<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: 811-04222
Morgan Stanley New York Tax-Free Income Fund
(Exact name of registrant as specified in charter)
1221 Avenue of the Americas, New York, New York 10020
(Address of principal executive offices) (Zip code)
Ronald E. Robison
1221 Avenue of the Americas, New York, New York 10020
(Name and address of agent for service)
Registrant's telephone number, including area code: 212-762-4000
Date of fiscal year end: December 31, 2003
Date of reporting period: December 31, 2003
Item 1 - Report to Shareholders
<Page>
WELCOME, SHAREHOLDER:
IN THIS REPORT, YOU'LL LEARN ABOUT HOW YOUR INVESTMENT IN MORGAN STANLEY NEW
YORK TAX-FREE INCOME 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 THE 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 December 31, 2003
TOTAL RETURN FOR THE 12-MONTHS ENDED DECEMBER 31, 2003
<Table>
<Caption>
LEHMAN LIPPER
BROTHERS NEW YORK
MUNICIPAL MUNICIPAL
BOND DEBT FUNDS
CLASS A CLASS B CLASS C CLASS D INDEX(1) INDEX(2)
4.90% 3.81% 3.98% 4.59% 5.31% 4.95%
</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
In 2003, municipal bonds experienced a wide range of market conditions with
yields reaching record lows before spiking upward and ending the year near where
they began. Interest rates fell through the first six months of the period as
investors sought the relative safe haven of the bond market. This war-induced
"flight to quality" included municipal bonds, which appreciated as a result of
falling yields. That said, municipals lagged the market leadership of Treasuries
and yields on 10- and 30-year insured municipal bonds at times surpassed
comparable Treasury yields. This disparity created demand from value oriented
taxable institutional investors who "crossed over" to buy municipal bonds.
The bond rally reversed in mid-year, however, when 10-year Treasury yields
suffered their single greatest one-month increase in more than 20 years. While
municipal yields also rose, performance relative to Treasuries improved as the
ratio of municipal yields to Treasuries declined across maturities.
Issuance was heavy during the first half of the year as municipalities sought to
take advantage of low interest rates. Volume began to drop off in August as
rising interest rates slowed refundings. Even with the slowdown, municipal
volume reached a record $383 billion for the year. California increased that
state's share of total volume to 15 percent. New York, Illinois, Texas and
Florida, the next largest states in terms of issuance, represented an additional
29 percent of the national total. Issues enhanced with bond insurance maintained
a 49 percent market share.
New York was not immune to the budget difficulties experienced by most states.
Demand for New York debt remained strong, however, and helped support price
levels in spite of fiscal challenges. State and local municipalities responded
to this demand by stepping up issuance of new and refinanced debt.
PERFORMANCE ANALYSIS
Morgan Stanley New York Tax-Free Income Fund underperformed both the Lehman
Brothers Municipal Bond Index and the Lipper New York Municipal Debt Funds Index
for the 12 months ended December 31, 2003. The New York municipal market closely
matched the performance of the Lehman Brothers Municipal Bond Index during the
period.
Several of the strategies we employed had a negative impact on performance.
Insured bonds, which performed well were underweighted relative to the Lehman
Brothers Municipal Bond Index. The Fund's returns were also hampered by exposure
to industrial revenue bonds. The strong revenue streams of these securities
continued to be attractive but they lagged the upside performance of the broader
municipal market because of their shorter durations. The strategy of keeping the
Fund's duration (a measure of interest rate sensitivity) shorter than its
benchmark also hampered
2
<Page>
returns. Though it proved beneficial when interest rates jumped in the summer
months it limited upside performance in the first half of the year when interest
rates declined.
On a more positive note, the Fund did benefit from refunding activity. Several
of the Fund's holdings were refunded by their issuers, which had refinanced
their debt to take advantage of lower interest costs. Refunding had the effect
of increasing the bonds' prices, and was a positive contributor to performance.
LARGEST SECTORS
<Table>
Transportation 12.3%
Other 10.7
Public Facilities 10.4
Hospital 9.9
Education 9.2
</Table>
LONG-TERM CREDIT ANALYSIS
<Table>
Aaa/AAA 44.9%
Aa/AA 33.2
A/A 14.2
Baa/BBB 3.9
Ba/BB 0.6
NR 3.2
</Table>
SUBJECT TO CHANGE DAILY. LARGEST SECTORS ARE AS A PERCENTAGE OF NET ASSETS AND
LONG-TERM CREDIT ANALYSIS IS AS A PERCENTAGE OF LONG-TERM INVESTMENTS. 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. TO SEEK ITS GOAL OF HIGH CURRENT INCOME, THE FUND INVESTS PRINCIPALLY IN
SECURITIES THAT PAY INTEREST EXEMPT FROM FEDERAL, NEW YORK STATE AND NEW
YORK CITY INCOME TAXES, WHICH AT THE TIME OF PURCHASE ARE RATED WITHIN THE
FOUR HIGHEST GRADES BY STANDARD & POOR'S CORPORATION, MOODY'S INVESTOR
SERVICE OR FITCH RATINGS SERVICE.
2. BY SELECTING INVESTMENT-GRADE MUNICIPAL OBLIGATIONS, THE FUND OFFERS THE
POTENTIAL FOR ATTRACTIVE CURRENT INCOME WITH LESS CREDIT RISK.
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.
3
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DISTRIBUTION BY MATURITY
(% of Long-Term Portfolio) As of December 31, 2003
[CHART]
WEIGHTED AVERAGE MATURITY: 16 YEARS
<Table>
1-5 12%
5-10 5%
10-20 64%
20-30 14%
30+ Years 5%
</Table>
Portfolio structure is subject to change.
4
<Page>
CALL AND COST (BOOK) YIELD STRUCTURE
(Based On Long-term Portfolio) As of December 31, 2003
[CHART]
YEARS BONDS CALLABLE--WEIGHTED AVERAGE CALL PROTECTION: 7 YEARS
<Table>
2004(a) 11%
2005 5%
2006 11%
2007 0%
2008 6%
2009 4%
2010 10%
2011 7%
2012 16%
2013 15%
2014+ 15%
</Table>
[CHART]
COST (BOOK) YIELD(b)--WEIGHTED AVERAGE BOOK YIELD: 5.6%
<Table>
2004(a) 6.8%
2005 6.6%
2006 6.5%
2007 0.0%
2008 5.3%
2009 5.6%
2010 5.5%
2011 4.9%
2012 4.8%
2013 4.8%
2014+ 5.9%
</Table>
(a) MAY INCLUDE ISSUES CALLABLE IN PREVIOUS YEARS.
(b) COST OR "BOOK" YIELD IS THE ANNUAL INCOME EARNED ON A PORTFOLIO INVESTMENT
BASED ON ITS ORIGINAL PURCHASE PRICE BEFORE THE FUND'S OPERATING EXPENSES.
FOR EXAMPLE, THE FUND IS EARNING A BOOK YIELD OF 6.8% ON 11% OF THE
LONG-TERM PORTFOLIO THAT IS CALLABLE IN 2004.
PORTFOLIO STRUCTURE IS SUBJECT TO CHANGE.
5
<Page>
PERFORMANCE SUMMARY
[CHART]
PERFORMANCE OF A $10,000 INVESTMENT -- CLASS B
<Table>
<Caption>
CLASS B^ LEHMAN(1) LIPPER(2)
Dec-1993 $ 10,000 $ 10,000 $ 10,000
Dec-1994 $ 9,226 $ 9,483 $ 9,260
Dec-1995 $ 10,756 $ 11,138 $ 10,854
Dec-1996 $ 11,060 $ 11,632 $ 11,191
Dec-1997 $ 11,992 $ 12,701 $ 12,217
Dec-1998 $ 12,630 $ 13,524 $ 12,924
Dec-1999 $ 12,052 $ 13,246 $ 12,284
Dec-2000 $ 13,364 $ 14,793 $ 13,777
Dec-2001 $ 13,800 $ 15,552 $ 14,327
Dec-2002 $ 15,087 $ 17,045 $ 15,620
Dec-2003 $ 15,662 $ 17,951 $ 16,394
</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 DECEMBER 31, 2003
<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 4.90%(3) 3.81%(3) 3.98%(3) 4.59%(3)
0.45(4) (1.15)(4) 2.99(4) --
5 YEARS 5.14(3) 4.40(3) 4.44(3) 5.13(3)
4.23(4) 4.06(4) 4.44(4) --
10 YEARS -- 4.59(3) -- --
-- 4.59(4) -- --
SINCE INCEPTION 5.40(3) 6.89(3) 4.73(3) 5.46(3)
4.69(4) 6.89(4) 4.73(4) --
</Table>
Notes on Performance
(1) THE LEHMAN BROTHERS MUNICIPAL BOND INDEX TRACKS THE PERFORMANCE OF
MUNICIPAL BONDS RATED AT LEAST Baa OR BBB BY MOODY'S INVESTORS SERVICE,
INC. OR STANDARD & POOR'S CORPORATION, RESPECTIVELY AND WITH MATURITIES OF
2 YEARS OR GREATER. INDEXES ARE UNMANAGED AND THEIR RETURNS DO NOT INCLUDE
ANY SALES CHARGES OR FEES. SUCH COSTS WOULD LOWER PERFORMANCE. IT IS NOT
POSSIBLE TO INVEST DIRECTLY IN AN INDEX.
