<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.
INTERNATIONAL MAGNUM PORTFOLIO
FIRST QUARTER REPORT
MARCH 31, 1997
<PAGE>
LETTER TO SHAREHOLDERS
- -------
The International Magnum Portfolio seeks long-term capital appreciation by
investing primarily in equity securities of non-U.S. issuers in accordance with
the EAFE country weightings determined by the Adviser. The EAFE countries in
which the Portfolio will invest are those comprising the Morgan Stanley Capital
International (MSCI) EAFE Index, which includes Australia, Japan, New Zealand,
most nations located in Western Europe, and certain developed countries in Asia.
For the three months ended March 31, 1997, the Portfolio had a total return of
2.44% for the Class A shares and 2.45% for the Class B shares, as compared to a
total return of -1.57% for the MSCI EAFE Index. The average annual total return
for the one year ended March 31, 1997 and for the period from inception on March
15,
PERFORMANCE COMPARED TO THE MORGAN STANLEY CAPITAL INTERNATIONAL (MSCI ) EAFE
INDEX(1)
- ----------------------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
-----------------------------------------
ONE AVERAGE ANNUAL
YTD YEAR SINCE INCEPTION
--------- ----------- -----------------
<S> <C> <C> <C>
PORTFOLIO - CLASS A......... 2.44% 9.90% 10.41%
PORTFOLIO - CLASS B......... 2.45 9.55 10.07
MSCI INDEX.................. -1.57 1.46 3.46
</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.
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.
1996 through March 31, 1997 was 9.90% and 10.41% for the Class A shares and
9.55% and 10.07% for the Class B shares as compared with 1.46% and 3.46% for the
Index.
Worldwide markets were erratic during the first quarter of 1997 as enthusiasm in
the U.S. market was tamed by the threat of inflation and rising interest rates,
Pacific rim markets succumbed to signs of economic weakness and volatility in
the U.S., and the Japanese market fell as the banking system floundered. In
contrast, European markets tested all-time highs. Contributing to our relative
outperformance was strong stock selection, particularly in Europe and in Japan,
as well as our currency hedges.
One of the biggest stories of the new year was the rapid rise in the value of
the U.S. dollar. The dollar appreciated 4% versus the yen during January alone
(following a gain of over 10% during 1996), and over 6% during the month versus
the Deutsche mark, Swiss franc, Dutch guilder, Austrian shilling, Belgian franc,
Italian lira, and Swedish krona. For the quarter, the dollar gained nearly 6%
versus the yen and over 9% versus the mark, lira and guilder, and between 5 and
10% for several other European currencies. The dollar's sharp climb caught the
market by surprise and prompted a number of government and business officials
around the world to express concern about the pace and magnitude of the dollar's
strengthening, even while many believed that the depreciation of the foreign
currencies would provide economic stimulus overseas.
European markets generally managed to shrug off the uncertainty in the U.S. and
put in a very strong performance during the quarter, rising 4.9% overall, led by
Germany, which rose 7.3% in U.S. dollar terms but an impressive 20.5% in local
currency terms. The mood in Germany bordered on euphoric as the market reached a
new high at the end of the first quarter. The market's gains were fueled by
continuing signs of economic recovery, tame inflation indicators, the further
devaluation of the Deutsche mark and takeover speculation in the banking sector.
Additionally, a long-awaited tax reform is expected to be implemented soon, and
should
2
<PAGE>
have a strongly positive impact on corporate earnings and improve the
competitiveness of German corporates. The markets of Belgium, Denmark, Finland,
Italy, Netherlands, Sweden and Switzerland all registered gains between 11 and
18% in local currency terms for the quarter, but were not nearly as strong in
U.S. dollar terms due to the continued appreciation of the dollar.
In sharp contrast to Europe's gains, the developed Asian markets lost 4.5% for
the quarter. In Singapore (-6.7%), investors were concerned that upcoming
economic data would point to weakness in the economy, while in Hong Kong
(-8.8%), interest rate jitters in the U.S. translated into weakness in the
property sector which represents a major portion of the local market. In
Malaysia (+0.1%), disappointing earnings from a few conglomerates helped drag
down the market in thin trading ahead of the central bank's annual report on the
economy. Australia (-1.6%) and New Zealand (-7.0%), both dollar bloc countries,
also suffered as U.S. interest rates rose during the quarter.
