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 NEW DISCOVERIES FUND

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 NEW DISCOVERIES FUND

Notice is hereby given of a Special Meeting of the Shareholders of Morgan
Stanley New Discoveries Fund ("New Discoveries") to be held in Conference Room
209, 2nd Floor, 1221 Avenue of the Americas, New York, New York 10020, at 10:00
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 New Discoveries
and Morgan Stanley Developing Growth Securities Trust ("Developing
Growth"), pursuant to which substantially all of the assets of New
Discoveries would be combined with those of Developing Growth and
shareholders of New Discoveries would become shareholders of Developing
Growth receiving shares of Developing Growth with a value equal to the
value of their holdings in New Discoveries (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 NEW DISCOVERIES 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 FUND

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

ACQUISITION OF THE ASSETS OF
MORGAN STANLEY NEW DISCOVERIES FUND

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 New Discoveries Fund ("New Discoveries") in connection with an
Agreement and Plan of Reorganization, dated July 31, 2003 (the "Reorganization
Agreement"), pursuant to which substantially all the assets of New Discoveries
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 New
Discoveries will become shareholders of Developing Growth and will receive
shares of Developing Growth with a value equal to the value of their holdings
in New Discoveries. The terms and conditions of this transaction are more fully
described in this Proxy Statement and Prospectus and in the Reorganization
Agreement between New Discoveries and Developing Growth, attached hereto as
Exhibit A. The address of New Discoveries 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 New Discoveries 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 New Discoveries' Prospectus, dated October
31, 2002, Annual Report for its fiscal year ended August 31, 2002 and
succeeding Semi-Annual Report for the six months ended February 28, 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 New Discoveries 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 ...................................................... 15
Description of Shares .................................................................. 17
Capitalization Table (unaudited) ....................................................... 17
Appraisal Rights ....................................................................... 18
COMPARISON OF INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS ........................... 18
Investment Objectives and Policies ..................................................... 18
Investment Restrictions ................................................................ 19
ADDITIONAL INFORMATION ABOUT NEW DISCOVERIES 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 New
Discoveries and Developing Growth ....................................................... A-1
Exhibit B - Prospectus of Developing Growth dated Novermber 29, 2002 ..................... B-1

MORGAN STANLEY NEW DISCOVERIES FUND
1221 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10020
(800) 869-NEWS

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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 New Discoveries Fund ("New Discoveries"), an open-end
diversified management investment company, in connection with the solicitation
by the Board of Trustees of New Discoveries (the "Board") of proxies to be used
at the Special Meeting of Shareholders of New Discoveries to be held in
Conference Room 209, 2nd Floor, 1221 Avenue of the Americas, New York, New York
10020, at 10:00 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, New Discoveries shareholders ("Shareholders") will
consider and vote upon an Agreement and Plan of Reorganization, dated July 31,
2003 (the "Reorganization Agreement"), between New Discoveries and Morgan
Stanley Developing Growth Securities Trust ("Developing Growth"), pursuant to
which substantially all of the assets of New Discoveries 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 New Discoveries 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 New Discoveries currently held by that Shareholder. Accordingly,
as a result of the Reorganization, each Class A, Class B, Class C and Class D
Shareholder of New Discoveries 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 New Discoveries contained herein has been
supplied by New Discoveries 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 New Discoveries 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 New Discoveries 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 New Discoveries, as a
group, owned less than 1% of the outstanding shares of New Discoveries.

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 New Discoveries, 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 New
Discoveries 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 New Discoveries,
which expenses are expected to approximate $199,300. New Discoveries 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 New
Discoveries 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, New Discoveries will employ Alamo Direct Mail Services Inc. ("Alamo") to
make telephone calls to Shareholders to remind them to vote. In addition, New
Discoveries 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, New
Discoveries 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. New Discoveries 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 New
Discoveries.

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 New
Discoveries 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, New Discoveries 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 New Discoveries, 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 New Discoveries received by Developing
Growth. On or after the closing date scheduled for the Reorganization (the
"Closing Date"), New Discoveries will distribute the Developing Growth Shares
received by New Discoveries to Shareholders as of the Valuation Date (as
defined below under "The Reorganization Agreement") in complete liquidation of
New Discoveries and New Discoveries 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 New Discoveries
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 New Discoveries currently held by that
Shareholder. Accordingly, as a result of the Reorganization, each Class A,
Class B, Class C and Class D Shareholder of New Discoveries will become a
holder of Class A, Class B, Class C or Class D shares of Developing Growth,
respectively. Shareholders holding their shares of New Discoveries 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, New Discoveries 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 New Discoveries' investment company taxable income for
all periods since the inception of New Discoveries through and including the
Valuation Date (computed without regard to any dividends paid deduction), and
all of New Discoveries' 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 NEW DISCOVERIES ("INDEPENDENT TRUSTEES"), AS THAT

TERM IS DEFINED IN THE 1940 ACT, HAS CONCLUDED THAT THE REORGANIZATION IS IN
THE BEST INTERESTS OF NEW DISCOVERIES 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 New Discoveries 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 New Discoveries for its
fiscal year ended August 31, 2002, and for Developing Growth for its fiscal
year ended September 30, 2002. New Discoveries 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
NEW DISCOVERIES 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
NEW DISCOVERIES GROWTH (DEVELOPING GROWTH)(5)
----------------- ------------ -----------------------

MANAGEMENT FEES
Class A ............................. 1.00% 0.50% 0.50%
Class B ............................. 1.00% 0.50% 0.50%
Class C ............................. 1.00% 0.50% 0.50%
Class D ............................. 1.00% 0.50% 0.50%
DISTRIBUTION AND SERVICE (12B-1) FEES
Class A ............................. 0.24% 0.22% 0.22%
Class B ............................. 1.00% 1.00% 1.00%
Class C ............................. 1.00% 1.00% 0.99%
Class D ............................. none none none
OTHER EXPENSES(6)
Class A ............................. 0.39% 0.30% 0.38%
Class B ............................. 0.39% 0.30% 0.38%
Class C ............................. 0.39% 0.30% 0.38%
Class D ............................. 0.39% 0.30% 0.38%
TOTAL ANNUAL FUND OPERATING EXPENSES
Class A ............................. 1.63% 1.02% 1.10%
Class B ............................. 2.39% 1.80% 1.88%
Class C ............................. 2.39% 1.80% 1.87%
Class D ............................. 1.39% 0.80% 0.88%

- ----------
(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 $58,000 in expenses of the Combined Fund for the
first year of combined operations.

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 New Discoveries, 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
-------- --------- --------- ---------

New Discoveries
Class A ......... $682 $1,012 $1,365 $2,356
Class B ......... 742 1,045 1,475 2,726
Class C ......... 342 745 1,275 2,726
Class D ......... 142 440 761 1,669
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 ......... $631 $ 856 $1,099 $1,795
Class B ......... 691 891 1,216 2,201
Class C ......... 290 588 1,011 2,190
Class D ......... 90 281 488 1,084

If a Shareholder HELD His Shares:

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

New Discoveries
Class A ......... $682 $1,012 $1,365 $2,356
Class B ......... 242 745 1,275 2,726
Class C ......... 242 745 1,275 2,726
Class D ......... 142 440 761 1,669
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 ......... $631 $ 856 $1,099 $1,795
Class B ......... 191 591 1,016 2,201
Class C ......... 190 588 1,011 2,190
Class D ......... 90 281 488 1,084

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 New Discoveries 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, New Discoveries 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 New Discoveries or the Shareholders
of New Discoveries 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 NEW DISCOVERIES AND DEVELOPING GROWTH

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

New Discoveries seeks to achieve its investment objective by normally
investing at least 65% of its assets in a diversified mix of common stocks of
medium-sized companies with market capitalizations, at the time of purchase,
that fall within the range of companies included within the Russell Midcap
Growth Index. As of September 30, 2002, these market capitalizations range
between $244 million and $11.4 billion. The remaining 35% of New Discoveries'
assets may be invested in common stocks of companies with market
capitalizations which exceed or fall below the range of companies included
within the Russell Midcap Growth Index, as well as in other equity securities
including preferred stocks, convertible securities, and rights and warrants.
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.

When selecting investments for the New Discoveries' portfolio, New
Discoveries' Sub-Advisor, Morgan Stanley Investments LP, focuses on companies
that, in its view, demonstrate one or more of the following characteristics:
high earnings growth rates, growth stability, rising earnings estimates, rising
profitability, attractive business models and strong cash flow. The Sub-Advisor
utilizes a quantitative screening process to identify a list of potential
investments and then applies a fundamental "bottom-up" approach and valuation
analysis in order to arrive at overall stock selection and sector allocation.
New Discoveries may also invest in securities issued in initial public
offerings ("IPOs").

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 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 New Discoveries and Developing Growth are
not fundamental and may be changed by their respective Boards of Trustees.

INVESTMENT MANAGEMENT AND DISTRIBUTION PLAN FEES. New Discoveries and
Developing Growth obtain management services from Morgan Stanley Investment
Advisors Inc. Morgan Stanley Investment Advisors Inc. has contracted with the
Sub-Advisor, Morgan Stanley Investments LP, to invest New Discoveries' assets.
For the fiscal year ended August 31, 2002, New Discoveries paid Morgan Stanley
Investment Advisors monthly compensation calculated daily at an annual rate of
1.00% 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 Inc. 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 New Discoveries 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, New Discoveries'
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 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.
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 New Discoveries and
Developing Growth are set forth below under "Purchases, Exchanges and
Redemptions."

OTHER SIGNIFICANT FEES. Both New Discoveries 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."

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 NEW DISCOVERIES 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 New Discoveries 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 New Discoveries and Developing
Growth, see the section entitled "Share Class Arrangements" in each fund's
Prospectus.

Shares of each class of New Discoveries 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., New Discoveries) will be counted. During the period
of time a Developing Growth or New Discoveries Shareholder remains in an
Exchange Fund, the holding period (for purposes of determining the CDSC rate)
is frozen. Both New Discoveries 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 New Discoveries 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 New Discoveries 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. New Discoveries 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. New Discoveries 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 New Discoveries 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 New
Discoveries, the fund may invest up to 5% of its net assets in foreign
securities not traded in the United States on a national securities exchange.
Developing Growth may invest up to 10% of its net assets in such foreign
securities. 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.

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.

Developing Growth invests in stocks of small and both funds invest in
stocks of medium-sized companies. Investing in securities of these companies
involves greater risk than is customarily associated with investing in more
established companies. These companies' stocks may be more volatile and less
liquid than the stocks of more established companies. These stocks may have
returns that vary, sometimes significantly, from the overall stock market.
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. While some of Developing Growth's
holdings in small capitalization 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.

In addition, both funds may invest in securities issued in IPOs. Purchases
of shares issued in IPOs expose both funds 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.

Developing Growth 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.)

Both funds 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 investment, 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 New Discoveries and in
Developing Growth's Prospectus, both of which are incorporated herein by
reference.

THE REORGANIZATION

THE PROPOSAL

The Board of Trustees of New Discoveries, including the Independent
Trustees, having reviewed the financial position of New Discoveries and the
prospects for achieving economies of scale through the Reorganization and
having determined that the Reorganization is in the best interests of New
Discoveries 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 New Discoveries.

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
New Discoveries and Developing Growth. The Board also considered other factors,
including, but not limited to: New Discoveries' inability to grow assets as
expected, the general compatibility of the investment objectives, policies and
restrictions of New Discoveries 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 New Discoveries and Developing Growth in
connection with the Reorganization.

In recommending the Reorganization to Shareholders, the Board of New
Discoveries 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 New Discoveries. 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 New Discoveries for its last fiscal year (1.00%). The Board also
noted that Developing Growth's "Other Expenses" for its last fiscal year
(0.30%) were substantially lower than New Discoveries' "Other Expenses" for its
last fiscal year (0.41%). The Board also considered that, upon completion of
the Reorganization, the Investment Manager has agreed to reimburse or waive
$58,000 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 New Discoveries 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) New Discoveries will
transfer all of its assets, including portfolio securities, cash (other than
cash amounts retained by New Discoveries 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 New Discoveries,
including all expenses, costs, charges and reserves, as reflected on an
unaudited statement of assets and liabilities of New Discoveries prepared by
the Treasurer of New Discoveries 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) New Discoveries
would be dissolved; and (iv) the outstanding shares of New Discoveries would be
canceled.

The number of Developing Growth Shares to be delivered to New Discoveries
will be determined by dividing the aggregate net asset value of each class of
shares of New Discoveries 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 New Discoveries and Developing Growth may agree (the "Valuation Date"). As
an illustration, assume that on the Valuation Date, Class B shares of New
Discoveries had an aggregate net asset value (not including any Cash Reserve of
New Discoveries) 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 New
Discoveries. 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, New Discoveries
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 New Discoveries 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 New Discoveries, 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 New
Discoveries 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 New
Discoveries 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 New Discoveries 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, New Discoveries 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 New Discoveries that
received Developing Growth Shares. New Discoveries shall be dissolved and
deregistered as an investment company promptly following the distributions of
shares of Developing Growth to Shareholders of record of New Discoveries.

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 New Discoveries (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 New
Discoveries 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 New
Discoveries 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
New Discoveries 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, New Discoveries 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 New Discoveries 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 New
Discoveries acquired in the Reorganization except for dispositions made in the
ordinary course of business):

1. The transfer of New Discoveries' assets in exchange for the Developing
Growth Shares and the assumption by Developing Growth of certain stated
liabilities of New Discoveries followed by the distribution by New Discoveries
of the Developing Growth Shares to Shareholders in exchange for their New
Discoveries 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
New Discoveries 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 New Discoveries solely in exchange for the Developing
Growth Shares and the assumption by Developing Growth of the stated liabilities
of New Discoveries;

3. No gain or loss will be recognized by New Discoveries upon the transfer
of the assets of New Discoveries 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 New Discoveries shares;

4. No gain or loss will be recognized by Shareholders upon the exchange of
the shares of New Discoveries 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 New Discoveries 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 New
Discoveries surrendered in exchange therefor were held (provided such shares in
New Discoveries were held as capital assets on the date of the Reorganization);

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

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

The advice of Counsel is not binding on the Internal Revenue Service or
the courts and neither New Discoveries 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 NEW DISCOVERIES AND DEVELOPING
GROWTH. Under the Code, the Reorganization may result in limitations on the
utilization of the capital loss carryovers of New Discoveries. The effect of
any such limitations will depend on the existence and amount of New Discoveries
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 August 31, 2002, New Discoveries had capital loss carryovers of
approximately $272 million and 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 New Discoveries 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 New Discoveries'
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, New Discoveries had net unrealized capital
gains of approximately $17 million.

Additionally, subject to the limitation described in the succeeding
paragraph, New Discoveries' 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 New
Discoveries held by the combined fund. However, the combined fund will be
unable to utilize New Discoveries' 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
New Discoveries' 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 $6.2
million of New Discoveries' 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 New
Discoveries 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 New
Discoveries, 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 and 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
New Discoveries 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
- -------------------------------------------------------
New Discoveries ....................................... $13,118,418 2,802,311 $ 4.68
Developing Growth ..................................... $21,714,589 1,411,703 $ 15.38
Combined Fund (Developing Growth) (pro forma) ......... $34,833,007 2,264,656 $ 15.38

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

CLASS B
- -------------------------------------------------------
New Discoveries ....................................... $ 97,874,206 21,351,664 $ 4.58
Developing Growth ..................................... $282,253,074 19,494,583 $ 14.48
Combined Fund (Developing Growth) (pro forma) ......... $380,127,280 26,253,851 $ 14.48

CLASS C
- --------------------------------------------------------
New Discoveries ....................................... $ 23,819,416 5,212,060 $ 4.57
Developing Growth ..................................... $ 6,258,978 431,183 $ 14.52
Combined Fund (Developing Growth) (pro forma) ......... $ 30,078,394 2,071,639 $ 14.52

CLASS D
- --------------------------------------------------------
New Discoveries ....................................... $ 4,050,250 859,869 $ 4.71
Developing Growth ..................................... $ 93,033,016 5,945,474 $ 15.65
Combined Fund (Developing Growth) (pro forma) ......... $ 97,083,266 6,204,276 $ 15.65

TOTAL CLASS A, B, C, D
- --------------------------------------------------------
New Discoveries ....................................... $138,862,290 -- --
Developing Growth ..................................... $403,259,657 -- --
Combined Fund (Developing Growth) (pro forma) ......... $542,121,947 -- --

APPRAISAL RIGHTS

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

COMPARISON OF INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS

INVESTMENT OBJECTIVES AND POLICIES

New Discoveries' investment objective is to seek long-term capital growth.
Similarly, Developing Growth's investment objective is to seek long-term
capital growth.

New Discoveries seeks to achieve its investment objective by normally
investing at least 65% of its assets in a diversified mix of common stocks of
medium-sized companies with market capitalizations, at the time of purchase,
that fall within the range of companies included within the Russell Midcap
Growth Index. As of September 30, 2002, these market capitalizations range
between $244 million and $11.4 billion. The remaining 35% of New Discoveries'
assets may be invested in common stocks of companies with market
capitalizations which exceed or fall below the range of companies included
within the Russell Midcap Growth Index, as well as in other equity securities
including preferred stocks, convertible securities, and rights and warrants. Up
to 5% 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.

When selecting investments for the New Discoveries' portfolio, New
Discoveries' Sub-Advisor focuses on companies that, in its view, demonstrate
one or more of the following characteristics: high earnings growth rates,
growth stability, rising earnings estimates, rising profitability, attractive
business models and strong cash flow. The Sub-Advisor utilizes a quantitative
screening process to identify a list of potential investments and then applies
a fundamental "bottom-up" approach and valuation analysis in order to arrive at
overall stock selection and sector allocation. The Fund may also invest in
securities issued in IPOs.

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 New Discoveries 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 New Discoveries 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. New Discoveries may
not do so as to 75% of its total assets; (b) Developing Growth may not (i)
concentrate its investments in any particular industry, but if deemed
appropriate for attainment of its investment objective, up to 25% of its total
assets may be invested in any one industry classification used by the Fund for
investment purposes (this restriction shall not apply to obligations of the
U.S. government, its agencies or instrumentalities), (ii) purchase securities
of other investment companies, except in connection with a merger,
consolidation, reorganization or acquisition of assets; (iii) 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);

(iv) 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 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; (v) 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; (vi) write, purchase or sell
puts, calls or combinations thereof; (vii) 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);
(viii) 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; (ix) make short
sales of securities; (x) purchase securities on margin, expect for short-term
loans as are necessary for the clearance of portfolio securities; and (xi)
invest for the purpose of exercising control or management of any other issuer.
Neither fund may borrow money, except in the case of Developing Growth, the
fund may borrow money from banks for investment purposes or as a temporary
measure for extraordinary or emergency purposes, and in the case of New
Discoveries, the fund may borrow money 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). Neither fund
may purchase or sell commodities or commodities contracts, but New Discoveries
may purchase or sell futures contracts or options thereon. Neither fund may
issue senior securities, except insofar as a 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 (however, in the case of
New Discoveries, the fund may be deemed to have issued a senior security by
virtue of (d) purchasing any securities on a when-issued or delayed delivery
basis or (e) purchasing or selling any futures contracts. Furthermore, as a
non-fundamental policy, New Discoveries 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 NEW DISCOVERIES
AND DEVELOPING GROWTH

GENERAL

For a discussion of the organization and operation of Developing Growth
and New Discoveries, 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 New
Discoveries, 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 New Discoveries, 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 New Discoveries 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 New Discoveries' 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 New Discoveries' 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 accompanying this Proxy Statement and Prospectus. Also see its
succeeding Semi-Annual Report for the six months ended March 31, 2003. For a
discussion of the performance of New Discoveries, see its Annual Report for its
fiscal year ended August 31, 2002 and its succeeding Semi-Annual Report for the
six months ended February 28, 2003.

FINANCIAL STATEMENTS AND EXPERTS

The financial statements of Developing Growth, for the fiscal year ended
September 30, 2002, and New Discoveries, for the fiscal year ended August 31,
2002, 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 New Discoveries 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, 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) New Discoveries'
Prospectus dated October 31, 2002 which Prospectus forms a part of
Post-Effective Amendment No. 2 to New Discoveries' Registration Statement on
Form N-1A (File Nos. 333-37936; 811-9951); (v) New Discoveries' Annual Report
for its fiscal year ended August 31, 2002 and (vi) New Discoveries' succeeding
Semi-Annual Report for the six months ended February 28, 2003. The foregoing
documents may be obtained without charge by calling (800) 869-NEWS (toll-free).

New Discoveries 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 New Discoveries 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 New Discoveries 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 NEW DISCOVERIES FUND, a Massachusetts business trust ("New
Discoveries").

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 New
Discoveries in exchange for the assumption by Developing Growth of all stated
liabilities of New Discoveries 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 New Discoveries in liquidation of New Discoveries 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, New Discoveries agrees
to assign, deliver and otherwise transfer the New Discoveries Assets (as
defined in paragraph 1.2) to Developing Growth and Developing Growth agrees in
exchange therefor to assume all of New Discoveries' stated liabilities on the
Closing Date as set forth in paragraph 1.3(a) and to deliver to New Discoveries
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 "New Discoveries 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 New Discoveries, and any deferred or prepaid
expenses shown as an asset on New Discoveries' books on the Valuation Date.

(b) On or prior to the Valuation Date, New Discoveries will provide
Developing Growth with a list of all of New Discoveries' 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. New Discoveries 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 New Discoveries 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 New Discoveries holds any
investments that Developing Growth is not permitted to hold, New Discoveries
will dispose of such securities on or prior to the Valuation Date. In addition,
if it is determined that the portfolios of New Discoveries and Developing
Growth, when aggregated, would contain investments exceeding certain percentage
limitations imposed upon Developing Growth with respect to such investments,
New Discoveries 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) New Discoveries 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 New Discoveries prepared by the Treasurer of New
Discoveries as of the Valuation Date in accordance with generally accepted
accounting principles consistently applied from the prior audited period.

(b) On the Valuation Date, New Discoveries may establish a cash reserve,
which shall not exceed 5% of New Discoveries' net assets as of the close of
business on the Valuation Date ("Cash Reserve") to be retained by New
Discoveries 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 New Discoveries 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, New Discoveries 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, New
Discoveries will distribute Developing Growth Shares received by New
Discoveries pursuant to paragraph 1.1 pro rata to its shareholders of record
determined as of the close of business on the Valuation Date ("New Discoveries
Shareholders"). Each New Discoveries Shareholder will receive the class of
shares of Developing Growth that corresponds to the class of shares of New
Discoveries currently held by that New Discoveries 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 New Discoveries,
respectively. Such distribution will be accomplished by an instruction, signed
by New Discoveries' Secretary, to transfer Developing Growth Shares then
credited to New Discoveries' account on the books of Developing Growth to open
accounts on the books of Developing Growth in the names of the New Discoveries
Shareholders and representing the respective pro rata number of Developing
Growth Shares due such New Discoveries Shareholders. All issued and outstanding
shares of New Discoveries simultaneously will be canceled on New Discoveries'
books; however, share certificates representing interests in New Discoveries
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 New Discoveries 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 New
Discoveries' 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 New Discoveries is and shall remain
the responsibility of New Discoveries up to and including the date on which New
Discoveries is dissolved and deregistered pursuant to paragraph 1.9.

A-2

1.9 Within one year after the Closing Date, New Discoveries shall pay or
make provision for the payment of all its liabilities and taxes, and distribute
to the shareholders of New Discoveries 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 New Discoveries,
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 New Discoveries 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.
New Discoveries 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 New
Discoveries 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 New Discoveries is subject
under the 1940 Act.

2. VALUATION

2.1 The value of the New Discoveries 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
New Discoveries 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 New Discoveries
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 New Discoveries 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 New Discoveries 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 New Discoveries 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 New
Discoveries, accurate appraisal of the value of the net assets of Developing
Growth or the New Discoveries 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, New Discoveries 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 New Discoveries
Shareholders and the number and percentage ownership of outstanding New
Discoveries shares owned by each such New Discoveries 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 New Discoveries
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 New Discoveries or provide
evidence satisfactory to New Discoveries that such Developing Growth Shares
have been credited to New Discoveries' 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 NEW DISCOVERIES

4.1 Except as otherwise expressly provided herein with respect to New
Discoveries, Developing Growth and New Discoveries 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"). New Discoveries will provide
Developing Growth with the Proxy Materials as described in paragraph 4.3 below,
for inclusion in the Registration Statement. New Discoveries will further
provide Developing Growth with such other information and documents relating to
New Discoveries as are reasonably necessary for the preparation of the
Registration Statement.

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4.3 New Discoveries 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. New Discoveries 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 New Discoveries 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 New Discoveries will assist Developing Growth in obtaining such
information as Developing Growth reasonably requests concerning the beneficial
ownership of New Discoveries shares.

