<PAGE>
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DIRECTORS OFFICERS
Barton M. Biggs Stefanie V. Chang
CHAIRMAN OF THE BOARD VICE PRESIDENT
Chairman and Director, Morgan Stanley Asset Management Harold J. Schaaff, Jr.
Inc. and Morgan Stanley Asset Management Limited; VICE PRESIDENT
Managing Director, Morgan Stanley & Co. Incorporated Joseph P. Stadler
Michael F. Klein VICE PRESIDENT
DIRECTOR AND PRESIDENT Valerie Y. Lewis
Principal, Morgan Stanley Asset Management Inc. and SECRETARY
Morgan Stanley & Karl O. Hartmann
Co. Incorporated ASSISTANT SECRETARY
John D. Barrett II Joanna M. Haigney
Chairman and Director, TREASURER
Barrett Associates, Inc. Rene J. Feuerman
Gerard E. Jones ASSISTANT TREASURER
Partner, Richards & O'Neil LLP
Andrew McNally IV
River Road Partners
Samuel T. Reeves
Chairman of the Board and Chief
Executive Officer,
Pinacle L.L.C.
Fergus Reid
Chairman and Chief Executive Officer, LumeLite
Plastics Corporation
Frederick O. Robertshaw
Of Counsel, Copple, Chamberlin &
Boehm, P.C.
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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
1221 Avenue of the Americas
New York, New York 10020
- ---------------------------------------------------------
CUSTODIANS
The Chase Manhattan Bank
3 Chase MetroTech Center
Brooklyn, New York 11245
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.
GLOBAL EQUITY PORTFOLIO
FIRST QUARTER REPORT
MARCH 31, 1998
<PAGE>
LETTER TO SHAREHOLDERS
- -------
The Global Equity Portfolio is managed with the objective of obtaining long-term
capital appreciation by investing in equity securities of issuers throughout the
world, including U.S. issuers. Investments may also be made with discretion in
emerging markets.
For the three months ended March 31, 1998, the Portfolio had a total return of
16.31% for the Class A shares and 16.14% for the Class B shares compared to a
total return of 14.32% for the Morgan Stanley Capital International (MSCI) World
Index (the "Index"). For the one year ended March 31, 1998, the Portfolio had a
total return of 40.64% for the Class A shares and 40.09% for the
PERFORMANCE COMPARED TO THE MORGAN STANLEY CAPITAL INTERNATIONAL (MSCI) WORLD
INDEX(1)
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<TABLE>
<CAPTION>
TOTAL RETURNS(2)
----------------------------------------------------
AVERAGE
ANNUAL AVERAGE
ONE FIVE ANNUAL SINCE
YTD YEAR YEARS INCEPTION
--------- ----------- ----------- ---------------
<S> <C> <C> <C> <C>
PORTFOLIO--CLASS A............ 16.31% 40.64% 23.34% 22.28%
PORTFOLIO--CLASS B............ 16.14 40.09 N/A 28.28
INDEX--CLASS A................ 14.32 31.96 16.54 15.74
INDEX--CLASS B................ 14.32 31.96 N/A 19.64
</TABLE>
1. The MSCI World Index is an unmanaged index of common stocks and includes
securities representative of the market structure of 22 developed market
countries in North America, Europe, and the Asia/Pacific region (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.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
- ------------------------------
THE PERFORMANCE RESULTS PROVIDED IN THIS OVERVIEW 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.
Class B shares compared to 31.96% for the Index. For the five year period ended
March 31, 1998 the average annual total return of the Class A shares was 23.34%
compared to 16.54% for the Index. From inception on July 15, 1992 to March 31,
1998, the average annual total return of Class A was 22.28% compared to 15.74%
for the Index. From inception on January 2, 1996 to March 31, 1998, the average
annual total return of Class B was 28.28% compared to 19.64% for the Index.
Our first quarter outperformance was due largely to stock specific performance
throughout the European region, where we remain overweight. Notable
contributions came from stocks in Switzerland, Spain, Italy and Ireland. Our
continued underweighting in Japan again contributed. Offsetting this was
relative underperformance from some of our U.S. holdings.
