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MORGAN STANLEY DEAN WITTER
MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
ANNUAL REPORT
DECEMBER 31, 1998
[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.............................. 14
Asian Real Estate......................... 19
Emerging Markets.......................... 24
European Equity .......................... 37
European Real Estate...................... 42
Global Equity ............................ 47
International Equity ..................... 53
International Magnum ..................... 58
International Small Cap................... 65
Japanese Equity........................... 70
Latin American............................ 74
U.S. Equity Portfolios:
Aggressive Equity......................... 79
Emerging Growth........................... 84
Equity Growth............................. 89
Technology................................ 95
U.S. Equity Plus.......................... 99
U.S. Real Estate.......................... 106
Value Equity.............................. 112
Fixed Income Portfolios:
Emerging Markets Debt..................... 117
Fixed Income.............................. 123
Global Fixed Income....................... 127
High Yield................................ 132
Municipal Bond............................ 138
Money Market Portfolios:
Money Market.............................. 142
Municipal Money Market.................... 146
Statements of Operations.................... 155
Statements of Changes in Net Assets......... 159
Statement of Cash Flows..................... 172
Financial Highlights ....................... 173
Notes to Financial Statements............... 198
Report of Independent Accountants........... 207
Federal Tax Information..................... 208
Directors and Officers ..................... 209
</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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[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 Annual Report for the year ended
December 31, 1998. Our Fund currently offers 26 portfolios providing investors
with a full array of global and domestic equity and fixed income products
covering core strategies as well as more specialized portfolios. Together, the
Fund's portfolios allow investors to meet specific investment needs or to
allocate assets among different portfolios to implement an overall investment
strategy. Set forth below is a general market review for 1998.
Major global market indexes finished 1998 with strong gains, overcoming a
volatile and, at times, precarious market environment. The S&P 500 Index
extended its bull market run into a fourth year, rising 28.57% in 1998. Foreign
stocks also performed well, with the MSCI EAFE Index rising 20.00%, led by
European markets' euphoria over monetary union. Although bond returns were less
impressive, the asset class showed strong and steady gains. The Lehman Aggregate
Index rose 8.69% for the year. Despite the strong numbers produced by major
market indexes, capital market strength was not experienced broadly or equally.
In the U.S., mega cap and growth stocks continued their domination of smaller
value stocks. The disparity was even more pronounced with mid and small cap
securities. The magnitude of the gap between value and growth as well as between
mega-caps and smaller companies were among the largest in recent history.
Foreign stock performance was also uneven. Although EAFE posted strong gains,
most of the positive news came from Europe, as the Pacific markets performed
poorly. In Europe, like in the U.S., mega-cap growth stocks dominated
performance. Emerging equity markets experienced another disappointing year,
down 25.34% as represented by the MSCI Emerging Markets Free Index.
The investment environment in 1998 vacillated between periods of extreme
optimism and extreme pessimism. In the first half of the year, European and U.S.
stock markets soared to new highs through mid-July, driven by strong economic
undertones, liquidity, and investor optimism. However, the second half of 1998
proved to be much more challenging as markets came under severe pressure, amidst
a deepening of the Russian financial crisis, lower earnings expectations, and
the near collapse of a large U.S. hedge fund. European and U.S. equity markets
would fall as much as 20% before stabilizing at the end of September, and credit
spreads widened dramatically, as investors sought refuge in safe-haven
Treasuries.
Two preemptive easings by the Federal Reserve in October and November
resulted in global easing by central banks in Europe and Asia in a concerted
effort to inject liquidity into markets and defend the world economy against
deflationary forces. By the end of the fourth quarter, all developed markets had
shown tremendous gains, led by the Asia-Pacific (non-Japan) region, which
benefited most from the easing.
Uncertainty proved beneficial for government bonds. The U.S. 30-year
Treasury bond yield fell to a 20-year low of 5.0% during the third quarter.
However, the global market crisis did not benefit all bonds equally. Throughout
the market slump, investors sought to deleverage global risk exposure, causing
corporate bond spreads and high yield bond spreads to widen dramatically
relative to government bonds. Emerging market debt instruments in particular
were under severe pressure, as investors began to fear devaluation and default
from lenders other than Russia, such as Brazil, Argentina, and Mexico. Even with
improved investor confidence amidst the fourth quarter global easing, spreads
failed to tighten as dramatically as they had widened.
Heading into 1999, we approach the markets with caution. The key to markets
in the coming year will be in judging whether or not the reflationary policies
of global central banks will succeed in preventing the world economy from
slipping into a recession. Although the market strength in December would
indicate buoyant expectations, many economic indicators, such as commodity
prices, consumer spending, industrial production and European unemployment
remain precarious. Many emerging markets, including Latin America, are in
recession, Japanese economic news remains weak, and European economies are
softening. If profits fall short of expectations, the current high valuation
levels of markets will be difficult to maintain. We expect a volatile market
environment for 1999, in which wise diversification should help investors ride
out many storms.
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 enclosed Report informative. As always, we very much appreciate
your continued support of the Fund.
Sincerely,
/s/Michael F. Klein
Michael F. Klein
PRESIDENT
February 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)
DECEMBER 31, 1998
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<TABLE>
<CAPTION>
NET ASSETS NET ASSET VALUE
INCEPTION DATES (000) PER SHARE
------------------ ------------------- ----------------
CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B
-------- -------- ---------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
GLOBAL AND INTERNATIONAL EQUITY
PORTFOLIOS:
Active International
Allocation 1/17/92 1/02/96 $ 266,832 $ 96 $11.90 $12.12
Asian Equity 7/01/91 1/02/96 51,334 1,487 8.01 7.97
Asian Real Estate 10/01/97 10/01/97 2,447 761 6.63 6.66
Emerging Markets 9/25/92 1/02/96 772,115 7,199 9.55 9.56
European Equity 4/02/93 1/02/96 168,712 5,181 15.75 15.74
European Real Estate 10/01/97 10/01/97 33,422 2,531 9.58 9.61
Global Equity 7/15/92 1/02/96 228,748 13,123 20.74 20.63
International Equity 8/04/89 1/02/96 3,400,498 17,076 18.25 18.22
International Magnum 3/15/96 3/15/96 269,814 26,151 11.57 11.54
International Small Cap 12/15/92 -- 252,642 -- 15.25 --
Japanese Equity 4/25/94 1/02/96 57,755 1,083 6.18 6.13
Latin American 1/18/95 1/02/96 15,012 1,148 6.74 6.78
U.S. EQUITY PORTFOLIOS:
Aggressive Equity 3/08/95 1/02/96 130,734 16,682 17.50 17.40
Emerging Growth 11/01/89 1/02/96 73,276 1,282 8.07 7.93
Equity Growth 4/02/91 1/02/96 784,565 83,330 19.04 18.97
Technology 9/16/96 9/16/96 27,506 850 17.98 17.92
U.S. Equity Plus 7/31/97 7/31/97 66,640 1,431 12.43 12.42
U.S. Real Estate 2/24/95 1/02/96 259,589 13,523 12.71 12.67
Value Equity 1/31/90 1/02/96 57,543 1,045 10.78 10.76
FIXED INCOME PORTFOLIOS:
Emerging Markets Debt 2/01/94 1/02/96 46,234 1,187 2.61 2.66
Fixed Income 5/15/91 1/02/96 212,718 3,649 11.08 11.10
Global Fixed Income 5/01/91 1/02/96 45,884 362 12.51 12.48
High Yield 9/28/92 1/02/96 128,237 56,804 10.75 10.73
Municipal Bond 1/18/95 -- 34,807 -- 10.40 --
MONEY MARKET PORTFOLIOS:
Money Market 11/15/88 -- 1,958,177 -- 1.00 --
Municipal Money Market 2/10/89 -- 990,579 -- 1.00 --
</TABLE>
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<TABLE>
<CAPTION>
YIELD INFORMATION AS OF DECEMBER 31, 1998
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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 18.70% 18.10% Money Market 4.74% 4.85% 4.74% 4.64%(16)
Fixed Income 5.32 5.17 Municipal Money Market 3.10 3.15 2.78 2.73(17)
Global Fixed Income 3.82 3.67
High Yield 9.76 9.49
Municipal Bond 4.10 --
</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>
20.12% 20.71% 20.00%(1) 9.50% 9.19%(1) 10.26% 9.62%(1) 12.63% 9.00%(1)
- 11.38 - 11.53 - 7.39(2) - 15.66 - 13.77(2) 1.94 2.32(2) - 22.32 - 18.11(2)
- 11.82 - 12.53 - 10.21(18) -- -- - 24.30 - 34.15(18) - 24.63 - 34.15(18)
- 25.42 - 25.65 - 21.08(3) - 8.17 - 8.69(3) 3.49 1.93(3) - 6.61 - 10.88(3)
- 25.34(22) - 9.27(22) 2.41(22) - 11.44(22)
8.09 7.80 28.53(4) 14.09 19.10(4) 17.24 20.23(4) 15.31 24.22(4)
4.75 4.60 - 0.40(19) -- -- - 0.16 - 0.30(19) - 0.30 - 0.30(19)
14.60 14.15 24.34(5) 17.20 15.68(5) 19.18 15.27(5) 19.80 17.63(5)
18.30 18.13 20.00(1) 15.14 9.19(1) 12.83 5.45(1) 16.76 9.00(1)
7.33 7.13 20.00(1) -- -- 7.94 9.81(1) 7.65 9.81(1)
4.25 -- 5.44(20) 5.51 - 3.38(20) 11.37 2.42(20) -- --
8.82 8.33 5.05(6) -- -- - 1.71 - 7.46(6) - 1.26 - 11.96(6)
- 37.10 - 36.86 - 35.29(7) -- -- 4.88 - 1.15(7) 8.09 0.49(7)
15.35 15.15 28.57(9) -- -- 34.03 30.29(9) 28.86 27.95(9)
27.54 26.86 - 2.55(8) 14.31 11.87(8) 13.49 12.42(8) 13.46 11.51(8)
39.63(21) 23.06(21) 18.70(21) 27.53(21)
19.04 18.71 28.57(9) 25.12 24.06(9) 19.09 19.13(9) 26.47 27.95(9)
53.90 53.52 28.57(9) -- -- 42.83 31.38(9) 42.51 31.38(9)
21.26 20.95 28.57(9) -- -- 17.71 21.41(9) 17.49 21.41(9)
- 12.29 - 12.52 - 17.50(10) -- -- 17.99 11.93(10) 15.45 10.33(10)
8.79 8.59 28.57(9) 17.30 24.06(9) 14.19 19.01(9) 18.35 27.95(9)
- 35.95 - 35.37 - 14.35(11) -- -- 4.75 6.94(11) 4.26 10.07(11)
7.93 7.85 8.69(12) 7.31 7.27(12) 8.45 8.54(12) 7.21 7.31(12)
13.84 13.68 15.31(13) 6.63 8.08(13) 8.24 9.40(13) 6.91 6.89(13)
3.03 2.79 0.58(14) 10.17 8.16(14) 11.73 9.73(14) 10.74 8.37(14)
5.52 -- 6.22(15) -- -- 6.37 7.64(15) -- --
5.20 -- -- -- -- -- -- -- --
3.00 -- -- -- -- -- -- -- --
</TABLE>
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INDICES:
(1) MSCI EAFE (Europe, Australasia, and Far East)
(2) MSCI All-Country Far East Free ex-Japan
(3) IFC Global Total Return Composite
(4) MSCI Europe
(5) MSCI World
(6) MSCI Japan
(7) MSCI Emerging Markets Global Latin America
(8) Russell 2000
(9) S&P 500
(10) NAREIT Equity
(11) J.P. Morgan Emerging Markets Bond Plus
(12) Lehman Aggregate Bond
(13) J.P. Morgan Traded Global Bond
(14) CS First Boston High Yield
(15) Lehman 7-Year Municipal Bond
(16) IBC Money Fund Comparable Yield
(17) IBC Municipal Money Fund Comparable Yield
(18) GPR Life Far East Asia Real Estate T.R.
(19) GPR Life European Real Estate T.R.
(20) MSCI EAFE Small Cap
(21) NASDAQ Composite
(22) MSCI Emerging Markets Free
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 U.S. Government. There is no assurance
that the Money Market and Municipal Money Market Portfolios will be able to
maintain a stable net asset value of $1.00 per share. 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 DECEMBER 31, 1998)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Australia 2.5%
Austria 0.3%
France 8.9%
Germany 9.0%
Hong Kong 3.6%
Italy 5.4%
Japan 16.8%
Netherlands 4.3%
Norway 0.1%
Portugal 1.1%
Singapore 2.2%
Spain 4.7%
Sweden 2.3%
Switzerland 6.4%
United Kingdom 15.1%
Other 17.3%
</TABLE>
COMPARISON OF THE CHANGE IN VALUE OF A $500,000** INVESTMENT
- ------------------------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C> <C>
MSCI EAFE Index(1) Active International
Allocation Portfolio-Class
A
1/17/92* $ 500,000 $ 500,000
10/31/92 $ 468,500 $ 452,945
12/31/92 $ 479,500 $ 459,595
12/31/93 $ 626,820 $ 609,250
12/31/94 $ 623,550 $ 656,200
12/31/95 $ 689,459 $ 730,205
12/31/96 $ 756,405 $ 774,382
12/31/97 $ 821,531 $ 788,166
12/31/98 $ 945,799 $ 986,823
* Commencement of operations
** Minimum investment
</TABLE>
In accordance with SEC regulations, Portfolio performance shown assumes that all
recurring fees (including management fees) were deducted and all dividends and
distributions were reinvested. The performance of Class B shares will vary based
upon the different inception dates and fees assessed to that class.
PERFORMANCE COMPARED TO THE MORGAN STANLEY
CAPITAL INTERNATIONAL (MSCI) EAFE INDEX(1)
- ------------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
------------------------------------------------
AVERAGE ANNUAL AVERAGE ANNUAL
ONE YEAR FIVE YEARS SINCE INCEPTION
---------- ----------------- -----------------
<S> <C> <C> <C>
PORTFOLIO -- CLASS A.... 20.12% 9.50% 10.26%
PORTFOLIO -- CLASS B.... 20.71 N/A 12.63
INDEX -- CLASS A........ 20.00 9.19 9.62
INDEX -- CLASS B........ 20.00 N/A 9.00
</TABLE>
1. The MSCI EAFE Index is an unmanaged index of common stocks and includes
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 Active International Allocation Portfolio invests in international equity
markets, with emphasis placed upon countries, rather that 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 year ended December 31, 1998, the Portfolio had a total return of 20.12%
for the Class A shares and 20.71% for the Class B shares compared to 20.00% for
the Morgan Stanley Capital International (MSCI) EAFE Index (the "Index"). For
the five-year period ended December 31, 1998, the average annual total return
for Class A shares was 9.50% compared to 9.19% for the Index. From inception on
January 17, 1992 through December 31, 1998, the average annual total return for
Class A shares was 10.26% compared to 9.62% for the Index. From inception on
January 2, 1996 through December 31, 1998, the average annual total return for
Class B shares was 12.63% compared to 9.00% for the Index.
In the first week of October, a powerful rally began in the beleaguered, global
equity markets that lasted into mid November. The result was recoveries of
roughly half of the losses of August and September, with the exception of the
U.S. of course, with the S&P 500 Index bouncing back to a new high. In addition
to high equity market volatility, the fourth quarter was plagued by vicious
cross-currents in the fixed income and currency markets.
We reduced our large cash position in a timely manner and participated
reasonably well in the equity markets, but our underweight and hedged position
in the yen hurt us, particularly versus the Index. We characterize our current
stance as still invested but defensive; tilting towards Asia, away from Europe,
with a moderate cash position.
- ------------------------------------------------------------
CERTAIN INFORMATION APPEARING IN THIS INVESTMENT OVERVIEW IS UNAUDITED.
ACCORDINGLY, THE REPORT OF INDEPENDENT ACCOUNTANTS APPEARING ELSEWHERE IN THIS
REPORT DOES NOT EXTEND TO THIS INFORMATION. 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.
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Active International Allocation Portfolio
4
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
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OVERVIEW
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ACTIVE INTERNATIONAL ALLOCATION PORTFOLIO (CONT.)
In retrospect, last fall we were too focussed on the negative fundamentals of
the yen that logically called for its further depreciation. We failed to fully
appreciate that we were in company with excessive and highly leveraged
investors, who changed the yen's momentum, when forced into liquidation of
staggering proportions in early October. The result was one of the most violent
moves in a major currency that has ever occurred; with the yen strengthening 20%
in one week. Since October, the yen temporarily weakened, only to rise again. We
removed our hedge at the level of 116.5, and no longer have a hedge against our
Japanese equity holdings.
During the fourth quarter we gradually reduced our commitment to European
equities and increased our positions in Japan, Hong Kong, and Singapore. We are
now slightly underweight Europe. Our rationale is relatively straightforward.
Asia has already experienced a severe recession, deflation, and a secular bear
market. Although we cannot identify the beginnings of an economic recovery,
currencies have strengthened, interest rates have fallen and corporate cost
cutting is accelerating. Asian equities are still cheap both absolutely and
relative to the rest of the world.
By contrast, Europe is just beginning to be affected by the deflationary
malaise. European economies are showing signs of slowing: 1999 gross domestic
product growth estimates have fallen from over 3% to 1.5%, export growth is
collapsing, and price indexes are falling. In the third quarter of 1998 many
European companies reported serious earnings shortfalls, but analysts
expectations of 1999 earnings are still +15%. We believe there is a good chance
corporate earnings in Europe could be flat to down next year.
We discussed our reasoning on Japan in last quarter's letter, and are now
roughly 75% of the Index weight. Japan is depressed and cheap, but unfortunately
there are still no real signs of positive marginal change which is what our
process requires to bring us to a market-weight or over-weight position. The
analysis of Japan's economy, politics, and banking system are very complex and
abstruse. The bottom line is that downside risks include policy failure and
slowing external demand. Upside risks involve unexpectedly aggressive financial
sector restructuring and reformist political change. We plan to visit Japan in
the next several weeks to try to determine first hand what is going on. We will
update you on our findings.
We are apprehensive about 1999. The immense flood of liquidity unleashed by the
central banks of the world is driving markets higher as we write. However, the
fundamentals everywhere, with the possible exception of the U.S., continue to
deteriorate. We are not sure whether the central banks have succeeded in saving
the world's economy and stock markets or merely postponed the final reckoning.
We will move aggressively when we know the answer.
