<PAGE>
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MORGAN STANLEY
MORGAN STANLEY
INSTITUTIONAL FUND, INC.
SEMI-ANNUAL REPORT
[LOGO]
JUNE 30, 1995
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
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TABLE OF CONTENTS
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<TABLE>
<S> <C>
President's Letter.......................... 1
Performance Summary......................... 2
Managers' Reports and Statements of Net
Assets by Portfolio:
Global and International Equity Portfolios
Active Country Allocation................. 3
Asian Equity.............................. 14
Emerging Markets.......................... 20
European Equity .......................... 29
Global Equity ............................ 33
Gold...................................... 36
International Equity ..................... 39
International Small Cap................... 46
Japanese Equity........................... 51
Latin American............................ 54
US Equity Portfolios
Aggressive Equity......................... 59
Emerging Growth........................... 63
Equity Growth............................. 67
Small Cap Value Equity.................... 71
U.S. Real Estate.......................... 75
Value Equity.............................. 79
Balanced Portfolio.......................... 83
Fixed Income Portfolios
Emerging Markets Debt..................... 87
Fixed Income.............................. 91
Global Fixed Income....................... 94
High Yield................................ 99
Municipal Bond............................ 104
Money Market Portfolios
Money Market.............................. 108
Municipal Money Market.................... 110
Statement of Operations..................... 116
Statement of Changes in Net Assets.......... 120
Financial Highlights ....................... 132
Notes to Financial Statements............... 144
Officers and Directors ..................... 153
</TABLE>
This report is authorized for distribution only when preceded or accompanied by
prospectuses of the Morgan Stanley Institutional Fund, Inc. Prospectuses
describe in detail each of the Portfolio's investment policies to the
prospective investor. Please read the prospectuses carefully before you invest
or send money.
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<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
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PRESIDENT'S LETTER
- - --------------------------------------------------------------------------------
FELLOW SHAREHOLDERS,
We are pleased to present the Fund's semi-annual report for the six months ended
June 30, 1995. Our Fund now offers 24 separate portfolios -- 10 global and
international equity portfolios, six U.S. equity portfolios, a balanced
portfolio, five fixed income portfolios, and two money market portfolios.
The first half of 1995 saw strong U.S. equity and fixed income markets, a weak
Japanese equity market, reasonable European markets, mediocre Asian equity
markets and difficult markets in Latin America. Against this mixed backdrop,
many of our portfolios had strong absolute and relative performance. Our U.S.
Equity Growth Portfolio, managed by Kurt Feuerman and his team, had extremely
strong performance and was up 23.05% for the first half of the year, well ahead
of the S&P 500 which was up 20.19% for the comparable period. Our U.S. Value
Equity Portfolio, managed by our Chicago team of Mike Crowe, Steve Sexauer and
Al Zick also posted strong performance and was up 19.41% for the first half of
the year. Although the Value Equity Portfolio's performance slightly lags the
increase in the S&P 500, given that many of the strongest performers in the U.S.
equity market were technology and other "growth" companies that do not fit in a
"value" portfolio, the Value Equity Portfolio's performance was also very
strong.
On the fixed income side, our High Yield Portfolio, managed by Bob Angevine and
his team, and the Emerging Markets Debt Portfolio, managed by Paul Ghaffari and
his team, each posted strong absolute and relative returns. Our U.S. Fixed
Income Portfolio also performed well in the strong bond market, posting a return
in line with its applicable benchmark index.
Although the international equity markets were generally not as strong as the
U.S. equity market during the first half of 1995, several of our non-U.S. equity
portfolios posted strong relative performance. The International Equity
Portfolio and Global Equity Portfolio each continue to well outperform their
respective benchmarks, while our Emerging Markets Portfolio and Asian Equity
Portfolio performed in line with their respective indexes.
One of our newest portfolios, the U.S. Real Estate Portfolio, which was launched
on February 24, 1995 got off to a good start, posting a total return of 8.30%
from inception to June 30, compared to a 5.34% return for its applicable
benchmark index.
Our report contains a summary of all the Portfolios' performance on page 2, as
well as detailed investment manager's reports for each of the Portfolios on the
following pages. We hope you find this information useful and informative.
Sincerely,
[SIGNATURE]
Warren J. Olsen
PRESIDENT
August 22, 1995
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1
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
PERFORMANCE SUMMARY (UNAUDITED)
JUNE 30, 1995
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30, 1995
--------------------------------------------------------------------------------
AVERAGE
ANNUAL
TOTAL
AVERAGE RETURN
NET SIX MONTHS ONE YEAR ANNUAL SINCE
ASSET SIX TOTAL RETURN ONE TOTAL RETURN TOTAL INCEPTION
VALUE MONTHS FOR YEAR FOR RETURN FOR
INCEPTION PER TOTAL COMPARABLE TOTAL COMPARABLE SINCE COMPARABLE
DATES SHARE RETURN INDEXES RETURN INDEXES INCEPTION INDEXES
--------- ------- ------- ------------ ------- ------------ ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GLOBAL AND INTERNATIONAL
EQUITY PORTFOLIOS:
Active Country Allocation 1/17/92 $11.00 -1.81% 2.60%(2) -2.48% 1.65%(2) 6.04% 9.02%(2)
Asian Equity 7/01/91 20.46 7.04 7.00(1) 9.64 7.19(1) 24.98 21.38(1)
Emerging Markets 9/25/92 14.21 -7.46 -8.47(5) -7.35 -1.32(5) 18.25 18.86(5)
European Equity 4/02/93 14.12 11.10 12.87(4) 12.15 18.78(4) 22.94 16.20(4)
Global Equity 7/15/92 14.75 12.11 9.14(3) 12.95 10.67(3) 19.31 11.69(3)
Gold 2/01/94 9.53 7.47 10.95(14) 10.62 5.62(14) -1.18 -8.52(14)
International Equity 8/04/89 15.25 4.88 2.60(2) 7.76 1.65(2) 10.59 2.45(2)
International Small Cap 12/15/92 15.43 2.03 2.60(2) -5.23 1.65(2) 19.58 16.16(2)
Japanese Equity 4/25/94 8.19 -16.68 -8.32(15) -21.33 -14.35(15) -15.56 -5.21(15)
Latin American 1/18/95 8.80 -12.00* -8.00(17)* N/A N/A N/A N/A
US EQUITY PORTFOLIOS:
Aggressive Equity 3/08/95 11.81 18.33* 12.57(18)* N/A N/A N/A N/A
Emerging Growth 11/01/89 18.24 13.15 24.14(6) 28.18 32.22(6) 11.36 13.50(6)
Equity Growth 4/02/91 14.16 23.05 20.19(7) 30.74 26.03(7) 11.76 12.39(7)
Small Cap Value Equity 12/17/92 11.51 11.44 16.96(8) 15.59 22.73(8) 10.56 13.91(8)
U.S. Real Estate 2/24/95 10.83 8.30* 5.34(19)* N/A N/A N/A N/A
Value Equity 1/31/90 13.06 19.41 20.19(7) 18.77 26.03(7) 10.69 13.15(7)
BALANCED PORTFOLIO 2/20/90 9.73 14.25 14.40(9) 13.86 17.70(9) 9.75 10.39(9)
FIXED INCOME PORTFOLIOS:
Emerging Markets Debt 2/01/94 9.02 11.32 9.23(16) 17.19 10.94(16) -3.13 -8.08(16)
Fixed Income 5/15/91 10.54 11.14 11.45(10) 12.50 12.55(10) 8.60 8.93(10)
Global Fixed Income 5/01/91 11.15 12.55 15.56(11) 13.22 17.46(11) 8.56 11.61(11)
High Yield 9/28/92 10.30 14.43 10.77(12) 12.00 12.50(12) 11.60 10.76(12)
Municipal Bond 1/18/95 10.26 4.22* 6.24(20)* N/A N/A N/A N/A
MONEY MARKET PORTFOLIOS:
Money Market 11/15/88 1.00 N/A N/A N/A N/A N/A N/A
Municipal Money Market 2/10/89 1.00 N/A N/A N/A N/A N/A N/A
<FN>
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INDEXES:
(1) MSCI Combined Far East Free ex-Japan
(2) MSCI EAFE (Europe, Australia, and Far East)
(3) MSCI World
(4) MSCI Europe
(5) IFC Global Total Return Composite
(6) NASDAQ Composite
(7) S&P 500
(8) Russell 2500
(9) Indata Balanced-Median
(10) Lehman Aggregate Bond
(11) JP Morgan Traded Global Bond
(12) CS First Boston High Yield
(13) Donaghue's Money Fund Report
(14) Philadelphia Gold and Silver
(15) MSCI Japan
(16) JP Morgan Emerging Markets Bond
(17) MSCI Latin America Global
(18) Lipper Capital Appreciation
(19) NAREIT ex-healthcare REITs
(20) Lehman 7 yr Municipal Bond
</TABLE>
<TABLE>
<CAPTION>
YIELD INFORMATION AS OF JUNE 30, 1995
- - ------------------------------------------------------------------------------------------------------------------------
7 DAY 7 DAY 30 DAY
CURRENT EFFECTIVE 30 DAY COMPARABLE
30 DAY YIELD+++ YIELD++ YIELD++ YIELD+++ YIELD
---------------- ------------ ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Fixed Income Money Market
Portfolios: Portfolios:
Emerging Markets 5.45% 5.59% 5.52% 5.43%(13)
Debt 12.06% Money Market
Municipal Money
Fixed Income 6.92 Market 3.71 3.78 3.48 3.31(13)
Global Fixed
Income 6.79
High Yield 11.00
Municipal Bond 4.33
<FN>
- - --------------------------------------------------------------------------------
++ The 7 day current yield and 7 day effective yield assume an annualization
of the current yield at June 30, 1995 with all dividends reinvested. As
with all money market portfolios, yields fluctuate as market conditions
change and the 7 day yields are not necessarily indicative of future
performance.
+++ The current 30 day yield reflects the net investment income generated by
the Portfolio over a specified 30-day period expressed as an annual
percentage. Expenses accrued for the 30-day period include any fees charged
to all shareholders. Yields will fluctuate as market conditions change and
are not necessarily indicative of future performance.
* Cumulative (unannualized) total return since inception of the Portfolio.
</TABLE>
Past performance should not be construed as a guarantee of future performance.
Investment return and principal value will fluctuate so that investor's shares,
when redeemed, may be worth more or less than their original cost. Investments
in the Money Market and Municipal Money Market Portfolios are neither insured
nor guaranteed by the US Government. There is no assurance that the Money Market
and Municipal Money Market Portfolios will be able to maintain a stable net
asset value of $1.00 per share. Please read the Portfolio's prospectus carefully
before you invest or send money.
- - --------------------------------------------------------------------------------
2
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
OVERVIEW
- - --------------------------------------------------------------------------------
THE ACTIVE COUNTRY ALLOCATION PORTFOLIO
COMPOSITION OF NET ASSETS (AT JUNE 30, 1995)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Australia 2%
Belgium 4
Brazil 1.4
France 7.8
Germany 4
Hong Kong 5
Indonesia 4.4
Italy 2
Japan 28.3
Malaysia 1.9
Netherlands 5
Portugal 2.6
Singapore 2.9
Spain 2.9
Switzerland 3.1
Thailand 1.9
United Kingdom 15.3
Other 5.5
</TABLE>
PERFORMANCE COMPARED TO MORGAN STANLEY
CAPITAL INTERNATIONAL (MSCI) EAFE INDEX(1)
- - -------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
---------------------------------------------
AVERAGE ANNUAL
YTD ONE YEAR SINCE INCEPTION
---------- ------------ -------------------
<S> <C> <C> <C>
PORTFOLIO.............. -1.81% -2.48% 6.04%
INDEX.................. 2.60 1.65 9.02
<FN>
1. The MSCI EAFE Index is an unmanaged index of common stocks and includes
Europe, Australia and the Far East (assumes dividends reinvested net of
withholding taxes).
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.
</TABLE>
THE COUNTRY SPECIFIC PERFORMANCE RESULTS PROVIDED ARE AS MEASURED BY THE MSCI
EAFE INDEX AND 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. PLEASE SEE THE PROSPECTUS FOR A DESCRIPTION OF CERTAIN
RISK CONSIDERATIONS ASSOCIATED WITH INTERNATIONAL INVESTING.
The Active Country Allocation Portfolio invests in international equity markets,
with emphasis placed upon country, rather that stock selection. This approach
reflects our belief that a diversified selection of securities representing
exposure to countries that we find attractive provides an effective way to
maximize the return and minimize the risk associated with global investing.
The total return of the Portfolio for the six month period ended June 30, 1995
was -1.81% as compared to 2.60% for the Morgan Stanley Capital International
(MSCI) EAFE Index for the same period. The total return for the twelve months
ended June 30, 1995, and the average annual return for the period from inception
in January 1992 through June 30, 1995 for the Portfolio were -2.48% and 6.04%,
respectively, as compared to 1.65% and 9.02% for the Index for the same periods.
During the second quarter, global equity markets rose on the back of currency
stability, interest rate relief and upside earnings surprises. The exception was
Japan, which faced the massive challenges of a still overvalued currency,
deflation, government paralysis and banking sector uncertainty.
For the first half, regional returns in U.S. dollars (as measured by the Morgan
Stanley Capital International indices, with net dividends reinvested) were:
Europe 6.3%, Japan -6.5%, the Pacific ex-Japan 6.1%, and the Emerging Markets
9.7%.
For the first half, the Portfolio's underweight in Japan was the most
significant contributor to the Portfolio's return, followed by our allocations
to Australia, Asia and some of the emerging markets. The single biggest
detractor from Portfolio returns was the yen hedge in the first quarter, despite
the dollar comeback in the latter part of the second quarter.
Within Europe, our overweights in Belgium, France, Italy, the Netherlands,
Portugal and Spain paid off nicely, although our underweights in Germany,
Switzerland, the Nordic countries, and the U.K. detracted from performance.
Within the Pacific ex-Japan, our overweights in Australia, Hong Kong and
Singapore added to returns, although performance was negatively impacted by our
zero weighting in Malaysia. In the emerging markets, our allocation to
Indonesia, which surged 28.2% for the quarter, added nicely to performance, as
did our Latin American allocations to Argentina, Mexico and Brazil.
In June and early July, we brought the Portfolio's Japan weighting up to neutral
versus the benchmark. Valuations look reasonable and we view the Japanese
- - --------------------------------------------------------------------------------
Active Country Allocation Portfolio
3
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
OVERVIEW
- - --------------------------------------------------------------------------------
THE ACTIVE COUNTRY ALLOCATION PORTFOLIO (CONT.)
government's admission of serious bank and economic growth problems as an
indication that Japanese political paralysis is nearing an end. This, along with
the weakening yen, puts the potential for an earnings recovery in a more
positive light and leads us to believe that the Japanese market could rally off
its bottom. Though the lack of a concrete Japanese policy response is frankly
disappointing, we believe that in the great scheme of history, the yen and the
Japanese bond market have made secular bull market highs, and the stock market
is tracing out a huge bottom formation. We will watch the government's reaction
to any stock market rally carefully however, as a sharp rise in equity values
could mistakenly lull the Japanese authorities into a false sense of security.
We are slightly underweight Europe relative to the benchmark, using European
sales to fund our increased weighting to Japan. We have reduced our exposure in
France, and have taken profits in Belgium, the Netherlands and Spain. In France,
the hopes that Jacques Chirac's new government brought to the equity markets
faded very quickly as the continuation of the FRANC FORT policy reduces the
potential for sharp, immediate cuts in short term interest rates.
We remain overweight in Asian equities, with overweight positions in Hong Kong
and Singapore. Within emerging Asia, we have small positions in Indonesia and
Thailand. Though an increase in U.S. rates may spook these markets in the short
run, the U.S. Fed has been vigilant against inflation. A strong U.S. tends to be
good for Asian economies and a recovering Japan should improve Asian imports.
In Latin America, we sold the Portfolio's position in Argentina, but have
maintained our 1% position in Brazil. Brazil was one of the top five emerging
markets during the second quarter, but it faces risks associated with the
political change needed to keep the Plano Real intact and viable. Brazil is the
cheapest country on price-to-book and dividend yield in our universe however,
and it has some fine companies with tremendous earnings potential.
The U.K. equity market, the third largest bourse in the world, returned 3.9% in
the second quarter, and is up 10.7% year-to-date in U.S. dollars, 8.8% in
sterling. Market sentiment seems to have recovered from the political
uncertainty brought on by the surprise Conservative party leadership election
and the slight strengthening of John Major's hand in his cabinet. We believe the
equity markets will benefit from attractive equity valuations relative to bonds,
increased consumer spending and mergers and acquisitions activity, solid, albeit
subdued, growth in Europe and the Far East (excluding Japan) and the probability
of a slightly more populist approach to both monetary and fiscal policy prior to
the 1996 elections. In light of this more positive outlook, we increased our
allocations from underweight to market neutral.
GERMAN equities were up 12.4% in the first half of the year in U.S. dollars, but
only 0.3% in local currency. This market benefited in the latter half of the
second quarter from investor monies switching out of France, from the surprise
rate cut, from constructive near-term inflation prospects and from a dollar
rally. We have initiated a position in Germany (about half the benchmark weight)
because of the resilience the German export sector has shown in the face of
still uncompetitive exchange rates and because we think the deutsche mark has
peaked and the Bundesbank may ease in the autumn. Valuations, however, remain
just outside of the second quartile, domestic consumption remains depressed, and
we expect continued pressure on corporate earnings.
FRANCE, as mentioned above, has disappointed investors since Chirac's election.
In the first half of the year, French equities, in U.S. dollars, returned 12.8%,
but only 2.5% in local currency. July's mini-budget is unlikely to address the
deficit issue, and spending and taxes will probably rise in order to finance the
employment package. The VAT increase, combined with higher wages, could push the
French inflation rate up, making the hoped for sharp short-term interest rate
reductions less likely. Without the latter, we do not believe the French equity
markets will outperform, despite the fact that valuations are attractive and
there are plenty of good-value stocks. Hence, our reduction in the Portfolio's
French holdings, from overweight to underweight.
The PORTUGUESE market faced a tough first half of the year, up only 2.7% in U.S.
dollars, but declining about 5% in local currency. We expect to be pulling back
on our weighting in Portugal. The market has lagged the rest of the emerging
markets in rebounding from the Mexican peso crisis fall out. Interest rates are
high, political uncertainty before the October elections remains, and valuation
levels relative to growth potential and risk premiums are not compelling.
HONG KONG equities returned 8.2% in the second quarter and 13% year-to-date. We
believe the fears that the market rally will run out of steam are premature,
valuations are very reasonable, and we are maintaining our overweight position.
The second quarter global slowdown lowered the risks in the
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Active Country Allocation Portfolio
4
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
OVERVIEW
- - --------------------------------------------------------------------------------
THE ACTIVE COUNTRY ALLOCATION PORTFOLIO (CONT.)
Asian markets and the slow growth, low inflation economic environment we
forecast will be very beneficial for Hong Kong equities.
Looking forward, we expect to see global economic growth pick up in the second
half of the year, though inflation pressures should be subdued as global
competition and wage pressures remain fierce. We do not expect to see any
meaningful easing by the Fed in the second half, although rates could continue
to fall in the core European countries. We expect international equity market
returns, including Japan, to be positive, though not stellar. We are partially
hedging the Portfolio's yen and deutsche mark exposure, as we expect the dollar
to strengthen.
- - --------------------------------------------------------------------------------
Active Country Allocation Portfolio
5
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1995
- - --------------------------------------------------------------------------------
THE ACTIVE COUNTRY ALLOCATION PORTFOLIO
- - --------------------------------------------------------------------------------
SHARES VALUE
(000)
- - ------------------------------------------------------
COMMON STOCKS (92.9%)
AUSTRALIA (1.9%)
16,200 Amcor Ltd..................... $ 120
9,200 Ampolex Ltd................... 21
15,200 Australian National Industries
Ltd......................... 13
26,000 Boral Ltd. (Bon Shares
Plan)....................... 65
6,400 Brambles Industries Ltd....... 61
49,348 Broken Hill Proprietary Co.,
Ltd......................... 607
16,800 Burns, Philip & Co., Ltd...... 35
8,725 Coca-Cola Amatil Ltd.......... 54
33,300 Coles Myer Ltd................ 104
16,700 CRA Ltd....................... 227
26,200 CSR Ltd....................... 82
82,400 Fosters Brewing Corp.......... 73
21,763 General Property Trust........ 37
34,700 Goodman Fielder Ltd........... 29
9,200 ICI Australia Ltd............. 60
7,349 Lend Lease Corp., Ltd......... 94
44,590 MIM Holdings Ltd.............. 55
37,018 National Australia Bank
Ltd......................... 292
+8,500 Newcrest Mining Ltd........... 36
50,132 News Corp., Ltd............... 280
22,100 North Broken Hill Peko Ltd.... 53
30,200 Pacific Dunlop Ltd............ 64
25,200 Pioneer International Ltd..... 63
8,342 Renison Goldfields
Consolidated Ltd............ 26
4,278 Renison Goldfields
Consolidated Ltd. (New)..... 10
16,100 Santos Ltd.................... 39
19,200 Southcorp Holdings Ltd........ 38
+12,400 TNT Ltd....................... 16
27,100 Western Mining Corp. Holdings
Ltd......................... 149
17,057 Westfield Trust............... 10
45,800 Westpac Banking Corp.......... 166
--------
2,979
--------
BELGIUM (4.0%)
260 Baekaert S.A.................. 206
450 Cimenteries CBR
Cementbedrijven............. 184
5,900 Delhaize Freres et Cie, 'Le
Lion', S.A.................. 265
5,050 Electrabel S.A................ 1,066
1,100 Electrabel S.A. (New) -
VVPR........................ 235
3,900 Fortis AG..................... 412
108 Fortis AG - VVPR.............. 12
1,670 Generale de Banque S.A........ 536
2,900 Gevaert Photo-Producten
S.A......................... 159
586 Glaverbel S.A................. 77
+36 Glaverbel S.A. - VVPR......... --
2,650 Groupe Bruxelles Lambert
S.A......................... 355
1,550 Kredietbank S.A............... 367
2,620 Petrofina S.A................. 791
1,450 Reunies Electrobel & Tractebel
S.A......................... 526
1,500 Royale Belge.................. 283
950 Solvay et Cie S.A............. 526
+2,850 Union Miniere S.A............. 186
--------
6,186
--------
SHARES
VALUE
(000)
- - ------------------------------------------------------
BRAZIL (0.4%)
550,000 Cia Paulista de Forca E Luz... $ 27
1,300,000 Cia Siderurgica Nacional...... 30
1,600,000 Eletrobras.................... 417
250,000 Servicos de Eletricdade....... 79
--------
553
--------
FRANCE (7.8%)
1,200 Accor S.A..................... 160
6,700 Alcatel Alsthom............... 603
7,000 AXA S.A....................... 378
8,300 Banque Nationale de Paris..... 400
350 BIC Corp...................... 58
1,200 Bouygues...................... 144
1,150 Carrefour Supermarch S.A...... 589
290 Chargeurs S.A................. 57
916 Cie Bancaire S.A.............. 110
3,700 Cie de Saint Gobain........... 447
7,100 Cie de Suez S.A............... 395
5,279 Cie Financiere de Paribas,
Class A..................... 317
4,900 Cie Generale des Eaux......... 545
11,000 Elf Aquitaine................. 813
3,700 Elf Sanofi.................... 205
1,400 Eridania Beghin-Say S.A....... 216
3,400 Etablissements Economiques du
Casino...................... 99
3,400 Groupe Danone................. 572
2,500 Havas S.A..................... 198
4,000 Lafarge Coppee S.A............ 311
3,200 L'Air Liquide................. 511
1,400 Legrand....................... 222
2,700 L'Oreal....................... 677
3,400 LVMH Moet Hennessy Louis
Vuitton..................... 612
3,100 Lyonnaise des Eaux Demez...... 293
+4,900 Michelin CGDE, Class B........ 217
2,300 Pernod-Ricard................. 151
+800 Pinault-Printemps S.A......... 172
900 Promodes...................... 205
+2,200 PSA Peugeot Citrogen S.A...... 305
11,100 Rhone-Poulenc S.A., Class A... 250
250 SAGEM......................... 144
450 Saint Louis S.A............... 139
2,400 Schneider S.A................. 190
1,250 Simco S.A..................... 109
200 Societe Eurafrance S.A........ 66
3,700 Societe Generale.............. 433
+6,300 Thomson CSF................... 141
9,100 Total S.A., Class B........... 548
--------
12,002
--------
GERMANY (3.8%)
90 AGIV AG....................... 29
390 Allianz AG Holdi.............. 695
70 AMB Aachener & Muenchener
Beteiligungs AG............. 49
70 Asko Deutsche Kaufhaus AG..... 44
1,200 BASF AG....................... 256
1,325 Bayer AG...................... 329
The accompanying notes are an integral part of the financial statements. (Pages
144-152)
- - --------------------------------------------------------------------------------
Active Country Allocation Portfolio
6
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1995
- - --------------------------------------------------------------------------------
THE ACTIVE COUNTRY ALLOCATION PORTFOLIO (CONT.)
- - --------------------------------------------------------------------------------
<TABLE>
<C> <S> <C>
SHARES
VALUE
(000)
- - ------------------------------------------------------
GERMANY (CONT.)
450 Bayerische Hypotheken und
Wechsel Bank AG............. $ 123
470 Bayerische Vereinsbank AG..... 142
90 Beiersdorf AG................. 71
80 Brau Und Brunnen AG........... 15
980 Daimler Benz AG............... 451
180 Degussa AG.................... 56
8,950 Deutsche Bank AG.............. 435
+670 Deutsche Lufthansa AG......... 97
8,200 Dresdner Bank AG.............. 237
80 Heidelberger Zement AG........ 69
210 Hochtief AG................... 118
170 Karstadt AG................... 74
120 Kaufhof Holding AG............ 43
+310 Kloeckner-Humboldt-Deutz AG... 10
180 Linde AG...................... 107
250 MAN AG........................ 64
780 Mannesmann AG................. 238
130 Muenchener Rueckver AG........ 285
290 Preussag AG................... 87
660 RWE AG........................ 229
110 SAP AG........................ 146
1,300 Schering AG................... 91
1,050 Siemens AG.................... 520
+640 Thyssen AG.................... 119
930 Veba AG....................... 365
390 Viag AG....................... 153
550 Volkswagen AG................. 158
--------
5,905
--------
HONG KONG (5.0%)
32,000 Applied International
Holdings.................... 3
40,592 Bank of East Asia Ltd......... 122
152,000 Cathay Pacific Airways Ltd.... 222
114,000 Cheung Kong Holdings Ltd...... 564
103,000 China Light & Power Co.,
Ltd......................... 530
82,000 Chinese Estates Holdings...... 59
41,000 Dickson Concepts International
Ltd......................... 25
32,000 Giordano Holdings Ltd......... 24
65,000 Hang Lung Development Co...... 103
99,500 Hang Seng Bank Ltd............ 759
10,000 Hong Kong Aircraft Engineering
Co., Ltd.................... 26
100,800 Hong Kong & China Gas Co.,
Ltd......................... 161
66,000 Hong Kong & Shanghai Hotel
Ltd......................... 81
562,000 Hong Kong Telecommunications
Ltd......................... 1,111
222,486 Hopewell Holdings Ltd......... 188
187,000 Hutchison Whampoa Ltd......... 904
55,000 Hysan Development Ltd......... 126
20,000 Johnson Electric Holdings
Ltd......................... 40
30,000 Miramar Hotel & Investment
Ltd......................... 61
79,656 New World Development Co.,
Ltd......................... 265
74,000 Oriental Press Group Ltd...... 30
20,500 Peregrine Investment Holdings
Ltd......................... 29
56,340 Shangri-La Asia Ltd........... 67
86,000 Shun Tak Holdings Ltd......... 68
SHARES
VALUE
(000)
- - ------------------------------------------------------
96,000 South China Morning Post
Holdings.................... $ 58
54,000 Stelux Holdings Ltd........... 16
119,000 Sun Hung Kai Properties
Ltd......................... 881
83,500 Swire Pacific Ltd., Class A... 637
22,000 Television Broadcasts Ltd..... 77
18,000 Winsor Industrial Corp.
Ltd......................... 24
113,000 Wharf Holdings Ltd............ 369
7,900 Wing Lung Bank Ltd............ 45
--------
7,675
--------
INDONESIA (4.4%)
**218,000 Bank Dagang Nasional
(Foreign)................... 382
**1,248,000 Barito Pacific Timber
(Foreign)................... 1,793
**353,000 Gadjah Tunggal (Foreign)...... 507
**401,000 Hanajaya Mandala Sampoerna
(Foreign)................... 3,151
**344,000 Jakarta International Hotel &
Development (Foreign)....... 433
**37,000 Matahari Putra Prima
(Foreign)................... 59
**+34,000 Panbrothers Tex (Foreign)..... 11
**+187,000 Sinar Mas Agro (Foreign)...... 197
**123,000 United Tractors (Foreign)..... 262
--------
6,795
--------
ITALY (2.0%)
+20,000 Alitalia S.p.A................ 10
24,270 Assicurazioni Generali
S.p.A....................... 571
50,000 Banca Commerciale Italiana.... 113
+10,000 Banca Nazionaia Deli.......... 8
16,000 Banco Ambrosiano Ven.......... 53
5,500 Benetton Group S.p.A.......... 54
3,000 Cartiere Burgo................ 20
70,500 Credito Italiano.............. 82
19,000 Edison S.p.A.................. 85
+2,000 Falck Italian................. 3
+96,000 Fiat S.p.A.................... 339
+23,000 Fiat S.p.A. Di Risp (NCS)..... 49
7,500 Fidis Italian................. 16
20,900 Gilardini..................... 40
+5,000 Impregilo S.p.A............... 5
22,000 Istituto Bancario San Paolo... 119
+2,750 Italcementi................... 8
+6,250 Italcementi Di Risp........... 43
21,000 Italgas....................... 55
14,500 Mediobanca S.p.A.............. 105
+160,000 Montedison S.p.A.............. 114
+25,000 Montedison S.p.A Di Risp
(NCS)....................... 16
+37,500 Olivetti S.A.................. 37
35,500 Parmalat Finanziaria S.p.A.... 32
+50,000 Pirelli S.p.A................. 66
8,150 R.A.S. S.p.A.................. 86
3,350 R.A.S. S.p.A Di Risp (NCS).... 21
5,000 Rinascente.................... 28
600 Risanamento Di Napoli......... 8
+2,000 Saffa......................... 7
3,000 SAI........................... 32
12,500 Saipan........................ 25
3,000 Sasib......................... 14
</TABLE>
The accompanying notes are an integral part of the financial statements. (Pages
144-152)
- - --------------------------------------------------------------------------------
Active Country Allocation Portfolio
7
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1995
- - --------------------------------------------------------------------------------
THE ACTIVE COUNTRY ALLOCATION PORTFOLIO (CONT.)
- - --------------------------------------------------------------------------------
<TABLE>
<C> <S> <C>
SHARES
VALUE
(000)
- - ------------------------------------------------------
ITALY (CONT.)
7,000 Sirti S.p.A................... $ 52
12,000 SME Meridonale................ 30
+20,000 SNIA BPO S.p.A................ 23
190,000 Telecom Italia S.p.A.......... 515
50,000 Telecom Italia S.p.A. Di Risp
(NCS)....................... 106
--------
2,990
--------
JAPAN (28.3%)
3,000 Advantest Corp................ 113
27,000 Ajinomoto Co.................. 277
14,000 Aoki Corp..................... 51
2,000 Aoyama Trading Co............. 33
55,000 Asahi Bank Ltd................ 587
14,000 Asahi Breweries Ltd........... 161
41,000 Asahi Chemical Industry Co.,
Ltd......................... 269
41,000 Asahi Glass Co., Ltd.......... 452
41,000 Bank of Tokyo................. 657
14,000 Bridgestone Co................ 206
47,000 Canon, Inc.................... 765
28,000 Casio Computer Co............. 253
27,000 Chiba Bank.................... 245
5,000 Chiyoda Corp.................. 42
14,000 Chugai Pharmaceuticals Co..... 142
34,000 Citizen Watch Co., Ltd........ 210
63,000 Dai-Ichi Kangyo Bank.......... 1,136
14,000 Daikin Industries Ltd......... 113
27,000 Dai Nippon Printing Co.,
Ltd......................... 430
+6,000 Daishowa Paper Manufacturing
Co., Ltd.................... 27
14,000 Daiwa House Industry.......... 215
27,000 Daiwa Securities Co., Ltd..... 285
9,000 Ebara......................... 109
8,000 Fanuc......................... 345
62,000 Fuji Bank..................... 1,250
24,000 Fuji Photo Film Ltd........... 569
95,000 Fujitso Ltd................... 946
22,000 Furukawa Electric Co.......... 104
27,000 Hankyu Corp................... 162
14,000 Hazama Corp................... 58
124,000 Hitachi Ltd................... 1,235
43,000 Honda Motor Co................ 659
47,000 Industrial Bank of Japan...... 1,225
10,000 Ito-Yokado Co., Ltd........... 527
+55,000 Japan Airlines Co............. 365
34,000 Japan Energy Corp............. 110
15,000 Joyo Bank..................... 127
14,000 Jusco Co., Ltd................ 291
27,000 Kajima Corp................... 268
8,900 Kansai Electric Power Co...... 239
27,000 Kao Corp...................... 325
+70,000 Kawasaki Steel Corp........... 229
41,000 Kinki Nippon Railway.......... 360
27,000 Kirin Brewery Co., Ltd........ 286
+82,000 Kobe Steel Ltd................ 195
77,000 Komatsu Ltd................... 587
41,000 Kubota Corp................... 261
SHARES
VALUE
(000)
- - ------------------------------------------------------
27,000 Kumagai Gumi Co............... $ 113
7,000 Kyocera Ltd................... 576
14,000 Kyowa Hakko Kogyo............. 135
12,000 Kyushu Matsushita Electric.... 208
17,000 Makita Corp................... 232
41,000 Marubeni Corp................. 208
14,000 Marui Co., Ltd................ 223
65,000 Matsushita Electric Industries
Ltd......................... 1,012
41,000 Mitsubishi Chemical Corp...... 175
38,000 Mitsubishi Corp............... 432
49,000 Mitsubishi Electric Co........ 344
30,000 Mitsubishi Estate Co., Ltd.... 338
110,000 Mitsubishi Heavy Industries
Ltd......................... 747
28,000 Mitsubishi Materials Corp..... 125
26,000 Mitsubishi Trust & Banking
Co.......................... 368
41,000 Mitsui & Co................... 320
+27,000 Mitsui Engineering &
Shipbuilding................ 59
23,000 Mitsui Fudosan Co............. 263
27,000 Mitsukoshi Ltd................ 193
2,800 Mochida Pharmaceutical........ 43
13,000 Murata Manufacturing Co.,
Ltd......................... 492
79,000 NEC Corp...................... 865
27,000 New Oji Paper Co., Ltd........ 259
14,000 NGK Insulators................ 127
14,000 Nippon Denso Co., Ltd......... 254
27,000 Nippon Express Co., Ltd....... 248
14,000 Nippon Fire & Marine Insurance
Co.......................... 88
13,000 Nippon Light Metal............ 59
14,000 Nippon Meat Packers, Inc...... 205
41,000 Nippon Oil Co................. 258
27,000 Nippon Paper Industries Co.... 175
103,000 Nippon Steel Co............... 335
41,000 Nippon Yusen.................. 230
52,000 Nissan Motor Co............... 332
+80,000 NKK Corp...................... 188
41,000 Nomura Securities Co.......... 715
27,000 Obayashi Corp................. 208
27,000 Odakyu Electric Railway Co.... 196
30,000 Olympus Optical Co., Ltd...... 247
82,000 Osaka Gas Co.................. 303
14,000 Penta-Ocean Construction...... 89
9,000 Pioneer Electric Corp......... 153
3,000 Rohm Co....................... 155
68,000 Sakura Bank................... 709
13,900 Sankyo Co., Ltd............... 323
41,000 Sanyo Electric Co., Ltd....... 202
3,000 Secom Co., Ltd................ 189
3,300 Sega Enterprises.............. 117
14,000 Sekisui House Co., Ltd........ 173
7,000 Seven-Eleven Japan............ 501
56,000 Sharp Corp.................... 739
14,000 Shin-Etsu Chemical Co......... 246
20,000 Shinizu Corp.................. 193
6,000 Shiseido Co., Ltd............. 68
27,000 Shizuoka Bank................. 337
+27,000 Showa Denko................... 80
13,000 Sony Corp..................... 624
</TABLE>
The accompanying notes are an integral part of the financial statements. (Pages
144-152)
- - --------------------------------------------------------------------------------
Active Country Allocation Portfolio
8
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1995
- - --------------------------------------------------------------------------------
THE ACTIVE COUNTRY ALLOCATION PORTFOLIO (CONT.)
- - --------------------------------------------------------------------------------
<TABLE>
<C> <S> <C>
SHARES
VALUE
(000)
- - ------------------------------------------------------
JAPAN (CONT.)
69,000 Sumitomo Bank................. $ 1,196
14,000 Sumitomo Cement............... 51
55,000 Sumitomo Chemical Co.......... 215
27,000 Sumitomo Corp. Ind............ 246
18,000 Sumitomo Electric Ind......... 214
6,000 Sumitomo Forestry Co., Ltd.... 100
96,000 Sumitomo Metal Ind............ 250
13,000 Sumitomo Metal & Mining....... 96
27,000 Taisei Corp., Ltd............. 159
27,000 Takeda Chemical............... 356
7,000 TDK Corp...................... 319
27,000 Teijin Ltd.................... 129
27,000 Tobu Railway Co............... 168
43,000 Tokai Bank.................... 477
41,000 Tokio Marine & Fire Insurance
Co.......................... 470
6,000 Tokyo Dome Corp............... 92
30,200 Tokyo Electric Power Co....... 926
5,000 Tokyo Electron Ltd............ 171
82,000 Tokyo Gas Co.................. 323
27,000 Tokyu Corp.................... 173
19,000 Toppan Printing Co., Ltd...... 249
41,000 Toray Industries Inc.......... 255
73,000 Toshiba Corp.................. 462
14,000 Toto Ltd...................... 200
27,000 Toyoba Co..................... 89
64,000 Toyota Motor Corp............. 1,268
+27,000 Ube Industries Ltd............ 94
27,000 Yamaichi Securities Co........ 145
14,000 Yamanouchi Pharmaceutical
Co.......................... 315
27,000 Yasuda Trust & Banking Co..... 177
--------
43,682
--------
MALAYSIA (1.9%)
6,000 AMMB Holdings Bhd............. 71
20,000 Amsteel Corp. Bhd............. 30
6,000 Aokam Perdana Bhd............. 15
20,000 Berjaya Group Bhd............. 18
7,000 Commerce Asset Holding Bhd.... 36
22,000 DCB Holdings Bhd.............. 64
6,000 Edaran Otomobil Nasional
Bhd......................... 59
32,000 Faber Group Bhd............... 31
28,000 Golden Hope Plantations Bhd... 51
+5,000 Golden Plus Holdings Bhd...... 11
10,000 Guinness Anchor Bhd........... 18
19,000 Highlands & Lowlands Bhd...... 36
4,000 Hong Leong Industries Bhd..... 25
24,000 Hong Leong Properties Bhd..... 32
7,000 Hume Industries (Malaysia)
Bhd......................... 38
+21,000 Idris Hydraulic (Malaysia)
Bhd......................... 29
21,000 IGB Corp. Bhd................. 20
27,000 IOI Corp. Bhd................. 35
15,000 Kedah Cement Bhd.............. 24
5,000 Kian Joo Can Factory Bhd...... 20
13,000 Land & General Bhd............ 43
12,000 Leader Universal Holdings
Bhd......................... 43
29,000 Magnum Corp. Bhd.............. 68
SHARES
VALUE
(000)
- - ------------------------------------------------------
30,000 Malayan Banking Bhd........... $ 237
20,000 Malayan United Industries
Bhd......................... 34
18,000 Malaysian Airline System
Bhd......................... 61
24,000 Malaysian International
Shipping Bhd (Foreign)...... 70
15,000 Malaysian Mining Corp. Bhd.... 27
3,000 Malaysian Oxygen Bhd.......... 12
19,000 Malaysian Resources Corp.
Bhd......................... 33
26,000 Metroplex Bhd................. 25
19,000 Mulpha International Bhd...... 23
22,000 Multi-Purpose Holdings Bhd.... 39
5,000 Nestle (Malaysia) Bhd......... 38
5,000 Oriental Holdings Bhd......... 27
8,000 Perlis Plantations Bhd........ 27
14,000 Perusahaan Otomobil Nasional
Bhd......................... 51
9,000 Petaling Garden Bhd........... 12
26,000 Public Bank Bhd............... 58
9,000 Rashid Hussein Bhd............ 29
29,000 Resorts World Bhd............. 170
8,000 R.J. Reynolds Bhd............. 15
7,000 Rothmans of Pall Mall
(Malaysia) Bhd.............. 55
11,000 Selangor Properties Bhd....... 12
8,000 Shell Refining Co. (Malaysia)
Bhd......................... 27
55,000 Sime Darby Bhd................ 153
22,000 Tan Chong Motor Holdings
Bhd......................... 25
+18,000 Technology Resources
Industries Bhd.............. 52
52,000 Telekom Malaysia Bhd.......... 395
78,000 Tenaga Nasional Bhd........... 318
9,000 UMW Holdings Bhd.............. 26
15,000 United Engineers Ltd.
(Malaysia).................. 95
--------
2,963
--------
NETHERLANDS (5.0%)
12,500 ABN Amro Holdings N.V......... 482
3,200 Akzo Nobel N.V................ 382
26,700 Elsevier N.V.................. 315
2,350 Heineken N.V.................. 356
11,200 Internationale Nederlanden
Groep N.V................... 620
+3,400 KLM Royal Dutch Airlines
N.V......................... 110
5,144 Koninklijke Ahold N.V......... 184
4,200 Koninklijke KNP BT N.V........ 126
1,150 Koninklijke Nederlandsche
Hoogovens N.V............... 46
20,868 Koninklijke PTT Nederland
N.V......................... 750
950 Nedlloyd Groep N.V............ 32
13,500 Philips Electronics N.V....... 572
21,600 Royal Dutch Petroleum Co...... 2,638
1,200 Stork N.V..................... 33
6,500 Unilever N.V.................. 846
2,800 Wolters Kluwer N.V............ 247
--------
7,739
--------
PORTUGAL (2.6%)
45,200 Banco Chemical S.A.
(Registered)................ 454
75,000 Banco Commercial Portugues
(Registered)................ 993
25,000 Banco Portugues de
Investimento (New).......... 437
4,900 Corticeira Amorim S.A......... 74
</TABLE>
The accompanying notes are an integral part of the financial statements. (Pages
144-152)
- - --------------------------------------------------------------------------------
Active Country Allocation Portfolio
9
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1995
- - --------------------------------------------------------------------------------
THE ACTIVE COUNTRY ALLOCATION PORTFOLIO (CONT.)
- - --------------------------------------------------------------------------------
<TABLE>
<C> <S> <C>
SHARES
VALUE
(000)
- - ------------------------------------------------------
PORTUGAL (CONT.)
9,000 Jeronimo Martins.............. $ 455
18,300 Lisnave-Estaleiros Navais de
Lisboa S.A.................. 88
6,200 Mota e Companhia S.A.......... 131
24,607 Portugal Telecom S.A.
(Registered)................ 471
27,000 Sonae Investmentos............ 646
13,200 UNICER-Uniao Cervejeira
S.A......................... 223
--------
3,972
--------
SINGAPORE (2.9%)
23,000 Amcol Holdings Ltd............ 67
62,000 City Developments Ltd......... 379
18,000 Cycle & Carriage Ltd.......... 161
65,000 DBS Land Ltd.................. 204
32,000 Development Bank of Singapore
Ltd. (Foreign).............. 364
16,000 First Capital Corp. Ltd....... 50
19,000 Fraser & Neave Ltd............ 219
25,000 Hai Sun Hup Group Ltd......... 15
33,000 Hotel Properties Ltd.......... 58
15,000 Inchcape Bhd.................. 49
9,000 Jurong Shipyard Ltd........... 64
40,000 Keppel Corp., Ltd............. 326
22,000 Natsteel Ltd.................. 46
63,000 Neptune Orient Lines Ltd...... 73
47,000 Oversea-Chinese Banking Corp.
(Foreign)................... 521
12,000 Overseas Union Entrprise
Ltd......................... 73
25,000 Parkway Holdings Ltd.......... 61
4,000 Robinson & Co. Ltd............ 16
13,000 Shangri-La Hotel Ltd.......... 52
59,000 Singapore Airlines Ltd.
(Foreign)................... 545
16,800 Singapore Press Holdings
(Foreign)................... 251
47,000 Straits Steamship Land Ltd.... 163
31,000 Straits Trading Co., Ltd...... 78
125,000 United Industrial Corp.
Ltd......................... 121
49,000 United Overseas Bank Ltd.
(Foreign)................... 463
--------
4,419
--------
SPAIN (2.9%)
600 Acerinox S.A.................. 74
6,700 Argentaria S.A................ 248
11,000 Autopistas Concesionaria
Espanola S.A................ 107
12,800 Banco Bilbao Vizcaya S.A...... 370
8,500 Banco Central Hispano
Americano S.A............... 180
8,500 Banco de Santander S.A........ 335
1,150 Corporacion Financiera Alba... 59
1,258 Corporacion Mapfre............ 62
272 Corporacion Mapfre (New)...... 13
3,800 Dragados y Construccion
S.A......................... 55
3,100 Ebro Agricolas S.A............ 32
+1,200 Empresa Nacional de Cellulosas
S.A......................... 31
14,200 Empresa Nacional de
Electricdad S.A............. 701
5,700 Ercros S.A.................... 6
1,300 FASA Renault S.A.............. 39
850 Fomento Construction
Contractas S.A.............. 72
2,050 Gas Natural SDG S.A........... 245
SHARES
VALUE
(000)
- - ------------------------------------------------------
49,000 Iberdrola S.A................. $ 369
200 Inmobilaria Metro Vasco
Central S.A................. 6
550 Portland Valderrivas S.A...... 38
16,400 Repsol S.A.................... 516
2,100 Tabacalera S.A., Class A...... 79
51,500 Telefonica Nacional de Espana
S.A......................... 664
17,100 Union Electrica Fenosa S.A.... 80
+2,300 Uralita S.A................... 28
2,500 Vallehermoso S.A.............. 43
1,400 Viscofan Envolturas
Celulosicas S.A............. 21
400 Zardoya Otis S.A.............. 41
--------
4,514
--------
SWITZERLAND (3.1%)
+75 Adia S.A. (Bearer)............ 16
50 Alusuisse-Lonza Holdings Ltd.
(Bearer).................... 31
100 Alusuisse-Lonza Holdings Ltd.
(Registered)................ 63
165 BBC Brown Boveri AG
(Bearer).................... 171
90 Ciba Geigy AG (Bearer)........ 66
450 Ciba Geigy AG (Registered).... 330
2,275 CS Holding AG (Registered).... 208
10 Georg Fischer AG (Bearer)..... 13
135 Holderbank Glarus AG
(Bearer).................... 111
100 Merkur Holding AG
(Registered)................ 28
710 Nestle S.A. (Registered)...... 739
30 Roche Holding AG (Bearer)..... 334
130 Roche Holding AG
(Registered)................ 838
630 Sandoz AG (Registered)........ 434
70 SMH AG (Bearer)............... 45
300 SMH AG (Registered)........... 40
35 Societe Generale de
Surveillance Holding S.A.
(Bearer).................... 61
70 Sulzer AG (Registered)........ 47
+50 SwissAir (Registered)......... 35
450 Swiss Bank Corp. (Bearer)..... 159
700 Swiss Bank Corp.
(Registered)................ 124
300 Swiss Reinsurance
(Registered)................ 231
390 Union Bank of Switzerland
(Bearer).................... 404
430 Union Bank of Switzerland
(Registered)................ 95
100 Zurich Versicherung
(Registered)................ 126
--------
4,749
--------
THAILAND (1.9%)
14,500 Advanced Information Services
Co., Ltd.................... 215
32,400 Bangchak Petroleum Co.,
Ltd......................... 65
44,300 Bangkok Metropolitan Bank
Ltd......................... 53
11,800 CMIC Finance & Securities Co.,
Ltd......................... 45
15,700 Dhana Siam Finance &
Securities Co., Ltd......... 92
8,400 General Finance & Securities
Co., Ltd.................... 41
15,500 Italian-Thai Development Co.,
Ltd......................... 167
20,700 Jasmine International Co.,
Ltd. (Foreign).............. 130
83,500 Krung Thai Bank Ltd.
(Foreign)................... 338
19,600 National Finance & Securities
Co., Ltd.................... 97
19,200 National Petrochemical Co..... 50
+9,900 One Holding Co., Ltd.......... 31
</TABLE>
The accompanying notes are an integral part of the financial statements. (Pages
144-152)
- - --------------------------------------------------------------------------------
Active Country Allocation Portfolio
10
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1995
- - --------------------------------------------------------------------------------
THE ACTIVE COUNTRY ALLOCATION PORTFOLIO (CONT.)
- - --------------------------------------------------------------------------------
<TABLE>
<C> <S> <C>
SHARES
VALUE
(000)
- - ------------------------------------------------------
THAILAND (CONT.)
16,900 Phatra Thanakit Co., Ltd.
(Foreign)................... $ 141
19,200 PTT Exploration & Production
Co., Ltd.................... 207
31,700 Sahaviriya Steel Industry..... 78
8,600 Shinawatra Computer Co.,
Ltd......................... 213
+21,700 Shinawatra Satellite Co.,
Ltd......................... 50
74,600 Siam City Bank Ltd.
(Foreign)................... 103
138,000 TelecomAsia Corp., Ltd.
(Foreign)................... 517
26,500 Thai Military Bank Ltd.
(Foreign)................... 107
14,500 United Communications
Industry.................... 212
--------
2,952
--------
UNITED KINGDOM (15.0%)
58,300 Abbey National plc............ 434
42,300 Argyll Group plc.............. 226
40,900 Arjo Wiggins Appleton plc..... 167
16,500 Associated British Foods
plc......................... 174
48,500 Barclays plc.................. 521
30,500 Bass plc...................... 292
100,177 BAT Industries plc............ 767
19,400 BICC plc...................... 92
35,800 Blue Circle Industries plc.... 160
17,400 BOC Group plc................. 222
35,800 Boots Co. plc................. 290
16,400 Bowater plc................... 126
24,600 BPB Industries plc............ 122
14,300 British Aerospace plc......... 128
33,400 British Airways plc........... 219
163,600 British Gas plc............... 754
178,800 British Petroleum Co. plc..... 1,282
63,400 British Steel plc............. 173
194,000 British Telecommunications
plc......................... 1,210
121,200 BTR plc....................... 616
8,280 Burmah Castrol plc............ 120
73,323 Cable & Wireless plc.......... 502
34,500 Cadbury Schweppes plc......... 252
22,500 Caradon plc................... 85
25,109 Coats Viyella plc............. 74
+14,700 Commercial Union plc.......... 137
14,300 Courtaulds plc................ 102
10,200 De La Rue Co. plc............. 152
15,700 Eastern Electricity plc....... 162
36,100 Forte plc..................... 131
20,000 General Accident plc.......... 183
109,500 General Electric plc.......... 535
15,400 GKN plc....................... 157
91,335 Glaxo Holdings plc............ 1,121
70,010 Grand Metropolitan plc........ 429
34,900 Great Universal Stores plc.... 327
46,700 Guardian Royal Exchange plc... 154
59,400 Guinness plc.................. 447
172,901 Hanson plc.................... 605
34,800 Harrisons & Crossfields plc... 79
67,500 HSBC Holdings plc............. 870
24,600 Imperial Chemical Industries
plc......................... 301
48,100 Ladbroke Group plc............ 129
SHARES
VALUE
(000)
- - ------------------------------------------------------
21,500 Land Securities plc........... $ 208
30,700 Lasmo plc..................... 84
40,300 Lloyds Bank plc............... 400
25,200 Lonrho plc.................... 59
87,046 Marks and Spencer plc......... 560
16,400 MEPC plc...................... 100
44,000 National Power plc............ 312
18,400 North West Water Group plc.... 162
29,700 Peninsular & Oriental Steam
Navigation Co............... 274
40,900 Pilkington plc................ 114
72,100 Prudential Corp. plc.......... 384
15,400 Rank Organization plc......... 97
22,897 Redland plc................... 150
27,000 Reed International plc........ 379
53,800 Reuters Holdings plc.......... 449
9,200 RMC Group plc................. 155
30,700 Royal Bank of Scotland Group
plc......................... 209
24,200 Royal Insurance Holdings
plc......................... 119
41,900 RTZ Corp. plc................. 547
57,940 Sainsbury (J) plc............. 407
25,800 Scottish Power plc............ 133
53,200 Sears plc..................... 84
16,600 Sedgwick Group plc............ 36
12,300 Slough Estates plc............ 43
41,600 SmithKline Beecham plc, Class
A........................... 377
10,900 Southern Electricity plc...... 111
38,706 Tarmac plc.................... 69
20,500 Taylor Woodrow plc............ 38
55,079 Tesco plc..................... 254
19,400 Thames Water plc.............. 147
17,400 THORN EMI plc................. 361
14,300 TI Group plc.................. 89
36,800 Trafalgar House plc........... 26
22,000 Unilever plc.................. 445
35,800 Vodafone Group plc............ 133
9,000 Warburg (S.G.) Group plc...... 104
29,100 Zeneca Group plc.............. 492
--------
23,140
--------
UNITED STATES (0.0%)
1,167 U.S. Industries, Inc.......... 16
--------
TOTAL COMMON STOCKS (Cost $136,932)......... 143,231
--------
PREFERRED STOCKS (1.3%)
AUSTRALIA (0.1%)
25,693 News Corp., Ltd............... 127
--------
BRAZIL (1.0%)
18,666,000 Aracruz Celulose S.A., Class
B........................... 44
11,100,000 Banco Bradesco................ 94
2,500,000 Banco do Brasil............... 30
1,100,000 Banco do Estado Sao Paulo..... 6
145,000 Brahma........................ 48
700,000 Ceval Alimentos S.A........... 8
1,050,000 Cia Brasileira de Petroleo
Ipiranga.................... 12
2,372,500 Cia Energetica de Minas
Gerais...................... 46
60,000 Cia Energetica de Sao Paulo... 2
</TABLE>
The accompanying notes are an integral part of the financial statements. (Pages
144-152)
- - --------------------------------------------------------------------------------
Active Country Allocation Portfolio
11
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1995
- - --------------------------------------------------------------------------------
THE ACTIVE COUNTRY ALLOCATION PORTFOLIO (CONT.)
- - --------------------------------------------------------------------------------
<TABLE>
<C> <S> <C>
SHARES
VALUE
(000)
- - ------------------------------------------------------
BRAZIL (CONT.)
70,000 Cia Siderurgica de Tubarao.... $ 52
1,550,000 Eletrobras.................... 413
15,000 Industrias Klabin de Papel e
Celulose S.A................ 21
210,000 Itaubanco..................... 64
+65,000 Itausa Investimentos Itau
S.A......................... 37
2,200,000 Petrobras..................... 186
16,000 Sadia Concordia............... 15
7,300,000 Telecomunicacoes
Brasileiras................. 240
375,000 Telecomunicacoes de Sao
Paulo....................... 47
33,500,000 Usinas Siderurgicas de Minas
Gerias...................... 38
1,150,000 Vale Do Rio Doce.............. 174
--------
1,577
--------
GERMANY (0.2%)
380 RWE AG........................ 105
80 SAP AG........................ 101
--------
206
--------
ITALY (0.0%)
29,000 Fiat S.p.A.................... 63
--------
TOTAL PREFERRED STOCKS (Cost $1,695)........ 1,973
--------
NO. OF
RIGHTS
- - ------------
RIGHTS (0.0%)
AUSTRALIA (0.0%)
**+2,181 Coca-Cola Amatil Ltd.,
expiring 7/26/95............ 3
--------
BRAZIL (0.0%)
**+200,000 Banco Bradesco................ --
**+2,663 Brahma........................ 1
+254,000 Telebras...................... --
--------
1
--------
FRANCE (0.0%)
**+1,346 Cie Bancaire S.A.............. 16
--------
INDONESIA (0.0%)
**+18,500 Matahari Putra Prima, expiring
8/04/95..................... 18
--------
SPAIN (0.0%)
+400 Zardoya Otis S.A., expiring
7/26/95..................... 4
--------
TOTAL RIGHTS (Cost $16)..................... 42
--------
NO. OF
WARRANTS
- - ------------
WARRANTS (0.0%)
BELGIUM (0.0%)
+347 Petrofina S.A., expiring
6/03/97..................... 5
--------
HONG KONG (0.0%)
+4,400 Applied International
Holdings, expiring
12/30/99.................... --
--------
ITALY (0.0%)
+2,950 R.A.S. S.p.A., expiring
12/31/97.................... 12
NO. OF VALUE
WARRANTS (000)
- - ------------------------------------------------------
+1,550 R.A.S. S.p.A., Savings Shares,
expiring 12/31/97........... $ 4
--------
16
--------
THAILAND (0.0%)
*+3,050 CMIC Finance & Securities Co.,
Ltd. (Foreign), expiring
1999........................ 1
+6,400 National Finance & Securities
Co., Ltd., expiring
11/15/99.................... --
--------
1
--------
TOTAL WARRANTS (Cost $1).................... 22
--------
NO. OF
UNITS
- - ------------
UNITS (0.3%)
AUSTRALIA (0.0%)
+34,929 Westfield Trust............... 61
--------
UNITED KINGDOM (0.3%)
534 British Aerospace plc......... 6
40,200 SmithKline Beecham plc........ 357
--------
363
--------
TOTAL UNITS (Cost $346)..................... 424
--------
FACE
AMOUNT
(000)
- - ------------
CONVERTIBLE DEBENTURES (0.0%)
FRANCE (0.0%)
FF *600 Sanofi 4.00%, 1/01/00 (Cost
$38)........................ 38
--------
TOTAL FOREIGN AND US SECURITIES (94.5%)
(Cost $139,028)............................. 145,730
--------
SHORT-TERM INVESTMENT (14.7%)
REPURCHASE AGREEMENT (14.7%)
$ 22,660 Goldman Sachs, 6.00%, dated
6/30/95, due 7/03/95, to be
repurchased at $22,671,
collateralized by $22,950
United States Treasury Notes
6.375%, due 6/30/97, valued
at $23,172 (Cost $22,660)... 22,660
--------
FOREIGN CURRENCY (0.4%)
BF 389 Belgian Franc................. 14
L 4 British Pound................. 7
IL 5,434 Italian Lira.................. 3
Y 6,079 Japanese Yen.................. 72
MA 907 Malaysian Ringgit............. 372
S$ 11 Singapore Dollar.............. 7
SP 2,737 Spanish Peseta................ 23
CHF 4 Swiss Franc................... 3
TB 2,398 Thai Baht..................... 97
--------
TOTAL FOREIGN CURRENCY (Cost $599).......... 598
--------
TOTAL INVESTMENTS (109.6%) (Cost
$162,287)................................... 168,988
--------
</TABLE>
The accompanying notes are an integral part of the financial statements. (Pages
144-152)
- - --------------------------------------------------------------------------------
Active Country Allocation Portfolio
12
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1995
- - --------------------------------------------------------------------------------
THE ACTIVE COUNTRY ALLOCATION PORTFOLIO (CONT.)
- - --------------------------------------------------------------------------------
VALUE
(000)
- - ----------------------------------------------------
OTHER ASSETS (2.1%)
Receivable for Portfolio
Shares Sold................ $ 1,580
Net Unrealized Gain on
Foreign Forward Currency
Contracts.................. 677
Dividends Receivable........ 632
Foreign Withholding Tax
Reclaim Receivable......... 252
Receivable for Investments
Sold....................... 72
Interest Receivable......... 4
Other....................... 12 $ 3,229
----------
LIABILITIES (-11.7%)
Payable for Investments
Purchased.................. (17,601)
Custodian Fees Payable...... (86)
Payable for Portfolio Shares
Redeemed................... (85)
Investment Advisory Fees
Payable.................... (67)
Payable to Custodian........ (57)
Administrative Fees
Payable.................... (24)
Directors' Fees and Expenses
Payable.................... (1)
Other Liabilities........... (49) (17,970)
---------- --------
NET ASSETS (100%)......................... $154,247
--------
--------
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER SHARE
Applicable to 14,021,360 outstanding
$.001 par value shares (authorized
500,000,000 shares)..................... $11.00
--------
--------
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACT
INFORMATION:
Under the terms of forward foreign currency
contracts open at June 30, 1995, the Portfolio is
obligated to deliver or is to receive foreign
currency in exchange for US dollars as indicated
below:
<TABLE>
<CAPTION>
NET
CURRENCY TO IN EXCHANGE UNREALIZED
DELIVER VALUE SETTLEMENT FOR VALUE GAIN (LOSS)
(000) (000) DATE (000) (000) (000)
- - ------------ --------- ----------- ------------- --------- ---------------
<S> <C> <C> <C> <C> <C>
$ 83 $ 83 7/03/95 MA 204 $ 83 $ --
IL 22,491 14 7/03/95 $ 14 14 --
$ 30 30 7/05/95 MA 73 30 --
$ 8,026 8,026 7/06/95 L 4,996 7,949 (77)
IL 6,047 4 7/31/95 $ 4 4 --
$ 1,900 1,900 4/30/96 BF 54,274 1,921 21
$ 7,378 7,378 4/30/96 Y 606,988 7,459 81
BF 225,256 7,973 4/30/96 $ 8,000 8,000 27
Y 2,268,600 27,875 4/30/96 $ 28,500 28,500 625
--------- --------- -----
$ 53,283 $ 53,960 $ 677
--------- --------- -----
--------- --------- -----
</TABLE>
- - ------------------------------------------------------------
+ -- Non-income producing
securities
* -- Security is valued at cost --
See Note A-1
** -- Security is valued at fair
value -- See Note A-1
NCS -- Non Convertible Shares
BF -- Belgian Franc
L -- British Pound
FF -- French Franc
IL -- Italian Lira
Y -- Japanese Yen
MA -- Malaysian Ringgit
- - ------------------------------------------------
SUMMARY OF FOREIGN AND US SECURITIES BY INDUSTRY CLASSIFICATION
VALUE PERCENT OF
INDUSTRY (000) NET ASSETS
- - --------------------------------------------------------
Capital Equipment............. $ 17,616 11.4%
Consumer Goods................ 24,913 16.2
Energy........................ 17,908 11.6
Finance....................... 36,935 23.9
Gold Mines.................... 95 0.1
Materials..................... 18,547 12.0
Multi-Industry................ 8,464 5.5
Services...................... 21,252 13.8
---------- ---
$ 145,730 94.5%
---------- ---
---------- ---
The accompanying notes are an integral part of the financial statements. (Pages
144-152)
- - --------------------------------------------------------------------------------
Active Country Allocation Portfolio
13
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
OVERVIEW
- - --------------------------------------------------------------------------------
THE ASIAN EQUITY PORTFOLIO
COMPOSITION OF NET ASSETS (AT JUNE 30, 1995)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
China 2.2%
Hong Kong 25.6
India 0.9
Indonesia 6.4
Korea 3.2
Malaysia 21.4
Pakistan 0.2
Philippines 6.1
Singapore 15.4
Taiwan 2.7
Thailand 14.3
Other 1.6
</TABLE>
PERFORMANCE COMPARED TO THE MORGAN STANLEY
CAPITAL INTERNATIONAL (MSCI) COMBINED FAR
EAST FREE EX-JAPAN INDEX(1)
- - -----------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
--------------------------------------------
AVERAGE ANNUAL
YTD ONE YEAR SINCE INCEPTION
---------- ------------- -----------------
<S> <C> <C> <C>
PORTFOLIO................ 7.04% 9.64% 24.98%
INDEX.................... 7.00 7.19 21.38
<FN>
1. The MSCI Combined Far East Free ex-Japan Index is an unmanaged index of
common stocks and includes Indonesia, Hong Kong, Malaysia,
the Philippines, Korea, Singapore, Taiwan and Thailand (assumes dividends
reinvested).
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.
</TABLE>
THE COUNTRY SPECIFIC PERFORMANCE RESULTS PROVIDED ARE AS MEASURED BY THE MSCI
COMBINED FAR EAST FREE EX-JAPAN INDEX AND 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.
PLEASE SEE THE PROSPECTUS FOR A DESCRIPTION OF CERTAIN RISK CONSIDERATIONS
ASSOCIATED WITH INTERNATIONAL INVESTING.
The investment objective of the Asian Equity Portfolio is to seek long-term
capital appreciation by investing primarily in common stocks which are traded on
recognized exchanges of HongKong, Singapore, Malaysia, Thailand, Indonesia and
the Philippines. The Portfolio may also invest in common stocks traded on
markets in Taiwan, South Korea, India, Pakistan, Sri Lanka and other Asian
developing markets which are open for foreign investment. The Portfolio does not
intend to invest in securities which are principally traded in Japan or in
companies organized under the laws of Japan.
The total return of the Portfolio for the six month period ended June 30, 1995
was 7.04% as compared to 7.00% for the Morgan Stanley Capital International
(MSCI) Combined Far East Free ex-Japan Index for the same period. Total returns
for the twelve months ended June 30, 1995 and the average annual return for the
period from inception in July 1991 through June 30, 1995 for the Portfolio were
9.64% and 24.98%, respectively, compared to 7.19% and 21.38% for the MSCI
Combined Far East Free ex-Japan Index for the same periods.
HongKong garnered top honors as Asia's top performing market, yielding 10.9%
despite uncertainty surrounding interest rates and the worsening of relations
between the U.S. and China over arms sales and the recent visit to the U.S. of
Taiwan's President. Tied to U.S. interest rates via the exchange rate peg,
HongKong benefited from the dramatic drop in U.S. bond yields. Utility stocks
led the rally. By contrast, property stocks performed poorly as property sales
continued to be weak. At 11X '95 estimated earnings Hongkong is still Asia's
cheapest market.
Malaysia rivaled HongKong as one of Asia's best performing markets, gaining
10.2% over the first six months of 1995. In January and February the market
reeled as investors feared that the ringgit would be devalued given the
country's large current account deficit. Eventually market sentiment improved as
investors recognized that because of Malaysia's strong external reserves
position, low debt service ratio and basic account surplus, the Central Bank was
well armed to defend the ringgit. The market snapped back to life in the second
quarter as foreign investors returned in droves with the fall in U.S. bond
yields and as fears that tough anti-inflation measures would be enacted abated.
Concerns over Malaysia's trade deficit also seemed to have subsided, thereby
bolstering confidence further. At 21X 1995 estimated earnings, the market is
fully valued.
- - --------------------------------------------------------------------------------
Asian Equity Portfolio
14
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
OVERVIEW
- - --------------------------------------------------------------------------------
THE ASIAN EQUITY PORTFOLIO (CONT.)
The Thai market posted modest gains of 3.3% over the first two quarters. The
first quarter was particularly trying for the Thai market as it was viewed by
foreign institutional investors as a submerging market whose currency (the
baht), like the Mexican peso several months before, was overvalued and due for
an adjustment. Fearing the worst, foreign institutions reacted impulsively,
selling indiscriminately. The market's liquid, blue-chips were the hardest hit.
After the initial wave of panic selling, however, the market traded sideways on
thin volume for several months. Cautious foreign and local investors preferred
to remain on the sidelines as they found little to cheer about. Finance stocks
fared the worst as market sentiment soured, as the technical picture worsened
and as evidence that service sector inflation was squeezing margins surfaced.
With the dramatic drop in U.S. bond yields in May and the extended rally in U.S.
markets, however, foreign investors returned to the market in force, buying
aggressively in Thailand's most interest rate sensitive sectors -- banks,
finance companies, and property developers -- which would benefit from wider
margins. Uncertainty about the direction of U.S. interest rates and the outcome
of Thai Parliamentary elections brought May's rally to an abrupt halt in June,
with the market once again trading sideways. At 20X '95 estimated earnings, the
market is fairly valued. The Thai economy will continue to grow robustly because
of substantial direct investments in infrastructure and manufacturing projects.
Singapore lagged the Index and other regional markets during the first six
months of the year. In U.S. dollar terms, Singapore rose by 4%, attributable
entirely to the 4.1% appreciation of the Singapore dollar (versus the U.S.
dollar) this year. Although capital inflows pushed the Singapore dollar higher
against the U.S. dollar, the market did not benefit from improved liquidity for
several reasons. First, the system was already flush with liquidity as
inter-bank rates hovered below 2%. Second, the Singapore dollar weakened
slightly against regional currencies, suggesting that investors believed that
other markets afforded better opportunities. Also contributing to the market's
sluggishness was the economy's slowdown; the GDP growth rate downshifted to a
sustainable 7.2% per annum level. At 21X '95 estimated earnings, the market's
valuation is attractive both relative to historical ranges and to local interest
rates.
Notwithstanding lingering concerns over the strength of the rupiah, liquidity
draining IPOs and rising debt servicing costs due to the appreciation of the
yen, Indonesia still managed to gain 8.0% over the first two quarters. Lower
U.S. bond yields and the passage of further trade liberalization measures
resulted in a positive credit re-rating of the archipelago, bolstering the
confidence of overseas investors.
The Philippines market showed great resiliency during the first half of the
year. In the wake of the Mexican peso crisis, foreign investors sold massively
during the first quarter, driving the index down by 16%. To defend the
Philippines peso, the Central Bank raised interest rates significantly. During
the second quarter, however, the market rebounded 17%, principally because
concerns over the peso subsided, bank reserve requirements were lowered and
strong corporate results were reported. With inflation below 7%, we believe the
market to be slightly below fair market value at 20X '95 estimated earnings and
feel further that the market is broadly representative of the underlying growth
story of the country.
Korea and Taiwan were Asia's worst performing markets over the first six months
of 1995, losing 3.3% and a staggering 23.3%, respectively. Despite strong GDP
growth (9.9% in 1Q95) and persistent efforts by the Korean authorities to
support the market -- the foreign shareholding limit was increased from 12% to
15%, the Stockmarket Stabilization Fund was reactivated and investment trusts
were directed to become net buyers of stocks -- the market still drifted into
negative territory as the stubbornly high 3-year corporate bond benchmark yield
(15%) dampened investor enthusiasm for equities. Taiwan plunged as the weakening
real estate market posed a growing non-performing loan problem, thereby
threatening the well-being of the financial and banking systems. Only the
electronics sector remained impervious to selling pressures as sales and
earnings continued to exceed expectations.
Looking ahead, we are relatively neutral about Asian markets. We expect to
slightly underweight HongKong given our belief that the Hang Seng will remain
trading range bound for the rest of the year. In particular, the Portfolio will
steer clear of the property counter, which shows no signs of staging a marked
recovery from the bottom of its cycle. HongKong's performance will be determined
by the outlook for China, whose macro picture is expected to improve by year
end. We expect that the Portfolio will market weight Malaysia, looking to
capitalize on a possible further re-rating of the market. Given the strong
performance already recorded by the big cap stocks, the Portfolio will
increasingly shift its orientation towards medium cap stocks which have strong
earnings growth potential. In Singapore, the Portfolio will maintain a benchmark
weighting and will focus on
- - --------------------------------------------------------------------------------
Asian Equity Portfolio
15
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
OVERVIEW
- - --------------------------------------------------------------------------------
THE ASIAN EQUITY PORTFOLIO (CONT.)
stocks with a strong regional presence, such as banks, as well as large,
diversified blue-chip property companies. The Portfolio will assume a benchmark
weighting towards Thailand, with stock selection focusing on the banking and
communications sectors. Banks and communication companies are expected to
benefit from the lower interest rate environment as well as the formation of a
new coalition government. We expect that the Portfolio will market weight
Indonesia, looking to participate actively in the market's major IPOs. The
Portfolio will overweight the Philippines, investing primarily in the blue-chip
conglomerates with particular emphasis on those with exposure to
telecommunications and property. The Portfolio will invest selectively in
Taiwan, focusing exclusively on the electronics sector. The Portfolio will
underweight Korea and will concentrate its holdings in Samsung Electronics and
Korea Mobile Telecom, both of which are expected to exhibit robust growth. We
will also seek to identify Korean banks, such as Shinhan Bank, which are trading
below their book values despite strong balance sheets and negligible
non-performing loans.
