N-CSR 1 file001.htm ANNUAL REPORT







                                  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: 811-08600


Morgan Stanley Total Return Trust
                    (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: July 31, 2004

Date of reporting period: July 31, 2004


Item 1 - Report to Shareholders

Welcome, Shareholder:

In this report, you'll learn about how your investment in Morgan Stanley Total Return Trust 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.



	Fund Report
	For the year ended July 31, 2004

Total Return for the 12-Month Period Ended July 31, 2004


Class A	Class B			Class C			Class D			S&P 500 Index¹			Lipper Multi-Cap Core Funds Index²			Lipper Large-Cap Core Funds Index³
9.60%		8.76	%		8.77	%		9.84	%		13.17	%		13.57	%		10.01	%

The performance of the Fund's four share classes varies because each has different expenses. The Fund's total return figures assume the reinvestment of all distributions but do not reflect the deduction of any applicable sales charges. Such costs would lower performance. Past performance is no guarantee of future results. See Performance Summary for standardized performance information.

Market Conditions

Global stock and bond market conditions remained favorable for much of the 12-month period ended July 31, 2004, before deteriorating in the final months. The equity markets gained considerably during the first six months of the period as strong GDP growth, improving corporate profit results and continued consumer spending combined to push equity benchmarks higher. In this first half, concerns about deflation were replaced by worries about inflationary pressure as the recovery accelerated. Equities remained strong through May as promising job reports added to investors' confidence in the economic recovery. Small- to mid-cap stocks performed the best, with energy, chemical and industrials companies the strongest performers.

The equity market entered a new phase in the last few months of the period in which gains were moderated by fears that the Federal Reserve would move to raise interest rates more rapidly than anticipated. The market was also restrained by reports indicating a lack of new hiring in the economic recovery, as well as by the possibility of inflationary pressure. By July the economy demonstrated clear signs of slowing, leading the equities markets to stall as a result.

Performance Analysis

Morgan Stanley Total Return Trust underperformed the S&P 500 Index, the Lipper Multi-Cap Core Funds Index and the Lipper Large-Cap Core Funds Index for the 12-month period under review. Underperformance was largely driven by a number of sector weightings. An underweighted position in financials during the second half of the period relative to the S&P 500 Index became a drag on the portfolio as the financial services sector gained strongly over these 12 months. Performance was hindered also by the portfolio's cautious positioning along the capitalization spectrum. A portion of the Fund's holdings were shifted out of underperforming large-capitalization stocks early in the first period in an effort to increase exposure to smaller ones that appeared to offer more compelling value. Unfortunately, the Fund's allocation to small-cap companies nevertheless was not large enough to reap the full benefits of the rally, and its relative performance suffered in the first half of the period.

General positive performance was helped by the diversified nature of the portfolio, which allowed gains to be made in a number of different sectors. The portfolio entered the fiscal year with a bias toward technology stocks and a large overweighted position in information technology in particular relative to the S&P 500 Index, which we built to take advantage of what had been attractive pricing in this heavily cyclical sector. We took profits after many of these companies performed strongly, reinvesting the proceeds in the basic materials and industrials sectors. These holdings then went on to perform well as the economic recovery

continued. Gainers included construction materials and diversified electrical companies. As the momentum of the recovery began to slow later in the fiscal year we moderated the Fund's exposure to economically sensitive sectors by reducing positions in consumer durables and industrials to decrease the overweighting to these sectors relative to the S&P 500 Index. The Fund was also helped by its slight underweighting to the health-care sector relative to the S&P 500 Index.


TOP 10 HOLDINGS
Joint Repurchase Agreement	10.4	%
American Express Co.	2.8
General Electric Co.	2.7
Procter & Gamble Co.	2.6
Gilette Co.	2.5
Danaher Corp.	2.5
Microsoft Corporation	2.5
Wells Fargo & Co.	2.4
Respironics, Inc	2.4
Northrop Grumman Corp.	2.4


TOP FIVE INDUSTRIES
Short-Term Investments	10.4	%
Industrial Conglomerates	9.5
Financial Conglomerates	9.3
Medical Specialties	9.3
Household/Personal Care	7.5

Data as of July 31, 2004. Subject to change daily. All percentages for top 10 holdings and top five Industries are as a percentage of net assets. Provided for informational purposes only and should not be deemed a recommendation to buy or sell the securities mentioned. Morgan Stanley is a full-service securities firm engaged in securities trading and brokerage activities, investment banking, research and analysis, financing and financial advisory services.

Investment Strategy

The Fund will normally invest at least 65% of its assets in common stocks (including depositary receipts) and convertible securities of domestic and foreign companies. In selecting investments to buy, hold or sell, the Fund's "Investment Manager," Morgan Stanley Investment Advisors Inc., typically uses a "top-down" investment process that considers the overall economic outlook, the development of industry/sector preferences, and, lastly, specific stock selections. Generally, the Fund will invest in companies that: (i) have a market capitalization of at least $1 billion, and (ii) in the view of the Investment Manager, are expected to pay dividends or interest income. Up to 35% of the Fund's net assets may be invested in foreign securities (including depository receipts).

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 1-800-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) 847-2424.

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 six-month period ended July 31 is available without charge, upon request, by calling (800) 869-NEWS or by visiting the Mutual Fund Center on our website at www.morganstanley.com. This information is also available on the Securities and Exchange Commission's website 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 and 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 am to 8:00 pm, ET. Once our Customer Service Center has received your instructions, we will begin sending individual copies for each account within 30 days.

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	Performance Summary

Performance of a $10,000 Investment — Class B

Average Annual Total Returns — Period Ended July 31, 2004


	Class A Shares* (since 07/28/97)			Class B Shares** (since 11/30/94)			Class C Shares^† (since 07/28/97)			Class D Shares^†† (since 07/28/97)
Symbol	TRFAX			TRFBX			TRFCX			TRFDX
1 Year		9.60%	⁴		8.76%	⁴		8.77%	⁴		9.84%	⁴
		3.85	⁵		3.76	⁵		7.77	⁵		—
5 Years		(5.19)	⁴		(5.88)	⁴		(5.93)	⁴		(4.98)	⁴
		(6.20)	⁵		(6.23)	⁵		(5.93)	⁵		—
Since Inception		1.38	⁴		7.35	⁴		0.66	⁴		1.61	⁴
		0.61	⁵		7.35	⁵		0.66	⁵		—

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 Standard and Poor's 500 Index (S&P 500^®) is a broad-based index, the performance of which is based on the performance of 500 widely-held common stocks chosen for market size, liquidity and industry group representation. The Index does not include any expenses, sales charges or fees. Such costs would lower performance. It is not possible to invest directly in an index.

(2)

The Lipper Multi-Cap Core Funds Index is an equally weighted performance index of the largest qualifying funds (based on net assets) in the Lipper Multi-Cap Core 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. As of the date of this report, the Fund is in the Lipper Multi-Cap Core Funds classification.

(3)

The Lipper Large-Cap Core Funds Index is an equally weighted performance index of the largest qualifying funds (based on net assets) in the Lipper Large-Cap Core 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.

(4)

Figure shown assumes reinvestment of all distributions and does not reflect the deduction of any sales charges.

(5)

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 July 31, 2004.



	Expense Example

As a shareholder of the Fund, you incur 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 02/01/04 – 07/31/04.

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. 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 that have transactional costs, such as sales charges (loads), and redemption fees, or exchange fees.


	BEGINNING ACCOUNT VALUE		ENDING ACCOUNT VALUE		EXPENSES PAID DURING PERIOD*
	02/01/04		07/31/04		02/01/04 – 07/31/04
Class A
Actual	$	1,000.00	$	991.11	$	6.44
Hypothetical (5% return before expenses)	$	1,000.00	$	1,018.40	$	6.52
Class B
Actual	$	1,000.00	$	987.11	$	10.18
Hypothetical (5% return before expenses)	$	1,000.00	$	1,014.62	$	10.32
Class C
Actual	$	1,000.00	$	987.80	$	10.03
Hypothetical (5% return before expenses)	$	1,000.00	$	1,014.77	$	10.17
Class D
Actual	$	1,000.00	$	991.92	$	5.25
Hypothetical (5% return before expenses)	$	1,000.00	$	1,019.59	$	5.32

Expenses are equal to the Fund's annualized expense ratio of 1.30%, 2.06%, 2.03% and 1.06% respectively, multiplied by the average account value over the period, multiplied by 182/366 (to reflect the one-half year period).

