<PAGE>
------------------------------------------------------------------
<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>
------------------------------------------------------------------
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.
EQUITY GROWTH PORTFOLIO
FIRST QUARTER REPORT
MARCH 31, 1997
<PAGE>
LETTER TO SHAREHOLDERS
- -------
The Equity Growth Portfolio employs a growth-oriented investment strategy
seeking long-term capital appreciation. The Portfolio seeks to accomplish its
objective by investing primarily in equities of medium and large capitalization
companies exhibiting sustainable earnings growth.
For the three months ended March 31, 1997, the Portfolio had a total return of
1.67% for the Class A shares and 1.61% for the Class B shares, as compared to a
total return of 2.69% for the S&P 500 Index. The average annual total return for
the one year and five-year periods ended March 31, 1997 and for the period from
inception on April 2, 1991 through March 31, 1997 was 22.03%, 18.07% and 16.62%,
respectively, for the Class A shares, as compared to 19.84%, 16.41% and 15.67%,
respectively, for the Index.
PERFORMANCE COMPARED TO THE S&P 500 INDEX(1)
- ----------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE AVERAGE
ANNUAL ANNUAL
ONE FIVE SINCE
YTD YEAR YEARS INCEPTION
----- ----------- ----------- -----------
<S> <C> <C> <C> <C>
PORTFOLIO--CLASS A......... 1.67% 22.03% 18.07% 16.62%
PORTFOLIO--CLASS B(3)...... 1.61 21.66 NA 25.02
INDEX...................... 2.69 19.84 16.41 15.67
</TABLE>
1. The S&P 500 Index is an unmanaged index of common stocks.
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.
During the first quarter of 1997 the Portfolio performed well against its peer
group, gaining 1.54% versus -0.34% for the Lipper Growth Index, but lagged the
S&P 500 Index which rose 2.69%.
At this juncture we believe the stage is set for a powerful rotation away from
the large, multinational stable growth stocks that have led the U.S. market
since early 1994. The primary beneficiaries of this rotation will be selected
secondary, domestic growth stocks. This includes small to mid-capitalization
growth stocks as well as some larger company stocks that have lagged but where
fundamentals have remained strong. Our viewpoint is based not on a "top-down"
sector call, which we never try to make, but on company by company "bottom-up"
research analysis.
To paraphrase Warren Buffett, the see-through earnings growth of a portfolio
will, over time, drive the growth in value of that portfolio. We believe, like
Buffett, that a stock becomes more attractive when it grows more slowly than the
company's earnings, assuming growth and financial fundamentals remain strong. In
early 1994, with Coca Cola stock having been flat for nearly three years against
a backdrop of 18% compounded annual EPS growth, Buffett added to his holding,
stating that fears of private label competition and slowing international volume
growth were overdone and that the stock's underperformance of the company made
for a compelling investment. The same could have been said for many other large
multinational, stable growth stocks, such as Merck, Proctor and Gamble, Gillette
and Disney. The stocks of these companies had done very little for 2-3 years
despite double-digit annual earnings gains, as investors feared that growth had
slowed and placed their bets on cyclicals, technology, financials and small caps
in general. Practically from the moment that Buffett added to his Coke holdings,
these large cap stable growth stocks have led the powerful U.S. bull market.
Coke and Merck, for example, have both tripled in the three years since
Buffett's investment.
2
<PAGE>
For the first two of these three years, smaller and higher beta growth stocks
moved up along with their larger, stable growth counterparts. But the smaller,
riskier growth stocks topped out in May of 1996 and have been brutalized
relative to the overall market since then. The decoupling of the performance of
"high fliers" and "low fliers" can be explained by the confluence of several
factors:
1. High beta stock valuations had moved up in the wake of the powerful bull
market in U.S. stocks. High investor expectations allowed many small growth
companies to go public or issue equity, setting up potential disappointments
later.
