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MORGAN STANLEY DEAN WITTER
MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
SEMI-ANNUAL REPORT
JUNE 30, 1999
[LOGO]
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[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
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TABLE OF CONTENTS
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<TABLE>
<S> <C>
President's Letter.......................... 1
Performance Summary......................... 2
Managers' Reports and Statements of Net
Assets by Portfolio:
Global and International Equity Portfolios:
Active International Allocation........... 4
Asian Equity.............................. 15
Asian Real Estate......................... 22
Emerging Markets.......................... 27
European Equity .......................... 36
European Real Estate...................... 41
Global Equity ............................ 47
International Equity ..................... 52
International Magnum ..................... 57
International Small Cap................... 64
Japanese Equity........................... 69
Latin American............................ 73
U.S. Equity Portfolios:
Aggressive Equity......................... 78
Emerging Growth........................... 83
Equity Growth............................. 88
Technology................................ 94
U.S. Equity Plus.......................... 98
U.S. Real Estate.......................... 105
Value Equity.............................. 111
Fixed Income Portfolios:
Emerging Markets Debt..................... 116
Fixed Income.............................. 123
Global Fixed Income....................... 127
High Yield................................ 131
Municipal Bond............................ 137
Money Market Portfolios:
Money Market.............................. 141
Municipal Money Market.................... 145
Statements of Operations.................... 152
Statements of Changes in Net Assets......... 156
Financial Highlights ....................... 169
Notes to Financial Statements............... 194
Directors and Officers ..................... 202
</TABLE>
This report is authorized for distribution only when preceded or accompanied by
prospectuses of the Morgan Stanley Dean Witter Institutional Fund, Inc.
Prospectuses describe in detail each of the Portfolio's investment policies to
the prospective investor. Please read the prospectuses carefully before you
invest or send money.
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<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
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PRESIDENT'S LETTER
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Fellow Shareholders:
We are pleased to present to you the Fund's Semi-Annual Report for the six
months ended June 30, 1999. Our Fund currently offers 26 portfolios providing
investors with a full array of global and domestic equity and fixed income
products. Together, the Fund's portfolios allow investors to meet specific
investment needs or to allocate assets among different portfolios to implement
an overal investment strategy.
MARKET REVIEW
After the Asian and Russian economic crises experienced in 1997 and the end
of 1998, the global economy began to "heal" in the first half of 1999. The
reflationary policies of central banks around the world began to take root,
spurring improved and broader economic growth in many troubled areas of the
world. Reflecting this global healing, interest rates in the U.S. crept upward
on fears of faster inflation as the world economy resumes broader based growth.
The Lehman Aggregate Index fell 1.4% in the first half of the year. Performance
in equity markets was strong despite rising interest rates in the U.S. The S&P
500 Index rose 12.4% over the period. Foreign stock prices also rose, but
weakening foreign currencies hampered returns to U.S. investors. In the first
half of the year, the MSCI EAFE Index rose 13.6% in local terms, but only 4.0%
in U.S. Dollar terms.
While the bull market of 1998 was characterized by narrow market leadership
and was concentrated in particular sectors and names, the strength in 1999 has
so far been much broader in scope. The disparity between value and growth stock
performance in the U.S. narrowed, as did the disparity between large cap and
small cap stock performance, creating a benign environment for active stock
pickers. Within the bond market, performance also reflected broader economic
growth. Spread products, such as mortgages and high yield corporates, which had
been battered in last year's flight to quality, saw improved performance, as
spreads relative to Treasuries narrowed to more normal levels. Spread products
have outperformed higher quality Treasuries ( - 2.4%) in the first half of this
year (Corporate Bonds - 2.1%, High Yield Debt +1.8%, Mortgages +0.7%).
Foreign stock performance was mixed in the first half of 1999. While Japan
(+20.7%) and developed Pacific markets (+23.0%) showed strong gains, a weak Euro
and softening economies held back European stock performance ( - 2.4%). Emerging
market equities were the star performer of the first half. Although Brazil was
forced to devalue its currency, the move had been widely anticipated and priced
into emerging markets. Because of the strong financial reforms Brazil had
already enacted, the financial sector was able to manage through the
devaluation. As the situation in Latin America stabilized, emerging market
equities began to soar. The MSCI Emerging Markets Free Index rose 39.9% in the
first half of the year, led by Asia (+55.4%), and followed by Latin America
(+31.0%) and Eastern Europe (+28.4%).
While broader economic growth has driven many equity markets to new highs
this year, this news has not been positive for bonds. The unabated economic
expansion in the U.S., coupled with rising commodity prices, has led market
participants to speculate that inflation, and therefore bond yields, will pick
up. Although inflation data remained mixed, retail sales data showed surprising
strength. At the end of June, the Federal Reserve responded by raising interest
rates 25 basis points.
MARKET OUTLOOK
Broadening economic growth has been reflected in the global recovery of the
manufacturing sector, which had stagnated in 1998. The recovery has been led by
Asia and the U.S., with Europe pointing to a stronger second half. Consumption
may slow modestly in the West, as commodity prices bottom, and interest-rate
sensitive sectors react to the rise in bond yields. However, 1999 growth is
expected to increase globally, compared to 1998. Growth in the year 2000 should
show an acceleration of this trend. Earnings should benefit and grow
approximately 10% over the next twelve months in the U.S. and Europe, and close
to 20% for Japan.
Although the current bull market appears to be eternal, we emphasize that
there are significant differences between the environment today and that of the
past two years. The key difference is that inflationary pressures, particularly
in the U.S., may not be quiescent. Oil prices are up near 100% from their lows.
World growth is picking up, and is reflected in bottoming commodity prices.
Strong consumption and tight labor markets in the U.S. will ultimately lead to
inflationary pressures. Although the Fed has adopted a "neutral bias", we
believe that further interest hikes this year are likely, possibly forcing a
final capitulation in the bond market. With interest rates and liquidity less
supportive of an overvalued U.S. equity market, stronger earnings will become
crucial to continued strength for U.S. stocks. We anticipate better equity
performance in non-U.S. markets, where valuations, growth prospects, and
liquidity trends are more favorable.
In this Report, each of our portfolio managers discuss the performance
results and outlook of their markets and portfolios in greater detail. We hope
you find the Report informative. As always, we very much appreciate your
continued support of the Fund.
Sincerely,
/s/ Michael F. Klein
Michael F. Klein
PRESIDENT
July 1999
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1
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[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
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PERFORMANCE SUMMARY (UNAUDITED)
JUNE 30, 1999
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<TABLE>
<CAPTION>
NET ASSETS NET ASSET VALUE
INCEPTION DATES (000) PER SHARE YTD TOTAL RETURN
------------------ ------------------- ---------------- ----------------------------------
COMPARABLE
CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B INDICES
-------- -------- ---------- ------- ------- ------- ------- ------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GLOBAL AND INTERNATIONAL EQUITY
PORTFOLIOS:
Active International
Allocation 1/17/92 1/02/96 $ 430,676 $1,906 $12.39 $12.53 4.12 % 3.38 % 3.97%(1)
Asian Equity 7/01/91 1/02/96 96,195 2,071 11.55 11.46 44.20 43.79 44.30(2)
Asian Real Estate 10/01/97 10/01/97 3,607 977 8.52 8.56 29.66 29.60 24.81(3)
Emerging Markets 9/25/92 1/02/96 1,102,105 10,091 13.37 13.37 40.00 39.85 39.87(5)
38.27(4)
European Equity 4/02/93 1/02/96 109,560 3,115 15.56 15.53 - 1.21 - 1.33 - 2.41(6)
European Real Estate 10/01/97 10/01/97 16,372 2,082 9.83 9.85 2.90 2.72 6.84(7)
Global Equity 7/15/92 1/02/96 208,343 20,830 21.53 21.39 3.81 3.68 8.51(8)
International Equity 8/04/89 1/02/96 4,055,760 26,979 19.49 19.43 6.80 6.64 3.97(1)
International Magnum 3/15/96 3/15/96 201,399 26,013 12.27 12.22 6.05 5.89 3.97(1)
International Small Cap 12/15/92 -- 277,929 -- 17.53 -- 14.95 -- 12.07(9)
Japanese Equity 4/25/94 1/02/96 59,284 2,134 7.82 7.75 26.54 26.43 20.72(10)
Latin American 1/18/95 1/02/96 22,091 1,514 9.37 9.40 39.02 38.64 31.03(23)
33.28(11)
U.S. EQUITY PORTFOLIOS:
Aggressive Equity 3/08/95 1/02/96 113,789 19,521 21.70 21.56 24.00 23.91 12.38(12)
14.97(13)
Emerging Growth 11/01/89 1/02/96 38,976 1,735 10.41 10.22 29.00 28.88 9.28(14)
Equity Growth 4/02/91 1/02/96 867,908 169,028 21.99 21.88 15.49 15.34 12.38(12)
Technology 9/16/96 9/16/96 30,368 2,600 25.87 25.77 43.88 43.81 12.38(12)
U.S. Equity Plus 7/31/97 7/31/97 16,186 1,432 13.91 13.89 11.91 11.84 12.38(12)
U.S. Real Estate 2/24/95 1/02/96 314,472 14,745 13.68 13.63 9.03 8.91 4.78(15)
Value Equity 1/31/90 1/02/96 59,026 631 13.01 12.97 21.15 20.91 12.38(12)
FIXED INCOME PORTFOLIOS:
Emerging Markets Debt 2/01/94 1/02/96 57,403 1,006 2.92 2.95 11.45 10.90 10.57(16)
Fixed Income 5/15/91 1/02/96 196,279 2,383 10.60 10.61 - 2.10 - 2.23 - 1.37(17)
Global Fixed Income 5/01/91 1/02/96 35,117 324 11.52 11.48 - 7.32 - 7.46 - 7.19(18)
High Yield 9/28/92 1/02/96 133,966 39,815 10.79 10.77 4.14 4.05 2.82(19)
Municipal Bond 1/18/95 -- 26,626 -- 10.07 -- - 1.38 -- - 0.87(20)
MONEY MARKET PORTFOLIOS:
Money Market 11/15/88 -- 1,726,686 -- 1.00 -- 2.24 -- --
Municipal Money Market 2/10/89 -- 1,013,221 -- 1.00 -- 1.30 -- --
</TABLE>
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<TABLE>
<CAPTION>
YIELD INFORMATION AS OF JUNE 30, 1999
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30 DAY
CURRENT YIELD++ 7 DAY 7 DAY 30 DAY 30 DAY
----------------- CURRENT EFFECTIVE CURRENT COMPARABLE
CLASS A CLASS B YIELD+ YIELD+ YIELD++ YIELD
------- ------- -------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
FIXED INCOME PORTFOLIOS: MONEY MARKET PORTFOLIOS:
Emerging Markets Debt 12.79% 12.53% Money Market 4.52% 4.57% 4.47% 4.40%(21)
Fixed Income 6.24 6.09 Municipal Money Market 3.15 3.20 2.75 2.72(22)
Global Fixed Income 4.03 3.88
High Yield 10.01 9.76
Municipal Bond 4.33 --
</TABLE>
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+The 7 day current yield and 7 day effective yield assume an annualization of
the current yield with all dividends reinvested. As with all money market
portfolios, yields fluctuate as market conditions change and the 7 day yields
are not necessarily indicative of future performance.
++The current 30 day yield reflects the net investment income generated by the
Portfolio over a specified 30 day period expressed as an annual percentage.
Expenses accrued for the 30 day period include any fees charged to all
shareholders. Yields will fluctuate as market conditions change and are not
necessarily indicative of future performance.
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2
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<TABLE>
<CAPTION>
AVERAGE ANNUAL FIVE YEAR
AVERAGE ANNUAL TOTAL
ONE YEAR TOTAL RETURN TOTAL RETURN RETURN SINCE INCEPTION
- ------------------------------------- ------------------------- ------------------------------------------------------------
COMPARABLE COMPARABLE COMPARABLE COMPARABLE
CLASS A CLASS B INDICES CLASS A INDICES CLASS A INDICES--CLASS A CLASS B INDICES--CLASS B
- --------- --------- ------------- ---------- ------------ ---------- ---------------- --------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
5.30% 5.13% 7.62%(1) 10.35% 8.21%(1) 10.14% 9.52%(1) 11.81% 8.88%(1)
69.02 67.94 82.69(2) - 5.63 - 3.17(2) 6.58 6.96(2) - 10.66 - 6.41(2)
61.26 60.83 53.42(3) -- -- - 4.92 - 15.81(3) - 5.24 - 15.81(3)
22.00 21.59 28.71(5) 0.25 - 0.83(5) 8.50 7.44(5) 3.81 - 0.81(5)
29.66(4) - 1.03(4) 6.78(4) - 0.60(4)
- 14.19 - 14.44 - 0.84(6) 11.69 19.20(6) 15.55 18.02(6) 12.57 19.60(6)
- 6.80 - 7.02 - 3.46(7) -- -- 1.53 3.64(7) 1.33 3.64(7)
4.32 4.04 15.67(8) 16.67 16.75(8) 18.33 15.46(8) 17.98 17.66(8)
6.90 6.67 7.62(1) 14.61 8.21(1) 12.89 5.59(1) 16.34 8.88(1)
- 3.57 - 3.85 7.62(1) -- -- 8.63 9.56(1) 8.33 9.56(1)
1.78 -- 3.86(9) 5.83 - 4.07(9) 12.84 4.03(9) -- --
31.23 30.94 30.21(10) 2.32 - 5.11(10) 3.03 - 3.32(10) 5.78 - 5.38(10)
3.25 3.44 6.02(23) -- -- 12.34 5.38(23) 17.38 8.64(23)
7.65(11) 5.59(11) 9.03(11)
26.38 26.01 22.75(12) -- -- 36.28 29.84(12) 32.17 27.73(12)
20.28(13) 22.61(13) 20.11(13)
37.91 37.23 1.50(14) 23.47 15.40(14) 15.77 12.78(14) 19.84 12.62(14)
18.88 18.56 22.75(12) 29.51 27.87(12) 19.90 19.56(12) 27.42 27.73(12)
82.53 82.21 22.75(12) -- -- 52.75 30.51(12) 52.44 30.51(12)
18.16 17.89 22.75(12) -- -- 19.67 22.72(12) 19.47 22.72(12)
0.91 0.74 - 8.98(15) -- -- 18.11 11.70(15) 15.92 10.26(15)
18.98 18.63 22.75(12) 22.08 27.87(12) 15.73 19.39(12) 22.01 27.73(12)
- 25.50 - 25.48 - 4.26(16) 11.51 14.22(16) 6.49 8.28(16) 6.76 11.75(16)
1.68 1.54 3.15(17) 7.79 7.83(17) 7.63 7.82(17) 5.47 5.82(17)
2.00 1.74 3.63(18) 6.47 6.56(18) 6.72 7.82(18) 3.58 3.64(18)
3.08 2.93 - 0.85(19) 11.54 9.31(19) 11.49 9.43(19) 10.39 7.99(19)
1.86 -- 2.92(20) -- -- 5.31 6.55(20) -- --
-- -- -- -- -- -- -- -- --
-- -- -- -- -- -- -- -- --
</TABLE>
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INDICES:
(1) MSCI EAFE (Europe, Australasia, and Far East)
(2) MSCI All-Country Far East Free ex-Japan
(3) GPR General Real Estate Securities Index-Far East
(4) IFC Global Total Return Composite
(5) MSCI Emerging Markets Free
(6) MSCI Europe
(7) GPR General Real Estate Securities Index-Europe
(8) MSCI World
(9) MSCI EAFE Small Cap
(10) MSCI Japan
(11) MSCI Emerging Markets Global Latin America
(12) S&P 500
(13) Lipper Capital Appreciation
(14) Russell 2000
(15) National Association of Real Estate Investment Trusts
(NAREIT) Equity
(16) J.P. Morgan Emerging Markets Bond Plus
(17) Lehman Aggregate Bond
(18) J.P. Morgan Traded Global Bond
(19) CS First Boston High Yield
(20) Lehman 7-Year Municipal Bond
(21) IBC Money Fund Comparable Yield
(22) IBC Municipal Money Fund Comparable Yield
(23) MSCI Emerging Markets Free Latin America
Past performance should not be construed as a guarantee 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.
Investments in the Money Market and Municipal Money Market Portfolios are
neither insured nor guaranteed by the Federal Deposit Insurance Corporation.
Although the Money Market and Municipal Money Market Portfolios seek to preserve
the value of your investment at $1.00 per share, it is possible to lose money by
investing in these portfolios. Please read the Portfolios' prospectuses
carefully before you invest or send money.
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3
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[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
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OVERVIEW
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ACTIVE INTERNATIONAL ALLOCATION PORTFOLIO
COMPOSITION OF NET ASSETS (AT JUNE 30, 1999)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Australia 3.6%
Austria 0.3%
France 5.1%
Germany 5.9%
Hong Kong 2.1%
Italy 3.6%
Japan 19.8%
Netherlands 5.8%
Portugal 0.9%
Singapore 3.6%
Spain 3.7%
Sweden 3.1%
Switzerland 5.5%
United Kingdom 14.7%
Other 22.3%
</TABLE>
PERFORMANCE COMPARED TO MORGAN STANLEY
CAPITAL INTERNATIONAL (MSCI) EAFE INDEX(1)
- ------------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
------------------------------------------------------------
AVERAGE ANNUAL AVERAGE ANNUAL
YTD ONE YEAR FIVE YEARS SINCE INCEPTION
---------- ---------- ----------------- -----------------
<S> <C> <C> <C> <C>
PORTFOLIO -- CLASS
A.................. 4.12% 5.30% 10.35% 10.14%
PORTFOLIO -- CLASS
B.................. 3.38 5.13 N/A 11.81
INDEX -- CLASS A... 3.97 7.62 8.21 9.52
INDEX -- CLASS B... 3.97 7.62 N/A 8.88
</TABLE>
1. The MSCI EAFE Index is an unmanaged index of common stocks in Europe,
Australasia and the Far East (includes dividends net of withholding taxes).
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 INFORMATION CONTAINED IN THIS OVERVIEW REGARDING SPECIFIC SECURITIES IS FOR
INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A RECOMMENDATION TO
PURCHASE OR SELL THE SECURITIES MENTIONED. THE COUNTRY SPECIFIC PERFORMANCE
RESULTS PROVIDED ARE AS MEASURED BY THE MSCI EAFE INDEX AND 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.
The Active International Allocation Portfolio invests in international equity
markets, with emphasis placed upon countries, rather than stock selection. This
approach reflects our belief that a diversified selection of securities
representing exposure to countries that we find attractive provides an effective
way to maximize the return potential and minimize the risk associated with
global investing.
For the six months ended June 30, 1999, the Portfolio had a total return of
4.12% for the Class A shares and 3.38% for the Class B shares compared to 3.97%
for the Morgan Stanley Capital International (MSCI) EAFE Index (the "Index").
For the one year period ended June 30, 1999, the Portfolio had a total return of
5.30% for the Class A shares and 5.13% for the Class B shares compared to 7.62%
for the Index. For the five-year period ended June 30, 1999, the average annual
total return for Class A shares was 10.35% compared to 8.21% for the Index. For
the period since inception on January 17, 1992 through June 30, 1999, the
average annual total return for Class A shares was 10.14% compared to 9.52% for
the Index. For the period since inception on January 2, 1996 through June 30,
1999, the average annual total return for Class B shares was 11.81% compared to
8.88% for the Index.
Our performance for the year-to-date is mediocre. For much of the second quarter
we were too defensively positioned, and although our emphasis on Japan and Asia
was beneficial, the drag of cash kept us from significantly outperforming the
Index. In recent weeks we have reduced our cash to a minimum, although we are
still afflicted with U.S. equity acrophobia despite the euphoric economic
environment.
In general, we continue to think the U.S. equity market is "priced for
perfection" and that it is vulnerable to any untoward event. We suggest caution
and an underweight position and believe that the best investment opportunities
are elsewhere in the world. We are bullish on Japan and non-Japan Asia, and
moderately optimistic on Europe and the United Kingdom. Small and medium
capitalization stocks are becoming more appealing around the world.
Since the start of the year, we have increased our position in Japan to
overweight the Index. We recently returned from a week there, and our conclusion
is that the investment story in Japan continues to make slow, irregular
progress. The economy has bottomed,
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Active International Allocation Portfolio
4
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
ACTIVE INTERNATIONAL ALLOCATION PORTFOLIO (CONT.)
the bear market is over, and the Japanese stock market should be the best big
market in the world over the next couple of years.
That said, reform and restructuring are unfolding in a deliberate, almost
ceremonial pattern, like the symbolic, stylized movements of the Kabuki theatre.
This dilatory pace is maddeningly frustrating to watch as an investor, but we
have to recognize that Japan changes its system at its own pace and in its own
good time.
The Japanese economy is still listless. We saw a number of economists and there
is general agreement that the first quarter report was a flash in the pan. As
the Bank of Japan put it: "Japan's economy, at present, has stopped
deteriorating, but clear signs of recovery have not been observed." Deflation is
everywhere. Wages are below the year ago level, wholesale prices are falling,
and consumer prices "remain weak." Real estate prices have stabilized. There is
a chance that the economy will weaken again in the first half of next year
unless there is additional fiscal stimulus.
We believe the heart of the Japanese equity story is restructuring. Japanese
companies are selling divisions and cross-shareholdings, reducing their
workforces, consolidating business units, closing unprofitable capacity, paying
down debt, and generally rationalizing their companies. Investors around the
world respond very positively to restructuring plans, and there is already
evidence that the same thing is happening in Japan.
Our Tokyo research department has published a major report on restructuring. We
have identified 143 restructuring announcements in the first five months of this
year alone. Although it will be several years before the first payoff in terms
of returns and profits become visible and the entire process will probably take
ten years, earnings for the MSCI Japan Index could compound at a 15% rate over
that period if returns on assets and equity get back to anywhere near previous
levels. We are now around 26% in Japan versus an Index weight of 22%. The Index
was up 7% in dollars in the second quarter and 21% for the year-to-date.
We also added to Singapore and Hong Kong in the second quarter and this move
also paid off handsomely with the former up 34% in the quarter and the latter
ahead 23%. We also are overweight in Australia which has increased over 14% for
the year in U.S. dollar terms. We also saw our Asian experts recently, and there
are some disconcerting signals. First, because stock prices have soared, Asian
companies are wavering in their reform programs. Second, the economic recovery
is still fragile and current account surpluses are beginning to fade, and third
there are many indications of speculative excesses coming back into the markets.
We are reviewing our stance.
As for Europe, in the second quarter we reduced our position from 64% of the
Portfolio to 60% versus the Index weight of 69% by taking four percentage points
out of the United Kingdom. We believe European economic growth is picking up,
earnings revisions have started to move higher, interest rates should be on
hold, and perhaps liquidity flows could re-ignite. Our concerns stem from high
valuation levels, increasing bond yields, the sinking Euro, and Europe's high
sensitivity to the U.S. market and short-term U.S. interest rates. Hence, in the
short-term, we remain underweight.
Within Europe we are focused on Italy, Spain and Portugal. Italy has
disappointed, but equities are fairly valued and should be supported by a
pick-up in corporate earnings. Economic growth should recover from a revival in
exports and the lagged impact of lower interest rates. Italy was late (early
December 1998) relative to the rest of Europe in lowering short-term interest
rates and the benefits have yet to affect domestic consumption. We expect better
growth in the second half of 1999.
Spain has a very dynamic economy without the threat of inflation. The government
has accomplished a great deal of the restructuring and we are impressed by their
policies. Corporate earnings should be steady but revisions have been negative
which hurts equity valuations. Spain and Portugal have suffered from investors'
unease on the outlook for Latin America.
We remain underweight France and Germany. The French economy has performed
strongly, largely due to a strong consumer. We expect business confidence levels
to rise and exports to provide a further avenue of growth. However, equities are
not cheap and have deteriorated as the result of negative earnings revisions and
strong market performance. In Germany equity valuations on an historic basis are
extended, while at reasonable levels relative to other markets. Our concerns lie
mainly in the prospects for sustained
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Active International Allocation Portfolio
5
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
ACTIVE INTERNATIONAL ALLOCATION PORTFOLIO (CONT.)
economic recovery and questions concerning policies from the governing coalition
on taxes and labor market rigidity.
We still have a mid and small cap tilt in the United Kingdom (approximately 2%
of the portfolio) which has worked out well as has the European real estate tilt
(approximately 2.5% of the portfolio). European real estate is selling at a 64%
discount on price to book relative to MSCI Europe, and the out-performance cycle
has just begun, in our opinion.
We have gone significantly underweight European telecommunications stocks. Our
quantitative and analytical work suggests the big telecom companies are very
expensive compared both to their relative historic and prospective valuations in
the past and to the future. For example, on cash flow, European telecom is
selling at a 74% premium to MSCI Europe versus an historical premium of 35%.
Current valuations discount 13% trend line growth rates versus cash flow growth
forecasts of most analysts of around 5% to 6%. Usage growth has accelerated
dramatically but so has price-cutting. The entire market is undergoing total
change and transformation which increases the risk of obsolescence for those
suppliers with large fixed investment. These are over-owned, slow growth stocks
priced as rapid growth stocks.
As noted, at present our cash position is nominal but we remain alert and
nervous for a change in the investment environment.
Ann D. Thivierge
PORTFOLIO MANAGER
Barton M. Biggs
PORTFOLIO MANAGER
July 1999
- --------------------------------------------------------------------------------
Active International Allocation Portfolio
6
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1999
- --------------------------------------------------------------------------------
ACTIVE INTERNATIONAL ALLOCATION PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- ----------------------------------------------------------------------------
COMMON STOCKS (77.2%)
AUSTRALIA (3.4%)
71,278 AMP Ltd........................................... $ 776
(a)49,476 Amcor Ltd......................................... 274
28,690 Australian Gas Light Co., Ltd..................... 174
85,486 Boral Ltd......................................... 144
16,621 Brambles Industries Ltd........................... 436
123,116 Broken Hill Proprietary Co., Ltd.................. 1,421
71,868 Coca Cola Amatil Ltd.............................. 289
83,265 Coles Myer Ltd.................................... 483
584 Colonial Ltd...................................... 2
8,069 CSL Ltd........................................... 69
77,723 CSR Ltd........................................... 221
9,404 F.H. Faulding & Co., Ltd.......................... 57
134,451 Fosters Brewing Group Ltd......................... 377
50,716 Gio Australia Holdings Ltd........................ 123
90,718 Goodman Fielder Ltd............................... 81
22,003 ICI Australia Ltd................................. 120
20,774 Leighton Holdings Ltd............................. 81
40,185 Lend Lease Corp., Ltd............................. 550
27,945 Mayne Nickless Ltd................................ 95
100,499 National Australia Bank Ltd....................... 1,657
142,747 News Corp., Ltd................................... 1,213
147,069 Normandy Mining Ltd............................... 98
51,580 North Ltd......................................... 104
81,600 Pacific Dunlop Ltd................................ 117
70,223 Pioneer International Ltd......................... 178
30,578 QBE Insurance Group Ltd........................... 116
14,033 Rio Tinto Ltd..................................... 229
45,866 Santos Ltd........................................ 150
29,834 Schroders Property Fund........................... 46
15,186 Smith (Howard) Ltd................................ 116
48,249 Southcorp Holdings Ltd............................ 194
(a)368 Stockland Trust Group............................. 1
(a)23,904 Stockland Trust Group............................. 54
24,364 Suncorp-Metway Ltd................................ 145
24,775 TABCORP Holdings Ltd.............................. 166
367,092 Telstra Corp., Ltd................................ 2,095
14,337 Wesfarmers Ltd.................................... 129
97,523 Westfield Trust................................... 197
138,048 Westpac Banking Corp.............................. 892
136,902 WMC Ltd........................................... 586
86,621 Woolworths Ltd.................................... 287
----------
14,543
----------
AUSTRIA (0.3%)
1,170 Austria Tabakwerke AG............................. 68
1,191 Austian Airlines/Oest Luftv AG.................... 29
159 Austria Mikro Systeme International AG............ 6
5,990 Bank Austria AG................................... 316
250 Bau Holding AG.................................... 8
486 BBag Oest Brau Beteiligungs AG.................... 22
587 Boehler-Uddeholm AG............................... 29
90 BWT AG............................................ 17
375 EA-Generali AG.................................... 69
1,127 Flughafen Wein AG................................. 47
197 Lenzing AG........................................ 11
637 Mayr-Melnhof Karton AG............................ 29
1,621 Oest Elektrizatswirts AG, Class A................. 236
1,420 OMV AG............................................ 127
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- ----------------------------------------------------------------------------
743 Radex-Heraklith Industriebet AG................... $ 20
795 VA Technologie AG................................. 72
3,664 Wienerberger Baustoffindustrie AG................. 95
----------
1,201
----------
CANADA (0.0%)
(a)1 Boliden Limited................................... --
----------
FRANCE (5.1%)
1,158 Accor............................................. 291
6,373 Alcatel Alsthom................................... 898
10,098 Axa............................................... 1,233
6,301 Banque Nationale de Paris......................... 526
855 Bouygues.......................................... 226
943 Canal Plus........................................ 265
2,295 Cap Gemini Sogeti................................. 361
7,044 Carrefour......................................... 1,036
2,339 Casino Guichard-Perrachon......................... 205
3,045 Cie de Saint Gobain............................... 486
5,399 Compangnie Financiere de Paribas.................. 606
4,007 Dassault Systemes SA.............................. 133
8,515 Elf Aquitaine..................................... 1,251
1,319 Eridania Beghin-Say............................... 189
411 Essilor International............................. 129
20,302 France Telecom.................................... 1,535
1,924 Groupe Danone..................................... 497
2,748 Klepierre......................................... 258
2,805 L'Air Liquide..................................... 442
2,011 L'OREAL........................................... 1,361
3,337 Lafarge........................................... 318
4,372 Lagardere S.C.A................................... 163
875 Legrand........................................... 178
2,695 LVMH Moet Hennessy Louis Vuitton.................. 790
4,368 Lyonnaise des Eaux................................ 789
6,574 Michelin Compagnie Generale des Establissements,
Class B......................................... 269
2,742 Pechiney.......................................... 118
2,170 Pernod Ricard..................................... 146
3,612 Pinault-Printemps-Re doute........................ 621
578 Promodes.......................................... 380
1,605 PSA Peugeot Citroen............................... 254
11,457 Rhone-Poulenc, Class A............................ 524
88 Sagem............................................. 59
(a)13,244 Sanofi............................................ 563
5,294 Schneider......................................... 298
2,040 SEITA............................................. 118
968 Silic............................................. 152
3,827 Simco (RFD)....................................... 324
1,880 Soceite BIC....................................... 99
900 Societe Fonciere Lyonnaise........................ 128
2,948 Societe Generale, Class A......................... 520
1,052 Sodexho Alliance.................................. 181
5,074 Thomson CSF....................................... 177
(a)7,925 Total, Class B.................................... 1,024
2,792 Unibail........................................... 358
8,809 Usinor Sacilor.................................... 131
(a)2,735 Valeo............................................. 226
14,451 Vivendi........................................... 1,172
----------
22,008
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
Active International Allocation Portfolio
7
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1999
- --------------------------------------------------------------------------------
ACTIVE INTERNATIONAL ALLOCATION PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ----------------------------------------------------------------------------
<C> <S> <C>
GERMANY (5.7%)
1,883 Adidas AG......................................... $ 184
1,883 AGIV AG........................................... 43
9,958 Allianz AG........................................ 2,786
1,350 AMB AG............................................ 135
23,950 BASF AG........................................... 1,053
27,800 Bayer AG.......................................... 1,158
15,670 Bayerische Vereinsbank AG......................... 998
2,567 Bilfinger & Berger Bau AG......................... 63
1,367 CKAG AG........................................... 130
4,567 Continental AG.................................... 109
35,834 DaimlerChrysler AG................................ 3,134
19,550 Deutsche Bank AG.................................. 1,193
55,995 Deutsche Telekom AG............................... 2,356
18,717 Dresdner Bank AG.................................. 729
5,867 FAG Kugelfischer Georg Schaefer AG................ 58
1,985 Heidelberger Zement AG............................ 161
4,133 Hochtief AG....................................... 188
483 Karstadt AG....................................... 231
2,683 Kloeckner-Humboldt-Deutz AG....................... 18
333 Linde AG.......................................... 200
14,033 Lufthansa AG...................................... 256
9,267 Mannesmann AG..................................... 1,387
8,417 Merck KGaA........................................ 273
9,143 Metro AG.......................................... 583
5,607 Muechener Rueck AG (Registered)................... 1,058
6,500 Preussag AG....................................... 350
16,823 RWE AG............................................ 780
2,197 SAP AG............................................ 754
3,017 Schering AG....................................... 323
21,583 Siemens AG........................................ 1,667
19,200 VEBA AG........................................... 1,134
1,123 Viag AG........................................... 522
11,580 Volkswagen AG..................................... 748
----------
24,762
----------
GREECE (0.0%)
1,125 Alpha Credit Bank................................. 72
----------
HONG KONG (2.1%)
65,157 Bank of East Asia Ltd............................. 165
145,000 Cathay Pacific Airways Ltd........................ 222
112,000 Cheung Kong Holdings Ltd.......................... 996
124,000 CLP Holdings Ltd.................................. 603
26,000 Dickson Concepts International Ltd................ 18
75,000 Hang Lung Development Co.......................... 93
92,000 Hang Seng Bank Ltd................................ 1,029
233,700 Hong Kong & China Gas Co., Ltd.................... 339
34,500 Hong Kong & Shanghai Hotel Ltd.................... 29
557,682 Hong Kong Telecommunications Ltd.................. 1,448
79,200 Hopewell Holdings Ltd............................. 60
168,000 Hutchison Whampoa Ltd............................. 1,521
52,090 Hysan Development Co., Ltd........................ 79
104,360 New World Development Co., Ltd.................... 313
49,000 Shangri-La Asia Ltd............................... 61
116,798 Sino Land Co...................................... 67
98,000 South China Morning Post Holdings Ltd............. 55
104,000 Sun Hung Kai Properties Ltd....................... 948
75,500 Swire Pacific Ltd., Class A....................... 374
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- ----------------------------------------------------------------------------
17,000 Television Broadcasts Ltd......................... $ 80
105,000 Wharf Holdings Ltd................................ 327
----------
8,827
----------
ITALY (3.6%)
68,197 ALITALIA.......................................... 177
50,062 Assicurazioni Generali S.p.A...................... 1,737
94,637 Banca Commerciale Italiana........................ 692
129,773 Banco Ambrosiano Veneto S.p.A..................... 624
17,711 Banco Popolare di Milano.......................... 137
85,671 Benetton Group S.p.A.............................. 169
4,338 Cartiere Burgo.................................... 28
215,113 Credito Italiano S.p.A............................ 946
34,066 Edison S.p.A...................................... 296
403,248 ENI S.p.A......................................... 2,411
207,582 Fiat S.p.A........................................ 658
49,981 Fiat S.p.A. Di Risp (NCS)......................... 85
21,020 Impregilo S.p.A................................... 18
69,204 Instituto Bancario San Paolo di Torino............ 943
200,856 Istituto Nazionale delle Assicurazioni............ 467
7,770 Italcementi S.p.A................................. 99
11,315 Italcementi S.p.A. (RNC).......................... 57
24,068 Italgas........................................... 101
23,899 Magneti Marelli S.p.A............................. 32
(c)59,569 Mediaset S.p.A.................................... 530
32,900 Mediobanca S.p.A.................................. 345
103,655 Montedison S.p.A.................................. 169
34,266 Montedison S.p.A. Di Risp (NCS)................... 40
97,032 Olivetti S.p.A.................................... 233
88,086 Parmalat Finanziaria S.p.A........................ 116
112,197 Pirelli S.p.A..................................... 306
24,625 R.A.S. S.p.A...................................... 240
(a)6,039 Reno de Medici S.p.A.............................. 14
10,825 Rinascente S.p.A.................................. 82
6,942 SAI............................................... 72
9,171 Sirti S.p.A....................................... 44
45,711 Snia BPD S.p.A.................................... 57
215,481 Telecom Italia Mobile S.p.A....................... 1,288
52,543 Telecom Italia Mobile S.p.A. (RNC)................ 194
121,478 Telecom Italia S.p.A.............................. 1,264
32,212 Telecom Italia S.p.A. (RNC)....................... 175
1,282,505 Unione Immobiliare S.p.A.......................... 569
----------
15,415
----------
JAPAN (19.8%)
16,000 77 BANK........................................... 140
6,700 Acom Co., Ltd..................................... 579
63,400 Ajinomoto Co., Inc................................ 724
(a)58,600 Aoki Corp......................................... 37
97,900 Asahi Bank Ltd.................................... 470
32,000 Asahi Breweries Ltd............................... 399
129,000 Asahi Chemical Industry Co., Ltd.................. 716
85,800 Asahi Glass Co., Ltd.............................. 557
218,000 Bank of Tokyo-Mitsubushi Ltd...................... 3,108
36,800 Bank of Yokohama Ltd.............................. 95
48,000 Bridgestone Corp.................................. 1,453
42,600 Canon, Inc........................................ 1,226
24,800 Casio Computer Co., Ltd........................... 189
29,400 Chiba Bank Ltd.................................... 109
24,600 Chugai Pharmaceuticals Co., Ltd................... 265
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
Active International Allocation Portfolio
8
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1999
- --------------------------------------------------------------------------------
ACTIVE INTERNATIONAL ALLOCATION PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ----------------------------------------------------------------------------
<C> <S> <C>
</TABLE>
JAPAN (CONT.)
<TABLE>
<C> <S> <C>
7,600 Credit Saison Co., Ltd............................ $ 159
40,600 Dai Nippon Printing Co., Ltd...................... 650
(c)36,600 Daiei, Inc........................................ 125
43,600 Daikin Industries Ltd............................. 507
43,600 Daiwa House Industry Co., Inc..................... 459
98,000 Daiwa Securities Co., Ltd......................... 649
14,600 Denso Corp........................................ 297
288 East Japan Railway Co............................. 1,549
28,800 Ebara Corp........................................ 343
9,700 Fanuc Ltd......................................... 522
250,000 Fuji Bank......................................... 1,746
28,000 Fuji Photo Film Ltd............................... 1,061
107,200 Fujitsu Ltd....................................... 2,160
31,800 Furukawa Electric Co., Ltd........................ 146
16,000 Gunma Bank Ltd.................................... 101
23,000 Hankyu Corp....................................... 91
(a)43,000 Hazama Corp....................................... 36
208,000 Hitachi Ltd....................................... 1,953
45,000 Honda Motor Co., Ltd.............................. 1,910
121,000 Industrial Bank of Japan.......................... 961
21,000 Ito-Yokado Co., Ltd............................... 1,407
137,000 Japan Airlines Co., Ltd........................... 453
102,000 Japan Energy Corp................................. 120
17,600 Joyo Bank Ltd..................................... 69
21,800 Jusco Co., Ltd.................................... 397
84,400 Kajima Corp....................................... 307
55,600 Kansai Electric Power Co., Ltd.................... 1,058
29,000 Kao Corp.......................................... 816
68,400 Kawasaki Steel Corp............................... 128
67,200 Kinki Nippon Railway Co., Ltd..................... 331
88,400 Kirin Brewery Co., Ltd............................ 1,060
70,400 Komatsu Ltd....................................... 450
124,000 Kubota Corp....................................... 371
136,400 Kumagai Gumi Co., Ltd............................. 152
11,400 Kyocera Corp...................................... 670
39,600 Kyowa Hakko Kogyo Co., Ltd........................ 227
70,000 Marubeni Corp..................................... 146
8,800 Marui Co., Ltd.................................... 146
97,000 Matsushita Electric Industrial Co., Ltd........... 1,886
131,000 Mitsubishi Chemical Corp.......................... 454
89,000 Mitsubishi Corp................................... 604
147,800 Mitsubishi Electric Corp.......................... 569
38,000 Mitsubishi Estate Co., Ltd........................ 371
192,000 Mitsubishi Heavy Industries Ltd................... 780
82,400 Mitsubishi Materials Corp......................... 185
60,000 Mitsubishi Trust & Banking Co..................... 584
120,800 Mitsui & Co., Ltd................................. 843
86,400 Mitsui Engineering & Shipbuilding Co., Ltd........ 98
29,400 Mitsui Fudosan Co., Ltd........................... 238
200 Mitsui Trust & Banking Co., Ltd................... --
44,800 Mitsukoshi Ltd.................................... 195
21,000 Murata Manufacturing Co., Ltd..................... 1,383
28,800 Mycal Corp........................................ 181
75,400 NEC Corp.......................................... 939
45,600 NGK Insulators Ltd................................ 477
32,800 Nippon Express Co., Ltd........................... 197
31,600 Nippon Fire & Marine Insurance Co., Ltd........... 107
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- ----------------------------------------------------------------------------
39,800 Nippon Light Metal Co., Ltd....................... $ 60
15,600 Nippon Meat Packers, Inc.......................... 204
126,800 Nippon Oil Co., Ltd............................... 535
487,000 Nippon Steel Co................................... 1,132
614 Nippon Telegraph & Telephone Corp................. 7,163
123,000 Nippon Yusen Kabushiki Kaisha..................... 474
151,600 Nissan Motor Co., Ltd............................. 725
256,800 NKK Corp.......................................... 210
84,000 Nomura Securities Co., Ltd........................ 985
47,600 Odakyu Electric Railway Corp...................... 159
88,400 Oji Paper Co., Ltd. (New)......................... 512
1,800 Orix Corp......................................... 161
174,600 Osaka Gas Co., Ltd................................ 594
(a)39,600 Penta-Ocean Construction Co., Ltd................. 69
11,000 Pioneer Electric Corp............................. 214
5,000 Rohm Co., Ltd..................................... 784
165,000 Sakura Bank Ltd................................... 627
24,800 Sankyo Co., Ltd................................... 626
30,000 Sanwa Bank Ltd.................................... 296
114,000 Sanyo Electric Co., Ltd........................... 464
7,800 Secom Co., Ltd.................................... 813
8,700 Sega Enterprises Ltd.............................. 115
42,600 Sekisui House Co., Ltd............................ 460
70,200 Sharp Corp........................................ 830
10,800 Shimano, Inc...................................... 256
61,600 Shimizu Corp...................................... 241
16,000 Shin-Etsu Chemical Co., Ltd....................... 536
20,000 Shiseido Co., Ltd................................. 300
22,600 Shizuoka Bank Ltd................................. 225
83,400 Showa Denko....................................... 107
3,200 SMC............................................... 359
18,900 Sony Corp......................................... 2,041
106,000 Sumitomo Bank..................................... 1,316
165,600 Sumitomo Chemical Co., Ltd........................ 760
83,400 Sumitomo Corp..................................... 611
59,400 Sumitomo Electric Industries...................... 676
8,800 Sumitomo Forestry Co., Ltd........................ 69
42,800 Sumitomo Metal & Mining Co........................ 177
156,800 Sumitomo Metal Industries......................... 196
42,600 Sumitomo Osaka Cement Co., Ltd.................... 83
88,400 Taisei Corp., Ltd................................. 195
24,800 Taisho Pharmaceutical Co., Ltd.................... 821
28,000 Taiyo Yuden Co., Ltd.............................. 460
48,600 Takeda Chemical Industries........................ 2,256
82,400 Teijin Ltd........................................ 334
58,400 Tobu Railway Co., Ltd............................. 166
14,200 Tohoku Electric Power Co., Ltd.................... 215
81,800 Tokai Bank Ltd.................................... 467
76,000 Tokio Marine & Fire Insurance Co., Ltd............ 827
71,900 Tokyo Electric Power Co........................... 1,520
7,000 Tokyo Electron Ltd................................ 475
82,600 Tokyo Gas Co...................................... 204
68,400 Tokyu Corp........................................ 173
31,600 Toppan Printing Co., Ltd.......................... 353
115,100 Toray Industries, Inc............................. 577
43,600 Toto Ltd.......................................... 337
66,400 Toyoba Co......................................... 100
178,000 Toyota Motor Corp................................. 5,640
83,400 Ube Industries Ltd................................ 180
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
Active International Allocation Portfolio
9
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1999
- --------------------------------------------------------------------------------
ACTIVE INTERNATIONAL ALLOCATION PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ----------------------------------------------------------------------------
<C> <S> <C>
</TABLE>
JAPAN (CONT.)
<TABLE>
<C> <S> <C>
(a)600 Yamaichi Securities Co., Ltd...................... $ --
41,000 Yokogawa Electric Corp............................ 242
----------
85,598
----------
NETHERLANDS (5.7%)
83,398 ABN Amro Holding N.V.............................. 1,808
32,177 Aegon N.V......................................... 2,337
19,132 Akzo Nobel N.V.................................... 806
5,264 Buhrmann N.V...................................... 85
34,516 Elsevier N.V...................................... 401
3,832 Getronics N.V..................................... 148
4,812 Hagemeyer N.V..................................... 158
17,824 Heineken N.V...................................... 914
53,502 ING Groep N.V..................................... 2,900
4,854 KLM Royal Dutch Airlines N.V...................... 138
34,200 Koninklijke Ahold N.V............................. 1,179
1,515 Nedlloyd Groep N.V................................ 38
5,271 Oce N.V........................................... 134
19,136 Philips Electronics N.V........................... 1,890
(c)123,467 Royal Dutch Petroleum Co.......................... 7,241
17,385 Royal KPN N.V..................................... 817
2,847 Stork N.V......................................... 65
(c)28,003 TNT Post Group N.V................................ 669
33,469 Unilever N.V...................................... 2,258
4,195 Vedior N.V........................................ 72
16,784 Wolters Kluwer N.V................................ 669
----------
24,727
----------
PORTUGAL (0.9%)
20,709 Banco Commercial Portugues (Registered)........... 537
12,702 Banco Espirito Santo e Comercial de Lisboa
(Registered).................................... 296
11,211 Banco Portugues de Investimento (New)............. 236
6,261 Brisa-Auto Estradas............................... 259
2,326 Cia de Seguros Tranquilidade, (Registered)........ 59
9,482 Cimpor SGPS....................................... 245
400 Cin-Corparacao Industial do Norte................. 10
63,151 EDP-Electricidade de Portugal..................... 1,139
537 INAPA-Investimentos Participacoes e Gestao........ 4
(a)8,498 Jeronimo Martins SGPS............................. 281
11,271 Portucel Industrial-Empressa...................... 62
13,239 Portugal Telecom (Registered)..................... 539
358 Sociedade de Construcoes Soares da Costa.......... 1
(a)3,032 Somague-Sociedade Gestora de Participacoes........ 9
4,830 Sonae Investmentos................................ 164
1,789 UNICER-Uniao Cervejeira........................... 35
----------
3,876
----------
SINGAPORE (3.6%)
177,000 City Developments Ltd............................. 1,133
116,000 Comfort Group Ltd................................. 72
20,000 Creative Technology Ltd........................... 261
33,000 Cycle & Carriage Ltd.............................. 190
234,000 DBS Land Ltd...................................... 467
136,000 Development Bank of Singapore Ltd. (Foreign)...... 1,662
65,000 First Capital Corp., Ltd.......................... 101
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- ----------------------------------------------------------------------------
64,800 Fraser & Neave Ltd................................ $ 287
89,000 Hotel Properties Ltd.............................. 93
9,000 Inchcape Bhd...................................... 15
187,750 Keppel Corp., Ltd................................. 640
80,000 NatSteel Ltd...................................... 140
50,000 Neptune Orient Lines Ltd. (Foreign)............... 61
212,560 Oversea-Chinese Banking Corp. (Foreign)........... 1,773
36,000 Overseas Union Enterprise Ltd..................... 114
80,000 Parkway Holdings Ltd.............................. 197
266,644 Sembcorp Industries Ltd........................... 423
200,000 Singapore Airlines Ltd. (Foreign)................. 1,903
80,018 Singapore Press Holdings Ltd...................... 1,363
636,000 Singapore Technologies Engineering Ltd............ 721
1,258,000 Singapore Telecommunications Ltd.................. 2,158
23,000 Straits Trading Co., Ltd.......................... 31
299,000 United Industrial Corp., Ltd...................... 202
156,000 United Overseas Bank Ltd. (Foreign)............... 1,091
133,000 United Overseas Land Ltd.......................... 150
45,000 Venture Manufacturing (Singapore) Ltd............. 346
----------
15,594
----------
SPAIN (3.7%)
5,569 Acerinox.......................................... 163
4,526 ACS, Actividades.................................. 130
3,519 Aguas de Barcelona................................ 184
34,173 Argentaria........................................ 779
20,502 Autopistas Concesionaria Espanola................. 240
2,402 Azucarera Ebro Agricolas.......................... 37
153,813 Banco Bilbao Vizcaya (Registered)................. 2,225
263,622 Banco Santander................................... 2,749
1,081 Corporacion Financiera Alba....................... 175
5,430 Corporacion Mapfre................................ 111
70,435 Endesa............................................ 1,504
(a)1 Ercros............................................ --
3,446 Fomento Construction y Cantractas................. 198
11,003 Gas Natural SDG................................... 801
12,990 Grupo Dragados, S.A............................... 153
66,400 Iberdrola......................................... 1,013
14,291 Inmobiliaria Metropolitana Vasco Central.......... 280
13,240 Prima Immobiliaria................................ 102
(a)71,583 Repsol............................................ 1,464
2,403 Sol Melia......................................... 102
13,205 Tabacalera........................................ 267
(a)51,180 Telefonica........................................ 2,468
(a)16,707 Telepizza......................................... 87
21,964 Union Electrica Fenosa............................ 288
57 Uralita........................................... --
47,062 Vallehermoso...................................... 456
(a)115 Viscofan Envolturas Celulosicas................... 1
1,808 Zardoya Otis...................................... 45
----------
16,022
----------
SWEDEN (3.1%)
12,200 ABB AB, Class A................................... 163
900 ABB AB, Class B................................... 12
(a)5,737 ABB Ltd........................................... 539
12,600 AGA AB, Class B................................... 156
10,050 Atlas Copco AB, Class A........................... 275
5,300 Atlas Copco AB, Class B........................... 143
13,540 Castellum AB...................................... 128
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
Active International Allocation Portfolio
10
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1999
- --------------------------------------------------------------------------------
ACTIVE INTERNATIONAL ALLOCATION PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ----------------------------------------------------------------------------
<C> <S> <C>
</TABLE>
SWEDEN (CONT.)
<TABLE>
<C> <S> <C>
24,744 Diligentia AB..................................... $ 193
13,800 Drott AB, Class B................................. 112
23,800 Electrolux AB, Series B........................... 500
113,000 Ericsson LM, Class B.............................. 3,636
7,620 Fastighets AB Tornet.............................. 104
41,100 ForeningsSparbanken AB............................ 582
63,600 Hennes & Mauritz AB, Class B...................... 1,577
(a)5,133 Netcom Systems AB, Class B........................ 173
5,700 OM Gruppen AB..................................... 65
6,700 S.K.F. AB, Class B................................ 124
15,300 Sandvik AB, Class A............................... 335
6,400 Sandvik AB, Class B............................... 142
30,340 Securitas AB, Class B............................. 455
40,100 Skandia Forsakrings AB............................ 753
46,600 Skandinaviska Enskilda Banken, Class A............ 545
9,800 Skanska AB, Class B............................... 371
17,200 Svenska Cellulosa AB, Class B..................... 447
50,500 Svenska Handelsbanken, Class A.................... 608
9,400 Svenskt Stal AB (SSAB), Series A.................. 118
11,400 Trelleborg AB, Class B............................ 101
11,400 Volvo AB, Class A................................. 330
23,850 Volvo AB, Class B................................. 694
4,400 WM-Data AB, Class B............................... 168
----------
13,549
----------
SWITZERLAND (5.5%)
180 ABB AG............................................ 267
(a)4,620 ABB Ltd........................................... 436
895 Adecco............................................ 480
295 Alusuisse-Lonza Holdings Ltd. (Registered)........ 345
12,600 CS Holding AG (Registered)........................ 2,184
350 Holderbank Financiere Glarus AG, Class B
(Bearer)........................................ 414
1,865 Nestle (Registered)............................... 3,367
3,020 Novartis AG (Registered).......................... 4,418
76 Roche Holding AG (Bearer)......................... 1,254
326 Roche Holding AG (Registered)..................... 3,357
750 SAirgroup......................................... 157
80 SGS Surveillance.................................. 83
260 SMH AG (Bearer)................................... 175
210 Sulzer AG (Registered)............................ 128
695 Swiss Reinsurance (Registered).................... 1,326
2,420 Swisscom AG (Registered).......................... 912
9,869 Union Bank of Switzerland AG (Registered)......... 2,951
315 Valora Holding AG................................. 73
2,260 Zurich Allied AG.................................. 1,288
----------
23,615
----------
THAILAND (0.0%)
(a)8,000 CMIC Finance & Securities PCL (Foreign)........... --
(a)18,600 General Finance & Securities PCL (Foreign)........ --
(a,d)34,700 Siam City Bank PCL (Foreign)...................... --
----------
--
----------
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- ----------------------------------------------------------------------------
UNITED KINGDOM (14.7%)
53,563 Abbey National plc................................ $ 1,006
34,817 Albert Fisher Group plc........................... 7
1,851 Alldays plc....................................... 2
2,415 Allders plc....................................... 5
58,643 Allied Zurich plc................................. 738
7,063 AMEC plc.......................................... 29
20,898 Anglian Water plc................................. 231
34,741 Arjo Wiggins Appleton plc......................... 121
26,069 Associated British Foods plc...................... 172
21,152 Associated British Ports Holdings plc............. 96
28,721 Astra plc......................................... 1,122
43,513 BAA plc........................................... 419
16,674 Baird (William) plc............................... 30
53,303 Barclays plc...................................... 1,552
10,099 Barratt Developments plc.......................... 57
27,053 Bass plc.......................................... 393
1,209 BBA Group plc..................................... 9
25,448 Beazer Group plc.................................. 80
17,594 Berisford plc..................................... 67
154,396 BG plc............................................ 944
35,417 BICC plc.......................................... 51
66,198 Blue Circle Industries plc........................ 441
21,425 BOC Group plc..................................... 419
37,939 Boots Co. plc..................................... 451
68,361 BPB Industries plc................................ 405
75,975 British Aerospace plc............................. 493
45,104 British Airways plc............................... 311
58,654 British American Tobacco plc...................... 552
100,862 British Land Co. plc.............................. 844
290,608 British Petroleum Co. plc......................... 5,212
59,331 British Sky Broadcasting plc...................... 551
104,121 British Steel plc................................. 270
127,700 British Telecommunications plc.................... 2,141
158,240 BTR plc........................................... 749
28,406 Burmah Castrol plc................................ 539
48,772 Cable & Wireless plc.............................. 622
84,716 Cadbury Schweppes plc............................. 540
25,950 Capital Shopping Centers plc...................... 165
85,194 Caradon plc....................................... 202
11,379 Carpetright plc................................... 71
159,822 Centrica plc...................................... 376
4,309 Cobham plc........................................ 69
36,806 Commercial Union plc.............................. 532
25,488 Compass Group plc................................. 253
2,363 Delta plc......................................... 5
120,057 Diageo plc........................................ 1,255
4,384 Dialog Corp. plc.................................. 6
5,841 EMAP plc.......................................... 102
64,737 EMI Group plc..................................... 520
26,630 Enterprise Oil plc................................ 173
25,800 Firstgroup plc.................................... 140
21,058 FKI plc........................................... 65
96,509 General Electric plc.............................. 985
54,218 GKN plc........................................... 926
117,363 Glaxo Wellcome plc................................ 3,264
32,123 Granada Group plc................................. 596
117,360 Grantchester Holdings plc......................... 317
60,810 Great Portland Estates plc........................ 210
37,062 Great Universal Stores plc........................ 411
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
Active International Allocation Portfolio
11
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1999
- --------------------------------------------------------------------------------
ACTIVE INTERNATIONAL ALLOCATION PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ----------------------------------------------------------------------------
<C> <S> <C>
</TABLE>
UNITED KINGDOM (CONT.)
<TABLE>
<C> <S> <C>
5,362 Greycoat plc...................................... $ 22
90,967 Halifax plc....................................... 1,086
43,670 Hammerson plc..................................... 327
51,045 Hanson plc........................................ 454
13,575 House of Fraser................................... 19
55,088 HSBC Holdings plc................................. 1,952
22,226 HSBC Holdings plc (75p)........................... 788
9,035 Hyder plc......................................... 108
24,877 IMI plc........................................... 101
29,662 Imperial Chemical Industries plc.................. 293
14,587 Jarvis plc........................................ 68
1,427 JBA Holdings plc.................................. 3
29,407 Johnson Matthey plc............................... 288
55,767 Kingfisher plc.................................... 642
53,005 Ladbroke Group plc................................ 210
6,302 Laird Group plc................................... 26
95,255 Land Securities plc............................... 1,282
70,346 Lasmo plc......................................... 161
227,756 Legal & General Group plc......................... 580
11,777 Lex Service plc................................... 109
11,340 Limit plc......................................... 24
191,131 Lloyds TSB Group plc.............................. 2,593
21,361 London Clubs International plc.................... 48
7,019 London Forfaiting Co. plc......................... 6
28,645 Lonrho plc........................................ 267
1,872 Low & Bonar plc................................... 6
1,810 Manchester United plc............................. 6
103,929 Marks and Spencer plc............................. 602
237 Mayflower Corp. plc............................... 1
2,171 McKechnie plc..................................... 17
(a)5,553 Meggitt plc....................................... 17
82,746 MEPC plc.......................................... 673
21,924 Mirror Group News plc............................. 85
58,404 MISYS plc......................................... 500
50,775 National Power plc................................ 370
42,137 NEC plc........................................... 137
16,137 NEXT plc.......................................... 196
890 Ocean Group plc................................... 15
9,481 Parity plc........................................ 93
29,296 Peninsular & Oriental Steam Navigation............ 440
11,317 Pennon Group plc.................................. 190
178,701 Pilkington plc.................................... 260
1,975 Powerscreen International plc..................... 6
78,655 Prudential Corp. plc.............................. 1,159
10,414 Racal Electronic plc.............................. 64
17,911 Railtrack Group plc............................... 366
62,124 Rank Group plc.................................... 247
47,708 Reed International plc............................ 319
124,404 Rentokil Initial plc.............................. 486
50,503 Reuters Group plc................................. 665
26,392 Rexam plc......................................... 107
39,391 Rio Tinto plc..................................... 661
15,240 RMC Group plc..................................... 246
37,612 Rolls-Royce plc................................... 159
37,979 Royal & Sun Alliance Insurance Group plc.......... 341
12,052 Rugby Group plc................................... 22
45,756 Safeway plc....................................... 183
72,318 Sainsbury (J) plc................................. 456
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- ----------------------------------------------------------------------------
4,107 Schroders plc..................................... $ 84
5,310 Scotia Holdings plc............................... 9
187 Scottish & Newcastle plc.......................... 2
47,576 Scottish Hydro-Electric plc....................... 487
53,424 Scottish Power plc................................ 462
1,614 Skillsgroup plc................................... 8
91,243 Slough Estates plc................................ 518
193,141 Smithkline Beecham plc............................ 2,512
5,565 Smiths Industries plc............................. 74
45,467 Stagecoach Holdings plc........................... 163
52,065 Tarmac plc........................................ 98
32,085 Tate & Lyle plc................................... 201
18,917 Taylor Woodrow plc................................ 54
81,094 Tesco plc......................................... 209
20,033 Thames Water plc.................................. 318
6,861 The Berkeley Group plc............................ 83
19,443 TI Group plc...................................... 130
1,574 Torotrak plc...................................... 5
108,494 Unilever plc...................................... 966
27,355 United Utilities plc.............................. 333
2,637 Vickers plc....................................... 7
121,033 Vodafone Group plc................................ 2,387
1,107 Wickes plc........................................ 7
30,156 WPP Group plc..................................... 255
19,291 Yorkshire Water plc............................... 134
35,432 Zeneca Group plc.................................. 1,372
----------
63,744
----------
TOTAL COMMON STOCKS (Cost $304,548)............................. 333,553
----------
PREFERRED STOCKS (0.5%)
AUSTRALIA (0.2%)
126,388 News Corp., Ltd................................... 959
----------
AUSTRIA (0.0%)
3 Bau Holding AG.................................... --
----------
GERMANY (0.2%)
1,567 SAP AG............................................ 624
3,630 Volkswagen AG..................................... 136
----------
760
----------
HONG KONG (0.0%)
40,000 Johnson Electric Holdings Ltd..................... 165
----------
ITALY (0.0%)
64,851 Fiat S.p.A........................................ 104
----------
NETHERLANDS (0.1%)
(a)37,485 Unilever N.V...................................... 202
----------
TOTAL PREFERRED STOCKS (Cost $1,879)............................ 2,190
----------
</TABLE>
<TABLE>
<CAPTION>
NO. OF
RIGHTS
<C> <S> <C>
- ------------
RIGHTS (0.0%)
FRANCE (0.0%)
(a)855 Bouygues.......................................... 2
(a)2,695 LVMH Moet Hennessy Louis Vuitton.................. 79
----------
81
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
Active International Allocation Portfolio
12
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1999
- --------------------------------------------------------------------------------
ACTIVE INTERNATIONAL ALLOCATION PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NO. OF VALUE
RIGHTS (000)
- ----------------------------------------------------------------------------
<C> <S> <C>
GERMANY (0.0%)
(a)55,995 Deutsche Telekom AG............................... $ 11
----------
ITALY (0.0%)
(a)97,032 Olivetti S.p.A.................................... 20
----------
UNITED KINGDOM (0.0%)
(a)4,319 Meggitt plc....................................... 1
----------
TOTAL RIGHTS (Cost $0).......................................... 113
----------
</TABLE>
<TABLE>
<CAPTION>
NO. OF
WARRANTS
<C> <S> <C>
- ------------
WARRANTS (0.0%)
HONG KONG (0.0%)
(a)7,850 Hong Kong & China Gas Co., Ltd., expiring
9/30/99......................................... 2
----------
THAILAND (0.0%)
(a)6,349 National Finance & Securities PCL, expiring
11/15/99........................................ --
----------
TOTAL WARRANTS (Cost $0)........................................ 2
----------
</TABLE>
<TABLE>
<CAPTION>
NO. OF
UNITS
<C> <S> <C>
- ------------
UNITS (0.0%)
AUSTRALIA (0.0%)
102,568 General Property Trust............................ 166
(a)1,213 Westfield Trust................................... 3
----------
TOTAL UNITS (Cost $180)......................................... 169
----------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT
(000)
<C> <S> <C>
- ------------
FIXED INCOME SECURITIES (0.0%)
FRANCE (0.0%)
FRF 62 Casino Guichard-Perrachon, Series XW, 4.50%,
7/12/01......................................... 54
----------
PORTUGAL (0.0%)
PTE 10 Jeronimo Martins SGPS, Zero coupon, 1/01/01....... 6
----------
TOTAL FIXED INCOME SECURITIES (Cost $32)........................ 60
----------
TOTAL FOREIGN SECURITIES (77.7%) (Cost $306,639)................ 336,087
----------
</TABLE>
<TABLE>
<C> <S> <C>
SHORT-TERM INVESTMENT (20.7%)
REPURCHASE AGREEMENT (20.7%)
$ 89,570 Chase Securities, Inc. 4.55%, dated 6/30/99, due
7/01/99, to be repurchased at $89,581,
collateralized by Federal National Mortgage
Association, 5.125% due 2/13/04, valued at
$92,058 (Cost $89,570).......................... 89,570
----------
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
<C> <S> <C>
- ----------------------------------------------------------------------------
FOREIGN CURRENCY (0.2%)
AUD 24 Australian Dollar................................. $ 16
EUR 105 Euro.............................................. 108
HKD 52 Hong Kong Dollar.................................. 7
JPY 32,600 Japanese Yen...................................... 270
NOK 20 Norwegian Krone................................... 2
SGD 6 Singapore Dollar.................................. 4
SEK 4,377 Swedish Krona..................................... 517
CHF 12 Swiss Franc....................................... 8
----------
TOTAL FOREIGN CURRENCY (Cost $934).............................. 932
----------
TOTAL INVESTMENTS (98.6%) (Cost $397,143)....................... 426,589
----------
</TABLE>
<TABLE>
<S> <C> <C>
OTHER ASSETS (2.1%)
Cash............................................ $ 726
Securities at Value, Held as Collateral
for Securities Lending........................ 8,041
Due from Broker................................. 2,577
Receivable for Portfolio Shares Sold............ 2,312
Net Receivable for Daily Variation on Futures
Contracts..................................... 2,037
Dividends Receivable............................ 765
Receivable for Investments Sold................. 351
Foreign Withholding Tax Reclaim Receivable...... 199
Interest Receivable............................. 45
Other........................................... 15 17,068
----------
LIABILITIES ( - 0.7%)
Collateral on Securities Loaned................. (8,041)
Net Unrealized Loss on Foreign Currency Exchange
Contracts..................................... (1,575)
Investment Advisory Fees Payable................ (628)
Payable for Investments Purchased............... (516)
Custodian Fees Payable.......................... (104)
Administrative Fees Payable..................... (67)
Directors' Fees & Expenses Payable.............. (15)
Other Liabilities............................... (129) (11,075)
---------- ----------
NET ASSETS (100%)............................................. $ 432,582
----------
----------
</TABLE>
<TABLE>
<S> <C>
NET ASSETS CONSIST OF:
Paid in Capital............................................... $ 385,747
Undistributed Net Investment Income........................... 4,031
Accumulated Net Realized Gain................................. 12,926
Unrealized Appreciation on Investments, Foreign Currency
Translations and Futures Contracts.......................... 29,878
----------
NET ASSETS.................................................... $ 432,582
----------
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
Active International Allocation Portfolio
13
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1999
- --------------------------------------------------------------------------------
ACTIVE INTERNATIONAL ALLOCATION PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMOUNT
(000)
- --------------------------------------------------------------------------
<S> <C>
</TABLE>
<TABLE>
<S> <C>
CLASS A:
- --------------------------------------------------------------
NET ASSETS.................................................... $430,676
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 34,772,352 outstanding $0.001 par value shares
(authorized 500,000,000 shares)............................. $12.39
----------
----------
CLASS B:
- --------------------------------------------------------------
NET ASSETS.................................................... $1,906
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 152,105 outstanding $0.001 par value shares
(authorized 500,000,000 shares)............................. $12.53
----------
----------
</TABLE>
- ------------------------------------------------------------
FOREIGN CURRENCY EXCHANGE CONTRACT INFORMATION:
Under the terms of foreign currency exchange contracts open at June 30, 1999,
the Portfolio is obligated to deliver or is to receive foreign currency in
exchange for U.S. dollars as indicated below:
<TABLE>
<CAPTION>
NET
IN UNREALIZED
CURRENCY TO EXCHANGE GAIN
DELIVER VALUE SETTLEMENT FOR VALUE (LOSS)
(000) (000) DATE (000) (000) (000)
<S> <C> <C> <C> <C> <C>
- ------------- -------- ---------- ------------- -------- --------
AUD 10,352 $ 6,826 7/1/99 U.S.$ 6,498 $ 6,498 $ (328)
U.S.$ 6,704 6,704 7/1/99 AUD 10,352 6,826 122
SEK 2,796 330 7/6/99 U.S.$ 329 329 (1)
U.S.$ 3,752 3,752 7/16/99 EUR 3,531 3,650 (102)
U.S.$ 3,421 3,421 7/16/99 EUR 3,148 3,254 (167)
U.S.$ 24,189 24,189 8/12/99 GBP 14,860 23,448 (741)
JPY 197,753 1,650 8/24/99 U.S.$ 1,610 1,610 (40)
U.S.$ 14,934 14,934 8/24/99 JPY 1,760,235 14,683 (251)
U.S.$ 731 731 9/9/99 AUD 1,110 733 2
U.S.$ 6,707 6,707 9/10/99 EUR 6,473 6,721 14
U.S.$ 3,137 3,137 9/10/99 EUR 3,028 3,144 7
U.S.$ 3,864 3,864 9/10/99 EUR 3,706 3,848 (16)
U.S.$ 5,850 5,850 9/10/99 EUR 5,646 5,862 12
U.S.$ 3,122 3,122 9/13/99 GBP 1,963 3,098 (24)
U.S.$ 14,952 14,952 9/16/99 JPY 1,778,823 14,890 (62)
-------- -------- --------
$100,169 $ 98,594 $(1,575)
-------- -------- --------
-------- -------- --------
</TABLE>
- --------------------------------------------------------------------
(a) -- Non-income producing security
(c) -- All or a portion of security on loan at June 30, 1999 -- See Note A-10
to financial statements.
(d) -- Security is valued at fair value -- See Note A-1 financial statements.
GBP -- Great British Pound
NCS -- Non-Convertible Shares
PCL -- Public Company Limited
RFD -- Ranked for Dividend
RNC -- Non-Convertible Savings Shares
- --------------------------------------------------------------------
FUTURES CONTRACTS:
At June 30, 1999 the following futures contracts were open:
<TABLE>
<CAPTION>
NET
UNREALIZED
NUMBER AGGREGATE APPRECIATION
OF FACE VALUE EXPIRATION (DEPRECIATION)
CONTRACTS (000) DATE (000)
<S> <C> <C> <C> <C>
- --------------------------------------- ---------- ------------ -------- ---------------
LONG:
IBEX Index (Spain) 31 U.S.$ 3,291 July-99 $ 33
Aust All Ord. (Australia) 17 U.S.$ 827 Sept-99 (10)
CAC 40 Index (France) 242 U.S.$11,385 Sept-99 126
DAX Index (Germany) 56 U.S.$ 7,932 Sept-99 191
FT-SE Index (United Kingdom) 268 U.S.$27,142 Sept-99 (504)
MIB 30 Index (Italy) 35 U.S.$ 6,374 Sept-99 (59)
TOPIX Index (Japan) 253 U.S.$29,274 Sept-99 2,280
------
$ 2,057
------
------
</TABLE>
- ------------------------------------------------
SUMMARY OF FOREIGN SECURITIES BY INDUSTRY CLASSIFICATION
<TABLE>
<CAPTION>
VALUE PERCENT OF
INDUSTRY (000) NET ASSETS
<S> <C> <C>
- ----------------------------------------------------------------
Capital Equipment...................... $ 39,119 9.0%
Consumer Goods......................... 67,034 15.5
Energy................................. 37,015 8.6
Gold Mines............................. 98 --
Finance................................ 92,485 21.4
Materials.............................. 24,786 5.7
Multi-Industry......................... 6,316 1.5
Services............................... 69,234 16.0
--------- ---
$ 336,087 77.7%
--------- ---
--------- ---
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
Active International Allocation Portfolio
14
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
ASIAN EQUITY PORTFOLIO
COMPOSITION OF NET ASSETS (AT JUNE 30, 1999)
- ---------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Hong Kong 31.8%
India 1.6%
Indonesia 2.7%
Malaysia 4.4%
Philippines 2.6%
Singapore 11.8%
South Korea 21.1%
Taiwan 18.6%
Thailand 3.8%
Other 1.6%
</TABLE>
PERFORMANCE COMPARED TO MORGAN STANLEY
CAPITAL INTERNATIONAL (MSCI) ALL-COUNTRY FAR
EAST FREE EX-JAPAN INDEX(1)
- ----------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
------------------------------------------------
AVERAGE
AVERAGE ANNUAL
ANNUAL SINCE
YTD ONE YEAR FIVE YEARS INCEPTION
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
PORTFOLIO -- CLASS A.... 44.20% 69.02% - 5.63% 6.58%
PORTFOLIO -- CLASS B.... 43.79 67.94 N/A - 10.66
INDEX -- CLASS A........ 44.30 82.69 - 3.17 6.96
INDEX -- CLASS B........ 44.30 82.69 N/A - 6.41
</TABLE>
1. The MSCI All-Country Far East Free ex-Japan Index is an unmanaged index of
common stocks and includes Indonesia, Hong Kong, Malaysia, the Philippines,
Korea, Singapore, Taiwan and Thailand (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 INFORMATION CONTAINED IN THIS OVERVIEW REGARDING SPECIFIC SECURITIES IS FOR
INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A RECOMMENDATION TO
PURCHASE OR SELL THE SECURITIES MENTIONED. THE COUNTRY SPECIFIC PERFORMANCE
RESULTS PROVIDED ARE AS MEASURED BY THE MSCI ALL-COUNTRY FAR EAST FREE EX-JAPAN
INDEX AND 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.
The investment objective of the Asian Equity Portfolio is to seek long-term
capital appreciation by investing primarily in equity securities which are
traded on recognized exchanges of Hong Kong, Singapore, Malaysia, Thailand,
Indonesia and the Philippines. The Portfolio may also invest in equity
securities traded on markets in Taiwan, South Korea, India, Pakistan, Sri Lanka
and other Asian developing markets which are open for foreign investment. The
Portfolio does not intend to invest in securities which are principally traded
in Japan or in companies organized under the laws of Japan.
For the six months ended June 30, 1999, the Portfolio had a total return of
44.20% for the Class A shares and 43.79% for the Class B shares compared to a
total return of 44.30% for the Morgan Stanley Capital International (MSCI)
All-Country Far East Free ex-Japan Index (the "Index"). For the one year period
ended June 30, 1999, the Portfolio had a total return of 69.02% for the Class A
shares and 67.94% for the Class B shares compared to 82.69% for the Index. For
the five-year period ended June 30, 1999, the average annual total return for
Class A shares was - 5.63% compared to - 3.17% for the Index. For the period
since inception on July 1, 1991 through June 30, 1999, the average annual total
return of Class A shares was 6.58% compared to 6.96% for the Index. For the
period since inception on January 2, 1996 through June 30, 1999 the average
annual total return of Class B shares was - 10.66% compared to - 6.41% for the
Index.
Asian equity markets performed very well during the second quarter of 1999 as
the MSCI All Country Far East Free ex-Japan Index rose 38.0%, lifting the first
half Index return to 44.30%. A broader-based Index including Malaysia, the MSCI
All Country Far East Free ex-Japan plus Malaysia rose 40.6% in the second
quarter, and 48.4% year-to-date.
All major Asian markets performed well so far in 1999, but South Korea,
Indonesia, China and Thailand have been the leaders. Asian markets rose due to
the restoration of confidence among domestic and foreign investors, on the back
of stabilizing exchange rates and signs that economies had bottomed after the
shock of the Asian crisis.
Currency stability established in the second half of 1998 allowed local
governments to ease monetary policy and bring interest rates down quickly. Lower
interest rates eased the banking crisis in many
- --------------------------------------------------------------------------------
Asian Equity Portfolio
15
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
ASIAN EQUITY PORTFOLIO (CONT.)
countries, reduced government financing costs, lowered the cost of capital for
businesses and encouraged local investors to shift from fixed income to equity
investments. The power of high Asian savings rates was illustrated by the
ability of local retail and institutional investors to subscribe to a heavy
calendar of new corporate equity issues. This new equity helped many Asian
companies repair their balance sheets, remove corporate distress risk, and
enhance equity valuations. Asian countries needed new equity and not additional
debt from foreign investors; the absence of heavy bond financing requirements
mitigated the negative impacts of rising international bond yields and the small
U.S. Federal Reserve interest rate increase. Although the economic recovery
underway in many countries should not be characterized as export-led, an
increase in export orders, particularly for electronic components, was positive
particularly for the economies of Singapore, Taiwan and Malaysia. After several
years of economic and corporate earnings disappointments, we are in an
environment of expectation upgrades where forecasts of economic activity are
continually being revised upwards across the region.
The South Korean economy experienced the fastest recovery from the Asian
economic downturn of 1998. Korean industrial production is above pre-crisis
levels and consensus expectations for 1999 GDP growth moved from 3% to 4% growth
at the end of the first quarter to 5% to 7% estimates now. The Korean economy
benefited from a combination of positive factors including strong government
policy implementation, better demand and pricing for its exports and a strong
recovery in domestic confidence. The Korean government implemented a harsh
IMF-designed program in the first half of 1998 to correct the country's
macroeconomic imbalances. The government encouraged consumers and businesses to
cut back consumption and investment in early 1998. The Koreans responded
vigorously with sharp cutbacks in personal consumption, investment and business
inventory liquidation. This austerity created a rapid turnaround from trade
deficit to trade surplus and the Koreans used these surpluses, IMF aid and
better international capital market access to address the country's short-term
funding problems. The Korean government aggressively tackled its banking system
problems when it began implementing a KRW 64 trillion bank recapitalization
program. Positive trade performance, successful refinancings and banking sector
progress allowed the government to ease fiscal and monetary policies
aggressively in the second half of 1998. Interest rates fell rapidly from a
crisis high of over 30% to the 6% - 7% range today. Interest rates at these
levels are at a 20-year low and the Koreans have responded by shifting fixed
income investments into equities, either directly or via a rapidly growing
mutual fund sector. The government stopped urging austerity and Korean consumers
responded by satisfying pent-up demand. Sales of consumer durables, in
particular, have risen sharply in 1999.
Listed Korean companies were the most heavily indebted in the region before the
crisis. This leverage exaggerated equity market declines when interest rates
were high, demand was falling and bankruptcy loomed. It also exaggerated the
market's recovery when interest rates fell, demand expectations and product
pricing improved and new equity issues reduced bankruptcy risks. Given the
powerful moves seen in the equity markets the past 9 months, Korean equities are
now priced near their historic highs on measures such as price to book value.
More corporate restructuring, particularly of the largest conglomerates known as
CHAEBOL, will be needed to transform this rally from a strong cyclical recovery
to a long-term bull market. Korean corporations have historically traded at low
multiples due to their high leverage, low returns on equity, opaque corporate
structures and poor disclosure. The market has rewarded companies that have
restructured and adopted a greater emphasis on shareholder returns. The
government has actively encouraged CHAEBOL restructuring and has introduced a
number of regulations to reduce leverage and improve transparency among these
companies. If restructuring broadens, the market can continue to rally and move
to higher valuation multiples. If restructuring falters as the economic recovery
removes pressure on the corporate sector, the market will stall or correct.
Most countries in the region reported increases in exports of electronics
components during the first half of 1999. This growth has contributed to
economic forecasts upgrades in Taiwan, Singapore and Malaysia. The value of
Asian electronics shipments has risen despite price pressures in the global
personal computer industry because price declines have forced PC manufacturers
to cut costs, which often means sourcing more product from low-cost Asian
producers. The trend towards greater outsourcing, firmly established among
American companies, is being adopted by an increasing number of Japanese
companies. In the past Japanese manufacturers often built factories in other
Asian countries in an effort to cut costs. An increasing number of Japanese
companies are now turning to
- --------------------------------------------------------------------------------
Asian Equity Portfolio
16
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
ASIAN EQUITY PORTFOLIO (CONT.)
outsourcing instead as part of their own restructuring efforts. Outsourcing
allows us to invest directly in the resulting growth, as we can identify
companies winning Japanese orders. Japanese outsourcing has already had a
positive impact on a number of listed Asian companies. For example, as part of
their own restructuring efforts several Japanese semiconductor companies have
transferred orders and technology to several Taiwanese DRAM manufacturers. This
outsourcing has dramatically improved the financial performance and viability of
these Taiwanese companies. The Portfolio has a significant exposure to a number
of Asian electronics companies in Taiwan, Korea, Singapore and Thailand, and
these investments performed well in the second quarter as order books gained
momentum.
The Hong Kong market enjoyed strong absolute returns year-to-date, yet it
continued to lag the regional benchmark. Hong Kong's adherence to its currency
board regime has lengthened its adjustment to the deflationary effects of the
Asian crisis. Hong Kong companies have not had their costs cut via devaluation,
and instead have had to cut costs by reducing employment and negotiating lower
rents, wages and other costs. Consequently, Hong Kong is experiencing deflation,
with consumer price indexes down over 3% year-on-year. The currency board ties
Hong Kong's interest rates to U.S. rates, leaving rates at very high levels in
real terms. All of these factors have put Hong Kong's recovery behind the
schedule of the rest of Asia by at least two or three quarters. The economy now
appears to be bottoming, with signs of stability emerging in consumption,
employment and perhaps price levels. A number of Hong Kong companies responded
by aggressively cutting costs during the recession and are well positioned
during the recovery.
Banks in Hong Kong have also significantly strengthened their balance sheets
during the recession, and are as liquid as they have been in years. They have so
far, only been growing their mortgage loan portfolios but are well positioned to
respond to increases in loan demand when conditions improve. The growth in
mortgage portfolios is consistent with healthy demand for primary residential
property developments. Strong demand for competitively priced residential
property allowed the large Hong Kong developers to work off significant
inventory of unsold developments. Strong land sales in Hong Kong and liquidation
of older property developments suggest that Hong Kong property prices will move
somewhat higher. A number of studies of Hong Kong's competitiveness were
conducted recently, and the government responded with a number of initiatives of
varying degrees of effectiveness. For example, the government began a review of
the civil service and will contract out more services in the future to improve
efficiency. Telecommunications deregulation was very effective at reducing
service costs and increasing innovation. This is likely to be followed by other
utility deregulation. The government would like to encourage the development of
Hong Kong's software and technology industries, create a regional medical hub,
and enhance tourism by attracting a Disney theme park. Hong Kong should also
benefit from improved export flows and greater growth in China if that resulted
from Chinese initiatives. During the second quarter, we increased our exposure
to Hong Kong.
Chinese equities rallied sharply in the second quarter as China cut interest
rates sharply to sustain economic growth and combat deflation. A large rate cut
in June left Chinese interest rates significantly below U.S. rates; for
instance, a Chinese saver could earn just 2.25% on a one-year deposit in a
Chinese bank. China could cut rates this low despite the renminbi's peg to the
U.S. dollar, due to a tightening of capital controls. The Chinese cut rates to
encourage consumption rather than savings and to relieve the debt burden on
Chinese state-owned enterprises. The Chinese also introduced a number of
measures to encourage investment in domestic equity markets. The authorities
hope that an equity market rally will create a wealth effect and encourage
domestic consumption. Prime Minister Zhu Rongji adopted these policies after a
trip to the United States. Stronger domestic equity markets would also
facilitate the recapitalization of state owned enterprises and reduce the cost
of bailing out the state-owned banking sector. The rally occurred despite a
deterioration of Chinese export growth, the failure of China to secure American
support for its entry to the WTO and a worsening of Sino-American relations.
During the second quarter, we moved to a modest overweight position through
Chinese equities listed in Hong Kong.
The MSCI Singapore Index recorded strong absolute returns during the second
quarter but lagged regional indexes. Returns lagged for foreign investors due to
the erosion of premiums on a number of blue chip stocks, including the banks and
Singapore Airlines. These premiums eroded as the Monetary Authority of Singapore
announced a plan to merge the foreign and local tranches of the bank shares.
This share class
- --------------------------------------------------------------------------------
Asian Equity Portfolio
17
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
ASIAN EQUITY PORTFOLIO (CONT.)
merger is a long term positive for the sector as it will facilitate bank mergers
in Singapore. In-market mergers will reduce excess bank capacity and allow major
cost cutting. The Singapore economy is enjoying a strong recovery on the back of
improved electronics exports, easy monetary and fiscal policy, a more
competitive exchange rate and improved consumer confidence. The local property
market has enjoyed a strong price increase, allowing developers to improve their
financial condition by liquidating unsold units. Improving conditions in
Indonesia and other ASEAN markets have also contributed to improved sentiment.
We recently reduced our exposure in Singapore marginally for a number of our
positions, as valuation targets were exceeded.
The major political event in Asia during the second quarter was the Indonesian
parliamentary elections. The elections were conducted in a far more peaceful
environment than expected. Preliminary results suggest a new coalition will be
formed to replace the current government. Following the social unrest seen in
Indonesia in early 1998, the relative lack of problems during the campaign
exceeded expectations. Social calm, falling inflation, a strengthening rupiah,
falling interest rates, higher commodity export prices and nascent signs of
economic recovery combined to make the Indonesian market the best performing
Asian market during the first half. Successful coalition building, further
progress on corporate debt restructuring and bank recapitalization will be
needed to sustain the rally.
The Thai market rallied sharply during the second quarter as interest rates fell
below pre-crisis lows. Signs of an economic recovery continued to build and an
innovative deal illustrated how banks could be recapitalized through a
combination of government and private capital. Siam Commercial Bank raised Baht
65 billion (about $1.7 billion) of fresh capital through a scheme in which the
government matched private capital. This sparked a rally in Thai financial
institutions that had not yet raised new equity. Asset quality among Thai banks
remains dire but meaningful progress is being made in the restructuring of
corporate debt and trends are favorable. However, at this stage a fairly rapid
recovery in economic growth and corporate earnings is needed to justify current
equity valuations. The Portfolio is underweight Thai equities.
Asian risk factors we will be monitoring include the large supply of upcoming
equity offerings and the danger that economic recovery will lessen the will to
implement needed economic and corporate level reforms. External risk factors
include the performance of the Japanese economy, import and economic growth in
Europe and America, U.S. monetary policy and global interest rate trends,
extreme weakness in the Euro and the performance of Western equity markets.
Upside surprises could include better than expected economic recovery and bank
recapitalization in Japan, and stronger than expected import demand from the
U.S. and Europe.
Along with improving fundamentals, sentiment and liquidity have been driving
equity returns in Asia over the past quarter. A rising tide has lifted most
stocks. Given the magnitude of the recent moves, some companies and perhaps some
markets have moved ahead of where they should be valued, unless further positive
growth surprises occur. We continue to believe that the best way to drive future
performance will be through stock selection, and expect that the importance of
stock selection will reassert itself in a less buoyant market environment. We
continue to focus our efforts on identifying companies that are restructuring
and refocusing their businesses around the principle of improving returns on
equity. Restructuring broadly includes divestitures, sales of strategic stakes
to multinationals, business unit shutdowns, mergers, staff reductions or capital
management initiatives. We have seen a variety of restructuring efforts by Asian
companies over the past year and these companies continue to perform well in
relative and absolute terms. As mentioned above, restructuring in Japan could
also provide enhanced investment opportunities in non-Japan Asia through
outsourcing. We will continue to search for these opportunities, and build
significant positions in companies geared to the recovery in domestic
consumption currently underway in most Asian economies.
Timothy D. Jensen
PORTFOLIO MANAGER
Ashutosh Sinha
PORTFOLIO MANAGER
July 1999
- --------------------------------------------------------------------------------
Asian Equity Portfolio
18
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1999
- --------------------------------------------------------------------------------
ASIAN EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- -----------------------------------------------------------------------------
COMMON STOCKS (94.8%)
HONG KONG (31.5%)
68,000 Asia Satellite Telecommunications Holdings Ltd.... $ 160
571,200 Axa China Region Ltd.............................. 456
484,200 Cathay Pacific Airways Ltd........................ 743
487,900 Cheung Kong Holdings Ltd.......................... 4,339
286,000 China Telecom Ltd................................. 794
241,800 Citic Pacific Ltd................................. 771
134,800 CLP Holdings Ltd.................................. 655
491,900 Cosco Pacific Ltd................................. 409
277,000 Dao Heng Bank Group Ltd........................... 1,243
702,200 Hengan International Group Co. Ltd................ 355
1,414,800 Hong Kong Telecommunications Ltd.................. 3,675
673,800 Hutchison Whampoa Ltd............................. 6,101
27,200 HSBC Holdings plc................................. --
68,000 Johnson Electric Holdings Ltd..................... 280
216,000 Kerry Properties Ltd.............................. 285
422,100 Li & Fung Ltd..................................... 1,012
332,000 New World Development Co., Ltd.................... 995
166,840 New World Infrastructure Ltd...................... 314
(a)998,000 Shandong International Power Development Co.
Ltd............................................. 225
342,000 SmarTone Telecommunications Holdings Ltd.......... 1,217
462,600 Sun Hung Kai Properties Ltd....................... 4,219
264,200 Swire Pacific Ltd., Class A....................... 1,308
245,800 Television Broadcasts Ltd......................... 1,153
628,000 Yanzhou Coal Mining Co. Ltd....................... 225
----------
30,934
----------
INDIA (1.6%)
22,000 Digital Equipment (India) Ltd..................... 217
1,556 Hero Honda Motors Ltd............................. 39
360,000 ICICI Ltd......................................... 609
155 Reckitt & Coleman of India Ltd.................... 2
50,000 Software Solution Integrated Ltd.................. 499
30 Tata Engineering & Locomotive Co., Ltd............ --
6,526 Tata Infotech Ltd................................. 160
----------
1,526
----------
INDONESIA (2.7%)
(a)30,900 Asia Pulp & Paper Co. Ltd. ADR.................... 297
300,000 Gudang Garam...................................... 815
222,000 Semen Gresik...................................... 484
76,680 Telekomunikasi Indonesia ADR...................... 954
20,800 Unilever Indonesia................................ 121
----------
2,671
----------
MALAYSIA (4.4%)
157,000 Carlsberg Brewery Malaysia Bhd.................... 446
145,000 Commerce Asset-Holding Bhd........................ 359
236,800 Malayan Banking Bhd............................... 710
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- -----------------------------------------------------------------------------
136,000 Nestle (Malaysia) Bhd............................. $ 537
338,000 Public Bank Bhd................................... 257
170,400 Rothmans of Pall Mall (Malaysia) Bhd.............. 1,289
10,000 Sime Darby Bhd.................................... 13
188,000 Telekom Malaysia Bhd.............................. 703
----------
4,314
----------
PHILIPPINES (2.4%)
(a)255,350 La Tondena Distillers, Inc........................ 303
94,990 Manila Electric Co., Class B...................... 343
21,080 Philippine Long Distance Telephone Co............. 644
(a)114,600 Philippine National Bank.......................... 311
990,600 SM Prime Holdings, Inc............................ 224
229,405 San Miguel Corp., Class B......................... 501
----------
2,326
----------
SINGAPORE (9.1%)
131,600 City Developments Ltd............................. 843
211,000 Gul Technologies.................................. 201
231,000 Natsteel Electronics Ltd.......................... 1,011
141,000 Oversea-Chinese Banking Corp. (Foreign)........... 1,176
97,000 Overseas Union Bank Ltd........................... 467
88,000 Parkway Holdings Ltd.............................. 217
53,000 Rothmans Industries Ltd........................... 445
129,200 Sembcorp Logistics Ltd............................ 509
89,900 Singapore Press Holdings Ltd...................... 1,531
385,000 Singapore Technologies Engineering Ltd............ 436
115,600 United Overseas Bank Ltd. (Foreign)............... 808
169,700 Venture Manufacturing (Singapore) Ltd............. 1,306
----------
8,950
----------
SOUTH KOREA (21.1%)
19,180 Daewoo Securities Co.............................. 373
41,700 Good Morning Securities Co. Ltd................... 258
30,190 Hana Bank......................................... 443
11,100 Hankuk Glass Industry Co., Ltd.................... 297
34,250 Housing & Commercial Bank, Korea.................. 1,080
23,650 Kookmin Bank...................................... 480
6,500 Kookmin Bank GDR.................................. 132
32,250 Koram Bank........................................ 404
5,660 Korea Chemical Company Ltd........................ 508
7,930 Korea Electric Power Corp......................... 329
154,960 Korea Electric Power Corp. ADR.................... 3,177
81,840 Korea Exchange Bank............................... 460
6,420 Korea Telecom Corp................................ 426
(a)67,300 Korea Telecom Corp. ADR........................... 2,692
10,870 L.G. Chemical Ltd................................. 296
21,770 LG Electronics.................................... 602
(d)7,530 Pohang Iron & Steel Co., Ltd...................... 927
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
Asian Equity Portfolio
19
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1999
- --------------------------------------------------------------------------------
ASIAN EQUITY PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- -----------------------------------------------------------------------------
<C> <S> <C>
</TABLE>
SOUTH KOREA (CONT.)
<TABLE>
<C> <S> <C>
37,500 Pohang Iron & Steel Co., Ltd. ADR................. $ 1,261
21,193 Samsung Electro-Mechanics Co...................... 732
29,255 Samsung Electronics Co............................ 3,210
1,683 Samsung Fire & Marine Insurance Co................ 1,185
(d)309 SK Telecom Co., Ltd............................... 424
25,210 SK Telecom Co., Ltd. ADR.......................... 429
20,896 SK Corp........................................... 601
----------
20,726
----------
TAIWAN (18.6%)
(a)128,000 Advanced Semiconductor Engineering, Inc........... 432
(a)216,000 Asia Cement Corp.................................. 194
168,218 Asustek Computer, Inc............................. 1,896
568,000 Bank Sinopac...................................... 396
(a)173,000 CTCI Corp......................................... 205
139,000 Cathay Life Insurance Co., Ltd.................... 499
786,850 China Steel Corp.................................. 594
10,605 China Steel Corp. GDR............................. 164
(a)411,000 Chinatrust Commercial Bank........................ 494
203,275 Compal Electronics, Inc........................... 799
(a)38,500 Compeq Manufacturing Co., Ltd..................... 225
(a)528,000 E. Sun Commercial Bank............................ 294
169,000 Evergreen Marine Corp............................. 211
(a)666,480 Far East Textile Ltd.............................. 991
(a)527,000 Far East International Bank....................... 193
(a)106,000 First Commercial Bank............................. 202
243,000 Formosa Chemicals & Fibre Corp.................... 296
(a)205,920 Hon Hai Precision Industry........................ 1,862
103,000 Hua Nan Commercial Bank........................... 204
455,000 International Commercial Bank of China............ 589
426,000 Nan Ya Plastics Corp.............................. 706
(a)120,800 President Chain Store Corp........................ 410
35,920 Quanta Computer Inc............................... 430
(a)209,708 Siliconware Precision Industries Co............... 399
(a)723,000 Taishin International Bank........................ 537
(a)993,036 Taiwan Semiconductor Manufacturing Co............. 3,797
(a)359,350 United Micro Electronics Corp., Ltd............... 773
193,000 United World Chinese Commercial Bank.............. 299
295,000 Yang Ming Marine Transport........................ 192
----------
18,283
----------
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- -----------------------------------------------------------------------------
THAILAND (3.4%)
57,800 Advanced Info Service PCL (Foreign)............... $ 783
85,700 BEC World PCL (Foreign)........................... 534
45,545 Delta Electronics (Thailand) PCL (Foreign)........ 383
360,400 Golden Land Property Development PCL (Foreign).... 213
29,100 Shinawatra Computer Co. PCL (Foreign)............. 136
122,466 Siam Cement Co. (Foreign)......................... 505
12,900 Siam Cement PCL (Foreign)......................... 392
115,000 Thai Farmers Bank PCL (Foreign)................... 355
----------
3,301
----------
TOTAL COMMON STOCKS (Cost $73,087)............................... 93,031
----------
PREFERRED STOCK (0.0%)
THAILAND (0.0%)
(a)69,900 Siam Commercial Bank PCL (Cost $50)............... 99
----------
</TABLE>
<TABLE>
<CAPTION>
NO. OF
RIGHTS
<C> <S> <C>
- -------------
RIGHTS (0.0%)
KOREA (0.0%)
(a)-- SK Telecom Co. Ltd., expiring 7/27/99 (Cost $0)... 39
----------
</TABLE>
<TABLE>
<CAPTION>
NO. OF
WARRANTS
(000)
<C> <S> <C>
- -------------
WARRANTS (2.9%)
HONG KONG (0.3%)
(a)544 HSBC Holdings plc, expiring 10/13/99.............. 274
----------
PHILLIPINES (0.2%)
(a)363 Jollibee FoodsCorp, expiring 3/24/03.............. 186
----------
SINGAPORE (2.0%)
(a)348 Oversea-Chinese Banking Corp., Ltd., expiring
3/28/02......................................... 260
(a)1,902 Singapore Airways expiring 4/9/02................. 1,698
----------
1,958
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
Asian Equity Portfolio
20
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1999
- --------------------------------------------------------------------------------
ASIAN EQUITY PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NO. OF
WARRANTS VALUE
(000) (000)
<C> <S> <C>
- -----------------------------------------------------------------------------
THAILAND (0.4%)
(a)547 Siam Commercial Bank PCL, expiring 5/10/02........ $ 350
----------
TOTAL WARRANTS (Cost $1,851)..................................... 2,768
----------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT
(000)
<C> <S> <C>
- -------------
CONVERTIBLE BONDS (0.7%)
SINGAPORE (0.7%)
$470 Finlayson Global Corp., 0.00%, 2/19/04 (Cost
$517)........................................... 710
----------
TOTAL FOREIGN SECURITIES (98.4%) (Cost $75,505).................. 96,647
----------
SHORT-TERM INVESTMENTS (1.0%)
REPURCHASE AGREEMENT (1.0%)
$ 980 Chase Securities, Inc. 4.55%, dated 6/30/99, due
7/01/99, to be repurchased at $980,
collateralized by U.S. Treasury Bonds, 7.25%,
due 5/15/16, valued at $1,089
(Cost $980)..................................... 980
----------
FOREIGN CURRENCY (0.7%)
INR 19,693 Indian Rupee...................................... 454
MYR 34 Malaysian Ringgit................................. 9
SGD 274 Singapore Dollar.................................. 161
KRW 3,000 South Korean Won.................................. 2
TWD 3,656 Taiwan Dollar..................................... 113
----------
TOTAL FOREIGN CURRENCY (Cost $741)............................... 739
----------
TOTAL INVESTMENTS (100.1%) (Cost $77,226)........................ 98,366
----------
</TABLE>
<TABLE>
<S> <C> <C>
OTHER ASSETS (1.8%)
Receivable for Portfolio Shares Sold................. $ 955
Receivable for Investments Sold...................... 592
Dividends Receivable................................. 215
Foreign Withholding Tax Reclaim Receivable........... 17
Net Unrealized Gain on Foreign Currency Exchange
Contracts.......................................... 1
Other................................................ 16 1,796
----------
LIABILITIES ( - 1.9%)
Payable for Investments Purchased.................... (1,118)
Payable for Foreign Taxes............................ (322)
Bank Overdraft Payable............................... (182)
Custodian Fees Payable............................... (117)
Investment Advisory Fees Payable..................... (43)
Directors' Fees & Expenses Payable................... (20)
Administrative Fees Payable.......................... (15)
Payable for Securities Lending....................... (5)
Distribution Fees Payable............................ (1)
Other Liabilities.................................... (73) (1,896)
---------- ----------
NET ASSETS (100%)................................................ $ 98,266
----------
----------
</TABLE>
<TABLE>
<S> <C>
NET ASSETS CONSIST OF:
Paid in Capital.................................................. $ 179,521
Undistributed Net Investment Income.............................. 355
Accumulated Net Realized Loss.................................... (102,429)
Unrealized Appreciation on Investments and Foreign Currency
Translations................................................... 20,819
----------
NET ASSETS....................................................... $ 98,266
----------
----------
</TABLE>
<TABLE>
<CAPTION>
AMOUNT
(000)
<S> <C> <C>
- -----------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
CLASS A:
- -----------------------------------------------------------------
NET ASSETS....................................................... $96,195
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 8,326,295 outstanding $0.001 par value shares
(authorized 500,000,000 shares)................................ $11.55
----------
----------
CLASS B:
- -----------------------------------------------------------------
NET ASSETS....................................................... $2,071
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 180,742 outstanding $0.001 par value shares
(authorized 500,000,000 shares)................................ $11.46
----------
----------
</TABLE>
- ------------------------------------------------------------
FOREIGN CURRENCY EXCHANGE CONTRACT INFORMATION:
Under the terms of foreign currency exchange contracts open at June 30, 1999,
the Portfolio is obligated to deliver or is to receive foreign currency in
exchange for U.S. dollars as indicated below:
<TABLE>
<CAPTION>
NET
UNREALIZED
CURRENCY GAIN
TO DELIVER VALUE SETTLEMENT IN EXCHANGE VALUE (LOSS)
(000) (000) DATE FOR (000) (000) (000)
<S> <C> <C> <C> <C> <C>
- ------------ ------ ----------- ------------ ------ -----------
HKD 209 $ 27 7/2/99 U.S.$ 27 $ 27 $ --
IDR 317,022 46 7/2/99 U.S.$ 47 47 1
THB 186 5 7/2/99 U.S.$ 5 5 --
U.S.$ 205 205 7/2/99 SGD 348 205 --
U.S.$ 239 239 7/6/99 HKD 1,852 239 --
------ ------ ---
$ 522 $ 523 $ 1
------ ------ ---
------ ------ ---
</TABLE>
- ------------------------------------------------------------
(a) -- Non-income producing security
(d) -- Security is valued at fair value - see note A-1 to financial
statements.
