N-CSR 1 a15-20509_1ncsr.htm N-CSR

 

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

811-03980

 

Morgan Stanley Institutional Fund Trust

(Exact name of registrant as specified in charter)

 

522 Fifth Avenue, New York, New York

 

10036

(Address of principal executive offices)

 

(Zip code)

 

John H. Gernon

522 Fifth Avenue, New York, New York 10036

(Name and address of agent for service)

 

Registrant’s telephone number, including area code:

212-296-0289

 

 

Date of fiscal year end:

September 30,

 

 

Date of reporting period:

September 30, 2015

 

 



 

Item 1 - Report to Shareholders

 



INVESTMENT MANAGEMENT

Morgan Stanley Institutional Fund Trust

Core Fixed Income Portfolio

Annual Report

September 30, 2015




Morgan Stanley Institutional Fund Trust

Annual Report — September 30, 2015

Table of Contents

Shareholders' Letter

   

2

   

Expense Example

   

3

   

Investment Overview

   

4

   

Portfolio of Investments

   

7

   

Statement of Assets and Liabilities

   

11

   

Statement of Operations

   

13

   

Statements of Changes in Net Assets

   

14

   

Financial Highlights

   

15

   

Notes to Financial Statements

   

19

   

Report of Independent Registered Public Accounting Firm

   

28

   

Investment Advisory Agreement Approval

   

29

   

U.S. Privacy Policy

   

31

   

Trustee and Officer Information

   

34

   

This report is authorized for distribution only when preceded or accompanied by prospectuses of the Morgan Stanley Institutional Fund Trust. To receive a prospectus and/or statement of additional information (SAI), which contains more complete information such as investment objectives, charges, expenses, policies for voting proxies, risk considerations, and describes in detail each of the Portfolio's investment policies to the prospective investor, please call toll free 1 (800) 548-7786. Please read the prospectuses carefully before you invest or send money.

Additionally, you can access portfolio information including performance, characteristics, and investment team commentary through Morgan Stanley Investment Management's website: www.morganstanley.com/im.

Market forecasts provided in this report may not necessarily come to pass. 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 Portfolio in the future. There is no assurance that a Portfolio will achieve its investment objective. Portfolios are subject to market risk, which is the possibility that market values of securities owned by the Portfolio will decline and, therefore, the value of the Portfolio's shares may be less than what you paid for them. Accordingly, you can lose money investing in this Portfolio. Please see the prospectus for more complete information on investment risks.


1



Morgan Stanley Institutional Fund Trust

Annual Report — September 30, 2015

Shareholders' Letter (unaudited)

Dear Shareholders,

We are pleased to provide this Annual report, in which you will learn how your investment in Core Fixed Income Portfolio (the "Portfolio") performed during the latest twelve-month period.

Morgan Stanley Investment Management is a client-centric, investor-led organization. Our global presence, intellectual capital, and breadth of products and services enable us to partner with investors to meet the evolving challenges of today's financial markets. We aim to deliver superior investment service and to empower our clients to make the informed decisions that help them reach their investment goals.

As always, we thank you for selecting Morgan Stanley Investment Management, and look forward to working with you in the months and years ahead.

Sincerely,

John H. Gernon
President and Principal Executive Officer

October 2015


2



Morgan Stanley Institutional Fund Trust

Annual Report — September 30, 2015

Expense Example (unaudited)

Core Fixed Income Portfolio

As a shareholder of the Portfolio, you may incur two types of costs: (1) transactional costs, including sales charge (loads) on purchase payments; and (2) ongoing costs, including advisory fees, administration fees, distribution and shareholder services fees; and other Portfolio expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other mutual funds.

This example is based on an investment of $1,000 invested at the beginning of the six-month period ended September 30, 2015 and held for the entire six-month period (unless otherwise noted).

Actual Expenses

The table below provides information about actual account values and actual expenses. You may use the information in this table, 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 table under the heading entitled "Actual Expenses Paid During Period" to estimate the expenses you paid on your account during this period.

Hypothetical Example for Comparison Purposes

The table below provides information about hypothetical account values and hypothetical expenses based on the Portfolio's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Portfolio'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 costs of investing in the Portfolio 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, if applicable). Therefore, the information for each class in the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

    Beginning
Account
Value
4/1/15
  Actual Ending
Account
Value
9/30/15
  Hypothetical
Ending Account
Value
  Actual
Expenses
Paid
During
Period
  Hypothetical
Expenses Paid
During Period
  Net
Expense
Ratio
During
Period***
 

Core Fixed Income Portfolio Class I

 

$

1,000.00

   

$

984.30

   

$

1,023.36

   

$

1.69

*

 

$

1.72

*

   

0.34

%

 

Core Fixed Income Portfolio Class A

   

1,000.00

     

980.90

     

1,020.86

     

4.17

*

   

4.26

*

   

0.84

   

Core Fixed Income Portfolio Class L

   

1,000.00

     

979.90

     

1,019.60

     

5.41

*

   

5.52

*

   

1.09

   

Core Fixed Income Portfolio Class C

   

1,000.00

     

981.60

     

1,014.29

     

6.60

**

   

6.71

**

   

1.59

   

*  Expenses are calculated using each Portfolio Class' annualized net expense ratio (as disclosed), multiplied by the average account value over the period, and multiplied by 183/365 (to reflect the most recent one-half year period).

**  Expenses are calculated using the Portfolio Class' annualized net expense ratio (as disclosed), multiplied by the average account value over the period, and multiplied by 153/365 (to reflect the actual days in the period).

***  Annualized.


3



Morgan Stanley Institutional Fund Trust

Annual Report — September 30, 2015

Investment Overview (unaudited)

Core Fixed Income Portfolio

The Core Fixed Income Portfolio seeks above-average total return over a market cycle of three to five years.

Performance

For the fiscal year ended September 30, 2015, the Portfolio's Class I shares had a total return based on net asset value and reinvestment of distributions per share of 1.12%, net of fees. The Portfolio's Class I shares underperformed against the Portfolio's benchmark the Barclays U.S. Aggregate Index (the "Index"), which returned 2.94%.

Factors Affecting Performance

•  Concerns over central bank policy around the world and global issues, such as Greece's debt crisis and China's economic slowdown, kept bond markets fairly turbulent during the period. Risk premia rose substantially in the latter months of the period and asset prices suffered. The rise in risk premia was driven by a continued tightening of financial conditions, catalyzed by a devaluation of the Chinese currency in August. This tightening of financial conditions resulted in falling business confidence and generally weaker-than-expected economic data. These factors drove "risk-off" sentiment and led to a widening of credit spreads, an equity market sell-off and a rally in U.S. Treasuries. Furthermore, to the surprise of many, the Federal Reserve (Fed) kept interest rates unchanged and delivered a more dovish-than-expected policy statement at its September 2015 meeting. As an unintended consequence, markets increasingly worried that the negative impact on the U.S. economy's growth dynamics would warrant a ratcheting down of global growth expectations. This fear drove risk premia even higher. The Fed has communicated that its decision to hike rates will be data dependent, which implies some uncertainty on whether a hike will happen this year. Only with a material recovery in labor market indicators over the next few months would a rate hike likely occur this year.

•  Despite a general increase in yields in first half of the period, over the full 12-month period, 5-, 10-, and 30-year Treasury yields ended 41, 36 and 34 basis points lower, respectively.(i) U.S. 2-year yields ended the period relatively flat at 2 basis points higher.

•  Recovering from a volatile fourth quarter of 2014, high yield credit started 2015 on a positive note, as one of the few fixed income sectors to have positive performance in the first quarter of 2015. However, amid economic and geopolitical worries, the U.S. credit markets endured record amounts of new issuance, which eventually pressured yield spreads wider (and prices lower, as bond prices move inversely to yields). Over the course of 2015, credit spreads in all markets have widened materially and are currently at levels which are typically only seen in periods of economic recession or systemic stress. The spreads observable in the investment grade markets include a material risk premium, and spreads in the high yield market are compensating for a significant uptick in defaults. While it is clear that certain emerging markets are seeing a material risk of recession, the consensus is for the developed world to see moderate growth over the coming year. We believe this growth backdrop, combined with low inflation, is likely to lead to ongoing accommodative monetary policy from the central banks around the world, which should keep defaults low and support credit markets.

•  Another driver of credit spreads is the technical balance between supply and demand. Supply volume has been elevated across many of the credit markets. This has been most apparent in the U.S. investment grade market, where a combination of increased merger and acquisition activity and the fear that an interest rate tightening cycle could increase the future cost of long-term debt financing has caused corporate treasurers to turn to the bond markets. As a result, year-to-date new issue volumes have been running at record pace. This is to a lesser extent also true in the U.S. high yield and European investment grade markets. Along with this high level of issuance, demand has been muted as many yield-oriented investors are awaiting higher yields before committing capital to the market. This mismatch between supply and demand has resulted in a higher liquidity premium, which has contributed to the wider credit spreads.

(i)  Source for U.S. Treasury yields: Bloomberg L.P.


4



Morgan Stanley Institutional Fund Trust

Annual Report — September 30, 2015

Investment Overview (unaudited) (cont'd)

Core Fixed Income Portfolio

•  Despite widening in the latter part of the period, agency mortgage-backed securities (MBS) spreads remain historically expensive. Mortgage rates and prepayment speeds have been range-bound, helping support performance so far, but with the possibility of a Fed rate hike in the coming months, volatility and absolute rate levels could rise and MBS duration extension concerns could return. There is also the additional risk that at some point in 2016 the Fed could end their MBS purchase program, whereby it has been buying 25% to 30% of all new origination.

•  Prior to September, non-agency MBS prices had been resilient to broader credit market declines and had traded more as a function of the strong U.S. housing market. However, prices finally began to weaken as relative spread differences became more pronounced at the end of September. In contrast to the price declines, the fundamental market conditions underlying the non-agency MBS market remain very strong. Home prices rose 0.6% in July (down 0.2% on a seasonally adjusted basis), and were up 5.0% year-on-year from July 2014.(ii) New home sales were up 5.7% in August and up 21.6% from August 2014.(iii) Existing home sales were down 1.4% in August, predominantly due to lack of supply, but were still up 6.1% from August 2014.(iv) The volume of outstanding homes for sale fell to a 4.7-month supply based on current sales volumes, down from 5.0-month supply in July and well below the six-month supply that is historically associated with a balanced housing market.(iii) The U.S. homebuilder confidence index climbed to the highest level since November 2005 as housing supply is historically low and housing demand is steadily improving.(v) U.S. household formation was up 2.25 million year-on-year as of June, roughly double the long-term average of roughly 1.15 million per year.(iii) Household formation had been depressed and substantially below historical norms for most for the past seven years, and we are now seeing some of this pent-up demand enter the market. Mortgage performance remains positive. Mortgage defaults were essentially unchanged in August at 0.8%, down 0.1% from August 2014 and well below the nearly 6% level in 2009.(vi)

•  Commercial mortgage-backed securities (CMBS) spreads also widened significantly in the latter half of the period. Fundamentally, the CMBS sector

remains healthy. Retail sales continue to climb, with August numbers up 0.2% from July and up 2.2% from August 2014.(iii) Consumer confidence rose in September to the second highest level in the past eight years.(vii) Hotel occupancy rates are at their highest levels in more than 15 years, exceeding 65% occupancy so far in 2015.(viii) For comparison, the previous credit cycle peak of 2004-2006 averaged roughly 63% occupancy. These high occupancy rates are boosting the performance of the hotel sector of CMBS. The improving economy and employment numbers are also helping reduce office space vacancies. National office vacancy rates fell by 0.4% to 13.5% in the second quarter of 2015 and are expected to fall further this year.(ix) Office rental rates increased at roughly 1.1% in the second quarter of 2015, and this pace of increase is expected to continue based on the declining vacancy rates.(ix)

Management Strategies

•  Throughout the period, the Portfolio was positioned with an overweight to investment-grade credit, particularly in financials, as we believe valuations relative to fundamentals have been attractive. This position detracted from performance as volatility in global markets pushed spreads wider.

•  With regard to interest rate strategy, the Portfolio is positioned using futures and interest rate swaps to be underweight duration at the intermediate part of the yield curve. This detracted from relative performance as rates declined during the period.

•  We continue being overweight spread product (non-government bonds) in the Portfolio as we believe the yield advantage could provide attractive returns over the near term.

(ii)  S&P/Case-Shiller 20-City Composite Home Price Index, an index gauging the value of residential real estate in 20 major U.S. metropolitan areas.

(iii)  U.S. Census Bureau

(iv)  National Association of Realtors

(v)  National Association of Home Builders

(vi)  S&P/Experian First Mortgage Default Index, an index measuring default rates across first mortgages

(vii)  The Conference Board

(viii)  Statistica.com

(ix)  CBRE Group, Inc.


5



Morgan Stanley Institutional Fund Trust

Annual Report — September 30, 2015

Investment Overview (unaudited) (cont'd)

Core Fixed Income Portfolio

*  Minimum Investment

In accordance with SEC regulations, the Portfolio's performance shown assumes that all recurring fees (including management fees) were deducted and all dividends and distributions were reinvested. The performance of Class A, Class L and Class C shares will vary from the performance of Class I shares based upon their different inception dates and will be negatively impacted by additional fees assessed to those classes.

Performance Compared to the Barclays U.S. Aggregate Index(1) and the Lipper Core Bond Funds Index(2)

    Period Ended September 30, 2015
Total Returns(3)
 
       

Average Annual

 
    One
Year
  Five
Years
  Ten
Years
  Since
Inception(8)
 
Portfolio — Class I Shares
w/o sales charges(4)
   

1.12

%

   

3.29

%

   

3.22

%

   

6.44

%

 
Portfolio — Class A Shares
w/o sales charges(5)
   

0.58

     

2.94

     

2.93

     

4.07

   
Portfolio — Class A Shares with
maximum 4.25% sales charges(5)
   

–3.73

     

2.06

     

2.48

     

3.80

   
Portfolio — Class L Shares
w/o sales charges(6)
   

0.31

     

     

     

1.67

   
Portfolio — Class C Shares
w/o sales charges(7)
   

     

     

     

–1.84

   
Portfolio — Class C Shares with
maximum 1.00% deferred
sales charges(7)
   

     

     

     

–2.81

   

Barclays U.S. Aggregate Index

   

2.94

     

3.10

     

4.64

     

6.84

   

Lipper Core Bond Funds Index

   

2.40

     

3.47

     

4.52

     

   

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. Performance assumes that all dividends and distributions, if any, were reinvested. Returns for period less than one year are not annualized. For the most recent month-end performance figures, please visit www.morganstanley.com/im. Investment returns and principal value will fluctuate so that Portfolio shares, when redeemed, may be worth more or less than their original cost. Total returns do not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions or the redemption of Portfolio shares. Performance of share classes will vary due to differences in sales charges and expenses.

(1)  The Barclays U.S. Aggregate Index tracks the performance of U.S. government agency and Treasury securities, investment-grade corporate debt securities, agency mortgage-backed securities, asset-backed securities and commercial mortgage-backed securities. 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.

(2)  The Lipper Core Bond Funds Index is an equally weighted performance index of the largest qualifying funds (based on net assets) in the Lipper Core Bond Funds classification. The Index, which is adjusted for capital gains distributions and income dividends, is unmanaged and should not be considered an investment. There are currently 30 funds represented in this Index. As of the date of this report, the Portfolio was in the Lipper Core Bond Funds classification.

(3)  Total returns for the Portfolio reflect expenses waived and/or reimbursed, if applicable, by the Adviser. Without such waivers and/or reimbursements, total returns would have been lower.

(4)  Commenced operations on September 29, 1987.

(5)  Commenced operations on March 1, 1999.

(6)  Commenced operations on April 27, 2012.

(7)  Commenced operations on April 30, 2015.

(8)  For comparative purposes, average annual since inception returns listed for the Indexes refer to the inception date of Class I of the Portfolio, not the inception of the Indexes.