- - --------------------------------------------------------------------------------
Asian Equity Portfolio
16
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1995
- - --------------------------------------------------------------------------------
THE ASIAN EQUITY PORTFOLIO
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- - ------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (98.3%)
CHINA (2.2%)
890,400 China Merchants Shekou Port Services, Class B..... $ 483
28,200 Jilin Chemical Co. Ltd. ADR....................... 543
5,505,000 Maanshan Iron & Steel Co., Class H................ 1,153
51,000 Shandong Huaneng Power Co., Ltd. ADR.............. 389
200,000 Shanghai Diesel Engine Co., Ltd., Class B......... 124
265,000 Shanghai Erfanji Co., Ltd., Class B............... 39
313,235 Shanghai Jin Jiang Tower Ltd., Class B............ 100
1,601,600 Shanghai Jinqiao, Class B......................... 769
590,900 Shanghai Phoenix Bicycle Ltd., Class B............ 128
+650,000 Shanghai Refrigerator Compressor, Class B......... 233
638,000 Shanghai Tyre & Rubber Co., Class B............... 191
120,000 Shanghai Yaohua Pilkington Glass, Class B......... 120
180,400 Shenzhen Chiwan Wharf Holdings, Class B........... 90
**1,000,000 Shenzhen North Jainshe Motorcycle................. 485
4,265,000 Yizheng Chemical Fibre Co., Class H............... 1,488
----------
6,335
----------
HONG KONG (25.6%)
2,637,000 Cheung Kong Holdings Ltd.......................... 13,052
358,000 China Light & Power Co., Ltd...................... 1,841
1,209,500 Citic Pacific Ltd................................. 3,040
4,180,000 C.P. Pokphand Co., Ltd............................ 1,472
11,712,000 Guangdong Investments Ltd......................... 6,395
610,000 Harbin Power Equipment Co......................... 195
462,369 Hong Kong & Shanghai Bank Holdings plc............ 5,931
815,500 Hong Kong Electric Holdings Ltd................... 2,772
4,999,000 Hong Kong Telecommunications Ltd.................. 9,885
3,648,000 Hopewell Holdings Ltd............................. 3,088
1,927,000 Hutchison Whampoa Ltd............................. 9,314
1,805,000 New World Development Co., Ltd.................... 6,007
200,000 Sum Cheong International.......................... 114
612,100 Sun Hung Kai Properties Ltd....................... 4,529
661,560 Swire Pacific Ltd., Class A....................... 5,044
906,000 Varitronix International Ltd...................... 1,587
----------
74,266
----------
INDIA (0.8%)
38,000 Grasim Industries Ltd. GDR........................ 912
51,000 Hindalco Industries Ltd. GDR...................... 1,479
----------
2,391
----------
INDONESIA (6.4%)
**600,000 Asiana Imi Industries (Foreign)................... 256
**378,000 Bank International Indonesia (Foreign)............ 1,167
**450,000 Barito Pacific Timber (Foreign)................... 647
**5,160,000 Bimantara Citra................................... 2,896
**621,826 Charoen Pokphand (Foreign)........................ 1,354
**517,500 Duta Pertiwi (Foreign)............................ 523
**268,000 Indocement Tunggal (Foreign)...................... 1,053
<CAPTION>
VALUE
SHARES (000)
- - ------------------------------------------------------------
<C> <S> <C>
**700,000 Indosat (Foreign)................................. $ 2,656
**351,600 Kalbe Farma (Foreign)............................. 1,610
**210,000 Keramika Indonesia Assosiasi (Foreign)............ 283
**1,000,000 Ometraco (Foreign)................................ 718
**601,000 Polysindo Eka Perkasa (Foreign)................... 337
**916,800 Sona Topas Tourism (Foreign)...................... 1,235
**277,333 Sorini Corp. (Foreign)............................ 1,326
**85,000 Suba Indah (Foreign).............................. 42
**1,250,000 Ultra Jaya Milk (Foreign)......................... 1,123
**644,800 United Tractors (Foreign)......................... 1,375
----------
18,601
----------
KOREA (3.2%)
53,900 Korea Electric Power (Foreign).................... 2,019
+**900 Korea Mobile Telecom (Foreign).................... 949
81,200 Pohang Iron & Steel Co., Ltd. ADR................. 2,395
**14,100 Samsung Electronics............................... 2,904
679 Samsung Electronics GDS........................... 49
16,411 Samsung Electronics GDS (Non-voting shares)....... 866
----------
9,182
----------
MALAYSIA (21.4%)
651,000 Bandar Raya Developments Bhd...................... 1,415
811,500 Genting Bhd....................................... 8,022
609,000 Land & General Holdings Bhd....................... 2,036
1,437,500 Malayan Banking Bhd............................... 11,380
955,316 Malaysian International Shipping Bhd. (Foreign)... 2,802
2,280,000 Renong Bhd........................................ 4,246
1,144,000 Resorts World Bhd................................. 6,710
650,000 Sime Darby Bhd.................................... 1,813
987,000 Tan & Tan Development Bhd......................... 1,230
544,000 Technology Resources Industries Bhd............... 1,562
1,103,000 Telekom Malaysia Bhd.............................. 8,370
1,206,000 Tenaga Nasional Bhd............................... 4,922
500,000 Time Engineering Bhd.............................. 1,682
932,757 United Engineers Ltd. (Malaysia).................. 5,930
----------
62,120
----------
PAKISTAN (0.2%)
7,300 Pakistan Telecommunications GDR................... 741
----------
PHILIPPINES (6.1%)
+285,200 Aboitiz Equity Ventures........................... 58
1,559,200 Ayala Corp., Class B.............................. 1,740
1,435,625 Ayala Land, Inc., Class B......................... 1,658
+108,250 International Container Terminal Services, Class
B............................................... 74
5,352,800 JG Summit Holding, Class B........................ 1,593
378,450 Manila Electric Co., Class B...................... 3,038
4,823,500 Petron Corp....................................... 3,116
18,125 Philippine Long Distance Telephone Co. ADR........ 1,300
15,430 Philippine Long Distance Telephone Co., Class B... 1,103
82,540 Philippine National Bank, Class B................. 961
**215,000 Pilipino Telephone Corp........................... 168
</TABLE>
The accompanying notes are an integral part of the financial statements. (Pages
144-152)
- - --------------------------------------------------------------------------------
Asian Equity Portfolio
17
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1995
- - --------------------------------------------------------------------------------
THE ASIAN EQUITY PORTFOLIO (CONT.)
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- - ------------------------------------------------------------
<C> <S> <C>
PHILIPPINES (CONT.)
317,200 San Miguel Corp., Class B......................... $ 1,316
+5,018,000 SM Prime Holdings, Inc., Class B.................. 1,375
277,800 Universal Robina.................................. 144
----------
17,644
----------
SINGAPORE (15.4%)
252,000 British-American Tobacco Co....................... 1,150
875,080 City Developments Ltd............................. 5,354
727,000 DBS Land Ltd...................................... 2,279
470,500 Development Bank of Singapore Ltd. (Foreign)...... 5,353
248,800 Fraser & Neave Ltd................................ 2,866
707,000 Keppel Corp., Ltd................................. 5,767
+75,000 Odin Mining & Investment.......................... 25
599,166 Oversea-Chinese Banking Corp. (Foreign)........... 6,645
374,000 Sembawang Corp. Ltd............................... 2,275
111,000 Singapore Airlines Ltd. (Foreign)................. 1,025
178,400 Singapore Press Holdings (Foreign)................ 2,668
1,949,000 Singapore Technologies Industrial Corp............ 2,957
532,000 Straits Steamship Land Ltd........................ 1,842
500,000 Straits Trading Co., Ltd.......................... 1,252
361,200 United Overseas Bank Ltd.......................... 3,412
----------
44,870
----------
TAIWAN (2.7%)
+612,000 Advanced Semiconductor
Engineering, Inc................................ 1,777
+648,000 Taiwan Semiconductor Manufacturing Co............. 3,149
+550,000 United Micro Electronics Corp., Ltd............... 2,822
----------
7,748
----------
THAILAND (14.3%)
109,000 Advanced Information Services Co. (Foreign)....... 1,616
554,500 Bangkok Bank Ltd. (Foreign)....................... 6,110
712,900 Finance One Co., Ltd.(Foreign).................... 5,256
174,900 International Engineering Co., Ltd. (Foreign)..... 1,311
202,800 National Finance & Securities Co. Ltd.
(Foreign)....................................... 1,002
185,800 Phatra Thanakit Co., Ltd. (Foreign)............... 1,551
111,100 Shinawatra Computer Co., Ltd (Foreign)............ 2,754
45,000 Siam Cement Co., Ltd. (Foreign)................... 2,873
294,300 Siam Commercial Bank (Foreign).................... 2,814
1,538,300 TelecomAsia Corp. (Foreign)....................... 5,764
586,270 Thai Farmers Bank Ltd. (Foreign).................. 5,605
320,000 Thai Telephone & Telecom (Foreign)................ 2,800
101,000 United Communications (Foreign)................... 1,483
375,000 Wongpaitoon Footware Co., Ltd. (Foreign).......... 577
----------
41,516
----------
TOTAL COMMON STOCKS (Cost $233,405)............................. 285,414
----------
<CAPTION>
NO. OF VALUE
RIGHTS (000)
</TABLE>
- - ------------------------------------------------------------
<TABLE>
<C> <S> <C>
RIGHTS (0.0%)
INDONESIA (0.0%)
**+400,000 Ometraco, expiring 8/29/95........................ $ --
**+1,833,600 Sona Topas Tourism, expiring 7/13/95.............. --
----------
TOTAL RIGHTS (Cost $0).......................................... --
----------
<CAPTION>
NO. OF
WARRANTS
- - ------------
<C> <S> <C>
WARRANTS (0.0%)
HONG KONG (0.0%)
+432,000 Wai Kee Holdings Ltd., expiring 12/31/96.......... 6
THAILAND (0.0%)
+157,200 National Finance & Securities Co. Ltd., expiring
11/15/99........................................ --
----------
TOTAL WARRANTS (Cost $0)........................................ 6
----------
<CAPTION>
NO. OF
UNITS
- - ------------
<C> <S> <C>
UNITS (0.1%)
INDIA (0.1%)
34,000 SIV Industries Ltd. GDR (Cost $649)............... 357
----------
TOTAL FOREIGN SECURITIES (98.4%) (Cost $234,054)................ 285,777
----------
<CAPTION>
AMOUNT (000)
- - ------------
<C> <S> <C>
FOREIGN CURRENCY (2.3%)
HK$ 21,700 Hong Kong Dollar.................................. 2,804
MA 2,479 Malaysian Ringgit................................. 1,017
T$ 2,221 Taiwan Dollar..................................... 86
TB 66,471 Thai Baht......................................... 2,693
----------
TOTAL FOREIGN CURRENCY (Cost $6,599)............................ 6,600
----------
TOTAL INVESTMENTS (100.7%) (Cost $240,653)...................... 292,377
----------
</TABLE>
<TABLE>
<S> <C> <C>
OTHER ASSETS (2.4%)
Receivable for Investments Sold................. $ 3,924
Receivable for Portfolio Shares Sold............ 2,289
Dividends Receivable............................ 710
Foreign Withholding Tax Reclaim Receivable...... 13
Other........................................... 19 6,955
----------
LIABILITIES (-3.1%)
Payable to Custodian............................ (7,691)
Payable for Investments Purchased............... (566)
Investment Advisory Fees Payable................ (483)
Custodian Fees Payable.......................... (104)
Administrative Fees Payable..................... (41)
Net Unrealized Loss on Forward Foreign Currency
Contracts...................................... (5)
Directors' Fees and Expenses Payable............ (1)
Other Liabilities............................... (44) (8,935)
---------- ----------
NET ASSETS (100%)............................................. $ 290,397
----------
----------
</TABLE>
The accompanying notes are an integral part of the financial statements. (Pages
144-152)
- - --------------------------------------------------------------------------------
Asian Equity Portfolio
18
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1995
- - --------------------------------------------------------------------------------
THE ASIAN EQUITY PORTFOLIO (CONT.)
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
(000)
- - ------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER SHARE
Applicable to 14,194,574 outstanding $.001 par value shares
(authorized 500,000,000 shares)............................. $20.46
----------
----------
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACT INFORMATION:
Under the terms of forward foreign currency contracts open at June 30,
1995, the Portfolio is obligated to deliver foreign currency in exchange
for US dollars as indicated below:
</TABLE>
<TABLE>
<CAPTION>
NET
CURRENCY TO IN EXCHANGE UNREALIZED
DELIVER VALUE SETTLEMENT FOR VALUE GAIN (LOSS)
(000) (000) DATE (000) (000) (000)
- - ------------ --------- ----------- ------------ --------- ---------------
<S> <C> <C> <C> <C> <C>
HK$ 21,700 $ 2,804 7/03/95 $ 2,804 $ 2,804 $ --
MA 5,529 2,268 7/03/95 $ 2,266 2,266 (2)
TB 66,471 2,693 7/03/95 $ 2,690 2,690 (3)
--------- --------- -----
$ 7,765 $ 7,760 $ (5)
--------- --------- -----
--------- --------- -----
</TABLE>
- - ------------------------------------------------------------
<TABLE>
<S> <C> <C>
+ -- Non-income producing securities
** -- Security is valued at fair value -- See Note A-1
ADR -- American Depositary Receipt
GDR -- Global Depositary Receipt
GDS -- Global Depositary Shares
HK$ -- Hong Kong Dollar
MA -- Malaysian Ringgit
TB -- Thai Baht
</TABLE>
- - ------------------------------------------------------------
SUMMARY OF FOREIGN SECURITIES BY INDUSTRY CLASSIFICATION
<TABLE>
<CAPTION>
VALUE PERCENT OF
INDUSTRY (000) NET ASSETS
<S> <C> <C>
- - ----------------------------------------------------------------
Capital Equipment..................... $ 30,570 10.5%
Consumer Goods........................ 16,192 5.6
Energy................................ 18,292 6.3
Finance............................... 107,365 37.0
Materials............................. 15,861 5.5
Mining................................ 25 --
Multi-Industry........................ 26,874 9.2
Services.............................. 70,598 24.3
--------- -----
$ 285,777 98.4 %
--------- -----
--------- -----
</TABLE>
The accompanying notes are an integral part of the financial statements. (Pages
144-152)
- - --------------------------------------------------------------------------------
Asian Equity Portfolio
19
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
OVERVIEW
- - --------------------------------------------------------------------------------
THE EMERGING MARKETS PORTFOLIO
COMPOSITION OF NET ASSETS (AT JUNE 30, 1995)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Argentina 2.3%
Brazil 16
China 2.1
Colombia 1.2
Ecuador 0.1
Greece 3
Hong Kong 8.3
Hungary 0.2
India 9.8
Indonesia 5.9
Israel 2.7
Korea 1.1
Malaysia 0.2
Mexico 9
Morocco 1.3
Pakistan 2.3
Peru 0.5
Philippines 3.5
Poland 0.7
Portugal 0.9
Russia 7.2
South Africa 2.7
Taiwan 3.6
Thailand 6.9
Turkey 5.2
United Kingdom 0.2
United States 2.4
Zimbabwe 0.3
Other 0.4
</TABLE>
PERFORMANCE COMPARED TO THE IFC GLOBAL
TOTAL RETURN COMPOSITE INDEX(1)
- - -------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
-------------------------------------------
AVERAGE ANNUAL
YTD ONE YEAR SINCE INCEPTION
---------- ------------ -----------------
<S> <C> <C> <C>
PORTFOLIO.............. -7.46% -7.35% 18.25%
INDEX.................. -8.47 -1.32 18.86
<FN>
1. The IFC Global Total Return Composite Index is an unmanaged index of common
stocks and includes developing countries in Latin America, East and South
Asia, Europe, the Middle East and Africa (assumes dividends reinvested).
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.
</TABLE>
THE COUNTRY SPECIFIC PERFORMANCE RESULTS PROVIDED IN THIS OVERVIEW ARE AS
MEASURED BY THE IFC GLOBAL TOTAL RETURN REGIONAL OR COUNTRY INDICES AND 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. PLEASE SEE THE PROSPECTUS FOR A DESCRIPTION OF CERTAIN RISK
CONSIDERATIONS ASSOCIATED WITH INTERNATIONAL INVESTING.
The investment objective of the Emerging Markets Portfolio is to provide
long-term capital appreciation by investing in common stocks and preferred
stocks of emerging country issuers.
The total return of the Portfolio for the six month period ended June 30, 1995
was -7.46% compared to -8.47% for the IFC Global Total Return Composite Index
for the same period. Total returns for the twelve months ended June 30, 1995 and
the average annual total return for the period from inception in September 1992
through June 30, 1995 were -7.35% and 18.25%, respectively, compared to -1.32%
and 18.86% for the IFC Global Total Return Composite Index for the same periods.
The second quarter of 1995 saw a rebound in confidence in the emerging markets
as Latin America significantly outperformed Asia. In the Portfolio, overweight
positions in Brazil, Mexico, Turkey, Israel, Greece, Indonesia and Hong Kong and
an underweight position in Taiwan all added to relative performance. India and
Pakistan, however, exerted some drag on the overall return.
Asia rose 1.3% over the three month period ended June 30, 1995 led by the
Philippines, Thailand, Malaysia and Hong Kong. Sentiment in Asia is sensitive to
the direction of U.S. interest rates and the recent Federal Reserve easing
created a rally in most of the Asian markets. The outlook for Asian growth,
while slightly slower in 1995 than in 1994, is still very positive. A slowing
U.S. economy is now not such a negative for Asian growth. While OECD economic
growth has historically been the dominant factor impacting Asia's export led
economies, more recently however intra-Asian trade has become more important. In
the 1980's one-third of Asian exports went to the U.S. and one quarter went to
Asia. By 1994 these weightings had reversed and intra-Asian trade now accounts
for 32% of total Asian exports. The weak U.S. dollar also boosts Asian and other
emerging market trade with the non-U.S. OECD economies. The anticipated pick-up
in economic growth in Japan should draw in imports from Thailand, Indonesia, the
Philippines, Korea and Taiwan.
By heavily underweighting Taiwan, the Portfolio avoided some of the 16% fall in
the Taipei stock market. Several factors led to the decline including a weak
real estate market and fears of China's retaliation against the visit of the
Taiwan president to the U.S. Taiwan is no longer the most expensive market in
Asia and we are looking closely at the opportunities available there.
- - --------------------------------------------------------------------------------
Emerging Markets Portfolio
20
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
OVERVIEW
- - --------------------------------------------------------------------------------
THE EMERGING MARKETS PORTFOLIO (CONT.)
Latin America bounced 19.4% for the quarter ended June 30, 1995. This time the
"Tequila effect" was positive. With the exception of Argentina, all markets in
the region performed strongly with Brazil up 15.9% and Mexico rising 27.1% from
its oversold position.
Tangible economic progress is being seen in Brazil. The likely reduction in
inflation to 40% year-on-year by December 1995 compared to a monthly rate of 40%
a year ago testify to the success of the Real Plan. Although constitutional
reform is likely to be protracted, President Cardoso continues to move toward
some privatization of the telecommunications, oil, mining and electricity
sectors. Brazil has one of the strongest economies in the region and remains the
largest single country exposure of the Portfolio.
Mexico has swiftly moved out of the intensive care department. A sharp austerity
program has been implemented and inflation is dropping significantly, paving the
way for interest rate declines and positive economic growth in 1996. A strong
export sector has limited the depth of the recession to a decline of 4.0% at
worst, for 1995. Mexico's currency weakness has put the country in a win-win
situation in merchandise trade. Exports to dollar based countries are boosted
while weakness of the U.S. dollar itself gives Mexico the ability to broaden its
export base. Mexican steel producers are now among the cheapest in the world.
The financial credibility of Mexico improves daily. Tesobono holders and foreign
lenders to Mexican banks are likely to be paid in full. Banks and infrastructure
stocks in Mexico have been the star performers in the quarter.
European markets had a buoyant quarter. Poland recovered 35.8%, Hungary 13.8%
and Greece and Turkey both around 10%. As a region, Europe has outpaced Latin
America and Asia in performance terms year-to-date, the stock markets are still
cheap and foreign investment in the region continues to build up steam. The
Portfolio is overweight in Europe.
The biggest potential opportunity we see lies in Russia. In April, the IMF made
the second largest loan in it's history ($6.46 billion) to Russia based on the
political and Central Bank resolve to reduce inflation and the budget deficit.
The rouble has been strengthening recently after losing almost one-third of its
value against the U.S. dollar between January and April. By late 1995, we expect
the economy to show positive growth after years of decline. On an international
comparison, Russian companies are cheap. The bond and equity markets have
shrugged off President Yeltsin's recent heart attack suggesting that the
political situation is also more stable. The Prime Minister Victor
Chernomyrdin's standing has increased on two counts. First he is being given
credit for the reforms that have stabilized the economy and second he
successfully handled the Chechen hostage crisis.
We continue to be positively disposed to India although the stock market has
suffered from political uncertainty and settlement problems. The corporate
sector is healthy and producing earnings growth in excess of 30%.
In conclusion, while confidence is returning to the emerging markets, there is
little sign of investor complacency or over-valuation. There remains scope for
the emerging markets to move upwards from here.
- - --------------------------------------------------------------------------------
Emerging Markets Portfolio
21
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1995
- - --------------------------------------------------------------------------------
THE EMERGING MARKETS PORTFOLIO
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- - ------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (79.9%)
ARGENTINA (2.3%)
+6 Acindar Industrial S.A., Class B.................. $ --
72,161 Banco de Galicia y Buenos Aires, Class B.......... 287
279,933 Banco de Galicia y Buenos Aires ADR............... 4,409
39,995 Banco del Sud Argentina, Class B.................. 248
2,872 Banco Frances del Rio de la Plata, Class B........ 17
+193,932 Banesto Banco Shaw S.A., Class B.................. 621
18,286 Buenos Aires Embotelladora ADR.................... 460
67,858 Capex S.A., Class A............................... 526
120,670 Capex S.A. ADR.................................... 1,855
440,360 Cia Naviera Perez Companc, Class B................ 1,850
493,926 CIADEA (Renault) S.A.............................. 2,396
89,537 Massalin Particulares, Class B.................... 864
431,533 Quilmes Industrial S.A............................ 8,415
--------
21,948
--------
BRAZIL (5.2%)
18,483,200 Banco Nacional S.A................................ 401
105,160,000 Cia Acos Especiais Itabira........................ 682
696 Cia Energetica de Minas Gerais ADR................ 14
106,283 Cia Energetica de Minas Gerais GDR................ 2,072
117,687,740 Cia Energetica de Sao Paulo....................... 3,835
265,309 Cia Energetica de Sao Paulo ADR................... 3,018
62,407,000 Cia Paulista de Forca E Luz....................... 3,125
132,425,000 Cia Siderurgica Nacional.......................... 3,020
34,000 Cigarros Souza Cruz............................... 257
7,340,000 Eletrobras........................................ 1,914
144,985 Rhodia-Ster ADS................................... 2,030
26,329 Rhodia-Ster GDS................................... 369
9,012,000 Servicos de Eletricdade........................... 2,839
191,153,000 Telebras.......................................... 5,420
545,464 Telebras ADR...................................... 18,000
5,175,000 Telecomunicacoes de Sao Paulo..................... 658
264,236 Usiminas Siderurgicas de Minas Gerais ADR......... 2,940
--------
50,594
--------
CHINA (2.1%)
750,000 Beiren Printing Machine, Class H.................. 154
3,036,400 China Merchants Shekou Port Services, Class B..... 1,648
91,500 Jilin Chemical Co. Ltd. ADR....................... 1,761
11,305,000 Maanshan Iron & Steel Co., Class H................ 2,367
162,400 Shandong Huaneng Power Co., Ltd. ADR.............. 1,238
1,907,500 Shanghai Diesel Engine Co., Ltd., Class B......... 1,183
+803,000 Shanghai Erfanji Co., Ltd., Class B............... 119
500,000 Shanghai Industries Sewing Machine, Class B....... 92
949,975 Shanghai Jin Jiang Tower Ltd., Class B............ 304
3,673,680 Shanghai Jinqiao, Class B......................... 1,763
+1,062,750 Shanghai Outer Gaoqiao Free Zone, Class B......... 448
<CAPTION>
VALUE
SHARES (000)
- - ------------------------------------------------------------
<C> <S> <C>
14,550 Shanghai Petrochemical Co. ADR.................... $ 457
903,800 Shanghai Phoenix Bicycle Ltd., Class B............ 195
+1,304,030 Shanghai Refrigerator Compressor, Class B......... 467
450,000 Shanghai Shangling Electric, Class B.............. 374
986,000 Shanghai Tyre & Rubber Co., Class B............... 296
354,000 Shanghai Yaohua Pilkington Glass, Class B......... 354
1,200,000 Shangkai Lujiazui Finance & Trade Development Co.,
Class B......................................... 842
2,707,400 Shenzhen Chiwan Wharf Holdings, Class B........... 1,347
13,590,000 Yizheng Chemical Fibre Co., Class H............... 4,742
+68,000 Zhuhai Lizhu Pharmaceutical Group Inc., Class B... 30
--------
20,181
--------
COLOMBIA (0.8%)
17,130,000 Banco de Colombia................................. 6,496
53,070 Cementos Paz Del Rio ADR.......................... 895
--------
7,391
--------
GREECE (3.0%)
+303,645 Aegek............................................. 6,746
90,000 Alpha Credit Bank of Athens....................... 4,995
176,798 Delta Dairy S.A................................... 3,677
116,670 Ergo Bank S.A..................................... 5,366
294,955 Hellenic Bottling Co. S.A......................... 8,755
--------
29,539
--------
HONG KONG (8.3%)
1,294,000 Cheung Kong Holdings Ltd.......................... 6,405
2,015,000 Citic Pacific Ltd................................. 5,065
14,327,000 C.P. Pokphand Co., Ltd............................ 5,045
65,800 Great Wall Electric Ltd. ADR...................... 280
11,244,000 Guangdong Investments Ltd......................... 6,139
931,400 Hang Seng Bank Ltd................................ 7,102
2,336,000 Harbin Power Equipment Co......................... 747
2,331,000 Hong Kong Telecommunications Ltd.................. 4,609
8,849,000 Hopewell Holdings Ltd............................. 7,491
2,668,000 Hutchison Whampoa Ltd............................. 12,896
2,244,000 New World Development Co., Ltd.................... 7,468
286,000 Sun Hung Kai Properties Ltd....................... 2,116
1,164,000 Swire Pacific Ltd., Class A....................... 8,875
2,619,000 Varitronix International Ltd...................... 4,586
7,180,000 Wai Kee Holdings Ltd.............................. 1,364
--------
80,188
--------
HUNGARY (0.2%)
15,945 Egis.............................................. 346
104,558 Gedeon Richter Ltd................................ 1,673
--------
2,019
--------
INDIA (9.1%)
230,000 American Dry Fruits............................... 315
1,200 Andhra Valley Power Supply, Class B............... 4
100,000 AP Rayon, Class B................................. 260
</TABLE>
The accompanying notes are an integral part of the financial statements. (Pages
144-152)
- - --------------------------------------------------------------------------------
Emerging Markets Portfolio
22
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1995
- - --------------------------------------------------------------------------------
THE EMERGING MARKETS PORTFOLIO (CONT.)
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- - ------------------------------------------------------------
<C> <S> <C>
INDIA (CONT.)
100,000 Aruna Sugars & Enterprises, Class B............... $ 131
1,200 Bajaj Auto Ltd., Class A.......................... 28
917,000 Balaji Foods & Feeds.............................. 496
15,000 Ballapur Industries Ltd., Class B................. 87
20,000 Baroda Rayon Corp................................. 303
102,284 Bharat Forge Co., Ltd., Class A................... 319
***33,571 Bharat Forge Co., Ltd. (New)...................... 53
200,000 Bharat Heavy Electricals, Class B................. 771
**3,100,000 Bharat Heavy Electricals (New).................... 11,798
12,800 Bharat Petroleum Corp., Ltd....................... 119
375,000 Bharat Pipes & Fittings Ltd., Class B............. 215
**125,000 Bharat Pipes & Fittings Ltd. (New)................ 66
100,000 BPL Ltd........................................... 379
27,400 Cable Corp. of India Ltd.......................... 76
195,000 Carrier Aircon Ltd., Class B...................... 981
90,000 Cosmo Films Ltd................................... 430
25,000 Crompton Greaves.................................. 147
77,000 DCM Shriram Industries Ltd........................ 478
38,800 Delta Industries Ltd.............................. 173
185,000 Essab India Ltd................................... 395
50,000 Essel Packaging................................... 346
5,400 Fabworth (India) Ltd.............................. 5
2,400 Flex Industries Ltd., Class B..................... 14
**34,766 Flex Industries Ltd. (New)........................ 193
5,000 Fuller............................................ 79
371,800 Garware Plastics & Polyester, Class A............. 2,901
314,500 Geekay Exim Ltd................................... 1,152
475,000 Godrej Soaps Ltd.................................. 2,420
28,100 Hero Honda, Class B............................... 172
1,700 Hindustan Petroleum Corp.......................... 20
108,280 Housing Development Finance Corp.................. 8,224
@*78,000 India Magnum Fund, Class A (acquired
11/25/92-3/01/94, Cost $3,782).................. 3,822
@55,194 India Magnum Fund, Class B........................ 2,594
644,625 India Organic Chemical Ltd........................ 965
43,590 Indian Aluminum GDR............................... 474
100 Indian Rayon & Industries Ltd., Class A........... 1
40,000 Indian Seamless Steel & Alloys.................... 18
9,000 Indo Gulf Fertilizer & Chemical, Class A.......... 17
571,200 Indo Rama Synthetic, Class B...................... 873
100,000 Infosys Technology Ltd............................ 1,509
158,100 ITC Agrotech, Class B............................. 498
450 ITW Signode Ltd., Class B......................... 2
225 ITW Signode Ltd. (New)............................ 1
377,200 Jai Parabolic Springs Ltd......................... 384
**268,800 Jai Parabolic Springs Ltd. (New).................. 260
5,292 JCT Ltd. GDR...................................... 94
212,550 JK Synthetics Ltd................................. 218
98,500 Kiloskar Oil Engine, Class B...................... 427
550 Lakme Ltd., Class B............................... 5
150,000 Lakshmi Precision................................. 399
145,000 Laser Lamp........................................ 101
<CAPTION>
VALUE
SHARES (000)
- - ------------------------------------------------------------
<C> <S> <C>
770,000 Mahanagar Telephone Nigam......................... $ 4,046
88,484 Mahavir Spinning Mills Ltd........................ 420
570,700 Maikaal Fibres.................................... 236
180,700 Mardia Chemicals Ltd.............................. 581
@19,389 Morgan Stanley India Investment Fund, Inc......... 199
20 Motor Industries Co., Ltd., Class A............... 4
73,650 MRF Ltd., Class B................................. 4,081
24,000 Mukand Iron & Steel Works, Class A................ 206
17,606 Nahar Spinning Mills Ltd., Class B................ 264
25,000 OM Sindoori Hotels Ltd............................ 61
391,650 Orkay Industries Ltd.............................. 234
100,000 Patheja Forgings & Auto Parts, Class B............ 318
150,000 Patheja Forgings & Auto Parts (New)............... 478
318,935 PCS Data Products Ltd., Class B................... 203
900 Pentafour Products Ltd., Class B.................. 1
240,700 Philips India, Ltd................................ 2,346
275,000 Polar Latex....................................... 182
232,700 Priyadarshini Cement Ltd., Class B................ 263
14,000 Pudumjee.......................................... 93
350,000 PVD Plastic Mouldings Inds. Ltd., Class B......... 268
850 Ranbaxy Laboratories Ltd., Class B................ 18
1,100 Raymond Synthetics Ltd., Class B.................. --
150 Reliance Industries Ltd., Class A................. 1
3,770 Reliance Industries Ltd. GDS...................... 69
73,581 Reliance Industries Ltd. GDS (New)................ 1,343
84,500 Rossel Industries Ltd............................. 209
100,000 Saurashtra Cement & Chemicals, Class B............ 290
331,000 SCICI Ltd., Class B............................... 722
50,000 Secals Ltd........................................ 119
30,000 Shanti Gears Ltd., Class B........................ 134
108,000 Sharp Industries Ltd.............................. 72
360,000 Shipping Corp. of India........................... 367
25,000 Shree Vindhya Paper Mills......................... 70
125,636 Shree Vindhya Paper Mills (New)................... 352
13,200 S.K.F. Bearings Ltd............................... 1,093
45,000 Sri Venkatesa Mills Ltd........................... 229
1,499,550 State Bank of India............................... 8,930
16,850 Sundaram Finance, Class B......................... 203
928,500 Super Forgings & Steels........................... 1,190
233,300 Tata Engineering & Locomotive, Class A............ 4,190
28,350 Tata Hydro Electric Power......................... 84
2,200 Tata Power Co., Ltd............................... 8
450,000 Titagarh Steels Ltd............................... 644
1,600 T.P.I. India Ltd.................................. 2
10,000 T.V.S. Suzuki..................................... 78
838 United Phosphorus Ltd. GDR........................ 18
202,500 Uniworth International Ltd., Class B.............. 163
783,000 Uttam Steels Ltd., Class A........................ 692
783,000 Uttam Steels Ltd. (New)........................... 711
4,604 Videocon International Ltd., Class A.............. 15
81,600 Videsh Sanchar Nigam Ltd.......................... 2,017
710,040 VXL Ltd........................................... 803
</TABLE>
The accompanying notes are an integral part of the financial statements. (Pages
144-152)
- - --------------------------------------------------------------------------------
Emerging Markets Portfolio
23
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1995
- - --------------------------------------------------------------------------------
THE EMERGING MARKETS PORTFOLIO (CONT.)
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- - ------------------------------------------------------------
<C> <S> <C>
INDIA (CONT.)
34,500 Vysya Bank........................................ $ 2,802
--------
88,334
--------
INDONESIA (5.9%)
6,027 Asia Pulp & Paper Co. Ltd. ADR.................... 76
1,373,000 Bank Bali (Foreign)............................... 3,483
**1,703,500 Barito Pacific Timber (Foreign)................... 2,448
**16,740,000 Bimantara Citra................................... 9,396
**3,359,598 Charoen Pokphand (Foreign)........................ 7,317
**624,500 Duta Pertiwi (Foreign)............................ 631
**1,077,000 Indocement Tunggal (Foreign)...................... 4,232
**1,227,500 Indosat (Foreign)................................. 4,658
**1,008,100 Jembo Cable Co. (Foreign)......................... 905
**1,424,700 Kalbe Farma (Foreign)............................. 6,525
**481,000 Keramika Indonesia Assosiasi (Foreign)............ 648
**2,196,000 Polysindo Eka Perkasa (Foreign)................... 1,233
**1,445,400 Sona Topas Tourism (Foreign)...................... 1,947
**1,220,000 Sorini Corp. (Foreign)............................ 5,834
**150,000 Suba Indah (Foreign).............................. 74
**733,800 Tempo Scan Pacific (Foreign)...................... 3,789
**2,145,500 United Tractors (Foreign)......................... 4,576
--------
57,772
--------
ISRAEL (2.7%)
52,530 Elbit Ltd......................................... 3,944
2,860 First International Bank of Israel, Class 1....... 354
16,900 First International Bank of Israel, Class 5....... 2,086
524,467 Israel Land Development Co........................ 1,572
80,819 Koor Industries Ltd............................... 6,882
424,625 Osem Investment Ltd............................... 3,276
+137,336 PEC Israel Economic Corp.......................... 3,691
54,397 Scitex Ltd........................................ 1,169
164,365 Super Sol Ltd., Class B........................... 3,141
--------
26,115
--------
KOREA (1.1%)
**36,500 Samsung Electronics (Foreign)..................... 7,517
5,099 Samsung Electronics (New)......................... 1,037
48,000 Yukong Ltd. (Foreign)............................. 2,007
--------
10,561
--------
MALAYSIA (0.2%)
735,000 Bandar Raya Developments Bhd...................... 1,598
--------
MEXICO (8.9%)
+364,612 Apasco S.A., Class A.............................. 1,447
4,877,920 Banacci, Class B.................................. 7,492
763,553 Banacci, Class L.................................. 1,161
1,719,214 Cemex CPO ADR..................................... 11,689
5,300 Cemex S.A., Class A............................... 18
513,519 Empresas ICA S.A. ADR............................. 5,264
3,153,550 FEMSA, Class B.................................... 7,367
+200,005 Grupo Carso ADR................................... 2,185
+6,953,900 Grupo Financiero Bancomer, Class B................ 2,036
<CAPTION>
VALUE
SHARES (000)
- - ------------------------------------------------------------
<C> <S> <C>
+986,340 Grupo Financiero Bancomer, Class L................ $ 260
1,246,140 Grupo Financiero Bancomer ADR..................... 7,477
+934,000 Grupo Financiero Bancrecer, Class B............... 217
+69,380 Grupo Financiero GBM Atlantico ADR................ 193
+3,906,660 Grupo Financiero Probursa, Class C................ 1,725
809,370 Grupo Herdez, Class A............................. 239
50 Grupo Iusacell S.A. ADR, Class D.................. 1
+147,592 Grupo Mexicano Desarrollo ADR, Class B............ 572
42,960 Grupo Mexicano Desarrollo ADR, Class L............ 193
52,600 Grupo Sidek S.A. ADR.............................. 243
+1,473,700 Grupo Sidek S.A., Class A......................... 1,330
+1,195,400 Grupo Sidek S.A., Class B......................... 1,071
55,344 Grupo Sidek S.A., Class L......................... 58
+385,288 Grupo Tribasa S.A. ADR............................ 3,275
145,460 Hylsamex S.A. ADR................................. 2,655
6,203 Hylsamex S.A. GDR................................. 113
310,400 Interceramica, Class C............................ 511
+30,600 Interceramica ADR................................. 241
231,555 Panamerican Beverages, Inc., Class A.............. 6,947
372,363 Telefonos de Mexico S.A. ADR, Class L............. 11,031
2,334,730 Tolmex S.A., Class B2............................. 9,115
--------
86,126
--------
MOROCCO (1.3%)
20,000 Banque Marocaine du Commerce Exterieur............ 864
55,123 ONA Group......................................... 2,283
146,300 SNI Maroc......................................... 7,640
58,221 Wafabank.......................................... 2,376
--------
13,163
--------
PAKISTAN (2.3%)
41,850 Adamjee Insurance Co., Ltd........................ 153
720,976 Cherat Cement Ltd................................. 1,164
6,135 Crescent Investment Bank.......................... 7
42,205 Crescent Textile Mills Ltd........................ 34
1,049,500 Dewan Salman Fibre................................ 3,455
1,379,500 D.G. Khan Cement Ltd.............................. 1,948
3,017,900 Fauji Fertilizer Co., Ltd......................... 5,942
1,700,000 Karachi Electric Supply Corp...................... 1,468
80,977 Muslim Commercial Bank Ltd........................ 109
781,191 Nishat Mills Ltd.................................. 725
125,900 Pakistan State Oil Co., Ltd....................... 1,524
32,230 Pakistan Telecommunications....................... 3,433
26,900 Pakistan Telecommunications GDR................... 2,730
298,000 Zahur Textile Mills............................... 36
--------
22,728
--------
PERU (0.5%)
35 Cementos Lima S.A................................. --
141,356 Cementos Norte Pacasmayo, Class T................. 408
***497,000 Cementos Yura..................................... 3,109
12,325 Cerveceria Backus y Johnston, Class C............. 272
+396,386 Nacional de Cerveza, Class T...................... 267
</TABLE>
The accompanying notes are an integral part of the financial statements. (Pages
144-152)
- - --------------------------------------------------------------------------------
Emerging Markets Portfolio
24
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1995
- - --------------------------------------------------------------------------------
THE EMERGING MARKETS PORTFOLIO (CONT.)
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- - ------------------------------------------------------------
<C> <S> <C>
PERU (CONT.)
+94,833 Southern Peru Copper, Class T..................... $ 427
--------
4,483
--------
PHILIPPINES (3.5%)
3,985,562 Ayala Land, Inc., Class B......................... 4,604
12,448,530 JG Summit Holding, Class B........................ 3,704
661,698 Manila Electric Co., Class B...................... 5,311
15,645,916 Petron Corp....................................... 10,108
2,515 Philippine Long Distance Telephone Co., Class B... 180
1,203,120 San Miguel Corp., Class B......................... 4,993
+18,157,168 SM Prime Holdings, Inc., Class B.................. 4,977
--------
33,877
--------
POLAND (0.7%)
20,000 Bank Rozwoju Eksportu S.A......................... 320
45,000 Debica............................................ 634
***33,400 Eastbridge........................................ 2,246
+137,620 Elektrim.......................................... 485
2,085,038 International UNP Holdings........................ 789
+373,740 Mostostal Exports, Class A........................ 942
11,125 Wedel S.A......................................... 651
15,735 Zwyeic............................................ 1,190
--------
7,257
--------
PORTUGAL (0.9%)
150,800 Banco Totta & Acores, Class B..................... 3,195
120,000 Filmes Lusmundo................................... 1,312
14,271 Jeronimo Martins.................................. 727
@9,945 Portuguese Investment Fund........................ 654
140,000 UNICER-Uniao Cervejeira S.A....................... 2,364
--------
8,252
--------
RUSSIA (2.1%)
***462,150 Alliance Cellulose Ltd............................ 9,295
***54,035 Alliance Cellulose Ltd., Class B.................. 1,500
***317,851 Russian Telecom Development Corp.................. 3,179
***400,000 SFMT, Inc......................................... 4,000
*/***990 Storyfirst Communications, Inc., Class C (acquired
3/01/95, Cost $660)............................. 660
*/***2,640 Storyfirst Communications, Inc., Class D (acquired
3/01/95, Cost $1,980)........................... 1,980
--------
20,614
--------
SOUTH AFRICA (2.7%)
44,830 Anglo American Industrial Corp., Ltd.............. 2,219
700,000 Bidvest Group Ltd................................. 3,609
1,450,439 Gencor Ltd........................................ 4,986
796,900 Liberty Life Strategic Investments................ 2,685
953,959 Sasol Ltd......................................... 9,143
433,000 Trans Natal Coal Corp., Ltd....................... 3,334
--------
25,976
--------
SRI LANKA (0.0%)
19,575 Aitken Spence & Co., Ltd.......................... 75
113,000 Distillers Corp. S.A. Ltd......................... 17
<CAPTION>
VALUE
SHARES (000)
- - ------------------------------------------------------------
<C> <S> <C>
81,200 John Keells Holdings Ltd.......................... $ 308
--------
400
--------
TAIWAN (3.6%)
+2,309,000 Advanced Semiconductor Engineering Inc............ 6,705
+3,052,800 Taiwan Semiconductor Manufacturing Co............. 14,834
+2,603,891 United Micro Electronics Corp., Ltd............... 13,358
--------
34,897
--------
THAILAND (6.9%)
298,550 Advanced Information Services Co. (Foreign)....... 4,426
1,287,700 Bangkok Bank Ltd.................................. 11,268
428,200 Bangkok Bank Ltd. (Foreign)....................... 4,718
2,608,500 Finance One Co., Ltd. (Foreign)................... 19,232
146,200 Land & House Co., Ltd. (Foreign).................. 3,080
9,335 Phatra Thanakit Co., Ltd.......................... 74
780,965 Phatra Thanakit Co., Ltd. (Foreign)............... 6,517
144,600 Shinawatra Computer Co., Ltd. (Foreign)........... 3,585
71,200 Siam Cement Co., Ltd. (Foreign)................... 4,546
1,244,700 Thai Farmers Bank Ltd............................. 9,026
--------
66,472
--------
TURKEY (5.1%)
1,573,000 Aksa.............................................. 1,388
8,913,000 Borusan........................................... 3,477
+13,186,600 Ege Biracilik Ve Malt Sanayii..................... 15,508
4,014,000 Ege Seramik Sanayi Ve Ticaret A.S................. 1,952
1,666,000 Migros Turk TAS................................... 1,865
14,346,000 Sarkuysan......................................... 3,812
8,340,000 Tat Konserve...................................... 6,508
+9,754,000 Tofas Turk Otomobil Fabrikasi..................... 8,604
124,572 Tofas Turk Otomobil Fabrikasi GDR, Class E........ 529
1,354,075 Turkas Petroculuk A.S............................. 490
220,482 Turkiye Garanti Bankasi ADR....................... 2,991
38,305,200 Yapi Ve Kredi Bankasi A.S......................... 2,469
--------
49,593
--------
UNITED KINGDOM (0.2%)
909,844 Lonrho plc........................................ 2,142
--------
ZIMBABWE (0.3%)
1,980,000 Trans Zambezi Industries Ltd...................... 2,970
35,281 Trans Zambezi Industries Ltd., Class S............ 53
--------
3,023
--------
TOTAL COMMON STOCKS (Cost $794,609).............................. 775,243
--------
PREFERRED STOCKS (10.8%)
BRAZIL (10.8%)
1,527,714,183 Banco Bradesco.................................... 12,945
387,910,000 Banco do Brasil................................... 4,636
18,800,000 Banco do Estado Sao Paulo......................... 106
298,898,880 Banco Nacional S.A................................ 5,813
3,000,000 Bombril........................................... 63
</TABLE>
The accompanying notes are an integral part of the financial statements. (Pages
144-152)
- - --------------------------------------------------------------------------------
Emerging Markets Portfolio
25
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1995
- - --------------------------------------------------------------------------------
THE EMERGING MARKETS PORTFOLIO (CONT.)
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- - ------------------------------------------------------------
<C> <S> <C>
BRAZIL (CONT.)
34,992,000 Brahma............................................ $ 11,480
21,189,000 Brasmotor S.A..................................... 3,913
118,244,284 Cia Acos Especiais Itabira........................ 880
96,442,103 Cia Energetica de Minas Gerais.................... 1,886
46,744,470 Cia Energetica de Sao Paulo....................... 1,848
16,959,000 Cia Paulista de Forca E Luz....................... 557
+470,000,000 Cia Siderurgica Paulista, Class B................. 781
72,579,850 Eletrobras........................................ 19,318
39,130,800 Itaubanco......................................... 11,903
37,930,101 Lojas Americanas S.A.............................. 845
105,758 Lojas Americanas S.A. (Bonus)..................... 15
270,000 Multibras S.A..................................... 223
104,394,333 Petrobras......................................... 8,846
12,500 Sadia Concordia................................... 12
135,699,175 Telecomunicacoes Brasileiras...................... 4,467
49,160,815 Telecomunicacoes de Sao Paulo..................... 6,088
2,621,051,000 Usinas Siderurgicas de Minas Gerais............... 2,961
30,873,000 Vale Do Rio Doce.................................. 4,662
--------
104,248
--------
INDIA (0.0%)
2,700 Fabworth (India) Ltd.............................. 2
--------
PORTUGAL (0.0%)
35,340 Filmes Lusmundo................................... 328
--------
TOTAL PREFERRED STOCKS (Cost $92,142)............................ 104,578
--------
<CAPTION>
NO. OF
RIGHTS
- - -------------
<C> <S> <C>
RIGHTS (0.1%)
BRAZIL (0.0%)
**+27,013,689 Banco Bradesco.................................... 29
+291,030 Brahma............................................ 95
--------
124
--------
INDIA (0.0%)
**+674 Flex Industries Ltd............................... --
--------
INDONESIA (0.0%)
**+2,890,800 Sona Topas Tourism, expiring 7/13/95.............. --
--------
PAKISTAN (0.0%)
**+6,330 Crescent Textile Mills Ltd........................ 2
**+20,625 Dewan Salman Fibre................................ --
+92,643 Muslim Commercial Bank Ltd........................ 125
+78,119 Nishat Mills Ltd., expiring 9/30/95............... 22
--------
149
--------
TURKEY (0.1%)
**+833,000 Migros Turk TAS, expiring 8/01/95................. 914
--------
TOTAL RIGHTS (Cost $1,131)....................................... 1,187
--------
<CAPTION>
NO. OF VALUE
WARRANTS (000)
- - ------------------------------------------------------------
<C> <S> <C>
WARRANTS (0.1%)
HONG KONG (0.0%)
+540,000 Wai Kee Holdings Ltd., expiring 12/31/96.......... $ 7
--------
INDIA (0.1%)
+27,383 Flex Industries Ltd., expiring 11/23/97........... 155
+44,702 Garware Plastics & Polyesters, expiring 4/04/98... 584
+25,726 Tata Engineering & Locomotive Ltd., expiring
3/08/96......................................... 122
--------
861
--------
POLAND (0.0%)
**+1,014,000 International UNP Holdings, expiring 12/31/95..... --
--------
THAILAND (0.0%)
+10 Finance One Co., Ltd., expiring 3/15/99........... --
--------
TOTAL WARRANTS (Cost $84)........................................ 868
--------
<CAPTION>
NO. OF
UNITS
- - -------------
<C> <S> <C>
UNITS (0.1%)
MEXICO (0.1%)
308,100 Interceramica (Cost $1,525)....................... 508
--------
<CAPTION>
SHARES
- - -------------
<C> <S> <C>
PURCHASED OPTIONS (0.0%)
BRAZIL (0.0%)
+37,900,000 Cia Paulista de Forca E Luz, strike price BRL 70,
expiring 10/16/95 (Cost $2)..................... 59
--------
<CAPTION>
FACE
AMOUNT
(000)
- - -------------
<C> <S> <C>
BONDS (0.1%)
ECUADOR (0.1%)
$ 3,716 Republic of Ecuador PDI Bonds, (Floating Rate)
7.25%, 2/27/15
(Cost $1,005)................................... 1,236
--------
CONVERTIBLE DEBENTURES (0.5%)
COLOMBIA (0.4%)
5,615 Banco de Colombia 5.20%, 2/01/99.................. 4,267
--------
INDIA (0.1%)
IR 336 DCM Shriram Industries, Zero Coupon, 2/21/02...... 501
17 Indian Seamless, 10.00%, 10/12/99................. 50
130 Tata Iron & Steel, 2.25%, 4/01/99................. 121
--------
672
--------
TOTAL CONVERTIBLE DEBENTURES (Cost $6,053)....................... 4,939
--------
</TABLE>
The accompanying notes are an integral part of the financial statements. (Pages
144-152)
- - --------------------------------------------------------------------------------
Emerging Markets Portfolio
26
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1995
- - --------------------------------------------------------------------------------
THE EMERGING MARKETS PORTFOLIO (CONT.)
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- - ------------------------------------------------------------
<C> <S> <C>
NON-CONVERTIBLE DEBENTURES (0.5%)
INDIA (0.5%)
IR 34 Bharat Forge Co., Ltd., 14.50%, 3/04/00........... $ 49
341 DCM Shriram Industries Ltd., 16.50%, 2/21/02...... 671
4,470 Garware Plastics & Polyester, 16.00%, 4/04/98..... 142
1,467 Mahavir Spinning Mills Ltd., Series A, 14.00%,
12/31/99........................................ 121
500 Raymond Ltd., 16.00%, 12/31/99.................... 1,593
70 Saurashtra Cement & Chemicals Ltd., 18.00%,
12/31/99........................................ 2,229
--------
TOTAL NON-CONVERTIBLE DEBENTURES (Cost $5,071)................... 4,805
--------
LOAN AGREEMENTS (5.1%)
POLAND (0.0%)
$ 54 Republic of Poland Interest Arrears PDI Bonds,
3.25%, 10/27/14................................. 32
--------
RUSSIA (5.1%)
CHF ++1,910 Bank for Foreign Economic Affairs (Floating
Rate)........................................... 502
$ ++150,503 Bank for Foreign Economic Affairs (Floating
Rate)........................................... 48,914
--------
49,416
--------
TOTAL LOAN AGREEMENTS (Cost $48,022)............................. 49,448
--------
TOTAL FOREIGN SECURITIES (97.2%) (Cost $949,644)................. 942,871
--------
SHORT-TERM INVESTMENTS (3.5%)
US GOVERNMENT AND AGENCY OBLIGATION (2.4%)
$23,000 US Treasury Bill, 8/24/95......................... 22,803
--------
REPURCHASE AGREEMENT (1.1%)
10,975 U.S. Trust, 5.90%, dated 6/30/95, due 7/03/95, to
be repurchased at $10,980, collateralized by
$11,360 United States Treasury Bills, due
7/27/95, valued at $11,315...................... 10,975
--------
TOTAL SHORT-TERM INVESTMENTS (Cost $33,778)...................... 33,778
--------
<CAPTION>
AMOUNT VALUE
(000) (000)
- - ------------------------------------------------------------
<C> <S> <C>
FOREIGN CURRENCY (1.2%)
APS 2,012 Argentine Peso.................................... $ 2,012
BLR 458 Brazilian Real.................................... 497
CP 385,379 Colombian Peso.................................... 438
HK$ 427 Hong Kong Dollar.................................. 55
HU 95,794 Hungarian Forint.................................. 779
IR 80,927 Indian Rupee...................................... 2,577
IN 1,850,558 Indonesian Rupiah................................. 831
MP 1,619 Mexican New Peso.................................. 259
PR 46,842 Pakistani Rupee................................... 1,512
PZ 593 Polish Zlotey..................................... 253
T$ 60,781 Taiwan Dollar..................................... 2,353
TB 3,262 Thai Baht......................................... 132
TL 7,173,000 Turkish Lira...................................... 162
--------
TOTAL FOREIGN CURRENCY (Cost $11,918)............................ 11,860
--------
TOTAL INVESTMENTS (101.9%) (Cost $995,340)....................... 988,509
--------
</TABLE>
<TABLE>
<CAPTION>
OTHER ASSETS (2.0%)
<S> <C> <C>
Receivable for Investments Sold................. $ 11,113
Receivable for Portfolio Shares Sold............ 4,705
Dividends Receivable............................ 2,849
Interest Receivable............................. 510
Foreign Withholding Tax Reclaim Receivable...... 21
Net Unrealized Gain on Forward Foreign Currency 7
Contracts......................................
Other........................................... 63 19,268
-------------
LIABILITIES (-3.9%)
Payable for Investments Purchased............... (33,187)
Investment Advisory Fees Payable................ (2,423)
Custodian Fees Payable.......................... (1,153)
Deferred India Taxes............................ (771)
Payable for India Taxes......................... (222)
Administrative Fees Payable..................... (120)
Payable to Custodian............................ (94)
Payable for Portfolio Shares Redeemed........... (29)
Sub-Administrative Fees Payable................. (25)
Directors' Fees and Expenses Payable............ (1)
Other Liabilities............................... (121) (38,146)
------------- --------
NET ASSETS (100%)................................................ $969,631
--------
--------
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER
SHARE
Applicable to 68,213,334 outstanding $.001 par value shares
(authorized 500,000,000 shares)................................ $14.21
--------
--------
</TABLE>
The accompanying notes are an integral part of the financial statements. (Pages
144-152)
- - --------------------------------------------------------------------------------
Emerging Markets Portfolio
27
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1995
- - --------------------------------------------------------------------------------
THE EMERGING MARKETS PORTFOLIO (CONT.)
- - --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACT INFORMATION:
Under the terms of forward foreign currency contracts open at June 30,
1995, the Portfolio is obligated to deliver US dollars in exchange for
foreign currency as indicated below:
</TABLE>
<TABLE>
<CAPTION>
IN NET
CURRENCY EXCHANGE UNREALIZED
TO DELIVER VALUE SETTLEMENT FOR VALUE GAIN
(000) (000) DATE (000) (000) (000)
- - ----------- --------- ---------- ------------ --------- ---------------
<S> <C> <C> <C> <C> <C>
$ 71 $ 71 7/03/95 BLR 65 $ 71 $ --
$ 491 491 7/03/95 GRD 111,509 495 4
$ 1,317 1,317 7/03/95 PE 193,152 1,320 3
--------- --------- ---
$ 1,879 $ 1,886 $ 7
--------- --------- ---
--------- --------- ---
</TABLE>
- - ------------------------------------------------------------
<TABLE>
<S> <C> <C>
+ -- Non-income producing securities
++ -- Non-income producing securities -- in default
* -- Restricted as to public resale. Total value of
restricted securities at June 30, 1995 was $6,462
or 0.7% of net assets. (Total cost $6,422)
** -- Security is valued at fair value -- See Note A-1
*** -- Security is valued at cost -- See Note A-1
@ -- The fund is advised by an affiliate
ADR -- American Depositary Receipt
ADS -- American Depositary Shares
GDR -- Global Depositary Receipt
GDS -- Global Depositary Shares
NCS -- Non Convertible Shares
BLR -- Brazilian Real
GRD -- Greek Drachma
PE -- Portuguese Escudo
Floating Rate Securities. Interest rate changes on these instruments are
based on changes in a designated base rate.
</TABLE>
SUMMARY OF FOREIGN SECURITIES BY INDUSTRY CLASSIFICATION
<TABLE>
<CAPTION>
VALUE PERCENT OF
INDUSTRY (000) NET ASSETS
<S> <C> <C>
- - ----------------------------------------------------------------
Capital Equipment..................... $ 85,577 8.8%
Consumer Goods........................ 146,772 15.1
Energy................................ 88,131 9.1
Finance............................... 235,333 24.3
Loan Agreements....................... 50,683 5.2
Materials............................. 147,294 15.2
Multi-Industry........................ 89,620 9.2
Services.............................. 99,461 10.3
--------- ---
$ 942,871 97.2%
--------- ---
--------- ---
</TABLE>
The accompanying notes are an integral part of the financial statements. (Pages
144-152)
- - --------------------------------------------------------------------------------
Emerging Markets Portfolio
28
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
OVERVIEW
- - --------------------------------------------------------------------------------
THE EUROPEAN EQUITY PORTFOLIO
COMPOSITION OF NET ASSETS (AT JUNE 30, 1995)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Belgium 2.9%
Denmark 1.1
Finland 3.7
France 10.5
Germany 15.9
Italy 6.4
Netherlands 10.7
Norway 2.3
Portugal 0.3
Spain 8.8
Sweden 2.3
Switzerland 15.4
United Kingdom 15.1
Other 4.6
</TABLE>
PERFORMANCE COMPARED TO THE MORGAN STANLEY
CAPITAL INTERNATIONAL (MSCI) EUROPE INDEX(1)
- - -----------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
-----------------------------------------
AVERAGE ANNUAL
YTD ONE YEAR SINCE INCEPTION
--------- ----------- -----------------
<S> <C> <C> <C>
PORTFOLIO................ 11.10% 12.15% 22.94%
INDEX.................... 12.87 18.78 16.20
<FN>
1. The MSCI Europe Index is an unmanaged market value weighted index of common
stocks listed on the stock exchanges of countries in Europe (assumes
dividends reinvested).
2. Total returns for the Portfolio reflect expenses waived or reimbursed, if
applicable, by the Adviser. Without such waiver and reimbursement, total
returns would be lower.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
</TABLE>
THE COUNTRY SPECIFIC PERFORMANCE RESULTS PROVIDED ARE MEASURED BY THE MSCI
EUROPE INDEX AND 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. PLEASE SEE THE PROSPECTUS FOR A DESCRIPTION OF CERTAIN
RISK CONSIDERATIONS ASSOCIATED WITH INTERNATIONAL INVESTING.
The investment objective of the European Equity Portfolio is to seek long-term
capital growth through investment in common stocks of European issuers. Common
stocks for this purpose include stocks and equivalents such as securities
convertible into common stocks and securities having equity characteristics,
such as rights and warrants to purchase common stock.
The approach taken in selecting investments for the Portfolio is oriented to
individual stock selection and is value driven. The initial step in identifying
attractive undervalued securities is the screening of European databases. Stocks
are screened for undervaluation on two primary criteria, cash flow and book
value, and three secondary criteria, earnings, sales and yield. Once stocks have
been selected from this screening process, they are put through detailed
fundamental analysis. Important areas covered during this in-depth study include
the companies balance sheet and cash flow, franchise, products, management and
the strategic value of the assets.
The total return of the Portfolio for the six month period ended June 30, 1995
was 11.10% as compared to 12.87% for the Morgan Stanley Capital International
(MSCI) Europe Index for the same period. Total returns for the twelve months
ended June 30, 1995 and the average annual total return for the period from
inception in April 1993 through June 30, 1995 were 12.15% and 22.94%,
respectively, compared to 18.78% and 16.20% for the MSCI Europe Index for the
same periods.
Following a difficult first quarter the Portfolio recovered well to outperform
the Index in the second quarter. There was a combination of reasons for the
underperformance of the Portfolio earlier in the year. Overall, this was not a
good period for value investors following two good years in 1993 and 1994. In
particular, companies with cyclical characteristics which are cheap on price to
book value, performed worse while growth companies generally performed better.
More recently we have seen a partial reversal in this situation with value
stocks and especially cyclicals showing signs of recovery. During the first six
months, we have benefited from our overweight positions in Switzerland and the
Netherlands while the overweight in Italy has hurt the performance as this is
the only European market showing a negative return, in U.S. dollars for the
period.
In the first half of 1995 we have seen steady growth in most European economies
following the faster than anticipated economic recovery in 1994. Last year
growth was largely driven by a pick-up in exports and significant restocking
from low levels. It is clear that stocks are now at more normal levels while
most
- - --------------------------------------------------------------------------------
European Equity Portfolio
29
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
OVERVIEW
- - --------------------------------------------------------------------------------
THE EUROPEAN EQUITY PORTFOLIO (CONT.)
economies are benefiting from a pick-up in domestic demand and exports.
Throughout the majority of 1994 there was an environment of falling interest
rates across the continent, however, this pattern has now changed. In Spain and
Italy inflation has become a key concern and led to higher interest rates. Two
of the primary reasons for increased inflation has been currency weakness and
higher commodity prices. Although currency weakness has been detrimental to
inflation it has clearly benefited export volumes. The situation is quite
different in the 'hard' currency markets including Germany, Switzerland and the
Netherlands. The threat of higher inflation is not a problem in these markets
and interest rates have come down and could fall further this year. With the
pick- up in the European economies we have seen small improvement in
unemployment rates across Europe. Levels of unemployment remain higher, however,
as in Spain, for example where the unemployment rate remains above 23%.
In this environment we continue to find cheap good quality companies in
continental markets rather than in the U.K. The lack of equity culture in many
of the markets allows us to find cheap investment opportunities especially among
the small and medium sized companies. We are currently concentrating on
companies that are cheap relative to their cash flow and are putting particular
emphasis on free cash flow. Looking forward, we remain optimistic that we will
continue to find good quality companies that fit our valuation criteria.
During the first six months we added the following new ideas to the program.
Following its acquisition of Banesto, Santander has repositioned itself as the
main domestic bank in Spain. Recovery of non-performing loans, lower cost of
funding and aggressive cost cutting should drive Banesto earnings recovery above
Pts. 40bn, the dilutive threshold for Santander. The bank's tier ratios are
above 10% and it consolidated coverage of doubtful loans above 100%,
substantially stronger than its European competitors. The valuation should
benefit from the trend of lower provisioning and higher productivity, both
leading to a normalized ROE above 15%.
BSM is the only nationwide driving tuition chain with a 15% market share and
strong brand recognition in a fragmented market. In total, it has 139 offices
through which the franchised driving instructors operate. The group generates
substantial amounts of free cash flow and is placed for strong growth in the
future.
Tate and Lyle is one of the world's best known sugar and sweetener brands,
operating across the globe in both regulated and unregulated markets. Unlike
some sugar companies it has expanded into related business and is particularly
strong in the U.K. and U.S. Establishing its global network has led to increased
debt levels but the company is now producing strong cash flow to service this
debt and continue to grow the business.
WPP is a leading advertising company with a strong global presence. It is placed
to benefit from the pick-up in world economies and is currently cheap following
shareholder uncertainty after financial restructuring.
Christian Salvesen is a leading support services company with principal
operations in contract distribution, hire of power and temperature control
equipment and food processing. Each of their business areas have a strong market
position and they benefit from good levels of repeat business. It is highly cash
generative covering capital expenditure as well as reduction in debt levels.
- - --------------------------------------------------------------------------------
European Equity Portfolio
30
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1995
- - --------------------------------------------------------------------------------
THE EUROPEAN EQUITY PORTFOLIO
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (91.0%)
BELGIUM (2.9%)
+4,500 Arbed S.A......................................... $ 656
11,000 Delhaize Freres et Cie, 'Le Lion', S.A............ 495
5,000 G.I.B. Holdings, Ltd.............................. 237
55 G.I.B. Holdings, Ltd. (New)....................... 3
--------
1,391
--------
DENMARK (1.1%)
11,160 Unidanmark A/S, Class A (Registered).............. 547
--------
FINLAND (3.7%)
30,500 Amer-Yhtymae Oy, Class A.......................... 554
17,500 Huhtamaki Oy, Series 1............................ 573
+40,600 Kansallis-Osake Pankki............................ 44
40,000 Pohjola Insurance Co., Ltd., Class B.............. 627
--------
1,798
--------
FRANCE (10.5%)
1,200 Bongrain S.A...................................... 718
3,700 Cie de Saint Gobain............................... 447
+15,500 Credit Lyonnais CDI............................... 893
9,000 Elf Aquitaine..................................... 665
3,400 Eridania Beghin-Say S.A........................... 524
+3,805 Legris Industries S.A............................. 271
2,700 Precision Mecaniques Labinal S.A.................. 476
26,000 Thomson CSF....................................... 583
9,000 Total S.A., Class B............................... 542
--------
5,119
--------
GERMANY (11.5%)
4,500 BASF AG........................................... 960
2,260 Bayer AG.......................................... 561
+9,000 Bremer Vulkan Verbund AG.......................... 524
2,380 Commerzbank AG.................................... 570
1,300 Karstadt AG....................................... 569
1,500 Mannesmann AG..................................... 458
+3,700 Varta AG.......................................... 703
1,700 Veba AG........................................... 667
2,000 Volkswagen AG..................................... 576
--------
5,588
--------
ITALY (6.4%)
+230,000 Editoriale L'Expresso S.p.A....................... 485
+470,000 Impregilo S.p.A................................... 454
20,305 Safilo S.p.A...................................... 141
350,000 Stet Di Risp (NCS)................................ 778
205,500 Telecom Italia S.p.A.............................. 557
10,000 Telecom Italia S.p.A. Di Risp (NCS)............... 21
242,200 Unicem Di Risp (NCS).............................. 697
--------
3,133
--------
NETHERLANDS (10.7%)
23,571 ABN Amro Holdings N.V............................. 910
3,300 Akzo Nobel N.V.................................... 394
3,587 Hollandsche Beton Groep N.V....................... 618
12,812 Internationale Nederlanden Groep N.V.............. 709
6,000 Koninklijke Bijenkorf Beheer N.V.................. 431
<CAPTION>
VALUE
SHARES (000)
------------------------------------------------------------
<C> <S> <C>
25,000 Koninklijke Van Ommeren N.V....................... $ 768
23,500 Philips Electronics N.V........................... 995
10,000 Royal PTT Nederland N.V........................... 360
--------
5,185
--------
NORWAY (2.3%)
140,000 Den Norske Bank A/S, Class A Free................. 379
16,604 Hafslund Nycomed, Class B......................... 384
28,000 Saga Petroleum A/S, Class B....................... 370
--------
1,133
--------
PORTUGAL (0.3%)
+@1,905 Portuguese Investment Fund........................ 125
--------
SPAIN (8.8%)
+68,000 Asturiana del Zinc S.A............................ 649
+60,000 Banco Espanol de Credito S.A...................... 413
17,000 Banco de Santander S.A............................ 671
9,615 Bodegas y Bebidas S.A............................. 280
1,903 Bodegas y Bebidas S.A. (New)...................... 56
+27,870 Grupo Duro Felguera S.A........................... 115
110,000 Iberdrola S.A..................................... 829
76,000 Sevillana de Electricidad S.A..................... 468
62,000 Telefonica Nacional de Espana S.A................. 799
--------
4,280
--------
SWEDEN (2.3%)
140,000 Skandinaviska Enskilda Banken, Class A............ 727
19,000 S.K.F. AB, Class B................................ 384
--------
1,111
--------
SWITZERLAND (15.4%)
870 Alusuisse-Lonza Holdings Ltd. (Registered)........ 546
+500 Ascom Holdings AG (Bearer)........................ 625
460 Bobst AG (Bearer)................................. 699
700 Ciba Geigy AG (Bearer)............................ 512
275 Ciba Geigy AG (Registered)........................ 202
1,700 Forbo Holding AG (Registered)..................... 830
1,030 Hero AG (Bearer).................................. 564
+500 Holderbank Glarus AG (Bearer)..................... 410
1,200 Magazine Globus (Participating Certificates)...... 844
300 Moevenpick Holding AG (Participating
Certificates)................................... 135
490 Nestle S.A. (Registered).......................... 510
670 Schweizerische Industrie-Gesellschaft Holdings
(Registered).................................... 756
+1,200 SwissAir (Registered)............................. 831
--------
7,464
--------
UNITED KINGDOM (15.1%)
145,500 Asprey plc........................................ 169
70,000 Associated British Foods plc...................... 740
+249,990 Automated Security Holdings plc................... 195
20,000 Bass plc.......................................... 191
200,000 BET plc........................................... 391
70,000 BSM Group plc..................................... 189
</TABLE>
The accompanying notes are an integral part of the financial statements. (Pages
144-152)
- - --------------------------------------------------------------------------------
European Equity Portfolio
31
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1995
- - --------------------------------------------------------------------------------
THE EUROPEAN EQUITY PORTFOLIO (CONT.)
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
------------------------------------------------------------
<C> <S> <C>
UNITED KINGDOM (CONT.)
245,900 Christian Salvesen plc............................ $ 1,041
118,856 John Mowlem & Co. plc............................. 132
75,000 Kwik Save Group plc............................... 774
24,895 McAlpine (Alfred) plc............................. 57
67,222 Reckitt & Colman plc.............................. 709
45,014 Rolls-Royce plc................................... 125
174,411 Royal Insurance Holdings plc...................... 857
136,000 Sketchley plc..................................... 245
105,000 Tate & Lyle plc................................... 710
24,000 Unilever plc...................................... 486
+253,775 Wembley plc....................................... 10
175,000 WPP Group plc..................................... 337
--------
7,358
--------
TOTAL COMMON STOCKS (Cost $41,102)............................ 44,232
--------
PREFERRED STOCKS (4.4%)
GERMANY (4.4%)
2,400 RWE AG............................................ 660
3,000 Spar Handels AG................................... 780
3,200 Volkswagen AG..................................... 708
--------
TOTAL PREFERRED STOCKS (Cost $1,963).......................... 2,148
--------
<CAPTION>
NO. OF
WARRANTS
- - ----------
<C> <S> <C>
WARRANTS (0.0%)
SWITZERLAND (0.0%)
2,500 Holderbank Glarus AG, expiring 12/20/95 (Cost
$0)............................................. 3
--------
TOTAL FOREIGN SECURITIES (95.4%) (Cost $43,065)............... 46,383
--------
<CAPTION>
FACE
AMOUNT
(000)
- - ----------
<C> <S> <C>
SHORT-TERM INVESTMENT (2.0%)
REPURCHASE AGREEMENT (2.0%)
$ 963 U.S. Trust 5.90%, dated 6/30/95, due 7/03/95 to be
repurchased at $963, collateralized by $1,005
United States Treasury Bills, due 7/27/95,
valued at $1,001 (Cost $963).................... 963
--------
FOREIGN CURRENCY (3.0%)
DM 1,372 Deutsche Mark..................................... 991
FF 678 French Franc...................................... 140
IL 49 Italian Lira...................................... --
SP 8 Spanish Peseta.................................... --
SK 2,437 Swedish Krona..................................... 335
CHF 1 Swiss Franc....................................... 1
--------
TOTAL FOREIGN CURRENCY (Cost $1,461).......................... 1,467
--------
TOTAL INVESTMENTS (100.4%) (Cost $45,489)..................... 48,813
--------
</TABLE>
<TABLE>
<CAPTION>
VALUE
(000)
<S> <C> <C>
------------------------------------------------------------
OTHER ASSETS (1.1%)
Receivable for Portfolio Shares Sold............ $381
Dividends Receivable............................ 94
Foreign Withholding Tax Reclaim Receivable...... 71 $ 546
-----
LIABILITIES (-1.5%)
Payable for Investments Purchased............... (490)
Payable for Portfolio Shares Redeemed........... (25)
Net Unrealized Loss on Forward Foreign Currency
Contracts...................................... (133)
Investment Advisory Fees Payable................ (47)
Administrative Fees Payable..................... (7)
Custodian Fees Payable.......................... (6)
Directors' Fees and Expenses Payable............ (1)
Other Liabilities............................... (26) (735)
----- --------
NET ASSETS (100%) $48,624
--------
--------
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER SHARE
Applicable to 3,443,295 outstanding $.001 par value shares
(authorized 500,000,000 shares)............................. $14.12
--------
--------
------------------------------------------------------------------------
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACT INFORMATION:
Under the terms of forward foreign currency contracts open at June 30,
1995, the Portfolio is obligated to deliver foreign currency in
exchange for US dollars as indicated below:
</TABLE>
<TABLE>
<CAPTION>
NET
CURRENCY IN EXCHANGE UNREALIZED
TO DELIVER VALUE SETTLEMENT FOR VALUE LOSS
(000) (000) DATE (000) (000) (000)
- - ---------- --------- ----------- ----------- --------- -------------
<S> <C> <C> <C> <C> <C>
DM 400 $ 290 8/09/95 $ 253 $ 253 $ (37)
CHF 2,750 2,444 6/10/96 $ 2,420 2,420 (24)
DM 3,000 2,191 6/10/96 $ 2,152 2,152 (39)
FF 7,100 1,455 6/10/96 $ 1,422 1,422 (33)
--------- --------- -----
$ 6,380 $ 6,247 $ (133)
--------- --------- -----
--------- --------- -----
</TABLE>
- - ------------------------------------------------------------
<TABLE>
<S> <C> <C>
+ -- Non-income producing securities
@ -- The fund is advised by an affiliate.
NCS -- Non Convertible Shares
DM -- Deutsche Mark
FF -- French Franc
CHF -- Swiss Franc
</TABLE>
- - ------------------------------------------------------------
SUMMARY OF FOREIGN SECURITIES BY INDUSTRY CLASSIFICATION
<TABLE>
<CAPTION>
VALUE PERCENT
INDUSTRY (000) OF NET ASSETS
<S> <C> <C>
- - -----------------------------------------------------------------
Capital Equipment................... $ 7,168 14.7%
Consumer Goods...................... 9,253 19.0
Energy.............................. 3,372 6.9
Finance............................. 7,926 16.3
Materials........................... 9,317 19.2
Multi-Industry...................... 670 1.4
Services............................ 8,677 17.9
--------- ---
$ 46,383 95.4%
--------- ---
--------- ---
</TABLE>
The accompanying notes are an integral part of the financial statements. (Pages
144-152)
- - --------------------------------------------------------------------------------
European Equity Portfolio
32
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
OVERVIEW
- - --------------------------------------------------------------------------------
THE GLOBAL EQUITY PORTFOLIO
COMPOSITION OF NET ASSETS (AT JUNE 30, 1995)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Australia 1.6%
Belgium 1.1
Canada 0.3
France 4.9
Germany 8.2
Hong Kong 0.9
Ireland 3.1
Italy 3.2
Japan 9.0
Netherlands 8.2
Spain 2.6
Sweden 1.5
Switzerland 7.5
United Kingdom 10.8
United States 36.7
Other 0.4
</TABLE>
PERFORMANCE COMPARED TO THE MORGAN STANLEY
CAPITAL INTERNATIONAL (MSCI) WORLD INDEX(1)
- - -----------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
-----------------------------------------
AVERAGE ANNUAL
YTD ONE YEAR SINCE INCEPTION
--------- ----------- -----------------
<S> <C> <C> <C>
PORTFOLIO................ 12.11% 12.95% 19.31%
INDEX.................... 9.14 10.67 11.69
<FN>
1. The MSCI World Index is an unmanaged index of common stocks and includes
securities listed on the stock exchanges of the U.S., Europe, Canada,
Australia, New Zealand and the Far East (assumes dividends reinvested).
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.
</TABLE>
THE PERFORMANCE RESULTS PROVIDED IN THIS OVERVIEW 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.
PLEASE SEE THE PROSPECTUS FOR A DESCRIPTION OF CERTAIN RISK CONSIDERATIONS
ASSOCIATED WITH INTERNATIONAL INVESTING.
The Global Equity Portfolio is managed with the objective of obtaining a high
total return by investing in markets worldwide, including the United States.
Investments may also be made with discretion in smaller companies or emerging
markets.
The total return of the Portfolio for the six month period ended June 30, 1995
was 12.11% as compared to 9.14% for the Morgan Stanley Capital International
(MSCI) World Index for the same period. The total returns for the twelve months
ended June 30, 1995 and the average annual total return for the period from
inception in July 1992 through June 30, 1995 were 12.95% and 19.31%,
respectively, compared to 10.67% and 11.69% for the MSCI World Index for the
same periods.
The Portfolio benefited during the period under review from a significantly
underweight Japanese position and significant overweight positions in both
Switzerland and the Netherlands, which were among Europe's strongest
performances in local currency terms during the first six months of 1995.
The predominant message from the economic releases during the first half is
weakness. In the U.S., first quarter GDP grew at a 2.7% annual pace,
considerably slower than the 5.1% shown in the fourth quarter of 1994. The Fed
had become increasingly fearful of a premature recession and cut interest rates
to keep the level of economic activity stable. We have also seen other rate cuts
in Japan and Germany both of which will enhance the sustainability of a global
recovery. In the case of Japan, it was perhaps an eleventh hour move to overcome
the deflationary effects of a strong Yen.
In general, we remain positive on the investment outlook for the balance of
1995. The slow growth, lackluster inflation environment that we envisage should
provide a positive environment for stocks through the end of 1995 and beyond.
The interest rate cuts that have occurred should bode well for corporate
earning's growth over the next twelve months. This outlook, however, does not
incorporate the economic and stock market consequences of a Japanese bank
declaring bankruptcy.