2. Momentum investing, a strategy which stresses rapid earnings growth and
ignores valuation, had become very popular after several strong performance
years. Beginning in early 1997, though, after almost a year of severe
underperformance, mutual fund redemptions have caused selling of already
depressed stocks.
3. Indexing has exploded after the S&P 500 Index outperformed over 80% of active
U.S. stock managers in 1994, 1995 and again in 1996. This clearly benefited the
stocks of the largest U.S. companies. Interestingly, over the last twelve months
as stable growth stocks have dramatically outperformed higher beta growth
issues, the dollar has been strengthening. This is clearly a negative for
multinationals but a non-event for many smaller high growth companies.
In the next few months, investors will begin to pay much more attention to 1998
earnings estimates. Then, in the last few months of 1997, Wall Street analysts
will begin to publish 1999 projections. The stock market is characterized by the
struggle between fear and greed. As the second quarter of 1997 begins, fear is
clearly prevailing in the over-the-counter and secondary stock sectors. It is a
buyers' market. The IPO calendar has dried up noticeably. Negative surprises are
devastating stocks and positive surprises are having only a modest impact. Our
strong belief is that over the next few months, as investors focus on 1998 and
begin to look out to 1999, greed will reassert itself. In particular, the high
beta stocks that got hit hard but which have strong growth fundamentals should
begin to again outperform.
Our biggest holding at March 31, and a perfect example of the former "high
fliers" that we think will take off again, is HFS. HFS is a global consumer
services company. The company is the largest franchiser of hotels (eight brands)
and residential real-estate offices (three brands), owns Avis (second largest
rental car system), owns RCI (largest provider of vacation timeshare exchanges
worldwide) and has a merger agreement with PHH Corp.( a larger mortgage &
relocation service provider). The stock has recently underperformed earnings
substantially, down approximately 31% from its high and up only 37% from the
beginning of 1996 although earnings per share rose 84% last year and are
expected to grow over 100% this year.
The stock has weakened in the wake of a difficult market for higher p/e stocks
and, most recently, a negative article concerning chairman Henry Silverman's
compensation. (He owns 12 million shares and options, and gets 2 million options
per year through the year 2000). He had never sold a share before the third
quarter of 1996 and is now selling about 150,000 per quarter. We believe this is
"non-news" and because it has been accompanied by robust fundamentals and rising
earnings estimates we have added significantly to our position in the stock.
With free cash flow expected to be $630 million in 1997 and $800 million in
1998, and an underleveraged balance sheet, HFS is well positioned to continue
its acquisition strategy if management finds good businesses that mesh with
their franchise systems and strategy. In short, we believe we have in HFS a
classic decoupling of stock price performance and business fundamentals. We
expect positive news from the company concerning PHH (acquisition expected to
close April 30), Value Rent-a-Car (acquisition expected to close in second
quarter) or other business initiatives to drive earnings estimates higher and
ultimately be the catalyst to jump-start the stock. Other large high beta
holdings include Home Depot, Boston Chicken, Gtech, Clear Channel Communications
and Einstein Brothers Bagels.
3
<PAGE>
Two groups in which we have had a major commitment over the past few years are
tobacco and financials. Both have performed extremely well and we have cut our
positions significantly, taking profits. For example, at the peak last year, in
April, we had a 10% position in Philip Morris and an 18% weighting in tobacco, a
huge overweight that contributed strongly to our outperformance last year. We
took profits in tobacco beginning in late 1996 but especially in February of
this year, as the stocks surged on positive business trends and talk of a
possible global settlement of litigation claims. Philip Morris and RJR Nabisco
peaked at $139 and $39, respectively, but closed out the quarter at $114 and
$32. Our weighting at March 31 was approximately 3.5% in Philip Morris and
almost 7% in tobacco in general. We still like this group but have cut back for
several reasons. First, there have been modest downward earnings revisions at
Philip Morris due to currency, at RJR due to weak international cigarette
shipments and at Loews due to softness at CNA Financial. These downward
revisions followed well over one year of upward revisions. Second, the
litigation calendar for the remainder of 1997 looks pretty heavy. And third, as
already mentioned, we see a much better risk/reward in high beta growth. We
expect to increase our weighting in tobacco at some point, believing that
long-term fundamentals are great and that legal and political issues will
ultimately fade.
