<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 VICE PRESIDENT
Stanley Asset Management Limited; Harold J. Schaaff,
Managing 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 & Karl O. Hartmann
Co. 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
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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.
ASIAN EQUITY PORTFOLIO
FIRST QUARTER REPORT
MARCH 31, 1997
<PAGE>
LETTER TO SHAREHOLDERS
- -------
The investment objective of the Asian Equity Portfolio is to seek long-term
capital appreciation by investing primarily in equity securities which are
traded on recognized exchanges of Hong Kong, Singapore, Malaysia, Thailand,
Indonesia and the Philippines. The Portfolio may also invest in equity
securities traded on markets in Taiwan, South Korea, India, Pakistan, Sri Lanka
and other Asian developing markets which are open for foreign investment. The
Portfolio does not intend to invest in securities which are principally traded
in Japan or in companies organized under the laws of Japan.
PERFORMANCE COMPARED TO THE MORGAN STANLEY CAPITAL INTERNATIONAL (MSCI) COMBINED
FAR EAST FREE EX-JAPAN INDEX(1)
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<TABLE>
<CAPTION>
TOTAL RETURNS(2)
----------------------------------- AVERAGE
AVERAGE ANNUAL
ONE ANNUAL SINCE
YTD YEAR FIVE YEAR INCEPTION
--------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
PORTFOLIO-CLASS A...... -4.65% -7.27% 15.98% 16.47%
PORTFOLIO-CLASS B(3)... -4.70 -7.50 NA -1.54
INDEX.................. -4.20 -4.19 14.30 15.28
</TABLE>
1. The MSCI Combined Far East Free ex-Japan Index is an unmanaged index of
common stocks and includes China Free, Indonesia, Hong Kong, Malaysia, the
Philippines, Korea, Singapore, Taiwan and Thailand (includes dividends).
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 AS MEASURED BY THE MSCI
COMBINED FAR EAST FREE EX-JAPAN INDEX AND 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
- -4.65% for the Class A shares and -4.70% for the Class B shares, as compared to
a total return of -4.20% for the Morgan Stanley Capital International (MSCI)
combined Far East Free ex-Japan Index (the "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 July 1, 1991 through March 31, 1997 was -7.27%, 15.98%
and 16.47%, respectively, for the Class A shares as compared with -4.19%, 14.30%
and 15.28%, respectively, for the Index.
Over the first quarter of 1997, divergence in performance among the individual
country markets continued to be wide with the worst performer, Thailand falling
a sharp 15.2% over the quarter while the best performing market, Taiwan rose by
9.5% over the same period.
The year actually opened on a relatively firm note with the Index registering a
gain of 1.3% in January. February was still a positive month with a rise of 0.3%
but the tone progressively got weaker with rising U.S. interest rates and a
faltering Dow. The slide culminated in a sell-off which took the Index down by
5.7% in March.
STRATEGY & OUTLOOK
As at the end of the quarter, the Portfolio's country weights were largely in
line with that of the Index except for an overweight in Thailand and an
underweight in Taiwan.
Although the Thai market continued to underperform, the worst seems to be over.
Most recently, in the face of disappointing earnings and macro-economic news,
and a downgrade by S&P, the market held its ground at the 700 level on the Thai
Stock Market Index. Foreign premiums on the bell-weather blue chip Thai banks
have expanded and the Thai market actually outperformed the regional index in
the March sell-off. Positives would include an oversold market which is
extremely cheap on historical levels but economic fundamentals continue to
2
<PAGE>
weaken as the financial crisis works its way through the system. The recovery is
likely to be slow and painful and the Portfolio will incrementally seek to add
to Thailand as the recovery progresses.
