<Page>
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: 811-09117
Morgan Stanley Real Estate 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: November 30, 2003
Date of reporting period: November 30, 2003
Item 1 - Report to Shareholders
<Page>
WELCOME, SHAREHOLDER:
IN THIS REPORT, YOU'LL LEARN ABOUT HOW YOUR INVESTMENT IN MORGAN STANLEY REAL
ESTATE FUND PERFORMED DURING THE ANNUAL 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.
<Page>
FUND REPORT
For the year ended November 30, 2003
TOTAL RETURN FOR THE 12-MONTHS ENDED NOVEMBER 30, 2003
<Table>
<Caption>
NAREIT LIPPER
EQUITY REAL ESTATE
CLASS A CLASS B CLASS C CLASS D INDEX(1) FUNDS INDEX(2)
34.61% 33.64% 33.54% 34.92% 33.48% 34.64%
</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 12-months ended November 30, 2003, the U.S. equity market continued
to respond to positive indicators from the economy, the corporate sector and the
geopolitical climate. Within the economy, stimulative fiscal and monetary policy
resulted in multi-decade lows in both taxes (income and capital gains) and
interest rates. Low interest rates were especially beneficial for the corporate
sector, which enjoyed rising earnings and upward revisions of earnings
estimates. U.S. companies also benefited from low inventories, which generally
indicated great upside potential, particularly in the industrial sector. Growth
in capital spending and compressing spreads on corporate debt were also positive
drivers for corporate health. Globally, the completion of the war in Iraq
coupled with a general sense of falling risk and the falling dollar further
boosted U.S. equities.
Against this backdrop, real estate equities enjoyed strong performance. The
sector drew large cash inflows in both the private and public markets as
institutional and individual investors alike sought to diversify their
portfolios. Attractive dividend yields were an additional factor for investors
in REITs given the historically low level of income available from other
securities. The sector's performance was enhanced by a favorable supply and
demand dynamic, which matched a relatively modest level of issuance against very
strong demand. The REIT sector, as measured by the NAREIT Equity Index, ended
the period with stocks selling at a premium to their underlying private market
values.
While REIT stocks performed admirably, the sector's underlying fundamentals
remained somewhat lackluster. Real estate has historically lagged other segments
of the economy during periods of both growth and contraction. The current cycle
has held to that pattern, with real estate fundamentals remaining generally poor
relative to the rest of the economy. The one exception was retail, which
benefited from the ongoing strength of consumer spending. The end user for most
retail landlords tends to be a publicly traded retailer; these companies
generate growth through new stores, which in turn provide support for leases on
new and existing properties.
PERFORMANCE ANALYSIS
The Fund outperformed its primary benchmark, the NAREIT Equity Index, and
performed in line with the Lipper Real Estate Fund Index. The Fund benefited
from strong stock selection in the troubled office sector, where we emphasized
major urban office centers. These properties generally have longer leases than
do suburban properties, and as a result tend to have steadier cash flow during
periods of lower demand, such as we saw during the period. The Fund's
performance was also supported by stock selection in the hotel sector.
2
<Page>
Our process focuses on finding stocks that trade at an attractive price relative
to their underlying asset values, and in the hotel sector this approach led us
to build an above-benchmark position in full-service urban hotel properties.
These stocks had the combined attraction of being especially cheap relative to
their underlying real estate value, and are positioned to benefit rapidly from
any increase in business travel. Our selections in the office and hotel sectors
both strongly outperformed their peers, and contributed to the Fund's
performance.
Our strategy within the retail sector had mixed results. Our primary approach
was to emphasize malls over open-air shopping centers based on the ability of
malls to command more of a premium because of lack of local competition. We were
also concerned about the ongoing impact of Wal-Mart on the retailers that have
traditionally occupied open-air shopping centers. While the Fund's holdings of
mall stocks did outperform the open-air sector, and thus added to performance,
our decision to underweight open-air stocks was detrimental given the general
outperformance of the retail sector relative to other parts of the REIT market.
The Fund's performance was hampered by our decision to overweight the apartment
sector. We believed that the sector was well positioned for significant growth
in cash flow in the event of an upturn in the economy given its reliance on job
growth. We also believed that the apartment sector was trading at prices that
were attractive relative to private market values. Unfortunately, employment
growth lagged other segments of the economy, and the apartment sector suffered
as a result.
3
<Page>
TOP 10 HOLDINGS
<Table>
Simon Property Group Inc. 7.7%
Brookfield Properties Corp. 5.6
Avalonbay Communities Inc. 5.4
Archstone-Smith Trust 5.2
Starwood Hotels & Resorts 4.7
Public Storage Inc. 4.6
Equity Office Properties Trust 4.6
Rouse Co. 4.1
Boston Properties Inc. 4.0
ProLogis 3.6
</Table>
PORTFOLIO COMPOSITION
<Table>
Common Stock 97.0%
Short Term 3.0
</Table>
SUBJECT TO CHANGE DAILY. ALL TOP 10 HOLDINGS PERCENTAGES ARE AS A PERCENTAGE OF
NET ASSETS. PORTFOLIO COMPOSITION HOLDINGS ARE AS A PERCENTAGE OF TOTAL
INVESTMENTS. PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE DEEMED
AS 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
1. THE FUND INVESTS SUBSTANTIALLY IN INCOME PRODUCING COMMON STOCKS AND OTHER
EQUITY SECURITIES (WHICH MAY INCLUDE CONVERTIBLE SECURITIES) OF COMPANIES
THAT ARE PRINCIPALLY ENGAGED IN THE U.S. REAL ESTATE INDUSTRY.
2. THE MANAGEMENT TEAM COMBINES TOP-DOWN AND BOTTOM-UP METHODOLOGIES IN PURSUIT
OF ATTRACTIVE TOTAL RETURNS. THE TOP-DOWN ANALYSIS INVOLVES THE TEAM'S
EVALUATING OF CYCLICAL FACTORS--AS WELL AS DEMOGRAPHIC CONSIDERATIONS--THAT
COULD AFFECT THE REAL ESTATE MARKET.
3. BY INVESTING IN MANY DIFFERENT TYPES OF REITs AND OTHER REAL ESTATE-RELATED
SECURITIES--WITH CONCENTRATIONS THROUGHOUT THE U.S.--THE FUND IS NOT EXPECTED
TO BE OVERLY DEPENDENT ON ANY ONE REGION'S ECONOMIC, POLITICAL OR REGULATORY
ENVIRONMENT.
ANNUAL HOUSEHOLDING NOTICE
TO REDUCE PRINTING AND MAILING COSTS, THE FUND ATTEMPTS TO ELIMINATE DUPLICATE
MAILINGS TO THE SAME ADDRESS. THE FUND DELIVERS A SINGLE COPY OF CERTAIN
SHAREHOLDER DOCUMENTS, INCLUDING SHAREHOLDER REPORTS, PROSPECTUSES AND PROXY
MATERIALS, TO INVESTORS WITH THE SAME LAST NAME WHO RESIDE AT THE SAME ADDRESS.
YOUR PARTICIPATION IN THIS PROGRAM WILL CONTINUE FOR AN UNLIMITED PERIOD OF TIME
UNLESS YOU INSTRUCT US OTHERWISE. YOU CAN REQUEST MULTIPLE COPIES OF THESE
DOCUMENTS BY CALLING (800) 350-6414, 8:00 A.M. TO 8:00 P.M. ET. ONCE OUR
CUSTOMER SERVICE CENTER HAS RECEIVED YOUR INSTRUCTIONS, WE WILL BEGIN SENDING
INDIVIDUAL COPIES FOR EACH ACCOUNT WITHIN 30 DAYS.
PROXY VOTING POLICIES AND PROCEDURES
A DESCRIPTION OF THE FUND'S POLICIES AND PROCEDURES WITH RESPECT TO THE VOTING
OF PROXIES RELATING TO THE FUND'S PORTFOLIO SECURITIES IS AVAILABLE WITHOUT
CHARGE, UPON REQUEST, BY CALLING (800) 869-NEWS. THIS INFORMATION IS ALSO
AVAILABLE ON THE SECURITIES AND EXCHANGE COMMISSION'S WEBSITE AT
http://www.sec.gov.
