<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, 2004
Date of reporting period: November 30, 2004
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'S 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, 2004
TOTAL RETURN FOR THE 12 MONTHS ENDED NOVEMBER 30, 2004
<Table>
<Caption>
NAREIT LIPPER REAL
EQUITY ESTATE FUNDS
CLASS A CLASS B CLASS C CLASS D INDEX(1) INDEX(2)
- ------- ------- ------- ------- -------- ------------
33.84% 32.81% 32.83% 34.13% 29.88% 28.61%
</Table>
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH IS NO GUARANTEE OF
FUTURE RESULTS, AND CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE FIGURES
SHOWN. FOR THE MOST RECENT MONTH-END PERFORMANCE FIGURES, PLEASE VISIT
morganstanley.com OR CHECK WITH YOUR FINANCIAL ADVISOR. INVESTMENT RETURNS AND
PRINCIPAL VALUE WILL FLUCTUATE AND FUND SHARES, WHEN REDEEMED, MAY BE WORTH MORE
OR LESS THAN THEIR ORIGINAL COST.
THE 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. SEE PERFORMANCE SUMMARY FOR
STANDARDIZED PERFORMANCE INFORMATION.
MARKET CONDITIONS
The 12-month period under review was highly positive both for the direct real
estate market as well as the public real estate securities market, with the
latter rising just under 30% according to the NAREIT Equity Index. While the
fundamentals of underlying properties remained somewhat subdued, the asset class
benefited greatly from an influx of capital from both domestic and foreign
institutional investors seeking to diversify their portfolios. Real estate
equities also rose sharply as a result of strong funds flows from both
institutional and individual investors into the sector. These inflows were
largely the result of the sectors relative attractiveness over other areas of
the equities market in terms of diversification benefits, low volatility,
compelling yield and risk-adjusted return potential.
The strong performance of real estate equities was reflected across all of the
major industry sectors, as the retail, office and apartment sectors each gained
more than 20 percent. That said, returns did vary somewhat among these groups.
The top performing sector was retail, which (like the rest of the economy) was
boosted by the strength of the American consumer. Returns for the retail sector
were further bolstered by the merger of two mall giants, the Rouse Company and
General Growth. This $12.6 billion, all-cash transaction was the biggest in the
history of the sector.
The apartment and office sectors lagged the retail area, largely because of
investors' uncertainty about the sustainability and pace of growth of the U.S.
economy. Specifically, ongoing softness in employment growth led to concerns
about the ability of apartment and office companies to grow their revenues
through rent increases and the acquisition of new tenants. Like retail, however,
the apartment sector did see some significant transactions during the period
that reflected continued improvement in underlying real estate values which
helped to support stock prices. In addition to two public REIT mergers (Camden
Property-Summit Properties and Colonial Properties-Cornerstone Realty), owners
of apartment assets continued to sell their properties - particularly to
condominium converters - given the strong pricing in the market for these
assets.
PERFORMANCE ANALYSIS
Morgan Stanley Real Estate Fund outperformed the NAREIT Equity Index as well as
its peer group, as represented by the Lipper Real Estate Funds Index, for the
12-month period under review, assuming no deduction of applicable sales charges.
The Fund's performance was driven almost entirely by bottom-up stock selection
in several key market sectors. In lodging, the Fund's portfolio was focused on
2
<Page>
companies with exposure to the major urban hotel markets. These companies, which
had been among the worst performers in previous periods when corporate travel
had slumped, were well positioned to benefit from increasing corporate travel
budgets. When these increases began to result in more travel, key holdings such
as Starwood Hotels & Resorts and Host Marriott gained sharply.
The Fund's holdings in both the office and apartment sectors emphasized
companies whose portfolios of properties were heavily weighted in key markets
where the supply of new properties remains relatively constrained. These markets
were concentrated largely in the Mid-Atlantic region (including the key New York
City and Washington, D.C., markets) as well as Southern California. The Fund
also had a large position in the Rouse Company and thus benefited from the
significant takeover premium paid by General Growth.
While the Fund's returns were broadly strong for the period, not all of its
positions performed as well as what had been anticipated. The portfolio was
overweighted relative to the NAREIT Equity Index in apartment companies, which
proved overall to be a modest detractor in spite of the outstanding performance
of several key portfolio holdings. While the Fund did benefit from its emphasis
on the retail sector, its holdings of strip malls were lower than their
representation in the benchmark, limiting its outperformance given the strong
performance of this subsector. Underweighted positions relative to the NAREIT
Equity Index in specific strip center companies, including Developers
Diversified and Weingarten Realty also hampered relative returns.
THERE IS NO GUARANTEE THAT ANY SECURITIES MENTIONED WILL CONTINUE TO PERFORM
WELL OR BE HELD BY THE FUND IN THE FUTURE.
TOP 10 HOLDINGS
<Table>
Simon Property Group, Inc. 9.5%
Brookfield Properties Corp. (Canada) 6.1
AvalonBay Communities, Inc. 5.9
Archstone-Smith Trust 5.7
Starwood Hotels & Resorts Worldwide, Inc. 5.2
Boston Properties, Inc. 4.6
Host Marriott Corp. 3.8
Federal Realty Investment Trust 3.7
Arden Realty, Inc. 3.7
Vornado Realty Trust 3.5
</Table>
PORTFOLIO COMPOSITION
<Table>
Common Stocks 96.7%
Short-Term Paper 3.2
Convertible Preferred Stocks 0.1
</Table>
DATA AS OF NOVEMBER 30, 2004. SUBJECT TO CHANGE DAILY. ALL PERCENTAGES FOR TOP
10 HOLDINGS ARE AS A PERCENTAGE OF NET ASSETS. ALL PERCENTAGES FOR PORTFOLIO
COMPOSITION ARE AS A PERCENTAGE OF TOTAL INVESTMENTS. THESE DATA ARE PROVIDED
FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE DEEMED A RECOMMENDATION TO BUY
OR SELL THE SECURITIES MENTIONED. MORGAN STANLEY IS A FULL-SERVICE SECURITIES
FIRM ENGAGED IN SECURITIES TRADING AND BROKERAGE ACTIVITIES, INVESTMENT BANKING,
RESEARCH AND ANALYSIS, FINANCING AND FINANCIAL ADVISORY SERVICES.
3
<Page>
INVESTMENT STRATEGY
THE FUND WILL NORMALLY INVEST AT LEAST 80 PERCENT OF ITS ASSETS 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. A COMPANY IS CONSIDERED TO BE "PRINCIPALLY ENGAGED" IN THE
U.S. REAL ESTATE INDUSTRY IF I) IT DERIVES AT LEAST 50 PERCENT OF ITS REVENUES
OR PROFITS FROM THE OWNERSHIP, LEASING, CONSTRUCTION, MANAGEMENT, DEVELOPMENT,
FINANCING OR SALE OF RESIDENTIAL, COMMERCIAL OR INDUSTRIAL REAL ESTATE; OR (ii)
IT HAS AT LEAST 50 PERCENT OF THE VALUE OF ITS ASSETS INVESTED IN U.S.
RESIDENTIAL, COMMERCIAL OR INDUSTRIAL REAL ESTATE. COMPANIES PRIMARILY ENGAGED
IN THE REAL ESTATE INDUSTRY MAY INCLUDE REAL ESTATE INVESTMENT TRUSTS KNOWN AS
"REITS," WHICH POOL INVESTOR FUNDS MOSTLY FOR INVESTMENT IN COMMERCIAL REAL
ESTATE PROPERTIES. THEY ALSO MAY INCLUDE, AMONG OTHER BUSINESSES, REAL ESTATE
DEVELOPERS, BROKERS AND OPERATING COMPANIES, AS WELL AS COMPANIES WHOSE PRODUCTS
AND SERVICES ARE SIGNIFICANTLY RELATED TO THE REAL ESTATE INDUSTRY, SUCH AS
BUILDING SUPPLIERS AND MORTGAGE LENDERS. IN DECIDING WHICH SECURITIES TO BUY,
HOLD OR SELL, THE FUND'S "INVESTMENT ADVISER," MORGAN STANLEY INVESTMENT
ADVISORS INC., CONSIDERS MARKET, ECONOMIC AND POLITICAL FACTORS.
