<PAGE>
SUPPLEMENT DATED JANUARY 30, 1998
TO THE PROSPECTUS DATED JULY 21, 1997
U.S. EQUITY PLUS PORTFOLIO
A PORTFOLIO OF
MORGAN STANLEY INSTITUTIONAL FUND, INC. (THE "FUND")
P.O. BOX 2798
BOSTON, MASSACHUSETTS
02208-2798
-------------
The Prospectus is hereby supplemented as follows:
The following table provides unaudited financial highlights for the U.S.
Equity Plus Portfolio for the period from August 1, 1997 to December 31, 1997.
These unaudited financial highlights are part of the Fund's unaudited financial
statements which are included in the Fund's current Statement of Additional
Information.
<TABLE>
<CAPTION>
CLASS A CLASS B
--------------------- ---------------------
PERIOD FROM PERIOD FROM
AUGUST 1, 1997* TO AUGUST 1, 1997* TO
DECEMBER 31, 1997+ DECEMBER 31, 1997+
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
---------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 10.00 $ 10.00
------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1)................................. 0.06 0.02
Net Realized and Unrealized Gain on Investments........... 0.33 0.37
------- -------
Total from Investment Operations........................ 0.39 0.39
------- -------
------- -------
DISTRIBUTIONS
Net Investment Income..................................... (0.05) (0.05)
Net Realized Gain......................................... (0.03) (0.03)
------- -------
Total Distributions..................................... (0.08) (0.08)
------- -------
NET ASSET VALUE, END OF PERIOD.............................. $ 10.31 $ 10.31
------- -------
------- -------
TOTAL RETURN................................................ 3.94% 3.93%
------- -------
------- -------
RATIOS AND SUPPLEMENTAL DATA:...............................
Net Assets, End of Period (Thousands)....................... $ 20,914 $ 102
Ratio of Expenses to Average Net Assets (1)................. 0.80%** 1.05%**
Ratio of Net Investment Income to Average Net Assets (1).... 1.32%** 0.48%**
Portfolio Turnover Rate..................................... 15% 15%
Average Commission Rate Per Share........................... $ 0.0300 $ 0.0300
- ----------------
(1) Effect of voluntary expense limitation during the
period:
Per share benefit to net investment income............. $ 0.07 $ 0.03
Ratios before expense limitation:
Expenses to Average Net Assets......................... 2.37%** 1.85%**
Net Investment Loss to Average Net Assets.............. (0.25)%** (0.32)%**
</TABLE>
* Commencement of Operations
** Annualized
+ Per share amounts for the period ended December 31, 1997 are based on average
outstanding shares.
PLEASE RETAIN THIS SUPPLEMENT FOR FUTURE REFERENCE.
<PAGE>
SUPPLEMENT DATED JANUARY 30, 1998
TO THE PROSPECTUS DATED OCTOBER 1, 1997
EUROPEAN REAL ESTATE PORTFOLIO
ASIAN REAL ESTATE PORTFOLIO
U.S. REAL ESTATE PORTFOLIO
PORTFOLIOS OF
MORGAN STANLEY INSTITUTIONAL FUND, INC. (THE "FUND")
P.O. BOX 2798
BOSTON, MASSACHUSETTS
02208-2798
-------------
The Prospectus is hereby supplemented as follows:
The following paragraph and table are added under the heading "FINANCIAL
HIGHLIGHTS" on page 4 of the Prospectus:
The following table provides unaudited financial highlights for the European
Real Estate and Asian Real Estate Portfolios for the period from October 1, 1997
to December 31, 1997. These unaudited financial highlights are part of the
Fund's unaudited financial statements which are included in the Fund's current
Statement of Additional Information.
EUROPEAN REAL ESTATE PORTFOLIO
<TABLE>
<CAPTION>
CLASS A CLASS B
--------------------- ---------------------
PERIOD FROM PERIOD FROM
OCTOBER 1, 1997* TO OCTOBER 1, 1997* TO
DECEMBER 31, 1997 DECEMBER 31, 1997
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
---------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 10.00 $ 10.00
------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1)................................. 0.05 0.02
Net Realized and Unrealized Loss on Investments........... (0.52) (0.50)
------- -------
Total from Investment Operations........................ (0.47) (0.48)
------- -------
------- -------
DISTRIBUTIONS
Net Investment Income..................................... (0.01) N/A
------- -------
Total Distributions..................................... (0.01) N/A
------- -------
NET ASSET VALUE, END OF PERIOD.............................. $ 9.52 $ 9.52
------- -------
------- -------
TOTAL RETURN................................................ (4.72)% (4.76)%
------- -------
------- -------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands)....................... $ 15,177 $ 789
Ratio of Expenses to Average Net Assets (1)................. 1.00%** 1.25%**
Ratio of Net Investment Income to Average Net Assets (1).... 2.08%** 1.51%**
Portfolio Turnover Rate..................................... 47% 47%
Average Commission Rate:
Per Share................................................. $ 0.0155 $ 0.0155
As a percentage of trade amount........................... 0.23% 0.23%
- ----------------
(1) Effect of voluntary expense limitation during the
period:
Per share benefit to net investment income............. $ 0.05 $ 0.03
Ratios before expense limitation:
Expenses to Average Net Assets......................... 3.04%** 3.40%**
Net Investment Income (Loss) to Average Net Assets..... 0.04%** (0.63)%**
</TABLE>
* Commencement of Operations
** Annualized
PLEASE RETAIN THIS SUPPLEMENT FOR FUTURE REFERENCE.
<PAGE>
ASIAN REAL ESTATE PORTFOLIO
<TABLE>
<CAPTION>
CLASS A
---------------------
PERIOD FROM
OCTOBER 1, 1997* TO
DECEMBER 31, 1997
(UNAUDITED)
---------------------
<S> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD................. $ 10.00
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income
(1)..................... 0.11
Net Realized and
Unrealized Loss on
Investments............. (2.10)
-------
Total from Investment
Operations.......... (1.99)
-------
DISTRIBUTIONS
Net Investment Income.... (0.07)
-------
Total
Distributions....... (0.07)
-------
NET ASSET VALUE, END OF
PERIOD.................... $ 7.94
-------
-------
TOTAL RETURN............... (19.92)%
-------
-------
RATIOS AND SUPPLEMENTAL
DATA:
Net Assets, End of Period
(Thousands)............... $ 2,385
Ratio of Expenses to
Average Net Assets (1).... 1.00%**
Ratio of Net Investment
Income to Average Net
Assets (1)................ 5.21%**
Portfolio Turnover Rate.... 38%
Average Commission Rate:
Per Share.............. $ 0.0061
As a Percentage of
Trade Amount.......... 0.43%
- --------------
(1) Effect of voluntary
expense limitation during
the period:
Per share benefit to
net investment
income................ $ 0.25
Ratios before expense
limitation:
Expenses to Average
Net Assets............ 12.95%**
Net Investment Loss to
Average Net Assets.... (6.66)%**
</TABLE>
* Commencement of Operations
** Annualized
PLEASE RETAIN THIS SUPPLEMENT FOR FUTURE REFERENCE.
<PAGE>
SUPPLEMENT DATED JANUARY 30, 1998 TO THE
STATEMENT OF ADDITIONAL INFORMATION DATED MAY 1, 1997
AS SUPPLEMENTED THROUGH SEPTEMBER 26, 1997
PORTFOLIOS OF
MORGAN STANLEY INSTITUTIONAL FUND, INC. (THE "FUND")
P.O. BOX 2798
BOSTON, MASSACHUSETTS
02208-2798
-------------
The Fund's Statement of Additional Information is hereby amended and
supplemented by the following financial statements for the U.S. Equity Plus,
European Real Estate and Asian Real Estate Portfolios for the period ended
December 31, 1997.
