UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-04222
Morgan Stanley New York Tax-Free Income Fund
(Exact name of registrant as specified in charter)
1221 Avenue of the Americas, New York, New York 10020
(Address of principal executive offices) (Zip code)
Ronald E. Robison
1221 Avenue of the Americas, New York, New York 10020
(Name and address of agent for service)
Registrant's telephone number, including area code: 212-762-4000
Date of fiscal year end: December 31, 2004
Date of reporting period: June 30, 2004
Item 1 - Report to Shareholders
Welcome, Shareholder:
In this report, you'll learn about how your investment in Morgan Stanley New
York Tax-Free Income Fund performed during the semiannual period. We will
provide an overview of the market conditions, and discuss some of the factors
that affected performance during the reporting period. In addition, this report
includes the Fund's financial statements and a list of Fund investments.
This material must be preceded or accompanied by a prospectus for the fund being
offered. Market forecasts provided in this report may not necessarily come to
pass. There is no assurance that the Fund will achieve its investment objective.
The Fund is subject to market risk, which is the possibility that market values
of securities owned by the Fund will decline and, therefore, the value of the
Fund shares may be less than what you paid for them. Accordingly, you can lose
money investing in this Fund.
FUND REPORT
For the six-month period ended June 30, 2004
TOTAL RETURN FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2004
<Table>
<Caption>
LEHMAN LIPPER NY
BROTHERS MUNICIPAL
MUNICIPAL DEBT FUNDS
CLASS A CLASS B CLASS C CLASS D BOND INDEX(1) INDEX(2)
-1.07% -1.41% -1.41% -1.06% -0.68% -1.19%
</Table>
The performance of the Fund's four share classes varies because each has
different expenses. The Fund's total return figures assume the reinvestment of
all distributions but do not reflect the deduction of any applicable sales
charges. Such costs would lower performance. Past performance is no guarantee of
future results. See Performance Summary for standardized performance
information.
MARKET CONDITIONS
During the first six months of 2004, an array of positive indicators confirmed
the strength of the U.S. economic recovery. Not only was solid growth recorded
but the long-awaited improvement in employment became apparent. Unfortunately,
the strengthening economy also brought the specter of higher inflation. While a
year ago the Federal Reserve Board was actively prepared to fight price
deflation, by early this spring it had begun to signal a change in policy. The
fixed-income markets reacted to these events by sending interest rates higher.
Finally, on June 30, 2004, the Federal Reserve Board ended the easiest monetary
policy in decades by raising its short-term borrowing rate for the first time in
four years.
The changing outlook also affected the municipal market. By the end of June,
yields on intermediate and long-term tax-exempt bonds had increased to their
highest levels in nearly a year. Bond prices, which move in the opposite
direction of interest rates, fell accordingly. Rising interest rates have
historically resulted in reduced issuance of municipal securities. In keeping
with this pattern, the year-to-date volume of $188 billion was 9 percent below
last year's record level. Much of the decline can be attributed to June, when
issuance fell 29 percent. New York, a perennial leader in bonds sales, saw
volume fall by nearly 25 percent.
On the demand side, higher yields attracted retail investors who began to take
into account upcoming coupon payments and maturities. The ratio of municipal
yields to Treasury yields -- a gauge of the relative performance of the two
markets -- also remained stable. The ratio of 30-year insured municipals to
Treasuries averaged 96 percent for the quarter, and the 10-year ratio averaged
89 percent of Treasuries. This relationship continued to attract buying activity
by nontraditional investors including hedge funds and arbitrage accounts.
New York's economic outlook continued to benefit from improving national
conditions. Two of the state's leading industries -- financial services and
tourism -- were catalysts for growth. Fiscal conditions at the state and local
level remained stable. However, for the twentieth year in a row, the governor
and the state legislature were unable to reach a budget accord for the current
fiscal year in the allotted time.
2
PERFORMANCE ANALYSIS
Morgan Stanley New York Tax-Free Income Fund underperformed the Lehman Brothers
Municipal Bond Index for the six-month period ending June 30, 2004. The Fund's
Classes B and C shares underperformed the Lipper New York Municipal Debt Funds
Index for the six-month period ending June 30, 2004, but Classes A and D
outperformed the Lipper index. The Fund lagged the Lehman Brothers Municipal
Bond Index because some of its higher-yielding securities were more volatile in
the rising-interest-rate environment. The Fund offset some of its volatility by
maintaining a shorter-than-benchmark portfolio duration.* The Fund's duration
reflects a mix of holdings that includes higher-coupon bonds priced to various
call dates that are generally considered defensive in nature. In keeping with
our long-term strategy, we managed the Fund with a bias toward high-quality
investments. As indicated, at the close of the review period nearly 90 percent
of the bonds in the portfolio were rated A or higher. The Fund was well
diversified, with 37 individual credits in 12 municipal sectors.
* A measure of the sensitivity of a bond's price to changes in interest rates,
expressed in years. Each year of duration represents an expected 1 percent
change in the price of a bond for every 1 percent change in interest rates.
The longer a bond's duration, the greater the effect of interest-rate
movements on its price. Typically, funds with shorter durations perform better
in rising-interest-rate environments, while funds with longer durations
perform better when rates decline.
3
<Table>
<Caption>
TOP FIVE SECTORS
Public Facilities 12.0%
Other 11.5
Hospital 10.0
Transportation 8.7
IDR/PRC* 8.1
</Table>
<Table>
<Caption>
LONG-TERM CREDIT ANALYSIS
Aaa/AAA 45.3%
Aa/AA 31.6
A/A 15.4
Baa/BBB 4.2
NR 3.5
</Table>
* Industrial Development/Pollution Control Revenue.
Data as of June 30, 2004. Subject to change daily. All percentages for Top Five
Sectors are as a percentage of net assets and all percentages for Long-Term
Credit Analysis are as a percentage of total long-term investments. Provided for
informational purposes only and should not be deemed a recommendation to buy or
sell the securities mentioned. Morgan Stanley is a full-service securities firm
engaged in securities trading and brokerage activities, investment banking,
research and analysis, financing and financial advisory services.
