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: 811-07927

                    Morgan Stanley Financial Services Trust
               (Exact name of registrant as specified in charter)

               522 Fifth Avenue, New York, New York           10036
             (Address of principal executive offices)       (Zip code)

                               Ronald E. Robison
                   522 Fifth Avenue, New York, New York 10036
                     (Name and address of agent for service)

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

Date of fiscal year end: May 31, 2007

Date of reporting period: May 31, 2007

Item 1 - Report to Shareholders

Welcome, Shareholder:

In this report, you’ll learn about how your investment in Morgan Stanley Financial Services 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. Please see the prospectus for more complete information on investment risks.

	Fund Report
	For the Year Ended May 31, 2007

Total Return for the 12 Months Ended May 31, 2007

Class A						Class B						Class C						Class D						S&P 500® Financials Index1						S&P 500® Index2						Lipper Financial Services Funds Index3
	21.28	%					20.31	%					20.35	%					21.56	%					18.91	%					22.79	%					15.30	%

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.

Market Conditions

The U.S. economy continued to progress, albeit at a slower pace than in recent years, for the 12 months ended May 31, 2007. Despite pockets of volatility, equities in general continued their upward trajectory as positive employment data, tolerable inflation levels, ongoing merger and acquisition (M&A) activity, and sustained positive corporate earnings helped bolster investors’ enthusiasm for stocks. As major market indices reached new heights, however, signs of an economic slowdown became more apparent over the period. Oil and gasoline prices, which at the beginning of the reporting period were down from their record levels, began creeping upward again in recent months. The housing market continued to weaken, and the reported difficulties in the U.S. subprime mortgage market in the latter half of the period further added to the sector’s inexorable decline. Gross domestic product (GDP) growth decelerated in the third and fourth quarters of 2006, and GDP data reported for the first quarter of 2007 was lower than anticipated. Yet despite the mounting evidence of slower economic growth, investor optimism kept the domestic equity market in positive territory through the end of the period.

Against this backdrop, the financial services sector trailed the broad market (as measured by the S&P 500^® Index) for the 12-month period. Uncertainty about the Federal Open Market Committee’s (the ‘‘Fed’’) future activity and its potential impact on interest rates contributed to the sector’s volatility. Investors also worried about the prolonged inverted yield curve’s influence on interest income for financial institutions such as banks. In this environment, longer-term debt instruments yield less than shorter-term instruments, which squeezes the profit margins of banks because banks generally borrow money at short-term rates and lend it at long-term rates. Additionally, concerns about the worsening state of the subprime mortgage market and the fear of spillover into other areas, such as consumer credit, further hindered performance within the financial sector.

On a sub-sector basis, capital market securities performed strongly against both the S&P 500^® Financials Index and the broad market index. Continued economic strength fueled healthy global markets and M&A activity remained robust, driving gains within this sector. Life and health insurance companies also outperformed relative to the aforementioned indices due to effective capital management, which continued to improve returns on equity for selected players. In contrast, worries over a generally softening pricing environment for many property and casualty companies

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hampered the overall performance of this part of the financial services sector. Mortgage companies also underperformed amid the subprime market’s decline, although government sponsored entities fared better than other mortgage peers. Fear of contagion from the subprime mortgage fallout also spread to consumer finance securities and to regional banks. These banks, whose earnings are largely dependent on interest income, were further hurt by the inverted yield curve and were the worst performing group in the sector.

Performance Analysis

All share classes of Morgan Stanley Financial Services Trust outperformed both the S&P 500^® Financials Index and the Lipper Financial Services Funds Index, and underperformed the S&P 500^® Index for the 12 months ended May 31, 2007, assuming no deduction of applicable sales charges.

The Fund’s outperformance relative to the S&P 500 Financials Index was due to both stock selection and industry allocations. Among the decisions that provided strong relative returns for the Fund included stock selection in the property and casualty insurance, mortgage finance and specialized finance segments. The Fund’s investment in certain companies within the consumer finance and life and health insurance segments also turned out to be advantageous to relative returns. Stock selection and an underweight allocation in both diversified and regional banks also added to the Fund’s overall performance, as did an overweight allocation within the investment banking and brokerage segment.

Although many areas of the Fund helped to enhance relative returns, there were a few detractors. Stock selection in investment banking and brokerage, asset management, certain multi-line insurance companies, and other diversified financial services firms diminished the Fund’s relative performance. Additionally, the Fund’s underweight allocations in both real estate investment trusts (REITs) and life and health insurance companies hampered relative returns.

The Fund generally focuses on companies that are effective risk and capital managers and/or stocks offering compelling valuation opportunities. The Fund also generally favors companies that are well positioned for attractive long-term growth and return prospects that we believe are priced to offer good appreciation. At the end of the 12-month period, the Fund was overweight in capital markets related stocks, due to the investment manager’s positive assessment of the attractive returns and long-term growth opportunities for these securities. The Fund continued to overweight government sponsored entities based on the manager’s positive evaluation of fundamentals and political risk for these companies. As of the end of the reporting period, the Fund’s bank holdings included large diversified banks with, in the manager’s view, solid reserve positions and attractive valuations. Within the insurance sector, the Fund had exposure to a variety of industries.

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.

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TOP 10 HOLDINGS
Citigroup, Inc.					8.7	%
American Express Co.					7.3
Bank of America Corp.					7.0
Fannie Mae					6.0
Freddie Mac					4.8
Greenhill & Co., Inc.					4.7
JPMorgan Chase & Co.					4.3
Marsh & McLennan Companies, Inc.					4.1
Janus Capital Group, Inc.					4.1
XL Capital Ltd. (Class A)     (Cayman Islands)					3.6

TOP FIVE INDUSTRIES
Financial Conglomerates					21.4	%
Investment Bank/Brokers					18.3
Finance/Rental/Leasing					11.9
Investment Managers					11.3
Major Banks					9.7

Data as of May 31, 2007. Subject to change daily. All percentages for top 10 holdings and top five industries 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 will normally invest at least 80 percent of its assets in a diversified portfolio of common stocks and other equity securities of companies engaged in financial services and related industries. These companies include businesses such as asset management companies, securities brokerage firms, financial planning, banks, insurance companies, leasing companies, government-sponsored agencies, credit and finance companies, financial publishing and news services, credit research and rating services, financial advertising, and financial equipment and technology companies. A company will be considered engaged in financial services or related industries if it derives at least 35 percent of its revenues or earnings from those industries or it devotes at least 35 percent of its assets to those industries.

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

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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.

5

	Performance Summary

Performance of $10,000 Investment — Class B

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Average Annual Total Returns — Period Ended May 31, 2007

						Class A Shares* (since 07/28/97)						Class B Shares** (since 02/26/97)						Class C Shares† (since 07/28/97)						Class D Shares†† (since 07/28/97)
Symbol						FSVAX						FSVBX						FSVCX						FSVDX
1 Year							21.28	% 4					20.31	% 4					20.35	% 4					21.56	% 4
							14.91	5					15.66	5					19.42	5					—
5 Years							9.58	4					8.75	4					8.81	4					9.85	4
							8.40	5					8.50	5					8.81	5					—
10 Years							—						11.90	4					—						—
							—						11.90	5					—						—
Since Inception							11.26	4					11.64	4					10.44	4					11.46	4
							10.65	5					11.64	5					10.44	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 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 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. Effective April 2005, Class B shares will generally convert to Class A shares approximately eight years after the end of the calendar month in which the shares were purchased. Performance for periods greater than eight years reflects this conversion (beginning April 2005).

† 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 (S&P) 500^® Financials Index is a market capitalization weighted index consisting of financial sector stocks in the S&P 500^® Index and is designed to measure the performance of the financial sector. The Index is unmanaged and its returns do not include any sales charges or fees. Such costs would lower performance. It is not possible to invest directly in an index. The Fund’s primary benchmark is being changed from the S&P 500^® Index to the S&P 500^® Financials Index to more accurately reflect the Fund’s investible universe. The S&P 500^® Index will be listed as a secondary benchmark.

(2) The Standard & 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 is unmanaged and its 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) The Lipper Financial Services Funds Index is an equally weighted performance index of the largest qualifying funds (based on net assets) in the Lipper Financial Services 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. The Fund is in the Lipper Financial Services Funds classification as of the date of this report.

(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 May 31, 2007.

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	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 advisory 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 12/01/06 – 05/31/07.

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.

				Beginning Account Value				Ending Account Value				Expenses Paid During Period*
				12/01/06				05/31/07				12/01/06 – 05/31/07
Class A
Actual (7.59% return)				$	1,000.00			$	1,075.90			$	6.88
Hypothetical (5% annual return before expenses)				$	1,000.00			$	1,018.30			$	6.69
Class B
Actual (7.12% return)				$	1,000.00			$	1,071.20			$	10.84
Hypothetical (5% annual return before expenses)				$	1,000.00			$	1,014.46			$	10.55
Class C
Actual (7.20% return)				$	1,000.00			$	1,072.00			$	10.85
Hypothetical (5% annual return before expenses)				$	1,000.00			$	1,014.46			$	10.55
Class D
Actual (7.77% return)				$	1,000.00			$	1,077.70			$	5.70
Hypothetical (5% annual return before expenses)				$	1,000.00			$	1,019.45			$	5.54

* Expenses are equal to the Fund’s annualized expense ratios of 1.33%, 2.10%, 2.10% and 1.10% for Class A, Class B, Class C and Class D shares, respectively, multiplied by the average account value over the period, multiplied by 182/365 (to reflect the one-half year period).

