<PAGE>
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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
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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.
INTERNATIONAL EQUITY PORTFOLIO
FIRST QUARTER REPORT
MARCH 31, 1997
<PAGE>
LETTER TO SHAREHOLDERS
- -------
The investment objective of the International Equity Portfolio is long-term
capital appreciation through investment primarily in equity securities of
non-U.S. issuers. Equity securities for this purpose include common stocks and
equivalents, such as securities convertible into common stocks, and securities
having common stock characteristics, such as rights and warrants to purchase
common stocks.
For the three months ended March 31, 1997, the Portfolio had a total return of
4.48% for the Class A shares and 4.43% for the Class B shares as compared to a
total return of -1.57% for the Morgan Stanley Capital International (MSCI) EAFE
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 August 4, 1989 through
March 31, 1997 were 18.51%, 17.59% and 12.20%, respectively, for the Class A
shares as compared to 1.46%, 10.57% and 3.54%, respectively, for the Index.
PERFORMANCE COMPARED TO THE MORGAN STANLEY CAPITAL INTERNATIONAL (MSCI) EAFE
INDEX(1)
- ----------------------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
------------------------------------------------
AVERAGE AVERAGE
ANNUAL ANNUAL
ONE FIVE SINCE
YTD YEAR YEARS INCEPTION
--------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
PORTFOLIO--CLASS A.......... 4.48% 18.51% 17.59% 12.20%
PORTFOLIO--CLASS B(3)....... 4.43 18.17 NA 18.75
INDEX....................... -1.57 1.46 10.57 3.54
</TABLE>
1. The MSCI EAFE Index is an unmanaged index of common stocks and includes
Europe, Australasia and the Far East (includes dividends net of withholding
taxes).
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.
Outperformance in the first quarter was driven by stock selection in all major
markets and the Portfolio's underweight position in the markets of the Far East
which all exhibited poor returns led by Japan. Particularly strong portfolio
returns were earned in France where laggard value stocks leapt to life as signs
of a moderate domestic recovery began to appear. Despite the poor performance of
the chemical stocks, the Portfolio's German exposure outperformed primarily due
to the exceptional strength of Volkswagen.
The core markets of Europe, along with Scandinavia, were the strongest
performers during the quarter as these capital intensive markets moved to
discount the benefits of a weaker U.S. dollar. The U.K. in contrast was
restrained by the strength of sterling.
Portfolio activity during the quarter was moderate with piecemeal reductions
being made in cyclicals on strength such as SKF and SCA in Sweden and Valeo in
France. Positions were built in certain U.K. stocks like Burmah Castrol whose
earnings are being restrained by sterling strength, while new names in the
Portfolio include the U.K. recovery situation Racal, the New Zealand brewer Lion
Nathan and the pharmaceutical company Pharmacia Upjohn.
In recent weeks powerful evidence of an accelerating U.S. economy and upward
pressures on wages have led to weakness in U.S. bonds. Evidence of an altogether
more moderate recovery in Europe has also pushed bond yields meaningfully off
their 1994 lows but confidence in corporate profits growth is such that the
Continent's stock markets have been remarkably insouciant to this development.
Currency, restructuring and the gradual development of corporate regard for
shareholders all point to a relative resilience of stock markets to gently
rising rates. This is not to say markets are cheap: they are not, and it is a
fact that value stocks, whether they be Japanese blue chips or Danish banks,
have done extraordinarily well against their local markets in recent quarters.
There are no large seams of untapped value around the world and it is really a
question of whether stocks move from full valuation to a fuller valuation as
belief in the demise of economic cycles takes root. For stock markets to make
significant progress from current levels the banishment of the economic cycle
and the
2
<PAGE>
consequent increased sustainability of earnings is required. We would surmise
that a big downward break in bond yields would only eventuate on economic
weakness running counter to this thesis. In other words, stock markets are now
dependent on earnings and multiple expansion, as a big fall in bond yields would
be in an environment destructive of equity valuations. For just such a
destructive environment one only has to look as far as Japan where derisorily
low cash and bond yields are failing to stimulate a domestic economy beset by
the duel threats of globalization and deregulation.