Outperformance during the first quarter of 1998 was due largely to strong
relative performance from many of our holdings across Europe, where we remain
overweight. Strong stock selection in Switzerland was a contributing factor,
with Ascom up 62% and Holderbank up 28%, Telefonica in Spain up 54%, and Telecom
Italia up 39%. In the Netherlands, ING was a strong performer, up 34%, while in
Germany outperformance came from our holdings in Volkswagen and BASF, and Green
Property, the Anglo/Irish investor and developer, was up 25%. Our underweight
position in Japan and Asia again contributed positively to relative performance.
Offsetting this was stock selection in the United States, where the educational
publisher Houghton Mifflin ended the quarter down 17% on news of likely flat
earnings in 1998 due to changes in state education adoption policies, while our
oil stocks were impacted by the weakness in crude.
Our U.S. weighting has fallen marginally in recent months as some of our U.S.
stocks have reached their price targets and we find better relative value
elsewhere. In Europe we remain overweight on relative valuation grounds and have
been encouraged by the increasing focus on shareholder value in these markets.
In Japan
2
<PAGE>
we continue to struggle to find value other than in selected sectors such as
pharmaceuticals. With regards to other Asian markets, we are unconvinced that
the worst is over yet, although there seems to be some stability returning to
currency markets.
Frenetic merger and acquisition activity, net inflows of U.S. $60 billion into
equity mutual funds, robust economic growth and the first balanced budget in 50
years resulted in a further staggering 13.9% rise in the MSCI USA Index over the
first quarter, with the market ignoring several higher profile earnings
disappointments. Despite the remarks of Greenspan's Humphrey Hawkins testimony,
cyclicals enjoyed a particularly strong quarter on the back of a very strong
economy which has yet to feel the chill winds of the Asian crisis. Euphoric
consumer confidence levels also boosted retail stocks while the housing sector
remained strong, boosted by refinancing gains, the secure employment
environment, and strong income growth. Tobacco stocks remained weak on
settlement uncertainty, as did chemicals.
The MSCI Europe Index ended the first quarter a phenomenal 20.3% higher in U.S.
dollars and 22.2% in local-currency terms on the back of a liquidity bubble,
heightened M&A activity and improving economic sentiment across the region. With
the exception of Norway (heavy oil stock weighting), all European markets posted
double-digit returns with Italy, Spain, and Finland providing dollar based
returns in the mid- to high thirties. Top-performing sectors included autos,
telecommunications and consumer staples. In contrast, media, oils, and chemicals
were among the quarter's worst performers. The MSCI U.K. Index rose 18.1% in
U.S. dollar terms and 16% in sterling over the quarter on the back of merger
speculation, despite sterling rising to a nine-year high against the
Deutschemark on speculation of a further base-rate rise.
Despite attempts to buttress March year end prices, Japan still turned in one of
the weakest first-quarter performances among the developed markets, advancing
only 2.0% in U.S. dollar terms and 4.7% in yen. More bankruptcies, highlighted
by the failure of Daiichi Corp., and further bribery scandals punctuated the
quarter as the banks continued to write off billions of dollars in problem
loans. Weakening retail spending (department store sales fell 7% in February),
declining auto sales, and tumbling exports to Southeast Asia all contributed to
the mire as industrial production fell an additional 3.3% in February. Although
the government's latest economic stimulus package (announced in March) carried a
headline figure of Y16 trillion only half of this is believed to be new money,
with the quarter ending with an exceptionally weak Tankan survey.
