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)
522 Fifth Avenue, New York, New York 10036
(Address of principal executive offices) (Zip code)
Ronald E. Robison
522 Fifth Avenue, New York, New York 10036
(Name and address of agent for service)
Registrant's telephone number, including area code: 212-296-6990
Date of fiscal year end: December 31, 2007
Date of reporting period: June 30, 2007
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'S SHARES MAY BE LESS THAN WHAT YOU PAID FOR THEM. ACCORDINGLY, YOU CAN LOSE
MONEY INVESTING IN THIS FUND. PLEASE SEE THE PROSPECTUS FOR MORE COMPLETE
INFORMATION ON INVESTMENT RISKS.
FUND REPORT
For the six months ended June 30, 2007
TOTAL RETURN FOR THE 6 MONTHS ENDED JUNE 30, 2007
<Table>
<Caption>
LIPPER
LEHMAN NEW YORK
BROTHERS MUNICIPAL
NEW YORK DEBT FUNDS
CLASS A CLASS B CLASS C CLASS D EXEMPT INDEX(1) INDEX(2)
0.13% 0.21% -0.05% 0.23% 0.26% -0.03%
</Table>
The performance of the Fund's four share classes varies because each has
different expenses. The Fund's total returns assume the reinvestment of all
distributions but do not reflect the deduction of any applicable sales charges.
Such costs would lower performance. See Performance Summary for standardized
performance and benchmark information.
Because Class B shares incurred lower expenses under the 12b-1 Plan than did
Class A shares for the six months ended June 30, 2007, the total operating
expense ratio for Class B shares was lower and, as a result, the performance of
Class B shares was higher than that of the Class A shares. There can be no
assurance that this will continue to occur in the future as the maximum fees
payable by Class B shares under the 12b-1 Plan are higher than those payable by
Class A shares. Currently, the Distributor has agreed to waive the 12b-1 fee on
Class B shares to the extent it exceeds 0.24% of the average daily net assets of
such shares on an annualized basis. The Distributor may discontinue this waiver
in the future.
MARKET CONDITIONS
Economic growth was initially sluggish but became decidedly more positive as the
period progressed. Weaker consumer spending and rising energy prices weighed on
the economy in the first quarter of 2007. At the same time, troubles in the
sub-prime mortgage market surfaced, intensifying concerns about the already weak
residential housing sector. Against this backdrop, speculation began to emerge
that the Federal Open Market Committee (the "Fed") might reduce its target
federal funds rate. As the months progressed, energy prices continued to rise
and productivity gains slowed, but employment growth remained strong and various
economic indicators began to improve. This led to anticipation of a rebound in
economic growth and renewed concerns about inflation, which effectively
dispelled expectations of a near-term ease in Fed monetary policy and yields
moved higher across the Treasury curve. In the last weeks of June, however,
yields declined when news of the failure of two of Bear Stearns'
mortgage-related hedge funds fueled a flight-to-quality Treasury market rally.
Despite the market's volatility and the changing outlook for the economy and
monetary policy during the period, the target federal funds rate has remained
unchanged at 5.25 percent for the past year.
Municipal bond yields generally followed the same path as Treasury yields,
declining in January and February then rising for most of the remainder of the
period. Yields on long-term issues (as represented by the 30-year AAA rated
municipal bond) moved from 4.10 percent at the beginning of the period to 4.55
percent in mid-June, then declined to 4.45 percent by the end of the period.
Yields on 10-year bonds moved in a similar pattern while yields on short-term
municipals remained relatively stable. As such, the slope of the curve steepened
for the overall period, with a 75 basis point yield advantage, or "pick-up", for
2
30-year maturities relative to one-year maturities at the end of June. Despite
the steepening, however, the curve still ended the period relatively flat in
historic terms as the yield pick-up from one to 30 years has averaged 150 basis
points over the past three years.
Long-term municipal bonds performed relatively in line with Treasuries until
late June, when the flight to quality helped Treasuries outperform. The 30-year
municipal-to-Treasury yield ratio, which measures the relative attractiveness of
these two sectors, held steady at 85 percent through March, then rose slightly
to end the period at 87 percent. A rising ratio indicates that municipals
underperformed Treasuries but became more attractive on a relative price basis.
Issuance of municipal bonds jumped nearly 50 percent in the first calendar
quarter, due primarily to a surge in refundings, but fell off in the second
quarter as rising interest rates discouraged borrowers from issuing new debt at
higher rates. Nonetheless, new issue volume for the first half of 2007 totaled
$226 billion, a 27 percent increase versus the same six-month period in 2006.
The top five issuing states during the reporting period were California, Texas,
Florida, New York, and Pennsylvania. Together, these states accounted for 47
percent of total market volume.
New issue volume for the State of New York totaled $14 billion for the overall
period, roughly the same amount as was issued during the first six months of
2006. Overall, the state's economic forecast remains positive. Non-agricultural
employment is expected to continue to rise, as are wages and personal income
growth. Although New York's economy continues to improve, gains have not been
consistent across the state, as economic performance in various upstate urban
centers remains weak.
As a final note, the U.S. Supreme Court agreed in May to review Davis v. The
State of Kentucky Department of Revenue, a case that questions whether
differential tax treatment of in-state and out-of-state municipal bond interest
is constitutional. The executive branch of the Commonwealth of Kentucky is
seeking to overturn a state court ruling that it is unconstitutional to treat
interest on bonds issued by government entities in their state more favorably
for tax purposes than interest on bonds issued in other states. Given that the
majority of states currently exempt only interest on their municipal bonds from
state income taxes, the market will be closely watching this case.
PERFORMANCE ANALYSIS
All share classes of Morgan Stanley New York Tax-Free Income Fund underperformed
the Lehman Brothers New York Exempt Index, and Class A, B and D shares
outperformed while Class C shares underperformed the Lipper New York Municipal
Debt Funds Index for the six months ended June 30, 2007, assuming no deduction
of applicable sales charges.
3
During the reporting period, the Fund's interest-rate positioning continued to
reflect our anticipation of higher rates. As a result, at the end of June, the
Fund's option-adjusted duration* stood at 6.9 years. This defensive posture
proved additive to performance as interest rates rose for the overall period.
The Fund maintained its high quality bias with nearly 80 percent of the
portfolio rated A or better. In particular, the Fund was overweighted in
higher-rated bonds in sectors such as public power, higher education, water and
sewer, and transportation. This high credit-quality profile impeded performance
since lower-rated bonds outperformed during the period. That said, we have been
adding to positions in BBB rated securities, which helped boost returns.
Reflecting a commitment to diversification, the Fund's net assets of $86.8
million were invested among 14 long-term sectors and 39 credits. As of the close
of the period, the Fund's largest allocations were to the IDR/PCR, dedicated tax
and hospital sectors.
- ----------------------------------------------------
There is no guarantee that any sectors mentioned will continue to perform well
or that securities in such sectors will be held by the Fund in the future.
* 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.
<Table>
<Caption>
TOP FIVE SECTORS
IDR/PCR** 16.2%
Dedicated Tax 14.6
Hospital 11.9
Housing 9.8
Appropriation 8.0
</Table>
<Table>
<Caption>
LONG-TERM CREDIT ANALYSIS
Aaa/AAA 49.8%
Aa/AA 13.6
A/A 16.5
Baa/BBB 15.9
NR 4.2
</Table>
** Industrial Development/Pollution Control Revenue
Data as of June 30, 2007. 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. These data
are 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.
4
INVESTMENT STRATEGY
The Fund will normally invest at least 80 percent 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 Adviser," 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.
