<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
DIRECTORS OFFICERS
Barton M. Biggs Stefanie V. Chang
CHAIRMAN OF THE BOARD VICE PRESIDENT
Chairman and Director, Morgan Stanley Asset Harold J. Schaaff,
Management Inc. and Morgan Stanley Asset Jr.
Management Limited; Managing Director, VICE PRESIDENT
Morgan Stanley & Co. Incorporated Joseph P. Stadler
Michael F. Klein VICE PRESIDENT
DIRECTOR AND PRESIDENT Valerie Y. Lewis
Principal, Morgan Stanley Asset Management SECRETARY
Inc. and Morgan Stanley & Co. Incorporated Karl O. Hartmann
John D. Barrett II ASSISTANT SECRETARY
Chairman and Director, Joanna M. Haigney
Barrett Associates, Inc. TREASURER
Gerard E. Jones Rene J. Feuerman
Partner, Richards & O'Neil LLP ASSISTANT TREASURER
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.
</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
1221 Avenue of the Americas
New York, New York 10020
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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.
TECHNOLOGY PORTFOLIO
FIRST QUARTER REPORT
MARCH 31, 1998
<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)
-----------------------------------
AVERAGE
ANNUAL
ONE SINCE
YTD YEAR INCEPTION
---------- ---------- -----------
<S> <C> <C> <C>
PORTFOLIO--CLASS A............. 15.86% 61.45% 41.41%
PORTFOLIO--CLASS B............. 15.79 61.07 41.11
S&P 500 INDEX.................. 13.95 47.99 38.85
LIPPER SCIENCE &
TECHNOLOGY--FUNDS INDEX....... 14.81 36.43 22.12
</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.
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.
For the three months ended March 31, 1998, the Portfolio had a total return of
15.86% for Class A shares and 15.79% for Class B shares compared to 13.95% for
the S&P 500 Index and 14.81% for the Lipper Science Technology Funds Index. For
the one year ended March 31, 1998, the Portfolio had a total return of 61.45%
for the Class A shares and 61.07% for the Class B shares compared to 47.99% for
the S&P 500 Index and 36.43% for the Lipper Science and Technology Funds Index.
From inception on September 16, 1996 through March 31, 1998, the average annual
total return of Class A was 41.41% and 41.11% for Class B compared to 38.85% for
the S&P 500 Index and 22.12% for the Lipper Science and Technology Funds Index.
Overall, we were pleased with the Portfolio's performance for the quarter as it
has performed well on an absolute and relative basis, ahead of all our relevant
benchmarks. The strong performance for the first quarter was due to broadbased
strength across both our large and small capitalizations stocks. Our broadband,
software and networking sectors and the selective stocks in the hardware sector
performed particularly well. The best performing stocks in the quarter were
Lucent Technologies, American Online, Ascend Communications, Tellabs, and
Compuware. The Portfolio was underweight the Semiconductor and Services sectors
which did not perform as well.
We look forward to the remainder of 1998. There are over 2,000 public technology
companies and we strive to remain invested in the best 100. 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 present compelling investment opportunities
and avoid the sectors and companies with
2
<PAGE>
deteriorating fundamentals. We believe the sectors that offer these
characteristics are, broadband communications, internet, and software.
