<PAGE>
- --------------------------------------------------
OFFICERS AND DIRECTORS
Barton M. Biggs Frederick B. Whittemore
CHAIRMAN OF THE BOARD DIRECTOR
Warren J. Olsen James W. Grisham
PRESIDENT AND DIRECTOR VICE PRESIDENT
John D. Barrett II Harold J. Schaaff, Jr.
DIRECTOR VICE PRESIDENT
Gerard E. Jones Joseph P. Stadler
DIRECTOR VICE PRESIDENT
Andrew McNally, IV Valerie Y. Lewis
DIRECTOR SECRETARY
Samuel T. Reeves Karl Hartmann
DIRECTOR ASSISTANT SECRETARY
Fergus Reid James R. Rooney
DIRECTOR TREASURER
Frederick O. Robertshaw Joanna M. Haigney
DIRECTOR ASSISTANT TREASURER
- --------------------------------------------------
INVESTMENT ADVISER AND ADMINISTRATOR
Morgan Stanley Asset Management Inc.
1221 Avenue of the Americas
New York, New York 10020
- --------------------------------------------------
DISTRIBUTOR
Morgan Stanley & Co. Incorporated
1251 Avenue of the Americas
New York, New York 10020
- --------------------------------------------------
CUSTODIANS
The Chase Manhattan Bank, N.A.
770 Broadway
New York, New York 10003
Morgan Stanley Trust Company
One Pierrepont Plaza
Brooklyn, New York 11210
- --------------------------------------------------
LEGAL COUNSEL
Morgan, Lewis & Bockius
2000 One Logan Square
Philadelphia, Pennsylvania 19103
- --------------------------------------------------
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
- --------------------------------------------------
For current performance, current net asset value, or for assistance with your
account, please contact the Fund at (800) 548-7786. This report is authorized
for distribution only to shareholders and others who have received a copy of the
prospectus of Morgan Stanley Institutional Fund, Inc.
[LOGO] MORGAN STANLEY
INSTITUTIONAL FUND, INC.
P.O. Box 2798
Boston, MA 02208-2798
[LOGO] MORGAN STANLEY
INSTITUTIONAL FUND, INC.
EQUITY GROWTH PORTFOLIO
THIRD QUARTER REPORT
SEPTEMBER 30, 1995
<PAGE>
LETTER TO SHAREHOLDERS
- -------
The Equity Growth Portfolio employs a growth-oriented investment strategy
seeking long-term capital appreciation. The Portfolio seeks to accomplish its
objective by investing primarily in equities of medium and large capitalization
companies exhibiting sustainable earnings growth.
The total return of the Portfolio for the nine month period ended September 30,
1995 was 37.41% compared to 29.73% for the S&P 500 Index for the same period.
The total return of the Portfolio for the twelve months ended September 30, 1995
and the average annual total return for the period since inception on April 2,
1991 through September 30, 1995 were 37.41% and 13.82%, respectively, compared
to 29.71% and 13.57% for the S&P 500 Index for the same periods.
PERFORMANCE COMPARED TO THE S&P 500 INDEX(1)
- ---------------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
-----------------------------------------
AVERAGE
ONE ANNUAL
YTD YEAR SINCE INCEPTION
--------- ----------- -----------------
<S> <C> <C> <C>
PORTFOLIO............... 37.41% 37.41% 13.82%
S&P 500................. 29.73 29.71 13.57
</TABLE>
1. The S&P 500 Index is an unmanaged index of common stocks.
2. Total returns for the Portfolio reflect expenses waived and reimbursed, if
applicable, by the Adviser. Without such waiver and reimbursement, total
returns would be lower.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
- ------------------------------
THE PERFORMANCE RESULTS PROVIDED ARE FOR INFORMATIONAL PURPOSES ONLY AND SHOULD
NOT BE CONSTRUED AS A GUARANTEE OF THE PORTFOLIO'S FUTURE PERFORMANCE. PAST
PERFORMANCE SHOWN IS NOT PREDICTIVE OF FUTURE PERFORMANCE. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY
BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
Importantly, the Portfolio's strong relative performance was achieved without
overweighting the hot technology sector. As of September 30, technology
accounted for just 14% of the Portfolio's net assets, moderately above the S&P
weighting of 11%. Our sense is that many of our growth fund peers had
substantially higher exposure to this volatile sector. Our relative underweight
does not reflect negative sentiment about growth prospects for technology
companies, however. In fact, with many technology stocks correcting since
mid-August, we are now looking to increase our exposure selectively. Our largest
technology holdings include IBM, Microsoft, Intel, Motorola, Applied Materials
and LSI Logic.
