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<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
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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
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CUSTODIANS
The Chase Manhattan Bank
770 Broadway
New York, New York 10003
Morgan Stanley Trust Company
One Pierrepont Plaza
Brooklyn, New York 11210
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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.
TECHNOLOGY PORTFOLIO
FIRST QUARTER REPORT
MARCH 31, 1997
<PAGE>
LETTER TO SHAREHOLDERS
- -------
The investment objective of the Technology Portfolio is to achieve long-term
capital appreciation by investing primarily in equity securities of companies
expected to benefit from their involvement in technology and technology-related
industries. The focus of the Portfolio is to identify significant long-term
technology trends and to invest in those premier companies we believe are
positioned to materially gain from these trends. Stocks selected for the
Portfolio are also expected to meet comprehensive selection criteria. The
Portfolio may invest up to 35% of its total investments in securities of foreign
companies to participate sufficiently in the global technology market.
PERFORMANCE COMPARED TO THE S&P 500 INDEX AND THE LIPPER SCIENCE AND TECHNOLOGY
FUNDS INDEX(1)
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<TABLE>
<CAPTION>
TOTAL RETURNS(2)
----------------------
SINCE
YTD INCEPTION(3)
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<S> <C> <C>
PORTFOLIO-CLASS A.............................. -1.49% 5.50%
PORTFOLIO-CLASS B.............................. -1.59 5.40
S&P 500 INDEX.................................. 2.69 11.81
LIPPER SCIENCE & TECHNOLOGY.................... -9.26 -1.59
</TABLE>
1. The S&P 500 Index is an unmanaged index of common stocks. The Lipper Science
and Technology Funds Index is a composite index of mutual funds that invest
at least 65% of their assets in science and technology 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 commenced operations on September 16, 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.
For the three months ended March 31, 1997 the Portfolio had a total return of
- -1.49% for the Class A shares and -1.59% for the Class B shares, as compared to
a total return of 2.69% for the S&P 500 Index and -9.26% for the Lipper Science
& Technology Funds Index. For the period from inception on September 16, 1996
through March 31, 1997 the Portfolio had a total return of 5.50% for the Class A
shares and 5.40% for the Class B shares, as compared to a total return of 11.81%
for the S&P 500 Index, and a total return of -1.59% for the Lipper Science &
Technology Funds Index.
We were pleased with the Portfolio's outperformance of the Lipper Science &
Technology Index for the quarter as we managed to reduce the impact of the
technology downturn on the Portfolio while maintaining a portfolio positioned to
participate in an upturn. The volatility during the quarter not only kept us on
our toes but also presented attractive investment opportunities.
The outperformance for the quarter was due to an elimination of most networking
stocks before they declined, an overweight position in semiconductor stocks, and
a focus on larger capitalization, lower valuation stocks with more defensive
risk/reward profiles. Near the end of the quarter we reinvested in many of the
highest quality networking and other tech stocks which had been oversold during
the period.
We look forward to the remainder of 1997. Overall fundamentals for technology
continue to be favorable and the healthy U.S. economy provides a supportive
backdrop. Some high profile companies will continue to face obstacles but it is
our job to identify opportunities as these events unfold. Our goal remains the
same; identify the premier sectors and companies which we believe present
compelling investment opportunities and attempt to avoid those that may hit
potholes.
Christopher R. Blair
PORTFOLIO MANAGER
April 1997
2
<PAGE>
INVESTMENTS (UNAUDITED)
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MARCH 31, 1997
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------- -------
<C> <S> <C>
COMMON STOCK (95.3%)
COMMUNICATION EQUIPMENT (22.0%)
COMPUTER INTEGRATED SYSTEMS DESIGN (6.2%)
3,200 3Com Corp. $ 105
2,000 Ascend Communications, Inc. 81
3,000 Cisco Systems, Inc. 144
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330
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COMPUTER PERIPHERAL EQUIPMENT (1.3%)
1,800 Quantum Corp. 70
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ELECTRONIC COMPONENTS & ACCESSORIES (1.9%)
1,013 Molex, Inc., Class A 35
2,500 Read-Rite Corp. 63
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98
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ELECTRONIC PARTS & EQUIPMENT (4.5%)
3,900 Motorola, Inc. 235
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TELEPHONE & TELEGRAPH APPARATUS (8.1%)
1,800 ADC Telecommunications, Inc. 48
2,800 Advanced Fibre Communications 90
500 Alcatel Alsthom ADR 12
500 Cascade Communications Corp. 13
1,500 Lucent Technologies Inc. 79
800 Northern Telecommunications Ltd. 52
2,900 Telefonaktiebolaget LM Ericsson
ADR 98