Morgan Stanley Total Return Trust

Portfolio of Investments July 31, 2004


NUMBER OF SHARES			VALUE
		Common Stocks (89.7%)
		Aerospace & Defense (2.4%)
	90,000	Northrop Grumman Corp.	$	4,734,000
		Agricultural Commodities/Milling (2.3%)
	300,000	Archer-Daniels-Midland Co.		4,629,000
		Apparel/Footwear Retail (3.5%)
	80,000	Chico's FAS, Inc.*		3,349,600
	150,000	TJX Companies, Inc. (The)		3,520,500
				6,870,100
		Beverages: Alcoholic (1.0%)
	40,000	Anheuser-Busch Companies, Inc.		2,076,000
		Building Products (1.3%)
	85,000	Masco Corp.		2,570,400
		Chemicals: Major Diversified (2.2%)
	110,000	Dow Chemical Co. (The)		4,387,900
		Chemicals: Specialty (2.0%)
	100,000	Praxair, Inc.		3,945,000
		Computer Communications (1.4%)
	135,000	Cisco Systems, Inc.*		2,816,100
		Computer Peripherals (1.7%)
	40,000	Zebra Technologies Corp. (Class A)*		3,305,200
		Computer Processing Hardware (1.6%)
	100,000	Apple Computer, Inc.*		3,234,000
		Environmental Services (1.1%)
	80,000	Waste Management, Inc.		2,251,200
		Financial Conglomerates (9.3%)
	110,000	American Express Co.		5,527,500
	105,000	Citigroup, Inc.		4,629,450
	120,000	J.P. Morgan Chase & Co.		4,479,600
	60,000	UBS AG (ADR) (Switzerland)		4,006,200
				18,642,750
		Financial Publishing/Services (2.1%)
	55,000	McGraw-Hill Companies, Inc. (The)	$	4,128,300
		Home Improvement Chains (2.1%)
	105,000	Sherwin-Williams Co.		4,239,900
		Hotels/Resorts/Cruiselines (1.2%)
	50,000	Marriott International, Inc. (Class A)		2,440,000
		Household/Personal Care (7.5%)
	105,000	Estee Lauder Companies, Inc. (The) (Class A)		4,609,500
	130,000	Gillette Co. (The)		5,067,400
	100,000	Procter & Gamble Co. (The)		5,215,000
				14,891,900
		Industrial Conglomerates (9.5%)
	55,000	3M Co.		4,529,800
	100,000	Danaher Corp.		5,065,000
	160,000	General Electric Co.		5,320,000
	60,000	Ingersoll-Rand Co. Ltd. (Class A) (Bermuda)		4,121,400
				19,036,200
		Internet Software/Services (1.6%)
	105,000	Yahoo Inc.*		3,234,000
		Investment Banks/Brokers (1.1%)
	45,000	Merrill Lynch & Co., Inc.		2,237,400
		Major Banks (2.4%)
	85,000	Wells Fargo & Co.		4,879,850
		Media Conglomerates (2.3%)
	200,000	Disney (Walt) Co. (The)		4,618,000
		Medical Specialties (9.3%)
	85,000	Bard (C.R.), Inc.		4,692,000
	60,000	IDEXX Laboratories, Inc.*		3,023,400
	85,000	Respironics, Inc.*		4,736,200
	65,000	Stryker Corp.		3,099,200
	40,000	Zimmer Holdings, Inc.*		3,052,400
				18,603,200

See Notes to Financial Statements

Morgan Stanley Total Return Trust

Portfolio of Investments July 31, 2004 continued


NUMBER OF SHARES			VALUE
		Oil & Gas Production (4.6%)
	70,000	Apache Corp.	$	3,257,100
	80,000	Burlington Resources, Inc.		3,053,600
	60,000	Occidental Petroleum Corp.		2,956,200
				9,266,900
		Oilfield Services/ Equipment (2.8%)
	60,000	BJ Services Co.		2,979,600
	45,000	Smith International, Inc.*		2,622,600
				5,602,200
		Packaged Software (2.5%)
	175,000	Microsoft Corp.		4,980,500
		Pharmaceuticals: Major (1.1%)
	40,000	Johnson & Johnson		2,210,800
		Railroads (2.1%)
	160,000	Norfolk Southern Corp.		4,270,400
		Real Estate Investment Trusts (1.4%)
	125,000	Impac Mortgage Holdings, Inc.		2,868,750
		Restaurants (2.1%)
	155,000	Applebee's International, Inc.		4,129,200
		Semiconductors (2.7%)
	65,000	Analog Devices, Inc.		2,580,500
	165,000	National Semiconductor Corp.*		2,829,750
				5,410,250
		Trucks/Construction/Farm Machinery (1.5%)
	40,000	Caterpillar Inc.		2,939,600
		Total Common Stocks (Cost $157,992,707)		179,449,000


PRINCIPAL AMOUNT IN THOUSANDS			VALUE
		Short-Term Investment (10.4%) Repurchase Agreement
$	20,855	Joint repurchase agreement account 1.36% due 08/02/04 (dated 07/30/04; proceeds $20,857,354) (a) (Cost $20,855,000)	$	20,855,000


Total Investments (Cost $178,847,707) (b)	100.1	%		200,304,000
Liabilities in Excess of Other Assets	(0.1	)		(273,420	)
Net Assets	100.0	%	$	200,030,580

ADR

American Depository Receipt.

Non-income producing security.

(a)

Collateralized by federal agency and U.S. Treasury obligations.

(b)

The aggregate cost for federal income tax purposes is $178,884,616. The aggregate gross unrealized appreciation is $26,257,647 and the aggregate gross unrealized depreciation is $4,838,263, resulting in net unrealized appreciation of $21,419,384.

See Notes to Financial Statements

Morgan Stanley Total Return Trust

Summary of Investments July 31, 2004


INDUSTRY	VALUE		PERCENT OF NET ASSETS
Repurchase Agreement	$	20,855,000		10.4	%
Industrial Conglomerates		19,036,200		9.5
Financial Conglomerates		18,642,750		9.3
Medical Specialties		18,603,200		9.3
Household/Personal Care		14,891,900		7.5
Oil & Gas Production		9,266,900		4.6
Apparel/Footwear Retail		6,870,100		3.5
Oilfield Services/Equipment		5,602,200		2.8
Semiconductors		5,410,250		2.7
Packaged Software		4,980,500		2.5
Major Banks		4,879,850		2.4
Aerospace & Defense		4,734,000		2.4
Agricultural Commodities/Milling		4,629,000		2.3
Media Conglomerates		4,618,000		2.3
Chemicals: Major Diversified		4,387,900		2.2
Railroads		4,270,400		2.1
Home Improvement Chains		4,239,900		2.1
Restaurants		4,129,200		2.1
Financial Publishing/Services		4,128,300		2.1
Chemicals: Specialty		3,945,000		2.0
Computer Peripherals		3,305,200		1.7
Computer Processing Hardware		3,234,000		1.6
Internet Software/Services		3,234,000		1.6
Trucks/Construction/Farm Machinery		2,939,600		1.5
Real Estate Investment Trusts		2,868,750		1.4
Computer Communications		2,816,100		1.4
Building Products		2,570,400		1.3
Hotels/Resorts/Cruiselines		2,440,000		1.2
Environmental Services		2,251,200		1.1
Investment Banks/Brokers		2,237,400		1.1
Pharmaceuticals: Major		2,210,800		1.1
Beverages: Alcoholic		2,076,000		1.0
	$	200,304,000		100.1	%

See Notes to Financial Statements

Morgan Stanley Total Return Trust

Financial Statements

Statement of Assets and Liabilities

July 31, 2004


Assets:
Investments in securities, at value (cost $178,847,707) (including a repurchase agreement of $20,855,000)	$	200,304,000
Receivable for:
Dividends		184,325
Shares of beneficial interest sold		79,977
Prepaid expenses and other assets		26,173
Total Assets		200,594,475
Liabilities:
Payable for:
Shares of beneficial interest redeemed		219,613
Distribution fee		153,224
Investment management fee		130,679
Accrued expenses and other payables		60,379
Total Liabilities		563,895
Net Assets	$	200,030,580
Composition of Net Assets:
Paid-in-capital	$	473,687,134
Net unrealized appreciation		21,456,293
Undistributed net investment income		256
Accumulated net realized loss		(295,113,103	)
Net Assets	$	200,030,580
Class A Shares:
Net Assets	$	10,817,443
Shares Outstanding (unlimited authorized, $.01 par value)		746,235
Net Asset Value Per Share	$	14.50
Maximum Offering Price Per Share, (net asset value plus 5.54% of net asset value)	$	15.30
Class B Shares:
Net Assets	$	164,215,261
Shares Outstanding (unlimited authorized, $.01 par value)		11,919,737
Net Asset Value Per Share	$	13.78
Class C Shares:
Net Assets	$	8,799,573
Shares Outstanding (unlimited authorized, $.01 par value)		639,665
Net Asset Value Per Share	$	13.76
Class D Shares:
Net Assets	$	16,198,303
Shares Outstanding (unlimited authorized, $.01 par value)		1,099,006
Net Asset Value Per Share	$	14.74

See Notes to Financial Statements

Morgan Stanley Total Return Trust

Financial Statements continued

Statement of Operations

For the year ended July 31, 2004


Net Investment Loss:
Income
Dividends (net of $53,710 foreign withholding tax)	$	2,567,339
Interest		256,923
Total Income		2,824,262
Expenses
Distribution fee (Class A shares)		29,106
Distribution fee (Class B shares)		1,924,565
Distribution fee (Class C shares)		100,429
Investment management fee		1,744,173
Transfer agent fees and expenses		495,176
Shareholder reports and notices		64,664
Registration fees		61,381
Professional fees		58,134
Custodian fees		13,682
Trustees' fees and expenses		571
Other		11,433
Total Expenses		4,503,314
Net Investment Loss		(1,679,052	)
Net Realized and Unrealized Gain (Loss):
Net realized gain		29,446,323
Net change in unrealized appreciation		(6,062,485	)
Net Gain		23,383,838
Net Increase	$	21,704,786

See Notes to Financial Statements

Morgan Stanley Total Return Trust

Financial Statements continued

Statement of Changes in Net Assets


	FOR THE YEAR ENDED JULY 31, 2004			FOR THE YEAR ENDED JULY 31, 2003
Increase (Decrease) in Net Assets:
Operations:
Net investment loss	$	(1,679,052	)	$	(265,722	)
Net realized gain (loss)		29,446,323			(66,259,581	)
Net change in unrealized appreciation		(6,062,485	)		57,740,675
Net Increase (Decrease)		21,704,786			(8,784,628	)
Net decrease from transactions in shares of beneficial interest		(72,548,099	)		(95,839,948	)
Net Decrease		(50,843,313	)		(104,624,576	)
Net Assets:
Beginning of period		250,873,893			355,498,469
End of Period (Including undistributed net investment income of $256 and $0, respectively)	$	200,030,580		$	250,873,893

See Notes to Financial Statements

Morgan Stanley Total Return Trust

Notes to Financial Statements July 31, 2004

1. Organization and Accounting Policies

Morgan Stanley Total Return Trust (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 high total return from capital growth and income. The Fund was organized as a Massachusetts business trust on June 29, 1994 and commenced operations on November 30, 1994. On July 28, 1997, the Fund converted to a multiple class share structure.

