<PAGE>
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DIRECTORS OFFICERS
Barton M. Biggs Stefanie V. Chang
CHAIRMAN OF THE BOARD VICE PRESIDENT
Chairman and Director, Morgan Harold J. Schaaff, Jr.
Stanley Asset Management Inc. and VICE PRESIDENT
Morgan Stanley Asset Management Joseph P. Stadler
Limited; Managing Director, Morgan VICE PRESIDENT
Stanley & Co. Incorporated. Valerie Y. Lewis
Michael F. Klein SECRETARY
DIRECTOR AND PRESIDENT Karl O. Hartmann
Principal, Morgan Stanley Asset ASSISTANT SECRETARY
Management Inc. and Morgan Stanley Joanna M. Haigney
& Co. Incorporated TREASURER
John D. Barrett II Rene J. Feuerman
Chairman and Director, ASSISTANT TREASURER
Barrett Associates, Inc.
Gerard E. Jones
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
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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.
EMERGING GROWTH PORTFOLIO
FIRST QUARTER REPORT
MARCH 31, 1998
<PAGE>
LETTER TO SHAREHOLDERS
- -------
The Emerging Growth Portfolio invests primarily in growth-oriented equity
securities of small-to-medium sized domestic corporations and, to a limited
extent, foreign corporations. Such companies generally have gross revenues
ranging from $10 million to $750 million.
For the three months ended March 31, 1998, the Portfolio had a total return of
16.32% for the Class A shares and 16.12% for the Class B shares, compared to a
total return of 16.90% for the NASDAQ Composite Index (the "Index"). For the one
year ended March 31, 1998, the Portfolio had a total return of 46.58% for the
Class A shares and 46.22% for the Class B shares, compared to 50.26% for the
Index. For the five year period ended March 31, 1998, the average annual total
return of Class A was 14.89% compared to 21.61% for the Index. From inception on
November 1, 1989 through March 31, 1998,
PERFORMANCE COMPARED TO THE NASDAQ COMPOSITE INDEX(1)
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<TABLE>
<CAPTION>
TOTAL RETURNS(2)
------------------------------------------------
AVERAGE AVERAGE
ANNUAL ANNUAL
ONE FIVE SINCE
YTD YEAR YEARS INCEPTION
--------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
PORTFOLIO--CLASS A............. 16.32% 46.58% 14.89% 13.54%
PORTFOLIO--CLASS B............. 16.12 46.22 N/A 13.81
INDEX--CLASS A................. 16.90 50.26 21.61 18.02
INDEX--CLASS B................. 16.90 50.26 N/A 27.81
</TABLE>
1. The NASDAQ Composite Index is an unmanaged index of common 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.
the average annual total return of Class A was 13.54% compared to 18.02% for the
Index. From inception on January 2, 1996 through March 31, 1998, the average
annual total return of Class B was 13.81% compared to 27.81% for the Index.
During the quarter we reduced our exposure to the healthcare and technology
sectors and shifted our emphasis towards business services, finance and consumer
discretionary (especially broadcasting). We also continued to reduce the number
of issues in the Portfolio to about 100 at quarter end. This has enabled us to
take larger positions in our best ideas while remaining diversified through our
"farm team", or names which represent less than a 50 basis point position. We
continue to feel that by taking larger and fewer positions we are best able to
leverage the benefits of our research efforts.
Thiokol was our largest position at quarter end, at 4.9% of net assets. It is
the nation's leading supplier of solid rocket propulsion systems for space
launch vehicles, both for government and commercial users. Thiokol, through its
Huck International, Inc. subsidiary, is a leading designer of high performance
fasteners used by nearly every current U.S. and European commercial aircraft, as
well as military aircraft, heavy duty trucks, railroad cars and automobiles.
Thiokol also owns a 49% interest in Howmet International, which supplies
components for turbine engines used on jet aircraft and for utility power
generation.
Another large holding was Knoll, which represented 3.2% of the Portfolio's net
assets at quarter end. Knoll designs, manufactures and develops office furniture
products and accessories, focusing on the middle to high end of the contract
furniture market. We are excited about both the company's opportunity for
growth, as well as significant de-leveraging which will help earnings per share
grow at a faster rate than sales.