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Investment Advisory Agreement Approval 

Nature, Extent and Quality of Services

The Board reviewed and considered the nature and extent of the investment advisory services 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 provided by the Fund’s 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 and Administration Agreements together are referred to as the ‘‘Management Agreement.’’) The Board also compared the nature of the services provided by the Adviser with similar services provided by non-affiliated advisers as reported to the Board by Lipper Inc. (‘‘Lipper’’).

The Board reviewed and considered the qualifications of the portfolio managers, the senior administrative managers and other key personnel of the Adviser who provide the administrative and investment advisory 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 provided were necessary and appropriate for the conduct of the business and investment activities of the Fund. The Board also concluded that the overall quality of the advisory and administrative services was satisfactory.

Performance Relative to Comparable Funds Managed by Other Advisers

On a regular basis, the Board reviews the performance of all funds in the Morgan Stanley Fund Complex, including the Fund, compared to their peers, paying specific attention to the underperforming funds. In addition, the Board specifically reviewed the Fund’s performance for the one-, three- and five-year periods ended November 30, 2006, as shown in a report provided by Lipper (the ‘‘Lipper Report’’), compared to the performance of comparable funds selected by Lipper (the ‘‘performance peer group’’). The Board also discussed with the Adviser the performance goals and the actual results achieved in managing the Fund. The Board concluded that the Fund’s performance was competitive with that of its performance peer group.

Fees Relative to Proprietary Funds Managed by the Adviser with Comparable Investment Strategies

The Board noted that the Adviser did not manage any other proprietary funds with investment strategies comparable to those of the Fund.

Fees and Expenses Relative to Comparable Funds Managed by Other Advisers

The Board reviewed the advisory and administrative fee (together, the ‘‘management fee’’) rate and total expense ratio of the Fund as compared to the average management fee rate and average total expense ratio for funds, selected by Lipper (the ‘‘expense peer group’’), managed by other advisers with investment strategies comparable to those of the Fund, as shown in the Lipper Report. The Board concluded that the Fund’s management fee rate and total expense ratio were competitive with those of its expense peer group.

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Breakpoints and Economies of Scale

The Board reviewed the structure of the Fund’s management fee schedule under the Management Agreement and noted that it includes breakpoints. The Board also reviewed the level of the Fund’s management fee and noted that the fee, as a percentage of the Fund’s net assets, would decrease as net assets increase because the management fee includes breakpoints. The Board concluded that the Fund’s management fee would reflect economies of scale as assets increase.

Profitability of the Adviser and Affiliates

The Board considered information concerning the costs incurred and profits realized by the Adviser and affiliates during the last year from their relationship with the Fund and during the last two years from their relationship with the Morgan Stanley Fund Complex and reviewed with the Adviser the cost allocation methodology used to determine the profitability of the Adviser and affiliates. Based on its review of the information it received, the Board concluded that the profits earned by the Adviser and affiliates were not excessive in light of the advisory, administrative and other services provided to the Fund.

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 and ‘‘soft dollar’’ benefits (discussed in the next section). 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 also considered that an affiliate of the Adviser sold a joint venture that owned an electronic trading system network (‘‘ECN’’), which may be used by the Adviser for trading on behalf of the Fund. As part of the sale of the joint venture, the affiliate receives a 10-year payout based on the revenue stream from trading on the ECN. Although the affiliate disgorges the portion of the payout that is comprised of commissions received from trades executed by the Adviser on the ECN to a charitable organization, the Board considered the fact that trades by the Adviser would increase order flow, and, thus, result in a potential fall-out benefit to the affiliate. The Board concluded that the float benefits were relatively small, the sales charges and 12b-1 fees were competitive with those of other broker-dealers, the affiliate disgorged revenues in connection with the ECN-related revenue and the potential fall-out benefit from increased order flow was relatively small.

Soft Dollar Benefits

The Board considered whether the Adviser realizes any benefits as a result of brokerage transactions executed through ‘‘soft dollar’’ arrangements. Under such arrangements, brokerage commissions paid by the Fund and/or other funds managed by the Adviser would be used to pay for research that a securities broker obtains from third parties, or to pay for both research and execution services from securities brokers who effect transactions for the Fund. The Board recognized that the receipt of such research from brokers may reduce the Adviser’s costs but concluded that the receipt of such research strengthens the investment management resources of the Adviser, which may ultimately benefit the Fund and other funds in the Morgan Stanley Fund Complex.

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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 concluded that the Adviser has the financial resources necessary to fulfill its obligations under the Management Agreement.

Historical Relationship Between the Fund and the Adviser

The Board also reviewed and considered the historical relationship between the Fund and the Adviser, including the organizational structure of the Adviser, the policies and procedures formulated and adopted by the Adviser 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 continue its 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 renewal of the Management Agreement for another year.

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Morgan Stanley Financial Services Trust

Portfolio of Investments May 31, 2007

NUMBER OF SHARES								VALUE
				Common Stocks (97.6%)
				Data Processing Services (1.9%)
	136,690			Western Union Co. (a)				$	3,068,691
				Finance/Rental/Leasing (11.9%)
	46,800			Countrywide Financial Corp. (a)					1,822,392
	148,400			Fannie Mae					9,485,728
	113,200			Freddie Mac					7,560,628
									18,868,748
				Financial Conglomerates (21.4%)
	178,800			American Express Co.					11,618,424
	253,800			Citigroup, Inc.					13,829,562
	131,800			JPMorgan Chase & Co.					6,831,194
	26,100			UBS AG (Switzerland) (a)					1,702,764
									33,981,944
				Financial Publishing/Services (6.2%)
	33,200			Dun & Bradstreet Corp.					3,324,316
	53,000			Moody’s Corp. (a)					3,691,450
	58,800			Morningstar, Inc. (a)*					2,811,228
									9,826,994
				Insurance Brokers/Services (4.1%)
	197,200			Marsh & McLennan Companies, Inc.					6,474,076
				Investment Banks/Brokers (18.3%)
	62,500			Ameriprise Financial, Inc.					3,928,125
	150,000			Evercore Partners, Inc. (Class A)					4,756,500
	102,800			Greenhill & Co., Inc. (a)					7,401,600
	33,200			IntercontinentalExchange Inc. (a)*					4,812,008
	129,300			OptionsXpress Holdings, Inc. (a)					3,294,564
	232,500			TD AmeriTrade Holding Corp. (a)*					4,773,225
									28,966,022
				Investment Managers (11.3%)
	219,300			Calamos Asset Management Inc. (Class A)				$	5,471,535
	165,283			Fortress Investment Group LLC (Class A) (a)					4,429,584
	233,100			Janus Capital Group, Inc. (a)*					6,452,208
	23,800			State Street Corp. (a)					1,624,826
									17,978,153
				Life/Health Insurance (2.1%)
	48,300			MetLife, Inc. (a)					3,284,400
				Major Banks (9.7%)
	217,953			Bank of America Corp.					11,052,397
	105,700			Bank of New York Co., Inc. (The)					4,287,192
									15,339,589
				Multi-Line Insurance (2.1%)
	32,400			Hartford Financial Services Group, Inc. (The)					3,342,708
				Property – Casualty Insurers (7.3%)
	1,000			Berkshire Hathaway Inc. (Class B) (a)*					3,625,000
	33,100			Transatlantic Holdings, Inc.					2,371,946
	69,300			XL Capital Ltd. (Class A) (Cayman Islands)					5,652,108
									11,649,054
				Savings Banks (1.3%)
	99,060			People’s United Financial Inc.					2,000,021
				Total Common Stocks (Cost $122,749,111)					154,780,400

See Notes to Financial Statements

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Morgan Stanley Financial Services Trust

Portfolio of Investments May 31, 2007 continued

PRINCIPAL AMOUNT IN THOUSANDS								VALUE
				Short-Term Investments (19.4%)
				Repurchase Agreement (1.6%)
$	2,535			Joint repurchase agreement account 5.29% due 06/01/07 (dated 05/31/07; proceeds $2,535,373) (b) (Cost $2,535,000)				$	2,535,000
				Security Purchased from Securities Lending Collateral (17.8%)
	28,185			The Bank of New York Institutional Cash Reserve Fund (Cost $28,185,155)					28,185,155
				Total Short-Term Investments
				(Cost $30,720,155)					30,720,155

Total Investments (Cost $153,469,266) (c)					117.0	%			185,500,555
Liabilities in Excess of Other Assets					(17.0	)			(26,994,201	)
Net Assets					100.0	%		$	158,506,354

* Non-income producing security.

