<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.
ASIAN EQUITY PORTFOLIO
FIRST QUARTER REPORT
MARCH 31, 1996
<PAGE>
LETTER TO SHAREHOLDERS
- -------
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 Hong Kong, 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.
For the three month period ended March 31, 1996, the Portfolio had a total
return of 6.42% for the Class A shares and 6.04% for the Class B shares, as
compared to a total return of 9.17% for the Morgan Stanley Capital International
(MSCI) combined Far East Free ex-Japan Index. The average annual total return
for the twelve months ended March 31, 1996 and for the period from inception on
July 1, 1991 through March 31, 1996 was 16.81% and 22.19%, respectively, for the
Class A shares, as compared with 18.70% and 19.86%, respectively, for the Index.
PERFORMANCE COMPARED TO THE MORGAN STANLEY CAPITAL INTERNATIONAL (MSCI) COMBINED
FAR EAST FREE EX-JAPAN INDEX(1)
- ----------------------------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
---------------------------------------
ONE AVERAGE ANNUAL
YTD YEAR SINCE INCEPTION
--------- --------- -----------------
<S> <C> <C> <C>
PORTFOLIO--CLASS A................ 6.42% 16.81% 22.19%
PORTFOLIO--CLASS B(3)............. 6.04 N/A N/A
INDEX............................. 9.17 18.70 19.86
</TABLE>
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.
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 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.
PERFORMANCE
The Asian markets performed strongly during the first quarter of 1996, with the
benchmark MSCI combined Far East Free ex-Japan Index posting a 9.2% gain. Gains
were widespread throughout the region with the exception of Korea (-2.4%) and
Taiwan (-0.3%). The best performing markets, in U.S. dollar terms, were Malaysia
(+14.2%), Indonesia (+13.3%) and Hong Kong (+10.9%). They were followed by
Singapore (+7.7%), Philippines (+6.2%) and Thailand (+0.7%). Nearly the entire
gain during the quarter was made in January when expectations of falling global
interest rates and continued weak yen triggered waves of foreign portfolio
investments into Asia. Escalating political tensions between China and Taiwan
and a change in market expectations about interest rates in the latter half of
the quarter resulted in mild corrections in Asian stocks.
MARKET REVIEW
As the largest and most liquid Asian market, Hong Kong benefitted from the surge
of funds into Asia. The market was driven by the direction of U.S. interest
rates, Sino-Taiwanese relations and corporate earnings. Earnings announcements
during the quarter were generally in line with market expectations, while the
economy and the property market had shown signs of recovery. The latest land
auctions attracted strong interest from established developers and several
residential project launches also met with good responses.
In Singapore, investors were encouraged by a stronger than expected 1995 real
GDP growth of 8.9% and high liquidity in the financial system. Several new
transactions in the prime office sector during the first quarter reflected
higher rentals and capital values, while a swift reversal in sentiment resulted
in strong response to many new residential launches. Several land tenders in the
prime area also achieved record prices. As a result, property stocks were well
sought after by investors. Banks performed well initially but succumbed to
profit-taking later as concerns over slow earnings growth resurfaced. The marine
sector continued to underperform on the back of very tough industry operating
conditions.
The Malaysian market, which was shunned by most international funds last year,
saw a resurgence of foreign interest during the quarter. Better trade account
numbers coupled with resolutions on the tariff structures for Telekom and
Tenaga, the two major listed utilities, resulted in an
2
<PAGE>
improvement in market sentiment. A good crop of corporate results and active
retail participation also kept the market buoyant.
Thailand started off on a strong note in January, reaching a peak in early
February. The rally ended abruptly as regional markets underwent a correction.
The poor spate of earnings being reported for 1995 did not help sentiment and
confidence, while the slight rumblings on the political front prompted
speculation of further political turmoil in the Thai Cabinet.
Indonesia performed strongly on the back of a surge in the share price of
Telkom, which was heavily weighted in the Index. The Central Bank continued to
maintain a restrictive monetary policy to avoid a possible blowout in the
external accounts. GDP growth for 1996 is expected to slow down from the 8.2%
achieved last year while the current account deficit is forecast to be within
the targeted threshold of 4.0% of GDP.
In the Philippines, stock prices were buoyed by strong corporate earnings
announcements. A number of stocks reached their all-time highs during the rally,
notably Ayala Land.
The Taiwanese market continued to be plagued by cross-strait tensions during the
quarter. Domestic investors remained largely cautious as China conducted missile
tests near Taiwan ahead of Taiwan's first ever presidential election. Buying by
the Government's Stock Market Stabilization Fund helped to limit losses.
