation of financial statements in accordance
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures.
Actual results could differ from those estimates.

2. INVESTMENT MANAGEMENT AGREEMENT

Pursuant to an Investment Management Agreement, the Fund pays the Investment
Manager a management fee, accrued daily and payable monthly, by applying the
following annual rates to the net assets of the Fund determined as of the close
of each business day: 0.50% to the portion of the daily net assets not exceeding
$500 million and 0.475% to the portion of the daily net assets exceeding $500
million.

3. PLAN OF DISTRIBUTION

Shares of the Fund are distributed by Morgan Stanley Distributors Inc. (the
"Distributor"), an affiliate of the Investment Manager. The Fund has adopted a
Plan of Distribution (the "Plan") pursuant to Rule 12b-1 under the Act. The Plan
provides that the Fund will pay the Distributor a fee which is accrued daily and
paid monthly at the following annual rates: (i) Class A - up to 0.25% of the
average daily net assets of Class A; (ii) Class B - 1.0% of the lesser of: (a)
the average daily aggregate gross sales of the Class B shares since the
inception of the Fund (not including reinvestment of dividend or capital gain
distributions) less the average daily aggregate net asset value of the Class B
shares redeemed since the Fund's inception upon which a contingent deferred
sales charge has been imposed or waived; or (b) the average daily net assets of
Class B; and (iii) Class C - up to 1.0% of the average daily net assets of Class
C.

In the case of Class B shares, provided that the Plan continues in effect, any
cumulative expenses incurred by the Distributor but not yet recovered may be
recovered through the payment of future distribution fees from the Fund pursuant
to the Plan and contingent deferred sales charges paid by investors upon
redemption of Class B shares. 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 contingent deferred sales charges 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.
The Distributor has advised the Fund that such excess amounts totaled $9,688,583
at March 31, 2003.

MORGAN STANLEY DEVELOPING GROWTH SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS o MARCH 31, 2003 (UNAUDITED) continued

In the case of Class A shares and Class C shares, expenses incurred pursuant to
the Plan in any calendar year in excess of 0.25% or 1.0% of the average daily
net assets of Class A or Class C, respectively, will not be reimbursed by the
Fund through payments in any subsequent year, except that expenses representing
a gross sales credit to Morgan Stanley Financial Advisors or other selected
broker-dealer representatives may be reimbursed in the subsequent calendar year.
For the six months ended March 31, 2003, the distribution fee was accrued for
Class A shares and Class C shares at the annual rate of 0.13% and 0.90%,
respectively.

The Distributor has informed the Fund that for the six months ended March 31,
2003, it received contingent deferred sales charges from certain redemptions of
the Fund's Class A shares, Class B shares and Class C shares of $30, $123,162
and $1,110, respectively and received $3,695 in front-end sales charges from
sales of the Fund's Class A shares. The respective shareholders pay such charges
which are not an expense of the Fund.

4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES

The cost of purchases and proceeds from sales of portfolio securities, excluding
short-term investments, for the six months ended March 31, 2003 aggregated
$342,946,295 and $374,885,798, respectively. Included in the aforementioned
transactions are purchases and sales of $1,104,510 and $272,565, respectively,
for portfolio transactions with other Morgan Stanley funds, including a realized
gain of $67,521.

For the six months ended March 31, 2003, the Fund incurred brokerage commissions
of $52,821 with Morgan Stanley & Co., Inc., an affiliate of the Investment
Manager and Distributor, for portfolio transactions executed on behalf of the
Fund. At March 31, 2003, the Fund's receivable for investments sold and payable
for investments purchased included unsettled trades with Morgan Stanley & Co. of
$1,620,679 and $1,142,518, respectively.

Morgan Stanley Trust, an affiliate of the Investment Manager and Distributor, is
the Fund's transfer agent. At March 31, 2003, the Fund had transfer agent fees
and expenses payable of approximately $25,900.

The Fund has an unfunded noncontributory defined benefit pension plan covering
all independent Directors of the Fund who will have served as independent
Directors for at least five years at the time of retirement. Benefits under this
plan are based on years of service and compensation during the last five years
of service. Aggregate pension costs for the six months ended March 31, 2003
included in Directors' fees and expenses in the Statement of Operations amounted
to $3,754. At March 31, 2003, the Fund had an accrued pension liability of
$58,347 which is included in accrued expenses in the Statement of Assets and
Liabilities.

MORGAN STANLEY DEVELOPING GROWTH SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS o MARCH 31, 2003 (UNAUDITED) continued

5. FEDERAL INCOME TAX STATUS

As of September 30, 2002, the Fund had a net capital loss carryover of
approximately $221,854,000 of which $8,839,000 will be available through
September 30, 2009 and $213,015,000 will be available through September 30, 2010
to offset future capital gains to the extent provided by regulations.

Capital losses incurred after October 31 ("post-October losses") within the
taxable year are deemed to arise on the first business day of the Fund's next
taxable year. The Fund incurred and will elect to defer net capital losses of
approximately $84,849,000 during fiscal 2002.

As of September 30, 2002, the Fund had temporary book/tax differences primarily
attributable to post-October losses and capital loss deferrals on wash sales.

6. SHARES OF BENEFICIAL INTEREST

Transactions in shares of beneficial interest were as follows:

FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
MARCH 31, 2003 SEPTEMBER 30, 2002
--------------------------------- --------------------------------
(unaudited)
SHARES AMOUNT SHARES AMOUNT
--------------- ----------------- --------------- ----------------

CLASS A SHARES
Sold ........................... 557,946 $ 7,453,528 686,292 $ 11,260,111
Redeemed ....................... (418,963) (5,558,435) (680,071) (11,127,780)
-------- ------------- -------- --------------
Net increase - Class A ......... 138,983 1,895,093 6,221 132,331
-------- ------------- -------- --------------
CLASS B SHARES
Sold ........................... 391,656 4,917,492 1,654,466 26,324,800
Redeemed ....................... (3,387,839) (41,994,981) (8,923,340) (136,371,716)
---------- ------------- ---------- --------------
Net decrease - Class B ......... (2,996,183) (37,077,489) (7,268,874) (110,046,916)
---------- ------------- ---------- --------------
CLASS C SHARES
Sold ........................... 133,583 1,713,327 290,919 4,705,017
Redeemed ....................... (190,208) (2,403,244) (323,089) (5,041,970)
---------- ------------- ---------- --------------
Net decrease - Class C ......... (56,625) (689,917) (32,170) (336,953)
---------- ------------- ---------- --------------
CLASS D SHARES
Sold ........................... 1,404,120 18,842,760 3,190,532 51,602,672
Redeemed ....................... (799,451) (10,636,866) (1,996,435) (32,617,888)
---------- ------------- ---------- --------------
Net increase - Class D ......... 604,669 8,205,894 1,194,097 18,984,784
---------- ------------- ---------- --------------
Net decrease in Fund ........... (2,309,156) $ (27,666,419) (6,100,726) $ (91,266,754)
========== ============= ========== ==============

MORGAN STANLEY DEVELOPING GROWTH SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS O MARCH 31, 2003 (UNAUDITED) continued

7. PURPOSES OF AND RISKS RELATING TO CERTAIN FINANCIAL INSTRUMENTS

The Fund may enter into forward contracts to facilitate settlement of foreign
currency denominated portfolio transactions or to manage foreign currency
exposure associated with foreign currency denominated securities.

Forward contracts involve elements of market risk in excess of the amounts
reflected in the Statement of Assets and Liabilities. The Fund bears the risk of
an unfavorable change in the foreign exchange rates underlying the forward
contracts. Risks may also arise upon entering into these contracts from the
potential inability of the counterparties to meet the terms of their contracts.

At March 31, 2003, there were no outstanding forward contracts.

MORGAN STANLEY DEVELOPING GROWTH SECURITIES TRUST
FINANCIAL HIGHLIGHTS

Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:

FOR THE SIX FOR THE YEAR ENDED SEPTEMBER 30,
MONTHS ENDED ----------------------------------------------------------
MARCH 31, 2003 2002 2001 2000 1999 1998
-------------- ------ ------ ------ ------ ------
(unaudited)

Class A Shares

Selected Per Share Data:

Net asset value, beginning of period ............. $12.52 $15.20 $37.74 $31.44 $20.38 $27.50
------ ------ ------ ------ ------ ------
Income (loss) from investment operations:
Net investment loss[+/+]......................... (0.03) (0.11) 0.00 (0.12) (0.07) (0.06)
Net realized and unrealized gain (loss) ......... 0.62 (2.57) (14.40) 12.89 11.50 (4.75)
------ ------ ------ ------ ------ ------
Total income (loss) from investment operations ... 0.59 (2.68) (14.40) 12.77 11.43 (4.81)
------ ------ ------ ------ ------ ------
Less distributions from net realized gain ........ - - (8.14) (6.47) (0.37) (2.31)
------ ------ ------ ------ ------ ------
Net asset value, end of period ................... $13.11 $12.52 $15.20 $37.74 $31.44 $20.38
====== ====== ====== ====== ====== ======

Total Return+..................................... 4.71%(1) (17.63)% (45.93)% 40.16% 56.81% (18.26)%

Ratios to Average Net Assets(3):
Expenses ......................................... 1.04%(2) 1.02% 0.88% 0.85% 0.90% 0.94%
Net investment loss .............................. (0.52)%(2) (0.68)% 0.00% (0.35)% (0.25)% (0.23)%

Supplemental Data:
Net assets, end of period, in thousands .......... $17,348 $14,826 $17,906 $44,008 $15,246 $5,822
Portfolio turnover rate .......................... 98%(1) 237% 213% 184% 172% 178%

- ------------
[+/+] 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) Not annualized.
(2) Annualized.
(3) Reflects overall Fund ratios for investment income and non-class
specific expenses.

See Notes to Financial Statements

MORGAN STANLEY DEVELOPING GROWTH SECURITIES TRUST
FINANCIAL HIGHLIGHTS continued

FOR THE SIX FOR THE YEAR ENDED SEPTEMBER 30,
MONTHS ENDED ---------------------------------------------------------------
MARCH 31, 2003 2002 2001 2000 1999 1998
-------------- ------ ------ ------ ------ ------
(unaudited)

Class B Shares

Selected Per Share Data:
Net asset value, beginning of period ........ $11.86 $14.51 $36.70 $30.90 $20.19 $27.46
------ ------ ------ ------ ------ ------
Income (loss) from investment operations:
Net investment loss[+/+].................... (0.09) (0.23) (0.18) (0.44) (0.27) (0.20)
Net realized and unrealized gain (loss) .... 0.60 (2.42) (13.87) 12.71 11.35 (4.76)
------ ------ ------ ------ ------ ------
Total income (loss) from investment
operations ................................. 0.51 (2.65) (14.05) 12.27 11.08 (4.96)
------ ------ ------ ------ ------ ------
Less distributions from net realized gain ... - - (8.14) (6.47) (0.37) (2.31)
------ ------ ------ ------ ------ ------
Net asset value, end of period .............. $12.37 $11.86 $14.51 $36.70 $30.90 $20.19
====== ====== ====== ====== ====== ======

Total Return + .............................. 4.30%(1) (18.26)% (46.37)% 39.12% 55.59% (18.88)%

Ratios to Average Net Assets(3):
Expenses .................................... 1.91%(2) 1.80% 1.70% 1.61% 1.70% 1.69%
Net investment loss ......................... (1.39)%(2) (1.46)% (0.82)% (1.11)% (1.05)% (0.98)%

Supplemental Data:
Net assets, end of period, in thousands ..... $251,135 $276,387 $443,652 $1,056,116 $770,392 $596,834
Portfolio turnover rate ..................... 98%(1) 237% 213% 184% 172% 178%

See Notes to Financial Statements

MORGAN STANLEY DEVELOPING GROWTH SECURITIES TRUST
FINANCIAL HIGHLIGHTS continued

Class C Shares

Selected Per Share Data:
Net asset value, beginning of period ............ $11.88 $14.54 $36.76 $30.95 $20.19 $27.46
------ ------ ------ ------ ------ ------
Income (loss) from investment operations:
Net investment loss[+/+]........................ (0.08) (0.23) (0.18) (0.42) (0.25) (0.23)
Net realized and unrealized gain (loss) ........ 0.60 (2.43) (13.90) 12.70 11.38 (4.73)
------ ------ ------ ------ ------ ------
Total income (loss) from investment operations .. 0.52 (2.66) (14.08) 12.28 11.13 (4.96)
------ ------ ------ ------ ------ ------
Less distributions from net realized gain ....... - - (8.14) (6.47) (0.37) (2.31)
------ ------ ------ ------ ------ ------
Net asset value, end of period .................. $12.40 $11.88 $14.54 $36.76 $30.95 $20.19
====== ====== ====== ====== ====== ======

Total Return +................................... 4.38%(1) (18.29)% (46.37)% 39.09% 55.84% (18.88)%

Ratios to Average Net Assets(3):
Expenses ........................................ 1.81%(2) 1.80% 1.70% 1.61% 1.58% 1.69%
Net investment loss ............................. (1.29)%(2) (1.46)% (0.82)% (1.11)% (0.93)% (0.98)%

Supplemental Data:
Net assets, end of period, in thousands ......... $5,543 $5,986 $7,793 $17,007 $4,728 $2,185
Portfolio turnover rate ......................... 98%(1) 237% 213% 184% 172% 178%

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

[+/+] 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) Not annualized.
(2) Annualized.
(3) Reflects overall Fund ratios for investment income and non-class
specific expenses.

See Notes to Financial Statements

MORGAN STANLEY DEVELOPING GROWTH SECURITIES TRUST
FINANCIAL HIGHLIGHTS continued

Class D Shares

Selected Per Share Data:
Net asset value, beginning of period ............ $12.72 $15.41 $38.07 $31.60 $20.44 $27.51
------ ------ ------ ------ ------ ------
Income (loss) from investment operations:
Net investment income (loss)[+/+]............... (0.03) (0.07) 0.03 0.03 (0.01) 0.01
Net realized and unrealized gain (loss) ........ 0.64 (2.62) (14.55) 12.91 11.54 (4.77)
------- ------- ------- ------- ------- -------
Total income (loss) from investment operations .. 0.61 (2.69) (14.52) 12.94 11.53 (4.76)
------- ------- ------- ------- ------- -------
Less distributions from net realized gain ....... - - (8.14) (6.47) (0.37) (2.31)
------- ------- ------- ------- ------- -------
Net asset value, end of period .................. $13.33 $12.72 $15.41 $38.07 $31.60 $20.44
====== ====== ====== ====== ====== ======

Total Return +................................... 4.80%(1) (17.46)% (45.83)% 40.53% 57.14% (18.05)%

Ratios to Average Net Assets(3):
Expenses ........................................ 0.91% (2) 0.80% 0.70% 0.61% 0.70% 0.69%
Net investment income (loss) .................... (0.39)%(2) (0.46)% 0.18% (0.11)% (0.05)% 0.02%

Supplemental Data:
Net assets, end of period, in thousands ......... $73,667 $62,606 $57,436 $66,696 $6,625 $3,291
Portfolio turnover rate ......................... 98%(1) 237% 213% 184% 172% 178%

- ------------
[+/+] 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) Not annualized.
(2) Annualized.
(3) Reflects overall Fund ratios for investment income and non-class
specific expenses.

See Notes to Financial Statements

TRUSTEES

Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
Wayne E. Hedien
James F. Higgins
Dr. Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell

OFFICERS

Charles A. Fiumefreddo
Chairman of the Board

Mitchell M. Merin
President and Chief Executive Officer

Barry Fink
Vice President, Secretary and General Counsel

Joseph J. McAlinden
Vice President

Ronald E. Robison
Vice President

Thomas F. Caloia
Treasurer

Francis Smith
President and Chief Financial Officer

TRANSFER AGENT

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

INDEPENDENT AUDITORS

Deloitte & Touche LLP
Two World Financial Center
New York, New York 10281

INVESTMENT MANAGER

Morgan Stanley Investment Advisors Inc.
1221 Avenue of the Americas
New York, New York 10020

The financial statements included herein have been taken from the records of the
Fund without examination by the independent auditors and accordingly they do not
express an opinion thereon.

This report is submitted for the general information of the shareholders of the
Fund. For more detailed information about the Fund, its fees and expenses and
other pertinent information, please read its Prospectus. The Fund's Statement of
Additional Information contains additional information about the Fund, including
its trustees. It is available, without charge, by calling (800) 869-NEWS.

This report is not authorized for distribution to prospective investors in the
Fund unless preceded or accompanied by an effective Prospectus. Read the
Prospectus carefully before investing.

Investments and services offered through Morgan Stanley DW Inc., member SIPC.
Morgan Stanley Funds are distributed by Morgan Stanley Distributors, Inc.

Morgan Stanley Distributors Inc., member NASD.

[MORGAN STANLEY LOGO OMITTED]

37905RPT-10905E03-0S-5/03

[MORGAN STANLEY LOGO OMITTED]
[PHOTO OMITTED]

MORGAN STANLEY
DEVELOPING GROWTH
SECURITIES TRUST

SEMIANNUAL REPORT
MARCH 31, 2003

MORGAN STANLEY DEVELOPING GROWTH SECURITIES TRUST
LETTER TO THE SHAREHOLDERS o SEPTEMBER 30, 2002

DEAR SHAREHOLDER:

The 12-month period ended September 30, 2002, was characterized by extreme
volatility as geopolitical events, a struggling economy and headlines announcing
corporate accounting scandals weighed heavily on investors' minds. During the
fourth quarter of 2001, the market appeared poised to recover from the massive
sell-off that followed the terrorist attacks of September 11. However, in each
of the subsequent quarters the market lost ground. Although growth stocks
underperformed value stocks during this period, even value investors found few
places to hide. By the end of the period, the broad-based Standard & Poor's 500
Index had declined by more than 20 percent, while growth-oriented small- and
mid-cap stocks, as measured by the Russell 2500 Growth Index, declined more than
17 percent.

PERFORMANCE AND PORTFOLIO STRATEGY

For the 12-month period ended September 30, 2002, Morgan Stanley Developing
Growth Securities Trust's Class A, B, C and D shares posted total returns of
- -17.63 percent, -18.26 percent, -18.29 percent and -17.46 percent, respectively,
compared to -7.46 percent for the Russell 2500 Index and -17.55 percent for the
Russell 2500 Growth Index. The performance of the Fund's four share classes
varies because of differing expenses. The total return figures given assume the
reinvestment of all distributions but do not reflect the deduction of any
applicable sales charges. If sales charges were included, performance would be
lower.

The Fund slightly underperformed its Russell 2500 Growth Index because of
several factors, including its below-market weightings in automobiles and
transportation, financials, and energy sectors that performed reasonably well
during the course of the year. Results were also negatively affected by security
selection within the technology and utilities sectors, particularly among
telephone services stocks. The Fund's overall results were helped by security
selection within health care, consumer staples and energy. A reduction in the
Fund's technology exposure during the period also aided performance.

The performance of the Fund during the period's second half relative to its
benchmark was significantly better than its performance during the first half.
We believe this is at least partly attributable to the adoption of a more
defensive posture by the new portfolio management team. We began emphasizing
more-stable growth companies rather than more-aggressive ones.

The Fund began the reporting period with a tilt toward aggressive growth stocks.
A number of its more-aggressive holdings, particularly within technology,
consumer services and business services, appreciated significantly during the
early part of the period. We used that strength as an opportunity to trim some
of those positions, as we felt that market sentiment had moved ahead of
underlying business momentum in a number of areas.

As the year progressed, it became increasingly clear to us that the cyclical
downturn in technology would be longer and deeper than anticipated. We therefore
significantly reduced the Fund's technology exposure

MORGAN STANLEY DEVELOPING GROWTH SECURITIES TRUST
LETTER TO THE SHAREHOLDERS o SEPTEMBER 30, 2002 CONTINUED

by trimming or eliminating holdings in telecommunications equipment,
semiconductors, software and telephone services. We also reduced the Fund's
exposure to media, industrials and utilities stocks. These assets were
reinvested in consumer-oriented areas, including restaurants, travel, durable
goods and specialty retailing. Positions were also increased in biotechnology,
medical devices and energy stocks.

At the end of the reporting period, the Fund's largest sector weightings were
consumer discretionary and health care, which constituted nearly 60 percent of
the portfolio. The Fund was overweighted in consumer discretionary, healthcare
and energy and underweighted in technology, producer durables, materials and
processing, and financials.

As of September 30, 2002, the Fund's largest holdings included Varian Medical
Systems (a leading manufacturer of equipment used in treating cancer with
radiation), Stericycle (a leading medical-waste disposal company), GTECH
Holdings (a leading provider of computerized online lottery systems with
customers around the world), Royal Caribbean Cruises (the second largest cruise
line operator) and Biogen (a top-tier biotechnology company with a strong
franchise in the area of multiple sclerosis therapy).

There is a common theme among most of these holdings. They are companies that
are generating strong cash flow (and in most cases free cash flow), and they
have leading positions in their markets or market niches. As a result of the
market segments in which they operate, their competitive advantages and the
skill of their management teams, we believe they have demonstrated an ability to
survive the difficult market environment in which we are currently ensconced.
Furthermore, we believe these same qualities will likely continue to carry them
through the coming year even if the economy is slow to recover.

LOOKING AHEAD

Although, the jury remains out on when the U.S. economy will emerge from its
current weak state, we remain cautiously optimistic about the outlook for the
stock market. Inflation appears to be under control. Interest rates are near
record low levels, and such occasions historically have been an opportune time
to own equities. Unemployment is trending lower and corporate inventories are at
extremely low levels, which means that even small incremental growth in the
economy will require an increase in manufacturing activity. We won't know for at
least a few months if our optimism is misplaced, but we believe that we have
assembled a portfolio of stocks that should perform well as the economy
improves.

MORGAN STANLEY DEVELOPING GROWTH SECURITIES TRUST
LETTER TO THE SHAREHOLDERS o SEPTEMBER 30, 2002 CONTINUED

We appreciate your ongoing support of Morgan Stanley Developing Growth
Securities Trust and look forward to continuing to serve your investment needs.

Very truly yours,

/s/ Charles A. Fiumefreddo /s/ Mitchell M. Merin
Charles A. Fiumefreddo Mitchell M. Merin
Chairman of the Board President and CEO

ANNUAL HOUSEHOLDING NOTICE

To reduce printing and mailing costs, the Fund attempts to eliminate duplicate
mailings to the same address. The Fund delivers a single copy of certain
shareholder documents, including shareholder reports, prospectuses and proxy
materials, to investors with the same last name who reside at the same address.
Your participation in this program will continue for an unlimited period of time
unless you instruct us otherwise. You can request multiple copies of these
documents by calling (800) 350-6414, 8:00 a.m. to 8:00 p.m., ET. Once our
Customer Service Center has received your instructions, we will begin sending
individual copies for each account within 30 days.

MORGAN STANLEY DEVELOPING GROWTH SECURITIES TRUST
FUND PERFORMANCE o SEPTEMBER 30, 2002

DATE TOTAL RUSSELL 2500 RUSSELL 2500 GROWTH
September 30, 1992 $10,000 $10,000 $10,000
September 30, 1993 $16,795 $13,011 $12,676
September 30, 1994 $15,303 $13,382 $12,943
September 30, 1995 $22,476 $16,798 $16,850
September 30, 1996 $26,416 $19,458 $19,545
September 30, 1997 $30,742 $26,133 $24,609
September 30, 1998 $24,939 $21,843 $18,619
September 30, 1999 $38,803 $26,601 $26,040
September 30, 2000 $53,983 $34,456 $37,756
September 30, 2001 $28,953 $27,987 $21,566
September 30, 2002 $23,666(3) $25,901 $17,780
FUND RUSSELL 2500(4) RUSSELL 2500 GROWTH(5)

PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE. WHEN YOU SELL FUND SHARES, THEY MAY BE WORTH
LESS THAN THEIR ORIGINAL COST. THE GRAPH AND TABLE DO NOT REFLECT THE DEDUCTION
OF TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF
FUND SHARES. PERFORMANCE FOR CLASS A, CLASS B, CLASS C, AND CLASS D SHARES WILL
VARY DUE TO DIFFERENCES IN SALES CHARGES AND EXPENSES.

AVERAGE ANNUAL TOTAL RETURNS - PERIOD ENDED SEPTEMBER 30, 2002
- --------------------------------------------------------------------------------
CLASS A SHARES*
- --------------------------------------------------------------------------------
1 Year (17.63)%(1) (21.96)%(2)
5 Years (4.36)%(1) (5.39)%(2)
Since Inception (7/28/97) (2.15)%(1) (3.16)%(2)

CLASS B SHARES**
- --------------------------------------------------------------------------------
1 Year (18.26)%(1) (22.35)%(2)
5 Years (5.10)%(1) (5.31)%(2)
10 Years 9.00 %(1) 9.00 %(2)

CLASS C SHARES+
- --------------------------------------------------------------------------------
1 Year (18.29)%(1) (19.11)%(2)
5 Years (5.08)%(1) (5.08)%(2)
Since Inception (7/28/97) (2.89)%(1) (2.89)%(2)

CLASS D SHARES++
- --------------------------------------------------------------------------------
1 Year (17.46)%(1)
5 Years (4.15)%(1)
Since Inception (7/28/97) (1.93)%(1)

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

(1) Figure shown assumes reinvestment of all distributions and does not reflect
the deduction of any sales charges.

(2) Figure shown assumes reinvestment of all distributions and the deduction of
the maximum applicable sales charge. See the Fund's current prospectus for
complete details on fees and sales charges.

(3) Closing value assuming a complete redemption on September 30, 2002.

(4) The Russell 2500 Index measures the performance of the 2,500 smallest
companies in the Russell 3000 Index. The Index does not include any
expenses, fees, or charges. The Index is unmanaged and should not be
considered an investment.

(5) The Russell 2500 Growth Index measures the performance of those companies
in the Russell 2500 Index with higher price-to-book ratios and higher
forecasted growth values. The Index does not include any expenses, fees, or
charges. The Index is unmanaged and should not be considered an investment.

* The maximum front-end sales charge for Class A is 5.25%.

** The maximum contingent deferred sales charge (CDSC) for Class B is 5.0%.
The CDSC declines to 0% after six years.

+ The maximum contingent deferred sales charge for Class C is 1% for shares
redeemed within one year of purchase.

++ Class D has no sales charge.

MORGAN STANLEY DEVELOPING GROWTH SECURITIES TRUST
PORTFOLIO OF INVESTMENTS o SEPTEMBER 30, 2002

NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------

COMMON STOCKS (97.1%)
Advertising/Marketing
Services (1.0%)
123,000 Lamar Advertising Co.* ............. $ 3,733,050
------------
Aerospace & Defense (1.2%)
22,100 Alliant Techsystems, Inc.* ......... 1,530,425
16,750 Engineered Support Systems,
Inc. ............................. 955,420
81,000 Rockwell Collins, Inc. ............. 1,777,140
------------
4,262,985
------------
Air Freight/Couriers (1.0%)
52,300 C.H. Robinson Worldwide, Inc........ 1,407,393
72,000 Expeditors International of
Washington, Inc. ................... 2,011,680
------------
3,419,073
------------
Apparel/Footwear (0.7%)
105,150 Coach, Inc.* ....................... 2,691,840
------------
Apparel/Footwear Retail (3.8%)
264,950 Abercrombie & Fitch Co.
(Class A)* ....................... 5,211,566
81,400 Chico's FAS, Inc.* ................. 1,296,702
230,925 Limited Brands, Inc. ............... 3,311,464
104,500 Ross Stores, Inc. .................. 3,724,380
------------
13,544,112
------------
Auto Parts: O.E.M. (0.5%)
25,100 American Axle & Manufacturing
Holdings, Inc.* .................. 626,998
33,850 ArvinMeritor, Inc. ................. 632,995
26,150 Autoliv, Inc. ...................... 551,242
------------
1,811,235
------------
Beverages:
Alcoholic (1.2%)
180,900 Constellation Brands Inc.
(Class A)* ....................... 4,178,790
------------
Biotechnology (9.2%)
36,400 Affymetrix, Inc.* .................. 757,120
78,350 Amylin Pharmaceuticals, Inc.*....... 1,302,177

NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------

205,950 Biogen, Inc.* ...................... $ 6,028,156
92,950 Celgene Corp.* ..................... 1,565,278
90,800 Cephalon, Inc.* .................... 3,706,456
36,250 Charles River Laboratories
International, Inc.* ............. 1,422,812
71,450 CV Therapeutics, Inc.* ............. 1,494,019
42,000 Genzyme Corp. (General
Division)* ....................... 865,620
50,200 Gilead Sciences, Inc.* ............. 1,683,206
38,900 IDEC Pharmaceuticals Corp.*......... 1,615,128
61,950 MedImmune, Inc.* ................... 1,292,896
94,450 NPS Pharmaceuticals, Inc.* ......... 1,942,648
116,450 Scios, Inc.* ....................... 2,963,652
41,000 Techne Corp.* ...................... 1,344,390
155,850 Telik, Inc.* ....................... 1,929,423
27,700 Transkaryotic Therapies, Inc.*...... 903,519
51,200 Trimeris, Inc.* .................... 2,274,304
------------
33,090,804
------------
Broadcasting (2.3%)
279,600 Radio One, Inc. (Class D)* ......... 4,610,604
106,600 Westwood One, Inc.* ................ 3,810,950
------------
8,421,554
------------
Casino/Gaming (3.1%)
334,650 GTECH Holdings Corp.* .............. 8,306,013
223,500 Park Place Entertainment
Corp.* ........................... 1,776,825
62,750 Station Casinos, Inc.* ............. 1,067,377
------------
11,150,215
------------
Chemicals: Specialty (1.3%)
68,700 Airgas, Inc.* ...................... 902,031
46,000 Albemarle Corp. .................... 1,163,340
21,750 Praxair, Inc. ...................... 1,111,642
28,300 Sigma-Aldrich Corp. ................ 1,394,341
------------
4,571,354
------------
Commercial Printing/
Forms (0.3%)
25,000 Deluxe Corp. ....................... 1,126,500
------------

See Notes to Financial Statements

MORGAN STANLEY DEVELOPING GROWTH SECURITIES TRUST
PORTFOLIO OF INVESTMENTS o SEPTEMBER 30, 2002 CONTINUED

NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------

Computer Communications (0.3%)
71,050 Emulex Corp.* ....................... $ 800,023
83,300 Foundry Networks, Inc.* ............. 456,484
-----------
1,256,507
-----------
Computer Peripherals (1.2%)
56,600 Intergraph Corp.* ................... 967,294
27,500 QLogic Corp.* ....................... 716,100
250,150 Storage Technology Corp.* ........... 2,629,076
-----------
4,312,470
-----------
Contract Drilling (0.3%)
38,000 Patterson-UTI Energy, Inc.* ......... 969,380
-----------
Data Processing Services (0.5%)
120,800 Acxiom Corp.* ....................... 1,712,944
-----------
Discount Stores (2.0%)
42,700 BJ's Wholesale Club, Inc.* .......... 811,727
327,900 Dollar General Corp. ................ 4,400,418
71,550 Fred's, Inc. ........................ 2,136,340
-----------
7,348,485
-----------
Drugstore Chains (0.5%)
84,200 Longs Drug Stores Corp. ............. 1,944,178
-----------
Electric Utilities (0.4%)
62,900 Wisconsin Energy Corp. .............. 1,528,470
-----------
Electronic Components (0.8%)
218,200 SanDisk Corp.* ...................... 2,860,602
-----------
Electronic Equipment/Instruments (0.8%)
50,400 Inivision Techonologies, Inc.* ...... 1,613,304
163,500 Symbol Technologies, Inc. ........... 1,254,045
-----------
2,867,349
-----------
Electronic Production Equipment (0.7%)
48,300 Helix Technology Corp. .............. 466,095
70,100 MKS Instruments, Inc.* .............. 765,492
30,300 Synopsys, Inc.* ..................... 1,155,945
-----------
2,387,532
-----------

NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------

Financial Conglomerates (0.2%)
26,900 Investors Financial Services
Corp. ............................. $ 728,183
-----------
Financial Publishing/Services (0.2%)
15,250 Moody's Corp. ....................... 739,625
-----------
Food: Specialty/Candy (1.9%)
72,400 Hershey Foods Corp. ................. 4,492,420
174,250 Peet's Coffee & Tea, Inc.* .......... 2,230,400
-----------
6,722,820
-----------
Gas Distributors (0.4%)
42,800 UGI Corp. ........................... 1,555,780
-----------
Home Building (0.9%)
10,600 NVR, Inc.* .......................... 3,178,198
-----------
Home Furnishings (0.3%)
23,000 Mohawk Industries, Inc.* ............ 1,141,950
-----------
Hospital/Nursing Management (1.1%)
82,700 Amsurg Corp. ........................ 2,495,059
71,700 United Surgical Partners
International Inc. ................ 1,579,551
-----------
4,074,610
-----------
Hotels/Resorts/Cruiselines (2.5%)
433,250 Royal Caribbean Cruises Ltd. ........ 6,897,340
94,300 Starwood Hotels & Resorts
Worldwide, Inc. ................... 2,102,890
-----------
9,000,230
-----------
Information Technology
Services (1.2%)
46,550 Anteon International Corp.* ......... 1,265,229
24,200 Cognizant Technology
Solutions Corp. ................... 1,390,774
34,600 SRA International, Inc.
(Class A) ......................... 990,598
29,700 Tier Technologies, Inc.
(Class B)* ........................ 561,924
-----------
4,208,525
-----------

See Notes to Financial Statements

MORGAN STANLEY DEVELOPING GROWTH SECURITIES TRUST
PORTFOLIO OF INVESTMENTS o SEPTEMBER 30, 2002 CONTINUED

NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------

Insurance Brokers/Services (1.8%)
39,700 Brown & Brown, Inc. ............... $ 1,191,000
63,550 ChoicePoint Inc.* ................. 2,264,922
26,050 Hilb, Rogal & Hamilton Co. ........ 1,074,562
57,900 Willis Group Holdings Ltd.* ....... 1,939,071
------------
6,469,555
------------
Investment Banks/Brokers (1.1%)
742,400 E*TRADE Group, Inc.* .............. 3,303,680
21,800 Investment Technology Group,
Inc.* ........................... 637,868
------------
3,941,548
------------
Managed Health Care (2.2%)
236,550 Caremark Rx, Inc.* ................ 4,021,350
49,750 Coventry Health Care, Inc.* ....... 1,616,875
42,050 Mid Atlantic Medical Services,
Inc.* ........................... 1,522,210
46,900 Sierra Health Services, Inc. ...... 841,386
------------
8,001,821
------------
Medical Distributors (1.7%)
28,800 Henry Schein, Inc.* ............... 1,519,200
28,300 Patterson Dental Co.* ............. 1,448,394
453,725 PSS World Medical, Inc.* .......... 3,017,271
------------
5,984,865
------------
Medical Specialties (8.4%)
134,750 Bausch & Lomb, Inc. ............... 4,469,657
63,200 Becton, Dickinson & Co. ........... 1,794,880
87,850 Cooper Companies, Inc. (The)....... 4,612,125
46,350 DENTSPLY International, Inc. ...... 1,861,879
39,950 Meridian Medical Technologies,
Inc. ............................ 1,436,202
95,250 Merit Medical Systems, Inc.* ...... 1,839,277
54,350 St. Jude Medical, Inc.* ........... 1,940,295
39,350 STERIS Corp.* ..................... 980,209
263,750 Varian Medical Systems, Inc.*...... 11,338,613
------------
30,273,137
------------

NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------

Medical/Nursing Services (0.7%)
84,000 Lincare Holdings, Inc.* ........... $ 2,607,360
------------
Metal Fabrications (0.2%)
40,450 Precision Castparts Corp. ......... 876,956
------------
Miscellaneous Commercial
Services (0.8%)
33,600 Corporate Executive Board
Co.* ............................ 959,280
87,400 Viad Corp. ........................ 1,785,582
------------
2,744,862
------------
Miscellaneous Manufacturing (0.4%)
46,150 Varian, Inc.* ..................... 1,274,202
------------
Office Equipment/Supplies (0.3%)
54,600 Miller (Herman), Inc. ............. 969,696
------------
Oil & Gas Production (4.8%)
59,450 Apache Corp. ...................... 3,534,303
80,600 Brown (Tom), Inc.* ................ 1,845,740
95,150 Cabot Oil & Gas Corp.
(Class A) ....................... 2,045,725
60,250 Kerr-McGee Corp. .................. 2,617,260
86,725 Quicksilver Resources Inc.* ....... 1,561,050
271,600 XTO Energy Inc. ................... 5,597,676
------------
17,201,754
------------
Oilfield Services/Equipment (1.5%)
53,400 BJ Services Co.* .................. 1,388,400
255,300 Key Energy Services, Inc.* ........ 2,011,764
63,000 Smith International, Inc.* ........ 1,846,530
------------
5,246,694
------------
Other Consumer Services (3.5%)
61,600 Block (H.&R.), Inc. ............... 2,587,816
81,950 Career Education Corp.* ........... 3,934,256
64,050 Corinthian Colleges, Inc.* ........ 2,417,247
87,750 Weight Watchers International,
Inc.* ........................... 3,804,840
------------
12,744,159
------------

See Notes to Financial Statements

MORGAN STANLEY DEVELOPING GROWTH SECURITIES TRUST
PORTFOLIO OF INVESTMENTS o SEPTEMBER 30, 2002 CONTINUED

NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------

Packaged Software (2.4%)
42,650 Mercury Interactive Corp.* .......... $ 731,874
38,000 NetIQ Corp.* ........................ 551,000
102,600 Network Associates, Inc.* ........... 1,090,638
79,050 Quest Software, Inc.* ............... 743,070
80,700 Serena Software, Inc.* .............. 968,400
71,800 Symantec Corp.* ..................... 2,417,506
263,450 TIBCO Software, Inc.* ............... 987,938
157,475 TTI Team Telecom International
Ltd. (Israel)* .................... 1,067,681
------------
8,558,107
------------
Pharmaceuticals: Other (1.9%)
28,900 Altana AG (ADR) (Germany) ........... 1,075,080
66,300 Cima Labs, Inc.* .................... 1,667,445
37,000 Forest Laboratories, Inc.* .......... 3,034,370
14,500 Teva Pharmaceutical Industries
Ltd. (ADR) (Israel) ............... 971,500
------------
6,748,395
------------
Property - Casualty Insurers (0.7%)
64,500 RenaissanceRe Holdings Ltd.
(Bermuda) ......................... 2,437,455
------------
Pulp & Paper (0.3%)
110,850 Wausau-Mosinee Paper Corp............ 1,020,929
------------
Recreational Products (1.3%)
76,650 Activision, Inc.* ................... 1,834,235
42,150 International Game
Technology* ....................... 2,914,251
------------
4,748,486
------------
Regional Banks (2.0%)
108,100 Banknorth Group, Inc. ............... 2,567,375
76,050 Hibernia Corp. (Class A) ............ 1,520,240
77,400 North Fork Bancorporation,
Inc. .............................. 2,928,816
------------
7,016,431
------------

NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------

Restaurants (3.6%)
91,050 AFC Enterprises, Inc.* .............. $ 1,838,300
75,100 CBRL Group, Inc. .................... 1,713,782
54,950 Jack in the Box Inc.* ............... 1,252,860
52,600 P.F. Chang's China Bistro, Inc.*. 1,526,978
162,900 Sonic Corp.* ........................ 3,762,990
82,550 Wendy's International, Inc. ......... 2,733,231
------------
12,828,141
------------
Savings Banks (1.0%)
97,300 New York Community Bancorp,
Inc. .............................. 2,740,941
51,300 Staten Island Bancorp, Inc. ......... 892,620
------------
3,633,561
------------
Semiconductors (2.6%)
219,450 Advanced Micro Devices,
Inc.* ............................. 1,171,863
47,100 Cypress Semiconductor
Corp.* ............................ 308,976
236,850 Exar Corp.* ......................... 2,735,618
68,100 Integrated Device Technology,
Inc.* ............................. 710,964
21,600 International Rectifier Corp.* ...... 337,392
25,300 Intersil Corp. (Class A)* ........... 327,888
52,100 Marvell Technology Group Ltd.
(Bermuda)* ........................ 825,785
48,050 Micrel, Inc.* ....................... 295,988
95,112 Microchip Technology Inc.* .......... 1,945,040
62,700 Power Integrations, Inc.* ........... 764,313
------------
9,423,827
------------
Services to the Health
Industry (3.7%)
72,800 Accredo Health, Inc.* ............... 3,469,357
288,050 Stericycle, Inc.* ................... 9,770,656
------------
13,240,013
------------

See Notes to Financial Statements

MORGAN STANLEY DEVELOPING GROWTH SECURITIES TRUST
PORTFOLIO OF INVESTMENTS o SEPTEMBER 30, 2002 CONTINUED

NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------

Specialty Stores (4.1%)
22,650 AutoZone, Inc.* ..................................... $ 1,786,179
61,800 Kirkland's, Inc. .................................... 1,056,780
63,450 Michaels Stores, Inc.* .............................. 2,899,665
441,450 Office Depot, Inc.* ................................. 5,447,493
84,600 Tractor Supply Company .............................. 2,688,588
39,500 Williams-Sonoma, Inc.* .............................. 933,385
-----------
14,812,090
-----------
Telecommunication
Equipment (0.8%)
23,500 Advanced Fibre
Communications, Inc.* ............................. 311,845
24,000 Harris Corp. ........................................ 803,760
62,300 RF Micro Devices, Inc.* ............................. 373,800
145,050 Tekelec* ............................................ 1,251,782
-----------
2,741,187
-----------
Trucking (0.8%)
74,800 Arkansas Best Corp.* ................................ 2,146,087
11,450 Landstar System, Inc.* .............................. 563,340
-----------
2,709,427
-----------
Trucks/Construction/Farm
Machinery (0.8%)
123,000 AGCO Corp.* ......................................... 2,853,600
-----------
Water Utilities (1.4%)
250,450 Philadelphia Suburban Corp. ......................... 5,084,135
-----------
Wireless
Telecommunications (0.8%)
364,900 Nextel Communications, Inc.
(Class A)* ........................................ 2,754,995
-----------
Total Common Stocks
(Cost $388,810,357).................................. 349,486,738
-----------

PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- --------------------------------------------------------------------------------

Short-Term Investment (3.7%)
Repurchase Agreement
$ 13,286 Joint repurchase agreement
account 1.915% due
10/01/02 (dated
09/30/02; proceeds
$13,286,707) (a) (Cost
$13,286,000)..................................... $ 13,286,000
------------
Total Investments
(Cost $402,096,357)(b)............................... 100.8% 362,772,738

Liabilities in Excess of Other
Assets .............................................. (0.8) (2,967,861)
----- ------------
Net Assets .......................................... 100.0% $359,804,877
===== ============

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

ADR American Depository Receipt.

* Non-income producing security.

(a) Collateralized by federal agency and U.S. Treasury obligations.

(b) The aggregate cost for federal income tax purposes approximates the
aggregate cost for book purposes. The aggregate gross unrealized
appreciation is $12,653,111 and the aggregate gross unrealized
depreciation is $51,976,730, resulting in net unrealized depreciation of
$39,323,619.

