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: 811-21899

Morgan Stanley Institutional Strategies Fund
(Exact name of registrant as specified in charter)

1221 Avenue of the Americas, New York, New York 10020
(Address of principal executive offices) (Zip code)

Ronald E. Robison
1221 Avenue of the Americas, New York, New York 10020
(Name and address of agent for service)

Registrant's telephone number, including area code: 212-762-4000

Date of fiscal year end: September 30, 2006

Date of reporting period: September 30, 2006

Item 1 - Report to Shareholders

Welcome, Shareholder:

In this report, you'll learn about how your investment in Morgan Stanley
Institutional Strategies Fund performed during the period. We will provide an
overview of the market conditions, and discuss some of the factors that affected
performance during the reporting period. In addition, this report includes the
Fund's financial statements and a list of Fund investments.

THIS MATERIAL MUST BE PRECEDED OR ACCOMPANIED BY A PROSPECTUS FOR THE FUND BEING
OFFERED.

MARKET FORECASTS PROVIDED IN THIS REPORT MAY NOT NECESSARILY COME TO PASS. THERE
IS NO ASSURANCE THAT THE FUND WILL ACHIEVE ITS INVESTMENT OBJECTIVE. THE FUND IS
SUBJECT TO MARKET RISK, WHICH IS THE POSSIBILITY THAT MARKET VALUES OF
SECURITIES OWNED BY THE FUND WILL DECLINE AND, THEREFORE, THE VALUE OF THE
FUND'S SHARES MAY BE LESS THAN WHAT YOU PAID FOR THEM. ACCORDINGLY, YOU CAN LOSE
MONEY INVESTING IN THIS FUND. PLEASE SEE THE PROSPECTUS FOR MORE COMPLETE
INFORMATION ON INVESTMENT RISKS.

FUND REPORT

For the period since inception through September 30, 2006

TOTAL RETURN FOR THE PERIOD SINCE INCEPTION (AUGUST 28, 2006) THROUGH SEPTEMBER
30, 2006

<Table>
<Caption>
BLENDED
CLASS A CLASS B CLASS C CLASS D S&P 500(R)(1) INDEX(2)

2.30% 2.20% 2.30% 2.30% 2.80% 2.24%
</Table>

The performance of the Fund's four share classes varies because each has
different expenses. The Fund's total returns assume the reinvestment of all
distributions but do not reflect the deduction of any applicable sales charges.
Such costs would lower performance. See Performance Summary for standardized
performance and benchmark information.

Note: The Fund commenced operations on August 28, 2006. This discussion covers
the period from the Fund's inception through September 30, 2006.

MARKET CONDITIONS

During the period under review, global equity markets provided mixed results,
but generally outperformed both fixed income investments and cash equivalents.
The concerns over climbing oil prices and rising short-term interest rates
earlier in the year reversed, as commodity prices in general fell from their
speculative peaks, while the Federal Open Market Committee suspended its
"measured pace" of interest rate increases. Optimism that the effects of a
slowing housing market will have a limited short-term impact on the U.S.
consumer seemed to bolster investors' hopes that both the "back-to-school" and
holiday shopping seasons could exceed expectations. Corporate earnings, merger
activity and diplomatic activity in a number of international arenas also
provided a more constructive backdrop for investors.

PERFORMANCE ANALYSIS

Morgan Stanley Institutional Strategies Fund underperformed the S&P 500(R) and
all share classes with the exception of Class B shares outperformed the Blended
Index [ 1/3 Russell 1000(R) Growth Index, 1/3 Russell 1000(R) Value Index, 1/3
MSCI EAFE Index] for the period since inception (August 28, 2006) through
September 30, 2006, assuming no deduction of applicable sales charges.

Morgan Stanley Institutional Strategies Fund invests equal allocations of its
assets in three underlying Morgan Stanley Institutional Funds -- U.S. Large Cap
Growth, Large Cap Relative Value and Active International Allocation. During the
period under review, U.S. Large Cap Growth and Large Cap Relative Value
contributed positively to the overall Fund's performance while Active
International Allocation lagged. In general terms, U.S. large capitalization
equities rebounded during the period under review, leading to recoveries in a
number of the securities that the domestic portfolios held, while the
international portfolio benefited from strong results in Europe and emerging
markets but had negative returns in Japan.

There is no guarantee that any sectors mentioned will continue to perform as
discussed herein or that securities in such sectors will be held by the Fund in
the future.

<Table>
<Caption>
PORTFOLIO ALLOCATION

Active International Allocation 24.6%
U.S. Large Cap Growth 24.5
Large Cap Relative Value 24.5
Cash and Other Assets/Liabilities 26.4
</Table>

Data as of September 30, 2006. Subject to change daily. All percentages are as a
percentage of net assets. These data are provided for informational purposes
only and should not be deemed a recommendation to buy or sell the securities
mentioned. Morgan Stanley is a full-service securities firm engaged in
securities trading and brokerage activities, investment banking, research and
analysis, financing and financial advisory services.

INVESTMENT STRATEGY

THE FUND IS A "FUND OF FUNDS," MEANING THAT IT SEEKS TO ACHIEVE ITS INVESTMENT
OBJECTIVE BY INVESTING PRIMARILY IN A COMBINATION OF THREE PORTFOLIOS OF MORGAN
STANLEY INSTITUTIONAL FUND, INC. ("UNDERLYING FUNDS") ON A FIXED ALLOCATION
BASIS. THE FUND MAKES EQUAL ALLOCATIONS OF ITS ASSETS TO THE FOLLOWING THREE
UNDERLYING FUNDS: ACTIVE INTERNATIONAL ALLOCATION PORTFOLIO ("ACTIVE
INTERNATIONAL ALLOCATION"), LARGE CAP RELATIVE VALUE PORTFOLIO ("LARGE CAP
RELATIVE VALUE") AND U.S. LARGE CAP GROWTH PORTFOLIO ("U.S. LARGE CAP GROWTH").
INVESTORS MAY PURCHASE THE UNDERLYING FUNDS DIRECTLY ONLY IF THEY MEET CERTAIN
INVESTMENT MINIMUMS OR OTHER REQUIREMENTS SET FORTH IN EACH UNDERLYING FUND'S
PROSPECTUS. THE UNDERLYING FUNDS INVEST PRIMARILY IN U.S. AND FOREIGN EQUITY
SECURITIES. THE INVESTMENT POLICIES OF THE UNDERLYING FUNDS ARE DESCRIBED IN THE
FUND'S PROSPECTUS. THE INVESTMENT RESULTS OF THE UNDERLYING FUNDS WILL VARY. AS
A RESULT, THE PERCENTAGE ALLOCATIONS TO THE UNDERLYING FUNDS WILL BE MONITORED
DAILY BY THE FUND'S "INVESTMENT ADVISER," MORGAN STANLEY INVESTMENT ADVISORS
INC., AND THE FUND'S ALLOCATIONS TO THE UNDERLYING FUNDS WILL BE REBALANCED
WHENEVER THE ACTUAL ALLOCATIONS EXCEED PLUS OR MINUS 5 PERCENT OF THE
PRE-DETERMINED FIXED PERCENTAGE ALLOCATION BASIS. AS A RESULT, IT MAY BE
NECESSARY FOR THE FUND TO SELL SHARES OF AN UNDERLYING FUND THAT HAVE
APPRECIATED IN VALUE, IN ORDER TO MAINTAIN THE FIXED PERCENTAGE ALLOCATION AMONG
THE UNDERLYING FUNDS.