Finally, the Japanese market continued to suffer from lackluster performance,
falling 11.8% for the quarter in U.S. dollar terms but only -5.9% in local
currency terms. The market languished from continued concerns regarding the
health of the nation's banks as evidenced by the collapse of Hanwa and Hyogo
Sogo Bank. In addition, several bankruptcies and scandals weighed heavily on the
market, including one scandal involving payoffs to Japanese gangsters by Nomura
Securities, a company which had been believed to be one of the "cleanest" of the
Japanese financial institutions. However, comments from government officials
supporting the banks and suggesting acceleration of the "big bang" proposals
combined with thin trading ahead of the March 31 fiscal year end kept the market
within a fairly narrow trading range for the month.
In terms of currency hedges, our Portfolio continued to be hedged versus the yen
and Deutsche mark bloc, and by quarter end, our hedge targets were set at 40% of
our yen exposure and between 45 and 50% versus the DM bloc currencies. As we
expect further devaluation due to supportive economic fundamentals, we plan to
maintain our hedged stance.
During the quarter, we slightly reduced our overweight position in Asia vs. the
EAFE Index, investing the proceeds in Europe. We remain cautiously optimistic
regarding Asia, as exports have not picked up in dollar terms but have in
volume, due to pricing pressures. Our exposure to Japan is somewhat lower than
at year end and is slightly underweight versus the Index. Despite the dismal
performance of the Japanese stock market over the past two quarters, the
Japanese economy is starting to show clear signs of recovery and the new fiscal
year is about to begin, which should also improve liquidity. Importantly, our
stock selection in Japan has been very strong, focusing on companies with clear
earnings growth such as the export oriented blue chips, while we have avoided
the bank sector entirely since the inception of the program. We remain slightly
underweight in Europe, due to concerns about the potential for a correction
should interest rates there finally begin to rise. Nonetheless, we have
increased our exposure to the European market since year end, focusing on
companies that should benefit in a single European economic environment and from
increasing economic growth in the region.
Francine J. Bovich
PORTFOLIO MANAGER
April 1997
3
<PAGE>
INVESTMENTS (UNAUDITED)
- ----------
MARCH 31, 1997
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------- ---------
<C> <S> <C>
COMMON STOCKS (85.7%)
AUSTRALIA (1.9%)
41,900 Broken Hill Proprietary Co., Ltd. $ 558
33,800 Lend Lease Corp., Ltd. 579
52,500 National Australia Bank Ltd. 665
49,300 News Corp., Ltd. 230
96,300 WMC Ltd. 609
---------
2,641
---------
AUSTRIA (0.7%)
10,400 Boehler-Uddeholm AG 720
6,460 Radex-Heraklith Industriebet 252