4.5 Subject to the provisions of this Agreement, Developing Growth and New
Discoveries 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 New Discoveries shall furnish or cause to be furnished to Developing
Growth within 30 days after the Closing Date a statement of New Discoveries'
assets and liabilities as of the Closing Date, which statement shall be
certified by New Discoveries' 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, New
Discoveries shall furnish Developing Growth, in such form as is reasonably
satisfactory to Developing Growth, a statement certified by New Discoveries'
Treasurer of New Discoveries' 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, New
Discoveries (a) shall prepare and file all federal and other tax returns and
reports of New Discoveries 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 New Discoveries 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 New Discoveries), 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 New
Discoveries, for the account of the New Discoveries 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 New Discoveries represents and warrants to Developing Growth as
follows:

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

(b) New Discoveries 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
New Discoveries have been offered and sold in compliance in all material
respects with applicable requirements of the 1933 Act and state securities
laws. Shares of New Discoveries 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 New Discoveries 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 New
Discoveries 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) New Discoveries is not, and the execution, delivery and performance
of this Agreement will not result, in a material violation of any provision
of New Discoveries' Declaration of Trust or By-Laws or of any agreement,
indenture, instrument, contract, lease or other undertaking to which New
Discoveries 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 New Discoveries 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 New
Discoveries 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 New
Discoveries for the year ended August 31, 2002, audited by Deloitte &
Touche LLP (copies of which have been or will be furnished to Developing
Growth) fairly present, in all material respects, New Discoveries'
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 New Discoveries (contingent or otherwise) not
disclosed therein that would be required in accordance with generally
accepted accounting principles to be disclosed therein;

(h) New Discoveries 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 New Discoveries 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 New Discoveries' current Statement of Additional Information
incorporated by reference in the Statement of Additional Information to
this Registration Statement. New Discoveries 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 New Discoveries, and subject to the approval of New
Discoveries' shareholders, this Agreement constitutes a valid and binding
obligation of New Discoveries, 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 New Discoveries' performance of this
Agreement;

(k) All material federal and other tax returns and reports of New
Discoveries 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
New Discoveries' 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, New Discoveries 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 New Discoveries
to continue to meet the requirements of Subchapter M of the Code;

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(m) At the Closing Date, New Discoveries will have good and valid title
to the New Discoveries Assets, subject to no liens (other than the
obligation, if any, to pay the purchase price of portfolio securities
purchased by New Discoveries 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 New Discoveries' 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 New
Discoveries 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) New Discoveries 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) New Discoveries 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) New Discoveries 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 NEW DISCOVERIES

The obligations of New Discoveries 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 New Discoveries a
certificate of its President and Treasurer, in a form reasonably satisfactory
to New Discoveries 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 New Discoveries shall reasonably request;

6.3 New Discoveries 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 New Discoveries, 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 New Discoveries 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 New
Discoveries 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 New Discoveries 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 New Discoveries 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 New Discoveries 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 New Discoveries shall have delivered to Developing Growth a statement
of the New Discoveries Assets and its liabilities, together with a list of New
Discoveries' 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 New Discoveries;

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7.4 New Discoveries shall have delivered to Developing Growth within three
business days after the Closing a letter from Deloitte & Touche LLP for the
taxable period September 27, 2000 (commencement of operations) through August
31, 2001 and the taxable years ended August 31, 2002 and 2003, 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 New Discoveries 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 New Discoveries for the periods covered thereby, (b) for the period from
August 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 August 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 New Discoveries 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 LLP, counsel to New Discoveries, dated as
of the Closing Date to the effect that:

(a) New Discoveries 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) New Discoveries 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 New Discoveries 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 New Discoveries enforceable against New
Discoveries 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 New Discoveries'
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 New Discoveries 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 New Discoveries 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 NEW
DISCOVERIES

The obligations of New Discoveries 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
New Discoveries in accordance with the provisions of New Discoveries'
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 New Discoveries 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 New Discoveries;

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 New Discoveries 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
New Discoveries Shareholders all of New Discoveries' 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 New Discoveries, which
opinion may be relied upon by the shareholders of New Discoveries,
substantially to the effect that, for federal income tax purposes:

(a) The transfer of New Discoveries' assets in exchange for Developing
Growth Shares and the assumption by Developing Growth of certain stated
liabilities of New Discoveries followed by the distribution by New
Discoveries of Developing Growth Shares to the New Discoveries Shareholders
in exchange for their New Discoveries 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 New Discoveries 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 New Discoveries solely in exchange for Developing
Growth Shares and the assumption by Developing Growth of the stated
liabilities of New Discoveries;

(c) No gain or loss will be recognized by New Discoveries upon the
transfer of the assets of New Discoveries 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 New Discoveries Shareholders in exchange for their New Discoveries
shares;

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

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

A-12

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

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

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

Notwithstanding anything herein to the contrary, neither Developing Growth
nor New Discoveries 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. New Discoveries 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 New Discoveries being either unwilling or unable to go forward
(other than by reason of the nonfulfillment or failure of any condition to
New Discoveries' obligations specified in this Agreement), New Discoveries'
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 New
Discoveries for all reasonable out-of-pocket fees and expenses incurred by
New Discoveries 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 New
Discoveries hereunder shall not survive the dissolution and complete
liquidation of New Discoveries 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 New Discoveries and Developing
Growth;

A-13

(b) by either Developing Growth or New Discoveries 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 New Discoveries, 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 New Discoveries 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 New
Discoveries, or the trustees or officers of Developing Growth or New
Discoveries, 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 New Discoveries,
or the trustees or officers of Developing Growth or New Discoveries, 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 New Discoveries hereunder are
solely those of New Discoveries. It is expressly agreed that no shareholder,
nominee, trustee, officer, agent, or employee of New Discoveries shall be
personally liable hereunder. The execution and delivery of this Agreement have
been authorized by the trustees of New Discoveries and signed by authorized
officers of New Discoveries 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 NEW DISCOVERIES FUND

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

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.

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 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

[GRAPHIC OMITTED]

Morgan Stanley New Discoveries Fund

A mutual fund that seeks long-term capital growth

[GRAPHIC OMITTED]

Prospectus October 31, 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 ................................................ 3

FEES AND EXPENSES ............................................... 4

ADDITIONAL INVESTMENT STRATEGY INFORMATION ...................... 5

ADDITIONAL RISK INFORMATION ..................................... 6

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

Shareholder Information PRICING FUND SHARES ............................................. 9

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

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

HOW TO SELL SHARES .............................................. 13

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 New Discoveries Fund seeks long-term capital growth.

[GRAPHIC OMITTED]

PRINCIPAL INVESTMENT STRATEGIES
- -----------------------------------
(sidebar)
CAPITAL GROWTH

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

The Fund will normally invest at least 65% of its assets in a diversified mix of
common stocks of medium-sized companies with market capitalizations, at the time
of purchase, that fall within the range of companies included within the Russell
Midcap Growth Index. As of September 30, 2002, these market capitalizations
range between $224 million and $11.4 billion. When selecting investments for the
Fund's portfolio, the Fund's "Sub-Advisor," Morgan Stanley Investments LP,
focuses on companies that, in its view, demonstrate one or more of the following
characteristics: high earnings growth rates, growth stability, rising earnings
estimates, rising profitability, attractive business models and strong cash
flow. The Sub-Advisor utilizes a quantitative screening process to identify a
list of potential investments and then applies a fundamental "bottom-up"
approach and valuation analysis in order to arrive at overall stock selection
and sector allocation. In deciding whether to sell a particular security, the
Fund's Sub-Advisor considers a number of factors including unfavorable earnings
revisions or estimates, negative fundamental information, excessive market
valuations in relation to growth prospects, changes in the issuer's financial
condition or industry position as well as general economic and market
conditions.

The Fund may purchase securities issued as part of, or a short period after,
companies' initial public offerings ("IPOs"), and may at times dispose of those
shares shortly after their acquisition.

The remaining 35% of the Fund's assets may be invested in common stocks of
companies with market capitalizations which exceed or fall below the range of
companies included within the Russell Midcap Growth Index, as well as in other
equity securities including preferred stocks, convertible securities, and
rights and warrants.

The Fund may also invest in options and futures and, to a limited extent, in
foreign securities.

In pursuing the Fund's investment objective, the Sub-Advisor 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
Sub-Advisor 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 and Other Equity Securities. A principal risk of investing in the
Fund is associated with its common stock and other equity investments. 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.

Medium Capitalization Companies. The Fund invests in stocks of medium-sized
companies. Investing in securities of these companies involves greater risk
than is customarily associated with investing in larger, more established
companies. These companies' stocks may be more volatile and less liquid than
the stocks of more established companies and may be subject to more abrupt and
erratic price movements. These stocks may have returns that vary, sometimes
significantly, from the overall stock market. Often 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.

Shares of IPOs. The Fund's purchase of shares issued in IPOs exposes it 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 Sub-Advisor
cannot guarantee continued access to IPOs.

Other Risks. The performance of the Fund also will depend on whether the
Sub-Advisor 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 convertible securities, rights and warrants, options and
futures and foreign securities. Foreign securities are subject to currency risk
and risks related to economic and political developments abroad. Risks of
options and futures include the possibility of imperfect correlation between
the prices of the options and futures and the prices of the underlying Fund
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
- --------------------
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.

(sidebar)
ANNUAL TOTAL RETURNS

This chart shows the performance of the Fund's Class B shares for the past
calendar year.
(/sidebar)

ANNUAL TOTAL RETURNS -- CALENDAR YEAR

2001 -31.25%

During the period shown in the bar chart, the highest return for a calendar
quarter was 17.45% (quarter ended December 31, 2001) and the lowest return for
a calendar quarter was -28.06% (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).
(/sidebar)

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

LIFE OF FUND
PAST 1 YEAR (SINCE 9/27/00)
- --------------------------------------------------------------------------------

Class A -34.26% -38.00%
- --------------------------------------------------------------------------------
Class C -31.94% -35.82%
- --------------------------------------------------------------------------------
Class D -30.58% -35.20%
- --------------------------------------------------------------------------------
Class B - Returns Before Taxes -34.69% -37.87%
- --------------------------------------------------------------------------------
Class B - Returns After Taxes on
Distributions(1) -34.69% -37.87%
- --------------------------------------------------------------------------------
Class B - Returns After Taxes on
Distributions and Sale of Fund Shares -21.12% -29.90%
- --------------------------------------------------------------------------------
Russell Midcap Growth Index(2) -20.15% -31.35%
- --------------------------------------------------------------------------------
S&P 400 Index(3) -0.58% -2.10%
- --------------------------------------------------------------------------------

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 Russell Midcap Growth Index measures the performance of those Russell
Midcap companies with higher price-to-book ratios and higher forecasted
growth values. The stocks are also members of the Russell 1000 Growth Index.
The Index does not include any expenses, fees, or charges. The Index is
unmanaged and should not be considered an investment.

3 The Standard and Poor's MidCap 400 Index (S&P 400) is a market-value
weighted index, the performance of which is based on the performance of 400
domestic 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.

[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.
(/sidebar)

(sidebar)
ANNUAL FUND OPERATING EXPENSES

These expenses are deducted from the Fund's assets and are based on expenses
paid for the fiscal period ended August 31, 2002.
(/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 1.00% 1.00% 1.00% 1.00%
- ---------------------------------------------------------------------------------------------------
Distribution and service (12b-1) fees 0.24% 1.00% 1.00% None
- ---------------------------------------------------------------------------------------------------
Other expenses 0.39% 0.39% 0.39% 0.39%
- ---------------------------------------------------------------------------------------------------
Total annual Fund operating expenses 1.63% 2.39% 2.39% 1.39%
- ---------------------------------------------------------------------------------------------------

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.

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.

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 $682 $1,012 $1,365 $2,356 $682 $1,012 $1,365 $2,356
- ---------- ---- ------ ------ ------ ---- ------ ------ ------
Class B $742 $1,045 $1,475 $2,726 $242 $ 745 $1,275 $2,726
- ---------- ---- ------ ------ ------ ---- ------ ------ ------
Class C $342 $ 745 $1,275 $2,726 $242 $ 745 $1,275 $2,726
- ---------- ---- ------ ------ ------ ---- ------ ------ ------
Class D $142 $ 440 $ 761 $1,669 $142 $ 440 $ 761 $1,669
- ---------- ---- ------ ------ ------ ---- ------ ------ ------

[GRAPHIC OMITTED]

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

Other Equity Securities. Up to 35% of the Fund's assets may be invested in
other types of equity securities including preferred stocks, convertible
securities, rights and warrants. Preferred stocks pay a fixed or variable
dividend and have a prior claim before common stocks on assets and earnings but
generally carry no voting rights. Convertible securities 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.
Rights and warrants are, in effect, options to purchase equity securities for a
specific price during a fixed time period.

Options and Futures. The Fund may invest in put and call options and futures on
its portfolio securities and stock indexes. The Fund may use options and
futures to protect against a decline in the Fund's securities or an increase in
prices of securities that may be purchased.

Foreign Securities. The Fund may invest up to 5% 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.

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 total assets in cash or money market instruments in a defensive
posture when the Sub-Advisor 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 portfolio 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."

[GRAPHIC OMITTED]

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

Convertible Securities. The Fund 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. 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.

Rights and Warrants. Rights and warrants have no voting rights, receive no
dividends and have no rights with respect to the assets of the issuer. Rights
and warrants may be highly volatile and are, therefore, more susceptible to a
sharp decline in value than the underlying security. They also may be less
liquid than an investment in the underlying shares.

Options and Futures. If the Fund invests in options and/or futures, its
participation in these markets would subject the Fund's portfolio to certain
risks. If the Sub-Advisor's predictions of movements in the direction of the
stock markets are inaccurate, the adverse consequences to the Fund (e.g., a
reduction in

the Fund's net asset value or a reduction in the amount of income available for
distribution) may leave the Fund in a worse position than if these strategies
were not used. Other risks inherent in the use of options and futures include,
for example, the possible imperfect correlation between the price of options
and futures contracts and movements in the prices of the securities being
hedged, and the possible absence of a liquid secondary market for any
particular instrument. Certain options may be over-the-counter options which
are options negotiated with dealers; there is no secondary market for these
investments.

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 the value of the securities subject to the trades.

[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 $120 billion in assets under
management as of September 30, 2002.
(/sidebar)

The Fund has retained the Investment Manager -- Morgan Stanley Investment
Advisors Inc. -- to provide administrative services and manage its business
affairs. The Investment Manager has contracted with the Sub-Advisor -- Morgan
Stanley Investments LP -- 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 Sub-Advisor, together with its institutional investment management
affiliates, manages assets of approximately $165 billion as of September 30,
2002 for investment companies, employee benefit plans, endowments, foundations
and other institutional investors. The Sub-Advisor is an indirect subsidiary of
Morgan Stanley. The Sub-Advisor's address is One Tower Bridge, West
Conshohocken, PA.

The Fund's portfolio is managed by the Small/Mid-Cap Growth team. Current
members of the team include Dennis Lynch and David P. Chu, Executive Directors
of the Sub-Advisor, and David Cohen and David Reidinger, Vice Presidents of the
Sub-Advisor.

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 calculated based on
the Fund's average daily net assets. For the fiscal year ended August 31, 2002,
the Fund accrued total compensation to the Investment Manager amounting to
1.00% of the Fund's average daily net assets. The Investment Manager pays the
Sub-Advisor compensation equal to 40% of its compensation.

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 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 and/or Sub-Advisor 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.

[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
(/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.

The Fund may temporarily suspend the offering of its shares to new investors
whenever the Investment Manager and/or the Sub-Advisor determine that the
Fund's current asset level warrants such action and that a temporary suspension
would be in the best interests of shareholders. Following the suspension of
offering of shares to new investors, the Fund will continue to offer its shares
to existing shareholders and to investors participating in the Investment
Manager's mutual fund asset allocation program. The Fund may recommence
offering its shares to new investors as may be determined by the Investment
Manager and/or the Sub-Advisor consistent with prudent portfolio management.

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.
(/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
- --------------------------------------------------------------------------------
EasyInvest(SM) $ 100* $ 100*
(Automatically from your
checking or savings account
or Money Market Fund)
- --------------------------------------------------------------------------------

* Provided your schedule of investments totals $1,000 in twelve 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 New
Discoveries Fund.

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

Exchanges may be made after shares of the fund acquired by purchase have been
held for 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.

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

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.
- ---------------------------------------------------------------------------------------------------------------------
By Letter You can also sell your shares by writing a "letter of instruction" that includes:
o your account number;
[GRAPHIC OMITTED] 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.

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.

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

[GRAPHIC OMITTED]

(sidebar)
TARGETED DIVIDENDS(SM)

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

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

The Fund declares income dividends separately for each Class. Distributions paid
on Class A and Class D shares usually will be higher than for Class B and Class
C 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.

[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
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 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
- ------------------------------------------------------------------------------------------------------------

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.
(/sidebar)

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

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.

(sidebar)
CONTINGENT DEFERRED SALES CHARGE OR CDSC

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

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 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 a Morgan Stanley Eligible
Plan.

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 acquired in connection with the
Investment Manager's mutual fund asset allocation program are subject to all
of the terms and conditions of that program, including termination fees, and
mandatory sale or transfer restrictions on termination.

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 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.

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.

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.

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

Class A Shares
- ---------------------------------------------------------------------------
FOR THE PERIOD
FOR THE YEAR SEPTEMBER 27, 2000*
ENDED THROUGH
AUGUST 31, 2002 AUGUST 31, 2001
- ---------------------------------------------------------------------------

SELECTED PER SHARE DATA:
- ---------------------------------------------------------------------------
Net asset value, beginning of period $ 5.73 $ 10.00
- ---------------------------------------------------------------------------
Loss from investment operations:
Net investment loss[+/+] (0.07) (0.07)
Net realized and unrealized loss (1.59) (4.20)
------ ------
Total loss from investment operations (1.66) (4.27)
- ---------------------------------------------------------------------------
Net asset value, end of period $ 4.07 $ 5.73
- ---------------------------------------------------------------------------
TOTAL RETURN+ (28.97)% (42.70)%(1)
- ---------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS(3):
- ---------------------------------------------------------------------------
Expenses 1.63% 1.49%(2)
- ---------------------------------------------------------------------------
Net investment loss (1.30)% (1.08)%(2)
- ---------------------------------------------------------------------------
SUPPLEMENTAL DATA:
- ---------------------------------------------------------------------------
Net assets, end of period, in thousands $14,492 $32,268
- ---------------------------------------------------------------------------
Portfolio turnover rate 216% 155%(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 B Shares
- -----------------------------------------------------------------------------------
FOR THE PERIOD
FOR THE YEAR SEPTEMBER 27, 2000*
ENDED THROUGH
AUGUST 31, 2002 AUGUST 31, 2001
- -----------------------------------------------------------------------------------

SELECTED PER SHARE DATA:
- -----------------------------------------------------------------------------------
Net asset value, beginning of period $ 5.69 $ 10.00
- -----------------------------------------------------------------------------------
Loss from investment operations:
Net investment loss[+/+] (0.11) (0.13)
Net realized and unrealized loss (1.57) (4.18)
---------- ------------
Total loss from investment operations (1.68) (4.31)
- -----------------------------------------------------------------------------------
Net asset value, end of period $ 4.01 $ 5.69
- -----------------------------------------------------------------------------------
TOTAL RETURN+ (29.53)% (43.10)%(1)
- -----------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS(3):
- -----------------------------------------------------------------------------------
Expenses 2.39% 2.28%(2)
- -----------------------------------------------------------------------------------
Net investment loss (2.06)% (1.87)%(2)
- -----------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
- -----------------------------------------------------------------------------------
Net assets, end of period, in thousands $ 110,575 $ 224,120
- -----------------------------------------------------------------------------------
Portfolio turnover rate 216% 155%(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 C Shares
- -----------------------------------------------------------------------------------
FOR THE PERIOD
FOR THE YEAR SEPTEMBER 27, 2000*
ENDED THROUGH
AUGUST 31, 2002 AUGUST 31, 2001
- -----------------------------------------------------------------------------------

SELECTED PER SHARE DATA:
- -----------------------------------------------------------------------------------
Net asset value, beginning of period $ 5.69 $ 10.00
- -----------------------------------------------------------------------------------
Loss from investment operations:
Net investment loss [+/+] (0.11) (0.13)
Net realized and unrealized loss (1.58) (4.18)
------ ------
Total loss from investment operations (1.69) (4.31)
- -----------------------------------------------------------------------------------
Net asset value, end of period $ 4.00 $ 5.69
- -----------------------------------------------------------------------------------
TOTAL RETURN+ (29.70)% (43.10)%(1)
- -----------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS(3):
- -----------------------------------------------------------------------------------
Expenses 2.39% 2.28%(2)
- -----------------------------------------------------------------------------------
Net investment loss (2.06)% (1.87)%(2)
- -----------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
- -----------------------------------------------------------------------------------
Net assets, end of period, in thousands $ 26,351 $ 55,080
- -----------------------------------------------------------------------------------
Portfolio turnover rate 216% 155%(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 SEPTEMBER 27, 2000*
ENDED THROUGH
AUGUST 31, 2002 AUGUST 31, 2001
- -----------------------------------------------------------------------------------

SELECTED PER SHARE DATA:
- -----------------------------------------------------------------------------------
Net asset value, beginning of period $ 5.74 $ 10.00
- -----------------------------------------------------------------------------------
Loss from investment operations:
Net investment loss[+/+] (0.06) (0.07)
Net realized and unrealized loss (1.59) (4.19)
------ ------
Total loss from investment operations (1.65) (4.26)
- -----------------------------------------------------------------------------------
Net asset value, end of period $ 4.09 $ 5.74
- -----------------------------------------------------------------------------------
TOTAL RETURN+ (28.75)% (42.60)%(1)
- -----------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS(3):
- -----------------------------------------------------------------------------------
Expenses 1.39% 1.28%(2)
- -----------------------------------------------------------------------------------
Net investment loss (1.06)% (0.87)%(2)
- -----------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
- -----------------------------------------------------------------------------------
Net assets, end of period, in thousands $ 5,302 $ 14,480
- -----------------------------------------------------------------------------------
Portfolio turnover rate 216% 155%(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.

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

Mid-Cap Value Fund

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

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)

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 designation, e.g., Multi-Class Fund or Money Market Fund.

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

(800) 869-NEWS

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 20549-0120.

TICKER SYMBOLS:

Class A: NDFAX Class C: NDFCX
- ------------------------ ------------------------
Class B: NDFBX Class D: NDFDX
- ------------------------ ------------------------

(THE FUND'S INVESTMENT COMPANY ACT FILE NO. IS 811-9951)
CLF#39851PRO

[GRAPHIC OMITTED]

Morgan Stanley
New Discoveries Fund

A mutual fund that seeks
long-term capital growth

[GRAPHIC OMITTED]

Prospectus October 31, 2002

Morgan Stanley New Discoveries Fund
LETTER TO THE SHAREHOLDERS - FEBRUARY 28, 2003

Dear Shareholder:

The six-month period ended February 28, 2003 continued to be a challenging one
for the equity markets. Following the third quarter's 2002 broad-based decline,
there was a fourth quarter rebound led by technology stocks. Most of the market
strength occurred in October and November, led by sectors such as
semiconductors, software and telecommunications. This fourth quarter rally was
propelled by several factors that included more positive third-quarter earnings
announcements, the Federal Reserve's decision to cut short-term interest rates
by 50 basis points, and 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. In
addition, concerns remained about the psychology of the consumer, especially in
light of unemployment levels, which hit an eight-year high of six percent. A
sharp rise in energy prices triggered by increasing tensions with Iraq and an
oil strike in Venezuela also contributed to market woes.

Performance and Portfolio Strategy

For the six months ended February 28, 2003, the Morgan Stanley New Discoveries
Fund's Class A, B, C, and D shares returned -4.67 percent, -4.99 percent, -5.00
percent, and -4.65 percent, respectively. For the same period, Standard & Poor's
MidCap 400 Index(1) returned -7.75 percent and the Russell Midcap Growth
Index(2) returned -1.36 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's outperformance relative to the S&P MidCap 400 Index was primarily
driven by stock selection. The largest sector in the Fund's portfolio was
consumer discretionary and stock selection within this group outpaced that of
its benchmark. The areas of media, advertising, and travel were particularly
hard hit, and holdings such as Radio One and Park Place Entertainment detracted
from performance. On a positive note, Gtech, a global lottery systems provider
reported

- ---------------------
(1) The Standard and Poor's MidCap 400 Index (S&P 400) is a market-value
weighted index, the performance of which is based on the performance of 400
domestic 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.
(2) The Russell Midcap Growth Index measures the performance of those Russell
Midcap companies with higher price-to-book ratios and higher forecasted
growth values. The stocks are also members of the Russell 1000 Growth Index.
The Index does not include any expenses, fees or charges. The Index is
unmanaged and should not be considered an investment.

Morgan Stanley New Discoveries Fund
LETTER TO THE SHAREHOLDERS - FEBRUARY 28, 2003 continued

stronger-than-expected earnings and raised guidance, as it won a number of new
contracts and successfully cut costs. In addition, retailer Coach reported
strong earnings throughout the year, as the appeal of its affordable luxury
brand name continued.

Stock selection was favorable within the area of health care, which represented
the Fund's second-largest sector weighting during the period. The Fund's
better-performing holdings tended to be more stable growth companies, such as
Varian Medical Systems, which designs and manufactures radiation equipment for
treating cancer. The company has experienced strong earnings growth, reflecting
rapid implementation of its highly effective IMRT technology. We also added to
the Fund's biotechnology holdings during the period, as valuations became more
compelling, and news flow for a number of companies became more positive.
Several of the Fund's biotechnology holdings contributed to relative
performance, including Genzyme, Gilead Sciences, and Scios.

Technology, the third largest sector weight in the portfolio, contributed to
relative performance. Stock selection slightly exceeded that of the benchmark
sector, and a modest overweight contributed to performance. The sector rebounded
in October and November and the companies the Fund owned performed better than
those in the Fund's benchmark Index, the S&P 400. Software companies such as BEA
Systems, Adobe Systems and Rational Software were strong performers for the
Fund. An underweight in utilities and materials and processing, two of the
weaker performing sectors in the Index, also contributed to performance. The
Fund's performance was negatively impacted from an underweight in certain
sectors that include automobiles, transportation and other energy, as well as
stock selection within the consumer staples sector.

Looking Ahead

We believe that there are signs of stabilization and we are cautiously
optimistic that an economic recovery will take hold. Recent data on purchasing
activity are encouraging, and we see early stage positives in areas such as
advertising. Consumer spending has slowed some but has not halted. In our view,
corporate spending needs to pickup in order to sustain a recovery. At this
point, there is not a great deal of visibility for the vast number of companies
we follow. Geopolitical concerns around oil and the possibility of war continue
to cast a cloud for individual companies and the markets in general. We continue
to invest in a mix of stable and cyclical growth companies, and at the margin,
we will look to add beta to the Fund in anticipation of the recovery.