Financial stocks made up almost one-third of our Portfolio in 1996. They had
corrected sharply amid fears of higher rates and higher consumer debt
delinquencies, but earnings estimates were rising and growth fundamentals were
strong. As the stocks surged in late 1996, we cut back our position and as of
March 31 had approximately 15% of the Portfolio in these stocks. Lately,
financials have come under pressure in response to higher interest rates. We
hope to increase our weighting over the next few months, particularly in banks.
Contrary to popular perception, selected banks and other financial institutions
are not sensitive to interest rates. Rising rates are bad for all stocks, but
the implication of calling a stock "interest sensitive" is that when rates go
up, earnings estimates are vulnerable. This is simply not the case for a long
list of financial services companies. And besides being less sensitive to rising
rates than perceived, many financial companies are buying back stock very
aggressively. This makes the group defensive and a beneficiary of a weak stock
market brought on by rising rates. Wells Fargo, for example, which at March 31
was our largest financial holding at about 3% of the Portfolio, is buying 1-1.5
million shares per quarter on a base of 92 million.
We maintain a modest weighting in both "growth cyclicals" and technology. In
growth cyclicals, our major bets are United Technologies, Boeing/McDonnell
Douglas, Allied Signal and U.S. Industries. United Technologies has been one of
our largest holdings for several years. It continues to be a compelling
investment despite the stock's strength as management executes a quiet, GE-type
restructuring: improving margins, buying back stock and driving global growth in
its various businesses. Boeing announced the acquisition of McDonnell Douglas
late in 1996. We owned both stocks at the time, and we have continued to hold
our position. Our feeling is that this is a powerful combination which creates a
juggernaut that will lead the world in commercial aircraft. In addition, the
company is experiencing a huge cyclical upturn, is a strong defense and space
company, and throws off a tremendous amount of free cash flow.
Kurt A. Feuerman
PORTFOLIO MANAGER
Margaret K. Johnson
PORTFOLIO MANAGER
April 1997
4
<PAGE>
INVESTMENTS (UNAUDITED)
- ----------
MARCH 31, 1997
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------- -------
<C> <S> <C>
COMMON STOCKS (96.2%)
CAPITAL GOODS-CONSTRUCTION (6.7%)
AEROSPACE & DEFENSE (6.4%)
36,487 Boeing Co. $ 3,599
126,300 Loral Space & Communications 1,784
52,200 McDonnell Douglas Corp. 3,184
39,200 Rockwell International Corp. 2,543
53,900 Textron, Inc. 5,659
155,500 United Technologies Corp. 11,701
-------
28,470
-------
ENVIRONMENTAL CONTROLS (0.3%)
44,300 WMX Technologies, Inc. 1,357
-------
TOTAL CAPITAL GOODS-CONSTRUCTION 29,827
-------
CONSUMER-CYCLICAL (35.4%)
AUTOMOTIVE (1.8%)
59,100 Ford Motor Co. 1,854
56,600 Goodyear Tire & Rubber Co. 2,957
