<PAGE>
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DIRECTORS OFFICERS
Barton M. Biggs Stefanie V. Chang
CHAIRMAN OF THE BOARD VICE PRESIDENT
Chairman and Director, Morgan Stanley Asset Management Harold J. Schaaff, Jr.
Inc. and Morgan Stanley 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.
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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.
GLOBAL FIXED INCOME PORTFOLIO
FIRST QUARTER REPORT
MARCH 31, 1998
<PAGE>
LETTER TO SHAREHOLDERS
- -------
The Global Fixed Income Portfolio aims to produce an attractive real rate of
return by investing in fixed income securities issued by U.S. and foreign issues
including governments, agencies, supranational entities and corporations with
varying maturities in various currencies.
For the three months ended March 31, 1998, the Portfolio had a total return of
1.35% for Class A shares and 1.35% for Class B shares as compared to a total
return of 0.99% for the J.P. Morgan Traded Global Bond Index (the "Index"). For
the one year ended March 31, 1998, the Portfolio had a total return of 6.84% for
the Class A shares and 6.72% for the Class B shares compared to 6.57% for the
Index. For the five year period ended
PERFORMANCE COMPARED TO THE J.P. MORGAN TRADED GLOBAL BOND 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............. 1.35% 6.84% 6.23% 7.36%
PORTFOLIO--CLASS B............. 1.35 6.72 N/A 3.89
INDEX--CLASS A................. 0.99 6.57 6.69 8.38
INDEX--CLASS B................. 0.99 6.57 N/A 3.02
</TABLE>
1. The J.P. Morgan Traded Global Bond index is an unmanaged index of securities
and includes Australia, Belgium, Canada, Denmark, France, Germany, Italy,
Japan, The Netherlands, Spain, Sweden, the United Kingdom and the United
States.
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. YIELDS WILL FLUCTUATE AS MARKET CONDITIONS CHANGE.
March 31, 1998, the average annual total return of Class A was 6.23% compared to
6.69% for the Index. From inception on May 1, 1991 to March 31, 1998, the
average annual total return of Class A was 7.36% compared to 8.38% for the
Index. From inception on January 2, 1996 through March 31, 1998, the average
annual total return of Class B was 3.89% compared to 3.02% for the Index. As of
March 31, 1998, the Portfolio had an SEC 30-day yield of 4.53% for the Class A
shares and 4.38% for the Class B shares.
All global bond markets produced positive local currency returns over the
quarter in an environment which continued to benefit from the Asian economic
crisis. In the U.S., data continued to reflect well above trend growth as strong
domestic demand coupled with, as yet, minimal drag from Asia. While a stronger
dollar and lower oil prices were bond supportive, U.S. yields struggled to make
further progress, and ten-year yields fell a modest 9 basis points. Core
European markets produced a better performance as the benign inflation outlook
led to a further downgrading of interest rate expectations and ten-year yields
fell 38-45 basis points.
The release of various European convergence reports cleared the way for the
start of monetary union with eleven qualifying countries. However, given the
already near full convergence of Italian, Spanish and Irish yields to Germany,
the main beneficiary was Sweden where ten-year yields fell 67 basis points.
Japanese bonds were flat over the quarter, as more bad news on the economy and
an unconvincing stimulus package from the government proved sufficient to hold
yields at their low levels.
Bond market returns in U.S. dollar terms were generally lower in line with
dollar strength over the period as the dollar rose 2.8% versus the deutschemark
and 2.5% versus the Japanese yen.
The major factor which benefited the Portfolio's performance over the quarter
was our underweighting to both Japanese interest rate exposure and the yen.
Other positive factors were our overweighting to the Swedish, U.K. and Irish
markets.
2
<PAGE>
We remain neutral to interest rate exposure in the dollar bloc and European
markets and underweight in Japan. During the quarter, we purchased a further
holding in a U.S. treasury inflation indexed security. We also took profits on
our overweight U.K. and Irish positions reducing exposure to neutral.