The Fund offers Class A shares, Class B shares, Class C shares and Class D shares. The four classes are substantially the same except that most Class A shares are subject to a sales charge imposed at the time of purchase and some Class A shares, and most Class B shares and Class C shares are subject to a contingent deferred sales charge imposed on shares redeemed within one year, six years and one year, respectively. Class D shares are not subject to a sales charge. Additionally, Class A shares, Class B shares and Class C shares incur distribution expenses.

The following is a summary of significant accounting policies:

A. Valuation of Investments — (1) 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 Manager") determines that the latest sale price, the bid price or the mean between the last reported bid and asked price do not reflect a security's market value, portfolio securities are valued at their fair value as determined in good faith under procedures established by and under the general supervision of the Fund's Trustees. 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 Manager 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 sixty days at time of

Morgan Stanley Total Return Trust

Notes to Financial Statements July 31, 2004 continued

purchase are valued on a mark-to-market basis until sixty days prior to maturity and thereafter at amortized cost based on their value on the 61st day. Short-term debt securities having a maturity date of sixty days or less at the time of purchase are valued at amortized cost.

B. Accounting for Investments — Security transactions are accounted for on the trade date (date the order to buy or sell is executed). Realized gains and losses on security transactions are determined by the identified cost method. Dividend income and other distributions are recorded on the ex-dividend date. Discounts are accreted and premiums are amortized over the life of the respective securities. Interest income is accrued daily.

C. Repurchase Agreements — Pursuant to an Exemptive Order issued by the Securities and Exchange Commission, the Fund, along with other affiliated entities managed by the Investment Manager, may transfer uninvested cash balances into one or more joint repurchase agreement accounts. These balances are invested in one or more repurchase agreements and are collateralized by cash, U.S. Treasury or federal agency obligations. The Fund may also invest directly with institutions in repurchase agreements. The Fund's custodian receives the collateral, which is marked-to-market daily to determine that the value of the collateral does not decrease below the repurchase price plus accrued interest.

D. Multiple Class Allocations — Investment income, expenses (other than distribution fees), and realized and unrealized gains and losses are allocated to each class of shares based upon the relative net asset value on the date such items are recognized. Distribution fees are charged directly to the respective class.

E. Federal Income Tax Policy — It is the Fund's policy to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all of its taxable income to its shareholders. Accordingly, no federal income tax provision is required.

F. Dividends and Distributions to Shareholders — Dividends and distributions to shareholders are recorded on the ex-dividend date.

G. Use of Estimates — The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts and disclosures. Actual results could differ from those estimates.

2. Investment Management Agreement

Pursuant to an Investment Management Agreement, the Fund pays the Investment Manager a management fee, accrued daily and payable monthly, by applying the following annual rates to the net assets of the Fund determined as of the close of each business day: 0.75% to the portion of daily net assets not exceeding $500 million; 0.725% 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.

Morgan Stanley Total Return Trust

Notes to Financial Statements July 31, 2004 continued

3. Plan of Distribution

Shares of the Fund are distributed by Morgan Stanley Distributors Inc. (the "Distributor"), an affiliate of the Investment Manager. The Fund has adopted a Plan of Distribution (the "Plan") pursuant to Rule 12b-1 under the Act. The Plan provides that the Fund will pay the Distributor a fee which is accrued daily and paid monthly at the following annual rates: (i) Class A – up to 0.25% of the average daily net assets of Class A; (ii) Class B – up to 1.0% of the lesser of: (a) the average daily aggregate gross sales of the Class B shares since the inception of the Fund (not including reinvestment of dividend or capital gain distributions) less the average daily aggregate net asset value of the Class B shares redeemed since the Fund's inception upon which a contingent deferred sales charge has been imposed or waived; or (b) the average daily net assets of Class B; and (iii) Class C – up to 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 $10,326,980 at July 31, 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 broker-dealer representatives may be reimbursed in the subsequent calendar year. For the year ended July 31, 2004, the distribution fee was accrued for Class A shares and Class C shares at the annual rate of 0.25% and 0.99%, respectively.

The Distributor has informed the Fund that for the year ended July 31, 2004, it received contingent deferred sales charges from certain redemptions of the Fund's Class B shares and Class C shares of $325,241 and $485, respectively and received $5,719 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 July 31, 2004 aggregated $181,370,990 and $241,047,849, respectively. Included in the aforementioned are purchases and sales of $2,100,000 and $365,250, respectively, with other Morgan Stanley funds, including a net realized loss of $36,693.

Morgan Stanley Total Return Trust

Notes to Financial Statements July 31, 2004 continued

For the year ended July 31, 2004, the Fund incurred brokerage commissions of $65,666 with Morgan Stanley & Co., Inc., an affiliate of the Investment Manager and Distributor, for portfolio transactions executed on behalf of the Fund.

Morgan Stanley Trust, an affiliate of the Investment Manager and Distributor, is the Fund's transfer agent. At July 31, 2004, the Fund had transfer agent fees and expenses payable of approximately $3,300.

Effective April 1, 2004, the Fund began an unfunded Deferred Compensation Plan (the "Compensation Plan") which allows each independent Trustee to defer payment of all, or a portion, of the fees he receives for serving on the Board of Trustees. Each eligible Trustee generally may elect to have the deferred amounts credited with a return equal to the total return on one or more of the Morgan Stanley funds that are offered as investment options under the Compensation Plan. Appreciation/depreciation and distributions received from these investments are recorded with an offsetting increase/decrease in the deferred compensation obligation and do not affect the net asset value of the Fund.

5. Federal Income Tax Status

The amount of dividends and distributions from net investment income and net realized capital gains are determined in accordance with federal income tax regulations which may differ from generally accepted accounting principles. These "book/tax" differences are either considered temporary or permanent in nature. To the extent these differences are permanent in nature, such amounts are reclassified within the capital accounts based on their federal tax-basis treatment; temporary differences do not require reclassification. Dividends and distributions which exceed net investment income and net realized capital gains for tax purposes are reported as distributions of paid-in-capital.

As of July 31, 2004, the tax-basis components of accumulated losses were as follows:

* During the year ended July 31, 2004, the Fund utilized $20,889,789 of its net capital loss carryforward. As of July 31, 2004, the Fund had a net capital loss carryforward of $295,075,938 of which $196,205,212 will expire on July 31, 2010 and $98,870,726 will expire on July 31, 2011 to offset future capital gains to the extent provided by regulations.

As of July 31, 2004, the Fund had temporary book/tax differences attributable to capital loss deferrals on wash sales and tax adjustments on real estate investment trusts ("REITs") held by the Fund and permanent

Morgan Stanley Total Return Trust

Notes to Financial Statements July 31, 2004 continued

book/tax differences attributable to tax adjustments on REITs sold by the Fund and a net operating loss. To reflect reclassifications arising from the permanent differences, paid-in-capital was charged $1,680,200, undistributed net investment income was credited $1,679,308 and accumulated net realized loss was credited $892.

6. Legal Matters

The Investment Manager, certain affiliates of the Investment Manager, certain officers of such affiliates and certain investment companies advised by the Investment Manager or its affiliates, including the Fund, are named as defendants in a number of similar class action complaints which were recently consolidated. This consolidated action also names as defendants certain individual Trustees and Directors of the Morgan Stanley funds. The consolidated amended complaint generally alleges that defendants, including the Fund, violated their statutory disclosure obligations and fiduciary duties by failing properly to disclose (i) that the Investment Manager and certain affiliates of the Investment Manager allegedly offered economic incentives to brokers and others to recommend the funds advised by the Investment Manager or its affiliates to investors rather than funds managed by other companies, and (ii) that the funds advised by the Investment Manager or its affiliates, including the Fund, allegedly paid excessive commissions to brokers in return for their efforts to recommend these funds to investors. The complaint seeks, among other things, unspecified compensatory damages, rescissionary damages, fees and costs. The defendants have moved to dismiss the action and intend to otherwise vigorously defend it. While the Fund believes that it has meritorious defenses, the ultimate outcome of this matter is not presently determinable at this early stage of the litigation, and no provision has been made in the Fund's financial statements for the effect, if any, of this matter.