INVESTMENT STRATEGY
THE FUND WILL NORMALLY INVEST AT LEAST 80% OF ITS ASSETS IN SECURITIES THAT PAY
INTEREST EXEMPT FROM FEDERAL, NEW YORK STATE AND NEW YORK CITY INCOME TAX OR
OTHER LOCAL INCOME TAXES. THE FUND'S "INVESTMENT MANAGER," MORGAN STANLEY
INVESTMENT ADVISORS INC., GENERALLY INVESTS THE FUND'S ASSETS IN INVESTMENT
GRADE, NEW YORK MUNICIPAL OBLIGATIONS. MUNICIPAL OBLIGATIONS ARE BONDS, NOTES OR
SHORT-TERM COMMERCIAL PAPER ISSUED BY STATE GOVERNMENTS, LOCAL GOVERNMENTS OR
THEIR RESPECTIVE AGENCIES.
4
DISTRIBUTION BY MATURITY
(% of Long-Term Portfolio) As of June 30, 2004
WEIGHTED AVERAGE MATURITY: 16 YEARS
<Table>
1-5 14.00
5-10 8.00
10-20 58.00
20-30 15.00
30+ Years 5.00
</Table>
Portfolio structure is subject to change.
5
CALL AND COST (BOOK) YIELD STRUCTURE
(Based on Long-Term Portfolio) As of June 30, 2004
YEARS BONDS CALLABLE -- WEIGHTED AVERAGE CALL PROTECTION: 6 YEARS
<Table>
2004(a) 11.00
2005 6.00
2006 12.00
2007 0.00
2008 6.00
2009 3.00
2010 10.00
2011 4.00
2012 16.00
2013 15.00
2014+ 17.00
</Table>
COST (BOOK) YIELD(B) -- WEIGHTED AVERAGE BOOK YIELD: 5.6%
<Table>
2004(a) 6.80
2005 6.60
2006 6.50
2007 0.00
2008 5.30
2009 5.80
2010 5.50
2011 4.90
2012 4.80
2013 4.80
2014+ 5.80
</Table>
(a) May include issues callable in previous years.
(b) Cost or "book" yield is the annual income earned on a portfolio investment
based on its original purchase price before the Fund's operating expenses.
For example, the Fund is earning a book yield of 6.8% on 11% of the
long-term portfolio that is callable in 2004.
Portfolio structure is subject to change.
6
PERFORMANCE SUMMARY
AVERAGE ANNUAL TOTAL RETURNS -- PERIOD ENDED JUNE 30, 2004
<Table>
<Caption>
CLASS A SHARES* CLASS B SHARES** CLASS C SHARES(+) CLASS D SHARES(++)
(since 07/28/97) (since 04/25/85) (since 07/28/97) (since 07/28/97)
SYMBOL NYFAX NYFBX NYFCX NYFDX
1 YEAR 0.82%(3) (0.21)%(3) (0.13)%(3) 0.61%(3)
(3.47)(4) (4.98)(4) (1.08)(4) --
5 YEARS 5.24(3) 4.47(3) 4.54(3) 5.20(3)
4.33(4) 4.13(4) 4.54(4) --
10 YEARS -- 5.09(3) -- --
-- 5.09(4) -- --
SINCE INCEPTION 4.84(3) 6.63(3) 4.17(3) 4.90(3)
4.18(4) 6.63(4) 4.17(4) --
</Table>
Past performance is no guarantee of future results and current performance may
be lower or higher than the figures shown. For more up-to-date information,
including month-end performance figures, please visit morganstanley.com or speak
with your financial advisor. Investment returns and principal value will
fluctuate and fund shares, when redeemed, may be worth more or 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.
* The maximum front-end sales charge for Class A is 4.25%.
** 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.
(1) The Lehman Brothers Municipal Bond Index tracks the performance of
municipal bonds rated at least Baa or BBB by Moody's Investors Service,
Inc. or Standard Poor's Corporation, respectively and with maturities of 2
years or greater. Indexes are unmanaged and their returns do not include
any sales charges or fees. Such costs would lower performance. It is not
possible to invest directly in an index.
(2) The Lipper New York Municipal Debt Funds Index is an equally weighted
performance index of the largest qualifying funds (based on net assets) in
the Lipper New York Municipal Debt Funds classification. The Index, which
is adjusted for capital gains distributions and income dividends, is
unmanaged and should not be considered an investment. There are currently
30 funds represented in this Index.
(3) Figure shown assumes reinvestment of all distributions and does not reflect
the deduction of any sales charges.
(4) 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.
7
Morgan Stanley New York Tax-Free Income Fund
PORTFOLIO OF INVESTMENTS - JUNE 30, 2004 (UNAUDITED)
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------
New York Tax-Exempt Municipal Bonds (92.2%)
General Obligation (6.8%)
$ 3,500 New York State, Ser 1995 B Refg........................... 5.70% 08/15/13 $ 3,677,800
4,550 Puerto Rico, Public Improvement Refg Ser 1987 A........... 3.00 07/01/06 4,552,594
------------
- --------
8,230,394
8,050
------------
- --------
Educational Facilities Revenue (6.0%)
500 Hempstead Industrial Development Agency, Hofstra
University Ser 1996 (MBIA).............................. 5.80 07/01/15 539,755
New York State Dormitory Authority,
3,000 City University Ser 1993 A.............................. 5.75 07/01/09 3,326,910
1,000 New York University Ser 1998 A (MBIA)................... 5.75 07/01/15 1,137,810
2,000 State University 1993 Ser............................... 5.25 05/15/15 2,148,260
------------
- --------
7,152,735
6,500
------------
- --------
Electric Revenue (5.0%)
Long Island Power Authority,
3,000 Ser 2000 A (FSA)........................................ 0.00 06/01/18 1,555,470
1,345 Ser 2003 C.............................................. 5.50 09/01/21 1,404,436
1,000 Ser 1998 A (FSA)........................................ 5.125 12/01/22 1,018,080
2,000 New York State Power Authority, Ser 2000 A................ 5.25 11/15/40 2,016,680
------------
- --------
5,994,666
7,345
------------
- --------
Hospital Revenue (10.0%)
2,000 New York City Health & Hospital Corporation, Health 2003
Ser A (Ambac)........................................... 5.25 02/15/22 2,076,440
New York State Dormitory Authority,
1,000 Department of Health Refg Ser 2004...................... 5.00 07/01/22 1,001,170
3,000 Memorial Sloan-Kettering Cancer Center 2003 Ser I
(MBIA).................................................. 5.00 07/01/23 3,022,710
2,000 Winthrop South Nassau University Health Ser 2003 B...... 5.50 07/01/23 2,027,620
3,815 New York State Medical Care Facilities Finance Agency,
Hospital & Nursing Home - FHA Insured Mtge 1993 Ser B
(FSA)................................................... 5.50 02/15/22 3,875,315
------------
- --------
12,003,255
11,815
------------
- --------
Industrial Development/Pollution Control Revenue (8.1%)
New York City Industrial Development Agency,
1,000 Airis JFK I LLC Ser 2001A (AMT)......................... 5.50 07/01/28 953,920
2,000 Brooklyn Navy Yard Cogeneration Partners LP Ser 1997
(AMT)................................................... 5.75 10/01/36 1,772,700