J. David Germany
PORTFOLIO MANAGER
Michael B. Kushma
PORTFOLIO MANAGER
Paul F. O'Brien
PORTFOLIO MANAGER
Robert H. Smith
PORTFOLIO MANAGER
Richard B. Worley
PORTFOLIO MANAGER
April 1998
3
<PAGE>
INVESTMENTS (UNAUDITED)
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MARCH 31, 1998
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- --------------- ---------
<C> <S> <C>
FIXED INCOME SECURITIES (92.7%)
AUSTRALIAN DOLLARS (4.5%)
GOVERNMENT BONDS (2.8%)
AUD 1,200 Government of Australia Series
206, 10.00%, 2/15/06 $ 1,010
1,200 Government of Australia Series
808, 8.75%, 8/15/08 972
---------
1,982
---------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (1.7%)
1,800 Federal National Mortgage
Association-Global
6.50%, 7/10/02 1,230
---------
3,212
---------
BRITISH POUND (7.4%)
GOVERNMENT BONDS (7.4%)
GBP 200 United Kingdom Conversion Gilt
9.00%, 7/12/11 428
800 United Kingdom Treasury Gilt
8.50%, 12/07/05 1,539
1,650 United Kingdom Treasury Gilt
8.50%, 7/16/07 3,260
---------
5,227
---------
CANADIAN DOLLAR (4.6%)
GOVERNMENT BONDS (4.6%)
CAD 2,700 Government of Canada 7.50%,
3/01/01 2,023
1,400 Government of Canada 8.75%,
12/01/05 1,197
---------
3,220
---------
DANISH KRONE (3.6%)
GOVERNMENT BONDS (3.6%)
DKK 15,400 Kingdom of Denmark 8.00%, 5/15/03 2,501
---------
DEUTSCHE MARK (15.6%)
EUROBONDS (4.0%)
DEM 1,300 KFW International Finance, Inc.
7.50%, 1/24/00 742
3,500 Landeskreditbank Baden-
Wuerttemberg Financial 6.625%,
8/20/03 2,054
---------
2,796
---------
GOVERNMENT BONDS (11.6%)
4,000 Deutschland Republic Series 95,
6.50%, 10/14/05 2,386
3,750 German Unity Bond
8.00%, 1/21/02 2,276
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- --------------- ---------
<C> <S> <C>
DEM 2,500 Government of Germany
6.25%, 1/04/24 $ 1,498
3,300 Treuhandanstalt
7.50%, 9/09/04 2,051
---------
8,211
---------
11,007
---------
ITALIAN LIRA (6.2%)
GOVERNMENT BONDS (6.2%)
ITL 2,800,000 BTPS 10.00%, 8/01/03 1,899
1,450,000 BTPS 9.50%, 1/01/05 996
2,100,000 BTPS 9.50%, 2/01/06 1,478
---------
4,373
---------
JAPANESE YEN (8.8%)
EUROBONDS (8.8%)
JPY 50,000 European Investment Bank 6.625%,
3/15/00 418
155,000 Export Import Bank of Japan
4.375%, 10/01/03 1,343
265,000 International Bank for
Reconstruction & Development
4.50%, 6/20/00 2,152
100,000 International Bank for
Reconstruction & Development
4.75%, 12/20/04 902
145,000 Republic of Austria
6.25%, 10/16/03 1,366
---------
6,181
---------
SPANISH PESETA (3.1%)
GOVERNMENT BONDS (3.1%)
ESP 330,000 Spanish Government 8.30%, 12/15/98 2,161
---------
SWEDISH KRONA (7.8%)
GOVERNMENT BONDS (7.8%)
SEK 17,000 Swedish Government 13.00%, 6/15/01 2,619
21,700 Swedish Government 6.00%, 2/09/05 2,845
---------
5,464
---------
UNITED STATES DOLLAR (31.1%)
ASSET BACKED SECURITIES (4.8%)
U.S.$ 750 Asset Securitization Corp., CMO,
Series 1996-D3 A1 B 7.21%,
10/13/26 784
538 Asset Securitization Corp., CMO,
Series 1995-MD4 A1 7.10%, 8/13/29 561
