<PAGE>
- --------------------------------------------------
OFFICERS AND DIRECTORS
Barton M. Biggs James W. Grisham
CHAIRMAN OF THE BOARD VICE PRESIDENT
Frederick B. Whittemore Michael F. Klein
VICE-CHAIRMAN OF THE VICE PRESIDENT
BOARD Harold J. Schaaff, Jr.
Warren J. Olsen VICE PRESIDENT
PRESIDENT AND DIRECTOR Joseph P. Stadler
John D. Barrett II VICE PRESIDENT
DIRECTOR Valerie Y. Lewis
Gerard E. Jones SECRETARY
DIRECTOR Karl O. Hartmann
Andrew McNally, IV ASSISTANT SECRETARY
DIRECTOR James R. Rooney
Samuel T. Reeves TREASURER
DIRECTOR Joanna M. Haigney
Fergus Reid ASSISTANT TREASURER
DIRECTOR
Frederick O. Robertshaw
DIRECTOR
- --------------------------------------------------
INVESTMENT ADVISER AND ADMINISTRATOR
Morgan Stanley Asset Management Inc.
1221 Avenue of the Americas
New York, New York 10020
- --------------------------------------------------
DISTRIBUTOR
Morgan Stanley & Co. Incorporated
1251 Avenue of the Americas
New York, New York 10020
- ---------------------------------------------
CUSTODIANS
The Chase Manhattan Bank, N.A.
770 Broadway
New York, New York 10003
Morgan Stanley Trust Company
One Pierrepont Plaza
Brooklyn, New York 11210
- --------------------------------------------------
LEGAL COUNSEL
Morgan, Lewis & Bockius LLP
2000 One Logan Square
Philadelphia, Pennsylvania 19103
- --------------------------------------------------
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
- --------------------------------------------------
For current performance, current net asset value, or for assistance with your
account, please contact the Fund at (800) 548-7786. This report is authorized
for distribution only when preceded or accompanied by prospectuses of the Morgan
Stanley Institutional Fund, Inc.
[LOGO] MORGAN STANLEY
INSTITUTIONAL FUND, INC.
P.O. Box 2798
Boston, MA 02208-2798
[LOGO] MORGAN STANLEY
INSTITUTIONAL FUND, INC.
GLOBAL EQUITY PORTFOLIO
FIRST QUARTER REPORT
MARCH 31, 1996
<PAGE>
LETTER TO SHAREHOLDERS
- -------
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.
For the three month period ended March 31, 1996, the Portfolio had a total
return of 7.83% for the Class A shares and 7.31% for the Class B shares, as
compared to a total return of 4.07% for the Morgan Stanley Capital International
(MSCI) World Index. The average annual total return for the twelve months ended
March 31, 1996 and for the period from inception on July 15, 1992 through March
31, 1996 was 23.87% and 19.29%, respectively for the Class A shares, as compared
to 20.02% and 13.43%, respectively for the Index.
PERFORMANCE COMPARED TO THE MORGAN STANLEY CAPITAL INTERNATIONAL (MSCI) WORLD
INDEX(1)
- ----------------------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
-----------------------------------------
ONE AVERAGE ANNUAL
YTD YEAR SINCE INCEPTION
----- --------- -----------------
<S> <C> <C> <C>
PORTFOLIO--CLASS A................. 7.83% 23.87% 19.29%
PORTFOLIO--CLASS B(3).............. 7.31 N/A N/A
INDEX.............................. 4.07 20.02 13.43
</TABLE>
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.
3. The Portfolio began offering Class B shares on January 2, 1996.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
- ------------------------------
THE COUNTRY SPECIFIC 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 Portfolio's outperformance over the quarter was due to strong relative
return in the U.S., Switzerland, and Japan, due primarily to stock selection.
Particularly pleasing was the recovery in Egghead, the U.S. software reseller
which appreciated 66% in value over the quarter, announcement of the
Ciba-Geigy-Sandoz merger which helped to increase the former's share price by
42% and Waban, the U.S. discount club and home improvement store operator which
increased 40%. A number of other stocks registered 20% plus gains.
Record mutual fund inflows, encouraged by the cut in the Federal Funds rate to
5.25% at the end of January was again a key driver in the MSCI USA Index rise of
5.6% during the first quarter. Sentiment was on the one hand helped by continued
merger activity and a mild pick-up in retail sales, although investors are
increasingly wary of growth scares demonstrated by February's bond market
sell-off after the largest monthly jobs increase in twelve years. Nonetheless,
first quarter GDP should again be weak (after 0.5% growth in Q4 1995) given
January's weather related stoppages and the Government shutdown, a weak consumer
(year-over-year installment debt up on average 30%) and a marked slow-down in
corporate profits and capital spending. While populist "worker backlash" themes
have increased in prominence, the inflation outlook remains subdued as price
deflation in technology continues to offset modestly rising labor costs.