(a) All or a portion of this security was on loan at May 31, 2007.

(b) Collateralized by federal agency and U.S. Treasury obligations.

(c) The aggregate cost for federal income tax purposes is $157,194,322. The aggregate gross unrealized appreciation is $29,662,278 and the aggregate gross unrealized depreciation is $1,356,045, resulting in net unrealized appreciation of $28,306,233.

Summary of Investments

INDUSTRY				VALUE				PERCENT OF TOTAL INVESTMENTS
Financial Conglomerates				$	33,981,944				18.3	%
Investment Banks/Brokers					28,966,022				15.6
Collateral on Loaned Securities					28,185,155				15.2
Finance/Rental/Leasing					18,868,748				10.2
Investment Managers					17,978,153				9.7
Major Banks					15,339,589				8.2
Property – Casualty Insurers					11,649,054				6.3
Financial Publishing/ Services					9,826,994				5.3
Insurance Brokers/ Services					6,474,076				3.5
Multi-Line Insurance					3,342,708				1.8
Life/Health Insurance					3,284,400				1.8
Data Processing Services					3,068,691				1.6
Repurchase Agreement					2,535,000				1.4
Savings Banks					2,000,021				1.1
				$	185,500,555				100.0	%

See Notes to Financial Statements

13

Morgan Stanley Financial Services Trust

Financial Statements

Statement of Assets and Liabilities

May 31, 2007

Assets:
Investments in securities, at value     (cost $153,469,266) (including $27,475,775 of securities loaned)				$185,500,555
Cash				786
Receivable for:
Investments sold				1,806,129
Dividends				195,962
Shares of beneficial interest sold				15,626
Foreign withholding taxes reclaimed				1,980
Interest				373
Prepaid expenses and other assets				24,431
Total Assets				187,545,842
Liabilities:
Collateral on securities loaned at value				28,185,155
Payable for:
Investments purchased				491,735
Shares of beneficial interest redeemed				118,508
Investment advisory fee				89,781
Distribution fee				67,808
Administration fee				10,720
Transfer agent fee				4,942
Accrued expenses and other payables				70,839
Total Liabilities				29,039,488
Net Assets				$158,506,354
Composition of Net Assets:
Paid-in-capital				$112,048,309
Net unrealized appreciation				32,031,415
Accumulated undistributed net investment income				564,313
Accumulated undistributed net realized gain				13,862,317
Net Assets				$158,506,354
Class A Shares:
Net Assets				$94,457,571
Shares Outstanding (unlimited authorized, $.01 par value)				7,223,632
Net Asset Value Per Share				$13.08
Maximum Offering Price Per Share, (net asset value plus 5.54% of net asset value)				$13.80
Class B Shares:
Net Assets				$48,861,101
Shares Outstanding (unlimited authorized, $.01 par value)				4,115,992
Net Asset Value Per Share				$11.87
Class C Shares:
Net Assets				$6,871,851
Shares Outstanding (unlimited authorized, $.01 par value)				578,929
Net Asset Value Per Share				$11.87
Class D Shares:
Net Assets				$8,315,831
Shares Outstanding (unlimited authorized, $.01 par value)				622,531
Net Asset Value Per Share				$13.36

See Notes to Financial Statements

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Morgan Stanley Financial Services Trust

Financial Statements continued

Statement of Operations

For the year ended May 31, 2007

Net Investment Income:
Income
Dividends (net of $2,249 foreign withholding tax)				$	3,098,724
Interest					143,266
Income from securities loaned – net					48,224
Total Income					3,290,214
Expenses
Investment advisory fee					1,111,902
Distribution fee (Class A shares)					222,444
Distribution fee (Class B shares)					607,608
Distribution fee (Class C shares)					74,216
Transfer agent fees and expenses					266,201
Administration fee					132,765
Shareholder reports and notices					110,579
Professional fees					87,284
Registration fees					55,922
Custodian fees					17,025
Trustees’ fees and expenses					3,173
Other					28,881
Total Expenses					2,718,000
Less: expense offset					(1,183	)
Net Expenses					2,716,817
Net Investment Income					573,397
Net Realized and Unrealized Gain:
Net Realized Gain on:
Investments					29,115,513
Foreign exchange transactions					22,572
Net Realized Gain					29,138,085
Net Change in Unrealized Appreciation/Depreciation on:
Investments					1,939,617
Translation of a foreign currency contract and other assets and liabilities denominated in foreign currencies					154
Net Appreciation					1,939,771
Net Gain					31,077,856
Net Increase				$	31,651,253

See Notes to Financial Statements

15

Morgan Stanley Financial Services Trust

Financial Statements continued

Statements of Changes in Net Assets

				FOR THE YEAR ENDED MAY 31, 2007				FOR THE YEAR ENDED MAY 31, 2006
Increase (Decrease) in Net Assets:
Operations:
Net investment income				$	573,397			$	1,802,582
Net realized gain					29,138,085				37,468,274
Net change in unrealized appreciation/depreciation					1,939,771				(9,789,413	)
Net Increase					31,651,253				29,481,443
Dividends and Distributions to Shareholders from:
Net investment income
Class A shares					(1,450,777	)			(781,707	)
Class B shares					(165,706	)			—
Class C shares					(52,197	)			—
Class D shares					(96,049	)			(222,104	)
Net realized gain
Class A shares					(20,123,045	)			(10,650,929	)
Class B shares					(14,324,628	)			(14,432,456	)
Class C shares					(1,717,535	)			(1,290,755	)
Class D shares					(1,170,844	)			(2,895,909	)
Total Dividends and Distributions					(39,100,781	)			(30,273,860	)
Net decrease from transactions in shares of beneficial interest					(10,577,471	)			(55,549,403	)
Net Decrease					(18,026,999	)			(56,341,820	)
Net Assets:
Beginning of period					176,533,353				232,875,173
End of Period (Including accumulated undistributed net investment income of $564,313 and $1,733,073, respectively)				$	158,506,354			$	176,533,353

See Notes to Financial Statements

16

Morgan Stanley Financial Services Trust

Notes to Financial Statements May 31, 2007

1.   Organization and Accounting Policies

Morgan Stanley Financial Services 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 long-term capital appreciation. The Fund was organized as a Massachusetts business trust on November 8, 1996 and commenced operations on February 26, 1997. 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 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 Fund will assess a 2% redemption fee, on Class A shares, Class B shares, Class C shares, and Class D shares, which is paid directly to the Fund, for shares redeemed within thirty days of purchase, subject to certain exceptions. The redemption fee is designed to protect the Fund and its remaining shareholders from the effects of short-term trading.

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 including circumstances under which Morgan Stanley Investment Advisors Inc. (the ‘‘Investment Adviser’’) determines that the latest sale price, the bid price or the mean between the last reported bid and asked price do not reflect a security’s market value, portfolio securities are valued at their fair value as determined in good faith under procedures established by and under the general supervision of the Fund’s Trustees. Occasionally, developments affecting the closing prices of securities and other assets may occur between the times at which valuations of such securities are determined (that is, close of the foreign market on which the securities trade) and the close of business on the NYSE. If developments occur

17

Morgan Stanley Financial Services Trust

Notes to Financial Statements May 31, 2007 continued

during such periods that are expected to materially affect the value of such securities, such valuations may be adjusted to reflect the estimated fair value of such securities as of the close of the NYSE, as determined in good faith by the Fund’s Trustees or by the Investment Adviser using a pricing service and/or procedures approved by the Trustees of the Fund; (6) certain portfolio securities may be valued by an outside pricing service approved by the Fund’s Trustees; and (7) short-term debt securities having a maturity date of more than 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 procedures adopted by the Fund’s Trustees, the Fund, along with other affiliated entities managed by the Investment Adviser, may transfer uninvested cash balances into one or more joint 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.   Foreign Currency Translation and Forward Foreign Currency Contracts — The books and records of the Fund are maintained in U.S. dollars as follows: (1) the foreign currency market value of investment securities, other assets and liabilities and forward foreign currency contracts (‘‘forward contracts’’) are translated at the exchange rates prevailing at the end of the period; and (2) purchases, sales, income and expenses are translated at the exchange rates prevailing on the respective dates of such transactions. The resultant exchange gains and losses are recorded as realized and unrealized gain/loss on foreign exchange transactions. Pursuant to U.S. federal income tax regulations, certain foreign exchange gains/losses included in realized and unrealized gain/loss are included in or are a reduction of ordinary income for federal income tax purposes. The Fund does not isolate that portion of the results of operations arising as a result of changes in the foreign exchange rates from the changes in the market prices of the securities. Forward contracts are valued daily at the appropriate exchange rates. The resultant unrealized exchange gains and

18

Morgan Stanley Financial Services Trust

Notes to Financial Statements May 31, 2007 continued

losses are recorded as unrealized foreign currency gain or loss. The Fund records realized gains or losses on delivery of the currency or at the time the forward contract is extinguished (compensated) by entering into a closing transaction prior to delivery.