FOR MORE INFORMATION ABOUT PORTFOLIO HOLDINGS
EACH MORGAN STANLEY FUND PROVIDES A COMPLETE SCHEDULE OF PORTFOLIO HOLDINGS IN
ITS SEMIANNUAL AND ANNUAL REPORTS WITHIN 60 DAYS OF THE END OF THE FUND'S SECOND
AND FOURTH FISCAL QUARTERS BY FILING THE SCHEDULE ELECTRONICALLY WITH THE
SECURITIES AND EXCHANGE COMMISSION (SEC). THE SEMIANNUAL REPORTS ARE FILED ON
FORM N-CSRS AND THE ANNUAL REPORTS ARE FILED ON FORM N-CSR. MORGAN STANLEY ALSO
DELIVERS THE SEMIANNUAL AND ANNUAL REPORTS TO FUND SHAREHOLDERS AND MAKES THESE
REPORTS AVAILABLE ON ITS PUBLIC WEB SITE, www.morganstanley.com. EACH MORGAN
STANLEY FUND ALSO FILES A COMPLETE SCHEDULE OF PORTFOLIO HOLDINGS WITH THE SEC
FOR THE FUND'S FIRST AND THIRD FISCAL QUARTERS ON FORM N-Q. MORGAN STANLEY DOES
NOT DELIVER THE REPORTS FOR THE FIRST AND THIRD FISCAL QUARTERS TO SHAREHOLDERS,
NOR ARE THE REPORTS POSTED TO THE MORGAN STANLEY PUBLIC WEB SITE. YOU MAY,
HOWEVER, OBTAIN THE FORM N-Q FILINGS (AS WELL AS THE FORM N-CSR AND N-CSRS
FILINGS) BY ACCESSING THE SEC'S WEB SITE, http://www.sec.gov. YOU MAY ALSO
REVIEW AND COPY THEM AT THE SEC'S PUBLIC REFERENCE ROOM IN WASHINGTON, DC.
INFORMATION ON THE OPERATION OF THE SEC'S PUBLIC REFERENCE ROOM MAY BE OBTAINED
BY CALLING THE SEC AT (800) SEC-0330. YOU CAN ALSO REQUEST COPIES OF THESE
MATERIALS, UPON PAYMENT OF A DUPLICATING FEE, BY ELECTRONIC REQUEST AT THE SEC'S
E-MAIL ADDRESS (publicinfo@sec.gov) OR BY WRITING THE PUBLIC REFERENCE SECTION
OF THE SEC, WASHINGTON, DC 20549-0102. YOU MAY OBTAIN COPIES OF A FUND'S FISCAL
QUARTER FILINGS BY CONTACTING MORGAN STANLEY CLIENT RELATIONS AT (800) 869-NEWS.
PROXY VOTING POLICIES AND PROCEDURES
A DESCRIPTION OF (1) THE FUND'S POLICIES AND PROCEDURES WITH RESPECT TO THE
VOTING OF PROXIES RELATING TO THE FUND'S PORTFOLIO SECURITIES AND (2) HOW THE
FUND VOTED PROXIES RELATING TO PORTFOLIO SECURITIES DURING THE MOST RECENT
12-MONTH PERIOD ENDED NOVEMBER 30, 2004, IS AVAILABLE WITHOUT CHARGE, UPON
REQUEST, BY CALLING (800) 869-NEWS OR BY VISITING THE MUTUAL FUND CENTER ON OUR
WEB SITE AT www.morganstanley.com. THIS INFORMATION IS ALSO AVAILABLE ON THE
SECURITIES AND EXCHANGE COMMISSION'S WEB SITE AT http://www.sec.gov.
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.
4
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(This page has been left blank intentionally.)
<Page>
PERFORMANCE SUMMARY
[CHART]
PERFORMANCE OF A $10,000 INVESTMENT
<Table>
<Caption>
CLASS A++ CLASS B++ CLASS C++ CLASS D++ NAREIT(1) LIPPER(2)
Apr 28, 1999 $ 9,475 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000
May 31, 1999 $ 9,655 $ 10,190 $ 10,190 $ 10,190 $ 10,304 $ 10,290
Aug 31, 1999 $ 9,140 $ 9,624 $ 9,623 $ 9,660 $ 9,690 $ 9,640
Nov 30, 1999 $ 8,349 $ 8,773 $ 8,771 $ 8,831 $ 8,944 $ 8,875
Feb 29, 2000 $ 8,619 $ 9,040 $ 9,037 $ 9,124 $ 9,148 $ 8,988
May 31, 2000 $ 9,607 $ 10,058 $ 10,053 $ 10,196 $ 10,183 $ 9,957
Aug 31, 2000 $ 10,544 $ 11,008 $ 11,014 $ 11,182 $ 10,896 $ 10,832
Nov 30, 2000 $ 10,642 $ 11,091 $ 11,096 $ 11,293 $ 10,893 $ 10,879
Feb 28, 2001 $ 11,239 $ 11,683 $ 11,687 $ 11,933 $ 11,594 $ 11,478
May 31, 2001 $ 11,559 $ 11,996 $ 11,999 $ 12,282 $ 12,275 $ 11,939
Aug 31, 2001 $ 12,387 $ 12,825 $ 12,828 $ 13,158 $ 13,203 $ 12,748
Nov 30, 2001 $ 11,959 $ 12,356 $ 12,360 $ 12,714 $ 12,969 $ 12,365
Feb 28, 2002 $ 12,508 $ 12,911 $ 12,903 $ 13,306 $ 13,568 $ 13,070
May 31, 2002 $ 13,364 $ 13,762 $ 13,754 $ 14,223 $ 14,701 $ 14,122
Aug 31, 2002 $ 12,697 $ 13,051 $ 13,055 $ 13,523 $ 14,284 $ 13,636
Nov 30, 2002 $ 12,064 $ 12,374 $ 12,379 $ 12,859 $ 13,691 $ 13,080
Feb 28, 2003 $ 11,997 $ 12,294 $ 12,287 $ 12,796 $ 13,613 $ 13,072
May 31, 2003 $ 13,711 $ 14,005 $ 14,010 $ 14,631 $ 15,372 $ 14,779
Aug 31, 2003 $ 14,960 $ 15,257 $ 15,249 $ 15,959 $ 16,635 $ 15,992
Nov 30, 2003 $ 16,240 $ 16,537 $ 16,531 $ 17,349 $ 18,275 $ 17,610
Feb 29, 2004 $ 17,690 $ 17,973 $ 17,978 $ 18,908 $ 20,078 $ 19,199
May 31, 2004 $ 17,439 $ 17,683 $ 17,677 $ 18,650 $ 19,388 $ 18,617
Aug 31, 2004 $ 19,533 $ 19,778 $ 19,772 $ 20,900 $ 21,611 $ 20,614
Nov 30, 2004 $ 21,737 $ 21,863 $ 21,957 $ 23,270 $ 23,735 $ 22,648
</Table>
6
<Page>
AVERAGE ANNUAL TOTAL RETURNS--PERIOD ENDED NOVEMBER 30, 2004
<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 33.84%(3) 32.81%(3) 32.83%(3) 34.13%(3)
26.82(4) 27.81(4) 31.83(4) --
5 YEARS 21.09(3) 20.15(3) 20.15(3) 21.38(3)
19.79(4) 19.95(4) 20.15(4) --
SINCE INCEPTION 16.00(3) 15.10(3) 15.10(3) 16.30(3)
14.89(4) 15.01(4) 15.10(4) --
</Table>
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH IS NO GUARANTEE OF
FUTURE RESULTS AND CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE FIGURES
SHOWN. FOR THE MOST RECENT MONTH-END PERFORMANCE FIGURES, PLEASE VISIT
morganstanley.com OR SPEAK WITH YOUR FINANCIAL ADVISOR. INVESTMENT RETURNS AND
PRINCIPAL VALUE WILL FLUCTUATE AND FUND SHARES, WHEN REDEEMED, MAY BE WORTH MORE
OR LESS THAN THEIR ORIGINAL COST. THE 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.