(2) THE LIPPER NEW YORK MUNICIPAL DEBT FUNDS INDEX IS AN EQUALLY WEIGHTED
PERFORMANCE INDEX OF THE LARGEST QUALIFYING FUNDS (BASED ON NET ASSETS) IN
THE LIPPER NEW YORK MUNICIPAL DEBT FUNDS CLASSIFICATION. THE INDEX, WHICH
IS ADJUSTED FOR CAPITAL GAINS DISTRIBUTIONS AND INCOME DIVIDENDS, IS
UNMANAGED AND SHOULD NOT BE CONSIDERED AN INVESTMENT. THERE ARE CURRENTLY
30 FUNDS REPRESENTED IN THIS INDEX.
(3) FIGURE SHOWN ASSUMES REINVESTMENT OF ALL DISTRIBUTIONS AND DOES NOT REFLECT
THE DEDUCTION OF ANY SALES CHARGES.
(4) FIGURE SHOWN ASSUMES REINVESTMENT OF ALL DISTRIBUTIONS AND THE DEDUCTION OF
THE MAXIMUM APPLICABLE SALES CHARGE. SEE THE FUND'S CURRENT PROSPECTUS FOR
COMPLETE DETAILS ON FEES AND SALES CHARGES.
* THE MAXIMUM FRONT-END SALES CHARGE FOR CLASS A IS 4.25%.
** THE MAXIMUM CONTINGENT DEFERRED SALES CHARGE (CDSC) FOR CLASS B IS 5.0%.
THE CDSC DECLINES TO 0% AFTER SIX YEARS.
+ THE MAXIMUM CONTINGENT DEFERRED SALES CHARGE FOR CLASS C IS 1% FOR SHARES
REDEEMED WITHIN ONE YEAR OF PURCHASE.
++ CLASS D HAS NO SALES CHARGE.
^ CLOSING VALUE ASSUMING A COMPLETE REDEMPTION ON DECEMBER 31, 2003.
7
<Page>
MORGAN STANLEY NEW YORK TAX-FREE INCOME FUND
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2003
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------------------------------------------------
NEW YORK TAX-EXEMPT MUNICIPAL BONDS (94.3%)
GENERAL OBLIGATION (6.2%)
$ 3,500 New York State, Ser 1995 B Refg 5.70% 08/15/13 $ 3,753,890
4,550 Puerto Rico, Public Improvement Refg Ser 1987 A 3.00 07/01/06 4,554,141
- --------- --------------
8,050 8,308,031
- --------- --------------
EDUCATIONAL FACILITIES REVENUE (9.2%)
500 Hempstead Industrial Development Agency, Hofstra University
Ser 1996 (MBIA) 5.80 07/01/15 551,245
1,000 New York City Industrial Development Agency, Polytechnic
University 2000 6.00 11/01/20 830,710
New York State Dormitory Authority,
3,000 City University Ser 1993 A 5.75 07/01/09 3,453,180
1,000 Nassau County BOCES Ser 2001 A (FSA) 5.25 08/15/21 1,070,190
1,000 New York University Ser 1998 A (MBIA) 5.75 07/01/15 1,186,990
3,000 State University Ser 1989 B 0.00 05/15/05 2,928,750
2,000 State University 1993 Ser A 5.25 05/15/15 2,245,020
- --------- --------------
11,500 12,266,085
- --------- --------------
ELECTRIC REVENUE (4.6%)
Long Island Power Authority,
3,000 Ser 2000 A (FSA) 0.00 06/01/18 1,630,350
1,345 Ser 2003 C 5.50 09/01/21 1,443,400
1,000 Ser 1998 A (FSA) 5.125 12/01/22 1,053,450
2,000 New York State Power Authority, Ser 2000 A 5.25 11/15/40 2,077,780
- --------- --------------
7,345 6,204,980
- --------- --------------
HOSPITAL REVENUE (9.9%)
3,730 New York City Health & Hospital Corporation, Health 2003 Ser A
(Ambac) 5.25 02/15/22 4,005,050
New York State Dormitory Authority,
3,000 Memorial Sloan-Kettering Cancer Center 2003 Ser I 5.00 07/01/23 3,120,810
2,000 Winthrop South Nassau University Health System Ser 2003 B 5.50 07/01/23 2,055,860
3,980 New York State Medical Care Facilities Finance Agency, Hospital &
Nursing Home - FHA Insured Mtge 1993 Ser B 5.50 02/15/22 4,073,689
- --------- --------------
12,710 13,255,409
- --------- --------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
8
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL DEVELOPMENT/POLLUTION CONTROL REVENUE (7.7%)
New York City Industrial Development Agency, Airis JFK I LLC
$ 1,000 Ser 2001 A (AMT) 5.50% 07/01/28 $ 978,540
2,000 Brooklyn Navy Yard Cogeneration Partners LP Ser 1997 (AMT) 5.75 10/01/36 1,868,980
6,000 New York State Energy Research & Development Authority,
Brooklyn Union Gas Co 1991 Ser D 12.354++ 07/01/26 7,389,360
- --------- --------------
9,000 10,236,880
- --------- --------------
MORTGAGE REVENUE - MULTI-FAMILY (7.2%)
New York City Housing Development Corporation,
1,949 East Midtown Project - FHA Ins Sec 223 6.50 11/15/18 2,050,127
1,991 Ruppert Project - FHA Ins Sec 223 6.50 11/15/18 2,094,584
5,135 New York State Housing Finance Agency, 1996 Ser A Refg (FSA) 6.10 11/01/15 5,436,476
- --------- --------------
9,075 9,581,187
- --------- --------------
PUBLIC FACILITIES REVENUE (10.4%)
Empire State Development Corporation,
2,000 Personal Income Tax Ser 2002 A 5.375 03/15/19 2,191,360
1,750 Personal Income Tax Ser 2002 A 5.375 03/15/20 1,907,220
2,000 Personal Income Tax Ser 2002 C-1 (FGIC) 5.50 03/15/20 2,231,460
500 New York City Cultural Resources Trust, The New York Botanical
Garden Ser 1996 (MBIA) 5.75 07/01/16 545,820
1,035 New York City Industrial Development Agency, Royal Charter
Properties - The New York & Presbyterian Hospital Parking
Ser 2001 (FSA) 5.25 12/15/32 1,096,293
New York State Dormitory Authority,
4,000 School District Ser 2002 E (MBIA) 5.50 10/01/17 4,528,960
1,300 School District Ser 2002 C (MBIA) 5.25 04/01/21 1,407,419
- --------- --------------
12,585 13,908,532
- --------- --------------
RESOURCE RECOVERY REVENUE (0.4%)
500 Oneida-Herkimer Solid Waste Management Authority, Ser 1992 6.65 04/01/05 511,980
- --------- --------------
TRANSPORTATION FACILITIES REVENUE (12.3%)
400 Buffalo & Fort Erie Public Bridge Authority, Toll Bridge Ser 1995
(MBIA) 5.75 01/01/25 418,680
5,000 Metropolitan Transportation Authority, Dedicated Tax Fund
Refg Ser 2002 A (FSA) 5.25 11/15/24 5,314,799
3,000 New York State Thruway Authority, Local Highway & Bridge
Service Contract Ser 2001 A (FSA) 5.25 04/01/20 3,438,420
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
9
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------------------------------------------------
$ 3,000 Triborough Bridge & Tunnel Authority, Ser 2001 A 5.00% 01/01/32 $ 3,058,440
Puerto Rico Highway & Transportation Authority,
2,000 Refg Ser X 5.50 07/01/15 2,263,540
2,000 Ser 1998 A 4.75 07/01/38 1,958,460
- --------- --------------
15,400 16,452,339
- --------- --------------
WATER & SEWER REVENUE (7.3%)
3,000 New York City Municipal Water Finance Authority, 2001 Ser B 5.125 06/15/31 3,078,390
2,000 New York State Environment Facilities Corporation, Clean Water
Ser 2003 C 5.00 07/15/23 2,089,680
4,000 Suffolk County Industrial Development Agency, Southwest Sewer
Ser 1994 (FGIC) 6.00 02/01/08 4,589,560
- --------- --------------
9,000 9,757,630
- --------- --------------
OTHER REVENUE (10.7%)
2,000 Battery Park City Authority, Ser 2003 A 5.00 11/01/24 2,073,000
New York City Transitional Finance Authority,
2,000 2003 Ser D 5.25 02/01/20 2,183,200
2,000 2004 Ser B 5.00 08/01/23 2,079,440
2,000 Refg 2003 Ser A 5.50# 11/01/26 2,277,340
5,000 New York Local Government Assistance Corporation, Ser 1993 C 5.50 04/01/17 5,745,750
- --------- --------------
13,000 14,358,730
- --------- --------------
REFUNDED (8.4%)
2,000 New York City Transitional Finance Authority, 2001 Ser A 5.375+ 02/15/10 2,310,200
2,710 New York State Dormitory Authority, Suffolk County Judicial
Ser 1986 (ETM) 7.375 07/01/16 3,436,145
1,000 Triborough Bridge & Tunnel Authority, Refg Ser 1998 A (MBIA)
(ETM) 4.75 01/01/24 1,033,410
4,000 Puerto Rico Infrastructure Financing Authority, 2000 Ser A (ETM) 5.375 10/01/24 4,317,160
- --------- --------------
9,710 11,096,915
- --------- --------------
117,875 TOTAL NEW YORK TAX-EXEMPT MUNICIPAL BONDS (COST $115,760,961) 125,938,698
- --------- --------------
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
10
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM NEW YORK TAX-EXEMPT MUNICIPAL OBLIGATIONS (4.6%)
$ 4,100 New York City, Fiscal 2002 Subser A-7 (Ambac) (Demand 01/02/04) 1.15*% 11/01/24 $ 4,100,000
2,000 New York State Medical Care Facilities Finance Agency,
Mental Health Services 1993 Ser F Refg (Called for redemption
02/15/04) 5.25 02/15/19 2,050,100
- --------- --------------
6,100 TOTAL SHORT-TERM NEW YORK TAX-EXEMPT MUNICIPAL OBLIGATION (COST $5,874,250) 6,150,100
- --------- --------------
$ 123,975 TOTAL INVESTMENTS (COST $121,635,211) (a)(b) 98.9% 132,088,798
=========
OTHER ASSETS IN EXCESS OF LIABILITIES 1.1 1,500,879
----- --------------
NET ASSETS 100.0% $ 133,589,677
===== ==============
</Table>
- ----------
AMT ALTERNATIVE MINIMUM TAX.