During the quarter ended September 30, we cut back our growth cyclicals, taking
some profits and anticipating potential earnings disappointments. For example,
we sold all of our Caterpillar holding, which had risen significantly over the
past 12 to 18 months. Fortunately, we eliminated the position before the company
pre-announced a disappointing September quarter, which caused a sharp sell-off.
We also had substantial profits in the paper sector and we reduced our exposure
there. We do retain some cyclical exposure, but it is a much more selective and
smaller bet than before. Our largest growth cyclical positions tend to be in
companies with both strong business momentum and some restructuring or margin
gain potential. Examples include United Technologies, Burlington Northern and
Boeing.
After a sizzling summer for high beta growth stocks, we also decided to pare
back this area, shifting money into selected larger cap stocks that had lagged.
For example, General Nutrition, a growth retailer and one of our top holdings
until recently, nearly doubled over the past six months. We still own it but
have cut our position in half. We also cut back on names like HFS, CUC
International, New World Communications and Boston Chicken, all of which had
dramatic gains.
Consumer staple stocks remain a big component of the Portfolio. This area, which
includes tobacco, beverages, packaged food, household products and drugs,
represented 23% of net assets at September 30. The better
2
<PAGE>
positioned consumer staple companies have global franchises that drive solid
volume growth and enjoy pricing flexibility, high returns and generate excess
cash. Philip Morris has been the largest holding in the Portfolio for most of
1995, and we actually added to the position in the third quarter. At about $85,
it is up over 45% year-to-date, yet the stock still trades at only 13 and 11
times projected 1995 and 1996 earnings, respectively. Reported earnings are
reduced by a large amount of goodwill amortization, a non-cash expense that is
nothing more than an accounting entry. Adjusted for this, Philip Morris trades
at just 10.3 times projected 1996 earnings. The dividend yield, at 4.8%, is
about twice the level of the S&P 500, and we expect 15-20% annual increases in
the company's dividend over the next 3-5 years.
Our enthusiasm for Philip Morris derives from several factors. First, business
is very strong and the growth which characterized the company before "Marlboro
Friday" is firmly re-established. Second, management is much more shareholder
oriented than in prior years -- a powerful point given the enormous free cash
flow generated by the company. And third, the stock continues to trade at a big
discount to other consumer nondurables, due to the constant flow of negative
publicity regarding the tobacco industry. While the stock's p/e has expanded,
its discount to other consumer nondurables has not narrowed, but we believe a
narrowing of the spread is very possible given the dramatic improvement in
company fundamentals. If this were to occur, and assuming consumer nondurable
stock p/e ratios stay flat, Philip Morris could trade to $120 over the next
year. If a narrowing of the discount does not occur, we have a 4.8% yield and
annual earnings growth of +15%. Our other significant consumer staple holdings
include UST, Coca Cola, PepsiCo, Kellogg, Ralston Purina, Schering Plough,
American Home Products and Pfizer. Each appears to have a high degree of
earnings predictability, double digit EPS growth prospects and strong cash flow
generation.
Another important sector for the Portfolio is financials. At September 30, the
financial sector weighting was 19% versus 13% for the S&P 500, with the most
important holdings including American Express, Fannie Mae, Wells Fargo, Exel,
Citicorp, Ace Ltd. and Ahmanson. Selected financial service companies are
exhibiting growth characteristics due to a confluence of factors. First, the
American corporate and individual balance sheet is in its best condition in
years, which lowers credit costs. Second, due to the financial crises of the
early 1990s, managements have been in a cost-cutting and capital building mode
for several years. Now, with excess capital being used for consolidation and big
buybacks, EPS growth is rapid even with only modest top-line increases. And
third, some financial service companies have been able to tap into certain
secular trends to create significant top-line growth. For example, American
Express is well positioned to exploit the trend toward credit and charge cards
and away from cash.
Against the backdrop of moderate inflation, favorable interest rates, and most
importantly, good earnings growth, we continue to find exciting growth stock
opportunities for the Portfolio. We ended the quarter with approximately 6% in
cash.