Stephen C. Sexauer
PORTFOLIO MANAGER
April 1998
3
<PAGE>
INVESTMENTS (UNAUDITED)
- ----------
MARCH 31, 1998
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------- ---------
<C> <S> <C>
COMMON STOCKS (94.8%)
TECHNOLOGY (94.8%)
BIOTECHNOLOGY (1.0%)
2,000 Human Genome Sciences, Inc. $ 79
6,300 Inhale Therapeutic Systems 171
1,600 Transkaryotic Therapies, Inc. 52
---------
302
---------
CAD/CAM (0.9%)
6,200 Autodesk, Inc. 267
---------
DATA COMMUNICATIONS (21.6%)
9,300 ADC Telecommunications, Inc. 256
18,100 Advanced Fibre Communications 658
1,900 AirTouch Communications, Inc. 93
22,100 Ascend Communications, Inc. 837
6,500 Bay Networks, Inc. 176
2,200 China Telecomm (Hong Kong) Ltd.,
ADR 90
10,400 CIENA Corp. 443
12,700 Cisco Systems, Inc. 868
4,440 Digital Microwave Corp. 65
9,500 DSP Communications, Inc. 162
4,300 Excell Switching Corp. 109
22,900 Executone Information Systems,
Inc. 51
1,300 ICG Communications, Inc. 48
1,300 JDS Fitel, Inc. 72
5,100 Lucent Technologies, Inc. 652
2,000 Metromedia Fiber Network, Inc.,
Class A 67
7,100 Mobile Telecommunications
Technologies Corp. 159
600 Nextel Communications, Inc., Class
A 20
6,700 Proxim, Inc. 102
2,600 Secure Computing Corp. 35
3,300 Tekelec, Inc. 150
1,600 Teleport Communications Group,
Inc., Class A 94
1,600 Teligent, Inc. Class A 49
13,000 Tellabs, Inc. 873
6,200 TranSwitch Corp. 72
6,100 Volt Information Sciences, Inc. 340
---------
6,541
---------
DATA STORAGE & PROCESSING (0.9%)
3,300 EMC Corp. 125
1,700 Storage Technology Corp. 129
11,400 Syquest Technology, Inc. 34
---------
288
---------
ELECTRONIC EQUIPMENT (7.2%)
3,400 Apex PC Solutions, Inc. 91
<CAPTION>
VALUE
SHARES (000)
- --------------- ---------
<C> <S> <C>
8,000 Chromatics Color Sciences
International, Inc. $ 99
3,800 CompUSA, Inc. 99
1,400 Exodus Communications, Inc. 39
9,700 FORE Systems, Inc. 153
3,800 International Network Services 111
2,400 Jyra Research, Inc. 31
18,450 Level One Communications, Inc. 434
2,900 MMC Networks, Inc. 60
3,243 Molex, Inc., Class A 87
5,000 Network Associates, Inc. 331
3,000 Nichols Research Corp. 84
2,700 Uniphase Corp. 114
4,000 VideoServer, Inc. 50
500 Visual Networks, Inc. 13
3,300 Vitesse Semiconductor Corp. 155
8,700 Xylan Corp. 212
---------
2,163
---------
INFORMATION PROCESSING (4.2%)
4,800 America Online, Inc. 328
20,900 Cendant Corp. 828
4,100 Electronics for Imaging, Inc. 107
---------
1,263
---------
LARGE DIVERSIFIED COMPUTER MFG (1.8%)
1,400 International Business Machines
Corp. 146
21,600 Unisys Corp. 410
---------
556
---------
MEDICAL TECHNOLOGY (0.5%)
5,500 Schick Technologies, Inc. 140
---------
MICRO COMPUTER MFG (4.5%)
7,500 Apple Computer, Inc. 206
4,400 Dell Computer Corp. 298
18,200 Gateway 2000, Inc. 855
---------
1,359
---------
OFFICE AUTOMATION (1.7%)
9,800 Harris Corp. 511
---------
SEMICONDUCTOR CAPITAL EQUIPMENT MFG (0.0%)
100 Applied Materials, Inc. 4
---------
SEMICONDUCTOR MFG (12.9%)
8,500 Altera Corp. 321
5,800 Intel Corp. 453
5,800 Lattice Semiconductor Corp. 299
10,000 Linear Technology Corp. 690
22,100 Maxim Integrated Products, Inc. 805
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------- ---------
<C> <S> <C>
SEMICONDUCTOR MFG (CONTINUED)
19,000 Micron Electronics, Inc. $ 241
2,000 Micron Technology, Inc. 58
6,600 PMC-Sierra, Inc. 251
7,600 Texas Instruments, Inc. 411
9,700 Xilinx, Inc. 363
---------
3,892
---------
SOFTWARE PRODUCTS (23.1%)