Ann D. Thivierge
PORTFOLIO MANAGER
Barton M. Biggs
PORTFOLIO MANAGER
January 1999
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Active International Allocation Portfolio
5
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
ACTIVE INTERNATIONAL ALLOCATION PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- ----------------------------------------------------------------------------
COMMON STOCKS (82.1%)
AUSTRALIA (2.2%)
(a)31,391 AMP Ltd........................................... $ 398
23,986 Amcor Ltd......................................... 102
12,301 Australian Gas Light Co., Ltd..................... 89
40,186 Boral Ltd......................................... 57
7,670 Brambles Industries Ltd........................... 187
73,371 Broken Hill Proprietary Co., Ltd.................. 540
38,675 CSR Ltd........................................... 95
27,496 Coca Cola Amatil Ltd.............................. 102
39,038 Coles Myer Ltd.................................... 204
52,886 Crown Ltd......................................... 20
12,504 Email Ltd......................................... 18
4,633 F.H. Faulding & Co., Ltd.......................... 22
62,179 Fosters Brewing Group Ltd......................... 168
(c)22,505 Gio Australia Holdings Ltd........................ 74
45,587 Goodman Fielder Ltd............................... 46
11,082 Leighton Holdings Ltd............................. 48
19,602 Lend Lease Corp., Ltd............................. 264
77,233 MIM Holdings Ltd.................................. 34
49,402 National Australia Bank Ltd....................... 745
66,082 News Corp., Ltd................................... 437
84,598 Normandy Mining Ltd............................... 78
(c)36,435 North Ltd......................................... 59
10,255 Orica Ltd......................................... 53
37,341 Pacific Dunlop Ltd................................ 60
31,545 Pioneer International Ltd......................... 67
14,358 QBE Insurance Group Ltd........................... 59
9,582 Rio Tinto Ltd..................................... 114
(c)21,310 Santos Ltd........................................ 57
19,751 Schroders Property Fund........................... 32
6,634 Smith (Howard) Ltd................................ 44
21,983 Southcorp Holdings Ltd............................ 70
10,721 Stockland Trust Group............................. 27
12,018 TABCORP Holdings Ltd.............................. 74
180,725 Telstra Corp., Ltd................................ 845
48,500 WMC Ltd........................................... 146
67,368 Westpac Banking Corp.............................. 451
----------
5,886
----------
AUSTRIA (0.3%)
664 Austria Tabakwerke AG............................. 51
676 Austian Airlines/Oest Luftv AG.................... 24
90 Austria Mikro Systeme International AG............ 3
276 BBag Oest Brau Beteiligungs AG.................... 16
51 BWT AG............................................ 11
3,400 Bank Austria AG................................... 173
142 Bau Holding AG.................................... 7
333 Boehler-Uddeholm AG............................... 16
213 EA-Generali AG.................................... 52
640 Flughafen Wein AG................................. 31
(a)112 Lenzing AG........................................ 7
362 Mayr-Melnhof Karton AG............................ 17
806 OMV AG............................................ 76
920 Oest Elektrizatswirts AG, Class A................. 141
422 Radex-Heraklith Industriebet AG................... 11
452 VA Technologie AG................................. 39
260 Wienerberger Baustoffindustrie AG................. 52
----------
727
----------
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- ----------------------------------------------------------------------------
FRANCE (8.9%)
2,510 Accor............................................. $ 543
5,276 Alcatel Alsthom................................... 646
9,464 Axa............................................... 1,372
6,637 Banque Nationale de Paris......................... 547
754 Bouygues.......................................... 155
1,200 Canal Plus........................................ 327
2,379 Cap Gemini Sogeti................................. 382
1,278 Carrefour......................................... 965
3,072 Casino Guichard-Perrachon......................... 320
2,816 Cie de Saint Gobain............................... 398
4,745 Compangnie Financiere de Paribas.................. 412
9,170 Elf Aquitaine..................................... 1,060
1,081 Eridania Beghin-Say............................... 187
242 Essilor International............................. 95
24,446 France Telecom.................................... 1,942
2,460 Groupe Danone..................................... 704
634 Imetal............................................ 64
4,858 Klepierre......................................... 496
2,231 L'OREAL........................................... 1,613
2,679 L'Air Liquide..................................... 491
3,081 LVMH Moet Hennessy Louis Vuitton.................. 610
3,054 Lafarge........................................... 290
4,289 Lagardere S.C.A................................... 182
897 Legrand........................................... 238
4,715 Michelin Compagnie Generale des Establissements,
Class B......................................... 189
1,678 PSA Peugeot Citroen............................... 260
378 Pathe............................................. 105
2,382 Pernod Ricard..................................... 155
3,044 Pinault-Printemps - Re doute...................... 582
630 Promodes.......................................... 458
12,501 Rhone-Poulenc, Class A............................ 643
220 Sagem............................................. 146
(c)3,830 Sanofi............................................ 631
4,760 Schneider......................................... 289
1,448 Silic............................................. 269
4,782 Simco (RFD)....................................... 434
2,158 Soceite BIC....................................... 120
178 Societe Eurafrance................................ 118
3,221 Societe Generale, Class A......................... 522
1,005 Sodexho Alliance.................................. 225
5,960 Sophia............................................ 253
4,466 Suez Lyonnaise des Eaux........................... 917
4,142 Thomson CSF....................................... 178
8,182 Total, Class B.................................... 829
3,417 Unibail........................................... 498
7,724 Usinor Sacilor.................................... 86
3,008 Valeo............................................. 237
5,705 Vivendi........................................... 1,480
----------
23,663
----------
GERMANY (8.7%)
1,533 AGIV AG........................................... 40
1,533 Adidas AG......................................... 169
7,708 Allianz AG........................................ 2,868
650 AMB AG............................................ 94
19,500 BASF AG........................................... 744
22,450 Bayer AG.......................................... 943
12,720 Bayerische Vereinsbank AG......................... 1,006
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
Active International Allocation Portfolio
6
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
ACTIVE INTERNATIONAL ALLOCATION PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ----------------------------------------------------------------------------
<C> <S> <C>
</TABLE>
GERMANY (CONT.)
<TABLE>
<C> <S> <C>
2,067 Bilfinger & Berger Bau AG......................... $ 46
17 Brau Und Brunnen AG............................... 2
767 CKAG AG........................................... 87
3,717 Continential AG................................... 103
(a,c)31,150 DaimlerChrysler AG................................ 3,094
2,317 Degussa AG........................................ 128
15,900 Deutsche Bank AG.................................. 938
67,489 Deutsche Telekom AG............................... 2,218
(c)15,417 Dresdner Bank AG.................................. 646
4,767 FAG Kugelfischer Georg Schaefer AG................ 40
635 Heidelberger Zement AG............................ 50
3,333 Hochtief AG....................................... 131
383 Karstadt AG....................................... 200
2,183 Kloeckner-Humboldt-Deutz AG....................... 20
233 Linde AG.......................................... 141
11,283 Lufthansa AG...................................... 250
383 MAN AG............................................ 114
11,300 Mannesmann AG..................................... 1,307
6,817 Merck KGaA........................................ 307
(c)7,443 Metro AG.......................................... 585
2,557 Muechener Rueck AG (Registered)................... 1,251
(c)500 Preussag AG....................................... 227
13,423 RWE AG............................................ 741
1,917 SAP AG............................................ 828
2,417 Schering AG....................................... 304
17,683 Siemens AG........................................ 1,162
(c)1,300 Thyssen AG........................................ 246
15,500 VEBA AG........................................... 918
923 Viag AG........................................... 546
9,230 Volkswagen AG..................................... 747
----------
23,241
----------
HONG KONG (3.6%)
95,600 Bank of East Asia Ltd............................. 166
197,000 Cathay Pacific Airways Ltd........................ 196
141,000 Cheung Kong Holdings Ltd.......................... 1,014
158,500 CLP Holdings Ltd.................................. 790
192,000 Chinese Estates Holdings.......................... 28
(a)83,200 Hopewell Holdings (New)........................... 45
96,000 Hang Lung Development Co.......................... 103
116,200 Hang Seng Bank Ltd................................ 1,039
(c)298,000 Hong Kong & China Gas Co., Ltd.................... 379
61,500 Hong Kong & Shanghai Hotel Ltd.................... 44
775,200 Hong Kong Telecommunications Ltd.................. 1,356
248,000 Hutchison Whampoa Ltd............................. 1,753
71,000 Hysan Development Co., Ltd........................ 106
41,000 Johnson Electric Holdings......................... 105
137,000 New World Development Co., Ltd.................... 345
392,000 Regal Hotel International Ltd..................... 42
1,000 Shangri-La Asia Ltd............................... 1
247,000 Sino Land Co...................................... 132
152,000 South China Morning Post Holdings Ltd............. 78
151,000 Sun Hung Kai Properties Ltd....................... 1,101
101,500 Swire Pacific Ltd., Class A....................... 455
29,000 Television Broadcasts Ltd......................... 75
159,000 Wharf Holdings Ltd................................ 232
----------
9,585
----------
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- ----------------------------------------------------------------------------
ITALY (5.4%)
(a)46,127 ALITALIA.......................................... $ 171
37,122 Assicurazioni Generali S.p.A...................... 1,553
66,700 Banca Commerciale Italiana........................ 461
(c)71,300 Banco Ambrosiano Veneto S.p.A..................... 429
9,000 Banco Popolare di Milano.......................... 82
(a)65,940 Benetton Group S.p.A.............................. 133
3,500 Cartiere Burgo.................................... 23
(a)272,220 Ciga S.p.A........................................ 223
152,512 Credito Italiano S.p.A............................ 906
297,000 ENI S.p.A......................................... 1,945
26,000 Edison S.p.A...................................... 307
2,300 Falck Acciaierie & Ferriere Lombarde.............. 19
(c)152,950 Fiat S.p.A........................................ 532
35,980 Fiat S.p.A. Di Risp (NCS)......................... 72
41,500 Immobiliaria Urbis................................ 51
(a)16,500 Impregilo S.p.A................................... 15
147,280 Istituto Nazionale delle Assicurazioni............ 390
5,850 Italcementi S.p.A................................. 65
8,300 Italcementi S.p.A. (RNC).......................... 42
17,800 Italgas........................................... 96
13,900 Magneti Marelli S.p.A............................. 24
(c)41,000 Mediaset S.p.A.................................... 333
23,800 Mediobanca S.p.A.................................. 331
145,574 Montedison S.p.A.................................. 194
46,900 Montedison S.p.A. Di Risp (NCS)................... 47
(a)109,680 Olivetti S.p.A.................................... 382
61,920 Parmalat Finanziaria S.p.A........................ 119
78,000 Pirelli S.p.A..................................... 250
(c)17,760 R.A.S. S.p.A...................................... 258
705 R.A.S. S.p.A. (RNC)............................... 6
(c)8,400 Rinascente S.p.A.................................. 87
4,900 SAI............................................... 59
(a,c)55,721 San Paolo S.p.A................................... 986
7,000 Sirti S.p.A....................................... 42
33,000 Snia BPD S.p.A.................................... 52
(c)134,444 Telecom Italia S.p.A.............................. 1,149
39,534 Telecom Italia S.p.A. (RNC)....................... 249
238,900 Telecom Italia Mobile S.p.A....................... 1,767
(c)57,500 Telecom Italia Mobile S.p.A. (RNC)................ 271
(a,c)419,527 Unione Immobiliare S.p.A.......................... 219
----------
14,340
----------
JAPAN (16.8%)
8,000 77 BANK........................................... 80
3,200 Acom Co., Ltd..................................... 206
100 Advantest Corp.................................... 6
39,400 Ajinomoto Co., Inc................................ 419
(a,c)41,600 Aoki Corp......................................... 20
46,900 Asahi Bank Ltd.................................... 172
25,000 Asahi Breweries Ltd............................... 369
75,000 Asahi Chemical Industry Co., Ltd.................. 358
69,800 Asahi Glass Co., Ltd.............................. 434
150,000 Bank of Tokyo-Mitsubushi Ltd...................... 1,555
16,800 Bank of Yokohama Ltd.............................. 40
27,000 Bridgestone Corp.................................. 614
3,700 Credit Saison..................................... 91
32,600 Canon, Inc........................................ 698
(c)17,800 Casio Computer Co., Ltd........................... 132
</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
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
ACTIVE INTERNATIONAL ALLOCATION PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ----------------------------------------------------------------------------
<C> <S> <C>
</TABLE>
JAPAN (CONT.)
<TABLE>
<C> <S> <C>
16,400 Chiba Bank Ltd.................................... $ 65
25,600 Chugai Pharmaceuticals Co., Ltd................... 256
30,600 Dai Nippon Printing Co., Ltd...................... 489
(c)26,600 Daiei, Inc........................................ 72
25,600 Daikin Industries Ltd............................. 254
26,600 Daiwa House Industry Co., Ltd..................... 284
78,000 Daiwa Securities Co., Ltd......................... 267
9,600 Denso Corp........................................ 178
148 East Japan Railway Co............................. 828
17,800 Ebara Corp........................................ 154
10,500 Fanuc Ltd......................................... 360
(c)123,000 Fuji Bank......................................... 453
15,000 Fuji Photo Film Ltd............................... 558
60,200 Fujitsu Ltd....................................... 803
17,800 Furukawa Electric Co., Ltd........................ 61
8,000 Gunma Bank Ltd.................................... 64
32,000 Hankyu Corp....................................... 141
(a)24,000 Hazama Corp....................................... 16
125,000 Hitachi Ltd....................................... 775
30,000 Honda Motor Co., Ltd.............................. 986
57,000 Industrial Bank of Japan.......................... 263
12,000 Ito-Yokado Co., Ltd............................... 840
(a,c)78,000 Japan Airlines Co., Ltd........................... 206
59,000 Japan Energy Corp................................. 56
8,600 Joyo Bank Ltd..................................... 34
16,800 Jusco Co., Ltd.................................... 340
(c)48,400 Kajima Corp....................................... 127
31,800 Kansai Electric Power Co., Ltd.................... 697
32,000 Kao Corp.......................................... 723
39,400 Kawasaki Steel Corp............................... 59
56,200 Kinki Nippon Railway Co., Ltd..................... 301
50,400 Kirin Brewery Co., Ltd............................ 643
45,400 Komatsu Ltd....................................... 239
70,000 Kubota Corp....................................... 209
(a,c)77,400 Kumagai Gumi Co., Ltd............................. 60
7,400 Kyocera Corp...................................... 392
22,600 Kyowa Hakko Kogyo Co., Ltd........................ 112
67,000 Marubeni Corp..................................... 115
7,800 Marui Co., Ltd.................................... 150
66,000 Matsushita Electric Industrial Co., Ltd........... 1,169
(c)75,000 Mitsubishi Chemical Corp.......................... 158
66,000 Mitsubishi Corp................................... 380
87,800 Mitsubishi Electric Corp.......................... 276
17,000 Mitsubishi Estate Co., Ltd........................ 153
135,000 Mitsubishi Heavy Industries Ltd................... 526
46,400 Mitsubishi Materials Corp......................... 78
36,000 Mitsubishi Trust & Banking Co..................... 232
67,800 Mitsui & Co., Ltd................................. 379
48,400 Mitsui Engineering & Shipbuilding Co., Ltd........ 48
13,400 Mitsui Fudosan Co., Ltd........................... 102
1,200 Mitsui Trust & Banking Co., Ltd................... 1
(c)24,800 Mitsukoshi Ltd.................................... 66
9,000 Murata Manufacturing Co., Ltd..................... 374
17,800 Mycal Corp........................................ 106
(c)44,400 NEC Corp.......................................... 409
26,600 NGK Insulators Ltd................................ 343
145,800 NKK Corp.......................................... 99
18,800 Nippon Express Co., Ltd........................... 106
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- ----------------------------------------------------------------------------
22,600 Nippon Fire & Marine Insurance Co., Ltd........... $ 83
22,800 Nippon Light Metal Co., Ltd....................... 24
23,600 Nippon Meat Packers, Inc.......................... 381
71,800 Nippon Oil Co., Ltd............................... 251
277,000 Nippon Steel Co................................... 503
376 Nippon Telegraph & Telephone Corp................. 2,905
70,000 Nippon Yusen Kabushiki Kaisha..................... 221
(c)88,600 Nissan Motor Co., Ltd............................. 272
40,000 Nomura Securities Co., Ltd........................ 349
900 Orix Corp......................................... 67
28,600 Odakyu Electric Railway Corp...................... 100
50,400 Oji Paper Co., Ltd. (New)......................... 262
102,600 Osaka Gas Co., Ltd................................ 354
22,600 Penta-Ocean Construction Co., Ltd................. 45
8,000 Pioneer Electric Corp............................. 134
2,000 Rohm Co., Ltd..................................... 182
1,500 SMC............................................... 120
(c)93,000 Sakura Bank Ltd................................... 213
18,800 Sankyo Co., Ltd................................... 411
(c)80,000 Sanwa Bank Ltd.................................... 617
66,000 Sanyo Electric Co., Ltd........................... 205
7,800 Secom Co., Ltd.................................... 647
(c)5,000 Sega Enterprises Ltd.............................. 111
26,600 Sekisui House Co.,Ltd............................. 282
45,200 Sharp Corp........................................ 408
8,800 Shimano, Inc...................................... 227
(c)36,600 Shimizu Corp...................................... 123
13,000 Shin-Etsu Chemical Co., Ltd....................... 313
14,000 Shiseido Co., Ltd................................. 180
11,600 Shizuoka Bank Ltd................................. 143
47,400 Showa Denko....................................... 42
11,600 Sony Corp......................................... 846
49,000 Sumitomo Bank..................................... 504
(c)92,600 Sumitomo Chemical Co., Ltd........................ 361
47,400 Sumitomo Corp..................................... 231
33,400 Sumitomo Electric Industries...................... 376
12,800 Sumitomo Forestry Co., Ltd........................ 92
23,800 Sumitomo Metal & Mining Co........................ 77
89,800 Sumitomo Metal Industries......................... 103
23,600 Sumitomo Osaka Cement Co., Ltd.................... 44
(c)50,400 Taisei Corp., Ltd................................. 97
15,800 Taisho Pharmaceutical Co., Ltd.................... 435
30,000 Taiyo Yuden Co., Ltd.............................. 356
30,600 Takeda Chemical Industries........................ 1,180
50,400 Teijin Ltd........................................ 186
32,400 Tobu Railway Co., Ltd............................. 95
17,000 Tohoku Electric Power Co., Ltd.................... 301
38,800 Tokai Bank Ltd.................................... 184
75,000 Tokio Marine & Fire Insurance Co., Ltd............ 897
41,100 Tokyo Electric Power Co........................... 1,016
5,000 Tokyo Electron Ltd................................ 190
100,600 Tokyo Gas Co...................................... 265
39,400 Tokyu Corp........................................ 104
32,600 Toppan Printing Co., Ltd.......................... 399
75,100 Toray Industries, Inc............................. 393
27,600 Toto Ltd.......................................... 222
50,400 Toyoba Co......................................... 65
101,000 Toyota Motor Corp................................. 2,748
(c)47,400 Ube Industries Ltd................................ 72
</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
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
ACTIVE INTERNATIONAL ALLOCATION PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ----------------------------------------------------------------------------
<C> <S> <C>
</TABLE>
JAPAN (CONT.)