* 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.
(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.
++ ENDING VALUE ASSUMING A COMPLETE REDEMPTION ON NOVEMBER 30, 2004.
7
<Page>
EXPENSE EXAMPLE
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, including sales charges(loads) on purchase payments and redemption fees;
and (2) ongoing costs, including management fees; distribution and service
(12b-1) fees; and other Fund expenses. This example is intended to help you
understand your ongoing costs (in dollars) of investing in the Fund and to
compare these costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period 06/01/04 - 11/30/04.
ACTUAL EXPENSES
The first line of the table below provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, to estimate the expenses that you paid over the
period. Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000 = 8.6), then multiply the result by the number
in the first line under the heading entitled "Expenses Paid During Period" to
estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line of the table below provides information about hypothetical
expenses based on the Fund's actual expense ratio and an assumed rate of return
of 5% per year before expenses, which is not the Fund's actual return. The
hypothetical account values and expenses may not be used to estimate the actual
ending account balance or expenses you paid for the period. You may use this
information to compare the ongoing cost of investing in the Fund and other
funds. To do so, compare this 5% hypothetical example with the 5% hypothetical
examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads) and redemption fees. Therefore, the second line of the table is
useful in comparing ongoing costs, and will not help you determine the relative
total cost of owning different funds. In addition, if these transactional costs
were included, your costs would have been higher.
<Table>
<Caption>
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD *
------------- ------------- ---------------
06/01/04 -
06/01/04 11/30/04 11/30/04
------------- ------------- ---------------
CLASS A
Actual (24.64% return) $ 1,000.00 $ 1,246.40 $ 9.32
Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,016.70 $ 8.37
CLASS B
Actual (24.20% return) $ 1,000.00 $ 1,242.00 $ 13.51
Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,012.95 $ 12.13
CLASS C
Actual (24.21% return) $ 1,000.00 $ 1,242.10 $ 13.51
Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,012.95 $ 12.13
CLASS D
Actual (24.77% return) $ 1,000.00 $ 1,247.70 $ 7.92
Hypothetical (5% annual return before expenses) $ 1,000.00 $ 1,017.95 $ 7.11
</Table>
- ----------
* EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO OF 1.66%, 2.41%,
2.41% AND 1.41% RESPECTIVELY, MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER
THE PERIOD, MULTIPLIED BY 183/366 (TO REFLECT THE ONE-HALF YEAR PERIOD).
8
<Page>
MORGAN STANLEY REAL ESTATE FUND
PORTFOLIO OF INVESTMENTS - NOVEMBER 30, 2004
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------
COMMON STOCKS (96.8%)
Hotels/Resorts/
Cruiselines (8.0%)
260,800 Hilton Hotels Corp. $ 5,388,128
27,295 Interstate Hotels &
Resorts Inc.* 129,651
23,100 Lodgian Inc.* 245,091
212,193 Starwood Hotels & Resorts
Worldwide, Inc. 11,095,572
219,200 Wyndham International, Inc.
(Class A)* 186,320
---------------
17,044,762
---------------
Real Estate - Industrial/
Office (6.1%)
359,800 Brookfield Properties
Corp. (Canada) 12,938,408
---------------
Real Estate - Other (0.4%)
16,700 St. Joe Co. (The) 915,995
---------------
Real Estate - Retail (0.6%)
24,480 Forest City Enterprise, Inc.
(Class A) 1,314,576
---------------
REIT - Diversified (3.5%)
101,150 Vornado Realty Trust 7,434,525
---------------
REIT - Healthcare (1.8%)
10,300 Healthcare Realty Trust, Inc. 419,210
135,000 OMEGA Healthcare
Investors, Inc. 1,688,850
62,900 Senior Housing Properties
Trust 1,237,872
15,000 Ventas, Inc. 406,500
---------------
3,752,432
---------------
REIT - Industrial/Office (22.7%)
180,710 AMB Property Corp. 7,219,364
219,300 Arden Realty, Inc. 7,894,800
160,700 Boston Properties, Inc. 9,670,926
9,250 Brandywine Realty Trust 263,163
38,100 Catellus Development Corp. 1,196,340
227,385 Equity Office Properties Trust 6,241,718
64,800 Mack-Cali Realty Corp. 2,834,352
152,690 ProLogis $ 6,142,719
10,050 PS Business Parks, Inc.
(Class A) 450,743
142,500 Reckson Associates
Realty Corp. 4,614,150
18,850 SL Green Realty Corp. 1,086,326
39,400 Trizec Properties, Inc. 648,918
---------------
48,263,519
---------------
REIT - Lodging/Resorts (4.2%)
508,000 Host Marriott Corp. 7,955,280
7,300 Innkeepers USA Trust 98,404
77,275 MeriStar Hospitality Corp.* 525,470
19,750 Sunstone Hotel Investors, Inc.* 360,833
---------------
8,939,987
---------------
REIT - Residential (19.9%)
27,900 American Campus
Communities, Inc. 583,110
4,800 Amli Residential Properties
Trust 155,952
94,100 Apartment Investment &
Management Co. (Class A) 3,422,417
328,707 Archstone-Smith Trust 11,997,806
174,900 Avalonbay Communities, Inc. 12,435,390
2,025 BRE Properties, Inc. (Class A) 82,296
44,600 Equity Lifestyle Properties, Inc. 1,618,980
133,990 Equity Residential 4,516,803
58,300 Essex Property Trust, Inc. 4,694,899
6,100 Gables Residential Trust 217,587
72,250 Post Properties, Inc. 2,463,725
---------------
42,188,965
---------------
REIT - Retail (23.3%)
49,650 Acadia Reality Trust 752,196
106,300 BPP Liquidating Trust* 34,016
157,600 Federal Realty Investment
Trust 7,903,640
101,690 General Growth
Properties, Inc. 3,488,984
30,800 Heritage Property Investment
Trust 988,680
15,150 Kimco Realty Corp. 861,732
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
9
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------
40,520 Macerich Co. (The) $ 2,461,185
6,930 Pan Pacific Retail
Properties, Inc. 410,949
2,150 Price Legacy Corp.* 41,065
120,400 Regency Centers Corp. 6,260,800
323,169 Simon Property Group, Inc. 20,062,331
209,900 Taubman Centers, Inc. 6,171,060
---------------
49,436,638
---------------
REIT - Specialty (0.4%)
29,440 Correctional Properties Trust 836,979
---------------
REIT - Storage (5.9%)
137,550 Public Storage, Inc. 7,342,419
122,820 Shurgard Storage
Centers, Inc. (Class A) 5,082,291
---------------
12,424,710
---------------
TOTAL COMMON STOCKS
(COST $129,932,091) 205,491,496
---------------
CONVERTIBLE PREFERRED STOCK (0.1%)
Real Estate - Retail
2,115 Simon Property Group $3.00
(COST $113,258) 120,830
---------------
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ----------------------------------------------------------------------
SHORT-TERM INVESTMENT (3.2%)
REPURCHASE AGREEMENT
$ 6,882 Joint repurchase agreement
account 2.06% due
12/01/04 (dated 11/30/04;
proceeds $6,882,394) (a)
(COST $6,882,000) $ 6,882,000
---------------
TOTAL INVESTMENTS
(COST $136,927,349) (b) 100.1% 212,494,326
LIABILITIES IN EXCESS OF
OTHER ASSETS (0.1) (107,500)
----- ---------------
NET ASSETS 100.0% $ 212,386,826
===== ===============
</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 $137,234,388.
THE AGGREGATE GROSS UNREALIZED APPRECIATION IS $75,994,340 AND THE
AGGREGATE GROSS UNREALIZED DEPRECIATION IS $734,402, RESULTING IN NET
UNREALIZED APPRECIATION OF $75,259,938.