Frances Campion
PORTFOLIO MANAGER
April 1998
3
<PAGE>
INVESTMENTS (UNAUDITED)
- ----------
MARCH 31, 1998
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------- ---------
<C> <S> <C>
COMMON STOCKS (93.4%)
AUSTRALIA (0.9%)
205,100 CSR Ltd. $ 712
186,800 Telstra Corp., Ltd. (Installment
Receipts-Final Installment: AUD
1.35/share due 11/17/98) 481
---------
1,193
---------
BELGIUM (0.1%)
2,300 G.I.B. Group 115
---------
CANADA (1.9%)
18,530 Potash Corp. of Saskatchewan, Inc. 1,684
32,120 TELUS Corp. 940
---------
2,624
---------
FINLAND (0.4%)
33,050 Valmet Oyj 530
---------
FRANCE (3.7%)
2,010 Bongrain 1,025
11,066 Elf Aquitaine 1,451
8,200 France Telecom 433
6,300 Groupe Danone 1,522
11,000 Scor 630
---------
5,061
---------
GERMANY (5.6%)
51,900 BASF AG 2,296
32,920 Bayer AG 1,498
3,470 Karstadt AG 1,351
2,364 Sinn AG 403
14,100 VEBA AG 1,005
800 Viag AG 440
1,000 Volkswagen AG 783
---------
7,776
---------
HONG KONG (0.7%)
287,000 Hysan Development Co., Ltd. 463
196,481 Jardine Strategic Holdings, Inc. 538
---------
1,001
---------
IRELAND (4.7%)
719,478 Anglo Irish Bank Corp. plc 1,663
80,530 Bank of Ireland 1,598
69,200 Clondalkin Group plc 706
342,981 Green Property plc 2,448
13,694 Irish Life plc 125
---------
6,540
---------
ITALY (4.2%)
164,800 Mediaset S.p.A. 1,043
<CAPTION>
VALUE
SHARES (000)
- --------------- ---------
<C> <S> <C>
781,813 Telecom Italia S.p.A. Di Risp
(NCS) $ 4,790
---------
5,833
---------
JAPAN (6.3%)
66,000 Fuji Photo Film Ltd. 2,455
70,000 Fujisawa Pharmaceutical Co., Ltd. 625
21,000 Hitachi Ltd. 153
81,000 Kao Corp. 1,063
47,000 Matsushita Electric Industrial
Co., Ltd. 754
222,000 NKK Corp. 200
140,000 Nichido Fire & Marine Insurance
Co., Ltd. 756
9,000 Sony Corp. 763
86,000 Sumitomo Rubber Industries 447
13,000 TDK Corp. 1,004
37,000 Toyo Seikan Kaisha Ltd. 555
---------
8,775
---------
NETHERLANDS (4.5%)
83,012 ABN Amro Holding N.V. 1,915
12,800 Benckiser N.V., Class B 707
18,880 Hollandsche Beton Groep N.V. 369
35,324 ING Groep N.V. 2,004
17,200 Philips Electronics N.V. 1,262
---------
6,257
---------
NEW ZEALAND (0.7%)
362,100 Lion Nathan Ltd. 933
---------
PORTUGAL (0.3%)
13,450 Cimpor SGPS 474
---------
SPAIN (3.4%)
93,700 Iberdrola 1,424
74,800 Telefonica de Espana 3,299
---------
4,723
---------
SWEDEN (1.6%)
201,800 Nordbanken Holding AB 1,338
14,300 Skandia Forsakrings AB 932
---------
2,270
---------
SWITZERLAND (4.7%)
300 ABB AG (Bearer) 448
800 Ascom Holdings AG (Bearer) 1,672
370 Bobst AG (Bearer) 707
30 Cie Financiere Richemont AG,
Class A 40
2,500 Forbo Holding AG (Registered) 1,380
835 Holderbank Financiere Glarus AG,
Class B (Bearer) 877
100 Nestle (Registered) 191
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------- ---------
<C> <S> <C>
SWITZERLAND (CONTINUED)
780 SIG-Schweizerische Industrie-
Gesellschaft Holdings AG
(Registered) $ 1,218
---------
6,533
---------
UNITED KINGDOM (12.3%)
228,888 Aggreko plc 671
54,821 Bass plc 1,052
45,500 Burmah Castrol plc 929
126,500 BTR plc 415
228,888 Christian Salvesen plc 437
37,850 Danka Business Systems plc ADR 695
124,000 English China Clays plc 499
78,000 Imperial Tobacco Group plc 574
105,028 John Mowlem & Co. plc 217
241,400 Matthews (Bernard) plc 364
94,600 Peninsular & Oriental Steam
Navigation Co. 1,419
653,333 Pentos plc --
118,100 Premier Farnell plc 759
138,491 Reckitt & Colman plc 2,569
42,267 Rolls-Royce plc 198
160,800 Royal & Sun Alliance Insurance
Group plc 2,051