ADR -- American Depositary Receipt
GDR -- Global Depositary Receipt
PCL -- Public Company Limited
HKD -- Hong Kong Dollar
THB -- Thai Baht
- ------------------------------------------------------------
SUMMARY OF FOREIGN SECURITIES BY INDUSTRY CLASSIFICATION
<TABLE>
<CAPTION>
VALUE PERCENT OF
INDUSTRY (000) NET ASSETS
<S> <C> <C>
- -----------------------------------------------------------------
Capital Equipment...................... $ 16,822 17.1%
Consumer Goods......................... 9,053 9.2
Energy................................. 5,105 5.2
Finance................................ 30,482 31.0
Materials.............................. 6,850 7.0
Multi-Industry......................... 8,602 8.8
Services............................... 19,733 20.1
-------- -----
$ 96,647 98.4%
-------- -----
-------- -----
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
Asian Equity Portfolio
21
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
ASIAN REAL ESTATE PORTFOLIO
COMPOSITION OF NET ASSETS (AT JUNE 30, 1999)
- --------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Australia 7.2%
Hong Kong 46.8%
Japan 17.0%
Philippines 4.1%
Singapore 18.9%
Thailand 4.4%
Other 1.6%
</TABLE>
PERFORMANCE COMPARED TO THE
GPR GENERAL REAL ESTATE SECURITIES INDEX--FAR EAST(1)
- ----------------------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
---------------------------------------
AVERAGE ANNUAL
YTD ONE YEAR SINCE INCEPTION
---------- ---------- ---------------
<S> <C> <C> <C>
PORTFOLIO -- CLASS A...... 29.66% 61.26% - 4.92%
PORTFOLIO -- CLASS B...... 29.60 60.83 - 5.24
INDEX..................... 24.81 53.42 - 15.81
</TABLE>
1. The GPR General Real Estate Securities Index--Far East is a Far East market
capitalization weighted index of listed property/real estate securities in
the Far East measuring total return.
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 INFORMATION CONTAINED IN THIS OVERVIEW REGARDING SPECIFIC SECURITIES IS FOR
INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A RECOMMENDATION TO
PURCHASE OR SELL THE SECURITIES MENTIONED. THE COUNTRY SPECIFIC 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.
The investment objective of the Asian Real Estate Portfolio is to provide
long-term capital appreciation by investing primarily in equity securities of
companies in the Asian real estate industry. MSDW Investment Management
considers a company to be Asian if its shares trade on a recognized stock
exchange in Asia or if it is organized under the laws of an Asian country whose
business is conducted principally in Asia.
For the six months ended June 30, 1999, the Portfolio had a total return of
29.66% for Class A shares and 29.60% for Class B shares compared to 24.81% for
the GPR General Real Estate Securities Index -- Far East (the "Index"). For the
one year period ended June 30, 1999, the Portfolio had a total return of 61.26%
for the Class A shares and 60.83% for the Class B shares compared to 53.42% for
the Index. For the period since inception on October 1, 1997 through June 30,
1999, the Portfolio had an average annual total return of - 4.92% for Class A
shares and - 5.24% for Class B shares compared to - 15.81% for the Index.
For the second quarter ended June 30, 1999 the Portfolio had a total return of
24.05% for the Class A shares and 24.02% for the Class B shares compared to
17.73% for the Index. The Portfolio gained during the second quarter by being
overweight in Singapore and underweight in Australia, even though the strong
Japanese yen eroded some performance gains as the Portfolio was underweight in
Japan.
Crisis-hit Asian economies advanced quickly into the recovery cycle during the
second quarter. Unexpectedly, strong first quarter gross domestic product (GDP)
data for Japan offers hope that this will lead to stronger intra-regional trade
and higher export volumes for non-Japan Asia, thereby relieving some of the
burden from domestic demand in spearheading growth. Also a stronger Japan will
reduce the possibility of a Renminbi devaluation and help to tighten sovereign
credit spreads in Asia. Meanwhile, the relative strength in Asian currencies,
supported by a stable yen and low inflationary pressures, will enable Asian
governments to maintain their easy monetary policies to prime their economies
and to restructure corporate debt.
The Fed's bias toward a neutral monetary policy should ease fears that a
pre-mature interest rate hike will hurt Asia's recovery prospects. While
short-term interest rates in Asia may be near their bottoms, they
- --------------------------------------------------------------------------------
Asian Real Estate Portfolio
22
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
ASIAN REAL ESTATE PORTFOLIO (CONT.)
are not likely to give way to an upturn in the near term. The 3-month inter-bank
rates in Hong Kong and Singapore remained at near pre-crisis lows of 5.87% and
1.68%, respectively. Banks in Hong Kong have lowered their prime lending rates
by 50 basis points in total to 8.25% during the second quarter. China lowered
average lending rates by 75 basis points and deposit rates by 100 basis points
amidst growing concerns about slowing growth and weakening exports. Elsewhere
throughout Asia, interest rates continue to trend down.
Real economic recovery in Asia varies. South Korea came out tops with an
impressive 4.6% GDP growth in the first quarter of 1999. Both Taiwan and
Singapore reported better-than-expected first quarter growth figures of 4.3% and
1.2%, respectively while recovery in Hong Kong and Indonesia will remain much
more protracted with their first quarter GDP contracting 3.5% and 11.5%,
respectively.
Meanwhile, Asia continued to embrace restructuring and cost cutting in different
forms in efforts to gain competitiveness. The Japanese government is behind
industries to erase excess capacity and to undertake radical restructuring
programs. In Korea, the government remains committed to pushing through Chaebol
reforms. In Singapore, the government announced bank liberalization measures
aimed at raising the competitive positioning of domestic banks.
REAL ESTATE MARKETS
With the help of declining interest rates and wealth created through stock
market gains, the residential markets in Hong Kong and Singapore continued to
register robust performance in the second quarter.
In Hong Kong, residential sales remain concentrated in the primary market with
developers enjoying strong pre-sales rates of 60-90%. Residential transactions
averaged at 10,000 units per month for the first five months in 1999, this is 8%
higher than the monthly average of 9,300 units for the whole of last year. New
mortgage lending fell marginally by 2.6% to Hong Kong dollar 9.1 million in
April but new loans approved continued to increase, rising by 18.9% to Hong Kong
dollar 14.8 million, on the back of competitive home mortgage finance packages
offered by local banks. Key events which helped lift confidence include Walt
Disney negotiating to locate their second Asian theme park on Lantau Island;
plans to develop a Cyberport; higher-than-expected prices (+20%) achieved at the
first government land tender/auction after the financial crisis; and developers
actively concluding land premium negotiations with the government. In the office
sector, the erosion of rent in Grade A buildings (effective rate averaging at
Hong Kong dollar 28-40 per square foot) has slowed but weak pricing power
continues to put a cap on capital values. Grade A office yields have stabilized
at around 7% since the beginning of this year.
In Singapore, residential transaction volumes remained healthy at 2,200 units in
the second quarter of 1999, after pent-up demand drove take-up rates to a high
of 3,000 units in the first quarter of 1999. An improved economic outlook and
better affordability due to declining interest rates continue to drive end-user
demand. Banks continue to offer attractive financing packages for home
purchases. Secondary market activities picked up further during the quarter,
with prices rising 10-15% in the prime residential district. A series of land
acquisition deals concluded by major developers at 10-20% below the peak prices
of the second quarter 1996, helped fuel confidence in the residential sector.
Prime Grade A office rents fell 7.7% in the first quarter of 1999, compared to
the previous quarter. Rents are averaging at Singapore dollar 5.50 per square
foot (U.S.$3.24 per square foot) with vacancy rates hovering around 15%. The
sale of Robinson Point (Grade A office building situated at the fringe of
Raffles Place) at SGD 1,450 per square foot via an asset securitization program,
helped set a floor price for the weak commercial office sector.
In Tokyo, the sale of condominiums and houses rose as purchasers took advantage
of the government's tax incentive program to upgrade to a better property (the
tax incentive will expire in end-2000). Average selling prices for apartments in
the Tokyo area continue to fall, declining 6% in April. Tokyo office vacancies
are holding at 4.1% and are expected to rise further as corporate cost cutting
reduces demand for floor space.
REAL ESTATE SECURITIES
Asian real estate shares continued to perform very well during the second
quarter, on the back of liquidity flows into Asia, low interest rates and
improved confidence in the prospect for an economic recovery. Also the robust
performance reflects better property sales and the wealth effect as a result of
stock market gains, particularly in Hong Kong and Singapore. The real estate
sector has marginally
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Asian Real Estate Portfolio
23
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
ASIAN REAL ESTATE PORTFOLIO (CONT.)
under-performed the broader Asian equity indices during this period as equity
investors focused on stocks in the technology sector or Internet plays. Property
shares in Asia now trade at a narrower discount from a few months ago, with some
high quality issues trading at par or even at a slight premium over the
underlying, marked-to-market net asset value, reflecting expectations of lower
interest rates and funding costs and improving property market conditions.
Japanese real estate shares have lagged the broader market in the second quarter
of 1999, with Price/NAV trading at a narrower discount to underlying net asset
value.
Given a still falling interest rate environment, we have kept Hong Kong at a
slight overweight position and maintained an overweight position in Singapore.
Within these two markets, we have very much held on to high quality companies
which are able to capitalize on the current depressed property prices to make
good acquisitions. We have also invested in a number of smaller companies with
clean balance sheets, good property assets or where stock prices have yet to
fully reflect the potential benefits of corporate restructuring put in place by
management. We maintained an underweight position in Australia on account of
valuations and increasing new equity supply. We have sold off much of our
positions in the Australian office sector, anticipating a sector de-rating as
supply builds up. We remain invested in the retail trusts, which continue to
enjoy earnings growth as a result of robust retail sales and strong consumer
spending.
Theodore R. Bigman
PORTFOLIO MANAGER
Timothy Jenson
PORTFOLIO MANAGER
July 1999
- --------------------------------------------------------------------------------
Asian Real Estate Portfolio
24
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1999
- --------------------------------------------------------------------------------
ASIAN REAL ESTATE PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- ----------------------------------------------------------------------------
COMMON STOCKS (98.4%)
AUSTRALIA (7.2%)
40,000 Armstrong Jones Retail Fund...................... $ 22
28,000 Centro Properties Group.......................... 48
61,000 IPOH Ltd......................................... 79
21,000 Westfield Holdings Ltd........................... 128
26,000 Westfield Trust.................................. 52
--------
329
--------
HONG KONG (46.8%)
96,000 Amoy Properties Ltd.............................. 90
45,000 Cheung Kong Holdings Ltd......................... 400
220,000 China Resources Beijing Land..................... 50
(a)324,000 Far East Hotels & Entertainment Ltd.............. 46
17,000 Henderson Land Development Co., Ltd.............. 98
250,100 HKR International Ltd............................ 216
240,000 Hopson Development Holdings Ltd.................. 27
67,000 Kerry Properties Ltd............................. 89
(a)80,000 New Asia Realty & Trust Co., Class A............. 122
91,000 New World Development Co., Ltd................... 273
270,000 Regal Hotel International Ltd.................... 33
300,000 Shun Tak Holdings Ltd............................ 80
62,700 Sino Land Co..................................... 36
44,000 Sun Hung Kai Properties Ltd...................... 401
10,000 Swire Pacific Ltd., Class A...................... 49
22,000 Wharf Holdings Ltd............................... 69
47,000 Wheelock & Co., Ltd.............................. 65
--------
2,144
--------
JAPAN (17.0%)
10,000 Daibiru Corp..................................... 73
36,000 Mitsubishi Estate Co., Ltd....................... 352
26,000 Mitsui Fudosan Co., Ltd.......................... 211
38,000 Sumitomo Realty & Development Co., Ltd........... 143
--------
779
--------
PHILIPPINES (4.1%)
279,400 Ayala Land, Inc., Class B........................ 88
(a)370,000 Filinvest Land, Inc.............................. 42
270,000 SM Prime Holdings, Inc........................... 61
--------
191
--------
SINGAPORE (18.9%)
(a)130,000 Allgreen Properties Ltd.......................... 141
31,000 City Developments Ltd............................ 198
34,000 DBS Land Ltd..................................... 68
49,000 Keppel Land Ltd.................................. 92
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- ----------------------------------------------------------------------------
22,000 Marco Polo Developments Ltd...................... $ 39
20,000 Overseas Union Enterprise Ltd.................... 63
58,000 United Industrial Corp., Ltd..................... 39
170,000 Wing Tai Holdings Ltd............................ 225
--------
865
--------
THAILAND (4.4%)
177,000 MBK Properties and Development PCL............... 154
8,900 Oriental Hotel (Thailand) PCL.................... 48
--------
202
--------
TOTAL COMMON STOCKS (Cost $3,382)................................. 4,510
--------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT
(000)
<C> <S> <C>
- -------------
FOREIGN CURRENCY (1.8%)
HKD 468 Hong Kong Dollar................................. 61
PHP 11 Philippine Peso.................................. --
SGD 38 Singapore Dollar................................. 22
--------
TOTAL FOREIGN CURRENCY (Cost $83)................................. 83
--------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS (100.2%) (Cost $3,465).................. 4,593
------
OTHER ASSETS (1.8%)
Cash............................................... $ 59
Receivable Due from Adviser........................ 15
Dividends Receivable............................... 5
Interest Receivable................................ 1
Foreign Withholding Tax Reclaim Receivable......... 1 81
-----
LIABILITIES (-2.0%)
Payable for Investments Purchased.................. (37)
Custodian Fees Payable............................. (20)
Administrative Fees Payable........................ (3)
Distribution Fees Payable.......................... (1)
Other Liabilities.................................. (29) (90)
----- ------
NET ASSETS (100%)......................................... $4,584
------
------
</TABLE>
<TABLE>
<S> <C>
NET ASSETS CONSIST OF:
Paid in Capital................................................ $5,946
Undistributed Net Investment Income............................ 44
Accumulated Net Realized Loss.................................. (2,533)
Unrealized Appreciation on Investments and Foreign Currency
Translations................................................. 1,127
------
NET ASSETS..................................................... $4,584
------
------
</TABLE>
The accompanying notes are an integral part of the financial statements.
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Asian Real Estate Portfolio
25
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1999
- --------------------------------------------------------------------------------
ASIAN REAL ESTATE PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMOUNT
(000)
- ------------------------------------------------------------------
<S> <C>
</TABLE>
<TABLE>
<S> <C>
CLASS A:
- --------------------------------------------------------------
NET ASSETS.................................................... $3,607
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 423,257 outstanding $0.001 par value shares
(authorized 500,000,000 shares)............................. $8.52
------
------
CLASS B:
- --------------------------------------------------------------
NET ASSETS.................................................... $977
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 114,103 outstanding $0.001 par value shares
(authorized 500,000,000 shares)............................. $8.56
------
------
- ------------------------------------------------------------
FOREIGN CURRENCY EXCHANGE CONTRACT INFORMATION:
Under the terms of foreign currency exchange contracts open
at June 30, 1999, the Portfolio is obligated to deliver
foreign currency in exchange for U.S. dollars as indicated
below:
</TABLE>
<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>
- ----------- ------ ----------- ------------ ------ -----------
SGD 38 $ 22 7/2/99 U.S.$ 22 $ 22 $ --
------ ------ -----
------ ------ -----
</TABLE>
- ------------------------------------------------------------
(a) -- Non-income producing security
PCL -- Public Company Limited
- ------------------------------------------------------------
SUMMARY OF COMMON STOCKS BY INDUSTRY CLASSIFICATION
<TABLE>
<CAPTION>
VALUE PERCENT OF
INDUSTRY (000) NET ASSETS
<S> <C> <C>
- --------------------------------------------------------------
Apartment.............................. $ 143 3.1%
Diversified............................ 3,391 74.0
Lodging/Leisure........................ 229 5.0
Multi-Industry......................... 49 1.1
Office and Industrial.................. 364 7.9
Shopping Center........................ 334 7.3
------- ---
$ 4,510 98.4%
------- ---
------- ---
</TABLE>
The accompanying notes are an integral part of the financial statements.
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Asian Real Estate Portfolio
26
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
EMERGING MARKETS PORTFOLIO
COMPOSITION OF NET ASSETS (AT JUNE 30, 1999)
- --------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Argentina 0.7%
Brazil 10.8%
Chile 0.5%
China 0.8%
Czech Republic 0.7%
Egypt 0.6%
Greece 2.0%
Hungary 0.8%
India 8.8%
Indonesia 4.4%
Israel 2.9%
Malaysia 3.0%
Mexico 12.8%
Pakistan 0.7%
Philippines 1.0%
Poland 2.5%
Russia 4.2%
South Africa 7.1%
South Korea 16.8%
Taiwan 11.1%
Thailand 3.4%
Turkey 4.1%
Other 0.3%
</TABLE>
PERFORMANCE COMPARED TO THE MORGAN STANLEY
CAPITAL INTERNATIONAL (MSCI) EMERGING MARKETS
FREE INDEX AND THE IFC GLOBAL TOTAL RETURN
COMPOSITE INDEX(1)
- -----------------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
------------------------------------------------
AVERAGE
AVERAGE ANNUAL
ANNUAL SINCE
YTD ONE YEAR FIVE YEARS INCEPTION
---------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
PORTFOLIO -- CLASS A.... 40.00% 22.00% 0.25% 8.50%
PORTFOLIO -- CLASS B.... 39.85 21.59 N/A 3.81
MSCI EMERGING MARKETS
FREE INDEX -- CLASS A... 39.87 28.71 -0.83 7.44
IFC GLOBAL TOTAL RETURN
COMPOSITE INDEX -- CLASS
A....................... 38.27 29.66 - 1.03 6.78
MSCI EMERGING MARKETS
FREE INDEX -- CLASS B... 39.87 28.71 N/A - 0.81
IFC GLOBAL TOTAL RETURN
COMPOSITE INDEX -- CLASS
B....................... 38.27 29.66 N/A - 0.60
</TABLE>
1. The MSCI Emerging Markets Free Index is a market capitalization weighted
index composed of companies that are representative of the market structure
of developing countries in Latin America, Asia, Eastern Europe, the Middle
East and Africa (includes dividends). The IFC Global Total Return Composite
Index is an unmanaged index of common stocks and includes developing
countries in Latin America, East and South Asia, Europe, the Middle East and
Africa (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 investment objective of the Emerging Markets Portfolio is to provide
long-term capital appreciation by investing in equity securities of emerging
country issuers.
For the six months ended June 30, 1999, the Portfolio had a total return of
40.00% for the Class A shares and 39.85% for the Class B shares compared to
39.87% for the Morgan Stanley Capital International (MSCI) Emerging Markets Free
Index (the "MSCI Index") and 38.27% for the IFC Global Total Return Composite
Index (the "IFC Index"). For the one year period ended June 30, 1999, the
Portfolio had a total return of 22.00% for the Class A shares and 21.59% for the
Class B shares compared to 28.71% for the MSCI Index and 29.66% for the IFC
Index. For the five-year period ended June 30, 1999, the average annual total
return of Class A shares was 0.25% compared to - 0.83% for the MSCI Index and
- 1.03% for the IFC Index. For the period since inception on September 25, 1992
through June 30, 1999, the average annual total return for Class A shares was
8.50% compared to 7.44% for the MSCI Index and 6.78% for the IFC Index. For the
period since inception on January 2, 1996 through June 30, 1999, the average
annual total return of Class B shares was 3.81% compared to - 0.81% for the
MSCI Index and - 0.60% for the IFC Index.
Overall, outperformance relative to the MSCI Index resulted from our country
selection, particularly our overweight positions in Russia (+133.7%), Indonesia
(+110.9%) and South Korea (+77.9%) coupled with our underweight positions in
Argentina (+24.8%), Colombia (-17.3%), Greece (+19.5%) and South Africa
(+30.2%). Strong stock selection in Brazil, Mexico, Taiwan, Thailand and Turkey
also helped performance.
Despite positive returns on an absolute basis, poor stock selection in Greece,
Indonesia and South Korea detracted from performance. Stock selection in
Indonesia and South Korea had strong absolute returns of 71% and 62%,
respectively, yet these gains lagged the MSCI Index returns.
With few exceptions, the emerging markets performed well during the first half
of 1999, supported by an
- ------------------------------------------------------------
THE INFORMATION CONTAINED IN THIS OVERVIEW REGARDING SPECIFIC SECURITIES IS FOR
INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A RECOMMENDATION TO
PURCHASE OR SELL THE SECURITIES MENTIONED. THE COUNTRY SPECIFIC PERFORMANCE
RESULTS PROVIDED IN THIS OVERVIEW ARE AS MEASURED BY THE MORGAN STANLEY CAPITAL
INTERNATIONAL (MSCI) EMERGING MARKETS COUNTRY OR REGIONAL INDICES, 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.
- --------------------------------------------------------------------------------
Emerging Markets Portfolio
27
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
EMERGING MARKETS PORTFOLIO (CONT.)
amalgam of endogenous and global factors. Positive signs of growth in Japan and
increasingly resilient macro numbers from Western Europe emerged. The powerful
recovery in selected commodity prices (e.g. oil and copper) engendered a strong
rally in the share prices of many commodity-related and deep cyclical companies.
Brazil's ability to quickly recover from its currency devaluation resulted in
improved investor sentiment. Finally, a widely anticipated interest rate hike by
the Fed at the end of June relieved many anxieties regarding U.S. inflation and
interest rate tightening. These factors have provided the emerging markets with
a benign environment for future growth.
The Latin American region gained 31.0% during the first half of 1999. The most
notable market event throughout all the emerging markets was the devaluation of
the Brazilian currency, the Real. The currency plunged 40% in January, then
retraced some of its decline to end the first quarter down 30%. Most emerging
markets investors anticipated the devaluation, but few, if any, expected the
Brazilian equity market to recover so quickly. By the end of March, the equity
market had gained 5.5% in U.S. dollars and by June month-end, it had appreciated
18.7%. Fueling the market was the unexpected appointment of Arminio Fraga, the
former portfolio manager of George Soros' Quantum Emerging Markets Growth Fund,
as head of the Central Bank. Fraga offers financial market expertise and
shareholder focus, which has aided market sentiment.
We were underweight Brazil going into the devaluation and then quickly moved to
a neutral weight after the devaluation, which was favorable for performance. We
continued to add to our Brazilian positions and are now modestly overweight the
Index. We anticipate lower inflation and better than expected economic
performance to allow for continued interest rate reductions and, in turn, for a
contraction in the country risk premium. The expected reduction in real interest
rates is requisite for controlling the fiscal deficit and for stemming the
growth in the stock of public sector debt. We continue to focus on the
telecommunication industry in Brazil, where the privatization of the telecom
sector last year has allowed for the introduction of many new efficiencies,
fostering margin expansion under new managements. Additionally, the inelasticity
of the telecom sector to a weak economy coupled with pent-up demand for telecom
services should allow for strong top-line growth.
Mexico (+52.3%) is our favorite Latin American market based on good economic
management and attractive stock opportunities. A stronger peso coupled with
better than expected consumer demand should allow for positive U.S. dollar
earnings surprises from domestic consumer plays (e.g. beverages, cement, media,
retail). We have increased our overweight and are focusing on consumer-related
stocks, which should benefit from both a recovery in domestic demand as well as
continued strong U.S. economic growth (more than 80% of Mexico's exports are
absorbed by the U.S.).
Asia, gaining 55.4%, led the emerging markets during the first half of the year.
Liquidity from local participants, as well as from foreign investors seeking to
participate in the broadening Asian recovery, helped drive the markets.
Fundamental factors contributing to the stellar gains of many of the Asian
markets include: current account and fiscal surpluses, strong FDI, micro-level
reforms (e.g. bankruptcy laws), declining interest rates (below pre-crisis
levels in some countries) and lower costs of capital. Indonesia was the star
performer, rising 110.9%. Government recapitalization plans, lower inflation and
a successful, nonviolent election in June fueled Indonesian equities. We added
to our position during the second quarter and are now overweight Indonesia.
Taiwan (+42.3%) has shown acceleration in exports and is best positioned within
Asia to benefit from increased outsourcing from Japan. The increasing cyclical
upturn and trend in outsourcing various computer components augurs well for
Portfolio holdings such as Compal Electronics, Hon Hai Precision, Quanta
Computer and Taiwan Semiconductor. During the second quarter, we reduced some of
our strong overweights in the electronic components and instruments industry,
taking advantage of significant price appreciation.
Our favorite market in Asia is South Korea, which gained 77.9% during the first
half of the year on the back of an improving macroeconomic scenario and
continued progress with financial and chaebol (large conglomerates)
restructuring. Strong domestic liquidity and declining interest rates have also
buoyed the market. We added to our South Korean overweight, favoring stocks such
as Korea Telecom (an attractively valued telecom stock with a well-developed
network and a promising tariff rebalancing), LG Chemical and Samsung Electronics
(restructuring chaebol opportunities).
India (+36.9%) has performed respectably given political uncertainties and
heightened tensions on the border with Pakistan. Most recently, India has
witnessed a sharp inflow of foreign funds and the outperformance of cyclical
sectors. For example, petrochemicals, refineries, auto and cement were revived
in part by cheap valuations and positive news on volumes and/or prices. We have
added to our
- --------------------------------------------------------------------------------
Emerging Markets Portfolio
28
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
EMERGING MARKETS PORTFOLIO (CONT.)
overweight position in India based on these attractive valuations coupled with
signs of an economic recovery and what we perceive as appealing (return on
investment focused) corporate governance. We are adding stocks such as State
Bank of India (SBI), India's largest bank, which should benefit from a
turnaround in the economic cycle.
Emerging Europe and the Middle East gained 28.4%, posting more modest returns
than the other regions. Russia (+133.7%) was the star performer in the region.
Turkey (+45.2%) and Poland (+30.9%) also performed well. We added to and are now
overweight Russia. Despite the devaluation of the ruble last year, the Russian
economy has performed better than expected. In May, monthly industrial
production, boosted by domestic consumption, showed signs of growth. Russian
equities have been extremely strong based in part on the recovery in global
commodity prices, which particularly helps the Russian export sector. We are
concentrating on stocks in the oil sector such as Lukoil and Surgutneftegaz,
which stand to benefit from both a weaker exchange rate (due to predominantly
ruble-based costs with larger volumes of export sales) and higher crude prices.
Turkey, while appreciating 45.2% during the first half of the year, fell 3.5%
during the second quarter due to politics. The elections on April 18th
eventually resulted in the newly formed majority coalition government that
finally received a vote of confidence in June, ending the political uncertainty.
The coalition has promised immediate action to reduce inflation to single digits
including passing difficult structural reform laws (e.g. the new banking law,
and social security and agricultural subsidy reforms). Key legislation may also
soon be passed which would facilitate the privatization of state-owned
utilities. We are overweight the banking sector as we expect real interest rates
to decline in the near future. We expect the equity market to react positively
if negotiations with the IMF conclude favorably.
We maintain our overweight position in Poland to which we recently added. The
Polish economy continues to recover from the Western European induced slowdown.
Support from the nascent recovery in Germany, Poland's largest export market,
should accelerate economic growth. Excise taxes were increased to help raise
revenues in light of the growing budget deficit. The Polish equities market
continues to derive strength from consolidation and successful privatizations.
We particularly like Telekomunikacja Polska, which we feel is undervalued
relative to other telecoms in the region, and should benefit from the planned
strategic sale of a 25-35% government stake by year-end.
We continued to trim Greece, which returned 19.5%, and maintain our market
underweight. Despite recent positive inflation numbers and a marginal decline in
the rate of private sector credit expansion, an imminent reduction in Greek
interest rates seems unlikely. We do not expect Greek interest rates to be
lowered until the fourth quarter of 1999, as the Greek government wants to
contain inflation to below 2% in accordance with European Union standards. Greek
equities have become expensively valued and we find other markets more
attractively valued in the near term.
We lightened our position in Israel (+25.5%) during the second quarter, and are
now underweight. A new Israeli government led by Ehud Barak was elected in June.
We expect interest rate reductions later in the third quarter, after the new
government has been formed and its policies have been announced. We reduced our
exposure to certain stocks which had performed well and were close to being
fully valued, and re-deployed the funds in sectors such as banking, which we
feel should perform particularly well if interest rate cuts take place.
South Africa, which had its second all-race presidential elections, rose 30.2%.
We added to our South African holdings and will continue to increase our
weighting while maintaining an underweight position. Thabo Mbeki's election as
President, enhancing expectations of a continuance in economic policies, is
likely to accelerate privatization and deregulation of the labor market.
Continued interest rate reductions, made possible by the stabilization of
emerging markets, falling inflation, good fiscal discipline and a slightly
looser monetary stance by the Reserve Bank, will help stimulate the economy.
However, the economy is still very anemic. A recovery in commodity prices,
especially base metals, should also provide a boost to exports and the economy
as a whole.
Robert L. Meyer
PORTFOLIO MANAGER
Andy B. Skov
PORTFOLIO MANAGER
July 1999
- --------------------------------------------------------------------------------
Emerging Markets Portfolio
29
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1999
- --------------------------------------------------------------------------------
EMERGING MARKETS PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- ----------------------------------------------------------------------------------
COMMON STOCKS (96.8%)
ARGENTINA (0.7%)
6 Acindar, Class B................................. $ --
264,368 Telecom Argentina ADR............................ 7,072
29,784 Telefonica de Argentina ADR...................... 934
-----------
8,006
-----------
BRAZIL (10.4%)
(a,d)295,998,880 Banco Nacional (Preferred)....................... 8
5,229,313 Brahma (Preferred)............................... 2,949
207,330,066 CEMIG (Preferred)................................ 4,359
173,325 CEMIG ADR (Preferred)............................ 3,683
(e)103,238 CEMIG ADR (Preferred)............................ 2,194
277,978 CIA Vale do Rio Doce, Class A (Preferred)........ 5,498
(d,e)98,865 Coteminas ADR.................................... 251
12,714,900 Coteminas........................................ 646
(a)35,028,493 CRT (Preferred).................................. 8,591
293,889 CVRD ADR (Preferred)............................. 5,841
33,860,120 Eletrobras....................................... 639
13,625,000 Eletrobras, Class B (Preferred).................. 275
233,570 Eletrobras, Class B ADR (Preferred).............. 2,352
98,021,210 Embratel (Preferred)............................. 1,352
178,557 Embratel ADR..................................... 2,478
(a)119,019,000 Lojas Arapua (Preferred)......................... --
(a,e)120,830 Lojas Arapua GDR (Preferred)..................... --
39,236,000 Pao de Acucar (Preferred)........................ 731
26,429 Pao de Acucar ADR................................ 494
66,221,000 Petrobras (Preferred)............................ 10,254
42,860 Petrobras ADR (Preferred)........................ 660
53,959 Telebras ADR (Preferred)......................... 4,866
403,763,510 Tele Celular Sul (Preferred)..................... 844
28,245 Tele Celular Sul................................. 613
317,814,610 Tele Centro Sul (Preferred)...................... 3,520
29,711 Tele Centro Sul.................................. 1,649
122,953,700 Telecom Brasil (Preferred)....................... 11,000
11,175 Telemig Celular.................................. 275
386,812,716 Telemig Celular (Preferred)...................... 488
253,287,610 Tele Nordeste Celular (Preferred)................ 341
8,975 Tele Nordeste Celular............................ 242
122,109,610 Tele Norte Leste (Preferred)..................... 2,208
93,088 Tele Norte Leste (ADR)........................... 1,728
20,876,000 Telerj Celular, Class B.......................... 684
256,278,610 Telesp Celular (Preferred)....................... 2,650
190,211 Telesp Celular................................... 5,088
85,101,399 Telesp Celular, Class B.......................... 4,425
58,061,610 Telesp (Preferred)............................... 1,329
74,155 Telesp ADR....................................... 1,696
409,538,610 Tele Sudeste Celular (Preferred)................. 2,314
34,790 Tele Sudeste Celular............................. 1,009
572,968 Unibanco GDR (Preferred)......................... 13,787
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- ----------------------------------------------------------------------------------
318,900 Usiminas (Preferred)............................. $ 1,074
62,535 Usinas Siderurgicas de Minas Gerais S.A.......... 212
-----------
115,297
-----------
CHILE (0.5%)
71,202 CCU ADR.......................................... 2,038
83,300 Endesa ADR....................................... 1,010
112,780 Enersis ADR...................................... 2,580
44,223 Santa Isabel ADR................................. 448
-----------
6,076
-----------
CHINA (0.8%)
133,010 Huaneng Power International, Inc. ADR............ 2,278
168,336 Yanzhou Coal Mining Co., Ltd. ADR................ 2,988
10,221,200 Zhenhai Refining & Chemical Co., Ltd., Class H... 3,096
-----------
8,362
-----------
CZECH REPUBLIC (0.7%)
101,290 SPT Telecom a.s.................................. 1,641
349,522 SPT Telecom a.s. GDR............................. 5,641
-----------
7,282
-----------
EGYPT (0.6%)
(a)61,169 Al-Ahram Beverages Co. GDR....................... 1,739
346 Commercial International Bank.................... 3
75,728 Eastern Tobacco.................................. 1,844
22,500 Egypt Gas Co..................................... 921
450 Egyptian Finance & Industrial.................... 6
92,454 Egyptian Co. for Mobil Services.................. 2,084
25 Helwan Cement.................................... --
(a)37,981 Industrial & Engineering......................... 300
-----------
6,897
-----------
GREECE (2.0%)
5,692 Commercial Bank Of Greece........................ 408
575,958 Hellenic Telecommunication Organization (OTE).... 12,361
896,288 Hellenic Telecommunication Organization (OTE)
ADR............................................ 9,915
-----------
22,684
-----------
HUNGARY (0.8%)
185,813 Magyar Tavkozlesi Rt............................. 1,006
49,516 Matav Rt......................................... 1,362
(a)145,100 Matav Rt. ADR.................................... 3,990
25,536 MOL Magyar Olaj-es Gazipari Rt. GDR
(Registered)................................... 612
52,235 OTP Bank Rt...................................... 2,181
-----------
9,151
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
Emerging Markets Portfolio
30
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1999
- --------------------------------------------------------------------------------
EMERGING MARKETS PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ----------------------------------------------------------------------------------
<C> <S> <C>
INDIA (8.6%)
5,650 Apollo Tyres Ltd................................. $ 8
11,242 Aptech Ltd....................................... 185
4,330 Associated Cement Cos., Ltd...................... 17
1,429,800 Bharat Heavy Electricals Ltd..................... 8,104
1,010,300 Container Corp. of India Ltd..................... 4,236
2,600 Digital Equipment (India) Ltd.................... 26
1,900 Federal Bank Ltd................................. 2
206,700 Gujarat Ambuja Cements Ltd....................... 1,524
1,450 HCL Infosystems Ltd.............................. 12
6,233 Hero Honda Motors Ltd............................ 155
363,630 Hero Honda Motors Ltd............................ 9,048
152,050 Hindustan Lever Ltd.............................. 8,337
28,000 Housing Development Finance Corp., Ltd........... 1,433
32,372 Housing Development Finance Corp., Ltd........... 1,657
186,200 Infosys Technology Ltd........................... 15,557
256,743 ITC Ltd.......................................... 6,480
615,000 Larsen & Toubro Ltd.............................. 4,059
247 Larsen & Toubro Ltd.............................. 2
368,400 Mahanagar Telephone Nigam Ltd.................... 1,579
(a)473,000 Mahanagar Telephone Nigam Ltd.................... 1,962
(g)25,663,200 Morgan Stanley India Growth Fund................. 4,257
43,131 MRF Ltd., Class B................................ 1,901
105,550 NIIT Ltd......................................... 4,944
225,000 Saytam Computer Services Ltd..................... 6,573
(a,d)45,000 Sri Venkatesa Mills Ltd.......................... 7
(a)550 State Bank of India.............................. 3
929,000 State Bank of India Ltd.......................... 5,069
2,608 Sudarshan Chemical Industries Ltd................ 3
355,250 Tata Engineering & Locomotive Co., Ltd........... 1,680
(a)90,700 Tata Engineering & Locomotive Co., Ltd........... 429
81,400 Videsh Sanchar Nigam Ltd. GDR.................... 1,043
156,000 Zee Telefilms Limited............................ 5,229
-----------
95,521
-----------
INDONESIA (4.4%)
(a)1,057,375 Asia Pulp & Paper Co. Ltd. ADR................... 10,177
5,168,141 Gudang Garam..................................... 14,037
10,867,055 Indah Kiat Pulp & Paper Corp. (Foreign).......... 5,051
2,121,100 Semen Gresik..................................... 4,621
1,219,104 Telekomunikasi Indonesia ADR..................... 15,163
-----------
49,049
-----------
ISRAEL (2.9%)
(a)210,900 Amdocs Ltd....................................... 4,798
(a)21,220 Backweb Technologies Ltd......................... 581
890,200 Bank Hapoalim Ltd. (Registered).................. 2,285
1,134,000 Bank Leumi Le-Israel............................. 2,144
(a)26,645 Converse Technology, Inc......................... 2,012
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- ----------------------------------------------------------------------------------
146,354 ECI Telecommunications Ltd....................... $ 4,857
(a)93,790 Gilat Satellite Networks Ltd..................... 4,924
26,927 Koor Industries Ltd.............................. 3,106
(a)53,366 NICE-Systems Ltd. ADR............................ 1,471
(a)17,875 NICE-Systems Ltd................................. 487
(a)47,499 Orbotech Ltd..................................... 2,476
60,420 Teva Pharmaceutical Industries Ltd. ADR.......... 2,961
-----------
32,102
-----------
MALAYSIA (3.0%)
1,904,000 Commerce Asset Holdings Bhd...................... 4,710
2,274,000 Malayan Banking Bhd.............................. 6,822
531,000 Nestle (Malaysia) Bhd............................ 2,096
2,318,000 Public Bank Berhad............................... 1,763
659,000 Rothmans of Pall Mall (Malaysia) Bhd............. 4,986
2,549,000 Telekom Malaysia Bhd............................. 9,525
1,389,000 Tenaga Nasional Bhd.............................. 3,198
-----------
33,100
-----------
MEXICO (11.5%)
349,359 Alfa, Class A.................................... 1,451
1,638,642 Banacci, Class B................................. 4,139
(a)966,103 Banacci, Class L................................. 2,358
(a)4,150,353 Bancomer, Class B................................ 1,498
(e)277,930 Bancomer, Class C ADR............................ 2,015
664,209 Carso, Class A1.................................. 3,080
970,703 Cemex CPO........................................ 4,800
830,867 Cemex CPO ADR.................................... 7,893
307,336 Cemex, Class B................................... 1,526
656,257 Cemex, Class B ADR............................... 6,481
(a)1,454,796 Cifra, Class C................................... 2,665
(a)287,237 Cifra, Class V................................... 558
(a)202,768 Cifra, Class V ADR............................... 3,889
259,388 Fomento Economico Mexicano ADR................... 10,343
1,113,277 Kimberly-Clark, Class A.......................... 4,584
(a)689,553 Televisa CPO GDR................................. 30,901
488,083 Telmex, Class L ADR.............................. 39,443
-----------
127,624
-----------
PAKISTAN (0.7%)
31 Crescent Textile Mills Ltd....................... --
3,348,500 Fauji Fertilizer Co., Ltd........................ 2,600
892,198 Pakistan State Oil Co., Ltd...................... 1,573
7,001,500 Pakistan Telecommunications Corp., Class A....... 2,649
(a)5,094,036 Sui Northern Gas................................. 811
-----------
7,633
-----------
PERU (0.0%)
52 Cementos Lima.................................... --
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
Emerging Markets Portfolio
31
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1999
- --------------------------------------------------------------------------------
EMERGING MARKETS PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ----------------------------------------------------------------------------------
<C> <S> <C>
PHILIPPINES (1.0%)
831,520 Manila Electric Co., Class B..................... $ 3,000
2,474,801 San Miguel Corp., Class B........................ 5,409
14,422,000 SM Prime Holdings, Inc........................... 3,266
-----------
11,675
-----------
POLAND (2.5%)
(a)43,191 Bank Polska Kasa Opieki Grupa Pekao.............. 500
1,800 BIG Bank Gdanski................................. 4
(a,d)33,400 Eastbridge N.V................................... 2,246
300,765 Elektrim......................................... 4,247
30,688 Powszechny Bank Kredytowy........................ 738
(a)7,672 Powszechny Bank Kredytowy, Class C............... 135
111,002 Prokom Software GDR.............................. 1,820
(a)2,447,405 Telekomunikacja Polska GDR....................... 17,254
112,788 Wielkopolski Bank Kredytowy...................... 660
-----------
27,604
-----------
RUSSIA (3.6%)
(a,d)592,359 Alliance Cellulose Ltd........................... 1,425
37,700 AO Tatneft ADR................................... 141
344,630 Lukoil Holding ADR............................... 14,087
100,000 Lukoil Holding ADR............................... 720
(a,d)37,259,635 Mustcom.......................................... 7,772
138,410 RAO Unified Energy Systems GDR................... 1,341
(a,d)317,851 Russian Telecom Development Corp................. 1,144
(a,d)990 Storyfirst Communications, Inc., Class C......... 374
(a,d)2,640 Storyfirst Communications, Inc., Class D......... 997
(a,d)3,250 Storyfirst Communications, Inc., Class E......... 1,227
(a,d)1,331 Storyfirst Communications, Inc., Class F......... 1,005
(a)1,194,740 Surgutneftgaz ADR................................ 10,081
-----------
40,314
-----------
SOUTH AFRICA (7.0%)
939,170 Amalgamated Banks of South Africa................ 5,315
101,740 Anglo American Corp.............................. 4,756
(a)32,000 Anglo American plc............................... 1,518
(a)70,700 Anglo American plc............................... 3,304
1,175,361 Bidvest Group Ltd................................ 9,817
773,000 Billiton Plc..................................... 2,671
23,800 Billiton plc..................................... 83
7,493,077 BOE Corp., Ltd., Class N......................... 5,960
977,509 BOE Ltd.......................................... 972
99,180 De Beers Centenary AG............................ 2,377
48,070 De Beers Consolidated Mines ADR.................. 1,148
558,550 Ellerine Holdings Ltd............................ 2,221
5,640,830 FirstRand Ltd.................................... 6,450
(a)86,692 Liberty International plc........................ 574
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- ----------------------------------------------------------------------------------
185,955 Liberty Life Association of Africa Ltd........... $ 2,382
220,500 Nedcor Ltd....................................... 5,057
(a)3,400,970 New Africa Investments Ltd., Class N............. 2,001
223,950 Persetel Holdings Ltd............................ 1,410
203,220 Primedia Ltd., Class N........................... 303
783,500 Rembrandt Group Ltd.............................. 6,531
(a)3,242,100 Sanlam Ltd....................................... 3,841
(a)921,250 South African Breweries Ltd...................... 7,905
1,330,854 The Education Investment Corp., Ltd.............. 1,255
-----------
77,851
-----------
SOUTH KOREA (16.7%)
170,900 Daewoo Securities Co............................. 3,322
664,720 Good Morning Securities Co., Ltd................. 4,106
316,730 Hana Bank........................................ 4,652
83,690 Hankuk Glass Industry Co., Ltd................... 2,241
360,520 Housing & Commercial Bank........................ 11,369
619,090 Kookmin Bank..................................... 12,569
(a)15,782 Kookmin Bank GDR................................. 321
310,950 Koram Bank....................................... 3,895
301,290 Korea Electric Power............................. 12,520
857,186 Korea Electric Power Corp. ADR................... 17,572
774,870 Korea Exchange Bank.............................. 4,351
(a)533,600 Korea Telecom Corp. ADR.......................... 21,344
(d)353,950 Korea Telecom Corp............................... 23,485
112,500 L.G. Chemical Ltd................................ 3,062
44,640 LG Securities.................................... 752
(d)142,383 Pohang Iron & Steel Co., Ltd..................... 17,526
92,698 Samsung Electro-Mechanics Co..................... 3,204
242,593 Samsung Electronics Co........................... 26,617
332,680 Shinhan Bank..................................... 3,736
131,955 SK Telecom Co., Ltd. ADR......................... 2,243
(d)4,900 SK Telecom Co., Ltd.............................. 6,726
-----------
185,613
-----------
TAIWAN (11.1%)
(a)1,279,000 Acer, Inc........................................ 3,247
(a)1,696,000 Advanced Semiconductor Engineering, Inc.......... 5,723
1,808,450 Asustek Computer, Inc............................ 20,380
3,833,000 Bank Sinopac..................................... 2,670
1,040,000 Cathay Life Insurance Co., Ltd................... 3,735
1,102,000 Chang Hwa Commercial Bank........................ 1,651
(a)424,000 China Development Corp........................... 1,057
6,360,900 China Steel Corp................................. 4,805
(a)2,920,000 Chinatrust Commercial Bank....................... 3,508
1,374,635 Compal Electronics, Inc.......................... 5,405
(a)1,667,000 E. Sun Commercial Bank........................... 929
(a)5,170,000 Far East Textile Ltd............................. 7,683
1,000,000 First Commercial Bank............................ 1,904
1,914,000 Formosa Plastics Corp............................ 4,029
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
Emerging Markets Portfolio
32
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1999
- --------------------------------------------------------------------------------
EMERGING MARKETS PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ----------------------------------------------------------------------------------
<C> <S> <C>
</TABLE>
TAIWAN (CONT.)
<TABLE>
<C> <S> <C>
(a)1,057,000 Hon Hai Precision Industry....................... $ 9,556
1,213,000 Hua Nan Commercial Bank.......................... 2,403
2,349,000 International Commercial Bank of China........... 3,040
2,529,000 Nan Ya Plastics Corp............................. 4,189
(a)566,000 President Chain Store Corp....................... 1,919
222,440 Quanta Computer Inc.............................. 2,665
(a)1 Shinkong Synthetic Fiber......................... --
(a)2,010,237 Siliconware Precision Industries Co.............. 3,828
(a)4,260,000 Taishin International Bank....................... 3,165
5,675,220 Taiwan Semiconductor Manufacturing Co............ 21,699
(a)83,174 Taiwan Semiconductor Manufacturing Co. ADR....... 2,828
704,000 United World Chinese Commercial Bank............. 1,090
-----------
123,108
-----------
THAILAND (3.1%)
868,250 Advanced Information Services PCL (Foreign)...... 11,770
598,200 BEC World PCL (Foreign).......................... 3,730
509,977 Delta Electronics (Thailand) PCL (Foreign)....... 4,286
1,163,700 Shinawatra Computer Co. PCL (Foreign)............ 5,426
1,331,766 Siam Cement PCL (Foreign)........................ 5,488
235,700 Siam Commercial Bank PCL......................... 326
1,020,633 Siam Commercial Bank PCL......................... --
(a)1,944,400 Siam Commercial Bank PCL (Preferred)............. 2,768
269,600 Thai Farmers Bank PCL (Foreign).................. 833
-----------
34,627
-----------
TURKEY (4.1%)
(e)73,090 Akbank T.A.S..................................... 215
316,729,000 Akbank T.A.S..................................... 4,657
404,287,000 Dogan Sirketler Grubu Holding.................... 5,369
31,243,100 Ege Biracilik.................................... 2,334
(a)65,911,932 Erciyas Biracilik................................ 1,516
353,789,200 Garanti Bankasi A.S.............................. 2,643
93,232,000 Haci Omer Sabanci Holding A.S.................... 2,078
26,803,000 Koc Holding A.S.................................. 1,685
1,561,000 Migros (Registered).............................. 1,944
17,212,000 Tupras-Turkiye Petrol Rafinerileri A.S........... 1,143
(a)136,611,200 Turkiye Is Bankasi, Class C...................... 2,430
(a)41,562,601 Vestel Elektronik Sanayi Ve Ticaret A.S.......... 4,534
1,032,594,063 Yapi Ve Kredi Bankasi A.S........................ 14,938
-----------
45,486
-----------
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- ----------------------------------------------------------------------------------
OTHER (0.1%)
(g)100,130 Morgan Stanley Dean Witter Africa Investment
Fund, Inc...................................... $ 1,013
-----------
TOTAL COMMON STOCKS (Cost $967,161).................................. 1,076,075
-----------
PREFERRED STOCKS (0.0%)
COLOMBIA (0.0%)
103,207 Bancolombia (Cost $617).......................... 137
-----------
</TABLE>
<TABLE>
<CAPTION>
NO. OF
RIGHTS
<C> <S> <C>
- ----------------
RIGHTS (0.5%)
BRAZIL (0.4%)
(a)33,876,493 CRT.............................................. 4,595
(a)19,265,788 Tele Centro Oeste................................ 19
-----------
4,614
-----------
INDIA (0.0%)
(a)1,083 Associated Cement Cos., Ltd...................... 1
-----------
SOUTH KOREA (0.1%)
(a)4,900 SK Telecom Co., Ltd.............................. 614
-----------
TOTAL RIGHTS (Cost $3,297)........................................... 5,229
-----------
</TABLE>
<TABLE>
<CAPTION>
NO. OF
WARRANTS
<C> <S> <C>
- ----------------
WARRANTS (0.3%)
THAILAND (0.3%)
(a)5,987,000 Siam Commercial Bank PCL (Foreign) (Cost $0)..... 3,855
-----------
</TABLE>
<TABLE>
<CAPTION>
NO. OF
UNITS
<C> <S> <C>
- ----------------
UNITS (1.4%)
MEXICO (1.3%)
3,494,469 Fomento Economico Mexicano S.A. (Femsa).......... 13,981
-----------
RUSSIA (0.1%)
(a,d)1,637 Storyfirst Communications, Inc., First Section,
Tranche I, 25.00%.............................. 618
(a)96 Storyfirst Communications, Inc., Second Section,
Tranche I, 25.00%.............................. 36
(a,d)421 Storyfirst Communications, Inc., Tranche II,
26.00%......................................... 159
(a,d)562 Storyfirst Communications, Inc., Tranche IV,
28.00%......................................... 212
(a,d)654 Storyfirst Communications, Inc., Tranche V,
29.00%......................................... 247
(a,d)550 Storyfirst Communications, Inc., Tranche VI,
30.00%......................................... 208
-----------
1,480
-----------
TOTAL UNITS (Cost $11,590)........................................... 15,461
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
Emerging Markets Portfolio
33
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1999
- --------------------------------------------------------------------------------
EMERGING MARKETS PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
<C> <S> <C>
- ----------------------------------------------------------------------------------
CONVERTIBLE DEBENTURES (0.1%)
INDIA (0.0%)
INR (d)336 DCM Shriram Industries Ltd., 7.50%, 2/21/02...... $ 137
-----------
SOUTH AFRICA (0.1%)
ZAR 181 Sasol Ltd. 8.50%, 12/29/49....................... 1,290
-----------
TOTAL CONVERTIBLE DEBENTURES (Cost $1,512)........................... 1,427
-----------
NON-CONVERTIBLE DEBENTURES (0.7%)
INDIA (0.2%)
INR (d)341 DCM Shriram Industries Ltd., (Floating Rate),
9.90%, 2/21/02................................. 184
(d)700 Saurashtra Cement & Chemicals Ltd., 18.00%,
11/27/00....................................... 1,496
-----------
1,680
-----------
RUSSIA (0.5%)
U.S.$ (d)21,883 Svyaz Finance Ltd., 17.00%, 8/11/99.............. 5,379
-----------
TOTAL NON-CONVERTIBLE DEBENTURES (Cost $24,748)...................... 7,059
-----------
TOTAL FOREIGN SECURITIES (99.8%)
(Cost $1,008,925).................................................. 1,109,243
-----------
FOREIGN CURRENCY (0.5%)
BRL 130 Brazilian Real................................... 73
GBP 2 British Pound.................................... 2
INR 167,058 Indian Rupee..................................... 3,849
ISS 1,200 Israeli Shekels.................................. 294
MYR 4 Malaysian Ringgit................................ 1
MXP 4,803 Mexican Peso..................................... 510
PKR 5,805 Pakistani Rupee.................................. 111
KRW 137,316 South Korean Won................................. 119
LKR 2 Sri Lankan Rupee................................. --
TWD 14,233 Taiwan Dollar.................................... 441
THB 8,947 Thai Baht........................................ 242
-----------
TOTAL FOREIGN CURRENCY (Cost $5,672)................................. 5,642
-----------
</TABLE>
<TABLE>
<CAPTION>
VALUE
(000)
<C> <S> <C>
- ----------------------------------------------------------------------------------
TOTAL INVESTMENTS (100.3%) (Cost $1,014,597)......................... $ 1,114,885
-----------
</TABLE>
<TABLE>
<S> <C> <C>
OTHER ASSETS (2.9%)
Receivable for Investments Sold......................... $ 19,975
Receivable for Portfolio Shares Sold.................... 5,706
Dividends Receivable.................................... 4,072
Interest Receivable..................................... 3,306
Foreign Withholding Tax Reclaim Receivable.............. 25
Other................................................... 53 33,137
----------
LIABILITIES (-3.2%)
Payable for Investments Purchased....................... (16,610)
Payable for Foreign Taxes............................... (8,688)
Bank Overdraft Payable.................................. (5,347)
Investment Advisory Fees Payable........................ (3,129)
Custodian Fees Payable.................................. (1,064)
Payable for Portfolio Shares Redeemed................... (457)
Administrative Fees Payable............................. (139)
Directors' Fees & Expenses Payable...................... (108)
Distribution Fees Payable............................... (5)
Net Unrealized Loss on Foreign Currency Exchange
Contracts............................................. (1)
Other Liabilities....................................... (278) (35,826)
---------- ----------
NET ASSETS (100%)..................................................... $1,112,196
----------
----------
</TABLE>
<TABLE>
<S> <C>
NET ASSETS CONSIST OF:
Paid in Capital....................................................... $1,412,812
Undistributed Net Investment Income................................... 1,423
Accumulated Net Realized Loss......................................... (393,651)
Unrealized Appreciation on Investments and Foreign Currency
Translations (Net of accrual for foreign taxes of $7 on unrealized
appreciation of investments)........................................ 91,612
----------
NET ASSETS............................................................ $1,112,196
----------
----------
</TABLE>
<TABLE>
<S> <C>
CLASS A:
- ----------------------------------------------------------------------
NET ASSETS............................................................ $1,102,105
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 82,409,868 outstanding $0.001 par value shares
(authorized 500,000,000 shares)..................................... $13.37
----------
----------
CLASS B:
- ----------------------------------------------------------------------
NET ASSETS............................................................ $10,091
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 754,666 outstanding $0.001 par value shares
(authorized 500,000,000 shares)..................................... $13.37
----------
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
Emerging Markets Portfolio
34
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1999
- --------------------------------------------------------------------------------
EMERGING MARKETS PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
- ------------------------------------------------------------
FOREIGN CURRENCY EXCHANGE CONTRACT INFORMATION:
Under the terms of foreign currency exchange contracts open at June 30, 1999,
the Portfolio is obligated to deliver foreign currency in exchange for U.S.
dollars as indicated below:
<TABLE>
<CAPTION>
NET
CURRENCY IN EXCHANGE UNREALIZED
TO DELIVER VALUE SETTLEMENT FOR VALUE GAIN (LOSS)
(000) (000) DATE (000) (000) (000)
<S> <C> <C> <C> <C> <C>
- --------------- -------- ----------- -------------- -------- -----------
ISS 287 $ 37 7/1/99 U.S.$ 37 $ 37 $ --
MXP 4,671 496 7/1/99 U.S.$ 496 496 --
GBP 1 2 7/2/99 U.S.$ 2 2 --
ILS 945 231 7/2/99 U.S.$ 231 231 --
THB 26,970 731 7/2/99 U.S.$ 730 730 (1)
-------- -------- -----------
$ 1,497 $ 1,496 $ (1)
-------- -------- -----------
-------- -------- -----------
</TABLE>
- --------------------------------------------------------------------
(a) -- Non-income producing security
(d) -- Investments (totaling $72,833 or 6.5% of net assets at June 30, 1999)
were valued at fair value - see Note A-1 to financial statements.
(e) -- 144A Security - certain conditions for public sale may exist.
(g) -- The fund is advised by an affiliate.
ADR -- American Depositary Receipt
CPO -- Certificate of Participation
GDR -- Global Depositary Receipt
GDS -- Global Depositary Shares
PCL -- Public Company Limited
RFD -- Ranked for Dividend
ZAR -- South African Rand
Floating Rate -- Interest rate changes on these instruments are based on changes
in a designated base rate. The rates shown are those in effect on June
30, 1999.
- --------------------------------------------------------------------
SUMMARY OF FOREIGN SECURITIES BY INDUSTRY CLASSIFICATION
<TABLE>
<CAPTION>
VALUE PERCENT OF
INDUSTRY (000) NET ASSETS
<S> <C> <C>
- ------------------------------------------------------------------
Capital Equipment...................... $ 149,655 13.5%
Consumer Goods......................... 152,346 13.7
Energy................................. 103,637 9.3
Finance................................ 198,670 17.9
Materials.............................. 122,000 11.0
Multi-Industry......................... 24,732 2.2
Services............................... 358,203 32.2
----------- ---
$ 1,109,243 99.8%
----------- ---
----------- ---
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
Emerging Markets Portfolio
35
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
EUROPEAN EQUITY PORTFOLIO
COMPOSITION OF NET ASSETS (AT JUNE 30, 1999)
- ---------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Belgium 0.6%
Denmark 1.7%
Finland 3.1%
France 14.3%
Germany 11.2%
Ireland 1.4%
Italy 5.3%
Netherlands 6.3%
Portugal 1.9%
Spain 4.8%
Sweden 5.8%
Switzerland 12.9%
United Kingdom 28.3%
Other 2.4%
</TABLE>
PERFORMANCE COMPARED TO MORGAN STANLEY
CAPITAL INTERNATIONAL (MSCI) EUROPE INDEX(1)
- ---------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
------------------------------------------------
AVERAGE
AVERAGE ANNUAL
ANNUAL SINCE
YTD ONE YEAR FIVE YEARS INCEPTION
----------- --------- ---------- ------------
<S> <C> <C> <C> <C>
PORTFOLIO -- CLASS A.... - 1.21% - 14.19% 11.69% 15.55%
PORTFOLIO -- CLASS B.... - 1.33 - 14.44 N/A 12.57
INDEX -- CLASS A........ - 2.41 - 0.84 19.20 18.02
INDEX -- CLASS B........ - 2.41 - 0.84 N/A 19.60
</TABLE>
1. The MSCI Europe Index is an unmanaged market value weighted index of common
stocks listed on the stock exchanges of countries in Europe (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 INFORMATION CONTAINED IN THIS OVERVIEW REGARDING SPECIFIC SECURITIES IS FOR
INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A RECOMMENDATION TO
PURCHASE OR SELL THE SECURITIES MENTIONED. THE COUNTRY SPECIFIC PERFORMANCE
RESULTS PROVIDED ARE MEASURED BY THE MSCI EUROPE INDEX AND 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.
The investment objective of the European Equity Portfolio is to seek long-term
capital growth through investment in equity securities of European issuers.
Equity securities for this purpose include stocks and stock equivalents such as
securities convertible into common and preferred stocks and securities having
equity characteristics, such as rights and warrants to purchase common stock.
The approach taken in selecting investments for the Portfolio is oriented to
individual stock selection and is value driven. The initial step in identifying
attractive undervalued securities is the screening of European databases. Stocks
are screened for undervaluation on two primary criteria, cash flow and book
value, and three secondary criteria, earnings, sales and yield. Once stocks have
been selected from this screening process, they are put through detailed
fundamental analysis. Important areas covered during this in-depth study include
the companies' balance sheets and cash flow, franchise, products, management and
the strategic value of the assets.
For the six months ended June 30, 1999, the Portfolio had a total return of
- 1.21% for the Class A shares and - 1.33% for the Class B shares compared to
a total return of - 2.41% for the Morgan Stanley Capital International (MSCI)
Europe Index (the "Index"). For the one year period ended June 30, 1999, the
Portfolio had a total return of - 14.19% for the Class A shares and - 14.44%
for the Class B shares compared to - 0.84% for the Index. For the five-year
period ended June 30, 1999, the average annual total return of Class A shares
was 11.69% compared to 19.20% for the Index. For the period since inception on
April 2, 1993 through June 30, 1999, the average annual total return of Class A
shares was 15.55% compared to 18.02% for the Index. For the period since
inception on January 2, 1996 through June 30, 1999, the average annual total
return of Class B shares was 12.57% compared to 19.60% for the Index.
The disappointing absolute returns stemmed from the fall in the value of the
Euro versus the U.S. dollar over the period. The Portfolio's overweight
commitment to mid- and small-cap stocks, which detracted from relative
performance during the first quarter, contributed positively to second-quarter
relative return, helping the Portfolio outpace the Index for the full period.
During much of the first quarter, investors continued to favor the largest, most
liquid stocks in the
- --------------------------------------------------------------------------------
European Equity Portfolio
36
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
EUROPEAN EQUITY PORTFOLIO (CONT.)
European Index. Mega-cap outperformance was also influenced by a shift toward
growth-oriented and financial sectors, which benefited from lower interest
rates. Our value-driven investment discipline, however, limited purchases in
this group as valuations rose sharply. This discipline paid dividends in the
second quarter as the very largest companies halted their advance, partly as a
result of their growth bias and their sensitivity to the 50-basis-point rise in
European bond yields. In contrast, more attractively valued (and economically
sensitive) mid- and small-cap European stocks made respectable gains. This shift
benefited the Portfolio due to its mid-cap bias.
For some time, we have believed that the valuation of the mega-cap European
Index stocks has been excessive and that the relative under-valuation of small-,
mid- and large-cap stocks should be exploited. Now, however, the relative price
weakness of selected mega-cap stocks represents an opportunity to raise exposure
to the largest cap segment.
Acting on this opportunity, we have increased exposure to the key pharmaceutical
and insurance industries (each representing about 10% of the MSCI Europe Index).
While our underweight exposure to these sectors was advantageous during the
second quarter, companies like Switzerland's Novartis and Roche, U.K.-based
Prudential and French AXA were attractive additions to the Portfolio once their
valuations had reached more reasonable levels. Our pharmaceuticals commitment
has now reached an Index-neutral level while our insurance position is modestly
underweight.
Overall, the Portfolio maintains a relatively defensive stance. Our cyclical
weighting has decreased following profit taking in small- and mid-cap holdings.
However, with the war in Kosovo over and the prospects for growth improving in
Europe, we see no urgent reason to sell our strong-performing cyclical holdings.
Valuation remains more attractive in the large-cap segment than in mega-cap
stocks.
Margaret Naylor
PORTFOLIO MANAGER
Alastair Anderson
PORTFOLIO MANAGER
July 1999
- --------------------------------------------------------------------------------
European Equity Portfolio
37
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1999
- --------------------------------------------------------------------------------
EUROPEAN EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- ----------------------------------------------------------------------------
COMMON STOCKS (95.1%)
BELGIUM (0.6%)
9,700 Fortis (B)....................................... $ 305
55 GB INNO AFV...................................... 2
9,500 GB INNO BM....................................... 355
---------
662
---------
DENMARK (1.7%)
13,400 Novo-Nordisk A/S, Class B........................ 1,446
6,750 Unidanmark A/S, Class A.......................... 450
---------
1,896
---------
FINLAND (3.1%)
9,720 KCI Konecranes International..................... 334
4,795 Kone Oyj, Class B................................ 599
261,950 Merita Ltd., Class A............................. 1,490
38,595 Sampo Insurance Co., plc, Class A................ 1,120
---------
3,543
---------
FRANCE (14.3%)
6,630 Alcatel Alsthom.................................. 935
5,780 Axa.............................................. 706
(a)69,350 CNP Assurances................................... 1,897
7,050 Cie de Saint Gobain.............................. 1,125
48,000 Cie Generale des Establissements Michelin,
Class B (Registered)........................... 1,966
7,700 Elf Aquitaine.................................... 1,131
4,135 Groupe Danone.................................... 1,067
9,730 Pernod Ricard.................................... 653
31,000 Rhone-Poulenc.................................... 1,418
33,710 Schneider........................................ 1,895
3,570 Suez Lyonnaise des Eaux.......................... 645
(a)20,720 Total, Class B................................... 2,677
---------
16,115
---------
GERMANY (8.7%)
7,765 Adidas AG........................................ 757
31,420 BASF AG.......................................... 1,382
20,230 Bayerische Vereinsbank AG........................ 1,289
34,166 Bewag Aktiengesellschaft......................... 529
30,308 Hoechst AG....................................... 1,367
2,610 Mannesmann AG.................................... 391
13,540 Schering AG...................................... 1,448
5,500 Siemens AG....................................... 425
1,869 Suedzucker AG.................................... 724
23,060 Volkswagen AG.................................... 1,490
---------
9,802
---------
IRELAND (1.4%)
93,373 Bank of Ireland.................................. 1,571
---------
ITALY (5.3%)
67,235 Banca Popolare Di Bergamo S.p.A.................. 1,479
88,200 Marzotto (Gaetano) & Figli S.p.A................. 687
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- ----------------------------------------------------------------------------
164,500 Mediaset S.p.A................................... $ 1,464
223,800 Telecom Italia S.p.A............................. 2,329
---------
5,959
---------
NETHERLANDS (6.3%)
15,450 ABN Amro Holding N.V............................. 335
48,150 Akzo Nobel N.V................................... 2,029
12,750 Benckiser N.V., Class B.......................... 681
41,856 ING Groep N.V.................................... 2,269
18,200 Laurus N.V....................................... 423
13,975 Philips Electronics N.V.......................... 1,380
---------
7,117
---------
PORTUGAL (1.9%)
26,800 Banco Commercial Portugues (Registered).......... 696
78,450 Electricidade de Portugal........................ 1,414
---------
2,110
---------
SPAIN (4.8%)
9,310 Banco Popular Espanol S.A........................ 670
(a)61,600 Banco Santander S.A.............................. 642
51,650 Endesa........................................... 1,103
75,000 Iberdrola........................................ 1,144
(a)38,768 Telefonica....................................... 1,870
---------
5,429
---------
SWEDEN (5.8%)
42,850 Autoliv, Inc..................................... 1,310
14,750 Ericsson LM, Class B............................. 475
23,100 ForeningsSparbanken AB........................... 327
232,200 Nordbanken Holding AB............................ 1,363
65,100 Svedala Intrustri AB............................. 1,176
153,600 Svenska Handelsbanken, Class A................... 1,850
---------
6,501
---------
SWITZERLAND (12.9%)
1,825 Cie Financiere Richemont AG, Class A............. 3,517
1,445 Holderbank Financiere Glarus AG,
Class B (Bearer)............................... 1,709
1,950 Nestle (Registered).............................. 3,520
1,065 Novartis AG (Registered)......................... 1,558
105 Roche Holding AG (Registered).................... 1,081
340 Schindler Holding AG (Registered)................ 526
3,350 Swisscom AG...................................... 1,263
4,660 UBS (Registered)................................. 1,393
---------
14,567
---------
UNITED KINGDOM (28.3%)
396,050 Aegis Group plc.................................. 875
161,100 Allied Domecq plc................................ 1,555
134,000 Allied Zurich plc................................ 1,686
228,018 BG plc........................................... 1,394
66,900 BOC Group plc.................................... 1,309
92,610 Bank of Scotland................................. 1,227
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
European Equity Portfolio
38
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1999
- --------------------------------------------------------------------------------
EUROPEAN EQUITY PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ----------------------------------------------------------------------------
<C> <S> <C>
</TABLE>
UNITED KINGDOM (CONT.)
<TABLE>
<C> <S> <C>
136,300 British Telecommunications plc................... $ 2,285
(a)61,825 Burmah Castrol plc............................... 1,174
110,500 Capital Radio plc................................ 1,464
(a)399,400 Centrica plc..................................... 939
107,483 Diageo plc....................................... 1,123
20,600 Glaxo Wellcome plc............................... 573
156,180 Great Universal Stores plc....................... 1,732
498,100 Halma plc........................................ 833
156,500 Imperial Tobacco Group plc....................... 1,708
77,600 Lloyds TSB Group plc............................. 1,053
169,800 Morgan Crucible Co............................... 718
97,600 Prudential Corp. plc............................. 1,438
212,998 Reckitt & Colman plc............................. 2,223
(a)108,537 Royal & Sun Alliance Insurance Group plc......... 974
99,100 Sainsbury (J) plc................................ 625
151,600 Scottish Southern Energy plc..................... 1,552
55,900 Seton Scholl Healthcare plc...................... 641
128,300 Shell Transport & Trading Co..................... 963
12,200 Smith & Nephew plc............................... 37
209,300 Tesco plc........................................ 539
150,300 WPP Group plc.................................... 1,272
---------
31,912
---------
TOTAL COMMON STOCKS (Cost $99,322)............................... 107,184
---------
PREFERRED STOCKS (2.5%)
GERMANY (2.5%)
10,710 Fresenius AG..................................... 1,880
12,760 Henkel KGaA-Vorzug............................... 893
---------
TOTAL PREFERRED STOCKS (Cost $2,809)............................. 2,773
---------
TOTAL FOREIGN SECURITIES (97.6%) (Cost $102,131)................. 109,957
---------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT
(000)
<C> <S> <C>
- ------------
SHORT-TERM INVESTMENT (2.5%)
REPURCHASE AGREEMENT (2.5%)
$ 2,753 Chase Securities, Inc. 4.55%, dated 6/30/99, due
7/01/99, to be repurchased at $2,753,
collateralized by U.S. Treasury Bonds, 7.25%,
due 5/15/16, valued at $2,845
(Cost $2,753).................................. 2,753
---------
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
<C> <S> <C>
- ----------------------------------------------------------------------------
FOREIGN CURRENCY (1.3%)
GBP 33 British Pound.................................... $ 52
EUR 43 Euro............................................. 44
CHF 2,159 Swiss Franc...................................... 1,391
---------
TOTAL FOREIGN CURRENCY (Cost $1,491)............................. 1,487
---------
TOTAL INVESTMENTS (101.4%) (Cost $106,375)....................... 114,197
---------
</TABLE>
<TABLE>
<S> <C> <C>
OTHER ASSETS (2.4%)
Receivable for Investments Sold..................... $ 1,864
Dividends Receivable................................ 603
Foreign Withholding Tax Reclaim Receivable.......... 290
Net Unrealized Gain on Foreign Currency Exchange
Contracts......................................... 1
Other............................................... 8 2,766
----------
LIABILITIES ( - 3.8%)
Payable for Investments Purchased................... (3,660)
Payable for Portfolio Shares Redeemed............... (265)
Investment Advisory Fees Payable.................... (219)
Custodian Fees Payable.............................. (78)
Administrative Fees Payable......................... (19)
Directors' Fees and Expenses Payable................ (17)
Distribution Fees Payable........................... (2)
Other Liabilities................................... (28) (4,288)
---------- --------
NET ASSETS (100%)................................................. $112,675
--------
--------
</TABLE>
<TABLE>
<S> <C>
NET ASSETS CONSIST OF:
Paid in Capital................................................... $ 94,772
Undistributed Net Investment Income............................... 1,530
Accumulated Net Realized Gain..................................... 8,617
Unrealized Appreciation on Investments and Foreign Currency
Translations.................................................... 7,756
--------
NET ASSETS........................................................ $112,675
--------
--------
</TABLE>
<TABLE>
<S> <C>
CLASS A:
- ------------------------------------------------------------------
NET ASSETS........................................................ $109,560
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 7,040,154 outstanding $0.001 par value shares
(authorized 500,000,000 shares)................................. $15.56
--------
--------
CLASS B
- ------------------------------------------------------------------
NET ASSETS........................................................ $3,115
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 200,641 outstanding $0.001 par value shares
(authorized 500,000,000 shares)................................. $15.53
--------
--------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
European Equity Portfolio
39
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1999
- --------------------------------------------------------------------------------
EUROPEAN EQUITY PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
- ------------------------------------------------------------
FOREIGN CURRENCY EXCHANGE CONTRACT INFORMATION:
Under the terms of foreign currency exchange contracts open at June 30, 1999,
the Portfolio is obligated to deliver or is to receive foreign currency in
exchange for U.S. dollars as indicated below:
<TABLE>
<CAPTION>
NET
CURRENCY IN EXCHANGE UNREALIZED
TO DELIVER VALUE SETTLEMENT FOR VALUE GAIN (LOSS)
(000) (000) DATE (000) (000) (000)
<S> <C> <C> <C> <C> <C>
- ---------- ------ ----------- ----------- ------ ------------
U.S.$ 147 $ 147 7/1/99 SEK 1,241 $ 147 $ --
DKK 4,590 637 7/2/99 U.S.$ 638 638 1
------ ------ -----
$ 784 $ 785 $ 1
------ ------ -----
------ ------ -----
</TABLE>
- ------------------------------------------------------------
(a) -- Non-income producing security
DKK -- Danish Krone
SEK -- Swedish Krona
- ------------------------------------------------------------
SUMMARY OF FOREIGN SECURITIES BY INDUSTRY CLASSIFICATION
<TABLE>
<CAPTION>
VALUE PERCENT OF
INDUSTRY (000) NET ASSETS
<S> <C> <C>
- ----------------------------------------------------------------
Capital Equipment...................... $ 8,016 7.1%
Consumer Goods......................... 32,887 29.2
Energy................................. 14,020 12.4
Finance................................ 26,230 23.3
Materials.............................. 11,371 10.1
Services............................... 17,433 15.5
--------- ---
$ 109,957 97.6%
--------- ---
--------- ---
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
European Equity Portfolio
40
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
EUROPEAN REAL ESTATE PORTFOLIO
COMPOSITION OF NET ASSETS (AT JUNE 30, 1999)
- ---------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Denmark 1.8%
Finland 2.4%
France 25.9%
Ireland 3.4%
Italy 2.1%
Netherlands 2.0%
Norway 1.7%
Spain 6.7%
Sweden 11.9%
United Kingdom 38.3%
Other 3.8%
</TABLE>
PERFORMANCE COMPARED TO THE GPR GENERAL REAL ESTATE SECURITIES INDEX--EUROPE(1)
- -------------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
------------------------------------------
AVERAGE ANNUAL
YTD ONE YEAR SINCE INCEPTION
---------- ---------- ------------------
<S> <C> <C> <C>
PORTFOLIO -- CLASS A........... 2.90% - 6.80% 1.53%
PORTFOLIO -- CLASS B........... 2.72 - 7.02 1.33
INDEX.......................... 6.84 - 3.46 3.64
</TABLE>
1. The GPR General Real Estate Securities Index - Europe is a European Market
capitalization weighted index of listed property/real estate securities
measuring total return.
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 INFORMATION CONTAINED IN THIS OVERVIEW REGARDING SPECIFIC SECURITIES IS FOR
INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A RECOMMENDATION TO
PURCHASE OR SELL THE SECURITIES MENTIONED. THE COUNTRY SPECIFIC PERFORMANCE
RESULTS PROVIDED IN THIS OVERVIEW 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.
The investment objective of the European Real Estate Portfolio is to provide
current income and long-term capital appreciation by investing primarily in
equity securities of companies in the European real estate industry.
For the six months ended June 30, 1999, the Portfolio had a total return of
2.90% for the Class A shares and 2.72% for the Class B shares compared to 6.84%
for the GPR General Real Estate Securities Index -- Europe (the "Index"). For
the one year ended June 30, 1999, the Portfolio had a total return of -6.80% for
the Class A shares and -7.02% for the Class B shares compared to -3.46% for the
Index. For the period since inception on October 1, 1997 through June 30, 1999,
the Portfolio had an average annual total return of 1.53% for Class A shares and
1.33% for Class B shares compared to 3.64% for the Index.
The European listed property markets continued to rebound during the second
quarter, delivering a positive performance each month in 1999. For six months
ended June 30, 1999, the performance of the Index was 20.4% in Euro terms
compared to a 10.3% MSCI Europe Index return. This first half return was the
strongest January to June performance by the Index since the first half of 1993.
The 3-month total return for Index was 9.9%, in Euro terms, compared to the MSCI
number of 4.0% for the Europe Index. We believe this strong outperformance by
real estate securities relative to broader equities confirms the existence of a
rebound in the listed European real estate market.
Looking ahead, we expect to see a strong millennium finish. On the continent, we
are looking for continued economic growth from France, Spain and Sweden in
particular. The French and Spanish growth should be driven by rising consumer
expenditures, the structural efficiencies of continued deregulation, and a
weakened currency's favorable impact on exports. Sweden should benefit from
strong foreign trade, focusing on their relationship with Euroland and Emerging
Asia. We believe the economic growth in these markets will translate into
stronger demand for property space over the near to medium term. At the same
time, we believe the German and Italian economies will make progress, but will
not see the same growth levels in the short-term. These two markets are further
behind in their economic cycles, and will need time to work through excess
inventory levels. Finally, in the U.K., we agree with the V-
- --------------------------------------------------------------------------------
European Real Estate Portfolio
41
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
EUROPEAN REAL ESTATE PORTFOLIO (CONT.)
shaped economic recovery scenario, and expect a sharp rebound in 2000, from 1999
estimated GDP growth levels of below 1.0%. Once the growth returns, we believe
the demand for office and retail space will firm once more.
The United Kingdom continued to outperform the GPR European Property Shares
Index through the first half of 1999, offering a six-month Euro return of 32.6%
versus the Index return of 20.4%. During the second quarter, the UK returned
11.5% while the Index contributed 9.9%, and the FTSE 100 Index offered only
2.7%. Approximately 9.9% of the UK's six-month return, and 3.0% of the second
quarter return is attributable to the rise of the Pound against the Euro. Second
quarter share price appreciation was driven by above consensus NAV (net asset
value) growth in the London West End office market, and out-of-town retail
shopping centers, demonstrated by the March fiscal year-end company reports. The
strong performance in these sectors was driven by better-than-expected rental
growth, with a slight tightening of yields. However, as mentioned last quarter,
this capital value growth took place in 1998, but was not recognized until 1999.
Our estimates suggest that rental growth in 1999 will be limited to a few select
property markets due to the impact on demand for space from the anticipated
below 1% growth rate for the economy. Looking further out, we believe a V-shaped
recovery will take effect in 2000, raising GDP growth estimates to the 3% range.
At this time we should see the added demand putting pressure on rental levels
once again. At the same time, the continuing debate over EMU entry lost momentum
during the European Parliamentary elections. This setback could at a minimum
delay the UK's joining the currency. While we expect the UK to eventually join
EMU, we believe this uncertainty reduces the likelihood of a near-term interest
rate convergence with Euroland, and threatens the anticipation of a significant
lowering of yields in the direct property market. The quarter-end 25 basis point
reduction by the Bank of England alone will not materially impact current yield
levels. Within this environment, we are realizing some profits and slightly
decreasing our overall underweight stance over the short-term. Our focus will
remain on the out-of-town retail and West-end office sectors, as well as
overweighting the UK Majors, the larger capitalized, liquid names.
In June, the French real estate securities market finally started to demonstrate
signs of a recovery. While the market continued to underperform the European
Index for the first half of 1999, 10.7% vs. 20.4% respectively in Euros, June
saw a sharp appreciation of 8.8% leading to an outperforming quarter by 2.6%. We
believe the increased activity in the property market brought investor's
attention back into the listed real estate sector. What they found was a market
rebounding. Hammerson, a UK company with limited French exposure, let their
17,700 square meter office development at 40 rue de Courcelles for FF3, 500/
square meter, 6% above the year-end quoted top rents. The French company Gecina
acquired residential rival Sefimeg in a stock deal valued at approximately 1.0
billion Euro or a 15% discount to Sefimeg's restated NAV. The heavy discount was
a result of Sefimeg's 60% shareholder, Francois Pinault, moving out of real
estate to focus on his ensuing battle to control Gucci NV. The combined entity
offers the highest market cap of the French real estate listed companies, and
one of the largest residential portfolios in Europe. At the same time, Unibail
completed a successful stock offering in May to finance their 893 million Euro
purchase of the Vivendi portfolio. Business surveys suggest a strong second half
in France and throughout Euroland. Economic estimates call for 3-4% growth in
each of the third and fourth quarters of this year. While at the same time,
controlled inflation is ensuring a neutral to easing mentality at the Central
Bank. This anticipated growth, in a market at full occupancy, bodes well for
further rental appreciation. Last quarter, we were cautious over the near term
in France, but this caution is gradually turning to optimism. We are further
overweighting our country exposure, but continuing to focus on the commercial
names.
The Swedish public real estate market remains a mystery. The economy is charging
forward with annual growth expectations of 2.9% for 1999 and 3.2% for 2000, some
of the strongest in Europe. The result is that the direct property market
remains hot. The analyst community is expecting a rental increase of 5-7% or
better over the next 12 months. Occupancy rates are above long-term averages,
and the few recently started new developments will not add to supply for at
least 12 months. Thus, it is full steam ahead on the direct side, but what about
the stocks? During the second quarter, the Swedish property shares
underperformed the European Index by 4.7%, returning 5.2% in Euros. The property
stocks
- --------------------------------------------------------------------------------
European Real Estate Portfolio
42
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
EUROPEAN REAL ESTATE PORTFOLIO (CONT.)
significantly underperformed the broader Swedish OMX Index return of, in Euro
terms, 13.4%. The result is a collection of property companies continuing to
trade at a discount to net asset value of 25-30%. However, the tide may be
changing. Company managements are focusing on the strong discounts available in
the public market, legislative restrictions over share buy-back programs should
be lifted in January, and consolidation remains a likely outcome in a market
with too many companies, and attractive valuations. In anticipation of this
realization of value, we are maintaining our heavy overweight in Sweden.
Rounding off the remainder of the Nordic region, Norway remained one of the
strongest performers in Europe, while Denmark and Finland both fell back. Norway
outperformed the GPR Index by returning 14.1% in Euros, contrary to Denmark's
dismal -12.9% and Finland's -3.0% numbers. The Norwegian market continued to
capitalize on the recent rebound in oil prices, as brent crude rose 13.1% during
the second quarter to close at $17.07/barrel. However, due to the size and
liquidity of the market, along with the recent price appreciation, we are only
maintaining our slightly overweight stance. In Denmark we our pulling back our
position closer to a market level. We believe further upside exists as the
economy begins to see the bridge with Malmo covering the Sea, but are not as
optimistic about the specific companies available for investment. The one
investable name holds a quality mixed residential/commercial portfolio, with an
active refurbishment program, but does not offer the size or liquidity to
warrant a stronger bet going forward. Finland continues to be a market where we
see strong potential. Although limited in size, the Finnish economy is primed
for above average growth in the years to come, and holds the protective umbrella
of being a member of the single currency. As a result, we remain invested in
this market.
The Netherlands returned to their position of underperformer during the second
quarter, trailing the Index by 3.6%. The key factor to the share performance was
the market's distaste for the two restructuring projects released during the
period. The long-awaited Rodamco split fell short of investor hopes. The newly
created entities will maintain a geographic focus, but the externally managed
design deprives shareholders of management revenues to the benefit of Rodamco's
founder, the Robeco group. The proposed restructuring of Uni-Invest--creating
Dutch, Canadian and Australian holding companies offered to the public, but
managed by the privately owned Uni-Invest International--creates similar
conflicts of interest. The share price of each of these companies fell -2.4% and
- -7.5%, respectively, since the details of their proposals were released. We
believe these declines in share prices were a clear statement by investors
against externally managed structures. We have been underweight the Dutch market
since our inception, and see no reason to change our stance on a market ignoring
the interest of the minority shareholders.
In line with our expectations, the Belgian market is chugging along at a stable
unexciting, underperforming pace. The market returned a mere -0.4% in the second
quarter, trailing the Index by 10.3% in Euros. Although we believe there is
potential for capital value growth in the Green Belt of Brussels, the EC
dominated Leopold District does not provide a promising atmosphere. We continue
to see stonger opportunities to the North, South and West, and remain
underweight the country.
The Spanish market continued its movement in a downward manner, albeit at a
slightly slower pace than the first quarter. The real estate stocks fell -7.6%
during the second quarter, and have underperformed -17.5% year-to-date in Euros.
However, we believe this creates an attractive buying opportunity rather than a
deterioration of the underlying real estate fundamentals. Spain continues to
offer some of the strongest GDP growth in Western Europe, with estimates
approaching 4% in 2000. As a result of the strong GDP expectations, we also
expect to see further declines in unemployment and increases in consumer
spending boding well for the office and retail sectors. Both of these property
sectors are already facing a shortage of supply resulting in upward pressure on
rents. In order to capitalize on this buying opportunity, we are increasing our
overweight in Spain, but focusing on the property owners rather than the
residential builders.
The performance of the smaller southern listed real estate markets in Italy and
Portugal were mixed. Italy, the strongest performer in Europe, returned 26.5%,
outperforming by 16.6%, while Portugal offered only a 1.7% return. The Italian
increase was due to market speculation over the sale of Immobiliare Metanopoli
by its 90% shareholder Eni SpA. The large Italian oil and gas company has
announced the beginning of an evaluation process to focus on their main
activities,
- --------------------------------------------------------------------------------
European Real Estate Portfolio
43
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
EUROPEAN REAL ESTATE PORTFOLIO (CONT.)
and are examining the potential of selling their shares in the listed property
company. The stock rose 50.0% during the second quarter, ending June at Euro
1.37, in anticipation of Eni selling the company at its current NAV level of
Euro 1.50. We are currently overweight, but closely watching the price levels
driven by speculation. The Portuguese market continues to look favorable from a
top-down perspective, but the lack of bottom-up choices limits our exposure. We
remain overweight in Portugal through our Sonae Imobiliaria holding, but are not
willing to add fresh money to the mix at this time.
The closed end property companies in Germany, Switzerland and Austria each
underperformed the European Index in the second quarter, Germany returned 5.6%,
while Switzerland and Austria offered -2.0%, and 3.2% respectively, in Euros. We
have continued to underweight these countries and their exposure to the open-end
fund structure. Along with the inefficiencies caused by the structure, we fear
the development plans in these markets are too aggressive for the space
requirements in the near to medium term. We do not foresee adding to these
positions anytime soon, but could invest with significant price deterioration.
Our only change to the property cycle chart is to move Denmark from stage II to
stage III. We believe the new supply at hand, as well as an expected slow down
in demand is pushing the market along the curve. We are also breaking down the
UK and French markets by property types. Even though the sectors are currently
equally aligned in these countries, we believe the property types follow their
own independent property cycles.
Theodore R. Bigman
PORTFOLIO MANAGER
Daniel A. Policy
PORTFOLIO MANAGER
Jan Willem de Geus
PORTFOLIO MANAGER
July 1999
- --------------------------------------------------------------------------------
European Real Estate Portfolio
44
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1999
- --------------------------------------------------------------------------------
EUROPEAN REAL ESTATE PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- ----------------------------------------------------------------------------
COMMON STOCKS (96.1%)
DENMARK (1.7%)
7,980 EjendomsSelskabet Norden A/S..................... $ 305
--------
FINLAND (2.4%)
86,540 Sponda Oyj....................................... 438
--------
FRANCE (25.9%)
11,328 Klepierre........................................ 1,064
3,710 Silic............................................ 583
5,700 Simco (RFD)...................................... 483
6,960 Societe Fonciere Lyonnaise....................... 992
16,116 Sophia........................................... 632
8,092 Unibail.......................................... 1,037
--------
4,791
--------
IRELAND (3.4%)
(a)1,598,790 Dunloe Ewart plc................................. 627
--------
ITALY (2.1%)
275,050 Immobiliaria Metanopoli S.p.A.................... 388
--------
NETHERLANDS (2.0%)
14,800 Rodamco N.V...................................... 371
--------
NORWAY (1.7%)
46,120 Avantor ASA...................................... 311
--------
SPAIN (6.7%)
63,178 Prima Immobiliaria............................... 489
76,630 Vallehermoso..................................... 743
--------
1,232
--------
SWEDEN (11.9%)
77,000 Castellum AB..................................... 728
86,400 Diligentia AB.................................... 673
28,760 Fastighets AB Tornet............................. 392
61,610 Piren AB......................................... 411
--------
2,204
--------
UNITED KINGDOM (38.3%)
172,000 British Land Co. plc............................. 1,439
129,800 Buford Holdings plc.............................. 238
143,660 Capital Shopping Centers plc..................... 911
21,885 Freeport Leisure plc............................. 193
199,880 Great Portland Estates plc....................... 691
112,360 Land Securities plc.............................. 1,512
77,050 MEPC plc......................................... 627
176,714 NHP plc.......................................... 471
94,350 Slough Estates plc............................... 536
296,250 Wates City Of London Properties plc.............. 453
--------
7,071
--------
TOTAL COMMON STOCKS (Cost $17,961)................................ 17,738
--------
</TABLE>
<TABLE>
<CAPTION>
NO. OF VALUE
RIGHTS (000)
<C> <S> <C>
- ----------------------------------------------------------------------------
RIGHTS (0.1%)
DENMARK (0.1%)
(a)8,080 EjendomsSelskabet Norden A/S (Cost $0)........... $ 19
--------
</TABLE>
<TABLE>
<CAPTION>
NO. OF
WARRANTS
<C> <S> <C>
- -------------
WARRANTS (0.0%)
FRANCE (0.0%)
(a)6,800 Societe Fonciere Lyonnaise (Cost $0)............. 4
--------
TOTAL FOREIGN SECURITIES (96.2%) (Cost $17,961)................... 17,761
--------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT
(000)
<C> <S> <C>
- -------------
SHORT-TERM INVESTMENT (2.2%)
REPURCHASE AGREEMENT (2.2%)
$ 405 Chase Securities, Inc. 4.55%, dated 6/30/99, due
7/01/99, to be repurchased at $405,
collateralized by U.S. Treasury Bonds, 11.25%
due 2/15/15, valued at $424 (Cost $405)........ 405
--------
TOTAL INVESTMENTS (98.4%) (Cost $18,366).......................... 18,166
--------
</TABLE>
<TABLE>
<S> <C> <C>
OTHER ASSETS (2.3%)
Receivable for Investments Sold..................... $ 244
Dividends Receivable................................ 176
Other............................................... 1 421
----------
LIABILITIES (-0.7%)
Bank Overdraft Payable.............................. (46)
Custodian Fees Payable.............................. (25)
Investment Advisory Fees Payable.................... (22)
Administrative Fees Payable......................... (5)
Payable for Portfolio Shares Redeemed............... (2)
Directors' Fees & Expenses Payable.................. (1)
Distribution Fees Payable........................... (1)
Other Liabilities................................... (31) (133)
---------- --------
NET ASSETS (100%)................................................. $ 18,454
--------
--------
</TABLE>
<TABLE>
<S> <C>
NET ASSETS CONSIST OF:
Paid in Capital............................................... $ 25,053
Undistributed Net Investment Loss............................. (366)
Accumulated Net Realized Loss................................. (6,018)
Unrealized Depreciation on Investment and Foreign Currency
Translations................................................ (215)
--------
NET ASSETS.................................................... $ 18,454
--------
--------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
European Real Estate Portfolio
45
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1999
- --------------------------------------------------------------------------------
EUROPEAN REAL ESTATE PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMOUNT
(000)
<S> <C> <C>
- ----------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
CLASS A:
- --------------------------------------------------------------
NET ASSETS.................................................... $16,372
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 1,665,515 outstanding $0.001 par value shares
(authorized 500,000,000 shares)............................. $9.83
--------
--------
CLASS B:
- --------------------------------------------------------------
NET ASSETS.................................................... $2,082
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 211,343 outstanding $0.001 par value shares
(authorized 500,000,000 shares)............................. $9.85
--------
--------
</TABLE>
- ------------------------------------------------------------
(a) -- Non-income producing security
RFD -- Ranked for Dividend
- ------------------------------------------------------------
SUMMARY OF FOREIGN SECURITIES BY INDUSTRY CLASSIFICATION
<TABLE>
<CAPTION>
VALUE PERCENT OF
INDUSTRY (000) NET ASSETS
<S> <C> <C>
- ---------------------------------------------------------------
Apartment.............................. $ 954 5.2%
Diversified............................ 9,271 50.2
Land................................... 3,517 19.0
Office & Industrial.................... 2,505 13.6
Shopping Centers....................... 1,514 8.2
-------- ---
$ 17,761 96.2%
-------- ---
-------- ---
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
European Real Estate Portfolio
46
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
GLOBAL EQUITY PORTFOLIO
COMPOSITION OF NET ASSETS (AT JUNE 30, 1999)
- ---------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Australia 0.8%
Belgium 1.1%
Canada 2.3%
Denmark 0.5%
France 8.4%
Germany 4.6%
Ireland 2.7%
Italy 2.8%
Japan 8.6%
Netherlands 4.2%
Portugal 0.7%
Spain 3.7%
Sweden 0.9%
Switzerland 8.6%
United Kingdom 11.2%
United States 32.6%
Other 6.3%
</TABLE>
PERFORMANCE COMPARED TO MORGAN STANLEY
CAPITAL INTERNATIONAL (MSCI) WORLD INDEX(1)
- --------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
-------------------------------------------------
AVERAGE AVERAGE
ANNUAL FIVE ANNUAL SINCE
YTD ONE YEAR YEARS INCEPTION
---------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
PORTFOLIO -- CLASS A......... 3.81% 4.32% 16.67% 18.33%
PORTFOLIO -- CLASS B......... 3.68 4.04 N/A 17.98
INDEX -- CLASS A............. 8.51 15.67 16.75 15.46
INDEX -- CLASS B............. 8.51 15.67 N/A 17.66
</TABLE>
1. The MSCI World Index is an unmanaged index of common stocks and includes
securities representative of the market structure of 22 developed market
countries in North America, Europe, and the Asia/Pacific region (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 INFORMATION CONTAINED IN THIS OVERVIEW REGARDING SPECIFIC SECURITIES IS FOR
INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A RECOMMENDATION TO
PURCHASE OR SELL THE SECURITIES MENTIONED. THE COUNTRY SPECIFIC PERFORMANCE
RESULTS PROVIDED IN THIS OVERVIEW 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.