PLEASE RETAIN THIS SUPPLEMENT FOR FUTURE REFERENCE.
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
U.S. EQUITY PLUS PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- --------------------------------------------------------------------------
COMMON STOCKS (97.4%)
CAPITAL GOODS-CONSTRUCTION (5.2%)
AEROSPACE & DEFENSE (1.8%)
1,200 Boeing Co. ....................................... $ 59
1,100 EG&G Inc. ........................................ 23
100 General Dynamics Corp. ........................... 9
1,100 Goodrich (BF) Co. ................................ 46
600 Lockheed Martin Corp. ............................ 59
500 Northrop Grumman Corp. ........................... 57
96 Raytheon Co., Class A............................. 5
1,100 Raytheon Co., Class B............................. 56
800 United Technologies Corp. ........................ 58
----------
372
----------
BUILDING & CONSTRUCTION (0.8%)
2,400 Armstrong World Industries, Inc. ................. 179
----------
ELECTRICAL EQUIPMENT (0.0%)
100 Cooper Industries, Inc. .......................... 5
----------
MACHINERY (2.6%)
600 Briggs & Stratton Corp. .......................... 29
2,700 Caterpillar, Inc. ................................ 131
600 Cincinnati Milacron, Inc. ........................ 16
400 Cummins Engine Co., Inc. ......................... 23
2,500 Deere & Co. ...................................... 146
4,200 Dresser Industries, Inc. ......................... 176
450 Parker-Hannifin Corp. ............................ 21
----------
542
----------
TOTAL CAPITAL GOODS-CONSTRUCTION............................ 1,098
----------
CONSUMER-CYCLICAL (10.2%)
AUTOMOTIVE (2.2%)
2,600 Chrysler Corp. ................................... 91
200 Dana Corp. ....................................... 10
4,300 Ford Motor Co. ................................... 209
1,500 General Motors Corp. ............................. 91
1,100 Goodyear Tire & Rubber Co. ....................... 70
66 Meritor Automotive, Inc. ......................... 1
----------
472
----------
FOOD SERVICE & LODGING (0.2%)
1,200 Hilton Hotels Corp. .............................. 36
----------
HOUSEHOLD FURNISHINGS & APPLIANCES (0.2%)
600 Maytag Corp. ..................................... 22
400 Springs Industries, Inc., Class A................. 21
100 Tupperware Corp. ................................. 3
----------
46
----------
LEISURE RELATED (0.1%)
200 The Walt Disney Co. .............................. 20
----------
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- --------------------------------------------------------------------------
PRINTING & PUBLISHING (1.2%)
800 American Greetings Corp., Class A................. $ 31
3,000 Gannett Co., Inc. ................................ 185
400 New York Times Co., Class A....................... 26
----------
242
----------
RETAIL-GENERAL (6.3%)
2,000 American Stores Co. .............................. 41
4,100 Dayton Hudson Corp. .............................. 277
900 Gap, Inc. ........................................ 32
700 Harcourt General, Inc. ........................... 38
1,500 Home Depot, Inc. ................................. 88
300 Longs Drug Stores, Inc. .......................... 10
1,500 May Department Stores, Co. ....................... 79
1,400 Mercantile Stores Co. ............................ 85
400 Pep Boys-Manny, Moe & Jack........................ 10
800 Rite Aid Corp. ................................... 47
3,000 Sears Roebuck & Co. .............................. 136
2,800 SUPERVALU, Inc. .................................. 117
4,000 TJX Companies, Inc. .............................. 138
6,000 Wal-Mart Stores, Inc. ............................ 237
----------
1,335
----------
TOTAL CONSUMER-CYCLICAL..................................... 2,151
----------
CONSUMER-STAPLES (21.9%)
BEVERAGES & TOBACCO (6.2%)
1,200 Brown-Forman Corp., Class B....................... 66
7,200 Coca Cola Co. .................................... 480
700 Coors (Adolph), Inc., Class B..................... 23
900 Fortune Brands, Inc. ............................. 33
3,000 Great Atlantic & Pacific Tea Co., Inc. ........... 89
10,400 Philip Morris Cos., Inc. ......................... 471
3,800 UST, Inc. ........................................ 140
----------
1,302
----------
FOOD (3.0%)
300 Campbell Soup Co. ................................ 17
800 ConAgra, Inc. .................................... 26
100 CPC International, Inc. .......................... 11
10,100 Sara Lee Corp. ................................... 569
----------
623
----------
HEALTH CARE SUPPLIES & SERVICE (10.4%)
100 Abbott Laboratories............................... 7
3,900 American Home Products Corp. ..................... 298
1,200 Baxter International, Inc. ....................... 61
2,700 Becton Dickinson & Co. ........................... 135
1,400 Biomet, Inc. ..................................... 36
4,500 Bristol-Myers Squibb Co. ......................... 426
5,300 Columbia/HCA Healthcare Corp. .................... 157
2,000 Eli Lilly & Co. .................................. 139
4,400 Johnson & Johnson................................. 290
1,200 Mallinckrodt, Inc. ............................... 46
700 Manor Care, Inc. ................................. 25
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
U.S. Equity Plus Portfolio
[ ]
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
U.S. EQUITY PLUS PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------
<C> <S> <C>
</TABLE>
CONSUMER-STAPLES (CONT.)
HEALTH CARE SUPPLIES & SERVICE (CONT.)