FOR MORE INFORMATION ABOUT PORTFOLIO HOLDINGS

EACH MORGAN STANLEY FUND PROVIDES A COMPLETE SCHEDULE OF PORTFOLIO HOLDINGS IN
ITS SEMIANNUAL AND ANNUAL REPORTS WITHIN 60 DAYS OF THE END OF THE FUND'S

SECOND AND FOURTH FISCAL QUARTERS. THE SEMIANNUAL REPORTS AND THE ANNUAL REPORTS
ARE FILED ELECTRONICALLY WITH THE SECURITIES AND EXCHANGE COMMISSION (SEC) ON
FORM N-CSRS AND FORM N-CSR, RESPECTIVELY. MORGAN STANLEY ALSO DELIVERS THE
SEMIANNUAL AND ANNUAL REPORTS TO FUND SHAREHOLDERS AND MAKES THESE REPORTS
AVAILABLE ON ITS PUBLIC WEB SITE, WWW.MORGANSTANLEY.COM. EACH MORGAN STANLEY
FUND ALSO FILES A COMPLETE SCHEDULE OF PORTFOLIO HOLDINGS WITH THE SEC FOR THE
FUND'S FIRST AND THIRD FISCAL QUARTERS ON FORM N-Q. MORGAN STANLEY DOES NOT
DELIVER THE REPORTS FOR THE FIRST AND THIRD FISCAL QUARTERS TO SHAREHOLDERS, NOR
ARE THE REPORTS POSTED TO THE MORGAN STANLEY PUBLIC WEB SITE. YOU MAY, HOWEVER,
OBTAIN THE FORM N-Q FILINGS (AS WELL AS THE FORM N-CSR AND N-CSRS FILINGS) BY
ACCESSING THE SEC'S WEB SITE, HTTP://WWW.SEC.GOV. YOU MAY ALSO REVIEW AND COPY
THEM AT THE SEC'S PUBLIC REFERENCE ROOM IN WASHINGTON, DC. INFORMATION ON THE
OPERATION OF THE SEC'S PUBLIC REFERENCE ROOM MAY BE OBTAINED BY CALLING THE SEC
AT (800) SEC-0330. YOU CAN ALSO REQUEST COPIES OF THESE MATERIALS, UPON PAYMENT
OF A DUPLICATING FEE, BY ELECTRONIC REQUEST AT THE SEC'S E-MAIL ADDRESS
(PUBLICINFO@SEC.GOV) OR BY WRITING THE PUBLIC REFERENCE SECTION OF THE SEC,
WASHINGTON, DC 20549-0102.

PROXY VOTING POLICY AND PROCEDURES
AND PROXY VOTING RECORD

YOU MAY OBTAIN A COPY OF THE FUND'S PROXY VOTING POLICY AND PROCEDURES WITHOUT
CHARGE, UPON REQUEST, BY CALLING TOLL FREE (800) 869-NEWS OR BY VISITING THE
MUTUAL FUND CENTER ON OUR WEB SITE AT WWW.MORGANSTANLEY.COM. IT IS ALSO
AVAILABLE ON THE SECURITIES AND EXCHANGE COMMISSION'S WEB SITE AT
HTTP://WWW.SEC.GOV.

YOU MAY OBTAIN INFORMATION REGARDING HOW THE FUND VOTED PROXIES RELATING TO
PORTFOLIO SECURITIES DURING THE MOST RECENT TWELVE-MONTH PERIOD ENDED JUNE 30
WITHOUT CHARGE BY VISITING THE MUTUAL FUND CENTER ON OUR WEB SITE AT
WWW.MORGANSTANLEY.COM. THIS INFORMATION IS ALSO AVAILABLE ON THE SECURITIES AND
EXCHANGE COMMISSION'S WEB SITE AT HTTP://WWW.SEC.GOV.

HOUSEHOLDING NOTICE

TO REDUCE PRINTING AND MAILING COSTS, THE FUND ATTEMPTS TO ELIMINATE DUPLICATE
MAILINGS TO THE SAME ADDRESS. THE FUND DELIVERS A SINGLE COPY OF CERTAIN
SHAREHOLDER DOCUMENTS, INCLUDING SHAREHOLDER REPORTS, PROSPECTUSES AND PROXY
MATERIALS, TO INVESTORS WITH THE SAME LAST NAME WHO RESIDE AT THE SAME ADDRESS.
YOUR PARTICIPATION IN THIS PROGRAM WILL CONTINUE FOR AN UNLIMITED PERIOD OF TIME
UNLESS YOU INSTRUCT US OTHERWISE. YOU CAN REQUEST MULTIPLE COPIES OF THESE
DOCUMENTS BY CALLING (800) 350-6414, 8:00 A.M. TO 8:00 P.M., ET. ONCE OUR
CUSTOMER SERVICE CENTER HAS RECEIVED YOUR INSTRUCTIONS, WE WILL BEGIN SENDING
INDIVIDUAL COPIES FOR EACH ACCOUNT WITHIN 30 DAYS.

PERFORMANCE SUMMARY

TOTAL RETURNS -- PERIOD ENDED SEPTEMBER 30, 2006

<Table>
<Caption>
CLASS A SHARES* CLASS B SHARES** CLASS C SHARES(+) CLASS D SHARES(++)
(since 08/28/06) (since 08/28/06) (since 08/28/06) (since 08/28/06)
SYMBOL GVIAX GVIBX GVICX GVIDX

SINCE INCEPTION... 2.30%(3) 2.20%(3) 2.30%(3) 2.30%(3)
(3.07)(4) (2.80)(4) 1.30(4) --
</Table>

Performance data quoted represents past performance, which is no guarantee of
future results and current performance may be lower or higher than the figures
shown. For most recent month-end performance figures, please visit
www.morganstanley.com or speak with your Financial Advisor. Investment returns
and principal value will fluctuate and fund shares, when redeemed, may be worth
more or less than their original cost. The table does not reflect the deduction
of taxes that a shareholder would pay on fund distributions or the redemption of
fund shares. Performance for Class A, Class B, Class C, and Class D shares will
vary due to differences in sales charges and expenses.

* The maximum front-end sales charge for Class A is 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 1.0% for shares
redeemed within one year of purchase.

++ Class D has no sales charge.

(1) The Standard & Poor's 500(R) Index (S&P 500(R)) 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.
Indexes are unmanaged and their returns do not include any sales charges or
fees. Such costs would lower performance. It is not possible to invest
directly in an index.

(2) The Blended Index is comprised of 1/3 Russell 1000(R) Growth Index
(measures the performance of those companies in the Russell 1000(R) Index
with higher price-to-book ratios and higher forecasted growth values), 1/3
Russell 1000(R) Value Index (measures the performance of those companies in
the Russell 1000(R) Index with lower price-to-book ratios and lower
forecasted growth values) and 1/3 Morgan Stanley Capital International
(MSCI) EAFE Index (measures the performance for a diverse range of global
stock markets within Europe, Australasia, and the Far East). Indexes are
unmanaged and their returns do not include any sales charges or fees. Such
costs would lower performance. It is not possible to invest directly in an
index.

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

(4) Figure shown assumes reinvestment of all distributions and the deduction of
the maximum applicable sales charge. See the Fund's current prospectus for
complete details on fees and sales charges.

EXPENSE EXAMPLE

As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, including sales charges (loads) on purchase payments and redemption fees;
and (2) ongoing costs, including 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 08/28/06 - 09/30/06.

ACTUAL EXPENSES

The first line of the table below provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, to estimate the expenses that you paid over the
period. Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000 = 8.6), then multiply the result by the number
in the first line under the heading entitled "Expenses Paid During Period" to
estimate the expenses you paid on your account during this period.

HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES

The second line of the table below provides information about hypothetical
expenses based on the Fund's actual expense ratio and an assumed rate of return
of 5% per year before expenses, which is not the Fund's actual return. The
hypothetical account values and expenses may not be used to estimate the actual
ending account balance or expenses you paid for the period. You may use this
information to compare the ongoing cost of investing in the Fund and other
funds. To do so, compare this 5% hypothetical example with the 5% hypothetical
examples that appear in the shareholder reports of the other funds.

Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads) and redemption fees. Therefore, the second line of the table is
useful in comparing ongoing costs, and will not help you determine the relative
total cost of owning different funds. In addition, if these transactional costs
were included, your costs would have been higher.