<TABLE>
<C> <S> <C>
(d)600 Yamaichi Securities Co., Ltd...................... $ --
25,000 Yokogawa Electric Corp............................ 124
----------
44,967
----------
NETHERLANDS (4.3%)
32,693 ABN Amro Holding N.V.............................. 688
13,000 Aegon N.V......................................... 1,597
7,800 Akzo Nobel N.V.................................... 355
2,180 Buhrmann N.V...................................... 39
14,000 Elsevier N.V...................................... 196
2,008 Getronics N.V..................................... 99
1,900 Hagemeyer N.V..................................... 69
7,237 Heineken N.V...................................... 436
21,511 ING Groep N.V..................................... 1,312
1,970 KLM Royal Dutch Airlines N.V...................... 60
11,733 Koninklijke Ahold N.V............................. 434
650 Nedlloyd Groep N.V................................ 9
2,127 Oce N.V........................................... 76
8,300 Philips Electronics N.V........................... 557
10,184 Rodamco N.V....................................... 259
50,100 Royal Dutch Petroleum Co.......................... 2,495
10,424 Royal KPN N.V..................................... 522
1,168 Stork N.V......................................... 27
11,327 TNT Post Group N.V................................ 365
14,260 UNI-INVEST N.V.................................... 224
15,200 Unilever N.V...................................... 1,299
1,700 Vedior N.V........................................ 34
1,709 Wolters Kluwer N.V................................ 366
----------
11,518
----------
NORWAY (0.1%)
(a)69,700 Choice Hotels Scandinavia ASA..................... 98
(a)33,930 Linstow ASA....................................... 161
----------
259
----------
PORTUGAL (1.1%)
11,576 Banco Commercial Portugues (Registered)........... 356
7,100 Banco Espirito Santo e Comercial de Lisboa
(Registered).................................... 220
4,700 Banco Portugues de Investimento (New)............. 159
3,500 Brisa Auto-Estradas............................... 206
1,300 Cia de Seguros Tranquilidade, (Registered)........ 42
5,300 Cimpor SGPS....................................... 169
200 Cin-Corparacao Industial do Norte................. 8
35,300 EDP-Electricidade de Portugal..................... 777
300 INAPA-Investimentos Participacoes e Gestao........ 3
4,050 Jeronimo Martins SGPS............................. 222
11,700 Portugal Telecom (Registered)..................... 536
6,300 Portucel Industrial-Empressa...................... 41
360 Sociedade de Construcoes Soares da Costa.......... 1
1,695 Somague-Sociedade Gestora de Participacoes........ 10
2,700 Sonae Investmentos................................ 131
1,000 UNICER-Uniao Cervejeira........................... 24
----------
2,905
----------
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- ----------------------------------------------------------------------------
SINGAPORE (2.2%)
(a)32,000 Asia Food & Properties Ltd........................ $ 5
77,000 City Developments Ltd............................. 334
(a,c)8,700 Creative Technology Ltd........................... 123
36,000 Cycle & Carriage Ltd.............................. 123
115,000 DBS Land Ltd...................................... 169
62,000 Development Bank of Singapore Ltd. (Foreign)...... 560
28,800 Fraser & Neave Ltd................................ 84
48,000 Hotel Properties Ltd.............................. 20
2,000 Inchcape Bhd...................................... 2
(a)5,000 Inchcape Marketing Services Ltd................... 3
106,750 Keppel Corp., Ltd................................. 286
37,000 NatSteel Ltd...................................... 41
(a)111,000 Neptune Orient Lines Ltd. (Foreign)............... 36
99,560 Oversea-Chinese Banking Corp. (Foreign)........... 676
(a)18,226 Overseas Union Enterprise Ltd..................... 36
32,000 Parkway Holdings Ltd.............................. 57
4,200 Robinson & Co., Ltd............................... 9
(a)149,644 Sembcorp Industries Ltd........................... 171
10,600 Shangri-La Hotel Ltd.............................. 17
105,000 Singapore Airlines Ltd. (Foreign)................. 770
36,018 Singapore Ltd. (Foreign).......................... 391
275,000 Singapore Technologies Engineering Ltd............ 257
(c)587,000 Singapore Telecommunications Ltd.................. 896
4,000 Straits Trading Co., Ltd.......................... 3
(c)135,000 United Industrial Corp., Ltd...................... 54
81,000 United Overseas Bank Ltd. (Foreign)............... 520
(a)64,000 United Overseas Land Ltd.......................... 43
19,000 Venture Manufacturing (Singapore) Ltd............. 73
----------
5,759
----------
SPAIN (4.7%)
3,000 ACS Actividades................................... 118
3,675 Acerinox.......................................... 86
2,389 Aguas de Barcelona................................ 161
25,800 Argentaria........................................ 669
13,107 Autopistas Concesionaria Espanola................. 218
1,150 Azucarera Ebro Agricolas.......................... 25
103,300 Banco Bilbao Vizcaya (Registered)................. 1,622
(c)48,035 Banco Central Hispano Americano................... 571
59,800 Banco Santander .................................. 1,190
700 Corporacion Financiera Alba....................... 117
3,590 Corporacion Mapfre................................ 97
3,900 Dragados y Construccion........................... 144
50 Empresa Nacional de Celulosas..................... 1
48,800 Endesa............................................ 1,294
(a)100 Ercros............................................ --
3,700 Fomento Construction y Cantractas................. 275
7,400 Gas Natural SDG................................... 807
44,500 Iberdrola......................................... 833
(a)2,270 Immobiliaria Metropolitana Vasco Central.......... 68
16,100 Repsol............................................ 860
1,600 Sol Melia......................................... 56
(a)11,300 Telepizza......................................... 108
8,900 Tabacalera........................................ 225
51,572 Telefonica........................................ 2,296
14,700 Union Electrica Fenosa............................ 255
50 Uralita........................................... 1
</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
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
ACTIVE INTERNATIONAL ALLOCATION PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ----------------------------------------------------------------------------
<C> <S> <C>
</TABLE>
SPAIN (CONT.)
<TABLE>
<C> <S> <C>
(a)41,361 Vallehermoso...................................... $ 592
50 Viscofan Envolturas Celulosicas................... 2
1,220 Zardoya Otis...................................... 38
----------
12,729
----------
SWEDEN (2.3%)
16,500 ABB AB, Class A................................... 176
6,900 ABB AB, Class B................................... 73
3,900 AGA AB, Class B................................... 51
(a)28,710 Asticus AB........................................ 282
32,633 Astra AB, Class A................................. 667
7,900 Astra AB, Class B................................. 161
3,150 Atlas Copco AB, Class A........................... 69
1,700 Atlas Copco AB, Class B........................... 37
47,060 Castellum AB...................................... 512
(a)34,680 Diligentia AB..................................... 244
7,600 Electrolux AB, Series B........................... 131
47,000 Ericsson LM, Class B.............................. 1,121
15,600 Fastighets AB Tornet.............................. 228
8,600 ForeningsSparbanken AB............................ 223
5,100 Hennes & Mauritz AB, Class B...................... 417
(a)2,600 Netcom Systems AB, Class B........................ 106
1,800 OM Gruppen AB..................................... 23
11,000 Piren AB.......................................... 70
2,100 S.K.F. AB, Class B................................ 25
6,640 Securitas AB, Class B............................. 103
4,900 Sandvik AB, Class A............................... 85
2,000 Sandvik AB, Class B............................... 35
12,700 Skandia Forsakrings AB............................ 195
14,800 Skandinaviska Enskilda Banken, Class A............ 156
3,100 Skanska AB, Class B............................... 86
5,500 Svenska Cellulosa AB, Class B..................... 120
5,300 Svenska Handelsbanken, Class A.................... 224
3,000 Svenskt Stal AB (SSAB), Series A.................. 29
3,600 Trelleborg AB, Class B............................ 29
3,600 Volvo AB, Class A................................. 81
7,550 Volvo AB, Class B................................. 173
1,800 WM-Data AB, Class B............................... 77
----------
6,009
----------
SWITZERLAND (6.4%)
285 ABB AG............................................ 334
555 Adecco............................................ 254
(c)175 Alusuisse-Lonza Holdings Ltd. (Registered)........ 204
8,000 CS Holding AG (Registered)........................ 1,254
220 Holderbank Financiere Glarus AG, Class B
(Bearer)........................................ 261
1,165 Nestle (Registered)............................... 2,540
1,895 Novartis AG (Registered).......................... 3,731
48 Roche Holding AG (Bearer)......................... 871
204 Roche Holding AG (Registered)..................... 2,493
(a)470 SAirGroup (Registered)............................ 117
60 SGS Surveillance.................................. 59
160 SMH AG (Bearer)................................... 99
130 Sulzer AG (Registered)............................ 79
435 Swiss Reinsurance (Registered).................... 1,136
(a)1,990 Swisscom AG (Registered).......................... 834
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- ----------------------------------------------------------------------------
(a)6,009 Union Bank of Switzerland AG (Registered)......... $ 1,849
185 Valora Holding AG................................. 50
1,410 Zurich Allied AG.................................. 1,045
----------
17,210
----------
THAILAND (0.0%)
(a,d)8,000 CMIC Finance & Securities PCL (Foreign)........... --
(a,d)18,600 General Finance & Securities PCL (Foreign)........ --
(d)34,700 Siam City Bank PCL (Foreign)...................... --
----------
--
----------
UNITED KINGDOM (15.1%)
28,300 Abbey National plc................................ 606
34,817 Albert Fisher Group plc........................... 3
1,851 Alldays plc....................................... 5
2,415 Allders plc....................................... 5
(a)35,717 Allied Zurich plc................................. 533
7,063 AMEC plc.......................................... 21
20,898 Anglian Water plc................................. 289
18,300 Arjo Wiggins Appleton plc......................... 34
13,000 Associated British Foods plc...................... 123
21,152 Associated British Ports Hldgs plc................ 98
10,766 Astec plc......................................... 15
16,674 Baird (William) plc............................... 28
33,917 Barclays plc...................................... 731
10,099 Barratt Developments plc.......................... 39
20,467 Bass plc.......................................... 298
1,209 BBA Group plc..................................... 8
25,448 Beazer Group plc.................................. 65
17,594 Berisford plc..................................... 53
93,241 BG plc............................................ 588
25,425 BICC plc.......................................... 30
34,840 Blue Circle Industries plc........................ 180
16,670 BOC Group plc..................................... 238
25,700 Boots Co. plc..................................... 438
53,648 BPB Industries plc................................ 203
52,300 British Aerospace plc............................. 443
28,525 British Airways plc............................... 192
35,717 British American Tobacco plc...................... 314
45,890 British Land Co. plc.............................. 341
139,235 British Petroleum Co. plc......................... 2,079
41,700 British Sky Broadcasting plc...................... 317
52,200 British Steel plc................................. 77
142,500 British Telecommunications plc.................... 2,147
179,158 BTR plc........................................... 370
119,040 Buford Holdings plc............................... 194
29,791 Burmah Castrol plc................................ 426
54,672 Cable & Wireless plc.............................. 672
28,680 Cadbury Schweppes plc............................. 489
(a)4,621 Capital Corp. plc................................. 5
79,650 Capital Shopping Centers plc...................... 447
66,447 Caradon plc....................................... 114
11,379 Carpetright plc................................... 43
84,200 Centrica plc...................................... 169
23,543 Coats Viyella plc................................. 11
4,309 Cobham plc........................................ 50
14,396 Commercial Union plc.............................. 225
</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
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
ACTIVE INTERNATIONAL ALLOCATION PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ----------------------------------------------------------------------------
<C> <S> <C>
</TABLE>
UNITED KINGDOM (CONT.)
<TABLE>
<C> <S> <C>
2,616 De La Rue Co. plc................................. $ 9
2,363 Delta plc......................................... 4
(a)4,384 Dialog Corp. plc.................................. 4
80,181 Diageo plc........................................ 912
5,841 EMAP plc.......................................... 112
52,340 EMI Group plc..................................... 350
26,630 Enterprise Oil plc................................ 131
80 Elementis plc..................................... --
25,800 Firstgroup plc.................................... 171
21,058 FKI plc........................................... 47
62,600 General Electric plc.............................. 565
31,230 GKN plc........................................... 414
77,100 Glaxo Wellcome plc................................ 2,653
18,272 Granada Group plc................................. 323
171,120 Grantchester Holdings plc......................... 399
28,100 Great Universal Stores plc........................ 296
5,362 Greycoat plc...................................... 15
19,869 Guardian Royal Exchange plc....................... 111
33,290 Hammerson plc..................................... 191
41,263 Hanson plc........................................ 328
13,575 House of Fraser................................... 12
42,188 HSBC Holdings plc................................. 1,067
12,400 HSBC Holdings plc (75p)........................... 336
9,035 Hyder plc......................................... 113
24,877 IMI plc........................................... 98
20,900 Imperial Chemical Industries plc.................. 181
14,587 Jarvis plc........................................ 162
1,427 JBA Holdings plc.................................. 4
29,407 Johnson Matthey plc............................... 199
27,800 Kingfisher plc.................................... 301
2,469 Kwik-Fit Holdings plc............................. 20
31,641 Ladbroke Group plc................................ 127
6,302 Laird Group plc................................... 17
20,900 Land Securities plc............................... 269
91,246 Lasmo plc......................................... 152
25,100 Legal & General Group plc......................... 326
11,777 Lex Service plc................................... 75
11,340 Limit plc......................................... 31
130,200 Lloyds TSB Group plc.............................. 1,852
21,361 London Clubs Intlernational Plc................... 58
7,019 London Forfaiting Co. plc......................... 13
5,224 Lonrho Africa plc................................. 5
23,828 Lonrho plc........................................ 130
1,872 Low & Bonar plc................................... 5
76,702 Lucascarity plc................................... 256
1,810 Manchester United plc............................. 7
77,300 Marks and Spencer plc............................. 530
(a)40,248 Marley plc........................................ 82
237 Mayflower Corp. plc............................... 1
2,171 McKechnie plc..................................... 13
5,553 Meggitt plc....................................... 12
12,865 MEPC plc.......................................... 86
21,924 Mirror Group News plc............................. 55
(a)37,168 MISYS plc......................................... 271
32,066 National Power plc................................ 276
16,137 NEXT plc.......................................... 133
42,137 NFC plc........................................... 83
(a)890 Ocean Group plc................................... 11
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- ----------------------------------------------------------------------------
9,481 Parity plc........................................ $ 91
17,071 Peninsular & Oriental Steam Navigation............ 202
11,317 Pennon Group plc.................................. 219
148,877 Pilkington plc.................................... 149
1,975 Powerscreen International plc..................... 4
44,762 Prudential Corp. plc.............................. 676
10,414 Racal Electronic plc.............................. 60
10,300 Railtrack Group plc............................... 269
52,362 Rank Group plc.................................... 202
29,000 Reed International plc............................ 227
42,533 Reuters Group plc................................. 447
(a)14,439 Rexam plc......................................... 40
31,348 Rio Tinto plc..................................... 365
7,800 RMC Group plc..................................... 107
37,611 Rolls-Royce plc................................... 156
13,070 Royal Bank of Scotland Group plc.................. 209
34,528 Royal & Sun Alliance Insurance Group plc.......... 282
12,052 Rugby Group plc................................... 19
21,127 Safeway plc....................................... 106
37,523 Sainsbury (J) plc................................. 301
7,800 Schroders plc..................................... 142
(a)5,310 Scotia Holdings plc............................... 6
26,130 Scottish Power plc................................ 268
37,456 Sears plc......................................... 161
4,690 Selfridges plc.................................... 17
1,614 Skillsgroup plc................................... 5
13,100 Slough Estates plc................................ 59
130,396 Smithkline Beecham plc............................ 1,822
5,564 Smiths Industries plc............................. 79
35,618 Southern Electric plc............................. 403
45,467 Stagecoach holdings plc........................... 181
36,507 Tarmac plc........................................ 68
18,300 Tate & Lyle plc................................... 101
20,916 Taylor Woodrow plc................................ 52
133,860 Tesco plc......................................... 381
12,422 Thames Water plc.................................. 238
6,861 The Berkeley Group plc............................ 50
13,017 TI Group plc...................................... 70
1,574 Torotrac plc...................................... 2
76,000 Unilever plc...................................... 852
14,586 United Utilities plc.............................. 202
2,637 Vickers plc....................................... 8
71,056 Vodafone Group plc................................ 1,154
235,070 Wates City of London Properties plc............... 278
1,107 Wickes plc........................................ 5
30,156 WPP Group plc..................................... 184
19,291 Yorkshire Water plc............................... 177
22,600 Zeneca Group plc.................................. 984
----------
40,240
----------
TOTAL COMMON STOCKS (Cost $189,243)............................. 219,038
----------
PREFERRED STOCKS (0.5%)
AUSTRALIA (0.2%)
59,760 News Corp., Ltd................................... 363
----------
AUSTRIA (0.0%)
2 Bau Holding AG.................................... --
----------
</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
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
ACTIVE INTERNATIONAL ALLOCATION PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ----------------------------------------------------------------------------
<C> <S> <C>
GERMANY (0.3%)
1,317 SAP AG............................................ $ 632
2,980 Volkswagen AG..................................... 148
----------
780
----------
ITALY (0.0%)
(c)47,900 Fiat S.p.A........................................ 92
----------
TOTAL PREFERRED STOCKS (Cost $921).............................. 1,235
----------
</TABLE>
<TABLE>
<CAPTION>
NO. OF
RIGHTS
<C> <S> <C>
- ------------
RIGHTS (0.0%)
SPAIN (0.0%)
(a)51,572 Telefonica, expiring 1/30/99 (Cost $0)............ 46
----------
</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......................................... 1
(a)4,300 Hysan Development Co., Ltd., expiring 4/30/99..... --
----------
1
----------
SINGAPORE (0.0%)
(a)2,400 Asia Food & Properties Ltd., expiring 7/12/02..... --
(a)11,750 Keppei Land Ltd., expiring 12/20/00............... 3
----------
3
----------
THAILAND (0.0%)
(a)6,349 National Finance & Securities PCL, expiring
11/15/99........................................ --
----------
TOTAL WARRANTS (Cost $7)........................................ 4
----------
</TABLE>
<TABLE>
<CAPTION>
NO. OF
UNITS
<C> <S> <C>
- ------------
AUSTRALIA (0.1%)
46,096 General Property Trust............................ 86
38,839 Westfield Trust................................... 86
----------
TOTAL UNITS (Cost $153)......................................... 172
----------
</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......................................... 65
----------
ITALY (0.0%)
ITL 11,200 Mediobanca S.p.A., Series XW 4.50%, 1/01/00....... 7
----------
PORTUGAL (0.0%)
PTE 10 Jeronimo Martins SGPS, Zero coupon, 12/30/04...... 7
----------
TOTAL FIXED INCOME SECURITIES (Cost $39)........................ 79
----------
TOTAL FOREIGN SECURITIES (82.7%) (Cost $190,363)................ 220,574
----------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- ----------------------------------------------------------------------------
SHORT-TERM INVESTMENTS (19.8%)
<C> <S> <C>
REPURCHASE AGREEMENTS (19.8%)
$ 43,882 Chase Securities, Inc. 4.45%, dated 12/31/98, due
1/04/99, to be repurchased at $43,887,
collateralized by Federal National Mortgage
Assoc., 4.75%, due 11/14/03, valued at
$44,278......................................... $ 43,882
9,031 Goldman Sachs & Co. 4.70%, dated 12/31/98, due
1/04/99, to be repurchased at $9,035;
collateralized by U.S. Treasury Notes, 5.125%
due 8/31/00, valued at $9,210................... 9,031
----------
TOTAL SHORT-TERM INVESTMENTS (cost $52,913)..................... 52,913
----------
FOREIGN CURRENCY (0.0%)
GBP 57 British Pound..................................... 95
ITL 980 Italian Lira...................................... 1
ESP 55 Spanish Peseta.................................... --
----------
TOTAL FOREIGN CURRENCY (Cost $96)............................... 96
----------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS (102.5%) (Cost $243,372).................... 273,583
----------
OTHER ASSETS (1.2%)
Cash............................................ $ 73
Due from Broker................................. 1,644
Net Receivable for Daily Variation on Futures
Contracts..................................... 1,025
Dividends Receivable............................ 291
Foreign Withholding Tax Reclaim Receivable...... 97
Receivable for Portfolio Shares Sold............ 55
Interest Receivable............................. 24
Other........................................... 21 3,230
----------
LIABILITIES ( - 3.7%)
Collateral on Securities Loaned................. (9,031)
Investment Advisory Fees Payable................ (300)
Net Unrealized Loss on Foreign Currency Exchange
Contracts..................................... (238)
Payable for Portfolio Shares Redeemed........... (113)
Custodian Fees Payable.......................... (50)
Administrative Fees Payable..................... (37)
Directors' Fees & Expenses Payable.............. (12)
Other Liabilities............................... (104) (9,885)
---------- ----------
NET ASSETS (100%)............................................. $ 266,928
----------
----------
</TABLE>
<TABLE>
<S> <C>
NET ASSETS CONSIST OF:
Paid in Capital............................................... $ 236,492
Accumulated Net Investment Loss............................... (900)
Accumulated Net Realized Gain................................. 400
Unrealized Appreciation on Investments, Foreign Currency
Translations and Futures Contracts.......................... 30,936
----------
$ 266,928
----------
----------
</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
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
ACTIVE INTERNATIONAL ALLOCATION PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMOUNT
(000)
- --------------------------------------------------------------------------
<S> <C>
</TABLE>
<TABLE>
<S> <C>
CLASS A:
- --------------------------------------------------------------
NET ASSETS.................................................... $266,832
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 22,414,468 outstanding $0.001 par value shares
(authorized 500,000,000 shares)............................. $11.90
----------
----------
CLASS B:
- --------------------------------------------------------------
NET ASSETS.................................................... $96
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 7,968 outstanding $0.001 par value shares
(authorized 500,000,000 shares)............................. $12.12
----------
----------
</TABLE>
FOREIGN CURRENCY EXCHANGE CONTRACT INFORMATION:
Under the terms of foreign currency exchange contracts open at December 31,
1998, 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>
- --------------- --------- ----------- --------------- --------- ------------
JPY 247,900 $ 2,200 1/11/99 U.S.$ 2,060 $ 2,060 $ (140)
JPY 121,890 1,082 1/11/99 U.S.$ 1,030 1,030 (52)
U.S.$ 2,731 2,731 1/11/99 JPY 313,493 2,782 51
U.S.$ 485 485 1/11/99 JPY 56,297 500 15
DEM 4,726 2,839 1/19/99 U.S.$ 2,807 2,807 (32)
FRF 875 526 1/19/99 U.S.$ 515 515 (11)
JPY 177,235 1,575 1/19/99 U.S.$ 1,531 1,531 (44)
U.S.$ 1,525 1,525 1/19/99 DEM 2,545 1,529 4
U.S.$ 1,546 1,546 1/19/99 JPY 177,235 1,575 29
U.S.$ 920 920 1/29/99 JPY 105,394 938 18
JPY 105,394 938 1/29/99 U.S.$ 901 901 (37)
FRF 28,454 5,100 2/4/99 U.S.$ 5,110 5,110 10
JPY 296,970 2,644 2/4/99 U.S.$ 2,624 2,624 (20)
U.S.$ 3,287 3,287 2/4/99 JPY 376,413 3,351 64
U.S.$ 1,557 1,557 2/4/99 JPY 180,222 1,604 47
JPY 259,665 2,311 2/4/99 U.S.$ 2,147 2,147 (164)
U.S.$ 4,795 4,795 2/4/99 FRF 27,361 4,904 109
U.S.$ 3,970 3,970 2/4/99 FRF 22,196 3,978 8
JPY 246,459 2,195 2/8/99 U.S.$ 2,142 2,142 (53)
U.S.$ 4,278 4,278 2/8/99 JPY 494,909 4,408 130
JPY 248,451 2,213 2/8/99 U.S.$ 2,142 2,142 (71)
U.S.$ 706 706 2/12/99 ESP 100,104 706 -
U.S.$ 2,154 2,154 2/12/99 GBP 1,301 2,162 8
U.S.$ 18,986 18,986 2/12/99 GBP 11,454 19,032 46
U.S.$ 2,613 2,613 2/12/99 GBP 1,565 2,600 (13)
ESP 47,797 337 2/12/99 U.S.$ 338 338 1
ESP 362,836 2,560 2/12/99 U.S.$ 2,568 2,568 8
GBP 1,586 2,635 2/12/99 U.S.$ 2,661 2,661 26
ITL 4,226,153 2,563 2/12/99 U.S.$ 2,573 2,573 10
U.S.$ 2,555 2,555 2/12/99 ITL 4,254,872 2,580 25
U.S.$ 1,300 1,300 2/12/99 ITL 2,145,000 1,301 1
U.S.$ 1,889 1,889 2/12/99 ESP 270,100 1,906 17
JPY 183,525 1,638 2/26/99 U.S.$ 1,536 1,536 (102)
U.S.$ 671 671 2/26/99 JPY 77,401 691 20
U.S.$ 919 919 2/26/99 JPY 106,124 947 28
SGD 1,614 983 3/3/99 U.S.$ 988 988 5
U.S.$ 986 986 3/3/99 SGD 1,614 983 (3)
SGD 1,465 893 3/8/99 U.S.$ 897 897 4
SGD 173 105 3/8/99 U.S.$ 106 106 1
U.S.$ 895 895 3/8/99 SGD 1,465 893 (2)
<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.$ 106 106 3/8/99 SGD 173 105 (1)
U.S.$ 693 $ 693 3/9/99 AUD 1,110 $ 681 $ (12)
JPY 730,068 6,530 3/10/99 U.S.$ 6,187 6,187 (343)
U.S.$ 3,495 3,495 3/10/99 JPY 400,883 3,585 90
U.S.$ 2,576 2,576 3/10/99 JPY 296,879 2,655 79
U.S.$ 375 375 3/10/99 JPY 42,638 381 6
SGD 1,465 894 4/7/99 U.S.$ 899 899 5
U.S.$ 897 897 4/7/99 SGD 1,465 894 (3)
--------- --------- -----
$ 109,671 $ 109,433 $ (238)
--------- --------- -----
--------- --------- -----
</TABLE>
- ------------------------------------------------------------
(a) -- Non-income producing security
(c) -- All or a portion of security on loan at December 31, 1998 -- see note
A-11 to financial statements.