Finally, we also highlight Reinsurance Group of America (RGA) which made up 2.8%
of net assets at quarter end. The company engages primarily in life reinsurance.
2
<PAGE>
(Reinsurance is an arrangement under which an insurance company can cede part of
its underwriting risk to a third party.) A reinsurer such as Reinsurance Group
adds value to the insurance company in several ways, notably allowing insurance
companies to increase their volume of business and stabilizing their operating
results. RGA has established an exceptional reputation in the U.S., where it
deals with most of the top 100 domestic insurance companies. We are increasingly
excited by the growth of RGA's international business in Canada, Latin America,
and Australia.
At quarter end the portfolio held 99 positions and 1.4% in cash and equivalents.
The top ten holdings accounted for 33.6% of the Portfolio's net assets.
Kurt A. Feuerman
PORTFOLIO MANAGER
Daniel R. Lascano
PORTFOLIO MANAGER
April 1998
3
<PAGE>
INVESTMENTS (UNAUDITED)
- ----------
MARCH 31, 1998
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------- -------
<C> <S> <C>
COMMON STOCKS (98.6%)
AUTO & TRANSPORTATION (6.3%)
AIR TRANSPORT (4.0%)
49,200 Continental Airlines, Inc., Class
B $ 2,894
-------
AUTO PARTS: AFTER MARKET (0.5%)
14,900 Aftermarket Technology Corp. 326
-------
AUTO PARTS: ORIGINAL EQUIPMENT (1.5%)
16,900 Borg-Warner Automotive, Inc. 1,084
-------
AUTO TRUCKS & PARTS (0.3%)
7,800 Keystone Automotive Industries,
Inc. 185
-------
TOTAL AUTO & TRANSPORTATION 4,489
-------
CONSUMER DISCRETIONARY (33.1%)
ADVERTISING AGENCIES (0.6%)
12,650 Lamar Advertising Co. 437
-------
EDUCATION SERVICES (0.5%)
10,300 DeVry, Inc. 352
-------
ENTERTAINMENT (0.6%)
11,900 Gaylord Entertainment Co. 425
-------
FUNERAL PARLORS & CEMETERIES (0.8%)
23,800 Equity Corporation International 570
-------
HOUSEHOLD FURNISHINGS (0.5%)
11,400 Furniture Brands International,
Inc. 367
-------
PUBLISHING: MISCELLANEOUS (0.5%)
22,400 PRIMEDIA, Inc. 329
-------
PUBLISHING: NEWSPAPERS (4.0%)
42,500 Harte-Hanks Communications, Inc. 1,009
23,200 Pulitzer Publishing Co. 1,853
-------
2,862
-------
RADIO & TV BROADCASTERS (12.2%)
18,200 Ackerley Group, Inc. 372
51,500 American Radio Systems Corp. 3,267
11,100 Clear Channel Communications, Inc. 1,088
31,400 Granite Broadcasting Corp. 361
8,900 Metro Networks, Inc. 374
33,500 SFX Broadcasting Inc., Class A 3,262
-------
8,724
-------
RESTAURANTS (1.3%)
11,800 Brinker International, Inc. 258
17,500 Dave & Busters, Inc. 472
5,600 Papa John's International, Inc. 213
-------
943
-------
<CAPTION>
VALUE
SHARES (000)
- --------------- -------
<C> <S> <C>
RETAIL (3.5%)
60,000 Ames Department Stores, Inc. $ 1,268
11,500 Bed, Bath & Beyond, Inc. 531
9,900 Dollar Tree Stores, Inc. 526
6,900 Dress Barn, Inc. 198
-------
2,523
-------
SERVICE ORGANIZATIONS (0.5%)
19,100 Youth Services International, Inc. 351
-------
SERVICES: COMMERCIAL (8.1%)
