<PAGE>
------------------------------------------------------------------
DIRECTORS OFFICERS
Barton M. Biggs James W. Grisham
CHAIRMAN OF THE BOARD VICE PRESIDENT
Chairman and Director, Morgan Michael F. Klein
Stanley Asset Management Inc. and VICE PRESIDENT
Morgan Stanley Asset Management Harold J. Schaaff, Jr.
Limited; Managing Director, VICE PRESIDENT
Morgan Stanley & Co. Joseph P. Stadler
Incorporated; Director, Morgan VICE PRESIDENT
Stanley Group Inc. Valerie Y. Lewis
Warren J. Olsen SECRETARY
DIRECTOR AND PRESIDENT Karl O. Hartmann
Principal, Morgan Stanley Asset ASSISTANT SECRETARY
Management Inc. and Morgan James R. Rooney
Stanley & Co. Incorporated TREASURER
John D. Barrett II Joanna M. Haigney
Chairman and Director, ASSISTANT TREASURER
Barrett Associates, Inc.
Gerard E. Jones
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
------------------------------------------------------------------
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.
LATIN AMERICAN PORTFOLIO
FIRST QUARTER REPORT
MARCH 31, 1997
<PAGE>
LETTER TO SHAREHOLDERS
- -------
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 three months ended March 31, 1997, the Portfolio had a total return of
16.17% for the Class A shares and 16.09% for the Class B shares, as compared to
a total return of 15.18% for the Morgan Stanley Capital International (MSCI)
Emerging Markets Global Latin America Index. The average annual total return for
the year ended March 31, 1997 and for the period from inception on January 18,
1995 through March 31, 1997 was 48.69%, and 23.05%, respectively, for the Class
A shares, as compared to 33.33%, and 12.34%, respectively, for the Index.
PERFORMANCE COMPARED TO MORGAN STANLEY CAPITAL INTERNATIONAL (MSCI) EMERGING
MARKETS GLOBAL LATIN AMERICA INDEX(1)
- ----------------------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
---------------------------------------
ONE AVERAGE ANNUAL
YTD YEAR SINCE INCEPTION
--------- --------- -----------------
<S> <C> <C> <C>
PORTFOLIO--CLASS A................ 16.17% 48.69% 23.05%
PORTFOLIO--CLASS B(3)............. 16.09 48.24 49.83
INDEX............................. 15.18 33.33 12.34
</TABLE>
1. The MSCI Emerging Markets Global Latin America 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 (assumes dividends
are 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 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.
ARGENTINA
Argentina was one of the region's laggards, as a strong fourth quarter
performance translated into relatively rich valuations heading into the first
quarter. Further, as U.S. interest rate turbulence shook the region in March,
this particularly vulnerable market sold off the most.
Economically, the country is continuing its dramatic investment-led recovery
from the recession of 1995, and we are quite encouraged by the great strides the
economy has made in restructuring itself during the turmoil. An agricultural
boom is underway, investments in mining and infrastructure and energy are
accelerating, and nascent signs of a modest consumer recovery are beginning to
be felt.
BRAZIL
Brazil, once again, was one of the region's top performers. The market's major
catalyst was the first stage approval of President Cardoso's re-election bill
making its way through congress. This is a significant event, as it increases
the likelihood of his being president for another term through the end of the
decade. Further, advances were made in preparing mining giant CVRD for
privatization, expected in April/May of this year, and this further demonstrated
the government's seriousness about market reforms and privatization.
The trade balance continued to worsen, but the market was dominated by positive
events and didn't seem to care about the negative implications of a
deteriorating trade account. We are monitoring this closely, and expect to see
some action on the part of the government to at least slow the deteriorating
trend. Nevertheless, progress being made in the all-important telecommunications
and electric utility sectors is so dramatic that the stock market should
continue to advance in spite of the trade concerns. The government has
demonstrated a remarkable ability to enhance shareholder value in the sectors in
which it has controlling stakes in publicly listed companies, and this has been
the single most important engine propelling the stock market. We see no signs of
this trend abating.