6,000 New York State Energy Research & Development Authority,
Brooklyn Union Gas Co 1991 Ser D (AMT).................. 12.149++ 07/01/26 7,031,880
------------
- --------
9,758,500
9,000
------------
- --------
</Table>
8
See Notes to Financial Statements
Morgan Stanley New York Tax-Free Income Fund
PORTFOLIO OF INVESTMENTS - JUNE 30, 2004 (UNAUDITED) continued
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------
Mortgage Revenue - Multi-Family (7.8%)
New York City Housing Development Corporation,
$ 1,912 East Midtown - FHA Ins Sec 223.......................... 6.50% 11/15/18 $ 2,010,574
1,956 Ruppert - FHA Ins Sec 223............................... 6.50 11/15/18 2,057,032
5,135 New York State Housing Finance Agency, 1996 Ser A Refg
(FSA)................................................... 6.10 11/01/15 5,336,445
------------
- --------
9,404,051
9,003
------------
- --------
Public Facilities Revenue (12.0%)
Empire State Development Corporation,
2,000 Personal Income Tax Ser 2002 A.......................... 5.375 03/15/19 2,121,480
1,750 Personal Income Tax Ser 2002 A.......................... 5.375 03/15/20 1,850,433
2,000 Personal Income Tax Ser 2002 C-1 (FGIC)................. 5.50 03/15/20 2,158,340
500 New York City Cultural Resources Trust, The New York
Botanical Garden Ser 1996 (MBIA)........................ 5.75 07/01/16 534,125
1,035 New York City Industrial Development Agency, Royal Charter
Properties - The New York & Presbytrian Hospital Parking
Ser 2001 (FSA).......................................... 5.25 12/15/32 1,049,997
New York State Dormitory Authority,
2,000 School District Ser 2002 E (MBIA)....................... 5.50 10/01/17 2,175,680
1,300 School District Ser 2002 C (MBIA)....................... 5.25 04/01/21 1,361,477
3,000 Puerto Rico Public Buildings Authority, Refg Ser J (Ambac)
(Mandatory Put 7/01/12)................................. 5.00 07/01/36 3,211,140
------------
- --------
14,462,672
13,585
------------
- --------
Resource Recovery Revenue (0.4%)
500 Oneida-Herkimer Solid Waste Management Authority, Ser
1992.................................................... 6.65 04/01/05 506,875
------------
- --------
Transportation Facilities Revenue (8.7%)
400 Buffalo & Fort Erie Public Bridge Authority, Toll Bridge
Ser 1995 (MBIA)......................................... 5.75 01/01/25 409,712
3,000 Metropolitan Transportation Authority, Dedicated Tax Fund
Refg Ser 2002 A (FSA)................................... 5.25 11/15/24 3,093,060
3,000 Triborough Bridge & Tunnel Authority, Ser 2001 A.......... 5.00 01/01/32 2,932,050
Puerto Rico Highway & Transportation Authority,
2,000 Refg Ser X.............................................. 5.50 07/01/15 2,189,340
2,000 Ser 1998 A.............................................. 4.75 07/01/38 1,836,300
------------
- --------
10,460,462
10,400
------------
- --------
</Table>
9
See Notes to Financial Statements
Morgan Stanley New York Tax-Free Income Fund
PORTFOLIO OF INVESTMENTS - JUNE 30, 2004 (UNAUDITED) continued
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------
Water & Sewer Revenue (7.9%)
$ 3,000 New York City Municipal Water Finance Authority, 2001 Ser
B....................................................... 5.125% 06/15/31 $ 2,991,240
2,000 New York State Environment Facilities Corporation, Clean
Water Ser 2003 C........................................ 5.00 07/15/23 2,028,380
4,000 Suffolk Country Industrial Development Agency, Southwest
Sewer Ser 1994 (FGIC)................................... 6.00 02/01/08 4,419,040
------------
- --------
9,438,660
9,000
------------
- --------
Other Revenue (11.5%)
2,000 Battery Park City Authority, Ser 2003 A................... 5.00 11/01/24 2,016,940
New York City Transitional Finance Authority,
2,000 2003 Ser D (MBIA)....................................... 5.25 02/01/20 2,106,500
2,000 2004 Ser B.............................................. 5.00 08/01/23 2,022,480
2,000 Refg 2003 Ser A......................................... 5.50# 11/01/26 2,200,980
5,000 New York Local Government Assistance Corporation, Ser 1993
C....................................................... 5.50 04/01/17 5,503,799
------------
- --------
13,850,699
13,000
------------
- --------
Refunded (8.0%)
2,000 New York City Transitional Finance Authority, 2001 Ser
A....................................................... 5.375 02/15/10+ 2,230,200
2,595 New York State Dormitory Authority, Suffolk County
Judicial Ser 1986 (ETM)................................. 7.375 07/01/16 3,140,988
4,000 Puerto Rico Infrastructure Financing Authority, 2000 Ser A
(ETM)................................................... 5.375 10/01/24 4,230,720
------------
- --------
9,601,908
8,595
------------
- --------
106,793 Total New York Tax-Exempt Municipal Bonds (Cost $104,909,075)................ 110,864,877
------------
- --------
Short-Term New York Tax-Exempt Municipal Obligations (6.5%)
New York City,
2,300 Fiscal 1995 Ser B (Demand 07/01/04)..................... 1.06* 08/15/23 2,300,000
800 Fiscal 2002 Subser A-7 (Ambac) (Demand 07/01/04)........ 1.00* 11/01/24 800,000
3,000 New York State Dormitory Authority, State University Ser
1989 B.................................................. 0.00 05/15/05 2,951,190
1,700 Port Authority of New York & New Jersey, Versatile
Structure Ser 2 (Demand 07/01/04)....................... 1.06* 05/01/19 1,700,000
------------
- --------
7,800 Total Short-Term New York Tax-Exempt Municipal Obligations (Cost
$7,594,669).................................................................. 7,751,190
------------
- --------
</Table>
<Table>
$114,593 Total Investments (Cost $112,503,744) (a).......................... 98.7% 118,616,067
========
Other Assets in Excess of Liabilities.............................. 1.3 1,577,249
----- ------------
Net Assets......................................................... 100.0% $120,193,316
===== ============
</Table>
10
See Notes to Financial Statements
Morgan Stanley New York Tax-Free Income Fund
PORTFOLIO OF INVESTMENTS - JUNE 30, 2004 (UNAUDITED) continued
- ---------------------
<Table>
AMT Alternative Minimum Tax.