---------
972
---------
BELGIUM (0.8%)
1,720 Arbed S.A. 190
4,380 Delhaize -- Le Lion S.A. 244
14,280 G.I.B. Holdings Ltd. 656
---------
1,090
---------
DENMARK (1.3%)
16,000 BG Bank A/S 755
2,300 Jyske Bank A/S (Registered) 184
14,200 Unidanmark A/S, Class A
(Registered) 762
---------
1,701
---------
FINLAND (1.6%)
23,600 Amer-Yhtymae Oy, Class A 491
15,800 Huhtamaki Oy, Series 1 776
1,300 Kone Oy, Class B 159
112,400 Merita Ltd., Class A 386
38,100 Rautaruukki Oy 350
---------
2,162
---------
FRANCE (6.3%)
12,000 Banque Nationale de Paris 535
1,200 Bongrain S.A. 477
9,000 Cie de Saint Gobain 1,366
7,700 Elf Aquitaine S.A. 791
4,840 Eridania Beghin-Say S.A. 763
6,000 Groupe Danone 953
12,300 Lafarge S.A. 854
18,800 Legris Industries S.A. 868
5,800 SGS-Thompson Microelectronics N.V. 408
10,200 Total S.A., Class B 885
46,000 Usinor Sacilor 754
---------
8,654
---------
GERMANY (5.5%)
13,309 BASF AG 510
20,700 Bayer AG 871
<CAPTION>
VALUE
SHARES (000)
- --------------- ---------
<C> <S> <C>
700 Buderus AG $ 347
36,000 Gerresheimer Glas AG 734
1,000 Karstadt AG 346
50,000 Lufthansa AG 722
600 Mannesmann AG 229
3,800 Metro AG 390
15,000 VEBA AG 861
2,200 Viag AG 1,043
2,800 Volkswagen AG 1,544
---------
7,597
---------
HONG KONG (4.6%)
113,000 Cheung Kong Holdings Ltd. 995
472,000 China Resources Enterprise Ltd. 1,017
95,000 Citic Pacific Ltd. 471
23,400 Hang Seng Bank Ltd. 242
16,000 Henderson Land Development Co.,
Ltd. 133
35,400 Hong Kong & Shanghai Bank Holdings
plc 822
158,800 Hong Kong Telecommunications Ltd. 272
129,000 Hutchison Whampoa Ltd. 970
81,000 New World Development Co., Ltd. 437
41,000 Shanghai Industrial Holdings Ltd. 180
37,000 Sun Hung Kai Properties Ltd. 392
32,000 Swire Pacific Ltd., Class A 252
33,000 Wharf Holdings Ltd. 126
---------
6,309
---------
ITALY (3.0%)
176,000 Editoriale L'Expresso S.p.A. 606
86,400 Marzotto (Gaetano) & Figli S.p.A. 684
553,000 Olivetti S.p.A. 199
65,900 Pirelli S.p.A. 144
16,800 Seat S.p.A. 4
330,000 Sogefi S.p.A. 742
222,000 Stet Di Risp (NCS) 788
422,000 Telecom Italia S.p.A. Di Risp
(NCS) 900
---------
4,067
---------
JAPAN (25.2%)
88,000 Amada Co., Ltd. 637
58,000 Asahi Tec Corp. 247
49,000 Canon, Inc. 1,050
43,000 Dai Nippon Printing Co., Ltd. 720
36,000 Daibiru Corp. 349
117,000 Daicel Chemical Industry Ltd. 421
59,000 Daifuku Co., Ltd. 644
66,000 Daikin Industries Ltd. 494
62,000 Daiwa Securities Co., Ltd. 447
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------- ---------
<C> <S> <C>
20,020 FamilyMart $ 756
30,000 Fuji Machine Manufacturing Co. 779
26,000 Fuji Photo Film Ltd. 856
97,000 Fujitsu Ltd. 989
70,000 Furukawa Electric Co. 310
18,000 Hitachi Credit Corp. 265
121,000 Hitachi Ltd. 1,077
60,000 Inabata & Co. 359
111,000 Kaneka Corp. 592
29,000 Kurita Water Industries 563
12,000 Kyocera Ltd. 681
38,000 Kyudenko Co., Ltd. 281
64,000 Matsushita Electric Industries