F.   Securities Lending — The Fund may lend securities to qualified financial institutions, such as broker-dealers, to earn additional income. Any increase or decrease in the fair value of the securities loaned that might occur and any interest earned or dividends declared on those securities during the term of the loan would remain in the Fund. The Fund receives cash or securities as collateral in an amount equal to or exceeding 100% of the current fair value of the loaned securities. The collateral is marked-to-market daily, by the securities lending agent, to ensure that a minimum of 100% collateral coverage is maintained.

Based on pre-established guidelines, the securities lending agent invests any cash collateral that is received in high-quality short-term investments. Securities lending income is generated from the earnings on the invested collateral and borrowing fees, less any rebates owed to the borrowers and compensation to the lending agent.

The value of loaned securities and related collateral outstanding at May 31, 2007 were $27,475,775 and $28,185,155, respectively. The Fund received cash collateral which was subsequently invested in The Bank of New York Institutional Cash Reserve Fund as reported in the Portfolio of Investments. The Fund has the right under the lending agreement to recover the securities from the borrower on demand.

G.   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.

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

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

2.   Investment Advisory/Administration Agreements

Pursuant to an Investment Advisory Agreement, the Fund pays the Investment Adviser an advisory fee, accrued daily and payable monthly, by applying the annual rates to the net assets of the Fund determined at the close of each business day: 0.67% to the portion of the daily net assets not exceeding $500 million; 0.645% to the portion of the daily net assets exceeding $500 million but not exceeding $1 billion; and 0.62% to the portion of the daily net assets in excess of $1 billion.

19

Morgan Stanley Financial Services Trust

Notes to Financial Statements May 31, 2007 continued

Pursuant to an Administration Agreement with Morgan Stanley Services Company Inc. (the ‘‘Administrator’’), an affiliate of the Investment Adviser, the Fund pays an administration fee, accrued daily and payable monthly, by applying the annual rate of 0.08% to the Fund’s daily net assets.

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 shares; (ii) Class B – up to 1.0% of the average daily net assets of Class B shares; and (iii) Class C – up to 1.0% of the average daily net assets of Class C shares.

In the case of Class B shares, provided that the Plan continues in effect, any cumulative expenses incurred by the Distributor but not yet recovered may be recovered through the payment of future distribution fees from the Fund pursuant to the Plan and contingent deferred sales charges paid by investors upon redemption of Class B shares. Although there is no legal obligation for the Fund to pay expenses incurred in excess of payments made to the Distributor under the Plan and the proceeds of contingent deferred sales charges paid by investors upon redemption of shares, if for any reason the Plan is terminated, the Trustees will consider at that time the manner in which to treat such expenses. The Distributor has advised the Fund that such excess amounts totaled $6,646,244 at May 31, 2007.

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 year ended May 31, 2007, the distribution fee was accrued for Class A shares and Class C shares at the annual rate of 0.24 % and 1.0%, respectively.

The Distributor has informed the Fund that for the year ended May 31, 2007, it received contingent deferred sales charges from certain redemptions of the Fund’s Class A shares, Class B shares and Class C shares of $16, $105,965 and $199, respectively and received $15,624 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 May 31, 2007 aggregated $46,442,298 and $97,870,185, respectively. Included in the aforementioned are purchases with other Morgan Stanley funds of $736,000.

20

Morgan Stanley Financial Services Trust

Notes to Financial Statements May 31, 2007 continued

For the year ended May 31, 2007, the Fund incurred brokerage commissions of $15,611, with Morgan Stanley & Co., Inc., an affiliate of the Investment Adviser, Administrator and Distributor, for portfolio transactions executed on behalf of the Fund. At May 31, 2007, the Fund’s payable for investments purchased included unsettled trades with Morgan Stanley & Co., Inc., of $491,735.

At May 31, 2007, Morgan Stanley Multi-Asset Class Fund, an affiliate of the Investment Adviser, Administrator and Distributor, held 349,996 Class D shares of beneficial interest of the Fund.

Morgan Stanley Trust, an affiliate of the Investment Adviser, Administrator and Distributor, is the Fund’s 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.   Purposes of and Risks Relating to Certain Financial Instruments

The Fund may enter into forward contracts for many purposes, including to facilitate settlement of foreign currency denominated portfolio transactions or to manage foreign currency exposure associated with foreign currency denominated securities.

Forward contracts involve elements of market risk in excess of the amounts reflected in the Statement of Assets and Liabilities. The Fund bears the risk of an unfavorable change in the foreign exchange rates underlying the forward contracts. Risks may also arise upon entering into these contracts from the potential inability of the counterparties to meet the terms of their contracts.

The Fund may lend securities to qualified financial institutions, such as broker-dealers, to earn additional income. Risks in securities lending transactions are that a borrower may not provide additional collateral when required or return the securities when due, and that the value of the short-term investments will be less than the amount of cash collateral plus any rebate that is required to be returned to the borrower.

21

Morgan Stanley Financial Services Trust

Notes to Financial Statements May 31, 2007 continued

6.   Shares of Beneficial Interest

Transactions in shares of beneficial interest were as follows:

				FOR THE YEAR ENDED MAY 31, 2007								FOR THE YEAR ENDED MAY 31, 2006
				SHARES				AMOUNT				SHARES				AMOUNT
CLASS A SHARES
Sold					164,502			$	2,245,064				118,283			$	1,687,353
Conversion from Class B					972,866				13,076,236				1,724,154				24,523,755
Reinvestment of dividends and distributions					1,584,829				19,810,362				772,456				10,497,680
Redeemed					(1,852,878	)			(24,813,905	)			(1,795,150	)			(25,715,169	)
Net increase – Class A					869,319				10,317,757				819,743				10,993,619
CLASS B SHARES
Sold					168,752				2,077,348				165,777				2,218,723
Conversion to Class A					(1,062,990	)			(13,076,236	)			(1,864,006	)			(24,523,755	)
Reinvestment of dividends and distributions					1,104,815				12,583,843				1,045,024				13,135,947
Redeemed					(1,803,990	)			(22,039,399	)			(3,089,347	)			(40,969,318	)
Net decrease – Class B					(1,593,413	)			(20,454,444	)			(3,742,552	)			(50,138,403	)
CLASS C SHARES
Sold					23,122				288,853				28,642				378,992
Reinvestment of dividends and distributions					144,433				1,645,098				98,428				1,242,162
Redeemed					(215,722	)			(2,681,625	)			(226,941	)			(3,009,862	)
Net decrease – Class C					(48,167	)			(747,674	)			(99,871	)			(1,388,708	)
CLASS D SHARES
Sold					447,475				5,825,651				4,843				70,820
Reinvestment of dividends and distributions					30,690				391,301				132,155				1,823,745
Redeemed					(412,518	)			(5,910,062	)			(1,192,185	)			(16,910,476	)
Net increase (decrease) – Class D					65,647				306,890				(1,055,187	)			(15,015,911	)
Net decrease in Fund					(706,614	)		$	(10,577,471	)			(4,077,867	)		$	(55,549,403	)

7.   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.

22

Morgan Stanley Financial Services Trust

Notes to Financial Statements May 31, 2007 continued

The tax character of distributions paid was as follows:

				FOR THE YEAR ENDED MAY 31, 2007				FOR THE YEAR ENDED MAY 31, 2006
Ordinary income				$	3,259,648			$	3,801,029
Long-term capital gains					35,841,133				26,472,831
Total distributions				$	39,100,781			$	30,273,860
As of May 31, 2007, the tax-basis components of accumulated earnings were as follows:
Undistributed ordinary income				$	3,196,390
Undistributed long-term gains					14,964,414
Net accumulated earnings					18,160,804
Post-October losses					(8,209	)
Temporary differences					(909	)
Net unrealized appreciation					28,306,359
Total accumulated earnings				$	46,458,045

As of May 31, 2007, the Fund had temporary book/tax differences primarily attributable to post-October losses (foreign currency losses incurred after October 31 within the taxable year which are deemed to arise on the first business day of the Fund’s next taxable year) and capital loss deferrals on wash sales.

Permanent differences, due to foreign currency gains, resulted in the following reclassifications among the Fund’s components of net assets at May 31, 2007:

ACCUMULATED UNDISTRIBUTED NET INVESTMENT INCOME				ACCUMULATED UNDISTRIBUTED NET REALIZED GAIN				PAID-IN-CAPITAL
$22,572				$(22,572)				—

8.   Expense Offset

The expense offset represents a reduction of the fees and expenses for interest earned on cash balances maintained by the Fund with the transfer agent.

9.   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

23

Morgan Stanley Financial Services Trust

Notes to Financial Statements May 31, 2007 continued

before being recognized in the financial statements. FIN 48 is effective for fiscal years beginning after December 15, 2006 and is applied to all open tax years as of the effective date. 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.