(d) -- Security is valued at fair value -- see note A-1 to financial
statements.
AUD -- Australian Dollar
DEM -- German Mark
FRF -- French Franc
JPY -- Japanese Yen
NCS -- Non-Convertible Shares
PCL -- Public Company Limited
PTE -- Portugese Escudo
RFD -- Ranked for Dividend
RNC -- Non-Convertible Savings Shares
SGD -- Singapore Dollar
- --------------------------------------------------------------------
FUTURES CONTRACTS:
At December 31,1998, 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:
Aust All Ord. 17 U.S.$ 758 March-99 $ 30
CAC 40 Index 122 U.S.$ 4,296 March-99 36
FT-SE 100 Index 243 U.S.$23,783 March-99 749
Milan MIB30 Index 9 U.S.$ 1,846 March-99 (32)
Nikkei 225 20 U.S.$ 2,287 March-99 (203)
SHORT:
DAX Index 5 U.S.$ 1,391 March-99 1
TOPIX Index 26 U.S.$ 2,350 March-99 96
-----
$ 677
-----
-----
</TABLE>
- ------------------------------------------------
SUMMARY OF FOREIGN SECURITIES BY INDUSTRY CLASSIFICATION
<TABLE>
<CAPTION>
VALUE PERCENT OF
INDUSTRY (000) NET ASSETS
<S> <C> <C>
- ----------------------------------------------------------------
Capital Equipment...................... $ 21,064 7.9%
Consumer Goods......................... 43,178 16.2
Energy................................. 23,520 8.8
Finance................................ 60,216 22.6
Gold Mines............................. 78 --
Materials.............................. 16,003 6.0
Multi-Industry......................... 5,345 2.0
Services............................... 51,170 19.2
--------- ---
$ 220,574 82.7%
--------- ---
--------- ---
</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.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
ASIAN EQUITY PORTFOLIO
COMPOSITION OF NET ASSETS (AT DECEMBER 31, 1998)
- --------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Hong Kong 38.4%
India 2.8%
Indonesia 2.8%
Korea 16.3%
Malaysia 5.0%
Pakistan 0.2%
Philippines 4.0%
Singapore 13.3%
Taiwan 17.0%
Thailand 3.5%
Other -3.3%
</TABLE>
COMPARISON OF THE CHANGE IN VALUE OF A $500,000** INVESTMENT
- ---------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
ASIAN EQUITY PORTFOLIO-CLASS MSCI ALL COUNTRY FAR EAST FREE EX-JAPAN
A INDEX(1)
<S> <C> <C>
7/01/91* $500,000 $500,000
10/31/91 $483,500 $493,080
10/31/92 $684,130 $676,180
12/31/92 $658,030 $630,045
12/31/93 $1,353,595 $1,252,425
12/31/94 $1,139,550 $1,014,350
12/31/95 $1,217,837 $1,083,427
12/31/96 $1,260,340 $1,182,886
12/31/97 $651,722 $644,909
12/31/98 $577,556 $597,250
* Commencement of operations
** Minimum investment
</TABLE>
In accordance with SEC regulations, Portfolio performance shown assumes that all
recurring fees (including management fees) were deducted and all dividends and
distributions were reinvested. The performance of Class B shares will vary based
upon the different inception dates and fees assessed to that class.
PERFORMANCE COMPARED TO THE MORGAN STANLEY
CAPITAL INTERNATIONAL (MSCI) ALL COUNTRY FAR
EAST FREE EX-JAPAN INDEX(1)
- -----------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
--------------------------------------------
AVERAGE ANNUAL AVERAGE ANNUAL
ONE YEAR FIVE YEARS SINCE INCEPTION
---------- --------------- ---------------
<S> <C> <C> <C>
PORTFOLIO -- CLASS
A..................... - 11.38% - 15.66% 1.94%
PORTFOLIO -- CLASS
B..................... - 11.53 N/A - 22.32
INDEX -- CLASS A...... - 7.39 - 13.77 2.32
INDEX -- CLASS B...... - 7.39 N/A - 18.11
</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 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 year ended December 31, 1998, the Portfolio had a total return of
- -11.38% for the Class A shares and -11.53% for the Class B shares compared to a
total return of -7.39% for the Morgan Stanley Capital International (MSCI) All
Country Far East Free ex-Japan Index (the "Index"). For the five-year period
ended December 31, 1998, the average annual total return for Class A shares was
- -15.66% compared to -13.77% for the Index. From inception on July 1, 1991
through December 31, 1998, the average annual total return of Class A shares was
1.94% compared to 2.32% for the Index. From inception on January 2, 1996 through
December 31, 1998 the average annual total return of Class B shares was -22.32%
compared to -18.11% for the Index.
Asian stock markets performed well in the fourth quarter of 1998 reducing some
of the losses incurred earlier in the year. For the three months ended December
31, 1998, the Portfolio had a total return of 24.38% for the Class A shares and
23.95% for the Class B shares compared to 40.18% for the Index. Key contributors
to the weak relative performance during the fourth quarter were overweight
positions in Taiwan and utilities stocks and underweight positions in banking
and property stocks. This portfolio mix had contributed to relative
out-performance in the second and third quarters. A combination of domestic and
global factors has contributed to the recovery in Asian
- ------------------------------------------------------------
CERTAIN INFORMATION APPEARING IN THIS INVESTMENT OVERVIEW IS UNAUDITED.
ACCORDINGLY, THE REPORT OF INDEPENDENT ACCOUNTANTS APPEARING ELSEWHERE IN THIS
REPORT DOES NOT EXTEND TO THIS INFORMATION. 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.
- --------------------------------------------------------------------------------
Asian Equity Portfolio
14
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
ASIAN EQUITY PORTFOLIO (CONT.)
stock markets, included domestic monetary and fiscal policy easing, improved
domestic liquidity from current account surpluses, U.S. and European interest
rate cuts, corporate restructuring and currency strengthening relative to the
U.S. dollar.
The International Monetary Fund (IMF) crisis countries of South Korea, Thailand
and Indonesia led the fourth quarter rally just as they had led the downturn in
late 1997. The much-maligned IMF programs, based on tight monetary and fiscal
policy, created significant contractions in domestic consumption and investment.
These contractions led to a swing from current account deficits to current
account surpluses, which stabilized and then strengthened the currencies.
Currency strength allowed the governments to relax monetary and fiscal policy
early in the third quarter with IMF approval. By September, data began to emerge
suggesting that industrial production and some categories of consumption had
bottomed in Korea and Thailand. Interest rates have fallen dramatically, due to
easier monetary policy and falling inflationary expectations. For example,
interest rates fell from over 30% at the peak in Korea to 7% today; interest
rate declines encouraged domestic investors to return to the equity markets,
pushing stocks up. In 1999 easier monetary policy should stimulate some
improvement in domestic consumption as well.
Banking sector reform and re-capitalization will be critical to the resumption
of strong growth across Asia because banks remain the key financial
intermediaries in most countries. Korea has taken the lead in addressing its
banking problems. Korea's program includes forced mergers of troubled banks, the
use of government funds to recapitalize failed banks and purchase non-performing
assets from them and the subsequent liquidation of these assets. Korea has also
benefited from the presence of one of Asia's few domestic bond markets, which
has helped to keep financing available even while the heavy bank reform work was
underway. Thailand has also designed a good recapitalization program although
there have been some disappointments in its implementation. One of the key
elements of the banking package, enhanced foreclosure laws, was delayed until
mid-1999. The Indonesian program has been designed but due to the greater scale
of the banking problems in Indonesia will take longer to implement. Bank
recapitalization will allow the restructuring efforts to move onto the next
phase, corporate level debt restructuring. These initiatives will require some
debt forgiveness and insolvent banks were in no position to take the required
write-downs.
Hong Kong performed well during the fourth quarter but lagged the overall index.
Hong Kong's equity market is particularly sensitive to interest rate movements
due to its heavy weighting of property and financial stocks. Interest rate cuts
in the U.S. and Hong Kong during September and October were very supportive to
the market. In addition, the Hong Kong Monetary Authority (HKMA) purchased
approximately 25% of the free float of most major stocks during its August
market intervention. This technical condition probably exaggerated the market's
move upwards when interest rates began to fall. Due to Hong Kong's decision to
maintain its currency peg to the U.S. dollar even as its neighbors devalued,
companies in Hong Kong have been forced to cut costs to remain competitive. The
resulting deflationary conditions have prevented real interest rates from
falling very far in Hong Kong; cuts in nominal interest rates have been matched
by a fall into outright deflation. The territory has not experienced real
interest rates at these levels for an extended period of time over the last few
decades and this should delay economic recovery and limit stock market gains.
Although we expect further reductions in nominal and real rates in 1999 the
scope for significant declines are limited given the U.S. dollar peg and
deflation. Revenue growth will be hard to come by in 1999 and much of the
earnings growth will be generated from comparisons with 1998 earnings which
include heavy non-recurring provisions. In addition, the HKMA must design a
program for the disposition of its extensive stock holdings. For these reasons,
we entered 1999 underweight Hong Kong equities.
China was the worst performing East Asian market in 1998. This under-performance
reflects the weakness of most of the listed Chinese companies as well as the
challenging economic conditions within China. The Chinese economy is currently
experiencing persistent deflation, oversupply of most manufactured goods,
slowing exports, high real interest rates and bank asset quality problems. The
Chinese government has attempted to deal with these issues through a massive
government-funded infrastructure program. This program helped gross domestic
products growth approach the government's target for 1998 but did not flow
through into corporate earnings and equity performance. The Chinese have begun
to grapple with
- --------------------------------------------------------------------------------
Asian Equity Portfolio
15
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
ASIAN EQUITY PORTFOLIO (CONT.)
external debt problems recently as well. We expect the Chinese government will
shift from infrastructure spending to real reform as 1999 progresses. Some
interesting values are starting to emerge among the Chinese companies but
earnings visibility remains poor and the flow of news will likely be negative in
the first half of the year.
We have maintained an overweight position in the technology sector in 1998.
These positions primarily consist of electronics companies in Taiwan, Korea and
Singapore. These stocks were more influenced by their local markets during the
fourth quarter than by individual company fundamentals. The Korean companies
outperformed the regional index during the quarter while the Taiwanese companies
under-performed along with Taiwan. Overall, the group under-performed during the
quarter but outperformed for the year. These positions are the result of bottom-
up work at the individual company level. Given the quality of management, market
positions, financial condition and growth prospects of the portfolio of
electronics stocks we hold we believe they should outperform again in 1999.
Malaysia's decision to implement capital controls in early September led to its
removal from the MSCI Free Indexes in December. Shifting securities regulations
have severely limited the ability of most foreign investors to trade over the
past few months. We have a portfolio of sound, primarily consumer-oriented
stocks in Malaysia. The Malaysian government has signaled that it is studying
various proposals to lift the capital controls. We expect some movement on this
during the first half of 1999. We will reexamine our weighting in Malaysia when
the Malaysian authorities introduce their new rules.
Several themes we expect to drive equity performance in 1999 include modest
improvements in domestic consumption in most economies, disinflation in some
countries and deflation in others and the ability of companies to enhance their
own performance through corporate restructuring. Restructurings broadly include
debt restructuring, divestitures, sales of strategic stakes to multinationals,
business unit shutdowns, mergers or staff downsizing. We have seen all of the
above announced in various forms in 1998. The markets have clearly rewarded
companies that adopt Western style restructuring with a focus on enhancing
shareholder value. During 1999 we will be monitoring the progress of the
restructurings announced in 1998 and searching for management teams with the
vision and ability to improve returns to shareholders going forward.
Several risk factors we will be monitoring in 1999 include the performance of
the Japanese economy, the large supply of new offerings and capital raisings we
expect to see in Asia and growth in the developed economies that are the primary
markets for Asian exports. Upside surprises could include successful bank
recapitalization and economic recovery in Japan and stronger than expected
import demand from the U.S. and Europe.
During 1998 we constructed a fairly defensive portfolio emphasizing consumer and
technology companies and utilities while limiting our exposure to banks and
properties. During the fourth quarter we increased our exposure to banks and
properties but as performance reflects we remained underweight these sectors. In
1999 we are focusing more of our research time and company visits on companies
that have the ability to implement sound restructuring programs or are sensitive
to recoveries in domestic consumption. We do not believe that all of Asia's
economic problems have been solved but the trends have certainly improved.