See Notes to Financial Statements

MORGAN STANLEY DEVELOPING GROWTH SECURITIES TRUST
FINANCIAL STATEMENTS

STATEMENT OF ASSETS AND LIABILITIES
September 30, 2002

ASSETS:
Investments in securities, at value
(cost $402,096,357) .............................................. $ 362,772,738
Receivable for:
Investments sold ................................................ 9,923,038
Shares of beneficial interest sold .............................. 489,694
Dividends ....................................................... 123,404
Prepaid expenses and other assets ................................. 62,311
--------------
TOTAL ASSETS .................................................... 373,371,185
--------------
LIABILITIES:
Payable for:
Investments purchased ........................................... 12,537,944
Shares of beneficial interest redeemed .......................... 443,318
Distribution fee ................................................ 255,058
Investment management fee ....................................... 159,883
Accrued expenses and other payables ............................... 170,105
--------------
TOTAL LIABILITIES ............................................... 13,566,308
--------------
NET ASSETS ...................................................... $ 359,804,877
==============
COMPOSITION OF NET ASSETS:
Paid-in-capital ................................................... $ 712,986,840
Net unrealized depreciation ....................................... (39,323,619)
Accumulated net investment loss ................................... (57,561)
Accumulated net realized loss ..................................... (313,800,783)
--------------
NET ASSETS ...................................................... $ 359,804,877
==============
CLASS A SHARES:
Net Assets ........................................................ $ 14,826,229
Shares Outstanding (unlimited authorized, $.01 par value) ......... 1,183,924
NET ASSET VALUE PER SHARE ....................................... $12.52
======
MAXIMUM OFFERING PRICE PER SHARE,
(net asset value plus 5.54% of net asset value) ................. $13.21
======
CLASS B SHARES:
Net Assets ........................................................ $ 276,386,667
Shares Outstanding (unlimited authorized, $.01 par value) ......... 23,303,833
NET ASSET VALUE PER SHARE ....................................... $11.86
======
CLASS C SHARES:
Net Assets ........................................................ $ 5,985,832
Shares Outstanding (unlimited authorized, $.01 par value) ......... 503,666
NET ASSET VALUE PER SHARE ....................................... $11.88
======
CLASS D SHARES:
Net Assets ........................................................ $ 62,606,149
Shares Outstanding (unlimited authorized, $.01 par value) ......... 4,920,949
NET ASSET VALUE PER SHARE ....................................... $12.72
======

See Notes to Financial Statements

MORGAN STANLEY DEVELOPING GROWTH SECURITIES TRUST
FINANCIAL STATEMENTS CONTINUED

STATEMENT OF OPERATIONS
For the year ended September 30, 2002

NET INVESTMENT LOSS:
INCOME
Dividends (net of $8,512 foreign withholding tax) .............................. $ 1,444,632
Interest ....................................................................... 304,221
--------------
TOTAL INCOME ................................................................. 1,748,853
--------------
EXPENSES
Distribution fee (Class A shares) .............................................. 42,703
Distribution fee (Class B shares) .............................................. 4,205,451
Distribution fee (Class C shares) .............................................. 84,799
Investment management fee ...................................................... 2,571,712
Transfer agent fees and expenses ............................................... 1,198,043
Shareholder reports and notices ................................................ 116,668
Custodian fees ................................................................. 74,854
Registration fees .............................................................. 68,869
Professional fees .............................................................. 63,924
Trustees' fees and expenses .................................................... 21,175
Other .......................................................................... 16,144
--------------
TOTAL EXPENSES ............................................................... 8,464,342
--------------
NET INVESTMENT LOSS .......................................................... (6,715,489)
--------------
NET REALIZED AND UNREALIZED GAIN (LOSS):

Net realized loss on investments ............................................... (100,007,116)
--------------
Net change in unrealized appreciation/depreciation on:

Investments .................................................................. 31,061,014
Translation of other assets and liabilities denominated in foreign currencies (53,522)
--------------
NET APPRECIATION ............................................................. 31,007,492
--------------
NET LOSS ..................................................................... (68,999,624)
--------------
NET DECREASE ................................................................... $ (75,715,113)
==============

See Notes to Financial Statements

Morgan Stanley Developing Growth Securities Trust
FINANCIAL STATEMENTS CONTINUED

STATEMENT OF CHANGES IN NET ASSETS

FOR THE YEAR FOR THE YEAR
ENDED ENDED
SEPTEMBER 30, 2002 SEPTEMBER 30, 2001
-------------------- -------------------

INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment loss ....................................................... $ (6,715,489) $ (5,867,439)
Net realized loss ......................................................... (100,007,116) (205,235,961)
Net change in unrealized depreciation ..................................... 31,007,492 (299,951,071)
------------ --------------
NET DECREASE ............................................................ (75,715,113) (511,054,471)
------------ --------------
DISTRIBUTIONS TO SHAREHOLDERS FROM NET REALIZED GAIN:
Class A shares ............................................................ - (8,633,350)
Class B shares ............................................................ - (228,663,213)
Class C shares ............................................................ - (4,113,498)
Class D shares ............................................................ - (16,123,431)
------------ --------------
TOTAL DISTRIBUTIONS ..................................................... - (257,533,492)
------------ --------------
Net increase (decrease) from transactions in shares of beneficial interest (91,266,754) 111,547,323
------------ --------------
NET DECREASE ............................................................ (166,981,867) (657,040,640)

NET ASSETS:
Beginning of period ....................................................... 526,786,744 1,183,827,384
------------ --------------
END OF PERIOD
(Including accumulated net investment losses of $57,561 and $54,294,
respectively) ............................................................ $359,804,877 $ 526,786,744
============ =============

See Notes to Financial Statements

MORGAN STANLEY DEVELOPING GROWTH SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS o SEPTEMBER 30, 2002

1. ORGANIZATION AND ACCOUNTING POLICIES

The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual results could differ from
those estimates.

The following is a summary of significant accounting policies:

A. VALUATION OF INVESTMENTS - (1) an equity portfolio security listed or traded
on the New York or American Stock Exchange, Nasdaq, 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 latest bid price; (2) all
other portfolio securities for which over-the-counter market quotations are
readily available are valued at the latest available bid price (in cases where
securities are traded on more than one exchange, the securities are valued on
the exchange designated as the primary market pursuant to procedures adopted by
the Trustees); (3) when market quotations are not readily available, including
circumstances under which it is determined by Morgan Stanley Investment Advisors
Inc. (the "Investment Manager") that sale or bid prices are not reflective of a
security's market value, portfolio securities are valued at their fair value as
determined in good faith under procedures established by and under the general
supervision of the Trustees (valuation of debt securities for which market
quotations are not readily available may be based upon current market prices of
securities which are comparable in coupon, rating and maturity or an appropriate
matrix utilizing similar factors); and (4) short-term debt securities having a
maturity date of more than sixty days at time of purchase are valued on a
mark-to-market basis until sixty days prior to maturity and thereafter at
amortized cost based on their value on the 61st day. Short-term debt securities
having a maturity date of sixty days or less at the time of purchase are valued
at amortized cost.

MORGAN STANLEY DEVELOPING GROWTH SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS o SEPTEMBER 30, 2002 CONTINUED

B. ACCOUNTING FOR INVESTMENTS - Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined by the identified cost method.
Dividend income and other distributions are recorded on the ex-dividend date.
Discounts are accreted and premiums are amortized over the life of the
respective securities. Interest income is accrued daily.

C. JOINT REPURCHASE AGREEMENT ACCOUNT - Pursuant to an Exemptive Order issued by
the Securities and Exchange Commission, the Fund, along with other affiliated
entities managed by the Investment Manager, may transfer uninvested cash
balances into one or more joint repurchase agreement accounts. These balances
are invested in one or more repurchase agreements and are collateralized by
cash, or U.S. Treasury or federal agency obligations.

D. MULTIPLE CLASS ALLOCATIONS - Investment income, expenses (other than
distribution fees), and realized and unrealized gains and losses are allocated
to each class of shares based upon the relative net asset value on the date such
items are recognized. Distribution fees are charged directly to the respective
class.

E. FOREIGN CURRENCY TRANSLATION - The books and records of the Fund are
maintained in U.S. dollars as follows: (1) the foreign currency market value of
investment securities, other assets and liabilities and forward foreign currency
contracts ("forward contracts") are translated at the exchange rates prevailing
at the end of the period; and (2) purchases, sales, income and expenses are
translated at the exchange rates prevailing on the respective dates of such
transactions. The resultant exchange gains and losses are included in the
Statement of Operations. Pursuant to U.S. Federal income tax regulations,
certain foreign exchange gains/losses included in realized and unrealized
gain/loss are included in or are a reduction of ordinary income for federal
income tax purposes. The Fund does not isolate that portion of the results of
operations arising as a result of changes in the foreign exchange rates from the
changes in the market prices of the securities.

F. FORWARD FOREIGN CURRENCY CONTRACTS - The Fund may enter into forward
contracts which are valued daily at the appropriate exchange rates. The
resultant unrealized exchange gains and losses are included in the Statement of
Operations. The Fund records realized gains or losses on delivery of the
currency or at the time the forward contract is extinguished (compensated) by
entering into a closing transaction prior to delivery.

G. FEDERAL INCOME TAX STATUS - It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute substantially all of its taxable income to its
shareholders. Accordingly, no federal income tax provision is required.

H. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS - The Fund records dividends and
distributions to its shareholders on the ex-dividend date. The amount of
dividends and distributions from net investment

MORGAN STANLEY DEVELOPING GROWTH SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS o SEPTEMBER 30, 2002 CONTINUED

income and net realized capital gains are determined in accordance with federal
income tax regulations which may differ from generally accepted accounting
principles. These "book/tax" differences are either considered temporary or
permanent in nature. To the extent these differences are permanent in nature,
such amounts are reclassified within the capital accounts based on their federal
tax-basis treatment; temporary differences do not require reclassification.
Dividends and distributions which exceed net investment income and net realized
capital gains for financial reporting purposes but not for tax purposes are
reported as dividends in excess of net investment income or distributions in
excess of net realized capital gains. To the extent they exceed net investment
income and net realized capital gains for tax purposes, they are reported as
distributions of paid-in-capital.

2. INVESTMENT MANAGEMENT AGREEMENT

3. PLAN OF DISTRIBUTION

MORGAN STANLEY DEVELOPING GROWTH SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS o SEPTEMBER 30, 2002 CONTINUED

In the case of Class A shares and Class C shares, expenses incurred pursuant to
the Plan in any calendar year in excess of 0.25% or 1.0% of the average daily
net assets of Class A or Class C, respectively, will not be reimbursed by the
Fund through payments in any subsequent year, except that expenses representing
a gross sales credit to Morgan Stanley Financial Advisors or other selected
broker-dealer representatives may be reimbursed in the subsequent calendar year.
For the year ended September 30, 2002, the distribution fee was accrued for
Class A shares and Class C shares at the annual rate of 0.22% and 1.0%,
respectively.

The Distributor has informed the Fund that for the year ended September 30,
2002, it received contingent deferred sales charges from certain redemptions of
the Fund's Class A shares, Class B shares and Class C shares of $42, $336,609
and $3,299, respectively, and received $11,432, in front-end sales charges from
sales of the Fund's Class A shares. The respective shareholders pay such charges
which are not an expense of the Fund.

4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES

The cost of purchases and proceeds from sales of portfolio securities, excluding
short-term investments, for the year ended September 30, 2002 aggregated
$1,176,423,502 and $1,261,784,969, respectively. Included in the aforementioned
transactions are purchases and sales of $1,440,768, and $2,796,843, respectively
for portfolio transactions with other Morgan Stanley funds.

Morgan Stanley Trust, an affiliate of the Investment Manager and Distributor, is
the Fund's transfer agent. At September 30, 2002, the Fund had transfer agent
fees and expenses payable of approximately $9,000.

For the year ended September 30, 2002, the Fund incurred brokerage commissions
of $16,763 with Morgan Stanley & Co., Inc., an affiliate of the Investment
Manager and Distributor, for portfolio transactions executed on behalf of the
Fund. At September 30, 2002, the Fund's receivable for investments sold and
payable for investments purchased included unsettled trades with Morgan Stanley
& Co. of $1,702,556 and $383,153, respectively.

The Fund has an unfunded noncontributory defined benefit pension plan covering
all independent Trustees of the Fund who will have served as independent
Trustees for at least five years at the time of retirement. Benefits under this
plan are based on years of service and compensation during the last five years
of service. Aggregate pension costs for the year ended September 30, 2002
included in Trustees' fees and expenses in the Statement of Operations amounted
to $8,726. At September 30, 2002, the Fund had an accrued pension liability of
$57,565 which is included in accrued expenses in the Statement of Assets and
Liabilities.

MORGAN STANLEY DEVELOPING GROWTH SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS o SEPTEMBER 30, 2002 CONTINUED

5. FEDERAL INCOME TAX STATUS

At September 30, 2002, the Fund had a net capital loss carryover of
approximately $221,854,000 of which $8,839,000 will be available through
September 30, 2009 and $213,015,000 will be available through September 30, 2010
to offset future capital gains to the extent provided by regulations.

As of September 30, 2002, the Fund had temporary book/tax differences primarily
attributable to post-October losses and capital loss deferrals on wash sales and
permanent book/tax differences attributable to a net operating loss. To reflect
reclassifications arising from the permanent differences, paid-in-capital was
charged and accumulated net investment loss was credited $6,712,222.

MORGAN STANLEY DEVELOPING GROWTH SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS o SEPTEMBER 30, 2002 CONTINUED

6. SHARES OF BENEFICIAL INTEREST

Transactions in shares of beneficial interest were as follows:

FOR THE YEAR FOR THE YEAR
ENDED ENDED
SEPTEMBER 30, 2002 SEPTEMBER 30, 2001
-------------------------------- --------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------- ---------------- --------------- ----------------

Sold .................................. 1,654,466 26,324,800 5,455,595 122,882,363
Reinvestment of distributions ......... - - 9,278,074 211,911,212
Redeemed .............................. (8,923,340) (136,371,716) (12,939,700) (273,869,776)
---------- -------------- ----------- --------------
Net increase (decrease) - Class B ..... (7,268,874) (110,046,916) 1,793,969 60,923,799
---------- -------------- ----------- --------------
CLASS C SHARES

Sold .................................. 290,919 4,705,017 282,383 6,343,200
Reinvestment of distributions ......... - - 164,836 3,773,097
Redeemed .............................. (323,089) (5,041,970) (374,074) (7,447,973)
---------- -------------- ----------- --------------
Net increase (decrease) - Class C ..... (32,170) (336,953) 73,145 2,668,324
---------- -------------- ----------- --------------
CLASS D SHARES

Sold .................................. 3,190,532 51,602,672 3,519,024 84,849,271
Reinvestment of distributions ......... - - 592,852 14,269,949
Redeemed .............................. (1,996,435) (32,617,888) (2,136,898) (51,632,205)
---------- -------------- ----------- --------------
Net increase - Class D ................ 1,194,097 18,984,784 1,974,978 47,487,015
---------- -------------- ----------- --------------
Net increase (decrease) in Fund ....... (6,100,726) $ (91,266,754) 3,853,692 $ 111,547,323
========== ============== ========= ==============

7. PURPOSES OF AND RISKS RELATING TO CERTAIN FINANCIAL INSTRUMENTS

At September 30, 2002, there were no outstanding forward contracts.

MORGAN STANLEY DEVELOPING GROWTH SECURITIES TRUST
FINANCIAL HIGHLIGHTS

Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:

FOR THE YEAR ENDED SEPTEMBER 30,
-----------------------------------------------------------------
2002 2001 2000 1999 1998
------ ------ ------ ------ ------

CLASS A SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period ................. $15.20 $37.74 $31.44 $20.38 $27.50
------ ------ ------ ------ ------
Income (loss) from investment operations:
Net investment loss[+/+] ............................ (0.11) 0.00 (0.12) (0.07) (0.06)
Net realized and unrealized gain (loss) ............. (2.57) (14.40) 12.89 11.50 (4.75)
------ ------ ------ ------ ------
Total income (loss) from investment operations ....... (2.68) (14.40) 12.77 11.43 (4.81)
------ ------ ------ ------ ------
Less distributions from net realized gain ............ -- (8.14) (6.47) (0.37) (2.31)
------ ------ ------ ------ ------
Net asset value, end of period ....................... $12.52 $15.20 $37.74 $31.44 $20.38
====== ====== ====== ====== ======
TOTAL RETURN+ ........................................ (17.63)% (45.93)% 40.16% 56.81% (18.26)%

RATIOS TO AVERAGE NET ASSETS(1):
Expenses ............................................. 1.02% 0.88% 0.85% 0.90% 0.94%
Net investment loss .................................. (0.68)% 0.00% (0.35)% (0.25)% (0.23)%

SUPPLEMENTAL DATA:
Net assets, end of period, in thousands .............. $14,826 $17,906 $44,008 $15,246 $5,822
Portfolio turnover rate .............................. 237% 213% 184% 172% 178%

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

[+/+] 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.

See Notes to Financial Statements

MORGAN STANLEY DEVELOPING GROWTH SECURITIES TRUST
FINANCIAL HIGHLIGHTS CONTINUED

FOR THE YEAR ENDED SEPTEMBER 30,
-------------------------------------------------------------
2002 2001 2000 1999 1998
------ ------ ------ ------ ------

CLASS B SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period ............... $14.51 $36.70 $30.90 $20.19 $27.46
------ ------ ------ ------ ------

Income (loss) from investment operations:
Net investment loss[+/+]........................... (0.23) (0.18) (0.44) (0.27) (0.20)
Net realized and unrealized gain (loss) ........... (2.42) (13.87) 12.71 11.35 (4.76)
------ ------ ------ ------ ------
Total income (loss) from investment operations ..... (2.65) (14.05) 12.27 11.08 (4.96)
------ ------ ------ ------ ------
Less distributions from net realized gain .......... -- (8.14) (6.47) (0.37) (2.31)
------ ------ ------ ------ ------
Net asset value, end of period ..................... $11.86 $14.51 $36.70 $30.90 $20.19
====== ====== ====== ====== ======
TOTAL RETURN+....................................... (18.26)% (46.37)% 39.12% 55.59% (18.88)%

RATIOS TO AVERAGE NET ASSETS(1):
Expenses ........................................... 1.80% 1.70% 1.61% 1.70% 1.69%
Net investment loss ................................ (1.46)% (0.82)% (1.11)% (1.05)% (0.98)%

SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ............ $276,387 $443,652 $1,056,116 $770,392 $596,834
Portfolio turnover rate ............................ 237% 213% 184% 172% 178%

- ------------
[+/+] 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.

See Notes to Financial Statements

MORGAN STANLEY DEVELOPING GROWTH SECURITIES TRUST
FINANCIAL HIGHLIGHTS CONTINUED

FOR THE YEAR ENDED SEPTEMBER 30,
------------------------------------------------------------
2002 2001 2000 1999 1998
------ ------ ------ ------ ------

CLASS C SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period ................... $14.54 $36.76 $30.95 $20.19 $27.46
------ ------ ------ ------ ------
Income (loss) from investment operations:
Net investment loss[+/+]............................... (0.23) (0.18) (0.42) (0.25) (0.23)
Net realized and unrealized gain (loss) ............... (2.43) (13.90) 12.70 11.38 (4.73)
------ ------ ------ ------ ------
Total income (loss) from investment operations ......... (2.66) (14.08) 12.28 11.13 (4.96)
------ ------ ------ ------ ------
Less distributions from net realized gain .............. -- (8.14) (6.47) (0.37) (2.31)
------ ------ ------ ------ ------
Net asset value, end of period ......................... $11.88 $14.54 $36.76 $30.95 $20.19
====== ====== ====== ====== ======
TOTAL RETURN+........................................... (18.29)% (46.37)% 39.09% 55.84% (18.88)%

RATIOS TO AVERAGE NET ASSETS(1):
Expenses ............................................... 1.80% 1.70% 1.61% 1.58% 1.69%
Net investment loss .................................... (1.46)% (0.82)% (1.11)% (0.93)% (0.98)%

SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ................ $5,986 $7,793 $17,007 $4,728 $2,185
Portfolio turnover rate ................................ 237% 213% 184% 172% 178%

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

[+/+] 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.

See Notes to Financial Statements

MORGAN STANLEY DEVELOPING GROWTH SECURITIES TRUST
FINANCIAL HIGHLIGHTS CONTINUED

FOR THE YEAR ENDED SEPTEMBER 30,
----------------------------------------------------------
2002 2001 2000 1999 1998
------ ------ ------ ------ ------

CLASS D SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period ................... $15.41 $38.07 $31.60 $20.44 $27.51
------ ------ ------ ------ ------
Income (loss) from investment operations:
Net investment income (loss)[+/+]...................... (0.07) 0.03 0.03 (0.01) 0.01
Net realized and unrealized gain (loss) ............... (2.62) (14.55) 12.91 11.54 (4.77)
------ ------ ------ ------ ------
Total income (loss) from investment operations ......... (2.69) (14.52) 12.94 11.53 (4.76)
------ ------ ------ ------ ------
Less distributions from net realized gain .............. -- (8.14) (6.47) (0.37) (2.31)
------ ------ ------ ------ ------
Net asset value, end of period ......................... $12.72 $15.41 $38.07 $31.60 $20.44
====== ====== ====== ====== ======
TOTAL RETURN+........................................... (17.46)% (45.83)% 40.53% 57.14% (18.05)%

RATIOS TO AVERAGE NET ASSETS(1):
Expenses ............................................... 0.80% 0.70% 0.61% 0.70% 0.69%
Net investment income (loss) ........................... (0.46)% 0.18% (0.11)% (0.05)% 0.02%

SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ................ $62,606 $57,436 $66,696 $6,625 $3,291
Portfolio turnover rate ................................ 237% 213% 184% 172% 178%

- ------------
[+/+] 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.

See Notes to Financial Statements

MORGAN STANLEY DEVELOPING GROWTH SECURITIES TRUST
INDEPENDENT AUDITORS' REPORT

TO THE SHAREHOLDERS AND BOARD OF TRUSTEES OF
MORGAN STANLEY DEVELOPING GROWTH SECURITIES TRUST:

We have audited the accompanying statement of assets and liabilities of Morgan
Stanley Developing Growth Securities Trust (the "Fund"), including the portfolio
of investments, as of September 30, 2002, and the related statements of
operations for the year then ended and changes in net assets for each of the two
years in the period then ended, and the financial highlights for each of the
five years in the period then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of September 30, 2002, by correspondence with the custodian
and brokers; where replies were not received from brokers, we performed other
auditing procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Morgan
Stanley Developing Growth Securities Trust as of September 30, 2002, the results
of its operations for the year then ended, the changes in its net assets for
each of the two years in the period then ended, and the financial highlights for
each of the five years in the period then ended, in conformity with accounting
principles generally accepted in the United States of America.

Deloitte & Touche LLP
New York, New York
November 8, 2002

MORGAN STANLEY DEVELOPING GROWTH SECURITIES TRUST
TRUSTEE AND OFFICER INFORMATION

INDEPENDENT TRUSTEES:

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

Michael Bozic (61) Trustee Since Retired; Director or Trustee of the Morgan 129
c/o Mayer, Brown, Rowe & Maw April 1994 Stanley Funds and the TCW/DW Term Trusts;
Counsel to the Independent Trustees formerly Vice Chairman of Kmart Corporation
1675 Broadway (December 1998-October 2000), Chairman and
New York, NY Chief Executive Officer of Levitz Furniture
Corporation (November 1995-November 1998)
and President and Chief Executive Officer
of Hills Department Stores (May 1991-July
1995); formerly variously Chairman, Chief
Executive Officer, President and Chief
Operating Officer (1987-1991) of the Sears
Merchandise Group of Sears, Roebuck & Co.

Edwin J. Garn (69) Trustee Since Director or Trustee of the Morgan Stanley 129
c/o Summit Ventures LLC January 1993 Funds and the TCW/DW Term Trusts; formerly
1 Utah Center United States Senator (R-Utah) (1974-1992)
201 S. Main Street and Chairman, Senate Banking Committee
Salt Lake City, UT (1980-1986); formerly Mayor of Salt Lake City,
Utah (1971-1974); formerly Astronaut, Space
Shuttle Discovery (April 12-19, 1985);
Vice Chairman, Huntsman Corporation
(chemical company); member of the Utah
Regional Advisory Board of Pacific Corp.

Wayne E. Hedien (68) Trustee Since Retired; Director or Trustee of the Morgan 129
c/o Mayer, Brown, Rowe & Maw September 1997 Stanley Funds and the TCW/DW Term Trusts;
Counsel to the Independent Trustees formerly associated with the Allstate
1675 Broadway Companies (1966-1994), most recently as
New York, NY Chairman of The Allstate Corporation
(March 1993-December 1994) and Chairman
and Chief Executive Officer of its
wholly-owned subsidiary, Allstate
Insurance Company (July 1989-December
1994).

NAME, AGE AND ADDRESS OF
INDEPENDENT TRUSTEE OTHER DIRECTORSHIPS HELD BY TRUSTEE
- ------------------------------------- ------------------------------------------------

Michael Bozic (61) Director of Weirton Steel Corporation.
c/o Mayer, Brown, Rowe & Maw
Counsel to the Independent Trustees
1675 Broadway
New York, NY

Edwin J. Garn (69) Director of Franklin Covey (time management
c/o Summit Ventures LLC systems), BMW Bank of North America, Inc.
1 Utah Center (industrial loan corporation), United Space
201 S. Main Street Alliance (joint venture between Lockheed Martin
Salt Lake City, UT and the Boeing Company) and Nuskin Asia
Pacific (multilevel marketing); member of
the board of various civic and charitable
organizations.

Wayne E. Hedien (68) Director of The PMI Group Inc. (private
c/o Mayer, Brown, Rowe & Maw mortgage insurance); Trustee and Vice
Counsel to the Independent Trustees Chairman of The Field Museum of Natural
1675 Broadway History; director of various other business and
New York, NY charitable organizations.

MORGAN STANLEY DEVELOPING GROWTH SECURITIES TRUST
TRUSTEE AND OFFICER INFORMATION CONTINUED

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

Dr. Manuel H. Johnson (53) Trustee Since Chairman of the Audit Committee and Director 129
c/o Johnson Smick International, Inc. July 1991 or Trustee of the Morgan Stanley Funds and the
1133 Connecticut Avenue, N.W. TCW/DW Term Trusts; Senior Partner, Johnson
Washington, D.C. Smick International, Inc., a consulting firm;
Co-Chairman and a founder of the Group of
Seven Council (G7C), an international economic
commission; formerly Vice Chairman of the
Board of Governors of the Federal Reserve
System and Assistant Secretary of the U.S.
Treasury.

Michael E. Nugent (66) Trustee Since Chairman of the Insurance Committee and 207
c/o Triumph Capital, L.P. July 1991 Director or Trustee of the Morgan Stanley
237 Park Avenue Funds and the TCW/DW Term Trusts; director/
New York, NY trustee of various investment companies
managed by Morgan Stanley Investment
Management Inc. and Morgan Stanley
Investments LP (since July 2001); General
Partner, Triumph Capital, L.P., a private
investment partnership; formerly Vice
President, Bankers Trust Company and BT
Capital Corporation (1984-1988).

NAME, AGE AND ADDRESS OF
INDEPENDENT TRUSTEE OTHER DIRECTORSHIPS HELD BY TRUSTEE
- --------------------------------------- ----------------------------------------------

Dr. Manuel H. Johnson (53) Director of NVR, Inc. (home construction);
c/o Johnson Smick International, Inc. Chairman and Trustee of the Financial
1133 Connecticut Avenue, N.W. Accounting Foundation (oversight organization
Washington, D.C. of the Financial Accounting Standards Board).

Michael E. Nugent (66) Director of various business organizations.
c/o Triumph Capital, L.P.
237 Park Avenue
New York, NY

MORGAN STANLEY DEVELOPING GROWTH SECURITIES TRUST
TRUSTEE AND OFFICER INFORMATION CONTINUED

INTERESTED TRUSTEES:

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

Charles A. Fiumefreddo (69) Chairman and Trustee Since
c/o Morgan Stanley Trust July 1991
Harborside Financial Center,
Plaza Two,
Jersey City, NJ

James F. Higgins (54) Trustee Since
c/o Morgan Stanley Trust June 2000
Harborside Financial Center,
Plaza Two,
Jersey City, NJ

Philip J. Purcell (59) Trustee Since
1585 Broadway April 1994
New York, NY

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

Charles A. Fiumefreddo (69) Chairman and Director or Trustee of the 129
c/o Morgan Stanley Trust Morgan Stanley Funds and the TCW/DW Term
Harborside Financial Center, Trusts; formerly Chairman, Chief Executive
Plaza Two, Officer and Director of the Investment Manager,
Jersey City, NJ the Distributor and Morgan Stanley Services,
Executive Vice President and Director of Morgan
Stanley DW, Chairman and Director of the Transfer
Agent, and Director and/or officer of various
Morgan Stanley subsidiaries (until June 1998) and
Chief Executive Officer of the Morgan Stanley
Funds and the TCW/DW Term Trusts (until September
2002).

James F. Higgins (54) Senior Advisor of Morgan Stanley (since 129
c/o Morgan Stanley Trust August 2000); Director of the Distributor and
Harborside Financial Center, Dean Witter Realty Inc.; Director or Trustee of
Plaza Two, the Morgan Stanley Funds and the TCW/DW
Jersey City, NJ Term Trusts (since June 2000); previously
President and Chief Operating Officer of the
Private Client Group of Morgan Stanley (May
1999-August 2000), President and Chief Operating
Officer of Individual Securities of Morgan
Stanley (February 1997-May 1999).

Philip J. Purcell (59) Director or Trustee of the Morgan Stanley 129
1585 Broadway Funds and the TCW/DW Term Trusts; Chairman
New York, NY of the Board of Directors and Chief Executive
Officer of Morgan Stanley and Morgan Stanley DW;
Director of the Distributor; Chairman of the
Board of Directors and Chief Executive Officer of
Novus Credit Services Inc.; Director and/or
officer of various Morgan Stanley subsidiaries.

NAME, AGE AND ADDRESS OF
INTERESTED TRUSTEE OTHER DIRECTORSHIPS HELD BY TRUSTEE
- ------------------------------ --------------------------------------------

Charles A. Fiumefreddo (69) None
c/o Morgan Stanley Trust
Harborside Financial Center,
Plaza Two,
Jersey City, NJ

James F. Higgins (54) None
c/o Morgan Stanley Trust
Harborside Financial Center,
Plaza Two,
Jersey City, NJ

Philip J. Purcell (59) Director of American Airlines, Inc. and its
1585 Broadway parent company, AMR Corporation.
New York, NY

- ------------
* Each Trustee serves an indefinite term, until his or her successor is
elected.
** The Fund Complex includes all open and closed-end funds (including all
of their portfolios) advised by Morgan Stanley Investment Advisors Inc.
and any funds that have an investment advisor that is an affiliated
person of Morgan Stanley Investment Advisors Inc. (including but not
limited to, Morgan Stanley Investment Management Inc., Morgan Stanley
Investments LP and Van Kampen Asset Management Inc.).

MORGAN STANLEY DEVELOPING GROWTH SECURITIES TRUST
TRUSTEE AND OFFICER INFORMATION CONTINUED

Officers:

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

Mitchell M. Merin (49) President and President since President and Chief Operating Officer of Morgan Stanley
1221 Avenue of the Americas Chief Executive May 1999 and Investment Management (since December 1998); President,
New York, NY Officer Chief Executive Director (since April 1997) and Chief Executive Officer
Officer since (since June 1998) of the Investment Manager and Morgan
September 2002 Stanley Services; Chairman, Chief Executive Officer and
Director of the Distributor (since June 1998); Chairman
(since June 1998) and Director (since January 1998) of the
Transfer Agent; Director of various Morgan Stanley
subsidiaries; President (since May 1999) and Chief
Executive Officer (since September 2002) of the Morgan
Stanley Funds and TCW/DW Term Trusts; Trustee of various
Van Kampen investment companies (since December 1999);
previously Chief Strategic Officer of the Investment
Manager and Morgan Stanley Services and Executive Vice
President of the Distributor (April 1997-June 1998), Vice
President of the Morgan Stanley Funds (May 1997-April
1999), and Executive Vice President of Morgan Stanley.

Barry Fink (47) Vice President, Since General Counsel (since May 2000) and Managing Director
1221 Avenue of the Americas Secretary and February 1997 (since December 2000) of Morgan Stanley Investment
New York, NY General Counsel Management; Managing Director (since December 2000), and
Secretary and General Counsel (since February 1997) and
Director (since July 1998) of the Investment Manager and
Morgan Stanley Services; Assistant Secretary of Morgan
Stanley DW; Vice President, Secretary and General Counsel
of the Morgan Stanley Funds and TCW/DW Term Trusts (since
February 1997); Vice President and Secretary of the
Distributor; previously, Senior Vice President, Assistant
Secretary and Assistant General Counsel of the Investment
Manager and Morgan Stanley Services.

Thomas F. Caloia (56) Treasurer Since First Vice President and Assistant Treasurer of the
c/o Morgan Stanley Trust April 1989 Investment Manager, the Distributor and Morgan Stanley
Harborside Financial Center, Services; Treasurer of the Morgan Stanley Funds.
Plaza Two
Jersey City, NJ

Ronald E. Robison (63) Vice President Since Managing Director, Chief Administrative Officer and
1221 Avenue of the Americas October 1998 Director (since February 1999) of the Investment Manager
New York, NY and Morgan Stanley Services and Chief Executive Officer and
Director of the Transfer Agent; previously Managing
Director of the TCW Group Inc.

Joseph J. McAlinden (59) Vice President Since Managing Director and Chief Investment Officer of the
1221 Avenue of the Americas July 1995 Investment Manager, Morgan Stanley Investment Management
New York, NY Inc. and Morgan Stanley Investments LP; Director of the
Transfer Agent; Chief Investment Officer of the Van Kampen
Funds.

Francis Smith (37) Vice President Since Vice President and Chief Financial Officer of the Morgan
c/o Morgan Stanley Trust and Chief September 2002 Stanley Funds and the TCW/DW Term Trusts (since September
Harborside Financial Center Financial Officer 2002); Executive Director of the Investment Manager and
Plaza Two, Morgan Stanley Services (since December 2001). Formerly,
Jersey City, NJ Vice President of the Investment Manager and Morgan Stanley
Services (August 2000-November 2001), Senior Manager at
PricewaterhouseCoopers LLP (January 1998-August 2000) and
Associate-Fund Administration at BlackRock Financial
Management (July 1996-December 1997).

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

* Each Officer serves an indefinite term, until his or her successor is
elected.

[MORGAN STANLEY LOGO]
TRUSTEES

Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
Wayne E. Hedien
James F. Higgins
Dr. Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell
[GRAPHIC OMITTED]
OFFICERS

Charles A. Fiumefreddo
Chairman
MORGAN STANLEY
DEVELOPING GROWTH
SECURITIES TRUST

Mitchell M. Merin
President and Chief Executive Officer

Barry Fink
Vice President, Secretary and General Counsel

Joseph J. McAlinden
Vice President

Ronald E. Robison
Vice President

Thomas F. Caloia
Treasurer

Francis Smith
Vice President and Chief Financial Officer

TRANSFER AGENT

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

INDEPENDENT AUDITORS

Deloitte & Touche LLP
Two World Financial Center
New York, New York 10281

INVESTMENT MANAGER

Morgan Stanley Investment Advisors Inc.
1221 Avenue of the Americas
New York, New York 10020

This report is submitted for the general information of the shareholders of the
Fund. For more detailed information about the Fund, its fees and expenses and
other pertinent information, please read its prospectus. The Fund's Statement
of Additional Information contains additional information about the Fund,
including its trustees. It is available, without charge, by calling (800)
869-NEWS.

This report is not authorized for distribution to prospective investors
in the Fund unless preceded or accompanied by an effective Prospectus.
Read the Prospectus carefully before investing.

Investments and services offered through Morgan Stanley DW Inc., Member SIPC.
Morgan Stanley Funds are distributed by Morgan Stanley Distributors Inc.

Morgan Stanley Distributors Inc., member NASD.

37905RPT-8904J02-AP-10/02

[MORGAN STANLEY LOGO] ANNUAL REPORT
September 30, 2002

[MORGAN STANLEY LOGO]

Morgan Stanley Next Generation Trust

A mutual fund that seeks long-term
growth of capital

[GRAPHIC OMITTED]

Prospectus September 30, 2002

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.

Contents

The Fund INVESTMENT OBJECTIVE ..............................1
PRINCIPAL INVESTMENT STRATEGIES ...................1
PRINCIPAL RISKS ...................................2
PAST PERFORMANCE ..................................4
FEES AND EXPENSES .................................5
ADDITIONAL INVESTMENT STRATEGY INFORMATION ........6
ADDITIONAL RISK INFORMATION .......................7
FUND MANAGEMENT ...................................7
Shareholder Information PRICING FUND SHARES ...............................9
HOW TO BUY SHARES .................................9
HOW TO EXCHANGE SHARES ...........................11
HOW TO SELL SHARES ...............................12
DISTRIBUTIONS ....................................14
TAX CONSEQUENCES .................................15
SHARE CLASS ARRANGEMENTS .........................15
Financial Highlights .................................................23
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

[GRAPHIC OMITTED]
INVESTMENT OBJECTIVE
- ------------------------
Morgan Stanley Next Generation Trust seeks long-term growth of capital.

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

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

The Fund will normally invest at least 65% of its assets in common stocks of
companies of any asset size which manufacture products or provide services, or
which develop or assist in the development of products and services, which, in
the opinion of the Investment Manager, may be used by, or appeal to, children,
teenagers and/or young adults. These products and services may include such
areas as clothing, toys, computer technology and software, consumer electronics,
Internet, telecommunications, entertainment, personal care, sports, publishing
and education. The Fund's "Investment Manager," Morgan Stanley Investment
Advisors Inc., invests in companies which it believes have growth potential. The
Fund's portfolio will be diversified among many different companies in a variety
of industry groups. In deciding which securities to buy, hold or sell, the
Fund's portfolio managers emphasize individual security selection. Individual
companies are chosen based on such factors as potential growth in earnings,
quality of management and business prospects.

Up to 35% of the Fund's net assets may be invested in foreign securities,
including emerging market securities. This percentage limitation, however, does
not apply to securities of foreign companies, including depositary receipts,
that are listed in the U.S. on a national securities exchange.

Common stock is a share ownership or equity interest in a corporation. It may or
may not pay dividends, as some companies reinvest all of their profits back into
their businesses, while others pay out some of their profits to shareholders as
dividends. A depositary receipt is generally issued by a bank or financial
institution and represents an ownership interest in the common stock or other
equity securities of a foreign company.

The remaining 35% of the Fund's assets may be invested in fixed-income
securities.

The Fund will attempt to foster an understanding among young people of basic
investment principles and personal finance by providing an array of educational
and informational materials.

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

[GRAPHIC OMITTED]
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.

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.

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

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

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

Depositary receipts involve substantially identical risks to 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.

Certain foreign securities in which the Fund may invest may be issued by
companies located in developing or emerging countries. Compared to the United
States and other developed countries, developing or emerging countries may have
unstable governments, economies based on only a few industries and securities
markets that trade a small number of securities. Securities issued by companies

located in these countries tend to be especially volatile and may be less liquid
than securities traded in developed countries. In the past, securities in these
countries have offered greater potential loss (as well as gain) than securities
of companies located in developed countries.

Other Risks. The performance of the Fund also will depend on whether the
Investment Manager is successful in applying the Fund's investment strategies.
The Fund is subject to other risks from its permissible investments including
the risks associated with fixed-income securities. For more information about
these risks, see the "Additional Risk Information" section.

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

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

[sidebar]
ANNUAL TOTAL RETURNS
This chart shows how the performance of the Fund's Class B shares has varied
from year to year over the past 2 calendar years.
[end sidebar]

[GRAPHIC OMITTED]

2000 -28.09
'01 -14.93

[sidebar]
The bar chart reflects the performance of the other Classes will differ because
the Classes have different ongoing fees. The performance information in the bar
chart does not reflect the deduction of sales charges; if these amounts were
reflected, returns would be less than shown. Year-to-date total return as of
June 30, 2002 was --9.56%.
[end sidebar]

During the periods shown in the bar chart, the highest return for a calendar
quarter was 24.12% (quarter ended December 31, 2001) and the lowest return for a
calendar quarter was --28.11% (quarter ended September 30, 2001).

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

AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 2001)
- -----------------------------------------------------------------------------
LIFE OF FUND
PAST 1 YEAR (SINCE 11/26/99)
- -----------------------------------------------------------------------------

Class A --18.79% --20.68%
- -----------------------------------------------------------------------------
Class C --15.78% --19.25%
- -----------------------------------------------------------------------------
Class D --14.25% --18.49%
- -----------------------------------------------------------------------------
Class B -- Returns Before Taxes --19.19% --20.41%
- -----------------------------------------------------------------------------
Class B -- Returns After Taxes on
Distributions(1) --19.19% --20.43%
- -----------------------------------------------------------------------------
Class B -- Returns After Taxes on
Distributions and Sale of Fund
Shares --11.68% --15.89%
- -----------------------------------------------------------------------------
S&P 500 Index(2) --11.88% --8.42%
- -----------------------------------------------------------------------------

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

2 The Standard and Poor's 500 Index (S&P 500 (Registered Trademark)) is a
broad-based index, the performance of which is based on the performance of
500 widely-held common stocks chosen for market size, liquidity and
industry group representation. The Index does not include any expenses,
fees or charges. The Index is unmanaged and should not be considered an
investment.

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 an assumed benefit from capital losses that would have been
realized had Fund shares been sold at the end of the relevant periods.

[GRAPHIC OMITTED]
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 D. Each Class has a different combination of fees, expenses and
other features, which should be considered in selecting a Class of shares. The
Fund does not charge account or exchange fees. See the "Share Class
Arrangements" section for further fee and expense information.

[sidebar]
SHAREHOLDER FEES
These fees are paid directly from your investment.

ANNUAL FUND
OPERATING EXPENSES
These expenses are deducted from the Fund's assets and are based on expenses
paid for the fiscal year ended July 31, 2002.
[end sidebar]

CLASS A CLASS B CLASS C CLASS D
- -----------------------------------------------------------------------------------------------------

SHAREHOLDER FEES
- -----------------------------------------------------------------------------------------------------
Maximum sales charge (load) imposed on
purchases (as a percentage of offering price) 5.25%(1) None None None
- -----------------------------------------------------------------------------------------------------
Maximum deferred sales charge (load) (as a
percentage based on the lesser of the offering
price or net asset value at redemption) None(2) 5.00%(3) 1.00%(4) None
- -----------------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
- -----------------------------------------------------------------------------------------------------
Management fee 0.75% 0.75% 0.75% 0.75%
- -----------------------------------------------------------------------------------------------------
Distribution and service (12b-1) fees 0.24% 1.00% 0.97% None
- -----------------------------------------------------------------------------------------------------
Other expenses 1.33% 1.33% 1.33% 1.33%
- -----------------------------------------------------------------------------------------------------
Total annual Fund operating expenses5 2.32% 3.08% 3.05% 2.08%
- -----------------------------------------------------------------------------------------------------

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

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

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

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

5 Effective May 1, 2002, the Investment Manager has agreed to assume all
operating expenses (except for brokerage and 12b-1 fees) and to waive the
compensation provided in its Management Agreement until such time as the
Fund has $50 million in net assets or until April 30, 2003, whichever
occurs first. The expenses and fees disclosed above do not reflect the
assumption of any expenses or the waiver of any compensation by the
Investment Manager. Taking the waiver/assumption of expenses into account,
the total operating expenses of Class A, Class B, Class C and Class D would
have been 1.76%, 2.52%, 2.49% and 1.52%, respectively.

Example

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

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

Class A $748 $1,211 $1,700 $3,041 $748 $1,211 $1,700 $3,041
- ---------------------------------------------------------- --------------------------------------------
Class B $811 $1,251 $1,816 $3,392 $311 $ 951 $1,616 $3,392
- ---------------------------------------------------------- --------------------------------------------
Class C $408 $ 942 $1,601 $3,365 $308 $ 942 $1,601 $3,365
- ---------------------------------------------------------- --------------------------------------------
Class D $211 $ 652 $1,119 $2,410 $211 $ 652 $1,119 $2,410
- ---------------------------------------------------------- --------------------------------------------

[GRAPHIC OMITTED]
ADDITIONAL INVESTMENT STRATEGY INFORMATION
- ----------------------------------------------
This section provides additional information relating to the Fund's principal
investment strategies.

Fixed-Income Securities. The Fund may invest up to 35% of its assets in
investment grade corporate debt securities (including zero coupon securities) or
comparable non-rated securities, as well as in U.S government securities
(including zero coupon securities).

Defensive Investing. The Fund may take temporary "defensive" positions that are
inconsistent with the Fund's principal investment strategies in attempting to
respond to adverse market conditions. The Fund may invest any amount of its
total assets in cash or money market instruments in a defensive posture when the
Investment Manager believes it is advisable to do so. Although taking a
defensive posture is designed to protect the Fund from an anticipated market
downturn, it could have the effect of reducing the benefit from any upswing in
the market. When the Fund takes a defensive position, it may not achieve its
investment 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 rate during recent fiscal years.
A portfolio turnover rate of 200%, for example, is equivalent to the Fund buying
and selling all of its securities two times during the course of the year. A
high portfolio turnover rate (over 100%) could result in high brokerage costs
and an increase in taxable capital gains distributions to the Fund's
shareholders. See the sections on "Distributions" and "Tax Consequences."

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

[GRAPHIC OMITTED]
ADDITIONAL RISK INFORMATION
- -------------------------------
This section provides additional information relating to the principal risks of
investing in the Fund.

Fixed-Income Securities. All fixed-income securities are subject to two types of
risk: credit risk and interest rate risk. Credit risk refers to the possibility
that the issuer of a security will be unable to make interest payments and/or
repay the principal on its debt. A portion of the Fund's fixed-income 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 interest.)

[GRAPHIC OMITTED]

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

[sidebar]
MORGAN STANLEY
INVESTMENT ADVISORS INC.
The Investment Manager is widely recognized as a leader in the mutual fund
industry and together with Morgan Stanley Services Company Inc., its
wholly-owned subsidiary, had approximately $125 billion in assets under
management as of August 31, 2002.
[end sidebar]

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

The Fund is managed by the Small/Mid Cap Growth Team. Current members of the
team include Dennis Lynch and David Cohen, both Vice Presidents of the
Investment Manager.

The Fund pays the Investment Manager a monthly management fee as full
compensation for the services and facilities furnished to the Fund, and for Fund
expenses assumed by the Investment Manager. The fee is based on the Fund's
average daily net assets. For the fiscal year ended July 31, 2002, the Fund
accrued total compensation to the Investment Manager amounting to 0.75% of the
Fund's average daily net assets.

Shareholder Information

[GRAPHIC OMITTED]
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.

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

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

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. You may also purchase
shares directly by calling the Fund's transfer agent and requesting an
application.

When you buy Fund shares, the shares are purchased at the next share price
calculated (less any applicable front-end sales charge for Class A shares) after
we receive your purchase order. Your payment is due on the third business day
after you place your purchase order. We reserve the right to reject any order
for the purchase of Fund shares.

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

MINIMUM INVESTMENT AMOUNTS
- ---------------------------------------------------------------
MINIMUM INVESTMENT
---------------------
INVESTMENT OPTIONS INITIAL ADDITIONAL
- ---------------------------------------------------------------
Regular Accounts $ 1,000 $ 100
- ---------------------------------------------------------------
Individual Retirement Account $ 1,000 $ 100
- ---------------------------------------------------------------
Coverdell Education Savings Account $ 500 $ 100
- ---------------------------------------------------------------
EasyInvestSM $ 100* $ 100*
(Automatically from your
checking or savings account
or Money Market Fund)
- ---------------------------------------------------------------

* Provided your schedule of investments totals $1,000 in twenty-four months.

Investment Options for Certain Institutional and Other Investors/Class D Shares.
To be eligible to purchase Class D shares, you must qualify under one of the
investor categories specified in the "Share Class Arrangements" section of this
Prospectus.

