<PAGE>
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<TABLE>
<S> <C>
DIRECTORS OFFICERS
Barton M. Biggs James W. Grisham
CHAIRMAN OF THE BOARD VICE PRESIDENT
Chairman and Director, Morgan Stanley Michael F. Klein
Asset Management Inc. and Morgan Stanley VICE PRESIDENT
Asset Management Limited; Managing Harold J. Schaaff,
Director, Morgan Stanley & Co. Jr.
Incorporated; Director, Morgan Stanley VICE PRESIDENT
Group Inc. Joseph P. Stadler
Warren J. Olsen VICE PRESIDENT
DIRECTOR AND PRESIDENT Valerie Y. Lewis
Principal, Morgan Stanley Asset SECRETARY
Management Inc. and Morgan Stanley & Co. Karl O. Hartmann
Incorporated ASSISTANT SECRETARY
John D. Barrett II James R. Rooney
Chairman and Director, TREASURER
Barrett Associates, Inc. Joanna M. Haigney
Gerard E. Jones ASSISTANT TREASURER
Partner, Richards & O'Neil LLP
Andrew McNally IV
Chairman and Chief Executive Officer, Rand
McNally
Samuel T. Reeves
Chairman of the Board and CEO, Pinacle
L.L.C.
Fergus Reid
Chairman and Chief Executive Officer,
LumeLite Corporation
Frederick O. Robertshaw
Of Counsel, Bryan, Cave LLP
</TABLE>
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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
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 FIXED INCOME PORTFOLIO
FIRST QUARTER REPORT
MARCH 31, 1997
<PAGE>
LETTER TO SHAREHOLDERS
- -------
The Global Fixed Income Portfolio aims to produce an attractive real rate of
return by investing in fixed income securities issued by U.S. and foreign
issuers including governments, agencies, supranational entities and corporations
with varying maturities in various currencies.
For the three months ended March 31, 1997, the Portfolio had a total return of
- -3.72% for the Class A shares and -3.81% for the Class B shares as compared to a
total return of -3.90% for the J.P. Morgan Traded Global Bond Index (the
"Index"). The average annual total return for the one year and five-year periods
ended March 31, 1997
PERFORMANCE COMPARED TO THE J.P. MORGAN TRADED GLOBAL BOND INDEX(1)
- ----------------------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
------------------------------------------------
AVERAGE
AVERAGE ANNUAL
ONE ANNUAL SINCE
YTD YEAR FIVE YEARS INCEPTION
--------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
PORTFOLIO--CLASS A.......... -3.72% 3.87% 6.97% 7.44%
PORTFOLIO--CLASS B(3)....... -3.81 3.74 NA 1.66
INDEX....................... -3.90 2.16 8.01 8.69
</TABLE>
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.
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 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. YIELDS WILL FLUCTUATE AS MARKET
CONDITIONS CHANGE.
and for the period from inception on May 1, 1991 through March 31, 1997 was
3.87%, 6.97% and 7.44%, respectively, for the Class A shares as compared to
2.16%, 8.01% and 8.69%, respectively, for the Index. As of March 31, 1997, the
Portfolio had an SEC 30-day yield of 5.10% for the Class A shares and 4.97% for
the Class B shares.
Global bond markets generated poor returns during the first quarter. Low bond
market returns in local currency terms were compounded by a sharp appreciation
of the U.S. dollar. Fixed income returns ranged from 2.2% in Japan to negative
1.5% in Italy while currency returns ranged from -0.94% against the Swedish
krona to -0.8% against the Canadian dollar. It was a good quarter to be invested
in bond markets outside the U.S. but it was not profitable to own foreign
currencies. Overall the global bond market returned -3.9% in U.S. dollar terms.
Following a directionless start to the year, U.S. Treasuries rallied as
investors appeared to dismiss Greenspan's December warning of over-exuberance in
the equity market. However, the Fed Chairman's hawkish speech to Congress at his
Humphrey-Hawkins testimony in mid-February left little doubt about the direction
of U.S. monetary policy. He emphasized the need for pre-emptive action to quell
incipient inflationary pressures. Yields rose steadily, facilitating a calm
market reaction to the announcement of a 25 basis point rise in the Federal
funds rate in late March. The general view was that this was probably the first
in a series of tightenings but that much less aggressive action would be
necessary than in 1994/95. Over the quarter 10-year yields rose 48 basis points
and U.S. bonds returned -0.7%. Canadian bonds outperformed their U.S.
counterparts marginally, returning -0.4% in local currency terms while
Australian bonds performed worse than U.S. bonds, returning -0.75% for the
quarter.