24

Morgan Stanley Financial Services Trust

Financial Highlights

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

				FOR THE YEAR ENDED MAY 31,
				2007				2006				2005				2004				2003
Class A Shares
Selected Per Share Data:
Net asset value, beginning of period				$	13.83			$	14.00			$	14.88			$	13.03			$	13.93
Income (loss) from investment operations:
Net investment income‡					0.09				0.18				0.14				0.09				0.07
Net realized and unrealized gain (loss)					2.69				1.86				0.62				1.94				(0.96	)
Total income (loss) from investment operations					2.78				2.04				0.76				2.03				(0.89	)
Less dividends and distributions from:
Net investment income					(0.24	)			(0.15	)		—				—				—
Net realized gain					(3.29	)			(2.06	)			(1.64	)			(0.18	)			(0.01	)
Total dividends and distributions					(3.53	)			(2.21	)			(1.64	)			(0.18	)			(0.01	)
Net asset value, end of period				$	13.08			$	13.83			$	14.00			$	14.88			$	13.03
Total Return†					21.28	%			14.89	%			4.73	%			15.64	%			(6.39	)%
Ratios to Average Net Assets(1):
Total expenses (before expense offset)					1.33	%			1.30	%			1.27	%			1.22	%			1.23	%
Net investment income					0.65	%			1.24	%			0.99	%			0.62	%			0.55	%
Supplemental Data:
Net assets, end of period, in thousands				$	94,458			$	87,882			$	77,488			$	6,725			$	6,264
Portfolio turnover rate					28	%			51	%			58	%			99	%			158	%

‡ The per share amounts were computed using an average number of shares outstanding during the period.

† Does not reflect the deduction of sales charge. Calculated based on the net asset value as of the last business day of the period.

(1) Reflects overall Fund ratios for investment income and non-class specific expenses.

See Notes to Financial Statements

25

Morgan Stanley Financial Services Trust

Financial Highlights continued

				FOR THE YEAR ENDED MAY 31,
				2007				2006				2005				2004				2003
Class B Shares
Selected Per Share Data:
Net asset value, beginning of period				$	12.75			$	13.02			$	14.04			$	12.40			$	13.35
Income (loss) from investment operations:
Net investment income (loss)‡					(0.02	)			0.06				0.03				(0.02	)			(0.02	)
Net realized and unrealized gain (loss)					2.47				1.73				0.59				1.84				(0.92	)
Total income (loss) from investment operations					2.45				1.79				0.62				1.82				(0.94	)
Less dividends and distributions from:
Net investment income					(0.04	)		—				—				—				—
Net realized gain					(3.29	)			(2.06	)			(1.64	)			(0.18	)			(0.01	)
Total dividends and distributions					(3.33	)			(2.06	)			(1.64	)			(0.18	)			(0.01	)
Net asset value, end of period				$	11.87			$	12.75			$	13.02			$	14.04			$	12.40
Total Return†					20.31	%			14.01	%			3.91	%			14.82	%			(7.04	)%
Ratios to Average Net Assets(1):
Total expenses (before expense offset)					2.09	%			2.06	%			2.02	%			1.98	%			1.99	%
Net investment income (loss)					(0.11	)%			0.48	%			0.23	%			(0.14	)%			(0.21	)%
Supplemental Data:
Net assets, end of period, in thousands				$48,861				$72,796				$123,043				$263,666				$286,304
Portfolio turnover rate					28	%			51	%			58	%			99	%			158	%

‡ The per share amounts were computed using an average number of shares outstanding during the period.

† Does not reflect the deduction of sales charge. Calculated based on the net asset value as of the last business day of the period.

(1) Reflects overall Fund ratios for investment income and non-class specific expenses.

See Notes to Financial Statements

26

Morgan Stanley Financial Services Trust

Financial Highlights continued

				FOR THE YEAR ENDED MAY 31,
				2007				2006				2005				2004				2003
Class C Shares
Selected Per Share Data:
Net asset value, beginning of period				$	12.80			$	13.06			$	14.07			$	12.42			$	13.36
Income (loss) from investment operations:
Net investment income (loss) ‡					(0.01	)			0.07				0.04				(0.02	)			(0.01	)
Net realized and unrealized gain (loss)					2.47				1.73				0.59				1.85				(0.92	)
Total income (loss) from investment operations					2.46				1.80				0.63				1.83				(0.93	)
Less dividends and distributions from:
Net investment income					(0.10	)		—				—				—				—
Net realized gain					(3.29	)			(2.06	)			(1.64	)			(0.18	)			(0.01	)
Total dividends and distributions					(3.39	)			(2.06	)			(1.64	)			(0.18	)			(0.01	)
Net asset value, end of period				$	11.87			$	12.80			$	13.06			$	14.07			$	12.42
Total Return†					20.35	%			14.04	%			3.97	%			14.88	%			(6.96	)%
Ratios to Average Net Assets(1):
Total expenses (before expense offset)					2.09	%			2.05	%			1.94	%			1.96	%			1.88	%
Net investment income (loss)					(0.11	)%			0.49	%			0.31	%			(0.12	)%			(0.10	)%
Supplemental Data:
Net assets, end of period, in thousands				$	6,872			$	8,028			$	9,496			$	11,944			$	11,175
Portfolio turnover rate					28	%			51	%			58	%			99	%			158	%

‡ The per share amounts were computed using an average number of shares outstanding during the period.

† Does not reflect the deduction of sales charge. Calculated based on the net asset value as of the last business day of the period.

(1) Reflects overall Fund ratios for investment income and non-class specific expenses.

See Notes to Financial Statements

27

Morgan Stanley Financial Services Trust

Financial Highlights continued

				FOR THE YEAR ENDED MAY 31,
				2007				2006				2005				2004				2003
Class D Shares
Selected Per Share Data:
Net asset value, beginning of period				$	14.06			$	14.17			$	15.01			$	13.11			$	13.98
Income (loss) from investment operations:
Net investment income‡					0.13				0.22				0.18				0.13				0.10
Net realized and unrealized gain (loss)					2.73				1.89				0.62				1.95				(0.96	)
Total income (loss) from investment operations					2.86				2.11				0.80				2.08				(0.86	)
Less dividends and distributions from:
Net investment income					(0.27	)			(0.16	)		—				—				—
Net realized gain					(3.29	)			(2.06	)			(1.64	)			(0.18	)			(0.01	)
Total dividends and distributions					(3.56	)			(2.22	)			(1.64	)			(0.18	)			(0.01	)
Net asset value, end of period				$	13.36			$	14.06			$	14.17			$	15.01			$	13.11
Total Return†					21.56	%			15.20	%			4.97	%			15.93	%			(6.15	)%
Ratios to Average Net Assets(1):
Total expenses (before expense offset)					1.09	%			1.06	%			1.02	%			0.98	%			0.99	%
Net investment income					0.89	%			1.48	%			1.25	%			0.86	%			0.79	%
Supplemental Data:
Net assets, end of period, in thousands				$	8,316			$	7,828			$	22,848			$	31,046			$	37,032
Portfolio turnover rate					28	%			51	%			58	%			99	%			158	%

‡ The per share amounts were computed using an average number of shares outstanding during the period.

† Calculated based on the net asset value as of the last business day of the period.

(1) Reflects overall Fund ratios for investment income and non-class specific expenses.

See Notes to Financial Statements

28

Morgan Stanley Financial Services Trust

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Trustees of
Morgan Stanley Financial Services Trust:

We have audited the accompanying statement of assets and liabilities of Morgan Stanley Financial Services Trust (the ‘‘Fund’’), including the portfolio of investments, as of May 31, 2007, 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. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits 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 May 31, 2007, by correspondence with the custodian and brokers; where replies were not received from brokers, we performed other auditing procedures. 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 Financial Services Trust as of May 31, 2007, 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
July 20, 2007

29

Morgan Stanley Financial Services Trust

Trustee and Officer Information  (unaudited)

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 Independent Trustee**

Other Directorships Held by Independent Trustee

Frank L. Bowman (62) c/o Kramer Levin Naftalis & Frankel LLP Counsel to the Independent Trustees 1177 Avenue of the Americas New York, NY 10036

Trustee

Since August 2006

President and Chief Executive Officer, Nuclear Energy Institute (policy organization) (since February 2005); Director or Trustee of various Retail Funds and Institutional Funds (since August 2006); Chairperson of the Insurance Sub-Committee of the Valuation, Insurance and Compliance Committee (since February 2007); 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.

171

Director of the National Energy Foundation, the U.S. Energy Association, the American Council for Capital Formation and the Armed Services YMCA of the USA.

Michael Bozic (66) c/o Kramer Levin Naftalis & Frankel LLP Counsel to the Independent Trustees 1177 Avenue of the Americas New York, NY 10036

Trustee

Since April 1994

Private investor; Chairperson of the Valuation, Insurance and Compliance Committee (since October 2006); Director 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.

173

Director of various business organizations.