GERMANY
The MSCI Germany Index increased by 11.29% in U.S. dollar terms and by 20.48% in
local currency terms in the first quarter of 1997. These returns make Germany
the top performing EAFE equity market during this period. The top performing
sectors were textile and media companies while the auto stocks continued their
strong run. The poorest performing sector was alcoholic beverages with chemical
and electricity stocks underperforming following strong runs last year. During
the quarter we have benefited from our exposure to Volkswagen which continues
its strong run while cutting our positions in chemicals and the utilities
following strong performance.
In the German economy we are continuing to see a two tier recovery. The export
sector continues to benefit from low interest rates and the continuing weakness
of the deutsche mark. In the recent round of earnings announcements, the market
has been surprised by the returns of companies including those in the chemical
and auto sectors. Domestic growth, however, remains limited, hurt by the lack of
consumer spending as a result of a squeeze on public sector wages and job
insecurity as German industry continues to restructure. The construction sector
has also been weak hurt again by poor winter weather. The lack of domestic
growth is impacting tax revenues and means that it is unlikely that Germany will
be able to reduce its budget deficit to below 3% of GDP in 1997. It could
therefore fail to attain the fiscal criteria within the Maastricht Treaty.
FRANCE
During the first quarter of 1997, the MSCI France Index increased by 5.94% in
U.S. dollar terms and by 14.7% in French franc terms. The electronic and
electrical sector has continued its strong run in France with Alcatel Alsthom
performing particularly well. Other strong areas included telecommunications and
engineering stocks. Poorer performers included tobacco companies hurt by
negative news from the U.S. and alcoholic beverages.
Like Germany, the French economy is benefiting from the weakness of their
currency against the U.S. dollar. The market is expecting an increase in the
export of goods and services of 5.67% in 1997 following a 3.2% increase in 1996.
Domestic growth and in particular consumer spending remain weak however. In 1996
household consumption rose by 2.3% but this was boosted by auto purchases with
incentives from the government. Without this support from the government these
growth levels cannot be expected this year. A benefit to the economy has been
the loose French monetary policy which has real short term interest rates
falling to 1.5%, the lowest since 1982. In this environment, inflation continues
to offer no concern and although there could be some pick up later in the year,
rates should move to around 1.2% in the first quarter.
NETHERLANDS
In the first quarter of 1997 the MSCI Netherlands Index increased by 5.71% in
U.S. dollar terms and by 14.63% in Dutch guilder terms. The top performing
sectors included building materials and oil stocks while retailers finished the
quarter strongly with KBB, the department store and specialty retailer, the top
performing company in Holland in March. Media and telecommunications were the
poorest performers.
Unlike Germany and France, the Dutch market is not just reliant on the export
sector for growth and is showing a much more balanced growth performance. The
market is expecting GDP growth of over 3% in 1997 with exports growing as much
as 6%, both above the European average. The Dutch domestic economy has benefited
from a loose monetary policy as well as a more competitive labor market to
remain more competitive. Consumer spending has continued to provide broad
support for economic growth helped by declining unemployment and continued
consumer confidence. Meanwhile, there has been no need for the Dutch to tighten
fiscal policy to meet the Maastricht criteria and continued economic strength
could lead to a budget deficit of around just 2% in 1997.
3
<PAGE>
SWITZERLAND
The MSCI Switzerland Index increased by 10.32% in U.S. dollar terms and by
18.36% in Swiss franc terms in the first quarter of 1997. These returns made
Switzerland one of the top performing countries during the period. The sectors
that performed well included the pharmaceutical stocks and the food retailer,
while the electricity and electronics stocks did poorly.
In the final quarter of 1996, Swiss GDP stabilized following seven quarters of
quarter on quarter declines. It appears unlikely that there will be any
significant pick up in growth in 1997. The Swiss economy is benefiting from the
rapid depreciation of the franc in recent months, as with other countries this
is particularly helping the export sector as well as inventories. The domestic
economy continues to struggle, however, with unemployment remaining a problem.
The economy should benefit from the pick up in neighboring countries, however,
the isolation of Switzerland from the European Union will make trading more
difficult. There has also been some evidence of lower investment due to the lack
of EU membership and the cost associated with manufacturing in Switzerland. In
this environment, monetary conditions are looser in Switzerland than at any
point in the 1990's and there is little reason for the SNB to increase interest
rates.
ITALY
The MSCI Italy Index increased by 1.33% in U.S. dollar terms and by 11.18% in
local currency terms during the first quarter of the year. The best performing
sectors included telecoms and auto stocks while electricity and gas distribution
have shown poor returns.