4
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(This page has been left blank intentionally.)
<Page>
PERFORMANCE SUMMARY
[CHART]
PERFORMANCE OF A $10,000 INVESTMENT
<Table>
<Caption>
($ IN THOUSANDS)
ENDING VALUE
Class A++ Class B++ Class C++ Class D++ NAREIT(1) Lipper(2)
4/28/1999 $ 9,475 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000
5/31/1999 $ 9,655 $ 10,190 $ 10,190 $ 10,190 $ 10,304 $ 10,290
8/31/1999 $ 9,140 $ 9,624 $ 9,623 $ 9,660 $ 9,690 $ 9,640
11/30/1999 $ 8,349 $ 8,773 $ 8,771 $ 8,831 $ 8,944 $ 8,875
2/29/2000 $ 8,619 $ 9,040 $ 9,037 $ 9,124 $ 9,148 $ 8,988
5/31/2000 $ 9,607 $ 10,058 $ 10,053 $ 10,196 $ 10,183 $ 9,957
8/31/2000 $ 10,544 $ 11,008 $ 11,014 $ 11,182 $ 10,896 $ 10,832
11/30/2000 $ 10,642 $ 11,091 $ 11,096 $ 11,293 $ 10,893 $ 10,879
2/28/2001 $ 11,239 $ 11,683 $ 11,687 $ 11,933 $ 11,594 $ 11,478
5/31/2001 $ 11,559 $ 11,996 $ 11,999 $ 12,282 $ 12,275 $ 11,939
8/31/2001 $ 12,387 $ 12,825 $ 12,828 $ 13,158 $ 13,203 $ 12,748
11/30/2001 $ 11,959 $ 12,356 $ 12,360 $ 12,714 $ 12,969 $ 12,365
2/28/2002 $ 12,508 $ 12,911 $ 12,903 $ 13,306 $ 13,568 $ 13,070
5/31/2002 $ 13,364 $ 13,762 $ 13,754 $ 14,223 $ 14,701 $ 14,122
8/31/2002 $ 12,697 $ 13,051 $ 13,055 $ 13,523 $ 14,284 $ 13,636
11/30/2002 $ 12,064 $ 12,374 $ 12,379 $ 12,859 $ 13,691 $ 13,080
2/28/2003 $ 11,997 $ 12,294 $ 12,287 $ 12,796 $ 13,613 $ 13,072
5/31/2003 $ 13,711 $ 14,005 $ 14,010 $ 14,631 $ 15,372 $ 14,779
8/31/2003 $ 14,960 $ 15,257 $ 15,249 $ 15,959 $ 16,635 $ 15,992
11/30/2003 $ 16,240 $ 16,337 $ 16,531 $ 17,349 $ 18,275 $ 17,610
</Table>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE. WHEN YOU SELL FUND SHARES, THEY MAY BE WORTH
LESS THAN THEIR ORIGINAL COST. THE GRAPH AND TABLE DO NOT REFLECT THE DEDUCTION
OF TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF
FUND SHARES. PERFORMANCE FOR CLASS A, CLASS B, CLASS C, AND CLASS D SHARES WILL
VARY DUE TO DIFFERENCES IN SALES CHARGES AND EXPENSES.
6
<Page>
AVERAGE ANNUAL TOTAL RETURNS--PERIOD ENDED NOVEMBER 30, 2003
<Table>
<Caption>
CLASS A SHARES* CLASS B SHARES** CLASS C SHARES+ CLASS D SHARES!
(SINCE 04/28/99) (SINCE 04/28/99) (SINCE 04/28/99) (SINCE 04/28/99)
SYMBOL REFAX REFBX REFCX REFDX
1 YEAR 34.61%(3) 33.64%(3) 33.54%(3) 34.92%(3)
27.55(4) 28.64(4) 32.54(4) -
SINCE INCEPTION 12.45(3) 11.58(3) 11.57(3) 12.75(3)
11.14(4) 11.28(4) 11.57(4) -
</Table>
Notes on Performance
(1) THE NAREIT EQUITY INDEX MEASURES THE PERFORMANCE OF REAL ESTATE SECURITIES,
WHICH WILL FLUCTUATE WITH CHANGES IN THE VALUES OF THEIR UNDERLYING
PROPERTIES. THE INDEX IS AN UNMANAGED BENCHMARK OF REAL ESTATE INVESTMENT
TRUSTS COMPILED BY THE NATIONAL ASSOCIATION OF REAL ESTATE INVESTMENT
TRUSTS. 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 REAL ESTATE FUNDS INDEX IS AN EQUALLY WEIGHTED PERFORMANCE INDEX
OF THE LARGEST QUALIFYING FUNDS (BASED ON NET ASSETS) IN THE LIPPER REAL
ESTATE 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.
* THE MAXIMUM FRONT-END SALES CHARGE FOR CLASS A IS 5.25%.
** THE MAXIMUM CONTINGENT DEFERRED SALES CHARGE (CDSC) FOR CLASS B IS 5.0%. THE
CDSC DECLINES TO 0% AFTER SIX YEARS.
+ THE MAXIMUM CONTINGENT DEFERRED SALES CHARGE FOR CLASS C IS 1% FOR SHARES
REDEEMED WITHIN ONE YEAR OF PURCHASE.
! CLASS D HAS NO SALES CHARGE.
++ CLOSING VALUE ASSUMING A COMPLETE REDEMPTION ON NOVEMBER 30, 2003.
7
<Page>
MORGAN STANLEY REAL ESTATE FUND
PORTFOLIO OF INVESTMENTS - NOVEMBER 30, 2003
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------
COMMON STOCKS (96.6%)
HOME BUILDING (0.3%)
24,300 Brookfield Homes Corp. $ 580,770
---------------
HOTELS/RESORTS/CRUISELINES (7.3%)
274,800 Hilton Hotels Corp. 4,495,728
6,745 Interstate Hotels &
Resorts Inc.* 36,288
17,700 La Quinta Corp. 110,448
253,693 Starwood Hotels & Resorts
Worldwide, Inc. 8,744,798
313,200 Wyndham International, Inc.
(Class A)* 200,448
---------------
13,587,710
---------------
REAL ESTATE - INDUSTRIAL/OFFICE (5.9%)
396,500 Brookfield Properties Corp.
(Canada) 10,550,865
38,500 Trizec Properties, Inc. 536,305
---------------
11,087,170
---------------
REAL ESTATE - OTHER (0.4%)
166,300 Frontline Capital Group* 0
21,800 St. Joe Co. (The) 758,640
---------------
758,640
---------------
REAL ESTATE - RETAIL (0.6%)
22,100 Forest City Enterprise, Inc.
(Class A) 1,036,932
---------------
REIT - DIVERSIFIED (2.3%)
78,900 Vornado Realty Trust 4,316,619
---------------
REIT - HEALTHCARE (1.0%)
46,381 Nationwide Health
Properties, Inc. 844,598
51,700 Ventas, Inc. 1,035,034
---------------
1,879,632
---------------
REIT - INDUSTRIAL/OFFICE (21.5%)
175,500 AMB Property Corp. 5,521,230
213,200 Arden Realty, Inc. 6,229,704
160,700 Boston Properties, Inc. 7,432,375
310,385 Equity Office Properties Trust 8,606,976
52,100 Mack-Cali Realty Corp. 2,078,790
219,310 ProLogis Trust $ 6,688,955
6,600 PS Business Parks, Inc.