30

Morgan Stanley Financial Services Trust

Trustee and Officer Information  (unaudited) 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 Independent Trustee**

Other Directorships Held by Independent Trustee

Kathleen A. Dennis (53) c/o Kramer Levin Naftalis & Frankel LLP Counsel to the Independent Trustees 1177 Avenue of the Americas New York, NY 10036

Trustee

Since August 2006

President, Cedarwood Associates (mutual fund consulting) (since July 2006); Chairperson of the Money Market and Alternatives Sub-Committee of the Investment Committee (since October 2006) and Director or Trustee of various Retail Funds and Institutional Funds (since August 2006); formerly, Senior Managing Director of Victory Capital Management (1993-2006).

171

None.

Dr. Manuel H. Johnson (58) c/o Johnson Smick Group, Inc. 888 16th Street, N.W. Suite 740 Washington, D.C. 20006

Trustee

Since July 1991

Senior Partner, Johnson Smick International, Inc. (consulting firm); Chairperson of the Investment Committee (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) (international economic commission); formerly, Chairperson 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.

173

Director of NVR, Inc. (home construction); Director of Evergreen Energy.

Joseph J. Kearns (64) c/o Kearns & Associates LLC PMB754 23852 Pacific Coast Highway Malibu, CA 90265

Trustee

Since August 1994

President, Kearns & Associates LLC (investment consulting); Chairperson of the Audit Committee (since October 2006) 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.

174

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

31

Morgan Stanley Financial Services Trust

Trustee and Officer Information  (unaudited) 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 Independent Trustee**

Other Directorships Held by Independent Trustee

Michael F. Klein (48) c/o Kramer Levin Naftalis & Frankel LLP Counsel to the Independent Trustees 1177 Avenue of the Americas New York, NY 10036

Trustee

Since August 2006

Managing Director, Aetos Capital, LLC (since March 2000) and Co-President, Aetos Alternatives Management, LLC (since January 2004); Chairperson of the Fixed-Income Sub-Committee of the Investment Committee (since October 2006) and Director or Trustee of various Retail Funds and Institutional Funds (since August 2006); 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).

171

Director of certain investment funds managed or sponsored by Aetos Capital, LLC. Director of Sanitized AG and Sanitized Marketing AG (specialty chemicals).

Michael E. Nugent (71) c/o Triumph Capital, L.P. 445 Park Avenue New York, NY 10022

Chairperson of the Board and Trustee

Chairperson of the Boards since July 2006 and Trustee since July 1991

General Partner of Triumph Capital, L.P. (private investment partnership); Chairperson of the Boards of the Retail Funds and Institutional Funds (since July 2006) and Director or Trustee of the Retail Funds (since July 1991) and the Institutional Funds (since July 2001); formerly, Chairperson of the Insurance Committee (until July 2006), and Vice President, Bankers Trust Company and BT Capital Corporation (1984-1988).

173

None.

W. Allen Reed (60) c/o Kramer Levin Naftalis & Frankel LLP Counsel to the Independent Trustees 1177 Avenue of the Americas New York, NY 10036

Trustee

Since August 2006

Chairperson of the Equity Sub-Committee of the Investment Committee (since October 2006) and Director or Trustee of various Retail Funds and Institutional Funds (since August 2006); formerly, 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).

171

Director of GMAC (financial services) and Temple-Inland Industries (packaging, banking and forest products); Director of Legg Mason, Inc. and Director of the Auburn University Foundation.

Fergus Reid (74) c/o Lumelite Plastics Corporation 85 Charles Colman Blvd. Pawling, NY 12564

Trustee

Since June 1992

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

174

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

32

Morgan Stanley Financial Services Trust

Trustee and Officer Information  (unaudited) continued

Interested Trustee:

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 Interested Trustee**

Other Directorships Held by Interested Trustee

James F. Higgins (59) c/o Morgan Stanley Trust Harborside Financial Center Plaza Two Jersey City, NJ 07311

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).

173

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 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 May 31, 2007.

33

Morgan Stanley Financial Services Trust

Trustee and Officer Information  (unaudited) continued

Executive 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

Ronald E. Robison (68) 1221 Avenue of the Americas New York, NY 10020

President and Principal Executive Officer

President since September 2005 and Principal Executive Officer since May 2003

President (since September 2005) and Principal Executive Officer (since May 2003) of funds in the Fund Complex; President (since September 2005) and Principal Executive Officer (since May 2003) of the Van Kampen Funds; Managing Director, Director and/or Officer of the Investment Adviser and various entities affiliated with the Investment Adviser; 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 Administrative Officer of the Investment Adviser; Chief Administrative Officer of Morgan Stanley Services Company Inc.

J. David Germany (52) Morgan Stanley Investment Management Limited 20 Bank Street Canary Wharf, London, England E144AD

Vice President

Since February 2006

Managing Director and (since December 2005) Chief Investment Officer – Global Fixed Income of Morgan Stanley Investment Management; Managing Director and Director of Morgan Stanley Investment Management Limited; Vice President of the Retail Funds and Institutional Funds (since February 2006).

Dennis F. Shea (54) 1221 Avenue of the Americas New York, NY 10020

Vice President

Since February 2006

Managing Director and (since February 2006) Chief Investment Officer – Global Equity of Morgan Stanley Investment Management; Vice President of the Retail Funds and Institutional Funds (since February 2006). Formerly, Managing Director and Director of Global Equity Research at Morgan Stanley.

Amy R. Doberman (45) 1221 Avenue of the Americas New York, NY 10020

Vice President

Since July 2004

Managing Director and General Counsel, U.S. Investment Management of Morgan Stanley Investment Management (since 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 (43) 1221 Avenue of the Americas New York, NY 10020

Chief Compliance Officer

Since October 2004

Managing Director and Global Director of Compliance for Morgan Stanley Investment Management (since April 2001); Managing Director and Chief Compliance Officer of Morgan Stanley Investment Management. Formerly, U.S. Director of Compliance (October 2004 to April 2007) and Assistant Secretary and Assistant General Counsel of the Retail Funds.

Stefanie V. Chang Yu (40) 1221 Avenue of the Americas New York, NY 10020

Vice President

Since December 1997

Executive Director of the Investment Adviser and various entities affiliated with the Investment Adviser; Vice 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.

Francis J. Smith (41) c/o Morgan Stanley Trust Harborside Financial Center Plaza Two Jersey City, NJ 07311

Treasurer and Chief Financial Officer

Treasurer since July 2003 and Chief Financial Officer since September 2002

Executive Director of the Investment Adviser and various entities affiliated with the Investment Adviser; Treasurer and Chief Financial Officer of the Retail Funds (since July 2003). Formerly, Vice President of the Retail Funds (September 2002 to July 2003).

34

Morgan Stanley Financial Services Trust

Trustee and Officer Information  (unaudited) 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

Mary E. Mullin (40) 1221 Avenue of the Americas New York, NY 10020

Secretary

Since June 1999

Executive Director of the Investment Adviser and various entities affiliated with the Investment Adviser; Secretary of the Retail Funds (since July 2003) and the Institutional Funds (since June 1999).

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

2007 Federal Tax Notice (unaudited)

During the fiscal year ended May 31, 2007, 100% of the ordinary dividends paid by the Fund qualified for the dividends received deduction available to corporations. Additionally, please note that 100% of the Fund’s ordinary dividends paid during the fiscal year ended May 31, 2007 qualified for the lower income tax rate available to individuals under the Jobs and Growth Tax Relief Reconciliation Act of 2003.

Also during the fiscal year ended May 31, 2007, the Fund paid to its shareholders $3.16 per share from long-term capital gains.

35

Trustees Frank L. Bowman Michael Bozic Kathleen A. Dennis 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 Chairperson of the Board Ronald E. Robison President and Principal Executive Officer J. David Germany Vice President Dennis F. Shea 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 Legal Counsel Clifford Chance US LLP 31 West 52nd Street New York, New York 10019 Counsel to the Independent Trustees Kramer Levin Naftalis & Frankel LLP 1177 Avenue of the Americas New York, New York 10036 Investment Adviser Morgan Stanley Investment Advisors Inc. 522 Fifth Avenue New York, New York 10036 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. Morgan Stanley Distributors Inc., member NASD. © 2007 Morgan Stanley FSVANN-IU07-02244P-Y05/07		MORGAN STANLEY FUNDS
		Morgan Stanley Financial Services Trust Annual Report May 31, 2007

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 12 A.

     (2) Not applicable.

     (3) Not applicable.

Item 3. Audit Committee Financial Expert.

The Fund's Board of Trustees has determined that Joseph J. Kearns, an
"independent" Trustee, is an "audit committee financial expert" serving on its
audit committee. 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


                                        2



Item 4. Principal Accountant Fees and Services.