<Table>
<Caption>
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD *
------------- ------------- ---------------
08/28/06 -
08/28/06 09/30/06 09/30/06
------------- ------------- ---------------

CLASS A
Actual (2.30% return)....................................... $1,000.00 $1,023.00 $0.60
Hypothetical (5% annual return before expenses)............. $1,000.00 $1,021.86 $3.24

CLASS B
Actual (2.20% return)....................................... $1,000.00 $1,022.00 $1.31
Hypothetical (5% annual return before expenses)............. $1,000.00 $1,018.10 $7.03

CLASS C
Actual (2.30% return)....................................... $1,000.00 $1,023.00 $1.31
Hypothetical (5% annual return before expenses)............. $1,000.00 $1,018.10 $7.03

CLASS D
Actual (2.30% return)....................................... $1,000.00 $1,023.00 $0.37
Hypothetical (5% annual return before expenses)............. $1,000.00 $1,023.11 $1.98
</Table>

- ------------------
* Expenses are equal to the Fund's annualized expense ratios of 0.64%, 1.39%,
1.39% and 0.39% for Class A, Class B, Class C and Class D shares,
respectively, multiplied by the average account value over the period,
multiplied by 34/365 (to reflect the actual days in the period for the actual
example) and multiplied by 183/365 (to reflect the one-half period for the
hypothetical example). If the Fund had borne all of its expenses, the
annualized expense ratios would have been 52.09%, 52.84%, 52.84% and 51.84%
for Class A, Class B, Class C and Class D shares, respectively.

INVESTMENT ADVISORY AGREEMENT APPROVAL

NATURE, EXTENT AND QUALITY OF SERVICES

The Board reviewed and considered the nature and extent of the investment
advisory services to be provided by the Investment Adviser under the Advisory
Agreement, including portfolio management, investment research and equity and
fixed income securities trading. The Board also reviewed and considered the
nature and extent of the non-advisory, administrative services to be provided by
the Administrator under the Administration Agreement, including accounting,
clerical, bookkeeping, compliance, business management and planning, and the
provision of supplies, office space and utilities at the Investment Adviser's
expense. (The Investment Adviser and the Administrator together are referred to
as the "Adviser" and the Advisory Agreement and Administration Agreement
together are referred to as the "Management Agreement.")

The Board reviewed and considered the qualifications of the portfolio managers,
the senior administrative managers and other key personnel of the Adviser who
will provide the advisory and administrative services to the Fund. The Board
determined that the Adviser's portfolio managers and key personnel are well
qualified by education and/or training and experience to perform the services in
an efficient and professional manner. The Board concluded that the nature and
extent of the advisory and administrative services to be provided are necessary
and appropriate for the conduct of the business and investment activities of the
Fund.

PERFORMANCE RELATIVE TO COMPARABLE FUNDS MANAGED BY OTHER ADVISERS

The Board considered that the Adviser plans to arrange for a public offering of
shares of the Fund to raise assets for investment and that the offering had not
yet begun. The Board concluded that, since the Fund had no assets to invest
(other than seed capital that the Adviser will supply) and had no track record
of performance, this was not a factor it needed to address at the present time.

FEES RELATIVE TO OTHER PROPRIETARY FUNDS MANAGED BY THE ADVISER WITH COMPARABLE
INVESTMENT STRATEGIES

The Board noted that the Fund does not pay advisory and administrative fees
(together, the "management fee") under the Management Agreement, although the
Fund, through its investments in other mutual funds as set forth in the Fund's
Prospectus ("Underlying Funds"), will pay its pro rata share of the management
fee rate paid by the Underlying Funds.

FEES AND EXPENSES RELATIVE TO COMPARABLE FUNDS MANAGED BY OTHER ADVISERS

The Board reviewed the proposed total expense ratio of the Fund as compared to
average total expense ratio for funds, selected by the Adviser (the "expense
peer group"), managed by other advisers with investment strategies comparable to
those proposed for the Fund. The Board concluded that the proposed total expense

ratio, taking into account the proposed expense caps, would be competitive with
those of its expense peer group.

BREAKPOINTS AND ECONOMIES OF SCALE

The Board noted that the Fund does not pay a management fee to the Adviser.

PROFITABILITY OF ADVISER AND AFFILIATES

Since the Fund has not begun operations and has not paid any fees to the
Adviser, the Board concluded that this was not a factor that needed to be
considered at the present time.

FALL-OUT BENEFITS

The Board considered so-called "fall-out benefits" derived by the Adviser and
affiliates from their relationship with the Fund and the Morgan Stanley Fund
Complex, such as sales charges on sales of Class A shares and "float" benefits
derived from handling of checks for purchases and sales of Fund shares, through
a broker-dealer affiliate of the Adviser. The Board also considered that a
broker-dealer affiliate of the Adviser receives from the Fund 12b-1 fees for
distribution and shareholder services. The Board concluded that the float
benefits were relatively small and the sales charges and 12b-1 fees were
competitive with those of other broker-dealers.

SOFT DOLLAR BENEFITS

The Board considered whether the Adviser will realize any benefits as a result
of brokerage transactions executed through "soft dollar" arrangements. The Board
considered that the Fund invests only in the Underlying Funds, which do not
generate soft dollars.

ADVISER FINANCIALLY SOUND AND FINANCIALLY CAPABLE OF MEETING THE FUND'S NEEDS

The Board considered whether the Adviser is financially sound and has the
resources necessary to perform its obligations under the Management Agreement.
The Board noted that the Adviser's operations remain profitable, although
increased expenses in recent years have reduced the Adviser's profitability. The
Board concluded that the Adviser has the financial resources necessary to
fulfill its obligations under the Management Agreement.

RELATIONSHIP BETWEEN THE FUND AND THE ADVISER

The Board also reviewed and considered the proposed relationship between the
Fund and the Morgan Stanley Fund Complex, including the organizational structure
of the Adviser, the policies and procedures formulated and adopted by the
Adviser that will be utilized for managing the Fund's operations and the Board's
confidence

in the competence and integrity of the senior managers and key personnel of the
Adviser. The Board concluded that it is beneficial for the Fund to approve the
relationship with the Adviser.

OTHER FACTORS AND CURRENT TRENDS

The Board considered the controls and procedures adopted and implemented by the
Adviser and monitored by the Fund's Chief Compliance Officer and concluded that
the conduct of business by the Adviser indicates a good faith effort on its part
to adhere to high ethical standards in the conduct of the Fund's business.

GENERAL CONCLUSION

After considering and weighing all of the above factors, the Board concluded
that it would be in the best interest of the Fund and its shareholders to
approve the Management Agreement, which will remain in effect for two years and
thereafter must be approved annually by the Board if it is to continue in
effect.

Morgan Stanley Institutional Strategies Fund
PORTFOLIO OF INVESTMENTS - SEPTEMBER 30, 2006

<Table>
<Caption>
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------

Common Stocks (73.6%)
Investment Trusts/Mutual Funds
14,557 Morgan Stanley Institutional Active International
Allocation Portfolio (Class A)......................... $204,083
10,706 Morgan Stanley Institutional U. S. Large Cap
Growth Portfolio (Class A)............................ 203,095
17,134 Morgan Stanley Institutional Large Cap Relative
Value Portfolio (Class A)............................. 202,692
---------
</Table>

<Table>

Total Investments (Cost $596,461) (a)......... 73.6% 609,870

Other Assets in Excess of Liabilities......... 26.4 218,904
----- --------
Net Assets.................................... 100.0% $828,774
===== ========
</Table>

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

<Table>

(a) The aggregate cost for federal income tax purposes is $596,536. The
aggregate gross unrealized appreciation is $13,334.
</Table>

See Notes to Financial Statements
10

Morgan Stanley Institutional Strategies Fund
FINANCIAL STATEMENTS

Statement of Assets and Liabilities
September 30, 2006

<Table>

Assets:
Investments in securities, at value (cost
$596,461).............................. $609,870
Cash..................................... 22,005
Receivable for shares of beneficial
interest sold.......................... 205,214
Deferred offering costs.................. 88,871
Prepaid expenses......................... 1,130
Receivable from affiliate................ 27,685
--------
Total Assets......................... 954,775
--------
Liabilities:
Payable for:
Investments purchased................ 21,943
Transfer agent fee................... 939
Distribution fee..................... 298
Accrued expenses......................... 4,821
Offering costs........................... 98,000
--------
Total Liabilities.................... 126,001
--------
Net Assets........................... $828,774
========
Composition of Net Assets:
Paid-in-capital.......................... $815,440
Net unrealized appreciation.............. 13,409
Net realized loss........................ (75)
--------
Net Assets........................... $828,774
========
Class A Shares:
Net Assets............................... $137,003
Shares Outstanding (unlimited authorized,
$.01 par value)........................ 13,391
Net Asset Value Per Share............ $10.23
========
Maximum Offering Price Per Share,
(net asset value plus 5.54% of net
asset value)....................... $10.80
========
Class B Shares:
Net Assets............................... $352,120
Shares Outstanding (unlimited authorized,
$.01 par value)........................ 34,449
Net Asset Value Per Share............ $10.22
========
Class C Shares:
Net Assets............................... $211,734
Shares Outstanding (unlimited authorized,
$.01 par value)........................ 20,708
Net Asset Value Per Share............ $10.22
========
Class D Shares:
Net Assets............................... $127,917
Shares Outstanding (unlimited authorized,
$.01 par value)........................ 12,500
Net Asset Value Per Share............ $10.23
========
</Table>