ETM ESCROWED TO MATURITY.
* CURRENT COUPON OF VARIABLE RATE DEMAND OBLIGATION.
# STEP UP SECURITY; WILL CONVERT TO 14% ON NOVEMBER 1, 2011.
+ PREREFUNDED TO CALL DATE SHOWN.
++ CURRENT COUPON RATE FOR INVERSE FLOATING RATE MUNICIPAL OBLIGATION.
THIS RATE RESETS PERIODICALLY AS THE AUCTION RATE ON THE RELATED
SECURITY CHANGES. POSITIONS IN INVERSE FLOATING RATE MUNICIPAL
OBLIGATIONS HAVE TOTAL VALUE OF $7,389,360, WHICH REPRESENTS 5.5% OF
NET ASSETS.
(a) SECURITIES HAVE BEEN DESIGNATED AS COLLATERAL IN AN AMOUNT EQUAL TO
$10,821,117 IN CONNECTION WITH THE OPEN FUTURES CONTRACTS.
(b) THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES IS $121,533,828. THE
AGGREGATE GROSS UNREALIZED APPRECIATION IS $10,828,728 AND THE
AGGREGATE GROSS UNREALIZED DEPRECIATION IS $273,758, RESULTING IN NET
UNREALIZED APPRECIATION OF $10,554,970.
BOND INSURANCE:
AMBAC AMBAC ASSURANCE CORPORATION.
FHA FEDERAL HOUSING ADMINISTRATION.
FGIC FINANCIAL GUARANTY INSURANCE COMPANY.
FSA FINANCIAL SECURITY ASSURANCE INC.
MBIA MUNICIPAL BOND INVESTORS ASSURANCE CORPORATION.
SEE NOTES TO FINANCIAL STATEMENTS
11
<Page>
FUTURES CONTRACTS OPEN AT DECEMBER 31, 2003:
<Table>
<Caption>
NUMBER OF DESCRIPTION / DELIVERY UNDERLYING FACE UNREALIZED
CONTRACTS LONG/SHORT MONTH AND YEAR AMOUNT AT VALUE DEPRECIATION
- --------- ---------- ---------------------- --------------- ------------
100 Short U.S. Treasury Notes 5 Year
March / 2004 $ (11,162,500) $ (59,870)
25 Short U.S. Treasury Notes 10 Year
March / 2004 (2,806,641) (10,107)
---------
Total unrealized depreciation $ (69,977)
=========
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
12
<Page>
MORGAN STANLEY NEW YORK TAX-FREE INCOME FUND
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 2003
<Table>
ASSETS:
Investments in securities, at value (cost $121,635,211) $ 132,088,798
Cash 72,575
Receivable for:
Interest 1,851,290
Investments sold 418,193
Shares of beneficial interest sold 130,871
Prepaid expenses and other assets 12,324
--------------
TOTAL ASSETS 134,574,051
--------------
LIABILITIES:
Payable for:
Dividends and distributions to shareholders 548,735
Shares of beneficial interest redeemed 164,021
Distribution fee 81,094
Investment management fee 66,532
Variation margin 16,406
Accrued expenses 107,586
--------------
TOTAL LIABILITIES 984,374
--------------
NET ASSETS $ 133,589,677
==============
COMPOSITION OF NET ASSETS:
Paid-in-capital $ 123,012,913
Net unrealized appreciation 10,383,610
Accumulated undistributed net investment income 111,954
Accumulated undistributed net realized gain 81,200
--------------
NET ASSETS $ 133,589,677
==============
CLASS A SHARES:
Net Assets $ 4,284,850
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE) 363,502
NET ASSET VALUE PER SHARE $ 11.79
==============
MAXIMUM OFFERING PRICE PER SHARE,
(NET ASSET VALUE PLUS 4.44% OF NET ASSET VALUE) $ 12.31
==============
CLASS B SHARES:
Net Assets $ 113,223,155
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE) 9,668,898
NET ASSET VALUE PER SHARE $ 11.71
==============
CLASS C SHARES:
Net Assets $ 4,679,390
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE) 399,380
Net Asset Value Per Share $ 11.72
==============
CLASS D SHARES:
Net Assets $ 11,402,282
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE) 977,397
NET ASSET VALUE PER SHARE $ 11.67
==============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
13
<Page>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2003
<Table>
NET INVESTMENT INCOME:
INTEREST INCOME $ 7,293,653
--------------
EXPENSES
Distribution fee (Class A shares) 12,128
Distribution fee (Class B shares) 884,172
Distribution fee (Class C shares) 35,803
Investment management fee 768,635
Transfer agent fees and expenses 60,825
Shareholder reports and notices 54,328
Professional fees 53,430
Trustees' fees and expenses 16,844
Registration fees 12,805
Custodian fees 10,797
Other 9,729
--------------
TOTAL EXPENSES 1,919,496
Less: expense offset (10,658)
--------------
NET EXPENSES 1,908,838
--------------
NET INVESTMENT INCOME 5,384,815
--------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
NET REALIZED GAIN/LOSS ON:
Investments 1,092,363
Futures contracts (40,179)
--------------
NET REALIZED GAIN 1,052,184
--------------
NET CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION ON:
Investments (1,150,497)
Futures contracts (69,977)
--------------
NET DEPRECIATION (1,220,474)
--------------
NET LOSS (168,290)
--------------
NET INCREASE $ 5,216,525
==============
</Table>
14
<Page>
STATEMENT OF CHANGES IN NET ASSETS
<Table>
<Caption>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
DECEMBER 31, 2003 DECEMBER 31, 2002
----------------- -----------------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income $ 5,384,815 $ 5,569,509
Net realized gain 1,052,184 2,653,787
Net change in unrealized appreciation/depreciation (1,220,474) 4,157,253
-------------- --------------
NET INCREASE 5,216,525 12,380,549
-------------- --------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A shares (236,902) (144,852)
Class B shares (4,428,063) (4,671,373)
Class C shares (178,054) (133,930)
Class D shares (520,670) (554,643)
Net realized gain
Class A shares (32,045) (118,438)
Class B shares (852,519) (2,788,076)
Class C shares (35,577) (80,757)
Class D shares (86,029) (286,792)
-------------- --------------
TOTAL DIVIDENDS AND DISTRIBUTIONS (6,369,859) (8,778,861)
-------------- --------------
Net increase (decrease) from transactions in shares of beneficial interest (8,635,983) 5,331,906
-------------- --------------
NET INCREASE (DECREASE) (9,789,317) 8,933,594
NET ASSETS:
Beginning of period 143,378,994 134,445,400
-------------- --------------
END OF PERIOD
(INCLUDING ACCUMULATED UNDISTRIBUTED NET INVESTMENT INCOME OF
$111,954 AND $124,636, RESPECTIVELY) $ 133,589,677 $ 143,378,994
============== ==============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
15
<Page>
MORGAN STANLEY NEW YORK TAX-FREE INCOME FUND
NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 2003
1. ORGANIZATION AND ACCOUNTING POLICIES
Morgan Stanley New York Tax-Free Income Fund (the "Fund") is registered under
the Investment Company Act of 1940, as amended (the "Act"), as a diversified,
open-end management investment company. The Fund's investment objective is to
provide a high level of current income which is exempt from federal, New York
State and New York City income tax, consistent with the preservation of capital.