(Class A) 257,400
95,400 Reckson Associates
Realty Corp. 2,289,600
31,750 SL Green Realty Corp. 1,186,180
---------------
40,291,210
---------------
REIT - LODGING/RESORTS (3.9%)
79,600 FelCor Lodging Trust, Inc.* 841,372
563,000 Host Marriott Corp.* 6,277,450
21,400 Innkeepers USA Trust 181,472
---------------
7,300,294
---------------
REIT - RESIDENTIAL (22.4%)
70,500 Amli Residential
Properties Trust 1,820,310
170,000 Apartment Investment &
Management Co. (Class A) 5,788,500
354,007 Archstone-Smith Trust 9,728,112
209,700 Avalonbay Communities, Inc. 10,023,660
196,890 Equity Residential 5,780,690
63,000 Essex Property Trust, Inc. 4,028,850
50,900 Manufactured Home
Communities, Inc. 1,980,010
44,300 Post Properties, Inc. 1,271,410
68,130 Summit Properties Inc. 1,557,452
---------------
41,978,994
---------------
REIT - RETAIL (23.9%)
106,300 Burnham Pacific
Properties, Inc.* 60,591
1,300 Chelsea Property Group, Inc. 70,200
149,900 Federal Realty Investment Trust 5,892,569
81,600 General Growth
Properties, Inc. 6,576,960
25,800 Macerich Co. (The) 1,088,760
900 Pan Pacific Retail
Properties, Inc. 41,805
112,200 Regency Center Corp. 4,431,900
165,500 Rouse Co. (The) 7,611,345
303,500 Simon Property Group, Inc. 14,401,075
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
8
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------
225,800 Taubman Centers, Inc. $ 4,628,900
---------------
44,804,105
---------------
REIT - SPECIALTY (0.3%)
23,400 Correctional Properties Trust 652,860
---------------
REIT - STORAGE (6.8%)
195,700 Public Storage, Inc. 8,689,080
107,150 Shurgard Storage
Centers, Inc. (Class A) 3,996,695
---------------
12,685,775
---------------
TOTAL COMMON STOCKS
(COST $142,023,516) 180,960,711
---------------
<Caption>
PRINCIPAL
AMOUNT IN
THOUSANDS
- ----------
SHORT-TERM INVESTMENT(3.0%)
REPURCHASE AGREEMENT
$ 5,610 Joint repurchase agreement
account 1.06% due 12/01/03
(dated 11/28/03; proceeds
$5,610,496) (a)
(COST $5,610,000) 5,610,000
---------------
TOTAL INVESTMENTS
(COST $147,633,516) (b) 99.6% 186,570,711
OTHER ASSETS IN EXCESS OF
LIABILITIES 0.4 776,188
----- ---------------
NET ASSETS 100.0% $ 187,346,899
===== ===============
</Table>
REIT REAL ESTATE INVESTMENT TRUST.
* NON-INCOME PRODUCING SECURITY.
(a) COLLATERALIZED BY FEDERAL AGENCY AND U.S. TREASURY OBLIGATIONS.
(b) THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES IS $148,052,284.
THE AGGREGATE GROSS UNREALIZED APPRECIATION IS $42,442,204 AND THE
AGGREGATE GROSS UNREALIZED DEPRECIATION IS $3,923,777, RESULTING IN
NET UNREALIZED APPRECIATIONOF $38,518,427.
SEE NOTES TO FINANCIAL STATEMENTS
9
<Page>
MORGAN STANLEY REAL ESTATE FUND
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 2003
<Table>
ASSETS:
Investments in securities, at value
(cost $147,633,516) $ 186,570,711
Receivable for:
Investments sold 744,752
Shares of beneficial interest sold 187,343
Dividends 154,775
Prepaid expenses and other assets 40,982
---------------
TOTAL ASSETS 187,698,563
---------------
LIABILITIES:
Payable for:
Investment management fee 151,451
Distribution fee 99,459
Shares of beneficial interest redeemed 44,242
Accrued expenses and other payables 56,512
---------------
TOTAL LIABILITIES 351,664
---------------
NET ASSETS $ 187,346,899
---------------
COMPOSITION OF NET ASSETS:
Paid-in-capital $ 146,727,265
Net unrealized appreciation 38,937,195
Accumulated undistributed
net realized gain 1,682,439
---------------
NET ASSETS $ 187,346,899
===============
CLASS A SHARES:
Net Assets $ 7,377,688
Shares Outstanding (UNLIMITED
AUTHORIZED, $.01 PAR VALUE) 543,309
NET ASSET VALUE PER SHARE $ 13.58
===============
MAXIMUM OFFERING PRICE PER SHARE,
(NET ASSET VALUE PLUS 5.54% OF
NET ASSET VALUE) $ 14.33
===============
CLASS B SHARES:
Net Assets $ 108,679,945
Shares Outstanding (UNLIMITED
AUTHORIZED, $.01 PAR VALUE) 8,035,215
NET ASSET VALUE PER SHARE $ 13.53
===============
CLASS C SHARES:
Net Assets $ 12,359,076
Shares Outstanding (UNLIMITED
AUTHORIZED, $.01 PAR VALUE) 913,383
NET ASSET VALUE PER SHARE $ 13.53
===============
CLASS D SHARES:
Net Assets $ 58,930,190
Shares Outstanding (UNLIMITED
AUTHORIZED, $.01 PAR VALUE) 4,336,814
NET ASSET VALUE PER SHARE $ 13.59
===============
</Table>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED NOVEMBER30, 2003
<Table>
NET INVESTMENT INCOME:
INCOME
Dividends (net of $34,977 foreign
withholding tax) $ 7,010,211
Interest 36,374
---------------
TOTAL INCOME 7,046,585
---------------
EXPENSES
Investment management fee 1,603,444
Distribution fee (Class A shares) 15,976
Distribution fee (Class B shares) 979,446
Distribution fee (Class C shares) 103,036
Transfer agent fees and expenses 418,905
Registration fees 56,722
Shareholder reports and notices 55,163
Professional fees 39,755
Trustees' fees and expenses 14,782
Custodian fees 4,291
Other 5,447
---------------
TOTAL EXPENSES 3,296,967
---------------
NET INVESTMENT INCOME 3,749,618
---------------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain on investments 2,064,561
Capital gain distributions received 1,554,818
---------------
NET REALIZED GAIN 3,619,379
---------------
Net change in unrealized depreciation 40,547,114
---------------
NET GAIN 44,166,493
---------------
NET INCREASE $ 47,916,111
===============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
10
<Page>
STATEMENT OF CHANGES IN NET ASSETS
<Table>
<Caption>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
NOVEMBER 30, 2003 NOVEMBER 30, 2002
----------------- -----------------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income $ 3,749,618 $ 2,797,521
Net realized gain 3,619,379 2,876,930
Net change in unrealized depreciation 40,547,114 (8,589,201)
--------------- ---------------
NET INCREASE 47,916,111 (2,914,750)
--------------- ---------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A shares (175,671) (190,865)
Class B shares (2,035,063) (1,758,242)
Class C shares (211,573) (157,574)
Class D shares (1,327,311) (690,840)
Net realized gain
Class A shares (116,098) (448,167)
Class B shares (1,865,703) (4,988,791)
Class C shares (186,465) (433,743)
Class D shares (749,540) (903,604)
--------------- ---------------
TOTAL DIVIDENDS AND DISTRIBUTIONS (6,667,424) (9,571,826)
--------------- ---------------
Net increase from transactions in shares of beneficial interest 1,574,307 40,818,445
--------------- ---------------
NET INCREASE 42,822,994 28,331,869
NET ASSETS:
Beginning of period 144,523,905 116,192,036
--------------- ---------------
END OF PERIOD $ 187,346,899 $ 144,523,905
=============== ===============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
11
<Page>
MORGAN STANLEY REAL ESTATE FUND
NOTES TO FINANCIAL STATEMENTS - NOVEMBER 30, 2003
1. ORGANIZATION AND ACCOUNTING POLICIES
Morgan Stanley Real Estate Fund (the "Fund") is registered under the Investment
Company Act of 1940, as amended (the "Act"), as a non-diversified, open-end
management investment company. The Fund's investment objective is to provide
high current income and long-term capital appreciation. The Fund seeks to
achieve its objective by investing primarily in equity securities of companies
that are principally engaged in the U.S. real estate industry, including Real
Estate Investment Trusts (REITs). The Fund was organized as a Massachusetts
business trust on November 23, 1998 and commenced operations on April 28, 1999.
The Fund offers Class A shares, Class B shares, Class C shares and Class D
shares. The four classes are substantially the same except that most Class A
shares are subject to a sales charge imposed at the time of purchase and some
Class A shares, and most Class B shares and Class C shares are subject to a
contingent deferred sales charge imposed on shares redeemed within one year, six
years and one year, respectively. Class D shares are not subject to a sales
charge. Additionally, Class A shares, Class B shares and Class C shares incur
distribution expenses.