<TABLE>
<C> <S> <C>
200 Medtronic, Inc. .................................. $ 10
3,600 Merck & Co., Inc. ................................ 383
2,100 Pfizer, Inc. ..................................... 157
300 Shared Medical Systems Corp. ..................... 20
----------
2,190
----------
PERSONAL CARE PRODUCTS (2.3%)
400 Avon Products, Inc. .............................. 25
600 Bausch & Lomb, Inc. .............................. 24
100 International Flavors & Fragrances, Inc. ......... 5
5,200 Procter & Gamble Co. ............................. 415
----------
469
----------
TEXTILES & APPAREL (0.0%)
300 Russell Corp. .................................... 8
----------
TOTAL CONSUMER-STAPLES...................................... 4,592
----------
DIVERSIFIED (2.9%)
400 Eaton Corp. ...................................... 36
1,300 ITT Industries, Inc. ............................. 41
100 Johnson Controls, Inc. ........................... 5
1,500 Loews Corp. ...................................... 159
1,300 National Service Industries, Inc. ................ 64
2,200 Raychem, Corp. ................................... 95
1,600 Unilever NV....................................... 100
3,800 Whitman Corp. .................................... 99
----------
TOTAL DIVERSIFIED........................................... 599
----------
ENERGY (11.3%)
COAL, OIL & GAS (6.8%)
4,200 Amoco Corp. ...................................... 358
800 Burlington Resources, Inc. ....................... 36
4,200 Chevron Corp. .................................... 323
600 Coastal Corp. .................................... 37
3,000 Mobil Corp. ...................................... 217
100 Occidental Petroleum Corp. ....................... 3
300 Oneok, Inc. ...................................... 12
5,900 Phillips Petroleum Co. ........................... 287
1,200 Sun Co., Inc. .................................... 50
3,400 USX-Marathon Group................................ 115
----------
1,438
----------
UTILITIES (4.5%)
1,500 Central & South West Corp. ....................... 41
3,700 Eastern Enterprises............................... 167
6,000 Entergy Corp. .................................... 180
1,500 NICOR, Inc. ...................................... 63
1,600 PECO Energy Co. .................................. 39
900 Public Service Enterprise Group, Inc. ............ 28
5,800 Southern Co. ..................................... 150
2,100 Texas Utilities Co. .............................. 87
5,900 Unicom Corp. ..................................... 181
----------
936
----------
TOTAL ENERGY................................................ 2,374
----------
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- --------------------------------------------------------------------------
FINANCE (16.0%)
BANKING (8.3%)
200 Banc One Corp. ................................... $ 11
1,500 Bank of New York Co., Inc. ....................... 87
3,000 BankAmerica Corp. ................................ 219
900 BankBoston Corp. ................................. 85
100 Barnett Banks, Inc. .............................. 7
3,600 Chase Manhattan Corp. ............................ 394
1,900 Citicorp.......................................... 240
1,400 Comerica, Inc. ................................... 126
3,300 First Union Corp. ................................ 169
2,200 KeyCorp........................................... 156
1,300 National City Corp. .............................. 85
2,100 NationsBank Corp. ................................ 128
800 Norwest Corp. .................................... 31
----------
1,738
----------
FINANCIAL SERVICES (2.5%)
1,600 American Express Co. ............................. 143
900 Federal Home Loan Mortgage Corp. ................. 38
2,900 Federal National Mortgage Association............. 165
1,600 Hartford Financial Service Group, Inc. ........... 149
600 Merrill Lynch & Co. .............................. 44
----------
539
----------
INSURANCE (5.2%)
2,100 Allstate Corp. ................................... 191
3,100 American International Group, Inc. ............... 337
600 Chubb Corp. ...................................... 45
1,500 Lincoln National Corp. ........................... 117
1,600 MBIA, Inc. ....................................... 107
5,359 Travelers Group, Inc. ............................ 289
----------
1,086
----------
TOTAL FINANCE............................................... 3,363
----------
MATERIALS (5.1%)
CHEMICALS (3.2%)
1,000 Air Products & Chemicals, Inc. ................... 82
700 Dow Chemical Co. ................................. 71
3,400 E.I. Du Pont De Nemours & Co. .................... 204
2,700 Engelhard Corp. .................................. 47
900 Hercules, Inc. ................................... 45
300 Millipore, Corp. ................................. 10
1,700 Monsanto Co. ..................................... 71
200 Perkin-Elmer Corp. ............................... 14
500 Rohm & Haas Co. .................................. 48
340 Solutia, Inc. .................................... 9
1,600 Union Carbide Corp. .............................. 69
----------
670
----------
METALS (1.9%)
2,000 Phelps Dodge Corp. ............................... 124
8,500 USX - U.S. Steel Group, Inc. ..................... 266
----------
390
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
U.S. Equity Plus Portfolio
[ ]
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
U.S. EQUITY PLUS PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------
<C> <S> <C>
PACKAGING & CONTAINERS (0.0%)
200 Tyco International Ltd. .......................... $ 9
----------
TOTAL MATERIALS............................................. 1,069
----------
SERVICES (2.4%)
BUSINESS SERVICES (1.3%)
600 Automatic Data Processing, Inc. .................. 37
1,000 Deluxe Corp. ..................................... 34
800 Eastman Kodak Co. ................................ 49
(a)500 Federal Express Corp. ............................ 31
200 John H. Harland Co. .............................. 4
4,700 Jostens, Inc. .................................... 108
400 Safety-Kleen Corp. ............................... 11
----------
274
----------
PROFESSIONAL SERVICES (0.1%)
500 Service Corp. International....................... 18
----------
TRANSPORTATION (1.0%)
600 Burlington Northern Santa Fe Corp. ............... 56
1,500 CSX Corp. ........................................ 81
500 Delta Air Lines, Inc. ............................ 60
150 Southwest Airlines, Co. .......................... 4
300 Union Pacific Corp. .............................. 19
----------
220
----------
TOTAL SERVICES.............................................. 512
----------
TECHNOLOGY (22.4%)
COMPUTERS (9.1%)
100 Adobe Systems, Inc. .............................. 4
(a)4,350 Cisco Systems, Inc. .............................. 242
3,200 Compaq Computer Corp. ............................ 181
3,150 Computer Associates International, Inc. .......... 167
(a)300 Dell Computer Corp. .............................. 25
(a)2,400 EMC Corp. ........................................ 66
4,500 Intel Corp. ...................................... 316
3,400 International Business Machines Corp. ............ 356
(a)3,600 Microsoft Corp. .................................. 465
(a)900 Oracle System, Corp. ............................. 20
(a)2,000 Sun Microsystems, Inc. ........................... 80
----------
1,922
----------
ELECTRONICS (4.6%)
100 AMP, Inc. ........................................ 4
(a)400 Applied Materials, Inc. .......................... 12
10,900 General Electric Co. ............................. 800
(a)400 Micron Technology, Inc. .......................... 10
400 Motorola, Inc. ................................... 23
200 Rockwell International Corp. ..................... 10
900 Scientific-Atlanta, Inc. ......................... 15
1,350 Tektronix, Inc. .................................. 53
200 Texas Instruments, Inc. .......................... 9
500 Textron, Inc. .................................... 31
----------
967
----------
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- --------------------------------------------------------------------------
OFFICE EQUIPMENT (1.1%)
2,700 Hewlett Packard Co. .............................. $ 169
900 Xerox Corp. ...................................... 66
----------
235
----------
TELECOMMUNICATIONS (7.6%)
(a)1,600 3Com Corp. ....................................... 56
2,400 Alltel Corp. ..................................... 99
200 Ameritech Corp. .................................. 16
5,300 AT&T Corp. ....................................... 325
3,900 Bell Atlantic Corp. .............................. 355
600 Bellsouth Corp. .................................. 34
5,000 GTE Corp. ........................................ 261