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

2007

                               REGISTRANT    COVERED ENTITIES(1)
                               ----------    -------------------
   AUDIT FEES...............     $37,300            N/A
   NON-AUDIT FEES
      AUDIT-RELATED FEES....     $   531 (2)        $4,836,000 (2)
      TAX FEES..............     $ 5,680 (3)        $  621,000 (4)
      ALL OTHER FEES........     $    --            $       --
   TOTAL NON-AUDIT FEES.....     $ 6,211            $5,457,000

   TOTAL....................     $43,511            $5,457,000

2006

                               REGISTRANT    COVERED ENTITIES(1)
                               ----------    -------------------
   AUDIT FEES...............     $35,811            N/A
   NON-AUDIT FEES
      AUDIT-RELATED FEES....     $   531 (2)        $5,190,300 (2)
      TAX FEES..............     $ 5,248 (3)        $2,044,491 (4)
      ALL OTHER FEES........     $    --            $       --
   TOTAL NON-AUDIT FEES.....     $ 5,779            $7,234,791

   TOTAL....................     $41,590            $7,234,791

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.


                                        3



(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.


                                        4



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


                                        5



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


                                        6



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


                                       7



     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: Joseph Kearns, Michael Nugent and Allen Reed.

(b) Not applicable.

Item 6. Schedule of Investments

Refer to Item 1.


                                       8



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.


                                       9



                                   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 Financial Services Trust


/s/ Ronald E. Robison
----------------------------------------
Ronald E. Robison
Principal Executive Officer
July 19, 2007

     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
July 19, 2007


/s/ Francis Smith
----------------------------------------
Francis Smith
Principal Financial Officer
July 19, 2007


                                       10



                                                                    EXHIBIT 12 A

      CODE OF ETHICS FOR PRINCIPAL EXECUTIVE AND SENIOR FINANCIAL OFFICERS
            ADOPTED SEPTEMBER 28, 2004, AS AMENDED SEPTEMBER 20, 2005

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

     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.


                                       11



     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);

     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


                                       12



          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 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,


                                       13



          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;

     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;


----------
(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."


                                       14



     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

     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 A

                                    FUND LIST

                                       AT
                                 MARCH 31, 2007

RETAIL FUNDS

OPEN-END RETAIL FUNDS

     TAXABLE MONEY MARKET FUNDS

1.   Active Assets Government Securities Trust ("AA Government")
2.   Active Assets Institutional Government Securities Trust ("AA Institutional
     Government")
3.   Active Assets Institutional Money Trust ("AA Institutional Money")
4.   Active Assets Money Trust ("AA Money")
5.   Morgan Stanley Liquid Asset Fund Inc. ("Liquid Asset")
6.   Morgan Stanley U.S. Government Money Market Trust ("Government Money")

     TAX-EXEMPT MONEY MARKET FUNDS

7.   Active Assets California Tax-Free Trust ("AA California")
8.   Active Assets Tax-Free Trust ("AA Tax-Free")
9.   Morgan Stanley California Tax-Free Daily Income Trust ("California Tax-Free
     Daily")
10.  Morgan Stanley New York Municipal Money Market Trust ("New York Money")
11.  Morgan Stanley Tax-Free Daily Income Trust ("Tax-Free Daily")

     EQUITY FUNDS

12.  Morgan Stanley Allocator Fund ("Allocator Fund")+
13.  Morgan Stanley Capital Opportunities Trust ("Capital Opportunities")+
14.  Morgan Stanley Developing Growth Securities Trust ("Developing Growth")+
15.  Morgan Stanley Dividend Growth Securities Inc. ("Dividend Growth")+
16.  Morgan Stanley Equally-Weighted S&P 500 Fund ("Equally-Weighted S&P 500")+
17.  Morgan Stanley European Equity Fund Inc. ("European Equity")+
18.  Morgan Stanley Financial Services Trust ("Financial Services")+
19.  Morgan Stanley Focus Growth Fund ("Focus Growth")+
20.  Morgan Stanley Fundamental Value Fund ("Fundamental Value")+
21.  Morgan Stanley Global Advantage Fund ("Global Advantage")+
22.  Morgan Stanley Global Dividend Growth Securities ("Global Dividend
     Growth")+
23.  Morgan Stanley Health Sciences Trust ("Health Sciences")+
24.  Morgan Stanley Institutional Strategies Fund ("Institutional Strategies")+


                                       17



25.  Morgan Stanley International Fund ("International Fund")+
26.  Morgan Stanley International SmallCap Fund ("International SmallCap")+
27.  Morgan Stanley International Value Equity Fund ("International Value")+
28.  Morgan Stanley Japan Fund ("Japan Fund")+
29.  Morgan Stanley Mid-Cap Value Fund (Mid-Cap Value")+
30.  Morgan Stanley Multi-Asset Class Fund ("Multi-Asset Class")+
31.  Morgan Stanley Nasdaq-100 Index Fund ("Nasdaq-100")+
32.  Morgan Stanley Natural Resource Development Securities Inc. ("Natural
     Resource")+
33.  Morgan Stanley Pacific Growth Fund Inc. ("Pacific Growth")+
34.  Morgan Stanley Real Estate Fund ("Real Estate")+
35.  Morgan Stanley Small-Mid Special Value Fund (Small-Mid Special Value")+
36.  Morgan Stanley S&P 500 Index Fund ("S&P500 Index")+
37.  Morgan Stanley Special Growth Fund ("Special Growth")+
38.  Morgan Stanley Special Value Fund ("Special Value")+
39.  Morgan Stanley Technology Fund ("Technology")+
40.  Morgan Stanley Total Market Index Fund ("Total Market Index")+
41.  Morgan Stanley Utilities Fund ("Utilities Fund")+
42.  Morgan Stanley Value Fund ("Value Fund")+

     BALANCED FUNDS

43.  Morgan Stanley Balanced Fund ("Balanced")+

     ASSET ALLOCATION FUND

44.  Morgan Stanley Strategist Fund ("Strategist Fund")+

     TAXABLE FIXED-INCOME FUNDS

45.  Morgan Stanley Convertible Securities Trust ("Convertible Securities")+
46.  Morgan Stanley Flexible Income Trust ("Flexible Income")+
47.  Morgan Stanley Income Trust ("Income Trust")+
48.  Morgan Stanley High Yield Securities Inc. ("High Yield Securities")+
49.  Morgan Stanley Limited Duration Fund ("Limited Duration Fund")
50.  Morgan Stanley Limited Duration U.S. Government Trust ("Limited Duration
     U.S. Government")
51.  Morgan Stanley Mortgage Securities Trust ("Mortgage Securities")+
52.  Morgan Stanley U.S. Government Securities Trust ("Government Securities")+

     TAX-EXEMPT FIXED-INCOME FUNDS

53.  Morgan Stanley California Tax-Free Income Fund ("California Tax-Free")+
54.  Morgan Stanley Limited Term Municipal Trust ("Limited Term Municipal")
55.  Morgan Stanley New York Tax-Free Income Fund ("New York Tax-Free")+
56.  Morgan Stanley Tax-Exempt Securities Trust ("Tax-Exempt Securities")+


                                       18



     SPECIAL PURPOSE FUNDS

57.  Morgan Stanley Select Dimensions Investment Series ("Select Dimensions")

     o    Balanced Growth Portfolio
     o    Capital Opportunities Portfolio
     o    Developing Growth Portfolio
     o    Dividend Growth Portfolio
     o    Equally-Weighted S&P 500 Portfolio
     o    Flexible Income Portfolio
     o    Focus Growth Portfolio
     o    Global Equity Portfolio
     o    Growth Portfolio
     o    Money Market Portfolio
     o    Utilities Portfolio

58.  Morgan Stanley Variable Investment Series ("Variable Investment")

     o    Aggressive Equity Portfolio
     o    Dividend Growth Portfolio
     o    Equity Portfolio
     o    European Equity Portfolio
     o    Global Advantage Portfolio
     o    Global Dividend Growth Portfolio
     o    High Yield Portfolio
     o    Income Builder Portfolio
     o    Limited Duration Portfolio
     o    Money Market Portfolio
     o    Income Plus Portfolio
     o    S&P 500 Index Portfolio
     o    Strategist Portfolio
     o    Utilities Portfolio

CLOSED-END RETAIL FUNDS

     TAXABLE FIXED-INCOME CLOSED-END FUNDS

59.  Morgan Stanley Income Securities Inc. ("Income Securities")
60.  Morgan Stanley Prime Income Trust ("Prime Income")

     TAX-EXEMPT FIXED-INCOME CLOSED-END FUNDS

61.  Morgan Stanley California Insured Municipal Income Trust ("California
     Insured Municipal")


                                       19



62.  Morgan Stanley California Quality Municipal Securities ("California Quality
     Municipal")
63.  Morgan Stanley Insured California Municipal Securities ("Insured California
     Securities")
64.  Morgan Stanley Insured Municipal Bond Trust ("Insured Municipal Bond")
65.  Morgan Stanley Insured Municipal Income Trust ("Insured Municipal Income")
66.  Morgan Stanley Insured Municipal Securities ("Insured Municipal
     Securities")
67.  Morgan Stanley Insured Municipal Trust ("Insured Municipal Trust")
68.  Morgan Stanley Municipal Income Opportunities Trust ("Municipal
     Opportunities")
69.  Morgan Stanley Municipal Income Opportunities Trust II ("Municipal
     Opportunities II")
70.  Morgan Stanley Municipal Income Opportunities Trust III ("Municipal
     Opportunities III")
71.  Morgan Stanley Municipal Premium Income Trust ("Municipal Premium")
72.  Morgan Stanley New York Quality Municipal Securities ("New York Quality
     Municipal")
73.  Morgan Stanley Quality Municipal Income Trust ("Quality Municipal Income")
74.  Morgan Stanley Quality Municipal Investment Trust ("Quality Municipal
     Investment")
75.  Morgan Stanley Quality Municipal Securities ("Quality Municipal
     Securities")