The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS -- (1) an equity portfolio security listed or traded
on the New York or American Stock Exchange or other exchange is valued at its
latest sale price prior to the time when assets are valued; if there were no
sales that day, the security is valued at the mean between the last reported bid
and asked price; (2) an equity portfolio security listed or traded on the Nasdaq
is valued at the Nasdaq Official Closing Price; if there were no sales that day,
the security is valued at the mean between the last reported bid and asked
price; (3) all other portfolio securities for which over-the-counter market
quotations are readily available are valued at the mean between the last
reported bid and asked price. In cases where a security is traded on more than
one exchange, the security is valued on the exchange designated as the primary
market; (4) for equity securities traded on foreign exchanges, the last reported
sale price or the latest bid price may be used if there were no sales on a
particular day; (5) when market quotations are not readily available or Morgan
Stanley Investment Advisors Inc. (the "Investment Manager") or Morgan Stanley
Investment Management Inc. (the "Sub-Advisor"), an affiliate of the Investment
Manager, determines that the latest sale price, the bid price or the mean
between the last reported bid and asked price do not reflect a security's market
value, portfolio securities are valued at their fair value as determined in good
faith under procedures established by and under the general supervision of the
Fund's Trustees; (6) certain portfolio securities may be valued by an outside
pricing service approved by the Fund's Trustees; and (7) 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
12
<Page>
the 61st day. Short-term debt securities having a maturity date of sixty days or
less at the time of purchase are valued at amortized cost.
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined by the identified cost method.
Dividend income and other distributions are recorded on the ex-dividend date.
Upon notification from issuers, some of the dividend income received from a REIT
may be redesignated as a reduction of cost of investments and/or realized gain.
Discounts are accreted and premiums are amortized over the life of the
respective securities. Interest income is accrued daily.
C. REPURCHASE AGREEMENTS -- Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the Fund, along with other affiliated
entities managed by the Investment Manager, may transfer uninvested cash
balances into one or more joint repurchase agreement accounts. These balances
are invested in one or more repurchase agreements and are collateralized by
cash, U.S. Treasury or federal agency obligations. The Fund may also invest
directly with institutions in repurchase agreements. The Fund's custodian
receives the collateral, which is marked-to-market daily to determine that the
value of the collateral does not decrease below the repurchase price plus
accrued interest.
D. MULTIPLE CLASS ALLOCATIONS -- Investment income, expenses (other than
distribution fees), and realized and unrealized gains and losses are allocated
to each class of shares based upon the relative net asset value on the date such
items are recognized. Distribution fees are charged directly to the respective
class.
E. FEDERAL INCOME TAX POLICY -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute substantially all of its taxable income to its
shareholders. Accordingly, no federal income tax provision is required.
F. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- Dividends and distributions to
shareholders are recorded on the ex-dividend date.
G. USE OF ESTIMATES -- The preparation of financial statements in accordance
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures.
Actual results could differ from those estimates.
2. INVESTMENT MANAGEMENT AND SUB-ADVISORY AGREEMENTS
Pursuant to an Investment Management Agreement, the Fund pays the Investment
Manager a management fee, accrued daily and payable monthly, by applying the
annual rate of 1.0% to the net assets of the Fund determined as of the close of
each business day.
13
<Page>
Under a Sub-Advisory Agreement between the Sub-Advisor and the Investment
Manager, the Sub-Advisor provides the Fund with investment advice and portfolio
management relating to the Fund's investments. As compensation for its services
provided pursuant to the Sub-Advisory Agreement, the Investment Manager paid the
Sub-Advisor compensation of $641,378 for the year ended November 30, 2003.
On October 23, 2003, the Board of Trustees of the Fund determined to terminate
the Sub-Advisory Agreement. Therefore, effective on a date to be determined, but
no later than March 29, 2004, the Investment Manager will assume direct
responsibility for investment of the Fund's portfolio.
3. PLAN OF DISTRIBUTION
Shares of the Fund are distributed by Morgan Stanley Distributors Inc. (the
"Distributor"), an affiliate of the Investment Manager and Sub-Advisor. The Fund
has adopted a Plan of Distribution (the "Plan") pursuant to Rule 12b-1 under the
Act. The Plan provides that the Fund will pay the Distributor a fee which is
accrued daily and paid monthly at the following annual rates: (i) Class A -- up
to 0.25% of the average daily net assets of Class A; (ii) Class B -- 1.0% of the
average daily net assets of Class B; and (iii) Class C -- up to 1.0% of the
average daily net assets of Class C.
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 $6,261,875
at November 30, 2003.
In the case of Class A shares and Class C shares, expenses incurred pursuant to
the Plan in any calendar year in excess of 0.25% or 1.0% of the average daily
net assets of Class A or Class C, respectively, will not be reimbursed by the
Fund through payments in any subsequent year, except that expenses representing
a gross sales credit to Morgan Stanley Financial Advisors or other selected
broker-dealer representatives may be reimbursed in the subsequent calendar year.
For the year ended November 30, 2003, the distribution fee was accrued for Class
A shares and Class C shares at the annual rate of 0.25% and 1.0%, respectively.
The Distributor has informed the Fund that for the year ended November 30, 2003,
it received contingent deferred sales charges from certain redemptions of the
Fund's Class A shares, Class B shares and Class C shares of $2,725, $258,571 and
$4,169, respectively and received $44,537 in
14
<Page>
front-end sales charges from sales of the Fund's Class A shares. The respective
shareholders pay such charges which are not an expense of the Fund.
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities, excluding
short-term investments, for the year ended November 30, 2003 aggregated
$34,924,543 and $34,762,136, respectively.
Morgan Stanley Trust, an affiliate of the Investment Manager, Sub-Advisor and
Distributor, is the Fund's transfer agent.
5. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<Table>
<Caption>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
NOVEMBER 30, 2003 NOVEMBER 30, 2002
-------------------------------- --------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------- -------------- -------------- --------------
CLASS A SHARES
Sold 221,459 $ 2,653,238 379,660 $ 4,393,913
Reinvestment of dividends and distributions 24,014 263,633 53,889 598,518
Redeemed (306,839) (3,592,457) (518,859) (5,867,771)
-------------- -------------- -------------- --------------
Net decrease -- Class A (61,366) (675,586) (85,310) (875,340)
-------------- -------------- -------------- --------------
CLASS B SHARES
Sold 1,720,447 20,200,314 4,723,339 54,060,012
Reinvestment of dividends and distributions 290,602 3,155,716 501,362 5,546,652
Redeemed (3,016,795) (34,686,436) (3,799,230) (42,048,728)
-------------- -------------- -------------- --------------
Net increase (decrease) -- Class B (1,005,746) (11,330,406) 1,425,471 17,557,936
-------------- -------------- -------------- --------------
CLASS C SHARES
Sold 231,244 2,720,208 455,920 5,132,718
Reinvestment of dividends and distributions 31,673 345,975 46,720 517,261
Redeemed (214,676) (2,495,731) (297,883) (3,274,738)
-------------- -------------- -------------- --------------
Net increase -- Class C 48,241 570,452 204,757 2,375,241
-------------- -------------- -------------- --------------
CLASS D SHARES
Sold 2,257,903 25,925,778 2,555,893 28,768,194
Reinvestment of dividends and distributions 156,629 1,739,143 122,547 1,366,471
Redeemed (1,254,577) (14,655,074) (760,131) (8,374,057)
-------------- -------------- -------------- --------------
Net increase -- Class D 1,159,955 13,009,847 1,918,309 21,760,608
-------------- -------------- -------------- --------------
Net increase in Fund 141,084 $ 1,574,307 3,463,227 $ 40,818,445
============== ============== ============== ==============
</Table>
15
<Page>
6. 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.
The tax character of distributions paid was as follows:
<Table>
<Caption>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
NOVEMBER 30, 2003 NOVEMBER 30, 2002
----------------- -----------------
Ordinary income $ 4,768,037 $ 4,026,723
Long-term capital gains 1,899,387 5,545,103
-------------- --------------
Total distributions $ 6,667,424 $ 9,571,826
============== ==============
</Table>
As of November 30, 2003, the tax-basis components of accumulated earnings were
as follows:
<Table>
Undistributed ordinary income $ 588,453
Undistributed long-term gains 1,512,754
--------------
Net accumulated earnings 2,101,207
Net unrealized appreciation 38,518,427
--------------
Total accumulated earnings $ 40,619,634
==============
</Table>
As of November 30, 2003, the Fund had temporary book/tax differences
attributable to capital loss deferrals on wash sales.