2
<PAGE>
CHILE
Chile posted strong gains for the first time in many quarters. The region
benefitted from an oversold position coming into the quarter as well as a
surprisingly early interest cut by the monetary authorities. While valuations
are not terrifically compelling nor earnings growth especially robust, the
market is still being driven by expectations of a further loosening of monetary
policy. Our outlook on the market is the most constructive it has been in years,
and we expect it to continue performing well in the backdrop of a monetary
easing during the next few quarters.
COLOMBIA
Colombia was the region's leader, an event that was driven by the cheapest
valuation profile coming into the quarter and an unexpected tax imposed on fixed
income investment that led to increased investments in equities. The country
continues to be plagued by macro-political travails, as much-maligned President
Samper declared an economic state of emergency that was subsequently challenged
by congress. Nevertheless, there is selected progress being made at the
corporate level in terms of information disclosure and shareholder value
orientation, and we are targeting those opportunities in our Portfolio.
MEXICO
Mexico had somewhat of a spotty quarter, as no real sustained trend emerged
within the market. The biggest stock market event/surprise was the reemergence
of telecommunications giant Telmex as the leading bellwether for the market,
advancing roughly 20% on the quarter amidst the first stage of full-fledged
competition in its corporate history. Its strong showing masked a stock market
performance that was in fact weaker than it appeared. Adverse U.S. interest rate
moves caused market jitters later in the quarter, wiping out prior gains in
interest rate-sensitive sectors such as banking and construction. On the
political front, the three leading parties are gearing up their campaigns for
the important congressional and mayoral elections in mid-summer, and the outlook
as of this writing is unclear. While there could be some market choppiness
leading up to the elections, we do not expect material economic impact from the
outcome regardless of who emerges victorious.
PERU
Peru posted a very strong gain for the quarter, after a dismal showing in the
fourth quarter of 1996. While the hostage crisis persists, as of the date of
this letter, but has receded in visibility, the country appears to be gaining
momentum on the economic front. Interest rates are on the decline and the
all-important fishing and mining industries are accelerating.
VENEZUELA
Venezuela was easily the laggard of the region, after posting an extraordinary
gain in 1996. The market was beset by uncertainty over salary negotiations of
public sector employees and private company unions, as well as by concern that
the government might waver in its commitment to following through on free market
reforms begun last year. While we think that the aforementioned concerns have
been a bit overdone, we remain relatively neutral on the market and will await
clearer signals of government behavior before taking a more constructive
posture.
Robert L. Meyer
PORTFOLIO MANAGER
Andy Skov
PORTFOLIO MANAGER
April 1997
3
<PAGE>
INVESTMENTS (UNAUDITED)
- ----------
MARCH 31, 1997
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------- ---------
<C> <S> <C>
COMMON STOCKS (100.0%)
ARGENTINA (10.5%)
315,380 Acindar, Class B $ 631
139,977 Banco del Suquia 427
31,925 Cresud S.A. ADR 599
6,296 Disco S.A. ADR 205
15,160 IRSA GDR 565
22,512 Quilmes 227
10,365 Siderar ADR 288