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- --------------- ---------
<C> <S> <C>
ASSET BACKED SECURITIES (CONTINUED)
U.S.$ 130 CISCE Series 1997-1 Class A7 Seq,
6.42%, 12/26/09 $ 131
460 Delta Funding Home Equity Loan
Trust, Series 1997-1
7.21%, 4/25/29 472
815 LB Commercial Conduit Mortgage
Trust, (Floating Rate), CMO
7.15%, 8/25/04 840
527 Mid-State Trust, Series IV A,
8.33%, 4/01/30 569
---------
3,357
---------
CORPORATE BONDS AND NOTES (3.1%)
500 BankAmerica, Series 144A, 7.70%,
12/31/26 507
150 First Chicago Corp., Series 144A,
7.75%, 12/01/26 153
400 Liberty Mutual Insurance Co.,
Series 144A,
7.697%, 10/15/2097 415
300 Lumbermens Mutual Casualty Co.,
Series AI, Series 144A, 9.15%,
7/01/26 350
365 NB Capital Trust II
7.83%, 12/15/26 382
385 Goldman Sachs Group, Series 144A,
6.25%, 2/01/03 387
---------
2,194
---------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (23.2%)
U.S. TREASURY BONDS (6.6%)
3,050 8.125%, 8/15/19 3,814
800 6.25%, 8/15/23 824
---------
4,638
---------
U.S. TREASURY NOTES (16.6%)
875 6.375%, 1/15/00 886
600 5.75%, 10/31/00 602
2,610 6.375%, 3/31/01 2,661
1,626 3.625%, 7/15/02 (Inflation
Indexed) 1,610
1,100 7.25%, 5/15/04 1,187
2,000 7.50%, 2/15/05 2,199
1,025 6.25%, 2/15/07 1,060
1,500 3.625%, 1/15/08 (Inflation
Indexed) 1,483
---------
11,688
---------
16,326
---------
21,877
---------
TOTAL FIXED INCOME SECURITIES (92.7%) (Cost $66,328) 65,223
---------
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- --------------- ---------
<C> <S> <C>
SHORT-TERM INVESTMENT (5.6%)
REPURCHASE AGREEMENT (5.6%)
U.S.$ 3,912 Chase Securities, Inc.
5.60%, dated 3/31/98, due
4/01/98, to be repurchased at
$3,913, collateralized by U.S.
Treasury Notes, 6.250%, due
4/30/01, valued at $4,001 (Cost
$3,912) $ 3,912
---------
FOREIGN CURRENCY (0.0%)
ESP 9 Spanish Peseta --
ITL 203 Italian Lira --
---------
TOTAL FOREIGN CURRENCY (Cost $0) --
---------
TOTAL INVESTMENTS (98.3%) (Cost $70,240) 69,135
---------
OTHER ASSETS AND LIABILITIES (1.7%)
Other Assets 13,947
Liabilities (12,728)
---------
1,219
---------
NET ASSETS (100%) $70,354
---------
---------
CLASS A:
NET ASSETS $70,028
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 6,199,234 outstanding $0.001 par
value shares (authorized 500,000,000 shares) $11.30
---------
---------
CLASS B:
NET ASSETS $326
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 28,902 outstanding $0.001 par value
shares (authorized 500,000,000 shares) $11.28
---------
---------
</TABLE>
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CMO -- Collateralized Mortgage Obligation
Floating Rate Security -- Interest rate changes on these instruments are based
on changes in a designated base rate. The rates shown were those in effect on
March 31, 1998.
Inflation Index Security -- Security includes principal adjustment feature in
which par amount adjusts with the Consumer Price Index to insulate bonds from
the effects of inflation. The face amount shown is that in effect on March 31,
1998.
5
