<PAGE>
- ------------------------------------------------------------------
DIRECTORS OFFICERS
Barton M. Biggs Stefanie V. Chang
CHAIRMAN OF THE BOARD VICE PRESIDENT
Chairman and Director, Morgan Stanley Asset Management Harold J. Schaaff, Jr.
Inc. and Morgan Stanley VICE PRESIDENT
Asset Management Limited; Managing Joseph P. Stadler
Director, Morgan Stanley & Co. Incorporated VICE PRESIDENT
Michael F. Klein Valerie Y. Lewis
DIRECTOR AND PRESIDENT SECRETARY
Principal, Morgan Stanley Asset Management Inc. and Karl O. Hartmann
Morgan Stanley & Co. Incorporated ASSISTANT SECRETARY
John D. Barrett II Joanna M. Haigney
Chairman and Director, TREASURER
Barrett Associates, Inc. Rene J. Feuerman
Gerard E. Jones ASSISTANT TREASURER
Partner, Richards & O'Neil LLP
Andrew McNally IV
River Road Partners
Samuel T. Reeves
Chairman of the Board and Chief
Executive Officer,
Pinacle L.L.C.
Fergus Reid
Chairman and Chief Executive Officer, LumeLite
Plastics Corporation
Frederick O. Robertshaw
Of Counsel, Copple, Chamberlin &
Boehm, P.C.
- ------------------------------------------------------------------
INVESTMENT ADVISER AND ADMINISTRATOR
Morgan Stanley Asset Management Inc.
1221 Avenue of the Americas
New York, New York 10020
- ---------------------------------------------------------
DISTRIBUTOR
Morgan Stanley & Co. Incorporated
1221 Avenue of the Americas
New York, New York 10020
- ---------------------------------------------------------
CUSTODIANS
The Chase Manhattan Bank
3 Chase MetroTech Center
Brooklyn, New York 11245
Morgan Stanley Trust Company
One Pierrepont Plaza
Brooklyn, New York 11210
- ---------------------------------------------------------
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
- ---------------------------------------------------------
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.
LATIN AMERICAN PORTFOLIO
FIRST QUARTER REPORT
MARCH 31, 1998
<PAGE>
LETTER TO SHAREHOLDERS
- -------
The investment objective of the Latin American Portfolio is long-term capital
appreciation through investment primarily in equity securities of Latin American
issuers. The Portfolio may also invest in debt securities issued or guaranteed
by a Latin American government or governmental entity.
For the three months ended March 31, 1998, the Portfolio had a total return of
3.76% for the Class A shares and 3.70% for the Class B shares, compared to a
total return of 0.19% for the Morgan Stanley Capital International (MSCI)
Emerging Markets Global Latin America Index (the "Index"). For the one year
ended March 31, 1998, the Portfolio had a total return of 26.19%
PERFORMANCE COMPARED TO MORGAN STANLEY CAPITAL INTERNATIONAL (MSCI) EMERGING
MARKETS GLOBAL LATIN AMERICA INDEX(1)
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<TABLE>
<CAPTION>
TOTAL RETURNS(2)
-----------------------------------------
ONE AVERAGE ANNUAL
YTD YEAR SINCE INCEPTION
--------- ----------- -----------------
<S> <C> <C> <C>
PORTFOLIO--CLASS A.......... 3.76% 26.19% 24.02%
PORTFOLIO--CLASS B.......... 3.70 25.39 38.40
INDEX--CLASS A.............. 0.19 14.52 13.03
INDEX--CLASS B.............. 0.19 14.52 22.30
</TABLE>
1. The MSCI Emerging Markets Global Latin America Index is a broad based market
cap weighted composite index covering at least 60% of markets in Argentina,
Brazil, Chile, Colombia, Peru, Mexico and Venezuela (includes dividends).
2. Total returns for the Portfolio reflect expenses waived and reimbursed, if
applicable, by the Adviser. Without such waiver and reimbursement, total
returns would be lower.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
- ------------------------------
THE PERFORMANCE RESULTS PROVIDED ARE FOR INFORMATIONAL PURPOSES ONLY AND SHOULD
NOT BE CONSTRUED AS A GUARANTEE OF THE PORTFOLIO'S FUTURE PERFORMANCE. PAST
PERFORMANCE SHOWN IS NOT PREDICTIVE OF FUTURE PERFORMANCE. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY
BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. PLEASE SEE THE PROSPECTUS FOR A
DESCRIPTION OF CERTAIN RISK CONSIDERATIONS ASSOCIATED WITH INTERNATIONAL
INVESTING.
for the Class A shares and 25.39% for the Class B shares, compared to 14.52% for
the Index. From inception on January 18, 1995 to March 31, 1998, the average
annual total return of Class A was 24.02% compared to 13.03% for the Index. From
inception on January 2, 1996 to March 31, 1998, the average annual total return
of Class B was 38.40% compared to 22.30% for the Index.