6




Morgan Stanley Institutional Fund Trust

Annual Report — September 30, 2015

Portfolio of Investments

Core Fixed Income Portfolio

    Face
Amount
(000)
  Value
(000)
 

Fixed Income Securities (77.0%)

 

Agency Fixed Rate Mortgages (19.0%)

 

Federal Home Loan Mortgage Corporation,

 

Gold Pools:

 

6.00%, 5/1/37 - 11/1/37

 

$

48

   

$

54

   

7.50%, 5/1/35

   

32

     

38

   

8.00%, 8/1/32

   

19

     

23

   

8.50%, 8/1/31

   

28

     

37

   

Federal National Mortgage Association,

 

Conventional Pools:

 

4.00%, 11/1/41

   

132

     

142

   

4.50%, 8/1/40 - 7/1/41

   

292

     

318

   

5.50%, 4/1/34

   

42

     

47

   

6.00%, 1/1/38

   

36

     

40

   

6.50%, 7/1/29 - 11/1/32

   

110

     

128

   

7.00%, 10/1/31 - 12/1/31

   

1

     

1

   

7.50%, 8/1/37

   

56

     

67

   

8.00%, 4/1/33

   

41

     

50

   

8.50%, 10/1/32

   

41

     

53

   
     

998

   

Asset-Backed Security (3.8%)

 

Chase Issuance Trust

 

1.59%, 2/18/20

   

200

     

202

   

Collateralized Mortgage Obligations — Agency Collateral Series (8.3%)

 

Federal National Mortgage Association,

 

IO

 

6.20%, 9/25/20 (a)

   

291

     

58

   

REMIC

 

9.21%, 10/25/41 (a)(b)

   

28

     

29

   

Government National Mortgage Association,

 

IO

 

0.83%, 8/20/58 (a)

   

2,516

     

78

   

3.50%, 5/20/43

   

501

     

103

   

5.00%, 2/16/41

   

92

     

18

   

5.89%, 8/16/42 (a)

   

447

     

77

   

5.93%, 6/20/43 (a)

   

440

     

71

   
     

434

   

Corporate Bonds (42.2%)

 

Finance (16.2%)

 

ACE INA Holdings, Inc.

 

3.35%, 5/15/24

   

50

     

50

   

American International Group, Inc.

 

4.88%, 6/1/22

   

25

     

28

   

AvalonBay Communities, Inc.

 

2.95%, 9/15/22

   

25

     

25

   

Bank of America Corp.,

 

MTN

 

4.20%, 8/26/24

   

25

     

25

   

4.25%, 10/22/26

   

23

     

23

   

Bank of New York Mellon Corp. (The),

 

MTN

 

3.65%, 2/4/24

   

25

     

26

   
    Face
Amount
(000)
  Value
(000)
 

Boston Properties LP

 

3.80%, 2/1/24

 

$

10

   

$

10

   

Brookfield Asset Management, Inc.

 

5.80%, 4/25/17

   

50

     

53

   

Capital One Financial Corp.

 

2.45%, 4/24/19

   

25

     

25

   

Citigroup, Inc.

 

5.50%, 9/13/25

   

50

     

54

   

Discover Financial Services

 

3.95%, 11/6/24

   

25

     

25

   

ERP Operating LP

 

3.00%, 4/15/23

   

55

     

54

   

Goldman Sachs Group, Inc. (The)

 

6.75%, 10/1/37

   

30

     

36

   

HSBC Finance Corp.

 

6.68%, 1/15/21

   

50

     

59

   

JPMorgan Chase & Co.

 

3.20%, 1/25/23

   

45

     

45

   

Pacific LifeCorp

 

6.00%, 2/10/20 (c)

   

50

     

56

   

PNC Financial Services Group, Inc. (The)

 

3.90%, 4/29/24 (d)

   

35

     

35

   

Principal Financial Group, Inc.

 

8.88%, 5/15/19

   

50

     

61

   

State Street Corp.

 

3.10%, 5/15/23

   

35

     

34

   

TD Ameritrade Holding Corp.

 

3.63%, 4/1/25

   

25

     

26

   

UnitedHealth Group, Inc.

 

2.88%, 3/15/23 (d)

   

50

     

50

   

Wells Fargo & Co.,

 

Series M

 

3.45%, 2/13/23

   

50

     

50

   
     

850

   

Industrials (23.0%)

 

Actavis Funding SCS

 

3.80%, 3/15/25

   

5

     

5

   

Altera Corp.

 

2.50%, 11/15/18

   

100

     

102

   

Altria Group, Inc.

 

5.38%, 1/31/44

   

5

     

5

   

Amazon.com, Inc.

 

1.20%, 11/29/17

   

25

     

25

   

Anadarko Petroleum Corp.

 

6.45%, 9/15/36

   

25

     

28

   

Apple, Inc.

 

3.85%, 5/4/43

   

25

     

23

   

AT&T, Inc.

 

5.55%, 8/15/41

   

25

     

25

   

BAT International Finance PLC

 

3.50%, 6/15/22 (c)

   

25

     

26

   

BHP Billiton Finance USA Ltd.

 

5.00%, 9/30/43

   

25

     

25

   

The accompanying notes are an integral part of the financial statements.
7



Morgan Stanley Institutional Fund Trust

Annual Report — September 30, 2015

Portfolio of Investments (cont'd)

Core Fixed Income Portfolio

    Face
Amount
(000)
  Value
(000)
 

Industrials (cont'd)

 

BP Capital Markets PLC

 

3.51%, 3/17/25 (d)

 

$

25

   

$

25

   

Cardinal Health, Inc.

 

3.75%, 9/15/25 (d)

   

25

     

25

   

CCO Safari II LLC

 

4.91%, 7/23/25 (c)

   

25

     

25

   

Coca-Cola Co.

 

3.20%, 11/1/23

   

25

     

26

   

EnLink Midstream Partners LP

 

5.60%, 4/1/44

   

25

     

23

   

Ensco PLC

 

5.75%, 10/1/44

   

25

     

17

   

Freeport-McMoRan, Inc.

 

3.88%, 3/15/23

   

20

     

15

   

General Motors Financial Co., Inc.,

 

4.00%, 1/15/25

   

25

     

24

   

4.30%, 7/13/25

   

30

     

29

   

Goldcorp, Inc.

 

3.70%, 3/15/23 (d)

   

37

     

35

   

Kinder Morgan, Inc.

 

4.30%, 6/1/25 (d)

   

25

     

23

   

McDonald's Corp.,

 

MTN

 

4.60%, 5/26/45

   

25

     

25

   

Merck & Co., Inc.

 

2.80%, 5/18/23

   

25

     

25

   

NBC Universal Media LLC

 

5.95%, 4/1/41

   

25

     

30

   

Omnicom Group, Inc.

 

3.65%, 11/1/24

   

15

     

15

   

Oracle Corp.

 

3.40%, 7/8/24

   

25

     

25

   

PepsiCo, Inc.

 

3.60%, 3/1/24

   

25

     

26

   

Quest Diagnostics, Inc.

 

2.70%, 4/1/19 (d)

   

250

     

252

   

Shell International Finance BV

 

3.25%, 5/11/25

   

25

     

25

   

Spectra Energy Capital LLC

 

3.30%, 3/15/23

   

25

     

22

   

Tiffany & Co.

 

4.90%, 10/1/44

   

25

     

24

   

Time Warner Cable, Inc.

 

4.50%, 9/15/42

   

25

     

20

   

Tyson Foods, Inc.

 

3.95%, 8/15/24

   

5

     

5

   

Yum! Brands, Inc.

 

3.88%, 11/1/20

   

175

     

183

   
     

1,208

   

Utilities (3.0%)

 

Jersey Central Power & Light Co.

 

4.70%, 4/1/24 (c)(d)

   

75

     

78

   
    Face
Amount
(000)
  Value
(000)
 

PPL WEM Ltd./Western Power Distribution Ltd.

 

3.90%, 5/1/16 (c)

 

$

75

   

$

76

   
     

154

   
     

2,212

   

U.S. Treasury Security (3.7%)

 

U.S. Treasury Inflation Indexed Bond

 

0.25%, 1/15/25

   

202

     

193

   

Total Fixed Income Securities (Cost $3,953)

   

4,039

   
    Shares
(000)
     

Short-Term Investments (26.0%)

 

Securities held as Collateral on Loaned Securities (3.7%)

 

Investment Company (3.2%)

 
Morgan Stanley Institutional Liquidity
Funds — Money Market Portfolio —
Institutional Class (See Note G)
   

168,222

     

168

   
    Face
Amount
(000)
     

Repurchase Agreements (0.5%)

 
Barclays Capital, Inc., (0.10%,
dated 9/30/15, due 10/1/15; proceeds $14;
fully collateralized by a U.S. Government
obligation; 3.13% due 8/15/44; valued at $14)
 

$

14

     

14

   
BNP Paribas Securities Corp., (0.09%,
dated 9/30/15, due 10/1/15; proceeds $10;
fully collateralized by various U.S. Government
agency securities; 0.00% - 7.25%
due 11/5/15 - 10/11/33 and U.S. Government
obligations; 0.00% - 1.88%
due 10/15/15 - 9/30/17; valued at $10)
   

10

     

10

   
     

24

   
Total Securities held as Collateral on Loaned
Securities (Cost $192)
   

192

   
   

Shares

     

Investment Company (4.2%)

 
Morgan Stanley Institutional Liquidity
Funds — Money Market Portfolio —
Institutional Class (See Note G) (Cost $218)
   

217,804

     

218

   
    Face
Amount
(000)
     

U.S. Treasury Securities (18.1%)

 

U.S. Treasury Bill

 

0.26%, 3/10/16 (e)(f)

 

$

199

     

199

   

U.S. Treasury Note

 

0.38%, 1/31/16

   

750

     

751

   

Total U.S. Treasury Securities (Cost $950)

   

950

   

Total Short-Term Investments (Cost $1,360)

   

1,360

   
Total Investments (103.0%) (Cost $5,313)
Including $514 of Securities Loaned (g)(h)
   

5,399

   

Liabilities in Excess of Other Assets (-3.0%)

   

(157

)

 

Net Assets (100.0%)

 

$

5,242

   

The accompanying notes are an integral part of the financial statements.
8



Morgan Stanley Institutional Fund Trust

Annual Report — September 30, 2015

Portfolio of Investments (cont'd)

Core Fixed Income Portfolio

(a)  Variable/Floating Rate Security — Interest rate changes on these instruments are based on changes in a designated base rate. The rates shown are those in effect on September 30, 2015.

(b)  Inverse Floating Rate Security — Interest rate fluctuates with an inverse relationship to an associated interest rate. Indicated rate is the effective rate at September 30, 2015.

(c)  144A security — Certain conditions for public sale may exist. Unless otherwise noted, these securities are deemed to be liquid.

(d)  All or a portion of this security was on loan at September 30, 2015.

(e)  Rate shown is the yield to maturity at September 30, 2015.

(f)  All or a portion of the security was pledged to cover margin requirements for futures contracts and swap agreements.

(g)  Securities are available for collateral in connection with open futures contracts and swap agreements.

(h)  At September 30, 2015, the aggregate cost for Federal income tax purposes is approximately $5,313,000. The aggregate gross unrealized appreciation is approximately $185,000 and the aggregate gross unrealized depreciation is approximately $99,000 resulting in net unrealized appreciation of approximately $86,000.

IO  Interest Only.

MTN  Medium Term Note.

REMIC  Real Estate Mortgage Investment Conduit.

Futures Contracts:

The Portfolio had the following futures contracts open at September 30, 2015:

    Number
of
Contracts
  Value
(000)
  Expiration
Date
  Unrealized
Appreciation
(Depreciation)
(000)
 

Long:

 

U.S. Treasury 2 yr. Note

   

1

   

$

219

   

Dec-15

 

$

@

 

U.S. Treasury 5 yr. Note

   

3

     

362

   

Dec-15

   

2

   

U.S. Treasury Ultra Long Bond

   

16

     

2,566

   

Dec-15

   

35

   

Short:

 

U.S. Treasury 10 yr. Note

   

1

     

(129

)

 

Dec-15

   

(2

)

 

U.S. Treasury Long Bond

   

15

     

(2,360

)

 

Dec-15

   

(44

)

 
               

$

(9

)

 

Credit Default Swap Agreements:

The Portfolio had the following credit default swap agreements open at September 30, 2015:

Swap Counterparty and
Reference Obligation
  Buy/Sell
Protection
  Notional
Amount
(000)
  Pay/Receive
Fixed Rate
  Termination
Date
  Upfront
Payment
Paid
(Received)
(000)
  Unrealized
Appreciation
(Depreciation)
(000)
  Value
(000)
  Credit
Rating of
Reference
Obligation†
(Unaudited)
 
Barclays Bank PLC
Quest Diagnostics, Inc.
 

Buy

 

$

250

     

1.00

%

 

3/20/19

 

$

5

   

$

(9

)

 

$

(4

)

 

BBB+

 
Barclays Bank PLC
Yum! Brands, Inc.
 

Buy

   

250

     

1.00

   

12/20/18

   

(5

)

   

@

   

(5

)

 

BBB

 
       

$

500

           

$

@

 

$

(9

)

 

$

(9

)

     

Interest Rate Swap Agreements:

The Portfolio had the following interest rate swap agreements open at September 30, 2015:

Swap Counterparty

  Floating Rate
Index
  Pay/Receive
Floating Rate
 

Fixed Rate

  Termination
Date
  Notional
Amount
(000)
  Unrealized
Depreciation
(000)
 

Morgan Stanley & Co., LLC*

  3 Month LIBOR  

Receive

   

1.73

%

 

3/9/20

 

$

200

   

$

(4

)

 

Morgan Stanley & Co., LLC*

  3 Month LIBOR  

Receive

   

2.49

   

6/9/25

   

100

     

(5

)

 
                       

$

(9

)

 

@  Value is less than $500.

†  Credit rating as issued by Standard & Poor's.

*  Cleared swap agreement, the broker is Morgan Stanley & Co., LLC.

LIBOR  London Interbank Offered Rate.

The accompanying notes are an integral part of the financial statements.
9



Morgan Stanley Institutional Fund Trust

Annual Report — September 30, 2015

Portfolio of Investments (cont'd)

Core Fixed Income Portfolio

Portfolio Composition**

Classification

  Percentage of
Total Investments
 

Industrials

   

23.2

%

 

Short-Term Investments

   

22.4

   

Agency Fixed Rate Mortgages

   

19.2

   

Finance

   

16.3

   

Other***

   

10.6

   
Collateralized Mortgage Obligations — Agency
Collateral Series
   

8.3

   

Total Investments

   

100.0

%****

 

**  Percentages indicated are based upon total investments (excluding Securities held as Collateral on Loaned Securities) as of September 30, 2015.

***  Industries and/or investment types representing less than 5% of total investments.

****  Does not include open long/short futures contracts with an underlying face amount of approximately $5,636,000 with net unrealized depreciation of approximately $9,000. Does not include open swap agreements with net unrealized depreciation of approximately $18,000.

The accompanying notes are an integral part of the financial statements.
10




Morgan Stanley Institutional Fund Trust

Annual Report — September 30, 2015

Core Fixed Income Portfolio

Statement of Assets and Liabilities

  September 30, 2015
(000)
 

Assets:

 

Investments in Securities of Unaffiliated Issuers, at Value(1) (Cost $4,927)

 

$

5,013

   

Investment in Security of Affiliated Issuer, at Value (Cost $386)

   

386

   

Total Investments in Securities, at Value (Cost $5,313)

   

5,399

   

Cash

   

13

   

Interest Receivable

   

38

   

Due from Adviser

   

33

   

Premium Paid on Open Swap Agreements

   

5

   

Receivable for Investments Sold

   

2

   

Unrealized Appreciation on Swap Agreements

   

@

 

Receivable from Affiliate

   

@

 

Receivable for Variation Margin on Swap Agreements

   

@

 

Other Assets

   

33

   

Total Assets

   

5,523

   

Liabilities:

 

Collateral on Securities Loaned, at Value

   

205

   

Payable for Professional Fees

   

26

   

Unrealized Depreciation on Swap Agreements

   

9

   

Payable for Trustees' Fees and Expenses

   

7

   

Premium Received on Open Swap Agreements

   

5

   

Payable for Custodian Fees

   

4

   

Payable for Variation Margin on Futures Contracts

   

3

   

Payable for Sub Transfer Agency Fees — Class I

   

2

   

Payable for Sub Transfer Agency Fees — Class A

   

@

 

Payable for Sub Transfer Agency Fees — Class L

   

@

 

Payable for Transfer Agency Fees — Class I

   

1

   

Payable for Transfer Agency Fees — Class A

   

@

 

Payable for Transfer Agency Fees — Class L

   

@

 

Payable for Transfer Agency Fees — Class C

   

@

 

Payable for Shareholder Services Fees — Class A

   

@

 

Payable for Distribution and Shareholder Services Fees — Class L

   

@

 

Payable for Distribution and Shareholder Services Fees — Class C

   

@

 

Payable for Administration Fees

   

@

 

Other Liabilities

   

19

   

Total Liabilities

   

281

   

Net Assets

 

$

5,242

   

Net Assets Consist Of:

 

Paid-in-Capital

 

$

41,614

   

Accumulated Undistributed Net Investment Income

   

176

   

Accumulated Net Realized Loss

   

(36,607

)

 

Unrealized Appreciation (Depreciation) on:

 

Investments

   

86

   

Futures Contracts

   

(9

)

 

Swap Agreements

   

(18

)

 

Net Assets

 

$

5,242

   

The accompanying notes are an integral part of the financial statements.
11



Morgan Stanley Institutional Fund Trust

Annual Report — September 30, 2015

Core Fixed Income Portfolio

Statement of Assets and Liabilities (cont'd)

  September 30, 2015
(000)
 

CLASS I:

 

Net Assets

 

$

4,790

   
Shares Outstanding (unlimited number of shares authorized, no par value) (not in 000's)    

481,118

   

Net Asset Value, Offering and Redemption Price Per Share

 

$

9.96

   

CLASS A:

 

Net Assets

 

$

329

   
Shares Outstanding (unlimited number of shares authorized, no par value) (not in 000's)    

32,817

   

Net Asset Value, Redemption Price Per Share

 

$

10.01

   

Maximum Sales Load

   

4.25

%

 

Maximum Sales Charge

 

$

0.44

   

Maximum Offering Price Per Share

 

$

10.45

   

CLASS L:

 

Net Assets

 

$

49

   
Shares Outstanding (unlimited number of shares authorized, no par value) (not in 000's)    

4,904

   

Net Asset Value, Offering and Redemption Price Per Share

 

$

9.99

   

CLASS C:

 

Net Assets

 

$

74

   
Shares Outstanding (unlimited number of shares authorized, no par value) (not in 000's)    

7,404

   

Net Asset Value, Offering and Redemption Price Per Share

 

$

9.97

   
(1) Including:
Securities on Loan, at Value:
 

$

514

   

@  Amount is less than $500.