SEE NOTES TO FINANCIAL STATEMENTS
10
<Page>
MORGAN STANLEY REAL ESTATE FUND
SUMMARY OF INVESTMENTS - NOVEMBER 30, 2004
<Table>
<Caption>
PERCENT OF
INDUSTRY VALUE NET ASSETS
- --------------------------------------------------------------
REIT - Retail $ 49,436,638 23.3%
REIT - Industrial/Office 48,263,519 22.7
REIT - Residential 42,188,965 19.9
Hotels/Resorts/
Cruiselines 17,044,762 8.0
Real Estate - Industrial/
Office 12,938,408 6.1
REIT - Storage 12,424,710 5.9
REIT - Lodging/Resorts 8,939,987 4.2
REIT - Diversified 7,434,525 3.5
Repurchase Agreement 6,882,000 3.2
REIT - Healthcare 3,752,432 1.8
Real Estate - Retail 1,435,406 0.7
Real Estate - Other 915,995 0.4
REIT - Specialty 836,979 0.4
--------------- -----
$ 212,494,326 100.1%
=============== =====
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
11
<Page>
MORGAN STANLEY REAL ESTATE FUND
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 2004
<Table>
ASSETS:
Investments in securities, at value (cost $136,927,349) $ 212,494,326
Receivable for:
Shares of beneficial interest sold 254,576
Dividends 126,640
Prepaid expenses and other assets 3,528
---------------
TOTAL ASSETS 212,879,070
---------------
LIABILITIES:
Payable for:
Shares of beneficial interest redeemed 153,191
Investment advisory fee 148,363
Distribution fee 114,002
Administration fee 13,722
Accrued expenses and other payables 62,966
---------------
TOTAL LIABILITIES 492,244
---------------
NET ASSETS $ 212,386,826
===============
COMPOSITION OF NET ASSETS:
Paid-in-capital $ 123,527,686
Net unrealized appreciation 75,566,977
Dividends in excess of net investment income (93)
Accumulated undistributed net realized gain 13,292,256
---------------
NET ASSETS $ 212,386,826
===============
CLASS A SHARES:
Net Assets $ 11,209,632
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE) 641,726
NET ASSET VALUE PER SHARE $ 17.47
===============
MAXIMUM OFFERING PRICE PER SHARE,
(NET ASSET VALUE PLUS 5.54% OF NET ASSET VALUE) $ 18.44
===============
CLASS B SHARES:
Net Assets $ 114,483,323
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE) 6,580,790
NET ASSET VALUE PER SHARE $ 17.40
===============
CLASS C SHARES:
Net Assets $ 15,261,138
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE) 877,014
NET ASSET VALUE PER SHARE $ 17.40
===============
CLASS D SHARES:
Net Assets $ 71,432,733
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE) 4,086,069
NET ASSET VALUE PER SHARE $ 17.48
===============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
12
<Page>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED NOVEMBER 30, 2004
<Table>
NET INVESTMENT INCOME:
INCOME
Dividends (net of $34,978 foreign withholding tax) $ 5,374,145
Interest 39,670
---------------
TOTAL INCOME 5,413,815
---------------
EXPENSES
Investment advisory fee 1,878,801
Distribution fee (Class A shares) 21,081
Distribution fee (Class B shares) 1,061,802
Distribution fee (Class C shares) 134,067
Transfer agent fees and expenses 493,429
Shareholder reports and notices 86,641
Registration fees 74,282
Professional fees 60,448
Custodian fees 15,318
Administration fee 13,722
Trustees' fees and expenses 4,149
Other 12,768
---------------
TOTAL EXPENSES 3,856,508
---------------
NET INVESTMENT INCOME 1,557,307
---------------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain on investments 14,527,542
Capital gain distributions received 2,328,461
---------------
NET REALIZED GAIN 16,856,003
---------------
Net change in unrealized appreciation 36,629,782
---------------
NET GAIN 53,485,785
---------------
NET INCREASE $ 55,043,092
===============
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
13
<Page>
STATEMENT OF CHANGES IN NET ASSETS
<Table>
<Caption>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
NOVEMBER 30, 2004 NOVEMBER 30, 2003
----------------- -----------------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income $ 1,557,307 $ 3,749,618
Net realized gain 16,856,003 3,619,379
Net change in unrealized appreciation/depreciation 36,629,782 40,547,114
----------------- -----------------
NET INCREASE 55,043,092 47,916,111
----------------- -----------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A shares (102,372) (175,671)
Class B shares (488,097) (2,035,063)
Class C shares (62,756) (211,573)
Class D shares (904,175) (1,327,311)
Net realized gain
Class A shares (223,387) (116,098)
Class B shares (2,964,660) (1,865,703)
Class C shares (360,473) (186,465)
Class D shares (1,697,666) (749,540)
----------------- -----------------
TOTAL DIVIDENDS AND DISTRIBUTIONS (6,803,586) (6,667,424)
----------------- -----------------
Net increase (decrease) from transactions in shares of beneficial interest (23,199,579) 1,574,307
----------------- -----------------
NET INCREASE 25,039,927 42,822,994
NET ASSETS:
Beginning of period 187,346,899 144,523,905
----------------- -----------------
END OF PERIOD
(Including dividends in excess of net investment income of
$93 and $0, respectively) $ 212,386,826 $ 187,346,899
================= =================
</Table>
SEE NOTES TO FINANCIAL STATEMENTS
14
<Page>
MORGAN STANLEY REAL ESTATE FUND
NOTES TO FINANCIAL STATEMENTS - NOVEMBER 30, 2004
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 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 Stock Exchange ("NYSE") 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
Adviser") 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. Occasionally, developments affecting the closing prices of
securities and other assets may occur between the times at which valuations of
such securities are determined (that is, close of the foreign market on which
the securities trade) and the close of business on the NYSE. If developments
occur during such periods that are expected to materially affect the value of
such securities, such valuations may be adjusted to reflect the estimated fair
value of such securities as of the close of the NYSE, as determined in good
faith by the Fund's Trustees or by the Investment Adviser using a pricing
service and/or procedures approved by the Trustees of the Fund; (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
15
<Page>
sixty days at time of purchase are valued on a mark-to-market basis until sixty
days prior to maturity and thereafter at Morgan Stanley Real Estate Fund
amortized cost based on their value on the 61st day. Short-term debt securities
having a maturity date of sixty days or less at the time of purchase are valued
at amortized cost.
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined by the identified cost method.
Dividend income and other distributions are recorded on the ex-dividend date.
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 Adviser, 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 ADVISORY/ADMINISTRATION AND SUB-ADVISORY AGREEMENTS
Effective November 1, 2004, pursuant to an Investment Advisory Agreement, the
Fund pays the Investment Adviser an advisory fee, accrued daily and payable
monthly, by applying the annual rate of 0.80% to the portion of daily net assets
not exceeding $500 million; 0.75% to the portion of daily net assets exceeding
$500 million but not exceeding $1 billion; and 0.70% to the portion of daily net
assets in excess of $1 billion.
16
<Page>
Effective November 1, 2004, pursuant to an Administration Agreement with Morgan
Stanley Services Company Inc. (the "Administrator"), an affiliate of the
Investment Adviser, the Fund pays an administration fee, accrued daily and
payable monthly, by applying the annual rate of 0.08% to the Fund's daily net
assets.
Prior to November 1, 2004, the Fund retained the Investment Adviser to provide
administrative services and to manage the investment of the Fund's assets
pursuant to an investment management agreement pursuant to which the Fund paid
the Investment Adviser a monthly 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.
Prior to February 27, 2004, under a Sub-Advisory Agreement between Morgan
Stanley Investment Management Inc. (the "Sub-Advisor") and the Investment
Adviser, the Sub-Advisor provided 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 Adviser paid the
Sub-Advisor compensation of $185,533 for the period December 1, 2003 through
February 26, 2004.