Japanese bonds continued to defy their critics (their yields are the lowest in
the world by far) and surprise investors with their good performance. They
returned
2
<PAGE>
2.2% for the quarter, a truly outstanding result considering their yields are
sub 2.5%. Mediocre economic performance, very low short term interest rates and
confidence that the central bank was not going to raise rates for the
foreseeable future propelled the market higher. Concerns about the weakness of
the stock market and possible bank failures further endorsed the safe haven
status of the bond market.
Core European bond markets nicely outperformed U.S. Treasuries although returns
were not high in absolute terms. For example, Germany returned 1% for the
quarter which was better than Deutsche mark cash but underperformed U.S. dollar
cash. In Germany, increasing evidence of an economic upturn saw investors
discard any lingering expectations of a final Bundesbank easing. Despite this
stronger growth, there was increasing skepticism about Germany's ability to meet
the deficit criteria for monetary union. This brought the whole viability of the
monetary union timetable into question and divergence rather than convergence
became the theme within the high yielding markets (Italy, Spain, Sweden returned
- -1.5%, -0.1%, and -0.6%, respectively). Domestic developments in Italy and
Sweden were also unfavorable. Italy's long awaited mini budget was poorly
received while in Sweden, there was concern that policy would shift to a less
restrictive stance. U.K. gilts performed in line with core Europe, providing a
safe haven for investors from the uncertainties swirling around monetary union.
They were unfazed by the announcement of a general election for May where the
long serving Conservative party is expected to be bounced from office.
The dominant theme in the foreign exchange market was the sudden and swift
appreciation of the U.S. dollar. It appreciated against all currencies, rising
by 7.6% against the Deutsche mark and 6.3% against the Japanese yen. The
principal reason behind the dollar's ascent was the asymmetric monetary policy
stances of central banks. While the Fed's tightening was justified by the strong
economic data coming from the U.S. economy, the same set of data in Europe and
Japan did not justify a commensurate reaction by their central banks. As long as
the data remains strong in the U.S. and the Fed continues to tighten, the dollar
is likely to remain strong.
J. David Germany
PORTFOLIO MANAGER
Michael B. Kushma
PORTFOLIO MANAGER
Paul F. O'Brien
PORTFOLIO MANAGER
Robert M. Smith
PORTFOLIO MANAGER
April 1997
3
<PAGE>
INVESTMENTS (UNAUDITED)
- ----------
MARCH 31, 1997
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- --------------- ---------
<C> <S> <C>
FIXED INCOME SECURITIES (81.2%)
AUSTRALIAN DOLLAR (1.8%)
GOVERNMENT BOND (1.8%)
AUD 2,400 Government of Australia 7.50%, 7/15/05 $ 1,833
---------
BRITISH POUND (9.2%)
EUROBOND (0.7%)
GBP 370 Conversion 9.00%, 7/12/11 673
---------
GOVERNMENT BONDS (8.5%)
1,400 United Kingdom Treasury Gilt 7.00%, 11/06/01 2,271
2,300 United Kingdom Treasury Gilt 8.50%, 12/07/05 3,990
1,300 United Kingdom Treasury Gilt 8.50%, 7/16/07 2,263
---------
8,524
---------
9,197
---------
CANADIAN DOLLAR (3.1%)
GOVERNMENT BONDS (3.1%)
CAD 2,900 Government of Canada 7.50%, 3/01/01 2,218
950 Government of Canada 9.75%, 6/01/21 877
---------
3,095
---------
DANISH KRONE (1.8%)
GOVERNMENT BONDS (1.8%)
DKK 6,100 Kingdom of Denmark 8.00%, 5/15/03 1,056
4,600 Kingdom of Denmark 8.00%, 3/15/06 787
---------
1,843
---------
DEUTSCHE MARK (13.2%)
EUROBOND (4.9%)
DEM 7,700 Landeskreditbank Baden-Wuerttemberg Financial 6.625%,
8/20/03 4,902
---------
GOVERNMENT BONDS (8.3%)
1,900 Deutschland Republic 7.125%, 12/20/02 1,250