Morgan Stanley New Discoveries Fund
LETTER TO THE SHAREHOLDERS - FEBRUARY 28, 2003 continued

We appreciate your ongoing support of Morgan Stanley New Discoveries Fund 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

Morgan Stanley New Discoveries Fund
FUND PERFORMANCE - FEBRUARY 28, 2003

AVERAGE ANNUAL TOTAL RETURNS - PERIOD ENDED FEBRUARY 28, 2003
- --------------------------------------------------------------------------------

CLASS A SHARES*
- -------------------------------------------------
1 Year (26.24)%(1) (30.11)%(2)
Since Inception (9/27/00) (32.37)%(1) (33.86)%(2)

CLASS B SHARES**
- -------------------------------------------------
1 Year (26.87)%(1) (30.53)%(2)
Since Inception (9/27/00) (32.88)%(1) (33.72)%(2)

CLASS C SHARES+
- -------------------------------------------------
1 Year (27.06)%(1) (27.79)%(2)
Since Inception (9/27/00) (32.95)%(1) (32.95)%(2)

CLASS D SHARES++
- -------------------------------------------------
1 Year (26.14)%(1)
Since Inception (9/27/00) (32.23)%(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.
* 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 New Discoveries Fund
PORTFOLIO OF INVESTMENTS - FEBRUARY 28, 2003 (UNAUDITED)

NUMBER OF
SHARES VALUE
- ------------------------------------------------------
Common Stocks (99.4%)
Aerospace & Defense
(0.7%)
17,600 Alliant Techsystems,
Inc.*................... $ 850,080
------------
Air Freight/Couriers
(2.0%)
34,150 C.H. Robinson Worldwide,
Inc. ................... 1,048,746
40,450 Expeditors International
of Washington, Inc. .... 1,382,985
------------
2,431,731
------------
Apparel/Footwear (0.7%)
25,000 Coach, Inc.*............. 893,250
------------
Apparel/Footwear Retail
(3.2%)
89,800 Abercrombie & Fitch Co.
(Class A)*.............. 2,469,500
76,525 Chico's FAS, Inc.*....... 1,382,807
3,550 Ross Stores, Inc. ....... 121,445
------------
3,973,752
------------
Biotechnology (6.1%)
14,400 Affymetrix, Inc.*........ 380,160
24,400 Amylin Pharmaceuticals,
Inc.*................... 374,296
16,500 Biogen, Inc.*............ 586,410
47,750 Celgene Corp.*........... 1,045,773
32,350 Genzyme Corp. (General
Division)*.............. 1,008,673
38,000 Gilead Sciences, Inc.*... 1,292,000
40,125 IDEC Pharmaceuticals
Corp.*.................. 1,153,594
21,200 MedImmune, Inc.*......... 636,212
46,200 NPS Pharmaceuticals,
Inc.*................... 802,032
9,150 Trimeris, Inc.*.......... 366,183
------------
7,645,333
------------
Broadcasting (5.6%)
120,400 Radio One, Inc.
(Class D)*.............. 1,654,296
64,850 Univision Communications,
Inc. (Class A)*......... 1,606,334
81,850 USA Interactive*......... 2,007,780
50,350 Westwood One, Inc.*...... 1,677,662
------------
6,946,072
------------
Cable/Satellite TV (0.6%)
26,600 EchoStar Communications
Corp. (Class A)*........ 700,378
------------
Casino/Gaming (2.1%)
89,600 GTECH Holdings Corp.*.... 2,607,360
------------
Chemicals: Specialty
(0.5%)
15,550 Sigma-Aldrich Corp. ..... 681,401
------------
Computer Communications
(0.8%)
19,550 Emulex Corp.*............ 351,313
66,000 Extreme Networks, Inc.*.. 310,200
42,550 Juniper Networks, Inc.*.. 382,524
------------
1,044,037
------------
Computer Peripherals
(1.5%)
18,600 Lexmark International,
Inc.*................... 1,160,826
69,750 Network Appliance, Inc.*. 740,745
------------
1,901,571
------------
Containers/Packaging (0.9%)
29,800 Sealed Air Corp.*........ 1,080,846
------------
Contract Drilling (1.2%)
47,000 Patterson-UTI Energy,
Inc.*................... 1,557,580
------------
Data Processing Services
(2.5%)
21,500 Affiliated Computer
Services, Inc.
(Class A)*.............. 963,845
41,500 BISYS Group, Inc. (The)*. 649,060
53,300 Global Payments Inc. .... 1,489,202
------------
3,102,107
------------

See Notes to Financial Statements

Morgan Stanley New Discoveries Fund
PORTFOLIO OF INVESTMENTS - FEBRUARY 28, 2003 (UNAUDITED) continued

NUMBER OF
SHARES VALUE
- ------------------------------------------------------
Discount Stores (2.0%)
53,500 Dollar General Corp. .... $ 555,865
94,650 Dollar Tree Stores, Inc.* 1,954,522
------------
2,510,387
------------
Electronic Components
(0.8%)
6,400 Amphenol Corp. (Class
A)*..................... 261,056
10,350 Jabil Circuit, Inc.*..... 171,913
16,400 QLogic Corp.*............ 580,724
------------
1,013,693
------------
Electronic Distributors
(0.5%)
15,560 CDW Computer Centers,
Inc.*................... 679,350
------------
Electronic Production
Equipment (2.3%)
12,600 Cymer, Inc.*............. 380,520
31,750 KLA-Tencor Corp.*........ 1,135,062
20,000 Lam Research Corp.*...... 266,600
21,500 Novellus Systems,
Inc.*................... 626,725
10,800 Synopsys, Inc.*.......... 440,424
------------
2,849,331
------------
Finance/Rental/Leasing
(2.6%)
51,800 Doral Financial Corp. ... 1,678,838
14,225 SLM Corp. ............... 1,549,814
------------
3,228,652
------------
Financial Publishing/
Services (2.0%)
33,200 Moody's Corp. ........... 1,464,120
49,700 SunGard Data Systems
Inc.*................... 978,096
------------
2,442,216
------------
Food: Specialty/Candy
(0.8%)
16,250 Hershey Foods Corp. ..... 1,049,912
------------
Home Building (1.2%)
4,400 NVR, Inc.*............... 1,460,580
------------
Home Furnishings (1.5%)
9,468 Mohawk Industries, Inc.*. 467,530
50,050 Newell Rubbermaid, Inc. . 1,411,410
------------
1,878,940
------------
Hospital/Nursing
Management (0.5%)
16,200 Universal Health
Services, Inc. (Class
B)*..................... 629,208
------------
Industrial Specialties
(0.8%)
20,100 Ecolab, Inc. ............ 985,905
------------
Information Technology
Services (1.2%)
20,100 Citrix Systems, Inc.*.... 241,200
20,100 J.D. Edwards & Co.*...... 240,999
56,800 PeopleSoft, Inc.*........ 971,280
------------
1,453,479
------------
Insurance Brokers/
Services (1.3%)
30,033 ChoicePoint Inc.*........ 1,013,614
23,100 Willis Group Holdings
Ltd. ................... 578,655
------------
1,592,269
------------
Internet Retail (0.5%)
29,600 Amazon.com, Inc.*........ 651,496
------------
Internet Software/
Services (2.3%)
55,800 BEA Systems, Inc.*....... 542,376
12,400 Internet Security
Systems, Inc.*.......... 142,228
85,150 Siebel Systems, Inc.*.... 734,844
70,600 Yahoo! Inc.*............. 1,472,010
------------
2,891,458
------------
Investment Managers (0.9%)
26,350 Affiliated Managers
Group, Inc.*............ 1,117,503
------------

See Notes to Financial Statements

Morgan Stanley New Discoveries Fund
PORTFOLIO OF INVESTMENTS - FEBRUARY 28, 2003 (UNAUDITED) continued

NUMBER OF
SHARES VALUE
- ------------------------------------------------------
Managed Health Care
(2.6%)
97,600 Caremark Rx, Inc.*....... $ 1,704,096
23,375 WellPoint Health
Networks, Inc.*......... 1,589,734
------------
3,293,830
------------
Medical Specialties (4.9%)
33,500 St. Jude Medical,
Inc.*................... 1,530,280
54,400 Varian Medical Systems,
Inc.*................... 2,749,920
40,900 Zimmer Holdings, Inc.*... 1,815,551
------------
6,095,751
------------
Medical/Nursing Services
(1.4%)
57,250 Lincare Holdings, Inc.*.. 1,711,775
------------
Miscellaneous Commercial
Services (2.4%)
33,600 Fair, Isaac & Co., Inc. . 1,641,024
39,275 Iron Mountain Inc.*...... 1,382,480
------------
3,023,504
------------
Movies/Entertainment
(0.6%)
14,600 Pixar, Inc.*............. 788,254
------------
Oil & Gas Production
(2.7%)
13,800 Burlington Resources,
Inc. ................... 639,630
19,750 Forest Oil Corp.*........ 449,313
89,100 Pioneer Natural Resources
Co.*.................... 2,329,965
------------
3,418,908
------------
Oilfield Services/
Equipment (3.1%)
56,000 BJ Services Co.*......... 1,924,720
56,250 Smith International,
Inc.*................... 1,960,875
------------
3,885,595
------------
Other Consumer Services
(3.7%)
34,750 Apollo Group, Inc. (Class
A)*..................... $ 1,610,315
38,100 Block (H.&R.), Inc. ..... 1,545,717
34,955 Weight Watchers
International, Inc.*.... 1,462,867
------------
4,618,899
------------
Packaged Software (6.4%)
52,950 Adobe Systems, Inc. ..... 1,456,125
40,000 BMC Software, Inc.*...... 776,000
9,000 Hyperion Solutions
Corp.*.................. 231,660
39,600 Intuit Inc.*............. 1,881,792
20,950 Mercury Interactive
Corp.*.................. 679,828
24,850 Network Associates,
Inc.*................... 367,780
22,100 Quest Software, Inc.*.... 218,348
26,050 Symantec Corp.*.......... 1,055,025
40,200 TIBCO Software, Inc.*.... 190,146
68,400 VERITAS Software
Corp.*.................. 1,164,852
------------
8,021,556
------------
Pharmaceuticals: Other
(0.5%)
16,900 Teva Pharmaceutical
Industries Ltd. (ADR)
(Israel)................ 638,482
------------
Precious Metals (0.5%)
22,300 Newmont Mining Corp. .... 609,459
------------
Property -- Casualty
Insurers (1.0%)
22,600 Everest Re Group, Ltd.
(Bermuda)............... 1,206,840
------------
Recreational Products
(4.1%)
36,250 Electronic Arts Inc.*.... 1,914,000
18,050 International Game
Technology*............. 1,418,369
87,200 Mattel, Inc. ............ 1,859,104
------------
5,191,473
------------

See Notes to Financial Statements

Morgan Stanley New Discoveries Fund
PORTFOLIO OF INVESTMENTS - FEBRUARY 28, 2003 (UNAUDITED) continued

NUMBER OF
SHARES VALUE
- ------------------------------------------------------
Restaurants (4.6%)
28,950 CBRL Group, Inc. ........ $ 772,965
21,150 Krispy Kreme Doughnuts,
Inc.*................... 694,778
36,250 Outback Steakhouse, Inc.
(The)................... 1,167,250
59,400 Starbucks Corp.*......... 1,392,930
34,850 Wendy's International,
Inc. ................... 882,751
35,650 Yum! Brands, Inc.*....... 848,827
------------
5,759,501
------------
Semiconductors (3.3%)
149,750 Agere Systems, Inc.
(Class A)*.............. 241,098
54,400 Altera Corp.*............ 681,632
23,550 Broadcom Corp. (Class
A)*..................... 341,004
35,750 Fairchild Semiconductor
Corp. (Class A)*........ 434,720
12,500 Intergrated Circuit
Systems, Inc.*.......... 298,250
13,750 Intersil Corp. (Class
A)*..................... 215,188
34,400 Marvell Technology Group
Ltd. (Bermuda)*......... 708,640
38,050 Microchip Technology Inc. 968,373
11,400 Xilinx, Inc.*............ 261,060
------------
4,149,965
------------
Services to the Health
Industry (2.9%)
34,000 Accredo Health, Inc.*.... 807,500
44,550 Laboratory Corp. of
America Holdings*....... 1,237,154
44,800 Stericycle, Inc.*........ 1,587,264
------------
3,631,918
------------
Specialty Stores (1.9%)
7,500 AutoZone, Inc.*.......... 493,500
38,900 Bed Bath & Beyond Inc.*.. 1,285,256
25,600 Williams-Sonoma, Inc.*... 595,968
------------
2,374,724
------------
Specialty
Telecommunications (0.2%)
29,900 Citizens Communications
Co.*.................... 293,319
------------
Telecommunication
Equipment (0.9%)
30,550 CIENA Corp.*............. 165,581
25,400 Comverse Technology,
Inc.*................... 259,080
70,200 RF Micro Devices, Inc.*.. 459,108
34,400 Tellabs, Inc.*........... 209,152
------------
1,092,921
------------
Trucks/Construction/Farm
Machinery (0.4%)
30,800 AGCO Corp.*.............. 500,192
------------
Wireless
Telecommunications (1.7%)
119,000 Nextel Communications,
Inc. (Class A)*......... 1,675,520
121,200 Sprint Corp. (PCS
Group)*................. 479,952
------------
2,155,472
------------
Total Common Stocks
(Cost $127,111,999)...... 124,312,215
------------

See Notes to Financial Statements

Morgan Stanley New Discoveries Fund
PORTFOLIO OF INVESTMENTS - FEBRUARY 28, 2003 (UNAUDITED) continued

PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ------------------------------------------------------
Short-Term Investment (0.6%)
Repurchase Agreement
$ 765 Joint repurchase
agreement account 1.36%
due 03/03/03 (dated
02/28/03; proceeds
$765,087) (a)
(Cost $765,000)......... $ 765,000
------------

Total Investments
(Cost $127,876,999) (b)..... 100.0% 125,077,215
Other Assets in Excess of
Liabilities................. 0.0 23,780
----- ------------
Net Assets.................. 100.0% $125,100,995
===== ============

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

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
$8,255,026 and the aggregate gross unrealized
depreciation is $11,054,810, resulting in net
unrealized depreciation of $2,799,784.

See Notes to Financial Statements

Morgan Stanley New Discoveries Fund
FINANCIAL STATEMENTS

Statement of Assets and Liabilities
February 28, 2003 (unaudited)

<Table>

Assets:
Investments in securities, at value
(cost $127,876,999)....................................... $ 125,077,215
Receivable for:
Investments sold........................................ 1,781,512
Dividends............................................... 39,148
Shares of beneficial interest sold...................... 4,935
Prepaid expenses and other assets........................... 64,692
-------------
Total Assets............................................ 126,967,502
-------------
Liabilities:
Payable for:
Investments purchased................................... 1,129,330
Shares of beneficial interest redeemed.................. 457,132
Investment management fee............................... 96,327
Distribution fee........................................ 86,580
Accrued expenses and other payables......................... 97,138
-------------
Total Liabilities....................................... 1,866,507
-------------
Net Assets.............................................. $ 125,100,995
=============
Composition of Net Assets:
Paid-in-capital............................................. $ 479,288,112
Net unrealized depreciation................................. (2,799,784)
Net investment loss......................................... (1,571,278)
Accumulated net realized loss............................... (349,816,055)
-------------
Net Assets.............................................. $ 125,100,995
=============
Class A Shares:
Net Assets.................................................. $11,915,630
Shares Outstanding (unlimited authorized, $.01 par value)... 3,068,283
Net Asset Value Per Share............................... $3.88
=====
Maximum Offering Price Per Share,
(net asset value plus 5.54% of net asset value)....... $4.09
=====
Class B Shares:
Net Assets.................................................. $88,007,281
Shares Outstanding (unlimited authorized, $.01 par value)... 23,087,141
Net Asset Value Per Share............................... $3.81
=====
Class C Shares:
Net Assets.................................................. $21,400,701
Shares Outstanding (unlimited authorized, $.01 par value)... 5,631,160
Net Asset Value Per Share............................... $3.80
=====
Class D Shares:
Net Assets.................................................. $3,777,383
Shares Outstanding (unlimited authorized, $.01 par value)... 967,557
Net Asset Value Per Share............................... $3.90
=====
</Table>

See Notes to Financial Statements

Morgan Stanley New Discoveries Fund
FINANCIAL STATEMENTS continued

Statement of Operations
For the six months ended February 28, 2003 (unaudited)

Net Investment Loss:

<Table>

Income
Dividends................................................... $ 156,426
Interest.................................................... 18,192
------------
Total Income............................................ 174,618
------------
Expenses
Investment management fee................................... 701,710
Distribution fee (Class A shares)........................... 16,620
Distribution fee (Class B shares)........................... 494,972
Distribution fee (Class C shares)........................... 118,033
Transfer agent fees and expenses............................ 295,101
Shareholder reports and notices............................. 33,619
Professional fees........................................... 28,383
Custodian fees.............................................. 25,585
Registration fees........................................... 19,143
Trustees' fees and expenses................................. 7,327
Other....................................................... 5,403
------------
Total Expenses.......................................... 1,745,896
------------
Net Investment Loss..................................... (1,571,278)
------------
Net Realized and Unrealized Gain (Loss):
Net realized loss........................................... (10,437,295)
Net change in unrealized depreciation....................... 4,874,567
------------
Net Loss................................................ (5,562,728)
------------
Net Decrease................................................ $ (7,134,006)
============
</Table>

See Notes to Financial Statements

Morgan Stanley New Discoveries Fund
FINANCIAL STATEMENTS continued

<Table>
<Caption>
Statement of Changes in Net Assets
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
FEBRUARY 28, 2003 AUGUST 31, 2002
----------------- ---------------
(unaudited)

Increase (Decrease) in Net Assets:

Operations:
Net investment loss......................................... $ (1,571,278) $ (4,877,813)
Net realized loss........................................... (10,437,295) (117,748,899)
Net change in unrealized depreciation....................... 4,874,567 45,688,429
------------ -------------
Net Decrease............................................ (7,134,006) (76,938,283)
Net decrease from transactions in shares of beneficial
interest.................................................. (24,484,856) (92,290,288)
------------ -------------
Net Decrease............................................ (31,618,862) (169,228,571)
Net Assets:
Beginning of period......................................... 156,719,857 325,948,428
------------ -------------
End of Period
(Including a net investment loss of $1,571,278 and $0,
respectively)............................................... $125,100,995 $ 156,719,857
============ =============
</Table>

See Notes to Financial Statements

Morgan Stanley New Discoveries Fund
NOTES TO FINANCIAL STATEMENTS - FEBRUARY 28, 2003 (UNAUDITED)

1. Organization and Accounting Policies

Morgan Stanley New Discoveries Fund (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 seeks to achieve its objective by investing
primarily in common stocks of companies with market capitalizations, at the time
of purchase, that fall within the range of companies included within the Russell
Midcap Growth Index. Prior to October 31, 2002, the Fund seeked to achieve its
objective by investing primarily in common stocks of companies with market
capitalizations, at the time of purchase, that fell within the range of
companies included within the Russell 2000 Index and the Standard & Poor's
Mid-Cap 400 Index. The Fund was organized as a Massachusetts business trust on
May 16, 2000 and commenced operations on September 27, 2000.

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") or Morgan Stanley Investments, LP (the
"Sub-Advisor"), an affiliate of 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

Morgan Stanley New Discoveries Fund
NOTES TO FINANCIAL STATEMENTS - FEBRUARY 28, 2003 (UNAUDITED) continued

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.

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. 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.

F. 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 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

Morgan Stanley New Discoveries Fund
NOTES TO FINANCIAL STATEMENTS - FEBRUARY 28, 2003 (UNAUDITED) continued

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.

G. 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 and Sub-Advisory Agreements

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 1.0% to the net assets of the Fund determined as of the close of
each business day.

Under a Sub-Advisory Agreement between the Sub-Advisor and the Investment
Manager, the Sub-Advisor provides the Fund with investment advice and portfolio
management relating to the Fund's investments in securities, subject to the
overall supervision of the Investment Manager. As compensation for its services
provided pursuant to the Sub-Advisory Agreement, the Investment Manager pays the
Sub-Advisor compensation equal to 40% of its monthly compensation.

3. Plan of Distribution

Shares of the Fund are distributed by Morgan Stanley Distributors Inc. (the
"Distributor"), an affiliate of the Investment Manager and Sub-Advisor. 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.

Morgan Stanley New Discoveries Fund
NOTES TO FINANCIAL STATEMENTS - FEBRUARY 28, 2003 (UNAUDITED) continued

to treat such expenses. The Distributor has advised the Fund that such excess
amounts totaled $21,711,323 at February 28, 2003.

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 February 28, 2003, the distribution fee was accrued for
Class A shares and Class C shares at the annual rate of 0.25% and 1.0%,
respectively.

The Distributor has informed the Fund that for the six months ended February 28,
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 $995, $277,162
and $376, respectively and received $6,519 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 February 28, 2003 aggregated
$122,023,719 and $146,271,976, respectively. Included in the aforementioned
transactions are sales with other Morgan Stanley Funds of $153,545 including a
realized gain of $16,782.

For the six months ended February 28, 2003, the Fund incurred brokerage
commissions of $1,370 with Morgan Stanley & Co., Inc., an affiliate of the
Investment Manager, Sub-Advisor and Distributor, for portfolio transactions
executed on behalf of the Fund.

Morgan Stanley Trust, an affiliate of the Investment Manager, Sub-Advisor and
Distributor, is the Fund's transfer agent. At February 28, 2003, the Fund had
transfer agent fees and expenses payable of approximately $23,600.

5. Federal Income Tax Status

At August 31, 2002, the Fund had a net capital loss carryover of approximately
$272,034,000 of which $5,710,000 will be available through August 31, 2009 and
$266,324,000 will be available through August 31, 2010 to offset future capital
gains to the extent provided by regulations.

Morgan Stanley New Discoveries Fund
NOTES TO FINANCIAL STATEMENTS - FEBRUARY 28, 2003 (UNAUDITED) continued

At August 31, 2002, the Fund had temporary book/tax differences 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:

<Table>
<Caption>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
FEBRUARY 28, 2003 AUGUST 31, 2002
------------------------- --------------------------
(unaudited)
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ----------- ------------

CLASS A SHARES
Sold................................................ 117,874 $ 477,286 450,865 $ 2,401,289
Redeemed............................................ (606,282) (2,443,755) (2,527,335) (13,251,276)
---------- ------------ ----------- ------------
Net decrease - Class A.............................. (488,408) (1,966,469) (2,076,470) (10,849,987)
---------- ------------ ----------- ------------
CLASS B SHARES
Sold................................................ 240,403 955,167 2,308,753 12,352,239
Redeemed............................................ (4,698,316) (18,419,994) (14,174,494) (71,513,083)
---------- ------------ ----------- ------------
Net decrease - Class B.............................. (4,457,913) (17,464,827) (11,865,741) (59,160,844)
---------- ------------ ----------- ------------
CLASS C SHARES
Sold................................................ 140,604 533,960 348,381 1,877,268
Redeemed............................................ (1,093,531) (4,271,320) (3,450,017) (17,833,359)
---------- ------------ ----------- ------------
Net decrease - Class C.............................. (952,927) (3,737,360) (3,101,636) (15,956,091)
---------- ------------ ----------- ------------
CLASS D SHARES
Sold................................................ 12,986 52,679 226,838 1,178,864
Redeemed............................................ (341,527) (1,368,879) (1,454,224) (7,502,230)
---------- ------------ ----------- ------------
Net decrease - Class D.............................. (328,541) (1,316,200) (1,227,386) (6,323,366)
---------- ------------ ----------- ------------
Net decrease in Fund................................ (6,227,789) $(24,484,856) (18,271,233) $(92,290,288)
========== ============ =========== ============
</Table>

Morgan Stanley New Discoveries Fund
FINANCIAL HIGHLIGHTS

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

<Table>
<Caption>
FOR THE PERIOD
FOR THE SIX FOR THE YEAR SEPTEMBER 27, 2000*
MONTHS ENDED ENDED THROUGH
FEBRUARY 28, 2003 AUGUST 31, 2002 AUGUST 31, 2001
----------------- --------------- -------------------
(unaudited)

Class A Shares
Selected Per Share Data:
Net asset value, beginning of period..................... $4.07 $ 5.73 $10.00
----- ------ ------
Loss from investment operations:
Net investment loss++................................ (0.03) (0.07) (0.07)
Net realized and unrealized loss..................... (0.16) (1.59) (4.20)
----- ------ ------
Total loss from investment operations.................... (0.19) (1.66) (4.27)
----- ------ ------
Net asset value, end of period........................... $3.88 $ 4.07 $ 5.73
===== ====== ======
Total Return+............................................ (4.67)%(1) (28.97)% (42.70)%(1)
Ratios to Average Net Assets(3):
Expenses................................................. 1.84 %(2) 1.63 % 1.49 %(2)
Net investment loss...................................... (1.59)%(2) (1.30)% (1.08)%(2)
Supplemental Data:
Net assets, end of period, in thousands.................. $11,916 $14,492 $32,268
Portfolio turnover rate.................................. 88 %(1) 216 % 155 %(1)
</Table>

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

* 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.

See Notes to Financial Statements

Morgan Stanley New Discoveries Fund
FINANCIAL HIGHLIGHTS continued

Class B Shares
Selected Per Share Data:
Net asset value, beginning of period..................... $4.01 $5.69 $ 10.00
----- ----- -------
Loss from investment operations:
Net investment loss++................................ (0.05) (0.11) (0.13)
Net realized and unrealized loss..................... (0.15) (1.57) (4.18)
----- ----- -------
Total loss from investment operations.................... (0.20) (1.68) (4.31)
----- ----- -------
Net asset value, end of period........................... $3.81 $4.01 $ 5.69
===== ===== =======
Total Return+............................................ (4.99)%(1) (29.53)% (43.10)%(1)
Ratios to Average Net Assets(3):
Expenses................................................. 2.59 %(2) 2.39 % 2.28 %(2)
Net investment loss...................................... (2.34)%(2) (2.06)% (1.87)%(2)
Supplemental Data:
Net assets, end of period, in thousands.................. $88,007 $110,575 $224,120
Portfolio turnover rate.................................. 88 %(1) 216 % 155 %(1)
</Table>

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

See Notes to Financial Statements

Morgan Stanley New Discoveries Fund
FINANCIAL HIGHLIGHTS continued

Class C Shares
Selected Per Share Data:
Net asset value, beginning of period..................... $4.00 $ 5.69 $10.00
----- ------ ------
Loss from investment operations:
Net investment loss++................................ (0.05) (0.11) (0.13)
Net realized and unrealized loss..................... (0.15) (1.58) (4.18)
----- ------ ------
Total loss from investment operations.................... (0.20) (1.69) (4.31)
----- ------ ------
Net asset value, end of period........................... $3.80 $ 4.00 $ 5.69
===== ====== ======
Total Return+............................................ (5.00)%(1) (29.70)% (43.10)%(1)
Ratios to Average Net Assets(3):
Expenses................................................. 2.59 %(2) 2.39 % 2.28 %(2)
Net investment loss...................................... (2.34)%(2) (2.06)% (1.87)%(2)
Supplemental Data:
Net assets, end of period, in thousands.................. $21,401 $26,351 $55,080
Portfolio turnover rate.................................. 88 %(1) 216 % 155 %(1)
</Table>

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

See Notes to Financial Statements

Morgan Stanley New Discoveries Fund
FINANCIAL HIGHLIGHTS continued

Class D Shares
Selected Per Share Data:
Net asset value, beginning of period..................... $4.09 $5.74 $10.00
----- ----- ------
Loss from investment operations:
Net investment loss++................................ (0.03) (0.06) (0.07)
Net realized and unrealized loss..................... (0.16) (1.59) (4.19)
----- ----- ------
Total loss from investment operations.................... (0.19) (1.65) (4.26)
----- ----- ------
Net asset value, end of period........................... $3.90 $4.09 $ 5.74
===== ===== ======
Total Return+............................................ (4.65)%(1) (28.75)% (42.60)%(1)
Ratios to Average Net Assets(3):
Expenses................................................. 1.59 %(2) 1.39 % 1.28 %(2)
Net investment loss...................................... (1.34)%(2) (1.06)% (0.87)%(2)
Supplemental Data:
Net assets, end of period, in thousands.................. $3,777 $5,302 $14,480
Portfolio turnover rate.................................. 88 %(1) 216 % 155 %(1)
</Table>

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

See Notes to Financial Statements

(This Page Intentionally Left Blank)

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

SUB-ADVISOR

Morgan Stanley Investments LP
One Tower Bridge
West Conshohocken, Pennsylvania 19428

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 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

MORGAN STANLEY
NEW DISCOVERIES FUND

Semiannual Report
February 28, 2003

39851RPT-10553D03-AP-4/03

MORGAN STANLEY NEW DISCOVERIES FUND
LETTER TO THE SHAREHOLDERS o AUGUST 31, 2002

DEAR SHAREHOLDER:

The 12-month period ended August 31, 2002, was an exceedingly difficult one for
investors. While the Standard & Poor's MidCap 400 Index (S&P MidCap 400 Index),
which includes both growth and value stocks, declined more than 9 percent,
more-growth-oriented benchmarks fared much worse. For example, the Russell
MidCap Growth Index fell more than 23 percent, while the Nasdaq Composite Index
fell more than 27 percent during the period.

