<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
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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
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INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
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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.
GOLD PORTFOLIO
FIRST QUARTER REPORT
MARCH 31, 1996
<PAGE>
LETTER TO SHAREHOLDERS
- -------
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.
For the three month period ended March 31, 1996, the Portfolio had a total
return of 34.50% for the Class A Shares and 30.31% for the Class B Shares as
compared to a total return of 19.61% for the Philadelphia Gold and Silver Index.
The average annual total return for the twelve months ended March 31, 1996 and
for the period from inception on February 1, 1994 through March 31, 1996 was
46.46% and 16.59%, respectively for the Class A shares, as compared to 18.94%
and 2.60%, respectively for the Index.
PERFORMANCE COMPARED TO THE PHILADELPHIA GOLD AND SILVER INDEX(1)
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<TABLE>
<CAPTION>
TOTAL RETURNS(2)
-------------------------------------------
AVERAGE ANNUAL
YTD ONE YEAR SINCE INCEPTION
--------- --------- ---------------------
<S> <C> <C> <C>
PORTFOLIO--CLASS A.............. 34.50% 46.46% 16.59%
PORTFOLIO--CLASS B.............. 30.31 N/A N/A
INDEX........................... 19.61 18.94 2.60
</TABLE>
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.
3. The Portfolio began offering Class B shares on January 2, 1996.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
- ------------------------------
THE PERFORMANCE RESULTS PROVIDED ARE FOR INFORMATIONAL PURPOSES ONLY AND SHOULD
NOT BE CONSTRUED AS A GUARANTEE OF THE PORTFOLIO'S FUTURE PERFORMANCE. PAST
PERFORMANCE SHOWN IS NOT PREDICTIVE OF FUTURE PERFORMANCE. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY
BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. PLEASE SEE THE PROSPECTUS FOR A
DESCRIPTION OF CERTAIN RISK CONSIDERATIONS ASSOCIATED WITH INTERNATIONAL
INVESTING.
During the first quarter, the Portfolio benefited from strong performance in the
overall gold share market and large gains from Bre-X Minerals (BXM-TSE) and
Greenstone Resources (GRE-TSE). At quarter end, gold shares continued to hold
gains made in response to gold's January rise above $400, despite gold's
correction late in the quarter. In making portfolio allocations, we continue to
find value among selected Australian gold shares, in contrast to large
capitalization North American gold shares which remain overvalued.
MARKET REVIEW
Gold performed strongly in January, reaching $418.40. A noteworthy feature of
the rally was the return of the investor who has been largely absent since 1993.
With the return of speculation, Comex open interest reached record levels. The
combination of large speculative interests and gold prices hovering at the top
end of the 1993-1995 trading range proved too difficult for the gold market to
overcome. As a result, gold corrected a significant portion of its advance
during February and March.
On a fundamental basis, four memorable events stand out during the first
quarter.
JANUARY 31, BARRICK RESOURCES (ABX-NYSE/TSE) announced its intent to reduce the
scale of its forward hedging program by only hedging two years of production
instead of three. The announcement confirmed our long-standing view that high
levels of producer sales were unsustainable and could only provide a temporary
source of supply to meet the supply/demand deficit. Because of Barrick's role as
an industry trendsetter, most analysts concluded that other companies would
follow its lead in reducing levels of forward sales.
FEBRUARY 16. The South African rand plummeted, reaching a record low against
the dollar of 4.03 on February 21. The concurrent rise in the rand gold price
revived fears of renewed gold forward sales by South African mining farms.
Despite the influence of Barrick's adjusted hedging policy on North American
producers, high local interest rates continue to offer South African mining
firms higher forward gold prices. Further rand
2
<PAGE>
depreciation simply increases the attractiveness of the forward gold prices.
Rand weakness continued at the end of the quarter.
MARCH 8. February's unexpectedly strong employment report sent bonds plunging
and removed market expectations of further interest rate cuts by the Federal
Reserve. Prior to the report, forecasts of continued low real interest rates
helped favor gold as a currency alternative. Unless the economy were to rebound
so strongly that the Federal Reserve was perceived as "behind the inflation
curve," an environment of slightly higher interest rates would be a negative
macroeconomic factor against gold. Renewed economic weakness would revive the
low real interest rate scenario.
MARCH 27. Belgium's announced sale of 203 tonnes continued a trend of limited
central bank sales we have witnessed since 1993. Because of major G7 country
central banks' continued rejection of gold sales (Germany, Japan, United
States), we do not consider Belgium's actions a precursor of widespread central
bank sales. However, the sale did provide a temporary source of supply to the
market which undoubtedly prevented further gains during January's rally.