The Global Equity Portfolio is managed with the objective of obtaining long-term
capital appreciation by investing in equity securities of issuers throughout the
world, including U.S. issuers. Investments may also be made with discretion in
emerging markets.
For the six months ended June 30, 1999, the Portfolio had a total return of
3.81% for the Class A shares and 3.68% for the Class B shares compared to 8.51%
for the Morgan Stanley Capital International (MSCI) World Index (the "Index").
For the one year period ended June 30, 1999, the Portfolio had a total return of
4.32% for the Class A shares and 4.04% for the Class B shares compared to 15.67%
for the Index. For the five-year period ended June 30, 1999, the Portfolio had a
total return of 16.67% for the Class A shares compared to 16.75% for the Index.
For the period since inception on July 15, 1992 through June 30, 1999, the
average annual total return of Class A shares was 18.33% compared to 15.46% for
the Index. For the period since inception on January 2, 1996 through June 30,
1999, the average annual total return of Class B shares was 17.98% compared to
17.66% for the Index.
After a difficult first quarter, the second quarter of 1999 was a rewarding one
for value investors. The stronger than expected global growth that emerged over
the quarter and led the Federal Reserve to raise interest rates by 25 basis
points to 5%, changed the leadership of the global equity market. Mega cap
growth stocks have dominated globally since the third quarter of 1998,
especially in the U.S. However, Mega caps underperformed the Index when
confronted with higher interest rates, some earnings disappointments and
recognition of sublime valuation.
Pharmaceutical and technology stocks had been sought after for their rising
top-line growth in a deflationary world. From early April, investor interest
turned to companies with operating leverage to the economy. Low quality also
outperformed in the second quarter, evidenced by the 18% return of "B" credit
rated companies in the U.S. compared to a 5% return for "A+" rated companies.
With the economy turning more positive, investors felt more comfortable
exploiting the unprecedented valuation gap of small and mid caps relative to big
index stocks.
The small and mid cap rally in the second quarter of 1999 has given us an
opportunity to modestly reduce our large overweighting to the segment, although
the continued valuation gap still warrants an
- --------------------------------------------------------------------------------
Global Equity Portfolio
47
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
GLOBAL EQUITY PORTFOLIO (CONT.)
overweighting. New ideas, however, have been concentrated in the large cap
$5-$100 billion range although relative weakness of the mega cap segment so far
in 1999 may provide opportunities in the coming months. Our underweight to mega
cap remains our largest disagreement with the market. The average price-earnings
(IBES one year forecast) for the group is 47. The average price/cash flow ratio
in this group is 27 versus 15 for the Index and 10 for the Portfolio.
Our industry weights are little changed from the beginning of the year. Consumer
defensive staples are heavily overweighted due to their cash generative
franchises and current attractive free cash flow valuations. Pharmaceutical and
technology are underweighted on valuation and franchise risk concerns. The
Portfolio is roughly neutral-weight toward interest rate sensitive sectors
(overweight insurance, underweight banks, and overweight utilities).
There has been little change to the geographic weights derived from our bottom
up stock selection. The U.S. remains underweighted due to the still high
valuation of the important mega cap stocks in that market. In the U.S., we have
reduced, on strong outperformance, our cyclical exposure (Alcoa, Boise Cascade,
Georgia Pacific) and technology exposure (Data General & GenRad). Rite-Aid, a
drug retailer, and U.S. Bancorp were added in the U.S.
The Portfolio is slightly underweight in Japan. Over the period, our
pharmaceutical exposure shifted following a switch out of Fujisawa (reached
price target) into existing holding Daiichi Pharmaceutical. We also sold
Matsushita and TDK while adding to positions in Nippon Telegraph & Telephone,
Fuji Photo and Kao.
The Portfolio is overweight both Euro and Non-Euro bloc regions. Given the
weakness of the Euro in the second quarter of 1999 (-4.3%), our Euroland
exposure has benefited from a partial hedge of our overweighted position back to
U.S. dollars. Valuation continues to be attractive relative to the U.S. and
Japan. Two new ideas Pernod Ricard (spirits, France) and J. Sainsbury
(supermarket, U.K.) were purchased in the quarter.
Frances Campion
PORTFOLIO MANAGER
Richard Boon
PORTFOLIO MANAGER
Paul Boyne
PORTFOLIO MANAGER
July 1999
- --------------------------------------------------------------------------------
Global Equity Portfolio
48
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1999
- --------------------------------------------------------------------------------
GLOBAL EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- --------------------------------------------------------------------------
COMMON STOCKS (93.1%)
AUSTRALIA (0.8%)
635,300 CSR Ltd........................................... $ 1,810
----------
BELGIUM (1.1%)
25,400 Delhaize-Le Lion.................................. 2,165
10,398 G.I.B. Holdings Ltd. ............................. 388
----------
2,553
----------
CANADA (2.3%)
89,840 BCT.Telus Communications Inc. .................... 2,158
48,346 BCT.Telus Communications Inc. (A Shares).......... 1,143
37,850 Potash Corp. of Saskatchewan, Inc. ............... 1,955
----------
5,256
----------
DENMARK (0.5%)
23,750 Danisco A/S....................................... 1,072
----------
FRANCE (8.4%)
5,342 Bongrain.......................................... 2,019
24,250 Cie Generale des Establissements Michelin, Class B
(Registered).................................... 993
27,566 Elf Aquitaine..................................... 4,050
17,030 Groupe Danone..................................... 4,396
25,810 Pernod Ricard..................................... 1,732
69,800 Rhone-Poulenc, Class A............................ 3,194
55,450 Scor.............................................. 2,754
----------
19,138
----------
GERMANY (4.0%)
77,790 BASF AG........................................... 3,422
42,120 Bayer AG.......................................... 1,755
63,100 VEBA AG........................................... 3,727
5,420 Volkswagen AG..................................... 350
----------
9,254
----------
IRELAND (2.7%)
233,407 Bank of Ireland................................... 3,928
389,481 Green Property plc................................ 2,151
----------
6,079
----------
ITALY (2.8%)
305,000 Mediaset S.p.A. .................................. 2,714
700,913 Telecom Italia S.p.A. (RNC)....................... 3,807
----------
6,521
----------
JAPAN (8.6%)
141,000 Daiichi Pharmaceutical Co., Ltd................... 2,191
91,000 Fuji Photo Film Ltd. ............................. 3,448
13,000 Fujisawa Pharmaceutical Co., Ltd.................. 212
157,000 Hitachi Ltd....................................... 1,474
180,000 Kao Corp. ........................................ 5,063
115,000 Nichido Fire & Marine Insurance Co., Ltd.......... 593
526 Nippon Telegraph & Telephone Corp................. 6,136
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- --------------------------------------------------------------------------
9,000 Pioneer Electric Corp............................. $ 175
87,000 Sumitomo Marine & Fire Insurance Co., Ltd......... 526
----------
19,818
----------
NETHERLANDS (4.2%)
94,112 ABN Amro Holding N.V.............................. 2,041
40,600 Benckiser N.V., Class B........................... 2,169
55,672 ING Groep N.V..................................... 3,018
23,644 Philips Electronics N.V........................... 2,335
----------
9,563
----------
PORTUGAL (0.7%)
61,970 Cimpor SGPS....................................... 1,600
----------
SPAIN (3.7%)
243,900 Iberdrola......................................... 3,719
(a)96,346 Telefonica........................................ 4,647
----------
8,366
----------
SWEDEN (0.9%)
367,100 Nordbanken Holding AB............................. 2,154
----------
SWITZERLAND (8.6%)
4,111 Cie Financiere Richemont AG, Class A.............. 7,921
2,500 Forbo Holding AG (Registered)..................... 996
2,392 Holderbank Financiere Glarus AG, Class B
(Bearer)........................................ 2,829
3,720 Nestle (Registered)............................... 6,715
3,010 Swisscom AG (Registered).......................... 1,135
----------
19,596
----------
UNITED KINGDOM (11.2%)
315,100 Allied Domecq plc................................. 3,042
436,671 BTR plc........................................... 2,068
328,204 Blue Circle Industries plc........................ 2,185
(a)110,791 Burmah Castrol plc................................ 2,104
226,600 Imperial Tobacco Group plc........................ 2,474
241,400 Matthews (Bernard) plc............................ 503
(a,d)653,333 Pentos plc........................................ --
402,216 Reckitt & Colman plc.............................. 4,197
(a)346,797 Royal & Sun Alliance Insurance Group plc.......... 3,113
475,510 Sainsbury (J) plc................................. 3,000
195,400 WPP Group plc..................................... 1,654
186,200 Wolseley plc...................................... 1,402
----------
25,742
----------
UNITED STATES (32.6%)
126,492 Albertson's, Inc.................................. 6,522
18,400 Alcoa Inc. ....................................... 1,138
(a)104,200 BJ's Wholesale Club, Inc.......................... 3,133
41,800 Boise Cascade Corp. .............................. 1,797
41,650 Borg-Warner Automotive, Inc....................... 2,291
134,250 COMSAT Corp....................................... 4,363
(a)57,500 Cadiz, Inc........................................ 543
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
Global Equity Portfolio
49
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1999
- --------------------------------------------------------------------------------
GLOBAL EQUITY PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------
<C> <S> <C>
</TABLE>
UNITED STATES (CONT.)
<TABLE>
<C> <S> <C>
(a)22,000 Cadiz, Inc. (Restricted Shares)................... $ 208
27,450 Chase Manhattan Bank.............................. 2,378
(a)169,750 Data General Corp................................. 2,478
118,400 Enhance Financial Services Group, Inc............. 2,338
66,050 Finova Group, Inc................................. 3,476
(a)124,500 GenRad, Inc. ..................................... 2,591
23,600 Georgia Pacific Group............................. 1,118
51,800 Goodrich (BF) Co.................................. 2,201
101,700 Houghton Mifflin Co. ............................. 4,786
23,350 IBP, Inc.......................................... 555
(a)83,000 InteliData Technologies Corp...................... 208
65,530 MBIA, Inc. ....................................... 4,243
91,400 Mellon Bank Corp. ................................ 3,325
6,900 NCR Corp. ........................................ 337
(a)66,100 Noble Drilling Corp. ............................. 1,301
(a)4,800 Penncorp Financial Group, Inc..................... 2
41,200 Pharmacia & Upjohn, Inc. ......................... 2,341
210,950 Philip Morris Cos., Inc........................... 8,478
40,600 Rite Aid Corp..................................... 1,000
2,000 Sears Roebuck & Co. .............................. 89
52,000 Tenneco, Inc...................................... 1,241
52,300 Terra Nova (Bermuda) Holdings Ltd., Class A....... 1,409
88,900 Tupperware Corp. ................................. 2,267
32,300 U.S. Bancorp...................................... 1,098
38,400 UST Corp.......................................... 1,162
114,600 Unicom Corp....................................... 4,419
----------
74,836
----------
TOTAL COMMON STOCKS (Cost $185,973)........................... 213,358
----------
PREFERRED STOCKS (0.6%)
GERMANY (0.6%)
38,660 Volkswagen AG (Cost $1,125)....................... 1,453
----------
TOTAL FOREIGN & U.S. SECURITIES (93.7%)
(Cost $187,098)............................................. 214,811
----------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT
(000)
<C> <S> <C>
- ----------
SHORT-TERM INVESTMENT (5.6%)
REPURCHASE AGREEMENT (5.6%)
$ 12,812 Chase Securities, Inc. 4.55%, dated 6/30/99, due
7/01/99, to be repurchased at $12,814,
collateralized by U.S. Treasury Bonds, 7.25%,
due 5/15/16, valued at $14,237
(Cost $12,812).................................. 12,812
----------
FOREIGN CURRENCY (0.3%)
GBP 172 British Pound..................................... 271
EUR 9 Euro.............................................. 9
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
<C> <S> <C>
- --------------------------------------------------------------------------
JPY 41,015 Japanese Yen...................................... $ 339
----------
TOTAL FOREIGN CURRENCY (Cost $620)............................ 619
----------
TOTAL INVESTMENTS (99.6%) (Cost $200,530)..................... 228,242
----------
</TABLE>
<TABLE>
<S> <C> <C>
OTHER ASSETS (0.9%)
Net Unrealized Gain on Foreign Currency Exchange
Contracts........................................... $ 696
Dividends Receivable.................................. 637
Receivable for Investments Sold....................... 284
Foreign Withholding Tax Reclaim Receivable............ 282
Receivable for Portfolio Shares Sold.................. 45
Interest Receivable................................... 2
Other................................................. 5 1,951
----------
LIABILITIES ( - 0.5%)
Payable for Investments Purchased..................... (455)
Investment Advisory Fees Payable...................... (405)
Custodian Fees Payable................................ (48)
Payable for Shares Redeemed........................... (29)
Administrative Fees Payable........................... (26)
Distribution Fees Payable............................. (12)
Directors' Fees and Expenses Payable.................. (10)
Other Liabilities..................................... (35) (1,020)
---------- --------
NET ASSETS (100%)................................................... $229,173
--------
--------
</TABLE>
<TABLE>
<S> <C>
NET ASSETS CONSIST OF:
Paid in Capital...................................................... $184,019
Undistributed Net Investment Income.................................. 1,954
Accumulated Net Realized Gain........................................ 14,809
Unrealized Appreciation on Investments and Foreign Currency
Translations....................................................... 28,391
--------
NET ASSETS........................................................... $229,173
--------
--------
</TABLE>
<TABLE>
<S> <C>
CLASS A:
- ------------------------------------------------------------------
NET ASSETS........................................................ $208,343
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 9,676,922 outstanding $0.001 par value Shares
(authorized 500,000,000 shares)................................. $21.53
--------
--------
CLASS B:
- ------------------------------------------------------------------
NET ASSETS........................................................ $20,830
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 973,617 outstanding $0.001 par value shares
(authorized 500,000,000 shares)................................. $21.39
--------
--------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
Global Equity Portfolio
50
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1999
- --------------------------------------------------------------------------------
GLOBAL EQUITY PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
- -----------------------------------------------------
FOREIGN CURRENCY EXCHANGE CONTRACT INFORMATION:
Under the terms of foreign currency exchange contracts open at June 30, 1999,
the Portfolio is obligated to deliver or is to receive foreign currency in
exchange for U.S. dollars as indicated below:
<TABLE>
<CAPTION>
IN NET
CURRENCY TO EXCHANGE UNREALIZED
DELIVER VALUE SETTLEMENT FOR VALUE GAIN (LOSS)
(000) (000) DATE (000) (000) (000)
<S> <C> <C> <C> <C> <C>
- ------------- -------- ---------- ------------- -------- ------------
U.S.$ 147 $ 147 7/1/99 GBP 93 $ 147 $ --
JPY 47,589 394 7/2/99 U.S.$ 394 394 --
EUR 14,000 14,572 10/12/99 U.S.$ 15,268 15,268 696
-------- -------- -----
$ 15,113 $ 15,809 $696
-------- -------- -----
-------- -------- -----
</TABLE>
- ------------------------------------------------------------
(a) -- Non-income producing security
(d) -- Security is valued at fair value -- See Note A-1 to financial
statements.
RNC -- Non-Convertible Savings Shares
- -----------------------------------------------------
SUMMARY OF FOREIGN & U.S. SECURITIES BY INDUSTRY CLASSIFICATION
<TABLE>
<CAPTION>
VALUE PERCENT OF
INDUSTRY (000) NET ASSETS
<S> <C> <C>
- ----------------------------------------------------------------
Capital Equipment...................... $ 10,605 4.6%
Consumer Goods......................... 71,661 31.2
Energy................................. 18,020 7.9
Finance................................ 40,250 17.6
Materials.............................. 22,007 9.6
Multi-Industry......................... 3,310 1.4
Services............................... 48,958 21.4
--------- ---
$ 214,811 93.7%
--------- ---
--------- ---
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
Global Equity Portfolio
51
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
INTERNATIONAL EQUITY PORTFOLIO
COMPOSITION OF NET ASSETS (AT JUNE 30, 1999)
- ---------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Australia 2.4%
Belgium 0.2%
Canada 2.7%
Denmark 1.7%
Finland 0.5%
France 12.1%
Germany 7.3%
Hong Kong 1.2%
Italy 3.0%
Japan 17.8%
Netherlands 4.4%
New Zealand 0.4%
Portugal 0.4%
Singapore 1.8%
Spain 3.2%
Sweden 2.7%
Switzerland 8.3%
United Kingdom 22.3%
Other 7.6%
</TABLE>
PERFORMANCE COMPARED TO MORGAN STANLEY
CAPITAL INTERNATIONAL (MSCI) EAFE INDEX(1)
- --------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
-------------------------------------------------
AVERAGE AVERAGE
ANNUAL ANNUAL
ONE FIVE SINCE
YTD YEAR YEARS INCEPTION
---------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
PORTFOLIO -- CLASS A......... 6.80% 6.90% 14.61% 12.89%
PORTFOLIO -- CLASS B......... 6.64 6.67 N/A 16.34
INDEX -- CLASS A............. 3.97 7.62 8.21 5.59
INDEX -- CLASS B............. 3.97 7.62 N/A 8.88
</TABLE>
1. The MSCI EAFE Index is an unmanaged index of common stocks in Europe,
Australasia and the Far East (includes dividends net of withholding taxes).
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 INFORMATION CONTAINED IN THIS OVERVIEW REGARDING SPECIFIC SECURITIES IS FOR
INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A RECOMMENDATION TO
PURCHASE OR SELL THE SECURITIES MENTIONED. THE COUNTRY SPECIFIC 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.
The investment objective of the International Equity Portfolio is long-term
capital appreciation through investment primarily in equity securities of
non-U.S. issuers. Equity securities for this purpose include common stocks and
equivalents, such as securities convertible into common stocks, and securities
having common stock characteristics, such as rights and warrants to purchase
common stocks.
For the six months ended June 30, 1999, the Portfolio had a total return of
6.80% for the Class A shares and 6.64% for the Class B shares compared to 3.97%
for the Morgan Stanley Capital International (MSCI) EAFE Index (the "Index").
For the one year period ended June 30, 1999, the Portfolio had a total return of
6.90% for the Class A shares and 6.67% for the Class B shares compared to 7.62%
for the Index. For the five-year period ended June 30, 1999, the average annual
total return of Class A shares was 14.61% compared to 8.21% for the Index. For
the period since inception on August 4, 1989 through June 30, 1999, the average
annual total return of Class A shares was 12.89% compared to 5.59% for the
Index. For the period since inception on January 2, 1996 through June 30, 1999,
the average annual total return of Class B shares was 16.34% compared to 8.88%
for the Index.
Over the course of the last six months, concerns have switched from fears of
global deflation and recession to expectations of a resynchronization of global
growth and reemergence of inflationary pressures. Consequently, U.S. bond yields
have backed up to over 6% and there has been a sharp rally in cyclical stocks.
How the U.S. equity markets have gone on to new highs in this environment is
perplexing to say the least. What hasn't changed is the massive imbalance in the
U.S. economy with consumers continuing to binge, drawing down their savings and
fueling the burgeoning current account deficit. However, so long as the virtuous
circle created by rising stock prices lasts, a state of perpetual motion appears
to have been discovered.
We remain very cautious on the outlook for the U.S. economy and are carefully
monitoring any exposure we have in the Portfolio to the U.S. capital expenditure
cycle and to discretionary consumer expenditure such as autos and housing. We
have therefore reduced our exposure to the likes of WPP, Invensys (formerly BTR
Siebe) and Wolseley, all of which derive a significant portion of their revenue
from the U.S. One area where we do remain comfortable is our cement exposure
(Holderbank, Blue Circle) as the U.S. infrastructure spending
- --------------------------------------------------------------------------------
International Equity Portfolio
52
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
INTERNATIONAL EQUITY PORTFOLIO (CONT.)
program as well as a net short position in cement in the U.S. market should
underpin favorable industry conditions even if residential construction falls.
Economists claimed surprise at the strength of Japan's first quarter gross
domestic product numbers but surely the massive fiscal stimulus had to show up
in the numbers at some point. The key question is whether the economy can
sustain this fledgling recovery in the absence of further fiscal stimuli. With a
rapidly deteriorating debt position, Japan doesn't have many more fiscal cards
to play. Our contention remains that if Japan is serious about supply side
reform, capital expenditure will continue to fall, unemployment will continue to
rise and hence consumer confidence will remain fragile. While the first quarter
gross domestic product numbers have raised expectations, all the anecdotal
evidence suggests these hopes may be dashed in the latter part of the year.
However, regardless of whether our view on the economy is right or wrong, with
the Nikkei at 18,000 the risk/reward trade off is entirely different from the
one faced when the Nikkei was at 14,000. The market is already discounting a
sharp recovery in corporate profits and return on equity. We have turned net
sellers of Japan.
Partly due to our view on Japan, we remain skeptical about the global reflation
story and hence see the rotation into cyclicals as somewhat of a head fake. Even
if you disagree with this view, the fact is that they are now faced with an
entirely different risk/ reward proposition than the one that they faced at the
beginning of the year. With many cyclicals having doubled in the last six months
the market is already discounting a healthy and sustainable recovery in
commodity prices leaving little room for disappointment. The odds no longer look
good and we are profit-takers.
One sector where the risk/reward trade-off has actually improved over the last
six months is the pharmaceutical sector which has underperformed significantly
as these long duration stocks are particularly vulnerable to rising bond yields.
Pharmaceuticals have been largely off limits for value investors over the past
two years, but the relative under performance is now throwing up some
potentially interesting value situations, such as AstraZeneca and Novartis,
which we are examining closely. We have also added Schering and Novo Nordisk to
our collection of pharmaceutical hybrids.
Dominic Caldecott
PORTFOLIO MANAGER
Peter Wright
PORTFOLIO MANAGER
William Lock
PORTFOLIO MANAGER
Kate Cornish-Bowden
PORTFOLIO MANAGER
Walter Riddell
PORTFOLIO MANAGER
July 1999
- --------------------------------------------------------------------------------
International Equity Portfolio
53
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1999
- --------------------------------------------------------------------------------
INTERNATIONAL EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- --------------------------------------------------------------------------------
COMMON STOCKS (91.5%)
AUSTRALIA (2.4%)
1,584,150 Brambles Industries Ltd.......................... $ 41,575
7,456,200 Fosters Brewing Group Ltd........................ 20,935
5,578,750 Westpac Banking Corp............................. 36,050
-----------
98,560
-----------
BELGIUM (0.2%)
238,050 G.I.B. Holdings Ltd.............................. 8,886
-----------
CANADA (2.7%)
1,253,279 BCT.Telus Communications Inc..................... 30,097
470,759 BCT.Telus Communications Inc. (A Shares)......... 11,130
576,580 Potash Corp. of Saskatchewan, Inc................ 29,785
(a)2,973,600 Renaissance Energy Ltd........................... 39,941
-----------
110,953
-----------
DENMARK (1.7%)
404,192 Danisco A/S...................................... 18,242
214,200 Den Danske Bank.................................. 23,201
62,500 Novo-Nordisk A/S, Class B........................ 6,743
307,008 Unidanmark A/S, plc, Class A (Registered)........ 20,464
-----------
68,650
-----------
FINLAND (0.5%)
370,200 Huhtamaki Oyj, Series 1.......................... 13,493
1,318,967 Merita Ltd., plc, Class A........................ 7,504
-----------
20,997
-----------
FRANCE (12.1%)
374,160 Alcatel Alsthom.................................. 52,735
791,870 Assurances Generales de France (Bearer).......... 38,184
247,500 Banque Nationale de Paris........................ 20,649
14,884 Bongrain......................................... 5,625
(c)236,182 Cie de Saint Gobain.............................. 37,678
530,700 Elf Aquitaine.................................... 77,976
424,115 France Telecom................................... 32,078
326,861 Groupe Danone.................................... 84,375
1,767,470 Rhone-Poulenc, Class A........................... 80,865
316,054 Schneider........................................ 17,769
(a)356,000 Total, Class B................................... 45,985
-----------
493,919
-----------
GERMANY (6.4%)
1,140,700 BASF AG.......................................... 50,175
(c)981,200 Bayer AG......................................... 40,880
1,649,168 RWE AG........................................... 76,458
486,800 Schering AG...................................... 52,074
89,400 Viag AG.......................................... 41,539
-----------
261,126
-----------
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- --------------------------------------------------------------------------------
HONG KONG (1.2%)
1,715,000 Hong Kong Electric Holdings Ltd.................. $ 5,526
(c)14,865,155 Hong Kong Land Holdings Ltd...................... 24,082
2,770,600 Swire Pacific Ltd., Class A...................... 13,713
6,002,500 Swire Pacific Ltd., Class B...................... 4,488
-----------
47,809
-----------
ITALY (3.0%)
(c)4,072,400 Mediaset S.p.A................................... 36,246
15,459,887 Telecom Italia S.p.A. (RNC)...................... 83,966
-----------
120,212
-----------
JAPAN (17.8%)
3,640,000 Aisin Seiki Co., Ltd............................. 38,457
579,700 Aoyama Trading Co., Ltd.......................... 18,321
806,000 Canon, Inc....................................... 23,206
325,000 Chudenko Corp.................................... 5,942
1,844,000 Daibiru Corp..................................... 13,578
978,000 Daiichi Pharmaceutical Co., Ltd.................. 15,196
1,001,000 Eisai Co., Ltd................................... 19,752
1,656,000 Fuji Photo Film Ltd.............................. 62,749
118,000 Fujisawa Pharmaceutical Co., Ltd................. 1,923
(c)2,489,000 Fujitsu Ltd...................................... 50,142
3,112,000 Hitachi Ltd...................................... 29,222
4,939 Japan Tobacco, Inc............................... 54,755
2,922,000 Kao Corp......................................... 82,194
3,823,000 Nichido Fire & Marine Insurance Co., Ltd......... 19,705
8,972 Nippon Telegraph & Telephone Corp................ 104,662
514,000 Ono Pharmaceutical Co., Ltd...................... 17,861
656,000 Pioneer Electric Corp............................ 12,781
126,000 Sankyo Co., Ltd.................................. 3,179
2,727,000 Shionogi & Co., Ltd.............................. 21,591
4,829,000 Sumitomo Marine & Fire Insurance Co., Ltd........ 29,165
330,500 Takefuji Corp.................................... 34,207
3,455,000 Toppan Printing Co., Ltd......................... 38,618
282,000 Toyo Seikan Kaisha Ltd........................... 6,346
609,000 Yamanouchi Pharmaceutical Co..................... 23,328
-----------
726,880
-----------
NETHERLANDS (4.4%)
1,074,100 Akzo Nobel N.V................................... 45,250
485,258 Buhrmann N.V..................................... 7,841
387,500 CSM N.V.......................................... 19,385
826,060 Hollandsche Beton Groep N.V...................... 10,577
733,739 ING Groep N.V.................................... 39,775
556,328 Philips Electronics N.V.......................... 54,945
-----------
177,773
-----------
NEW ZEALAND (0.4%)
7,515,900 Lion Nathan Ltd.................................. 18,008
(a)392,500 Smith City Group Ltd............................. --
-----------
18,008
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
International Equity Portfolio
54
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1999
- --------------------------------------------------------------------------------
INTERNATIONAL EQUITY PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------------
<C> <S> <C>
PORTUGAL (0.4%)
652,510 Cimpor SGPS...................................... $ 16,844
-----------
SINGAPORE (1.8%)
17,707,337 Jardine Strategic Holdings, Inc.................. 46,039
3,892,000 United Overseas Bank Ltd. (Foreign).............. 27,207
-----------
73,246
-----------
SPAIN (3.2%)
(c)5,771,900 Iberdrola........................................ 88,025
(a)879,483 Telefonica....................................... 42,418
-----------
130,443
-----------
SWEDEN (2.7%)
2,545,550 ForeningsSparbanken AB........................... 36,069
5,388,900 Nordbanken Holding AB............................ 31,625
1,659,400 Svenska Cellulosa AB, Class B.................... 43,106
-----------
110,800
-----------
SWITZERLAND (8.3%)
47,177 Cie Financiere Richemont AG, Class A............. 90,906
25,820 Forbo Holding AG (Registered).................... 10,284
(c)36,901 Holderbank Financiere Glarus AG, Class B
(Bearer)....................................... 43,638
48,145 Nestle (Registered).............................. 86,907
11,754 Schindler Holding AG (Participating
Certificates).................................. 18,028
11,600 Sulzer AG (Registered)........................... 7,065
112,470 Swisscom AG (Registered)......................... 42,402
126,815 Union Bank of Switzerland AG (Registered)........ 37,921
-----------
337,151
-----------
UNITED KINGDOM (22.3%)
111,600 Aggreko plc...................................... 400
4,716,800 Allied Domecq plc................................ 45,536
3,115,769 Allied Zurich plc................................ 39,197
7,380,600 BG plc........................................... 45,115
12,242,200 Billiton plc..................................... 42,727
6,441,629 Blue Circle Industries plc....................... 42,881
2,936,600 British Telecommunications plc................... 49,242
10,223,077 BTR plc.......................................... 48,420
8,672,200 Bunzl plc........................................ 43,229
2,751,025 Burmah Castrol plc............................... 52,249
6,217,500 Christian Salvesen plc........................... 12,358
2,333,100 Commercial Union plc............................. 33,731
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- --------------------------------------------------------------------------------
3,068,200 Great Universal Stores plc....................... $ 34,025
3,615,471 Imperial Tobacco Group plc....................... 39,467
5,026,451 John Mowlem & Co. plc............................ 10,843
1,804,968 National Westminster Bank plc.................... 38,296
4,763,600 Premier Farnell plc.............................. 17,884
2,669,300 Racal Electronic plc............................. 16,316
6,052,576 Reckitt & Colman plc............................. 63,158
2,824,500 RMC Group plc.................................... 45,513
3,705,360 Royal & Sun Alliance Insurance Group plc......... 33,258
6,354,200 Sainsbury (J) plc................................ 40,094
2,294,514 Scottish Hydro-Electric plc...................... 23,491
2,651,902 Tate & Lyle plc.................................. 16,628
3,268,400 Wolseley plc..................................... 24,619
6,235,976 WPP Group plc.................................... 52,776
-----------
911,453
-----------
TOTAL COMMON STOCKS (Cost $3,016,393).............................. 3,733,710
-----------
PREFERRED STOCKS (0.9%)
GERMANY (0.9%)
1,023,400 Volkswagen AG (Cost $22,201)..................... 38,464
-----------
TOTAL FOREIGN SECURITIES (92.4%) (Cost $3,038,594)................. 3,772,174
-----------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT
(000)
<C> <S> <C>
- --------------
SHORT-TERM INVESTMENT (3.7%)
REPURCHASE AGREEMENT (3.7%)
$ 151,302 Chase Securities, Inc. 4.55%, dated 6/30/99, due
7/01/99, to be repurchased at $151,321,
collateralized by Federal National Mortgage
Association, 5.25%, due 1/15/09, valued at
$156,638 (Cost $151,302)....................... 151,302
-----------
FOREIGN CURRENCY (4.8%)
GBP 28,133 British Pound.................................... 44,378
CAD 870 Canadian Dollar.................................. 590
EUR 130,292 Euro............................................. 134,532
HKD 3 Hong Kong Dollar................................. 1
JPY 1,921,373 Japanese Yen..................................... 15,896
-----------
TOTAL FOREIGN CURRENCY (Cost $199,327)............................. 195,397
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
International Equity Portfolio
55
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1999
- --------------------------------------------------------------------------------
INTERNATIONAL EQUITY PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
(000)
- --------------------------------------------------------------------------------
<C> <S> <C>
TOTAL INVESTMENTS (100.9%) (Cost $3,389,223)....................... $ 4,118,873
-----------
</TABLE>
<TABLE>
<S> <C> <C>
OTHER ASSETS (4.7%)
Cash..................................................... $ 8,840
Securities at Value, Held as Collateral for Securities
Lending................................................ 154,731
Receivable for Investments Sold.......................... 13,235
Dividends Receivable..................................... 10,023
Foreign Withholding Tax Reclaim Receivable............... 3,880
Receivable for Portfolio Shares Sold..................... 3,394
Interest Receivable...................................... 249
Other.................................................... 130 194,482
----------
LIABILITIES ( - 5.6%)
Collateral on Securities Loaned.......................... (154,731)
Payable for Investments Purchased........................ (42,394)
Net Unrealized Loss on Foreign Currency Exchange
Contracts.............................................. (12,600)
Payable for Portfolio Shares Redeemed.................... (11,552)
Investment Advisory Fees Payable......................... (7,789)
Administrative Fees Payable.............................. (511)
Custodian Fees Payable................................... (510)
Directors' Fees & Expenses Payable....................... (209)
Distribution Fees Payable................................ (15)
Other Liabilities........................................ (305) (230,616)
---------- ----------
NET ASSETS (100%).................................................... $4,082,739
----------
----------
NET ASSETS CONSIST OF:
Paid in Capital...................................................... $3,152,617
Undistributed Net Investment Income.................................. 29,371
Accumulated Net Realized Gain........................................ 184,184
Unrealized Appreciation on Investments and Foreign Currency
Translations....................................................... 716,567
----------
NET ASSETS........................................................... $4,082,739
----------
----------
</TABLE>
<TABLE>
<S> <C>
CLASS A:
- -----------------------------------------------------------------------
NET ASSETS............................................................. $4,055,760
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 208,112,748 outstanding $0.001 par value shares
(authorized 500,000,000 shares)...................................... $19.49
----------
----------
CLASS B:
- -----------------------------------------------------------------------
NET ASSETS............................................................. $26,979
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 1,388,248 outstanding $0.001 par value shares
(authorized 500,000,000 shares)...................................... $19.43
----------
----------
</TABLE>
- ------------------------------------------------------------
FOREIGN CURRENCY EXCHANGE CONTRACT INFORMATION:
Under the terms of foreign currency exchange contracts open at June 30, 1999,
the Portfolio is obligated to deliver or is to receive foreign currency in
exchange for U.S. dollars as indicated below:
<TABLE>
<CAPTION>
NET
CURRENCY IN EXCHANGE UNREALIZED
TO DELIVER VALUE SETTLEMENT FOR VALUE GAIN (LOSS)
(000) (000) DATE (000) (000) (000)
<S> <C> <C> <C> <C> <C>
- --------------- --------- ----------- ------------ --------- ------------
U.S.$ 413 $ 413 7/1/99 SGD 705 $ 413 $ --
U.S.$ 928 928 7/2/99 HKD 7,196 928 --
JPY 11,000,000 92,478 10/13/99 U.S.$ 92,771 92,771 293
GBP 83,000 131,173 11/30/99 U.S.$137,988 137,988 6,815
U.S.$ 137,988 137,988 11/30/99 EUR 116,520 121,755 (16,233)
U.S.$ 77,778 77,778 1/21/00 EUR 68,702 72,079 (5,699)
JPY 8,850,000 75,554 1/21/00 U.S.$ 77,778 77,778 2,224
--------- --------- ------------
$ 516,312 $ 503,712 $ (12,600)
--------- --------- ------------
--------- --------- ------------
</TABLE>
- ------------------------------------------------------------
(a) -- Non-income producing security
(c) -- All or a portion of security on loan at June 30, 1999 - See Note A-10
to financial statements.
HKD -- Hong Kong Dollar
RNC -- Non-Convertible Savings Shares
SGD -- Singapore Dollar
- ------------------------------------------------------------
SUMMARY OF FOREIGN SECURITIES BY INDUSTRY CLASSIFICATION
<TABLE>
<CAPTION>
VALUE PERCENT OF
INDUSTRY (000) NET ASSETS
<S> <C> <C>
- ---------------------------------------------------------------------
Capital Equipment...................... 244,823 6.0%
Consumer Goods......................... 1,041,887 25.5
Energy................................. 454,767 11.1
Finance................................ 583,866 14.3
Materials.............................. 522,955 12.8
Multi-Industry......................... 103,672 2.6
Services............................... 820,204 20.1
----------- ---
$ 3,772,174 92.4%
----------- ---
----------- ---
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
International Equity Portfolio
56
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
INTERNATIONAL MAGNUM PORTFOLIO
COMPOSITION OF NET ASSETS (AT JUNE 30, 1999)
- ---------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Australia 2.5%
Belgium 0.3%
Denmark 1.3%
Finland 1.9%
France 9.6%
Germany 7.4%
Hong Kong 2.5%
Ireland 0.9%
Italy 3.4%
Japan 24.8%
Netherlands 3.7%
New Zealand 0.1%
Portugal 1.1%
Singapore 1.7%
Spain 2.8%
Sweden 3.7%
Switzerland 8.0%
United Kingdom 18.3%
Other 6.0%
</TABLE>
PERFORMANCE COMPARED TO MORGAN STANLEY
CAPITAL INTERNATIONAL (MSCI) EAFE INDEX(1)
- --------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
-----------------------------------
AVERAGE
ANNUAL
SINCE
YTD ONE YEAR INCEPTION
---------- --------- ------------
<S> <C> <C> <C>
PORTFOLIO -- CLASS A.................. 6.05% - 3.57% 8.63%
PORTFOLIO -- CLASS B.................. 5.89 - 3.85 8.33
INDEX................................. 3.97 7.62 9.56
</TABLE>
1. The MSCI EAFE Index is an unmanaged index of common stocks in Europe,
Australasia and the Far East (includes dividends net of withholding taxes).
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 INFORMATION CONTAINED IN THIS OVERVIEW REGARDING SPECIFIC SECURITIES IS FOR
INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A RECOMMENDATION TO
PURCHASE OR SELL THE SECURITIES MENTIONED. 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.
The International Magnum Portfolio seeks long-term capital appreciation by
investing primarily in equity securities of non-U.S. issuers in accordance with
the EAFE country weightings determined by the Adviser. The EAFE countries in
which the Portfolio will invest are those comprising the Morgan Stanley Capital
International (MSCI) EAFE Index, which includes Australia, Japan, New Zealand,
most nations located in Western Europe, and certain developed countries in Asia.
For the six months ended June 30, 1999, the Portfolio had a total return of
6.05% for the Class A shares and 5.89% for the Class B shares compared to 3.97%
for the Morgan Stanley Capital International (MSCI) EAFE Index (the "Index").
For the one year period ended June 30, 1999, the Portfolio had a total return of
- -3.57% for the Class A shares and -3.85% for the Class B shares compared to
7.62% for the Index. For the period since inception on March 15, 1996 through
June 30, 1999, the average annual total return of Class A shares was 8.63% and
8.33% for Class B shares compared to 9.56% for the Index.
For the six month period ended June 30, 1999 the Portfolio enjoyed strong
performance compared to the Index. The outperformance is attributable to both
regional allocation and strong stock selection within Europe and Japan. Global
economic healing and numerous interest rate cuts helped to boost most
international developed markets. The first half of 1999 stood in stark contrast
to 1998: Once powerful Europe languished, while Japan and Asia both posted
substantial gains after lackluster performance in the previous year.
Regionally, Europe saw the most variance in performance and the weakest returns
as the MSCI Europe Index returned 8.1% in local currency terms (-2.4% in U.S.
dollar terms). The less-than-dramatic European recovery coupled with unexpected
Euro weakness contributed to European market difficulties. Despite larger than
expected interest rate easing by the European Central Bank in April 1999, EMU
markets were not able to attain the kinds of results seen in other developed
markets, plagued by lower earnings expectations, continued high unemployment and
the crisis in Kosovo. During the first half of 1999, specifically in the second
quarter, European value-oriented stocks were able to regain some of the ground
lost to growth stocks during 1998 as European
- --------------------------------------------------------------------------------
International Magnum Portfolio
57
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
INTERNATIONAL MAGNUM PORTFOLIO (CONT.)
cyclical and defensive industries outperformed their growth counterparts in
anticipation of stronger second half growth.
After a difficult 1998, the Japanese market gained surprising momentum, with
MSCI Japan finishing the first half up 29.5% in local currency terms (+20.7% in
U.S. dollar terms). The Japanese market was buoyed by optimism about the
restructuring successes seen thus far. The market was pushed higher as investors
gained more confidence in the restructuring efforts being implemented by
authorities and business leaders. With over 143 restructuring announcements made
in the first five months of the year, the restructuring story is really starting
to take shape. Corporations are reducing capacity, unwinding cross-shareholding
positions, consolidating business units and paying down debt. Although these
efforts are just the beginning of what will be needed to revive the economy,
they are clear signs to investors that government and corporate Japan is willing
to take the bitter but necessary medicine.
Outside of Japan, Asian markets saw spectacular returns as investors regained
confidence in the markets in response to falling interest rates, stabilizing
exchange rates and more plentiful liquidity. Lower interest rates have eased the
banking crisis in many countries, reduced government financing costs, lowered
the cost of capital for businesses and encouraged local investors to shift from
fixed income to equity investments. Additionally, Asian markets were helped by
strong performance in Japan, a major trading partner, as well as a surge in
commodity and oil prices toward the end of the second quarter. The MSCI Pacific
ex-Japan Index appreciated 22.1% in local currency terms (+26.0% in U.S. dollar
terms) during the first half of 1999.
The Portfolio began the year underweight versus the Index in all regions (Europe
71% vs. 73%, Japan 19% vs. 21%, Asia 4% vs. 6%), with the residual maintained in
cash. During the first quarter of 1999, we increased our allocation to Japan
from underweight to neutral, and again in the second quarter from neutral to
overweight, while decreasing exposure to Europe. During the second quarter, we
also increased exposure to the Asia ex-Japan region.
Stock selection within Europe proved to be a strong contributor to overall
results, as value stocks regained favor during the second quarter and
outperformed their growth counterparts. Specifically, the portfolio was
overweight in outperforming industries such as industrial cyclicals, machinery &
engineering, and consumer staples, while underweighting underperforming
industries such as banking and pharmaceuticals. The overweight to chemicals was
a strong positive as BOC (+39%, U.K. industrial gases) was bid for jointly by
France's Air Liquide and Air Products of the U.S. Germany's BASF (+24%), which
had been at an unfair discount to its peers, rose on improved sentiment for
economic sensitive shares, while Akzo Nobel (+15%) and mid-cap Burmah Castrol
(+19%, U.K. lubricants) added to relative performance. The Portfolio's
overweighting and good stock selection in consumer defensive staples (beverages
& tobacco and household products) was a key contributor to relative performance
in the second quarter of 1999. In particular, Richemont (+16%) continued to
perform well following progress on the combination of Rothmans International and
BAT as well as improved trading conditions in Asia, important to Richemont's
luxury brands, Cartier & Dunhill. Shares of Allied Domecq appreciated (+29%)
following its decision to de-merge its Pubs business, a key catalyst we had
identified as potentially value enhancing. The Portfolio's underweighting to
pharmaceuticals was a strong positive as the industry was the worst European
performer in the second quarter. Underweights to insurance and banking, other
laggard interest-rate sensitive industries were also positive.
Beginning in the first quarter and progressing into the start of the second, we
made some adjustments to the European portion of the Portfolio. We were able to
take advantage of the second quarter rally enjoyed by small cap names and sold
off some of our less liquid holdings. Although we reduced our exposure to small
caps, we still maintained an overweight versus the Index which contributed to
performance as small and mid-caps enjoyed standout returns, outperforming large
and mega-cap stocks. Additionally, this strategy has served the Portfolio well
as our remaining small cap holdings (Capital Radio +20%, Morgan Crucible +25%,
Kone +19%) have outperformed their small cap peers within the MSCI EAFE Index
during the second quarter.
Japanese stock selection significantly contributed to performance during the
second quarter, as we maintained our strategy of overweighting blue-chip, global
franchise export oriented names. Particular strength was seen among the
recreation & other
- --------------------------------------------------------------------------------
International Magnum Portfolio
58
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
INTERNATIONAL MAGNUM PORTFOLIO (CONT.)
consumer goods and machinery & engineering industries. These industries are
comprised of blue-chip exporters which benefited from the Yen's weakness as well
as a pick-up in demand from Asia. Specific companies enjoying particularly
strong performance included Sony, Nintendo, Hitachi, and Fujitsu.
Detracting from overall performance was the Portfolio's underweight in European
telecommunications (relative outperformer), an overweight to European food &
household products (relative underperformer), and an underweight in Japanese
banks (relative outperformer).
OUTLOOK
At the end of the second quarter markets were holding their breath in
anticipation of the expected rate hike by the U.S. Fed. As of this writing, the
Fed raised rates by 25 basis points and assumed a "neutral bias". Although this
modest rate hike is supportive of growth abroad and has not derailed the global
economic healing seen so far this year, an indication of inflationary pressures
in the U.S. could compel the Fed to raise rates again during the second half of
1999 which may have a negative impact on international growth. We expect Japan
to outperform other developed markets in the medium-to long-term as authorities
and business leaders remain committed to reforms. The Fed's neutral bias coupled
with the Bank of Japan's current policy of "0" short-term interest rates, will
allow Japan to accelerate restructuring and provide a platform for economic
recovery. It will likely become very important for Japan to show concrete
economic growth over the next year, particularly if U.S. growth slows. While we
are increasingly bullish on the prospects for Japan, we intend to keep our
highly selective stock and sector weightings. In particular, Sony, Fujitsu,
Mitsumi and TDK have reached all-time highs and NTT, the largest capitalized
company in Japan, has broken out from a 10-year trading range.
The nascent economic recovery in Europe is proceeding at a frustratingly slow
pace, although the prospects for the second half of 1999 seem to be improving.
As the Euro continues its weakening trend, European exporters should benefit
both from this weakness as well as from a pick-up in demand from strengthening
Asian economies. European equity returns have lagged the U.S. and Asia in the
first half of the year in both local currency and in U.S. dollars. Domestic
demand remains strong due to the lagged effects of monetary easing and more a
relaxed stance of fiscal policy. This coupled with the recent stronger-
than-expected factory orders in Italy and Germany could signal further recovery
in the Euro economy. German recovery should be further aided by government's
fiscal initiatives such as German Finance Minister Hans Eichel's plans to reduce
corporate tax rates to a flat 25%. Encouragingly, Europe's predominantly
center-left governments appear to realize the need to tackle structural
problems, as evidenced by the statement released following the Cologne summit of
15 European Union heads of state. "Achieving higher employment...depends...on
well-functioning labor markets and on efficient, competitive markets for goods,
services and capital...We consider structural reform of labor, product and
capital markets to be essential." These current reform proposals will be key to
improving long-term growth and investment prospects, and should make Europe a
more attractive place to invest.
Asian markets have been driven by low interest rates and high liquidity, as well
as rising commodity prices. In the region as a whole, improving consumer and
business confidence is evident, and if these markets continue to employ
restructuring policies, maintain stabilizing current account deficits and
improving balance sheets their recoveries should continue. We will monitor Asia
carefully in the coming months for signs of continued progress in restructuring
the region's banking and corporate sectors. The concern remains, however, that
governments and business may not be as willing to inflict the kinds of stringent
policies necessary for reform in light of recent economic and market strength.
Should the U.S. Fed continue to tighten monetary policy over the course of the
year, this would most likely prove disastrous, especially for Hong Kong growth
prospects, as the Hong Kong dollar and interest rates are pegged to those of the
U.S. Since the recent market run-ups have caused valuations to become extended,
any growth-hindering policies could have significant adverse effects on Asia.
Such circumstances could lead us to reduce the Portfolio's exposure to the
region.
Francine J. Bovich
PORTFOLIO MANAGER
July 1999
- --------------------------------------------------------------------------------
International Magnum Portfolio
59
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1999
- --------------------------------------------------------------------------------
INTERNATIONAL MAGNUM PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- -----------------------------------------------------------------------------
COMMON STOCKS (92.0%)
AUSTRALIA (2.5%)
14,700 AMP Ltd.......................................... $ 160
7,250 Brambles Industries Ltd.......................... 190
34,950 Broken Hill Proprietary Co., Ltd................. 403
73,000 Cable & Wireless Optus Ltd....................... 166
33,650 Colonial Ltd..................................... 119
98,500 Fosters Brewing Group Ltd........................ 277
22,010 Lend Lease Corp., Ltd............................ 301
45,680 National Australia Bank Ltd...................... 753
70,000 News Corp., Ltd.................................. 595
145,000 Normandy Mining Ltd.............................. 96
118,100 Oil Search Ltd................................... 175
64,700 Qantas Airways Ltd............................... 213
39,600 Rio Tinto Ltd.................................... 647
132,300 Telstra Corp., Ltd............................... 755
84,850 Westpac Banking Corp............................. 548
81,200 WMC Ltd.......................................... 347
---------
5,745
---------
BELGIUM (0.3%)
12,250 Fortis (B)....................................... 385
6,975 G.I.B. Holdings Ltd.............................. 261
---------
646
---------
DENMARK (1.3%)
16,890 Novo-Nordisk A/S, Class B........................ 1,823
16,010 Unidanmark A/S, plc, Class A (Registered)........ 1,067
---------
2,890
---------
FINLAND (1.9%)
29,413 KCI Konecranes International..................... 1,012
6,485 Kone Oyj, Class B................................ 810
289,910 Merita Ltd., Class A............................. 1,649
30,400 Sampo Insurance Co., plc, Class A................ 882
---------
4,353
---------
FRANCE (9.6%)
8,430 Alcatel Alsthom.................................. 1,188
7,230 Axa.............................................. 883
10,400 Banque Nationale de Paris........................ 870
(a)82,750 CNP Assurances................................... 2,263
10,211 Cie de Saint Gobain.............................. 1,629
41,582 Cie Generale des Establissements Michelin, Class
B.............................................. 1,703
9,860 Elf Aquitaine.................................... 1,449
5,312 Groupe Danone.................................... 1,371
27,890 Pernod Ricard.................................... 1,872
39,250 Rhone-Poulenc, Class A........................... 1,796
37,690 Schneider........................................ 2,119
4,200 Suez Lyonnaise des Eaux.......................... 759
(a)30,450 Total, Class B................................... 3,933
---------
21,835
---------
GERMANY (5.4%)
11,940 Adidas AG........................................ 1,164
40,350 BASF AG.......................................... 1,775
37,090 Bayerische Vereinsbank AG........................ 2,363
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- -----------------------------------------------------------------------------
41,403 Bewag Aktiengesellschaft AG...................... $ 641
38,450 Hoechst AG....................................... 1,735
3,310 Mannesmann AG.................................... 496
16,590 Schering AG...................................... 1,775
6,050 Siemens AG....................................... 467
28,900 Volkswagen AG.................................... 1,867
---------
12,283
---------
HONG KONG (2.5%)
109,400 Cathay Pacific Airways Ltd....................... 168
132,400 Cheung Kong Holdings Ltd......................... 1,177
198,600 China Telecom Ltd................................ 552
38,000 Dao Heng Bank Group Ltd.......................... 170
207,900 Hong Kong Telecommunications Ltd................. 540
15,400 HSBC Holdings plc................................ 562
99,700 Hutchison Whampoa Ltd............................ 903
109,200 Li & Fung Ltd.................................... 262
43,000 New World Development Co., Ltd................... 129
62,300 Smartone Telecommunications...................... 222
76,500 Sun Hung Kai Properties Ltd...................... 697
57,800 Swire Pacific Ltd., Class A...................... 286
23,400 Television Broadcasts Ltd........................ 110
---------
5,778
---------
IRELAND (0.9%)
116,730 Bank of Ireland.................................. 1,964
---------
ITALY (3.4%)
(c)85,075 Banca Popolare Di Bergamo S.p.A.................. 1,871
153,000 Marzotto (Gaetano) & Figli S.p.A................. 1,191
(c)202,800 Mediaset S.p.A................................... 1,805
269,100 Telecom Italia S.p.A. (RNC)...................... 2,801
---------
7,668
---------
JAPAN (24.8%)
17,000 Aiwa Co., Ltd.................................... 563
113,000 Amada Co., Ltd................................... 799
59,000 Canon, Inc....................................... 1,699
75,000 Casio Computer Co., Ltd.......................... 571
60,000 Dai Nippon Printing Co., Ltd..................... 961
203,000 Daicel Chemical Industries Ltd................... 747
113,000 Daifuku Co., Ltd................................. 790
88,000 Daikin Industries Ltd............................ 1,023
12,200 FamilyMart Co., Ltd.............................. 560
39,000 Fuji Machine Manufacturing Co.................... 1,204
40,000 Fuji Photo Film Ltd.............................. 1,516
71,000 Fujitec Co., Ltd................................. 674
119,000 Fujitsu Ltd...................................... 2,397
166,000 Furukawa Electric Co............................. 762
38,800 Hitachi Credit Corp.............................. 769
224,000 Hitachi Ltd...................................... 2,103
129,000 Kaneka Corp...................................... 1,217
47,000 Kurita Water Industries Ltd...................... 844
17,600 Kyocera Corp..................................... 1,034
63,000 Kyudenko Co., Ltd................................ 361
56,000 Lintec Corp...................................... 564
81,000 Matsushita Electric Industrial Co., Ltd.......... 1,575
59,000 Minebea Co., Ltd................................. 659
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
International Magnum Portfolio
60
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1999
- --------------------------------------------------------------------------------
INTERNATIONAL MAGNUM PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- -----------------------------------------------------------------------------
<C> <S> <C>
</TABLE>
JAPAN (CONT.)
<TABLE>
<C> <S> <C>
204,000 Mitsubishi Chemical Corp......................... $ 707
85,000 Mitsubishi Estate Co., Ltd....................... 831
213,000 Mitsubishi Heavy Industries Ltd.................. 865
(c)58,000 Mitsumi Electric Co., Ltd........................ 1,622
153,000 NEC Corp......................................... 1,905
57,000 Nifco, Inc....................................... 548
17,000 Nintendo Corp., Ltd.............................. 2,392
161 Nippon Telegraph & Telephone Corp................ 1,878
289,000 Nissan Motor Co., Ltd............................ 1,382
54,000 Nissha Printing Co., Ltd......................... 393
33,000 Ono Pharmaceutical Co., Ltd...................... 1,147
133,000 Ricoh Co., Ltd................................... 1,833
32,800 Rinnai Corp...................................... 754
6,000 Rohm Co.......................................... 941
21,000 Ryosan Co........................................ 417
18,000 Sangetsu Co., Ltd................................ 383
62,000 Sankyo Co., Ltd.................................. 1,565
103,000 Sanwa Shutter Corp............................... 559
76,000 Sekisui Chemical Co.............................. 441
88,000 Sekisui House Co., Ltd........................... 951
99,000 Shin-Etsu Polymer Co., Ltd....................... 556
22,100 Sony Corp........................................ 2,386
65,000 Suzuki Motor Co., Ltd............................ 1,035
18,000 TDK Corp......................................... 1,649
240,000 Toshiba Corp..................................... 1,714
37,000 Toyota Motor Corp................................ 1,172
168,000 Tsubakimoto Chain Co............................. 599
59,000 Yamaha Corp...................................... 710
46,000 Yamanouchi Pharmaceutical Co., Ltd............... 1,762
---------
56,489
---------
NETHERLANDS (3.7%)
19,600 ABN Amro Holding N.V............................. 425
53,135 Akzo Nobel N.V................................... 2,239
15,000 Benckiser N.V., Class B.......................... 802
50,700 ING Groep N.V.................................... 2,748
22,700 Laurus N.V....................................... 527
17,213 Philips Electronics N.V.......................... 1,700
---------
8,441
---------
NEW ZEALAND (0.1%)
55,500 Telecom Corp. of New Zealand Ltd................. 238
---------
PORTUGAL (1.1%)
33,450 Banco Commercial Portugues (Registered).......... 868
93,050 Electricidade de Portugal S.A.................... 1,677
---------
2,545
---------
SINGAPORE (1.7%)
54,000 City Developments Ltd............................ 346
55,000 Development Bank of Singapore Ltd. (Foreign)..... 672
81,000 Natsteel Electronics Ltd......................... 355
36,000 Oversea-Chinese Banking Corp. (Foreign).......... 300
48,000 Overseas Union Bank (Foreign).................... 231
36,000 Sembcorp Logistics Ltd........................... 142
45,000 Singapore Airlines Ltd. (Foreign)................ 428
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- -----------------------------------------------------------------------------
32,000 Singapore Press Holdings Ltd..................... $ 545
183,000 Singapore Telecommunications Ltd................. 314
32,000 United Overseas Bank Ltd. (Foreign).............. 224
45,000 Venture Manufacturing Ltd........................ 346
---------
3,903
---------
SPAIN (2.8%)
11,990 Banco Popular Espanol S.A........................ 864
(a)79,800 Banco Santander.................................. 832
68,300 Endesa........................................... 1,458
96,650 Iberdrola........................................ 1,474
(a)36,320 Telefonica....................................... 1,752
---------
6,380
---------
SWEDEN (3.7%)
(c)55,180 Autoliv, Inc..................................... 1,688
16,950 Ericsson LM, Class B............................. 545
29,300 ForeningsSparbanken AB........................... 415
297,600 Nordbanken Holding AB............................ 1,746
(c)96,150 Svedala Intrustri AB............................. 1,737
187,770 Svenska Handelsbanken, Class A................... 2,262
---------
8,393
---------
SWITZERLAND (8.0%)
2,350 Cie Financiere Richemont AG, Class A............. 4,528
1,875 Holderbank Financiere Glarus AG, Class B
(Bearer)....................................... 2,217
2,340 Nestle (Registered).............................. 4,224
1,350 Novartis AG (Registered)......................... 1,975
130 Roche Holding AG (Registered).................... 1,339
510 Schindler Holding AG (Registered)................ 789
3,590 Swisscom AG...................................... 1,353
5,530 Union Bank of Switzerland AG (Registered)........ 1,654
---------
18,079
---------
UNITED KINGDOM (18.3%)
513,700 Aegis Group plc.................................. 1,134
260,250 Allied Domecq plc................................ 2,512
173,800 Allied Zurich plc................................ 2,186
115,570 Bank of Scotland................................. 1,531
287,805 BG plc........................................... 1,759
93,900 BOC Group plc.................................... 1,837
172,600 British Telecommunications plc................... 2,894
77,060 Burmah Castrol plc............................... 1,464
139,850 Capital Radio plc................................ 1,853
(a)505,240 Centrica plc..................................... 1,188
2,800 Devro plc........................................ 6
127,036 Diageo plc....................................... 1,328
26,100 Glaxo Wellcome plc............................... 726
191,760 Great Universal Stores plc....................... 2,127
853,200 Halma plc........................................ 1,427
202,500 Imperial Tobacco Group plc....................... 2,210
89,900 Lloyds TSB Group plc............................. 1,220
299,300 Morgan Crucible Co............................... 1,265
125,700 Prudential Corp. plc............................. 1,852
269,336 Reckitt & Colman plc............................. 2,811
(a)140,821 Royal & Sun Alliance Insurance Group plc......... 1,264
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
International Magnum Portfolio
61
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1999
- --------------------------------------------------------------------------------
INTERNATIONAL MAGNUM PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- -----------------------------------------------------------------------------
<C> <S> <C>
</TABLE>
UNITED KINGDOM (CONT.)
<TABLE>
<C> <S> <C>
115,300 Sainsbury (J) plc................................ $ 728
190,300 Scottish & Southern Energy plc................... 1,948
69,700 Seton Scholl Healthcare plc...................... 799
126,000 Shell Transport & Trading Co. plc................ 946
104,100 Smith & Nephew plc............................... 317
243,400 Tesco plc........................................ 627
188,600 WPP Group plc.................................... 1,596
---------
41,555
---------
TOTAL COMMON STOCKS (Cost $192,053)............................... 209,185
---------
PREFERRED STOCKS (2.0%)
GERMANY (2.0%)
16,140 Fresenius AG..................................... 2,833
15,900 Henkel KGaA-Vorzug............................... 1,113
1,706 Suedzucker AG.................................... 660
---------
TOTAL PREFERRED STOCKS (Cost $5,288).............................. 4,606
---------
TOTAL FOREIGN SECURITIES (94.0%) (Cost $197,341).................. 213,791
---------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT
(000)
<C> <S> <C>
- ----------
SHORT-TERM INVESTMENT (4.4%)
REPURCHASE AGREEMENT (4.4%)
$ 9,958 Chase Securities, Inc. 4.55%, dated 6/30/99, due
7/01/99, to be repurchased at $9,959,
collateralized by U.S. Treasury Bonds, 7.25%,
due 5/15/16, valued at $10,274 (Cost $9,958).... $ 9,958
----------
FOREIGN CURRENCY (0.0%)
GBP 40 British Pound..................................... 62
EUR 42 Euro.............................................. 44
----------
TOTAL FOREIGN CURRENCY (Cost $106)............................ 106
----------
</TABLE>
<TABLE>
<CAPTION>
VALUE
(000)
<C> <S> <C>
- --------------------------------------------------------------------------
TOTAL INVESTMENTS (98.4%) (Cost $207,405)..................... $ 223,855
----------
</TABLE>
<TABLE>
<S> <C> <C>
OTHER ASSETS (6.6%)
Cash............................................... $ 84
Receivable for Portfolio Shares Sold............... 6,127
Securities at Value, Held as Collateral for
Securities Lending............................... 5,265
Receivable for Investments Sold.................... 1,456
Dividends Receivable............................... 451
Foreign Withholding Tax Reclaim Receivable......... 320
Receivable for Daily Variation on Futures
Contracts........................................ 179
Receivable for Securities Lending.................. 36
Net Unrealized Gain on Foreign Currency Exchange
Contracts........................................ 25
Other.............................................. 3 13,946
----------
LIABILITIES ( - 5.0%)
Collateral Securities Loaned....................... (5,265)
Payable for Investments Purchased.................. (4,510)
Investment Advisory Fees Payable................... (371)
Custodian Fees Payable............................. (100)
Administrative Fees Payable........................ (30)
Distribution Fees Payable.......................... (14)
Directors' Fees & Expenses Payable................. (12)
Payable for Shares Redeemed........................ (8)
Other Liabilities.................................. (79) (10,389)
---------- ----------
NET ASSETS (100%).................................... $ 227,412
----------
----------
</TABLE>
<TABLE>
<S> <C>
NET ASSETS CONSIST OF:
Paid in Capital.................................................... $ 210,104
Undistributed Net Investment Income................................ 2,776
Accumulated Net Realized Loss...................................... (1,422)
Unrealized Appreciation On Investments, Foreign Currency
Translations and Futures Contracts............................... 15,954
----------
NET ASSETS......................................................... $ 227,412
----------
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
International Magnum Portfolio
62
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1999
- --------------------------------------------------------------------------------
INTERNATIONAL MAGNUM PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMOUNT
(000)
- -----------------------------------------------------------------------------
<S> <C>
</TABLE>
<TABLE>
<S> <C>
CLASS A:
- -------------------------------------------------------------------
NET ASSETS......................................................... $201,399
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 16,411,769 outstanding $0.001 par value
Shares (authorized 500,000,000 shares)........................... $12.27
----------
----------
CLASS B:
- -------------------------------------------------------------------
NET ASSETS......................................................... $26,013
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 2,128,288 outstanding $0.001 par value shares
(authorized 500,000,000 shares).................................. $12.22
----------
----------
</TABLE>
- ------------------------------------------------------------
FOREIGN CURRENCY EXCHANGE CONTRACT INFORMATION:
Under the terms of foreign currency exchange contracts open at June 30, 1999,
the Portfolio is obligated to deliver or is to receive foreign currency in
exchange for U.S. dollars as indicated below:
<TABLE>
<CAPTION>
NET
CURRENCY IN EXCHANGE UNREALIZED
TO DELIVER VALUE SETTLEMENT FOR VALUE GAIN (LOSS)
(000) (000) DATE (000) (000) (000)
<S> <C> <C> <C> <C> <C>
- ------------ ------- ----------- ------------ ------- -----------
U.S.$ 199 $ 199 7/1/99 GBP 126 $ 199 $ --
U.S.$ 185 185 7/1/99 SEK 1,568 185 --
U.S.$ 210 210 7/2/99 EUR 203 210 --
U.S.$ 53 53 7/2/99 HKD 413 53 --
U.S.$ 45 45 7/6/99 HKD 348 45 --
U.S.$ 967 966 7/6/99 SGD 1,645 965 (1)
JPY 420,427 3,488 7/19/99 U.S.$ 3,514 3,514 26
------- ------- ---
$ 5,146 $ 5,171 $ 25
------- ------- ---
------- ------- ---
</TABLE>
- ------------------------------------------------------------
(a) -- Non-income producing security.
(c) -- All or a portion of security on loan at June 30, 1999 -- See Note A-10
to financial statements.
HKD -- Hong Kong Dollar
JPY -- Japanese Yen
RNC -- Non-Convertible Savings Shares.
SGD -- Singapore Dollar.
- ------------------------------------------------------------
FUTURES CONTRACTS:
At June 30, 1999 the following futures contracts were open:
<TABLE>
<CAPTION>
NUMBER AGGREGATE UNREALIZED
OF FACE VALUE EXPIRATION APPRECIATION
CONTRACTS (000) DATE (000)
<S> <C> <C> <C> <C>
- --------------------------------------- ---------- ------------ ------------- -------------
LONG:
TOPIX Index 20 U.S.$ 2,134 Sept. 99 $ 180
</TABLE>
- ------------------------------------------------
SUMMARY OF FOREIGN SECURITIES BY INDUSTRY CLASSIFICATION
<TABLE>
<CAPTION>
VALUE PERCENT OF
INDUSTRY (000) NET ASSETS
<S> <C> <C>
- -------------------------------------------------------------------
Capital Equipment...................... $ 39,996 17.6%
Consumer Goods......................... 60,345 26.6
Energy................................. 18,515 8.1
Finance................................ 42,039 18.5
Gold Mines............................. 96 --
Materials.............................. 21,170 9.3
Multi Industry......................... 1,753 0.8
Services............................... 29,877 13.1
--------- ---
$ 213,791 94.0%
--------- ---
--------- ---
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
International Magnum Portfolio
63
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
INTERNATIONAL SMALL CAP PORTFOLIO
COMPOSITION OF NET ASSETS (AT JUNE 30, 1999)
- ---------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Australia 9.7%
Denmark 1.1%
Finland 6.0%
France 7.5%
Germany 7.2%
Hong Kong 2.3%
Ireland 2.6%
Italy 3.9%
Japan 19.3%
Netherlands 7.2%
New Zealand 2.5%
Norway 2.3%
Singapore 1.0%
Spain 1.1%
Sweden 2.7%
Switzerland 6.5%
United Kingdom 13.9%
Other 3.2%
</TABLE>
PERFORMANCE COMPARED TO THE MORGAN STANLEY CAPITAL
INTERNATIONAL (MSCI) EAFE SMALL CAP INDEX(1)
- ----------------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
----------------------------------------------------------
AVERAGE ANNUAL AVERAGE ANNUAL
YTD ONE YEAR FIVE YEARS SINCE INCEPTION
---------- ---------- --------------- -----------------
<S> <C> <C> <C> <C>
PORTFOLIO........ 14.95% 1.78% 5.83% 12.84%
INDEX............ 12.07 3.86 -4.07 4.03
</TABLE>
1. The MSCI EAFE Small Cap Index is an unmanaged arithmetic market value
weighted average of the performance of over 900 securities of companies
listed on the stock exchanges of countries in Europe, Australasia and the Far
East with a fixed market capitalization cut-off of U.S. $200-800 million
(this index is a price only index and does not include 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 INFORMATION CONTAINED IN THIS OVERVIEW REGARDING SPECIFIC SECURITIES IS FOR
INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A RECOMMENDATION TO
PURCHASE OR SELL THE SECURITIES MENTIONED. THE COUNTRY SPECIFIC PERFORMANCE
RESULTS PROVIDED ARE AS MEASURED BY THE MSCI EAFE SMALL CAP INDEX AND 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.
The International Small Cap Portfolio seeks long-term capital appreciation by
investing primarily in the equity securities of non-U.S. issuers. The Portfolio
applies a disciplined bottom-up value approach to identify and invest in small
capitalization companies which are both attractive businesses and available at
cheap prices. A market capitalization cut-off of U.S. $1 billion is used as our
definition of "small."
For the six months ended June 30, 1999, the Portfolio had a total return of
14.95% as compared to 12.07% for the Morgan Stanley Capital International (MSCI)
EAFE Small Cap Index (the "Index"). For the one year period ended June 30, 1999,
the Portfolio had a total return of 1.78% compared to 3.86% for the Index. For
the five-year period ended June 30, 1999, the average annual total return for
the Portfolio was 5.83% compared to -4.07% for the Index. For the period since
inception on December 15, 1992 through June 30, 1999, the average annual total
return of the Portfolio was 12.84% as compared to 4.03% for the Index.
Strong stock selection during the second quarter, especially in Europe and the
Pacific Basin, enabled the Portfolio to outpace the Index for the period ended
June 30, 1999 despite its first-quarter underperformance.
In the first quarter, the Index outperformed large-cap EAFE for the first time
in many quarters. This resulted primarily from strong returns in Japan, the U.K.
and Scandinavia. In this environment, relative performance suffered due to an
underweight position in Japan. However, through exceptional stock selection in
Switzerland, Italy, France and Japan in the second quarter, the Portfolio more
than made up for its relatively weak first quarter results. From an industry
point of view, services (financial, consumer & business) and technology-related
equipment were strong positives.
The first half of 1999 brought a major reversal of fortune for small caps. Last
year, EAFE small caps substantially underperformed EAFE large caps as investors
focused on the largest, most liquid stocks following a period of unprecedented
volatility and uncertainty. Benefiting from a broadening in equity participation
due to the improving global economic outlook, small caps have now taken the
lead.
At the end of June, our underweight position in Japan had narrowed to 60% of
Index weight from 50% at the start of the year, due primarily to strong relative
- --------------------------------------------------------------------------------
International Small Cap Portfolio
64
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
INTERNATIONAL SMALL CAP PORTFOLIO (CONT.)
performance. We reduced our weightings in Aiful, Disco and Ushio after strong
outperformance. Similarly, positions in Australian holdings ERG and Solution 6
were reduced on strength. We maintain an overweight position in Continental
Europe, where small-cap valuations remain attractive and restructuring stories
have greater visibility. The U.K. commitment has moved from a slight overweight
to an underweight.
The resurgence of small-cap IPOs in the first half reflects the return to favor
of this asset class. M&A activity continues to be a performance catalyst in the
small-cap arena as corporations take advantage of compelling value and
rationalization opportunities. Despite the strong relative performance of small
caps versus large caps so far this year, the valuation gap still favors the
former, and the Portfolio is positioned to benefit from further narrowing of
this gap.
Margaret Naylor
PORTFOLIO MANAGER
Willem Vinke
PORTFOLIO MANAGER
Nathalie Degans
PORTFOLIO MANAGER
July 1999
- --------------------------------------------------------------------------------
International Small Cap Portfolio
65
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1999
- --------------------------------------------------------------------------------
INTERNATIONAL SMALL CAP PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- --------------------------------------------------------------------------------
COMMON STOCKS (93.3%)
AUSTRALIA (9.7%)
1,608,549 Ausdoc Group Ltd................................. $ 2,800
623,503 Auspine Ltd...................................... 748
1,748,543 Australian Hospital Care Ltd..................... 987
365,530 BRL Hardy Ltd.................................... 1,544
5,792,747 E.R.G. Ltd....................................... 10,695
1,691,770 Henry Walker Group Ltd........................... 2,276
(a)821,900 Neverfail Springwater Ltd........................ 1,084
7,490,464 Parbury Ltd...................................... 1,383
1,116,100 Ramsay Health Care Ltd........................... 795
1,521,111 Skilled Engineering Ltd.......................... 3,170
684,300 Solution 6 Holdings Ltd.......................... 1,579
---------
27,061
---------
DENMARK (1.1%)
72,400 Sydbank A/S...................................... 3,016
---------
FINLAND (6.0%)
87,308 KCI Konecranes International..................... 3,003
46,773 Kone Oyj, Class B................................ 5,844
313,100 Metsa Tissue Oyj................................. 2,586
(a)80,000 Perlos Oyj....................................... 1,173
(a)382,958 Rapala Normark Corp.............................. 2,709
(a)148,850 Teleste Oyj...................................... 1,352
---------
16,667
---------
FRANCE (7.5%)
34,569 Algeco........................................... 2,722
(a)24,500 Chargeurs........................................ 1,366
(a)26,800 CNP Assurances................................... 733
12,269 Dauphin O.T.A.................................... 1,839
24,583 De Dietrich et Compagnie......................... 1,448
93,113 Europeene d'Extincteurs.......................... 4,519
90,490 Legris Industries................................ 3,709
131,650 Neopost S.A...................................... 3,059
18,700 SPIR Communication............................... 1,375
---------
20,770
---------
GERMANY (3.7%)
60,094 Beru AG.......................................... 1,316
45,552 Kamps AG......................................... 1,834
88,196 Marseille-Kliniken AG............................ 1,230
17,034 Philipp Holzmann AG.............................. 2,805
112,576 Winkler & Duennebier AG.......................... 2,441
(a)34,670 Zapf Creation AG................................. 823
---------
10,449
---------
HONG KONG (2.3%)
293,000 Asia Satellite Telecommunications Holdings
Ltd............................................ 689
1,008,000 Li & Fung Ltd.................................... 2,417
202,500 SmarTone Telecommunications Holdings Ltd......... 720
7,657,000 Vitasoy International Holdings Ltd............... 2,690
---------
6,516
---------
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- --------------------------------------------------------------------------------
IRELAND (2.6%)
1,777,527 Anglo Irish Bank Corp. plc (British Pound
Shares)........................................ $ 4,386
539,556 Green Property plc............................... 2,981
---------
7,367
---------
ITALY (3.9%)
108,700 Banca Popolare Di Bergamo S.p.A.................. 2,391
1,028,800 Buffetti S.p.A................................... 6,533
459,000 Sogefi S.p.A..................................... 1,095
168,550 Vincenzo Zucchi S.p.A. (NCS)..................... 713
---------
10,732
---------
JAPAN (19.3%)
272,300 Asatsu, Inc...................................... 7,209
53,000 Aiful Corp....................................... 6,498
171,000 Asia Securities Printing Co., Ltd................ 3,056
53,000 Disco Corp....................................... 4,911
4,700 Doutor Coffee Co., Ltd........................... 250
231,000 Foster Electric Co., Ltd......................... 1,433
95,200 H.I.S. Co., Ltd.................................. 3,379
844,000 Hankyu Realty Co., Ltd........................... 3,568
280,000 Hanshin Department Stores Ltd.................... 1,216
780,000 Japan Oil Transportation Co., Ltd................ 1,504
117,000 Kirin Beverage Corp.............................. 2,100
148,100 Maezawa Kasei Industries......................... 2,402
75,900 Nichiha Corp..................................... 804
75,000 Nifco, Inc....................................... 722
915,000 Nissan Fire & Insurance Co....................... 2,877
186,000 Nissei Industries................................ 1,370
70,400 Rock Field Co., Ltd.............................. 2,545
136,000 Sotoh Co., Ltd................................... 754
650,000 Toc Co........................................... 5,517
115,000 Ushio, Inc....................................... 1,475
---------
53,590
---------
NETHERLANDS (7.2%)
106,706 Ahrend Groep N.V................................. 1,856
113,745 Apothekers Cooperatie OPG........................ 2,819
52,373 Atag Holding N.V................................. 944
106,360 Benckiser N.V., Class B.......................... 5,683
72,650 GTI Holding N.V.................................. 1,538
118,299 Hollandsche Beton Groep N.V...................... 1,515
58,510 International Muller............................. 1,290
77,100 Nutreco Holding N.V.............................. 2,739
95,532 Samas Groep N.V.................................. 1,415
---------
19,799
---------
NEW ZEALAND (2.5%)
1,111,100 Auckland International Airport Ltd............... 1,708
766,736 Fisher & Paykel Industries Ltd................... 2,439
1,860,400 Fletcher Challenge Building...................... 2,712
---------
6,859
---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
International Small Cap Portfolio
66
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1999
- --------------------------------------------------------------------------------
INTERNATIONAL SMALL CAP PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------------
<C> <S> <C>
NORWAY (2.3%)
70,850 Adelsten ASA, Class B............................ $ 716
111,100 Kverneland ASA................................... 3,080
(a,d)228,020 Oceanor.......................................... --
140,118 Sparebanken...................................... 2,620
---------
6,416
---------
SINGAPORE (1.0%)
1,395,000 GP Batteries International Ltd................... 2,671
---------
SPAIN (1.1%)
123,876 Miquel y Costas & Miquel......................... 3,155
---------
SWEDEN (2.7%)
98,550 Haldex AB........................................ 1,292
245,240 Nobel Biocare AB................................. 3,620
253,830 Scandic Hotels AB................................ 2,712
---------
7,624
---------
SWITZERLAND (6.5%)
957 Bobst AG (Bearer)................................ 1,138
(a)10,567 Edipresse (Bearer)............................... 3,439
6,230 PubliGroupe...................................... 3,413
4,841 SIG-Schweizensche Industrie-Gesellschaft Holding
AG (Registered)................................ 2,889
12,516 TAG Heuer International SA....................... 1,307
11,154 Valora Holding AG................................ 2,573
6,305 Zehnder Holding AG, Class B...................... 3,291
---------
18,050
---------
UNITED KINGDOM (13.9%)
981,300 Aegis Group plc.................................. 2,167
300,170 Capital Radio plc................................ 3,977
110,473 Devro plc........................................ 246
(a,d)2,540,850 Donelon Tyson plc................................ --
2,074,998 GEI International plc............................ 565
627,623 Informa Group plc................................ 3,634
1,024,665 John Mowlem & Co. plc............................ 2,210
(a,d)33,795,100 Kendell plc...................................... --
214,635 Le Riches Stores plc............................. 1,639
676,800 Litho Supplies plc............................... 1,601
2,719,200 Matthews (Bernard) plc........................... 5,662
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- --------------------------------------------------------------------------------
673,960 NHP plc.......................................... $ 1,797
(a,d)2,659,393 Pentos plc....................................... --
577,200 Quadramatic plc.................................. 1,337
453,772 Seton Scholl Healthcare Group plc................ 5,204
373,700 SGB Group plc.................................... 1,727
1,149,800 SIG plc.......................................... 3,229
1,509,500 The 600 Group plc................................ 1,750
1,086,300 Time Products plc................................ 1,799
---------
38,544
---------
TOTAL COMMON STOCKS (Cost $245,116).................................. 259,286
---------
PREFERRED STOCKS (3.5%)
GERMANY (3.5%)
9,355 Dyckerhoff AG.................................... 2,787
120,227 Moebel Walther AG................................ 1,868
15,410 Sartorius AG..................................... 3,031
132,984 Wuerttembergische Metallwarenfabrik AG........... 1,936
---------
TOTAL PREFERRED STOCKS (Cost $12,783)................................ 9,622
---------
TOTAL FOREIGN SECURITIES (96.8%) (Cost $257,899)..................... 268,908
---------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT
(000)
<C> <S> <C>
- ----------------
SHORT-TERM INVESTMENT (1.2%)
REPURCHASE AGREEMENT (1.2%)
$ 3,493 Chase Securities, Inc. 4.55%, dated 6/30/99, due
7/01/99, to be repurchased at $3,493,
collateralized by U.S. Treasury Bonds, 7.25%
due 5/15/16, valued at $3,606 (Cost $3,493).... 3,493
---------
FOREIGN CURRENCY (1.1%)
AUD 1,960 Australian Dollar................................ 1,292
EUR 755 Euro............................................. 780
JPY 107,758 Japanese Yen..................................... 891
NZD 69 New Zealand Dollar............................... 37
CHF 51 Swiss Franc...................................... 33
---------
TOTAL FOREIGN CURRENCY (Cost $3,032)................................. 3,033
---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
International Small Cap Portfolio
67
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1999
- --------------------------------------------------------------------------------
INTERNATIONAL SMALL CAP PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
(000)
- --------------------------------------------------------------------------------
<C> <S> <C>
TOTAL INVESTMENTS (99.1%) (Cost $264,424)............................ $ 275,434
---------
</TABLE>
<TABLE>
<S> <C> <C>
OTHER ASSETS (2.1%)
Receivable for Investments Sold................. $ 4,728
Dividends Receivable............................ 869
Receivable for Portfolio Shares Sold............ 261
Other........................................... 22 5,880
----------
LIABILITIES (-1.2%)
Payable for Investments Purchased............... (1,767)
Bank Overdraft Payable.......................... (833)
Investment Advisory Fees Payable................ (588)
Custodian Fees Payable.......................... (77)
Administrative Fees Payable..................... (38)
Payable for Portfolio Shares Redeemed........... (24)
Directors' Fees & Expenses Payable.............. (20)
Other Liabilities............................... (38) (3,385)
---------- --------
NET ASSETS (100%)............................................. $277,929
--------
--------
</TABLE>
<TABLE>
<S> <C>
NET ASSETS CONSIST OF:
Paid in Capital............................................... $261,207
Undistributed Net Investment Income........................... 2,912
Accumulated Net Realized Gain................................. 2,850
Unrealized Appreciation on Investments and Foreign Currency
Translations (Net of accrual for foreign taxes of $25 on
unrealized appreciation on investments)..................... 10,960
--------
NET ASSETS.................................................... $277,929
--------
--------
</TABLE>
<TABLE>
<S> <C>
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 15,858,768 outstanding $0.001 par value shares
(authorized 1,000,000,000 shares)........................... $17.53
--------
--------
</TABLE>
- ------------------------------------------------------------
(a) -- Non-income producing security
(d) -- Securities were valued at fair value -- See Note A-1 to financial
statements.
NCS -- Non-Convertible Shares
- ------------------------------------------------------------
SUMMARY OF FOREIGN SECURITIES BY INDUSTRY CLASSIFICATION
<TABLE>
<CAPTION>
VALUE PERCENT OF
INDUSTRY (000) NET ASSETS
<S> <C> <C>
- -------------------------------------------------------------------
Capital Equipment...................... $ 61,681 22.2%
Consumer Goods......................... 65,195 23.5
Energy................................. 7,617 2.7
Finance................................ 40,823 14.7
Materials.............................. 21,488 7.7
Services............................... 72,104 26.0
--------- ---
$ 268,908 96.8%
--------- ---
--------- ---
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
International Small Cap Portfolio
68
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
JAPANESE EQUITY PORTFOLIO
COMPOSITION OF NET ASSETS (AT JUNE 30, 1999)
- ---------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Appliances & Household Durables 6.7%
Automobiles 6.8%
Broadcasting & Publishing 0.7%
Building Materials & Components 4.2%
Business & Public Services 1.4%
Chemicals 5.3%
Construction & Housing 1.7%
Data Processing & Reproduction 9.4%
Electrical & Electronics 15.3%
Electric Components & Instruments 6.9%
Energy Equipment & Services 1.0%
Financial Services 1.9%
Food & Household Products 3.7%
Health & Personal Care 7.7%
Industrial Components 1.2%
Machinery & Engineering 7.9%
Merchandising 1.6%
Multi-Industry 1.0%
Real Estate 1.4%
Recreation, Other Consumer Goods 8.2%
Telecommunications 3.1%
Other 2.9%
</TABLE>
PERFORMANCE COMPARED TO THE MORGAN STANLEY
CAPITAL INTERNATIONAL (MSCI) JAPAN INDEX(1)
- -----------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
-----------------------------------------------
AVERAGE AVERAGE
ANNUAL ANNUAL
FIVE SINCE
YTD ONE YEAR YEARS INCEPTION
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
PORTFOLIO -- CLASS A........ 26.54% 31.23% 2.32% 3.03%
PORTFOLIO -- CLASS B........ 26.43 30.94 N/A 5.78
INDEX -- CLASS A............ 20.72 30.21 - 5.11 - 3.32
INDEX -- CLASS B............ 20.72 30.21 N/A - 5.38
</TABLE>
1. The MSCI Japan Index is an unmanaged index of common stocks (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 INFORMATION CONTAINED IN THIS OVERVIEW REGARDING SPECIFIC SECURITIES IS FOR
INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A RECOMMENDATION TO
PURCHASE OR SELL THE SECURITIES MENTIONED. 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.
The investment objective of the Japanese Equity Portfolio is to seek long-term
capital appreciation by investing primarily in equity securities of Japanese
issuers. Equity securities are defined as common and preferred stocks,
convertible securities and rights and warrants to purchase common stocks.
For the six months ended June 30, 1999, the Portfolio had a total return of
26.54% for the Class A shares and 26.43% for the Class B shares compared to
20.72% for the Morgan Stanley Capital International (MSCI) Japan Index (the
"Index"). For the one year period ended June 30, 1999, the Portfolio had a total
return of 31.23% for the Class A shares and 30.94% for the Class B shares
compared to 30.21% for the Index. For the five-year period ended June 30, 1999,
the average annual total return of Class A shares was 2.32% compared to - 5.11%
for the Index. For the period since inception on April 25, 1994 through June 30,
1999, the average annual total return of Class A shares was 3.03% compared to
- 3.32% for the Index. For the period since inception on January 2, 1996
through June 30, 1999, the average annual total return of Class B shares was
5.78% compared to - 5.38% for the Index.
The Japanese equity markets continued to rise during the second quarter of 1999.
In part, the growing optimism among investors stemmed from the weakness of the
yen as the Bank of Japan maintained their intervention policy as well as guiding
short-term interest rates to "0". As well, a recovery in the Asian stock market
and economic activity also helped overall sentiment. Signs of an improvement in
Japanese fundamentals, including a surprisingly strong preliminary release of
the first quarter of 1999 gross domestic product at an annualized rate of 7.9%
set investors scrambling to raise equity allocations to Japan.
Contrary to the indiscriminate buying during the first quarter of 1999,
investors gravitated to higher quality investments in securities showing
earnings momentum, restructuring and more reasonable valuations. This change in
leadership appeared after the first week of May, when most companies reported
full year earnings for fiscal 1999 ending March 31.
Volumes on all exchanges rose sharply in contrast to 1998 and the Tokyo Stock
Exchange 1st section rose from around 200 million shares last October to 600
million shares during the second quarter of 1999. However, the total value on a
"good day" is still only $6 billion and on a similar day the two most active
- --------------------------------------------------------------------------------
Japanese Equity Portfolio
69
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
JAPANESE EQUITY PORTFOLIO (CONT.)
shares in the U.S. (America Online and Yahoo) traded $8 billion or 30% more than
the whole T.S.E. We believe it is because of the relative lack of liquidity on
the T.S.E. that low priced high beta stocks surged through May as investors
reallocated their positions in Japan and increased such allocations largely
through the purchase of index related names. However, since May, promising
sectors such as communications, high technology and digital related companies
rose sharply as investors became focused on fundamentals. In particular,
investors rewarded companies such as Sony and Toshiba which developed the new
Play Station II and Nintendo/Matsushita as they announced their "dolphin" game
platform. These products are expected to play an important role as home servers
and Japan essentially has a 100% market share for these products.
Restructuring announcements made earlier by Japanese companies also began
showing early signs of progress. For example, Nissan Motors, owned 36% by
Renault, rose from 400 yen to 600 yen as investors gained some confidence that
production cuts, product focus and reduction of debt will be made in earnest by
Mr. Carlos Ghosn, the new Chief Operating Officer of Nissan. On a product
rationalization restructuring story, NEC and Hitachi, both historically fierce
competitors in D-RAM manufacturing, agreed to combine forces jointly to develop
a new generation of D-RAMS. Such alliances would have hardly occurred in the
Japan of the 1970's and 1980's.
Both the rise in the over the counter index and public appetite for IPO's
suggested that retail investors were active participants in the market and
rewarded handsomely by spectacular returns. Because of liquidity concerns, the
Portfolio does not invest in smaller companies in Japan but the sharp rally in
international blue chips and higher quality securities helped our relative
performance since May. We added to our positions in Lintec and Shinetsu Polymer
during the second quarter, with profit taking from Nissan.
While such favorable micro development occurred, there were signs during the
second quarter of 1999 that economic activity is still modest, despite the
surprisingly strong preliminary gross domestic product numbers. For example,
March department store sales fell 7.3% for the 11th straight decline and
supermarket
adjusted sales were down 8%, the second ever. Importantly, with rising
unemployment the consumer has yet to show meaningful signs of consumption;
retail sales account for 27% of Japan's overall gross domestic product.
The banking sector, which we do not own, in aggregate announced that they still
have $20.19 trillion of bad debt on May 19. Under the new disclosure rule
implemented by the Financial Supervisory Agency, these numbers showed an
increase of 6.3 trillion (almost 50%) from the banks' original estimates and
confirm our suspicions that true non-performing loans held by banks are large
and the amounts are not simply accounting "errors."
OUTLOOK
If the U.S. Federal Reserve will maintain a mild tightening position and the
Bank of Japan maintains their "0" short-term interest rate policy, it will allow
Japan to accelerate restructuring and provide a platform for economic recovery.
It will likely become very important for Japan to show concrete economic growth
over the next year, particularly if U.S. growth slows. The U.S. elections next
year and the G7 summit in Okinawa are two milestones which will likely provide
focus for Japanese leaders and business to show a robust domestic led economic
recovery. In order to achieve this goal further restructuring, deregulation and
additional stimulus packages will be necessary, in our view. With the rising
employment rate, politicians are becoming desperate to improve economic
conditions as Japan, too, will have a lower house election in 2000.
While we are increasingly bullish on the prospects for Japan, we intend to keep
our highly selective stock and sector weightings. In particular, Sony, Fujitsu,
Mitsumi and TDK have reached all-time highs and "bell-cows" such as NTT the
largest capitalized company in Japan has broken out from a 10-year trading
range.
John R. Alkire
PORTFOLIO MANAGER
Kunihiko Sugio
PORTFOLIO MANAGER
July 1999
- --------------------------------------------------------------------------------
Japanese Equity Portfolio
70
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1999
- --------------------------------------------------------------------------------
JAPANESE EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- -----------------------------------------------------------------------
COMMON STOCKS (97.1%)
APPLIANCES & HOUSEHOLD DURABLES (6.7%)
95,000 Matsushita Electric Industrial Co., Ltd.......... $ 1,847
21,000 Sony Corp........................................ 2,267
--------
4,114
--------
AUTOMOBILES (6.8%)
70,000 Nifco, Inc....................................... 674
288,000 Nissan Motor Co., Ltd............................ 1,377
60,000 Suzuki Motor Co., Ltd............................ 956
37,000 Toyota Motor Corp................................ 1,172
--------
4,179
--------
BROADCASTING & PUBLISHING (0.7%)
60,000 Nissha Printing Co., Ltd......................... 437
--------
BUILDING MATERIALS & COMPONENTS (4.2%)
80,000 Fujitec Co., Ltd................................. 759
29,000 Rinnai Corp...................................... 667
116,000 Sanwa Shutter Corp............................... 630
92,000 Sekisui Chemical Co.............................. 534
--------
2,590
--------
BUSINESS & PUBLIC SERVICES (1.4%)
54,000 Dai Nippon Printing Co., Ltd..................... 865
--------
CHEMICALS (5.3%)
171,000 Daicel Chemical Industries Ltd................... 629
150,000 Kaneka Corp...................................... 1,415
182,000 Mitsubishi Chemical Corp......................... 631
105,000 Shin-Etsu Polymer Co., Ltd....................... 590
--------
3,265
--------
CONSTRUCTION & HOUSING (1.7%)
95,000 Sekisui House Co., Ltd........................... 1,026
--------
DATA PROCESSING & REPRODUCTION (9.4%)
60,000 Canon, Inc....................................... 1,727
110,000 Fujitsu Ltd...................................... 2,216
135,000 Ricoh Co., Ltd................................... 1,861
--------
5,804
--------
ELECTRICAL & ELECTRONICS (15.3%)
218,000 Hitachi Ltd...................................... 2,047
90,000 Minebea Co., Ltd................................. 1,005
59,000 Mitsumi Electric Co., Ltd........................ 1,650
154,000 NEC Corp......................................... 1,918
35,000 Ryosan Co........................................ 695
296,000 Toshiba Corp..................................... 2,113
--------
9,428
--------
ELECTRONIC COMPONENTS, INSTRUMENTS (6.9%)
25,000 Kyocera Corp..................................... 1,469
7,000 Rohm Co.......................................... 1,097
18,000 TDK Corp......................................... 1,649
--------
4,215
--------
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- -----------------------------------------------------------------------
ENERGY EQUIPMENT & SERVICES (1.0%)
34,000 Kurita Water Industries Ltd...................... $ 610
--------
FINANCIAL SERVICES (1.9%)
58,000 Hitachi Credit Corp.............................. 1,149
--------
FOOD & HOUSEHOLD PRODUCTS (3.7%)
27,000 Aiwa Co., Ltd.................................... 894
16,000 Sangetsu Co., Ltd................................ 341
84,000 Yamaha Corp...................................... 1,011
--------
2,246
--------
HEALTH & PERSONAL CARE (7.7%)
41,000 Ono Pharmaceutical Co., Ltd...................... 1,425
67,000 Sankyo Co., Ltd.................................. 1,691
43,000 Yamanouchi Pharmaceutical Co., Ltd............... 1,647
--------
4,763
--------
INDUSTRIAL COMPONENTS (1.2%)
155,000 Furukawa Electric Co............................. 712
--------
MACHINERY & ENGINEERING (7.9%)
88,000 Amada Co., Ltd................................... 623
60,000 Daifuku Co., Ltd................................. 419
93,000 Daikin Industries Ltd............................ 1,081
49,000 Fuji Machine Manufacturing Co., Ltd.............. 1,512
243,000 Mitsubishi Heavy Industries Ltd.................. 987
70,000 Tsubakimoto Chain Co............................. 250
--------
4,872
--------
MERCHANDISING (1.6%)
21,000 FamilyMart Co., Ltd.............................. 964
--------
MULTI-INDUSTRY (1.0%)
60,000 Lintec Corp...................................... 605
--------
REAL ESTATE (1.4%)
87,000 Mitsubishi Estate Co., Ltd....................... 850
--------
RECREATION, OTHER CONSUMER GOODS (8.2%)
76,000 Casio Computer Co................................ 578
47,000 Fuji Photo Film Ltd.............................. 1,781
19,000 Nintendo Corp., Ltd.............................. 2,674
--------
5,033
--------
TELECOMMUNICATIONS (3.1%)
163 Nippon Telegraph & Telephone Corp................ 1,901
--------
TOTAL COMMON STOCKS (Cost $49,333)........................... 59,628
--------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
Japanese Equity Portfolio
71
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1999
- --------------------------------------------------------------------------------
JAPANESE EQUITY PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- ---------------------------------------------------------------------------
<C> <S> <C>
SHORT-TERM INVESTMENTS (2.2%)
REPURCHASE AGREEMENT (2.2%)
$ 1,323 Chase Securities, Inc. 4.55%, dated 6/30/99, due
7/01/99, to be repurchased at $1,323,
collateralized by U.S. Treasury Bonds, 7.25%,
due 5/15/16, valued at $1,367 (Cost $1,323).... $ 1,323
--------
FOREIGN CURRENCY (0.8%)
JPY 61,364 Japanese Yen (Cost $504)......................... 508
--------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS (100.1%) (Cost $51,160).......................... 61,459
--------
OTHER ASSETS (0.8%)
Dividends Receivable................................. $ 16
Receivable for Portfolio Shares Sold................. 454
Other................................................ 3 473
----------
LIABILITIES ( - 0.9%)
Payable for Investments Purchased.................... (317)
Investment Advisory Fees Payable..................... (79)
Payable for Portfolio Shares Redeemed................ (28)
Directors' Fees & Expenses Payable................... (11)
Administrative Fees Payable.......................... (10)
Custodian Fees Payable............................... (10)
Distribution Fees Payable............................ (2)
Other Liabilities.................................... (57) (514)
---------- --------
NET ASSETS (100%).................................................. $ 61,418
--------
--------
</TABLE>
<TABLE>
<S> <C>
NET ASSETS CONSIST OF:
Paid in Capital............................................... $ 94,707
Undistributed Net Investment Income........................... 115
Accumulated Net Realized Loss................................. (43,699)
Unrealized Appreciation on Investments and Foreign Currency
Translations................................................ 10,295
--------
NET ASSETS.................................................... $ 61,418
--------
--------
</TABLE>
<TABLE>
<CAPTION>
AMOUNT
(000)
<S> <C> <C>
- -----------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
CLASS A:
- --------------------------------------------------------------
NET ASSETS.................................................... $59,284
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 7,580,132 outstanding $0.001 par value shares
(authorized 500,000,000 shares)............................. $7.82
--------
--------
CLASS B:
- --------------------------------------------------------------
NET ASSETS.................................................... $2,134
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 275,324 outstanding $0.001 par value shares
(authorized 500,000,000 shares)............................. $7.75
--------
--------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
Japanese Equity Portfolio
72
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
LATIN AMERICAN PORTFOLIO
COMPOSITION OF NET ASSETS (AT JUNE 30, 1999)
- ---------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Argentina 6.4%
Brazil 35.4%
Chile 8.8%
Colombia 0.4%
Mexico 44.7%
Peru 1.2%
Venezuela 2.1%
Other 1.0%
</TABLE>
PERFORMANCE COMPARED TO THE MORGAN STANLEY
CAPITAL INTERNATIONAL (MSCI) EMERGING MARKETS GLOBAL LATIN AMERICA INDEX AND
MORGAN STANLEY CAPITAL INTERNATIONAL (MSCI) EMERGING MARKETS FREE LATIN AMERICA
INDEX(1)
- -----------------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
--------------------------------------------
AVERAGE ANNUAL
YTD ONE YEAR SINCE INCEPTION
---------- ------------- -----------------
<S> <C> <C> <C>
PORTFOLIO -- CLASS A.................. 39.02% 3.25% 12.34%
PORTFOLIO -- CLASS B.................. 38.64 3.44 17.38
MSCI EMERGING MARKETS GLOBAL LATIN
AMERICA INDEX -- CLASS A.............. 33.28 7.65 5.59
MSCI EMERGING MARKETS FREE LATIN
AMERICA INDEX -- CLASS A.............. 31.03 6.02 5.38
MSCI EMERGING MARKETS GLOBAL LATIN
AMERICA INDEX -- CLASS B.............. 33.28 7.65 9.03
MSCI EMERGING MARKETS FREE LATIN
AMERICA INDEX -- CLASS B.............. 31.03 6.02 8.64
</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). The
MSCI Emerging Markets Free Latin America Index is a broad based market cap
weighted composite index covering at least 60% of markets in Argentina,
Brazil, Chile, Colombia, Mexico, Peru, and Venezuela. The Index takes into
account local market restriction on share ownership by foreigners.