The period under review was characterized by extreme market volatility as
economic uncertainty, acts of terrorism on American soil and geopolitical
conflict all weighed heavily on the U.S. equity markets. In addition,
accounting irregularities and doubts about corporate credibility together fed
investors' fears. The accounting problems at Enron and WorldCom had a
tremendous spillover effect as investors came to regard with extreme suspicion
companies whose accounting practices appeared to be even remotely questionable
or complex. As the number of scandals and bankruptcies increased, investor
sentiment deteriorated markedly.

The economic picture within the manufacturing and retail sectors did seem to
improve during the period, but the pace of recovery was more muted than many
had hoped it would be. In addition, many businesses remained cautious and
reluctant to increase capital spending. Despite notable strength in the equity
markets during the fourth quarter of 2001, by the end of the reporting period
equity valuations had fallen significantly in a large number of areas.
Investors are still looking for a positive catalyst to reverse the market's
weakness.

PERFORMANCE AND PORTFOLIO STRATEGY

For the 12-month period ended August 31, 2002, Morgan Stanley New Discoveries
Fund's Class A, B, C and D shares posted total returns of -28.97 percent,
- -29.53 percent, -29.70 percent and -28.75 percent, respectively. For the same
period the S&P MidCap 400 Index returned -9.22 percent. 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 accompanying chart compares the
Fund's performance to that of the S&P MidCap 400 Index.

The Fund's underperformance relative to its benchmark was the result of several
factors. During the reporting period, value-oriented issues outperformed growth
stocks, with the technology and health-care sectors being the hardest hit. The
Fund's overweightings in technology and health-care stocks, as well as security
selection within those two sectors hampered performance. In addition,
underweightings in such better-performing sectors as energy, financial services
and consumer staples detracted from relative performance. Cushioning the Fund's
performance somewhat was its exposure to consumer discretionary stocks and its
underweighting of the utilities sector.

MORGAN STANLEY NEW DISCOVERIES FUND
LETTER TO THE SHAREHOLDERS o AUGUST 31, 2002 CONTINUED

During the period under review, we increased the Fund's exposure to
consumer-oriented sectors, including restaurants, discount stores, specialty
retail and travel. We also increased the Fund's allocation to biotechnology,
financial services and energy stocks, and reduced technology exposure,
particularly within semiconductors and semiconductor-capital equipment. The
Fund's position in health-care services and telephone services was also scaled
back, and its holdings in electric utilities stocks were liquidated.

At the start of the reporting period, the Fund's portfolio was biased toward
aggressive-growth stocks. A number of the Fund's more aggressive holdings,
particularly within technology, consumer services and business services,
appreciated significantly during the fourth quarter of 2001. We used that
strength as an opportunity to trim or eliminate some of those positions, as we
believed that market sentiment had moved ahead of the underlying business
momentum in a number of areas. We concurrently shifted more emphasis to
companies that we believed have relatively stable earnings and the potential to
generate solid free cash flow.

At the end of the reporting period, the Fund's largest sector weightings were
consumer discretionary and health care, which together constituted
approximately 50 percent of the Fund's portfolio. Consumer spending has held up
remarkably well over the past 12 months, and recent low interest rates have
given many homeowners the opportunity to refinance their mortgages and add
liquidity to their personal balance sheets. In our view, the fundamentals in
health care have generally remained attractive, as the sector tends to be less
sensitive to the overall economy than are other areas of the market and it
could benefit from shifting demographic trends.

LOOKING AHEAD

We believe that the market may be bottoming. Many industry data points, such as
radio advertising, lightbulb sales and corrugated box shipments, have
stabilized. We are mindful, however, of the market's fragility and recognize
that a war with Iraq could further undermine investor confidence. In light of
this, the Fund's portfolio consists of a mix of stable and cyclical-growth
companies, and we remain focused on thorough fundamental research.

MORGAN STANLEY NEW DISCOVERIES FUND
LETTER TO THE SHAREHOLDERS o AUGUST 31, 2002 CONTINUED

We appreciate your ongoing support of Morgan Stanley New Discoveries Fund 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 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, 8:00a.m. to 8:00p.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 NEW DISCOVERIES FUND
FUND PERFORMANCE o AUGUST 31, 2002

GROWTH OF $10,000
($ in Thousands)

[GRAPHIC OMITTED]

DATE CLASS A CLASS B CLASS C CLASS D S&P 400
- -------------------------------------------------------------------------------------------------------------------------

SEPTEMBER 27, 2000 $9,475 $10,000 $10,000 $10,000 $10,000
- -------------------------------------------------------------------------------------------------------------------------
NOVEMBER 30, 2000 $7,372 $ 7,770 $ 7,770 $ 7,790 $ 9,097
- -------------------------------------------------------------------------------------------------------------------------
FEBRUARY 28, 2001 $6,955 $ 7,320 $ 7,320 $ 7,350 $ 9,440
- -------------------------------------------------------------------------------------------------------------------------
MAY 31, 2001 $6,614 $ 6,940 $ 6,940 $ 6,990 $ 9,928
- -------------------------------------------------------------------------------------------------------------------------
AUGUST 31, 2001 $5,429 $ 5,690 $ 5,690 $ 5,740 $ 9,423
- -------------------------------------------------------------------------------------------------------------------------
NOVEMBER 30, 2001 $5,344 $ 5,590 $ 5,590 $ 5,650 $ 9,257
- -------------------------------------------------------------------------------------------------------------------------
FEBRUARY 28, 2002 $4,984 $ 5,210 $ 5,210 $ 5,280 $ 9,697
- -------------------------------------------------------------------------------------------------------------------------
MAY 31, 2002 $4,889 $ 5,090 $ 5,150 $ 5,180 $10,167
- -------------------------------------------------------------------------------------------------------------------------
AUGUST 31, 2002 $3,856 (3) $ 3,850 (3) $ 4,000 (3) $ 4,090 (3) $ 8,554
- -------------------------------------------------------------------------------------------------------------------------

- -------------------------------------------------------------------------------------------------------------------------
--- CLASS A --- CLASS B --- CLASS C --- CLASS D --- S&P 400 (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 AUGUST 31, 2002
- ---------------------------------------------------------------------
CLASS A SHARES*
- ---------------------------------------------------------------------
1 Year (28.97)%(1) (32.70)%(2)
Since Inception (9/27/00) (37.32)%(1) (39.05)%(2)
- ---------------------------------------------------------------------
CLASS B SHARES**
- ---------------------------------------------------------------------
1 Year (29.53)%(1) (33.05)%(2)
Since Inception (9/27/00) (37.80)%(1) (39.10)%(2)
- ---------------------------------------------------------------------
CLASS C SHARES+
- ---------------------------------------------------------------------
1 Year (29.70)%(1) (30.40)%(2)
Since Inception (9/27/00) (37.88)%(1) (37.88)%(2)
- ---------------------------------------------------------------------
CLASS D SHARES++
- ---------------------------------------------------------------------
1 Year (28.75)%(1)
Since Inception (9/27/00) (37.16)%(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 August 31, 2002.

(4) The Standard and Poor's MidCap 400 Index (S&P 400) is a market-value
weighted index, the performance of which is based on the performance of
400 domestic 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 NEW DISCOVERIES FUND
PORTFOLIO OF INVESTMENTS o AUGUST 31, 2002

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

COMMON STOCKS (98.3%)
Advertising/Marketing
Services (0.8%)
41,150 Lamar Advertising Co.* ............... $ 1,315,154
------------
Aerospace & Defense (0.4%)
9,750 Alliant Techsystems, Inc.* ........... 665,145
------------
Air Freight/Couriers (0.6%)
13,550 C.H. Robinson Worldwide, Inc. ........ 373,844
14,050 Expeditors International of
Washington, Inc. ................... 370,217
------------
744,061
------------
Apparel/Footwear (1.0%)
60,800 Coach, Inc.* ......................... 1,497,504
------------
Apparel/Footwear Retail (3.4%)
70,500 Abercrombie & Fitch Co. (Class A)* ... 1,607,400
117,150 Limited Brands ....................... 1,791,223
49,950 Ross Stores, Inc. .................... 1,803,694
------------
5,202,317
------------
Auto Parts: O.E.M. (0.9%)
63,000 ArvinMeritor, Inc. ................... 1,473,570
------------
Biotechnology (7.9%)
52,400 Biogen, Inc.* ........................ 1,755,400
37,400 Celgene Corp.* ....................... 650,012
13,000 Cephalon, Inc.* ...................... 565,500
83,700 Gilead Sciences, Inc.* ............... 2,685,096
21,700 Human Genome Sciences, Inc.* ......... 326,802
49,725 IDEC Pharmaceuticals Corp.*........... 1,997,950
16,850 InterMune Inc.* ...................... 419,060
65,850 MedImmune, Inc.* ..................... 1,689,711
40,200 Millennium Pharmaceuticals, Inc.* .... 492,852
23,100 NPS Pharmaceuticals, Inc.* ........... 467,082
20,800 Scios, Inc.* ......................... 500,448
19,450 Transkaryotic Therapies, Inc.* ....... 673,748
------------
12,223,661
------------
Broadcasting (4.9%)
131,900 Radio One, Inc. (Class D)* ........... 2,074,787
89,800 Univision Communications,
Inc. (Class A)* .................... 2,092,340

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

53,300 USA Interactive, Inc.* .............. $ 1,141,686
69,250 Westwood One, Inc.* ................. 2,418,902
------------
7,727,715
------------
Casino/Gaming (3.0%)
185,150 GTECH Holdings Corp.* ............... 3,545,622
115,800 Park Place Entertainment Corp.* ..... 1,082,730
------------
4,628,352
------------
Chemicals: Specialty (0.6%)
16,950 Sigma-Aldrich Corp. ................. 864,450
------------
Computer Communications (1.1%)
47,950 Brocade Communications
Systems, Inc.* .................... 693,836
24,100 Emulex Corp.* ....................... 406,808
36,650 Extreme Networks, Inc.* ............. 345,609
37,950 Foundry Networks, Inc.* ............. 332,062
------------
1,778,315
------------
Computer Peripherals (1.7%)
20,300 Lexmark International, Inc. *........ 958,160
46,900 Network Appliance, Inc.* ............ 447,426
27,600 QLogic Corp.* ....................... 925,980
25,400 Storage Technology Corp.* ........... 346,710
------------
2,678,276
------------
Contract Drilling (2.1%)
82,200 GlobalSantaFe Corp. ................. 1,808,400
48,850 Noble Corp.* ........................ 1,517,769
------------
3,326,169
------------
Data Processing Services (2.0%)
24,750 Affiliated Computer Services,
Inc. (Class A)* ................... 1,101,375
66,200 BISYS Group, Inc. (The)* ............ 1,686,776
20,300 Concord EFS, Inc.* .................. 414,323
------------
3,202,474
------------
Discount Stores (3.2%)
65,500 BJ's Wholesale Club, Inc.* .......... 1,608,025
148,450 Dollar General Corp. ................ 2,223,781
48,100 Dollar Tree Stores, Inc.* ........... 1,183,741
------------
5,015,547
------------

See Notes to Financial Statements

MORGAN STANLEY NEW DISCOVERIES FUND
PORTFOLIO OF INVESTMENTS o AUGUST 31, 2002 CONTINUED

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

Electrical Products (0.2%)
11,150 Molex Inc. ........................ $ 331,155
----------
Electronic Components (0.8%)
12,100 Amphenol Corp. (Class A)* ......... 469,722
45,850 Jabil Circuit, Inc.* .............. 857,853
----------
1,327,575
----------
Electronic Distributors (0.2%)
8,460 CDW Computer Centers, Inc.*........ 363,103
----------
Electronic Equipment/
Instruments (0.2%)
111,100 JDS Uniphase Corp.* ............... 298,859
----------
Electronic Production Equipment
(0.9%)
13,950 Celestica, Inc.* .................. 320,431
18,350 KLA-Tencor Corp.* ................. 603,164
6,300 Novellus Systems, Inc.* ........... 154,098
7,100 Synopsys, Inc.* ................... 306,365
----------
1,384,058
----------
Finance/Rental/Leasing (0.5%)
8,300 SLM Corp. ......................... 760,695
----------
Financial Publishing/
Services (3.1%)
72,700 Moody's Corp. ..................... 3,512,864
56,400 SunGard Data Systems Inc.*......... 1,390,260
----------
4,903,124
----------
Food: Specialty/Candy (0.8%)
15,600 Hershey Foods Corp. ............... 1,181,700
----------
Home Building (1.8%)
54,400 Lennar Corp. ...................... 2,872,320
----------
Home Furnishings (0.8%)
24,958 Mohawk Industries, Inc.* .......... 1,235,421
----------
Hospital/Nursing Management (0.5%)
20,800 Triad Hospitals, Inc.* ............ 759,408
----------
Hotels/Resorts/Cruiselines (2.0%)
122,000 Starwood Hotels & Resorts
Worldwide, Inc. ................. 3,145,160
----------

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

Household/Personal Care (0.3%)
9,700 Alberto-Culver Co. (Class B) ........ $ 477,822
----------
Industrial Specialties (0.9%)
32,350 Ecolab, Inc. ........................ 1,457,044
----------
Information Technology
Services (0.9%)
43,950 J.D. Edwards & Co.* ................. 573,547
54,050 PeopleSoft, Inc.* ................... 869,124
----------
1,442,671
----------
Insurance Brokers/Services (1.7%)
31,733 ChoicePoint Inc.* ................... 1,363,567
42,250 Willis Group Holdings Ltd.* ......... 1,330,452
----------
2,694,019
----------
Internet Software/Services (0.8%)
48,050 BEA Systems, Inc.* .................. 293,585
106,600 Siebel Systems, Inc.* ............... 901,836
----------
1,195,421
----------
Investment Banks/Brokers (0.5%)
14,150 Lehman Brothers Holdings, Inc. ...... 806,691
----------
Investment Managers (0.7%)
21,250 Affiliated Managers Group, Inc.* .... 1,113,500
----------
Managed Health Care (2.3%)
20,600 Anthem, Inc.* ....................... 1,300,066
89,750 Caremark Rx, Inc.* .................. 1,453,950
11,700 WellPoint Health Networks, Inc.* .... 870,129
----------
3,624,145
----------
Medical Distributors (1.3%)
28,200 AmerisourceBergen Corp. ............. 2,044,782
----------
Medical Specialties (4.6%)
42,850 St. Jude Medical, Inc.* ............. 1,594,449
15,250 Stryker Corp.* ...................... 859,643
62,300 Varian Medical Systems, Inc.*........ 2,649,619
55,700 Zimmer Holdings, Inc.* .............. 2,055,330
----------
7,159,041
----------

See Notes to Financial Statements

MORGAN STANLEY NEW DISCOVERIES FUND
PORTFOLIO OF INVESTMENTS o AUGUST 31, 2002 CONTINUED

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

Medical/Nursing Services (1.4%)
70,050 Lincare Holdings, Inc.* ................ $ 2,245,103
------------
Miscellaneous Commercial
Services (2.2%)
60,850 Iron Mountain Inc.* .................... 1,691,630
66,500 Sabre Holdings Corp.* .................. 1,789,515
------------
3,481,145
------------
Movies/Entertainment (0.4%)
36,950 Regal Entertainment Group (Class A)* ... 648,473
------------
Oil & Gas Production (1.2%)
77,000 Pioneer Natural Resources Co.* ......... 1,916,530
------------
Oilfield Services/Equipment (3.0%)
36,050 Baker Hughes Inc. ...................... 991,375
53,500 BJ Services Co.* ....................... 1,632,285
51,950 Weatherford International Ltd.* ........ 2,121,638
------------
4,745,298
------------
Other Consumer Services (4.5%)
19,550 Apollo Group, Inc. (Class A)*........... 817,777
55,550 Block (H.&R.), Inc. .................... 2,716,395
36,200 Career Education Corp.* ................ 1,614,158
41,300 Weight Watchers International, Inc.* ... 1,959,685
------------
7,108,015
------------
Packaged Software (5.5%)
50,200 Adobe Systems, Inc. .................... 1,009,020
23,150 BMC Software, Inc.* .................... 321,785
29,350 Cadence Design Systems, Inc.* .......... 395,345
47,050 Intuit Inc.* ........................... 2,099,842
34,450 Mercury Interactive Corp.* ............. 875,375
21,200 NetIQ Corp.* ........................... 411,280
23,700 Network Associates, Inc.* .............. 308,100
62,200 Rational Software Corp.* ............... 422,960
31,500 Symantec Corp.* ........................ 900,900
82,400 TIBCO Software, Inc.* .................. 346,904
92,500 VERITAS Software Corp.* ................ 1,497,575
------------
8,589,086
------------

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

Personnel Services (0.2%)
21,900 Robert Half International, Inc.*........ $ 379,308
------------
Pharmaceuticals: Other (2.4%)
27,150 Allergan, Inc. ......................... 1,594,248
16,000 Biovail Corp. (Canada)* ................ 429,440
58,500 Shire Pharmaceuticals Group PLC (ADR)
(United Kingdom)* .................... 1,707,615
------------
3,731,303
------------
Property - Casualty Insurers (0.9%)
24,700 Everest Re Group, Ltd. (Barbados) ...... 1,338,740
------------
Recreational Products (2.7%)
41,650 Electronic Arts Inc.* .................. 2,634,779
25,450 International Game Technology* ......... 1,646,106
------------
4,280,885
------------
Restaurants (4.4%)
66,000 CBRL Group, Inc. ....................... 1,694,880
58,700 Jack in the Box Inc.* .................. 1,658,275
46,050 Wendy's International, Inc. ............ 1,644,446
60,050 Yum! Brands, Inc.* ..................... 1,821,317
------------
6,818,918
------------
Savings Banks (0.6%)
26,600 Charter One Financial, Inc. ............ 896,420
------------
Semiconductors (3.5%)
155,350 Agere Systems, Inc. (Class B)* ......... 239,239
30,250 Broadcom Corp. (Class A)* .............. 498,823
46,600 Cypress Semiconductor Corp.* ........... 490,698
16,300 Fairchild Semiconductor Corp.
(Class A)* ........................... 196,741
46,450 Integrated Device Technology, Inc.* .... 614,534
13,950 International Rectifier Corp.*.......... 303,552
30,650 Intersil Corp. (Class A)* .............. 518,598
22,700 Marvell Technology Group Ltd.
(Bermuda)* ........................... 432,662

See Notes to Financial Statements

MORGAN STANLEY NEW DISCOVERIES FUND
PORTFOLIO OF INVESTMENTS o AUGUST 31, 2002 CONTINUED

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

9,300 Maxim Integrated Products, Inc.* ....... $ 293,973
52,550 Microchip Technology Inc.* ............. 1,106,178
44,000 PMC - Sierra, Inc.* .................... 308,000
56,174 Skyworks Solutions, Inc.* .............. 235,931
15,700 Xilinx, Inc.* .......................... 303,324
-----------
5,542,253
-----------
Services to the Health Industry (1.0%)
25,950 Laboratory Corp. of America
Holdings* ............................ 816,128
25,700 Stericycle, Inc.* ...................... 797,728
-----------
1,613,856
-----------
Specialty Stores (1.0%)
35,100 Michaels Stores, Inc.* ................. 1,631,799
-----------
Telecommunication Equipment (1.0%)
21,150 Advanced Fibre Communications, Inc.* ... 373,086
33,850 CIENA Corp.* ........................... 137,397
11,650 Harris Corp. ........................... 372,218
196,450 Nortel Networks Corp. (Canada)* ........ 206,273
78,650 RF Micro Devices, Inc.* ................ 526,169
-----------
1,615,143
-----------
Tobacco (0.8%)
47,750 Loews Corp. - Carolina Group ........... 1,236,725
-----------
Trucks/Construction/Farm
Machinery (1.2%)
94,300 AGCO Corp.* ............................ 1,803,016
-----------
Wireless Telecommunications (1.0%)
207,950 Nextel Communications, Inc.
(Class A)* ........................... 1,582,500
-----------
TOTAL COMMON STOCKS
(Cost $161,799,291)..................... 154,124,940
-----------

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

SHORT-TERM INVESTMENT (0.5%)
REPURCHASE AGREEMENT
$ 754 Joint repurchase agreement
account 1.875% due
09/03/02 (dated
08/30/02; proceeds
$754,157) (a)
(Cost $754,000)........... $ 754,000
------------
TOTAL INVESTMENTS
(Cost $162,553,291) (b)......... 98.8% 154,878,940
OTHER ASSETS IN EXCESS OF
LIABILITIES .................... 1.2 1,840,917
----- -----------
NET ASSETS ..................... 100.0% $156,719,857
===== ============

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

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 is $173,165,371. The
aggregate gross unrealized appreciation is $7,495,738 and the aggregate
gross unrealized depreciation is $25,782,169, resulting in net unrealized
depreciation of $18,286,431.

See Notes to Financial Statements

MORGAN STANLEY NEW DISCOVERIES FUND
FINANCIAL STATEMENTS

STATEMENT OF ASSETS AND LIABILITIES
August 31, 2002

ASSETS:

Investments in securities, at value
(cost $162,553,291).............................................. $ 154,878,940
Receivable for:
Investments sold ............................................... 3,876,287
Dividends ...................................................... 55,308
Shares of beneficial interest sold ............................. 13,970
Prepaid expenses and other assets ................................ 54,880
--------------
TOTAL ASSETS ................................................... 158,879,385
--------------
LIABILITIES:
Payable for:
Investments purchased .......................................... 1,707,650
Investment management fee ...................................... 136,195
Distribution fee ............................................... 122,205
Shares of beneficial interest redeemed ......................... 106,427
Accrued expenses and other payables .............................. 87,051
--------------
TOTAL LIABILITIES .............................................. 2,159,528
--------------
NET ASSETS ..................................................... $ 156,719,857
==============
COMPOSITION OF NET ASSETS:
Paid-in-capital .................................................. $ 503,772,968
Net unrealized depreciation ...................................... (7,674,351)
Accumulated net realized loss .................................... (339,378,760)
--------------
NET ASSETS ..................................................... $ 156,719,857
==============
CLASS A SHARES:
Net Assets ....................................................... $ 14,491,753
Shares Outstanding (unlimited authorized, $.01 par value)......... 3,556,691
NET ASSET VALUE PER SHARE ...................................... $4.07
=====
MAXIMUM OFFERING PRICE PER SHARE,
(net asset value plus 5.54% of net asset value) ................ $4.30
=====
CLASS B SHARES:
Net Assets ....................................................... $ 110,575,184
Shares Outstanding (unlimited authorized, $.01 par value)......... 27,545,054
NET ASSET VALUE PER SHARE ...................................... $4.01
=====
CLASS C SHARES:
Net Assets ....................................................... $ 26,350,691
Shares Outstanding (unlimited authorized, $.01 par value)......... 6,584,087
NET ASSET VALUE PER SHARE ...................................... $4.00
=====
CLASS D SHARES:
Net Assets ....................................................... $ 5,302,229
Shares Outstanding (unlimited authorized, $.01 par value)......... 1,296,098
NET ASSET VALUE PER SHARE ...................................... $4.09
=====

See Notes to Financial Statements

MORGAN STANLEY NEW DISCOVERIES FUND
FINANCIAL STATEMENTS CONTINUED

STATEMENT OF OPERATIONS
For the year ended August 31, 2002

NET INVESTMENT LOSS:

INCOME
Dividends (net of $1,792 foreign withholding tax)......... $ 672,223
Interest ................................................. 141,539
--------------
TOTAL INCOME ........................................... 813,762
--------------
EXPENSES
Investment management fee ................................ 2,502,140
Distribution fee (Class A shares) ........................ 57,395
Distribution fee (Class B shares) ........................ 1,748,026
Distribution fee (Class C shares) ........................ 415,283
Transfer agent fees and expenses ......................... 695,805
Shareholder reports and notices .......................... 77,833
Registration fees ........................................ 74,531
Custodian fees ........................................... 50,802
Professional fees ........................................ 48,044
Trustees' fees and expenses .............................. 12,283
Other .................................................... 9,433
--------------
TOTAL EXPENSES ......................................... 5,691,575
--------------
NET INVESTMENT LOSS .................................... (4,877,813)
--------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized loss ........................................ (117,748,899)
Net change in unrealized depreciation .................... 45,688,429
--------------
NET LOSS ............................................... (72,060,470)
--------------
NET DECREASE ............................................. $ (76,938,283)
===============

See Notes to Financial Statements

MORGAN STANLEY NEW DISCOVERIES FUND
FINANCIAL STATEMENTS CONTINUED

STATEMENT OF CHANGES IN NET ASSETS

FOR THE PERIOD
FOR THE YEAR SEPTEMBER 27, 2000*
ENDED THROUGH
AUGUST 31, 2002 AUGUST 31, 2001
----------------- --------------------

INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment loss ....................................................... $ (4,877,813) $ (7,772,175)
Net realized loss ......................................................... (117,748,899) (221,629,861)
Net change in unrealized depreciation ..................................... 45,688,429 (53,362,780)
------------ ------------
NET DECREASE ............................................................ (76,938,283) (282,764,816)
Net increase (decrease) from transactions in shares of beneficial interest (92,290,288) 608,613,244
------------ ------------
NET INCREASE (DECREASE) ................................................. (169,228,571) 325,848,428
NET ASSETS:
Beginning of period ....................................................... 325,948,428 100,000
------------ ------------
END OF PERIOD ............................................................. $156,719,857 $325,948,428
============ ============

- ------------
* Commencement of operations.