Shipping stocks performed particularly well as investors were hopeful for a
peaceful resolution of the China-Taiwan dispute that would pave the way for the
establishment of direct shipping links between Taiwan and the mainland. Banks
and finance stocks rose strongly as a result of speculative buying despite their
rich valuations.
Sentiment was poor in Korea as fears of a rapidly declining economy and
political uncertainties took their toll. Securities companies continued to
unload stocks in a bid to reduce their equity exposure, while local investment
trust companies raised cash to meet redemptions. A seemingly unstable North
Korean regime also caused some concerns among investors. Otherwise, the
fundamentals of the market remained sound. Slower corporate investment activity
led to lower interest rates, while export growth remained healthy despite the
weak yen.
OUTLOOK
Asia has started the year strongly after two years of underperformance relative
to the developed markets. On one hand, the Asian stock markets are no longer
over-owned by institutional investors and there are no speculative excesses. On
the other hand, stock prices in Asia have responded to several negative news
items in the recent past. These include the potential adverse impact on the
stability of the region arising from conflicts between China and Taiwan, the
risk of rising interest rates as well as earnings downgrades in certain markets.
These factors, together with continued robust earnings growth and modest
valuations, should combine to provide a strong platform for further stock price
advances.
In Hong Kong, expectations of higher interest rates in the U.S. and caution over
the Most-Favored-Nation (MFN) renewal issue could put pressure on the stock
market in the near term. On the positive side, the Chinese economy is poised for
a cyclical recovery this year. This will benefit the Hong Kong economy, lead to
stronger corporate earnings growth and possibly spur capital flows from the
mainland into Hong Kong. Singapore will continue to be underpinned by sound
economic fundamentals and domestic liquidity. In the case of Malaysia, Thailand,
Indonesia and the Philippines, while economic and interest rate risks tend to be
higher, their rate of change at the margin has turned positive.
We expect cross-strait tensions to ease after Taiwan's presidential election,
although we recognize the dispute is unlikely to be resolved completely in the
near term. Meanwhile, the Taiwanese stock market should regain part of its lost
ground given the depth of its recent decline. The Korean market is also looking
increasingly compelling after the recent sell-off. It is now one of the cheapest
in Asia with good earnings growth prospects.
Ean Wah Chin
PORTFOLIO MANAGER
April 1996
3
<PAGE>
INVESTMENTS (UNAUDITED)
- ----------
MARCH 31, 1996
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------- ---------
<C> <S> <C>
COMMON STOCKS (94.6%)
CHINA (1.1%)
979,440 China Merchants Shekou Port
Services, Class B $ 338
2,742,000 Harbin Power Equipment Co. Ltd.,
Class H 504
30,400 Jilin Chemical Co. Ltd. ADR 643
1,853,600 Jinqiao Export Processing, Class B 593
45,300 Shandong Huaneng Power Co., Ltd.
ADR 396
2,773,800 Shenzen North Jainshe Motorcycle
Co., Ltd., Class B 1,067
4,401,000 Yizheng Chemical Fibre Co., Class
H 1,138
---------
4,679
---------
HONG KONG (29.8%)
2,953,000 Cheung Kong Holdings Ltd. 20,808
896,500 China Light & Power Co., Ltd. 4,045
1,614,500 Citic Pacific Ltd. 6,262
2,472,000 Cosco Pacific Ltd. 1,950
8,446,000 C.P. Pokphand Co., Ltd. 4,013
6,432,000 Guangdong Investments Ltd. 4,075
611,500 Hong Kong Electric Holdings Ltd. 1,988
1,062,520 Hong Kong & Shanghai Bank Holdings
plc 15,935
4,867,400 Hong Kong Telecommunications Ltd. 9,723