3. PLAN OF DISTRIBUTION
Shares of the Fund are distributed by Morgan Stanley Distributors Inc. (the
"Distributor"), an affiliate of the Investment Adviser and Administrator. The
Fund has adopted a Plan of Distribution (the "Plan") pursuant to Rule 12b-1
under the Act. The Plan provides that the Fund will pay the Distributor a fee
which is accrued daily and paid monthly at the following annual rates: (i) Class
A -- up to 0.25% of the average daily net assets of Class A; (ii) Class B -- up
to 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 $5,608,161
at November 30, 2004.
In the case of Class A shares and Class C shares, expenses incurred pursuant to
the Plan in any calendar year in excess of 0.25% or 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
17
<Page>
broker-dealer representatives may be Morgan Stanley Real Estate Fund reimbursed
in the subsequent calendar year. For the year ended November 30, 2004, the
distribution fee was accrued for Class A shares and Class C shares at the annual
rate of 0.24% and 1.0%, respectively.
The Distributor has informed the Fund that for the year ended November 30, 2004,
it received contingent deferred sales charges from certain redemptions of the
Fund's Class A shares, Class B shares and Class C shares of $19, $216,953 and
$5,315, respectively and received $75,788 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 November 30, 2004 aggregated
$26,838,713 and $51,683,390, respectively.
Morgan Stanley Trust, an affiliate of the Investment Adviser, Administrator and
Distributor, is the Fund's transfer agent. At November 30, 2004, the Fund had
transfer agent fees and expenses payable of approximately $10,700.
Effective April 1, 2004, the Fund began an unfunded Deferred Compensation Plan
(the "Compensation Plan") which allows each independent Trustee to defer payment
of all, or a portion, of the fees he receives for serving on the Board of
Trustees. Each eligible Trustee generally may elect to have the deferred amounts
credited with a return equal to the total return on one or more of the Morgan
Stanley funds that are offered as investment options under the Compensation
Plan. Appreciation/depreciation and distributions received from these
investments are recorded with an offsetting increase/decrease in the deferred
compensation obligation and do not affect the net asset value of the Fund.
18
<Page>
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, 2004 NOVEMBER 30, 2003
------------------------------ ------------------------------
SHARES AMOUNT SHARES AMOUNT
------------- -------------- ------------- --------------
CLASS A SHARES
Sold 368,160 $ 5,452,520 221,459 $ 2,653,238
Reinvestment of dividends and distributions 19,518 280,997 24,014 263,633
Redeemed (289,261) (4,229,999) (306,839) (3,592,457)
------------- -------------- ------------- --------------
Net increase (decrease) -- Class A 98,417 1,503,518 (61,366) (675,586)
------------- -------------- ------------- --------------
CLASS B SHARES
Sold 1,191,679 17,949,122 1,720,447 20,200,314
Reinvestment of dividends and distributions 196,997 2,806,099 290,602 3,155,716
Redeemed (2,843,101) (41,161,407) (3,016,795) (34,686,436)
------------- -------------- ------------- --------------
Net decrease -- Class B (1,454,425) (20,406,186) (1,005,746) (11,330,406)
------------- -------------- ------------- --------------
CLASS C SHARES
Sold 254,222 3,761,809 231,244 2,720,208
Reinvestment of dividends and distributions 25,669 366,935 31,673 345,975
Redeemed (316,260) (4,612,766) (214,676) (2,495,731)
------------- -------------- ------------- --------------
Net increase (decrease) -- Class C (36,369) (484,022) 48,241 570,452
------------- -------------- ------------- --------------
CLASS D SHARES
Sold 777,867 11,556,107 2,257,903 25,925,778
Reinvestment of dividends and distributions 154,916 2,230,010 156,629 1,739,143
Redeemed (1,183,528) (17,599,006) (1,254,577) (14,655,074)
------------- -------------- ------------- --------------
Net increase (decrease) -- Class D (250,745) (3,812,889) 1,159,955 13,009,847
------------- -------------- ------------- --------------
Net increase (decrease) in Fund (1,643,122) $ (23,199,579) 141,084 $ 1,574,307
============= ============== ============= ==============
</Table>
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.
19
<Page>
The tax character of distributions paid was as follows:
<Table>
<Caption>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
NOVEMBER 30, 2004 NOVEMBER 30, 2003
----------------- -----------------
Ordinary income $ 3,966,591 $ 4,768,037
Long-term gains 2,836,995 1,899,387
----------- -----------
Total distributions $ 6,803,586 $ 6,667,424
=========== ===========
</Table>
As of November 30, 2004, the tax-basis components of accumulated earnings were
as follows:
<Table>
Undistributed ordinary income $ 0
Undistributed long-term gains 13,599,295
------------
Net accumulated earnings 13,599,295
Temporary differences (93)
Net unrealized appreciation 75,259,938
------------
Total accumulated earnings $ 88,859,140
============
</Table>
As of November 30, 2004, the Fund had temporary book/tax differences primarily
attributable to capital loss deferrals on wash sales.
7. LEGAL MATTERS
The Investment Adviser, certain affiliates of the Investment Adviser, certain
officers of such affiliates and certain investment companies advised by the
Investment Adviser or its affiliates, including the Fund, are named as
defendants in a number of similar class action complaints which were recently
consolidated. This consolidated action also names as defendants certain
individual Trustees and Directors of the Morgan Stanley funds. The consolidated
amended complaint generally alleges that defendants, including the Fund,
violated their statutory disclosure obligations and fiduciary duties by failing
properly to disclose (i) that the Investment Adviser and certain affiliates of
the Investment Adviser allegedly offered economic incentives to brokers and
others to recommend the funds advised by the Investment Adviser or its
affiliates to investors rather than funds managed by other companies, and (ii)
that the funds advised by the Investment Adviser or its affiliates, including
the Fund, allegedly paid excessive commissions to brokers in return for their
efforts to recommend these funds to investors. The complaint seeks, among other
things, unspecified compensatory damages, rescissionary damages, fees and costs.
The defendants have moved to dismiss the action and intend to otherwise
vigorously defend it. While the Fund believes that it has meritorious defenses,
the ultimate outcome of this matter is not presently determinable at this early
stage of the litigation, and no provision has been made in the Fund's financial
statements for the effect, if any, of this matter.
20
<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 YEAR ENDED NOVEMBER 30,
----------------------------------------------------------------------
2004 2003 2002 2001 2000
---------- ---------- ---------- ---------- ----------
CLASS A SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period $ 13.58 $ 10.59 $ 11.39 $ 10.51 $ 8.63
---------- ---------- ---------- ---------- ----------
Income (loss) from investment operations:
Net investment income++ 0.17 0.32 0.29 0.35 0.31
Net realized and unrealized gain (loss) 4.29 3.20 (0.17) 0.93 2.00
---------- ---------- ---------- ---------- ----------
Total income from investment operations 4.46 3.52 0.12 1.28 2.31
---------- ---------- ---------- ---------- ----------
Less dividends and distributions from:
Net investment income (0.18) (0.32) (0.28) (0.35) (0.33)
Net realized gain (0.39) (0.21) (0.64) (0.05) (0.04)
Paid-in-capital - - - - (0.06)
---------- ---------- ---------- ---------- ----------
Total dividends and distributions (0.57) (0.53) (0.92) (0.40) (0.43)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 17.47 $ 13.58 $ 10.59 $ 11.39 $ 10.51
========== ========== ========== ========== ==========
TOTAL RETURN+ 33.84% 34.61% 0.88% 12.38% 27.46%
RATIOS TO AVERAGE NET ASSETS(1):
Expenses 1.62% 1.62% 1.63% 1.54% 1.71%
Net investment income 1.21% 2.77% 2.52% 3.19% 3.20%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands $ 11,210 $ 7,378 $ 6,401 $ 7,860 $ 9,943
Portfolio turnover rate 14% 23% 28% 40% 57%
</Table>
- ----------
++ THE PER SHARE AMOUNTS WERE COMPUTED USING AN AVERAGE NUMBER OF SHARES
OUTSTANDING DURING THE PERIOD.