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 INFORMATION CONTAINED IN THIS OVERVIEW REGARDING SPECIFIC SECURITIES IS FOR
INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A RECOMMENDATION TO
PURCHASE OR SELL THE SECURITIES MENTIONED. THE COUNTRY SPECIFIC PERFORMANCE
RESULTS PROVIDED IN THIS OVERVIEW ARE AS MEASURED BY THE MSCI EMERGING MARKETS
COUNTRY OR REGIONAL INDICES, ARE FOR INFORMATION PURPOSES ONY 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.
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.
During the last quarter, the Brazilian Securities Commission has introduced
regulation prohibiting foreign investors from owning a certain class of shares.
Because of the introduction of this restriction we have changed to a benchmark
that is more representative of the investments available to foreign investors
such as the Portfolio.
Effective June 30, 1999, the benchmark for the Portfolio has been changed from
the Morgan Stanley Capital International (MSCI) Emerging Markets Global Latin
America Index to the MSCI Emerging Markets Free Latin America Index.
For the six months ended June 30, 1999, the Portfolio had a total return of
39.02% for the Class A shares and 38.64% for the Class B shares compared to
33.28% for the Morgan Stanley Capital International (MSCI) Emerging Markets
Global Latin America Index and 31.03% for the Morgan Stanley Capital
International (MSCI) Emerging Markets Free Latin America Index (the "Index").
For the one year period ended June 30, 1999, the Portfolio had a total return of
3.25% for the Class A shares and 3.44% for the Class B shares compared to 7.65%
for the MSCI Emerging Markets Global Latin America Index and 6.02% for the MSCI
Emerging Markets Free Latin America Index. For the period since inception on
January 18, 1995 through June 30, 1999, the average annual total return of Class
A shares was 12.34% compared to 5.59% for the MSCI Emerging Markets Global Latin
America Index and 5.38% for the MSCI Emerging Markets Free Latin America Index.
For the period since inception on January 2, 1996 through June 30, 1999, the
average annual total return of Class B shares was 17.38% compared to 9.03% for
the MSCI Emerging Markets Global Latin America Index and 8.64% for the MSCI
Emerging Markets Free Latin America Index.
Outperformance relative to the Index was largely attributable to our strong
stock selection in Brazil, Mexico, and Venezuela. Our overweight position in
Mexico (+52.3%) coupled with our underweight stance in Colombia (-17.3%) also
contributed to performance.
- --------------------------------------------------------------------------------
Latin American Portfolio
73
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
LATIN AMERICAN PORTFOLIO (CONT.)
Latin American markets benefited from a rebound in commodity prices including
oil (Mexico, Colombia, and Venezuela), copper (Chile and Peru) and pulp and
paper (Brazil and Chile). More recently, stock valuations declined as U.S.
inflation worries led investors to begin pricing in the possibility of an
increase in the U.S. Fed Funds interest rate. However, floating exchange rates,
improved fiscal scenarios and increased foreign direct investment may serve as
mitigating factors, precluding any significant impact of the Fed's 25 basis
point hike on June 30th on Latin currencies or interest rates. Valuations in
Latin America are compelling and the return of global economic growth and
liquidity coupled with corporate restructuring and the possibility for lower
real interest rates should lead to improved earnings for many Latin companies.
The most notable market event which took place during the first half of the year
was the devaluation of the Brazilian currency, the real. The truly amazing
aspect of the devaluation was not that it occurred, but that the equity market
rebounded very quickly thereafter. The currency fell 40% in January, but
retraced some of its decline, ending the first quarter down 30%. Defying
expectations, the equity market gained 5.5% in U.S. dollar terms by March
month-end and 18.7% by June month-end. Fueling the market was the unexpected
appointment of Arminio Fraga, the former portfolio manager of George Soros'
Quantum Emerging Markets Growth Fund, as head of the Central Bank. Fraga offers
financial market expertise and shareholder focus, which has aided market
sentiment. Additionally, Fraga has been successful in preventing foreign
commercial banks from terminating loans to Brazilian institutions.
Brazil's market has also been supported by contained inflation numbers, the
easing of interest rates, and progress regarding privatization and measures to
reduce the fiscal deficit. We anticipate lower inflation and better than
expected economic performance to allow for continued domestic interest rate
reductions and, in turn, for a contraction in the country risk premium. The
expected reduction in real interest rates is requisite for controlling the
fiscal deficit and for stemming the growth in the stock of public sector debt.
However, we are concerned about the pace of interest rate declines given the
fractious nature of Brazilian politics that often hinders the adoption of
contentious fiscal reforms. We continue to modestly overweight Brazil, focusing
on the telecommunications sector. The privatization of the telecom sector last
year allowed for the introduction of much new efficiency, fostering margin
expansion under the new managements. The inelasticity of the telecom sector to a
weak economy coupled with pent-up demand for telecom services should allow for
strong top-line growth. Both of these factors make a strong case for grossly
improved returns on capital for these companies.
We are overweight Mexico due to good economic management and attractive stock
opportunities. A stronger Peso coupled with better than expected consumer demand
should allow for positive U.S. dollar earnings surprises from domestic consumer
plays (e.g. beverages, cement, media, retail). Stronger oil prices may also
support the equity market in the near term. Our focus on consumer-related
industries in Mexico includes stock selections such as Cemex, which is the
largest cement company in the Americas and one of the three largest in the
world. Cemex is valued in line with its global peers but offers higher earnings
growth and return on equity. High free cashflow growth enables Cemex to take
advantage of opportune global acquisitions and we believe Cemex's high operating
margins are sustainable. One of the risks affecting Mexico is the politics ahead
of next year's presidential election and its effect on the country risk premium.
Secondly, a continued positive performance in the trend of the balance of trade
is necessary to sustain the Peso at current levels.
Despite election year uncertainties, as a new President will come into power in
October, Argentine equities rose 24.8%. The rally was spurred in part due to
record trading when Spain's Repsol bid $13.5 billion for the remaining (85%)
shares of Argentine oil producer YPF. The offer, at a 25% premium to the stock's
previous day closing price, fueled advances in the market on speculation
investors would purchase other Argentine shares with YPF proceeds. YPF was
removed from Argentina's Merval index on June 23, reducing the market's free
float and thereby magnifying the potential effect of future inflows on the
market. We maintain our underweight position in Argentina, as we expect economic
growth will continue to be subdued by poor economic fundamentals in Brazil and a
perceived lack of fiscal discipline. We continue to focus on those few core
companies (beer producing Quilmes, Telefonica Argentina and Telecom Argentina),
which, we believe, have greater long-term growth potential mitigating somewhat
negative economic trends.
- --------------------------------------------------------------------------------
Latin American Portfolio
74
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
LATIN AMERICAN PORTFOLIO (CONT.)
Chile's market rose 28.7%, with declining interest rates and a rebound in pulp
prices helping drive advances. Over the course of the second quarter,
multi-billion dollar bids for electric utilities (e.g. Spain's Endesa acquired
Endesa Chile) initially lifted the market until investors later sought to lock
in gains. Although we have confidence in the macro management of the Chilean
economy, we foresee extremely weak consumer and industrial sectors over the next
twelve months. Despite the bottoming of both the economy and commodity prices
(copper), we remain underweight due to a lack of investable opportunities.
After falling 13.3% during the first quarter due to uncertainty over president
Chavez' policies and prospects of a currency devaluation, Venezuela rallied to
end the first half of 1999 up 15.5%. We added to our exposure in Venezuela
during the second quarter due to a better oil price environment that sustains
the currency, however we remain modestly underweight. Although low valuations
already reflect, to some extent, negative market and stock news, political
doubts temper the attractiveness of liquid market proxies. We are skeptical of
the new government's ability to deliver stated reforms and needed policies.
Turning to other markets, we remain underweight Colombia and Peru. Colombian
equities lost 17.3%, as the economy's lackluster prospects have been exacerbated
by concerns in the financial sector and bank weakness. Peru rose 19.8% given the
economic rebound on the renewed strength in commodity prices. However, most of
the growth expected for this year will be skewed towards agriculture, mining
investment and fishing production, which have exhibited healthy trends, while
the second half of 1999 looks less promising for secondary sectors such as
consumer manufacturing and banking.
Michael L. Perl
PORTFOLIO MANAGER
Andy B. Skov
PORTFOLIO MANAGER
Robert L. Meyer
PORTFOLIO MANAGER
July 1999
- --------------------------------------------------------------------------------
Latin American Portfolio
75
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1999
- --------------------------------------------------------------------------------
LATIN AMERICAN PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- --------------------------------------------------------------------------------
COMMON STOCKS (99.0%)
ARGENTINA (6.4%)
9,425 Banco Rio de La Plata ADR........................ $ 90
37,905 Quilmes Industrial ADR........................... 469
23,371 Telecom Argentina ADR............................ 625
10,348 Telefonica de Argentina ADR...................... 325
--------
1,509
--------
BRAZIL (35.4%)
6,080,000 Banco Bradesco (Preferred)....................... 31
(a,d)11,847,000 Banco Nacional (Preferred)....................... --
(a)2,486,477 Celular CRT...................................... 337
11,340,386 CEMIG (Preferred)................................ 238
16,714 CEMIG ADR (Preferred)............................ 355
(e)1,275 CEMIG ADR (Preferred)............................ 27
(a)711,574,000 Cia Electric Est Rio Janeiro..................... 169
6,993,000 Cia Siderurgica Nacional......................... 183
(a)1,917,577 CRT (Preferred).................................. 470
5,000 CVRD............................................. 70
(a)34,986 CVRD (Bonus Shares).............................. --
8,955 CVRD ADR (Preferred)............................. 178
22,483 CVRD, Class A (Preferred)........................ 445
30,715 Copel ADR (Preferred)............................ 257
45,376,200 Copel, Class B ADR (Preferred)................... 369
603,830 Coteminas........................................ 31
(d,e)9,105 Coteminas ADR.................................... 23
12,633,000 Eletrobras....................................... 238
370 Eletrobras ADR................................... 4
6,253,161 Eletrobras, Class B (Preferred).................. 126
14,800 Eletrobras, Class B ADR (Preferred).............. 149
21,280,000 Embratel......................................... 293
25,510 Embratel ADR..................................... 354
11,305,832 Gerdau (Preferred)............................... 189
5,000 Globex Utilidades (Preferred).................... 26
404,175 Itaubanco (Preferred)............................ 207
208,900 Iven (Preferred)................................. 27
(a)10,009,300 Lojas Arapua (Preferred)......................... --
(a,e)13,460 Lojas Arapua ADR (Preferred)..................... --
5,648,000 Petrobras (Preferred)............................ 875
5,840 Petrobras ADR (Preferred)........................ 90
(e)49,299 Rossi GDR........................................ 56
101,175 Rossi GDS........................................ 114
12,901,225 Tele Centro Sul (Preferred)...................... 143
134,828,000 Tele Leste Celular (Preferred)................... 82
31,160,600 Tele Nordeste Celular (Preferred)................ 42
136,449,000 Tele Norte Celular (Preferred)................... 79
29,914,000 Tele Norte Leste (Preferred)..................... 541
16,978,275 Tele Sudeste Celular (Preferred)................. 96
1,490 Tele Sudeste Celular............................. 43
2,308 Telebras ADR (Preferred)......................... 208
2,196 Telenorte Leste (ADR)............................ 41
9,615 Telesp ADR....................................... 220
1,340,000 Telesp (Preferred)............................... 158
13,788,275 Telesp Celular (Preferred)....................... 143
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- --------------------------------------------------------------------------------
6,990 Telesp Celular................................... $ 187
550 Teleste Celular ADR.............................. 16
15,118 Unibanco GDR (Preferred)......................... 364
16,450 Usiminas......................................... 55
(a)2,400 Usiminas (Preferred)............................. 8
--------
8,357
--------
CHILE (8.8%)
8,745 Banco Edwards ADR................................ 127
2,780 Banco Santander ADR.............................. 43
5,803 Banco Santiago ADR............................... 111
10,609 CCU ADR.......................................... 304
18,407 Chilectra ADR.................................... 386
24,617 Cia. de Telecomunicaciones de Chile ADR.......... 609
6,406 D&S ADR.......................................... 120
5,705 Endesa ADR....................................... 69
5,361 Enersis ADR...................................... 123
9,934 Quinenco ADR..................................... 93
(a)8,452 Santa Isabel ADR................................. 86
--------
2,071
--------
COLOMBIA (0.4%)
18,321 Bavaria.......................................... 69
39,040 Valores Bavaria.................................. 32
--------
101
--------
MEXICO (44.7%)
89,414 Alfa, Class A.................................... 371
(a)10,531 Banacci, Class B................................. 27
(a)78,246 Banacci, Class L................................. 191
(a)11,275 Banacci, Class O................................. 28
443,043 Bancomer, Class B................................ 161
(a)104,718 Bancomer, Class O................................ 38
(a)135,443 Banorte, Class O................................. 195
(a)58,384 Carso Global Telecom............................. 370
(a)69,799 Carso, Class A1.................................. 324
70,525 Cemex CPO........................................ 349
22,820 Cemex CPO ADR.................................... 217
69,150 Cemex, Class B................................... 343
62,472 Cemex, Class B ADR............................... 617
(a)214,485 Cifra, Class C................................... 393
(a)43,593 Cifra, Class V................................... 85
(a)2,820 Cifra, Class V ADR............................... 54
61,641 Empresas ICA S.A................................. 68
12,397 Empresas ICA ADR................................. 84
24,045 Femsa ADR........................................ 959
24,637 Femsa (Units).................................... 98
29,569 Grupo Industrial Bimbo, Class A.................. 66
71,144 Grupo Modelo, Class C............................ 203
222,712 Kimberly-Clark, Class A.......................... 917
(a)12,275 Seminis, Inc., Class A........................... 185
95,634 Soriana, Class B................................. 451
7,269 Tamsa ADR........................................ 79
(a)23,606 Televisa CPO GDR................................. 1,058
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
Latin American Portfolio
76
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1999
- --------------------------------------------------------------------------------
LATIN AMERICAN PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------------
<C> <S> <C>
</TABLE>
MEXICO (CONT.)
<TABLE>
<C> <S> <C>
214 Telmex ADR....................................... $ 17
30,941 Telmex, Class L ADR.............................. 2,500
19,923 Vitro ADR........................................ 102
--------
10,550
--------
PERU (1.2%)
18,075 Tel Peru, Class B ADR............................ 273
--------
VENEZUELA (2.1%)
18,643 CANTV ADR........................................ 508
--------
TOTAL COMMON STOCKS (Cost $23,139).................................... 23,369
--------
TOTAL FOREIGN SECURITIES (99.0%) (Cost $23,139)....................... 23,369
--------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT
(000)
<C> <S> <C>
----------
SHORT-TERM INVESTMENT (4.4%)
REPURCHASE AGREEMENT (4.4%)
$ 1,030 Chase Securities, Inc. 4.55%, dated 6/30/99,
due 7/01/99, to be repurchased at $1,030,
collateralized by U.S. Treasury Bonds,
7.25%, due 5/15/16, valued at $1,067 (Cost
$1,030).................................... 1,030
----------
FOREIGN CURRENCY (0.4%)
ARP 8 Argentine Peso............................... 9
BRL 170 Brazilian Real............................... 96
COP 6 Colombian Peso............................... --
MXP 3 Mexican Peso................................. --
----------
TOTAL FOREIGN CURRENCY (Cost $104)..................... 105
----------
TOTAL INVESTMENTS (103.8%) (Cost $24,273).............. 24,504
----------
OTHER ASSETS (2.1%)
Cash...................................................... $ 1
Receivable for Investments Sold........................... 362
Dividends Receivable...................................... 121
Interest Receivable....................................... 2
Other..................................................... 1 487
--------
LIABILITIES ( - 5.9%)
Payable for Investments Purchased......................... (1,256 )
Custodian Fees Payable.................................... (54 )
Investment Advisory Fees Payable.......................... (28 )
Administrative Fees Payable............................... (5 )
Directors' Fees & Expenses Payable........................ (4 )
Distribution Fees Payable................................. (1 )
Other Liabilities......................................... (38 ) (1,386)
--------
NET ASSETS (100%).................................................... $ 23,605
--------
--------
</TABLE>
<TABLE>
<CAPTION>
VALUE
(000)
<C> <S> <C>
- ------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
NET ASSETS CONSIST OF:
Paid in Capital...............................................
$ 46,174
Undistributed Net Investment Income...........................
680
Accumulated Net Realized Loss.................................
(23,474)
Unrealized Appreciation on Investments and Foreign Currency
Translations................................................
225
--------
NET ASSETS....................................................
$ 23,605
--------
--------
</TABLE>
<TABLE>
<S> <C>
CLASS A:
- --------------------------------------------------------------
NET ASSETS....................................................
$ 22,091
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 2,358,144 outstanding $0.001 par value shares
(authorized 500,000,000 shares)............................. $9.37
--------
--------
</TABLE>
<TABLE>
<S> <C>
CLASS B:
- --------------------------------------------------------------
NET ASSETS....................................................
$1,514
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 160,956 outstanding $0.001 par value shares
(authorized 500,000,000 shares)............................. $9.40
--------
--------
</TABLE>
- ------------------------------------------------------------
(a) -- Non-income producing security
(d) -- Security valued at fair value -- See Note A-1 to financial statements.
(e) -- 144 A Security -- certain conditions for public sale may exist.
ADR -- American Depositary Receipt
CPO -- Certificate of Participation
GDR -- Global Depositary Receipt
GDS -- Global Depositary Shares
- ------------------------------------------------------------
SUMMARY OF FOREIGN SECURITIES BY INDUSTRY CLASSIFICATION
<TABLE>
<CAPTION>
VALUE PERCENT OF
INDUSTRY (000) NET ASSETS
<S> <C> <C>
- ------------------------------------------------------------------
Capital Equipment...................... $ 231 1.0%
Consumer Goods......................... 3,475 14.7
Energy................................. 3,476 14.7
Finance................................ 1,782 7.5
Materials.............................. 2,756 11.7
Multi-Industry......................... 815 3.5
Services............................... 10,834 45.9
-------- ---
$ 23,369 99.0%
-------- ---
-------- ---
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
Latin American Portfolio
77
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
AGGRESSIVE EQUITY PORTFOLIO
COMPOSITION OF NET ASSETS (AT JUNE 30, 1999)
- ---------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Capital Goods 24.6%
Communication Services 12.2%
Consumer Cyclicals 13.8%
Consumer Staples 7.8%
Financial 3.0%
Health Care 13.1%
Technology 20.3%
Utilities 2.6%
Other 2.6%
</TABLE>
PERFORMANCE COMPARED TO THE S&P 500 INDEX
AND THE LIPPER CAPITAL APPRECIATION INDEX(1)
- ----------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
--------------------------------------
AVERAGE
ANNUAL
SINCE
YTD ONE YEAR INCEPTION
---------- ------------ ------------
<S> <C> <C> <C>
PORTFOLIO -- CLASS A............... 24.00% 26.38% 36.28%
PORTFOLIO -- CLASS B............... 23.91 26.01 32.17
S&P 500 INDEX -- CLASS A........... 12.38 22.75 29.84
LIPPER CAP. APPRECIATION INDEX --
CLASS A............................ 14.97 20.28 22.61
S&P 500 INDEX -- CLASS B........... 12.38 22.75 27.73
LIPPER CAP. APPRECIATION INDEX --
CLASS B............................ 14.97 20.28 20.11
</TABLE>
1. The S&P 500 Index is an unmanaged stock index comprised of 500 large-cap U.S.
companies with market capitalization of $1 billion or more. The Lipper
Capital Appreciation Index is a composite of mutual funds managed for maximum
capital gains.
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 INFORMATION CONTAINED IN THIS OVERVIEW REGARDING SPECIFIC SECURITIES IS FOR
INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A RECOMMENDATION TO
PURCHASE OR SELL THE SECURITIES MENTIONED. THE PORTFOLIO'S CONCENTRATION OF ITS
ASSETS IN A SMALL NUMBER OF ISSUERS AND ITS USE OF EQUITY-LINKED SECURITIES WILL
SUBJECT IT TO GREATER RISKS. THE PERFORMANCE RESULTS PROVIDED ARE FOR
INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A GUARANTEE OF THE
PORTFOLIO'S FUTURE PERFORMANCE. PAST PERFORMANCE SHOWN IS NOT PREDICTIVE OF
FUTURE PERFORMANCE. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT
AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST.
The Aggressive Equity Portfolio seeks capital appreciation through a
concentrated, non-diversified portfolio of corporate equity and equity-linked
securities. Short sales and options can be used to enhance performance.
For the six months ended June 30, 1999, the Portfolio had a total return of
24.00% for the Class A shares and 23.91% for the Class B shares compared to a
total return of 12.38% for the S&P 500 Index and 14.97% for the Lipper Capital
Appreciation Index. For the one year period ended June 30, 1999, the Portfolio
had a total return of 26.38% for the Class A shares and 26.01% for the Class B
shares compared to 22.75% for the S&P 500 Index and 20.28% for the Lipper
Capital Appreciation Index. For the period since inception on March 8, 1995
through June 30, 1999, the average annual total return of Class A shares was
36.28% compared to 29.84% for the S&P 500 Index and 22.61% for the Lipper
Capital Appreciation Index. For the period since inception on January 2, 1996
through June 30, 1999, the average annual total return of Class B shares was
32.17% compared to 27.73% for the S&P 500 Index and 20.11% for the Lipper
Capital Appreciation Index.
The first half of the year was, as usual, quite eventful. As growth investors,
we were very pleased to have survived the "revenge of the value stocks" in the
early part of the second quarter. The value rally occurred when investors rushed
to purchase cyclically oriented companies in reaction to a stronger economy and
increased interest rates. At one point during the roughly six week period of the
cyclical rally, the Russell 1000 Value Index had outperformed the Russell 1000
Growth Index by over 1000 basis points. We were patient, stuck to our discipline
and opportunistically added to some of our highest quality growth names at
attractive prices. When growth moved back into vogue later in the second
quarter, your Portfolio benefited.
For the three months ended June 30, 1999, the Portfolio had a total return of
9.65% for the Class A shares and 7.85% for the Class B shares compared to 7.05%
for the S&P 500 Index and 9.70% for the Lipper Capital Appreciation Index. The
Portfolio's nontraditional growth stock holdings such as Tyco (our largest
position), Liberty Media (AT&T), Associated Group (sold to Liberty Media in
June) and Gulfstream Aerospace (acquired by General Dynamics) were significant
contributors to performance in the second quarter.
- --------------------------------------------------------------------------------
Aggressive Equity Portfolio
78
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
AGGRESSIVE EQUITY PORTFOLIO (CONT.)
The Portfolio's non-traditional growth stock holdings drove performance over the
six month period as well, with Liberty Media contributing about 260 basis
points, Tyco adding about 240 basis points and Associated Group contributing
approximately 210 basis points to the overall return.
Tyco became our largest holding late in the first quarter when pressure due to
the AMP acquisition led us to again increase our position. With the stock up 25%
in the first six months and 32% during the second quarter, we garnered
approximately 240 basis points of performance from this holding alone in the
first half. Subsequent to the AMP acquisition, Tyco also announced additive
acquisitions of Raychem and several smaller niche companies.
During the period Gulfstream Aerospace, which rose about 27% in the first half,
agreed to be acquired by General Dynamics. Earnings had been increasing at an
annual pace of well over 20%, yet early in the second quarter the stock was
selling at only about 12 times 2000 earnings per share. After the deal closes in
the third quarter, the Portfolio should hold about a 1.0% position in General
Dynamics. We view General Dynamics as one of our non-traditional growth
holdings. The company has been increasing earnings per share at an annual rate
of about 15%. General Dynamics was a ten bagger in the early/mid 1990s when the
company was in a divestiture mode. Today the company is in the process of
proving they can also enhance shareholder value via acquisition.
One of the sector themes which has percolated up from our stock research is what
we call "imbedded" internet exposure. We believe the internet phenomenon is real
and is permanently altering the way businesses interact with customers and
businesses interface with other businesses. We do not believe this is debatable.
What could be debated, however, is the question of appropriate valuations for
the pure play internet companies. We have elected to participate in this very
exciting growth opportunity in a risk averse way, as we believe there are a
number of internet business models that will not be successful and therefore the
valuations accorded some of the high fliers will not be sustainable. Rather than
owning the "dot.com" company du jour we have exposure to internet content,
advertising/media, telecom/satellite infrastructure and hardware plays through
several well established companies such as Clear Channel Communications, AT&T,
MCI Worldcom and Cisco. We believe that a particularly interesting way to play
the internet is through media/advertising companies that are used to drive
eyeballs to websites. In total, imbedded internet plays accounted for about 28%
of the Portfolio at quarter end. We believe this actually understates our
"imbedded" exposure, as it excludes our 4.8% stake in Microsoft (a clear
Internet beneficiary) as well as the tower antennae company American Tower (2.1%
of the Portfolio) which should benefit from the proliferation of wireless
devices that can provide internet connectivity. Even General Electric (a 5.8%
holding) has an imbedded Internet play through its NBC subsidiary.
After increasing health care exposure in the first quarter of 1999 from under 6%
at year-end to about 13% at March 31, 1999, our weighting remained fairly stable
during the second quarter. However, opportunistic investments and sales in the
second quarter have transitioned the mix of investments to those companies that
we believe have more powerful business momentum. Toward this end, we eliminated
our successful investment in Bausch & Lomb after a substantial run-up in the
stock price. We initiated a position in Bristol-Myers and increased our Warner
Lambert holding as we believe the investment community does not fully appreciate
their earnings potential. Proposed Medicare legislation and a strengthening
economy (which makes stable pharmaceutical earnings growth look relatively less
attractive) have led to nearly 20% relative underperformance for the drug group
year-to-date. We believe these stocks are near their relative lows and we will
look to add to them opportunistically.
Not withstanding higher interest rates than we and the investment community had
expected earlier in the year, we believe inflation remains in check. Gross
domestic product growth, while stronger than expected, should be held to
reasonable levels by the Fed and the recovery of foreign markets, while
potentially powerful, is more likely to be U-shaped than V-shaped. This bodes
well for the continued outperformance of medium and large capitalization growth
stocks.
The Portfolio held 37 securities at June 30. The Portfolio remains a mix of
"classic" growth stocks such as Microsoft, General Electric, Cisco and Intel, as
well as less traditional growth names such as Tyco International, United
Technologies and Clear Channel Communications. At quarter end, our largest
position was Tyco, which represented 8.0% of the Portfolio, and the ten largest
holdings accounted for 48.5% of
- --------------------------------------------------------------------------------
Aggressive Equity Portfolio
79
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
AGGRESSIVE EQUITY PORTFOLIO (CONT.)
the net assets. We continue to believe that our philosophy of opportunistic
concentration (of which our weighting in Tyco is a good example) will lead to
above Index performance.
Philip A. Friedman
PORTFOLIO MANAGER
William S. Auslander
PORTFOLIO MANAGER
July 1999
- --------------------------------------------------------------------------------
Aggressive Equity Portfolio
80
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENTS OF NET ASSETS (UNAUDITED)
JUNE 30, 1999
- --------------------------------------------------------------------------------
AGGRESSIVE EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- ---------------------------------------------------------------------------
COMMON STOCKS (97.4%)
CAPITAL GOODS (24.6%)
AEROSPACE/DEFENSE (1.0%)
(a)20,600 Gulfstream Aerospace Corp........................ $ 1,392
---------
ELECTRICAL EQUIPMENT (5.8%)
68,200 General Electric Co.............................. 7,707
---------
MANUFACTURING (DIVERSIFIED) (14.3%)
37,500 Textron, Inc..................................... 3,087
112,600 Tyco International Ltd........................... 10,669
73,900 United Technologies Corp......................... 5,297
---------
19,053
---------
OFFICE EQUIPMENT & SUPPLIES (3.5%)
72,600 Pitney Bowes, Inc................................ 4,664
---------
TOTAL CAPITAL GOODS........................................... 32,816
---------
COMMUNICATION SERVICES (12.2%)
TELECOMMUNICATIONS (CELLULAR/WIRELESS) (5.1%)
(a)19,000 Associated Group, Inc., Class A.................. 1,237
(a)86,100 Associated Group, Inc., Class B.................. 5,613
---------
6,850
---------
TELECOMMUNICATIONS (LONG DISTANCE) (4.4%)
17,225 AT&T Corp........................................ 962
(a)56,500 MCI Worldcom, Inc................................ 4,873
---------
5,835
---------
TELEPHONE (2.7%)
55,900 Bell Atlantic Corp............................... 3,654
---------
TOTAL COMMUNICATION SERVICES.................................. 16,339
---------
CONSUMER CYCLICALS (13.8%)
RETAIL (BUILDING SUPPLIES) (2.4%)
50,000 Home Depot, Inc.................................. 3,222
---------
RETAIL (GENERAL MERCHANDISE) (3.2%)
(a)52,300 Costco Companies Inc............................. 4,187
---------
RETAIL (SPECIALTY) (6.2%)
(a)122,200 Abercrombie & Fitch Co., Class A................. 5,865
47,775 Gap, Inc......................................... 2,407
---------
8,272
---------
SERVICES (COMMERCIAL & CONSUMER) (2.0%)
(a)92,200 Nielsen Media Research, Inc...................... 2,697
---------
TOTAL CONSUMER CYCLICALS...................................... 18,378
---------
CONSUMER STAPLES (7.8%)
BROADCASTING (TV, RADIO, CABLE) (5.3%)
(a)26,800 AT&T-Liberty Media Corp., Class A................ 985
(a)23,800 Chancellor Media Corp............................ 1,312
(a)68,600 Clear Channel Communications, Inc................ 4,729
---------
7,026
---------
FOODS (1.3%)
(a)54,800 Keebler Foods Co................................. 1,665
---------
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- ---------------------------------------------------------------------------
HOUSEHOLD PRODUCTS (NON-DURABLES) (1.2%)
18,600 Procter & Gamble Co.............................. $ 1,660
---------
TOTAL CONSUMER STAPLES........................................ 10,351
---------
FINANCIAL (3.0%)
BANKS (MAJOR REGIONAL) (1.6%)
58,700 Bank of New York Co., Inc........................ 2,154
---------
FINANCIAL (DIVERSIFIED) (1.4%)
39,900 Citigroup, Inc................................... 1,895
---------
TOTAL FINANCIAL............................................... 4,049
---------
HEALTH CARE (13.1%)
HEALTH CARE (DIVERSIFIED) (6.8%)
56,200 Bristol-Myers Squibb Co.......................... 3,959
73,000 Warner Lambert Co................................ 5,064
---------
9,023
---------
HEALTH CARE (DRUGS - GENERIC & OTHERS) (2.7%)
(a)60,100 Amgen, Inc....................................... 3,658
---------
HEALTH CARE (DRUGS - MAJOR PHARMS) (3.6%)
18,500 Pfizer, Inc...................................... 2,030
52,800 Schering-Plough Corp............................. 2,799
---------
4,829
---------
TOTAL HEALTH CARE............................................. 17,510
---------
TECHNOLOGY (20.3%)
COMMUNICATION EQUIPMENT (4.1%)
(a)118,800 American Tower Corp., Class A.................... 2,851
27,400 Motorola, Inc.................................... 2,596
---------
5,447
---------
COMPUTERS (NETWORKING) (5.9%)
(a)113,800 Cisco Systems, Inc............................... 7,340
(a)3,700 Juniper Networks, Inc............................ 552
---------
7,892
---------
COMPUTERS (SOFTWARE & SERVICES) (6.2%)
(a)17,300 America Online, Inc.............................. 1,912
(a)70,400 Microsoft Corp................................... 6,349
---------
8,261
---------
ELECTRONICS (SEMICONDUCTORS) (2.1%)
46,100 Intel Corp....................................... 2,743
---------
EQUIPMENT (SEMICONDUCTORS) (2.0%)
(a)36,700 Applied Materials, Inc........................... 2,711
---------
TOTAL TECHNOLOGY.............................................. 27,054
---------
UTILITIES (2.6%)
ELECTRIC COMPANIES (2.6%)
48,500 Montana Power Co................................. 3,419
---------
TOTAL COMMON STOCKS (Cost $109,590)........................... 129,916
---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
Aggressive Equity Portfolio
81
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENTS OF NET ASSETS (UNAUDITED)
JUNE 30, 1999
- --------------------------------------------------------------------------------
AGGRESSIVE EQUITY PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- ---------------------------------------------------------------------------
<C> <S> <C>
SHORT-TERM INVESTMENT (1.8%)
REPURCHASE AGREEMENT (1.8%)
$ 2,361 Chase Securities, Inc., 4.55%, dated 6/30/99, due
7/01/99, to be repurchased at $2,361,
collateralized by
U.S. Treasury Notes, 7.25%,
due 5/15/16, valued at $2,439 (Cost $2,361).... $ 2,361
---------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS (99.2%) (Cost $111,951)........................ 132,277
--------
OTHER ASSETS (1.8%)
Cash............................................... $ 1
Receivable for Investments Sold.................... 2,294
Dividends Receivable............................... 31
Receivable for Portfolio Shares Sold............... 8
Other.............................................. 3 2,337
----------
LIABILITIES ( - 1.0%)
Payable for Investments Purchased.................. (854)
Investment Advisory Fees Payable................... (231)
Payable for Portfolio Shares Redeemed.............. (145)
Administrative Fees Payable........................ (17)
Distribution Fee Payable........................... (11)
Directors' Fees & Expenses Payable................. (11)
Custodian Fees Payable............................. (5)
Other Liabilities.................................. (30) (1,304)
---------- --------
NET ASSETS (100%)................................................ $133,310
--------
--------
</TABLE>
<TABLE>
<S> <C>
NET ASSETS CONSIST OF:
Paid in Capital.................................................. $ 81,642
Undistributed Net Investment Loss................................ (313)
Accumulated Net Realized Gain.................................... 31,655
Unrealized Appreciation on Investments........................... 20,326
--------
NET ASSETS....................................................... $133,310
--------
--------
</TABLE>
<TABLE>
<CAPTION>
AMOUNT
(000)
<S> <C> <C>
- ---------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
CLASS A:
- -----------------------------------------------------------------
NET ASSETS....................................................... $113,789
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 5,243,226 outstanding $0.001 par value Shares
(authorized 500,000,000 shares)................................ $21.70
--------
--------
CLASS B:
- -----------------------------------------------------------------
NET ASSETS....................................................... $19,521
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 905,391 outstanding $0.001 par value Shares
(authorized 500,000,000 shares)................................ $21.56
--------
--------
</TABLE>
- ------------------------------------------------------------
(a) -- Non-income producing security
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
Aggressive Equity Portfolio
82
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
EMERGING GROWTH PORTFOLIO
COMPOSITION OF NET ASSETS (AT JUNE 30, 1999)
- ---------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Auto & Transportation 2.8%
Consumer Discretionary 36.4%
Financial Services 9.3%
Health Care 1.9%
Producer Durables 5.7%
Technology 31.6%
Utilities 8.0%
Other 4.3%
</TABLE>
PERFORMANCE COMPARED TO THE RUSSELL 2000 INDEX(1)
- --------------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
-------------------------------------------------
AVERAGE AVERAGE
ANNUAL ANNUAL
FIVE SINCE
YTD ONE YEAR YEARS INCEPTION
---------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
PORTFOLIO -- CLASS A......... 29.00% 37.91% 23.47% 15.77%
PORTFOLIO -- CLASS B......... 28.88 37.23 N/A 19.84
INDEX -- CLASS A............. 9.28 1.50 15.40 12.78
INDEX -- CLASS B............. 9.28 1.50 N/A 12.62
</TABLE>
1. The Russell 2000 Index is comprised of the 2,000 smallest companies in the
Russell 3000 Index. The companies have an average market capitalization of
approximately $600 million.
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 INFORMATION CONTAINED IN THIS OVERVIEW REGARDING SPECIFIC SECURITIES IS FOR
INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A RECOMMENDATION TO
PURCHASE OR SELL THE SECURITIES MENTIONED. THE PERFORMANCE RESULTS PROVIDED ARE
FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A GUARANTEE OF
THE PORTFOLIO'S FUTURE PERFORMANCE. PAST PERFORMANCE SHOWN IS NOT PREDICTIVE OF
FUTURE PERFORMANCE. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT
AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST.
The Emerging Growth Portfolio invests primarily in growth-oriented equity
securities of small- to medium-sized domestic corporations and, to a limited
extent, foreign corporations. Such companies generally have market
capitalizations ranging from $200 million to $3 billion.
For the six months ended June 30, 1999, the Portfolio had a total return of
29.00% for the Class A shares and 28.88% for the Class B shares compared to a
total return of 9.28% for the Russell 2000 Index (the "Index"). For the one year
period ended June 30, 1999, the Portfolio had a total return of 37.91% for the
Class A shares and 37.23% for the Class B shares compared 1.50% for the Index.
For the five-year period ended June 30, 1999, the average annual total return of
Class A shares was 23.47% compared to 15.40% for the Index. For the period since
inception on November 1, 1989 through June 30, 1999, the average annual total
return of Class A shares was 15.77% compared to 12.78% for the Index. For the
period since inception on January 2, 1996 through June 30, 1999, the average
annual total return of Class B shares was 19.84% compared to 12.62% for the
Index.
For the second quarter of 1999, the Portfolio had a total return of 17.87% for
the Class A shares and 17.72% for the Class B shares, outperforming the Index
return of 15.55% by 2000 basis points. As growth investors, we were very pleased
to have survived the "revenge of the value stocks" in the early part of the
second quarter. The value rally occurred when investors rushed to purchase
cyclically oriented companies in reaction to a stronger economy and increased
interest rates. We were patient, stuck to our discipline and opportunistically
added to some of our highest quality growth names at attractive prices. When
growth moved back into vogue later in the second quarter, your Portfolio
benefited.
Our investment process continues to be driven by bottom up, fundamental
research. We tend to favor companies with exceptional earnings and cash flow
growth potential, strong leadership positions within their industries, high
levels of profitability and top notch management teams. In addition, we focus
more on individual companies than sector allocation. Although we were overweight
consumer discretionary and underweight healthcare, and materials and processing
for the quarter and most of the year, this was a function of our specific stock
selection rather than a top down decision.
- --------------------------------------------------------------------------------
Emerging Growth Portfolio
83
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
EMERGING GROWTH PORTFOLIO (CONT.)
We continue to have minimal exposure to the "pure play" internet stocks;
however, we believe the Portfolio is well positioned to potentially benefit from
continuing growth of this new medium. Our fourth largest position at quarter
end, Nielsen Media Research, is the dominant provider of television ratings in
the U.S. and Canada, serving national and local customers including television
networks and affiliates, independent stations, syndicates, cable networks,
advertisers and their agencies. We continue to view the shares as undervalued
given the company's monopoly position in its core business, high visibility of
earnings and strong cash flow.
Corporate Executive Board is a new addition to the top 10. The company provides
best practices research and analysis focusing on strategy, operations and
general management issues. Because of its subscription based business model,
Corporate Executive Board's earnings significantly understate its free cash flow
generation capability. In addition, the company has extremely high business
visibility due to its conservative revenue recognition policies. Over the next
five years, Corporate Executive Board should be able to grow its revenues and
earnings significantly by selling more subscriptions to existing clients as well
as expanding its current customer base.
At the end of the first quarter our second largest position was Associated
Group, which owns an exciting group of controlling interests in wireless
telecommunications businesses. Specifically, we thought the company's stake in
Teligent was unappreciated by the market. In the beginning of June, Liberty
Media agreed to acquire Associated's shares primarily to gain control of
Teligent and its ability to offer customers wireless voice and data
communication solutions.
During the second quarter, we also eliminated our holdings of American Bankers,
a former top 10 position. At the end of the first quarter, American Bankers was
acquired at a 20% premium by Fortis, a European financial company. In addition,
we sold our shares of Tootsie Roll due to our concerns about slower than
anticipated growth in the companies core businesses.
Looking forward, we continue to see many opportunities for capital appreciation
in small- to mid-sized companies.
At quarter end there were 88 names in the Portfolio, with the top 10
representing roughly 32.7% of the Portfolio.
Alexander L. Umansky
PORTFOLIO MANAGER
Dennis P. Lynch
PORTFOLIO MANAGER
July 1999
- --------------------------------------------------------------------------------
Emerging Growth Portfolio
84
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1999
- --------------------------------------------------------------------------------
EMERGING GROWTH PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- ----------------------------------------------------------------------------
COMMON STOCKS (95.7%)
AUTO & TRANSPORTATION (2.8%)
TRANSPORTATION MISCELLANEOUS (2.8%)
30,800 C.H. Robinson Worldwide, Inc..................... $ 1,132
--------
CONSUMER DISCRETIONARY (36.4%)
ADVERTISING AGENCIES (2.9%)
61,062 R.H. Donnelley Corp.............................. 1,195
--------
CONSUMER ELECTRONICS (0.7%)
(a)2,500 Exodus Communications, Inc....................... 300
--------
ENTERTAINMENT (3.3%)
36,664 Cedar Fair L.P................................... 914
(a)6,472 SFX Entertainment, Inc........................... 414
--------
1,328
--------
HOTEL/MOTEL (0.9%)
8,500 Four Seasons Hotels, Inc......................... 375
--------
LEISURE TIME (1.9%)
(a)4,500 American Classic Voyages Co...................... 108
(a)15,800 Championship Auto Racing Teams, Inc.............. 473
(a)7,700 Ducati Motor Holdings, Inc....................... 202
--------
783
--------
RADIO & TV BROADCASTERS (4.2%)
(a)5,200 ACTV, Inc........................................ 72
(a)13,992 Metro Networks, Inc.............................. 747
(a)22,400 Pegasus Communications Corp...................... 882
--------
1,701
--------
RESTAURANTS (4.8%)
(a)11,900 Papa John's International, Inc................... 532
(a)43,446 Sonic Corp....................................... 1,417
--------
1,949
--------
RETAIL (7.7%)
(a)24,800 Abercrombie & Fitch Co., Class A................. 1,191
(a)35,100 David's Bridal, Inc.............................. 546
(a)6,500 InterTAN, Inc.................................... 133
(a)19,200 P.F. Chang's China Bistro, Inc................... 415
(a)14,100 The Pantry, Inc.................................. 227
(a)9,200 Tuesday Morning Corp............................. 235
(a)5,400 Tweeter Home Entertainment Group, Inc............ 212
(a)16,500 Zany Brainy, Inc................................. 160
--------
3,119
--------
RENTAL & LEASING SERVICES: CONSUMER (0.5%)
(a)8,100 Rent-A-Center, Inc............................... 194
--------
SERVICE ORGANIZATIONS (1.2%)
(a)15,600 Steiner Leisure Ltd.............................. 473
--------
SERVICES: COMMERCIAL (8.3%)
(a)5,400 Argosy Education Group, Inc...................... 43
(a)45,211 Nielsen Media Research, Inc...................... 1,323
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- ----------------------------------------------------------------------------
(a)52,200 The Corporate Executive Board Company............ $ 1,856
(a)7,700 UNSWeb Corp...................................... 171
--------
3,393
--------
TOTAL CONSUMER DISCRETIONARY.................................... 14,810
--------
FINANCIAL SERVICES (9.3%)
DIVERSIFIED FINANCIAL SERVICES (1.8%)
21,521 Mutual Risk Management Ltd....................... 718
--------
FINANCIAL MISCELLANEOUS (1.2%)
(a)100 E-LOAN, Inc...................................... 4
(a)71,068 Indigo Aviation AB ADR........................... 471
--------
475
--------
INSURANCE: MULTI-LINE (2.7%)
33,084 Reinsurance Group of America, Inc.
(Non-Voting)................................... 1,108
--------
INSURANCE: PROPERTY & CASUALTY (0.4%)
(a)7,200 Philadelphia Consolidated Holding Corp........... 176
--------
INVESTMENT MANAGEMENT COMPANIES (2.1%)
29,192 PIMCO Advisors Holdings L.P...................... 869
--------
RENTAL & LEASING SERVICES: COMMERCIAL (0.6%)
(a)9,900 First Sierra Financial, Inc...................... 248
--------
SAVINGS & LOAN (0.5%)
(a)5,500 TeleBanc Financial Corp.......................... 213
--------
TOTAL FINANCIAL SERVICES........................................ 3,807
--------
HEALTH CARE (1.9%)
HEALTH CARE SERVICES (0.5%)
(a)3,400 Laser Vision Centers, Inc........................ 214
--------
MEDICAL & DENTAL INSTRUMENTS & SUPPLIES (1.4%)
(a)4,100 Novoste Corp..................................... 86
(a)1,200 Osteotech, Inc................................... 34
(a)3,100 Techne Corp...................................... 79
(a)7,500 Xomed Surgical Products, Inc..................... 365
--------
564
--------
TOTAL HEALTH CARE............................................... 778
--------
PRODUCER DURABLES (5.7%)
ELECTRICAL EQUIPMENT & COMPONENTS (0.8%)
(a)10,700 Commscope, Inc................................... 329
--------
MACHINERY: INDUSTRIAL/SPECIALTY (0.7%)
(a)8,400 Veeco Instruments, Inc........................... 285
--------
OFFICE FURNITURE & BUSINESS EQUIPMENT (0.3%)
(a)4,100 Knoll, Inc....................................... 109
--------
PRODUCTION TECHNOLOGY EQUIPMENT (3.0%)
(a)19,868 Dionex Corp...................................... 805
(a)2,500 Uniphase Corp.................................... 415
--------
1,220
--------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
Emerging Growth Portfolio
85
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1999
- --------------------------------------------------------------------------------
EMERGING GROWTH PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ----------------------------------------------------------------------------
<C> <S> <C>
</TABLE>
PRODUCER DURABLES (CONT.)
<TABLE>
<C> <S> <C>
TELECOMMUNICATIONS EQUIPMENT (0.9%)
(a)7,900 L-3 Communications Corp.......................... $ 382
--------
TOTAL PRODUCER DURABLES......................................... 2,325
--------
TECHNOLOGY (31.6%)
COMMUNICATIONS TECHNOLOGY (15.0%)
(a)17,500 Advanced Fibre Communications, Inc............... 273
(a)51,040 American Tower Corp., Class A.................... 1,225
(a)10,800 AudioCodes Ltd................................... 292
(a)9,500 CIENA Corp....................................... 287
(a)4,500 Concentric Network Corp.......................... 179
(a)5,200 CoreComm Ltd..................................... 251
(a)18,700 Crown Castle International Corp.................. 389
(a)4,600 Harmonic Lightwaves Inc.......................... 264
(a)12,900 IPC Communications, Inc.......................... 880
(a)6,100 Leap Wireless International, Inc................. 124
(a)7,200 Level One Communications, Inc.................... 352
(a)5,200 Pinnacle Holdings Inc............................ 127
(a)4,200 Proxim, Inc...................................... 244
(a)12,000 RF Micro Devices, Inc............................ 896
(a)32,600 SBA Communications Corp.......................... 316
--------
6,099
--------
COMPUTER SERVICES SOFTWARE & SYSTEMS (9.1%)
300 Ask Jeeves, Inc.................................. 4
(a)8,600 Citrix Systems, Inc.............................. 486
(a)8,600 Informatica Corp................................. 306
(a)7,800 Micromuse, Inc................................... 389
12,900 National Computer Systems, Inc................... 435
(a)17,800 New Era of Networks, Inc......................... 782
(a)100 Phone.com, Inc................................... 6
(a)300 Portal Software, Inc............................. 14
(a)1,700 QLogic Corp...................................... 224
(a)600 Rhythms NetConnections Inc....................... 35
(a)67,100 Software AG Systems, Inc......................... 856
(a)3,300 WorldGate Communications, Inc.................... 169
--------
3,706
--------
COMPUTER TECHNOLOGY (4.4%)
(a)2,800 PSInet, Inc...................................... 123
(a)13,800 SanDisk Corp..................................... 621
(a)9,200 SoftNet Systems, Inc............................. 257
(a)12,250 Transwitch Corp.................................. 580
(a)3,200 Verio Inc........................................ 222
--------
1,803
--------
ELECTRONICS: SEMI-CONDUCTORS/COMPONENTS (3.1%)
(a)7,300 Applied Science and Technology, Inc.............. 164
(a)7,000 Conexant Systems Inc............................. 406
(a)600 Maker Communications, Inc........................ 19
(a)3,500 Micrel, Inc...................................... 259
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- ----------------------------------------------------------------------------
(a)6,400 Powerwave Technologies, Inc...................... $ 206
(a)4,200 SDL Inc.......................................... 215
--------
1,269
--------
TOTAL TECHNOLOGY................................................ 12,877
--------
UTILITIES (8.0%)
UTILITIES: ELECTRICAL (2.4%)
13,568 Montana Power Co................................. 957
--------
UTILITIES: TELECOMMUNICATIONS (5.6%)
(a)29,332 Associated Group, Inc., Class B.................. 1,912
(a)13,100 Cellular Communications of Puerto Rico........... 373
--------
2,285
--------
TOTAL UTILITIES................................................. 3,242
--------
TOTAL COMMON STOCKS (Cost $29,699)................................ 38,971
--------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT
(000)
<C> <S> <C>
- -------------
SHORT-TERM INVESTMENTS (4.1%)
REPURCHASE AGREEMENT (4.1%)
$ 1,671 Chase Securities, Inc. 4.55%, dated 6/30/99, due
7/01/99, to be repurchased at $1,671,
collateralized by U.S. Treasury Bonds, 7.25%,
due 5/15/16, valued at $1,728 (Cost $1,671).... 1,671
--------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS (99.8%) (Cost $31,370)......................... 40,642
----------
OTHER ASSETS (1.2%)
Cash............................................... $ 1
Receivable for Investments Sold.................... 417
Receivable for Portfolio Shares Sold............... 41
Dividends Receivable............................... 19
Other.............................................. 7 485
----------
LIABILITIES ( - 1.0%)
Payable for Investments Purchased.................. (292)
Investment Advisory Fees Payable................... (79)
Administrative Fees Payable........................ (7)
Custodian Fees Payable............................. (6)
Directors' Fees and Expenses Payable............... (6)
Payable for Portfolio Shares Redeemed.............. (5)
Distribution Fees Payable.......................... (1)
Other Liabilities.................................. (20) (416)
---------- ----------
NET ASSETS (100%)................................................ $ 40,711
----------
----------
</TABLE>
<TABLE>
<S> <C>
NET ASSETS CONSIST OF:
Paid in Capital.................................................... $ 19,418
Accumulated Net Investment Loss.................................... (123)
Accumulated Net Realized Gain...................................... 12,144
Unrealized Appreciation on Investments............................. 9,272
----------
NET ASSETS......................................................... $ 40,711
----------
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
Emerging Growth Portfolio
86
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1999
- --------------------------------------------------------------------------------
EMERGING GROWTH PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMOUNT
(000)
<S> <C> <C>
- -----------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
CLASS A:
- -------------------------------------------------------------------
NET ASSETS......................................................... $38,976
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 3,744,358 outstanding $0.001 par value Shares
(authorized 500,000,000 shares).................................. $10.41
----------
----------
</TABLE>
<TABLE>
<S> <C>
CLASS B:
- -------------------------------------------------------------------
NET ASSETS......................................................... $1,735
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 169,709 outstanding $0.001 par value Shares
(authorized 500,000,000 shares).................................. $10.22
----------
----------
</TABLE>
- ------------------------------------------------------------
(a) -- Non-income producing security
ADR -- American Depositary Receipt
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
Emerging Growth Portfolio
87
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
EQUITY GROWTH PORTFOLIO
COMPOSITION OF NET ASSETS (AT JUNE 30, 1999)
- ---------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Capital Goods 21.20%
Communication Services 6.10%
Consumer Cyclicals 14.10%
Consumer Staples 14.70%
Energy 0.40%
Financial 4.70%
Health Care 13.30%
Technology 24.60%
Utilities 0.30%
Other 0.60%
</TABLE>
PERFORMANCE COMPARED TO THE S&P 500 INDEX(1)
- -----------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
-------------------------------------------------
AVERAGE
AVERAGE ANNUAL
ANNUAL SINCE
YTD ONE YEAR FIVE YEARS INCEPTION
---------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
PORTFOLIO -- CLASS A......... 15.49% 18.88% 29.51% 19.90%
PORTFOLIO -- CLASS B......... 15.34 18.56 N/A 27.42
INDEX -- CLASS A............. 12.38 22.75 27.87 19.56
INDEX -- CLASS B............. 12.38 22.75 N/A 27.73
</TABLE>
1. The S&P 500 Index is a stock index comprised of 500 large-cap U.S. companies
with market capitalization of $1 billion or more. These 500 companies are a
representative sample of some 100 industries chosen mainly for market size,
liquidity and industry group representation.
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 INFORMATION CONTAINED IN THIS OVERVIEW REGARDING SPECIFIC SECURITIES IS FOR
INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A RECOMMENDATION TO
PURCHASE OR SELL THE SECURITIES MENTIONED. THE PERFORMANCE RESULTS PROVIDED ARE
FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A GUARANTEE OF
THE PORTFOLIO'S FUTURE PERFORMANCE. PAST PERFORMANCE SHOWN IS NOT PREDICTIVE OF
FUTURE PERFORMANCE. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT
AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST.
The Equity Growth Portfolio employs a growth-oriented investment strategy
seeking long-term capital appreciation. The Portfolio seeks to accomplish its
objective by investing primarily in equities of medium and large capitalization
companies exhibiting strong earnings growth.
For the six months ended June 30, 1999, the Portfolio had a total return of
15.49% for the Class A shares and 15.34% for the Class B shares compared to a
total return of 12.38% for the S&P 500 Index (the "Index"). For the one year
period ended June 30, 1999, the Portfolio had a total return of 18.88% for the
Class A shares and 18.56% for the Class B shares compared to 22.75% for the
Index. For the five-year period ended June 30, 1999, the average annual total
return for Class A shares was 29.51% compared to 27.87% for the Index. For the
period since inception on April 2, 1991 through June 30, 1999, the average
annual total return for Class A shares was 19.90% compared to 19.56% for the
Index. For the period since inception on January 2, 1996 through June 30, 1999
the average annual total return of Class B shares was 27.42% compared to 27.73%
for the Index.
The first half of the year was, as usual, quite eventful. As growth investors,
we were very pleased to have survived the "revenge of the value stocks" in the
early part of the second quarter. The value rally occurred when investors rushed
to purchase cyclically oriented companies in reaction to a stronger economy and
increased interest rates. At one point during the roughly six week period of the
cyclical rally, the Russell 1000 Value Index had outperformed the Russell 1000
Growth Index by over 1000 basis points. We were patient, stuck to our discipline
and opportunistically added to some of our highest quality growth names at
attractive prices. When growth moved back into vogue later in the second
quarter, your Portfolio benefited.
For the second quarter, the Portfolio had a total return of 7.63% for the Class
A shares and 7.57% for the Class B shares compared to 7.05% for the S&P 500
Index. The Portfolio's nontraditional growth stock holdings such as Tyco (our
largest position), Gulfstream Aerospace (acquired by General Dynamics) and AT&T
were significant contributors to performance in the quarter.
The Portfolio's non-traditional growth stock holdings drove performance over the
six month period as well,
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- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
EQUITY GROWTH PORTFOLIO (CONT.)
with Tyco and United Technologies each contributing about 170 basis points and
Clear Channel adding about 110 basis points to the overall return.
Tyco became our largest holding late in the first quarter when pressure due to
the AMP acquisition led us to again increase our position. With the stock up 25%
in the first six months and 32% during the second quarter, we garnered
approximately 170 basis points of performance from this holding alone in the
first half. Subsequent to the AMP acquisition, Tyco also announced additive
acquisitions of Raychem and several smaller niche companies.
During the period Gulfstream Aerospace, which rose about 27% in the first half,
agreed to be acquired by General Dynamics. Earnings had been increasing at an
annual pace of well over 20%, yet early in the second quarter the stock was
selling at only about 12 times estimated 2000 earnings per share. After the deal
closes in the third quarter, the Portfolio will hold about a 2.0% position in
General Dynamics. We view General Dynamics as one of our non-traditional growth
holdings. The company has been increasing earnings per share at an annual rate
of about 15%. General Dynamics was a ten bagger in the early/mid 1990s when the
company was in a divestiture mode. Today the company is in the process of
proving they can also enhance shareholder value via acquisition.
One of the sector themes which has percolated up from our stock research is what
we call "imbedded" internet exposure. We believe the internet phenomenon is real
and is permanently altering the way businesses interact with customers and
businesses interface with other businesses. We do not believe this is debatable.
What could be debated, however, is the question of appropriate valuations for
the pure play internet companies. We have elected to participate in this very
exciting growth opportunity in a risk averse way, as we believe there are a
number of internet business models that will not be successful and therefore the
valuations accorded some of the high fliers will not be sustainable. Rather than
owning the "dot.com" company du jour we have exposure to internet content,
advertising/media, telecom/satellite infrastructure and hardware plays through
several well established companies such as Clear Channel Communications,
Comcast, Time Warner, AT&T, MCI Worldcom, Cisco, Sun Micosystems and General
Motors Corp. Class H (Hughes Electronics). We believe that a particularly
interesting way to play the internet is through media/advertising companies that
are used to drive eyeballs to websites. In total, imbedded internet plays
accounted for about 25% of the Portfolio at quarter end. We believe this
actually understates our "imbedded" exposure, as it excludes our 4.7% stake in
Microsoft (a clear internet beneficiary) as well as the tower antennae companies
such as American Tower and Crown Castle (1% of the Portfolio) which will benefit
from the proliferation of wireless devices that can provide internet
connectivity. Even General Electric (a 4.36% holding) has an imbedded internet
play through its NBC subsidiary.
After increasing health care exposure in the first quarter from under 10% at
year-end to about 13% at March 31, our weighting remained fairly stable during
the second quarter. However, opportunistic investments and sales in the second
quarter have transitioned the mix of investments to those companies that we
believe have more powerful business momentum. Toward this end, we eliminated our
successful investment in Bausch & Lomb after a substantial run-up in the stock
price. We increased positions in Bristol-Myers and Warner Lambert as we believe
the investment community does not fully appreciate their earnings potential.
Proposed Medicare legislation and a strengthening economy (which makes stable
pharmaceutical earnings growth look relatively less attractive) have led to
nearly 20% relative underperformance for the drug group year to date. We believe
these stocks are near their relative lows and we will look to add to them
opportunistically.
Notwithstanding higher interest rates than we and the investment community had
expected earlier in the year, we believe inflation remains in check. Gross
domestic product growth, while stronger than expected, should be held to
reasonable levels by the Fed and the recovery of foreign markets, while
potentially powerful, is more likely to be U-shaped than V-shaped. This bodes
well for the continued outperformance of medium and large capitalization growth
stocks.
As a reminder, in this Portfolio we seek long term capital appreciation by
investing in growth-oriented equity securities of medium and large
capitalization, predominately U.S. corporations. The Portfolio tends to be
diversified by issue and we held 77 securities at June 30 1999. The Portfolio
remains a mix of "classic" growth stocks such as Microsoft, General Electric,
Cisco, Merck and Intel, as well as less traditional growth names such as Tyco
International, United
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- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
EQUITY GROWTH PORTFOLIO (CONT.)
Technologies and Clear Channel Communications. At quarter end, our largest
position was Tyco, which represented 7.16% of the Portfolio, and the ten largest
holdings accounted for 38.5% of the net assets. We continue to believe that our
philosophy of opportunistic concentration (of which our weighting in Tyco is a
good example) should lead to above Index performance.
Philip W. Friedman
PORTFOLIO MANAGER
Margaret K. Johnson
PORTFOLIO MANAGER
William S. Auslander
PORTFOLIO MANAGER
July 1999
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- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1999
- --------------------------------------------------------------------------------
EQUITY GROWTH PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- -------------------------------------------------------------------------------
COMMON STOCKS (99.4%)
CAPITAL GOODS (21.2%)
AEROSPACE/DEFENSE (2.1%)
(a)314,900 Gulfstream Aerospace Corp........................ $ 21,275
-----------
ELECTRICAL EQUIPMENT (4.5%)
400,200 General Electric Co.............................. 45,223
(a)96,400 WESCO International, Inc......................... 1,976
-----------
47,199
-----------
MANUFACTURING (DIVERSIFIED) (12.4%)
162,500 Textron, Inc..................................... 13,376
784,000 Tyco International Ltd........................... 74,284
568,800 United Technologies Corp......................... 40,776
-----------
128,436
-----------
OFFICE EQUIPMENT & SUPPLIES (2.2%)
352,800 Pitney Bowes, Inc................................ 22,667
-----------
TOTAL CAPITAL GOODS............................................. 219,577
-----------
COMMUNICATION SERVICES (6.1%)
TELECOMMUNICATIONS (LONG DISTANCE) (4.6%)
311,083 AT&T Corp........................................ 17,362
(a)355,500 MCI WorldCom, Inc................................ 30,662
-----------
48,024
-----------
TELEPHONE (1.5%)
240,900 Bell Atlantic Corp............................... 15,749
-----------
TOTAL COMMUNICATION SERVICES.................................... 63,773
-----------
CONSUMER CYCLICALS (14.1%)
LEISURE TIME PRODUCTS (0.0%)
4,200 Harley-Davidson, Inc............................. 228
-----------
RETAIL (BUILDING SUPPLIES) (2.7%)
429,200 Home Depot, Inc.................................. 27,657
-----------
RETAIL (GENERAL MERCHANDISE) (4.1%)
(a)266,200 Costco Cos., Inc................................. 21,313
439,400 Wal-Mart Stores, Inc............................. 21,201
-----------
42,514
-----------
RETAIL (SPECIALTY) (3.5%)
(a)282,500 Abercrombie & Fitch Co., Class A................. 13,560
324,450 Gap, Inc......................................... 16,344
138,810 Intimate Brands, Inc............................. 6,576
-----------
36,480
-----------
RETAIL (SPECIALTY/APPAREL) (0.8%)
(a)352,450 Office Depot, Inc................................ 7,776
-----------
RETAIL (COMPUTERS & ELECTRONICS) (0.2%)
(a)28,700 Best Buy Co., Inc................................ 1,937
-----------
SERVICES (ADVERTISING/MARKETING) (1.1%)
147,300 Omnicom Group, Inc............................... 11,784
-----------
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- -------------------------------------------------------------------------------
SERVICES (COMMERCIAL & CONSUMER) (1.7%)
(a)58 Berkshire Hathaway, Inc., Class A................ $ 3,996
(a)4,072 Berkshire Hathaway, Inc., Class B................ 9,158
(a)142,232 Nielsen Media Research, Inc...................... 4,161
-----------
17,315
-----------
SERVICES (DATA PROCESSING) (0.0%)
6,700 Ask Jeeves, Inc.................................. 94
-----------
TOTAL CONSUMER CYCLICALS........................................ 145,785
-----------
CONSUMER STAPLES (14.7%)
BEVERAGES (ALCOHOLIC) (0.6%)
87,300 Anheuser Busch Cos., Inc......................... 6,193
-----------
BEVERAGES (NON-ALCOHOLIC) (0.5%)
172,900 Coca Cola Enterprises, Inc....................... 5,144
-----------
BROADCASTING (TV, RADIO, CABLE) (7.9%)
(a)506,200 AT&T Corp., Liberty Media Group,
Class A-Common................................... 18,603
(a)190,800 Chancellor Media Corp............................ 10,518
(a)487,500 Clear Channel Communications, Inc................ 33,607
439,200 Comcast Corp., Class A-Special................... 16,881
67,600 Comcast Corp., Class A-Common.................... 2,421
(a)7,300 MediaOne Group, Inc.............................. 543
-----------
82,573
-----------
ENTERTAINMENT (2.6%)
364,700 Time Warner, Inc................................. 26,805
-----------
FOODS (0.5%)
(a)158,800 Keebler Foods Co................................. 4,824
-----------
HOUSEHOLD PRODUCTS (NON-DURABLES) (1.2%)
140,200 Procter & Gamble Co.............................. 12,513
-----------
RESTAURANTS (0.3%)
(a)106,700 Brinker International, Inc....................... 2,901
-----------
TOBACCO (1.1%)
290,800 Philip Morris Cos., Inc.......................... 11,686
-----------
TOTAL CONSUMER STAPLES.......................................... 152,639
-----------
ENERGY (0.4%)
OIL (INTERNATIONAL INTEGRATED) (0.4%)
51,500 Exxon Corp....................................... 3,972
-----------
FINANCIAL (4.7%)
BANKS (MAJOR REGIONAL) (1.2%)
332,100 Bank of New York Co., Inc........................ 12,184
-----------
CONSUMER FINANCE (0.0%)
(a)1,900 E-LOAN, Inc...................................... 73
-----------
FINANCIAL (DIVERSIFIED) (3.5%)
146,100 American Express Co.............................. 19,011
361,975 Citigroup, Inc................................... 17,194
-----------
36,205
-----------
TOTAL FINANCIAL................................................. 48,462
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
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- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1999
- --------------------------------------------------------------------------------
EQUITY GROWTH PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- -------------------------------------------------------------------------------
<C> <S> <C>
HEALTHCARE (13.3%)
HEALTHCARE (DIVERSIFIED) (6.0%)
82,500 American Home Products Corp...................... $ 4,744
361,300 Bristol-Myers Squibb Co.......................... 25,449
103,600 Johnson & Johnson................................ 10,153
316,400 Warner Lambert Co................................ 21,950
-----------
62,296
-----------
HEALTHCARE (DRUGS-GENERIC & OTHERS) (1.3%)
(a)220,100 Amgen, Inc....................................... 13,399
-----------
HEALTHCARE (DRUGS-MAJOR PHARMS) (6.0%)
72,400 Eli Lilly & Co................................... 5,186
340,700 Merck & Co., Inc................................. 25,212
168,100 Pfizer, Inc...................................... 18,449
79,500 Pharmacia & Upjohn, Inc.......................... 4,516
168,800 Schering-Plough Corp............................. 8,946
-----------
62,309
-----------
TOTAL HEALTHCARE................................................ 138,004
-----------
TECHNOLOGY (24.6%)
COMMUNICATION EQUIPMENT (4.2%)
(a)288,900 American Tower Corp., Class A.................... 6,934
(a)33,300 CIENA Corp....................................... 1,005
(a)251,500 Crown Castle International Corp.................. 5,234
(a)47,100 L-3 Communications Holdings Corp................. 2,276
145,400 Lucent Technologies, Inc......................... 9,805
192,100 Motorola, Inc.................................... 18,201
-----------
43,455
-----------
COMPUTERS (HARDWARE) (0.4%)
(a)61,300 Sun Microsystems, Inc............................ 4,222
-----------
COMPUTERS (NETWORKING) (4.6%)
(a)49,900 At Home Corp., Series A.......................... 2,692
(a)637,150 Cisco Systems, Inc............................... 41,096
(a)28,300 Juniper Networks, Inc............................ 4,217
-----------
48,005
-----------
COMPUTERS (PERIPHERALS) (0.4%)
(a)186,300 Quantum Corp..................................... 4,495
-----------
COMPUTERS (SOFTWARE & SERVICES) (8.1%)
(a)116,100 America Online, Inc.............................. 12,829
(a)77,700 BMC Software, Inc................................ 4,196
1,100 Clarent Corp..................................... 16
(a)145,400 Compuware Corp................................... 4,626
(a)542,300 Microsoft Corp................................... 48,909
(a)87,900 New Era of Networks, Inc......................... 3,862
(a)256,500 Novell, Inc...................................... 6,797
(a)74,450 Oracle Corp...................................... 2,764
-----------
83,999
-----------
ELECTRONICS (COMPONENT DISTRIBUTION) (0.6%)
(a)38,300 Uniphase Corp.................................... 6,358
-----------
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- -------------------------------------------------------------------------------
ELECTRONICS (DEFENSE) (1.9%)
(a)77,300 General Motors Corp., Class H.................... $ 4,348
(a)101,500 Litton Industries, Inc........................... 7,283
(a)412,900 Loral Space & Communications Ltd................. 7,432
-----------
19,063
-----------
ELECTRONICS (SEMICONDUCTORS) (3.4%)
474,700 Intel Corp....................................... 28,245
47,100 Texas Instruments, Inc........................... 6,829
-----------
35,074
-----------
EQUIPMENT (SEMICONDUCTORS) (1.0%)
(a)143,100 Applied Materials, Inc........................... 10,571
-----------
TOTAL TECHNOLOGY................................................ 255,242
-----------
UTILITIES (0.3%)
ELECTRIC COMPANIES (0.3%)
42,400 Montana Power Co................................. 2,989
-----------
TOTAL COMMON STOCKS (Cost $777,800)............................... 1,030,443
-----------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT
(000)
<C> <S> <C>
- -------------
SHORT-TERM INVESTMENT (0.4%)
REPURCHASE AGREEMENT (0.4%)
$ 4,357 Chase Securities, Inc. 4.55%, dated 6/30/99, due
7/01/99, to be repurchased at $4,358,
collateralized by U.S. Treasury Notes, 7.15%,
due 5/15/16, valued at $4,495 (Cost $4,357).... 4,357
-----------
TOTAL INVESTMENTS (99.8%) (Cost $782,157)......................... 1,034,800
-----------
</TABLE>
<TABLE>
<S> <C> <C>
OTHER ASSETS (2.5%)
Cash................................................. $ 14
Receivable for Investments Sold...................... 24,225
Receivable for Portfolio Shares Sold................. 772
Dividends Receivable................................. 546
Interest Receivable.................................. 1
Other................................................ 10 25,568
----------
LIABILITIES ( - 2.3%)
Payable for Portfolio Shares Redeemed................ (18,425)
Payable For Investment Purchased..................... (3,190)
Investment Advisory Fees Payable..................... (1,439)
Administrative Fees Payable.......................... (127)
Distribution Fees Payable............................ (89)
Directors' Fees and Expenses Payable................. (39)
Custodian Fees Payable............................... (18)
Other Liabilities.................................... (105) (23,432)
---------- ----------
NET ASSETS (100%).................................................. $1,036,936
----------
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
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- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1999
- --------------------------------------------------------------------------------
EQUITY GROWTH PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMOUNT
(000)
- -------------------------------------------------------------------------------
<S> <C> <C>
</TABLE>
<TABLE>
<S> <C>
NET ASSETS CONSIST OF:
Paid in Capital.................................................... $ 738,798
Undistributed Net Investment Loss.................................. (415)
Accumulated Net Realized Gain...................................... 45,910
Unrealized Appreciation on Investments............................. 252,643
----------
NET ASSETS......................................................... $1,036,936
----------
----------
</TABLE>
<TABLE>
<S> <C>
CLASS A:
- -------------------------------------------------------------------
NET ASSETS......................................................... $867,908
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 39,475,484 outstanding $0.001 par value shares
(authorized 500,000,000 shares).................................. $21.99
----------
----------
CLASS B:
- -------------------------------------------------------------------
NET ASSETS......................................................... $169,028
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 7,723,892 outstanding $0.001 par value shares
(authorized 500,000,000 shares).................................. $21.88
</TABLE>
- ------------------------------------------------------------
(a) -- Non-income producing security
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
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Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
TECHNOLOGY PORTFOLIO
COMPOSITION OF NET ASSETS (AT JUNE 30, 1999)
- ---------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Data Communications 25.4%
Data Storage & Processing 2.5%
Electronic Equipment 10.7%
Information Processing 2.6%
Medical Technology 0.2%
Micro Computer Mfg. 1.8%
Mini & Mainframe Computer Mfg. 0.6%
Semiconductor Capital Equipment Mfg. 0.6%
Semiconductor Mfg. 13.6%
Software Products 24.7%
Test, Analysis, & Instrumentation
Equipment 1.3%
Other 16.0%
</TABLE>
PERFORMANCE COMPARED TO THE S&P 500 INDEX AND THE LIPPER SCIENCE AND TECHNOLOGY
FUNDS INDEX(1)
- -----------------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
-----------------------------------------
AVERAGE ANNUAL
YTD ONE YEAR SINCE INCEPTION
---------- ---------- -----------------
<S> <C> <C> <C>
PORTFOLIO -- CLASS A...... 43.88% 82.53% 52.75%
PORTFOLIO -- CLASS B...... 43.81 82.21 52.44
S&P 500 INDEX............. 12.38 22.75 30.51
LIPPER SCIENCE &
TECHNOLOGY
FUNDS INDEX............... 27.50 59.31 33.09
</TABLE>
1. The S&P 500 Index is a stock index comprised of the 500 large-cap U.S.
companies with market capitalization of $1 billion or more. These 500
companies are a representative sample of some 100 industries chosen mainly
for market size, liquidity, and industry group representation. The Lipper
Science and Technology Funds Index is a composite index of mutual funds that
invest at least 65% of their assets in science and technology stocks.
2. Total returns for the Portfolio reflect expenses waived and reimbursed, if
applicable, by the Adviser. Without such waiver and reimbursement, total
returns would be lower.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
- ------------------------------------------------------------
THE INFORMATION CONTAINED IN THIS OVERVIEW REGARDING SPECIFIC SECURITIES IS FOR
INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A RECOMMENDATION TO
PURCHASE OR SELL THE SECURITIES MENTIONED. 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.
The investment objective of the Technology Portfolio is to achieve long-term
capital appreciation by investing primarily in equity securities of companies
expected to benefit from their involvement in technology and technology-related
industries. The focus of the Portfolio is to identify significant long-term
technology trends and to invest in those premier companies we believe are
positioned to materially gain from these trends. Stocks selected for the
Portfolio are also expected to meet comprehensive selection criteria. The
Portfolio may invest up to 35% of its total investments in securities of foreign
companies to participate sufficiently in the global technology market.
For the six months ended June 30, 1999, the Portfolio had a total return of
43.88% for the Class A shares and 43.81% for the Class B shares compared to
12.38% for the S&P 500 Index and 27.50% for the Lipper Science and Technology
Funds Index. For the one year period ended June 30, 1999, the Portfolio had a
total return of 82.53% for the Class A shares and 82.21% for the Class B shares
compared to 22.75% for the S&P 500 Index and 59.31% for the Lipper Science and
Technology Funds Index. For the period since inception on September 16, 1996
through June 30, 1999, the average annual total return of Class A shares was
52.75% and 52.44% for Class B shares compared to 30.51% for the S&P 500 Index
and 33.09% for the Lipper Science and Technology Funds Index.
We were pleased with the Portfolio's substantial outperformance of the S&P 500
Index and Lipper Science and Technology Index for the first half of 1999. The
strong performance in the second quarter was due to the Portfolio's overweight
position in the telecom, semiconductor and semiconductor capital equipment
sectors, and underweight position in the PC hardware and IT services sectors.
Some of our best performers included Qualcomm up 131% during the second quarter
of 1999, Conexant Systems up 110%, RF Micro Devices up 56% and Uniphase up 45%.
During the second quarter we continued to be overweight the telecom and the
semiconductor sectors adding to positions in Motorola, RF Microdevices, and
Newbridge Networks. We also increased weighting in the software stocks by adding
to positions in Microsoft, BMC Software, Compuware, and Citrix.
- --------------------------------------------------------------------------------
Technology Portfolio
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- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
TECHNOLOGY PORTFOLIO (CONT.)
We continue to be vastly underweight the PC hardware and IT services sectors. In
addition, we significantly reduced our positions in EMC Corp., MCI Worldcom, and
America Online.
We believe fundamentals for technology continue to be favorable, especially in
broadband technology and Internet protocol communications. The
telecommunications industry continues to see 25%-to-35% growth in the demand for
data services; Internet access (business and consumer) is growing exponentially
and the cable and long distance companies are in the middle of a multi-billion
dollar, multi-year broadband build out.
Even though there are some valid concerns over a potential slowdown in IT
spending due to Year 2000 related problems, we believe that companies will
continue to spend on these technologies in order to stay competitive, in both
product and service features and to decrease costs.
There are over 2,000 public technology companies and we strive to invest in the
best 100. Our goal remains the same; identify the premier sectors and companies,
which present compelling investment opportunities and avoid the sectors and
companies with deteriorating fundamentals.
Alexander L. Umansky
PORTFOLIO MANAGER
Stephen C. Sexauer
PORTFOLIO MANAGER
July 1999
- --------------------------------------------------------------------------------
Technology Portfolio
95
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Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1999
- --------------------------------------------------------------------------------
TECHNOLOGY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- --------------------------------------------------------------------------
COMMON STOCK (95.7%)
TECHNOLOGY (95.7%)
DATA COMMUNICATIONS (25.4%)
(a)8,900 3Com Corp......................................... $ 237
(a)5,250 Adaptec, Inc...................................... 185
(a)4,450 ADC Telecommunications, Inc....................... 203
(a)23,000 Advanced Fibre Communications, Inc................ 359
7,950 Alcatel Alsthom ADR............................... 226
(a)6,200 American Tower Corp., Class A..................... 149
(a)700 AudioCodes Ltd.................................... 19
(a)20,500 CIENA Corp........................................ 619
(a)19,500 Cisco Systems, Inc................................ 1,258
(a)12,750 Commscope, Inc.................................... 392
(a)8,400 General Instrument Corp........................... 357
(a)3,700 Harmonic Lightwaves, Inc.......................... 212
(a)1,500 IPC Communications, Inc........................... 102
5,940 Lucent Technologies, Inc.......................... 401
(a)8,400 Metromedia Fiber Network, Inc., Class A........... 302
(a)25,100 Newbridge Networks Corp........................... 722
1,600 Nortel Networks Corp.............................. 139
(a)4,000 Powerwave Technologies, Inc....................... 129
(a)3,600 Proxim, Inc....................................... 209
(a)2,100 QUALCOMM, Inc..................................... 301
(a)4,000 Qwest Communications International, Inc........... 132
(a)10,200 RF Micro Devices, Inc............................. 761
4,750 Scientific-Atlanta, Inc........................... 171
(a)1,550 Sprint PCS........................................ 89
(a)1,500 Tellabs, Inc...................................... 101
(a)9,400 Transwitch Corp................................... 445
750 Vodafone Air Touch plc ADR........................ 148
----------
8,368
----------
DATA STORAGE & PROCESSING (2.5%)
(a)2,400 EMC Corp.......................................... 132
(a)12,400 Quantum Corp...................................... 299
(a)5,350 SanDisk Corp...................................... 241
(a)1,800 VERITAS Software Corp............................. 171
----------
843
----------
ELECTRONIC EQUIPMENT (10.7%)
(a)2,600 Best Buy Co., Inc................................. 175
(a)2,400 Exodus Communications, Inc........................ 288
(a)2,800 Gemstar Internal Group Ltd........................ 183
(a)900 Juniper Networks, Inc............................. 134
(a)7,200 LSI Logic Corp.................................... 332
(a)4,700 Level One Communications, Inc..................... 230
(a)400 Maker Communications, Inc......................... 12
(a)4,700 Micrel, Inc....................................... 348
(a)3,200 Microchip Technology, Inc......................... 152
1,900 Optical Coating Laboratory, Inc................... 159
(a)3,700 SDL Inc........................................... 189
(a)400 Sanmina Corp...................................... 30
4,200 Tandy Corp........................................ 205
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- --------------------------------------------------------------------------
(a)5,300 Uniphase Corp..................................... $ 880
(a)2,900 Vitesse Semiconductor Corp........................ 196
----------
3,513
----------
INFORMATION PROCESSING (2.6%)
(a)5,020 America Online, Inc............................... 555
(a)6,100 Electronics For Imaging, Inc...................... 313
----------
868
----------
MEDICAL TECHNOLOGY (0.2%)
(a)3,300 Novoste Corp...................................... 69
----------
MICRO COMPUTER MFG (1.8%)
(a)4,800 Dell Computer Corp................................ 178
(a)5,900 Sun Microsystems, Inc............................. 406
----------
584
----------
MINI & MAINFRAME COMPUTER MFG (0.6%)
2,100 Hewlett Packard Co................................ 211
----------
SEMICONDUCTOR CAPITAL EQUIPMENT MFG (0.6%)
(a)3,100 KLA Tencor Corp................................... 201
----------
SEMICONDUCTOR MFG (13.6%)
(a)4,200 Altera Corp....................................... 155
(a)4,950 Analog Devices, Inc............................... 248
(a)6,400 ASM Lithography Holding N.V....................... 380
(a)400 Broadcom Corp., Class A........................... 58
(a)4,900 Conexant Systems Inc.............................. 285
2,300 Intel Corp........................................ 137
(a)5,000 Lam Research Corp................................. 233
6,200 Linear Technology Corp............................ 417
(a)6,400 Maxim Integrated Products, Inc.................... 426
(a)12,400 Micron Electronics, Inc........................... 125
7,850 Motorola, Inc..................................... 744
(a)3,000 PMC-Sierra, Inc................................... 177
2,500 Texas Instruments, Inc............................ 362
(a)12,950 Xilinx, Inc....................................... 741
----------
4,488
----------
SOFTWARE PRODUCTS (24.7%)
200 Ask Jeeves, Inc................................... 3
(a)7,000 At Home Corp., Series A........................... 378
(a)7,800 BMC Software, Inc................................. 421
(a)7,800 Citrix Systems, Inc............................... 441
(a)1,600 CMGI, Inc......................................... 182
(a)12,600 Compuware Corp.................................... 401
(a)6,600 Concentric Network Corp........................... 262
(a)400 eBay, Inc......................................... 60
2,500 Electronic Data Systems Corp...................... 141
(a)6,300 Informatica Corp.................................. 224
(a)7,500 Infoseek Corp..................................... 360
(a)1,700 InfoSpace.com, Inc................................ 80
(a)1,400 Inktomi Corp...................................... 183
(a)4,000 Lycos, Inc........................................ 367
(a)3,500 Micromuse, Inc.................................... 175
(a)9,500 Microsoft Corp.................................... 857
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
Technology Portfolio
96
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1999
- --------------------------------------------------------------------------------
TECHNOLOGY PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------
<C> <S> <C>
</TABLE>
TECHNOLOGY (CONT.)
SOFTWARE PRODUCTS (CONT.)
<TABLE>
<C> <S> <C>
(a)2,100 Network Solutions, Inc., Class A.................. $ 166
(a)18,100 New Era of Networks, Inc.......................... 795
(a)25,750 Novell, Inc....................................... 682
(a)100 Phone.com, Inc.................................... 6
(a)1,600 Portal Software, Inc.............................. 74
(a)2,200 PSInet, Inc....................................... 96
(a)1,800 RealNetworks, Inc................................. 124
(a)400 Rhythms NetConnections Inc........................ 23
(a)51,200 SAGA Systems, Inc................................. 653
(a)4,800 Security First Technologies Corp.................. 217
(a)7,900 SoftNet Systems Inc............................... 220
(a)2,600 Verio Inc......................................... 181
(a)1,200 Vignette Corp..................................... 90
(a)2,700 WorldGate Communications, Inc..................... 138
(a)800 YAHOO!, Inc....................................... 138
----------
8,138
----------
TEST, ANALYSIS & INSTRUMENTATION EQUIPMENT (1.3%)
(a)4,100 Teradyne, Inc..................................... 294
(a)3,950 Veeco Instruments, Inc............................ 134
----------
428
----------
OTHER (11.7%)
(a)1,500 Amazon.com, Inc................................... 188
(a)9,850 Applied Materials, Inc............................ 727
(a)10,400 Applied Science and Technology, Inc............... 234
3,800 AT&T Corp......................................... 212
2,400 Bell Atlantic Corp................................ 157
400 Charles Schwab Corp............................... 44
(a)100 E-LOAN, Inc....................................... 4
(a)3,000 E*TRADE Group, Inc................................ 120
(a)7,600 First Sierra Financial, Inc....................... 190
(a)4,300 MCI Worldcom, Inc................................. 371
2,200 Montana Power Co.................................. 155
(a)900 Priceline.com Inc................................. 104
(a)4,850 SABRE Group Holdings, Inc......................... 334
5,950 Sprint Corp. (Fon Group).......................... 314
(a)4,200 TeleBanc Financial Corp........................... 163
(a)4,800 USWeb Corp........................................ 107
(a)9,100 Whittman-Hart, Inc................................ 289
3,000 Williams Cos., Inc................................ 128
----------
3,841
----------
TOTAL TECHNOLOGY............................................ 31,552
----------
TOTAL COMMON STOCKS (Cost $23,702)............................ 31,552
----------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
<C> <S> <C>
- --------------------------------------------------------------------------
SHORT-TERM INVESTMENT (3.0%)
REPURCHASE AGREEMENT (3.0%)
$ 976 Chase Securities, Inc. 4.55%, dated 6/30/99, due
7/01/99, to be repurchased at $976,
collateralized by U.S. Treasury Bonds, 7.25%,
due 5/15/16, valued at $1,011. (Cost $976)...... $ 976
----------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS (98.7%) (Cost $24,678).................... 32,528
----------
OTHER ASSETS (3.7%)
Cash.......................................... $ 14
Receivable for Investments Sold............... 961
Receivable for Portfolio Shares Sold.......... 121
Due from Broker............................... 116
Dividends Receivable.......................... 5
Other......................................... 1 1,218
----------
LIABILITIES ( - 2.4%)
Payable for Investments Purchased............. (656)
Investment Advisory Fees Payable.............. (90)
Administrative Fees Payable................... (6)
Directors' Fees & Expenses Payable............ (5)
Custodian Fees Payable........................ (4)
Other Liabilities............................. (17) (778)
---------- ----------
NET ASSETS (100%)........................................... $ 32,968
----------
----------
</TABLE>
<TABLE>
<S> <C>
NET ASSETS CONSIST OF:
Paid in Capital............................................... $ 14,361
Accumulated Net Investment Loss............................... (138)
Accumulated Net Realized Gain................................. 10,895
Unrealized Appreciation on Investments........................ 7,850
----------
NET ASSETS.................................................... $ 32,968
----------
----------
</TABLE>
<TABLE>
<S> <C>
CLASS A:
- --------------------------------------------------------------
NET ASSETS.................................................... $30,368
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 1,174,034 outstanding $0.001 par value shares
(authorized 500,000,000 shares)............................. $25.87
----------
----------
CLASS B:
- --------------------------------------------------------------
NET ASSETS.................................................... $2,600
NET ASSET VALUE, OFFERING, AND REDEMPTION
PRICE PER SHARE
Applicable to 100,884 outstanding $0.001 par value shares
(authorized 500,000,000 shares)............................. $25.77
----------
----------
</TABLE>
- ------------------------------------------------------------
(a) -- Non-income producing security
ADR -- American Depositary Receipt
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
Technology Portfolio
97
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
U.S. EQUITY PLUS PORTFOLIO
COMPOSITION OF NET ASSETS (AT JUNE 30, 1999)
- ---------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Basic Materials 2.3%
Capital Goods 8.4%
Communication Services 8.7%
Consumer Cyclicals 11.5%
Consumer Staples 10.9%
Energy 5.1%
Financial 16.3%
Healthcare 10.7%
Technology 22.0%
Transportation 1.0%
Utilities 3.0%
Other 0.1%
</TABLE>
PERFORMANCE COMPARED TO THE S&P 500 INDEX(1)
- -----------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
-----------------------------------------
AVERAGE ANNUAL
YTD ONE YEAR SINCE INCEPTION
---------- ---------- -----------------
<S> <C> <C> <C>
PORTFOLIO -- CLASS A...... 11.91% 18.16% 19.67%
PORTFOLIO -- CLASS B...... 11.84 17.89 19.47
INDEX..................... 12.38 22.75 22.72
</TABLE>
1. The S&P 500 Index is a stock index comprised of 500 large-cap U.S. companies
with market capitalization of $1 billion or more. These 500 companies are a
representative sample of some 100 industries chosen mainly for market size,
liquidity and industry group representation.
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 INFORMATION CONTAINED IN THIS OVERVIEW REGARDING SPECIFIC SECURITIES IS FOR
INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A RECOMMENDATION TO
PURCHASE OR SELL THE SECURITIES MENTIONED. THE PERFORMANCE RESULTS PROVIDED ARE
FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A GUARANTEE OF
THE PORTFOLIO'S FUTURE PERFORMANCE. PAST PERFORMANCE SHOWN IS NOT PREDICTIVE OF
FUTURE PERFORMANCE. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT
AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST.
The U.S. Equity Plus Portfolio seeks long-term capital appreciation by investing
primarily in equity securities of issuers in the S&P 500 Index. Equity
securities include common and preferred stocks, convertible securities, and
rights and warrants to purchase common stocks.
The Portfolio investment process utilizes systematic quantitative and
qualitative inputs. The quantitative inputs include several proprietary
valuation and momentum models, as well as a market conditions model. The
qualitative inputs include stock ratings from Morgan Stanley Dean Witter's
Equity Research analysts. These inputs are combined in a systematic way to
produce an attractiveness measure for every stock in the Portfolio investment
universe. The Portfolio is designed to have consistently higher returns than the
S&P 500 with a volatility of portfolio return that is approximately equal to
that of the S&P 500. This is sought by using a multi-factor risk model for
building the Portfolio and by maintaining sector neutrality with respect to the
S&P 500 Index. The active exposure to any single company is also kept to a
modest level.
For the six months ended June 30, 1999, the Portfolio had a total return of
11.91% for the Class A shares and 11.84% for the Class B shares compared to
12.38% for the S&P 500 Index (the "Index"). For the one year period ended June
30, 1999, the Portfolio had a total return of 18.16% for the Class A shares and
17.89% for the Class B shares compared to 22.75% for the Index. For the period
since inception on July 31, 1997 through June 30, 1999, the Portfolio had an
average annual total return of 19.67% for Class A shares and 19.47% for Class B
shares compared to 22.72% for the Index.
The Portfolio is sector neutral to the Index, so sector weights had no impact on
incremental performance. The performance of a sector in the Portfolio is
completely driven by stock selection (and relative weights) within the sector.
Based on stock selection, our best performing sectors were hardware
manufacturers, drugs & biotechnology, consumer non-durables, forest products,
and integrated oils. Our worst performing sectors were semiconductors,
communication, health care, software manufacturers, and consumer services.
Virtually all of the differential performance between the Portfolio and the
Index came from active stock
- --------------------------------------------------------------------------------
U.S. Equity Plus Portfolio
98
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
U.S. EQUITY PLUS PORTFOLIO (CONT.)
selection. The five largest contributions to our performance relative to the
Index came from the following stocks: 1) Gillette, a cosmetics and toiletries
company, fell 31% during the quarter. The company announced that poor
performance in overseas markets would continue to depress their overall results.
2) Pfizer, a pharmaceutical company, fell 21% over investors' concerns about the
impact of important changes proposed by the government regarding Medicare
benefits. 3) Compaq, a computer hardware manufacturer, an underweight position
in our Portfolio helped our performance, dropped 25% as the company warned that
earnings could be half as much as expected. 4) Bell Atlantic, a local telephone
company, rose 21% on strong demand for data services and improving prospects for
their entry into the long-distance Internet service marketplace. 5) Hewlett
Packard, a computer hardware manufacturer, jumped 48% on news of healthy sales
of personal computers, printer and related supplies.
On the other side, the five most negative contributions to our performance
relative to the Index came from the following stocks: 1) Anheuser Busch, a
brewery, dropped 6%, as disappointing performance and downgrades by analysts
hurt the company early in the quarter. 2) Carnival Cruise Line, a cruise line
company, finished the quarter up only 1% as instability in Eastern Europe and
scheduling disruptions constrained vacationers. 3) Allstate, a multi-line
insurance company, fell 3%, as earnings were squeezed by intense competition and
storm-related losses in the Mid-West. 4) SBC Communications, an integrated
telephone company, rose 23%, on strong demand for data and Internet services. An
underweight position in the stock hurt our performance. 5) Ameritech, an
integrated telephone company, rose 28%, as their bet on cable television,
security monitoring and other new services started to pay off. As was the case
with SBC, an underweight position in the stock hurt our performance.
During the second quarter of 1999, the U.S. economy produced another impressive
showing of growth. The strength of U.S. corporate earnings clearly took the
market by surprise. The fear and cautiousness that hampered the market in the
second half of 1998 disappeared. Powered by robust economic growth, U.S.
equities continued their relentless march skyward. As measured by the S&P 500,
U.S. stocks rose by 7.05% during the quarter. There were, however, significant
changes in the equity landscape. While the past four quarters had been
characterized by the dominance of a relatively small number of large
capitalization growth stocks, the second quarter of 1999 saw a sharp reversal in
this trend. Small stocks, as measured by the Russell 2000, rocketed 15.52%,
outperforming the S&P 500 by nearly 8.5%. As cautiousness left the market, value
stocks leapt by 10.8%, outperforming growth stocks by approximately 7% (as
measured by S&P 500 Barra Value and Growth). During the upcoming quarter, we are
expecting a continuation of modest economic growth in the U.S. and relative
stability in interest rates. While this environment will be supportive of
healthy market breadth for stocks, our overall prognosis for stocks remains
guarded.
Eugene Flood, Jr.