Morgan Stanley Total Return Trust

Notes to Financial Statements July 31, 2004 continued

7. Shares of Beneficial Interest

Transactions in shares of beneficial interest were as follows:


	FOR THE YEAR ENDED JULY 31, 2004						FOR THE YEAR ENDED JULY 31, 2003
	SHARES			AMOUNT			SHARES			AMOUNT
CLASS A SHARES
Sold		96,086		$	1,387,377			240,033		$	2,940,405
Redeemed		(261,837	)		(3,749,296	)		(390,249	)		(4,779,669	)
Net decrease – Class A		(165,751	)		(2,361,919	)		(150,216	)		(1,839,264	)
CLASS B SHARES
Sold		440,636			5,991,541			800,117			9,497,209
Redeemed		(5,022,958	)		(68,688,441	)		(8,064,626	)		(94,788,916	)
Net decrease – Class B		(4,582,322	)		(62,696,900	)		(7,264,509	)		(85,291,707	)
CLASS C SHARES
Sold		26,523			362,291			135,937			1,596,791
Redeemed		(259,716	)		(3,532,162	)		(451,368	)		(5,285,514	)
Net decrease – Class C		(233,193	)		(3,169,871	)		(315,431	)		(3,688,723	)
CLASS D SHARES
Sold		182,669			2,648,378			287,375			3,575,059
Redeemed		(475,467	)		(6,967,787	)		(695,706	)		(8,595,313	)
Net decrease – Class D		(292,798	)		(4,319,409	)		(408,331	)		(5,020,254	)
Net decrease in Fund		(5,274,064	)	$	(72,548,099	)		(8,138,487	)	$	(95,839,948	)

Morgan Stanley Total Return Trust

Financial Highlights

Selected ratios and per share data for a share of beneficial interest outstanding throughout each period:


	FOR THE YEAR ENDED JULY 31,
	2004			2003			2002			2001			2000
Class A Shares
Selected Per Share Data:
Net asset value, beginning of period	$	13.23		$	13.18		$	17.26		$	23.88		$	20.36
Income (loss) from investment operations:
Net investment income (loss)‡		(0.01	)		0.07			(0.02	)		(0.07	)		(0.01	)
Net realized and unrealized gain (loss)		1.28			(0.02	)		(4.06	)		(6.16	)		4.72
Total income (loss) from investment operations		1.27			0.05			(4.08	)		(6.23	)		4.71
Less distributions from net realized gain		—			—			—			(0.39	)		(1.19	)
Net asset value, end of period	$	14.50		$	13.23		$	13.18		$	17.26		$	23.88
Total Return†		9.60	%		0.38	%		(23.64	)%		(26.31	)%		23.77	%
Ratios to Average Net Assets⁽¹⁾:
Expenses		1.30	%		1.26	%		1.22	%		1.12	%		1.18	%
Net investment income (loss)		(0.09	)%		0.58	%		(0.14	)%		(0.34	)%		(0.06	)%
Supplemental Data:
Net assets, end of period, in thousands		$10,817			$12,068			$14,003			$22,074			$16,211
Portfolio turnover rate		88	%		131	%		54	%		107	%		71	%

‡

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 purposes.

See Notes to Financial Statements

Morgan Stanley Total Return Trust

Financial Highlights continued


	FOR THE YEAR ENDED JULY 31,
	2004			2003			2002			2001			2000
Class B Shares
Selected Per Share Data:
Net asset value, beginning of period	$	12.67		$	12.72		$	16.78		$	23.41		$	20.10
Income (loss) from investment operations:
Net investment loss‡		(0.11	)		(0.02	)		(0.14	)		(0.22	)		(0.14	)
Net realized and unrealized gain (loss)		1.22			(0.03	)		(3.92	)		(6.02	)		4.64
Total income (loss) from investment operations		1.11			(0.05	)		(4.06	)		(6.24	)		4.50
Less distributions from net realized gain		—			—			—			(0.39	)		(1.19	)
Net asset value, end of period	$	13.78		$	12.67		$	12.72		$	16.78		$	23.41
Total Return†		8.76	%		(0.39	)%		(24.20	)%		(26.89	)%		23.01	%
Ratios to Average Net Assets⁽¹⁾:
Expenses		2.05	%		2.04	%		1.98	%		1.91	%		1.75	%
Net investment loss		(0.84	)%		(0.20	)%		(0.90	)%		(1.13	)%		(0.63	)%
Supplemental Data:
Net assets, end of period, in thousands		$164,215			$209,086			$302,387			$569,589			$551,685
Portfolio turnover rate		88	%		131	%		54	%		107	%		71	%

‡

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 purposes.

See Notes to Financial Statements

Morgan Stanley Total Return Trust

Financial Highlights continued


	FOR THE YEAR ENDED JULY 31,
	2004			2003			2002			2001			2000
Class C Shares
Selected Per Share Data:
Net asset value, beginning of period	$	12.65		$	12.70		$	16.77		$	23.40		$	20.12
Income (loss) from investment operations:
Net investment loss‡		(0.11	)		(0.02	)		(0.14	)		(0.22	)		(0.20	)
Net realized and unrealized gain (loss)		1.22			(0.03	)		(3.93	)		(6.02	)		4.67
Total income (loss) from investment operations		1.11			(0.05	)		(4.07	)		(6.24	)		4.47
Less distributions from net realized gain		—			—			—			(0.39	)		(1.19	)
Net asset value, end of period	$	13.76		$	12.65		$	12.70		$	16.77		$	23.40
Total Return†		8.77	%		(0.86	)%		(23.91	)%		(26.87	)%		22.78	%
Ratios to Average Net Assets⁽¹⁾:
Expenses		2.04	%		2.03	%		1.98	%		1.91	%		1.93	%
Net investment loss		(0.83	)%		(0.19	)%		(0.90	)%		(1.13	)%		(0.81	)%
Supplemental Data:
Net assets, end of period, in thousands		$8,800			$11,042			$15,091			$25,906			$21,997
Portfolio turnover rate		88	%		131	%		54	%		107	%		71	%

‡

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 purposes.

See Notes to Financial Statements

Morgan Stanley Total Return Trust

Financial Highlights continued


	FOR THE YEAR ENDED JULY 31,
	2004			2003			2002			2001			2000
Class D Shares
Selected Per Share Data:
Net asset value, beginning of period	$	13.42		$	13.34		$	17.43		$	24.05		$	20.46
Income (loss) from investment operations:
Net investment income (loss)‡		0.02			0.10			0.02			(0.03	)		0.03
Net realized and unrealized gain (loss)		1.30			(0.02	)		(4.11	)		(6.20	)		4.75
Total income (loss) from investment operations		1.32			0.08			(4.09	)		(6.23	)		4.78
Less distributions from net realized gain		—			—			—			(0.39	)		(1.19	)
Net asset value, end of period	$	14.74		$	13.42		$	13.34		$	17.43		$	24.05
Total Return†		9.84	%		0.60	%		(23.47	)%		(26.12	)%		24.00	%
Ratios to Average Net Assets⁽¹⁾:
Expenses		1.05	%		1.04	%		0.98	%		0.91	%		0.93	%
Net investment income (loss)		0.16	%		0.80	%		0.10	%		(0.13	)%		0.19	%
Supplemental Data:
Net assets, end of period, in thousands		$16,198			$18,679			$24,018			$36,105			$24,407
Portfolio turnover rate		88	%		131	%		54	%		107	%		71	%

‡

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 purposes.

See Notes to Financial Statements

Morgan Stanley Total Return Trust

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Trustees of
Morgan Stanley Total Return Trust:

We have audited the accompanying statement of assets and liabilities of Morgan Stanley Total Return Trust (the "Fund"), including the portfolio of investments, as of July 31, 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 five years in the period then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.

We conducted our audits in accordance with 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 July 31, 2004, by correspondence with the custodian and brokers. 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 Total Return Trust as of July 31, 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 five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.

Deloitte & Touche LLP
New York, New York
September 16, 2004

Morgan Stanley Total Return Trust

Trustee and Officer Information

Independent Trustees:

Name, Age and Address of
Independent Trustee

Position(s) Held with Registrant

Term of
Office and
Length of
Time
Served*

Principal Occupation(s)
During Past 5 Years**

Number of Portfolios
in Fund Complex Overseen by Trustee***

Other Directorships Held by Trustee

Michael Bozic (63)
c/o Kramer Levin Naftalis & Frankel LLP Counsel to the Independent Trustees
919 Third Avenue
New York, NY

Trustee

Since
April 1994

Private Investor; Director or Trustee of the Retail Funds (since April 1994) and the Institutional Funds (since July 2003); formerly Vice Chairman of Kmart Corporation (December 1998-October 2000), Chairman and Chief Executive Officer of Levitz Furniture Corporation (November 1995-November 1998) and President and Chief Executive Officer of Hills Department Stores (May 1991-July 1995); formerly variously Chairman, Chief Executive Officer, President and Chief Operating Officer (1987-1991) of the Sears Merchandise Group of Sears, Roebuck & Co.

208

Director of Weirton Steel Corporation.

Edwin J. Garn (71)
c/o Summit Ventures LLC
1 Utah Center
201 S. Main Street
Salt Lake City, UT

Trustee

Since January 1993

Managing Director of Summit Ventures LLC; Director or Trustee of the Retail Funds (since January 1993) and the Institutional Funds (since July 2003); member of the Utah Regional Advisory Board of Pacific Corp.; formerly United States Senator (R-Utah) (1974-1992) and Chairman, Senate Banking Committee (1980-1986), Mayor of Salt Lake City, Utah (1971-1974), Astronaut, Space Shuttle Discovery (April 12-19, 1985), and Vice Chairman, Huntsman Corporation (chemical company).

208

Director of Franklin Covey (time management systems), BMW Bank of North America, Inc. (industrial loan corporation), United Space Alliance (joint venture between Lockheed Martin and the Boeing Company) and Nuskin Asia Pacific (multilevel marketing); member of the board of various civic and charitable organizations.

Wayne E. Hedien (70)
c/o Kramer Levin Naftalis & Frankel LLP
Counsel to the Independent Trustees
919 Third Avenue
New York, NY

Trustee

Since September 1997

Retired; Director or Trustee of the Retail Funds; (Since September 1997) and the Institutional Funds (since July 2003); formerly associated with the Allstate Companies (1966-1994), most recently as Chairman of The Allstate Corporation (March 1993-December 1994) and Chairman and Chief Executive Officer of its wholly-owned subsidiary, Allstate Insurance Company (July 1989-December 1994).

208

Director of The PMI Group Inc. (private mortgage insurance); Trustee and Vice Chairman of The Field Museum of Natural History; director of various other business and charitable organizations.