The accompanying notes are an integral part of the financial statements.
12



Morgan Stanley Institutional Fund Trust

Annual Report — September 30, 2015

Core Fixed Income Portfolio

Statement of Operations

  Year Ended
September 30, 2015
(000)
 

Investment Income:

 

Interest from Securities of Unaffiliated Issuers

 

$

376

   

Income from Securities Loaned — Net

   

2

   

Dividends from Security of Affiliated Issuer (Note G)

   

1

   

Total Investment Income

   

379

   

Expenses:

 

Professional Fees

   

113

   

Advisory Fees (Note B)

   

47

   

Registration Fees

   

41

   

Custodian Fees (Note F)

   

29

   

Pricing Fees

   

11

   

Administration Fees (Note C)

   

10

   

Shareholder Reporting Fees

   

9

   

Transfer Agency Fees — Class I (Note E)

   

3

   

Transfer Agency Fees — Class A (Note E)

   

2

   

Transfer Agency Fees — Class L (Note E)

   

2

   

Transfer Agency Fees — Class C (Note E)

   

1

   

Shareholder Services Fees — Class A (Note D)

   

1

   

Distribution and Shareholder Services Fees — Class L (Note D)

   

@

 

Distribution and Shareholder Services Fees — Class C (Note D)

   

@

 

Trustees' Fees and Expenses

   

1

   

Sub Transfer Agency Fees — Class A

   

@

 

Sub Transfer Agency Fees — Class L

   

@

 

Other Expenses

   

7

   

Total Expenses

   

277

   

Expenses Reimbursed by Adviser (Note B)

   

(169

)

 

Waiver of Advisory Fees (Note B)

   

(47

)

 

Reimbursement of Class Specific Expenses — Class A (Note B)

   

(2

)

 

Reimbursement of Class Specific Expenses — Class L (Note B)

   

(2

)

 

Reimbursement of Class Specific Expenses — Class C (Note B)

   

(1

)

 

Rebate from Morgan Stanley Affiliate (Note G)

   

(1

)

 

Net Expenses

   

55

   

Net Investment Income

   

324

   

Realized Gain (Loss):

 

Investments Sold

   

237

   

Futures Contracts

   

(12

)

 

Swap Agreements

   

(78

)

 

Net Realized Gain

   

147

   

Change in Unrealized Appreciation (Depreciation):

 

Investments

   

(326

)

 

Futures Contracts

   

(7

)

 

Swap Agreements

   

(31

)

 

Net Change in Unrealized Appreciation (Depreciation)

   

(364

)

 

Net Realized Gain and Change in Unrealized Appreciation (Depreciation)

   

(217

)

 

Net Increase in Net Assets Resulting from Operations

 

$

107

   

@  Amount is less than $500.

The accompanying notes are an integral part of the financial statements.
13



Morgan Stanley Institutional Fund Trust

Annual Report — September 30, 2015

Core Fixed Income Portfolio

Statements of Changes in Net Assets

  Year Ended
September 30, 2015
(000)
  Year Ended
September 30,
2014
(000)
 

Increase (Decrease) in Net Assets:

 

Operations:

 

Net Investment Income

 

$

324

   

$

1,046

   

Net Realized Gain

   

147

     

891

   

Net Change in Unrealized Appreciation (Depreciation)

   

(364

)

   

145

   

Net Increase in Net Assets Resulting from Operations

   

107

     

2,082

   

Distributions from and/or in Excess of:

 

Class I:

 

Net Investment Income

   

(497

)

   

(1,206

)

 

Class A:

 

Net Investment Income

   

(9

)

   

(12

)

 

Class L:

 

Net Investment Income

   

(1

)

   

(—

@)

 

Class C:

 

Net Investment Income

   

(—

@)*

   

   

Total Distributions

   

(507

)

   

(1,218

)

 

Capital Share Transactions:(1)

 

Class I:

 

Subscribed

   

319

     

11,931

   

Distributions Reinvested

   

148

     

1,125

   

Redeemed

   

(9,639

)

   

(48,180

)

 

Class A:

 

Subscribed

   

258

     

100

   

Distributions Reinvested

   

8

     

12

   

Redeemed

   

(71

)

   

(497

)

 

Class L:

 

Subscribed

   

45

     

33

   

Distributions Reinvested

   

1

     

@

 

Redeemed

   

(5

)

   

(33

)

 

Class C:

 

Subscribed

   

75

*

   

   

Distributions Reinvested

   

@*

   

   

Net Decrease in Net Assets Resulting from Capital Share Transactions

   

(8,861

)

   

(35,509

)

 

Total Decrease in Net Assets

   

(9,261

)

   

(34,645

)

 

Net Assets:

 

Beginning of Period

   

14,503

     

49,148

   

End of Period (Including Accumulated Undistributed Net Investment Income of $176 and $356)

 

$

5,242

   

$

14,503

   

(1)   Capital Share Transactions:

 

Class I:

 

Shares Subscribed

   

31

     

1,176

   

Shares Issued on Distributions Reinvested

   

15

     

113

   

Shares Redeemed

   

(972

)

   

(4,736

)

 

Net Decrease in Class I Shares Outstanding

   

(926

)

   

(3,447

)

 

Class A:

 

Shares Subscribed

   

25

     

11

   

Shares Issued on Distributions Reinvested

   

1

     

1

   

Shares Redeemed

   

(7

)

   

(49

)

 

Net Increase (Decrease) in Class A Shares Outstanding

   

19

     

(37

)

 

Class L:

 

Shares Subscribed

   

4

     

3

   

Shares Issued on Distributions Reinvested

   

@@

   

@@

 

Shares Redeemed

   

(—

@@)

   

(3

)

 

Net Increase (Decrease) in Class L Shares Outstanding

   

4

     

(—

@@)

 

Class C:

 

Shares Subscribed

   

7

*

   

   

Shares Issued on Distributions Reinvested

   

@@*

   

   

Net Increase in Class C Shares Outstanding

   

7

*

   

   

*  For the period April 30, 2015 through September 30, 2015.

@  Amount is less than $500.

@@  Amount is less than 500 shares.

The accompanying notes are an integral part of the financial statements.
14




Morgan Stanley Institutional Fund Trust

Annual Report — September 30, 2015

Financial Highlights

Core Fixed Income Portfolio

   

Class I

 
   

Year Ended September 30,

 

Selected Per Share Data and Ratios

 

2015

 

2014

 

2013

 

2012

 

2011

 

Net Asset Value, Beginning of Period

 

$

10.20

   

$

10.02

   

$

10.50

   

$

10.08

   

$

9.96

   

Income (Loss) from Investment Operations:

 

Net Investment Income†

   

0.26

     

0.28

     

0.26

     

0.29

     

0.34

   

Net Realized and Unrealized Gain (Loss)

   

(0.15

)

   

0.21

     

(0.42

)

   

0.48

     

0.08

   

Total from Investment Operations

   

0.11

     

0.49

     

(0.16

)

   

0.77

     

0.42

   

Distributions from and/or in Excess of:

 

Net Investment Income

   

(0.35

)

   

(0.31

)

   

(0.32

)

   

(0.35

)

   

(0.30

)

 

Net Asset Value, End of Period

 

$

9.96

   

$

10.20

   

$

10.02

   

$

10.50

   

$

10.08

   

Total Return++

   

1.12

%

   

4.97

%

   

(1.57

)%

   

7.83

%

   

4.34

%

 

Ratios and Supplemental Data:

 

Net Assets, End of Period (Thousands)

 

$

4,790

   

$

14,350

   

$

48,620

   

$

57,013

   

$

63,866

   

Ratio of Expenses to Average Net Assets (1)

   

0.43

%+

   

0.49

%+

   

0.49

%+

   

0.49

%+

   

0.50

%+

 

Ratio of Net Investment Income to Average Net Assets (1)

   

2.59

%+

   

2.81

%+

   

2.57

%+

   

2.80

%+

   

3.43

%+

 

Ratio of Rebate from Morgan Stanley Affiliates to Average Net Assets

   

0.01

%

   

0.01

%

   

0.01

%

   

0.01

%

   

0.00

 

Portfolio Turnover Rate

   

104

%

   

172

%

   

187

%

   

216

%

   

234

%

 

(1) Supplemental Information on the Ratios to Average Net Assets:

 

Ratios Before Expense Limitation:

 

Expenses to Average Net Assets

   

2.15

%

   

1.47

%

   

1.16

%

   

0.97

%

   

0.99

%

 

Net Investment Income to Average Net Assets

   

0.87

%

   

1.83

%

   

1.90

%

   

2.32

%

   

2.94

%

 

†  Per share amount is based on average shares outstanding.

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

+  The Ratios of Expenses and Net Investment Income reflect the rebate of certain Portfolio expenses in connection with the investments in Morgan Stanley affiliates during the period. The effect of the rebate on the ratios is disclosed in the above table as "Ratio of Rebate from Morgan Stanley Affiliates to Average Net Assets."

§  Amount is less than 0.005%.

The accompanying notes are an integral part of the financial statements.
15



Morgan Stanley Institutional Fund Trust

Annual Report — September 30, 2015

Financial Highlights

Core Fixed Income Portfolio

   

Class A

 
   

Year Ended September 30,

 

Selected Per Share Data and Ratios

 

2015

 

2014

 

2013

 

2012

 

2011

 

Net Asset Value, Beginning of Period

 

$

10.27

   

$

10.07

   

$

10.56

   

$

10.14

   

$

10.01

   

Income (Loss) from Investment Operations:

 

Net Investment Income†

   

0.21

     

0.25

     

0.24

     

0.23

     

0.31

   

Net Realized and Unrealized Gain (Loss)

   

(0.15

)

   

0.21

     

(0.43

)

   

0.52

     

0.09

   

Total from Investment Operations

   

0.06

     

0.46

     

(0.19

)

   

0.75

     

0.40

   

Distributions from and/or in Excess of:

 

Net Investment Income

   

(0.32

)

   

(0.26

)

   

(0.30

)

   

(0.33

)

   

(0.27

)

 

Net Asset Value, End of Period

 

$

10.01

   

$

10.27

   

$

10.07

   

$

10.56

   

$

10.14

   

Total Return++

   

0.58

%

   

4.61

%

   

(1.89

)%

   

7.55

%

   

4.11

%

 

Ratios and Supplemental Data:

 

Net Assets, End of Period (Thousands)

 

$

329

   

$

143

   

$

518

   

$

330

   

$

44

   

Ratio of Expenses to Average Net Assets (1)

   

0.84

%+

   

0.84

%+

   

0.75

%+^

   

0.74

%+

   

0.75

%+

 

Ratio of Net Investment Income to Average Net Assets (1)

   

2.08

%+

   

2.46

%+

   

2.32

%+^

   

2.25

%+

   

3.18

%+

 

Ratio of Rebate from Morgan Stanley Affiliates to Average Net Assets

   

0.01

%

   

0.01

%

   

0.01

%

   

0.01

%

   

0.00

 

Portfolio Turnover Rate

   

104

%

   

172

%

   

187

%

   

216

%

   

234

%

 

(1) Supplemental Information on the Ratios to Average Net Assets:

 

Ratios Before Expense Limitation:

 

Expenses to Average Net Assets

   

3.23

%

   

2.15

%

   

1.44

%

   

1.33

%

   

1.24

%

 

Net Investment Income (Loss) to Average Net Assets

   

(0.31

)%

   

1.15

%

   

1.63

%

   

1.66

%

   

2.69

%

 

†  Per share amount is based on average shares outstanding.

++  Calculated based on the net asset value which does not reflect sales charges, if applicable, as of the last business day of the period.

+  The Ratios of Expenses and Net Investment Income reflect the rebate of certain Portfolio expenses in connection with the investments in Morgan Stanley affiliates during the period. The effect of the rebate on the ratios is disclosed in the above table as "Ratio of Rebate from Morgan Stanley Affiliates to Average Net Assets."

^  Effective September 16, 2013, the Adviser has agreed to limit the ratio of expenses to average net assets to the maximum ratio of 0.85% for Class A shares. Prior to September 16, 2013, the maximum ratio was 0.75% for Class A shares.

§  Amount is less than 0.005%.

The accompanying notes are an integral part of the financial statements.
16



Morgan Stanley Institutional Fund Trust

Annual Report — September 30, 2015

Financial Highlights

Core Fixed Income Portfolio

   

Class L

 
   

Year Ended September 30,

  Period from
April 27, 2012^ to
 

Selected Per Share Data and Ratios

 

2015

 

2014

 

2013

 

September 30, 2012

 

Net Asset Value, Beginning of Period

 

$

10.24

   

$

10.07

   

$

10.55

   

$

10.29

   

Income (Loss) from Investment Operations:

 

Net Investment Income†

   

0.18

     

0.22

     

0.27

     

0.06

   

Net Realized and Unrealized Gain (Loss)

   

(0.15

)

   

0.21

     

(0.48

)

   

0.27

   

Total from Investment Operations

   

0.03

     

0.43

     

(0.21

)

   

0.33

   

Distributions from and/or in Excess of:

 

Net Investment Income

   

(0.28

)

   

(0.26

)

   

(0.27

)

   

(0.07

)

 

Net Asset Value, End of Period

 

$

9.99

   

$

10.24

   

$

10.07

   

$

10.55

   

Total Return++

   

0.31

%

   

4.34

%

   

(2.05

)%

   

3.23

%#

 

Ratios and Supplemental Data:

 

Net Assets, End of Period (Thousands)

 

$

49

   

$

10

   

$

10

   

$

10

   

Ratio of Expenses to Average Net Assets (1)

   

1.09

%+

   

1.09

%+

   

1.00

%+^^

   

0.99

%+*

 

Ratio of Net Investment Income to Average Net Assets (1)

   

1.76

%+

   

2.21

%+

   

2.41

%+^^

   

1.45

%+*

 

Ratio of Rebate from Morgan Stanley Affiliates to Average Net Assets

   

0.01

%

   

0.01

%

   

0.01

%

   

0.01

%*

 

Portfolio Turnover Rate

   

104

%

   

172

%

   

187

%

   

216

%#

 

(1) Supplemental Information on the Ratios to Average Net Assets:

 

Ratios Before Expense Limitation:

 

Expenses to Average Net Assets

   

7.59

%

   

14.10

%

   

2.21

%

   

1.58

%*

 

Net Investment Income (Loss) to Average Net Assets

   

(4.74

)%

   

(10.80

)%

   

1.20

%

   

0.86

%*

 

^  Commencement of Operations.

†  Per share amount is based on average shares outstanding.

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

+  The Ratios of Expenses and Net Investment Income reflect the rebate of certain Portfolio expenses in connection with the investments in Morgan Stanley affiliates during the period. The effect of the rebate on the ratios is disclosed in the above table as "Ratio of Rebate from Morgan Stanley Affiliates to Average Net Assets."

^^  Effective September 16, 2013, the Adviser has agreed to limit the ratio of expenses to average net assets to the maximum ratio of 1.10% for Class L shares. Prior to September 16, 2013, the maximum ratio was 1.00% for Class L shares.

#  Not Annualized.

*  Annualized.