Subsequent Investments Sent Directly to the Fund. In addition to buying
additional Fund shares for an existing account by contacting your Morgan Stanley
Financial Advisor, you may send a check directly to the Fund. To buy additional
shares in this manner:

o Write a "letter of instruction" to the Fund specifying the name(s) on the
account, the account number, the social security or tax identification
number, the Class of shares you wish to purchase, and the investment amount
(which would include any applicable front-end sales charge). The letter
must be signed by the account owner(s).

o Make out a check for the total amount payable to: Morgan Stanley Next
Generation Trust.

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

[GRAPHIC OMITTED]
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, North American Government Income Trust,
or Limited Duration U.S. Treasury Trust, without the imposition of an exchange
fee. In addition, Class A shares of the Fund may be exchanged for shares of an
FSC Fund (funds subject to a front-end sales charge). See the inside back cover
of this Prospectus for each Morgan Stanley Fund's designation as a Multi-Class
Fund, No-Load Fund, Money Market Fund or an FSC Fund. If a Morgan Stanley Fund
is not listed, consult the inside back cover of that fund's prospectus for its
designation.

Exchanges may be made after shares of the fund acquired by purchase have been
held for thirty days. There is no waiting period for exchanges of shares
acquired by exchange or dividend reinvestment. The current prospectus for each
fund describes its investment objective(s), policies and investment minimum, and
should be read before investment. Since exchanges are available only into
continuously offered Morgan Stanley Funds, exchanges are not available into any
new Morgan Stanley Fund during its initial offering period, or when shares of a
particular Morgan Stanley Fund are not being offered for purchase.

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

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

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

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

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

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

You should review the "Tax Consequences" section and consult your own tax
professional about the tax consequences of an exchange.

Limitations on Exchanges. Certain patterns of past exchanges and/or purchase or
sale transactions involving the Fund or other Morgan Stanley Funds may result in
the Fund limiting or prohibiting, at its discretion, additional purchases and/or
exchanges. Determinations in this regard may be made based on the frequency or
dollar amount of the previous exchanges or purchase or sale transactions. You
will be notified in advance of limitations on your exchange privileges.

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

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

[GRAPHIC OMITTED]
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.

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

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

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

By Letter If you are requesting payment to anyone other than the registered
(continued) owner(s) or that payment be sent to any address other than the
address of the registered owner(s) or pre-designated bank
account, you will need a signature guarantee. You can obtain a
signature guarantee from an eligible guarantor acceptable to
Morgan Stanley Trust. (You should contact Morgan Stanley Trust
at (800) 869-NEWS for a determination as to whether a
particular institution is an eligible guarantor.) A notary
public cannot provide a signature guarantee. Additional
documentation may be required for shares held by a corporation,
partnership, trustee or executor.
-------------------------------------------------------------------------
Mail the letter to Morgan Stanley Trust at P.O. Box 983, Jersey
City, NJ 07303. If you hold share certificates, you must return
the certificates, along with the letter and any required
additional documentation.
-------------------------------------------------------------------------
A check will be mailed to the name(s) and address in which the
account is registered, or otherwise according to your
instructions.
-------------------------------------------------------------------------
Systematic If your investment in all of the Morgan Stanley Funds has a total
Withdrawal Plan market value of at least $10,000, you may elect to withdraw
[GRAPHIC OMITTED]amounts of $25 or more, or in any whole percentage of a
fund's balance (provided the amount is at least $25), on a monthly,
quarterly, semi-annual or annual basis, from any fund with a
balance of at least $1,000. Each time you add a fund to the plan,
you must meet the plan requirements.

-------------------------------------------------------------------------
Amounts withdrawn are subject to any applicable CDSC. A CDSC
may be waived under certain circumstances. See the Class B
waiver categories listed in the "Share Class Arrangements"
section of this Prospectus.
-------------------------------------------------------------------------
To sign up for the Systematic Withdrawal Plan, contact your
Morgan Stanley Financial Advisor or call (800) 869-NEWS. You
may terminate or suspend your plan at any time. Please remember
that withdrawals from the plan are sales of shares, not Fund
"distributions," and ultimately may exhaust your account
balance. The Fund may terminate or revise the plan at any time.
-------------------------------------------------------------------------

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

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 sixty days' notice, to sell
the shares of any shareholder (other than shares held in an IRA or 403(b)
Custodial Account) whose shares, due to sales by the shareholder, have a value
below $100, or in the case of an account opened through EasyInvestSM, if after
24 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 sixty 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.

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

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

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."

[GRAPHIC OMITTED]
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:

o The Fund makes distributions; and

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

Taxes on Distributions. Your distributions are normally subject to federal and
state income tax when they are paid, whether you take them in cash or reinvest
them in Fund shares. A distribution also may be subject to local income tax. Any
income dividend distributions and any short-term capital gain distributions are
taxable to you as ordinary income. Any long-term capital gain distributions are
taxable as long-term capital gains, no matter how long you have owned shares in
the Fund.

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

When you open your Fund account, you should provide your Social Security or tax
identification number on your investment application. By providing this
information, you will avoid being subject to a federal backup withholding tax
(approximately 30% currently) on taxable distributions and redemption proceeds.
Any withheld amount would be sent to the IRS as an advance tax payment.

[GRAPHIC OMITTED]
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.

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

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

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

A Maximum 5.25% initial sales charge reduced for purchase of $25,000 or more;
shares sold without an initial sales charge are generally subject to a 1.0% CDSC
during first year. 0.25%
- -------------------------------------------------------------------------------------------------------------
B Maximum 5.0% CDSC during the first year decreasing to 0% after six years. 1.00%
- -------------------------------------------------------------------------------------------------------------
C 1.0% CDSC during first year 1.00%
- -------------------------------------------------------------------------------------------------------------
D None None
- -------------------------------------------------------------------------------------------------------------

CLASS A SHARES Class A shares are sold at net asset value plus an initial
sales charge of up to 5.25%. The initial sales charge is reduced for purchases
of $25,000 or more according to the schedule below. Investments of $1 million or
more are not subject to an initial sales charge, but are generally subject to a
contingent deferred sales charge, or CDSC, of 1.0% on sales made within one year
after the last day of the month of purchase. The CDSC will be assessed in the
same manner and with the same CDSC waivers as with Class B shares. Class A
shares are also subject to a distribution (12b-1) fee of up to 0.25% of the
average daily net assets of the Class. This fee is lower than the distribution
fee paid by Class B or Class C shares.

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

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

[sidebar]
FRONT-END SALES
CHARGE OR FSC
An initial sales charge you pay when purchasing Class A shares that is based on
a percentage of the offering price. The percentage declines based upon the
dollar value of Class A shares you purchase. We offer three ways to reduce your
Class A sales charges -- the Combined Purchase Privilege, Right of Accumulation
and Letter of Intent.
[end sidebar]

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

Less than $25,000 5.25% 5.54%
- --------------------------------------------------------------------------------------
$25,000 but less than $50,000 4.75% 4.99%
- --------------------------------------------------------------------------------------
$50,000 but less than $100,000 4.00% 4.17%
- --------------------------------------------------------------------------------------
$100,000 but less than $250,000 3.00% 3.09%
- --------------------------------------------------------------------------------------
$250,000 but less than $500,000 2.50% 2.56%
- --------------------------------------------------------------------------------------
$500,000 but less than $1 million 2.00% 2.04%
- --------------------------------------------------------------------------------------
$1 million and over 0 0
- --------------------------------------------------------------------------------------

The reduced sales charge schedule is applicable to purchases of Class A shares
in a single transaction by:

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

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

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

o Tax-exempt organizations.

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

Combined Purchase Privilege. You also will have the benefit of reduced sales
charges by combining purchases of Class A shares of the Fund in a single
transaction with purchases of Class A shares of other Multi-Class Funds and
shares of FSC Funds.

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

You must notify your Morgan Stanley Financial Advisor or other authorized
financial representative, (or Morgan Stanley Trust if you purchase directly
through the Fund) at the time a purchase order is placed, that the purchase
qualifies for the reduced sales charge under the Right of Accumulation. Similar
notification must be made in writing when an order is placed by mail. The
reduced sales charge will not be granted if: (i) notification is not furnished
at the time of the order; or (ii) a review of the records of Morgan Stanley DW
Inc. ("Morgan Stanley DW") or other authorized dealer of Fund shares or the
Fund's transfer agent does not confirm your represented holdings.

Letter of Intent. The schedule of reduced sales charges for larger purchases
also will be available to you if you enter into a written "Letter of Intent." A
Letter of Intent provides for the purchase of Class A shares of the Fund or
other Multi-Class Funds or shares of FSC Funds within a thirteen-month period.
The initial purchase under a Letter of Intent must be at least 5% of the stated
investment goal. To determine the applicable sales charge reduction, you may
also include: (1) the cost of shares of other Morgan Stanley Funds which were
previously purchased at a price including a front-end sales charge during the
90-day period prior to the distributor receiving the Letter of Intent, and (2)
the 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 can obtain a Letter of Intent by contacting

your Morgan Stanley Financial Advisor or other authorized financial
representative, or by calling (800) 869-NEWS. If you do not achieve the stated
investment goal within the thirteen-month period, you are required to pay the
difference between the sales charges otherwise applicable and sales charges
actually paid, which may be deducted from your investment.

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

o A trust for which Morgan Stanley Trust provides discretionary trustee
services.

o Employer-sponsored employee benefit plans, whether or not qualified under
the Internal Revenue Code, for which (i) Morgan Stanley Trust serves as
trustee, (ii) Morgan Stanley's Retirement Plan Services serves as
recordkeeper under a written Recordkeeping Services Agreement or (iii) an
entity independent from Morgan Stanley serves as recordkeeper under an
alliance or similar agreement with Morgan Stanley's Retirement Plan
Services (together, "Morgan Stanley Eligible Plans"), provided that, in the
case of (i) and (ii) above, any such plan has at least 200 eligible
employees.

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

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

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

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

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

[sidebar]
CONTINGENT DEFERRED
SALES CHARGE OR CDSC
A fee you pay when you sell shares of certain Morgan Stanley Funds purchased
without an initial sales charge. This fee declines the longer you hold your
shares as set forth in the table.
[end sidebar]

CDSC AS A PERCENTAGE
YEAR SINCE PURCHASE PAYMENT MADE 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 Fund will generally not accept a purchase order for Class B shares in the
amount of $100,000 or more.

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

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

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

o Sales of shares held for you as a participant in an Morgan Stanley Eligible
Plan.

o Sales of shares in connection with the Systematic Withdrawal Plan of up to
12% annually of the value of each fund from which plan sales are made. The
percentage is determined on the date you

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

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

Distribution Fee. Class B shares are subject to an annual distribution (12b-1)
fee of 1.0% of the average daily net assets of Class B. This fee is higher than
the annual distribution fee paid by Class A.

Conversion Feature. After ten (10) years, Class B shares will convert
automatically to Class A shares of the Fund with no initial sales charge. The
ten year period runs from the last day of the month in which the shares were
purchased, or in the case of Class B shares acquired through an exchange, from
the last day of the month in which the original Class B shares were purchased;
the shares will convert to Class A shares based on their relative net asset
values in the month following the ten year period. At the same time, an equal
proportion of Class B shares acquired through automatically reinvested
distributions will convert to Class A shares on the same basis. (Class B shares
acquired in exchange for shares of another Morgan Stanley Fund originally
purchased before May 1, 1997, however, will convert to Class A shares in May
2007).

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

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

Exchanging Shares Subject to a CDSC. There are special considerations when you
exchange Fund shares that are subject to a CDSC. When determining the length of
time you held the shares and the corresponding CDSC rate, any period (starting
at the end of the month) during which you held shares

of a fund that does not charge a CDSC will not be counted. Thus, in effect the
"holding period" for purposes of calculating the CDSC is frozen upon exchanging
into a fund that does not charge a CDSC.

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

In addition, shares that are exchanged into or from a Morgan Stanley Fund
subject to a higher CDSC rate will be subject to the higher rate, even if the
shares are re-exchanged into a fund with a lower CDSC rate.
CLASS C SHARES Class C shares are sold at net asset value with no initial sales
charge but are subject to a CDSC of 1.0% on sales made within one year after the
last day of the month of purchase. The CDSC will be assessed in the same manner
and with the same CDSC waivers as with Class B shares. The Fund will not accept
a purchase order for Class C shares in the amount of $1 million or more.

Distribution Fee. Class C shares are subject to an annual distribution (12b-1)
fee of up to 1.0% of the average daily net assets of that Class. This fee is
higher than the annual distribution fee paid by Class A. Unlike Class B shares,
Class C shares have no conversion feature and, accordingly, an investor that
purchases Class C shares may be subject to distribution (12b-1) fees applicable
to Class C shares for an indefinite period.

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

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

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

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

o Certain unit investment trusts sponsored by Morgan Stanley DW.

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

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

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

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

Meeting Class D Eligibility Minimums. To meet the $5 million ($25 million for
Morgan Stanley Eligible Plans) initial investment to qualify to purchase Class D
shares you may combine: (1) purchases in a single transaction of Class D shares
of the Fund and other Morgan Stanley Multi-Class Funds; and/or (2) previous
purchases of Class A and Class D shares of Multi-Class Funds and shares of FSC
Funds you currently own, along with shares of Morgan Stanley Funds you currently
own that you acquired in exchange for those shares.

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).

Class A Shares
- -------------------------------------------------------------------------------------------------------------
FOR THE PERIOD
FOR THE YEAR ENDED JULY 31, NOVEMBER 26, 1999*
--------------------------------- THROUGH
2002 2001 JULY 31, 2000
- -------------------------------------------------------------------------------------------------------------

SELECTED PER SHARE DATA:
- -------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 6.57 $ 9.10 $ 10.00
- -------------------------------------------------------------------------------------------------------------
Loss from investment operations:
Net investment loss++ (0.08) (0.11) (0.05)
Net realized and unrealized loss (1.20) (2.42) (0.83)
---------- -------- ---------
Total loss from investment operations (1.28) (2.53) (0.88)
- -------------------------------------------------------------------------------------------------------------
Less dividends from net investment income -- -- (0.02)
- -------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 5.29 $ 6.57 $ 9.10
- -------------------------------------------------------------------------------------------------------------
TOTAL RETURN+ (19.48)% (27.80)% (8.83)%(1)
- -------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS(3):
- -------------------------------------------------------------------------------------------------------------
Expenses 1.76%(4) 1.97% 1.70%(2)
- -------------------------------------------------------------------------------------------------------------
Net investment loss (1.36)%(4) (1.37)% (0.75)%(2)
- -------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
- -------------------------------------------------------------------------------------------------------------
Net assets, end of period, in thousands $ 1,345 $ 1,995 $ 3,506
- -------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 166% 278% 40%(1)
- -------------------------------------------------------------------------------------------------------------

* Commencement of operations.

++ 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) Not annualized.

(2) Annualized.

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

(4) If the Investment Manager had not assumed all expenses and waived its
management fee for the period May 1, 2002 through July 31, 2002, the ratios
of expenses and net investment loss would have been 2.32% and (1.92)%,
respectively.

Class B Shares
- -------------------------------------------------------------------------------------------------------------
FOR THE PERIOD
FOR THE YEAR ENDED JULY 31, NOVEMBER 26, 1999*
------------------------------- THROUGH
2002 2001 JULY 31, 2000
- -------------------------------------------------------------------------------------------------------------

SELECTED PER SHARE DATA:
- -------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 6.49 $ 9.06 $ 10.00
- -------------------------------------------------------------------------------------------------------------
Loss from investment operations:
Net investment loss++ (0.13) (0.16) (0.10)
Net realized and unrealized loss (1.17) (2.41) (0.83)
---------- -------- ---------
Total loss from investment operations (1.30) (2.57) (0.93)
- -------------------------------------------------------------------------------------------------------------
Less dividends from net investment income -- -- (0.01)
- -------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 5.19 $ 6.49 $ 9.06
- -------------------------------------------------------------------------------------------------------------
TOTAL RETURN+ (20.03)% (28.37)% (9.30)%(1)
- -------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS(3):
- -------------------------------------------------------------------------------------------------------------
Expenses 2.52%(4) 2.73% 2.45%(2)
- -------------------------------------------------------------------------------------------------------------
Net investment loss (2.12)%(4) (2.13)% (1.50)%(2)
- -------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
- -------------------------------------------------------------------------------------------------------------
Net assets, end of period, in thousands $ 15,739 $ 26,045 $ 50,633
- -------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 166% 278% 40%(1)
- -------------------------------------------------------------------------------------------------------------

* Commencement of operations.

++ 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) Not annualized.

(2) Annualized.

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

(4) If the Investment Manager had not assumed all expenses and waived its
management fee for the period May 1, 2002 through July 31, 2002, the
ratios of expenses and net investment loss would have been 3.08% and
(2.68)%, respectively.

Class C Shares
- -------------------------------------------------------------------------------------------------------------
FOR THE PERIOD
FOR THE YEAR ENDED JULY 31, NOVEMBER 26, 1999*
------------------------------- THROUGH
2002 2001 JULY 31, 2000
- -------------------------------------------------------------------------------------------------------------

SELECTED PER SHARE DATA:
- -------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 6.49 $ 9.06 $ 10.00
- -------------------------------------------------------------------------------------------------------------
Loss from investment operations:
Net investment loss++ (0.12) (0.16) (0.10)
Net realized and unrealized loss (1.18) (2.41) (0.83)
---------- -------- ---------
Total loss from investment operations (1.30) (2.57) (0.93)
- -------------------------------------------------------------------------------------------------------------
Less dividends from net investment income -- -- (0.01)
- -------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 5.19 $ 6.49 $ 9.06
- -------------------------------------------------------------------------------------------------------------
TOTAL RETURN+ (20.03)% (28.37)% (9.30)%(1)
- -------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS(3):
- -------------------------------------------------------------------------------------------------------------
Expenses 2.49%(4) 2.73% 2.45%(2)
- -------------------------------------------------------------------------------------------------------------
Net investment loss (2.09)%(4) (2.13)% (1.50)%(2)
- -------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
- -------------------------------------------------------------------------------------------------------------
Net assets, end of period, in thousands $ 2,357 $ 3,588 $ 6,722
- -------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 166% 278% 40%(1)
- -------------------------------------------------------------------------------------------------------------

* Commencement of operations.

++ 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) Not annualized.

(2) Annualized.

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

Class D Shares
- -------------------------------------------------------------------------------------------------------------
FOR THE PERIOD
FOR THE YEAR ENDED JULY 31, NOVEMBER 26, 1999*
------------------------------- THROUGH
2002 2001 JULY 31, 2000
- -------------------------------------------------------------------------------------------------------------

SELECTED PER SHARE DATA:
- -------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 6.59 $ 9.11 $ 10.00
- -------------------------------------------------------------------------------------------------------------
Loss from investment operations:
Net investment loss++ ( 0.08) ( 0.10) ( 0.04)
Net realized and unrealized loss ( 1.19) ( 2.42) ( 0.83)
---------- -------- ---------
Total loss from investment operations ( 1.27) ( 2.52) ( 0.87)
- -------------------------------------------------------------------------------------------------------------
Less dividends from net investment income -- -- ( 0.02)
- -------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 5.32 $ 6.59 $ 9.11
- -------------------------------------------------------------------------------------------------------------
TOTAL RETURN+ (19.27)% (27.66)% ( 8.71)%(1)
- -------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS(3):
- -------------------------------------------------------------------------------------------------------------
Expenses 1.52%(4) 1.73% 1.45%(2)
- -------------------------------------------------------------------------------------------------------------
Net investment loss ( 1.12)%(4) ( 1.13)% ( 0.50)%(2)
- -------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
- -------------------------------------------------------------------------------------------------------------
Net assets, end of period, in thousands $ 2,248 $ 3,872 $ 23
- -------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 166% 278% 40%(1)
- -------------------------------------------------------------------------------------------------------------

* Commencement of operations.

++ 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) Not annualized.

(2) Annualized.

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

Notes

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

Notes

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

Morgan Stanley Funds
- ------------------------------------------------------------------------------------------------------------------------------------

o GLOBAL/INTERNATIONAL FUNDS Mid-Cap Value Fund o INCOME FUNDS
European Growth Fund Nasdaq-100 Index Fund Diversified Income Trust
Fund of Funds - International Portfolio Natural Resource Development Federal Securities Trust
Global Advantage Fund Securities High Yield Securities
Global Dividend Growth Securities New Discoveries Fund Intermediate Income Securities
Global Utilities Fund Next Generation Trust Limited Duration Fund (NL)
International Fund Small-Mid Special Value Fund Limited Duration U.S. Treasury Trust
International SmallCap Fund Special Growth Fund Liquid Asset Fund (MM)
International Value Equity Fund Special Value Fund North American Government
Japan Fund Tax-Managed Growth Fund Income Trust
Latin American Growth Fund Technology Fund U.S. Government Money Market Trust (MM)
Pacific Growth Fund U.S. Government Securities Trust
o GROWTH + INCOME FUNDS
Balanced Growth Fund
o GROWTH FUNDS Balanced Income Fund o TAX-FREE INCOME FUNDS
21st Century Trend Fund Convertible Securities Trust California Tax-Free Daily Income Trust (MM)
Aggressive Equity Fund Dividend Growth Securities California Tax-Free Income Fund
All Star Growth Fund Equity Fund Hawaii Municipal Trust (FSC)
American Opportunities Fund Fund of Funds - Domestic Portfolio Limited Term Municipal Trust (NL)
Biotechnology Fund Fundamental Value Fund Multi-State Municipal Series Trust (FSC)
Capital Opportunities Trust Income Builder Fund New York Municipal Money Market Trust (MM)
Developing Growth Securities Trust Real Estate Fund New York Tax-Free Income Fund
Financial Services Trust S&P 500 Index Fund Tax-Exempt Securities Trust
Growth Fund Strategist Fund Tax-Free Daily Income Trust (MM)
Health Sciences Trust Total Market Index Fund
Information Fund Total Return Trust
KLD Social Index Fund Utilities Fund
Market Leader Trust Value Fund
Value-Added Market Series/
Equity Portfolio

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

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
designation, e.g., Multi-Class Fund or Money Market Fund.

Unless otherwise noted, each listed Morgan Stanley Fund, except for North
American Government Income Trust and Limited Duration U.S. Treasury Trust, is a
Multi-Class Fund. A Multi-Class Fund is a mutual fund offering multiple Classes
of shares. The other types of funds are: NL -- No-Load (Mutual) Fund; MM --
Money Market Fund; FSC -- A mutual fund sold with a front-end sales charge and a
distribution (12b-1) fee.

[MORGAN STANLEY LOGO]

Additional information about the Fund's
investments is available in the Fund's Annual
and Semi-Annual Reports to Shareholders. In the
Fund's Annual Report, you will find a discussion
of the market conditions and investment Morgan Stanley
strategies that significantly affected the Next Generation Trust
Fund's performance during its last fiscal year.
The Fund's Statement of Additional Information
also provides additional information about the A mutual fund that seeks
Fund. The Statement of Additional Information is long-term growth of capital
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 [GRAPHIC OMITTED]
inquiries, please call:

(800) 869-NEWS

You also may obtain information about the Fund Prospectus | September 30, 2002
by calling your Morgan Stanley Financial Advisor
or by visiting our Internet site at:

www.morganstanley.com/funds

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

Class A: NGTAX Class C: NGTCX
- -------------------------- --------------------------
Class B: NGTBX Class D: NGTDX
- -------------------------- --------------------------

(THE FUND'S INVESTMENT COMPANY ACT FILE NO. IS 811-9441)

MORGAN STANLEY NEXT GENERATION TRUST
LETTER TO THE SHAREHOLDERS o JULY 31, 2002

DEAR SHAREHOLDER:

During the 12-month period ended July 31, 2002, economic uncertainty, fear of
terrorism and geopolitical conflicts all weighed heavily upon the U.S. equity
markets. However, the issue of greatest concern to investors seemed to be a
crisis in corporate-accounting practices and corporate governance. Accounting
irregularities at companies such as Enron and WorldCom had a tremendous
spillover effect, as investors regarded with extreme suspicion companies whose
accounting practices appeared to be even remotely questionable or complex. As
the number of corporate scandals and bankruptcies increased, investor sentiment
deteriorated markedly.

The economic picture seemed to improve during the period, within both the
manufacturing and retail sectors, but the pace of the recovery was more muted
than many had hoped for. In addition, many businesses remained cautious and
were reluctant to increase capital spending.

Despite notable strength in the equity markets during the fourth quarter of
2001, equity valuations had fallen significantly in a large number of areas by
the end of July. These included some areas that had once been considered safe
havens. By the end of the reporting period, investors were still looking for a
positive catalyst to reverse this market weakness.

PERFORMANCE AND PORTFOLIO STRATEGY
For the 12-month period ended July 31, 2002, Morgan Stanley Next Generation
Trust's Class A, B, C and D shares posted total returns of -19.48 percent,
- -20.03 percent, -20.03 percent and -19.27 percent, respectively. For the same
period, the return of the Standard & Poor's 500 Index (S&P 500) was -23.61
percent. The performance of the Fund's four share classes varies because each
has different expenses. Total return figures assume the reinvestment of all
distributions but do not reflect the deduction of any applicable sales charges.
If sales charges were included, performance would be lower. The accompanying
chart compares the performance of the Fund to that of the S&P 500.

During this difficult market environment, the Fund was able to outperform its
benchmark primarily as a result of its consumer-related holdings. Consumer
discretionary was the largest sector in the Fund's portfolio, and the biggest
contributor to performance. The sector is broadly diversified, and strong
performance came within such areas as gaming, restaurants, entertainment and
leisure, and education. Consumer staples, homebuilding, and auto and
transportation stocks were also sources of positive performance. Within each of
these consumer-related areas we were able to identify a number of companies
with strong niche positions, positive free cash flow and compelling business
momentum - all characteristics that we found particularly appealing in an
uncertain economic and market environment. During the reporting period, we
increased the Fund's exposure to both consumer discretionary and consumer
staples.

MORGAN STANLEY NEXT GENERATION TRUST
LETTER TO THE SHAREHOLDERS o JULY 31, 2002 CONTINUED

The Fund's technology exposure detracted from overall performance. Technology
was the Fund's second largest sector weighting, although we reduced the
portfolio's exposure there significantly during the period. Within technology
most of our focus was on software and semiconductor stocks. Software has been
hamstrung by sluggish spending on information-technology, while semiconductor
stocks have been negatively affected by concerns about a slowdown in personal
computer sales. We have maintained positions in technology holdings that we
believe have strong long-term prospects, reasonable valuations and are
positioned to benefit when businesses resume technology-related spending.

Health care was the Fund's third-largest sector weighting. During the period,
we benefited from owning a mix of both aggressive-growth holdings, such as
biotechnology, and more-stable growth names, including hospital and health-care
services, diagnostic testing, and medical equipment. At the end of the
reporting period, consumer discretionary, technology, and health-care issues
accounted for roughly 71 percent of the Fund's holdings.

LOOKING AHEAD
We believe the current spate of disclosure disasters will likely lead to a
purge that could ultimately be healthy for the equity markets. In our view,
once the constant stream of negative news dissipates, investors will be able to
regain confidence in the integrity and competency of company managements.
Further, the economy is starting to show signs of improvement, and while
recoveries do not occur in a straight line we believe that this economic
recovery will, at some point, take hold.

We continue to focus on in-depth company research, and have positioned the
portfolio toward a mix of companies that we believe have more predictable and
relatively more stable prospects, as well as cyclical stocks that, in our view,
could be expected to perform well during an economic recovery.

We appreciate your ongoing support of Morgan Stanley Next Generation Trust and
look forward to continuing to serve your investment needs.

Very truly yours,
[GRAPHIC OMITTED] [GRAPHIC OMITTED]

Charles A. Fiumefreddo Mitchell M. Merin
Chairman of the Board President

MORGAN STANLEY NEXT GENERATION TRUST
ANNUAL HOUSEHOLDING NOTICE o JULY 31, 2002 CONTINUED

To reduce printing and mailing costs, the Fund attempts to eliminate duplicate
mailings to the same address. The Fund delivers a single copy of certain
shareholder documents including shareholder reports, prospectuses and proxy
materials to investors with the same last name and who reside at the same
address. Your participation in this program will continue for an unlimited
period of time, unless you instruct us otherwise. You can request multiple
copies of these documents by calling (800) 350-6414, 8:00am to 8:00pm, ET. Once
our Customer Service Center has received your instructions, we will begin
sending individual copies for each account within 30 days.

MORGAN STANLEY NEXT GENERATION TRUST
FUND PERFORMANCE o JULY 31, 2002

[GRAPHIC OMITTED]

GROWTH OF $10,000
($ in Thousands)

Date Class A Class B Class C Class D S&P 500

November 25, 1999 $9,475 $10,000 $10,000 $10,000 $10,000
January 31, 2000 $9,103 $9,591 $9,591 $9,610 $9,882
April 30, 2000 $9,189 $9,871 $9,671 $9,710 $10,302
July 31, 2000 $8,638 $9,070 $9,070 $9,129 $10,178
October 31, 2000 $8,116 $8,510 $8,510 $8,588 $10,195
January 31, 2001 $7,588 $7,909 $7,909 $8,007 $9,772
April 30, 2001 $8,749 $7,038 $7,038 $7,145 $8,965
July 31, 2001 $6,237 $6,497 $6,457 $6,604 $8,718
October 31, 2001 $5,278 $5,496 $5,496 $5,592 $7,658
January 31, 2002 $8,085 $8,317 $6,317 $6,454 $8,195
April 30, 2002 $6,237 $8,457 $8,457 $6,604 $7,834
July 31, 2002 $5,022(3) $5,040(3) $5,196(3) $5,331(3) $6,660

-- Class A -- Class B -- Class C -- Class D -- S&P 500 (4)

Past performance is not predictive of future returns. Investment return and
principal value will fluctuate. When you sell fund shares, they may be worth
less than their original cost. The graph and table do not reflect the deduction
of taxes that a shareholder would pay on fund distributions or the redemption
of fund shares. Performance for Class A, Class B, Class C, and Class D shares
will vary due to differences in sales charges and expenses.

AVERAGE ANNUAL TOTAL RETURNS - PERIOD ENDED JULY 31, 2002
- --------------------------------------------------------------------------------

CLASS A SHARES*
- ----------------------------------------------------------------------
1 Year (19.48)%(1) (23.71)%(2)

Since Inception (11/26/99) (21.11)%(1) (22.68)%(2)

CLASS C SHARES+
- ----------------------------------------------------------------------
1 Year (20.03)%(1) (20.83)%(2)

Since Inception (11/26/99) (21.69)%(1) (21.69)%(2)

CLASS B SHARES**
- ----------------------------------------------------------------------
1 Year (20.03)%(1) (24.03)%(2)

Since Inception (11/26/99) (21.69)%(1) (22.58)%(2)

CLASS D SHARES[+/+]
- ---------------------------------------------------
1 Year (19.27)%(1)

Since Inception (11/26/99) (20.94)%(1)

- ------------
(1) Figure shown assumes reinvestment of all distributions and does not
reflect the deduction of any sales charges.
(2) Figure shown assumes reinvestment of all distributions and the deduction
of the maximum applicable sales charge. See the Fund's current prospectus
for complete details on fees and sales charges.
(3) Closing value assuming a complete redemption on July 31, 2002.
(4) The Standard and Poor's 500 Index (S&P 500) is a broad-based index, the
performance of which is based on the performance of 500 widely held
common stocks chosen for market size, liquidity and industry group
representation. The Index does not include any expenses, fees or charges.
The Index is unmanaged and should not be considered an investment.
* The maximum front-end sales charge for Class A is 5.25%.
** The maximum contingent deferred sales charge (CDSC) for Class B is 5.0%.
The CDSC declines to 0% after six years.
+ The maximum contingent deferred sales charge for Class C is 1% for shares
redeemed within one year of purchase.
++ Class D has no sales charge.

MORGAN STANLEY NEXT GENERATION TRUST
PORTFOLIO OF INVESTMENTS o JULY 31, 2002

NUMBER OF
SHARES VALUE
- -------------------- --------------------

COMMON STOCKS (98.1%)
Advertising/Marketing Services (2.3%)
6,025 Lamar Advertising Co.* ........... $ 190,269
13,200 R.H. Donnelley Corp.* ............ 316,140
-----------
506,409
-----------
Aerospace & Defense (0.9%)
1,600 Alliant Techsystems, Inc.* ....... 98,240
3,075 Raytheon Co. ..................... 100,183
-----------
198,423
-----------
Air Freight/Couriers (0.2%)
1,750 Expeditors International of
Washington, Inc. ................. 51,625
-----------
Apparel/Footwear (1.0%)
9,200 Coach, Inc.* ..................... 209,760
-----------
Apparel/Footwear Retail (2.8%)
8,375 Abercrombie & Fitch Co.
(Class A)* ....................... 189,275
12,325 Limited Brands, Inc. ............. 221,480
5,525 Ross Stores, Inc. ................ 208,071
-----------
618,826
-----------
Auto Parts: O.E.M. (0.8%)
7,975 ArvinMeritor, Inc. ............... 168,751
-----------
Biotechnology (4.2%)
3,850 Biogen, Inc.* .................... 138,484
4,875 Celgene Corp.* ................... 83,704
10,025 Gilead Sciences, Inc.* ........... 305,462
4,925 IDEC Pharmaceuticals Corp.* 219,606
3,250 MedImmune, Inc.* ................. 96,655
5,050 Millennium Pharmaceuticals,
Inc.* ............................ 62,721
-----------
906,632
-----------
Broadcasting (3.8%)
19,750 Radio One, Inc. (Class D)* ....... 276,500
9,250 Univision Communications,
Inc. (Class A)* .................. 264,457
9,300 Westwood One, Inc.* .............. 295,275
-----------
836,232
-----------

NUMBER OF
SHARES VALUE
- -------------------- --------------------

Casino/Gaming (3.8%)
20,200 GTECH Holdings Corp.* ............ $ 402,990
19,900 Park Place Entertainment
Corp.* ........................... 182,682
14,750 Penn National Gaming, Inc.* ...... 230,100
-----------
815,772
-----------
Catalog/Specialty Distribution (0.7%)
7,025 J. Jill Group Inc.* .............. 156,657
-----------
Chemicals: Specialty (1.0%)
4,600 Albemarle Corp. .................. 135,976
1,625 OM Group, Inc. ................... 74,425
-----------
210,401
-----------
Computer Communications (2.0%)
8,184 Brocade Communications
Systems, Inc.* ................... 153,450
6,494 Emulex Corp.* .................... 150,401
13,000 Extreme Networks, Inc.* .......... 135,200
-----------
439,051
-----------
Computer Peripherals (1.4%)
4,089 QLogic Corp.* .................... 166,627
10,300 Storage Technology Corp.* ........ 146,260
-----------
312,887
-----------
Contract Drilling (1.0%)
9,825 GlobalSantaFe Corp. .............. 221,455
-----------
Data Processing Services (1.9%)
2,775 Affiliated Computer Services,
Inc. (Class A)* .................. 130,369
7,300 Bisys Group, Inc. (The)* ......... 168,630
3,000 First Data Corp. ................. 104,850
-----------
403,849
-----------
Discount Stores (3.2%)
5,875 BJ's Wholesale Club, Inc.* ....... 206,506
12,600 Dollar General Corp. ............. 216,216
5,250 Dollar Tree Stores, Inc.* ........ 163,782
3,750 Fred's, Inc. ..................... 110,437
-----------
696,941
-----------

See Notes to Financial Statements

MORGAN STANLEY NEXT GENERATION TRUST
PORTFOLIO OF INVESTMENTS o JULY 31, 2002 CONTINUED

NUMBER OF
SHARES VALUE
- -------------------- -------------------

Electronic Components (1.2%)
4,050 Jabil Circuit, Inc.* .............. $ 72,049
13,600 SanDisk Corp.* .................... 195,840
-----------
267,889
-----------
Electronic Production Equipment (1.8%)
7,125 Celestica, Inc.* .................. 152,831
3,625 KLA-Tencor Corp.* ................. 142,789
3,425 Novellus Systems, Inc.* ........... 92,441
-----------
388,061
-----------
Finance/Rental/Leasing (2.3%)
4,000 SLM Corp. ......................... 364,000
375 White Mountains Insurance
Group, Inc. ....................... 127,500
-----------
491,500
-----------
Financial Publishing/Services (3.0%)
12,775 Interactive Data Corp. ............ 167,225
5,250 Moody's Corp. ..................... 260,400
9,875 SunGard Data Systems Inc.* ........ 231,569
-----------
659,194
-----------
Food: Meat/Fish/Dairy (2.5%)
8,050 Dreyer's Grand Ice Cream,
Inc. .............................. 539,028
-----------
Food: Specialty/Candy (2.4%)
4,850 Hershey Foods Corp. ............... 380,531
3,300 J & J Snack Foods* ................ 131,835
-----------
512,366
-----------
Home Building (1.6%)
1,200 NVR, Inc.* ........................ 346,200
-----------
Home Furnishings (2.1%)
11,950 Furniture Brands International,
Inc.* ............................. 303,530
3,134 Mohawk Industries, Inc.* .......... 148,865
-----------
452,395
-----------
Hospital/Nursing Management (1.9%)
2,612 Tenet Healthcare Corp.* ........... 124,462
7,275 Triad Hospitals, Inc.* ............ 290,854
-----------
415,316
-----------

NUMBER OF
SHARES VALUE
- -------------------- ------------------

Hotels/Resorts/Cruiselines (4.2%)
14,375 Carnival Corp. .................... $ 380,937
3,975 P & O Princess Crusies PLC
(ADR) (United Kingdom) ............ 108,915
16,875 Starwood Hotels & Resorts
Worldwide, Inc. ................... 433,687
-----------
923,539
-----------
Household/Personal Care (0.3%)
1,300 Alberto-Culver Co. (Class B) ...... 61,763
-----------
Insurance Brokers/Services (1.1%)
2,733 ChoicePoint Inc.* ................. 114,485
3,650 Willis Group Holdings Ltd.* ....... 115,486
-----------
229,971
-----------
Internet Software/Services (0.4%)
56,475 Vignette Corp.* ................... 80,194
-----------
Investment Managers (0.6%)
2,725 Affiliated Managers Group,
Inc.* ............................. 128,674
-----------
Managed Health Care (0.8%)
4,200 Oxford Health Plans, Inc.* ........ 180,684
-----------
Medical Distributors (1.4%)
4,425 AmerisourceBergen Corp. ........... 296,431
-----------
Medical Specialties (2.7%)
7,500 Varian Medical Systems, Inc.* 313,500
7,100 Zimmer Holdings, Inc.* ............ 264,333
-----------
577,833
-----------
Miscellaneous Commercial
Services (0.8%)
6,550 Sabre Holdings Corp.* ............. 173,706
-----------
Motor Vehicles (0.7%)
3,300 Harley-Davidson, Inc. ............. 156,288
-----------
Movies/Entertainment (2.4%)
16,550 Cedar Fair, L.P. .................. 378,167
7,250 Regal Entertainment Group
(Class A)* ........................ 143,333
-----------
521,500
-----------

See Notes to Financial Statements

MORGAN STANLEY NEXT GENERATION TRUST
PORTFOLIO OF INVESTMENTS o JULY 31, 2002 CONTINUED

NUMBER OF
SHARES VALUE
- -------------------- ----------------

Oil & Gas Production (1.5%)
31,275 PetroQuest Energy, Inc.* ........... $ 120,096
8,375 Pioneer Natural Resources
Co.* ............................... 202,759
-----------
322,855
-----------
Oilfield Services/Equipment (1.9%)
12,975 BJ Services Co.* ................... 413,773
-----------
Other Consumer Services (4.1%)
2,850 Apollo Group, Inc. (Class A)* ...... 111,863
6,400 Career Education Corp.* ............ 282,496
6,400 Education Management
Corp.* ............................. 255,424
5,350 Weight Watchers International,
Inc.* .............................. 233,528
-----------
883,311
-----------
Packaged Software (3.6%)
6,300 Adobe Systems, Inc. ................ 150,948
4,889 Intuit Inc.* ....................... 215,018
4,200 Mercury Interactive Corp.* ......... 107,604
3,250 Symantec Corp.* .................... 109,005
10,700 TIBCO Software, Inc.* .............. 57,994
8,250 VERITAS Software Corp.* ............ 138,848
-----------
779,417
-----------
Personnel Services (0.8%)
5,825 AMN Healthcare Services,
Inc.* .............................. 165,721
-----------
Pharmaceuticals: Other (1.1%)
2,950 Forest Laboratories, Inc.* ......... 228,537
-----------
Publishing: Newspapers (0.5%)
2,100 Media General, Inc. (Class A) ...... 106,638
-----------
Recreational Products (3.9%)
2,800 Activision, Inc.* .................. 80,416
5,400 Electronic Arts Inc.* .............. 324,972
3,050 International Game
Technology* ........................ 177,663
13,750 Mattel, Inc. ....................... 258,638
-----------
841,689
-----------
Regional Banks (0.3%)
1,425 Commerce Bancorp, Inc. ............. 65,864
-----------

NUMBER OF
SHARES VALUE
- -------------------- ------------------

Restaurants (5.8%)
8,600 AFC Enterprises, Inc.* ............. $ 233,490
4,000 CBRL Group, Inc. ................... 119,680
12,200 Jack in the Box, Inc.* ............. 337,940
3,650 P.F. Chang's China Bistro,
Inc.* .............................. 113,953
3,725 Sonic Corp.* ....................... 104,598
5,600 Wendy's International, Inc. ........ 206,024
4,900 Yum! Brands, Inc.* ................. 151,410
-----------
1,267,095
-----------
Savings Banks (0.5%)
3,500 Charter One Financial, Inc. ........ 118,720
-----------
Semiconductors (2.7%)
12,325 Altera Corp.* ...................... 145,805
3,575 Broadcom Corp. (Class A)* .......... 67,067
28,629 Conexant Systems, Inc.* ............ 58,117
5,050 Integrated Device Technology,
Inc.* .............................. 64,640
7,550 Intersil Corp. (Class A)* .......... 164,515
5,149 Micrel, Inc.* ...................... 59,059
2,800 NVIDIA Corp.* ...................... 30,996
-----------
590,199
-----------
Services to the Health
Industry (1.1%)
1,850 Express Scripts, Inc.
(Class A)* ......................... 96,200
1,850 Laboratory Corp. of America
Holdings* .......................... 63,455
1,200 Quest Diagnostics Inc.* ............ 72,468
-----------
232,123
-----------
Specialty Stores (1.3%)
6,100 Kirkland's, Inc.* .................. 65,148
2,250 Tractor Supply Company* ............ 134,505
3,450 Williams-Sonoma, Inc.* ............. 78,488
-----------
278,141
-----------
Specialty Telecommunications (1.0%)
4,600 Commonwealth Telephone
Enterprises, Inc.* ................. 177,974
14,100 Crown Castle International
Corp.* ............................. 32,430
-----------
210,404
-----------

See Notes to Financial Statements

MORGAN STANLEY NEXT GENERATION TRUST
PORTFOLIO OF INVESTMENTS o JULY 31, 2002 CONTINUED

NUMBER OF
SHARES VALUE
- ----------- --------------

Telecommunication Equipment (1.7%)
10,950 CIENA Corp.* ..................... $ 44,129
5,100 Harris Corp. ..................... 163,761
42,850 Nortel Networks Corp.
(Canada)* ........................ 41,565
7,100 RF Micro Devices, Inc.* .......... 47,286
14,525 Tellabs, Inc.* ................... 83,228
-----------
379,969
-----------
Tobacco (0.7%)
5,875 Loews Corp. - Carolina Group 145,113
-----------
Wireless Telecommunications (0.4%)
16,200 Nextel Communications, Inc.
(Class A)* ....................... 92,826
-----------

TOTAL COMMON STOCKS
(Cost $22,268,391) (a)......... 98.1% 21,278,598
OTHER ASSETS IN EXCESS OF
LIABILITIES ................... 1.9 410,989
----- ----------
NET ASSETS .................... 100.0% $21,689,587
===== ===========

- ---------------------------
ADR American Depository Receipt.
* Non-income producing security.
(a) The aggregate cost for federal income tax purposes approximates the
aggregate cost for book purposes. The aggregate gross unrealized
appreciation is $1,582,772 and the aggregate gross unrealized
depreciation is $2,572,565, resulting in net unrealized depreciation of
$989,793.