7. LEGAL MATTERS
The Investment Manager, certain affiliates of the Investment Manager and certain
investment companies advised by the Investment Manager or its affiliates,
including the Fund, are named as defendants in a number of recently filed,
similar class action complaints. These complaints generally allege 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 steer investors to the funds
advised by the Investment Manager or its affiliates 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 alleged efforts to steer
16
<Page>
investors to these funds. The complaints seek, among other things, unspecified
compensatory damages, rescissionary damages, fees and costs. The defendants
intend to move to dismiss these actions and otherwise vigorously to defend them.
While the Fund believes that it has meritorious defenses, the ultimate outcome
of these matters 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 these matters.
17
<Page>
MORGAN STANLEY REAL ESTATE FUND
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<Table>
<Caption>
FOR THE PERIOD
FOR THE YEAR ENDED NOVEMBER 30, APRIL 28, 1999*
---------------------------------------------------------- THROUGH
2003 2002 2001 2000 NOVEMBER 30, 1999
------------ ------------ ------------ ------------ -----------------
CLASS A SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period $ 10.59 $ 11.39 $ 10.51 $ 8.63 $ 10.00
------------ ------------ ------------ ------------ ------------
Income (loss) from investment operations:
Net investment income++ 0.32 0.29 0.35 0.31 0.21
Net realized and unrealized gain (loss) 3.20 (0.17) 0.93 2.00 (1.38)
------------ ------------ ------------ ------------ ------------
Total income (loss) from investment
operations 3.52 0.12 1.28 2.31 (1.17)
------------ ------------ ------------ ------------ ------------
Less dividends and distributions from:
Net investment income (0.32) (0.28) (0.35) (0.33) (0.20)
Net realized gain (0.21) (0.64) (0.05) (0.04) -
Paid-in-capital - - - (0.06) -
------------ ------------ ------------ ------------ ------------
Total dividends and distributions (0.53) (0.92) (0.40) (0.43) (0.20)
Net asset value, end of period $ 13.58 $ 10.59 $ 11.39 $ 10.51 $ 8.63
============ ============ ============ ============ ============
TOTAL RETURN+ 34.61% 0.88% 12.38% 27.46% (11.88)%(1)
RATIOS TO AVERAGE NET ASSETS(3):
Expenses 1.62% 1.63% 1.54% 1.71% 1.81 %(2)
Net investment income 2.77% 2.52% 3.19% 3.20% 3.59 %(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands $ 7,378 $ 6,401 $ 7,860 $ 9,943 $ 5,634
Portfolio turnover rate 23% 28% 40% 57% 27%(1)
</Table>
- ----------
* COMMENCEMENT OF OPERATIONS.
++ THE PER SHARE AMOUNTS WERE COMPUTED USING AN AVERAGE NUMBER OF SHARES
OUTSTANDING DURING THE PERIOD.
+ DOES NOT REFLECT THE DEDUCTION OF SALES CHARGE. CALCULATED BASED ON THE NET
ASSET VALUE AS OF THE LAST BUSINESS DAY OF THE PERIOD.
(1) NOT ANNUALIZED.
(2) ANNUALIZED.
(3) REFLECTS OVERALL FUND RATIOS FOR INVESTMENT INCOME AND NON-CLASS SPECIFIC
EXPENSES.
SEE NOTES TO FINANCIAL STATEMENTS
18
<Page>
<Table>
<Caption>
FOR THE PERIOD
FOR THE YEAR ENDED NOVEMBER 30, APRIL 28, 1999*
---------------------------------------------------------- THROUGH
2003 2002 2001 2000 NOVEMBER 30, 1999
------------ ------------ ------------ ------------ -----------------
CLASS B SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period $ 10.55 $ 11.36 $ 10.49 $ 8.62 $ 10.00
------------ ------------ ------------ ------------ ------------
Income (loss) from investment operations:
Net investment income++ 0.24 0.20 0.27 0.24 0.16
Net realized and unrealized gain (loss) 3.19 (0.17) 0.92 1.99 (1.37)
------------ ------------ ------------ ------------ ------------
Total income (loss) from investment
operations 3.43 0.03 1.19 2.23 (1.21)
------------ ------------ ------------ ------------ ------------
Less dividends and distributions from:
Net investment income (0.24) (0.20) (0.27) (0.27) (0.17)
Net realized gain (0.21) (0.64) (0.05) (0.04) -
Paid-in-capital - - - (0.05) -
------------ ------------ ------------ ------------ ------------
Total dividends and distributions (0.45) (0.84) (0.32) (0.36) (0.17)
------------ ------------ ------------ ------------ ------------
Net asset value, end of period $ 13.53 $ 10.55 $ 11.36 $ 10.49 $ 8.62
============ ============ ============ ============ ============
TOTAL RETURN+ 33.64% 0.15% 11.41% 26.41% (12.27)%(1)
RATIOS TO AVERAGE NET ASSETS(3):
Expenses 2.37% 2.38% 2.36% 2.46% 2.56%(2)
Net investment income 2.02% 1.77% 2.37% 2.45% 2.84%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands $ 108,680 $ 95,343 $ 86,479 $ 75,101 $ 59,645
Portfolio turnover rate 23% 28% 40% 57% 27%(1)
</Table>
- ----------
* COMMENCEMENT OF OPERATIONS.
++ THE PER SHARE AMOUNTS WERE COMPUTED USING AN AVERAGE NUMBER OF SHARES
OUTSTANDING DURING THE PERIOD.
+ DOES NOT REFLECT THE DEDUCTION OF SALES CHARGE. CALCULATED BASED ON THE NET
ASSET VALUE AS OF THE LAST BUSINESS DAY OF THE PERIOD.
(1) NOT ANNUALIZED.
(2) ANNUALIZED.
(3) REFLECTS OVERALL FUND RATIOS FOR INVESTMENT INCOME AND NON-CLASS SPECIFIC
EXPENSES.
SEE NOTES TO FINANCIAL STATEMENTS
19
<Page>
<Table>
<Caption>
FOR THE PERIOD
FOR THE YEAR ENDED NOVEMBER 30, APRIL 28, 1999*
---------------------------------------------------------- THROUGH
2003 2002 2001 2000 NOVEMBER 30, 1999
------------ ------------ ------------ ------------ -----------------
CLASS C SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period $ 10.55 $ 11.36 $ 10.50 $ 8.62 $ 10.00
------------ ------------ ------------ ------------ ------------
Income (loss) from investment operations:
Net investment income++ 0.23 0.20 0.27 0.26 0.16
Net realized and unrealized gain (loss) 3.20 (0.17) 0.91 1.98 (1.38)
------------ ------------ ------------ ------------ ------------
Total income (loss) from investment
operations 3.43 0.03 1.18 2.24 (1.22)
------------ ------------ ------------ ------------ ------------
Less dividends and distributions from:
Net investment income (0.24) (0.20) (0.27) (0.27) (0.16)
Net realized gain (0.21) (0.64) (0.05) (0.04) -
Paid-in-capital - - - (0.05) -
------------ ------------ ------------ ------------ ------------
Total dividends and distributions (0.45) (0.84) (0.32) (0.36) (0.16)
------------ ------------ ------------ ------------ ------------
Net asset value, end of period $ 13.53 $ 10.55 $ 11.36 $ 10.50 $ 8.62
============ ============ ============ ============ ============
TOTAL RETURN+ 33.54% 0.15% 11.39% 26.50% (12.29)%(1)
RATIOS TO AVERAGE NET ASSETS(3):
Expenses 2.37% 2.38% 2.36% 2.46% 2.56%(2)
Net investment income 2.02% 1.77% 2.37% 2.45% 2.84%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands $ 12,359 $ 9,129 $ 7,504 $ 6,759 $ 7,698
Portfolio turnover rate 23% 28% 40% 57% 27%(1)
</Table>
- ----------
* COMMENCEMENT OF OPERATIONS.