81,453 Southern Electric plc 748
45,777 Tate & Lyle plc 400
160,000 Unilever plc 1,515
272,200 WPP Group plc 1,551
---------
17,063
---------
UNITED STATES (37.4%)
29,600 Albertson's, Inc. 1,558
17,750 Aluminum Company of America 1,221
20,550 American Stores Co. 534
36,904 Ascent Entertainment Group, Inc. 381
28,400 B.F. Goodrich Co. 1,450
47,400 BJ's Wholesale Club, Inc. 1,849
26,300 Beazer Homes USA, Inc. 676
28,700 Borg-Warner Automotive, Inc. 1,840
9,007 Browning-Ferris Industries, Inc. 294
107,300 Cadiz Land Co., Inc. 1,281
22,000 Cadiz Land Co., Inc. (Restricted
Shares) 263
98,100 COMSAT Corp. 3,378
99,550 Data General Corp. 1,761
109,000 Egghead, Inc. 1,172
43,100 Enhance Financial Services Group,
Inc. 2,993
47,000 Finova Group, Inc. 2,767
90,600 GenRad, Inc. 2,814
11,700 General Signal Corp. 547
21,300 Georgia-Pacific Corp. 1,379
13,800 Georgia Pacific Corp. (Timber
Group) 354
<CAPTION>
VALUE
SHARES (000)
- --------------- ---------
<C> <S> <C>
47,400 Homebase, Inc. $ 397
77,600 Houghton Mifflin Co. 2,473
23,350 IBP, Inc. 524
83,000 InteliData Technologies Corp. 249
20,900 Lukens, Inc. 683
22,400 MBIA, Inc. 1,736
19,400 Mellon Bank Corp. 1,232
29,562 NCR Corp. 977
42,510 Noble Drilling Corp. 1,299
41,015 Ocean Energy Inc. 966
60,700 Penncorp Financial Group, Inc. 1,753
2,000 Pennzoil Co. 129
55,400 Pharmacia & Upjohn, Inc. 2,424
85,200 Philip Morris Cos., Inc. 3,552
11,300 Tecumseh Products Co., Class A 607
29,200 Tenneco, Inc. 1,246
38,100 Terra Nova (Bermuda) Holdings
Ltd., Class A 1,162
16,800 Toys "R" Us, Inc. 505
3,850 Tupperware Corp. 103
28,800 UST Corp. 817
14,800 United Dominion Industries Ltd. 480
135,400 WorldCorp, Inc. 127
---------
51,953
---------
TOTAL COMMON STOCKS (Cost $87,147) 129,654
---------
PREFERRED STOCKS (1.2%)
GERMANY (1.2%)
3,000 Volkswagen AG (Cost $647) 1,700
---------
<CAPTION>
NO. OF
RIGHTS
- ---------------
<C> <S> <C>
RIGHTS (0.1%)
GERMANY (0.1%)
4,000 Volkswagen AG, expiring 4/7/98
(Cost $0) 70
---------
TOTAL FOREIGN & U.S. SECURITIES (94.7%) (Cost
$87,794) 131,424
---------
<CAPTION>
FACE
AMOUNT
(000)
- ---------------
<C> <S> <C>
SHORT-TERM INVESTMENT (4.3%)
REPURCHASE AGREEMENT (4.3%)
$ 5,930 Chase Securities, Inc. 5.60%,
dated 3/31/98, due 4/01/98, to be
repurchased at $5,931,
collateralized by U.S. Treasury
Notes, 6.25%, due 4/30/01, valued
at $6,062 (Cost $5,930) 5,930
---------
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
AMOUNT VALUE
(000) (000)
- --------------- ---------
<C> <S> <C>
FOREIGN CURRENCY (0.5%)
BEF 180 Belgian Franc $ 5
GBP 448 British Pound 750
CAD 13 Canadian Dollar 9
DEM 25 German Mark 14
JPY 365 Japanese Yen 3
ESP 300 Spanish Peseta 2
---------
TOTAL FOREIGN CURRENCY (Cost $772) 783
---------
TOTAL INVESTMENTS (99.5%) (Cost $94,496) 138,137
---------
OTHER ASSETS AND LIABILITIES (0.5%)
Other Assets 12,972
Liabilities (12,297)
---------
675
---------
NET ASSETS (100%) $ 138,812
---------
---------
CLASS A:
NET ASSETS $129,538
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 6,013,252 outstanding $0.001 par
value shares (authorized 500,000,000 shares) $21.54
---------
---------
CLASS B:
NET ASSETS $9,274
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 432,644 outstanding $0.001 par value
shares (authorized 500,000,000 shares) $21.44
---------
---------
</TABLE>
- ------------------------------
ADR -- American Depositary Receipt
AUD -- Australian Dollar
NCS -- Non Convertible Shares
6