The Fund was organized as a Massachusetts business trust on January 17, 1985 and
commenced operations on April 25, 1985. On July 28, 1997, the Fund converted to
a multiple class share structure.
The Fund offers Class A shares, Class B shares, Class C shares and Class D
shares. The four classes are substantially the same except that most Class A
shares are subject to a sales charge imposed at the time of purchase and some
Class A shares, and most Class B shares and Class C shares are subject to a
contingent deferred sales charge imposed on shares redeemed within one year, six
years and one year, respectively. Class D shares are not subject to a sales
charge. Additionally, Class A shares, Class B shares and Class C shares incur
distribution expenses.
The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS -- (1) portfolio securities are valued by an outside
independent pricing service approved by the Trustees. The pricing service uses
both a computerized grid matrix of tax-exempt securities and evaluations by its
staff, in each case based on information concerning market transactions and
quotations from dealers which reflect the mean between the last reported bid and
asked price. The portfolio securities are thus valued by reference to a
combination of transactions and quotations for the same or other securities
believed to be comparable in quality, coupon, maturity, type of issue, call
provisions, trading characteristics and other features deemed to be relevant.
The Trustees believe that timely and reliable market quotations are generally
not readily available for purposes of valuing tax-exempt securities and that the
valuations supplied by the pricing service are more likely to approximate the
fair value of such securities; (2) futures are valued at the latest sale price
on the commodities exchange on which they trade unless it is determined that
such price does not reflect their market value, in which case they will be
valued at their fair value as determined in good faith under procedures
established by and under the supervision of the Trustees; and (3) short-term
debt securities having a maturity date of more than sixty days at time of
purchase are valued on a mark-to-market basis until sixty days prior to maturity
and thereafter at amortized cost based on their value on the 61st day.
Short-term debt securities having a maturity date of sixty days or less at the
time of purchase are valued at amortized cost.
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined by the identified cost method.
Discounts are accreted and premiums are amortized over the life of the
respective securities. Interest income is accrued daily.
16
<Page>
C. MULTIPLE CLASS ALLOCATIONS -- Investment income, expenses (other than
distribution fees), and realized and unrealized gains and losses are allocated
to each class of shares based upon the relative net asset value on the date such
items are recognized. Distribution fees are charged directly to the respective
class.
D. FUTURES CONTRACTS -- A futures contract is an agreement between two parties
to buy and sell financial instruments or contracts based on financial indices at
a set price on a future date. Upon entering into such a contract, the Fund is
required to pledge to the broker cash, U.S. Government securities or other
liquid portfolio securities equal to the minimum initial margin requirements of
the applicable futures exchange. Pursuant to the contract, the Fund agrees to
receive from or pay to the broker an amount of cash equal to the daily
fluctuation in the value of the contract. Such receipts or payments known as
variation margin are recorded by the Fund as unrealized gains and losses. Upon
closing of the contract, the Fund realizes a gain or loss equal to the
difference between the value of the contract at the time it was opened and the
value at the time it was closed.
E. FEDERAL INCOME TAX POLICY -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute substantially all of its taxable and nontaxable
income to its shareholders. Accordingly, no federal income tax provision is
required.
F. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- Dividends and distributions to
shareholders are recorded on the ex-dividend date.
G. USE OF ESTIMATES -- The preparation of financial statements in accordance
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures.
Actual results could differ from those estimates.
2. INVESTMENT MANAGEMENT AGREEMENT
Pursuant to an Investment Management Agreement with Morgan Stanley Investment
Advisors Inc. (the "Investment Manager") the Fund pays the Investment Manager a
management fee, accrued daily and payable monthly, by applying the following
annual rates to the Fund's net assets determined as of the close of each
business day: 0.55% to the portion of daily net assets not exceeding $500
million and 0.525% to the portion of daily net assets exceeding $500 million.
3. PLAN OF DISTRIBUTION
Shares of the Fund are distributed by Morgan Stanley Distributors Inc. (the
"Distributor"), an affiliate of the Investment Manager. The Fund has adopted a
Plan of Distribution (the "Plan") pursuant to Rule 12b-1 under the Act. The Plan
provides that the Fund will pay the Distributor a fee which is accrued daily and
paid monthly at the following annual rates: (i) Class A -- up to 0.25% of the
average daily net
17
<Page>
assets of Class A; (ii) Class B -- 0.75% (0.65% on amounts over $10 billion) of
the lesser of: (a) the average daily aggregate gross sales of the Class B shares
since the inception of the Fund (not including reinvestment of dividend or
capital gain distributions) less the average daily aggregate net asset value of
the Class B shares redeemed since the Fund's inception upon which a contingent
deferred sales charge has been imposed or waived; or (b) the average daily net
assets of Class B; and (iii) Class C -- up to 0.75% of the average daily net
assets of Class C.
In the case of Class B shares, provided that the Plan continues in effect, any
cumulative expenses incurred by the Distributor but not yet recovered may be
recovered through the payment of future distribution fees from the Fund pursuant
to the Plan and contingent deferred sales charges paid by investors upon
redemption of Class B shares. Although there is no legal obligation for the Fund
to pay expenses incurred in excess of payments made to the Distributor under the
Plan and the proceeds of contingent deferred sales charges paid by investors
upon redemption of shares, if for any reason the Plan is terminated, the
Trustees will consider at that time the manner in which to treat such expenses.
The Distributor has advised the Fund that such excess amounts totaled $890,751
at December 31, 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 0.75% of the average daily
net assets of Class A or Class C, respectively, will not be reimbursed by the
Fund through payments in any subsequent year, except that expenses representing
a gross sales credit to Morgan Stanley Financial Advisors or other selected
broker-dealer representatives may be reimbursed in the subsequent calendar year.
For the year ended December 31, 2003, the distribution fee was accrued for Class
A shares and Class C shares at the annual rate of 0.22% and 0.75%, respectively.
The Distributor has informed the Fund that for the year ended December 31, 2003,
it received contingent deferred sales charges from certain redemptions of the
Fund's Class A shares, Class B shares and Class C shares of $39,978, $91,278 and
$1,253, respectively and received $76,421 in front-end sales charges from sales
of the Fund's Class A shares. The respective shareholders pay such charges which
are not an expense of the Fund.
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities, excluding
short-term investments, for the year ended December 31, 2003 aggregated
$27,292,285 and $36,425,381, respectively.
Morgan Stanley Trust, an affiliate of the Investment Manager and Distributor, is
the Fund's transfer agent. At December 31, 2003, the Fund had transfer agent
fees and expenses payable of approximately $1,600.
18
<Page>
The Fund has an unfunded noncontributory defined benefit pension plan covering
certain independent Trustees of the Fund who will have served as independent
Trustees for at least five years at the time of retirement. Benefits under this
plan are based on factors which include years of service and compensation.
Aggregate pension costs for year ended December 31, 2003 included in Trustees'
fees and expenses in the Statement of Operations amounted to $7,259. At December
31, 2003, the Fund had an accrued pension liability of $60,305 which is included
in accrued expenses in the Statement of Assets and Liabilities.
On December 2, 2003, the Trustees voted to close the plan to new participants,
eliminate the future benefits growth due to increases to compensation after July
31, 2003 and effective April 1, 2004, establish an unfunded deferred
compensation plan which allows each independent Trustee to defer payment of all
or a portion of the fees he receives for serving on the Board of Trustees
throughout the year.
5. EXPENSE OFFSET
The expense offset represents a reduction of the custodian fees for earnings on
cash balances maintained by the Fund.
6. RISKS RELATING TO CERTAIN FINANCIAL INSTRUMENTS
The Fund may invest a portion of its assets in inverse floating rate municipal
obligations. The prices of these securities are subject to greater market
fluctuations during periods of changing prevailing interest rates than are
comparable fixed rate obligations.