3
<PAGE>
INVESTMENTS (UNAUDITED)
- ----------
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ----------- -----------
<C> <S> <C>
COMMON STOCKS (93.3%)
CAPITAL GOODS/CONSTRUCTION (10.6%)
AEROSPACE & DEFENSE (9.8%)
17,500 Boeing Co. $ 1,194
34,400 General Dynamics Corp. 1,888
25,500 Litton Industries, Inc. 1,109
41,500 Lockheed Martin Corp. 2,786
8,600 Loral Corp. 490
48,000 McDonnell Douglas Corp. 3,972
46,400 United Technologies Corp. 4,101
-----------
15,540
-----------
ELECTRICAL EQUIPMENT (0.8%)
18,700 General Electric Co. 1,192
-----------
TOTAL CAPITAL GOODS/CONSTRUCTION 16,732
-----------
CONSUMER-CYCLICAL (16.5%)
AUTOMOTIVE (2.4%)
19,092 Chrysler Corp. 1,012
30,000 Ford Motor Co. 934
20,800 General Motors Corp. 975
22,300 Goodyear Tire & Rubber Co. 878
-----------
3,799
-----------
BROADCAST-RADIO & TELEVISION (2.0%)
10,600 CBS, Inc. 847
52,400 New World Communications Group, Inc. 1,081
25,918 Viacom, Inc., Class B 1,289
-----------
3,217
-----------
ENTERTAINMENT & LEISURE (1.9%)
27,100 AMC Entertainment, Inc. 481
46,300 Carmike Cinemas, Inc., Class A 1,019
26,000 Walt Disney Co. 1,492
-----------
2,992
-----------
FOOD SERVICE & LODGING (1.0%)
17,300 HFS, Inc. 906
26,500 La Quinta Inns, Inc. 742
-----------
1,648
-----------
GAMING & LODGING (0.2%)
20,500 Trump Hotels & Casino Resort 349
-----------
LEISURE RELATED (1.6%)
21,600 Eastman Kodak Co. 1,280
55,200 Toy Biz, Inc. 1,325
-----------
2,605
-----------
PUBLISHING (1.7%)
32,500 Gannett Co., Inc. 1,775
31,300 New York Times Co., Class A 857
-----------
2,632
-----------
<CAPTION>
VALUE
SHARES (000)
- ----------- -----------
<C> <S> <C>
RETAIL-GENERAL (5.7%)
38,800 AutoZone, Inc. $ 989
85,700 Family Dollar Stores, Inc. 1,629
45,200 General Nutrition Cos., Inc. 2,057
32,000 Harcourt General, Inc. 1,340
14,700 Home Depot, Inc. 586
3,700 NIKE, Inc., Class B 411
17,600 PetSmart, Inc. 594
22,200 Tandy Corp. 1,349
-----------
8,955
-----------
TOTAL CONSUMER-CYCLICAL 26,197
-----------
CONSUMER-STAPLES (22.6%)
BEVERAGES & TOBACCO (13.0%)
40,900 Coca Cola Co. 2,822
47,200 PepsiCo, Inc. 2,407
151,900 Philip Morris Cos., Inc. 12,684
90,900 UST, Inc. 2,602
-----------
20,515
-----------
DRUGS (4.5%)
20,900 American Home Products Corp. 1,774
22,500 Merck & Co., Inc. 1,260
42,300 Pfizer, Inc. 2,258
35,700 Schering-Plough Corp. 1,838
-----------
7,130
-----------
FOOD (3.2%)
34,700 Kellogg Co. 2,511
44,200 Ralston Purina Group 2,558
-----------
5,069
-----------
HEALTH CARE SUPPLIES & SERVICES (1.0%)
33,000 Columbia/HCA Healthcare Corp. 1,605
-----------
PERSONAL CARE PRODUCTS (0.9%)
5,500 Procter & Gamble Co. 423
20,800 Scott Paper Co., Series A 1,009
-----------
1,432
-----------
TOTAL CONSUMER-STAPLES 35,751
-----------
DIVERSIFIED (1.8%)
33,200 AlliedSignal, Inc. 1,465
21,000 Textron, Inc. 1,433
-----------
TOTAL DIVERSIFIED 2,898
-----------
ENERGY (1.9%)
COAL, GAS, & OIL (1.9%)
14,300 Mobil Corp. 1,425
12,800 Royal Dutch Petroleum Co. 1,571
-----------
TOTAL ENERGY 2,996
-----------
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ----------- -----------