Statement of Operations
For the period August 28, 2006* through
September 30, 2006

<Table>

Net Investment Loss:
Interest Income........................... $ 76
--------
Expenses
Professional fees......................... 15,779
Offering costs............................ 9,129
Shareholder reports and notices........... 1,889
Transfer agent fees and expenses.......... 944
Distribution fee (Class A shares)......... 29
Distribution fee (Class B shares)......... 129
Distribution fee (Class C shares)......... 171
Registration fees......................... 87
Custodian fees............................ 66
--------
Total Expenses........................ 28,223

Less: amounts waived/reimbursed........... (27,685)
--------
Net Expenses.......................... 538
--------
Net Investment Loss................... (462)
--------
Net Realized and Unrealized Gain (Loss):
Net realized loss......................... (10)
Net unrealized appreciation............... 13,409
--------
Net Gain.............................. 13,399
--------
Net Increase.............................. $ 12,937
========
</Table>

- ---------------------
* Commencement of operations.

See Notes to Financial Statements
11

Morgan Stanley Institutional Strategies Fund
FINANCIAL STATEMENTS continued

Statement of Changes in Net Assets

<Table>
<Caption>
FOR THE PERIOD
AUGUST 28, 2006*
THROUGH
SEPTEMBER 30, 2006
------------------

Increase (Decrease) in Net Assets:
Operations:
Net investment loss......................................... $ (462)
Net realized loss........................................... (10)
Net unrealized appreciation................................. 13,409
--------
Net Increase............................................ 12,937
Net increase from transactions in shares of beneficial
interest.................................................. 715,837
--------
Net Increase............................................ 728,774
Net Assets:
Beginning of period......................................... 100,000
--------
End of Period............................................... $828,774
========
</Table>

- ---------------------
* Commencement of operations.

See Notes to Financial Statements
12

Morgan Stanley Institutional Strategies Fund
NOTES TO FINANCIAL STATEMENTS - SEPTEMBER 30, 2006

1. Organization and Accounting Policies

Morgan Stanley Institutional Strategies Fund (the "Fund") is registered under
the Investment Company Act of 1940, as amended (the "Act"), as a
non-diversified, open-end management investment company. The Fund will invest in
a combination of three portfolios of Morgan Stanley Institutional Fund, Inc.
(individually, an "Underlying Fund" and collectively, the "Underlying Funds") on
a fixed allocation basis. The Fund's investment objective is to seek capital
appreciation. The Fund was organized as a Massachusetts business trust on May 2,
2006 and had no operations other than those relating to organizational matters
and the issuance of 2,500 shares of beneficial interest for $25,000 of each
class of the Fund to Morgan Stanley Investment Advisors Inc. (the "Investment
Adviser"), to effect the Fund's initial capitalization. The Fund commenced
operations on August 28, 2006.

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

The following is a summary of significant accounting policies:

A. Valuation of Investments -- (1) Investments are valued at the net asset value
per share of each Underlying Fund determined as of the close of the New York
Stock Exchange on valuation date; and (2) short-term debt securities having a
maturity date of more than sixty days at time of purchase are valued on a
mark-to-market basis until sixty days prior to maturity and thereafter at
amortized cost based on their value on the 61st day. Short-term debt securities
having a maturity date of sixty days or less at the time of purchase are valued
at amortized cost.

B. Accounting for Investments -- Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined by the identified cost method.
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 Adviser, may transfer uninvested cash
balances into one or more joint repurchase agreement accounts. These balances
are invested in one or more repurchase agreements and are collateralized

Morgan Stanley Institutional Strategies Fund
NOTES TO FINANCIAL STATEMENTS - SEPTEMBER 30, 2006 continued

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.

H. Offering Costs -- The Investment Adviser incurred offering costs on behalf of
the Fund in an amount of $98,000 which will be reimbursed by the Fund for the
full amount thereof. Such expenses were deferred and are being amortized on the
straight-line method over a period of approximately one year or less from the
commencement of operations.

2. Investment Advisory/Administration Agreements

Pursuant to an Investment Advisory Agreement, the Fund pays no investment
advisory fee. However, the Fund, through its investments in the Underlying
Funds, will pay its pro rata share of the advisory fees to the Investment
Adviser of the Underlying Funds.

Pursuant to an Administration Agreement with Morgan Stanley Services Company
Inc. (the "Administrator"), an affiliate of the Investment Adviser, the Fund
pays no administration fee. However, the Fund through its investments in the
Underlying Funds, will pay its pro rata share of the administration fee to the
Administrator of the Underlying Funds.

The Investment Adviser agreed to waive or reimburse all or a portion of the
Fund's other expenses such that the annualized actual total fund operating
expenses (exclusive of any indirect expenses from the Underlying Funds) does not
exceed 0.64%, 1.39%, 1.39% and 0.39% for Class A, Class B,

Morgan Stanley Institutional Strategies Fund
NOTES TO FINANCIAL STATEMENTS - SEPTEMBER 30, 2006 continued

Class C and Class D shares respectively, until August 31, 2007. Thereafter, the
fee waiver and/or expense reimbursement can be terminated at any time. At
September 30, 2006, included in the Statements of Assets and Liabilities is a
receivable from affiliate, which represents expense reimbursements due to the
Fund.

3. Plan of Distribution

Shares of the Fund are distributed by Morgan Stanley Distributors Inc. (the
"Distributor"), an affiliate of the Investment Adviser and Administrator. The
Fund has adopted a Plan of Distribution (the "Plan") pursuant to Rule 12b-1
under the Act. The Plan provides that the Fund will pay the Distributor a fee
which is accrued daily and paid monthly at the following annual rates: (i) Class
A - up to 0.25% of the average daily net assets of Class A; (ii) Class B - up to
1.0% of the average daily net assets of Class B; and (iii) Class C - up to 1.0%
of the average daily net assets of Class C.

In the case of Class B shares, provided that the Plan continues in effect, any
cumulative expenses incurred by the Distributor but not yet recovered may be
recovered through the payment of future distribution fees from the Fund pursuant
to the Plan and contingent deferred sales charges paid by investors upon
redemption of Class B shares. Although there is no legal obligation for the Fund
to pay expenses incurred in excess of payments made to the Distributor under the
Plan and the proceeds of contingent deferred sales charges paid by investors
upon redemption of shares, if for any reason the Plan is terminated, the
Trustees will consider at that time the manner in which to treat such expenses.
The Distributor has advised the Fund that there were no excess amounts at
September 30, 2006.

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 and other authorized
financial representatives at the time of sale may be reimbursed in the
subsequent calendar year. For the period ended September 30, 2006, the
distribution fee was accrued for Class A shares and Class C shares at the annual
rate of 0.25% and 1.0%, respectively.

The Distributor has informed the Fund that for the period ended September 30,
2006, it received no contingent deferred sales charges from certain redemptions
of the Fund's Class A shares, Class B shares and Class C shares, respectively
and received no 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.

Morgan Stanley Institutional Strategies Fund
NOTES TO FINANCIAL STATEMENTS - SEPTEMBER 30, 2006 continued

4. Security Transactions and Transactions with Affiliates

The cost of purchases and proceeds from sales of portfolio securities, excluding
short-term investments, for the period ending September 30, 2006 aggregated
$613,069 and $16,598, respectively.