+ DOES NOT REFLECT THE DEDUCTION OF SALES CHARGE. CALCULATED BASED ON THE NET
ASSET VALUE AS OF THE LAST BUSINESS DAY OF THE PERIOD.
(1) REFLECTS OVERALL FUND RATIOS FOR INVESTMENT INCOME AND NON-CLASS SPECIFIC
EXPENSES.
SEE NOTES TO FINANCIAL STATEMENTS
21
<Page>
<Table>
<Caption>
FOR THE YEAR ENDED NOVEMBER 30,
----------------------------------------------------------------------
2004 2003 2002 2001 2000
---------- ---------- ---------- ---------- ----------
CLASS B SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period $ 13.53 $ 10.55 $ 11.36 $ 10.49 $ 8.62
---------- ---------- ---------- ---------- ----------
Income (loss) from investment operations:
Net investment income++ 0.07 0.24 0.20 0.27 0.24
Net realized and unrealized gain (loss) 4.26 3.19 (0.17) 0.92 1.99
---------- ---------- ---------- ---------- ----------
Total income from investment operations 4.33 3.43 0.03 1.19 2.23
---------- ---------- ---------- ---------- ----------
Less dividends and distributions from:
Net investment income (0.07) (0.24) (0.20) (0.27) (0.27)
Net realized gain (0.39) (0.21) (0.64) (0.05) (0.04)
Paid-in-capital - - - - (0.05)
---------- ---------- ---------- ---------- ----------
Total dividends and distributions (0.46) (0.45) (0.84) (0.32) (0.36)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 17.40 $ 13.53 $ 10.55 $ 11.36 $ 10.49
========== ========== ========== ========== ==========
TOTAL RETURN+ 32.81% 33.64% 0.15% 11.41% 26.41%
RATIOS TO AVERAGE NET ASSETS(1):
Expenses 2.38% 2.37% 2.38% 2.36% 2.46%
Net investment income 0.45% 2.02% 1.77% 2.37% 2.45%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands $ 114,483 $ 108,680 $ 95,343 $ 86,479 $ 75,101
Portfolio turnover rate 14% 23% 28% 40% 57%
</Table>
- ----------
++ THE PER SHARE AMOUNTS WERE COMPUTED USING AN AVERAGE NUMBER OF SHARES
OUTSTANDING DURING THE PERIOD.
+ DOES NOT REFLECT THE DEDUCTION OF SALES CHARGE. CALCULATED BASED ON THE NET
ASSET VALUE AS OF THE LAST BUSINESS DAY OF THE PERIOD.
(1) REFLECTS OVERALL FUND RATIOS FOR INVESTMENT INCOME AND NON-CLASS SPECIFIC
EXPENSES.
SEE NOTES TO FINANCIAL STATEMENTS
22
<Page>
<Table>
<Caption>
FOR THE YEAR ENDED NOVEMBER 30,
----------------------------------------------------------------------
2004 2003 2002 2001 2000
---------- ---------- ---------- ---------- ----------
CLASS C SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period $ 13.53 $ 10.55 $ 11.36 $ 10.50 $ 8.62
---------- ---------- ---------- ---------- ----------
Income (loss) from investment operations:
Net investment income++ 0.06 0.23 0.20 0.27 0.26
Net realized and unrealized gain (loss) 4.27 3.20 (0.17) 0.91 1.98
---------- ---------- ---------- ---------- ----------
Total income from investment operations 4.33 3.43 0.03 1.18 2.24
---------- ---------- ---------- ---------- ----------
Less dividends and distributions from:
Net investment income (0.07) (0.24) (0.20) (0.27) (0.27)
Net realized gain (0.39) (0.21) (0.64) (0.05) (0.04)
Paid-in-capital - - - - (0.05)
---------- ---------- ---------- ---------- ----------
Total dividends and distributions (0.46) (0.45) (0.84) (0.32) (0.36)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 17.40 $ 13.53 $ 10.55 $ 11.36 $ 10.50
========== ========== ========== ========== ==========
TOTAL RETURN+ 32.83% 33.54% 0.15% 11.39% 26.50%
RATIOS TO AVERAGE NET ASSETS(1):
Expenses 2.38% 2.37% 2.38% 2.36% 2.46%
Net investment income 0.45% 2.02% 1.77% 2.37% 2.45%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands $ 15,261 $ 12,359 $ 9,129 $ 7,504 $ 6,759
Portfolio turnover rate 14% 23% 28% 40% 57%
</Table>
- ----------
++ THE PER SHARE AMOUNTS WERE COMPUTED USING AN AVERAGE NUMBER OF SHARES
OUTSTANDING DURING THE PERIOD.
+ DOES NOT REFLECT THE DEDUCTION OF SALES CHARGE. CALCULATED BASED ON THE NET
ASSET VALUE AS OF THE LAST BUSINESS DAY OF THE PERIOD.
(1) REFLECTS OVERALL FUND RATIOS FOR INVESTMENT INCOME AND NON-CLASS SPECIFIC
EXPENSES.
SEE NOTES TO FINANCIAL STATEMENTS
23
<Page>
<Table>
<Caption>
FOR THE YEAR ENDED NOVEMBER 30,
----------------------------------------------------------------------
2004 2003 2002 2001 2000
---------- ---------- ---------- ---------- ----------
CLASS D SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period $ 13.59 $ 10.59 $ 11.40 $ 10.53 $ 8.64
---------- ---------- ---------- ---------- ----------
Income (loss) from investment operations:
Net investment income++ 0.21 0.34 0.30 0.37 0.27
Net realized and unrealized gain (loss) 4.28 3.22 (0.16) 0.93 2.08
---------- ---------- ---------- ---------- ----------
Total income from investment operations 4.49 3.56 0.14 1.30 2.35
---------- ---------- ---------- ---------- ----------
Less dividends and distributions from:
Net investment income (0.21) (0.35) (0.31) (0.38) (0.36)
Net realized gain (0.39) (0.21) (0.64) (0.05) (0.04)
Paid-in-capital - - - - (0.06)
---------- ---------- ---------- ---------- ----------
Total dividends and distributions (0.60) (0.56) (0.95) (0.43) (0.46)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 17.48 $ 13.59 $ 10.59 $ 11.40 $ 10.53
========== ========== ========== ========== ==========
TOTAL RETURN+ 34.13% 34.92% 1.14% 12.58% 27.88%
RATIOS TO AVERAGE NET ASSETS(1):
Expenses 1.38% 1.37% 1.38% 1.36% 1.46%
Net investment income 1.45% 3.02% 2.77% 3.37% 3.45%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands $ 71,433 $ 58,930 $ 33,652 $ 14,349 $ 5,193
Portfolio turnover rate 14% 23% 28% 40% 57%
</Table>
- ----------
++ THE PER SHARE AMOUNTS WERE COMPUTED USING AN AVERAGE NUMBER OF SHARES
OUTSTANDING DURING THE PERIOD.
+ CALCULATED BASED ON THE NET ASSET VALUE AS OF THE LAST BUSINESS DAY OF THE
PERIOD.
(1) REFLECTS OVERALL FUND RATIOS FOR INVESTMENT INCOME AND NON-CLASS SPECIFIC
EXPENSES.
SEE NOTES TO FINANCIAL STATEMENTS
24
<Page>
MORGAN STANLEY REAL ESTATE FUND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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, 2004, 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 the standards of the Public Company
Accounting Oversight Board (United States). 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, 2004, 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, 2004, 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, 2005
2004 FEDERAL TAX NOTICE (UNAUDITED)
During the fiscal year ended November 30, 2004, the Fund paid to
its shareholders $0.34 per share from long-term capital gains.
For the fiscal year ended November 30, 2004, 4.22% of the income
dividends paid qualified for the dividends received deduction
available to corporations. Additionally, please note that
$280,172 of the Fund's income dividends paid during the fiscal
year ended November 30, 2004 qualified for the lower income tax
rate available to individuals under the Jobs and Growth Tax
Relief Reconciliation Act of 2003.