Timothy Jensen
PORTFOLIO MANAGER
Ashutosh Sinha
PORTFOLIO MANAGER
January 1999
- --------------------------------------------------------------------------------
Asian Equity Portfolio
16
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
ASIAN EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- -----------------------------------------------------------------------------
COMMON STOCKS (103.0%)
HONG KONG (38.4%)
324,000 CLP Holdings Ltd.................................. $ 1,614
548,000 China Telecom Ltd................................. 948
587,000 Dairy Farm International Holdings Ltd............. 675
(a)368,000 Hengan International Group Co. Ltd................ 134
(c)920,200 Hong Kong & China Gas Co., Ltd.................... 1,170
267,000 Hong Kong Electric Holdings Ltd................... 810
749,800 Hong Kong Telecommunications Ltd.................. 1,311
431,000 Hutchison Whampoa Ltd............................. 3,046
82,400 HSBC Holdings plc................................. 2,053
495,000 Li & Fung Ltd..................................... 1,025
355,000 New World Development Co., Ltd.................... 894
269,000 SmartTone Telecommunications Holdings Ltd......... 747
374,000 Sun Hung Kai Properties Ltd....................... 2,728
350,500 Swire Pacific Ltd., Class A....................... 1,570
467,700 Television Broadcasts Ltd......................... 1,207
81,000 VTech Holdings Ltd................................ 353
----------
20,285
----------
INDIA (2.8%)
50 Ashok Leyland Ltd................................. --
(d)31,000 Container Corp. of India Ltd...................... 175
36,009 Hero Honda Motors Ltd............................. 461
10 Housing Development Finance Corp., Ltd............ 1
6,300 NIIT Ltd.......................................... 241
21,800 Nestle India Ltd.................................. 234
8,600 Punjab Tractors Ltd............................... 161
14,400 Reckitt & Coleman of India Ltd.................... 127
50 State Bank of India............................... --
80 Tata Engineering & Locomotive Co., Ltd............ --
1,900 Tata Infotech Ltd................................. 63
350 T.V.S. Suzuki Ltd................................. 4
----------
1,467
----------
INDONESIA (2.8%)
537,500 Gudang Garam...................................... 783
65,000 Semen Gresik...................................... 67
159,900 Unilever Indonesia................................ 600
----------
1,450
----------
KOREA (16.0%)
8,330 Hankuk Glass Industry Co., Ltd.................... 174
45,190 Korea Eelectric Power Corp........................ 1,119
15,110 Nong Shim Co., Ltd................................ 869
(d)14,510 Pohang Iron & Steel Co., Ltd...................... 916
(c)20,200 Pohang Iron & Steel Co., Ltd. ADR................. 341
3,938 S1 Corp........................................... 737
17,300 Samsung Electro-Mechanics Co...................... 374
(a)41,373 Samsung Electronics Co............................ 2,775
2,500 Samsung Fire & Marine Insurance Co................ 935
(d)299 SK Telecom Co., Ltd............................... 226
----------
8,466
----------
MALAYSIA (5.0%)
(d)138,000 Amway (Malaysia) Holdings Bhd..................... 198
(d)157,000 Carlsberg Brewery Malaysia Bhd.................... 315
(a,d)93,000 Esso Malaysia Bhd................................. 49
(d)342,000 Guinness Anchor Bhd............................... 241
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- -----------------------------------------------------------------------------
(d)326,000 Hap Seng Consolidated Bhd......................... $ 147
(d)159,000 Nestle (Malaysia) Bhd............................. 445
(d)411,000 R.J. Reynolds Bhd................................. 325
(d)170,400 Rothmans of Pall Mall (Malaysia) Bhd.............. 703
(d)12,000 Shell Refining Co. (Malaysia) Bhd................. 9
(d)125,000 Telekom Malaysia Bhd.............................. 230
----------
2,662
----------
PAKISTAN (0.2%)
(d)33,400 Shell Pakistan Ltd................................ 96
----------
PHILIPPINES (4.0%)
134,650 Bank of the Phillipine Islands.................... 286
299,300 La Tondena Distillers, Inc........................ 238
14,260 Manila Electric Co., Class B...................... 46
3,089,700 Music Corp........................................ 254
(c)359,550 San Miguel Corp., Class B......................... 693
(c)3,028,300 SM Prime Holdings, Inc............................ 576
----------
2,093
----------
SINGAPORE (13.3%)
208,000 City Developments Ltd............................. 901
405,000 Natsteel Electronics Ltd.......................... 1,031
68,000 Overseas-Chinese Banking Corp. (Foreign).......... 462
5,000 Rothmans Industries Ltd........................... 30
131,000 Singapore Airlines Ltd. (Foreign)................. 961
5,700 Singapore Ltd. (Foreign).......................... 62
45,000 Singapore Press Holdings Ltd...................... 477
782,000 Singapore Technologies Engineering Ltd............ 730
186,200 United Overseas Bank Ltd. (Foreign)............... 1,196
302,000 Venture Manufacturing (Singapore) Ltd............. 1,153
32,000 Want Want Holdings Ltd............................ 38
----------
7,041
----------
TAIWAN (17.0%)
(a)92,270 Asustek Computer, Inc............................. 862
172,000 Cathay Life Insurance Co., Ltd.................... 555
152,000 China Development Corp............................ 278
(a,d)340,118 Compal Electronics, Inc........................... 1,108
(a)135,560 Compeq Manufacturing Co., Ltd..................... 888
1,311,480 Far East Textile Ltd.............................. 1,071
(a)353,520 Hon Hai Precision Industry........................ 1,953
187,000 President Chain Store Corp........................ 589
(a)329,688 Siliconware Precision Industries Co............... 583
(a)499,850 Taiwan Semiconductor Manufacturing Co............. 1,102
(a)6 United Micro Electronics Corp., Ltd............... --
----------
8,989
----------
THAILAND (3.5%)
66,600 Advanced Info Service PCL (Foreign)............... 396
(d)170,100 BEC World PCL (Foreign)........................... 936
59,100 Delta Electronics (Thailand) PCL (Foreign)........ 312
31,400 PTT Exploration & Production PCL (Foreign)........ 221
----------
1,865
----------
TOTAL COMMON STOCKS (Cost $53,476)............................... 54,414
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
Asian Equity Portfolio
17
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
ASIAN EQUITY PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NO. OF VALUE
RIGHTS (000)
- -----------------------------------------------------------------------------
<C> <S> <C>
RIGHTS (0.3%)
KOREA (0.3%)
(a,d)763 Samsung Fire & Marine Insurance Co., Expiring
1/14/99 (Cost $0)............................... $ 147
----------
TOTAL FOREIGN SECURITIES (103.3%) (Cost $53,476)................. 54,561
----------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT
(000)
<C> <S> <C>
- -------------
SHORT-TERM INVESTMENT (3.4%)
REPURCHASE AGREEMENT (3.4%)
$ 1,778 Goldman Sachs & Co., 4.70%, dated 12/31/98, due
1/04/99, to be repurchased at $1,779,
collateralized by U.S. Treasury Notes, 5.125%,
due 8/31/00, valued at $1,890 (Cost $1,778)..... 1,778
----------
FOREIGN CURRENCY (1.8%)
HKD 321 Hong Kong Dollar.................................. 42
INR 4,931 Indian Rupee...................................... 116
IDR 78,161 Indonesian Rupiah................................. 10
(d)MYR 1,118 Malaysian Ringgit................................. 206
(d)PKR 1,609 Pakistan Rupee.................................... 29
KRW 13 South Korean Won.................................. --
TWD 18,353 Taiwan Dollar..................................... 570
----------
TOTAL FOREIGN CURRENCY (Cost $972)............................... 973
----------
TOTAL INVESTMENTS (108.5%) (Cost $56,226)........................ 57,312
----------
</TABLE>
<TABLE>
<S> <C> <C>
OTHER ASSETS (0.5%)
Receivable for Investments Sold...................... $ 101
Receivable for Portfolio Shares Sold................. 50
Dividends Receivable................................. 33
Foreign Withholding Tax Reclaim Receivable........... 19
Other................................................ 75 278
----------
LIABILITIES ( - 9.0%)
Bank Overdraft Payable............................... (2,693)
Collateral on Securities Loaned...................... (1,778)
Investment Advisory Fees Payable..................... (70)
Payable for Investments Purchased.................... (44)
Custodian Fees Payable............................... (44)
Payable for Portfolio Shares Redeemed................ (38)
Directors' Fees & Expenses Payable................... (20)
Payable for Foreign Taxes............................ (17)
Administrative Fees Payable.......................... (10)
Distribution Fees Payable............................ (1)
Other Liabilities.................................... (54) (4,769)
---------- ----------
NET ASSETS (100%)................................................ $ 52,821
----------
----------
</TABLE>
<TABLE>
<S> <C>
NET ASSETS CONSIST OF:
Paid in Capital.................................................. $ 159,789
Accumulated Net Investment Loss.................................. (20)
Accumulated Net Realized Loss.................................... (108,011)
Unrealized Appreciation on Investments and Foreign Currency
Translations (net of accrual for foreign taxes of $1 on
unrealized appreciation on investments)........................ 1,063
----------
NET ASSETS....................................................... $ 52,821
----------
----------
</TABLE>
<TABLE>
<CAPTION>
AMOUNT
(000)
<S> <C> <C>
- -----------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
CLASS A:
- -----------------------------------------------------------------
NET ASSETS....................................................... $51,334
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 6,410,658 outstanding $0.001 par value shares
(authorized 500,000,000 shares)................................ $8.01
----------
----------
CLASS B:
- -----------------------------------------------------------------
NET ASSETS....................................................... $1,487
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 186,662 outstanding $0.001 par value shares
(authorized 500,000,000 shares)................................ $7.97
----------
----------
</TABLE>
- ------------------------------------------------------------
(a) -- Non-income producing security
(c) -- All or a portion of security on loan at December 31, 1998 -- See note
A-11 to financial statements.
(d) -- Investments (totaling $6,501 or 12.3% of net assets at December 31,
1998) were valued at fair value -- see note A-1 to financial
statements.
PCL -- Public Company Limited
- ------------------------------------------------------------
SUMMARY OF COMMON STOCKS BY INDUSTRY CLASSIFICATION
<TABLE>
<CAPTION>
VALUE PERCENT OF
INDUSTRY (000) NET ASSETS
<S> <C> <C>
- -----------------------------------------------------------------
Capital Equipment...................... $ 11,390 21.6%
Consumer Goods......................... 10,964 20.8
Energy................................. 5,038 9.5
Finance................................ 11,010 20.8
Materials.............................. 1,431 2.7
Multi-Industry......................... 4,616 8.7
Services............................... 10,112 19.2
-------- -----
$ 54,561 103.3%
-------- -----
-------- -----
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
Asian Equity Portfolio
18
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
ASIAN REAL ESTATE PORTFOLIO
COMPOSITION OF NET ASSETS (AT DECEMBER 31, 1998)
- --------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Australia 5.4%
Hong Kong 48.2%
Japan 17.4%
Philippines 5.1%
Singapore 16.3%
Taiwan 1.5%
Thailand 4.6%
Other 1.5%
</TABLE>
COMPARISON OF THE CHANGE IN VALUE OF A $500,000** INVESTMENT
- ---------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
ASIAN REAL ESTATE PORTFOLIO-CLASS ASIAN REAL ESTATE PORTFOLIO-CLASS
A B
<S> <C> <C>
10/01/97* $500,000.00 $100,000.00
12/31/97 $400,400.00 $80,300.00
12/31/98 $353,072.72 $70,238.41
* Commencement of operations
** Minimum investment
<CAPTION>
GPR LIFE FAR EAST ASIA REAL ESTATE T.R.
INDEX(1)
<S> <C>
10/01/97* $500,000.00
12/31/97 $330,450.00
12/31/98 $296,711.06
* Commencement of operations
** Minimum investment
</TABLE>
In accordance with SEC regulations, Portfolio performance shown assumes that all
recurring fees (including management fees) were deducted and all dividends and
distributions were reinvested. The performance of Class B shares will vary based
upon the different fees assessed to that class. The GPR Life Far East Asia Real
Estate T.R. Index value at December 31, 1998 assumes a minimum initial
investment of $500,000; if a minimum initial investment of $100,000 (the minimum
investment for Class B shares) is assumed, the value at December 31, 1998 would
be $59,342.
PERFORMANCE COMPARED TO THE GPR LIFE
FAR EAST ASIA REAL ESTATE T.R. INDEX(1)
- -----------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
---------------------------
ONE AVERAGE ANNUAL
YEAR SINCE INCEPTION
---------- ---------------
<S> <C> <C>
PORTFOLIO -- CLASS A............. - 11.82% - 24.30%
PORTFOLIO -- CLASS B............. - 12.53 - 24.63
INDEX............................ - 10.21 - 34.15
</TABLE>
1. The GPR Life Far East Asia Real Estate T.R. Index is a market capitalization
weighted index of Far East and Asia 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 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 whose shares trade on a recognized
stock exchange in Asia and in equity securities of companies organized under the
laws of an Asian country whose business is conducted principally in Asia.
For the year ended December 31, 1998, the Portfolio had a total return of
- 11.82% for Class A shares and - 12.53% for Class B shares compared to
- 10.21% for the GPR Life Far East Asia Real Estate T.R. Index (the "Index").
From inception on October 1, 1997 through December 31, 1998, the average annual
total return was - 24.30% for Class A shares and - 24.63% for Class B shares
compared to - 34.15% for the Index.
MACRO-ECONOMIC BACKDROP
The unexpected strength of the yen caused by the massive unwinding of the
so-called yen-carry trades took away the pressure on most Asian currencies and
reduced the risk premium for non-Japan Asia, as a devaluation of the Chinese
currency, the renminbi, became less likely in the near term. Hong Kong's risk
premium as measured by the interest rate spread between the Hong Kong dollar and
the U.S. dollar shrank from the high of close to 1,000 basis points in the
summer to the current 100-150 basis points. The relative strength of Asian
currencies supported by a stronger yen have allowed Asian central banks to lower
interest rates more aggressively to pump prime their weak economies and ease
corporate debt burdens. It was remarkable that the recent Russian debt crisis
and financial and currency woes in Latin America have done little to cause any
renewed weakness in the Asian currencies. This resilience was primarily due to
the rapid building up of current account surpluses in the Asian "crisis
economies" to the tune of 5-10% of their respective gross domestic
- ------------------------------------------------------------
CERTAIN INFORMATION APPEARING IN THIS INVESTMENT OVERVIEW IS UNAUDITED.
ACCORDINGLY, THE REPORT OF INDEPENDENT ACCOUNTANTS APPEARING ELSEWHERE IN THIS
REPORT DOES NOT EXTEND TO THIS INFORMATION. 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 DESCIRPTION OF CERTAIN RISK
CONSIDERATIONS ASSOCIATED WITH INTERNATIONAL INVESTING.
- --------------------------------------------------------------------------------
Asian Real Estate Portfolio
19
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
ASIAN REAL ESTATE PORTFOLIO (CONT.)
product (GDP) from deficits of roughly equal magnitude merely a year ago. The
Thai baht/U.S. dollar has strengthened from the 39-41 level in the summer to 36
and the Korean won from 1300-1450 to the current 1200. Even the Indonesian
rupiah has risen to 7,500 from 10,000 to 11,000 three months ago despite the
ongoing political crisis and social unrest.
The synchronized global monetary easing led by the Federal Reserve Board's
150-basis point cut in interest rates provided further ammunition for Asian
banks to lower interest rates. The three month inter-bank rates in Hong Kong and
Singapore have now fallen to pre-crisis lows of 5.75% and 1.875%, respectively.
In response to this flood of liquidity, banks have also lowered their prime
lending rates by 100 basis points to 9% in Hong Kong and by 200 basis points to
5.5% in Singapore. The market expects further interest rate cuts to come through
in the near term. Elsewhere throughout Asia, interest rates have similarly
declined substantially in the last quarter.
Meanwhile, the real economy continued to contract in most parts of Asia. The
Hong Kong economy had a negative 7% growth rate in the third quarter, while
Malaysia's was a negative 8.6% in the same period. In the face of the most
severe recession to hit the region in decades, Asia has started to engage in
restructuring and cost cuttings in different forms in efforts to gain
competitiveness. The most notable example is Singapore's S$10.5 billion (US$6.3
billion) cost cutting package that amounts to 7% of the country's GDP. The
measures include a proposed overall wage cut of 15% and a 10% corporate tax
rebate.
In Japan, the government has committed substantial resources to rescue the
ailing economy and the troubled banking sector. A total of 64 trillion yen
(US$533 billion) has been set aside to reform the banking sector, while a fiscal
stimulus package worth 24 trillion yen (US$200 billion) has been proposed to try
to jump start the Japanese economy. Meanwhile, the Chinese economy appears to be
gathering strength in the last quarter, propelled by accelerated public spending
and investments.
REAL ESTATE MARKETS
With the help of declining interest rates and rising stock prices, the
residential markets in Hong Kong and Singapore returned to life again in the
fourth quarter. In Hong Kong, despite the threats of rising unemployment and
high real interest rates, residential transactions were up by more than 66%
month-on-month to 12,800 units in November, amounting to Hong Kong $32.7 billion
(+59%) in value terms. Property launches have also met with renewed enthusiasm,
with Sino Land's mid-range Island Haborview development in urban Kowloon
attracting applications of more than 6,000 for the slightly more than 1,200
units launched. The recent announcement by the Hong Kong Mortgage Corporation
(HKMC) to provide a 15% mortgage guarantee for home purchasers should be
positive for the residential sector, especially in the secondary market. This
scheme effectively raises the mortgage loan-to-value ratio to 85% from the
current 70%. In the office sector, falling capital values have raised initial
rental yields to more realistic levels. The Rating and Valuation Department said
Hong Kong's Grade A office yield increased to 7.3% in the third quarter,
compared with 4.9% at the peak in 1997.
In Singapore, residential sales surged to 1,400 units in November, up from 1,100
units in October and 996 for the whole of third quarter 1998. The strong pick-up
in transaction volume was indeed a surprise and generally reflects strong
pent-up demand and better affordability due to declining interest rates and
sharply lower prices. Banks now appear much more eager to lend for home
purchases and are offering attractive terms and interest rates to lure buyers.
Developers, on the other hand, are withdrawing some of the incentives that were
previously offered to buyers, such as payment of stamp duties. There is also
some evidence that buying interest has slowly spread to the middle to upper
range properties.
Elsewhere, Japan's weak economy continued to take its toll on the residential
market. Housing start fell 12.9% in October, the 22nd straight monthly decline.
In addition, residential real estate values in the greater Tokyo area fell 1.4%
in the third quarter of 1998, according to the Real Estate Research Institute.
REAL ESTATE SECURITIES
Asian real estate shares performed strongly in the fourth quarter, surging by
more than 50% from the August/September low on declining interest rates, foreign
portfolio inflows and improved investor confidence. The robust performance also
reflects better property sales and signs of what seems to be an
earlier-than-expected recovery in the certain markets, such as Hong Kong and
Singapore. The real estate sector has significantly outperformed the broader
Asian equity indices during the period as equity
- --------------------------------------------------------------------------------
Asian Real Estate Portfolio
20
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
ASIAN REAL ESTATE PORTFOLIO (CONT.)
investors rebuilt their positions in interest-rate sensitive sectors. 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 also participated in the recent equity market
rally, and in the process reducing the average Price/Net Asset Value discount
from about 35% to 20%.
Given a declining interest rate environment, we have raised Hong Kong to a
slight overweight position and continued to maintain an overweight position in
Singapore. Within these two markets, we have however 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 and significantly
undervalued stock prices. We remain underweight in Japan given the weak real
estate demand and high gearing, but would look to add to our positions on signs
of economic recovery. We have reduced Australia to an underweight position 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. The retail sector has, however, performed well on the back
of surprisingly robust retail sales.