Morgan Stanley Total Return Trust

Trustee and Officer Information continued

Name, Age and Address of
Independent Trustee

Position(s) Held with Registrant

Term of
Office and
Length of
Time
Served*

Principal Occupation(s)
During Past 5 Years**

Number of Portfolios
in Fund Complex Overseen by Trustee***

Other Directorships Held by Trustee

Dr. Manuel H. Johnson (55)
c/o Johnson Smick International, Inc.
2099 Pennsylvania
Avenue, N.W.
Suite 950
Washington, D.C.

Trustee

Since
July 1991

Senior Partner, Johnson Smick International, Inc., a consulting firm; Chairman of the Audit Committee and Director or Trustee of the Retail Funds (since July 1991) and the Institutional Funds (since July 2003); Co-Chairman 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.

208

Director of NVR, Inc. (home construction); Chairman and Trustee of the Financial Accounting Foundation (oversight organization of the Financial Accounting Standards Board); Director of RBS Greenwich Capital Holdings (financial holding company).

Joseph J. Kearns (61)
PMB754
23852 Pacific Coast Highway
Malibu, CA

Trustee

Since
July 2003

President, Kearns & Associates LLC (investment consulting); Deputy Chairman of the Audit Committee and Director or Trustee of the Retail Funds (since July 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.

209

Director of Electro Rent Corporation (equipment leasing), The Ford Family Foundation, and the UCLA Foundation.

Michael E. Nugent (68)
c/o Triumph Capital, L.P.
445 Park Avenue
New York, NY

Trustee

Since
July 1991

General Partner of Triumph Capital, L.P., a private investment partnership; Chairman 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).

208

Director of various business organizations.

Fergus Reid (71)
c/o Lumelite Plastics Corporation
85 Charles Colman Blvd.
Pawling, NY

Trustee

Since
July 2003

Chairman of Lumelite Plastics Corporation; Chairman of the Governance Committee and Director or Trustee of the Retail Funds (since July 2003) and the Institutional Funds (since June 1992).

209

Trustee and Director of certain investment companies in the JPMorgan Funds complex managed by J.P. Morgan Investment Management Inc.

Morgan Stanley Total Return Trust

Trustee and Officer Information continued

Interested Trustees:

Name, Age and Address of
Interested Trustee

Position(s) Held with Registrant

Term of
Office and
Length of
Time
Served*

Principal Occupation(s)
During Past 5 Years**

Number of Portfolios
in Fund Complex Overseen by Trustee***

Other Directorships Held by Trustee

Charles A. Fiumefreddo (71)
c/o Morgan Stanley Trust
Harborside Financial Center,
Plaza Two,
Jersey City, NJ

Chairman of the Board and Trustee

Since
July 1991

Chairman and Director or Trustee of the Retail Funds (since July 1991) and the Institutional Funds (since July 2003); formerly Chief Executive Officer of the Retail Funds (until September 2002).

208

None

James F. Higgins (56)
c/o Morgan Stanley Trust
Harborside Financial Center,
Plaza Two,
Jersey City, NJ

Trustee

Since
June 2000

Director or Trustee of the Retail Funds (since June 2000) and the Institutional Funds (since July 2003); Senior Advisor of Morgan Stanley (since August 2000); Director of the Distributor and Dean Witter Realty Inc.; previously President and Chief Operating Officer of the Private Client Group of Morgan Stanley (May 1999-August 2000), and President and Chief Operating Officer of Individual Securities of Morgan Stanley (February 1997-May 1999).

208

Director of AXA Financial, Inc. and The Equitable Life Assurance Society of the United States (financial services).

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.).

Morgan Stanley Total Return Trust

Trustee and Officer Information continued

Officers:

Name, Age and Address of
Executive Officer

Position(s)
Held with
Registrant

Term of
Office and
Length of
Time
Served*

Principal Occupation(s) During Past 5 Years**

Mitchell M. Merin (50)
1221 Avenue of the Americas
New York, NY

President

Since May 1999

President and Chief Operating Officer of Morgan Stanley Investment Management Inc.; President, Director and Chief Executive Officer of the Investment Manager 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.

Barry Fink (49)
1221 Avenue of the Americas
New York, NY

Vice President

Since
February 1997

General Counsel (since May 2000) and Managing Director (since December 2000) of Morgan Stanley Investment Management; Managing Director (since December 2000), Secretary (since February 1997) and Director (since July 1998) of the Investment Manager 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 Manager and Morgan Stanley Services (February 1997-December 2001).

Ronald E. Robison (65)
1221 Avenue of the Americas
New York, NY

Executive Vice President and Principal Executive Officer

Since April 2003

Principal Executive Officer-Office of the Funds (since November 2003); Managing Director of Morgan Stanley & Co. Incorporated, Managing Director of Morgan Stanley; Managing Director, Chief Administrative Officer and Director of the Investment Manager and Morgan Stanley Services; Chief Executive Officer and Director of the Transfer Agent; Managing Director and Director of the Distributor; Executive Vice President and Principal Executive Officer of the Institutional Funds (since July 2003) and the Retail Funds (since April 2003); Director of Morgan Stanley SICAV (since May 2004); previously President and Director of the Institutional Funds (March 2001-July 2003) and Chief Global Operations Officer of Morgan Stanley Investment Management Inc.

Joseph J. McAlinden (61)
1221 Avenue of the Americas
New York, NY

Vice President

Since July 1995

Managing Director and Chief Investment Officer of the Investment Manager and Morgan Stanley 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).

Stefanie V. Chang (37)
1221 Avenue of the Americas
New York, NY

Vice President

Since July 2003

Executive Director of Morgan Stanley & Co. Incorporated, Morgan Stanley Investment Management Inc. and the Investment Manager; 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).

Morgan Stanley Total Return Trust

Trustee and Officer Information continued

Name, Age and Address of
Executive Officer

Position(s)
Held with
Registrant

Term of
Office and
Length of
Time
Served*

Principal Occupation(s) During Past 5 Years**

Francis J. Smith (38)
c/o Morgan Stanley Trust
Harborside Financial Center,
Plaza Two,
Jersey City, NJ

Treasurer and Chief Financial Officer

Treasurer since July 2003 and Chief Financial Officer since September 2002

Executive Director of the Investment Manager and Morgan Stanley Services (since December 2001); previously Vice President of the Retail Funds (September 2002-July 2003), and Vice President of the Investment Manager and Morgan Stanley Services (August 2000-November 2001) and Senior Manager at PricewaterhouseCoopers LLP (January 1998-August 2000).

Thomas F. Caloia (58)
c/o Morgan Stanley Trust
Harborside Financial Center,
Plaza Two,
Jersey City, NJ

Vice President

Since July 2003

Executive Director (since December 2002) and Assistant Treasurer of the Investment Manager, the Distributor and Morgan Stanley Services; previously Treasurer of the Retail Funds (April 1989-July 2003); formerly First Vice President of the Investment Manager, the Distributor and Morgan Stanley Services.

Mary E. Mullin (37)
1221 Avenue of the Americas
New York, NY

Secretary

Since July 2003

Executive Director of Morgan Stanley & Co. Incorporated, Morgan Stanley Investment Management Inc. and the Investment Manager; 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.

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.

(This page has been left blank intentionally.)


Trustees Michael Bozic Charles A. Fiumefreddo Edwin J. Garn Wayne E. Hedien James F. Higgins Dr. Manuel H. Johnson Joseph J. Kearns Michael E. Nugent Fergus Reid Officers Charles A. Fiumefreddo Chairman of the Board Mitchell M. Merin President Ronald E. Robison Executive Vice President and Principal Executive Officer Barry Fink Vice President Joseph J. McAlinden Vice President Stefanie V. Chang Vice President Francis J. Smith Treasurer and Chief Financial Officer Thomas F. Caloia Vice President Mary E. Mullin Secretary Transfer Agent Morgan Stanley Trust Harborside Financial Center, Plaza Two Jersey City, New Jersey 07311 Independent Registered Public Accounting Firm Deloitte & Touche LLP Two World Financial Center New York, New York 10281 Investment Manager Morgan Stanley Investment Advisors Inc. 1221 Avenue of the Americas New York, New York 10020 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. © 2004 Morgan Stanley 38588RPT-RA04-00538P-Y07/04		MORGAN STANLEY FUNDS
		Morgan Stanley Total Return Trust Annual Report July 31, 2004



Item 2. Code of Ethics

(a)   The Fund has adopted a code of ethics (the "Code of Ethics") that applies
to its principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar functions,
regardless of whether these individuals are employed by the Fund or a third
party.

(b)   No information need be disclosed pursuant to this paragraph.

(c)   Not applicable.

(d)   Not applicable.

(e)   Not applicable.

(f)

      (1)   The Fund's Code of Ethics is attached hereto as Exhibit A.

      (2)   Not applicable.

      (3)   Not applicable.


Item 3. Audit Committee Financial Expert.

The Fund's Board of Trustees has determined that it has two "audit committee
financial experts" serving on its audit committee, each of whom are
"independent" Trustees: Dr. Manuel H. Johnson and Joseph J. Kearns. Under
applicable securities laws, a person who is determined to be an audit committee
financial expert will not be deemed an "expert" for any purpose, including
without limitation for the purposes of Section 11 of the Securities Act of 1933,
as a result of being designated or identified as an audit committee financial
expert. The designation or identification of a person as an audit committee
financial expert does not impose on such person any duties, obligations, or
liabilities that are greater than the duties, obligations, and liabilities
imposed on such person as a member of the audit committee and Board of Trustees
in the absence of such designation or identification.








Item 4. Principal Accountant Fees and Services.