FOR MORE INFORMATION
ABOUT PORTFOLIO HOLDINGS
Each Morgan Stanley fund provides a complete schedule of portfolio holdings in
its semiannual and annual reports within 60 days of the end of the fund's second
and fourth fiscal quarters. The semiannual reports and the annual reports are
filed electronically with the Securities and Exchange Commission (SEC) on Form
N-CSRS and Form N-CSR, respectively. Morgan Stanley also delivers the semiannual
and annual reports to fund shareholders and makes these reports available on its
public web site, www.morganstanley.com. Each Morgan Stanley fund also files a
complete schedule of portfolio holdings with the SEC for the fund's first and
third fiscal quarters on Form N-Q. Morgan Stanley does not deliver the reports
for the first and third fiscal quarters to shareholders, nor are the reports
posted to the Morgan Stanley public web site. You may, however, obtain the Form
N-Q filings (as well as the Form N-CSR and N-CSRS filings) by accessing the
SEC's web site, http://www.sec.gov. You may also review and copy them at the
SEC's public reference room in Washington, DC. Information on the operation of
the SEC's public reference room may be obtained by calling the SEC at (800)
SEC-0330. You can also request copies of these materials, upon payment of a
duplicating fee, by electronic request at the SEC's e-mail address
(publicinfo@sec.gov) or by writing the public reference section of the SEC,
Washington, DC 20549-0102.
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.
5
DISTRIBUTION BY MATURITY
(% of Long-Term Portfolio) As of June 30, 2007
WEIGHTED AVERAGE MATURITY: 19 YEARS(A)
<Table>
0-5 3%
6-10 18
11-15 12
16-20 35
21-25 14
26-30 8
31+ Years 10
</Table>
(a) Where applicable maturities reflect mandatory tenders, puts and call dates.
Portfolio structure is subject to change.
6
CALL AND COST (BOOK) YIELD STRUCTURE
(Based on Long-Term Portfolio) As of June 30, 2007
YEARS BONDS CALLABLE -- WEIGHTED AVERAGE CALL PROTECTION: 6 YEARS
<Table>
2007(a) 11%
2008 7
2009 3
2010 11
2011 5
2012 10
2013 13
2014 5
2015 13
2016 8
2017+ Call Date 14
</Table>
COST (BOOK) YIELD()b) -- WEIGHTED AVERAGE BOOK YIELD: 5.4%
<Table>
2007(a) 8.7%
2008 6.1
2009 5.8
2010 5.5
2011 4.9
2012 4.7
2013 4.9
2014 4.8
2015 5.4
2016 4.9
2017+ Call Date 4.4
</Table>
(a) May include issues initially 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 8.7% on 11% of the
long-term portfolio that is callable in 2007.
Portfolio structure is subject to change.
7
PERFORMANCE SUMMARY
AVERAGE ANNUAL TOTAL RETURNS -- PERIOD ENDED JUNE 30, 2007
<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 4.38%(3) 4.55%(3) 3.95%(3) 4.64%(3)
(0.05)(4) (0.41)(4) 2.96(4) --
5 YEARS 4.36(3) 3.94(3) 3.73(3) 4.42(3)
3.46(4) 3.62(4) 3.73(4) --
10 YEARS -- 4.37(3) -- --
-- 4.37(4) -- --
SINCE INCEPTION 4.64(3) 6.27(3) 4.02(3) 4.75(3)
4.19(4) 6.27(4) 4.02(4) --
</Table>
Performance data quoted represents past performance, which is no guarantee of
future results and current performance may be lower or higher than the figures
shown. For most recent month-end performance figures, please visit
www.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. Effective April 2005, Class B shares
will generally convert to Class A shares approximately eight years after the
end of the calendar month in which the shares were purchased. Performance
for periods greater than eight years reflects this conversion (beginning
April 2005).
+ The maximum contingent deferred sales charge for Class C is 1.0% for shares
redeemed within one year of purchase.
++ Class D has no sales charge.
(1) The Lehman Brothers New York Exempt Index tracks the performance of New
York issued 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. The Index is unmanaged and its returns do
not include any sales charges or fees. Such costs would lower performance.
It is not possible to invest directly in an index.
(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. The Fund is in the Lipper New York
Municipal Debt Funds Index as of the date of this report.
(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.
8
EXPENSE EXAMPLE
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, including sales charges (loads) on purchase payments and redemption fees;
and (2) ongoing costs, including advisory fees; distribution and service (12b-1)
fees; and other Fund expenses. This example is intended to help you understand
your ongoing costs (in dollars) of investing in the Fund and to compare these
costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period 01/01/07 - 06/30/07.
ACTUAL EXPENSES
The first line of the table below provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, to estimate the expenses that you paid over the
period. Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000 = 8.6), then multiply the result by the number
in the first line under the heading entitled "Expenses Paid During Period" to
estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line of the table below provides information about hypothetical
expenses based on the Fund's actual expense ratio and an assumed rate of return
of 5% per year before expenses, which is not the Fund's actual return. The
hypothetical account values and expenses may not be used to estimate the actual
ending account balance or expenses you paid for the period. You may use this
information to compare the ongoing cost of investing in the Fund and other
funds. To do so, compare this 5% hypothetical example with the 5% hypothetical
examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads) and redemption fees. Therefore, the second line of the table is
useful in comparing ongoing costs, and will not help you determine the relative
total cost of owning different funds. In addition, if these transactional costs
were included, your costs would have been higher.
<Table>
<Caption>
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD *
------------- ------------- ---------------
01/01/07 -
01/01/07 06/30/07 06/30/07
------------- ------------- ---------------
CLASS A
Actual (0.13% return)....................................... $1,000.00 $1,001.30 $5.06
Hypothetical (5% annual return before expenses)............. $1,000.00 $1,019.74 $5.11
CLASS B
Actual (0.21% return)....................................... $1,000.00 $1,002.10 $4.12
Hypothetical (5% annual return before expenses)............. $1,000.00 $1,020.68 $4.16
CLASS C
Actual (-0.05% return)...................................... $1,000.00 $ 999.50 $7.59
Hypothetical (5% annual return before expenses)............. $1,000.00 $1,017.21 $7.65
CLASS D
Actual (0.23% return)....................................... $1,000.00 $1,002.30 $3.87
Hypothetical (5% annual return before expenses)............. $1,000.00 $1,020.39 $3.91
</Table>
- ------------------
* Expenses are equal to the Fund's annualized expense ratios of 1.02%, 0.83%,
1.53% and 0.78% for Class A, Class B, Class C and Class D shares,
respectively, multiplied by the average account value over the period,
multiplied by 181/365 (to reflect the one-half year period). If the Fund had
borne all of its expenses, the annualized expense ratios would have been
1.18%, 0.99%, 1.69% and 0.94% for Class A, Class B, Class C and Class D
shares, respectively.
Because Class B shares incurred lower expenses under the 12b-1 Plan than did
Class A shares for the six months ended June 30, 2007, the total operating
expense ratio for Class B shares was lower and, as a result the performance
of Class B shares was higher than that of the Class A shares. There can be no
assurance that this will continue to occur in the future as the maximum fees
payable by Class B shares under the 12b-1 Plan are higher than those payable
by Class A shares. Currently, the Distributor has agreed to waive the 12b-1
fee on Class B shares to the extent it exceeds 0.24% of the average daily net
assets of such shares on an annualized basis. The Distributor may discontinue
this waiver in the future.