- - --------------------------------------------------------------------------------
Global Equity Portfolio
33
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1995
- - --------------------------------------------------------------------------------
THE GLOBAL EQUITY PORTFOLIO
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- - ------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (98.8%)
AUSTRALIA (1.6%)
50,000 Brambles Industries Ltd........................... $ 474
+400,000 McPherson's Ltd................................... 34
220,000 Westpac Banking Corp.............................. 796
--------
1,304
--------
BELGIUM (1.1%)
20,000 Delhaize Freres et Cie, 'Le Lion' S.A............. 900
--------
CANADA (0.3%)
+200,000 Canadian Pioneer Energy, Class A.................. 204
70,000 Northern Reef Exploration Ltd..................... 66
--------
270
--------
FRANCE (4.9%)
1,800 Bongrain S.A...................................... 1,078
+12,000 Credit Lyonnaise CDI.............................. 691
18,573 Elf Aquitaine..................................... 1,373
4,900 Precision Mecaniques Labinal S.A.................. 864
--------
4,006
--------
GERMANY (7.4%)
5,200 BASF AG........................................... 1,109
3,822 Bayer AG.......................................... 949
2,700 Karstadt AG....................................... 1,182
3,000 Mannesmann AG..................................... 916
+2,764 Sinn AG........................................... 668
+2,225 Varta AG.......................................... 423
1,910 Veba AG........................................... 749
260 Volkswagen AG..................................... 75
--------
6,071
--------
HONG KONG (0.9%)
220,000 Jardine Strategic Holdings, Inc................... 708
--------
IRELAND (3.1%)
737,397 Anglo Irish Bank Corp. plc........................ 604
73,900 Arnotts plc....................................... 315
470,000 Avonmore Foods plc, Class A....................... 1,031
227,500 Green Property plc................................ 596
--------
2,546
--------
ITALY (3.2%)
500,000 Stet Di Risp (NCS)................................ 1,111
700,000 Telecom Italia S.p.A. Di Risp (NCS)............... 1,481
--------
2,592
--------
JAPAN (9.0%)
65,000 Fuji Photo Film Ltd............................... 1,540
24,000 Hitachi Ltd....................................... 239
110,000 Kao Corp.......................................... 1,323
130,000 Nichido Fire & Marine Insurance Co................ 1,050
18,000 Sony Corp......................................... 864
30,000 Stanley Electric Co............................... 189
100,000 Sumitomo Rubber Industries........................ 743
5,000 TDK Corp.......................................... 228
<CAPTION>
VALUE
SHARES (000)
- - ------------------------------------------------------------
<C> <S> <C>
40,000 Toyo Seikan Kaisha Ltd............................ $ 1,169
--------
7,345
--------
NETHERLANDS (8.2%)
42,811 ABN Amro Holdings N.V............................. 1,652
2,101 Hollandsche Beton Groep N.V....................... 362
22,677 Internationale Nederlanden Groep N.V.............. 1,254
40,000 Koninklijke Van Ommern N.V........................ 1,229
15,160 Nedlloyd Groep N.V................................ 516
8,000 Oce-Van Der Grinten N.V........................... 451
30,000 Philips Electronics N.V........................... 1,270
--------
6,734
--------
SPAIN (2.6%)
89,500 Iberdrola S.A..................................... 674
112,300 Telefonica Nacional de Espana S.A................. 1,447
--------
2,121
--------
SWEDEN (1.5%)
230,000 Skandinaviska Enskilda Banken, Class A............ 1,195
--------
SWITZERLAND (7.5%)
+500 Ascom Holdings AG (Bearer)........................ 625
1,000 Bobst AG (Bearer)................................. 1,520
1,800 Ciba-Geigy AG (Registered)........................ 1,319
1,400 Forbo Holdings AG (Registered).................... 683
1,400 Magazine Globus (Participating Certificates)...... 985
900 Schweizerische Industrie-Gesellschaft Holdings
(Registered).................................... 1,016
--------
6,148
--------
UNITED KINGDOM (10.8%)
51,443 Barclays plc...................................... 553
100,000 Bass plc.......................................... 957
298,700 Christian Salvesen plc............................ 1,264
110,000 Forte plc......................................... 398
100,000 John Mowlem & Co. plc............................. 111
150,000 Kwik Save Group plc............................... 1,549
180,000 Matthews (Bernard) plc............................ 312
+**653,333 Pentos plc........................................ --
259,552 Pilkington plc.................................... 720
73,023 Rolls-Royce plc................................... 203
202,325 Tate & Lyle plc................................... 1,368
40,000 Unilever plc...................................... 810
279,000 WPP Group plc..................................... 537
--------
8,782
--------
UNITED STATES (36.7%)
+89,000 Addington Resources, Inc.......................... 1,313
18,000 Aluminum Company of America....................... 902
+15,400 AMR Corp.......................................... 1,149
59,975 Aviall, Inc....................................... 502
50,500 Beazer Homes USA, Inc............................. 840
29,500 Brooklyn Bancorp, Inc............................. 996
+150,000 Cadiz Land Co., Inc............................... 656
116,000 Comsat Corp....................................... 2,277
57,000 Cray Research, Inc................................ 1,389
</TABLE>
The accompanying notes are an integral part of the financial statements. (Pages
144-152)
- - --------------------------------------------------------------------------------
Global Equity Portfolio
34
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1995
- - --------------------------------------------------------------------------------
THE GLOBAL EQUITY PORTFOLIO (CONT.)
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- - ------------------------------------------------------------
<C> <S> <C>
UNITED STATES (CONT.)
80,000 Data General Corp................................. $ 770
89,500 Egghead, Inc...................................... 1,197
50,000 Enhance Financial Services Group, Inc............. 969
45,000 Finova Group, Inc................................. 1,575
30,000 Gap, Inc.......................................... 1,046
+134,200 GenRad, Inc....................................... 1,023
16,000 Georgia Pacific Corp.............................. 1,388
60,000 Johnstown America Industries, Inc................. 623
+31,000 Kaiser Ventures, Inc.............................. 198
24,300 Lukens, Inc....................................... 784
4,600 MBIA, Inc......................................... 306
40,000 MCI Communications Corp........................... 880
31,300 Mellon Bank Corp.................................. 1,303
+56,500 Mercer International, Inc......................... 1,186
22,000 Midlantic Corp.................................... 880
22,300 Philip Morris Cos., Inc........................... 1,659
12,000 Prime Retail, Inc................................. 147
+47,500 Rohr, Inc......................................... 683
41,300 Sierra Tucson Cos., Inc........................... 181
25,000 Sun Co., Inc...................................... 684
13,100 Tecumseh Products Co., Class A.................... 576
70,000 Waban, Inc........................................ 1,041
88,000 WorldCorp, Inc.................................... 869
--------
29,992
--------
TOTAL COMMON STOCKS (Cost $74,611)........................... 80,714
--------
CONVERTIBLE PREFERRED STOCKS (0.0%)
HONG KONG (0.0%)
21,000 Jardine Strategic Holdings, Inc. IDR, 7.50%,
5/07/97 (Cost $21).............................. 23
--------
PREFERRED STOCKS (0.8%)
GERMANY (0.8%)
3,000 Volkswagen AG (Cost $647)......................... 663
--------
</TABLE>
<TABLE>
<CAPTION>
NO. OF
WARRANTS
- - -----------
<C> <S> <C>
WARRANTS (0.0%)
SWITZERLAND (0.0%)
+500 Forbo Holdings (Registered), expiring 11/01/95
(Cost $0)....................................... 1
--------
TOTAL FOREIGN & US SECURITIES (99.6%) (Cost $75,279)........... 81,401
--------
</TABLE>
<TABLE>
<CAPTION>
AMOUNT
(000)
- - -----------
<C> <S> <C>
FOREIGN CURRENCY (0.0%)
IL 180 Italian Lira...................................... --
NG 29 Netherlands Guilder............................... 19
--------
TOTAL FOREIGN CURRENCY (Cost $19).............................. 19
--------
TOTAL INVESTMENTS (99.6%) (Cost $75,298)....................... 81,420
--------
</TABLE>
<TABLE>
<CAPTION>
VALUE
(000)
<S> <C> <C>
- - ------------------------------------------------------------
OTHER ASSETS (1.4%)
Receivable for Investments Sold................. $840
Dividends Receivable............................ 208
Foreign Withholding Tax Reclaim Receivable...... 89
Other........................................... 4 $ 1,141
-----------
LIABILITIES (-1.0%)
Payable to Custodian............................ (543)
Payable for Investments Purchased............... (137)
Investment Advisory Fees Payable................ (116)
Unrealized Loss on Forward Foreign Currency (18)
Contracts.....................................
Custodian Fees Payable.......................... (14)
Administrative Fees Payable..................... (11)
Directors' Fees and Expenses Payable............ (1)
Other Liabilities............................... (36) (876)
----------- --------
NET ASSETS (100%).............................................. $ 81,685
--------
--------
</TABLE>
<TABLE>
<C> <S> <C>
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER SHARE
Applicable to 5,538,187 outstanding $.001 par value
shares (authorized 500,00,000 shares)........................ $14.75
--------
--------
</TABLE>
- - ------------------------------------------------
<TABLE>
<C> <S> <C>
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACT INFORMATION:
Under the terms of forward foreign currency contracts open at June 30,
1995, the Portfolio is obligated to deliver foreign currency in
exchange for US dollars as indicated below:
</TABLE>
<TABLE>
<CAPTION>
IN
CURRENCY TO EXCHANGE UNREALIZED
DELIVER VALUE SETTLEMENT FOR VALUE LOSS
(000) (000) DATE (000) (000) (000)
- - ----------- ----- ----------- ------------- ----- -----------------
<S> <C> <C> <C> <C> <C>
NZ$ 788 $ 526 7/03/95 $ 508 $ 508 $ (18)
----- ----- -----
----- ----- -----
</TABLE>
- - ------------------------------------------------------------
<TABLE>
<S> <C> <C>
+ -- Non-income producing securities
** -- Security is valued at fair value -- See Note A-1
IDR -- International Depositary Receipt
NCS -- Non Convertible Shares
NZ$ -- New Zealand Dollar
</TABLE>
- - ------------------------------------------------------------
SUMMARY OF FOREIGN & US SECURITIES BY INDUSTRY CLASSIFICATION
<TABLE>
<CAPTION>
VALUE PERCENT OF
INDUSTRY (000) NET ASSETS
<S> <C> <C>
- - -----------------------------------------------------------------
Capital Equipment...................... $ 17,922 21.9%
Consumer Goods......................... 13,894 17.0
Energy................................. 5,979 7.3
Finance................................ 16,023 19.6
Materials.............................. 7,837 9.6
Multi-Industry......................... 6,161 7.6
Services............................... 13,585 16.6
--------- ---
$ 81,401 99.6%
--------- ---
--------- ---
</TABLE>
The accompanying notes are an integral part of the financial statements. (Pages
144-152)
- - --------------------------------------------------------------------------------
Global Equity Portfolio
35
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
OVERVIEW
- - --------------------------------------------------------------------------------
THE GOLD PORTFOLIO
COMPOSITION OF NET ASSETS (AT JUNE 30, 1995)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Australia 22.7%
Canada 31.4
South Africa 0.6
United States 38.4
Other 6.9
</TABLE>
PERFORMANCE COMPARED TO THE PHILADELPHIA
GOLD AND SILVER INDEX(1)
- - --------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
----------------------------------------
AVERAGE ANNUAL
YTD ONE YEAR SINCE INCEPTION
--------- ----------- ----------------
<S> <C> <C> <C>
PORTFOLIO................ 7.47% 10.62% -1.18%
INDEX.................... 10.95 5.62 -8.52
<FN>
1. The Philadelphia Gold and Silver Index is an unmanaged index comprised of the
leading companies involved in the mining of gold and silver.
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.
</TABLE>
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. PLEASE SEE THE PROSPECTUS FOR A
DESCRIPTION OF CERTAIN RISK CONSIDERATIONS ASSOCIATED WITH INTERNATIONAL
INVESTING.
The Gold Portfolio seeks to provide long-term capital appreciation by investing
primarily in the equity securities of foreign and domestic issuers engaged in
gold-related activities.
The total return of the Portfolio for the six month period ended June 30, 1995
was 7.47% as compared to 10.95% for the Philadelphia Gold and Silver Index for
the same period. The total return for the twelve months ended June 30, 1995 and
the average annual total return for the period from inception in February 1994
through June 30, 1995 were 10.62% and -1.18%, respectively, for the Portfolio,
compared to 5.62% and -8.52% for the Philadelphia Gold and Silver (XAU) Index
for the same periods.
A few large capitalization North American shares dominated performance which
made it extremely difficult to match the returns of the narrow based XAU Index.
Australian and South African shares did considerably poorer, as did many mid-and
smaller capitalization issues. The market demonstrated a preference for
liquidity rather than value, something we expect will begin to equalize.
Most precious metals markets made their recent lows within the first few weeks
of the new year and rallied into a mid-April high. During this period, gold
traded nearly tick-for-tick with the Japanese yen, making new highs as the U.S.
dollar weakened to post-W.W.II lows against major currencies. Gold's early
second quarter rise was primarily a U.S. dollar phenomenon, as the Japanese yen
gold price continued to decline to levels not seen since the mid 1970s. The
subsequent U.S. dollar recovery saw gold erase most of the gains achieved on the
year, though gold shares have held up better.
Toward the end of the quarter, gold price movements began to de-couple from
currency fluctuations. A late quarter rally, lasting from roughly mid-May to
mid-June was precipitated, in part, by the potential easing of U.S. short-term
interest rates as a response to a slowing U.S. economy. Lower rates decrease the
opportunity cost of holding gold, increasing its relative attractiveness as a
store of value.
Strong physical demand, a decrease in worldwide mine production, and slowing
central bank sales have all helped maintain a floor under the gold price.
Combined with consistent producer selling towards the $400 price level, gold has
maintained its tight trading range experienced in 1994.
The World Gold Council, which first monitored a pick-up in worldwide demand
during mid-1994, continues to see high demand from both developing and developed
countries. During the first quarter of 1995
- - --------------------------------------------------------------------------------
Gold Portfolio
36
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
OVERVIEW
- - --------------------------------------------------------------------------------
THE GOLD PORTFOLIO (CONT.)
(the most recent data available), Asian demand strengthened with Southeast Asia
and South Korea reporting record quarterly demand. Apart from a decline in
Mexico, nearly all developing country gold markets showed gains. Among developed
countries, both jewelry and investment demand picked up in Japan as well as
investment demand in Germany. This increased demand reflects both (1) lower gold
prices measured in local currencies and (2) a new demand for gold among the
Japanese consumer following the Kobe earthquake.
On the supply side, Gold Field Mineral Services reported that 1994 marked the
first drop in mine output in 20 years. Lower South African mine production,
induced by labor disruptions and an increased number of worker holidays
following the April 1994 general election, was the primary driving force. As
Anglo-American Corporation recently reported, this trend is expected to continue
for 1995, with South African production expected to fall another 12 percent.
Although this forecast appears bleak for the South African gold mining industry,
we believe that it is in all parties' best interest (mine workers and
management) for labor negotiations to lead towards a 24-hour continuous shift
schedule. Such an agreement would allow for increased productivity, production,
and employment.
Among central banks, European central bank sales have slowed considerably from
the pace of recent years, with Belgium sales earlier this year an exception.
Current European activity appears to reflect a shuffling of reserves between
individual countries and the European Monetary Institute prior to the potential
establishment of a single European currency. Countries with troubled government
financial situations, such as Italy, remain potential sources of supply as
serious monetary and fiscal situations may induce forced selling of gold
reserves. As an example, the World Gold Council reported that Canada's selling
program resumed in April, although only 3+ million ounces remain in Canadian
central bank reserves.
During the second quarter, potential sales of the International Monetary Fund's
("IMF") gold reserves were reported. At present, the issue appears dead, as both
Germany and Japan have opposed any sale. Since IMF gold sales require a minimum
of 85% of the voting membership, Germany and Japan can effectively veto any
proposed sale.
Viewed from an international perspective, the international gold price has held
above major lows established in 1991-1992 for most major currencies -- except
for Japanese yen terms. Although a rise in the U.S. dollar price of gold does
not require gold to rise in Japanese yen terms, a rising gold price in a basket
of currencies (yen included) provides fuel for potentially greater price moves,
as global investors drive investment flows the same way. The current
deflationary conditions experienced by Japan may have contributed to new lows in
the yen price of gold this year. We are tempted to say that until Japan's
deflation ends, the world price of gold will continue to be range-bound. We
recognize that a Japan reflation may not be a necessary condition for the yen
gold price to rise, but it would certainly help. Already, investment demand has
shown signs of increasing with the yen gold price down to levels not seen since
the mid 1970s. Additionally, investors may seek gold as an alternate portfolio
vehicle in the event of weaker domestic market performance.
Gold continues to exhibit the attributes of a fundamentally strong investment
class. We are focusing our efforts on owning the best in-the-ground gold and
precious metals resources, with a preference for quality management, strong
balance sheets, good cash flow, and the ability to expand reserves. Our
positions are growing in the Australian sector where we see the greatest amount
of reserve growth through exploration success using a variety of modern
exploration technology. We are also encouraged by the direction of mining labor
policy in South Africa and are surveying the significantly lower valuation
levels for opportunities there.
- - --------------------------------------------------------------------------------
Gold Portfolio
37
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1995
- - --------------------------------------------------------------------------------
THE GOLD PORTFOLIO
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- - ------------------------------------------------------------
COMMON STOCKS (89.9%)
AUSTRALIA (22.7%)
182,200 Acacia Resources Ltd.............................. $ 321
455,600 Central Norseman Gold Corporation Ltd............. 314
+380,800 Delta Gold N.L.................................... 709
421,000 Gold Mines of Kalgoorlie Ltd...................... 377
355,300 Great Central Mines N.L........................... 778
22,800 Great Central Mines N.L. ADR...................... 152
+327,500 Newcrest Mining Ltd............................... 1,389
68,300 Poseidon Gold Ltd................................. 137
+455,600 Wiluna Mines Ltd.................................. 486
--------
4,663
--------
CANADA (29.2%)
34,200 Barrick Gold Corp................................. 864
91,100 Bolivar Goldfields Ltd............................ 119
38,700 Cambior, Inc...................................... 479
66,100 Hemlo Gold Mines, Inc............................. 702
41,500 Kinross Gold Corp................................. 310
123,300 Miramar Mining.................................... 640
34,000 Placer Dome, Inc.................................. 888
+73,400 Prime Resource Group, Inc......................... 508
360,000 Royal Oak Mines, Inc.............................. 1,125
+51,000 TVX Gold, Inc..................................... 367
--------
6,002
--------
SOUTH AFRICA (0.6%)
10,000 Free State Consolidated Gold Mines Ltd. ADR....... 124
--------
UNITED STATES (37.4%)
+149,200 Amax Gold, Inc.................................... 821
+96,400 Dakota Mining Corp................................ 169
3,828 Freeport McMoRan Copper & Gold, Inc., Class A..... 79
113,900 Freeport McMoRan, Inc............................. 2,007
136,700 Gold Reserve Corp................................. 854
66,200 Homestake Mining Co............................... 1,092
58,100 Newmont Gold Co................................... 2,338
+32,785 Pegasus Gold, Inc................................. 332
--------
7,692
--------
TOTAL COMMON STOCKS (Cost $19,404)............................. 18,481
--------
</TABLE>
<TABLE>
<CAPTION>
NO. OF
WARRANTS
- - -----------
<C> <S> <C>
WARRANTS (0.1%)
UNITED STATES (0.1%)
+25,000 Gold Reserve Corp., expiring 3/96
(Cost $0)....................................... 20
--------
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- - ------------------------------------------------------------
<C> <S> <C>
CONVERTIBLE BONDS (3.1%)
CANADA (2.2%)
**$ 400 Bema Gold Corp. 7.50%, 9/28/99.................... $ 447
--------
UNITED STATES (0.9%)
250 Canyon Resources 6.00%, 6/01/98................... 190
--------
TOTAL CONVERTIBLE BONDS (Cost $681)............................ 637
--------
TOTAL FOREIGN & US SECURITIES (93.1%) (Cost $20,085)........... 19,138
--------
SHORT-TERM INVESTMENT (6.2%)
REPURCHASE AGREEMENT (6.2%)
1,263 U.S. Trust 5.90%, dated 6/30/95, due 7/03/95, to
be repurchased at $1,264, collateralized by
$1,320 United States Treasury Bills, due
7/27/95, valued at $1,315 (Cost $1,263)......... 1,263
--------
TOTAL INVESTMENTS (99.3%) (Cost $21,348)....................... 20,401
--------
</TABLE>
<TABLE>
<S> <C> <C>
OTHER ASSETS (2.1%)
Receivable for Investments Sold................. $ 389
Receivable for Portfolio Shares Sold............ 36
Interest Receivable............................. 12
Dividends Receivable............................ 2
Other........................................... 1 440
-----
LIABILITIES (-1.4%)
Payable for Portfolio Shares Redeemed........... (200)
Investment Sub-Advisory Fees Payable............ (37)
Investment Advisory Fees Payable................ (4)
Custodian Fees Payable.......................... (3)
Administrative Fees Payable..................... (3)
Directors' Fees and Expenses Payable............ (1)
Other Liabilities............................... (39) (287)
----- --------
NET ASSETS (100%).............................................. $ 20,554
--------
--------
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER SHARE
Applicable to 2,157,065 outstanding $.001 par value shares
(authorized 500,000,000 shares).............................. $9.53
--------
--------
</TABLE>
- - ------------------------------------------------
<TABLE>
<S> <C> <C>
+ -- Non-income producing securities
** -- Security is valued at fair value -- See Note A-1
ADR -- American Depositary Receipt
</TABLE>
- - ------------------------------------------------
SUMMARY OF FOREIGN & US SECURITIES BY INDUSTRY CLASSIFICATION
<TABLE>
<CAPTION>
VALUE PERCENT OF
INDUSTRY (000) NET ASSETS
<S> <C> <C>
- - -----------------------------------------------------------------
Gold Mines............................. $ 19,138 93.1%
--------- ---
--------- ---
</TABLE>
The accompanying notes are an integral part of the financial statements. (Pages
144-152)
- - --------------------------------------------------------------------------------
Gold Portfolio
38
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
OVERVIEW
- - --------------------------------------------------------------------------------
THE INTERNATIONAL EQUITY PORTFOLIO
COMPOSITION OF NET ASSETS (AT JUNE 30, 1995)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Australia 4.3%
Belgium 1.3
Denmark 1.2
Finland 1.5
France 5.5
Germany 15.3
Hong Kong 0.1
Italy 3.2
Japan 20.3
Netherlands 10.6
New Zealand 0.4
Norway 1.5
Singapore 2.5
Spain 3.3
Sweden 2.3
Switzerland 7.3
United Kingdom 10.8
Other 8.6
</TABLE>
PERFORMANCE COMPARED TO THE MORGAN STANLEY
CAPITAL INTERNATIONAL (MSCI) EAFE INDEX(1)
- - -----------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
-----------------------------------------------------
ONE AVERAGE ANNUAL AVERAGE ANNUAL
YTD YEAR FIVE YEARS SINCE INCEPTION
------ ------ ---------------- ----------------
<S> <C> <C> <C> <C>
PORTFOLIO..................... 4.88% 7.76% 9.08% 10.59%
INDEX......................... 2.60 1.65 4.69 2.45
<FN>
1. The MSCI EAFE Index is an unmanaged index of common stocks and includes
Europe, Australia and the Far East (assumes dividends reinvested net of
withholding taxes).
2. Total returns for the Portfolio reflect expenses waived or reimbursed, if
applicable, by the Adviser. Without such waiver and reimbursement, total
returns would be lower.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
</TABLE>
THE COUNTRY SPECIFIC 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.
PLEASE SEE THE PROSPECTUS FOR A DESCRIPTION OF CERTAIN RISK CONSIDERATIONS
ASSOCIATED WITH INTERNATIONAL INVESTING.
The investment objective of the International Equity Portfolio is long-term
capital appreciation through investment primarily in common stocks of non-U.S.
issuers. Common stocks for this purpose include common stocks and equivalents,
such as securities convertible into common stocks, and securities having common
stock characteristics, such as rights and warrants to purchase common stocks.
For the six month period ended June 30, 1995 the Portfolio had a total return of
4.88% as compared to 2.60% for the Morgan Stanley Capital International (MSCI)
EAFE Index for the same period. The total return for the twelve months ended
June 30, 1995 and the average annual total return for the five-year period ended
June 30, 1995 and for the period from inception in August 1989 through June 30,
1995 were 7.76%, 9.08% and 10.59%, respectively, as compared to 1.65%, 4.69% and
2.45% for the Index for the same periods.
The marked outperformance of the benchmark was attributable to the Portfolio's
radical underweight in the weak Japanese stockmarket and strong relative returns
achieved in markets such as Switzerland, The Netherlands, Italy and Japan.
Portfolio activity during the quarter was very light, some profits being taken
in the U.K. and some mild averaging down being carried out in Japan. This
process is likely to continue into the third quarter, and an imminent visit to
Japan may provide some new investment opportunities in this depressed market.
However, it is our belief that the Japanese authorities are still
underestimating the threat to their banking system posed by the deflationary
effects of the recent Yen excessive strength. We are extremely concerned at the
prospect of bankruptcies in the manufacturing sector as a significant portion of
Japan's (unlisted) manufacturing sector faces extinction. The sheer scale of the
reliquification required to get the Japanese economy out of this deflationary
malaise is likely to be unprecedented. Outside of Japan, the world offers
moderate non-inflationary growth, and we are reasonably confident that the U.S.
can resume economic growth after the autumn. Pricing power, however, remains
very weak, so corporate profits outside the technology and weak currency stock
markets will be hard to come by compared to past cycles.
GERMANY
The Morgan Stanley Capital International Germany Index increased by 8.1% in U.S.
dollar terms and by 9.3% in local currency terms during the second quarter of
1995. Following stronger than anticipated economic growth in 1994, the most
recent numbers in 1995 have been disappointing. Restocking was one of
- - --------------------------------------------------------------------------------
International Equity Portfolio
39
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
OVERVIEW
- - --------------------------------------------------------------------------------
THE INTERNATIONAL EQUITY PORTFOLIO (CONT.)
the main driving forces behind economic recovery last year, representing 1% of
the total 2.4% increase in West German GDP. Recent surveys indicate, however,
that stocks are now at normal levels. Pan-German industrial production in March
fell by 3.2% month-on-month. In the manufacturing sectors consumer durables and
consumer goods have performed badly, while capital goods continue to grow helped
by demand from around Europe. Though consumer spending was hit in the first
quarter by the solidarity surcharge, data from the second quarter is more
positive particularly for car registrations and retail sales. The continued
strength of the Deutsche mark has not yet been reflected in export orders as
many companies' order books were filled last year. Inflation remains low helped
by the strength of the Deutsche mark, this, together with continuing high
unemployment, increases the likelihood of further interest rate cuts later in
the year. In this environment we continue to find high quality, good value
investments both in the domestic and export sectors.
FRANCE
During the second quarter of 1995 the Morgan Stanley Capital International
France Index increased by 0.4% in U.S. dollar terms and by 1.5% in French Franc
terms making it the weakest European market during the period, following a
strong first quarter. In the first six months of the year France has suffered
more than most from the falling U.S. dollar. It is experiencing an unusual
simultaneous increase in interest rates and the exchange rate. This has made the
trading environment more difficult for many companies particularly those in the
export sector. Following the election victory by Jacques Chirac there has been
uncertainty in the financial markets driven by speculation concerning the new
administration's economic policies. In June a mini-budget was announced which
included a 2% increase in VAT. There are also plans to increase the minimum wage
by 4%, putting further pressure on other wage agreements. Both of these factors
should result in higher headline inflation. Unemployment, however, is slowly
falling and a May survey showed consumer confidence at its highest level since
1990. Despite the continued weakness of the French equity market over recent
years it is not a market in which we have been easily able to find cheap good
quality companies, particularly among the larger businesses.
SWITZERLAND
The Morgan Stanley Capital International Switzerland Index rose by 9.8% in U.S.
dollar terms and by 12.3% in Swiss Franc terms in the second quarter of 1995.
This performance makes it one of the strongest European performers over the
quarter, though the larger companies continued to outperform small
capitalization stocks. The most notable feature of the Swiss market in recent
months has been the continued strength of the Swiss Franc. This remains a
drawback for export growth and tourism but has a positive effect on inflation
and interest rates. The strong Franc also helps companies costs by lowering
import prices for raw materials. The most recent statistics show that there
continues to be very little inflationary pressure and the average rate should
stay around 2%. There had been concern that the introduction of VAT at the
beginning of the year would lead to an increase in inflation, but this has not
occurred. There is a possibility that interest rates could actually fall further
later in the year. We continue to find cheap, well managed companies in
Switzerland, particularly in the small and medium size ranges.
NETHERLANDS
In the second quarter of 1995 the Morgan Stanley Capital International
Netherlands Index increased by 5.8% in U.S. dollar terms and by 7.2% in local
currency terms. The gradual improvement of the Dutch economy has continued
through the first half of 1995. Recent indicators show that this growth is being
driven by domestic demand while fears remain that the continued strength of the
Guilder may dampen the rate of export growth. The growth rate in the first
quarter was 3.4%, the largest increase since 1990. The strong Guilder is helping
to maintain low inflation. While consumer price inflation (CPI) was 2.8% in
1994, an average rate nearer to 2% is expected in 1995. Unlike some European
countries there is little inflationary pressure from wage growth, up only
modestly in the first quarter. This environment allowed the Dutch authorities to
cut interest rates in early June by 0.25% and the three month rates are now
below those in Germany. The Dutch market continues to be a good source of cheap,
high quality companies for the value investor.
SPAIN
During the second quarter of 1995 the Morgan Stanley Capital International Spain
Index rose by 15.1% in U.S. dollar terms and by 10.6% in local currency terms.
This performance makes it one of the top performing European markets over this
period. As stated in our last investment report this is a market which looks
unattractive from a top-down view but it continues to offer good opportunities
for the bottom-up investor. There continues to be inflationary pressure due to
the VAT rate hike, higher import prices,
- - --------------------------------------------------------------------------------
International Equity Portfolio
40
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
OVERVIEW
- - --------------------------------------------------------------------------------
THE INTERNATIONAL EQUITY PORTFOLIO (CONT.)
and increased food prices, due to the severe drought in many regions of the
country. Political uncertainty continues following a poor showing by the
government in local elections and this is putting further pressure on the
peseta. The Bank of Spain has already raised interest rates twice this year and
it may have to act again. There has been positive news with an increase in
industrial capacity utilization this year and investment spending was up by 8.3%
in the first quarter. Although there has been a small fall in unemployment, the
rate is still 23% of the population. There continues to be good investment
opportunities in both the electrical and telephone utilities.
ITALY
The Morgan Stanley Capital International Italy Index increased by 7.4% in U.S.
dollar terms and by 3.6% in Italian Lira terms in the second quarter. Like
Spain, Italy continues to suffer from political uncertainty and economic
worries, although there has been some positive news recently. Inflation remains
the key concern due to higher commodity prices coupled with the devaluation of
the Lira. The increase in VAT in the March mini-budget has also created
inflationary pressure. Though the weak Lira has been detrimental to inflation,
it has clearly benefited export volumes, which rose more than 10% in the second
half of 1994, a trend that has continued into this year. In general, the
economic recovery is still on track despite monetary and fiscal tightening.
Investment in machinery and equipment remains high and the rate of capacity
utilization continues to rise steadily. The economic recovery has also been
reflected in the job market with the number of unemployed falling slowly to the
current 12% level. For the equity investor, company valuation levels show that
Italy is one of the cheapest markets in Europe.
UNITED KINGDOM
In the second quarter of 1995 the Morgan Stanley Capital International U.K.
Index increased by 3.9% in U.S. dollar terms and by 6.4% in local currency.
Economic data was generally in line with expectations, broadly supporting a
slowing down economy. Manufacturing output fell to 2.3% year-on-year in April
1995 compared to 3.8% year-on-year in March 1995, but this was still slightly at
variance with the CBI's industrial trends survey showing a strong backdrop,
particularly in exports. Inflation gradually deteriorated, as expected, rising
to 2.7% year-on-year in May 1995 compared to 2.6% year-on-year in April 1995.
Further deterioration appears to be in the pipeline. Retail sales strengthened
slightly to 1.1% year-on-year in May 1995 following an unexpectedly weak April
(0.9% year-on-year), fueling hopes that the dull outlook may be lifting.
Interest rate-sensitive cyclicals continued to perform badly, with
building/construction and building materials still sliding. In addition, extreme
cyclicals such as British Steel suffered further de-rating in spite of excellent
results as investors attempt to kibbitz peak earnings. Food retailing was a top
performer in the quarter, partly due to evidence (rare across the U.K. market)
of pricing inflation. General retailing, however, performed badly reflecting the
current sluggish environment.
Interest rates remained unchanged during the quarter at 6.75%, reflecting the
Chancellor's upper hand in a public disagreement with the Governor of the Bank
of England on 5th May. Although the former was borne out by economic data
showing a slowing economy, further tightening of 50 to 100 basis points is
expected if the government wishes to meet treasury year-end inflation forecasts.
The latter part of the quarter was dominated by growing concern over the
political fragility of Prime Minister John Major, with rising gilt yields
dragging down the market. Market unease has focused on the policies that any
successful contender would subsequently have to adopt to stand a chance of
uniting the Conservative party and of winning the next election. Major's recent
victory may not entirely dissipate such fears. In particular, there are
suspicions that the government may go soft on inflation, despite rhetoric to the
contrary. Value still remains scarce in current market conditions.
JAPAN
The Japanese stockmarket continued to weaken in the second quarter, with the
Morgan Stanley Capital International Japan Index declining by 8.3% in Japanese
yen and 6.3% in U.S. dollar terms. Though the end of this quarter did see an
eleventh hour resolution to the auto components dispute with the U.S., this has
not dispersed the deflationary pall enveloping the Japanese economy attributable
to the overvaluation of the yen skillfully engineered by the U.S. administration
in March. It has taken less than three months for the deflationary effects of
yen strength to begin to be reflected in economic activity with involuntary
inventory build ups becoming evident in June. Whatever government action is
taken to reflate the economy, it is unlikely to prevent a meaningful increase in
bankruptcies in the manufacturing sector as autumn approaches. The banking
system is in no condition to withstand this further assault on its
- - --------------------------------------------------------------------------------
International Equity Portfolio
41
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
OVERVIEW
- - --------------------------------------------------------------------------------
THE INTERNATIONAL EQUITY PORTFOLIO (CONT.)
weakened capital structure and the likelihood of a major bankruptcy is perhaps
greater than generally perceived. With this is mind, huge tracts of the Japanese
stockmarket appear overvalued and none more so than the banking sector which on
the simple yardstick of price to net interest income is selling at close to four
times the rating of its western counterparts when the latent argument has been
whittled away by a combination of a weak stockmarket and stock sales to offset
loan write offs. Having said that, Japan boasts a number of high quality,
soundly financed global and domestic franchises which will adapt to the strong
yen environment through the efficient application of strong cash flow. It is
encouraging to find companies such as Kao Corporation and Fuji Photo selling at
a discount to their international peer group when the bond rate hurdle for
equities is more than fifty per cent lower than elsewhere. Therefore the current
weakness of the Japanese stockmarket should be used to increase weightings in
these areas, while it should be noted that there is a marked absence of the all
important consensus required in Japan for its economic problems to be addressed.
If no plan is devised to reliquify the economy a shock from within the banking
system will force the hand of Japan's muddled authorities.
HONG KONG
During the second quarter the Morgan Stanley Capital International Hong Kong
Index appreciated 8.2% in U.S. dollar terms and 8.3% in Hong Kong Dollar terms.
The market benefited from clear evidence of a slowing U.S. economy as any
subsequent fall in U.S. interest rates is deemed to be positive for Hong Kong's
rate sensitive property sector. Hence it has been the property development and
banking sectors that have led the market with investment property stocks
remaining subdued by the negative development in retail and commercial rentals.
While the Hong Kong economy is continuing to thrive as an entrepot between China
and the Western World, consumption is being retarded by a combination of a
depressed residential property market and the erosion of real earnings by
continued high levels of inflation. We do not believe that Hong Kong is in a
position to lower interest rates significantly unless and until inflation falls
to more moderate levels. Therefore we do not share the markets optimistic view
of Hong Kong's residential property market. Current share price levels, in our
view, discount a moderate recovery in volume and values of residential sales
later this year which is unlikely to eventuate. Given the high gearing of
developers' earnings statements to two factors, profits are likely to disappoint
next calendar year. If this is correct, the value in the market resides in the
depressed property investment sector where a very substantial slowdown is
already discounted.
AUSTRALIA
During the second quarter the Morgan Stanley Capital International Australia
Index advanced 6.7% in Australian dollars and 3.1% in U.S. dollar terms, driven
by strong performance from News Corporation and the banking sector.
Currency weakness was a notable feature of the period under review as investors
took fright at a severe deterioration in Australia's structurally weak current
account. This in turn leaves the Central Bank little choice but to continue its
tight monetary policy, which has already slowed domestic economic activity. In
this environment it is not surprising that the industrial sector put in a
lackluster performance, while stagnation at high levels in the world's metal
markets has been reflected in a lackluster performance from the resource sector.
There is clear value in this market which is unlikely to be realized as long as
the macroeconomics environment remains so discouraging. However, any further
weakness should be used as a buying opportunity since Australia boasts business
franchises and operational management of the highest caliber at discount prices
on a global basis.
- - --------------------------------------------------------------------------------
International Equity Portfolio
42
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1995
- - --------------------------------------------------------------------------------
THE INTERNATIONAL EQUITY PORTFOLIO
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (86.6%)
AUSTRALIA (4.3%)
3,535,000 Brambles Industries Ltd........................... $ 33,507
4,380,000 CSR Ltd........................................... 13,694
+1,500,000 McPherson's Ltd................................... 128
3,934,882 Westpac Banking Corp.............................. 14,231
----------
61,560
----------
BELGIUM (1.3%)
+63,700 Arbed S.A......................................... 9,289
39,290 Delhaize Freres et Cie 'Le Lion', S.A............. 1,767
160,000 G.I.B. Holdings Ltd............................... 7,590
2,156 G.I.B. Holdings Ltd. (New)........................ 102
----------
18,748
----------
DENMARK (1.2%)
+80,000 Novo-Nordisk A/S-B................................ 8,530
169,000 Unidanmark A/S, Class A (Registered).............. 8,291
----------
16,821
----------
FINLAND (1.5%)
350,000 Huhtamaki Oy, Series 1............................ 11,463
+505,400 Kansallis-Osake Pankki............................ 550
650,000 Pohjola Insurance Co., Ltd., Class B.............. 10,188
----------
22,201
----------
FRANCE (5.5%)
12,500 Bongrain S.A...................................... 7,483
111,560 Cie de Saint Gobain............................... 13,477
+153,050 Credit Lyonnaise CDI.............................. 8,816
200,000 Elf Aquitaine..................................... 14,781
+50,500 PSA Peugeot Citrogen S.A.......................... 7,007
17,650 Salomon S.A., Series A............................ 7,987
+242,500 Thomson CSF....................................... 5,434
224,170 Total S.A., Class B............................... 13,494
----------
78,479
----------
GERMANY (10.6%)
110,000 BASF AG........................................... 23,463
105,000 Bayer AG.......................................... 26,076
60,250 Bremer Vulkan Verbund AG.......................... 3,505
46,200 Commerzbank AG.................................... 11,066
55,000 Karstadt AG....................................... 24,083
73,125 Mannesmann AG..................................... 22,324
+24,900 Varta AG.......................................... 4,732
75,000 Veba AG........................................... 29,427
25,000 Volkswagen AG..................................... 7,199
----------
151,875
----------
HONG KONG (0.0%)
**90,600 China Light & Power Co., Ltd...................... 410
----------
<CAPTION>
VALUE
SHARES (000)
------------------------------------------------------------
<C> <S> <C>
ITALY (3.2%)
+2,560,500 Olivetti Di Risp (NCS)............................ $ 1,760
2,568,000 SME Meridonale.................................... 6,406
9,000,000 Stet Di Risp (NCS)................................ 20,003
4,720,000 Telecom Italia S.p.A.............................. 12,799
2,655,000 Telecom Italia S.p.A. Di Risp (NCS)............... 5,617
----------
46,585
----------
JAPAN (20.3%)
643,000 Aisin Seiki Co., Ltd.............................. 7,338
890,000 Canon, Inc........................................ 14,479
1,300,000 Daibiru Corp...................................... 15,142
3,000 East Japan Railway Co............................. 15,385
1,800,000 Fuji Photo Film Ltd............................... 42,653
2,400,000 Hitachi Ltd....................................... 23,908
1,700,000 Kao Corp.......................................... 20,442
1,215,000 Kirin Brewery Co., Ltd............................ 12,891
1,700,000 Matsushita Electric Industries Ltd................ 26,455
81,000 Murata Manufacturing Co., Ltd..................... 3,065
2,400,000 Nichido Fire & Marine Insurance Co................ 19,381
1,800 Nippon Telegraph & Telephone Corp................. 15,066
350,000 Sony Corp......................................... 16,793
750,000 Stanley Electric Co............................... 4,721
2,215,000 Sumitomo Rubber Industries........................ 16,451
360,000 TDK Corp.......................................... 16,382
84,000 Tokuyama Corp..................................... 411
700,000 Toyo Seikan Kaisha................................ 20,466
----------
291,429
----------
NETHERLANDS (10.6%)
689,142 ABN Amro Holdings N.V............................. 26,598
112,500 Akzo Nobel N.V.................................... 13,447
81,059 Hollandsche Beton Groep N.V....................... 13,968
563,750 Internationale Nederlanden Groep N.V.............. 31,182
247,500 Koninklijke Bijenkorf Beheer N.V.................. 17,763
153,050 Nedlloyd Groep N.V................................ 5,216
56,436 Oce-Van Der Grinten N.V........................... 3,183
750,000 Philips Electronics N.V........................... 31,754
61,200 Randstad Holdings N.V............................. 4,329
39,415 Unilever N.V. (Certificate)....................... 5,128
----------
152,568
----------
NEW ZEALAND (0.4%)
2,098,671 Fisher & Paykel Industries Ltd.................... 6,169
392,500 Smith City Group Ltd.............................. --
----------
6,169
----------
NORWAY (1.5%)
2,400,000 Den Norske Bank A/S, Class A Free................. 6,500
622,660 Hafslund Nycomed, Class B......................... 14,390
----------
20,890
----------
</TABLE>
The accompanying notes are an integral part of the financial statements. (Pages
144-152)
- - --------------------------------------------------------------------------------
International Equity Portfolio
43
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1995
- - --------------------------------------------------------------------------------
THE INTERNATIONAL EQUITY PORTFOLIO (CONT.)
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
------------------------------------------------------------
<C> <S> <C>
SINGAPORE (2.5%)
9,875,000 Jardine Strategic Holdings, Inc................... $ 31,798
3,265,000 Neptune Orient Lines Ltd. (Foreign)............... 3,785
----------
35,583
----------
SPAIN (3.3%)
297,500 Grupo Duro Felguera S.A........................... 1,229
2,345,000 Iberdrola S.A..................................... 17,667
2,250,000 Telefonica Nacional de Espana S.A................. 28,996
----------
47,892
----------
SWEDEN (2.3%)
3,100,000 Skandinaviska Enskilda Banken, Class A............ 16,103
473,000 S.K.F. AB, Class B................................ 9,555
401,200 Svenska Cellulosa AB, Class B..................... 7,443
----------
33,101
----------
SWITZERLAND (7.3%)
29,583 Alusuisse-Lonza Holdings Ltd. (Registered)........ 18,549
+2,605 Ascom Holdings AG (Bearer)........................ 3,258
25,008 Ciba Geigy AG (Registered)........................ 18,330
16,000 Forbo Holdings AG (Registered).................... 7,809
17,600 Holderbank Financiere Glaris AG (Bearer).......... 14,444
22,000 Nestle S.A. (Registered).......................... 22,908
+29,500 SwissAir (Registered)............................. 20,418
----------
105,716
----------
UNITED KINGDOM (10.8%)
630,000 Associated British Foods plc...................... 6,655
+1,360,104 Automated Security Holdings plc................... 1,060
530,000 Barclays plc...................................... 5,695
1,194,500 Bass plc.......................................... 11,431
3,608,000 Christian Salvesen plc............................ 15,269
2,175,221 Forte plc......................................... 7,873
2,138,606 Grand Metropolitan plc............................ 13,117
4,841,985 John Mowlem & Co. plc............................. 5,393
1,100,000 Kwik Save Group plc............................... 11,358
843,000 McAlpine (Alfred) plc............................. 1,918
1,888,979 Pilkington plc.................................... 5,244
1,430,000 Reckitt & Colman plc.............................. 15,084
2,496,884 Rolls-Royce plc................................... 6,932
2,947,100 Royal Insurance Holdings plc...................... 14,489
1,310,441 Tate & Lyle plc................................... 8,861
755,000 Unilever plc...................................... 15,285
5,325,000 WPP Group plc..................................... 10,251
----------
155,915
----------
TOTAL COMMON STOCKS (Cost $1,001,378).......................... 1,245,942
----------
<CAPTION>
VALUE
SHARES (000)
------------------------------------------------------------
<C> <S> <C>
PREFERRED STOCKS (4.7%)
GERMANY (4.7%)
+30,450 Fag Kugelficsher AG............................... $ 3,938
100,000 RWE AG............................................ 27,494
29,525 Spar Handels AG................................... 7,680
125,000 Volkswagen AG..................................... 27,638
----------
TOTAL PREFERRED STOCKS (Cost $54,443).......................... 66,750
----------
CONVERTIBLE PREFERRED STOCKS (0.1%)
NETHERLANDS (0.0%)
1,506 ABN Amro Holdings N.V............................. 6
2,196 International Nederlanden Groep N.V............... 11
----------
17
----------
HONG KONG (0.1%)
1,863,000 Jardine Strategic Holdings, Inc. IDR, 7.50%,
5/07/97......................................... 2,031
----------
TOTAL CONVERTIBLE PREFERRED STOCKS (Cost $1,923)............... 2,048
----------
<CAPTION>
NO. OF
WARRANTS
- - -----------
<C> <S> <C>
WARRANTS (0.0%)
SWITZERLAND (0.0%)
+7,280 Forbo Holdings AG (Registered), expiring
11/01/95........................................ 13
+90,700 Holderbank Financiere Glaris AG, expiring
12/20/95........................................ 126
----------
TOTAL WARRANTS (Cost $0)....................................... 139
----------
TOTAL FOREIGN SECURITIES (91.4%) (Cost $1,057,744)............. 1,314,879
----------
<CAPTION>
FACE
AMOUNT
(000)
- - -----------
<C> <S> <C>
SHORT-TERM INVESTMENT (2.7%)
REPURCHASE AGREEMENT (2.7%)
$ 39,409 Goldman Sachs, 6.00%, dated 6/30/95, due 7/03/95,
to be repurchased at $39,429, collateralized by
$35,730 United States Treasury Note, 9.25%, due
8/15/98 valued at $40,240 (Cost $39,409)........ 39,409
----------
FOREIGN CURRENCY (6.7%)
A$ 1 Australian Dollar................................. 1
BF 1,072 Belgian Franc..................................... 38
L 7,926 British Pound..................................... 12,610
DM 73,549 Deutsche Mark..................................... 53,144
IL 1,168 Italian Lira...................................... 1
Y 2,502,488 Japanese Yen...................................... 29,502
NG 575 Netherlands Guilder............................... 371
SK 1,288 Swedish Krona..................................... 176
CHF 527 Swiss Franc....................................... 458
----------
TOTAL FOREIGN CURRENCY (Cost $95,049).......................... 96,301
----------
TOTAL INVESTMENTS (100.8%) (Cost $1,192,202)................... 1,450,589
----------
</TABLE>
The accompanying notes are an integral part of the financial statements. (Pages
144-152)
- - --------------------------------------------------------------------------------
International Equity Portfolio
44
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1995
- - --------------------------------------------------------------------------------
THE INTERNATIONAL EQUITY PORTFOLIO (CONT.)
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
(000)
<S> <C> <C>
------------------------------------------------------------
OTHER ASSETS (1.5%)
Receivable for Investments Sold................. $ 14,358
Dividends Receivable............................ 4,349
Foreign Withholding Tax Reclaim Receivable...... 1,986
Receivable for Portfolio Shares Sold............ 512
Interest Receivable............................. 7
Other........................................... 86 $ 21,298
-----------
LIABILITIES (-2.3%)
Net Unrealized Loss on Forward Foreign Currency
Contracts..................................... (24,888)
Payable for Investments Purchased............... (4,685)
Investment Advisory Fees Payable................ (2,662)
Payable for Portfolio Shares Redeemed........... (943)
Administrative Fees Payable..................... (181)
Custodian Fees Payable.......................... (120)
Payable to Custodian............................ (2)
Directors' Fees and Expenses Payable............ (1)
Other Liabilities............................... (102) (33,584)
----------- ----------
NET ASSETS (100%).............................................. $1,438,303
----------
----------
</TABLE>
<TABLE>
<C> <S> <C>
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER SHARE
Applicable to 94,285,439 outstanding $.001 par value shares
(authorized 500,000,000 shares).............................. $15.25
----------
----------
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACT INFORMATION:
Under the terms of forward foreign currency contracts open at June 30,
1995, the Portfolio is obligated to deliver or is to receive foreign
currency in exchange for US dollars or foreign currency as indicated
below:
</TABLE>
<TABLE>
<CAPTION>
NET
IN UNREALIZED
CURRENCY EXCHANGE GAIN
TO DELIVER VALUE SETTLEMENT FOR VALUE (LOSS)
(000) (000) DATE (000) (000) (000)
- - ------------------ -------- ----------- ------- -------- ---------
<S> <C> <C> <C> <C> <C>
FM 1,241 $ 290 7/03/95 DM 405 $ 292 $ 2
DM 40,000 28,957 8/09/95 $25,252 25,252 (3,705)
Y 6,115,000 73,026 9/27/95 $64,627 64,627 (8,399)
CHF 66,500 58,339 11/14/95 $52,749 52,749 (5,590)
FF 206,000 42,362 11/20/95 $38,741 38,741 (3,621)
SP 5,225,000 42,367 12/01/95 $42,195 42,195 (172)
DM 95,500 69,596 3/01/96 $66,193 66,193 (3,403)
-------- -------- ---------
$314,937 $290,049 ($24,888)
-------- -------- ---------
-------- -------- ---------
</TABLE>
- - ------------------------------------------------------------
<TABLE>
<S> <C> <C>
+ -- Non-income producing securities
** -- Security is valued at fair value - See Note A-1
IDR -- International Depositary Receipt
NCS -- Non Convertible Shares
DM -- Deutsche Mark
FM -- Finnish Markka
FF -- French Franc
Y -- Japanese Yen
SP -- Spanish Peseta
CHF -- Swiss Franc
</TABLE>
- - ------------------------------------------------------------
SUMMARY OF FOREIGN SECURITIES BY INDUSTRY CLASSIFICATION
<TABLE>
<CAPTION>
VALUE PERCENT
INDUSTRY (000) OF NET ASSETS
<S> <C> <C>
- - ---------------------------------------------------------------
Capital Equipment................. $ 262,045 18.2%
Consumer Goods.................... 324,607 22.6
Energy............................ 75,779 5.3
Finance........................... 203,463 14.1
Materials......................... 177,507 12.3
Multi-Industry.................... 55,627 3.9
Services.......................... 215,851 15.0
--------- ---
$1,314,879 91.4%
--------- ---
--------- ---
</TABLE>
The accompanying notes are an integral part of the financial statements. (Pages
144-152)
- - --------------------------------------------------------------------------------
International Equity Portfolio
45
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
OVERVIEW
- - --------------------------------------------------------------------------------
THE INTERNATIONAL SMALL CAP PORTFOLIO
COMPOSITION OF NET ASSETS (AT JUNE 30, 1995)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Australia 8.0%
Denmark 2.0
Finland 2.6
France 10.6
Germany 8.3
Hong Kong 1.7
Ireland 2.2
Italy 2.5
Japan 8.1
Netherlands 9.3
New Zealand 1.0
Norway 1.0
Spain 4.9
Switzerland 15.5
United Kingdom 16.5
Other 5.8
</TABLE>
PERFORMANCE COMPARED TO THE MORGAN STANLEY
CAPITAL INTERNATIONAL (MSCI) EAFE INDEX(1)
- - -----------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
-------------------------------------------
AVERAGE ANNUAL
YTD ONE YEAR SINCE INCEPTION
---------- ------------ -----------------
<S> <C> <C> <C>
PORTFOLIO................ 2.03% -5.23% 19.58%
INDEX.................... 2.60 1.65 16.16
<FN>
1. The MSCI EAFE Index is an unmanaged index of common stocks and includes
Europe, Australia and Far East Index (assumes dividends reinvested net of
withholding taxes).
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.
</TABLE>
THE COUNTRY SPECIFIC PERFORMANCE RESULTS PROVIDED ARE AS MEASURED BY THE MSCI
EAFE INDEX AND 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. PLEASE SEE THE PROSPECTUS FOR A DESCRIPTION OF CERTAIN
RISK CONSIDERATIONS ASSOCIATED WITH INTERNATIONAL INVESTING.
The International Small Cap Portfolio seeks long-term capital appreciation by
investing primarily in the common stocks of non-U.S. issuers. The Portfolio
applies a disciplined bottom-up value approach to identify and invest in small
capitalization companies which are both attractive businesses and available at
cheap prices. A market capitalization cut-off of US$500 million is used as our
definition of "small."
The total return of the Portfolio for the six month period ended June 30, 1995
was 2.03% as compared to 2.60% for the Morgan Stanley Capital International
(MSCI) EAFE Index for the same period. Total return for the twelve months ended
June 30, 1995 and the average annual total return for the period from inception
in December 1992 through June 30, 1995 were -5.23% and 19.58%, respectively,
compared to 1.65% and 16.16% for the MSCI EAFE Index for the same periods.
The relative performance of the Portfolio has been extremely volatile during the
last six months reflecting the large cap bias of the MSCI EAFE Index and the
broad divergence between small and large cap returns. During the first few
months of the year the Portfolio enjoyed strong outperformance reflecting the
general resilience of small cap prices in weak markets. The extreme turbulence
in the currency markets in March, however, dictated the direction of the markets
and small caps underperformed. Weak currency markets rallied but investors
favored more liquid issues/blue chips over small caps and together with the
negative impact of the Portfolio's Yen, Deutsche mark and Swiss Franc hedges led
to significant underperformance.
The rally in most markets in the early months of the second quarter was slow to
feed through to small caps but was clearly evident in the latter weeks. Japan
has remained the exception, however, with the market falling a further 8% in Yen
terms and Japanese smaller companies have continued to underperform. The
Portfolio's extreme underweighting in this market, together with its
overweighting in the strong Australian and Swiss markets, contributed to the
marked outperformance of the Portfolio in the second quarter. Good relative
stock selection in the Netherlands, New Zealand and Australia were also
features.
Looking forward we do not anticipate any major shift in the Portfolio's
geographic mix. This is purely a product of bottom-up stock selection and the
majority of new research ideas coming through in our value screens are still in
Continental Europe and Australia. Given the exceptionally weak relative
performance of Japanese small caps, however, some new, albeit
- - --------------------------------------------------------------------------------
International Small Cap Portfolio
46
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
OVERVIEW
- - --------------------------------------------------------------------------------
THE INTERNATIONAL SMALL CAP PORTFOLIO (CONT.)
patchy, value is emerging and may drive up the Portfolio's extremely low
weighting in that market. Our concerns over the general lack of quality among
smaller companies in Japan remains. Japanese small caps are typically more
domestically oriented than their larger cap counterparts, and have had the most
to gain both from Japan's historic protectionism and the patronage of the
Keiretsu system. Unfortunately, this leaves them most vulnerable to the gradual
liberalization of trade, i.e. increasing international competition, and the more
active restructuring by larger companies, their long-term customers. This is a
recipe for large scale bankruptcies among Japan's small manufacturing companies
with Yen strength the debilitating deflationary catalyst.
Since quarter end the Bank of Japan has cut short term rates and substantially
eased money supply; the subsequent weakness of the Yen clearly easing pressure
on corporate Japan. The long-term problems facing many smaller companies in
Japan, however, remain and we will continue to focus our research effort on
those Japanese small caps that are not only cheaply valued but have strong
business franchises and internationally competitive products.
Despite some renewed strength in international small caps in recent weeks, the
valuation gap between large and small cap companies remains compelling. A spate
of corporate activity in smaller companies is testament to the fact that many
high quality smaller companies are being too cheaply rated by the market. This
can only bode well for their long-term re-rating.
- - --------------------------------------------------------------------------------
International Small Cap Portfolio
47
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1995
- - --------------------------------------------------------------------------------
THE INTERNATIONAL SMALL CAP PORTFOLIO
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
------------------------------------------------------------
COMMON STOCKS (92.2%)
AUSTRALIA (8.0%)
63,410 Arnotts Ltd....................................... $ 374
1,000,000 Auspine Ltd....................................... 3,695
2,340,756 BRL Hardy Ltd..................................... 2,611
990,079 Bains Harding Ltd................................. 183
2,230,000 Burswood Property Trust........................... 2,314
2,351,732 Country Road Ltd.................................. 1,972
+3,099,000 McPhersons Ltd.................................... 264
5,342,529 Parbury Ltd....................................... 2,505
1,721,500 Solution 6 Holdings Ltd........................... 1,101
----------
15,019
----------
DENMARK (2.0%)
+107,000 SYD-Sonderjylland Holdings........................ 3,783
----------
FINLAND (2.6%)
115,000 Amer-Yhtymae Oy, Class A.......................... 2,090
180,000 Hartwall Oy, Class A.............................. 2,653
----------
4,743
----------
FRANCE (10.6%)
53,500 Dauphin O.T.A..................................... 2,658
5,400 De Dietrich et Compagnie.......................... 2,650
18,970 Europeene de Propulsion S.A....................... 1,243
8,100 Galeries Layfayette............................... 3,106
14,000 Omnium de Gestion & Finance....................... 2,508
24,500 Precision Mecaniques Labinal S.A.................. 4,318
88,996 Sediver S.A....................................... 3,302
----------
19,785
----------
GERMANY (6.5%)
14,000 Duerr Beteiligungs AG............................. 4,957
+10,688 Sinn AG........................................... 2,583
+20,000 Varta AG.......................................... 3,801
2,210 Vossloh AG........................................ 850
----------
12,191
----------
HONG KONG (1.7%)
5,200,000 Pico Far East Holdings Ltd........................ 538
2,040,000 Tungtex Holdings Co., Ltd......................... 382
5,800,000 Vitasoy International Holdings Ltd................ 2,305
----------
3,225
----------
IRELAND (2.2%)
1,070,000 Avonmore Foods plc, Class A....................... 2,347
687,000 Green Property plc................................ 1,800
----------
4,147
----------
ITALY (2.3%)
+718,000 Editoriale L'Expresso S.p.A....................... 1,540
621,600 Unicem Di Risp (NCS).............................. 1,788
75,000 Vincenzo Zucchi S.p.A............................. 367
212,500 Vincenzo Zucchi S.p.A. (NCS)...................... 520
----------
4,215
----------
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
------------------------------------------------------------
JAPAN (8.1%)
15,000 Daikin Manufacturing Ltd.......................... $ 226
231,000 Foster Electric Co., Ltd.......................... 1,076
707,000 Japan Oil Transportation.......................... 3,709
213,000 Japan Vilene Co., Ltd............................. 1,243
99,000 Kansei Corp....................................... 759
124,000 Nifco, Inc........................................ 1,550
415,000 Toc Co............................................ 3,767
+442,000 Tokai Senko K.K................................... 1,667
170,000 Toyoda Gosei Co................................... 1,223
----------
15,220
----------
NETHERLANDS (9.3%)
23,772 Ahrend Groep N.V.................................. 3,137
23,575 Hollandsche Beton Groep N.V....................... 4,062
28,885 Industriemij Welna N.V............................ 880
36,000 Konin Nijverdal -- Ten Carte N.V.................. 1,801
141,000 Koninklijke Van Ommeren N.V....................... 4,332
8,802 Polynorm N.V...................................... 958
30,000 Randstad Holdings N.V............................. 2,122
----------
17,292
----------
NEW ZEALAND (1.0%)
645,592 Fisher & Paykel Industries Ltd.................... 1,898
----------
NORWAY (1.0%)
11,500 Adelsten, Class B................................. 1,380
228,020 Oceanor........................................... 518
----------
1,898
----------
SPAIN (4.9%)
+334,000 Asturiana del Zinc S.A............................ 3,187
65,393 Bodegas y Bebidas S.A............................. 1,907
15,423 Bodegas y Bebidas S.A. (New)...................... 450
76,262 Gas y Electricidad S.A............................ 3,673
----------
9,217
----------
SWITZERLAND (15.5%)
3,960 Bobst AG (Bearer)................................. 6,018
8,400 Elco Looser Holding AG (Registered)............... 3,115
3,400 Hero AG (Bearer).................................. 1,860
995 Kuoni Reisen Holdings, Class B (Registered)....... 1,599
+1,650 LEM Holdings AG................................... 487
5,424 Magazine Globus (Participating Certificates)...... 3,816
5,850 Porst Holding AG (Bearer)......................... 1,219
590 Schweizerische Industrie-Gesellschaft Holdings
(Bearer)........................................ 1,378
4,400 Schweizerische Industrie-Gesellschaft Holdings
(Registered).................................... 4,968
+4,250 Von Moos Holding AG (Bearer)...................... 568
+4,600 Zellweger Uster AG (Bearer)....................... 3,955
----------
28,983
----------
</TABLE>
The accompanying notes are an integral part of the financial statements. (Pages
144-152)
- - --------------------------------------------------------------------------------
International Small Cap Portfolio
48
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1995
- - --------------------------------------------------------------------------------
THE INTERNATIONAL SMALL CAP PORTFOLIO (CONT.)
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
------------------------------------------------------------
<C> <S> <C>
UNITED KINGDOM (16.5%)
3,631,578 Anglo Irish Bank Corp. plc (British Pound
Shares)......................................... $ 3,120
559,500 Asprey plc........................................ 650
1,055,000 BSM Group plc..................................... 2,854
31,700 Bespak plc........................................ 141
+1,449,216 Blagden Industries plc............................ 3,020
369,500 Bluebird Toys plc................................. 1,258
3,790,000 Casket plc........................................ 663
214,300 Church & Co. plc.................................. 1,527
+3,045,850 Donelon Tyson plc................................. 363
952,000 GEI International plc............................. 1,742
212,000 Hadleigh Industries Group plc..................... 530
390,000 Hornby Group plc.................................. 856
210,000 International Business Communications (Holdings)
plc............................................. 942
877,294 John Mowlem & Co. plc............................. 977
206,335 Mallett plc....................................... 223
1,637,405 Matthews (Bernard) plc............................ 2,840
+**2,659,393 Pentos plc........................................ --
345,526 Perry Group plc................................... 830
1,600,000 Shandwick plc..................................... 980
691,000 Sketchley plc..................................... 1,242
1,600,000 The 600 Group plc................................. 2,393
345,000 Tibbett & Britten Group plc....................... 2,662
541,700 Waterman Partnership Holdings plc................. 422
+34,505,500 YRM plc........................................... 690
----------
30,925
----------
TOTAL COMMON STOCKS (Cost $174,506)............................. 172,541
----------
PREFERRED STOCKS (1.8%)
GERMANY (1.8%)
2,400 Jil Sander AG..................................... 1,673
7,745 Shaerf AG......................................... 1,707
----------
TOTAL PREFERRED STOCKS (Cost $3,316)............................ 3,380
----------
<CAPTION>
NO. OF
WARRANTS
- - ------------
<C> <S> <C>
WARRANTS (0.0%)
HONG KONG (0.0%)
+452,000 Pico Far East Holdings Ltd., expiring 4/30/96..... 3
----------
SWITZERLAND (0.0%)
+4,600 Zellweger Luwa AG, expiring 5/21/97............... 34
----------
TOTAL WARRANTS (Cost $0)........................................ 37
----------
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
<C> <S> <C>
------------------------------------------------------------
CONVERTIBLE DEBENTURES (0.2%)
ITALY (0.2%)
IL 518,000 Mediobanca S.p.A. 5.50%, 1/01/00 (Cost $328)...... $ 266
----------
TOTAL FOREIGN SECURITIES (94.2%) (Cost $178,150)................ 176,224
----------
SHORT-TERM INVESTMENT (3.2%)
REPURCHASE AGREEMENT (3.2%)
$ 5,984 U.S. Trust, 5.90%, dated 6/30/95, due 7/03/95, to
be repurchased at $5,987, collateralized by
$6,200 United States Treasury Bills, due
7/27/95, valued at $6,176 (Cost $5,984)......... 5,984
----------
FOREIGN CURRENCY (3.8%)
L 1,010 British Pound..................................... 1,607
DM 4,444 Deutsche Mark..................................... 3,211
HK$ 378 Hong Kong Dollar.................................. 49
IL 74 Italian Lira...................................... --
Y 189,293 Japanese Yen...................................... 2,231
NG 20 Netherlands Guilder............................... 13
SP 1 Spanish Peseta.................................... --
----------
TOTAL FOREIGN CURRENCY (Cost $7,114)............................ 7,111
----------
TOTAL INVESTMENTS (101.2%) (Cost $191,248)...................... 189,319
----------
</TABLE>
<TABLE>
<S> <C> <C>
OTHER ASSETS (0.8%)
Cash............................................ $ 71
Dividends Receivable............................ 447
Receivable for Investments Sold................. 417
Foreign Withholding Tax Reclaim Receivable...... 366
Receivable for Portfolio Shares Sold............ 129
Interest Receivable............................. 8
Other........................................... 8 1,446
------------
LIABILITIES (-2.0%)
Net Unrealized Loss on Forward Foreign Currency
Contracts..................................... (2,374)
Payable for Investments Purchased............... (858)
Investment Advisory Fees Payable................ (383)
Payable for Portfolio Shares Redeemed........... (45)
Custodian Fees Payable.......................... (27)
Administrative Fees Payable..................... (23)
Directors' Fees and Expenses Payable............ (1)
Other Liabilities............................... (36) (3,747)
------------ ----------
NET ASSETS (100%)............................................... $ 187,018
----------
----------
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER SHARE
Applicable to 12,116,594 outstanding $.001 par value shares
(authorized 500,000,000 shares)............................... $15.43
----------
----------
</TABLE>
The accompanying notes are an integral part of the financial statements. (Pages
144-152)
- - --------------------------------------------------------------------------------
International Small Cap Portfolio
49
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1995
- - --------------------------------------------------------------------------------
THE INTERNATIONAL SMALL CAP PORTFOLIO (CONT.)
- - --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACT INFORMATION:
Under the terms of forward foreign currency contracts open at June 30,
1995, the Portfolio is obligated to deliver foreign currency in exchange
for US dollars as indicated below:
</TABLE>
<TABLE>
<CAPTION>
IN NET
CURRENCY EXCHANGE UNREALIZED
TO DELIVER VALUE SETTLEMENT FOR VALUE (LOSS)
(000) (000) DATE (000) (000) (000)
- - ----------- --------- ---------- ----------- --------- -------------
<S> <C> <C> <C> <C> <C>
HK$ 377 $ 49 7/03/95 $ 49 $ 49 $ --
Y 725,000 8,658 9/27/95 $ 7,662 7,662 (996)
Y 100,000 1,194 9/27/95 $ 1,057 1,057 (137)
DM 10,300 7,507 3/04/96 $ 7,099 7,099 (408)
SP 675,000 5,412 3/04/96 $ 5,107 5,107 (305)
CHF 8,750 7,732 3/04/96 $ 7,204 7,204 (528)
--------- --------- -------------
$ 30,552 $ 28,178 $ (2,374)
--------- --------- -------------
--------- --------- -------------
</TABLE>
- - ------------------------------------------------------------
<TABLE>
<S> <C> <C>
+ -- Non-income producing securities
** -- Security is valued at fair value -- See Note A-1
NCS -- Non Convertible Shares
DM -- Deutsche Mark
HK$ -- Hong Kong Dollar
Y -- Japanese Yen
SP -- Spanish Peseta
CHF -- Swiss Franc
</TABLE>
- - ------------------------------------------------------------
SUMMARY OF FOREIGN SECURITIES BY INDUSTRY CLASSIFICATION
<TABLE>
<CAPTION>
VALUE PERCENT OF
INDUSTRY (000) NET ASSETS
<S> <C> <C>
- - ----------------------------------------------------------------
Capital Equipment..................... $ 44,305 23.7%
Consumer Goods........................ 38,094 20.4
Energy................................ 6,860 3.6
Finance............................... 14,231 7.6
Materials............................. 23,866 12.8
Multi-Industry........................ 3,928 2.1
Services.............................. 44,940 24.0
--------- ---
$ 176,224 94.2%
--------- ---
--------- ---
</TABLE>
The accompanying notes are an integral part of the financial statements. (Pages
144-152)
- - --------------------------------------------------------------------------------
International Small Cap Portfolio
50
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
OVERVIEW
- - --------------------------------------------------------------------------------
THE JAPANESE EQUITY PORTFOLIO
COMPOSITION OF NET ASSETS (AT JUNE 30, 1995)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Capital Equipment 27.2%
Consumer Goods 11.3
Electrical &
Electronics 19.5
Finance 6.9
Materials 10.0
Multi-Industry .1.9
Services 8.8
Other 14.4
</TABLE>
PERFORMANCE COMPARED TO THE MORGAN STANLEY
CAPITAL INTERNATIONAL (MSCI) JAPAN INDEX(1)
- - -----------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
----------------------------------------
AVERAGE ANNUAL
YTD ONE YEAR SINCE INCEPTION
---------- ----------- ---------------
<S> <C> <C> <C>
PORTFOLIO............. -16.68% -21.33% -15.56%
INDEX................. -8.32 -14.35 -5.21
<FN>
1. The MSCI Japan Index is an unmanaged index of common stocks (assumes
dividends reinvested).
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.
</TABLE>
THE COUNTRY SPECIFIC PERFORMANCE RESULTS PROVIDED ARE AS MEASURED BY THE MSCI
JAPAN INDEX AND 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. PLEASE SEE THE PROSPECTUS FOR A DESCRIPTION OF CERTAIN
RISK CONSIDERATIONS ASSOCIATED WITH INTERNATIONAL INVESTING.
The investment objective of the Japanese Equity Portfolio is to seek long-term
capital appreciation by investing primarily in equity securities of Japanese
issuers. Equity securities are defined as common and preferred stocks, debt
securities convertible into common stock and common stock purchase warrants.
The total return of the Portfolio for the six month period ended June 30, 1995
was -16.68% as compared to -8.32% for the Morgan Stanley Capital International
(MSCI) Japan Index for the same period. The total return for the twelve months
ended June 30, 1995 and the average annual total return for the period from
inception in April 1994 through June 30, 1995 was -21.33% and -15.56%,
respectively, as compared to -14.35% and -5.21% for the MSCI Japan Index for the
same periods.
On May 14th the official discount rate in Japan was cut by 75 basis points (to
1%) and the Japanese government suggested issuing deficit bonds and proposed to
resolve Japanese banks' non-performing loans within 5 years. The equity market
responded well in June to these economic stimulus packages after the severe
sell-off following the Hanshin Earthquake, rise in yen and Barings scandal of
the first quarter as well as public confirmation of change in Japan with the
election of Mr. Aoshima (Tokyo) and Mr. Yokoyama (Osaka) as governors. However,
equities continued their decline thereafter.
A major culprit to this decline in the market was the relentless strength of the
yen, reaching an all-time high of 79.75 on April 19, undermining Japan's
economic recovery. Moreover, the stalled U.S./Japan auto talks which began on
May 4 coupled with the gas on Japan's subway system caused significant
deterioration of consumer confidence, and resulted in market sentiment becoming
more negative. In addition, Japanese life companies massive selling of equities
coupled with business corporations' cancellation of cross-holdings led to
sharply lower levels in the market not seen since August 1992.
However, despite these circumstances, a stability in the yen/dollar exchange
began to emerge starting with the coordinated intervention by the U.S. and Japan
as well as 12 other countries on May 31. Of significance, in our opinion, is the
fact that this intervention occurred in the last day of trading for the month,
typically when traders are not permitted to take large positions. This is
evidence of the government's true intentions. The G-7 apparently wishes Japan to
accelerate economic recovery, currently the weakest among these nations, as well
as, for political reasons, a stronger dollar into the presidential elections
next
- - --------------------------------------------------------------------------------
Japanese Equity Portfolio
51
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
OVERVIEW
- - --------------------------------------------------------------------------------
THE JAPANESE EQUITY PORTFOLIO (CONT.)
year in the U.S. During the mid-June Halifax G-7 Summit meeting we believe there
was an even stronger suggestion by G-7 for Japan to address it's weak economy
and therefore a weaker yen policy, much like a reversal of the Plaza accord of
1985, may have taken effect.
Thus, as a result of the weaker yen both blue chips and dollar sensitive
equities conformed to this trend by staging a dramatic rally during the last
several weeks of June. The Portfolio has been significantly overweight in these
areas and has benefited from this weighting. However, the domestic sensitive
stocks such as the machinery stocks and the chemical stocks didn't contribute to
the performance in this period. And the currency hedge adversely affected
performance due to the strength of yen.
The currency levels, Upper House elections on July 23 and the special Diet
session thereafter will likely have the most impact on the equity market during
the 3rd quarter. As for the currency, we believe we will see continued
confirmation that a secular peak may have been reached for the yen. In fact, the
25 basis point Fed funds rate cut by the Fed on July 7, and the subsequent
intervention by the Bank of Japan and Fed seem to already confirm our
assumptions. As Japan continues to address domestic structural reforms (as
evidenced by the outcome of the bi-lateral auto talks) the yen should continue
its decline and the economy should show signs of improvement.
For the above mentioned reasons, international blue chips and high tech Japanese
equities should continue to outperform the indices. It is very apparent that,
both in absolute terms and relative to international standards, these issues
offer compelling value. As the economy begins to show signs of improvement the
Portfolio's holdings representing these sectors will benefit. It should be noted
that structural selling of equities will also likely continue, while some
improvement from additional economic stimulus packages may modestly impact most
of the equity markets. However, it is also true that Japan holds several
promising technologies such as PHS, multimedia and PC's, all entering a period
of "blossom", in our opinion. In conclusion we expect a two-tier market where
quality and value will be rewarded and less promising and overvalued issues will
suffer.