Ltd. 999
185,000 Mitsubishi Chemical Corp. 561
60,000 Mitsubishi Estate Co., Ltd. 641
125,000 Mitsubishi Heavy Industries Ltd. 814
42,000 Mitsumi Electric Co., Ltd. 771
18,000 Murata Manufacturing Co., Ltd. 646
97,000 NEC Corp. 1,098
37,000 Nifco, Inc. 320
13,000 Nintendo Corp., Ltd. 934
29,000 Nippon Pillar Packing 158
101,000 Nissan Motor Co. 609
43,000 Nomura Securities Co., Ltd. 476
121 NTT 852
69,000 Obayashi Corp. 405
21,000 Okura Industrial Co., Ltd. 80
84,000 Ricoh Co., Ltd. 958
21,000 Rinnai Corp. 358
13,000 Sangetsu Co., Ltd. 226
35,000 Sankyo Co., Ltd. 965
61,000 Sanwa Shutter 447
14,000 Secom Co., Ltd. 787
61,000 Sekisui Chemical Co. 602
49,000 Sekisui House Ltd. 480
12,000 Shimamura Co., Ltd. 347
16,600 Sony Corp. 1,161
64,000 Stanley Electric Co. 310
81,000 Sumitomo Marine & Fire Insurance
Co. 491
67,000 Suzuki Motor Co., Ltd. 650
16,000 TDK Corp. 1,100
141,000 Taisei Corp., Ltd. 548
31,900 Tokyo Electron Ltd. 1,058
152,000 Toshiba Corp. 841
107,000 Tsubakimoto Chain 626
34,000 Yamanouchi Pharmaceutical Co. $ 704
---------
34,540
---------
MALAYSIA (3.4%)
68,000 Commerce Asset Holding Bhd 477
<CAPTION>
VALUE
SHARES (000)
- --------------- ---------
<C> <S> <C>
7,000 Dialog Group Bhd 114
29,000 Edaran Otomobil Nasional Bhd 293
65,000 Genting Bhd 441
69,000 IJM Corp. Bhd 170
23,000 IOI Corp. Bhd 38
11,000 Leader Universal Holdings Bhd 25
84,000 Magnum Corp. Bhd 159
28,000 Malayan Banking Bhd 319
95,000 Malaysian International Shipping
Bhd (Foreign) 236
64,000 Rashid Hussain Bhd 504
89,000 Renong Bhd 151
62,000 Resorts World Bhd 265
163,000 Sime Darby Bhd 595
58,000 Tanjong plc 231
43,000 Telekom Malaysia Bhd 335
28,000 United Engineers Ltd. 244
---------
4,597
---------
NETHERLANDS (5.5%)
13,250 ABN Amro Holdings N.V. 911
5,920 Akzo Nobel N.V. 850
3,000 Hollandsche Beton Groep N.V. 685
24,100 ING Groep N.V. 950
26,100 KLM Royal Dutch Airlines N.V. 779
11,000 Koninklijke Bijenkorf Beheer N.V. 830
31,500 Koninklijke KNP BT N.V. 670
16,300 Koninklijke Van Ommeren N.V. 713
25,100 Philips Electronics N.V. 1,171
---------
7,559
---------
NORWAY (1.1%)
128,000 Den Norske Bank ASA 555
17,600 Saga Petroleum A/S, Class B 275
98,700 Storebrand ASA 679
---------
1,509
---------
SINGAPORE (2.2%)
18,000 Development Bank of Singapore Ltd.
(Foreign) 209
218,000 Electronic Resources Ltd. 317
29,000 Keppel Corp., Ltd. 183
21,700 Oversea-Chinese Banking Corp.
(Foreign) 258
116,000 SM Summit Holdings Ltd. 79
55,000 Sembawang Corp. 265
24,000 Singapore Press Holdings (Foreign) 437
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------- ---------
<C> <S> <C>
180,000 Super Coffeemix Manufacturing Ltd. $ 140
28,000 United Overseas Bank Ltd.
(Foreign) 287
460,000 Uraco Holdings Ltd. 285
104,000 Want Want Holdings 298
108,000 Wing Tai Holdings Ltd. 319
---------
3,077
---------
SPAIN (2.9%)
10,000 Banco Bilbao Vizcaya S.A.