9
INVESTMENT ADVISORY AGREEMENT APPROVAL
NATURE, EXTENT AND QUALITY OF SERVICES
The Board reviewed and considered the nature and extent of the investment
advisory services provided by the Investment Adviser under the Advisory
Agreement, including portfolio management, investment research and fixed income
securities trading. The Board also reviewed and considered the nature and extent
of the non-advisory, administrative services provided by the Fund's
Administrator under the Administration Agreement, including accounting,
clerical, bookkeeping, compliance, business management and planning, and the
provision of supplies, office space and utilities at the Investment Adviser's
expense. (The Investment Adviser and the Administrator together are referred to
as the "Adviser" and the Advisory and Administration Agreements together are
referred to as the "Management Agreement.") The Board also compared the nature
of the services provided by the Adviser with similar services provided by
non-affiliated advisers as reported to the Board by Lipper Inc. ("Lipper").
The Board reviewed and considered the qualifications of the portfolio managers,
the senior administrative managers and other key personnel of the Adviser who
provide the advisory and administrative services to the Fund. The Board
determined that the Adviser's portfolio managers and key personnel are well
qualified by education and/or training and experience to perform the services in
an efficient and professional manner. The Board concluded that the nature and
extent of the advisory and administrative services provided were necessary and
appropriate for the conduct of the business and investment activities of the
Fund. The Board also concluded that the overall quality of the advisory and
administrative services was satisfactory.
PERFORMANCE RELATIVE TO COMPARABLE FUNDS MANAGED BY OTHER ADVISERS
On a regular basis, the Board reviews the performance of all funds in the Morgan
Stanley Fund Complex, including the Fund, compared to their peers, paying
specific attention to the underperforming funds. In addition, the Board
specifically reviewed the Fund's performance for the one-, three- and five-year
periods ended November 30, 2006, as shown in a report provided by Lipper (the
"Lipper Report"), compared to the performance of comparable funds selected by
Lipper (the "performance peer group"). The Board also discussed with the Adviser
the performance goals and the actual results achieved in managing the Fund. The
Board concluded that the Fund's performance was competitive with that of its
performance peer group.
FEES RELATIVE TO OTHER PROPRIETARY FUNDS MANAGED BY THE ADVISER WITH COMPARABLE
INVESTMENT STRATEGIES
The Board reviewed the advisory and administrative fee (together, the
"management fee") rate paid by the Fund under the Management Agreement. The
Board noted that the management fee rate was comparable to
10
the management fee rates charged by the Adviser to other proprietary funds it
manages with investment strategies comparable to those of the Fund taking into
account the scope of the services provided.
FEES AND EXPENSES RELATIVE TO COMPARABLE FUNDS MANAGED BY OTHER ADVISERS
The Board reviewed the management fee rate and total expense ratio of the Fund
as compared to the average management fee rate and average total expense ratio
for funds, selected by Lipper (the "expense peer group"), managed by other
advisers with investment strategies comparable to those of the Fund, as shown in
the Lipper Report. The Board concluded that the Fund's management fee rate was
acceptable as the total expense ratio was competitive with its expense peer
group.
BREAKPOINTS AND ECONOMIES OF SCALE
The Board reviewed the structure of the Fund's management fee schedule under the
Management Agreement and noted that it includes a breakpoint. The Board also
reviewed the level of the Fund's management fee and noted that the fee, as a
percentage of the Fund's net assets, would decrease as net assets increase
because the management fee includes a breakpoint. The Board concluded that the
Fund's management fee would reflect economies of scale as assets increase.
PROFITABILITY OF THE ADVISER AND AFFILIATES
The Board considered information concerning the costs incurred and profits
realized by the Adviser and affiliates during the last year from their
relationship with the Fund and during the last two years from their relationship
with the Morgan Stanley Fund Complex and reviewed with the Adviser the cost
allocation methodology used to determine the profitability of the Adviser and
affiliates. Based on its review of the information it received, the Board
concluded that the profits earned by the Adviser and affiliates were not
excessive in light of the advisory, administrative and other services provided
to the Fund.
FALL-OUT BENEFITS
The Board considered so-called "fall-out benefits" derived by the Adviser and
affiliates from their relationship with the Fund and the Morgan Stanley Fund
Complex, such as sales charges on sales of Class A shares and "float" benefits
derived from handling of checks for purchases and sales of Fund shares, through
a broker-dealer affiliate of the Adviser. The Board also considered that a
broker-dealer affiliate of the Adviser receives from the Fund 12b-1 fees for
distribution and shareholder services. The Board concluded that the float
benefits were relatively small and the sales charges and 12b-1 fees were
competitive with those of other broker-dealers.
11
SOFT DOLLAR BENEFITS
The Board considered whether the Adviser realizes any benefits from commissions
paid to brokers who execute securities transactions for the Fund ("soft
dollars"). The Board noted that the Fund invests only in fixed income
securities, which do not generate soft dollars.
ADVISER FINANCIALLY SOUND AND FINANCIALLY CAPABLE OF MEETING THE FUND'S NEEDS
The Board considered whether the Adviser is financially sound and has the
resources necessary to perform its obligations under the Management Agreement.
The Board concluded that the Adviser has the financial resources necessary to
fulfill its obligations under the Management Agreement.
HISTORICAL RELATIONSHIP BETWEEN THE FUND AND THE ADVISER
The Board also reviewed and considered the historical relationship between the
Fund and the Adviser, including the organizational structure of the Adviser, the
policies and procedures formulated and adopted by the Adviser for managing the
Fund's operations and the Board's confidence in the competence and integrity of
the senior managers and key personnel of the Adviser. The Board concluded that
it is beneficial for the Fund to continue its relationship with the Adviser.
OTHER FACTORS AND CURRENT TRENDS
The Board considered the controls and procedures adopted and implemented by the
Adviser and monitored by the Fund's Chief Compliance Officer and concluded that
the conduct of business by the Adviser indicates a good faith effort on its part
to adhere to high ethical standards in the conduct of the Fund's business.
GENERAL CONCLUSION
On April 25, 2007, after considering and weighing all of the above factors, the
Board concluded that it would be in the best interest of the Fund and its
shareholders to approve renewal of the Management Agreement for another year
until April 30, 2008. On June 20, 2007, the Board again considered and weighed
all of the above factors and concluded that it would be in the best interest of
the Fund and its shareholders to approve renewal of the Management Agreement to
continue until June 30, 2008.