The accompanying notes are an integral part of the financial statements.
17



Morgan Stanley Institutional Fund Trust

Annual Report — September 30, 2015

Financial Highlights

Core Fixed Income Portfolio

   

Class C

 

Selected Per Share Data and Ratios

  Period from
April 30, 2015^ to
September 30, 2015
 

Net Asset Value, Beginning of Period

 

$

10.22

   

Income (Loss) from Investment Operations:

 

Net Investment Income†

   

0.03

   

Net Realized and Unrealized Loss

   

(0.22

)

 

Total from Investment Operations

   

(0.19

)

 

Distributions from and/or in Excess of:

 

Net Investment Income

   

(0.06

)

 

Net Asset Value, End of Period

 

$

9.97

   

Total Return++

   

(1.84

)%#

 

Ratios and Supplemental Data:

 

Net Assets, End of Period, (Thousands)

 

$

74

   

Ratios of Expenses to Average Net Assets (1)

   

1.59

%+*

 

Ratio of Net Investment Income to Average Net Assets(1)

   

0.70

%+*

 

Ratio of Rebate from Morgan Stanley Affiliates to Average Net Assets

   

0.01

%*

 

Portfolio Turnover Rate

   

104

%#

 

(1) Supplemental Information on the Ratios to Average Net Assets:

 

Ratios Before Expense Limitation:

 

Expense to Average Net Assets

   

5.48

%*

 

Net Investment Loss to Average Net Assets

   

(3.19

)%*

 

^  Commencement of Operations.

†  Per share amount is based on average shares outstanding.

++  Calculated based on the net asset value which does not reflect sales charges, if applicable, as of the last business day of the period.

+  The Ratios of Expenses and Net Investment Income reflect the rebate of certain Portfolio expenses in connection with the investments in Morgan Stanley affiliates during the period. The effect of the rebate on the ratios is disclosed in the above table as "Ratio of Rebate from Morgan Stanley Affiliates to Average Net Assets."

#  Not Annualized.

*  Annualized.

The accompanying notes are an integral part of the financial statements.
18




Morgan Stanley Institutional Fund Trust

Annual Report — September 30, 2015

Notes to Financial Statements

Morgan Stanley Institutional Fund Trust (''MSIFT" or the "Fund'') is registered under the Investment Company Act of 1940, as amended (the "Act''), as an open-end management investment company. The Fund is comprised of nine separate, active portfolios (individually referred to as a "Portfolio", collectively as the "Portfolios"). The Fund applies investment company accounting and reporting guidance. All Portfolios are considered diversified for purposes of the Act.

The accompanying financial statements relate to the Core Fixed Income Portfolio. The Portfolio seeks above-average total return over a market cycle of three to five years. The Portfolio offers four classes of shares — Class I, Class A, Class L and Class C.

On April 30, 2015, the Portfolio commenced offering Class C shares.

A. Significant Accounting Policies: The following significant accounting policies are in conformity with U.S. generally accepted accounting principles ("GAAP"). Such policies are consistently followed by the Fund in the preparation of its financial statements. GAAP may require management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results may differ from those estimates.

1.  Security Valuation: (1) Certain portfolio securities may be valued by an outside pricing service approved by the Fund's Board of Trustees (the "Trustees"). The pricing service may utilize a matrix system or other model incorporating attributes such as security quality, maturity and coupon as the evaluation model parameters, and/or research evaluations by its staff, including review of broker-dealer market price quotations in determining what it believes is the fair valuation of the portfolios securities valued by such pricing service; (2) futures are valued at the latest price published by the commodities exchange on which they trade; (3) swaps are marked-to-market daily based upon quotations from market makers; (4) when market quotations are not readily available, including circumstances under which Morgan Stanley Investment Management Inc. (the "Adviser") determines that the closing price, last sale price or the mean between the last reported bid and asked prices are not reflective of 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

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 of the New York Stock Exchange ("NYSE"). If developments occur during such periods that are expected to materially affect the value of such securities, such valuations may be adjusted to reflect the estimated fair value of such securities as of the close of the NYSE, as determined in good faith by the Trustees or by the Adviser using a pricing service and/or procedures approved by the Trustees; (5) investments in mutual funds, including the Morgan Stanley Institutional Liquidity Funds, are valued at the net asset value ("NAV") as of the close of each business day; and (6) short-term taxable debt securities with remaining maturities of 60 days or less at the time of purchase may be valued at amortized cost, unless the Adviser determines such price does not reflect the securities' market value, in which case these securities will be valued at their fair market value determined by the Adviser. Other taxable short-term debt securities with maturities of more than 60 days will be valued on a mark-to-market basis until such time as they reach a maturity of 60 days, whereupon they will be valued at amortized cost using their value on the 61st day unless the Adviser determines such price does not reflect the securities' fair value, in which case these securities will be valued at their fair market value as determined by the Adviser.

The Trustees have responsibility for determining in good faith the fair value of the investments, and the Trustees may appoint others, such as the Fund's Adviser or a valuation committee, to assist the Trustees in determining fair value and to make the actual calculations pursuant to the fair valuation methodologies previously approved by the Trustees. Under procedures approved by the Trustees, the Fund's Adviser has formed a Valuation Committee whose members are approved by the Trustees. The Valuation Committee provides administration and oversight of the Fund's valuation policies and procedures, which are reviewed at least annually by the Trustees. These procedures allow the Fund to utilize independent pricing services, quotations from securities and financial instrument dealers, and other market sources to determine fair value.


19



Morgan Stanley Institutional Fund Trust

Annual Report — September 30, 2015

Notes to Financial Statements (cont'd)

The Fund has procedures to determine the fair value of securities and other financial instruments for which market prices are not readily available. Under these procedures, the Valuation Committee convenes on a regular and ad hoc basis to review such securities and considers a number of factors, including valuation methodologies and significant unobservable valuation inputs, when arriving at fair value. The Valuation Committee may employ a market-based approach which may use related or comparable assets or liabilities, recent transactions, market multiples, book values, and other relevant information for the investment to determine the fair value of the investment. An income-based valuation approach may also be used in which the anticipated future cash flows of the investment are discounted to calculate fair value. Discounts may also be applied due to the nature or duration of any restrictions on the disposition of the investments. Due to the inherent uncertainty of valuations of such investments, the fair values may differ significantly from the values that would have been used had an active market existed. The Valuation Committee employs various methods for calibrating these valuation approaches including a regular review of valuation methodologies, key inputs and assumptions, transactional back-testing or disposition analysis, and reviews of any related market activity.

2.  Fair Value Measurement: Financial Accounting Standards Board ("FASB") Accounting Standards CodificationTM ("ASC") 820, "Fair Value Measurement" ("ASC 820"), defines fair value as the value that the Fund would receive to sell an investment or pay to transfer a liability in a timely transaction with an independent buyer in the principal market, or in the absence of a principal market the most advantageous market for the investment or liability. ASC 820 establishes a three-tier hierarchy to distinguish between (1) inputs that reflect the assumptions market participants would use in valuing an asset or liability developed based on market data obtained from sources independent of the reporting entity (observable inputs) and (2) inputs that reflect the reporting entity's own assumptions about the assumptions market participants would use in valuing an asset or liability developed based on the best information available in the circumstances (unobservable inputs) and to establish classification of fair value measurements for disclosure purposes. Various inputs are used in determining the value of the Fund's

investments. The inputs are summarized in the three broad levels listed below.

•  Level 1 – unadjusted quoted prices in active markets for identical investments

•  Level 2 – other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.)

•  Level 3 – significant unobservable inputs including the Fund's own assumptions in determining the fair value of investments. Factors considered in making this determination may include, but are not limited to, information obtained by contacting the issuer, analysts, or the appropriate stock exchange (for exchange-traded securities), analysis of the issuer's financial statements or other available documents and, if necessary, available information concerning other securities in similar circumstances

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities and the determination of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to each security.

The following is a summary of the inputs used to value the Portfolio's investments as of September 30, 2015.

Investment Type

  Level 1
Unadjusted
quoted
prices
(000)
  Level 2
Other
significant
observable
inputs
(000)
  Level 3
Significant
unobservable
inputs
(000)
  Total
(000)
 

Assets:

 

Fixed Income Securities

 
Agency Fixed Rate
Mortgages
 

$

   

$

998

   

$

   

$

998

   

Asset-Backed Security

   

     

202

     

     

202

   
Collateralized Mortgage
Obligations — Agency
Collateral Series
   

     

434

     

     

434

   

Corporate Bonds

   

     

2,212

     

     

2,212

   

U.S. Treasury Security

   

     

193

     

     

193

   
Total Fixed Income
Securities
   

     

4,039

     

     

4,039

   


20



Morgan Stanley Institutional Fund Trust

Annual Report — September 30, 2015

Notes to Financial Statements (cont'd)

Investment Type

  Level 1
Unadjusted
quoted
prices
(000)
  Level 2
Other
significant
observable
inputs
(000)
  Level 3
Significant
unobservable
inputs
(000)
  Total
(000)
 

Short-Term Investments

 

Investment Company

 

$

386

   

$

   

$

   

$

386

   

Repurchase Agreements

   

     

24

     

     

24

   

U.S Treasury Securities

   

     

950

     

     

950

   
Total Short-Term
Investments
   

386

     

974

     

     

1,360

   

Futures Contracts

   

37

     

     

     

37

   
Credit Default Swap
Agreement
   

     

@

   

     

@

 

Total Assets

   

423

     

5,013

     

     

5,436

   

Liabilities:

 

Futures Contracts

   

(46

)

   

     

     

(46

)

 
Credit Default Swap
Agreement
   

     

(9

)

   

     

(9

)

 
Interest Rate Swap
Agreements
   

     

(9

)

   

     

(9

)

 

Total Liabilities

   

(46

)

   

(18

)

   

     

(64

)

 

Total

 

$

377

   

$

4,995

   

$

   

$

5,372

   

@  Value is less than $500

Transfers between investment levels may occur as the markets fluctuate and/or the availability of data used in an investment's valuation changes. The Portfolio recognizes transfers between the levels as of the end of the period. As of September 30, 2015, the Portfolio did not have any investments transfer between investment levels.

3.  Repurchase Agreements: The Portfolio may enter into repurchase agreements under which the Portfolio lends cash and takes possession of securities with an agreement that the counterparty will repurchase such securities. In connection with transactions in repurchase agreements, a bank as custodian for the Portfolio takes possession of the underlying securities which are held as collateral, with a market value at least equal to the amount of the repurchase transaction, including principal and accrued interest. To the extent that any repurchase transaction exceeds one business day, the value of the collateral is marked-to-market on a daily basis to determine that the value of the collateral does not decrease below the repurchase price plus accrued interest as earned. If such a decrease occurs, additional collateral will be requested and, when received, will be added to the account to maintain full collateralization. In the event of default on the obligation to repurchase, the Portfolio has the right to liquidate the collateral and apply the proceeds in satisfaction of the obligation. In the event of default or bankruptcy by the

counterparty to the agreement, realization of the collateral proceeds may be subject to cost and delays. The Portfolio, along with other affiliated investment companies, may utilize a joint trading account for the purpose of entering into repurchase agreements.

4.  Derivatives: The Portfolio may, but is not required to, use derivative instruments for a variety of purposes, including hedging, risk management, portfolio management or to earn income. Derivatives are financial instruments whose value is based, in part, on the value of an underlying asset, interest rate, index or financial instrument. Prevailing interest rates and volatility levels, among other things, also affect the value of derivative instruments. A derivative instrument often has risks similar to its underlying asset and may have additional risks, including imperfect correlation between the value of the derivative and the underlying asset, risks of default by the counterparty to certain transactions, magnification of losses incurred due to changes in the market value of the securities, instruments, indices or interest rates to which the derivative instrument relates, risks that the transactions may not be liquid and risks arising from margin requirements. The use of derivatives involves risks that are different from, and possibly greater than, the risks associated with other portfolio investments. Derivatives may involve the use of highly specialized instruments that require investment techniques and risk analyses different from those associated with other portfolio investments. All of the Portfolio's holdings, including derivative instruments, are marked-to-market each day with the change in value reflected in unrealized appreciation (depreciation). Upon disposition, a realized gain or loss is recognized.

Certain derivative transactions may give rise to a form of leverage. Leverage magnifies the potential for gain and the risk of loss. Leverage associated with derivative transactions may cause the Portfolio to liquidate portfolio positions when it may not be advantageous to do so to satisfy its obligations or to meet earmarking or segregation requirements, pursuant to applicable Securities and Exchange Commission rules and regulations, or may cause the Portfolio to be more volatile than if the Portfolio had not been leveraged. Although the Adviser seeks to use derivatives to further the Portfolio's investment objectives, there is no assurance that the use of derivatives will achieve this result.


21



Morgan Stanley Institutional Fund Trust

Annual Report — September 30, 2015

Notes to Financial Statements (cont'd)

Following is a description of the derivative instruments and techniques that the Portfolio used during the period and their associated risks:

Futures: A futures contract is a standardized, exchange-traded agreement to buy or sell a specific quantity of an underlying asset, reference rate or index at a specific price at a specific future time. The value of a futures contract tends to increase and decrease in tandem with the value of the underlying instrument. Depending on the terms of the particular contract, futures contracts are settled through either physical delivery of the underlying instrument on the settlement date or by payment of a cash settlement amount on the settlement date. During the period the futures contract is open, payments are received from or made to the broker based upon changes in the value of the contract (the variation margin). A decision as to whether, when and how to use futures contracts involves the exercise of skill and judgment and even a well-conceived futures transaction may be unsuccessful because of market behavior or unexpected events. In addition to the derivatives risks discussed above, the prices of futures contracts can be highly volatile, using futures contracts can lower total return, and the potential loss from futures contracts can exceed the Portfolio's initial investment in such contracts. No assurance can be given that a liquid market will exist for any particular futures contract at any particular time. There is also the risk of loss by the Portfolio of margin deposits in the event of bankruptcy of a broker with which the Portfolio has open positions in the futures contract.

Swaps: The Portfolio may enter into over-the-counter ("OTC") swap contracts or cleared swap transactions. A swap contract is an agreement between two parties pursuant to which the parties exchange payments at specified dates on the basis of a specified notional amount, with the payments calculated by reference to specified securities, indices, reference rates, currencies or other instruments. Typically swap agreements provide that when the period payment dates for both parties are the same, the payments are made on a net basis (i.e., the two payment streams are netted out, with only the net amount paid by one party to the other). The Portfolio's obligations or rights under a swap contract entered into on a net basis will generally be equal only to the net amount to be paid or received under the agreement, based on the relative values of the positions held by each party. Cleared swap transactions may help reduce

counterparty credit risk. In a cleared swap, the Portfolio's ultimate counterparty is a clearinghouse rather than a swap dealer, bank or other financial institution. OTC swap agreements are not entered into or traded on exchanges and often there is no central clearing or guaranty function for OTC swaps. These OTC swaps are often subject to credit risk or the risk of default or non-performance by the counterparty. Both OTC and cleared swaps could result in losses if interest rates, foreign currency exchange rates or other factors are not correctly anticipated by the Portfolio or if the reference index, security or investments do not perform as expected. During the period swap agreements are open, payments are received from or made to the clearinghouse or counterparty based upon changes in the value of the contract (variation margin). The Dodd-Frank Wall Street Reform and Consumer Protection Act and related regulatory developments require the clearing and exchange-trading of certain standardized swap transactions. Mandatory exchange-trading and clearing is occurring on a phased-in basis.

The Portfolio's use of swaps during the period included those based on the credit of an underlying security commonly referred to as "credit default swaps." The Portfolio may be either the buyer or seller in a credit default swap. Where the Portfolio is the buyer of a credit default swap contract, it would typically be entitled to receive the par (or other agreed-upon) value of a referenced debt obligation from the counterparty to the contract only in the event of a default or similar event by the issuer of the debt obligation. If no default occurs, the Portfolio would have paid to the counterparty a periodic stream of payments over the term of the contract and received no benefit from the contract. When the Portfolio is the seller of a credit default swap contract, it typically receives the stream of payments but is obligated to pay an amount equal to the par (or other agreed-upon) value of a referenced debt obligation upon the default or similar event by the issuer of the referenced debt obligation. The use of credit default swaps could result in losses to the Portfolio if the Adviser fails to correctly evaluate the creditworthiness of the issuer of the referenced debt obligation.