Kiat Seng Seah
PORTFOLIO MANAGER
January 1999
- --------------------------------------------------------------------------------
Asian Real Estate Portfolio
21
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
ASIAN REAL ESTATE PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- ----------------------------------------------------------------------------
COMMON STOCKS (94.0%)
AUSTRALIA (5.4%)
40,000 Armstrong Jones Retail Fund...................... $ 23
28,000 Centro Properties Group.......................... 48
49,000 IPOH Ltd......................................... 55
21,000 Westfield Trust.................................. 46
--------
172
--------
HONG KONG (48.2%)
31,000 Cheung Kong Holdings Ltd......................... 223
290,000 China Resources Beijing Land..................... 72
(a)880,000 Far East Hotels & Entertainment Ltd.............. 97
27,000 Henderson Land Development Co., Ltd.............. 140
220,000 HKR International Ltd............................ 134
23,000 Hong Kong Land Holdings Ltd...................... 27
240,000 Hopson Development Holdings Ltd.................. 27
26,000 Hysan Development Co., Ltd....................... 39
50,000 New Asia Realty & Trust Co., Class A............. 53
78,000 New World Development Co., Ltd................... 196
270,000 Shun Tak Holdings Ltd............................ 51
248,000 Sino Land Co..................................... 133
42,000 Sun Hung Kai Properties Ltd...................... 306
11,000 Swire Pacific Ltd., Class A...................... 49
--------
1,547
--------
JAPAN (17.4%)
10,000 Daibiru Corp..................................... 64
29,000 Mitsubishi Estate Co., Ltd....................... 260
23,000 Mitsui Fudosan Co., Ltd.......................... 174
18,000 Sumitomo Realty & Development Co., Ltd........... 59
--------
557
--------
PHILIPPINES (5.1%)
319,400 Ayala Land, Inc., Class B........................ 91
(a)640,000 Filinvest Land, Inc.............................. 36
200,000 SM Prime Holdings, Inc........................... 38
--------
165
--------
SINGAPORE (11.8%)
34,000 City Developments Ltd............................ 148
98,000 DBS Land Ltd..................................... 144
40,000 Marco Polo Developments Ltd...................... 42
69,000 Wing Tai Holdings Ltd............................ 44
--------
378
--------
TAIWAN (1.5%)
90,000 Delpha Construction Co., Ltd..................... 49
--------
THAILAND (4.6%)
(d)177,000 MBK Properties & Development PCL................. 102
(d)8,900 Oriental Hotel (Thailand) PCL.................... 47
--------
149
--------
TOTAL COMMON STOCKS (Cost $2,593)................................. 3,017
--------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
<C> <S> <C>
- ----------------------------------------------------------------------------
CONVERTIBLE DEBENTURE (4.5%)
SINGAPORE (4.5%)
$ 220 Wing Tai Holdings Ltd., 1.50%, 7/15/02 (Cost
$109).......................................... $ 145
--------
TOTAL FOREIGN SECURITIES (98.5%) (Cost $2,702).................... 3,162
--------
FOREIGN CURRENCY (1.5%)
HKD 54 Hong Kong Dollar................................. 7
JPY 119 Japanese Yen..................................... 1
PHP 11 Philippines Peso................................. --
TWD 1,240 Taiwan Dollar.................................... 39
--------
TOTAL FOREIGN CURRENCY (Cost $47)................................. 47
--------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS (100.0%) (Cost $2,749).................. 3,209
------
OTHER ASSETS (1.3%)
Cash............................................... $ 25
Receivable Due from Adviser........................ 9
Dividends Receivable............................... 5
Interest Receivable................................ 1
Foreign Withholding Tax Reclaim Receivable......... 1 41
-----
LIABILITIES ( - 1.3%)
Custodian Fees Payable............................. (8)
Distribution Fees Payable.......................... (1)
Deferred Foreign Taxes Payable..................... (1)
Other Liabilities.................................. (32) (42)
----- ------
NET ASSETS (100%)......................................... $3,208
------
------
</TABLE>
<TABLE>
<S> <C>
NET ASSETS CONSIST OF:
Paid in Capital................................................ $5,556
Undistributed Net Investment Income............................ 38
Accumulated Net Realized Loss.................................. (2,845)
Unrealized Appreciation on Investments and Foreign Currency
Translations................................................. 459
------
NET ASSETS..................................................... $3,208
------
------
</TABLE>
<TABLE>
<S> <C>
CLASS A:
- --------------------------------------------------------------
NET ASSETS.................................................... $2,447
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 369,128 outstanding $0.001 par value shares
(authorized 500,000,000 shares)............................. $6.63
------
------
CLASS B:
- --------------------------------------------------------------
NET ASSETS.................................................... $761
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 114,203 outstanding $0.001 par value shares
(authorized 500,000,000 shares)............................. $6.66
------
------
</TABLE>
- ------------------------------------------------------------
(a) -- Non-income producing security
(d) -- Security valued at fair value -- see note A-1 to financial statements.
PCL -- Public Company Limited
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
Asian Real Estate Portfolio
22
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
ASIAN REAL ESTATE PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
- ------------------------------------------------------------
SUMMARY OF FOREIGN SECURITIES BY INDUSTRY CLASSIFICATION
<TABLE>
<CAPTION>
VALUE PERCENT OF
INDUSTRY (000) NET ASSETS
<S> <C> <C>
- --------------------------------------------------------------
Apartment.............................. $ 180 5.6%
Diversified............................ 2,091 65.2
Land................................... 230 7.2
Lodging/Leisure........................ 185 5.7
Office and Industrial.................. 321 10.0
Shopping Center........................ 155 4.8
------- ---
$ 3,162 98.5%
------- ---
------- ---
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
Asian Real Estate Portfolio
23
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
EMERGING MARKETS PORTFOLIO
COMPOSITION OF NET ASSETS (AT DECEMBER 31, 1998)
- --------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Argentina 1.9%
Brazil 7.4%
Chile 1.3%
China 1.3%
Croatia 0.2%
Czechoslovakia 0.4%
Egypt 1.5%
Greece 8.4%
Hong Kong 0.4%
Hungary 4.0%
India 8.9%
Indonesia 1.7%
Israel 6.1%
Korea 12.6%
Malaysia 2.9%
Mexico 11.0%
Pakistan 2.2%
Philippines 1.8%
Poland 4.0%
Russia 1.4%
Singapore 0.2%
South Africa 5.3%
Taiwan 7.2%
Thailand 1.5%
Turkey 2.0%
Venezuela 0.4%
Zimbabwe 0.4%
Other 3.6%
</TABLE>
COMPARISON OF THE CHANGE IN VALUE OF A $500,000** INVESTMENT
- ---------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
EMERGING MARKETS PORTFOLIO-CLASS IFC GLOBAL TOTAL RETURN COMPOSITE
A INDEX(1)
<S> <C> <C>
9/25/92* $500,000 $500,000
10/31/92 $505,500 $525,300
12/31/92 $511,000 $527,370
12/31/93 $950,000 $880,750
12/31/94 $858,500 $878,950
12/31/95 $748,870 $770,488
12/31/96 $840,157 $831,280
12/31/97 $831,503 $711,409
12/31/98 $620,135 $561,444
* Commencement of operations
** Minimum investment
<CAPTION>
MSCI EMERGING MARKETS FREE INDEX(1)
<S> <C>
9/25/92* $500,000
10/31/92 $530,326
12/31/92 $540,034
12/31/93 $944,178
12/31/94 $875,099
12/31/95 $829,518
12/31/96 $879,546
12/31/97 $777,649
12/31/98 $580,595
* Commencement of operations
** Minimum investment
</TABLE>
In accordance with SEC regulations, Portfolio performance shown assumes that all
recurring fees (including management fees) were deducted and all dividends and
distributions were reinvested. The performance of Class B shares will vary based
upon the different inception dates and fees assessed to that class.
PERFORMANCE COMPARED TO THE IFC GLOBAL
TOTAL RETURN COMPOSITE INDEX AND THE MORGAN STANLEY CAPITAL INTERNATIONAL (MSCI)
EMERGING MARKETS FREE INDEX(1)
- ------------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
---------------------------------------------
AVERAGE ANNUAL AVERAGE ANNUAL
ONE YEAR FIVE YEARS SINCE INCEPTION
---------- ---------------- ---------------
<S> <C> <C> <C>
PORTFOLIO -- CLASS
A..................... - 25.42% - 8.17% 3.49%
PORTFOLIO -- CLASS
B..................... - 25.65 N/A - 6.61
IFC GLOBAL TOTAL
RETURN COMPOSITE INDEX
- -- CLASS A............ - 21.08 - 8.69 1.93
MSCI EMERGING MARKETS
FREE INDEX -- CLASS
A..................... - 25.34 - 9.27 2.41
IFC GLOBAL TOTAL
RETURN COMPOSITE INDEX
- -- CLASS B............ - 21.08 N/A - 10.88
MSCI EMERGING MARKETS
FREE INDEX -- CLASS
B..................... - 25.34 N/A - 11.44
</TABLE>
1. 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). The Morgan
Stanley Capital International (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.
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.
- ------------------------------------------------
CERTAIN INFORMATION APPEARING IN THIS INVESTMENT OVERVIEW IS UNAUDITED.
ACCORDINGLY, THE REPORT OF INDEPENDENT ACCOUNTANTS APPEARING ELSEWHERE IN THIS
REPORT DOES NOT EXTEND TO THIS INFORMATION. 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
24
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
EMERGING MARKETS PORTFOLIO (CONT.)
The investment objective of the Emerging Markets Portfolio is to provide
long-term capital appreciation by investing in equity securities of emerging
country issuers.
As shown in the performance table beginning with this report, the Portfolio's
performance is also compared to the Morgan Stanley Capital International (MSCI)
Emerging Markets Free Index. For the year ended December 31, 1998, the Portfolio
had a total return of -25.42% for the Class A shares and -25.65% for the Class B
Shares compared to -21.08% for the IFC Global Total Return Composite Index and
- -25.34% for the MSCI Emerging Markets Free Index. For the five-year period ended
December 31, 1998 the average annual total return of Class A shares was -8.17%
compared to -8.69% for the IFC Global Total Return Composite Index and -9.27%
for the MSCI Emerging Markets Free Index. From inception on September 25, 1992
through December 31, 1998, the average annual total return for Class A shares
was 3.49% compared to 1.93% for the IFC Global Total Return Composite Index and
2.41% for the MSCI Emerging Markets Free Index. From inception on January 2,
1996 through December 31, 1998, the average annual total return of Class B
shares was -6.61% and -10.88% for the IFC Global Total Return Composite Index
and -11.44% for the MSCI Emerging Markets Free Index.
The financial crises of 1998 have left a legacy of lessons for the emerging
markets as well as for the broader global financial markets. Making sense of all
that took place last year is not an easy task. Nevertheless, in the following
few pages we will attempt to review the critical events that took place in 1998
for the emerging markets, and offer some observations about what we expect in
the year ahead.
While it is true that the currency devaluations of Asia -- the visible starting
point of the malaise that still reverberates in the global economy today -- took
place in 1997, it was not until 1998 that the full fury of the events unleashed
by those depreciating currencies was felt. Numerous events -- both at the global
and at the emerging market level -- took place which shook many investors'
understanding of and faith in financial markets, and a recap of a few of the
more momentous might be helpful:
GLOBAL
1) The Japanese yen, following the collapse of that country's economy, collapsed
into the mid to high 140's (to the U.S. dollar) seemingly on its way to the
160's before staging a startling and largely unexplained rally to the mid
115'ish level. As we write, the yen is now at 109.
2) Both the European and U.S. stock markets collapsed from healthy double digit
gains early in the year, dipped into negative territory by the end of the
summer, only to almost completely climb back to their earlier highs by the
end of the year.
3) The Federal Reserve Bank engineered a controversial rescue of a highly
leveraged hedge fund which, remarkably, threatened the health of the world's
financial markets.
4) No fewer than 37 central banks -- in an almost unprecedented show of
coordination -- executed more than 75 monetary policy easings in the latter
half of 1998 to avert a total meltdown in financial markets.
5) Commodity prices continued their lurching downward spiral as Asian demand
shortfalls further aggravated supply/demand imbalances; oil was particularly
hard hit, as OPEC continued to undergo a secular decline in influence and the
oil industry cartel slowly continued to disintegrate.
EMERGING
1) The Russian currency, economy, and debt markets collapsed as that country
unilaterally announced a de facto debt moratorium and currency devaluation,
singlehandedly triggering a worldwide credit contraction and financial market
panic.
2) Malaysia announced currency controls in a single act of defiance against
market forces that, due to its possible emulation by other governments, cast
a chill throughout emerging markets.
3) Indonesia descended into social and political chaos as riots and mayhem
engulfed that country in the aftermath of its economic crisis, leading to an
eventual departure of longstanding leader Suharto.
- --------------------------------------------------------------------------------
Emerging Markets Portfolio
25
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
EMERGING MARKETS PORTFOLIO (CONT.)
4) Brazil stared into the abyss of possible economic destruction in the
aftermath of the Russian meltdown, nearly averting a currency collapse with
the help of Messrs. Greenspan and Rubin.
5) Venezuela, in the throes of a steep recession exacerbated by historically low
oil prices, elected a populist, ex-military/failed coup leader as President.
6) Broader Asian markets staged a remarkable early-year recovery, collapsed
again and touched new lows, then staged an even more powerful recovery late
in the year led by currency strengthening throughout the region.
As a whole, 1998 was a volatile year that we would prefer not to repeat.
Importantly, though, the year contained significant bright spots. The chief
positives came from the phenomenal stabilization and recovery of Asian financial
markets toward the latter part of the year, and the continued fiscal discipline
exhibited by the peripheral European markets striving to converge with western
Europe, most notably Greece.
The Asian crisis has been written about and discussed ad infinitum. Here, we
would like simply to point out that the faith placed by Asian citizens in their
host country's financial systems and government policies has been nothing short
of astounding. This faith, together with high domestic savings rates, played a
single-handed role in allowing most battered Asian countries to simultaneously
benefit from lower interest rates and stronger currencies. Early in the year
this confluence of events would scarcely have been imaginable. Simply put, as
foreign capital fled, and most banking systems seized up (and were in many cases
taken over by the government) investors continued to both restrain their
consumption and continue depositing their savings in local currency-denominated
assets in domestic financial institutions. And, as collapsing domestic
consumption and investment triggered a dramatic decline in imports, Asian
countries were able to build up reserve levels through massive current account
surpluses. The resulting recapitalization of the economy and excess supply of
money relative to demand resulted in a historic drop in interest rates in most
of the beleaguered countries -- the primary two examples are South Korea and
Thailand. This achievement has, in our view, singularly restored health to the
capital markets in Asia -- much more so than forward-looking reforms or foreign
investment flows, both of which have been largely disappointing.
Equally impressive is the secular change being witnessed in eastern Europe
(Hungary, Poland, and the Czech Republic) and especially Greece. To briefly
oversimplify, the power of the Euro is exerting a tremendous pull on these
countries to get their respective fiscal houses in order; they must do so to be
accepted into the eurozone when it is their turn. In Greece's case, the
"convergence" story is immediate, and the remarkable performance of that
country's equity market last year is explained by the equally remarkable
performance of the Greek government to control spending and keep a lid on
inflation (the two most important criteria for EMU acceptance). In the eastern
European markets EMU acceptance is further away, but nevertheless those
countries' respective governments (and, equally important, electorates) are
already conducting both fiscal and monetary policy in strict accordance with
their goals of being accepted into the EMU as soon as possible. The relative
resilience of their equity markets last year reflects that underlying
determination.
As a final comment about positive developments witnessed in 1998, we should note
an important secular trend at the micro, or sector, level. That is, an important
positive secular development continued to take place in the technology field,
and both Taiwan and India have continued to exploit this trend (and, to some
extent, Korea). Taiwan has developed into a PC-component manufacturing
powerhouse, and as the trend toward lower cost PC's continues so does the global
outsourcing trend, which directly benefits that sector. As a result, the
"electronics" sector in Taiwan posted solid absolute returns in 1998 while the
broader Taiwanese market ended the year in negative territory. A similar
phenomenon has taken place in India, yet in this case it is in the software
services sector. As programming talent in the U.S. gets more expensive, Indian
companies are increasingly capturing a larger piece of the global software
services expenditure pie due to their cost advantages and abundant supply of
high quality programming talent.
The Portfolio performed in line with the MSCI Emerging Markets Free Index for
the year ended December 31, 1998. On the positive side, our South Korea
(+141.1%) and Thailand (+11.6%) overweights throughout the year contributed
solidly to our performance. Also contributing favorably were our Venezuelan
(-49.2%) and Chilean (-28.5%) underweights, and our strong stock selection in
- --------------------------------------------------------------------------------
Emerging Markets Portfolio
26
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
EMERGING MARKETS PORTFOLIO (CONT.)
Turkey. Notable detractors were our underweight in Greece (+78.1%) and our
overweight in Pakistan (-56.6%), as well as poor stock selection in Brazil.
For the three months ended December 31, 1998, the Portfolio underperformed the
MSCI Emerging Markets Free Index. Underperformance relative to the indices was
largely driven by our overweight positions in Pakistan (-12.5%), Egypt (-5.6%),
and Brazil (+0.6%). Also negative were our overweight stances in India (-1.6%),
Mexico (+10.5%), Poland (+10.1), and Turkey (+5.3%), our underweight exposure to
Greece (+28.2%), and disappointing stock returns in Asia.
On a positive note, our decision to overweight South Korea (+114.4%) and
Thailand (+54.4%) positively impacted portfolio return. Also favorable were our
underweights in Argentina (+7.3%), Chile (+13.3%), and Peru (-1.1). Strong stock
selection in Brazil, Mexico and Taiwan also contributed significantly to total
return.
OUTLOOK FOR 1999
Given all that has happened to the world and to our asset class in the past few
years, any predictions need to be put forth with a large degree of
circumspection. Let us begin with a broad review of what we think are some of
the important lessons and themes for 1999 coming out of the experience of 1998:
1) Liquidity will be abundant in Europe and the U.S. owing to the generous
monetary easings mentioned earlier and the modest global growth we foresee
for 1999.
2) This developed market liquidity will have great difficulty finding its way
back to the "vulnerable" emerging markets; that is, the reduction in global
financial risk appetites witnessed last year will, in our view, persist for
some time to come.
3) Commodity prices may stop falling, but it will take a marked recovery in
global aggregate demand to lead to a sustained and meaningful recovery in
broad commodity prices; we think this is, at best, a medium to long-term
event.
4) As a result of #2 above, fiscally profligate emerging market governments will
be met with grave skepticism and not likely given the "benefit of the doubt"
by financial markets.
5) The Asian financial market recovery should continue into 1999, and we will
begin to see the beginning of an economic stabilization if not full-scale
recovery.
6) In short, the separation between the "haves" and the "have nots" witnessed in
1998 will persist, and perhaps even widen in 1999; this process in the
emerging markets universe is not unlike what has taken place in the U.S.
stock market between the mega-cap nifty fifty stocks (the haves) and the
small cap or industrial commodity stocks (the have nots).
As a result of the above views, we have chosen to tilt our portfolio toward high
quality markets and sectors with solid fundamental underpinnings, especially
those with endogenously generated underpinnings less vulnerable to exogenous
shocks. The broader regional strategy, therefore, is to overweight peripheral
Europe and Asia, and to underweight Latin America and South Africa. The
overweight in peripheral Europe owes to a continuation of the forces at work
cited above. We are confident Greece will be accepted into EMU, and therefore
that interest rates will converge with those in western Europe. Eastern Europe
we like simply for the strong fiscal discipline they have evidenced, and are
looking for a related fall in interest rates throughout the year. The one
concern we are monitoring is the widening current account deficits in both
Poland and Hungary. Israel is a market that we like not because of the macro
picture but because of a group of Israeli technology companies that offer unique
bottom-up secular earnings growth unmatched in most of our emerging market
universe.
Asia is a region that is tough to get one's arms around; valuations are hard to
ferret out, and earnings outlooks hard to predict. Nevertheless, we are quite
optimistic that the Korean market represents enormous opportunity both for
continued interest rate declines and for enormous earnings growth owing to the
highly leveraged nature of that country's corporate sector. We do not have
dramatic country bets anywhere else in Asia but have a dramatic overweight in
the Taiwanese electronics sector, for reasons mentioned above. India is a market
whose macro outlook is dubious at best but whose market offers up a wide range
of attractive bottom-up stories, especially in the aforementioned software
services sector.
- --------------------------------------------------------------------------------
Emerging Markets Portfolio
27
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
EMERGING MARKETS PORTFOLIO (CONT.)
On the underweight side, Latin America is our biggest bet. We are very concerned
about the macro picture in Brazil. After a visit to the country in November we
fleetingly held a more constructive stance, but events since then have
transpired to make us more negative on the market. While not explicitly calling
for a market collapse, we think odds are high that something breaks in that
country's policy mix this year, most likely in the first half. The combination
of an overvalued exchange rate, gargantuan fiscal deficit, and stubbornly high
current account deficit is an unruly mix that will not likely be tolerated by
financial markets. We would be more underweight the market were it not for our
extremely constructive stance on the secular earnings growth outlook for the
telecommunications sector; within our underweight in Brazil we have a dramatic
overweight in that sector. Elsewhere in the region, we are dramatically
underweight Chile (vulnerable to weak copper price, anemic corporate earnings
growth, and large current account deficit) and solidly underweight Argentina
(solid macro but equities are not cheap and the market is vulnerable to Brazil
collapse). Further, we are underweight Venezuela (overvalued currency, terrible
macro owing to low oil price) and Peru (commodity price-based economy) and
market weight Mexico. As a final note, we are underweight South Africa in large
part due to that country's currency vulnerability to exogenous shocks (e.g.