Since July 1996 the Italian authorities have reduced the discount rate by a
total of 2.25%. Despite these reductions there has been little reaction from the
economy with a growth rate of below 1% for 1996 and the market is expecting
little more than this in 1997. The Bank of Italy has been able to cut rates due
to the strength of the lira during this period, however, further cuts will be
more difficult. The combination of weak economic activity and currency
appreciation has continued to drive down inflation. From 2.6% at the beginning
of the year, consumer price inflation fell to 2.2% in March, the lowest level
since 1969. Weak economic activity and some technical factors, including the
possible cut in electricity tariffs, should lead to even lower levels of
inflation in coming months.
SPAIN
During the first quarter of 1996, the MSCI Spain Index declined by 1.32% in U.S.
dollar terms but increased by 7.56% in local currency terms. Following a strong
year in 1996, when Spain was the top performing EAFE market, the first quarter
of 1997 has been slower than some other European markets. During the quarter, we
have been reducing our exposure to Spain by selling down the electrical
utilities and Telefonica, the telecommunications company, following strong
performance.
Spanish GDP growth in 1996 was up 2.2%, one of the strongest in Europe. An
important part of this recovery has been the pick up in agricultural output
following the drought in 1995. GDP excluding agriculture, rose by just 1.4%.
Since the beginning of last year, interest rates have fallen by 3.5% and
following the 25 basis points drop in March are now at historically low levels.
Following the drop in interest rates, private consumption has been strong.
Falling unemployment and strong income growth suggest that growth rates should
remain strong into 1997. The outlook for inflation also looks positive with the
headline rate down to 2.5% from 3.2% at the beginning of the year, the lowest
level since the 1960's. Inflation could drop even further in the second quarter
but strong domestic demand could lead to an increase in the second half of the
year.
JAPAN
Japan fumbled its way through another quarter with the MSCI Japan Index falling
- -11.87% in U.S. dollars and -5.93% in Japanese yen despite yet another fall in
Japanese bond yields.
With the yen reinvigorating the export sector in real as well as stock market
terms, the old bilateral trade problems are set to rear their ugly head again if
recent Japanese car exports to the U.S. are anything to go by. Though Mr.
Clinton's pragmatism and Mr. Rubin's urbanity will preclude any too public a
flare-up, the Japanese authorities are well aware that they are in debt to the
United States.
The deregulation of the non-life insurance industry is likely to be the first
stage in a wholesale deregulation of the financial sector. At the same time the
profligate
4
<PAGE>
spending of the electric utility sector is understood for the first time to be
unsustainable with negative multiplier effects for a wide range of Japanese
industries. Factors such as this do not augur well for domestic corporate
profits which have remained stubbornly weak despite a full recovery in housing
and a respectable pick up in domestic capital expenditure. Though many
commentators expect fiscal and government spending restraint to hold back the
economy, it is noteworthy that Japanese workers are enjoying buoyant income
growth. One should expect the slowdown in consumption subsequent to this month's
sales tax hike to be short in duration, especially since consumer debt has
contracted markedly in the last five years.
Therefore, our problem with Japan lies not with the outlook for the economy,
relatively lackluster though it may be, but rather with the corporate sector's
ability to maintain its share of GDP as evidenced by corporate profits. Our
recent visits to the country has left us less than optimistic, but we do believe
that latent and self-evident balance sheet strength does leave room in highly
specific instances for value enhancing financial restructuring.
Meanwhile, the public travails of Nomura Securities show the extraordinary
shenanigans that constitute, or did constitute, every day economic life in
Japan. If this was the "old" Japan, the process of deregulation and
globalization is likely to be a prolonged and painful cleansing. Meanwhile the
Nifty Fifty exporters march upwards buoyed by a weak yen and the dynamic
developments in the global electronics industry.
HONG KONG
The Hong Kong stock market was notably weak during the first quarter with the
MSCI Hong Kong Index declining -8.79% in U.S. dollars and -8.62% in Hong Kong
dollars.
The market had ended the year in an overbought condition and continuous new
evidence of U.S. economic strength dampened sentiment in Hong Kong due to the
stock market's dependence on the interest rate sensitive property development
sector. At the same time weakness was seen in the property investment stocks
despite the widening of discounts to net asset values as year end revaluations
reflected the heady "market" prices achieved in the second half of last year. It
seems as if the stock market does not believe secondary Hong Kong commercial
properties should be ascribed the yield of 4.5% currently prevailing. It is
probably right.