3,200 Harris Corp. ..................................... 147
700 Lucent Technologies, Inc. ........................ 56
100 MCI Communications Corp. ......................... 4
600 SBC Communications, Inc. ......................... 44
1,800 Sprint Corp. ..................................... 105
1,600 U.S. West Communications Group.................... 72
(a)400 WorldCom, Inc. ................................... 12
----------
1,586
----------
TOTAL TECHNOLOGY............................................ 4,710
----------
TOTAL COMMON STOCKS (Cost $19,869)............................ 20,468
----------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS (97.4%) (Cost $19,869)................. 20,468
--------
OTHER ASSETS (2.7%)
Cash....................................... $ 81
Receivable for Portfolio Shares Sold....... 380
Due from Advisor........................... 74
Dividends Receivable....................... 36
Prepaid Legal Fees......................... 6 577
-----
LIABILITIES (-0.1%)
Administrative Fees Payable................ (3)
Custodian Fees Payable..................... (1)
Directors' Fees & Expenses Payable......... (1)
Other Liabilities.......................... (24) (29)
----- --------
NET ASSETS (100%)........................................ $ 21,016
--------
--------
</TABLE>
<TABLE>
<S> <C>
NET ASSETS CONSIST OF:
Paid in Capital.................................... $ 20,403
Undistributed Net Investment Income................ 2
Accumulated Net Realized Gain...................... 12
Unrealized Appreciation on Investments............. 599
--------
NET ASSETS......................................... $ 21,016
--------
--------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
U.S. Equity Plus Portfolio
[ ]
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
U.S. EQUITY PLUS PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMOUNT
(000)
- -------------------------------------------------------------------
<S> <C> <C>
</TABLE>
<TABLE>
<S> <C>
CLASS A:
- ---------------------------------------------------
NET ASSETS......................................... $20,914
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 2,029,088 outstanding $0.001 par
value shares (authorized 500,000,000 shares)..... $10.31
--------
--------
CLASS B:
- ---------------------------------------------------
NET ASSETS......................................... $102
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 9,893 outstanding $0.001 par value
shares (authorized 500,000,000 shares)........... $10.31
--------
--------
</TABLE>
- ------------------------------------------------------------
(a) -- Non-income producing security
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
U.S. Equity Plus Portfolio
[ ]
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
EUROPEAN REAL ESTATE PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- ----------------------------------------------------------------------------
COMMON STOCKS (94.9%)
BELGIUM (4.9%)
3,850 Befimmo S.C.A.................................... $ 247
(a)8,450 Befimmo S.C.A. (New)............................. 541
--------
788
--------
DENMARK (5.6%)
19,900 EjendomsSelskabet Norden A/S..................... 900
--------
FRANCE (19.8%)
1,600 Bail Investissement.............................. 212
4,152 Klepierre........................................ 522
2,474 Locindus......................................... 305
6,000 Sefimeg.......................................... 299
8,300 Sophia........................................... 315
4,200 Silic............................................ 565
7,550 Unibail.......................................... 754
5,224 Union Pour le Financement d'Immeubles de
Societes....................................... 183
--------
3,155
--------
NETHERLANDS (6.8%)
35,000 Schroders International Property Fund N.V........ 599
33,700 UNI-INVEST N.V................................... 479
--------
1,078
--------
NORWAY (9.0%)
86,700 Avantor ASA...................................... 857
(a)42,417 Steen & Strom ASA................................ 574
--------
1,431
--------
SPAIN (1.0%)
17,100 Inmobiliaria Urbis............................... 162
--------
SWEDEN (11.9%)
(a)86,400 Castellum AB..................................... 859
260,300 Platzer Bygg AB, Class B......................... 387
32,800 PriFast AB....................................... 306
76,300 Storheden AB..................................... 341
--------
1,893
--------
UNITED KINGDOM (35.9%)
29,700 British Land Co. plc............................. 332
112,800 Brixton Estate plc............................... 393
337,000 Buford Holdings plc.............................. 554
55,500 Capital Shopping Centers plc..................... 374
227,400 Freeport Leisure plc............................. 848
168,500 Great Portland Estates plc....................... 668
25,000 Hammerson plc.................................... 193
241,000 Jarvis Hotels plc................................ 594
30,500 Land Securities plc.............................. 486
113,400 MEPC plc......................................... 947
299,200 St. Modwen Properties plc........................ 352
--------
5,548
--------
TOTAL FOREIGN SECURITIES (94.9%) (Cost $15,771)................... 15,148
--------
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- ----------------------------------------------------------------------------
FOREIGN CURRENCY (1.3%)
BEF 477 Belgian Franc.................................... $ 13
GBP 2 British Pound.................................... 3
FRF 1 French Franc..................................... --
NOK 1,417 Norwegian Krone.................................. 192
SEK 1 Swedish Krona.................................... --
--------
TOTAL FOREIGN CURRENCY (Cost $212)................................ 208
--------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS (96.2%) (Cost $15,983)................. 15,356
--------
OTHER ASSETS (7.7%)
Cash.......................................
Receivable for Investments Sold............ $ 1,132
Receivable for Investment Advisory Fees.... 49
Dividends Receivable....................... 46
Unrealized Gain on Foreign Currency
Exchange Contracts....................... 4
Foreign Withholding Tax Reclaim
Receivable............................... 3 1,234
----------
LIABILITIES (-3.9%)
Payable for Investments Purchased.......... (310)
Bank Overdraft............................. (153)
Payable for Portfolio Shares Redeemed...... (107)
Custodian Fees Payable..................... (9)
Administrative Fees Payable................ (3)
Other Liabilities.......................... (42) (624)
---------- --------
NET ASSETS (100%)........................................ $ 15,966
--------
--------
NET ASSETS CONSIST OF:
Paid in Capital.............................. $ 16,964
Undistributed Net Investment Income.......... 69
Accumulated Net Realized Loss................ (435)
Unrealized Depreciation on Investments and
Foreign Currency Translations.............. (632)
--------
Net Assets................................... $ 15,966
--------
--------
</TABLE>
<TABLE>
<S> <C>
CLASS A:
- ---------------------------------------------------
NET ASSETS....................................... $15,177
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER
SHARE
Applicable to 1,594,897 outstanding $0.001 par
value shares (authorized 500,000,000 shares)..... $9.52
--------
--------
CLASS B:
- ---------------------------------------------------
NET ASSETS....................................... $789
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER
SHARE
Applicable to 82,947 outstanding $0.001 par value
shares (authorized 500,000,000 shares)........... $9.52
--------
--------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
European Real Estate Portfolio
[ ]
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
EUROPEAN REAL ESTATE PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
- ------------------------------------------------------------
FOREIGN CURRENCY EXCHANGE CONTRACT INFORMATION:
Under the terms of foreign currency exchange contracts open at December 31,
1997, the Portfolio is obligated to deliver foreign currency in exchange for
U.S. dollars as indicated below:
<TABLE>
<CAPTION>
IN NET
CURRENCY EXCHANGE UNREALIZED
TO DELIVER VALUE SETTLEMENT FOR VALUE GAIN (LOSS)
(000) (000) DATE (000) (000) (000)
<S> <C> <C> <C> <C> <C>
- ---------- ------ ----------- --------- ------ -----------
SEK 1,788 $ 225 1/02/98 U.S.$226 $ 226 $ 1
SEK 826 104 1/05/98 U.S.$104 104 --
GBP 218 358 1/05/98 U.S.$361 361 3
------ ------ ---
$ 687 $ 691 $ 4
------
------ ------ ---
------ ---
</TABLE>
- ------------------------------------------------------------
(a) -- Non-income producing securities
- ------------------------------------------------------------