25
<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) DURING OVERSEEN OTHER DIRECTORSHIPS HELD
INDEPENDENT TRUSTEE REGISTRANT TIME SERVED* PAST 5 YEARS* * BY TRUSTEE* * * BY TRUSTEE
- -------------------------- ----------- ------------ --------------------------------- --------------- ------------------------
Michael Bozic (63) Trustee Since April Private Investor; Director or 208 Director of Weirton
c/o Kramer Levin Naftalis 1994 Trustee of the Retail Funds Steel Corporation.
& Frankel LLP (since April 1994) and the
Counsel to the Institutional Funds (since July
Independent Trustees 2003); formerly Vice Chairman of
919 Third Avenue Kmart Corporation (December 1998-
New York, NY 10022-3902 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 (72) Trustee Since Managing Director of Summit 208 Director of Franklin
c/o Summit Ventures LLC January Ventures LLC; Director or Trustee Covey (time management
1 Utah Center 1993 of the Retail Funds (since systems), BMW Bank of
201 S. Main Street January 1993) and the North America, Inc.
Salt Lake City, UT Institutional Funds (since July (industrial loan
84111-2215 2003); member of the Utah corporation), United
Regional Advisory Board of Space Alliance (joint
Pacific Corp.; formerly United venture between Lockheed
States Senator (R-Utah) Martin and the Boeing
(1974-1992) and Chairman, Senate Company) and Nuskin Asia
Banking Committee (1980-1986), Pacific (multilevel
Mayor of Salt Lake City, Utah marketing); member of
(1971-1974), Astronaut, Space the board of various
Shuttle Discovery (April 12-19, civic and charitable
1985), and Vice Chairman, organizations.
Huntsman Corporation (chemical
company).
Wayne E. Hedien (70) Trustee Since Retired; Director or Trustee of 208 Director of The PMI
c/o Kramer Levin Naftalis September the Retail Funds (since September Group Inc. (private
& Frankel LLP 1997 1997) and the Institutional Funds mortgage insurance);
Counsel to the (since July 2003); formerly Trustee and Vice
Independent Trustees associated with the Allstate Chairman of The Field
919 Third Avenue Companies (1966-1994), most Museum of Natural
New York, NY 10022-3902 recently as Chairman of The History; director of
Allstate Corporation (March 1993- various other business
December 1994) and Chairman and and charitable
Chief Executive Officer of its organizations.
wholly-owned subsidiary,
Allstate Insurance Company (July
1989-December 1994).
</Table>
26
<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) DURING OVERSEEN OTHER DIRECTORSHIPS HELD
INDEPENDENT TRUSTEE REGISTRANT TIME SERVED* PAST 5 YEARS* * BY TRUSTEE* * * BY TRUSTEE
- -------------------------- ----------- ------------ --------------------------------- --------------- ------------------------
Dr. Manuel H. Johnson (55) Trustee Since Senior Partner, Johnson Smick 208 Director of NVR, Inc.
c/o Johnson Smick July 1991 International, Inc., a consulting (home construction);
International, Inc. firm; Chairman of the Audit Director of RBS
2099 Pennsylvania Avenue, Committee and Director or Trustee Greenwich Capital
N.W. of the Retail Funds (since July Holdings (financial
Suite 950 1991) and the Institutional Funds holding company);
Washington, D.C. 20006 (since July 2003); Co-Chairman Director of KFX Energy.
and a founder of the Group of
Seven Council (G7C), an
international economic
commission; formerly Vice
Chairman of the Board of
Governors of the Federal Reserve
System and Assistant Secretary of
the U.S. Treasury.
Joseph J. Kearns (62) Trustee Since President, Kearns & Associates 209 Director of Electro Rent
PMB754 July 2003 LLC (investment consulting); Corporation (equipment
23852 Pacific Coast Deputy Chairman of the Audit leasing), The Ford
Highway Committee and Director or Trustee Family Foundation, and
Malibu, CA 90265 of the Retail Funds (since July the UCLA Foundation.
2003) and the Institutional Funds
(since August 1994); previously
Chairman of the Audit Committee
of the Institutional Funds
(October 2001-July 2003);
formerly CFO of the J. Paul Getty
Trust.
Michael E. Nugent (68) Trustee Since General Partner of Triumph 208 Director of various
c/o Triumph Capital, L.P. July 1991 Capital, L.P., a private business organizations.
445 Park Avenue investment partnership; Chairman
New York, NY 10022 of the Insurance Committee and
Director or Trustee of the Retail
Funds (since July 1991) and the
Institutional Funds (since July
2001); formerly Vice President,
Bankers Trust Company and BT
Capital Corporation (1984-1988).
Fergus Reid (72) Trustee Since Chairman of Lumelite Plastics 209 Trustee and Director of
c/o Lumelite Plastics July 2003 Corporation; Chairman of the certain investment
Corporation Governance Committee and Director companies in the
85 Charles Colman Blvd. or Trustee of the Retail Funds JPMorgan Funds complex
Pawling, NY 12564 (since July 2003) and the managed by J.P. Morgan
Institutional Funds (since June Investment Management
1992). Inc.
</Table>
27
<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) DURING OVERSEEN OTHER DIRECTORSHIPS HELD
INDEPENDENT TRUSTEE REGISTRANT TIME SERVED* PAST 5 YEARS* * BY TRUSTEE* * * BY TRUSTEE
- -------------------------- ----------- ------------ --------------------------------- --------------- ------------------------
Charles A. Fiumefreddo Chairman of Since Chairman and Director or Trustee 208 None
(71) the Board July 1991 of the Retail Funds (since July
c/o Morgan Stanley Trust and Trustee 1991) and the Institutional Funds
Harborside Financial (since July 2003); formerly Chief
Center, Executive Officer of the Retail
Plaza Two, Funds (until September 2002).
Jersey City, NJ 07311
James F. Higgins (56) Trustee Since Director or Trustee of the Retail 208 Director of AXA
c/o Morgan Stanley Trust June 2000 Funds (since June 2000) and the Financial, Inc. and The
Harborside Financial Institutional Funds (since July Equitable Life Assurance
Center, 2003); Senior Advisor of Morgan Society of the United
Plaza Two, Stanley (since August 2000); States (financial
Jersey City, NJ 07311 Director of the Distributor and services).
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).
</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. 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.).
28
<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 (51) President Since May 1999 President and Chief Operating Officer of Morgan
1221 Avenue of the Americas Stanley Investment Management Inc.; President,
New York, NY 10020 Director and Chief Executive Officer of the
Investment Adviser and Morgan Stanley Services;
Chairman and Director of the Distributor;
Chairman and Director of the Transfer Agent;
Director of various Morgan Stanley
subsidiaries; 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 (65) Executive Vice Since April 2003 Principal Executive Officer-Office of the Funds
1221 Avenue of the Americas President and (since November 2003); Managing Director of
New York, NY 10020 Principal Executive Morgan Stanley & Co. Incorporated, Managing
Officer Director of Morgan Stanley; Managing Director,
Chief Administrative Officer and Director of
the Investment Adviser 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) and
the Retail Funds (since April 2003); Director
of Morgan Stanley SICAV (since May 2004);
previously President and Director of the Retail
Funds (March 2001-July 2003) and Chief Global
Operations Officer and Managing Director of
Morgan Stanley Investment Management Inc.
Joseph J. McAlinden (61) Vice President Since July 1995 Managing Director and Chief Investment Officer
1221 Avenue of the Americas of the Investment Adviser and Morgan Stanley
New York, NY 10020 Investment Management Inc., 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).