Morgan Stanley Trust, an affiliate of the Investment Adviser, Administrator and
Distributor, is the Funds transfer agent.

The Fund has an unfunded Deferred Compensation Plan (the "Compensation Plan")
which allows each independent Trustee to defer payment of all, or a portion, of
the fees he or she receives for serving on the Board of Trustees. Each eligible
Trustee generally may elect to have the deferred amounts 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 September 30, 2006, the tax-basis components of accumulated earnings were
as follows:

<Table>

Net accumulated earnings.................................... --
Net unrealized appreciation................................. $13,334
-------
Total accumulated earnings.................................. $13,334
=======
</Table>

As of September 30, 2006, the Fund had temporary book/tax differences
attributable to capital loss deferrals on wash sales and permanent book/tax
differences attributable to a net operating loss and nondeductible expenses. To
reflect reclassifications arising from the permanent differences, paid-in-
capital was charged $397, net realized loss was charged $65 and net investment
loss was credited $462.

Morgan Stanley Institutional Strategies Fund
NOTES TO FINANCIAL STATEMENTS - SEPTEMBER 30, 2006 continued

6. Shares of Beneficial Interest

Transactions in shares of beneficial interest were as follows:

<Table>
<Caption>
FOR THE PERIOD
AUGUST 28, 2006*
THROUGH
SEPTEMBER 30, 2006
---------------------
SHARES AMOUNT
------ --------

CLASS A SHARES
Sold........................................................ 10,891 $109,115
------ --------
Net increase - Class A...................................... 10,891 109,115
------ --------
CLASS B SHARES
Sold........................................................ 31,949 324,156
------ --------
Net increase - Class B...................................... 31,949 324,156
------ --------
CLASS C SHARES
Sold........................................................ 18,208 182,566
------ --------
Net increase - Class C...................................... 18,208 182,566
------ --------
CLASS D SHARES
Sold........................................................ 10,000 100,000
------ --------
Net increase - Class D...................................... 10,000 100,000
------ --------
Net increase in Fund........................................ 71,048 $715,837
====== ========
</Table>

- ---------------------
* Commencement of operations.

7. New Accounting Pronouncements

In July 2006, the Financial Accounting Standards Board (FASB) issued
Interpretation 48, Accounting for Uncertainty in Income Taxes - an
interpretation of FASB Statement 109 (FIN 48). FIN 48 clarifies the accounting
for income taxes by prescribing the minimum recognition threshold a tax position
must meet before being recognized in the financial statements. FIN 48 is
effective for fiscal years beginning after December 15, 2006. The Fund will
adopt FIN 48 for the fiscal year ending 2008 and the impact to the Fund's
financial statements, if any, is currently being assessed.

In addition, in September 2006, Statement of Financial Accounting Standards No.
157, Fair Value Measurements (SFAS 157), was issued and is effective for fiscal
years beginning after November 15, 2007. SFAS 157 defines fair value,
establishes a framework for measuring fair value and expands disclosures about
fair value measurements. Management is currently evaluating the impact the
adoption of SFAS 157 will have on the Fund's financial statement disclosures.

Morgan Stanley Institutional Strategies Fund
FINANCIAL HIGHLIGHTS

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

<Table>
<Caption>
FOR THE PERIOD AUGUST 28, 2006*
THROUGH SEPTEMBER 30, 2006
--------------------------------------------------
CLASS A CLASS B CLASS C CLASS D
SHARES SHARES SHARES SHARES
-------- -------- -------- --------

Selected Per Share Data:
Net asset value, beginning of period........................ $10.00 $10.00 $10.00 $10.00
------ ------ ------ ------
Income (loss) from investment operations:
Net investment income (loss)++.......................... 0.00 (0.01) (0.01) 0.00
Net realized and unrealized gain........................ 0.23 0.23 0.23 0.23
------ ------ ------ ------
Total income from investment operations..................... 0.23 0.22 0.22 0.23
------ ------ ------ ------
Net asset value, end of period.............................. $10.23 $10.22 $10.22 $10.23
====== ====== ====== ======
Total Return+(1)............................................ 2.30 % 2.20 % 2.30 % 2.30 %
Ratios to Average Net Assets(2)(3)(4)(5):
Expenses.................................................... 0.64 % 1.39 % 1.39 % 0.39 %
Net investment loss......................................... (0.50)% (1.25)% (1.25)% (0.25)%
Supplemental Data:
Net assets, end of period, in thousands..................... $137 $352 $212 $128
Portfolio turnover rate(1).................................. 3 % 3 % 3 % 3 %
</Table>

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

<Table>

* Commencement of operations.
++ The per share amounts were computed using an average number
of shares outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated
based on the net asset value as of the last business day of
the period.
(1) Not annualized.
(2) Annualized.
(3) Does not include any expenses incurred as a result of
investment in the Underlying Funds.
(4) Reflects overall Fund ratios for investment income and
non-class specific expenses.
(5) If the Fund had borne all of its expenses that were
reimbursed or waived by the Investment Adviser and
Administrator, the annualized expense and net investment
loss ratios would have been 52.09% and (51.95)%,
respectively for Class A; 52.84% and (52.70)%, respectively
for Class B and Class C; and 51.84% and (51.70)%,
respectively for Class D.
</Table>

See Notes to Financial Statements
18

Morgan Stanley Institutional Strategies Fund
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Trustees of
Morgan Stanley Institutional Strategies Fund:

We have audited the accompanying statement of assets and liabilities of Morgan
Stanley Institutional Strategies Fund (the "Fund"), including the portfolio of
investments, as of September 30, 2006, and the related statement of operations,
changes in net assets and the financial highlights for the period August 28,
2006 (commencement of operations) to September 30, 2006. 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 audit.

We conducted our audit 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. The Fund
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audit included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Fund's internal control over
financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. Our procedures included confirmation
of securities owned as of September 30, 2006, by correspondence with the
custodian. We believe that our audit provides 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 Institutional Strategies Fund as of September 30, 2006, the results of
its operations, the changes in its net assets and the financial highlights for
the period August 28, 2006 (commencement of operations) to September 30, 2006,
in conformity with accounting principles generally accepted in the United States
of America.

Deloitte & Touche LLP
New York, New York
November 21, 2006

Morgan Stanley Institutional Strategies Fund
TRUSTEE AND OFFICER INFORMATION

Independent Trustees:
<Table>
<Caption>
Number of
Portfolios in
Fund Complex
Position(s) Term of Office Overseen by
Name, Age and Address of Held with and Length of Principal Occupation(s) During Independent
Independent Trustee Registrant Time Served* Past 5 Years Trustee**
- --------------------------------------- ----------- -------------- ------------------------------ -------------

Frank L. Bowman (61) Trustee Since August President and Chief Executive 161
c/o Kramer Levin Naftalis & Frankel LLP 2006 Officer of the Nuclear Energy
Counsel to the Independent Trustees Institute (policy
1177 Avenue of the Americas organization) (since February
New York, NY 10036 2005); Director or Trustee of
various Retail and
Institutional Funds (since
August 2006) formerly
variously, Admiral in the U.S.
Navy, Director of Naval
Nuclear Propulsion Program and
Deputy Administrator-Naval
Reactors in the National
Nuclear Security
Administration at the U.S.
Department of Energy
(1996-2004). Honorary Knight
Commander of the Most
Excellent Order of the British
Empire.

Michael Bozic (65) Trustee Since April Private investor; Chairperson 175
c/o Kramer Levin Naftalis & Frankel LLP 1994 of the Valuation, Insurance
Counsel to the Independent Trustees and Compliance Committee
1177 Avenue of the Americas (since October 2006); Director
New York, NY 10036 or Trustee of the Retail Funds
(since April 1994) and the
Institutional Funds (since
July 2003); formerly
Chairperson of the Insurance
Committee (July 2006-September
2006); 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); variously
Chairman, Chief Executive
Officer, President and Chief
Operating Officer (1987-1991)
of the Sears Merchandise Group
of Sears, Roebuck & Co.