- - --------------------------------------------------------------------------------
Japanese Equity Portfolio
52
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1995
- - --------------------------------------------------------------------------------
THE JAPANESE EQUITY PORTFOLIO
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- - ------------------------------------------------------------
COMMON STOCKS (85.6%)
CAPITAL EQUIPMENT (27.2%)
40,000 Amada Co., Ltd.................................... $ 342
35,000 Daifuku........................................... 392
40,000 Daikin Industries Ltd............................. 322
30,000 Dai Nippon Printing Co., Ltd...................... 477
26,000 Fuji Machine Manufacturing Co..................... 794
35,000 Kyudenko Co., Ltd................................. 487
60,000 Matsui Construction............................... 526
70,000 Mitsubishi Heavy Industries Ltd................... 475
24,000 Nifco, Inc........................................ 300
35,000 Ricoh Co., Ltd.................................... 300
80,000 Taisei Corp., Ltd................................. 473
86,000 Teijin Seiki Co., Ltd............................. 385
30,000 Toshiba Engineering & Construction................ 246
85,000 Tsubakimoto Chain................................. 399
----------
5,918
----------
CONSUMER GOODS (11.3%)
50,000 Japan Vilene Co., Ltd............................. 292
9,000 Nintendo Corp., Ltd............................... 517
75,000 Nissan Motor Co................................... 479
11,500 Sankyo Co., Ltd................................... 267
50,000 Suzuki Motor Co., Ltd............................. 557
15,000 Yamanouchi Pharmaceutical Co...................... 338
----------
2,450
----------
ELECTRICAL & ELECTRONICS (19.5%)
20,000 CMK............................................... 259
60,000 Hitachi Ltd....................................... 598
40,000 Matsushita Electric Industries Ltd................ 622
23,000 Mitsumi Electric Co., Ltd......................... 396
56,000 NEC Corp.......................................... 613
8,000 Sony Corp......................................... 384
40,000 Stanley Electric Co............................... 252
12,000 TDK Corp.......................................... 546
90,000 Toshiba Corp...................................... 570
----------
4,240
----------
FINANCE (6.9%)
20,000 Daiwa Securities Co., Ltd......................... 211
41,000 Keihanshin Real Estate............................ 275
30,000 Mitsubishi Estate Co., Ltd........................ 338
35,000 Nichido Fire & Marine Insurance................... 283
10,000 Nomura Securities Co.............................. 174
43,000 Sumitomo Corp. Leasing Ltd........................ 227
----------
1,508
----------
MATERIALS (10.0%)
53,000 Asahi Tec Corp.................................... 362
61,000 Kaneka Corp....................................... 392
48,000 Kansei Corp....................................... 368
58,000 Nippon Konpo Unyu Soko............................ 530
52,000 Okura Industrial Co., Ltd......................... 338
25,000 Sanwa Shutter..................................... 188
----------
2,178
----------
MULTI-INDUSTRY (1.9%)
8,400 FamilyMart........................................ 421
----------
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- - ------------------------------------------------------------
SERVICES (8.8%)
50,000 Inabata & Co...................................... $ 296
32,000 Nishio Rent All Co................................ 698
20,000 Sangetsu Co., Ltd................................. 531
6,000 Secom Co., Ltd.................................... 377
----------
1,902
----------
TOTAL COMMON STOCKS (Cost $20,927)............................ 18,617
----------
<CAPTION>
FACE
AMOUNT
(000)
- - ----------
<C> <S> <C>
SHORT-TERM INVESTMENT (13.6%)
REPURCHASE AGREEMENT (13.6%)
$ 2,949 U.S. Trust, 5.90%, dated 6/30/95, due 7/03/95, to
be repurchased at $2,950, collateralized by
$2,970 United States Treasury Bills, due
7/20/95-7/27/95, valued at $2,961 (Cost
$2,949)......................................... 2,949
------
FOREIGN CURRENCY (0.0%)
Y 1 Japanese Yen (Cost $0)............................ --
----------
TOTAL INVESTMENTS (99.2%) (Cost $23,876)...................... 21,566
----------
OTHER ASSETS (4.7%)
Cash............................................ $ 642
Receivable for Portfolio Shares Sold............ 235
Dividends Receivable............................ 154
Other........................................... 3 1,034
----------
LIABILITIES (-3.9%)
Payable for Investments Purchased............... (496)
Net Unrealized Loss on Forward Foreign Currency (285)
Contracts......................................
Investment Advisory Fees Payable................ (31)
Custodian Fees Payable.......................... (8)
Administrative Fees Payable..................... (3)
Directors' Fees and Expenses Payable............ (1)
Other Liabilities............................... (30) (854)
---------- ----------
NET ASSETS (100%)............................................. $ 21,746
----------
----------
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER SHARE
Applicable to 2,655,494 outstanding $.001 par value shares
(authorized 500,000,000 shares)............................. $8.19
----------
----------
</TABLE>
- - ------------------------------------------------------------
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACT INFORMATION:
Under the terms of forward foreign currency contracts open at June 30, 1995,
the Portfolio is obligated to deliver or is to receive foreign currency in
exchange for US dollars as indicated below:
<TABLE>
<CAPTION>
IN NET
CURRENCY EXCHANGE UNREALIZED
TO DELIVER VALUE SETTLEMENT FOR VALUE LOSS
(000) (000) DATE (000) (000) (000)
- - ----------- --------- ----------- ---------- --------- -------------
<S> <C> <C> <C> <C> <C>
$ 2,791 $ 2,791 11/22/95 Y 230,000 $ 2,768 $ (23)
Y 980,000 11,793 11/22/95 $ 11,531 11,531 (262)
--------- --------- -----
$ 14,584 $ 14,299 $ (285)
--------- --------- -----
--------- --------- -----
</TABLE>
- - ------------------------------------------------------------
Y -- Japanese Yen
The accompanying notes are an integral part of the financial statements. (Pages
144-152)
- - --------------------------------------------------------------------------------
Japanese Equity Portfolio
53
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
OVERVIEW
- - --------------------------------------------------------------------------------
THE LATIN AMERICAN PORTFOLIO
COMPOSITION OF NET ASSETS (AT JUNE 30, 1995)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Argentina 8.6%
Brazil 50.7
Chile 2.7
Colombia 2.3
Mexico 26.5
Peru 2.5
Other 6.7
</TABLE>
PERFORMANCE COMPARED TO MORGAN STANLEY
CAPITAL INTERNATIONAL (MSCI) LATIN
AMERICA GLOBAL INDEX(1)
- - -------------------------------------
<TABLE>
<CAPTION>
TOTAL
RETURN(2)
--------------
YTD
--------------
<S> <C>
PORTFOLIO.................................... -12.00%
INDEX........................................ -8.00
<FN>
1. The MSCI Latin America Global Index is a broad based market cap weighted
composite index covering at least 60% of markets in Mexico, Argentina,
Brazil, Chile, Colombia, Peru and Venezuela (assume dividends reinvested).
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.
</TABLE>
THE COUNTRY SPECIFIC 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.
PLEASE SEE THE PROSPECTUS FOR A DESCRIPTION OF CERTAIN RISK CONSIDERATIONS
ASSOCIATED WITH INTERNATIONAL INVESTING.
The investment objective of the Latin American Portfolio is long-term capital
appreciation through investment, primarily in equity securities of Latin
American issuers. The Portfolio may also invest in debt securities issued or
guaranteed by a Latin American government or governmental entity.
For the period from inception on January 18, 1995 through June 30, 1995 the
total return of the Portfolio was -12.00% compared with -8.00% for the Morgan
Stanley Capital International (MSCI) Latin America Global Index for the same
period.
Latin American markets rallied strongly off their lows of the first quarter of
calendar 1995 as the Mexican currency and economy stabilized in response to
international support efforts and domestic austerity measures. As economic
uncertainty was reduced, investors began to focus on low valuations that had
taken many stocks in the region back to pre-1993 levels.
Although the Portfolio was market-weighted in Mexico during the period, it
underperformed due to its underweight position in Chile, which rallied more
strongly than the MSCI Index, and its overweighting of Brazil, which also rose,
but less than the MSCI Index.
Over the second quarter, the MSCI Index for Brazil increased 16.5% bringing its
performance for the first half of 1995 to a net decrease of -21.0%. In addition
to the reversal of negative sentiment toward Latin America, the Brazilian market
was bolstered by investors' positive response to continuing economic reform
including the announcement of the intention to privatize Eletrobras, the state
electric utility.
Progress was made on various economic reforms sent to congress by the Cardoso
administration. Five "economic order" constitutional reform measures --
centering on liberalizing the telecommunications, petroleum, mining, electric
utility, and shipping sectors -- were approved in the lower body of congress and
are presently being debated in the upper house of congress.
An area of concern for the market remains the trade balance and the exchange
rate. Since implementation of the reforms, Brazil has experienced significant
appreciation of the real and deterioration of the trade accounts; in the
aftermath of the Mexican crisis, this is seen by both the government and market
participants as creating a significant risk to the economic program. Despite a
nominal devaluation of approximately 8% since the beginning of the year, the
real remains overvalued; consequently, there is pressure on the government to
allow further devaluation.
- - --------------------------------------------------------------------------------
Latin American Portfolio
54
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
OVERVIEW
- - --------------------------------------------------------------------------------
THE LATIN AMERICAN PORTFOLIO (CONT.)
However, the risk in devaluing the currency is that it may lead to upward
pressure on inflation. As inflation control forms the foundation of economic
reform, a shock devaluation could hamper the administration's capacity to
implement additional fiscal reforms necessary for long-term growth.
While inflation has remained in check throughout the recent quarter, averaging
roughly 2.5% per month, the government is currently managing a balancing act
between containing inflation and improving its trade accounts. Monetary policy
has been the primary instrument through which this balance has been achieved
and, to a secondary extent, trade policy through the imposition of temporary
import tariffs on selected products. As a result, domestic real interest rates
have averaged over 20% annually thus far for 1995, and we began to see this
finally dampen domestic consumption in May, especially in the consumer durables
sector.
While this slowdown from the unsustainably brisk pace is a positive, the playing
out of this balancing act -- between the trade account, the foreign exchange
rate, domestic interest rates, and inflation -- will determine both the success
of the economic program and the performance of the market for the rest of this
calendar year.
We expect to see positive news coming out on selected privatizations (e.g. two
state electricity distribution companies and various government-held
petrochemical companies), as well as on de-indexation efforts by the government
as a means to eradicate the vestiges of "structural inflation" from the economy.
In view of the above outlook, we are positioned with large weightings in the
electric utility, banking, and beverage sectors.
We remain very upbeat about the potential for the market over the rest of the
calendar year, and feel that the sectors we are heavily weighted in represent
extraordinary value relative to their growth potential.
As usual with Brazil, however, the timetable for said privatization and
regulatory framework remains the primary risk in the market.
The Mexican stock market rebounded strongly in the second quarter of calendar
1995 with an increase of 28.5% bringing the net decline for the first six months
of calendar 1995 to -24.6%, as measured by the MSCI Index. The Bolsa's rally was
driven by a reversal of investor sentiment as the economy stabilized and the
peso strengthened in response to the U.S. support package and the Mexican
government's economic austerity program. The market was further helped by first
quarter earnings reports that showed stronger than expected operating results
for most companies.
The Zedillo administration's orthodox program of tight fiscal and monetary
policy proved effective at reversing the trade accounts from deficit to surplus
and at keeping the inflationary bubble, sparked by the devaluation, from
spiraling out of control. Mexico's first quarter turnaround in the trade balance
accelerated as the trade surplus reached US$866 million in May, bringing the
cumulative five-month surplus for 1995 to US$2.2 billion versus a deficit of
US$7.2 billion over the same period in 1994. The monthly rate of inflation
peaked at 8% for April and declined to 3% in June and is expected to decrease
gradually to 2% by December.
The peso rose 8% from its first quarter level as foreign capital inflows
resumed; however, the peso is down 31% on a year-to-date basis. The peso
stabilized as the U.S. funding allowed it to manage through the potential
liquidity crisis from maturing short-term dollar denominated debt. Through the
end of June, due to the success of the stabilization effort, Mexico had drawn
down substantially less funding than originally committed from the U.S. Treasury
Emergency Stabilization Fund (approximately $12.5 billion out of $20 billion)
and had rebuilt international reserves to $10.8 billion. While measures by
Senate Banking Committee Chairman Alfonse D'Amato to suspend further
disbursements to Mexico are likely to receive publicity over the near term, we
expect such efforts are unlikely to succeed and could lead to sentiment-driven
selling.
On the political front, President Zedillo enhanced his ability to govern by
replacing an idealistic minister of the interior with an experienced trouble
shooter. This new minister's responsibilities include negotiating with the
Chiapas rebels with whom his predecessor made little progress. The risk of
social unrest in response to economic austerity remains high; however, recent
cooperation between President Zedillo and his political adversaries limit the
potential for wide-scale escalation of political shocks.
Over the first half of calendar 1995, the Portfolio increased its weighting in
Mexico given valuations in light of our positive outlook on the prospects for a
quick recovery of the economy. We overweighted the early cyclical sectors --
banks, cements and construction -- on the basis of extremely depressed asset
valuations for selected stocks. While GDP growth has not yet hit bottom, we
expect that as inflation remains
- - --------------------------------------------------------------------------------
Latin American Portfolio
55
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
OVERVIEW
- - --------------------------------------------------------------------------------
THE LATIN AMERICAN PORTFOLIO (CONT.)
under control, interest rates continue their downward path, and foreign capital
inflows gradually resume, the economy will recover.
At current levels the Mexican market has retraced much of the oversold
condition, but remains undervalued relative to the prospective growth rate of
earnings over the next five years. We expect sentiment-driven volatility to
present opportunities for the Portfolio to selectively increase its Mexican
holdings over the next six months in anticipation of renewed GDP growth by the
fourth quarter of calendar 1995 or the first quarter of calendar 1996.
Argentina lagged the region in the second quarter, as the MSCI Index for
Argentina gained 4.2%. President Menem was re-elected by a wide margin in May,
setting the stage for four additional years of a stable political arena and
economic reform. The province of Cordoba was temporarily unable to pay its
government employees due to fiscal imbalances, placing additional pressure on
the federal government's finances. We expect the economy to slow down in the
second and third quarters of calendar 1995, particularly the consumer durables
and even semi-durables sector. As a result, although we maintain our positive
medium and long-term outlook on the country's economic prospects, we have a
defensive posture in the market.
Chile posted a strong second quarter, advancing 23.2% according to the MSCI
Index for Chile and 14.6% for the six months ended June 30. The economy
continues to enjoy a boom in global demand for its three principal exports --
copper, wood pulp and fishmeal -- as well as from a decline in inflation and
domestic interest rates. We expect continued strong economic growth for the rest
of the year. However, we continue to view the market's lofty valuation as a
measure that these positives are fully discounted and, thus, remain highly
selective with our stock positions in the market.
Colombia rose 3.0% for the quarter ended June 30, and -7.4% for the six months
then ended. In spite of Colombia's solid fundamentals, the market is fully
valued; thus, the Portfolio is unlikely to increase exposure.
Peru paced the region for the second quarter, as the MSCI Index for Peru posted
a 42.1% increase. The market was buoyed by an overwhelming re-election victory
by President Fujimori in April, as well as by continued strong economic growth
which is bolstering corporate earnings. We have a favorable view on the market
but, owing to a relative lack of liquidity, are selectively positioned in core
blue-chip companies which possess superior earnings growth prospects.
Venezuela continued to scrape bottom with a decline of -1.5% in the second
quarter leaving it at a -13.0% for the six month period. While valuations based
on stated financial information appear low, our negative outlook for political
and macroeconomics fundamentals will keep us out of Venezuela.
Although Latin America has had a strong rebound from its first quarter of 1995
sell-off, given Brazil's and Mexico's compelling valuations together with the
expected resolution of political and economic uncertainties, we believe the
Portfolio is well-positioned for good performance in the next six months.
- - --------------------------------------------------------------------------------
Latin American Portfolio
56
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1995
- - --------------------------------------------------------------------------------
THE LATIN AMERICAN PORTFOLIO
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- - ------------------------------------------------------------
COMMON STOCKS (59.3%)
ARGENTINA (8.6%)
2,150 Banco del Sud Argentina, Class B.................. $ 13
+133,372 Banco del Suquia, Class B......................... 193
+3,500 Buenos Aires Embotelladora ADR.................... 88
32,970 Capex S.A. ADR.................................... 507
25,000 CIADEA (Renault) S.A.............................. 121
14,424 Quilmes Industrial S.A............................ 281
----------
1,203
----------
BRAZIL (19.0%)
22,850,000 Cia Acos Especiais Itabira........................ 148
1,584 Cia Energetica de Minas Gerias ADR................ 31
7,422 Cia Energetica de Minas Gerias GDR................ 145
3,637,000 Cia Energetica de Sao Paulo....................... 119
1,446,000 Cia Paulista de Forca E Luz....................... 72
9,580,000 Cia Siderurgica Nacional.......................... 219
1,440,000 Eletrobras........................................ 375
+30,700 Eletrobras ADR.................................... 415
20,000 Rhodia-Ster GDR................................... 280
375,000 Servicos de Eletricdade........................... 118
11,400 Telebras ADR...................................... 376
1,604,500 Telecomunicacoes de Sao Paulo..................... 204
13,420 Usiminas Siderurgicas de Minas Gerias ADR......... 149
----------
2,651
----------
CHILE (2.7%)
9,310 Empresa Nacional de Electricidad S.A. ADR......... 247
6,350 Maderas y Sinteticos S.A. ADR..................... 119
----------
366
----------
MEXICO (26.5%)
10,950 ALFA S.A. de C.V., Class A........................ 133
+72,000 Apasco S.A........................................ 286
198,880 Banacci, Class B.................................. 305
34,829 Banacci, Class L.................................. 53
38,970 Cemex CPO ADR..................................... 265
17,060 Empresas ICA S.A. ADR............................. 175
186,000 FEMSA, Class B.................................... 434
+5,000 Grupo Carso S.A. ADR.............................. 55
67,970 Grupo Financiero Bancomer ADR..................... 408
+33,831 Grupo Financiero Bancomer, Class L................ 9
91,500 Grupo Financiero Banorte, Class C................. 119
+11,770 Grupo Mexicano Desarrollo ADR, Class B............ 46
+47,750 Grupo Sidek S.A., Class B......................... 43
6,450 Grupo Simec S.A. ADR, Class B..................... 64
+1,350 Grupo Tribasa S.A. ADR............................ 11
15,800 Hylsamex S.A. ADR................................. 288
9,615 Panamerican Beverages, Inc., Class A.............. 288
10,620 Telefonos de Mexico S.A. ADR, Class L............. 313
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- - ------------------------------------------------------------
102,400 Tolmex S.A., Class B2............................. $ 400
----------
3,695
----------
PERU (2.5%)
44,200 Banco de Credito del Peru......................... 77
158,600 Telefonica del Peru S.A., Class B................. 271
----------
348
----------
TOTAL COMMON STOCKS (Cost $8,044)............................. 8,263
----------
PREFERRED STOCKS (31.7%)
BRAZIL (31.7%)
61,870,000 Banco Bradesco.................................... 524
14,770,000 Banco do Brasil................................... 177
4,820,000 Banco do Estado Sao Paulo......................... 27
3,550,000 Banco Nacional S.A................................ 69
1,158,173 Brahma............................................ 380
360,000 Brasmotor......................................... 67
+230,000 Centrais Eletricas de Santa Catarina, Class B..... 186
1,540,000 Cia Energetica de Sao Paulo....................... 61
6,600 Cia Energetica de Sao Paulo ADR................... 75
5,760,000 Cia Paulista de Forca E Luz....................... 189
4,000,000 Continental 2001.................................. 87
550,000 Coteminas......................................... 173
169,000 Dixie Laleka S.A.................................. 132
583,000 Eletrobras........................................ 155
1,590,400 Itaubanco......................................... 484
8,650,000 Lojas Renner...................................... 147
99,000 Multibras S.A..................................... 82
4,550,000 Petrobras......................................... 386
58,300,000 Refrigeracao Parana............................... 113
6,232,000 Telebras.......................................... 205
3,149,000 Telecomunicacoes de Sao Paulo..................... 390
1,142,000 Vale Do Rio Doce.................................. 173
320,000 WEG S.A........................................... 146
----------
TOTAL PREFERRED STOCKS (Cost $4,560).......................... 4,428
----------
<CAPTION>
FACE
AMOUNT
(000)
- - ----------
<C> <S> <C>
CONVERTIBLE DEBENTURES (2.3%)
COLOMBIA (2.3%)
$ 430 Banco de Colombia 5.20%, 2/01/99
(Cost $389)..................................... 327
----------
<CAPTION>
NO. OF
RIGHTS
- - ----------
<C> <S> <C>
RIGHTS (0.0%)
BRAZIL (0.0%)
+**1,117,250 Banco Bradesco (Cost $0).......................... 1
----------
TOTAL FOREIGN SECURITIES (93.3%) (Cost $12,993)............... 13,019
----------
</TABLE>
The accompanying notes are an integral part of the financial statements. (Pages
144-152)
- - --------------------------------------------------------------------------------
Latin American Portfolio
57
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1995
- - --------------------------------------------------------------------------------
THE LATIN AMERICAN PORTFOLIO (CONT.)
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
<C> <S> <C>
- - ------------------------------------------------------------
SHORT-TERM INVESTMENT (4.4%)
REPURCHASE AGREEMENT (4.4%)
$ 613 U.S. Trust, 5.90%, dated 6/30/95,
due 7/03/95, to be repurchased at
$613, collateralized by $645
United States Treasury Bills, due
7/27/95, valued at $642 (Cost
$613)............................. $ 613
---------
FOREIGN CURRENCY (2.3%)
APS 33 Argentine Peso...................... 33
BLR 62 Brazilian Real...................... 67
MP 1,400 Mexican New Peso.................... 224
PS 3 Peruvian Sol........................ 1
---------
TOTAL FOREIGN CURRENCY (Cost $327)................. 325
---------
TOTAL INVESTMENTS (100%) (Cost $13,933)............ 13,957
---------
</TABLE>
<TABLE>
<S> <C> <C>
OTHER ASSETS (4.1%)
Cash................................... $ 1
Receivable for Portfolio Shares Sold... 355
Receivable for Investments Sold........ 161
Dividends Receivable................... 18
Interest Receivable.................... 10
Expense Reimbursement Receivable....... 23 568
---------
LIABILITIES (-4.1%)
Payable for Investments Purchased...... (510)
Custodian Fees Payable................. (22)
Administrative Fees Payable............ (2)
Sub-Administrative Fees Payable........ (2)
Directors' Fees and Expenses Payable... (2)
Other Liabilities...................... (34) (572)
--------- ---------
NET ASSETS (100%)................................... $ 13,953
---------
---------
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER SHARE
Applicable to 1,586,250 outstanding $.001 par
value shares (authorized 500,000,000 shares)...... $8.80
---------
---------
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACT
INFORMATION:
Under the terms of forward foreign currency contracts open at
June 30, 1995, the Portfolio is obligated to deliver US
dollars in exchange for foreign currency as indicated below:
</TABLE>
<TABLE>
<CAPTION>
IN
CURRENCY EXCHANGE UNREALIZED
TO DELIVER SETTLEMENT FOR LOSS
(000) VALUE (000) DATE (000) VALUE (000) (000)
- - ---------- ----- ---------- ----------- ----- -------------
<S> <C> <C> <C> <C> <C>
$ 8 $ 8 7/03/95 BLR 7 $ 8 --
-- --
-- --
-----
-----
</TABLE>
- - ------------------------------------------------------------
+ -- Non-income producing securities
** -- Security is valued at fair value -- See Note A-1
ADR -- American Depositary Receipt
GDR -- Global Depositary Receipt
BLR -- Brazilian Real
- - ------------------------------------------------------------
SUMMARY OF FOREIGN SECURITIES BY INDUSTRY CLASSIFICATION
<TABLE>
<CAPTION>
VALUE PERCENT OF
INDUSTRY (000) NET ASSETS
<S> <C> <C>
- - -----------------------------------------------------------------
Capital Equipment...................... $ 558 4.0%
Consumer Goods......................... 2,339 16.8
Energy................................. 3,227 23.1
Finance................................ 2,668 19.1
Materials.............................. 2,564 18.4
Multi-Industry......................... 175 1.2
Services............................... 1,488 10.7
--------- ---
$ 13,019 93.3%
--------- ---
--------- ---
</TABLE>
The accompanying notes are an integral part of the financial statements. (Pages
144-152)
- - --------------------------------------------------------------------------------
Latin American Portfolio
58
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
OVERVIEW
- - --------------------------------------------------------------------------------
THE AGGRESSIVE EQUITY PORTFOLIO
COMPOSITION OF NET ASSETS (AT JUNE 30, 1995)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Capital Goods 14.3%
Consumer-Cyclical 9.2
Consumer-Staples 32.7
Energy 0.5
Finance 23.6
Materials 2.9
Technology 8.6
Other 8.2
</TABLE>
PERFORMANCE COMPARED TO THE LIPPER CAPITAL
APPRECIATION INDEX AND THE S&P 500 INDEX(1)
- - ----------------------------------------
<TABLE>
<CAPTION>
TOTAL
RETURN(2)
-----------
YTD
-----------
<S> <C>
PORTFOLIO......................................... 18.33%
LIPPER CAPITAL APPRECIATION INDEX................. 12.57
S&P 500 INDEX..................................... 13.75
<FN>
1. The Lipper Capital Appreciation Index is a composite of mutual funds managed
for maximum capital gains. The S&P 500 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.
</TABLE>
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.
The Aggressive Equity Portfolio commenced operations on March 8, 1995. The
Portfolio seeks long-term capital appreciation through a concentrated, non-
diversified portfolio of U.S. stocks. Short sales and options can be used to
enhance performance. It is anticipated that the Portfolio will hold thirty names
or less, although it may hold more from time to time.
From inception on March 8, 1995 through June 30, 1995, the total return for the
Portfolio was 18.33%, as compared to 12.57% for the Lipper Capital Appreciation
Index and 13.75% for the S&P 500 Index for the same period.
Although the Portfolio will generally hold 30 securities or less, at June 30
there were 35 stock positions. Still, concentration was quite high, with 20
positions representing 82% of the invested Portfolio and one position (Philip
Morris) representing 21%. At June 30, there were no shorts and three option
positions -- covered calls sold against a portion of our Coca Cola and McDonnell
Douglas holdings, and puts bought on approximately half of our Philip Morris
position.
The Portfolio is constructed using a bottom-up, growth-oriented investment
approach. We seek stocks that fall into one of three categories: high quality,
sustainable growth; higher beta growth where the potential exists for positive
surprise vis-a-vis consensus expectations; and stocks of companies showing solid
earnings growth fundamentals but where investor concerns are currently high.
Philip Morris is one of seven consumer staple stocks held at June 30, with the
other major holdings including Coca Cola, Kellogg and American Home Products.
Consumer staples as a group represented 33% of the net assets. Other important
sector weightings include financials (24%), defense and defense-based
conglomerates (14%), technology (9%) and retail growth (5%).
The strong relative performance of the Portfolio was achieved despite an
underweighting in technology, by far the strongest market segment this year. At
March 31, the Portfolio's technology exposure was only 11%. We tend to approach
technology stocks cautiously due to the much higher than average event risk.
However, there are obviously very powerful secular trends driving growth of the
better positioned technology companies. And this comes at a time when some
traditional high-growth sectors -- including retailing and health care services
- - -- are experiencing downward pressure on margins and growth rates. With this in
mind, we increased our technology weighting
- - --------------------------------------------------------------------------------
Aggressive Equity Portfolio
59
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
OVERVIEW
- - --------------------------------------------------------------------------------
THE AGGRESSIVE EQUITY PORTFOLIO (CONT.)
during the past few months, although the Portfolio is still modestly underweight
the S&P 500 at 9% versus 11% for the Index.
Despite the fact that Philip Morris stock is up this year, we believe the stock
is significantly undervalued. Growth fundamentals are very strong and consensus
estimates have been rising for six quarters. At the same time, new management is
returning more cash to the shareholder than ever before. In the 1980s, Philip
Morris stock rose six-fold despite the fact that the company spent $19 billion
on food companies at very dilutive prices. This diversification strategy failed
- - -- it diluted earnings while failing to raise either the growth rate or the P/E
multiple. New management has increased the dividend payout, initiated an
aggressive share repurchase program, and is divesting low-return food assets.
Yet our sense is that institutional investors have been slow to recognize the
comeback this global consumer packaged goods powerhouse has made. Many have
sworn off tobacco investing due to the "Marlboro Friday" pricing problem of 1993
and the continued negative media attention. But the combination of growth and
value will eventually win them back, in our view. Looking at 1995 projections,
Philip Morris' P/E is 11.5, compared to 27 at Coca Cola. The projected 5-year
growth rates are 15%+ and 18-20%, respectively. Philip Morris' dividend is
currently $3.30, implying a yield of 4.4%. We expect the dividend to rise to
$4.00 this August, $4.60 in August 1996 and $5.30 in August 1997. Even at a 5%
yield, the stock would be $106 in just over two years, for a return of 43%, plus
dividends. But if the stock trades to yield 4% (or roughly a 15 P/E), it would
rise to $133 over the same period.
Exel and Ace Ltd. are excess liability insurers that together represented 6.9%
of the Portfolio net assets at June 30. Both stocks trade below 10 times
earnings yet are showing very significant EPS growth. Investor concerns include
large liability claims and poor pricing. Exel is massively overcapitalized and
new management is buying back stock aggressively. Ace is also repurchasing
shares, though not as aggressively, and is seeing solid business growth.
American Express, Fannie Mae, Freddie Mac, Ahmanson and Citicorp are the other
important financial holdings in the Portfolio. All five have low P/Es and are
seeing double-digit EPS growth. Three are buying back stock and one (Ahmanson)
is likely to announce a 10% buyback within a few months.
McDonnell Douglas, Lockheed Martin and United Technologies together represent
approximately 13% of the Portfolio. Although it has an aerospace segment (Pratt
engines), United Technologies is really a multinational growth cyclical, with a
handful of strong franchises. EPS should grow over 20% this year, about 18% next
year and 15%+ in 1997, yet the stock trades at only about 14x this year's
earnings. McDonnell and Lockheed Martin are both major beneficiaries of the
consolidation of the U.S. defense industry. Margin improvement, surplus cash
flow generation and restructuring are driving double-digit EPS growth and
generating positive surprise.
IBM is the Portfolio's largest technology holding and is the fifth largest
holding overall. While the stock has more than doubled from its 1993 low, it
remains very inexpensive and we see multiple triggers for further stock price
appreciation. EPS estimates have moved up for 4-5 quarters in a row, and are now
about $11 and $12.75 for 1995 and 1996. At $103, it obviously reflects little
enthusiasm on the part of investors. Worries persist over top-line growth, yet
profit margins are soaring, surplus cash flow generation is huge and the balance
sheet is massively underleveraged. IBM is still buying back stock aggressively
at current prices. When the stock peaked at $175 in 1987, the
P/E was over 16 times. The recent acquisition of Lotus will work to strengthen
IBM's strategic position, and if investors ever start to believe in the
company's ability to grow its top line, the P/E will rise. In the meantime,
estimates could still rise.
We are agnostic on the market at this juncture. Valuations in general are no
longer as compelling but midway through the second quarter reporting cycle
earnings look pretty good, and low inflation, moderate growth and low rates
provide a favorable backdrop for the market.
- - --------------------------------------------------------------------------------
Aggressive Equity Portfolio
60
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1995
- - --------------------------------------------------------------------------------
THE AGGRESSIVE EQUITY PORTFOLIO
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- - ------------------------------------------------------------
<C> <S> <C>
COMMON STOCK (91.8%)
CAPITAL GOODS/CONSTRUCTION (14.3%)
AEROSPACE & DEFENSE (14.3%)
+7,200 Litton Industries, Inc............................ $ 266
15,800 Lockheed Martin Corp.............................. 997
9,200 McDonnell Douglas Corp............................ 706
8,200 United Technologies Corp.......................... 641
----------
TOTAL CAPITAL GOODS/CONSTRUCTION............................ 2,610
----------
CONSUMER CYCLICAL (9.2%)
FOOD SERVICE & LODGING (1.7%)
8,900 Hospitality Franchise Systems, Inc................ 308
----------
LEISURE RELATED (1.4%)
4,300 Eastman Kodak Co.................................. 261
----------
PUBLISHING (1.6%)
5,300 Gannett Co., Inc.................................. 288
----------
RETAIL-GENERAL (4.5%)
+6,500 AutoZone, Inc..................................... 163
+12,300 General Nutrition Cos., Inc....................... 432
5,500 Home Depot, Inc................................... 223
----------
818
----------
TOTAL CONSUMER-CYCLICAL..................................... 1,675
----------
CONSUMER STAPLES (32.7%)
BEVERAGES & TOBACCO (24.8%)
8,400 Coca Cola Co...................................... 536
4,200 PepsiCo, Inc...................................... 192
51,000 Philip Morris Cos., Inc........................... 3,793
----------
4,521
----------
FOOD (2.1%)
5,400 Kellogg Co........................................ 385
----------
HEALTH CARE SUPPLIES & SERVICES (5.8%)
5,200 American Home Products Corp....................... 402
6,300 Columbia/HCA Healthcare Corp...................... 272
9,400 United Healthcare Corp............................ 389
----------
1,063
----------
TOTAL CONSUMER STAPLES...................................... 5,969
----------
ENERGY (0.5%)
COAL, GAS, & OIL (0.5%)
3,900 Occidental Petroleum Corp......................... 89
----------
FINANCE (23.6%)
BANKING (5.2%)
13,900 Ahmanson (H.F.) & Co.............................. 306
9,900 Citicorp.......................................... 573
300 Wells Fargo & Co.................................. 54
----------
933
----------
<CAPTION>
VALUE
SHARES (000)
- - ------------------------------------------------------------
<C> <S> <C>
FINANCIAL SERVICES (10.8%)
16,700 American Express Co............................... $ 586
7,600 Federal Home Loan Mortgage Corp................... 522
5,000 Federal National Mortgage Association............. 472
8,800 Franklin Resources, Inc........................... 392
----------
1,972
----------
INSURANCE (7.6%)
15,400 Ace, Ltd.......................................... 447
15,500 Exel Ltd.......................................... 806
5,400 PartnerRe Holdings, Ltd........................... 141
----------
1,394
----------
TOTAL FINANCE............................................... 4,299
----------
MATERIALS (2.9%)
FOREST PRODUCTS & PAPER (2.9%)
6,700 Champion International Corp....................... 349
+8,400 Stone Container Corp.............................. 179
----------
TOTAL MATERIALS............................................. 528
----------
TECHNOLOGY (8.6%)
COMPUTERS (5.3%)
7,300 International Business Machines Corp.............. 701
+3,000 Microsoft, Inc.................................... 271
----------
972
----------
ELECTRONICS (3.3%)
+2,000 Applied Material, Inc............................. 173
3,000 Intel Corp........................................ 190
1,800 Texas Instruments, Inc............................ 241
----------
604
----------
TOTAL TECHNOLOGY............................................ 1,576
----------
TOTAL COMMON STOCK (Cost $15,576)............................. 16,746
----------
PURCHASED PUT OPTION (0.0%)
CONSUMER STAPLES (0.0%)
BEVERAGES & TOBACCO (0.0%)
+20,000 Philip Morris Cos., Inc., expiring 7/22/95, strike
price $70 (Cost $8)............................. 4
----------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT
(000)
- - ----------
<C> <S> <C>
SHORT-TERM INVESTMENTS (6.2%)
US GOVERNMENT OBLIGATION (2.7%)
$500 U.S. Treasury Bill, 8/17/95....................... 497
----------
REPURCHASE AGREEMENT (3.5%)
642 U.S. Trust, 5.90%, dated 6/30/95, due 7/03/95, to
be repurchased at $642, collateralized by $675
United States Treasury Bills, due 7/27/95,
valued at $672.................................. 642
----------
TOTAL SHORT-TERM INVESTMENTS (Cost $1,138).................... 1,139
----------
TOTAL INVESTMENTS (98.0%) (Cost $16,722)...................... 17,889
----------
</TABLE>
The accompanying notes are an integral part of the financial statements. (Pages
144-152)
- - --------------------------------------------------------------------------------
Aggressive Equity Portfolio
61
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1995
- - --------------------------------------------------------------------------------
THE AGGRESSIVE EQUITY PORTFOLIO (CONT.)
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
(000)
<S> <C> <C>
- - ------------------------------------------------------------
OTHER ASSETS (5.2%)
Receivable for Investments Sold................. $ 829
Receivable for Portfolio Shares Sold............ 63
Dividends Receivable............................ 37
Expense Reimbursement Receivable................ 17 $ 946
-----
LIABILITIES (-3.2%)
Payable for Investments Purchased............... (531)
Written Options Outstanding, at Value (premiums
received $9)................................... (22)
Custodian Fees Payable.......................... (2)
Administrative Fees Payable..................... (2)
Directors' Fees and Expenses Payable............ (1)
Other Liabilities............................... (22) (580)
----- ----------
NET ASSETS (100%)............................................. $ 18,255
----------
----------
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER SHARE
Applicable to 1,546,129 outstanding $.001 par value shares
(authorized 500,000,000 shares)............................. $11.81
----------
----------
</TABLE>
<TABLE>
<S> <C> <C>
OPEN WRITTEN COVERED CALL OPTIONS:
Open written covered call options at June 30, 1995 were:
</TABLE>
<TABLE>
<CAPTION>
NO. OF EXERCISE EXPIRATION VALUE
DESCRIPTION CONTRACTS PRICE DATE (000)
- - ------------------------- --------------- ----------- ----------- -----
<S> <C> <C> <C> <C>
McDonnell Douglas Corp... 40 $ 125 7/31/95 $ 12
Coca Cola Co............. 52 88 8/30/95 10
---
(Premiums $9)....................................................... $ 22
---
---
</TABLE>
- - ------------------------------------------------
<TABLE>
<S> <C> <C>
+ -- Non-income producing securities
</TABLE>
The accompanying notes are an integral part of the financial statements. (Pages
144-152)
- - --------------------------------------------------------------------------------
Aggressive Equity Portfolio
62
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
OVERVIEW
- - --------------------------------------------------------------------------------
THE EMERGING GROWTH PORTFOLIO
COMPOSITION OF NET ASSETS (AT JUNE 30, 1995)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Capital Goods 2.2%
Consumer-Cyclical 19.5
Consumer-Staples 23.6
Energy 5.3
Finance 2.2
Materials 7.7
Technology 32.2
Other 7.3
</TABLE>
PERFORMANCE COMPARED TO THE NASDAQ
COMPOSITE INDEX(1)
- - -----------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
------------------------------------------------------------
AVERAGE ANNUAL AVERAGE ANNUAL
YTD ONE YEAR FIVE YEARS SINCE INCEPTION
--------- ----------- ----------------- -----------------
<S> <C> <C> <C> <C>
PORTFOLIO... 13.15% 28.18% 9.24% 11.36%
INDEX....... 24.14 32.22 15.26 13.50
<FN>
1. The NASDAQ Composite Index an unmanaged index of common stocks.
2. Total returns for the Portfolio reflect expenses waived or reimbursed, if
applicable, by the Adviser. Without such waiver and reimbursement, total
returns would be lower.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
</TABLE>
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.
The Emerging Growth Portfolio invests primarily in growth-oriented common stocks
of small-to-medium sized domestic corporations and, to a limited extent, foreign
corporations. Such companies generally have gross revenues ranging from $10
million to $750 million.
The total return of the Portfolio for the six month period ended June 30, 1995
was 13.15%, as compared to 24.14% for the NASDAQ Composite Index for the same
period. Total returns for the twelve months ended June 30, 1995 and the average
annual total return for the five-year period ended June 30, 1995 and for the
period from inception in November 1989 through June 30, 1995 were 28.18%, 9.24%
and 11.36%, respectively, compared to 32.22%, 15.26% and 13.50% for the NASDAQ
Composite Index for the same periods.
The 13.15% gain in the Emerging Growth Portfolio in the first half of 1995
extended the uptrend that began a year earlier. For the twelve months ended June
30, 1995 the Portfolio's total return was 28.18%. For the same one year period,
the S&P 500 increased 26.0%, the NASDAQ Composite gained 32.2%, and the Russell
2000 Small Capitalization Index rose 18.0%.
All U.S. market indexes have increased sharply so far in 1995, but the NASDAQ
Composite has led the pack with a +24.1% gain in the first half of this year.
The NASDAQ market has been quite successful in retaining companies that have
grown large, such as Microsoft, Intel, Oracle, Cisco Systems and Apple Computer.
These successful multi-billion dollar companies have not migrated to the New
York Stock Exchange and their huge stock price gains this year have helped
propel the gains in the capitalization - weighted NASDAQ Index. At the end of
1994, there were 4,902 companies traded in the NASDAQ system with a market value
of $786 billion. However, Microsoft and Intel together accounted for 8% of the
NASDAQ market value at the end of 1994 and 10% by June 30, 1995. The ten biggest
companies on NASDAQ were 17% of the Index at the end of 1994 and 21% by June 30,
1995. With a heavy concentration of large technology companies, the NASDAQ has
been the best performing major stock market in the world in the first half of
1995.
In the Emerging Growth Portfolio, typically 80% - 90% of the stocks held are
traded in the NASDAQ market. However, the focus of the Emerging Growth Portfolio
is on small-to-medium-size companies so none of the 30 largest companies in
NASDAQ are held by the Portfolio. While the Portfolio did not benefit from the
appreciation of the large NASDAQ
- - --------------------------------------------------------------------------------
Emerging Growth Portfolio
63
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
OVERVIEW
- - --------------------------------------------------------------------------------
THE EMERGING GROWTH PORTFOLIO (CONT.)
technology stocks, technology was nonetheless the heaviest weighted industry
sector in the Portfolio at 32% of net assets on June 30, 1995. The technology
stocks in the Portfolio gained 34% in the first half of 1995 and fully
participated in this high performing area. The best performing technology stocks
in the Portfolio in the first six months of the year were Electroglas +70.8%,
Xilinx +59.5%, and Informix +58.0%.
The leadership groups in any stock market cycle usually have strong support from
the underlying business fundamentals and the current technology leadership is no
exception. Capital spending on technology is increasing rapidly because
productivity gains are finally being realized from the investments. Personal
computers are invading homes in record numbers and electronic functions are
penetrating numerous areas of consumer goods and telecommunications, as well as
industrial applications. Demand trends remain very strong with record orders
flowing into the leading companies in the semiconductor, semiconductor capital
equipment, networking/communications, client/server computing and software
industries. With economies worldwide on a moderate expansion course, demand
patterns are expected to stay favorable well into 1996.
The technology sector, however, has been so strong that some stock market
excesses are beginning to appear. Initial public offerings of embryonic
technology companies are wildly oversubscribed and jumping sharply in price on
the first day of trading. Some speculative small technology companies such as
Cascade Communications, Premisys and UUNET are trading at 30 times reported
revenues -- not earnings. Specialized technology mutual funds are seeing
enormous net inflows of money. As a long-term strategy, we believe a 30%
weighting in technology is appropriate for the Emerging Growth Portfolio. The
enormous growth opportunities in technology warrant a meaningful exposure, but
the developing short-term excesses also argue for increased stock selectivity
and the avoidance of any higher technology weighting in the Portfolio at the
present time.
The market's focus on technology in the first half of the year was so intense
that other sectors got left behind on a relative basis, particularly in the June
quarter. The specialty retailing and health care sectors showed disappointing
single digit returns in the first half of 1995. These two sectors were
particularly weak in the month of April but have since been recovering. The
business and financial services area recorded double digit returns approximately
keeping up with the small cap market averages.
While the story of the first half of the year was how much exposure to
technology did an investor have, we believe the second half of the year will be
somewhat different. First, we continue to believe that the overall environment
for emerging growth stocks is favorable and that 1995/1996 will be a period of
strong absolute gains and relative outperformance. The relative earning gains of
small growth companies are very positive and valuations are still a long way
from the peak levels reached at market tops in the past. For example, the
relative P/E of the Portfolio is only 1.35 times that of the S&P 500, still
below the 2.0X level that has usually signaled a major top. We also believe
small capitalization stocks will do better relative to large capitalization
issues during the next 18 months. Second, the technology sector should continue
to offer some opportunities, but we anticipate a broadening of performance to
other sectors that have been lagging such as consumer stocks, health care, and
service based companies. We expect the two-thirds of the Portfolio that is not
in technology to make more of a contribution to overall performance in the
second half of the year than it did in the first six months of 1995.
At the end of June, the Portfolio was diversified in 65 stocks with a cash
reserve of 7.3% of net assets. The market value of the net assets of the
Portfolio was $143.6 million. The ten largest holdings in the Portfolio
comprised 25.5% of the net assets.
TEN LARGEST HOLDINGS
<TABLE>
<CAPTION>
PERCENT OF
COMPANY NET ASSETS
- - ------------------------------------------------- -------------
<S> <C>
Linear Technology................................ 3.2%
Informix......................................... 3.2
Xilinx........................................... 3.1
CUC International................................ 2.8
Maxim Integrated Products........................ 2.5
First Financial Management....................... 2.4
SunGard Data Systems............................. 2.3
Viking Office Products........................... 2.1
Progress Software................................ 2.0
Health Management Systems........................ 1.9
---
25.5%
---
---
</TABLE>
- - --------------------------------------------------------------------------------
Emerging Growth Portfolio
64
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1995
- - --------------------------------------------------------------------------------
THE EMERGING GROWTH PORTFOLIO
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
------------------------------------------------------------
COMMON STOCKS (92.7%)
CAPITAL GOODS/CONSTRUCTION (2.2%)
ELECTRICAL EQUIPMENT (1.5%)
60,000 Molex, Inc., Class A.............................. $ 2,190
----------
ENVIRONMENTAL CONTROLS (0.7%)
+50,000 Western Waste Industries.......................... 1,006
----------
TOTAL CAPITAL GOODS/CONSTRUCTION............................ 3,196
----------
CONSUMER-CYCLICAL (19.5%)
AUTOMOTIVE (0.9%)
46,100 Pep Boys-Manny, Moe & Jack........................ 1,233
----------
FOOD SERVICE & LODGING (6.8%)
+80,000 Cheesecake Factory, Inc........................... 2,060
100,000 Cracker Barrel Old Country Store, Inc............. 2,062
60,000 Hospitality Franchise Systems, Inc................ 2,078
+90,000 ShoLodge, Inc..................................... 1,339
+85,000 Sonic Corp........................................ 2,295
----------
9,834
----------
PRINTING & PUBLISHING (2.4%)
50,000 Lee Enterprises, Inc.............................. 1,906
+29,700 Scholastic Corp................................... 1,611
----------
3,517
----------
RETAIL-GENERAL (9.4%)
+100,000 Bed, Bath & Beyond, Inc........................... 2,425
+110,000 Central Tractor Farm & Country, Inc............... 1,182
+70,000 General Nutrition Cos., Inc....................... 2,459
75,000 Heilig Meyers Co.................................. 1,913
+30,000 Kohl's Corp....................................... 1,369
+80,000 Lechters, Inc..................................... 1,240
+50,000 OfficeMax, Inc.................................... 1,394
+44,000 Sunglass Hut International, Inc................... 1,529
----------
13,511
----------
TOTAL CONSUMER-CYCLICAL..................................... 28,095
----------
CONSUMER-STAPLES (23.6%)
DRUGS (5.2%)
60,000 Forest Laboratories, Inc.......................... 2,662
50,000 Genzyme Corp. -- General Division................. 1,988
+80,000 Immucor, Inc...................................... 740
+50,000 Scherer (R.P.) Corp............................... 2,113
----------
7,503
----------
HEALTH CARE SUPPLIES & SERVICES (18.4%)
60,000 Arrow International, Inc.......................... 2,490
55,000 Ballard Medical Products.......................... 715
+120,000 Biomet, Inc....................................... 1,845
+60,000 CRA Managed Care, Inc............................. 1,350
+100,000 Haemonetics Corp.................................. 1,925
+6,300 Health Management, Inc............................ 68
+97,500 Health Management Systems, Inc.................... 2,779
+60,000 Healthsource, Inc................................. 2,100
+130,000 HEALTHSOUTH Rehabilitation Corp................... 2,259
+65,000 IDEXX Laboratories, Inc........................... 1,690
+100,000 Mariner Health Group, Inc......................... 1,125
+110,200 Quantum Health Resources, Inc..................... 1,804
+75,000 Research Industries Corp.......................... 1,725
+75,000 Vencor, Inc....................................... 2,362
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
------------------------------------------------------------
+80,000 Vivra, Inc........................................ $ 2,170
----------
26,407
----------
TOTAL CONSUMER-STAPLES...................................... 33,910
----------
FINANCE (5.3%)
FINANCIAL SERVICES (2.9%)
100,000 Cash America International, Inc................... 737
40,000 First Financial Management Corp................... 3,420
----------
4,157
----------
INSURANCE (2.4%)
55,000 Mutual Risk Management Ltd........................ 1,843
50,000 NAC Re Corp....................................... 1,556
----------
3,399
----------
TOTAL FINANCE............................................... 7,556
----------
MATERIALS (2.2%)
MISCELLANEOUS MATERIALS & COMMODITIES (2.2%)
+85,000 Viking Office Products, Inc....................... 3,103
----------
SERVICES (7.7%)
PROFESSIONAL SERVICES (7.7%)
75,000 Cintas Corp....................................... 2,663
+95,000 CUC International, Inc............................ 3,990
115,000 G & K Services, Inc., Class A..................... 2,243
55,000 Premier Industrial Corp........................... 1,299
+46,800 Vallen Corp....................................... 807
----------
TOTAL SERVICES.............................................. 11,002
----------
TECHNOLOGY (32.2%)
ELECTRONICS (14.1%)
+35,000 Electroglas, Inc.................................. 2,004
+60,000 Fusion Systems Corp............................... 2,055
+75,000 Level One Communications, Inc..................... 1,612
70,000 Linear Technology, Inc............................ 4,585
+70,000 Maxim Integrated Products, Inc.................... 3,552
55,000 Sensormatic Electronics........................... 1,953
+47,400 Xilinx, Inc....................................... 4,444
----------
20,205
----------
OFFICE EQUIPMENT (17.2%)
25,000 Adobe Systems, Inc................................ 1,450
+85,000 BISYS Group, Inc.................................. 1,891
+90,000 Compuware Corp.................................... 2,767
+100,000 Concord EFS Corp.................................. 2,625
+70,000 EMC Corp.......................................... 1,697
+180,000 Informix Corp..................................... 4,568
+40,000 Microchip Technology, Inc......................... 1,455
+55,000 Progress Software Corp............................ 2,846
+58,000 SPS Transaction Services, Inc..................... 2,008
+65,000 SunGard Data Systems, Inc......................... 3,396
----------
24,703
----------
TELECOMMUNICATIONS (0.9%)
+50,000 Mobile Telecommunications Technologies Corp....... 1,363
----------
TOTAL TECHNOLOGY............................................ 46,271
----------
TOTAL COMMON STOCKS (Cost $94,460)............................ 133,133
----------
</TABLE>
The accompanying notes are an integral part of the financial statements. (Pages
144 - 152)
- - --------------------------------------------------------------------------------
Emerging Growth Portfolio
65
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1995
- - --------------------------------------------------------------------------------
THE EMERGING GROWTH PORTFOLIO (CONT.)
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
------------------------------------------------------------
<C> <S> <C>
SHORT-TERM INVESTMENT (7.3%)
REPURCHASE AGREEMENT (7.3%)
$ 10,504 Goldman Sachs, 6.00%, dated 6/30/95, due 7/03/95,
to be repurchased at $10,509, collateralized by
$7,820 United States Treasury Notes, 11.875%,
due 11/15/03, valued at $10,744 (Cost
$10,504)........................................ $ 10,504
----------
TOTAL INVESTMENTS (100.0%) (Cost $104,964).................... 143,637
----------
</TABLE>
<TABLE>
<S> <C> <C>
OTHER ASSETS (0.8%)
Receivable for Investments Sold................. $ 1,134
Dividends Receivable............................ 22
Interest Receivable............................. 2
Other........................................... 7 1,165
----------
LIABILITIES (-0.8%)
Payable for Portfolio Shares Redeemed........... (775)
Investment Advisory Fees Payable................ (309)
Payable for Investments Purchased............... (78)
Administrative Fees Payable..................... (18)
Custodian Fees Payable.......................... (5)
Directors' Fees and Expenses Payable............ (1)
Other Liabilities............................... (30) (1,216)
---------- ----------
NET ASSETS (100%)............................................. $ 143,586
----------
----------
</TABLE>
<TABLE>
<C> <S> <C>
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER SHARE
Applicable to 7,870,255 outstanding $.001 par value shares
(authorized 500,000,000 shares)............................. $18.24
----------
----------
</TABLE>
- - ------------------------------------------------------------
<TABLE>
<S> <C> <C>
+ -- Non-income producing securities
</TABLE>
The accompanying notes are an integral part of the financial statements. (Pages
144 - 152)
- - --------------------------------------------------------------------------------
Emerging Growth Portfolio
66
<PAGE>
[LOGO]
Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
OVERVIEW
- - --------------------------------------------------------------------------------
THE EQUITY GROWTH PORTFOLIO
COMPOSITION OF NET ASSETS (AT JUNE 30, 1995)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Capital Goods/Construction 12.0%
ConsumerCyclical 16.5%
ConsumerStaples 20.6%
Diversified 1.0%
Energy 2.7%
Finance 18.6%
Materials 4.0%
Services 2.6%
Technology 12.3%
Other 9.7%
</TABLE>
PERFORMANCE COMPARED TO THE S&P 500 INDEX(1)
- - -----------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
-------------------------------------------
AVERAGE ANNUAL
YTD ONE YEAR SINCE INCEPTION
---------- ------------ -----------------
<S> <C> <C> <C>
PORTFOLIO............... 23.05% 30.74% 11.76%
S&P 500................. 20.19 26.03 12.39
<FN>
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.
</TABLE>
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.
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 six month period ended June 30, 1995
was 23.05% compared to 20.19% for the S&P 500 Index, 18.70% for the Lipper
Growth Fund Index and 20.06% for the Russell Growth Index for the same period.
The total return of the Portfolio for the twelve months ended June 30, 1995 and
the average annual total return for the period since inception in April 1991
through June 30, 1995 were 30.74% and 11.76%, respectively, compared to 26.03%
and 12.39% for the S&P 500 Index for the same period.
The market rally this year has been one of the strongest in recent memory, led
to a great extent by growth stocks. The catalyst for this powerful move was, in
our view, a confluence of several factors. First, valuation support had improved
throughout 1994 as stocks moved sideways and earnings grew strongly. Second, and
most importantly, interest rates fell very significantly. And third, earnings
fundamentals for companies across many economic sectors were favorable. Although
the investment themes running through the Portfolio were unchanged during the
first half of 1995, we did shift our emphasis within industry sectors. The
Portfolio reflects five major themes:
1. Consumer Staples: Selected consumer
nondurable companies are showing renewed, strong, growth momentum, after
several years of decelerating trends. Restructuring, cost-cutting,
impressive international growth and better pricing are combining to put
upward pressure on growth rates. At June 30, the Portfolio had 21% of net
assets in consumer staples. The largest holding in this sector (and in the
Portfolio, by a wide margin), is Philip Morris, representing 7.8% of net
assets. Although the stock is up about 50% from where we first bought it in
late 1993, it still looks compelling to us. At $75, it trades at less than
10 times projected 1996 earnings and free cash flow (defined as net income
plus non-cash charges less capital spending and working capital uses but
before dividends). With earnings and cash flow expected to grow 15% annually
over the next five years, we believe this valuation is very attractive.
Obviously, negative publicity continues to exert pressure on the stock, but
it is our view that earnings fundamentals will remain strong. And even
though many of Philip Morris'
- - --------------------------------------------------------------------------------
Equity Growth Portfolio
67
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
OVERVIEW
- - --------------------------------------------------------------------------------
THE EQUITY GROWTH PORTFOLIO (CONT.)
peers (e.g. Coca Cola, Pfizer, Gillette) are trading toward the very high
end of historical P/E ranges, Philip Morris trades at 11.5 times current
year's earnings, versus a peak within the last 5 years of 16 times. In fact,
Philip Morris is still 10 points below its high of three years ago. If the
stock were to trade at 15 times 1997 estimated earnings, it would rise to
over $130 in two years. But we think the stock should do well over the near
term too, as the dividend should rise to about $4 in August, providing a
yield of 5.3% if the stock remained flat. Other important holdings in the
Consumer Staples sector are American Home Products, Coca Cola, Pepsico,
Pfizer, Schering Plough and Merck.
2. High Beta/High Growth: We began to
increase our exposure to high beta/high growth names earlier in the year in
the expectation that the strong performance of large capitalization, stable
growth names might be followed by the improved performance of higher growth
names. Consequently, we increased technology from 9% at year-end to 12% at
June 30, 1995 versus 11% for the S&P 500. Our biggest mistake in the last
six months was that we were not overweight this group for the entire period
as the technology sector exploded in the first half of the year, returning
38%. Our stock selection redeemed us somewhat, however, with names such as
Applied Materials returning 85% year-to-date and Intel, up 96%. We remain
positive on technology, even after its powerful move, in the belief that the
secular trends driving the group, in particular, the efforts across
corporate America to enhance productivity through technology, are powerful.
We also had an opportunity in the first half to purchase or add to stocks
whose popularity had waned, usually due to temporarily decelerating trends.
In this category were restaurant chain Boston Chicken (up 44% year-to-date),
specialty retailer General Nutrition (up 47%) as well as Autozone and Home
Depot, which continue to tread water.
3. Financials: After paring back on
financial exposure in late 1994 and early 1995, we have slightly increased our
position to 19% at June 30 versus 11% for the market. The companies we own
in this sector are strategically well positioned, exhibit good earnings
growth and boast moderate P/Es. Within the group we have shifted our
emphasis somewhat from banks to insurance companies. We have positions in
two excess liability insurers, Ace Ltd. and Exel. Both stocks trade below
ten times earnings yet are showing significant EPS growth. Investor concerns
include large liability claims and poor pricing. Exel is massively
overcapitalized and new management is buying back stock aggressively. Ace is
repurchasing shares, though not as aggressively, and is seeing solid
business growth. American Express, Citicorp, Fannie Mae, Freddie Mac, JP
Morgan and Ahmanson are other significant financial holdings.
4. Defense and Defense Conglomerates:
We continue to find this sector compelling as we believe the downsizing of
the defense industry will provide restructuring opportunities and rapid EPS
growth for the better positioned companies. Important positions include
McDonnell Douglas (up 39% year-to-date), Allied Signal (up 30%) and Loral
(up 36%).
5. Cyclical Growth: Our emphasis is on
high quality growth cyclicals which have restructured their businesses and
are experiencing improved earnings growth. These issues also provide a hedge
in the Portfolio should the economy pick up dramatically. Our growth
cyclicals include Caterpillar, Champion, Goodyear, Hercules, Gannett and
United Technologies. Looking ahead, we are neutral to positive on the equity
market and growth stocks, in particular. Mitigating our enthusiasm is the
fact that valuations in general are not as compelling as they were six to
twelve months ago. An economic acceleration in the second half, driving
rates back up, would also be negative, should it occur. On the positive
side, however, low inflation, moderate growth and low rates create a
favorable environment for growth stocks. At June 30, 1995 the Portfolio held
88 securities with 8% in cash.
- - --------------------------------------------------------------------------------
Equity Growth Portfolio
68
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1995
- - --------------------------------------------------------------------------------
THE EQUITY GROWTH PORTFOLIO
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- - ------------------------------------------------------------
COMMON STOCKS (90.3%)
CAPITAL GOODS/CONSTRUCTION (12.0%)
AEROSPACE & DEFENSE (9.9%)
+54,400 Litton Industries, Inc............................ $ 2,006
46,600 Lockheed Martin Corp.............................. 2,942
22,800 Loral Corp........................................ 1,180
40,600 McDonnell Douglas Corp............................ 3,116
30,500 Rockwell International Corp....................... 1,395
48,900 United Technologies Corp.......................... 3,820
----------
14,459
----------
BUILDING & CONSTRUCTION (0.5%)
+34,300 USG Corp.......................................... 815
----------
ELECTRICAL EQUIPMENT (0.8%)
21,200 General Electric Co............................... 1,195
----------
MACHINERY (0.8%)
17,500 Caterpillar, Inc.................................. 1,124
----------
TOTAL CAPITAL GOODS/CONSTRUCTION............................ 17,593
----------
CONSUMER-CYCLICAL (16.5%)
AUTOMOTIVE (2.6%)
21,300 Chrysler Corp..................................... 1,020
29,700 Ford Motor Co..................................... 884
14,300 General Motors Corp............................... 670
30,000 Goodyear Tire & Rubber Co......................... 1,237
----------
3,811
----------
BROADCAST-RADIO & TELEVISION (2.1%)
10,600 CBS, Inc.......................................... 710
59,000 New World Communications.......................... 1,232
+25,918 Viacom, Inc., Class B............................. 1,202
----------
3,144
----------
FOOD SERVICE & LODGING (2.4%)
+33,650 Boston Chicken, Inc............................... 814
47,000 Cracker Barrel Old Country Store, Inc............. 970
49,800 Hospitality Franchise Systems, Inc................ 1,724
----------
3,508
----------
GAMING & LODGING (0.5%)
21,450 National Gaming Corp.............................. 185
38,400 Trump Hotels & Casino Resort...................... 514
----------
699
----------
HOUSEHOLD FURNISHINGS & APPLIANCES (0.9%)
30,300 Duracell International, Inc....................... 1,310
----------
LEISURE RELATED (2.2%)
30,200 Eastman Kodak Co.................................. 1,831
18,300 Polaroid Corp..................................... 746
35,800 Toy Biz, Inc...................................... 649
----------
3,226
----------
PUBLISHING (1.9%)
33,800 Gannett Co., Inc.................................. 1,834
22,600 Time Warner, Inc.................................. 929
----------
2,763
----------
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- - ------------------------------------------------------------
RETAIL-GENERAL (3.9%)
+50,300 AutoZone, Inc..................................... $ 1,264
+42,300 General Nutrition Cos., Inc....................... 1,486
24,700 Harcourt General, Inc............................. 1,050
31,400 Home Depot, Inc................................... 1,276
19,600 Lowe's Cos., Inc.................................. 585
----------
5,661
----------
TOTAL CONSUMER-CYCLICAL..................................... 24,122
----------
CONSUMER-STAPLES (20.6%)
BEVERAGES & TOBACCO (11.6%)
50,000 Coca Cola Co...................................... 3,188
33,700 PepsiCo, Inc...................................... 1,538
154,400 Philip Morris Cos., Inc........................... 11,484
26,200 UST, Inc.......................................... 779
----------
16,989
----------
DRUGS (4.2%)
20,900 American Home Products Corp....................... 1,617
22,500 Merck & Co., Inc.................................. 1,103
21,150 Pfizer, Inc....................................... 1,954
32,600 Schering-Plough Corp.............................. 1,438
----------
6,112
----------
FOOD (2.4%)
25,600 Kellogg Co........................................ 1,827
33,200 Ralston Purina Group.............................. 1,693
----------
3,520
----------
HEALTH CARE SUPPLIES & SERVICES (2.0%)
42,500 Columbia/HCA Healthcare Corp...................... 1,838
26,100 United Healthcare Corp............................ 1,080
----------
2,918
----------
PERSONAL CARE PRODUCTS (0.4%)
+66,100 Playtex Products, Inc............................. 653
----------
TOTAL CONSUMER-STAPLES...................................... 30,192
----------
DIVERSIFIED (1.0%)
33,200 AlliedSignal, Inc................................. 1,477
----------
ENERGY (2.7%)
COAL, GAS, & OIL (2.7%)
10,700 Exxon Corp........................................ 755
14,300 Mobil Corp........................................ 1,373
14,900 Occidental Petroleum Corp......................... 341
12,800 Royal Dutch Petroleum Co.......................... 1,560
----------
TOTAL ENERGY................................................ 4,029
----------
FINANCE (18.6%)
BANKING (5.3%)
71,400 Ahmanson (H.F.) & Co.............................. 1,571
47,800 Citicorp.......................................... 2,767
23,800 Morgan (J.P.) & Co., Inc.......................... 1,669
9,600 Wells Fargo & Co.................................. 1,730
----------
7,737
----------
</TABLE>
The accompanying notes are an integral part of the financial statements. (Pages
144-152)
- - --------------------------------------------------------------------------------
Equity Growth Portfolio
69
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1995
- - --------------------------------------------------------------------------------
THE EQUITY GROWTH PORTFOLIO (CONT.)
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- - ------------------------------------------------------------
<C> <S> <C>
FINANCIAL SERVICES (9.6%)
15,700 Aetna Life & Casualty Co.......................... $ 987
81,100 American Express Co............................... 2,849
37,100 Countrywide Credit Industries, Inc................ 779
12,900 Dean Witter Discover & Co......................... 606
21,600 Federal Home Loan Mortgage Corp................... 1,485
55,600 Federal National Mortgage Association............. 5,247
30,200 Franklin Resources, Inc........................... 1,344
20,100 Travelers, Inc.................................... 879
----------
14,176
----------
INSURANCE (3.7%)
60,200 Ace, Ltd.......................................... 1,746
54,000 Exel Ltd.......................................... 2,808
32,200 PartnerRe Holdings, Ltd........................... 841
----------
5,395
----------
TOTAL FINANCE............................................... 27,308
----------
MATERIALS (4.0%)
CHEMICALS (1.6%)
31,600 Hercules, Inc..................................... 1,541
9,100 Monsanto Co....................................... 820
----------
2,361
----------
FOREST PRODUCTS & PAPER (2.4%)
35,700 Champion International Corp....................... 1,861
11,100 Mead Corp......................................... 659
+45,300 Stone Container Corp.............................. 963
----------
3,483
----------
TOTAL MATERIALS............................................. 5,844
----------
SERVICES (2.6%)
BUSINESS SERVICES (0.5%)
+33,800 Bell & Howell Holding Co.......................... 684
----------
PROFESSIONAL SERVICES (0.8%)
+28,700 CUC International, Inc............................ 1,205
----------
TRANSPORTATION (1.3%)
+10,800 AMR Corp.......................................... 806
18,400 Burlington Northern, Inc.......................... 1,166
----------
1,972
----------
TOTAL SERVICES.............................................. 3,861
----------
TECHNOLOGY (12.3%)
COMPUTERS (3.6%)
+21,950 Cabletron Systems, Inc............................ 1,169
21,100 Hewlett Packard................................... 1,572
26,500 International Business Machines Corp.............. 2,544
----------
5,285
----------
ELECTRONICS (5.1%)
+14,400 Applied Materials, Inc............................ 1,247
24,100 Intel Corp........................................ 1,526
+26,000 LSI Logic Corp.................................... 1,017
22,700 Motorola, Inc..................................... 1,524
9,600 Texas Instruments, Inc............................ 1,285
21,800 Watkins-Johnson Co................................ 970
----------
7,569
----------
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- - ------------------------------------------------------------
SOFTWARE SERVICES (1.1%)
+17,200 Microsoft Corp.................................... $ 1,554
----------
TELECOMMUNICATIONS (2.5%)
+42,200 AirTouch Communications........................... 1,203
47,500 American Telephone & Telegraph Corp............... 2,523
----------
3,726
----------
TOTAL TECHNOLOGY............................................ 18,134
----------
TOTAL COMMON STOCKS (Cost $114,109)........................... 132,560
----------
<CAPTION>
NO. OF
RIGHTS
- - ----------
<C> <S> <C>
RIGHTS (0.0%)
CONSUMER-CYCLICAL (0.0%)
BROADCAST RADIO & TELEVISION (0.0%)
+38,800 Viacom, Inc., expiring 7/07/95 (Cost $168)........ 58
----------
<CAPTION>
SHARES
- - ----------
<C> <S> <C>
PURCHASED OPTION (0.0%)
CONSUMER STAPLES (0.0%)
BEVERAGES & TOBACCO (0.0%)
75,000 Philip Morris Cos., Inc., expiring 7/22/95, strike
price $70 (Cost $30)............................ 14
----------
<CAPTION>
FACE
AMOUNT
(000)
- - ----------
<C> <S> <C>
SHORT-TERM INVESTMENT (8.2%)
REPURCHASE AGREEMENT (8.2%)
$ 11,941 Goldman Sachs, 6.05%, dated 6/30/95, due 7/03/95,
to be repurchased at $11,947, collateralized by
$7,690 United States Treasury Bonds 13.875%, due
5/15/11, valued at $12,260 (Cost $11,941)....... 11,941
----------
TOTAL INVESTMENTS (98.5%) (Cost $126,248)..................... 144,573
----------
OTHER ASSETS (2.4%)
Cash............................................ $ 1
Receivable for Investments Sold................. 3,336
Dividends Receivable............................ 248
Interest Receivable............................. 2
Other........................................... 5 3,592
----------
LIABILITIES (-0.9%)
Payable for Investments Purchased............... (1,108)
Investment Advisory Fees Payable................ (160)
Payable for Portfolio Shares Redeemed........... (72)
Administrative Fees Payable..................... (18)
Custodian Fees Payable.......................... (6)
Directors' Fees and Expenses Payable............ (1)
Other Liabilities............................... (27) (1,392)
---------- ----------
NET ASSETS (100%)............................................. $ 146,773
----------
----------
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER SHARE
Applicable to 10,362,996 outstanding $.001 par value shares
(authorized 500,000,000 shares)............................. $14.16
----------
----------
</TABLE>
- - ------------------------------------------------------------
+ -- Non-income producing securities
The accompanying notes are an integral part of the financial statements. (Pages
144-152)
- - --------------------------------------------------------------------------------
Equity Growth Portfolio
70
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
OVERVIEW
- - --------------------------------------------------------------------------------
THE SMALL CAP VALUE EQUITY PORTFOLIO
COMPOSITION OF NET ASSETS (AT JUNE 30, 1995)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Aerospace 3.6%
Banking 10.0%
Building 3.1%
Capital Goods 3.1%
Chemicals 4.0%
Communications 1.1%
Consumer Durables 2.8%
Consumer Retail 6.3%
Consumer Staples 4.3%
Energy 2.3%
Financial
Diversified 3.1%
Health Care 4.2%
Industrial 6.1%
Insurance 5.5%
Metals 2.4%
Paper & Packaging 3.0%
Services 11.4%
Technology 10.2%
Transportation 2.1%
Utilities 7.0%
Other 4.4%
</TABLE>
PERFORMANCE COMPARED TO THE RUSSELL 2500
AND S&P 500 INDICES(2)
- - -------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
-----------------------------------------
AVERAGE ANNUAL
YTD ONE YEAR SINCE INCEPTION
--------- ----------- -----------------
<S> <C> <C> <C>
PORTFOLIO................ 11.44% 15.59% 10.56%
RUSSELL 2500............. 16.96 22.73 13.91
S&P 500.................. 20.19 26.03 12.37
<FN>
1. The Russell 2500 and the S&P 500 indices are unmanaged indices of common
stock.
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.
</TABLE>
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.
The Small Cap Value Equity Portfolio invests in small companies that our
research indicates are undervalued, of high quality, and will reward the
shareholder through high current dividend income. The Portfolio's disciplined
value approach seeks to outperform the Russell 2500 Small Company Index in the
longer term. We believe our emphasis on high quality companies will help the
Portfolio perform particularly well in difficult markets.
The Small Cap Value Equity Portfolio selects companies that can be purchased at
bargain prices. Bargains mostly arise as a result of public overreactions to
temporary problems associated with an otherwise healthy company, or because a
company is neglected and currently out-of-the limelight of investors' interest.
Often, these companies operate as major players in very focused markets and are
not widely followed by the investment community.
The total return of the Portfolio for the six month period ended June 30, 1995
was 11.44% as compared to 16.96% and 20.19% for the Russell 2500 Index and the
S&P 500 Index, respectively, for the same period. Total returns for the twelve
months ended June 30, 1995 and the average annual total return of the Portfolio
for the period from inception in December 1992 through June 30, 1995 were 15.59%
and 10.56%, respectively, compared to 22.73% and 13.91% for the Russell 2500
Index, respectively, and 26.03% and 12.37% for the S&P 500 Index, respectively,
for the same periods.
PERFORMANCE REVIEW
Two investment themes dominated U.S. equity market returns during the first six
months of 1995. The first was the decline of the U.S. dollar versus the Japanese
yen and most European currencies. The weakening U.S. dollar is credited for the
strong performance of large companies versus small companies at the beginning of
the period, as large companies are thought to be more 'global' players earning
more appreciating foreign currencies. As a result of an increasingly global
economy as well as our strategy to select strong players in niche markets the
Portfolio's industrial companies derive some 24% of sales from outside the
United States. So far however, currency effects on earnings for these companies
have been minor relative to the impact of positive sales growth and productivity
gains as seen in first quarter earnings reports. The second dominant investment
theme was the transition from strong economic growth to the anticipation of an
economic 'soft landing' and subsequently the realization of faster than expected
weakening of the U.S. economy. All this led to a sharp drop in long term
interest rates. Equity markets responded with enthusiasm -- bidding up most
sharply interest rate sensitive "growth" companies. Most pronounced was the
rally
- - --------------------------------------------------------------------------------
Small Cap Value Equity Portfolio
71
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
OVERVIEW
- - --------------------------------------------------------------------------------
THE SMALL CAP VALUE EQUITY PORTFOLIO (CONT.)
in technology stocks as reflected in the 24.1% return of these companies in our
small company universe during the second quarter of '95. We expect periods of
such market ebullience to produce high absolute portfolio returns, however they
form the most difficult for Portfolio's out-of-the limelight companies to better
the small cap market.
Our outlook on the fundamental strength of the Portfolio's companies remains
very positive as reflected by recent earnings reports. In addition, during 1994,
the Portfolio's industrial companies saw productivity increases twice as high as
the average domestic small company. This should bode particularly well for the
anticipated scenario of slower economic growth.
During the first six months of 1995, the Portfolio witnessed a wide dispersion
of performance by industry. The Portfolio's most successful industry was
aerospace (+30.0%) which followed the rebound of the domestic commercial airline
industry and its spill-over effect for smaller airline service companies. The
weakest industry constituted consumer retail (-3.5%) as sales growth for men and
women's apparel companies remains anemic. The Portfolio's banking stocks
averaged a 29% price increase during the first half of the year. We attribute
this good performance to the strong demand for loans prompted by a growing U.S.
economy, falling interest rates helping to maintain a beneficial difference for
banks' lending and borrowing rates, as well as a continuing increase in the
quality of assets held. Union Bank of San Francisco increased 57.8% in price
following an earnings rebound as a result of a substantial improvement in the
quality of the loan portfolio. The Portfolio's technology companies (10.2% of
net assets) averaged a respectable 21.7% price increase during the past six
months. However, the industry's total portfolio return contribution was limited
by the availability of a larger number of good quality technology stocks that
fit our main investment criteria of being a "bargain." (As of June 30, 1995 the
average small cap technology company was trading at a price-to-earnings multiple
of 30.2 times, more than twice as expensive as the average stock in the
Portfolio.)
Additions to the Portfolio during the first quarter included Jackpot
Enterprises, Inc. (gaming route operator; 4% dividend yield, 1.4x
price-to-book), Gerber Scientific, Inc. (maker of computer-aided design systems
for the garment industry; 1.3x book value, 2.5% yield), Augat, Inc. (leading
manufacturer of connector products; 1.3x book value, 2% yield), Core Industries,
Inc. (specialized products for electronics, fluid control and farm equipment
industries; 1.4x book value, 2.2% yield), Manufactured Home Communities, Inc.
(owner of manufactured housing communities, 7% yield), and SkyWest, Inc.
(regional commuter airline, 1.3x book value).
Portfolio transactions during the second quarter of 1995 included the sale of
Southern National Corp., Mercantile Bancorp, Deposit Guaranty Corp. (Banking),
and Yellow Corp. Exceptionally strong performance of banking stocks led us to
turnover the Portfolio at a higher rate in this area. We purchased Greenpoint
Financial Corp. (0.7x book value, 3.5% dividend yield), the dominant savings
institution in the New York metropolitan area specializing in low documentation
mortgage loans. We also added Union Planters Corp. (1.4x book value, 4% yield),
a bank holding company in Tennessee, to the Portfolio. The company shows strong
profitable growth in assets and maintains a highly conservative balance sheet.