See Notes to Financial Statements

MORGAN STANLEY NEXT GENERATION TRUST
FINANCIAL STATEMENTS

STATEMENT OF ASSETS AND LIABILITIES
July 31, 2002

ASSETS:

Investments in securities, at value
(cost $22,268,391)............................................... $ 21,278,598
Cash ............................................................. 83,719
Receivable for:
Investments sold ............................................... 846,835
Dividends ...................................................... 7,851
Foreign withholding taxes reclaimed ............................ 5,281
Shares of beneficial interest sold ............................. 3,231
Prepaid expenses and other assets ................................ 8,727
Receivable from affiliate ........................................ 103,621
-------------
TOTAL ASSETS ................................................... 22,337,863
-------------
LIABILITIES:
Payable for:
Investments purchased .......................................... 453,327
Shares of beneficial interest redeemed ......................... 75,565
Distribution fee ............................................... 17,376
Accrued expenses and other payables .............................. 102,008
-------------
TOTAL LIABILITIES .............................................. 648,276
-------------
NET ASSETS ..................................................... $ 21,689,587
=============
COMPOSITION OF NET ASSETS:
Paid-in-capital .................................................. $ 46,831,654
Net unrealized depreciation ...................................... (989,515)
Accumulated net investment loss .................................. (480)
Accumulated net realized loss .................................... (24,152,072)
-------------
NET ASSETS ..................................................... $ 21,689,587
=============
CLASS A SHARES:
Net Assets ....................................................... $ 1,345,242
Shares Outstanding (unlimited authorized, $.01 par value)......... 254,274
NET ASSET VALUE PER SHARE ...................................... $ 5.29
=============
MAXIMUM OFFERING PRICE PER SHARE,
(net asset value plus 5.54% of net asset value) ................ $ 5.58
=============
CLASS B SHARES:
Net Assets ....................................................... $ 15,738,535
Shares Outstanding (unlimited authorized, $.01 par value)......... 3,033,014
NET ASSET VALUE PER SHARE ...................................... $ 5.19
=============
CLASS C SHARES:
Net Assets ....................................................... $ 2,357,478
Shares Outstanding (unlimited authorized, $.01 par value)......... 454,353
NET ASSET VALUE PER SHARE ...................................... $ 5.19
=============
CLASS D SHARES:
Net Assets ....................................................... $ 2,248,332
Shares Outstanding (unlimited authorized, $.01 par value)......... 422,917
NET ASSET VALUE PER SHARE ...................................... $ 5.32
=============

See Notes to Financial Statements

MORGAN STANLEY NEXT GENERATION TRUST
FINANCIAL STATEMENTS CONTINUED

STATEMENT OF OPERATIONS
For the year ended July 31, 2002

NET INVESTMENT LOSS:

INCOME
Dividends ..................................... $ 102,567
Interest ...................................... 12,088
------------
TOTAL INCOME ................................ 114,655
------------
EXPENSES
Investment management fee ..................... 219,074
Distribution fee (Class A shares) ............. 4,084
Distribution fee (Class B shares) ............. 211,754
Distribution fee (Class C shares) ............. 29,532
Transfer agent fees and expenses .............. 169,547
Shareholder reports and notices ............... 62,826
Registration fees ............................. 50,852
Professional fees ............................. 48,932
Custodian fees ................................ 35,596
Trustees' fees and expenses ................... 12,052
Other ......................................... 9,542
------------
TOTAL EXPENSES .............................. 853,791
Less: amounts waived/reimbursed ............... (165,746)
------------
NET EXPENSES ................................ 688,045
------------
NET INVESTMENT LOSS ......................... (573,390)
------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized loss ............................. (4,809,639)
Net change in unrealized depreciation ......... (544,751)
------------
NET LOSS .................................... (5,354,390)
------------
NET DECREASE .................................. $ (5,927,780)
============

See Notes to Financial Statements

MORGAN STANLEY NEXT GENERATION TRUST
FINANCIAL STATEMENTS CONTINUED

STATEMENT OF CHANGES IN NET ASSETS

FOR THE YEAR FOR THE YEAR
ENDED ENDED
JULY 31, 2002 JULY 31, 2001
--------------- ----------------

INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment loss ............................................................ $ (573,390) $ (914,743)
Net realized loss .............................................................. (4,809,639) (11,098,826)
Net change in unrealized depreciation .......................................... (544,751) (3,140,300)
------------- -------------
NET DECREASE ................................................................. (5,927,780) (15,153,869)
Net decrease from transactions in shares of beneficial interest ................ (7,882,826) (10,228,975)
------------- -------------
NET DECREASE ................................................................. (13,810,606) (25,382,844)
NET ASSETS:
Beginning of period ............................................................ 35,500,193 60,883,037
------------- -------------
END OF PERIOD
(Including accumulated net investment losses of $480 and $226, respectively).... $ 21,689,587 $ 35,500,193
============= =============

See Notes to Financial Statements

MORGAN STANLEY NEXT GENERATION TRUST
NOTES TO FINANCIAL STATEMENTS o JULY 31, 2002

1. ORGANIZATION AND ACCOUNTING POLICIES
Morgan Stanley Next Generation Trust (the "Fund") is registered under the
Investment Company Act of 1940, as amended (the "Act"), as a diversified,
open-end management investment company. The Fund's investment objective is
long-term growth of capital. The Fund seeks to achieve its objective by
investing primarily in common stocks of companies which manufacture products or
provide services for children, teenagers and/or young adults. The Fund was
organized as a Massachusetts business trust on July 8, 1999 and commenced
operations on November 26, 1999.

The Fund offers Class A shares, Class B shares, Class C shares and Class D
shares. The four classes are substantially the same except that most Class A
shares are subject to a sales charge imposed at the time of purchase and some
Class A shares, and most Class B shares and Class C shares are subject to a
contingent deferred sales charge imposed on shares redeemed within one year,
six years and one year, respectively. Class D shares are not subject to a sales
charge. Additionally, Class A shares, Class B shares and Class C shares incur
distribution expenses.

The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts and disclosures. Actual results could differ
from those estimates.

The following is a summary of significant accounting policies:

A. VALUATION OF INVESTMENTS - (1) an equity portfolio security listed or traded
on the New York or American Stock Exchange, Nasdaq, 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 latest bid 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 pursuant to procedures
adopted by the Trustees); (2) all other portfolio securities for which
over-the-counter market quotations are readily available are valued at the
latest available bid price; (3) when market quotations are not readily
available, including circumstances under which it is determined by Morgan
Stanley Investment Advisors Inc. (the "Investment Manager"), that sale or bid
prices are not reflective of a security's market value, portfolio securities
are valued at their fair value as determined in good faith under procedures
established by and under the general supervision of the Trustees (valuation of
debt securities for which market quotations are not readily available may be
based upon current market prices of securities which are comparable in coupon,
rating and maturity or an appropriate matrix utilizing similar factors); and
(4) short-term debt securities having a maturity date of more than sixty days
at time of purchase are valued on a mark-to-market basis until sixty days prior
to maturity and thereafter at amortized cost based on their value on the 61st
day. Short-term debt securities having a maturity date of sixty days or less at
the time of purchase are valued at amortized cost.

MORGAN STANLEY NEXT GENERATION TRUST
NOTES TO FINANCIAL STATEMENTS o JULY 31, 2002 CONTINUED

C. JOINT REPURCHASE AGREEMENT ACCOUNT - Pursuant to an Exemptive Order issued
by the Securities and Exchange Commission, the Fund, along with other
affiliated entities managed by the Investment Manager, may transfer uninvested
cash balances into one or more joint repurchase agreement accounts. These
balances are invested in one or more repurchase agreements and are
collateralized by cash, or U.S. Treasury or federal agency obligations.

D. MULTIPLE CLASS ALLOCATIONS - Investment income, expenses (other than
distribution fees), and realized and unrealized gains and losses are allocated
to each class of shares based upon the relative net asset value on the date
such items are recognized. Distribution fees are charged directly to the
respective class.

E. FOREIGN CURRENCY TRANSLATION - The books and records of the Fund are
maintained in U.S. dollars as follows: (1) the foreign currency market value of
investment securities, other assets and liabilities and forward foreign
currency contracts ("forward contracts") are translated at the exchange rates
prevailing at the end of the period; and (2) purchases, sales, income and
expenses are translated at the exchange rates prevailing on the respective
dates of such transactions. The resultant exchange gains and losses are
included in the Statement of Operations as realized and unrealized gain/loss on
foreign exchange transactions. Pursuant to U.S. Federal income tax regulations,
certain foreign exchange gains/losses included in realized and unrealized
gain/loss are included in or are a reduction of ordinary income for federal
income tax purposes. The Fund does not isolate that portion of the results of
operations arising as a result of changes in the foreign exchange rates from
the changes in the market prices of the securities.

F. FORWARD FOREIGN CURRENCY CONTRACTS - The Fund may enter into forward
contracts which are valued daily at the appropriate exchange rates. The
resultant unrealized exchange gains and losses are included in the Statement of
Operations as unrealized gain/loss on foreign exchange transactions. The Fund
records realized gains or losses on delivery of the currency or at the time the
forward contract is extinguished (compensated) by entering into a closing
transaction prior to delivery.

MORGAN STANLEY NEXT GENERATION TRUST
NOTES TO FINANCIAL STATEMENTS o JULY 31, 2002 CONTINUED

income and net realized capital gains are determined in accordance with federal
income tax regulations which may differ from generally accepted accounting
principles. These "book/tax" differences are either considered temporary or
permanent in nature. To the extent these differences are permanent in nature,
such amounts are reclassified within the capital accounts based on their
federal tax-basis treatment; temporary differences do not require
reclassification. Dividends and distributions which exceed net investment
income and net realized capital gains for financial reporting purposes but not
for tax purposes are reported as dividends in excess of net investment income
or distributions in excess of net realized capital gains. To the extent they
exceed net investment income and net realized capital gains for tax purposes,
they are reported as distributions of paid-in-capital.

2. INVESTMENT MANAGEMENT AGREEMENT
Pursuant to an Investment Management Agreement, the Fund pays the Investment
Manager a management fee, accrued daily and payable monthly, by applying the
annual rate of 0.75% to the net assets of the Fund determined as of the close
of each business day.

For the period May 1, 2002 through April 30, 2003, or until the Fund attains
$50 million of net assets, whichever occurs first, the Investment Manager has
agreed to waive its fee and assume all operating expenses (except for
distribution fees). At July 31, 2002, included in the Statement of Assets and
Liabilities are receivables from an affiliate, which represent expense
reimbursements due to the Fund.

3. PLAN OF DISTRIBUTION
Shares of the Fund are distributed by Morgan Stanley Distributors Inc. (the
"Distributor"), an affiliate of the Investment Manager. The Fund has adopted a
Plan of Distribution (the "Plan") pursuant to Rule 12b-1 under the Act. The
Plan provides that the Fund will pay the Distributor a fee which is accrued
daily and paid monthly at the following annual rates: (i) Class A - up to 0.25%
of the average daily net assets of Class A; (ii) Class B - 1.0% of the average
daily net assets of Class B; and (iii) Class C - up to 1.0% of the average
daily net assets of Class C.

In the case of Class B shares, provided that the Plan continues in effect, any
cumulative expenses incurred by the Distributor but not yet recovered may be
recovered through the payment of future distribution fees from the Fund
pursuant to the Plan and contingent deferred sales charges paid by investors
upon redemption of Class B shares. 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 contingent deferred sales charges 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. The Distributor has advised the Fund that such excess amounts,
totaled approximately $5,784,614 at July 31, 2002.

MORGAN STANLEY NEXT GENERATION TRUST
NOTES TO FINANCIAL STATEMENTS o JULY 31, 2002 CONTINUED

In the case of Class A shares and Class C shares, expenses incurred pursuant to
the Plan in any calendar year in excess of 0.25% or 1.0% of the average daily
net assets of Class A or Class C, respectively, will not be reimbursed by the
Fund through payments in any subsequent year, except that expenses representing
a gross sales credit to Morgan Stanley Financial Advisors or other selected
broker-dealer representatives may be reimbursed in the subsequent calendar
year. For the year ended July 31, 2002, the distribution fee was accrued for
Class A shares and Class C shares at the annual rate of 0.24% and 0.97%,
respectively.

The Distributor has informed the Fund that for the year ended July 31, 2002, it
received contingent deferred sales charges from certain redemptions of the
Fund's Class B shares and Class C shares of approximately $120,740 and $324,
respectively and received approximately $6,704 in front-end sales charges from
sales of the Fund's Class A shares. The respective shareholders pay such
charges which are not an expense of the Fund.

4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities,
excluding short-term investments, for the year ended July 31, 2002 aggregated
$47,481,339 and $56,316,136, respectively.

For the year ended July 31, 2002, the Fund incurred brokerage commissions of
$6,934, with Morgan Stanley & Co., Inc., an affiliate of the Investment Manager
and Distributor, for portfolio transactions executed on behalf of the Fund.

Morgan Stanley Trust, an affiliate of the Investment Manager and Distributor,
is the Fund's transfer agent.

5. FEDERAL INCOME TAX STATUS
At July 31, 2002, the Fund had a net capital loss carryover of approximately
$23,009,000 of which $7,490,000 will be available through July 31, 2009 and
$15,519,000 will be available through July 31, 2010 to offset future capital
gains to the extent provided by regulations.

As of July 31, 2002, the Fund had temporary book/tax differences attributable
to post-October losses and capital loss deferrals on wash sales and permanent
book/tax differences primarily attributable to a net operating loss. To reflect
reclassifications arising from the permanent differences, paid-in-capital was
charged $573,616, accumulated net realized loss was credited $480 and
accumulated net investment loss was credited $573,136.

MORGAN STANLEY NEXT GENERATION TRUST
NOTES TO FINANCIAL STATEMENTS o JULY 31, 2002 CONTINUED

6. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:

FOR THE YEAR FOR THE YEAR
ENDED ENDED
JULY 31, 2002 JULY 31, 2001
-------------------------------- --------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------- ---------------- --------------- ----------------

CLASS A SHARES
Sold .............................. 51,304 $ 318,323 46,123 $ 349,495
Redeemed .......................... (100,753) (622,944) (127,667) (998,955)
-------- ------------- -------- -------------
Net decrease - Class A ............ (49,449) (304,621) (81,544) (649,460)
-------- ------------- -------- -------------
CLASS B SHARES
Sold .............................. 1,213,071 6,815,292 604,700 4,699,463
Redeemed .......................... (2,192,466) (12,557,346) (2,180,728) (16,962,047)
---------- ------------- ---------- -------------
Net decrease - Class B ............ (979,395) (5,742,054) (1,576,028) (12,262,584)
---------- ------------- ---------- -------------
CLASS C SHARES
Sold .............................. 32,577 195,830 168,490 1,104,165
Redeemed .......................... (131,005) (779,248) (357,574) (2,503,337)
---------- ------------- ---------- -------------
Net decrease - Class C ............ (98,428) (583,418) (189,084) (1,399,172)
---------- ------------- ---------- -------------
CLASS D SHARES
Sold .............................. 304,912 1,728,680 798,140 5,589,753
Redeemed .......................... (469,467) (2,981,413) (213,174) (1,507,512)
---------- ------------- ---------- -------------
Net increase (decrease) - Class D . (164,555) (1,252,733) 584,966 4,082,241
---------- ------------- ---------- -------------
Net decrease in Fund .............. (1,291,827) $ (7,882,826) (1,261,690) $ (10,228,975)
========== ============= ========== =============

7. PURPOSES OF AND RISKS RELATING TO CERTAIN FINANCIAL INSTRUMENTS

Forward contracts involve elements of market risk in excess of the amounts
reflected in the Statement of Assets and Liabilities. The Fund bears the risk
of an unfavorable change in the foreign exchange rates underlying the forward
contracts. Risks may also arise upon entering into these contracts from the
potential inability of the counterparties to meet the terms of their contracts.

At July 31, 2002, there were no outstanding forward contracts.

MORGAN STANLEY NEXT GENERATION TRUST
FINANCIAL HIGHLIGHTS

Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:

FOR THE PERIOD
FOR THE YEAR FOR THE YEAR NOVEMBER 26, 1999*
ENDED ENDED THROUGH
JULY 31, 2002 JULY 31, 2001 JULY 31, 2000
------------------- --------------- -------------------

CLASS A SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period .............. $ 6.57 $ 9.10 $ 10.00
------- ------- -------
Loss from investment operations:
Net investment loss[+/+] ......................... (0.08) (0.11) (0.05)
Net realized and unrealized loss ................. (1.20) (2.42) (0.83)
------- ------- -------
Total loss from investment operations ............. (1.28) (2.53) (0.88)
------- ------- -------
Less dividends from net investment income ......... - - (0.02)
------- ------- -------
Net asset value, end of period .................... $ 5.29 $ 6.57 $ 9.10
======= ======= =======
TOTAL RETURN+ .................................... (19.48)% (27.80)% (8.83)%(1)
RATIOS TO AVERAGE NET ASSETS(3):
Expenses .......................................... 1.76 %(4) 1.97 % 1.70 %(2)
Net investment loss ............................... (1.36)%(4) (1.37)% (0.75)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ........... $ 1,345 $ 1,995 $3,506
Portfolio turnover rate ........................... 166 % 278 % 40 %(1)

- ------------
* Commencement of operations.
[+/+] 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) Not annualized.
(2) Annualized.
(3 Reflects overall Fund ratios for investment income and non-class specific
expenses.
(4) If the Investment Manager had not assumed all expenses and waived its
management fee for the period May 1, 2002 through July 31, 2002, the
ratios of expenses and net investment loss would have been 2.32% and
(1.92)%, respectively.

See Notes to Financial Statements

MORGAN STANLEY NEXT GENERATION TRUST
FINANCIAL HIGHLIGHTS CONTINUED

FOR THE PERIOD
FOR THE YEAR FOR THE YEAR NOVEMBER 26, 1999*
ENDED ENDED THROUGH
JULY 31, 2002 JULY 31, 2001 JULY 31, 2000
------------------- --------------- -------------------

CLASS B SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period .............. $ 6.49 $ 9.06 $ 10.00
--------- ------- -------
Loss from investment operations:
Net investment loss[+/+] ......................... (0.13) (0.16) (0.10)
Net realized and unrealized loss ................. (1.17) (2.41) (0.83)
--------- ------- -------
Total loss from investment operations ............. (1.30) (2.57) (0.93)
--------- ------- -------
Less dividends from net investment income ......... - - (0.01)
--------- ------- -------
Net asset value, end of period .................... $ 5.19 $ 6.49 $ 9.06
========= ======= =======
TOTAL RETURN+ ..................................... (20.03)% (28.37)% (9.30)%(1)
RATIOS TO AVERAGE NET ASSETS(3):
Expenses .......................................... 2.52 %(4) 2.73 % 2.45 %(2)
Net investment loss ............................... (2.12)%(4) (2.13)% (1.50)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ........... 15,739 $26,045 $50,633
Portfolio turnover rate ........................... 166 % 278 % 40 %(1)

- ------------
* Commencement of operations.
[+/+]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) Not annualized.
(2) Annualized.
(3) Reflects overall Fund ratios for investment income and non-class specific
expenses.
(4) If the Investment Manager had not assumed all expenses and waived its
management fee for the period May 1, 2002 through July 31, 2002, the
ratios of expenses and net investment loss would have been 3.08% and
(2.68)%, respectively.

See Notes to Financial Statements

MORGAN STANLEY NEXT GENERATION TRUST
FINANCIAL HIGHLIGHTS CONTINUED

FOR THE PERIOD
FOR THE YEAR FOR THE YEAR NOVEMBER 26, 1999*
ENDED ENDED THROUGH
JULY 31, 2002 JULY 31, 2001 JULY 31, 2000
------------------- --------------- -------------------

CLASS C SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period. ............. $ 6.49 $ 9.06 $ 10.00
------- ------- -------
Loss from investment operations:
Net investment loss[+/+].......................... (0.12) (0.16) (0.10)
Net realized and unrealized loss ................. (1.18) (2.41) (0.83)
------- ------- -------
Total loss from investment operations. ............ (1.30) (2.57) (0.93)
------- ------- -------
Less dividends from net investment income ......... - - (0.01)
------- ------- -------
Net asset value, end of period. ................... $ 5.19 $ 6.49 $ 9.06
======= ======= =======
TOTAL RETURN+...................................... (20.03)% (28.37)% (9.30)%(1)
Ratios to Average Net Assets(3):
Expenses .......................................... 2.49 %(4) 2.73 % 2.45 %(2)
Net investment loss ............................... (2.09)%(4) (2.13)% (1.50)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ........... $2,357 $ 3,588 $6,722
Portfolio turnover rate ........................... 166 % 278 % 40 %(1)

- ------------
* Commencement of operations.
[+/+] 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) Not annualized.
(2) Annualized.
(3) Reflects overall Fund ratios for investment income and non-class specific
expenses.
(4) If the Investment Manager had not assumed all expenses and waived its
management fee for the period May 1, 2002 through July 31, 2002, the
ratios of expenses and net investment loss would have been 3.05% and
(2.65)%, respectively.

See Notes to Financial Statements

MORGAN STANLEY NEXT GENERATION TRUST
FINANCIAL HIGHLIGHTS CONTINUED

FOR THE PERIOD
FOR THE YEAR FOR THE YEAR NOVEMBER 26, 1999*
ENDED ENDED THROUGH
JULY 31, 2002 JULY 31, 2001 JULY 31, 2000
------------------- --------------- -------------------

CLASS D SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period .............. $ 6.59 $ 9.11 $ 10.00
------- ------- -------
Loss from investment operations:
Net investment loss[+/+] ......................... (0.08) (0.10) (0.04)
Net realized and unrealized loss ................. (1.19) (2.42) (0.83)
------- ------- -------
Total loss from investment operations ............. (1.27) (2.52) (0.87)
------- ------- -------
Less dividends from net investment income ......... - - (0.02)
------- ------- -------
Net asset value, end of period .................... $ 5.32 $ 6.59 $ 9.11
======= ======= =======
TOTAL RETURN+ ..................................... (19.27)% (27.66)% (8.71)%(1)
RATIOS TO AVERAGE NET ASSETS(3):
Expenses .......................................... 1.52 %(4) 1.73 % 1.45 %(2)
Net investment loss ............................... (1.12)%(4) (1.13)% (0.50)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ........... $ 2,248 $ 3,872 $ 23
Portfolio turnover rate ........................... 166 % 278 % 40 %(1)

- ------------
* Commencement of operations.
[+/+] 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) Not annualized.
(2) Annualized.
(3) Reflects overall Fund ratios for investment income and non-class specific
expenses.
(4) If the Investment Manager had not assumed all expenses and waived its
management fee for the period May 1, 2002 through July 31, 2002, the
ratios of expenses and net investment loss would have been 2.08% and
(1.68)%, respectively.

See Notes to Financial Statements

MORGAN STANLEY NEXT GENERATION TRUST
INDEPENDENT AUDITORS' REPORT

TO THE SHAREHOLDERS AND BOARD OF TRUSTEES OF
MORGAN STANLEY NEXT GENERATION TRUST:

We have audited the accompanying statement of assets and liabilities of Morgan
Stanley Next Generation Trust (the "Fund"), including the portfolio of
investments, as of July 31, 2002, and the related statements of operations for
the year then ended and changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the periods
presented. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures
included confirmation of securities owned as of July 31, 2002, by
correspondence with the custodian and brokers. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Morgan Stanley Next Generation Trust as of July 31, 2002, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each
of the periods presented, in conformity with accounting principles generally
accepted in the United States of America.

Deloitte & Touche LLP
New York, New York
September 12, 2002

MORGAN STANLEY NEXT GENERATION TRUST
TRUSTEE AND OFFICER INFORMATION

INDEPENDENT TRUSTEES:

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

Michael Bozic (61) Trustee Trustee since
c/o Mayer, Brown, Rowe & Maw April 1994
Counsel to the Independent Trustees
1675 Broadway
New York, NY

Edwin J. Garn (69) Trustee Trustee since
c/o Summit Ventures LLC January 1993
1 Utah Center
201 S. Main Street
Salt Lake City, UT

Wayne E. Hedien (68) Trustee Trustee since
c/o Mayer, Brown, Rowe & Maw September 1997
Counsel to the Independent Trustees
1675 Broadway
New York, NY

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

Michael Bozic (61) Retired; Director or Trustee of the Morgan 129
c/o Mayer, Brown, Rowe & Maw Stanley Funds and the TCW/DW Term Trusts;
Counsel to the Independent Trustees formerly Vice Chairman of Kmart Corporation
1675 Broadway (December 1998-October 2000), Chairman and
New York, NY Chief Executive Officer of Levitz Furniture
Corporation (November 1995-November 1998)
and President and Chief Executive Officer of
Hills Department Stores (May 1991-July 1995);
formerly variously Chairman, Chief Executive
Officer, President and Chief Operating Officer
(1987-1991) of the Sears Merchandise Group
of Sears, Roebuck & Co.

Edwin J. Garn (69) Director or Trustee of the Morgan Stanley 129
c/o Summit Ventures LLC Funds and the TCW/DW Term Trusts; formerly
1 Utah Center United States Senator (R-Utah) (1974-1992)
201 S. Main Street and Chairman, Senate Banking Committee
Salt Lake City, UT (1980-1986); formerly Mayor of Salt Lake City,
Utah (1971-1974); formerly Astronaut, Space
Shuttle Discovery (April 12-19, 1985); Vice
Chairman, Huntsman Corporation (chemical
company); member of the Utah Regional
Advisory Board of Pacific Corp.

Wayne E. Hedien (68) Retired; Director or Trustee of the Morgan 129
c/o Mayer, Brown, Rowe & Maw Stanley Funds and the TCW/DW Term Trusts;
Counsel to the Independent Trustees formerly associated with the Allstate
1675 Broadway Companies (1966-1994), most recently as
New York, NY Chairman of The Allstate Corporation
(March 1993-December 1994) and Chairman
and Chief Executive Officer of its wholly-owned
subsidiary, Allstate Insurance Company
(July 1989-December 1994).

NAME, AGE AND ADDRESS OF
INDEPENDENT TRUSTEE OTHER DIRECTORSHIPS HELD BY TRUSTEE
- ------------------------------------- ------------------------------------------------

Michael Bozic (61) Director of Weirton Steel Corporation.
c/o Mayer, Brown, Rowe & Maw
Counsel to the Independent Trustees
1675 Broadway
New York, NY

Edwin J. Garn (69) Director of Franklin Covey (time management
c/o Summit Ventures LLC systems), BMW Bank of North America, Inc.
1 Utah Center (industrial loan corporation), United Space
201 S. Main Street Alliance (joint venture between Lockheed Martin
Salt Lake City, UT and the Boeing Company) and Nuskin Asia
Pacific (multilevel marketing); member of the
board of various civic and charitable
organizations.

MORGAN STANLEY NEXT GENERATION TRUST
TRUSTEE AND OFFICER INFORMATION CONTINUED

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

Dr. Manuel H. Johnson (53) Trustee Trustee since
c/o Johnson Smick International, Inc. July 1991
1133 Connecticut Avenue, N.W.
Washington, D.C.

Michael E. Nugent (66) Trustee Trustee since
c/o Triumph Capital, L.P. July 1991
237 Park Avenue
New York, NY

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

Dr. Manuel H. Johnson (53) Chairman of the Audit Committee and Director 129
c/o Johnson Smick International, Inc. or Trustee of the Morgan Stanley Funds and the
1133 Connecticut Avenue, N.W. TCW/DW Term Trusts; Senior Partner, Johnson
Washington, D.C. Smick International, Inc., a consulting firm;
Co-Chairman and a founder of the Group of
Seven Council (G7C), an international economic
commission; formerly Vice Chairman of the
Board of Governors of the Federal Reserve
System and Assistant Secretary of the U.S.
Treasury.

Michael E. Nugent (66) Chairman of the Insurance Committee and 207
c/o Triumph Capital, L.P. Director or Trustee of the Morgan Stanley
237 Park Avenue Funds and the TCW/DW Term Trusts; director/
New York, NY trustee of various investment companies
managed by Morgan Stanley Investment
Management Inc. and Morgan Stanley
Investments LP (since July 2001); General
Partner, Triumph Capital, L.P., a private
investment partnership; formerly Vice
President, Bankers Trust Company and BT
Capital Corporation (1984-1988).

NAME, AGE AND ADDRESS OF
INDEPENDENT TRUSTEE OTHER DIRECTORSHIPS HELD BY TRUSTEE
- --------------------------------------- ----------------------------------------------

Michael E. Nugent (66) Director of various business organizations.
c/o Triumph Capital, L.P.
237 Park Avenue
New York, NY

MORGAN STANLEY NEXT GENERATION TRUST
TRUSTEE AND OFFICER INFORMATION CONTINUED

INTERESTED TRUSTEES:

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

Charles A. Fiumefreddo (69) Chairman and Director Trustee since
c/o Morgan Stanley Trust or Trustee July 1991
Harborside Financial Center,
Plaza Two,
Jersey City, NJ

James F. Higgins (54) Trustee Trustee since
c/o Morgan Stanley Trust June 2000
Harborside Financial Center,
Plaza Two,
Jersey City, NJ

Philip J. Purcell (58) Trustee Trustee since
1585 Broadway April 1994
New York, NY

Charles A. Fiumefreddo (69) Chairman and Director or Trustee of the 129
c/o Morgan Stanley Trust Morgan Stanley Funds and the TCW/DW Term
Harborside Financial Center, Trusts; formerly Chairman, Chief Executive
Plaza Two, Officer and Director of the Investment Manager,
Jersey City, NJ the Distributor and Morgan Stanley Services,
Executive Vice President and Director of
Morgan Stanley DW, Chairman and Director of
the Transfer Agent, and Director and/or officer
of various Morgan Stanley subsidiaries (until
June 1998) and Chief Executive Officer of the
Morgan Stanley Funds and the TCW/DW Term
Trusts (until September 2002).

James F. Higgins (54) Senior Advisor of Morgan Stanley (since 129
c/o Morgan Stanley Trust August 2000); Director of the Distributor and
Harborside Financial Center, Dean Witter Realty Inc.; Director or Trustee of
Plaza Two, the Morgan Stanley Funds and the TCW/DW
Jersey City, NJ Term Trusts (since June 2000); previously
President and Chief Operating Officer of the
Private Client Group of Morgan Stanley
(May 1999-August 2000), President and Chief
Operating Officer of Individual Securities of
Morgan Stanley (February 1997-May 1999).

Philip J. Purcell (58) Director or Trustee of the Morgan Stanley 129
1585 Broadway Funds and the TCW/DW Term Trusts; Chairman
New York, NY of the Board of Directors and Chief Executive
Officer of Morgan Stanley and Morgan Stanley
DW; Director of the Distributor; Chairman of the
Board of Directors and Chief Executive Officer
of Novus Credit Services Inc.; Director and/or
officer of various Morgan Stanley subsidiaries.

NAME, AGE AND ADDRESS OF
INTERESTED TRUSTEE OTHER DIRECTORSHIPS HELD BY TRUSTEE
- ------------------------------ --------------------------------------------

Charles A. Fiumefreddo (69) None
c/o Morgan Stanley Trust
Harborside Financial Center,
Plaza Two,
Jersey City, NJ

James F. Higgins (54) None
c/o Morgan Stanley Trust
Harborside Financial Center,
Plaza Two,
Jersey City, NJ

Philip J. Purcell (58) Director of American Airlines, Inc. and its
1585 Broadway parent company, AMR Corporation.
New York, NY

- ------------
* Each Trustee serves an indefinite term, until his or her successor is
elected.
** The Fund Complex includes all open and closed-end funds (including all of
their portfolios) advised by Morgan Stanley Investment Advisors Inc. and
any funds that have an investment advisor that is an affiliated person of
Morgan Stanley Investment Advisors Inc. (including but not limited to,
Morgan Stanley Investment Management Inc., Morgan Stanley Investments LP
and Van Kampen Asset Management Inc.).

MORGAN STANLEY NEXT GENERATION TRUST
TRUSTEE AND OFFICER INFORMATION CONTINUED

OFFICERS:

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

Mitchell M. Merin (48) President and President since
1221 Avenue of the Americas Chief Executive May 1999 and
New York, NY Officer Chief Executive
Officer since
September
2002

Barry Fink (47) Vice President, Vice President,
1221 Avenue of the Americas Secretary and Secretary
New York, NY General Counsel and General
Counsel since
February 1997

Thomas F. Caloia (56) Treasurer Treasurer since
c/o Morgan Stanley Trust April 1989
Harborside Financial Center,
Plaza Two
Jersey City, NJ

Ronald E. Robison (63) Vice President Since October
1221 Avenue of the Americas 1998
New York, NY

Joseph J. McAlinden (59) Vice President Since July 1995
1221 Avenue of the Americas
New York, NY

Francis Smith (37) Vice President Since
c/o Morgan Stanley Trust and Chief September
Harborside Financial Center Financial Officer 2002
Plaza Two,
Jersey City, NJ

Mitchell M. Merin (48) President and Chief Operating Officer of Morgan Stanley
1221 Avenue of the Americas Investment Management (since December 1998); President, Director
New York, NY (since April 1997) and Chief Executive Officer (since June 1998)
of the Investment Manager and Morgan Stanley Service; Chairman,
Chief Executive Officer and Director of the Distributor (since
June 1998); Chairman (since June 1998) and Director (since
January 1998) of the Transfer Agent; Director of various Morgan
Stanley subsidiaries; President (since May 1999) and Chief
Executive Officer (since 2002) of the Morgan Stanley Funds and
TCW/DW Term Trust; Trustee of various Van Kampen investment
companies (since December 1999); previously Chief Strategic
Officer of the Investment Manager and Morgan Stanley Services and
Executive Vice President of the Distributor (April 1997-June
1998), Vice President of the Morgan Stanley Funds (May 1997-April
1999), and Executive Vice President of Morgan Stanley.

Barry Fink (47) General Counsel (since May 2000) and Managing Director (since
1221 Avenue of the Americas December 2000) of Morgan Stanley Investment Management; Managing
New York, NY Director (since December 2000), and Secretary and General Counsel
(since February 1997) and Director (since July 1998) of the
Investment Manager and Morgan Stanley Services; Assistant
Secretary of Morgan Stanley DW; Vice President, Secretary and
General Counsel of the Morgan Stanley Funds and TCW/DW Term
Trusts (since February 1997); Vice President and Secretary of the
Distributor; previously, Senior Vice President, Assistant
Secretary and Assistant General Counsel of the Investment
Manager, the Distributor and Morgan Stanley Services.

Thomas F. Caloia (56) First Vice President and Assistant Treasurer of the Investment
c/o Morgan Stanley Trust Manager, the Distributor and Morgan Stanley Services; Treasurer
Harborside Financial Center, of the Morgan Stanley Funds.
Plaza Two
Jersey City, NJ

Ronald E. Robison (63) Managing Director, Chief Administrative Officer and Director
1221 Avenue of the Americas (since February 1999) of the Investment Manager and Morgan
New York, NY Stanley Services and Chief Executive Officer and Director of the
Transfer Agent; previously Managing Director of the TCW Group
Inc.

Joseph J. McAlinden (59) Managing Director and Chief Investment Officer of the Investment
1221 Avenue of the Americas Manager, Morgan Stanley Investment Management Inc. and Morgan
New York, NY Stanley Investments LP; Director of the Transfer Agent; Chief
Investment Officer of the Van Kampen Funds.

Francis Smith (37) Vice President and Chief Officer of the Morgan Stanley Funds and
c/o Morgan Stanley Trust the TCW/DW Term Trusts (since September 2002); Executive Director
Harborside Financial Center of the Investment Manager Stanley Services (since December 2001).
Plaza Two, Formerly, Vice President of the Investment Manager and Morgan
Jersey City, NJ Stanley Services (August 2000-November 2001), Senior Manager at
PricewaterhouseCoopers LLP (January 1998-August 2000) and
Associate--Funds Administration at BlackRock Financial Management
(July 1996-December 1997).

- ------------
* Each Officer serves an indefinite term, until his or her successor is
elected.

(This page has been left blank intentionally.)

TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
Wayne E. Hedien
James F. Higgins
Dr. Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell

OFFICERS
Charles A. Fiumefreddo
Chairman

Mitchell M. Merin
President and Chief Executive Officer

Barry Fink
Vice President, Secretary and General Counsel

Joseph J. McAlinden
Vice President

Ronald E. Robison
Vice President

Thomas F. Caloia
Treasurer

Francis Smith
Vice President and Chief Financial Officer

TRANSFER AGENT
Morgan Stanley Trust
Harborside Financial Center - Plaza Two
Jersey City, New Jersey 07311

INDEPENDENT AUDITORS
Deloitte & Touche LLP
Two World Financial Center
New York, New York 10281

INVESTMENT MANAGER
Morgan Stanley Investment Adivsors Inc.
1221 Avenue of the Americas
New York, NY 10020

This report is submitted for the general information of the shareholders
of the Fund. For more detailed information about the Fund, its fees and
expenses and other pertinent information, please read its Prospectus.
The Fund's Statement of Additional Information contains additional
information about the Fund, including its trustees. It is available, without
charge, by calling (800) 869-NEWS.

This report is not authorized for distribution to prospective investors in
the Fund unless preceded or accompanied by an effective Prospectus.
Read the Prospectus carefully before investing.

Investments and services offered through Morgan Stanley DW Inc.,
member SIPC, Morgan Stanley Funds are distributed by Morgan Stanley
Distributiors Inc.

Morgan Stanley Distributors Inc., member NASD.

Morgan Stanley [LOGO]

[GRAPHIC OMITTED]

Morgan Stanley
Next Generation Trust

Annual Report
July 31, 2002

36181RPT-7920H02-ANP-8/02

MORGAN STANLEY DEVELOPING GROWTH SECURITIES TRUST
PART B
STATEMENT OF ADDITIONAL INFORMATION

This Statement of Additional Information relates to the shares of Morgan
Stanley Developing Growth Securities Trust ("Developing Growth") to be issued
pursuant to an Agreement and Plan of Reorganization, dated July 31, 2003,
between Developing Growth and Morgan Stanley Next Generation Trust ("Next
Generation") in connection with the acquisition by Developing Growth of
substantially all of the assets, subject to stated liabilities, of Next
Generation. This Statement of Additional Information does not constitute a
prospectus. This Statement of Additional Information does not include all
information that a shareholder should consider before voting on the proposals
contained in the Proxy Statement and Prospectus, and, therefore, should be read
in conjunction with the related Proxy Statement and Prospectus, dated ,
2003. A copy of the Proxy Statement and Prospectus may be obtained without
charge by mailing a written request to Developing Growth, c/o Morgan Stanley
Trust, Harborside Financial Center, Plaza Two, Jersey City, NJ 07311 or by
calling (800) 869-NEWS (TOLL FREE). Please retain this document for future
reference.

The date of this Statement of Additional Information is , 2003.

B-1

TABLE OF CONTENTS

PAGE
-----

INTRODUCTION ............................................ B-3
ADDITIONAL INFORMATION ABOUT DEVELOPING GROWTH .......... B-3
ADDITIONAL INFORMATION ABOUT NEXT GENERATION ............ B-4
FINANCIAL STATEMENTS .................................... B-5

B-2

INTRODUCTION

This Statement of Additional Information is intended to supplement the
information provided in the Proxy Statement and Prospectus dated , 2003
(the "Proxy Statement and Prospectus"). The Proxy Statement and Prospectus has
been sent to Next Generation shareholders in connection with the solicitation
of proxies by the Board of Trustees of Next Generation to be voted at the
Special Meeting of Shareholders of Next Generation to be held on December 16,
2003. This Statement of Additional Information incorporates by reference the
Statement of Additional Information of Developing Growth dated November 29,
2002 and the Statement of Additional Information of Next Generation dated
September 30, 2002.

ADDITIONAL INFORMATION ABOUT DEVELOPING GROWTH

FUND HISTORY

For additional information about Developing Growth's history, see "Fund
History" in Developing Growth's Statement of Additional Information.

INVESTMENT OBJECTIVES AND POLICIES

For additional information about Developing Growth's investment objectives
and policies, see "Description of the Fund and Its Investments and Risks" in
Developing Growth's Statement of Additional Information.

MANAGEMENT

For additional information about the Board of Trustees, officers and
management personnel of Developing Growth, see "Management of the Fund" and
"Investment Management and Other Services" in Developing Growth's Statement of
Additional Information.

INVESTMENT ADVISORY AND OTHER SERVICES

For additional information about Developing Growth's investment manager,
see "Investment Management and Other Services" in Developing Growth's Statement
of Additional Information. For additional information about Developing Growth's
independent auditors, see "Investment Management and Other Services" in
Developing Growth's Statement of Additional Information. For additional
information about other services provided to Developing Growth, see "Investment
Management and Other Services" in Developing Growth's Statement of Additional
Information.

PORTFOLIO TRANSACTIONS AND BROKERAGE

For additional information about brokerage allocation practices, see
"Brokerage Allocation and Other Practices" in Developing Growth's Statement of
Additional Information.

DESCRIPTION OF FUND SHARES

For additional information about the voting rights and other
characteristics of the shares of Developing Growth, see "Capital Stock and
Other Securities" in Developing Growth's Statement of Additional Information.

PURCHASE, REDEMPTION AND PRICING OF SHARES

For additional information about the purchase and redemption of Developing
Growth's shares and the determination of net asset value, see "Purchase,
Redemption and Pricing of Shares" in Developing Growth's Statement of
Additional Information.

B-3

DIVIDENDS, DISTRIBUTIONS AND TAX STATUS

For additional information about Developing Growth's policies regarding
dividends and distributions and tax matters affecting Developing Growth and its
shareholders, see "Taxation of the Fund and Shareholders" in Developing
Growth's Statement of Additional Information.

DISTRIBUTION OF SHARES

For additional information about Developing Growth's distributor and the
distribution agreement between Developing Growth and its distributor, see
"Investment Management and Other Services" and "Underwriters" in Developing
Growth's Statement of Additional Information.

PERFORMANCE DATA

For additional information about Developing Growth's performance, see
"Calculation of Performance Data" in Developing Growth's Statement of
Additional Information.

ADDITIONAL INFORMATION ABOUT NEXT GENERATION

FUND HISTORY

For additional information about Next Generation's history, see "Fund
History" in Next Generation's Statement of Additional Information.

INVESTMENT OBJECTIVES AND POLICIES

For additional information about Next Generation's investment objectives
and policies, see "Description of the Fund and Its Investments and Risks" in
Next Generation's Statement of Additional Information.

MANAGEMENT

For additional information about the Board of Trustees, officers and
management personnel of Next Generation, see "Management of the Fund" and
"Investment Management and Other Services" in Next Generation's Statement of
Additional Information.

INVESTMENT ADVISORY AND OTHER SERVICES

For additional information about Next Generation's investment manager, see
"Investment Management and Other Services" in Next Generation's Statement of
Additional Information. For additional information about Next Generation's
independent auditors, see "Investment Management and Other Services" in Next
Generation's Statement of Additional Information. For additional information
about other services provided to Next Generation, see "Investment Management
and Other Services" in Next Generation's Statement of Additional Information.

PORTFOLIO TRANSACTIONS AND BROKERAGE

For additional information about brokerage allocation practices, see
"Brokerage Allocation and Other Practices" in Next Generation's Statement of
Additional Information.

DESCRIPTION OF FUND SHARES

For additional information about the voting rights and other
characteristics of the shares of Next Generation, see "Capital Stock and Other
Securities" in Next Generation's Statement of Additional Information.

B-4

PURCHASE, REDEMPTION AND PRICING OF SHARES

For additional information about the purchase and redemption of Next
Generation's shares and the determination of net asset value, see "Purchase,
Redemption and Pricing of Shares" in Next Generation's Statement of Additional
Information.

DIVIDENDS, DISTRIBUTIONS AND TAX STATUS

For additional information about Next Generation's policies regarding
dividends and distributions and tax matters affecting Next Generation and its
shareholders, see "Taxation of the Fund and Shareholders" in Next Generation's
Statement of Additional Information.

DISTRIBUTION OF SHARES

For additional information about Next Generation's distributor and the
distribution agreement between Next Generation and its distributor, see
"Investment Management and Other Services" and "Underwriters" in Next
Generation's Statement of Additional Information.

PERFORMANCE DATA

For additional information about Next Generation's performance, see
"Calculation of Performance Data" in Next Generation's Statement of Additional
Information.

FINANCIAL STATEMENTS

Developing Growth's most recent audited financial statements are set forth
in Developing Growth's Annual Report for the fiscal year ended September 30,
2002 and the succeeding Semi-Annual Report for the six months ended March 31,
2003. A copy of the Annual Report and Semi-Annual Report accompanies, and is
incorporated by reference in, the Proxy Statement and Prospectus. Next
Generation's most recent audited financial statements are set forth in Next
Generation's Annual Report for the fiscal year ended July 31, 2003, which is
incorporated by reference in the Proxy Statement and Prospectus.

Pro forma financial statements are not required to be included herewith
since Next Generation's assets are substantially smaller than those of
Developing Growth.

B-5

STATEMENT OF ADDITIONAL INFORMATION
MORGAN STANLEY
DEVELOPING GROWTH
NOVEMBER 29, 2002 SECURITIES TRUST
- --------------------------------------------------------------------------------

This Statement of Additional Information is not a prospectus. The
Prospectus (dated November 29, 2002) for the Morgan Stanley Developing Growth
Securities Trust may be obtained without charge from the Fund at its address or
telephone number listed below or from Morgan Stanley DW Inc. at any of its
branch offices.

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

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

I. Fund History ................................................... 4
II. Description of the Fund and Its Investments and Risks .......... 4
A. Classification ............................................. 4
B. Investment Strategies and Risks ............................ 4
C. Fund Policies/Investment Restrictions ...................... 7
III. Management of the Fund ........................................ 9
A. Board of Trustees .......................................... 9
B. Management Information ..................................... 9
C. Compensation ............................................... 14
IV. Control Persons and Principal Holders of Securities ............ 15
V. Investment Management and Other Services ....................... 16
A. Investment Manager ......................................... 16
B. Principal Underwriter ...................................... 16
C. Services Provided by the Investment Manager ................ 17
D. Dealer Reallowances ........................................ 18
E. Rule 12b-1 Plan ............................................ 18
F. Other Service Providers .................................... 22
G. Codes of Ethics ............................................ 22
VI. Brokerage Allocation and Other Practices ....................... 22
A. Brokerage Transactions ..................................... 22
B. Commissions ................................................ 23
C. Brokerage Selection ........................................ 23
D. Directed Brokerage ......................................... 24
E. Regular Broker-Dealers ..................................... 24
VII. Capital Stock and Other Securities ............................. 24
VIII. Purchase, Redemption and Pricing of Shares ..................... 25
A. Purchase/Redemption of Shares .............................. 25
B. Offering Price ............................................. 26
IX. Taxation of the Fund and Shareholders .......................... 27
X. Underwriters ................................................... 28
XI. Calculation of Performance Data ................................ 29
XII. Financial Statements ........................................... 30

GLOSSARY OF SELECTED DEFINED TERMS

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

"Custodian" -- The Bank of New York.