Brazil), and to the fact that corporate earnings growth, on a secular basis,
should be lackluster.
General risks to our bets would be 1) a return to risk-loving behavior by global
financial markets which would lead to the "vulnerable" emerging markets gaining
access to capital more easily than we expect, and 2) a meaningful near-term
increase in the price of commodities owing to a successful reflation effort by
the developed markets central banks, which would dramatically improve the
current account positions and economic activities of both Latin America and
South Africa. We think either of these scenarios are low-probability ones, but
nevertheless are on vigilant watch for early warning signals of either scenario
proving us wrong. The tenuous Brazil outlook -- and with it the prospect for a
weaker than expected U.S. economy -- as well as the prospect for Japanese
economic activity surprising on the downside (owing to the strong currency and
backup in interest rates) give us some comfort that global aggregate demand will
not be buoyant enough to sharply reverse the trend in commodity prices.
CONCLUSION
Undoubtedly, emerging markets investors have had a difficult few years. Having
said that, we are glimpsing signs that this multi-year bear market may finally
be working its way through. Now that the Brazil shoe has dropped (see below), we
think that may likely be the bottom for our asset class -- barring a meltdown in
the U.S. equity market of course. We believe that most of the risks in the asset
class have either dissipated or have been fully discounted. Further, we believe
that our Portfolio is positioned to take advantage of opportunities arising from
changes in these markets. Not only are our stocks cheap, we believe they are
terrific companies. We are strong believers that sometime in the medium-term, if
not the near term, this asset class, and our Portfolio with it, should be well
on its way to steadily posting the superior returns for which it earned its
"emerging" label.
BRAZIL UPDATE
After a long struggle, the Brazilian government finally bowed to market
pressures and altered its exchange rate regime in mid-January. While details
about specific policy strategy are sketchy, the facts we know are as follows:
1) The currency, the Real, was initially allowed to move to the weak side of its
wide trading band, causing an immediate effective devaluation of roughly 10%.
2) Central bank president Gustavo Franco, widely associated with a staunch
defense of the Real, has resigned; he will be succeeded by his deputy
Francisco Lopes.
3) The currency has subsequently been allowed to float and has traded between
1.60-2.05 real/U.S. dollar. As of January 31, 1999 the real closed at 2.05.
Our thoughts about the implications of this move for Brazil are necessarily
tentative at this stage. The currency move per se is not a bad thing; to the
extent it removes rigidities and price distortions from the economy it can be
argued that, longer-term, it will have been helpful. Further, given that high
interest rates have prevailed in Brazil for some time, leverage in the economy
and financial system is actually quite low. Therefore, the follow-on
reverberations witnessed after the Asian devaluations owing to excessive
leverage should not be repeated in Brazil. Having said
- --------------------------------------------------------------------------------
Emerging Markets Portfolio
28
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
EMERGING MARKETS PORTFOLIO (CONT.)
that, it is too early to tell what inflationary impact the devaluation may have;
there is a possibility, though we think it low, that inflation spirals out of
control. Further, fiscal imbalances are not solved by the devaluation, and these
remain as a major item to be tackled by the Cardoso administration. On the flip
side, a spike in inflation may temporarily ease some of these fiscal pressures.
Overall, we will have to wait and see how subsequent policy strategy and
implementation is handled, and this will greatly determine whether Brazil is
better or worse off post-devaluation.
Taking a step back, though, asset values in the equity market had already
factored in a good portion of the macro vulnerabilities. Our favorite sector,
the telecoms sector, trades at unfathomably cheap levels. In fact it is the
attractiveness of this sector which has prevented us from being more
underweight. Given that these assets can be bought approximately 20% cheaper
than prior to the devaluation, we have added to our position and maintain a
modest underweight.
Robert L. Meyer
PORTFOLIO MANAGER
Andy B. Skov
PORTFOLIO MANAGER
January 1999
- --------------------------------------------------------------------------------
Emerging Markets Portfolio
29
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
EMERGING MARKETS PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- ----------------------------------------------------------------------------------
COMMON STOCKS (94.4%)
ARGENTINA (1.9%)
6 Acindar, Class B................................. $ --
355,949 Telecom Argentina ADR............................ 9,788
80,631 Telefonica de Argentina ADR...................... 2,253
92,278 YPF ADR.......................................... 2,578
-----------
14,619
-----------
BRAZIL (7.4%)
(a,d)295,998,880 Banco Nacional (Preferred)....................... 12
6,385,935 Brahma (Preferred)............................... 2,791
84,776 Brahma ADR (Preferred)........................... 800
246,459,966 CEMIG (Preferred)................................ 4,692
165,909 CEMIG ADR (Preferred)............................ 3,158
(e)103,238 CEMIG ADR (Preferred)............................ 1,962
(d)12,714,900 Coteminas........................................ 1,368
(e)98,865 Coteminas ADR.................................... 467
569,337 CRT RFD(Preferred)............................... 205
33,820,856 CRT (Preferred).................................. 12,176
103,021 CVRD, Class A (Preferred)........................ 1,322
190,439 CVRD ADR (Preferred)............................. 2,452
(a)110,109,610 Embratel (Preferred)............................. 1,504
(a)119,019,000 Lojas Arapua (Preferred)......................... 31
(a,e)120,830 Lojas Arapua GDR (Preferred)..................... --
39,236,000 Pao de Acucar (Preferred)........................ 633
33,964 Pao de Acucar ADR................................ 526
57,708 Petrobras (Preferred)............................ 7
(e)59,250 Petrobras ADR (Preferred)........................ 674
(a)52,673,000 Renner Participacoes (Preferred)................. 37
122,109,610 Telebras (Preferred)............................. 14
(a)58,908 Telebras ADR (Preferred Block)................... 4,282
(a)342,767,610 Tele Celular Sul (Preferred)..................... 579
(a)10,850 Tele Celular Sul ADR............................. 189
(a)264,792,610 Tele Centro Sul (Preferred)...................... 2,299
(a)10,477 Tele Centro Sul ADR.............................. 438
(a)442,516,610 Tele Leste Celular (Preferred)................... 256
(a)470,851,610 Telemig Celular (Preferred)...................... 522
(a)11,175 Telemig Celular ADR.............................. 237
(a)271,682,610 Tele Nordeste Celular (Preferred)................ 247
(a)8,975 Tele Nordeste Celular ADR........................ 166
(a)122,109,610 Tele Norte Celular (Preferred)................... 57
(a)122,109,610 Tele Norte Leste (Preferred)..................... 1,526
(a)20,876,000 Telerj Celular, Class B.......................... 492
1 Telesp........................................... --
(a)154,863,610 Telesp Celular (Preferred)....................... 1,141
(a)88,974,299 Telesp Celular, Class B (Preferred).............. 3,910
(a)1,296 Telesp Celular ADR............................... 23
(a)48,915,610 Telesp Participacoes (Preferred)................. 1,113
(a)321,149,610 Tele Sudeste Celular (Preferred)................. 1,356
(a)3,015 Tele Sudeste Celular ADR......................... 62
247,593 Unibanco ADR (Preferred)......................... 3,575
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- ----------------------------------------------------------------------------------
318,900 Usiminas (Preferred)............................. $ 705
62,535 Usiminas ADR (Preferred)......................... 140
-----------
58,146
-----------
CHILE (1.3%)
120,900 CCU ADR.......................................... 2,327
171,665 Endesa ADR....................................... 1,953
199,845 Enersis ADR...................................... 5,159
67,086 Santa Isabel ADR................................. 444
-----------
9,883
-----------
CHINA (1.3%)
199,265 Huaneng Power International, Inc. ADR............ 2,890
286,436 Yanzhou Coal Mining Co., Ltd. ADR................ 2,166
11,657,000 Zhejiang Expressway Co., Ltd., Class H........... 2,362
16,959,000 Zhenhai Refining & Chemical Co., Ltd., Class H... 2,605
-----------
10,023
-----------
CROATIA (0.2%)
(e)96,000 Pliva d.d. GDR................................... 1,594
-----------
CZECHOSLOVAKIA (0.4%)
(a)127,665 SPT Telecom a.s.................................. 1,951
(a)84,870 SPT Telecom a.s. GDR............................. 1,260
-----------
3,211
-----------
EGYPT (1.5%)
(a)72,514 Al-Ahram Beverages Co............................ 2,095
(a)21,400 Al-Ahram Beverages Co. GDR....................... 607
54 Ameriyah Cement Co............................... 1
1,456 Commercial International Bank.................... 11
106,838 Eastern Tobacco.................................. 2,459
25,200 Egypt Gas Co..................................... 1,870
26,358 Egyptian Finance & Industrial.................... 436
25 Helwan Cement.................................... --
44,853 Industrial & Engineering......................... 635
34,640 Madinet Nasr Housing & Development............... 1,046
10,885 North Cairo Flour Mills Co....................... 125
216,700 Paints & Chemical Industry GDR................... 1,300
74,750 Suez Cement Co. GDR.............................. 1,032
-----------
11,617
-----------
GREECE (8.4%)
19,690 Alpha Credit Bank................................ 2,056
116,040 Attica Enterprises Holdings...................... 1,041
74,610 Hellenic Bottling Co............................. 2,304
961,768 Hellenic Telecommunication Organization.......... 25,601
(a)1,175,960 Hellenic Telecommunication Organization ADR...... 15,581
15,180 Heracles General Cement Co....................... 412
</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
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
EMERGING MARKETS PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ----------------------------------------------------------------------------------
<C> <S> <C>
</TABLE>
GREECE (CONT.)
<TABLE>
<C> <S> <C>
(a)36,330 Ionian Bank...................................... $ 1,927
53,430 National Bank of Greece.......................... 12,027
(a)51,690 Panafon Hellenic Telecom GDR..................... 1,348
(a)58,180 STET Hellas Telecommunications ADR............... 1,884
14,830 Titan Cement Co.................................. 1,139
-----------
65,320
-----------
HONG KONG (0.4%)
2,028,000 China Telecom Ltd................................ 3,508
-----------
HUNGARY (4.0%)
102,210 MOL Magyar Olaj-es Gazipari Rt................... 2,793
485,504 MOL Magyar Olaj-es Gazipari Rt. GDR
(Registered)................................... 13,412
494,652 Matav Rt......................................... 2,818
(a)260,016 Matav Rt. ADR.................................... 7,751
84,527 OTP Bank Rt...................................... 4,220
-----------
30,994
-----------
INDIA (8.7%)
5,650 Apollo Tyres Ltd................................. 9
433 Associated Cement Cos., Ltd...................... 10
10,850 Bajaj Auto Ltd................................... 133
1,692,600 Bharat Heavy Electricals Ltd..................... 10,466
(d)1,215,900 Container Corp. of India Ltd..................... 6,848
240 Esab India Ltd................................... --
1,900 Federal Bank Ltd................................. 2
49,000 Gujarat Ambuja Cements Ltd....................... 300
570,816 Hero Honda Motors Ltd............................ 7,308
13,000 Hindustan Lever Ltd.............................. 510
(a)170,550 Hindustan Lever Ltd.............................. 6,680
100 Hoechst Marion Roussel Ltd....................... 1
32,377 Housing Development Finance Corp., Ltd........... 1,661
(a,g)60,094 India Magnum Fund Ltd., (The) Class A............ 1,562
88,100 Infosys Technology Ltd........................... 6,137
463,504 ITC Ltd.......................................... 8,185
7,221 Larsen & Toubro Ltd.............................. 27
258,900 Mahanagar Telephone Nigam Ltd.................... 1,117
(a,g)42,697,100 Morgan Stanley Growth Fund....................... 6,032
103,681 MRF Ltd., Class B................................ 3,491
220,000 Saytam Computer Services Ltd..................... 3,768
36,600 Shanti Gears Ltd................................. 46
(a,d)45,000 Sri Venkatesa Mills Ltd.......................... 9
1,231 State Bank of India.............................. 5
2,608 Sudarshan Chemical Industries Ltd................ 3
347,700 Tata Engineering & Locomotive Co., Ltd........... 1,335
146,000 Zee Telefilms Ltd................................ 2,200
-----------
67,845
-----------
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- ----------------------------------------------------------------------------------
INDONESIA (1.7%)
3,672,341 Gudang Garam..................................... $ 5,348
10,359,855 Indah Kiat Pulp & Paper Corp. (Foreign).......... 2,817
8,871,300 Telekomunikasi Indonesia......................... 2,994
292,995 Telekomunikasi Indonesia ADR..................... 1,904
-----------
13,063
-----------
ISRAEL (6.1%)
1,697,951 Bank Hapoalim Ltd. (Registered).................. 3,076
(a)638,460 Bezeq Israeli Telecommunication Corp., Ltd....... 1,995
(a)103,610 Comverse Technology, Inc......................... 7,356
(a)216,300 Dor Energy 1988 Ltd.............................. 622
212,659 ECI Telecommunications Ltd....................... 7,576
44,613 Elron Electronic Industries Ltd.................. 714
89,690 First International Bank of Israel, Class 5...... 444
(a)15,040 Gilat Satellite Networks Ltd..................... 829
105,815 Koor Industries Ltd.............................. 9,242
(a)17,875 NICE-Systems Ltd................................. 387
(a)104,150 NICE-Systems Ltd. ADR............................ 2,252
(a)134,091 Orbotech Ltd..................................... 6,353
(a)28,020 Orckit Communications Ltd........................ 454
189,254 Supersol Ltd..................................... 470
109,600 Supersol Ltd. ADR................................ 1,343
99,581 Tadiran Telecommunications Ltd................... 1,905
62,295 Teva Pharmaceutical Industries Ltd. ADR.......... 2,535
-----------
47,553
-----------
KOREA (12.6%)
170,430 Hankuk Glass Industry Co., Ltd................... 3,556
736,930 Korea Eelectric Power Corp....................... 18,255
(d)397,113 Pohang Iron & Steel Co., Ltd..................... 25,071
38,614 S1 Corp.......................................... 7,222
556,476 Samsung Electronics Co........................... 37,330
(a)20,256 Samsung Electronics Co. GDR...................... 744
(d)7,924 SK Telecom Co., Ltd.............................. 5,984
-----------
98,162
-----------
MALAYSIA (2.9%)
(d)991,200 Genting Bhd...................................... 1,506
(d)1,506,000 Kuala Lumpur Kepong Bhd.......................... 1,803
(d)527,000 Nestle (Malaysia) Bhd............................ 1,475
(d)1,676,000 Petronas Gas Bhd................................. 2,654
(d)656,000 Rothmans of Pall Mall (Malaysia) Bhd............. 2,706
(d)413,000 Technology Resources Industries Bhd.............. 151
(d)4,610,000 Telekom Malaysia Bhd............................. 8,490
(d)2,794,000 Tenaga Nasional Bhd.............................. 4,014
-----------
22,799
-----------
</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
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
EMERGING MARKETS PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ----------------------------------------------------------------------------------
<C> <S> <C>
MEXICO (9.5%)
655,668 Alfa, Class A.................................... $ 1,848
(a)1,336,164 Banacci, Class B................................. 1,752
(a)966,103 Banacci, Class L................................. 1,113
383,862 Bancomer, Class B................................ 82
(e)277,930 Bancomer, Class C ADR............................ 1,181
739,994 Carso, Class A1.................................. 2,512
37,760 Cemex CPO........................................ 82
919,867 Cemex CPO ADR.................................... 3,909
243,660 Cemex, Class B................................... 602
431,157 Cemex, Class B ADR............................... 2,102
(a)1,293,298 Cifra, Class C................................... 1,578
13,425 Cifra, Class V................................... 16
165,730 Cifra, Class V ADR............................... 2,011
49,885 Desc ADR......................................... 957
312,281 Femsa ADR........................................ 8,315
2,502,579 Kimberly-Clark, Class A.......................... 7,952
90,469 Tamsa ADR........................................ 582
(a)656,439 Televisa CPO GDR................................. 16,206
420,392 Telmex, Class L ADR.............................. 20,468
144,731 TV Azteca ADR.................................... 968
-----------
74,236
-----------
PAKISTAN (2.2%)
(d)31 Crescent Textile Mills Ltd....................... --
(a,d)3,162 D.G. Khan Cement Ltd............................. --
(d)4,626,500 Fauji Fertilizer Co., Ltd........................ 3,855
(d)5,265,900 Hub Power Co..................................... 1,222
(d)1,252,665 Pakistan State Oil Co., Ltd...................... 1,786
(a,d)140,167 Pakistan Telecommunications Corp. GDS............ 4,836
(d)13,449,300 Pakistan Telecommunications Corp., Class A....... 4,650
(a,d)5,627,702 Sui Northern Gas................................. 921
-----------
17,270
-----------
PERU (0.0%)
49 Cementos Lima.................................... --
-----------
PHILIPPINES (1.8%)
1,141,490 Manila Electric Co., Class B..................... 3,668
124,865 Philippine Long Distance Telephone Co............ 3,210
7,200 Philippine Long Distance Telephone Co. ADR....... 186
2,265,560 San Miguel Corp., Class B........................ 4,368
13,629,500 SM Prime Holdings, Inc........................... 2,593
-----------
14,025
-----------
POLAND (4.0%)
70,836 Bank Handlowy W Warszawie........................ 874
57,420 Bank Handlowy W Warszawie GDR.................... 708
30,229 Bank Slaski...................................... 1,567
937,429 BIG Bank Gdanski................................. 841
194,000 BIG Bank Gdanski GDR............................. 2,629
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- ----------------------------------------------------------------------------------
58,867 BRE Bank......................................... $ 1,358
41,151 Debica........................................... 599
(a,d)33,400 Eastbridge N.V................................... 2,246
563,140 Elektrim......................................... 6,097
(a)25,565 Exbud............................................ 221
(a)150,750 Exbud GDR........................................ 1,301
24,417 Powszechny Bank Kredytowy........................ 522
162,600 Prokom Software GDR.............................. 3,065
(a)1,644,595 Telekomunikacja Polska GDR....................... 8,387
82,556 Wielkopolski Bank Kredytowy...................... 520
-----------
30,935
-----------
RUSSIA (0.9%)
(a,d)592,359 Alliance Cellulose Ltd........................... 668
(a,d)37,259,635 Mustcom.......................................... 4,210
(d)317,851 Russian Telecom Development Corp................. 572
(a,d)990 Storyfirst Communications, Inc., Class C......... 175
(a,d)2,640 Storyfirst Communications, Inc., Class D......... 468
(a,d)3,250 Storyfirst Communications, Inc., Class E......... 576
(a,d)1,331 Storyfirst Communications, Inc., Class F......... 471
-----------
7,140
-----------
SINGAPORE (0.2%)
1,208,000 Want Want Holdings Ltd........................... 1,450
-----------
SOUTH AFRICA (5.2%)
849,610 ABSA Group Ltd................................... 4,024
860,459 Bidvest Group Ltd................................ 6,238
8,080,401 BOE Corp., Ltd., Class N......................... 4,596
1,604,842 BOE Ltd.......................................... 1,038
905,750 Ellerine Holdings Ltd............................ 1,953
2,080,400 FirstRand Ltd.................................... 2,267
159,125 Liberty Life Association of Africa Ltd........... 2,188
113,760 Nedcor Ltd....................................... 1,935
(a)4,436,700 New Africa Investments Ltd., Class N............. 2,712
285,380 Persetel Holdings Ltd............................ 2,316
25,220 Primedia Ltd., Class N........................... 56
600,370 Rembrandt Group Ltd.............................. 3,669
469,990 Sasol Ltd........................................ 1,775
184,550 South African Breweries Ltd...................... 3,105
1,372,254 The Education Investment Corp., Ltd.............. 1,584
2,418,600 Woolworths holdings Ltd.......................... 1,191
-----------
40,647
-----------
TAIWAN (7.2%)
(a)329,000 Arima Computer Corp.............................. 1,716
(a)598,750 Asustek Computer, Inc............................ 5,594
(a)1,414,063 Compal Electronics, Inc.......................... 4,608
</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
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
EMERGING MARKETS PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ----------------------------------------------------------------------------------
<C> <S> <C>
</TABLE>
TAIWAN (CONT.)