To hedge against adverse interest rate changes, the Fund may invest in financial
futures contracts or municipal bond index futures contracts ("futures
contracts").
These futures contracts involve elements of market risk in excess of the amount
reflected in the Statement of Assets and Liabilities. The Fund bears the risk of
an unfavorable change in the value of the underlying securities. Risks may also
arise upon entering into these contracts from the potential inability of the
counterparties to meet the terms of their contracts.
19
<Page>
7. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<Table>
<Caption>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
DECEMBER 31, 2003 DECEMBER 31, 2002
------------------------------- -------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------- -------------- -------------- --------------
CLASS A SHARES
Sold 5,940,729 $ 70,550,054 1,709,367 $ 20,244,891
Reinvestment of dividends and distributions 12,985 152,870 16,605 195,757
Redeemed (6,032,186) (71,540,906) (1,552,899) (18,352,037)
-------------- -------------- -------------- --------------
Net increase (decrease) -- Class A (78,472) (837,982) 173,073 2,088,611
-------------- -------------- -------------- --------------
CLASS B SHARES
Sold 509,201 5,985,290 1,286,421 15,165,415
Reinvestment of dividends and distributions 255,573 2,997,092 375,930 4,430,966
Redeemed (1,441,706) (16,926,261) (1,549,204) (18,257,685)
-------------- -------------- -------------- --------------
Net increase (decrease) -- Class B (676,932) (7,943,879) 113,147 1,338,696
-------------- -------------- -------------- --------------
CLASS C SHARES
Sold 550,830 6,453,907 266,760 3,187,296
Reinvestment of dividends and distributions 9,168 107,477 8,899 104,676
Redeemed (459,294) (5,389,045) (287,332) (3,394,507)
-------------- -------------- -------------- --------------
Net increase (decrease) -- Class C 100,704 1,172,339 (11,673) (102,535)
-------------- -------------- -------------- --------------
CLASS D SHARES
Sold 126,363 1,475,759 985,512 11,602,457
Reinvestment of dividends and distributions 29,986 350,347 42,450 498,825
Redeemed (244,895) (2,852,567) (859,274) (10,094,148)
-------------- -------------- -------------- --------------
Net increase (decrease) -- Class D (88,546) (1,026,461) 168,688 2,007,134
-------------- -------------- -------------- --------------
Net increase (decrease) in Fund (743,246) $ (8,635,983) 443,235 $ 5,331,906
============== ============== ============== ==============
</Table>
8. 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 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
20
<Page>
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.
9. 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
DECEMBER 31, 2003 DECEMBER 31, 2002
----------------- -----------------
Tax-exempt income $ 5,363,689 $ 5,504,798
Ordinary income 326,338 --
Long-term capital gains 679,832 3,274,063
------------ ------------
Total distributions $ 6,369,859 $ 8,778,861
============ ============
</Table>
As of December 31, 2003, the tax-basis components of accumulated earnings were
as follows:
<Table>
Undistributed tax-exempt income $ 70,876
Undistributed ordinary income --
Undistributed long-term gains 20,385
------------
Net accumulated earnings 91,261
Post-October losses (9,162)
Temporary differences (60,305)
Net unrealized appreciation 10,554,970
------------
Total accumulated earnings $ 10,576,764
============
</Table>
As of December 31, 2003, the Fund had temporary book/tax differences primarily
attributable to post-October losses (capital losses incurred after October 31
within the taxable year which are deemed to arise on the first business day of
the Fund's next taxable year), book amortization of discounts on debt securities
and mark-to-market of open futures contracts and permanent book/tax differences
primarily attributable to tax adjustments on debt securities sold by the Fund.
To reflect reclassifications arising from the permanent differences,
paid-in-capital was charged $68, accumulated undistributed net investment income
was charged $33,808 and accumulated undistributed net realized gain was credited
$33,876.
21
<Page>
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 YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
2003 2002 2001 2000 1999
--------- --------- --------- --------- ---------
CLASS A SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period $ 11.82 $ 11.47 $ 11.56 $ 10.89 $ 11.90
--------- --------- --------- --------- ---------
Income (loss) from investment operations:
Net investment income 0.51 0.52 0.53 0.53 0.53
Net realized and unrealized gain (loss) 0.06 0.62 (0.06) 0.66 (1.00)
--------- --------- --------- --------- ---------
Total income (loss) from investment operations 0.57 1.14 0.47 1.19 (0.47)
--------- --------- --------- --------- ---------
Less dividends and distribution from:
Net investment income (0.51) (0.52) (0.53) (0.52) (0.52)
Net realized gain (0.09) (0.27) (0.03) - (0.02)
--------- --------- --------- --------- ---------
Total dividends and distributions (0.60) (0.79) (0.56) (0.52) (0.54)
--------- --------- --------- --------- ---------
Net asset value, end of period $ 11.79 $ 11.82 $ 11.47 $ 11.56 $ 10.89
========= ========= ========= ========= =========
TOTAL RETURN+ 4.90% 10.18% 4.08% 11.29% (4.03)%
RATIOS TO AVERAGE NET ASSETS(2):
Expenses (before expense offset) 0.93%(1) 0.92%(1) 0.94%(1) 0.96%(1) 0.89%
Net investment income 4.29% 4.44% 4.50% 4.78% 4.58
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands $ 4,285 $ 5,226 $ 3,084 $ 661 $ 408
Portfolio turnover rate 20% 21% 11% 21% 3%
</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) DOES NOT REFLECT THE EFFECT OF EXPENSE OFFSET OF 0.01%.
(2) REFLECTS OVERALL FUND RATIOS FOR INVESTMENT INCOME AND NON-CLASS SPECIFIC
EXPENSES.
SEE NOTES TO FINANCIAL STATEMENTS
22
<Page>
<Table>
<Caption>
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
2003 2002 2001 2000 1999
--------- --------- --------- --------- ---------
CLASS B SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period $ 11.80 $ 11.48 $ 11.60 $ 10.91 $ 11.92
--------- --------- --------- --------- ---------
Income (loss) from investment operations:
Net investment income 0.44 0.46 0.47 0.47 0.46
Net realized and unrealized gain (loss) 0.00 0.59 (0.10) 0.69 (0.99)
--------- --------- --------- --------- ---------
Total income (loss) from investment operations 0.44 1.05 0.37 1.16 (0.53)
--------- --------- --------- --------- ---------
Less dividends and distributions from:
Net investment income (0.44) (0.46) (0.46) (0.47) (0.46)
Net realized gain (0.09) (0.27) (0.03) - (0.02)
--------- --------- --------- --------- ---------
Total dividends and distributions (0.53) (0.73) (0.49) (0.47) (0.48)
--------- --------- --------- --------- ---------
Net asset value, end of period $ 11.71 $ 11.80 $ 11.48 $ 11.60 $ 10.91
========= ========= ========= ========= =========
TOTAL RETURN+ 3.81% 9.32% 3.26% 10.90% (4.58)%
RATIOS TO AVERAGE NET ASSETS(2):
Expenses (before expense offset) 1.46%(1) 1.46%(1) 1.46%(1) 1.47%(1) 1.48%
Net investment income 3.76% 3.90% 3.99% 4.27% 3.99%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands $ 113,223 $ 122,099 $ 117,519 $ 121,867 $ 124,774
Portfolio turnover rate 20% 21% 11% 21% 3%
</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) DOES NOT REFLECT THE EFFECT OF EXPENSE OFFSET OF 0.01%.
(2) REFLECTS OVERALL FUND RATIOS FOR INVESTMENT INCOME AND NON-CLASS SPECIFIC
EXPENSES.
SEE NOTES TO FINANCIAL STATEMENTS
23
<Page>
<Table>
<Caption>
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
2003 2002 2001 2000 1999
--------- --------- --------- --------- ---------
CLASS C SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period $ 11.79 $ 11.46 $ 11.57 $ 10.89 $ 11.90
--------- --------- --------- --------- ---------
Income (loss) from investment operations:
Net investment income 0.44 0.46 0.47 0.47 0.46
Net realized and unrealized gain (loss) 0.02 0.60 (0.09) 0.68 (0.99)
--------- --------- --------- --------- ---------
Total income (loss) from investment operations 0.46 1.06 0.38 1.15 (0.53)
--------- --------- --------- --------- ---------
Less dividends and distribution from:
Net investment income (0.44) (0.46) (0.46) (0.47) (0.46)
Net realized gain (0.09) (0.27) (0.03) - (0.02)
--------- --------- --------- --------- ---------
Total dividends and distributions (0.53) (0.73) (0.49) (0.47) (0.48)
--------- --------- --------- --------- ---------
Net asset value, end of period $ 11.72 $ 11.79 $ 11.46 $ 11.57 $ 10.89
========= ========= ========= ========= =========
TOTAL RETURN+ 3.98% 9.41% 3.33% 10.81% (4.60)%
RATIOS TO AVERAGE NET ASSETS(2):
Expenses (before expense offset) 1.46%(1) 1.46%(1) 1.46%(1) 1.47%(1) 1.48%
Net investment income 3.76% 3.90% 3.99% 4.27% 3.99
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands $ 4,679 $ 3,521 $ 3,557 $ 1,318 $ 840
Portfolio turnover rate 20% 21% 11% 21% 3%
</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) DOES NOT REFLECT THE EFFECT OF EXPENSE OFFSET OF 0.01%.