"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 Developing Growth Securities Trust, a registered
open-end investment company.

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

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

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

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

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

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

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

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

I. FUND HISTORY
- --------------------------------------------------------------------------------
The Fund was organized as a Massachusetts business trust, under a
Declaration of Trust, on December 28, 1982, with the name Dean Witter
Developing Growth Securities Trust. Effective June 22, 1998, the Fund's name
was changed to Morgan Stanley Dean Witter Developing Growth Securities Trust.
Effective June 18, 2001, the Fund's name was changed to Morgan Stanley
Developing Growth Securities Trust.

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

A. CLASSIFICATION

The Fund is an open-end, diversified management investment company whose
investment objective is to seek long-term capital growth.

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."

MONEY MARKET SECURITIES. The Fund may invest in various money market
securities for cash management purposes or when assuming a temporary defensive
position, which among others may include commercial paper, bank 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 Corporation ("S&P") or by Moody's Investors Service, Inc.
("Moody's") or, if not rated, issued by a company having an outstanding debt
issue rated at least AA by S&P or Aa by Moody's; and

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 designed to minimize such risks. These procedures include
effecting repurchase transactions only with large, well-capitalized and
well-established financial institutions whose financial condition will be
continually monitored by the Investment Manager. In addition, as described
above, the value of the collateral underlying the repurchase agreement will be
at least equal to the repurchase price, including any accrued interest earned
on the repurchase agreement. In the event of a default or bankruptcy by a
selling financial institution, the Fund will seek to liquidate such collateral.
However, the exercising of the Fund's right to liquidate such collateral could
involve certain costs or delays and, to the extent that proceeds from any sale
upon a default of the obligation to repurchase were less than the repurchase
price, the Fund could suffer a loss.

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

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

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

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

of securities on a when-issued, delayed delivery or forward commitment basis
may increase the volatility of its net asset value. The Fund will also
establish a segregated account on the Fund's books in which it will continually
maintain cash or cash equivalents or other liquid portfolio securities equal in
value to commitments to purchase securities on a when-issued, delayed delivery
or forward commitment basis.

WHEN, AS AND IF ISSUED SECURITIES. The Fund may purchase securities on a
"when, as and if issued" basis under which the issuance of the security depends
upon the occurrence of a subsequent event, such as approval of a merger,
corporate reorganization or debt restructuring. The commitment for the purchase
of any such security will not be recognized in the portfolio of the Fund until
the Investment Manager determines that issuance of the security is probable. At
that time, the Fund will record the transaction and, in determining its net
asset value, will reflect the value of the security daily. At that time, the
Fund will also establish a segregated account on the Fund's books in which it
will maintain cash or 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. The Fund may invest up to 15% of its net assets in
securities which are subject to restrictions on resale because they have not
been registered under the Securities Act of 1933 (the "Securities Act"), or
which are otherwise not readily marketable. (Securities eligible for resale
pursuant to Rule 144A under the Securities Act, and determined to be liquid
pursuant to the procedures discussed in the following paragraph, are not
subject to the foregoing restriction.) These securities are generally referred
to as private placements or restricted securities. Limitations on the resale of
these securities may have an adverse effect on their marketability, and may
prevent the Fund from disposing of them promptly at reasonable prices. The Fund
may have to bear the expense of registering the securities for resale and the
risk of substantial delays in effecting the registration.

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

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

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

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

WARRANTS. The Fund may acquire warrants. 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.

INVESTMENT IN REAL ESTATE INVESTMENT TRUSTS. The Fund may invest in real
estate investment trusts, which pool investors' funds for investments primarily
in commercial real estate properties. Investment in real estate investment
trusts may be the most practical available means for the Fund to invest in the
real estate industry (the Fund is prohibited from investing in real estate
directly). As a shareholder in a real estate investment trust, the Fund would
bear its ratable share of the real estate investment trust's expenses,
including its advisory and administration fees. At the same time the Fund would
continue to pay its own investment management fees and other expenses, as a
result of which the Fund and its shareholders in effect will be absorbing
duplicate levels of fees with respect to investments in real estate investment
trusts.

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 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 price
fluctuations during periods of changing prevailing interest rates than are
comparable securities which pay interest on a current basis. 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.

LEVERAGING. The Fund may borrow money from a bank in an amount up to 25%
of the Fund's 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
borrow to seek to enhance capital appreciation by leveraging its investments
through purchasing securities with borrowed funds. The Fund will maintain asset
coverage with respect to any borrowings in accordance with the Investment
Company Act of 1940 (the "Investment Company Act"). Leveraging Fund investments
has speculative characteristics.

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
of 1940, as amended, 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 (unless otherwise noted); and (ii) any
subsequent change in any applicable percentage resulting from market
fluctuations or other changes in total or net assets does not require
elimination of any security from the portfolio.

The Fund will:

1. Seek long-term capital growth.

The Fund may not:

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

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

3. Concentrate its investments in any particular industry, but if deemed
appropriate for attainment of its investment objective, up to 25% of
its total assets (valued at the time of investment) may be invested in
any one industry classification used by the Fund for investment
purposes. This restriction does not apply to obligations issued or
guaranteed by the United States government or its agencies or
instrumentalities.

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

5. Borrow money, except from banks for investment purposes or as a
temporary measure for extraordinary or emergency purposes.

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

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

8. Purchase or sell commodities or commodity futures contracts.

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

10. Write, purchase or sell puts, calls, or combinations thereof.

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

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

13. Pledge its assets or assign or otherwise encumber them except to
secure permitted borrowings. To meet the requirements of regulations in
certain states, the Fund, as a matter of operating policy but not as a
fundamental policy, will limit any pledge of its assets to 5% of its
net assets so long as shares of the Fund are being sold in those
states.

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

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

16. Make short sales of securities.

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

18. 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.

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

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

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

A. BOARD OF TRUSTEES

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

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 eight Trustees.
These same individuals also serve as directors or trustees for all of the
Morgan Stanley Funds. Five Trustees have no affiliation or business connection
with the Investment Manager or any of its affiliated persons and do not own any
stock or other securities issued by the Investment Manager's parent company,
Morgan Stanley. These are the "non-interested" or "Independent" Trustees
("Independent Trustees"). The other three Trustees (the "Management Trustees")
are affiliated with the Investment Manager.

The Independent Trustees of the Fund, their term of office and length of
time served, their principal business occupations during the past five years,
the number of portfolios in the Fund Complex (defined below) overseen by each
Independent Trustee (as of December 31, 2001), and other directorships, if any,
held by the Trustee, are shown below. The Fund Complex includes all open- and
closed-end funds (including all of their portfolios) advised by Morgan Stanley
Investment Advisors Inc. and any funds that have an investment advisor that is
an affiliated person of Morgan Stanley Investment Advisors Inc. (including, but
not limited to, Morgan Stanley Investment Management Inc., Morgan Stanley
Investments LP and Van Kampen Asset Management Inc.).

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

Michael Bozic (61) Trustee Trustee Retired, Director or Trustee of 129 Director of Weirton Steel
c/o Mayer, Brown, Rowe & since the Morgan Stanley Funds and the Corporation.
Maw April 1994 TCW/DW Term Trusts; formerly
Counsel to the Independent Vice Chairman of Kmart
Trustees Corporation (December
1675 Broadway 1998-October 2000), Chairman and
New York, NY Chief Executive Officer of
Levitz Furniture Corporation
(November 1995-November 1998)
and President and Chief
Executive Officer of Hills
Department Stores (May 1991-July
1995), formerly variously
Chairman, Chief Executive
Officer, President and Chief
Operating Officer (1987-1991) of
the Sears Merchandise Group of
Sears, Roebuck & Co.

Edwin J. Garn (69) Trustee Trustee Director or Trustee of the 129 Director of Franklin Covey
c/o Summit Ventures LLC since Morgan Stanley Funds and the (time management
1 Utah Center January TCW/DW Term Trusts; formerly systems), BMW Bank of
201 S. Main Street 1993 United States Senator North America, Inc.
Salt Lake City, UT (R-Utah)(1974-1992) and (industrial loan
Chairman, Senate Banking corporation), United Space
Committee (1980-1986); formerly Alliance (joint venture
Mayor of Salt Lake City, Utah between Lockheed Martin
(1971-1974); formerly Astronaut, and the Boeing Company)
Space Shuttle Discovery (April and Nuskin Asia Pacific
12-19, 1985); Vice Chairman, (multilevel marketing);
Huntsman Corporation (chemical member of the board of
company); member of the Utah various civic and
Regional Advisory Board of charitable organizations.
Pacific Corp.

Wayne E. Hedien (68) Trustee Trustee Retired, Director or Trustee of 129 Director of The PMI Group
c/o Mayer, Brown, Rowe & since the Morgan Stanley Funds and the Inc. (private mortgage
Maw September TCW/DW Term Trusts; formerly insurance); Trustee and
Counsel to the Independent 1997 associated with the Allstate Vice Chairman of The
Trustees Companies (1966-1994), most Field Museum of Natural
1675 Broadway recently as Chairman of The History; director of
New York, NY Allstate Corporation (March various other business and
1993-December 1994) and Chairman charitable organizations.
and Chief Executive Officer of
its wholly-owned subsidiary,
Allstate Insurance Company (July
1989-December 1994).

Dr. Manuel H. Johnson (53) Trustee Trustee Chairman of the Audit Committee 129 Director of NVR, Inc.
c/o Johnson Smick since and Director or Trustee of the (home construction);
International, Inc. July 1991 Morgan Stanley Funds and the Chairman and Trustee of
1133 Connecticut Avenue, TCW/DW Term Trusts; Senior the Financial Accounting
N.W. Partner, Johnson Smick Foundation (oversight
Washington, D.C. International, Inc., a organization of the
consulting firm, Co-Chairman and Financial Accounting
a founder of the Group of Seven Standards Board).
Council (G7C), an international
economic commission; formerly
Vice Chairman of the Board of
Governors of the Federal Reserve
System and Assistant Secretary
of the U.S. Treasury.

Michael E. Nugent (66) Trustee Trustee Chairman of the Insurance 207 Director of various
c/o Triumph Capital, L.P. since Committee and Director or business organizations.
237 Park Avenue July 1991 Trustee of the Morgan Stanley
New York, NY Funds and the TCW/DW Term
Trusts; director/trustee of
various investment companies
managed by Morgan Stanley
Investment Management Inc. and
Morgan Stanley Investments LP
(since July 2001); General
Partner, Triumph Capital, L.P.,
a private investment
partnership; formerly Vice
President, Bankers Trust Company
and BT Capital Corporation
(1984-1988).

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

- ----------
* This is the date the Trustee began serving the Morgan Stanley Funds.

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

Charles A. Fiumefreddo (69) Chairman and Trustee Chairman and Director or 129 None
c/o Morgan Stanley Trust Trustee since July Trustee of the Morgan Stanley
Harborside Financial Center, 1991 Funds and the TCW/DW Term
Plaza Two, Trusts; formerly Chairman,
Jersey City, NJ Chief Executive Officer and
Director of the Investment
Manager, the Distributor and
Morgan Stanley Services,
Executive Vice President and
Director of Morgan Stanley DW,
Chairman and Director of the
Transfer Agent and Director
and/or officer of various
Morgan Stanley subsidiaries
(until June 1998) and Chief
Executive Officer of the
Morgan Stanley Funds and the
TCW/DW Term Trusts (until
September 2002).

James F. Higgins (54) Trustee Trustee Director or Trustee of the 129 None
c/o Morgan Stanley Trust since June Morgan Stanley Funds and the
Harborside Financial Center, 2000 TCW/DW Term Trusts (since June
Plaza Two, 2000). Senior Advisor of
Jersey City, NJ Morgan Stanley (since August
2000), Director of the
Distributor and Dean Witter
Realty Inc., previously
President and Chief Operating
Officer of the Private Client
Group of Morgan Stanley (May
1999-August 2000), President
and Chief Operating Officer of
Individual Securities of
Morgan Stanley (February
1997-May 1999).

Philip J. Purcell (58) Trustee Trustee Director or Trustee of the 129 Director of American
1585 Broadway since April Morgan Stanley Funds and the Airlines, Inc., and its
New York, NY 1994 TCW/DW Term Trusts; Chairman parent company, AMR
of the Board of Directors and Corporation
Chief Executive Officer of
Morgan Stanley and Morgan
Stanley DW; Director of the
Distributor; Chairman of the
Board of Directors and Chief
Executive Officer of Novus
Credit Services Inc.; Director
and/or officer of various

- ----------
* This is the date the Trustee began serving the Morgan Stanley Funds.

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

Mitchell M. Merin (49) President and President since May President and Chief Operating Officer of Morgan Stanley
1221 Avenue of the Americas Chief Executive 1999 and Chief Investment Management (since December 1998);
New York, NY Officer Executive Officer President, Director (since April 1997) and Chief
since September Executive Officer (since June 1998) of the Investment
2002 Manager and Morgan Stanley Services; Chairman, Chief
Executive Officer and Director of the Distributor (since
June 1998); Chairman (since June 1998) and Director
(since January 1998) of the Transfer Agent; Director of
various Morgan Stanley subsidiaries; President (since
May 1999) and Chief Executive Officer (since September
2002) of the Morgan Stanley Funds and TCW/DW Term
Trusts; Trustee of various Van Kampen investment
companies (since December 1999); President and Chief
Executive Officer of the Van Kampen Open-End Funds
(since October 2002); previously Chief Strategic Officer
of the Investment Manager and Morgan Stanley Services
and Executive Vice President of the Distributor (April
1997-June 1998), Vice President of the Morgan Stanley
Funds (May 1997-April 1999), and Executive Vice
President of Morgan Stanley

Barry Fink (47) Vice President, Since February 1997 General Counsel (since May 2000) and Managing
1221 Avenue of the Americas Secretary and Director (since December 2000) of Morgan Stanley
New York, NY General Counsel Investment Management; Managing Director (since
December 2000), and Director (since July 1998) of the
Investment Manager and Morgan Stanley Services;
Assistant Secretary of Morgan Stanley DW; Vice
President, Secretary and General Counsel of the Morgan
Stanley Funds and TCW/DW Term Trusts; Vice President
and Secretary of the Distributor; previously, Secretary
and General Counsel of the Investment Manager and
Morgan Stanley Services (February 1997-December
2001).

Thomas F. Caloia (56) Treasurer Since April 1989 First Vice President and Assistant Treasurer of the
c/o Morgan Stanley Trust Investment Manager, the Distributor and Morgan Stanley
Harborside Financial Center, Services; Treasurer of the Morgan Stanley Funds.
Plaza Two
Jersey City, NJ

Ronald E. Robison (63) Vice President Since October 1998 Managing Director, Chief Administrative Officer and Director
1221 Avenue of the Americas (since February 1999) of the Investment Manager and Morgan
New York, NY Stanley Services and Chief Executive Officer and Director of
the Transfer Agent; previously Managing Director of the TCW
Group, Inc.

Joseph J. McAlinden (59) Vice President Since July 1995 Managing Director and Chief Investment Officer of the
1221 Avenue of the Americas Investment Manager, Morgan Stanley Investment Management
New York, NY Inc. and Morgan Stanley Investments LP; and Director of the
Transfer Agent. Chief Investment Officer of the Van Kampen
Funds.

Francis Smith (37) Vice President Since September Vice President and Chief Financial Officer of the Morgan
c/o Morgan Stanley Trust and Chief 2002 Stanley Funds and the TCW/DW Term Trusts (since September
Harborside Financial Center Financial Officer 2002); Executive Director of the Investment Manager and
Plaza Two, Morgan Stanley Services (since December 2001). Formerly,
Jersey City, NJ Vice President of the Investment Manager and Morgan Stanley
Services (August 2000-November 2001), Senior Manager at
PricewaterhouseCoopers LLP (January 1998-August 2000) and
Associate-Fund Administration at BlackRock Financial
Management (July 1996-December 1997).

John Roscoe (39) Vice President Since May 2000 Vice President and Portfolio Manager of the Investment
1221 Avenue of the Americas Manager and its investment management affiliates (since
New York, NY December 1997); previously an equity analyst at Rockefeller
& Company, Inc.

In addition, A. Thomas Smith III, Managing Director and General Counsel of
the Investment Manager and Morgan Stanley Services, is a Vice President and
Assistant Secretary of the Fund, and Sara Badler, Stefanie Chang-Yu, Lou Anne
D. McInnis, Carsten Otto and Ruth Rossi, Executive Directors and Assistant
General Counsels of the Investment Manager and Morgan Stanley Services, Marilyn
K. Cranney, First Vice President and Assistant General Counsel of the
Investment Manager and Morgan Stanley Services, and Joanne Doldo, Natasha
Kassian and Sheldon Winicour, Vice Presidents and Assistant General Counsels of
the Investment Manager and Morgan Stanley Services and Bennett MacDougall,
Senior Staff Attorney, are Assistant Secretaries of the Fund.

For each Trustee, the dollar range of equity securities beneficially owned
by the Trustee is shown below.

Aggregate Dollar Range of Equity Securities in
All Registered Investment Companies Overseen
Dollar Range of Equity Securities in the Fund by Trustee in Family of Investment Companies
Name of Trustee (As of December 31, 2001) (As of December 31, 2001)
- ------------------------ ----------------------------------------------- -----------------------------------------------

Independent:
Michael Bozic none over $100,000
Edwin J. Garn $ 10,001-$50,000 over $100,000
Wayne E. Hedien none over $100,000
Dr. Manuel H. Johnson none over $100,000
Michael E. Nugent none over $100,000
Interested:
Charles A. Fiumefreddo $50,001-$100,000 over $100,000
James F. Higgins none over $100,000
Philip J. Purcell $ 1-$10,000 over $100,000

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

Independent Directors/Trustees and the Committees. Law and regulation
establish both general guidelines and specific duties for the Independent
Directors/Trustees. The Morgan Stanley Funds seek as Independent
Directors/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
Funds' Boards, such individuals may reject other attractive assignments because
the funds make substantial demands on their time. All of the Independent
Directors/Trustees serve as members of the Audit Committee. In addition, six of
the Directors/Trustees, including all of the Independent Directors/Trustees,
serve as members of the Derivatives Committee and three Directors/Trustees
including two Independent Trustees, serve as members of the Insurance
Committee.

The Independent Directors/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 Directors/Trustees are required to select and nominate individuals
to fill any Independent Director/Trustee vacancy on the board of any fund that
has a Rule 12b-1 plan of distribution. Most of the Morgan Stanley Funds have a
Rule 12b-1 plan.

The Audit Committee is charged with recommending to the full board the
engagement or discharge of the Fund's independent auditors; directing
investigations into matters within the scope of the independent auditors'
duties, including the power to retain outside specialists; reviewing with the
independent auditors the audit plan and results of the auditing engagement;
approving professional services provided by the independent auditors and other
accounting firms prior to the performance of the services; reviewing the
independence of the independent auditors; 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 Audit Committee currently consists of Messrs. Johnson, Bozic,
Hedien, Garn and Nugent. During the Fund's fiscal year ended September 30,
2002, the Audit Committee held 10 meetings.

The board of each fund has a Derivatives Committee to approve parameters
for and monitor the activities of the Fund with respect to derivative
investments, if any, made by the Fund. The Derivatives Committee currently
consists of Mr. Fiumefreddo and all of the Independent Trustees of the Fund.
During the Fund's fiscal year ended September 30, 2002, the Derivatives
Committee held three meetings.

Finally, the board of each fund has formed an Insurance Committee to
review and monitor the insurance coverage maintained by the Fund. The Insurance
Committee currently consists of Messrs. Nugent, Fiumefreddo and Hedien. During
the Fund's fiscal year ended September 30, 2002, the Insurance Committee held
one meeting.

ADVANTAGES OF HAVING SAME INDIVIDUALS AS INDEPENDENT DIRECTORS/TRUSTEES
FOR ALL MORGAN STANLEY FUNDS. The Independent Directors/Trustees and the Funds'
management believe that having the same independent directors/trustees for each
of the Morgan Stanley Funds avoids the duplication of effort that would arise
from having different groups of individuals serving as Independent Directors/
Trustees for each of the funds or even of sub-groups of funds. They believe
that having the same individuals serve as Independent Directors/Trustees of all
the 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 directors/trustees
arriving at conflicting decisions regarding operations and management of the
funds and avoids the cost and confusion that would likely ensue. Finally,
having the same Independent Directors/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 Directors/ Trustees, of the caliber,
experience and business acumen of the individuals who serve as Independent
Directors/Trustees of the Morgan Stanley 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 the 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.

C. COMPENSATION

The Fund pays each Independent Trustee an annual fee of $800 plus a per
meeting fee of $50 for meetings of the Board of Trustees, the Independent
Trustees or Committees of the Board of Trustees attended by the Trustee (the
Fund pays the Chairman of the Audit Committee an additional annual fee of $750
and the Chairmen of the Derivatives and Insurance Committees additional annual
fees of $500). If a Board meeting and a meeting of the Independent Trustees or
a Committee meeting (except an Audit Committee meeting), or a meeting of the
Independent Trustees and/or more than one Committee meeting (except an Audit
Committee meeting), take place on a single day, the Trustees are paid a single
meeting fee by the Fund. The Fund also reimburses such Trustees for travel and
other out-of-pocket expenses incurred by them in connection with attending such
meetings. Trustees and officers of the Fund who are or have been employed by
the Investment Manager or an affiliated company receive no compensation or
expense reimbursement from the Fund for their services as Trustee. The Fund
pays Mr. Fiumefreddo an annual fee for his service as Chairman of the Board and
for administrative services provided to the Board of Trustees.

The following table illustrates the compensation that the Fund paid to its
Independent Trustees for the fiscal year ended September 30, 2002.

FUND COMPENSATION

AGGREGATE
COMPENSATION
NAME OF TRUSTEE FROM THE FUND
- --------------- -------------
Michael Bozic .................. $1,700
Edwin J. Garn .................. 1,700
Wayne E. Hedien ................ 1,700
Dr. Manuel H. Johnson .......... 2,450
Michael E. Nugent .............. 2,200
Charles A. Fiumefreddo ......... 2,511

The following table illustrates the compensation paid to the Fund's
Trustees for the calendar year ended December 31, 2001 for services to the 97
registered Morgan Stanley Funds (consisting of 129 portfolios) that were in
operation at December 31, 2001. None of the Fund's Trustees received
compensation from any other funds in the Fund Complex, except for Mr. Nugent
who received compensation for service as Director/Trustee to 16 other
registered funds (consisting of 78 portfolios) in the Fund Complex.

CASH COMPENSATION FROM MORGAN STANLEY FUNDS

TOTAL CASH
COMPENSATION
FOR SERVICES TO 97
MORGAN STANLEY
FUNDS AND
OTHER FUNDS
IN THE FUND
NAME OF TRUSTEE COMPLEX
- --------------- -------

Michael Bozic .................. $150,150
Edwin J. Garn .................. 150,150
Wayne E. Hedien ................ 150,100
Dr. Manuel H. Johnson .......... 219,900
Michael E. Nugent .............. 228,362
Charles A. Fiumefreddo ......... 360,000

As of the date of this Statement of Additional Information, 51 of the
Morgan Stanley Funds, including the Fund, have adopted a retirement program
under which an Independent Director/Trustee who retires

after serving for at least five years (or such lesser period as may be
determined by the Board) as an Independent Director/Trustee of any Morgan
Stanley Fund that has adopted the retirement program (each such Fund referred
to as an "Adopting Fund" and each such director/trustee referred to as an
"Eligible Trustee") is entitled to retirement payments upon reaching the
eligible retirement age (normally, after attaining age 72). Annual payments are
based upon length of service.

Currently, upon retirement, each Eligible Trustee is entitled to receive
from the Adopting Fund, commencing as of his or her retirement date and
continuing for the remainder of his or her life, an annual retirement benefit
(the "Regular Benefit") equal to 30.22% of his or her Eligible Compensation
plus 0.5036667% of such Eligible Compensation for each full month of service as
an Independent Director/ Trustee of any Adopting Fund in excess of five years
up to a maximum of 60.44% after ten years of service. The foregoing percentages
may be changed by the Board.(1) "Eligible Compensation" is one-fifth of the
total compensation earned by such Eligible Trustee for service to the Adopting
Fund in the five year period prior to the date of the Eligible Trustee's
retirement. Benefits under the retirement program are accrued as expenses on
the books of the Adopting Funds. Such benefits are not secured or funded by the
Adopting Funds.

The following table illustrates the retirement benefits accrued to the
Fund's Independent Trustees by the Fund for the fiscal year ended September 30,
2002 and by the 52 Morgan Stanley Funds (including the Fund) for the year ended
December 31, 2001, and the estimated retirement benefits for the Independent
Trustees, to commence upon their retirement, from the Fund as of September 30,
2002 and from the 52 Morgan Stanley Funds as of December 31, 2001. For the
calendar year ended December 31, 2001, no retirement benefits were accrued to
the Independent Trustees from any other funds in the Fund Complex.

Retirement Benefits From All Morgan Stanley Funds

ESTIMATED
FOR ALL ADOPTING FUNDS RETIREMENT ANNUAL
-------------------------------- BENEFITS BENEFITS
ESTIMATED ACCRUED AS UPON
CREDITED EXPENSES RETIREMENT(2)
YEARS ESTIMATED --------------------- ----------------------
OF SERVICE AT PERCENTAGE OF BY ALL FROM ALL
RETIREMENT ELIGIBLE BY THE ADOPTING FROM ADOPTING
NAME OF INDEPENDENT TRUSTEE (MAXIMUM 10) COMPENSATION FUND FUNDS THE FUND FUNDS
- --------------------------- ------------ ------------ ---- ----- -------- -----

Michael Bozic ................. 10 60.44% $390 $21,395 $ 967 $48,443
Edwin J. Garn ................. 10 60.44 652 33,443 973 49,121
Wayne E. Hedien ............... 9 51.37 735 44,952 826 41,437
Dr. Manuel H. Johnson ......... 10 60.44 420 22,022 1,420 72,014
Michael E. Nugent ............. 10 60.44 755 38,472 1,269 64,157

- ----------
(1) An Eligible Trustee may elect alternative payments of his or her
retirement benefits based upon the combined life expectancy of the
Eligible Trustee and his or her spouse on the date of such Eligible
Trustee's retirement. In addition, the Eligible Trustee may elect that
the surviving spouse's periodic payment of benefits will be equal to a
lower percentage of the periodic amount when both spouses were alive. The
amount estimated to be payable under this method, through the remainder
of the later of the lives of the Eligible Trustee and spouse, will be the
actuarial equivalent of the Regular Benefit.

(2) Based on current levels of compensation. Amount of annual benefits also
varies depending on the Trustee's elections described in Footnote (1)
above.

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

The following owned 5% or more of the outstanding shares of Class A of the
Fund as of November 7, 2002: State Street Bank and Trust Co. for the benefit of
ADP/Morgan Stanley Alliance, 105 Rosemont Ave., Westwood, MA 02090-2318 -
72.93%.

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

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

A. INVESTMENT MANAGER

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

Pursuant to an Investment Management Agreement (the "Management
Agreement") with the Investment Manager, the Fund has retained the Investment
Manager to provide administrative services and manage the investment of the
Fund's assets, including the placing of orders for the purchase and sale of
portfolio securities. The Fund pays the Investment Manager monthly compensation
calculated daily by applying the following annual rates to the net assets of
the Fund determined as of the close of each business day: 0.50% to the portion
of the Fund's average daily net assets not exceeding $500 million and 0.475% of
the portion of the Fund's average daily net assets exceeding $500 million. The
management fee is allocated among the Classes pro rata based on the net assets
of the Fund attributable to each Class. For the fiscal years ended September
30, 2000, 2001 and 2002, the Fund accrued total compensation to the Investment
Manager under the Management Agreement in the amount of $5,906,875, $4,062,162
and $2,571,712, respectively.

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

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

B. PRINCIPAL UNDERWRITER

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

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

supplements thereto to shareholders. The Fund also bears the costs of
registering the Fund and its shares under federal and state securities laws and
pays filing fees in accordance with state securities laws.

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

C. SERVICES PROVIDED BY THE INVESTMENT MANAGER

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

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

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

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

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

D. DEALER REALLOWANCES

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

E. RULE 12b-1 PLAN

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

The Distributor also receives the proceeds of front-end sales charges
("FSCs") and of contingent deferred sales charges ("CDSCs") imposed on certain
redemptions of shares, which are separate and apart from payments made pursuant
to the Plan. The Distributor has informed the Fund that it and/or Morgan
Stanley DW received the proceeds of CDSCs and FSCs, for the last three fiscal
years ended September 30, in approximate amounts as provided in the table below
(the Distributor did not retain any of these amounts).

2002 2001 2000
----------------------- ----------------------- -----------------------

Class A .......... FSCs:(1) $ 11,432 FSCs:(1) $ 35,445 FSCs:(1) $ 93,205
CDSCs: $ 42 CDSCs: $ 3,361 CDSCs: $ 51
Class B .......... CDSCs: $336,609 CDSCs: $556,470 CDSCs: $642,814
Class C .......... CDSCs: $ 3,299 CDSCs: $ 6,546 CDSCs: $ 11,297

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

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

Under the Plan and as required by Rule 12b-1, the Trustees receive and
review promptly after the end of each calendar quarter a written report
provided by the Distributor of the amounts expended under the Plan and the
purpose for which such expenditures were made. For the fiscal year ended
September 30, 2002, Class B shares of the Fund accrued amounts payable to the
Distributor under the Plan of $4,205,451. This amount is equal to 1.00% of the
average daily net assets of Class B and was calculated pursuant to clause (b)
of the compensation formula under the Plan. For the fiscal year ended September
30, 2002, Class A and Class C shares of the Fund accrued payments under the
Plan amounting to $42,703 and $84,799, respectively, which amounts are equal to
0.22% and 1.00% of the average daily net assets of Class A and Class C,
respectively, for the fiscal year.

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

With respect to Class A shares, Morgan Stanley DW compensates its
Financial Advisors by paying them, from proceeds of the FSC, commissions for
the sale of Class A shares, currently a gross sales credit of up to 5.0% of the
amount sold (except as provided in the following sentence) and an annual
residual commission, currently a residual of up to 0.25% of the current value
of the respective accounts for which they are the Financial Advisors or dealers
of record in all cases. On orders of $1 million or more (for which no sales
charge was paid) or net asset value purchases by employer-sponsored employee
benefit plans, whether or not qualified under the Internal Revenue Code, for
which (i) the Transfer Agent serves as Trustee, (ii) Morgan Stanley's
Retirement Plan Services serves as recordkeeper pursuant to a written
Recordkeeping Services Agreement or (iii) an entity independent from Morgan
Stanley serves as recordkeeper under an alliance or similar agreement with
Morgan Stanley's Retirement Plan Services ("Morgan Stanley Eligible Plans"),
the Investment Manager compensates Financial Advisors by paying them, from its
own funds, a gross sales credit of 1.0% of the amount sold.

With respect to Class B shares, Morgan Stanley DW compensates its
Financial Advisors by paying them, from its own funds, commissions for the sale
of Class B shares, currently a gross sales credit of up to 5.0% of the amount
sold (except as provided in the following sentence) and an annual residual
commission, currently a residual of up to 0.25% of the current value (not
including reinvested dividends or distributions) of the amount sold in all
cases. In the case of Class B shares purchased by Morgan Stanley Eligible
Plans, Morgan Stanley DW compensates its Financial Advisors by paying them,
from its own funds, a gross sales credit of 3.0% of the amount sold.

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

With respect to Class D shares other than shares held by participants in
the Investment Manager's mutual fund asset allocation program and in the Morgan
Stanley Choice Program, the Investment Manager compensates Morgan Stanley DW's
Financial Advisors by paying them, from its own funds, commissions for the sale
of Class D shares, currently a gross sales credit of up to 1.0% of the amount
sold. There is a chargeback of 100% of the amount paid if the Class D shares
are redeemed in the first year and a chargeback of 50% of the amount paid if
the Class D shares are redeemed in the second year after purchase. The
Investment Manager also compensates Morgan Stanley DW's Financial Advisors by
paying them, from its own funds, an annual residual commission, currently up to
0.10% of the current value of the respective accounts for which they are the
Financial Advisors of record (not including accounts of participants in the
Investment Manager's mutual fund asset allocation program and the Morgan
Stanley Choice Program).

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

The Investment Manager pays a retention fee to Financial Advisors at an
annual rate of 0.05% of the value of shares of the Fund held for at least one
year. Shares purchased through the reinvestment of dividends will be eligible
for a retention fee, provided that such dividends were earned on shares
otherwise eligible for a retention fee payment. Shares owned in variable
annuities, closed-end fund shares and shares held in 401(k) plans where the
Transfer Agent or Morgan Stanley's Retirement Plan Services is either
recordkeeper or trustee are not eligible for a retention fee.

The retention fees are paid by the Investment Manager from its own assets,
which may include profits from investment management fees payable under the
Management Agreement, as well as from borrowed funds.

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

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

Each Class paid 100% of the amounts accrued under the Plan with respect to
that Class for the fiscal year ended September 30, 2002 to the Distributor. The
Distributor and Morgan Stanley DW estimate that they have spent, pursuant to
the Plan, $99,483,615 on behalf of Class B since the inception of the Plan. It
is estimated that this amount was spent in approximately the following ways:
(i) 8.35% ($8,308,987) - advertising and promotional expenses; (ii) 0.58%
($571,206) - printing of prospectuses for distribution to other than current
shareholders; and (iii) 91.07% ($90,603,422) - other expenses, including the
gross sales credit and the carrying charge, of which 17.63% ($15,972,426)
represents carrying charges, 34.10% ($30,897,232) represents commission credits
to Morgan Stanley DW branch offices and other selected broker-dealers for
payments of commissions to Financial Advisors and other authorized financial
representatives, and 48.27% ($43,733,764) represents overhead and other branch
office distribution-related expenses. The amounts accrued by Class A and a
portion of the amounts accrued by Class C under the Plan during the fiscal year
ended September 30, 2002 were service fees. The remainder of the amounts
accrued by Class C were for expenses which relate to compensation of sales
personnel and associated overhead expenses.

In the case of Class B shares, at any given time, the expenses of
distributing shares of the Fund may be more or less than the total of (i) the
payments made by the Fund pursuant to the Plan; and (ii) the proceeds of CDSCs
paid by investors upon redemption of shares. For example, if $1 million in
expenses in distributing Class B shares of the Fund had been incurred and
$750,000 had been received as described in (i) and (ii) above, the excess
expense would amount to $250,000. The Distributor has advised the Fund that in
the case of Class B shares the excess distribution expenses, including the
carrying charge designed to approximate the opportunity costs incurred by
Morgan Stanley DW which arise from it having advanced monies without having
received the amount of any sales charges imposed at the time of sale of the
Fund's Class B shares, totaled $10,835,065 as of September 30, 2002 (the end of
the Fund's fiscal year), which was equal to 3.92% 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 1.0% of the average daily
net assets of Class A or Class C, respectively, will not be reimbursed by the
Fund through payments in any subsequent year, except that expenses representing
a gross sales commission credited to Morgan Stanley Financial Advisors and
other authorized financial representatives at the time of sale may be
reimbursed in the subsequent calendar year. The Distributor has advised the
Fund that there were no such expenses that may be reimbursed in the subsequent
year in the case of Class A or Class C at December 31, 2001 (the end of the
calendar year). No interest or other financing charges will be incurred on any
Class A or Class C distribution expenses incurred by the Distributor under the
Plan or on any unreimbursed expenses due to the Distributor pursuant to the
Plan.

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

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

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 in the manner described above. 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 thirty days' written notice to any other party to the
Plan. So long as the Plan is in effect, the election and nomination of
Independent Trustees shall be committed to the discretion of the Independent
Trustees.

F. OTHER SERVICE PROVIDERS

(1) TRANSFER AGENT/DIVIDEND-PAYING AGENT

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

(2) CUSTODIAN AND INDEPENDENT AUDITORS

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

Deloitte & Touche LLP, Two World Financial Center, New York, NY 10281,
serves as the independent auditors of the Fund. The independent auditors are
responsible for auditing the annual financial statements of the Fund.

(3) AFFILIATED PERSONS

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

G. CODES OF ETHICS

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

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

A. BROKERAGE TRANSACTIONS

a profit to the dealer. The Fund also expects that securities will be purchased
at times in underwritten offerings where the price includes a fixed amount of
compensation, generally referred to as the underwriter's concession or
discount. On occasion, the Fund may also purchase certain money market
instruments directly from an issuer, in which case no commissions or discounts
are paid.

For the fiscal years ended September 30, 2000, 2001 and 2002, the Fund
paid a total of $1,832,572, $2,507,094 and $3,873,262, respectively, in
brokerage commissions.

B. COMMISSIONS

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

During the fiscal years ended September 30, 2000, 2001 and 2002, the Fund
did not effect any principal transactions with Morgan Stanley DW.

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

During the fiscal years ended September 30, 2000, 2001 and 2002, the Fund
paid a total of $55,512, $24,777 and $0, respectively, in brokerage commissions
to Morgan Stanley DW.

During the fiscal years ended September 30, 2000, 2001 and 2002, the Fund
paid a total of $48,964, $7,898 and $16,763, respectively, in brokerage
commissions to Morgan Stanley & Co. During the fiscal year ended September 30,
2002, the brokerage commissions paid to Morgan Stanley & Co. represented
approximately 0.43% of the total brokerage commissions paid by the Fund during
the year and were paid on account of transactions having an aggregate dollar
value equal to approximately 0.67% of the aggregate dollar value of all
portfolio transactions of the Fund during the year for which commissions were
paid.

C. BROKERAGE SELECTION

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

The Fund anticipates that certain of its transactions involving foreign
securities will be effected on foreign securities exchanges. Fixed commissions
on such transactions are generally higher than negotiated commissions on
domestic transactions. There is also generally less government supervision and
regulation of foreign securities exchanges and brokers than in the United
States.

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

The Investment Manager and certain of its affiliates currently serves as
investment manager to a number of clients, including other investment
companies, and may in the future act as investment manager or advisor to
others. It is the practice of the Investment Manager and its affiliates to
cause purchase and sale transactions 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 Manager and
its affiliates may operate one or more order placement facilities and each
facility will implement order allocation in accordance with the procedures
described above. From time to time, each facility may transact in a security at
the same time as other facilities are trading in that security.

D. DIRECTED BROKERAGE

During the fiscal year ended September 30, 2002, the Fund paid $3,126,796
in brokerage commissions in connection with transactions in the aggregate
amount of $1,513,213,454 to brokers because of research services provided.

E. REGULAR BROKER-DEALERS

During the fiscal year ended September 30, 2002, the Fund did not purchase
securities issued by brokers or dealers that 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 September 30, 2002, the Fund did not own any
securities issued by any such issuers.

VII. CAPITAL STOCK AND OTHER SECURITIES
- --------------------------------------------------------------------------------

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

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
percent of the shares voting can, if they choose, elect all Trustees being
selected, while the holders of the remaining shares would be unable to elect
any Trustees.

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

All of the Trustees, except for James F. Higgins, have been elected by the
shareholders of the Fund, most recently at a Special Meeting of Shareholders
held on May 21, 1997. The Trustees themselves have the power to alter the
number and the terms of office of the Trustees (as provided for in the
Declaration of Trust), and they may at any time lengthen or shorten their own
terms or make their terms of unlimited duration and appoint their own
successors, provided that always at least a majority of the Trustees has been
elected by the shareholders of the Fund.

VIII. PURCHASE, REDEMPTION AND PRICING OF SHARES
- --------------------------------------------------------------------------------

A. PURCHASE/REDEMPTION OF SHARES

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

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

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

proportion that the transferred shares bear to the total shares in the account
immediately prior to the transfer). The transferred shares will continue to be
subject to any applicable CDSC as if they had not been so transferred.

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

B. OFFERING PRICE

The Fund's Class B, Class C and Class D shares are offered at net asset
value per share and the Class A shares are offered at net asset value per share
plus any applicable FSC which is distributed among the Fund's Distributor,
Morgan Stanley DW and other authorized dealers as described in Section "V.
Investment Management and Other Services -- E. Rule 12b-1 Plan." The price of
Fund shares, called "net asset value," is based on the value of the Fund's
portfolio securities. Net asset value per share of each Class is calculated by
dividing the value of the portion of the Fund's securities and other assets
attributable to that Class, less the liabilities attributable to that Class, by
the number of shares of that Class outstanding. The assets of each Class of
shares are invested in a single portfolio. The net asset value of each Class,
however, will differ because the Classes have different ongoing fees.

In the calculation of the Fund's net asset value: (1) an equity portfolio
security listed or traded on the New York or American Stock Exchange, Nasdaq,
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 latest bid 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 pursuant to procedures adopted by the Trustees); and (2) all other
portfolio securities for which over-the-counter market quotations are readily
available are valued at the latest bid price. When market quotations are not
readily available, including circumstances under which it is determined by the
Investment Manager that sale or bid prices are not reflective of a security's
market value, portfolio securities are valued at their fair value as determined
in good faith under procedures established by and under the general supervision
of the Fund's Trustees. For valuation purposes, quotations of foreign portfolio
securities, other assets and liabilities and forward contracts stated in
foreign currency are translated into U.S. dollar equivalents at the prevailing
market rates prior to the close of the New York Stock Exchange.

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

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

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 New York Stock Exchange.
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 New York Stock
Exchange. 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 New York Stock Exchange 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 and
they are also subject to different rates of tax. The tax treatment of the
investment activities of the Fund will affect the amount, timing and character
of the distributions made by the Fund. Tax issues relating to the Fund are not
generally a consideration for shareholders such as tax- exempt entities and
tax-advantaged retirement vehicles such as an IRA or 401(k) plan. Shareholders
are urged to consult their own tax professionals regarding specific questions
as to federal, state or local taxes.

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

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

TAXATION OF DIVIDENDS AND DISTRIBUTIONS. Shareholders normally will have
to pay 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 taxable to the shareholder as ordinary
income regardless of whether the shareholder receives such payments in
additional shares or in cash.

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 realized by non-corporate shareholders
generally is 20%. A special lower tax rate of 18% on long-term capital gains is
available to non-corporate shareholders to the extent the distributions of
long-term capital gains are derived from securities which the Fund purchased
after December 31, 2000, and held for more than five years.

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

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

Shareholders who are not citizens or residents of the United States and
certain foreign entities may be subject to withholding of United States tax on
distributions made by the Fund of investment income and short-term capital
gains.

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

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

In general, a sale of shares results in capital gain or loss, and for
individual shareholders, is taxable at a federal rate dependent upon the length
of time the shares were held. A redemption of a shareholder's Fund shares is
normally treated as a sale for tax purposes. Fund shares held for a period of
one year or less at the time of such sale or redemption will, for tax purposes,
generally result in short-term capital gains or losses and those held for more
than one year will generally result in long-term capital gains or losses. Under
current law, the maximum tax rate on long-term capital gains realized by
non-corporate shareholders generally is 20%. A special lower tax rate of 18% on
long-term capital gains is available for non-corporate shareholders who
purchased shares after December 31, 2000, and held such shares for more than
five years. This special lower tax rate of 18% for five-year property does not
apply to non-corporate shareholders holding Fund shares which were purchased on
or prior to December 31, 2000, unless such shareholders made an election to
treat the Fund shares as being sold and reacquired on January 1, 2001. Any loss
realized by shareholders upon a sale or redemption of shares within six months
of the date of their purchase will be treated as a long-term capital loss to
the extent of any distributions of net long-term capital gains with respect to
such shares during the six-month period.

Gain or loss on the sale or redemption of shares in the Fund is measured
by the difference between the amount received and the tax 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
first fund, followed by the purchase of shares in the second fund.

If a shareholder realizes a loss on the redemption or exchange of a fund's
shares and reinvests in that fund's shares within 30 days before or after the
redemption or exchange, the transactions may be subject to the "wash sale"
rules, resulting in a postponement of the recognition of such loss for tax
purposes.

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

XI. CALCULATION OF PERFORMANCE DATA
- --------------------------------------------------------------------------------

From time to time, the Fund may quote its "total return" in advertisements
and sales literature. These figures are computed separately for Class A, Class
B, Class C and Class D shares. The Fund's "average annual total return"
represents an annualization of the Fund's total return over a particular period
and is computed by finding the annual percentage rate which will result in the
ending redeemable value of a hypothetical $1,000 investment made at the
beginning of a one, five or ten year period, or for the period from the date of
commencement of operations, if shorter than any of the foregoing. The ending
redeemable value is reduced by any contingent deferred sales charge ("CDSC") at
the end of the one, five, ten year or other period. For the purpose of this
calculation, it is assumed that all dividends and distributions are reinvested.
The formula for computing the average annual total return involves a percentage
obtained by dividing the ending redeemable value by the amount of the initial
investment (which in the case of Class A shares is reduced by the Class A
initial sales charge), taking a root of the quotient (where the root is
equivalent to the number of years in the period) and subtracting 1 from the
result. Based on this calculation, the average annual total returns for Class A
for the one year, five year and the period July 28, 1997 (commencement of
operations) through September 30, 2002 were -21.96%, -5.39% and -3.16%,
respectively. The average annual total returns for Class B for the one year,
five year and 10 year period ended September 30, 2002 were -22.35%, -5.31% and
9.00%, respectively. The average annual total returns for Class C for the one
year, five year and the period July 28, 1997 (commencement of operations)
through September 30, 2002 were -19.11%, -5.08% and -2.89%, respectively. The
average annual total returns for Class D for the one year, five year and the
period July 28, 1997 (commencement of operations) through September 30, 2002
were -17.46%, -4.15% and -1.93%, respectively.