12
Morgan Stanley New York Tax-Free Income Fund
PORTFOLIO OF INVESTMENTS - JUNE 30, 2007 (UNAUDITED)
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------
New York Tax-Exempt Municipal Bonds (99.4%)
General Obligation (1.2%)
$ 1,000 New York City, 2005 Ser G................................. 5.00 % 12/01/26 $ 1,030,900
------------
- --------
Appropriation (8.0%)
4,000 Hudson Yards Infrastructure Corporation, 2007 Ser A
(MBIA)+................................................. 4.50 02/15/47 3,790,000
1,000 Montgomery County Industrial Development Agency,
Hamilton Fulton Montgomery BOCES Ser 2004 A (XLCA)...... 5.00 07/01/34 1,026,130
New York State Dormitory Authority,
1,000 School District Ser 2002 E (MBIA)....................... 5.50 10/01/17 1,066,590
1,000 School District Ser 2002 C (MBIA)....................... 5.25 04/01/21 1,054,050
------------
- --------
6,936,770
7,000
------------
- --------
Dedicated Tax (14.6%)
3,000 Metropolitan Transportation Authority, Dedicated Tax
Refg Ser 2002 A (FSA)................................... 5.25 11/15/24 3,164,850
New York City Industrial Development Agency,
1,000 Queens Baseball Stadium Ser 2006 (Ambac)................ 5.00 01/01/46 1,030,130
1,000 Yankee Stadium Ser 2006 (FGIC).......................... 5.00 03/01/46 1,029,220
2,000 New York City Transitional Finance Authority,
2003 Ser D (MBIA)....................................... 5.25 02/01/20 2,109,160
2,000 Refg 2003 Ser A......................................... 5.50# 11/01/26 2,114,300
2,000 New York Local Government Assistance Corporation, Ser 1993
C....................................................... 5.50 04/01/17 2,195,140
1,000 Sales Tax Asset Receivable Corporation, 2005 Ser A
(Ambac)................................................. 5.00 10/15/29 1,037,340
------------
- --------
12,680,140
12,000
------------
- --------
Education (6.7%)
500 Hempstead Industrial Development Agency, Hofstra
University
Ser 1996 (MBIA)......................................... 5.80 07/01/15 509,920
New York State Dormitory Authority,
2,000 City University Ser 1993 A.............................. 5.75 07/01/09 2,051,740
1,000 New York University Ser 1998 A (MBIA)................... 5.75 07/01/15 1,114,890
2,000 State University 1993 Ser A............................. 5.25 05/15/15 2,113,960
------------
- --------
5,790,510
5,500
------------
- --------
Hospital (11.9%)
2,000 New York City Heath & Hospital Corporation, Health 2003
Ser A (Ambac)........................................... 5.25 02/15/22 2,099,080
New York State Dormitory Authority,
1,000 Catholic Health Long Island -- St Francis Hospital Ser
2004.................................................... 5.00 07/01/27 1,005,570
2,000 Memorial Sloan-Kettering Cancer Center 2003 Ser I
(MBIA).................................................. 5.00 07/01/23 2,066,780
1,000 Montefiore Hospital -- FHA Insured Mtge Ser 2004
(FGIC).................................................. 5.00 08/01/29 1,031,480
</Table>
See Notes to Financial Statements
13
Morgan Stanley New York Tax-Free Income Fund
PORTFOLIO OF INVESTMENTS - JUNE 30, 2007 (UNAUDITED) continued
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------
$ 2,000 North Shore Long Island Jewish Group Ser 2007 A......... 5.00 % 05/01/32 $ 2,042,760
2,000 Winthrop South Nassau University Health Ser 2003 B...... 5.50 07/01/23 2,071,760
------------
- --------
10,317,430
10,000
------------
- --------
Housing (9.8%)
New York City Housing Development Corporation, New York,
1,660 East Midtown -- FHA Ins Sec 223......................... 6.50 11/15/18 1,662,032
1,713 Ruppert -- FHA Ins Sec 223.............................. 6.50 11/15/18 1,802,182
4,000 New York State Housing Finance Agency, 1996 Ser A Refg
(FSA)................................................... 6.10 11/01/15 4,047,160
1,000 New York State Mortgage Agency Homeowner Ser 143.......... 4.90 10/01/37 983,650
------------
- --------
8,495,024
8,373
------------
- --------
Industrial Development/Pollution Control (16.2%)
New York City Industrial Development Agency,
1,000 Airis JFK I LLC Ser 2001A (AMT)......................... 5.50 07/01/28 1,017,800
2,000 Brooklyn Navy Yard Cogeneration Partners LP Ser 1997
(AMT)................................................... 5.75 10/01/36 2,019,560
1,500 IAC/Interactive Corp Ser 2005........................... 5.00 09/01/35 1,531,785
1,035 Royal Charter Properties -- The New York & Presbyterian
Hospital Parking Ser 2001 (FSA)....................... 5.25 12/15/32 1,091,728
2,000 Terminal One Group Association Ser 2005 (AMT)........... 5.50 01/01/24 2,124,080
6,000 New York State Energy & Research Development Authority,
Brooklyn Union Gas Co 1991 Ser D (AMT).................. 9.26@ 07/01/26 6,332,880
------------
- --------
14,117,833
13,535
------------
- --------
Life Care (1.1%)
1,000 Suffolk County Industrial Development Agency, Jefferson's
Ferry
- -------- Ser 2006.................................................. 5.00 11/01/28 1,001,780
------------
Public Power (5.0%)
Long Island Power Authority,
2,000 Ser 2000 A (FSA)........................................ 0.00 06/01/18 1,249,440
1,000 Ser 2006 B.............................................. 5.00 12/01/35 1,028,600
2,000 New York State Power Authority, Ser 2000 A................ 5.25 11/15/40 2,068,580
------------
- --------
4,346,620
5,000
------------
- --------
Tobacco Settlement (5.1%)
1,000 Nassau County Tobacco Settlement Corporation, Ser 2006.... 0.00# 06/01/26 912,460
1,000 New York Counties Tobacco Trust IV, Ser 2005 A............ 5.00 06/01/45** 1,003,010
1,000 TSASC Inc, Tobacco Settlement Ser 2006-1.................. 5.125 06/01/42 1,012,820
1,500 Westchester Tobacco Asset Securitization Corporation, Ser
2005.................................................... 5.125 06/01/45 1,517,460
------------
- --------
4,445,750
4,500
------------
- --------
</Table>
See Notes to Financial Statements
14
Morgan Stanley New York Tax-Free Income Fund
PORTFOLIO OF INVESTMENTS - JUNE 30, 2007 (UNAUDITED) continued
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------
Transportation (3.7%)
$ 1,000 Triborough Bridge & Tunnel Authority, Refg Ser 2002 E
(MBIA).................................................. 5.00 % 11/15/32 $ 1,027,110
2,000 Puerto Rico Highway & Transportation Authority, Refg Ser
X....................................................... 5.50 07/01/15 2,143,060
------------
- --------
3,170,170
3,000
------------
- --------
Water & Sewer (5.9%)
3,000 New York City Municipal Water Finance Authority, 2001 Ser
B....................................................... 5.125 06/15/31 3,085,920
2,000 New York State Environment Facilities Corporation, Clean
Water Ser 2003 C........................................ 5.00 07/15/23 2,075,700
------------
- --------
5,161,620
5,000
------------
- --------
Other Revenue (2.4%)
2,000 Battery Park City Authority, Ser 2003 A................... 5.00 11/01/24 2,072,680
------------
- --------
Refunded (7.8%)
2,205 New York State Dormitory Authority, Suffolk County
Judicial
Ser 1986 (ETM).......................................... 7.375 07/01/16 2,549,994
4,000 Puerto Rico Infrastructure Financing Authority, 2000 Ser A
(ETM)................................................... 5.375 10/01/24 4,204,360
------------
- --------
6,754,354
6,205
------------
- --------
84,113 Total New York Tax-Exempt Municipal Bonds (Cost $83,031,671)................. 86,321,581
------------
- --------
Short-Term New York Tax-Exempt Municipal Obligations (1.0%)
850 New York City Municipal Water Finance Authority, 2000 Ser
C
- -------- (Demand 07/02/07) (Cost $850,00).......................... 3.81* 06/15/33 850,000
------------
84,963 Total Investments (Cost $83,881,671)......................................... 87,171,581
------------
- --------
Floating Rate Note Obligations Related to Securities Held (-3.5%)
(3,000) Notes with interest rate of 3.73% at June 30,2007 and
contractual
- -------- maturities of collateral at 02/15/47 (See Note 1D)++
(Cost $(3,000,000))........................................................ (3,000,000)
------------
</Table>
<Table>
$ 81,963 Total Net Investments (Cost $80,881,671) (a)....................... 96.9% 84,171,581
========
Other Assets in Excess of Liabilities.............................. 3.1 2,652,040
----- ------------
Net Assets......................................................... 100.0% $ 86,823,621
===== ============
</Table>
See Notes to Financial Statements
15
Morgan Stanley New York Tax-Free Income Fund
PORTFOLIO OF INVESTMENTS - JUNE 30, 2007 (UNAUDITED) continued
- ---------------------
<Table>
AMT Alternative Minimum Tax.
ETM Escrowed to maturity.
FHA Federal Housing Administration.
* Current coupon of variable rate demand obligation.