ETM Escrowed to maturity.
FHA Federal Housing Administration.
* Current coupon of variable rate demand obligation.
# Step up security; will convert to 14% on November 1, 2011.
+ Prerefunded to call date shown.
++ Current coupon rate for inverse floating rate municipal
obligation. This rate resets periodically as the auction
rate on the related security changes. Positions in inverse
floating rate municipal obligations have total value of
$7,031,880, which represents 5.9% of net assets.
(a) The aggregate cost for federal income tax purposes is
$112,423,944. The aggregate gross unrealized appreciation is
$6,643,205 and the aggregate gross unrealized depreciation
is $451,082, resulting in net unrealized appreciation of
$6,192,123.
Bond Insurance:
- ---------------
Ambac Ambac Assurance Corporation.
FGIC Financial Guaranty Insurance Company.
FSA Financial Security Assurance Inc.
MBIA Municipal Bond Investors Assurance Corporation.
</Table>
11
See Notes to Financial Statements
Morgan Stanley New York Tax-Free Income Fund
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
June 30, 2004 (unaudited)
<Table>
Assets:
Investments in securities, at value
(cost $112,503,744)................ $118,616,067
Cash................................. 13,599
Receivable for:
Interest......................... 1,697,312
Investments sold................. 115,000
Shares of beneficial interest
sold........................... 6,200
Prepaid expenses and other assets.... 35,694
------------
Total Assets..................... 120,483,872
------------
Liabilities:
Payable for:
Distribution fee................. 73,335
Investment management fee........ 50,621
Shares of beneficial interest
redeemed....................... 39,421
Dividends and distributions to
shareholders................... 26,467
Accrued expenses and other
payables........................... 100,712
------------
Total Liabilities................ 290,556
------------
Net Assets....................... $120,193,316
============
Composition of Net Assets:
Paid-in-capital...................... $113,816,342
Net unrealized appreciation.......... 6,112,323
Accumulated undistributed net
investment income.................. 120,765
Accumulated undistributed net
realized gain...................... 143,886
------------
Net Assets....................... $120,193,316
============
Class A Shares:
Net Assets........................... $3,089,156
Shares Outstanding (unlimited
authorized, $.01 par value)........ 270,832
Net Asset Value Per Share........ $11.41
============
Maximum Offering Price Per Share,
(net asset value plus 4.44% of
net asset value)............... $11.92
============
Class B Shares:
Net Assets........................... $102,263,713
Shares Outstanding (unlimited
authorized, $.01 par value)........ 9,025,673
Net Asset Value Per Share........ $11.33
============
Class C Shares:
Net Assets........................... $4,274,160
Shares Outstanding (unlimited
authorized, $.01 par value)........ 376,911
Net Asset Value Per Share........ $11.34
============
Class D Shares:
Net Assets........................... $10,566,287
Shares Outstanding (unlimited
authorized, $.01 par value)........ 936,079
Net Asset Value Per Share........ $11.29
============
</Table>
Statement of Operations
For the six months ended June 30, 2004 (unaudited)
<Table>
Net Investment Income:
Interest Income........................ $ 3,341,967
-----------
Expenses
Distribution fee (Class A shares)...... 1,631
Distribution fee (Class B shares)...... 406,194
Distribution fee (Class C shares)...... 17,080
Investment management fee.............. 351,328
Professional fees...................... 36,836
Transfer agent fees and expenses....... 30,039
Shareholder reports and notices........ 28,015
Registration fees...................... 6,328
Trustees' fees and expenses............ 4,017
Custodian fees......................... 3,991
Other.................................. 4,403
-----------
Total Expenses..................... 889,862
Less: expense offset................... (3,781)
Less: amounts waived/reimbursed........ (17,099)
-----------
Net Expenses....................... 868,982
-----------
Net Investment Income.............. 2,472,985
-----------
Net Realized and Unrealized Gain
(Loss):
Net Realized Gain (Loss) on:
Investments............................ 315,347
Futures contracts...................... (232,269)
-----------
Net Realized Gain.................. 83,078
-----------
Net Change in Unrealized Appreciation/
Depreciation on:
Investments............................ (4,341,264)
Futures contracts...................... 69,977
-----------
Net Depreciation................... (4,271,287)
-----------
Net Loss........................... (4,188,209)
-----------
Net Decrease........................... $(1,715,224)
===========
</Table>
12
See Notes to Financial Statements
Morgan Stanley New York Tax-Free Income Fund
FINANCIAL STATEMENTS continued
Statement of Changes in Net Assets
<Table>
<Caption>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
JUNE 30, 2004 DECEMBER 31, 2003
------------- -----------------
(unaudited)
Increase (Decrease) in Net Assets:
Operations:
Net investment income....................................... $ 2,472,985 $ 5,384,815
Net realized gain........................................... 83,078 1,052,184
Net change in unrealized appreciation/depreciation.......... (4,271,287) (1,220,474)
------------ ------------
Net Increase (Decrease)................................. (1,715,224) 5,216,525
------------ ------------
Dividends and Distributions to Shareholders from:
Net investment income
Class A shares.......................................... (84,238) (236,902)
Class B shares.......................................... (2,043,876) (4,428,063)
Class C shares.......................................... (85,728) (178,054)
Class D shares.......................................... (250,332) (520,670)
Net realized gain
Class A shares.......................................... (518) (32,045)
Class B shares.......................................... (17,362) (852,519)
Class C shares.......................................... (724) (35,577)
Class D shares.......................................... (1,788) (86,029)
------------ ------------
Total Dividends and Distributions....................... (2,484,566) (6,369,859)
------------ ------------
Net decrease from transactions in shares of beneficial
interest.................................................. (9,196,571) (8,635,983)
------------ ------------
Net Decrease............................................ (13,396,361) (9,789,317)
Net Assets:
Beginning of period......................................... 133,589,677 143,378,994
------------ ------------
End of period
(Including accumulated undistributed net investment income
of $120,765 and $111,954, respectively)..................... $120,193,316 $133,589,677
============ ============
</Table>
13
See Notes to Financial Statements
Morgan Stanley New York Tax-Free Income Fund
NOTES TO FINANCIAL STATEMENTS - JUNE 30, 2004 (UNAUDITED)
1. Organization and Accounting Policies
Morgan Stanley New York Tax-Free Income 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 to
provide a high level of current income which is exempt from federal, New York
State and New York City income tax, consistent with the preservation of capital.