In addition, the Fund may advertise its total return for each Class over
different periods of time by means of aggregate, average, year-by-year or other
types of total return figures. These calculations may or may not reflect the
imposition of the maximum front-end sales charge for Class A or the deduction
of the CDSC for each of Class B and Class C which, if reflected, would reduce
the performance quoted. For example, the average annual total return of the
Fund may be calculated in the manner described above, but without deduction for
any applicable sales charge. Based on this calculation, the average annual
total returns for Class A for the one year, five year and the period July 28,
1997 through September 30, 2002 were -17.63%, -4.36% and -2.15%, respectively.
The average annual total returns for Class B for the one year, five year and 10
year period ended September 30, 2002 were -18.26%, -5.10% and 9.00%,
respectively. The average annual total returns for Class C for the one year,
five year and the period July 28, 1997 through September 30, 2002 were -18.29%,
- -5.08% and -2.89%, respectively. The average annual total returns for Class D
for the one year, five year and the period July 28, 1997 through September 30,
2002 were -17.46%, -4.15% and -1.93%, respectively.

In addition, the Fund may compute its aggregate total return for each
Class for specified periods by determining the aggregate percentage rate which
will result in the ending value of a hypothetical $1,000 investment made at the
beginning of the period. For the purpose of this calculation, it is assumed
that all dividends and distributions are reinvested. The formula for computing
aggregate total return involves a percentage obtained by dividing the ending
value (without reduction for any sales charge) by the initial $1,000 investment
and subtracting 1 from the result. Based on the foregoing calculation, the
total returns for Class A for the one year, five year and the period July 28,
1997 through September 30, 2002 were -17.63%, -19.98% and -10.62%,
respectively. The total returns for Class B for the one year, five year and 10
year period were -18.26%, -23.02% and 136.66%, respectively. The total returns
for Class C for the one year, five year and the period July 28, 1997 through
September 30, 2002 were -18.29%, -22.95% and -14.07%, respectively. The total
returns for Class D for the one year, five year and the period July 28, 1997
through September 30, 2002 were -17.46%, -19.08% and -9.58%, respectively.

The Fund may also advertise the performance of hypothetical investments of
$10,000, $50,000 and $100,000 in each Class of shares of the Fund by adding 1
to the Fund's aggregate total return to date (expressed as a decimal and
without taking into account the effect of any applicable CDSC) and multiplying
by $9,475, $48,000 and $97,000 in the case of Class A (investments of $10,000,
$50,000 and

$100,000 adjusted for the initial sales charge) or by $10,000, $50,000 and
$100,000 in the case of each of Class B, Class C and Class D, as the case may
be. Investments of $10,000, $50,000 and $100,000 in each Class at inception of
the Class would have grown/declined to the following amounts at September 30,
2002:

INVESTMENT AT INCEPTION OF:
INCEPTION -----------------------------------
CLASS DATE: $10,000 $50,000 $100,000
- ----------------- ---------- --------- ---------- ----------

Class A ......... 07/28/97 $8,469 $42,902 $86,699
Class B ......... 04/29/83 30,402 152,010 304,020
Class C ......... 07/28/97 8,593 42,965 85,930
Class D ......... 07/28/97 9,042 45,210 90,420

The after-tax returns of the Fund may also be advertised or otherwise
reported. This is generally calculated in a manner similar to the computation
of average annual total returns discussed above, except that the calculation
also reflects the effect of taxes on returns. Based on these calculations, the
average annual total returns (after taxes on distributions) for Class B for the
one year, five year and 10 year period ended September 30, 2002 were -22.35%,
- -7.81% and 6.63%, respectively, and the average annual total returns (after
taxes on distributions and redemptions) for Class B for the one year, five year
and 10 year period ended September 30, 2002 were -13.72%, -3.42% and 7.76%,
respectively.

The Fund from time to time may also advertise its performance relative to
certain performance rankings and indexes compiled by recognized organizations.

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

Experts. The financial statements of the Fund for the fiscal year ended
September 30, 2002 included in this Statement of Additional Information and
incorporated by reference in the Prospectus have been so included and
incorporated in reliance on the report of Deloitte & Touche LLP, independent
auditors, given on the authority of said firm as experts in auditing and
accounting.

* * * * *

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

Morgan Stanley Developing Growth Securities Trust
PORTFOLIO OF INVESTMENTS [|] SEPTEMBER 30, 2002

NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------

Common Stocks (97.1%)
Advertising/Marketing
Services (1.0%)
123,000 Lamar Advertising Co.* ............. $ 3,733,050
------------
Aerospace & Defense (1.2%)
22,100 Alliant Techsystems, Inc.* ......... 1,530,425
16,750 Engineered Support Systems,
Inc. ............................... 955,420
81,000 Rockwell Collins, Inc. ............. 1,777,140
------------
4,262,985
------------
Air Freight/Couriers (1.0%)
52,300 C.H. Robinson Worldwide, Inc........ 1,407,393
72,000 Expeditors International of
Washington, Inc. ................... 2,011,680
------------
3,419,073
------------
Apparel/Footwear (0.7%)
105,150 Coach, Inc.* ....................... 2,691,840
------------
Apparel/Footwear Retail (3.8%)
264,950 Abercrombie & Fitch Co.
(Class A)* ......................... 5,211,566
81,400 Chico's FAS, Inc.* ................. 1,296,702
230,925 Limited Brands, Inc. ............... 3,311,464
104,500 Ross Stores, Inc. .................. 3,724,380
------------
13,544,112
------------
Auto Parts: O.E.M. (0.5%)
25,100 American Axle & Manufacturing
Holdings, Inc.* .................... 626,998
33,850 ArvinMeritor, Inc. ................. 632,995
26,150 Autoliv, Inc. ...................... 551,242
------------
1,811,235
------------
Beverages:
Alcoholic (1.2%)
180,900 Constellation Brands Inc.
(Class A)* ......................... 4,178,790
------------
Biotechnology (9.2%)
36,400 Affymetrix, Inc.* .................. 757,120
78,350 Amylin Pharmaceuticals, Inc.*....... 1,302,177

NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------

205,950 Biogen, Inc.* ...................... $ 6,028,156
92,950 Celgene Corp.* ..................... 1,565,278
90,800 Cephalon, Inc.* .................... 3,706,456
36,250 Charles River Laboratories
International, Inc.* ............... 1,422,812
71,450 CV Therapeutics, Inc.* ............. 1,494,019
42,000 Genzyme Corp. (General
Division)* ......................... 865,620
50,200 Gilead Sciences, Inc.* ............. 1,683,206
38,900 IDEC Pharmaceuticals Corp.*......... 1,615,128
61,950 MedImmune, Inc.* ................... 1,292,896
94,450 NPS Pharmaceuticals, Inc.* ......... 1,942,648
116,450 Scios, Inc.* ....................... 2,963,652
41,000 Techne Corp.* ...................... 1,344,390
155,850 Telik, Inc.* ....................... 1,929,423
27,700 Transkaryotic Therapies, Inc.*...... 903,519
51,200 Trimeris, Inc.* .................... 2,274,304
------------
33,090,804
------------
Broadcasting (2.3%)
279,600 Radio One, Inc. (Class D)* ......... 4,610,604
106,600 Westwood One, Inc.* ................ 3,810,950
------------
8,421,554
------------
Casino/Gaming (3.1%)
334,650 GTECH Holdings Corp.* .............. 8,306,013
223,500 Park Place Entertainment
Corp.* ............................. 1,776,825
62,750 Station Casinos, Inc.* ............. 1,067,377
------------
11,150,215
------------
Chemicals: Specialty (1.3%)
68,700 Airgas, Inc.* ...................... 902,031
46,000 Albemarle Corp. .................... 1,163,340
21,750 Praxair, Inc. ...................... 1,111,642
28,300 Sigma-Aldrich Corp. ................ 1,394,341
------------
4,571,354
------------
Commercial Printing/
Forms (0.3%)
25,000 Deluxe Corp. ....................... 1,126,500
------------

See Notes to Financial Statements
31

Morgan Stanley Developing Growth Securities Trust
PORTFOLIO OF INVESTMENTS [|] SEPTEMBER 30, 2002 continued

NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------

Financial Conglomerates (0.2%)
26,900 Investors Financial Services
Corp. ............................... $ 728,183
-----------
Financial Publishing/Services (0.2%)
15,250 Moody's Corp. ....................... 739,625
-----------
Food: Specialty/Candy (1.9%)
72,400 Hershey Foods Corp. ................. 4,492,420
174,250 Peet's Coffee & Tea, Inc.* .......... 2,230,400
-----------
6,722,820
-----------
Gas Distributors (0.4%)
42,800 UGI Corp. ........................... 1,555,780
-----------
Home Building (0.9%)
10,600 NVR, Inc.* .......................... 3,178,198
-----------
Home Furnishings (0.3%)
23,000 Mohawk Industries, Inc.* ............ 1,141,950
-----------
Hospital/Nursing Management (1.1%)
82,700 Amsurg Corp. ........................ 2,495,059
71,700 United Surgical Partners
International Inc. .................. 1,579,551
-----------
4,074,610
-----------
Hotels/Resorts/Cruiselines (2.5%)
433,250 Royal Caribbean Cruises Ltd. ........ 6,897,340
94,300 Starwood Hotels & Resorts
Worldwide, Inc. ..................... 2,102,890
-----------
9,000,230
-----------
Information Technology
Services (1.2%)
46,550 Anteon International Corp.* ......... 1,265,229
24,200 Cognizant Technology
Solutions Corp. ..................... 1,390,774
34,600 SRA International, Inc.
(Class A) ........................... 990,598
29,700 Tier Technologies, Inc.
(Class B)* .......................... 561,924
-----------
4,208,525
-----------

See Notes to Financial Statements
32

Morgan Stanley Developing Growth Securities Trust
PORTFOLIO OF INVESTMENTS [|] SEPTEMBER 30, 2002 continued

NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------

Insurance Brokers/Services (1.8%)
39,700 Brown & Brown, Inc. ............... $ 1,191,000
63,550 ChoicePoint Inc.* ................. 2,264,922
26,050 Hilb, Rogal & Hamilton Co. ........ 1,074,562
57,900 Willis Group Holdings Ltd.* ....... 1,939,071
------------
6,469,555
------------
Investment Banks/Brokers (1.1%)
742,400 E*TRADE Group, Inc.* .............. 3,303,680
21,800 Investment Technology Group,
Inc.* ............................. 637,868
------------
3,941,548
------------
Managed Health Care (2.2%)
236,550 Caremark Rx, Inc.* ................ 4,021,350
49,750 Coventry Health Care, Inc.* ....... 1,616,875
42,050 Mid Atlantic Medical Services,
Inc.* ............................. 1,522,210
46,900 Sierra Health Services, Inc. ...... 841,386
------------
8,001,821
------------
Medical Distributors (1.7%)
28,800 Henry Schein, Inc.* ............... 1,519,200
28,300 Patterson Dental Co.* ............. 1,448,394
453,725 PSS World Medical, Inc.* .......... 3,017,271
------------
5,984,865
------------
Medical Specialties (8.4%)
134,750 Bausch & Lomb, Inc. ............... 4,469,657
63,200 Becton, Dickinson & Co. ........... 1,794,880
87,850 Cooper Companies, Inc. (The)....... 4,612,125
46,350 DENTSPLY International, Inc. ...... 1,861,879
39,950 Meridian Medical Technologies,
Inc. .............................. 1,436,202
95,250 Merit Medical Systems, Inc.* ...... 1,839,277
54,350 St. Jude Medical, Inc.* ........... 1,940,295
39,350 STERIS Corp.* ..................... 980,209
263,750 Varian Medical Systems, Inc.*...... 11,338,613
------------
30,273,137
------------

NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------

Medical/Nursing Services (0.7%)
84,000 Lincare Holdings, Inc.* ........... $ 2,607,360
------------
Metal Fabrications (0.2%)
40,450 Precision Castparts Corp. ......... 876,956
------------
Miscellaneous Commercial
Services (0.8%)
33,600 Corporate Executive Board
Co.* .............................. 959,280
87,400 Viad Corp. ........................ 1,785,582
------------
2,744,862
------------
Miscellaneous Manufacturing (0.4%)
46,150 Varian, Inc.* ..................... 1,274,202
------------
Office Equipment/Supplies (0.3%)
54,600 Miller (Herman), Inc. ............. 969,696
------------
Oil & Gas Production (4.8%)
59,450 Apache Corp. ...................... 3,534,303
80,600 Brown (Tom), Inc.* ................ 1,845,740
95,150 Cabot Oil & Gas Corp.
(Class A) ......................... 2,045,725
60,250 Kerr-McGee Corp. .................. 2,617,260
86,725 Quicksilver Resources Inc.* ....... 1,561,050
271,600 XTO Energy Inc. ................... 5,597,676
------------
17,201,754
------------
Oilfield Services/Equipment (1.5%)
53,400 BJ Services Co.* .................. 1,388,400
255,300 Key Energy Services, Inc.* ........ 2,011,764
63,000 Smith International, Inc.* ........ 1,846,530
------------
5,246,694
------------
Other Consumer Services (3.5%)
61,600 Block (H.&R.), Inc. ............... 2,587,816
81,950 Career Education Corp.* ........... 3,934,256
64,050 Corinthian Colleges, Inc.* ........ 2,417,247
87,750 Weight Watchers International,
Inc.* ............................. 3,804,840
------------
12,744,159
------------

See Notes to Financial Statements
33

Morgan Stanley Developing Growth Securities Trust
PORTFOLIO OF INVESTMENTS [|] SEPTEMBER 30, 2002 continued

NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------------

Packaged Software (2.4%)
42,650 Mercury Interactive Corp.* .......... $ 731,874
38,000 NetIQ Corp.* ........................ 551,000
102,600 Network Associates, Inc.* ........... 1,090,638
79,050 Quest Software, Inc.* ............... 743,070
80,700 Serena Software, Inc.* .............. 968,400
71,800 Symantec Corp.* ..................... 2,417,506
263,450 TIBCO Software, Inc.* ............... 987,938
157,475 TTI Team Telecom International
Ltd. (Israel)* ...................... 1,067,681
------------
8,558,107
------------
Pharmaceuticals: Other (1.9%)
28,900 Altana AG (ADR) (Germany) ........... 1,075,080
66,300 Cima Labs, Inc.* .................... 1,667,445
37,000 Forest Laboratories, Inc.* .......... 3,034,370
14,500 Teva Pharmaceutical Industries
Ltd. (ADR) (Israel) ................. 971,500
------------
6,748,395
------------
Property - Casualty Insurers (0.7%)
64,500 RenaissanceRe Holdings Ltd.
(Bermuda) ........................... 2,437,455
------------
Pulp & Paper (0.3%)
110,850 Wausau-Mosinee Paper Corp............ 1,020,929
------------
Recreational Products (1.3%)
76,650 Activision, Inc.* ................... 1,834,235
42,150 International Game
Technology* ......................... 2,914,251
------------
4,748,486
------------
Regional Banks (2.0%)
108,100 Banknorth Group, Inc. ............... 2,567,375
76,050 Hibernia Corp. (Class A) ............ 1,520,240
77,400 North Fork Bancorporation,
Inc. ................................ 2,928,816
------------
7,016,431
------------

NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------------

Restaurants (3.6%)
91,050 AFC Enterprises, Inc.* .............. $ 1,838,300
75,100 CBRL Group, Inc. .................... 1,713,782
54,950 Jack in the Box Inc.* ............... 1,252,860
52,600 P.F. Chang's China Bistro, Inc.*. 1,526,978
162,900 Sonic Corp.* ........................ 3,762,990
82,550 Wendy's International, Inc. ......... 2,733,231
------------
12,828,141
------------
Savings Banks (1.0%)
97,300 New York Community Bancorp,
Inc. ................................ 2,740,941
51,300 Staten Island Bancorp, Inc. ......... 892,620
------------
3,633,561
------------
Semiconductors (2.6%)
219,450 Advanced Micro Devices,
Inc.* ............................... 1,171,863
47,100 Cypress Semiconductor
Corp.* .............................. 308,976
236,850 Exar Corp.* ......................... 2,735,618
68,100 Integrated Device Technology,
Inc.* ............................... 710,964
21,600 International Rectifier Corp.* ...... 337,392
25,300 Intersil Corp. (Class A)* ........... 327,888
52,100 Marvell Technology Group Ltd.
(Bermuda)* .......................... 825,785
48,050 Micrel, Inc.* ....................... 295,988
95,112 Microchip Technology Inc.* .......... 1,945,040
62,700 Power Integrations, Inc.* ........... 764,313
------------
9,423,827
------------
Services to the Health
Industry (3.7%)
72,800 Accredo Health, Inc.* ............... 3,469,357
288,050 Stericycle, Inc.* ................... 9,770,656
------------
13,240,013
------------

See Notes to Financial Statements
34

Morgan Stanley Developing Growth Securities Trust
PORTFOLIO OF INVESTMENTS [|] SEPTEMBER 30, 2002 continued

NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------------

Specialty Stores (4.1%)
22,650 AutoZone, Inc.* ...................... $ 1,786,179
61,800 Kirkland's, Inc. ..................... 1,056,780
63,450 Michaels Stores, Inc.* ............... 2,899,665
441,450 Office Depot, Inc.* .................. 5,447,493
84,600 Tractor Supply Company ............... 2,688,588
39,500 Williams-Sonoma, Inc.* ............... 933,385
-----------
14,812,090
-----------
Telecommunication
Equipment (0.8%)
23,500 Advanced Fibre
Communications, Inc.* ................ 311,845
24,000 Harris Corp. ......................... 803,760
62,300 RF Micro Devices, Inc.* .............. 373,800
145,050 Tekelec* ............................. 1,251,782
-----------
2,741,187
-----------
Trucking (0.8%)
74,800 Arkansas Best Corp.* ................. 2,146,087
11,450 Landstar System, Inc.* ............... 563,340
-----------
2,709,427
-----------
Trucks/Construction/Farm
Machinery (0.8%)
123,000 AGCO Corp.* .......................... 2,853,600
-----------
Water Utilities (1.4%)
250,450 Philadelphia Suburban Corp. .......... 5,084,135
-----------
Wireless
Telecommunications (0.8%)
364,900 Nextel Communications, Inc.
(Class A)* ........................... 2,754,995
-----------
Total Common Stocks
(Cost $388,810,357)................... 349,486,738
-----------

PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ----------------------------------------------------------

Total Investments
(Cost $402,096,357)(b)......... 100.8% 362,772,738
Liabilities in Excess of Other
Assets ........................ ( 0.8) (2,967,861)
----- ------------
Net Assets .................... 100.0% $359,804,877
===== ============

- ---------------------------
ADR American Depository Receipt.
* Non-income producing security.
(a) Collateralized by federal agency and U.S. Treasury obligations.
(b) The aggregate cost for federal income tax purposes approximates the
aggregate cost for book purposes. The aggregate gross unrealized
appreciation is $12,653,111 and the aggregate gross unrealized
depreciation is $51,976,730, resulting in net unrealized depreciation of
$39,323,619.

See Notes to Financial Statements
35

Morgan Stanley Developing Growth Securities Trust
FINANCIAL STATEMENTS

Statement of Assets and Liabilities
September 30, 2002

Assets:

Investments in securities, at value
(cost $402,096,357) .............................................. $362,772,738
Receivable for:
Investments sold ................................................ 9,923,038
Shares of beneficial interest sold .............................. 489,694
Dividends ....................................................... 123,404
Prepaid expenses and other assets ................................. 62,311
------------
Total Assets .................................................... 373,371,185
------------
Liabilities:
Payable for:
Investments purchased ........................................... 12,537,944
Shares of beneficial interest redeemed .......................... 443,318
Distribution fee ................................................ 255,058
Investment management fee ....................................... 159,883
Accrued expenses and other payables ............................... 170,105
------------
Total Liabilities ............................................... 13,566,308
------------
Net Assets ...................................................... $359,804,877
============
Composition of Net Assets:
Paid-in-capital ................................................... $712,986,840
Net unrealized depreciation ....................................... (39,323,619)
Accumulated net investment loss ................................... (57,561)
Accumulated net realized loss ..................................... (313,800,783)
------------
Net Assets ...................................................... $359,804,877
============
Class A Shares:
Net Assets ........................................................ $14,826,229
Shares Outstanding (unlimited authorized, $.01 par value) ......... 1,183,924
Net Asset Value Per Share ....................................... $12.52
======
Maximum Offering Price Per Share,
(net asset value plus 5.54% of net asset value) ................. $13.21
======
Class B Shares:
Net Assets ........................................................ $276,386,667
Shares Outstanding (unlimited authorized, $.01 par value) ......... 23,303,833
Net Asset Value Per Share ....................................... $11.86
======
Class C Shares:
Net Assets ........................................................ $5,985,832
Shares Outstanding (unlimited authorized, $.01 par value) ......... 503,666
Net Asset Value Per Share ....................................... $11.88
======
Class D Shares:
Net Assets ........................................................ $62,606,149
Shares Outstanding (unlimited authorized, $.01 par value) ......... 4,920,949
Net Asset Value Per Share ....................................... $12.72
======

See Notes to Financial Statements
36

Morgan Stanley Developing Growth Securities Trust
FINANCIAL STATEMENTS continued

Statement of Operations
For the year ended September 30, 2002

Net Investment Loss:
Income

Dividends (net of $8,512 foreign withholding tax) .............................. $ 1,444,632
Interest ....................................................................... 304,221
--------------
Total Income ................................................................. 1,748,853
--------------
Expenses
Distribution fee (Class A shares) .............................................. 42,703
Distribution fee (Class B shares) .............................................. 4,205,451
Distribution fee (Class C shares) .............................................. 84,799
Investment management fee ...................................................... 2,571,712
Transfer agent fees and expenses ............................................... 1,198,043
Shareholder reports and notices ................................................ 116,668
Custodian fees ................................................................. 74,854
Registration fees .............................................................. 68,869
Professional fees .............................................................. 63,924
Trustees' fees and expenses .................................................... 21,175
Other .......................................................................... 16,144
--------------
Total Expenses ............................................................... 8,464,342
--------------
Net Investment Loss .......................................................... (6,715,489)
--------------
Net Realized and Unrealized Gain (Loss):
Net realized loss on investments ............................................... (100,007,116)
--------------
Net change in unrealized appreciation/depreciation on:
Investments .................................................................. 31,061,014
Translation of other assets and liabilities denominated in foreign currencies (53,522)
--------------
Net Appreciation ............................................................. 31,007,492
--------------
Net Loss ..................................................................... (68,999,624)
--------------
Net Decrease ................................................................... $ (75,715,113)
==============

See Notes to Financial Statements
37

Morgan Stanley Developing Growth Securities Trust
FINANCIAL STATEMENTS continued

Statement of Changes in Net Assets

FOR THE YEAR FOR THE YEAR
ENDED ENDED
SEPTEMBER 30, 2002 SEPTEMBER 30, 2001
-------------------- -------------------

Increase (Decrease) in Net Assets:
Operations:
Net investment loss ....................................................... $ (6,715,489) $ (5,867,439)
Net realized loss ......................................................... (100,007,116) (205,235,961)
Net change in unrealized depreciation ..................................... 31,007,492 (299,951,071)
------------ --------------
Net Decrease ............................................................ (75,715,113) (511,054,471)
------------ --------------
Distributions to Shareholders from Net Realized Gain:
Class A shares ............................................................ - (8,633,350)
Class B shares ............................................................ - (228,663,213)
Class C shares ............................................................ - (4,113,498)
Class D shares ............................................................ - (16,123,431)
------------ --------------
Total Distributions ..................................................... - (257,533,492)
------------ --------------
Net increase (decrease) from transactions in shares of beneficial interest (91,266,754) 111,547,323
------------ --------------
Net Decrease ............................................................ (166,981,867) (657,040,640)

Net Assets:
Beginning of period ....................................................... 526,786,744 1,183,827,384
------------ --------------
End of Period
(Including accumulated net investment losses of $57,561 and $54,294,
respectively) ............................................................ $359,804,877 $ 526,786,744
============ =============

See Notes to Financial Statements
38

Morgan Stanley Developing Growth Securities Trust
NOTES TO FINANCIAL STATEMENTS [|] SEPTEMBER 30, 2002

1. Organization and Accounting Policies
Morgan Stanley Developing Growth Securities Trust (the "Fund") is registered
under the Investment Company Act of 1940, as amended (the "Act"), as a
diversified, open-end management investment company. The Fund's investment
objective is long-term capital growth. The Fund was organized as a
Massachusetts business trust on December 28, 1982 and commenced operations on
April 29, 1983. On July 28, 1997, the Fund converted to a multiple class share
structure.

The Fund offers Class A shares, Class B shares, Class C shares and Class D
shares. The four classes are substantially the same except that most Class A
shares are subject to a sales charge imposed at the time of purchase and some
Class A shares, and most Class B shares and Class C shares are subject to a
contingent deferred sales charge imposed on shares redeemed within one year,
six years and one year, respectively. Class D shares are not subject to a sales
charge. Additionally, Class A shares, Class B shares and Class C shares incur
distribution expenses.

The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts and disclosures. Actual results could differ
from those estimates.

The following is a summary of significant accounting policies:

A. Valuation of Investments -- (1) an equity portfolio security listed or traded
on the New York or American Stock Exchange, Nasdaq, 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 latest bid price; (2) all
other portfolio securities for which over-the-counter market quotations are
readily available are valued at the latest available bid price (in cases where
securities are traded on more than one exchange, the securities are valued on
the exchange designated as the primary market pursuant to procedures adopted by
the Trustees); (3) when market quotations are not readily available, including
circumstances under which it is determined by Morgan Stanley Investment
Advisors Inc. (the "Investment Manager") that sale or bid prices are not
reflective of a security's market value, portfolio securities are valued at
their fair value as determined in good faith under procedures established by
and under the general supervision of the Trustees (valuation of debt securities
for which market quotations are not readily available may be based upon current
market prices of securities which are comparable in coupon, rating and maturity
or an appropriate matrix utilizing similar factors); and (4) short-term debt
securities having a maturity date of more than sixty days at time of purchase
are valued on a mark-to-market basis until sixty days prior to maturity and
thereafter at amortized cost based on their value on the 61st day. Short-term
debt securities having a maturity date of sixty days or less at the time of
purchase are valued at amortized cost.

Morgan Stanley Developing Growth Securities Trust
NOTES TO FINANCIAL STATEMENTS [|] SEPTEMBER 30, 2002 continued

B. Accounting for Investments -- Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined by the identified cost method.
Dividend income and other distributions are recorded on the ex-dividend date.
Discounts are accreted and premiums are amortized over the life of the
respective securities. Interest income is accrued daily.

C. Joint Repurchase Agreement Account -- Pursuant to an Exemptive Order issued
by the Securities and Exchange Commission, the Fund, along with other
affiliated entities managed by the Investment Manager, may transfer uninvested
cash balances into one or more joint repurchase agreement accounts. These
balances are invested in one or more repurchase agreements and are
collateralized by cash, or U.S. Treasury or federal agency obligations.

D. Multiple Class Allocations -- Investment income, expenses (other than
distribution fees), and realized and unrealized gains and losses are allocated
to each class of shares based upon the relative net asset value on the date
such items are recognized. Distribution fees are charged directly to the
respective class.

E. Foreign Currency Translation -- The books and records of the Fund are
maintained in U.S. dollars as follows: (1) the foreign currency market value of
investment securities, other assets and liabilities and forward foreign
currency contracts ("forward contracts") are translated at the exchange rates
prevailing at the end of the period; and (2) purchases, sales, income and
expenses are translated at the exchange rates prevailing on the respective
dates of such transactions. The resultant exchange gains and losses are
included in the Statement of Operations. Pursuant to U.S. Federal income tax
regulations, certain foreign exchange gains/losses included in realized and
unrealized gain/loss are included in or are a reduction of ordinary income for
federal income tax purposes. The Fund does not isolate that portion of the
results of operations arising as a result of changes in the foreign exchange
rates from the changes in the market prices of the securities.

F. Forward Foreign Currency Contracts -- The Fund may enter into forward
contracts which are valued daily at the appropriate exchange rates. The
resultant unrealized exchange gains and losses are included in the Statement of
Operations. The Fund records realized gains or losses on delivery of the
currency or at the time the forward contract is extinguished (compensated) by
entering into a closing transaction prior to delivery.

G. Federal Income Tax Status -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute substantially all of its taxable income to its
shareholders. Accordingly, no federal income tax provision is required.

H. Dividends and Distributions to Shareholders -- The Fund records dividends and
distributions to its shareholders on the ex-dividend date. The amount of
dividends and distributions from net investment

Morgan Stanley Developing Growth Securities Trust
NOTES TO FINANCIAL STATEMENTS [|] SEPTEMBER 30, 2002 continued

income and net realized capital gains are determined in accordance with federal
income tax regulations which may differ from generally accepted accounting
principles. These "book/tax" differences are either considered temporary or
permanent in nature. To the extent these differences are permanent in nature,
such amounts are reclassified within the capital accounts based on their
federal tax-basis treatment; temporary differences do not require
reclassification. Dividends and distributions which exceed net investment
income and net realized capital gains for financial reporting purposes but not
for tax purposes are reported as dividends in excess of net investment income
or distributions in excess of net realized capital gains. To the extent they
exceed net investment income and net realized capital gains for tax purposes,
they are reported as distributions of paid-in-capital.

2. Investment Management Agreement
Pursuant to an Investment Management Agreement, the Fund pays the Investment
Manager a management fee, accrued daily and payable monthly, by applying the
following annual rates to the net assets of the Fund determined as of the close
of each business day: 0.50% to the portion of the daily net assets not
exceeding $500 million and 0.475% to the portion of the daily net assets
exceeding $500 million.

3. Plan of Distribution
Shares of the Fund are distributed by Morgan Stanley Distributors Inc. (the
"Distributor"), an affiliate of the Investment Manager. The Fund has adopted a
Plan of Distribution (the "Plan") pursuant to Rule 12b-1 under the Act. The
Plan provides that the Fund will pay the Distributor a fee which is accrued
daily and paid monthly at the following annual rates: (i) Class A - up to 0.25%
of the average daily net assets of Class A; (ii) Class B - 1.0% of the lesser
of: (a) the average daily aggregate gross sales of the Class B shares since the
inception of the Fund (not including reinvestment of dividend or capital gain
distributions) less the average daily aggregate net asset value of the Class B
shares redeemed since the Fund's inception upon which a contingent deferred
sales charge has been imposed or waived; or (b) the average daily net assets of
Class B; and (iii) Class C - up to 1.0% of the average daily net assets of
Class C.

In the case of Class B shares, provided that the Plan continues in effect, any
cumulative expenses incurred by the Distributor but not yet recovered may be
recovered through the payment of future distribution fees from the Fund
pursuant to the Plan and contingent deferred sales charges paid by investors
upon redemption of Class B shares. 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 contingent deferred sales charges 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. The Distributor has advised the Fund that such excess amounts totaled
$10,835,065 at September 30, 2002.

Morgan Stanley Developing Growth Securities Trust
NOTES TO FINANCIAL STATEMENTS [|] SEPTEMBER 30, 2002 continued

In the case of Class A shares and Class C shares, expenses incurred pursuant to
the Plan in any calendar year in excess of 0.25% or 1.0% of the average daily
net assets of Class A or Class C, respectively, will not be reimbursed by the
Fund through payments in any subsequent year, except that expenses representing
a gross sales credit to Morgan Stanley Financial Advisors or other selected
broker-dealer representatives may be reimbursed in the subsequent calendar
year. For the year ended September 30, 2002, the distribution fee was accrued
for Class A shares and Class C shares at the annual rate of 0.22% and 1.0%,
respectively.

4. Security Transactions and Transactions with Affiliates
The cost of purchases and proceeds from sales of portfolio securities,
excluding short-term investments, for the year ended September 30, 2002
aggregated $1,176,423,502 and $1,261,784,969, respectively. Included in the
aforementioned transactions are purchases and sales of $1,440,768, and
$2,796,843, respectively for portfolio transactions with other Morgan Stanley
funds.

Morgan Stanley Trust, an affiliate of the Investment Manager and Distributor,
is the Fund's transfer agent. At September 30, 2002, the Fund had transfer
agent fees and expenses payable of approximately $9,000.

Morgan Stanley Developing Growth Securities Trust
NOTES TO FINANCIAL STATEMENTS [|] SEPTEMBER 30, 2002 continued

5. Federal Income Tax Status
At September 30, 2002, the Fund had a net capital loss carryover of
approximately $221,854,000 of which $8,839,000 will be available through
September 30, 2009 and $213,015,000 will be available through September 30,
2010 to offset future capital gains to the extent provided by regulations.

As of September 30, 2002, the Fund had temporary book/tax differences primarily
attributable to post-October losses and capital loss deferrals on wash sales
and permanent book/tax differences attributable to a net operating loss. To
reflect reclassifications arising from the permanent differences,
paid-in-capital was charged and accumulated net investment loss was credited
$6,712,222.

Morgan Stanley Developing Growth Securities Trust
NOTES TO FINANCIAL STATEMENTS [|] SEPTEMBER 30, 2002 continued

6. Shares of Beneficial Interest
Transactions in shares of beneficial interest were as follows:

CLASS A SHARES
Sold .................................. 686,292 $ 11,260,111 3,511,052 $ 80,627,927
Reinvestment of distributions ......... - - 356,031 8,462,852
Redeemed .............................. (680,071) (11,127,780) (3,855,483) (88,622,594)
-------- -------------- ---------- --------------
Net increase - Class A ................ 6,221 132,331 11,600 468,185
-------- -------------- ---------- --------------
CLASS B SHARES
Sold .................................. 1,654,466 26,324,800 5,455,595 122,882,363
Reinvestment of distributions ......... - - 9,278,074 211,911,212
Redeemed .............................. (8,923,340) (136,371,716) (12,939,700) (273,869,776)
---------- -------------- ----------- --------------
Net increase (decrease) - Class B ..... (7,268,874) (110,046,916) 1,793,969 60,923,799
---------- -------------- ----------- --------------
CLASS C SHARES
Sold .................................. 290,919 4,705,017 282,383 6,343,200
Reinvestment of distributions ......... - - 164,836 3,773,097
Redeemed .............................. (323,089) (5,041,970) (374,074) (7,447,973)
---------- -------------- ----------- --------------
Net increase (decrease) - Class C ..... (32,170) (336,953) 73,145 2,668,324
---------- -------------- ----------- --------------
CLASS D SHARES
Sold .................................. 3,190,532 51,602,672 3,519,024 84,849,271
Reinvestment of distributions ......... - - 592,852 14,269,949
Redeemed .............................. (1,996,435) (32,617,888) (2,136,898) (51,632,205)
---------- -------------- ----------- --------------
Net increase - Class D ................ 1,194,097 18,984,784 1,974,978 47,487,015
---------- -------------- ----------- --------------
Net increase (decrease) in Fund ....... (6,100,726) $ (91,266,754) 3,853,692 $ 111,547,323
========== ============== ========= ==============

7. Purposes of and Risks Relating to Certain Financial Instruments

Forward contracts involve elements of market risk in excess of the amounts
reflected in the Statement of Assets and Liabilities. The Fund bears the risk
of an unfavorable change in the foreign exchange rates underlying the forward
contracts. Risks may also arise upon entering into these contracts from the
potential inability of the counterparties to meet the terms of their contracts.

At September 30, 2002, there were no outstanding forward contracts.

Morgan Stanley Developing Growth Securities Trust
FINANCIAL HIGHLIGHTS

Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:

FOR THE YEAR ENDED SEPTEMBER 30,
-----------------------------------------------------------------
2002 2001 2000 1999 1998
------------- ------------- ----------- ----------- -------------

Class A Shares
Selected Per Share Data:
Net asset value, beginning of period ................... $15.20 $37.74 $31.44 $20.38 $27.50
------ ------ ------ ------ ------
Income (loss) from investment operations:
Net investment loss[+/+]............................... (0.11) 0.00 (0.12) (0.07) (0.06)
Net realized and unrealized gain (loss) ............... (2.57) (14.40) 12.89 11.50 (4.75)
------ ------- ------ ------ ------
Total income (loss) from investment operations ......... (2.68) (14.40) 12.77 11.43 (4.81)
------ ------- ------ ------ ------
Less distributions from net realized gain .............. - (8.14) (6.47) (0.37) (2.31)
------ ------- ------ ------ ------
Net asset value, end of period ......................... $12.52 $15.20 $37.74 $31.44 $20.38
====== ======= ====== ====== ======
Total Return+........................................... (17.63)% (45.93)% 40.16 % 56.81 % (18.26)%

Ratios to Average Net Assets(1):
Expenses ............................................... 1.02 % 0.88 % 0.85 % 0.90 % 0.94 %
Net investment loss .................................... (0.68)% 0.00 % (0.35)% (0.25)% (0.23)%

Supplemental Data:
Net assets, end of period, in thousands ................ $14,826 $17,906 $44,008 $15,246 $5,822
Portfolio turnover rate ................................ 237 % 213 % 184 % 172 % 178 %

- -----------
[+/+] 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.

See Notes to Financial Statements
45

Morgan Stanley Developing Growth Securities Trust
FINANCIAL HIGHLIGHTS continued

FOR THE YEAR ENDED SEPTEMBER 30,
-----------------------------------------------------------------------
2002 2001 2000 1999 1998
------------- ------------- --------------- ------------- -------------

Class B Shares
Selected Per Share Data:
Net asset value, beginning of period ............... $14.51 $36.70 $30.90 $20.19 $27.46
------- ------- ------ ------ -----
Income (loss) from investment operations:
Net investment loss|[+/+].......................... (0.23) (0.18) (0.44) (0.27) (0.20)
Net realized and unrealized gain (loss) ........... (2.42) (13.87) 12.71 11.35 (4.76)
------- ------- ------ ------ ----
Total income (loss) from investment operations ..... (2.65) (14.05) 12.27 11.08 (4.96)
------- ------- ------ ------ ----
Less distributions from net realized gain .......... - (8.14) (6.47) (0.37) (2.31)
------- ------- ------ ------ ----
Net asset value, end of period ..................... $11.86 $14.51 $36.70 $30.90 $20.19
====== ====== ====== ====== ======
Total Return+....................................... (18.26)% (46.37)% 39.12 % 55.59 % (18.88)%

Ratios to Average Net Assets(1):
Expenses ........................................... 1.80 % 1.70 % 1.61 % 1.70 % 1.69 %
Net investment loss ................................ (1.46)% (0.82)% (1.11)% (1.05)% (0.98)%

Supplemental Data:
Net assets, end of period, in thousands ............ $276,387 $443,652 $1,056,116 $770,392 $596,834
Portfolio turnover rate ............................ 237 % 213 % 184 % 172 % 178 %

See Notes to Financial Statements
46

Morgan Stanley Developing Growth Securities Trust
FINANCIAL HIGHLIGHTS continued

FOR THE YEAR ENDED SEPTEMBER 30,
-------------------------------------------------------------------
2002 2001 2000 1999 1998
------------- ------------- ------------- ----------- -------------

Class C Shares
Selected Per Share Data:
Net asset value, beginning of period ................... $14.54 $36.76 $30.95 $20.19 $27.46
------ ------ ------ ------ ------
Income (loss) from investment operations:
Net investment loss[+/+]............................... (0.23) (0.18) (0.42) (0.25) (0.23)
Net realized and unrealized gain (loss) ............... (2.43) (13.90) 12.70 11.38 (4.73)
------ ------ ------ ----- -----
Total income (loss) from investment operations ......... (2.66) (14.08) 12.28 11.13 (4.96)
------ ------ ------ ----- -----
Less distributions from net realized gain .............. - (8.14) (6.47) (0.37) (2.31)
------ ------- ------ ----- -----
Net asset value, end of period ......................... $11.88 $14.54 $36.76 $30.95 $20.19
====== ====== ====== ====== ======
Total Return+........................................... (18.29)% (46.37)% 39.09 % 55.84 % (18.88)%

Ratios to Average Net Assets(1):
Expenses ............................................... 1.80 % 1.70 % 1.61 % 1.58 % 1.69 %
Net investment loss .................................... (1.46)% (0.82)% (1.11)% (0.93)% (0.98)%

Supplemental Data:
Net assets, end of period, in thousands ................ $5,986 $7,793 $17,007 $4,728 $2,185
Portfolio turnover rate ................................ 237 % 213 % 184 % 172 % 178 %

See Notes to Financial Statements
47

Morgan Stanley Developing Growth Securities Trust
FINANCIAL HIGHLIGHTS continued

FOR THE YEAR ENDED SEPTEMBER 30,
-----------------------------------------------------------------
2002 2001 2000 1999 1998
------------- ------------- ----------- ----------- -------------

Class D Shares
Selected Per Share Data:
Net asset value, beginning of period ................... $15.41 $38.07 $31.60 $20.44 $27.51
------ ------ ------ ------ ------
Income (loss) from investment operations:
Net investment income (loss)[+/+]...................... (0.07) 0.03 0.03 (0.01) 0.01
Net realized and unrealized gain (loss) ............... (2.62) (14.55) 12.91 11.54 (4.77)
------ ------ ------ ------ ------
Total income (loss) from investment operations ......... (2.69) (14.52) 12.94 11.53 (4.76)
------ ------ ------ ------ ------
Less distributions from net realized gain .............. - (8.14) (6.47) (0.37) (2.31)
------ ------ ------ ------ ------
Net asset value, end of period ......................... $12.72 $15.41 $38.07 $31.60 $20.44
====== ====== ====== ====== ======
Total Return+........................................... (17.46)% (45.83)% 40.53 % 57.14 % (18.05)%

Ratios to Average Net Assets(1):
Expenses ............................................... 0.80 % 0.70 % 0.61 % 0.70 % 0.69 %
Net investment income (loss) ........................... (0.46)% 0.18 % (0.11)% (0.05)% 0.02 %

Supplemental Data:
Net assets, end of period, in thousands ................ $62,606 $57,436 $66,696 $6,625 $3,291
Portfolio turnover rate ................................ 237 % 213 % 184 % 172 % 178 %

- -----------
[+/+] 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.

See Notes to Financial Statements
48

Morgan Stanley Developing Growth Securities Trust
INDEPENDENT AUDITORS' REPORT

To the Shareholders and Board of Trustees of
Morgan Stanley Developing Growth Securities Trust:

We have audited the accompanying statement of assets and liabilities of Morgan
Stanley Developing Growth Securities Trust (the "Fund"), including the
portfolio of investments, as of September 30, 2002, and the related statements
of operations for the year then ended and changes in net assets for each of the
two years in the period then ended, and the financial highlights for each of
the five years in the period then ended. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures
included confirmation of securities owned as of September 30, 2002, by
correspondence with the custodian and brokers; where replies were not received
from brokers, we performed other auditing procedures. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Morgan Stanley Developing Growth Securities Trust as of September 30, 2002, the
results of its operations for the year then ended, the changes in its net
assets for each of the two years in the period then ended, and the financial
highlights for each of the five years in the period then ended, in conformity
with accounting principles generally accepted in the United States of America.

Deloitte & Touche LLP
New York, New York
November 8, 2002

STATEMENT OF ADDITIONAL INFORMATION
MORGAN STANLEY NEXT
September 30, 2002 GENERATION
TRUST

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

This Statement of Additional Information is not a prospectus. The
Prospectus (dated September 30, 2002) for the Morgan Stanley Next Generation
Trust may be obtained without charge from the Fund at its address or telephone
number listed below or from Morgan Stanley DW Inc. at any of its branch offices.

Morgan Stanley Next Generation Trust
1221 Avenue of the Americas
New York, NY 10020
(800) 869-NEWS

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

I. Fund History ................................................. 4
II. Description of the Fund and Its Investments and Risks ........ 4
A. Classification .......................................... 4
B. Investment Strategies and Risks ......................... 4
C. Fund Policies/Investment Restrictions ................... 13
III. Management of the Fund ....................................... 14
A. Board of Trustees ....................................... 14
B. Management Information .................................. 14
C. Compensation ............................................ 19
IV. Control Persons and Principal Holders of Securities .......... 21
V. Investment Management and Other Services ..................... 21
A. Investment Manager ...................................... 21
B. Principal Underwriter ................................... 22
C. Services Provided by the Investment Manager ............. 23
D. Dealer Reallowances ..................................... 24
E. Rule 12b-1 Plan ......................................... 24
F. Other Service Providers ................................. 28
G. Codes of Ethics ......................................... 28
VI. Brokerage Allocation and Other Practices ..................... 28
A. Brokerage Transactions .................................. 28
B. Commissions ............................................. 29
C. Brokerage Selection ..................................... 29
D. Directed Brokerage ...................................... 30
E. Regular Broker-Dealers .................................. 30
VII. Capital Stock and Other Securities ........................... 30
VIII. Purchase, Redemption and Pricing of Shares ................... 31
A. Purchase/Redemption of Shares ........................... 31
B. Offering Price .......................................... 32
IX. Taxation of the Fund and Shareholders ........................ 33
X. Underwriters ................................................. 34
XI. Calculation of Performance Data .............................. 35
XII. Financial Statements ......................................... 36

GLOSSARY OF SELECTED DEFINED TERMS

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

"Custodian" - The Bank of New York.

"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 Next Generation Trust, a registered open-end
investment company.

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

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

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

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

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

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

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

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

I. FUND HISTORY
- --------------------------------------------------------------------------------
The Fund was organized as a Massachusetts business trust, under a
Declaration of Trust, on July 8, 1999 with the name Morgan Stanley Dean Witter
Next Generation Trust. Effective June 18, 2001, the Fund's name was changed to
Morgan Stanley Next Generation Trust.

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

The Fund is an open-end management investment company whose investment
objective is to seek long-term growth of capital.