SUMMARY OF FOREIGN SECURITIES BY INDUSTRY CLASSIFICATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
VALUE PERCENT OF
INDUSTRY (000) NET ASSETS
<S> <C> <C>
- ------------------------------------------------------------------
Apartment.............................. $ 640 4.0%
Diversified............................ 4,280 26.8
Land................................... 1,692 10.6
Lodging/Leisure........................ 594 3.7
Office & Industrial.................... 3,856 24.2
Shopping Centers....................... 4,086 25.6
-------- ---
Net Assets............................. $ 15,148 96.2%
-------- ---
-------- ---
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
European Real Estate Portfolio
[ ]
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
ASIAN REAL ESTATE PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- -------------------------------------------------------------------------
COMMON STOCKS (96.6%)
AUSTRALIA (14.2%)
39,000 Austrailian Growth Properties Ltd................ $ 23
(a)23,000 Australand Holdings Ltd.......................... 22
58,000 BT Office Trust.................................. 58
(a)14,000 BT Sydney Development Trust...................... 21
42,000 Capital Property Trust........................... 63
37,000 Grand Hotel Group................................ 47
13,000 Westfield Trust.................................. 25
69,000 Westpac Property Trust........................... 80
-------
339
-------
HONG KONG (52.6%)
34,000 Cheung Kong Holdings Ltd......................... 223
319,000 China Overseas Land & Investment................. 98
200,000 China Resources Beijing Land..................... 95
156,600 HKR International Ltd............................ 115
27,000 Henderson Land Development Co., Ltd.............. 127
30,000 Hysan Development Co., Ltd....................... 60
180,000 Lai Sun Development Co., Ltd..................... 59
49,000 New World Development Co., Ltd................... 169
29,000 Sun Hung Kai Properties Ltd...................... 202
57,000 Wheelock & Co., Ltd.............................. 67
(a)480,000 Winsan (China) Investment Group Co., Ltd......... 38
-------
1,253
-------
JAPAN (8.9%)
10,000 Mitsubishi Estate Co., Ltd....................... 109
9,000 Mitsui Fudosan Co., Ltd.......................... 87
3,000 Sumitomo Realty & Development Co., Ltd........... 17
-------
213
-------
NEW ZEALAND (0.8%)
(a)34,000 AMP NZ Office Trust.............................. 20
-------
PHILIPPINES (2.1%)
(a)123,000 Ayala Land, Inc., Class B........................ 49
-------
SINGAPORE (18.0%)
26,000 City Developments Ltd............................ 121
27,000 DBS Land Ltd..................................... 41
49,000 Keppel Land Ltd.................................. 68
60,000 Marco Polo Developments Ltd...................... 91
93,000 Wing Tai Holdings Ltd............................ 109
-------
430
-------
TOTAL COMMON STOCKS (Cost $2,716)............................... 2,304
-------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT
(000)
<C> <S> <C>
- -----------
CONVERTABLE BONDS (0.8%)
NEW ZEALAND (0.8%)
NZD 34 AMP NZ Office Trust 7.50%, 1/01/01............... 20
-------
TOTAL CONVERTABLE BONDS (Cost $20).............................. 20
-------
TOTAL FOREIGN SECURITIES (97.4%) (Cost $2,736).................. 2,324
-------
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
<C> <S> <C>
- -------------------------------------------------------------------------
FOREIGN CURRENCY (5.0%)
JPY 13,459 Japanese Yen..................................... $ 103
TWD 516 Taiwan Dollar.................................... 16
-------
TOTAL FOREIGN CURRENCY (Cost $121).............................. 119
-------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS (102.4%) (Cost $2,857)................. 2,443
--------
OTHER ASSETS (4.7%)
Receivable for Investment Advisory Fees...... $ 71
Unrealized Gain on Foreign Forward Currency
Exchange Contracts......................... 22
Dividends Receivable......................... 18 111
---------- --------
LIABILITIES (-7.1%)
Payable for Investments Purchased............ 103
Bank Overdraft............................... 11
Custodian Fees Payable....................... 8
Administrative Fees Payable.................. 1
Other Liabilities............................ 46 (169)
---------- --------
NET ASSETS (100%)........................................ $ 2,385
--------
--------
</TABLE>
<TABLE>
<S> <C>
NET ASSETS CONSIST OF:
Paid in Capital..................................... $ 3,005
Undistributed Net Investment Income................. 13
Accumulated Net Realized Loss....................... (244)
Depreciation on Investments and Foreign Currency
Translations...................................... (389)
--------
NET ASSETS.......................................... $ 2,385
--------
--------
</TABLE>
<TABLE>
<S> <C>
CLASS A:
- ----------------------------------------------------
NET ASSETS.......................................... $2,385
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 300,517 outstanding $0.001 par value
shares (authorized 500,000,000 shares)............ $7.94
--------
--------
</TABLE>
- ------------------------------------------------------------
FOREIGN CURRENCY EXCHANGE CONTRACT INFORMATION:
Under the terms of foreign currency exchange contracts open at December 31,
1997, the Portfolio is obligated to deliver foreign currency in exchange for
U.S. dollars as indicated below:
<TABLE>
<CAPTION>
NET
CURRENCY TO IN EXCHANGE UNREALIZED
DELIVER VALUE SETTLEMENT FOR VALUE GAIN (LOSS)
(000) (000) DATE (000) (000) (000)
<S> <C> <C> <C> <C> <C>
- ------------ ------ ----------- ------------ ------ ------------
SGD 729 $ 429 6/04/98 U.S.$ 450 $ 450 $ 21
SGD 731 429 6/29/98 U.S.$ 430 430 1
------ ------ ---
$ 858 $ 880 $ 22
------
------ ------ ---
------ ---
</TABLE>
- ------------------------------------------------------------
(a) -- Non-income producing security
NZD -- New Zealand Dollar
SGD -- Singapore Dollar
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
Asian Real Estate Portfolio
[ ]
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
ASIAN REAL ESTATE PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
- ------------------------------------------------------------
SUMMARY OF FOREIGN SECURITIES BY INDUSTRY CLASSIFICATION
(UNAUDITED)
<TABLE>
<CAPTION>
VALUE PERCENT OF
SECTOR DIVERSIFICATION (000) NET ASSETS
<S> <C> <C>
- --------------------------------------------------------------
Apartments............................. $ 113 4.7%
Diversified............................ 1,380 57.9
Land................................... 296 12.4
Lodging/Leisure........................ 137 5.7
Office and Industrial.................. 373 15.6
Shopping Center........................ 25 1.1
------- ---
$ 2,324 97.4%
------- ---
------- ---
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
Asian Real Estate Portfolio
[ ]
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE YEAR ENDED DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S. EQUITY EUROPEAN ASIAN
PLUS REAL ESTATE REAL ESTATE
PORTFOLIO* PORTFOLIO** PORTFOLIO**
(000) (000) (000)
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends $ 169 $ 72 $ 35
Interest 8 58 7
Less: Foreign Taxes Withheld -- (9) (2)
----- ------------ -----
Total Income 177 121 40
----- ------------ -----
EXPENSES:
Investment Advisory Fees:
Basic Fees -- Adviser 37 31 5
Less: Fees Waived (37) (31) (5)
----- ------------ -----
Investment Advisory Fees -- Net -- -- --
Administrative Fees 15 7 2
Custodian Fees 4 13 12
Filing and Registration Fees 52 26 22
Directors' Fees and Expenses 1 -- --
Professional Fees 34 40 40
Shareholder Reports 49 2 1
Prepaid Legal Expense 4 -- --
Other Expenses 1 1 1
Expenses Reimbursed by Adviser (93) (49) (71)
----- ------------ -----
Total Expenses 67 40 7
----- ------------ -----
NET INVESTMENT INCOME 110 81 33
----- ------------ -----
NET REALIZED GAIN (LOSS):
Investments Sold 66 (375) (211)
Foreign Currency Transactions -- (60) (33)
----- ------------ -----
Total Net Realized Gain (Loss) 66 (435) (244)
----- ------------ -----
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION):
Investments 599 (623) (412)
Foreign Currency Transactions -- (9) 23
----- ------------ -----
Total Net Change in Unrealized
Appreciation (Depreciation) 599 (632) (389)
----- ------------ -----
TOTAL NET REALIZED GAIN (LOSS) AND CHANGE IN
UNREALIZED APPRECIATION (DEPRECIATION) 665 (1,067) (633)
----- ------------ -----
Net Increase (Decrease) in Net Assets
Resulting from Operations $ 775 $ (986) $ (600)
----- ------------ -----
----- ------------ -----
- ---------------
</TABLE>
* The Equity Plus Portfolio commenced operations on August 1, 1997.
** The Asian Real Estate and European Real Estate Portfolios commenced
operations on October 1, 1997.