20,538 Cendant Corp. 814
11,700 Data Processing Resources Corp. 363
59,200 MPW Industrial Services Group,
Inc. 644
12,100 NFO Worldwide, Inc. 254
16,450 Robert Half International, Inc. 790
30,500 Romac International, Inc. 839
58,300 Steven Myers & Associates, Inc. 1,035
21,900 Viad Corp. 531
8,600 Volt Information Sciences, Inc. 479
-------
5,749
-------
TOTAL CONSUMER DISCRETIONARY 23,632
-------
CONSUMER STAPLES (1.7%)
FOODS (1.7%)
6,953 Tootsie Roll Industries, Inc. 498
19,800 U.S. Foodservice, Inc. 729
-------
TOTAL CONSUMER STAPLES 1,227
-------
FINANCIAL SERVICES (16.8%)
DIVERSIFIED FINANCIAL SERVICES (0.7%)
14,901 Mutual Risk Management Ltd. 505
-------
FINANCIAL DATA PROCESSING SERVICES &
SYSTEMS (2.7%)
18,150 Paychex, Inc. 1,046
23,100 SunGard Data Systems, Inc. 850
-------
1,896
-------
FINANCIAL MISCELLANEOUS (1.0%)
5,500 CMAC Investment Corp. 367
2,900 Executive Risk, Inc. 207
2,100 Federal Agricultural Mortgage
Corp., Class C 117
-------
691
-------
INSURANCE: LIFE (0.6%)
16,500 ESG Re, Ltd. 429
-------
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------- -------
<C> <S> <C>
INSURANCE: MULTI-LINE (4.3%)
11,600 Horace Mann Educators Corp. $ 407
39,700 Reinsurance Group of America, Inc. 1,985
13,500 The Liberty Corp. 689
-------
3,081
-------
INSURANCE: PROPERTY & CASUALTY (4.9%)
8,400 Mercury General Corp. 526
20,700 Orion Capital Corp. 1,132
9,900 Progressive Corp. 1,333
20,400 USF&G Corp. 509
-------
3,500
-------
INVESTMENT MANAGEMENT COMPANIES (1.6%)
29,700 Conning Corp. 587
17,400 PIMCO Advisors Holdings L.P. 583
-------
1,170
-------
REAL ESTATE INVESTMENT TRUSTS (REIT) (0.8%)
9,900 Crescent Real Estate Equities,
Inc. 356
7,600 Federal Realty 187
-------
543
-------
SAVINGS & LOAN (0.2%)
3,800 Golden State Bancorp., Inc. 145
-------
TOTAL FINANCIAL SERVICES 11,960
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HEALTH CARE (6.3%)
DRUGS & PHARMACEUTICALS (3.1%)
4,500 Human Genome Sciences, Inc. 179
9,300 Inhale Therapeutic Systems 250
4,900 Jones Medical Industries, Inc. 177
25,100 Medicis Pharmaceutical, Class A 1,095
17,300 Miravant Medical Technologies 541
-------
2,242
-------
HEALTH CARE FACILITIES (1.1%)
11,500 Health Management Associates,
Inc., Class A 329
17,400 Province Healthcare Co. 457
-------
786
-------
HEALTH CARE MANAGEMENT SERVICES (1.6%)
30,200 American Oncology Resources, Inc. 460
21,516 Concentra Managed Care, Inc. 662
-------
1,122
-------
MEDICAL & DENTAL INSTRUMENTS & SUPPLIES (0.5%)
3,100 Cooper Cos., Inc. 132
4,900 Henry Schein, Inc. 203
-------
335
-------
TOTAL HEALTH CARE 4,485
-------
<CAPTION>
VALUE
SHARES (000)
- --------------- -------
<C> <S> <C>
MATERIALS & PROCESSING (2.0%)
BUILDING MATERIALS (0.6%)
9,500 Martin Marietta Materials, Inc. $ 410
-------
BUILDING: CEMENT (0.5%)
4,900 Southdown, Inc. 341
-------
CHEMICALS (0.2%)
12,900 Chromatics Color Science
International, Inc. 160
-------
ENGINEERING & CONTRACTING SERVICES (0.7%)