Though good results from banks and property developers have done something to
bring down Hong Kong's elevated historic ratings, one can't help thinking that
there was an artificiality to the final quarter exuberance of last year.
With short-term rates in the United States unlikely to have peaked for some time
yet, this overowned market is unlikely to make much upward progress in the
months ahead without some help from the mainland's much vaunted wall of money.
AUSTRALIA
Despite further strength in the banking sector, the Australian stock market
failed to progress in the first quarter, with the MSCI Australia Index declining
- -1.65% in U.S. dollars and -0.35% in Australian dollars.
The strength in the banking stocks came in spite of the run up in government
bond yields and because of takeover speculation ahead of the publication of the
findings of the Wallis Enquiry. Meanwhile, the resource majors marked time as
investors digested the uninspiring combination of poor results and high ratings,
though the zinc price plays reveled in that metal's meteoric rise. Meanwhile,
the good relative and absolute performance of the building material and retail
sectors closed out the little remaining value in this market.
However, one possible point of interest is News Corporation. It's that time in
the cycle when Mr. Murdoch gets a little too expansive for the market's liking
and with acquisitions substantially funded by paper, there is a stock overhang
building up. On reported numbers, however, the stock does look anomalously cheap
against its few peers.
Dominic Caldecott
PORTFOLIO MANAGER
April 1997
5
<PAGE>
INVESTMENTS (UNAUDITED)
- ----------
MARCH 31, 1997
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------- ---------
<C> <S> <C>
COMMON STOCKS (86.6%)
AUSTRALIA (3.1%)
1,592,800 Brambles Industries Ltd. $ 26,185
3,563,000 Coles Myer Ltd. 16,759
7,300,000 CSR Ltd. 27,928
1,861,873 North Ltd. 6,057
---------
76,929
---------
BELGIUM (0.5%)
243,350 G.I.B. Holdings Ltd. 11,177
2,156 G.I.B. Holdings Ltd. VVPR (New) 97
---------
11,274
---------
DENMARK (2.5%)
190,000 Den Danske Bank A/S 17,134
222,500 Novo-Nordisk A/S, Class B 23,286
400,500 Unidanmark A/S, Class A
(Registered) 21,494
---------
61,914
---------
FINLAND (0.7%)
350,000 Huhtamaki Oy, Series 1 17,176
168,467 Merita Ltd., Class A 578
---------
17,754
---------
FRANCE (11.1%)
290,500 Alcatel Alsthom 35,081
616,600 Banque Nationale de Paris 27,467
16,110 Bongrain S.A. 6,410
160,900 Cie de Saint Gobain 24,417
95,349 Credit Lyonnaise CDI 3,651
419,300 Elf Aquitaine S.A. 43,091
203,200 Groupe Danone 32,283
471,900 Lafarge Coppee S.A. 32,763
116,800 PSA Peugeot Citroen S.A. 13,335
230,400 Scor S.A. 9,418
255,000 Total S.A., Class B 22,114
761,568 Usinor Sacilor 12,479
178,150 Valeo S.A. 12,000
---------
274,509
---------
GERMANY (7.7%)
673,100 BASF AG 25,784
984,400 Bayer AG 41,427
500,000 Commerzbank AG 14,478
389,300 Hoechst AG 15,788
90,500 Karstadt AG 31,331
<CAPTION>
VALUE
SHARES (000)
- --------------- ---------
<C> <S> <C>
30,135 Mannesmann AG $ 11,517
24,900 Varta AG 4,292
333,900 VEBA AG 19,176
40,000 Viag AG 18,968
15,000 Volkswagen AG 8,273
---------
191,034
---------
HONG KONG (2.7%)