(2) REFLECTS OVERALL FUND RATIOS FOR INVESTMENT INCOME AND NON-CLASS SPECIFIC
EXPENSES.
SEE NOTES TO FINANCIAL STATEMENTS
24
<Page>
<Table>
<Caption>
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
2003 2002 2001 2000 1999
--------- --------- --------- --------- ---------
CLASS D SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period $ 11.76 $ 11.46 $ 11.58 $ 10.90 $ 11.91
--------- --------- --------- --------- ---------
Income (loss) from investment operations:
Net investment income 0.53 0.55 0.56 0.55 0.55
Net realized and unrealized gain (loss) 0.00 0.56 (0.10) 0.68 (1.00)
--------- --------- --------- --------- ---------
Total income (loss) investment operations 0.53 1.11 0.46 1.23 (0.45)
--------- --------- --------- --------- ---------
Less dividends and distribution from:
Net investment income (0.53) (0.54) (0.55) (0.55) (0.54)
Net realized gain (0.09) (0.27) (0.03) - (0.02)
--------- --------- --------- --------- ---------
Total dividends and distributions (0.62) (0.81) (0.58) (0.55) (0.56)
--------- --------- --------- --------- ---------
Net asset value, end of period $ 11.67 $ 11.76 $ 11.46 $ 11.58 $ 10.90
========= ========= ========= ========= =========
TOTAL RETURN+ 4.59% 9.96% 4.04% 11.64% (3.87)%
RATIOS TO AVERAGE NET ASSETS(2):
Expenses (before expense offset) 0.71%(1) 0.71%(1) 0.71%(1) 0.72%(1) 0.73%
Net investment income 4.51% 4.65% 4.74% 5.02% 4.74%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands $ 11,402 $ 12,533 $ 10,285 $ 10,475 $ 116
Portfolio turnover rate 20% 21% 11% 21% 3%
</Table>
- ----------
+ CALCULATED BASED ON THE NET ASSET VALUE AS OF THE LAST BUSINESS DAY OF THE
PERIOD.
(1) DOES NOT REFLECT THE EFFECT OF EXPENSE OFFSET OF 0.01%.
(2) REFLECTS OVERALL FUND RATIOS FOR INVESTMENT INCOME AND NON-CLASS SPECIFIC
EXPENSES.
SEE NOTES TO FINANCIAL STATEMENTS
25
<Page>
MORGAN STANLEY NEW YORK TAX-FREE INCOME FUND
INDEPENDENT AUDITORS' REPORT
TO THE SHAREHOLDERS AND BOARD OF
TRUSTEES OF MORGAN STANLEY NEW YORK TAX-FREE INCOME FUND:
We have audited the accompanying statement of assets and liabilities of Morgan
Stanley New York Tax-Free Income Fund (the "Fund"), including the portfolio of
investments, as of December 31, 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 five years
in the period then ended. These financial statements and financial highlights
are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 2003, by correspondence with the custodian
and broker. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Morgan
Stanley New York Tax-Free Income Fund as of December 31, 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 five years in the period then ended, in conformity with accounting
principles generally accepted in the United States of America.
Deloitte & Touche LLP
NEW YORK, NEW YORK
FEBRUARY 12, 2004
2003 FEDERAL TAX NOTICE (UNAUDITED)
During the year ended December 31, 2003, the Fund paid to its shareholders
the following per share amounts from the sources indicated below:
<Table>
<Caption>
CLASS A CLASS B CLASS C CLASS D
-------------------------------------
Tax-Exempt Income $ 0.51 $ 0.44 $ 0.44 $ 0.53
Long-Term Capital Gains $ 0.06 $ 0.06 $ 0.06 $ 0.06
</Table>
26
<Page>
MORGAN STANLEY NEW YORK TAX-FREE INCOME 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 HELD
INDEPENDENT TRUSTEE REGISTRANT TIME SERVED* DURING PAST 5 YEARS** BY TRUSTEE*** BY TRUSTEE
- --------------------------- ----------- ------------ --------------------------------- ------------- --------------------------
Michael Bozic (62) Trustee Since Retired; Director or Trustee of 216 Director of Weirton Steel
c/o Mayer, Brown, April 1994 the Retail Funds (since April Corporation.
Rowe & Maw LLP 1994) and the Institutional Funds
Counsel to the (since July 2003); formerly Vice
Independent Directors Chairman of Kmart Corporation
1675 Broadway (December 1998-October 2000),
New York, NY 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 the 216 Director of Franklin Covey
c/o Summit Ventures LLC January 1993 Retail Funds (since January (time management systems),
1 Utah Center 1993) and the Institutional BMW Bank of North America,
201 S. Main Street Funds (since July 2003); member Inc. (industrial loan
Salt Lake City, UT of the Utah Regional Advisory corporation), United Space
Board of Pacific Corp.; formerly Alliance (joint venture
United States Senator (R-Utah) between Lockheed Martin
(1974-1992) and Chairman, Senate and the Boeing Company)
Banking Committee (1980-1986), and Nuskin Asia Pacific
Mayor of Salt Lake City, Utah (multilevel marketing);
(1971-1974), Astronaut, Space member of the board of
Shuttle Discovery (April 12-19, various civic and
1985), and Vice Chairman, charitable organizations.
Huntsman Corporation (chemical
company).
Wayne E. Hedien (69) Trustee Since Retired; Director or Trustee of 216 Director of The PMI Group
c/o Mayer, Brown, September the Retail Funds (since September Inc. (private mortgage
Rowe & Maw LLP 1997 1997) and the Institutional Funds insurance); Trustee and
Counsel to the (since July 2003); formerly Vice Chairman of The Field
Independent Directors associated with the Allstate Museum of Natural History;
1675 Broadway Companies (1966-1994), most director of various other
New York, NY recently as Chairman of The business and charitable
Allstate Corporation (March organizations.
1993-December 1994) and Chairman
and Chief Executive Officer of
its wholly-owned subsidiary,
Allstate Insurance Company (July
1989-December 1994).
</Table>
27
<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 HELD
INDEPENDENT TRUSTEE REGISTRANT TIME SERVED* DURING PAST 5 YEARS** BY TRUSTEE*** BY TRUSTEE
- --------------------------- ----------- ------------ --------------------------------- ------------- --------------------------
Dr. Manuel H. Johnson (54) Trustee Since Chairman of the Audit Committee 216 Director of NVR, Inc.
c/o Johnson Smick July 1991 and Director or Trustee of the (home construction);
International, Inc. Retail Funds (since July 1991) Chairman and Trustee of
2099 Pennsylvania and the Institutional Funds the Financial Accounting
Avenue, N.W. (since July 2003); Senior Foundation (oversight
Suite 950 Partner, Johnson Smick organization of the
Washington, D.C. International, Inc., a Financial Accounting
consulting firm; Co-Chairman and Standards Board);
a founder of the Group of Seven Director of RBS Greenwich
Council (G7C), an international Capital Holdings
economic commission; formerly (financial holding
Vice Chairman of the Board of company).
Governors of the Federal Reserve
System and Assistant Secretary
of the U.S. Treasury.
Joseph J. Kearns (61) Trustee Since Deputy Chairman of the Audit 217 Director of Electro Rent
PMB754 July 2003 Committee and Director or Trustee Corporation (equipment
23852 Pacific Coast Highway of the Retail Funds (since July leasing), The Ford Family
Malibu, CA 2003) and the Institutional Funds Foundation, and the UCLA
(since August 1994); previously Foundation.
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 Insurance 216 Director of various
c/o Triumph Capital, L.P. July 1991 Committee and Director or Trustee business organizations.
445 Park Avenue of the Retail Funds (since July
New York, NY 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 Governance 217 Trustee and Director of
85 Charles Colman Blvd. July 2003 Committee and Director or Trustee certain investment
Pawling, NY of the Retail Funds (since July companies in the JPMorgan
2003) and the Institutional Funds Funds complex managed by
(since June 1992); Chairman of JP Morgan Investment
Lumelite Plastics Corporation. Management Inc.