7,014,000 Hopewell Holdings Ltd. 4,081
2,465,000 Hutchison Whampoa Ltd. 15,553
2,191,000 New World Development Co., Ltd. 10,198
3,008 New World Infrastructure Ltd. 6
1,152,100 Sun Hung Kai Properties Ltd. 10,315
1,404,060 Swire Pacific Ltd., Class A 12,344
1,256,000 Varitronix International Ltd. 2,306
661,000 Wharf Holdings Ltd. 2,495
---------
126,097
---------
INDIA (0.6%)
38,000 Grasim Industries Ltd. GDR 665
51,000 Hindalco Industries Ltd. GDR 1,887
---------
2,552
---------
<CAPTION>
VALUE
SHARES (000)
- --------------- ---------
<C> <S> <C>
INDONESIA (6.3%)
1,147,000 Astra International (Foreign) $ 1,643
294,000 Bank Bali (Foreign) 629
119,000 Bank International Indonesia
(Foreign) 502
1,176,500 Barito Pacific Timber (Foreign) 1,183
799,500 Bimantara Citra (Foreign) 975
604,826 Charoen Pokphand (Foreign) 1,209
110,500 Gudang Garam (Foreign) 1,368
193,100 Hanajaya Mandala Sampoerna
(Foreign) 2,017
330,000 Indocement Tunggal (Foreign) 1,196
46,000 Indofood Sukses Makmur (Foreign) 215
139,500 Indosat (Foreign) 479
351,600 Kalbe Farma (Foreign) 1,071
1,400,000 Ometraco (Foreign) 763
587,000 Semen Gresik (Foreign) 2,078
764,400 Sona Topas Tourism (Foreign) 254
277,333 Sorini Corp. (Foreign) 1,459
210,500 Suba Indah (Foreign) 185
4,828,000 Telekomunikasi Indonesia (Foreign) 7,537
833,800 United Tractors (Foreign) 1,676
---------
26,439
---------
KOREA (3.0%)
18,022 Chosun Brewery Co., Ltd. 611
53,900 Korea Electric Power (Foreign) 2,270
9,910 Korea Housing Bank 275
1,500 Korea Mobile Telecom (Foreign) 1,841
61,600 Pohang Iron & Steel Co., Ltd. ADR 1,494
23,099 Samsung Electronics (Foreign) 2,716
6,540 Samsung Electronics GDR 376
1,293 Samsung Electronics GDR (New) 74
9,390 Samsung Electronics RFD 1,104
717 Samsung Electronics 84
79,871 Shinhan Bank (Foreign) 1,908
---------
12,753
---------
MALAYSIA (20.3%)
227,800 AMMB Holdings Bhd. 3,016
96,000 Edaran Otomobil Nasional Bhd. 861
1,390,700 Genting Bhd. 12,588
321,000 Konsortium Perkapalan Bhd. 1,117
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------- ---------
<C> <S> <C>
MALAYSIA (CONTINUED)
352,000 Land & General Holdings Bhd. $ 932
375,000 Leader Universal Holdings Bhd. 1,067
357,000 Magnum Corp. Bhd. 573
1,131,500 Malayan Banking Bhd. 10,555
1,400,316 Malaysian International Shipping
Bhd. (Foreign) 3,957
1,000 Malaysian Resources Corp. Bhd. 2
1,142,000 Petronas Gas Bhd. 5,146
218,000 Public Bank Bhd. 603
3,325,000 Renong Bhd. 5,415
1,583,000 Resorts World Bhd. 9,010
762,000 Sime Darby Bhd. 2,108
942,000 TA Enterprise Bhd. 1,512
783,000 Tan Chong Motor Holdings Bhd. 1,195
264,000 Tan & Tan Development Bhd. 256
419,000 Technology Resources Industries
Bhd. 1,507
1,141,000 Telekom Malaysia Bhd. 10,508
1,888,000 Tenaga Nasional Bhd. 7,985
155,000 Time Engineering Bhd. 450
769,757 United Engineers Ltd. (Malaysia) 5,324
---------
85,687
---------
PHILIPPINES (6.0%)
1,571,500 Ayala Corp., Class B 2,281
1,373,425 Ayala Land, Inc., Class B 2,230
4,127,800 C&P Homes, Inc. 3,114
2,053,000 DMCI Holdings, Inc. 1,333
13,615,000 JG Summit Holding, Class B 4,732
462,750 Manila Electric Co., Class B 4,083
5,149,900 Petron Corp. 2,213
18,125 Philippine Long Distance Telephone
Co., ADR 965
15,430 Philippine Long Distance Telephone
Co., Class B 837
501,500 San Miguel Corp., Class B 1,686
6,907,000 SM Prime Holdings, Inc., Class B 2,058
---------
25,532
---------
SINGAPORE (13.9%)
477,080 City Developments Ltd. 4,236
2,170,000 Comfort Group Ltd. 2,004
1,063,000 DBS Land Ltd. 4,078
484,500 Development Bank of Singapore Ltd.
(Foreign) 5,954
178,560 Fraser & Neave Ltd. 2,017
837,000 Keppel Corp., Ltd. 7,611
406,000 Marco Polo Developments Ltd. 871
<CAPTION>
VALUE
SHARES (000)
- --------------- ---------
<C> <S> <C>
576,166 Oversea-Chinese Banking Corp.