90,900 O'Reilly Automotive, Inc. 3,341
-------
8,152
-------
BROADCAST-RADIO & TELEVISION (3.3%)
229,900 Clear Channel Communications, Inc. 9,857
100,350 Heftel Broadcasting Corp., Class A 4,666
-------
14,523
-------
ENTERTAINMENT & LEISURE (3.0%)
401,400 GTECH Holdings Corp. 12,092
80,100 WMS Industries, Inc. 1,502
-------
13,594
-------
FOOD SERVICE (7.7%)
512,000 Boston Chicken, Inc. 15,616
56,100 CKE Restaurants, Inc. 1,241
283,000 Cracker Barrel Old Country Store,
Inc. 7,393
249,600 Einstein/Noah Bagel Corp. 6,271
71,500 Lone Star Steakhouse & Saloon,
Inc. 1,636
26,300 McDonald's Corp. 1,243
38,700 Rainforest Cafe, Inc. 764
-------
34,164
-------
GAMING & LODGING (10.7%)
20,700 Doubletree Corp. 735
729,500 HFS, Inc. 42,949
252,600 International Game Technology 4,073
-------
47,757
-------
<CAPTION>
VALUE
SHARES (000)
- --------------- -------
<C> <S> <C>
PHOTOGRAPHY & OPTICAL (0.8%)
46,000 Eastman Kodak Co. $ 3,490
-------
PUBLISHING (2.9%)
25,700 Gannett Co., Inc. 2,207
51,000 Hollinger International, Inc.,
Class A 465
901,000 K-III Communications Corp. 10,136
-------
12,808
-------
RETAIL-FOODS (1.1%)
89,900 Dominick's Supermarkets, Inc. 2,068
331,900 Food Lion Inc., Class B 2,666
-------
4,734
-------
RETAIL-GENERAL (4.1%)
68,400 COMPUSA Inc. 1,077
240,000 Home Depot, Inc. 12,840
207,400 PetSmart, Inc. 4,200
-------
18,117
-------
TOTAL CONSUMER-CYCLICAL 157,339
-------
CONSUMER-STAPLES (14.8%)
BEVERAGES AND TOBACCO (2.7%)
34,800 Coca Cola Enterprises, Inc. 1,997
307,600 RJR Nabisco Holdings Corp. 9,920
-------
11,917
-------
DRUGS (0.5%)
26,900 Pfizer, Inc. 2,263
-------
FOOD (3.0%)
263,000 Campbell Soup Co. 12,197
23,900 Interstate Bakeries Corp. 1,129
-------
13,326
-------
HEALTH CARE SUPPLIES & SERVICES (0.5%)
63,250 Columbia/HCA Healthcare Corp. 2,127
-------
HOSPITAL SUPPLIES & SERVICES (3.2%)
108,000 Aetna, Inc. 9,275
107,500 Becton Dickinson & Co. 4,838
-------
14,113
-------
PERSONAL CARE PRODUCTS (0.6%)
36,800 Gillette Co. 2,673
-------
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------- -------
<C> <S> <C>
CONSUMER-STAPLES (CONTINUED)
CIGARETTES (4.3%)
154,900 Consolidated Cigar Holdings Inc. $ 3,659
136,600 Philip Morris Cos., Inc. 15,589
-------
19,248
-------
TOTAL CONSUMER-STAPLES 65,667
-------
DIVERSIFIED (9.4%)
62,000 Allied Signal, Inc. 4,418
363 Berkshire Hathaway, Inc., Class A 13,141
153,200 Hillenbrand Industries 6,109
57,300 Loews Corp. 5,093
207,300 Service Corp. International 6,167
96,200 U.S. Industries, Inc. 3,391
215,200 Viad Corp. 3,443
-------
TOTAL DIVERSIFIED 41,762
-------
ENERGY (2.9%)
COAL, GAS, & OIL (2.2%)
33,800 Amoco Corp. 2,928
39,100 Diamond Offshore Drilling, Inc. 2,678
36,200 Halliburton Co. 2,453
19,100 Schlumberger, Ltd. 2,048
-------
10,107
-------
UTILITIES (0.7%)
53,600 AES Corp. 3,002
-------
TOTAL ENERGY 13,109
-------
FINANCE (14.3%)
BANKING (4.7%)
56,768 Chase Manhattan Corp. 5,315
30,400 Citicorp 3,291
43,533 Wells Fargo & Co. 12,369
-------
20,975
-------
FINANCIAL SERVICES (4.5%)