The Fund was organized as a Massachusetts business trust on January 17, 1985 and
commenced operations on April 25, 1985. 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) Portfolio securities are valued by an outside
independent pricing service approved by the Trustees. The pricing service uses
both a computerized grid matrix of tax-exempt securities and evaluations by its
staff, in each case based on information concerning market transactions and
quotations from dealers which reflect the mean between the last reported bid and
asked price. The portfolio securities are thus valued by reference to a
combination of transactions and quotations for the same or other securities
believed to be comparable in quality, coupon, maturity, type of issue, call
provisions, trading characteristics and other features deemed to be relevant.
The Trustees believe that timely and reliable market quotations are generally
not readily available for purposes of valuing tax-exempt securities and that the
valuations supplied by the pricing service are more likely to approximate the
fair value of such securities; (2) futures are valued at the latest sale price
on the commodities exchange on which they trade unless it is determined that
such price does not reflect their market value, in which case they will be
valued at their fair value as determined in good faith under procedures
established by and under the supervision of the Trustees; and (3) 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.
14
Morgan Stanley New York Tax-Free Income Fund
NOTES TO FINANCIAL STATEMENTS - JUNE 30, 2004 (UNAUDITED) 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.
Discounts are accreted and premiums are amortized over the life of the
respective securities. Interest income is accrued daily.
C. 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.
D. Futures Contracts -- A futures contract is an agreement between two parties
to buy and sell financial instruments or contracts based on financial indices at
a set price on a future date. Upon entering into such a contract, the Fund is
required to pledge to the broker cash, U.S. Government securities or other
liquid portfolio securities equal to the minimum initial margin requirements of
the applicable futures exchange. Pursuant to the contract, the Fund agrees to
receive from or pay to the broker an amount of cash equal to the daily
fluctuation in the value of the contract. Such receipts or payments known as
variation margin are recorded by the Fund as unrealized gains and losses. Upon
closing of the contract, the Fund realizes a gain or loss equal to the
difference between the value of the contract at the time it was opened and the
value at the time it was closed.
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 and nontaxable
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.
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 Agreement
Pursuant to an Investment Management Agreement with Morgan Stanley Investment
Advisors Inc. (the "Investment Manager") the Fund pays the Investment Manager a
management fee, accrued daily and payable monthly, by applying the following
annual rates to the Fund's net assets determined as of the close of each
business day: 0.55% to the portion of daily net assets not exceeding $500
million and 0.525% to the portion of daily net assets exceeding $500 million.
15
Morgan Stanley New York Tax-Free Income Fund
NOTES TO FINANCIAL STATEMENTS - JUNE 30, 2004 (UNAUDITED) continued
Effective May 1, 2004, the Investment Manager has agreed to assume all operating
expenses (except distribution fees) and to waive the compensation provided for
in its Investment Management Agreement to the extent that such expenses and
compensation on an annualized basis exceed 0.65% of the daily net assets of the
Fund.
3. Plan of Distribution
Shares of the Fund are distributed by Morgan Stanley Distributors Inc. (the
"Distributor"), an affiliate of the Investment Manager. The Fund has adopted a
Plan of Distribution (the "Plan") pursuant to Rule 12b-1 under the Act. The Plan
provides that the Fund will pay the Distributor a fee which is accrued daily and
paid monthly at the following annual rates: (i) Class A - up to 0.25% of the
average daily net assets of Class A; (ii) Class B - up to 0.75% 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 0.75% 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 $547,709
at June 30, 2004.
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 0.75% 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 June 30, 2004, the distribution fee was accrued for
Class A shares and Class C shares at the annual rate of 0.09% and 0.75%,
respectively.
The Distributor has informed the Fund that for the six months ended June 30,
2004, it received contingent deferred sales charges from certain redemptions of
the Fund's Class B shares and
16
Morgan Stanley New York Tax-Free Income Fund
NOTES TO FINANCIAL STATEMENTS - JUNE 30, 2004 (UNAUDITED) continued
Class C shares of $45,533 and $2,729, respectively and received $3,452 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 June 30, 2004 aggregated
$6,297,770 and $16,605,148, respectively.
Morgan Stanley Trust, an affiliate of the Investment Manager and Distributor, is
the Fund's transfer agent. At June 30, 2004, the Fund had transfer agent fees
and expenses payable of approximately $2,000.
The Fund has an unfunded noncontributory defined benefit pension plan covering
certain 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 factors which include years of service and compensation.
Aggregate pension costs for the six months ended June 30, 2004 included in
Trustees' fees and expenses in the Statement of Operations amounted to $3,690.
At June 30, 2004, the Fund had an accrued pension liability of $59,582 which is
included in accrued expenses in the Statement of Assets and Liabilities. On
December 2, 2003, the Trustees voted to close the plan to new participants and
eliminate the future benefits growth due to increases to compensation after July
31, 2003.