++ THE PER SHARE AMOUNTS WERE COMPUTED USING AN AVERAGE NUMBER OF SHARES
OUTSTANDING DURING THE PERIOD.
+ DOES NOT REFLECT THE DEDUCTION OF SALES CHARGE. CALCULATED BASED ON THE NET
ASSET VALUE AS OF THE LAST BUSINESS DAY OF THE PERIOD.
(1) NOT ANNUALIZED.
(2) ANNUALIZED.
(3) REFLECTS OVERALL FUND RATIOS FOR INVESTMENT INCOME AND NON-CLASS SPECIFIC
EXPENSES.
SEE NOTES TO FINANCIAL STATEMENTS
20
<Page>
<Table>
<Caption>
FOR THE PERIOD
FOR THE YEAR ENDED NOVEMBER 30, APRIL 28, 1999*
---------------------------------------------------------- THROUGH
2003 2002 2001 2000 NOVEMBER 30, 1999
------------ ------------ ------------ ------------ -----------------
CLASS D SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period $ 10.59 $ 11.40 $ 10.53 $ 8.64 $ 10.00
------------ ------------ ------------ ------------ ------------
Income (loss) from investment operations:
Net investment income++ 0.34 0.30 0.37 0.27 0.15
Net realized and unrealized gain (loss) 3.22 (0.16) 0.93 2.08 (1.30)
------------ ------------ ------------ ------------ ------------
Total income (loss) from investment
operations 3.56 0.14 1.30 2.35 (1.15)
------------ ------------ ------------ ------------ ------------
Less dividends and distributions from:
Net investment income (0.35) (0.31) (0.38) (0.36) (0.21)
Net realized gain (0.21) (0.64) (0.05) (0.04) -
Paid-in-capital - - - (0.06) -
------------ ------------ ------------ ------------ ------------
Total dividends and distributions (0.56) (0.95) (0.43) (0.46) (0.21)
------------ ------------ ------------ ------------ ------------
Net asset value, end of period $ 13.59 $ 10.59 $ 11.40 $ 10.53 $ 8.64
============ ============ ============ ============ ============
TOTAL RETURN+ 34.92% 1.14% 12.58% 27.88% (11.69)%(1)
RATIOS TO AVERAGE NET ASSETS(3):
Expenses 1.37% 1.38% 1.36% 1.46% 1.56%(2)
Net investment income 3.02% 2.77% 3.37% 3.45% 3.84%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands $ 58,930 $ 33,652 $ 14,349 $ 5,193 $ 26
Portfolio turnover rate 23% 28% 40% 57% 27%(1)
</Table>
- ----------
* COMMENCEMENT OF OPERATIONS.
++ THE PER SHARE AMOUNTS WERE COMPUTED USING AN AVERAGE NUMBER OF SHARES
OUTSTANDING DURING THE PERIOD.
+ CALCULATED BASED ON THE NET ASSET VALUE AS OF THE LAST BUSINESS DAY OF THE
PERIOD.
(1) NOT ANNUALIZED.
(2) ANNUALIZED.
(3) REFLECTS OVERALL FUND RATIOS FOR INVESTMENT INCOME AND NON-CLASS SPECIFIC
EXPENSES.
SEE NOTES TO FINANCIAL STATEMENTS
21
<Page>
MORGAN STANLEY REAL ESTATE FUND
INDEPENDENT AUDITORS' REPORT
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES OF
MORGAN STANLEY REAL ESTATE FUND:
We have audited the accompanying statement of assets and liabilities of Morgan
Stanley Real Estate Fund (the "Fund"), including the portfolio of investments,
as of November 30, 2003, and the related statements of operations for the year
then ended and changes in net assets for each of the two years in the period
then ended, and the financial highlights for each of the periods presented.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of November 30, 2003, by correspondence with the custodian.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Morgan
Stanley Real Estate Fund as of November 30, 2003, the results of its operations
for the year then ended, the changes in its net assets for each of the two years
in the period then ended, and the financial highlights for each of the periods
presented, in conformity with accounting principles generally accepted in the
United States of America.
Deloitte & Touche LLP
NEW YORK, NEW YORK
JANUARY 21, 2004
2003 FEDERAL TAX NOTICE (UNAUDITED)
During the fiscal year ended November 30, 2003, the Fund paid to its
shareholders $0.20 per share from long-term capital gains.
For the fiscal year ended November 30, 2003, 18.43% of the income
dividends paid qualified for the dividends received deduction
available to corporations. Additionally, please note that $944,929 of
the Fund's income dividends paid during the fiscal year ended November
30, 2003 qualified for the lower income tax rate available to
individuals under the Jobs and Growth Tax Relief Reconciliation Act of
2003.
22
<Page>
MORGAN STANLEY REAL ESTATE FUND
TRUSTEE AND OFFICER INFORMATION
INDEPENDENT TRUSTEES:
<Table>
<Caption>
NUMBER OF
PORTFOLIOS
TERM OF IN FUND
POSITION(S) OFFICE AND COMPLEX
NAME, AGE AND ADDRESS OF HELD WITH LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
INDEPENDENT TRUSTEE REGISTRANT TIME SERVED* DURING PAST 5 YEARS** BY TRUSTEE*** HELD BY TRUSTEE
- ------------------------------------ ----------- --------------- ----------------------- ------------- --------------------
Michael Bozic (62) Trustee Since Retired; Director or 216 Director of Weirton
c/o Mayer, Brown, Rowe & Maw LLP April 1994 Trustee of the Retail Steel Corporation.
Counsel to the Independent Directors Funds and TCW/DW Term
1675 Broadway Trust 2003 (since April
New York, NY 1994) and the
Institutional Funds
(since July 2003);
formerly Vice Chairman
of Kmart Corporation
(December 1998-October
2000), Chairman and
Chief Executive Officer
of Levitz Furniture
Corporation (November
1995-November 1998) and
President and Chief
Executive Officer of
Hills Department Stores
(May 1991-July 1995);
formerly variously
Chairman, Chief
Executive Officer,
President and Chief
Operating Officer
(1987-1991) of the
Sears Merchandise Group
of Sears, Roebuck & Co.
Edwin J. Garn (71) Trustee Since Director or Trustee of 216 Director of Franklin
c/o Summit Ventures LLC January 1993 the Retail Funds and Covey (time
1 Utah Center TCW/DW Term Trust 2003 management systems),
201 S. Main Street (since January 1993) BMW Bank of North
Salt Lake City, UT and the Institutional America, Inc.
Funds (since July (industrial loan
2003); member of the corporation), United
Utah Regional Advisory Space Alliance
Board of Pacific Corp.; (joint venture
formerly United States between Lockheed
Senator (R-Utah) Martin and the
(1974-1992) and Boeing Company) and
Chairman, Senate Nuskin Asia Pacific
Banking Committee (multilevel
(1980-1986), Mayor of marketing); member
Salt Lake City, Utah of the board of
(1971-1974), Astronaut, various civic and
Space Shuttle Discovery charitable
(April 12-19, 1985), organizations.
and Vice Chairman,
Huntsman Corporation
(chemical company).
Wayne E. Hedien (69) Trustee Since Retired; Director or 216 Director of The PMI
c/o Mayer, Brown, Rowe & Maw LLP September Trustee of the Retail Group Inc. (private
Counsel to the Independent Directors 1997 Funds and TCW/DW Term mortgage insurance);
1675 Broadway Trust 2003; (Since Trustee and Vice
New York, NY September 1997) and the Chairman of The
Institutional Funds Field Museum of
(since July 2003); Natural History;
formerly associated director of various
with the Allstate other business and
Companies (1966-1994), charitable
most recently as organizations.
Chairman of The
Allstate Corporation
(March 1993-December
1994) and Chairman and
Chief Executive Officer
of its wholly-owned
subsidiary, Allstate
Insurance Company (July
1989-December 1994).