90,600 China Light & Power Co., Ltd. 409
8,396,242 Hong Kong Land Holdings Ltd. 19,480
13,950,000 Jardine Strategic Holdings, Inc. 48,267
---------
68,156
---------
ITALY (2.1%)
11,591,000 Olivetti S.p.A. 4,171
1,262,000 Olivetti Group S.p.A. Di Risp 473
2,265,100 Seat S.p.A. 508
8,887,000 Stet Di Risp (NCS) 31,556
6,800,000 Telecom Italia S.p.A. Di Risp
(NCS) 14,499
---------
51,207
---------
JAPAN (18.0%)
1,120,000 Aisin Seiki Co., Ltd. 15,128
1,000,000 Canon, Inc. 21,434
275,000 Chudenko Corp. 7,273
1,640,000 Daibiru Corp. 15,918
2,217,000 Daicel Chemical Industries Ltd. 7,980
1,135,000 Daikin Industry Ltd. 8,492
1,067,000 Dainippon Ink & Chemical, Inc. 3,582
4,000 East Japan Railway Co. 16,338
2,413,000 Fuji Photo Film Ltd. 79,435
2,700,000 Hitachi Ltd. 24,022
2,414,000 Kao Corp. 26,359
662,000 Kirin Brewery Co., Ltd. 5,462
1,461,000 Matsushita Electric Industries
Ltd. 22,807
81,000 Murata Manufacturing Co., Ltd. 2,909
3,580,000 Nichido Fire & Marine Insurance
Co., Ltd. 19,343
2,751 Nippon Telegraph & Telephone Corp. 19,381
4,893,000 NKK Corp. 10,290
232,000 Ryosan Co. 4,278
152,000 Shionogi & Co., Ltd. 891
350,000 Sony Corp. 24,487
3,812,000 Sumitomo Marine & Fire Insurance
Co. 23,124
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------- ---------
<C> <S> <C>
JAPAN (CONTINUED)
2,041,000 Sumitomo Rubber Industries $ 12,876
350,000 TDK Corp. 24,063
1,277,100 Toyo Seikan Kaisha Ltd. 23,758
1,341,000 Yamanouchi Pharmaceutical Co. 27,767
---------
447,397
---------
NETHERLANDS (7.3%)
348,900 ABN Amro Holdings N.V. 23,999
193,000 Akzo Nobel N.V. 27,724
84,436 Hollandsche Beton Groep N.V. 19,269
1,272,700 ING Groep N.V. 50,149
271,100 Koninklijke Bijenkorf Beheer N.V. 20,454
868,000 Philips Electronics N.V. 40,497
---------
182,092
---------
NEW ZEALAND (0.6%)
2,236,054 Fisher & Paykel Industries Ltd. 8,000
3,255,306 Lion Nathan Ltd. 7,734
392,500 Smith City Group Ltd. --
---------
15,734
---------
NORWAY (0.5%)
2,765,000 Den Norske Bank ASA 11,989
86,000 Nycomed ASA, Class B 1,284
---------
13,273
---------
SINGAPORE (0.0%)
44,000 Neptune Orient Lines Ltd. 35
---------
SPAIN (3.1%)
30,100 Grupo Duro Felguera S.A. 319
1,872,000 Iberdrola S.A. 20,671
616,500 Repsol S.A. 25,747
1,288,100 Telefonica de Espana S.A. 31,137
---------
77,874
---------
SWEDEN (3.1%)
207,070 Electrolux AB, Series B 13,200
429,300 Nordbanken AB 14,824
82,700 Pharmacia & Upjohn, Inc. 3,185
265,700 Skandia Forsakrings AB 8,381
476,300 S.K.F. AB, Class B 12,525
364,600 Sparbanken Sverige AB, Class A 6,779
743,300 Svenska Cellulosa AB, Class B 16,732
52,400 Svenska Handelsbanken, Class A 1,601
36,460 Tornet Fastighets AB 414
---------
77,641
---------
SWITZERLAND (6.3%)
2,605 Ascom Holdings AG (Bearer) 2,789
32,170 Ciba Specialty Chemicals AG 2,660
<CAPTION>
VALUE
SHARES (000)
- --------------- ---------
<C> <S> <C>
23,040 Forbo Holding AG (Registered) $ 9,493
20,000 Holderbank Financiere Glarus AG,
Class B (Bearer) 15,342
35,240 Nestle S.A. (Registered) 41,259
170 Novartis AG (Bearer) 212
32,000 Novartis AG (Registered) 39,711
13,814 Schindler Holding AG
(Participating Certificates) 16,567
18,250 Sulzer AG (Participating
Certificates) 12,034
23,250 Sulzer AG (Registered) 15,266