Washington Mutual Inc. (1.2x book value, 3.5% yield) -- another new purchase --
is the largest independently owned bank headquartered in Washington State. We
expect its expansion into neighboring states to provide for solid loan growth.
The most recent purchase, Peoples Heritage Financial Group Inc. (1.0x book
value, 3.6% yield), is one of the least expensive banking companies east of the
Mississippi. It is located in attractive banking states of Maine and New
Hampshire, shows a diversified loan portfolio and has high loan demand.
We also took advantage of the currently weak investment climate for retail
companies. We purchased Ross Stores Inc. (1.0x book value, 2.5% yield). It
operates as a discount retail store mostly in California where the company shows
a dominant market presence. We also added to the Portfolio Scitex Corp. -- the
world leading company in electronic prepress systems -- at 1.2x book value and a
3% dividend yield. The company operates as leader in the mature electronic
prepress systems markets that provides ample cash flow to develop new products
such as digital video editing systems.
The Small Cap Value Equity Portfolio offers the consistent application of a
disciplined value driven investment process to its shareholders. As such, we
will pursue our search for smaller companies that our research shows are
undervalued, are of high quality and pay above average dividend yield. We
believe these companies will be well positioned to achieve superior total return
for the longer term.
- - --------------------------------------------------------------------------------
Small Cap Value Equity Portfolio
72
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1995
- - --------------------------------------------------------------------------------
THE SMALL CAP VALUE EQUITY PORTFOLIO
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- - ------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (95.6%)
AEROSPACE (3.6%)
35,000 AAR Corp.......................................... $ 626
18,000 Thiokol Corp...................................... 545
85,300 United Industrial Corp............................ 608
----------
1,779
----------
BANKING (10.0%)
21,450 First Security Corp. (Delaware)................... 601
25,000 Green Point Financial Corp........................ 591
18,600 Onbancorp, Inc.................................... 528
33,000 Peoples Heritage Financial Group, Inc............. 495
16,000 Standard Federal Bank............................. 538
26,610 Summit Bancorp., Inc.............................. 565
12,400 Union Bank of San Francisco....................... 524
20,000 Union Planters Corp............................... 535
21,000 Washington Mutual, Inc............................ 492
----------
4,869
----------
BUILDING (3.1%)
12,300 Ameron, Inc. (Delaware)........................... 446
38,800 Gilbert Associates, Inc., Class A................. 504
24,500 Pratt & Lambert, Inc.............................. 573
----------
1,523
----------
CAPITAL GOODS (3.1%)
21,403 Binks Manufacturing Co............................ 543
30,200 Cascade Corp...................................... 483
21,600 Starret (L.S.) Co., Class A....................... 489
----------
1,515
----------
CHEMICALS (4.0%)
30,720 Aceto Corp........................................ 453
23,400 Dexter Corp....................................... 553
22,000 Learonal, Inc..................................... 465
29,800 Quaker Chemical Corp.............................. 484
----------
1,955
----------
COMMUNICATIONS (1.1%)
28,200 Comsat Corp....................................... 553
----------
CONSUMER-DURABLES (2.8%)
21,200 Arvin Industries, Inc............................. 474
30,298 Knape & Vogt Manufacturing Co..................... 454
31,300 Oneida Ltd........................................ 462
----------
1,390
----------
CONSUMER-RETAIL (6.3%)
28,800 CPI Corp.......................................... 551
+5,360 Dave & Busters, Inc............................... 107
41,900 Deb Shops, Inc.................................... 136
26,800 Edison Brothers Stores, Inc....................... 322
21,700 Guilford Mills, Inc............................... 529
44,000 Ross Stores, Inc.................................. 517
13,100 Springs Industries, Inc., Class A................. 488
40,600 Venture Stores, Inc............................... 401
----------
3,051
----------
<CAPTION>
VALUE
SHARES (000)
- - ------------------------------------------------------------
<C> <S> <C>
CONSUMER-STAPLES (4.3%)
14,802 Block Drug Co., Inc., Class A..................... $ 500
30,400 Coors (Adolph), Inc., Class B..................... 498
25,900 International Multifoods Corp..................... 583
31,400 Nash Finch Co..................................... 510
----------
2,091
----------
ENERGY (2.3%)
21,000 Diamond Shamrock, Inc............................. 541
22,900 Ultramar Corp..................................... 578
----------
1,119
----------
FINANCIAL-DIVERSIFIED (3.1%)
14,900 Finova Group, Inc................................. 521
10,100 GATX Corp......................................... 476
33,000 Manufactured Home Communities, Inc................ 507
----------
1,504
----------
HEALTH CARE (4.2%)
18,500 Beckman Instruments, Inc.......................... 516
31,500 Bindley Western Industries........................ 500
73,700 Kinetic Concepts, Inc............................. 525
26,000 United Wisconsin Services, Inc.................... 520
----------
2,061
----------
INDUSTRIAL (6.1%)
17,200 American Filtrona Corp............................ 507
11,400 Barnes Group, Inc................................. 459
40,700 GenCorp, Inc...................................... 438
44,500 Kaman Corp., Class A.............................. 567
34,900 Zero Corp. (Delaware)............................. 523
24,300 Zurn Industries, Inc.............................. 486
----------
2,980
----------
INSURANCE (5.5%)
16,200 Argonaut Group, Inc............................... 514
30,000 Enhance Financial Services Group, Inc............. 581
19,500 Provident Life & Accident Co. of America, Class
B............................................... 453
17,700 Selective Insurance Group, Inc.................... 584
13,300 USLife Corp....................................... 535
----------
2,667
----------
METALS (2.4%)
8,700 Carpenter Technology Corp......................... 593
14,400 Cleveland-Cliffs Iron Co.......................... 554
----------
1,147
----------
PAPER & PACKAGING (3.0%)
15,500 Ball Corp......................................... 541
11,400 Potlatch Corp..................................... 476
25,500 Sealright Co., Inc................................ 427
----------
1,444
----------
</TABLE>
The accompanying notes are an integral part of the financial statements. (Pages
144 - 152)
- - --------------------------------------------------------------------------------
Small Cap Value Equity Portfolio
73
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1995
- - --------------------------------------------------------------------------------
THE SMALL CAP VALUE EQUITY PORTFOLIO (CONT.)
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- - ------------------------------------------------------------
<C> <S> <C>
SERVICES (11.4%)
23,200 ABM Industries, Inc............................... $ 536
21,200 Angelica Corp..................................... 530
27,000 Bowne & Co........................................ 462
30,700 Cross (A.T.) Co., Class A......................... 457
43,000 Handleman Co...................................... 414
52,000 Jackpot Enterprises, Inc.......................... 527
18,400 National Service Industries, Inc.................. 531
25,900 New England Business Services, Inc................ 512
55,400 Piccadilly Cafeterias, Inc........................ 485
35,500 Russ Berrie & Co., Inc............................ 493
16,100 Wallace Computer Services, Inc.................... 618
----------
5,565
----------
TECHNOLOGY (10.2%)
28,000 Augat, Inc........................................ 574
11,500 Avnet, Inc........................................ 556
48,000 Core Industries, Inc.............................. 516
21,800 Cubic Corp........................................ 490
33,700 Gerber Scientific, Inc............................ 564
19,900 Joslyn Corp....................................... 522
20,900 MTS Systems Corp.................................. 564
30,500 National Computer Systems, Inc.................... 633
27,000 Scitex Corp. Ltd.................................. 581
----------
5,000
----------
TRANSPORTATION (2.1%)
22,800 Overseas Shipholding Group, Inc................... 473
24,600 SkyWest, Inc...................................... 557
----------
1,030
----------
UTILITIES (7.0%)
18,700 Central Hudson Gas & Electric..................... 505
13,300 Commonwealth Energy Systems Cos................... 502
15,000 Eastern Enterprises............................... 448
25,900 Oneok, Inc........................................ 554
13,700 Orange & Rockland Utilities, Inc.................. 462
13,500 SJW Corp.......................................... 484
28,500 Washington Water Power Co......................... 456
----------
3,411
----------
TOTAL COMMON STOCKS (Cost $43,469)............................ 46,654
----------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
<C> <S> <C>
- - ------------------------------------------------------------
SHORT-TERM INVESTMENT (4.4%)
REPURCHASE AGREEMENT (4.4%)
$ 2,168 U.S. Trust, 5.90%, dated 6/30/95, due 7/03/95, to
be repurchased at $2,169, collateralized by
$2,250 United States Treasury Bills, due
7/27/95, valued at $2,241 (Cost $2,168)......... $ 2,168
----------
TOTAL INVESTMENTS (100.0%) (Cost $45,637)..................... 48,822
----------
</TABLE>
<TABLE>
<S> <C> <C>
OTHER ASSETS (0.2%)
Cash............................................ $ 1
Dividends Receivable............................ 88
Other........................................... 3 92
----------
LIABILITIES (-0.2%)
Investment Advisory Fees Payable................ (63)
Administrative Fees Payable..................... (7)
Custodian Fees Payable.......................... (5)
Directors' Fees and Expenses Payable............ (1)
Other Liabilities............................... (26) (102)
---------- ----------
NET ASSETS (100%)............................................. $ 48,812
----------
----------
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER SHARE
Applicable to 4,239,197 outstanding $.001 par value shares
(authorized 500,000,000 shares)............................. $11.51
----------
----------
</TABLE>
- - ------------------------------------------------------------
+ -- Non-income producing security
The accompanying notes are an integral part of the financial statements. (Pages
144 - 152)
- - --------------------------------------------------------------------------------
Small Cap Value Equity Portfolio
74
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
OVERVIEW
- - --------------------------------------------------------------------------------
THE U.S. REAL ESTATE PORTFOLIO
COMPOSITION OF NET ASSETS (AT JUNE 30, 1995)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Apartment 28.4%
Land 1.1%
Lodging/Leisure 4.7%
Manufactured Home 6.6%
Office and
Industrial 25.9%
Self Storage 4.2%
Shopping Center 26.2%
Cash 2.9%
</TABLE>
PERFORMANCE COMPARED TO NATIONAL ASSOCIATION OF
REAL ESTATE INVESTMENT TRUSTS (NAREIT) INDEX(1)
- - --------------------------------------------
<TABLE>
<CAPTION>
TOTAL
RETURN(2)
-----------
YTD
-----------
<S> <C>
PORTFOLIO......................................... 8.30%
INDEX............................................. 5.34
<FN>
1. The NAREIT Index is an unmanaged market weighted index of tax qualified REITs
(excluding healthcare REITs) listed on the New York Stock Exchange, American
Stock Exchange and the NASDAQ National Market System, including dividends.
2. Total returns for the Portfolio reflect expenses waived or reimbursed, if
applicable, by the Adviser. Without such waiver and reimbursement, total
returns would be lower.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
</TABLE>
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.
The U.S. Real Estate Portfolio commenced operations on February 24, 1995. The
Portfolio seeks to provide above average current income and long-term capital
appreciation by investing primarily in equity securities of companies in the
U.S. real estate industry, including real estate investment trusts.
The total return of the Portfolio for the period from inception on February 24,
1995 through June 30, 1995 was 8.30% compared to 5.34% for the NAREIT Index.
The overall U.S. real estate environment demonstrated modest improvement during
the second quarter. The office and industrial sectors registered increases in
occupancy rates in most cities and some sub-markets witnessed a re-emergence of
selected build to suit development. The apartment sector markets showed strength
in most cities after two years of substantial recovery despite renewed fears of
over-development. In addition, the recovery of the hotel sector continues,
particularly in the full-service segment, which is exhibiting strong growth in
both room revenues and occupancies. By contrast, the retail sector represented a
source of relative weakness, as continued slow tenant sales combined with steady
new development to limit rental growth nationwide. While most observers
anticipate further improvements in occupancy levels and rental rates for most
property types, concerns have begun to arise about the durability of the recent
resurgence in tenant demand should the overall economy weaken significantly.
In the second quarter, the real estate market continued its slow wave of
consolidation. This was evidenced by the sale of large portfolios of properties
as well as the merger of REITs with private companies. The retail sector was the
most active arena for these activities. Sears announced its intention to sell
Homart, an owner of regional malls and power centers, to a REIT, General Growth,
for an estimated total price of $1.8 billion. Factory Stores of America, an
outlet center REIT, merged with a private company, Charter Oak, on the heels of
the completion of the merger of two public factory outlet center REITs, Horizon
Group and McArthur Glen.
In the real estate capital markets, attention was focused on the tentative
re-emergence of pension fund interest in real estate (including REITs) and the
selected interest of life companies and banks in new real estate loans. In the
second quarter, the REIT market witnessed approximately $2.1 billion in new
equity issuance by 27 companies. In contrast to 1994 where twenty IPOs had been
completed by mid-year
- - --------------------------------------------------------------------------------
U.S. Real Estate Portfolio
75
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
OVERVIEW
- - --------------------------------------------------------------------------------
THE U.S. REAL ESTATE PORTFOLIO (CONT.)
(raising approximately $3.6 billion), only three companies have completed
initial public offerings (we include Starwood Lodging as an IPO although
technically it was a follow-on offering of primary shares); all three were
completed in the second quarter accounting for 24% of the equity capital raised.
The IPOs were completed in the office, hotel and self-storage sectors. We
anticipate the IPO supply to remain limited and focused on the hotel and office
sectors. The tone of the current REIT IPO market is also quite different from
last year as issuers have priced the offerings at discounts to their respective
peer groups. We participated in two of the IPO offerings, Starwood, the hotel
offering and Reckson Associates, the office offering.
The second quarter returns for the REIT market were buoyed by May, which was the
best month of the year to date providing a return of 4.23% according to NAREIT.
June also demonstrated positive performance, helping the NAREIT total return for
the first half of the year to reach 5.11%. Clearly, the REIT market returns
trail the broad equity and bond markets on a year-to-date basis.
At June 30, the Portfolio maintained the same general weighting as it exhibited
at the end of the last quarter. Specifically, the Portfolio continued to be
overweighted in the office and industrial sector and manufactured home
communities, was underweighted in retail and generally market-weighted in
multifamily. In addition, we increased our exposure to both the hotel and
self-storage sectors. The Portfolio contains approximately the same number of
investments as last quarter (35 versus 36 stocks) with some additions and
deletions. A new theme was the introduction, on a moderate scale, of a select
few speculative out-of-favor companies as well as lesser known names.
In the office and industrial sector, we increased our overweighting and added
several names in order to continue to provide a broader exposure to the stronger
property markets. We have previously discussed the favorable demand and supply
characteristics of this sector which has fueled improvements in net effective
rents and occupancies. In the majority of markets, rents have not achieved
levels which justify new construction, which provides opportunities for
acquisitions at discounts to replacement cost for well capitalized REITs.
However, in several stronger sub-markets, rent levels and a lack of quality
space has created the opportunity for build to suit construction at attractive
returns.
We remain approximately market-weighted in the multifamily sector. One
investment theme in this sector was adding to our position in companies that are
focused in the middle tier of the multifamily market. These properties do not
face competition from new construction and have continued to demonstrate the
strongest ability to raise rental rates. Examples of companies whose assets can
be characterized in this tier include Equity Residential Properties and a new
position for the Portfolio, Walden Residential, a multifamily company focused in
the southwestern part of the country. We have discussed a somewhat defensive
posture for this market due to the potential for oversupply, particularly at the
upper end of the sector, but have been encouraged at the current constraints on
new supply, particularly in our target markets.
Overall, the Portfolio continues to be underweighted in the retail sector as a
result of continued difficulties from an oversupply of retail square footage per
capita as well as continued weakness in retail sales. We continue to watch for
improvements in retail sales trends, particularly from the retailers focused on
the apparel market. The sub-sectors that would benefit the most from these
improvements would be the regional malls and factory outlet centers.
The hotel sector provides an attractive market which is continuing its recovery.
The Portfolio focus is on the full service segment of this market. We increased
our exposure to this segment with our investment in Starwood Lodging. Although
the recovery in the hotel sector has been widespread from the limited-service to
full-service hotels, the barriers to new construction are greatest for the
full-service segment due to high construction cost levels as well as the
difficulty in accessing capital for new development. The combination of an
increase in demand with a lack of new supply has resulted in favorable increases
in room rates as well as occupancies. In addition, acquisitions are generally
achievable at 65% to 70% of replacement cost and there are limited investors
with access to capital.
The outlook for the REIT market remains generally favorable. Property markets
continue to show evidence of improvement in rents and occupancy levels. From a
technical perspective there continue to be new entrants investing in the sector.
In addition, the spread of REIT dividend yields to the yield of the 10-year U.S.
Treasury is at the historically high level of approximately 100 basis points,
which is a bullish signal, particularly for those investors that look at REITs
as substitutes for the fixed income markets.
- - --------------------------------------------------------------------------------
U.S. Real Estate Portfolio
76
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
OVERVIEW
- - --------------------------------------------------------------------------------
THE U.S. REAL ESTATE PORTFOLIO (CONT.)
The potential caveats for our otherwise favorable scenario is that we continue
to measure growth against a possible economic slowdown and also against possible
competitive supply. Although the real estate market has historically been prone
to such periods of oversupply, the favorable news is that we appear to be in the
first half of this most current real estate cycle and the new supplier of
capital, the public capital markets, may prove to do a better job of allocating
capital to its highest and best use.
- - --------------------------------------------------------------------------------
U.S. Real Estate Portfolio
77
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1995
- - --------------------------------------------------------------------------------
THE U.S. REAL ESTATE PORTFOLIO
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- - ------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (97.1%)
APARTMENT (28.4%)
44,200 Associated Estates Realty Corp.................... $ 934
45,700 Avalon Properties, Inc............................ 908
82,600 Bay Apartment Communities, Inc.................... 1,611
66,500 Equity Residential Properties Trust............... 1,854
56,600 Evans Withycombe Residential, Inc................. 1,153
53,100 Home Properties of New York, Inc.................. 936
63,400 Irvine Apartment Communities, Inc................. 1,094
60,000 Walden Residential Properties, Inc................ 1,102
76,000 Wellsford Residential Property Trust.............. 1,729
----------
11,321
----------
LAND (1.1%)
+66,500 Atlantic Gulf Communities Corp.................... 432
----------
LODGING/LEISURE (4.7%)
+98,600 Host Marriot Corp................................. 1,048
36,000 Starwood Lodging Trust............................ 846
----------
1,894
----------
MANUFACTURED HOME (6.6%)
20,000 Chateau Properties, Inc........................... 418
60,300 ROC Communities, Inc.............................. 1,334
36,200 Sun Communities, Inc.............................. 905
----------
2,657
----------
OFFICE AND INDUSTRIAL (25.9%)
INDUSTRIAL (0.4%)
7,500 First Industrial Realty Trust, Inc................ 154
----------
OFFICE (9.9%)
64,400 Beacon Properties Corp. .......................... 1,280
44,400 Cali Realty Corp.................................. 860
73,100 Carr Realty Corp.................................. 1,261
+64,900 Koger Equity, Inc................................. 568
----------
3,969
----------
OFFICE AND INDUSTRIAL (15.6%)
75,700 Bedford Property Investors, Inc. ................. 435
60,100 Duke Realty Investments, Inc. .................... 1,698
71,400 Liberty Property Trust ........................... 1,401
31,500 Reckson Associates Realty Corp. .................. 764
86,400 Spieker Properties, Inc. ......................... 1,933
----------
6,231
----------
TOTAL OFFICE AND INDUSTRIAL................................. 10,354
----------
SELF STORAGE (4.2%)
102,000 Storage Equities, Inc............................. 1,670
----------
<CAPTION>
VALUE
SHARES (000)
- - ------------------------------------------------------------
<C> <S> <C>
SHOPPING CENTER (26.2%)
FACTORY OUTLET CENTER (1.4%)
20,800 Chelsea GCA Realty, Inc........................... $ 561
----------
REGIONAL MALL (17.0%)
50,000 CBL & Associates Properties, Inc.................. 994
99,700 Crown American Realty Trust....................... 1,259
93,400 DeBartolo Realty Corp............................. 1,366
76,200 Glimcher Realty Trust............................. 1,581
79,500 Macerich Co....................................... 1,560
----------
6,760
----------
STRIP CENTER (7.8%)
98,200 Alexander Haagen Properties, Inc.................. 1,129
29,800 Developers Diversified Realty Corp................ 857
37,900 Price REIT, Inc., Series B........................ 1,132
----------
3,118
----------
TOTAL SHOPPING CENTER....................................... 10,439
----------
TOTAL COMMON STOCKS (Cost $37,467)............................ 38,767
----------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT
(000)
- - ----------
<C> <S> <C>
SHORT-TERM INVESTMENT (4.4%)
REPURCHASE AGREEMENT (4.4%)
$ 1,749 U.S. Trust, 5.90%, dated 6/30/95, due 7/03/95, to
be repurchased at $1,750, collateralized by
$1,820 United States Treasury Bills, due
7/27/95, valued at $1,813 (Cost $1,749)......... 1,749
----------
TOTAL INVESTMENTS (101.5%) (Cost $39,216)..................... 40,516
----------
</TABLE>
<TABLE>
<S> <C> <C>
OTHER ASSETS (4.1%)
Receivable for Portfolio Shares Sold............ $ 1,000
Receivable for Investments Sold................. 347
Dividends Receivable............................ 285
Other........................................... 1 1,633
----------
LIABILITIES (-5.6%)
Payable for Investments Purchased............... (2,185)
Investment Advisory Fees Payable................ (11)
Administrative Fees Payable..................... (4)
Custodian Fees Payable.......................... (3)
Directors' Fees and Expenses Payable............ (1)
Other Liabilities............................... (25) (2,229)
---------- ----------
NET ASSETS (100%)............................................. $ 39,920
----------
----------
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER SHARE
Applicable to 3,684,831 outstanding $.001 par value shares
(authorized 500,000,000 shares)............................. $10.83
----------
----------
- - ------------------------------------------------------------
+ -- Non-income producing securities
</TABLE>
The accompanying notes are an integral part of the financial statements. (Pages
144-152)
- - --------------------------------------------------------------------------------
U.S. Real Estate Portfolio
78
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
OVERVIEW
- - --------------------------------------------------------------------------------
THE VALUE EQUITY PORTFOLIO
COMPOSITION OF NET ASSETS (AT JUNE 30, 1995)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Aerospace 2.4%
Banking 9.5%
Capital Goods 1.9%
Chemicals 3.9%
Communications 7.3%
Consumer Durables 3.8%
Consumer Retail 5.9%
Consumer Service & Growth 6.1%
Consumer Staples 8.6%
Energy 6.7%
Financial Diversified 2.1%
Health Care 8.4%
Industrial 4.1%
Insurance 5.8%
Metals 2.5%
Technology 4.2%
Transportation 4.1%
Utilities 9.5%
Other 3.2%
</TABLE>
PERFORMANCE COMPARED TO THE S&P 500
AND THE INDATA EQUITY-MEDIAN INDICES(1)
- - ----------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
------------------------------------------------------------
AVERAGE ANNUAL AVERAGE ANNUAL
YTD ONE YEAR FIVE YEARS SINCE INCEPTION
--------- ----------- ----------------- -----------------
<S> <C> <C> <C> <C>
PORTFOLIO......... 19.41% 18.77% 11.32% 10.69%
S&P 500........... 20.19 26.03 12.07 13.15
INDATA
EQUITY-MEDIAN.... 17.90 22.70 11.62 12.62
<FN>
1. The Indata Equity-Median Index and the S&P 500 Stock Index are unmanaged
indices of common stocks. The Indata Equity-Median Index includes an average
asset allocation of 5% cash and 95% equity based on $3364.7 billion in assets
among 1,163 portfolios for the quarter ended June 30, 1995.
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.
</TABLE>
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.
Our value investment philosophy is based on the premise that a diversified
portfolio of undervalued securities will outperform the market over the long-
term, and can be expected to preserve principal in a difficult market
environment.
Key aspects of our philosophy are as follows:
Reversion to mean valuation levels (return to the long term average) is the
most consistent and powerful force in investing.
We buy companies selling at less than our research measures to be their true
worth.
Our Portfolio is characterized by a distinctly below average
price-to-earnings ratio, price-to-book ratio, and a high dividend yield.
We limit our universe of investments to larger, liquid stocks. This is a
list similar to the S&P 500.
Investment decisions are based on research undertaken by the Morgan Stanley
Asset Management/Chicago investment team.
The total return of the Portfolio for the six month period ended June 30, 1995
was 19.41% as compared to 20.19% for the S&P 500 Index and 17.90% for the Indata
Equity-Median Index for the same period. The total return of the Portfolio for
the twelve months ended June 30, 1995 and the average annual total return for
the five years ended June 30, 1995 and for the period from inception in January
1990 through June 30, 1995 were 18.77%, 11.32% and 10.69%, respectively,
compared to 26.03%, 12.07% and 13.15% for the S&P 500 Index, and 22.70%, 11.62%
and 12.62% for the Indata Equity-Median Index for the same periods.
The Value Equity Portfolio outperformed the broad market index in April and May,
but underperformed during June. U.S. equity style was a factor with growth
outperforming value. Before fees and expenses, the S&P/Barra Growth Index
returned 21.2% for the six month period ended June 30, 1995, while the S&P/
Barra Value Index returned 19.2% for the same period.
The Value Equity Portfolio outperformed the Indata Equity-Median universe for
the six month period ended June 30, 1995. The Indata Equity-Median Index
returned 17.9% for the six month period ended June 30, 1995. The Portfolio
return of 19.4% places it near the top quartile of U.S. equity funds which
returned at least 19.6%.
- - --------------------------------------------------------------------------------
Value Equity Portfolio
79
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
OVERVIEW
- - --------------------------------------------------------------------------------
THE VALUE EQUITY PORTFOLIO (CONT.)
The Portfolio holds undervalued companies with a wide valuation gap as compared
to the characteristics of the S&P 500:
<TABLE>
<CAPTION>
P/E P/B
--------- ---------
<S> <C> <C>
Value Equity Portfolio....................... 14.6x 2.3x
S&P 500...................................... 16.7x 3.3x
</TABLE>
The Value Equity Portfolio performance during the first half of 1995 was driven
by its value style of investing, by an average company capitalization that is
smaller than the S&P 500, and certain industry overweightings / underweightings
relative to the S&P 500. In terms of size, the large capitalization stocks have
substantially outperformed small stocks by 6%, with large stocks up 20% and
small stocks up 14%. Significant industry weightings that affected performance
included an overweighting in financial services, which positively affected
performance and an underweighting in technology, which hurt performance.
Year-to-date, the best performing sectors in the Portfolio were transportation,
capital goods, technology, financial services and health care. The sectors which
underperformed the most were retail and consumer durables.
During April, the Portfolio increased the weighting in the transportation sector
with the addition of Ryder Systems Inc. In May, the Portfolio decreased the
weighting in the health care sector by selling Becton Dickinson, while
increasing the weightings in technology and utilities by purchasing Apple
Computers Inc. and Pinnacle West Capital Corp. (utility holding company). In
addition, the weighting in financial services was reduced by selling JP Morgan
and Boatmen's Bancshares, and purchasing First of America. During June, the
Portfolio pared back on holdings of CPC International and Heinz, and sold its
position in Merck, while adding to the First of America and Phelps Dodge
positions.
Individual issues which exhibited positive excess total returns relative to the
S&P 500 in the first half of 1995 included Sallie Mae (Student Loan Marketing
Association) with a 44% return; Mellon with a 36% return; BankAmerica with a 33%
return; Chemical Banking Corp. with a 32% return; Burlington Northern with a 32%
return; Deere with a 29% return; and, Baxter with a 29% return. Holdings
exhibiting negative relative returns included Phelps Dodge, down 5% and Hanson
plc, down 3%.
We think the two dominant factors for the second half of 1995 will be (1) the
performance of small stocks versus large stocks and (2) the strength of
corporate earnings. We also think that Value-Growth will be a modest factor
(with a moderate bias toward value).
- - --------------------------------------------------------------------------------
Value Equity Portfolio
80
<PAGE>
- - --------------------------------------------------------------------------------
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1995
- - --------------------------------------------------------------------------------
THE VALUE EQUITY PORTFOLIO
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- - ------------------------------------------------------------
COMMON STOCKS (96.8%)
AEROSPACE (2.4%)
33,100 United Technologies Corp.......................... $ 2,586
----------
BANKING (9.5%)
35,450 BankAmerica Corp.................................. 1,866
32,700 Bankers Trust (New York) Corp..................... 2,027
43,100 Chemical Banking Corp............................. 2,037
61,900 First of America Bank Corp........................ 2,298
48,150 Mellon Bank Corp.................................. 2,004
----------
10,232
----------
CAPITAL GOODS (1.9%)
24,100 Deere & Co........................................ 2,064
----------
CHEMICALS (3.9%)
34,675 Eastman Chemical Co............................... 2,063
24,400 Monsanto Co....................................... 2,199
----------
4,262
----------
COMMUNICATIONS (7.3%)
50,200 NYNEX Corp........................................ 2,020
44,100 SBC Communications, Inc........................... 2,100
68,900 Sprint Corp....................................... 2,317
35,600 U.S. West, Inc.................................... 1,482
----------
7,919
----------
CONSUMER-DURABLES (3.8%)
72,500 Ford Motor Co..................................... 2,157
41,400 General Motors Corp............................... 1,941
----------
4,098
----------
CONSUMER-RETAIL (5.9%)
157,200 Kmart Corp........................................ 2,299
33,500 V.F. Corp......................................... 1,801
153,400 Woolworth Corp.................................... 2,320
----------
6,420
----------
CONSUMER-SERVICE & GROWTH (6.1%)
72,600 Deluxe Corp....................................... 2,405
33,500 Eastman Kodak Co.................................. 2,031
99,700 Ogden Corp........................................ 2,181
----------
6,617
----------
CONSUMER-STAPLES (8.6%)
53,400 American Brands, Inc.............................. 2,123
36,800 Anheuser Busch Cos., Inc.......................... 2,093
16,500 CPC International, Inc............................ 1,019
93,600 Fleming Cos., Inc................................. 2,480
36,900 Heinz (H.J.) Co................................... 1,637
----------
9,352
----------
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- - ------------------------------------------------------------
ENERGY (6.7%)
65,300 Ashland Oil, Inc.................................. $ 2,293
15,550 Mobil Corp........................................ 1,493
12,150 Royal Dutch Petroleum Co.......................... 1,481
30,750 Texaco, Inc....................................... 2,018
----------
7,285
----------
FINANCIAL-DIVERSIFIED (2.1%)
47,450 Student Loan Marketing Association................ 2,224
----------
HEALTH CARE (8.4%)
58,000 Bausch & Lomb, Inc................................ 2,407
58,600 Baxter International, Inc......................... 2,132
31,500 Bristol-Myers Squibb Co........................... 2,146
63,400 Upjohn Co......................................... 2,401
----------
9,086
----------
INDUSTRIAL (4.1%)
120,900 Hanson plc ADR.................................... 2,131
47,700 Rockwell International Corp....................... 2,182
5,565 U.S. Industries, Inc.............................. 76
----------
4,389
----------
INSURANCE (5.8%)
64,100 American General Corp............................. 2,163
55,700 Aon Corp.......................................... 2,075
41,900 St. Paul Cos., Inc................................ 2,064
----------
6,302
----------
METALS (2.5%)
45,300 Phelps Dodge Corp................................. 2,673
----------
TECHNOLOGY (4.2%)
48,500 Apple Computer, Inc............................... 2,252
43,200 Harris Corp....................................... 2,230
----------
4,482
----------
TRANSPORTATION (4.1%)
34,600 Burlington Northern, Inc.......................... 2,193
92,500 Ryder System, Inc................................. 2,208
----------
4,401
----------
UTILITIES (9.5%)
84,500 General Public Utilities Corp..................... 2,514
76,600 Northern Indiana Public Service Co................ 2,604
109,800 Pinnacle West Capital Corp........................ 2,690
70,400 Texas Utilities Co................................ 2,420
----------
10,228
----------
TOTAL COMMON STOCKS (Cost $95,661)............................ 104,620
----------
</TABLE>
The accompanying notes are an integral part of the financial statements. (Pages
144-152)
- - --------------------------------------------------------------------------------
Value Equity Portfolio
81
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1995
- - --------------------------------------------------------------------------------
THE VALUE EQUITY PORTFOLIO (CONT.)
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
<C> <S> <C>
- - ------------------------------------------------------------
SHORT-TERM INVESTMENT (7.8%)
REPURCHASE AGREEMENT (7.8%)
$ 8,386 U.S. Trust, 5.90%, dated 6/30/95, due 7/03/95, to
be repurchased at $8,390, collateralized by
$8,685 United States Treasury Bills, due
7/27/95, valued at $8,651 (Cost $8,386)......... $ 8,386
----------
TOTAL INVESTMENTS (104.6%) (Cost $104,047).................... 113,006
----------
</TABLE>
<TABLE>
<S> <C> <C>
OTHER ASSETS (0.6%)
Cash............................................ $ 1
Receivable for Investments Sold................. 407
Dividends Receivable............................ 267
Interest Receivable............................. 1
Other........................................... 5 681
----------
LIABILITIES (-5.2%)
Payable for Investments Purchased............... (5,448)
Investment Advisory Fees Payable................ (90)
Payable for Portfolio Shares Redeemed........... (17)
Administrative Fees Payable..................... (13)
Custodian Fees Payable.......................... (5)
Directors' Fees and Expenses Payable............ (1)
Other Liabilities............................... (33) (5,607)
---------- ----------
NET ASSETS (100%)............................................. $ 108,080
----------
----------
</TABLE>
<TABLE>
<C> <S> <C>
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER SHARE
Applicable to 8,274,269 outstanding $.001 par value shares
(authorized 500,000,000 shares)............................. $13.06
</TABLE>
- - ------------------------------------------------------------
ADR -- American Depositary Receipt
The accompanying notes are an integral part of the financial statements. (Pages
144-152)
- - --------------------------------------------------------------------------------
Value Equity Portfolio
82
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
OVERVIEW
- - --------------------------------------------------------------------------------
THE BALANCED PORTFOLIO
COMPOSITION OF NET ASSETS (AT JUNE 30, 1995)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Aerospace 1.2%
Banking 4.8%
Capital Goods 0.9%
Chemicals 1.9%
Communications 4.2%
Consumer Durables 2.0%
Consumer Retail 3.1%
Consumer Service & Growth 3.1%
Consumer Staples 4.3%
Energy 3.3%
Financial Diversified 1.1%
Health Care 3.7%
Industrial 2.0%
Insurance 2.7%
Metals 1.2%
Technology 2.1%
Transportation 2.0%
Utilities 4.7%
US Treasury Notes 46.5%
Other 5.2%
</TABLE>
PERFORMANCE COMPARED TO INDATA
BALANCED-MEDIAN INDEX(1)
- - -----------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
------------------------------------------------------------
AVERAGE ANNUAL AVERAGE ANNUAL
YTD ONE YEAR FIVE YEARS SINCE INCEPTION
--------- ----------- ----------------- -----------------
<S> <C> <C> <C> <C>
PORTFOLIO......... 14.25% 13.86% 9.98% 9.75%
INDEX............. 14.40 17.70 10.24 10.39
<FN>
1. The Indata Balanced-Median Index is an unmanaged index and includes an asset
allocation of 5% cash, 42% bonds and 53% equity based on $52.7 billion in
assets among 547 Portfolios for the six months ended June 30, 1995 (assumes
dividends reinvested). The index returns are gross of management fees; the
Portfolio returns are net of management fees and expenses.
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.
</TABLE>
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.
The Balanced Portfolio's value investment philosophy is based on the premise
that a diversified portfolio of undervalued stocks and bonds will outperform the
market over the long-term and can be expected to preserve principal in a
difficult market environment.
The Balanced Portfolio's asset allocation strategy between equities, fixed
income and cash is based upon our estimate of the portfolio's risk. Since
equities are the highest risk asset class, we have maintained a below average
equity exposure during past periods of high market valuation. Typically, our
equity exposure will range between 35% and 65% with an expected long term
average of 55%.
The total return of the Portfolio for the six months ended June 30, 1995 was
14.25% as compared to 14.40% for the Indata Balanced-Median Index for the same
period. The total return for the Portfolio for the twelve months ended June 30,
1995 and the average annual total return for the five years ended June 30, 1995
and for the period from inception in February 1990 through June 30, 1995 were
13.86%, 9.98% and 9.75% respectively, as compared to 17.70%, 10.24% and 10.39%
for the Index for the same periods.
Our asset allocation, based on market value at June 30, 1995 is as follows:
<TABLE>
<S> <C>
Equities................................ 48.3%
Fixed Income............................ 46.5
Cash and other net assets............... 5.2
-----
100.0%
-----
-----
</TABLE>
With the strong growth in corporate earnings, the market, as measured by the S&P
500 Stock Index (S&P 500), is within its historical range for fair valuation
(14-16x P/E). The current level of equity exposure is 48%, down slightly from
the December 31, 1994 level of 50%. The first half 1995 decrease in equity
exposure reflects the recent strong performance of the U.S. equity market and
our expectations that the equity exposure can be increased later in the year if
there is any weakness in the market. At current valuation levels, we expect to
be 50% to 55% in equities by year-end.
To put the current asset allocation in perspective, the equity exposure had been
increased in 1994 from 45% to 50%. The 1994 increase was based on increasing
earnings, and the price decline in the S&P 500. Since the 1994Q2 increase in
equity exposure, the market is up 25%.
- - --------------------------------------------------------------------------------
Balanced Portfolio
83
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
OVERVIEW
- - --------------------------------------------------------------------------------
THE BALANCED PORTFOLIO (CONT.)
EQUITIES
For the six month period ended June 30, 1995, the gross returns for the equity
component of the Balanced Portfolio returned 20.4% versus the S&P 500 return of
20.2%. U.S. equity style was a factor as the S&P/Barra Growth Index returned
21.2% while the S&P/Barra Value Index returned 19.2% for the six month period
ended June 30, 1995.
The median equity return in balanced portfolios for the six month period ended
June 30, 1995, as measured by Indata, was 19.0% and the top quartile was 20.4%,
placing the Balanced Portfolio's equity return in the top quartile.
The equity component of the Portfolio holds the same undervalued companies that
are held in the Value Equity Portfolio. The equity portion of the Portfolio has
a wide valuation gap as compared to the characteristics of the S&P 500:
<TABLE>
<CAPTION>
P/E P/B
--------- ---------
<S> <C> <C>
Portfolio-equity portion..................... 14.6x 2.3x
S&P 500...................................... 16.7x 3.3x
</TABLE>
Year-to-date, the best performing sectors in the portfolio were transportation,
capital goods, technology, financial services and health care. The sectors which
underperformed the most were retail and consumer durables.
During April, we increased the weighting in the transportation sector with the
addition of Ryder Systems Inc. In May, we decreased the weighting in the health
care sector by selling Becton Dickinson, while increasing the weightings in
technology and utilities by purchasing Apple Computers Inc. and Pinnacle West
Capital Corp.(utility holding company). In addition, the weighting in financial
services was reduced by selling JP Morgan and Boatmen's Banc-
shares, and purchasing First of America. During June, we pared back on holdings
of CPC International and Heinz, sold the position in Merck, while adding to the
First of America position.
Individual issues which exhibited positive excess total returns relative to the
S&P 500 in the first half of 1995 included Sallie Mae (Student Loan Marketing
Association) with a 44% return; Mellon with a 36% return; BankAmerica with a 33%
return; Chemical Banking Corp. with a 32% return; Burlington Northern with a 32%
return; Deere with a 29% return; and, Baxter with a 29% return. Holdings
exhibiting negative relative returns included Phelps Dodge, down 5% and Hanson
PLC, down 3%.
FIXED INCOME
The fixed income component of the Balanced Portfolio continues to maintain 100%
exposure to intermediate-term U.S. Government securities. For the six month
period ended June 30, 1995, the fixed income portion of the Portfolio had a
total return of 10.6% against a return of 9.6% for the Lehman
Intermediate-Government/Corporate Index (MSAM/Chicago's fixed-income benchmark).
The fixed income portion of the Portfolio began the year at approximately an
index neutral weighted average maturity. In the first half of 1995, interest
rates fell across the maturity spectrum, with the biggest decreases at 2-3 years
and five years. The portfolio benefited from the reshaping of the yield curve as
it holds U.S. Treasuries in maturities of 3 and 5 years. There was a slight
change in the maturity of the Portfolio in the second half of 1995 as it rolled
down the yield curve. With inflation at approximately the 3% level, and
intermediate yields (5 year maturity) at the 6% level, we are comfortable with
our current position.
- - --------------------------------------------------------------------------------
Balanced Portfolio
84
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1995
- - --------------------------------------------------------------------------------
THE BALANCED PORTFOLIO
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- - ------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (48.3%)
AEROSPACE (1.2%)
3,300 United Technologies Corp.......................... $ 258
----------
BANKING (4.8%)
3,700 BankAmerica Corp.................................. 195
3,400 Bankers Trust (New York) Corp..................... 211
4,300 Chemical Banking Corp............................. 203
6,100 First of America Bank Corp........................ 226
4,700 Mellon Bank Corp.................................. 196
----------
1,031
----------
CAPITAL GOODS (0.9%)
2,300 Deere & Co........................................ 197
----------
CHEMICALS (1.9%)
3,425 Eastman Chemical Co............................... 204
2,300 Monsanto Co....................................... 207
----------
411
----------
COMMUNICATIONS (4.2%)
5,500 NYNEX Corp........................................ 221
5,000 SBC Communications, Inc........................... 238
7,200 Sprint Corp....................................... 242
4,700 U.S. West, Inc.................................... 196
----------
897
----------
CONSUMER -- DURABLES (2.0%)
7,300 Ford Motor Co..................................... 217
4,300 General Motors Corp............................... 202
----------
419
----------
CONSUMER -- RETAIL (3.1%)
17,100 Kmart Corp........................................ 250
3,200 V.F. Corp......................................... 172
15,300 Woolworth Corp.................................... 231
----------
653
----------
CONSUMER -- SERVICE & GROWTH (3.1%)
7,100 Deluxe Corp....................................... 235
3,400 Eastman Kodak Co.................................. 206
9,600 Ogden Corp........................................ 210
----------
651
----------
CONSUMER -- STAPLES (4.3%)
5,500 American Brands, Inc.............................. 219
3,500 Anheuser Busch Cos., Inc.......................... 199
1,700 CPC International, Inc............................ 105
9,400 Fleming Cos., Inc................................. 249
3,400 Heinz (H.J.) Co................................... 151
----------
923
----------
<CAPTION>
VALUE
SHARES (000)
- - ------------------------------------------------------------
<C> <S> <C>
ENERGY (3.3%)
6,400 Ashland, Inc...................................... $ 225
1,350 Mobil Corp........................................ 130
1,250 Royal Dutch Petroleum Co.......................... 152
3,000 Texaco, Inc....................................... 197
----------
704
----------
FINANCIAL -- DIVERSIFIED (1.1%)
5,100 Student Loan Marketing Association................ 239
----------
HEALTH CARE (3.7%)
5,800 Bausch & Lomb, Inc................................ 241
5,100 Baxter International, Inc......................... 185
2,200 Bristol-Myers Squibb Co........................... 150
5,300 Upjohn Co......................................... 201
----------
777
----------
INDUSTRIAL (2.0%)
12,400 Hanson plc ADR.................................... 218
4,400 Rockwell International Corp....................... 201
565 U.S. Industries, Inc.............................. 8
----------
427
----------
INSURANCE (2.7%)
5,900 American General Corp............................. 199
5,300 Aon Corp.......................................... 198
3,800 St. Paul Cos., Inc................................ 187
----------
584
----------
METALS (1.2%)
4,300 Phelps Dodge Corp................................. 254
----------
TECHNOLOGY (2.1%)
4,900 Apple Computer, Inc............................... 228
4,200 Harris Corp....................................... 217
----------
445
----------
TRANSPORTATION (2.0%)
3,400 Burlington Northern, Inc.......................... 215
9,200 Ryder System, Inc................................. 220
----------
435
----------
UTILITIES (4.7%)
7,700 General Public Utilities Corp..................... 229
7,500 Northern Indiana Public Service Co................ 255
11,100 Pinnacle West Capital Corp........................ 272
7,050 Texas Utilities Co................................ 242
----------
998
----------
TOTAL COMMON STOCKS (Cost $8,984)............................. 10,303
----------
</TABLE>
The accompanying notes are an integral part of the financial statements. (Pages
144-152)
- - --------------------------------------------------------------------------------
Balanced Portfolio
85
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1995
- - --------------------------------------------------------------------------------
THE BALANCED PORTFOLIO (CONT.)
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
<C> <S> <C>
- - ------------------------------------------------------------
FIXED INCOME SECURITIES (46.5%)
US TREASURY NOTES (46.5%)
$ 4,875 8.25%, 7/15/98.................................... $ 5,187
4,803 5.50%, 4/15/00.................................... 4,710
----------
TOTAL FIXED INCOME SECURITIES (Cost $9,840)................... 9,897
----------
SHORT-TERM INVESTMENT (4.5%)
REPURCHASE AGREEMENT (4.5%)
968 U.S. Trust, 5.90%, dated 6/30/95, due 7/03/95, to
be repurchased at $968, collateralized by $1,010
United States Treasury Bills, due 7/27/95,
valued at $1,006 (Cost $968).................... 968
----------
TOTAL INVESTMENTS (99.3%) (Cost $19,792)...................... 21,168
----------
</TABLE>
<TABLE>
<S> <C> <C>
OTHER ASSETS (1.4%)
Interest Receivable............................. $ 241
Dividends Receivable............................ 28
Receivable for Investments Sold................. 27
Receivable from Investment Adviser.............. 1
Other........................................... 1 298
-----
LIABILITIES (-0.7%)
Payable for Investments Purchased............... (104)
Payable for Portfolio Shares Redeemed........... (20)
Custodian Fees Payable.......................... (3)
Administrative Fees Payable..................... (3)
Directors' Fees and Expenses Payable............ (1)
Other Liabilities............................... (22) (153)
----- ----------
NET ASSETS (100%)............................................. $ 21,313
----------
----------
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER SHARE
Applicable to 2,189,455 outstanding $.001 par value shares
(authorized 500,000,000 shares)............................. $9.73
----------
----------
- - ------------------------------------------------------------
ADR -- American Depositary Receipt
</TABLE>
The accompanying notes are an integral part of the financial statements. (Pages
144-152)
- - --------------------------------------------------------------------------------
Balanced Portfolio
86
<PAGE>
[LOGO]
Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
OVERVIEW
- - --------------------------------------------------------------------------------
THE EMERGING MARKETS DEBT PORTFOLIO
COMPOSITION OF NET ASSETS (AT JUNE 30, 1995)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Algeria 1.3%
Argentina 6.2%
Brazil 22.8%
Bulgaria 5.5%
Ecuador 6.6%
Mexico 17.3%
Morocco 2.6%
Nigeria 6.6%
Panama 7.1%
Peru 1.6%
Poland 0.9%
Russia 11.8%
Venezuela 0.2%
Other 9.5%
</TABLE>
PERFORMANCE COMPARED TO THE J.P. MORGAN
EMERGING MARKETS BOND INDEX(1)
- - -------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
-------------------------------------------
AVERAGE ANNUAL
YTD ONE YEAR SINCE INCEPTION
---------- ------------ -----------------
<S> <C> <C> <C>
PORTFOLIO............... 11.32% 17.19% -3.13%
INDEX................... 9.23 10.94 -8.08
<FN>
1. The J.P. Morgan Emerging Markets Bond Index is a market weighted index
composed of all Brady bonds outstanding and includes Argentina, Brazil,
Bulgaria, Mexico, Nigeria, the Philippines, Poland and Venezuela.
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.
</TABLE>
THE PERFORMANCE RESULTS PROVIDED IN THIS OVERVIEW 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.
YIELDS WILL FLUCTUATE AS MARKET CONDITIONS CHANGE. PLEASE SEE THE PROSPECTUS FOR
A DESCRIPTION OF CERTAIN RISK CONSIDERATIONS ASSOCIATED WITH INTERNATIONAL
INVESTING.
The investment objective of the Emerging Markets Debt Portfolio is high total
return through investment primarily in debt securities of government,
government-related and corporate issuers located in emerging countries.
The total return of the Portfolio for the six month period ended June 30, 1995
was 11.32% as compared to 9.23% for the JP Morgan Emerging Markets Bond Index
for the same period. The total return for the twelve months ended June 30, 1995
and the average annual total return for the period from inception in February
1994 through June 30, 1995 were 17.19% and -3.13%, respectively, as compared to
10.94% and -8.08% for the JP Morgan Emerging Markets Bond Index for the same
periods. As of June 30, 1995 the Portfolio had an SEC 30-day yield of 12.06%.
Emerging market debt rallied strongly during the second quarter. Economic
adjustment programs undertaken by Mexico and Argentina and the assistance that
these countries received from multilateral institutions and the U.S. Treasury
reduced risk premiums ascribed to this asset class. Lower perceived
probabilities of default and attractive yields attracted buyers.
The Portfolio's strong performance in the second quarter was a function of (a)
being fully invested at the market's bottom, thus benefitting from the strong
rally in the Brady bond market and (b) the Portfolio's concentration in
non-collateralized bonds which are better performers in a rising market. The
Portfolio's exposure to short-term Mexican treasury bills paid off as the
Mexican Peso strengthened. Total return on Cetes held through the quarter was
about 28%.
Credit spreads on MEXICAN sovereign and corporate debt narrowed from grossly
oversold levels as the macroeconomic stabilization in Mexico began to take hold.
The dramatic slowdown in economic activity resulting from tight fiscal and
monetary policies squeezed consumption and imports and brought about a sharp
turnaround in the balance of payments. The repayment of maturing Tesobonos by
drawing down on IMF and U.S. Treasury credits allayed market fears of a
potential default and helped in the restoration of confidence in Mexican
economic policy. The rally in the Mexican Peso enabled us to realize high total
returns on local currency denominated instruments, which accounted for about 5%
of the Portfolio at their peak. We replaced our maturing local money market
instruments in Mexico with Mexican Brady bonds and other quasi-sovereign credits
in order to capture the potential tightening in credit spreads, as the market
revalued Mexican risk. The Peso rally in the second quarter exemplified the
change in market sentiment towards Mexican risk. The credibility of the
austerity program and the government's moves to
- - --------------------------------------------------------------------------------
Emerging Markets Debt Portfolio
87
<PAGE>
[LOGO]
Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
OVERVIEW
- - --------------------------------------------------------------------------------
THE EMERGING MARKETS DEBT PORTFOLIO (CONT.)
further deregulate the economy obviously took some time to develop, but Mexican
risk premiums fell as the probability of default by either the sovereign or the
private sector was reduced.
ARGENTINE assets rallied strongly in anticipation of a first round re-election
in May for President Menem, who had campaigned on a platform which stressed
continuity of sound economic policy. Asset prices encountered profit taking in
the post election euphoria as signs of a dramatic slowdown in the economy
emerged. The strait jacket of the Argentine Convertibility Plan presents a
policy dilemma as it leaves deflation as the only way out of a slowdown in
economic activity. We reduced our exposure to Argentina in June to 6% of the
Portfolio net assets from the 20% level we had maintained for some time.
BRAZIL remains our largest position at around 23% of the Portfolio. Brazil has
the strongest economy in the region and has embarked on a long and difficult
task of amending the constitution in order to de-regulate and stabilize the
economy in the long run. The reform agenda is ambitious and the legislative
sessions are likely to be noisy, with vested interest groups vying to make the
outcome more acceptable to their constituencies. We are confident that when all
is said and done Brazil will emerge as the strongest credit in the region.
ECUADOR, another high-yielding country, benefitted from the better outlook for
commodities and its handling of its foreign exchange and monetary policy in the
aftermath of the Mexico crisis.
We reduced our allocation to VENEZUELA because of continued inaction of the
government to tackle the economy's problems of high fiscal deficits and the
liquidity overhang in the banking system. A continued reliance on price and
exchange controls has not resulted in bringing down inflation and continues to
negatively impact growth prospects.
East European bonds rallied on the back of POLAND'S first Eurobond issue since
the Brady Plan. The investment grade rating by Moody's lifted sentiment for the
region. BULGARIA benefited from the rally in Poland and we have maintained our
exposure to Bulgaria to capture high yields.
Over the last quarter we also increased our exposure to RUSSIAN non-performing
sovereign loans. Political stability and signs that the economy had troughed
would lead to improved perceptions of Russia's creditworthiness. Their need to
fund fiscal deficits in a non-inflationary way and to attract foreign capital to
boost economic activity should result in a normalization of relations with their
external creditors. We currently have about 12% of the Portfolio net assets in
Russian loans and anticipate holding this position for another quarter.
NIGERIAN Brady bonds offer the highest yields in the Brady bond market. With no
deterioration in the economic and political situation the risk-return trade off
in Nigeria is favorable. The Portfolio currently has 7% of its net assets in
Nigeria.
MARKET OUTLOOK:
Declining risk premiums, improving credit fundamentals and the decline in U.S.
interest rates sparked the sharp rally in the Brady market from mid-March
onward, surprising many market participants in the process. The market is stable
at current prices and still offers very attractive valuations. The market's
focus is shifting from panicked reaction to the Mexican crisis, to understanding
the differences in sovereign credits and changes in the path of U.S. interest
rates. Perceptions of Mexico have changed dramatically and Mexican sovereign
spreads currently reflect the enthusiasm of the market towards Mexican assets.
Argentina and Brazil have widened relative to Mexico, albeit for different
reasons already alluded to above. High yielding assets of Venezuela, Nigeria,
Bulgaria and Ecuador become attractive when market conditions are stable. At the
higher end of the risk spectrum, the pre-restructuring plays of Russia, Ivory
Coast and Algeria offer attractive potential returns based on the likelihood of
a restructuring taking place in the near future.
The Brady bond market should remain stable in the absence of any dramatic
back-up in U.S. interest rates. Potential entry of long-term institutional money
into the Brady markets following a period of relative stability should confirm
the cyclical recovery in prices as the market tests the highs last seen during
the third quarter of 1994.
Over time, the Portfolio will be diversifying away from its concentrated
holdings and will be looking at attractive yields available in the short end of
the curve in both U.S. and non-U.S. dollar segments of the market.
- - --------------------------------------------------------------------------------
Emerging Markets Debt Portfolio
88
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1995
- - --------------------------------------------------------------------------------
THE EMERGING MARKETS DEBT PORTFOLIO
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
<C> <S> <C>
- - ------------------------------------------------------------
DEBT INSTRUMENTS (89.2%)
ALGERIA (1.3%)
LOAN AGREEMENTS (1.3%)
$ 5,788 Algeria Refinanced Loan Agreements, Tranche A,
(Floating Rate), 8.313%, 3/04/00................ $ 2,315
----------
ARGENTINA (6.2%)
BONDS (6.2%)
$ 13,000 Republic of Argentina Discount Bonds, (Floating
Rate), 7.313%, 3/31/23.......................... 7,508
5,295 Republic of Argentina, Series L, "Euro" (Floating
Rate), 7.313%, 3/31/05.......................... 3,263
500 Republic of Argentina, Series L, (Floating Rate),
7.313%, 3/31/05................................. 308
----------
11,079
----------
BRAZIL (21.5%)
BONDS (21.5%)
$ 1,600 Federative Republic of Brazil Debt Conversion
Bonds, Series L, (Floating Rate), 7.313%,
4/15/12......................................... 832
7,750 Federative Republic of Brazil EI Bonds, (Floating
Rate), 7.25%, 4/15/06........................... 4,640
12,200 Federative Republic of Brazil New Money Bonds,
Series L, (Floating Rate), 7.313%, 4/15/09...... 6,573
11,000 Federative Republic of Brazil Par Bond, Series
YL3, 4.00%, 4/15/24............................. 4,909
40,170 Federative Republic of Brazil, Series C,
"Euro" (Floating Rate), 4.00%, 4/15/14.......... 19,834
3,615 Federative Republic of Brazil, Series C, (Floating
Rate), 4.00%, 4/15/14........................... 1,785
----------
38,573
----------
BULGARIA (5.5%)
BONDS (5.5%)
$ 491 Bulgaria Discount, Series A, "Euro" (Floating
Rate), 7.563%, 7/28/24.......................... 245
762 Bulgaria Discount, Series B, (Floating Rate),
8.063%, 7/28/24................................. 380
7,750 Bulgaria Front Loaded Interest Reduction Bond,
Series A, (Floating Rate), 2.00%, 7/28/12....... 1,996
14,000 Bulgaria Interest Arrears Bonds, "Euro", (Floating
Rate), 7.563%, 7/28/11.......................... 5,915
2,983 Bulgaria Interest Arrears Bonds, (Floating Rate),
7.563%, 7/28/11................................. 1,260
----------
9,796
----------
ECUADOR (6.6%)
BONDS (6.6%)
$ 12,000 Republic of Ecuador Discount Bonds,
"Euro" (Floating Rate), 7.25%, 2/28/25.......... 5,970
181 Republic of Ecuador Discount Bonds, (Floating
Rate), 7.25%, 2/28/25........................... 90
824 Republic of Ecuador IE Bonds, (Floating Rate),
6.75%, 12/21/04................................. 486
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
<C> <S> <C>
- - ------------------------------------------------------------
$ 10,000 Republic of Ecuador Par Fund "Euro", (Floating
Rate), 3.00%, 2/28/25........................... $ 3,250
6,407 Republic of Ecuador PDI Bonds, (Floating Rate),
7.25%, 2/27/15.................................. 2,130
----------
11,926
----------
MEXICO (17.3%)
LOAN AGREEMENTS (2.0%)
$ 5,000 United Mexican States Old New Money Loans,
(Floating Rate), 7.263%, 3/20/05................ 3,509
----------
BILLS (2.6%)
MP 13,125 Mexican Cetes, Zero Coupon, 8/24/95............... 1,973
5,513 Mexican Cetes, Zero Coupon, 8/31/95............... 823
6,426 Mexican Cetes, Zero Coupon, 9/07/95............... 951
7,298 Mexican Cetes, Zero Coupon, 2/22/96............... 915
----------
4,662
----------
BONDS (12.7%)
$ 10,000 Banco Nacional de Comercio 7.25%, 2/02/04......... 7,200
3,000 CFE (Petacalco Topolo) 8.125%, 12/15/03........... 2,130
5,000 Mexican Discount Bond Series A, (Floating Rate),
7.219%, 12/31/19 (Value Recovery Rights
Attached)....................................... 3,569
14,700 Petro Mexicanos, 8.625%, 12/01/23................. 9,978
----------
22,877
----------
31,048
----------
MOROCCO (2.6%)
LOAN AGREEMENTS (2.6%)
$ #8,000 Morocco Restructuring and Consolidating Agreement,
Tranche A, (Floating Rate), 7.375%, 1/01/09
(Participation: Chase Manhattan Bank, JP Morgan,
Lehman Brothers, Goldman Sachs, Salomon
Brothers)....................................... 4,710
----------
NIGERIA (6.6%)
BONDS (6.6%)
$ 24,500 Central Bank of Nigeria Par Bonds, (Floating
Rate), 6.25%, 11/15/20 (Warrants Attached)...... 10,841
2,750 Nigeria Promissory Note 4.207%, 1/05/10........... 935
+++250 Nigeria Promissory Note 4.207%, 1/05/10........... 85
----------
11,861
----------
PANAMA (7.1%)
LOAN AGREEMENTS (5.4%)
$ ++16,013 Republic of Panama Refinanced Loan Agreement,
(Floating Rate)................................. 8,166
d++2,800 Republic of Panama Unstructured Loans (Floating
Rate)........................................... 1,428
----------
9,594
----------
BONDS (1.7%)
4,000 Republic of Panama, (Floating Rate) 7.25%,
5/10/02......................................... 3,080
----------
12,674
----------
</TABLE>
The accompanying notes are an integral part of the financial statements. (Pages
144-152)
- - --------------------------------------------------------------------------------
Emerging Markets Debt Portfolio
89
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1995
- - --------------------------------------------------------------------------------
THE EMERGING MARKETS DEBT PORTFOLIO (CONT.)
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
<C> <S> <C>
- - ------------------------------------------------------------
PERU (1.6%)
LOAN AGREEMENTS (1.6%)
$ ++5,000 Republic of Peru, Non-Citibank Agreement (Floating
Rate)........................................... $ 2,900
----------
POLAND (0.9%)
BONDS (0.9%)
$ 2,644 Republic of Poland Interest Arrears PDI Bonds,
3.25%, 10/27/14................................. 1,583
----------
RUSSIA (11.8%)
LOAN AGREEMENTS (11.8%)
$ ++65,150 Bank for Foreign Economic Affairs, (Floating
Rate)........................................... 21,175
----------
VENEZUELA (0.2%)
BONDS (0.2%)
$ 841 Republic of Venezuela, Discount Bonds, Series A,
(Floating Rate), 7.188%, 3/31/20 (Oil Warrants
Attached)....................................... 439
56 Republic of Venezuela, Discount Bond, Series B,
(Floating Rate), 6.938%, 3/31/20 (Oil Warrants
Attached)....................................... 29
----------
468
----------
TOTAL DEBT INSTRUMENTS (Cost $156,101)........................ 160,108
----------
NO. OF
WARRANTS
- - ----------
WARRANTS (1.3%)
BRAZIL (1.3%)
+3,000 Minas Gerais 8.25%, expiring 2/10/00 (Cost
$2,115)......................................... 2,340
----------
FACE
AMOUNT
(000)
- - ----------
SHORT-TERM INVESTMENT (2.8%)
REPURCHASE AGREEMENT (2.8%)
$ 4,997 U.S. Trust, 5.90%, dated 6/30/95, due 7/03/95, to
be repurchased at $4,999, collateralized by
$5,180 United States Treasury Bills, due
7/27/95, valued at $5,160 (Cost $4,997)......... 4,997
----------
TOTAL INVESTMENTS (93.3%) (Cost $163,213)..................... 167,445
----------
</TABLE>
<TABLE>
<CAPTION>
VALUE
(000)
<S> <C> <C>
- - ------------------------------------------------------------
OTHER ASSETS (22.1%)
Cash............................................ $ 284
Receivable for Investments Sold................. 28,035
Receivable for Portfolio Shares Sold............ 7,362
Interest Receivable............................. 4,053
Other........................................... 7 $ 39,741
----------
LIABILITIES (-15.4%)
Payable for Investments Purchased............... (26,817)
Investment Advisory Fees Payable................ (467)
Custodian Fees Payable.......................... (145)
Written Options Outstanding, at Value (premiums (129)
received $87)..................................
Administrative Fees Payable..................... (24)
Directors' Fees and Expenses Payable............ (1)
Other Liabilities............................... (60) (27,643)
---------- ----------
NET ASSETS (100%)............................................. $ 179,543
----------
----------
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
Applicable to 19,902,357 outstanding $.001 par value shares
(authorized 500,000,000 shares)............................. $9.02
----------
----------
</TABLE>
- - ------------------------------------------------------------
+ -- Non-income producing security
++ -- Non-income producing securities -- in default
+++ -- Security is subject to delayed delivery -- See Note A-6
d -- Terms of loan agreement not final at June 30, 1995.
# -- Participation interests were acquired through the financial institutions
listed parenthetically. All other loan agreements are assignments. See Note
A-7
MP -- Mexican New Peso
Floating Rate Securities. Interest rate changes on these instruments are based
on changes in a designated base rate.
<TABLE>
<CAPTION>
- - ------------------------------------------------------------
FACE
AMOUNT VALUE
(000) (000)
- - ------------------------------------------------------------
<C> <S> <C>
WRITTEN CALL OPTIONS (NOTE A-9)
ARGENTINA
CALL OPTIONS
4,000 Argentina Floating Rate Bond, 7.313%, 3/31/05,
strike price $59, expiring 7/14/95 (Premiums
$87)............................................ $ 129
-----
-----
</TABLE>
The accompanying notes are an integral part of the financial statements. (Pages
144-152)
- - --------------------------------------------------------------------------------
Emerging Markets Debt Portfolio
90
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
OVERVIEW
- - --------------------------------------------------------------------------------
THE FIXED INCOME PORTFOLIO
COMPOSITION OF INVESTMENT VALUE (AT JUNE 30, 1995)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Asset Backed Securities 6.1%
Corporate Bonds & Notes 24.3%
Foreign Government & Agency Obligations 8.6%
US Government & Agency Obligations 60.4%
Other 0.6%
</TABLE>
PERFORMANCE COMPARED TO THE LEHMAN AGGREGATE
BOND INDEX(1)
- - -------------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
---------------------------------------------
AVERAGE ANNUAL
YTD ONE YEAR SINCE INCEPTION
---------- ------------ -------------------
<S> <C> <C> <C>
PORTFOLIO............... 11.14% 12.50% 8.60%
INDEX................... 11.45 12.55 8.93
<FN>
1. The Lehman Aggregate Bond Index is an unmanaged index made up of the
Government/Corporate Index, the Mortgage-Backed Securities Index and the
Asset-Backed Securities Index.
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.
</TABLE>
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. YIELDS WILL FLUCTUATE AS MARKET
CONDITIONS CHANGE.
The Fixed Income Portfolio invests primarily in a diversified portfolio of U.S.
Government securities, corporate bonds (including competitively priced
Eurodollar bonds), mortgage-backed securities and other fixed income securities.
Targeted rates of return for the Portfolio are based on current and projected
market and economic conditions and on a conservative investment management
approach.
For the six month period ended June 30, 1995 the Portfolio had a total return of
11.14% as compared with 11.45% for the Lehman Aggregate Bond Index. The total
return for the twelve months ended June 30, 1995 and the average annual total
return for the period from inception in May 1991 through June 30, 1995 were
12.50% and 8.60%, respectively, as compared to 12.55% and 8.93% for the Lehman
Aggregate Bond Index for the same periods. As of June 30, 1995, the Portfolio
had an SEC 30-day yield of 6.92%.
After turning in a strong performance in the first quarter of 1995, the bond
market produced even better total returns in the second quarter. In fact,
returns on the broader bond market indices of more than 6% over the quarter were
the highest in seven years, while returns for the first half of the year of
nearly 11.5% were the highest in more than a decade. Both economic fundamentals
and technical market conditions contributed to the ongoing rally. As evidence of
a slowdown in economic activity mounted, investor expectations of an easing of
monetary policy by the Federal Reserve increased, causing interest rates to
fall. As rates fell, many investors were forced to extend their portfolio
durations, causing rates to fall further still. One notable feature of the rally
was that it was accompanied by a dramatic increase in market volatility.
While many investors had concluded by the start of the second quarter that the
Federal Reserve was not likely to tighten further, few suspected that it would
soon ease monetary policy. Over the quarter though, evidence of weakness in
economic activity accumulated rapidly, being broadly reflected in data series
for retail sales, housing, manufacturing and employment. The extremely weak
employment reports released in early May and June provided very strong
confirmation to the market of an economic slowdown. As this evidence grew,
market participants quickly began to change their expectations and anticipate a
Fed easing. By the end of June, interest rate levels implied a market
expectation of a 50-75 basis-point easing by the end of the year.
From a technical standpoint, many investors were not properly positioned for
this weakening economic
- - --------------------------------------------------------------------------------
Fixed Income Portfolio
91
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
OVERVIEW
- - --------------------------------------------------------------------------------
THE FIXED INCOME PORTFOLIO (CONT.)
environment. Seeking to protect against a repeat of the negative total return
experience of 1994, many institutions still held durations that were below
target. Not wanting to be left behind as the market rallied, many of these
investors extended duration, providing substantial buying power to fuel a market
rally. Moreover, as rates fell, holdings of mortgage-backed securities shortened
in duration because of expectations of faster prepayments, further adding to the
need of investors to extend duration. Overall, two-year yields fell by almost
190 basis points and 30-year yields declined by 125 basis points during the
first half of 1995.
Because of the magnitude and speed with which investor expectations were
shifting, market volatility picked up dramatically. The first half of 1995 was
characterized by sharp yield movements, both on a week-to-week and on an
intra-day basis. For example, in the two-week period between May 26 and June 9,
two-year Treasury yields first fell by 70 basis points, then rose by 70 basis
points. Intra-day yield movements of more than 20 basis points occurred several
times over the period.
The sizable decline in rates and increase in volatility had a strong influence
on sector performance. In particular, mortgage-backed securities performed
poorly, as fears of rapid prepayments caused by declining interest rates led
both investors and dealers to shun this sector. Corporate bonds performed much
better over the first half, outperforming Treasuries. The outperformance over
the first half masks interim volatility within the sector. Strong performance in
April was offset by weak performance in May as heavy new issue supply, brought
on by low rate levels, put pressure on spreads.
STRATEGY REVIEW
Over the first half of the year, we extended our durations to slightly longer
than our benchmarks. We constantly monitored the durations of our mortgage
holdings and rapidly adjusted our overall durations to compensate for the
shortening of these instruments. As the mortgage sector cheapened, our analysis
suggested that values more than compensated for prepayment concerns and we
increased our exposure to mortgage pass-throughs in June. We maintained a
somewhat more barreled yield curve distribution than our benchmarks,
particularly viewing the 10-year sector of the yield curve as expensive. We have
consistently underweighted Treasuries in favor of yield-advantaged sectors and,
at current valuation levels, expect to continue doing so.
OUTLOOK
We are currently viewing the bond market opportunistically. Rather than adhering
to a rigid view, we are willing to adjust duration or sector position as values
suggest. While current interest rate levels appear fair in terms of pricing in a
modest amount of continued easing, we are only willing to extend duration at
somewhat higher rate levels or to shorten duration if the market seems to be
pricing in too much Fed easing. We continue to overweight high quality spread
product to gain incremental yield. To the extent volatility declines from its
very high recent levels, yield advantage should become an increasingly important
source of return against the benchmarks.
- - --------------------------------------------------------------------------------
Fixed Income Portfolio
92
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1995
- - --------------------------------------------------------------------------------
THE FIXED INCOME PORTFOLIO
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- - ------------------------------------------------------------
<C> <S> <C>
FIXED INCOME SECURITIES (99.4%)
US GOVERNMENT AND AGENCY OBLIGATIONS (60.4%)
US Treasury Bonds (2.6%)
$ 4,000 7.50%, 11/15/16................................... $ 4,355
----------
US Treasury Notes (19.1%)
17,000 8.25%, 7/15/98.................................... 18,089
5,000 6.25%, 5/31/00.................................... 5,053
8,000 7.25%, 8/15/04.................................... 8,549
----------
31,691
----------
Federal Home Loan Mortgage Corporation (11.7%)
17 13.00%, 9/01/10................................... 19
18,601 9.00%, 11/01/24 - 2/01/25......................... 19,386
----------
19,405
----------
Government National Mortgage Association (27.0%)
9 11.00%, 12/15/15.................................. 10
18 10.00%, 5/15/19................................... 19
8,074 6.00%, 2/15/24.................................... 7,549
7,457 8.00%, 3/15/24.................................... 7,634
20,022 7.00%, 5/15/24.................................... 19,703
9,690 7.50%, 1/20/25.................................... 9,927
----------
44,842
----------
TOTAL US GOVERNMENT AND AGENCY OBLIGATIONS.................. 100,293
----------
FOREIGN GOVERNMENT AND AGENCY OBLIGATIONS (8.6%)
5,000 Hydro Quebec 8.05%, 7/07/24....................... 5,465
10,000 Republic of Italy 6.875%, 9/27/23................. 8,876
----------
TOTAL FOREIGN GOVERNMENT AND AGENCY OBLIGATIONS............. 14,341
----------
CORPORATE BONDS AND NOTES (24.3%)
FINANCE (18.0%)
7,000 CCP Insurance 10.50%, 12/15/04.................... 7,399
7,500 Farmers Insurance 8.625%, 5/01/24................. 7,247
5,000 Ford Motor Credit Co. 5.625%, 3/03/97............. 4,947
5,000 General Motors Acceptance Corp. 7.375%, 6/22/00... 5,131
5,000 Goldman Sachs Group 7.80%, 7/15/02................ 5,181
----------
29,905
----------
METALS (3.2%)
5,000 USX Corp. 9.125%, 1/15/13......................... 5,301
----------
SERVICES (3.1%)
5,000 News America Holdings, Inc. 7.50%, 3/01/00........ 5,120
----------
TOTAL CORPORATE BONDS AND NOTES............................. 40,326
----------
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- - ------------------------------------------------------------
<C> <S> <C>
ASSET BACKED SECURITIES (6.1%)
$ 16 Case Equipment Loan Trust, 92-A 5.40%, 6/15/98.... $ 16
32 Federal Home Loan Mortgage Corp., REMIC 16-B
10.00%, 10/15/19................................ 33
22 Federal National Mortgage Association REMIC 92-59F
6.494%, 8/25/06................................. 22
100 Ford Credit Auto Loan Master Trust, 92-1A 6.875%,
1/15/99......................................... 101
15 General Motors Acceptance Corp. Trust, 92-DA
5.55%, 5/15/97.................................. 14
4,587 Resolution Trust Corp. 9.00%, 3/25/17............. 4,794
5,000 Standard Credit Card Trust 6.75%, 6/07/00......... 5,059
----------
TOTAL ASSET BACKED SECURITIES............................... 10,039
----------
TOTAL FIXED INCOME SECURITIES (Cost $157,764)................. 164,999
----------
SHORT-TERM INVESTMENT (0.9%)
REPURCHASE AGREEMENT (0.9%)
1,480 Goldman Sachs 6.05%, dated 6/30/95, due 7/03/95,
to be repurchased at $1,481, collateralized by
$960 United States Treasury Bonds, 12.50%, due
8/15/14, valued at $1,523 (Cost $1,480)......... 1,480
----------
TOTAL INVESTMENTS (100.3%) (Cost $159,244).................... 166,479
----------
</TABLE>
<TABLE>
<S> <C> <C>
OTHER ASSETS (1.6%)
Interest Receivable............................. $ 2,637
Other........................................... 15 2,652
----------
LIABILITIES (-1.9%)
Payable to Custodian............................ (2,962)
Investment Advisory Fees Payable................ (81)
Administrative Fees Payable..................... (28)
Payable for Portfolio Shares Redeemed........... (8)
Custodian Fees Payable.......................... (6)
Directors' Fees and Expenses Payable............ (1)
Other Liabilities............................... (27) (3,113)
---------- ----------
NET ASSETS (100%)............................................. $ 166,018
----------
----------
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER SHARE
Applicable to 15,751,671 outstanding $.001 par value shares
(authorized 500,000,000 shares)............................. $10.54
----------
----------
</TABLE>
- - ------------------------------------------------------------
REMIC -- Real Estate Mortgage Investment Conduit
The accompanying notes are an integral part of the financial statements. (Pages
144-152)
- - --------------------------------------------------------------------------------
Fixed Income Portfolio
93
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
OVERVIEW
- - --------------------------------------------------------------------------------
THE GLOBAL FIXED INCOME PORTFOLIO
COMPOSITION OF NET ASSETS (AT JUNE 30, 1995)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Australian Dollar 2.8%
British Pound 6.2%
Canadian Dollar 3.2%
Danish Krone 4.9%
Deutsche Mark 14.0%
Finnish Markka 2.2%
French Franc 6.0%
Italian Lira 4.5%
Japanese Yen 8.4%
Netherlands Guilder 5.1%
New Zealand Dollar 1.7%
Spanish Peseta 4.1%
Swedish Krona 2.0%
United States Dollar 31.5%
Other 3.4%
</TABLE>
PERFORMANCE COMPARED TO THE J.P. MORGAN
TRADED GLOBAL BOND INDEX(1)
- - -------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
-----------------------------------------
AVERAGE ANNUAL
YTD ONE YEAR SINCE INCEPTION
--------- ----------- -----------------
<S> <C> <C> <C>
PORTFOLIO................ 12.55% 13.22% 8.56%
INDEX.................... 15.56 17.46 11.61
<FN>
1. The J.P. Morgan Traded Global Bond Index is an unmanaged index of securities
and includes Australia, Belgium, Canada, Denmark, France, Germany, Italy,
Japan, The Netherlands, Spain, Sweden, the United Kingdom and the United
States.