(Registered) 607
19,100 Grupo Duro Felguera S.A. 203
64,000 Iberdrola S.A. 707
14,000 Repsol S.A. 585
44,300 Telefonica de Espana S.A. 1,071
94,200 Uralita S.A. 767
---------
3,940
---------
SWEDEN (2.1%)
4,600 Electrolux AB, Series B 293
20,600 Nordbanken AB 711
15,800 Skandia Forsakrings AB 498
24,000 S.K.F. AB, Class B 631
18,300 Sparbanken Sverige AB, Class A 340
13,600 Svenska Handelsbanken, Class A 415
---------
2,888
---------
SWITZERLAND (6.6%)
490 Ascom Holdings AG (Bearer) 525
330 Baloise Holding Ltd. (Registered) 674
570 Bobst AG (Bearer) 842
558 Ciba Specialty Chemicals AG
(Registered) 46
2,600 Forbo Holding AG (Registered) 1,071
1,200 Holderbank Financiere Glarus AG
(Bearer) 921
380 Magazine Globus (Participating
Certificates) 166
1,200 Nestle S.A. (Registered) 1,405
558 Novartis AG (Registered) 692
6,100 Oerlikon-Buehrle Holding AG
(Registered) 614
150 Schindler Holding AG
(Participating Certificates) 180
130 Schindler Holding AG (Registered) 152
660 Schweizerische
Industrie-Gesellschaft Holdings
(Registered) 816
980 Sulzer AG (Registered) $ 643
<CAPTION>
VALUE
SHARES (000)
- --------------- ---------
<C> <S> <C>
1,050 Zuerich Versicherung (Registered) 330
---------
9,077
---------
UNITED KINGDOM (11.0%)
97,200 Associated British Foods plc 876
67,000 Bass plc 898
109,123 BAT Industries plc 931
125,000 British Telecommunications plc 916
48,050 Burmah Castrol plc 804
151,644 Christian Salvesen plc 715
220,000 Courtaulds Textiles plc 1,022
138,900 Grand Metropolitan plc 1,122
133,000 Imperial Tobacco Group plc 913
271,519 John Mowlem & Co. plc 514
190,000 Kwik Save Group plc 964
70,400 Racal Electronic plc 335
87,873 Reckitt & Colman plc 1,179
103,200 Royal & Sun Alliance Insurance
Group plc 759
42,750 Scottish Hydro-Electric plc 254
55,383 Southern Electric plc 354
11,300 Southern Electric plc, Class B 6
208,369 Tate & Lyle plc 1,488
40,000 Unilever plc 1,063
---------
15,113
---------
TOTAL COMMON STOCKS (Cost $114,592) 117,493
---------
PREFERRED STOCKS (1.2%)
GERMANY (1.2%)
2,410 Dyckerhoff AG 871
12,000 Hornbach Holding AG 788
---------
TOTAL PREFERRED STOCKS (Cost $1,366) 1,659
---------
TOTAL FOREIGN SECURITIES (86.9%) (Cost $115,958) 119,152
---------
<CAPTION>
FACE
AMOUNT
(000)
- ---------------
<C> <S> <C>
SHORT-TERM INVESTMENTS (12.0%)
REPURCHASE AGREEMENT (12.0%)
$ 16,400 Chase Securities, Inc. 6.00%,
dated 3/31/97, due 4/01/97, to be
repurchased at $16,403,
collateralized by U.S. Treasury
Notes, 6.5%, due 5/31/01, valued
at $16,751 (Cost $16,400) 16,400
---------
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------- ---------
<C> <S> <C>
FOREIGN CURRENCY (0.8%)
AUD 16 Australian Dollar $ 13
BEF 3,789 Belgian Franc 110
GBP 90 British Pound 148
DKK 17 Danish Krone 3
DEM 1,208 Deutsche Mark 724
ITL 3,025 Italian Lira 2
NLG 241 Netherlands Guilder 129
NOK 305 Norwegian Krone 46
ESP 144 Spanish Peseta 1
---------
TOTAL FOREIGN CURRENCY (Cost $1,156) 1,176
---------
TOTAL INVESTMENTS (99.7%) (Cost $133,514) 136,728
---------
OTHER ASSETS AND LIABILITIES (0.3%)
Other Assets 49,042
Liabilities (48,655)
---------
387
---------
NET ASSETS (100%) $ 137,115
---------
---------
CLASS A:
NET ASSETS $ 113,722
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 10,412,934 outstanding $0.001 par
value shares (authorized 500,000,000 shares)
$10.92
---------
---------
CLASS B:
NET ASSETS $23,393
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 2,147,405 outstanding $0.001 par
value shares (authorized 500,000,000 shares)
$10.89
---------
---------
</TABLE>
- ----------------------------------
NCS -- Non Convertible Shares
7