Latin American equity markets have languished despite rallies in U.S. and
European stock markets. The largest contributor to the Portfolio's
outperformance relative to the benchmark was strong country and stock selection
in Brazil. Both overweighting Brazil, and focusing on the Brazilian telecoms and
banks were favorable for performance. Also positive were our underweights in
Peru and Venezuela, which fell 5.5% and 9.3% respectively during the quarter.
After declining in January, the Brazilian market rallied, gaining 7.7% during
the first quarter. January's negative return was driven by renewed concerns that
the currency might devalue and that interest rates, at over 40%, were too high.
The authorities reacted favorably by lowering interest rates in February and
March to approximately 28% by quarter end. To further boost market sentiment,
the Brazilian government focused on fiscal reforms. Specifically, the Lower
House of Congress is voting on reigning in future social security expenditures.
This vote is important as it has implications for narrowing the country's budget
deficit. We are particularly impressed with the government's initiatives to cut
expenditures in an election year and thus have further increased our overweight
position. Within Brazil, we are focusing on the banking and telecom stocks.
Brazilian banks are attractive given their cheap valuations as they were
oversold during the fourth quarter of 1997 and given a declining interest rate
environment. We are bullish on Brazil's telecom stocks given attractive
valuations coupled with strong growth expectations and steady progress on the
privatization front.
The Mexican equities market fell 6.4% during the quarter on a slowdown in
foreign portfolio investment and declining oil prices. We are neutral on Mexico
as a result
2
<PAGE>
of a worsening trade deficit and the potential for higher than expected
inflation and interest rate numbers. Central Bank Governor Ortiz announced that
he was prepared to live with higher inflation if a looser monetary policy would
help the trade balance. Within Mexico, we have continued to focus on the
consumer sector taking advantage of the consumer recovery which began
approximately ten months ago.
A rebound in depressed copper prices helped to firm Chile's equity market. The
market gained 0.6% during the quarter. We increased our Chilean exposure to take
advantage of the extreme price declines and widespread pessimism attributable to
commodity deflation and the Asian contagion.
In the other markets, Argentina gained 1.4% driven by positive news regarding
its economic reform program. Colombia was the worst performing market in the
region falling 22.7% on interest rate increases, a weakening peso and some poor
earnings announcements. Peru declined 5.5% on concerns about slowing economic
growth, while Venezuela fell 9.3% on higher interest rates and falling oil
prices.
Robert L. Meyer
PORTFOLIO MANAGER
Andy Skov
PORTFOLIO MANAGER
April 1998
3
<PAGE>
INVESTMENTS (UNAUDITED)
- ----------
MARCH 31, 1998
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------- ---------
<C> <S> <C>
COMMON STOCKS (97.5%)
ARGENTINA (7.1%)
11,834 Banco del Suquia $ 32
8,975 Quilmes ADR 103
49,945 Telecom Argentina ADR 1,789
108,531 Telefonica de Argentina ADR 4,131
15,210 YPF ADR 517
---------
6,572
---------
BRAZIL (51.7%)
175,218,135 Banco Bradesco (Preferred) 1,811
11,847,000 Banco Nacional (Preferred) 1
7,960,000 BANESPA (Preferred) 532
63,801,010 CEMIG (Preferred) 3,097
37,404 CEMIG ADR (Preferred) 1,819
1,042 CEMIG ADR (Preferred) (144A) 51
8,580,458 CRT (Preferred) 10,792
4,530 CVRD (Preferred) 108
38,970 CVRD ADR (Preferred) 940