See Notes to Financial Statements

MORGAN STANLEY NEW DISCOVERIES FUND
NOTES TO FINANCIAL STATEMENTS o AUGUST 31, 2002

1. ORGANIZATION AND ACCOUNTING POLICIES

Morgan Stanley New Discoveries Fund (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 seeks to achieve its objective by investing
primarily in common stocks of companies with market capitalizations, at the
time of purchase, that fall within the range of companies included within the
Russell 2000 Index and the Standard & Poor's Mid-Cap 400 Index. The Fund was
organized as a Massachusetts business trust on May 16, 2000 and had no
operations other than those relating to organizational matters and the issuance
of 2,500 shares of beneficial interest by each class for $25,000 of each class
to Morgan Stanley Investment Advisors Inc. (the "Investment Manager"), to
effect the Fund's initial capitalization. The Fund commenced operations on
September 27, 2000.

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 the
Investment Manager, and/or Morgan Stanley Investments, LP (the "Sub-Advisor"),
an affiliate of 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

MORGAN STANLEY NEW DISCOVERIES FUND
NOTES TO FINANCIAL STATEMENTS o AUGUST 31, 2002 CONTINUED

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.

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. 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.

F. 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 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.

MORGAN STANLEY NEW DISCOVERIES FUND
NOTES TO FINANCIAL STATEMENTS o AUGUST 31, 2002 CONTINUED

2. INVESTMENT MANAGEMENT AND SUB-ADVISORY AGREEMENTS

Under a Sub-Advisory Agreement between the Sub-Advisor and the Investment
Manager, the Sub-Advisor provides the Fund with investment advice and portfolio
management relating to the Fund's investments in securities, subject to the
overall supervision of the Investment Manager. As compensation for its services
provided pursuant to the Sub-Advisory Agreement, the Investment Manager pays
the Sub-Advisor compensation equal to 40% of its monthly compensation.

3. PLAN OF DISTRIBUTION

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
$22,062,472 at August 31, 2002.

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 August 31, 2002, the distribution fee was accrued for
Class A shares and Class C shares at the annual rate of 0.24% and 1.0%,
respectively.

The Distributor has informed the Fund that for the year ended August 31, 2002,
it received contingent deferred sales charges from certain redemptions of the
Fund's Class A shares, Class B shares and Class C

MORGAN STANLEY NEW DISCOVERIES FUND
NOTES TO FINANCIAL STATEMENTS o AUGUST 31, 2002 CONTINUED

shares of $124, $1,220,256 and $21,369, respectively and received $6,246 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 August 31, 2002 aggregated
$521,327,966 and $604,966,272, respectively. Included in the aforementioned
transactions are purchases and sales of $800,286 and $346,679, respectively for
portfolio transactions with other Morgan Stanley Funds.

For the year ended August 31, 2002, the Fund incurred brokerage commissions of
$15,188 with Morgan Stanley & Co., Inc., an affiliate of the Investment
Manager, Sub-Advisor and Distributor, for portfolio transactions executed on
behalf of the Fund.

Morgan Stanley Trust, an affiliate of the Investment Manager, Sub-Advisor and
Distributor, is the Fund's transfer agent. At August 31, 2002 the Fund had
transfer agent fees and expenses payable of approximately $5,500.

5. FEDERAL INCOME TAX STATUS

At August 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 attributable to a net operating loss. To reflect
reclassifications arising from the permanent differences, paid-in-capital was
charged and net investment loss was credited $4,877,813.

MORGAN STANLEY NEW DISCOVERIES FUND
NOTES TO FINANCIAL STATEMENTS o AUGUST 31, 2002 CONTINUED

6. SHARES OF BENEFICIAL INTEREST

Transactions in shares of beneficial interest were as follows:

FOR THE PERIOD
FOR THE YEAR SEPTEMBER 27, 2000*
ENDED THROUGH
AUGUST 31, 2002 AUGUST 31, 2001
-------------------------------- -------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------- ---------------- --------------- ---------------

CLASS A SHARES
Sold ............................. 450,865 $ 2,401,289 14,000,478 $137,314,142
Redeemed ......................... (2,527,335) (13,251,276) (8,369,817) (70,356,162)
---------- ------------ ---------- ------------
Net increase (decrease) - Class A (2,076,470) (10,849,987) 5,630,661 66,957,980
---------- ------------ ---------- ------------
CLASS B SHARES
Sold ............................. 2,308,753 12,352,239 49,482,104 483,842,993
Redeemed ......................... (14,174,494) (71,513,083) (10,073,809) (72,360,229)
----------- ------------ ----------- ------------
Net increase (decrease) - Class B (11,865,741) (59,160,844) 39,408,295 411,482,764
----------- ------------ ----------- ------------
CLASS C SHARES
Sold ............................. 348,381 1,877,268 12,718,773 125,110,963
Redeemed ......................... (3,450,017) (17,833,359) (3,035,550) (21,930,889)
----------- ------------ ----------- ------------
Net increase (decrease) - Class C (3,101,636) (15,956,091) 9,683,223 103,180,074
----------- ------------ ----------- ------------
CLASS D SHARES
Sold ............................. 226,838 1,178,864 4,194,288 38,914,497
Redeemed ......................... (1,454,224) (7,502,230) (1,673,304) (11,922,071)
----------- ------------ ----------- ------------
Net increase (decrease) - Class D (1,227,386) (6,323,366) 2,520,984 26,992,426
----------- ------------ ----------- ------------
Net increase (decrease) in Fund .. (18,271,233) $(92,290,288) 57,243,163 $608,613,244
=========== ============ =========== ============

- ------------
* Commencement of operations.

MORGAN STANLEY NEW DISCOVERIES FUND
FINANCIAL HIGHLIGHTS

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

FOR THE PERIOD
FOR THE YEAR SEPTEMBER 27, 2000*
ENDED THROUGH
AUGUST 31, 2002 AUGUST 31, 2001
----------------- --------------------

CLASS A SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period ............ $ 5.73 $ 10.00
------- -------
Loss from investment operations:
Net investment loss[+/+] ....................... (0.07) (0.07)
Net realized and unrealized loss ............... (1.59) (4.20)
------- -------
Total loss from investment operations ........... (1.66) (4.27)
------- -------
Net asset value, end of period .................. $ 4.07 $ 5.73
======= =======
TOTAL RETURN+ .................................. (28.97)% (42.70)%(1)
RATIOS TO AVERAGE NET ASSETS(3):
Expenses ........................................ 1.63 % 1.49 %(2)
Net investment loss ............................. (1.30)% (1.08)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ......... $14,492 $32,268
Portfolio turnover rate ......................... 216 % 155 %(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.

See Notes to Financial Statements

MORGAN STANLEY NEW DISCOVERIES FUND
FINANCIAL HIGHLIGHTS CONTINUED

FOR THE PERIOD
FOR THE YEAR SEPTEMBER 27, 2000*
ENDED THROUGH
AUGUST 31, 2002 AUGUST 31, 2001
----------------- --------------------

CLASS B SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period ............ $ 5.69 $ 10.00
-------- --------
Loss from investment operations:
Net investment loss[+/+] ....................... (0.11) (0.13)
Net realized and unrealized loss ............... (1.57) (4.18)
-------- --------
Total loss from investment operations ........... (1.68) (4.31)
-------- --------
Net asset value, end of period .................. $ 4.01 $ 5.69
======== ========
TOTAL RETURN+ .................................. (29.53)% (43.10)%(1)
Ratios to Average Net Assets(3):
Expenses ........................................ 2.39 % 2.28 %(2)
Net investment loss ............................. (2.06)% (1.87)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ......... $110,575 $224,120
Portfolio turnover rate ......................... 216 % 155 %(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.

See Notes to Financial Statements

MORGAN STANLEY NEW DISCOVERIES FUND
FINANCIAL HIGHLIGHTS CONTINUED

FOR THE PERIOD
FOR THE YEAR SEPTEMBER 27, 2000*
ENDED THROUGH
AUGUST 31, 2002 AUGUST 31, 2001
----------------- --------------------

CLASS C SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period ............ $ 5.69 $ 10.00
------- -------
Loss from investment operations:
Net investment loss[+/+] ......................... (0.11) (0.13)
Net realized and unrealized loss ............... (1.58) (4.18)
------- -------
Total loss from investment operations ........... (1.69) (4.31)
------- -------
Net asset value, end of period .................. $ 4.00 $ 5.69
======= =======
TOTAL RETURN+ ................................... (29.70)% (43.10)%(1)

RATIOS TO AVERAGE NET ASSETS(3):
Expenses ........................................ 2.39 % 2.28 %(2)
Net investment loss ............................. (2.06)% (1.87)%(2)

SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ......... $26,351 $55,080
Portfolio turnover rate ......................... 216 % 155 %(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.

See Notes to Financial Statements

MORGAN STANLEY NEW DISCOVERIES FUND
FINANCIAL HIGHLIGHTS CONTINUED

FOR THE PERIOD
FOR THE YEAR SEPTEMBER 27, 2000*
ENDED THROUGH
AUGUST 31, 2002 AUGUST 31, 2001
----------------- --------------------

CLASS D SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period ............ $ 5.74 $ 10.00
------- -------
Loss from investment operations:
Net investment loss[+/+] ....................... (0.06) (0.07)
Net realized and unrealized loss ............... (1.59) (4.19)
------- -------
Total loss from investment operations ........... (1.65) (4.26)
------- -------
Net asset value, end of period .................. $ 4.09 $ 5.74
======= =======
TOTAL RETURN+ ................................... (28.75)% (42.60)%(1)
RATIOS TO AVERAGE NET ASSETS(3):
Expenses ........................................ 1.39 % 1.28 %(2)
Net investment loss ............................. (1.06)% (0.87)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ......... $ 5,302 $14,480
Portfolio turnover rate ......................... 216 % 155 %(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.

See Notes to Financial Statements

MORGAN STANLEY NEW DISCOVERIES FUND
INDEPENDENT AUDITORS' REPORT

TO THE SHAREHOLDERS AND BOARD OF TRUSTEES OF
MORGAN STANLEY NEW DISCOVERIES FUND:

We have audited the accompanying statement of assets and liabilities of Morgan
Stanley New Discoveries Fund (the "Fund"), including the portfolio of
investments, as of August 31, 2002, and the related statement of operations for
the year then ended and the statements of changes in net assets and the
financial highlights for the year then ended and the period September 27, 2000
(commencement of operations) through August 31, 2001. 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 August 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 New Discoveries Fund as of August 31, 2002, the results of its
operations for the year then ended, the changes in its net assets and the
financial highlights for the year then ended and the period September 27, 2000
(commencement of operations) through August 31, 2001, in conformity with
accounting principles generally accepted in the United States of America.

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

MORGAN STANLEY NEW DISCOVERIES FUND
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 Since
c/o Mayer, Brown, Rowe & Maw April 1994
Counsel to the Independent Trustees
1675 Broadway
New York, NY

Edwin J. Garn (69) 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 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 NEW DISCOVERIES FUND
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 Since
c/o Johnson Smick International, Inc. July 1991
1133 Connecticut Avenue, N.W.
Washington, D.C.

Michael E. Nugent (66) 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 NEW DISCOVERIES FUND
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 Since
c/o Morgan Stanley Trust or Trustee 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 (58) 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 NEW DISCOVERIES FUND
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 (49) 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, Since
1221 Avenue of the Americas Secretary and February 1997
New York, NY General Counsel

Thomas F. Caloia (56) Treasurer Since
c/o Morgan Stanley Trust April 1989
Harborside Financial Center,
Plaza Two
Jersey City, NJ

Ronald E. Robison (63) Vice President Since
1221 Avenue of the Americas October 1998
New York, NY

Joseph J. McAlinden (59) Vice President Since
1221 Avenue of the Americas July 1995
New York, NY

Francis Smith (37) Vice President Since
c/o Morgan Stanley Trust and Chief September 2002
Harborside Financial Center Financial Officer
Plaza Two,
Jersey City, NJ

NAME, AGE AND ADDRESS OF
EXECUTIVE OFFICER PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
- ----------------------------- ---------------------------------------------------------------------------------------------------

Mitchell M. Merin (49) President and Chief Operating Officer of Morgan Stanley Investment Management (since
1221 Avenue of the Americas December 1998); President, Director (since April 1997) and Chief Executive Officer (since
New York, NY June 1998) of the 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) General Counsel (since May 2000) and Managing Director (since December 2000) of Morgan
1221 Avenue of the Americas Stanley Investment Management; Managing Director (since December 2000), and Secretary and
New York, NY 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) First Vice President and Assistant Treasurer of the Investment Manager, the Distributor and Morgan
c/o Morgan Stanley Trust Stanley Services; Treasurer of the Morgan Stanley Funds.
Harborside Financial Center,
Plaza Two
Jersey City, NJ

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

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

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

(This page has been left blank intentionally.)

[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

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
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

SUB-ADVISOR
Morgan Stanley Investments LP
One Tower Bridge
West Conshohocken, Pennsylvania 19428

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]

[GRAPHIC OMITTED]

MORGAN STANLEY
NEW DISCOVERIES FUND

Annual Report
August 31, 2002

39851RPT-8324102-AP-9/02

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 New Discoveries Trust ("New
Discoveries") in connection with the acquisition by Developing Growth of
substantially all of the assets, subject to stated liabilities, of New
Discoveries. 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 NEW DISCOVERIES .................... 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 New Discoveries shareholders in connection with the solicitation
of proxies by the Board of Trustees of New Discoveries to be voted at the
Special Meeting of Shareholders of New Discoveries 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 New Discoveries dated
October 31, 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 NEW DISCOVERIES

FUND HISTORY

For additional information about New Discoveries' history, see "Fund
History" in New Discoveries' Statement of Additional Information.

INVESTMENT OBJECTIVES AND POLICIES

For additional information about New Discoveries' investment objectives
and policies, see "Description of the Fund and Its Investments and Risks" in
New Discoveries' Statement of Additional Information.

MANAGEMENT

For additional information about the Board of Trustees, officers and
management personnel of New Discoveries, see "Management of the Fund" and
"Investment Management and Other Services" in New Discoveries' Statement of
Additional Information.

INVESTMENT ADVISORY AND OTHER SERVICES

For additional information about New Discoveries' investment manager, see
"Investment Management and Other Services" in New Discoveries' Statement of
Additional Information. For additional information about New Discoveries'
independent auditors, see "Investment Management and Other Services" in New
Discoveries' Statement of Additional Information. For additional information
about other services provided to New Discoveries, see "Investment Management
and Other Services" in New Discoveries' Statement of Additional Information.

PORTFOLIO TRANSACTIONS AND BROKERAGE

For additional information about brokerage allocation practices, see
"Brokerage Allocation and Other Practices" in New Discoveries' Statement of
Additional Information.

DESCRIPTION OF FUND SHARES

For additional information about the voting rights and other
characteristics of the shares of New Discoveries, see "Capital Stock and Other
Securities" in New Discoveries' Statement of Additional Information.

B-4

PURCHASE, REDEMPTION AND PRICING OF SHARES

For additional information about the purchase and redemption of New
Discoveries' shares and the determination of net asset value, see "Purchase,
Redemption and Pricing of Shares" in New Discoveries' Statement of Additional
Information.

DIVIDENDS, DISTRIBUTIONS AND TAX STATUS

For additional information about New Discoveries' policies regarding
dividends and distributions and tax matters affecting New Discoveries and its
shareholders, see "Taxation of the Fund and Shareholders" in New Discoveries'
Statement of Additional Information.

DISTRIBUTION OF SHARES

For additional information about New Discoveries' distributor and the
distribution agreement between New Discoveries and its distributor, see
"Investment Management and Other Services" and "Underwriters" in New
Discoveries' Statement of Additional Information.

PERFORMANCE DATA

For additional information about New Discoveries' performance, see
"Calculation of Performance Data" in New Discoveries' 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. A copy of the Annual Report accompanies, and is incorporated by reference
in, the Proxy Statement and Prospectus. Also incorporated by reference in the
Proxy Statement and Prospectus is Developing Growth's succeeding Semi-Annual
Report for the six months ended March 31, 2003. New Discoveries' most recent
audited financial statements are set forth in New Discoveries' Annual Report
for the fiscal year ended August 31, 2003, which is incorporated by reference
in the Proxy Statement and Prospectus. Also incorporated by reference in the
Proxy Statement and Prospectus is New Discoveries' succeeding Semi-Annual
Report for the six months ended February 28, 2003.

Shown below are Financial Statements for both New Discoveries and
Developing Growth and Pro Forma Financial Statements for the combined fund at
March 31, 2003, as though the reorganization occurred as of that date. The
first table presents Portfolio of Investments (unaudited) for both New
Discoveries and Developing Growth and pro forma figures for the combined fund.
The second table presents Statements of Assets and Liabilities (unaudited) for
both New Discoveries and Developing Growth and pro forma figures for the
combined fund. The third table presents Statements of Operations (unaudited)
for both New Discoveries and Developing Growth and pro forma figures for the
combined fund. The tables are followed by the Notes to the Pro Forma Financial
Statements (unaudited).

B-5

MORGAN STANLEY DEVELOPING GROWTH SECURITIES TRUST

PRO FORMA PORTFOLIO OF INVESTMENTS AS OF MARCH 31, 2003

(UNAUDITED)

MORGAN STANLEY COMBINED
DEVELOPING GROWTH MORGAN STANLEY MORGAN STANLEY DEVELOPING
SECURITIES TRUST NEW DISCOVERIES FUND GROWTH SECURITIES TRUST
------------------------- ------------------------- ------------------------
NUMBER OF NUMBER OF NUMBER OF
SHARES VALUE SHARES VALUE SHARES VALUE
----------- ------------- ----------- ------------- ---------- -------------

COMMON STOCKS (95.7%)
Aerospace & Defense (0.8%)
Alliant Techsystems, Inc.* ....................... 35,100 $1,895,751 17,300 $ 934,373 52,400 $2,830,124
Orbital Sciences Corp.* .......................... 180,600 933,702 -- -- 180,600 933,702
---------- --------- ----------
2,829,453 934,373 3,763,826
---------- --------- ----------
Air Freight/Couriers (2.4%)
C.H. Robinson Worldwide, Inc. .................... 90,500 2,959,350 33,450 1,093,815 123,950 4,053,165
Expeditors International of Washington, Inc. ..... 160,700 5,777,165 39,550 1,421,823 200,250 7,198,988
---------- --------- ----------
8,736,515 2,515,638 11,252,153
---------- --------- ----------
Airlines (0.3%)
JetBlue Airways Corp.* ........................... 53,600 1,485,256 -- -- 53,600 1,485,256
---------- --------- ----------
Apparel/Footwear (0.5%)
Coach, Inc.* ..................................... 49,800 1,908,834 9,800 375,634 59,600 2,284,468
---------- --------- ----------
Apparel/Footwear Retail (4.0%)
Abercrombie & Fitch Co. (Class A)* ............... 247,925 7,445,188 88,200 2,648,646 336,125 10,093,834
Chico's FAS, Inc.* ............................... 184,825 3,696,500 74,925 1,498,500 259,750 5,195,000
Hot Topic, Inc.* ................................. 119,600 2,787,876 -- -- 119,600 2,787,876
Ross Stores, Inc. ................................ 27,800 1,004,970 -- -- 27,800 1,004,970
---------- --------- ----------
14,934,534 4,147,146 19,081,680
---------- --------- ----------
Biotechnology (6.8%)
Affymetrix, Inc.* ................................ 76,400 1,986,400 14,100 366,600 90,500 2,353,000
Amylin Pharmaceuticals, Inc.* .................... 48,500 785,700 23,900 387,180 72,400 1,172,880
BioMarin Pharmaceutical, Inc.* ................... 152,200 1,727,470 -- -- 152,200 1,727,470
Celgene Corp.* ................................... 106,550 2,778,824 46,750 1,219,240 153,300 3,998,064
Dendreon Corp.* .................................. 272,450 1,277,790 -- -- 272,450 1,277,790
Gen-Probe Inc.* .................................. 91,900 2,080,616 -- -- 91,900 2,080,616
Genzyme Corp. (General Division)* ................ 77,600 2,828,520 31,650 1,153,643 109,250 3,982,163
Gilead Sciences, Inc. ............................ -- -- 37,200 1,562,028 37,200 1,562,028
IDEC Pharmaceuticals Corp.* ...................... 111,650 3,842,881 39,325 1,353,527 150,975 5,196,408
MedImmune, Inc.* ................................. 103,200 3,388,056 20,800 682,864 124,000 4,070,920
NPS Pharmaceuticals, Inc.* ....................... 184,500 2,852,370 54,700 845,662 239,200 3,698,032
Techne Corp.* .................................... 31,400 649,038 -- -- 31,400 649,038
Trimeris, Inc. ................................... -- -- 9,050 372,679 9,050 372,679
---------- --------- ----------
24,197,665 7,943,423 32,141,088
---------- --------- ----------
Broadcasting (3.3%)
Radio One, Inc. (Class D)* ....................... 203,100 2,689,044 89,500 1,184,980 292,600 3,874,024
Univision Communications, Inc. (Class A)* ........ 57,000 1,397,070 63,450 1,555,160 120,450 2,952,230
USA Interactive .................................. -- -- 80,350 2,152,576 80,350 2,152,576
Westwood One, Inc.* .............................. 133,125 4,158,825 49,350 1,541,694 182,475 5,700,519
XM Satellite Radio Holdings Inc. (Class A)* ...... 150,200 884,678 -- -- 150,200 884,678
---------- --------- ----------
9,129,617 6,434,410 15,564,027
---------- --------- ----------
Cable/Satellite TV (0.8%)
EchoStar Communications Corp. (Class A)* ......... 104,000 3,003,520 32,400 935,712 136,400 3,939,232
---------- --------- ----------

See Notes to Pro Forma Financial Statements.

B-6

MORGAN STANLEY DEVELOPING GROWTH SECURITIES TRUST

PRO FORMA PORTFOLIO OF INVESTMENTS AS OF MARCH 31, 2003

(UNAUDITED)

MORGAN STANLEY COMBINED
DEVELOPING GROWTH MORGAN STANLEY MORGAN STANLEY DEVELOPING
SECURITIES TRUST NEW DISCOVERIES FUND GROWTH SECURITIES TRUST
------------------------- ------------------------- -------------------------
NUMBER OF NUMBER OF NUMBER OF
SHARES VALUE SHARES VALUE SHARES VALUE
----------- ------------- ----------- ------------- ---------- --------------

Casino/Gaming (3.2%)
GTECH Holdings Corp.* .......................... 270,390 $8,830,937 88,300 $2,883,878 358,690 $11,714,815
Penn National Gaming, Inc.* .................... 191,250 3,394,687 -- -- 191,250 3,394,687
---------- ---------- -----------
12,225,624 2,883,878 15,109,502
---------- ---------- -----------
Chemicals: Specialty (0.1%)
Sigma-Aldrich Corp. ............................ -- -- 15,250 678,473 15,250 678,473
---------- ---------- -----------
Commercial Printing/Forms (0.8%)
Deluxe Corp. ................................... 99,600 3,996,948 -- -- 99,600 3,996,948
---------- ---------- -----------

Computer Communications (1.2%)
Emulex Corp.* .................................. 102,400 1,960,960 58,850 1,126,978 161,250 3,087,938
Extreme Networks, Inc. ......................... -- -- 64,600 279,718 64,600 279,718
Juniper Networks, Inc.* ........................ 233,600 1,908,512 41,650 340,281 275,250 2,248,793
---------- ---------- -----------
3,869,472 1,746,977 5,616,449
---------- ---------- -----------
Computer Peripherals (1.5%)
Network Appliance, Inc. ........................ -- -- 68,250 763,718 68,250 763,718
Seagate Technology Holdings (Cayman Islands) ... -- -- 45,100 465,432 45,100 465,432
Storage Technology Corp.* ...................... 171,850 3,474,807 -- -- 171,850 3,474,807
Zebra Technologies Corp. (Class A)* ............ 33,350 2,147,740 -- -- 33,350 2,147,740
---------- ---------- -----------
5,622,547 1,229,150 6,851,697
---------- ---------- -----------
Containers/Packaging (0.3%)
Sealed Air Corp. ............................... -- -- 29,100 1,167,783 29,100 1,167,783
---------- ---------- -----------
Contract Drilling (0.7%)
Patterson-UTI Energy, Inc.* .................... 51,700 1,673,012 46,200 1,495,032 97,900 3,168,044
---------- ---------- -----------

Data Processing Services (1.4%)
Affiliated Computer Services, Inc. (Class A)* .. 19,600 867,496 21,000 929,460 40,600 1,796,956
BISYS Group, Inc. (The)* ....................... 52,200 851,904 -- -- 52,200 851,904
CheckFree Corp.* ............................... 87,100 1,958,008 14,200 319,216 101,300 2,277,224
Global Payments Inc. ........................... -- -- 52,200 1,593,144 52,200 1,593,144
---------- ---------- -----------
3,677,408 2,841,820 6,519,228
---------- ---------- -----------
Discount Stores (1.9%)
Dollar General Corp. ........................... -- -- 50,000 610,500 50,000 610,500
Dollar Tree Stores, Inc.* ...................... 215,600 4,290,440 115,150 2,291,485 330,750 6,581,925
Fred's, Inc. ................................... 71,600 1,994,060 -- -- 71,600 1,994,060
---------- ---------- -----------
6,284,500 2,901,985 9,186,485
---------- ---------- -----------
Electronic Components (0.4%)
Amphenol Corp. (Class A) ....................... -- -- 9,200 374,900 9,200 374,900
QLogic Corp.* .................................. 37,150 1,379,751 20,900 776,226 58,050 2,155,977
---------- ---------- -----------
1,379,751 1,151,126 2,530,877
---------- ---------- -----------

See Notes to Pro Forma Financial Statements.