Effective April 1, 2004, the Fund began an unfunded Deferred Compensation Plan
(the "Compensation Plan") which allows each independent Trustee to defer payment
of all, or a portion, of the fees he receives for serving on the Board of
Trustees. Each eligible Trustee generally may elect to have the deferred amounts
credited with a return equal to the total return on one or more of the Morgan
Stanley funds that are offered as investment options under the Compensation
Plan. Appreciation/depreciation and distributions received from these
investments are recorded with an offsetting increase/decrease in the deferred
compensation obligation and do not affect the net asset value of the Fund.
5. Expense Offset
The expense offset represents a reduction of the custodian fees for earnings on
cash balances maintained by the Fund.
17
Morgan Stanley New York Tax-Free Income Fund
NOTES TO FINANCIAL STATEMENTS - JUNE 30, 2004 (UNAUDITED) continued
6. Risks Relating to Certain Financial Instruments
The Fund may invest a portion of its assets in residual interest bonds, which
are inverse floating rate municipal obligations. The prices of these securities
are subject to greater market fluctuations during periods of changing prevailing
interest rates than are comparable fixed rate obligations.
To hedge against adverse interest rate changes, the Fund may invest in financial
futures contracts or municipal bond index futures contracts ("futures
contracts").
These futures contracts involve elements of market risk in excess of the amount
reflected in the Statement of Assets and Liabilities. The Fund bears the risk of
an unfavorable change in the value of the underlying securities. Risks may also
arise upon entering into these contracts from the potential inability of the
counterparties to meet the terms of their contracts.
7. Legal Matters
The Investment Manager, certain affiliates of the Investment Manager, certain
officers of such affiliates and certain investment companies advised by the
Investment Manager or its affiliates, including the Fund, are named as
defendants in a number of similar class action complaints which were recently
consolidated. This consolidated action also names as defendants certain
individual Trustees and Directors of the Morgan Stanley funds. The consolidated
amended complaint generally alleges that defendants, including the Fund,
violated their statutory disclosure obligations and fiduciary duties by failing
properly to disclose (i) that the Investment Manager and certain affiliates of
the Investment Manager allegedly offered economic incentives to brokers and
others to recommend the funds advised by the Investment Manager or its
affiliates to investors rather than funds managed by other companies, and (ii)
that the funds advised by the Investment Manager or its affiliates, including
the Fund, allegedly paid excessive commissions to brokers in return for their
efforts to recommend these funds to investors. The complaint seeks, among other
things, unspecified compensatory damages, rescissionary damages, fees and costs.
The defendants have moved to dismiss the action and intend to otherwise
vigorously defend it. While the Fund believes that it has meritorious defenses,
the ultimate outcome of this matter is not presently determinable at this early
stage of the litigation, and no provision has been made in the Fund's financial
statements for the effect, if any, of this matter.
8. Federal Income Tax Status
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
18
Morgan Stanley New York Tax-Free Income Fund
NOTES TO FINANCIAL STATEMENTS - JUNE 30, 2004 (UNAUDITED) continued
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 tax purposes are reported as distributions of paid-in-capital.
As of December 31, 2003, the Fund had temporary book/tax differences primarily
attributable to post-October losses (capital losses incurred after October 31
within the taxable year which are deemed to arise on the first business day of
the Fund's next taxable year), book amortization of discounts on debt securities
and mark-to-market of open futures contracts.
9. Shares of Beneficial Interest
Transactions in shares of beneficial interest were as follows:
<Table>
<Caption>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
JUNE 30, 2004 DECEMBER 31, 2003
------------------------- ------------------------
(unaudited)
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- -----------
CLASS A SHARES
Sold................................................. 9,620 $ 111,641 5,940,729 $70,550,054
Reinvestment of dividends and distributions.......... 4,524 52,549 12,985 152,870
Redeemed............................................. (106,814) (1,226,737) (6,032,186) (71,540,906)
---------- ------------ ---------- -----------
Net decrease - Class A............................... (92,670) (1,062,547) (78,472) (837,982)
---------- ------------ ---------- -----------
CLASS B SHARES
Sold................................................. 133,713 1,551,686 509,201 5,985,290
Reinvestment of dividends and distributions.......... 97,467 1,124,228 255,573 2,997,092
Redeemed............................................. (874,405) (10,087,530) (1,441,706) (16,926,261)
---------- ------------ ---------- -----------
Net decrease - Class B............................... (643,225) (7,411,616) (676,932) (7,943,879)
---------- ------------ ---------- -----------
CLASS C SHARES
Sold................................................. 48,745 573,699 550,830 6,453,907
Reinvestment of dividends and distributions.......... 4,124 47,565 9,168 107,477
Redeemed............................................. (75,338) (869,230) (459,294) (5,389,045)
---------- ------------ ---------- -----------
Net increase (decrease) - Class C.................... (22,469) (247,966) 100,704 1,172,339
---------- ------------ ---------- -----------
CLASS D SHARES
Sold................................................. 53,967 622,300 126,363 1,475,759
Reinvestment of dividends and distributions.......... 12,420 142,700 29,986 350,347
Redeemed............................................. (107,705) (1,239,442) (244,895) (2,852,567)
---------- ------------ ---------- -----------
Net decrease - Class D............................... (41,318) (474,442) (88,546) (1,026,461)
---------- ------------ ---------- -----------
Net decrease in Fund................................. (799,682) $ (9,196,571) (743,246) $(8,635,983)
========== ============ ========== ===========
</Table>
19
Morgan Stanley New York Tax-Free Income Fund
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<Table>
<Caption>
FOR THE SIX FOR THE YEAR ENDED DECEMBER 31,
MONTHS ENDED ------------------------------------------------------
JUNE 30, 2004 2003 2002 2001 2000 1999
------------- ------ ------ ------ ------ ------
(unaudited)
Class A Shares
Selected Per Share Data:
Net asset value, beginning of period.......... $11.79 $11.82 $11.47 $11.56 $10.89 $11.90
------ ------ ------ ------ ------ ------
Income (loss) from investment operations:
Net investment income..................... 0.26 0.51 0.52 0.53 0.53 0.53
Net realized and unrealized gain (loss)... (0.38) 0.06 0.62 (0.06) 0.66 (1.00)
------ ------ ------ ------ ------ ------
Total income (loss) from investment
operations................................... (0.12) 0.57 1.14 0.47 1.19 (0.47)
------ ------ ------ ------ ------ ------
Less dividends and distribution from:
Net investment income..................... (0.26) (0.51) (0.52) (0.53) (0.52) (0.52)
Net realized gain......................... 0.00 (0.09) (0.27) (0.03) -- (0.02)
------ ------ ------ ------ ------ ------
Total dividends and distributions............. (0.26) (0.60) (0.79) (0.56) (0.52) (0.54)
------ ------ ------ ------ ------ ------
Net asset value, end of period................ $11.41 $11.79 $11.82 $11.47 $11.56 $10.89
====== ====== ====== ====== ====== ======
Total Return+................................. (1.07)%(1) 4.90% 10.18% 4.08% 11.29% (4.03)%
Ratios to Average Net Assets(4):
Expenses (before expense offset).............. 0.79 %(2)(3)(5) 0.93%(3) 0.92%(3) 0.94%(3) 0.96%(3) 0.89%
Net investment income......................... 4.44 %(2)(5) 4.29% 4.44% 4.50% 4.78% 4.58%
Supplemental Data:
Net assets, end of period, in thousands....... $3,089 $4,285 $5,226 $3,084 $661 $408
Portfolio turnover rate....................... 5 %(1) 20% 21% 11% 21% 3%
</Table>
- ---------------------
<Table>
+ 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) Does not reflect the effect of expense offset of 0.01%
(4) Reflects overall fund ratios for investment income and
non-class specific expenses.