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.
</TABLE>
THE COUNTRY SPECIFIC 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.
YIELDS WILL FLUCTUATE AS MARKET CONDITIONS CHANGE. PLEASE SEE THE PROSPECTUS FOR
A DESCRIPTION OF CERTAIN RISK CONSIDERATIONS ASSOCIATED WITH INTERNATIONAL
INVESTING.
The Global Fixed Income Portfolio aims to produce an attractive rate of return
by investing in fixed income securities issued by governments, agencies,
supranational entities and corporations with varing maturities in various
currencies.
The total return of the Portfolio for the six months ended June 30, 1995 was
12.55% as compared to 15.56% for the J.P. Morgan Traded Global Bond Index for
the same period. Total returns for the past twelve months and the average annual
total return for the period from inception in May 1991 through June 30, 1995
were 13.22% and 8.56%, respectively, compared to 17.46% and 11.61% for the J.P.
Morgan Traded Global Bond Index for the same periods. As of June 30, 1995, the
Portfolio had an SEC 30-day yield of 6.79%.
During the first half of 1995 fixed income markets performed strongly with local
currency returns ranging from 4.4% in Sweden to 12.6% in Japan. They were driven
by downward revisions to the expected path of short term interest rates as
economic growth showed signs of weakening. The subdued inflation background was
also supportive.
The rally was led by the U.S. where the market was buoyed by continuing
indications of slower economic activity while price and wage inflation remained
impressively tempered for this stage of the growth cycle. The Fed increased
rates by 0.5% to 6.0% in February but expectations of further monetary
tightening were then scaled back considerably. Indeed the market increasingly
discounted an easing of monetary policy in the second half of the year. By early
June the yield on ten-year maturity Treasuries had fallen below 6.0%, helped by
solid retail participation from Japanese accounts and central banks and the
hedging of mortgage bond exposure. The market produced an overall return of
around 10% for the period with longer maturities the most profitable despite a
steepening of the yield curve.
The Portfolio maintained a neutral to slightly long duration in the U.S. and
actively switched between the Treasury, corporate and mortgage sectors. Holdings
of U.S. bonds were increased over the period but the Portfolio remained
underweight. A slightly overweight position was maintained in the other dollar
bloc markets. The Canadian market offered a similar return as the economy also
displayed weakness and developments in the U.S. allowed the Bank of Canada to
lower rates without threatening the exchange rate. The Australian market also
returned around 10% as the economy slowed and a fiscal surplus was announced in
the budget. The New Zealand market
- - --------------------------------------------------------------------------------
Global Fixed Income Portfolio
94
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
OVERVIEW
- - --------------------------------------------------------------------------------
THE GLOBAL FIXED INCOME PORTFOLIO (CONT.)
underperformed due to its heavily inverse yield curve, some political worries
and the likelihood of a temporary rise in inflation.
Japanese bonds rallied throughout the period and by June benchmark yields had
fallen below 3.0%, the lowest level since 1987. The Bank of Japan cut the
discount rate by 0.75% to a record low of 1.0% in April and overnight call rates
dropped to 1.25%. The strong yen continued to threaten the economic recovery
while the financial system remained fragile and deflation pressures mounted.
Domestic investors, faced with a falling stock market, low returns on cash and
an aversion to foreign exchange risk, gave strong support to the market. Yields
on benchmark euro-yen issues dropped below government bonds due to relative
supply pressures and custodial uncertainties. During the period under review,
the Portfolio increased both its allocation to euro-yen bonds and their duration
but stayed underweight to the detriment of relative performance.
In Europe the German market returned 7.3%, supported by a continuing downward
trend in inflationary pressures and below target money supply growth. Although
German exports held up well, the strength of the deutsche mark was seen as both
threatening growth prospects and dampening inflation. The Bundesbank cut the
discount rate by 0.5% in March and speculation of further cuts resulted in a
steeper German yield curve. Official rates were also lowered in Denmark, Belgium
and the Netherlands in the second quarter. Higher yielding markets reversed part
of their first quarter underperformance and spreads to the core markets
tightened. They were helped by the general bond rally, progress on fiscal
consolidation, some currency stability and reallocations from underweight
investors. The French market returned 7.4% but suffered as the new government's
employment goals were seen as threatening its commitment to fiscal rectitude and
a strong franc policy. A well received mini-budget and a recovery in the French
franc alleviated upward pressure on short rates during June. The U.K. market
benefited from downward revisions to economic activity but underperformed (up
5.7%) because of the inflationary risks stemming from sterling weakness.
Political turmoil and the associated potential risks of a more populist policy
agenda caused a sharp setback in June.
Portfolio performance was aided by an overall long duration position in European
holdings. Some long dated issues were shortened as the markets rallied.
On the foreign exchanges the U.S. dollar depreciated heavily against most
currencies in the first quarter then traded in narrow but volatile ranges over
the second quarter. It ended around 12% lower against the deutsche mark at
DM1.38 having touched all time lows of DM1.33 in March. It hit new lows of below
Y81 against the yen before recovering slightly to end the period 17% weaker. The
dollar remained hostage to the familiar structural problems of the U.S. current
account deficit, budget deficit and low level of national savings. In addition
the moderating pace of economic growth caused the market to revise down its
expectations for the path of U.S. interest rates. Other negatives were the shock
of the Mexican peso devaluation, a perception of limited concern among U.S.
policy makers and Central Bank diversification. However, investors became
increasingly less inclined to take strong bets against the dollar and large
scale central bank intervention at the end of May was successful at supporting
the currency. The Portfolio maintained a slightly overweight dollar position by
hedging some European currency exposure. The Australian dollar reversed some of
last year's gains, falling 8.8% against the U.S. counterpart as the large
current account deficit showed no signs of improvement. Conversely, the New
Zealand dollar rose over 4% as the Central Bank confirmed that interest rates
would be kept high to keep inflation close to its target range. The Canadian
dollar appreciated by 1% as Quebec secession risks receded and national and
provincial budget plans were viewed as increasingly credible. The Portfolio
reduced its weighting to the Canadian dollar to neutral but successfully hedged
the Australian bond exposure into New Zealand dollars. The yen was supported by
the large current account surplus, capital repatriation and the reluctance of
Japanese investors to recycle their surpluses overseas. Judging the yen to be
very overvalued, we held an underweight yen currency position which was the
largest factor causing performance to lag the benchmark. In Europe deutsche mark
strength against the dollar and country specific problems led to turmoil on the
cross rates and significant falls in most peripheral currencies. These were
partially reversed in the second quarter but ended the period significantly
weaker against the deutsche mark. The prospect of further German monetary easing
and bond market flows were supportive. Sterling fell to new all-time lows on a
trade weighted basis. A more pessimistic view of sterling was warranted by a
deteriorating trade performance, quarter-end political turmoil and the suspicion
of a politicization of monetary policy setting. We successfully positioned the
Portfolio to be overweight in the
- - --------------------------------------------------------------------------------
Global Fixed Income Portfolio
95
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
OVERVIEW
- - --------------------------------------------------------------------------------
THE GLOBAL FIXED INCOME PORTFOLIO (CONT.)
hard core European currencies but maintained some exposure to the high yielding
currencies. The Finnish markka performed well.
The Portfolio is presently structured to have an overall duration slightly
longer than the benchmark, reflecting a positive view of bond markets. In
relative terms it is slightly underweight the U.S. and dollar bloc markets since
there are risks of the market discounting much good news in respect of a "soft
landing" for the U.S. economy. An underweight Japanese position is held in
anticipation of a reversal of the market's recent outperformance. Running yields
are un-competitive, it is vulnerable to fiscal stimulus and increased supply and
the yen is very overvalued. Real and nominal yields are considered most
attractive in the European markets. Some hedging from European currencies brings
the dollar bloc exposure to slightly overweight reflecting a positive bias to
dollar appreciation.
The general global environment of stable short-term interest rates, a
structurally subdued inflation background and a softening of economic growth
forecasts remains broadly constructive for fixed income investment during the
remainder of the year. Markets risk setbacks if it becomes apparent that they
have taken an exaggerated view of the current pause in global economic growth or
have become overly enthusiastic about rate cut prospects. The U.S. dollar
appears to be forming a base around current levels. Its significant declines
over the last eighteen months should increasingly set in motion adjustments in
the real economy that generate a cyclical recovery in the currency. It remains
cheaply valued and competitive and a slower economy should help the trade
deficit. The improved tone of the U.S. debate on fiscal policy is also a
potential support and U.S. monetary policy may prove to be tighter than
presently discounted.
- - --------------------------------------------------------------------------------
Global Fixed Income Portfolio
96
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1995
- - --------------------------------------------------------------------------------
THE GLOBAL FIXED INCOME PORTFOLIO
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- - ------------------------------------------------------------
<C> <S> <C>
FIXED INCOME SECURITIES (96.6%)
AUSTRALIAN DOLLAR (2.8%)
GOVERNMENT BONDS (2.8%)
A$ 3,600 Government of Australia 9.00%, 9/15/04............ $ 2,532
--------
BRITISH POUND (6.2%)
GOVERNMENT BONDS (6.2%)
L 3,500 United Kingdom Treasury 8.00%, 12/07/00........... 5,520
--------
CANADIAN DOLLAR (3.2%)
EUROBONDS (3.2%)
C$ 1,500 British Columbia Province 7.75%, 6/16/03.......... 1,073
2,500 Export-Import Bank of Japan 7.75%, 10/08/02....... 1,769
--------
2,842
--------
DANISH KRONE (4.9%)
GOVERNMENT BONDS (4.9%)
DK 26,000 Kingdom of Denmark 7.00%, 12/15/04................ 4,339
--------
DEUTSCHE MARK (14.0%)
GOVERNMENT BONDS (14.0%)
DM 4,500 Deutschland Republic 6.50%, 7/15/03............... 3,152
2,000 Treuhandanstalt 6.25%, 7/29/99.................... 1,456
7,500 Treuhandanstalt 6.875%, 6/11/03................... 5,371
3,500 Treuhandanstalt 6.75%, 5/13/04.................... 2,481
--------
12,460
--------
FINNISH MARKKA (2.2%)
GOVERNMENT BONDS (2.2%)
FM 8,000 Finnish Government 9.50%, 3/15/04................. 1,953
--------
FRENCH FRANC (6.0%)
GOVERNMENT BONDS (6.0%)
FF 26,800 France O.A.T. 6.75%, 10/25/03..................... 5,265
--------
ITALIAN LIRA (4.5%)
GOVERNMENT BONDS (4.5%)
IL 7,395,000 Republic of Italy Treasury Bond 8.50%, 8/01/99.... 4,006
--------
JAPANESE YEN (8.4%)
EUROBONDS (8.4%)
Y 450,000 Republic of Austria 4.75%, 12/20/04............... 6,114
95,000 International Bank for Reconstruction &
Development 5.25%, 3/20/02...................... 1,307
--------
7,421
--------
NETHERLANDS GUILDER (5.1%)
GOVERNMENT BONDS (5.1%)
NG 3,500 Netherlands Government 7.25%, 10/01/04............ 2,300
3,500 Netherlands Government 7.00%, 6/15/05............. 2,253
--------
4,553
--------
NEW ZEALAND DOLLAR (1.7%)
GOVERNMENT BONDS (1.7%)
NZ$ 750 New Zealand Government 6.50%, 2/15/00............. 475
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- - ------------------------------------------------------------
<C> <S> <C>
NZ$ 1,550 New Zealand Government 8.00%, 4/15/04............. $ 1,061
--------
1,536
--------
SPANISH PESETA (4.1%)
GOVERNMENT BONDS (4.1%)
SP 340,000 Spanish Government 10.25%, 11/30/98............... 2,705
120,000 Spanish Government 10.30%, 6/15/02................ 922
--------
3,627
--------
SWEDISH KRONA (2.0%)
GOVERNMENT BONDS (2.0%)
SK 13,000 Swedish Government 10.25%, 5/05/00................ 1,765
--------
UNITED STATES DOLLAR (31.5%)
EUROBONDS (2.6%)
$ 2,000 Republic of Italy 6.875%, 9/27/23................. 1,782
500 Statens Bostads 8.50%, 5/30/97.................... 519
--------
2,301
--------
US GOVERNMENT AND AGENCY OBLIGATIONS (27.7%)
US TREASURY BONDS
500 12.75%, 11/15/10.................................. 740
3,710 8.125%, 8/15/19................................... 4,328
US TREASURY NOTES
850 7.875%, 2/15/96................................... 861
1,600 7.625%, 4/30/96................................... 1,623
400 5.875%, 5/31/96................................... 400
1,900 6.875%, 2/28/97................................... 1,931
2,000 6.75%, 5/31/97.................................... 2,033
2,030 7.75%, 11/30/99................................... 2,166
350 7.50%, 11/15/01................................... 376
2,070 6.25%, 2/15/03.................................... 2,075
675 7.25%, 5/15/04.................................... 720
US TREASURY STRIPS
/\1,600 2/15/98, Principal Only........................... 1,375
FEDERAL HOME LOAN MORTGAGE CORPORATION
+++300 9.00%, 7/01/25.................................... 313
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
3,246 ARM Pool #8505 7.00%, 9/20/24..................... 3,307
1,556 ARM Pool #8585 7.50%, 1/20/25..................... 1,635
+++700 9.00%, 7/15/25.................................... 735
--------
24,618
--------
YANKEE BONDS (1.2%)
1,000 Hydro Quebec 8.05%, 7/07/24....................... 1,086
--------
28,005
--------
TOTAL FIXED INCOME SECURITIES (Cost $82,117)................... 85,824
--------
SHORT-TERM INVESTMENT (1.8%)
REPURCHASE AGREEMENT (1.8%)
$ 1,624 U.S. Trust, 5.90%, dated 6/30/95, due 7/03/95, to
be repurchased at $1,625, collateralized by
$1,690 United States Treasury Bills, due
7/27/95, valued at $1,683 (Cost $1,624)......... 1,624
--------
TOTAL INVESTMENTS (98.4%) (Cost $83,741)....................... 87,448
--------
</TABLE>
The accompanying notes are an integral part of the financial statements. (Pages
144-152)
- - --------------------------------------------------------------------------------
Global Fixed Income Portfolio
97
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1995
- - --------------------------------------------------------------------------------
THE GLOBAL FIXED INCOME PORTFOLIO (CONT.)
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
(000)
<S> <C> <C>
- - ------------------------------------------------------------
OTHER ASSETS (4.3%)
Cash............................................ $ 195
Interest Receivable............................. 2,047
Receivable for Investments Sold................. 1,546
Other........................................... 9 $ 3,797
-----------
LIABILITIES (-2.7%)
Payable for Investments Purchased............... (2,098)
Net Unrealized Loss on Forward Foreign Currency
Contracts...................................... (192)
Investment Advisory Fees Payable................ (31)
Custodian Fees Payable.......................... (17)
Administrative Fees Payable..................... (13)
Directors' Fees and Expenses Payable............ (1)
Other Liabilities............................... (27) (2,379)
----------- --------
NET ASSETS (100%).............................................. $ 88,866
--------
--------
</TABLE>
<TABLE>
<C> <S> <C>
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER SHARE
Applicable to 7,971,281 outstanding $.001 par value shares
(authorized 500,000,000 shares).............................. $11.15
--------
--------
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACT INFORMATION:
Under the terms of forward foreign currency contracts open at June 30,
1995, the Portfolio is obligated to deliver or is to receive foreign
currency in exchange for US dollars or foreign currency as indicated
below:
</TABLE>
<TABLE>
<CAPTION>
CURRENCY NET
TO IN EXCHANGE UNREALIZED
DELIVER VALUE SETTLEMENT FOR VALUE GAIN (LOSS)
(000) (000) DATE (000) (000) (000)
- - ---------- --------- ----------- ------------ --------- -------------
<S> <C> <C> <C> <C> <C>
$ 1,944 $ 1,944 7/13/95 NG 3,054 $ 1,972 $ 28
NG 5,000 3,229 7/13/95 $ 3,195 3,195 (34)
NG 4,000 2,584 7/13/95 $ 2,495 2,495 (89)
DM 4,000 2,899 9/06/95 $ 2,803 2,803 (96)
DK 15,000 2,774 9/07/95 $ 2,721 2,721 (53)
A$ 3,000 2,123 9/20/95 NZ$ 3,274 2,175 52
--------- --------- -----
$ 15,553 $ 15,361 $ (192)
--------- --------- -----
--------- --------- -----
</TABLE>
- - ------------------------------------------------------------
<TABLE>
<S> <C> <C>
+++ -- Security is subject to delayed delivery -- See Note
A-6
/\ -- Stripped securities represent the splitting of cash
flows into several classes which vary by the
proportion of principal and interest paid. Holders
are entitled to the portion of the payments on the
certificate representing interest only or principal
only.
A$ -- Australian Dollar
DK -- Danish Krone
DM -- Deutsche Mark
NG -- Netherlands Guilder
NZ$ -- New Zealand Dollar
</TABLE>
- - ------------------------------------------------------------
SUMMARY OF FIXED INCOME SECURITIES BY INDUSTRY CLASSIFICATION
<TABLE>
<CAPTION>
VALUE PERCENT OF
INDUSTRY (000) NET ASSETS
- - -----------------------------------------------------------------
<S> <C> <C>
Energy................................. $ 1,086 1.2%
Finance................................ 3,595 4.1
Foreign Government and Agency
Obligations............................ 56,525 63.6
US Government and Agency Obligations... 24,618 27.7
--------- ---
$ 85,824 96.6%
--------- ---
--------- ---
</TABLE>
The accompanying notes are an integral part of the financial statements. (Pages
144-152)
- - --------------------------------------------------------------------------------
Global Fixed Income Portfolio
98
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
OVERVIEW
- - --------------------------------------------------------------------------------
THE HIGH YIELD PORTFOLIO
COMPOSITION OF NET ASSETS (AT JUNE 30, 1995)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Aerospace & Defense 3.1%
Automotive 2.1%
Broadcast Radio & Television 22.5%
Building Materials & Components 4.0%
Chemicals 3.7%
Coal, Gas & Oil 1.3%
Electrical Equipment 0.3%
Electronics 1.4%
Entertainment & Leisure 3.4%
Environmental Controls 0.7%
Financial Services 5.5%
Food 2.8%
Food Services & Lodging 0.1%
Forest Products & Paper 1.6%
Gaming & Lodging 4.5%
Health Care Supplies & Services 0.8%
Metals 4.4%
Multi-Industry 1.2%
Packaging & Container 4.0%
Professional Services 1.6%
Publishing 3.5%
Real Estate 0.1%
Retail General 2.6%
Telecommunications 8.0%
Textiles & Apparel 4.7%
Transportation 0.5%
Utilities 6.3%
Foreign Government & Agency Obligations 3.2%
Other 2.1%
</TABLE>
PERFORMANCE COMPARED TO THE CS FIRST BOSTON
HIGH YIELD INDEX(1)
- - -----------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
-----------------------------------------
AVERAGE ANNUAL
YTD ONE YEAR SINCE INCEPTION
--------- ----------- -----------------
<S> <C> <C> <C>
PORTFOLIO................ 14.43% 12.00% 11.60%
INDEX.................... 10.77 12.50 10.76
<FN>
1. The CS First Boston High Yield Index is an unmanaged index of high yield
corporate bonds.
2. Total returns for the Portfolio reflect expenses waived or reimbursed, if
applicable, by the Adviser. Without such waiver and reimbursement, total
returns would be lower.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
</TABLE>
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. YIELDS WILL FLUCTUATE AS MARKET
CONDITIONS CHANGE.
The High Yield Portfolio seeks to maximize total return by investing in a
diversified portfolio of fixed income securities that offer a higher yield than
that offered by debt securities in the three highest rating categories.
The total return of the Portfolio for the six month period ended June 30, 1995
was 14.43% as compared to 10.77% for the CS First Boston High Yield Index for
the same period. Total returns for the Portfolio for the twelve months ended
June 30, 1995 and the average annual total return for the period from inception
in September 1992 through June 30, 1995 were 12.00% and 11.60%, respectively,
compared to 12.50% and 10.76% for the Index for the same periods. As of June 30,
1995, the Portfolio had an SEC 30-day yield of 11.00%.
The high yield market followed up a strong first quarter with an even stronger
second quarter in 1995. Again the Treasury market and equity market provided a
firm wind at the backs of high yield participants. Ten-year Treasury yields
dropped nearly one hundred basis points to 6.2% and the S&P 500 returned 9.5%
during the quarter. At quarter-end, the spread of the CS First Boston High Yield
Index to Treasuries widened to 461 basis points.
While the quarter was very strong, towards the end of the period investors
became nervous due to weak economic data. Bonds in cyclical industries in
particular traded lower. Prices rebounded nicely however, when the Federal
Reserve cut short-term interest rates twenty-five basis points. The Portfolio
benefited by a fairly low exposure to cyclical industries and a healthy
overweighting to the cable television sector. By the end of the quarter, the
cable weighting increased to a bit over 14% with the purchase of a new issue of
Marcus Cable. The company is owned by Goldman Sachs along with several buyout
funds. While highly leveraged, there is a meaningful amount of cash equity in
the company (over $300 million) and the bonds were very attractively priced at a
yield above 14%. Within a month, the bonds climbed six percent and have
continued to rise into July.
Other notable additions to the Portfolio include Algoma Steel and Six Flags.
Algoma is a large Canadian steel company undergoing a large modernization
project. Six Flags is the second largest theme park in the country and is 49%
owned by Time Warner. Both of these were purchased when the market was
temporarily soft. We feel they provide excellent value to the Portfolio.
- - --------------------------------------------------------------------------------
High Yield Portfolio
99
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
OVERVIEW
- - --------------------------------------------------------------------------------
THE HIGH YIELD PORTFOLIO (CONT.)
We made room for these purchases by reducing our exposure to the casino sector.
Casino bonds have rallied nicely this year after suffering severely in 1994.
While the outlook for Atlantic City appears good for the balance of 1995, the
announcement of new competitors in Atlantic City as well as in neighboring
jurisdictions continues to be a long term threat. We feel it was prudent to
return to a more neutral position as the market rallied.
The high yield market continues to look to the Treasury and equity markets for
direction. The recent rise in bond yields has not had an effect on the high
yield market yet. This is probably because the equity markets have remained firm
and because the flow of funds into high yield mutual funds has been good. The
flow of new issues seems to come in streaks and is difficult to anticipate.
However, the market is making marginal credits pay dearly to raise money. We
will continue to resist being seduced by a high coupon unless the underlying
fundamentals are sound.
- - --------------------------------------------------------------------------------
High Yield Portfolio
100
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1995
- - --------------------------------------------------------------------------------
THE HIGH YIELD PORTFOLIO
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- - ------------------------------------------------------------
<C> <S> <C>
CORPORATE BONDS AND NOTES (84.2%)
AEROSPACE & DEFENSE (3.1%)
$ 500 Sabreliner Corp., Series A, 12.50%, 4/15/03....... $ 400
1,500 Tracor, Inc., 10.875%, 8/15/01.................... 1,539
----------
1,939
----------
AUTOMOTIVE (2.1%)
1,500 Venture Holdings, 9.75%, 4/01/04.................. 1,303
----------
BROADCAST-RADIO & TELEVISION (19.4%)
2,250 Ackerley Communications, Inc., Series B, 10.75%,
10/01/03........................................ 2,337
1,000 Cablevision Systems Corp., 9.875%, 2/15/13........ 1,063
1,250 Continental Cablevision, Inc., 9.50%, 8/01/13..... 1,289
1,600 Helicon Group, Series B, 9.00% to 11/01/96, 11.00%
to 11/01/03..................................... 1,466
400 Heritage Media, 11.00%, 10/01/02.................. 426
500 Katz Corp., 12.75%, 11/15/02...................... 524
3,000 Marcus Cable Co., 0.00% to 6/15/00, 14.25% to
12/15/05........................................ 1,598
850 Rogers Cablesystems, Inc., (Yankee Bond), 10.00%,
3/15/05......................................... 875
++14 SpectraVision, Inc., 11.65%, 12/01/02............. 1
2,750 Viacom International, 8.00%, 7/07/06.............. 2,678
----------
12,257
----------
BUILDING MATERIALS & COMPONENTS (3.3%)
2,000 Tarkett International, 9.00%, 3/01/02............. 1,953
158 Walter Industries, Series B, 12.19%, 3/15/00...... 159
----------
2,112
----------
CHEMICALS (3.7%)
1,000 Harris Chemical, 10.75%, 10/15/03................. 945
1,000 Plastic Specialties & Technologies, Inc., 11.25%,
12/01/03........................................ 911
500 Sherritt, Inc., 10.50%, 3/31/14................... 500
----------
2,356
----------
COAL, GAS & OIL (1.3%)
1,300 Clark R&M Holdings, Zero Coupon, 2/15/00.......... 813
----------
ELECTRONICS (1.4%)
400 ADT Operations, 9.25%, 8/01/03.................... 415
1,000 International Semi-Tech, (Yankee Bond), 0.00% to
8/15/00, 11.50% to 8/15/03...................... 500
----------
915
----------
ENTERTAINMENT & LEISURE (3.4%)
886 Kloster Cruise, 13.00%, 5/01/03................... 682
2,000 Six Flags Theme Park, Inc., 0.00% to 6/15/98,
12.25% to 6/15/05............................... 1,450
----------
2,132
----------
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- - ------------------------------------------------------------
<C> <S> <C>
ENVIRONMENTAL CONTROLS (0.7%)
$ 500 Envirotest Systems Corp., 9.125%, 3/15/01......... $ 415
----------
FINANCIAL SERVICES (5.5%)
1,191 GPA Equipment Trust, 9.125%, 12/02/96............. 1,112
550 GPA Investments, 6.40%, 11/19/98.................. 396
1,000 Terra Nova Holdings, 10.75%, 7/01/05.............. 1,008
1,189 Tiphook Finance Corp., 8.00%, 3/15/00............. 951
----------
3,467
----------
FOOD (2.8%)
750 Americold Corp. 1st Mortgage Bond, Series B,
11.50%, 3/01/05................................. 716
1,150 Pilgrim's Pride Corp., 10.875%, 8/01/03........... 1,081
----------
1,797
----------
FOREST PRODUCTS & PAPER (1.6%)
1,000 United Stationer Supply, 12.75%, 5/01/05.......... 1,016
----------
GAMING & LODGING (0.9%)
575 Louisiana Casino Cruises, 11.50%, 12/01/98........ 535
----------
HEALTH CARE SUPPLIES & SERVICES (0.8%)
625 Eyecare Centers of America, 12.00%, 10/01/03...... 513
----------
METALS (1.8%)
1,250 Algoma Steel, Inc., (Yankee Bond) 12.375%,
7/15/05......................................... 1,150
----------
MULTI-INDUSTRY (1.2%)
750 Day International Group, 11.125%, 6/01/05......... 754
----------
PACKAGING & CONTAINER (4.0%)
500 Owens-Illinois, Inc., 10.50%, 6/15/02............. 519
2,000 Owens-Illinois, Inc., 9.95%, 10/15/04............. 2,040
----------
2,559
----------
PROFESSIONAL SERVICES (1.6%)
1,000 Cabot Safety Corp., 12.50%, 7/15/05............... 1,005
----------
PUBLISHING (3.5%)
1,000 Marvel III Holdings Inc., Series B, 9.125%,
2/15/98......................................... 915
1,900 Marvel Parent Holdings, Zero Coupon, 4/15/98...... 1,335
----------
2,250
----------
RETAIL-GENERAL (2.6%)
2,175 Southland Corp., 5.00%, 12/15/03.................. 1,664
----------
TELECOMMUNICATIONS (8.0%)
3,000 Dial Call Communications, 0.00% to 4/15/99, 12.25%
to 4/15/04...................................... 1,560
450 Horizon Cellular Telephone, 0.00% to 10/01/97,
11.375% to 10/01/00............................. 345
750 Pronet, Inc., 11.875%, 6/15/05.................... 754
</TABLE>
The accompanying notes are an integral part of the financial statements. (Pages
144-152)
- - --------------------------------------------------------------------------------
High Yield Portfolio
101
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1995
- - --------------------------------------------------------------------------------
THE HIGH YIELD PORTFOLIO (CONT.)
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- - ------------------------------------------------------------
<C> <S> <C>
TELECOMMUNICATIONS (CONT.)
$ 2,500 Telefonica de Argentina, (Yankee Bond), 11.875%,
11/01/04........................................ $ 2,431
----------
5,090
----------
TEXTILES & APPAREL (4.7%)
1,000 Polysindo Eka Perkasa, (Yankee Bond), 13.00%,
6/15/01......................................... 1,010
2,000 Westpoint Stevens, Inc., 9.375%, 12/15/05......... 1,935
----------
2,945
----------
TRANSPORTATION (0.5%)
319 America West Airlines, 6.00%, 3/31/97............. 300
----------
UTILITIES (6.3%)
650 AES Corp., 9.75%, 6/15/00......................... 665
1,478 Beaver Valley Funding Corp., (Lease Obligation
Bond), 9.00%, 6/01/17........................... 1,241
++474 Columbia Gas Systems, Inc., Employee Thrift Plan
Obligation, 9.875%, 11/30/01.................... 649
1,400 First PV Funding Corp., (Lease Obligation Bond),
10.15%, 1/15/16................................. 1,433
----------
3,988
----------
TOTAL CORPORATE BONDS AND NOTES (Cost $53,038)................ 53,275
----------
FOREIGN GOVERNMENT BONDS(3.2%)
BONDS (3.2%)
1,500 Republic of Argentina, Series L, (Floating Rate),
7.313%, 3/31/05................................. 921
2,500 Republic of Brazil YL4, (Floating Rate), 4.25%,
4/15/24......................................... 1,109
----------
TOTAL FOREIGN GOVERNMENT BONDS (Cost $1,985).................. 2,030
----------
<CAPTION>
SHARES
- - ----------
<C> <S> <C>
COMMON STOCKS (0.8%)
BUILDING MATERIALS & COMPONENTS (0.7%)
30,331 Walter Industries, Inc............................ 417
----------
FINANCIAL SERVICES (0.0%)
1,268 WestFed Holdings, Inc., Class B................... --
----------
FOOD SERVICE & LODGING (0.1%)
1,300 Motels of America, Inc............................ 98
----------
GAMING & LODGING (0.0%)
500 Trump Taj Mahal, Class A.......................... 5
----------
MACHINERY (0.0%)
25 Bucyrus-Erie...................................... --
----------
TOTAL COMMON STOCKS (Cost $601)............................... 520
----------
PREFERRED STOCKS (0.0%)
FINANCIAL SERVICES (0.0%)
3,239 WestFed Holdings, Inc., Series A (Cost $57)....... --
----------
<CAPTION>
NO. OF VALUE
RIGHTS (000)
- - ------------------------------------------------------------
<C> <S> <C>
RIGHTS (0.0%)
BROADCAST-RADIO & TELEVISION (0.0%)
+35,000 SpectraVision, Inc., expiring 10/08/97 (Cost
$133)........................................... $ 4
----------
<CAPTION>
NO. OF
WARRANTS
- - ----------
<C> <S> <C>
WARRANTS (0.5%)
AEROSPACE & DEFENSE (0.0%)
+*500 Sabreliner Corp., expiring 4/15/03 (acquired
6/21/93, cost $10))............................. 5
----------
ELECTRICAL EQUIPMENT (0.3%)
+28,000 Protection One Alarm, Inc., expiring 4/01/03...... 168
----------
GAMING & LODGING (0.0%)
+1,250 Capital Gaming International, Inc., expiring
2/01/99......................................... --
+2,700 Casino Magic Corp., expiring 10/14/96............. --
+1,725 Louisiana Casino Cruises, expiring 12/01/98....... 26
----------
26
----------
HEALTH CARE SUPPLIES & SERVICES (0.0%)
+625 Eye Care Centers of America, expiring 10/01/03.... 3
----------
INSURANCE (0.0%)
+500 Horace Mann Educators Corp., expiring 8/15/99..... 7
----------
METALS (0.1%)
+5,000 Sheffield Steel Corp., expiring 11/01/01.......... 30
----------
PACKAGING & CONTAINER (0.0%)
+1,000 Crown Packaging Holdings, expiring 11/01/03....... 22
----------
REAL ESTATE (0.1%)
+1,000 Petro PSC Properties L.P., expiring 6/01/97....... 34
----------
TELECOMMUNICATIONS (0.0%)
+3,000 Dial Page, Inc., expiring 4/25/99................. --
----------
TOTAL WARRANTS (Cost $221).................................... 295
----------
<CAPTION>
NO. OF
UNITS
- - ----------
<C> <S> <C>
UNITS (9.2%)
BROADCAST-RADIO & TELEVISION (3.1%)
2,000 People's Choice TV Corp., 0.00% to 6/01/00,
13.125% to 6/01/04.............................. 967
1,000 Pegasus Media Communications, 12.50%, 7/01/05..... 1,002
----------
1,969
----------
</TABLE>
The accompanying notes are an integral part of the financial statements. (Pages
144-152)
- - --------------------------------------------------------------------------------
High Yield Portfolio
102
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1995
- - --------------------------------------------------------------------------------
THE HIGH YIELD PORTFOLIO (CONT.)
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NO. OF VALUE
UNITS (000)
- - ------------------------------------------------------------
GAMING & LODGING (3.6%)
<C> <S> <C>
2,208 Maritime Group, 13.50%, 2/15/97................... $ 773
1,864 Trump Taj Mahal Funding Inc., PIK, 11.35%,
11/15/99........................................ 1,477
----------
2,250
----------
METALS (2.5%)
650 Gulf States Steel, 13.50%, 4/15/03................ 631
1,000 Sheffield Steel Corp., 12.00%, 11/01/01........... 980
----------
1,611
----------
TOTAL UNITS (Cost $7,936)..................................... 5,830
----------
TOTAL INVESTMENTS (97.9%) (Cost $63,971)...................... 61,954
----------
</TABLE>
<TABLE>
<S> <C> <C>
OTHER ASSETS (8.0%)
Receivable for Investments Sold................. $ 3,993
Interest Receivable............................. 1,076
Receivable for Portfolio Shares Sold............ 1
Other........................................... 6 5,076
----------
LIABILITIES (-5.9%)
Payable for Investments Purchased............... (3,127)
Payable to Custodian............................ (524)
Investment Advisory Fees Payable................ (55)
Custodian Fees Payable.......................... (7)
Administrative Fees Payable..................... (9)
Directors' Fees and Expenses Payable............ (1)
Other Liabilities............................... (26) (3,749)
---------- ----------
NET ASSETS (100%)............................................. $ 63,281
----------
----------
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER SHARE
Applicable to 6,145,224 outstanding $.001 par value shares
(authorized 500,000,000 shares)............................. $10.30
----------
----------
</TABLE>
- - ------------------------------------------------------------
<TABLE>
<S> <C> <C>
+ -- Non-income producing security
++ -- Non-income producing security -- in default
* -- Restricted as to public resale. Total value of
restricted securities held at June 30, 1995 was $5 or
0.0% of net assets (Total Cost $10).
PIK -- Payment-In-Kind. Income may be received in additional
securities or cash at the discretion of the issuer.
</TABLE>
Floating Rate Security. The interest rate changes on these instruments are based
on changes in a designated base rate. The rates shown are those in effect on
June 30, 1995.
At June 30, 1995, approximately 97% of the Portfolio's net assets consisted of
high yield securities rated below investment grade. Investments in high yield
securities are accompanied by a greater degree of credit risk and the risk tends
to be more sensitive to economic conditions than higher rated securities.
The accompanying notes are an integral part of the financial statements. (Pages
144-152)
- - --------------------------------------------------------------------------------
High Yield Portfolio
103
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
OVERVIEW
- - --------------------------------------------------------------------------------
THE MUNICIPAL BOND PORTFOLIO
COMPOSITION OF NET ASSETS (AT JUNE 30, 1995)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Daily Variable Rate Bonds 11.2%
Fixed Rate Instruments 88.0%
Other 0.8%
</TABLE>
PERFORMANCE COMPARED TO THE LEHMAN 7 YR
MUNICIPAL BOND INDEX(1)
- - --------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURN(2)
---------------
YTD
---------------
<S> <C>
PORTFOLIO................................... 4.22%
INDEX....................................... 6.24
<FN>
1. The Lehman 7yr Muni Bond Index consists of investment grade bonds with
maturities between 6-8 years, rated BAA or better. All bonds have been taken
from deals done within the last five years, of $50 million or larger.
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.
</TABLE>
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. YIELDS WILL FLUCTUATE AS MARKET
CONDITIONS CHANGE.
The Municipal Bond Portfolio commenced operations on January 18, 1995. The
Portfolio seeks high current income consistent with preservation of principal
through investment in a portfolio consisting primarily of intermediate and
long-term investment grade municipal obligations, the interest on which is
exempt from Federal income tax.
The total return of the Portfolio for the period from inception on January 18,
1995 through June 30, 1995 was 4.22% as compared to 6.24% for the Lehman
Seven-Year Municipal Bond Index for the same period. As of June 30, 1995, the
Portfolio had an SEC 30-day yield of 4.33%.
After a very strong showing during the first quarter of this year, the second
quarter proved to be more volatile for the tax-free municipal bond market. The
market significantly underperformed the U.S. Treasury market during the second
quarter. Individual investors became less aggressive buyers as tax-exempt yields
dropped and the equity market continued to divert money away from fixed income
assets. Tax-exempt mutual funds watched as developments continued to unfold in
Orange County, California. The two latest events are the voter defeat of an
increase in the county sales tax and an extension, which technically constitutes
a default, on county issued notes. Investors also are focused on tax overhaul
talk coming out of Washington -- specifically the flat tax proposal which could
potentially alter the relationship between taxable and tax-exempt securities.
Although the flat tax is far from a done deal and any possibility of change is
at least a few years away, as talk in the press intensified, the municipal
market backed up to more historically normal municipal/Treasury ratios.
The Portfolio has been defensively positioned, with an average maturity slightly
shorter than the benchmark. This has enabled the Portfolio to outperform the
benchmark during periods of market weakness (experienced in April and June) and
underperform during market strength. The first half of 1995 has been
characterized by sharp yield movements, both on a week-to-week and on an
intra-day basis, and constant speculation as to what effect each economic
release would have on the Fed's policy making decisions. At the July 5th and 6th
FOMC meeting, the Fed ultimately decided to lower the Fed Funds rate by 25 basis
points, to 5 3/4%, the Fed's first rate cut in nearly 3 years. The quote coming
out of the meeting was that "inflationary pressures have receded enough to
accommodate a modest adjustment in monetary conditions." What is unclear at this
point is what that means for Fed policy going forward. It is clear the second
quarter has seen a slowdown in economic
- - --------------------------------------------------------------------------------
Municipal Bond Portfolio
104
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
OVERVIEW
- - --------------------------------------------------------------------------------
THE MUNICIPAL BOND PORTFOLIO (CONT.)
activity, the market's focus now will be whether this slowdown in economic
activity will continue or if it is a temporary lull before strong growth resumes
for the remainder of 1995. We will continue to monitor the level of economic
activity through the remainder of the summer and early fall and believe that
there is more risk to the downside than the upside in the U.S. bond markets
right now.
Recently, the market has begun to place a higher premium on pre-refunded bonds
because of their unique credit structure -- they are escrowed in U.S. Treasury
securities which means there is no exposure to a municipality's credit risk.
This has had a positive effect on the Portfolio because approximately 40% of the
Portfolio's net assets is invested in AAA rated pre-refunded bonds. An
additional 27% of the Portfolio is invested in state general obligation and
state agency debt. The remainder of the Portfolio securities are invested in AA
or higher rated general obligation and revenue bonds. We will continue to focus
on the very high credit quality sector of the municipal market and we plan on
maintaining and possibly increasing our percentage holdings in pre-refunded
bonds due to their strong liquidity and potential for even stronger relative
value performance.
- - --------------------------------------------------------------------------------
Municipal Bond Portfolio
105
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1995
- - --------------------------------------------------------------------------------
THE MUNICIPAL BOND PORTFOLIO
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- - ------------------------------------------------------------
<C> <S> <C>
TAX-EXEMPT INSTRUMENTS (99.2%)
DAILY VARIABLE RATE BONDS (11.2%)
$ 900 Hapeville, Georgia, Industrial Development
Authority, Series 85, 4.35%, 11/01/15........... $ 900
1,500 Jackson County, Mississippi, Port Facility,
Chevron Project, Series 93, 4.20%, 6/01/23...... 1,500
500 Lincoln County, Wyoming, Pollution Control
Revenue, Exxon Project, Series 84A,
4.25%, 11/01/14................................. 500
300 New York City, New York, Water Finance Authority,
Water and Sewer System Revenue, Series 94C,
4.25%, 6/15/22.................................. 300
1,000 Platte County, Wyoming, Pollution Control Revenue,
Series A, 4.35%, 7/01/14........................ 1,000
700 Valdez, Alaska, Marine Terminal Authority, Exxon,
Series 85, 4.20%, 10/01/25...................... 700
----------
TOTAL DAILY VARIABLE RATE BONDS............................... 4,900
----------
FIXED RATE INSTRUMENTS (88.0%)
1,000 Columbus, Ohio, General Obligation Bonds, 5.80%,
1/01/00......................................... 1,053
1,000 Connecticut State Special Obligation, Tax Revenue
Bonds, Transportation, 6.50%, 7/01/09,
Prerefunded 7/01/99 at 102...................... 1,090
1,000 De Kalb County, Georgia, General Obligation Bonds,
7.30%, 1/01/00,
Prerefunded 1/01/97 at 102...................... 1,066
1,000 De Kalb County, Georgia, Water & Sewer Revenue
Bonds 7.00%, 10/01/06........................... 1,068
1,000 Georgia State, General Obligation Bonds, Series E,
6.75%, 12/01/02................................. 1,129
500 Hawaii State, General Obligation Bonds, Series BS,
6.70%, 9/01/97.................................. 527
1,000 Hawaii State, General Obligation Bonds, Series CJ,
6.20%, 1/01/12.................................. 1,022
1,000 Howard County, Maryland, Consolidated Public
Improvement General Obligation Bonds, Series A,
7.20%, 8/01/03,
Prerefunded 8/01/96 at 102...................... 1,054
1,500 Intermountain Power Agency, Utah, Power Supply
Revenue Bonds, Series D, 8.38%, 7/01/12......... 1,636
1,000 Kentucky State Housing Corp. Revenue Bonds, Series
A, 6.00%, 7/01/10............................... 1,012
1,155 Maryland State Department of Transportation,
Construction Revenue Bonds, Second Issue, 6.80%,
11/01/05,
Prerefunded 11/01/99 at 102..................... 1,278
1,000 Massachusetts State, Consolidated Loan, Series A,
7.50%, 3/01/03,
Prerefunded 3/01/00 at 102...................... 1,133
500 Massachusetts State Consolidated Loan, Series A,
7.63%, 6/01/08,
Prerefunded 6/01/01 at 102...................... 582
1,625 Michigan State Housing Development Authority
Revenue Bonds, Series A, 6.75%, 12/01/14........ 1,698
1,500 Minnesota State General Obligation Bonds, 7.00%,
8/01/99,
Prerefunded 8/01/96 at 100...................... 1,550
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- - ------------------------------------------------------------
<C> <S> <C>
$ 1,400 Mississippi State General Obligation Bonds, 6.00%,
2/01/09......................................... $ 1,440
1,000 Mobile Alabama, Water & Sewer Revenue Bonds,
Series B, 7.25%, 1/01/06........................ 1,036
1,475 Montana State General Obligation Bonds, Long Range
Building Program, Series C, 6.00%, 8/01/13...... 1,498
1,500 Municipal Assistance Corp. for City of New York,
New York, Refunding Revenue Bonds, Series 56,
7.90%, 7/01/98, Prerefunded 7/01/96 at 102...... 1,589
1,000 New Castle County, Delaware, General Obligation
Bonds, 6.25%, 10/15/01.......................... 1,078
1,500 North Little Rock, Arkansas, Electric Revenue
Refunding Bonds, Murray Lock & Dam Hydro, 7.40%,
7/01/15,
Prerefunded 7/01/96 at 102...................... 1,581
500 Ohio State General Obligation Bonds,
6.20%, 8/01/12.................................. 521
1,000 Ohio State Housing Finance Agency, Residential
Mortgage Revenue Bonds, Series A-1, 6.20%,
9/01/14......................................... 1,011
1,000 Pennsylvania State Higher Educational Facilities
Authority, Colleges & Universities Revenue
Bonds, 6.50%, 9/01/02........................... 1,095
1,000 Reedy Creek Improvement District, Florida, Utility
Revenue Bonds, Series 91-1, 6.50%, 10/01/16,
Prerefunded 10/01/01 at 101..................... 1,108
1,000 Redmond, Washington, General Obligation Bonds,
5.75%, 12/01/05................................. 1,038
1,400 Rhode Island Depositors Economic Protection Corp.,
Special Obligation Revenue Bonds, Series A,
7.25%, 8/01/21, Prerefunded 8/01/96 at 102...... 1,477
1,350 San Antonio, Texas, General Obligation Bonds,
6.50%, 8/01/14.................................. 1,408
1,000 Tulsa, Oklahoma, General Obligation Bonds, 6.38%,
2/01/02......................................... 1,084
1,000 Virginia Beach, Virginia General Obligation Bonds,
6.00%, 9/01/10.................................. 1,022
500 Virginia State Housing Development Authority,
Commonwealth Mortgage Revenue Bonds, Series B,
6.60%, 1/01/12.................................. 519
1,000 Virginia State Housing Development Authority,
Commonwealth Mortgage Revenue Bonds, Series B,
6.65%, 1/01/13.................................. 1,038
1,500 Washington State General Obligation Bonds, Series
86-D, 8.00%, 9/01/09,
Prerefunded 9/01/96 at 100...................... 1,571
500 Washington Suburban Sanitary District, General
Obligation Revenue Bonds, 6.50%, 11/01/05,
Prerefunded 11/01/01 at 102..................... 555
----------
TOTAL FIXED RATE INSTRUMENTS.................................. 38,567
----------
</TABLE>
The accompanying notes are an integral part of the financial statements. (Pages
144-152)
- - --------------------------------------------------------------------------------
Municipal Bond Portfolio
106
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1995
- - --------------------------------------------------------------------------------
THE MUNICIPAL BOND PORTFOLIO (CONT.)
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
(000)
- - ------------------------------------------------------------
<C> <S> <C>
TOTAL TAX-EXEMPT INSTRUMENTS.................................. $ 43,467
----------
TOTAL INVESTMENTS (99.2%) (Cost $42,728)...................... 43,467
----------
</TABLE>
<TABLE>
<CAPTION>
OTHER ASSETS (2.2%)
<S> <C> <C>
Cash............................................ $ 44
Interest Receivable............................. 928 972
-----
<CAPTION>
LIABILITIES (-1.4%)
<S> <C> <C>
Payable for Investments Purchased............... (562)
Administrative Fees Payable..................... (5)
Investment Advisory Fees Payable................ (4)
Custodian Fees Payable.......................... (2)
Directors' Fees and Expenses Payable............ (2)
Other Liabilities............................... (34) (609)
----- ----------
<CAPTION>
NET ASSETS (100%)................................. $43,830
<S> <C> <C>
----------
----------
<CAPTION>
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER
SHARE
<S> <C> <C>
Applicable to 4,273,159 outstanding $.001 par
value shares (authorized 500,000,000 shares).... $10.26
----------
----------
</TABLE>
- - ------------------------------------------------------------
Variable/Floating Rate Instruments. The interest rate changes on these
instruments are based upon a designated base rate. These instruments are payable
on demand and are secured by a letter of credit or other support agreements.
Maturity dates disclosed for Variable/Floating Rate Instruments are the ultimate
maturity dates. The effective maturity dates for such securities are the next
interest reset dates which are seven days or less.
Prerefunded Bonds. Outstanding bonds have been refunded to the first call date
(prerefunded date) by the issuance of new bonds. Principal and interest are paid
from monies escrowed in U.S. Treasury securities. Prerefunded bonds are
generally re-rated AAA due to the U.S. Treasury escrow.
The accompanying notes are an integral part of the financial statements. (Pages
144-152)
- - --------------------------------------------------------------------------------
Municipal Bond Portfolio
107
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
OVERVIEW
- - --------------------------------------------------------------------------------
THE MONEY MARKET PORTFOLIO
COMPOSITION OF NET ASSETS (AT JUNE 30, 1995)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Commercial Paper 10.8%
Corporate Floating Rate Notes 3.0%
US Government Agency Discount Notes 41.0%
US Government Agency Floating Rate Notes 24.1%
Repurchase Agreement 21.1%
</TABLE>
COMPARATIVE MONTHLY AVERAGE YIELDS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
The Money Market Portfolio
Portfolio 30-Day Federal Funds 30-day
Yields Donoghue's SEC 30-Day Yields* Yields
Jan. 5.21 5.18 5.75
Feb. 5.51 5.35 6.13
Mar. 5.56 5.47 6.00
Apr. 5.56 5.49 6.19
May 5.56 5.47 6.06
June 5.52 5.43 6.25
</TABLE>
INVESTMENTS IN SHARES OF THE PORTFOLIO ARE NEITHER INSURED NOR GUARANTEED BY THE
U.S. GOVERNMENT AND THERE IS NO ASSURANCE THAT THE PORTFOLIO WILL MAINTAIN A
STABLE NET ASSET VALUE OF $1.00 PER SHARE. YIELDS WILL FLUCTUATE AS MARKET
CONDITIONS CHANGE.
The Money Market Portfolio's investment objectives are to maximize current
income and preserve capital while maintaining high levels of liquidity through
investing in high quality money market instruments which have effective
maturities of one year or less. The Portfolio's average maturity (on a
dollar-weighted basis) will not exceed 90 days. The Portfolio will purchase only
securities having a remaining maturity of one year or less. The Portfolio is
expected to maintain a net asset value of $1.00 per share. There can be no
assurance, however, that the Portfolio will be successful in maintaining a net
asset value of $1.00 per share.
The seven day yield and seven day effective yield (which assumes an
annualization of the current yield with all dividends reinvested) for the Money
Market Portfolio as of June 30, 1995 were 5.45% and 5.59%, respectively. As with
all money market portfolios, the seven day yields are not necessarily indicative
of future performance.
During the first half of 1995, short term interest rates demonstrated
considerable volatility as the Federal Reserve shifted monetary policy from a
restrictive stance to an accommodative one. In February we saw the Fed execute
the final step (an increase of 50 basis points to 6%) in a year long campaign of
raising short-term interest rates in its effort to halt the excessive growth of
the American economy. The economic outlook was much different four months later,
however, and by the end of June market participants, having been convinced that
the rapid increase in the fed funds level had gone too far, were anticipating an
imminent easing by the Fed.
The heightened level of market volatility required the implementation of several
different strategies at various times during the first half of the year. As the
prospects for further tightening by the Fed dimmed, the Money Market Portfolio's
floating rate note position was trimmed. When the market rallied strongly, the
treasury bill positions were sold, and as spreads over treasuries became more
attractive commercial paper holdings were increased. For most of the second
quarter the Portfolio took advantage of the inversion of the treasury yield
curve by capitalizing on the high yields available in overnight and very short
term investments. The percentage of the Portfolio held in repurchase agreements
was increased as was the commitment to short-term agency discount notes.
We are pleased to report that the Portfolio continues to meet its goal of
providing as high a level of interest income as is consistent with maintaining
liquidity and stability of principal, and that the Portfolio holds only high
quality securities with over 90% invested in securities rated A1+/P1.
- - --------------------------------------------------------------------------------
Money Market Portfolio
108
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1995
- - --------------------------------------------------------------------------------
THE MONEY MARKET PORTFOLIO
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE AMORTIZED
AMOUNT COST
(000) (000)
- - ------------------------------------------------------------
<C> <S> <C>
MONEY MARKET INSTRUMENTS (78.9%)
US GOVERNMENT AGENCY OBLIGATIONS (65.1%)
AGENCY DISCOUNT NOTES (41.0%)
Federal Home Loan Mortgage Corp.
$ 25,000 5.91%, 7/14/95.................................... $ 24,947
20,000 5.93%, 7/20/95.................................... 19,938
20,000 5.84%, 7/21/95.................................... 19,935
25,000 6.00%, 7/24/95.................................... 24,906
20,000 5.85%, 8/03/95.................................... 19,893
9,093 5.95%, 8/09/95.................................... 9,035
9,800 5.90%, 8/24/95.................................... 9,715
7,005 5.83%, 9/20/95.................................... 6,914
Federal National Mortgage Association
15,000 5.90%, 7/03/95.................................... 14,995
20,000 5.89%, 7/06/95.................................... 19,984
25,000 5.90%, 7/17/95.................................... 24,935
20,000 6.00%, 8/04/95.................................... 19,888
5,715 5.91%, 8/29/95.................................... 5,660
25,000 5.79%, 9/07/95.................................... 24,731
25,000 5.91%, 9/08/95.................................... 24,722
20,000 5.83%, 9/28/95.................................... 19,715
30,020 5.74%, 10/19/95................................... 29,503
20,000 6.06%, 11/14/95................................... 19,556
----------
338,972
----------
AGENCY FLOATING RATE NOTES (24.1%)
Federal National Mortgage Association
25,000 6.01%, 10/16/95................................... 24,999
65,000 6.02%, 9/02/97.................................... 65,000
25,000 5.58%, 6/02/99.................................... 25,000
13,000 5.58%, 7/26/99.................................... 12,944
25,000 5.58%, 9/22/99.................................... 25,000
Student Loan Marketing Association
46,000 5.86%, 10/30/97................................... 46,063
----------
199,006
----------
TOTAL US GOVERNMENT AGENCY OBLIGATIONS
(Cost $537,978)............................................. 537,978
----------
COMMERCIAL PAPER (10.8%)
FINANCE (10.8%)
30,000 ABN-Amro Holdings Inc. 6.02%, 10/16/95............ 29,477
30,000 Koch Industries 6.20%, 7/5/95..................... 29,979
30,000 UBS Finance, Inc. 6.13%, 7/5/95................... 29,980
----------
TOTAL COMMERCIAL PAPER (Cost $89,436)......................... 89,436
----------
<CAPTION>
FACE AMORTIZED
AMOUNT COST
(000) (000)
- - ------------------------------------------------------------
<C> <S> <C>
CORPORATE FLOATING RATE NOTES (3.0%)
FINANCE (3.0%)
$ 25,000 General Electric Credit Corp. 6.35%, 2/09/96 -
2/15/96 (Cost $25,000).......................... $ 25,000
----------
TOTAL MONEY MARKET INSTRUMENTS (Cost $652,414)................ 652,414
----------
<CAPTION>
VALUE
(000)
<C> <S> <C>
----------
SHORT TERM INVESTMENT (21.1%)
REPURCHASE AGREEMENT (21.1%)
174,944 Goldman Sachs 6.05%, dated 6/30/95, due 7/03/95,
to be repurchased at $175,032, collateralized by
$112,650 United States Treasury Bonds, 13.875%,
due 5/15/11, valued at $179,062 (Cost
$174,944)....................................... 174,944
----------
TOTAL INVESTMENTS (100.0%) (Cost $827,358).................... 827,358
----------
</TABLE>
<TABLE>
<S> <C> <C>
OTHER ASSETS (0.3%)
Interest Receivable............................. $ 2,252
Other........................................... 44 2,296
----------
LIABILITIES (-0.3%)
Dividends Payable............................... (1,874)
Investment Advisory Fees Payable................ (605)
Administrative Fees Payable..................... (107)
Custodian Fees Payable.......................... (34)
Directors' Fees and Expenses Payable............ (1)
Other Liabilities............................... (43) (2,664)
---------- ----------
NET ASSETS (100%)............................................. $ 826,990
----------
----------
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
Applicable to 827,005,487 outstanding $.001 par value shares
(authorized 1,000,000,000 shares).......................... $1.00
----------
----------
</TABLE>
- - ------------------------------------------------------------
Floating Rate Notes. The interest rate changes on these instruments are based on
changes in a designated base rate. The rates shown were those in effect at June
30, 1995.
Maturity dates disclosed for Floating Rate Instruments are the ultimate maturity
dates. The effective maturity dates for such securities are the next interest
reset dates.
Interest rates disclosed for Commercial Paper and Agency Discount Notes
represent effective yields.
The accompanying notes are an integral part of the financial statements. (Pages
144-152)
- - --------------------------------------------------------------------------------
Money Market Portfolio
109
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
OVERVIEW
- - --------------------------------------------------------------------------------
THE MUNICIPAL MONEY MARKET PORTFOLIO
COMPOSITION OF NET ASSETS (AT JUNE 30, 1995)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Other 0.5%
Put Option Bonds 0.3%
Tax-Exempt Commercial Paper 38.0%
Tax-Exempt Notes 4.7%
US Government & Agency Obligations 4.3%
Variable/Floating Rate Instruments 52.2%
</TABLE>
COMPARATIVE MONTHLY AVERAGE YIELDS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C> <C> <C>
Municipal Money Market
Portfolio 30-Day Federal Funds 30-day
Yields Donoghue's SEC 30-Day Yields* Yields
Jan. 2.97 3.26 5.75
Feb. 3.38 3.19 6.13
Mar. 3.42 3.35 6.00
Apr. 3.64 3.53 6.19
May 3.72 3.81 6.06
June 3.48 3.31 6.25
</TABLE>
INVESTMENTS IN SHARES OF THE PORTFOLIO ARE NEITHER INSURED NOR GUARANTEED BY THE
U.S. GOVERNMENT AND THERE IS NO ASSURANCE THAT THE PORTFOLIO WILL MAINTAIN A
STABLE NET ASSET VALUE OF $1.00 PER SHARE. YIELDS WILL FLUCTUATE AS MARKET
CONDITIONS CHANGE.
The Municipal Money Market Portfolio's investment objectives are to maximize
current income that is exempt from Federal income tax and preserve capital while
maintaining high levels of liquidity through investing in high quality municipal
money market instruments which earn interest exempt from Federal income tax in
the opinion of bond counsel for the issuer. The Portfolio will purchase only
securities having a remaining maturity of one year or less. Under normal
circumstances, the Portfolio will invest at least 80% of its assets in
tax-exempt municipal securities. Additionally, the Portfolio will not purchase
private activity bonds, the interest from which is subject to alternative
minimum tax. Interest on tax-exempt municipal securities may be subject to state
and local taxes. The Portfolio's average maturity (on a dollar-weighted basis)
will not exceed 90 days. The Portfolio is expected to maintain a net asset value
of $1.00 per share. There can be no assurance, however, that the Portfolio will
be successful in maintaining a net asset value of $1.00 per share.
The seven day yield and seven day effective yield (assumes an annualization of
the current yield with all dividends reinvested) for the Municipal Money Market
Portfolio as of June 30, 1995 were 3.71% and 3.78%, respectively. The seven day
taxable equivalent yield and the seven day taxable equivalent effective yield
for Municipal Money Market Portfolio at June 30, 1995, assuming Federal income
tax rate of 39.6% (maximum rate) were 6.14% and 6.26%, respectively. The seven
day yields are not necessarily indicative of future performance.
Concern surrounding the bankruptcy filing by Orange County, California in the
fourth quarter of 1994 extended into 1995 resulting in a general nervousness
about and lack of confidence in the tax-exempt market. This sentiment effected
demand for tax-exempt money market investments thereby increasing supply. By the
end of the first half of 1995 despite the relative under-performance on the part
of the municipal money market sector, the overall flat shape of the municipal
money market curve was comparable to that of the taxable money market sector.
The Municipal Money Market Portfolio finished the first half of 1995 with assets
of $353 million which is consistent with the size of the Portfolio at year end.
In general, the asset allocation in the Portfolio remained consistent throughout
the first six months, except for tax-exempt note holdings which dropped from a
range of 10-15% to 5% at the end of the period. The majority of tax-exempt notes
- - -- 10% of the Portfolio -- matured during the month of June; typically
- - --------------------------------------------------------------------------------
Municipal Money Market Portfolio
110
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
OVERVIEW
- - --------------------------------------------------------------------------------
THE MUNICIPAL MONEY MARKET PORTFOLIO (CONT.)
tax-exempt notes' maturities coincide with the end of the particular state or
local government's fiscal year of which most are June 30th. Commercial paper
ranged from 35% to 45%, and daily and weekly variable rate preferred issues
fluctuated between 40% and 55% of the Portfolio. The Portfolio's weighted
average maturity ranged from 30 to 45 days for the first five months and then
dropped in June as the tax-exempt notes matured, ending the first half with a
weighted average maturity of 26 days.
- - --------------------------------------------------------------------------------
Municipal Money Market Portfolio
111
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1995
- - --------------------------------------------------------------------------------
THE MUNICIPAL MONEY MARKET PORTFOLIO
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE AMORTIZED
AMOUNT COST
(000) (000)
- - ------------------------------------------------------------
<C> <S> <C>
TAX-EXEMPT INSTRUMENTS (95.2%)
FIXED RATE INSTRUMENTS (43.0%)
NOTES (2.2%)
$ 2,000 Indiana Bond Bank, Advanced Funding Program,
Series A-1 5.25%, 7/10/95....................... $ 2,000
5,000 New York State Urban Development Correctional
Facilities, 8.00%, 1/01/15 Prerefunded 1/01/96
at 102.......................................... 5,184
500 Triborough Bridge & Tunnel Authority, New York,
Convention Center Project, Series 85D, 9.00%,
7/01/95......................................... 512
----------
7,696
----------
PUT OPTION BONDS (0.3%)
1,000 Putnam County, Florida, Development Authority,
Pollution Control Revenue, Seminole Electric
Series H-3, 4.30%, 3/15/14 (Putable 9/15/95).... 1,000
----------
TAX & REVENUE ANTICIPATION NOTES (2.5%)
4,000 Texas State, 5.00%, 8/31/95, TRANS................ 4,001
5,000 Texas State, 5.00%, 8/31/95, TRANS................ 5,007
----------
9,008
----------
COMMERCIAL PAPER (38.0%)
3,000 Beaver County, Pennsylvania, Industrial
Development Authority, Duquesne Light 4.30%,
7/27/95......................................... 3,000
1,100 Brazos River, Texas, Harbor & Navigation District,
Series 90, 4.15%, 8/14/95....................... 1,100
1,500 Burke County, Georgia, Development Authority,
Oglethorpe, Series 92A, 3.90%, 8/21/95.......... 1,500
2,500 Burke County, Georgia, Development Authority,
Oglethorpe, Series 92A, 3.95%, 8/22/95.......... 2,500
2,600 Burlington, Kansas, Kansas City Power & Light Co.,
4.10%, 9/11/95.................................. 2,600
2,000 Burlington, Kansas, Kansas City Power & Light Co.,
Series 87A, 4.10%, 9/11/95...................... 2,000
3,500 City of Austin, Texas, Series A, 4.20%,
10/05/95........................................ 3,500
4,530 City of Dallas, Texas, Series A, 4.15%, 7/13/95... 4,530
1,200 Connecticut State Health & Education Facilities
Authority, Yale University Series N, 3.05%,
7/17/95......................................... 1,200
1,000 Converse County, Wyoming, Pacificorp Series 88,
4.15%, 8/10/95.................................. 1,000
1,000 Delta County, Michigan, Pollution Control Revenue,
Mead Corp., 3.85%, 8/21/95...................... 1,000
4,500 Emery County, Utah, Pacificorp Series 91, 4.30%,
7/27/95......................................... 4,500
2,525 Gainesville, Florida, Series C, 4.25%, 7/28/95.... 2,525
1,000 Houston, Texas, Water & Sewer, 4.05%, 7/13/95..... 1,000
2,000 Illinois Development Finance Authority, Series
93A, 4.00%, 7/25/95............................. 2,000
<CAPTION>
FACE AMORTIZED
AMOUNT COST
(000) (000)
- - ------------------------------------------------------------
<C> <S> <C>
$ 1,000 Illinois Health & Education, Series 89A, 4.25%,
8/09/95......................................... $ 1,000
4,400 Intermountain Power Agency, Utah, Series E, 4.10%,
8/15/95......................................... 4,400
3,100 Intermountain Power Agency, Utah, Series E, 4.15%,
9/07/95......................................... 3,100
700 Intermountain Power Agency, Utah, Series F2,
4.30%, 7/14/95.................................. 700
1,500 Intermountain Power Agency, Utah, Series 85F,
4.30%, 7/14/95.................................. 1,500
7,700 Jacksonville, Florida, Electric Authority, 4.00%,
7/25/95......................................... 7,700
3,600 Jasper County, Indiana, Series 88B, 4.15%,
8/17/95......................................... 3,600
2,000 Jasper County, Indiana, Series 88C, 4.15%,
8/17/95......................................... 2,000
1,100 Lehigh County, Pennsylvania, General Purpose
Authority, Series A, 4.25%, 7/28/95............. 1,100
6,600 Massachusetts Health & Education Facilities
Authority, Harvard University, 4.05%, 8/04/95... 6,600
1,500 Michigan State Strategic Fund, Dow Chemical
Series, 4.25%, 8/09/95.......................... 1,500
6,020 Montgomery, Alabama, Industrial Development Board,
General Electric Series, 3.95%, 10/10/95........ 6,020
4,000 Mount Vernon, Indiana, General Electric Series
89A, 4.05%, 8/15/95............................. 4,000
4,000 Mount Vernon, Indiana, General Electric Series
89A, 4.10%, 8/18/95............................. 4,000
4,025 North Carolina Eastern Municipal Power, 3.32%,
9/12/95......................................... 4,025
300 Northeastern Pennsylvania Hospital Authority,
Series B, 4.15%, 8/18/95........................ 300
3,290 Omaha, Nebraska, Public Power District, 4.15%,
8/18/95......................................... 3,290
2,000 Petersburg, Indiana, Indiana Power & Light, Series
91, 4.15%, 8/11/95.............................. 2,000
1,000 Petersburg, Indiana, Indiana Power & Light, Series
91, 3.85%, 8/14/95.............................. 1,000
2,200 Platte River Authority, Colorado, 4.20%,
8/17/95......................................... 2,200
1,000 Rochester, Minnesota, Health Facilities, Mayo
Clinic, Series B, 4.20%, 8/16/95................ 1,000
1,500 Rochester, Minnesota, Health Facilities, Mayo
Clinic, Series C, 4.15%, 8/11/95................ 1,500
1,065 Rochester, Minnesota, Health Facilities, Mayo
Clinic, Series E, 4.15%, 8/11/95................ 1,065
1,500 Rochester, Minnesota, Health Facilities, Mayo
Clinic, Series F 4.15%, 9/12/95................. 1,500
2,000 Salt River, Arizona, 4.30%, 7/27/95............... 2,000
6,000 Salt River, Arizona, 4.00%, 10/12/95.............. 6,000
2,000 Sunshine State, Florida, Government Finance
Authority, Series 86, 4.20%, 7/28/95............ 2,000
2,000 Texas Municipal Power Agency, 4.25%, 8/09/95...... 2,000
</TABLE>
The accompanying notes are an integral part of the financial statements. (Pages
144-152)
- - --------------------------------------------------------------------------------
Municipal Money Market Portfolio
112
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1995
- - --------------------------------------------------------------------------------
THE MUNICIPAL MONEY MARKET PORTFOLIO (CONT.)
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE AMORTIZED
AMOUNT COST
(000) (000)
- - ------------------------------------------------------------
<C> <S> <C>
COMMERCIAL PAPER (CONT.)
$ 6,600 Texas Municipal Power Agency, 3.30%, 9/19/95...... $ 6,600
1,000 Trimble County, Kentucky, Louisville Gas &
Electric Series, 3.85%, 8/14/95................. 1,000
5,000 Trimble County, Kentucky, Louisville Gas &
Electric Series, 4.10%, 9/11/95................. 5,000
5,500 University of Minnesota, Series A, 4.00%,
8/08/95......................................... 5,500
3,000 University of Texas, Series A, 4.10%, 7/26/95..... 3,000
2,500 Vanderbilt University, Tennessee, Series 89A,
4.25%, 8/09/95.................................. 2,500
----------
134,655
----------
TOTAL FIXED RATE INSTRUMENTS............................ 152,359
----------
VARIABLE/FLOATING RATE INSTRUMENTS (52.2%)
DAILY VARIABLE RATE BONDS (29.6%)
1,500 Ascension Parish, Louisiana, Pollution Control
Revenue Bonds, Shell Oil Project, 4.35%,
9/01/23......................................... 1,500
4,000 Chattanooga-Hamilton County, Tennessee, Hospital
Authority Revenue, Erlanger Medical Center,
4.60%, 10/01/17................................. 4,000
3,000 Chicago, Illinois, O'Hare International Airport
Special Facilities Revenue Bonds, American
Airlines, Series A, 4.50%, 12/01/17............. 3,000
700 Delaware County, Pennsylvania, Industrial
Development Authority, Series 95, 4.35%,
12/01/09........................................ 700
1,700 Delta County, Michigan, Pollution Control Revenue,
Mead Corp., 4.25%, 12/01/23..................... 1,700
5,700 East Baton Rouge Parish, Louisiana, Pollution
Control Revenue, Exxon Project, 4.35%,
3/01/22......................................... 5,700
4,900 Hapeville, Georgia, Industrial Development
Authority, Series 85, 4.35%, 11/01/15........... 4,900
10,600 Harris County, Texas, Health Facilities
Development Corp., Methodist Hospital, 4.50%,
12/01/25........................................ 10,600
2,500 Hurley, New Mexico, Pollution Control Revenue
Bonds, 4.20%, 12/01/15.......................... 2,500
5,300 Jackson County, Mississippi, Port Facility,
Chevron Project, Series 93, 4.20%, 6/01/23...... 5,300
900 Kansas City, Kansas, Industrial Development
Authority, PQ Corp., 4.35%, 8/01/15............. 900
1,900 Lake Charles, Louisiana, Harbor & Terminal
District Port Facilities, Series 84, 4.25%,
11/01/11........................................ 1,900
2,000 Lincoln County, Wyoming, Pollution Control
Revenue, Exxon Project Series 84B, 4.25%,
11/01/14........................................ 2,000
<CAPTION>
FACE AMORTIZED
AMOUNT COST
(000) (000)
- - ------------------------------------------------------------
<C> <S> <C>
$ 1,600 Lincoln County, Wyoming, Pollution Control
Revenue, Exxon Project Series 84D, 4.25%,
11/01/14........................................ $ 1,600
3,500 Lincoln County, Wyoming, Pollution Control
Revenue, Exxon Project Series 85, 4.20%,
8/01/15......................................... 3,500
3,120 Louisiana Public Facilities Authority, Industrial
Development, Kenner Hotel Series, 4.35%,
12/01/15........................................ 3,120
4,500 Maricopa County, Arizona, Pollution Control
Revenue, Series 94B, 4.20%, 5/01/29............. 4,500
2,600 Maricopa County, Arizona, Public Services, Series
94C, 4.50%, 5/01/29............................. 2,600
6,700 Michigan State Strategic Fund, Consumers Power
Series 88A, 4.25%, 4/15/18...................... 6,700
1,570 Missouri State Health & Educational Facilities
Authority Revenue, Washington University, Series
89A, 4.60%, 3/01/17............................. 1,570
500 New York City, New York, Water Finance Authority,
Water and Sewer System Revenue, Series 92C,
4.25%, 6/15/22.................................. 500
2,000 New York City, New York, Water Finance Authority,
Water and Sewer System Revenue, Series 94C,
4.25%, 6/15/23.................................. 2,000
1,000 Nueces River Authority, Texas, Pollution Control
Revenue, Series 85, 4.55%, 12/01/99............. 1,000
700 Peninsula Ports Authority, Virginia, Coal Revenue,
4.25%, 7/01/16.................................. 700
6,200 Philadelphia, Pennsylvania, Childrens Hospital,
Series 92B, 4.35%, 3/01/27...................... 6,200
3,900 Phoenix, Arizona, Series 94-1, 4.50%, 6/01/18..... 3,900
3,800 Platte County, Wyoming, Pollution Control Revenue,
Series A, 4.35%, 7/01/14........................ 3,800
1,000 Platte County, Wyoming, Pollution Control Revenue,
Series B, 4.35%, 7/01/14........................ 1,000
2,000 Port of Saint Helens, Oregon, Pollution Control
Revenue, Portland General Electric Co. Series A,
4.25%, 4/01/10.................................. 2,000
1,600 Port of Saint Helens, Oregon, Pollution Control
Revenue, Portand General Electric Co., Series B,
4.25%, 6/01/10.................................. 1,600
1,400 Saint Charles Parish, Louisiana, Pollution Control
Revenue, Shell Oil Project, 4.20%, 10/01/22..... 1,400
4,900 Southwest, Texas, Higher Education Authority
Revenue, Southern Methodist University Series
85, 4.20%, 7/01/15.............................. 4,900
4,700 Valdez, Alaska, Marine Terminal Authority, Exxon,
Series 85, 4.20%, 10/01/25...................... 4,700
3,000 West Side Calhoun County, Texas, Pollution Control
Revenue, 4.50%, 12/01/15........................ 3,000
----------
104,990
----------
</TABLE>
The accompanying notes are an integral part of the financial statements. (Pages
144-152)
- - --------------------------------------------------------------------------------
Municipal Money Market Portfolio
113
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1995
- - --------------------------------------------------------------------------------
THE MUNICIPAL MONEY MARKET PORTFOLIO (CONT.)