169,096 Siderar, Class A 585
4,673 Telecom Argentina ADR 215
38,673 Telefonica Argentina ADR 1,136
39,510 YPF ADR 1,047
---------
5,925
---------
BRAZIL (45.0%)
103,975,006 Banco Bradesco PFD 859
11,847,000 Banco Nacional PFD 1
11,475 Bompreco GDR PFD 284
8,980 Brahma ADR 117
264,000 Brahma PFD 172
1,024,000 Brasmotor PFD 293
135,000 CELESC, Class B PFD 154
4,775 CELESC GDR 544
9,994 CEMIG ADR 413
1,042 CEMIG ADR (144A) 43
43,606,010 CEMIG PFD 1,795
18,250,000 Copel, Class B PFD 259
1,410,000 Coteminas PFD 564
2,801,316 CPFL PFD 333
3,890,900 CRT PFD 4,518
34,986 CVRD PFD 796
6,111,000 Eletrobras 2,527
41,010 Eletrobras ADR 851
1,535 Eletrobras, Class B ADR PFD 33
1,141,000 Eletrobras, Class B PFD 491
1,159,400 Itaubanco PFD 600
2,317,000 Lightpar 700
59,368,000 Lojas Arapua PFD 1,401
10,835 Lojas Arapua S.A. ADR 249
23,331,000 Lojas Renner PFD 1,223
7,443,000 Petrobras PFD 1,479
7,000 Souza Cruz 59
12,272,000 Telebras 1,237
25,465 Telebras ADR 2,607
7,769,000 Telebras PFD 804
---------
25,406
---------
<CAPTION>
VALUE
SHARES (000)
- --------------- ---------
<C> <S> <C>
CHILE (10.6%)
10,945 Andina ADR $ 406
16,471 Banco Santander S.A. ADR 276
5,030 Banco de A. Edwards S.A. ADR 106
70,995 CCU ADR 1,402
13,961 Chilectra S.A. ADR 883
7,540 Chilgener S.A. ADR 194
26,654 Endesa S.A. ADR 506
34,915 Enersis S.A. ADR 1,109
43,215 Santa Isabel ADR 1,118
---------
6,000
---------
COLOMBIA (3.5%)
1,926,163 Banco de Colombia 769
189,222 Bavaria 1,230
---------
1,999
---------
MEXICO (28.3%)
43,255 Apasco 294
128,365 Banacci, Class B 293
78,246 Banacci, Class L 159
20,229 Bancomer ADR 147
53,800 Bancomer, Class B 19
420,204 Banorte, Class B 437
1,140 Carso ADR 14
163,808 Carso, Class A1 962
15,820 Casa Autrey ADR 293
163,710 Cemex CPO 600
34,620 Cemex CPO ADR 261
14,965 Coca Cola Femsa ADR 539
11,301 Desc ADR 297
46,440 FEMSA ADR 205
721,575 FEMSA, Class B 3,197
10,830 Hylsamex S.A. GDR 309
36,790 ICA ADR 584
148,410 Interamericana 553
189,410 Maseca, Class B 196
17,300 Panamerican Beverages, Inc., Class
A 928
11,060 Sears de Mexico, Class B 18
55,380 Tamsa ADR 948
51,725 Televisa CPO GDR 1,287
83,717 Telmex, Class L ADR 3,223
32,440 Vitro S.A. ADR 239
---------
16,002
---------
PERU (0.7%)
16,570 Telefonica del Peru ADR 369
---------
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------- ---------
<C> <S> <C>
VENEZUELA (1.4%)
718,978 Electricidad de Caracas $ 779
---------
TOTAL COMMON STOCKS (Cost $51,590) 56,480
---------
<CAPTION>
FACE
AMOUNT
(000)
- ---------------
<C> <S> <C>
FOREIGN CURRENCY (0.1%)
ARP 1 Argentine Peso 1
BRL 22 Brazilian Real 20
COP 23,791 Colombian Peso 23
MXP 41 Mexican Peso 5
PSS 4 Peruvian Sol 2
VEB 7 Venezuelan Bolivar --
---------
TOTAL FOREIGN CURRENCY (Cost $51) 51
---------
TOTAL INVESTMENTS (100.1%) (Cost $51,641) 56,531
---------
OTHER ASSETS AND LIABILITIES (-0.1%)
Other Assets 2,814
Liabilities (2,871)
---------
(57)
---------
NET ASSETS (100%) $ 56,474
---------
---------
CLASS A:
NET ASSETS $54,544
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 4,148,434 outstanding $0.001 par
value shares (authorized 500,000,000 shares) $13.15
---------
---------
CLASS B:
NET ASSETS $1,930
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 147,015 outstanding $0.001 par value
shares (authorized 500,000,000 shares) $13.13
---------
---------
</TABLE>
- ----------------------------------
ADR -- American Depositary Receipt
GDR -- Global Depositary Receipt
CPO -- Ordinary Participating Certificates (no voting rights)
PFD -- Brazilian Preferred Stock (no voting rights)
5