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
[ ]
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S. EQUITY EUROPEAN ASIAN
PLUS REAL ESTATE REAL ESTATE
PORTFOLIO PORTFOLIO PORTFOLIO
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
<CAPTION>
PERIOD FROM PERIOD FROM PERIOD FROM
AUGUST 1, 1997* TO OCTOBER 1, 1997* TO OCTOBER 1, 1997* TO
DECEMBER 31, 1997 DECEMBER 31, 1997 DECEMBER 31, 1997
(000) (000) (000)
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 110 $ 81 $ 33
Net Realized Gain (Loss) 66 (435) (244)
Change in Unrealized Appreciation
(Depreciation) 599 (632) (389)
- ------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations 775 (986) (600)
- ------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
CLASS A:
Net Investment Income (107) (12) (20)
Net Realized Gain (54) -- --
CLASS B:
Net Investment Income (1) -- --
- ------------------------------------------------------------------------------------------------------------------
Total Distributions (162) (12) (20)
- ------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS: (1)
CLASS A:
Subscribed 20,231 25,148 3,005
Distributions Reinvested 71 11 --
Redeemed -- (9,021) --
CLASS B:
Subscribed 100 826 --
Distributions Reinvested 1 -- --
- ------------------------------------------------------------------------------------------------------------------
Net Increase in Capital Share Transactions 20,403 16,964 3,005
- ------------------------------------------------------------------------------------------------------------------
Total Increase in Net Assets 21,016 15,966 2,385
NET ASSETS:
Beginning of Period -- -- --
- ------------------------------------------------------------------------------------------------------------------
End of Period $ 21,016 $ 15,966 $ 2,385
- ------------------------------------------------------------------------------------------------------------------
Undistributed net investment income
included in end of period net assets $ 2 $ 69 $ 13
- ------------------------------------------------------------------------------------------------------------------
(1) CAPITAL SHARE TRANSACTIONS:
CLASS A:
Shares Subscribed 2,022 2,513 301
Shares Issued on Distributions Reinvested 7 1 --
Shares Redeemed -- (919) --
- ------------------------------------------------------------------------------------------------------------------
Net Increase in Class A Shares Outstanding 2,029 1,595 301
- ------------------------------------------------------------------------------------------------------------------
CLASS B:
Shares Subscribed 10 83 --
- ------------------------------------------------------------------------------------------------------------------
Net Increase in Class B Shares Outstanding 10 83 --
</TABLE>
- --------------------------------------------------------------------------------
* Commencement of Operations
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
[ ]
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (UNAUDITED)
SELECTED PER SHARE DATA AND RATIOS:
- --------------------------------------------------------------------------------
U.S. EQUITY PLUS PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
-------------
PERIOD FROM
AUGUST 1,
1997* TO
DECEMBER 31,
1997++
<S> <C>
- ------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
-------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1) 0.06
Net Realized and Unrealized Gain on
Investments 0.33
-------------
Total from Investment Operations 0.39
-------------
DISTRIBUTIONS
Net Investment Income (0.05)
Net Realized Gain (0.03)
-------------
Total Distributions (0.08)
-------------
NET ASSET VALUE, END OF PERIOD $ 10.31
-------------
-------------
TOTAL RETURN 3.94%
-------------
-------------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $20,914
Ratio of Expenses to Average Net Assets
(1) 0.80%**
Ratio of Net Investment Income to
Average Net Assets (1) 1.32%**
Portfolio Turnover Rate 15%
Average Commission Rate Per Share $0.0300
- ---------------
(1) Effect of voluntary expense
limitation during the period:
Per share benefit to net
investment income $0.07
Ratios before expense limitation:
Expenses to Average Net Assets 2.37%**
Net Investment Loss to Average Net
Assets (0.25)%**
- ------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
-------------
PERIOD FROM
AUGUST 1,
1997* TO
DECEMBER 31,
1997++
<S> <C>
- ------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
-------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (2) 0.02
Net Realized and Unrealized Gain on
Investments 0.37
-------------
Total from Investment Operations 0.39
-------------
DISTRIBUTIONS
Net Investment Income (0.05)
Net Realized Gain (0.03)
-------------
Total Distributions (0.08)
-------------
NET ASSET VALUE, END OF PERIOD $ 10.31
-------------
-------------
TOTAL RETURN 3.93%
-------------
-------------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $102
Ratio of Expenses to Average Net Assets
(2) 1.05%**
Ratio of Net Investment Income to
Average Net Assets (2) 0.48%**
Portfolio Turnover Rate 15%
Average Commission Rate Per Share $0.0300
- ---------------
(2) Effect of voluntary expense
limitation during the period:
Per share benefit to net
investment income $0.03
Ratios before expense limitation:
Expenses to Average Net Assets 1.85%**
Net Investment Loss to Average Net
Assets (0.32)%**
</TABLE>
- --------------------------------------------------------------------------------
* Commencement of Operations.
** Annualized.
++ Per share amounts for the period ended December 31, 1997 are based on
average outstanding shares.
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
[ ]
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (UNAUDITED)
SELECTED PER SHARE DATA AND RATIOS:
- --------------------------------------------------------------------------------
EUROPEAN REAL ESTATE PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
-------------------
PERIOD FROM
OCTOBER 1, 1997*
TO DECEMBER 31,
1997
<S> <C>
- ------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $10.00
-------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1) 0.05
Net Realized and Unrealized Loss on
Investments (0.52)
-------
Total from Investment Operations (0.47)
-------
DISTRIBUTIONS
Net Investment Income (0.01)
-------
Total Distributions (0.01)
-------
NET ASSET VALUE, END OF PERIOD $ 9.52
-------
-------
TOTAL RETURN (4.72)%
-------
-------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $15,177
Ratio of Expenses to Average Net Assets
(1) 1.00%**
Ratio of Net Investment Income to
Average Net Assets (1) 2.08%**
Portfolio Turnover Rate 47%
Average Commission Rate:
Per Share $0.0155
As a percentage of Trade Amount 0.23%
- ---------------
(1) Effect of voluntary expense
limitation during the period:
Per share benefit to net
investment income $0.05
Ratios before expense limitation:
Expenses to Average Net Assets 3.04%**
Net Investment Income to Average
Net Assets 0.04%**
- ------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
-------------------
PERIOD FROM
OCTOBER 1, 1997*
TO DECEMBER 31,
1997
<S> <C>
- ------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $10.00
-------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (2) 0.02
Net Realized and Unrealized Loss on
Investments (0.50)
-------
Total from Investment Operations (0.48)
-------
NET ASSET VALUE, END OF PERIOD $ 9.52
-------
-------
TOTAL RETURN (4.76)%
-------
-------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $789
Ratio of Expenses to Average Net Assets
(2) 1.25%**
Ratio of Net Investment Income to
Average Net Assets (2) 1.51%**
Portfolio Turnover Rate 47%
Average Commission Rate:
Per Share $0.0155
As a percentage of Trade Amount 0.23%
- ---------------
(2) Effect of voluntary expense
limitation during the period:
Per share benefit to net
investment income $0.03
Ratios before expense limitation:
Expenses to Average Net Assets 3.40%**
Net Investment Loss to Average Net
Assets (0.63)%**
</TABLE>
- --------------------------------------------------------------------------------
* Commencement of Operations
** Annualized
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
[ ]
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (UNAUDITED)
SELECTED PER SHARE DATA AND RATIOS:
- --------------------------------------------------------------------------------
ASIAN REAL ESTATE PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
------------------
PERIOD FROM
OCTOBER 1, 1997*
TO DECEMBER 31,
1997
<S> <C>
- -----------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1) 0.11
Net Realized and Unrealized Loss on
Investments (2.10)
------
Total from Investment Operations (1.99)
------
DISTRIBUTIONS
Net Investment Income (0.07)
------
Total Distributions (0.07)
------
NET ASSET VALUE, END OF PERIOD $ 7.94
------
------
TOTAL RETURN (19.92)%
------
------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $2,385
Ratio of Expenses to Average Net Assets
(1) 1.00%**
Ratio of Net Investment Income to
Average Net Assets (1) 5.21%**
Portfolio Turnover Rate 38%
Average Commission Rate:
Per Share $0.0061
As a Percentage of Trade Amount 0.43%
- ---------------
(1) Effect of voluntary expense
limitation during the period:
Per share benefit to net
investment income $0.25
Ratios before expense limitation:
Expenses to Average Net Assets 12.95%**
Net Investment Loss to Average Net
Assets (6.66)%**
</TABLE>
- --------------------------------------------------------------------------------
*Commencement of Operations
**Annualized
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
[ ]
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 (UNAUDITED)
- --------------------------------------------------------------------------------
Morgan Stanley Institutional Fund, Inc. (the "Fund") is registered under the
Investment Company Act of 1940, as amended, as an open-end management investment
company. As of December 31, 1997, the Fund was comprised of 29 separate active,
diversified and non-diversified portfolios (individually referred to as a
"Portfolio", collectively as the "Portfolios"). Each Portfolio (with the
exception of the International Small Cap, Money Market and Municipal Money
Market Portfolios) offers two classes of shares - Class A and Class B. Both
classes of shares have identical voting rights (except shareholders of a Class
have exclusive voting rights regarding any matter relating solely to that Class
of shares), dividend, liquidation and other rights. The U.S. Equity Plus
Portfolio commenced operations on July 31, 1997 and the Asian Real Estate and
European Real Estate Portfolios commenced operations on October 1, 1997. The
financial statements presented here are for the Asian Real Estate, European Real
Estate and U.S. Equity Plus Portfolios only.