PORTFOLIO MANAGER
Narayan Ramachandran
PORTFOLIO MANAGER
July 1999
- --------------------------------------------------------------------------------
U.S. Equity Plus Portfolio
99
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1999
- --------------------------------------------------------------------------------
U.S. EQUITY PLUS PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- --------------------------------------------------------------------------
COMMON STOCK (99.9%)
BASIC MATERIALS (2.3%)
CHEMICALS (0.9%)
500 Dow Chemical Co................................... $ 63
800 E.I. du Pont de Nemours & Co...................... 55
800 Rohm & Haas Co.................................... 34
----------
152
----------
CHEMICALS (DIVERSIFIED) (0.1%)
500 Monsanto Co....................................... 20
----------
CHEMICALS (SPECIALTY) (0.2%)
700 Hercules, Inc..................................... 28
----------
GOLD & PRECIOUS METALS MINING (0.2%)
1,600 Barrick Gold Corp................................. 31
400 Newmont Mining Corp............................... 8
----------
39
----------
IRON & STEEL (0.1%)
(a)2,000 Bethlehem Steel Corp.............................. 15
----------
METALS MINING (0.2%)
700 Phelps Dodge Corp................................. 43
----------
PAPER & FOREST (0.6%)
800 Georgia-Pacific Group............................. 38
1,100 Louisiana-Pacific Corp............................ 26
600 Mead Corp......................................... 25
200 Weyerhauser Co.................................... 14
----------
103
----------
TOTAL BASIC MATERIALS....................................... 400
----------
CAPITAL GOODS (8.4%)
AEROSPACE & DEFENSE (0.3%)
1,300 Boeing Co......................................... 58
----------
ELECTRICAL EQUIPMENT (3.8%)
1,000 Emerson Electric Co............................... 63
5,100 General Electric Co............................... 576
(a)300 Solectron Corp.................................... 20
300 Thomas & Betts Corp............................... 14
----------
673
----------
ENGINEERING & CONSTRUCTION (0.3%)
1,700 McDermot International, Inc....................... 48
----------
MANUFACTURING (DIVERSIFIED) (3.3%)
2,800 Allied Signal, Inc................................ 176
900 Corning, Inc...................................... 63
1,200 Illinois Tool Works Inc........................... 98
200 Johnson Controls, Inc............................. 14
1,600 Tyco International Ltd............................ 152
1,000 United Technologies Corp.......................... 72
----------
575
----------
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- --------------------------------------------------------------------------
MANUFACTURING (SPECIALIZED) (0.5%)
500 Avery Dennison Corp............................... $ 30
600 Briggs & Stratton Corp............................ 35
(a)3,300 Fruit of the Loom, Inc............................ 32
----------
97
----------
TRUCKS & PARTS (0.1%)
200 Cummins Engine Co., Inc........................... 11
(a)200 Navistar International Corp....................... 10
----------
21
----------
WASTE MANAGEMENT (0.1%)
300 Waste Management, Inc............................. 16
----------
TOTAL CAPITAL GOODS......................................... 1,488
----------
COMMUNICATION SERVICES (8.7%)
TELECOMMUNICATIONS (CELLULAR/WIRELESS) (0.3%)
250 Vodafone AirTouch plc ADR......................... 49
----------
TELECOMMUNICATIONS (LONG DISTANCE) (2.4%)
2,999 AT&T Corp......................................... 167
4,900 Sprint Corp....................................... 259
----------
426
----------
TELEPHONE (6.0%)
2,800 Alltel Corp....................................... 200
5,300 Bell Atlantic Corp................................ 347
1,000 Bellsouth Corp.................................... 47
200 Frontier Corp..................................... 12
2,200 GTE Corp.......................................... 167
(a)3,400 MCI Worldcom, Inc................................. 293
----------
1,066
----------
TOTAL COMMUNICATION SERVICES................................ 1,541
----------
CONSUMER CYCLICALS (11.5%)
AUTO PARTS & EQUIPMENT (0.1%)
919 Delphi Automotive Systems Corp.................... 17
----------
AUTOMOBILES (0.3%)
1,000 Ford Motor Co..................................... 56
----------
BUILDING MATERIALS (0.5%)
700 Armstrong World Industries, Inc................... 41
1,200 Owens Corning..................................... 41
----------
82
----------
CONSUMER (JEWELRY, NOVELTIES & GIFTS) (0.2%)
900 American Greetings Corp., Class A................. 27
----------
HARDWARE & TOOLS (0.3%)
600 Black & Decker Corp............................... 38
700 Milacron, Inc..................................... 13
----------
51
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
U.S. Equity Plus Portfolio
100
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1999
- --------------------------------------------------------------------------------
U.S. EQUITY PLUS PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------
<C> <S> <C>
</TABLE>
CONSUMER CYCLICALS (CONT.)
<TABLE>
<C> <S> <C>
HOMEBUILDING (0.7%)
1,600 Fleetwood Enterprises, Inc........................ $ 42
2,000 Kaufman & Broad Home Corp......................... 50
1,400 Pulte Corp........................................ 32
----------
124
----------
HOUSEHOLD FURNISHINGS & APPLIANCES (0.4%)
300 Maytag Corp....................................... 21
700 Whirlpool Corp.................................... 52
----------
73
----------
LEISURE TIME PRODUCTS (0.6%)
400 Brunswick Corp.................................... 11
900 Hasbro, Inc....................................... 25
2,800 Mattel, Inc....................................... 74
----------
110
----------
LODGING - HOTELS (0.2%)
900 Carnival Corp., Class A........................... 44
----------
PHOTOGRAPHY/IMAGING (0.4%)
1,100 Eastman Kodak Co.................................. 75
----------
PUBLISHING (0.1%)
300 McGraw-Hill Cos., Inc............................. 16
----------
PUBLISHING (NEWSPAPERS) (0.6%)
600 Gannett Co., Inc.................................. 43
800 Knight-Ridder Inc. Co............................. 44
400 Times Mirror Co................................... 24
----------
111
----------
RETAIL (BUILDING SUPPLIES) (1.3%)
2,900 Home Depot, Inc................................... 187
600 Lowe's Cos., Inc.................................. 34
400 Sherwin-Williams Co............................... 11
----------
232
----------
RETAIL (DEPARTMENT STORES) (0.5%)
(a)300 Kohl's Corp....................................... 23
1,400 May Department Stores, Co......................... 57
----------
80
----------
RETAIL (DISCOUNTERS) (0.1%)
700 Dollar General Corp............................... 20
----------
RETAIL (GENERAL MERCHANDISE) (3.9%)
(a)300 Costco Companies, Inc............................. 24
2,000 Dayton Hudson Corp................................ 130
(a)500 Kmart Corp........................................ 8
900 Sears Roebuck & Co................................ 40
9,900 Wal-Mart Stores, Inc.............................. 478
----------
680
----------
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- --------------------------------------------------------------------------
RETAIL (SPECIALTY) (0.4%)
1,200 Gap, Inc.......................................... $ 61
(a)300 Staples, Inc...................................... 9
----------
70
----------
SERVICES (ADVERTISING/MARKETING) (0.3%)
700 Omnicom Group, Inc................................ 56
----------
SERVICES (COMMERCIAL & CONSUMER) (0.2%)
(a)700 Cendant Corp...................................... 14
700 IMS Health Inc.................................... 22
----------
36
----------
TEXTILES (APPAREL) (0.4%)
1,900 Liz Claiborne, Inc................................ 69
----------
TOTAL CONSUMER CYCLICALS.................................... 2,029
----------
CONSUMER STAPLES (10.9%)
BEVERAGES (ALCOHOLIC) (2.1%)
4,500 Anheuser Busch Cos., Inc.......................... 319
1,100 Coors (Adolph), Inc., Class B..................... 55
----------
374
----------
BEVERAGES (NON-ALCOHOLIC) (0.3%)
1,500 PepsiCo, Inc...................................... 58
----------
BROADCASTING (TV, RADIO, CABLE) (0.5%)
(a)700 CBS Corp.......................................... 30
500 Comcast Corp., Class A............................ 19
(a)400 MediaOne Group, Inc............................... 30
----------
79
----------
DISTRIBUTORS (FOOD & HEALTH) (0.3%)
2,100 SUPERVALU, Inc.................................... 54
----------
ENTERTAINMENT (1.1%)
(a)1,000 King World Productions, Inc....................... 35
2,100 Time Warner, Inc.................................. 154
----------
189
----------
FOODS (0.7%)
1,100 Bestfoods......................................... 54
200 Nabisco Group Holdings Corp....................... 4
1,000 Quaker Oats Co.................................... 66
200 Sara Lee Corp..................................... 5
----------
129
----------
HOUSEHOLD PRODUCTS (NON-DURABLES) (2.5%)
300 Clorox Co......................................... 32
2,800 Kimberly-Clark Corp............................... 160
2,800 Procter & Gamble Co............................... 250
----------
442
----------
HOUSEWARES (0.1%)
400 Fortune Brands, Inc............................... 17
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
U.S. Equity Plus Portfolio
101
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1999
- --------------------------------------------------------------------------------
U.S. EQUITY PLUS PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------
<C> <S> <C>
</TABLE>
CONSUMER STAPLES (CONT.)
<TABLE>
<C> <S> <C>
PERSONAL CARE (0.5%)
500 Alberto-Culver Co., Class B....................... $ 13
1,200 Avon Products, Inc................................ 67
----------
80
----------
RESTAURANTS (0.7%)
2,000 McDonald's Corp................................... 82
1,300 Wendy's International, Inc........................ 37
----------
119
----------
RETAIL (DRUG STORES) (0.3%)
700 Rite Aid Corp..................................... 17
1,000 Walgreen Co....................................... 30
----------
47
----------
RETAIL (FOOD CHAINS) (0.6%)
(a)1,400 Kroger Co......................................... 39
(a)1,500 Safeway Inc....................................... 74
----------
113
----------
SPECIALTY PRINTING (0.2%)
1,000 Deluxe Corp....................................... 39
----------
TOBACCO (1.0%)
4,400 Philip Morris Cos., Inc........................... 177
(a)66 RJ Reynolds Tobacco Holdings, Inc................. 2
----------
179
----------
TOTAL CONSUMER STAPLES...................................... 1,919
----------
ENERGY (5.1%)
OIL & GAS (DRILLING) (0.3%)
200 Halliburton Co.................................... 9
700 Schlumberger, Ltd................................. 45
----------
54
----------
OIL & GAS (EXPLORATION & DRILLING) (0.3%)
600 Burlington Resources, Inc......................... 26
1,400 Union Pacific Resources Group Inc................. 23
----------
49
----------
OIL (DOMESTIC INTEGRATED) (0.6%)
3,300 USX-Marathon Group................................ 107
----------
OIL (INTERNATIONAL INTEGRATED) (3.9%)
4,600 Exxon Corp........................................ 355
2,500 Mobil Corp........................................ 248
1,400 Royal Dutch Petroleum Co.......................... 84
----------
687
----------
TOTAL ENERGY................................................ 897
----------
FINANCIAL (16.3%)
BANKS (MAJOR REGIONAL) (3.3%)
4,600 Bank of New York Co., Inc......................... 169
1,200 Bank One Corp..................................... 71
900 BankBoston Corp................................... 46
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- --------------------------------------------------------------------------
800 Comerica, Inc..................................... $ 48
500 Fifth Third Bancorp............................... 33
1,200 Fleet Financial Group, Inc........................ 53
800 KeyCorp........................................... 26
300 Mellon Bank Corp.................................. 11
700 SunTrust Banks, Inc............................... 49
200 Wachovia Corp..................................... 17
1,200 Wells Fargo Co.................................... 51
----------
574
----------
BANKS (MONEY CENTER) (2.5%)
3,000 BankAmerica Corp.................................. 220
2,400 Chase Manhattan Corp.............................. 208
200 First Union Corp.................................. 9
----------
437
----------
BANKS (REGIONAL) (0.0%)
100 Firstar Corp...................................... 3
----------
CONSUMER FINANCE (0.6%)
400 Associates First Capital Corp., Class A........... 18
1,200 Countrywide Credit Industries, Inc................ 51
900 Household International, Inc...................... 43
----------
112
----------
FINANCIAL (DIVERSIFIED) (4.6%)
700 American Express Co............................... 91
9,299 Citigroup, Inc.................................... 442
1,700 Federal Home Loan Mortgage Corp................... 98
2,600 Federal National Mortgage Association............. 178
----------
809
----------
INSURANCE (BROKERS) (0.2%)
500 Marsh & McLennan Cos.............................. 38
----------
INSURANCE (LIFE & HEALTH) (1.0%)
2,700 Conseco, Inc...................................... 82
1,000 Provident Cos., Inc............................... 40
1,300 Torchmark Corp.................................... 44
----------
166
----------
INSURANCE (MULTI-LINE) (2.0%)
2,200 American International Group, Inc................. 258
1,600 Hartford Financial Service Group, Inc............. 93
----------
351
----------
INSURANCE (PROPERTY - CASUALTY) (1.1%)
4,300 Allstate Corp..................................... 154
600 Chubb Corp........................................ 42
----------
196
----------
INVESTMENT BANKING & BROKERAGE (0.9%)
700 Bear Stearns Cos., Inc............................ 32
700 Charles Schwab Corp............................... 77
900 Lehman Brothers Holdings, Inc..................... 56
----------
165
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
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102
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[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1999
- --------------------------------------------------------------------------------
U.S. EQUITY PLUS PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------
<C> <S> <C>
</TABLE>
FINANCIAL (CONT.)
<TABLE>
<C> <S> <C>
SAVINGS & LOANS (0.1%)
500 Washington Mutual, Inc............................ $ 18
----------
TOTAL FINANCIAL............................................. 2,869
----------
HEALTHCARE (10.7%)
HEALTHCARE (DIVERSIFIED) (6.9%)
5,300 Abbott Laboratories............................... 241
1,400 American Home Products Corp....................... 80
7,000 Bristol-Myers Squibb Co........................... 493
2,700 Johnson & Johnson................................. 265
2,000 Warner Lambert Co................................. 139
----------
1,218
----------
HEALTHCARE (DRUGS - GENERIC & OTHERS) (0.4%)
(a)1,200 Amgen, Inc........................................ 73
----------
HEALTHCARE (DRUGS - MAJOR PHARMS) (2.2%)
4,600 Merck & Co., Inc.................................. 341
100 Pfizer, Inc....................................... 11
500 Pharmacia & Upjohn, Inc........................... 28
----------
380
----------
HEALTHCARE (MANAGED CARE) (0.2%)
500 United Healthcare Corp............................ 31
----------
HEALTHCARE (MEDICAL PRODUCTS & SUPPLIES) (0.9%)
600 Bausch & Lomb, Inc................................ 46
1,200 Becton Dickinson & Co............................. 36
1,200 Guidant Corp...................................... 62
300 Medtronic, Inc.................................... 23
----------
167
----------
HEALTHCARE (LONG-TERM CARE) (0.1%)
(a)1,000 HEALTHSOUTH Corp.................................. 15
----------
TOTAL HEALTHCARE............................................ 1,884
----------
TECHNOLOGY (22.0%)
COMMUNICATION EQUIPMENT (3.3%)
5,260 Lucent Technologies, Inc.......................... 355
1,200 Motorola, Inc..................................... 114
700 Nortel Networks Corp.............................. 61
200 Scientific-Atlanta, Inc........................... 7
(a)700 Tellabs, Inc...................................... 47
----------
584
----------
COMPUTER SERVICES SOFTWARE & SYSTEMS (0.1%)
(a)200 Computer Sciences Corp............................ 14
----------
COMPUTERS (HARDWARE) (5.1%)
(a)3,900 Dell Computer Corp................................ 144
(a)600 Gateway 2000, Inc................................. 36
2,700 Hewlett Packard Co................................ 271
2,800 International Business Machines Corp.............. 362
(a)1,200 Sun Microsystems, Inc............................. 83
----------
896
----------
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- --------------------------------------------------------------------------
COMPUTERS (NETWORKING) (2.1%)
(a)5,800 Cisco Systems, Inc................................ $ 374
----------
COMPUTERS (PERIPHERALS) (0.8%)
(a)2,300 EMC Corp.......................................... 127
(a)600 Seagate Technology, Inc........................... 15
----------
142
----------
COMPUTERS (SOFTWARE & SERVICES) (6.5%)
(a)1,200 America Online, Inc............................... 133
(a)700 BMC Software, Inc................................. 38
1,200 Computer Associates International, Inc............ 66
(a)800 Compuware Corp.................................... 25
(a)9,100 Microsoft Corp.................................... 821
(a)1,200 Oracle Corp....................................... 45
(a)500 Unisys Corp....................................... 19
----------
1,147
----------
ELECTRONICS (DEFENSE) (0.3%)
800 Raytheon Co., Class B............................. 56
----------
ELECTRONICS (SEMICONDUCTORS) (3.0%)
6,900 Intel Corp........................................ 410
800 Texas Instruments, Inc............................ 116
----------
526
----------
EQUIPMENT (SEMICONDUCTORS) (0.5%)
(a)1,100 Applied Materials, Inc............................ 81
----------
SERVICES (DATA PROCESSING) (0.3%)
700 Electronic Data Systems Corp...................... 39
300 First Data Corp................................... 15
----------
54
----------
TOTAL TECHNOLOGY............................................ 3,874
----------
TRANSPORTATION (1.0%)
AIR FREIGHT (0.2%)
(a)500 FDX Corp.......................................... 27
----------
AIRLINES (0.7%)
(a)600 AMR Corp.......................................... 41
700 Delta Air Lines, Inc.............................. 40
1,000 Southwest Airlines Co............................. 31
(a)400 US Airways Group, Inc............................. 18
----------
130
----------
RAILROADS (0.1%)
200 Kansas City Southern Industries, Inc.............. 13
----------
TOTAL TRANSPORTATION........................................ 170
----------
UTILITIES (3.0%)
ELECTRIC COMPANIES (2.0%)
1,400 Cinergy Corp...................................... 45
3,600 Edison International.............................. 96
600 GPU, Inc.......................................... 25
900 PG&E Corp......................................... 29
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
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[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1999
- --------------------------------------------------------------------------------
U.S. EQUITY PLUS PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------
<C> <S> <C>
</TABLE>
UTILITIES (CONT.)
ELECTRIC COMPANIES (CONT.)
<TABLE>
<C> <S> <C>
1,600 Texas Utilities Co................................ $ 66
2,400 Unicom Corp....................................... 93
----------
354
----------
NATURAL GAS (0.5%)
1,100 Coastal Corp...................................... 44
500 Enron Corp........................................ 41
----------
85
----------
POWER PRODUCERS (INDEPENDENT) (0.5%)
(a)1,500 AES Corp.......................................... 87
----------
TOTAL UTILITIES............................................. 526
----------
TOTAL COMMON STOCKS (Cost $15,407)............................ 17,597
----------
TOTAL INVESTMENTS (99.9%) (Cost $15,407)...................... 17,597
----------
</TABLE>
<TABLE>
<S> <C> <C>
OTHER ASSETS (0.5%)
Cash................................................ $ 35
Receivable from Adviser............................. 33
Dividends Receivable................................ 22
Other............................................... 10 100
----------
LIABILITIES ( - 0.4%)
Shareholder Reporting Expense Payable............... (49)
Custodian Fees Payable.............................. (10)
Administrative Fees Payable......................... (4)
Directors' Fees & Expenses Payable.................. (2)
Distribution Fees Payable........................... (1)
Other Liabilities................................... (13) (79)
---------- ----------
NET ASSETS (100%)................................................. $ 17,618
----------
----------
</TABLE>
<TABLE>
<S> <C>
NET ASSETS CONSIST OF:
Paid in Capital................................................. $ 7,692
Undistributed Net Investment Income............................. 125
Accumulated Net Realized Gain................................... 7,611
Unrealized Appreciation on Investments.......................... 2,190
----------
NET ASSETS...................................................... $ 17,618
----------
----------
</TABLE>
<TABLE>
<CAPTION>
AMOUNT
(000)
<S> <C> <C>
- ------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
CLASS A:
- ----------------------------------------------------------------
NET ASSETS...................................................... $16,186
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 1,163,397 outstanding $0.001 par value shares
(authorized 500,000,000 shares)............................... $13.91
----------
----------
CLASS B:
- ----------------------------------------------------------------
NET ASSETS...................................................... $1,432
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 103,106 outstanding $0.001 par value shares
(authorized 500,000,000 shares)............................... $13.89
----------
----------
</TABLE>
- ------------------------------------------------------------
(a) -- Non-income producing security
ADR -- American Depositary Receipt
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
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Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
U.S. REAL ESTATE PORTFOLIO
COMPOSITION OF NET ASSETS (AT JUNE 30, 1999)
- ---------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Diversified 8.2%
Healthcare 0.7%
Lodging/Resorts 7.3%
Office
Industrial 34.7%
Residential 23.5%
Retail 18.3%
Self Storage 3.7%
Other 3.6%
</TABLE>
PERFORMANCE COMPARED TO THE NATIONAL ASSOCIATION OF
REAL ESTATE INVESTMENT TRUSTS (NAREIT) EQUITY INDEX(1)
- -----------------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
-----------------------------------------
AVERAGE ANNUAL
YTD ONE YEAR SINCE INCEPTION
---------- ---------- -----------------
<S> <C> <C> <C>
PORTFOLIO -- CLASS A.... 9.03% 0.91% 18.11%
PORTFOLIO -- CLASS B.... 8.91 0.74 15.92
INDEX -- CLASS A........ 4.78 - 8.98 11.70
INDEX -- CLASS B........ 4.78 - 8.98 10.26
</TABLE>
1. The NAREIT Equity Index is an unmanaged market weighted index of tax
qualified REITs listed on the New York Stock Exchange, American Stock
Exchange and the NASDAQ National Market System, including 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 INFORMATION CONTAINED IN THIS OVERVIEW REGARDING SPECIFIC SECURITIES IS FOR
INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A RECOMMENDATION TO
PURCHASE OR SELL THE SECURITIES MENTIONED. THE PERFORMANCE RESULTS PROVIDED ARE
FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A GUARANTEE OF
THE PORTFOLIO'S FUTURE PERFORMANCE. PAST PERFORMANCE SHOWN IS NOT PREDICTIVE OF
FUTURE PERFORMANCE. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT
AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST.
The U.S. Real Estate Portfolio seeks to provide above average current income and
long-term capital appreciation by investing primarily in equity securities of
companies in the U.S. real estate industry, including real estate investment
trusts ("REITs").
For the six months ended June 30, 1999, the Portfolio had a total return of
9.03% for the Class A shares and 8.91% for the Class B shares compared to 4.78%
for the National Association of Real Estate Investment Trusts (NAREIT) Equity
Index (the "Index"). For the one year period ended June 30, 1999, the Portfolio
had a total return of 0.91% for the Class A shares and 0.74% for the Class B
shares compared to - 8.98% for the Index. For the period since inception on
February 24, 1995 through June 30, 1999, the average annual total return of the
Class A shares was 18.11% compared to 11.70% for the Index. For the period since
inception on January 2, 1996 through June 30, 1999, the average annual total
return of the Class B shares was 15.92% compared to 10.26% for the Index.
At last, the REIT market experienced a sustained recovery. The Index rose 10.1%
in the second quarter and has provided a year-to-date return of 4.8%. The vast
majority of the gain was achieved from mid-April to mid-May when the sector
gained 15%. Although there were a number of catalysts, this recovery coincided
with a dramatic change in leadership in the equity markets. The quarter featured
a shift in preferences of equity investors as they turned to the beaten-down
cyclical and value stocks in place of the richly valued large cap growth and
internet stocks. This was primarily the result of a change in economic consensus
that the global economy has recovered and entered a phase of economic growth. As
we discussed last quarter, the continued exit of the non-dedicated investors had
pushed the sector to valuation levels well below liquidation value. It appeared
that the REIT market benefited from the return of non-dedicated investors during
the rally. Note that the sector modestly retrenched in the latter part of the
quarter primarily over fears of a Fed tightening. Unlike prior rallies, it is
interesting to note that the REIT recovery was broad-based, lifting stocks in
all sectors. Even after a more constructive quarter, REITs are now trading at a
slight discount to the underlying Net Asset Value ("NAV") of their assets, which
means that it is at least as attractive to buy real estate on Wall Street,
through the purchase of securities, than on Main Street, through the direct
purchase of properties.
- --------------------------------------------------------------------------------
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- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
U.S. REAL ESTATE PORTFOLIO (CONT.)
Last quarter we raised the issue of whether the public markets were betting on a
deterioration in NAV or were the securities mispriced as a result of the selling
pressure by non-dedicated investors; we provided our assessment supporting the
latter. Our investment perspective is that over the medium and long-term the
largest determinant of the value of real estate stocks will be underlying real
estate fundamentals. We measure the sector based on the Price to Net Asset Value
per share ratio ("P/NAV"). Given the large and active private real estate
market, we believe that there are limits as to the level of premium or discount
at which the sector can trade relative to its NAV. These limits can be viewed as
the point at which the arbitrage opportunity between owning real estate in the
private versus public markets becomes compelling. This analytical framework gave
us the conviction to call the real estate securities market mispriced last
quarter. Indeed, when REITs moved to a 90% P/NAV valuation level in the second
quarter, investors that typically focus in the private real estate market
invested in REITs both by buying stocks as an alternative to buying assets and
in taking public companies private by providing financing for leveraged
buy-outs. Since the modern REIT era is still in an early phase, the rally was
necessary to demonstrate to investors that a floor valuation level exists for
the sector. In fact, the recovery has caused a number of investors, dedicated
and non-dedicated, to take a fresh look at the sector.
In contrast to the current environment, it is interesting to note that in 1997
the arbitrage was reversed, as the sector traded in excess of a 25% premium to
NAV. Although many talented private companies utilized the opportunity to go
public, the valuation environment encouraged entrepreneurs to take advantage of
the arbitrage opportunity in which real estate was valued by the public markets
at a premium to private real estate valuation. Private owners of real estate
assembled assets (by definition at par or 100% P/NAV) and completed initial
public offerings at 10% to 20% premiums to NAV (which represented discounts to
their set of comparable companies). They profited by retaining stock
representing the difference between this valuation (110-120% P/NAV) less the
cost of assembling the assets (100% P/NAV) and transaction costs
(7% P/NAV).
Above we discussed the broad change in sentiment in the equity markets as a key
catalyst for the REIT recovery. In addition to the compelling valuation for the
sector, there were a number of other contributing factors. They include:
(1) Management led buyouts: There were Board approved management-led buyouts at
Irvine Apartment Communities and Berkshire Realty and a proposed buyout at
Sunstone Hotels. The latter two are being partially funded by well-respected
private real estate opportunity funds, which is consistent with our thesis
that private real estate investors take advantage of opportunities in the
public real estate markets when valuations are compelling.
(2) Warren Buffett investment: Filings were released that indicated Warren
Buffett had purchased greater than a 5% position in two REITs (Tanger
Factory Outlet and Town and Country Trust) for his personal account and
increased his position in MGI Properties.
(3) Pension Plan Buy Program: On a single day in mid-April, a domestic pension
plan invested almost $400 million in the REIT market in a broad-based buy
program.
(4) Insider Buying: Managements added to significant existing personal positions
in their stock with open market purchases (in addition to a number of
company share repurchase programs).
We have previously commented on the continued outflow from dedicated mutual
funds. These funds control almost $10 billion of assets (approximately 6% of the
sector), down from a peak level in excess of $12 billion in early 1998. Net
flows for the second quarter were virtually flat, which is a significant
accomplishment after $2 billion in redemptions in the previous twelve months. In
fact, were it not for the first week of the quarter, in which over $150 million
was redeemed, the sector would have experienced its first positive quarter since
the first quarter of 1998.
The industry held its annual institutional investor forum in New York in June
and the consensus description was one of stability, bordering on boredom. We
were encouraged by this general sentiment and prefer it to the unsustainable
euphoria of earlier conferences and the depression of the most recent
conferences. This new mood was the result of two key factors. First, most
companies have developed more focused business plans that do not require equity
issuance in 1999. Generally, these business plans place an emphasis on managing
the existing portfolio and external growth, if planned, is limited to
- --------------------------------------------------------------------------------
U.S. Real Estate Portfolio
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Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
U.S. REAL ESTATE PORTFOLIO (CONT.)
existing core competencies. Although REIT managements were pleased with the
recovery in their share prices, they were not in a rush to issue new equity at
these prices and embark on new external growth plans. Second, we had recently
finished the first quarter earnings season in which companies reported strong
internal cash flow as a result of favorable property fundamentals. Since
fundamentals remain intact, discussions regarding companies' core portfolios
were similar to recently reported results and there is not any expectation of
significant variation in the upcoming results for the second quarter.
We understand that boring may not attract the day traders; however, we believe
it may attract dedicated real estate investors looking for returns correlated
with real estate fundamentals and non-dedicated investors searching for
stability. Since domestic pension funds target, on average, 5% to the real
estate asset class, we continue to believe that public real estate can be used
to fulfill these investors' allocations to core real estate exposure. We
understand that the recent volatility (upside in 1995-1997 with an average
annual return of 23.5% and downside in 1998 when the Index fell 17.5%) has
caused investors to question this thesis. As a result we believe that a return
to trend returns on an annual basis, not just on average (note the Index
provided a 13.5% average annual return 1995-1998), would serve to calm current
investors and attract new investors looking for core real estate exposure. It
may also attract non-dedicated investors looking for a more stable return that
offers only a modest correlation to the broad equity markets. Thus, we believe
that stable and boring low-teen total returns over the next couple of years
would add to the industry's credibility.
Perhaps a negative side-effect of the recent rally is that it may have shelved a
number of discussions involving companies that were prepared to consider placing
themselves for sale. Consolidation represents a natural progression for the
sector as it matures. Following the large waves of IPOs and follow-on offerings
in the mid-1990s, it is typical for an industry to undergo a period of mergers.
In addition, we feel that the industry has reached a level of sophistication to
distinguish between better companies and the lesser companies. The latter will
continue to trade at a discount to NAV as a sign the public markets do not have
confidence in the management team's ability to add value. Since most of the
recent merger activity has resulted in the target company being sold at or
around their NAV, if a company cannot convince the market to buy its stock at a
price at least equivalent to its NAV, then it has an obligation to consider
placing the company for sale. As discussed earlier, a number of the IPOs were
more the result of entrepreneurs taking advantage of an arbitrage opportunity
than a true desire to operate as a public company. As the stock prices remained
at a premium to NAV, all managements were able to issue equity and grow their
businesses. However, the price decline of 1998 cut off the growth engine and
caused a number of managements to question their desire for operating in the
public markets. We believe that the executives at a number of the "targets" were
coming to the realization that the public markets were not going to push the
share price high enough to allow them to grow their businesses and as a result,
albeit reluctantly, were considering selling. Some now believe they have a
second chance.
REAL ESTATE MARKET
Although real estate cycles tend to move at a slow pace, the U.S. real estate
market has typically featured boom and bust cycles. Given the increasing size of
the public markets for real estate equity and debt, there appears to be the
opportunity for a muting of those cycles as the scrutiny and attention on the
potential for over-supplied markets has increased. At the end of this quarter,
the U.S. real estate market remains in a mature phase of its cycle as the
markets are generally in equilibrium. We have continued to caution investors
that there remain threats of over-supply but robust levels of demand are serving
to mute any serious threat of over-supply. The following presents an outline of
our views of the risks of over-supply (or under-demand) in the real estate
markets. Generally, there were two themes in the market as fundamentals in the
apartment and retail markets appeared to firm and the commercial markets showed
continuing evidence that the dramatic improvement in fundamentals have begun to
plateau.
In contrast to concerns of the potential for over-supply earlier in the year,
the data reported from the Census Bureau in the second quarter continued to
demonstrate improvements for apartments. Data reported for April showed that
permits fell to 296,000 units (annual pace on a seasonally adjusted basis), the
first time that permits fell below 300,000 units since December 1997. This was
followed by the report for May providing even more favorable data as permits
remained below 300,000 and starts fell to 238,000 units. This marked the fourth
consecutive month for starts to decline and the lowest level since January 1997.
Starts are currently occurring at a pace that is below the consensus view on
national demand
- --------------------------------------------------------------------------------
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Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
U.S. REAL ESTATE PORTFOLIO (CONT.)
for apartment units. However, certain markets appear headed for trouble
including Dallas, Houston and Orlando. In each of these markets, over the next
two years, new supply represents between 6% and 10% of existing supply and in
each case is projected to exceed demand, thereby impeding future rental growth
and increasing vacancies.
Soaring consumer confidence, which rose for a record seventh straight month,
lead to strong consumer spending evidenced by sales growth of almost 6% in May.
The annual International Council of Shopping Centers Convention held in May in
Las Vegas featured a robust leasing environment as retailers are continuing to
commit to new stores and expansions. It is noteworthy that many of these
retailers are also capitalizing on e-commerce opportunities. As a result of this
environment it appears that occupancies in retail properties will increase from
cyclical high levels. There are mitigating factors that may temper enthusiasm
for the sector. They include the risk of e-commerce taking a larger market share
of retail sales from store-based retailers, the risk of a decline in consumer
confidence (possibly triggered by a decline in the stock market), a reversal in
the nation's negative savings rate, and a buoyant supply pipeline.
The commercial sectors have made a dramatic recovery since the beginning of the
decade and appear to have plateaued. According to data from Torto Wheaton,
vacancy in the national office market increased modestly from 8.9% to 9.5% in
the first quarter after declining for 27 consecutive quarters from its peak of
19.1%. It is interesting to note that landlords may be more responsible for the
occupancy decline than short-term fundamentals. As market vacancy tightens,
landlords have aggressively raised rents on remaining space and it appears that
tenants may be facing a certain degree of sticker shock causing them to delay
leasing decisions. Similarly, the industrial market featured flat vacancy of 7%
in the first quarter. This marked the first time that vacancy failed to decline
since the 1991 recession when vacancy peaked at 10.9%.
Despite a strong economy, the hotel market has demonstrated only modest revenue
per available room ("RevPar") growth throughout the year as a large supply of
product comes on-line and difficult previous year's comps prove hard to exceed.
Smith Travel Research reported May RevPar growth of 2.2% and year-to-date RevPar
growth is 3.0%. This growth may truly be even weaker given that some of it is
attributed to last year's newly developed properties stabilizing at higher
occupancies.
PORTFOLIO
We have continued to shape the Portfolio with companies we believe offer
attractive fundamental valuations relative to their underlying real estate
value. Throughout the year, we have been encouraged by the undeniable strength
of the U.S. economy and have become more constructive with regard to the
likelihood that real estate fundamentals should remain favorable. As a result,
we have become comfortable with the less defensive posture developed last
quarter. While the top-down weightings remain very similar, we have been more
willing to take opportunistic positions in certain assets, including hotels.
Generally, we utilized the rally to upgrade the Portfolio, measured both in
terms of the quality of properties held by the companies and the management
teams at the companies. This is evident in all sectors, most notably in the
office sector where we added Equity Office Properties and Trizec Hahn Corp.
Theodore R. Bigman
PORTFOLIO MANAGER
Douglas A. Funke
PORTFOLIO MANAGER
July 1999
- --------------------------------------------------------------------------------
U.S. Real Estate Portfolio
108
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1999
- --------------------------------------------------------------------------------
U.S. REAL ESTATE PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- ------------------------------------------------------------------------------
COMMON STOCKS (97.2%)
DIVERSIFIED (8.2%)
113,900 Crescent Real Estate Equities, Inc. REIT......... $ 2,705
354,000 Pacific Gulf Properties, Inc. REIT............... 8,009
230,500 Pennsylvania REIT................................ 4,826
118,000 Rouse Co. REIT................................... 2,994
43,000 Vornado Realty Trust REIT........................ 1,519
(a)654,898 Wellsford Real Properties, Inc................... 7,040
---------
27,093
---------
HEALTHCARE (0.7%)
164,600 Meditrust Corp. REIT............................. 2,150
---------
LODGING/RESORTS (7.3%)
(a)106,500 Candlewood Hotel Company, Inc.................... 399
(a)9,770 Crestline Capital Corp........................... 164
380,400 Host Marriot Corp................................ 4,517
(a)32,838 Interstate Hotels Corp........................... 135
(a)108,300 John Q Hammons Hotels, Inc., Class A............. 454
(a)192,900 Promus Hotel Corp................................ 5,980
253,137 Starwood Lodging Trust........................... 7,737
1,000 Sunstone Hotel Investors, Inc. REIT.............. 9
(a)1,012,854 Wyndham International, Inc., Class A............. 4,558
---------
23,953
---------
OFFICE/INDUSTRIAL (33.9%)
INDUSTRIAL (5.6%)
29,000 EastGroup Properties, Inc. REIT.................. 582
412,400 Prime Group Realty Trust REIT.................... 7,088
531,260 ProLogis Trust REIT.............................. 10,758
---------
18,428
---------
OFFICE/INDUSTRIAL MIXED (1.9%)
203,110 PS Business Parks, Inc. REIT..................... 4,951
38,100 Spieker Properties, Inc. REIT.................... 1,481
---------
6,432
---------
OFFICE (26.4%)
532,600 Arden Realty, Inc. REIT.......................... 13,115
(a,d)335,100 Beacon Capital Partners, Inc..................... 6,702
184,400 Boston Properties, Inc. REIT..................... 6,615
445,054 Brandywine Realty Trust REIT..................... 8,818
809,697 Brookfield Properties Corp. (Canada)............. 10,534
326,330 CarrAmerica Realty Corp. REIT.................... 8,158
363,000 Cornerstone Properties, Inc...................... 5,763
441,027 Equity Office Properties Trust REIT.............. 11,301
598,300 Great Lakes, Inc. REIT........................... 9,723
5,800 Prentiss Properties Trust REIT................... 136
2,300 SL Green Realty Corp. REIT....................... 47
292,700 Trizec Hahn Corp................................. 5,964
---------
86,876
---------
TOTAL OFFICE/INDUSTRIAL.......................................... 111,736
---------
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- ------------------------------------------------------------------------------
OTHER (1.6%)
(a)580,384 Atlantic Gulf Communities Corp................... $ 381
(a)22,530 Merry Land Properties, Inc....................... 111
(a)320,300 Security Capital Group, Inc., Class B............ 4,665
---------
5,157
---------
RESIDENTIAL (23.5%)
RESIDENTIAL APARTMENTS (18.0%)
93,000 Amli Residential Properties Trust REIT........... 2,081
127,300 Apartment Investment & Management Co., Class A
REIT........................................... 5,442
302,610 Archstone Communities Trust REIT................. 6,638
407,300 Avalon Bay Communities, Inc. REIT................ 15,070
217,500 Berkshire Realty Co., Inc. REIT.................. 2,515
114,218 Equity Residential Properties Trust REIT......... 5,147
359,200 Essex Property Trust, Inc. REIT.................. 12,707
247,500 Smith (Charles E.) Residential Realty, Inc.
REIT........................................... 8,400
62,300 Summit Properties, Inc. REIT..................... 1,230
---------
59,230
---------
RESIDENTIAL MANUFACTURED HOMES (5.5%)
547,652 Chateau Communities, Inc. REIT................... 16,395
61,800 Manufactured Home Communities, Inc. REIT......... 1,607
400 Sun Communities, Inc. REIT....................... 14
---------
18,016
---------
TOTAL RESIDENTAL................................................. 77,246
---------
RETAIL (18.3%)
RETAIL REGIONAL MALLS (8.3%)
432,600 Simon Property Group, Inc. REIT.................. 10,977
925,578 Taubman Centers, Inc. REIT....................... 12,206
130,600 Urban Shopping Centers, Inc. REIT................ 4,114
---------
27,297
---------
RETAIL STRIP CENTERS (10.0%)
132,800 Acadia Realty Trust REIT......................... 714
944,890 Burnham Pacific Property Trust REIT.............. 11,634
402,400 Federal Realty Investment Trust REIT............. 9,230
103,076 First Washington Realty Trust, Inc. REIT......... 2,410
175,800 Pan Pacific Retail Properties, Inc. REIT......... 3,417
7,700 Philips International Realty Corp. REIT.......... 130
2,300 Ramco-Gershenson Properties Trust REIT........... 37
240,600 Regency Realty Corp. REIT........................ 5,278
---------
32,850
---------
TOTAL RETAIL..................................................... 60,147
---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
U.S. Real Estate Portfolio
109
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1999
- --------------------------------------------------------------------------------
U.S. REAL ESTATE PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ------------------------------------------------------------------------------
<C> <S> <C>
SELF STORAGE (3.7%)
401,866 Public Storage, Inc. REIT........................ $ 11,252
40,000 Shurgard Storage Centers, Inc., Series A REIT.... 1,085
---------
12,337
---------
TOTAL COMMON STOCKS (Cost $304,887)................................ 319,819
---------
CONVERTIBLE PREFERRED STOCKS (0.4%)
OTHER (0.4%)
(a)107,021 Atlantic Gulf Communities Corp................... 762
(a)75,765 Altantic Gulf Communities Corp., Series B........ 540
---------
TOTAL CONVERTIBLE PREFERRED STOCKS (Cost $1,828)................... 1,302
---------
</TABLE>
<TABLE>
<CAPTION>
NO. OF
WARRANTS
<C> <S> <C>
- --------------
WARRANTS (0.0%)
OTHER (0.0%)
(a)112,509 Atlantic Gulf Communities Corp., Class A......... 35
(a)112,509 Atlantic Gulf Communities Corp., Class B......... 35
(a)112,509 Atlantic Gulf Communities Corp., Class C......... 35
---------
TOTAL WARRANTS (Cost $0)........................................... 105
---------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT
(000)
<C> <S> <C>
- --------------
CORPORATE BOND (0.8%)
OFFICE/INDUSTRIAL (0.8%)
OFFICE (0.8%)
$ 2,934 Brookfield Properties Corp. (Canada),
6.00%, 2/14/07 (Cost $2,260)................... 2,651
---------
SHORT-TERM INVESTMENT (0.3%)
REPURCHASE AGREEMENT (0.3%)
983 Chase Securities, Inc. 4.55%, dated 6/30/99, due
7/01/99, to be repurchased at $983,
collateralized by U.S. Treasury Bonds, 7.25%
due 5/15/16, valued at $1,017 (Cost $983)...... 983
---------
</TABLE>
<TABLE>
<CAPTION>
VALUE
(000)
<C> <S> <C>
- ------------------------------------------------------------------------------
TOTAL INVESTMENTS (98.7%) (Cost $309,958).......................... $ 324,860
---------
</TABLE>
<TABLE>
<S> <C> <C>
OTHER ASSETS (2.1%)
Cash................................................ $ 44
Dividends Receivable................................ 2,387
Receivable for Investments Sold..................... 3,351
Receivable for Portfolio Shares Sold................ 1,101
Interest Receivable................................. 64
Other............................................... 4 6,951
----------
LIABILITIES (-0.8%)
Payable for Investments Purchased................... (1,773)
Investment Advisory Fees Payable.................... (652)
Administrative Fees Payable......................... (43)
Directors' Fees & Expenses Payable.................. (17)
Payable for Portfolio Shares Redeemed............... (15)
Distribution Fees Payable........................... (8)
Custodian Fees Payable.............................. (7)
Other Liabilities................................... (79) (2,594)
---------- ----------
NET ASSETS (100%)................................................. $ 329,217
----------
----------
</TABLE>
<TABLE>
<S> <C>
NET ASSETS CONSIST OF:
Paid in Capital................................................... $ 313,429
Undistributed Net Investment Income............................... 5,226
Accumulated Net Realized Loss..................................... (4,343)
Unrealized Appreciation on Investments and Foreign Currency
Translations.................................................... 14,905
----------
NET ASSETS........................................................ $ 329,217
----------
----------
</TABLE>
<TABLE>
<S> <C>
CLASS A:
- ------------------------------------------------------------------
NET ASSETS........................................................ $ 314,472
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 22,989,715 outstanding $0.001 par value shares
(authorized 500,000,000 shares)................................. $13.68
----------
----------
CLASS B:
- ------------------------------------------------------------------
NET ASSETS........................................................ $14,745
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 1,081,975 outstanding $0.001 par value shares
(authorized 500,000,000 shares)................................. $13.63
----------
----------
</TABLE>
- ------------------------------------------------------------
(a) -- Non-incoming producing security
(d) -- Security is valued at fair value -- see note A-1 to financial
statements.
REIT -- Real Estate Investment Trust
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
U.S. Real Estate Portfolio
110
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
VALUE EQUITY PORTFOLIO
COMPOSITION OF NET ASSETS (AT JUNE 30, 1999)
- ---------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Basic Materials 4.3%
Capital Goods 11.2%
Communication Services 15.0%
Consumer Cyclicals 13.7%
Consumer Staples 2.9%
Energy 4.8%
Financial 27.3%
Health Care 1.7%
Technology 10.6%
Transportation 1.9%
Utilities 5.4%
Other 1.2%
</TABLE>
PERFORMANCE COMPARED TO THE S&P 500 INDEX AND THE
INDATA EQUITY-MEDIAN INDEX(1)
- -----------------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
-------------------------------------------------
AVERAGE
AVERAGE ANNUAL
ANNUAL SINCE
YTD ONE YEAR FIVE YEARS INCEPTION
---------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
PORTFOLIO -- CLASS A..... 21.15% 18.98% 22.08% 15.73%
PORTFOLIO -- CLASS B..... 20.91 18.63 N/A 22.01
S&P 500 INDEX -- CLASS
A........................ 12.38 22.75 27.87 19.39
INDATA EQUITY-MEDIAN
INDEX -- CLASS A......... 8.36 13.86 22.86 16.96
S&P 500 INDEX -- CLASS
B........................ 12.38 22.75 N/A 27.73
INDATA EQUITY-MEDIAN
INDEX -- CLASS B......... 8.36 13.86 N/A 22.45
</TABLE>
1. The S&P 500 Index is comprised of 500 large-cap U.S. companies with market
capitalization of $1 billion or more. These 500 companies are a
representative sample of some 100 industries chosen mainly for market size,
liquidity and industry group representation. The Indata Equity-Median Index
includes an average asset allocation of 91.7% equity and 8.3% cash based on
$455 trillion in assets among 995 portfolios for the period ended June 30,
1999.
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 INFORMATION CONTAINED IN THIS OVERVIEW REGARDING SPECIFIC SECURITIES IS FOR
INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A RECOMMENDATION TO
PURCHASE OR SELL THE SECURITIES MENTIONED. THE PERFORMANCE RESULTS PROVIDED ARE
FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A GUARANTEE OF
THE PORTFOLIO'S FUTURE PERFORMANCE. PAST PERFORMANCE SHOWN IS NOT PREDICTIVE OF
FUTURE PERFORMANCE. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT
AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST.
The Value Equity Portfolio seeks long-term capital appreciation by investing
primarily in equity securities which the Investment advisor believes to be
undervalued relative to the stock market in general at the time of purchase.
Our investment philosophy for the Value Equity Portfolio is based on the premise
that a diversified portfolio of undervalued securities should outperform the
market over the long-term, and would be expected to preserve principal in a
difficult market environment. Our Portfolio is characterized by a distinctly
below average price-to-earnings ratio, price-to-book ratio, and a high dividend
yield.
For the six months ended June 30, 1999, the Portfolio had a total return of
21.15% for the Class A shares and 20.91% for the Class B shares compared to
12.38% for the S&P 500 Index and 8.36% for the Indata Equity-Median Index. For
the one year period ended June 30, 1999, the Portfolio had a total return of
18.98% for the Class A shares and 18.63% for the Class B shares compared to
22.75% for the S&P 500 Index and 13.86% for the Indata Equity-Median Index. For
the five-year period ended June 30, 1999, the average annual total return of
Class A shares was 22.08% compared to 27.87% for the S&P 500 Index and 22.86%
for the Indata Equity-Median Index. For the period since inception on January
31, 1990 through June 30, 1999, the average annual total return of Class A
shares was 15.73% compared to 19.39% for the S&P 500 Index and 16.96% for the
Indata Equity-Median Index. For the period since inception on January 2, 1996
through June 30, 1999, the average annual total return of Class B shares was
22.01% compared to 27.73% for the S&P 500 Index and 22.45% for the Indata
Equity-Median Index.
<TABLE>
<CAPTION>
PRICE-EARNINGS PRICE-TO-BOOK
-------------- ------------
<S> <C> <C>
(AS OF 30 JUNE)
VALUE EQUITY PORTFOLIO........ 15.6 times 4.9 times
S&P 500....................... 25.2 times 8.6 times
</TABLE>
For the six months ended June 30, 1999, the
S&P/Barra Growth Index returned 10.50%, and the S&P/Barra Value Index returned
12.83%. Equally weighted, the S&P 500 returned 15.4%. The small-cap Indexes were
up 9.28% (Russell 2000) and 5.03% (S&P Small-cap). The Lipper Equity-Income
Index (Value) was up 9.93%.
So far it has been a tale of two markets. The first quarter of 1999 was a
continuation of a very narrow market driven by the mega-cap growth stocks. In
the
- --------------------------------------------------------------------------------
Value Equity Portfolio
111
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
VALUE EQUITY PORTFOLIO (CONT.)
second quarter of 1999 we saw the mirror image of the first quarter of 1999 with
a strong rebound in value stocks and the non mega-cap stocks.
For the Portfolio in the first half of 1999, the best performing stocks were
Fore Systems, up 149%, Case, up 68%, Nielsen Media Research, up 63%, Philips
Electronics, up 39%, BankBoston up 33%, and United Technologies, up 33%.
Underperforming stocks were Philip Morris, down 23%, Loews, down 19%, Ashland,
down 16%, and NiSource, down 14%.
What follows below is a summary of the two markets: first quarter then second
quarter.
FIRST QUARTER OF 1999
For the three months ended March 31, 1999, the Portfolio had a total return of
4.36% for the Class A shares and 4.37% for the Class B shares compared to the
S&P 500 return of 5.0%, the S&P/Barra Growth Index returned 7.0%, and the
S&P/Barra Value Index return of 2.7%. Equally weighted, the S&P 500 returned
1.3%. The small-cap indexes were down 5.5% (Russell 2000) and 8.4% (S&P
Small-cap). The worst performing sectors were S&P utilities, down 10% and
Small-cap value, down 10%. The Lipper Equity-Income Index (Value) was up 0.9%.
For the Portfolio, the best performing stocks in the Portfolio were Sprint-PCS,
up 92%, Nielsen Media Research (an internet/media company with earnings that was
added at a 12 price-earnings last fall), up 82%, United Technologies, up 25%,
Lincoln National, up 22% and TJX Companies, up 17%. The worst performing stocks
were Philip Morris, down 33%, Meritor Automotive (now a 6 price-earnings), down
26%, Loews, down 24%, Harris, down 21%, and Gulf Stream Aerospace, down 19% (26%
growth, upward earnings estimates, and now a 10 price-earnings).
Overall performance was a telescoped version of the last few years: A narrow
market increasingly driven by and valued by, a small number of mega-cap stocks
with high and increasing valuations. For the first quarter the S&P 100 was up
7.3%, over 15% better than the S&P small-cap Index which was down 8.4%. This
quarter also saw the emergence of the mania in Internet stocks.
Performance in the first quarter of 1999 was driven by the recovery in four of
our large value holdings: TJMaxx, Lincoln National, United Technologies and
Philips Electronics. We also had help from wireless. Lincoln National rose on
the news that Aegon, a global Dutch insurer who is buying Transamerica;
highlighting the attraction as well as the scarcity of high quality U.S. based
financial/insurance companies. TJMaxx's performance was a recovery from the
economic-slow down scare in the third quarter of 1998 (which is when TJMaxx was
added to the Portfolio). United Technologies and Philips recovered based on good
1998 fourth quarter earnings and solid expectations for 1999. PCS return
reflected the value of a nation-wide wireless service. Based on valuation we
sold PCS and purchased Telesp Cellular Participacoes, a Brazilian cellular
company spun off from Telebras, the Brazilian telecommunications company, and
added to our Sprint holdings.
Our biggest positions at March 31, 1999 were AT&T, Sprint, United Technologies,
Lincoln National, and Chase Manhattan. These five stocks accounted for 22% of
the Portfolio. The top 10 positions had similar characteristics and comprise 41%
of the portfolio and include TJMaxx, BankBoston, Allstate, Bell Atlantic, and
Philips Electronics. These top 10 comprised the core of the Portfolio.
In the first quarter of 1999 we added to our holding of broadband and wireless
stocks when liquidity-driven or momentum selling created discounts to the
markets. We added the following companies at average price-earnings of 22 and
price-to-sales of 2: 3Com (networking), Newbridge Networks (ATM switches), FORE
Systems (ATM switches). We viewed these as reasonable valuations for high
quality broadband stocks.
At quarter end the S&P 500 was selling for 25 times 1999 expected earnings. Yet
high quality companies were selling at extreme discounts to the market. For
example, our holdings included Cordant Technologies which is growing earnings
between 8% and 10% and was selling at a price-earnings of 10; Meritor
Automotive, recently spun out from Rockwell International, has a strong
management team, and was growing by acquisition in a consolidating, but growing,
market; it was selling at a price-earnings of 6. The upcoming merger between
Fleet and BankBoston is an in-market merger of two strong franchises, combined
with BankBoston's profitable Latin America businesses, yet the companies sell at
a price-earnings of 13. The core of the Portfolio was comprised of stocks like
these, and the portfolio's conservative valuation and yield reflected this with
a price-earnings (99) of 15 and a dividend yield of 1.9%.
- --------------------------------------------------------------------------------
Value Equity Portfolio
112
<PAGE>
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Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
VALUE EQUITY PORTFOLIO (CONT.)
SECOND QUARTER OF 1999
For the three months ended June 30, 1999, the Portfolio had a total return of
16.08% for the Class A shares and 15.96% for the Class B shares compared to
7.05% for the the S&P 500, the S&P/Barra Growth Index returned 3.64%, and the
S&P/Barra Value Index returned 10.30%. Equally weighted, the S&P 500 returned
13.95%. The small-cap indexes were up 15.55% (Russell 2000) and 15.42% (S&P
Small-cap). The Lipper Equity-Income Index (Value) was up 8.95%.
In the second quarter of 1999 the best performing stocks were NOT the mega-cap
growth stocks. The result was that most active managers outperformed, small beat
large, and for the first time, in a long time, value beat growth.
For the Portfolio, the best performing stocks in the portfolio were Fore
Systems, up 149%, Case, up 92%, Meritor Automotive, up 65%, Gulfsteam Aerospace,
up 56%, Texas Instruments, up 45% and Harris Corp, up 37%. The worst performing
stocks were NiSource, down 3.5%, Allstate, down 2.8%, and TJX Companies down
1.9%.
There are two interesting characteristics of the best performing stocks: One,
the average price-earnings of the five best-performing stocks listed above was
11.5 at March 31, 1999. And two, Case, Meritor, and Gulfstream were the worst
performing stocks in the first quarter of 1999. This highlights one of the key
dimensions of the second quarter of 1999 performance: much of it was a rebound
from 1998 and the first quarter of 1999 when the momentum/ growth investors
found no valuation was too high to pay for a mega-cap growth stock and no price
was too low to sell value stocks. In the second quarter of 1999 we were rewarded
for keeping and adding to our "beaten-up" value holdings.
In addition, we reported last quarter that we had added to our basket of
broadband stocks, including Fore Systems at $13.5 per share and a 15 price-
earnings. Fore Systems was purchased by General Electric of the U.K. in May
1999. We sold our shares at $33, up 149%. While many Broadband and Internet
companies have no earnings and are valued at 50-to-100 times revenues, the
market, driven by momentum investors, has provided liquidity sell-offs that have
produced attractive valuations for both Broadband and Wireless stocks. This
quarter the sell-offs hit 3Com (networking) and Newbridge Networks (ATM
switches). We have added to both positions.
Our biggest positions are Bell Atlantic, TJX Companies, BankBoston, Allstate and
Lincoln National. These five stocks account for 20.2% of the Portfolio. Rounding
out the top 10 positions are Meritor, Chase Manhattan Corp, United Technologies
and Sprint. These top 10 comprise 37% of the Portfolio.
Something significant occurred in the U.S. market in April: a massive rotation
from high price-earnings to low price-earnings and from growth to value. In just
three days the Portfolio outperformed the S&P 500 by 450 basis points. Many
large high price-earnings stocks were down 5%-to-15% and many low price-earnings
stocks were up 10%-to-20%. Just by standing still, as detailed above, the
Portfolio started to recoup the underperformance inflicted by momentum investing
in the mega-cap growth stocks that dominate the S&P 500 Index. The quarter also
saw the collapse in long-time high price-earnings stocks like Compaq, down 25%
for the quarter and 43% year-to-date, and McKesson down 51% for the quarter and
59% year-to-date.
A bifurcated U.S. market still exists with the top 20 stocks in the S&P 500
selling at a 1999 price-earnings of 56 while at the same time there is a large
supply of good companies selling at reasonable valuations. We are optimistic
that as the year progresses we will benefit from additional leptokurtic events
that revalue the high price-earnings mega-cap growth stocks. In the meantime we
continue to maintain a 15 price-earnings portfolio of good companies with
modest-to-good growth prospects.
Stephen C. Sexauer
PORTFOLIO MANAGER
July 1999
- --------------------------------------------------------------------------------
Value Equity Portfolio
113
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1999
- --------------------------------------------------------------------------------
VALUE EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- --------------------------------------------------------------------------
COMMON STOCKS (98.8%)
BASIC MATERIALS (4.3%)
CHEMICALS (SPECIALTY) (1.4%)
35,800 Milennium Chemicals, Inc. ........................ $ 844
----------
METALS MINING (2.9%)
115,100 USEC, Inc......................................... 1,712
----------
TOTAL BASIC MATERIALS....................................... 2,556
----------
CAPITAL GOODS (11.2%)
AEROSPACE/DEFENSE (4.9%)
38,000 Cordant Technologies, Inc......................... 1,717
(a)14,900 Gulfstream Aerospace Corp......................... 1,007
3,400 Northrop Grumman Corp............................. 225
----------
2,949
----------
MACHINERY (DIVERSIFIED) (1.7%)
20,400 Case Corp......................................... 982
----------
MANUFACTURING (DIVERSIFIED) (4.6%)
7,600 Tyco International Ltd. .......................... 720
28,100 United Technologies Corp. ........................ 2,015
----------
2,735
----------
TOTAL CAPITAL GOODS......................................... 6,666
----------
COMMUNICATION SERVICES (15.0%)
TELECOMMUNICATIONS (CELLULAR/WIRELESS) (2.0%)
(a)11,300 Nextel Communications, Inc., Class A.............. 567
(a)23,100 Telesp Celular Participacoes S.A.................. 618
----------
1,185
----------
TELECOMMUNICATIONS (LONG DISTANCE) (6.1%)
31,728 AT&T Corp......................................... 1,771
35,300 Sprint Corp....................................... 1,864
----------
3,635
----------
TELEPHONE (6.9%)
40,300 Bell Atlantic Corp................................ 2,634
25,100 U.S. WEST, Inc.................................... 1,475
----------
4,109
----------
TOTAL COMMUNICATION SERVICES................................ 8,929
----------
CONSUMER CYCLICALS (13.7%)
AUTO PARTS & EQUIPMENT (3.7%)
8,576 Delphi Automotive Systems Corp. .................. 159
79,966 Meritor Automotive, Inc........................... 2,039
----------
2,198
----------
AUTOMOBILES (1.4%)
12,500 General Motors Corp............................... 825
----------
PHOTOGRAPHY/IMAGING (0.7%)
5,900 Eastman Kodak Co. ................................ 400
----------
PUBLISHING (NEWSPAPERS) (0.5%)
10,100 News Corp., Ltd. ADR.............................. 319
----------
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- --------------------------------------------------------------------------
RETAIL (SPECIALTY) (4.2%)
75,300 TJX Cos., Inc..................................... $ 2,508
----------
SERVICES (COMMERCIAL & CONSUMER) (3.2%)
(a)43,233 Nielsen Media Research, Inc....................... 1,265
24,800 Ogden Corp........................................ 668
----------
1,933
----------
TOTAL CONSUMER CYCLICALS.................................... 8,183
----------
CONSUMER STAPLES (2.9%)
BROADCASTING (TV, RADIO, CABLE) (1.0%)
8,600 Comcast Corp., Class A............................ 330
(a)3,600 MediaOne Group, Inc............................... 268
----------
598
----------
SPECIALTY PRINTING (1.2%)
35,120 R.H. Donnelly Corp. .............................. 687
----------
TOBACCO (0.7%)
10,800 Philip Morris Cos., Inc........................... 434
----------
TOTAL CONSUMER STAPLES...................................... 1,719
----------
ENERGY (4.8%)
OIL & GAS (REFINING & MARKETING) (0.3%)
4,700 Ashland, Inc...................................... 189
----------
OIL (DOMESTIC INTEGRATED) (4.5%)
4,600 BP Amoco plc...................................... 499
61,200 Conoco, Inc. ..................................... 1,706
15,000 USX-Marathon Group................................ 488
----------
2,693
----------
TOTAL ENERGY................................................ 2,882
----------
FINANCIAL (27.3%)
BANKS (MAJOR REGIONAL) (9.7%)
45,800 BankBoston Corp................................... 2,342
16,700 Bank of New York Co., Inc......................... 613
26,600 Fleet Financial Group, Inc........................ 1,180
18,400 Mellon Bank Corp.................................. 669
17,400 PNC Bank Corp..................................... 1,003
----------
5,807
----------
BANKS (MONEY CENTER) (3.4%)
23,400 Chase Manhattan Corp.............................. 2,027
----------
CONSUMER FINANCE (1.0%)
13,700 Countrywide Credit Industries, Inc................ 586
----------
INSURANCE (LIFE & HEALTH) (6.3%)
19,500 American General Corp............................. 1,470
43,400 Lincoln National Corp............................. 2,270
----------
3,740
----------
INSURANCE (MULTI-LINE) (2.6%)
19,300 Loews Corp........................................ 1,527
----------
INSURANCE (PROPERTY-CASUALTY) (3.8%)
63,800 Allstate Corp..................................... 2,289
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
Value Equity Portfolio
114
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1999
- --------------------------------------------------------------------------------
VALUE EQUITY PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------
<C> <S> <C>
</TABLE>
FINANCIAL (CONT.)
<TABLE>
<C> <S> <C>
INVESTMENT BANKING & BROKERAGE (0.5%)
6,767 Bear Stearns Cos., Inc............................ $ 316
----------
TOTAL FINANCIAL............................................. 16,292
----------
HEALTHCARE (1.7%)
HEALTHCARE (MEDICAL PRODUCTS & SUPPLIES) (1.7%)
13,700 Bausch & Lomb, Inc................................ 1,048
----------
TECHNOLOGY (10.6%)
COMMUNICATION EQUIPMENT (2.4%)
(a)8,400 AudioCodes Ltd.................................... 227
20,650 Harris Corp....................................... 809
11,300 Telefonaktiebolaget LM Ericsson ADR............... 372
----------
1,408
----------
COMPUTERS (NETWORKING) (2.1%)
(a)18,600 3Com Corp......................................... 496
(a)26,400 Newbridge Networks Corp........................... 759
----------
1,255
----------
COMPUTERS (SOFTWARE & SERVICES) (0.9%)
(a)3,600 BMC Software, Inc. ............................... 194
(a)6,400 Compuware Corp.................................... 204
8,900 Networks Associates, Inc. ........................ 131
----------
529
----------
ELECTRONICS (COMPONENT DISTRIBUTORS) (2.8%)
16,516 Philips Electronics N.V. (NY Shares).............. 1,666
----------
ELECTRONICS (DEFENSE) (2.4%)
(a)20,400 Litton Industries, Inc............................ 1,464
----------
TOTAL TECHNOLOGY............................................ 6,322
----------
TRANSPORTATION (1.9%)
AIRLINES (1.9%)
(a)29,900 Continental Airlines, Inc., Class B............... 1,125
----------
UTILITIES (5.4%)
ELECTRIC COMPANIES (5.4%)
15,100 New Century Energies, Inc......................... 586
84,000 NiSource Inc...................................... 2,168
11,500 Pinnacle West Capital Corp........................ 463
----------
TOTAL UTILITIES............................................. 3,217
----------
TOTAL COMMON STOCKS (Cost $46,251).......................... 58,939
----------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
<C> <S> <C>
- --------------------------------------------------------------------------
SHORT-TERM INVESTMENT (1.2%)
REPURCHASE AGREEMENT (1.2%)
$ 718 Chase Securities, Inc. 4.55%, dated 6/30/99, due
7/01/99, to be repurchased at $718,
collateralized by U.S. Treasury Bonds, 7.25%,
due 5/15/16, valued at $745 (Cost $718)......... $ 718
----------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS (100.0%) (Cost $46,969).................... 59,657
-----------
OTHER ASSETS (0.2%)
Cash........................................... $ 47
Dividends Receivable........................... 45
Other.......................................... 13 105
----------
LIABILITIES ( - 0.2%)
Investment Advisory Fees Payable............... (59)
Payable for Portfolio Shares Redeemed.......... (6)
Administrative Fees Payable.................... (9)
Directors' Fees & Expenses Payable............. (8)
Custodian Fees Payable......................... (4)
Distribution Fees Payable...................... (1)
Other Liabilities.............................. (18) (105)
---------- -----------
NET ASSETS (100%)............................................ $ 59,657
-----------
-----------
</TABLE>
<TABLE>
<S> <C>
NET ASSETS CONSIST OF:
Paid in Capital.............................................. $ 38,753
Undistributed Net Investment Income.......................... 142
Accumulated Net Realized Gain................................ 8,074
Unrealized Appreciation on Investments....................... 12,688
-----------
NET ASSETS................................................... $ 59,657
-----------
-----------
</TABLE>
<TABLE>
<S> <C>
CLASS A
- -------------------------------------------------------------
NET ASSETS................................................... $59,026
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 4,536,172 outstanding $0.001 par value shares
(authorized 500,000,000 shares)............................ $13.01
-----------
-----------
CLASS B
- -------------------------------------------------------------
NET ASSETS................................................... $631
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 48,631 outstanding $0.001 par value shares
(authorized 500,000,000 shares)............................ $12.97
-----------
-----------
</TABLE>
- ------------------------------------------------------------
(a) -- Non-income producing security
ADR -- American Depositary Receipt
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
Value Equity Portfolio
115
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
EMERGING MARKETS DEBT PORTFOLIO
COMPOSITION OF NET ASSETS (AT JUNE 30, 1999)
- ---------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Argentina 16.2%
Brazil 19.0%
Bulgaria 4.2%
Colombia 5.2%
Ecuador 1.2%
Indonesia 1.6%
Ivory Coast 0.9%
Jordan 1.0%
Mexico 20.3%
Morocco 2.7%
Nigeria 0.3%
Panama 2.2%
Peru 2.1%
Philippines 1.8%
Poland 1.6%
Russia 6.9%
South Korea 1.1%
Turkey 4.3%
Venezuela 3.2%
Other 4.2%
</TABLE>
PERFORMANCE COMPARED TO THE J.P. MORGAN EMERGING
MARKETS BOND PLUS INDEX(1)
- ----------------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
--------------------------------------------------
AVERAGE AVERAGE
ANNUAL FIVE ANNUAL SINCE
YTD ONE YEAR YEARS INCEPTION
---------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
PORTFOLIO -- CLASS A......... 11.45% - 25.50% 11.51% 6.49%
PORTFOLIO -- CLASS B......... 10.90 - 25.48 N/A 6.76
INDEX -- CLASS A............. 10.57 - 4.26 14.22 8.28
INDEX -- CLASS B............. 10.57 - 4.26 N/A 11.75
</TABLE>
1. The J.P. Morgan Emerging Markets Bond Plus Index is a total return index
tracking the traded U.S. dollar denominated debt instruments in the emerging
markets. The Index is composed of Brady Bonds, benchmark Eurobonds, loans and
Argentine domestic debt.
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 INFORMATION CONTAINED IN THIS OVERVIEW REGARDING SPECIFIC SECURITIES IS FOR
INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A RECOMMENDATION TO
PURCHASE OR SELL THE SECURITIES MENTIONED. 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.
The investment objective of the Emerging Markets Debt Portfolio is high total
return through investment primarily in debt securities of government and
government-related issuers and, to a lesser extent, of corporate issuers located
in emerging countries.
For the six months ended June 30, 1999, the Portfolio had a total return of
11.45% for the Class A shares and 10.90% for the Class B shares compared to a
total return of 10.57% for the J.P. Morgan Emerging Markets Bond Plus Index (the
"Index"). For the one year period ended June 30, 1999, the Portfolio had a total
return of - 25.50% for the Class A shares and - 25.48% for the Class B shares
compared to - 4.26% for the Index. For the five-year period ended June 30,
1999, the Portfolio had a total return of 11.51% for the Class A shares compared
to 14.22% for the Index. For the period since inception on February 1, 1994
through June 30, 1999, the average annual total return of Class A shares was
6.49% compared to 8.28% for the Index. For the period since inception on January
2, 1996 through June 30, 1999, the average annual total return of Class B shares
was 6.76% compared to 11.75% for the Index. As of June 30, 1999, the Portfolio
had a SEC 30-day yield of 12.79% for the Class A shares and 12.53% for the Class
B shares.
The challenges facing emerging market countries as they entered 1999 were
daunting. The prospects for lower Organization for Economic Co-operation and
Development (OECD) growth continued, weak commodity prices, global excess
capacity and rising deficits were enough to discourage even the most optimistic
investor. As the year progressed however, many of these negatives which had cast
a shadow over emerging markets proved to be less of an obstacle than originally
thought. OECD growth as a whole held up better than expected during the first
quarter. The Japanese economy stabilized temporarily, which helped to underpin a
recovery in most of the economies of Emerging Asia. The U.S. economy continued
to perform above trend while weakness was evident only in the Euro block
countries.
The Portfolio began 1999 reeling from the continued effects of the Brazilian
crisis of 1998. During the month of January, emerging markets debt as measured
by the JP Morgan Emerging Markets Bond Plus sold off by 3.7%, with spreads
widening by 137 basis points to +1,288 basis points over comparable U.S.
Treasury securities. Brazil floated its currency. The real subsequently
depreciated 42% during the
- --------------------------------------------------------------------------------
Emerging Markets Debt Portfolio
116
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
EMERGING MARKETS DEBT PORTFOLIO (CONT.)
month. The immediate economic fallout was felt in the form of a deeper economic
contraction, higher inflation, higher interest rates and a deteriorating public
sector debt dynamic. By the end of the first quarter, inflation in Brazil, while
still high by most standards, was tamer than expected allowing the Central Bank
to lower domestic interest rates sooner than had been anticipated.
Another positive surprise was higher oil prices, which were the result of a
mid-March OPEC agreement to cut oil production. This eased the fiscal pressures
burdening many of the commodity exporting countries this year. While base metals
and other commodity prices remained weak, the positive move in the price of oil
since the beginning of the year served as a windfall to emerging countries such
as Ecuador, Mexico, Russia and Venezuela. To their credit, emerging countries by
and large made the necessary adjustments to cope with the realities of lower
revenues from commodity exports and higher costs of capital.
The conflict in Kosovo weighed on the market as Bulgarian assets bore the brunt
of investors' fears that the war would spread and destabilize the entire Balkan
region.
During the first quarter of 1999, emerging market investors decided that many of
the negative external factors overhanging the market were reflected in debt
prices and that the worst in terms of economic conditions would soon pass. As a
result, despite a poor start, emerging market debt had a strong rebound during
the latter part of the first quarter of 1999. For the three months ending March
31, 1999 emerging market debt rose 5.06% as measured by the Index.
By the end of June, as measured by the Index the spread had tightened to 1,070
over U.S. Treasuries. The rally in June helped to reclaim some of the losses in
May and brought the year-to-date return up to 10.57%. The market rally at the
end of the month was spurred by the Federal Open Market Committee (FOMC)
adoption of a neutral policy bias after raising the Fed Funds rate by the
anticipated amount of 25 basis points. The neutral bias announcement helped to
ease investor fears that the Fed was about to undertake a series of interest
rate hikes.
In June, Russian assets significantly outperformed the general market, as the
prospects for a timely restructuring of outstanding debt improved. In addition,
Russia continued to post strong current account surpluses on the back of rising
oil prices. Bulgarian assets outperformed the market in the wake of a resolution
to the Kosovo conflict and the subsequent discussions by NATO of a Marshall-type
plan to rebuild the Balkan region.
The Indonesian economy, which has been lagging the rest of Asia, began to show
signs of a rebound as inflation declined significantly and domestic interest
rates fell dramatically. The recent rise in oil prices has improved Indonesia's
trade balance, which contributed to the country's, albeit modest, current
account surplus. This surplus combined with multi lateral aid has led to an
increase in international reserves and a rally in the Indonesian rupiah.
On the down side, Ecuador significantly underperformed the market as the country
continued to struggle with a domestic political dynamic that has made it
impossible for the government to implement the structural reforms necessary to
clean up its banking system and secure multi lateral aid.
Stronger growth in the developed world and the related upturn in commodity
prices during the last few months have provided a supportive global environment
in which most emerging economies have been able to stabilize. In general, spread
levels on emerging market debt traded within a relatively narrow (100 basis
point) range, albeit with plenty of interim volatility, and healthy returns were
earned by "clipping coupons" during the first six months of the year. Additional
support for the asset class came from the improved macro-economic fundamentals
in many of the large emerging economies.
Non-Japan Asian economies rebounded, partly due to base effects, but also due to
increased domestic demand and export volumes. However, these recoveries are
fragile and as we have seen in the past, there can be a wide gap between
committing to structural reform measures and actually implementing them.
Emerging economies are still vulnerable to external shocks such as an
inflationary surprise and higher U.S. interest rates. A correction in the
financial markets of the developed world would rattle the nascent recoveries in
emerging economies, as investors conclude that higher rates and lower asset
prices would slow the demand for exports from emerging market economies.
In the near term we do not expect any meaningful sell off in emerging market
debt. Despite the incremental
- --------------------------------------------------------------------------------
Emerging Markets Debt Portfolio
117
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
EMERGING MARKETS DEBT PORTFOLIO (CONT.)
improvement in credit fundamentals, the market has not rallied substantially
during the first half of the year. At current levels, the downside risks are
less worrisome than in times past, as we believe that a healthy amount of
skepticism is reflected in today's prices. However, a significant rally in the
near term seems unlikely to us as well. Investors appear to be hesitant to
commit new money to risky asset classes between now and the end of the year due
to concerns over Year 2000 and the direction of U.S. monetary policy. A
continuation of the "coupon clipping" environment seems the most likely course
during the medium term. We are optimistic that the three main regions of the
emerging world will be growing in unison during the latter part of this year,
which will improve the fiscal and balance of payments positions of many emerging
market countries. This should cause investors perceptions of emerging market
risks to fall and allow for increased upside in asset prices.
Thomas L. Bennett
PORTFOLIO MANAGER
Stephen F. Esser
PORTFOLIO MANAGER
Abigail L. McKenna
PORTFOLIO MANAGER
July 1999
- --------------------------------------------------------------------------------
Emerging Markets Debt Portfolio
118
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1999
- --------------------------------------------------------------------------------
EMERGING MARKETS DEBT PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
<C> <S> <C>
- ---------------------------------------------------------------------------------
DEBT INSTRUMENTS (92.6%)
ARGENTINA (16.2%)
CORPORATE (2.1%)
U.S.$ (e)200 Cablevision S.A., 13.75%, 5/01/09................. $ 182
ARP 100 CIA International Telecommunications, 10.375%,
8/01/04......................................... 79
(e)850 CIA International Telecommunications, 10.375%,
8/01/04......................................... 667
U.S.$ (e)348 Nortel Inversora, Series A, 6.00%, 3/31/07........ 209
(e)200 Supercanal Holdings, 11.50%, 5/15/05.............. 108
----------
1,245
----------
SOVEREIGN (14.1%)
3,960 Republic of Argentia, Global Bond, 11.75%,
4/07/09......................................... 3,584
(v)5,441 Republic of Argentina, Global Bond, Series L,
(Floating Rate), (Bearer), 5.938%, 3/31/05...... 4,652
----------
8,236
----------
9,481
----------
BRAZIL (19.0%)
SOVEREIGN (19.0%)
31 Federative Republic of Brazil, C Bond, PIK, 5.00%,
4/15/14......................................... 20
(v)4,829 Federative Republic of Brazil, C Bond, PIK, 8.00%,
4/15/14......................................... 3,149
100 Federative Republic of Brazil, Series L, (Floating
Rate), 4.50%, 4/15/09........................... 58
250 Federative Republic of Brazil, Series L, (Floating
Rate), 5.938%, 4/15/09.......................... 176
(v)500 Federative Republic of Brazil, Front Loaded
Interest Reduction Bond, Series L, (Floating
Rate), 5.00%, 4/15/09........................... 287
3,620 Federative Republic of Brazil, Debt Conversion
Bond, Series L, (Floating Rate), 5.938%,
4/15/12......................................... 2,249
(v)2,300 Federative Republic of Brazil, Debt Conversion
Bond, Series L, (Floating Rate), 5.938%,
4/15/12......................................... 1,429
(v)2,600 Federative Republic of Brazil, New Money Bonds,
Series L, (Floating Rate), 5.938%, 4/15/09...... 1,826
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
<C> <S> <C>
- ---------------------------------------------------------------------------------
U.S.$ (v)$2,423 Federative Republic of Brazil, Series IE-L,
(Bearer), (Floating Rate), 5.875%, 4/15/06...... $ 1,914
----------
11,108
----------
BULGARIA (4.2%)
SOVEREIGN (4.2%)
1,770 Republic of Bulgaria, Discount Bond, Series A,
(Floating Rate), 5.875%, 7/28/24................ 1,210
(n,v)750 Republic of Bulgaria, Front Loaded Interest
Reduction Bond, Series A, 2.50%, 7/28/12........ 458
1,120 Republic of Bulgaria, Interest Arrears PDI Bond,
(Floating Rate), 5.875%, 7/28/11................ 774
----------
2,442
----------
COLOMBIA (5.2%)
CORPORATE (0.3%)
(n)300 Occidente y Caribe Cellular, Series B, 0.00%,
3/15/04......................................... 198
----------
SOVEREIGN (4.9%)
510 Republic of Colombia, (Floating Rate), 9.705%,
8/13/05......................................... 443
890 Republic of Colombia, Global Bond, 10.875%,
3/09/04......................................... 854
1,900 Republic of Colombia, Global Bond, 9.75%,
4/23/09......................................... 1,570
----------
2,867
----------
3,065
----------
ECUADOR (1.2%)
SOVEREIGN (1.2%)
(v)1,530 Republic of Ecuador, Discount Bond, (Floating
Rate), 6.00%, 2/28/25........................... 716
----------
INDONESIA (1.6%)
CORPORATE (0.7%)
150 Idah Kiat, International Finance, Series B,
11.875%, 6/15/02................................ 125
300 Tjiwi Kimia International BV, Global Bond, 13.25%,
8/01/01......................................... 258
----------
383
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
Emerging Markets Debt Portfolio
119
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1999
- --------------------------------------------------------------------------------
EMERGING MARKETS DEBT PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- ---------------------------------------------------------------------------------
<C> <S> <C>
</TABLE>
INDONESIA (CONT.)
<TABLE>
<C> <S> <C>
SOVEREIGN (0.9%)
U.S.$ 200 Indonesia Exchange Loan, (Floating Rate), 8.125%,
8/25/00......................................... $ 186
300 Indonesia Exchange Loan, (Floating Rate), 8.375%,
8/25/01......................................... 264
100 Indonesia Exchange Loan, (Floating Rate), 8.625%,
8/25/02......................................... 86
----------
536
----------
919
----------
IVORY COAST (0.9%)
SOVEREIGN (0.9%)
(v)1,500 Ivory Coast, Front Loaded Interest Reduction Bond,
(Floating Rate), 2.00%, 3/29/18................. 409
(n)293 Ivory Coast, PDI Bond, (Floating Rate), 2.00%,
3/29/18......................................... 101
----------
510
----------
JORDAN (1.0%)
SOVEREIGN (1.0%)
(e,v)443 Government of Jordan, Discount Bond, (Floating
Rate), 6.188%, 12/23/23......................... 279
(v)279 Government of Jordan, Discount Bond, (Floating
Rate), 6.188%, 12/23/23......................... 176
250 Government of Jordon, (Floating Rate), 5.50%,
12/23/23........................................ 152
----------
607
----------
MEXICO (20.3%)
CORPORATE (3.1%)
(e)150 Innova S de R.L., Senior Notes, 12.875%,
4/01/07......................................... 119
440 Petroleos Mexicanos, (Floating Rate), 9.657%,
7/15/05......................................... 412
(e)1,350 Petroleos Mexicanos, 9.50%, 9/15/27............... 1,296
----------
1,827
----------
SOVEREIGN (17.2%)
(v)200 United Mexican States, Discount Bond, Series A,
(Floating Rate), 6.116%, 12/31/19............... 169
(v)1,500 United Mexican States, Discount Bond, Series B,
(Floating Rate), 5.875%, 12/31/19............... 1,264
900 United Mexican States, Discount Bond, Series C,
(Floating Rate), 5.874%, 12/31/19............... 758
(v)510 United Mexican States, Discount Bond, Series D,
(Floating Rate), 6.068%, 12/31/19............... 430
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
<C> <S> <C>
- ---------------------------------------------------------------------------------
U.S.$ 2,840 United Mexican States, Global Bond, Series XW,
10.375%, 2/17/09................................ $ 2,886
550 United Mexican States, Global Bond, 11.375%,
9/15/16......................................... 592
(v)2,200 United Mexican States, Par Bond, Series W-A,
6.25%, 12/31/19................................. 1,639
(v)3,061 United Mexican States, Par Bond, Series W-B,
6.25%, 12/31/19................................. 2,280
----------
10,018
----------
11,845
----------
MOROCCO (2.7%)
SOVEREIGN (2.7%)
1,920 Government of Morocco, Reconstruction &
Consolidation Agreement, Series A, (Floating
Rate), 5.906%, 1/01/09.......................... 1,550
----------
NIGERIA (0.3%)
SOVEREIGN (0.3%)
(n)410 Nigeria Promissory Note, 5.092%, 1/05/10.......... 164
----------
PANAMA (2.2%)
SOVEREIGN (2.2%)
(n,v)1,350 Republic of Panama, Global Bonds, 9.375%,
4/01/29......................................... 1,289
----------
PERU (2.1%)
SOVEREIGN (2.1%)
(n,v)50 Republic of Peru, Front Loaded Interest Reduction
Bond, (Floating Rate), 3.75%, 3/07/17........... 27
(e,n,v)1,148 Republic of Peru, Front Loaded Interest Reduction
Bond, 3.25%, 3/07/17............................ 636
880 Republic of Peru, PDI Bond, (Floating Rate),
4.00%, 3/07/17.................................. 543
----------
1,206
----------
PHILIPPINES (1.8%)
SOVEREIGN (1.8%)
600 Republic of Philippines, Global Bond, 9.875%,
1/15/19......................................... 590
(v)470 Republic of Phillipines, Front Loaded Interest
Reduction Bond, Series B, (Floating Rate),
6.00%, 6/01/08.................................. 436
----------
1,026
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
Emerging Markets Debt Portfolio
120
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1999
- --------------------------------------------------------------------------------
EMERGING MARKETS DEBT PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- ---------------------------------------------------------------------------------
<C> <S> <C>
POLAND (1.6%)
CORPORATE (1.6%)
U.S.$ (e,n)620 @Entertainment, Inc., 0.00%, 2/01/09.............. $ 415
(e)500 Netia Holdings II B.V., 13.125%, 6/15/09.......... 505
----------
920
----------
RUSSIA (6.9%)
SOVEREIGN (6.9%)
(e)630 Russian Federation, 8.75%, 7/24/05................ 317
(e)3,420 Russian Federation, 11.00%, 7/24/18............... 1,719
(v)650 Russian Interest Arrears Note, (Floating Rate),
6.063%, 12/15/15................................ 104
15,271 Russian Principal Loans, (Floating Rate), 6.063%,
12/15/20........................................ 1,880
----------
4,020
----------
SOUTH KOREA (1.1%)
QUASI-SOVEREIGN (1.1%)
340 Export-Import Bank of Korea, Global Bond, 6.50%,
2/10/02......................................... 333
350 Korea Electric Power, 7.00%, 10/01/02............. 339
----------
672
----------
TURKEY (1.1%)
CORPORATE (1.1%)
(e)100 Cellco Finance NV, 15.00%, 8/01/05................ 538
520 Cellco Finance NV, 15.00%, 8/01/05................ 104
----------
642
----------
VENEZUELA (3.2%)
SOVEREIGN (3.2%)
2,429 Republic of Venezuela Debt, Conversion Bond,
Series DL, (Floating Rate), 6.313%, 12/18/07.... 1,883
----------
TOTAL DEBT INSTRUMENTS (Cost $52,150)................................ 54,065
----------
</TABLE>
<TABLE>
<CAPTION>
NO. OF VALUE
RIGHTS (000)
<C> <S> <C>
- ---------------------------------------------------------------------------------
RIGHTS (0.0%)
MEXICO(0.0%)
4,785,000 United Mexican States, Value Recovery Rights,
expiring 6/30/03 (Cost $0)...................... $ --
----------
NO. OF
WARRANTS
- -----------------
WARRANTS (0.0%)
ARGENTINA(0.0%)
(a)1,900 Republic of Argentina, expiring 2/25/00........... 2
----------
COLOMBIA(0.0%)
(a,e)12,600 Occidente y Caribe Cellular, expiring 3/15/04..... 22
----------
POLAND (0.0%)
(a,e)2,480 @Entertainment Inc., expiring 2/1/09.............. --
----------
TOTAL WARRANTS (Cost $8)............................................. 24
----------
FACE
AMOUNT
(000)
- -----------------
SHORT-TERM INVESTMENTS (5.1%)
TURKEY (3.2%)
TREASURY BILLS
TRL 321,425,000 43.98%, 9/15/99................................... 650
830,988,000 65.89%, 2/09/00................................... 1,234
----------
1,884
----------
UNITED STATES (1.9%)
REPURCHASE AGREEMENT (1.9%)
U.S.$ 1,093 Chase Securities, Inc. 4.55%, dated 6/30/99, due
7/01/99, to be repurchased at $1,093,
collateralized by U.S. Treasury Bonds, 7.25% due
5/15/16, valued at $1,128....................... 1,093
----------
TOTAL SHORT-TERM INVESTMENTS (Cost $3,206)........................... 2,977
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
Emerging Markets Debt Portfolio
121
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1999
- --------------------------------------------------------------------------------
EMERGING MARKETS DEBT PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
(000)
- ---------------------------------------------------------------------------------
<C> <S> <C>
TOTAL INVESTMENTS 97.7% (Cost $55,364)............................... $ 57,066
----------
</TABLE>
<TABLE>
<S> <C> <C>
OTHER ASSETS (6.5%)
Interest Receivable...................................... $ 1,436
Receivable for Investments Sold.......................... 2,242
Receivable for Portfolio Shares Sold..................... 124
Other.................................................... 9 3,811
----------
LIABILITIES ( - 4.2%)
Payable for Investments Purchased........................ (2,072)
Bank Overdraft Payable................................... (165)
Investment Advisory Fees Payable......................... (149)
Custodian Fees Payable................................... (21)
Directors' Fees & Expenses Payable....................... (13)
Administrative Fees Payable.............................. (10)
Payable for Portfolio Shares Redeemed.................... (2)
Distribution Fees Payable................................ (1)
Other Liabilities........................................ (35) (2,468)
---------- --------
NET ASSETS (100%)...................................................... $ 58,409
--------
--------
</TABLE>
<TABLE>
<S> <C>
NET ASSETS CONSIST OF:
Paid in Capital........................................................ $155,296
Undistributed Net Investment Income.................................... 3,129
Accumulated Net Realized Loss.......................................... (101,690)
Unrealized Appreciation on Investments and Foreign Currency
Translations......................................................... 1,674
--------
NET ASSETS............................................................. $ 58,409
--------
--------
</TABLE>
<TABLE>
<CAPTION>
AMOUNT
(000)
<S> <C> <C>
- ---------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
CLASS A:
- -----------------------------------------------------------------------
NET ASSETS............................................................. $57,403
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 19,637,953 outstanding $0.001 par value shares
(authorized 500,000,000 shares)...................................... $2.92
--------
--------
CLASS B:
- -----------------------------------------------------------------------
NET ASSETS............................................................. $1,006
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 340,684 outstanding $0.001 par value shares (authorized
500,000,000 shares).................................................. $2.95
--------
--------
</TABLE>
- ------------------------------------------------------------
(a) -- Non-income producing security
(e) -- 144A security -- certain conditions for public resale may exist.
(n) -- Step Bond -- coupon rate increases in increments to maturity. Rate
disclosed is as of June 30, 1999. Maturity date disclosed is the
ultimate maturity.
(v) -- Security is a Brady Bond, created through the debt restructuring
exchange of commercial bank loans to foreign entities for new fixed
income obligations. These bonds may be collateralized and are actively
traded on the over-the-counter secondary market.
ARP -- Argentine Peso
PDI -- Past Due Interest
PIK -- Payment-In-Kind. Income may be received in additional securities or
cash at the discretion of the issuer.
TRL -- Turkish Lira
Floating Rate Security -- The interest rate on these instruments are based on
changes in a designated base rate. The rates shown are those in effect
on June 30, 1999.
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
Emerging Markets Debt Portfolio
122
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
JUNE 30, 1999
- --------------------------------------------------------------------------------
FIXED INCOME PORTFOLIO
COMPOSITION OF NET ASSETS (AT JUNE 30, 1999)
- ---------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
U.S. Government & Agency Obligations 47.9%
Collateralized Mortgage Obligation 6.7%
Corporate Bonds and Notes 34.9%
Asset Backed Securities 7.4%
Yankee Bond 0.9%
Foreign Government Obligation Bond 0.4%
Other 1.8%
</TABLE>
PERFORMANCE COMPARED TO THE LEHMAN
AGGREGATE BOND INDEX(1)
- ------------------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
---------------------------------------------------
AVERAGE AVERAGE
ANNUAL FIVE ANNUAL SINCE
YTD ONE YEAR YEARS INCEPTION
---------- ---------- ------------ -------------
<S> <C> <C> <C> <C>
PORTFOLIO -- CLASS A......... -2.10% 1.68% 7.79% 7.63%
PORTFOLIO -- CLASS B......... -2.23 1.54 N/A 5.47
INDEX -- CLASS A............. -1.37 3.15 7.83 7.82
INDEX -- CLASS B............. -1.37 3.15 N/A 5.82
</TABLE>
1. The Lehman Aggregate Bond Index is an unmanaged index comprised of the
Government/Corporate Index, the Mortgage-Backed Securities Index and the
Asset-Backed Securities Index.
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 INFORMATION CONTAINED IN THIS OVERVIEW REGARDING SPECIFIC SECURITIES IS FOR
INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A RECOMMENDATION TO
PURCHASE OR SELL THE SECURITIES MENTIONED. 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. YIELDS WILL FLUCTUATE AS MARKET CONDITIONS CHANGE.
The Fixed Income Portfolio seeks to provide a high total return consistent with
the preservation of capital by investing primarily in a diversified portfolio of
fixed income securities.
For the six months ended June 30, 1999, the Portfolio had a total return of
- -2.10% for the Class A shares and -2.23% for the Class B shares compared to
- -1.37% for the Lehman Aggregate Bond Index (the "Index"). For the one year
period ended June 30, 1999, the Portfolio had a total return of 1.68% for the
Class A shares and 1.54% for the Class B shares compared to 3.15% for the Index.
For the five-year period ended June 30, 1999, the average annual total return of
Class A shares was 7.79% compared to 7.83% for the Index. For the period since
inception on May 15, 1991 through June 30, 1999, the average annual total return
of Class A shares was 7.63% compared to 7.82% for the Index. For the period
since inception on January 2, 1996 through June 30, 1999, the average annual
total return of Class B shares was 5.47% compared to 5.82% for the Index. As of
June 30, 1999, the Portfolio had a SEC 30-day yield of 6.24% for the Class A
shares and 6.09% for the Class B shares.
Interest rates continued to move higher during the second quarter in reaction to
both disappointing inflation data and concerns regarding potential monetary
policy actions by the Federal Reserve.
The key economic release during the quarter was the 0.4% rise in April's core
(i.e., ex-food & energy) component of the Consumer Price Index, which renewed
concerns about inflation risks in a buoyant economy. This triggered a sharp
sell-off, which worsened when the market learned of the Fed's adoption in
mid-May of an asymmetrical policy bias in favor of a tighter monetary policy.
This was soon followed by a series of unambiguous comments from various Fed
officials that clearly foreshadowed the widely anticipated 25 basis point rise
in the target federal funds rate announced in late June.
Our view is that the Fed's tightening action should be interpreted as a
withdrawal of one of the three, 25-basis point easing moves initiated in late
1998, all of which were driven by concerns regarding global financial
conditions. The Fed's own words accompanying its recent rate hike serve as
evidence as to how far we have come over the past nine months: "Financial strain
has eased, foreign economies have firmed, and economic activity in the United
States has
- --------------------------------------------------------------------------------
Fixed Income Portfolio
123
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
JUNE 30, 1999
- --------------------------------------------------------------------------------
FIXED INCOME PORTFOLIO (CONT.)
moved forward at a brisk pace." While it is possible that the Fed could take
back one or both of the remaining late 1998 easing actions, the good news for
bond investors is that the yield-curve already reflects expectations that this
will occur, and that real interest rates are now at very attractive levels.
Our above-benchmark interest-rate sensitivity (IRS) strategy hurt relative
returns due to the increase in interest rates during the quarter. We ended the
period with our effective duration at about .2-.3 years above the benchmark.
A modest yield-curve strategy, involving an underweight in intermediates in
favor of longer maturities, had a favorable effect on relative returns during
the periods. Treasury Inflation Protected Securities (TIPS) have been part of
our Portfolio for the past three quarters. While these securities continue to
offer attractive real yields, the advantage of owning TIPS instead of nominal
Treasuries has diminished. In response, we trimmed the TIPS position during the
second quarter.
After a good first quarter, both corporates and mortgages had a difficult second
quarter. The widening in corporate yield spreads was due to increased issuance
of corporate debt and a volatile stock market, and not due to any broader
concerns regarding corporate credit quality. In general, the combination of
attractive yield spreads and favorable fundamentals supports a continued
overweighted position in corporates within our full-discretion strategies. The
corporate Portfolio is well-diversified, and overall credit quality remains
high.
Mortgage yield spreads widened in sympathy with the behavior of other
non-Treasury sectors. As a result, option-adjusted yield spreads on lower-coupon
fixed-rate securities ended the quarter at their widest levels since January. As
value investors, we added to the mortgage position when yield spreads widened.
Lower-coupon fixed-rate mortgage-backeds remain the heart of our mortgage
strategy due to a favorable combination of low prepayment risk and attractive
yield spreads. Even with the overweighted position in mortgages, the Portfolio's
sensitivity to prepayment risk remains below that of the broader mortgage
market.
As has been the case for over a year, real interest rates in the U.S. are at or
above those prevailing in the other major industrialized countries, so we
continue to have no allocation to non-dollar securities within the Portfolio.