(a)(b)(c)(d) and (g). Based on fees billed for the periods shown:





           2004
                                                            REGISTRANT          COVERED ENTITIES(1)
              AUDIT FEES........................            $32,344             N/A

              NON-AUDIT FEES
                        AUDIT-RELATED FEES......            $    452(2)         $3,225,276(2)
                        TAX FEES...................         $  4,672(3)         $  610,053(4)
                        ALL OTHER FEES...........           $      -            $        -
              TOTAL NON-AUDIT FEES..........                $  5,124            $3,835,329

              TOTAL..............................           $ 37,468            $3,835,329


           2003
                                                            REGISTRANT          COVERED ENTITIES(1)
              AUDIT FEES........................            $ 30,510            N/A

              NON-AUDIT FEES
                        AUDIT-RELATED FEES.....             $    684(2)         $739,996(2)
                        TAX FEES..................          $  4,558(3)         $187,500(4)
                        ALL OTHER FEES...........           $      -            $      -(5)
              TOTAL NON-AUDIT FEES.........                 $  5,242            $927,496

              TOTAL..............................           $                   $927,496

              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.



                                       2




(e)(1) The audit committee's pre-approval policies and procedures are as
follows:

                                 AUDIT COMMITTEE
                          AUDIT AND NON-AUDIT SERVICES
                       PRE-APPROVAL POLICY AND PROCEDURES
                                     OF THE
                  MORGAN STANLEY RETAIL AND INSTITUTIONAL FUNDS

                           AS ADOPTED JULY 31, 2003(1)


1.       STATEMENT OF PRINCIPLES

         The Audit Committee of the Board is required to review and, in its sole
discretion, pre-approve all Covered Services to be provided by the Independent
Auditors to the Fund and Covered Entities in order to assure that services
performed by the Independent Auditors do not impair the auditor's independence
from the Fund.

         The SEC has issued rules specifying the types of services that an
independent auditor may not provide to its audit client, as well as the audit
committee's administration of the engagement of the independent auditor. The
SEC's rules establish two different approaches to pre-approving services, which
the SEC considers to be equally valid. Proposed services either: may be
pre-approved without consideration of specific case-by-case services by the
Audit Committee ("general pre-approval"); or require the specific pre-approval
of the Audit Committee or its delegate ("specific pre-approval"). The Audit
Committee believes that the combination of these two approaches in this Policy
will result in an effective and efficient procedure to pre-approve services
performed by the Independent Auditors. As set forth in this Policy, unless a
type of service has received general pre-approval, it will require specific
pre-approval by the Audit Committee (or by any member of the Audit Committee to
which pre-approval authority has been delegated) if it is to be provided by the
Independent Auditors. Any proposed services exceeding pre-approved cost levels
or budgeted amounts will also require specific pre-approval by the Audit
Committee.

         The appendices to this Policy describe the Audit, Audit-related, Tax
and All Other services that have the general pre-approval of the Audit
Committee. The term of any general pre-approval is 12 months from the date of
pre-approval, unless the Audit Committee considers and provides a different
period and states otherwise. The Audit Committee will annually review and
pre-approve the services that may be provided by the Independent Auditors
without obtaining specific pre-approval from the Audit Committee. The Audit
Committee will add to or subtract from the list of general pre-approved services
from time to time, based on subsequent determinations.



----------------------------
(1)      This Audit Committee Audit and Non-Audit Services Pre-Approval Policy
         and Procedures (the "Policy"), adopted as of the date above, supercedes
         and replaces all prior versions that may have been adopted from time to
         time.




                                       3






         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



                                       4




         Audit-related services are assurance and related services that are
reasonably related to the performance of the audit or review of the Fund's
financial statements and, to the extent they are Covered Services, the Covered
Entities or that are traditionally performed by the Independent Auditors.
Because the Audit Committee believes that the provision of Audit-related
services does not impair the independence of the auditor and is consistent with
the SEC's rules on auditor independence, the Audit Committee may grant general
pre-approval to Audit-related services. Audit-related services include, among
others, accounting consultations related to accounting, financial reporting or
disclosure matters not classified as "Audit services"; assistance with
understanding and implementing new accounting and financial reporting guidance
from rulemaking authorities; agreed-upon or expanded audit procedures related to
accounting and/or billing records required to respond to or comply with
financial, accounting or regulatory reporting matters; and assistance with
internal control reporting requirements under Forms N-SAR and/or N-CSR.

         The Audit Committee has pre-approved the Audit-related services in
Appendix B.2. All other Audit-related services not listed in Appendix B.2 must
be specifically pre-approved by the Audit Committee (or by any member of the
Audit Committee to which pre-approval has been delegated).


5.       TAX SERVICES


         The Audit Committee believes that the Independent Auditors can provide
Tax services to the Fund and, to the extent they are Covered Services, the
Covered Entities, such as tax compliance, tax planning and tax advice without
impairing the auditor's independence, and the SEC has stated that the
Independent Auditors may provide such services.

         Pursuant to the preceding paragraph, the Audit Committee has
pre-approved the Tax Services in Appendix B.3. All Tax services in Appendix B.3
must be specifically pre-approved by the Audit Committee (or by any member of
the Audit Committee to which pre-approval has been delegated).


6.       ALL OTHER SERVICES


         The Audit Committee believes, based on the SEC's rules prohibiting the
Independent Auditors from providing specific non-audit services, that other
types of non-audit services are permitted. Accordingly, the Audit Committee
believes it may grant general pre-approval to those permissible non-audit
services classified as All Other services that it believes are routine and
recurring services, would not impair the independence of the auditor and are
consistent with the SEC's rules on auditor independence.



                                       5



         The Audit Committee has pre-approved the All Other services in Appendix
B.4. Permissible All Other services not listed in Appendix B.4 must be
specifically pre-approved by the Audit Committee (or by any member of the Audit
Committee to which pre-approval has been delegated).


7.       PRE-APPROVAL FEE LEVELS OR BUDGETED AMOUNTS

         Pre-approval fee levels or budgeted amounts for all services to be
provided by the Independent Auditors will be established annually by the Audit
Committee. Any proposed services exceeding these levels or amounts will require
specific pre-approval by the Audit Committee. The Audit Committee is mindful of
the overall relationship of fees for audit and non-audit services in determining
whether to pre-approve any such services.


8.       PROCEDURES

         All requests or applications for services to be provided by the
Independent Auditors that do not require specific approval by the Audit
Committee will be submitted to the Fund's Chief Financial Officer and must
include a detailed description of the services to be rendered. The Fund's Chief
Financial Officer will determine whether such services are included within the
list of services that have received the general pre-approval of the Audit
Committee. The Audit Committee will be informed on a timely basis of any such
services rendered by the Independent Auditors. Requests or applications to
provide services that require specific approval by the Audit Committee will be
submitted to the Audit Committee by both the Independent Auditors and the Fund's
Chief Financial Officer, and must include a joint statement as to whether, in
their view, the request or application is consistent with the SEC's rules on
auditor independence.

         The Audit Committee has designated the Fund's Chief Financial Officer
to monitor the performance of all services provided by the Independent Auditors
and to determine whether such services are in compliance with this Policy. The
Fund's Chief Financial Officer will report to the Audit Committee on a periodic
basis on the results of its monitoring. Both the Fund's Chief Financial Officer
and management will immediately report to the chairman of the Audit Committee
any breach of this Policy that comes to the attention of the Fund's Chief
Financial Officer or any member of management.


9.       ADDITIONAL REQUIREMENTS

         The Audit Committee has determined to take additional measures on an
annual basis to meet its responsibility to oversee the work of the Independent
Auditors and to assure the auditor's independence from the Fund, such as
reviewing a formal written statement from the Independent Auditors delineating
all relationships between the Independent Auditors and the Fund, consistent with
Independence Standards Board No.




                                       6




1, and discussing with the Independent Auditors its methods and procedures for
ensuring independence.


10.      COVERED ENTITIES

         Covered Entities include the Fund's investment adviser(s) and any
entity controlling, controlled by or under common control with the Fund's
investment adviser(s) that provides ongoing services to the Fund(s). Beginning
with non-audit service contracts entered into on or after May 6, 2003, the
Fund's audit committee must pre-approve non-audit services provided not only to
the Fund but also to the Covered Entities if the engagements relate directly to
the operations and financial reporting of the Fund. This list of Covered
Entities would include:

         Morgan Stanley Retail Funds
         ---------------------------
         Morgan Stanley Investment Advisors Inc.
         Morgan Stanley & Co. Incorporated
         Morgan Stanley DW Inc.
         Morgan Stanley Investment Management
         Morgan Stanley Investments LP
         Van Kampen Asset Management Inc.
         Morgan Stanley Services Company, Inc.
         Morgan Stanley Distributors Inc.
         Morgan Stanley Trust FSB

         Morgan Stanley Institutional Funds
         ----------------------------------
         Morgan Stanley Investment Management Inc.
         Morgan Stanley Investments LP
         Morgan Stanley & Co. Incorporated
         Morgan Stanley Distribution, Inc.
         Morgan Stanley AIP GP LP
         Morgan Stanley Alternative Investment Partners LP


(e)(2) Beginning with non-audit service contracts entered into on or after May
6, 2003, the audit committee also is required to pre-approve services to Covered
Entities to the extent that the services are determined to have a direct impact
on the operations or financial reporting of the Registrant. 100% of such
services were pre-approved by the audit committee pursuant to the Audit
Committee's pre-approval policies and procedures (attached hereto).

(f) Not applicable.

(g) See table above.

(h) The audit committee of the Board of Trustees has considered whether the
provision of services other than audit services performed by the auditors to the
Registrant and




                                       7




Covered Entities is compatible with maintaining the auditors' independence in
performing audit services.


Item 5. Audit Committee of Listed Registrants.

Applicable only for reports covering periods ending on or after the earlier of
(i) the first annual shareholder meeting after January 15, 2004 or (ii) October
31, 2004.


Item 6. [Reserved.]


Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.