B. INVESTMENT STRATEGIES AND RISKS

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. The Fund may enter into
forward foreign currency exchange contracts ("forward contracts") to facilitate
settlement or in an attempt to limit the effect of changes in the relationship
between the U.S. dollar and the foreign currency 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 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
will only be entered into with United States banks and their foreign branches,
insurance companies or other dealers or foreign banks whose assets total $1
billion or more. A forward contract generally has no deposit requirement, and no
commissions are charged at any stage for trades.

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

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

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

Although the Fund values its assets daily in terms of U.S. dollars, it does
not intend to convert its holdings of foreign currencies into U.S. dollars on a
daily basis. It will, however, do so from time to time, and investors should be
aware of the costs of currency conversion. Although foreign exchange dealers do
not charge a fee for conversion, they do realize a profit based on the spread
between the prices at

which they are buying and selling various currencies. Thus, a dealer may offer
to sell a foreign currency to the Fund at one rate, while offering a lesser rate
of exchange should the Fund desire to resell that currency to the dealer.

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

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

OPTION AND FUTURES TRANSACTIONS. The Fund may engage in transactions in
listed and OTC options. Listed options are issued or guaranteed by the exchange
on which they are traded or by a clearing corporation such as the Options
Clearing Corporation ("OCC"). Ownership of a listed call option gives the Fund
the right to buy from the OCC (in the U.S.) 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 U.S.) 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 U.S.) 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 U.S.) 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, without limit. The Fund will receive from the
purchaser, in return for a call it has written, a "premium;" i.e., the price of
the option. Receipt of these premiums may better enable the Fund to earn a
higher level of current income than it would earn from holding the underlying
securities 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 when 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.

Options written by the Fund normally have expiration dates of up to
eighteen 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). At any time during the option period, the Fund may be required
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 same security as the put written where the exercise price of the put held is
equal to or greater than the exercise price of the put written. The aggregate
value of the obligations underlying puts may not exceed 50% of the Fund's net
assets. The operation of and limitations on covered put options in other
respects are substantially identical to those of call options.

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

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

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

Risks of Options Transactions. The successful use of options depends on the
ability of the Investment Manager, to forecast correctly interest rates 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 the option less the premium received on the
sale of the option. In both cases, the writer has no control over the time when
it may be required to fulfill its obligation as a writer of the option. Prior to
exercise or expiration, an option position can only be terminated by entering
into a closing purchase or sale transaction. Once an option writer has received
an exercise notice, it cannot effect a closing purchase transaction in order to
terminate its obligation under the option and must deliver or receive the
underlying securities at the exercise price.

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

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

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

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

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

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

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

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

A futures contract purchaser incurs an obligation to take delivery of a
specified amount of the obligation underlying the contract at a specified time
in the future for a specified price. A seller of a futures contract incurs an
obligation to deliver the specified amount of the underlying obligation at a
specified time in return for an agreed upon price. The purchase of a futures
contract enables the Fund, during the term of the contract, to lock in a price
at which it may purchase a security 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 contracts provide for
the delivery of an amount of cash equal to a specified dollar amount times the
difference between the index value at the open or close of the last trading day
of the contract and the futures contract price. A futures contract sale is
closed out by effecting a futures contract purchase for the same aggregate
amount of the specific type of security and the same delivery date. If the sale
price exceeds the offsetting purchase price, the seller would be paid the
difference and would realize a gain. If the offsetting purchase price exceeds
the sale price, the seller would pay the difference and would realize a loss.
Similarly, a futures contract purchase is closed out by effecting a futures
contract sale for the same aggregate amount of the specific type of security and
the same delivery date. If the offsetting sale price exceeds the purchase price,
the purchaser would realize a gain, whereas if the purchase price exceeds the
offsetting sale price, the purchaser would realize a loss. There is no assurance
that the Fund will be able to enter into a closing transaction.

Margin. If the Fund enters into a futures contract, it is initially
required to deposit an "initial margin" of cash, or 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, or U.S. government
securities or other liquid portfolio securities, called "variation margin,"
which are reflective of price fluctuations in the futures contract.

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

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

Limitations on Futures Contracts and Options on Futures. The Fund may not
enter into futures contracts or purchase related options thereon if, immediately
thereafter, the amount committed to margin plus the amount paid for premiums for
unexpired options on futures contracts exceeds 5% of the value of the Fund's
total assets, after taking into account unrealized gains and unrealized losses
on such contracts into which it has entered; provided, however, that in the case
of an option that is in-the-money (the exercise price of the call (put) option
is less (more) than the market price of the underlying security) at the time of
purchase, the in-the-money amount may be excluded in calculating the 5%.
However, 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 securities (and the currencies in which they are denominated).
Also, prices of futures contracts may not move in tandem with the changes in
prevailing interest rates, market movements and/or currency exchange rates
against which the Fund seeks a hedge. A correlation may also be distorted (a)
temporarily, by short-term traders seeking to profit from the difference between
a contract or security price objective and their cost of borrowed funds; (b) by
investors in futures contracts electing to close out their contracts through
offsetting transactions rather than meet margin deposit requirements; (c) by
investors in futures contracts opting to make or take delivery of underlying
securities rather than engage in closing transactions, thereby reducing
liquidity of the futures market; and (d) temporarily, by speculators who view
the deposit requirements in the futures markets as less onerous than margin
requirements in the cash market. Due to the possibility of price distortion in
the futures market and because of the possible imperfect correlation between
movements in the prices of securities and movements in the prices of futures
contracts, a correct forecast of interest rate, currency exchange rate and/or
market movement trends by the Investment Manager may still not result in a
successful hedging transaction.

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

Exchanges also limit the amount by which the price of a futures contract
may move on any day. If the price moves equal 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 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 money market securities in
which the Fund may otherwise invest, the Fund may invest in various money market
securities for cash management purposes or when assuming a temporary defensive
position, which among others may include commercial paper, bank 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:

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

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

Fully Insured Certificates of Deposit. Certificates of deposit of banks and
savings institutions, having total assets of less than $1 billion, if the
principal amount of the obligation is federally insured by the Bank Insurance
Fund or the Savings Association Insurance Fund (each of which is administered by
the FDIC), limited to $100,000 principal amount per certificate and to 15% or
less of the Fund's total assets in all such obligations and in all illiquid
assets, in the aggregate;

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

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

basis. 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.

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

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

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

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

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

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

WHEN-ISSUED AND DELAYED DELIVERY SECURITIES AND FORWARD COMMITMENTS. From
time to time the Fund may purchase securities on a when-issued or delayed
delivery basis or may purchase or sell

securities on a forward commitment basis. When these transactions are
negotiated, the price is fixed at the time of the commitment, but delivery and
payment can take place a month or more after the date of commitment. While the
Fund will only purchase securities on a when-issued, delayed delivery or forward
commitment basis with the intention of acquiring the securities, the Fund may
sell the securities before the settlement date, if it is deemed advisable. The
securities so purchased or sold are subject to market fluctuation and no
interest or dividends accrue to the purchaser prior to the settlement date.

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

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

An increase in the percentage of the Fund's total assets committed to the
purchase of securities on a "when, as and if issued" basis may increase the
volatility of its net asset value. The Fund may also sell securities on a "when,
as and if issued" basis provided that the issuance of the security will result
automatically from the exchange or conversion of a security owned by the Fund at
the time of sale.

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

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

WARRANTS AND SUBSCRIPTION RIGHTS. The Fund may acquire warrants and/or
rights which are 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 corporations issuing them.

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

C. FUND POLICIES/INVESTMENT RESTRICTIONS

The investment objective, policies and restrictions listed below have been
adopted by the Fund as fundamental policies. Under the Investment Company Act of
1940, as amended (the "Investment Company Act"), a fundamental policy may not be
changed without the vote of a majority of the outstanding voting securities of
the Fund. The Investment Company Act defines a majority as the lesser of (a) 67%
or more of the shares present at a meeting of shareholders, if the holders of
50% of the outstanding shares of the Fund are present or represented by proxy;
or (b) more than 50% of the outstanding shares of the Fund. For purposes of the
following restrictions: (i) all percentage limitations apply immediately after a
purchase or initial investment; and (ii) any subsequent change in any applicable
percentage resulting from market fluctuations or other changes in total or net
assets does not require elimination of any security from the portfolio.

The Fund will:

1. Seek long-term growth of capital.

The Fund may not:

1. As to 75% of its total assets, invest more than 5% of the value of its
total assets in the securities of any one issuer (other than obligations
issued, or guaranteed by, the United States Government, its agencies or
instrumentalities).

2. As to 75% of its total assets, purchase more than 10% of the outstanding
voting securities or any class of securities of any one issuer.

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

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

5. Borrow money, except that the Fund may borrow from a bank for temporary
or emergency purposes in amounts not exceeding 5% (taken at the lower of
cost or current value) of its total assets (not including the amount
borrowed).

6. Issue senior securities as defined in the Investment Company Act except
insofar as the Fund may be deemed to have issued a senior security by
reason of (a) entering into any repurchase agreement; (b) purchasing any
securities on a when-issued or delayed delivery basis; (c) purchasing or
selling any futures contracts; (d) borrowing money; or (e) lending
portfolio securities.

7. Make loans of money or securities, except: (a) by the purchase of
portfolio securities; (b) by investment in repurchase agreements; or (c)
by lending its portfolio securities.

8. Purchase or sell commodities or commodities contracts except that the
Fund may purchase or sell futures contracts or options thereon.

9. 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.

In addition, as a non-fundamental policy, the Fund may not invest in other
investment companies in reliance on Section 12(d)(1)(F), 12(d)(1)(G) or
12(d)(1)(J) of the Investment Company Act.

PORTFOLIO TURNOVER

For the fiscal years ended July 31, 2001 and 2002, the Fund's portfolio
turnover rates were 278% and 166%, respectively. This variation resulted from
the portfolio managers' response to varying market conditions.

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

A. BOARD OF TRUSTEES

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 eight (8)
Trustees. These same individuals also serve as directors or trustees for all of
the Morgan Stanley Funds. Five Trustees have no affiliation or business
connection with the Investment Manager or any of its affiliated persons and do
not own any stock or other securities issued by the Investment Manager's parent
company, Morgan Stanley. These are the "non-interested" or "independent"
Trustees ("Independent Trustees"). The other three Trustees (the "Management
Trustees") are affiliated with the Investment Manager.

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

Michael Bozic (61) Trustee Trustee Retired; Director or Trustee of 129 Director of Weirton
c/o Mayer, Brown, Rowe & Maw since the Morgan Stanley Funds and Steel Corporation.
Counsel to the Independent April the TCW/DW Term Trusts;
Trustees 1994 formerly Vice Chairman of
1675 Broadway Kmart Corporation (December
New York, NY 1998-October 2000), Chairman
and Chief Executive Officer of
Levitz Furniture Corporation (November
1995-November 1998) and President and
Chief Executive Officer of Hills
Department Stores (May 1991-July 1995);
formerly variously Chairman, Chief
Executive Officer, President and Chief
Operating Officer (1987-1991) of the
Sears Merchandise Group of Sears,
Roebuck & Co.

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

Edwin J. Garn (69) Trustee Trustee
c/o Summit Ventures LLC since
1 Utah Center January
201 S. Main Street 1993
Salt Lake City, UT
Wayne E. Hedien (68) Trustee Trustee
c/o Mayer, Brown, Rowe & Maw since
Counsel to the Independent September
Trustees 1997
1675 Broadway
New York, NY
Dr. Manuel H. Johnson (53) Trustee Trustee
c/o Johnson Smick since
International, Inc. July 1991
1133 Connecticut Avenue, N.W.
Washington, D.C.
Michael E. Nugent (66) Trustee Trustee
c/o Triumph Capital, L.P. since
237 Park Avenue July 1991
New York, NY

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

Edwin J. Garn (69) Director or Trustee of the 129 Director of Franklin
c/o Summit Ventures LLC Morgan Stanley Funds and the Covey (time
1 Utah Center TCW/DW Term Trusts; formerly management
201 S. Main Street United States Senator (R-Utah) systems), BMW Bank
Salt Lake City, UT (1974-1992) and Chairman, of North America,
Senate Banking Committee Inc. (industrial loan
(1980-1986); formerly Mayor of corporation), United
Salt Lake City, Utah Space Alliance (joint
(1971-1974); formerly Astronaut, venture between
Space Shuttle Discovery (April Lockheed Martin and
12-19, 1985); Vice Chairman, the Boeing
Huntsman Corporation Company) and
(chemical company); member of Nuskin Asia Pacific
the Utah Regional Advisory (multilevel
Board of Pacific Corp. marketing); member
of the board of
various civic and
charitable
organizations.

Wayne E. Hedien (68) Retired; Director or Trustee of 129 Director of The PMI
c/o Mayer, Brown, Rowe & Maw the Morgan Stanley Funds and Group Inc. (private
Counsel to the Independent the TCW/DW Term Trusts; mortgage insurance);
Trustees formerly associated with the Trustee and Vice
1675 Broadway Allstate Companies Chairman of The
New York, NY (1966-1994), most recently as Field Museum of
Chairman of The Allstate Natural History;
Corporation (March director of various
1993-December 1994) and other business and
Chairman and Chief Executive charitable
Officer of its wholly-owned organizations.
subsidiary, Allstate Insurance
Company (July 1989-December
1994).

Dr. Manuel H. Johnson (53) Chairman of the Audit 129 Director of NVR, Inc.
c/o Johnson Smick Committee and Director or (home construction);
International, Inc. Trustee of the Morgan Stanley Chairman and
1133 Connecticut Avenue, N.W. Funds and the TCW/DW Term Trustee of the
Washington, D.C. Trusts; Senior Partner, Johnson Financial Accounting
Smick International, Inc., a Foundation (oversight
consulting firm; Co-Chairman organization of the
and a founder of the Group of Financial Accounting
Seven Council (G7C), an Standards Board).
international economic
commission; formerly Vice
Chairman of the Board of
Governors of the Federal
Reserve System and Assistant
Secretary of the U.S. Treasury.

Michael E. Nugent (66) Chairman of the Insurance 207 Director of various
c/o Triumph Capital, L.P. Committee and Director or business
237 Park Avenue Trustee of the Morgan Stanley organizations.
New York, NY Funds and the TCW/DW Term
Trusts; director/trustee of
various investment companies
managed by Morgan Stanley
Investment Management Inc.
and Morgan Stanley Investments
LP (since July 2001); General
Partner, Triumph Capital, L.P., a
private investment partnership;
formerly Vice President, Bankers
Trust Company and BT Capital
Corporation (1984-1988).

- ----------
* This is the date the Trustee began serving the Morgan Stanley Funds.

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

Charles A. Fiumefreddo (69) Chairman Trustee
c/o Morgan Stanley Trust and since July
Harborside Financial Center, Director 1991
Plaza Two, or Trustee
Jersey City, NJ
James F. Higgins (54) Trustee Trustee
c/o Morgan Stanley Trust since
Harborside Financial Center, June
Plaza Two, 2000
Jersey City, NJ
Philip J. Purcell (59) Trustee Trustee
1585 Broadway since
New York, NY April
1994

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

Charles A. Fiumefreddo (69) Chairman and Director or 129 None
c/o Morgan Stanley Trust Trustee of the Morgan Stanley
Harborside Financial Center, Funds and the TCW/DW Term
Plaza Two, Trusts; formerly Chairman, Chief
Jersey City, NJ Executive Officer and Director of
the Investment Manager, the

Distributor and Morgan Stanley
Services, Executive Vice President
and Director of Morgan Stanley DW,
Chairman and Director of the
Transfer Agent and Director and/or
officer of various Morgan Stanley
subsidiaries (until June 1998)
and Chief Executive Officer of the
Morgan Stanley Funds and the TCW/DW
Term Trusts (until September 2002).

James F. Higgins (54) Director or Trustee of the 129 None
c/o Morgan Stanley Trust Morgan Stanley Funds and the
Harborside Financial Center, TCW/DW Term Trusts (since
Plaza Two, June 2000); Senior Advisor of
Jersey City, NJ Morgan Stanley (since August
2000); Director of the Distributor
and Dean Witter Realty Inc.;
previously President and Chief
Operating Officer of the Private
Client Group of Morgan Stanley
(May 1999-August 2000),
President and Chief Operating
Officer of Individual Securities of
Morgan Stanley (February
1997-May 1999).

Philip J. Purcell (59) Director or Trustee of the 129 Director of American
1585 Broadway Morgan Stanley Funds and the Airlines, Inc. and its
New York, NY TCW/DW Term Trusts; parent company,
Chairman of the Board of AMR Corporation.
Directors and Chief Executive
Officer of Morgan Stanley and
Morgan Stanley DW; Director of
the Distributor; Chairman of the
Board of Directors and Chief
Executive Officer of Novus
Credit Services Inc.; Director
and/or officer of various Morgan
Stanley subsidiaries.

- ----------
* This is the date the Trustee began serving the Morgan Stanley Funds.

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

Mitchell M. Merin (49) President and President since President and Chief Operating Officer of Morgan
1221 Avenue of the Americas Chief Executive May 1999 and Stanley Investment Management (since December
New York, NY Officer Chief Executive 1998); President, Director (since April 1997) and
Officer since Chief Executive Officer (since June 1998) of the
September 2002 Investment Manager and Morgan Stanley Services;
Chairman, Chief Executive Officer and
Director of the Distributor (since June
1998); Chairman (since June 1998) and
Director (since January 1998) of the
Transfer Agent; Director of various
Morgan Stanley subsidiaries; President
(since May 1999) and Chief Executive
Officer (since September 2002) of the
Morgan Stanley Funds and TCW/DW Term
Trusts; Trustee of various Van Kampen
investment companies (since December
1999); previously Chief Strategic
Officer of the Investment Manager and
Morgan Stanley Services and Executive
Vice President of the Distributor (April
1997-June 1998), Vice President of the
Morgan Stanley Funds (May 1997-April
1999), and Executive Vice President of
Morgan Stanley.

Barry Fink (47) Vice President, Vice President, General Counsel (since May 2000) and Managing
1221 Avenue of the Americas Secretary and Secretary and Director (since December 2000) of Morgan Stanley
New York, NY General General Counsel Investment Management; Managing Director (since
Counsel since February December 2000), and Secretary and General
1997 Counsel (since February 1997) and Director (since
July 1998) of the Investment Manager and
Morgan Stanley Services; Assistant
Secretary of Morgan Stanley DW; Vice
President, Secretary and General Counsel
of the Morgan Stanley Funds and TCW/DW
Term Trusts (since February 1997); Vice
President and Secretary of the
Distributor; previously, Senior Vice
President, Assistant Secretary and
Assistant General Counsel of the
Investment Manager and Morgan Stanley
Services.

Thomas F. Caloia (56) Treasurer Since April 1989 First Vice President and Assistant Treasurer of the
c/o Morgan Stanley Trust Investment Manager, the Distributor and Morgan
Harborside Financial Center, Stanley Services; Treasurer of the Morgan Stanley
Plaza Two, Funds.
Jersey City, NJ

Ronald E. Robison (63) Vice President Since October 1998 Managing Director, Chief Administrative Officer and
1221 Avenue of the Americas Director (since February 1999) of the Investment
New York, NY Manager and Morgan Stanley Services and Chief
Executive Officer and Director of the Transfer
Agent; previously Managing Director of the TCW
Group Inc.

Joseph J. McAlinden (59) Vice President Since July 1995 Managing Director and Chief Investment Officer of
1221 Avenue of the Americas the Investment Manager, Morgan Stanley Investment
New York, NY Management Inc. and Morgan Stanley Investments
LP; Director of the Transfer Agent. Chief Investment
Officer of the Van Kampen Funds.

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

Francis Smith (37) Vice President Since September Vice President and Chief Financial Officer of the
c/o Morgan Stanley Trust and Chief 2002 Morgan Stanley Funds and the TCW/DW Term
Harborside Financial Center Financial Officer Trusts (since September 2002); Executive Director of
Plaza Two, the Investment Manager and Morgan Stanley
Jersey City, NJ Services (since December 2001). Formerly, Vice
President of the Investment Manager and
Morgan Stanley Services (August 2000-November
2001), Senior Manager at PricewaterhouseCoopers
LLP (January 1998-August 2000) and Associate-Fund
Administration at BlackRock Financial Management
(July 1996-December 1997).

In addition, A. Thomas Smith III, Managing Director and General Counsel of
the Investment Manager and Morgan Stanley Services, is a Vice President and
Assistant Secretary of the Fund, and Sara Badler, Stefanie Chang-Yu, Lou Anne D.
McInnis, Carsten Otto and Ruth Rossi, Executive Directors and Assistant General
Counsels of the Investment Manager and Morgan Stanley Services, Marilyn K.
Cranney, First Vice President and Assistant General Counsel of the Investment
Manager and Morgan Stanley Services, and Joanne Doldo, Natasha Kassian and
Sheldon Winicour, Vice Presidents and Assistant General Counsels of the
Investment Manager and Morgan Stanley Services, are Assistant Secretaries of the
Fund.

For each Trustee, the dollar range of equity securities beneficially owned
by the Trustee is shown below.

AGGREGATE DOLLAR RANGE OF EQUITY SECURITIES IN
ALL REGISTERED INVESTMENT COMPANIES OVERSEEN
DOLLAR RANGE OF EQUITY SECURITIES IN THE FUND BY TRUSTEE IN FAMILY OF INVESTMENT COMPANIES
NAME OF TRUSTEE (AS OF DECEMBER 31, 2001) (AS OF DECEMBER 31, 2001)
- ------------------------ ----------------------------------------------- -----------------------------------------------

Independent:
Michael Bozic None over $100,000
Edwin J. Garn None over $100,000
Wayne E. Hedien None over $100,000
Dr. Manuel H. Johnson None over $100,000
Michael E. Nugent None over $100,000
Interested:
Charles A. Fiumefreddo None over $100,000
James F. Higgins None over $100,000
Philip J. Purcell None over $100,000

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

Independent Directors/Trustees and the Committees. Law and regulation
establish both general guidelines and specific duties for the independent
directors/trustees. The Morgan Stanley Funds seek as independent
directors/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 funds' boards, such individuals may reject other
attractive assignments because the Funds make substantial demands on their time.
All of the independent directors/trustees serve as members of the Audit
Committee. In addition, six of the directors/trustees, including all of the
independent directors/trustees, serve as members of the Derivatives Committee
and three directors/trustees including two Independent Trustees, serve as
members of the Insurance Committee.

The independent directors/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 directors/trustees are required to select and nominate individuals
to fill any independent director/trustee vacancy on the board of any Fund that
has a Rule 12b-1 plan of distribution. Most of the Morgan Stanley Funds have a
Rule 12b-1 plan.

The Audit Committee is charged with recommending to the full Board the
engagement or discharge of the Fund's independent auditors; directing
investigations into matters within the scope of the independent auditors'
duties, including the power to retain outside specialists; reviewing with the
independent auditors the audit plan and results of the auditing engagement;
approving professional services provided by the independent auditors and other
accounting firms prior to the performance of the services; reviewing the
independence of the independent auditors; 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 Audit Committee currently consists of Messrs. Johnson, Bozic, Hedien,
Garn and Nugent. During the Fund's fiscal year ended July 31, 2002, the Audit
Committee held 11 meetings.

The board of each fund has a Derivatives Committee to approve parameters
for and monitor the activities of the Fund with respect to derivative
investments, if any, made by the Fund. The Derivatives Committee currently
consists of Mr. Fiumefreddo and all of the Independent Trustees of the Fund.
During the Fund's fiscal year ended July 31, 2002, the Derivatives Committee
held four meetings.

Finally, the board of each fund has formed an Insurance Committee to review
and monitor the insurance coverage maintained by the Fund. The Insurance
Committee currently consists of Messrs. Nugent, Fiumefreddo and Hedien. During
the Fund's fiscal year ended July 31, 2002, the Insurance Committee held one
meeting.

ADVANTAGES OF HAVING SAME INDIVIDUALS AS INDEPENDENT DIRECTORS/TRUSTEES FOR
ALL MORGAN STANLEY FUNDS. The independent directors/trustees and the Funds'
management believe that having the same independent directors/trustees for each
of the Morgan Stanley Funds avoids the duplication of effort that would arise
from having different groups of individuals serving as independent directors/
trustees for each of the Funds or even of sub-groups of Funds. They believe that
having the same individuals serve as independent directors/trustees of all the
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 directors/trustees
arriving at conflicting decisions regarding operations and management of the
Funds and avoids the cost and confusion that would likely ensue. Finally, having
the same independent directors/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 directors/ trustees, of the caliber, experience and
business acumen of the individuals who serve as independent directors/trustees
of the Morgan Stanley 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 the 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.

C. COMPENSATION

Committee meeting), or a meeting of the Independent Trustees and/or more than
one Committee meeting (except an Audit Committee meeting), take place on a
single day, the Trustees are paid a single meeting fee by the Fund. The Fund
also reimburses such Trustees for travel and other out-of-pocket expenses
incurred by them in connection with attending such meetings. Trustees and
officers of the Fund who are or have been employed by the Investment Manager or
an affiliated company receive no compensation or expense reimbursement from the
Fund for their services as Trustee. The Fund pays Mr. Fiumefreddo an annual fee
for his service as Chairman of the Board and for administrative services
provided to the Board of Trustees.

The following table illustrates the compensation that the Fund paid to its
Trustees for the fiscal year ended July 31, 2002.

FUND COMPENSATION*

AGGREGATE
COMPENSATION
NAME OF TRUSTEE FROM THE FUND
- ------------------------------- --------------

Michael Bozic ................. $ 1,500.00
Edwin J. Garn ................. 1,500.00
Wayne E. Hedien ............... 1,500.00
Dr. Manuel H. Johnson ......... 2,062.50
Michael E. Nugent ............. 1,875.00
Charles A. Fiumefreddo ........ 105.00**

- ----------

* Effective May 1, 2002, the Investment Manager has undertaken to assume all
Trustee compensation on this Fund until such time as the Fund has $50
million in net assets or until April 30, 2003, whichever occurs first.

** This compensation is for the period August 1, 2001 through May 15, 2002.

The following table illustrates the compensation paid to the Fund's
Trustees for the calendar year ended December 31, 2001 for services to the 97
registered Morgan Stanley Funds (consisting of 129 portfolios) that were in
operation at December 31, 2001. None of the Fund's Independent Trustees received
compensation from any other funds in the Fund Complex, except for Mr. Nugent who
received compensation for service as Director/Trustee to 16 other registered
funds (consisting of 78 portfolios) in the Fund Complex.

CASH COMPENSATION FROM MORGAN STANLEY FUNDS

TOTAL CASH
COMPENSATION
FOR SERVICES
TO 97
MORGAN STANLEY
FUNDS
AND OTHER
FUNDS IN THE
NAME OF TRUSTEE FUND COMPLEX
- ------------------------------- ---------------
Michael Bozic ................. $150,150
Edwin J. Garn ................. 150,150
Wayne E. Hedien ............... 150,100
Dr. Manuel H. Johnson ......... 219,900
Michael E. Nugent ............. 228,362
Charles A. Fiumefreddo ........ 360,000

As of the date of this Statement of Additional Information, 51 of the
Morgan Stanley Funds, not including the Fund, have adopted a retirement program
under which an independent director/trustee who retires after serving for at
least five years (or such lesser period as may be determined by the Board) as an
independent director/trustee of any Morgan Stanley Fund that has adopted the
retirement program (each such Fund referred to as an "Adopting Fund" and each
such director/trustee referred to as an "Eligible Trustee") is entitled to
retirement payments upon reaching the eligible retirement age (normally, after
attaining age 72). Annual payments are based upon length of service.

Currently, upon retirement, each Eligible Trustee is entitled to receive
from the Adopting Fund, commencing as of his or her retirement date and
continuing for the remainder of his or her life, an annual retirement benefit
(the "Regular Benefit") equal to 30.22% of his or her Eligible Compensation plus
0.5036667% of such Eligible Compensation for each full month of service as an
independent director or trustee of any Adopting Fund in excess of five years up
to a maximum of 60.44% after ten years of service. The foregoing percentages may
be changed by the Board(1). "Eligible Compensation" is one-fifth of the total
compensation earned by such Eligible Trustee for service to the Adopting Fund
inthe five year period prior to the date of the Eligible Trustee's retirement.
Benefits under the retirement program are accrued as expenses on the books of
the Adopting Funds. Such benefits are not secured or funded by the Adopting
Funds.

The following table illustrates the retirement benefits accrued to the
Fund's Independent Trustees by the 52 Morgan Stanley Funds (not including the
Fund) for the calendar year ended December 31, 2001, and the estimated
retirement benefits for the Independent Trustees, to commence upon their
retirement, from the 52 Morgan Stanley Funds as of the calendar year ended
December 31, 2001. For the calendar year ended December 31, 2001, no retirement
benefits were accrued to the Independent Trustees from any other funds in the
Fund Complex.

RETIREMENT BENEFITS FROM ALL MORGAN STANLEY FUNDS

RETIREMENT ESTIMATED
BENEFITS ANNUAL
ESTIMATED ACCRUED AS BENEFITS UPON
CREDITED YEARS ESTIMATED EXPENSES RETIREMENT
OF SERVICE AT PERCENTAGE OF BY ALL FROM ALL
RETIREMENT ELIGIBLE ADOPTING ADOPTING
NAME OF INDEPENDENT TRUSTEE (MAXIMUM 10) COMPENSATION FUNDS FUNDS(2)
- ------------------------------- ---------------- --------------- ------------ --------------

Michael Bozic ................. 10 60.44% $21,395 $48,443
Edwin J. Garn ................. 10 60.44 33,443 49,121
Wayne E. Hedien ............... 9 51.37 44,952 41,437
Dr. Manuel H. Johnson ......... 10 60.44 22,022 72,014
Michael E. Nugent ............. 10 60.44 38,472 64,157

- ----------

(1) An Eligible Trustee may elect alternative payments of his or her
retirement benefits based upon the combined life expectancy of the
Eligible Trustee and his or her spouse on the date of such Eligible
Trustee's retirement. In addition, the Eligible Trustee may elect that the
surviving spouse's periodic payment of benefits will be equal to a lower
percentage of the periodic amount when both spouses were alive. The amount
estimated to be payable under this method, through the remainder of the
later of the lives of the Eligible Trustee and spouse, will be the
actuarial equivalent of the Regular Benefit.

(2) Based on current levels of compensation. Amount of annual benefits also
varies depending on the Trustee's elections described in Footnote (1)
above.

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

The following owned 5% or more of the outstanding Class A shares of the
Fund as of September 6, 2002: Dun Liu & Zhao Ping Wang Jt Ten, 1661 Oakwood
Ave., Arcadia, CA 91006-1825 - 9.96% and Annally Financial Corp., c/o Pablo
Pereyra Iraola, 3 Nimitz Place, Old Greenwich, CT 06870-1211 - 7.97%. The
following owned 5% or more of the outstanding Class D shares of the Fund as of
September 6, 2002: Hare & Co., c/o The Bank of New York, PO Box 11203, New York,
NY 10286-1203 - 90.36%.

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

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

A. INVESTMENT MANAGER

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

Pursuant to an Investment Management Agreement (the "Management Agreement")
with the Investment Manager, the Fund has retained the Investment Manager to
provide administrative services and manage the investment of the Fund's assets,
including the placing of orders for the purchase and sale of portfolio
securities. The Fund pays the Investment Manager monthly compensation calculated
daily by applying the annual rate of 0.75% to the net assets of the Fund
determined as of the close of each business day. The management fee is allocated
among the Classes pro rata based on the net assets of the Fund attributable to
each Class. For the period November 26, 1999 (commencement of operations)
through July 31, 2000 and for the fiscal years ended July 31, 2001 and 2002, the
Investment Manager accrued total compensation under the Management Agreement in
the amounts of $359,739, $334,102 and $219,074, respectively. Effective May 1,
2002, the Investment Manager has agreed to assume all operating expenses (except
for brokerage and 12b-1 fees) and waive the compensation provided in its
Management Agreement with the Fund until such time as the Fund has $50 million
in net assets or until April 30, 2003, whichever occurs first.

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

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

B. PRINCIPAL UNDERWRITER

The Distributor bears all expenses it may incur in providing services under
the Distribution Agreement. These expenses include the payment of commissions
for sales of the Fund's shares and incentive compensation to Financial Advisors,
the cost of educational and/or business-related trips, and educational and/or
promotional and business-related expenses. The Distributor also pays certain
expenses in connection with the distribution of the Fund's shares, including the
costs of preparing, printing and distributing advertising or promotional
materials, [educational and informational materials provided to shareholders]
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.

C. SERVICES PROVIDED BY THE INVESTMENT MANAGER

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

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

D. DEALER REALLOWANCES

E. RULE 12B-1 PLAN

The Distributor also receives the proceeds of front-end sales charges
("FSCs") and of contingent deferred sales charges ("CDSCs") imposed on certain
redemptions of shares, which are separate and apart from payments made pursuant
to the Plan. The Distributor has informed the Fund that it and/or Morgan Stanley
DW received the proceeds of CDSCs and FSCs for the period November 26, 1999
(commencement of operations) through July 31, 2000 and for the fiscal years
ended July 31, 2001 and 2002 in approximate amounts as provided in the table
below (the Distributor did not retain any of these amounts).

FOR THE PERIOD
NOVEMBER 26, 1999
THROUGH
2002 2001 JULY 31, 2000
---------------------- ---------------------- ---------------------

Class A ......... FSCs:(1) $ 6,704 FSCs:(1) $ 7,048 FSCs:(1) $ 23,738
CDSCs: $ 0 CDSCs: $ 0 CDSCs: $ 0
Class B ......... CDSCs: $120,740 CDSCs: $211,354 CDSCs: $173,396
Class C ......... CDSCs: $ 324 CDSCs: $ 5,169 CDSCs: $ 28,723

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

The Distributor has informed the Fund that the entire fee payable by Class
A and a portion of the fees payable by each of Class B and Class C each year
pursuant to the Plan equal to 0.25% of such Class' average daily net assets are
currently each characterized as a "service fee" under the Rules of the National
Association of Securities Dealers, Inc. (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 Association.

Under the Plan and as required by Rule 12b-1, the Trustees receive and
review promptly after the end of each calendar quarter a written report provided
by the Distributor of the amounts expended under the Plan and the purpose for
which such expenditures were made. Class B shares of the Fund accrued amounts
payable to the Distributor under the Plan, during the fiscal year ended July 31,
2002 of $211,754. This amount is equal to 1.00% of the average daily net assets
of Class B for the fiscal year. For the fiscal year ended July 31, 2002, Class A
and C shares of the Fund accrued payments under the Plan amounting to $4,084 and
$29,532, respectively, which amounts to 0.24% and 0.97% of the average daily net
sales of Class A and Class C, respectively for the fiscal period.

(for which no sales charge was paid) or net asset value purchases by
employer-sponsored employee benefit plans, whether or not qualified under the
Internal Revenue Code, for which (i) the Transfer Agent serves as Trustee, (ii)
Morgan Stanley's Retirement Plan Services serves as recordkeeper pursuant to a
written Recordkeeping Services Agreement or (iii) an entity independent from
Morgan Stanley serves as recordkeeper under an alliance or similar agreement
with Morgan Stanley's Retirement Plan Services ("Morgan Stanley Eligible
Plans"), the Investment Manager compensates Financial Advisors by paying them,
from its own funds, a gross sales credit of 1.0% of the amount sold.

With respect to Class B shares, Morgan Stanley DW compensates its Financial
Advisors by paying them, from its own funds, commissions for the sale of Class B
shares, currently a gross sales credit of up to 5.0% of the amount sold (except
as provided in the following sentence) and an annual residual commission,
currently a residual of up to 0.25% of the current value (not including
reinvested dividends or distributions) of the amount sold in all cases. In the
case of Class B shares purchased by Morgan Stanley Eligible Plans, Morgan
Stanley DW compensates its Financial Advisors by paying them, from its own
funds, a gross sales credit of 3.0% of the amount sold.

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

With respect to Class D shares other than shares held by participants in
the Investment Manager's mutual fund asset allocation program and in the Morgan
Stanley Choice Program the Investment Manager compensates Morgan Stanley DW's
Financial Advisors by paying them, from its own funds, commissions for the sale
of Class D shares, currently a gross sales credit of up to 1.0% of the amount
sold. There is a chargeback of 100% of the amount paid if the Class D shares are
redeemed in the first year and a chargeback of 50% of the amount paid if the
Class D shares are redeemed in the second year after purchase. The Investment
Manager also compensates Morgan Stanley DW's Financial Advisors by paying them,
from its own funds, an annual residual commission, currently up to 0.10% of the
current value of the respective accounts for which they are the Financial
Advisors of record (not including accounts of participants in the Investment
Manager's mutual fund asset allocation program and the Morgan Stanley Choice
Program).

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

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

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

Each Class paid 100% of the amounts accrued under the Plan with respect to
that Class for the fiscal year ended July 31, 2002 to the Distributor. The
Distributor and Morgan Stanley DW estimate that they have spent, pursuant to the
Plan, $7,261,723 on behalf of Class B since the inception of the Plan. It is
estimated that this amount was spent in approximately the following ways: (i)
44.13% ($3,204,662) - advertising and promotional expenses; (ii) 0.34% ($24,577)
- - printing of prospectuses for distribution to other than current shareholders;
(iii) 55.53% ($4,032,484) - other expenses, including the gross sales credit and
the carrying charge, of which 8.43% ($339,815) represents carrying charges,
37.91% ($1,528,765) represents commission credits to Morgan Stanley DW's branch
offices and other selected broker-dealers for payments of commissions to
Financial Advisors and other authorized financial representatives, and 53.66%
($2,163,904) represents overhead and other branch office distribution-related
expenses. The amounts accrued by Class A and a portion of the amounts accrued by
Class C under the Plan during the fiscal year ended July 31, 2002 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.

arise from it having advanced monies without having received the amount of any
sales charges imposed at the time of sale of the Fund's Class B shares, totaled
$5,784,614 as of July 31, 2002 (the end of the Fund's fiscal year), which was
equal to 36.75% 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 1.0% of the average daily
net assets of Class A or Class C, respectively, will not be reimbursed by the
Fund through payments in any subsequent year, except that expenses representing
a gross sales commission credited to Morgan Stanley Financial Advisors and other
authorized financial representatives at the time of sale may be reimbursed in
the subsequent calendar year. The Distributor has advised the Fund that there
were no such expenses that may be reimbursed in the subsequent year in the case
of Class A or Class C at December 31, 2001 (end of the calendar year). No
interest or other financing charges will be incurred on any Class A or Class C
distribution expenses incurred by the Distributor under the Plan or on any
unreimbursed expenses due to the Distributor pursuant to the Plan.

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

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

F. OTHER SERVICE PROVIDERS

(1) Transfer Agent/Dividend-Paying Agent

(2) CUSTODIAN AND INDEPENDENT AUDITORS

The Bank of New York, 100 Church Street, New York, NY 10007 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
serves as the independent auditors of the Fund. The independent auditors are
responsible for auditing the annual financial statements of the Fund.

(3) AFFILIATED PERSONS

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

G. CODES OF ETHICS

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

VI. BROKERAGE ALLOCATION AND OTHER PRACTICES
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A. BROKERAGE TRANSACTIONS

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

For the period November 26, 1999 (commencement of operations) through July
31, 2000 and for the fiscal years ended July 31, 2001 and 2002, the Fund paid a
total of $157,672, $233,145 and $151,294, respectively, in brokerage
commissions.

B. COMMISSIONS

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

During the period November 26, 1999 (commencement of operations) through
July 31, 2000 and for the fiscal years ended July 31, 2001 and 2002, the Fund
did not effect any principal transactions with Morgan Stanley DW.

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

During the period November 26, 1999 (commencement of operations) through
July 31, 2000 and for the fiscal years ended July 31, 2001 and 2002, the Fund
paid a total of $9,780, $20,527 and $0, respectively, in brokerage commissions
to Morgan Stanley DW.

During the period November 26, 1999 (commencement of operations) through
July 31, 2000 and for the fiscal years ended July 31, 2001 and 2002, the Fund
paid a total of $5,861, $11,353 and $6,934, respectively, in brokerage
commissions to Morgan Stanley & Co. During the fiscal year ended July 31, 2002
the brokerage commissions paid to Morgan Stanley & Co. represented approximately
4.58% of the total brokerage commissions paid by the Fund during the year and
were paid on account of transactions having an aggregate dollar value equal to
approximately 5.86% of the aggregate dollar value of all portfolio transactions
of the Fund during the year for which commissions were paid.

C. BROKERAGE SELECTION

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

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

The Investment Manager and certain of its affiliates currently serve as
investment manager to a number of clients, including other investment companies,
and may in the future act as investment manager or advisor to others. It is the
practice of the Investment Manager and its affiliates to cause purchase and sale
transactions 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 Manager and its affiliates may operate one or more order
placement facilities and each facility will implement order allocation in
accordance with the procedures described above. From time to time, each facility
may transact in a security at the same time as other facilities are trading in
that security.

D. DIRECTED BROKERAGE

During the fiscal year ended July 31, 2002, the Fund paid $132,413 in
brokerage commissions in connection with transactions in the aggregate amount of
$67,025,483 to brokers because of research services provided.

E. REGULAR BROKER-DEALERS

During the fiscal year ended July 31, 2002, the Fund purchased securities
issued by Lehman Brothers Inc., which issuer was among the ten brokers or the
ten dealers which executed transactions for or with the Fund in the largest
dollar amounts during the year. At July 31, 2002, the Fund did not own any
securities issued by any such issuers.

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

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

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 action of the Trustees. In addition, under certain circumstances the
shareholders may call a meeting to remove Trustees and the Fund is required to
provide assistance in communicating with shareholders about such a meeting. The
voting rights of shareholders are not cumulative, so that holders of more than
50 percent of the shares voting can, if they choose, elect all Trustees being
selected, while the holders of the remaining shares would be unable to elect any
Trustees.

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

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

VIII. PURCHASE, REDEMPTION AND PRICING OF SHARES
- --------------------------------------------------------------------------------

A. PURCHASE/REDEMPTION OF SHARES

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

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

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

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

through a brokerage company other than Morgan Stanley DW may be subject to
certain restrictions on subsequent purchases and exchanges. Please contact your
brokerage company or the Transfer Agent for more information.

B. OFFERING PRICE

The Fund's Class B, Class C and Class D shares are offered at net asset
value per share and the Class A shares are offered at net asset value per share
plus any applicable FSC which is distributed among the Fund's Distributor,
Morgan Stanley DW and other authorized dealers as described in Section "V.
Investment Management and Other Services-E. Rule 12b-1 Plan." The price of Fund
shares, called "net asset value," is based on the value of the Fund's portfolio
securities. Net asset value per share of each Class is calculated by dividing
the value of the portion of the Fund's securities and other assets attributable
to that Class, less the liabilities attributable to that Class, by the number of
shares of that Class outstanding. The assets of each Class of shares are
invested in a single portfolio. The net asset value of each Class, however, will
differ because the Classes have different ongoing fees.

In the calculation of the Fund's net asset value: (1) an equity portfolio
security listed or traded on the New York or American Stock Exchange, Nasdaq, 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
latest bid 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 pursuant
to procedures adopted by the Trustees); and (2) all other portfolio securities
for which over-the-counter market quotations are readily available are valued at
the latest bid price. When market quotations are not readily available,
including circumstances under which it is determined by the Investment Manager
that sale or bid prices are not reflective of a security's market value,
portfolio securities are valued at their fair value as determined in good faith
under procedures established by and under the general supervision of the Fund's
Trustees. For valuation purposes, quotations of foreign portfolio securities,
other assets and liabilities and forward contracts stated in foreign currency
are translated into U.S. dollar equivalents at the prevailing market rates prior
to the close of the New York Stock Exchange.

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 the Trustees determine 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 New York Stock Exchange. 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 New York Stock Exchange.
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 New York Stock Exchange 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 and
they are also subject to different rates of tax. The tax treatment of the
investment activities of the Fund will affect the amount, timing and character
of the distributions made by the Fund. Tax issues relating to the Fund are not
generally a consideration for shareholders such as tax-exempt entities and
tax-advantaged retirement vehicles such as an IRA or 401(k) plan. Shareholders
are urged to consult their own tax professionals regarding specific questions as
to federal, state or local taxes.

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

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

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

TAXATION OF DIVIDENDS AND DISTRIBUTIONS. Shareholders normally will have
to pay 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 taxable to the shareholder as ordinary income
regardless of whether the shareholder receives such payments in additional
shares or in cash.

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. The maximum tax rate on long-term capital gains
realized by non-corporate shareholders generally is 20%. A special lower tax
rate of 18% on long-term capital gains is available to non-corporate
shareholders to the extent the distributions of long-term capital gains are
derived from securities which the Fund purchased after December 31, 2000, and
held for more than five years.

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

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

In general, a sale of shares results in capital gain or loss, and for
individual shareholders, is taxable at a federal rate dependent upon the length
of time the shares were held. A redemption of a shareholder's Fund shares is
normally treated as a sale for tax purposes. Fund shares held for a period of
one year or less at the time of such sale or redemption will, for tax purposes,
generally result in short-term capital gains or losses and those held for more
than one year will generally result in long-term capital gains or losses. Under
current law, the maximum tax rate on long-term capital gains realized by
non-corporate shareholders is generally 20%. A special lower tax rate of 18% on
long-term capital gains is available for non-corporate shareholders who
purchased shares after December 31, 2000, and held such shares for more than
five years. This special lower tax rate of 18% for five-year property does not
apply to non-corporate shareholders holding Fund shares which were purchased on
or prior to December 31, 2000, unless such shareholders make an election to
treat the Fund shares as being sold and reacquired on January 1, 2001. A
shareholder making such election may realize capital gains. Any loss realized by
shareholders upon a sale or redemption of shares within six months of the date
of their purchase will be treated as a long-term capital loss to the extent of
any distributions of net long-term capital gains with respect to such shares
during the six-month period.