If the Portfolio is a seller of protection and a credit event occurs, as defined under the terms of that particular swap agreement, the Portfolio will either (i) pay to the buyer of protection an amount equal to the notional


22



Morgan Stanley Institutional Fund Trust

Annual Report — September 30, 2015

Notes to Financial Statements (cont'd)

amount of the swap agreement and take delivery of the referenced obligation, other deliverable obligations or underlying securities comprising the referenced index or (ii) pay a net settlement amount in the form of cash or securities equal to the notional amount of the swap agreement less the recovery value of the referenced obligation or underlying securities comprising the referenced index. If the Portfolio is a buyer of protection and a credit event occurs, as defined under the terms of that particular swap agreement, the Portfolio will either (i) receive from the seller of protection an amount equal to the notional amount of the swap agreement and deliver the referenced obligation, other deliverable obligations or underlying securities comprising the referenced index or (ii) receive a net settlement amount in the form of cash or securities equal to the notional amount of the swap agreement less the recovery value of the referenced obligation or underlying securities comprising the referenced index. Recovery values are estimated by market makers considering either industry standard recovery rates or entity specific factors and considerations until a credit event occurs. If a credit event has occurred, the recovery value is determined by a facilitated auction whereby a minimum number of allowable broker bids, together with a specified valuation method, are used to calculate the settlement value. The Portfolio's maximum risk of loss from counterparty risk, either as the protection seller or as the protection buyer, is the fair value of the swap agreement.

The current credit rating of each individual issuer is listed in the table following the Portfolio of Investments and serves as an indicator of the current status of the payment/performance risk of the credit derivative. Alternatively, for credit default swaps on an index of credits, the quoted market prices and current values serve as an indicator of the current status of the payment/performance risk of the credit derivative. Generally, lower credit ratings and increasing market values, in absolute terms, represent a deterioration of the credit and a greater likelihood of an adverse credit event of the issuer.

When the Portfolio has an unrealized loss on a swap agreement, the Portfolio has instructed the custodian to pledge cash or liquid securities as collateral with a value approximately equal to the amount of the unrealized loss. Collateral pledges are monitored and subsequently

adjusted if and when the swap valuations fluctuate. If applicable, cash collateral is included with "Due from (to) Broker" in the Statement of Assets and Liabilities.

Upfront payments received or paid by the Portfolio will be reflected as an asset or liability, respectively, in the Statement of Assets and Liabilities.

FASB ASC 815, "Derivatives and Hedging" ("ASC 815"), is intended to improve financial reporting about derivative instruments by requiring enhanced disclosures to enable investors to better understand how and why the Portfolio uses derivative instruments, how these derivative instruments are accounted for and their effects on the Portfolio's financial position and results of operations.

The following tables set forth the fair value of the Portfolio's derivative contracts by primary risk exposure as of September 30, 2015.

    Asset Derivatives
Statement of Assets and
Liabilities Location
  Primary Risk
Exposure
  Value
(000)
 
Futures Contracts
 
  Variation Margin on
Futures Contracts
 
Interest Rate Risk
 

$

37

(a)

 
Swap Agreement
 
  Unrealized Appreciation on
Swap Agreement
 
Credit Risk
   

@

 

Total

         

$

37

   
    Liability Derivatives
Statement of Assets and
Liabilities Location
  Primary Risk
Exposure
  Value
(000)
 
Futures Contracts
 
  Variation Margin on
Futures Contracts
 
Interest Rate Risk
 

$

(46

)(a)

 
Swap Agreement
 
  Unrealized Depreciation on
Swap Agreement
 
Credit Risk
   

(9

)

 
Swap Agreements
 
  Variation Margin on
Swap Agreements
 
Interest Rate Risk
   

(9

)(a)

 

Total

         

$

(64

)

 

(a) This amount represents the cumulative appreciation (depreciation) as reported in the Portfolio of Investments. The Statement of Assets and Liabilities only reflects the current day's net variation margin.

@ Amount is less than $500.

The following tables set forth by primary risk exposure the Portfolio's realized gains (losses) and change in unrealized appreciation (depreciation) by type of derivative contract for the year ended September 30, 2015 in accordance with ASC 815.

Realized Gain (Loss)

 

Primary Risk Exposure

 

Derivative Type

  Value
(000)
 

Interest Rate Risk

 

Futures Contracts

 

$

(12

)

 

Credit Risk

 

Swap Agreements

   

(5

)

 

Interest Rate Risk

 

Swap Agreements

   

(73

)

 
   

Total

 

$

(90

)

 


23



Morgan Stanley Institutional Fund Trust

Annual Report — September 30, 2015

Notes to Financial Statements (cont'd)

Change in Unrealized Appreciation (Depreciation)

 

Primary Risk Exposure

 

Derivative Type

  Value
(000)
 

Interest Rate Risk

 

Futures Contracts

 

$

(7

)

 

Credit Risk

 

Swap Agreements

   

(3

)

 

Interest Rate Risk

 

Swap Agreements

   

(28

)

 
   

Total

 

$

(38

)

 

At September 30, 2015, the Portfolio's derivative assets and liabilities are as follows:

Gross Amounts of Assets and Liabilities Presented in the
Statement of Assets and Liabilities
 

Derivatives(b)

  Assets(c)
(000)
  Liabilities(c)
(000)
 

Swap Agreements

 

$

@

 

$

(9

)

 

(b) Excludes exchange traded derivatives

(c) Absent an event of default or early termination, OTC derivative assets and liabilities are presented gross and not offset in the Statement of Assets and Liabilities.

@ Amount is less than $500.

The Portfolio typically enters into International Swaps and Derivatives Association, Inc. Master Agreements ("ISDA Master Agreements") or similar master agreements (collectively, "Master Agreements") with its contract counterparties for certain OTC derivatives in order to, among other things, reduce its credit risk to counterparties. ISDA Master Agreements include provisions for general obligations, representations, collateral and events of default or termination. Under an ISDA Master Agreement, the Portfolio typically may offset with the counterparty certain OTC derivative financial instruments' payables and/or receivables with collateral held and/or posted and create one single net payment (close-out netting) in the event of default, termination and/or potential deterioration in the credit quality of the counterparty. Various Master Agreements govern the terms of certain transactions with counterparties, including transactions such as swap, forward, repurchase and reverse repurchase agreements. These Master Agreements typically attempt to reduce the counterparty risk associated with such transactions by specifying credit protection mechanisms and providing standardization that improves legal certainty. Cross-termination provisions under Master Agreements typically provide that a default in connection with one transaction between the Portfolio and a counterparty gives the non-defaulting party the right to terminate any other transactions in place with the defaulting party to create one single net payment due to/due from the defaulting party and may be a feature in certain Master Agreements. In the event the Portfolio exercises its right to terminate a Master Agreement after a counterparty experiences a termination event as defined in the Master

Agreement, the return of collateral with market value in excess of the Portfolio's net liability may be delayed or denied.

The following table presents derivative financial instruments that are subject to enforceable netting arrangements as of September 30, 2015.

Gross Amounts Not Offset in the Statement of Assets and Liabilities

 

Counterparty

  Gross Asset
Derivatives
Presented in
Statement of
Assets and
Liabilities
(000)
  Financial
Instrument
(000)
  Collateral
Pledged
(000)
  Net Amount
(not less
than $0)
(000)
 

Barclays Bank PLC

 

$

@

 

$

(—

@)

 

$

   

$

0

   

Gross Amounts Not Offset in the Statement of Assets and Liabilities

 

Counterparty

  Gross Liability
Derivatives
Presented in
Statement of
Assets and
Liabilities
(000)
  Financial
Instrument
(000)
  Collateral
Pledged
(000)
  Net Amount
(not less
than $0)
(000)
 

Barclays Bank PLC

 

$

9

   

$

(—

@)

 

$

   

$

9

   

@ Amount is less than $500.

For the year ended September 30, 2015, the approximate average monthly amount outstanding for each derivative type is as follows:

Futures Contracts:

 

Average monthly original value

 

$

9,622,000

   

Swap Agreements:

 

Average monthly notional amount

 

$

4,372,000

   

5.  Securities Lending: The Portfolio lends 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 Portfolio. The Portfolio would receive 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 State Street Bank and Trust Company ("State Street"), 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 an affiliated money market portfolio and repurchase agreements. Securities lending income is generated from the earnings on the invested collateral and borrowing fees, less any rebates owed to the borrowers and


24



Morgan Stanley Institutional Fund Trust

Annual Report — September 30, 2015

Notes to Financial Statements (cont'd)

compensation to the lending agent, and is recorded as "Income from Securities Loaned-Net" in the Portfolio's Statement of Operations. 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.

The Portfolio has the right under the lending agreement to recover the securities from the borrower on demand.

The following table presents securities on loan that are subject to enforceable netting arrangements as of September 30, 2015.

Gross Amounts Not Offset in the Statement of Assets and Liabilities

 
Gross Asset Amounts
Presented in Statement
of Assets and Liabilities
(000)
  Financial
Instrument
(000)
  Collateral
Received
(000)
  Net Amount
(not less
than $0)
(000)
 
$

514

(d)

 

$

   

$

(514

)(e)(f)

 

$

0

   

(d) Represents market value of loaned securities at period end.

(e) The Portfolio received cash collateral of approximately $205,000, of which approximately $192,000 was subsequently invested in Repurchase Agreements and Morgan Stanley Institutional Liquidity Funds as reported in the Portfolio of Investments. As of September 30, 2015, there was uninvested cash of approximately $13,000, which is not reflected in the Portfolio of Investments. In addition, the Portfolio received non-cash collateral of approximately $323,000 in the form of U.S. Government agency securities and U.S. Government obligations, which the Portfolio cannot sell or repledge, and accordingly are not reflected in the Portfolio of Investments.

(f) The actual collateral received is greater than the amount shown here due to overcollateralization.

6.  Indemnifications: The Fund enters into contracts that contain a variety of indemnifications. The Fund's maximum exposure under these arrangements is unknown. However, the Fund has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.

7.  Dividends and Distributions to Shareholders: Dividend income and distributions to shareholders are recorded on the ex-dividend date. Dividends from net investment income, if any, are declared and paid quarterly. Net realized capital gains, if any, are distributed at least annually.

8.  Security Transactions, Income and Expenses: Security transactions are accounted for on the trade date (date the order to buy or sell is executed). Realized gains and losses on the sale of investment securities are determined on the specific identified cost method. Dividend

income and other distributions are recorded on the ex-dividend date (except for certain foreign dividends which may be recorded as soon as the Portfolio is informed of such dividends) net of applicable withholding taxes. Interest income is recognized on the accrual basis except where collection is in doubt. Discounts are accreted and premiums are amortized over the life of the respective securities. Most expenses of the Fund can be directly attributed to a particular Portfolio. Expenses which cannot be directly attributed are apportioned among the Portfolios based upon relative net assets or other appropriate methods. Income, expenses (other than class specific expenses -distribution and shareholder services, transfer agency and sub transfer agency fees) and realized and unrealized gains or losses are allocated to each class of shares based upon their relative net assets.

B. Advisory Fees: The Adviser, a wholly-owned subsidiary of Morgan Stanley, provides the Portfolio with advisory services under the terms of an Investment Advisory Agreement, paid quarterly, at an annual rate of 0.375% of the daily net assets of the Portfolio.

The Adviser has agreed to reduce its advisory fee and/or reimburse the Portfolio so that total annual portfolio operating expenses, excluding certain investment related expenses, taxes, interest and other extraordinary expenses (including litigation), will not exceed 0.50% for Class I shares, 0.85% for Class A shares, 1.10% for Class L shares and 1.60% for Class C shares. The fee waivers and/or expense reimbursements will continue for at least one year from the date of the Portfolio's prospectus or until such time that the Trustees act to discontinue all or a portion of such waivers and/or reimbursements when they deem such action is appropriate. For the year ended September 30, 2015, approximately $47,000 of advisory fees were waived and approximately $174,000 of other expenses were reimbursed by the Adviser pursuant to this arrangement.

C. Administration Fees: The Adviser also serves as Administrator to the Fund and provides administrative services pursuant to an Administration Agreement for an annual fee, accrued daily and paid monthly, of 0.08% of the Portfolio's average daily net assets. Under a Sub-Administration Agreement between the Administrator and State Street, State Street provides certain administrative services to the Fund. For such services, the Administrator pays State Street a portion of the fee the Administrator receives from the Portfolio.


25



Morgan Stanley Institutional Fund Trust

Annual Report — September 30, 2015

Notes to Financial Statements (cont'd)

D. Distribution and Shareholder Services Fees: Morgan Stanley Distribution, Inc. ("MSDI" or the "Distributor"), a wholly-owned subsidiary of the Adviser, and an indirect subsidiary of Morgan Stanley, serves as the Fund's Distributor of Portfolio shares pursuant to a Distribution Agreement. The Fund has adopted a Shareholder Services Plan with respect to Class A shares pursuant to Rule 12b-1 under the Act. Under the Shareholder Services Plan, the Portfolio pays the Distributor a shareholder services fee, accrued daily and paid monthly, at an annual rate of 0.25% of the Portfolio's average daily net assets attributable to Class A shares.

The Fund has adopted a Distribution and Shareholder Services Plan with respect to Class L shares pursuant to Rule 12b-1 under the Act. Under the Distribution and Shareholder Services Plan, the Portfolio pays the Distributor a distribution fee, accrued daily and paid monthly, at an annual rate of 0.25% and a shareholder services fee, accrued daily and paid monthly, at an annual rate of 0.25% of the Portfolio's average daily net assets attributable to Class L shares.

The Fund has adopted a Distribution and Shareholder Services Plan with respect to Class C shares pursuant to Rule 12b-1 under the Act. Under the Distribution and Shareholder Services Plan, the Portfolio pays the Distributor a distribution fee, accrued daily and paid monthly, at an annual rate of 0.75% and a shareholder services fee, accrued daily and paid monthly, at an annual rate of 0.25% of the Portfolio's average daily net assets attributable to Class C shares.

The distribution and shareholder services fees are used to support the expenses associated with servicing and maintaining accounts. The Distributor may compensate other parties for providing shareholder support services to investors who purchase Class A, Class L and Class C shares.

E. Dividend Disbursing and Transfer Agent: The Fund's dividend disbursing and transfer agent is Boston Financial Data Services, Inc. ("BFDS"). Pursuant to a Transfer Agency Agreement, the Fund pays BFDS a fee based on the number of classes, accounts and transactions relating to the Portfolios of the Fund.

F. Custodian Fees: State Street (the "Custodian") serves as Custodian for the Fund in accordance with a Custodian Agreement. The Custodian holds cash, securities, and other assets of the Fund as required by the Act. Custody fees are payable monthly based on assets held in custody, investment purchases and sales activity and account maintenance fees, plus reimbursement for certain out-of-pocket expenses.

G. Security Transactions and Transactions with Affiliates: For the year ended September 30, 2015, purchases and sales of investment securities for the Portfolio, other than long-term U.S. Government securities and short-term investments, were approximately $2,601,000 and $5,402,000, respectively. For the year ended September 30, 2015, purchases and sales of long-term U.S. Government securities were approximately $8,965,000 and $14,807,000, respectively.

The Portfolio invests in the Institutional Class of the Morgan Stanley Institutional Liquidity Funds — Money Market Portfolio (the "Liquidity Funds"), an open-end management investment company managed by the Adviser, both directly and as a portion of the securities held as collateral on loaned securities. Advisory fees paid by the Portfolio are reduced by an amount equal to its pro-rata share of the advisory and administration fees paid by the Portfolio due to its investment in the Liquidity Funds. For the year ended September 30, 2015, advisory fees paid were reduced by approximately $1,000 relating to the Portfolio's investment in the Liquidity Funds.

A summary of the Portfolio's transactions in shares of the Liquidity Funds during the year ended September 30, 2015 is as follows:

Value
September 30,
2014
(000)
  Purchases
at Cost
(000)
  Sales
(000)
  Dividend
Income
(000)
  Value
September 30,
2015
(000)
 
$

1,889

   

$

12,105

   

$

13,608

   

$

1

   

$

386

   

The Portfolio 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 NAV of the Portfolio.

H. Federal Income Taxes: It is the Portfolio's intention to continue to qualify as a regulated investment company and distribute all of its taxable and tax-exempt income. Accordingly, no provision for Federal income taxes is required in the financial statements.

The Portfolio may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on income and/or capital gains earned or repatriated. Taxes are accrued


26



Morgan Stanley Institutional Fund Trust

Annual Report — September 30, 2015

Notes to Financial Statements (cont'd)

based on net investment income, net realized gains and net unrealized appreciation as such income and/or gains are earned. Taxes may also be based on transactions in foreign currency and are accrued based on the value of investments denominated in such currency.

FASB ASC 740-10, "Income Taxes — Overall", sets forth a minimum threshold for financial statement recognition of the benefit of a tax position taken or expected to be taken in a tax return. Management has concluded there are no significant uncertain tax positions that would require recognition in the financial statements. If applicable, the Portfolio recognizes interest accrued related to unrecognized tax benefits in "Interest Expense" and penalties in "Other Expenses" in the Statement of Operations. The Portfolio files tax returns with the U.S. Internal Revenue Service, New York and various states. Each of the tax years in the four-year period ended September 30, 2015, remains subject to examination by taxing authorities.