B-7

MORGAN STANLEY DEVELOPING GROWTH SECURITIES TRUST

PRO FORMA PORTFOLIO OF INVESTMENTS AS OF MARCH 31, 2003

(UNAUDITED)

COMBINED
MORGAN STANLEY MORGAN STANLEY
DEVELOPING GROWTH MORGAN STANLEY DEVELOPING
SECURITIES TRUST NEW DISCOVERIES FUND GROWTH SECURITIES TRUST
------------------------ ------------------------ -----------------------
NUMBER OF NUMBER OF NUMBER OF
SHARES VALUE SHARES VALUE SHARES VALUE
----------- ------------ ----------- ------------ ---------- ------------

Electronic Distributors (0.3%)
CDW Computer Centers, Inc. ................ -- -- 15,260 $ 622,608 15,260 $ 622,608
CompuCom Systems, Inc.* ................... 156,100 $ 546,350 -- -- 156,100 546,350
--------- --------- ---------
546,350 622,608 1,168,958
--------- --------- ---------
Electronic Equipment/Instruments (0.1%)
JDS Uniphase Corp. ........................ -- -- 83,700 238,545 83,700 238,545
--------- --------- ---------
Electronic Production Equipment (1.6%)
Cymer, Inc. ............................... -- -- 16,300 385,495 16,300 385,495
KLA-Tencor Corp.* ......................... 24,900 894,956 25,750 925,506 50,650 1,820,462
Lam Research Corp.* ....................... 84,350 960,662 -- -- 84,350 960,662
MKS Instruments, Inc.* .................... 60,500 756,250 -- -- 60,500 756,250
Novellus Systems, Inc.* ................... 39,150 1,067,620 34,400 938,088 73,550 2,005,708
Synopsys, Inc.* ........................... 24,000 1,021,440 10,600 451,136 34,600 1,472,576
--------- --------- ---------
4,700,928 2,700,225 7,401,153
--------- --------- ---------
Engineering & Construction (0.4%)
Jacobs Engineering Group, Inc.* ........... 42,600 1,789,626 -- -- 42,600 1,789,626
--------- --------- ---------

Finance/Rental/Leasing (1.0%)
American Capital Strategies, Ltd. ......... -- -- 13,200 295,680 13,200 295,680
Comdisco Holding Company, Inc.* ........... 6,500 875,225 -- -- 6,500 875,225
Doral Financial Corp. ..................... 53,000 1,873,550 50,800 1,795,780 103,800 3,669,330
--------- --------- ---------
2,748,775 2,091,460 4,840,235
--------- --------- ---------
Financial Publishing/Services (1.2%)
Dun & Bradstreet Corp.* ................... 78,500 3,002,625 -- -- 78,500 3,002,625
Moody's Corp. ............................. -- -- 32,500 1,502,475 32,500 1,502,475
SunGard Data Systems Inc. ................. -- -- 49,700 1,058,610 49,700 1,058,610
--------- --------- ---------
3,002,625 2,561,085 5,563,710
--------- --------- ---------
Food: Major Diversified (0.3%)
Del Monte Foods Co.* ...................... 213,000 1,588,980 -- -- 213,000 1,588,980
--------- --------- ---------

Food: Specialty/Candy (1.5%)
Hershey Foods Corp. ....................... 52,500 3,289,650 15,950 999,427 68,450 4,289,077
Peet's Coffee & Tea, Inc.* ................ 169,950 2,817,771 -- -- 169,950 2,817,771
--------- --------- ---------
6,107,421 999,427 7,106,848
--------- --------- ---------
Gas Distributors (0.5%)
UGI Corp. ................................. 47,300 2,161,610 -- -- 47,300 2,161,610
--------- --------- ---------

Home Building (1.0%)
NVR, Inc.* ................................ 10,600 3,487,400 4,300 1,414,700 14,900 4,902,100
--------- --------- ---------
Home Furnishings (0.3%)
Newell Rubbermaid, Inc. ................... -- -- 48,950 1,387,733 48,950 1,387,733
--------- --------- ---------

See Notes to Pro Forma Financial Statements.

B-8

MORGAN STANLEY DEVELOPING GROWTH SECURITIES TRUST

PRO FORMA PORTFOLIO OF INVESTMENTS AS OF MARCH 31, 2003

(UNAUDITED)

COMBINED
MORGAN STANLEY MORGAN STANLEY
DEVELOPING GROWTH MORGAN STANLEY DEVELOPING
SECURITIES TRUST NEW DISCOVERIES FUND GROWTH SECURITIES TRUST
------------------------- ------------------------ -----------------------
NUMBER OF NUMBER OF NUMBER OF
SHARES VALUE SHARES VALUE SHARES VALUE
----------- ------------- ----------- ------------ ---------- ------------

Hospital/Nursing Management (0.1%)
Universal Health Services, Inc. (Class B) ......... -- -- 15,900 $ 648,243 15,900 $ 648,243
-- --------- ---------
Hotels/Resorts/Cruiselines (1.5%)
Carnival Corp. (Panama) ........................... -- -- 26,600 641,326 26,600 641,326
Royal Caribbean Cruises Ltd. ...................... 414,400 $6,228,432 -- -- 414,400 6,228,432
---------- --------- ---------
6,228,432 641,326 6,869,758
---------- --------- ---------
Industrial Specialties (0.2%)
Ecolab, Inc. ...................................... -- -- 19,700 971,801 19,700 971,801
---------- --------- ---------
Information Technology Services (0.5%)
J.D. Edwards & Co. ................................ -- -- 19,700 217,094 19,700 217,094
PeopleSoft, Inc.* ................................. 96,900 1,482,570 41,000 627,300 137,900 2,109,870
---------- --------- ---------
1,482,570 844,394 2,326,964
---------- --------- ---------
Insurance Brokers/Services (1.0%)
ChoicePoint Inc. .................................. -- -- 29,433 997,778 29,433 997,778
Hilb, Rogal & Hamilton Co. ........................ 102,850 3,213,034 -- -- 102,850 3,213,034
Willis Group Holdings Ltd. ........................ -- -- 22,600 626,020 22,600 626,020
---------- --------- ---------
3,213,034 1,623,798 4,836,832
---------- --------- ---------
Internet Retail (0.2%)
Amazon.com, Inc. .................................. -- -- 29,000 754,870 29,000 754,870
---------- --------- ---------
Internet Software/Services (0.9%)
BEA Systems, Inc.* ................................ 127,750 1,301,772 80,500 820,295 208,250 2,122,067
Siebel Systems, Inc. .............................. -- -- 56,150 449,762 56,150 449,762
Yahoo! Inc. ....................................... -- -- 69,100 1,659,782 69,100 1,659,782
---------- --------- ---------
1,301,772 2,929,839 4,231,611
---------- --------- ---------
Investment Managers (0.2%)
Affiliated Managers Group, Inc. ................... -- -- 25,850 1,074,584 25,850 1,074,584
---------- --------- ---------
Managed Health Care (2.0%)
Caremark Rx, Inc.* ................................ 252,800 4,588,320 95,500 1,733,325 348,300 6,321,645
Mid Atlantic Medical Services, Inc.* .............. 30,700 1,244,885 -- -- 30,700 1,244,885
WellPoint Health Networks, Inc. ................... -- -- 22,875 1,755,656 22,875 1,755,656
---------- --------- ---------
5,833,205 3,488,981 9,322,186
---------- --------- ---------
Medical/Nursing Services (0.4%) ...................
Lincare Holdings, Inc. ............................ -- -- 56,050 1,720,174 56,050 1,720,174
---------- --------- ---------
Medical Distributors (0.1%)
AmerisourceBergen Corp. ........................... -- -- 12,400 651,000 12,400 651,000
---------- --------- ---------
Medical Specialties (6.2%)
Beckman Coulter, Inc. ............................. 45,700 1,555,171 -- -- 45,700 1,555,171
DENTSPLY International, Inc. ...................... 45,600 1,586,424 -- -- 45,600 1,586,424
Merit Medical Systems, Inc.* ...................... 128,250 2,443,162 -- -- 128,250 2,443,162
St. Jude Medical, Inc.* ........................... 66,100 3,222,375 32,800 1,599,000 98,900 4,821,375

See Notes to Pro Forma Financial Statements.

B-9

MORGAN STANLEY DEVELOPING GROWTH SECURITIES TRUST

PRO FORMA PORTFOLIO OF INVESTMENTS AS OF MARCH 31, 2003

(UNAUDITED)

SurModics, Inc. * ................................... 59,300 $1,832,963 -- 59,300 $1,832,963
Varian Medical Systems, Inc.* ....................... 212,850 11,479,001 53,300 $2,874,469 266,150 14,353,470
Zimmer Holdings, Inc.* .............................. 14,600 709,998 40,000 1,945,200 54,600 2,655,198
---------- ---------- ----------
22,829,094 6,418,669 29,247,763
---------- ---------- ----------
Miscellaneous Commercial Services (2.2%)
Corporate Executive Board Co. (The)* ................ 101,900 3,629,678 -- -- 101,900 3,629,678
Fair, Isaac, Inc. ................................... 72,850 3,702,237 32,900 1,671,978 105,750 5,374,215
Iron Mountain Inc. .................................. -- -- 38,575 1,475,493 38,575 1,475,493
---------- ---------- ----------
7,331,915 3,147,471 10,479,386
---------- ---------- ----------
Movies/Entertainment (0.6%)
Pixar, Inc.* ........................................ 34,250 1,852,240 17,600 951,808 51,850 2,804,048
---------- ---------- ----------
Motor Vehicles (0.1%)
Harley-Davidson, Inc. ............................... -- -- 15,600 619,476 15,600 619,476
---------- ---------- ----------
Office Equipment/Supplies (0.3%)
Avery Dennison Corp. ................................ 24,300 1,425,681 -- -- 24,300 1,425,681
---------- ---------- ----------
Oil & Gas Production (2.0%)
Apache Corp. ........................................ 8,700 537,138 -- -- 8,700 537,138
Burlington Resources, Inc. .......................... -- -- 20,400 973,284 20,400 973,284
Forest Oil Corp. .................................... -- -- 19,350 431,505 19,350 431,505
Hurricane Hydrocarbons Ltd. (Class A) (Canada)* ..... 194,500 1,968,340 -- -- 194,500 1,968,340
Kerr-McGee Corp. .................................... 11,000 446,710 -- -- 11,000 446,710
Pioneer Natural Resources Co. ....................... -- -- 87,300 2,191,230 87,300 2,191,230
XTO Energy Inc. ..................................... 145,733 2,768,927 -- -- 145,692 2,768,927
---------- ---------- ----------
5,721,115 3,596,019 9,317,134
---------- ---------- ----------
Oil Refining/Marketing (0.4%)
Valero Energy Corp. ................................. 44,600 1,845,548 -- -- 44,600 1,845,548
---------- ---------- ----------

Oilfield Services/Equipment (2.1%)
BJ Services Co.* .................................... 33,700 1,158,943 54,800 1,884,572 88,500 3,043,515
Halliburton Co. ..................................... 66,000 1,368,180 -- -- 66,000 1,368,180
Key Energy Services, Inc.* .......................... 90,050 907,704 -- -- 90,050 907,704
Lone Star Technologies, Inc.* ....................... 53,200 1,123,584 -- -- 53,200 1,123,584
Smith International, Inc.* .......................... 38,650 1,361,640 55,150 1,942,935 93,800 3,304,575
---------- ---------- ----------
5,920,051 3,827,507 9,747,558
---------- ---------- ----------
Other Consumer Services (4.2%)
Apollo Group, Inc. (Class A) ........................ -- -- 25,550 1,274,945 25,550 1,274,945
Block (H.&R.), Inc. ................................. 100,750 4,301,018 37,300 1,592,337 138,050 5,893,355
Career Education Corp.* ............................. 23,100 1,130,052 -- -- 23,100 1,130,052
Corinthian Colleges, Inc.* .......................... 94,050 3,714,975 -- -- 94,050 3,714,975
Expedia, Inc. * ..................................... 16,500 852,390 -- -- 16,500 852,390
Hotels.com (Class A)* ............................... 20,000 1,153,500 -- -- 20,000 1,153,500
Weight Watchers International, Inc.* ................ 92,500 4,259,625 34,255 1,577,442 126,755 5,837,067
---------- ---------- ----------
15,411,560 4,444,724 19,856,284
---------- ---------- ----------

See Notes to Pro Forma Financial Statements.

B-10

MORGAN STANLEY DEVELOPING GROWTH SECURITIES TRUST

PRO FORMA PORTFOLIO OF INVESTMENTS AS OF MARCH 31, 2003

(UNAUDITED)

Packaged Software (3.8%)
Adobe Systems, Inc. .................................. -- -- 36,450 $1,123,753 36,450 $1,123,753
Hyperion Solutions Corp. ............................. -- -- 12,200 295,850 12,200 295,850
Intuit Inc.* ......................................... 80,350 $2,989,020 50,400 1,874,880 130,750 4,863,900
Mercury Interactive Corp.* ........................... 54,000 1,602,720 28,950 859,236 82,950 2,461,956
Network Associates, Inc. ............................. -- -- 72,250 997,773 72,250 997,773
Quest Software, Inc. ................................. -- -- 30,600 275,400 30,600 275,400
Symantec Corp.* ...................................... 84,150 3,296,997 28,950 1,134,261 113,100 4,431,258
VERITAS Software Corp.* .............................. 119,700 2,104,326 67,000 1,177,860 186,700 3,282,186
---------- ---------- ----------
9,993,063 7,739,013 17,732,076
---------- ---------- ----------
Pharmaceuticals: Other (1.2%)
Allergan, Inc. ....................................... -- -- 9,000 613,890 9,000 613,890
Altana AG (ADR) (Germany)* ........................... 28,900 1,366,681 -- -- 28,900 1,366,681
Atlana AG (Germany)* ................................. 12,900 605,011 -- -- 12,900 605,011
Teva Pharmaceutical Industries Ltd. (ADR) (Israel) ... 63,800 2,657,270 16,600 691,390 80,400 3,348,660
---------- ---------- ----------
4,628,962 1,305,280 5,934,242
---------- ---------- ----------
Precious Metals (0.0%)
Newmont Mining Corp. ................................. -- -- 8,900 232,735 8,900 232,735
------ ---------- ------- ----------
Property -- Casualty Insurers (0.7%)
Everest Re Group, Ltd. (Barbados) .................... -- -- 22,200 1,270,062 22,200 1,270,062
RenaissanceRe Holdings Ltd. (Bermuda) ................ 46,150 1,848,308 -- -- 46,150 1,848,308
---------- ---------- ----------
1,848,308 1,270,062 3,118,370
---------- ---------- ----------
Publishing: Newspapers (0.4%)
Media General, Inc. (Class A) ........................ 39,350 1,937,594 -- -- 39,350 1,937,594
---------- ---------- ----------
Recreational Products (2.3%)
Electronic Arts Inc. ................................. -- -- 35,650 2,090,516 35,650 2,090,516
International Game Technology* ....................... 65,500 5,364,450 19,150 1,568,385 84,650 6,932,835
Mattel, Inc. ......................................... -- -- 85,400 1,921,500 85,400 1,921,500
---------- ---------- ----------
5,364,450 5,580,401 10,944,851
---------- ---------- ----------
Regional Banks (0.7%)
Banknorth Group, Inc. ................................ 77,150 1,682,642 -- -- 77,150 1,682,642
UCBH Holdings, Inc. .................................. 33,600 1,477,728 -- -- 33,600 1,477,728
---------- ---------- ----------
3,160,370 -- 3,160,370
---------- ---------- ----------
Restaurants (5.1%)
Brinker International, Inc.* ......................... 76,700 2,339,350 -- -- 76,700 2,339,350
CBRL Group, Inc. ..................................... -- -- 28,450 780,952 28,450 780,952
Chicago Pizza & Browery, Inc.* ....................... 107,100 751,842 -- -- 107,100 751,842
Krispy Kreme Doughnuts, Inc. ......................... -- -- 26,950 912,527 26,950 912,527
Outback Steakhouse, Inc. (The) ....................... 81,950 2,899,391 35,550 1,257,759 117,500 4,157,150
P.F. Chang's China Bistro, Inc.* ..................... 49,250 1,822,250 -- -- 49,250 1,822,250
Sonic Corp.* ......................................... 218,550 5,564,283 -- -- 218,550 5,564,283
Starbucks Corp.* ..................................... 126,100 3,248,336 58,100 1,496,656 184,200 4,744,992

See Notes to Pro Forma Financial Statements.

B-11

MORGAN STANLEY DEVELOPING GROWTH SECURITIES TRUST

PRO FORMA PORTFOLIO OF INVESTMENTS AS OF MARCH 31, 2003

(UNAUDITED)

MORGAN STANLEY COMBINED
DEVELOPING GROWTH MORGAN STANLEY MORGAN STANLEY DEVELOPING
SECURITIES TRUST NEW DISCOVERIES FUND GROWTH SECURITIES TRUST
------------------------- ------------------------ ------------------------
NUMBER OF NUMBER OF NUMBER OF
SHARES VALUE SHARES VALUE SHARES VALUE
----------- ------------- ----------- ------------ ---------- -------------

Wendy's International, Inc. ...................... 42,150 $1,159,547 34,150 $ 939,467 76,300 $2,099,014
Yum! Brands, Inc. ................................ -- -- 34,950 850,334 34,950 850,334
---------- --------- ----------
17,784,999 6,237,695 24,022,694
---------- --------- ----------
Savings Banks (1.8%)
New York Community Bancorp, Inc. ................. 60,350 1,798,430 -- -- 60,350 1,798,430
Provident Financial Services, Inc.* .............. 237,300 3,751,713 -- -- 237,300 3,751,713
TierOne Corp.* ................................... 185,400 3,049,830 -- -- 185,400 3,049,830
---------- --------- ----------
8,599,973 -- 8,599,973
---------- --------- ----------
Semiconductors (4.6%)
Altera Corp.* .................................... 242,700 3,286,158 71,100 962,694 313,800 4,248,852
Broadcom Corp. (Class A) ......................... -- -- 23,050 284,667 23,050 284,667
Exar Corp.* ...................................... 294,600 3,744,366 -- -- 294,600 3,744,366
Integrated Circuit Systems, Inc. ................. -- -- 12,200 264,740 12,200 264,740
International Rectifier Corp.* ................... 65,500 1,288,385 -- -- 65,500 1,288,385
Intersil Corp. (Class A) ......................... -- -- 25,750 400,670 25,750 400,670
Marvell Technology Group Ltd. (Bermuda)* ......... 92,200 1,953,718 33,800 716,222 126,000 2,669,940
Maxim Integrated Products, Inc. .................. 51,000 1,842,120 8,100 292,572 59,100 2,134,692
Microchip Technology Inc. ........................ 115,662 2,301,674 37,350 743,265 153,012 3,044,939
Xilinx, Inc.* .................................... 134,000 3,136,940 32,700 765,507 166,700 3,902,447
---------- --------- ----------
17,553,361 4,430,337 21,983,698
---------- --------- ----------
Services to the Health Industry (3.5%)
Accredo Health, Inc.* ............................ 45,100 1,097,689 33,300 810,488 78,400 1,908,177
Laboratory Corp. of America Holdings* ............ 62,000 1,838,300 -- -- 62,000 1,838,300
Stericycle, Inc.* ................................ 301,700 11,340,903 43,900 1,650,201 345,600 12,991,104
---------- --------- ----------
14,276,892 2,460,689 16,737,581
---------- --------- ----------
Specialty Stores (2.5%)
AutoZone, Inc. ................................... -- -- 7,300 501,583 7,300 501,583
Bed Bath & Beyond Inc.* .......................... 90,350 3,120,689 38,100 1,315,974 128,450 4,436,663
Dick's Sporting Goods, Inc.* ..................... 100,100 2,293,291 -- -- 100,100 2,293,291
Tractor Supply Company* .......................... 140,300 4,632,706 -- -- 140,300 4,632,706
---------- --------- ----------
10,046,686 1,817,557 11,864,243
---------- --------- ----------
Specialty Telecommunications (0.8%)
American Tower Corp. (Class A) ................... -- -- 56,800 313,536 56,800 313,536
Boston Communications Group, Inc.* ............... 107,000 1,675,620 -- -- 107,000 1,675,620
Citizens Communications Co. ...................... -- -- 29,200 291,416 29,200 291,416
IDT Corp. (Class B)* ............................. 98,400 1,484,856 -- -- 98,400 1,484,856
---------- --------- ----------
3,160,476 604,952 3,765,428
---------- --------- ----------
Telecommunication Equipment (1.7%)
Garmin Ltd. (Cayman Islands)* .................... 30,800 1,102,640 9,000 322,200 39,800 1,424,840
RF Micro Devices, Inc. ........................... -- -- 68,900 415,398 68,900 415,398
Trimble Navigation Ltd.* ......................... 58,400 1,106,096 -- -- 58,400 1,106,096
UTStarcom, Inc.* ................................. 235,200 4,701,648 26,300 525,737 261,500 5,227,385
---------- --------- ------- ----------
6,910,384 1,263,335 8,173,719
---------- --------- ----------

See Notes to Pro Forma Financial Statements.

B-12

MORGAN STANLEY DEVELOPING GROWTH SECURITIES TRUST

PRO FORMA PORTFOLIO OF INVESTMENTS AS OF MARCH 31, 2003

(UNAUDITED)

MORGAN STANLEY COMBINED
DEVELOPING GROWTH MORGAN STANLEY MORGAN STANLEY DEVELOPING
SECURITIES TRUST NEW DISCOVERIES FUND GROWTH SECURITIES TRUST
--------------------------- ------------------------- --------------------------
NUMBER OF NUMBER OF NUMBER OF
SHARES VALUE SHARES VALUE SHARES VALUE
----------- --------------- ----------- ------------- ---------- ---------------

Trucking (0.3%)
Landstar System, Inc.* ............................ 27,600 $ 1,587,000 -- -- 27,600 $ 1,587,000
----------- -- -----------
Water Utilities (1.2%)
Philadelphia Suburban Corp. ....................... 249,050 5,466,648 -- -- 249,050 5,466,648
----------- -- -----------
Wireless Telecommunications (1.3%)
Nextel Communications, Inc. (Class A)* ............ 315,100 4,219,189 116,500 $ 1,559,935 431,600 5,779,124
Sprint Corp. (PCS Group) .......................... -- -- 118,900 518,404 118,900 518,404
----------- ----------- -----------
4,219,189 2,078,339 6,297,528
----------- ----------- -----------
TOTAL COMMON STOCKS
(Cost $322,968,899, $122,525,650, and $445,494,549,
respectively) .................................... 328,022,943 124,773,422 452,796,365
----------- ----------- -----------

PRINCIPAL PRINCIPAL PRINCIPAL
COUPON MATURITY AMOUNT IN AMOUNT IN AMOUNT IN
RATE DATE THOUSANDS THOUSANDS THOUSANDS
----------- ---------- ----------- ----------- -----------

CONVERTIBLE BONDS (1.5%)
Cable/Satellite TV (0.9%)
EchoStar Communications Corp. .......... 4.875% 01/01/07 $4,240 4,107,500 -- -- $4,240 4,107,500
--------- -- ---------
Oilfield Services/Equipment (0.1%)
Key Energy Group, Inc. ................. 5.00 09/15/04 380 370,975 -- -- 380 370,975
--------- -- ---------
Semiconductors (0.5%)
ASM Lithography Holding N.V. --
144A** (Netherlands) .................. 4.25 11/30/04 2,900 2,657,270 -- -- 2,900 2,657,270
--------- -- ---------
TOTAL CONVERTIBLE BONDS
(Cost $6,897,362, $0, and $6,897,362,
respectively) ......................... 7,135,745 -- 7,135,745
--------- -- ---------

See Notes to Pro Forma Financial Statements.

B-13

MORGAN STANLEY DEVELOPING GROWTH SECURITIES TRUST

PRO FORMA PORTFOLIO OF INVESTMENTS AS OF MARCH 31, 2003

(UNAUDITED)

MORGAN STANLEY
DEVELOPING GROWTH
SECURITIES TRUST
----------------------------
PRINCIPAL
COUPON MATURITY AMOUNT IN
RATE DATE THOUSANDS VALUE
----------- ---------- ----------- ----------------

SHORT-TERM
INVESTMENTS (3.0%)
REPURCHASE AGREEMENTS
Joint repurchase agreement
account (dated 03/31/03;
proceeds $14,323,535) (a)
(Cost $13,607,000, $716,000, and
$14,323,000, respectively).......... 1.345% 04/01/03 $13,607 $ 13,607,000
------------
TOTAL INVESTMENTS
(Cost $343,473,261,
$123,241,650, and $466,714,911,
respectively) (b) .................. 348,765,688
LIABILITIES IN EXCESS OF
OTHER ASSETS ....................... (1,072,978)
------------
NET ASSETS .......................... $347,692,710
============

COMBINED
MORGAN STANLEY MORGAN STANLEY DEVELOPING
NEW DISCOVERIES FUND GROWTH SECURITIES TRUST
---------------------------- ----------------------------
PRINCIPAL PRINCIPAL
AMOUNT IN AMOUNT IN
THOUSANDS VALUE THOUSANDS VALUE
----------- ---------------- ----------- ----------------

SHORT-TERM
INVESTMENTS (3.0%)
REPURCHASE AGREEMENTS
Joint repurchase agreement
account (dated 03/31/03;
proceeds $14,323,535) (a)
(Cost $13,607,000, $716,000, and
$14,323,000, respectively).......... $716 $ 716,000 $ 14,323 $ 14,323,000
------------ ------------
TOTAL INVESTMENTS
(Cost $343,473,261,
$123,241,650, and $466,714,911,
respectively) (b) .................. 125,489,422 100.2% 474,255,110
LIABILITIES IN EXCESS OF
OTHER ASSETS ....................... (220,891) ( 0.2) (1,293,869)
------------ -------- ------------
NET ASSETS .......................... $125,268,531 100.0% $472,961,241
============ ======== ============

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

GROSS GROSS NET
UNREALIZED UNREALIZED UNREALIZED
APPRECIATION DEPRECIATION APPRECIATION
-------------- -------------- -------------

Morgan Stanley Developing Growth Securities Trust ......... $24,114,755 $18,822,328 $5,292,427
Morgan Stanley New Discoveries Fund ....................... 11,109,997 8,862,225 $2,247,772
----------- ----------- ----------
Combined -- Morgan Stanley Developing Growth Securities
Trust .................................................... $35,224,752 $27,684,553 $7,540,199
=========== =========== ==========

See Notes to Pro Forma Financial Statements.