5,850 German Unity Bond 8.00%, 1/21/02 3,966
2,000 Government of Germany 6.25%, 1/04/24 1,139
2,900 Treuhandanstalt 7.50%, 9/09/04 1,941
---------
8,296
---------
13,198
---------
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- --------------- ---------
<C> <S> <C>
IRISH PUNT (2.0%)
GOVERNMENT BOND (2.0%)
IEP 1,250 Irish Government 6.25%, 4/01/99 $ 1,989
---------
ITALIAN LIRA (4.9%)
GOVERNMENT BONDS (4.9%)
ITL 4,140,000 BTPS 10.50%, 7/15/00 2,684
700,000 BTPS 10.00%, 8/01/03 462
1,500,000 BTPS 9.50%, 1/01/05 972
1,200,000 BTPS 9.50%, 2/01/06 784
---------
4,902
---------
JAPANESE YEN (8.8%)
EUROBONDS (8.8%)
JPY 120,000 European Investment Bank 6.625%, 3/15/00 1,126
60,000 Export Import Bank of Japan 4.375%, 10/01/03 554
290,000 International Bank for Reconstruction & Development
4.50%, 6/20/00 2,593
130,000 International Bank for Reconstruction & Development
4.75%, 12/20/04 1,239
200,000 Japan Development Bank 5.00%, 10/01/99 1,776
145,000 Republic of Austria 6.25%, 10/16/03 1,476
---------
8,764
---------
SWEDISH KRONA (8.2%)
GOVERNMENT BONDS (8.2%)
SEK 19,300 Swedish Government 13.00%, 6/15/01 3,217
13,000 Swedish Government 10.25%, 5/05/03 2,037
23,500 Swedish Government 6.00%, 2/09/05 2,938
---------
8,192
---------
UNITED STATES DOLLAR (28.2%)
CORPORATE BONDS AND NOTES (6.7%)
U.S.$ 750 Asset Securitization Corp., CMO, 7.21%, 10/13/26 748
981 Asset Securitization Corp., CMO, 7.10%, 8/13/29 971
500 BankAmerica 7.70%, 12/31/26 464
150 First Chicago, 7.75%, 12/01/26 139
500 First Chicago, 7.95%, 12/01/26 477
385 Goldman Sachs Group 6.25%, 2/01/03 366
869 LB Commercial Conduit Mortgage Trust (Floating Rate),
CMO, 7.14%, 8/25/04 849
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- --------------- ---------
<C> <S> <C>
CORPORATE BONDS AND NOTES (CONTINUED)
U.S.$ 400 Liberty Mutual 7.875%, 10/15/26 $ 381
300 Lumbermens Mutual Casualty Co., Series AI, 9.15%,
7/01/26 318
2,000 UCFC, CMO, Series 1995-C1, Class A3, 6.775%, 9/10/17 1,967
---------
6,680
---------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (20.2%)
FEDERAL NATIONAL MORTGAGE ASSOCIATION (10.1%)
U.S.$ 486 6.00%, 5/01/03 465
7,488 6.00%, 9/01/03 7,167
2,649 6.50%, 1/01/26 2,461
---------
10,093
---------
U.S. TREASURY BOND (4.5%)
4,165 8.125%, 8/15/19 4,567
---------
U.S. TREASURY NOTES (5.6%)
3,815 5.125%, 11/30/98 3,741
1,800 7.25%, 5/15/04 1,835
---------
5,576
---------
20,236
---------
YANKEE BONDS (1.3%)
U.S.$ 765 Hydro-Quebec 7.50%, 4/01/16 740
540 Industrial Finance Corp., 6.875%, 4/01/03 520
---------
1,260
---------
28,176
---------
TOTAL FIXED INCOME SECURITIES (81.2%)
(Cost $84,433) 81,189
---------
FACE
AMOUNT VALUE
(000) (000)
- --------------- ---------
SHORT-TERM INVESTMENTS (10.4%)
JAPANESE YEN (3.3%)
TIME DEPOSIT (3.3%)
JPY 402,210 Japanese Time Deposit 0.36%, 4/01/97 $ 3,253
---------
SPANISH PESETA (7.1%)
TIME DEPOSIT (7.1%)
ESP 1,007,768 Spanish Time Deposit 5.72%, 4/01/97 7,133
---------
TOTAL SHORT-TERM INVESTMENTS (Cost $10,322) 10,386
---------
FOREIGN CURRENCY (0.0%)
ESP 1,836 Spanish Peseta (Cost $13) 13
---------
TOTAL INVESTMENTS (91.6%) (Cost $94,768) 91,588
---------
OTHER ASSETS AND LIABILITIES (8.4%)
Other Assets 53,820
Liabilities (45,423)
---------
8,397
---------
NET ASSETS (100%) $ 99,985
---------
---------
CLASS A:
NET ASSETS $ 99,332
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 9,132,593 outstanding $0.001
par value shares (authorized 500,000,000 shares)
$10.88
---------
---------
CLASS B:
NET ASSETS $653
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 60,188 outstanding $0.001
par value shares (authorized 500,000,000 shares)
$10.86
---------
---------
</TABLE>
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CMO -- Collateralized Mortgage Obligation
5