</Table>
23
<Page>
<Table>
<Caption>
NUMBER OF
PORTFOLIOS
TERM OF IN FUND
POSITION(S) OFFICE AND COMPLEX
NAME, AGE AND ADDRESS OF HELD WITH LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
INDEPENDENT TRUSTEE REGISTRANT TIME SERVED* DURING PAST 5 YEARS** BY TRUSTEE*** HELD BY TRUSTEE
- ------------------------------------ ----------- --------------- ----------------------- ------------- --------------------
Dr. Manuel H. Johnson (54) Trustee Since Chairman of the Audit 216 Director of NVR,
c/o Johnson Smick International, Inc. July 1991 Committee and Director Inc. (home
2099 Pennsylvania Avenue, N.W. or Trustee of the construction);
Suite 950 Retail Funds and TCW/DW Chairman and Trustee
Washington, D.C. Term Trust 2003 (since of the Financial
July 1991) and the Accounting
Institutional Funds Foundation
(since July 2003); (oversight
Senior Partner, Johnson organization of the
Smick International, Financial Accounting
Inc., a consulting Standards Board);
firm; Co-Chairman and a Director of RBS
founder of the Group of Greenwich Capital
Seven Council (G7C), an Holdings (financial
international economic holding company).
commission; formerly
Vice Chairman of the
Board of Governors of
the Federal Reserve
System and Assistant
Secretary of the U.S.
Treasury.
Joseph J. Kearns (61) Trustee Since Deputy Chairman of the 217 Director of Electro
PMB754 July 2003 Audit Committee and Rent Corporation
23852 Pacific Coast Highway Director or Trustee of (equipment leasing),
Malibu, CA the Retail Funds and The Ford Family
TCW/DW Term Trust 2003 Foundation, and the
(since July 2003) and UCLA Foundation.
the Institutional Funds
(since August 1994);
previously Chairman of
the Audit Committee of
the Institutional Funds
(October 2001-July
2003); President,
Kearns & Associates LLC
(investment
consulting); formerly
CFO of the J. Paul
Getty Trust.
Michael E. Nugent (67) Trustee Since Chairman of the 216 Director of various
c/o Triumph Capital, L.P. July 1991 Insurance Committee and business
445 Park Avenue Director or Trustee of organizations.
New York, NY the Retail Funds and
TCW/DW Term Trust 2003
(since July 1991) and
the Institutional Funds
(since July 2001);
General Partner of
Triumph Capital, L.P.,
a private investment
partnership; formerly
Vice President, Bankers
Trust Company and BT
Capital Corporation
(1984-1988).
Fergus Reid (71) Trustee Since Chairman of the 217 Trustee and Director
85 Charles Colman Blvd. July 2003 Governance Committee of certain
Pawling, NY and Director or Trustee investment companies
of the Retail Funds and in the JPMorgan
TCW/DW Term Trust 2003 Funds complex
(since July 2003) and managed by JP Morgan
the Institutional Funds Investment
(since June 1992); Management Inc.
Chairman of Lumelite
Plastics Corporation.
</Table>
24
<Page>
INTERESTED TRUSTEES:
<Table>
<Caption>
NUMBER OF
PORTFOLIOS
TERM OF IN FUND
POSITION(S) OFFICE AND COMPLEX
NAME, AGE AND ADDRESS OF HELD WITH LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
INDEPENDENT TRUSTEE REGISTRANT TIME SERVED* DURING PAST 5 YEARS** BY TRUSTEE*** HELD BY TRUSTEE
- ------------------------------------ ----------- --------------- ----------------------- ------------- --------------------
Charles A. Fiumefreddo (70) Chairman of Since Chairman and Director 216 None
c/o Morgan Stanley Trust the Board July 1991 or Trustee of the
Harborside Financial Center, and Trustee Retail Funds and TCW/DW
Plaza Two, Term Trust 2003 (since
Jersey City, NJ July 1991) and the
Institutional Funds
(since July 2003);
formerly Chief
Executive Officer of
the Retail Funds and
the TCW/DW Term Trust
2003 (until September
2002).
James F. Higgins (55) Trustee Since Director or Trustee of 216 Director of AXA
c/o Morgan Stanley Trust June 2000 the Retail Funds and Financial, Inc. and
Harborside Financial Center, TCW/DW Term Trust 2003 The Equitable Life
Plaza Two, (since June 2000) and Assurance Society of
Jersey City, NJ the Institutional Funds the United States
(since July 2003); (financial
Senior Advisor of services).
Morgan Stanley (since
August 2000); Director
of the Distributor and
Dean Witter Realty
Inc.; previously
President and Chief
Operating Officer of
the Private Client
Group of Morgan Stanley
(May 1999-August 2000),
and President and Chief
Operating Officer of
Individual Securities
of Morgan Stanley
(February 1997-May
1999).
Philip J. Purcell (60) Trustee Since Director or Trustee of 216 Director of American
1585 Broadway April 1994 the Retail Funds and Airlines, Inc. and
New York, NY TCW/DW Term Trust 2003 its parent company,
(since April 1994) and AMR Corporation.
the Institutional Funds
(since July 2003);
Chairman of the Board
of Directors and Chief
Executive Officer of
Morgan Stanley and
Morgan Stanley DW Inc.;
Director of the
Distributor; Chairman
of the Board of
Directors and Chief
Executive Officer of
Novus Credit Services
Inc.; Director and/or
officer of various
Morgan Stanley
subsidiaries.
</Table>
- ----------
* THIS IS THE EARLIEST DATE THE TRUSTEE BEGAN SERVING THE FUNDS ADVISED BY
MORGAN STANLEY INVESTMENT ADVISORS INC. (THE "INVESTMENT MANAGER ") (THE
"RETAIL FUNDS ").
** THE DATES REFERENCED BELOW INDICATING COMMENCEMENT OF SERVICES AS
DIRECTOR/TRUSTEE FOR THE RETAIL FUNDS AND THE FUNDS ADVISED BY MORGAN
STANLEY INVESTMENT MANAGEMENT INC., MORGAN STANLEY INVESTMENTS LP AND MORGAN
STANLEY AIP GP LP (THE "INSTITUTIONAL FUNDS") REFLECT THE EARLIEST DATE THE
DIRECTOR/TRUSTEE BEGAN SERVING THE RETAIL OR INSTITUTIONAL FUNDS AS
APPLICABLE.
*** THE FUND COMPLEX INCLUDES ALL OPEN-END AND CLOSED-END FUNDS (INCLUDING ALL
OF THEIR PORTFOLIOS) ADVISED BY THE INVESTMENT MANAGER AND ANY FUNDS THAT
HAVE AN INVESTMENT ADVISOR THAT IS AN AFFILIATED PERSON OF THE INVESTMENT
MANAGER (INCLUDING BUT NOT LIMITED TO MORGAN STANLEY INVESTMENT MANAGEMENT
INC. AND MORGAN STANLEY INVESTMENTS LP).
25
<Page>
OFFICERS:
<Table>
<Caption>
TERM OF
POSITION(S) OFFICE AND
NAME, AGE AND ADDRESS OF HELD WITH LENGTH OF
EXECUTIVE OFFICER REGISTRANT TIME SERVED* PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS**
- ------------------------------------ ----------- --------------- ---------------------------------------------
Mitchell M. Merin (50) President Since May 1999 President and Chief Operating Officer of
1221 Avenue of the Americas Morgan Stanley Investment Management Inc.;
New York, NY President, Director and Chief Executive
Officer of the Investment Manager and Morgan
Stanley Services; Chairman, Chief Executive
Officer and Director of the Distributor;
Chairman and Director of the Transfer Agent;
Director of various Morgan Stanley
subsidiaries; President Morgan Stanley
Investments LP (since February 2003);
President of the Institutional Funds (since
July 2003) and President of the Retail Funds
(since May 1999); Trustee (since July 2003)
and President (since December 2002) of the
Van Kampen Closed-End Funds; Trustee (since
May 1999) and President (since October 2002)
of the Van Kampen Open-End Funds.