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

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

XI. CALCULATION OF PERFORMANCE DATA
- --------------------------------------------------------------------------------

From time to time, the Fund may quote its "total return" in advertisements
and sales literature. These figures are computed separately for Class A, Class
B, Class C and Class D shares. The Fund's "average annual total return"
represents an annualization of the Fund's total return over a particular period
and is computed by finding the annual percentage rate which will result in the
ending redeemable value of a hypothetical $1,000 investment made at the
beginning of a one, five or ten year period, or for the period from the date of
commencement of operations, if shorter than any of the foregoing. The ending
redeemable value is reduced by any contingent deferred sales charge ("CDSC") at
the end of the one, five, ten year or other period. For the purpose of this
calculation, it is assumed that all dividends and distributions are reinvested.
The formula for computing the average annual total return involves a percentage
obtained by dividing the ending redeemable value by the amount of the initial
investment (which in the case of Class A shares is reduced by the Class A
initial sales charge), taking a root of the quotient (where the root is
equivalent to the number of years in the period) and subtracting 1 from the
result. The average annual total returns of Class A, Class B, Class C and Class
D for the one year period ended July 31, 2002 and for the period November 26,
1999 (commencement of operations) through July 31, 2002 were as follows: Class
A: -23.71% and -22.68%, respectively; Class B: -24.03% and -22.58%,
respectively; Class C: -20.83% and -21.69%, respectively; and Class D: -19.27%
and -20.94%, respectively.

Effective May 1, 2002, the Investment Manager has agreed to assume all
operating expenses (except for brokerage and 12b-1 fees) and to waive the
compensation provided in its Management Agreement until such time as the Fund
has $50 million in net assets or until April 30, 2003, whichever occurs first.
Had the Fund borne these expenses and paid the management fees during the stated
periods, the average annual total returns for the one year period ended July 31,
2002 and for the period November 26, 1999 through July 31, 2002 would have been
as follows: Class A: -24.29% and -22.90%, respectively; Class B: -24.61% and
- -22.80%, respectively; Class C: -21.44% and -21.92%, respectively; Class D:
- -19.73% and -21.10%, respectively.

In addition, the Fund may advertise its total return for each Class over
different periods of time by means of aggregate, average, year-by-year or other
types of total return figures. These calculations may or may not reflect the
imposition of the maximum front-end sales charge for Class A or the deduction of
the CDSC for each of Class B and Class C which, if reflected, would reduce the
performance quoted. For example, the average annual total return of the Fund may
be calculated in the manner described above, but without deduction of any
applicable sales charge. Based on this calculation, the annual total returns of
Class A, Class B, Class C and Class D for the one year period ended July 31,
2002 and for the period November 26, 1999 (commencement of operations) through
July 31, 2002 were as follows: Class A: -19.48% and -21.11%, respectively; Class
B: -20.03% and -21.69%, respectively; Class C: -20.03% and -21.69%,
respectively; and Class D: -19.27% and -20.94%, respectively.

In addition, the Fund may compute its aggregate total return for each Class
for specified periods by determining the aggregate percentage rate which will
result in the ending value of a hypothetical $1,000 investment made at the
beginning of the period. For the purpose of this calculation, it is assumed that
all dividends and distributions are reinvested. The formula for computing
aggregate total return involves a percentage obtained by dividing the ending
value (without reduction for any sales charge) by the initial $1,000 investment
and subtracting 1 from the result. Based on the foregoing calculation, the total
returns of Class A, Class B, Class C and Class D for the one year period ended
July 31, 2002 and for the period November 26, 1999 (commencement of operations)
through July 31, 2002 were as follows: Class A: -19.48% and -47.00%,
respectively; Class B: -20.03% and -48.04%, respectively; Class C: -20.03% and
- -48.04%, respectively; and Class D: -19.27% and -46.69%, respectively.

The Fund may also advertise the growth of hypothetical investments of
$10,000, $50,000 and $100,000 in each Class of shares of the Fund by adding 1 to
the Fund's aggregate total return to date (expressed as a decimal and without
taking into account the effect of any applicable CDSC) and multiplying by
$9,475, $48,000 and $97,000 in the case of Class A (investments of $10,000,
$50,000 and $100,000 adjusted for the initial sales charge) or by $10,000,
$50,000 and $100,000 in the case of each of Class B, Class C and Class D, as the
case may be. Investments of $10,000, $50,000 and $100,000 in each Class at
inception of the Class would have declined to the following amounts at July 31,
2002.

INVESTMENT AT INCEPTION OF:
INCEPTION ---------------------------------
CLASS DATE: $10,000 $50,000 $100,000
- ----------------- ---------- --------- --------- ---------

Class A ......... 11/26/99 $5,022 $25,439 $51,409
Class B ......... 11/26/99 5,196 25,980 51,959
Class C ......... 11/26/99 5,196 25,979 51,959
Class D ......... 11/26/99 5,331 26,656 53,312

The after tax returns of the Fund may also be advertised or otherwise
reported. This is generally calculated in a manner similar to the computation of
average annual total returns discussed above, except that the calculation also
reflects the effect of taxes on returns. Based on these calculations, the
average annual total returns (after taxes on distributions) for Class B for the
one year and the life of the Fund periods ended July 31, 2002 were -24.03% and
- -22.59%, respectively, and the average annual total returns (after taxes on
distributions and redemptions) for Class B for the one year and the life of the
Fund periods ended July 31, 2002 were -14.75% and -17.21%, respectively.

The Fund from time to time may also advertise its performance relative to
certain performance rankings and indexes compiled by recognized organizations.

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

Experts. The financial statements of the Fund for the fiscal year ended
July 31, 2002, included in this Statement of Additional Information and
incorporated by reference in the Prospectus have been so included and
incorporated in reliance on the report of Deloitte & Touche LLP, independent
auditors, given on the authority of said firm as experts in auditing and
accounting.

* * * * *

Morgan Stanley Next Generation Trust
PORTFOLIO OF INVESTMENTS [] JULY 31, 2002

NUMBER OF
SHARES VALUE
- -------------------------------------------------------------------------------

Common Stocks (98.1%)
Advertising/Marketing Services (2.3%)
6,025 Lamar Advertising Co.* ........... $ 190,269
13,200 R.H. Donnelley Corp.* ............ 316,140
-----------
506,409
-----------
Aerospace & Defense (0.9%)
1,600 Alliant Techsystems, Inc.* ....... 98,240
3,075 Raytheon Co. ..................... 100,183
-----------
198,423
-----------
Air Freight/Couriers (0.2%)
1,750 Expeditors International of
Washington, Inc. ............... 51,625
-----------
Apparel/Footwear (1.0%)
9,200 Coach, Inc.* ..................... 209,760
-----------
Apparel/Footwear Retail (2.8%)
8,375 Abercrombie & Fitch Co.
(Class A)* ..................... 189,275
12,325 Limited Brands, Inc. ............. 221,480
5,525 Ross Stores, Inc. ................ 208,071
-----------
618,826
-----------
Auto Parts: O.E.M. (0.8%)
7,975 ArvinMeritor, Inc. ............... 168,751
-----------
Biotechnology (4.2%)
3,850 Biogen, Inc.* .................... 138,484
4,875 Celgene Corp.* ................... 83,704
10,025 Gilead Sciences, Inc.* ........... 305,462
4,925 IDEC Pharmaceuticals Corp.* 219,606
3,250 MedImmune, Inc.* ................. 96,655
5,050 Millennium Pharmaceuticals,
Inc.* .......................... 62,721
-----------
906,632
-----------
Broadcasting (3.8%)
19,750 Radio One, Inc. (Class D)* ....... 276,500
9,250 Univision Communications,
Inc. (Class A)* ................ 264,457
9,300 Westwood One, Inc.* .............. 295,275
-----------
836,232
-----------

NUMBER OF
SHARES VALUE
- -------------------------------------------------------------------------------

Casino/Gaming (3.8%)
20,200 GTECH Holdings Corp.* ............ $ 402,990
19,900 Park Place Entertainment
Corp.* ......................... 182,682
14,750 Penn National Gaming, Inc.* ...... 230,100
-----------
815,772
-----------
Catalog/Specialty Distribution (0.7%)
7,025 J. Jill Group Inc.* .............. 156,657
-----------
Chemicals: Specialty (1.0%)
4,600 Albemarle Corp. .................. 135,976
1,625 OM Group, Inc. ................... 74,425
-----------
210,401
-----------
Computer Communications (2.0%)
8,184 Brocade Communications
Systems, Inc.* ................. 153,450
6,494 Emulex Corp.* .................... 150,401
13,000 Extreme Networks, Inc.* .......... 135,200
-----------
439,051
-----------
Computer Peripherals (1.4%)
4,089 QLogic Corp.* .................... 166,627
10,300 Storage Technology Corp.* ........ 146,260
-----------
312,887
-----------
Contract Drilling (1.0%)
9,825 GlobalSantaFe Corp. .............. 221,455
-----------
Data Processing Services (1.9%)
2,775 Affiliated Computer Services,
Inc. (Class A)* ................ 130,369
7,300 Bisys Group, Inc. (The)* ......... 168,630
3,000 First Data Corp. ................. 104,850
-----------
403,849
-----------
Discount Stores (3.2%)
5,875 BJ's Wholesale Club, Inc.* ....... 206,506
12,600 Dollar General Corp. ............. 216,216
5,250 Dollar Tree Stores, Inc.* ........ 163,782
3,750 Fred's, Inc. ..................... 110,437
-----------
696,941
-----------

See Notes to Financial Statements

Morgan Stanley Next Generation Trust
PORTFOLIO OF INVESTMENTS [] JULY 31, 2002 continued

NUMBER OF
SHARES VALUE
- -------------------------------------------------------------------------------

Electronic Components (1.2%)
4,050 Jabil Circuit, Inc.* .............. $ 72,049
13,600 SanDisk Corp.* .................... 195,840
-----------
267,889
-----------
Electronic Production Equipment (1.8%)
7,125 Celestica, Inc.* .................. 152,831
3,625 KLA-Tencor Corp.* ................. 142,789
3,425 Novellus Systems, Inc.* ........... 92,441
-----------
388,061
-----------
Finance/Rental/Leasing (2.3%)
4,000 SLM Corp. ......................... 364,000
375 White Mountains Insurance
Group, Inc. ..................... 127,500
-----------
491,500
-----------
Financial Publishing/Services (3.0%)
12,775 Interactive Data Corp. ............ 167,225
5,250 Moody's Corp. ..................... 260,400
9,875 SunGard Data Systems Inc.* ........ 231,569
-----------
659,194
-----------
Food: Meat/Fish/Dairy (2.5%)
8,050 Dreyer's Grand Ice Cream,
Inc. ............................ 539,028
-----------
Food: Specialty/Candy (2.4%)
4,850 Hershey Foods Corp. ............... 380,531
3,300 J & J Snack Foods* ................ 131,835
-----------
512,366
-----------
Home Building (1.6%)
1,200 NVR, Inc.* ........................ 346,200
-----------
Home Furnishings (2.1%)
11,950 Furniture Brands International,
Inc.* ........................... 303,530
3,134 Mohawk Industries, Inc.* .......... 148,865
-----------
452,395
-----------
Hospital/Nursing Management (1.9%)
2,612 Tenet Healthcare Corp.* ........... 124,462
7,275 Triad Hospitals, Inc.* ............ 290,854
-----------
415,316
-----------

NUMBER OF
SHARES VALUE
- -------------------- ------------------

Hotels/Resorts/Cruiselines (4.2%)
14,375 Carnival Corp. .................... $ 380,937
3,975 P & O Princess Crusies PLC
(ADR) (United Kingdom) .......... 108,915
16,875 Starwood Hotels & Resorts
Worldwide, Inc. ................. 433,687
-----------
923,539
-----------
Household/Personal Care (0.3%)
1,300 Alberto-Culver Co. (Class B) ...... 61,763
-----------
Insurance Brokers/Services (1.1%)
2,733 ChoicePoint Inc.* ................. 114,485
3,650 Willis Group Holdings Ltd.* ....... 115,486
-----------
229,971
-----------
Internet Software/Services (0.4%)
56,475 Vignette Corp.* ................... 80,194
-----------
Investment Managers (0.6%)
2,725 Affiliated Managers Group,
Inc.* ........................... 128,674
-----------
Managed Health Care (0.8%)
4,200 Oxford Health Plans, Inc.* ........ 180,684
-----------
Medical Distributors (1.4%)
4,425 AmerisourceBergen Corp. ........... 296,431
-----------
Medical Specialties (2.7%)
7,500 Varian Medical Systems, Inc.* 313,500
7,100 Zimmer Holdings, Inc.* ............ 264,333
-----------
577,833
-----------
Miscellaneous Commercial
Services (0.8%)
6,550 Sabre Holdings Corp.* ............. 173,706
-----------
Motor Vehicles (0.7%)
3,300 Harley-Davidson, Inc. ............. 156,288
-----------
Movies/Entertainment (2.4%)
16,550 Cedar Fair, L.P. .................. 378,167
7,250 Regal Entertainment Group
(Class A)* ...................... 143,333
-----------
521,500
-----------

See Notes to Financial Statements

Morgan Stanley Next Generation Trust
PORTFOLIO OF INVESTMENTS [] JULY 31, 2002 continued

NUMBER OF
SHARES VALUE
- -------------------------------------------------------------------------------

Oil & Gas Production (1.5%)
31,275 PetroQuest Energy, Inc.* ........... $ 120,096
8,375 Pioneer Natural Resources
Co.* ............................. 202,759
-----------
322,855
-----------
Oilfield Services/Equipment (1.9%)
12,975 BJ Services Co.* ................... 413,773
-----------
Other Consumer Services (4.1%)
2,850 Apollo Group, Inc. (Class A)* ...... 111,863
6,400 Career Education Corp.* ............ 282,496
6,400 Education Management
Corp.* ........................... 255,424
5,350 Weight Watchers International,
Inc.* ............................ 233,528
-----------
883,311
-----------
Packaged Software (3.6%)
6,300 Adobe Systems, Inc. ................ 150,948
4,889 Intuit Inc.* ....................... 215,018
4,200 Mercury Interactive Corp.* ......... 107,604
3,250 Symantec Corp.* .................... 109,005
10,700 TIBCO Software, Inc.* .............. 57,994
8,250 VERITAS Software Corp.* ............ 138,848
-----------
779,417
-----------
Personnel Services (0.8%)
5,825 AMN Healthcare Services,
Inc.* ............................ 165,721
-----------
Pharmaceuticals: Other (1.1%)
2,950 Forest Laboratories, Inc.* ......... 228,537
-----------
Publishing: Newspapers (0.5%)
2,100 Media General, Inc. (Class A) ...... 106,638
-----------
Recreational Products (3.9%)
2,800 Activision, Inc.* .................. 80,416
5,400 Electronic Arts Inc.* .............. 324,972
3,050 International Game
Technology* ...................... 177,663
13,750 Mattel, Inc. ....................... 258,638
-----------
841,689
-----------
Regional Banks (0.3%)
1,425 Commerce Bancorp, Inc. ............. 65,864
-----------

NUMBER OF
SHARES VALUE
- -------------------------------------------------------------------------------

Restaurants (5.8%)
8,600 AFC Enterprises, Inc.* ............. $ 233,490
4,000 CBRL Group, Inc. ................... 119,680
12,200 Jack in the Box, Inc.* ............. 337,940
3,650 P.F. Chang's China Bistro,
Inc.* ............................ 113,953
3,725 Sonic Corp.* ....................... 104,598
5,600 Wendy's International, Inc. ........ 206,024
4,900 Yum! Brands, Inc.* ................. 151,410
-----------
1,267,095
-----------
Savings Banks (0.5%)
3,500 Charter One Financial, Inc. ........ 118,720
-----------
Semiconductors (2.7%)
12,325 Altera Corp.* ...................... 145,805
3,575 Broadcom Corp. (Class A)* .......... 67,067
28,629 Conexant Systems, Inc.* ............ 58,117
5,050 Integrated Device Technology,
Inc.* ............................ 64,640
7,550 Intersil Corp. (Class A)* .......... 164,515
5,149 Micrel, Inc.* ...................... 59,059
2,800 NVIDIA Corp.* ...................... 30,996
-----------
590,199
-----------
Services to the Health
Industry (1.1%)
1,850 Express Scripts, Inc.
(Class A)* ....................... 96,200
1,850 Laboratory Corp. of America
Holdings* ........................ 63,455
1,200 Quest Diagnostics Inc.* ............ 72,468
-----------
232,123
-----------
Specialty Stores (1.3%)
6,100 Kirkland's, Inc.* .................. 65,148
2,250 Tractor Supply Company* ............ 134,505
3,450 Williams-Sonoma, Inc.* ............. 78,488
-----------
278,141
-----------
Specialty Telecommunications (1.0%)
4,600 Commonwealth Telephone
Enterprises, Inc.* ............... 177,974
14,100 Crown Castle International
Corp.* ........................... 32,430
-----------
210,404
-----------

See Notes to Financial Statements

Morgan Stanley Next Generation Trust
PORTFOLIO OF INVESTMENTS [] JULY 31, 2002 continued

NUMBER OF
SHARES VALUE
- -------------------------------------------------------------------------

Telecommunication Equipment (1.7%)
10,950 CIENA Corp.* ..................... $ 44,129
5,100 Harris Corp. ..................... 163,761
42,850 Nortel Networks Corp.
(Canada)* ....................... 41,565
7,100 RF Micro Devices, Inc.* .......... 47,286
14,525 Tellabs, Inc.* ................... 83,228
-----------
379,969
-----------
Tobacco (0.7%)
5,875 Loews Corp. - Carolina Group 145,113
-----------
Wireless Telecommunications (0.4%)
16,200 Nextel Communications, Inc.
(Class A)* ..................... 92,826
-----------

Total Common Stocks
(Cost $22,268,391) (a)......... 98.1% 21,278,598
Other Assets in Excess of
Liabilities ................... 1.9 410,989
----- ----------
Net Assets .................... 100.0% $21,689,587
===== ==========

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

ADR American Depository Receipt.
* Non-income producing security.
(a) The aggregate cost for federal income tax purposes approximates the
aggregate cost for book purposes. The aggregate gross unrealized
appreciation is $1,582,772 and the aggregate gross unrealized depreciation
is $2,572,565, resulting in net unrealized depreciation of $989,793.

See Notes to Financial Statements
40

Morgan Stanley Next Generation Trust
FINANCIAL STATEMENTS

Statement of Assets and Liabilities
July 31, 2002

Assets:

Investments in securities, at value
(cost $22,268,391)............................................... $ 21,278,598
Cash ............................................................. 83,719
Receivable for:
Investments sold ............................................... 846,835
Dividends ...................................................... 7,851
Foreign withholding taxes reclaimed ............................ 5,281
Shares of beneficial interest sold ............................. 3,231
Prepaid expenses and other assets ................................ 8,727
Receivable from affiliate ........................................ 103,621
-------------
Total Assets ................................................... 22,337,863
-------------
Liabilities:
Payable for:
Investments purchased .......................................... 453,327
Shares of beneficial interest redeemed ......................... 75,565
Distribution fee ............................................... 17,376
Accrued expenses and other payables .............................. 102,008
-------------
Total Liabilities .............................................. 648,276
-------------
Net Assets ..................................................... $ 21,689,587
=============
Composition of Net Assets:
Paid-in-capital .................................................. $ 46,831,654
Net unrealized depreciation ...................................... (989,515)
Accumulated net investment loss .................................. (480)
Accumulated net realized loss .................................... (24,152,072)
-------------
Net Assets ..................................................... $ 21,689,587
=============
Class A Shares:
Net Assets ....................................................... $ 1,345,242
Shares Outstanding (unlimited authorized, $.01 par value)......... 254,274
Net Asset Value Per Share ...................................... $5.29
=====
Maximum Offering Price Per Share,
(net asset value plus 5.54% of net asset value) ................ $5.58
=====
Class B Shares:
Net Assets ....................................................... $ 15,738,535
Shares Outstanding (unlimited authorized, $.01 par value)......... 3,033,014
Net Asset Value Per Share ...................................... $5.19
=====
Class C Shares:
Net Assets ....................................................... $ 2,357,478
Shares Outstanding (unlimited authorized, $.01 par value)......... 454,353
Net Asset Value Per Share ...................................... $5.19
=====
Class D Shares:
Net Assets ....................................................... $ 2,248,332
Shares Outstanding (unlimited authorized, $.01 par value)......... 422,917
Net Asset Value Per Share ...................................... $5.32
=====

See Notes to Financial Statements

Morgan Stanley Next Generation Trust
FINANCIAL STATEMENTS continued

Statement of Operations
For the year ended July 31, 2002

Net Investment Loss:

Income
Dividends ..................................... $ 102,567
Interest ...................................... 12,088
------------
Total Income ................................ 114,655
------------
Expenses
Investment management fee ..................... 219,074
Distribution fee (Class A shares) ............. 4,084
Distribution fee (Class B shares) ............. 211,754
Distribution fee (Class C shares) ............. 29,532
Transfer agent fees and expenses .............. 169,547
Shareholder reports and notices ............... 62,826
Registration fees ............................. 50,852
Professional fees ............................. 48,932
Custodian fees ................................ 35,596
Trustees' fees and expenses ................... 12,052
Other ......................................... 9,542
------------
Total Expenses .............................. 853,791
Less: amounts waived/reimbursed ............... (165,746)
------------
Net Expenses ................................ 688,045
------------
Net Investment Loss ......................... (573,390)
------------
Net Realized and Unrealized Gain (Loss):
Net realized loss ............................. (4,809,639)
Net change in unrealized depreciation ......... (544,751)
------------
Net Loss .................................... (5,354,390)
------------
Net Decrease .................................. $ (5,927,780)
============

See Notes to Financial Statements

Morgan Stanley Next Generation Trust
FINANCIAL STATEMENTS continued

Statement of Changes in Net Assets

FOR THE YEAR FOR THE YEAR
ENDED ENDED
JULY 31, 2002 JULY 31, 2001
--------------- ----------------

Increase (Decrease) in Net Assets:
Operations:
Net investment loss ............................................................ $ (573,390) $ (914,743)
Net realized loss .............................................................. (4,809,639) (11,098,826)
Net change in unrealized depreciation .......................................... (544,751) (3,140,300)
------------- -------------
Net Decrease ................................................................. (5,927,780) (15,153,869)
Net decrease from transactions in shares of beneficial interest ................ (7,882,826) (10,228,975)
------------- -------------
Net Decrease ................................................................. (13,810,606) (25,382,844)
Net Assets:
Beginning of period ............................................................ 35,500,193 60,883,037
------------- -------------
End of Period
(Including accumulated net investment losses of $480 and $226, respectively).... $ 21,689,587 $ 35,500,193
============= =============

See Notes to Financial Statements

Morgan Stanley Next Generation Trust
NOTES TO FINANCIAL STATEMENTS [] July 31, 2002

1. Organization and Accounting Policies
Morgan Stanley Next Generation Trust (the "Fund") is registered under the
Investment Company Act of 1940, as amended (the "Act"), as a diversified,
open-end management investment company. The Fund's investment objective is
long-term growth of capital. The Fund seeks to achieve its objective by
investing primarily in common stocks of companies which manufacture products or
provide services for children, teenagers and/or young adults. The Fund was
organized as a Massachusetts business trust on July 8, 1999 and commenced
operations on November 26, 1999.

The following is a summary of significant accounting policies:

A. Valuation of Investments - (1) an equity portfolio security listed or traded
on the New York or American Stock Exchange, Nasdaq, 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 latest bid 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 pursuant to procedures adopted by
the Trustees); (2) all other portfolio securities for which over-the-counter
market quotations are readily available are valued at the latest available bid
price; (3) when market quotations are not readily available, including
circumstances under which it is determined by Morgan Stanley Investment Advisors
Inc. (the "Investment Manager"), that sale or bid prices are not reflective of a
security's market value, portfolio securities are valued at their fair value as
determined in good faith under procedures established by and under the general
supervision of the Trustees (valuation of debt securities for which market
quotations are not readily available may be based upon current market prices of
securities which are comparable in coupon, rating and maturity or an appropriate
matrix utilizing similar factors); and (4) short-term debt securities having a
maturity date of more than sixty days at time of purchase are valued on a
mark-to-market basis until sixty days prior to maturity and thereafter at
amortized cost based on their value on the 61st day. Short-term debt securities
having a maturity date of sixty days or less at the time of purchase are valued
at amortized cost.

Morgan Stanley Next Generation Trust
NOTES TO FINANCIAL STATEMENTS [] JULY 31, 2002 continued

B. Accounting for Investments - Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined by the identified cost method.
Dividend income and other distributions are recorded on the ex-dividend date.
Discounts are accreted and premiums are amortized over the life of the
respective securities. Interest income is accrued daily.

C. Joint Repurchase Agreement Account - Pursuant to an Exemptive Order issued by
the Securities and Exchange Commission, the Fund, along with other affiliated
entities managed by the Investment Manager, may transfer uninvested cash
balances into one or more joint repurchase agreement accounts. These balances
are invested in one or more repurchase agreements and are collateralized by
cash, or U.S. Treasury or federal agency obligations.

D. Multiple Class Allocations - Investment income, expenses (other than
distribution fees), and realized and unrealized gains and losses are allocated
to each class of shares based upon the relative net asset value on the date such
items are recognized. Distribution fees are charged directly to the respective
class.

E. Foreign Currency Translation - The books and records of the Fund are
maintained in U.S. dollars as follows: (1) the foreign currency market value of
investment securities, other assets and liabilities and forward foreign currency
contracts ("forward contracts") are translated at the exchange rates prevailing
at the end of the period; and (2) purchases, sales, income and expenses are
translated at the exchange rates prevailing on the respective dates of such
transactions. The resultant exchange gains and losses are included in the
Statement of Operations as realized and unrealized gain/loss on foreign exchange
transactions. Pursuant to U.S. Federal income tax regulations, certain foreign
exchange gains/losses included in realized and unrealized gain/loss are included
in or are a reduction of ordinary income for federal income tax purposes. The
Fund does not isolate that portion of the results of operations arising as a
result of changes in the foreign exchange rates from the changes in the market
prices of the securities.

F. Forward Foreign Currency Contracts - The Fund may enter into forward
contracts which are valued daily at the appropriate exchange rates. The
resultant unrealized exchange gains and losses are included in the Statement of
Operations as unrealized gain/loss on foreign exchange transactions. The Fund
records realized gains or losses on delivery of the currency or at the time the
forward contract is extinguished (compensated) by entering into a closing
transaction prior to delivery.

G. Federal Income Tax Status - It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute substantially all of its taxable income to its
shareholders. Accordingly, no federal income tax provision is required.

H. Dividends and Distributions to Shareholders - The Fund records dividends and
distributions to its shareholders on the ex-dividend date. The amount of
dividends and distributions from net investment

Morgan Stanley Next Generation Trust
NOTES TO FINANCIAL STATEMENTS [] JULY 31, 2002 continued

For the period May 1, 2002 through April 30, 2003, or until the Fund attains $50
million of net assets, whichever occurs first, the Investment Manager has agreed
to waive its fee and assume all operating expenses (except for distribution
fees). At July 31, 2002, included in the Statement of Assets and Liabilities are
receivables from an affiliate, which represent expense reimbursements due to the
Fund.

Morgan Stanley Next Generation Trust
NOTES TO FINANCIAL STATEMENTS [] JULY 31, 2002 continued

In the case of Class A shares and Class C shares, expenses incurred pursuant to
the Plan in any calendar year in excess of 0.25% or 1.0% of the average daily
net assets of Class A or Class C, respectively, will not be reimbursed by the
Fund through payments in any subsequent year, except that expenses representing
a gross sales credit to Morgan Stanley Financial Advisors or other selected
broker-dealer representatives may be reimbursed in the subsequent calendar year.
For the year ended July 31, 2002, the distribution fee was accrued for Class A
shares and Class C shares at the annual rate of 0.24% and 0.97%, respectively.

Morgan Stanley Trust, an affiliate of the Investment Manager and Distributor, is
the Fund's transfer agent.

5. Federal Income Tax Status
At July 31, 2002, the Fund had a net capital loss carryover of approximately
$23,009,000 of which $7,490,000 will be available through July 31, 2009 and
$15,519,000 will be available through July 31, 2010 to offset future capital
gains to the extent provided by regulations.

As of July 31, 2002, the Fund had temporary book/tax differences attributable to
post-October losses and capital loss deferrals on wash sales and permanent
book/tax differences primarily attributable to a net operating loss. To reflect
reclassifications arising from the permanent differences, paid-in-capital was
charged $573,616, accumulated net realized loss was credited $480 and
accumulated net investment loss was credited $573,136.

Morgan Stanley Next Generation Trust
NOTES TO FINANCIAL STATEMENTS [|] JULY 31, 2002 continued

6. Shares of Beneficial Interest
Transactions in shares of beneficial interest were as follows:

7. Purposes of and Risks Relating to Certain Financial Instruments

At July 31, 2002, there were no outstanding forward contracts.

Morgan Stanley Next Generation Trust
FINANCIAL HIGHLIGHTS

Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:

FOR THE PERIOD
FOR THE YEAR FOR THE YEAR NOVEMBER 26, 1999*
ENDED ENDED THROUGH
JULY 31, 2002 JULY 31, 2001 JULY 31, 2000
------------------- --------------- -------------------

Class A Shares
Selected Per Share Data:
Net asset value, beginning of period .............. $ 6.57 $ 9.10 $ 10.00
------- ------- -------
Loss from investment operations:
Net investment loss++ ............................ (0.08) (0.11) (0.05)
Net realized and unrealized loss ................. (1.20) (2.42) (0.83)
------- ------- -------
Total loss from investment operations ............. (1.28) (2.53) (0.88)
------- ------- -------
Less dividends from net investment income ......... - - (0.02)
------- ------- -------
Net asset value, end of period .................... $ 5.29 $ 6.57 $ 9.10
======= ======= =======
Total Return+ ..................................... (19.48)% (27.80)% (8.83)%(1)
Ratios to Average Net Assets(3):
Expenses .......................................... 1.76 %(4) 1.97 % 1.70 %(2)
Net investment loss ............................... (1.36)%(4) (1.37)% (0.75)%(2)
Supplemental Data:
Net assets, end of period, in thousands ........... $ 1,345 $ 1,995 $3,506
Portfolio turnover rate ........................... 166 % 278% 40%(1)

- -----------
* Commencement of operations.
++ 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) Not annualized.
(2) Annualized.
(3) Reflects overall Fund ratios for investment income and non-class specific
expenses.
(4) If the Investment Manager had not assumed all expenses and waived its
management fee for the period May 1, 2002 through July 31, 2002, the ratios
of expenses and net investment loss would have been 2.32% and (1.92)%,
respectively.

See Notes to Financial Statements

Morgan Stanley Next Generation Trust
Financial Highlights continued

FOR THE PERIOD
FOR THE YEAR FOR THE YEAR NOVEMBER 26, 1999*
ENDED ENDED THROUGH
JULY 31, 2002 JULY 31, 2001 JULY 31, 2000
------------------- --------------- -------------------

Class B Shares
Selected Per Share Data:
Net asset value, beginning of period .............. $ 6.49 $ 9.06 $ 10.00
--------- ------- -------
Loss from investment operations:
Net investment loss++ ............................ (0.13) (0.16) (0.10)
Net realized and unrealized loss ................. (1.17) (2.41) (0.83)
--------- ------- -------
Total loss from investment operations ............. (1.30) (2.57) (0.93)
--------- ------- -------
Less dividends from net investment income ......... - - (0.01)
--------- ------- -------
Net asset value, end of period .................... $ 5.19 $ 6.49 $ 9.06
========= ======= =======
Total Return+ ..................................... (20.03)% (28.37)% (9.30)%(1)
Ratios to Average Net Assets(3):
Expenses .......................................... 2.52 %(4) 2.73 % 2.45 %(2)
Net investment loss ............................... (2.12)%(4) (2.13)% (1.50)%(2)
Supplemental Data:
Net assets, end of period, in thousands ........... $ 15,739 $26,045 $50,633
Portfolio turnover rate ........................... 166% 278% 40%(1)

- -----------
* Commencement of operations.
++ 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) Not annualized.
(2) Annualized.
(3) Reflects overall Fund ratios for investment income and non-class specific
expenses.
(4) If the Investment Manager had not assumed all expenses and waived its
management fee for the period May 1, 2002 through July 31, 2002, the ratios
of expenses and net investment loss would have been 3.08% and (2.68)%,
respectively.

See Notes to Financial Statements

Morgan Stanley Next Generation Trust
FINANCIAL HIGHLIGHTS continued

FOR THE PERIOD
FOR THE YEAR FOR THE YEAR NOVEMBER 26, 1999*
ENDED ENDED THROUGH
JULY 31, 2002 JULY 31, 2001 JULY 31, 2000
------------------- --------------- -------------------

Class C Shares
Selected Per Share Data:
Net asset value, beginning of period. ............. $ 6.49 $ 9.06 $ 10.00
------- ------- -------
Loss from investment operations:
Net investment loss++ ............................ (0.12) (0.16) (0.10)
Net realized and unrealized loss ................. (1.18) (2.41) (0.83)
------- ------- -------
Total loss from investment operations. ............ (1.30) (2.57) (0.93)
------- ------- -------
Less dividends from net investment income ......... - - (0.01)
------- ------- -------
Net asset value, end of period. ................... $ 5.19 $ 6.49 $ 9.06
======= ======= =======
Total Return+ ..................................... (20.03)% (28.37)% (9.30)%(1)
Ratios to Average Net Assets(3):
Expenses .......................................... 2.49 %(4) 2.73 % 2.45 %(2)
Net investment loss ............................... (2.09)%(4) (2.13)% (1.50)%(2)
Supplemental Data:
Net assets, end of period, in thousands ........... $2,357 $3,588 $6,722
Portfolio turnover rate ........................... 166 % 278 % 40 %(1)

See Notes to Financial Statements

Morgan Stanley Next Generation Trust
FINANCIAL HIGHLIGHTS continued

FOR THE PERIOD
FOR THE YEAR FOR THE YEAR NOVEMBER 26, 1999*
ENDED ENDED THROUGH
JULY 31, 2002 JULY 31, 2001 JULY 31, 2000
------------------- --------------- -------------------

Class D Shares
Selected Per Share Data:
Net asset value, beginning of period .............. $ 6.59 $ 9.11 $ 10.00
------- ------- -------
Loss from investment operations:
Net investment loss++ ............................ (0.08) (0.10) (0.04)
Net realized and unrealized loss ................. (1.19) (2.42) (0.83)
------- ------- -------
Total loss from investment operations ............. (1.27) (2.52) (0.87)
------- ------- -------
Less dividends from net investment income ......... - - (0.02)
------- ------- -------
Net asset value, end of period .................... $ 5.32 $ 6.59 $ 9.11
======= ======= =======
Total Return+ ..................................... (19.27)% (27.66)% (8.71)%(1)
Ratios to Average Net Assets(3):
Expenses .......................................... 1.52 %(4) 1.73 % 1.45 %(2)
Net investment loss ............................... (1.12)%(4) (1.13)% (0.50)%(2)
Supplemental Data:
Net assets, end of period, in thousands ........... $ 2,248 $ 3,872 $ 23
Portfolio turnover rate ........................... 166 % 278 % 40 %(1)

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

* Commencement of operations.
++ 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) Not annualized.
(2) Annualized.
(3) Reflects overall Fund ratios for investment income and non-class specific
expenses.
(4) If the Investment Manager had not assumed all expenses and waived its
management fee for the period May 1, 2002 through July 31, 2002, the
ratios of expenses and net investment loss would have been 2.08% and
(1.68)%, respectively.

See Notes to Financial Statements

Morgan Stanley Next Generation Trust
INDEPENDENT AUDITORS' REPORT

To the Shareholders and Board of Trustees of
Morgan Stanley Next Generation Trust:

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of July 31, 2002, by correspondence with the custodian and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Morgan
Stanley Next Generation Trust as of July 31, 2002, the results of its operations
for the year then ended, the changes in its net assets for each of the two years
in the period then ended, and the financial highlights for each of the periods
presented, in conformity with accounting principles generally accepted in the
United States of America.

Deloitte & Touche LLP
New York, New York
September 12, 2002

MORGAN STANLEY DEVELOPING GROWTH SECURITIES TRUST

PART C
OTHER INFORMATION

ITEM 15. INDEMNIFICATION

The response to this item is incorporated herein by reference to Exhibits
1 and 2 under Item 16 below and by reference to Item 25 of Post-Effective
Amendment No. 22 to the Registrant's Registration Statement on Form N-1A, dated
November 29, 2002, which was filed electronically pursuant to Regulation S-T on
November 27, 2002 as an amendment to Registrant's Registration Statement on
Form N-1A (File Nos. 811-3639 and 2-81151).

ITEM 16. EXHIBITS

(1) Declaration of Trust of the Registrant, dated December 28, 1982, is
incorporated by reference to Exhibit 1(a) of Post-Effective Amendment No.
13 to the Registration Statement on Form N-1A, filed on November 22, 1995;
Amendment, dated January 11, 1983, to the Declaration of Trust of the
Registrant is incorporated by reference to Exhibit 1(b) of Post-Effective
Amendment No. 13 to the Registration Statement on Form N-1A, filed on
November 22, 1995; Amendment, dated May 18, 1984, to the Declaration of
Trust of the Registrant is incorporated by reference to Exhibit 1(c) of
Post-Effective Amendment No. 13 to the Registration Statement on Form
N-1A, filed on November 22, 1995; Amendment, dated July 18, 1984, to the
Declaration of Trust of the Registrant is incorporated by reference to
Exhibit 1(d) of Post-Effective Amendment No. 13 to the Registration
Statement on Form N-1A, filed on November 22, 1995; Instrument
Establishing and Designating Additional Classes of Shares, dated July 28,
1997, is incorporated by reference to Exhibit 1 of Post-Effective
Amendment No. 15 to the Registration Statement on Form N-1A, filed on July
10, 1997; Amendment, dated June 22, 1998, to the Declaration of Trust of
the Registrant is incorporated by reference to Exhibit 1 of Post-Effective
Amendment No. 17 to the Registration Statement on Form N-1A, filed on
November 24, 1998; Amendment dated June 18, 2001, to the Declaration of
Trust of the Registrant is incorporated by reference to Exhibit 1(g) of
Post-Effective Amendment No. 21 to the Registration Statement on Form
N-1A, filed on November 28, 2001.

(2) Amended and Restated By-Laws of the Registrant dated September 24, 2002 is
incorporated herein by reference to Exhibit (b) of Post-Effective
Amendment No. 22 to the Registration Statement on Form N-1A, filed on
November 29, 2002.

(3) Not Applicable.

(4) Copy of Agreement and Plan of Reorganization (filed herewith as Exhibit A
to the Proxy Statement and Prospectus).

(5) Not Applicable.

(6) Amended Investment Management Agreement between the Registrant and Morgan
Stanley Investment Advisors Inc., dated April 30, 1998 is incorporated
herein by reference to Exhibit 5 of Post-Effective Amendment No. 17 to the
Registration Statement on Form N-1A, filed on November 24, 1998.

(7) (a) Amended Distribution Agreement between Registrant and Morgan Stanley
Distributors Inc. is incorporated herein by reference to Exhibit
6(a) of Post-Effective Amendment No. 17 to the Registration
Statement on Form N-1A, filed on November 24, 1998.

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(b) Selected Dealer Agreement between Morgan Stanley Distributors Inc.
and Morgan Stanley DW Inc., dated January 4, 1993 is incorporated
herein by reference to Exhibit 6 of Post-Effective Amendment No. 12
to the Registration Statement on Form N-1A, filed on November 21,
1994.

(c) Omnibus Selected Dealer Agreement between Morgan Stanley
Distributors Inc. and National Financial Services Corporation, dated
October 17, 1998 is incorporated by reference to Exhibit 6(b) of
Post-Effective Amendment No. 17 to the Registration Statement on
Form N-1A, filed on November 24, 1998.

(8) Amended and Restated Retirement Plan for Non-Interested Trustees or
Directors, dated May 8, 1997, is incorporated by reference to Exhibit 7(a)
of Post-Effective Amendment No. 18 to the Registration Statement on Form
N-1A, filed on September 28, 1999.

(9) (a) Custody Agreement between the Registrant and The Bank of New York
dated September 20, 1991 is incorporated herein by reference to
Exhibit 8 of Post-Effective Amendment No. 13 to the Registration
Statement on Form N-1A, filed on November 22, 1995; Amendment to the
Custody Agreement between The Bank of New York and the Registrant
dated April 17, 1996 is incorporated herein by reference to Exhibit
8 of Post-Effective Amendment No. 14 to the Registration Statement
on Form N-1A, filed on November 21, 1996; Amendment to the Custody
Agreement between the Registrant and the Bank of New York dated June
15, 2001 is incorporated herein by reference to Exhibit 7(c) of
Post-Effective Amendment No. 21 to the Registration Statement on
Form N-1A, filed on November 28, 2001.

(b) Foreign Custody Manager Agreement between the Registrant and The
Bank of New York dated June 15, 2001 is incorporated herein by
reference to Exhibit 7(d) of Post-Effective Amendment No. 21 to the
Registration Statement on Form N-1A, filed on November 28, 2001.

(c) Amended and Restated Transfer Agency and Services Agreement dated
September 1, 2000 between the Registrant and Morgan Stanley Trust is
incorporated herein by reference to Exhibit 8(a) of Post-Effective
Amendment No. 20 to the Registration Statement on Form N-1A filed on
November 27, 2000.

(10) (a) Amended and Restated Plan of Distribution pursuant to Rule 12b-1
between the Registrant and Morgan Stanley Distributors Inc., dated
July 28, 1997 is incorporated herein by reference to Exhibit 15 of
Post-Effective Amendment No. 15 to the Registration Statement on
Form N-1A, filed on July 10, 1997.

(b) Amended and Restated Funds Multiple Class Plan pursuant to Rule
18f-3 dated March 12, 2001 is incorporated herein by reference to
Exhibit 14 of Post-Effective Amendment No. 21 to the Registration
Statement on Form N-1A, filed on November 28, 2001.

(11) (a) Opinion and consent of Mayer, Brown, Rowe & Maw LLP, filed herein.

(b) Opinion and consent of Dechert LLP, filed herein.

(12) Opinion and consent of Mayer, Brown, Rowe & Maw LLP regarding tax matters,
filed herein.

(13) Amended of Services Agreement between Morgan Stanley Investment Advisors
Inc. and Morgan Stanley Services Company Inc. dated June 22, 1998 is
incorporated herein by reference to Exhibit 9 of Post-Effective Amendment
No. 17 to the Registration Statement on Form N-1A, filed on November 24,
1998.

(14) Consent of Independent Auditors, filed herein.

C-2

(15) Not Applicable.

(16) Not Applicable.

(17) Form of Proxy, filed herein.

ITEM 17. UNDERTAKINGS

1. The undersigned Registrant agrees that prior to any public reoffering
of the securities registered through the use of the prospectus which is a part
of this registration statement on Form N-14 by any person or party who is
deemed to be an underwriter within the meaning of Rule 145(c) of the Securities
Act of 1933, the reoffering prospectus will contain the information called for
by the applicable registration form for reofferings by persons who may be
deemed underwriters, in addition to the information called for by the other
items of the applicable form.

2. The undersigned Registrant agrees that every prospectus that is filed
under paragraph (1) above will be filed as a part of an amendment to this
registration statement on Form N-14 and will not be used until the amendment is
effective, and that, in determining any liability under the Securities Act of
1933, each post-effective amendment shall be deemed to be a new registration
statement for the securities offered therein, and the offering of the
securities at that time shall be deemed to be the initial bona fide offering of
them.

C-3

SIGNATURES

As required by the Securities Act of 1933, this registration statement has
been signed on behalf of the registrant, in the City of New York and State of
New York, on this 4th day of August, 2003.

MORGAN STANLEY DEVELOPING GROWTH SECURITIES TRUST

By: /s/ Barry Fink
...........................
Barry Fink
Vice President and Secretary

As required by the Securities Act of 1933, this registration statement has
been signed by the following persons in the capacities and on the dates
indicated

SIGNATURE TITLE DATE
- ------------------------------ ------------------------------ ---------------

1. Principal Executive Officer

/s/ Ronald E. Robison Executive Vice President and August 4, 2003
........................... Principal Executive Officer
Ronald E. Robison

2. Principal Financial Officer

/s/ Francis Smith Chief Financial Officer August 4, 2003
...........................
Francis Smith

3. Majority of the Trustees

/s/ Charles A. Fiumefreddo Trustee and Chairman August 4, 2003
...........................
Charles A. Fiumefreddo

/s/ Michael Bozic Trustee August 4, 2003
...........................
Michael Bozic

/s/ Edwin J. Garn Trustee August 4, 2003
...........................
Edwin J. Garn

/s/ Wayne E. Hedien Trustee August 4, 2003
...........................
Wayne E. Hedien

/s/ James F. Higgins Trustee August 4, 2003
...........................
James F. Higgins

/s/ Manuel H. Johnson Trustee August 4, 2003
...........................
Manuel H. Johnson

C-4

SIGNATURE TITLE DATE
- ------------------------------ ------------------------------ ---------------

/s/ Joseph J. Kearns Trustee August 4, 2003
............................
Joseph J. Kearns

/s/ Michael E. Nugent Trustee August 4, 2003
............................
Michael E. Nugent

/s/ Philip J. Purcell Trustee August 4, 2003
............................
Philip J. Purcell

/s/ Fergus Reid Trustee August 4, 2003
............................
Fergus Reid

C-5