Applicable only to annual reports filed by closed-end funds.


Item 8. [Reserved.]


Item 9 - Controls and Procedures

(a) The Fund's principal executive officer and principal financial officer have
concluded that the Fund's disclosure controls and procedures are sufficient to
ensure that information required to be disclosed by the Fund in this Form N-CSR
was recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission's rules and forms, based
upon such officers' evaluation of these controls and procedures as of a date
within 90 days of the filing date of the report.

    There were no significant changes or corrective actions with regard to
significant deficiencies or material weaknesses in the Fund's internal controls
or in other factors that could significantly affect the Fund's internal controls
subsequent to the date of their evaluation.


(b) There were no changes in the registrant's internal control over financial
reporting that occurred during the registrant's most recent fiscal half-year
(the registrant's second fiscal half-year in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.


Item 10 Exhibits




                                       8




(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.


                                   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 Total Return Trust

/s/ Ronald E. Robison
Ronald E. Robison
Principal Executive Officer
September 20, 2004

         Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, this report has been signed by the following
persons on behalf of the registrant and in the capacities and on the dates
indicated.

/s/ Ronald E. Robison
Ronald E. Robison
Principal Executive Officer
September 20, 2004

/s/ Francis Smith
Francis Smith
Principal Financial Officer
September 20, 2004














                                       9




                                                                    EXHIBIT 10 A


           CODE OF ETHICS FOR PRINCIPAL EXECUTIVE AND SENIOR FINANCIAL
                                    OFFICERS
                              ADOPTED JULY 31, 2003



I.       This Code of Ethics (the "Code") for the investment companies within
         the Morgan Stanley complex identified in Exhibit A (collectively,
         "Funds" and each, a "Fund") applies to each Fund's Principal Executive
         Officer, President, Principal Financial Officer and Treasurer (or
         persons performing similar functions) ("Covered Officers" each of whom
         are set forth in Exhibit B) for the purpose of promoting:

         o       honest and ethical conduct, including the ethical handling of
                 actual or apparent conflicts of interest between personal and
                 professional relationships.

         o       full, fair, accurate, timely and understandable disclosure in
                 reports and documents that a company files with, or submits to,
                 the Securities and Exchange Commission ("SEC") and in other
                 public communications made by the Fund;

         o       compliance with applicable laws and governmental rules and
                 regulations;

         o       prompt internal reporting of violations of the Code to an
                 appropriate person or persons identified in the Code; and

         o       accountability for adherence to the Code.

                 Each Covered Officer should adhere to a high standard of
business ethics and should be sensitive to situations that may give rise to
actual as well as apparent conflicts of interest. Any question about the
application of the Code should be referred to the General Counsel or his/her
designee (who is set forth in Exhibit C).

II.      COVERED OFFICERS SHOULD HANDLE ETHICALLY ACTUAL AND APPARENT CONFLICTS
         OF INTEREST



                                       10



         OVERVIEW. A "conflict of interest" occurs when a Covered Officer's
private interest interferes, or appears to interfere, with the interests of, or
his service to, the Fund. For example, a conflict of interest would arise if a
Covered Officer, or a member of his family, receives improper personal benefits
as a result of his position with the Fund.

         Certain conflicts of interest arise out of the relationships between
Covered Officers and the Fund and already are subject to conflict of interest
provisions in the Investment Company Act of 1940 ("Investment Company Act") and
the Investment Advisers Act of 1940 ("Investment Advisers Act"). For example,
Covered Officers may not individually engage in certain transactions (such as
the purchase or sale of securities or other property) with the Fund because of
their status as "affiliated persons" (as defined in the Investment Company Act)
of the Fund. The Fund's and its investment adviser's compliance programs and
procedures are designed to prevent, or identify and correct, violations of these
provisions. This Code does not, and is not intended to, repeat or replace these
programs and procedures, and such conflicts fall outside the parameters of this
Code, unless or until the General Counsel determines that any violation of such
programs and procedures is also a violation of this Code.

         Although typically not presenting an opportunity for improper personal
benefit, conflicts may arise from, or as a result of, the contractual
relationship between the Fund and its investment adviser of which the Covered
Officers are also officers or employees. As a result, this Code recognizes that
the Covered Officers will, in the normal course of their duties (whether
formally for the Fund or for the investment adviser, or for both), be involved
in establishing policies and implementing decisions that will have different
effects on the Fund and its investment adviser. The participation of the Covered
Officers in such activities is inherent in the contractual relationship between
the Fund and the investment adviser and is consistent with the performance by
the Covered Officers of their duties as officers of the Fund. Thus, if performed
in conformity with the provisions of the Investment Company Act and the
Investment Advisers Act, such activities will be deemed to have been handled
ethically. In addition, it is recognized by the Funds' Boards of
Directors/Trustees ("Boards") that the Covered Officers may also be officers or
employees of one or more other investment companies covered by this or other
codes.

         Other conflicts of interest are covered by the Code, even if such
conflicts of interest are not subject to provisions in the Investment Company
Act and the Investment Advisers Act. The following list provides examples of
conflicts of interest under the Code, but Covered Officers should keep in mind
that these examples are not exhaustive. The overarching principle is that the
personal interest of a Covered Officer should not be placed improperly before
the interest of the Fund.

         Each Covered Officer must not:

         o       use his personal influence or personal relationships improperly
                 to influence investment decisions or financial reporting by the
                 Fund whereby the Covered Officer would benefit personally
                 (directly or indirectly) to the detriment of the Fund;



                                       11




         o       cause the Fund to take action, or fail to take action, for the
                 individual personal benefit of the Covered Officer rather than
                 the benefit of the Fund; or

         o       use material non-public knowledge of portfolio transactions
                 made or contemplated for, or actions proposed to be taken by,
                 the Fund to trade personally or cause others to trade
                 personally in contemplation of the market effect of such
                 transactions.

         Each Covered Officer must, at the time of signing this Code, report to
the General Counsel all affiliations or significant business relationships
outside the Morgan Stanley complex and must update the report annually.

         Conflict of interest situations should always be approved by the
General Counsel and communicated to the relevant Fund or Fund's Board. Any
activity or relationship that would present such a conflict for a Covered
Officer would likely also present a conflict for the Covered Officer if an
immediate member of the Covered Officer's family living in the same household
engages in such an activity or has such a relationship. Examples of these
include:

         o       service or significant business relationships as a director on
                 the board of any public or private company;

         o       accepting directly or indirectly, anything of value, including
                 gifts and gratuities in excess of $100 per year from any person
                 or entity with which the Fund has current or prospective
                 business dealings, not including occasional meals or tickets
                 for theatre or sporting events or other similar entertainment;
                 provided it is business-related, reasonable in cost,
                 appropriate as to time and place, and not so frequent as to
                 raise any question of impropriety;

         o       any ownership interest in, or any consulting or employment
                 relationship with, any of the Fund's service providers, other
                 than its investment adviser, principal underwriter, or any
                 affiliated person thereof; and

         o       a direct or indirect financial interest in commissions,
                 transaction charges or spreads paid by the Fund for effecting
                 portfolio transactions or for selling or redeeming shares other
                 than an interest arising from the Covered Officer's employment,
                 such as compensation or equity ownership.

III.     DISCLOSURE AND COMPLIANCE

         o       Each Covered Officer should familiarize himself/herself with
                 the disclosure and compliance requirements generally applicable
                 to the Funds;

         o       each Covered Officer must not knowingly misrepresent, or cause
                 others to misrepresent, facts about the Fund to others, whether
                 within or outside the



                                       12



                 Fund, including to the Fund's Directors/Trustees and
                 auditors, or to governmental regulators and self-regulatory
                 organizations;

         o       each Covered Officer should, to the extent appropriate within
                 his area of responsibility, consult with other officers and
                 employees of the Funds and their investment advisers with the
                 goal of promoting full, fair, accurate, timely and
                 understandable disclosure in the reports and documents the
                 Funds file with, or submit to, the SEC and in other public
                 communications made by the Funds; and

         o       it is the responsibility of each Covered Officer to promote
                 compliance with the standards and restrictions imposed by
                 applicable laws, rules and regulations.

IV.      REPORTING AND ACCOUNTABILITY

         Each Covered Officer must:

         o       upon adoption of the Code (thereafter as applicable, upon
                 becoming a Covered Officer), affirm in writing to the Boards
                 that he has received, read and understands the Code;

         o       annually thereafter affirm to the Boards that he has complied
                 with the requirements of the Code;

         o       not retaliate against any other Covered Officer, other officer
                 or any employee of the Funds or their affiliated persons for
                 reports of potential violations that are made in good faith;
                 and

         o       notify the General Counsel promptly if he/she knows or suspects
                 of any violation of this Code. Failure to do so is itself a
                 violation of this Code.

         The General Counsel is responsible for applying this Code to specific
situations in which questions are presented under it and has the authority to
interpret this Code in any particular situation. However, any waivers(2) sought
by a Covered Officer must be considered by the Board of the relevant Fund or
Funds.

         The Funds will follow these procedures in investigating and enforcing
this Code:

         o       the General Counsel will take all appropriate action to
                 investigate any potential violations reported to him;


-------------------------------
(2)      Item 2 of Form N-CSR defines "waiver" as "the approval by the
         registrant of a material departure from a provision of the code of
         ethics."