In continental Europe, recent indicators suggest that the economic recovery
there is fragile, with both Germany and France looking less likely to achieve
the strict Maastricht convergence criteria on time, although the prospect of
further monetary easing bodes well for future growth. In the U.K., takeover
speculation and a drop in interest rates contributed to a negligible rise in the
MSCI UK Index over the quarter. In Japan, signs are emerging that the worst of
the economic woes are over, with business confidence improving against a
backdrop of stimulative fiscal and monetary policies and the weakening yen.
Recognition of the extent of bad debts among the
2
<PAGE>
banks is now widespread although an acceptable political resolution to this
problem has not yet been forthcoming. The MSCI Japan Index rose 0.35% in U.S.
dollar terms and 3.9% in local currency terms during the quarter.
Despite recent strength in certain commodities we subscribe to a view of subdued
inflation in the foreseeable future and the view that the mid-cycle inventory
correction will continue through the second quarter. European consumption should
recover in the second half of the year indicating that the global economy should
grow quite strongly in 1997. Having suffered in 1995 from sensitivity to levels
of European activity, the Portfolio should benefit in 1996 if such a scenario
does crystalize. Complacency in world equity markets does however remain
worryingly high.
The Portfolio remains about market weight in the U.S., overweight continental
Europe and underweight in Japan. Despite an improving investment climate in
Japan, our underweight stance is unlikely to change significantly, given that we
continue to search for companies that are cheap globally in terms of either
price/ cash flow or price/book value. Furthermore, Japan cannot forever continue
to allow an easy monetary policy alongside a loose fiscal policy when it's
government deficit is running close to 8% of GNP.
Frances Campion
PORTFOLIO MANAGER
April 1996
3
<PAGE>
INVESTMENTS (UNAUDITED)
- ----------
MARCH 31, 1996
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------- ---------
<C> <S> <C>
COMMON STOCKS (98.2%)
AUSTRALIA (1.4%)
50,000 Brambles Industries Ltd. $ 660
104,800 Coles Myer Ltd. 357
---------
1,017
---------
CANADA (0.4%)
22,900 Hudson's Bay Co. 294
---------
FRANCE (4.4%)
10,300 Banque Nationale de Paris 403
2,100 Bongrain S.A. 1,118
12,000 Credit Lyonnaise CDI 505
9,266 Elf Aquitaine 629
11,965 Valeo S.A. 636
---------
3,291
---------
GERMANY (6.8%)
3,000 BASF AG 809
3,822 Bayer AG 1,295
2,500 Karstadt AG 940
3,000 Mannesmann AG 1,096
2,764 Sinn AG 460
2,225 Varta AG 404
260 Volkswagen AG 91
---------
5,095
---------
IRELAND (3.3%)
757,742 Anglo Irish Bank Corp. plc 692
470,000 Avonmore Foods plc, Class A 1,013
229,312 Green Property plc 812
---------
2,517
---------
ITALY (2.6%)
500,000 Stet Di Risp (NCS) 995
700,000 Telecom Italia S.p.A. Di Risp
(NCS) 989
---------
1,984
---------
JAPAN (11.5%)
160 East Japan Railway Co. 823
65,000 Fuji Photo Film Ltd. 1,860
24,000 Hitachi Ltd. 233
110,000 Kao Corp. 1,368
162,750 Nichido Fire & Marine Insurance
Co. 1,225
11,000 Sony Corp. 657
100,000 Sumitomo Rubber Industries 839
5,000 TDK Corp. 258
40,000 Toyo Seikan Kaisha Ltd. 1,410
---------
8,673
---------
<CAPTION>
VALUE
SHARES (000)
- --------------- ---------
<C> <S> <C>
NETHERLANDS (6.1%)
23,106 ABN Amro Holdings N.V. $ 1,149
2,101 Hollandsche Beton Groep N.V. 352
16,159 Internationale Nederlanden Groep
N.V. 1,174
24,000 Koninklijke Van Ommeren N.V. 831
15,160 Nedlloyd Groep N.V. 317
20,000 Philips Electronics N.V. 727
---------
4,550
---------
SINGAPORE (0.9%)