Taiwan had continued to surprise on the upside. After its surprising 38.9% rise
in 1996, it continued to surge ahead. Even the correction towards the end of
March precipitated by the outbreak of foot and mouth disease in the hog industry
was extremely short lived indicating the pent up demand. The market is being
bouyed by falling interest rates and flush liquidity as well as a resurgence in
the electronics and construction industries. Since the Taiwan market is still
largely underweighted in regional portfolios, the market is also benefiting from
foreign investors realigning their portfolios to include this surging market,
now accounting for more than 12% of the regional index. Although it has
outperformed, the momentum in the market continues to be strong and the
Portfolio would seek to move up its Taiwan weighting to more of a market weight.
Malaysia on the other hand had taken a turn for the worst. Tightening measures
to rein in property and shares financing announced by the central bank, Bank
Negara, towards the end of the quarter has finally brought realization that the
party is about to end. Having defied gravity for so long with its unbroken ten
year record of above 8% real economic growth, the consolidation, once started,
is likely to ripple through the whole overstretched economy. Although this dose
of medicine or reality is for the long term good of the economy, the unfolding
correction is going to be painful. The Portfolio is moving quickly to
significantly underweight this market.
The money raised from Malaysia will be redeployed in both Taiwan and Hong Kong.
The euphoria about the June 30, 1997 handover that had built up to a crescendo
at the end of 1996 has since been somewhat punctured by rising U.S. interest
rates, a faltering Dow and uncharacteristically early measures by the Hong Kong
authorities to clamp down on escalating property speculation. The market index
has fallen almost 10% from its peak in January and some stocks are beginning to
look historically cheap and attractive again. Based on improving economic
fundamentals in China and Hong Kong, once the speculative excesses have been
cleared, it is likely that it will rally again ahead of the historic handover at
the end of June. The Portfolio will seek to add to its Hong Kong positions with
oversold blue chips and emergent red chips and China plays.
CONCLUSION
In summary, the short term outlook for the Asian market is likely to be dampened
by rising U.S. interest rates and the faltering Dow. Individually, the country
markets are at different points in the economic cycle and hence the significant
divergence in their market performance. The greater China block comprising
Taiwan, Hong Kong and China are on the upcycle and are likely to continue to
outperform. Thailand and Korea are still mired in a painful consolidation and
any market recovery is likely to be slow and steady rather than quick and sharp
while Malaysia's consolidation has just started and probably has some ways to
go. While the region's consolidation continues, stock selection is going to
continue to be key for any outperformance.
Ean Wah Chin
PORTFOLIO MANAGER
April 1997
3
<PAGE>
INVESTMENTS (UNAUDITED)
- ----------
MARCH 31, 1997
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------- ---------
<C> <S> <C>
COMMON STOCKS (98.9%)
CHINA (0.2%)
1,968,000 Guangshen Railway Co., Ltd., Class
H $ 851
---------
HONG KONG (31.3%)
3,607,000 CDL Hotels International Ltd. 1,781
1,802,000 Cheung Kong Holdings Ltd. 15,872
3,338,000 China Resources Beijing Land 2,089
1,894,000 China Resources Enterprise Ltd. 4,082
1,079,500 Citic Pacific Ltd. 5,350
526,000 Cosco Pacific Ltd. 692
1,012,000 GZI Transport Ltd. 594
340,300 Hang Seng Bank Ltd. 3,513
355,000 Henderson Land Development Co.,
Ltd. 2,944
472,020 Hong Kong & Shanghai Bank Holdings
plc 10,965
4,081,000 Hong Kong Telecommunications Ltd. 6,978
2,017,000 Hutchison Whampoa Ltd. 15,163
1,405,000 Kerry Properties Ltd. 3,119
1,198,000 Lai Sun Development Co., Ltd. 1,391
1,567,000 New World Development Co., Ltd. 8,453
3,299,000 Qingling Motors Co., Class H 1,756
759,000 Shanghai Industrial Holdings Ltd. 3,330
652,100 Sun Hung Kai Properties Ltd. 6,901
769,060 Swire Pacific Ltd., Class A 6,054
1,143,000 Wharf Holdings Ltd. 4,374
645,000 Wheelock & Co., Ltd. 1,411
---------
106,812
---------
INDONESIA (7.3%)
848,500 Astra International (Foreign) 2,756
3,246,683 Bank International Indonesia
(Foreign) 2,468
5,177,000 Bank Negara Indonesia (Foreign) 2,965
811,000 Gudang Garam (Foreign) 3,538
627,200 Hanjaya Mandala Sampoerna
(Foreign) 2,939
2,144,824 Indah Kiat Pulp & Paper Corp.