2,200 At Home Corp., Series A 75
8,600 Cadence Design Systems, Inc. 298
13,800 Citrix Systems, Inc. 748
21,600 Computer Associates International,
Inc. 1,248
21,100 Compuware Corp. 1,042
2,400 DSET Corp. 45
3,900 Electronic Data Systems Corp. 179
5,600 FlexiInternational Software, Inc. 70
700 Fundtech Ltd. 13
700 ISS Group, Inc. 27
4,300 Infoseek Corp. 78
4,800 Intersolv, Inc. 86
1,300 Inter-Tel, Inc. 35
2,200 J.D. Edwards & Co. 72
9,400 Learning Company, Inc. 217
5,200 Macromedia, Inc. 77
500 Manugistics Group, Inc. 28
4,500 Micromuse, Inc. 110
5,100 Microsoft Corp. 456
3,600 Netscape Communications Corp. 65
5,600 NetSpeak Corp. 174
12,100 Oracle Systems Corp. 382
13,800 Peoplesoft, Inc. 727
4,400 Progress Software Corp. 132
3,400 Software AG Systems, Inc. 90
8,000 Sybase, Inc. 77
1,200 Symantec Corp. 32
5,300 USCS International, Inc. 113
4,400 Vantive Corp. 161
700 Vocaltec Communications Ltd. 14
1,000 YAHOO!, Inc. 92
---------
6,963
---------
TEST, ANALYSIS & INSTRUMENTATION EQUIPMENT (0.4%)
3,000 Veeco Instruments, Inc. 112
---------
OTHER (14.1%)
1,000 Amazon.com, Inc. 86
2,400 American Communications Services,
Inc. 44
<CAPTION>
VALUE
SHARES (000)
- --------------- ---------
<C> <S> <C>
2,300 BISYS Group, Inc. $ 81
2,700 CBS Corp. 92
700 Clear Channel Communications, lnc. 69
3,000 Computer Management Sciences, Inc. 83
3,500 Cooper Companies, Inc. 149
5,800 Data Processing Resources Corp. 180
4,800 ECsoft Group plc ADR 120
900 EVI, Inc. 42
2,200 Galileo International, Inc. 85
12,500 Ingram Micro, Inc., Class A 464
500 Intermedia Communications, Inc. 40
4,100 Jones Medical Industries, Inc. 148
4,900 Medicis Pharmaceutical Corp.,
Class A 214
24,000 Mercury Computer Systems, Inc. 414
1,200 Orbital Sciences Corp. 54
3,700 Paychex, Inc. 213
2,300 PC Connection, Inc. 49
4,300 Robert Half International, Inc. 206
9,500 Romac International, Inc. 261
7,900 SABRE Group Holdings, Inc. 283
2,300 Sprint Corp. 156
7,200 SunGard Data Systems, Inc. 265
1,350 Tele-Communications, Inc., Class A 46
8,800 Whittman-Hart, Inc. 398
---------
4,242
---------
TOTAL TECHNOLOGY 28,603
---------
TOTAL COMMON STOCKS (Cost $24,874) 28,603
---------
<CAPTION>
NO. OF
CONTRACTS
- ---------------
<C> <S> <C>
PURCHASED OPTIONS (0.0%)
ELECTRONIC EQUIPMENT (0.0%)
50 Network Associates, Inc., expiring
4/18/98, strike price U.S.$65
(Cost $16) 18
---------
<CAPTION>
FACE
AMOUNT
(000)
- ---------------
<C> <S> <C>
SHORT-TERM INVESTMENT (6.9%)
REPURCHASE AGREEMENT (6.9%)
$ 2,077 Chase Securities, Inc. 5.60%,
dated 3/31/98, due 4/01/98, to be
repurchased at $2,077
collateralized by U.S. Treasury
Bills, due 6/11/98, valued at
$2,145 (Cost $2,077) 2,077
---------
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
AMOUNT
(000)
---------
<C> <S> <C>
TOTAL INVESTMENTS (101.7%) (Cost $26,967) $ 30,698
---------
OTHER ASSETS AND LIABILITIES (-1.7%)
Other Assets 531
Liabilities (1,043)
---------
(512)
---------
NET ASSETS (100%) $ 30,186
---------
---------
CLASS A:
NET ASSETS $ 28,988
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 2,133,167 outstanding $.001 par value
shares (authorized 500,000,000 shares) $13.59
---------
---------
CLASS B:
NET ASSETS $1,198
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 88,278 outstanding $.001 par value
shares (authorized 500,000,000 shares) $13.57
---------
---------
</TABLE>
- ----------------------------------
ADR -- American Depositary Receipt
6