---------
155,333
---------
UNITED KINGDOM (17.3%)
1,021,600 Associated British Foods plc 9,209
1,267,400 Bank of Scotland 6,682
3,478,256 BAT Industries plc 29,667
1,934,300 British Telecommunications plc 14,175
1,192,200 Burmah Castrol plc 19,955
4,628,118 Christian Salvesen plc 21,812
866,000 Chubb Security plc 6,176
2,393,863 English China Clays plc 8,171
6,511,200 Grand Metropolitan plc 52,591
2,551,400 Imperial Tobacco Group plc 17,523
5,004,063 John Mowlem & Co. plc 9,466
2,452,590 Kwik Save Group plc 12,447
843,000 McAlpine (Alfred) plc 2,247
1,207,900 Peninsular & Oriental Steam
Navigation Co. plc 12,290
1,234,700 Racal Electronic plc 5,880
4,195,194 Reckitt & Colman plc 56,279
948,700 Redland plc 5,618
2,670,700 Rolls-Royce plc 10,017
2,579,778 Royal & Sun Alliance Insurance
Group plc 18,970
897,950 Scottish Hydro-Electric plc 5,332
1,859,073 Southern Electric plc 11,881
2,638,702 Tate & Lyle plc 18,839
2,252,100 Unilever plc 59,831
3,500,000 WPP Group plc 14,595
---------
429,653
---------
TOTAL COMMON STOCKS (Cost $1,695,732) 2,151,809
---------
PREFERRED STOCKS (2.5%)
GERMANY (2.5%)
149,600 RWE AG 5,399
86,800 Spar Handels AG 1,254
125,000 Volkswagen AG 54,254
---------
TOTAL PREFERRED STOCKS (Cost $28,233) 60,907
---------
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------- ---------
<C> <S> <C>
CONVERTIBLE PREFERRED STOCKS (0.1%)
HONG KONG (0.1%)
1,863,000 Jardine Strategic Holdings, Inc.,
IDR, 7.50%, 5/07/97 $ 2,166
---------
NETHERLANDS (0.0%)
1,506 ABN Amro Holdings N.V. 6
2,196 ING Groep N.V. 11
---------
17
---------
TOTAL CONVERTIBLE PREFERRED STOCKS (Cost $1,923) 2,183
---------
TOTAL FOREIGN SECURITIES (89.2%) (Cost $1,725,888) 2,214,899
---------
<CAPTION>
FACE
AMOUNT
(000)
- ---------------
<C> <S> <C>
SHORT-TERM INVESTMENT (3.0%)
REPURCHASE AGREEMENT (3.0%)
$ 75,738 Chase Securities, Inc. 6.00%,
dated 3/31/97, due 4/01/97, to be
repurchased at $75,751,
collateralized by U.S. Treasury
Bonds, 7.5%, due 11/15/16, valued
at $77,361 (Cost $75,738) 75,738
---------
FOREIGN CURRENCY (7.3%)
GBP 10,546 British Pound 17,348
DKK 2,584 Danish Krone 407
DEM 117,829 Deutsche Mark 70,637
ITL 2,074,564 Italian Lira 1,244
JPY 8,874,786 Japanese Yen 71,782
NLG 28,620 Netherlands Guilder 15,261
SGD 776 Singapore Dollar 537
ESP 6,561 Spanish Peseta 46
SEK 26,377 Swedish Krona 3,503
---------
TOTAL FOREIGN CURRENCY (Cost $180,373) 180,765
---------
TOTAL INVESTMENTS (99.5%) (Cost $1,981,999) 2,471,402
---------
OTHER ASSETS AND LIABILITIES (0.5%)
Other Assets 1,308,767
Liabilities (1,297,132)
---------
11,635
---------
NET ASSETS (100%) $2,483,037
---------
---------
<CAPTION>
VALUE
(000)
---------
<C> <S> <C>
CLASS A:
NET ASSETS $2,480,431
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 140,029,303 outstanding $0.001 par
value shares (authorized 500,000,000 shares) $17.71
---------
---------
CLASS B:
NET ASSETS $2,606
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 147,367 outstanding $0.001 par value
shares (authorized 500,000,000 shares) $17.68
---------
---------
</TABLE>
- ----------------------------------
CDI -- Certificate of Investment
IDR -- International Depositary Receipt
NCS -- Non Convertible Shares
8