+- Denotes Retail Multi-Class Fund

                               INSTITUTIONAL FUNDS

OPEN-END INSTITUTIONAL FUNDS

1.   Morgan Stanley Institutional Fund, Inc. ("Institutional Fund Inc.")

     Active Portfolios:

          o    Active International Allocation Portfolio
          o    Emerging Markets Portfolio
          o    Emerging Markets Debt Portfolio
          o    Focus Equity Portfolio
          o    Global Franchise Portfolio
          o    Global Real Estate Portfolio
          o    Global Value Equity Portfolio
          o    International Equity Portfolio
          o    International Growth Equity Portfolio
          o    International Magnum Portfolio
          o    International Real Estate Portfolio
          o    International Small Cap Portfolio
          o    Large Cap Relative Value Portfolio
          o    Money Market Portfolio
          o    Municipal Money Market Portfolio


                                       20



          o    Small Company Growth Portfolio
          o    Systematic Active large Cap Core Portfolio
          o    Systematic Active Small Cap Core Portfolio
          o    Systematic Active Small Cap Growth Portfolio
          o    Systematic Active Small Cap Value Portfolio
          o    U.S. Large Cap Growth Portfolio
          o    U.S. Real Estate Portfolio

     Inactive Portfolios*:

          o    China Growth Portfolio
          o    Gold Portfolio
          o    Large Cap Relative Value Portfolio
          o    MicroCap Portfolio
          o    Mortgage-Backed Securities Portfolio
          o    Municipal Bond Portfolio
          o    U.S. Equity Plus Portfolio

2.   Morgan Stanley Institutional Fund Trust ("Institutional Fund Trust")

     Active Portfolios:

          o    Advisory Portfolio
          o    Advisory Foreign Fixed Income II Portfolio
          o    Advisory Foreign Fixed Income Portfolio
          o    Balanced Portfolio
          o    Core Fixed Income Portfolio
          o    Core Plus Fixed Income Portfolio
          o    Equity Portfolio
          o    Equity Plus Portfolio
          o    High Yield Portfolio
          o    Intermediate Duration Portfolio
          o    International Fixed Income Portfolio
          o    Investment Grade Fixed Income Portfolio
          o    Limited Duration Portfolio
          o    Long Duration Fixed Income Portfolio
          o    Mid-Cap Growth Portfolio
          o    Municipal Portfolio
          o    U.S. Mid-Cap Value Portfolio
          o    U.S. Small-Cap Value Portfolio
          o    Value Portfolio


----------
*    Have not commenced or have ceased operations


                                       21



     Inactive Portfolios*:

          o    Balanced Plus Portfolio
          o    Growth Portfolio
          o    Investment Grade Credit Advisory Portfolio
          o    Mortgage Advisory Portfolio
          o    New York Municipal Portfolio
          o    Targeted Duration Portfolio
          o    Value II Portfolio

3.   The Universal Institutional Funds, Inc. ("Universal Funds")

     Active Portfolios:

          o    Core Plus Fixed Income Portfolio
          o    Emerging Markets Debt Portfolio
          o    Emerging Markets Equity Portfolio
          o    Equity and Income Portfolio
          o    Equity Growth Portfolio
          o    Global Franchise Portfolio
          o    Global Real Estate Portfolio
          o    Global Value Equity Portfolio
          o    High Yield Portfolio
          o    International Growth Equity Portfolio
          o    International Magnum Portfolio
          o    Mid-Cap Growth Portfolio
          o    Small Company Growth Portfolio
          o    U.S. Mid-Cap Value Portfolio
          o    U.S. Real Estate Portfolio
          o    Value Portfolio

     Inactive Portfolios*:

          o    Balanced Portfolio
          o    Capital Preservation Portfolio
          o    Core Equity Portfolio
          o    International Fixed Income Portfolio
          o    Investment Grade Fixed Income Portfolio
          o    Latin American Portfolio
          o    Multi-Asset Class Portfolio
          o    Targeted Duration Portfolio

4.   Morgan Stanley Institutional Liquidity Funds ("Liquidity Funds")


----------


                                       22



     Active Portfolios:

          o    Government Portfolio
          o    Money Market Portfolio
          o    Prime Portfolio
          o    Tax-Exempt Portfolio
          o    Treasury Portfolio

     Inactive Portfolios*:

          o    Government Securities Portfolio
          o    Treasury Securities Portfolio

CLOSED-END INSTITUTIONAL FUNDS

5.   Morgan Stanley Asia-Pacific Fund, Inc. ("Asia-Pacific Fund")
6.   Morgan Stanley Eastern Europe Fund, Inc. ("Eastern Europe")
7.   Morgan Stanley Emerging Markets Debt Fund, Inc. ("Emerging Markets Debt")
8.   Morgan Stanley Emerging Markets Fund, Inc. ("Emerging Markets Fund")
9.   Morgan Stanley Global Opportunity Bond Fund, Inc. ("Global Opportunity")
10.  Morgan Stanley High Yield Fund, Inc. ("High Yield Fund")
11.  The Latin American Discovery Fund, Inc. ("Latin American Discovery")
12   The Malaysia Fund, Inc. ("Malaysia Fund")
13.  The Thai Fund, Inc. ("Thai Fund")
14.  The Turkish Investment Fund, Inc. ("Turkish Investment")
15.  India Investment Fund ("India Investment")

CLOSED-END FUND OF HEDGE FUNDS

16.  Morgan Stanley Institutional Fund of Hedge Funds ("Fund of Hedge Funds")

                                 IN REGISTRATION

MORGAN STANLEY RETAIL FUNDS

1.   Morgan Stanley American Franchise Fund

FUNDS OF HEDGE FUNDS

1.   Morgan Stanley Absolute Return Fund
2.   Morgan Stanley Institutional Fund of Hedge Funds II


----------
*    Have not commenced or have ceased operations


                                       23



                                    EXHIBIT B

                               INSTITUTIONAL FUNDS
                                COVERED OFFICERS

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

                                  RETAIL FUNDS
                                COVERED OFFICERS

          Ronald E. Robison -President and Principal Executive Officer
              Francis Smith - Chief Financial Officer and Treasurer

                   MORGAN STANLEY INDIA INVESTMENT FUND, INC.
                                COVERED OFFICERS

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


                                       24



                                    EXHIBIT C

                                 GENERAL COUNSEL

                                 Amy R. Doberman


                                       25



                                                                   EXHIBIT 12 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 Financial
     Services 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) and internal
     control over financial reporting (as defined in Rule 30a-3(d) 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)   designed such internal control over financial reporting, or caused such
     internal control over financial reporting to be designed under our
     supervision, to provide reasonable assurance regarding the reliability of
     financial reporting and the preparation of financial statements for
     external purposes in accordance with generally accepted accounting
     principles;

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 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; 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):


                                       26



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

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: July 19, 2007


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


                                       27



                                                                   EXHIBIT 12 B2

                  CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

                                 CERTIFICATIONS

I, Francis Smith, certify that:

1.   I have reviewed this report on Form N-CSR of Morgan Stanley Financial
     Services 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) and internal
     control over financial reporting (as defined in Rule 30a-3(d) 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)   designed such internal control over financial reporting, or caused such
     internal control over financial reporting to be designed under our
     supervision, to provide reasonable assurance regarding the reliability of
     financial reporting and the preparation of financial statements for
     external purposes in accordance with generally accepted accounting
     principles;

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 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; 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):


                                       28



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

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: July 19, 2007


                                        /s/ Francis Smith
                                        ----------------------------------------
                                        Francis Smith
                                        Principal Financial Officer


                                       29


                            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 Financial Services Trust

     In connection with the Report on Form N-CSR (the "Report") of the
above-named issuer for the period ended May 31, 2007 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: July 19, 2007                     /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 Financial Services Trust and will be retained by
Morgan Stanley Financial Services Trust and furnished to the Securities and
Exchange Commission or its staff upon request.


                                       30



                            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 Financial Services Trust

     In connection with the Report on Form N-CSR (the "Report") of the
above-named issuer for the period ended May 31, 2007 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: July 19, 2007                     /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 Financial Services Trust and will be retained by
Morgan Stanley Financial Services Trust and furnished to the Securities and
Exchange Commission or its staff upon request.


                                       31