                                       13




















         o       if, after such investigation, the General Counsel believes that
                 no violation has occurred, the General Counsel is not required
                 to take any further action;

         o       any matter that the General Counsel believes is a violation
                 will be reported to the relevant Fund's Audit Committee;

         o       if the directors/trustees/managing general partners who are not
                 "interested persons" as defined by the Investment Company Act
                 (the "Independent Directors/Trustees/Managing General
                 Partners") of the relevant Fund concur that a violation has
                 occurred, they will consider appropriate action, which may
                 include review of, and appropriate modifications to, applicable
                 policies and procedures; notification to appropriate personnel
                 of the investment adviser or its board; or a recommendation to
                 dismiss the Covered Officer or other appropriate disciplinary
                 actions;

         o       the Independent Directors/Trustees/Managing General Partners of
                 the relevant Fund will be responsible for granting waivers of
                 this Code, as appropriate; and

         o       any changes to or waivers of this Code will, to the extent
                 required, be disclosed as provided by SEC rules.

V.       OTHER POLICIES AND PROCEDURES

         This Code shall be the sole code of ethics adopted by the Funds for
purposes of Section 406 of the Sarbanes-Oxley Act of 2002 and the rules and
forms applicable to registered investment companies thereunder. Insofar as other
policies or procedures of the Funds, the Funds' investment advisers, principal
underwriters, or other service providers govern or purport to govern the
behavior or activities of the Covered Officers who are subject to this Code,
they are superseded by this Code to the extent that they overlap or conflict
with the provisions of this Code unless any provision of this Code conflicts
with any applicable federal or state law, in which case the requirements of such
law will govern. The Funds' and their investment advisers' and principal
underwriters' codes of ethics under Rule 17j-1 under the Investment Company Act
and Morgan Stanley's Code of Ethics are separate requirements applying to the
Covered Officers and others, and are not part of this Code.

VI.      AMENDMENTS

         Any amendments to this Code, other than amendments to Exhibits A, B

 or C, must be approved or ratified by a majority vote of the Board of each
Fund, including a majority of Independent Directors/Trustees/Managing General
Partners.

VII.     CONFIDENTIALITY



                                       14



         All reports and records prepared or maintained pursuant to this Code
will be considered confidential and shall be maintained and protected
accordingly. Except as otherwise required by law or this Code, such matters
shall not be disclosed to anyone other than the Independent
Directors/Trustees/Managing General Partners of the relevant Fund or Funds and
their counsel, the relevant Fund or Funds and their counsel and the relevant
investment adviser and its counsel.



















                                       15




VIII.    INTERNAL USE

         The Code is intended solely for the internal use by the Funds and does
not constitute an admission, by or on behalf of any Fund, as to any fact,
circumstance, or legal conclusion



I have read and understand the terms of the above Code. I recognize the
responsibilities and obligations incurred by me as a result of my being subject
to the Code. I hereby agree to abide by the above Code.


-----------------------------

Date:
     ------------------------
















                                       16




                                    EXHIBIT B
                                    ---------

                               INSTITUTIONAL FUNDS
                                COVERED OFFICERS
                                ----------------

                          Mitchell M. Merin - President
  Ronald E. Robison - Executive Vice President and Principal Executive Officer
            James W. Garrett - Chief Financial Officer and Treasurer

                                  RETAIL FUNDS
                                COVERED OFFICERS
                                ----------------

                          Mitchell M. Merin - President
  Ronald E. Robison - Executive Vice President and Principal Executive Officer
               Frank Smith - Chief Financial Officer and Treasurer















                                       17




                                    EXHIBIT C
                                    ---------

                                 GENERAL COUNSEL
                                 ---------------

                                   Barry Fink





























                                       18



                                                                   EXHIBIT 10 B1

                  CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

                                 CERTIFICATIONS
                                 --------------

I, Ronald E. Robison, certify that:

1.   I have reviewed this report on Form N-CSR of Morgan Stanley Total Return
     Trust;

2.   Based on my knowledge, this report does not contain any untrue statement of
     a material fact or omit to state a material fact necessary to make the
     statements made, in light of the circumstances under which such statements
     were made, not misleading with respect to the period covered by this
     report;

3.   Based on my knowledge, the financial statements and other financial
     information included in this report, fairly present in all material
     respects the financial condition, results of operations, changes in net
     assets, and cash flows (if the financial statements are required to include
     a statement of cash flows) of the registrant as of, and for, the periods
     presented in this report;

4.   The registrant's other certifying officers and I are responsible for
     establishing and maintaining disclosure controls and procedures (as defined
     in Rule 30a-3(c) under the Investment Company Act of 1940) for the
     registrant and have:

a)   designed such disclosure controls and procedures, or caused such disclosure
     controls and procedures to be designed under our supervision, to ensure
     that material information relating to the registrant, including its
     consolidated subsidiaries, is made known to us by others within those
     entities, particularly during the period in which this report is being
     prepared;

[b)  Omitted.]

c)   evaluated the effectiveness of the registrant's disclosure controls and
     procedures and presented in this report our conclusions about the
     effectiveness of the disclosure controls and procedures, as of a date
     within 90 days prior to the filing date of this report based on such
     evaluation; and

d)   disclosed in this report any change 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; and

5.   The registrant's other certifying officer(s) and I have disclosed to the
     registrant's auditors and the audit committee of the registrant's board of
     directors (or persons performing the equivalent functions):

a)   all significant deficiencies and material weaknesses in the design or
     operation of internal control over financial reporting which are reasonably
     likely to adversely affect the registrant's ability to record, process,
     summarize, and report financial information; and





                                       19




b)   any fraud, whether or not material, that involves management or other
     employees who have a significant role in the registrant's internal controls
     over financial reporting.

Date: September 20, 2004

                                                /s/ Ronald E. Robison
                                                Ronald E. Robison
                                                Principal Executive Officer


























                                       20



                                                                   EXHIBIT 10 B2

                  CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

                                 CERTIFICATIONS
                                 --------------


I, Francis Smith, certify that:

6.   I have reviewed this report on Form N-CSR of Morgan Stanley Total Return
     Trust;

7.   Based on my knowledge, this report does not contain any untrue statement of
     a material fact or omit to state a material fact necessary to make the
     statements made, in light of the circumstances under which such statements
     were made, not misleading with respect to the period covered by this
     report;

8.   Based on my knowledge, the financial statements and other financial
     information included in this report, fairly present in all material
     respects the financial condition, results of operations, changes in net
     assets, and cash flows (if the financial statements are required to include
     a statement of cash flows) of the registrant as of, and for, the periods
     presented in this report;

9.   The registrant's other certifying officers and I are responsible for
     establishing and maintaining disclosure controls and procedures (as defined
     in Rule 30a-3(c) under the Investment Company Act of 1940) for the
     registrant and have:

b)   designed such disclosure controls and procedures, or caused such disclosure
     controls and procedures to be designed under our supervision, to ensure
     that material information relating to the registrant, including its
     consolidated subsidiaries, is made known to us by others within those
     entities, particularly during the period in which this report is being
     prepared;

[b)  Omitted.]

e)   evaluated the effectiveness of the registrant's disclosure controls and
     procedures and presented in this report our conclusions about the
     effectiveness of the disclosure controls and procedures, as of a date
     within 90 days prior to the filing date of this report based on such
     evaluation; and

f)   disclosed in this report any change 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; and

10.  The registrant's other certifying officer(s) and I have disclosed to the
     registrant's auditors and the audit committee of the registrant's board of
     directors (or persons performing the equivalent functions):

c)   all significant deficiencies and material weaknesses in the design or
     operation of internal control over financial reporting which are reasonably
     likely to adversely affect the registrant's ability to record, process,
     summarize, and report financial information; and





                                       21




d)   any fraud, whether or not material, that involves management or other
     employees who have a significant role in the registrant's internal controls
     over financial reporting.

Date:  September 20, 2004

                                     /s/ Francis Smith
                                     Francis Smith
                                     Principal Financial Officer































                                       22




                            SECTION 906 CERTIFICATION

                Certification Pursuant to 18 U.S.C. Section 1350,
                             As Adopted Pursuant to
                  Section 906 of the Sarbanes-Oxley Act of 2002

Morgan Stanley Total Return Trust

         In connection with the Report on Form N-CSR (the "Report") of the
above-named issuer for the period ended July 31, 2004 that is accompanied by
this certification, the undersigned hereby certifies that:

1.       The Report fully complies with the requirements of Section 13(a) or
         15(d) of the Securities Exchange Act of 1934; and

2.       The information contained in the Report fairly presents, in all
         material respects, the financial condition and results of operations of
         the Issuer.



Date: September 20, 2004                       /s/ Ronald E. Robison
                                               ---------------------------
                                               Ronald E. Robison
                                               Principal Executive
Officer


A signed original of this written statement required by Section 906 has been
provided to Morgan Stanley Total Return Trust and will be retained by Morgan
Stanley Total Return Trust and furnished to the Securities and Exchange
Commission or its staff upon request.



















                                       23




                            SECTION 906 CERTIFICATION


                Certification Pursuant to 18 U.S.C. Section 1350,
                             As Adopted Pursuant to
                  Section 906 of the Sarbanes-Oxley Act of 2002


Morgan Stanley Total Return Trust

         In connection with the Report on Form N-CSR (the "Report") of the
above-named issuer for the period ended July 31, 2004 that is accompanied by
this certification, the undersigned hereby certifies that:

1.       The Report fully complies with the requirements of Section 13(a) or
         15(d) of the Securities Exchange Act of 1934; and

2.       The information contained in the Report fairly presents, in all
         material respects, the financial condition and results of operations of
         the Issuer.



Date: September 20, 2004                     /s/ Francis Smith
                                             ----------------------
                                             Francis Smith
                                             Principal Financial Officer




A signed original of this written statement required by Section 906 has been
provided to Morgan Stanley Total Return Trust and will be retained by Morgan
Stanley Total Return Trust and furnished to the Securities and Exchange
Commission or its staff upon request.






                                       24

Net accumulated earnings

Capital loss carryfoward*

($295,075,938

Net unrealized appreciation

Total accumulated losses

($273,656,554