Name, Age and Address of Other Directorships Held by
Independent Trustee Independent Trustee
- --------------------------------------- ------------------------------

Frank L. Bowman (61) Director of the National
c/o Kramer Levin Naftalis & Frankel LLP Energy Foundation, the U.S.
Counsel to the Independent Trustees Energy Association, the
1177 Avenue of the Americas American Council for Capital
New York, NY 10036 Formation and the Armed
Services YMCA of the USA.
Michael Bozic (65) Director of various business
c/o Kramer Levin Naftalis & Frankel LLP organizations.
Counsel to the Independent Trustees
1177 Avenue of the Americas
New York, NY 10036
</Table>

Morgan Stanley Institutional Strategies Fund
TRUSTEE AND OFFICER INFORMATION continued
<Table>
<Caption>
Number of
Portfolios in
Fund Complex
Position(s) Term of Office Overseen by
Name, Age and Address of Held with and Length of Principal Occupation(s) During Independent
Independent Trustee Registrant Time Served* Past 5 Years Trustee**
- --------------------------------------- ----------- -------------- ------------------------------ -------------

Kathleen A. Dennis (53) Trustee Since August President, Cedarwood 161
c/o Kramer Levin Naftalis & Frankel LLP 2006 Associates (mutual fund
Counsel to the Independent Trustees consulting) (since July 2006);
1177 Avenue of the Americas Chairperson of the Closed-End,
New York, NY 10036 Money Market and Alternatives
Sub-Committee of the
Investment Committee (since
October 2006) and Director or
Trustee of various Retail and
Institutional Funds (since
August 2006); formerly, Senior
Managing Director of Victory
Capital Management
(1993-2006).

Edwin J. Garn (73) Trustee Since January Consultant; Director or 175
1031 N. Chartwell Court 1993 Trustee of the Retail Funds
Salt Lake City, UT 84103 (since January 1993) and the
Institutional Funds (since
July 2003); Member of the Utah
Regional Advisory Board of
Pacific Corp. (utility
company); formerly Managing
Director of Summit Ventures
LLC (lobbying and consulting
firm) (2000-2004); 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).

Wayne E. Hedien (72) Trustee Since Retired; Director or Trustee 175
c/o Kramer Levin Naftalis & Frankel LLP September 1997 of the Retail Funds; (Since
Counsel to the Independent Trustees September 1997) and the
1177 Avenue of the Americas Institutional Funds (since
New York, NY 10036 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).

Name, Age and Address of Other Directorships Held by
Independent Trustee Independent Trustee
- --------------------------------------- ------------------------------

Kathleen A. Dennis (53) None.
c/o Kramer Levin Naftalis & Frankel LLP
Counsel to the Independent Trustees
1177 Avenue of the Americas
New York, NY 10036
Edwin J. Garn (73) Director of Franklin Covey
1031 N. Chartwell Court (time management systems), BMW
Salt Lake City, UT 84103 Bank of North America, Inc.
(industrial loan corporation),
Escrow Bank USA (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 (72) Director of The PMI Group Inc.
c/o Kramer Levin Naftalis & Frankel LLP (private mortgage insurance);
Counsel to the Independent Trustees Trustee and Vice Chairman of
1177 Avenue of the Americas The Field Museum of Natural
New York, NY 10036 History; director of various
other business and charitable
organizations.
</Table>

Dr. Manuel H. Johnson (57) Trustee Since July Senior Partner, Johnson Smick 175
c/o Johnson Smick Group, Inc. 1991 International, Inc.,
888 16th Street, N.W. (consulting firm); Chairperson
Suite 740 of the Investment Committee
Washington, D.C. 20006 (since October 2006) 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 Chairman
of the Audit Committee (July
1991-September 2006); Vice
Chairman of the Board of
Governors of the Federal
Reserve System and Assistant
Secretary of the U.S.
Treasury.

Joseph J. Kearns (64) Trustee Since July President, Kearns & Associates 176
c/o Kearns & Associates LLC 2003 LLC (investment consulting);
PMB754 Chairperson of the Audit
23852 Pacific Coast Highway Committee (since October 2006)
Malibu, CA 90265 and Director or Trustee of the
Retail Funds (since July 2003)
and the Institutional Funds
(since August 1994); formerly
Deputy Chairperson of the
Audit Committee (July 2003-
September 2006) and
Chairperson of the Audit
Committee of the Institutional
Funds (October 2001-July
2003); formerly CFO of the J.
Paul Getty Trust.

Name, Age and Address of Other Directorships Held by
Independent Trustee Independent Trustee
- --------------------------------------- ------------------------------

Dr. Manuel H. Johnson (57) Director of NVR, Inc. (home
c/o Johnson Smick Group, Inc. construction); Director of KFX
888 16th Street, N.W. Energy; Director of RBS
Suite 740 Greenwich Capital Holdings
Washington, D.C. 20006 (financial holding company).
Joseph J. Kearns (64) Director of Electro Rent
c/o Kearns & Associates LLC Corporation (equipment
PMB754 leasing), The Ford Family
23852 Pacific Coast Highway Foundation, and the UCLA
Malibu, CA 90265 Foundation.
</Table>

Michael F. Klein (47) Trustee Since August Chief Operating Officer and 161
c/o Kramer Levin Naftalis & Frankel LLP 2006 Managing Director, Aetos
Counsel to the Independent Trustees Capital, LLC (since March
1177 Avenue of the Americas 2000); Chairman of the
New York, NY 10036 Fixed-Income Sub-Committee of
the Investment Committee
(since October 2006) and
Director or Trustee (since
August 2006) of various Retail
and Institutional Funds;
formerly Managing Director,
Morgan Stanley & Co. Inc. and
Morgan Stanley Dean Witter
Investment Management,
President, Morgan Stanley
Institutional Funds (June
1998-March 2000) and
Principal, Morgan Stanley &
Co. Inc. and Morgan Stanley
Dean Witter Investment
Management (August
1997-December 1999).

Michael E. Nugent (70) Chairman of Chairman of General Partner of Triumph 175
c/o Triumph Capital, L.P. the Board the Board Capital, L.P., a private
445 Park Avenue and Trustee since July investment partnership;
New York, NY 10022 2006 and Chairman of the Board of the
Trustee since Retail Funds and Institutional
July 1991 Funds (since July 2006) and
Director or Trustee of the
Retail Funds (since July 1991)
and the Institutional Funds
(since July 2001); formerly
Chairman of the Insurance
Committee (until July 2006);
Vice President, Bankers Trust
Company and BT Capital
Corporation (1984-1988).

W. Allen Reed (59) Trustee Since August Chairperson of the Equity Sub- 161
c/o Kramer Levin Naftalis & Frankel LLP 2006 Commitee of the Investment
Counsel to the Independent Trustees Committee (since October 2006)
1177 Avenue of the Americas and Director or Trustee (since
New York, NY 10036 August 2006) of various Retail
and Institutional Funds.
President and CEO of General
Motors Asset Management;
Chairman and Chief Executive
Officer of the GM Trust Bank
and Corporate Vice President
of General Motors Corporation
(August 1994-December 2005).

Name, Age and Address of Other Directorships Held by
Independent Trustee Independent Trustee
- --------------------------------------- ------------------------------

Michael F. Klein (47) Director of certain investment
c/o Kramer Levin Naftalis & Frankel LLP funds managed or sponsored by
Counsel to the Independent Trustees Aetos Capital LLC.
1177 Avenue of the Americas
New York, NY 10036
Michael E. Nugent (70) None.
c/o Triumph Capital, L.P.
445 Park Avenue
New York, NY 10022
W. Allen Reed (59) Director of GMAC (financial
c/o Kramer Levin Naftalis & Frankel LLP services), GMAC Insurance
Counsel to the Independent Trustees Holdings and Temple-Inland
1177 Avenue of the Americas Industries (Packaging, Banking
New York, NY 10036 and Forrest Products); member
of the Board of Executives of
the Morgan Stanley Capital
International Editorial Board;
Director of Legg Mason and
Director of various investment
fund advisory boards.
</Table>

Fergus Reid (74) Trustee Since July Chairman of Lumelite Plastics 176
c/o Lumelite Plastics Corporation 2003 Corporation; Chairperson of
85 Charles Colman Blvd. the Governance Committee and
Pawling, NY 12564 Director or Trustee of the
Retail Funds (since July 2003)
and the Institutional Funds
(since June 1992).