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE AMORTIZED
AMOUNT COST
(000) (000)
- - ------------------------------------------------------------
<C> <S> <C>
WEEKLY VARIABLE RATE BONDS (22.6%)
$ 1,000 Albuquerque, New Mexico, Revenue Bond, Series A,
4.20%, 7/01/22.................................. $ 1,000
1,000 Beaver County, Pennsylvania, Industrial
Development Authority, Duquesne Light Series,
4.15%, 8/01/09.................................. 1,000
1,000 Beaver County, Pennsylvania, Industrial
Development Authority, Duquesne Light Series,
4.15%, 8/01/20.................................. 1,000
1,000 Brunswick & Glynn County, Georgia, Development
Authority, Series 85, 4.25%, 12/01/15........... 1,000
7,000 Burke County, Georgia, Development Authority,
Oglethorpe, Series 93A, 4.20%, 1/01/16.......... 7,000
5,900 Charlotte, North Carolina, Airport, Series 93A,
4.20%, 7/01/16.................................. 5,900
2,500 City of Columbia, Missouri, Special Revenue Bonds,
Series 88A, 4.25%, 6/01/08...................... 2,500
1,500 City of Columbia, Missouri, Water & Electric
Revenue Bonds, Series 85B, 4.25%, 12/01/15...... 1,500
300 City of Forsyth, Montana, Pollution Control
Revenue, Series B, 4.15%, 6/01/13............... 300
700 City of Forsyth, Montana, Pollution Control
Revenue, Series D, 4.15%, 6/01/13............... 700
2,600 City of Midlothian, Texas, Industrial Development
Corp., Pollution Control Revenue, Box-Crow
Cement Co., 4.80%, 12/01/09..................... 2,600
7,900 Clark County, Nevada, Airport Revenue Bonds,
Series 93A, 4.40%, 7/01/12...................... 7,900
2,700 Clark County, Nevada, Airport Revenue Bonds,
Series 95-A1, 4.15%, 7/01/25.................... 2,700
305 Clear Creek County, Colorado, Revenue Bonds,
Colorado Finance Pool Program, 4.30%, 6/01/98... 305
600 Colorado Student Obligation Bond Authority,
Student Loan Revenue, Series 91C1, 4.50%,
8/01/00......................................... 600
7,300 Dade County, Florida, Water & Sewer Revenue Bonds,
4.35%, 10/05/22................................. 7,300
1,200 Delaware County, Pennsylvania, Industrial
Development Authority, Scott Paper Series D,
4.15%, 12/01/18................................. 1,200
500 Delaware County, Pennsylvania, Industrial
Development Authority, Scott Paper Series E,
4.15%, 12/01/18................................. 500
3,000 Foothill/Eastern California Toll Road Revenue,
TRANS Series 95C, 4.20%, 1/02/35................ 3,000
5,000 Harris County, Texas, Series 94G, 3.90%,
8/01/26......................................... 5,000
<CAPTION>
FACE AMORTIZED
AMOUNT COST
(000) (000)
- - ------------------------------------------------------------
<C> <S> <C>
$ 5,000 Harris County, Texas, Series 94H, 3.90%,
8/01/20......................................... $ 5,000
300 Illinois Development Finance Authority, A.E.
Staley Manufacturing Series 85, 4.25%,
12/01/05........................................ 300
1,000 Lehigh County, Pennsylvania, Allegheny Electric
Cooperative, 4.25%, 12/01/15.................... 1,000
2,600 Louisiana Public Facilities Authority, Hospital
Revenue, Series 85, 4.25%, 12/01/00............. 2,600
1,000 Massachusetts Health & Education Facilities
Authority, Series G-1, 3.75%, 1/01/19........... 1,000
1,100 Mobile, Alabama, Industrial Development Board,
Scott Paper Series A, 4.15%, 12/01/19........... 1,100
1,500 Mobile, Alabama, Industrial Development Board,
Scott Paper Series B, 4.15%, 12/01/19........... 1,500
3,900 Nueces County, Texas, Health Facilities, Driscoll
Childrens' Foundation, 4.30%, 7/01/15........... 3,900
1,500 Person County, North Carolina, Carolina Power &
Light, 4.30%, 11/01/19.......................... 1,500
235 Pinellas County, Florida, Health Facilities,
Bayfront Medical Center, Series 89, 4.20%,
6/01/98......................................... 235
1,000 Pinellas County, Florida, Health Facilities,
Bayfront Medical Center, Series 89, 4.20%,
6/01/09......................................... 1,000
500 Polk County, Iowa, Hospital Equipment &
Improvement Authority, 4.25%, 12/01/05.......... 500
800 Port Development Corporation Marine Terminal,
Texas, Series 89, 4.15%, 1/15/14................ 800
1,500 Port of Corpus Christi, Texas, Marine Terminal,
R.J. Reynolds Metals Series, 4.25%, 9/01/14..... 1,500
600 Putnam County, Florida, Development Authority,
Seminole Electric Series 84 H1, 4.30%,
3/15/14......................................... 600
1,000 Rapides Parish, Louisiana, Central Louisiana
Electric Series, 3.95%, 7/01/18................. 1,000
700 Sheboygan, Wisconsin, Wisconsin Power & Light
Series, 4.25%, 8/01/14.......................... 700
1,100 University of North Carolina, Chapel Hill Fund
Inc., Certificates of Participation, 4.30%,
10/01/09........................................ 1,100
2,000 Washington Public Power, Series 93-1A3, 4.15%,
7/01/17......................................... 2,000
----------
80,340
----------
TOTAL VARIABLE/FLOATING RATE INSTRUMENTS.................... 185,330
----------
TOTAL TAX-EXEMPT INSTRUMENTS (Cost $337,689).................. 337,689
----------
</TABLE>
The accompanying notes are an integral part of the financial statements. (Pages
144-152)
- - --------------------------------------------------------------------------------
Municipal Money Market Portfolio
114
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1995
- - --------------------------------------------------------------------------------
THE MUNICIPAL MONEY MARKET PORTFOLIO (CONT.)
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE AMORTIZED
AMOUNT COST
(000) (000)
- - ------------------------------------------------------------
TAXABLE INSTRUMENTS (4.3%)
<C> <S> <C>
US GOVERNMENT & AGENCY OBLIGATIONS (4.3%)
Federal Home Loan Bank
$ 5,200 Discount Note, 6.00%, 7/06/95................... $ 5,196
10,000 Discount Note, 5.95%, 7/31/95................... 9,951
----------
TOTAL TAXABLE INSTRUMENTS (Cost $15,147)...................... 15,147
----------
TOTAL INVESTMENTS (99.5%) (Cost $352,836)..................... 352,836
----------
</TABLE>
<TABLE>
<CAPTION>
VALUE
(000)
----------
<S> <C> <C>
OTHER ASSETS (0.7%)
Cash............................................ $ 13
Interest Receivable............................. 2,514
Other........................................... 20 2,547
----------
LIABILITIES (-0.2%)
Dividends Payable............................... (487)
Investment Advisory Fees Payable................ (259)
Administrative Fees Payable..................... (61)
Custodian Fees Payable.......................... (19)
Director's Fees and Expenses Payable............ (1)
Other Liabilities............................... (8) (835)
---------- ----------
NET ASSETS (100%)............................................. $ 354,548
----------
----------
<CAPTION>
VALUE
(000)
- - ------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER SHARE
Applicable to 354,531,447 outstanding $.001 par value shares
(authorized 1,000,000,000 shares)........................... $1.00
----------
----------
</TABLE>
- - ------------------------------------------------------------
<TABLE>
<S> <C>
TRANS -- Tax & Revenue Anticipation Notes
</TABLE>
Variable/Floating Rate Instruments. The interest rate changes on these
instruments are based upon a designated base rate. These instruments are payable
on demand and are secured by a letter of credit or other support agreements.
Maturity dates disclosed for Variable/Floating Rate Instruments are the ultimate
maturity dates. The effective maturity dates for such securities are the next
interest reset dates which are seven days or less.
Interest rates disclosed for US Government & Agency Obligations represent
effective yields at June 30, 1995.
At June 30, 1995, approximately 19% of the net assets were invested in Texas
municipal securities. Economic changes affecting the state and certain of its
public bodies and municipalities may affect the ability of issuers to pay the
required principal and interest payments of the municipal securities.
The accompanying notes are an integral part of the financial statements. (Pages
144-152)
- - --------------------------------------------------------------------------------
Municipal Money Market Portfolio
115
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS (UNAUDITED)
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ACTIVE
COUNTRY ASIAN EMERGING EUROPEAN GLOBAL
ALLOCATION EQUITY MARKETS EQUITY EQUITY
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
SIX MONTHS SIX MONTHS SIX MONTHS SIX MONTHS SIX MONTHS
ENDED JUNE ENDED JUNE ENDED JUNE ENDED JUNE ENDED JUNE
30, 1995 30, 1995 30, 1995 30, 1995 30, 1995
(000) (000) (000) (000) (000)
- - -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 2,400 $ 3,380 $ 10,644 $ 719 $ 1,207
Interest 113 492 2,491 96 15
Less Foreign Taxes Withheld (345) (305) (1,253) (101) (123)
------------ ----------- ----------- ------ ------
Total Income 2,168 3,567 11,882 714 1,099
------------ ----------- ----------- ------ ------
EXPENSES:
Investment Advisory Fees:
Basic Fees -- Adviser 535 1,105 5,433 155 328
Less: Fees Waived (306) (228) (447) (62) (72)
------------ ----------- ----------- ------ ------
Investment Advisory Fees -- Net 229 877 4,986 93 256
Administrative Fees 157 223 690 39 71
Sub-Administrative Fees -- -- 93 -- --
Custodian Fees 187 197 1,497 18 26
Filing and Registration Fees 19 23 49 16 23
Insurance 10 12 39 1 2
Directors' Fees and Expenses 2 2 2 2 2
Legal Fees 5 8 28 1 3
Audit Fees 21 20 74 19 19
Shareholder Reports 24 15 47 4 7
Brazilian Tax Expense -- -- 5 -- --
Other Expenses 5 6 67 1 2
------------ ----------- ----------- ------ ------
Total Expenses 659 1,383 7,577 194 411
------------ ----------- ----------- ------ ------
NET INVESTMENT INCOME 1,509 2,184 4,305 520 688
------------ ----------- ----------- ------ ------
NET REALIZED GAIN (LOSS):
Investments Sold (53) 4,322 (15,596) 79 4,168
Foreign Currency Transactions (6,542) 145 (193) 308 (61)
------------ ----------- ----------- ------ ------
Total Net Realized Gain (Loss) (6,595) 4,467 (15,789) 387 4,107
------------ ----------- ----------- ------ ------
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION) 2,751 16,643 (54,529) 3,390 4,554
------------ ----------- ----------- ------ ------
TOTAL NET REALIZED GAIN (LOSS) AND CHANGE IN
UNREALIZED
APPRECIATION (DEPRECIATION) (3,844) 21,110 (70,318) 3,777 8,661
------------ ----------- ----------- ------ ------
Net Increase (Decrease) in Net Assets
Resulting from Operations $ (2,335) $ 23,294 $ (66,013) $ 4,297 $ 9,349
------------ ----------- ----------- ------ ------
------------ ----------- ----------- ------ ------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- - --------------------------------------------------------------------------------
116
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS (UNAUDITED)
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTERNATIONAL INTERNATIONAL JAPANESE
EQUITY SMALL CAP EQUITY LATIN AMERICAN
GOLD PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
PORTFOLIO SIX SIX MONTHS SIX MONTHS SIX MONTHS JANUARY 18,
MONTHS ENDED ENDED JUNE 30, ENDED JUNE 30, ENDED JUNE 1995* TO JUNE
JUNE 30, 1995 1995 1995 30, 1995 30, 1995
(000) (000) (000) (000) (000)
- - ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 49 $ 23,057 $ 3,633 $ 187 $ 132
Interest 69 1,853 328 2 33
Less Foreign Taxes Withheld (3) (3,035) (445) (28) (12)
------ ------- ------ ------------ -----
Total Income 115 21,875 3,516 161 153
------ ------- ------ ------------ -----
EXPENSES:
Investment Advisory Fees
Basic Fees -- Adviser 84 5,326 842 136 57
Basic Fees -- Sub Adviser 56 -- -- -- --
Less: Fees Waived -- Adviser (31) (195) (91) (56) (57)
Fees Waived -- Sub Adviser (21) -- -- -- --
------ ------- ------ ------------ -----
Investment Advisory Fees -- Net 88 5,131 751 80 --
Administrative Fees 24 1,057 145 31 10
Sub-Administrative Fees -- -- -- -- 4
Custodian Fees 7 241 59 11 39
Filing and Registration Fees 18 25 22 16 21
Insurance 1 56 6 2 --
Directors' Fees and Expenses 2 2 2 2 2
Legal Fees 1 38 5 1 --
Audit Fees 20 31 17 21 19
Shareholder Reports 12 55 10 4 --
Brazilian Tax Expense -- -- -- -- 45
Other Expenses 3 25 3 1 8
Expenses Reimbursed by Adviser -- -- -- -- (16)
------ ------- ------ ------------ -----
Total Expenses 176 6,661 1,020 169 132
------ ------- ------ ------------ -----
NET INVESTMENT INCOME (LOSS) (61) 15,214 2,496 (8) 21
------ ------- ------ ------------ -----
NET REALIZED GAIN (LOSS):
Investments Sold 268 49,958 4,341 (2,999) (747)
Foreign Currency Transactions (1) (7,755) (320) (1,570) (7)
------ ------- ------ ------------ -----
Total Net Realized Gain (Loss) 267 42,203 4,021 (4,569) (754)
------ ------- ------ ------------ -----
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION) 1,862 7,737 (2,754) (2,373) 24
------ ------- ------ ------------ -----
TOTAL NET REALIZED GAIN (LOSS) AND CHANGE IN
UNREALIZED
APPRECIATION (DEPRECIATION) 2,129 49,940 1,267 (6,942) (730)
------ ------- ------ ------------ -----
Net Increase (Decrease) in Net Assets
Resulting from Operations $ 2,068 $ 65,154 $ 3,763 $ (6,950) $ (709)
------ ------- ------ ------------ -----
------ ------- ------ ------------ -----
<FN>
- - ---------------
*Commencement of operations.
</TABLE>
The accompanying notes are an integral part of the financial statements.
- - --------------------------------------------------------------------------------
117
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS (UNAUDITED)
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AGGRESSIVE EMERGING EQUITY SMALL CAP U.S. REAL VALUE
EQUITY GROWTH GROWTH VALUE EQUITY ESTATE EQUITY BALANCED
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
MARCH 8, SIX MONTHS SIX MONTHS SIX MONTHS FEBRUARY 24, SIX MONTHS SIX MONTHS
1995* TO ENDED ENDED ENDED 1995* TO ENDED ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1995 1995 1995 1995 1995 1995 1995
(000) (000) (000) (000) (000) (000) (000)
- - --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 79 $ 115 $ 1,083 $ 768 $ 742 $ 1,616 $ 180
Interest 36 242 404 51 59 113 321
------ ----------- ----------- ------ ------ ----------- ------
Total Income 115 357 1,487 819 801 1,729 501
------ ----------- ----------- ------ ------ ----------- ------
EXPENSES:
Investment Advisory
Fees:
Basic Fees -- Adviser 29 623 356 182 68 223 51
Less: Fees Waived (29) (19) (61) (58) (58) (52) (43)
------ ----------- ----------- ------ ------ ----------- ------
Investment Advisory
Fees -- Net -- 604 295 124 10 171 8
Administrative Fees 6 101 96 38 13 72 19
Custodian Fees 5 14 20 11 9 14 6
Filing and Registration
Fees 15 18 22 14 23 18 14
Insurance -- 5 4 1 -- 3 1
Directors' Fees and
Expenses 2 2 2 2 2 2 2
Legal Fees 11 3 3 1 11 2 --
Audit Fees 8 13 13 13 8 13 13
Shareholder Reports 7 16 16 8 9 14 6
Other Expenses 1 4 3 2 1 3 2
Expenses Reimbursed by
Adviser (18) -- -- -- -- -- --
------ ----------- ----------- ------ ------ ----------- ------
Total Expenses 37 780 474 214 86 312 71
------ ----------- ----------- ------ ------ ----------- ------
NET INVESTMENT INCOME
(LOSS) 78 (423) 1,013 605 715 1,417 430
------ ----------- ----------- ------ ------ ----------- ------
NET REALIZED GAIN (LOSS):
Investments Sold 716 2,535 6,369 (4) 310 2,940 412
Written Options (3) -- -- -- -- -- --
Securities Sold Short (2) -- -- -- -- -- --
------ ----------- ----------- ------ ------ ----------- ------
Total Net Realized
Gain (Loss) 711 2,535 6,369 (4) 310 2,940 412
------ ----------- ----------- ------ ------ ----------- ------
CHANGE IN UNREALIZED
APPRECIATION
(DEPRECIATION) 1,154 13,677 17,570 4,111 1,300 11,254 1,872
------ ----------- ----------- ------ ------ ----------- ------
TOTAL NET REALIZED GAIN
AND CHANGE IN
UNREALIZED APPRECIATION
(DEPRECIATION) 1,865 16,212 23,939 4,107 1,610 14,194 2,284
------ ----------- ----------- ------ ------ ----------- ------
Net Increase in Net
Assets Resulting from
Operations $ 1,943 $ 15,789 $ 24,952 $ 4,712 $ 2,325 $ 15,611 $ 2,714
------ ----------- ----------- ------ ------ ----------- ------
------ ----------- ----------- ------ ------ ----------- ------
<FN>
- - ---------------
*Commencement of operations.
</TABLE>
The accompanying notes are an integral part of the financial statements.
- - --------------------------------------------------------------------------------
118
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS (UNAUDITED)
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EMERGING GLOBAL MUNICIPAL
MARKETS FIXED FIXED BOND MONEY MUNICIPAL
DEBT INCOME INCOME HIGH YIELD PORTFOLIO MARKET MONEY MARKET
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO JANUARY 18, PORTFOLIO PORTFOLIO
SIX MONTHS SIX MONTHS SIX MONTHS SIX MONTHS 1995* TO SIX MONTHS SIX MONTHS
ENDED JUNE ENDED JUNE ENDED JUNE ENDED JUNE JUNE 30, ENDED JUNE ENDED JUNE
30, 1995 30, 1995 30, 1995 30, 1995 1995 30, 1995 30, 1995
(000) (000) (000) (000) (000) (000) (000)
- - ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ -- $ -- $ -- $ 49 $ -- $ -- $ --
Interest 14,720 7,084 3,659 4,262 990 24,336 7,333
----------- ----------- ----------- ------------ ------ ----------- ------
Total Income 14,720 7,084 3,659 4,311 990 24,336 7,333
----------- ----------- ----------- ------------ ------ ----------- ------
EXPENSES:
Investment Advisory Fees:
Basic Fees -- Adviser 814 333 188 178 69 1,218 557
Less: Fees Waived -- (142) (115) (43) (62) -- --
----------- ----------- ----------- ------------ ------ ----------- ------
Investment Advisory
Fees --- Net 814 191 73 135 7 1,218 557
Administrative Fees 131 155 77 63 32 631 301
Custodian Fees 82 15 28 13 5 34 29
Filing and Registration Fees 22 13 14 20 20 22 9
Insurance 5 9 6 6 -- 44 19
Directors' Fees and Expenses 2 2 2 2 2 2 2
Legal Fees 5 6 3 2 1 16 10
Audit Fees 49 13 18 16 10 8 11
Shareholder Reports 12 15 11 8 11 19 13
Other Expenses 69 9 4 3 1 18 9
----------- ----------- ----------- ------------ ------ ----------- ------
Total Expenses 1,191 428 236 268 89 2,012 960
----------- ----------- ----------- ------------ ------ ----------- ------
NET INVESTMENT INCOME 13,529 6,656 3,423 4,043 901 22,324 6,373
----------- ----------- ----------- ------------ ------ ----------- ------
NET REALIZED GAIN (LOSS):
Investments Sold (4,292) 1,372 (2,954) (3,196) 178 79 (1)
Foreign Currency
Transactions (65) 43 202 -- -- -- --
Written Options 532 -- -- -- -- -- --
Securities Sold Short 957 -- -- -- -- -- --
----------- ----------- ----------- ------------ ------ ----------- ------
Total Net Realized Gain
(Loss) (2,868) 1,415 (2,752) (3,196) 178 79 (1)
----------- ----------- ----------- ------------ ------ ----------- ------
CHANGE IN UNREALIZED
APPRECIATION (DEPRECIATION) 13,649 12,075 10,244 8,636 739 -- --
----------- ----------- ----------- ------------ ------ ----------- ------
TOTAL NET REALIZED GAIN (LOSS)
AND CHANGE IN UNREALIZED
APPRECIATION (DEPRECIATION) 10,781 13,490 7,492 5,440 917 79 (1)
----------- ----------- ----------- ------------ ------ ----------- ------
Net Increase in Net Assets
Resulting
from Operations $ 24,310 $ 20,146 $ 10,915 $ 9,483 $ 1,818 $ 22,403 $ 6,372
----------- ----------- ----------- ------------ ------ ----------- ------
----------- ----------- ----------- ------------ ------ ----------- ------
<FN>
- - ---------------
*Commencement of operations.
</TABLE>
The accompanying notes are an integral part of the financial statements.
- - --------------------------------------------------------------------------------
119
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- - --------------------------------------------------------------------------------
THE ACTIVE COUNTRY ALLOCATION PORTFOLIO
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30, 1995
1994 (UNAUDITED)
(000) (000)
- - --------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 2,652 $ 1,509
Net Realized Gain (Loss) 8,147 (6,595)
Change in Unrealized Appreciation (Depreciation) (12,455) 2,751
-------------- --------------
Net Decrease in Net Assets Resulting from Operations (1,656) (2,335)
-------------- --------------
DISTRIBUTIONS:
Net Investment Income (1,773) --
Net Realized Gain (4,419) (6,990)
-------------- --------------
Total Distributions (6,192) (6,990)
-------------- --------------
CAPITAL SHARE TRANSACTIONS: (1)
Subscribed 169,994 53,802
Distributions Reinvested 5,395 6,629
Redeemed (135,418) (79,836)
-------------- --------------
Net Increase (Decrease) from Capital Share Transactions 39,971 (19,405)
-------------- --------------
Total Increase (Decrease) in Net Assets 32,123 (28,730)
NET ASSETS:
Beginning of Period 150,854 182,977
-------------- --------------
End of Period (2) $ 182,977 $ 154,247
-------------- --------------
-------------- --------------
<FN>
- - --------------------------------------------------------------------------------------------
(1) Capital Share Transactions:
Shares Subscribed 14,259 4,939
Shares Issued on Distributions Reinvested 458 594
Shares Redeemed (11,357) (7,224)
-------------- --------------
Net Increase (Decrease) in Capital Shares Outstanding 3,360 (1,691)
-------------- --------------
-------------- --------------
(2) Net Assets were comprised of:
Paid in Capital $ 168,882 $ 149,477
Undistributed Net Investment Income 1,418 2,927
Accumulated Net Realized Gain (Loss) 7,989 (5,596)
Unrealized Appreciation 4,688 7,439
-------------- --------------
$ 182,977 $ 154,247
-------------- --------------
-------------- --------------
</TABLE>
- - --------------------------------------------------------------------------------
THE ASIAN EQUITY PORTFOLIO
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30, 1995
1994 (UNAUDITED)
(000) (000)
- - --------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 1,397 $ 2,184
Net Realized Gain 32,848 4,467
Change in Unrealized Appreciation (Depreciation) (80,975) 16,643
-------------- --------------
Net Increase (Decrease) in Net Assets Resulting from
Operations (46,730) 23,294
-------------- --------------
DISTRIBUTIONS:
Net Investment Income (972) (1,879)
Net Realized Gain (5,840) (29,033)
-------------- --------------
Total Distributions (6,812) (30,912)
-------------- --------------
CAPITAL SHARE TRANSACTIONS: (1)
Subscribed 213,200 351,505
Distributions Reinvested 6,036 28,066
Redeemed (175,924) (358,462)
-------------- --------------
Net Increase from Capital Share Transactions 43,312 21,109
-------------- --------------
Total Increase (Decrease) in Net Assets (10,230) 13,491
NET ASSETS:
Beginning of Period 287,136 276,906
-------------- --------------
End of Period (2) $ 276,906 $ 290,397
-------------- --------------
-------------- --------------
<FN>
- - --------------------------------------------------------------------------------------------
(1) Capital Share Transactions:
Shares Subscribed 9,345 18,577
Shares Issued on Distributions Reinvested 233 1,481
Shares Redeemed (7,685) (18,717)
-------------- --------------
Net Increase in Capital Shares Outstanding 1,893 1,341
-------------- --------------
-------------- --------------
(2) Net Assets were comprised of:
Paid in Capital $ 207,594 $ 228,703
Undistributed Net Investment Income 1,886 2,191
Accumulated Net Realized Gain 32,350 7,784
Unrealized Appreciation 35,076 51,719
-------------- --------------
$ 276,906 $ 290,397
-------------- --------------
-------------- --------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- - --------------------------------------------------------------------------------
120
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- - --------------------------------------------------------------------------------
THE EMERGING MARKETS PORTFOLIO
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30, 1995
1994 (UNAUDITED)
(000) (000)
- - --------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income (Loss) $ (2,302) $ 4,305
Net Realized Gain (Loss) (Net of India tax of $1,159 and
$725 on net realized gains for the Year Ended December
31, 1994 and the period ended June 30, 1995,
respectively.) 66,824 (15,789)
Change in Unrealized Appreciation (Depreciation) (168,042) (54,529)
-------------- --------------
Net Decrease in Net Assets Resulting from Operations (103,520) (66,013)
-------------- --------------
DISTRIBUTIONS:
Net Realized Gain (37,393) (52,592)
-------------- --------------
CAPITAL SHARE TRANSACTIONS: (1)
Subscribed 579,390 249,111
Distributions Reinvested 35,730 50,609
Redeemed (279,921) (141,122)
-------------- --------------
Net Increase from Capital Share Transactions 335,199 158,598
-------------- --------------
Total Increase in Net Assets 194,286 39,993
NET ASSETS:
Beginning of Period 735,352 929,638
-------------- --------------
End of Period (2) $ 929,638 $ 969,631
-------------- --------------
-------------- --------------
<FN>
- - --------------------------------------------------------------------------------------------
(1) Capital Share Transactions:
Shares Subscribed 32,685 18,239
Shares Issued on Distributions Reinvested 1,974 3,374
Shares Redeemed (16,342) (10,416)
-------------- --------------
Net Increase in Capital Shares Outstanding 18,317 11,197
-------------- --------------
-------------- --------------
(2) Net Assets were comprised of:
Paid in Capital $ 818,267 $ 976,865
Accumulated Net Investment Income (Loss) (785) 3,520
Accumulated Net Realized Gain (Loss) 65,253 (3,128)
Unrealized Appreciation (Depreciation) (Net of India tax
of $4,779 and $771 on unrealized appreciation on
investments at December 31, 1994 and at June 30, 1995,
respectively.) 46,903 (7,626)
-------------- --------------
$ 929,638 $ 969,631
-------------- --------------
-------------- --------------
</TABLE>
- - --------------------------------------------------------------------------------
THE EUROPEAN EQUITY PORTFOLIO
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30, 1995
1994 (UNAUDITED)
(000) (000)
- - --------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 159 $ 520
Net Realized Gain 2,606 387
Change in Unrealized Appreciation (Depreciation) (1,886) 3,390
-------------- --------------
Net Increase in Net Assets Resulting from Operations 879 4,297
-------------- --------------
DISTRIBUTIONS:
Net Investment Income (87) (6)
Net Realized Gain (251) (2,445)
-------------- --------------
Total Distributions (338) (2,451)
-------------- --------------
CAPITAL SHARE TRANSACTIONS: (1)
Subscribed 39,425 29,087
Distributions Reinvested 337 2,269
Redeemed (25,350) (12,212)
-------------- --------------
Net Increase from Capital Share Transactions 14,412 19,144
-------------- --------------
Total Increase in Net Assets 14,953 20,990
NET ASSETS:
Beginning of Period 12,681 27,634
-------------- --------------
End of Period (2) $ 27,634 $ 48,624
-------------- --------------
-------------- --------------
<FN>
- - --------------------------------------------------------------------------------------------
(1) Capital Share Transactions:
Shares Subscribed 2,791 2,194
Shares Issued on Distributions Reinvested 27 177
Shares Redeemed (1,818) (910)
-------------- --------------
Net Increase in Capital Shares Outstanding 1,000 1,461
-------------- --------------
-------------- --------------
(2) Net Assets were comprised of:
Paid in Capital $ 25,071 $ 44,215
Undistributed Net Investment Income 31 545
Accumulated Net Realized Gain 2,731 673
Unrealized Appreciation (Depreciation) (199) 3,191
-------------- --------------
$ 27,634 $ 48,624
-------------- --------------
-------------- --------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- - --------------------------------------------------------------------------------
121
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- - --------------------------------------------------------------------------------
THE GLOBAL EQUITY PORTFOLIO
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30, 1995
1994 (UNAUDITED)
(000) (000)
- - -------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 450 $ 688
Net Realized Gain 1,493 4,107
Change in Unrealized Appreciation (Depreciation) (1,816) 4,554
-------------- --------------
Net Increase in Net Assets Resulting from Operations 127 9,349
-------------- --------------
DISTRIBUTIONS:
Net Investment Income (170) (330)
Net Realized Gain (1,756) (1,103)
-------------- --------------
Total Distributions (1,926) (1,433)
-------------- --------------
CAPITAL SHARE TRANSACTIONS: (1)
Subscribed 72,166 18,390
Distributions Reinvested 1,926 1,398
Redeemed (13,276) (24,954)
-------------- --------------
Net Increase (Decrease) from Capital Share Transactions 60,816 (5,166)
-------------- --------------
Total Increase in Net Assets 59,017 2,750
NET ASSETS:
Beginning of Period 19,918 78,935
-------------- --------------
End of Period (2) $ 78,935 $ 81,685
-------------- --------------
-------------- --------------
<FN>
- - -------------------------------------------------------------------------------------------------
(1) Capital Share Transactions:
Shares Subscribed 5,281 1,342
Shares Issued on Distributions Reinvested 154 106
Shares Redeemed (982) (1,799)
-------------- --------------
Net Increase (Decrease) in Capital Shares Outstanding 4,453 (351)
-------------- --------------
-------------- --------------
(2) Net Assets were comprised of:
Paid in Capital $ 75,435 $ 70,269
Undistributed Net Investment Income 373 731
Accumulated Net Realized Gain 1,568 4,572
Unrealized Appreciation 1,559 6,113
-------------- --------------
$ 78,935 $ 81,685
-------------- --------------
-------------- --------------
</TABLE>
- - --------------------------------------------------------------------------------
THE GOLD PORTFOLIO
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 1, SIX MONTHS
1994* ENDED
TO DECEMBER 31, JUNE 30, 1995
1994 (UNAUDITED)
(000) (000)
- - -------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income (Loss) $ 77 $ (61)
Net Realized Gain 971 267
Change in Unrealized Appreciation (Depreciation) (2,809) 1,862
------- --------------
Net Increase (Decrease) in Net Assets Resulting from
Operations (1,761) 2,068
------- --------------
DISTRIBUTIONS:
Net Investment Income (38) (37)
Net Realized Gain -- (805)
------- --------------
Total Distributions (38) (842)
------- --------------
CAPITAL SHARE TRANSACTIONS: (1)
Subscribed 40,892 16,036
Distributions Reinvested 32 750
Redeemed (8,882) (27,701)
------- --------------
Net Increase (Decrease) from Capital Share Transactions 32,042 (10,915)
------- --------------
Total Increase (Decrease) in Net Assets 30,243 (9,689)
NET ASSETS:
Beginning of Period -- 30,243
------- --------------
End of Period (2) $ 30,243 $ 20,554
------- --------------
------- --------------
<FN>
- - -------------------------------------------------------------------------------------------------
(1) Capital Share Transactions:
Shares Subscribed 4,264 1,816
Shares Issued on Distributions Reinvested 3 87
Shares Redeemed (954) (3,059)
------- --------------
Net Increase (Decrease) in Capital Shares Outstanding 3,313 (1,156)
------- --------------
------- --------------
(2) Net Assets were comprised of:
Paid in Capital $ 32,042 $ 21,127
Accumulated Net Investment Income (Loss) 36 (62)
Accumulated Net Realized Gain 974 436
Unrealized Depreciation (2,809) (947)
------- --------------
$ 30,243 $ 20,554
------- --------------
------- --------------
- - -----------------
* Commencement of operations.
</TABLE>
The accompanying notes are an integral part of the financial statements.
- - --------------------------------------------------------------------------------
122
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- - --------------------------------------------------------------------------------
THE INTERNATIONAL EQUITY PORTFOLIO
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30, 1995
1994 (UNAUDITED)
(000) (000)
- - -----------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 13,406 $ 15,214
Net Realized Gain 64,532 42,203
Change in Unrealized Appreciation (Depreciation) 46,399 7,737
------------ --------------
Net Increase in Net Assets Resulting from Operations 124,337 65,154
------------ --------------
DISTRIBUTIONS:
Net Investment Income (11,956) --
Net Realized Gain (18,019) (68,023)
------------ --------------
Total Distributions (29,975) (68,023)
------------ --------------
CAPITAL SHARE TRANSACTIONS: (1)
Subscribed 330,843 142,813
Distributions Reinvested 25,762 66,422
Redeemed (93,242) (72,833)
------------ --------------
Net Increase from Capital Share Transactions 263,363 136,402
------------ --------------
Total Increase in Net Assets 357,725 133,533
NET ASSETS:
Beginning of Period 947,045 1,304,770
------------ --------------
End of Period (2) $ 1,304,770 $ 1,438,303
------------ --------------
------------ --------------
<FN>
- - -----------------------------------------------------------------------------------------------
(1) Capital Share Transactions:
Shares Subscribed 22,148 9,617
Shares Issued on Distributions Reinvested 1,872 4,568
Shares Redeemed (6,156) (4,971)
------------ --------------
Net Increase in Capital Shares Outstanding 17,864 9,214
------------ --------------
------------ --------------
(2) Net Assets were comprised of:
Paid in Capital $ 1,001,514 $ 1,137,916
Undistributed Net Investment Income 7,083 22,297
Accumulated Net Realized Gain 70,335 44,515
Unrealized Appreciation 225,838 233,575
------------ --------------
$ 1,304,770 $ 1,438,303
------------ --------------
------------ --------------
</TABLE>
- - --------------------------------------------------------------------------------
THE INTERNATIONAL SMALL CAP PORTFOLIO
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30, 1995
1994 (UNAUDITED)
(000) (000)
- - -------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 1,413 $ 2,496
Net Realized Gain (Loss) (2,342) 4,021
Change in Unrealized Appreciation (Depreciation) (5,180) (2,754)
-------------- --------------
Net Increase (Decrease) in Net Assets Resulting from Operations (6,109) 3,763
-------------- --------------
DISTRIBUTIONS:
Net Investment Income (96) (280)
In Excess of Net Investment Income (794) --
-------------- --------------
Total Distributions (890) (280)
-------------- --------------
CAPITAL SHARE TRANSACTIONS: (1)
Subscribed 132,287 37,771
Distributions Reinvested 763 211
Redeemed (18,784) (14,548)
-------------- --------------
Net Increase from Capital Share Transactions 114,266 23,434
-------------- --------------
Total Increase in Net Assets 107,267 26,917
NET ASSETS:
Beginning of Period 52,834 160,101
-------------- --------------
End of Period (2) $ 160,101 $ 187,018
-------------- --------------
-------------- --------------
<FN>
- - -------------------------------------------------------------------------------------------------
(1) Capital Share Transactions:
Shares Subscribed 8,068 2,492
Shares Issued on Distributions Reinvested 52 14
Shares Redeemed (1,164) (955)
-------------- --------------
Net Increase in Capital Shares Outstanding 6,956 1,551
-------------- --------------
-------------- --------------
(2) Net Assets were comprised of:
Paid in Capital $ 162,928 $ 186,362
Undistributed Net Investment Income 703 2,919
Accumulated Net Realized Gain (Loss) (1,989) 2,032
Unrealized Depreciation (1,541) (4,295)
-------------- --------------
$ 160,101 $ 187,018
-------------- --------------
-------------- --------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- - --------------------------------------------------------------------------------
123
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- - --------------------------------------------------------------------------------
THE JAPANESE EQUITY PORTFOLIO
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM
APRIL 25, SIX MONTHS
1994* TO ENDED
DECEMBER 31, JUNE 30, 1995
1994 (UNAUDITED)
(000) (000)
- - -------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Loss $ (31) $ (8)
Net Realized Loss (527) (4,569)
Change in Unrealized Appreciation (Depreciation) (215) (2,373)
-------------- --------------
Net Decrease in Net Assets Resulting from Operations (773) (6,950)
-------------- --------------
CAPITAL SHARE TRANSACTIONS: (1)
Subscribed 69,015 33,525
Redeemed (17,910) (55,161)
-------------- --------------
Net Increase (Decrease) from Capital Share Transactions 51,105 (21,636)
-------------- --------------
Total Increase (Decrease) in Net Assets 50,332 (28,586)
NET ASSETS:
Beginning of Period -- 50,332
-------------- --------------
End of Period (2) $ 50,332 $ 21,746
-------------- --------------
-------------- --------------
<FN>
- - -------------------------------------------------------------------------------------------------
(1) Capital Share Transactions:
Shares Subscribed 6,910 3,855
Shares Redeemed (1,789) (6,321)
-------------- --------------
Net Increase (Decrease) in Capital Shares Outstanding 5,121 (2,466)
-------------- --------------
-------------- --------------
(2) Net Assets were comprised of:
Paid in Capital $ 50,808 $ 29,172
Accumulated Net Investment Loss (261) (269)
Accumulated Net Realized Loss -- (4,569)
Unrealized Depreciation (215) (2,588)
-------------- --------------
$ 50,332 $ 21,746
-------------- --------------
-------------- --------------
- - -----------------
*Commencement of operations.
</TABLE>
- - --------------------------------------------------------------------------------
THE LATIN AMERICAN PORTFOLIO
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 18,
1995*
TO JUNE 30,
1995
(UNAUDITED)
(000)
- - -------------------------------------------------------------------------------------------------
<S> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 21
Net Realized Loss (754)
Change in Unrealized Appreciation 24
-------
Net Decrease in Net Assets Resulting from Operations (709)
-------
CAPITAL SHARE TRANSACTIONS: (1)
Subscribed 17,894
Redeemed (3,232)
-------
Net Increase from Capital Share Transactions 14,662
-------
Total Increase in Net Assets 13,953
NET ASSETS:
Beginning of Period --
-------
End of Period (2) $ 13,953
-------
-------
<FN>
- - -------------------------------------------------------------------------------------------------
(1) Capital Share Transactions:
Shares Subscribed 1,956
Shares Redeemed (370)
-------
Net Increase in Capital Shares Outstanding 1,586
-------
-------
(2) Net Assets were comprised of:
Paid in Capital $ 14,662
Undistributed Net Investment Income 21
Accumulated Net Realized Loss (754)
Unrealized Appreciation 24
-------
$ 13,953
-------
-------
- - -----------------
*Commencement of operations.
</TABLE>
The accompanying notes are an integral part of the financial statements.
- - --------------------------------------------------------------------------------
124
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- - --------------------------------------------------------------------------------
THE AGGRESSIVE EQUITY PORTFOLIO
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM
MARCH 8, 1995*
TO JUNE 30,
1995
(UNAUDITED)
(000)
- - -------------------------------------------------------------------------------------------------
<S> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 78
Net Realized Gain 711
Change in Unrealized Appreciation 1,154
-------
Net Increase in Net Assets Resulting from Operations 1,943
-------
DISTRIBUTIONS:
Net Investment Income (16)
-------
CAPITAL SHARE TRANSACTIONS: (1)
Subscribed 16,751
Distributions Reinvested 15
Redeemed (438)
-------
Net Increase from Capital Share Transactions 16,328
-------
Total Increase in Net Assets 18,255
NET ASSETS:
Beginning of Period --
-------
End of Period (2) $ 18,255
-------
-------
<FN>
- - -------------------------------------------------------------------------------------------------
(1) Capital Share Transactions:
Shares Subscribed 1,584
Shares Issued on Distributions Reinvested 1
Shares Redeemed (39)
-------
Net Increase in Capital Shares Outstanding 1,546
-------
-------
(2) Net Assets were comprised of:
Paid in Capital $ 16,328
Undistributed Net Investment Income 62
Accumulated Net Realized Gain 711
Unrealized Appreciation 1,154
-------
$ 18,255
-------
-------
- - -----------------
*Commencement of operations.
</TABLE>
- - --------------------------------------------------------------------------------
THE EMERGING GROWTH PORTFOLIO
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30, 1995
1994 (UNAUDITED)
(000) (000)
- - -------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Loss $ (673) $ (423)
Net Realized Gain 1,331 2,535
Change in Unrealized Appreciation (Depreciation) (891) 13,677
-------------- --------------
Net Increase (Decrease) in Net Assets Resulting from Operations (233) 15,789
-------------- --------------
CAPITAL SHARE TRANSACTIONS: (1)
Subscribed 85,970 80,818
Redeemed (71,689) (70,690)
-------------- --------------
Net Increase from Capital Share Transactions 14,281 10,128
-------------- --------------
Total Increase in Net Assets 14,048 25,917
NET ASSETS:
Beginning of Period 103,621 117,669
-------------- --------------
End of Period (2) $ 117,669 $ 143,586
-------------- --------------
-------------- --------------
<FN>
- - -------------------------------------------------------------------------------------------------
(1) Capital Share Transactions:
Shares Subscribed 5,433 4,765
Shares Redeemed (4,522) (4,196)
-------------- --------------
Net Increase in Capital Shares Outstanding 911 569
-------------- --------------
-------------- --------------
(2) Net Assets were comprised of:
Paid in Capital $ 103,598 $ 113,726
Accumulated Net Investment Loss -- (423)
Accumulated Net Realized Loss (10,925) (8,390)
Unrealized Appreciation 24,996 38,673
-------------- --------------
$ 117,669 $ 143,586
-------------- --------------
-------------- --------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- - --------------------------------------------------------------------------------
125
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- - --------------------------------------------------------------------------------
THE EQUITY GROWTH PORTFOLIO
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30, 1995
1994 (UNAUDITED)
(000) (000)
- - ---------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 1,293 $ 1,013
Net Realized Gain 3,710 6,369
Change in Unrealized Appreciation (Depreciation) (2,690) 17,570
-------------- --------------
Net Increase in Net Assets Resulting from Operations 2,313 24,952
-------------- --------------
DISTRIBUTIONS:
Net Investment Income (952) (841)
Net Realized Gain (2,220) (3,382)
-------------- --------------
Total Distributions (3,172) (4,223)
-------------- --------------
CAPITAL SHARE TRANSACTIONS: (1)
Subscribed 47,456 51,425
Distributions Reinvested 3,096 3,894
Redeemed (26,223) (26,534)
-------------- --------------
Net Increase from Capital Share Transactions 24,329 28,785
-------------- --------------
Total Increase in Net Assets 23,470 49,514
NET ASSETS:
Beginning of Period 73,789 97,259
-------------- --------------
End of Period (2) $ 97,259 $ 146,773
-------------- --------------
-------------- --------------
<FN>
- - ---------------------------------------------------------------------------------------------------
(1) Capital Share Transactions:
Shares Subscribed 3,964 4,036
Shares Issued on Distributions Reinvested 267 335
Shares Redeemed (2,218) (2,098)
-------------- --------------
Net Increase in Capital Shares Outstanding 2,013 2,273
-------------- --------------
-------------- --------------
(2) Net Assets were comprised of:
Paid in Capital $ 92,584 $ 121,369
Undistributed Net Investment Income 461 633
Accumulated Net Realized Gain 3,459 6,446
Unrealized Appreciation 755 18,325
-------------- --------------
$ 97,259 $ 146,773
-------------- --------------
-------------- --------------
</TABLE>
- - --------------------------------------------------------------------------------
THE SMALL CAP VALUE EQUITY PORTFOLIO
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30, 1995
1994 (UNAUDITED)
(000) (000)
- - ----------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 951 $ 605
Net Realized Gain (Loss) 1,484 (4)
Change in Unrealized Appreciation (Depreciation) (1,598) 4,111
-------------- -------
Net Increase in Net Assets Resulting from Operations 837 4,712
-------------- -------
DISTRIBUTIONS:
Net Investment Income (831) (547)
Net Realized Gain (720) (1,214)
-------------- -------
Total Distributions (1,551) (1,761)
-------------- -------
CAPITAL SHARE TRANSACTIONS: (1)
Subscribed 25,447 12,793
Distributions Reinvested 1,464 1,568
Redeemed (12,939) (8,533)
-------------- -------
Net Increase from Capital Share Transactions 13,972 5,828
-------------- -------
Total Increase in Net Assets 13,258 8,779
NET ASSETS:
Beginning of Period 26,775 40,033
-------------- -------
End of Period (2) $ 40,033 $ 48,812
-------------- -------
-------------- -------
<FN>
- - ----------------------------------------------------------------------------------------------------
(1) Capital Share Transactions:
Shares Subscribed 2,358 1,171
Shares Issued on Distributions Reinvested 137 150
Shares Redeemed (1,200) (789)
-------------- -------
Net Increase in Capital Shares Outstanding 1,295 532
-------------- -------
-------------- -------
(2) Net Assets were comprised of:
Paid in Capital $ 39,194 $ 45,022
Undistributed Net Investment Income 281 339
Accumulated Net Realized Gain 1,484 266
Unrealized Appreciation (Depreciation) (926) 3,185
-------------- -------
$ 40,033 $ 48,812
-------------- -------
-------------- -------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- - --------------------------------------------------------------------------------
126
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- - --------------------------------------------------------------------------------
THE U.S. REAL ESTATE PORTFOLIO
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 24,
1995* TO
JUNE 30 1995
(UNAUDITED)
(000)
- - -------------------------------------------------------------------------------------------------
<S> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 715
Net Realized Gain 310
Change in Unrealized Appreciation 1,300
-------
Net Increase in Net Assets Resulting from Operations 2,325
-------
CAPITAL SHARE TRANSACTIONS: (1)
Subscribed 39,627
Redeemed (2,032)
-------
Net Increase from Capital Share Transactions 37,595
-------
Total Increase in Net Assets 39,920
NET ASSETS:
Beginning of Period --
-------
End of Period (2) $ 39,920
-------
-------
<FN>
- - -------------------------------------------------------------------------------------------------
(1) Capital Share Transactions:
Shares Subscribed 3,882
Shares Redeemed (197)
-------
Net Increase in Capital Shares Outstanding 3,685
-------
-------
(2) Net Assets were comprised of:
Paid in Capital $ 37,595
Undistributed Net Investment Income 715
Accumulated Net Realized Gain 310
Unrealized Appreciation 1,300
-------
$ 39,920
-------
-------
- - -----------------
*Commencement of operations.
</TABLE>
- - --------------------------------------------------------------------------------
THE VALUE EQUITY PORTFOLIO
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30, 1995
1994 (UNAUDITED)
(000) (000)
- - ---------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 2,376 $ 1,417
Net Realized Gain 2,378 2,940
Change in Unrealized Appreciation (Depreciation) (6,089) 11,254
-------------- --------------
Net Increase (Decrease) in Net Assets Resulting from Operations (1,335) 15,611
-------------- --------------
DISTRIBUTIONS:
Net Investment Income (2,189) (1,300)
Net Realized Gain (2,504) (2,460)
-------------- --------------
Total Distributions (4,693) (3,760)
-------------- --------------
CAPITAL SHARE TRANSACTIONS: (1)
Subscribed 45,372 33,076
Distributions Reinvested 4,395 3,395
Redeemed (24,931) (13,648)
-------------- --------------
Net Increase from Capital Share Transactions 24,836 22,823
-------------- --------------
Total Increase in Net Assets 18,808 34,674
NET ASSETS:
Beginning of Period 54,598 73,406
-------------- --------------
End of Period (2) $ 73,406 $ 108,080
-------------- --------------
-------------- --------------
<FN>
- - ---------------------------------------------------------------------------------------------------
(1) Capital Share Transactions:
Shares Subscribed 3,798 2,733
Shares Issued on Distributions Reinvested 372 302
Shares Redeemed (2,109) (1,144)
-------------- --------------
Net Increase in Capital Shares Outstanding 2,061 1,891
-------------- --------------
-------------- --------------
(2) Net Assets were comprised of:
Paid in Capital $ 72,751 $ 95,574
Undistributed Net Investment Income 643 760
Accumulated Net Realized Gain 2,307 2,787
Unrealized Appreciation (Depreciation) (2,295) 8,959
-------------- --------------
$ 73,406 $ 108,080
-------------- --------------
-------------- --------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- - --------------------------------------------------------------------------------
127
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- - --------------------------------------------------------------------------------
THE BALANCED PORTFOLIO
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30, 1995
1994 (UNAUDITED)
(000) (000)
- - --------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 987 $ 430
Net Realized Gain 496 412
Change in Unrealized Appreciation (Depreciation) (1,998) 1,872
-------------- -------
Net Increase (Decrease) in Net Assets Resulting from Operations (515) 2,714
-------------- -------
DISTRIBUTIONS:
Net Investment Income (1,257) (420)
Net Realized Gain (3,880) (530)
-------------- -------
Total Distributions (5,137) (950)
-------------- -------
CAPITAL SHARE TRANSACTIONS: (1)
Subscribed 4,396 2,448
Distributions Reinvested 4,725 779
Redeemed (14,661) (2,170)
-------------- -------
Net Increase (Decrease) from Capital Share Transactions (5,540) 1,057
-------------- -------
Total Increase (Decrease) in Net Assets (11,192) 2,821
NET ASSETS:
Beginning of Period 29,684 18,492
-------------- -------
End of Period (2) $ 18,492 $ 21,313
-------------- -------
-------------- -------
<FN>
- - --------------------------------------------------------------------------------------------------
(1) Capital Share Transactions:
Shares Subscribed 470 270
Shares Issued on Distributions Reinvested 502 89
Shares Redeemed (1,574) (234)
-------------- -------
Net Increase (Decrease) in Capital Shares Outstanding (602) 125
-------------- -------
-------------- -------
(2) Net Assets were comprised of:
Paid in Capital $ 18,279 $ 19,336
Undistributed Net Investment Income 214 224
Accumulated Net Realized Gain 495 377
Unrealized Appreciation (Depreciation) (496) 1,376
-------------- -------
$ 18,492 $ 21,313
-------------- -------
-------------- -------
</TABLE>
- - --------------------------------------------------------------------------------
THE EMERGING MARKETS DEBT PORTFOLIO
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 1, SIX MONTHS
1994* TO ENDED
DECEMBER 31, JUNE 30, 1995
1994 (UNAUDITED)
(000) (000)
- - -------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 8,511 $ 13,529
Net Realized Loss (2,516) (2,868)
Change in Unrealized Appreciation (Depreciation) (9,457) 13,649
--------------- --------------
Net Increase (Decrease) in Net Assets Resulting from
Operations (3,462) 24,310
--------------- --------------
DISTRIBUTIONS:
Net Investment Income -- (8,182)
--------------- --------------
CAPITAL SHARE TRANSACTIONS: (1)
Subscribed 190,661 124,700
Distributions Reinvested -- 6,054
Redeemed (42,250) (112,288)
--------------- --------------
Net Increase from Capital Share Transactions 148,411 18,466
--------------- --------------
Total Increase in Net Assets 144,949 34,594
NET ASSETS:
Beginning of Period -- 144,949
--------------- --------------
End of Period (2) $ 144,949 $ 179,543
--------------- --------------
--------------- --------------
<FN>
- - -------------------------------------------------------------------------------------------------
(1) Capital Share Transactions:
Shares Subscribed 21,753 16,070
Shares Issued on Distributions Reinvested -- 751
Shares Redeemed (4,872) (13,800)
--------------- --------------
Net Increase in Capital Shares Outstanding 16,881 3,021
--------------- --------------
--------------- --------------
(2) Net Assets were comprised of:
Paid in Capital $ 148,411 $ 166,877
Undistributed Net Investment Income 8,322 13,669
Accumulated Net Realized Loss (2,327) (5,195)
Unrealized Appreciation (Depreciation) (9,457) 4,192
--------------- --------------
$ 144,949 $ 179,543
--------------- --------------
--------------- --------------
- - -----------------
*Commencement of operations.
</TABLE>
The accompanying notes are an integral part of the financial statements.
- - --------------------------------------------------------------------------------
128
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- - --------------------------------------------------------------------------------
THE FIXED INCOME PORTFOLIO
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30, 1995
1994 (UNAUDITED)
(000) (000)
- - -------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 12,421 $ 6,656
Net Realized Gain (Loss) (14,879) 1,415
Change in Unrealized Appreciation (Depreciation) (5,219) 12,075
-------------- --------------
Net Increase (Decrease) in Net Assets Resulting from Operations (7,677) 20,146
-------------- --------------
DISTRIBUTIONS:
Net Investment Income (11,181) (6,774)
Net Realized Gain (8,092) --
In Excess of Net Realized Gain (22) --
-------------- --------------
Total Distributions (19,295) (6,774)
-------------- --------------
CAPITAL SHARE TRANSACTIONS: (1)
Subscribed 91,618 41,730
Distributions Reinvested 16,756 5,299
Redeemed (112,739) (103,714)
-------------- --------------
Net Decrease from Capital Share Transactions (4,365) (56,685)
-------------- --------------
Total Decrease in Net Assets (31,337) (43,313)
NET ASSETS:
Beginning of Period 240,668 209,331
-------------- --------------
End of Period (2) $ 209,331 $ 166,018
-------------- --------------
-------------- --------------
<FN>
- - -------------------------------------------------------------------------------------------------
(1) Capital Share Transactions:
Shares Subscriptions 9,049 4,187
Shares Issued on Distributions Reinvested 1,625 528
Shares Redeemed (11,150) (10,276)
-------------- --------------
Net Decrease in Capital Shares Outstanding (476) (5,561)
-------------- --------------
-------------- --------------
(2) Net Assets were comprised of:
Paid in Capital $ 227,051 $ 170,366
Undistributed Net Investment Income 1,274 1,156
Accumulated Net Realized Loss (14,154) (12,739)
Unrealized Appreciation (Depreciation) (4,840) 7,235
-------------- --------------
$ 209,331 $ 166,018
-------------- --------------
-------------- --------------
</TABLE>
- - --------------------------------------------------------------------------------
THE GLOBAL FIXED INCOME PORTFOLIO
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30, 1995
1994 (UNAUDITED)
(000) (000)
- - -------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 9,291 $ 3,423
Net Realized Loss (9,075) (2,752)
Change in Unrealized Appreciation (Depreciation) (10,682) 10,244
-------------- --------------
Net Increase (Decrease) in Net Assets Resulting from Operations (10,466) 10,915
-------------- --------------
DISTRIBUTIONS:
Net Investment Income (5,595) (4,056)
Net Realized Gain (4,564) --
-------------- --------------
Total Distributions (10,159) (4,056)
-------------- --------------
CAPITAL SHARE TRANSACTIONS: (1)
Subscribed 96,510 18,656
Distributions Reinvested 9,111 3,500
Redeemed (126,789) (70,824)
-------------- --------------
Net Decrease from Capital Share Transactions (21,168) (48,668)
-------------- --------------
Total Decrease in Net Assets (41,793) (41,809)
NET ASSETS:
Beginning of Period 172,468 130,675
-------------- --------------
End of Period (2) $ 130,675 $ 88,866
-------------- --------------
-------------- --------------
<FN>
- - -------------------------------------------------------------------------------------------------
(1) Capital Share Transactions:
Shares Subscribed 8,912 1,727
Shares Issued on Distributions Reinvested 833 339
Shares Redeemed (11,801) (6,799)
-------------- --------------
Net Decrease in Capital Shares Outstanding (2,056) (4,733)
-------------- --------------
-------------- --------------
(2) Net Assets were comprised of:
Paid in Capital $ 141,657 $ 92,989
Undistributed Net Investment Income 1,613 980
Accumulated Net Realized Loss (5,933) (8,685)
Unrealized Appreciation (Depreciation) (6,662) 3,582
-------------- --------------
$ 130,675 $ 88,866
-------------- --------------
-------------- --------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- - --------------------------------------------------------------------------------
129
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- - --------------------------------------------------------------------------------
THE HIGH YIELD PORTFOLIO
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30, 1995
1994 (UNAUDITED)
(000) (000)
- - -------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 9,341 $ 4,043
Net Realized Loss (1,581) (3,196)
Change in Unrealized Appreciation (Depreciation) (12,785) 8,636
-------------- --------------
Net Increase (Decrease) in Net Assets Resulting from Operations (5,025) 9,483
-------------- --------------
DISTRIBUTIONS:
Net Investment Income (9,097) (4,383)
Net Realized Gain (1,413) --
-------------- --------------
Total Distributions (10,510) (4,383)
-------------- --------------
CAPITAL SHARE TRANSACTIONS: (1)
Subscribed 72,764 41,311
Distributions Reinvested 8,869 3,305
Redeemed (43,375) (83,658)
-------------- --------------
Net Increase (Decrease) from Capital Share Transactions 38,258 (39,042)
-------------- --------------
Total Increase (Decrease) in Net Assets 22,723 (33,942)
NET ASSETS:
Beginning of Period 74,500 97,223
-------------- --------------
End of Period (2) $ 97,223 $ 63,281
-------------- --------------
-------------- --------------
<FN>
- - -------------------------------------------------------------------------------------------------
(1) Capital Share Transactions:
Shares Subscribed 6,882 4,134
Shares Issued on Distributions Reinvested 858 339
Shares Redeemed (4,235) (8,509)
-------------- --------------
Net Increase (Decrease) in Capital Shares Outstanding 3,505 (4,036)
-------------- --------------
-------------- --------------
(2) Net Assets were comprised of:
Paid in Capital $ 108,726 $ 69,684
Undistributed Net Investment Income 731 391
Accumulated Net Realized Loss (1,581) (4,777)
Unrealized Depreciation (10,653) (2,017)
-------------- --------------
$ 97,223 $ 63,281
-------------- --------------
-------------- --------------
</TABLE>
- - --------------------------------------------------------------------------------
THE MUNICIPAL BOND PORTFOLIO
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 18,
1995*
TO JUNE 30, 1995
(UNAUDITED)
(000)
- - ------------------------------------------------------------------------------------------------
<S> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 901
Net Realized Gain 178
Change in Unrealized Appreciation 739
--------
Net Increase in Net Assets Resulting from Operations 1,818
--------
DISTRIBUTIONS:
Net Investment Income (705)
--------
CAPITAL SHARE TRANSACTIONS: (1)
Subscribed 55,060
Distributions Reinvested 672
Redeemed (13,015)
--------
Net Increase from Capital Share Transactions 42,717
--------
Total Increase in Net Assets 43,830
NET ASSETS:
Beginning of Period --
--------
End of Period (2) $ 43,830
--------
--------
<FN>
- - ------------------------------------------------------------------------------------------------
(1) Capital Share Transactions:
Shares Subscribed 5,480
Shares Issued on Distributions Reinvested 66
Shares Redeemed (1,273)
--------
Net Increase in Capital Shares Outstanding 4,273
--------
--------
(2) Net Assets were comprised of:
Paid in Capital $ 42,717
Undistributed Net Investment Income 196
Accumulated Net Realized Gain 178
Unrealized Appreciation 739
--------
$ 43,830
--------
--------
- - -----------------
*Commencement of operations.
</TABLE>
The accompanying notes are an integral part of the financial statements.
- - --------------------------------------------------------------------------------
130
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- - --------------------------------------------------------------------------------
THE MONEY MARKET PORTFOLIO
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30, 1995
1994 (UNAUDITED)
(000) (000)
- - -----------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 26,880 $ 22,324
Net Realized Gain (Loss) (26) 79
------------- -------------
Net Increase in Net Assets Resulting from Operations 26,854 22,403
------------- -------------
DISTRIBUTIONS:
Net Investment Income (26,888) (22,324)
------------- -------------
CAPITAL SHARE TRANSACTIONS: (1)
Subscribed 4,547,025 3,669,165
Distributions Reinvested 24,451 20,718
Redeemed (4,538,102) (3,553,475)
------------- -------------
Net Increase from Capital Share Transactions 33,374 136,408
------------- -------------
Total Increase in Net Assets 33,340 136,487
NET ASSETS:
Beginning of Period 657,163 690,503
------------- -------------
End of Period (2) $ 690,503 $ 826,990
------------- -------------
------------- -------------
<FN>
- - -----------------------------------------------------------------------------------------------
(1) Capital Share Transactions:
Shares Subscribed 4,547,025 3,669,165
Shares Issued on Distributions Reinvested 24,451 20,718
Shares Redeemed (4,538,102) (3,553,475)
------------- -------------
Net Increase in Capital Shares Outstanding 33,374 136,408
------------- -------------
------------- -------------
(2) Net Assets were comprised of:
Paid in Capital $ 690,595 $ 827,003
Accumulated Net Realized Loss (92) (13)
------------- -------------
$ 690,503 $ 826,990
------------- -------------
------------- -------------
</TABLE>
- - --------------------------------------------------------------------------------
THE MUNICIPAL MONEY MARKET PORTFOLIO
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30, 1995
1994 (UNAUDITED)
(000) (000)
- - -----------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 8,186 $ 6,373
Net Realized Loss (6) (1)
------------- -------------
Net Increase in Net Assets Resulting from Operations 8,180 6,372
------------- -------------
DISTRIBUTIONS:
Net Investment Income (8,186) (6,373)
------------- -------------
CAPITAL SHARE TRANSACTIONS: (1)
Subscribed 2,267,352 1,326,626
Distributions Reinvested 7,587 6,320
Redeemed (2,182,013) (1,337,841)
------------- -------------
Net Increase (Decrease) from Capital Share Transactions 92,926 (4,895)
------------- -------------
Total Increase (Decrease) in Net Assets 92,920 (4,896)
NET ASSETS:
Beginning of Period 266,524 359,444
------------- -------------
End of Period (2) $ 359,444 $ 354,548
------------- -------------
------------- -------------
<FN>
- - -----------------------------------------------------------------------------------------------
(1) Capital Share Transactions:
Shares Subscribed 2,267,352 1,326,626
Shares Issued on Distributions Reinvested 7,587 6,320
Shares Redeemed (2,182,013) (1,337,841)
------------- -------------
Net Increase (Decrease) in Capital Shares Outstanding 92,926 (4,895)
------------- -------------
------------- -------------
(2) Net Assets were comprised of:
Paid in Capital $ 359,452 $ 354,557
Accumulated Net Realized Loss (8) (9)
------------- -------------
$ 359,444 $ 354,548
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- - --------------------------------------------------------------------------------
131
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS:
- - --------------------------------------------------------------------------------
THE ACTIVE COUNTRY ALLOCATION PORTFOLIO
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM SIX MONTHS
JANUARY 17, 1992* TWO MONTHS ENDED
TO ENDED YEAR ENDED YEAR ENDED JUNE 30,
OCTOBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 1995
1992 1992 1993 1994 (UNAUDITED)
- - ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00 $ 9.37 $ 9.59 $ 12.21 $ 11.65
------ ----- ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1) 0.11 0.02 0.13 0.19 0.12
Net Realized and Unrealized Gain
(Loss) on Investments (0.74) 0.20 2.75 (0.25) (0.33)
------ ----- ------ ------ ------
Total from Investment Operations (0.63) 0.22 2.88 (0.06) (0.21)
------ ----- ------ ------ ------
DISTRIBUTIONS
Net Investment Income -- -- (0.09) (0.14) --
In Excess of Net Investment Income -- -- (0.08) -- --
Net Realized Gain -- -- -- (0.36) (0.44)
In Excess of Net Realized Gain -- -- (0.09) -- --
------ ----- ------ ------ ------
Total Distributions -- -- (0.26) (0.50) (0.44)
------ ----- ------ ------ ------
NET ASSET VALUE, END OF PERIOD $ 9.37 $ 9.59 $ 12.21 $ 11.65 $ 11.00
------ ----- ------ ------ ------
------ ----- ------ ------ ------
TOTAL RETURN (6.30)% 2.35% 30.72% (0.52)% (1.81)%
------ ----- ------ ------ ------
------ ----- ------ ------ ------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $47,534 $50,234 $150,854 $182,977 $154,247
Ratio of Expenses to Average Net
Assets 0.88%** 0.80%** 0.80% 0.80% 0.80%**
Ratio of Net Investment Income to
Average Net Assets 2.32%** 1.22%** 1.29% 1.43% 1.83%**
Portfolio Turnover Rate 62% 2% 53% 51% 37%
<FN>
- - -----------------
(1)Effect of voluntary expense
limitation during the period:
Per share benefit to net
investment income $0.03 $0.01 $0.05 $0.03 $0.02
Ratios before expense limitation:
Expenses to Average Net Assets 1.58%** 1.70%** 1.33% 1.00% 1.17%**
Net Investment Income to Average
Net Assets 1.62%** 0.32%** 0.76% 1.23% 1.46%**
*Commencement of operations.
**Annualized
</TABLE>
- - --------------------------------------------------------------------------------
THE ASIAN EQUITY PORTFOLIO
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM SIX MONTHS
JULY 1, TWO MONTHS ENDED
1991* TO YEAR ENDED ENDED YEAR ENDED YEAR ENDED JUNE 30,
OCTOBER 31, OCTOBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 1995
1991 1992 1992 1993 1994 (UNAUDITED)
- - --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD $10.00 $ 9.67 $ 13.63 $ 13.11 $ 26.20 $ 21.54
----- ------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1) 0.03 0.14 0.01 0.10 0.11 0.16
Net Realized and Unrealized Gain
(Loss) on Investments (0.36) 3.86 (0.53) 13.38 (4.15) 1.17
----- ------ ------ ------ ------ ------
Total from Investment
Operations (0.33) 4.00 (0.52) 13.48 (4.04) 1.33
----- ------ ------ ------ ------ ------
DISTRIBUTIONS
Net Investment Income -- (0.04) -- (0.01) (0.09) (0.15)
In Excess of Net Investment
Income -- -- -- (0.13) -- --
Net Realized Gain -- -- -- (0.12) (0.53) (2.26)
In Excess of Net Realized Gain -- -- -- (0.13) -- --
----- ------ ------ ------ ------ ------
Total Distributions -- (0.04) -- (0.39) (0.62) (2.41)
----- ------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD $ 9.67 $ 13.63 $ 13.11 $ 26.20 $ 21.54 $ 20.46
----- ------ ------ ------ ------ ------
----- ------ ------ ------ ------ ------
TOTAL RETURN (3.30)% 41.50% (3.82)% 105.71% (15.81)% 7.04%
----- ------ ------ ------ ------ ------
----- ------ ------ ------ ------ ------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period
(Thousands) $10,719 $41,017 $41,978 $287,136 $276,906 $290,397
Ratio of Expenses to Average Net
Assets 1.00%** 1.00% 1.00%** 1.00% 1.00% 1.00%**
Ratio of Net Investment Income to
Average Net Assets 1.13%** 1.53% 0.61%** 0.83% 0.52% 1.58%**
Portfolio Turnover Rate 2% 33% 10% 18% 47% 29%
<FN>
- - -----------------
(1)Effect of voluntary expense
limitation during the period:
Per share benefit to net
investment income $0.02 $0.06 $0.02 $0.05 $0.04 $0.02
Ratios before expense limitation:
Expenses to Average Net Assets 2.52%** 1.63% 2.02%** 1.38% 1.20% 1.16%**
Net Investment Income (Loss) to
Average Net Assets (0.39)%** 0.90% (0.41)%** 0.45% 0.32% 1.41%**
*Commencement of operations.
**Annualized
</TABLE>
The accompanying notes are an integral part of the financial statements.
- - --------------------------------------------------------------------------------
132
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS:
- - --------------------------------------------------------------------------------
THE EMERGING MARKETS PORTFOLIO
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM SIX MONTHS
SEPTEMBER 25, 1992* TWO MONTHS ENDED
TO ENDED YEAR ENDED YEAR ENDED JUNE 30,
OCTOBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 1995
1992 1992 1993 1994 (UNAUDITED)
- - ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD $ 10.00 $ 10.11 $ 10.22 $ 19.00 $ 16.30
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) (1) -- -- (0.01) (0.04) 0.07
Net Realized and Unrealized Gain
(Loss) on Investments 0.11 0.11 8.79 (1.69) (1.24)
------ ------ ------ ------ ------
Total from Investment
Operations 0.11 0.11 8.78 (1.73) (1.17)
------ ------ ------ ------ ------
DISTRIBUTIONS
Net Realized Gain -- -- -- (0.97) (0.92)
------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD $ 10.11 $ 10.22 $ 19.00 $ 16.30 $ 14.21
------ ------ ------ ------ ------
------ ------ ------ ------ ------
TOTAL RETURN 1.10% 1.09% 85.91% (9.63)% (7.46)%
------ ------ ------ ------ ------
------ ------ ------ ------ ------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period
(Thousands) $28,806 $74,219 $735,352 $929,638 $969,631
Ratio of Expenses to Average Net
Assets (1) 1.75%** 1.75%** 1.75% 1.75% 1.75%**
Ratio of Net Investment Income
(Loss) to Average Net Assets
(1) (0.53)%** (0.33)%** (0.06)% (0.26)% 0.99%**
Portfolio Turnover Rate 0% 2% 52% 32% 21%
<FN>
- - -----------------
(1)Effect of voluntary expense
limitation during the period:
Per share benefit to net
investment income $0.02 $0.00 $0.01 N/A $0.01
Ratios before expense
limitation:
Expenses to Average Net Assets 4.82%** 2.48%** 1.79% N/A 1.85%**
Net Investment Income (Loss)
to Average Net Assets (3.60)%** (1.06)%** (0.10)% N/A 0.89%**
*Commencement of operations.
**Annualized
</TABLE>
- - --------------------------------------------------------------------------------
THE EUROPEAN EQUITY PORTFOLIO
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM
APRIL 2, 1993* SIX MONTHS ENDED
TO YEAR ENDED JUNE 30,
DECEMBER 31, DECEMBER 31, 1995
1993 1994 (UNAUDITED)
- - ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00 $ 12.91 $ 13.94
------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1) 0.08 0.08 0.15
Net Realized and Unrealized Gain on Investments 2.83 1.29 1.27
------ ------ ------
Total from Investment Operations 2.91 1.37 1.42
------ ------ ------
DISTRIBUTIONS
Net Investment Income -- (0.09) --
Net Realized Gain -- (0.25) (1.24)
------ ------ ------
Total Distributions -- (0.34) (1.24)
------ ------ ------
NET ASSET VALUE, END OF PERIOD $ 12.91 $ 13.94 $ 14.12
------ ------ ------
------ ------ ------
TOTAL RETURN 29.10% 10.88% 11.10%
------ ------ ------
------ ------ ------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $12,681 $27,634 $48,624
Ratio of Expenses to Average Net Assets (1) 1.00%** 1.00% 1.00%**
Ratio of Net Investment Income to Average Net Assets
(1) 1.23%** 0.87% 2.68%**
Portfolio Turnover Rate 15% 79% 3%
<FN>
- - -----------------
(1)Effect of voluntary expense limitation during the
period:
Per share benefit to net investment income $0.09 $0.06 $0.02
Ratios before expense limitation:
Expenses to Average Net Assets 2.43%** 1.62% 1.32%**
Net Investment Income (Loss) to Average Net Assets (0.21)%** 0.25% 2.36%**
*Commencement of operations.
**Annualized
</TABLE>
The accompanying notes are an integral part of the financial statements.
- - --------------------------------------------------------------------------------
133
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS:
- - --------------------------------------------------------------------------------
THE GLOBAL EQUITY PORTFOLIO
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
PERIOD FROM TWO MONTHS ENDED
JULY 15, 1992* ENDED YEAR ENDED YEAR ENDED JUNE 30,
TO OCTOBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 1995
1992 1992 1993 1994 (UNAUDITED)
- - ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD $ 10.00 $ 9.35 $ 9.75 $ 13.87 $ 13.40
------- ----- ------------- ------------- -------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1) 0.02 0.01 0.08 0.08 0.13
Net Realized and Unrealized Gain
(Loss) on Investments (0.67) 0.39 4.18 0.79 1.47
------- ----- ------------- ------------- -------------
Total from Investment
Operations (0.65) 0.40 4.26 0.87 1.60
------- ----- ------------- ------------- -------------
DISTRIBUTIONS
Net Investment Income -- -- (0.02) (0.12) (0.06)
In Excess of Net Investment
Income -- -- (0.03) -- --
Net Realized Gain -- -- (0.09) (1.22) (0.19)
------- ----- ------------- ------------- -------------
Total Distributions -- -- (0.14) (1.34) (0.25)
------- ----- ------------- ------------- -------------
NET ASSET VALUE, END OF PERIOD $ 9.35 $ 9.75 $ 13.87 $ 13.40 $ 14.75
------- ----- ------------- ------------- -------------
------- ----- ------------- ------------- -------------
TOTAL RETURN (6.50)% 4.28% 44.24% 6.95% 12.11%
------- ----- ------------- ------------- -------------
------- ----- ------------- ------------- -------------
RATIO AND SUPPLEMENTAL DATA:
Net Assets, End of Period
(Thousands) $11,257 $11,739 $19,918 $78,935 $81,685
Ratio of Expenses to Average Net
Assets (1) 1.00%** 1.00%** 1.00% 1.00% 1.00%**
Ratio of Net Investment Income to
Average Net Assets (1) 1.00%** 0.69%** 0.84% 0.87% 1.68%**
Portfolio Turnover Rate 10% 5% 42% 12% 19%
<FN>
- - -----------------
(1)Effect of voluntary expense
limitation during the period:
Per share benefit to net
investment income $ 0.08 $ 0.02 $ 0.01 $ 0.02 $ 0.01
Ratios before expense limitation:
Expenses to Average Net Assets 5.22%** 2.49%** 1.66% 1.24% 1.18%**
Net Investment Income (Loss) to
Average Net Assets (3.22)%** (0.80)%** 0.18% 0.63% 1.50%**
*Commencement of operations.
**Annualized
</TABLE>
- - --------------------------------------------------------------------------------
THE GOLD PORTFOLIO
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM SIX MONTHS ENDED
FEBRUARY 1, 1994* JUNE 30,
TO DECEMBER 31, 1995
1994 (UNAUDITED)
- - ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00 $ 9.13
------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) (1) 0.03 (0.03)
Net Realized and Unrealized Gain (Loss) on Investments (0.88) 0.68
------- -------
Total from Investment Operations (0.85) 0.65
------- -------
DISTRIBUTIONS
Net Investment Income (0.02) (0.01)
Net Realized Gain -- (0.24)
------- -------
Total Distributions (0.02) (0.25)
------- -------
NET ASSET VALUE, END OF PERIOD $ 9.13 $ 9.53
------- -------
------- -------
TOTAL RETURN (8.49)% 7.47%
------- -------
------- -------
RATIO AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $30,243 $20,554
Ratio of Expenses to Average Net Assets (1) 1.25%** 1.25%**
Ratio of Net Investment Income (Loss) to Average Net Assets
(1) 0.41%** (0.43)%**
Portfolio Turnover Rate 56% 10%
<FN>
- - -----------------
(1)Effect of voluntary expense limitation during the period:
Per share benefit to net investment income $ 0.04 $ 0.02
Ratios before expense limitation:
Expenses to Average Net Assets 1.72%** 1.63%**
Net Investment Loss to Average Net Assets (0.06)%** (0.81)%**
*Commencement of operations.
**Annualized
</TABLE>
The accompanying notes are an integral part of the financial statements.