1,000 Tellabs, Inc. 36
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428
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TOTAL COMMUNICATION EQUIPMENT 1,161
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COMMUNICATION SERVICES (2.9%)
COMPUTER PROCESSING & DATA PREPARATION (0.7%)
700 First Data Corp. 24
400 First USA Paymentech, Inc. 10
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34
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DIRECT MAIL ADVERTISING SERVICE (0.6%)
1,650 Tele-Communications, Inc., Class A 33
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RADIO/TELEPHONE COMMUNICATIONS (0.7%)
6,000 Mobile Telecommunications
Technologies Corp. 38
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TELEPHONE COMMUNICATIONS (0.9%)
2,000 Teleport Communications Group,
Inc., Class A 46
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TOTAL COMMUNICATION SERVICES 151
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<CAPTION>
VALUE
SHARES (000)
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<C> <S> <C>
OTHER TECHNOLOGY (51.7%)
BUSINESS SERVICES (9.8%)
1,900 Automatic Data Processing, Inc. $ 80
1,950 BISYS Group, Inc. 61
700 CBT Group plc ADR 35
2,000 Concord EFS, Inc. 38
1,700 ONTRACK Data International, Inc. 25
1,000 Paychex, Inc. 41
1,370 Sterling Commerce, Inc. 40
2,100 SunGard Data Systems, Inc. 91
2,400 USCS International, Inc. 44
3,000 Whittman-Hart, Inc. 64
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519
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ELECTRONIC COMPUTERS (2.4%)
1,500 Dell Computer Corp. 101
1,500 Sequent Computer System, Inc. 23
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124
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MOTION PICTURE & VIDEO TAPE PRODUCTION (0.7%)
1,200 News Corp., Ltd. ADR 22
200 The Walt Disney Co. 15
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37
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PERSONAL SERVICE (3.0%)
2,500 America Online, Inc. 106
2,350 CUC International, Inc. 53
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159
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SEMICONDUCTORS & RELATED SERVICES (34.5%)
2,640 Altera Corp. 114
1,700 ANADIGICS, Inc. 46
4,700 Analog Devices, Inc. 106
1,500 Applied Materials, Inc. 70
1,900 Cypress Semiconductor Corp. 24
1,500 Fusion Systems Corp. 36
2,600 Integrated Device Technology, Inc. 26
2,300 Intel Corp. 320
1,300 KLA Instruments Corp. 47
1,300 Lattice Semiconductor Corp. 59
5,017 Linear Technology Corp. 222
2,500 LSI Logic Corp. 87
1,000 Maxim Integrated Products, Inc. 48
1,400 Micron Technology, Inc. 57
2,800 National Semiconductor 77
1,300 Semtech Corp. 26
1,000 Sierra Semiconductor Corp. 16
800 Teradyne, Inc. 23
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<CAPTION>
VALUE
SHARES (000)
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<C> <S> <C>
OTHER TECHNOLOGY (CONTINUED)
2,400 Texas Instruments, Inc. $ 180
3,800 Transwitch Corp. 17
4,450 Xilinx, Inc. 217
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1,818
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SURGICAL & MEDICAL INSTRUMENTS & APPARATUS (1.3%)
1,100 Boston Scientific Corp. 68
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TOTAL OTHER TECHNOLOGY 2,725
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SOFTWARE (18.0%)
PREPACKAGED SOFTWARE (18.0%)
2,500 Avant! Corp. 68
1,000 BAAN Company 45
400 BMC Software, Inc. 18
2,600 Citrix Systems, Inc. 34
100 Compuware Corp. 6
2,500 Forecross Corp. 38
1,200 I2 Technologies, Inc. 40
3,400 Microsoft Corp. 312
4,500 Oracle System, Corp. 174
1,800 Peoplesoft, Inc. 72
5,000 Proginet Corp. 17
1,300 Symantec Corp. 18
2,400 Transaction Systems Architects,
Inc., Class A 66
2,100 Vantive Corp. 43
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TOTAL SOFTWARE 951
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TOYS (0.7%)
1,900 Galoob Toys, Inc. 35
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TOTAL COMMON STOCKS (Cost $5,090) 5,023
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<CAPTION>
NO. OF
CONTRACTS
- ---------------
<C> <S> <C>
PURCHASED OPTION (0.0%)
TELEPHONE & TELEGRAPH APPARATUS (0.0%)
1,500 Cascade Communications Corp.,
expiring 5/16/19, strike price
U.S.$35.00 (Cost $2) 1
-------
<CAPTION>
VALUE
(000)
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<C> <S> <C>
TOTAL INVESTMENTS (95.3%) (Cost $5,092) $ 5,024
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OTHER ASSETS AND LIABILITIES (4.7%)
Other Assets 663
Liabilities (417)
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246
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NET ASSETS (100%) $ 5,270
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CLASS A:
NET ASSETS $4,102
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 388,920 outstanding $0.001 par value
shares (authorized 500,000,000 shares) $10.55
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-------
CLASS B:
NET ASSETS $1,168
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 110,821 outstanding $0.001 par value
shares (authorized 500,000,000 shares) $10.54
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</TABLE>
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ADR -- American Depositary Receipt
4