** A portion of this security has been physically segregated in
connection with derivative transactions.
# Security is a "step up" bond where the coupon increases on a
predetermined future date.
@ Current coupon rate for inverse floating rate municipal
obligation (See Note 7). This rate resets periodically as
the auction rate on the related security changes. Positions
in inverse floating rate municipal obligations have total
value of $6,332,880 which represents 7.3% of net assets.
+ Underlying security related to inverse floaters entered into
by the Fund (See Note 1D).
++ Floating rate obligations related to securities held. The
interest rate shown reflects the rate in effect June
30.2007.
(a) The aggregate cost for federal income tax purposes is
$80,801,018. The aggregate gross unrealized appreciation is
$3,690,053 and the aggregate gross unrealized depreciation
is $319,490, resulting in net unrealized appreciation of
$3,370,563.
Bond Insurance:
- ---------------
Ambac Ambac Assurance Corporation.
FGIC Financial Guaranty Insurance Company.
FSA Financial Security Assurance Inc.
MBIA Municipal Bond Investors Assurance Corporation.
XLCA XL Capital Corporation.
</Table>
See Notes to Financial Statements
16
Morgan Stanley New York Tax-Free Income Fund
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
June 30, 2007 (unaudited)
<Table>
Assets:
Investments in securities, at value (cost $83,881,671)...... $87,171,581
Cash........................................................ 86,607
Receivable for:
Investments sold........................................ 1,682,439
Interest................................................ 1,084,022
Shares of beneficial interest sold...................... 96
Receivable from Distributor................................. 12,482
Prepaid expenses and other assets........................... 32,076
------------
Total Assets............................................ 90,069,303
------------
Liabilities:
Floating rate note obligations.............................. 3,000,000
Payable for:
Shares of beneficial interest redeemed.................. 47,629
Distribution fee........................................ 26,100
Investment advisory fee................................. 22,388
Dividends and distributions to shareholders............. 22,314
Administration fee...................................... 5,722
Transfer agent fee...................................... 1,692
Accrued expenses and other payables......................... 119,837
------------
Total Liabilities....................................... 3,245,682
------------
Net Assets.............................................. $86,823,621
============
Composition of Net Assets:
Paid-in-capital............................................. $83,227,534
Net unrealized appreciation................................. 3,289,910
Accumulated undistributed net investment income............. 119,735
Accumulated undistributed net realized gain................. 186,442
------------
Net Assets.............................................. $86,823,621
============
Class A Shares:
Net Assets.................................................. $51,514,226
Shares Outstanding (unlimited authorized, $.01 par value)... 4,664,379
Net Asset Value Per Share............................... $11.04
============
Maximum Offering Price Per Share,
(net asset value plus 4.44% of net asset value)......... $11.53
============
Class B Shares:
Net Assets.................................................. $22,244,823
Shares Outstanding (unlimited authorized, $.01 par value)... 2,027,807
Net Asset Value Per Share............................... $10.97
============
Class C Shares:
Net Assets.................................................. $2,793,616
Shares Outstanding (unlimited authorized, $.01 par value)... 254,475
Net Asset Value Per Share............................... $10.98
============
Class D Shares:
Net Assets.................................................. $10,270,956
Shares Outstanding (unlimited authorized, $.01 par value)... 940,182
Net Asset Value Per Share............................... $10.92
============
</Table>
See Notes to Financial Statements
17
Morgan Stanley New York Tax-Free Income Fund
FINANCIAL STATEMENTS continued
Statement of Operations
For the six months ended June 30, 2007 (unaudited)
<Table>
Net Investment Income:
Interest Income............................................. $ 2,431,101
-----------
Expenses
Investment advisory fee..................................... 210,267
Distribution fee (Class A shares)........................... 64,343
Distribution fee (Class B shares)........................... 5,602
Distribution fee (Class C shares)........................... 10,317
Interest and residual trust expenses........................ 57,342
Shareholder reports and notices............................. 39,588
Professional fees........................................... 36,286
Administration fee.......................................... 35,790
Transfer agent fees and expenses............................ 21,188
Registration fees........................................... 5,170
Trustees' fees and expenses................................. 4,124
Custodian fees.............................................. 3,162
Other....................................................... 9,960
-----------
Total Expenses.......................................... 503,139
Less: amounts waived/reimbursed............................. (71,741)
Less: expense offset........................................ (2,999)
-----------
Net Expenses............................................ 428,399
-----------
Net Investment Income................................... 2,002,702
-----------
Net Realized and Unrealized Gain (Loss):
Net Realized Gain on:
Investments................................................. 176,335
Futures contracts........................................... 43,280
-----------
Net Realized Gain....................................... 219,615
-----------
Net Change in Unrealized Appreciation/Depreciation on:
Investments................................................. (2,007,975)
Futures contracts........................................... (33,134)
-----------
Net Change in Unrealized Appreciation/Depreciation...... (2,041,109)
-----------
Net Loss................................................ (1,821,494)
-----------
Net Increase................................................ $181,208
===========
</Table>
See Notes to Financial Statements
18
Morgan Stanley New York Tax-Free Income Fund
FINANCIAL STATEMENTS continued
Statements of Changes in Net Assets
<Table>
<Caption>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
JUNE 30, 2007 DECEMBER 31, 2006
------------- -----------------
(unaudited)
Increase (Decrease) in Net Assets:
Operations:
Net investment income....................................... $ 2,002,702 $ 4,295,332
Net realized gain........................................... 219,615 557,640
Net change in unrealized appreciation/depreciation.......... (2,041,109) (400,162)
----------- -----------
Net Increase............................................ 181,208 4,452,810
----------- -----------
Dividends and Distributions to Shareholders from:
Net investment income
Class A shares.......................................... (1,197,566) (2,614,208)
Class B shares.......................................... (508,358) (1,093,274)
Class C shares.......................................... (53,578) (116,057)
Class D shares.......................................... (244,723) (447,215)
Net realized gain
Class A shares.......................................... (58,354) (286,760)
Class B shares.......................................... (25,332) (113,299)
Class C shares.......................................... (3,179) (14,164)
Class D shares.......................................... (11,797) (54,339)
----------- -----------
Total Dividends and Distributions....................... (2,102,887) (4,739,316)
----------- -----------
Net decrease from transactions in shares of beneficial
interest.................................................. (5,315,405) (9,676,025)
----------- -----------
Net Decrease............................................ (7,237,084) (9,962,531)
Net Assets:
Beginning of period......................................... 94,060,705 104,023,236
----------- -----------
End of Period
(Including accumulated undistributed net investment income
of
$119,735 and $121,258, respectively)........................ $86,823,621 $94,060,705
=========== ===========
</Table>
See Notes to Financial Statements
19
Morgan Stanley New York Tax-Free Income Fund
NOTES TO FINANCIAL STATEMENTS - JUNE 30, 2007 (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 eighteen
months, 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 Fund will assess a 2% redemption fee, on Class A shares, Class B shares,
Class C shares, and Class D shares, which is paid directly to the Fund, for
shares redeemed within seven days of purchase, subject to certain exceptions.
The redemption fee is designed to protect the Fund and its remaining
shareholders from the effects of short-term trading.
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
20
Morgan Stanley New York Tax-Free Income Fund
NOTES TO FINANCIAL STATEMENTS - JUNE 30, 2007 (UNAUDITED)
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.