80,800 American Express Co. 4,838
9,900 CIGNA Corp. 1,447
19,800 Capital One Financial Corp. 738
55,350 Franklin Resources, Inc. 2,823
43,600 Merrill Lynch & Co. 3,744
77,800 Nationwide Financial Services,
Inc., Class A 2,003
36,200 Ocwen Financial Corp. 1,050
38,300 Student Loan Marketing Association 3,648
-------
20,291
-------
INSURANCE (4.9%)
138,800 Ace Ltd. 8,883
266,000 CMAC Investment Corp. 8,878
27,200 Equitable Of Iowa Cos. 1,360
<CAPTION>
VALUE
SHARES (000)
- --------------- -------
<C> <S> <C>
59,300 Exel Ltd. $ 2,505
-------
21,626
-------
REAL ESTATE (0.2%)
39,300 Insignia Financial Group, Inc.,
Class A 707
-------
TOTAL FINANCE 63,599
-------
MATERIALS (0.5%)
CHEMICALS (0.5%)
63,400 Monsanto Co. 2,425
-------
TOTAL MATERIALS 2,425
-------
SERVICES (1.8%)
PROFESSIONAL SERVICES (0.9%)
64,475 CUC International, Inc. 1,451
31,100 Catalina Marketing Corp. 1,263
59,200 Synder Communications, Inc. 1,391
-------
4,105
-------
TRANSPORTATION (0.9%)
45,900 AMR Corp. 3,787
-------
TOTAL SERVICES 7,892
-------
TECHNOLOGY (10.4%)
COMPUTERS (1.1%)
32,600 Compaq Computer Corp. 2,498
21,600 Dell Computer Corp. 1,461
46,700 Larscom Inc., Class A 391
14,000 Sun Microsystems, Inc. 404
-------
4,754
-------
ELECTRONICS (4.1%)
61,000 Applied Materials, Inc. 2,829
23,100 Cisco Systems, Inc. 1,112
58,100 Intel Corp. 8,083
45,400 Linear Technology Corp. 2,009
40,900 Motorola, Inc. 2,469
23,800 Texas Instruments, Inc. 1,782
-------
18,284
-------
OFFICE EQUIPMENT (1.4%)
46,900 International Business Machines
Corp. 6,443
-------
SOFTWARE SERVICES (2.9%)
42,800 Adobe Systems, Inc. 1,717
69,400 Microsoft Corp. 6,363
20,500 Netscape Communications Corp. 616
63,300 Oracle System, Corp. 2,441
53,100 Sterling Commerce, Inc. 1,540
-------
12,677
-------
TELECOMMUNICATIONS (0.9%)
52,200 AirTouch Communications, Inc. 1,201
29,100 Ascend Communications, Inc. 1,186
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------- -------
<C> <S> <C>
TECHNOLOGY (CONTINUED)
73,100 WorldCom, Inc. $ 1,608
-------
3,995
-------
TOTAL TECHNOLOGY 46,153
-------
TOTAL COMMON STOCKS (Cost $411,897) 427,773
-------
<CAPTION>
FACE
AMOUNT
(000)
- ---------------
<C> <S> <C>
SHORT-TERM INVESTMENT (4.5%)
REPURCHASE AGREEMENT (4.5%)
$ 20,115 Chase Securities, Inc. 6.00%,
dated 3/31/97, due 4/1/97, to be
repurchased at $20,118,
collateralized by U.S. Treasury
Bonds, 7.5%, due 11/15/16, valued
at $20,546 (Cost $20,115) 20,115
-------
TOTAL INVESTMENTS (100.7%) (Cost $432,012) 447,888
-------
OTHER ASSETS AND LIABILITIES (-0.7%)
Other Assets 881
Liabilities (3,970)
-------
(3,089)
-------
NET ASSETS (100%) $444,799
-------
-------
CLASS A:
NET ASSETS $440,433
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 28,996,378 outstanding $0.001 par
value shares (authorized 500,000,000 shares) $15.19
-------
-------
CLASS B:
$4,366
NET ASSETS
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 288,001 outstanding $0.001 par value
shares (authorized 500,000,000 shares) $15.16
-------
-------
</TABLE>
7