Barry Fink (49) 1221 Vice President Since February 1997 General Counsel (since May 2000) and Managing
Avenue of the Americas Director (since December 2000) of Morgan
New York, NY 10020 Stanley Investment Management; Managing
Director (since December 2000), Secretary
(since February 1997) and Director (since July
1998) of the Investment Adviser and Morgan
Stanley Services; Vice President of the Retail
Funds; Assistant Secretary of Morgan Stanley
DW; Vice President of the Institutional Funds
(since July 2003); Managing Director, Secretary
and Director of the Distributor; previously
Secretary (February 1997-July 2003) and
General Counsel (February 1997-April 2004) of
the Retail Funds; Vice President and Assistant
General Counsel of the Investment Adviser and
Morgan Stanley Services (February 1997-December
2001).
Amy R. Doberman (42) Vice President Since July 2004 Managing Director and General Counsel, U.S.
1221 Avenue of the Americas Investment Management; Managing Director of
New York, NY 10020 Morgan Stanley Investment Management Inc. and
the Investment Adviser, Vice President of the
Institutional and Retail Funds (since July
2004); previously, Managing Director and
General Counsel - Americas, UBS Global Asset
Management (July 2000 - July 2004) and General
Counsel, Aeltus Investment Management, Inc.
(January 1997 - July 2000).
Carsten Otto (41) Chief Compliance Since October 2004 Executive Director and U.S. Director of
1221 Avenue of the Americas Officer Compliance for Morgan Stanley Investment
New York, NY 10020 Management (since October 2004); Executive
Director of the Investment Adviser and Morgan
Stanley Investment Management Inc.; formerly
Assistant Secretary and Assistant General
Counsel of the Morgan Stanley Retail Funds.
</Table>
29
<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* *
- ----------------------------- ---------------------- ---------------------- -----------------------------------------------
Stefanie V. Chang (38) Vice President Since July 2003 Executive Director of Morgan Stanley & Co.
1221 Avenue of the Americas Incorporated, Morgan Stanley Investment
New York, NY 10020 Management Inc., and the Investment Adviser;
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 US LLP).
Francis J. Smith (39) Treasurer and Chief Treasurer since July Executive Director of the Investment Adviser
c/o Morgan Stanley Trust Financial Officer 2003 and Chief and Morgan Stanley Services (since December
Harborside Financial Center, Financial Officer 2001); previously, Vice President of the Retail
Plaza Two, since September 2002 Funds (September 2002-July 2003), and Vice
Jersey City, NJ 07311 President of the Investment Adviser and Morgan
Stanley Services (August 2000-November 2001)
and Senior Manager at PricewaterhouseCoopers
LLP (January 1998-August 2000).
Thomas F. Caloia (58) Vice President Since July 2003 Executive Director (since December 2002) and
c/o Morgan Stanley Trust Assistant Treasurer of the Investment Adviser,
Harborside Financial Center, the Distributor and Morgan Stanley Services;
Plaza Two, previously Treasurer of the Retail Funds (April
Jersey City, NJ 07311 1989-July 2003); formerly First Vice President
of the Investment Adviser, the Distributor and
Morgan Stanley Services.
Mary E. Mullin (37) Secretary Since July 2003 Executive Director of Morgan Stanley & Co.
1221 Avenue of the Americas Incorporated, Morgan Stanley Investment
New York, NY 10020 Management Inc. and the Investment Adviser;
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.
30
<Page>
(This page has been left blank intentionally.)
<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
Fergus Reid
OFFICERS
Charles A. Fiumefreddo
CHAIRMAN OF THE BOARD
Mitchell M. Merin
PRESIDENT
Ronald E. Robison
EXECUTIVE VICE PRESIDENT AND PRINCIPAL EXECUTIVE OFFICER
Joseph J. McAlinden
VICE PRESIDENT
Barry Fink
VICE PRESIDENT
Amy R. Doberman
VICE PRESIDENT
Carsten Otto
CHIEF COMPLIANCE OFFICER
Stefanie V. Chang
VICE PRESIDENT
Francis J. Smith
TREASURER AND CHIEF FINANCIAL OFFICER
Thomas F. Caloia
VICE PRESIDENT
Mary E. Mullin
SECRETARY
TRANSFER AGENT
Morgan Stanley Trust
Harborside Financial Center, Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP
Two World Financial Center
New York, New York 10281
INVESTMENT ADVISER
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) 2004 Morgan Stanley
[MORGAN STANLEY LOGO]
GRAPHIC
MORGAN STANLEY FUNDS
MORGAN STANLEY
REAL ESTATE FUND
ANNUAL REPORT
NOVEMBER 30, 2004
[MORGAN STANLEY LOGO]
36068RPT-RA05-00044P-Y11/04
<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) The Fund has amended its Code of Ethics during the period covered by the
shareholder report presented in Item 1 hereto to delete from the end of the
following paragraph on page 2 of the Code the phrase "to the detriment of the
Fund.":
"Each Covered Officer must not use his personal influence or personal
relationship improperly to influence investment decisions or financial reporting
by the Fund whereby the Covered Officer would benefit personally (directly or
indirectly)."
(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:
2004
<Table>
<Caption>
REGISTRANT COVERED ENTITIES(1)
AUDIT FEES $ 29,002 N/A
NON-AUDIT FEES
AUDIT-RELATED FEES $ 452(2) $ 3,746,495(2)
TAX FEES $ 5,915(3) $ 79,800(4)
ALL OTHER FEES $ - $ -
TOTAL NON-AUDIT FEES $ 6,367 $ 3,826,295
TOTAL $ 35,369 $ 3,826,295
</Table>
2003
<Table>
<Caption>
REGISTRANT COVERED ENTITIES(1)
AUDIT FEES $ 27,330 N/A
NON-AUDIT FEES
AUDIT-RELATED FEES $ 684(2) $ 2,888,861(2)
TAX FEES $ 6,091(3) $ 692,753(4)
ALL OTHER FEES $ - $ -(5)
TOTAL NON-AUDIT FEES $ 6,775 $ 3,581,614
TOTAL $ 34,105 $ 3,581,614
</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:
APPENDIX A
AUDIT COMMITTEE
AUDIT AND NON-AUDIT SERVICES
PRE-APPROVAL POLICY AND PROCEDURES
OF THE
MORGAN STANLEY RETAIL AND INSTITUTIONAL FUNDS
AS ADOPTED AND AMENDED JULY 23, 2004,(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, supersedes 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
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
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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.
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
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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. 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 Inc.
Morgan Stanley Investment Management Limited
Morgan Stanley Investment Management Private Limited
Morgan Stanley Asset & Investment Trust Management Co., Limited
Morgan Stanley Investment Management Company
Van Kampen Asset Management
Morgan Stanley Services Company, Inc.
Morgan Stanley Distributors Inc.
Morgan Stanley Trust FSB
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MORGAN STANLEY INSTITUTIONAL FUNDS
Morgan Stanley Investment Management Inc.
Morgan Stanley Investment Advisors Inc.
Morgan Stanley Investment Management Limited
Morgan Stanley Investment Management Private Limited
Morgan Stanley Asset & Investment Trust Management Co., Limited
Morgan Stanley Investment Management Company
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.
Item 5. Audit Committee of Listed Registrants.
(a) The Fund has a separately-designated standing audit committee established in
accordance with Section 3(a)(58)(A) of the Exchange Act whose members are:
Michael Bozic, Edwin J. Garn, Wayne E. Hedien, Manual H. Johnson, Joseph J.
Kearns, Michael Nugent and Fergus Reid.
(b) Not applicable.
Item 6. Schedule of Investments
Refer to Item 1.
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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. Closed-End Fund Repurchases
Applicable to reports filed by closed-end funds.
Item 9. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 10 - Controls and Procedures
(a) The Fund's principal executive officer and principal financial officer have
concluded that the Fund's disclosure controls and procedures are sufficient to
ensure that information required to be disclosed by the Fund in this Form N-CSR
was recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission's rules and forms, based
upon such officers' evaluation of these controls and procedures as of a date
within 90 days of the filing date of the report.
(b) There were no changes in the registrant's internal control over financial
reporting that occurred during the 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 11 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.
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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 20, 2005
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 20, 2005
/s/ Francis Smith
Francis Smith
Principal Financial Officer
January 20, 2005