220,000 Jardine Strategic Holdings, Inc. 695
---------
SPAIN (3.9%)
59,500 Iberdrola S.A. 549
16,000 Repsol S.A. 603
112,300 Telefonica de Espana S.A. 1,782
---------
2,934
---------
SWEDEN (0.6%)
16,600 Skandia Forsakrings AB 366
7,700 Sparbanken Sverige AB, Class A 86
---------
452
---------
SWITZERLAND (7.1%)
500 Ascom Holdings AG (Bearer) 559
430 Bobst AG (Bearer) 708
1,400 Ciba-Geigy AG (Registered) 1,751
1,400 Forbo Holding AG (Registered) 571
1,400 Magazine Globus (Participating
Certificates) 744
900 Schweizerische
Industrie-Gesellschaft Holdings
(Registered) 998
---------
5,331
---------
UNITED KINGDOM (6.9%)
28,500 Calor Group plc 114
298,700 Christian Salvesen plc 1,167
100,000 John Mowlem & Co. plc 131
150,000 Kwik Save Group plc 1,076
280,000 Matthews (Bernard) plc 496
653,333 Pentos plc --
66,800 Reckitt & Colman plc 679
73,902 Rolls-Royce plc 243
46,400 Unilever plc 864
132,000 WPP Group plc 403
---------
5,173
---------
UNITED STATES (42.3%)
89,000 Addington Resources, Inc. 1,224
18,000 Aluminum Company of America 1,127
15,400 AMR Corp. 1,378
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------- ---------
<C> <S> <C>
UNITED STATES (CONTINUED)
32,100 Bank of New York Co., Inc. $ 1,653
30,500 Beazer Homes USA, Inc. 534
128,000 Cadiz Land Co., Inc. 800
22,000 Cadiz Land Co., Inc. (Restricted
Shares) 138
108,000 Comsat Corp. 2,525
40,000 Cray Research, Inc. 1,165
80,000 Data General Corp. 1,170
126,500 Egghead, Inc. 1,352
50,000 Enhance Financial Services Group,
Inc. 1,381
38,000 Finova Group, Inc. 2,076
2,000 General Motors Corp. 107
129,200 GenRad, Inc. 1,647
16,000 Georgia Pacific Corp. 1,110
22,100 Houghton Mifflin Co. 975
24,300 Lukens, Inc. 604
13,000 MBIA, Inc. 975
61,400 MCI Communications Corp. 1,857
14,300 Mellon Bank Corp. 788
31,300 Nexthealth, Inc. 102
22,600 Penncorp Financial Group, Inc. 712
18,600 Philip Morris Cos., Inc. 1,632
12,000 Prime Retail, Inc. 138
11,750 Reebok International Ltd 324
13,100 Tecumseh Products Co., Class A 771
8,500 United Asset Management, Inc. 394
27,000 UST Corp. 361
55,000 Waban, Inc. 1,444
157,000 WorldCorp, Inc. 1,393
---------
31,857
---------
TOTAL COMMON STOCKS (Cost $62,614) 73,863
---------
PREFERRED STOCKS (1.0%)
GERMANY (1.0%)
3,000 Volkswagen AG (Cost $647) 770
---------
CONVERTIBLE PREFERRED SECURITY (0.0%)
SINGAPORE (0.0%)
21,000 Jardine Strategic Holdings, Inc.,
IDR, 7.50%, 5/07/97, (Cost $21) 24
---------
TOTAL FOREIGN & U.S. SECURITIES (99.2%)
(Cost $63,282) 74,657
---------
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- --------------- ---------
<C> <S> <C>
SHORT-TERM INVESTMENT (0.2%)
REPURCHASE AGREEMENT (0.2%)
$ 139 The Chase Manhattan Bank, N.A.,
5.15%, dated 3/29/96, due
4/01/96, to be repurchased at
$139, collateralized by $95
United States Treasury Bonds,
11.25%, due 2/15/15, valued at
$145 (Cost $139) $ 139
---------
FOREIGN CURRENCY (0.0%)
GBP 2 British Pound (Cost $3) 3
---------
TOTAL INVESTMENTS (99.4%) (Cost $63,424) 74,799
---------
OTHER ASSETS AND LIABILITIES (0.6%)
Other Assets 5,150
Liabilities (4,691)
---------
459
---------
NET ASSETS (100%) $75,258
---------
---------
CLASS A SHARES:
Net Assets $73,602
Shares Issued and Outstanding ($0.001 par value)
(Authorized 500,000,000 shares) 4,770
Net Asset Value, Offering and Redemption Price
Per Share $15.43
---------
---------
CLASS B SHARES:
Net Assets $1,656
Shares Issued and Outstanding ($0.001 par value)
(Authorized 500,000,000 shares) 107
Net Asset Value, Offering and Redemption Price
Per Share $15.41
---------
---------
</TABLE>
- ----------------------------------
CDI -- Certificate of Investment
IDR -- International Depositary Receipt
NCS -- Non Convertible Shares
5