(Foreign) 1,585
737,000 Indofood Sukses Makmur (Foreign) 1,627
1,174,000 Matahari Putra Prima (Foreign) 1,711
3,437,000 Telekomunikasi Indonesia (Foreign) 5,261
---------
24,850
---------
KOREA (5.4%)
107,250 Housing & Commercial Bank Korea 1,906
21,540 Kookmin Bank (Foreign) 376
106,270 Kookmin Bank GDR 1,881
113,860 Korea Electric Power 3,306
<CAPTION>
VALUE
SHARES (000)
- --------------- ---------
<C> <S> <C>
75 Korea Mobile Telecommunications
Corp. $ 70
1,800 Korea Mobile Telecommunications
Corp. ADR 18
38,790 LG Information & Communication
Ltd. 3,919
59,213 Samsung Electronics 4,674
7,832 Samsung Electronics GDR (New) 362
133,761 Shinhan Bank Co., Ltd. 1,918
---------
18,430
---------
MALAYSIA (23.0%)
309,000 Arab Malaysian Corp., Bhd 1,596
635,000 Commerce Asset Holding Bhd 4,458
198,000 Dialog Group Bhd 3,236
601,000 Edaran Otomobil Nasional Bhd 6,063
1,291,700 Genting Bhd 8,756
741,000 Hicom Holdings Bhd 1,929
813,000 IJM Corp. Bhd 2,001
44,000 Jaya Tiasa Holdings Bhd 245
848,000 Leader Universal Holdings Bhd 1,899
760,500 Malayan Banking Bhd 8,669
1,319,316 Malaysian International Shipping
Bhd (Foreign) 3,274
524,000 Rashid Hussain Bhd 4,123
2,614,000 Renong Bhd 4,430
1,570,000 Resorts World Bhd 6,715
3,142,000 Sime Darby Bhd 11,474
555,000 Telekom Malaysia Bhd 4,322
623,757 United Engineers Ltd. 5,437
---------
78,627
---------
PHILIPPINES (4.3%)
1,613,237 Ayala Land, Inc., Class B 1,836
15,461,000 Digital Telecommunications
Philippines, Inc. 1,431
1,865,100 DMCI Holdings, Inc. 1,326
112,500 Equitable Banking Corp. 484
17,982,100 JG Summit Holding, Class B 4,706
385,565 Manila Electric Co., Class B 3,071
6,486,000 SM Prime Holdings, Inc., Class B 1,894
---------
14,748
---------
SINGAPORE (13.4%)
2,263,000 Comfort Group Ltd. 1,802
563,500 Development Bank of Singapore Ltd.
(Foreign) 6,554
375,000 Electronic Resources Ltd. 545
265,000 Jurong Shipyard Ltd. 1,202
490,000 Keppel Corp., Ltd. 3,087
1,004,000 Keppel Land Ltd. 3,100
1,144,000 Natsteel Ltd. 2,756
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------- ---------
<C> <S> <C>
SINGAPORE (CONTINUED)
567,482 Oversea-Chinese Banking Corp.
(Foreign) $ 6,757
522,000 Parkway Holdings Ltd. 1,987
1,487,000 SM Summit Holdings Ltd. 1,009
248,400 Singapore Press Holdings (Foreign) 4,523
642,200 United Overseas Bank Ltd.