34,986 CVRD, Class B (Preferred) --
1,340,000 Cimento ITAU (Preferred) 316
151,086,000 Copel, Class B ADR (Preferred) 2,154
1,943,830 Coteminas 504
27,025 Coteminas ADR (144A) 350
2,588,000 Encorpar (Preferred) 10
54,970,328 Gerdau (Preferred) 1,030
5,000 Globex Utilidades (Preferred) 44
458,900 Iven (Preferred) 220
10,009,300 Lojas Arapua (Preferred) 33
13,460 Lojas Arapua GDR (144A) 46
17,960,000 Lojas Renner (Preferred) 679
6,849,000 Petrobras (Preferred) 1,632
41,825 Petrobras ADR (144A) 978
2,540 Petrobras ADR (Preferred) 59
110,099 Rossi Residential GDR (144A) 702
101,175 Rossi Residential GDS (Reg S) 645
33,209,400 Telebras (Preferred) 4,372
79,344 Telebras ADR (Preferred) 10,300
119,255 Unibanco GDR (Preferred) 4,323
---------
47,548
---------
CHILE (7.3%)
3,840 Banco Edwards ADR 63
7,375 Banco Santander ADR 104
7,080 Banco Santiago ADR 159
30,725 CCU ADR 929
59,862 Chilectra ADR 1,690
<CAPTION>
VALUE
SHARES (000)
- --------------- ---------
<C> <S> <C>
7,700 Chilgener ADR $ 185
30,330 CTC ADR 836
18,660 D & S ADR 324
37,305 Endesa ADR 718
28,720 Enersis ADR 907
1,860 LANCHILE ADR 26
25,270 Quinenco ADR 311
22,703 Santa Isabel ADR 413
---------
6,665
---------
COLOMBIA (0.6%)
2,523 Banco de Colombia 1
48,803 Bavaria 287
89,155 Valores Bavaria 241
---------
529
---------
MEXICO (29.5%)
81,370 Alfa, Class A 459
308,454 Banacci, Class B 784
78,246 Banacci, Class L 182
783,980 Bancomer, Class B 462
34,620 Cemex CPO ADR 306
632,329 Cemex CPO 2,817
71,410 Cemex, Class B 386
59,169 Cemex, Class B ADR 651
210,336 Cifra, Class C 373
337,645 Cifra, Class V 617
1,250 Cifra, Class V ADR 23
11,125 Desc ADR 342
46,440 FEMSA ADR (144A) 335
456,930 FEMSA, Class B 3,314
74,460 Grupo Carso, Series A1 454
58,580 Grupo Modelo, Class C 498
547,531 Kimberly-Clark, Class A 2,815
11,935 Panamco 479
358,475 Soriana, Class B 1,365
63,685 Tamsa ADR 1,190
91,034 Televisa CPO GDR 3,334
96,729 Telmex, Class L ADR 5,453
23,323 TV Azteca ADR 458
---------
27,097
---------
PERU (0.8%)
40,355 Banco Wiese ADR 222
22,860 Tel Peru, Class B ADR 493
---------
715
---------
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------- ---------
<C> <S> <C>
VENEZUELA (0.5%)
10,940 CANTV ADR $ 457
---------
TOTAL COMMON STOCKS (Cost $83,098) 89,583
---------
<CAPTION>
FACE
AMOUNT
(000)
- ---------------
<C> <S> <C>
SHORT-TERM INVESTMENT (2.1%)
REPURCHASE AGREEMENT (2.1%)
$ 1,942 Chase Securities, Inc. 5.60%,
dated 3/31/98, due 4/01/98, to be
repurchased at $1,942,
collateralized by U.S. Treasury
Bills, due 6/11/98, valued at
$2,005 (Cost $1,942) 1,942
---------
FOREIGN CURRENCY (0.7%)
ARP 202 Argentine Peso 202
BRL 437 Brazilian Real 385
COP 49,494 Colombian Peso 36
MXP 29 Mexican Peso 3
PSS 5 Peruvian New Sol 2
VEB 8,195 Venezuelan Bolivar 16
---------
TOTAL FOREIGN CURRENCY (Cost $645) 644
---------
TOTAL INVESTMENTS (100.3%) (Cost $85,685) $ 92,169
---------
OTHER ASSETS AND LIABILITIES (-0.3%)
Other Assets 2,484
Liabilities (2,763)
---------
(279)
---------
NET ASSETS (100%) $ 91,890
---------
---------
<CAPTION>
AMOUNT
(000)
---------
<C> <S> <C>
CLASS A:
NET ASSETS $81,994
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 7,243,307 outstanding $0.001 par
value shares (authorized 500,000,000 shares) $11.32
---------
---------
CLASS B:
NET ASSETS $9,896
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 883,238 outstanding $0.001 par value
shares (authorized 500,000,000 shares) $11.20
---------
---------
</TABLE>
- ----------------------------------
ADR -- American Depositary Receipt
CPO -- Ordinary Participating Certificates (no voting rights)
GDR -- Global Depositary Receipt
GDS -- Global Depositary Shares
5