Name, Age and Address of Other Directorships Held by
Independent Trustee Independent Trustee
- --------------------------------------- ------------------------------

Fergus Reid (74) Trustee and Director of
c/o Lumelite Plastics Corporation certain investment companies
85 Charles Colman Blvd. in the JPMorgan Funds complex
Pawling, NY 12564 managed by J.P. Morgan
Investment Management Inc.
</Table>

Morgan Stanley Institutional Strategies Fund
TRUSTEE AND OFFICER INFORMATION continued

Interested Trustee:
<Table>
<Caption>
Number of
Portfolios in
Fund Complex
Position(s) Term of Office Overseen by
Name, Age and Address of Held with and Length of Principal Occupation(s) During Interested
Interested Trustee Registrant Time Served* Past 5 Years Trustee**
- ------------------------------------- ----------- -------------- ------------------------------ -------------

James F. Higgins (58) Trustee Since June Director or Trustee of the 175
c/o Morgan Stanley Trust 2000 Retail Funds (since June 2000)
Harborside Financial Center and the Institutional Funds
Plaza Two (since July 2003); Senior
Jersey City, NJ 07311 Advisor of Morgan Stanley
(since August 2000).

Name, Age and Address of Other Directorships Held by
Interested Trustee Interested Trustee
- ------------------------------------- ------------------------------

James F. Higgins (58) Director of AXA Financial,
c/o Morgan Stanley Trust Inc. and The Equitable Life
Harborside Financial Center Assurance Society of the
Plaza Two United States (financial
Jersey City, NJ 07311 services).
</Table>

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

* This is the earliest date the Trustee began serving the funds advised by
Morgan Stanley Investment Advisors Inc. (the "Investment Adviser") (the
"Retail Funds") or the funds advised by Morgan Stanley Investment Management
Inc. and Morgan Stanley AIP GP LP (the "Institutional Funds").
** The Fund Complex includes all open-end and closed-end funds (including all
of their portfolios) advised by the Investment Adviser and any funds that
have an investment adviser that is an affiliated person of the Investment
Adviser (including, but not limited to, Morgan Stanley Investment Management
Inc.) as of October 2, 2006.

Morgan Stanley Institutional Strategies Fund
TRUSTEE AND OFFICER INFORMATION continued

Executive Officers:

<Table>
<Caption>
Term of
Position(s) Office and
Name, Age and Address of Held with Length of
Executive Officer Registrant Time Served* Principal Occupation(s) During Past 5 Years
- ----------------------------- --------------- -------------- ------------------------------------------------------------

Ronald E. Robison (67) President and President President (since September 2005) and Principal Executive
1221 Avenue of the Americas Principal since Officer (since May 2003) of funds in the Fund Complex;
New York, NY 10020 Executive September 2005 President (since September 2005) and Principal Executive
Officer and Principal Officer (since May 2003) of the Van Kampen Funds; Managing
Executive Director, Director and/or Officer of the Investment Adviser
Officer since and various entities affiliated with the Investment Adviser;
May 2003 Director of Morgan Stanley SICAV (since May 2004). Formerly,
Executive Vice President (July 2003 to September 2005) of
funds in the Fund Complex and the Van Kampen Funds;
President and Director of the Institutional Funds (March
2001 to July 2003); Chief Global Operating Officer of Morgan
Stanley Investment Management Inc.; Chief Administrative
Officer of Morgan Stanley Investment Advisors Inc.; Chief
Administrative Officer of Morgan Stanley Services Company
Inc.

J. David Germany (52) Vice President Since February Managing Director and (since December 2005) Chief Investment
Morgan Stanley Investment 2006 Officer -- Global Fixed Income of Morgan Stanley Investment
Management Ltd. Management; Managing Director and Director of Morgan Stanley
25 Cabot Square Investment Management Limited; Vice President of the Retail
Canary Wharf, London and Institutional Funds (since February 2006).
United Kingdom E144QA

Dennis F. Shea (53) Vice President Since February Managing Director and (since February 2006) Chief Investment
1221 Avenue of the Americas 2006 Officer -- Global Equity of Morgan Stanley Investment
New York, NY 10020 Management; Vice President of the Retail and Institutional
Funds (since February 2006). Formerly, Managing Director and
Director of Global Equity Research at Morgan Stanley.

Barry Fink (51) Vice President Since February Managing Director and General Counsel of Morgan Stanley
1221 Avenue of the Americas 1997 Investment Management; Managing Director of the Investment
New York, NY 10020 Adviser and various entities affiliated with the Investment
Adviser; Vice President of the Retail Funds and (since July
2003) the Institutional Funds. Formerly, Secretary, General
Counsel and/or Director of the Investment Adviser and
various entities affiliated with the Investment Adviser;
Secretary and General Counsel of the Retail Funds.

Amy R. Doberman (44) Vice President Since July Managing Director and General Counsel, U.S. Investment
1221 Avenue of the Americas 2004 Management of Morgan Stanley Investment Management (since
New York, NY 10020 July 2004); Vice President of the Retail Funds and the
Institutional Funds (since July 2004); Vice President of the
Van Kampen Funds (since August 2004); Secretary (since
February 2006) and Managing Director (since July 2004) of
the Investment Adviser and various entities affiliated with
the Investment Adviser. Formerly, Managing Director and
General Counsel -- Americas, UBS Global Asset Management
(July 2000 to July 2004).

Carsten Otto (42) Chief Since October Managing Director and U.S. Director of Compliance for Morgan
1221 Avenue of the Americas Compliance 2004 Stanley Investment Management (since October 2004); Managing
New York, NY 10020 Officer Director and Chief Compliance Officer of Morgan Stanley
Investment Management. Formerly, Assistant Secretary and
Assistant General Counsel of the Retail Funds.

Stefanie V. Chang Yu (39) Vice President Since December Executive Director of the Investment Adviser and various
1221 Avenue of the Americas 1997 entities affiliated with the Investment Adviser; Vice
New York, NY 10020 President of the Retail Funds (since July 2002) and the
Institutional Funds (since December 1997). Formerly,
Secretary of various entities affiliated with the Investment
Adviser.
</Table>

Morgan Stanley Institutional Strategies Fund
TRUSTEE AND OFFICER INFORMATION continued

Francis J. Smith (41) Treasurer and Treasurer Executive Director of the Investment Adviser and various
c/o Morgan Stanley Trust Chief Financial since July entities affiliated with the Investment Adviser; Treasurer
Harborside Financial Center Officer 2003 and Chief and Chief Financial Officer of the Retail Funds (since July
Plaza Two Financial 2003). Formerly, Vice President of the Retail Funds
Jersey City, NJ 07311 Officer since (September 2002 to July 2003).
September 2002

Mary E. Mullin (39) Secretary Since June Executive Director of the Investment Adviser and various
1221 Avenue of the Americas 1999 entities affiliated with the Investment Adviser; Secretary
New York, NY 10020 of the Retail Funds (since July 2003) and the Institutional
Funds (since June 1999).
</Table>

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

* This is the earliest date the Officer began serving the Retail Funds or the
Institutional Funds.

TRUSTEES

Frank L. Bowman
Michael Bozic
Kathleen A. Dennis
Edwin J. Garn
Wayne E. Hedien
James F. Higgins
Dr. Manuel H. Johnson
Joseph J. Kearns
Michael F. Klein
Michael E. Nugent
W. Allen Reed
Fergus Reid

OFFICERS

Michael E. Nugent
Chairman of the Board

Ronald E. Robison
President and Principal Executive Officer

J. David Germany
Vice President

Dennis F. Shea
Vice President

Barry Fink
Vice President

Amy R. Doberman
Vice President

Carsten Otto
Chief Compliance Officer

Stefanie V. Chang Yu
Vice President

Francis J. Smith
Treasurer and Chief Financial Officer

Mary E. Mullin
Secretary

TRANSFER AGENT

Morgan Stanley Trust
Harborside Financial Center, Plaza Two
Jersey City, New Jersey 07311

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Deloitte & Touche LLP
Two World Financial Center
New York, New York 10281

INVESTMENT ADVISER

Morgan Stanley Investment Advisors Inc.
1221 Avenue of the Americas
New York, New York 10020

This report is submitted for the general information of the shareholders of the
Fund. For more detailed information about the Fund, its fees and expenses and
other pertinent information, please read its Prospectus. The Fund's Statement of
Additional Information contains additional information about the Fund, including
its trustees. It is available, without charge, by calling (800) 869-NEWS.