<C> <S> <C>
FINANCE (19.0%)
BANKING (6.6%)
101,400 Ahmanson (H.F.) & Co. $ 2,573
19,400 Chase Manhattan Corp. 1,186
32,200 Citicorp 2,278
23,800 Morgan (J.P.) & Co., Inc. 1,842
13,200 Wells Fargo & Co. 2,450
-----------
10,329
-----------
FINANCIAL SERVICES (8.4%)
100,700 American Express Co. 4,469
19,500 Dean Witter Discover & Co. 1,097
16,600 Federal Home Loan Mortgage Corp. 1,147
27,500 Federal National Mortgage Association 2,846
22,600 Franklin Resources, Inc. 1,302
16,200 Loews Corp. 2,357
-----------
13,218
-----------
INSURANCE (4.0%)
60,200 Ace, Ltd. 2,069
3,800 CIGNA Corp. 396
58,300 Exel Ltd. 3,389
24,900 PartnerRe Holdings, Ltd. 616
-----------
6,470
-----------
TOTAL FINANCE 30,017
-----------
MATERIALS (3.5%)
CHEMICALS (2.5%)
26,400 Hercules, Inc. 1,531
11,600 IMC Global, Inc. 735
9,100 Monsanto Co. 917
10,800 Olin Corp. 743
-----------
3,926
-----------
FOREST PRODUCTS & PAPER (0.5%)
14,400 Champion International Corp. 776
-----------
METALS (0.5%)
16,100 Aluminum Company of America 851
-----------
TOTAL MATERIALS 5,553
-----------
SERVICES (3.0%)
BUSINESS SERVICES (0.7%)
40,600 Bell & Howell Holding Co. 1,035
-----------
PROFESSIONAL SERVICES (0.9%)
38,750 CUC International, Inc. 1,351
-----------
TRANSPORTATION (1.4%)
10,800 AMR Corp. 779
20,500 Burlington Northern, Inc. 1,486
-----------
2,265
-----------
TOTAL SERVICES 4,651
-----------
<CAPTION>
VALUE
SHARES (000)
- ----------- -----------
<C> <S> <C>
TECHNOLOGY (14.4%)
COMPUTERS (3.2%)
14,250 Cabletron Systems, Inc. $ 939
17,200 Hewlett Packard Co. 1,434
21,600 International Business Machines Corp. 2,038
8,300 Micron Technology, Inc. 660
-----------
5,071
-----------
ELECTRONICS (6.5%)
17,500 Applied Materials, Inc. 1,789
27,500 Intel Corp. 1,653
29,400 LSI Logic Corp. 1,698
24,700 Motorola, Inc. 1,886
23,600 Texas Instruments, Inc. 1,885
23,600 Watkins-Johnson Co. 1,292
-----------
10,203
-----------
SOFTWARE SERVICES (1.7%)
12,000 Intuit, Inc. 564
14,000 Microsoft Corp. 1,267
21,100 Oracle System Corp. 810
-----------
2,641
-----------
TELECOMMUNICATIONS (3.0%)
14,400 AirTouch Communications, Inc. 441
36,300 American Telephone & Telegraph Corp. 2,387
75,600 MCI Communications Corp. 1,966
-----------
4,794
-----------
TOTAL TECHNOLOGY 22,709
-----------
TOTAL COMMON STOCKS (Cost $121,452) 147,504
-----------
<CAPTION>
FACE
AMOUNT
(000)
- -----------
<C> <S> <C>
SHORT-TERM INVESTMENT (6.0%)
REPURCHASE AGREEMENT (6.0%)
$ 9,457 Goldman Sachs, 6.40%, dated 9/29/95, due
10/02/95, to be repurchased at $9,462,
collateralized by $7,495 United States Treasury
Bonds 9.25%, due
2/15/16, valued at $9,736 (Cost $9,457) 9,457
-----------
TOTAL INVESTMENTS (99.3%) (Cost $130,909) 156,961
-----------
</TABLE>
<TABLE>
<S> <C> <C>
OTHER ASSETS AND LIABILITIES (0.7%)
Other Assets 4,498
Liabilities (3,334)
-----------
1,164
-----------
NET ASSETS (100%) $ 158,125
-----------
-----------
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
Applicable to 10,085,765 outstanding $.001 par
value shares (authorized 500,000,000 shares)
$15.68
-----------
-----------
</TABLE>
5