</Table>
28
<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 HELD
INTERESTED TRUSTEE REGISTRANT TIME SERVED* DURING PAST 5 YEARS** BY TRUSTEE*** BY TRUSTEE
- --------------------------- ----------- ------------ --------------------------------- ------------- --------------------------
Charles A. Fiumefreddo (70) Chairman of Since Chairman and Director or Trustee 216 None
c/o Morgan Stanley Trust the Board July 1991 of the Retail Funds (since July
Harborside Financial and Trustee 1991) and the Institutional
Center, Funds (since July 2003);
Plaza Two, formerly Chief Executive Officer
Jersey City, NJ of the Retail Funds (until
September 2002).
James F. Higgins (55) Trustee Since Director or Trustee of the 216 Director of AXA Financial,
c/o Morgan Stanley Trust June 2000 Retail Funds (since June 2000) Inc. and The Equitable
Harborside Financial and the Institutional Funds Life Assurance Society of
Center, (since July 2003); Senior the United States
Plaza Two, Advisor of Morgan Stanley (since (financial services).
Jersey City, NJ 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 the 216 Director of American
1585 Broadway April 1994 Retail Funds (since April 1994) Airlines, Inc. and its
New York, NY and the Institutional Funds parent company, AMR
(since July 2003); Chairman of Corporation.
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).
29
<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 President and Chief Operating Officer of Morgan Stanley Investment
1221 Avenue of the Americas 1999 Management Inc.; President, Director and Chief Executive Officer of
New York, NY 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 Director of Morgan
1221 Avenue of the Americas Vice April 2003 Stanley Investment Management Inc.; Managing DIrector of Morgan
New York, NY President Stanley & Co. Incorporated; Managing DIrector of Morgan Stanley;
and Managing Director, Chief Administrative Officer and Director of the
Principal Investment Manager and Morgan Stanley Services; Chief Executive
Executive Officer and Director of the Transfer Agent; Managing Director and
Officer 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 Director (since December
1221 Avenue of the Americas President February 2000) of Morgan Stanley Investment Management; Managing Director
New York, NY and General 1997 (since December 2000), Secretary (since February 1997) and Director
Counsel (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 Managing Director and Chief Investment Officer of the Investment
1221 Avenue of the Americas President 1995 Manager, Morgan Stanley Investment Management Inc. and Morgan Stanley
New York, NY 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 Executive Director of Morgan Stanley & Co. and Morgan Stanley
1221 Avenue of the Americas President 2003 Investment Management Inc. and Vice President of the Institutional
New York, NY 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>
30
<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 Executive Director of the Investment Manager and Morgan Stanley
c/o Morgan Stanley Trust and since Services (since December 2001); previously Vice President of the
Harborside Financial Chief July 2003 Retail Funds (September 2002-July 2003); previously Vice President of
Center, Financial and Chief the Investment Manager and Morgan Stanley Services (August
Plaza Two, Officer Financial 2000-November 2001) and Senior Manager at PricewaterhouseCoopers LLP
Jersey City, NJ Officer (January 1998-August 2000).
since
September
2002
Thomas F. Caloia (57) Vice Since Executive Director (since December 2002) and Assistant Treasurer of
c/o Morgan Stanley Trust President July 2003 the Investment Manager, the Distributor and Morgan Stanley Services;
Harborside Financial Center, previously Treasurer of the Retail Funds (April 1989-July 2003);
Plaza Two, formerly First Vice President of the Investment Manager, the
Jersey City, NJ Distributor and Morgan Stanley Services.
Mary E. Mullin (36) Secretary Since Vice President of Morgan Stanley & Co. Incorporated and Morgan Stanley
1221 Avenue of the Americas July 2003 Investment Management Inc.; Secretary of the Institutional Funds
New York, NY (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.
31
<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
Stefanie V. Chang
VICE PRESIDENT
Francis J. Smith
TREASURER AND CHIEF FINANCIAL OFFICER
Thomas F. Caloia
VICE PRESIDENT
Mary E. Mullin
SECRETARY
TRANSFER AGENT
Morgan Stanley Trust
Harborside Financial Center, Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT AUDITORS
Deloitte & Touche LLP
Two World Financial Center
New York, New York 10281
INVESTMENT MANAGER
Morgan Stanley Investment Advisors Inc.
1221 Avenue of the Americas
New York, New York 10020
This report is submitted for the general information of the shareholders of the
Fund. For more detailed information about the Fund, its fees and expenses and
other pertinent information, please read its Prospectus. The Fund's Statement of
Additional Information contains additional information about the Fund, including
its trustees. It is available, without charge, by calling (800) 869-NEWS.
This report is not authorized for distribution to prospective investors in the
Fund unless preceded or accompanied by an effective Prospectus. Read the
Prospectus carefully before investing.
Investments and services offered through Morgan Stanley DW Inc., member SIPC.
Morgan Stanley Distributors Inc., member NASD.
(C) 2003 Morgan Stanley
[MORGAN STANLEY LOGO]
37935RPT-00-13593B04-AP-2/04
MORGAN STANLEY FUNDS
MORGAN STANLEY NEW YORK TAX-FREE INCOME FUND
ANNUAL REPORT
DECEMBER 31, 2003
[MORGAN STANLEY LOGO]
<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.
<Page>
Item 4. Principal Accountant Fees and Services.
(a)(b)(c)(d) and (g). Based on fees billed for the periods shown:
2003
<Table>
<Caption>
REGISTRANT COVERED ENTITIES(1)
AUDIT FEES $ 27,930 N/A
NON-AUDIT FEES
AUDIT-RELATED FEES $ 684(2) $ 2,847,161(2)
TAX FEES $ 4,884(3) $ 736,810(4)
ALL OTHER FEES $ 0 $ 0
TOTAL NON-AUDIT FEES $ 5,568 $ 3,583,971
TOTAL $ 33,498 $ 3,583,971
</Table>
2002
<Table>
<Caption>
REGISTRANT COVERED ENTITIES(1)
AUDIT FEES $ 25,600 N/A
NON-AUDIT FEES
AUDIT-RELATED FEES $ 657(2) $ 2,818,115(2)
TAX FEES $ 5,779(3) $ 365,427(4)
ALL OTHER FEES $ 0 $ 501,166(5)
TOTAL NON-AUDIT FEES $ 6,436 $ 3,684,708
TOTAL $ 32,036 $ 3,684,708
</Table>
N/A- Not applicable, as not required by Item 4.
(1) Covered Entities include the Adviser (excluding sub-advisors) and
any entity controlling, controlled by or under common control
with the Adviser that provides ongoing services to the
Registrant.
(2) Audit-Related Fees represent assurance and related services
provided that are reasonably related to the performance of the
audit of the financial statements of the Covered Entities' and
funds advised by the Adviser or its affiliates, specifically
data verification and agreed-upon procedures related to asset
securitizations and agreed-upon procedures engagements.
(3) Tax Fees represent tax compliance, tax planning and tax advice
services provided in connection with the preparation and review
of the Registrant's tax returns.
(4) Tax Fees represent tax compliance, tax planning and tax advice
services provided in connection with the review of Covered
Entities' tax returns.
(5) All other fees represent project management for future
business applications and improving business and operational
processes.
<Page>
(e)(1) The audit committee's pre-approval policies and procedures are as
follows:
AUDIT COMMITTEE
AUDIT AND NON-AUDIT SERVICES
PRE-APPROVAL POLICY AND PROCEDURES
OF THE
MORGAN STANLEY RETAIL AND INSTITUTIONAL FUNDS
AS ADOPTED JULY 31, 2003(1)
1. STATEMENT OF PRINCIPLES
The Audit Committee of the Board is required to review and, in its sole
discretion, pre-approve all Covered Services to be provided by the Independent
Auditors to the Fund and Covered Entities in order to assure that services
performed by the Independent Auditors do not impair the auditor's independence
from the Fund.
The SEC has issued rules specifying the types of services that an
independent auditor may not provide to its audit client, as well as the audit
committee's administration of the engagement of the independent auditor. The
SEC's rules establish two different approaches to pre-approving services, which
the SEC considers to be equally valid. Proposed services either: may be
pre-approved without consideration of specific case-by-case services by the
Audit Committee ("GENERAL PRE-APPROVAL"); or require the specific pre-approval
of the Audit Committee or its delegate ("SPECIFIC PRE-APPROVAL"). The Audit
Committee believes that the combination of these two approaches in this Policy
will result in an effective and efficient procedure to pre-approve services
performed by the Independent Auditors. As set forth in this Policy, unless a
type of service has received general pre-approval, it will require specific
pre-approval by the Audit Committee (or by any member of the Audit Committee to
which pre-approval authority has been delegated) if it is to be provided by the
Independent Auditors. Any proposed services exceeding pre-approved cost levels
or budgeted amounts will also require specific pre-approval by the Audit
Committee.
The appendices to this Policy describe the Audit, Audit-related, Tax and
All Other services that have the general pre-approval of the Audit Committee.