The tax character of distributions paid may differ from the character of distributions shown in the Statements of Changes in Net Assets due to short-term capital gains being treated as ordinary income for tax purposes. The tax character of distributions paid during fiscal years 2015 and 2014 was as follows:

2015 Distributions
Paid From:
Ordinary Income
(000)
  2014 Distributions
Paid From:
Ordinary Income
(000)
 
$

507

   

$

1,218

   

The amount and character of income and gains to be distributed are determined in accordance with income tax regulations which may differ from GAAP. These book/tax differences are either considered temporary or permanent in nature.

Temporary differences are attributable to differing book and tax treatments for the timing of the recognition of gains (losses) on certain investment transactions and the timing of the deductibility of certain expenses.

Permanent differences, primarily due to basis adjustments for swap transactions and paydown adjustments, resulted in the following reclassifications among the components of net assets at September 30, 2015:

Accumulated
Undistributed
Net Investment
Income
(000)
  Accumulated
Net Realized
Loss
(000)
  Paid-in-
Capital
(000)
 
$

3

   

$

(3

)

 

$

   

At September 30, 2015, the components of distributable earnings for the Portfolio on a tax basis were as follows:

Undistributed
Ordinary
Income
(000)
  Undistributed
Long-Term
Capital Gain
(000)
 
$

168

   

$

   

At September 30, 2015, the Portfolio had available for Federal income tax purposes unused capital losses, which will expire on the indicated dates:

Amount
(000)
 

Expiration

 
$

33,234

   

September 30, 2017

 
  3,319    

September 30, 2018

 

To the extent that capital loss carryforwards are used to offset any future capital gains realized during the carryover period as provided by U.S. Federal income tax regulations, no capital gains tax liability will be incurred by the Portfolio for gains realized and not distributed. To the extent that capital gains are offset, such gains will not be distributed to the shareholders. During the year ended September 30, 2015, the Portfolio utilized capital loss carryforwards for U.S. Federal income tax purposes of approximately $195,000.

Capital losses and specified ordinary losses, including currency losses, incurred after October 31 but within the taxable year are deemed to arise on the first day of the Portfolio's next taxable year. For the year ended September 30, 2015, the Portfolio deferred to October 1, 2015 for U.S. Federal income tax purposes the following losses:

Post-October
Currency And
Specified Ordinary
Losses
(000)
  Post-October
Capital Losses
(000)
 
$

   

$

63

   

I. Other: At September 30, 2015, the Portfolio had otherwise unaffiliated record owners of 10% or greater. Investment activities of these shareholders could have a material impact on the Portfolio. The aggregate percentage of such owners was 87.5%.


27



Morgan Stanley Institutional Fund Trust

Annual Report — September 30, 2015

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Trustees of
Morgan Stanley Institutional Fund Trust —
Core Fixed Income Portfolio

We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of Core Fixed Income Portfolio (one of the portfolios constituting Morgan Stanley Institutional Fund Trust) (the "Portfolio") as of September 30, 2015, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended and the financial highlights for each of the years or periods indicated therein. These financial statements and financial highlights are the responsibility of the Portfolio'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. We were not engaged to perform an audit of the Portfolio's 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 Portfolio'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 and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of September 30, 2015, by correspondence with the custodian and others or by other appropriate auditing procedures where replies from others were not received. 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 Core Fixed Income Portfolio (one of the portfolios constituting Morgan Stanley Institutional Fund Trust) at September 30, 2015, 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 years or periods indicated therein, in conformity with U.S. generally accepted accounting principles.

Boston, Massachusetts
November 25, 2015


28



Morgan Stanley Institutional Fund Trust

Annual Report — September 30, 2015

Investment Advisory Agreement Approval (unaudited)

Nature, Extent and Quality of Services

The Board reviewed and considered the nature and extent of the investment advisory services provided by the Adviser (as defined herein) 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 Adviser under the administration agreement, including accounting, operations, clerical, bookkeeping, compliance, business management and planning, legal services and the provision of supplies, office space and utilities at the Adviser's expense. The Board also considered the Adviser's investment in personnel and infrastructure that benefits the Portfolio. (The advisory and administration agreements together are referred to as the "Management Agreement.") The Board also considered that the Adviser serves a variety of other investment advisory clients and has experience overseeing service providers. 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 advisory services to the Portfolio. 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 Portfolio and supported its decision to approve the Management Agreement.

Performance, Fees and Expenses of the Portfolio

The Board reviewed the performance, fees and expenses of the Portfolio compared to its peers, as determined by Lipper, and to appropriate benchmarks where applicable. The Board discussed with the Adviser the performance goals and the actual results achieved in managing the Portfolio. When considering a fund's performance, the Board and the Adviser place emphasis on trends and longer-term returns (focusing on one-year, three-year and five-year performance, as of December 31, 2014, or since inception, as applicable). When a fund underperforms its benchmark and/or its peer group average, the Board and the Adviser discuss the causes of such underperformance and, where necessary, they discuss specific changes to investment strategy or investment personnel. The Board noted that the Portfolio's performance was better than its peer group average for the one-, three- and five-year periods. The Board discussed with the Adviser the level of the advisory and administration fees (together, the "management fee") for this Portfolio relative to comparable funds and/or other accounts advised by the Adviser and/or compared to its peers as determined by Lipper. In addition to the management fee, the Board also reviewed the Portfolio's total expense ratio. The Board noted that the Portfolio's management fee and total expense ratio were lower than its peer group average. After discussion, the Board concluded that the Portfolio's (i) performance was competitive with its peer group average; and (ii) management fee and total expense ratio were competitive with its peer group averages.

Economies of Scale

The Board considered the size and growth prospects of the Portfolio and how that relates to the Portfolio's total expense ratio and particularly the Portfolio's management fee rate, which does not include breakpoints. In conjunction with its review of the Adviser's profitability, the Board discussed with the Adviser how a change in assets can affect the efficiency or effectiveness of managing the Portfolio and whether the management fee level is appropriate relative to current and projected asset levels and/or whether the management fee structure reflects economies of scale as asset levels change. The Board has determined that its review of the actual and/or potential economies of scale of the Portfolio supports its decision to approve the Management Agreement.

Profitability of the Adviser and Affiliates

The Board considered information concerning the costs incurred and profits realized by the Adviser and its affiliates during the last year from their relationship with the Portfolio 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. The Board has determined that its review of the analysis of the Adviser's expenses and profitability supports its decision to approve the Management Agreement.


29



Morgan Stanley Institutional Fund Trust

Annual Report — September 30, 2015

Investment Advisory Agreement Approval (unaudited) (cont'd)

Other Benefits of the Relationship

The Board considered other direct and indirect benefits to the Adviser and/or its affiliates derived from their relationship with the Portfolio and other funds advised by the Adviser. These benefits may include, among other things, fees for trading, distribution and/or shareholder servicing and for transaction processing and reporting platforms used by securities lending agents, and research received by the Adviser generated from commission dollars spent on funds' portfolio trading. The Board reviewed with the Adviser these arrangements and the reasonableness of the Adviser's costs relative to the services performed. The Board has determined that its review of the other benefits received by the Adviser or its affiliates supports its decision to approve the Management Agreement.

Resources of the Adviser and Historical Relationship Between the Portfolio and the Adviser

The Board considered whether the Adviser is financially sound and has the resources necessary to perform its obligations under the Management Agreement. The Board also reviewed and considered the historical relationship between the Portfolio and the Adviser, including the organizational structure of the Adviser, the policies and procedures formulated and adopted by the Adviser for managing the Portfolio'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 the Adviser has the financial resources necessary to fulfill its obligations under the Management Agreement and that it is beneficial for the Portfolio 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 Portfolio's business.

General Conclusion

After considering and weighing all of the above factors, with various written materials and verbal information presented by the Adviser, the Board concluded that it would be in the best interest of the Portfolio and its shareholders to approve renewal of the Management Agreement for another year. In reaching this conclusion the Board did not give particular weight to any single piece of information or factor referenced above. The Board considered these factors and information over the course of the year and in numerous meetings, some of which were in executive session with only the independent Board members and their counsel present. It is possible that individual Board members may have weighed these factors, and the information presented, differently in reaching their individual decisions to approve the Management Agreement.


30



Morgan Stanley Institutional Fund Trust

Annual Report — September 30, 2015

U.S. Privacy Policy (unaudited)

AN IMPORTANT NOTICE CONCERNING OUR U.S. PRIVACY POLICY

This privacy notice describes the U.S. privacy policy of Morgan Stanley Distribution, Inc., and the Morgan Stanley family of mutual funds ("us", "our", "we").

We are required by federal law to provide you with notice of our U.S. privacy policy ("Policy"). This Policy applies to both our current and former clients unless we state otherwise and is intended for individual clients who purchase products or receive services from us for personal, family or household purposes. This Policy is not applicable to partnerships, corporations, trusts or other non-individual clients or account holders, nor is this Policy applicable to individuals who are either beneficiaries of a trust for which we serve as trustee or participants in an employee benefit plan administered or advised by us. This Policy is, however, applicable to individuals who select us to be a custodian of securities or assets in individual retirement accounts, 401(k) accounts, or accounts subject to the Uniform Gifts to Minors Act.

This notice sets out our business practices to protect your privacy; how we collect and share personal information about you; and how you can limit our sharing or certain uses by others of this information. We may amend this Policy at any time, and will inform you of any changes to our Policy as required by law.

WE RESPECT YOUR PRIVACY

We appreciate that you have provided us with your personal financial information and understand your concerns about your information. We strive to safeguard the information our clients entrust to us. Protecting the confidentiality and security of client information is an important part of how we conduct our business.

This notice describes what personal information we collect about you, how we collect it, when we may share it with others, and how certain others may use it. It discusses the steps you may take to limit our sharing of certain information about you with our affiliated companies, including, but not limited to our affiliated banking businesses, brokerage firms and credit service affiliates. It also discloses how you may limit our affiliates' use of shared information for marketing purposes.

Throughout this Policy, we refer to the nonpublic information that personally identifies you as "personal information." We also use the term "affiliated company" in this notice. An affiliated company is a company in our family of companies and includes companies with the Morgan Stanley name. These affiliated companies are financial institutions such as broker-dealers, banks, investment advisers and credit card issuers. We refer to any company that is not an affiliated company as a nonaffiliated third party. For purposes of Section 5 of this notice, and your ability to limit certain uses of personal information by our affiliates, this notice applies to the use of personal information by our affiliated companies.

1.  WHAT PERSONAL INFORMATION DO WE COLLECT FROM YOU?

We may collect the following types of information about you: (i) information provided by you, including information from applications and other forms we receive from you, (ii) information about your transactions with us or our affiliates, (iii) information about your transactions with nonaffiliated third parties, (iv) information from consumer reporting agencies, (v) information obtained from our websites, and (vi) information obtained from other sources. For example:

•  We collect information such as your name, address, e-mail address, telephone/fax numbers, assets, income and investment objectives through applications and other forms you submit to us.

•  We may obtain information about account balances, your use of account(s) and the types of products and services you prefer to receive from us through your dealings and transactions with us and other sources.

•  We may obtain information about your creditworthiness and credit history from consumer reporting agencies.

•  We may collect background information from and through third-party vendors to verify representations you have made and to comply with various regulatory requirements.

2.  WHEN DO WE DISCLOSE PERSONAL INFORMATION WE COLLECT ABOUT YOU?

We may disclose personal information we collect about you in each of the categories listed above to affiliated and nonaffiliated third parties.


31



Morgan Stanley Institutional Fund Trust

Annual Report — September 30, 2015

U.S. Privacy Policy (unaudited) (cont'd)

a. Information We Disclose to Affiliated Companies.

We may disclose personal information that we collect about you to our affiliated companies to manage your account(s) effectively, to service and process your transactions, and to let you know about products and services offered by us and affiliated companies, to manage our business, and as otherwise required or permitted by law. Offers for products and services from affiliated companies are developed under conditions designed to safeguard your personal information.

b. Information We Disclose to Third Parties.

We may disclose personal information that we collect about you to nonaffiliated third parties to provide marketing services on our behalf or to other financial institutions with whom we have joint marketing agreements. We may also disclose all of the information we collect to other nonaffiliated third parties for our everyday business purposes, such as to process transactions, maintain account(s), respond to court orders and legal investigations, report to credit bureaus, offer our own products and services, protect against fraud, for institutional risk control, to perform services on our behalf, and as otherwise required or permitted by law.

When we share personal information about you with a nonaffiliated third party, they are required to limit their use of personal information about you to the particular purpose for which it was shared and they are not allowed to share personal information about you with others except to fulfill that limited purpose or as may be permitted or required by law.

3.  HOW DO WE PROTECT THE SECURITY AND CONFIDENTIALITY OF PERSONAL INFORMATION WE COLLECT ABOUT YOU?

We maintain physical, electronic and procedural security measures that comply with applicable law and regulations to help safeguard the personal information we collect about you. We have internal policies governing the proper handling of client information by employees. Third parties that provide support or marketing services on our behalf may also receive personal information about you, and we require them to adhere to appropriate security standards with respect to such information.

4.  HOW CAN YOU LIMIT OUR SHARING CERTAIN PERSONAL INFORMATION ABOUT YOU WITH OUR AFFILIATED COMPANIES FOR ELIGIBILITY DETERMINATION?

By following the opt-out procedures in Section 6 below, you may limit the extent to which we share with our affiliated companies, personal information that was collected to determine your eligibility for products and services such as your credit reports and other information that you have provided to us or that we may obtain from third parties ("eligibility information"). Eligibility information does not include your identification information or personal information pertaining to our transactions or experiences with you. Please note that, even if you direct us not to share eligibility information with our affiliated companies, we may still share your personal information, including eligibility information, with our affiliated companies under circumstances that are permitted under applicable law, such as to process transactions or to service your account.

5.  HOW CAN YOU LIMIT THE USE OF CERTAIN PERSONAL INFORMATION ABOUT YOU BY OUR AFFILIATED COMPANIES FOR MARKETING?

By following the opt-out instructions in Section 6 below, you may limit our affiliated companies from marketing their products or services to you based on personal information we disclose to them. This information may include, for example, your income and account history with us. Please note that, even if you choose to limit our affiliated companies from using personal information about you that we may share with them for marketing their products and services to you, our affiliated companies may use your personal information that they obtain from us to market to you in circumstances permitted by law, such as if the affiliated party has its own relationship with you.


32



Morgan Stanley Institutional Fund Trust

Annual Report — September 30, 2015

U.S. Privacy Policy (unaudited) (cont'd)

6.  HOW CAN YOU SEND US AN OPT-OUT INSTRUCTION?

If you wish to limit our sharing of eligibility information about you with our affiliated companies, or our affiliated companies' use of personal information for marketing purposes, as described in this notice, you may do so by:

•  Calling us at (800) 548-7786
Monday–Friday between 8a.m. and 6p.m. (EST)

• Writing to us at the following address:

  Boston Financial Data Services, Inc.
c/o Privacy Coordinator
P.O. Box 219804
Kansas City, Missouri 64121

If you choose to write to us, your request should include: your name, address, telephone number and account number(s) to which the opt-out applies and whether you are opting out with respect to sharing of eligibility information (Section 4 above), or information used for marketing (Section 5 above), or both. Written opt-out requests should not be sent with any other correspondence. In order to process your request, we require that the request be provided by you directly and not through a third party. Once you have informed us about your privacy preferences, your opt-out preference will remain in effect with respect to this Policy (as it may be amended) until you notify us otherwise. If you are a joint account owner, we will accept instructions from any one of you and apply those instructions to the entire account.

Please understand that if you limit our sharing or our affiliated companies' use of personal information, you and any joint account holder(s) may not receive information about our affiliated companies' products and services, including products or services that could help you manage your financial resources and achieve your investment objectives.

If you have more than one account or relationship with us, please specify the accounts to which you would like us to apply your privacy choices. If you have accounts or relationships with our affiliates, you may receive multiple privacy policies from them, and will need to separately notify those companies of your privacy choices for those accounts or relationships.

7.  WHAT IF AN AFFILIATED COMPANY BECOMES A NONAFFILIATED THIRD PARTY?

If, at any time in the future, an affiliated company becomes a nonaffiliated third party, further disclosures of personal information made to the former affiliated company will be limited to those described in Section 2(b) above relating to nonaffiliated third parties. If you elected under Section 6 to limit disclosures we make to affiliated companies, or use of personal information by affiliated companies, your election will not apply to use by any former affiliated company of your personal information in their possession once it becomes a nonaffiliated third party.