Warren Ackerman, III
PORTFOLIO MANAGER
July 1999
- --------------------------------------------------------------------------------
Fixed Income Portfolio
124
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1999
- --------------------------------------------------------------------------------
FIXED INCOME PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
<C> <S> <C>
- ---------------------------------------------------------------------------------
FIXED INCOME SECURITIES (98.2%)
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (47.9%)
FEDERAL HOME LOAN MORTGAGE CORPORATION (8.4%)
$ 6 13.00%, 9/01/10................................... $ 7
17,783 6.00%, 12/01/28................................... 16,722
----------
16,729
----------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (23.4%)
2,842 6.00%, 9/01/10.................................... 2,757
3,982 6.00%, 2/01/11.................................... 3,854
2,014 8.00%, 2/01/12.................................... 2,068
6,376 6.00%, 4/01/13.................................... 6,159
7,418 5.50%, 5/01/14.................................... 7,019
16,328 6.00%, 4/01/28.................................... 15,338
9,901 6.00%, 2/01/29.................................... 9,301
----------
46,496
----------
U.S. TREASURY BONDS (9.0%)
14,750 8.125%, 8/15/19................................... 17,815
----------
U.S. TREASURY NOTES (7.1%)
9,000 6.00%, 7/31/02.................................... 9,094
5,000 5.75%, 8/15/03.................................... 5,003
----------
14,097
----------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS....................... 95,137
----------
CORPORATE BONDS AND NOTES (34.9%)
AUTOMOTIVE (1.8%)
2,000 Delphi Auto Systems Corp.,
7.125%, 5/01/29................................. 1,848
2,000 Ford Motor Co., 6.375%, 2/01/29................... 1,736
----------
3,584
----------
BANKING (0.7%)
1,500 Chase Manhattan Corp., 6.00%, 2/15/09............. 1,390
----------
CHEMICALS (2.4%)
(e)1,000 DSM N.V., 6.25%, 5/15/04.......................... 977
(e)2,000 Monsanto Co., 6.60%, 12/01/28..................... 1,777
(e)2,000 Rohm & Haas Co., 7.85%, 7/15/29................... 1,998
----------
4,752
----------
ELECTRONICS (1.5%)
3,000 Sony Corp., 6.125%, 3/04/03....................... 2,979
----------
FINANCE (21.8%)
2,000 Ahold Finance, 6.875%, 5/01/29.................... 1,864
(e)2,000 American General Institutional Capital, Series A,
7.57%, 12/01/45................................. 1,962
2,500 Associates Corp. of North America, 5.80%,
4/20/04......................................... 2,409
(e)2,000 BT Capital Trust, Series B1, 7.90%, 1/15/27....... 1,956
3,000 CNA Financial Corp., 6.50%, 4/15/05............... 2,906
2,000 Donaldson, Lufkin & Jenrette, Inc., 6.90%,
10/01/07........................................ 1,957
(e)2,500 Farmers Exchange Capital, 7.05%, 7/15/28.......... 2,259
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
<C> <S> <C>
- ---------------------------------------------------------------------------------
$ (e)2,000 First Chicago Corp., 7.75%, 12/01/26.............. $ 1,960
2,000 Ford Motor Credit Co., 6.125%, 4/28/03............ 1,972
2,000 General Motors Acceptance Corp.,
6.75%, 2/07/02.................................. 2,016
(e)1,500 Goldman Sachs Group, 6.34%, 3/01/06............... 1,449
1,650 John Hancock, 7.375%, 2/15/24..................... 1,638
2,350 Lehman Brothers Holdings, Inc.,
6.625%, 4/01/04................................. 2,289
(e)3,000 Liberty Mutal Insurance Co., 8.20%, 5/04/07....... 3,121
(e)2,000 Lumbermans Mutual Casualty Co.,
8.45%, 12/01/2097............................... 1,873
3,000 Merrill Lynch & Co., 6.00%, 2/12/03............... 2,957
(e)2,500 Prudential Insurance Co., 6.375%, 7/23/06......... 2,420
2,000 Salomon, Inc., 7.30%, 5/15/02..................... 2,048
1,500 Simon Debartolo Group, MTN,
7.125%, 9/20/07................................. 1,439
(e)2,873 World Financial Properties, Series 96 WFP-B,
6.91%, 9/01/13.................................. 2,798
----------
43,293
----------
HEALTHCARE SUPPLIES & SERVICES (0.8%)
1,500 Columbia/HCA Healthcare, MTN, 8.85%, 1/01/07...... 1,515
----------
MULTI-INDUSTRY (0.4%)
(e)1,000 Lowes Companies Inc., 6.50%, 3/15/29.............. 892
----------
TELECOMMUNICATIONS (2.2%)
1,600 AT&T Corp., 6.50%, 3/15/29........................ 1,444
3,000 Worldcom, Inc., 6.40%, 8/15/05.................... 2,935
----------
4,379
----------
TRANSPORTATION-ROAD & RAIL (0.7%)
1,500 Union Pacific Co., 6.625%, 2/01/29................ 1,315
----------
UTILITIES (2.6%)
2,000 Conoco Inc., 6.95%, 4/15/29....................... 1,876
1,700 Endesa-Chile (Yankee Bond),
7.75%, 7/15/08.................................. 1,589
(e)1,851 Oil Enterprises Ltd., 6.239%, 6/30/08............. 1,795
----------
5,260
----------
TOTAL CORPORATE BONDS AND NOTES.................................... 69,359
----------
ASSET BACKED SECURITIES (7.4%)
(e)3,000 Aesop Funding II LLC, Series 97-1, Class A1,
6.22%,10/20/01.................................. 3,005
5,000 Ford Credit Auto Owner Trust, Series 98-B, Class
A3, 5.85%, 10/15/01............................. 5,000
2,161 Mid-State Trust, Series IV A, 8.33%, 4/01/30...... 2,264
1,250 Peco Energy Transition Trust, Series 99-A, Class
A6, 6.05%, 3/01/09.............................. 1,197
3,250 Team Fleet Financing Corp., Series 97-1A, 7.35%,
5/15/03......................................... 3,313
----------
TOTAL ASSET BACKED SECURITIES...................................... 14,779
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
Fixed Income Portfolio
125
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1999
- --------------------------------------------------------------------------------
FIXED INCOME PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- ---------------------------------------------------------------------------------
<C> <S> <C>
COLLATERALIZED MORTGAGE OBLIGATION (6.7%)
$ 3,000 COMED, Series 98-1, Class A2, SEQ 5.29%,
6/25/03......................................... $ 2,968
641 Chase Commercial Mortgage Securities Corp., Series
97-2, Class A1, 6.45%, 12/19/04................. 640
2,794 First Union-Lehman Brothers Commercial Mortgage,
6.479%, 3/18/04................................. 2,783
3,983 Lehman Brothers Large Loan, Series 97-LLIA1,
6.79%, 6/12/04.................................. 4,048
2,721 Merrill Lynch Mortgage Investors, Inc., Series
98-C2, Class A1, 6.22%, 2/15/30................. 2,679
227 Resolution Trust Corp., Series 91-M5, Class A,
9.00%, 3/25/17.................................. 227
----------
TOTAL COLLATERALIZED MORTGAGE OBLIGATION........................... 13,345
----------
YANKEE BOND (0.9%)
2,000 Republic of Colombia 9.75%, 4/23/09............... 1,670
----------
FOREIGN GOVERNMENT OBLIGATION BOND (0.4%)
(e)750 State of Qatar, 9.50%, 5/21/09.................... 766
----------
TOTAL FIXED INCOME SECURITIES (Cost $200,719)........................ 195,056
----------
SHORT-TERM INVESTMENT (1.7%)
REPURCHASE AGREEMENT (1.7%)
3,458 Chase Securities, Inc. 4.55%, dated 6/30/99, due
7/01/99, to be repurchased at $3,458,
collateralized by U.S. Treasury Bonds, 7.25% due
5/15/16, valued at $3,573 (Cost $3,458)......... 3,458
----------
</TABLE>
<TABLE>
<CAPTION>
VALUE
(000)
<S> <C> <C>
- ---------------------------------------------------------------------------------
TOTAL INVESTMENTS (99.9%) (Cost $204,177).............................. $198,514
--------
OTHER ASSETS (1.3%)
Interest Receivable...................................... $ 2,420
Receivable for Portfolio Shares Sold..................... 104
Receivable for Investment Sold........................... 8
Other.................................................... 11 2,543
----------
LIABILITIES (-1.2%)
Payable for Investment Purchased......................... (1,999)
Payable for Portfolio Shares Redeemed.................... (203)
Investment Advisory Fees Payable......................... (120)
Administrative Fees Payable.............................. (27)
Directors' Fees & Expenses Payable....................... (14)
Custodian Fees Payable................................... (4)
Distribution Fees Payable................................ (1)
Other Liabilities........................................ (27) (2,395)
---------- --------
NET ASSETS (100%)...................................................... $198,662
--------
--------
</TABLE>
<TABLE>
<S> <C>
NET ASSETS CONSIST OF:
Paid in Capital...................................................... $203,657
Undistributed Net Investment Income.................................. 1,094
Accumulated Net Realized Loss........................................ (426)
Unrealized Depreciation on Investments and Foreign Currency
Translations....................................................... (5,663)
--------
NET ASSETS........................................................... $198,662
--------
--------
</TABLE>
<TABLE>
<S> <C>
CLASS A:
- ---------------------------------------------------------------------
NET ASSETS........................................................... $196,279
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 18,518,859 outstanding $0.001 par value shares
(authorized 500,000,000 shares).................................... $10.60
--------
--------
CLASS B:
- ---------------------------------------------------------------------
NET ASSETS........................................................... $2,383
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 224,587 outstanding $0.001 par value shares
(authorized 500,000,000 shares).................................... $10.61
--------
--------
</TABLE>
- ------------------------------------------------------------
(e) -- 144A Security -- certain conditions for public sale may exist.
MTN -- Medium Term Note
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
Fixed Income Portfolio
126
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
GLOBAL FIXED INCOME PORTFOLIO
COMPOSITION OF NET ASSETS (AT JUNE 30, 1999)
- ---------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Australian Dollar 2.4%
British Pound 7.8%
Canadian Dollar 3.4%
Danish Krone 6.2%
Euro 29.5%
Japanese Yen 10.2%
Swedish Krona 4.5%
United States Dollar 25.7%
Other 10.3%
</TABLE>
COMPARISON OF THE CHANGE IN VALUE OF A $500,000**
INVESTMENT
- ---------------------------------------------
PERFORMANCE COMPARED TO THE J.P. MORGAN
TRADED GLOBAL BOND INDEX(1)
- -------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
--------------------------------------------------
AVERAGE
AVERAGE ANNUAL
ANNUAL SINCE
YTD ONE YEAR FIVE YEARS INCEPTION
---------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
PORTFOLIO -- CLASS A...... -7.32% 2.00% 6.47% 6.72%
PORTFOLIO -- CLASS B...... -7.46 1.74 N/A 3.58
INDEX -- CLASS A.......... -7.19 3.63 6.56 7.82
INDEX -- CLASS B.......... -7.19 3.63 N/A 3.64
</TABLE>
1. The J.P. Morgan Traded Global Bond Index is an unmanaged index of securities
and includes Australia, Belgium, Canada, Denmark, Finland, France, Germany,
Ireland, Italy, Japan, The Netherlands, New Zealand, Portugal, South Africa,
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 INFORMATION CONTAINED IN THIS OVERVIEW REGARDING SPECIFIC SECURITIES IS FOR
INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A RECOMMENDATION TO
PURCHASE OR SELL THE SECURITIES MENTIONED. 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.
The Global Fixed Income Portfolio seeks to produce an attractive real rate of
return while preserving capital by investing primarily in high quality fixed
income securities issued by U.S. and foreign issuers including governments,
agencies, supranational entities, eurobonds and corporations with varying
maturities in various currencies.
For the six months ended June 30, 1999, the Portfolio had a total return of
- -7.32% for the Class A shares and -7.46% for the Class B shares compared to a
total return of -7.19% for the J.P. Morgan Traded Global Bond Index (the
"Index"). For the one year period ended June 30, 1999, the Portfolio had a total
return of 2.00% for the Class A shares and 1.74% for the Class B shares compared
to 3.63% for the Index. For the five-year period ended June 30, 1999, the
average annual total return of Class A shares was 6.47% compared to 6.56% for
the Index. For the period since inception on May 1, 1991 through June 30, 1999,
the average annual total return of Class A shares was 6.72% compared to 7.82%
for the Index. For the period since inception on January 2, 1996 through June
30, 1999, the average annual total return of Class B shares was 3.58% compared
to 3.64% for the Index. As of June 30, 1999, the Portfolio had a SEC 30-day
yield of 4.03% for the Class A shares and 3.88% for the Class B shares.
Bond markets in the dollar bloc and Europe underwent a significant change in
sentiment during the first half of 1999 and yields rose across the curve in
response to the more positive outlook for the global economy. In contrast, bond
yields in Japan fell marginally producing modest positive returns.
In the U.S., ten-year yields ended the period more than a 100 basis points
higher on continued evidence of strong growth and the increased risk and
subsequent delivery of tighter monetary policy by the Federal Reserve. In
Europe, domestic factors were more bond supportive given the lack of
inflationary pressures, the persistently weak economic data emanating from many
countries, particularly Germany, and the European Central Bank's 50 basis points
cut in interest rates in April. However, European bonds could not wholly
disregard the move in the U.S. market and yields also rose, particularly in June
on apparent selling by Japanese institutions. As a result, euro ten-year yields
ended the period approximately 60 basis points higher. Within the peripheral
markets, Denmark outperformed the euro-denominated markets while Sweden and the
U.K. underperformed.
- --------------------------------------------------------------------------------
Global Fixed Income Portfolio
127
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
GLOBAL FIXED INCOME PORTFOLIO (CONT.)
In Japan, the bond market rallied from its sharp sell off in December/January as
the targeting of a zero overnight call rate by the Bank of Japan signaled a
considerable shift in monetary policy. More recently, Japanese bonds have
weakened on signs that the economy was not as weak as had been previously
thought.
While rising yields had a negative impact on the absolute return of the
Portfolio over the period, the more important factor was the appreciation of the
U.S. dollar. The dollar appreciated 12.2% versus the euro and 6.8% versus the
Japanese yen in the six month period.
In terms of relative performance, our underweight exposure to the Japanese
market and our lack of exposure to the ultra-long part of the U.K. curve were
both negatives. Yield curve/interest rate strategy made a slight positive
contribution to performance as our barbell position outperformed. Our exposure
to the credit sector made a marginal negative contribution to performance. In
terms of currency, while our overweighting to the U.S. dollar versus the
Japanese yen was a positive, this was balanced by the negative impact of our
overweighting to European currencies versus the yen.
The Portfolio remained long duration in the dollar bloc and European markets and
short duration in the Japanese market. In terms of currency exposure, the
Portfolio remained underweight the Japanese yen and broadly neutral on the U.S.
dollar versus the euro. In terms of strategy, the Portfolio added exposure to
the peripheral European markets, moving to an overweight position in Danish
bonds and the Danish krona and an overweight position in the Swedish krona. The
Portfolio also continued to increase exposure to the credit sector, focusing on
U.S. dollar denominated issues.
The ongoing strength of the U.S. real economy and the more stable global
environment suggest that the Federal Reserve is likely to follow its end June
rise in interest rates with at least another 25 basis points of tightening.
While a cautious Fed move is priced into the bond market, there is a risk that
the Fed will embark on a normal tightening cycle. However, we believe the U.S.
economy will experience a slowdown later this year as real incomes fall and
stock market gains level off. U.S. bonds may therefore experience a significant
drop in yields even with a modest Fed tightening and we remain long duration.
Within Europe, the sell off in the bond market in June was at odds with the
domestic economy which continued to exhibit a lack of inflationary pressures
although signs of a rebound in economic activity in the second half of 1999 did
emerge. Technical factors, namely the rumored selling of European bonds by
Japanese institutions, appeared to be more important as was the persistent
weakness in the euro. As such our positive view on European bonds remains
intact. In Japan, sentiment on the economy remains extremely negative but given
the low level of real yields and our long-standing concern regarding supply, we
remain underweight exposure.
Recent Japanese repatriation out of European securities and Japan's persistent
current account surplus are supportive of the yen. However, we believe the Bank
of Japan remains committed to playing a key supportive role to the struggling
economy, by means of intervention in the currency markets and by keeping cash
rates close to zero. This will clearly be negative for the yen. While we have
been surprised by the weakness of the euro year-to-date, we believe that a
modest pick up in the European economy and an improving current account will
provide support from current levels.
J. David Germany
PORTFOLIO MANAGER
Michael B. Kushma
PORTFOLIO MANAGER
Paul F. O'Brien
PORTFOLIO MANAGER
Ram Willner
PORTFOLIO MANAGER
Christian G. Roth
PORTFOLIO MANAGER
July 1999
- --------------------------------------------------------------------------------
Global Fixed Income Portfolio
128
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1999
- --------------------------------------------------------------------------------
GLOBAL FIXED INCOME PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
<C> <S> <C>
- ---------------------------------------------------------------------------
FIXED INCOME SECURITIES (89.7%)
AUSTRALIAN DOLLAR (2.4%)
GOVERNMENT BOND (1.5%)
AUD 700 Government of Australia 10.00%, 10/15/02......... $ 521
--------
U.S. GOVERNMENT & AGENCY OBLIGATIONS-GLOBAL (0.9%)
500 Federal National Mortgage Association-Global
6.375%, 8/15/07................................ 324
--------
845
--------
BRITISH POUND (7.8%)
GOVERNMENT BONDS (7.8%)
GBP 125 United Kingdom Treasury Gilt 8.00%, 6/10/03...... 214
1,350 United Kingdom Treasury Gilt 8.50%, 7/16/07...... 2,543
--------
2,757
--------
CANADIAN DOLLAR (3.4%)
GOVERNMENT BOND (3.4%)
CAD 1,500 Government of Canada 8.75%, 12/01/05............. 1,194
--------
DANISH KRONE (6.2%)
GOVERNMENT BONDS (6.2%)
DKK 4,800 Kingdom of Denmark 8.00%, 5/15/03................ 757
4,600 Kingdom of Denmark 7.00%,12/15/04................ 719
4,400 Kingdom of Denmark 8.00%, 3/15/06................ 730
--------
2,206
--------
EURO (29.5%)
CORPORATE BONDS (1.2%)
EUR 400 Kredit Fuer Wiederaufbau 5.00%, 1/04/09.......... 423
--------
GOVERNMENT BONDS (28.3%)
1,000 Buoni Poliennali Del Tesoro 9.50%, 2/01/06....... 1,329
2,500 Deutschland Republic, Series 91, 8.375%,
5/21/01........................................ 2,821
400 Government of France 4.50%, 7/12/03.............. 423
1,000 Government of France 6.00%, 10/25/25............. 1,113
1,150 Government of Germany 6.25%, 1/04/24............. 1,319
1,000 Government of The Netherlands, Series 1, 8.25%,
2/15/02........................................ 1,153
200 Kingdom of Belgium 9.20%, 6/28/10................ 236
750 Spanish Government 5.15%, 7/30/09................ 794
700 Treuhandanstalt 7.50%, 9/09/04................... 837
--------
10,025
--------
10,448
--------
JAPANESE YEN (10.2%)
GOVERNMENT BONDS (10.2%)
JPY 300,000 Government of Japan, Series 207, 0.90%,
12/22/08....................................... 2,321
130,000 International Bank for Reconstruction &
Development 4.75%, 12/20/04.................... 1,279
--------
3,600
--------
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
<C> <S> <C>
- ---------------------------------------------------------------------------
SWEDISH KRONA (4.5%)
GOVERNMENT BONDS (4.5%)
SEK 7,000 Swedish Government 13.00%, 6/15/01............... $ 964
4,900 Swedish Government 6.00%, 2/09/05................ 615
--------
1,579
--------
UNITED STATES DOLLAR (25.7%)
ASSET BACKED SECURITIES (2.9%)
U.S.$ 460 Delta Funding Home Equity Loan Trust, Series
97-1, 7.21%, 4/25/29........................... 465
(e)150 Dredner Funding Trust, 5.79%, 6/30/11............ 155
394 Mid-State Trust, Series IV A, 8.33%, 4/01/30..... 412
--------
1,032
--------
COLLATERIZED MORTGAGE OBLIGATIONS (1.5%)
525 Asset Securitization Corp., Series 95-MD4 A1,
CMO, 7.10%, 8/13/29............................ 530
--------
CORPORATE BONDS AND NOTES (7.0%)
260 AT&T Corp., 6.50%, 3/15/29....................... 234
200 Conoco, Inc., 6.95%, 4/15/29..................... 187
(e)250 Farmers Exchange Capital, 7.05%, 7/15/28......... 227
(e)150 First Chicago Corp., 7.75%, 12/01/26............. 147
(e)100 Florida Windstorm, 7.125%, 2/25/19............... 96
250 Ford Motor Co. 6.375%, 2/01/29................... 217
150 General Motors 6.75%, 5/01/28.................... 138
300 Lucent Technologies 6.45%, 3/15/29............... 274
250 Merrill Lynch & Co., Inc. 6.875%, 11/15/18....... 233
(e)300 Metropolitan Life Insurance 7.45%, 11/01/23...... 292
(e)200 Monsanto Co., 6.60%, 12/01/28.................... 178
(e)300 Nationwide Mutual Insurance 7.50%, 2/15/24....... 285
--------
2,508
--------
EUROBONDS (2.2%)
400 Deutsche Ausgleichsbank 4.00%, 7/04/09........... 388
400 Deutsche Ausgleichsbank, Series E, MTN, 5.125%,
9/22/03........................................ 382
--------
770
--------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (12.1%)
U.S. TREASURY BOND (7.3%)
2,590 6.25%, 8/15/23................................... 2,592
--------
U.S. TREASURY NOTES (4.8%)
700 6.25%, 10/31/01.................................. 710
950 7.50%, 2/15/05................................... 1,023
--------
1,733
--------
9,165
--------
TOTAL FIXED INCOME SECURITIES (89.7%) (Cost $33,564)............. 31,794
--------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
Global Fixed Income Portfolio
129
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1999
- --------------------------------------------------------------------------------
GLOBAL FIXED INCOME PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- ---------------------------------------------------------------------------
<C> <S> <C>
SHORT-TERM INVESTMENT (8.3%)
REPURCHASE AGREEMENT (8.3%)
U.S.$ 2,942 Chase Securities, Inc. 4.55%, dated 6/30/99, due
7/01/99, to be repurchased at $2,942,
collateralized by U.S. Treasury Bonds, 7.25%,
due 5/15/16, valued at $3,039 (Cost $2,942).... $ 2,942
--------
FOREIGN CURRENCY (0.0%)
GBP 3 British Pound (Cost $5).......................... 5
--------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS (98.0%) (Cost $36,511)........................... 34,741
--------
OTHER ASSETS (2.2%)
Interest Receivable.................................. $ 585
Receivable for Investments Sold...................... 126
Foreign Withholding Tax Reclaim Receivable........... 35
Net Unrealized Gain on Foreign Currency Exchange
Contracts.......................................... 9
Other................................................ 6 761
-----
LIABILITIES ( - 0.2%)
Investment Advisory Fees Payable..................... (11)
Administrative Fees Payable.......................... (8)
Custodian Fees Payable............................... (7)
Directors' Fees & Expenses Payable................... (7)
Bank Overdraft Payable............................... (2)
Other Liabilities.................................... (26) (61)
----- --------
NET ASSETS (100%).................................................. $ 35,441
--------
--------
</TABLE>
<TABLE>
<S> <C>
NET ASSETS CONSIST OF:
Paid in Capital.................................................... $ 37,841
Undistributed Net Investment Income................................ 752
Accumulated Net Realized Loss...................................... (1,275)
Unrealized Depreciation on Investments and Foreign Currency
Translations..................................................... (1,877)
--------
NET ASSETS......................................................... $ 35,441
--------
--------
</TABLE>
<TABLE>
<CAPTION>
AMOUNT
(000)
<S> <C> <C>
- -----------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
CLASS A:
- -------------------------------------------------------------------
NET ASSETS......................................................... $ 35,117
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 3,048,372 outstanding $0.001 par value shares
(authorized 500,000,000 shares)................................... $11.52
--------
--------
CLASS B:
- -------------------------------------------------------------------
NET ASSETS......................................................... $324
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 28,212 outstanding $0.001 par value shares
(authorized 500,000,000 shares)................................... $11.48
--------
--------
</TABLE>
- ------------------------------------------------------------
FOREIGN CURRENCY EXCHANGE INFORMATION:
Under the terms of foreign currency exchange contracts open at June 30, 1999,
the Portfolio is obligated to deliver or is to receive foreign currency in
exchange for U.S. dollars or foreign currency 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>
- ------------- -------- ---------- ------------- -------- ------------
GBP 270 $ 426 9/16/99 U.S.$ 435 $ 435 $ 9
-------- -------- --
-------- -------- --
</TABLE>
- ------------------------------------------------------------
(e) -- 144A Security -- certain conditions for public resale may exist.
CMO -- Collateralized Mortgage Obligation
MTN -- Medium Term Notes
- ------------------------------------------------------------
SUMMARY OF FIXED INCOME SECURITIES BY INDUSTRY CLASSIFICATION
<TABLE>
<CAPTION>
VALUE PERCENT OF
INDUSTRY (000) NET ASSETS
<S> <C> <C>
- ---------------------------------------------------------------
Finance................................ $ 5,263 14.8%
Foreign Government and Agency
Obligations.......................... 21,882 61.9
U.S. Government and Agency
Obligations.......................... 4,649 13.0
-------- -----
$ 31,794 89.7%
-------- -----
-------- -----
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
Global Fixed Income Portfolio
130
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
JUNE 30, 1999
- --------------------------------------------------------------------------------
HIGH YIELD PORTFOLIO
COMPOSITION OF NET ASSETS (AT JUNE 30, 1999)
- ------------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Corporate Bonds and Notes 91.7%
Mortgage Pass Thru 1.4%
Warrants 1.1%
Preferred Stocks 2.0%
Other 3.8%
</TABLE>
PERFORMANCE COMPARED TO THE CS FIRST BOSTON
HIGH YIELD INDEX(1)
- ------------------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
--------------------------------------------------
AVERAGE AVERAGE
ANNUAL FIVE ANNUAL SINCE
YTD ONE YEAR YEARS INCEPTION
---------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
PORTFOLIO -- CLASS A......... 4.14% 3.08% 11.54% 11.49%
PORTFOLIO -- CLASS B......... 4.05 2.93 N/A 10.39
INDEX -- CLASS A............. 2.82 - 0.85 9.31 9.43
INDEX -- CLASS B............. 2.82 - 0.85 N/A 7.99
</TABLE>
1. The CS First Boston High Yield Index is an unmanaged index of high yield
corporate bonds.
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 INFORMATION CONTAINED IN THIS OVERVIEW REGARDING SPECIFIC SECURITIES IS FOR
INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A RECOMMENDATION TO
PURCHASE OR SELL THE SECURITIES MENTIONED. INVESTING IN HIGH YIELD FIXED INCOME
SECURITIES, OTHERWISE KNOWN AS "JUNK BONDS" IS SPECULATIVE AND INCLUDES GREATER
RISK OF LOSS OF PRINCIPAL AND INTEREST. 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. YIELDS WILL FLUCTUATE AS MARKET CONDITIONS CHANGE.
The High Yield Portfolio seeks to maximize total return by investing primarily
in a diversified portfolio of high yield fixed income securities that offer a
yield above that generally available on debt securities in the four highest
rating categories of the recognized rating services.
For the six months ended June 30, 1999, the Portfolio had a total return of
4.14% for the Class A shares and 4.05% for the Class B shares compared to 2.82%
for the CS First Boston High Yield Index (the "Index"). For the one year period
ended June 30, 1999, the Portfolio had a total return of 3.08% for the Class A
shares and 2.93% for the Class B shares compared to -0.85% for the Index. For
the five-year period ended June 30, 1999, the average annual total return of
Class A shares was 11.54% compared to 9.31% for the Index. For the period since
inception on September 28, 1992 through June 30, 1999, the average annual total
return of Class A shares was 11.49% compared to 9.43% for the Index. For the
period since inception on January 2, 1996 through June 30, 1999, the average
annual total return of Class B shares was 10.39% compared to 7.99% for the
Index. As of June 30, 1999, the Portfolio had a SEC 30-day yield of 10.01% for
the Class A shares and 9.76% for the Class B shares.
The Portfolio slightly outperformed the CS First Boston High Yield Index for the
second quarter ended June 30th. Initially, high yield bonds performed well,
supported by merger and investment activity in the telecommunications and cable
industries, and positive fund flows. By May, liquidity concerns, technical
conditions, and rising rates contributed to lower prices. Exposure to non-U.S.
issues and telecommunications and cable sectors had the largest positive impact
on results. Holdings in healthcare, retail and gaming sectors also helped
performance. Underweighting in the commodity and cyclical sectors, which
performed well, and security selection detracted from returns. The Portfolio
continued to benefit from
merger and investment activities in telecommunications and cable sectors that
have been generally favorable for credit quality. Prices of many issues not
directly involved in transactions have also benefited.
The Portfolio remains overweighted in the telecommunications and cable sectors,
where we continue to find value. We continue to selectively add to commodity and
cyclical issues, where we remain underweighted, and are finding value in the
gaming
- --------------------------------------------------------------------------------
High Yield Portfolio
131
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
JUNE 30, 1999
- --------------------------------------------------------------------------------
HIGH YIELD PORTFOLIO (CONT.)
sector. The Portfolio remains overweighted in healthcare and retail, and
maintains exposure to non-U.S. issues.
We expect economic growth to moderate and inflation to remain close to current
levels, which should be an attractive environment for high yield bonds. We
continue to believe that high yield bonds offer attractive value on a
risk-adjusted expected return basis.
Robert Angevine
PORTFOLIO MANAGER
Stephen F. Esser
PORTFOLIO MANAGER
Gordon W. Loery
PORTFOLIO MANAGER
July 1999
- --------------------------------------------------------------------------------
High Yield Portfolio
132
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1999
- --------------------------------------------------------------------------------
HIGH YIELD PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
<C> <S> <C>
- -------------------------------------------------------------------------------
CORPORATE BONDS AND NOTES (91.7%)
ASSET BACKED CORPORATES (0.4%)
$ 671 Long Beach Auto, Series 97-1, Class B, 14.22%,
10/26/03........................................ $ 666
----------
CABLE (5.7%)
1,425 Adelphia Communications, Series B, 8.375%,
2/01/08......................................... 1,372
475 Adelphia Communications, Series B, 9.875%,
3/01/07......................................... 495
1,175 CSC Holdings, Inc., 9.875%, 5/15/06............... 1,249
(n)3,050 NTL, Inc., 0.00%, 4/01/08......................... 2,066
885 Rogers Cablesystems Ltd., Series B, 10.00%,
3/15/05......................................... 954
410 Rogers Cablesystems of America, 10.125%,
9/01/12......................................... 442
1,325 Rogers Communications, Inc.,
9.125%, 1/15/06................................. 1,348
(e,n)2,965 Telewest Communication plc, 0.00%, 4/15/09........ 1,964
----------
9,890
----------
CHEMICALS (2.9%)
(e)1,900 Huntsman ICI Chemicals, 10.125%, 7/01/09.......... 1,907
2,000 ISP Holdings, Inc., Series B, 9.00%, 10/15/03..... 1,992
(e)1,125 Lyondell Chemical Co., 9.625%, 5/01/07............ 1,148
----------
5,047
----------
COMMUNICATIONS (22.7%)
1,765 American Cellular Corp., 10.50%,
5/15/08......................................... 1,809
1,845 AMSC Acquisition Co., Inc., 12.25%, 4/01/08....... 1,411
(e)1,000 Centennial Cellular, 10.75%,12/15/08.............. 1,032
1,255 Dobson Communications Corp., 11.75%, 4/15/07...... 1,318
(n)2,425 Dolphin Telecom plc, 0.00%, 6/01/08............... 1,212
(e,n)300 Dolphin Telecom plc, 0.00%, 5/15/09............... 145
965 Esprit Telecom Group plc, 10.875%, 6/15/08........ 999
600 Esprit Telecom Group plc, 11.50%,
12/15/07........................................ 633
1,040 Globalstar Capital Corp., 11.375%, 2/15/04........ 686
1,495 Global Crossing Holdings, 9.625%, 5/15/08......... 1,577
310 Globalstar LP, 11.50%, 6/01/05.................... 198
1,760 Hermes Europe Railtel BV, 11.50%,
8/15/07......................................... 1,848
(n)1,510 Hyperion Telecommunication, 0.00%, 4/15/03........ 1,248
(n)3,130 Intermedia Communications, Inc., Series B, 0.00%,
7/15/07......................................... 2,234
800 Intermedia Communications, Inc., Series B, 8.50%,
1/15/08......................................... 731
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
<C> <S> <C>
- -------------------------------------------------------------------------------
$ 1,620 Iridium LLC/Capital Corp., Series A, 13.00%,
7/15/05......................................... $ 324
1,020 Metromedia Fiber Network, 10.00%, 11/15/08........ 1,049
(n)4,095 Nextel Communications, Inc., 0.00%, 9/15/07....... 2,990
(n)735 Nextel Communications, Inc., 0.00%, 2/15/08....... 506
(n)1,860 Nextel Communications, Inc., 9.75%, 8/15/04....... 1,888
(n)3,785 NEXTLINK Communications, Inc., 0.00%, 4/15/08..... 2,262
(e)1,290 Onepoint Communications Corp., 14.50%, 6/01/08.... 701
1,315 Primus Telecommunications Group, Inc., 9.875%,
5/15/08......................................... 1,248
(e)640 Primus Telecommunications Group, Inc., 11.25%,
1/15/09......................................... 649
1,120 Psinet Inc., 10.00%, 2/15/05...................... 1,113
(e,n)2,265 RCN Corp., 0.00%, 2/15/08......................... 1,410
(n)245 RCN Corp., 0.00%, 10/15/07........................ 164
(n)1,700 Rhythms Netconnections, 0.00%, 5/15/08............ 897
1,000 Rogers Cantel, Inc., 8.30%, 10/01/07.............. 986
51 RSL Communications, plc, 12.25%, 11/15/06......... 54
(n)1,440 RSL Communications, plc, 0.00%, 3/01/08........... 864
2,975 RSL Communications, plc, 9.125%, 3/01/08.......... 2,730
(e)775 Tele1 Europe BVC, 13.00%, 5/15/09................. 806
(n)1,440 Viatel, Inc., 0.00%, 4/15/08...................... 925
(n)1,290 Wam!Net, Inc., 13.25%, 3/01/05.................... 761
----------
39,408
----------
ENERGY (2.4%)
(e,n)1,270 Husky Oil Ltd., 8.90%, 8/15/28.................... 1,221
2,040 Snyder Oil Corp., 8.75%, 6/15/07.................. 2,009
570 Vintage Petroleum, 9.75%, 6/30/09................. 583
300 Vintage Petroleum, 8.625%, 2/01/09................ 287
----------
4,100
----------
FINANCIAL (1.9%)
(e,n)1,000 Fuji JGB Investments, LLC, 9.87%, 12/31/49........ 875
1,300 Mosaic Re, Class A, 10.10%, 7/09/99............... 1,300
(e,n)1,110 SB Treasury Co. LLC, 9.40%, 12/29/49.............. 1,079
----------
3,254
----------
FOOD (0.7%)
1,425 Smithfield Foods, Inc., 7.625%, 2/15/08........... 1,297
----------
GAMING (5.1%)
1,380 Harrahs Operating Co., Inc., 7.875%, 12/15/05..... 1,339
(e)1,965 Horseshoe Gaming Holdings, 8.652%, 5/15/09........ 1,901
(e)1,905 Intl Game Technology, 8.375%, 5/15/09............. 1,884
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
High Yield Portfolio
133
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1999
- --------------------------------------------------------------------------------
HIGH YIELD PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- -------------------------------------------------------------------------------
<C> <S> <C>
</TABLE>
GAMING (CONT.)
<TABLE>
<C> <S> <C>
$ 1,975 Park Place Entertainment, 7.875%, 12/15/05........ $ 1,876
470 Station Casinos, Inc., 9.75%, 4/15/07............. 479
1,413 Station Casinos, Inc., 10.125%, 3/15/06........... 1,457
----------
8,936
----------
GENERAL INDUSTRIAL (3.2%)
(e)485 Allied Waste North America, 7.875%, 1/01/09....... 449
820 Applied Power Inc., 8.75%, 4/01/09................ 796
950 Axia, Inc., 10.75%, 7/15/08....................... 938
(e)1,675 Hayes Lemmerz International, Inc., 8.25%,
12/15/08........................................ 1,591
(n)1,620 Norcal Waste Systems, Inc., Series B, 13.50%,
11/15/05........................................ 1,790
----------
5,564
----------
HEALTH CARE (6.5%)
2,100 Columbia/HCA Healthcare Corp., 7.69%, 6/15/25..... 1,739
895 Columbia/HCA Healthcare Corp., 8.13%, 8/04/03..... 882
105 Columbia/HCA Healthcare Corp., 6.91%, 6/15/05..... 97
1,450 Columbia/HCA Heathcare Corp.,
7.00%, 7/01/07.................................. 1,311
1,570 Columbia/HCA Healthcare Corp., 7.25%, 5/20/08..... 1,427
600 Columbia/HCA Healthcare Corp., 7.58%, 9/15/25..... 493
(e)1,730 Fresenius Medical Capital Trust II, 7.875%,
2/01/08......................................... 1,626
2,175 Tenet Healthcare Corp., 8.625%, 1/15/07........... 2,126
1,750 Tenet Healthcare Corp., 8.125%, 12/01/08.......... 1,652
----------
11,353
----------
HOTELS/LODGING/RESTAURANTS (4.4%)
1,770 Chancellor Media Corp., 8.125%, 12/15/07.......... 1,717
1,820 Hilton Hotels Corp., 7.95%, 4/15/07............... 1,842
1,400 HMH Properties, Inc., Series A, 7.875%, 8/01/05... 1,323
(e)700 Host Marriott LP, 8.375%, 2/15/06................. 678
625 Host Marriot Travel Plaza, Series B, 9.50%,
5/15/05......................................... 642
1,400 Outdoor Systems, Inc., 8.875%, 6/15/07............ 1,461
----------
7,663
----------
MEDIA AND ENTERTAINMENT (1.8%)
1,630 Chancellor Media, 9.00%, 10/01/08................. 1,655
(e)1,500 Echostar DBS Corp., 9.375%, 2/01/09............... 1,524
----------
3,179
----------
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
<C> <S> <C>
- -------------------------------------------------------------------------------
METALS (2.3%)
$ 1,530 Glencore Nickel Property Ltd., 9.00%, 12/01/14.... $ 1,316
1,380 Murrin Murrin Holdings, PTY, (Yankee Bond),
9.375%, 8/31/07................................. 1,214
1,405 National Steel Corp., 9.875%, 3/01/09............. 1,426
----------
3,956
----------
PACKAGING (2.8%)
1,345 Norampac, Inc., 9.50%, 2/01/08.................... 1,375
(e)1,545 Pacific Papers Corp., 10.00%, 3/15/09............. 1,592
1,145 SD Warren Co., 12.00%, 12/15/04................... 1,219
660 Tembec Industries Inc., 8.625%, 6/30/09........... 657
----------
4,843
----------
REAL ESTATE/BUILDING (2.9%)
1,390 American Standard, Cos., Inc., 7.375%, 2/01/08.... 1,303
1,855 DR Horton Inc., 8.00%, 2/01/09.................... 1,744
(e)1,970 Nortek, Inc., 8.875%, 8/01/08..................... 1,940
----------
4,987
----------
RETAIL (6.6%)
(e)1,630 CA FM Lease Trust, 8.50%, 7/15/17................. 1,516
(e)2,150 Cex Holdings Inc., 9.625%, 6/01/08................ 2,021
2,275 HMV Media Group plc, Series A, 10.25%, 5/15/08.... 2,292
500 Musicland Group, Inc., 9.00%, 6/15/03............. 485
1,395 Musicland Group, Inc., 9.875%, 3/15/08............ 1,367
604 DR Securitized Lease Trust, Series 93-K1, Class
A1, 6.66%, 8/15/10.............................. 562
2,172 DR Securitized Lease Trust, Series 94-K1, Class
A1, 7.60%, 8/15/07.............................. 2,131
1,175 DR Securitized Lease Trust, Series 94-K1, Class
A2, 8.375%, 8/15/15............................. 1,160
----------
11,534
----------
SOVEREIGN & EMERGING MARKETS (14.9%)
(e)1,350 AST Research, Inc., 7.45%, 10/01/02............... 1,294
970 Asia Pulp & Paper Co., Ltd., 12.00%, 2/15/04...... 635
(e)850 Cablevision SA, 13.75%, 5/01/09................... 782
(e,n)1,195 Cia Energitica de Sao Paulo, 9.125%, 6/26/07...... 992
(n)1,830 CTI Holdings, 0.00%, 4/15/08...................... 915
(e)975 Hyundai Semiconductor, 8.625%, 5/15/07............ 783
2,025 Indah Kiat Financial Mauritius, 10.00%, 7/01/07... 1,397
1,640 Multicanal, 10.50%, 2/01/07....................... 1,348
(e)1,375 Netia Holdings II BV, 13.125%, 6/15/09............ 1,389
(e)1,010 NSM Steel, Inc., 12.25%, 2/01/08.................. 1
(n)2,275 Occidente y Caribe Cellular, 0.00%, 3/15/04....... 1,524
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
High Yield Portfolio
134
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1999
- --------------------------------------------------------------------------------
HIGH YIELD PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- -------------------------------------------------------------------------------
<C> <S> <C>
</TABLE>
SOVEREIGN & EMERGING MARKETS (CONT.)
<TABLE>
<C> <S> <C>
$ 2,470 Philippine Long Distance Telephone, Global Bond,
9.25%, 6/30/06.................................. $ 2,359
1,000 Pindo Deli Finincial Mauritius, 10.75%,
10/01/07........................................ 690
(n)1,690 PTC International Finance BV, 0.00%, 7/01/07...... 1,249
(e)1,470 RBS Participacoes, 11.00%, 4/01/07................ 985
4,994 Republic of Argentina, (Floating Rate) (Bearer),
5.938%, 3/31/05................................. 4,270
(e)1,410 Samsung Electronics America, 9.75%, 5/01/03....... 1,465
2,480 Satelites Mexicanos, 10.125%, 11/01/04............ 1,996
2,400 TV Azteca, Series B, 10.50%, 2/15/07.............. 1,806
----------
25,880
----------
TECHNOLOGY (0.1%)
320 Entex Telecom Group plc, 12.50%, 8/01/06.......... 192
----------
TRANSPORTATION (1.8%)
1,225 American Commercial Lines LLC, 10.25%, 6/30/08.... 1,227
(e)525 Jet Equipment Trust, Series 95-D, 11.44%,
11/01/14........................................ 646
1,050 Jet Equipment Trust, Series C-1, 11.79%,
6/15/13......................................... 1,301
----------
3,174
----------
UTILITIES (2.6%)
1,780 AES Corp., 8.50%, 11/01/07........................ 1,675
1,815 CMS Energy, 7.50%, 1/15/09........................ 1,699
(e)1,185 Ras Laffan Gas Liquified Natural Gas, 8.294%,
3/15/14......................................... 1,087
----------
4,461
----------
TOTAL CORPORATE BONDS AND NOTES (Cost $169,739).................... 159,384
----------
MORTGAGE PASS-THROUGH (1.4%)
COMMERICAL MORTGAGES (1.4%)
1,751 Aircraft Lease Portfolio Securitization Ltd.,
Series 96-1 P1, Class D, 12.75%, 6/15/06........ 1,751
(e)875 FMAC Loan Receivables Trust, Series 96-B, Class C,
(Floating Rate), 7.929%, 11/01/18............... 666
----------
TOTAL MORTGAGE PASS THROUGH (Cost $2,508).......................... 2,417
----------
</TABLE>
<TABLE>
<CAPTION>
SHARES
<C> <S> <C>
- ---------------
COMMON STOCKS (0.0%)
HOTEL/LODGING/RESTUARANTS (0.0%)
(a,e)1,300 Motels of America, Inc. (Cost $85)................ 15
----------
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- -------------------------------------------------------------------------------
PREFERRED STOCKS (2.0%)
COMMUNICATIONS (1.2%)
(a)7,681 Concentric Network Corp........................... $ 726
(a)1,430 IXC Communications, Inc., Series B, PIK........... 1,380
----------
2,106
----------
MEDIA AND ENTERTAINMENT (0.8%)
10,719 Paxson Communications Corp., PIK, 13.25%,
11/15/06........................................ 965
(e)3,453 Paxson Communications Corp., PIK, 9.75%,
12/31/06........................................ 345
----------
1,310
----------
TOTAL PREFERRED STOCKS (Cost $3,147)............................... 3,416
----------
</TABLE>
<TABLE>
<CAPTION>
NO. OF
WARRANTS
<C> <S> <C>
- ---------------
WARRANTS (1.1%)
COMMUNICATIONS (1.0%)
(a,e)18,450 American Mobile Satellite Corp., expiring
4/01/08......................................... 67
(a,e)600 Globalstar Telecommunications Ltd., expiring
2/15/04......................................... 32
(a,e)605 Iridium World Communications, Inc., expiring
7/15/05......................................... 6
(a,e)12,900 Onepoint Communications Corp...................... 1
(a,e)103,400 Rhythms Netconnections............................ 1,489
(a)38,700 Wam!Net, Inc., expiring 3/01/05................... 88
----------
1,683
----------
MEDIA (0.0%)
(a,e)1,024 Paxson Communications Corp., expiring 6/30/03..... --
----------
SOVERIGN & EMERGING MARKETS (0.1%)
(a,e)6,394,240 NSM Steel Ltd., Inc., expiring 2/01/08............ 6
(a,e)91,000 Occidente y Caribe Cellular, expiring 3/15/04..... 154
----------
160
----------
TOTAL WARRANTS (Cost $0)........................................... 1,843
----------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT
(000)
<C> <S> <C>
- ---------------
SHORT-TERM INVESTMENTS (0.2%)
PROMISSORY NOTE (0.0%)
$ 1 Capital Gaming International, Inc. (Cost $0)...... --
----------
REPURCHASE AGREEMENT (0.2%)
451 Chase Securities, Inc. 4.55%, dated 6/30/99, due
7/01/99, to be repurchased at $451,
collateralized by U.S. Treasury Bonds, 7.25% due
5/15/06, valued at $467......................... 451
----------
TOTAL SHORT-TERM INVESTMENTS (Cost $451)........................... 451
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
High Yield Portfolio
135
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1999
- --------------------------------------------------------------------------------
HIGH YIELD PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
(000)
<S> <C> <C>
- ------------------------------------------------------------------------
TOTAL INVESTMENTS (96.4%) (Cost $175,930)................... $ 167,526
----------
OTHER ASSETS (4.6%)
Receivable for Investment Sold................ $ 4,700
Interest Receivable........................... 3,207
Receivable for Portfolio Shares Sold.......... 67
Other......................................... 6 7,980
----------
LIABILITIES (-1.0%)
Bank Overdraft Payable........................ (1,408)
Investment Advisory Fees Payable.............. (179)
Distribution Fees Payable..................... (26)
Administrative Fees Payable................... (24)
Directors' Fees & Expenses Payable............ (11)
Custodian Fees Payable........................ (4)
Other Liabilities............................. (73) (1,725)
---------- ----------
NET ASSETS (100%)........................................... $ 173,781
----------
----------
</TABLE>
<TABLE>
<S> <C>
NET ASSETS CONSIST OF:
Paid in Capital............................................... $ 185,186
Undistributed Net Investment Income........................... 1,253
Accumulated Net Realized Loss................................. (4,254)
Unrealized Depreciation on Investments........................ (8,404)
----------
NET ASSETS.................................................... $ 173,781
----------
----------
</TABLE>
<TABLE>
<S> <C>
CLASS A:
- --------------------------------------------------------------
NET ASSETS.................................................... $133,966
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 12,411,992 outstanding $0.001 par value shares
(authorized 500,000,000 shares)............................. $10.79
----------
----------
CLASS B:
- --------------------------------------------------------------
NET ASSETS.................................................... $39,815
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 3,698,339 outstanding $0.001 par value shares
(authorized 500,000,000 shares)............................. $10.77
----------
----------
</TABLE>
- ------------------------------------------------------------
(a) -- Non-income producing security
(b) -- Security valued at fair value -- see note A-1 to financial statements.
(e) -- 144A Security -- certain conditions for public sale may exist.
(n) -- Step Bond -- coupon rate increases in increments to maturity. Rate
disclosed is as of June 30, 1999. Maturity date disclosed is the
ultimate maturity date.
PIK -- Payment-In-Kind. Income may be received in additional securities or
cash at the discretion of the issuer.
Floating Rate Security -- The interest rate changes on these instruments are
based on changes in a designated base rate. The rates shown are those
in effect on June 30, 1999.
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
High Yield Portfolio
136
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
MUNICIPAL BOND PORTFOLIO
COMPOSITION OF NET ASSETS (AT JUNE 30, 1999)
- ------------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Fixed Rate Instruments 98.4%
Other 1.6%
</TABLE>
PERFORMANCE COMPARED TO THE LEHMAN
7-YEAR MUNICIPAL BOND INDEX(1)
- ------------------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
---------------------------------------------
ONE AVERAGE ANNUAL
YTD YEAR SINCE INCEPTION
---------- ------------- ------------------
<S> <C> <C> <C>
PORTFOLIO -- CLASS A..... -1.38% 1.86% 5.31%
INDEX.................... -0.87 2.92 6.55
</TABLE>
1. The Lehman 7-Year Municipal Bond Index consists of investment grade bonds
with maturities between 6-8 years, rated BAA or better. All bonds have been
taken from issues of at least $50 million in size sold within the last five
years.
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 INFORMATION CONTAINED IN THIS OVERVIEW REGARDING SPECIFIC SECURITIES IS FOR
INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS A RECOMMENDATION TO
PURCHASE OR SELL THE SECURITIES MENTIONED. 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. YIELDS WILL FLUCTUATE AS MARKET CONDITIONS CHANGE.
The Municipal Bond Portfolio seeks high current income consistent with
preservation of principal through investment in a portfolio consisting primarily
of intermediate and long-term investment grade municipal obligations, the
interest on which is exempt from Federal income tax.
For the six months ended June 30, 1999, the Portfolio had a total return of
- -1.38% for the Class A shares compared to a total return of -0.87% for the
Lehman 7-Year Municipal Bond Index (the "Index"). For the one year period ended
June 30, 1999, the Portfolio had a total return of 1.86% for the Class A shares
compared to 2.92% for the Index. For the period since inception on January 18,
1995 through June 30, 1999, the average annual total return was 5.31% for Class
A shares compared to 6.55% for the Index. As of June 30, 1999 the Portfolio had
a SEC 30-day yield of 4.33% for the Class A shares.
The Portfolio outperformed the Index during the second quarter but still lags
behind the Index year-to-date. The high concentration of premium coupon bonds
and housing bonds, which tend to perform relatively well when interest rates are
rising, helped the performance of the Portfolio during the second quarter. The
Portfolio remains defensively structured, with a focus on maintaining a high
level of current income.
A calm first quarter of 1999 in the municipal bond market gave way to a
turbulent second quarter, during which municipal bonds managed to slightly
outperform U.S. Treasuries. This relative outperformance was mainly due to
investor inertia and a very light municipal supply calendar. The quarter saw a
dramatic shift on the demand side by institutional and retail investors.
Institutions, particularly crossover buyers such as property and casualty
insurance companies, decreased their allocation to municipal bonds in favor of
taxable fixed income products. At the same time, individual investors entered
the market en masse, lured by the availability of bonds at higher interest
rates. With new issue volume low, individual investors were slowly but surely
able to absorb primary and secondary market positions. With supply and demand
basically kept in check during a quarter of rising interest rates, the municipal
market was able to hold its own awaiting the "July effect" -- when a strong
influx of bond maturities and coupon payments historically have flowed into the
municipal market.
- --------------------------------------------------------------------------------
Municipal Bond Portfolio
137
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
MUNICIPAL BOND PORTFOLIO (CONT.)
During the second quarter, the U.S. fixed income markets displayed high
volatility fueled by much uncertainty. Interest rates moved higher during the
quarter in reaction to both disappointing inflation data and concerns regarding
potential monetary policy actions by the Federal Reserve. The key economic
release during the quarter was the 0.4% rise in April's core (i.e., ex-food &
energy) component of the Consumer Price Index, which renewed concerns about
inflation risks in a buoyant economy. This coupled with torrid consumer spending
triggered a sharp sell-off, which worsened when the market learned of the Fed's
adoption in mid-May of a policy bias in favor of a tighter monetary policy. This
was soon followed by a series of unambiguous comments from various Fed officials
that clearly foreshadowed the widely anticipated 25 basis point rise in the
target federal funds rate announced in late June. The Fed's tightening action
could be interpreted as a withdrawal of one of the three, 25 basis point easing
moves initiated in late 1998, all of which were driven by concerns regarding
global financial conditions. The Fed's own words accompanying its recent rate
hike serve as evidence as to how far we have come over the past nine months:
"Financial strain has eased, foreign economies have firmed, and economic
activity in the United States has moved forward at a brisk pace." We expect the
Fed will be closely scrutinizing economic releases over the next few months.
Further signs of economic strength accompanied by inflationary pressures could
lead to further tightening of monetary policy during the second half of 1999.
Year-to-date municipal new issue volume of $115 million is down 23% from 1998's
level. New money issuance was down slightly from last year. The real drop in
issuance came from significantly reduced refunding volume due to higher interest
rates. California was the busiest state issuer in the first half of 1999,
followed by New York, Texas and Pennsylvania.
Looking ahead, we continue to be cautious in light of the recent bond market
volatility and the Federal Reserve's June rate hike. That said, favorable
technicals in the municipal market should help to dampen any further increase in
rates due to actual or perceived further Fed intervention. We will continue to
maintain our current investment strategy. We see value in premium coupon
noncallable bonds in the 11-15 year range, especially in specialty state names.
Trading activity will continue to be hampered by the large unrealized capital
gains in the Portfolio.
Lori A. Cohane
PORTFOLIO MANAGER
July 1999
- --------------------------------------------------------------------------------
Municipal Bond Portfolio
138
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
INVESTMENTS (UNAUDITED)
JUNE 30, 1999
- --------------------------------------------------------------------------------
MUNICIPAL BOND PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
<C> <S> <C>
- ----------------------------------------------------------------------
TAX-EXEMPT INSTRUMENTS (98.4%)
FIXED RATE INSTRUMENTS (98.4%)
$ 250 Bernalillo County, New Mexico, Revenue Bonds,
5.00%, 4/01/12................................. $ 247
500 California Housing Finance Agengy, Revenue Bonds,
Series A, 5.05%, 8/01/17....................... 501
1,220 City of Dallas, Texas, General Obligation Bonds,
6.00%, 2/15/06................................. 1,308
1,500 Connecticut State, General Obligation Bonds,
Series E, 6.00%, 3/15/12....................... 1,634
525 Delaware Transit Authority 5.75%, 7/01/08........ 549
500 Fairfax County, Virginia, Water Authority Revenue
Bonds, 6.00%, 4/01/22 Prerefunded 4/01/07 at
102............................................ 548
1,500 Florida State Board of Education, Capital Outlay,
Public Education, General Obligation Bonds,
6.40%, 6/01/19................................. 1,586
160 Georgia State, General Obligation Bonds, Series
B, 6.00%, 3/01/12.............................. 174
500 Georgia State, General Obligation Bonds, Series
F, 6.50%, 12/01/06............................. 558
1,000 Gwinnett County, Georgia, General Obligation
Bonds, 6.00%, 1/01/11.......................... 1,062
1,000 Hawaii State, General Obligation Bonds, Series
CJ, Revenue Bonds, Prerefunded 4/01/07 at 102
6.20%, 1/01/12 Series CJ, 6.20%, 1/01/12
Prerefunded 1/01/05 at 100..................... 1,079
570 Huntsville, Alabama, General Obligation Bonds,
Series A, 5.50%, 2/01/20....................... 573
1,000 Kentucky State Housing Corp., Revenue Bonds,
Series A, 6.00%, 7/01/10....................... 1,046
1,625 Michigan State Housing Development Authority,
Revenue Bonds, Series A, 6.75%, 12/01/14....... 1,724
1,400 Mississippi State, General Obligation Bonds,
6.00%, 2/01/09, Prerefunded 2/01/05 at 100..... 1,495
500 Municipal Assistance Corp. for City of New York,
NY, Revenue Bonds, 6.00%, 7/01/04.............. 533
200 New York, New York, Municipal Water Finance
Authority, Water & Sewer System Revenue Bonds,
Series C, 3.70%, 6/15/22....................... 200
750 New York, New York Series B-2, General Obligation
Bonds, 4.00%, 8/15/21.......................... 750
150 New York, New York Series B-3
4.00%, 8/15/17................................. 150
960 Ohio State, Housing Finance Agency, Residential
Mortgage Revenue Bonds, Series A-1, 6.20%,
9/01/14........................................ 1,018
1,000 Orlando, Florida, Utilities Commission Water &
Electric, Revenue Bonds, Series D, 6.75%,
10/01/17....................................... 1,161
300 Saint Lucie County, Florida, Pollution Control
Revenue Bonds, 3.35%, 1/01/26.................. 300
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
<C> <S> <C>
- ----------------------------------------------------------------------
$ 600 Salt Lake City, Utah, General Obligation Bonds,
6.375%, 6/15/11................................ $ 623
1,385 Shelby County, Tennessee, General Obligation
Bonds, Series B, 5.50%, 8/01/10................ 1,442
1,500 Texas State, Public Finance Authority, Series A,
5.95%, 10/01/15, Prerefunded 4/01/05 at 100.... 1,601
500 Triborough Bridge & Tunnel Authority, New York,
Revenue Bonds, Series Y, 6.00%, 1/01/12........ 541
1,000 Utah State, Housing Finance Agency, Single Family
Mortgage Revenue Bonds, Series G-1, Class I,
5.50%, 7/01/16................................. 1,004
500 Virginia State Housing Development Authority,
Commonwealth Mortgage Revenue Bonds, Series B,
6.60%, 1/01/12................................. 529
1,000 Washington State, General Obligation Bonds,
Series B, 6.40%, 6/01/17....................... 1,131
1,115 Wisconsin State, General Obligation Bonds, Series
2, 5.125%, 11/01/11............................ 1,121
--------
TOTAL FIXED RATE INSTRUMENTS (Cost $25,569)............... 26,188
--------
TOTAL TAX-EXEMPT INSTRUMENTS (Cost $25,569)................. 26,188
--------
TOTAL INVESTMENTS (98.4%) (Cost $25,569).................... 26,188
--------
</TABLE>
<TABLE>
<S> <C> <C>
OTHER ASSETS (1.7%)
Cash.............................................. $ 27
Interest Receivable............................... 439
Receivable from Investment Adviser................ 5 471
-------
LIABILITIES ( - 0.1%)
Administrative Fees Payable....................... (6)
Director's Fees & Expenses Payable................ (4)
Custodian Fees Payable............................ (1)
Other Liabilities................................. (22) (33)
------- ---------
NET ASSETS (100%)............................................ $ 26,626
---------
---------
</TABLE>
<TABLE>
<S> <C>
NET ASSETS CONSIST OF:
Paid in Capital............................................... $ 25,366
Undistributed Net Investment Income........................... 153
Accumulated Net Realized Gain................................. 488
Unrealized Appreciation on Investments........................ 619
---------
NET ASSETS.................................................... $ 26,626
---------
---------
</TABLE>
<TABLE>
<S> <C>
CLASS A:
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 2,644,718 outstanding $0.001 par value shares
(authorized 500,000,000 shares)............................. $10.07
---------
---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
Municipal Bond Portfolio
139
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
INVESTMENTS (UNAUDITED)
JUNE 30, 1999
- --------------------------------------------------------------------------------
MUNICIPAL BOND PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
- ------------------------------------------------------------
Prerefunded Bonds -- Outstanding bonds have been refunded to the first call date
(prerefunded date) by the issuance of new bonds. Principal and interest are paid
from monies escrowed in U.S. Treasury securities. Prerefunded bonds are
generally re-rated AAA due to the U.S. Treasury escrow.
- ------------------------------------------------------------
SUMMARY OF TAX-EXEMPT INSTRUMENTS BY STATE CLASSIFICATION
<TABLE>
<CAPTION>
VALUE PERCENT OF
STATE (000) NET ASSETS
<S> <C> <C>
- ---------------------------------------------------------------
Alabama................................ $ 573 2.2%
California............................. 501 1.9
Connecticut............................ 1,634 6.1
Delaware............................... 549 2.1
Florida................................ 3,047 11.5
Georgia................................ 1,794 6.7
Hawaii................................. 1,079 4.1
Kentucky............................... 1,046 3.9
Michigan............................... 1,724 6.5
Mississippi............................ 1,495 5.6
New Mexico............................. 247 0.9
New York............................... 2,174 8.2
Ohio................................... 1,018 3.8
Tennessee.............................. 1,442 5.4
Texas.................................. 2,909 10.9
Utah................................... 1,627 6.1
Virginia............................... 1,077 4.1
Washington............................. 1,131 4.2
Wisconsin.............................. 1,121 4.2
-------- ---
$ 26,188 98.4%
-------- ---
-------- ---
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
Municipal Bond Portfolio
140
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
MONEY MARKET PORTFOLIO
COMPOSITION OF NET ASSETS (AT JUNE 30, 1999)
- ---------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Bank Notes 5.8%
Commercial Paper 66.0%
Corporate Fixed Rate Notes 3.4%
Corporate Floating Rate Notes 3.0%
Certificates of Deposit 12.4%
U.S. Government & Agency Obligations 4.2%
Other 5.2%
</TABLE>
COMPARATIVE MONTHLY AVERAGE YIELDS
- --------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
Money Market Portfolio IBC Money Fund
30-day yields Comparable Yields
<S> <C> <C>
Jan. 4.65% 4.58%
Feb. 4.52% 4.47%
Mar. 4.48% 4.44%
Apr. 4.43% 4.41%
May 4.35% 4.39%
Jun. 4.47% 4.40%
</TABLE>
- ------------------------------------------------
INVESTMENTS IN SHARES OF THE PORTFOLIO ARE NEITHER INSURED NOR GUARANTEED BY THE
FEDERAL DEPOSIT INSURANCE COMPANY. ALTHOUGH THE PORTFOLIO SEEKS TO PRESERVE THE
VALUE OF YOUR INVESTMENT AT $1.00 PER SHARE, IT IS POSSIBLE TO LOSE MONEY BY
INVESTING IN THIS PORTFOLIO. YIELDS WILL FLUCTUATE AS MARKET CONDITIONS CHANGE.
The Money Market Portfolio seeks to maximize current income and preserve capital
while maintaining high levels of liquidity through investing in high quality
money market instruments which have effective maturities of 397 days or less.
The Portfolio is expected to maintain a net asset value of $1.00 per share.
There can be no assurance, however, that the Portfolio will be successful in
maintaining a net asset value of $1.00 per share.
The seven day yield and seven day effective yield (which assumes an
annualization of the current yield with all dividends reinvested) for the
Portfolio as of June 30, 1999 were 4.52% and 4.57%, respectively. As with all
money market portfolios, the seven day yields are not necessarily indicative of
future performance.
Driven by strong consumer demand, the U.S. economy continued to surge ahead
during the first six months of 1999. Despite a large drag from weak export
demand, real gross domestic product soared by a 4.3% annual rate in the first
quarter of 1999, following the rapid 6% gain posted in the fourth quarter of
1998. Most measures of manufacturing activity continue to gain momentum as solid
domestic demand has offset weak export demand from financially troubled
economies. Sales of motor vehicles remain at a record-setting pace. Despite a
larger than expected increase in the Consumer Price Index (CPI) for April 1999,
inflation has remained remarkably well behaved. On a year-over-year change
basis, CPI is now up 2.1% with the core component up only 2.0% through May 1999.
Following a five-month period of rather stable short-term interest rates from
January through May 1999, upward yield pressure began to manifest itself in June
culminating in the Federal Reserve Board's action on June 30, 1999 to lift its
target for Federal funds trading by 25 basis points to 5.00%. At the same time,
the Federal Open Market Committee (FOMC) chose to switch to a directive that has
no predilection as to near-term policy action. Such a posture is normal after
changing the target level for Funds trading and doesn't preclude the FOMC from
changing the target again without the step of announcing a change in its bias.
We believe that the FOMC would be more comfortable if the real rate of economic
growth in the U.S. were to slow from the 4% area to a more sustainable rate of
2.5% to 3.0%. Therefore, unless the economy
- --------------------------------------------------------------------------------
Money Market Portfolio
141
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
MONEY MARKET PORTFOLIO (CONT.)
soon shows signs of slowing on its own, we expect that further upward rate
pressure could surface within the next nine months.
On June 30, 1999, approximately 66 percent of the Portfolio was invested in high
quality commercial paper, 3 percent in fixed-rate U.S. Federal agency
obligations, 5 percent in overnight repurchase agreements, 4 percent in
floating-rate obligations and 18 percent in fixed rate short-term bank notes and
negotiable certificates of deposit of financially strong commercial banks. At
June 30, 1999, the Portfolio's weighted average maturity was 63 days and 78% of
holdings were due to mature in less than three months. Therefore, we believe the
Portfolio is well positioned for stability of principal with a very high degree
of liquidity.
As always, we try to operate the Portfolio in a conservative style without the
use of derivatives or structured notes, which might fluctuate excessively as
interest rates change. The Portfolio continues to serve as a useful investment
for liquidity, preservation of capital and a yield that reflects prevailing
money market conditions.
Looking ahead, at this time we anticipate no major adverse surprises in the rate
of inflation. The continuing strong pace of U.S. economic activity combined with
the recent Federal Reserve Board action should produce moderately higher net
yields for the Portfolio during the months ahead.
July 1999
- --------------------------------------------------------------------------------
Money Market Portfolio
142
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1999
- --------------------------------------------------------------------------------
MONEY MARKET PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE AMORTIZED
AMOUNT COST
(000) (000)
<C> <S> <C>
- -------------------------------------------------------------------------
MONEY MARKET INSTRUMENTS (94.8%)
U.S. GOVERNMENT & AGENCY OBLIGATIONS (4.2%)
AGENCY FLOATING RATE NOTES (0.8%)
$13,000 Federal National Mortgage Assoc. 5.17%,
7/26/99........................................ $ 12,999
-----------
AGENCY DISCOUNT NOTES (3.4%)
25,000 Federal Home Loan Bank 4.77%, 3/16/00............ 24,142
35,000 Federal Home Loan Bank 5.01%, 4/28/00............ 34,987
-----------
59,129
-----------
TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS
(Cost $72,128).......................................... 72,128
-----------
BANK NOTES (5.8%)
BANKS (5.8%)
35,000 FCC National Bank 4.96%, 9/23/99................. 35,000
45,000 Nationbank N.A. 4.90%, 10/01/99.................. 45,000
20,000 Nationbank N.A. 5.20%, 9/22/99................... 20,000
-----------
TOTAL BANK NOTES (Cost $100,000).......................... 100,000
-----------
COMMERCIAL PAPER (66.0%)
AUTOMOTIVE (16.0%)
32,000 American Honda Finance Corp. 4.85%, 7/08/99...... 31,970
20,000 American Honda Finance Corp. 5.01%, 7/16/99...... 19,958
24,000 Daimler Benz North America Corp. 4.81%,
7/29/99........................................ 23,910
20,000 Daimler Benz North America Corp. 4.88%,
8/30/99........................................ 19,837
28,000 Daimler Benz North America Corp. 4.95%,
9/09/99........................................ 27,730
20,000 Ford Motor Credit Corp. 4.77%, 7/09/99........... 19,979
20,000 Ford Motor Credit Corp. 4.74%, 7/13/99........... 19,968
28,000 Ford Motor Credit Corp. 4.98%, 7/20/99........... 27,926
30,000 General Motors Acceptance Corp. 4.81%, 8/11/99... 29,836
30,000 General Motors Acceptance Corp. 4.87%, 8/25/99... 29,777
25,920 Toyota Motor Credit Corp. 5.23%, 7/08/99......... 25,894
-----------
276,785
-----------
BANKING (4.9%)
40,000 Bank of New York 4.90%, 8/02/99.................. 39,826
20,000 Bank of New York 5.07%, 9/20/99.................. 19,772
25,000 J.P. Morgan & Co. 4.82%, 7/06/99................. 24,983
-----------
84,581
-----------
CONSUMER FINANCE (10.1%)
50,000 America Express Credit Corp. 4.86%, 7/07/99...... 49,960
45,000 Household Finance, Inc. 4.88%, 7/07/99........... 44,963
60,000 New Center Asset Trust Corp. 4.81%, 9/02/99...... 59,495
20,000 Norwest Financial Corp. 4.81%, 8/05/99........... 19,906
-----------
174,324
-----------
COMPUTER HARDWARE (1.7%)
30,000 IBM Credit Corp. 5.02%, 8/10/99.................. 29,833
-----------
<CAPTION>
FACE AMORTIZED
AMOUNT COST
(000) (000)
<C> <S> <C>
- -------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES (7.2%)
$30,000 Associates First Capital Corp. 4.86%, 7/22/99.... $ 29,916
22,000 Associates First Capital Corp. 4.93%, 8/03/99.... 21,901
25,000 General Electric Capital Corp. 4.80%, 7/09/99.... 24,973
20,000 General Electric Capital Corp. 4.86%, 1/19/00.... 19,455
28,000 General Electric Capital Corp. 5.00%, 1/26/00.... 27,187
-----------
123,432
-----------
FINANCE-CORPORATE (3.5%)
25,000 Ciesco LP Corp. 5.22%, 7/28/99................... 24,902
35,000 Ciesco LP Corp. 5.03%, 8/12/99................... 34,795
-----------
59,697
-----------
FOOD & BEVERAGE (1.4%)
25,000 Nestle Capital Corp. 4.98%, 7/01/99.............. 25,000
-----------
INSURANCE (1.2%)
20,000 Prudential Funding Corp. 4.75%, 7/13/99.......... 19,968
-----------
INTERNATIONAL BANKS (6.4%)
22,000 Abbey National Corp. 4.81%, 7/12/99.............. 21,968
25,000 National Australia Funding Capital Corp. 4.80%,
9/15/99........................................ 24,746
20,000 UBS Finance, Inc. 4.76%, 8/09/99................. 19,896
20,000 UBS Finance, Inc. 4.81%, 10/12/99................ 19,725
25,000 UBS Finance, Inc. 4.93%, 12/21/99................ 24,408
-----------
110,743
-----------
INVESTMENT BANKERS/BROKERS/SERVICES (5.1%)
63,000 Goldman Sachs & Co. 5.50%, 7/01/99............... 63,000
25,000 Merrill Lynch & Co. 4.79%, 7/16/99............... 24,950
-----------
87,950
-----------
RENTAL/LEASING COMPANIES (4.2%)
21,300 International Lease Finance Corp.
4.78%, 7/19/99................................. 21,249
23,000 International Lease Finance Corp.
4.76%, 8/02/99................................. 22,903
28,000 International Lease Finance Corp.
4.90%, 8/05/99................................. 27,867
-----------
72,019
-----------
UTILITIES (4.3%)
35,000 Duke Energy Corp. 5.65%, 7/01/99................. 35,000
40,000 National Rural Utilities Cooperative Finance
Corp. 4.84%, 8/26/99........................... 39,699
-----------
74,699
-----------
TOTAL COMMERCIAL PAPER (Cost $1,139,031).................. 1,139,031
-----------
CORPORATE FIXED RATE NOTES (3.4%)
BANKS (2.9%)
50,000 Norwest Corp. 5.55%, 8/31/99..................... 49,996
-----------
FINANCE (0.5%)
9,000 CIT Group Holdings, Inc., 6.10%, 8/09/99......... 9,009
-----------
TOTAL CORPORATE FIXED RATE NOTES (Cost $59,005)........... 59,005
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
Money Market Portfolio
143
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[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1999
- --------------------------------------------------------------------------------
MONEY MARKET PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE AMORTIZED
AMOUNT COST
(000) (000)
- -------------------------------------------------------------------------
<C> <S> <C>
CORPORATE FLOATING RATE NOTES (3.0%)
AUTOMOTIVE (0.7%)
$12,000 General Motors Acceptance Corp.
4.96%, 8/26/99................................. $ 11,999
-----------
BANKS (1.0%)
17,000 Bank One Columbus 5.04%, 10/25/99................ 17,003
-----------
CONSUMER GOODS (1.3%)
23,000 Pepsico, Inc., Series MTN 4.84%, 8/19/99......... 22,997
-----------
TOTAL CORPORATE FLOATING RATE NOTES (Cost $51,999)........ 51,999
-----------
CERTIFICATES OF DEPOSIT (12.4%)
BANKS (12.4%)
50,000 Bank of Austria, New York 5.04%, 1/12/00......... 49,992
20,000 Canadian Imperial Bank, New York
4.97%, 8/27/99................................. 20,000
25,000 Commerzbank AG, New York 5.09%, 2/16/00.......... 24,998
34,550 Deutsche Bank, New York 5.02%, 1/12/00........... 34,545
13,000 Deutsche Bank, New York 5.10%, 2/17/99........... 12,998
5,700 Rabobank Nederland N.V. (Yankee) 5.58%,
8/18/99........................................ 5,704
47,000 U.S. Bank 4.92%, 9/29/99......................... 47,000
20,000 Westdeutsche Landesbank, 4.88%, 7/12/99.......... 20,000
-----------
TOTAL CERTIFICATES OF DEPOSIT (Cost $215,237)............. 215,237
-----------
TOTAL MONEY MARKET INSTRUMENTS (Cost $1,637,400)............ 1,637,400
-----------
SHORT TERM INVESTMENT (5.0%)
REPURCHASE AGREEMENT (5.0%)
86,130 Goldman Sachs & Co., 4.76%, dated 6/30/99, due
7/01/99, to be repurchased at $86,141,
collateralized by U.S. Treasury Bonds, 8.25%
due 5/15/05, valued at $51,711 and 11.875% due
11/15/03, valued at $36,712 (Cost $86,130)..... 86,130
-----------
</TABLE>
<TABLE>
<CAPTION>
AMORTIZED
COST
(000)
<C> <S> <C>
- --------------------------------------------------------------------------
TOTAL INVESTMENTS (99.8%) (Cost $1,723,530).................. $ 1,723,530
-----------
</TABLE>
<TABLE>
<S> <C> <C>
OTHER ASSETS ( 0.5%)
Cash............................................. $ 51
Interest Receivable.............................. 7,957
Other............................................ 16 8,024
----------
LIABILITIES ( - 0.3%)
Dividend Payable................................. (3,048)
Investment Advisory Fees Payable................. (1,375)
Administrative Fees Payable...................... (241)
Directors' Fees & Expenses Payable............... (102)
Custodian Fees Payable........................... (29)
Other Liabilities................................ (73) (4,868)
---------- -----------
NET ASSETS (100%).............................................. $ 1,726,686
-----------
-----------
<CAPTION>
AMOUNT
(000)
<S> <C> <C>
-----------
</TABLE>
<TABLE>
<S> <C>
NET ASSETS CONSIST OF:
Paid in Capital............................................... $ 1,726,977
Undistributed Net Investment Income........................... 4
Accumulated Net Realized Loss................................. (295)
-----------
NET ASSETS.................................................... $ 1,726,686
-----------
-----------
</TABLE>
<TABLE>
<S> <C>
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 1,727,165,887 outstanding $0.001 par value
shares (authorized 4,000,000,000 shares).................... $1.00
-----------
-----------
</TABLE>
- ------------------------------------------------------------
MTN -- Medium Term Note
Floating Rate -- The interest rate changes on these instruments are based on
changes in a designated base rate. The rates shown are those in effect on June
30, 1999.
Maturity dates disclosed for Floating Rate Instruments are the ultimate maturity
dates. The effective maturity dates for such securities are the next interest
reset dates which are seven days or less.
Interest rates disclosed for Commercial Paper and Agency Discount Notes
represent yields at June 30, 1999.
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
Money Market Portfolio
144
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
MUNICIPAL MONEY MARKET PORTFOLIO
COMPOSITION OF NET ASSETS (AT JUNE 30, 1999)
- ---------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Commercial Paper 25.1%
Daily Variable Rate Bonds 30.6%
Notes 9.2%
Weekly Variable Rate Bonds 37.8%
Other -2.7%
</TABLE>
COMPARATIVE MONTHLY AVERAGE YIELDS
- --------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
Municipal Money Market IBC Municipal Money
Portfolio 30-day yields Fund Comparable yields
<S> <C> <C>
Jan. 2.61% 2.72%
Feb. 2.33% 2.19%
Mar. 2.44% 2.46%
Apr. 2.67% 2.54%
May 2.79% 2.94%
Jun. 2.75% 2.72%
</TABLE>
- ------------------------------------------------
INVESTMENTS IN SHARES OF THE PORTFOLIO ARE NEITHER INSURED NOR GUARANTEED BY THE
FEDERAL DEPOSIT INSURANCE COMPANY. ALTHOUGH THE PORTFOLIO SEEKS TO PRESERVE THE
VALUE OF YOUR INVESTMENT AT $1.00 PER SHARE, IT IS POSSIBLE TO LOSE MONEY BY
INVESTING IN THIS PORTFOLIO. YIELDS WILL FLUCTUATE AS MARKET CONDITIONS CHANGE.
The Municipal Money Market Portfolio seeks to maximize current tax-exempt income
and preserve capital. The Investment Advisor and Sub-Advisor seek to achieve
these objectives by investing in high quality municipal money market instruments
which earn interest exempt from Federal income tax and by maintaining high
levels of liquidity. The Portfolio will purchase only securities having a
remaining maturity of 397 days or less. Typically, the Portfolio will invest
at least 80% of its assets in tax-exempt municipal securities. The Portfolio
will not invest in municipal obligations that pay subject to alternative minimum
tax. Interest on tax-exempt municipal securities may be subject to state and
local taxes. The Portfolio is expected to maintain a net asset value of $1.00
per share. There can be no assurance, however, that the Portfolio will be
successful in maintaining a net asset value of $1.00 per share.
The seven day yield and seven day effective yield (assumes an annualization of
the current yield with all dividends reinvested) for the Municipal Money Market
Portfolio as of June 30, 1999, were 3.15% and 3.20%, respectively. The seven day
taxable equivalent yield and the seven day taxable equivalent effective yield
for the Portfolio at June 30, 1999, assuming Federal income tax rate of 39.6%
(maximum rate) were 5.22% and 5.30%, respectively. The seven day yields are not
necessarily indicative of future performance.
Tax-free money market yields adjusted upward during the first half of 1999
following the lead of the taxable money market. The move toward higher yields
reversed the trend of the latter half of 1998 and reflected the market's
response to the persistent strength in the U.S. economy. The steady release of
robust economic data prompted the Federal Reserve Board to adopt a bias toward
higher short-term interest rates in mid-May. The anticipated Fed tightening
became reality at the end of June when the target for the federal funds rate was
increased from 4.75% to 5.00%. At the same time, however, the Fed reverted to a
neutral stance that appeared to make prospects for another rate hike less likely
over the near term. This had a stabilizing effect on the fixed income markets.
Within the municipal money market, the trend of interest rates was most apparent
among securities maturing in six months to one year. Early in the year, one year
yields declined moderately as demand for
- --------------------------------------------------------------------------------
Municipal Money Market Portfolio
145
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[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
MUNICIPAL MONEY MARKET PORTFOLIO (CONT.)
securities outstripped supply, but from late February through the end of the
first half, yields moved more or less steadily higher along with taxable money
market yields. THE BOND BUYER One Year Note Index, a benchmark indicator for the
longest maturities in the tax-free money market sector, registered a net
increase of 35 basis points from 3.04% at the end of December 1998 to 3.39% in
late June 1999. Nevertheless, on a year-over-year basis, one year yields as
measured by the Index were still 20 basis points lower this June. The ratio of
the One Year Note Index to the yield for one-year U.S. Treasury bills was 66
percent at the end of June, unchanged from a year earlier. A stable ratio means
that performance of securities in this sector of the municipal market has
tracked the performance of Treasuries with comparable maturities.
At the short end of the tax-free money market, interest rates fluctuated in a
wider pattern. Yields for variable rate demand obligations (VRDOs) with daily
and weekly rate changes were driven primarily by changing cash flows and
fluctuated more widely than yields for longer maturities. Yields for weekly
VRDOs moved over a 180 basis point range from a low of 2.20% in early February
when cash inflows were strong to a high of 4.00% during tax season in April.
However, during periods when supply and demand were in balance, the municipal
money market yield curve was flat with little difference between one year note
yields and yields for daily or weekly VRDOs. The average yield for weekly VRDOs
was approximately 3.10% for the first half of 1999. This was comparable to the
average yield for one year notes over the same period.
Assets of the Portfolio increased $23 million to $1,013 million during the first
six months of 1999. Asset allocation shifted in favor of daily and weekly
variable rate issues which have shorter effective maturities and satisfy the
Portfolio's need for liquidity. At the end of June these instruments accounted
for over 60% of investments. The remainder of the Portfolio's investments
consisted of longer fixed rate instruments including tax-exempt commercial
paper, municipal notes and short-term municipal bonds. The flatness of the yield
curve and anticipation of further action by the Federal Reserve Board reduced
the incentive to extend portfolio maturity. The weighted average maturity of the
Portfolio remained relatively short throughout the first six months of the year
ranging from 23 to 38 days and at the close of June stood at 33 days.
July 1999
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Municipal Money Market Portfolio
146
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1999
- --------------------------------------------------------------------------------
MUNICIPAL MONEY MARKET PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE AMORTIZED
AMOUNT COST
(000) (000)
<C> <S> <C>
- -------------------------------------------------------------------------
TAX-EXEMPT INSTRUMENTS (102.7%)
FIXED RATE INSTRUMENTS (34.3%)
NOTES (9.2%)
$ 8,765 Dallas, Texas, Refg & Impr, 4.00%, 2/15/00....... $ 8,831
1,750 Dallas County, Texas, 5.50%, 8/15/99............. 1,754
10,000 Idaho, Series 1999 TANS, 4.25%, 6/30/00.......... 10,082
6,050 Indianapolis Local Public Improvement Bond Bank,
Indiana, Series 1999 D Notes, 4.00%, 1/10/00... 6,075
1,950 Intermountain Power Agency, Utah, Series A 7.00%,
7/01/21 Prerefunded 7/01/99 at 102............. 1,989
10,000 Iowa School Corporations, Warrant Certificates
Series 1999-00 A (FSA), 4.00%, 6/23/00......... 10,074
10,000 Kentucky Asset/Liability Commission,
Series 1999 A TRANS, 4.25%, 6/28/00............ 10,084
1,000 Los Angeles Convention & Exhibition Center
Authority, Series A COPS, 6.50%, 8/15/21
Prerefunded 8/15/99 at 100..................... 1,004
1,000 Maryland, Series 1986, 6.70%, 7/15/99............ 1,001
3,315 Montgomery County, Maryland, Cons Pub Impr,
Series 1989 B, 6.80%, 11/01/00................. 3,422
2,000 New Mexico Severance Tax, Series B, 4.50%,
7/01/99........................................ 2,000
10,000 New Mexico, Series 1999-2000 TRANS, 4.00%,
6/30/00........................................ 10,074
1,460 Scottsdale, Arizona, Water & Sewer Series 1989 E,
4.50%, 7/01/99................................. 1,460
10,000 Texas, Series 1999 A TRANS, 4.50%, 8/31/99....... 10,020
10,000 Utah County, Utah Environmental Impr USX Corp.
Series 1995, 3.10%, 11/04/99................... 10,000
3,100 Wake County, North Carolina, Pub Impr, 4.50%,
3/01/00........................................ 3,133
Washington Suburban Sanitation District,
Maryland,
1,000 General Construction, 6.60%, 12/01/00 Prerefunded
12/01/99 at 102................................ 1,035
1,095 Second Series, 8.00%, 1/01/00.................... 1,121
-----------
93,159
-----------
COMMERCIAL PAPER (25.1%)
Baltimore County, Maryland, Cons Series 1995,
10,000 2.90%, 8/11/99................................... 10,000
5,000 2.85%, 8/11/99................................... 5,000
7,900 Becker, Minnesota, Northern States Power Co.
Series 1993 A, 3.10%, 8/24/99.................. 7,900
1,800 Georgia Municipal Gas Authority, Southern
Portfolio Series D,
3.10%, 7/14/99................................. 1,800
4,100 Honolulu City & County, Hawaii, Series 1998 BANS,
3.15%, 7/13/99................................. 4,100
Houston, Texas
2,000 Series 1993 A, 3.10%, 8/19/99.................... 2,000
<CAPTION>
FACE AMORTIZED
AMOUNT COST
(000) (000)
<C> <S> <C>
- -------------------------------------------------------------------------
$10,000 Series 1993 A, 3.15%, 8/19/99.................... $ 10,000
7,000 Series 1996 B, 3.15%, 7/20/99.................... 7,000
13,000 Series 1996 B, 3.15%, 7/28/99.................... 13,000
9,000 Illinois Educational Facility Authority, Pooled
Financing, 3.15%, 8/25/99...................... 9,000
10,000 Indiana State Office Building Commission, Hoosier
Notes Series A, 3.10%, 9/27/99................. 10,000
Jacksonville Electric Authority, Florida, Series
C
10,600 3.10%, 7/09/99................................... 10,600
4,000 3.15%, 7/09/99................................... 4,000
8,000 Jefferson County, Kentucky, Louisville Gas &
Electric Co., Series A, 3.10%, 9/02/99......... 8,000
10,000 King County, Washington, Sewer Series A BANS,
3.00%, 7/14/99................................. 10,000
Las Vegas Valley Water District, Nevada, Water
Series 1999 A
10,000 3.05%, 8/05/99................................... 10,000
6,000 3.10%, 7/07/99................................... 6,000
10,000 3.10%, 9/14/99................................... 10,000
12,500 New York City Municipal Water Finance Authority,
New York, Series #4, 3.20%, 7/08/99............ 12,500
6,000 Ohio Air Quality Development Authority, Cleveland
Electric Illuminating Co. Series 1998 B FGIC,
3.10%, 7/08/99................................. 6,000
5,000 Oklahoma City Industrial & Cultural Facilities
Trust, SSM Healthcare Series 1998 B (MBIA),
3.10%, 9/08/99................................. 5,000
4,000 Petersburg, Indiana, Indianapolis Power & Light
Co. Series 1991, 3.05%, 8/09/99................ 4,000
10,000 Platte River Power Authority, Colorado, Electric
Sub Lien S-1, 3.10%, 9/13/99................... 10,000
Rochester, Minnesota, Mayo Foundation/ Mayo
Medical Center
1,500 Series 1992 A, 3.10%, 10/7/99.................... 1,500
6,000 Series 1992 C, 3.10%, 10/7/99.................... 6,000
2,250 Seattle, Washington, Municipal Light & Power
Series 1990, 3.10%, 7/15/99.................... 2,250
South Carolina Public Service Authority, Santee
Cooper Series 1998
10,000 3.15%, 8/05/99................................... 10,000
5,000 3.15%, 8/12/99................................... 5,000
4,000 3.30%, 9/09/99................................... 4,000
4,900 St. Lucie County, Florida, Florida Power & Light
Co. Series 1992, 3.10%, 7/08/99................ 4,900
4,125 Sunshine State Governmental Financing Commission,
Florida, Series A,
3.10%, 7/09/99................................. 4,125
5,000 Sweetwater County, Wyoming, Pacificorp Series
1988 A, 3.05%, 8/09/99......................... 5,000
Tennessee School Board Authority
4,000 3.15%, 7/27/99................................... 4,000
4,000 3.15%, 8/12/99................................... 4,000
10,000 Texas, Series 1997 B TRANS, 2.95%, 8/10/99....... 10,000
4,183 Texas A&M University, Series 1993 B, 3.15%,
8/03/99........................................ 4,183
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
Municipal Money Market Portfolio
147
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1999
- --------------------------------------------------------------------------------
MUNICIPAL MONEY MARKET PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE AMORTIZED
AMOUNT COST
(000) (000)
- -------------------------------------------------------------------------
<C> <S> <C>
</TABLE>
FIXED RATE INSTRUMENTS (CONT.)
COMMERCIAL PAPER (CONT.)
<TABLE>
<C> <S> <C>
Wisconsin State, 1997
$ 7,624 Series A, 3.05%, 7/21/99......................... $ 7,624
2,300 Series B, 3.10%, 7/22/99......................... 2,300
3,737 Wisconsin Transportation Notes,
3.10%, 7/07/99................................. 3,737
-----------
254,519
-----------
TOTAL FIXED RATE INSTRUMENTS................................ 347,678
-----------
VARIABLE/FLOATING RATE INSTRUMENTS (68.4%)
DAILY VARIABLE RATE BONDS (30.6%)
6,500 California Economic Development Financing
Authority, California Independent System
Operator Corp., Series 1998 C, 3.30%,
4/01/08........................................ 6,500
2,000 California Pollution Control Financing Authority,
Southern California Edison Co., Series 1986 C,
3.35%, 2/28/08................................. 2,000
16,500 Collier County Health Facilities Authority,
Florida, Cleveland Clinic Health System Series
1999, 3.85%, 1/01/33........................... 16,500
15,800 Cuyahoga County, Ohio, Cleveland Clinic
Foundation Series 1997 D, 3.50%, 1/01/26....... 15,800
1,700 Delta County Economic Development Corporation,
Michigan, Mead-Escanaba Paper Co. Series 1985
C, 3.70%, 12/01/23............................. 1,700
20,500 East Baton Rouge Parish, Louisiana, Exxon Corp.
Series 1993, 3.45%, 3/01/22.................... 20,500
4,400 Farmington, New Mexico, Arizona Public Service
Co. Series 1994 A, 3.40%, 5/01/24.............. 4,400
7,000 Forsyth, Montana, Pacificorp, 3.45%, 1/01/18..... 7,000
5,000 Hapeville Development Authority, Georgia,
Hapeville Ltd. Series 85, 3.70%, 11/01/15...... 5,000
Harris County Health Facilities Development
Corporation, Texas
400 Methodist Hospital Series 1994,
3.50%, 12/01/25.............................. 400
12,900 St. Luke's Episcopal Hospital,
Series 1997 A, 3.85%, 2/15/27................ 12,900
Harris County, Industrial Development
Corporation, Texas
7,900 Exxon Corp. Series 1984 A & B,
3.45%, 3/01/24............................... 7,900
8,700 Shell Oil Co. Series 1997, 3.35%, 4/01/27........ 8,700
5,700 Hurley, New Mexico, Kennecott Sante Fe Corp.
Series 85, 3.40%, 12/01/15..................... 5,700
2,000 Irvine Ranch Water District, California, Cons
Refg Series 1985 B,
3.15%, 10/01/09................................ 2,000
3,200 Jackson County, Mississippi, Chevron USA Inc.
Series 1993, 3.40%, 6/01/23.................... 3,200
<CAPTION>
FACE AMORTIZED
AMOUNT COST
(000) (000)
<C> <S> <C>
- -------------------------------------------------------------------------
$ 8,700 Jacksonville Pollution Control Financing
Authority, Florida, Power & Light Co. Series
1995, 3.95%, 5/01/29........................... $ 8,700
7,100 Lehigh County General Purpose Authority, Lehight
Valley Health Series 1999 B, 3.85%, 7/01/29.... 7,100
10,300 Lincoln County, Wyoming, Exxon Corp. Series 1984
B & D, 3.80%, 11/01/14......................... 10,300
3,380 Long Island Power Authority, New York, Electric
System Sub-series 6, 3.85%, 5/01/33............ 3,380
13,000 Maricopa County, Arizona, Arizona Public Service
Co. Series 1994 C & F, 3.45%, 5/01/29.......... 13,000
15,000 Massachusetts Health & Educational Facilities
Authority, Capital Asset Series B (MBIA),
3.70%, 1/01/35................................. 15,000
Missouri Health & Educational Facilities
Authority
8,000 Cox Health System Ser 1997 (MBIA), 3,45%,
6/01/15........................................ 8,000
7,600 Washington University Series 1996 B & C, 3.45%,
9/01/30........................................ 7,600
2,800 Montour County, Pennsylvaia, Penn State Geisinger
Health System, Series 1998 B, 3.45%, 8/15/28... 2,800
100 Newport Beach, California, Hoag Memorial Hospital
Presbyterian Series 1992, 3.15%, 10/01/22...... 100
4,000 New York City Cultural Resources Trust, New York,
Solomon R. Guggenheim Foundation, Series 1990
B,
3.35%, 12/01/15................................ 4,000
3,650 New York City, New York, Fiscal Series 1994 A,
Sub-series A-4,
3.35%, 8/01/22,................................ 3,650
10,000 New York City Municipal Water Finance Authority,
New York, Series 1994 C (FGIC), 3.70%,
6/15/23........................................ 10,000
5,100 New York State Dormitory Authority, Cornell
University, Series 1990 B, 3.40%, 7/01/25...... 5,100
2,700 Nueces River Authority, Texas, Reynolds Metals
Co. Series 1985, 3.75%, 12/01/99............... 2,700
Ohio Air Quality Development Authority,
Cincinnati Gas and Electric Co.
3,200 Series 1985 A, 3.50%, 12/01/15................... 3,200
4,100 Series 1985 B, 3.35%, 9/01/30.................... 4,100
2,400 Peninsula Ports Authority of Virginia, Dominion
Terminal Assn. Series 1987 D, 3.45%, 7/01/16... 2,400
Pennsylvania Higher Education Facilities
Authority
5,000 Carnegie Mellon University, Series 1995 C, 3.45%,
11/01/29....................................... 5,000
3,215 Temple University Series 1984-1, 3.35%,
10/01/09....................................... 3,215
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
Municipal Money Market Portfolio
148
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1999
- --------------------------------------------------------------------------------
MUNICIPAL MONEY MARKET PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE AMORTIZED
AMOUNT COST
(000) (000)
- -------------------------------------------------------------------------
<C> <S> <C>
</TABLE>
VARIABLE/FLOATING RATE INSTRUMENTS (CONT.)
DAILY VARIABLE RATE BONDS (CONT.)
<TABLE>
<C> <S> <C>
$ 9,800 Philadelphia Hospitals & Higher Education
Facilities Authority, Pennsylvania, The
Children's Hospital of Philadelphia Series 1996
A, 3.45%, 3/01/27.............................. $ 9,800
5,200 Roanoke Industrial Development Authority,
Virginia, Carilion Health System, Series 1997
A, 3.50%, 7/01/27.............................. 5,200
12,700 St. Lucie County, Florida Power & Light Co.
Series 1993, 3.35%, 1/01/26.................... 12,700
7,900 Salt Lake County, Utah, Service Station Holdings
British Petroleum Series 1994 B, 3.50%,
8/01/07........................................ 7,900
5,200 South Carolina Jobs Economic Development
Authority, St. Francis Hospital Series 1990,
3.60%, 7/01/29................................. 5,200
4,400 Southwest Higher Education Authority, Texas,
Southern Methodist University Series 1985,
3.45%, 7/01/15................................. 4,400
4,100 Tempe, Arizona, Excise Tax Series 1998, 3.55%,
7/01/23........................................ 4,100
7,700 Texas Water Development Board, Revolving Fund,
Series 1992 A, 3.50%, 3/01/15.................. 7,700
13,300 Wake County Industrial & Pollution Control
Facilities Authority, North Carolina, Carolina
Power & Light Series 1990 A, 3.85%, 6/15/14.... 13,300
-----------
309,845
-----------
WEEKLY VARIABLE RATE BONDS (37.8%)
1,900 Alaska Housing Finance Corporation, Series 1991
C, 3.30%, 6/01/26.............................. 1,900
300 Arkansas Development Finance Authority, Sister of
Mercy Health System Series 1989 B, 3.50%,
6/01/12........................................ 300
3,500 Ascension Parish, Louisiana, Borden Inc. Series
1992, 3.30%, 12/01/09.......................... 3,500
1,000 Baltimore, Maryland, SCM Plants Inc. Series 1993,
3.55%, 2/01/00................................. 1,000
Beaver County Industrial Development Authority,
Pennsylvania Duquesne Light Co.,
1,000 Beaver Valley, Series 1990 A, 3.40%, 8/01/20..... 1,000
1,000 Mansfield, Series 1990 B, 3.40%, 8/01/09......... 1,000
10,380 Burke County Development Authority, Georgia,
Oglethorpe Power Co. Series 1993 A, 3.30%,
1/01/16........................................ 10,380
5,500 Charlotte, North Carolina, Airport Series 1993 A
(MBIA), 3.30%, 7/01/16......................... 5,500
Clark County, Nevada, Airport Impr
18,500 Refg, Series 1993 A, 3.30%, 7/01/12.............. 18,500
2,575 Sub Lien Series 1995 A-1, 3.30%, 7/01/25......... 2,575
2,500 Columbia, Missouri, Special Series 1988, 3.30%,
6/01/08........................................ 2,500
<CAPTION>
FACE AMORTIZED
AMOUNT COST
(000) (000)
<C> <S> <C>
- -------------------------------------------------------------------------
Connecticut
$ 7,315 Series 1997 B, 3.60%, 5/15/14.................... $ 7,315
6,400 Second Lien Special Tax Series 1, 3.45%,
12/01/10....................................... 6,400
11,700 Connecticut Health & Educational Facilities
Authority, Charity Obligated Group-St.