A. ACCOUNTING POLICIES: The following significant accounting policies are in
conformity with generally accepted accounting principles for investment
companies. Such policies are consistently followed by the Fund in the
preparation of the financial statements. Generally accepted accounting
principles may require management to make estimates and assumptions that affect
the reported amounts and disclosures in the financial statements. Actual results
may differ from those estimates.
1. SECURITY VALUATION: Equity securities listed on a U.S. exchange and equity
securities traded on NASDAQ are valued at the latest quoted sales price on the
valuation date. Securities listed on a foreign exchange are valued at their
closing price. Unlisted securities and listed securities not traded on the
valuation date for which market quotations are readily available are valued at
the average of the mean between the current bid and asked prices obtained from
reputable brokers. Bonds and other fixed income securities may be valued
according to the broadest and most representative market. In addition, bonds and
other fixed income securities may be valued on the basis of prices provided by a
pricing service which are based primarily on institutional size trading in
similar groups of securities. Debt securities purchased with remaining
maturities of 60 days or less are valued at amortized cost, if it approximates
market value. All other securities and assets for which market values are not
readily available, including restricted securities, are valued at fair value as
determined in good faith by the Board of Directors, although the actual
calculations may be done by others.
2. INCOME TAXES: It is each Portfolio's intention to qualify as a regulated
investment company and distribute all of its taxable and tax-exempt income.
Accordingly, no provision for Federal income taxes is required in the financial
statements.
A Portfolio may be subject to taxes imposed by countries in which it invests.
Such taxes are generally based on income and/or capital gains earned or
repatriated. Taxes are accrued and applied to net investment income, net
realized gains and net unrealized appreciation as income and/or capital gains
are earned.
3. FOREIGN CURRENCY TRANSLATION AND FOREIGN INVESTMENTS: The books and records
of the Fund are maintained in U.S. dollars. Foreign currency amounts are
translated into U.S. dollars at the mean of the bid and asked prices of such
currencies against U.S. dollars last quoted by a major bank as follows:
- - investments, other assets and liabilities at the prevailing rates of exchange
on the valuation date;
- - investment transactions and investment income at the prevailing rates of
exchange on the dates of such transactions.
Although the net assets of the Fund are presented at the foreign exchange rates
and market values at the close of the period, the Fund does not isolate that
portion of the results of operations arising as a result of changes in the
foreign exchange rates from the fluctuations arising from changes in the market
prices of the securities held at period end. Similarly, the Fund does not
isolate the effect of changes in foreign exchange rates from the fluctuations
arising from changes in the market prices of securities sold during the period.
Accordingly, realized and unrealized foreign currency gains (losses) are
included in the reported net realized and unrealized gains (losses) on
investment transactions and balances. However, pursuant to U.S. Federal income
tax regulations, gains and losses from certain foreign currency transactions and
the foreign currency portion of gains and losses realized on sales and
maturities of foreign denominated debt securities are treated as ordinary income
for U.S. Federal income tax purposes.
Net realized gains (losses) on foreign currency transactions represent net
foreign exchange gains (losses)
- --------------------------------------------------------------------------------
[ ]
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONT.)
DECEMBER 31, 1997 (UNAUDITED)
- --------------------------------------------------------------------------------
from foreign currency exchange contracts, disposition of foreign currencies,
currency gains or losses realized between the trade and settlement dates on
securities transactions, and the difference between the amount of investment
income and foreign withholding taxes recorded on the Fund's books and the U.S.
dollar equivalent amounts actually received or paid. Net unrealized currency
gains (losses) from valuing foreign currency denominated assets and liabilities
at period end exchange rates are reflected as a component of unrealized
appreciation (depreciation) on the Statement of Net Assets. The change in net
unrealized currency gains (losses) for the period is reflected on the Statement
of Operations.
Foreign security and currency transactions may involve certain considerations
and risks not typically associated with those of U.S. dollar denominated
transactions as a result of, among other factors, the possibility of lower
levels of governmental supervision and regulation of foreign securities markets
and the possibility of political or economic instability.
Prior governmental approval for foreign investments may be required under
certain circumstances in some countries, and the extent of foreign investments
in domestic companies may be subject to limitation in other countries. Foreign
ownership limitations also may be imposed by the charters of individual
companies to prevent, among other concerns, violation of foreign investment
limitations. As a result, an additional class of shares (identified as "Foreign"
in the Statement of Net Assets) may be created and offered for investment. The
"local" and "foreign" shares' market values may differ. In the absence of
trading of the foreign shares in such markets at December 31, 1997, the
Portfolios value the foreign shares at the closing exchange price of the local
shares. Such securities are reflected as fair valued in the Statements of Net
Assets.
4. FOREIGN CURRENCY EXCHANGE CONTRACTS: Certain Portfolios may enter into
foreign currency exchange contracts to attempt to protect securities and related
receivables and payables against changes in future foreign currency exchange
rates. A foreign currency exchange contract is an agreement between two parties
to buy or sell currency at a set price on a future date. The market value of the
contract will fluctuate with changes in currency exchange rates. The contract is
marked-to-market daily and the change in market value is recorded by the
Portfolios as unrealized gain or loss. The Portfolios record realized gains or
losses when the contract is closed equal to the difference between the value of
the contract at the time it was opened and the value at the time it was closed.
Risk may arise upon entering into these contracts from the potential inability
of counterparties to meet the terms of their contracts and is generally limited
to the amount of the unrealized gain on the contracts, if any, at the date of
default. Risks may also arise from unanticipated movements in the value of a
foreign currency relative to the U.S. dollar.
5. OTHER: Security transactions are accounted for on the date the securities are
purchased or sold. Realized gains and losses on the sale of investment
securities are determined on the identified cost basis. Dividend income is
recorded on the ex-dividend date (except for certain foreign dividends which may
be recorded as soon as the Fund is informed of such dividends) net of applicable
withholding taxes where recovery of such taxes is not reasonably assured.
Interest income is recognized on the accrual basis except where collection is in
doubt. Discounts and premiums on securities purchased are amortized according to
the effective yield method over their respective lives. Most expenses of the
Fund can be directly attributed to a particular Portfolio. Expenses which cannot
be directly attributed are apportioned among the Portfolios based upon relative
net assets. Income, expenses (other than class specific expenses) and realized
and unrealized gains or losses are allocated to each class of shares based upon
their relative net assets. Distributions for the remaining Portfolios are
recorded on the ex-distribution date.