This report is not authorized for distribution to prospective investors in the
Fund unless preceded or accompanied by an effective Prospectus. Read the
Prospectus carefully before investing.

Investments and services offered through Morgan Stanley DW Inc., member SIPC.
Morgan Stanley Distributors Inc., member NASD.

[MORGAN STANLEY LOGO]

MORGAN STANLEY FUNDS

Morgan Stanley
Institutional Strategies Fund

Annual Report
September 30, 2006

[MORGAN STANLEY LOGO]

INSTSTRATANN-RA06-01027P-Y09/06

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.

(d) Not applicable.

(e) Not applicable.

(f)

(1) The Fund's Code of Ethics is attached hereto as Exhibit 12 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:

2006 REGISTRANT COVERED ENTITIES(1)
- ---- ---------- -------------------

AUDIT FEES .................................. $23,500 N/A

NON-AUDIT FEES
AUDIT-RELATED FEES ....................... $ --(2) $5,328,768(2)
TAX FEES ................................. $ 5,700(3) $1,640,675(4)
ALL OTHER FEES ........................... $ -- $
TOTAL NON-AUDIT FEES ........................ $ 5,700 $6,969,443

TOTAL ....................................... $29,200 $6,969,443

2005 REGISTRANT COVERED ENTITIES(1)
- ---- ---------- -------------------

AUDIT FEES .................................. N/A N/A

NON-AUDIT FEES
AUDIT-RELATED FEES ....................... N/A N/A
TAX FEES ................................. N/A N/A
ALL OTHER FEES ........................... N/A N/A
TOTAL NON-AUDIT FEES ........................

TOTAL .......................................

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.

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

APPENDIX A

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

AS ADOPTED AND AMENDED JULY 23, 2004,(1)

1. STATEMENT OF PRINCIPLES

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

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

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

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

The purpose of this Policy is to set forth the policy and procedures by which
the Audit Committee intends to fulfill its responsibilities. It does not
delegate the Audit Committee's responsibilities to pre-approve services
performed by the Independent Auditors to management.

The Fund's Independent Auditors have reviewed this Policy and believes that
implementation of the Policy will not adversely affect the Independent Auditors'
independence.

2. DELEGATION

As provided in the Act and the SEC's rules, the Audit Committee may delegate
either type of pre-approval authority to one or more of its members. The member
to whom such authority is delegated must report, for informational purposes
only, any pre-approval decisions to the Audit Committee at its next scheduled
meeting.

3. AUDIT SERVICES

The annual Audit services engagement terms and fees are subject to the specific
pre-approval of the Audit Committee. Audit services include the annual financial
statement audit and other procedures required to be performed by the Independent
Auditors to be able to form an opinion on the Fund's financial statements. These
other procedures include information systems and procedural reviews and testing
performed in order to understand and place reliance on the systems of internal
control, and consultations relating to the audit. The Audit Committee will
approve, if necessary, any changes in terms, conditions and fees resulting from
changes in audit scope, Fund structure or other items.

In addition to the annual Audit services engagement approved by the Audit
Committee, the Audit Committee may grant general pre-approval to other Audit
services, which are those services that only the Independent Auditors reasonably
can provide. Other Audit services may include statutory audits and services
associated with SEC registration statements (on Forms N-1A, N-2, N-3, N-4,
etc.), periodic reports and other documents filed with the SEC or other
documents issued in connection with securities offerings.

The Audit Committee has pre-approved the Audit services in Appendix B.1. All
other Audit services not listed in Appendix B.1 must be specifically
pre-approved by the Audit Committee (or by any member of the Audit Committee to
which pre-approval has been delegated).

4. AUDIT-RELATED SERVICES

Audit-related services are assurance and related services that are reasonably
related to the performance of the audit or review of the Fund's financial
statements and, to the extent they are Covered Services, the Covered Entities or
that are traditionally performed by the Independent Auditors. Because the Audit
Committee believes that the provision of Audit-related services does not impair
the independence of the auditor and is consistent with the SEC's rules on
auditor independence, the Audit Committee may grant general pre-approval to
Audit-related services. Audit-related services include, among others, accounting
consultations related to accounting, financial reporting or disclosure matters

not classified as "Audit services"; assistance with understanding and
implementing new accounting and financial reporting guidance from rulemaking
authorities; agreed-upon or expanded audit procedures related to accounting
and/or billing records required to respond to or comply with financial,
accounting or regulatory reporting matters; and assistance with internal control
reporting requirements under Forms N-SAR and/or N-CSR.

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

5. TAX SERVICES

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

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

6. ALL OTHER SERVICES

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

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

7. PRE-APPROVAL FEE LEVELS OR BUDGETED AMOUNTS

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

8. PROCEDURES

All requests or applications for services to be provided by the Independent
Auditors that do not require specific approval by the Audit Committee will be
submitted to the Fund's Chief Financial Officer and must include a detailed
description of the services to be

rendered. The Fund's Chief Financial Officer will determine whether such
services are included within the list of services that have received the general
pre-approval of the Audit Committee. The Audit Committee will be informed on a
timely basis of any such services rendered by the Independent Auditors. Requests
or applications to provide services that require specific approval by the Audit
Committee will be submitted to the Audit Committee by both the Independent
Auditors and the Fund's Chief Financial Officer, and must include a joint
statement as to whether, in their view, the request or application is consistent
with the SEC's rules on auditor independence.

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

9. ADDITIONAL REQUIREMENTS

The Audit Committee has determined to take additional measures on an annual
basis to meet its responsibility to oversee the work of the Independent Auditors
and to assure the auditor's independence from the Fund, such as reviewing a
formal written statement from the Independent Auditors delineating all
relationships between the Independent Auditors and the Fund, consistent with
Independence Standards Board No. 1, and discussing with the Independent Auditors
its methods and procedures for ensuring independence.

10. COVERED ENTITIES

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

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

Morgan Stanley Institutional Funds
Morgan Stanley Investment Management Inc.
Morgan Stanley Investment Advisors Inc.
Morgan Stanley Investment Management Limited
Morgan Stanley Investment Management Private Limited
Morgan Stanley Asset & Investment Trust Management Co., Limited
Morgan Stanley Investment Management Company
Morgan Stanley & Co. Incorporated
Morgan Stanley Distribution, Inc.
Morgan Stanley AIP GP LP
Morgan Stanley Alternative Investment Partners LP

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

(f) Not applicable.

(g) See table above.

(h) The audit committee of the Board of Trustees has considered whether the
provision of services other than audit services performed by the auditors to the
Registrant and Covered Entities is compatible with maintaining the auditors'
independence in performing audit services.

Item 5. Audit Committee of Listed Registrants.

(a) The Fund has a separately-designated standing audit committee established in
accordance with Section 3(a)(58)(A) of the Exchange Act whose members are:
Michael Bozic, Edwin J. Garn, Wayne E. Hedien, Manual H. Johnson, Joseph J.
Kearns, Michael Nugent and Fergus Reid.

(b) Not applicable.

Item 6. Schedule of Investments

Refer to Item 1.

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

Applicable only to reports filed by closed-end funds.

Item 8. Portfolio Managers of Closed-End Management Investment Companies

Applicable only to reports filed by closed-end funds.

Item 9. Closed-End Fund Repurchases

Applicable only to reports filed by closed-end funds.

Item 10. Submission of Matters to a Vote of Security Holders

Not applicable.

Item 11. Controls and Procedures

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

(b) There were no changes in the registrant's internal control over financial
reporting that occurred during the second fiscal quarter of the period covered
by this report that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting.

Item 12. Exhibits

(a) 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 Institutional Strategies Fund

/s/ Ronald E. Robison
- --------------------------------------------
Ronald E. Robison
Principal Executive Officer
November 21, 2006

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
November 21, 2006

/s/ Francis Smith
- --------------------------------------------
Francis Smith
Principal Financial Officer
November 21, 2006