B-14

MORGAN STANLEY DEVELOPING GROWTH SECURITIES TRUST

PRO FORMA FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 2003 (UNAUDITED)

MORGAN STANLEY MORGAN STANLEY
DEVELOPING GROWTH NEW DISCOVERIES
SECURITIES TRUST FUND
------------------- -----------------

ASSETS:
Investments in securities, at value (cost $343,473,261,
$123,241,650 and $466,714,911, respectively) ............. $ 348,765,688 $ 125,489,422
Cash ...................................................... -- 8,723
Receivable for:
Investments sold ......................................... 10,809,557 1,384,942
Shares of beneficial interest sold ....................... 642,514 17,043
Interest ................................................. 94,448 27
Dividends ................................................ 90,100 18,573
Prepaid expenses and other assets ......................... 93,554 63,156
--------------- ---------------
TOTAL ASSETS ............................................. 360,495,861 126,981,886
--------------- ---------------
LIABILITIES:
Payable for:
Investments purchased .................................... 11,787,963 1,163,362
Shares of beneficial interest redeemed ................... 474,166 246,217
Distribution fee ......................................... 222,232 95,337
Investment management fee ................................ 147,238 106,051
Accrued expenses and other payables ....................... 171,552 102,388
--------------- ---------------
TOTAL LIABILITIES ........................................ 12,803,151 1,713,355
--------------- ---------------
NET ASSETS ............................................... $ 347,692,710 $ 125,268,531
=============== ===============
COMPOSITION OF NET ASSETS:
Paid-in-capital ........................................... $ 685,320,421 $ 476,041,826
Net unrealized appreciation ............................... 5,292,427 2,247,772
Accumulated net investment loss ........................... (2,153,092) (1,814,678)
Accumulated net realized loss ............................. (340,767,046) (351,206,389)
--------------- ---------------
NET ASSETS ............................................... $ 347,692,710 $ 125,268,531
=============== ===============
CLASS A SHARES:
Net Assets ................................................ $ 17,348,304 $ 11,881,320
Shares Outstanding (unlimited authorized, $.01 par
value) ................................................... 1,322,907 2,974,805
NET ASSET VALUE PER SHARE ................................ $ 13.11 $ 3.99
=============== ===============
MAXIMUM OFFERING PRICE PER SHARE,
(net asset value plus 5.54% of net asset value) ......... $ 13.84 $ 4.21
=============== ===============
CLASS B SHARES:
Net Assets ................................................ $ 251,134,607 $ 88,216,084
Shares Outstanding (unlimited authorized, $.01 par
value) ................................................... 20,307,650 22,516,184
NET ASSET VALUE PER SHARE ................................ $ 12.37 $ 3.92
=============== ===============
CLASS C SHARES:
Net Assets ................................................ $ 5,542,624 $ 21,449,315
Shares Outstanding (unlimited authorized, $.01 par
value) ................................................... 447,041 5,491,325
NET ASSET VALUE PER SHARE ................................ $ 12.40 $ 3.91
=============== ===============
CLASS D SHARES:
Net Assets ................................................ $ 73,667,175 $ 3,721,812
Shares Outstanding (unlimited authorized, $.01 par
value) ................................................... 5,525,618 926,747
NET ASSET VALUE PER SHARE ................................ $ 13.33 $ 4.02
=============== ===============

COMBINED
MORGAN STANLEY
PRO FORMA DEVELOPING GROWTH
ADJUSTMENTS SECURITIES TRUST
----------- ----------------

ASSETS:
Investments in securities, at value (cost $343,473,261,
$123,241,650 and $466,714,911, respectively) ............. -- $ 474,255,110
Cash ...................................................... -- 8,723
Receivable for:
Investments sold ......................................... -- 12,194,499
Shares of beneficial interest sold ....................... -- 659,557
Interest ................................................. -- 94,475
Dividends ................................................ -- 108,673
Prepaid expenses and other assets ......................... -- 156,710
----------- --------------
TOTAL ASSETS ............................................. -- 487,477,747
----------- --------------
LIABILITIES:
Payable for:
Investments purchased .................................... -- 12,951,325
Shares of beneficial interest redeemed ................... -- 720,383
Distribution fee ......................................... -- 317,569
Investment management fee ................................ -- 253,289
Accrued expenses and other payables ....................... -- 273,940
----------- --------------
TOTAL LIABILITIES ........................................ -- 14,516,506
----------- --------------
NET ASSETS ............................................... -- $ 472,961,241
=========== ==============
COMPOSITION OF NET ASSETS:
Paid-in-capital ........................................... -- $1,161,362,247
Net unrealized appreciation ............................... -- 7,540,199
Accumulated net investment loss ........................... -- (3,967,770)
Accumulated net realized loss ............................. -- (691,973,435)
----------- --------------
NET ASSETS ............................................... -- $ 472,961,241
=========== ==============
CLASS A SHARES:
Net Assets ................................................ $ 29,229,624
Shares Outstanding (unlimited authorized, $.01 par
value) ................................................... (2,068,526)(1) 2,229,186
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 ................................................ -- $ 339,350,691
Shares Outstanding (unlimited authorized, $.01 par
value) ................................................... (15,384,730)(1) 27,439,104
NET ASSET VALUE PER SHARE ................................ $ 12.37
==============
CLASS C SHARES:
Net Assets ................................................ -- $ 26,991,939
Shares Outstanding (unlimited authorized, $.01 par
value) ................................................... (3,761,542)(1) 2,176,824
NET ASSET VALUE PER SHARE ................................ $ 12.40
==============
CLASS D SHARES:
Net Assets ................................................ -- $ 77,388,987
Shares Outstanding (unlimited authorized, $.01 par
value) ................................................... (647,541)(1) 5,804,824
NET ASSET VALUE PER SHARE ................................ $ 13.33
==============

- ----------
(1) Represents the difference between total additional shares to be issued
(see Note 2) and current New Discoveries Fund shares outstanding.

See Notes to Pro Forma Financial Statements.

B-15

MORGAN STANLEY DEVELOPING GROWTH SECURITIES TRUST

PRO FORMA FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED MARCH 31, 2003 (UNAUDITED)

COMBINED
MORGAN STANLEY MORGAN STANLEY PRO FORMA MORGAN STANLEY
DEVELOPING GROWTH NEW DISCOVERIES ADJUSTMENTS DEVELOPING GROWTH
SECURITIES TRUST FUND (NOTE 3) SECURITIES TRUST
----------------- --------------- ------------- -----------------

NET INVESTMENT LOSS:
INCOME
Dividends (net of $8,954, $1,262 and $10,216 foreign
withholding tax, respectively) .................... $ 1,541,801 $ 414,110 -- $ 1,955,911
Interest ........................................... 344,267 41,886 -- 386,153
-------------- ------------- ------------- --------------
TOTAL INCOME ...................................... 1,886,068 455,996 -- 2,342,064
-------------- ------------- ------------- --------------
EXPENSES
Plan of distribution fee (Class A shares) .......... 33,451 38,983 -- 72,434
Plan of distribution fee (Class B shares) .......... 3,185,798 1,177,383 -- 4,363,181
Plan of distribution fee (Class C shares) .......... 66,360 279,160 -- 345,520
Investment management fee .......................... 2,060,254 1,669,269 (854,178)(1) 2,875,345
Transfer agent fees and expenses ................... 1,180,987 609,580 83,800 (3) 1,874,367
Registration fees .................................. 73,215 55,656 (43,218)(2) 85,653
Custodian fees ..................................... 58,657 49,581 -- 108,238
Shareholder reports and notices .................... 92,599 87,460 (52,476)(2)
76,500 (3) 204,083
Professional fees .................................. 59,862 54,082 (54,082)(2)
39,000 (3) 98,862
Trustees' fees and expenses ........................ 20,104 13,090 (13,090)(2) 20,104
Other .............................................. 19,865 9,451 (610)(2) 28,706
-------------- ------------- ------------ --------------
TOTAL EXPENSES .................................... 6,851,152 4,043,695 (849,254) 10,076,493
-------------- ------------- ------------ --------------
NET INVESTMENT LOSS ............................... (4,965,084) (3,587,699) 849,254 (7,734,429)
-------------- ------------- ------------ --------------
NET REALIZED AND UNREALIZED LOSS:
Net realized loss .................................. (76,212,697) (42,380,075) (118,592,772)
Net change in unrealized appreciation/depreciation . (59,985,936) (20,880,299) -- (80,866,235)
-------------- ------------- ------------ --------------
NET LOSS .......................................... (136,198,633) (63,260,374) -- (199,459,007)
-------------- ------------- ------------ --------------
NET DECREASE ....................................... $ (141,163,717) $ (66,848,073) $ 849,254 $ (207,193,436)
============== ============= ============ ==============

- ----------
(1) Reflects adjustment to investment management fees based on the surviving
Fund's fee schedule.

(2) Reflects elimination of duplicate services or fees.

(3) Solicitation costs in connection with the reorganization, which will be
borne by New Discoveries Fund, approximate $199,300.

See Notes to Pro Forma Financial Statements.

B-16

MORGAN STANLEY DEVELOPING GROWTH SECURITIES TRUST
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(UNAUDITED)

1. BASIS OF COMBINATION -- The Pro Forma Statement of Assets and Liabilities,
including the Portfolio of Investments, at March 31, 2003 and the related
Statement of Operations ("Pro Forma Statements") for the twelve months ended
March 31, 2003, reflect the accounts of Morgan Stanley Developing Growth
Securities Trust ("Developing Growth") and Morgan Stanley New Discoveries Fund
("New Discoveries").

The Pro Forma Statements give effect to the proposed transfer of all assets and
liabilities of New Discoveries in exchange for shares in Developing Growth. The
Pro Forma Statements should be read in conjunction with the historical
financial statements of each Fund included in its Statement of Additional
Information.

2. SHARES OF BENEFICIAL INTEREST -- The pro forma net asset value per share
assumes the issuance of additional shares of Developing Growth which would have
been issued on March 31, 2003 in connection with the proposed reorganization.
Shareholders of New Discoveries would become shareholders of Developing Growth
receiving shares of the corresponding class of Developing Growth equal to the
value of their holdings in New Discoveries. The amount of additional shares
assumed to be issued was calculated based on the March 31, 2003 net assets of
New Discoveries and the net asset value per share of Developing Growth as
follows:

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

Additional Shares Issued ............... 906,279 7,131,454 1,729,783 279,206
Net Assets -- New Discoveries .......... $11,881,320 $ 88,216,084 $ 21,449,315 $ 3,721,812
Net Asset Value Per Share --
Developing Growth ..................... $ 13.11 $ 12.37 $ 12.40 $ 13.33

3. PRO FORMA OPERATIONS -- The Pro Forma Statement of Operations assumes
similar rates of gross investment income for the investments of each Fund.
Accordingly, the combined gross investment income is equal to the sum of each
Fund's gross investment income. Certain expenses have been adjusted to reflect
the expected expenses of the combined entity. The pro-forma investment
management fees and plan of distribution fees of the combined Fund are based on
the fee schedule in effect for Developing Growth at the combined level of
average net assets for the twelve months ended March 31, 2003. The Pro Forma
Statement of Operations does not include the effect of any realized gains or
losses, or transaction fees incurred in connection with the realignment of the
portfolio. New Discoveries is not required to sell any securities in connection
with the reorganization.

B-17

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

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. 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.

$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

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
NEW DISCOVERIES FUND
OCTOBER 31, 2002

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

This Statement of Additional Information is not a prospectus. The
Prospectus (dated October 31, 2002) for the Morgan Stanley New Discoveries Fund
may be obtained without charge from the Fund at its address or telephone number
listed below or from Morgan Stanley DW Inc. at any of its branch offices.

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

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

I. Fund History ................................................... 4

II. Description of the Fund and Its Investments and Risks .......... 4
A. Classification ........................................... 4
B. Investment Strategies and Risks .......................... 4
C. Fund Policies/Investment Restrictions .................... 14

III. Management of the Fund ......................................... 15
A. Board of Trustees ........................................ 15
B. Management Information ................................... 15
C. Compensation ............................................. 20

IV. Control Persons and Principal Holders of Securities ............ 22

V. Investment Management and Other Services ....................... 22
A. Investment Manager ....................................... 22
B. Principal Underwriter .................................... 23
C. Services Provided by the Investment Manager .............. 24
D. Dealer Reallowances ...................................... 25
E. Rule 12b-1 Plan .......................................... 25
F. Other Service Providers .................................. 29
G. Codes of Ethics .......................................... 29

VI. Brokerage Allocation and Other Practices ....................... 29
A. Brokerage Transactions ................................... 29
B. Commissions .............................................. 30
C. Brokerage Selection ...................................... 30
D. Directed Brokerage ....................................... 31
E. Regular Broker-Dealers ................................... 31

VII. Capital Stock and Other Securities ............................. 32

VIII. Purchase, Redemption and Pricing of Shares ..................... 32
A. Purchase/Redemption of Shares ............................ 32
B. Offering Price ........................................... 33

IX. Taxation of the Fund and Shareholders .......................... 34

X. Underwriters ................................................... 36

XI. Calculation of Performance Data ................................ 36

XII. Financial Statements ........................................... 37

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

"Sub-Advisor" -- Morgan Stanley Investments LP, an indirect subsidiary of
Morgan Stanley.

"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 May 16, 2000, with the name Morgan Stanley Dean Witter
New Discoveries Fund. Effective June 18, 2001, the Fund's name was changed to
Morgan Stanley New Discoveries Fund.

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

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

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

The Fund will not enter into forward 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 on eligible portfolio securities, stock indexes and on
the U.S. or foreign currencies. 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 or currency covered by the
option at the stated exercise price (the price per unit of the underlying
security) by filing an exercise notice prior to the expiration date of the
option. The writer (seller) of the option would then have the obligation to
sell to the OCC (in the U.S.) or other clearing corporation or exchange, the
underlying security or currency at that exercise price prior to the expiration
date of the option, regardless of its then current market price. Ownership of a
listed put option would give the Fund the right to sell the underlying security
or currency to the OCC (in the 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
or currency 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 and on the U.S. dollar and foreign currencies in which
they are denominated, without limit. The Fund will receive from the purchaser,
in return for a call it has written, a "premium": i.e., the price of the
option. Receipt of these premiums may better enable the Fund to earn a higher
level of current income than it would earn from holding the underlying
securities or currency alone. Moreover, the premium received will offset a
portion of the potential loss incurred by the Fund if the securities or
currencies underlying the option decline in value.

The Fund may be required, at any time during the option period, to deliver
the underlying security or currency against payment of the exercise price on
any calls it has written. This obligation is terminated upon the expiration of
the option period or at such earlier time 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). 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
operation of and limitations on covered put options in other respects are
substantially identical to those of call options.

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

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

OTC Options. OTC options are purchased from or sold (written) to dealers
or financial institutions which have entered into direct agreements with the
Fund. With OTC options, such variables as expiration date, exercise price and
premium will be agreed upon between the Fund and the transacting dealer,
without the intermediation of a third party such as the OCC. The Fund 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. Certain OTC options are considered to be illiquid
investments.

Risks of Options Transactions. The successful use of options depends on
the ability of the Sub-Advisor, to forecast correctly interest rates, currency
exchange 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 (or the value
of its denominated currency) 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 (or the value of its denominated currency) 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.

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

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

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

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

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

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

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

Although most futures contracts call for actual delivery or acceptance of
securities, the contracts usually are closed out before the settlement date
without the making or taking of delivery. Index futures contracts provide for
the delivery of an amount of cash equal to a specified dollar amount times the
difference between the index value at the open or close of the last trading day
of the contract and the futures contract price. A futures contract sale is
closed out by effecting a futures contract purchase for the same aggregate
amount of the specific type of security (currency) and the same delivery date.
If the sale price exceeds the offsetting purchase price, the seller would be
paid the difference and would realize a gain. If the offsetting purchase price
exceeds the sale price, the seller would pay the difference and would realize a
loss. Similarly, a futures contract purchase is closed out by effecting a
futures contract sale for the same aggregate amount of the specific type of
security (currency) and the same delivery date. If the offsetting sale price
exceeds the purchase price, the purchaser would realize a gain, whereas if the
purchase price exceeds the offsetting sale price, the purchaser would realize a
loss. There is no assurance that the Fund will be able to enter into a closing
transaction.

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

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

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

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

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

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

MONEY MARKET SECURITIES. In addition to the 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 net 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 and Sub-Advisor. 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.

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 Sub-Advisor 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, 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.

Rule 144A permits the Fund to sell restricted securities to qualified
institutional buyers without limitation. The Investment Manager and/or the
Sub-Advisor, 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.

OTHER INVESTMENT VEHICLES. The Fund may acquire shares in other investment
companies including foreign investment companies. Investment in foreign
investment companies may be the sole or most practical means by which the Fund
may participate in certain foreign securities markets. The Fund may invest in
shares of various exchange-traded index funds ("ETFs"), which seek to track the
performance of various securities indices. Shares of ETFs have many of the same
risks as direct investments in common stocks. Their market value is expected to
rise and fall as the value of the underlying index rises and falls. In
addition, the market value of their shares may differ from the net asset value
of the particular fund. As a shareholder in an investment company, the Fund
would bear its ratable

share of that entity'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, the Fund and its shareholders,
in effect, will be absorbing duplicate levels of fees with respect to
investments in other investment companies.

C. FUND POLICIES/INVESTMENT RESTRICTIONS

The investment objective, policies and restrictions listed below have been
adopted by the Fund as fundamental policies. Under the Investment Company Act
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 capital growth.

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.

III. MANAGEMENT OF THE FUND
- --------------------------------------------------------------------------------
A. BOARD OF TRUSTEES

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". The
other three Trustees (the "Management Trustees") are affiliated with the
Investment Manager.

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

Michael Bozic (61) Trustee Trustee
c/o Mayer, Brown, Rowe & Maw since
Counsel to the Independent April
Trustees 1994
1675 Broadway
New York, NY

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

Michael Bozic (61) Retired; Director or Trustee of 129 Director of Weirton
c/o Mayer, Brown, Rowe & Maw the Morgan Stanley Funds and Steel Corporation.
Counsel to the Independent the TCW/DW Term Trusts;
Trustees 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 (70) 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 (70) 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, Trustee 1991
Plaza Two,
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, Since February General Counsel (since May 2000) and Managing
1221 Avenue of the Americas Secretary and 1997 Director (since December 2000) of Morgan Stanley
New York, NY General Investment Management; Managing Director (since
Counsel 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; 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).

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

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.

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 August 31, 2002,
the Audit Committee held ten 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 August 31, 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 August 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 August 31, 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 ......... 1,337

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

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.

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 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 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
NAME OF RETIREMENT ELIGIBLE ADOPTING ADOPTING
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

(2) Based on current levels of compensation. Amount of annual benefits also
varies depending on the Eligible Trustee's elections described in
Footnote (1) above.

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

As of October 8, 2002, no shareholder was known to own beneficially or of
record as much as 5% of the outstanding shares of the Fund. The percentage
ownership of shares of the Fund changes from time to time depending on
purchases and redemptions by shareholders and the total number of shares
outstanding.

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

A. INVESTMENT MANAGER AND SUB-ADVISOR

The Investment Manager to the Fund is Morgan Stanley Investment Advisors
Inc., a Delaware corporation, whose mailing 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.

The Sub-Advisor is Morgan Stanley Investments LP, a Pennsylvania limited
liability partnership founded in 1969, and is wholly owned by indirect
subsidiaries of Morgan Stanley. The Sub-Advisor is located at One Tower Bridge,
West Conshohocken, PA 19428.

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 business affairs of
the Fund. The Fund pays the Investment Manager monthly compensation calculated
daily by applying the annual rate of 1.0% 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.

Pursuant to a sub-advisory agreement (the "Sub-Advisory Agreement")
between the Investment Manager and Morgan Stanley Investments LP, the
Sub-Advisor has been retained, subject to the overall supervision of the
Investment Manager and the Trustees of the Fund, to continuously furnish
investment advice concerning individual security selections, asset allocations
and overall economic trends and to manage the Fund's portfolio, including the
placing of orders for the purchase and sale of portfolio securities. As
compensation for its service, the Investment Manager pays the Sub-Advisor
compensation equal to 40% of its monthly compensation.

For the period September 27, 2000 (commencement of operations) through
August 31, 2001 and for the fiscal year ended August 31, 2002, the Investment
Manager accrued total compensation under the Management Agreement in the
amounts of $4,491,152 and $2,502,140, respectively, of which $1,796,461 and
$1,000,856, respectively, was paid to the Sub-Advisor.

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

In approving the Management Agreement and the Sub-Advisory Agreement, the
Board of Trustees, including the Independent Trustees, considered the nature,
quality and scope of the services provided by the Investment Manager and the
Sub-Advisor, 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
and the Sub-Advisory 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, 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 AND THE SUB-ADVISOR

The Investment Manager manages the Fund's business affairs and supervises
the investment of the Fund's assets. The Sub-Advisor manages the investment of
the Fund's assets, including the placing of orders for the purchase and sale of
portfolio securities. The Sub-Advisor 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, 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, the Sub-Advisor under the Sub-Advisory 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 or the Sub-Advisor (not including
compensation or expenses of attorneys who are employees of the Investment
Manager or the Sub-Advisor); 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 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, including a majority of
the Independent 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

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 September
27, 2000 through August 31, 2001 and for the fiscal year ended August 31, 2002
in approximate amounts as provided in the table below (the Distributor did not
retain any of these amounts).

SEPTEMBER 27, 2000
2002 THROUGH AUGUST 31, 2001
-------------------------- --------------------------

Class A ......... FSCs:(1) $ 6,246 FSCs:(1) $1,562,022
CDSCs: $ 124 CDSCs: $ 93,192
Class B ......... CDSCs: $1,220,256 CDSCs: $1,230,251
Class C ......... CDSCs: $ 21,369 CDSCs: $ 125,055

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

the Plan and the purpose for which such expenditures were made. For the fiscal
year ended August 31, 2002, Class A, Class B and Class C shares of the Fund
accrued payments under the Plan amounting to $57,395, $1,748,026 and $415,283,
respectively, which amounts are equal to 0.24%, 1.00% and 1.00% of the average
daily net assets of Class A, Class B and Class C, respectively.

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.

Each Class paid 100% of the amounts accrued under the Plan with respect to
that Class for the fiscal year ended August 31, 2002 to the Distributor. The
Distributor and Morgan Stanley DW estimate that they have spent, pursuant to
the Plan, $29,460,173 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) 10.45% ($3,078,037)-advertising and promotional expenses; (ii) 0.05%
($14,102)-printing of prospectuses for distribution to other than current
shareholders; and (iii) 89.50% ($26,368,034)-other expenses, including the
gross sales credit and the carrying charge, of which 5.89% ($1,554,041)
represents carrying charges, 38.96% ($10,272,993) 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 55.15% ($14,541,000) 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 August 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.

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 $22,062,472 as of August 31, 2002 (the end of
the Fund's fiscal year), which was equal to 19.95% 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.

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.

(3) AFFILIATED PERSONS

The Transfer Agent is an affiliate of the Investment Manager, the
Sub-Advisor 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, the Sub-Advisor 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

Subject to the general supervision of the Trustees, the Investment Manager
and the Sub-Advisor are 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 September 27, 2000 (commencement of operations) through
August 31, 2001 and for the fiscal year ended August 31, 2002, the Fund paid a
total of $1,267,096 and $1,514,635, 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 September 27, 2000 (commencement of operations) through
August 31, 2001 and the fiscal year ended August 31, 2002, the Fund did not
effect any principal transactions with Morgan Stanley DW.

During the period September 27, 2000 (commencement of operations) through
August 31, 2001 and for the fiscal year ended August 31, 2002, the Fund paid no
brokerage commissions to Morgan Stanley DW.

During the period September 27, 2000 (commencement of operations) through
August 31, 2001 and for the fiscal year ended August 31, 2002, the Fund paid a
total of $0 and $15,188, respectively, in brokerage commissions to Morgan
Stanley & Co. During the fiscal year ended August 31, 2002 the brokerage
commissions paid to Morgan Stanley & Co. represented approximately 1.00% 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
1.03% of the aggregate dollar value of all portfolio transactions of the Fund
during the year for which commissions were paid.

C. BROKERAGE SELECTION

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 and/or the Sub-Advisor 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 and/or the Sub-Advisor rely upon their 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 and/or
the Sub-Advisor effect transactions with those brokers and dealers who they
believe provide the most favorable prices and are capable of providing
efficient executions. If the Investment Manager and/or the Sub-Advisor believe
the prices and executions are obtainable from more than one broker or dealer,
they 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 or the Sub-Advisor. 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 and/or the Sub-Advisor from brokers and dealers may
be utilized by them and any of their 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, Sub-Advisor and certain of their 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, the
Sub-Advisor and their affiliates to cause purchase and sale transactions to be
allocated among clients whose assets they manage (including the Fund) in such
manner as they deem equitable. In making such allocations among the Fund and
other client accounts, various factors may be considered, including the
respective investment objectives, the relative size of portfolio holdings of
the same or comparable securities, the availability of cash for investment, the
size of investment commitments generally held and the opinions of the persons
responsible for managing the portfolios of the Fund and other client accounts.
The Investment Manager, the Sub-Advisor and their 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 August 31, 2002, the Fund paid $1,286,890 in
brokerage commissions in connection with transactions in the aggregate amount
of $695,881,356 to brokers because of research provided.

E. REGULAR BROKER-DEALERS

During the fiscal year ended August 31, 2002, the Fund purchased
securities issued by Lehman Brothers Holdings Inc., which issuer was among the
ten brokers or ten dealers which executed transactions for or with the Fund in
the largest dollar amounts during the period. At August 31, 2002, the Fund held
securities issued by Lehman Brothers Holdings Inc. with a market value of
$806,691.

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

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

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

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.

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.

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 assets 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 Directors/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 and/or the Sub-Advisor 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.

Futures are valued at the latest sale price on 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.

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, futures transactions, and
non-U.S. corporations classified as "passive foreign investment companies."
Those special tax rules can, among other things, affect the treatment of
capital gain or loss as long-term or short-term and may result in ordinary
income or loss rather than capital gain or loss. The application of these
special rules would therefore also affect the character of distributions made
by the Fund.

Under certain tax rules, the Fund may be required to accrue a portion of
any discount at which certain securities are purchased as income each year even
though the Fund receives no payments in cash on the security during the year.
To the extent that the Fund invests in such securities, it would be required to
pay out such accrued discount 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.

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.