14,200 Specialty Teleconstructors, Inc. 485
-------
TOTAL MATERIALS & PROCESSING 1,396
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OTHER (2.2%)
MULTI-SECTOR COMPANIES (2.2%)
21,800 GenCorp, Inc. 670
43,000 Walter Industries, Inc. 919
-------
TOTAL OTHER 1,589
-------
PRODUCER DURABLES (9.8%)
AEROSPACE (5.2%)
4,000 Orbital Sciences Corp. 179
73,000 Thiokol Corp. 3,527
-------
3,706
-------
INDUSTRIAL PRODUCTS (0.3%)
11,700 Ladish Co., Inc. 174
-------
MISCELLANEOUS PRODUCER DURABLES (0.8%)
13,900 JLK Direct Distribution, Inc.,
Class A 531
3,900 Republic Automotive Parts, Inc. 70
-------
601
-------
OFFICE FURNITURE & BUSINESS EQUIPMENT (3.5%)
60,000 Knoll, Inc. 2,314
5,500 Steelcase, Inc. 201
-------
2,515
-------
TOTAL PRODUCER DURABLES 6,996
-------
TECHNOLOGY (13.9%)
COMMUNICATIONS TECHNOLOGY (2.1%)
13,000 Ascend Communications, Inc. 492
4,200 Proxim, Inc. 64
13,900 Tellabs, Inc. 933
-------
1,489
-------
COMPUTER SERVICES SOFTWARE & SYSTEMS (4.1%)
17,000 Compuware Corp. 838
13,600 FlexiInternational Software, Inc. 167
31,200 Mercury Computer Systems, Inc. 538
13,600 Peoplesoft, Inc. 716
1,518 Structural Dynamics Research Corp. 38
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------- -------
<C> <S> <C>
COMPUTER SERVICES SOFTWARE & SYSTEMS (CONTINUED)
14,300 Whittman-Hart, Inc. $ 647
-------
2,944
-------
COMPUTER TECHNOLOGY (1.9%)
21,100 FORE Systems, Inc. 332
27,900 Ingram Micro, Inc., Class A 1,036
-------
1,368
-------
ELECTRONICS (0.8%)
8,100 Sanmina Corp. 566
-------
ELECTRONICS: SEMI-CONDUCTORS/COMPONENTS (4.3%)
18,000 Linear Technology Corp. 1,241
26,300 Maxim Integrated Products, Inc. 957
22,200 Xilinx, Inc. 831
-------
3,029
-------
ELECTRONICS: TECHNOLOGY (0.7%)
16,600 Tracor, Inc. 531
-------
TOTAL TECHNOLOGY 9,927
-------
UTILITIES (6.5%)
UTILITIES: TELECOMMUNICATIONS (6.5%)
43,500 Associated Group, Inc., Class B 1,599
28,700 Cellular Communications
International, Inc. 1,941
31,800 COMSAT Corp. 1,095
-------
TOTAL UTILITIES 4,635
-------
TOTAL COMMON STOCKS (Cost $59,804) 70,336
-------
<CAPTION>
FACE
AMOUNT
(000)
- ---------------
<C> <S> <C>
SHORT-TERM INVESTMENT (0.9%)
REPURCHASE AGREEMENT (0.9%)
$ 610 Chase Securities, Inc. 5.60%,
dated 3/31/98, due 4/01/98, to be
repurchased at $610,
collateralized by U.S. Treasury
Notes, 6.25%, due 4/30/01, valued
at $626 (Cost $610) 610
-------
<CAPTION>
VALUE
(000)
-------
<C> <S> <C>
TOTAL INVESTMENTS (99.5%) (Cost $60,414) $70,946
-------
OTHER ASSETS AND LIABILITIES (0.5%)
Other Assets 4,898
Liabilities (4,526)
-------
372
-------
NET ASSETS (100%) $71,318
-------
-------
CLASS A:
NET ASSETS $69,844
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 7,777,018 outstanding $0.001 par
value shares (authorized 500,000,000 shares) $8.98
-------
-------
CLASS B:
NET ASSETS $1,474
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 166,321 outstanding $0.001 par
value shares (authorized 500,000,000 shares) $8.86
-------
-------
</TABLE>
6