Vincent's Medical Center/Hall Brooke Series
1999 B, 3.25%, 11/01/29........................ 11,700
Connecticut Health & Educational Facilities
Authority, Yale University
20,000 Series T-1 3.60%, 7/01/29........................ 20,000
27,655 Series T-2, 3.60%, 7/01/27....................... 27,655
4,600 Cook County, Illinois, Series 1996,
3.45%, 12/01/01................................ 4,600
10,500 Dade County, Florida, Water & Sewer System Series
1994 (FGIC),
3.50%, 10/05/22................................ 10,500
1,800 Dade County Health Facilities Authority, Florida,
Miami Children's Hospital Series 1995, 3.30%,
09/01/25....................................... 1,800
1,900 Dade County Industrial Development Authority,
Florida, Dolphins Stadium Series 1985 D, 3.30%,
01/01/16....................................... 1,900
4,000 Foothill/Eastern Transportation Corridor Agency,
California, Toll Road Series 1995 C, TRANS,
3.30%, 1/02/35................................. 4,000
2,000 Franklin County, Ohio, Holy Cross Health System
Series 1995, 3.65%, 6/01/16.................... 2,000
Georgia Municipal Gas Authority, Gas Portfolio II
7,800 Series 1997 C, 3.30%, 1/01/08.................... 7,800
10,755 Series 1977 B, 3.30%, 9/01/07.................... 10,755
Georgia Municipal Electric Authority
3,000 Sub-series 1985 C, 3.50%, 3/01/20................ 3,000
4,000 Sub-series 1994 E, 3.50%, 1/01/26................ 4,000
2,400 Glynn Brunswick Memorial Hospital Authority,
Georgia, Series 1996,
3.30%, 8/01/16................................. 2,400
Harris County, Texas, Toll Road Unlimited Tax Sub
Lien,
900 Series 1994 D, 3.45%, 8/01/15.................... 900
10,000 Series 1994 G & H, 3.50%, 8/01/20................ 10,000
Illinois Development Finance Authority
3,500 Chicago Symphony, 3.65%, 6/01/31................. 3,500
5,000 Museum of Contemporary Art, 3.60%, 2/01/29....... 5,000
5,000 Con Edison Co. Series C, 3.65%, 3/01/09.......... 5,000
6,400 Indiana Health Facilities Authority, Charity
Obligated Group Daughters of Charity National
Health System Series 1997 E, 3.30%, 11/01/26... 6,400
15,850 Jacksonville Health Facilities Authority,
Florida, Charity Obligated Group, Series 1997 C
(MBIA), 3.70%, 8/15/19......................... 15,850
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
Municipal Money Market Portfolio
149
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1999
- --------------------------------------------------------------------------------
MUNICIPAL MONEY MARKET PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE AMORTIZED
AMOUNT COST
(000) (000)
- -------------------------------------------------------------------------
<C> <S> <C>
</TABLE>
VARIABLE/FLOATING RATE INSTRUMENTS (CONT.)
WEEKLY VARIABLE RATE BONDS (CONT.)
<TABLE>
<C> <S> <C>
$ 4,000 Jefferson Parish, Louisiana, Hospital Service
District No. 001, West Jefferson Medical
Center, Series 1986, 3.15% 1/01/26............. $ 4,000
800 Lehigh County Industrial Development Authority,
Pennsylvania, Allegheny Electric Coop, Inc.
Series 1985 A, 3.75%, 12/01/15................. 800
5,885 Louisiana Public Facilities Authority, College &
University Equipment Series A, 3.50%,
9/01/10........................................ 5,885
1,900 Maryland Health & Educational Facilities, John
Hopkins Hospital Series 1997 A, 3.30%,
7/01/27........................................ 1,900
Massachusetts Health & Educational Facilities
Authority
2,400 Capital Asset Series G-1, 3.25%, 1/01/19......... 2,400
1,900 Havard University Series 1985 L, 3.25%,
2/01/16........................................ 1,900
8,900 Massachusetts, Series 1997 B, 3.25%, 8/01/15..... 8,900
3,900 Mayfield, Kentucky, League of Cities Funding
Trust, 3.60%, 7/01/26.......................... 3,900
2,400 Meckenburg County, North Carolina, Series C,
3.70%, 3/01/15................................. 2,400
2,600 Midlothian Industrial Development Corporation,
Texas, Box-Crow Cement Co., 3.45%, 12/01/09.... 2,600
1,000 Minnetonka, Minnesota, Multifamily Cliffs
Ridgedale Series 1995, 3.70%, 9.15/25.......... 1,000
Missouri Health & Educational Facilities
Authority,
3,300 Sisters of Mercy Health System Series 1995 B,
3.50%, 12/01/16................................ 3,300
2,200 Washington University Series 1984, 3.45%,
9/01/09........................................ 2,200
25,000 New Jersey Educational Facilities Authority,
College of New Jersey Series 1999 A (AMBAC),
3.25%, 7/01/29................................. 25,000
2,900 New York City, New York, Fiscal Series 1993 A,
Subseries A-1,
3.70%, 8/01/19................................. 2,900
5,000 New York City Transitional Finance Authority, New
York, Fiscal Series 1999 A, Sub-series A-1,
3.70%, 11/15/28................................ 5,000
5,000 New York State Housing Finance Agency, Series
1998 A, 3.45%, 3/15/28......................... 5,000
New York State Local Government Assistance
Corporation
2,900 Series 1995 D, 3.60%, 4/01/25.................... 2,900
5,000 Series 1995 G, 3.00%, 4/01/25.................... 5,000
800 North Carolina Educational Facilities & Finance
Agency, Bowman Gray School of Medicine Series
1996, 3.65%, 9/01/26........................... 800
<CAPTION>
FACE AMORTIZED
AMOUNT COST
(000) (000)
<C> <S> <C>
- -------------------------------------------------------------------------
$ 1,750 North Carolina Medical Care, Commission Pooled
Financing Series 1985, 3.50%, 12/01/25......... $ 1,750
3,900 Nueces County Health Facilities Developmental
Corporation, Texas, Driscoll Childrens'
Foundation Series 1985, 3.55%, 7/01/15......... 3,900
4,200 Ohio State University, General Receipts, Series
1997, 3.50%, 12/01/07.......................... 4,200
2,640 Person County Industrial Facilities & Pollution
Control Financing Authority, North Carolina,
Carolina Power & Light Co. Series 1992 A,
3.55%, 11/01/19................................ 2,640
4,300 Port of Corpus Christi Authority, Texas, Marine
Terminal Reynolds Metals Co. Series 1985,
3.75%, 9/01/14................................. 4,300
500 Putnam County Development Authority, Florida,
Seminole Electric Co-op Inc., Series 1984 H1
(NRU-CFC-GTD), 3.55%, 3/15/14.................. 500
1,100 San Antonio Higher Education Authority, Texas,
Trinity University Series 1993, 3.75%,
4/01/04........................................ 1,100
1,900 Seattle, Washington, Municipal Light & Power
Series 1996, 3.65%, 6/01/21.................... 1,900
2,400 Tennessee, Series 1998 C BANS, 3.30%, 7/02/01.... 2,400
7,900 Texas State Veterans Housing Assistance-Fund I,
Series 1995, 3.30%, 12/01/16................... 7,900
15,750 University of Alabama, Hospital
Series 1997 A & B, 3.30%, 10/01/07............... 15,750
3,000 University of Delaware, Series 1998,
3.45%, 11/01/23................................ 3,000
4,000 University of Minnesota Regents, Series 1999 A,
3.50%, 1/01/34................................. 4,000
1,100 University of North Carolina, Chapel Hill
Foundation Inc. COPS, 3.55%, 10/01/09.......... 1,100
1,960 University of Utah, Auxiliary & Campus
Facilities, Series A, 3.45%, 4/01/27........... 1,960
2,200 University of Wisconsin, Hospitals & Clinics,
Series 1997, 3.50%, 4/01/26.................... 2,200
11,300 Washington, Series 1996 B, 3.40%, 6/01/20........ 11,300
5,045 Washington Public Power Supply System, Series
1A-2 & Series 1A-3, 3.40%, 7/01/17............. 5,045
-----------
383,360
-----------
TOTAL VARIABLE/FLOATING RATE INSTRUMENTS.................. 693,205
-----------
TOTAL TAX-EXEMPT INSTRUMENTS (Cost $1,040,883)............ 1,040,883
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
Municipal Money Market Portfolio
150
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (UNAUDITED)
JUNE 30, 1999
- --------------------------------------------------------------------------------
MUNICIPAL MONEY MARKET PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMORTIZED
COST
(000)
- -------------------------------------------------------------------------
<C> <S> <C>
TOTAL INVESTMENTS (102.7%) (Cost $1,040,883)................. $1,040,883
----------
OTHER ASSETS (0.5%)
Cash........................................... $ 51
Interest Receivable............................ 4,738
Other.......................................... 5 4,794
----------
LIABILITIES ( - 3.2%)
Payable for Investments Purchased.............. (30,240)
Dividends Payable.............................. (1,173)
Investment Advisory Fees Payable............... (775)
Administrative Fees Payable.................... (142)
Directors' Fees & Expenses Payable............. (60)
Custodian Fees Payable......................... (19)
Other Liabilities.............................. (47) (32,456)
---------- ----------
<CAPTION>
AMOUNT
(000)
----------
<C> <S> <C>
NET ASSETS (100%)............................................ $1,013,221
----------
----------
</TABLE>
<TABLE>
<S> <C>
NET ASSETS CONSIST OF:
Paid in Capital............................................... $1,013,313
Accumulated Net Realized Loss................................. (92)
----------
NET ASSETS.................................................... $1,013,221
----------
----------
</TABLE>
<TABLE>
<S> <C>
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 1,013,300,265 outstanding $0.001 par value
shares (authorized 4,000,000,000 shares).................... $1.00
----------
----------
</TABLE>
- ------------------------------------------------------------
AMBAC -- American Municipal Bond Assurance Company
BANS -- Bond Anticipation Notes
COPS -- Certificates of Participation
FGIC -- Financial Guaranty Insurance Corporation
FSA -- Financial Security Assurance
MBIA -- Municipal Bond Insurance Corporation
NRU-CFC-GTD -- National Rural Utilities Cooperative Finance Corporation
Guaranteed
RANS -- Revenue Anticipation Notes
TRANS -- Tax & Revenue Anticipation Notes
Variable/Floating Rate Instruments. The Interest rate changes on these
instruments are based on changes upon a designated base rate. These instruments
are payable on demand.
Maturity dates disclosed for Variable/Floating Rate Instruments are the ultimate
maturity dates. The effective maturity dates for such securities are the next
interest reset dates which are seven days or less.
Prerefunded Bonds -- Outstanding bonds have been refunded to the first call date
(prerefunded date) by the issuance of new bonds. Principal and interest are paid
form monies escrowed in U.S. Treasury securities. Prerefunded bonds are
generally re-rated AAA due to the U.S. Treasury escrow.
- ------------------------------------------------------------
<TABLE>
<CAPTION>
AMORTIZED
COST PERCENT OF
STATE (000) NET ASSETS
<S> <C> <C>
- -----------------------------------------------------------------
Alabama................................ $ 15,750 1.5%
Alaska................................. 1,900 0.2
Arizona................................ 18,560 1.8
Arkansas............................... 300 --
California............................. 41,604 4.1
Colorado............................... 10,000 1.0
Connecticut............................ 73,070 7.2
Delaware............................... 3,000 0.3
Florida................................ 92,075 9.1
Georgia................................ 45,135 4.5
Hawaii................................. 4,100 0.4
Idaho.................................. 10,082 1.0
Illinois............................... 27,100 2.7
Indiana................................ 26,475 2.6
Iowa................................... 10,074 1.0
Kentucky............................... 21,984 2.2
Louisiana.............................. 33,885 3.3
Maryland............................... 22,323 2.2
Massachusetts.......................... 28,200 2.8
Michigan............................... 1,700 0.2
Minnesota.............................. 20,400 2.0
Mississippi............................ 3,200 0.3
Missouri............................... 23,600 2.3
Montana................................ 7,000 0.7
Nevada................................. 21,075 2.1
New Jersey............................. 25,000 2.5
New Mexico............................. 22,174 2.2
New York............................... 59,430 5.9
North Carolina......................... 30,623 3.0
Ohio................................... 35,300 3.5
Oklahoma............................... 5,000 0.5
Pennsylvania........................... 20,915 2.0
Philadelphia........................... 9,800 1.0
South Carolina......................... 24,200 2.4
Tennesse............................... 10,400 1.0
Texas.................................. 142,188 14.0
Utah................................... 21,849 2.2
Virginia............................... 7,600 0.7
Washington............................. 32,651 3.2
Wisconsin.............................. 15,861 1.6
Wyoming................................ 15,300 1.5
---------- -----------
$1,040,883 102.7%
---------- -----------
---------- -----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
Municipal Money Market Portfolio
151
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ACTIVE
INTERNATIONAL ASIAN ASIAN EMERGING EUROPEAN EUROPEAN GLOBAL
ALLOCATION EQUITY REAL ESTATE MARKETS EQUITY REAL ESTATE EQUITY
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
(000) (000) (000) (000) (000) (000) (000)
<S> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends $ 4,719 $ 755 $ 47 $ 10,018 $ 2,711 $ 463 $ 3,213
Interest 2,293 6 13 2,135 104 1 203
Less: Foreign Taxes Withheld (537) (47) (3) (563) (332) (49) (312)
------- ---------- ------ --------- --------- ----- ----------
Total Income 6,475 714 57 11,590 2,483 415 3,104
------- ---------- ------ --------- --------- ----- ----------
EXPENSES:
Investment Advisory Fees:
Basic Fees -- Adviser 1,195 246 15 5,591 601 97 891
Less: Fees Waived (200) (177) (15) -- (117) (64) (76)
------- ---------- ------ --------- --------- ----- ----------
Investment Advisory Fees -- Net 995 69 -- 5,591 484 33 815
Administrative Fees 318 53 7 697 126 24 179
Custodian Fees 94 101 19 868 77 28 56
Directors' Fees and Expenses 6 1 -- 17 5 1 5
Filing and Registration Fees 26 21 15 34 25 15 21
Foreign Tax Expense -- -- -- 89 -- -- --
Insurance 8 1 -- 23 6 1 4
Interest Expense -- -- -- 66 -- -- --
Professional Fees 23 20 12 71 17 13 22
Shareholder Reports 5 40 12 68 6 4 14
Distribution Fees on Class B
Shares 1 2 1 10 5 3 24
Other Expenses 68 31 1 134 77 38 4
Expenses Reimbursed by Adviser -- -- (48) -- -- -- --
------- ---------- ------ --------- --------- ----- ----------
Total Expenses 1,544 339 19 7,668 828 160 1,144
------- ---------- ------ --------- --------- ----- ----------
NET INVESTMENT INCOME 4,931 375 38 3,922 1,655 255 1,960
------- ---------- ------ --------- --------- ----- ----------
NET REALIZED GAIN (LOSS):
Investments Sold 9,706 5,456 312 (2,585) 4,431 (384) 7,894
Foreign Currency Transactions (3,116) 126 -- (1,653) (129) (92) (44)
Futures Contracts 5,936 -- -- -- -- -- --
Swaps -- -- -- (768) -- -- --
------- ---------- ------ --------- --------- ----- ----------
Total Net Realized Gain (Loss) 12,526 5,582 312 (5,006) 4,302 (476) 7,850
------- ---------- ------ --------- --------- ----- ----------
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION):
Investments (763) 20,069 669 324,341* (8,860) 480 (2,992)
Foreign Currency Translations (1,547) (313) (1) (8,705) (82) -- 672
Futures 1,252 -- -- -- -- -- --
Swaps -- -- -- (9) -- -- --
------- ---------- ------ --------- --------- ----- ----------
Total Net Change in Unrealized
Appreciation (Depreciation) (1,058) 19,756 668 315,627 (8,942) 480 (2,320)
------- ---------- ------ --------- --------- ----- ----------
TOTAL NET REALIZED GAIN (LOSS) AND
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION) 11,468 25,338 980 310,621 (4,640) 4 5,530
------- ---------- ------ --------- --------- ----- ----------
Net Increase (Decrease) in Net
Assets Resulting from
Operations $ 16,399 $ 25,713 $ 1,018 $ 314,543 $ (2,985) $ 259 $ 7,490
------- ---------- ------ --------- --------- ----- ----------
------- ---------- ------ --------- --------- ----- ----------
</TABLE>
- ---------------
* Net of foreign tax of $7 on unrealized appreciation.
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
152
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTERNATIONAL INTERNATIONAL INTERNATIONAL JAPANESE LATIN
EQUITY MAGNUM SMALL CAP EQUITY AMERICAN
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
(000) (000) (000) (000) (000)
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends $ 56,953 $ 3,153 $ 4,599 $ 223 $ 385
Interest 4,886 465 177 43 11
Less: Foreign Taxes Withheld (6,698) (343) (538) (34) (1)
-------------- ------- -------------- --------- ---------
Total Income 55,141 3,275 4,238 232 395
-------------- ------- -------------- --------- ---------
EXPENSES:
Investment Advisory Fees:
Basic Fees -- Adviser 14,816 926 1,226 217 110
Less: Fees Waived (62) (133) (101) (64) (81)
-------------- ------- -------------- --------- ---------
Investment Advisory Fees -- Net 14,754 793 1,125 153 29
Administrative Fees 2,878 192 209 48 20
Custodian Fees 487 100 82 10 57
Filing and Registration Fees 28 16 16 17 21
Insurance 46 5 6 1 1
Directors' Fees and Expenses 73 6 6 1 1
Foreign Tax Expense -- 52 -- -- 3
Professional Fees 127 20 23 14 36
Shareholder Reports 131 14 15 25 4
Distribution Fees on Class B
Shares 27 30 -- 2 1
Other Expenses 57 22 5 5 4
-------------- ------- -------------- --------- ---------
Total Expenses 18,608 1,250 1,487 276 177
-------------- ------- -------------- --------- ---------
NET INVESTMENT INCOME (LOSS) 36,533 2,025 2,751 (44) 218
-------------- ------- -------------- --------- ---------
NET REALIZED GAIN (LOSS):
Investments Sold 148,792 (119) 2,878 (2,647) 530
Foreign Currency Transactions (8,901) (1,419) (167) 745 (33)
Futures -- 2,694 -- -- --
-------------- ------- -------------- --------- ---------
Total Net Realized Gain (Loss) 139,891 1,156 2,711 (1,902) 497
-------------- ------- -------------- --------- ---------
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION):
Investments 94,764 9,123 30,881* 14,310 5,724
Foreign Currency Translations (17,143) (150) (76) 421 (2)
Futures -- (607) -- -- --
-------------- ------- -------------- --------- ---------
Total Net Change in Unrealized
Appreciation 77,621 8,366 30,805 14,731 5,722
-------------- ------- -------------- --------- ---------
TOTAL NET REALIZED GAIN (LOSS) AND
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION) 217,512 9,522 33,516 12,829 6,219
-------------- ------- -------------- --------- ---------
Net Increase in Net Assets
Resulting from Operations $ 254,045 $ 11,547 $ 36,267 $ 12,785 $ 6,437
-------------- ------- -------------- --------- ---------
-------------- ------- -------------- --------- ---------
</TABLE>
- ---------------
* Net of foreign tax of $25 on unrealized appreciation.
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
153
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AGGRESSIVE EMERGING EQUITY U.S. EQUITY U.S. REAL VALUE
EQUITY GROWTH GROWTH TECHNOLOGY PLUS ESTATE EQUITY
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
(000) (000) (000) (000) (000) (000) (000)
<S> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends $ 331 $ 104 $ 2,617 $ 12 $ 187 $ 7,990 $ 471
Interest 84 28 690 14 8 233 29
Less: Foreign Taxes Withheld -- -- -- -- -- (11) --
------------ --------- ---------- ----------- ------------ ---------- ----------
Total Income 415 132 3,307 26 195 8,212 500
------------ --------- ---------- ----------- ------------ ---------- ----------
EXPENSES:
Investment Advisory Fees:
Basic Fees -- Adviser 550 199 2,781 136 80 1,181 124
Less: Fees Waived (59) (48) (49) (51) (80) (30) (38)
------------ --------- ---------- ----------- ------------ ---------- ----------
Investment Advisory Fees -- Net 491 151 2,732 85 -- 1,151 86
Administrative Fees 107 35 719 25 32 230 42
Custodian Fees 17 21 55 9 30 18 11
Filing and Registration Fees 22 16 38 23 25 33 19
Insurance 7 1 15 -- 1 6 2
Directors' Fees and Expenses 4 1 19 -- 1 6 1
Professional Fees 19 14 41 14 13 22 13
Shareholder Reports 16 5 82 -- 28 6 --
Distribution Fees on Class B
Shares 22 2 161 2 2 17 1
Other Expenses 15 4 12 2 13 8 16
Expenses Reimbursed by Adviser -- -- -- -- (1) -- --
------------ --------- ---------- ----------- ------------ ---------- ----------
Total Expenses 720 250 3,874 160 144 1,497 191
------------ --------- ---------- ----------- ------------ ---------- ----------
NET INVESTMENT INCOME (LOSS) (305) (118) (567) (134) 51 6,715 309
------------ --------- ---------- ----------- ------------ ---------- ----------
NET REALIZED GAIN (LOSS):
Investments Sold 36,111 11,518 65,039 10,550 8,906 1,046 6,698
Securities Sold Short (1) -- -- 81 -- -- --
Written Options -- -- -- 225 -- -- --
------------ --------- ---------- ----------- ------------ ---------- ----------
Total Net Realized Gain 36,110 11,518 65,039 10,856 8,906 1,046 6,698
------------ --------- ---------- ----------- ------------ ---------- ----------
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION):
Investments (6,057) (1,528) 71,424 (262) (6,451) 15,964 2,497
Foreign Currency Translations -- -- -- -- -- 3 --
Written Options -- -- -- 176 -- -- --
------------ --------- ---------- ----------- ------------ ---------- ----------
Total Net Change in Unrealized
Appreciation (Depreciation) (6,057) (1,528) 71,424 (86) (6,451) 15,967 2,497
------------ --------- ---------- ----------- ------------ ---------- ----------
TOTAL NET REALIZED GAIN AND CHANGE
IN UNREALIZED APPRECIATION
(DEPRECIATION) 30,053 9,990 136,463 10,770 2,455 17,013 9,195
------------ --------- ---------- ----------- ------------ ---------- ----------
Net Increase in Net Assets
Resulting from Operations $ 29,748 $ 9,872 $ 135,896 $ 10,636 $ 2,506 $ 23,728 $ 9,504
------------ --------- ---------- ----------- ------------ ---------- ----------
------------ --------- ---------- ----------- ------------ ---------- ----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
154
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GLOBAL MUNICIPAL
FIXED FIXED MUNICIPAL MONEY MONEY
EMERGING INCOME INCOME HIGH YIELD BOND MARKET MARKET
MARKETS DEBT PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
PORTFOLIO (000) (000) (000) (000) (000) (000) (000)
<S> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends $ 59 $ -- $ -- $ -- $ -- $ -- $ --
Interest 3,744 6,259 919 8,831 815 48,264 15,878
Less: Foreign Taxes Withheld -- -- (6) -- -- -- --
------ ---------- ---------- ---------- ---------- ---------- ----------
Total Income 3,803 6,259 913 8,831 815 48,264 15,878
------ ---------- ---------- ---------- ---------- ---------- ----------
EXPENSES:
Investment Advisory Fees:
Basic Fees -- Adviser 272 361 80 355 56 2,904 1,537
Less: Fees Waived -- (126) (64) -- (56) -- --
------ ---------- ---------- ---------- ---------- ---------- ----------
Investment Advisory Fees -- Net 272 235 16 355 -- 2,904 1,537
Administrative Fees 45 164 36 147 32 1,523 817
Custodian Fees 20 9 7 21 2 134 61
Filing and Registration Fees 8 17 20 24 16 62 22
Insurance 3 4 1 4 1 41 17
Directors' Fees and Expenses 2 5 1 5 1 36 21
Professional Fees 24 19 14 20 24 47 28
Shareholder Reports 7 8 4 10 2 56 23
Distribution Fees on Class B
shares 1 2 -- 60 -- -- --
Other Expenses 21 10 1 3 3 25 2
Expenses Reimbursed by Adviser -- -- -- -- (8) -- --
------ ---------- ---------- ---------- ---------- ---------- ----------
Total Expenses 403 473 100 649 73 4,828 2,528
------ ---------- ---------- ---------- ---------- ---------- ----------
NET INVESTMENT INCOME 3,400 5,786 813 8,182 742 43,436 13,350
------ ---------- ---------- ---------- ---------- ---------- ----------
NET REALIZED GAIN (LOSS):
Investments Sold 36 (983) 80 (3,514) 328 113 (66)
Foreign Currency Translations (935) 58 214 -- -- -- --
------ ---------- ---------- ---------- ---------- ---------- ----------
Total Net Realized Gain (Loss) (899) (925) 294 (3,514) 328 113 (66)
------ ---------- ---------- ---------- ---------- ---------- ----------
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION):
Investments 3,867 (9,321) (3,947) 2,845 (1,432) -- --
Foreign Currency Translations 14 (13) (242) -- -- -- --
------ ---------- ---------- ---------- ---------- ---------- ----------
Total Net Change in Unrealized
Appreciation (Depreciation) 3,881 (9,334) (4,189) 2,845 (1,432) -- --
------ ---------- ---------- ---------- ---------- ---------- ----------
TOTAL NET REALIZED GAIN (LOSS) AND
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION) 2,982 (10,259) (3,895) (669) (1,104) 113 (66)
------ ---------- ---------- ---------- ---------- ---------- ----------
Net Increase (Decrease) in Net
Assets Resulting from
Operations $ 6,382 $ (4,473) $ (3,082) $ 7,513 $ (362) $ 43,549 $ 13,284
------ ---------- ---------- ---------- ---------- ---------- ----------
------ ---------- ---------- ---------- ---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
155
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ACTIVE INTERNATIONAL
ALLOCATION PORTFOLIO ASIAN EQUITY PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1999 DECEMBER 31, JUNE 30, 1999 DECEMBER 31,
(UNAUDITED) 1998 (UNAUDITED) 1998
(000) (000) (000) (000)
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 4,931 $ 4,405 $ 375 $ 957
Net Realized Gain (Loss) 12,526 11,443 5,582 (37,634)
Change in Unrealized Appreciation
(Depreciation) (1,058) 20,189 19,756 28,122
- -----------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations 16,399 36,037 25,713 (8,555)
- -----------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
CLASS A:
Net Investment Income -- (6,441) -- (2,750)
In Excess of Net Investment Income -- (899) -- --
Net Realized Gain -- (4,946) -- --
CLASS B:
Net Investment Income -- (4) -- (54)
In Excess of Net Investment Income -- (1) -- --
Net Realized Gain -- (3) -- --
- -----------------------------------------------------------------------------------------------------------------------------
Total Distributions -- (12,294) -- (2,804)
- -----------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS: (1)
CLASS A:
Subscribed 207,324 161,798 87,640 252,272
Distributions Reinvested -- 10,598 -- 2,543
Redeemed (59,903) (67,945) (67,862) (277,895)
CLASS B:
Subscribed 2,800 589 -- 2,253
Distributions Reinvested -- 8 -- 43
Redeemed (966) (544) (46) (2,007)
- -----------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Capital Share
Transactions 149,255 104,504 19,732 (22,791)
- -----------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) in Net Assets 165,654 128,247 45,445 (34,150)
NET ASSETS:
Beginning of Period 266,928 138,681 52,821 86,971
- -----------------------------------------------------------------------------------------------------------------------------
End of Period $ 432,582 $ 266,928 $ 98,266 $ 52,821
- -----------------------------------------------------------------------------------------------------------------------------
Undistributed (accumulated) net investment
income (loss) included in end of period
net assets $ 4,031 $ (900) $ 355 $ (20)
- -----------------------------------------------------------------------------------------------------------------------------
(1) CAPITAL SHARE TRANSACTIONS:
CLASS A:
Shares Subscribed 17,314 13,999 9,993 32,484
Shares Issued on Distributions Reinvested -- 891 -- 365
Shares Redeemed (4,956) (5,822) (8,076) (35,507)
- -----------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Class A Shares
Outstanding 12,358 9,068 1,917 (2,658)
- -----------------------------------------------------------------------------------------------------------------------------
CLASS B:
Shares Subscribed 222 50 -- 270
Shares Issued on Distributions Reinvested -- 1 -- 6
Shares Redeemed (78) (44) (6) (246)
- -----------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Class B Shares
Outstanding 144 7 (6) 30
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
156
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASIAN REAL ESTATE PORTFOLIO EMERGING MARKETS PORTFOLIO
- ----------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1999 DECEMBER 31, JUNE 30, 1999 DECEMBER 31,
(UNAUDITED) 1998 (UNAUDITED) 1998
(000) (000) (000) (000)
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 38 $ 107 $ 3,922 $ 13,506
Net Realized Gain (Loss) 312 (2,520) (5,006) (325,435)
Change in Unrealized Appreciation
(Depreciation) 668 848 315,627 (93,796)
- ----------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations 1,018 (1,565) 314,543 (405,725)
- ----------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
CLASS A:
Net Investment Income (25) (131) -- (9,772)
CLASS B:
Net Investment Income (7) (32) -- (70)
- ----------------------------------------------------------------------------------------------------------------------
Total Distributions (32) (163) -- (9,842)
- ----------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS: (1)
CLASS A:
Subscribed 530 8,754 193,877 444,841
Distributions Reinvested 6 24 -- 7,825
Redeemed (141) (6,950) (175,678) (769,586)
CLASS B:
Subscribed 100 976 2,202 6,023
Distributions Reinvested 7 32 -- 56
Redeemed (112) (285) (2,062) (5,330)
- ----------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Capital Share
Transactions 390 2,551 18,339 (316,171)
- ----------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) in Net Assets 1,376 823 332,882 (731,738)
NET ASSETS:
Beginning of Period 3,208 2,385 779,314 1,511,052
- ----------------------------------------------------------------------------------------------------------------------
End of Period $ 4,584 $ 3,208 $ 1,112,196 $ 779,314
- ----------------------------------------------------------------------------------------------------------------------
Undistributed (accumulated) net investment
income (loss) included in end of period
net assets $ 44 $ 38 $ 1,423 $ (2,499)
- ----------------------------------------------------------------------------------------------------------------------
(1) CAPITAL SHARE TRANSACTIONS:
CLASS A:
Shares Subscribed 71 1,147 17,599 38,129
Shares Issued on Distributions Reinvested 1 4 -- 825
Shares Redeemed (18) (1,083) (16,010) (73,920)
- ----------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Class A Shares
Outstanding 54 68 1,589 (34,966)
- ----------------------------------------------------------------------------------------------------------------------
CLASS B:
Shares Subscribed 16 154 196 515
Shares Issued on Distributions Reinvested 1 5 -- 6
Shares Redeemed (17) (45) (194) (513)
- ----------------------------------------------------------------------------------------------------------------------
Net Increase in Class B Shares Outstanding -- 114 2 8
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
157
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EUROPEAN EQUITY PORTFOLIO EUROPEAN REAL ESTATE PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1999 YEAR ENDED JUNE 30, 1999 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1998 (UNAUDITED) DECEMBER 31, 1998
(000) (000) (000) (000)
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 1,655 $ 4,028 $ 255 $ 584
Net Realized Gain (Loss) 4,302 28,924 (476) (4,748)
Change in Unrealized Appreciation
(Depreciation) (8,942) (17,787) 480 (63)
- -----------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations (2,985) 15,165 259 (4,227)
- -----------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
CLASS A:
Net Investment Income -- (3,856) (34) (951)
In Excess of Net Investment Income -- -- -- (548)
Net Realized Gain -- (33,843) -- --
CLASS B:
Net Investment Income -- (98) (4) (61)
In Excess of Net Investment Income -- -- -- (35)
Net Realized Gain -- (1,006) -- --
- -----------------------------------------------------------------------------------------------------------------------------
Total Distributions -- (38,803) (38) (1,595)
- -----------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS: (1)
CLASS A:
Subscribed 34,867 225,179 1,954 61,829
Distributions Reinvested -- 35,750 51 1,356
Redeemed (91,130) (312,976) (19,231) (39,580)
CLASS B:
Subscribed 125 14,897 100 4,054
Distributions Reinvested -- 1,064 3 77
Redeemed (2,095) (13,905) (597) (1,927)
- -----------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Capital Share
Transactions (58,233) (49,991) (17,720) 25,809
- -----------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) in Net Assets (61,218) (73,629) (17,499) 19,987
NET ASSETS:
Beginning of Period 173,893 247,522 35,953 15,966
- -----------------------------------------------------------------------------------------------------------------------------
End of Period $ 112,675 $ 173,893 $ 18,454 $ 35,953
- -----------------------------------------------------------------------------------------------------------------------------
Undistributed (accumulated) net investment
income (loss) included in end of period
net assets $ 1,530 $ (125) $ (366) $ (583)
- -----------------------------------------------------------------------------------------------------------------------------
(1) CAPITAL SHARE TRANSACTIONS:
CLASS A:
Shares Subscribed 2,248 11,087 206 5,703
Shares Issued on Distributions Reinvested -- 2,120 5 140
Shares Redeemed (5,919) (16,019) (2,034) (3,950)
- -----------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Class A Shares
Outstanding (3,671) (2,812) (1,823) 1,893
- -----------------------------------------------------------------------------------------------------------------------------
CLASS B:
Shares Subscribed 8 687 11 368
Shares Issued on Distributions Reinvested -- 63 -- 8
Shares Redeemed (136) (680) (63) (196)
- -----------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Class B Shares
Outstanding (128) 70 (52) 180
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
158
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GLOBAL EQUITY PORTFOLIO INTERNATIONAL EQUITY PORTFOLIO
- --------------------------------------------------------------------------------------------------------------------
SIX MONTHS
SIX MONTHS ENDED YEAR ENDED ENDED YEAR ENDED
JUNE 30, 1999 DECEMBER 31, JUNE 30, 1999 DECEMBER 31,
(UNAUDITED) 1998 (UNAUDITED) 1998
(000) (000) (000) (000)
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 1,960 $ 1,803 $ 36,533 $ 43,563
Net Realized Gain 7,850 8,351 139,891 325,415
Change in Unrealized Appreciation
(Depreciation) (2,320) 4,227 77,621 153,574
- --------------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from
Operations 7,490 14,381 254,045 522,552
- --------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
CLASS A:
Net Investment Income -- (1,782) -- (63,695)
Net Realized Gain -- (3,135) -- (280,825)
CLASS B:
Net Investment Income -- (78) -- (232)
Net Realized Gain -- (173) -- (1,128)
- --------------------------------------------------------------------------------------------------------------------
Total Distributions -- (5,168) -- (345,880)
- --------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS: (1)
CLASS A:
Subscribed 8,698 164,605 867,763 754,615
Distributions Reinvested -- 4,794 76 318,874
Redeemed (35,886) (57,202) (465,191) (672,650)
CLASS B:
Subscribed 10,056 10,547 10,013 19,050
Distributions Reinvested -- 256 -- 1,208
Redeemed (3,056) (4,326) (1,541) (6,169)
- --------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Capital Share
Transactions (20,188) 118,674 411,120 414,928
- --------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) in Net Assets (12,698) 127,887 665,165 591,600
NET ASSETS:
Beginning of Period 241,871 113,984 3,417,574 2,825,974
- --------------------------------------------------------------------------------------------------------------------
End of Period $ 229,173 $ 241,871 $ 4,082,739 $ 3,417,574
- --------------------------------------------------------------------------------------------------------------------
Undistributed (accumulated) net investment
income (loss) included in end of period
net assets $ 1,954 $ (6) $ 29,371 $ (7,162)
- --------------------------------------------------------------------------------------------------------------------
(1) CAPITAL SHARE TRANSACTIONS:
CLASS A:
Shares Subscribed 423 7,765 46,568 38,932
Shares Issued on Distributions Reinvested -- 231 4 17,612
Shares Redeemed (1,777) (2,801) (24,827) (34,708)
- --------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Class A Shares
Outstanding (1,354) 5,195 21,745 21,836
- --------------------------------------------------------------------------------------------------------------------
CLASS B:
Shares Subscribed 487 518 535 1,010
Shares Issued on Distributions Reinvested -- 13 -- 67
Shares Redeemed (149) (215) (84) (319)
- --------------------------------------------------------------------------------------------------------------------
Net Increase in Class B Shares Outstanding 338 316 451 758
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
159
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTERNATIONAL MAGNUM PORTFOLIO INTERNATIONAL SMALL CAP PORTFOLIO
- -------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1999 DECEMBER 31, JUNE 30, 1999 DECEMBER 31,
(UNAUDITED) 1998 (UNAUDITED) 1998
(000) (000) (000) (000)
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 2,025 $ 3,307 $ 2,751 $ 3,380
Net Realized Gain (Loss) 1,156 (2,008) 2,711 11,403
Change in Unrealized Appreciation
(Depreciation) 8,366 4,622 30,805 (15,446)
- -------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations 11,547 5,921 36,267 (663)
- -------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
CLASS A:
Net Investment Income -- (2,016) -- (3,853)
Net Realized Gain -- -- -- (12,840)
CLASS B:
Net Investment Income -- (217) -- --
- -------------------------------------------------------------------------------------------------------------------------------
Total Distributions -- (2,233) -- (16,693)
- -------------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS: (1)
CLASS A:
Subscribed 57,309 191,743 7,854 85,121
Distributions Reinvested -- 1,549 -- 15,445
Redeemed (135,900) (84,923) (19,081) (61,654)
Transaction Fees -- -- 247 991
CLASS B:
Subscribed 8,217 19,773 -- --
Distributions Reinvested -- 216 -- --
Redeemed (9,726) (23,394) -- --
- -------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Capital Share
Transactions (80,100) 104,964 (10,980) 39,903
- -------------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) in Net Assets (68,553) 108,652 25,287 22,547
NET ASSETS:
Beginning of Period 295,965 187,313 252,642 230,095
- -------------------------------------------------------------------------------------------------------------------------------
End of Period $ 227,412 $ 295,965 $ 277,929 $ 252,642
- -------------------------------------------------------------------------------------------------------------------------------
Undistributed net investment income
included in end of period net assets $ 2,776 $ 751 $ 2,912 $ 161
- -------------------------------------------------------------------------------------------------------------------------------
(1) CAPITAL SHARE TRANSACTIONS:
CLASS A:
Shares Subscribed 4,915 15,688 491 4,724
Shares Issued on Distributions Reinvested -- 125 -- 990
Shares Redeemed (11,830) (7,128) (1,195) (3,893)
- -------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Class A Shares
Outstanding (6,915) 8,685 (704) 1,821
- -------------------------------------------------------------------------------------------------------------------------------
CLASS B:
Shares Subscribed 697 1,697 -- --
Shares Issued on Distributions Reinvested -- 17 -- --
Shares Redeemed (835) (2,049) -- --
- -------------------------------------------------------------------------------------------------------------------------------
Net Decrease in Class B Shares Outstanding (138) (335) -- --
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
160
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JAPANESE EQUITY PORTFOLIO LATIN AMERICAN PORTFOLIO
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1999 DECEMBER 31, JUNE 30, 1999 DECEMBER 31,
(UNAUDITED) 1998 (UNAUDITED) 1998
(000) (000) (000) (000)
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income (Loss) $ (44) $ 18 $ 218 $ 800
Net Realized Gain (Loss) (1,902) (12,255) 497 (20,619)
Change in Unrealized Appreciation
(Depreciation) 14,731 16,272 5,722 (9,182)
- ------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations 12,785 4,035 6,437 (29,001)
- ------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
CLASS A:
Net Investment Income -- (2,322) -- (212)
In Excess of Net Realized Gain -- -- -- (315)
CLASS B:
Net Investment Income -- (58) -- --
In Excess of Net Realized Gain -- -- -- (44)
- ------------------------------------------------------------------------------------------------------------------------------
Total Distributions -- (2,380) -- (571)
- ------------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS: (1)
CLASS A:
Subscribed 30,504 80,573 6,813 26,531
Distributions Reinvested -- 2,130 -- 512
Redeemed (41,370) (103,699) (5,745) (59,398)
CLASS B:
Subscribed 797 1,559 6 4,016
Distributions Reinvested -- 58 -- 42
Redeemed (136) (2,227) (66) (5,876)
- ------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Capital Share
Transactions (10,205) (21,606) 1,008 (34,173)
- ------------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) in Net Assets 2,580 (19,951) 7,445 (63,745)
NET ASSETS:
Beginning of Period 58,838 78,789 16,160 79,905
- ------------------------------------------------------------------------------------------------------------------------------
End of Period $61,418 $58,838 $ 23,605 $ 16,160
- ------------------------------------------------------------------------------------------------------------------------------
Undistributed net investment income
included in end of period net assets $ 115 $ 159 $ 680 $ 462
- ------------------------------------------------------------------------------------------------------------------------------
(1) CAPITAL SHARE TRANSACTIONS:
CLASS A:
Shares Subscribed 4,602 13,223 840 2,606
Shares Issued on Distributions Reinvested -- 353 -- 62
Shares Redeemed (6,371) (17,312) (708) (7,153)
- ------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Class A Shares
Outstanding (1,769) (3,736) 132 (4,485)
- ------------------------------------------------------------------------------------------------------------------------------
CLASS B:
Shares Subscribed 120 253 1 400
Shares Issued on Distributions Reinvested -- 10 -- 4
Shares Redeemed (21) (376) (9) (856)
- ------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Class B Shares
Outstanding 99 (113) (8) (452)
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
161
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[LOGO] Morgan Stanley Dean Witter
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- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AGGRESSIVE EQUITY PORTFOLIO EMERGING GROWTH PORTFOLIO
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1999 DECEMBER 31, JUNE 30, 1999 DECEMBER 31,
(UNAUDITED) 1998 (UNAUDITED) 1998
(000) (000) (000) (000)
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income (Loss) $ (305) $ (31) $ (118) $ 720
Net Realized Gain (Loss) 36,110 (3,311) 11,518 13,214
Change in Unrealized Appreciation
(Depreciation) (6,057) 17,623 (1,528) 3,438
- ----------------------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from
Operations 29,748 14,281 9,872 17,372
- ----------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
CLASS A:
Net Investment Income -- -- -- (665)
Net Realized Gain -- (4,714) -- (11,952)
In Excess of Net Realized Gain -- (4,038) -- --
CLASS B:
Net Investment Income -- -- -- (9)
Net Realized Gain -- (488) -- (215)
In Excess of Net Realized Gain -- (417) -- --
- ----------------------------------------------------------------------------------------------------------------------------
Total Distributions -- (9,657) -- (12,841)
- ----------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS: (1)
CLASS A:
Subscribed 18,133 103,224 3,116 44,542
Distributions Reinvested -- 8,162 -- 12,498
Redeemed (61,041) (139,466) (46,926) (46,040)
CLASS B:
Subscribed 1,349 9,123 688 1,050
Distributions Reinvested -- 910 -- 219
Redeemed (2,295) (12,525) (597) (1,332)
- ----------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Capital Share
Transactions (43,854) (30,572) (43,719) 10,937
- ----------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) in Net Assets (14,106) (25,948) (33,847) 15,468
NET ASSETS:
Beginning of Period 147,416 173,364 74,558 59,090
- ----------------------------------------------------------------------------------------------------------------------------
End of Period $ 133,310 $ 147,416 $ 40,711 $ 74,558
- ----------------------------------------------------------------------------------------------------------------------------
Accumulated net investment loss included in
end of period net assets $ (313) $ (8) $ (123) $ (5)
- ----------------------------------------------------------------------------------------------------------------------------
(1) CAPITAL SHARE TRANSACTIONS:
CLASS A:
Shares Subscribed 930 5,958 371 5,229
Shares Issued on Distributions Reinvested -- 468 -- 1,612
Shares Redeemed (3,158) (8,784) (5,710) (5,237)
- ----------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Class A Shares
Outstanding (2,228) (2,358) (5,339) 1,604
- ----------------------------------------------------------------------------------------------------------------------------
CLASS B:
Shares Subscribed 68 525 76 120
Shares Issued on Distributions Reinvested -- 52 -- 29
Shares Redeemed (121) (781) (68) (160)
- ----------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Class B Shares
Outstanding (53) (204) 8 (11)
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
162
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[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EQUITY GROWTH PORTFOLIO TECHNOLOGY PORTFOLIO
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1999 DECEMBER 31, JUNE 30, 1999 DECEMBER 31,
(UNAUDITED) 1998 (UNAUDITED) 1998
(000) (000) (000) (000)
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income (Loss) $ (567) $ 1,591 $ (134) $ (269)
Net Realized Gain 65,039 15,027 10,856 2,659
Change in Unrealized Appreciation
(Depreciation) 71,424 104,466 (86) 7,927
- ----------------------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from
Operations 135,896 121,084 10,636 10,317
- ----------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
CLASS A:
Net Investment Income -- (1,285) -- --
Net Realized Gain -- (26,081) -- (106)
In Excess of Net Realized Gain -- (17,331) -- --
CLASS B:
Net Investment Income -- (122) -- --
Net Realized Gain -- (2,705) -- (3)
In Excess of Net Realized Gain -- (1,798) -- --
- ----------------------------------------------------------------------------------------------------------------------------
Total Distributions -- (49,322) -- (109)
- ----------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS: (1)
CLASS A:
Subscribed 179,961 323,851 5,298 13,187
Distributions Reinvested -- 41,645 -- 84
Redeemed (214,220) (240,110) (12,515) (27,423)
CLASS B:
Subscribed 84,494 78,567 1,432 600
Distributions Reinvested 5 4,058 -- 3
Redeemed (17,095) (31,546) (239) (2,485)
- ----------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Capital Share
Transactions 33,145 176,465 (6,024) (16,034)
- ----------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) in Net Assets 169,041 248,227 4,612 (5,826)
NET ASSETS:
Beginning of Period 867,895 619,668 28,356 34,182
- ----------------------------------------------------------------------------------------------------------------------------
End of Period $1,036,936 $ 867,895 $ 32,968 $ 28,356
- ----------------------------------------------------------------------------------------------------------------------------
Undistributed (accumulated) net investment
income (loss) included in end of period
net assets $ (415) $ 152 $ (138) $ (4)
- ----------------------------------------------------------------------------------------------------------------------------
(1) CAPITAL SHARE TRANSACTIONS:
CLASS A:
Shares Subscribed 8,797 17,219 246 977
Shares Issued on Distributions Reinvested -- 2,193 -- 5
Shares Redeemed (10,518) (13,173) (601) (2,162)
- ----------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Class A Shares
Outstanding (1,721) 6,239 (355) (1,180)
- ----------------------------------------------------------------------------------------------------------------------------
CLASS B:
Shares Subscribed 4,176 4,267 65 46
Shares Issued on Distributions Reinvested -- 215 -- --
Shares Redeemed (844) (1,739) (12) (203)
- ----------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Class B Shares
Outstanding 3,332 2,743 53 (157)
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
163
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[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S. EQUITY PLUS PORTFOLIO U.S. REAL ESTATE PORTFOLIO
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1999 YEAR ENDED JUNE 30, 1999 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1998 (UNAUDITED) DECEMBER 31, 1998
(000) (000) (000) (000)
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 51 $ 337 $ 6,715 $ 10,540
Net Realized Gain (Loss) 8,906 (1,252) 1,046 (6,534)
Change in Unrealized Appreciation
(Depreciation) (6,451) 8,042 15,967 (48,907)
- --------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations 2,506 7,127 23,728 (44,901)
- --------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
CLASS A:
Net Investment Income -- (263) (3,515) (10,426)
In Excess of Net Investment Income -- -- -- (2,345)
Net Realized Gain -- (52) -- (5,094)
CLASS B:
Net Investment Income -- (3) (148) (578)
Net Realized Gain -- -- -- (136)
In Excess of Net Realized Gain -- (2) -- (295)
- --------------------------------------------------------------------------------------------------------------------------------
Total Distributions -- (320) (3,663) (18,874)
- --------------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS: (1)
CLASS A:
Subscribed 1,240 59,080 125,339 137,342
Distributions Reinvested -- 260 2,605 15,418
Redeemed (54,048) (20,302) (92,177) (194,533)
CLASS B:
Subscribed -- 2,297 4,344 8,511
Distributions Reinvested -- 2 136 947
Redeemed (151) (1,089) (4,207) (13,578)
- --------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Capital Share
Transactions (52,959) 40,248 36,040 (45,893)
- --------------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) in Net Assets (50,453) 47,055 56,105 (109,668)
NET ASSETS:
Beginning of Period 68,071 21,016 273,112 382,780
- --------------------------------------------------------------------------------------------------------------------------------
End of Period $ 17,618 $ 68,071 $ 329,217 $ 273,112
- --------------------------------------------------------------------------------------------------------------------------------
Undistributed net investment income
included in end of period net assets $ 125 $ 74 $ 5,226 $ 2,174
- --------------------------------------------------------------------------------------------------------------------------------
(1) CAPITAL SHARE TRANSACTIONS:
CLASS A:
Shares Subscribed 97 5,038 9,597 9,934
Shares Issued on Distributions Reinvested -- 21 216 1,131
Shares Redeemed (4,295) (1,727) (7,246) (14,151)
- --------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Class A Shares
Outstanding (4,198) 3,332 2,567 (3,086)
- --------------------------------------------------------------------------------------------------------------------------------
CLASS B:
Shares Subscribed -- 203 339 616
Shares Issued on Distributions Reinvested -- -- 11 70
Shares Redeemed (12) (98) (335) (982)
- --------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Class B Shares
Outstanding (12) 105 15 (296)
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
164
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[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE EQUITY EMERGING MARKETS DEBT
PORTFOLIO PORTFOLIO
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1999 YEAR ENDED JUNE 30, 1999 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1998 (UNAUDITED) DECEMBER 31, 1998
(000) (000) (000) (000)
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 309 $ 1,201 $ 3,400 $ 16,351
Net Realized Gain (Loss) 6,698 15,254 (899) (98,483)
Change in Unrealized Appreciation
(Depreciation) 2,497 (10,706) 3,881 4,411
- --------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations 9,504 5,749 6,382 (77,721)
- --------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
CLASS A:
Net Investment Income (179) (1,194) -- (15,290)
In Excess of Net Investment Income -- -- -- (265)
Net Realized Gain -- (18,063) -- --
CLASS B:
Net Investment Income (3) (25) -- (328)
In Excess of Net Investment Income -- -- -- (6)
Net Realized Gain -- (384) -- --
- --------------------------------------------------------------------------------------------------------------------------------
Total Distributions (182) (19,666) -- (15,889)
- --------------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS: (1)
CLASS A:
Subscribed 21,125 42,549 21,075 124,573
Distributions Reinvested 148 17,591 -- 11,412
Redeemed (28,951) (75,102) (16,197) (140,330)
CLASS B:
Subscribed 107 1,072 25 3,809
Distributions Reinvested 3 386 -- 297
Redeemed (685) (2,291) (297) (3,393)
- --------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Capital Share
Transactions (8,253) (15,795) 4,606 (3,632)
- --------------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) in Net Assets 1,069 (29,712) 10,988 (97,242)
NET ASSETS:
Beginning of Period 58,588 88,300 47,421 144,663
- --------------------------------------------------------------------------------------------------------------------------------
End of Period $59,657 $58,588 $58,409 $47,421
- --------------------------------------------------------------------------------------------------------------------------------
Undistributed (accumulated) net investment
income (loss) included in end of period
net assets $142 $15 $3,129 $(271)
- --------------------------------------------------------------------------------------------------------------------------------
(1) CAPITAL SHARE TRANSACTIONS:
CLASS A:
Shares Subscribed 1,738 3,097 7,838 22,907
Shares Issued on Distributions Reinvested 13 1,530 -- 4,328
Shares Redeemed (2,551) (5,611) (5,910) (34,221)
- --------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Class A Shares
Outstanding (800) (984) 1,928 (6,986)
- --------------------------------------------------------------------------------------------------------------------------------
CLASS B:
Shares Subscribed 9 71 10 707
Shares Issued on Distributions Reinvested -- 33 -- 111
Shares Redeemed (57) (172) (116) (767)
- --------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Class B Shares
Outstanding (48) (68) (106) 51
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
165
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[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIXED INCOME GLOBAL FIXED INCOME
PORTFOLIO PORTFOLIO
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1999 YEAR ENDED JUNE 30, 1999 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1998 (UNAUDITED) DECEMBER 31, 1998
(000) (000) (000) (000)
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 5,786 $ 11,666 $ 813 $ 2,739
Net Realized Gain (Loss) (925) 4,024 294 613
Change in Unrealized Appreciation
(Depreciation) (9,334) 57 (4,189) 3,117
- --------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations (4,473) 15,747 (3,082) 6,469
- --------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
CLASS A:
Net Investment Income (4,706) (11,256) (231) (904)
Net Realized Gain -- (617) -- --
CLASS B:
Net Investment Income (66) (226) (2) (5)
Net Realized Gain -- (10) -- --
- --------------------------------------------------------------------------------------------------------------------------------
Total Distributions (4,772) (12,109) (233) (909)
- --------------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS: (1)
CLASS A:
Subscribed 15,594 97,384 334 8,210
Distributions Reinvested 4,112 10,600 203 833
Redeemed (27,028) (82,009) (8,018) (53,314)
CLASS B:
Subscribed 17 1,412 -- --
Distributions Reinvested 36 135 2 5
Redeemed (1,191) (2,819) (11) (49)
- --------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Capital Share
Transactions (8,460) 24,703 (7,490) (44,315)
- --------------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) in Net Assets (17,705) 28,341 (10,805) (38,755)
NET ASSETS:
Beginning of Period 216,367 188,026 46,246 85,001
- --------------------------------------------------------------------------------------------------------------------------------
End of Period $198,662 $216,367 $35,441 $46,246
- --------------------------------------------------------------------------------------------------------------------------------
Undistributed net investment income
included in end of period net assets $1,094 $80 $752 $172
- --------------------------------------------------------------------------------------------------------------------------------
(1) CAPITAL SHARE TRANSACTIONS:
CLASS A:
Shares Subscribed 1,423 8,841 28 689
Shares Issued on Distributions Reinvested 380 962 17 74
Shares Redeemed (2,479) (7,440) (663) (4,687)
- --------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Class A Shares
Outstanding (676) 2,363 (618) (3,924)
- --------------------------------------------------------------------------------------------------------------------------------
CLASS B:
Shares Subscribed 2 127 -- --
Shares Issued on Distributions Reinvested 3 12 -- --
Shares Redeemed (109) (254) (1) (4)
- --------------------------------------------------------------------------------------------------------------------------------
Net Decrease in Class B Shares Outstanding (104) (115) (1) (4)
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
166
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
HIGH YIELD MUNICIPAL BOND
PORTFOLIO PORTFOLIO
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1999 YEAR ENDED JUNE 30, 1999 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1998 (UNAUDITED) DECEMBER 31, 1998
(000) (000) (000) (000)
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $8,182 $15,934 $742 $2,095
Net Realized Gain (Loss) (3,514) 1,964 328 736
Change in Unrealized Appreciation
(Depreciation) 2,845 (15,658) (1,432) (372)
- --------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations 7,513 2,240 (362) 2,459
- --------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
CLASS A:
Net Investment Income (5,251) (12,571) (586) (2,107)
In Excess of Net Investment Income -- (5) -- --
Net Realized Gain -- (1,778) -- (565)
In Excess of Net Realized Gain -- (523) -- --
Return of Capital -- (137) -- --
CLASS B:
Net Investment Income (1,671) (3,479) -- --
In Excess of Net Investment Income -- (2) -- --
Net Realized Gain -- (741) -- --
In Excess of Net Realized Gain -- (217) -- --
Return of Capital -- (48) -- --
- --------------------------------------------------------------------------------------------------------------------------------
Total Distributions (6,922) (19,501) (586) (2,672)
- --------------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS: (1)
CLASS A:
Subscribed 59,092 155,079 5,872 13,129
Distributions Reinvested 4,610 12,501 592 2,592
Redeemed (58,468) (140,600) (13,697) (41,242)
CLASS B:
Subscribed 20,908 80,986 -- --
Distributions Reinvested 253 883 -- --
Redeemed (38,246) (26,766) -- --
- --------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Capital Share
Transactions (11,851) 82,083 (7,233) (25,521)
- --------------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) in Net Assets (11,260) 64,822 (8,181) (25,734)
NET ASSETS:
Beginning of Period 185,041 120,219 34,807 60,541
- --------------------------------------------------------------------------------------------------------------------------------
End of Period $ 173,781 $ 185,041 $ 26,626 $ 34,807
- --------------------------------------------------------------------------------------------------------------------------------
Undistributed (accumulated) net investment
income (loss) included in end of period
net assets $ 1,253 $ (7) $ 153 $ (3)
- --------------------------------------------------------------------------------------------------------------------------------
(1) CAPITAL SHARE TRANSACTIONS:
CLASS A:
Shares Subscribed 5,497 13,382 564 1,245
Shares Issued on Distributions Reinvested 425 1,119 57 247
Shares Redeemed (5,441) (12,331) (1,323) (3,907)
- --------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Class A Shares
Outstanding 481 2,170 (702) (2,415)
- --------------------------------------------------------------------------------------------------------------------------------
CLASS B:
Shares Subscribed 1,911 7,010 -- --
Shares Issued on Distributions Reinvested 23 80 -- --
Shares Redeemed (3,532) (2,418) -- --
- --------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Class B Shares
Outstanding (1,598) 4,672 -- --
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
167
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MONEY MARKET MUNICIPAL MONEY MARKET
PORTFOLIO PORTFOLIO
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------
<CAPTION>
SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1999 DECEMBER 31, JUNE 30, 1999 DECEMBER 31,
(UNAUDITED) 1998 (UNAUDITED) 1998
(000) (000) (000) (000)
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 43,436 $ 87,544 $ 13,350 $ 28,381
Net Realized Gain (Loss) 113 3 (66) (4)
- --------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting
from Operations 43,549 87,547 13,284 28,377
- --------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net Investment Income (43,436) (87,540) (13,350) (28,381)
- --------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS: (1)
Subscribed 7,386,160 12,812,219 3,802,261 7,506,094
Distributions Reinvested 39,094 87,297 12,106 28,978
Redeemed (7,656,858) (12,447,556) (3,791,659) (7,349,096)
- --------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Capital
Share Transactions (231,604) 451,960 22,708 185,976
- --------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) in Net
Assets (231,491) 451,967 22,642 185,972
NET ASSETS:
Beginning of Period 1,958,177 1,506,210 990,579 804,607
- --------------------------------------------------------------------------------------------------------------
End of Period $ 1,726,686 $ 1,958,177 $ 1,013,221 $ 990,579
- --------------------------------------------------------------------------------------------------------------
Undistributed net investment income
included in end of period net
assets $ 4 $ 4 $ -- $ --
- --------------------------------------------------------------------------------------------------------------
(1) CAPITAL SHARE TRANSACTIONS:
CLASS A:
Shares Subscribed 7,385,195 12,812,219 3,802,261 7,506,094
Shares Issued on Distributions
Reinvested 39,108 87,297 12,107 28,978
Shares Redeemed (7,656,857) (12,447,556) (3,791,672) (7,349,096)
- --------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Class A
Shares Outstanding (232,554) 451,960 22,696 185,976
- --------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
168
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS:
- --------------------------------------------------------------------------------
ACTIVE INTERNATIONAL ALLOCATION PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
--------------------------------------------------------------------------
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
1999 ---------------------------------------------------------
(UNAUDITED) 1998++ 1997++ 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.90 $ 10.39 $ 11.44 $ 11.63 $ 11.65 $ 12.21
----------- --------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1) 0.16 0.22 0.18 0.24 0.17 0.19
Net Realized and Unrealized Gain (Loss) on
Investments 0.33 1.86 0.80 0.88 1.00 (0.25)
----------- --------- --------- --------- --------- ---------
Total from Investment Operations 0.49 2.08 0.98 1.12 1.17 (0.06)
----------- --------- --------- --------- --------- ---------
DISTRIBUTIONS
Net Investment Income -- (0.30) (0.83) (0.81) (0.25) (0.14)
In Excess of Net Investment Income -- (0.04) (0.02) (0.02) (0.10) --
Net Realized Gain -- (0.23) (1.18) (0.48) (0.84) (0.36)
----------- --------- --------- --------- --------- ---------
Total Distributions -- (0.57) (2.03) (1.31) (1.19) (0.50)
----------- --------- --------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD $12.39 $11.90 $10.39 $11.44 $11.63 $11.65
----------- --------- --------- --------- --------- ---------
----------- --------- --------- --------- --------- ---------
TOTAL RETURN 4.12% 20.12% 8.61% 9.71% 10.57% (0.52)%
----------- --------- --------- --------- --------- ---------
----------- --------- --------- --------- --------- ---------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $430,676 $266,832 $138,667 $183,193 $170,663 $182,977
Ratio of Expenses to Average Net Assets (1) 0.83%** 0.80% 0.80% 0.80% 0.80% 0.80%
Ratio of Expenses to Average Net Assets
Excluding Securities Lending and Interest
Expense 0.80%** N/A N/A N/A N/A N/A
Ratio of Net Investment Income to Average Net
Assets (1) 2.66%** 1.91% 1.47% 1.22% 1.26% 1.43%
Portfolio Turnover Rate 23% 49% 49% 65% 72% 51%
- ---------------
(1) Effect of voluntary expense limitation
during the period:
Per share benefit to net investment
income $0.01 $0.02 $0.03 $0.03 $0.05 $0.03
Ratios before expense limitation:
Expenses to Average Net Assets 0.94%** 1.03% 1.10% 1.09% 1.18% 1.00%
Net Investment Income to Average Net
Assets 2.55%** 1.70% 1.18% 0.94% 0.88% 1.23%
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
---------------------------------------------------
PERIOD FROM
SIX MONTHS YEAR ENDED JANUARY 2,
ENDED DECEMBER 31, 1996*** TO
JUNE 30, 1999 ----------------- DECEMBER 31,
(UNAUDITED) 1998++ 1997++ 1996
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $12.12 $10.48 $11.44 $11.66
------ ------- ------- ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (2) 0.05 0.22 0.08 0.06
Net Realized and Unrealized Gain on
Investments 0.36 1.94 0.87 1.00
------ ------- ------- ------
Total from Investment Operations 0.41 2.16 0.95 1.06
------ ------- ------- ------
DISTRIBUTIONS
Net Investment Income -- (0.23) (0.71) (0.78)
In Excess of Net Investment Income -- (0.06) (0.02) (0.02)
Net Realized Gain -- (0.23) (1.18) (0.48)
------ ------- ------- ------
Total Distributions -- (0.52) (1.91) (1.28)
------ ------- ------- ------
NET ASSET VALUE, END OF PERIOD $12.53 $12.12 $10.48 $11.44
------ ------- ------- ------
------ ------- ------- ------
TOTAL RETURN 3.38% 20.71% 8.35% 9.22%
------ ------- ------- ------
------ ------- ------- ------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $1,906 $96 $14 $633
Ratio of Expenses to Average Net Assets
(2) 1.07%** 1.05% 1.05% 1.05%**
Ratio of Expenses to Average Net Assets
Excluding Securities Lending and
Interest Expense 1.05%** N/A N/A N/A
Ratio of Net Investment Income to Average
Net Assets (2) 2.78%** 1.80% 0.71% 1.09%**
Portfolio Turnover Rate 23% 49% 49% 65%
- ---------------
(2) Effect of voluntary expense limitation during the period:
Per share benefit to net investment
income $0.00+ $0.03 $0.03 $0.02
Ratios before expense limitation:
Expenses to Average Net Assets 1.15%** 1.27% 1.32% 1.33%**
Net Investment Income to Average Net
Assets 2.70%** 1.58% 0.45% 0.82%**
</TABLE>
- --------------------------------------------------------------------------------
** Annualized
*** The Portfolio began offering Class B Shares on January 2, 1996.
+ Amount is less than $0.01 per share.
++ Per share amounts for the years ended December 31, 1998 and December
31, 1997 are based on average shares outstanding.
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
169
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS:
- --------------------------------------------------------------------------------
ASIAN EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
---------------------------------------------------------------------------
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
1999 ---------------------------------------------------------
(UNAUDITED) 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.01 $ 9.43 $ 18.73 $ 19.48 $ 21.54 $ 26.20
------------ --------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) (1) 0.04 0.12 0.14 0.17 0.18 0.11
Net Realized and Unrealized Gain (Loss) on
Investments 3.50 (1.24) (8.93) 0.50 1.11 (4.15)
------------ --------- --------- --------- --------- ---------
Total from Investment Operations 3.54 (1.12) (8.79) 0.67 1.29 (4.04)
------------ --------- --------- --------- --------- ---------
DISTRIBUTIONS
Net Investment Income -- (0.30) (0.00)+ (0.15) (0.34) (0.09)
In Excess of Net Investment Income -- -- -- (0.00)+ (0.00)+ --
Net Realized Gain -- -- -- (1.27) (3.01) (0.53)
In Excess of Net Realized Gain -- -- (0.51) -- -- --
------------ --------- --------- --------- --------- ---------
Total Distributions -- (0.30) (0.51) (1.42) (3.35) (0.62)
------------ --------- --------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 11.55 $ 8.01 $ 9.43 $ 18.73 $ 19.48 $ 21.54
------------ --------- --------- --------- --------- ---------
------------ --------- --------- --------- --------- ---------
TOTAL RETURN 44.20% (11.38)% (48.29)% 3.49% 6.87% (15.81)%
------------ --------- --------- --------- --------- ---------
------------ --------- --------- --------- --------- ---------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $96,195 $51,334 $85,503 $363,498 $314,884 $276,906
Ratio of Expenses to Average Net Assets (1) 1.07%** 1.19% 1.12% 1.00% 1.00% 1.00%
Ratio of Expenses to Average Net Assets
Excluding Country Tax, Securities Lending,
and Interest Expense 1.00%** 1.00% 1.00% N/A N/A N/A
Ratio of Net Investment Income to Average Net
Assets (1) 1.22%** 1.36% 0.47% 0.74% 0.97% 0.52%
Portfolio Turnover Rate 106% 151% 107% 69% 42% 47%
- ---------------
(1) Effect of voluntary expense limitation
during the period:
Per share benefit to net investment
income $0.02 $0.05 $0.05 $0.05 $0.03 $0.04
Ratios before expense limitation:
Expenses to Average Net Assets 1.64%** 1.79% 1.31% 1.25% 1.18% 1.20%
Net Investment Income to Average Net
Assets 0.65%** 0.76% 0.29% 0.54% 0.79% 0.32%
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
-------------------------------------------------
SIX MONTHS PERIOD FROM
ENDED YEAR ENDED JANUARY 2,
JUNE 30, DECEMBER 31, 1996*** TO
1999 ----------------- DECEMBER 31,
(UNAUDITED) 1998 1997 1996
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 7.97 $ 9.40 $ 18.74 $ 19.55
----------- ------- ------- ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (2) 0.04 0.07 0.03 0.11
Net Realized and Unrealized Gain (Loss) on
Investments 3.45 (1.20) (8.86) 0.46
----------- ------- ------- ------
Total from Investment Operations 3.49 (1.13) (8.83) 0.57
----------- ------- ------- ------
DISTRIBUTIONS
Net Investment Income -- (0.30) (0.00)+ (0.11)
Net Realized Gain -- -- -- (1.27)
In Excess of Net Realized Gain -- -- (0.51) --
----------- ------- ------- ------
Total Distributions -- (0.30) (0.51) (1.38)
----------- ------- ------- ------
NET ASSET VALUE, END OF PERIOD $ 11.46 $ 7.97 $ 9.40 $18.74
----------- ------- ------- ------
----------- ------- ------- ------
Total Return 43.79% (11.53)% (48.48)% 2.92%
----------- ------- ------- ------
----------- ------- ------- ------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $2,071 $1,487 $1,468 $11,002
Ratio of Expenses to Average Net Assets (2) 1.32%** 1.47% 1.37% 1.25%**
Ratio of Expenses to Average Net Assets
Excluding Country Tax, Securities Lending
and Interest Expense 1.25%** 1.25% 1.25% N/A
Ratio of Net Investment Income to Average Net
Assets (2) 0.95%** 1.06% 0.18% 0.58%**
Portfolio Turnover Rate 106% 151% 107% %69
- ---------------
(2) Effect of voluntary expense limitation during the period:
Per share benefit to net investment
income $0.02 $0.04 $0.04 $0.04
Ratios before expense limitation:
Expenses to Average Net Assets 1.92%** 2.07% 1.56% 1.52%**
Net Investment Income (Loss) to Average
Net Assets 0.37%** 0.46% (0.01)% 0.37%**
</TABLE>
- --------------------------------------------------------------------------------
** Annualized
*** The Portfolio began offering Class B Shares on January 2, 1996.
+ Amount is less than $0.01 per share.
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
170
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS:
- --------------------------------------------------------------------------------
ASIAN REAL ESTATE PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
----------------------------------------------------
PERIOD FROM
OCTOBER 1,
SIX MONTHS ENDED YEAR ENDED 1997* TO
JUNE 30, 1999 DECEMBER 31, DECEMBER 31,
(UNAUDITED) 1998 1997
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 6.63 $ 7.94 $ 10.00
------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1) 0.06 0.26 0.11
Net Realized and Unrealized Gain (Loss) on
Investments 1.89 (1.24) (2.10)
------ ------ ------
Total from Investment Operations 1.95 (0.98) (1.99)
------ ------ ------
DISTRIBUTIONS
Net Investment Income (0.06) (0.33) (0.07)
------ ------ ------
Total Distributions (0.06) (0.33) (0.07)
------ ------ ------
NET ASSET VALUE, END OF PERIOD $ 8.52 $ 6.63 $ 7.94
------ ------ ------
------ ------ ------
TOTAL RETURN 29.66% (11.82)% (19.92)%
------ ------ ------
------ ------ ------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $ 3,607 $ 2,447 $ 2,385
Ratio of Expenses to Average Net Assets (1) 1.01%** 1.05% 1.08%**
Ratio of Expenses to Average Net Assets
Excluding Interest Expense 1.00%** 1.00% 1.00%**
Ratio of Net Investment Income to Average Net
Assets (1) 2.13%** 2.47% 5.21%**
Portfolio Turnover Rate 43% 261% 38%
- ---------------
(1) Effect of voluntary expense limitation
during the period:
Per share benefit to net investment
income $0.10 $0.36 $0.25
Ratios before expense limitation:
Expenses to Average Net Assets 4.47%** 4.52% 12.95%**
Net Investment Loss to Average Net
Assets (1.33)%** (1.00)% (6.66)%**
- ---------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
----------------------------------------------------
PERIOD FROM
OCTOBER 1,
SIX MONTHS ENDED YEAR ENDED 1997* TO
JUNE 30, 1999 DECEMBER 31, DECEMBER 31,
(UNAUDITED) 1998 1997
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 6.66 $ 8.03 $ 10.00
------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (2) 0.07 0.12 --
Net Realized and Unrealized Gain (Loss) on
Investments 1.89 (1.16) (1.97)
------ ------ ------
Total from Investment Operations 1.96 (1.04) (1.97)
------ ------ ------
DISTRIBUTIONS
Net Investment Income (0.06) (0.33) --
------ ------ ------
Total Distributions (0.06) (0.33) --
------ ------ ------
NET ASSET VALUE, END OF PERIOD $ 8.56 $ 6.66 $ 8.03
------ ------ ------
------ ------ ------
TOTAL RETURN 29.60% (12.53)% (19.70)%
------ ------ ------
------ ------ ------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $ 977 $ 761 $ 0+
Ratio of Expenses to Average Net Assets (2) 1.26%** 1.38% 1.18%**
Ratio of Expenses to Average Net Assets
Excluding Interest Expense 1.25%** 1.25% N/A
Ratio of Net Investment Income to Average Net
Assets (2) 1.85%** 2.39% 4.24%**
Portfolio Turnover Rate 43% 261% 38%
- ---------------
(2) Effect of voluntary expense limitation during the period:
Per share benefit to net investment
income $0.12 $0.18 N/A
Ratios before expense limitation:
Expenses to Average Net Assets 4.60%** 5.03% N/A
Net Investment Loss to Average Net
Assets (1.50)%** (1.27)% N/A
</TABLE>
- --------------------------------------------------------------------------------
* Commencement of Operations
** Annualized
+ Amount is less than $500.
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
171
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS:
- --------------------------------------------------------------------------------
EMERGING MARKETS PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
------------------------------------------------------------------------------------
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
1999 ------------------------------------------------------------------
(UNAUDITED) 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $9.55 $12.97 $14.66 $13.14 $16.30 $19.00
------------ ---------- ------------ ------------ ---------- ----------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) 0.05 0.16 0.07 0.09 0.08 (0.04)
Net Realized and Unrealized Gain (Loss) on
Investments 3.77 (3.46) (0.29) 1.51 (2.05) (1.69)
------------ ---------- ------------ ------------ ---------- ----------
Total from Investment Operations 3.82 (3.30) (0.22) 1.60 (1.97) (1.73)
------------ ---------- ------------ ------------ ---------- ----------
DISTRIBUTIONS
Net Investment Income -- (0.12) (0.07) (0.08) (0.06) --
In Excess of Net Investment Income -- -- (0.07) -- -- --
Net Realized Gain -- -- (0.69) -- (1.13) (0.97)
In Excess of Net Realized Gain -- -- (0.64) -- -- --
------------ ---------- ------------ ------------ ---------- ----------
Total Distributions -- (0.12) (1.47) (0.08) (1.19) (0.97)
------------ ---------- ------------ ------------ ---------- ----------
NET ASSET VALUE, END OF PERIOD $ 13.37 $ 9.55 $ 12.97 $ 14.66 $ 13.14 $ 16.30
------------ ---------- ------------ ------------ ---------- ----------
------------ ---------- ------------ ------------ ---------- ----------
TOTAL RETURN 40.00% (25.42)% (1.03)% 12.19% (12.77)% (9.63)%
------------ ---------- ------------ ------------ ---------- ----------
------------ ---------- ------------ ------------ ---------- ----------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $1,102,105 $772,115 $1,501,386 $1,304,006 $876,591 $929,638
Ratio of Expenses to Average Net Assets 1.68%** 1.81% 1.75% 1.74% 1.72% 1.75%
Ratio of Expenses to Average Net Assets
Excluding Interest and Country Tax Expense N/A 1.70% N/A N/A N/A N/A
Ratio of Net Investment Income (Loss) to
Average Net Assets 0.88%** 1.04% 0.40% 0.69% 0.60% (0.26)%
Portfolio Turnover Rate 75% 98% 90% 55% 54% 32%
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
-------------------------------------------------------
SIX MONTHS PERIOD FROM
ENDED JANUARY 2,
JUNE 30, YEAR ENDED DECEMBER 31, 1996*** TO
1999 ----------------------- DECEMBER 31,
(UNAUDITED) 1998 1997 1996
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $9.56 $12.98 $14.66 $13.25
----------- -------- -------- ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.03 0.10 0.02 0.04
Net Realized and Unrealized Gain (Loss) on
Investments 3.78 (3.43) (0.28) 1.42
----------- -------- -------- ------
Total from Investment Operations 3.81 (3.33) (0.26) 1.46
----------- -------- -------- ------
DISTRIBUTIONS
Net Investment Income -- (0.09) (0.05) (0.05)
In Excess of Net Investment Income -- -- (0.04) --
Net Realized Gain -- -- (0.69) --
In Excess of Net Realized Gain -- -- (0.64) --
----------- -------- -------- ------
Total Distributions -- (0.09) (1.42) (0.05)
----------- -------- -------- ------
NET ASSET VALUE, END OF PERIOD $ 13.37 $ 9.56 $ 12.98 $ 14.66
----------- -------- -------- ------
----------- -------- -------- ------
TOTAL RETURN 39.85% (25.65)% (1.31)% 11.04%
----------- -------- -------- ------
----------- -------- -------- ------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $10,091 $7,199 $9,666 $14,213
Ratio of Expenses to Average Net Assets 1.93%** 2.06% 2.00% 1.99%**
Ratio of Expenses to Average Net Assets Excluding
Interest and Country Tax Expense N/A 1.95% N/A N/A
Ratio of Net Investment Income to Average Net
Assets 0.63%** 0.80% 0.11% 0.33%**
Portfolio Turnover Rate 75% 98% 90% %55
</TABLE>
- --------------------------------------------------------------------------------
** Annualized
*** The Portfolio began offering Class B Shares on January 2, 1996.
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
172
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS:
- --------------------------------------------------------------------------------
EUROPEAN EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
------------------------------------------------------------------------------
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
1999 ------------------------------------------------------------
(UNAUDITED) 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $15.75 $17.96 $16.70 $13.92 $13.94 $12.91
------------ ---------- ---------- ---------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1) 0.23 0.43 0.39 0.24 0.14 0.08
Net Realized and Unrealized Gain (Loss) on
Investments (0.42) 1.08 2.58 2.85 1.37 1.29
------------ ---------- ---------- ---------- --------- ---------
Total from Investment Operations (0.19) 1.51 2.97 3.09 1.51 1.37
------------ ---------- ---------- ---------- --------- ---------
DISTRIBUTIONS
Net Investment Income -- (0.42) (0.37) (0.25) (0.15) (0.09)
In Excess of Net Investment Income -- -- -- (0.02) -- --
Net Realized Gain -- (3.30) (1.34) (0.04) (1.38) (0.25)
------------ ---------- ---------- ---------- --------- ---------
Total Distributions -- (3.72) (1.71) (0.31) (1.53) (0.34)
------------ ---------- ---------- ---------- --------- ---------
NET ASSET VALUE, END OF PERIOD $15.56 $15.75 $17.96 $16.70 $13.92 $13.94
------------ ---------- ---------- ---------- --------- ---------
------------ ---------- ---------- ---------- --------- ---------
TOTAL RETURN (1.21)% 8.09% 17.88% 22.29% 11.85% 10.88%
------------ ---------- ---------- ---------- --------- ---------
------------ ---------- ---------- ---------- --------- ---------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $109,560 $168,712 $242,868 $178,356 $69,583 $27,634
Ratio of Expenses to Average Net Assets (1) 1.10%** 1.00% 1.00% 1.00% 1.00% 1.00%
Ratio of Expenses to Average Net Assets Excluding
Bank Interest Expense 1.00%** N/A N/A N/A N/A N/A
Ratio of Net Investment Income to Average Net
Assets (1) 2.22%** 1.47% 1.96% 1.83% 1.37% 0.87%
Portfolio Turnover Rate 48% 52% 43% 24% 13% 79%
- ---------------
(1) Effect of voluntary expense limitation during
the period:
Per share benefit to net investment income $0.02 $0.02 $0.02 $0.02 $0.03 $0.06
Ratios before expense limitation:
Expenses to Average Net Assets 1.25%** 1.08% 1.09% 1.16% 1.25% 1.62%
Net Investment Income to Average
Net Assets 2.06%** 1.40% 1.87% 1.67% 1.12% 0.25%
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
--------------------------------------------------------
SIX MONTHS PERIOD FROM
ENDED JANUARY 2,
JUNE 30, YEAR ENDED DECEMBER 31, 1996*** TO
1999 ----------------------- DECEMBER 31,
(UNAUDITED) 1998 1997 1996
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $15.74 $17.94 $16.67 $14.05
------ -------- -------- ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (2) 0.10 0.33 0.28 0.18
Net Realized and Unrealized Gain (Loss) on
Investments (0.31) 1.13 2.66 2.73
------ -------- -------- ------
Total from Investment Operations (0.21) 1.46 2.94 2.91
------ -------- -------- ------
DISTRIBUTIONS
Net Investment Income -- (0.36) (0.33) (0.23)
In Excess of Net Investment Income -- -- -- (0.02)
Net Realized Gain -- (3.30) (1.34) (0.04)
------ -------- -------- ------
Total Distributions -- (3.66) (1.67) (0.29)
------ -------- -------- ------
NET ASSET VALUE, END OF PERIOD $15.53 $15.74 $17.94 $16.67
------ -------- -------- ------
------ -------- -------- ------
TOTAL RETURN (1.33)% 7.80% 17.73% 20.76%
------ -------- -------- ------
------ -------- -------- ------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $3,115 $5,181 $4,654 $2,654
Ratio of Expenses to Average Net Assets (2) 1.35%** 1.25% 1.25% 1.25%**
Ratio of Expenses to Average Net Assets Excluding
Interest Expense 1.25%** N/A N/A N/A
Ratio of Net Investment Income to Average Net
Assets (2) 1.92%** 1.15% 1.55% 1.67%**
Portfolio Turnover Rate 48% 52% 43% 24%
- ---------------
(2) Effect of voluntary expense limitation during the period:
Per share benefit to net investment income $0.01 $0.02 $0.02 $0.02
Ratios before expense limitation:
Expenses to Average Net Assets 1.50%** 1.34% 1.34% 1.40%**
Net Investment Income to Average Net Assets 1.77%** 1.08% 1.46% 1.52%**
</TABLE>
- --------------------------------------------------------------------------------
** Annualized
*** The Portfolio began offering Class B Shares on January 2, 1996.
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
173
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS:
- --------------------------------------------------------------------------------
EUROPEAN REAL ESTATE PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
-------------------------------------------
SIX MONTHS PERIOD FROM
ENDED OCTOBER 1,
JUNE 30, YEAR ENDED 1997* TO
1999 DECEMBER 31, DECEMBER 31,
(UNAUDITED)++ 1998 1997
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.58 $ 9.52 $ 10.00
----------- ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1) 0.10 0.12 0.05
Net Realized and Unrealized Gain
(Loss) on Investments 0.18 0.33 (0.52)
----------- ------ ------
Total from Investment Operations 0.28 0.45 (0.47)
----------- ------ ------
DISTRIBUTIONS
Net Investment Income (0.03) (0.25) (0.01)
In Excess of Net Investment Income -- (0.14) --
----------- ------ ------
Total Distributions (0.03) (0.39) (0.01)
----------- ------ ------
NET ASSET VALUE, END OF PERIOD $ 9.83 $ 9.58 $ 9.52
----------- ------ ------
----------- ------ ------
TOTAL RETURN 2.90% 4.75% (4.72)%
----------- ------ ------
----------- ------ ------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $16,372 $33,422 $15,177
Ratio of Expenses to Average Net Assets
(1) 1.30%** 1.03% 1.00%**
Ratio of Expenses to Average Net Assets
Excluding Interest Expense 1.00%** 1.00% N/A
Ratio of Net Investment Income to
Average Net Assets (1) 2.09%** 1.33% 2.08%**
Portfolio Turnover Rate 11% 119% 47%
- ---------------
(1) Effect of voluntary expense
limitation during the period:
Per share benefit to net
investment income $0.01 $0.03 $0.05
Ratios before expense limitation:
Expenses to Average Net Assets 1.84%** 1.43% 3.05%**
Net Investment Income to Average
Net Assets 1.56%** 0.95% 0.03%**
- ------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
-------------------------------------------
SIX MONTHS PERIOD FROM
ENDED OCTOBER 1,
JUNE 30, YEAR ENDED 1997* TO
1999 DECEMBER 31, DECEMBER 31,
(UNAUDITED)++ 1998 1997
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.61 $ 9.52 $ 10.00
----------- ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (2) 0.11 0.11 0.02
Net Realized and Unrealized Gain
(Loss) on Investments 0.15 0.33 (0.50)
----------- ------ ------
Total from Investment Operations 0.26 0.44 (0.48)
----------- ------ ------
DISTRIBUTIONS
Net Investment Income (0.02) (0.22) --
In Excess of Net Investment Income -- (0.13) --
----------- ------ ------
Total Distributions (0.02) (0.35) --
----------- ------ ------
NET ASSET VALUE, END OF PERIOD $ 9.85 $ 9.61 $ 9.52
----------- ------ ------
----------- ------ ------
TOTAL RETURN 2.72% 4.60% (4.76)%
----------- ------ ------
----------- ------ ------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $2,082 $2,531 $789
Ratio of Expenses to Average Net Assets
(2) 1.59%** 1.28% 1.25%**
Ratio of Expenses to Average Net Assets
Excluding Interest Expense 1.25%** 1.25% N/A
Ratio of Net Investment Income to
Average Net Assets (2) 2.36%** 1.15% 1.51%**
Portfolio Turnover Rate 11% 119% 47%
- ---------------
(2) Effect of voluntary expense
limitation during the period:
Per share benefit to net
investment income $0.02 $0.04 $0.03
Ratios before expense limitation:
Expenses to Average Net Assets 2.10%** 1.68% 3.12%**
Net Investment Income (Loss) to
Average Net Assets 1.85%** 0.77% (0.36)%**
</TABLE>
- --------------------------------------------------------------------------------
* Commencement of operations
** Annualized
++ Per share amounts for the six months ended June 30, 1999 are based on
average shares outstanding.
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
174
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS:
- --------------------------------------------------------------------------------
GLOBAL EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
------------------------------------------------------------------------
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
1999 ------------------------------------------------------
(UNAUDITED) 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $20.74 $18.52 $16.24 $14.31 $13.40 $13.87
------------ --------- --------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1) 0.19 0.15 0.21 0.23 0.18 0.08
Net Realized and Unrealized Gain on
Investments 0.60 2.55 3.61 3.02 2.26 0.79
------------ --------- --------- -------- -------- --------
Total from Investment Operations 0.79 2.70 3.82 3.25 2.44 0.87
------------ --------- --------- -------- -------- --------
DISTRIBUTIONS
Net Investment Income -- (0.17) (0.40) (0.23) (0.22) (0.12)
Net Realized Gain -- (0.31) (1.14) (1.09) (1.31) (1.22)
------------ --------- --------- -------- -------- --------
Total Distributions -- (0.48) (1.54) (1.32) (1.53) (1.34)
------------ --------- --------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $21.53 $20.74 $18.52 $16.24 $14.31 $13.40
------------ --------- --------- -------- -------- --------
------------ --------- --------- -------- -------- --------
TOTAL RETURN 3.81% 14.60% 23.75% 22.83% 18.66% 6.95%
------------ --------- --------- -------- -------- --------
------------ --------- --------- -------- -------- --------
RATIO AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $208,343 $228,748 $108,074 $80,297 $91,675 $78,935
Ratio of Expenses to Average Net Assets (1) 1.00%** 1.00% 1.00% 1.00% 1.00% 1.00%
Ratio of Net Investment Income to Average Net
Assets (1) 1.77%** 0.96% 1.07% 1.38% 1.17% 0.87%
Portfolio Turnover Rate 19% 39% 30% 26% 28% 12%
- ---------------
(1) Effect of voluntary expense limitation
during the period:
Per share benefit to net investment
income $0.01 $0.01 $0.02 $0.03 $0.02 $0.02
Ratios before expense limitation:
Expenses to Average Net Assets 1.07%** 1.07% 1.11% 1.15% 1.13% 1.24%
Net Investment Income to Average Net
Assets 1.70%** 0.90% 0.96% 1.23% 1.04% 0.63%
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
-------------------------------------------------------
SIX MONTHS PERIOD FROM
ENDED YEAR ENDED DECEMBER JANUARY 2,
JUNE 30, 31, 1996*** TO
1999 ---------------------- DECEMBER 31,
(UNAUDITED) 1998 1997 1996
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $20.63 $18.46 $16.21 $14.36
------------ -------- -------- ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (2) 0.18 0.15 0.16 0.13
Net Realized and Unrealized Gain on
Investments 0.58 2.46 3.60 3.02
------------ -------- -------- ------
Total from Investment Operations 0.76 2.61 3.76 3.15
------------ -------- -------- ------
DISTRIBUTIONS
Net Investment Income -- (0.13) (0.37) (0.21)
Net Realized Gain -- (0.31) (1.14) (1.09)
------------ -------- -------- ------
Total Distributions -- (0.44) (1.51) (1.30)
------------ -------- -------- ------
NET ASSET VALUE, END OF PERIOD $21.39 $20.63 $18.46 $16.21
------------ -------- -------- ------
------------ -------- -------- ------
TOTAL RETURN 3.68% 14.15% 23.37% 22.04%
------------ -------- -------- ------
------------ -------- -------- ------
RATIO AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $20,830 $13,123 $5,910 $3,928
Ratio of Expenses to Average Net Assets (2) 1.25%** 1.25% 1.25% 1.25%**
Ratio of Net Investment Income to Average Net
Assets (2) 1.61%** 0.68% 0.80% 1.29%**
Portfolio Turnover Rate 19% 39% 30% 26%
- ---------------
(2) Effect of voluntary expense limitation during the period:
Per share benefit to net investment
income $0.01 $0.01 $0.02 $0.01
Ratios before expense limitation:
Expenses to Average Net Assets 1.32%** 1.32% 1.36% 1.39%**
Net Investment Income to Average Net
Assets 1.54%** 0.62% 0.69% 1.15%**
</TABLE>
- --------------------------------------------------------------------------------
** Annualized
*** The Portfolio began offering Class B Shares on January 2, 1996.
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
175
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIO:
- --------------------------------------------------------------------------------
INTERNATIONAL EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
------------------------------------------------------------------------------------
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
1999 -------------------------------------------------------------------
(UNAUDITED) 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $18.25 $17.16 $16.95 $15.15 $15.34 $14.09
----------- ----------- ----------- ----------- ----------- -----------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1) 0.18 0.27 0.30 0.25 0.16 0.16
Net Realized and Unrealized Gain on
Investments 1.06 2.86 2.01 2.71 1.55 1.54
----------- ----------- ----------- ----------- ----------- -----------
Total from Investment Operations 1.24 3.13 2.31 2.96 1.71 1.70
----------- ----------- ----------- ----------- ----------- -----------
DISTRIBUTIONS
Net Investment Income -- (0.38) (0.48) (0.36) (0.06) (0.18)
Net Realized Gain -- (1.66) (1.62) (0.80) (1.84) (0.27)
----------- ----------- ----------- ----------- ----------- -----------
Total Distributions -- (2.04) (2.10) (1.16) (1.90) (0.45)
----------- ----------- ----------- ----------- ----------- -----------
NET ASSET VALUE, END OF PERIOD $19.49 $18.25 $17.16 $16.95 $15.15 $15.34
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
TOTAL RETURN 6.80% 18.30% 13.91% 19.64% 11.77% 12.39%
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $4,055,760 $3,400,498 $2,822,900 $2,264,424 $1,598,530 $1,304,770
Ratio of Expenses to Average Net Assets (1) 1.00%** 1.00% 1.00% 1.00% 1.00% 1.00%
Ratio of Net Investment Income to Average Net
Assets (1) 1.97%** 1.33% 1.49% 1.64% 1.38% 1.12%
Portfolio Turnover Rate 17% 33% 33% 18% 27% 16%
- ---------------
(1) Effect of voluntary expense limitation
during the period:
Per share benefit to net investment
income $0.00+ $0.00+ $0.00+ $0.00 $0.003 $0.004
Ratios before expense limitation:
Expenses to Average Net Assets 1.00%** 1.02% 1.02% 1.02% 1.03% 1.03%
Net Investment Income to Average Net
Assets 1.97%** 1.32% 1.47% 1.61% 1.35% 1.09%
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
-------------------------------------------------------
SIX MONTHS PERIOD FROM
ENDED JANUARY 2,
JUNE 30, YEAR ENDED DECEMBER 31, 1996*** TO
1999 ----------------------- DECEMBER 31,
(UNAUDITED) 1998 1997 1996
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 18.22 $ 17.13 $ 16.93 $ 15.24
----------- -------- -------- ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (2) 0.17 0.24 0.23 0.23
Net Realized and Unrealized Gain on
Investments 1.04 2.85 2.02 2.59
----------- -------- -------- ------
Total from Investment Operations 1.21 3.09 2.25 2.82
----------- -------- -------- ------
DISTRIBUTIONS
Net Investment Income -- (0.34) (0.43) (0.33)
Net Realized Gain -- (1.66) (1.62) (0.80)
----------- -------- -------- ------
Total Distributions -- (2.00) (2.05) (1.13)
----------- -------- -------- ------
NET ASSET VALUE, END OF PERIOD $ 19.43 $ 18.22 $ 17.13 $ 16.93
----------- -------- -------- ------
----------- -------- -------- ------
TOTAL RETURN 6.64% 18.13% 13.57% 18.58%
----------- -------- -------- ------
----------- -------- -------- ------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $26,979 $17,076 $3,074 $5,393
Ratio of Expenses to Average Net Assets (2) 1.25%** 1.25% 1.25% 1.25%**
Ratio of Net Investment Income to Average Net
Assets (2) 1.80%** 0.96% 1.21% 1.68%**
Portfolio Turnover Rate 17% 33% 33% 18%
- ---------------
(2) Effect of voluntary expense limitation during the period:
Per share benefit to net investment
income $0.00+ $0.00+ $0.00+ $0.00
Ratios before expense limitation:
Expenses to Average Net Assets 1.25%** 1.28% 1.27% 1.27%**
Net Investment Income to Average Net
Assets 1.80%** 0.95% 1.19% 1.66%**
</TABLE>
- --------------------------------------------------------------------------------
** Annualized
*** The Portfolio began offering Class B Shares on January 2, 1996.
+ Amount is less than $0.01 per share.