The term of any general pre-approval is 12 months from the date of pre-approval,
unless the Audit Committee considers and provides a different period and states
otherwise. The Audit Committee will annually review and pre-approve the services
that may be provided by the Independent Auditors without obtaining specific
pre-approval from the Audit Committee. The Audit Committee will add to or
subtract from the list of general pre-approved services from time to time, based
on subsequent determinations.
- ----------
(1) This Audit Committee Audit and Non-Audit Services Pre-Approval Policy and
Procedures (the "POLICY"), adopted as of the date above, supercedes and
replaces all prior versions that may have been adopted from time to time.
<Page>
The purpose of this Policy is to set forth the policy and procedures by
which the Audit Committee intends to fulfill its responsibilities. It does not
delegate the Audit Committee's responsibilities to pre-approve services
performed by the Independent Auditors to management.
The Fund's Independent Auditors have reviewed this Policy and believes that
implementation of the Policy will not adversely affect the Independent Auditors'
independence.
2. DELEGATION
As provided in the Act and the SEC's rules, the Audit Committee may
delegate either type of pre-approval authority to one or more of its members.
The member to whom such authority is delegated must report, for informational
purposes only, any pre-approval decisions to the Audit Committee at its next
scheduled meeting.
3. AUDIT SERVICES
The annual Audit services engagement terms and fees are subject to the
specific pre-approval of the Audit Committee. Audit services include the annual
financial statement audit and other procedures required to be performed by the
Independent Auditors to be able to form an opinion on the Fund's financial
statements. These other procedures include information systems and procedural
reviews and testing performed in order to understand and place reliance on the
systems of internal control, and consultations relating to the audit. The Audit
Committee will approve, if necessary, any changes in terms, conditions and fees
resulting from changes in audit scope, Fund structure or other items.
In addition to the annual Audit services engagement approved by the Audit
Committee, the Audit Committee may grant general pre-approval to other Audit
services, which are those services that only the Independent Auditors reasonably
can provide. Other Audit services may include statutory audits and services
associated with SEC registration statements (on Forms N-1A, N-2, N-3, N-4,
etc.), periodic reports and other documents filed with the SEC or other
documents issued in connection with securities offerings.
The Audit Committee has pre-approved the Audit services in Appendix B.1.
All other Audit services not listed in Appendix B.1 must be specifically
pre-approved by the Audit Committee (or by any member of the Audit Committee to
which pre-approval has been delegated).
4. AUDIT-RELATED SERVICES
<Page>
Audit-related services are assurance and related services that are
reasonably related to the performance of the audit or review of the Fund's
financial statements and, to the extent they are Covered Services, the Covered
Entities or that are traditionally performed by the Independent Auditors.
Because the Audit Committee believes that the provision of Audit-related
services does not impair the independence of the auditor and is consistent with
the SEC's rules on auditor independence, the Audit Committee may grant general
pre-approval to Audit-related services. Audit-related services include, among
others, accounting consultations related to accounting, financial reporting or
disclosure matters not classified as "Audit services"; assistance with
understanding and implementing new accounting and financial reporting guidance
from rulemaking authorities; agreed-upon or expanded audit procedures related to
accounting and/or billing records required to respond to or comply with
financial, accounting or regulatory reporting matters; and assistance with
internal control reporting requirements under Forms N-SAR and/or N-CSR.
The Audit Committee has pre-approved the Audit-related services in Appendix
B.2. All other Audit-related services not listed in Appendix B.2 must be
specifically pre-approved by the Audit Committee (or by any member of the Audit
Committee to which pre-approval has been delegated).
5. TAX SERVICES
The Audit Committee believes that the Independent Auditors can provide Tax
services to the Fund and, to the extent they are Covered Services, the Covered
Entities, such as tax compliance, tax planning and tax advice without impairing
the auditor's independence, and the SEC has stated that the Independent Auditors
may provide such services.
Pursuant to the preceding paragraph, the Audit Committee has pre-approved
the Tax Services in Appendix B.3. All Tax services in Appendix B.3 must be
specifically pre-approved by the Audit Committee (or by any member of the Audit
Committee to which pre-approval has been delegated).
6. ALL OTHER SERVICES
The Audit Committee believes, based on the SEC's rules prohibiting the
Independent Auditors from providing specific non-audit services, that other
types of non-audit services are permitted. Accordingly, the Audit Committee
believes it may grant general pre-approval to those permissible non-audit
services classified as All Other services that it believes are routine and
recurring services, would not impair the independence of the auditor and are
consistent with the SEC's rules on auditor independence.
<Page>
The Audit Committee has pre-approved the All Other services in
Appendix B.4. Permissible All Other services not listed in Appendix B.4 must be
specifically pre-approved by the Audit Committee (or by any member of the Audit
Committee to which pre-approval has been delegated).
7. PRE-APPROVAL FEE LEVELS OR BUDGETED AMOUNTS
Pre-approval fee levels or budgeted amounts for all services to be provided
by the Independent Auditors will be established annually by the Audit Committee.
Any proposed services exceeding these levels or amounts will require specific
pre-approval by the Audit Committee. The Audit Committee is mindful of the
overall relationship of fees for audit and non-audit services in determining
whether to pre-approve any such services.
8. PROCEDURES
All requests or applications for services to be provided by the Independent
Auditors that do not require specific approval by the Audit Committee will be
submitted to the Fund's Chief Financial Officer and must include a detailed
description of the services to be rendered. The Fund's Chief Financial Officer
will determine whether such services are included within the list of services
that have received the general pre-approval of the Audit Committee. The Audit
Committee will be informed on a timely basis of any such services rendered by
the Independent Auditors. Requests or applications to provide services that
require specific approval by the Audit Committee will be submitted to the Audit
Committee by both the Independent Auditors and the Fund's Chief Financial
Officer, and must include a joint statement as to whether, in their view, the
request or application is consistent with the SEC's rules on auditor
independence.
The Audit Committee has designated the Fund's Chief Financial Officer to
monitor the performance of all services provided by the Independent Auditors and
to determine whether such services are in compliance with this Policy. The
Fund's Chief Financial Officer will report to the Audit Committee on a periodic
basis on the results of its monitoring. Both the Fund's Chief Financial Officer
and management will immediately report to the chairman of the Audit Committee
any breach of this Policy that comes to the attention of the Fund's Chief
Financial Officer or any member of management.
9. ADDITIONAL REQUIREMENTS
The Audit Committee has determined to take additional measures on an annual
basis to meet its responsibility to oversee the work of the Independent Auditors
and to assure the auditor's independence from the Fund, such as reviewing a
formal written statement from the Independent Auditors delineating all
relationships between the Independent Auditors and the Fund, consistent with
Independence Standards Board No.
<Page>
1, and discussing with the Independent Auditors its methods and procedures for
ensuring independence.
10. COVERED ENTITIES
Covered Entities include the Fund's investment adviser(s) and any entity
controlling, controlled by or under common control with the Fund's investment
adviser(s) that provides ongoing services to the Fund(s). Beginning with
non-audit service contracts entered into on or after May 6, 2003, the Fund's
audit committee must pre-approve non-audit services provided not only to the
Fund but also to the Covered Entities if the engagements relate directly to the
operations and financial reporting of the Fund. This list of Covered Entities
would include:
MORGAN STANLEY RETAIL FUNDS
Morgan Stanley Investment Advisors Inc.
Morgan Stanley & Co. Incorporated
Morgan Stanley DW Inc.
Morgan Stanley Investment Management
Morgan Stanley Investments LP
Van Kampen Asset Management Inc.
Morgan Stanley Services Company, Inc.
Morgan Stanley Distributors Inc.
Morgan Stanley Trust FSB
MORGAN STANLEY INSTITUTIONAL FUNDS
Morgan Stanley Investment Management Inc.
Morgan Stanley Investments LP
Morgan Stanley & Co. Incorporated
Morgan Stanley Distribution, Inc.
Morgan Stanley AIP GP LP
Morgan Stanley Alternative Investment Partners LP
(e)(2) Beginning with non-audit service contracts entered into on or after
May 6, 2003, the audit committee also is required to pre-approve services to
Covered Entities to the extent that the services are determined to have a
direct impact on the operations or financial reporting of the Registrant.
100% of such services were pre-approved by the audit committee pursuant to
the Audit Committee's pre-approval policies and procedures (attached hereto).
(f) Not applicable.
(g) See table above.
(h) The audit committee of the Board of Trustees has considered whether the
provision of services other than audit services performed by the auditors to the
Registrant and Covered Entities is compatible with maintaining the auditors'
independence in performing audit services.
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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.
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(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.
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
February 18, 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
February 18, 2004
/s/ Francis Smith
Francis Smith
Principal Financial Officer
February 18, 2004