The amount and character of income and capital gain distributions to be paid by
the Fund are determined in accordance with Federal income tax regulations which
may differ from generally accepted accounting principles. These differences are
primarily due to differing book and tax treatments for the character and timing
of the recognition of gains or losses on securities and forward foreign currency
exchange contracts, and the timing of the deductibility of certain foreign
taxes.
Permanent book and tax basis differences relating to shareholder distributions
may result in reclassifications among undistributed net investment income
(loss), accumulated net realized gain (loss) and paid in capital.
Permanent book and tax differences, if any, are not included in ending
undistributed (distributions in excess of) net investment income/accumulated net
- --------------------------------------------------------------------------------
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<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
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NOTES TO FINANCIAL STATEMENTS (CONT.)
DECEMBER 31, 1997 (UNAUDITED)
- --------------------------------------------------------------------------------
investment loss for the purpose of calculating net investment income (loss) per
share in the Financial Highlights.
B. ADVISER: Morgan Stanley Asset Management Inc. (the "Adviser" or "MSAM"), a
wholly-owned subsidiary of Morgan Stanley, Dean Witter, Discover & Co., provides
the Fund with investment advisory services under the terms of an Investment
Advisory and Management Agreement (the "Agreement") at the annual rates of
average daily net assets indicated below. MSAM has agreed to reduce fees payable
to it and to reimburse the Portfolios, if necessary, if the annual operating
expenses, as defined, expressed as a percentage of average daily net assets,
exceed the maximum ratios indicated as follows:
<TABLE>
<CAPTION>
MAXIMUM
EXPENSE RATIO
-------------------------------------
<S> <C> <C> <C>
ADVISORY
PORTFOLIO FEE CLASS A
----------- ----------- -----------
Asian Real Estate.............. 0.80% 1.00% 1.25%
European Real Estate........... 0.80 1.00 1.25
U.S. Equity Plus............... 0.45 0.80 1.05
</TABLE>
C. ADMINISTRATOR: MSAM also provides the Fund with administrative services
pursuant to an administrative agreement for a monthly fee which on an annual
basis equals 0.15% of the average daily net assets of each Portfolio, plus
reimbursement of out-of-pocket expenses. Under an agreement between MSAM and The
Chase Manhattan Bank ("Chase"), through its affiliate Chase Global Funds
Services Company ("CGFSC"), Chase provides certain administrative services to
the Fund. For such services, MSAM pays Chase a portion of the fee MSAM receives
from the Fund. Certain employees of CGFSC are officers of the Fund. In addition,
the Fund incurs local administration fees in connection with doing business with
certain emerging market countries.
D. DISTRIBUTOR: Morgan Stanley & Co., Incorporated (the "Distributor"), a
wholly-owned subsidiary of Morgan Stanley, Dean Witter, Discover & Co., and an
affiliate of MSAM, serves as the distributor of the Fund and provides Class B
shareholders of the applicable Portfolios with distribution services pursuant to
a Distribution Plan (the "Plan") in accordance with Rule 12b-1 under the
Investment Company Act of 1940.
Under the Plan, the Distributor is entitled to receive from each Portfolio, a
distribution fee, which is accrued daily and paid quarterly, at an annual rate
of 0.25% of the Class B shares' average daily net assets. The Distributor may
voluntarily waive from time to time all or any portion of its distribution fee.
E. CUSTODIAN: Morgan Stanley Trust Company ("MSTC"), a wholly-owned subsidiary
of Morgan Stanley, Dean Witter, Discover & Co., acts as custodian for the Fund's
assets held outside the United States in accordance with a custodian agreement.
Custodian fees are computed and payable monthly based on assets held, investment
purchases and sales activity, an account maintenance fee, plus reimbursement for
certain out-of-pocket expenses.
For the year ended December 31, 1997, the following Portfolios incurred custody
fees and had amounts payable to MSTC at December 31, 1997:
<TABLE>
<CAPTION>
MSTC CUSTODY
CUSTODY FEES FEES PAYABLE
INCURRED TO MSTC
(000) (000)
--------------- ---------------
<S> <C> <C>
Asian Real Estate............... $ 434 $ 69
European Real Estate............ 13 4
</TABLE>
In addition, for the year ended December 31, 1997, the following Portfolio has
earned interest income and incurred interest expense on balances with MSTC as
follows:
<TABLE>
<CAPTION>
INTEREST INTEREST
INCOME EXPENSE
(000) (000)
----------- -------------
<S> <C> <C>
Asian Real Estate........................ $ -- $ 1
</TABLE>
F. PURCHASES AND SALES: During the year ended December 31, 1997, purchases and
sales of investment securities, other than long-term U.S. Government securities
and short-term investments, were:
<TABLE>
<CAPTION>
PURCHASES SALES
PORTFOLIO (000) (000)
- --------------------------------------- ----------- ---------
<S> <C> <C>
Asian Real Estate...................... $ 3,600 $ 654
European Real Estate................... 21,435 5,289
U.S. Equity Plus....................... 22,231 2,427
</TABLE>
There were no purchases and sales of long term U.S. Government securities during
the year ended December 31,1997.
During the year ended December 31, 1997, the following Portfolios paid brokerage
commissions to
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[ ]
<PAGE>
[LOGO] Morgan Stanley
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONT.)
DECEMBER 31, 1997 (UNAUDITED)
- --------------------------------------------------------------------------------
Morgan Stanley & Co., Incorporated and Dean Witter Reynolds, Inc., affiliated
broker/dealers, of approximately:
<TABLE>
<CAPTION>
BROKERAGE COMMISSION
(000)
--------------------------
DEAN
MORGAN WITTER
STANLEY REYNOLDS,
PORTFOLIO & CO. INC.
- ---------------------------------------- ----------- -------------
<S> <C> <C>
Asian Real Estate....................... $ 2 $ --
European Real Estate.................... 1 --
</TABLE>
G. OTHER: At December 31, 1997, cost, unrealized appreciation, unrealized
depreciation, and net unrealized appreciation (depreciation) for U.S. Federal
income tax purposes of the investments of each Portfolio were:
<TABLE>
<CAPTION>
NET
APPREC.
COST APPREC. DEPREC. (DEPREC.)
PORTFOLIO (000) (000) (000) (000)
- ------------------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Asian Real
Estate............ $ 2,736 $ 21 $ (433) $ (412)
European Real
Estate............ 15,771 122 (745) (623)
U.S. Equity Plus... 19,869 1,416 (817) 599
</TABLE>
At December 31, 1997, the net assets of certain Portfolios were substantially
comprised of foreign denominated securities and currency. Changes in currency
exchange rates will affect the U.S. dollar value of and investment income from
such securities.
Assets and liabilities, including Portfolio securities and foreign currency
holdings were translated at the following exchange rates as of December 31,
1997:
<TABLE>
<S> <C> <C> <C>
Australian Dollar 1.53563 = $1.00
Belgian Franc 37.02600 = $1.00
British Pound 0.60872 = $1.00
Danish Krone 6.85090 = $1.00
French Franc 6.01700 = $1.00
Hong Kong Dollar 7.74850 = $1.00
Japanese Yen 130.45000 = $1.00
Netherlands Guilder 2.02740 = $1.00
New Zealand Dollar 1.72325 = $1.00
Norwegian Krone 7.38330 = $1.00
Philippine Peso 40.00000 = $1.00
Singapore Dollar 1.68000 = $1.00
Spanish Peseta 152.30000 = $1.00
Swedish Krona 7.93740 = $1.00
Taiwan Dollar 32.45000 = $1.00
</TABLE>
From time to time, certain Portfolios of the Fund have shareholders that hold a
significant portion of a Portfolio's outstanding shares. Investment activities
of these shareholders could have a material impact on those Portfolios.
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
[ ]