Ronald E. Robison (64) Executive Since Chief Global Operations Officer and Managing
1221 Avenue of the Americas Vice April 2003 Director of Morgan Stanley Investment
New York, NY President Management Inc.; Managing DIrector of Morgan
and Stanley & Co. Incorporated; Managing DIrector
Principal of Morgan Stanley; Managing Director, Chief
Executive Administrative Officer and Director of the
Officer Investment Manager and Morgan Stanley
Services; Chief Executive Officer and
Director of the Transfer Agent; Managing
Director and Director of the Distributor;
Executive Vice President and Principal
Executive Officer of the Institutional Funds
(since July 2003); previously President of
the Institutional Funds (March 2001-July
2003) and Director of the Institutional Funds
(March 2001-July 2003).
Barry Fink (48) Vice Since General Counsel (since May 2000) and Managing
1221 Avenue of the Americas President February 1997 Director (since December 2000) of Morgan
New York, NY and Stanley Investment Management; Managing
General Director (since December 2000), Secretary
Counsel (since February 1997) and Director (since
July 1998) of the Investment Manager and
Morgan Stanley Services; Assistant Secretary
of Morgan Stanley DW; Chief Legal Officer of
Morgan Stanley Investments LP (since July
2002); Vice President of the Institutional
Funds (since July 2003); Vice President and
Secretary of the Distributor; previously
Secretary of the Retail Funds (February
1997-July 2003); previously Vice President
and Assistant General Counsel of the
Investment Manager and Morgan Stanley
Services (February 1997-December 2001).
Joseph J. McAlinden (60) Vice Since July 1995 Managing Director and Chief Investment
1221 Avenue of the Americas President Officer of the Investment Manager, Morgan
New York, NY Stanley Investment Management Inc. and Morgan
Stanley Investments LP; Director of the
Transfer Agent, Chief Investment Officer of
the Van Kampen Funds; Vice President of the
Institutional Funds (since July 2003) and the
Retail Funds (since July 1995).
Stefanie V. Chang (37) Vice Since July 2003 Executive Director of Morgan Stanley & Co.
1221 Avenue of the Americas President and Morgan Stanley Investment Management Inc.
New York, NY and Vice President of the Institutional Funds
(since December 1997) and the Retail Funds
(since July 2003); formerly practiced law
with the New York law firm of Rogers & Wells
(now Clifford Chance LLP).
</Table>
26
<Page>
<Table>
<Caption>
TERM OF
POSITION(S) OFFICE AND
NAME, AGE AND ADDRESS OF HELD WITH LENGTH OF
EXECUTIVE OFFICER REGISTRANT TIME SERVED* PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS**
- ------------------------------------ ----------- --------------- ---------------------------------------------
Francis J. Smith (38) Treasurer Treasurer since Executive Director of the Investment Manager
c/o Morgan Stanley Trust and Chief July 2003 and and Morgan Stanley Services (since December
Harborside Financial Center, Financial Chief Financial 2001); previously Vice President of the
Plaza Two, Officer Officer since Retail Funds (September 2002-July 2003);
Jersey City, NJ September 2002 previously Vice President of the Investment
Manager and Morgan Stanley Services (August
2000-November 2001) and Senior Manager at
PricewaterhouseCoopers LLP (January
1998-August 2000).
Thomas F. Caloia (57) Vice Since July 2003 Executive Director (since December 2002) and
c/o Morgan Stanley Trust President Assistant Treasurer of the Investment
Harborside Financial Center, Manager, the Distributor and Morgan Stanley
Plaza Two, Services; previously Treasurer of the Retail
Jersey City, NJ Funds (April 1989-July 2003); formerly First
Vice President of the Investment Manager, the
Distributor and Morgan Stanley Services.
Mary E. Mullin (36) Secretary Since July 2003 Vice President of Morgan Stanley & Co.
1221 Avenue of the Americas Incorporated and Morgan Stanley Investment
New York, NY Management Inc.; Secretary of the
Institutional Funds (since June 1999) and the
Retail Funds (since July 2003); formerly
practiced law with the New York law firms of
McDermott, Will & Emery and Skadden, Arps,
Slate, Meagher & Flom LLP.
</Table>
- ----------
* THIS IS THE EARLIEST DATE THE OFFICER BEGAN SERVING THE RETAIL FUNDS. EACH
OFFICER SERVES AN INDEFINITE TERM, UNTIL HIS OR HER SUCCESSOR IS ELECTED.
** THE DATES REFERENCED BELOW INDICATING COMMENCEMENT OF SERVICE AS AN OFFICER
FOR THE RETAIL AND INSTITUTIONAL FUNDS REFLECT THE EARLIEST DATE THE OFFICER
BEGAN SERVING THE RETAIL OR INSTITUTIONAL FUNDS AS APPLICABLE.
27
<Page>
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
Philip J. Purcell
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 and GENERAL COUNSEL
Joseph J. McAlinden
VICE PRESIDENT
Stephanie V. Chang
VICE PRESIDENT
Francis J. Smith
TREASURER and CHIEF FINANCIAL OFFICER
Thomas Caloia
VICE PRESIDENT
Mary E. Mullin
SECRETARY
TRANSFER AGENT
Morgan Stanley Trust
Harborside Financial Center, Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT AUDITORS
Deloitte & Touche LLP
Two World Financial Center
New York, New York 10281
INVESTMENT MANAGER
Morgan Stanley Investment Advisors Inc.
1221 Avenue of the Americas
New York, New York 10020
SUB-ADVISOR
Morgan Stanley Investment Management Inc.
1221 Avenue of the Americas
New York, New York 10020
This report is submitted for the general information of the shareholders of the
Fund. For more detailed information about the Fund, its fees and expenses and
other pertinent information, please read its Prospectus. The Fund's Statement of
Additional Information contains additional information about the Fund, including
its trustees. It is available, without charge, by calling (800) 869-NEWS.
This report is not authorized for distribution to prospective investors in the
Fund unless preceded or accompanied by an effective Prospectus. Read the
prospectus carefully before investing.
Investments and services offered through Morgan Stanley DW Inc., member SIPC.
Morgan Stanley Distributors Inc., member NASD.
(C) 2003 Morgan Stanley
[MORGAN STANLEY LOGO]
[GRAPHIC]
MORGAN STANLEY FUNDS
MORGAN STANLEY
REAL ESTATE FUND
ANNUAL REPORT
NOVEMBER 30, 2003
[MORGAN STANLEY LOGO]
36068RPT-00-13281A04-AP-1/04
<Page>
Item 2. Code of Ethics.
(a) The Fund has adopted a code of ethics (the "Code of Ethics") that
applies to its principal executive officer, principal financial officer,
principal accounting officer or controller, or persons performing similar
functions, regardless of whether these individuals are employed by the Fund or a
third party.
(b) No information need be disclosed pursuant to this paragraph.
(c) Not applicable.
(d) Not applicable.
(e) Not applicable.
(f)
(1) The Fund's Code of Ethics is attached hereto as Exhibit A.
(2) Not applicable.
(3) Not applicable.
Item 3. Audit Committee Financial Expert.
The Fund's Board of Trustees has determined that it has two "audit committee
financial experts" serving on its audit committee, each of whom are
"independent" Trustees: Dr. Manuel H. Johnson and Joseph J. Kearns. Under
applicable securities laws, a person who is determined to be an audit committee
financial expert will not be deemed an "expert" for any purpose, including
without limitation for the purposes of Section 11 of the Securities Act of 1933,
as a result of being designated or identified as an audit committee financial
expert. The designation or identification of a person as an audit committee
financial expert does not impose on such person any duties, obligations, or
liabilities that are greater than the duties, obligations, and liabilities
imposed on such person as a member of the audit committee and Board of Trustees
in the absence of such designation or identification.
Item 4. Principal Accountant Fees and Services
Applicable only for reports covering fiscal years ending on or after December
15, 2003.
<Page>
Item 5. Audit Committee of Listed Registrants.
Applicable only for reports covering periods ending on or after the earlier of
(i) the first annual shareholder meeting after January 15, 2004 or (ii) October
31, 2004.
Item 6. [Reserved.]
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
Applicable only to annual reports filed by closed-end funds.
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) The Code of Ethics for Principal Executive and Senior Financial Officers is
attached hereto.
(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.
<Page>
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 Real Estate Fund
/s/ Ronald E. Robison
Ronald E. Robison
Principal Executive Officer
January 22, 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
January 22, 2004
/s/ Francis Smith
Francis Smith
Principal Financial Officer
January 22, 2004