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 August 31, 2002 and for the period September
27, 2000 (commencement of operations) through August 31, 2002 were as follows:
Class A: -32.70% and -39.05%, respectively; Class B: -33.05% and -39.10%,
respectively; Class C: -30.40% and -37.88%, respectively; and Class D: -28.75%
and -37.16%, 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
August 31, 2002 and for the period September 27, 2000 through August 31, 2002
were as follows: Class A: -28.97% and -37.32%, respectively; Class B: -29.53%
and -37.80%, respectively; Class C: -29.70% and -37.88%, respectively; and
Class D: -28.75% and -37.16%, 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 August 31, 2002 and for the period September 27, 2000 through August 31,
2002 were as follows: Class A: -28.97% and -59.30%, respectively; Class B:
- -29.53% and -59.90%, respectively; Class C: -29.70% and -60.00%, respectively;
and Class D: -28.75% and -59.10%, 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 declined to the following amounts at August
31, 2002:

INVESTMENT AT INCEPTION OF:
INCEPTION ---------------------------------
CLASS DATE $10,000 $50,000 $100,000
- ----------------- ---------- --------- --------- ---------

Class A ......... 9/27/00 $3,856 $19,536 $39,479
Class B ......... 9/27/00 4,010 20,050 40,100
Class C ......... 9/27/00 4,000 20,000 40,000
Class D ......... 9/27/00 4,090 20,450 40,900

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 August 31, 2002 were -33.05%
and -39.10%, 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 August 31, 2002 were -20.29% and -29.67%, 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 period ended August
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 New Discoveries Fund
PORTFOLIO OF INVESTMENTS [|] AUGUST 31, 2002

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

Common Stocks (98.3%)

Advertising/Marketing
Services (0.8%)
41,150 Lamar Advertising Co.* ............ $ 1,315,154
------------
Aerospace & Defense (0.4%)
9,750 Alliant Techsystems, Inc.* ........ 665,145
------------
Air Freight/Couriers (0.6%)
13,550 C.H. Robinson Worldwide, Inc. ..... 373,844
14,050 Expeditors International of
Washington, Inc. ................ 370,217
------------
744,061
------------
Apparel/Footwear (1.0%)
60,800 Coach, Inc.* ...................... 1,497,504
------------
Apparel/Footwear Retail (3.4%)
70,500 Abercrombie & Fitch Co.
(Class A)* ....................... 1,607,400
117,150 Limited Brands .................... 1,791,223
49,950 Ross Stores, Inc. ................. 1,803,694
------------
5,202,317
------------
Auto Parts: O.E.M. (0.9%)
63,000 ArvinMeritor, Inc. ................ 1,473,570
------------
Biotechnology (7.9%)
52,400 Biogen, Inc.* ..................... 1,755,400
37,400 Celgene Corp.* .................... 650,012
13,000 Cephalon, Inc.* ................... 565,500
83,700 Gilead Sciences, Inc.* ............ 2,685,096
21,700 Human Genome Sciences,
Inc.* ............................ 326,802
49,725 IDEC Pharmaceuticals Corp.*........ 1,997,950
16,850 InterMune Inc.* ................... 419,060
65,850 MedImmune, Inc.* .................. 1,689,711
40,200 Millennium Pharmaceuticals,
Inc.* ............................ 492,852
23,100 NPS Pharmaceuticals, Inc.* ........ 467,082
20,800 Scios, Inc.* ...................... 500,448
19,450 Transkaryotic Therapies, Inc.*. 673,748
------------
12,223,661
------------
Broadcasting (4.9%)
131,900 Radio One, Inc. (Class D)* ........ 2,074,787
89,800 Univision Communications,
Inc. (Class A)* .................. 2,092,340

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

53,300 USA Interactive, Inc.* ............ $ 1,141,686
69,250 Westwood One, Inc.* ............... 2,418,902
------------
7,727,715
------------
Casino/Gaming (3.0%)
185,150 GTECH Holdings Corp.* ............. 3,545,622
115,800 Park Place Entertainment
Corp.* ........................... 1,082,730
------------
4,628,352
------------
Chemicals: Specialty (0.6%)
16,950 Sigma-Aldrich Corp. ............... 864,450
------------
Computer
Communications (1.1%)
47,950 Brocade Communications
Systems, Inc.* ................... 693,836
24,100 Emulex Corp.* ..................... 406,808
36,650 Extreme Networks, Inc.* ........... 345,609
37,950 Foundry Networks, Inc.* ........... 332,062
------------
1,778,315
------------
Computer Peripherals (1.7%)
20,300 Lexmark International, Inc. *...... 958,160
46,900 Network Appliance, Inc.* .......... 447,426
27,600 QLogic Corp.* ..................... 925,980
25,400 Storage Technology Corp.* ......... 346,710
------------
2,678,276
------------
Contract Drilling (2.1%)
82,200 GlobalSantaFe Corp. ............... 1,808,400
48,850 Noble Corp.* ...................... 1,517,769
------------
3,326,169
------------
Data Processing Services (2.0%)
24,750 Affiliated Computer Services,
Inc. (Class A)* .................. 1,101,375
66,200 BISYS Group, Inc. (The)* .......... 1,686,776
20,300 Concord EFS, Inc.* ................ 414,323
------------
3,202,474
------------
Discount Stores (3.2%)
65,500 BJ's Wholesale Club, Inc.* ........ 1,608,025
148,450 Dollar General Corp. .............. 2,223,781
48,100 Dollar Tree Stores, Inc.* ......... 1,183,741
------------
5,015,547
------------

See Notes to Financial Statements

MORGAN STANLEY NEW DISCOVERIES FUND
PORTFOLIO OF INVESTMENTS [|] AUGUST 31, 2002 continued

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

Electrical Products (0.2%)
11,150 Molex Inc. ........................ $ 331,155
----------
Electronic Components (0.8%)
12,100 Amphenol Corp. (Class A)* ......... 469,722
45,850 Jabil Circuit, Inc.* .............. 857,853
----------
1,327,575
----------
Electronic Distributors (0.2%)
8,460 CDW Computer Centers, Inc.*........ 363,103
----------
Electronic Equipment/
Instruments (0.2%)
111,100 JDS Uniphase Corp.* ............... 298,859
----------
Electronic Production
Equipment (0.9%)
13,950 Celestica, Inc.* .................. 320,431
18,350 KLA-Tencor Corp.* ................. 603,164
6,300 Novellus Systems, Inc.* ........... 154,098
7,100 Synopsys, Inc.* ................... 306,365
----------
1,384,058
----------
Finance/Rental/Leasing (0.5%)
8,300 SLM Corp. ......................... 760,695
----------
Financial Publishing/
Services (3.1%)
72,700 Moody's Corp. ..................... 3,512,864
56,400 SunGard Data Systems Inc.*......... 1,390,260
----------
4,903,124
----------
Food: Specialty/Candy (0.8%)
15,600 Hershey Foods Corp. ............... 1,181,700
----------
Home Building (1.8%)
54,400 Lennar Corp. ...................... 2,872,320
----------
Home Furnishings (0.8%)
24,958 Mohawk Industries, Inc.* .......... 1,235,421
----------
Hospital/Nursing
Management (0.5%)
20,800 Triad Hospitals, Inc.* ............ 759,408
----------
Hotels/Resorts/
Cruiselines (2.0%)
122,000 Starwood Hotels & Resorts
Worldwide, Inc. ................... 3,145,160
----------

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

Household/Personal
Care (0.3%)
9,700 Alberto-Culver Co. (Class B) ...... $ 477,822
----------
Industrial Specialties (0.9%)
32,350 Ecolab, Inc. ...................... 1,457,044
----------
Information Technology
Services (0.9%)
43,950 J.D. Edwards & Co.* ............... 573,547
54,050 PeopleSoft, Inc.* ................. 869,124
----------
1,442,671
----------
Insurance Brokers/
Services (1.7%)
31,733 ChoicePoint Inc.* ................. 1,363,567
42,250 Willis Group Holdings Ltd.* ....... 1,330,452
----------
2,694,019
----------
Internet Software/Services (0.8%)
48,050 BEA Systems, Inc.* ................ 293,585
106,600 Siebel Systems, Inc.* ............. 901,836
----------
1,195,421
----------
Investment Banks/Brokers (0.5%)
14,150 Lehman Brothers Holdings, Inc. 806,691
----------
Investment Managers (0.7%)
21,250 Affiliated Managers Group,
Inc.* ............................ 1,113,500
----------
Managed Health Care (2.3%)
20,600 Anthem, Inc.* ..................... 1,300,066
89,750 Caremark Rx, Inc.* ................ 1,453,950
11,700 WellPoint Health Networks, Inc.* 870,129
----------
3,624,145
----------
Medical Distributors (1.3%)
28,200 AmerisourceBergen Corp. ........... 2,044,782
----------
Medical Specialties (4.6%)
42,850 St. Jude Medical, Inc.* ........... 1,594,449
15,250 Stryker Corp.* .................... 859,643
62,300 Varian Medical Systems, Inc.*...... 2,649,619
55,700 Zimmer Holdings, Inc.* ............ 2,055,330
----------
7,159,041
----------

See Notes to Financial Statements
39

Morgan Stanley New Discoveries Fund
PORTFOLIO OF INVESTMENTS [|] AUGUST 31, 2002 continued

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

Medical/Nursing Services (1.4%)
70,050 Lincare Holdings, Inc.* .............. $ 2,245,103
------------
Miscellaneous Commercial
Services (2.2%)
60,850 Iron Mountain Inc.* .................. 1,691,630
66,500 Sabre Holdings Corp.* ................ 1,789,515
------------
3,481,145
------------
Movies/Entertainment (0.4%)
36,950 Regal Entertainment Group
(Class A)* .......................... 648,473
------------
Oil & Gas Production (1.2%)
77,000 Pioneer Natural Resources
Co.* ................................ 1,916,530
------------
Oilfield Services/
Equipment (3.0%)
36,050 Baker Hughes Inc. .................... 991,375
53,500 BJ Services Co.* ..................... 1,632,285
51,950 Weatherford International
Ltd.* ............................... 2,121,638
------------
4,745,298
------------
Other Consumer Services (4.5%)
19,550 Apollo Group, Inc. (Class A)*......... 817,777
55,550 Block (H.&R.), Inc. .................. 2,716,395
36,200 Career Education Corp.* .............. 1,614,158
41,300 Weight Watchers International,
Inc.* ............................... 1,959,685
------------
7,108,015
------------
Packaged Software (5.5%)
50,200 Adobe Systems, Inc. .................. 1,009,020
23,150 BMC Software, Inc.* .................. 321,785
29,350 Cadence Design Systems,
Inc.* ............................... 395,345
47,050 Intuit Inc.* ......................... 2,099,842
34,450 Mercury Interactive Corp.* ........... 875,375
21,200 NetIQ Corp.* ......................... 411,280
23,700 Network Associates, Inc.* ............ 308,100
62,200 Rational Software Corp.* ............. 422,960
31,500 Symantec Corp.* ...................... 900,900
82,400 TIBCO Software, Inc.* ................ 346,904
92,500 VERITAS Software Corp.* .............. 1,497,575
------------
8,589,086
------------

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

Personnel Services (0.2%)
21,900 Robert Half International, Inc.*...... $ 379,308
------------
Pharmaceuticals: Other (2.4%)
27,150 Allergan, Inc. ....................... 1,594,248
16,000 Biovail Corp. (Canada)* .............. 429,440
58,500 Shire Pharmaceuticals
Group PLC (ADR)
(United Kingdom)* ................... 1,707,615
------------
3,731,303
------------
Property - Casualty
Insurers (0.9%)
24,700 Everest Re Group, Ltd.
(Barbados) .......................... 1,338,740
------------
Recreational Products (2.7%)
41,650 Electronic Arts Inc.* ................ 2,634,779
25,450 International Game
Technology* ......................... 1,646,106
------------
4,280,885
------------
Restaurants (4.4%)
66,000 CBRL Group, Inc. ..................... 1,694,880
58,700 Jack in the Box Inc.* ................ 1,658,275
46,050 Wendy's International, Inc. .......... 1,644,446
60,050 Yum! Brands, Inc.* ................... 1,821,317
------------
6,818,918
------------
Savings Banks (0.6%)
26,600 Charter One Financial, Inc. .......... 896,420
------------
Semiconductors (3.5%)
155,350 Agere Systems, Inc.
(Class B)* .......................... 239,239
30,250 Broadcom Corp. (Class A)* ............ 498,823
46,600 Cypress Semiconductor
Corp.* .............................. 490,698
16,300 Fairchild Semiconductor Corp.
(Class A)* .......................... 196,741
46,450 Integrated Device Technology,
Inc.* ............................... 614,534
13,950 International Rectifier Corp.*........ 303,552
30,650 Intersil Corp. (Class A)* ............ 518,598
22,700 Marvell Technology Group Ltd.
(Bermuda)* .......................... 432,662

See Notes to Financial Statements

Morgan Stanley New Discoveries Fund
PORTFOLIO OF INVESTMENTS [|] AUGUST 31, 2002 continued

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

9,300 Maxim Integrated Products,
Inc.* .............................. $ 293,973
52,550 Microchip Technology Inc.* .......... 1,106,178
44,000 PMC - Sierra, Inc.* ................. 308,000
56,174 Skyworks Solutions, Inc.* ........... 235,931
15,700 Xilinx, Inc.* ....................... 303,324
-----------
5,542,253
-----------
Services to the Health
Industry (1.0%)
25,950 Laboratory Corp. of America
Holdings* ........................... 816,128
25,700 Stericycle, Inc.* ................... 797,728
-----------
1,613,856
-----------
Specialty Stores (1.0%)
35,100 Michaels Stores, Inc.* .............. 1,631,799
-----------
Telecommunication
Equipment (1.0%)
21,150 Advanced Fibre
Communications, Inc.* .............. 373,086
33,850 CIENA Corp.* ........................ 137,397
11,650 Harris Corp. ........................ 372,218
196,450 Nortel Networks Corp.
(Canada)* .......................... 206,273
78,650 RF Micro Devices, Inc.* ............. 526,169
-----------
1,615,143
-----------
Tobacco (0.8%)
47,750 Loews Corp. - Carolina
Group .............................. 1,236,725
-----------
Trucks/Construction/
Farm Machinery (1.2%)
94,300 AGCO Corp.* ......................... 1,803,016
-----------
Wireless
Telecommunications (1.0%)
207,950 Nextel Communications, Inc.
(Class A)* ......................... 1,582,500
-----------
Total Common Stocks
(Cost $161,799,291).................. 154,124,940
-----------

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

Short-Term Investment (0.5%)
Repurchase Agreement

$ 754 Joint repurchase agreement
account 1.875% due
09/03/02 (dated
08/30/02; proceeds
$754,157) (a)
(Cost $754,000).......... $ 754,000
------------

Total Investments
(Cost $162,553,291) (b)......... 98.8% 154,878,940

Other Assets in Excess of
Liabilities .................... 1.2 1,840,917
----- -----------
Net Assets ..................... 100.0% $156,719,857
===== ============

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

ADR American Depository Receipt.

* Non-income producing security.

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

See Notes to Financial Statements

Morgan Stanley New Discoveries Fund
FINANCIAL STATEMENTS

Statement of Assets and Liabilities
August 31, 2002

Assets:

Composition of Net Assets:
Paid-in-capital .................................................. $ 503,772,968
Net unrealized depreciation ...................................... (7,674,351)
Accumulated net realized loss .................................... (339,378,760)
--------------
Net Assets ..................................................... $ 156,719,857
==============
Class A Shares:
Net Assets ....................................................... $ 14,491,753
Shares Outstanding (unlimited authorized, $.01 par value)......... 3,556,691
Net Asset Value Per Share ...................................... $4.07
=====
Maximum Offering Price Per Share,
(net asset value plus 5.54% of net asset value) ................ $4.30
=====
Class B Shares:
Net Assets ....................................................... $ 110,575,184
Shares Outstanding (unlimited authorized, $.01 par value)......... 27,545,054
Net Asset Value Per Share ...................................... $4.01
=====
Class C Shares:
Net Assets ....................................................... $ 26,350,691
Shares Outstanding (unlimited authorized, $.01 par value)......... 6,584,087
Net Asset Value Per Share ...................................... $4.00
=====
Class D Shares:
Net Assets ....................................................... $ 5,302,229
Shares Outstanding (unlimited authorized, $.01 par value)......... 1,296,098
Net Asset Value Per Share ...................................... $4.09
=====

See Notes to Financial Statements

Morgan Stanley New Discoveries Fund
FINANCIAL STATEMENTS continued

Statement of Operations
For the year ended August 31, 2002

Net Investment Loss:

Income
Dividends (net of $1,792 foreign withholding tax)......... $ 672,223
Interest ................................................. 141,539
--------------
Total Income ........................................... 813,762
--------------
Expenses
Investment management fee ................................ 2,502,140
Distribution fee (Class A shares) ........................ 57,395
Distribution fee (Class B shares) ........................ 1,748,026
Distribution fee (Class C shares) ........................ 415,283
Transfer agent fees and expenses ......................... 695,805
Shareholder reports and notices .......................... 77,833
Registration fees ........................................ 74,531
Custodian fees ........................................... 50,802
Professional fees ........................................ 48,044
Trustees' fees and expenses .............................. 12,283
Other .................................................... 9,433
--------------
Total Expenses ......................................... 5,691,575
--------------
Net Investment Loss .................................... (4,877,813)
--------------
Net Realized and Unrealized Gain (Loss):
Net realized loss ........................................ (117,748,899)
Net change in unrealized depreciation .................... 45,688,429
--------------
Net Loss ............................................... (72,060,470)
--------------
Net Decrease ............................................. $ (76,938,283)
==============

See Notes to Financial Statements
43

Morgan Stanley New Discoveries Fund
FINANCIAL STATEMENTS continued

Statement of Changes in Net Assets

FOR THE PERIOD
FOR THE YEAR SEPTEMBER 27, 2000*
ENDED THROUGH
AUGUST 31, 2002 AUGUST 31, 2001
----------------- --------------------

Increase (Decrease) in Net Assets:
Operations:
Net investment loss ....................................................... $ (4,877,813) $ (7,772,175)
Net realized loss ......................................................... (117,748,899) (221,629,861)
Net change in unrealized depreciation ..................................... 45,688,429 (53,362,780)
------------ ------------
Net Decrease ............................................................ (76,938,283) (282,764,816)

Net increase (decrease) from transactions in shares of beneficial interest (92,290,288) 608,613,244
------------ ------------
Net Increase (Decrease) ................................................. (169,228,571) 325,848,428

Net Assets:
Beginning of period ....................................................... 325,948,428 100,000
------------ ------------
End of Period ............................................................. $156,719,857 $325,948,428
============ ============

- ------------
* Commencement of operations.

See Notes to Financial Statements
44

Morgan Stanley New Discoveries Fund
NOTES TO FINANCIAL STATEMENTS [|] AUGUST 31, 2002

1. Organization and Accounting Policies

Morgan Stanley New Discoveries Fund (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 seeks to achieve its objective by investing
primarily in common stocks of companies with market capitalizations, at the
time of purchase, that fall within the range of companies included within the
Russell 2000 Index and the Standard & Poor's Mid-Cap 400 Index. The Fund was
organized as a Massachusetts business trust on May 16, 2000 and had no
operations other than those relating to organizational matters and the issuance
of 2,500 shares of beneficial interest by each class for $25,000 of each class
to Morgan Stanley Investment Advisors Inc. (the "Investment Manager"), to
effect the Fund's initial capitalization. The Fund commenced operations on
September 27, 2000.

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 the
Investment Manager, and/or Morgan Stanley Investments, LP (the "Sub-Advisor"),
an affiliate of 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

Morgan Stanley New Discoveries Fund
NOTES TO FINANCIAL STATEMENTS [|] AUGUST 31, 2002 continued

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. 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.

F. 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 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.

Morgan Stanley New Discoveries Fund
NOTES TO FINANCIAL STATEMENTS [|] AUGUST 31, 2002 continued

2. Investment Management and Sub-Advisory Agreements

Under a Sub-Advisory Agreement between the Sub-Advisor and the Investment
Manager, the Sub-Advisor provides the Fund with investment advice and portfolio
management relating to the Fund's investments in securities, subject to the
overall supervision of the Investment Manager. As compensation for its services
provided pursuant to the Sub-Advisory Agreement, the Investment Manager pays
the Sub-Advisor compensation equal to 40% of its monthly compensation.

3. Plan of Distribution

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
$22,062,472 at August 31, 2002.

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 August 31, 2002, the distribution fee was accrued for
Class A shares and Class C shares at the annual rate of 0.24% and 1.0%,
respectively.

Morgan Stanley New Discoveries Fund
NOTES TO FINANCIAL STATEMENTS [|] AUGUST 31, 2002 continued

4. Security Transactions and Transactions with Affiliates

5. Federal Income Tax Status

Morgan Stanley New Discoveries Fund
NOTES TO FINANCIAL STATEMENTS [|] AUGUST 31, 2002 continued

6. Shares of Beneficial Interest
Transactions in shares of beneficial interest were as follows:

CLASS A SHARES
Sold ............................. 450,865 $ 2,401,289 14,000,478 $ 137,314,142
Redeemed ......................... (2,527,335) (13,251,276) (8,369,817) (70,356,162)
---------- ------------- ---------- -------------
Net increase (decrease) - Class A (2,076,470) (10,849,987) 5,630,661 66,957,980
---------- ------------- ---------- -------------
CLASS B SHARES
Sold ............................. 2,308,753 12,352,239 49,482,104 483,842,993
Redeemed ......................... (14,174,494) (71,513,083) (10,073,809) (72,360,229)
----------- ------------- ----------- -------------
Net increase (decrease) - Class B (11,865,741) (59,160,844) 39,408,295 411,482,764
----------- ------------- ----------- -------------
CLASS C SHARES
Sold ............................. 348,381 1,877,268 12,718,773 125,110,963
Redeemed ......................... (3,450,017) (17,833,359) (3,035,550) (21,930,889)
----------- ------------- ----------- -------------
Net increase (decrease) - Class C (3,101,636) (15,956,091) 9,683,223 103,180,074
----------- ------------- ----------- -------------
CLASS D SHARES
Sold ............................. 226,838 1,178,864 4,194,288 38,914,497
Redeemed ......................... (1,454,224) (7,502,230) (1,673,304) (11,922,071)
----------- ------------- ----------- -------------
Net increase (decrease) - Class D (1,227,386) (6,323,366) 2,520,984 26,992,426
----------- ------------- ----------- -------------
Net increase (decrease) in Fund .. (18,271,233) $ (92,290,288) 57,243,163 $ 608,613,244
=========== ============= =========== =============

- ------------
* Commencement of operations.

Morgan Stanley New Discoveries Fund
FINANCIAL HIGHLIGHTS

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

FOR THE PERIOD
FOR THE YEAR SEPTEMBER 27, 2000*
ENDED THROUGH
AUGUST 31, 2002 AUGUST 31, 2001
----------------- --------------------

Class A Shares

Selected Per Share Data:
Net asset value, beginning of period ............ $5.73 $10.00
------- -------
Loss from investment operations:
Net investment loss[+/+]........................ (0.07) (0.07)
Net realized and unrealized loss ............... (1.59) (4.20)
------- -------
Total loss from investment operations ........... (1.66) (4.27)
------- -------
Net asset value, end of period .................. $4.07 $5.73
======= =======

Total Return+ .................................. (28.97)% (42.70)%(1)

Ratios to Average Net Assets(3):
Expenses ........................................ 1.63 % 1.49 %(2)
Net investment loss ............................. (1.30)% (1.08)%(2)

Supplemental Data:
Net assets, end of period, in thousands ......... $14,492 $32,268
Portfolio turnover rate ......................... 216% 155 %(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 sset 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
50

Morgan Stanley New Discoveries Fund
FINANCIAL HIGHLIGHTS continued

FOR THE PERIOD
FOR THE YEAR SEPTEMBER 27, 2000*
ENDED THROUGH
AUGUST 31, 2002 AUGUST 31, 2001
----------------- --------------------

Class B Shares

Selected Per Share Data:
Net asset value, beginning of period ............ $ 5.69 $ 10.00
-------- --------
Loss from investment operations:
Net investment loss[+/+]........................ (0.11) (0.13)
Net realized and unrealized loss ............... (1.57) (4.18)
-------- --------
Total loss from investment operations ........... (1.68) (4.31)
-------- --------
Net asset value, end of period .................. $ 4.01 $ 5.69
======== ========
Total Return+.................................... (29.53)% (43.10)%(1)

Ratios to Average Net Assets(3):
Expenses ........................................ 2.39 % 2.28 %(2)
Net investment loss ............................. (2.06)% (1.87)%(2)

Supplemental Data:
Net assets, end of period, in thousands ......... $110,575 $224,120
Portfolio turnover rate ......................... 216% 155 %(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.

See Notes to Financial Statements

Morgan Stanley New Discoveries Fund
FINANCIAL HIGHLIGHTS continued

FOR THE PERIOD
FOR THE YEAR SEPTEMBER 27, 2000*
ENDED THROUGH
AUGUST 31, 2002 AUGUST 31, 2001
----------------- --------------------

Class C Shares

Selected Per Share Data:
Net asset value, beginning of period ............ $ 5.69 $ 10.00
------- -------
Loss from investment operations:
Net investment loss[+/+]........................ (0.11) (0.13)
Net realized and unrealized loss ............... (1.58) (4.18)
------- -------
Total loss from investment operations ........... (1.69) (4.31)
------- -------
Net asset value, end of period .................. $ 4.00 $ 5.69
======= ========

Total Return+.................................... (29.70)% (43.10)%(1)

Ratios to Average Net Assets(3):
Expenses ........................................ 2.39 % 2.28 %(2)
Net investment loss ............................. (2.06)% (1.87)%(2)

Supplemental Data:
Net assets, end of period, in thousands ......... $26,351 $55,080
Portfolio turnover rate ......................... 216 % 155 %(1)

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

* Commencement of operations.

See Notes to Financial Statements

Morgan Stanley New Discoveries Fund
FINANCIAL HIGHLIGHTS continued

FOR THE PERIOD
FOR THE YEAR SEPTEMBER 27, 2000*
ENDED THROUGH
AUGUST 31, 2002 AUGUST 31, 2001
----------------- --------------------

Class D Shares

Selected Per Share Data:
Net asset value, beginning of period ............ $ 5.74 $ 10.00
------- -------
Loss from investment operations:
Net investment loss|[+/+]....................... (0.06) (0.07)
Net realized and unrealized loss ............... (1.59) (4.19)
------- -------
Total loss from investment operations ........... (1.65) (4.26)
------- -------
Net asset value, end of period .................. $ 4.09 $ 5.74
======= =======

Total Return+ ................................... (28.75)% (42.60)%(1)

Ratios to Average Net Assets(3):
Expenses ........................................ 1.39 % 1.28 %(2)
Net investment loss ............................. (1.06)% (0.87)%(2)

Supplemental Data:
Net assets, end of period, in thousands ......... $ 5,302 $14,480
Portfolio turnover rate ......................... 216 % 155 %(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.

See Notes to Financial Statements

Morgan Stanley New Discoveries Fund
INDEPENDENT AUDITORS' REPORT

To the Shareholders and Board of Trustees of
Morgan Stanley New Discoveries Fund:

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 August 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.

Deloitte & Touche LLP
New York, New York
October 8, 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.

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(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.

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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

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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

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