(Foreign) 6,580
1,006,000 Want Want Holdings 2,887
953,000 Wing Tai Holdings Ltd. 2,810
---------
45,599
---------
TAIWAN (5.6%)
308,000 Asustek Computer, Inc. 6,968
593,150 Cathay Life Insurance Co., Ltd. 3,532
2,148,400 China Steel Corp. 2,060
2,310,000 Far East Textiles 3,447
340,000 Formosa Plastics Corp. 858
713,000 Siliconware Precision Industries
Co. 2,291
---------
19,156
---------
THAILAND (8.4%)
467,400 Advanced Information Service PCL
(Foreign) 3,998
709,100 Bangkok Bank PCL (Foreign) 6,885
512,800 Finance One PCL (Foreign) 469
911,700 National Petrochemical PCL
(Foreign) 931
505,000 Phatra Thanakit PCL (Foreign) 905
487,000 Shinawatra Computer Co. PCL
(Foreign) 4,090
780,800 Siam Commercial Bank PCL (Foreign) 4,572
847,270 Thai Farmers Bank PCL (Foreign) 5,517
189,700 United Communications Industry PCL
(Foreign) 1,228
---------
28,595
---------
TOTAL COMMON STOCKS (Cost $339,665) 337,668
---------
<CAPTION>
NO. OF
WARRANTS
- ---------------
<C> <S> <C>
WARRANTS (0.4%)
HONG KONG (0.0%)
240,562 Lai Sun Hotels International,
expiring 3/23/99 --
---------
INDONESIA (0.0%)
288,594 Bank International Indonesia
(Foreign), expiring 1/17/00 102
---------
SINGAPORE (0.4%)
1,145,750 Keppel Land Ltd., expiring
12/12/00 1,198
---------
<CAPTION>
NO. OF VALUE
WARRANTS (000)
- --------------- ---------
<C> <S> <C>
THAILAND (0.0%)
98,821 Thai Farmers Bank PCL (Foreign),
expiring 9/15/02 $ 71
---------
TOTAL WARRANTS (Cost $1,601) 1,371
---------
TOTAL FOREIGN SECURITIES (99.3%) (Cost $341,266) 339,039
---------
<CAPTION>
FACE
AMOUNT
(000)
- ---------------
<C> <S> <C>
SHORT-TERM INVESTMENT (0.4%)
REPURCHASE AGREEMENT (0.4%)
$ 1,206 Chase Securities, Inc. 6.00%,
dated 3/31/97, due 4/01/97, to be
repurchased at $1,206,
collateralized by U.S. Treasury
Bonds, 7.5%, due 11/15/16, valued
at $1,232 (Cost $1,206) 1,206
---------
FOREIGN CURRENCY (0.4%)
HKD 843 Hong Kong Dollar 109
KRW 438,000 Korean Won 489
MYR 675 Malaysian Ringgit 272
PHP 10,689 Philippines Peso 405
SGD 85 Singapore Dollar 59
TWD 3,430 Taiwan Dollar 125
---------
TOTAL FOREIGN CURRENCY (Cost $1,463) 1,459
---------
TOTAL INVESTMENTS (100.1%) (Cost $343,935) 341,704
---------
OTHER ASSETS AND LIABILITIES (-0.1%)
Other Assets 38,637
Liabilities (38,974)
---------
(337)
---------
NET ASSETS (100%) $ 341,367
---------
---------
CLASS A:
NET ASSETS $336,043
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 18,817,943 outstanding $0.001 par
value shares (authorized 500,000,000 shares) $17.86
---------
---------
CLASS B:
NET ASSETS $5,324
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 298,162 outstanding $0.001 par value
shares (authorized 500,000,000 shares) $17.86
---------
---------
</TABLE>
- ----------------------------------
<TABLE>
<S> <C> <C>
ADR -- American Depositary Receipt
GDR -- Global Depositary Receipt
PCL -- Public Company Limited
</TABLE>
5