SPECIAL NOTICE TO RESIDENTS OF VERMONT

The following section supplements our Policy with respect to our individual clients who have a Vermont address and supersedes anything to the contrary in the above Policy with respect to those clients only.

The State of Vermont requires financial institutions to obtain your consent prior to sharing personal information that they collect about you with nonaffiliated third parties, or eligibility information with affiliated companies, other than in certain limited circumstances. Except as permitted by law, we will not share personal information we collect about you with nonaffiliated third parties or eligibility information with affiliated companies, unless you provide us with your written consent to share such information.

SPECIAL NOTICE TO RESIDENTS OF CALIFORNIA

The following section supplements our Policy with respect to our individual clients who have a California address and supersedes anything to the contrary in the above Policy with respect to those clients only.

In response to a California law, if your account has a California home address, your personal information will not be disclosed to nonaffiliated third parties except as permitted by applicable California law, and we will limit sharing such personal information with our affiliates to comply with California privacy laws that apply to us.


33



Morgan Stanley Institutional Fund Trust

Annual Report — September 30, 2015

Trustee and Officer Information (unaudited)

Independent Trustees:

Name, Age and Address of
Independent Trustee
  Positions(s)
Held with
Registrant
  Length of Time
Served*
  Principal Occupation(s) During Past 5 Years
and Other Relevant Professional Experience
  Number of
Portfolios in
Fund Complex
Overseen by
Trustee**
  Other Directorships
Held by Independent
Trustee***
 
Frank L. Bowman (70)
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, Strategic Decisions, LLC (consulting) (since February 2009); Director or Trustee of various Morgan Stanley Funds (since August 2006); Chairperson of the Compliance and Insurance Committee (since October 2015); Chairperson of the Insurance Sub-Committee of the Compliance and Insurance Committee (since February 2007); served as President and Chief Executive Officer of the Nuclear Energy Institute (policy organization) (February 2005-November 2008); retired as Admiral, U.S. Navy after serving over 38 years on active duty including 8 years as Director of the Naval Nuclear Propulsion Program in the Department of the Navy and the U.S. Department of Energy (1996-2004); served as Chief of Naval Personnel (July 1994-September 1996); and on the Joint Staff as Director of Political Military Affairs (June 1992-July1994); knighted as Honorary Knight Commander of the Most Excellent Order of the British Empire; awarded the Officier de l'Orde National du Mérite by the French Government; elected to the National Academy of Engineering (2009).

 

96

 

Director of BP p.l.c.; Director of Naval and Nuclear Technologies LLP; Director Emeritus of the Armed Services YMCA of the USA; Director of the U.S. Naval Submarine League; Member of the National Security Advisory Council of the Center for U.S. Global Engagement and a member of the CNA Military Advisory Board; Chairman of the Charity J Street Cup Golf ; Trustee of Fairhaven United Methodist Church.

 
Kathleen A. Dennis (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, Cedarwood Associates (mutual fund and investment management consulting) (since July 2006); Chairperson of the Money Market and Alternatives Sub-Committee of the Investment Committee (since October2006) and Director or Trustee of various Morgan Stanley Funds (since August 2006); formerly, Senior Managing Director of Victory Capital Management (1993-2006).

 

96

 

Director of various nonprofit organizations.

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

Trustee

  Since
January
2015
 

Owner, OBIR, LLC (institutional investment management consulting) (since June 2014); formerly, Managing Director, BlackRock, Inc. (February 2011-December 2013); and Chief Executive Officer, General Motors Asset Management (a/k/a Promark Global Advisors, Inc.) (June 2005-May 2010).

 

96

 

Member of Virginia Commonwealth University Board of Visitors; Member of Virginia Commonwealth University School of Business Foundation; formerly, Member of Committee on Directors for Emerging Markets Growth Fund, Inc. (2007-2010); Chairperson of Performance Equity Management, LLC (2006-2010); and Chairperson, GMAM Absolute Return Strategies Fund, LLC (2006-2010).

 


34



Morgan Stanley Institutional Fund Trust

Annual Report — September 30, 2015

Trustee and Officer Information (unaudited) (cont'd)

Independent Trustees: (cont'd)

Name, Age and Address of
Independent Trustee
  Positions(s)
Held with
Registrant
  Length of Time
Served*
  Principal Occupation(s) During Past 5 Years
and Other Relevant Professional Experience
  Number of
Portfolios in
Fund Complex
Overseen by
Trustee**
  Other Directorships
Held by Independent
Trustee***
 
Jakki L. Haussler (58)
c/o Kramer Levin Naftalis & Frankel LLP
Counsel to the Independent Trustees
1177 Avenue of the Americas
New York, NY 10036
 

Trustee

  Since
January
2015
 

Chairman and Chief Executive Officer, Opus Capital Group (since January 1996); and formerly, Director, Capvest Venture Fund, LP (May 2000-December 2011); Partner, Adena Ventures, LP (July 1999-December 2010); Director, The Victory Funds (February 2005-July 2008).

 

96

 

Director of Cincinnati Bell Inc. and Member, Audit Committee and Compensation Committee; Director of Northern Kentucky University Foundation and Member, Investment Committee; Member of Chase College of Law Transactional Law Practice Center Board of Advisors; Director of Best Transport; Member, University of Cincinnati Foundation Investment Committee; formerly, Member, Miami University Board of Visitors (2008-2011); Trustee of Victory Funds (2005-2008) and Chairman, Investment Committee (2007-2008) and Member, Service Provider Committee (2005-2008).

 
Dr. Manuel H. Johnson (66)
c/o Johnson Smick International, Inc.
220 I Street, N.E. —
Suite 200
Washington, D.C. 20002
 

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 various Morgan Stanley Funds (since July 1991); 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.

 

98

 

Director of NVR, Inc. (home construction).

 
Joseph J. Kearns (73)
c/o Kearns & Associates LLC
23823 Malibu Road
S-50-440
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 various Morgan Stanley Funds (since August 1994); formerly, Deputy Chairperson of the Audit Committee (July 2003-September 2006) and Chairperson of the Audit Committee of various Morgan Stanley Funds (since August 1994); CFO of the J. Paul Getty Trust.

 

99

 

Director of Electro Rent Corporation (equipment leasing). Prior to December 31, 2013, Director of The Ford Family Foundation.

 


35



Morgan Stanley Institutional Fund Trust

Annual Report — September 30, 2015

Trustee and Officer Information (unaudited) (cont'd)

Independent Trustees: (cont'd)

Name, Age and Address of
Independent Trustee
  Positions(s)
Held with
Registrant
  Length of Time
Served*
  Principal Occupation(s) During Past 5 Years
and Other Relevant Professional Experience
  Number of
Portfolios in
Fund Complex
Overseen by
Trustee**
  Other Directorships
Held by Independent
Trustee***
 
Michael F. Klein (56)
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); Co-President, Aetos Alternatives Management, LLC (since January 2004); and Co-Chief Executive Officer of Aetos Capital LLC (since August 2013); Chairperson of the Fixed Income Sub-Committee of the Investment Committee (since October 2006) and Director or Trustee of various Morgan Stanley Funds (since August 2006); formerly, Managing Director, Morgan Stanley & Co. Inc. and Morgan Stanley Dean Witter Investment Management, President, various Morgan Stanley Funds (June1998-March 2000) and Principal, Morgan Stanley & Co. Inc. and Morgan Stanley Dean Witter Investment Management (August 1997-December 1999).

 

96

 

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 (79)
522 Fifth Avenue
New York, NY 10036
  Chair of the
Board and
Trustee
  Chair of the Boards since
July 2006 and
Trustee since
July 1991
 

Chair of the Boards of various Morgan Stanley Funds (since July 2006); Chairperson of the Closed-End Fund Committee (since June 2012) and Director or Trustee of various Morgan Stanley Funds (since July 1991); formerly, Chairperson of the Insurance Committee (until July 2006), General Partner, Triumph Capital, L.P. (private investment partnership) (1988-2013).

 

98

 

None.

 
W. Allen Reed (68)
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 Morgan Stanley 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).

 

96

 

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

 
Fergus Reid (83)
c/o Joe Pietryka, Inc.
85 Charles Colman Blvd.
Pawling, NY 12564
 

Trustee

  Since
June
1992
 

Chairman, Joe Pietryka, Inc.; Chairperson of the Governance Committee and Director or Trustee of various Morgan Stanley Funds (since June 1992).

 

99

 

Formerly, Trustee and Director of certain investment companies in the JP Morgan Fund Complex managed by JP Morgan Investment Management Inc. (1987-December 2012).

 


36



Morgan Stanley Institutional Fund Trust

Annual Report — September 30, 2015

Trustee and Officer Information (unaudited) (cont'd)

Interested Trustee:

Name, Age and Address of
Interested Trustee
  Positions(s) Held
with Registrant
  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 (67)
One New York Plaza,
New York, NY 10004
 

Trustee

  Since
June
2000
 

Director or Trustee of various Morgan Stanley Funds (since June 2000); Senior Advisor of Morgan Stanley (since August 2000).

 

97

 

Formerly, Director of AXA Financial, Inc. and AXA Equitable Life Insurance Company (2002-2011) and Director of AXA MONY Life Insurance Company and AXA MONY Life Insurance Company of America (2004-2011).

 

*  This is the earliest date the Trustee began serving the Morgan Stanley Funds. Each Trustee serves an indefinite term, until his or her successor is elected.

**  The Fund Complex includes (as of December 31, 2014) all open-end and closed-end funds (including all of their portfolios) advised by Morgan Stanley Investment Management Inc. (the "Adviser") and any funds that have an adviser that is an affiliated person of the Adviser (including, but not limited to, Morgan Stanley AIP GP LP).

***  This includes any directorships at public companies and registered investment companies held by the Trustee at any time during the past five years.


37



Morgan Stanley Institutional Fund Trust

Annual Report — September 30, 2015

Trustee and Officer Information (unaudited) (cont'd)

Executive Officers:

Name, Age and Address of Executive Officer

  Position(s) Held
with
Registrant
  Length of Time
Served*
 

Principal Occupation(s) During Past 5 Years

 
John H. Gernon (52)
522 Fifth Avenue
New York, NY 10036
 

President and Principal Executive Officer

  Since
September
2013
 

President and Principal Executive Officer of the Equity and Fixed Income Funds and the Morgan Stanley AIP Funds (since September 2013) and the Liquidity Funds and various money market funds (since May 2014) in the Fund Complex, Managing Director of the Adviser; Head of Product (since 2006) and Global Portfolio Analysis and Reporting (since 2012); for MSIM's Long Only business.

 
Stefanie V. Chang Yu (48)
522 Fifth Avenue
New York, NY 10036
  Chief
Compliance
Officer
  Since
December
1997
 

Managing Director of the Adviser and various entities affiliated with the Adviser; Chief Compliance Officer of various Morgan Stanley Funds and the Adviser (since January 2014); formerly, Vice President of various Morgan Stanley Funds (December 1997-January 2014).

 
Joseph C. Benedetti (50)
522 Fifth Avenue
New York, NY 10036
 

Vice President

  Since
January
2014
 

Managing Director of the Adviser and various entities affiliated with the Adviser; Vice President of various Morgan Stanley Funds (since January 2014); formerly, Assistant Secretary of various Morgan Stanley Funds (October 2004-January 2014).

 
Francis J. Smith (50)
522 Fifth Avenue
New York, NY 10036
  Treasurer and
Principal
Financial
Officer
  Treasurer
since July
2003 and
Principal
Financial
Officer since
September
2002
 

Executive Director of the Adviser and various entities affiliated with the Adviser; Treasurer (since July 2003) and Principal Financial Officer of various Morgan Stanley Funds (since September 2002).

 
Mary E. Mullin (48)
522 Fifth Avenue
New York, NY 10036
 

Secretary

  Since
June
1999
 

Executive Director of the Adviser and various entities affiliated with the Adviser; Secretary of various Morgan Stanley Funds (since June 1999).

 

*  This is the earliest date the officer began serving the Morgan Stanley Funds. Each officer serves a one-year term, until his or her successor is elected and has qualified.


38



Morgan Stanley Institutional Fund Trust

Annual Report — September 30, 2015

Adviser and Administrator

Morgan Stanley Investment Management Inc.
522 Fifth Avenue
New York, New York 10036

Distributor

Morgan Stanley Distribution, Inc.
522 Fifth Avenue
New York, New York 10036

Dividend Disbursing and Transfer Agent

Boston Financial Data Services, Inc.
2000 Crown Colony Drive
Quincy, Massachusetts 02169

Custodian

State Street Bank and Trust Company
One Lincoln Street
Boston, Massachusetts 02111

Legal Counsel

Dechert LLP
1095 Avenue of the Americas
New York, New York 10036

Counsel to the Independent Trustees

Kramer Levin Naftalis & Frankel LLP
1177 Avenue of the Americas
New York, New York 10036

Independent Registered Public Accounting Firm

Ernst & Young LLP
200 Clarendon Street
Boston, Massachusetts 02116

Reporting to Shareholders

Each Morgan Stanley fund provides a complete schedule of portfolio holdings in its semi-annual and annual reports within 60 days of the end of the fund's second and fourth fiscal quarters. The semi-annual and 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 semi-annual and annual reports to fund shareholders and makes these reports available on its public website, www.morganstanley.com/im. Each Morgan Stanley fund also files a complete schedule of portfolio holdings with the SEC for the fund's first and third fiscal quarters on Form N-Q. Morgan Stanley does not deliver the reports for the first and third fiscal quarters to shareholders, nor are the reports posted to the Morgan Stanley public website. 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 website, 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 toll free at 1 (800) SEC-0330. You can also request copies of these materials, upon payment of a duplicating fee, by electronic request at the SEC's email address (publicinfo@sec.gov) or by writing the Public Reference Room of the SEC, Washington, DC 20549-0102.

Proxy Voting Policies and Procedures and Proxy Voting Record

You may obtain a copy of the Fund's Proxy Voting Policy and Procedures and information regarding how the Fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30, without charge, upon request, by calling toll free 1 (800) 548-7786 or by visiting our website at www.morganstanley.com/im. This information is also available on the SEC's website at www.sec.gov.

This report is authorized for distribution only when preceded or accompanied by a prospectus of the Morgan Stanley Institutional Fund Trust, which describes in detail each Portfolio's investment policies, risks, fees and expenses. Please read the prospectus carefully before you invest or send money. For additional information, including information regarding the investments comprising the Portfolio, please visit our website at www.morganstanley.com/im or call toll free 1 (800) 548-7786.


39



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Printed in U.S.A.
This Report has been prepared for shareholders and may be distributed to others only if preceded or accompanied by a current prospectus.

Morgan Stanley Investment Management Inc.
522 Fifth Avenue
New York, New York 10036

© 2015 Morgan Stanley. Morgan Stanley Distribution, Inc.

IFTFXDINCANN
1333135 EXP 11.30.16




INVESTMENT MANAGEMENT

Morgan Stanley Institutional Fund Trust

Core Plus Fixed Income Portfolio

Annual Report

September 30, 2015




Morgan Stanley Institutional Fund Trust

Annual Report — September 30, 2015

Table of Contents

Shareholders' Letter

   

2

   

Expense Example

   

3

   

Investment Overview

   

4

   

Portfolio of Investments

   

7

   

Statement of Assets and Liabilities

   

16

   

Statement of Operations

   

18

   

Statements of Changes in Net Assets

   

19

   

Financial Highlights

   

20

   

Notes to Financial Statements

   

24

   

Report of Independent Registered Public Accounting Firm

   

35

   

Investment Advisory Agreement Approval

   

36

   

U.S. Privacy Policy

   

38

   

Trustee and Officer Information

   

41

   

This report is authorized for distribution only when preceded or accompanied by prospectuses of the Morgan Stanley Institutional Fund Trust. To receive a prospectus and/or statement of additional information (SAI), which contains more complete information such as investment objectives, charges, expenses, policies for voting proxies, risk considerations, and describes in detail each of the Portfolio's investment policies to the prospective investor, please call toll free 1 (800) 548-7786. Please read the prospectuses carefully before you invest or send money.

Additionally, you can access portfolio information including performance, characteristics, and investment team commentary through Morgan Stanley Investment Management's website: www.morganstanley.com/im.

Market forecasts provided in this report may not necessarily come to pass. 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 Portfolio in the future. There is no assurance that a Portfolio will achieve its investment objective. Portfolios are subject to market risk, which is the possibility that market values of securities owned by the Portfolio will decline and, therefore, the value of the Portfolio's shares may be less than what you paid for them. Accordingly, you can lose money investing in this Portfolio. Please see the prospectus for more complete information on investment risks.