(5) If the Fund had borne all its expenses that were reimbursed
or waived by the Investment Manager, the annualized expense
and net investment income ratios would have been 0.82% and
4.41%, respectively.
</Table>
20
See Notes to Financial Statements
Morgan Stanley New York Tax-Free Income Fund
FINANCIAL HIGHLIGHTS continued
<Table>
<Caption>
FOR THE SIX FOR THE YEAR ENDED DECEMBER 31,
MONTHS ENDED ----------------------------------------------------
JUNE 30, 2004 2003 2002 2001 2000 1999
------------- -------- -------- -------- -------- --------
(unaudited)
Class B Shares
Selected Per Share Data:
Net asset value, beginning of period........... $11.71 $11.80 $11.48 $11.60 $10.91 $11.92
------ ------ ------ ------ ------ ------
Income (loss) from investment operations:
Net investment income...................... 0.22 0.44 0.46 0.47 0.47 0.46
Net realized and unrealized gain (loss).... (0.38) 0.00 0.59 (0.10) 0.69 (0.99)
------ ------ ------ ------ ------ ------
Total income (loss) from investment
operations.................................... (0.16) 0.44 1.05 0.37 1.16 (0.53)
------ ------ ------ ------ ------ ------
Less dividends and distributions from:
Net investment income...................... (0.22) (0.44) (0.46) (0.46) (0.47) (0.46)
Net realized gain.......................... 0.00 (0.09) (0.27) (0.03) -- (0.02)
------ ------ ------ ------ ------ ------
Total dividends and distributions.............. (0.22) (0.53) (0.73) (0.49) (0.47) (0.48)
------ ------ ------ ------ ------ ------
Net asset value, end of period................. $11.33 $11.71 $11.80 $11.48 $11.60 $10.91
====== ====== ====== ====== ====== ======
Total Return+.................................. (1.41)%(1) 3.81% 9.32% 3.26% 10.90% (4.58)%
Ratios to Average Net Assets(4):
Expenses (before expense offset)............... 1.45 %(2)(3)(5) 1.46%(3) 1.46%(3) 1.46%(3) 1.47%(3) 1.48%
Net investment income.......................... 3.78 %(2)(5) 3.76% 3.90% 3.99% 4.27% 3.99%
Supplemental Data:
Net assets, end of period, in thousands........ $102,264 $113,223 $122,099 $117,519 $121,867 $124,774
Portfolio turnover rate........................ 5 %(1) 20% 21% 11% 21% 3%
</Table>
- ---------------------
<Table>
+ 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) Does not reflect the effect of expense offset of 0.01%
(4) Reflects overall fund ratios for investment income and
non-class specific expenses.
(5) If the Fund had borne all its expenses that were reimbursed
or waived by the Investment Manager, the annualized expense
and net investment income ratios would have been 1.48% and
3.75%, respectively.
</Table>
21
See Notes to Financial Statements
Morgan Stanley New York Tax-Free Income Fund
FINANCIAL HIGHLIGHTS continued
<Table>
<Caption>
FOR THE SIX FOR THE YEAR ENDED DECEMBER 31,
MONTHS ENDED ------------------------------------------------------
JUNE 30, 2004 2003 2002 2001 2000 1999
------------- ------ ------ ------ ------ ------
(unaudited)
Class C Shares
Selected Per Share Data:
Net asset value, beginning of period........... $11.72 $11.79 $11.46 $11.57 $10.89 $11.90
------ ------ ------ ------ ------ ------
Income (loss) from investment operations:
Net investment income...................... 0.22 0.44 0.46 0.47 0.47 0.46
Net realized and unrealized gain (loss).... (0.38) 0.02 0.60 (0.09) 0.68 (0.99)
------ ------ ------ ------ ------ ------
Total income (loss) from investment
operations.................................... (0.16) 0.46 1.06 0.38 1.15 (0.53)
------ ------ ------ ------ ------ ------
Less dividends and distribution from:
Net investment income...................... (0.22) (0.44) (0.46) (0.46) (0.47) (0.46)
Net realized gain.......................... 0.00 (0.09) (0.27) (0.03) -- (0.02)
------ ------ ------ ------ ------ ------
Total dividends and distributions.............. (0.22) (0.53) (0.73) (0.49) (0.47) (0.48)
------ ------ ------ ------ ------ ------
Net asset value, end of period................. $11.34 $11.72 $11.79 $11.46 $11.57 $10.89
====== ====== ====== ====== ====== ======
Total Return+.................................. (1.41)%(1) 3.98% 9.41% 3.33% 10.81% (4.60)%
Ratios to Average Net Assets(4):
Expenses (before expense offset)............... 1.45 %(2)(3)(5) 1.46%(3) 1.46%(3) 1.46%(3) 1.47%(3) 1.48%(4)
Net investment income.......................... 3.78 %(2)(5) 3.76% 3.90% 3.99% 4.27% 3.99%
Supplemental Data:
Net assets, end of period, in thousands........ $4,274 $4,679 $3,521 $3,557 $1,318 $840
Portfolio turnover rate........................ 5 %(1) 20% 21% 11% 21% 3%
</Table>
- ---------------------
<Table>
+ 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) Does not reflect the effect of expense offset of 0.01%
(4) Reflects overall fund ratios for investment income and
non-class specific expenses.