Discounts are accreted and premiums are amortized over the life of the
respective securities and are included in interest income. 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. Floating Rate Note Obligations Related to Securities Held -- The Trust enters
into transactions in which it transfers to Dealer Trusts ("Dealer Trusts"),
fixed rate bonds in exchange for cash and residual interests in the Dealer
Trusts' assets and cash flows, which are in the form of inverse floating rate
investments. The Dealer Trusts fund the purchases of the fixed rate bonds by
issuing floating rate notes to third parties and allowing the Trust to retain
residual interest in the bonds. The Trust enters into shortfall agreements with
the Dealer Trusts which commit the Trust to pay the Dealer Trusts, in certain
circumstances, the difference between the liquidation value of the fixed rate
bonds held by the Dealer Trusts and the liquidation value of the floating rate
notes held by third parties, as well as any shortfalls in interest cash flows.
The residual interests held by the Trust (inverse floating rate investments)
include the right of the Trust (1) to cause the holders of the floating rate
notes to tender their notes at par at the next interest rate reset date, and (2)
to transfer the municipal bond from the Dealer Trusts to the Trust, thereby
collapsing the Dealer Trusts. The Trust accounts for the transfer of bonds to
the Dealer Trusts as secured borrowings, with the securities transferred
remaining in the Trust's investment assets, and the related floating rate notes
reflected as Trust liabilities under the caption "floating rate note
obligations" on the Statement of Assets and Liabilities. The Trust records the
interest income from the fixed rate bonds under the caption "Interest Income"
and records the expenses related to floating rate note obligations and any
administrative expenses of the Dealer Trusts under the caption "Interest and
residual trust expenses" in the Trust's Statement of Operations. The notes
issued by the Dealer Trusts have interest rates that reset weekly and the
floating rate note holders have the option to tender their notes to the Dealer
Trusts for redemption at par at each reset date. At June 30, 2007, Trust
investments with a value of $3,790,000 are held by the Dealer Trusts and serve
as collateral for the $3,000,000 in floating rate note obligations outstanding
at that date. Contractual maturities of the floating rate note
21
Morgan Stanley New York Tax-Free Income Fund
NOTES TO FINANCIAL STATEMENTS - JUNE 30, 2007 (UNAUDITED)
obligations and interest rates in effect at June 30, 2007 are presented in the
Portfolio of Investments.
E. 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.
F. Federal Income Tax Policy -- It is the Fund's policy to comply with the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to distribute substantially all of its
taxable and nontaxable income to its shareholders. Therefore, no provision for
federal income taxes is required. The Fund files tax returns with the U.S.
Internal Revenue Service and various states. Generally, the tax authorities can
examine all tax returns filed for the last three years. If applicable, the Fund
recognizes interest accrued related to unrecognized tax benefits in interest
expense and penalties in other expenses in the Statement of Operations. The Fund
adopted the provisions of the Financial Accounting Standards Board's (FASB)
Interpretation number 48 Accounting for Uncertainty in Income Taxes, on June 30,
2007. As of June 30, 2007, this did not result in an impact to the Fund's
financial statements.
G. Dividends and Distributions to Shareholders -- Dividends and distributions to
shareholders are recorded on the ex-dividend date.
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 Advisory/Administration Agreements
Pursuant to an Investment Advisory Agreement with Morgan Stanley Investment
Advisers, Inc. (the "Investment Adviser"), the Fund pays the Investment Adviser
an advisory 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: 0.47% to the portion of the daily net assets not exceeding $500
million and 0.445% to the portion of the daily net assets exceeding $500
million.
22
Morgan Stanley New York Tax-Free Income Fund
NOTES TO FINANCIAL STATEMENTS - JUNE 30, 2007 (UNAUDITED)
Pursuant to an Administration Agreement with Morgan Stanley Services Company
Inc. (the Administrator"), an affiliate of the Investment Adviser, the Fund pays
an administration fee, accrued daily and payable monthly, by applying the annual
rate of 0.08% to the Fund's daily net assets.
The Investment Adviser has agreed to cap the Fund's operating expenses (except
for 12b-1 fees) by assuming the Fund's "other expenses" and/or waiving the
Fund's advisory fees, and the Administrator has agreed to waive the Fund's
administrative fees, to the extent that such operating expenses exceed 0.65% of
the average daily net assets of the Fund on an annualized basis. Such voluntary
waivers may be terminated at any time without notice.
3. Plan of Distribution
Shares of the Fund are distributed by Morgan Stanley Distributors Inc. (the
"Distributor"), an affiliate of the Investment Adviser and Administrator. 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 shares; (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 shares; and (iii) Class
C -- up to 0.75% of the average daily net assets of Class C shares.
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 there were no excess expenses as of
June 30, 2007.
At June 30, 2007, included in the Statement of Assets and Liabilities, is a
receivable from the Fund's Distributor which represents payments due to be
reimbursed to the Fund under the Plan. Because the Plan is what is referred to
as a "reimbursement plan", the Distributor reimburses to the Fund any 12b-1 fees
collected in excess of the actual distribution expenses incurred. This
receivable represents this excess amount as of June 30, 2007.
23
Morgan Stanley New York Tax-Free Income Fund
NOTES TO FINANCIAL STATEMENTS - JUNE 30, 2007 (UNAUDITED)
The Distributor has agreed to waive the 12b-1 fee on Class B shares to the
extent it exceeds 0.24% of the average daily net assets of such shares on an
annualized basis. The distributor may discontinue this waiver in the future. For
the six months ended June 30, 2007, the distribution fee for Class B shares was
accrued at the annual rate of 0.05%.
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 and other authorized
financial representatives at the time of sale may be reimbursed in the
subsequent calendar year. For the six months ended June 30, 2007, the
distribution fee was accrued for Class A shares and Class C shares at the annual
rate of 0.24% and 0.75%, respectively.
The Distributor has informed the Fund that for the six months ended June 30,
2007, it received contingent deferred sales charges from certain redemptions of
the Fund's Class B shares of $20,138, and received $14,847 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, 2007, aggregated
$3,071,100 and $9,456,868, respectively.
Morgan Stanley Trust, an affiliate of the Investment Adviser, Administrator and
Distributor, is the Fund's transfer agent.
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. 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. Aggregate
pension costs for the six months ended June 30, 2007 included in Trustees' fees
and expenses in the Statement of Operations amounted to $2,939. At June 30,
2007, the Fund had an accrued pension liability of $60,242 which is included in
accrued expenses in the Statement of Assets and Liabilities.
The Fund has 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 or she receives for serving on the Board of Trustees. Each eligible
Trustee generally may elect to have the deferred amounts
24
Morgan Stanley New York Tax-Free Income Fund
NOTES TO FINANCIAL STATEMENTS - JUNE 30, 2007 (UNAUDITED)
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. 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, 2007 DECEMBER 31, 2006
---------------------- ----------------------
(unaudited)
SHARES AMOUNT SHARES AMOUNT
-------- ----------- -------- -----------
CLASS A SHARES
Sold.................................................... 67,537 $ 758,113 115,658 $ 1,304,688
Conversion from Class B................................. -- -- 122,875 1,378,868
Conversion to Class B................................... (127,584) (1,430,602) -- --
Reinvestment of dividends and distributions............. 68,316 763,792 157,494 1,773,426
Redeemed................................................ (463,392) (5,201,903) (883,569) (9,943,460)
-------- ----------- -------- -----------
Net decrease - Class A.................................. (455,123) (5,110,600) (487,542) (5,486,478)
-------- ----------- -------- -----------
CLASS B SHARES
Sold.................................................... 16,661 185,609 70,070 786,007
Conversion from Class A................................. 128,385 1,430,602 -- --
Conversion to Class A................................... -- -- (123,728) (1,378,868)
Reinvestment of dividends and distributions............. 21,008 233,305 52,188 583,778
Redeemed................................................ (157,014) (1,746,099) (377,777) (4,222,631)
-------- ----------- -------- -----------
Net increase (decrease) - Class B....................... 9,040 103,417 (379,247) (4,231,714)
-------- ----------- -------- -----------
CLASS C SHARES
Sold.................................................... 20,167 225,030 28,215 317,092
Reinvestment of dividends and distributions............. 3,295 36,616 7,031 78,704
Redeemed................................................ (21,516) (241,625) (151,923) (1,704,371)
-------- ----------- -------- -----------
Net increase (decrease) - Class C....................... 1,946 20,021 (116,677) (1,308,575)
-------- ----------- -------- -----------
CLASS D SHARES
Sold.................................................... 29,330 324,018 203,584 2,252,743
Reinvestment of dividends and distributions............. 15,311 169,295 28,208 314,485
Redeemed................................................ (74,136) (821,556) (109,311) (1,216,486)
-------- ----------- -------- -----------
Net increase (decrease) - Class D....................... (29,495) (328,243) 122,481 1,350,742
-------- ----------- -------- -----------
Net decrease in Fund.................................... (473,632) $(5,315,405) (860,985) $(9,676,025)
======== =========== ======== ===========
</Table>
6. Expense Offset
The expense offset represents a reduction of the fees and expenses for interest
earned on cash balances maintained by the Fund with the transfer agent and
custodian.