1



Morgan Stanley Institutional Fund Trust

Annual Report — September 30, 2015

Shareholders' Letter (unaudited)

Dear Shareholders,

We are pleased to provide this Annual report, in which you will learn how your investment in Core Plus Fixed Income Portfolio (the "Portfolio") performed during the latest twelve-month period.

Morgan Stanley Investment Management is a client-centric, investor-led organization. Our global presence, intellectual capital, and breadth of products and services enable us to partner with investors to meet the evolving challenges of today's financial markets. We aim to deliver superior investment service and to empower our clients to make the informed decisions that help them reach their investment goals.

As always, we thank you for selecting Morgan Stanley Investment Management, and look forward to working with you in the months and years ahead.

Sincerely,

John H. Gernon
President and Principal Executive Officer

October 2015


2



Morgan Stanley Institutional Fund Trust

Annual Report — September 30, 2015

Expense Example (unaudited)

Core Plus Fixed Income Portfolio

As a shareholder of the Portfolio, you may incur two types of costs: (1) transactional costs, including sales charge (loads) on purchase payments; and (2) ongoing costs, including advisory fees, administration fees, distribution and shareholder services fees; and other Portfolio expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other mutual funds.

This example is based on an investment of $1,000 invested at the beginning of the six-month period ended September 30, 2015 and held for the entire six-month period (unless otherwise noted).

Actual Expenses

The table below provides information about actual account values and actual expenses. You may use the information in this table, 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 table under the heading entitled "Actual Expenses Paid During Period" to estimate the expenses you paid on your account during this period.

Hypothetical Example for Comparison Purposes

The table below provides information about hypothetical account values and hypothetical expenses based on the Portfolio's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Portfolio'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 costs of investing in the Portfolio 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, if applicable). Therefore, the information for each class in the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

    Beginning
Account
Value
4/1/15
  Actual Ending
Account
Value
9/30/15
  Hypothetical
Ending Account
Value
  Actual
Expenses
Paid
During
Period
  Hypothetical
Expenses Paid
During Period
  Net
Expense
Ratio
During
Period***
 

Core Plus Fixed Income Portfolio Class I

 

$

1,000.00

   

$

983.20

   

$

1,022.51

   

$

2.54

*

 

$

2.59

*

   

0.51

%

 

Core Plus Fixed Income Portfolio Class A

   

1,000.00

     

981.50

     

1,020.76

     

4.27

*

   

4.36

*

   

0.86

   

Core Plus Fixed Income Portfolio Class L

   

1,000.00

     

980.40

     

1,019.50

     

5.51

*

   

5.62

*

   

1.11

   

Core Plus Fixed Income Portfolio Class C

   

1,000.00

     

979.80

     

1,014.21

     

6.68

**

   

6.80

**

   

1.61

   

*  Expenses are calculated using each Portfolio Class' annualized net expense ratio (as disclosed), multiplied by the average account value over the period, and multiplied by 183/365 (to reflect the most recent one-half year period).

**  Expenses are calculated using the Portfolio Class' annualized net expense ratio (as disclosed), multiplied by the average account value over the period, and multiplied by 153/365 (to reflect the actual days in the period).

***  Annualized.


3



Morgan Stanley Institutional Fund Trust

Annual Report — September 30, 2015

Investment Overview (unaudited)

Core Plus Fixed Income Portfolio

The Core Plus Fixed Income Portfolio seeks above-average total return over a market cycle of three to five years.

Performance

For the fiscal year ended September 30, 2015, the Portfolio's Class I shares had a total return based on net asset value and reinvestment of distributions per share of 1.15%, net of fees. The Portfolio's Class I shares underperformed against the Portfolio's benchmark the Barclays U.S. Aggregate Index (the "Index"), which returned 2.94%.

Factors Affecting Performance

•  Concerns over central bank policy around the world and global issues, such as Greece's debt crisis and China's economic slowdown, kept bond markets fairly turbulent during the period. Risk premia rose substantially in the latter months of the period and asset prices suffered. The rise in risk premia was driven by a continued tightening of financial conditions, catalyzed by a devaluation of the Chinese currency in August. This tightening of financial conditions resulted in falling business confidence and generally weaker-than-expected economic data. These factors drove "risk-off" sentiment and led to a widening of credit spreads, an equity market sell-off and a rally in U.S. Treasuries. Furthermore, to the surprise of many, the Federal Reserve (Fed) kept interest rates unchanged and delivered a more dovish-than-expected policy statement at its September 2015 meeting. As an unintended consequence, markets increasingly worried that the negative impact on the U.S. economy's growth dynamics would warrant a ratcheting down of global growth expectations. This fear drove risk premia even higher. The Fed has communicated that its decision to hike rates will be data dependent, which implies some uncertainty on whether a hike will happen this year. Only with a material recovery in labor market indicators over the next few months would a rate hike likely occur this year.

•  Despite a general increase in yields in first half of the period, over the full 12-month period, 5-, 10-, and 30-year Treasury yields ended 41, 36 and 34 basis points lower, respectively.(i) U.S. 2-year yields ended the period relatively flat at 2 basis points higher.

•  Recovering from a volatile fourth quarter of 2014, high yield credit started 2015 on a positive note, as one of the few fixed income sectors to have positive performance in the first quarter of 2015. However, amid economic and geopolitical worries, the U.S. credit markets endured record amounts of new issuance, which eventually pressured yield spreads wider (and prices lower, as bond prices move inversely to yields). Over the course of 2015, credit spreads in all markets have widened materially and are currently at levels which are typically only seen in periods of economic recession or systemic stress. The spreads observable in the investment grade markets include a material risk premium, and spreads in the high yield market are compensating for a significant uptick in defaults. While it is clear that certain emerging markets are seeing a material risk of recession, the consensus is for the developed world to see moderate growth over the coming year. We believe this growth backdrop, combined with low inflation, is likely to lead to ongoing accommodative monetary policy from the central banks around the world, which should keep defaults low and support credit markets.

•  Another driver of credit spreads is the technical balance between supply and demand. Supply volume has been elevated across many of the credit markets. This has been most apparent in the U.S. investment grade market, where a combination of increased merger and acquisition activity and the fear that an interest rate tightening cycle could increase the future cost of long-term debt financing has caused corporate treasurers to turn to the bond markets. As a result, year-to-date new issue volumes have been running at record pace. This is to a lesser extent also true in the U.S. high yield and European investment grade markets. Along with this high level of issuance, demand has been muted as many yield-oriented investors are awaiting higher yields before committing capital to the market. This mismatch between supply and demand has resulted in a higher liquidity premium, which has contributed to the wider credit spreads.

(i)  Source for U.S. Treasury yields: Bloomberg L.P.


4



Morgan Stanley Institutional Fund Trust

Annual Report — September 30, 2015

Investment Overview (unaudited) (cont'd)

Core Plus Fixed Income Portfolio

•  Despite widening in the latter part of the period, agency mortgage-backed securities (MBS) spreads remain historically expensive. Mortgage rates and prepayment speeds have been range-bound, helping support performance so far, but with the possibility of a Fed rate hike in the coming months, volatility and absolute rate levels could rise and MBS duration extension concerns could return. There is also the additional risk that at some point in 2016 the Fed could end their MBS purchase program, whereby it has been buying 25% to 30% of all new origination.

•  Prior to September, non-agency MBS prices had been resilient to broader credit market declines and had traded more as a function of the strong U.S. housing market. However, prices finally began to weaken as relative spread differences became more pronounced at the end of September. In contrast to the price declines, the fundamental market conditions underlying the non-agency MBS market remain very strong. Home prices rose 0.6% in July (down 0.2% on a seasonally adjusted basis), and were up 5.0% year-on-year from July 2014.(ii) New home sales were up 5.7% in August and up 21.6% from August 2014.(iii) Existing home sales were down 1.4% in August, predominantly due to lack of supply, but were still up 6.1% from August 2014.(iv) The volume of outstanding homes for sale fell to a 4.7-month supply based on current sales volumes, down from 5.0-month supply in July and well below the six-month supply that is historically associated with a balanced housing market.(iii) The U.S. homebuilder confidence index climbed to the highest level since November 2005 as housing supply is historically low and housing demand is steadily improving.(v) U.S. household formation was up 2.25 million year-on-year as of June, roughly double the long-term average of roughly 1.15 million per year.(iii) Household formation had been depressed and substantially below historical norms for most for the past seven years, and we are now seeing some of this pent-up demand enter the market. Mortgage performance remains positive. Mortgage defaults were essentially unchanged in August at 0.8%, down 0.1% from August 2014 and well below the nearly 6% level in 2009.(vi)

•  Commercial mortgage-backed securities (CMBS) spreads also widened significantly in the latter half

of the period. Fundamentally, the CMBS sector remains healthy. Retail sales continue to climb, with August numbers up 0.2% from July and up 2.2% from August 2014.(iii) Consumer confidence rose in September to the second highest level in the past eight years.(vii) Hotel occupancy rates are at their highest levels in more than 15 years, exceeding 65% occupancy so far in 2015.(viii) For comparison, the previous credit cycle peak of 2004-2006 averaged roughly 63% occupancy. These high occupancy rates are boosting the performance of the hotel sector of CMBS. The improving economy and employment numbers are also helping reduce office space vacancies. National office vacancy rates fell by 0.4% to 13.5% in the second quarter of 2015 and are expected to fall further this year.(ix) Office rental rates increased at roughly 1.1% in the second quarter of 2015, and this pace of increase is expected to continue based on the declining vacancy rates.(ix)

Management Strategies

•  Throughout the period, the Portfolio was positioned with exposure to the investment grade credit sector, primarily focused on financials, and to the high yield credit sector, as we believe valuations relative to fundamentals have been attractive in these segments. These positions detracted from performance during the period as volatility in global markets pushed spreads wider.

•  The Portfolio also had allocations to non-agency mortgages and CMBS. Non-agency mortgage positions added to performance during the period as the sector remained mostly immune to global volatility; however, CMBS positioning detracted from performance.

(ii)  S&P/Case-Shiller 20-City Composite Home Price Index, an index gauging the value of residential real estate in 20 major U.S. metropolitan areas.

(iii)  U.S. Census Bureau

(iv)  National Association of Realtors

(v)  National Association of Home Builders

(vi)  S&P/Experian First Mortgage Default Index, an index measuring default rates across first mortgages

(vii)  The Conference Board

(viii)  Statistica.com

(ix)  CBRE Group, Inc.


5



Morgan Stanley Institutional Fund Trust

Annual Report — September 30, 2015

Investment Overview (unaudited) (cont'd)

Core Plus Fixed Income Portfolio

•  With regard to interest rate strategy, the Portfolio is positioned using futures and interest rate swaps to be underweight duration at the intermediate part of the yield curve. This detracted from relative performance as rates fell during the period.

•  We continue being overweight spread product (non-government bonds) as we believe the yield advantage could provide attractive returns over the near term.

*  Minimum Investment

In accordance with SEC regulations, the Portfolio's performance shown assumes that all recurring fees (including management fees) were deducted and all dividends and distributions were reinvested. The performance of Class A, Class L and Class C shares will vary from the performance of Class I shares based upon their different inception dates and will be negatively impacted by additional fees assessed to those classes.

Performance Compared to the Barclays U.S. Aggregate Index(1) and the Lipper Core Plus Bond Funds Index(2)

    Period Ended September 30, 2015
Total Returns(3)
 
       

Average Annual

 
    One
Year
  Five
Years
  Ten
Years
  Since
Inception(8)
 
Portfolio — Class I Shares
w/o sales charges(4)
   

1.15

%

   

4.50

%

   

3.41

%

   

7.24

%

 
Portfolio — Class A Shares
w/o sales charges(5)
   

0.90

     

4.21

     

3.14

     

4.58

   
Portfolio — Class A Shares with
maximum 4.25% sales charges(5)
   

–3.39

     

3.31

     

2.69

     

4.34

   
Portfolio — Class L Shares
w/o sales charges(6)
   

0.59

     

     

     

3.28

   
Portfolio — Class C Shares
w/o sales charges(7)
   

     

     

     

–2.02

   
Portfolio — Class C Shares with
maximum 1.00% deferred
sales charges(7)
   

     

     

     

–3.00

   

Barclays U.S. Aggregate Index

   

2.94

     

3.10

     

4.64

     

7.35

   

Lipper Core Plus Bond Funds Index

   

1.14

     

3.71

     

5.10

     

   

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. Performance assumes that all dividends and distributions, if any, were reinvested. Returns for period less than one year are not annualized. For the most recent month-end performance figures, please visit www.morganstanley.com/im. Investment returns and principal value will fluctuate so that Portfolio shares, when redeemed, may be worth more or less than their original cost. Total returns do not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions or the redemption of Portfolio shares. Performance of share classes will vary due to differences in sales charges and expenses.

(1)  The Barclays U.S. Aggregate Index tracks the performance of U.S. government agency and Treasury securities, investment-grade corporate debt securities, agency mortgage-backed securities, asset-backed securities and commercial mortgage-backed securities. 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.

(2)  The Lipper Core Plus Bond Funds Index is an equally weighted performance index of the largest qualifying funds (based on net assets) in the Lipper Core Plus Bond Funds classification. The Index, which is adjusted for capital gains distributions and income dividends, is unmanaged and should not be considered an investment. There are currently 30 funds represented in this Index. As of the date of this report, the Portfolio was in the Lipper Core Plus Bond Funds classification.

(3)  Total returns for the Portfolio reflect expenses waived and/or reimbursed, if applicable, by the Adviser. Without such waivers and/or reimbursements, total returns would have been lower.

(4)  Commenced operations on November 14, 1984.

(5)  Commenced operations on November 7, 1996.

(6)  Commenced operations on April 27, 2012.

(7)  Commenced operations on April 30, 2015.

(8)  For comparative purposes, average annual since inception returns listed for the Indexes refer to the inception date of Class I of the Portfolio, not the inception of the Indexes.


6




Morgan Stanley Institutional Fund Trust

Annual Report — September 30, 2015

Portfolio of Investments

Core Plus Fixed Income Portfolio

    Face
Amount
(000)
  Value
(000)
 

Fixed Income Securities (99.8%)

 

Agency Adjustable Rate Mortgage (0.5%)

 
Federal National Mortgage Association,
Conventional Pool
2.41%, 5/1/35
 

$

959

   

$

1,018

   

Agency Fixed Rate Mortgages (20.1%)

 

Federal Home Loan Mortgage Corporation,

 

Gold Pools:

 

3.50%, 1/1/44

   

1,220

     

1,275

   

5.41%, 2/1/37 - 8/1/37

   

63

     

70

   

5.44%, 1/1/37 - 6/1/38

   

158

     

175

   

5.46%, 5/1/37 - 4/1/38

   

140

     

154

   

5.48%, 8/1/37 - 10/1/37

   

160

     

177

   

5.50%, 8/1/37 - 4/1/38

   

173

     

191

   

5.52%, 9/1/37 - 1/1/38

   

42

     

46

   

5.62%, 12/1/36 - 7/1/38

   

120

     

133

   

6.00%, 10/1/36 - 8/1/38

   

486

     

547

   

6.50%, 3/1/16 - 8/1/33

   

246

     

282

   

7.00%, 6/1/28 - 11/1/31

   

62

     

65

   

November TBA:

 

3.00%, 11/1/45 (a)

   

870

     

877

   

3.50%, 11/1/45 (a)

   

5,900

     

6,126

   

4.00%, 11/1/45 (a)

   

4,647

     

4,938

   

Federal National Mortgage Association,

 

Conventional Pools:

 

3.00%, 5/1/30 - 4/1/45

   

1,907

     

1,955

   

3.50%, 4/1/29

   

782

     

827

   

4.00%, 11/1/41 - 7/1/43

   

5,303

     

5,683

   

4.50%, 3/1/41 - 11/1/44

   

2,869

     

3,174

   

5.00%, 3/1/41

   

473

     

524

   

5.50%, 6/1/35 - 1/1/37

   

144

     

162

   

5.62%, 12/1/36

   

35

     

40

   

6.50%, 11/1/23 - 1/1/34

   

2,021

     

2,316

   

7.00%, 11/1/17 - 1/1/34

   

349

     

381

   

9.50%, 4/1/30

   

292

     

340

   

November TBA:

 

4.50%, 11/1/45 (a)

   

2,061

     

2,233

   

October TBA:

 

3.00%, 10/1/30 (a)

   

506

     

527

   

3.50%, 10/1/30 (a)

   

84

     

89

   

Government National Mortgage Association,

 

October TBA:

 

3.50%, 10/20/45(a)

   

4,831

     

5,060

   

Various Pools:

 

3.50%, 12/15/43

   

798

     

840