(Foreign) $ 7,736
282,000 Sembawang Corp. 1,412
195,000 Singapore Airlines Ltd. (Foreign) 2,022
124,400 Singapore Press Holdings (Foreign) 2,483
1,824,000 Singapore Technologies Industrial
Corp. 4,250
834,000 Singapore Telecommunications Ltd. 2,050
518,000 Straits Steamship Land Ltd. 1,744
477,000 Straits Trading Co., Ltd. 1,254
712,000 Sunright Ltd. 754
599,200 United Overseas Bank Ltd.
(Foreign) 6,044
874,000 Wing Tai Holdings Ltd. 2,310
---------
58,830
---------
TAIWAN (1.7%)
806,000 Acer, Inc. 1,582
412,000 Advanced Semiconductor
Engineering, Inc. 891
942,000 Taiwan Semiconductor Manufacturing
Co. 2,591
905,000 United Micro Electronics Corp.,
Ltd. 2,024
---------
7,088
---------
THAILAND (11.9%)
120,000 Advanced Information Service PCL
(Foreign) 2,273
677,800 Bangkok Bank Ltd. (Foreign) 9,128
827,700 Finance One Co., Ltd. (Foreign) 6,196
266,600 Phatra Thanakit Co., Ltd.
(Foreign) 2,450
84,100 Shinawatra Computer Co., Ltd
(Foreign) 2,158
38,900 Siam Cement Co., Ltd. (Foreign) 2,003
541,000 Siam Commercial Bank (Foreign) 8,314
2,012,300 TelecomAsia Corp. PCL (Foreign) 5,685
816,570 Thai Farmers Bank, Ltd. (Foreign) 9,573
176,600 United Communications Industry
(Foreign) 2,420
---------
50,200
---------
TOTAL COMMON STOCKS (Cost $339,944) 399,857
---------
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
NO. OF VALUE
WARRANTS (000)
- --------------- ---------
<C> <S> <C>
WARRANTS (0.3%)
INDONESIA (0.0%)
150,000 Ometraco, expiring 7/12/00 $ 7
---------
SINGAPORE (0.0%)
428,125 Renong Bhd, expiring 2/18/97 --
126,750 Straits Steamship Land Ltd.,
expiring 12/20/00 177
---------
177
---------
THAILAND (0.3%)
202,800 National Finance & Securities Co.
Ltd., expiring 11/15/99 1,277
---------
TOTAL WARRANTS (Cost $895) 1,461
---------
TOTAL FOREIGN SECURITIES (94.9%) (Cost $340,839) 401,318
---------
<CAPTION>
AMOUNT
(000)
- ---------------
<C> <S> <C>
SHORT-TERM INVESTMENT (4.0%)
REPURCHASE AGREEMENT (4.0%)
$ 16,726 The Chase Manhattan Bank, N.A.,
5.15%, dated 3/29/96 due 4/01/96,
to be repurchased at $16,733,
collateralized by $16,810 United
States Treasury Notes, 6.875%,
due 2/28/97, valued at $17,062
(Cost $16,726) 16,726
---------
<CAPTION>
AMOUNT VALUE
(000) (000)
- --------------- ---------
<C> <S> <C>
FOREIGN CURRENCY (1.8%)
HKD 13,923 Hong Kong Dollar $ 1,800
IDR 3,822,104 Indonesian Rupiah 1,635
MYR 3,148 Malaysian Ringgit 1,244
PHP 12,004 Philippines Peso 458
SGD 3,186 Singapore Dollar 2,264
TWD 782 Taiwan Dollar 29
---------
TOTAL FOREIGN CURRENCY (Cost $7,425) 7,430
---------
TOTAL INVESTMENTS (100.7%) (Cost $364,990) 425,474
---------
OTHER ASSETS AND LIABILITIES (-0.7%)
Other Assets 4,061
Liabilities (6,897)
---------
(2,836)
---------
NET ASSETS (100%) $ 422,638
---------
---------
CLASS A SHARES:
Net Assets $410,666
Shares Issued and Outstanding ($0.001 par value)
(Authorized 500,000,000 shares) 19,815
Net Asset Value, Offering and Redemption Price
Per Share $20.73
---------
---------
CLASS B SHARES:
Net Assets $11,972
Shares Issued and Outstanding ($0.001 par value)
(Authorized 500,000,000 shares) 578
Net Asset Value, Offering and Redemption Price
Per Share $20.73
---------
---------
</TABLE>
- ----------------------------------
ADR -- American Depositary Receipt
GDR -- Global Depositary Receipt
RFD -- Ranked for Dividends
6