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
176
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS:
- --------------------------------------------------------------------------------
INTERNATIONAL MAGNUM PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
---------------------------------------------------------
SIX MONTHS PERIOD FROM
ENDED MARCH 15,
JUNE 30, YEAR ENDED DECEMBER 31, 1996* TO
1999 ------------------------ DECEMBER 31,
(UNAUDITED) 1998 1997 1996
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $11.57 $10.87 $10.66 $10.00
------ --------- --------- ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1) 0.12 0.14 0.17 0.06
Net Realized and Unrealized Gain on
Investments 0.58 0.66 0.54 0.76
------ --------- --------- ------
Total from Investment Operations 0.70 0.80 0.71 0.82
------ --------- --------- ------
DISTRIBUTIONS
Net Investment Income -- (0.10) (0.41) (0.13)
In Excess of Net Investment Income -- -- -- (0.02)
Net Realized Gain -- -- (0.09) (0.01)
------ --------- --------- ------
Total Distributions -- (0.10) (0.50) (0.16)
------ --------- --------- ------
NET ASSET VALUE, END OF PERIOD $12.27 $11.57 $10.87 $10.66
------ --------- --------- ------
------ --------- --------- ------
TOTAL RETURN 6.05% 7.33% 6.58% 8.25%
------ --------- --------- ------
------ --------- --------- ------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $201,399 $269,814 $159,096 $85,316
Ratio of Expenses to Average Net Assets (1) 1.06%** 1.00% 1.00% 1.00%**
Ratio of Expenses to Average Net Assets
Excluding Securities Lending and Interest
Expense 1.00%** N/A N/A N/A
Ratio of Net Investment Income to Average Net
Assets (1) 1.77%** 1.34% 1.44% 0.99%**
Portfolio Turnover Rate 38% 39% 41% 18%
- ---------------
(1) Effect of voluntary expense limitation
during the period:
Per share benefit to net investment
income $0.01 $0.01 $0.02 $0.03
Ratios before expense limitation:
Expenses to Average Net Assets 1.17%** 1.13% 1.19% 1.54%**
Net Investment Income to Average Net
Assets 1.66%** 1.24% 1.25% 0.44%**
- --------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
-------------------------------------------------------
SIX MONTHS PERIOD FROM
ENDED YEAR ENDED DECEMBER MARCH 15,
JUNE 30, 31, 1996* TO
1999 ---------------------- DECEMBER 31,
(UNAUDITED) 1998 1997 1996
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $11.54 $10.84 $10.63 $10.00
------ -------- -------- ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (2) 0.09 0.14 0.16 0.01
Net Realized and Unrealized Gain on
Investments 0.59 0.64 0.52 0.78
------ -------- -------- ------
Total from Investment Operations 0.68 0.78 0.68 0.79
------ -------- -------- ------
DISTRIBUTIONS
Net Investment Income -- (0.08) (0.38) (0.13)
In Excess of Net Investment Income -- -- -- (0.02)
Net Realized Gain -- -- (0.09) (0.01)
------ -------- -------- ------
Total Distributions -- (0.08) (0.47) (0.16)
------ -------- -------- ------
NET ASSET VALUE, END OF PERIOD $12.22 $11.54 $10.84 $10.63
------ -------- -------- ------
------ -------- -------- ------
TOTAL RETURN 5.89% 7.13% 6.33% 7.90%
------ -------- -------- ------
------ -------- -------- ------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $26,013 $26,151 $28,217 $23,173
Ratio of Expenses to Average Net Assets (2) 1.31%** 1.25% 1.25% 1.25%**
Ratio of Expenses to Average Net Assets
Excluding Securities Lending and Interest
Expense 1.25%** N/A N/A N/A
Ratio of Net Investment Income to Average Net
Assets (2) 1.61%** 1.24% 1.19% 0.60%**
Portfolio Turnover Rate 38% 39% 41% 18%
- ---------------
(2) Effect of voluntary expense limitation
during the period:
Per share benefit to net investment
income $0.01 $0.01 $0.02 $0.01
Ratios before expense limitation:
Expenses to Average Net Assets 1.42%** 1.37% 1.44% 1.69%**
Net Investment Income to Average Net
Assets 1.49%** 1.14% 1.00% 0.15%**
</TABLE>
- --------------------------------------------------------------------------------
* Commencement of Operations
** Annualized
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
177
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS:
- --------------------------------------------------------------------------------
INTERNATIONAL SMALL CAP PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
1999 ---------------------------------------------------------
(UNAUDITED) 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 15.25 $ 15.61 $ 16.83 $ 14.94 $ 15.15 $ 14.64
----------- --------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1) 0.17 0.22 0.25 0.21 0.24 0.14
Net Realized and Unrealized Gain (Loss) on
Investments+ 2.09 0.39 (0.42) 2.29* 0.15* 0.62*
----------- --------- --------- --------- --------- ---------
Total from Investment Operations 2.26 0.61 (0.17) 2.50 0.39 0.76
----------- --------- --------- --------- --------- ---------
DISTRIBUTIONS
Net Investment Income -- (0.24) (0.31) (0.22) (0.23) (0.03)
In Excess of Net Investment Income -- -- (0.05) -- -- --
Net Realized Gain -- (0.79) (0.77) (0.39) (0.37) (0.22)
----------- --------- --------- --------- --------- ---------
Total Distributions -- (1.03) (1.13) (0.61) (0.60) (0.25)
----------- --------- --------- --------- --------- ---------
TRANSACTION FEES 0.02 0.06 0.08 -- -- --
----------- --------- --------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 17.53 $ 15.25 $ 15.61 $ 16.83 $ 14.94 $ 15.15
----------- --------- --------- --------- --------- ---------
----------- --------- --------- --------- --------- ---------
TOTAL RETURN 14.95% 4.25% (0.55)% 16.82% 2.60% 5.25%
----------- --------- --------- --------- --------- ---------
----------- --------- --------- --------- --------- ---------
RATIO AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $277,929 $252,642 $230,095 $234,743 $198,669 $160,101
Ratio of Expenses to Average Net Assets (1) 1.15%** 1.15% 1.15% 1.15% 1.15% 1.15%
Ratio of Net Investment Income to Average Net
Assets (1) 2.13%** 1.23% 1.37% 1.29% 1.72% 1.18%
Portfolio Turnover Rate 18% 39% 31% 35% 24% 8%
- ---------------
(1) Effect of voluntary expense limitation
during the period:
Per share benefit to net investment
income $0.01 $0.01 $0.01 $0.01 $0.01 $0.02
Ratios before expense limitation:
Expenses to Average Net Assets 1.23%** 1.21% 1.22% 1.23% 1.24% 1.29%
Net Investment Income to Average Net
Assets 2.05%** 1.18% 1.30% 1.20% 1.63% 1.04%
</TABLE>
- --------------------------------------------------------------------------------
* Reflects a 1% transaction fee on purchases and redemptions of capital
shares.
** Annualized
+ The amount shown for the year ended December 31, 1998 for a share
outstanding throughout the year does not agree with the amount of
aggregate net gains on investments for the year because of the timing of
sales and repurchases of the Portfolio shares in relation to fluctuating
market value of the investments in the Portfolio.
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
178
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS:
- --------------------------------------------------------------------------------
JAPANESE EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
---------------------------------------------------------------------------
SIX MONTHS PERIOD FROM
ENDED APRIL 25,
JUNE 30, YEAR ENDED DECEMBER 31, 1994* TO
1999++ ------------------------------------------- DECEMBER 31,
(UNAUDITED) 1998 1997 1996++ 1995 1994
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 6.18 $ 5.89 $ 7.96 $ 9.27 $ 9.83 $ 10.00
----------- -------- -------- --------- --------- ------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) (1) (0.01) 0.04 0.17 -- 0.04 (0.01)
Net Realized and Unrealized Gain (Loss) on
Investments+ 1.65 0.48 (0.94) (0.13) (0.40) (0.16)
----------- -------- -------- --------- --------- ------------
Total from Investment Operations 1.64 0.52 (0.77) (0.13) (0.36) (0.17)
----------- -------- -------- --------- --------- ------------
DISTRIBUTIONS
Net Investment Income -- (0.23) (1.30) (0.66) -- --
In Excess of Net Investment Income -- -- -- (0.52) (0.20) --
----------- -------- -------- --------- --------- ------------
Total Distributions -- (0.23) (1.30) (1.18) (0.20) --
----------- -------- -------- --------- --------- ------------
NET ASSET VALUE, END OF PERIOD $ 7.82 $ 6.18 $ 5.89 $ 7.96 $ 9.27 $ 9.83
----------- -------- -------- --------- --------- ------------
----------- -------- -------- --------- --------- ------------
TOTAL RETURN 26.54% 8.82% (9.23)% (1.40)% (3.64)% (1.70)%
----------- -------- -------- --------- --------- ------------
----------- -------- -------- --------- --------- ------------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $59,284 $57,755 $77,086 $152,229 $119,278 $50,332
Ratio of Expenses to Average Net Assets (1) 1.01%** 1.11% 1.06% 1.00% 1.00% 1.00%**
Ratio of Expenses to Average Net Assets
Excluding Interest Expense 1.00%** 1.00% 1.00% N/A N/A N/A
Ratio of Net Investment Income (Loss) to
Average Net Assets (1) (0.16)%** 0.03% (0.21)% (0.04)% 0.15% (0.10)%**
Portfolio Turnover Rate 16% 66% 40% 38% 52% 1%
- ---------------
(1) Effect of voluntary expense limitation
during the period:
Per share benefit to net investment
income (Loss) $0.00+++ $0.01 $0.01 $0.01 $0.06 $0.02
Ratios before expense limitation:
Expenses to Average Net Assets 1.24%** 1.30% 1.14% 1.07% 1.20% 1.27%**
Net Investment Loss to Average Net
Assets (0.39)%** (0.14)% (0.28)% (0.11)% (0.05)% (0.37)%**
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
--------------------------------------------------------
SIX MONTHS PERIOD FROM
ENDED JANUARY 2,
JUNE 30, YEAR ENDED DECEMBER 31, 1996*** TO
1999++ ----------------------- DECEMBER 31,
(UNAUDITED) 1998 1997 1996++
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 6.13 $ 5.87 $ 7.94 $ 9.25
----------- ------- ------- ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) (2) (0.01) (0.09) 0.09 (0.02)
Net Realized and Unrealized Gain (Loss) on
Investments 1.63 0.58 (0.89) (0.14)
----------- ------- ------- ------
Total from Investment Operations 1.62 0.49 (0.80) (0.16)
----------- ------- ------- ------
DISTRIBUTIONS
Net Investment Income -- (0.23) (1.27) (0.64)
In Excess of Net Investment Income -- -- -- (0.51)
----------- ------- ------- ------
Total Distributions -- (0.23) (1.27) (1.15)
----------- ------- ------- ------
NET ASSET VALUE, END OF PERIOD $ 7.75 $ 6.13 $ 5.87 $ 7.94
----------- ------- ------- ------
----------- ------- ------- ------
TOTAL RETURN 26.43% 8.33% (9.64)% (1.67)%
----------- ------- ------- ------
----------- ------- ------- ------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $ 2,134 $ 1,083 $ 1,703 $ 3,431
Ratio of Expenses to Average Net Assets (2) 1.26%** 1.36% 1.31% 1.25%**
Ratio of Expenses to Average Net Assets
Excluding Interest Expense 1.25%** 1.25% 1.25% N/A
Ratio of Net Investment Loss to Average Net
Assets (2) (0.40)%** (0.25)% (0.53)% (0.26)%**
Portfolio Turnover Rate 16% 66% 40% 38%
- ---------------
(2) Effect of voluntary expense limitation
during the period:
Per share benefit to net investment
income (loss) $0.04 $0.02 $0.01 $0.01
Ratios before expense limitation:
Expenses to Average Net Assets 1.50%** 1.55% 1.38% 1.31%**
Net Investment Loss to Average Net
Assets (0.65)%** (0.42)% (0.60)% (0.32)%**
</TABLE>
- --------------------------------------------------------------------------------
* Commencement of Operations
** Annualized
*** The Portfolio began offering Class B Shares on January 2, 1996.
+ The amount shown for the year ended December 31, 1995 for a share
outstanding throughout the year does not agree with the amount of
aggregate net gains on investments for the year because of the timing of
sales and repurchases of the Portfolio shares in relation to fluctuating
market value of the investments in the Portfolio.
++ Per share amounts for the six months ended June 30, 1999 and the year
ended December 31, 1996 are based on average shares outstanding.
+++ Amount is less than $0.01 per share.
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
179
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS:
- --------------------------------------------------------------------------------
LATIN AMERICAN PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
--------------------------------------------------------------
SIX MONTHS PERIOD FROM
ENDED JANUARY 18,
JUNE 30, YEAR ENDED DECEMBER 31, 1995* TO
1999 ------------------------------ DECEMBER 31,
(UNAUDITED) 1998++ 1997 1996 1995
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $6.74 $10.91 $11.32 $9.06 $10.00
----------- -------- -------- -------- ------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) (1) 0.08 0.13 (0.01) 0.14 0.05
Net Realized and Unrealized Gain (Loss) on
Investments 2.55 (4.16) 4.32 4.27 (0.92)
----------- -------- -------- -------- ------------
Total from Investment Operations 2.63 (4.03) 4.31 4.41 (0.87)
----------- -------- -------- -------- ------------
DISTRIBUTIONS
Net Investment Income -- (0.09) -- (0.13) (0.04)
Net Realized Gain -- (0.05) (4.04) (2.02) --
For Excess of Net Realized Gain -- -- (0.68) -- --
Return of Capital -- -- -- -- (0.03)
----------- -------- -------- -------- ------------
Total Distributions -- (0.14) (4.72) (2.15) (0.07)
----------- -------- -------- -------- ------------
NET ASSET VALUE, END OF PERIOD $9.37 $6.74 $10.91 $11.32 $9.06
----------- -------- -------- -------- ------------
----------- -------- -------- -------- ------------
TOTAL RETURN 39.02% (37.10)% 41.28% 48.77% (8.68)%
----------- -------- -------- -------- ------------
----------- -------- -------- -------- ------------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $22,091 $15,012 $73,196 $30,409 $15,376
Ratio of Expenses to Average Net Assets (1) 1.75%** 1.81% 1.89% 1.70% 1.70%**
Ratio of Expense to Average Net Assets
Excluding Country Tax and Interest Expense 1.70%** 1.64% 1.70% 1.70% 1.70%**
Ratio of Net Investment Income (Loss) to
Average Net Assets (1) 2.19%** 1.40% (0.14)% 1.21% 1.62%**
Portfolio Turnover Rate 73% 196% 286% 192% 137%
- ---------------
(1) Effect of voluntary expense limitation
during the period:
Per share benefit to net investment
income $0.03 N/A $0.01 $0.05 $0.09
Ratios before expense limitation:
Expenses to Average Net Assets 2.56%** N/A 1.96% 2.18% 3.13%**
Net Investment Income (Loss) to Average
Net Assets 1.38%** N/A (0.21)% 0.75% (0.48)%**
- -------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
--------------------------------------------------------
SIX MONTHS PERIOD FROM
ENDED JANUARY 2,
JUNE 30, YEAR ENDED DECEMBER 31, 1996*** TO
1999 ----------------------- DECEMBER 31,
(UNAUDITED) 1998++ 1997 1996
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 6.78 $ 10.80 $ 11.31 $ 9.44
----------- -------- -------- ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (2) 0.09 0.12 -- 0.09
Net Realized and Unrealized Gain (Loss) on
Investments 2.53 (4.09) 4.21 3.90
----------- -------- -------- ------
Total from Investment Operations 2.62 (3.97) 4.21 3.99
----------- -------- -------- ------
DISTRIBUTIONS
Net Investment Income -- -- -- (0.10)
Net Realized Gain -- (0.05) (4.04) (2.02)
In Excess of Net Realized Gain -- -- (0.68) --
----------- -------- -------- ------
Total Distributions -- (0.05) (4.72) (2.12)
----------- -------- -------- ------
NET ASSET VALUE, END OF PERIOD $ 9.40 $ 6.78 $ 10.80 $ 11.31
----------- -------- -------- ------
----------- -------- -------- ------
TOTAL RETURN 38.64% (36.86)% 40.37% 42.44%
----------- -------- -------- ------
----------- -------- -------- ------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $1,514 $1,148 $6,709 $1,333
Ratio of Expenses to Average Net Assets (2) 2.01%** 2.01% 2.14% 1.95%**
Ratio of Expense to Average Net Assets
Excluding Country Tax and Interest Expense 1.95%** 1.85% 1.95% 1.95%**
Ratio of Net Investment Income (Loss) to
Average Net Assets (2) 1.84%** 1.24% (0.34)% 0.89%**
Portfolio Turnover Rate 73% 196% 286% 192%
- ---------------
(2) Effect of voluntary expense limitation
during the period:
Per share benefit to net investment
income $ 0.04 N/A $ 0.00+ $ 0.05
Ratios before expense limitation:
Expenses to Average Net Assets 2.82%** N/A 2.21% 2.43%**
Net Investment Income (Loss) to Average
Net Assets 1.03%** N/A (0.41)% 0.42%**
</TABLE>
- --------------------------------------------------------------------------------
* Commencement of Operations
** Annualized
*** The Portfolio began offering Class B Shares on January 2, 1996.
+ Amount is less than $0.01 per share
++ Per share amounts for the year ended December 31, 1998 are based on
average shares outstanding.
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
180
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS:
- --------------------------------------------------------------------------------
AGGRESSIVE EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
-----------------------------------------------------------------
SIX MONTHS PERIOD FROM
ENDED MARCH 18,
JUNE 30, YEAR ENDED DECEMBER 31, 1995* TO
1999 --------------------------------- DECEMBER 31,
(UNAUDITED) 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $17.50 $15.78 $14.43 $12.17 $10.00
----------- --------- --------- --------- ------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1) (0.05) 0.00+ 0.01 0.18 0.15
Net Realized and Unrealized Gain (Loss) on
Investments 4.25 2.42 4.58 4.73 3.95
----------- --------- --------- --------- ------------
Total from Investment Operations 4.20 2.42 4.59 4.91 4.10
----------- --------- --------- --------- ------------
DISTRIBUTIONS
Net Investment Income -- -- (0.01) (0.17) (0.15)
In Excess of Net Investment Income -- -- (0.00)+ -- --
Net Realized Gain -- (0.38) (3.23) (2.48) (1.78)
In Excess of Net Realized Gain -- (0.32) -- -- --
----------- --------- --------- --------- ------------
Total Distributions -- (0.70) (3.24) (2.65) (1.93)
----------- --------- --------- --------- ------------
NET ASSET VALUE, END OF PERIOD $21.70 $17.50 $15.78 $14.43 $12.17
----------- --------- --------- --------- ------------
----------- --------- --------- --------- ------------
TOTAL RETURN 24.00% 15.35% 33.31% 40.90% 41.25%
----------- --------- --------- --------- ------------
----------- --------- --------- --------- ------------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $113,789 $130,732 $155,087 $68,480 $28,548
Ratio of Expenses to Average Net Assets (1) 1.02%** 1.01% 1.02% 1.00% 1.00%**
Ratio of Expenses to Average Net Assets
Excluding Interest Expense 1.00%** 1.00% 1.00% N/A N/A
Ratio of Net Investment Income (Loss) to
Average Net Assets (1) (0.41)%** 0.01% 0.08% 1.26% 1.64%**
Portfolio Turnover Rate 89% 373% 302% 380% 309%
- ---------------
(1) Effect of voluntary expense limitation
during the period:
Per share benefit to net investment
income $0.01 $0.01 $0.01 $0.03 $0.06
Ratios before expense limitation:
Expenses to Average Net Assets 1.10%** 1.03% 1.08% 1.24% 1.59%**
Net Investment Income (Loss) to Average
Net Assets (0.50)%** (0.01)% 0.02% 1.02% 1.05%**
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
---------------------------------------------------------------
SIX MONTHS PERIOD FROM
ENDED JANUARY 2,
JUNE 30, YEAR ENDED DECEMBER 31, 1996*** TO
1999 ------------------------------ DECEMBER 31,
(UNAUDITED) 1998 1997 1996
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $17.40 $15.72 $14.42 $12.25
----------- ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) (2) (0.06) (0.06) (0.01) 0.13
Net Realized and Unrealized Gain on
Investments 4.22 2.44 4.55 4.67
----------- ------ ------ ------
Total from Investment Operations 4.16 2.38 4.54 4.80
----------- ------ ------ ------
DISTRIBUTIONS
Net Investment Income -- -- (0.01) (0.15)
In Excess of Net Investment Income -- -- (0.00)+ --
Net Realized Gain -- (0.38) (3.23) (2.48)
In Excess of Net Realized Gain -- (0.32) -- --
----------- ------ ------ ------
Total Distributions -- (0.70) (3.24) (2.63)
----------- ------ ------ ------
NET ASSET VALUE, END OF PERIOD $ 21.56 $ 17.40 $ 15.72 $ 14.42
----------- ------ ------ ------
----------- ------ ------ ------
TOTAL RETURN 23.91% 15.15% 32.90% 39.72%
----------- ------ ------ ------
----------- ------ ------ ------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $19,521 $16,682 $18,277 $8,805
Ratio of Expenses to Average Net Assets (2) 1.27%** 1.26% 1.27% 1.25%**
Ratio of Expenses to Average Net Assets
Excluding Interest Expense 1.25%** 1.25% 1.25% N/A
Ratio of Net Investment Income (Loss) to
Average Net Assets (2) (0.67)%** (0.26)% (0.18)% 0.95%**
Portfolio Turnover Rate 89% 373% 302% 380%
- ---------------
(2) Effect of voluntary expense limitation
during the period:
Per share benefit to net investment
income (loss) $0.01 $0.00+ $0.00+ $0.03
Ratios before expense limitation:
Expenses to Average Net Assets 1.35%** 1.28% 1.33% 1.47%**
Net Investment Income (Loss) to Average
Net Assets (0.76)%** (0.28)% (0.24)% 0.73%**
</TABLE>
- --------------------------------------------------------------------------------
* Commencement of Operations
** Annualized
*** The Portfolio began offering Class B Shares on January 2, 1996.
+ Amount is less than $0.01 per share.
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
181
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS:
- --------------------------------------------------------------------------------
EMERGING GROWTH PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
-----------------------------------------------------------------------
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
1999 ------------------------------------------------------
(UNAUDITED) 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.07 $ 7.72 $ 13.50 $ 21.49 $ 16.12 $ 16.22
----------- -------- -------- -------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) (1) (0.03) 0.09 (0.07) (0.19) (0.18) (0.09)
Net Realized and Unrealized Gain (Loss) on
Investments 2.37 1.97 1.09 0.89 5.55 (0.01)
----------- -------- -------- -------- --------- ---------
Total from Investment Operations 2.34 2.06 1.02 0.70 5.37 (0.10)
----------- -------- -------- -------- --------- ---------
DISTRIBUTIONS
Net Investment Income -- (0.09) -- -- -- --
Net Realized Gain -- (1.62) (6.80) (8.69) -- --
----------- -------- -------- -------- --------- ---------
Total Distributions -- (1.71) (6.80) (8.69) -- --
----------- -------- -------- -------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 10.41 $ 8.07 $ 7.72 $ 13.50 $ 21.49 $ 16.12
----------- -------- -------- -------- --------- ---------
----------- -------- -------- -------- --------- ---------
TOTAL RETURN 29.00% 27.54% 11.36% 3.72% 33.31% (0.62)%
----------- -------- -------- -------- --------- ---------
----------- -------- -------- -------- --------- ---------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $38,976 $73,276 $57,777 $62,793 $119,378 $117,669
Ratio of Expenses to Average Net Assets (1) 1.25%** 1.25% 1.25% 1.25% 1.25% 1.25%
Ratio of Net Investment Income (Loss) to
Average Net Assets (1) (0.58)%** 1.06% (0.87)% (0.88)% (0.76)% (0.61)%
Portfolio Turnover Rate 99% 331% 228% 33% 25% 24%
- ---------------
(1) Effect of voluntary expense limitation
during the period:
Per share benefit to net investment loss $0.01 $0.01 $0.01 $0.01 $0.003 $0.002
Ratios before expense limitation:
Expenses to Average Net Assets 1.49%** 1.35% 1.34% 1.30% 1.26% 1.26%
Net Investment Income (Loss) to Average
Net Assets (0.82)%** 0.96% (0.95)% (0.92)% (0.77)% (0.62)%
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
----------------------------------------------------------
SIX MONTHS PERIOD FROM
ENDED JANUARY 2,
JUNE 30, YEAR ENDED DECEMBER 31, 1996*** TO
1999 ------------------------- DECEMBER 31,
(UNAUDITED) 1998 1997 1996
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 7.93 $ 7.63 $ 13.45 $ 21.47
----------- -------- -------- ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) (2) (0.04) 0.09 (0.06) (0.15)
Net Realized and Unrealized Gain on
Investments 2.33 1.90 1.04 0.82
----------- -------- -------- ------
Total From Operations 2.29 1.99 0.98 0.67
----------- -------- -------- ------
DISTRIBUTIONS
Net Investment Income -- (0.07) -- --
Net Realized Gain -- (1.62) (6.80) (8.69)
----------- -------- -------- ------
Total Distributions -- (1.69) (6.80) (8.69)
----------- -------- -------- ------
NET ASSET VALUE, END OF PERIOD $ 10.22 $ 7.93 $ 7.63 $ 13.45
----------- -------- -------- ------
----------- -------- -------- ------
TOTAL RETURN 28.88% 26.86% 11.13% 3.58%
----------- -------- -------- ------
----------- -------- -------- ------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $1,735 $1,282 $1,313 $3,997
Ratio of Expenses to Average Net Assets (2) 1.50%** 1.50% 1.50% 1.50%**
Ratio of Net Investment Income (Loss) to
Average Net Assets (2) (0.88)%** 0.88% (1.12)% (1.09)%**
Portfolio Turnover Rate 99% 331% 228% 33%
- ---------------
(2) Effect of voluntary expense limitation during the period:
Per share benefit to net investment loss $0.01 $0.01 $0.00+ $0.01
Ratios before expense limitation:
Expenses to Average Net Assets 1.77%** 1.60% 1.58% 1.54%**
Net Investment Income (Loss) to Average
Net Assets (1.14)%** 0.78% (1.21)% (1.14)%**
</TABLE>
- --------------------------------------------------------------------------------
** Annualized
*** The Portfolio began offering Class B Shares on January 2, 1996.
+ Amount is less than $0.01 per share.
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
182
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS:
- --------------------------------------------------------------------------------
EQUITY GROWTH PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
--------------------------------------------------------------------------
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
1999 ---------------------------------------------------------
(UNAUDITED) 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $19.04 $16.93 $14.94 $14.14 $12.02 $12.14
----------- --------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) (1) (0.01) 0.04 0.06 0.17 0.22 0.17
Net Realized and Unrealized Gain on
Investments 2.96 3.17 4.48 4.07 4.93 0.21
----------- --------- --------- --------- --------- ---------
Total from Investment Operations 2.95 3.21 4.54 4.24 5.15 0.38
----------- --------- --------- --------- --------- ---------
DISTRIBUTIONS
Net Investment Income -- (0.03) (0.06) (0.17) (0.28) (0.13)
In Excess of Net Investment Income -- -- (0.00)+ -- -- --
Net Realized Gain -- (0.64) (2.49) (3.27) (2.75) (0.37)
In Excess of Net Realized Gain -- (0.43) -- -- -- --
----------- --------- --------- --------- --------- ---------
Total Distributions -- (1.10) (2.55) (3.44) (3.03) (0.50)
----------- --------- --------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD $21.99 $19.04 $16.93 $14.94 $14.14 $12.02
----------- --------- --------- --------- --------- ---------
----------- --------- --------- --------- --------- ---------
TOTAL RETURN 15.49% 19.04% 31.32% 30.97% 45.02% 3.26%
----------- --------- --------- --------- --------- ---------
----------- --------- --------- --------- --------- ---------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $867,908 $784,565 $591,789 $352,703 $158,112 $97,259
Ratio of Expenses to Average Net Assets (1) 0.80%** 0.80% 0.80% 0.80% 0.80% 0.80%
Ratio of Net Investment Income (Loss) to
Average Net Assets (1) (0.09)%** 0.22% 0.35% 1.12% 1.57% 1.44%
Portfolio Turnover Rate 61% 156% 177% 186% 186% 146%
- ---------------
(1) Effect of voluntary expense limitation
during the period:
Per share benefit to net investment
income $0.00+ $0.00+ $0.00+ $0.01 $0.01 $0.01
Ratios before expense limitation:
Expenses to Average Net Assets 0.81%** 0.80% 0.82% 0.88% 0.88% 0.89%
Net Investment Income (Loss) to Average
Net Assets (0.10)%** 0.22% 0.33% 1.04% 1.49% 1.35%
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
-----------------------------------------------------------
SIX MONTHS PERIOD FROM
ENDED JANUARY 2,
JUNE 30, YEAR ENDED DECEMBER 31, 1996*** TO
1999 -------------------------- DECEMBER 31,
(UNAUDITED) 1998 1997 1996
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $18.97 $16.91 $14.92 $14.22
----------- --------- --------- ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) (2) (0.01) 0.00+ 0.04 0.13
Net Realized and Unrealized Gain on
Investments 2.92 3.15 4.46 3.99
----------- --------- --------- ------
Total from Investment Operations 2.91 3.15 4.50 4.12
----------- --------- --------- ------
DISTRIBUTIONS
Net Investment Income -- (0.02) (0.02) (0.15)
Net Realized Gain -- (0.64) (2.49) (3.27)
In Excess of Net Realized Gain -- (0.43) -- --
----------- --------- --------- ------
Total Distributions -- (1.09) (2.51) (3.42)
----------- --------- --------- ------
NET ASSET VALUE, END OF PERIOD $21.88 $18.97 $16.91 $14.92
----------- --------- --------- ------
----------- --------- --------- ------
TOTAL RETURN 15.34% 18.71% 31.05% 29.92%
----------- --------- --------- ------
----------- --------- --------- ------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $169,028 $83,330 $27,879 $5,498
Ratio of Expenses to Average Net Assets (2) 1.05%** 1.05% 1.05% 1.05%**
Ratio of Net Investment Income (Loss) to
Average Net Assets (2) (0.31)%** (0.02)% 0.10% 0.91%**
Portfolio Turnover Rate 61% 156% 177% 186%
- ---------------
(2) Effect of voluntary expense limitation during the period:
Per share benefit to net investment
income $0.00+ $0.00+ $0.01 $0.01
Ratios before expense limitation:
Expenses to Average Net Assets 1.06%** 1.05% 1.07% 1.12%**
Net Investment Income (Loss) to Average
Net Assets (0.32)%** (0.02)% 0.08% 0.84%**
</TABLE>
- --------------------------------------------------------------------------------
** Annualized
*** The Portfolio began offering Class B Shares on January 2, 1996.
+ Amount is less than $0.01 per share.
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
183
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS:
- --------------------------------------------------------------------------------
TECHNOLOGY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
---------------------------------------------------------
SIX MONTHS PERIOD FROM
ENDED SEPTEMBER 16,
JUNE 30, YEAR ENDED DECEMBER 31, 1996* TO
1999 ------------------------ DECEMBER 31,
(UNAUDITED) 1998++ 1997 1996
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 17.98 $ 11.73 $ 10.71 $ 10.00
----------- --------- --------- ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) (1) (0.11) (0.13) 0.07 (0.02)
Net Realized and Unrealized Gain on
Investments 8.00 6.45 3.75 0.73
----------- --------- --------- ------
Total from Investment Operations 7.89 6.32 3.82 0.71
----------- --------- --------- ------
DISTRIBUTIONS
Net Investment Income -- -- (0.26) --
Net Realized Gain -- (0.07) (1.28) --
In Excess of Net Realized Gain -- -- (1.00) --
Return of Capital -- -- (0.26) --
----------- --------- --------- ------
Total Distributions -- (0.07) (2.80) --
----------- --------- --------- ------
NET ASSET VALUE, END OF PERIOD $ 25.87 $ 17.98 $ 11.73 $ 10.71
----------- --------- --------- ------
----------- --------- --------- ------
TOTAL RETURN 43.88% 53.90% 37.27% 7.10%
----------- --------- --------- ------
----------- --------- --------- ------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $30,368 $27,506 $31,788 $3,595
Ratio of Expenses to Average Net Assets (1) 1.16%** 1.29% 1.25% 1.25%**
Ratio of Expenses to Average Net Assets
Excluding Interest Expense N/A 1.25% N/A N/A
Ratio of Net Investment Loss to Average Net
Assets (1) (0.97)%** (0.95)% (1.07)% (0.70)%**
Portfolio Turnover Rate 175% 265% 622% 77%
- ---------------
(1) Effect of voluntary expense limitation
during the period:
Per share benefit to net investment loss N/A $0.07 $0.08 $0.22
Ratios before expense limitation:
Expenses to Average Net Assets N/A 1.82% 2.47% 8.51%**
Net Investment Loss to Average Net
Assets N/A (1.47)% (2.30)% (7.96)%**
- --------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
---------------------------------------------------------
SIX MONTHS PERIOD FROM
ENDED SEPTEMBER 16,
JUNE 30, YEAR ENDED DECEMBER 31, 1996* TO
1999 ------------------------ DECEMBER 31,
(UNAUDITED) 1998++ 1997 1996
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 17.92 $ 11.72 $ 10.71 $ 10.00
----------- -------- -------- ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) (2) 0.04 (0.16) 0.04 (0.02)
Net Realized and Unrealized Gain on
Investments 7.81 6.43 3.74 0.73
----------- -------- -------- ------
Total from Investment Operations 7.85 6.27 3.78 0.71
----------- -------- -------- ------
DISTRIBUTIONS
Net Investment Income -- -- (0.25) --
Net Realized Gain -- (0.07) (1.28) --
In Excess of Net Realized Gain -- -- (1.00) --
Return of Capital -- -- (0.24) --
----------- -------- -------- ------
Total Distributions -- (0.07) (2.77) --
----------- -------- -------- ------
NET ASSET VALUE, END OF PERIOD $ 25.77 $ 17.92 $ 11.72 $ 10.71
----------- -------- -------- ------
----------- -------- -------- ------
TOTAL RETURN 43.81% 53.52% 36.90% 7.10%
----------- -------- -------- ------
----------- -------- -------- ------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $2,600 $850 $2,394 $1,487
Ratio of Expenses to Average Net Assets (2) 1.41%** 1.55% 1.50% 1.50%**
Ratio of Expenses to Average Net Assets
Excluding Interest Expense N/A 1.50% N/A N/A
Ratio of Net Investment Loss to Average Net
Assets (2) (1.20)%** (1.32)% (1.41)% (1.00)%**
Portfolio Turnover Rate 175% 265% 622% 77%
- ---------------
(2) Effect of voluntary expense limitation
during the period:
Per share benefit to net investment loss N/A $0.07 $0.04 $0.19
Ratios before expense limitation:
Expenses to Average Net Assets N/A 2.08% 2.72% 9.14%**
Net Investment Loss to Average Net
Assets N/A (1.84)% (2.63)% (8.65)%**
</TABLE>
- --------------------------------------------------------------------------------
* Commencement of Operations
** Annualized
++ Per share amounts for the year ended December 31, 1998 are based on
average shares outstanding.
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
184
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS:
- --------------------------------------------------------------------------------
U.S. EQUITY PLUS PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
--------------------------------------------
SIX MONTHS PERIOD FROM
ENDED JULY 31,
JUNE 30, YEAR ENDED 1997* TO
1999++ DECEMBER 31, DECEMBER 31,
(UNAUDITED) 1998++ 1997++
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.43 $ 10.31 $ 10.00
----------- ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1) 0.02 0.09 0.06
Net Realized and Unrealized Gain on
Investments 1.46 2.10 0.33
----------- ------ ------
Total from Investment Operations 1.48 2.19 0.39
----------- ------ ------
DISTRIBUTIONS
Net Investment Income -- (0.05) (0.05)
Net Realized Gain -- -- (0.03)
In Excess of Net Realized Gain -- (0.02) --
----------- ------ ------
Total Distributions -- (0.07) (0.08)
----------- ------ ------
NET ASSET VALUE, END OF PERIOD $ 13.91 $ 12.43 $ 10.31
----------- ------ ------
----------- ------ ------
TOTAL RETURN 11.91% 21.26% 3.94%
----------- ------ ------
----------- ------ ------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $16,186 $66,640 $20,914
Ratio of Expenses to Average Net Assets (1) 0.81%** 0.80% 0.80%**
Ratio of Expenses to Average Net Assets
Excluding Interest Expense 0.80%** N/A N/A
Ratio of Net Investment Income to Average Net
Assets (1) 0.30%** 0.87% 1.32%**
Portfolio Turnover Rate 83% 228% 15%
- ---------------
(1) Effect of voluntary expense limitation
during the period:
Per share benefit to net investment
income $0.07 $0.03 $0.07
Ratios before expense limitation:
Expenses to Average Net Assets 1.27%** 1.05% 2.37%**
Net Investment Income (Loss) to Average
Net Assets (0.15)%** 0.59% (0.25)%**
- -------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
--------------------------------------------
SIX MONTHS PERIOD FROM
ENDED JULY 31,
JUNE 30, YEAR ENDED 1997* TO
1999++ DECEMBER 31, DECEMBER 31,
(UNAUDITED) 1998++ 1997++
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.42 $ 10.31 $ 10.00
----------- ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (2) 0.01 0.06 0.02
Net Realized and Unrealized Gain on
Investments 1.46 2.10 0.37
----------- ------ ------
Total from Investment Operations 1.47 2.16 0.39
----------- ------ ------
DISTRIBUTIONS
Net Investment Income -- (0.03) (0.05)
Net Realized Gain -- -- (0.03)
In Excess of Net Realized Gain -- (0.02) --
----------- ------ ------
Total Distributions -- (0.05) (0.08)
----------- ------ ------
NET ASSET VALUE, END OF PERIOD $ 13.89 $ 12.42 $ 10.31
----------- ------ ------
----------- ------ ------
TOTAL RETURN 11.84% 20.95% 3.93%
----------- ------ ------
----------- ------ ------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $1,432 $1,431 $102
Ratio of Expenses to Average Net Assets (2) 1.06%** 1.05% 1.05%**
Ratio of Expenses to Average Net Assets
Excluding Interest Expense 1.05%** N/A N/A
Ratio of Net Investment Income to Average Net
Assets (2) 0.14%** 0.52% 0.48%**
Portfolio Turnover Rate 83% 228% 15%
- ---------------
(2) Effect of voluntary expense limitation during the period:
Per share benefit to net investment
income $0.05 $0.03 $0.00+
Ratios before expense limitation:
Expenses to Average Net Assets 1.69%** 1.34% 2.63%**
Net Investment Income to Average Net
Assets (0.49)%** 0.24% (0.32)%**
</TABLE>
- --------------------------------------------------------------------------------
* Commencement of Operations
** Annualized
+ Amount is less than $0.01 per share.
++ Per share amounts for the six months ended June 30, 1999, the year
ended December 31, 1998 and the period ended December 31, 1997 are
based on average shares outstanding.
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
185
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS:
- --------------------------------------------------------------------------------
U.S. REAL ESTATE PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
-----------------------------------------------------------------
SIX MONTHS PERIOD FROM
ENDED FEBRUARY 24,
JUNE 30, YEAR ENDED DECEMBER 31, 1995* TO
1999 --------------------------------- DECEMBER 31,
(UNAUDITED) 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $12.71 $15.38 $14.41 $11.42 $10.00
----------- --------- --------- --------- ------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1) 0.27 0.47 0.42 0.37 0.26
Net Realized and Unrealized Gain (Loss) on
Investments 0.86 (2.32) 3.40 4.02 1.84
----------- --------- --------- --------- ------------
Total from Investment Operations 1.13 (1.85) 3.82 4.39 2.10
----------- --------- --------- --------- ------------
DISTRIBUTIONS
Net Investment Income (0.16) (0.49) (0.43) (0.39) (0.24)
Net Realized Gain -- (0.10) (2.16) (1.01) (0.44)
In Excess of Net Realized Gain -- (0.23) (0.26) -- --
----------- --------- --------- --------- ------------
Total Distributions (0.16) (0.82) (2.85) (1.40) (0.68)
----------- --------- --------- --------- ------------
NET ASSET VALUE, END OF PERIOD $13.68 $12.71 $15.38 $14.41 $11.42
----------- --------- --------- --------- ------------
----------- --------- --------- --------- ------------
TOTAL RETURN 9.03% (12.29)% 27.62% 39.56% 21.07%
----------- --------- --------- --------- ------------
----------- --------- --------- --------- ------------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $314,472 $259,589 $361,549 $210,368 $69,509
Ratio of Expenses to Average Net Assets (1) 1.00%** 1.00% 1.00% 1.00% 1.00%**
Ratio of Net Investment Income to Average Net
Assets (1) 4.56%** 3.33% 2.72% 3.08% 4.04%**
Portfolio Turnover Rate 28% 117% 135% 171% 158%
- ---------------
(1) Effect of voluntary expense limitation
during the period:
Per share benefit to net investment
income $0.00+ $0.00+ $0.01 $0.02 $0.02
Ratios before expense limitation:
Expenses to Average Net Assets 1.02%** 1.04% 1.04% 1.14% 1.33%**
Net Investment Income to Average Net
Assets 4.54%** 3.30% 2.68% 2.93% 3.71%**
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
----------------------------------------------------------------
SIX MONTHS PERIOD FROM
ENDED JANUARY 2,
JUNE 30, YEAR ENDED DECEMBER 31, 1996*** TO
1999 -------------------------------- DECEMBER 31,
(UNAUDITED) 1998 1997 1996
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $12.67 $15.34 $14.39 $11.50
----------- ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (2) 0.27 0.47 0.47 0.35
Net Realized and Unrealized Gain (Loss) on
Investments 0.84 (2.35) 3.29 3.92
----------- ------ ------ ------
Total from Investment Operations 1.11 (1.88) 3.76 4.27
----------- ------ ------ ------
DISTRIBUTIONS
Net Investment Income (0.15) (0.46) (0.39) (0.37)
Net Realized Gain -- (0.10) (2.16) (1.01)
In Excess of Net Realized Gain -- (0.23) (0.26) --
----------- ------ ------ ------
Total Distributions (0.15) (0.79) (2.81) (1.38)
----------- ------ ------ ------
NET ASSET VALUE, END OF PERIOD $13.63 $12.67 $15.34 $14.39
----------- ------ ------ ------
----------- ------ ------ ------
Total Return 8.91% (12.52)% 27.21% 38.23%
----------- ------ ------ ------
----------- ------ ------ ------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $14,745 $13,523 $21,231 $8,734
Ratio of Expenses to Average Net Assets (2) 1.25%** 1.25% 1.25% 1.25%**
Ratio of Net Investment Income to Average Net
Assets (2) 4.25%** 3.23% 3.49% 2.91%**
Portfolio Turnover Rate 28% 117% 135% 171%
- ---------------
(2) Effect of voluntary expense limitation
during the period:
Per share benefit to net investment
income $0.00+ $0.01 $0.00+ $0.02
Ratios before expense limitation:
Expenses to Average Net Assets 1.27%** 1.29% 1.28% 1.37%**
Net Investment Income to Average Net
Assets 4.23%** 3.20% 3.46% 2.79%**
</TABLE>
- --------------------------------------------------------------------------------
* Commencement of Operations
** Annualized
*** The Portfolio began offering Class B Shares on January 2, 1996.
+ Amount is less than $0.01 per share.
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
186
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS:
- --------------------------------------------------------------------------------
VALUE EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
-----------------------------------------------------------------------
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
1999++ ------------------------------------------------------
(UNAUDITED) 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $10.78 $13.62 $13.89 $13.94 $11.50 $12.63
----------- -------- -------- --------- --------- --------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1) 0.07 0.20 0.35 0.41 0.38 0.40
Net Realized and Unrealized Gain (Loss) on
Investments 2.20 0.98 3.51 2.27 3.30 (0.55)
----------- -------- -------- --------- --------- --------
Total from Investment Operations 2.27 1.18 3.86 2.68 3.68 (0.15)
----------- -------- -------- --------- --------- --------
DISTRIBUTIONS
Net Investment Income (0.04) (0.21) (0.35) (0.41) (0.47) (0.40)
Net Realized Gain -- (3.81) (3.78) (2.32) (0.77) (0.58)
----------- -------- -------- --------- --------- --------
Total Distributions (0.04) (4.02) (4.13) (2.73) (1.24) (0.98)
----------- -------- -------- --------- --------- --------
NET ASSET VALUE, END OF PERIOD $13.01 $10.78 $13.62 $13.89 $13.94 $11.50
----------- -------- -------- --------- --------- --------
----------- -------- -------- --------- --------- --------
TOTAL RETURN 21.15% 8.79% 29.20% 19.73% 33.69% (1.29)%
----------- -------- -------- --------- --------- --------
----------- -------- -------- --------- --------- --------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $59,026 $57,543 $86,054 $106,128 $147,365 $73,406
Ratio of Expenses to Average Net Assets (1) 0.76%** 0.70% 0.70% 0.70% 0.70% 0.70%
Ratio of Expenses to Average Net Assets
Excluding Interest Expense 0.70%** N/A N/A N/A N/A N/A
Ratio of Net Investment Income to Average Net
Assets (1) 1.25%** 1.36% 2.15% 2.62% 3.01% 3.37%
Portfolio Turnover Rate 56% 153% 36% 42% 43% 33%
- ---------------
(1) Effect of voluntary expense limitation
during the period:
Per share benefit to net investment
income $0.01 $0.02 $0.02 $0.01 $0.01 $0.01
Ratios before expense limitation:
Expenses to Average Net Assets 0.92%** 0.82% 0.80% 0.78% 0.77% 0.80%
Net Investment Income to Average Net
Assets 1.09%** 1.25% 2.06% 2.55% 2.94% 3.27%
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
----------------------------------------------------------------
SIX MONTHS PERIOD FROM
ENDED JANUARY 2,
JUNE 30, YEAR ENDED DECEMBER 31, 1996*** TO
1999++ -------------------------------- DECEMBER 31,
(UNAUDITED) 1998 1997 1996
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.76 $ 13.59 $ 13.89 $ 14.06
----------- ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (2) 0.06 0.07 0.28 0.29
Net Realized and Unrealized Gain on
Investments 2.19 1.08 3.51 2.25
----------- ------ ------ ------
Total from Investment Operations 2.25 1.15 3.79 2.54
----------- ------ ------ ------
DISTRIBUTIONS
Net Investment Income (0.04) (0.17) (0.31) (0.39)
Net Realized Gain -- (3.81) (3.78) (2.32)
----------- ------ ------ ------
Total Distributions (0.04) (3.98) (4.09) (2.71)
----------- ------ ------ ------
NET ASSET VALUE, END OF PERIOD $12.97 $10.76 $13.59 $13.89
----------- ------ ------ ------
----------- ------ ------ ------
TOTAL RETURN 20.91% 8.59% 28.70% 18.57%
----------- ------ ------ ------
----------- ------ ------ ------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $631 $1,045 $2,246 $2,555
Ratio of Expenses to Average Net Assets (2) 1.02%** 0.95% 0.95% 0.95%**
Ratio of Expenses to Average Net Assets
Excluding Interest Expense 0.95% N/A N/A N/A
Ratio of Net Investment Income to Average Net
Assets (2) 1.08%** 1.12% 1.86% 2.33%**
Portfolio Turnover Rate 56% 153% 36% 42%
- ---------------
(2) Effect of voluntary expense limitation
during the period:
Per share benefit to net investment
income $0.02 $0.02 $0.01 $0.01
Ratios before expense limitation:
Expenses to Average Net Assets 1.19%** 1.07% 1.04% 1.03%**
Net Investment Income to Average Net
Assets 0.91%** 1.01% 1.77% 2.26%**
</TABLE>
- --------------------------------------------------------------------------------
** Annualized
*** The Portfolio began offering Class B Shares on January 2, 1996.
++ Per share amounts for the six months ended June 30, 1999 are based on
average shares outstanding.
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
187
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS:
- --------------------------------------------------------------------------------
EMERGING MARKETS DEBT PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
-----------------------------------------------------------------------------
SIX MONTHS PERIOD FROM
ENDED FEBRUARY 1,
JUNE 30, YEAR ENDED DECEMBER 31, 1994* TO
1999 ++ --------------------------------------------- DECEMBER 31,
(UNAUDITED) 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 2.61 $ 5.77 $ 7.54 $ 8.59 $ 8.59 $ 10.00
----------- --------- --------- --------- --------- ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.17 1.13 0.74 1.54 1.36 0.50
Net Realized and Unrealized Gain (Loss) on
Investments 0.14 (3.19) 0.55 2.79 0.91 (1.91)
----------- --------- --------- --------- --------- ------
Total from Investment Operations 0.31 (2.06) 1.29 4.33 2.27 (1.41)
----------- --------- --------- --------- --------- ------
DISTRIBUTIONS
Net Investment Income -- (1.08) (0.71) (1.17) (1.86) --
In Excess of Net Investment Income -- (0.02) -- (0.01) -- --
Net Realized Gain -- -- (2.17) (4.20) (0.41) --
In Excess of Net Realized Gain -- -- (0.08) -- -- --
Return of Capital -- -- (0.10) -- -- --
----------- --------- --------- --------- --------- ------
Total Distributions -- (1.10) (3.06) (5.38) (2.27) --
----------- --------- --------- --------- --------- ------
NET ASSET VALUE, END OF PERIOD $ 2.92 $ 2.61 $ 5.77 $ 7.54 $ 8.59 $ 8.59
----------- --------- --------- --------- --------- ------
----------- --------- --------- --------- --------- ------
TOTAL RETURN 11.45% (35.95)% 18.29% 50.52% 28.23% (14.10)%
----------- --------- --------- --------- --------- ------
----------- --------- --------- --------- --------- ------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $57,403 $46,234 $142,382 $152,142 $181,878 $144,949
Ratio of Expenses to Average Net Assets 1.47%** 2.38% 1.60% 2.70% 1.75% 1.49%**
Ratio of Expenses to Average Net Assets
Excluding Interest and Country Tax Expense N/A 1.34% N/A N/A N/A N/A
Ratio of Net Investment Income to Average Net
Assets 12.46%** 11.61% 8.06% 11.66% 14.70% 9.97%**
Portfolio Turnover Rate 132% 457% 417% 560% 406% 273%
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
--------------------------------------------------------------
SIX MONTHS PERIOD FROM
ENDED JANUARY 2,
JUNE 30, YEAR ENDED DECEMBER 31, 1996*** TO
1999 ++ ------------------------------ DECEMBER 31,
(UNAUDITED) 1998 1997 1996
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 2.66 $ 5.77 $ 7.53 $ 8.68
----------- ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.16 1.13 0.69 1.01
Net Realized and Unrealized Gain (Loss) on
Investments 0.13 (3.17) 0.59 3.20
----------- ------ ------ ------
Total from Investment Operations 0.29 (2.04) 1.28 4.21
----------- ------ ------ ------
DISTRIBUTIONS
Net Investment Income -- (1.05) (0.69) (1.15)
In Excess of Net Investment Income -- (0.02) -- (0.01)
Net Realized Gain -- -- (2.17) (4.20)
In Excess of Net Realized Gain -- -- (0.08) --
Return of Capital -- -- (0.10) --
----------- ------ ------ ------
Total Distributions -- (1.07) (3.04) (5.36)
----------- ------ ------ ------
NET ASSET VALUE, END OF PERIOD $ 2.95 $ 2.66 $ 5.77 $ 7.53
----------- ------ ------ ------
----------- ------ ------ ------
TOTAL RETURN 10.90% (35.37)% 18.05% 48.52%
----------- ------ ------ ------
----------- ------ ------ ------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $1,006 $1,187 $2,281 $4,253
Ratio of Expenses to Average Net Assets 1.72%** 2.62% 1.91% 2.81%**
Ratio of Expenses to Average Net Assets
Excluding Interest and Country Tax Expense N/A 1.60% N/A N/A
Ratio of Net Investment Income to Average Net
Assets 12.05%** 11.09% 7.87% 11.09%**
Portfolio Turnover Rate 132% 457% 417% 560%
</TABLE>
- --------------------------------------------------------------------------------
* Commencement of Operations
** Annualized
*** The Portfolio began offering Class B Shares on January 2, 1996.
++ Per share amounts for the six months ended June 30, 1999 are based on
average shares outstanding.
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
188
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS:
- --------------------------------------------------------------------------------
FIXED INCOME PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
--------------------------------------------------------------------------
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
1999 ---------------------------------------------------------
(UNAUDITED) 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $11.08 $10.88 $10.58 $10.81 $9.82 $11.05
----------- --------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1) 0.30 0.62 0.65 0.67 0.72 0.59
Net Realized and Unrealized Gain (Loss) on
Investments (0.53) 0.22 0.33 (0.20) 1.06 (0.92)
----------- --------- --------- --------- --------- ---------
Total from Investment Operations (0.23) 0.84 0.98 0.47 1.78 (0.33)
----------- --------- --------- --------- --------- ---------
DISTRIBUTIONS
Net Investment Income (0.25) (0.61) (0.68) (0.70) (0.79) (0.53)
In Excess of Net Investment Income -- -- (0.00)+ (0.00)+ -- --
Net Realized Gain -- (0.03) -- -- -- (0.37)
In Excess of Net Realized Gain -- -- -- -- -- (0.00)+
----------- --------- --------- --------- --------- ---------
Total Distributions (0.25) (0.64) (0.68) (0.70) (0.79) (0.90)
----------- --------- --------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD $10.60 $11.08 $10.88 $10.58 $10.81 $9.82
----------- --------- --------- --------- --------- ---------
----------- --------- --------- --------- --------- ---------
TOTAL RETURN (2.10)% 7.93% 9.54% 4.61% 18.76% (3.10)%
----------- --------- --------- --------- --------- ---------
----------- --------- --------- --------- --------- ---------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $196,279 $212,718 $183,192 $130,733 $165,527 $209,331
Ratio of Expenses to Average Net Assets (1) 0.46%** 0.45% 0.45% 0.45% 0.45% 0.45%
Ratio of Expenses to Average Net Assets
Excluding Interest Expense 0.45%** N/A N/A N/A N/A N/A
Ratio of Net Investment Income to Average Net
Assets (1) 5.61%** 5.63% 6.11% 6.30% 6.85% 5.73%
Portfolio Turnover Rate 52% 176% 163% 183% 172% 388%
- ---------------
(1) Effect of voluntary expense limitation
during the period:
Per share benefit to net investment
income $0.01 $0.01 $0.02 $0.02 $0.01 $0.01
Ratios before expense limitation:
Expenses to Average Net Assets 0.58%** 0.58% 0.60% 0.60% 0.59% 0.58%
Net Investment Income to Average Net
Assets 5.49%** 5.51% 5.97% 6.15% 6.71% 5.60%
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
------------------------------------------------------
SIX MONTHS PERIOD FROM
ENDED YEAR ENDED DECEMBER JANUARY 2,
JUNE 30, 31, 1996*** TO
1999 ---------------------- DECEMBER 31,
(UNAUDITED) 1998 1997 1996
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.10 $ 10.89 $ 10.58 $ 10.81
----------- ------- ------- ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (2) 0.30 0.61 0.64 0.64
Net Realized and Unrealized Gain (Loss) on
Investments (0.54) 0.22 0.33 (0.19)
----------- ------- ------- ------
Total from Investment Operations (0.24) 0.83 0.97 0.45
----------- ------- ------- ------
DISTRIBUTIONS
Net Investment Income (0.25) (0.59) (0.66) (0.68)
Net Realized Gain -- (0.03) -- --
----------- ------- ------- ------
Total Distributions (0.25) (0.62) (0.66) (0.68)
----------- ------- ------- ------
NET ASSET VALUE, END OF PERIOD $ 10.61 $ 11.10 $ 10.89 $ 10.58
----------- ------- ------- ------
----------- ------- ------- ------
TOTAL RETURN (2.23)% 7.85% 9.48% 4.35%
----------- ------- ------- ------
----------- ------- ------- ------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $2,383 $3,649 $4,834 $1,462
Ratio of Expenses to Average Net Assets (2) 0.61%** 0.60% 0.60% 0.60%**
Ratio of Expenses to Average Net Assets
Excluding Interest Expense 0.60%** N/A N/A N/A
Ratio of Net Investment Income to Average Net
Assets (2) 5.44%** 5.50% 5.93% 6.15%**
Portfolio Turnover Rate 52% 176% 163% 183%
- ---------------
(2) Effect of voluntary expense limitation during the period:
Per share benefit to net investment
income $0.01 $0.01 $0.02 $0.01
Ratios before expense limitation:
Expenses to Average Net Assets 0.73%** 0.72% 0.74% 0.74%**
Net Investment Income to Average Net
Assets 5.32%** 5.38% 5.78% 6.01%**
</TABLE>
- --------------------------------------------------------------------------------
** Annualized
*** The Portfolio began offering Class B Shares on January 2, 1996.
+ Amount is less than $0.01 per share.
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
189
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS:
- --------------------------------------------------------------------------------
GLOBAL FIXED INCOME PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, 1999 -----------------------------------------------------
(UNAUDITED)++ 1998++ 1997++ 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $12.51 $11.15 $11.30 $11.22 $10.29 $11.68
------ ------- ------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1) 0.28 0.55 0.56 0.61 0.76 0.70
Net Realized and Unrealized Gain (Loss) on
Investments (1.19) 0.98 (0.40) 0.08 1.15 (1.38)
------ ------- ------- --------- --------- ---------
Total from Investment Operations (0.91) 1.53 0.16 0.69 1.91 (0.68)
------ ------- ------- --------- --------- ---------
DISTRIBUTIONS
Net Investment Income (0.08) (0.17) (0.31) (0.61) (0.98) (0.40)
Net Realized Gain -- -- -- -- -- (0.31)
------ ------- ------- --------- --------- ---------
Total Distributions (0.08) (0.17) (0.31) (0.61) (0.98) (0.71)
------ ------- ------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD $11.52 $12.51 $11.15 $11.30 $11.22 $10.29
------ ------- ------- --------- --------- ---------
------ ------- ------- --------- --------- ---------
TOTAL RETURN (7.32)% 13.84% 1.50% 6.44% 19.32% (6.08)%
------ ------- ------- --------- --------- ---------
------ ------- ------- --------- --------- ---------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $35,117 $45,884 $84,635 $112,888 $102,852 $130,675
Ratio of Expenses to Average Net Assets (1) 0.50%** 0.50% 0.50% 0.50% 0.50% 0.50%
Ratio of Net Investment Income to Average Net
Assets (1) 4.09%** 4.76% 5.05% 5.50% 6.79% 6.34%
Portfolio Turnover Rate 45% 110% 116% 258% 207% 171%
- ---------------
(1) Effect of voluntary expense limitation
during the period:
Per share benefit to net investment
income $0.02 $0.03 $0.02 $0.02 $0.02 $0.02
Ratios before expense limitation:
Expenses to Average Net Assets 0.82%** 0.81% 0.71% 0.72% 0.71% 0.66%
Net Investment Income to Average Net
Assets 3.77%** 4.48% 4.84% 5.29% 6.58% 6.18%
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
--------------------------------------------------
SIX MONTHS PERIOD FROM
ENDED YEAR ENDED JANUARY 2,
JUNE 30, DECEMBER 31, 1996*** TO
1999 ------------------ DECEMBER 31,
(UNAUDITED)++ 1998++ 1997++ 1996
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $12.48 $11.13 $11.29 $11.23
----------- ------- ------- ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (2) 0.21 0.53 0.54 0.48
Net Realized and Unrealized Gain (Loss) on
Investments (1.14) 0.98 (0.40) 0.18
----------- ------- ------- ------
Total from Investment Operations (0.93) 1.51 0.14 0.66
----------- ------- ------- ------
DISTRIBUTIONS
Net Investment Income (0.07) (0.16) (0.30) (0.60)
----------- ------- ------- ------
Total Distributions (0.07) (0.16) (0.30) (0.60)
----------- ------- ------- ------
NET ASSET VALUE, END OF PERIOD $11.48 $12.48 $11.13 $11.29
----------- ------- ------- ------
----------- ------- ------- ------
TOTAL RETURN (7.46)% 13.68% 1.29% 6.12%
----------- ------- ------- ------
----------- ------- ------- ------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $324 $362 $366 $1,559
Ratio of Expenses to Average Net Assets (2) 0.65%** 0.65% 0.65% 0.65%**
Ratio of Net Investment Income to Average Net
Assets (2) 3.93%** 4.54% 4.88% 5.28%**
Portfolio Turnover Rate 45% 110% 116% 258%
- ---------------
(2) Effect of voluntary expense limitation during the
period:
Per share benefit to net investment
income $0.02 $0.03 $0.02 $0.02
Ratios before expense limitation:
Expenses to Average Net Assets 0.97%** 0.99% 0.86% 0.86%**
Net Investment Income to Average Net
Assets 3.61%** 4.26% 4.68% 5.08%**
</TABLE>
- --------------------------------------------------------------------------------
** Annualized
*** The Portfolio began offering Class B Shares on January 2, 1996.
++ Per share amounts for the period ended June 30, 1999 and for the years
ended December 31, 1998 and December 31, 1997 are based on average
shares outstanding.
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
190
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[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS:
- --------------------------------------------------------------------------------
HIGH YIELD PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
--------------------------------------------------------------------
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
1999 ---------------------------------------------------
(UNAUDITED) 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $10.75 $11.58 $10.91 $10.46 $9.55 $11.16
----------- --------- --------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1) 0.47 1.00 1.00 1.03 1.14 0.97
Net Realized and Unrealized Gain (Loss) on
Investments (0.03) (0.66) 0.67 0.47 0.97 (1.40)
----------- --------- --------- ------- ------- -------
Total from Investment Operations 0.44 0.34 1.67 1.50 2.11 (0.43)
----------- --------- --------- ------- ------- -------
DISTRIBUTIONS
Net Investment Income (0.40) (0.98) (1.00) (1.05) (1.20) (0.97)
In Excess of Net Investment Income -- (0.00)+ -- (0.00)+ -- --
Net Realized Gain -- (0.14) -- -- -- (0.21)
In Excess of Net Realized Gain -- (0.04) -- -- --
Return of Capital -- (0.01) -- -- -- --
----------- --------- --------- ------- ------- -------
Total Distributions (0.40) (1.17) (1.00) (1.05) (1.20) (1.18)
----------- --------- --------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $10.79 $10.75 $11.58 $10.91 $10.46 $9.55
----------- --------- --------- ------- ------- -------
----------- --------- --------- ------- ------- -------
TOTAL RETURN 4.14% 3.03% 15.87% 15.01% 23.35% (4.18)%
----------- --------- --------- ------- ------- -------
----------- --------- --------- ------- ------- -------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $133,966 $128,237 $113,006 $95,663 $62,245 $97,223
Ratio of Expenses to Average Net Assets (1) 0.62%** 0.67% 0.69% 0.75% 0.75% 0.75%
Ratio of Net Investment Income to Average Net
Assets (1) 8.70%** 8.70% 8.70% 9.78% 11.09% 9.42%
Portfolio Turnover Rate 28% 93% 111% 117% 90% 74%
- ---------------
(1) Effect of voluntary expense limitation
during the period:
Per share benefit to net investment
income N/A N/A N/A $0.01 $0.01 $0.001
Ratios before expense limitation:
Expenses to Average Net Assets N/A N/A N/A 0.82% 0.83% 0.76%
Net Investment Income to Average Net
Assets N/A N/A N/A 9.71% 11.01% 9.41%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
-------------------------------------------------
SIX MONTHS PERIOD FROM
ENDED YEAR ENDED JANUARY 2,
JUNE 30, DECEMBER 31, 1996*** TO
1999 ----------------- DECEMBER 31,
(UNAUDITED) 1998 1997 1996
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $10.73 $11.56 $10.90 $10.49
----------- ------- ------- ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (2) 0.45 0.90 0.97 0.98
Net Realized and Unrealized Gain (Loss) on
Investments (0.02) (0.59) 0.65 0.45
----------- ------- ------- ------
Total from Investment Operations 0.43 0.31 1.62 1.43
----------- ------- ------- ------
DISTRIBUTIONS
Net Investment Income (0.39) (0.95) (0.96) (1.02)
In Excess of Net Investment Income -- (0.00)+ -- --
Realized Net Gain -- (0.14) -- --
In Excess of Net Realized Gain -- (0.04) -- --
Return of Capital -- (0.01) -- --
----------- ------- ------- ------
Total Distributions (0.39) (1.14) (0.96) (1.02)
----------- ------- ------- ------
NET ASSET VALUE, END OF PERIOD $ 10.77 $ 10.73 $ 11.56 $ 10.90
----------- ------- ------- ------
----------- ------- ------- ------
TOTAL RETURN 4.05% 2.79% 15.48% 14.37%
----------- ------- ------- ------
----------- ------- ------- ------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $39,815 $56,804 $7,213 $5,665
Ratio of Expenses to Average Net Assets (2) 0.87%** 0.95% 0.93% 1.00%**
Ratio of Net Investment Income to Average Net
Assets (2) 8.50%** 8.73% 8.48% 9.49%**
Portfolio Turnover Rate 28% 93% 111% 117%
- ---------------
(2) Effect of voluntary expense limitation during the
periiod:
Per share benefit to net investment
income N/A N/A N/A $0.01
Ratios before expense limitation:
Expenses to Average Net Assets N/A N/A N/A 1.05%**
Net Investment Income to Average Net
Assets N/A N/A N/A 9.44%**
</TABLE>
- --------------------------------------------------------------------------------
** Annualized
*** The Portfolio began offering Class B shares on January 2, 1996.
+ Amount is less than $0.01 per share.
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
191
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[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS:
- --------------------------------------------------------------------------------
MUNICIPAL BOND PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
-----------------------------------------------------------
SIX MONTHS PERIOD FROM
ENDED JANUARY 18,
JUNE 30, YEAR ENDED DECEMBER 31, 1995* TO
1999 --------------------------- DECEMBER 31,
(UNAUDITED) 1998 1997++ 1996 1995
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $10.40 $10.51 $10.25 $10.37 $10.00
----------- ------- ------- ------- ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1) 0.25 0.50 0.47 0.49 0.44
Net Realized and Unrealized Gain (Loss) on
Investments (0.39) 0.07 0.25 (0.12) 0.42
----------- ------- ------- ------- ------
Total from Investment Operations (0.14) 0.57 0.72 0.37 0.86
----------- ------- ------- ------- ------
DISTRIBUTIONS
Net Investment Income (0.19) (0.51) (0.46) (0.49) (0.45)
In Excess of Net Investment Income -- -- (0.00)+ -- (0.00)+
Net Realized Gain -- (0.17) (0.00)+ -- (0.04)
In Excess Of Net Realized Gain -- -- (0.00)+ -- --
----------- ------- ------- ------- ------
Total Distributions (0.19) (0.68) (0.46) (0.49) (0.49)
----------- ------- ------- ------- ------
NET ASSET VALUE, END OF PERIOD $10.07 $10.40 $10.51 $10.25 $10.37
----------- ------- ------- ------- ------
----------- ------- ------- ------- ------
TOTAL RETURN (1.38)% 5.52% 7.25% 3.67% 8.80%
----------- ------- ------- ------- ------
----------- ------- ------- ------- ------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $26,626 $34,807 $60,541 $40,227 $45,869
Ratio of Expenses to Average Net Assets (1) 0.46%** 0.45% 0.45% 0.45% 0.45%**
Ratio of Expenses to Average Net Assets
Excluding Interest Expense 0.45%** N/A N/A N/A N/A
Ratio of Net Investment Income to Average Net
Assets (1) 4.65%** 4.60% 4.55% 4.77% 4.61%**
Portfolio Turnover Rate 40% 44% 80% 45% 180%
- ---------------
(1) Effect of voluntary expense limitation during the
period:
Per share benefit to net investment
income $0.02 $0.03 $0.02 $0.03 $0.03
Ratios before expense limitation:
Expenses to Average Net Assets 0.86%** 0.69% 0.68% 0.73% 0.73%**
Net Investment Income to Average Net
Assets 4.25%** 4.36% 4.33% 4.50% 4.33%**
</TABLE>
- --------------------------------------------------------------------------------
* Commencement of Operations
** Annualized
+ Amount is less than $0.01 per share.
++ Per Share amounts for the year ended December 31, 1997 are based on
average shares outstanding.
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
192
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS:
- --------------------------------------------------------------------------------
MONEY MARKET PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
1999 ---------------------------------------------------------------
(UNAUDITED) 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
----------- ----------- ----------- ----------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.020 0.051 0.051 0.049 0.054 0.040
----------- ----------- ----------- ----------- --------- ---------
DISTRIBUTIONS
Net Investment Income (0.020) (0.051) (0.051) (0.049) (0.054) (0.040)
----------- ----------- ----------- ----------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
----------- ----------- ----------- ----------- --------- ---------
----------- ----------- ----------- ----------- --------- ---------
TOTAL RETURN 2.24% 5.20% 5.20% 5.03% 5.51% 3.84%
----------- ----------- ----------- ----------- --------- ---------
----------- ----------- ----------- ----------- --------- ---------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $1,726,686 $1,958,177 $1,506,210 $1,284,633 $836,693 $690,503
Ratio of Expenses to Average Net Assets 0.50%** 0.49% 0.49% 0.52% 0.51% 0.49%
Ratio of Net Investment Income to Average Net
Assets 4.49%** 5.07% 5.12% 4.92% 5.37% 3.77%
</TABLE>
- --------------------------------------------------------------------------------
MUNICIPAL MONEY MARKET PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
1999 ---------------------------------------------------------
(UNAUDITED) 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
----------- --------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.010 0.030 0.031 0.030 0.034 0.020
----------- --------- --------- --------- --------- ---------
DISTRIBUTIONS
Net Investment Income (0.010) (0.030) (0.031) (0.030) (0.034) (0.020)
----------- --------- --------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
----------- --------- --------- --------- --------- ---------
----------- --------- --------- --------- --------- ---------
TOTAL RETURN 1.30% 3.00% 3.17% 3.02% 3.44% 2.44%
----------- --------- --------- --------- --------- ---------
----------- --------- --------- --------- --------- ---------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $1,013,221 $990,579 $804,607 $721,410 $451,519 $359,444
Ratio of Expenses to Average Net Assets 0.49%** 0.50% 0.50% 0.53% 0.52% 0.51%
Ratio of Net Investment Income to
Average Net Assets 2.60%** 2.96% 3.14% 2.98% 3.38% 2.42%
</TABLE>
- --------------------------------------------------------------------------------
** Annualized
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
193
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
Morgan Stanley Dean Witter 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 June 30, 1999, the Fund was comprised of 26 separate
active, diversified and non-diversified portfolios (individually referred to as
a "Portfolio", collectively as the "Portfolios"). At June 30, 1999, each
Portfolio (with the exception of the International Small Cap 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. Please refer to the
manager's reports included elsewhere in this report for a description of each
Portfolio's investment objectives.
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. The prices provided by a pricing service are determined without
regard to bid or last sale prices, but take into account institutional size
trading in similar groups of securities and any developments related to the
specific securities. Debt securities purchased with remaining maturities of 60
days or less are valued at amortized cost, if it approximates market value.
Securities owned by the Money Market and Municipal Money Market Portfolios are
stated at amortized cost which 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. Taxes may also be based on the movement of foreign currency and are
accrued based on the value of investments denominated in such currency.
3. REPURCHASE AGREEMENTS: The Portfolios may enter into repurchase agreements
under which a Portfolio lends excess cash and takes possession of securities
with an agreement that the counterparty will repurchase such securities. In
connection with transactions in repurchase agreements, a bank as custodian for
the Fund takes possession of the underlying securities which are held as
collateral, with a market value at least equal to the amount of the repurchase
transaction, including principal and accrued interest. To the extent that any
repurchase transaction exceeds one business day, the value of the collateral is
marked-to-market on a daily basis to determine the adequacy of the collateral.
In the event of default on the obligation to repurchase, the Fund has the right
to liquidate the collateral and apply the proceeds in satisfaction of the
obligation. In the event of default or bankruptcy by the counterparty to the
agreement, realization and/or retention of the collateral or proceeds may be
subject to legal proceedings.
4. 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
- --------------------------------------------------------------------------------
194
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONT.)
JUNE 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
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) 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) in the Statement of Net
Assets. The change in net unrealized currency gains (losses) for the period is
reflected in 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, the Fund values the foreign
shares at the closing exchange price of the local shares. Such securities are
identified as fair valued in the Statements of Net Assets.
5. FOREIGN CURRENCY EXCHANGE CONTRACTS: Certain Portfolios may enter into
foreign currency exchange contracts generally to attempt to protect securities
and related receivables and payables against changes in future foreign currency
exchange rates and, in certain situations, to gain exposure to foreign
currencies. 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.
6. FORWARD COMMITMENTS AND WHEN-ISSUED/DELAYED DELIVERY SECURITIES: Each
Portfolio may make forward commitments to purchase or sell securities. Payment
and delivery for securities which have been purchased or sold on a forward
commitment basis can take place up to 120 days after the date of the
transaction. Additionally, certain Portfolios may purchase securities on a
when-issued or delayed delivery basis. Securities purchased on a when-issued or
delayed delivery basis are purchased for delivery beyond the normal settlement
date at a stated price and yield, and no income accrues to the Portfolio on such
securities prior to delivery. When the Portfolio enters into a purchase
transaction on a when-issued or delayed delivery basis, it establishes either a
segregated account in which it maintains liquid assets in an amount at least
equal in value to the Portfolio's commitments to purchase such securities or
designates such assets as segregated on the Portfolio's records. Purchasing
securities on a forward commitment or when-issued or delayed-delivery basis may
involve a risk that the market price at the time of delivery may be lower than
the agreed upon purchase price, in which case there could be an unrealized loss
at the time of delivery.
- --------------------------------------------------------------------------------
195
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONT.)
JUNE 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
7. LOAN AGREEMENTS: Certain Portfolios may invest in fixed and floating rate
loans ("Loans") arranged through private negotiations between an issuer of
sovereign debt obligations and one or more financial institutions ("Lenders")
deemed to be creditworthy by the investment adviser. A Portfolio's investments
in Loans may be in the form of participations in Loans ("Participations") or
assignments of all or a portion of Loans ("Assignments") from third parties. A
Portfolio's investment in Participations typically results in the Portfolio
having a contractual relationship with only the Lender and not with the
borrower. The Portfolios have the right to receive payments of principal,
interest and any fees to which it is entitled only upon receipt by the Lender of
the payments from the borrower. The Portfolios generally have no right to
enforce compliance by the borrower in the terms of the loan agreement. As a
result, the Portfolio may be subject to the credit risk of both the borrower and
the Lender that is selling the Participation. When a Portfolio purchases
Assignments from Lenders, it typically acquires direct rights against the
borrower on the Loan. Because Assignments are arranged through private
negotiations between potential assignees and potential assignors, the rights and
obligations acquired by the Portfolio as the purchaser of an Assignment may
differ from, and be more limited than, those held by the assigning Lender.
8. SHORT SALES: Certain Portfolios may sell securities short. A short sale is a
transaction in which the Portfolios sell securities it may or may not own, but
has borrowed, in anticipation of a decline in the market price of the
securities. The Portfolios are obligated to replace the borrowed securities at
the market price at the time of replacement. The Portfolio may have to pay a
premium to borrow the securities as well as pay any dividends or interest
payable on the securities until they are replaced. A Portfolio's obligation to
replace the securities borrowed in connection with a short sale will generally
be secured by collateral deposited with the broker that consists of cash, U.S.
government securities or other liquid, high grade debt obligations. In addition,
the Portfolios will either designate on the Portfolio's records or place in a
segregated account with its Custodian an amount of cash, U.S. government
securities or other liquid high grade debt obligations equal to the difference,
if any, between (1) the market value of the securities sold at the time they
were sold short and (2) any cash, U.S. government securities or other liquid
high grade debt obligations deposited as collateral with the broker in
connection with the short sale. Short sales by the Portfolios involve certain
risks and special considerations. Possible losses from short sales differ from
losses that could be incurred from a purchase of a security, because losses from
short sales may be unlimited, whereas losses from purchased securities cannot
exceed the total amount invested.
9. PURCHASED AND WRITTEN OPTIONS: Certain Portfolios may write covered call and
put options on portfolio securities and other financial instruments. Premiums
are received and are recorded as liabilities. The liabilities are subsequently
adjusted to reflect the current value of the options written. Premiums received
from writing options which expire are treated as realized gains. Premiums
received from writing options which are exercised or are closed are added to or
offset against the proceeds or amount paid on the transaction to determine the
net realized gain or loss. By writing a covered call option, a Portfolio, in
exchange for the premium, foregoes the opportunity for capital appreciation
above the exercise price should the market price of the underlying security
increase. By writing a covered put option, a Portfolio, in exchange for the
premium, accepts the risk of a decline in the market value of the underlying
security below the exercise price.
Certain Portfolios may purchase call and put options on their portfolio
securities or other financial instruments. Each Portfolio may purchase call
options to protect against an increase in the price of the security or financial
instrument it anticipates purchasing. Each Portfolio may purchase put options on
securities which it holds or other financial instrument to protect against a
decline in the value of the security or financial instrument or to close out
covered written put positions. Risks may arise from an imperfect correlation
between the change in market value of the securities held by the Portfolio and
the prices of options relating to the securities purchased or sold by the
Portfolio and from the possible lack of a liquid secondary market for an option.
The maximum exposure to loss for any purchased option is limited to the premium
initially paid for the option.
10. SECURITY LENDING: Certain Portfolios may lend investment securities to
certain qualified institutional investors who borrow securities in order to
complete certain transactions. By lending investment securities, a Portfolio
attempts to increase its net investment income through the receipt of interest
on the loan. Any gain or loss in the market price of the securities loaned that
might occur and any interest earned or dividends declared during the term of the
loan would be for the account of the Portfolio. Risks of delay in recovery of
the securities or even loss of rights in the collateral may occur should the
borrower of the
- --------------------------------------------------------------------------------
196
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONT.)
JUNE 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
securities fail financially. Risks may also arise to the extent that the value
of the securities loaned increases above the value of the collateral received.
Portfolios that lend securities receive cash as collateral in an amount equal to
or exceeding 100% of the current market value of the loaned securities. Any cash
received as collateral is invested in U.S. Government securities or interest
bearing repurchase agreements with approved counterparties. A portion of the
interest received on the repurchase agreements is retained by the Fund and the
remainder is rebated to the borrower of the securities. The net amount of
interest earned, after the interest rebate, is included in the Statement of
Operations as interest income. The value of loaned securities and related
collateral outstanding at June 30, 1999 are as follows:
<TABLE>
<CAPTION>
VALUE OF LOANED VALUE OF
SECURITIES COLLATERAL
PORTFOLIO (000) (000)
- -------------------------------- --------------- -----------
<S> <C> <C>
Active International
Allocation..................... $ 8,565 $ 8,041
International Equity............ 320,691 154,731
International Magnum............ 8,723 5,265
</TABLE>
The Chase Manhattan Bank ("Chase") has earned fees from the following Portfolios
for administering the security lending program and the following Portfolios have
earned security lending income as follows:
<TABLE>
<CAPTION>
FEES EARNED FEES EARNED BY
PORTFOLIO BY CHASE THE PORTFOLIO
- ------------------------------- ------------- --------------
<S> <C> <C>
Active International
Allocation.................... $ 62,988 $ 124,241
Asian Equity................... 3,545 25,580
International Equity........... 32,233 930,552
International Magnum........... 12,112 112,348
</TABLE>
11. STRUCTURED SECURITIES: The Emerging Markets Debt Portfolio may invest in
interests in entities organized and operated solely for the purpose of
restructuring the investment characteristics of sovereign debt obligations. This
type of restructuring involves the deposit with or purchase by an entity of
specified instruments and the issuance by that entity of one or more classes of
securities ("Structured Securities") backed by, or representing interests in,
the underlying instruments. Structured Securities generally will expose the
Portfolio to credit risks of the underlying instruments as well as of the issuer
of the structured security. Structured securities are typically sold in private
placement transactions with no active trading market. Investments in Structured
Securities may be more volatile than their underlying instruments, however, any
loss is limited to the amount of the original investment.
12. FUTURES: Certain Portfolios may purchase and sell futures contracts. Futures
contracts provide for the sale by one party and purchase by another party of a
specified amount of a specified security, index, instrument or basket of
instruments. Futures contracts (secured by cash or government securities
deposited with brokers or custodians as "initial margin") are valued based upon
their quoted daily settlement prices; changes in initial settlement value
(represented by cash paid to or received from brokers as "variation margin") are
accounted for as unrealized appreciation (depreciation). When futures contracts
are closed, the difference between the opening value at the date of purchase and
the value at closing is recorded as realized gains or losses in the Statement of
Operations.
Certain Portfolios may use futures contracts in order to manage its exposure to
the stock and bond markets, to hedge against unfavorable changes in the value of
securities or to remain fully invested and to reduce transaction costs. Futures
contracts involve market risk in excess of the amounts recognized in the
Statement of Net Assets. Risks arise from the possible movements in security
values underlying these instruments. The change in value of futures contracts
primarily corresponds with the value of their underlying instruments, which may
not correlate with the change in value of the hedged investments. In addition,
there is the risk that a Portfolio may not be able to enter into a closing
transaction because of an illiquid secondary market.
13. SWAP AGREEMENTS: Certain Portfolios may enter into swap agreements to
exchange one return or cash flow for another return or cash flow in order to
hedge against unfavorable changes in the value of securities or to remain fully
invested and to reduce transaction costs. The following summarizes swaps which
may be entered into by the Portfolios:
INTEREST RATE SWAPS: Interest rate swaps involve the exchange of commitments to
pay and receive interest based on a notional principal amount. Net periodic
interest payments to be received or paid are accrued daily and are recorded in
the Statement of Operations as an adjustment to interest income. Interest rate
swaps are marked-to-market daily based upon quotations from market makers and
the change, if any, is recorded as unrealized appreciation or depreciation in
the Statement of Operations.
TOTAL RETURN SWAPS: Total return swaps involve commitments to pay interest in
exchange for a market-linked return based on a notional amount. To the extent
the total return of the security or index underlying the transaction exceeds or
falls short of the offsetting interest obligation, the Portfolio will receive a
payment from or make a payment to the counterparty, respectively. Total return
swaps are marked-to-market daily based upon quotations from
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[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONT.)
JUNE 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
market makers and the change, if any, is recorded as unrealized gains or losses
in the Statement of Operations. Periodic payments received or made at the end of
each measurement period are recorded as realized gains or losses in the
Statement of Operations.
Realized gains or losses on maturity or termination of interest rate and total
return swaps are presented in the Statement of Operations. Because there is no
organized market for these swap agreements, the value of open swaps reported in
the Statement of Net Assets may differ from that which would be realized in the
event the Portfolio terminated its position in the agreement. Risks may arise
upon entering into these agreements from the potential inability of the
counterparties to meet the terms of the agreements and are generally limited to
the amount of net interest payments to be received and/or favorable movements in
the value of the underlying security, if any, at the date of default.
14. 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 specific 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 (other
than mortgage-backed securities) 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. Dividends to the shareholders of the Money Market and
the Municipal Money Market Portfolios are accrued daily and are distributed on
or about the 15th of each month. Distributions for the remaining Portfolios are
recorded on the ex-distribution date.
The U.S. Real Estate Portfolio owns shares of real estate investment trusts
("REITs") which report information on the source of their distributions
annually. A portion of distributions received from REITs during the year is
estimated to be a return of capital and is recorded as a reduction of their
cost.
The amount and character of income and capital gain distributions to be paid by
the Portfolios of 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, the timing of the deductibility of
certain foreign taxes and dividends received from real estate investment trusts.
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
investment loss for the purpose of calculating net investment income (loss) per
share in the Financial Highlights.
A transaction fee of one percent is charged on subscriptions and redemptions of
capital shares of the International Small Cap Portfolio and are included in paid
in capital.
Settlement and registration of foreign securities transactions may be subject to
significant risk not normally associated with investments in the United States.
In certain markets, including Russia, ownership of shares is defined according
to entries in the issuer's share register. In Russia, there currently exists no
central registration system and the share register may not be subject to
effective state supervision. It is possible that a Portfolio could lose its
share registration through fraud, negligence or even mere oversight. In
addition, shares being delivered for sales and cash being paid for purchases may
be delivered before the exchange is complete. This may subject the Portfolio to
further risk of loss in the event of a failure to complete the transaction by
the counterparty.
B. ADVISER: Morgan Stanley Dean Witter Investment Management Inc. (the "Adviser"
or "MSDW Investment Management"), a wholly-owned subsidiary of Morgan Stanley
Dean Witter & 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. MSDW Investment
Management has agreed to reduce fees payable to it and to reimburse the
Portfolios, if necessary, if the annual
- --------------------------------------------------------------------------------
198
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONT.)
JUNE 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
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
--------------------------
PORTFOLIO ADVISORY FEE CLASS A CLASS B
- ------------------------------- ------------ ------------ ------------
<S> <C> <C> <C>
Active International
Allocation.................... 0.65% 0.80% 1.05%
Asian Equity................... 0.80 1.00 1.25
Asian Real Estate.............. 0.80 1.00 1.25
Emerging Markets............... 1.25 1.75 2.00
European Equity................ 0.80 1.00 1.25
European Real Estate........... 0.80 1.00 1.25
Global Equity.................. 0.80 1.00 1.25
International Equity........... 0.80 1.00 1.25
International Magnum........... 0.80 1.00 1.25
International Small Cap........ 0.95 1.15 N/A
Japanese Equity................ 0.80 1.00 1.25
Latin American................. 1.10 1.70 1.95
Aggressive Equity.............. 0.80 1.00 1.25
Emerging Growth................ 1.00 1.25 1.50
Equity Growth.................. 0.60 0.80 1.05
Technology..................... 1.00 1.25 1.50
U.S. Equity Plus............... 0.45 0.80 1.05
U.S. Real Estate............... 0.80 1.00 1.25
Value Equity................... 0.50 0.70 0.95
Emerging Markets Debt.......... 1.00 1.75 2.00
Fixed Income................... 0.35 0.45 0.60
Global Fixed Income............ 0.40 0.50 0.65
High Yield..................... 0.375 0.695 0.945
Municipal Bond................. 0.35 0.45 N/A
Money Market................... 0.30 0.55 N/A
Municipal Money Market......... 0.30 0.57 N/A
</TABLE>
Effective April 26, 1999 and April 28, 1999, Morgan Stanley Dean Witter Advisors
Inc. ("MSDW Advisors") became the sub-adviser ("Sub-Adviser") of the Money
Market and Municipal Money Market Portfolios, respectively. As Sub-Adviser, MSDW
Advisors is entitled to receive an annual sub-advisory fee from investment
advisory fees paid to MSDW Investment Management by the Money Market and
Municipal Money Market Portfolios.
C. ADMINISTRATOR: MSDW Investment Management 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 MSDW Investment Management and Chase, Chase through its corporate
affiliate Chase Global Funds Services Company ("CGFSC"), provides certain
administrative services to the Fund. For such services, MSDW Investment
Management pays Chase a portion of the fee MSDW Investment Management 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 & Co., and an affiliate of
MSDW Investment Management, 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. The Distributor has agreed to reduce its fees
to 0.15% of the Class B shares' average daily net assets for the Fixed Income
and Global Fixed Income Portfolios.
E. CUSTODIAN: Chase serves as custodian for the Fund in accordance with a
custodian agreement.
F. DIRECTOR'S DEFERRED COMPENSATION PLAN: Each director of the Fund who is not
an officer of the Fund or an affiliated person as defined under the Investment
Company Act of 1940, as amended, may elect to participate in the Directors'
Deferred Compensation Plan (the "Compensation Plan"). Under the Compensation
Plan, such Directors may elect to defer payment of a percentage of their total
fees earned as a Director of the Fund. These deferred portions are treated,
based on an election by the Director, as if they were either invested in the
Fund's shares or invested in U.S. Treasury Bills, as defined under the
Compensation Plan. The deferred fees payable, under the Compensation Plan, at
June 30, 1999 totaled $125,519 and are included in Directors' Fees and Expenses
Payable on the Statement of Net Assets.
- --------------------------------------------------------------------------------
199
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONT.)
JUNE 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
G. PURCHASES AND SALES: During the six months ended June 30, 1999, 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>
Active International Allocation....... $ 170,009 $ 63,313
Asian Equity.......................... 83,375 66,804
Asian Real Estate..................... 1,905 1,546
Emerging Markets...................... 702,611 663,702
European Equity....................... 68,757 124,133
European Real Estate.................. 2,911 27,577
Global Equity......................... 40,265 57,398
International Equity.................. 882,370 570,655
International Magnum.................. 80,342 128,003
International Small Cap............... 46,156 53,809
Japanese Equity....................... 8,916 18,036
Latin American........................ 16,467 14,157
Aggressive Equity..................... 119,887 165,178
Emerging Growth....................... 39,815 82,278
Equity Growth......................... 588,351 560,565
Technology............................ 47,538 54,027
U.S. Equity Plus...................... 30,290 82,781
U.S. Real Estate...................... 121,696 81,726
Value Equity.......................... 27,469 34,700
Emerging Markets Debt................. 73,926 67,756
Fixed Income.......................... 63,828 46,310
Global Fixed Income................... 12,293 12,806
High Yield............................ 50,699 64,648
Municipal Bond........................ 12,547 19,989
</TABLE>
Purchases and sales during the six months ended June 30, 1999 of long-term U.S.
Government securities occurred in the Fixed Income and Global Fixed Income
Portfolios as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
PORTFOLIO (000) (000)
- --------------------------------------- ----------- ---------
<S> <C> <C>
Fixed Income........................... $ 42,647 $ 67,502
Global Fixed Income.................... 1,908 5,650
</TABLE>
During the six months ended June 30, 1999, the following Portfolios paid
brokerage commissions to Morgan Stanley & Co., Incorporated, an affiliated
broker/dealer, of approximately:
<TABLE>
<CAPTION>
BROKERAGE
COMMISSION
PORTFOLIO (000)
- -------------------------------------------- -----------------
<S> <C>
Active International Allocation............. $ 11
Asian Equity................................ 100
Asian Real Estate........................... 1
Emerging Markets............................ 192
European Equity............................. 1
European Real Estate........................ 6
Global Equity............................... 12
International Equity........................ 111
International Magnum........................ 46
International Small Cap..................... 3
Japanese Equity............................. 21
Latin America............................... 1
Aggressive Equity........................... 3
Emerging Growth............................. 7
Equity Growth............................... 95
Value Equity................................ 21
</TABLE>
H. OTHER: At June 30, 1999, 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>
Active International
Allocation............... $ 396,209 $ 39,586 $ (10,138) $ 29,448
Asian Equity.............. 76,485 21,928 (786) 21,142
Asian Real Estate......... 3,382 1,232 (104) 1,128
Emerging Markets.......... 1,008,925 283,097 (182,779) 100,318
European Equity........... 104,884 12,636 (4,810) 7,826
European Real Estate...... 18,366 738 (938) (200)
Global Equity............. 199,910 36,859 (9,146) 27,713
International Equity...... 3,189,896 853,280 (119,700) 733,580
International Magnum...... 207,299 25,222 (8,772) 16,450
International Small Cap... 261,392 50,123 (39,114) 11,009
Japanese Equity........... 50,656 12,207 (1,912) 10,295
Latin American............ 24,169 4,285 (4,055) 230
Aggressive Equity......... 111,951 21,396 (1,070) 20,326
Emerging Growth........... 31,370 9,945 (673) 9,272
Equity Growth............. 782,157 257,256 (4,613) 252,643
Technology................ 24,678 8,488 (638) 7,850
U.S. Equity Plus.......... 15,407 2,402 (212) 2,190
U.S. Real Estate.......... 309,958 26,900 (11,998) 14,902
Value Equity.............. 46,969 13,124 (436) 12,688
Emerging Markets Debt..... 55,364 3,364 (1,662) 1,702
Fixed Income.............. 204,177 333 (5,996) (5,663)
Global Fixed Income....... 36,506 195 (1,965) (1,770)
High Yield................ 175,930 3,600 (12,004) (8,404)
Municipal Bond............ 25,569 674 (55) 619
Money Market.............. 1,723,530 -- -- --
Municipal Money Market.... 1,040,883 -- -- --
</TABLE>
During the six months ended June 30, 1999, the Emerging Markets Portfolio owned
shares of affiliated funds for which the Portfolio earned dividend income of
approximately $39,000 and realized net gains of approximately $530,000.
At June 30, 1999, the following Portfolios had available capital loss
carryforwards to offset future net capital gains, to the extent provided by
regulations, through the indicated expiration dates:
<TABLE>
<CAPTION>
EXPIRATION DATE
DECEMBER 31,
(000)
------------------------------------------
PORTFOLIO 2003 2004 2005 2006 TOTAL
- ----------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Asian Equity........... $ -- $ -- $ 37,963 $ 67,603 $ 105,566
Asian Real Estate...... -- -- -- 2,577 2,577
Emerging Markets....... -- -- -- 269,895 269,895
European Real Estate... -- -- 40 1,452 1,492
International Magnum... -- -- -- 1,558 1,558
Japanese Equity........ 1,668 -- 11,123 23,700 36,491
Latin American......... -- -- -- 15,815 15,815
Aggressive Equity...... -- -- -- 1,958 1,958
U.S. Real Estate....... -- -- -- 2,006 2,006
Emerging Markets
Debt.................. -- -- -- 89,125 89,125
Global Fixed Income.... 1,568 -- -- -- 1,568
Money Market........... -- 407 -- -- 407
Municipal Money
Market................ -- 22 -- 2 24
</TABLE>
To the extent that capital loss carryovers are used to offset any future capital
gains realized during the
- --------------------------------------------------------------------------------
200
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONT.)
JUNE 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
carryover period as provided by U.S. Federal income tax regulations, no capital
gains tax liability will be incurred by a Portfolio for gains realized and not
distributed. To the extent that capital gains are offset, such gains will not be
distributed to the shareholders.
Net capital and net currency losses incurred after October 31 and within the
taxable year are deemed to arise on the first day of the Portfolio's next
taxable year. For the period from November 1, 1998 to December 31, 1998 certain
Portfolios incurred and elected to defer until January 1, 1999 for U.S. Federal
income tax purposes net capital and net currency losses of approximately:
<TABLE>
<CAPTION>
CAPITAL
LOSSES CURRENCY
PORTFOLIO (000) LOSSES (000)
- ----------------------------------------- --------- -------------
<S> <C> <C>
Active International Allocation.......... $ -- $ 112
Asian Real Estate........................ 16 --
Emerging Markets......................... 78,013 739
European Equity.......................... -- 9
European Real Estate..................... 3,936 --
Japanese Equity.......................... 1,665 --
Latin American........................... 5,432 --
Aggressive Equity........................ 272 --
Equity Growth............................ 9,661 --
U.S. Real Estate......................... 1,053 15
Emerging Markets Debt.................... 5,878 11
High Yield............................... 591 --
Municipal Money Market................... 3 --
</TABLE>
During the six months ended June 30, 1999, the transactions in written call
options were as follows:
COVERED PUT AND CALL OPTIONS:
<TABLE>
<CAPTION>
NO. OF
TECHNOLOGY PORTFOLIO CONTRACTS PREMIUM (000)
- ----------------------------------------- ------------- -------------
<S> <C> <C>
Options outstanding at December 31,
1998.................................... $ 60 $ 225
Options expired during the period........ (60) (225)
--- -----
Options outstanding at June 30, 1999..... $ -- $ --
--- -----
--- -----
</TABLE>
<TABLE>
<CAPTION>
FACE AMOUNT
EMERGING MARKETS DEBT PORTFOLIO (000) PREMIUM (000)
- -------------------------------------- --------------- -------------
<S> <C> <C>
Options outstanding at December 31,
1998................................. $ -- $ --
Options written during the period..... 105 88
Options expired during the period..... (37) (41)
Options closed during the period...... (68) (47)
----- ---
Options outstanding at June 30,
1999................................. $ -- $ --
----- ---
----- ---
</TABLE>
At June 30, 1999, 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.
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.
I. SUPPLEMENTAL PROXY INFORMATION:
On April 23, 1999, a special meeting of the stockholders of Morgan Stanley Dean
Witter Institutional Fund Inc. (the "Fund") was held for the purpose of voting
on the following matter:
1. Approval of the investment sub-advisory agreement by and between the Fund and
Morgan Stanley Dean Witter Advisors Inc.
<TABLE>
<CAPTION>
PORTFOLIO VOTED
VOTED VOTED FOR AGAINST ABSTENTIONS TOTAL SHARES
- --------------- ---------- --------- ----------- ------------
<S> <C> <C> <C> <C>
Money Market 945,041,182 9,027,618 98,111,705 1,052,180,505
Municipal Money
Market 493,248,669 2,868,884 17,280,646 513,398,199
</TABLE>
- --------------------------------------------------------------------------------
201
<PAGE>
MORGAN STANLEY DEAN WITTER INSTITUTIONAL FUND, INC.
- -----------------------------------------------------------------------------
DIRECTORS
Barton M. Biggs
CHAIRMAN OF THE BOARD
Chairman and Director, Morgan Stanley Dean Witter
Investment Management Inc. and Morgan Stanley Dean Witter
Investment Management Limited; Managing Director,
Morgan Stanley & Co. Incorporated
Michael F. Klein
DIRECTOR AND PRESIDENT
Principal, Morgan Stanley Dean Witter Investment
Management Inc. and Morgan Stanley & Co. Incorporated
John D. Barrett II
Chairman and Director,
Barrett Associates, Inc.
Gerard E. Jones
Partner, Richards & O'Neil LLP
Andrew McNally IV
River Road Partners
Samuel T. Reeves
Chairman of the Board and Chief Executive Officer,
Pinnacle 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 Dean Witter Investment 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
CUSTODIAN
The Chase Manhattan Bank
3 Chase MetroTech Center
Brooklyn, New York 11245
LEGAL COUNSEL
Morgan, Lewis & Bockius LLP
1701 Market Street
Philadelphia, Pennsylvania 19103-2921
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
OFFICERS
Stefanie V. Chang
VICE PRESIDENT
Harold J. Schaaff, Jr.
VICE PRESIDENT
Joseph P. Stadler
VICE PRESIDENT
Mary E. Mullin
SECRETARY
Karl O. Hartmann
ASSISTANT SECRETARY
Belinda A. Brady
ASSISTANT TREASURER
FOR CURRENT PERFORMANCE, CURRENT NET ASSET VALUE, OR FOR ASSISTANCE WITH YOUR
ACCOUNT, PLEASE CONTACT THE FUND AT (800) 548-7786 OR VISIT OUR WEBSITE AT
www.msdw.com/INSTITUTIONAL/INVESTMENTMANAGEMENT.
- --------------------------------------------------------------------------------
202