(5) If the Fund had borne all its expenses that were reimbursed
or waived by the Investment Manager, the annualized expense
and net investment income ratios would have been 1.48% and
3.75%, respectively.
</Table>
22
See Notes to Financial Statements
Morgan Stanley New York Tax-Free Income Fund
FINANCIAL HIGHLIGHTS continued
<Table>
<Caption>
FOR THE SIX FOR THE YEAR ENDED DECEMBER 31,
MONTHS ENDED -----------------------------------------------------------
JUNE 30, 2004 2003 2002 2001 2000 1999
------------- ------- ------- ------- ------- ------
(unaudited)
Class D Shares
Selected Per Share Data:
Net asset value, beginning of period...... $11.67 $11.76 $11.46 $11.58 $10.90 $11.91
------ ------ ------ ------ ------ ------
Income (loss) from investment operations:
Net investment income................. 0.26 0.53 0.55 0.56 0.55 0.55
Net realized and unrealized gain
(loss)................................ (0.38) 0.00 0.56 (0.10) 0.68 (1.00)
------ ------ ------ ------ ------ ------
Total income (loss) investment
operations............................... (0.12) 0.53 1.11 0.46 1.23 (0.45)
------ ------ ------ ------ ------ ------
Less dividends and distribution from:
Net investment income................. (0.26) (0.53) (0.54) (0.55) (0.55) (0.54)
Net realized gain..................... 0.00 (0.09) (0.27) (0.03) -- (0.02)
------ ------ ------ ------ ------ ------
Total dividends and distributions......... (0.26) (0.62) (0.81) (0.58) (0.55) (0.56)
------ ------ ------ ------ ------ ------
Net asset value, end of period............ $11.29 $11.67 $11.76 $11.46 $11.58 $10.90
====== ====== ====== ====== ====== ======
Total Return+............................. (1.06)%(1) 4.59% 9.96% 4.04% 11.64% (3.87)%
Ratios to Average Net Assets(4):
Expenses (before expense offset).......... 0.70 %(2)(3)(5) 0.71%(3) 0.71%(3) 0.71%(3) 0.72%(3) 0.73%
Net investment income..................... 4.53 %(2)(5) 4.51% 4.65% 4.74% 5.02% 4.74%
Supplemental Data:
Net assets, end of period, in thousands... $10,566 $11,402 $12,533 $10,285 $10,475 $116
Portfolio turnover rate................... 5 %(1) 20% 21% 11% 21% 3%
</Table>
- ---------------------
<Table>
+ Calculated based on the net asset value as of the last
business day of the period.
(1) Not annualized.
(2) Annualized.
(3) Does not reflect the effect of expense offset of 0.01%
(4) Reflects overall fund ratios for investment income and
non-class specific expenses.
(5) If the Fund had borne all its expenses that were reimbursed
or waived by the Investment Manager, the annualized expense
and net investment income ratios would have been 0.73% and
4.50%, respectively.
</Table>
23
See Notes to Financial Statements
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
Wayne E. Hedien
James F. Higgins
Dr. Manuel H. Johnson
Joseph J. Kearns
Michael E. Nugent
Fergus Reid
OFFICERS
Charles A. Fiumefreddo
Chairman of the Board
Mitchell M. Merin
President
Ronald E. Robison
Executive Vice President and Principal Executive Officer
Barry Fink
Vice President
Joseph J. McAlinden
Vice President
Stefanie V. Chang
Vice President
Francis J. Smith
Treasurer and Chief Financial Officer
Thomas F. Caloia
Vice President
Mary E. Mullin
Secretary
TRANSFER AGENT
Morgan Stanley Trust
Harborside Financial Center, Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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 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 Distributors Inc., member NASD.
(c) 2004 Morgan Stanley
[MORGAN STANLEY LOGO]
MORGAN STANLEY FUNDS
Morgan Stanley
New York Tax-Free
Income Fund
Semiannual Report
June 30, 2004
[MORGAN STANLEY LOGO]
37935RPT-RA04-00483P-Y06/04
Item 2. Code of Ethics.
Not applicable for semiannual reports.
Item 3. Audit Committee Financial Expert.
Not applicable for semiannual reports.
Item 4. Principal Accountant Fees and Services
Not applicable for semiannual reports.
Item 5. Audit Committee of Listed Registrants.
Not applicable for semiannual reports.
Item 6. [Reserved.]
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
Not applicable for semiannual reports.
Item 8. [Reserved.]
Item 9 - Controls and Procedures
(a) The Fund's principal executive officer and principal financial officer have
concluded that the Fund's disclosure controls and procedures are sufficient to
ensure that information required to be disclosed by the Fund in this Form N-CSR
was recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission's rules and forms, based
upon such officers' evaluation of these controls and procedures as of a date
within 90 days of the filing date of the report.
There were no significant changes or corrective actions with regard to
significant deficiencies or material weaknesses in the Fund's internal controls
or in other factors that could significantly affect the Fund's internal controls
subsequent to the date of their evaluation.
(b) There were no changes in the registrant's internal control over financial
reporting that occurred during the registrant's most recent fiscal half-year
(the registrant's second fiscal half-year in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
Item 10 Exhibits
(a) Code of Ethics - Not applicable for semiannual reports.
(b) A separate certification for each principal executive officer and principal
financial officer of the registrant are attached hereto as part of EX-99.CERT.
2
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
Morgan Stanley New York Tax-Free Income Fund
/s/ Ronald E. Robison
Ronald E. Robison
Principal Executive Officer
August 19, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, this report has been signed by the following
persons on behalf of the registrant and in the capacities and on the dates
indicated.
/s/ Ronald E. Robison
Ronald E. Robison
Principal Executive Officer
August 19, 2004
/s/ Francis Smith
Francis Smith
Principal Financial Officer
August 19, 2004
3