These four events underscore the tremendous amount of crosscurrents that the
gold price navigates in its effort to seek out fair value. Viewing these events
in perspective, little has altered the fundamental supply/demand deficit which
has underpinned gold since 1993. Although some crosscurrents are negative, it's
important to avoid getting lost in the details. For the first quarter, gold in
U.S. dollar terms returned 2.2%, in yen terms, 5.8%; in deutsche mark terms,
4.9%. Continued strength in gold across major currencies is a clear signal that
the gold market is faring well on a global basis.
Peter F. Palmedo
PORTFOLIO MANAGER
April 1996
3
<PAGE>
INVESTMENTS (UNAUDITED)
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MARCH 31, 1996
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ------------- ---------
<C> <S> <C>
COMMON STOCKS (85.1%)
AUSTRALIA (29.3%)
58,000 Acacia Resources Ltd. $ 139
50,000 Delta Gold N.L. 124
260,000 Gold Mines of Kalgoorlie Ltd. 282
185,000 Great Central Mines N.L. 526
373,000 Lihir Gold Ltd. 551
230,000 Newcrest Mining Ltd. 1,028
140,000 Plutonic Resources, Ltd. 788
105,000 Poseidon Gold Ltd. 283
275,000 Wiluna Mines Ltd. 262
---------
3,983
---------
CANADA (29.5%)
80,000 Bema Gold Corp. 290
10,100 Bre-X Minerals, Ltd. 1,087
206,000 Dakota Mining Corp. 425
25,000 Glamis Gold Ltd. 203
80,000 Greenstone Resources Ltd. 602
18,700 Placer Dome, Inc. 540
141,900 Royal Oak Mines, Inc. 594
31,000 TVX Gold, Inc. 279
---------
4,020
---------
SOUTH AFRICA (3.3%)
6,000 Driefontein Consolidated Ltd., ADR 95
14,000 Free State Consolidated Gold Mines
Ltd. ADR 133
4,200 Kloof Gold Mining Co., Ltd. ADR 54
17,500 Vaal Reefs Exploration & Mining
Co., Ltd. ADR 167
---------
449
---------
UNITED STATES (23.0%)
16,600 Ashanti Goldfields Co. 415
60,000 Gold Reserve Corp. 608
32,000 Homestake Mining Co. 620
41,000 Pegasus Gold, Inc. 600
17,000 Santa Fe Pacific Gold Corp. 272
29,000 Stillwater Mining Co. 616
---------
3,131
---------
TOTAL COMMON STOCKS (Cost $9,538) 11,583
---------
<CAPTION>
NO. OF VALUE
WARRANTS (000)
- ------------- ---------
<C> <S> <C>
WARRANTS (0.2%)
UNITED STATES (0.2%)
25,000 Gold Reserve Corp., expiring
6/15/96 (Cost $0) $ 27
---------
<CAPTION>
FACE
AMOUNT
(000)
- -------------
<C> <S> <C>
SHORT-TERM INVESTMENT (12.4%)
REPURCHASE AGREEMENT (12.4%)
$ 1,681 The Chase Manhattan Bank, N.A.,
5.15%, dated 3/29/96, due
4/01/96, to be repurchased at
$1,682, collateralized by $1,130
United States Treasury Bonds,
11.25%, due 2/15/15, valued at
$1,719
(Cost $1,681) 1,681
---------
FOREIGN CURRENCY (0.1%)
AUD 11 Australian Dollar (Cost $9) 9
---------
TOTAL INVESTMENTS (97.8%) (Cost $11,228) 13,300
---------
OTHER ASSETS AND LIABILITIES (2.2%)
Other Assets 710
Liabilities (404)
---------
306
---------
NET ASSETS (100%) $ 13,606
---------
---------
CLASS A SHARES:
Net Assets $13,382
Shares Issued and Outstanding ($0.001 par value)
(Authorized 500,000,000 shares) 1,164
Net Asset Value, Offering and Redemption
Price Per Share $11.50
---------
---------
CLASS B SHARES:
Net Assets $224
Shares Issued and Outstanding ($0.001 par value)
(Authorized 500,000,000 shares) 20
Net Asset Value, Offering and Redemption
Price Per Share $11.48
---------
---------
</TABLE>
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ADR -- American Depositary Receipt
4