7. Purposes of and Risks Relating to Certain Financial Instruments
The Fund may invest a portion of its assets in inverse floating rate
instruments, either through outright purchases of inverse floating rate
securities or through the transfer of bonds to a Dealer
25
Morgan Stanley New York Tax-Free Income Fund
NOTES TO FINANCIAL STATEMENTS - JUNE 30, 2007 (UNAUDITED)
Trust in exchange for cash and residual interests in the Dealer Trust. These
investments are typically used by the Fund in seeking to enhance the yield of
the portfolio. These instruments typically involve greater risks than a fixed
rate municipal bond. In particular, these instruments are acquired through
leverage or may have leverage embedded in them and therefore involve many of the
risks associated with leverage. Leverage is a speculative technique that may
expose the Fund to greater risk and increased costs. Leverage may cause the
Fund's net asset value to be more volatile than if it had not been leveraged
because leverage tends to magnify the effect of any increases or decreases in
the value of the Fund's portfolio securities. The use of leverage may also cause
the Fund to liquidate portfolio positions when it may not be advantageous to do
so in order to satisfy its obligations with respect to inverse floating rate
instruments.
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.
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 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, 2007, the Fund had temporary book/tax differences primarily
attributable to book amortization of discounts on debt securities and
mark-to-market of open futures contracts.
9. Accounting Pronouncements
In September 2006, Statement of Financial Accounting Standards No. 157, Fair
Value Measurements (SFAS 157), was issued and is effective for fiscal years
beginning after November 15, 2007. SFAS 157 defines fair value, establishes a
framework for measuring fair value and expands disclosures about fair value
measurements. Management is currently evaluating the impact the adoption of SFAS
157 will have on the Fund's financial statement disclosures.
26
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, 2007 2006 2005 2004 2003 2002
------------- -------- -------- -------- -------- --------
(unaudited)
Class A Shares
Selected Per Share Data:
Net asset value, beginning of period............ $ 11.29 $ 11.31 $ 11.67 $ 11.79 $ 11.82 $ 11.47
------- ------- ------- ------- ------- -------
Income (loss) from investment operations:
Net investment income....................... 0.25 0.49 0.52 0.52 0.51 0.52
Net realized and unrealized gain (loss)..... (0.24) 0.03 (0.17) (0.11) 0.06 0.62
------- ------- ------- ------- ------- -------
Total income from investment operations......... 0.01 0.52 0.35 0.41 0.57 1.14
------- ------- ------- ------- ------- -------
Less dividends and distribution from:
Net investment income....................... (0.25) (0.48) (0.51) (0.51) (0.51) (0.52)
Net realized gain........................... (0.01) (0.06) (0.20) (0.02) (0.09) (0.27)
------- ------- ------- ------- ------- -------
Total dividends and distributions............... (0.26) (0.54) (0.71) (0.53) (0.60) (0.79)
------- ------- ------- ------- ------- -------
Net asset value, end of period.................. $ 11.04 $ 11.29 $ 11.31 $ 11.67 $ 11.79 $ 11.82
======= ======= ======= ======= ======= =======
Total Return+................................... 0.13%(1) 4.63% 3.10% 3.61% 4.90% 10.18%
Ratios to Average Net Assets(3)(4):
Total expenses (before expense offset).......... 1.02%(2) 0.91% 0.90% 0.84% 0.93% 0.92%
Total expenses (before expense offset, exclusive
of interest and residual expenses)............. 0.89%(2)(5) 0.91%(5) 0.90%(5) 0.84%(5) 0.93% 0.92%
Net investment income........................... 4.42%(2)(5) 4.32%(5) 4.37%(5) 4.42%(5) 4.29% 4.44%
Supplemental Data:
Net assets, end of period, in thousands......... $51,514 $57,776 $63,437 $2,819 $4,285 $5,226
Portfolio turnover rate......................... 3%(1) 12% 15% 11% 20% 21%
</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 Adviser and Administrator, the
annualized expense and net investment income ratios, before
expense offset, would have been as follows:
</Table>
<Table>
<Caption>
EXPENSE NET INVESTMENT
PERIOD ENDED RATIO INCOME RATIO
------------ ------- --------------
June 30, 2007 1.18% 4.26%
December 31, 2006 1.03 4.20
December 31, 2005 1.00 4.27
December 31, 2004 0.89 4.37
</Table>
See Notes to Financial Statements
27
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, 2007 2006 2005 2004 2003 2002
------------- -------- -------- -------- --------- ---------
(unaudited)
Class B Shares
Selected Per Share Data:
Net asset value, beginning of period.......... $ 11.21 $ 11.24 $ 11.59 $ 11.71 $ 11.80 $ 11.48
------- ------- ------- ------- -------- --------
Income (loss) from investment operations:
Net investment income..................... 0.25 0.51 0.48 0.45 0.44 0.46
Net realized and unrealized gain (loss)... (0.23) 0.02 (0.15) (0.11) 0.00 0.59
------- ------- ------- ------- -------- --------
Total income from investment operations....... 0.02 0.53 0.33 0.34 0.44 1.05
------- ------- ------- ------- -------- --------
Less dividends and distributions from:
Net investment income..................... (0.25) (0.50) (0.48) (0.44) (0.44) (0.46)
Net realized gain......................... (0.01) (0.06) (0.20) (0.02) (0.09) (0.27)
------- ------- ------- ------- -------- --------
Total dividends and distributions............. (0.26) (0.56) (0.68) (0.46) (0.53) (0.73)
------- ------- ------- ------- -------- --------
Net asset value, end of period................ $ 10.97 $ 11.21 $ 11.24 $ 11.59 $ 11.71 $ 11.80
======= ======= ======= ======= ======== ========
Total Return+................................. 0.21%(1) 4.84% 2.93% 3.01% 3.81% 9.32%
Ratios to Average Net Assets(3)(4):
Total expenses (before expense offset)........ 0.83%(2) 0.72% 1.21% 1.43% 1.46% 1.46%
Total expenses (before expense offset,
exclusive of interest and residual
expenses).................................... 0.70%(2)(5) 0.72%(5) 1.21%(5) 1.43%(5) 1.46% 1.46%
Net investment income......................... 4.61%(2)(5) 4.51%(5) 4.06%(5) 3.83%(5) 3.76% 3.90%
Supplemental Data:
Net assets, end of period, in thousands....... $22,245 $22,629 $26,952 $99,530 $113,223 $122,099
Portfolio turnover rate....................... 3%(1) 12% 15% 11% 20% 21%
</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 Adviser and Administrator, the
annualized expense and net investment income ratios, before
expense offset, would have been as follows:
</Table>
<Table>
<Caption>
EXPENSE NET INVESTMENT
PERIOD ENDED RATIO INCOME RATIO
------------ ------- --------------
June 30, 2007 0.99% 4.45%
December 31, 2006 0.84 4.39
December 31, 2005 1.31 3.96
December 31, 2004 1.48 3.78
</Table>
See Notes to Financial Statements
28