- - --------------------------------------------------------------------------------
134
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS:
- - --------------------------------------------------------------------------------
THE INTERNATIONAL EQUITY PORTFOLIO
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TWO MONTHS SIX MONTHS
ENDED YEAR ENDED YEAR ENDED ENDED
YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER DECEMBER DECEMBER JUNE 30,
OCTOBER 31, OCTOBER 31, OCTOBER 31, 31, 31, 31, 1995
1990 1991 1992 1992 1993 1994 (UNAUDITED)
- - ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD $ 9.72 $ 10.05 $ 10.52 $ 9.83 $ 9.98 $ 14.09 $ 15.34
----------- ----------- ----------- ----- ---------- ---------- -----------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income (1) 0.19 0.12 0.12 0.01 0.15 0.16 0.15
Net Realized and Unrealized
Gain (Loss) on Investments 0.20 0.58 (0.59) 0.14 4.36 1.54 0.56
----------- ----------- ----------- ----- ---------- ---------- -----------
Total from Investment
Operations 0.39 0.70 (0.47) 0.15 4.51 1.70 0.71
----------- ----------- ----------- ----- ---------- ---------- -----------
DISTRIBUTIONS
Net Investment Income (0.06) (0.15) (0.17) -- (0.01) (0.18) --
In Excess of Net Investment
Income -- -- -- -- (0.13) -- --
Net Realized Gain -- (0.08) (0.05) -- (0.26) (0.27) (0.80)
----------- ----------- ----------- ----- ---------- ---------- -----------
Total Distributions (0.06) (0.23) (0.22) -- (0.40) (0.45) (0.80)
----------- ----------- ----------- ----- ---------- ---------- -----------
NET ASSET VALUE, END OF PERIOD $ 10.05 $ 10.52 $ 9.83 $ 9.98 $ 14.09 $ 15.34 $ 15.25
----------- ----------- ----------- ----- ---------- ---------- -----------
----------- ----------- ----------- ----- ---------- ---------- -----------
TOTAL RETURN 3.99% 7.17% (4.56)% 1.53% 46.50% 12.39% 4.88%
----------- ----------- ----------- ----- ---------- ---------- -----------
----------- ----------- ----------- ----- ---------- ---------- -----------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period
(Thousands) $110,716 $283,776 $486,836 $510,727 $947,045 $1,304,770 $1,438,303
Ratio of Expenses to Average Net
Assets (1) 1.03% 1.00% 1.00% 1.00%** 1.00% 1.00% 1.00%**
Ratio of Net Investment Income
to Average Net Assets (1) 3.51% 2.27% 1.46% 0.68%** 1.25% 1.12% 2.28%**
Portfolio Turnover Rate 38% 22% 12% 5% 23% 16% 13%
<FN>
- - -----------------
(1)Effect of voluntary expense
limitation during the period:
Per share benefit to net
investment income $ 0.01 $ 0.01 $ 0.00 $ 0.00 $ 0.01 $0.004 $0.002
Ratios before expense
limitation:
Expenses to Average Net
Assets 1.24% 1.09% 1.02% 1.14%** 1.06% 1.03% 1.03%**
Net Investment Income to
Average Net Asset 3.30% 2.18% 1.44% 0.54%** 1.19% 1.09% 2.25%**
**Annualized
</TABLE>
- - --------------------------------------------------------------------------------
THE INTERNATIONAL SMALL CAP PORTFOLIO
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM SIX MONTHS ENDED
DECEMBER 15, 1992* YEAR ENDED YEAR ENDED JUNE 30,
TO DECEMBER 31, DECEMBER 31, DECEMBER 31, 1995
1992 1993+ 1994 (UNAUDITED)
- - -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00 $ 10.09 $ 14.64 $ 15.15
------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1) 0.01 0.09 0.14 0.20
Net Realized and Unrealized Gain on
Investments (2) 0.08 4.48 0.62 0.11
------ ------ ------ ------
Total from Investment Operations 0.09 4.57 0.76 0.31
------ ------ ------ ------
DISTRIBUTIONS
Net Investment Income -- 0.00 (0.03) (0.03)
In Excess of Net Investment Income -- (0.02) -- --
Net Realized Gain -- -- (0.22) --
------ ------ ------ ------
Total Distributions -- (0.02) (0.25) (0.03)
------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD $ 10.09 $ 14.64 $ 15.15 $ 15.43
------ ------ ------ ------
------ ------ ------ ------
TOTAL RETURN 0.90% 45.34% 5.25% 2.03%
------ ------ ------ ------
------ ------ ------ ------
RATIO AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $3,824 $52,834 $160,101 $187,018
Ratio of Expenses to Average Net Assets
(1) 1.15%** 1.15% 1.15% 1.15%**
Ratio of Net Investment Income to
Average Net Assets (1) 1.37%** 0.66% 1.18% 2.81%**
Portfolio Turnover Rate 0% 14% 8% 14%
<FN>
- - -----------------
(1)Effect of voluntary expense
limitation during the period:
Per share benefit to net investment
income $ 0.16 $ 0.10 $ 0.02 $ 0.01
Ratios before expense limitation:
Expenses to Average Net Assets 21.67%** 1.86% 1.29% 1.25%**
Net Investment Income (Loss) to
Average Net Assets (19.15)%** (0.05)% 1.04% 2.71%**
(2)Reflects a 1% transaction fee on purchases and redemptions of capital shares.
+Per share amounts for the year ended December 31, 1993 are based on average outstanding shares.
*Commencement of operations.
**Annualized
</TABLE>
The accompanying notes are an integral part of the financial statements.
- - --------------------------------------------------------------------------------
135
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS:
- - --------------------------------------------------------------------------------
THE JAPANESE EQUITY PORTFOLIO
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM
APRIL 25,
1994*
TO DECEMBER SIX MONTHS ENDED
31, JUNE 30, 1995
1994 (UNAUDITED)
- - ----------------------------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00 $ 9.83
------ ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Loss (1) (0.01) (0.05)
Net Realized and Unrealized Loss on Investments (0.16) (1.59)
------ ------
Total from Investment Operations (0.17) (1.64)
------ ------
NET ASSET VALUE, END OF PERIOD $ 9.83 $ 8.19
------ ------
------ ------
TOTAL RETURN (1.70)% (16.68)%
------ ------
------ ------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $50,332 $21,746
Ratio of Expenses to Average Net Assets (1) 1.00%** 1.00%**
Ratio of Net Investment Loss to Average Net Assets (1) (0.10)%** (0.05)%**
Portfolio Turnover Rate 1% 11%
<FN>
- - ---------------
(1) Effect of voluntary expense limitation during the period:
Per share benefit to net investment income $ 0.02 $ 0.35
Ratios before expense limitation:
Expenses to Average Net Assets 1.27%** 1.33%**
Net Investment Loss to Average Net Assets (0.37)%** (0.38)%**
*Commencement of operations.
**Annualized
</TABLE>
- - --------------------------------------------------------------------------------
THE LATIN AMERICAN PORTFOLIO
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 18, 1995*
TO JUNE 30,
1995
(UNAUDITED)
- - ----------------------------------------------------------------------------------------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1) 0.01
Net Realized and Unrealized Loss on Investments (1.21)
------
Total from Investment Operations (1.20)
------
NET ASSET VALUE, END OF PERIOD $ 8.80
------
------
TOTAL RETURN (12.00)%
------
------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $13,953
Ratio of Expenses to Average Net Assets (1) 2.56%**+
Ratio of Net Investment Income to Average Net Assets (1) 0.41%**
Portfolio Turnover Rate 62%
<FN>
- - ---------------
(1) Effect of voluntary expense limitation during the period:
Per share benefit to net investment income $ 0.05
Ratios before expense limitation:
Expenses to Average Net Assets 3.97%**
Net Investment Loss to Average Net Assets (1.01)%**
*Commencement of operations.
**Annualized
+The ratio of expenses to average net assets includes Brazilian tax expense.
Without the effect of the Brazilian tax expense, the ratio of expenses to
average net assets would have been 1.70%**.
</TABLE>
The accompanying notes are an integral part of the financial statements.
- - --------------------------------------------------------------------------------
136
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS:
- - --------------------------------------------------------------------------------
THE AGGRESSIVE EQUITY PORTFOLIO
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM MARCH 8,
1995*
TO JUNE 30,
1995
(UNAUDITED)
- - ------------------------------------------------------------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1) 0.06
Net Realized and Unrealized Gain on Investments 1.77
------
Total from Investment Operations 1.83
------
DISTRIBUTIONS
Net Investment Income (0.02)
------
NET ASSET VALUE, END OF PERIOD $ 11.81
------
------
TOTAL RETURN 18.33%
------
------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $18,255
Ratio of Expenses to Average Net Assets (1) 1.00%**
Ratio of Net Investment Income to Average Net
Assets (1) 2.10%**
Portfolio Turnover Rate 80%
<FN>
- - ---------------
(1) Effect of voluntary expense limitation during
the period:
Per share benefit to net investment income $ 0.04
Ratios before expense limitation:
Expenses to Average Net Assets 2.26%**
Net Investment Income to Average Net Assets 0.83%**
*Commencement of operations.
**Annualized
</TABLE>
- - --------------------------------------------------------------------------------
THE EMERGING GROWTH PORTFOLIO
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM
NOVEMBER 1, SIX MONTHS
1989* TWO MONTHS ENDED
TO OCTOBER YEAR ENDED YEAR ENDED ENDED YEAR ENDED YEAR ENDED JUNE 30,
31, OCTOBER 31, OCTOBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 1995
1990 1991+ 1992 1992 1993 1994 (UNAUDITED)
- - ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 10.00 $ 9.03 $ 16.18 $ 14.97 $ 16.22 $ 16.22 $ 16.12
------ ------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income
(Loss) (1) 0.08 -- (0.09) (0.01) (0.11) (0.09) (0.05)
Net Realized and
Unrealized Gain (Loss)
on Investments (1.00) 7.19 (1.12) 1.26 0.11 (0.01) 2.17
------ ------ ------ ------ ------ ------ ------
Total from Investment
Operations (0.92) 7.19 (1.21) 1.25 0.00 (0.10) 2.12
------ ------ ------ ------ ------ ------ ------
DISTRIBUTIONS
Net Investment Income (0.05) (0.04) -- -- -- -- --
------ ------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF
PERIOD $ 9.03 $ 16.18 $ 14.97 $ 16.22 $ 16.22 $ 16.12 $ 18.24
------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------
TOTAL RETURN (9.27)% 79.84% (7.48)% 8.35% 0.00% (0.62)% 13.15%
------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------
RATIOS AND SUPPLEMENTAL
DATA:
Net Assets, End of Period
(Thousands) $11,261 $54,364 $80,156 $94,161 $103,621 $117,669 $143,586
Ratio of Expenses to
Average Net Assets (1) 1.26%** 1.25% 1.25% 1.25%** 1.25% 1.25% 1.25%**
Ratio of Net Investment
Income (Loss) to Average
Net Assets (1) 0.64%** 0.00% (0.66)% (0.68)%** (0.77)% (0.61)% (0.68)%**
Portfolio Turnover Rate 19% 2% 17% 1% 25% 24% 17%
<FN>
- - ---------------
(1) Effect of voluntary
expense limitation
during the period:
Per share benefit to
net investment
income $ 0.01 $ 0.02 $ 0.01 $ 0.00 $ 0.01 $ 0.002 $ 0.002
Ratios before expense
limitation:
Expenses to Average
Net Assets 1.64%** 1.39% 1.29% 1.36%** 1.31% 1.26% 1.28%**
Net Investment Income
(Loss) to
Average Net Assets 0.24%** (0.14)% (0.71)% (0.79)%** (0.83)% (0.62)% (0.71)%**
+Per share amounts for the year ended October 31, 1991 are based on average
outstanding shares.
*Commencement of
operations.
**Annualized
</TABLE>
The accompanying notes are an integral part of the financial statements.
- - --------------------------------------------------------------------------------
137
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS:
- - --------------------------------------------------------------------------------
THE EQUITY GROWTH PORTFOLIO
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM
APRIL 2, SIX MONTHS
1991* TWO MONTHS ENDED
TO OCTOBER YEAR ENDED ENDED YEAR ENDED YEAR ENDED JUNE 30,
31, OCTOBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 1995
1991 1992 1992 1993 1994 (UNAUDITED)
- - ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00 $ 10.66 $ 11.44 $ 11.88 $ 12.14 $ 12.02
----------- ----------- ------ ------ ------ -----------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1) 0.05 0.16 0.03 0.22 0.17 0.10
Net Realized and Unrealized Gain on
Investments 0.61 0.82 0.41 0.28 0.21 2.56
----------- ----------- ------ ------ ------ -----------
Total from Investment Operations 0.66 0.98 0.44 0.50 0.38 2.66
----------- ----------- ------ ------ ------ -----------
DISTRIBUTIONS
Net Investment Income -- (0.20) -- (0.23) (0.13) (0.10)
In Excess of Net Investment Income -- -- -- (0.01) -- --
Net Realized Gain -- -- -- -- (0.37) (0.42)
----------- ----------- ------ ------ ------ -----------
Total Distributions -- (0.20) -- (0.24) (0.50) (0.52)
----------- ----------- ------ ------ ------ -----------
NET ASSET VALUE, END OF PERIOD $ 10.66 $ 11.44 $ 11.88 $ 12.14 $ 12.02 $ 14.16
----------- ----------- ------ ------ ------ -----------
----------- ----------- ------ ------ ------ -----------
TOTAL RETURN 6.60% 9.26% 3.85% 4.33% 3.26% 23.05%
----------- ----------- ------ ------ ------ -----------
----------- ----------- ------ ------ ------ -----------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $18,139 $36,558 $45,985 $73,789 $97,259 $146,773
Ratio of Expenses to Average Net Assets (1) 0.80%** 0.80% 0.80%** 0.80% 0.80% 0.80%**
Ratio of Net Investment Income to Average
Net Assets (1) 2.34%** 1.73% 1.93%** 1.59% 1.44% 1.71%**
Portfolio Turnover Rate 3% 38% 1% 172% 146% 77%
<FN>
- - ---------------
(1) Effect of voluntary expense limitation
during
the period:
Per share benefit to net investment
income $ 0.03 $ 0.02 $ 0.01 $ 0.02 $ 0.01 $ 0.01
Ratios before expense limitation:
Expenses to Average Net Assets 1.37%** 1.01% 1.11%** 0.93% 0.89% 0.90%**
Net Investment Income to Average
Net Assets 1.77%** 1.52% 1.62%** 1.46% 1.35% 1.60%**
*Commencement of operations.
**Annualized
</TABLE>
- - --------------------------------------------------------------------------------
THE SMALL CAP VALUE EQUITY PORTFOLIO
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM
DECEMBER 17, SIX MONTHS
1992* ENDED
TO DECEMBER YEAR ENDED YEAR ENDED JUNE 30,
31, DECEMBER 31, DECEMBER 31, 1995
1992 1993 1994 (UNAUDITED)
- - ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00 $ 10.14 $ 11.10 $ 10.80
------------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1) 0.01 0.24 0.28 0.15
Net Realized and Unrealized Gain (Loss) on
Investments 0.13 0.90 (0.01) 1.03
------------ ------ ------ ------
Total from Investment Operations 0.14 1.14 0.27 1.18
------------ ------ ------ ------
DISTRIBUTIONS
Net Investment Income -- (0.18) (0.27) (0.14)
Net Realized Gain -- -- (0.30) (0.33)
------------ ------ ------ ------
Total Distributions -- (0.18) (0.57) (0.47)
------------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD $ 10.14 $ 11.10 $ 10.80 $ 11.51
------------ ------ ------ ------
------------ ------ ------ ------
TOTAL RETURN 1.40% 11.33% 2.53% 11.44%
------------ ------ ------ ------
------------ ------ ------ ------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $5,974 $26,775 $40,033 $48,812
Ratio of Expenses to Average Net Assets (1) 1.00%** 1.00% 1.00% 1.00%**
Ratio of Net Investment Income to Average Net
Assets (1) 1.64%** 2.56% 2.67% 2.82%**
Portfolio Turnover Rate 0% 29% 22% 17%
<FN>
- - ------------------------------
(1) Effect of voluntary expense limitation
during the period:
Per share benefit to net investment income $ 0.13 $ 0.06 $ 0.03 $ 0.01
Ratios before expense limitation:
Expenses to Average Net Assets 23.14%** 1.68% 1.26% 1.27%**
Net Investment Income (Loss) to Average
Net Assets (20.50)%** 1.88% 2.41% 2.55%**
*Commencement of operations.
**Annualized
</TABLE>
The accompanying notes are an integral part of the financial statements.
- - --------------------------------------------------------------------------------
138
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS:
- - --------------------------------------------------------------------------------
THE U.S. REAL ESTATE PORTFOLIO
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 24, 1995*
TO JUNE 30, 1995
(UNAUDITED)
- - ------------------------------------------------------------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1) 0.19
Net Realized and Unrealized Gain on Investments 0.64
------
Total from Investment Operations 0.83
------
NET ASSET VALUE, END OF PERIOD $ 10.83
------
------
TOTAL RETURN 8.30%
------
------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $39,920
Ratio of Expenses to Average Net Assets (1) 1.00%**
Ratio of Net Investment Income to Average Net
Assets (1) 8.34%**
Portfolio Turnover Rate 41%
<FN>
- - ---------------
(1) Effect of voluntary expense limitation during
the period:
Per share benefit to net investment income $ 0.02
Ratios before expense limitation:
Expenses to Average Net Assets 1.68%**
Net Investment Income to Average Net Assets 7.66%**
*Commencement of operations.
**Annualized
</TABLE>
- - --------------------------------------------------------------------------------
THE VALUE EQUITY PORTFOLIO
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 31, SIX MONTHS
1990* TWO MONTHS ENDED
TO OCTOBER YEAR ENDED YEAR ENDED ENDED YEAR ENDED YEAR ENDED JUNE 30,
31, OCTOBER 31, OCTOBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 1995
1990 1991 1992 1992 1993 1994 (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
- - ------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $ 10.00 $ 8.59 $ 10.24 $ 10.71 $ 11.31 $ 12.63 $ 11.50
------------ ------ ------ ------ ------ ------------ ------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income
(1) 0.37 0.46 0.38 0.08 0.37 0.40 0.18
Net Realized and
Unrealized Gain (Loss)
on Investments (1.45) 1.67 0.48 0.52 1.31 (0.55) 1.95
------------ ------ ------ ------ ------ ------------ ------
Total from Investment
Operations (1.08) 2.13 0.86 0.60 1.68 (0.15) 2.13
------------ ------ ------ ------ ------ ------------ ------
DISTRIBUTIONS
Net Investment Income (0.33) (0.48) (0.39) -- (0.36) (0.40) (0.19)
Net Realized Gain -- -- -- -- -- (0.58) (0.38)
------------ ------ ------ ------ ------ ------------ ------
Total Distributions (0.33) (0.48) (0.39) -- (0.36) (0.98) (0.57)
------------ ------ ------ ------ ------ ------------ ------
NET ASSET VALUE, END OF
PERIOD $ 8.59 $ 10.24 $ 10.71 $ 11.31 $ 12.63 $ 11.50 $ 13.06
------------ ------ ------ ------ ------ ------------ ------
------------ ------ ------ ------ ------ ------------ ------
TOTAL RETURN (11.05)% 25.34% 8.51% 5.60% 15.14% (1.29)% 19.41%
------------ ------ ------ ------ ------ ------------ ------
------------ ------ ------ ------ ------ ------------ ------
RATIOS AND SUPPLEMENTAL
DATA:
Net Assets, End of Period
(Thousands) $18,178 $16,304 $25,013 $27,541 $54,598 $73,406 $108,080
Ratio of Expenses to
Average Net Assets (1) 0.70%** 0.70% 0.70% 0.70%** 0.70% 0.70% 0.70%**
Ratio of Net Investment
Income to Average Net
Assets (1) 5.46%** 4.57% 3.72% 4.41%** 3.23% 3.37% 3.18%**
Portfolio Turnover Rate 70% 90% 56% 9% 51% 33% 18%
<FN>
- - ---------------
(1) Effect of voluntary
expense
limitation during the
period:
Per share benefit to
net
investment income $ 0.01 $ 0.02 $ 0.01 $ 0.01 $ 0.03 $ 0.01 $ 0.01
Ratios before expense
limitation:
Expenses to Average
Net Assets 0.88%** 0.87% 0.84% 1.20%** 0.95% 0.80% 0.82%**
Net Investment Income
to
Average Net Assets 5.28%** 4.40% 3.58% 3.91%** 2.98% 3.27% 3.06%**
*Commencement of
operations.
**Annualized
</TABLE>
The accompanying notes are an integral part of the financial statements.
- - --------------------------------------------------------------------------------
139
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS:
- - --------------------------------------------------------------------------------
THE BALANCED PORTFOLIO
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 20, TWO MONTHS SIX MONTHS
1990* ENDED YEAR ENDED YEAR ENDED ENDED
TO OCTOBER YEAR ENDED YEAR ENDED DECEMBER DECEMBER DECEMBER JUNE 30,
31, OCTOBER 31, OCTOBER 31, 31, 31, 31, 1995
1990 1991 1992 1992 1993 1994 (UNAUDITED)
- - ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 10.00 $ 9.62 $ 10.61 $ 11.00 $ 11.31 $ 11.13 $ 8.96
------ ----------- ----------- ----------- ----------- ----------- -----------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income
(1) 0.40 0.59 0.58 0.10 0.44 0.42 0.19
Net Realized and
Unrealized Gain (Loss)
on Investments (0.46) 1.03 0.42 0.21 0.79 (0.64) 1.03
------ ----------- ----------- ----------- ----------- ----------- -----------
Total from Investment
Operations (0.06) 1.62 1.00 0.31 1.23 (0.22) 1.22
------ ----------- ----------- ----------- ----------- ----------- -----------
DISTRIBUTIONS
Net Investment Income (0.32) (0.63) (0.58) -- (0.41) (0.49) (0.19)
In Excess of Net
Investment Income -- -- -- -- (0.08) -- --
Net Realized Gain -- -- (0.03) -- (0.06) (1.46) (0.26)
In Excess of Net
Realized Gain -- -- -- -- (0.86) -- --
------ ----------- ----------- ----------- ----------- ----------- -----------
Total Distributions (0.32) (0.63) (0.61) -- (1.41) (1.95) (0.45)
------ ----------- ----------- ----------- ----------- ----------- -----------
NET ASSET VALUE, END OF
PERIOD $ 9.62 $ 10.61 $ 11.00 $ 11.31 $ 11.13 $ 8.96 $ 9.73
------ ----------- ----------- ----------- ----------- ----------- -----------
------ ----------- ----------- ----------- ----------- ----------- -----------
TOTAL RETURN (0.63)% 17.31% 9.57% 2.82% 12.09% (2.32)% 14.25%
------ ----------- ----------- ----------- ----------- ----------- -----------
------ ----------- ----------- ----------- ----------- ----------- -----------
RATIOS AND SUPPLEMENTAL
DATA:
Net Assets, End of Period
(Thousands) $37,444 $51,334 $40,332 $39,984 $29,684 $18,492 $21,313
Ratio of Expenses to
Average Net Assets (1) 0.70%** 0.70% 0.70% 0.70%** 0.70% 0.70% 0.70%
Ratio of Net Investment
Income to Average Net
Assets (1) 6.81%** 5.99% 5.21% 5.29%** 3.88% 4.13% 4.23%**
Portfolio Turnover Rate 19% 67% 40% 4% 136% 44% 14%**
<FN>
- - ---------------
(1) Effect of voluntary
expense limitation
during the period:
Per share benefit to
net investment
income $ 0.01 $ 0.01 $ 0.01 $ 0.01 $ 0.04 $ 0.03 $ 0.02
Ratios before expense
limitation:
Expenses to Average
Net Assets 0.90%** 0.78% 0.79% 1.00%** 1.02% 0.95% 1.12%**
Net Investment Income
to Average Net
Assets 6.61%** 5.91% 5.12% 4.99%** 3.56% 3.88% 3.81%**
*Commencement of
operations.
**Annualized
</TABLE>
- - --------------------------------------------------------------------------------
THE EMERGING MARKETS DEBT PORTFOLIO
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 1, SIX MONTHS ENDED
1994* JUNE 30,
TO DECEMBER 31, 1995
1994 (UNAUDITED)
- - ---------------------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00 $ 8.59
------ ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.50 0.67
Net Realized and Unrealized Gain (Loss) on Investments (1.91) 0.24
------ ------
Total from Investment Operations (1.41) 0.91
------ ------
DISTRIBUTIONS
Net Investment Income -- (0.48)
------ ------
NET ASSET VALUE, END OF PERIOD $ 8.59 $ 9.02
------ ------
------ ------
TOTAL RETURN (14.10)% 11.32%
------ ------
------ ------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $144,949 $179,543
Ratio of Expenses to Average Net Assets 1.49%** 1.46%**
Ratio of Net Investment Income to Average Net Assets 9.97%** 16.61%**
Portfolio Turnover Rate 273% 201%
<FN>
- - ---------------
*Commencement of operations.
**Annualized
</TABLE>
The accompanying notes are an integral part of the financial statements.
- - --------------------------------------------------------------------------------
140
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS:
- - --------------------------------------------------------------------------------
THE FIXED INCOME PORTFOLIO
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM SIX MONTHS
MAY 15, TWO MONTHS ENDED
1991* YEAR ENDED ENDED YEAR ENDED YEAR ENDED JUNE 30,
TO OCTOBER OCTOBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 1995
31, 1991 1992 1992 1993 1994 (UNAUDITED)
- - --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD $ 10.00 $ 10.55 $ 10.92 $ 10.93 $ 11.05 $ 9.82
------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1) 0.22 0.69 0.10 0.54 0.59 0.36
Net Realized and Unrealized
Gain (Loss) on Investments 0.49 0.39 0.01 0.41 (0.92) 0.71
------ ------ ------ ------ ------ ------
Total from Investment
Operations 0.71 1.08 0.11 0.95 (0.33) 1.07
------ ------ ------ ------ ------ ------
DISTRIBUTIONS
Net Investment Income (0.16) (0.69) (0.10) (0.56) (0.53) (0.35)
In Excess of Net Investment
Income -- -- -- (0.01) -- --
Net Realized Gain -- (0.02) -- (0.26) (0.37) --
In Excess of Net Realized Gain -- -- -- -- (0.00) --
------ ------ ------ ------ ------ ------
Total Distributions (0.16) (0.71) (0.10) (0.83) (0.90) (0.35)
------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD $ 10.55 $ 10.92 $ 10.93 $ 11.05 $ 9.82 $ 10.54
------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------
TOTAL RETURN 7.12% 10.61% 1.02% 9.07% (3.10)% 11.14%
------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period
(Thousands) $72,326 $146,546 $154,210 $240,668 $209,331 $166,018
Ratio of Expenses to Average Net
Assets (1) 0.45%** 0.45% 0.45%** 0.45% 0.45% 0.45%**
Ratio of Net Investment Income to
Average Net Assets (1) 7.29%** 6.59% 5.56%** 4.97% 5.73% 7.00%**
Portfolio Turnover Rate 48% 105% 15% 240% 388% 109%
<FN>
- - ---------------
(1) Effect of voluntary expense
limitation
during the period:
Per share benefit to net
investment income $ 0.01 $ 0.02 $ 0.01 $ 0.02 $ 0.01 $ 0.01
Ratios before expense
limitation:
Expenses to Average Net
Assets 0.81%** 0.59% 0.75%** 0.60% 0.58% 0.60%**
Net Investment Income to
Average
Net Assets 6.93%** 6.45% 5.26%** 4.82% 5.60% 6.85%**
*Commencement of operations.
**Annualized
</TABLE>
- - --------------------------------------------------------------------------------
THE GLOBAL FIXED INCOME PORTFOLIO
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM SIX MONTHS
MAY 1, 1991* TWO MONTHS ENDED
TO OCTOBER YEAR ENDED ENDED YEAR ENDED YEAR ENDED JUNE 30,
31, OCTOBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 1995
1991 1992 1992 1993 1994 (UNAUDITED)
- - --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD $ 10.00 $ 10.61 $ 11.41 $ 11.26 $ 11.68 $ 10.29
------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1) 0.16 0.53 0.14 0.69 0.70 0.39
Net Realized and Unrealized
Gain (Loss) on Investments 0.45 0.55 (0.29) 0.90 (1.38) 0.87
------ ------ ------ ------ ------ ------
Total from Investment
Operations 0.61 1.08 (0.15) 1.59 (0.68) 1.26
------ ------ ------ ------ ------ ------
DISTRIBUTIONS
Net Investment Income -- (0.27) -- (0.79) (0.40) (0.40)
In Excess of Net Investment
Income -- -- -- (0.22) -- --
Net Realized Gain -- (0.01) -- (0.16) (0.31)
------ ------ ------ ------ ------ ------
Total Distributions -- (0.28) -- (1.17) (0.71) (0.40)
------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD $ 10.61 $ 11.41 $ 11.26 $ 11.68 $ 10.29 $ 11.15
------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------
TOTAL RETURN 6.10% 10.29% (1.31)% 15.34% (6.08)% 12.55%
------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period
(Thousands) $28,236 $94,847 $92,897 $172,468 $130,675 $88,866
Ratio of Expenses to Average Net
Assets (1) 0.50%** 0.50% 0.50%** 0.50% 0.50% 0.50%**
Ratio of Net Investment Income to
Average Net Assets (1) 7.24%** 6.92% 6.99%** 5.99% 6.34% 7.27%**
Portfolio Turnover Rate 20% 144% 9% 108% 171% 97%
<FN>
- - ---------------
(1) Effect of voluntary expense
limitation
during the period:
Per share benefit to net
investment income $ 0.02 $ 0.03 $ 0.01 $ 0.02 $ 0.02 $ 0.01
Ratios before expense
limitation:
Expenses to Average Net
Assets 1.62%** 0.86% 0.90%** 0.70% 0.66% 0.75%**
Net Investment Income to
Average
Net Assets 6.12%** 6.56% 6.59%** 5.79% 6.18% 7.03%**
*Commencement of operations.
**Annualized
</TABLE>
The accompanying notes are an integral part of the financial statements.
- - --------------------------------------------------------------------------------
141
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS:
- - --------------------------------------------------------------------------------
THE HIGH YIELD PORTFOLIO
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM SIX MONTHS ENDED
SEPTEMBER 28, 1992* TWO MONTHS ENDED YEAR ENDED YEAR ENDED JUNE 30,
TO OCTOBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 1995
1992 1992 1993 1994 (UNAUDITED)
- - ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD $ 10.00 $ 9.77 $ 9.95 $ 11.16 $ 9.55
------- ------ ------------ ------------ -------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income (1) 0.08 0.14 0.90 0.97 0.57
Net Realized and Unrealized
Gain (Loss) on Investments (0.31) 0.19 1.21 (1.40) 0.76
------- ------ ------------ ------------ -------
Total from Investment
Operations (0.23) 0.33 2.11 (0.43) 1.33
------- ------ ------------ ------------ -------
DISTRIBUTIONS
Net Investment Income -- (0.15) (0.90) (0.97) (0.58)
Net Realized Gain -- -- -- (0.21) --
------- ------ ------------ ------------ -------
-- (0.15) (0.90) (1.18) (0.58)
------- ------ ------------ ------------ -------
NET ASSET VALUE, END OF PERIOD $ 9.77 $ 9.95 $ 11.16 $ 9.55 $ 10.30
------- ------ ------------ ------------ -------
------- ------ ------------ ------------ -------
TOTAL RETURN (2.30)% 3.41% 22.11% (4.18)% 14.43%
------- ------ ------------ ------------ -------
------- ------ ------------ ------------ -------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period
(Thousands) $16,950 $20,194 $74,500 $97,223 $63,281
Ratio of Expenses to Average
Net Assets (1) 0.75%** 0.75%** 0.75% 0.75% 0.75%**
Ratio of Net Investment Income
to Average Net Assets (1) 9.89%** 8.96%** 8.70% 9.42% 11.33%**
Portfolio Turnover Rate 9% 24% 104% 74% 40%
<FN>
- - -----------------
(1)Effect of voluntary expense
limitation during the
period:
Per share benefit to net
investment income $ 0.01 $ 0.01 $ 0.02 $0.001 $ 0.01
Ratios before expense
limitation:
Expenses to Average Net
Assets 1.23%** 1.62%** 0.96% 0.76% 0.87%**
Net Investment Income to
Average Net Assets 9.41%** 8.09%** 8.49% 9.41% 11.21%**
*Commencement of operations.
**Annualized
</TABLE>
- - --------------------------------------------------------------------------------
THE MUNICIPAL BOND PORTFOLIO
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 18, 1995*
TO JUNE 30, 1995
(UNAUDITED)
- - ------------------------------------------------------------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
-------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1) 0.21
Net Realized and Unrealized Gain on Investments 0.21
-------
Total from Investment Operations 0.42
-------
DISTRIBUTIONS
Net Investment Income (0.16)
-------
NET ASSET VALUE, END OF PERIOD $ 10.26
-------
-------
TOTAL RETURN 4.22%
-------
-------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $43,830
Ratio of Expenses to Average Net Assets (1) 0.45%**
Ratio of Net Investment Income to Average Net
Assets (1) 4.55%**
Portfolio Turnover Rate 124%
<FN>
- - -----------------
(1)Effect of voluntary expense limitation during
the period:
Per share benefit to net investment income $ 0.01
Ratios before expense limitation:
Expenses to Average Net Assets 0.76%**
Net Investment Income to Average Net Assets 4.24%**
*Commencement of operations.
**Annualized
</TABLE>
The accompanying notes are an integral part of the financial statements.
- - --------------------------------------------------------------------------------
142
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS:
- - --------------------------------------------------------------------------------
THE MONEY MARKET PORTFOLIO
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TWO MONTHS SIX MONTHS
ENDED YEAR ENDED YEAR ENDED ENDED
YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER DECEMBER DECEMBER JUNE 30,
OCTOBER 31, OCTOBER 31, OCTOBER 31, 31, 31, 31, 1995
1990 1991 1992 1992 1993 1994 (UNAUDITED)
- - --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
----------- ----------- ----------- ----------- ----------- ----------- -----------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income
(1) 0.079 0.062 0.039 0.005 0.027 0.040 0.030
----------- ----------- ----------- ----------- ----------- ----------- -----------
DISTRIBUTIONS
Net Investment Income (0.079) (0.062) (0.039) (0.005) (0.027) (0.040) (0.030)
In Excess of Net
Investment Income -- -- -- -- (0.000) -- --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total Distributions (0.079) (0.062) (0.039) (0.005) (0.027) (0.040) (0.030)
----------- ----------- ----------- ----------- ----------- ----------- -----------
NET ASSET VALUE, END OF
PERIOD $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- -----------
TOTAL RETURN 8.16% 6.37% 3.77% 0.50% 2.76% 3.84% 2.75%
----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- -----------
RATIOS AND SUPPLEMENTAL
DATA:
Net Assets, End of Period
(Thousands) $516,182 $607,087 $612,968 $599,172 $657,163 $690,503 $826,990
Ratio of Expenses to
Average Net Assets (1) 0.55% 0.53% 0.52% 0.55%** 0.53% 0.49% 0.49%**
Ratio of Net Investment
Income to Average Net
Assets (1) 7.87% 6.11% 3.74% 3.11%** 2.71% 3.77% 5.49%**
<FN>
- - ---------------
(1)Effect of voluntary
expense limitation
during the period:
Per share benefit to
net investment
income $ 0.000 N/A N/A $ 0.000 $ 0.000 N/A N/A
Ratios before expense
limitation:
Expenses to Average
Net Assets 0.58% N/A N/A 0.59%** 0.54% N/A N/A
Net Investment Income
to Average Net
Assets 7.85% N/A N/A 3.07%** 2.70% N/A N/A
**Annualized
</TABLE>
- - --------------------------------------------------------------------------------
THE MUNICIPAL MONEY MARKET PORTFOLIO
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TWO MONTHS SIX MONTHS
ENDED YEAR ENDED YEAR ENDED ENDED
YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER DECEMBER DECEMBER JUNE 30,
OCTOBER 31, OCTOBER 31, OCTOBER 31, 31, 31, 31, 1995
1990 1991 1992 1992 1993 1994 (UNAUDITED)
- - --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
----------- ----------- ----------- ----------- ----------- ----------- -----------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income
(1) 0.054 0.043 0.026 0.004 0.019 0.020 0.020
----------- ----------- ----------- ----------- ----------- ----------- -----------
DISTRIBUTIONS
Net Investment Income (0.054) (0.043) (0.026) (0.004) (0.019) (0.020) (0.020)
In Excess of Net
Investment Income -- -- -- -- (0.000) -- --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total Distributions (0.054) (0.043) (0.026) (0.004) (0.019) (0.020) (0.020)
----------- ----------- ----------- ----------- ----------- ----------- -----------
NET ASSET VALUE, END OF
PERIOD $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- -----------
TOTAL RETURN 5.51% 4.35% 2.74% 0.37% 1.91% 2.44% 1.72%
----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- -----------
RATIOS AND SUPPLEMENTAL
DATA:
Net Assets, End of Period
(Thousands) $102,195 $166,953 $206,691 $208,866 $266,524 $359,444 $354,548
Ratio of Expenses to
Average Net Assets (1) 0.51% 0.56% 0.55% 0.57%** 0.54% 0.51% 0.52%**
Ratio of Net Investment
Income to Average Net
Assets (1) 5.38% 4.18% 2.66% 2.31%** 1.89% 2.42% 3.43%**
<FN>
- - ---------------
(1)Effect of voluntary
expense limitation
during the period:
Per share benefit to
net investment
income $ 0.001 N/A N/A $ 0.000 $ 0.000 N/A N/A
Ratios before expense
limitation:
Expenses to Average
Net Assets 0.63% N/A N/A 0.67%** 0.56% N/A N/A
Net Investment Income
to Average Net
Assets 5.26% N/A N/A 2.21%** 1.87% N/A N/A
**Annualized
</TABLE>
The accompanying notes are an integral part of the financial statements.
- - --------------------------------------------------------------------------------
143
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1995
- - --------------------------------------------------------------------------------
Morgan Stanley Institutional Fund, Inc. (the "Fund") is registered under the
Investment Company Act of 1940 as an open-end management investment company. As
of June 30, 1995, the Fund was comprised of 24 separate active, diversified and
non-diversified portfolios (each referred to as the "Portfolio"). During the six
months ended June 30, 1995, the following Portfolios commenced operations: Latin
American and Municipal Bond Portfolios on January 18, 1995, the U.S. Real Estate
Portfolio on February 24, 1995, and the Aggressive Equity Portfolio on March 8,
1995.
A. The following significant accounting policies are in conformity with
generally accepted accounting principles for investment companies. Such policies
are consistently followed by the Fund in the preparation of the financial
statements.
1. SECURITY VALUATION: Equity securities listed on an exchange and equity
securities traded on NASDAQ are valued at the latest quoted sales price.
Securities listed on a foreign exchange are valued at their closing price.
Unlisted securities and listed securities not traded on the valuation date for
which market quotations are readily available are valued at the mean between the
current bid and asked prices obtained from reputable brokers. Bonds and other
fixed income securities may be valued according to the broadest and most
representative market. In addition, bonds and other fixed income securities may
be valued on the basis of prices provided by a pricing service which are based
primarily on institutional size trading in similar groups of securities. Debt
securities purchased with remaining maturities of 60 days or less are valued at
amortized cost, if it approximates market value. Money market and municipal
money market securities are stated at amortized cost, which approximates market
value. All other securities and assets for which market values are not readily
available, including restricted securities, are valued at fair value as
determined in good faith by the Board of Directors, although the actual
calculations may be done by others.
2. INCOME TAXES: It is each Portfolio's intention 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 Portfolios may be subject to taxes imposed by countries in which it invests.
Such taxes are generally based on either income or gains earned or repatriated.
The Portfolio accrues such taxes when the related income is earned. For
investments in Indian securities a capital gains tax is accrued based on the
relative amounts of net realized gains and net unrealized appreciation of such
securities. The Brazilian government assesses a 1% tax on all settlements of
foreign currency used to purchase listed equity securities. The Brazilian
government repealed this tax on March 10, 1995.
Paid in capital, undistributed net investment income (loss) and accumulated gain
(loss) are adjusted for permanent book-tax differences.
3. REPURCHASE AGREEMENTS: In connection with transactions in repurchase
agreements, a bank as custodian for the Fund takes possession of the underlying
securities, with a market value at least equal to the principal amount of the
repurchase transaction, including 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 the adequacy of the collateral.
In the event of default on the obligation to repurchase, the Fund 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 counter party to the
agreement, realization and/or retention of the collateral or proceeds may be
subject to legal proceedings.
4. FOREIGN CURRENCY TRANSLATION AND FOREIGN INVESTMENTS: The books and records
of the Fund are maintained in United States dollars. Foreign currency amounts
are translated into US dollars at the mean of the bid and asked prices of such
currencies against US dollars last quoted by a major US or foreign bank.
Although the net assets of the Fund are presented at the foreign exchange rates
and market values at the close of the period, the Fund does not isolate that
portion of the results of operations arising as a result of changes in the
foreign exchange rates from the fluctuations arising from changes in the market
prices of the securities held at period end. Similarly, the Fund does not
isolate the effect of changes in foreign exchange rates from the fluctuations
arising from changes in the market prices of securities sold during the period.
Accordingly, realized and unrealized foreign currency gains (losses) are
included in the reported net realized and unrealized gains (losses) on
investment transactions and balances. However, pursuant to US Federal income tax
regulations, gains and losses from certain foreign currency transactions are
treated as ordinary income for US Federal income tax purposes.
Net realized gains (losses) on foreign currency transactions represent net
foreign exchange gains (losses) from forward foreign currency contracts,
disposition of foreign currencies, currency gains or losses realized between the
trade and settlement dates on securities transactions, and the difference
between the amount of investment income and foreign withholding taxes recorded
on the Fund's books and the US dollar equivalent amounts actually received or
paid and
- - --------------------------------------------------------------------------------
144
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONT.)
JUNE 30, 1995
- - --------------------------------------------------------------------------------
certain currency related amounts of realized gains or losses from the sale of
foreign denominated debt securities.
Foreign security and currency transactions may involve certain considerations
and risks not typically associated with those of US dollar denominated
transactions as a result of, among other factors, the possibility of lower
levels of governmental supervision and regulation of foreign securities markets
and the possibility of political or economic instability.
5. FORWARD FOREIGN CURRENCY CONTRACTS: Each Portfolio, except the Equity Growth,
U.S. Real Estate, Municipal Bond, Money Market and Municipal Money Market
Portfolios, may enter into forward currency contracts to attempt to protect
securities and related receivables and payables against changes in future
foreign exchange rates. A forward currency contract is an agreement between two
parties to buy or sell currency at a set price on a future date. The market
value of the contract will fluctuate with changes in currency exchange rates.
The contract is marked-to-market daily using the forward rate and the change in
market value is recorded by the Fund as unrealized gain or loss. The Fund
records realized gains or losses when the contract is closed equal to the
difference between the value of the contract at the time it was opened and the
value at the time it was closed. Risk may arise upon entering into these
contracts from the potential inability of counterparties to meet the terms of
their contracts and is generally limited to the amount of the unrealized gain on
the contracts (if any) at the date of default. Risks may also arise from
unanticipated movements in the value of a foreign currency relative to the US
dollar.
6. FORWARD COMMITMENTS AND WHEN-ISSUED/DELAYED DELIVERY SECURITIES: Each
Portfolio may make forward commitments to purchase or sell securities. Payment
and delivery for securities which have been purchased or sold on a forward
commitment basis can take place a month or more (not to exceed 120 days) after
the date of the transaction. Additionally, certain Portfolios may purchase
securities on a when-issued or delayed-delivery basis. Securities purchased on a
when-issued or delayed delivery basis are purchased for delivery beyond the
normal settlement date at a stated price and yield, and no income accrues to the
Portfolio on such securities prior to delivery. When the Portfolio enters into a
purchase transaction on a when-issued or delayed delivery basis, it establishes
a segregated account in which it maintains liquid assets in an amount at least
equal in value to the Portfolio's commitments to purchase such securities.
Purchasing securities on a forward commitment or when-issued or delayed-delivery
basis may involve a risk that the market price at the time of delivery may be
lower than the agreed-upon purchase price, in which case there could be an
unrealized loss at the time of delivery.
7. LOAN AGREEMENTS: The Emerging Markets, Emerging Markets Debt and High Yield
Portfolios may invest in fixed and floating rate loans ("Loans") arranged
through private negotiations between an issuer of sovereign debt obligations and
one or more financial institutions ("Lenders") deemed to be creditworthy by the
investment adviser. The Portfolio's investments in Loans may be in the form of
participations in Loans ("Participations") or assignments of all or a portion of
Loans ("Assignments") from third parties. The Portfolio's investment in
Participations typically results in the Portfolio having a contractual
relationship with only the Lender and not with the borrower. The Portfolio has
the right to receive payments of principal, interest and any fees to which it is
entitled only from the Lender selling the Participation and only upon receipt by
the Lender of the payments from the borrower. The Portfolio generally has no
right to enforce compliance by the borrower with the terms of the loan
agreement. As a result, the Portfolio may be subject to the credit risk of both
the borrower and the Lender that is selling the Participation. When the
Portfolio purchases Assignments from Lenders, it acquires direct rights against
the borrower on the Loan. Because Assignments are arranged through private
negotiations between potential assignees and potential assignors, the rights and
obligations acquired by the Portfolio as the purchaser of an Assignment may
differ from, and be more limited than, those held by the assigning Lender.
8. SHORT SALES: The Latin American, Aggressive Equity and Emerging Markets Debt
Portfolios may sell securities short. A short sale is a transaction in which the
Portfolio sells securities it does not own, but has borrowed, in anticipation of
a decline in the market price of the securities. The Portfolio is obligated to
replace the borrowed securities at the market price at the time of replacement.
The Portfolio may have to pay a premium to borrow the securities as well as pay
any dividends or interest payable on the securities until they are replaced. The
Portfolio's obligation to replace the securities borrowed in connection with a
short sale will generally be secured by collateral deposited with the broker
that consists of cash, U.S. government securities or other liquid, high grade
debt obligations. In addition, the Portfolio will place in a segregated account
with its Custodian an amount of cash, U.S. government securities or other liquid
high grade debt obligations equal to the difference, if any, between (1) the
market value of the securities sold at the time they were sold short and (2) any
cash, U.S. government securities or other liquid high grade debt
- - --------------------------------------------------------------------------------
145
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONT.)
JUNE 30, 1995
- - --------------------------------------------------------------------------------
obligations deposited as collateral with the broker in connection with the short
sale (not including the proceeds of the short sale). Short sales by the
Portfolio involve certain risks and special considerations. Possible losses from
short sales differ from losses that could be incurred from a purchase of a
security, because losses from short sales may be unlimited, whereas losses from
purchases cannot exceed the total amount invested.
9. PURCHASED AND WRITTEN OPTIONS: The Active Country Allocation, Gold, Latin
American, Aggressive Equity, Equity Growth, U.S. Real Estate, and Emerging
Markets Debt Portfolios may write covered call options. Premiums are received
and are recorded as liabilities, and subsequently adjusted to the current value
of the options written. Premiums received from writing options which expire are
treated as realized gains. Premiums received from writing options which are
exercised or are canceled in closing purchase transactions are offset against
the proceeds or amount paid on the transaction to determine the realized gain or
loss. By writing a call option, a Portfolio foregoes in exchange for the premium
the opportunity for capital appreciation above the exercise price should the
market price of the underlying security increase. Possible losses from written
options may be unlimited.
The Active Country Allocation, Gold, Latin American, Aggressive Equity, Equity
Growth and U.S. Real Estate Portfolios may also purchase call options on their
portfolio securities. Each portfolio may purchase call options to close out
covered call positions or to protect against an increase in the price of the
security it anticipates purchasing. Possible losses from purchased options
cannot exceed the total amount invested.
10. OTHER: Security transactions are accounted for on the date the securities
are purchased or sold. Costs used in determining realized gains and losses on
the sale of investment securities are those of specific securities sold.
Dividend income is recorded on the ex-dividend date. Interest income is
recognized on the accrual basis except where collection is in doubt. Discounts
and premiums on securities purchased (other than mortgage-backed securities) are
amortized according to the effective yield method over their respective lives.
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. Dividends from the Money Market and
the Municipal Money Market Portfolios are accrued daily and are distributed on
or about the 15th of each month. Distributions from the remaining Portfolios are
recorded on the ex-date.
Income distributions and capital gain distributions are determined in accordance
with tax regulations which may differ from generally accepted accounting
principles. These differences are primarily due to differing treatments for
mortgage-backed securities, foreign currency transactions, net operating losses,
deferral of wash sales and post October losses and realization of gains and
losses on certain investments including forward foreign currency contracts,
options and futures contracts.
Prior governmental approval for foreign investments may be required under
certain circumstances in some emerging countries, and the extent of foreign
investment in domestic companies may be subject to limitation in other emerging
countries. Foreign ownership limitations also may be imposed by the charters of
individual companies in emerging countries to prevent, among other concerns,
violation of foreign investment limitations. As a result, an additional class of
shares (identified as "Foreign" in the Statement of Net Assets) may be created
and offered for investment. The "local" and "foreign" shares' market values may
differ.
A transaction fee of one percent is charged on subscriptions and redemptions of
capital shares of the International Small Cap Portfolio. Such fees are paid to
or retained by the Portfolio and included in paid in capital. During the six
months ended June 30, 1995, such transaction fees totaled approximately
$518,000.
B. Morgan Stanley Asset Management Inc. ("MSAM") provides the Fund with
investment advisory services at a fee calculated at the annual rates of average
daily net assets indicated below. MSAM has agreed to reduce fees payable to it
and to reimburse the Portfolios, if necessary, if the annual operating
- - --------------------------------------------------------------------------------
146
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONT.)
JUNE 30, 1995
- - --------------------------------------------------------------------------------
expenses, expressed as a percentage of average daily net assets, exceed the
maximum ratios indicated below:
<TABLE>
<CAPTION>
MAXIMUM
ADVISORY EXPENSE
PORTFOLIO FEE RATIO
----------- ------------
<S> <C> <C>
Active Country Allocation............. .65% .80%
Asian Equity.......................... .80 1.00
Emerging Markets...................... 1.25 1.75
European Equity....................... .80 1.00
Global Equity......................... .80 1.00
Gold.................................. 1.00 1.25
International Equity.................. .80 1.00
International Small Cap............... .95 1.15
Japanese Equity....................... .80 1.00
Latin American........................ 1.10 1.70
Aggressive Equity..................... .80 1.00
Emerging Growth....................... 1.00 1.25
Equity Growth......................... .60 .80
Small Cap Value Equity................ .85 1.00
U.S. Real Estate...................... .80 1.00
Value Equity.......................... .50 .70
Balanced.............................. .50 .70
Emerging Markets Debt................. 1.00 1.75
Fixed Income.......................... .35 .45
Global Fixed Income................... .40 .50
High Yield............................ .50 .75
Municipal Bond........................ .35 .45
Money Market.......................... .30 .55
Municipal Money Market................ .30 .57
</TABLE>
Sun Valley Gold Company is the sub-adviser ("Sub-Adviser") of the Gold
Portfolio. The Sub-Adviser is entitled to receive from MSAM an annual sub-
advisory fee in an amount equal to .40% of the average daily net assets of the
Portfolio. The Sub-Adviser has agreed to a proportionate reduction in its fees
if the Adviser is required to waive its fees or to reimburse the Portfolio.
C. MSAM also provides the Fund with administrative services pursuant to an
administrative agreement, for a monthly fee which on an annual basis equals
0.15% of the average daily net assets of each Portfolio plus reimbursement of
out-of-pocket expenses. Under an agreement between MSAM and The United States
Trust Company of New York ("US Trust"), Mutual Funds Service Company ("MFSC"), a
wholly-owned subsidiary of US Trust, provides certain administrative services to
the Fund. For such services, MSAM pays US Trust a portion of the fee MSAM
receives from the Fund.
D. Morgan Stanley Trust Company ("MSTC") acts as custodian for the Fund's assets
held outside the United States in accordance with a custodian agreement.
Custodian fees are computed and payable monthly based on securities held,
investment purchases and sales activity, an account maintenance fee, plus
reimbursement for certain out-of-pocket expenses. MSTC and the Adviser are
wholly-owned subsidiaries of Morgan Stanley Group, Inc.
US Trust acts as custodian for the Fund's assets held in the United States.
During the six months ended June 30, 1995, the following Portfolios incurred
custody fees and had amounts due to MSTC at June 30, 1995 as follow:
<TABLE>
<CAPTION>
MSTC CUSTODY
FEES FEES PAYABLE TO
INCURRED MSTC
(000) (000)
--------------- -----------------
<S> <C> <C>
Active Country Allocation.... $ 183 $ 85
Asian Equity................. 192 102
Emerging Markets............. 1,491 1,152
European Equity.............. 15 5
Global Equity................ 25 14
Gold......................... 1 1
International Equity......... 233 118
International Small Cap...... 54 26
Japanese Equity.............. 9 7
Latin American............... 36 21
Emerging Markets Debt........ 78 144
Global Fixed Income.......... 23 15
</TABLE>
E. During the six months ended June 30, 1995, purchases and sales of investment
securities other than long-term US Government securities and short-term
investments were:
<TABLE>
<CAPTION>
(000)
----------------------
PORTFOLIO PURCHASES SALES
----------- ---------
<S> <C> <C>
Active Country Allocation............... $ 61,153 $ 102,313
Asian Equity............................ 77,607 77,168
Emerging Markets........................ 267,479 173,947
European Equity......................... 15,981 925
Global Equity........................... 15,874 21,800
Gold.................................... 2,718 13,837
International Equity.................... 192,269 169,640
International Small Cap................. 39,203 23,761
Japanese Equity......................... 3,939 29,606
Latin American.......................... 20,744 6,992
Aggressive Equity....................... 24,134 9,273
Emerging Growth......................... 24,855 20,486
Equity Growth........................... 104,577 81,713
Small Cap Value Equity.................. 10,805 6,972
U.S. Real Estate........................ 48,607 11,450
Value Equity............................ 34,602 15,281
Balanced................................ 2,123 2,609
Emerging Markets Debt................... 312,740 313,825
Fixed Income............................ 23,523 9,040
Global Fixed Income..................... 51,243 94,505
High Yield.............................. 27,469 62,732
Municipal Bond.......................... 99,205 56,492
</TABLE>
- - --------------------------------------------------------------------------------
147
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONT.)
JUNE 30, 1995
- - --------------------------------------------------------------------------------
Purchases and sales during the six months ended June 30, 1995 of long-term US
Government securities occurred only in the Balanced, Fixed Income and Global
Fixed Income Portfolios and amounted to:
<TABLE>
<CAPTION>
(000)
----------------------
PORTFOLIO PURCHASES SALES
----------- ---------
<S> <C> <C>
Balanced................................ $ 1,113 $ --
Fixed Income............................ 168,430 197,800
Global Fixed Income..................... 33,415 26,895
</TABLE>
During the six months ended June 30, 1995, the following Portfolios incurred
brokerage commissions related to Morgan Stanley & Co., Incorporated, an
affiliated broker/dealer, of approximately:
<TABLE>
<CAPTION>
(000)
---------------
BROKERAGE
PORTFOLIO COMMISSION
---------------
<S> <C>
Asian Equity................................... $ 78
Emerging Markets............................... 17
European Equity................................ 3
Global Equity.................................. 1
International Equity........................... 59
International Small Cap........................ 1
Japanese Equity................................ 42
Latin American................................. 1
Equity Growth.................................. 1
U.S. Real Estate............................... 2
</TABLE>
F. At June 30, 1995, cost and unrealized appreciation (depreciation) for Federal
income tax purposes of the investments of each Portfolio were:
<TABLE>
<CAPTION>
(000)
--------------------------------------------
NET
APPREC.
PORTFOLIO COST APPREC. DEPREC. (DEPREC.)
--------- --------- --------- -----------
<S> <C> <C> <C> <C>
Active Country
Allocation............... $ 161,688 $ 11,290 $ (4,588) $ 6,702
Asian Equity.............. 234,054 59,594 (7,871) 51,723
Emerging Markets.......... 983,422 132,266 (139,039) (6,773)
European Equity........... 44,028 4,618 (1,300) 3,318
Global Equity............. 75,279 9,705 (3,583) 6,122
Gold...................... 21,348 709 (1,656) (947)
International Equity...... 1,097,153 283,779 (26,644) 257,135
International Small Cap... 184,134 16,832 (18,758) (1,926)
Japanese Equity........... 23,876 286 (2,596) (2,310)
Latin American............ 13,606 1,004 (978) 26
Aggressive Equity......... 16,722 1,222 (55) 1,167
Emerging Growth........... 104,964 41,714 (3,041) 38,673
Equity Growth............. 126,248 18,928 (603) 18,325
Small Cap Value Equity.... 45,637 4,711 (1,526) 3,185
U.S. Real Estate.......... 39,216 1,373 (73) 1,300
Value Equity.............. 104,047 10,653 (1,694) 8,959
Balanced.................. 19,792 1,663 (287) 1,376
Emerging Markets Debt..... 163,213 8,530 (4,298) 4,232
Fixed Income.............. 159,244 7,454 (219) 7,235
Global Fixed Income....... 83,741 4,503 (796) 3,707
High Yield................ 63,971 1,809 (3,826) (2,017)
Municipal Bond............ 42,728 763 (24) 739
Money Market.............. 827,358 -- -- --
Municipal Money Market.... 352,836 -- -- --
</TABLE>
At December 31, 1994, the following Portfolios had available capital loss
carryforwards to offset future net capital gains, to the extent provided by
regulation, through the indicated expiration dates:
<TABLE>
<CAPTION>
EXPIRATION DATE
DECEMBER 31,
(000)
-----------------------------------------------------
PORTFOLIO 1998 1999 2000 2001 2002 TOTAL
- - ----------------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
International
Small Cap....... $ -- $ -- $ -- $ -- $ 1,764 $ 1,764
Emerging Growth.. 441 360 1,838 7,476 746 10,861
Emerging Markets
Debt............ -- -- -- -- 531 531
Fixed Income..... -- -- -- -- 13,870 13,870
High Yield....... -- -- -- -- 497 497
Global Fixed..... -- -- -- -- 5,293 5,293
Money Market..... -- 66 -- -- 26 92
Municipal Money
Market.......... -- -- -- 1 7 8
</TABLE>
To the extent that capital loss carryovers are used to offset any future net
capital gains realized during the carryover period as provided by Federal income
tax regulations, no capital gains tax liability will be incurred by a Portfolio
for gains realized and not distributed. It is unlikely that the gains so offset
would be distributed to shareholders because such distributions may be taxable
to Portfolio shareholders as ordinary income.
Net capital and net currency losses incurred after October 31 and within the
taxable year are deemed to arise on the first business day of the Portfolio's
next taxable year. For the period from November 1, 1994 to December 31, 1994 the
Portfolio's incurred and elected to defer to January 1, 1995 for Federal income
tax purposes net capital and net currency losses of approximately:
<TABLE>
<CAPTION>
CAPITAL
LOSSES CURRENCY
PORTFOLIO (000) LOSSES (000)
- - ------------------------------------------- ----------- -------------
<S> <C> <C>
Emerging Markets........................... $ -- $ 393
Global Equity.............................. -- 5
Gold....................................... -- 1
European Equity............................ -- 4
International Small Cap.................... 225 --
Balanced................................... 12 --
Emerging Markets Debt...................... -- 7
Fixed Income............................... 269 --
Global Fixed Income........................ 429 897
High Yield................................. 1,084 --
</TABLE>
- - --------------------------------------------------------------------------------
148
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONT.)
JUNE 30, 1995
- - --------------------------------------------------------------------------------
G. During the six months ended June 30, 1995, the following Portfolios
participated in writing covered call and put options. The Portfolios had option
activity as follows:
<TABLE>
<CAPTION>
NUMBER OF PREMIUM
AGGRESSIVE EQUITY PORTFOLIO CONTRACTS (000)
- - ----------------------------------- --------------- -------------
<S> <C> <C>
Options outstanding at December 31,
1994.............................. -- $ --
Options written during the
period............................ 446 53
Options cancelled in closing
transactions during the period.... (354) (44)
--- ---
Options outstanding at June 30,
1995.............................. 92 $ 9
--- ---
--- ---
</TABLE>
<TABLE>
<CAPTION>
FACE AMOUNT PREMIUM
EMERGING MARKETS DEBT PORTFOLIO (000) (000)
- - ----------------------------------- ------------- -----------
<S> <C> <C>
Options outstanding at December 31,
1994.............................. $ 15,000 $ 105
Options written during the
period............................ 37,900 582
Options cancelled in closing
transactions during the period.... (3,000) (60)
Options expired during the
period............................ (43,900) (508)
Options exercised during the
period............................ (2,000) (32)
------------- -----
Options outstanding at June 30,
1995.............................. $ 4,000 $ 87
------------- -----
------------- -----
</TABLE>
H. OTHER. At June 30, 1995, the net assets of certain Portfolios were
substantially comprised of foreign denominated securities and currency. Changes
in currency exchange rates will affect the US dollar value of and investment
income from such securities.
Portfolio securities and foreign currency holdings were translated at the
following exchange rates as of June 30, 1995:
<TABLE>
<S> <C> <C> <C>
Argentine Peso....................... 0.999750 = $ 1.00
Australian Dollar.................... 1.407360 = 1.00
Belgian Franc........................ 28.460000 = 1.00
Brazilian Real....................... 0.920500 = 1.00
British Pound Sterling............... 0.628540 = 1.00
Colombian Peso....................... 880.600000 = 1.00
Deutsche Mark........................ 1.383950 = 1.00
Finnish Markka....................... 4.274500 = 1.00
French Franc......................... 4.850750 = 1.00
Greek Drachma........................ 225.040000 = 1.00
Hong Kong Dollar..................... 7.737800 = 1.00
Hungarian Forint..................... 123.025000 = 1.00
Indian Rupee......................... 31.400000 = 1.00
Indonesian Rupiah.................... 2,227.000000 = 1.00
Irish Punt........................... 0.610820 = $ 1.00
Italian Lira......................... 1,635.500000 = 1.00
Japanese Yen......................... 84.825000 = 1.00
Korean Won........................... 758.250000 = 1.00
Malaysian Ringgit.................... 2.438000 = 1.00
Mexican New Peso..................... 6.250000 = 1.00
Netherlands Guilder.................. 1.549400 = 1.00
New Zealand Dollar................... 1.496890 = 1.00
Pakistani Rupee...................... 30.979000 = 1.00
Peruvian Sol......................... 2.224500 = 1.00
Philippine Peso...................... 25.540000 = 1.00
Polish Zloty......................... 2.341000 = 1.00
Portuguese Escudo.................... 146.300000 = 1.00
Singapore Dollar..................... 1.397500 = 1.00
South African Rand................... 3.636250 = 1.00
Spanish Peseta....................... 121.050000 = 1.00
Swedish Krona........................ 7.276850 = 1.00
Swiss Franc.......................... 1.151500 = 1.00
Taiwan Dollar........................ 25.828000 = 1.00
Thai Baht............................ 24.685000 = 1.00
Turkish Lira......................... 44,215.000000 = 1.00
</TABLE>
During June 1995, the Board of Directors of the Fund declared dividends and
capital gain distributions payable on July 14, 1995 to shareholders of record on
July 3, 1995 as follows:
<TABLE>
<CAPTION>
SHORT- LONG-
NET TERM TERM
INVESTMENT REALIZED REALIZED
PORTFOLIO INCOME GAINS GAINS
- - --------------------------- ------------- ----------- -----------
<S> <C> <C> <C>
Active Country
Allocation................ $ -- $ 0.01 $ 0.07
Asian Equity............... -- 0.08 0.18
Emerging Markets........... -- 0.02 0.19
European Equity............ -- 0.02 0.08
Global Equity.............. -- 0.03 0.06
Gold....................... -- 0.11 --
International Small Cap.... 0.02 -- --
Aggressive Equity.......... 0.03 -- --
Equity Growth.............. 0.06 0.05 0.01
Small Cap Value Equity..... 0.07 0.01 0.05
Value Equity............... 0.09 -- --
Balanced................... 0.10 -- --
Emerging Markets Debt...... 0.01 -- --
Fixed Income............... 0.07 -- --
Global Fixed Income........ 0.21 -- --
High Yield................. 0.10 -- --
Municipal Bond............. 0.05 -- --
</TABLE>
- - --------------------------------------------------------------------------------
149
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONT.)
JUNE 30, 1995
- - --------------------------------------------------------------------------------
I. SUPPLEMENTAL PROXY INFORMATION
On February 1, 1995, a special meeting of the stockholders of Morgan Stanley
Institutional Fund, Inc. (the "Fund") was held for the purpose of voting on the
following matters:
<TABLE>
<S> <C>
Proposal 1: To elect a Board of Directors (voted on by the stockholders of the Fund as a whole).
Proposal 2: To approve or disapprove the amendment of the Fund's Bylaws (voted on by the
stockholders of the Fund as a whole).
Proposal 3: To approve or disapprove the amendment of each Portfolio's fundamental limitation
concerning investments in commodities.
Proposal 4: To approve or disapprove the amendment of each Portfolio's fundamental limitation
concerning loans.
Proposal 5: To approve or disapprove the reclassification as nonfundamental of each Portfolio's
limitation concerning purchases on margin and short sales and to amend certain
language.
Proposal 6: To approve or disapprove the amendment of each Portfolio's fundamental limitation
concerning diversification.
Proposal 7: To approve or disapprove the amendment of each Portfolio's fundamental limitation
concerning borrowing and the issuance of senior securities.
Proposal 8: To approve or disapprove the reclassification as nonfundamental of each Portfolio's
limitation concerning pledging, mortgaging or hypothecating its assets.
Proposal 9: To approve or disapprove the amendment of each Portfolio's fundamental limitation
concerning underwriting the securities of other issuers.
Proposal To approve or disapprove the reclassification as nonfundamental of each Portfolio's
10: limitation concerning investment in restricted securities and illiquid securities.
Proposal To approve or disapprove the reclassification as nonfundamental of each Portfolio's
11: limitation concerning investment in securities of an issuer whose securities are owned
to a certain extent by officers and directors of the Fund.
Proposal To approve or disapprove the reclassification as nonfundamental of each Portfolio's
12: limitation concerning investment in securities for the purpose of exercising control
over management of any company.
Proposal To approve or disapprove the reclassification as nonfundamental of each Portfolio's
13: limitation concerning investment in securities of any investment company.
Proposal To approve or disapprove the reclassification as nonfundamental of each Portfolio's
14: limitation concerning investment of more than 5% of total assets in securities of
companies with less than three years of operating history.
Proposal To approve or disapprove the reclassification as nonfundamental of the limitation
15: applicable to each of the Global Fixed Income, Emerging Markets, Emerging Markets Debt
and Gold Portfolios, concerning diversification of the Portfolio's holdings.
Proposal To approve or disapprove the reclassification as nonfundamental of each Portfolio's
16: limitation concerning investments in repurchase agreements with more than seven days
to maturity.
Proposal To approve or disapprove the reclassification as nonfundamental of each Portfolio's
17: limitation concerning investments in fixed time deposits.
Proposal To approve or disapprove the reclassification as nonfundamental of the limitation
18: applicable to the Money Market Portfolio concerning investments in reverse repurchase
agreements.
Proposal To approve or disapprove the reclassification as nonfundamental of the limitation
19: applicable to the Municipal Money Market Portfolio concerning investments in private
activity bonds.
Proposal To approve or disapprove the voting, in the discretion of the person or persons named
20: as proxy or proxies on any other matters that may properly come before the meeting and
that are deemed appropriate.
</TABLE>
- - --------------------------------------------------------------------------------
150
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONT.)
JUNE 30, 1995
- - --------------------------------------------------------------------------------
The results of the vote on Proposal 1 were as follows:
<TABLE>
<CAPTION>
TOTAL
VOTES VOTES SHARES
FOR WITHHELD VOTED
(000) (000) (000)
--------- --------- -----------
<S> <C> <C> <C>
John P. Britton................................................................. 620,489 124,140 744,629
George R. Bunn Jr............................................................... 620,474 124,155 744,629
A. Macdonald Caputo............................................................. 620,480 124,149 744,629
Peter E. deSvastich............................................................. 620,489 124,140 744,629
Gerard E. Jones................................................................. 620,362 124,267 744,629
Warren J. Olsen................................................................. 620,440 124,189 744,629
Frederick B. Whittemore......................................................... 620,489 124,140 744,629
</TABLE>
The results of the vote on Proposal 2 were as follows:
<TABLE>
<CAPTION>
TOTAL
VOTES VOTES SHARES
FOR AGAINST ABSTAIN VOTED
(000) (000) (000) (000)
--------- --------- --------- -----------
<S> <C> <C> <C> <C>
605,829 10,327 127,421 743,577
</TABLE>
The results of the vote on Proposals 3 through 20 are as follows:
<TABLE>
<CAPTION>
TOTAL TOTAL
SHARES SHARES
VOTED NOT VOTING
VOTES (PER (PER
VOTES AGAINST ABSTAIN PROPOSAL) PROPOSAL)
FOR (%) (%) (%) (000) (000)
-------- -------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C>
ACTIVE COUNTRY ALLOCATION
PORTFOLIO
Proposals: 3, 4, 6-14, 16,
17......................... 97% 1% 2% 11,331 --
Proposal: 5................. 89% 9% 2% 11,331 --
Proposal: 20................ 85% 13% 2% 11,331 --
ASIAN EQUITY PORTFOLIO
Proposals: 3, 4, 9, 17...... 97% 1% 2% 6,999 211
Proposals: 5, 8, 10, 11, 13,
14......................... 95% 2% 3% 6,999 211
Proposals: 6, 7, 12, 16,
20......................... 96% 1% 3% 6,999 211
BALANCED PORTFOLIO PORTFOLIO
Proposals: 3-14, 16, 17,
20......................... 100% -- -- 1,201 --
EMERGING GROWTH PORTFOLIO
Proposals: 3-14, 16, 17,
20......................... 98% -- 2% 4,710 --
EMERGING MARKETS PORTFOLIO
Proposals: 3, 5, 7, 8, 10,
11-15...................... 79% 10% 11% 30,255 811
Proposals: 4, 6, 9.......... 88% 1% 11% 30,255 811
Proposals: 16, 17........... 80% 9% 11% 30,255 811
Proposal: 20................ 80% 9% 11% 31,066 --
EMERGING MARKETS DEBT
PORTFOLIO
Proposals: 3, 5, 7, 8,
10-17, 20.................. 64% 33% 3% 12,524 --
Proposals: 4, 6, 9.......... 97% -- 3% 12,524 --
EQUITY GROWTH PORTFOLIO
Proposals: 3-7, 9, 11-13,
16, 17, 20................. 97% -- 3% 5,448 --
Proposals: 8, 10, 14........ 94% 3% 3% 5,448 --
EUROPEAN EQUITY PORTFOLIO
Proposals: 3-14, 16, 17,
20......................... 94% 1% 5% 1,039 --
FIXED INCOME PORTFOLIO
Proposals: 3-14, 16, 17,
20......................... 96% -- 4% 12,924 --
GLOBAL EQUITY PORTFOLIO
Proposals: 3-14, 16, 17,
20......................... 100% -- -- 3,910 --
GLOBAL FIXED INCOME PORTFOLIO
Proposals: 3, 4, 6-14, 20... 87% -- 13% 7,549 --
Proposals: 5, 15-17......... 86% 1% 13% 7,549 --
GOLD PORTFOLIO PORTFOLIO
Proposals: 3-17, 20......... 94% -- 6% 1,869 --
</TABLE>
- - --------------------------------------------------------------------------------
151
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONT.)
JUNE 30, 1995
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TOTAL TOTAL
SHARES SHARES
VOTED NOT VOTING
VOTES (PER (PER
VOTES AGAINST ABSTAIN PROPOSAL) PROPOSAL)
FOR (%) (%) (%) (000) (000)
-------- -------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C>
HIGH YIELD PORTFOLIO
Proposals: 3-7, 9, 11-13,
16, 17, 20................. 94% -- 6% 7,506 --
Proposals: 8, 10, 14........ 91% 3% 6% 7,506 --
INTERNATIONAL EQUITY PORTFOLIO
Proposals: 3, 5............. 89% 9% 2% 49,791 --
Proposals: 4, 6, 9.......... 95% 3% 2% 49,791 --
Proposals: 7, 16............ 93% 5% 2% 49,791 --
Proposals: 8, 10, 11, 14.... 90% 8% 2% 49,791 --
Proposals: 12, 13, 17, 20... 92% 6% 2% 49,791 --
INTERNATIONAL SMALL CAP
PORTFOLIO
Proposals: 3, 5, 7, 8, 10,
11, 14..................... 92% 4% 4% 6,913 29
Proposals: 4, 6, 9, 12, 13,
16, 17..................... 93% 3% 4% 6,913 29
Proposal: 20................ 93% 3% 4% 6,942 --
JAPANESE EQUITY PORTFOLIO
Proposals: 3-7, 9, 11-13,
16, 17, 20................. 94% -- 6% 2,965 --
Proposals: 8, 10, 14........ 92% 3% 5% 2,965 --
MONEY MARKET PORTFOLIO
Proposals: 3-14, 16-18,
20......................... 79% 2% 19% 388,882 --
MUNICIPAL MONEY MARKET
Proposals: 3-7, 9, 12, 13,
16, 17, 20................. 75% -- 25% 181,245 --
Proposals: 8, 10, 11, 14,
19......................... 74% 1% 25% 181,245 --
SMALL CAP VALUE EQUITY
PORTFOLIO
Proposals: 3-14, 16, 17,
20......................... 97% -- 3% 2,426 --
VALUE EQUITY PORTFOLIO
Proposals: 3-14, 16, 17,
20......................... 91% -- 9% 4,088 --
</TABLE>
On June 28, 1995, a special meeting of the stockholders of Morgan Stanley
Institutional Fund, Inc. (the "Fund") was held for the purpose of voting to
elect a Board of Directors (voted on by the shareholders of the Fund as a
whole).
The results are as follows:
<TABLE>
<CAPTION>
TOTAL
VOTES VOTES SHARES
FOR WITHHELD VOTED
(000) (000) (000)
--------- --------- -----------
<S> <C> <C> <C>
John D. Barrett II.............................................................. 748,645 2,701 751,346
Barton M. Biggs................................................................. 749,800 1,546 751,346
Gerard E. Jones................................................................. 749,800 1,546 751,346
Andrew McNally, IV.............................................................. 746,835 4,511 751,346
Warren J. Olsen................................................................. 749,766 1,580 751,346
Samuel T. Reeves................................................................ 749,847 1,499 751,346
Fergus Reid..................................................................... 749,097 2,249 751,346
Frederick O. Robertshaw......................................................... 747,361 3,985 751,346
Frederick B. Whittemore......................................................... 747,888 3,458 751,346
</TABLE>
- - --------------------------------------------------------------------------------
152
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
OFFICERS AND DIRECTORS
Barton M. Biggs
CHAIRMAN OF THE BOARD
Frederick B. Whittemore
DIRECTOR
Warren J. Olsen
DIRECTOR
John D. Barrett II
DIRECTOR
Gerard E. Jones
DIRECTOR
Andrew McNally, IV
DIRECTOR
Samuel T. Reeves
DIRECTOR
Fergus Reid
DIRECTOR
Frederick O. Robertshaw
DIRECTOR
James W. Grisham
VICE PRESIDENT
Harold J. Schaaff, Jr.
VICE PRESIDENT
Joseph P. Stadler
VICE PRESIDENT
Valerie Y. Lewis
SECRETARY
Karl Hartmann
ASSISTANT SECRETARY
James R. Rooney
TREASURER
Joanna M. Haigney
ASSISTANT TREASURER
INVESTMENT ADVISER AND ADMINISTRATOR
Morgan Stanley Asset Management Inc.
1221 Avenue of the Americas
New York, New York 10020
CUSTODIANS
The United States Trust Company of New York
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
- - --------------------------------------------------------------------------------
153