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, 2007 2006 2005 2004 2003 2002
------------- -------- -------- -------- -------- --------
(unaudited)
Class C Shares
Selected Per Share Data:
Net asset value, beginning of period.................. $11.22 $11.25 $11.60 $11.72 $11.79 $11.46
------ ------ ------ ------ ------ ------
Income (loss) from investment operations:
Net investment income............................. 0.22 0.43 0.45 0.45 0.44 0.46
Net realized and unrealized gain (loss)........... (0.23) 0.03 (0.16) (0.11) 0.02 0.60
------ ------ ------ ------ ------ ------
Total income (loss) from investment operations........ (0.01) 0.46 0.29 0.34 0.46 1.06
------ ------ ------ ------ ------ ------
Less dividends and distributions from:
Net investment income............................. (0.22) (0.43) (0.44) (0.44) (0.44) (0.46)
Net realized gain................................. (0.01) (0.06) (0.20) (0.02) (0.09) (0.27)
------ ------ ------ ------ ------ ------
Total dividends and distributions..................... (0.23) (0.49) (0.64) (0.46) (0.53) (0.73)
------ ------ ------ ------ ------ ------
Net asset value, end of period........................ $10.98 $11.22 $11.25 $11.60 $11.72 $11.79
====== ====== ====== ====== ====== ======
Total Return+......................................... (0.05)%(1) 4.11% 2.51% 3.01% 3.98% 9.41%
Ratios to Average Net Assets(3)(4):
Total expenses (before expense offset)................ 1.53%(2) 1.41% 1.41% 1.43% 1.46% 1.46%
Total expenses (before expense offset, exclusive of
interest and residual expenses)...................... 1.40%(2)(5) 1.41%(5) 1.41%(5) 1.43%(5) 1.46% 1.46%
Net investment income................................. 3.91%(2)(5) 3.82%(5) 3.86%(5) 3.83%(5) 3.76% 3.90%
Supplemental Data:
Net assets, end of period, in thousands............... $2,794 $2,832 $4,152 $4,066 $4,679 $3,521
Portfolio turnover rate............................... 3%(1) 12% 15% 11% 20% 21%
</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 Adviser and Administrator, the
annualized expense and net investment income ratios, before
expense offset, would have been as follows:
</Table>
<Table>
<Caption>
EXPENSE NET INVESTMENT
PERIOD ENDED RATIO INCOME RATIO
------------ ------- --------------
June 30, 2007 1.69% 3.75%
December 31, 2006 1.53 3.70
December 31, 2005 1.51 3.76
December 31, 2004 1.48 3.78
</Table>
See Notes to Financial Statements
29
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, 2007 2006 2005 2004 2003 2002
------------- -------- -------- -------- -------- --------
(unaudited)
Class D Shares
Selected Per Share Data:
Net asset value, beginning of period.............. $ 11.16 $ 11.19 $11.55 $ 11.67 $ 11.76 $ 11.46
------- ------- ------ ------- ------- -------
Income (loss) from investment operations:
Net investment income......................... 0.26 0.51 0.53 0.53 0.53 0.55
Net realized and unrealized gain (loss)....... (0.23) 0.03 (0.16) (0.10) 0.00 0.56
------- ------- ------ ------- ------- -------
Total income from investment operations........... 0.03 0.54 0.37 0.43 0.53 1.11
------- ------- ------ ------- ------- -------
Less dividends and distributions from:
Net investment income......................... (0.26) (0.51) (0.53) (0.53) (0.53) (0.54)
Net realized gain............................. (0.01) (0.06) (0.20) (0.02) (0.09) (0.27)
------- ------- ------ ------- ------- -------
Total dividends and distributions................. (0.27) (0.57) (0.73) (0.55) (0.62) (0.81)
------- ------- ------ ------- ------- -------
Net asset value, end of period.................... $ 10.92 $ 11.16 $11.19 $ 11.55 $ 11.67 $ 11.76
======= ======= ====== ======= ======= =======
Total Return+..................................... 0.23%(1) 4.89% 3.27% 3.78% 4.59% 9.96%
Ratios to Average Net Assets(3)(4):
Total expenses (before expense offset)............ 0.78%(2) 0.66% 0.66% 0.68% 0.71% 0.71%
Total expenses (before expense offset, exclusive
of interest and residual expenses)............... 0.65%(2)(5) 0.66%(5) 0.66%(5) 0.68%(5) 0.71% 0.71%
Net investment income............................. 4.66%(2)(5) 4.57%(5) 4.61%(5) 4.58%(5) 4.51% 4.65%
Supplemental Data:
Net assets, end of period, in thousands........... $10,271 $10,824 $9,483 $10,582 $11,402 $12,533
Portfolio turnover rate........................... 3%(1) 12% 15% 11% 20% 21%
</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 Adviser and Administrator, the
annualized expense and net investment income ratios, before
expense offset, would have been as follows:
</Table>
<Table>
<Caption>
EXPENSE NET INVESTMENT
PERIOD ENDED RATIO INCOME RATIO
------------ ------- --------------
June 30, 2007 0.94% 4.50%
December 31, 2006 0.78 4.45
December 31, 2005 0.76 4.51
December 31, 2004 0.73 4.53
</Table>
See Notes to Financial Statements
30
(This Page Intentionally Left Blank)
TRUSTEES
Frank L. Bowman
Michael Bozic
Kathleen A. Dennis
James F. Higgins
Dr. Manuel H. Johnson
Joseph J. Kearns
Michael F. Klein
Michael E. Nugent
W. Allen Reed
Fergus Reid
OFFICERS
Michael E. Nugent
Chairperson of the Board
Ronald E. Robison
President and Principal Executive Officer
J. David Germany
Vice President
Dennis F. Shea
Vice President
Amy R. Doberman
Vice President
Carsten Otto
Chief Compliance Officer
Stefanie V. Chang Yu
Vice President
Francis J. Smith
Treasurer and Chief Financial Officer
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
LEGAL COUNSEL
Clifford Chance US LLP
31 West 52nd Street
New York, New York 10019
COUNSEL TO THE INDEPENDENT TRUSTEES
Kramer Levin Naftalis & Frankel LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT ADVISER
Morgan Stanley Investment Advisors Inc.
522 Fifth Avenue
New York, New York 10036
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.
Morgan Stanley Distributors Inc., member NASD
(c) 2007 Morgan Stanley
[MORGAN STANLEY LOGO]
MORGAN STANLEY FUNDS
Morgan StanleyNew York Tax-Free
Income Fund
Semiannual Report
June 30, 2007
[MORGAN STANLEY LOGO]
NYFSAN-IU07-02913P-Y06/07
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.
Refer to Item 1.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
Not applicable for semiannual reports.
Item 8. Portfolio Managers of Closed-End Management Investment Companies
Applicable only to reports filed by closed-end funds.
Item 9. Closed-End Fund Repurchases
Applicable to reports filed by closed-end funds.
Item 10. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 11. 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.
(b) There were no changes in the registrant's internal control over financial
reporting that occurred during the second fiscal quarter of the period covered
by this report that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting.
Item 12. 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 9, 2007
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 9, 2007
/s/ Francis Smith
Francis Smith
Principal Financial Officer
August 9, 2007
3