<TABLE>
<C> <S> <C>
(a)456,000 Compeq Manufacturing Co., Ltd.................... $ 2,986
1,901,000 Far East Textile Ltd............................. 1,552
(a)2,395,000 Hon Hai Precision Industry....................... 13,231
1,261,428 President Chain Store Corp....................... 3,974
(a)3,608,072 Siliconware Precision Industries Co.............. 6,383
(a)4,489,000 Taiwan Semiconductor Manufacturing Co............ 9,892
(a)415,960 Taiwan Semiconductor Manufacturing Co. ADR....... 5,901
-----------
55,837
-----------
THAILAND (1.5%)
629,950 Advanced Info Service PCL (Foreign).............. 3,743
(d)321,100 BEC World PCL (Foreign).......................... 1,767
310,250 Delta Electronics (Thailand) PCL (Foreign)....... 1,639
(a)298,000 PTT Exploration & Production PCL (Foreign)....... 2,099
(a)416,600 Shinawatra Computer Co. PCL (Foreign)............ 1,433
(a)333,300 Siam Cement PCL (Foreign)........................ 733
-----------
11,414
-----------
TURKEY (2.0%)
(e)122,680 Akbank T.A.S..................................... 498
31,243,100 Ege Biracilik.................................... 2,427
21,320,000 Erciyas Biracilik................................ 1,419
1,153,000 Migros (Registered).............................. 1,151
8,107,461 Petrol Ofisi A.S................................. 1,092
(a)42,354,601 Vestel Elektronik Sanayi Ve Ticaret A.S.......... 3,491
494,919,664 Yapi Ve Kredi Bankasi A.S........................ 5,726
-----------
15,804
-----------
VENEZUELA (0.4%)
199,261 CANTV ADR........................................ 3,549
-----------
ZIMBABWE (0.4%)
6,665,249 Delta Corp., Ltd................................. 1,451
290,800 Meikles Africa Ltd............................... 187
1,682,700 Meikles Africa Ltd. ADR.......................... 942
(e)9,900,000 Trans Zambesi Industries Ltd..................... 453
3,800,000 Trans Zambesi Industries Ltd. (Registered)....... 174
-----------
3,207
-----------
OTHER (0.3%)
(g)245,645 Morgan Stanley Africa Investment Fund, Inc....... 2,057
-----------
TOTAL COMMON STOCKS (Cost $931,631).................................. 735,908
-----------
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- ----------------------------------------------------------------------------------
PREFERRED STOCKS (0.0%)
COLOMBIA (0.0%)
103,207 Bancolombia (Cost $617).......................... $ 139
-----------
</TABLE>
<TABLE>
<CAPTION>
NO. OF
RIGHTS
<C> <S> <C>
- ----------------
RIGHTS (0.0%)
SOUTH AFRICA (0.0%)
(a)415,100 Primedia Ltd..................................... 1
-----------
TAIWAN (0.0%)
(a,d)3,630 Compal Electronics, Inc.......................... --
-----------
TOTAL RIGHTS (Cost $0)............................................... 1
-----------
</TABLE>
<TABLE>
<CAPTION>
NO. OF
WARRANTS
<C> <S> <C>
- ----------------
WARRANTS (0.0%)
THAILAND (0.0%)
(a)1,020,633 Siam Commercial Bank PCL (Foreign) (Cost $0)..... --
-----------
</TABLE>
<TABLE>
<CAPTION>
NO. OF
UNITS
<C> <S> <C>
- ----------------
UNITS (1.6%)
MEXICO (1.5%)
(a)4,218,861 Femsa............................................ 11,444
-----------
RUSSIA (0.1%)
(a,d)1,637 Storyfirst Communications, Inc., First Section,
Tranche I, 25.00%, 1/29/99..................... 290
(a,d)96 Storyfirst Communications, Inc., Second Section,
Tranche I, 25.00%, 1/29/99..................... 17
(a,d)421 Storyfirst Communications, Inc., Tranche II,
26.00%, 1/29/99................................ 75
(a,d)562 Storyfirst Communications, Inc., Tranche IV,
28.00%, 1/29/99................................ 99
(a,d)654 Storyfirst Communications, Inc., Tranche V,
29.00%, 1/29/99................................ 116
(a,d)550 Storyfirst Communications, Inc., Tranche VI,
30.00%, 1/29/99................................ 97
-----------
694
-----------
TOTAL UNITS (Cost $12,862)........................................... 12,138
-----------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT
(000)
<C> <S> <C>
- ----------------
CONVERTIBLE DEBENTURES (0.1%)
INDIA (0.0%)
INR (d)336 DCM Shriram Industries Ltd., 7.50%, 2/21/02...... 129
-----------
SOUTH AFRICA (0.1%)
ZAR 111 Sasol Ltd. 8.50%, 12/29/49....................... 388
-----------
TOTAL CONVERTIBLE DEBENTURES (Cost $3,421)........................... 517
-----------
</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
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
EMERGING MARKETS PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- ----------------------------------------------------------------------------------
<C> <S> <C>
NON-CONVERTIBLE DEBENTURES (0.6%)
INDIA (0.2%)
INR (d)341 DCM Shriram Industries Ltd., (Floating Rate),
16.50%, 2/21/02................................ $ 172
(d)700 Saurashtra Cement & Chemicals Ltd., 18.00%,
11/27/00....................................... 1,539
-----------
1,711
-----------
RUSSIA (0.4%)
$ (d)21,883 Svyaz Finance Ltd., 17.00%, 8/11/99.............. 3,414
-----------
TOTAL NON-CONVERTIBLE DEBENTURES (Cost $24,748)...................... 5,125
-----------
TOTAL FOREIGN SECURITIES (96.7%)
(Cost $973,279).................................................... 753,828
-----------
SHORT-TERM INVESTMENTS (1.4%)
REPURCHASE AGREEMENT (1.4%)
10,839 Chase Securities, Inc. 4.45%, dated 12/31/98, due
1/04/99 to be repurchased at $10,844,
collaterized by U.S. Treasury Bonds 11.25%, due
2/15/15, valued at $11,060 (Cost $10,839)...... 10,839
-----------
FOREIGN CURRENCY (2.8%)
BRL 5,499 Brazilian Real................................... 4,551
EGP 2,436 Egyptian Pound................................... 714
GRD 540,130 Greek Drachma.................................... 1,930
HKD 1 Hong Kong Dollar................................. --
INR 94,395 Indian Rupee..................................... 2,223
ILS 4,180 Israeli Shekel................................... 1,006
(d)MYR 9,893 Malaysian Ringgit................................ 1,822
MXP 7,594 Mexican Peso..................................... 767
(d)PKR 179,574 Pakistani Rupee.................................. 3,267
PHP 13,739 Philippines Peso................................. 353
PLN 3,294 Polish Zloty..................................... 939
ZAR 10,589 South African Rand............................... 1,798
KRW 110 South Korean Won................................. --
LKR 2 Sri Lankan Rupee................................. --
TWD 60,832 Taiwan Dollar.................................... 1,888
TRL 46,644,701 Turkish Lira..................................... 148
ZWD 99 Zimbabwe Dollar.................................. 3
-----------
TOTAL FOREIGN CURRENCY (Cost $22,144)................................ 21,409
-----------
</TABLE>
<TABLE>
<CAPTION>
VALUE
(000)
<S> <C> <C>
- ----------------------------------------------------------------------------------
TOTAL INVESTMENTS (100.9%) (Cost $1,006,262).......................... $ 786,076
----------
OTHER ASSETS (1.9%)
Receivable for Investments Sold......................... $ 8,639
Dividends Receivable.................................... 2,949
Interest Receivable..................................... 1,589
Receivable for Portfolio Shares Sold.................... 1,503
Foreign Withholding Tax Reclaim Receivable.............. 408
Net Unrealized Gain on Swap Agreements.................. 9
Other................................................... 71 15,168
----------
LIABILITIES (-2.8%)
Payable for Investments Purchased....................... (11,990)
Net Unrealized Loss on Foreign Currency Exchange
Contracts............................................. (3,906)
Investment Advisory Fees Payable........................ (2,724)
Bank Overdraft Payable.................................. (1,204)
Custodian Fees Payable.................................. (592)
Payable for Foreign Taxes............................... (450)
Payable for Portfolio Shares Redeemed................... (349)
Administrative Fees Payable............................. (109)
Directors' Fees & Expenses Payable...................... (97)
Distribution Fees Payable............................... (5)
Other Liabilities....................................... (504) (21,930)
---------- ----------
NET ASSETS (100%)..................................................... $ 779,314
----------
----------
</TABLE>
<TABLE>
<S> <C>
NET ASSETS CONSIST OF:
Paid in Capital....................................................... $1,394,473
Accumulated Net Investment Loss....................................... (2,499)
Accumulated Net Realized Loss......................................... (388,645)
Unrealized Depreciation on Investments, Foreign Currency Translations
and Swap Agreements (Net of accrual for foreign taxes of $221 on
unrealized appreciation on investments)............................. (224,015)
----------
NET ASSETS............................................................ $ 779,314
----------
----------
</TABLE>
<TABLE>
<S> <C>
CLASS A:
- ----------------------------------------------------------------------
NET ASSETS............................................................ $772,115
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 80,820,616 outstanding $0.001 par value Shares
(authorized 500,000,000 shares)..................................... $9.55
----------
----------
CLASS B:
- ----------------------------------------------------------------------
NET ASSETS............................................................ $7,199
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 752,781 outstanding $0.001 par value Shares
(authorized 500,000,000 shares)..................................... $9.56
----------
----------
</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
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
EMERGING MARKETS PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
- ------------------------------------------------------------
FOREIGN CURRENCY EXCHANGE CONTRACT INFORMATION:
Under the terms of foreign currency exchange contracts open at December 31,
1998, 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>
- --------------- -------- ----------- -------------- -------- -----------
KRW 11,140,983 $ 9,261 1/04/99 U.S.$ 7,218 $ 7,218 $ (2,043)
PHP 495 13 1/04/99 U.S.$ 13 13 --
PHP 2,528 65 1/04/99 U.S.$ 65 65 --
PHP 1,676 43 1/04/99 U.S.$ 43 43 --
PHP 2,740 70 1/04/99 U.S.$ 70 70 --
PHP 3,256 84 1/04/99 U.S.$ 83 83 (1)
PHP 748 19 1/04/99 U.S.$ 19 19 --
U.S.$ 196 196 1/04/99 CZK 5,826 194 (2)
U.S.$ 982 982 1/04/99 KRW 1,185,933 986 4
U.S.$ 1,480 1,480 1/04/99 KRW 1,968,400 1,636 156
U.S.$ 6,005 6,005 1/04/99 KRW 7,986,650 6,639 634
U.S.$ 1,029 1,029 1/05/99 GRD 291,122 1,040 11
KRW 11,849,920 9,850 1/05/99 U.S.$ 7,796 7,796 (2,054)
KRW 2,202,100 1,830 1/06/99 U.S.$ 1,444 1,444 (386)
KRW 10,094,320 8,387 1/07/99 U.S.$ 6,641 6,641 (1,746)
KRW 1,929,634 1,601 1/31/99 U.S.$ 1,595 1,595 (6)
MYR 12,346 2,274 2/11/99 U.S.$ 2,738 2,738 464
MYR 49,009 9,026 2/11/99 U.S.$ 10,856 10,856 1,830
U.S.$ 13,594 13,594 2/11/99 MYR 61,356 11,299 (2,295)
ZAR 33,043 5,327 6/21/99 U.S.$ 5,626 5,626 299
ZAR 66,147 10,663 6/21/99 U.S.$ 11,253 11,253 590
U.S.$ 563 563 6/21/99 ZAR 3,660 590 27
U.S.$ 2,677 2,677 6/21/99 ZAR 17,615 2,840 163
U.S.$ 3,237 3,237 6/21/99 ZAR 20,814 3,355 118
U.S.$ 2,521 2,521 6/21/99 ZAR 16,166 2,606 85
U.S.$ 6,353 6,353 6/21/99 ZAR 40,935 6,599 246
-------- -------- -----------
$ 97,150 $ 93,244 $ (3,906)
-------- -------- -----------
-------- -------- -----------
</TABLE>
- ------------------------------------------------------------
SWAP AGREEMENTS:
The Portfolio had the following Total Return Swap Agreements open at December
31, 1998:
<TABLE>
<CAPTION>
UNREALIZED
NOTIONAL APPRECIATION
AMOUNT (DEPRECIATION)
(000) DESCRIPTION (000)
<C> <S> <C>
- ---------- ------------------------------------------------- ---------------
$ (d)3,403 Agreement with Goldman Sachs International
terminating
March 4, 1999 to make quarterly payments equal
to the three month USD-LIBOR plus 2.00% and to
receive quarterly payments equal to the SET
Index converted into USD at the mid-market
rate. $ 106
(d)1,509 Agreement with Goldman Sachs International
terminating
March 3, 1999 to make quarterly payments equal
to the three month USD-LIBOR plus 1.75% and to
receive quarterly payments equal to the SET
Index converted into USD at the mid-market
rate. 45
(d)1,721 Agreement with Goldman Sachs International
terminating
March 5, 1999 to make quarterly payments equal
to the three month USD-LIBOR plus 1.75% and to
receive quarterly payments equal to the SET
Index converted into USD at the mid-market
rate. (10)
(d)3,496 Agreement with Goldman Sachs International
terminating
March 10, 1999 to make quarterly payments equal
to the three month USD-LIBOR plus 2.00% and to
receive quarterly payments equal to the SET
Index converted into USD at the mid-market
rate. (132)
-----
$ 9
-----
-----
</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.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
EMERGING MARKETS PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
- ------------------------------------------------------------
(a) -- Non-income producing security
(d) -- Investments (totaling $101,551 or 13.0% of net assets at December 31,
1998) 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
CZK -- Czech Koruna
CPO -- Certificate of Participation
GDR -- Global Depositary Receipt
GDS -- Global Depositary Shares
LIBOR -- London Interbank Offer Rate
PCL -- Public Company Limited
RFD -- Ranked for Dividend
SET -- Securities Exchange of Thailand
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
December 31, 1998.
- ------------------------------------------------------------
SUMMARY OF FOREIGN SECURITIES BY INDUSTRY CLASSIFICATION
<TABLE>
<CAPTION>
VALUE PERCENT OF
INDUSTRY (000) NET ASSETS
<S> <C> <C>
- ----------------------------------------------------------------
Capital Equipment...................... $ 120,423 15.4%
Consumer Goods......................... 142,563 18.3
Energy................................. 84,611 10.9
Finance................................ 81,765 10.5
Materials.............................. 61,032 7.8
Multi-Industry......................... 34,937 4.5
Services............................... 228,497 29.3
--------- ---
$ 753,828 96.7%
--------- ---
--------- ---
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
Emerging Markets Portfolio
36
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
EUROPEAN EQUITY PORTFOLIO
COMPOSITION OF NET ASSETS (AT DECEMBER 31, 1998)
- --------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Belgium 1.2%
Denmark 1.1%
Finland 6.4%
France 9.4%
Germany 11.4%
Ireland 3.0%
Italy 8.2%
Netherlands 5.0%
Norway 1.7%
Spain 5.8%
Sweden 6.9%
Switzerland 14.3%
United Kingdom 23.4%
Other 2.2%
</TABLE>
COMPARISON OF THE CHANGE IN VALUE OF A $500,000** INVESTMENT
- ---------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
EURPOEAN EQUITY PORTFOLIO-CLASS
A MSCI EUROPE INDEX(1)
<S> <C> <C>
4/02/93* $500,000 $500,000
12/31/93 $645,500 $606,800
12/31/94 $715,750 $620,650
12/31/95 $800,566 $754,835
12/31/96 $979,012 $914,030
12/31/97 $1,154,059 $1,131,569
12/31/98 $1,247,422 $1,454,406
* Commencement of operations
** Minimum investment
</TABLE>
In accordance with SEC regulations, Portfolio performance shown assumes that all
recurring fees (including management fees) were deducted and all dividends and
distributions were reinvested. The performance of Class B shares will vary based
upon the different inception dates and fees assessed to that class.
PERFORMANCE COMPARED TO THE MORGAN STANLEY
CAPITAL INTERNATIONAL (MSCI) EUROPE INDEX(1)
- -----------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
--------------------------------------------------
AVERAGE ANNUAL AVERAGE ANNUAL
ONE YEAR FIVE YEARS SINCE INCEPTION
------------ ----------------- -----------------
<S> <C> <C> <C>
PORTFOLIO -- CLASS
A..................... 8.09% 14.09% 17.24%
PORTFOLIO -- CLASS
B..................... 7.80 N/A 15.31
INDEX -- CLASS A...... 28.53 19.10 20.23
INDEX -- CLASS B...... 28.53 N/A 24.22
</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 investment objective of the European Equity Portfolio is to seek long-term
capital appreciation 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 year ended December 31, 1998, the Portfolio had a total return of 8.09%
for the Class A shares and 7.80% for the Class B shares compared to a total
return of 28.53% for the Morgan Stanley Capital International (MSCI) Europe
Index (the "Index"). For the five-year period ended December 31, 1998, the
average annual total return of Class A shares was 14.09% compared to 19.10% for
the Index. From inception on April 2, 1993 through December 31, 1998, the
average annual total return of Class A shares was 17.24% compared to 20.23% for
the Index. From inception on January 2, 1996 through December 31, 1998, the
average annual total return of Class B shares was 15.31% compared to 24.22% for
the Index.
Within the second half of 1998, the Portfolio underperformed the Index. A key
contributing factor to that performance was the continued decline in oil prices,
which, despite a brief spike during the airstrikes on Iraq, reached their lowest
point in real terms since 1972. This decline cut the revenue projections for the
Portfolio's holdings in energy dependent stocks such as British Oil exploration
company Premier Oil (-63%) and French integrated oil concern Total (-22%). Royal
and Sun Alliance also
- ------------------------------------------------------------
CERTAIN INFORMATION APPEARING IN THIS INVESTMENT OVERVIEW IS UNAUDITED.
ACCORDINGLY, THE REPORT OF INDEPENDENT ACCOUNTANTS APPEARING ELSEWHERE IN THIS
REPORT DOES NOT EXTEND TO THIS INFORMATION. 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 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.
- --------------------------------------------------------------------------------
European Equity Portfolio
37
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
EUROPEAN EQUITY PORTFOLIO (CONT.)
suffered a price decline on an absolute basis (-21%), due in large part to a
sharp increase in weather related claims, including from damage wrought by
Hurricane Georges in the U.S., severe flooding in Britain, and a Canadian ice
storm.
Strengthening European currencies also impacted the Portfolio. One of the
Portfolio's largest holdings, Swiss food producer Nestle, rose 2%, held back by
concerns over the weakening U.S. dollar (50% of Nestle revenues are derived in
dollars or dollar-related currencies). Similar considerations weighed on Bayer
(-19%), and BASF (-20%).
In the fourth quarter, this negative performance was mitigated by substantial
gains in the banking sector. A 25 basis point reduction in the Fed Funds rate,
combined with a perception of decreasing risk in the emerging markets, triggered
a revaluation of UBS (+58%), Banco Bilbao Viscaya (+47%), and ING Groep (+35%).
Further, speculation of increased financial concentration and takeover activity
following the introduction of the Euro prompted rises in smaller domestic banks
such as Bank of Scotland (+25%), Bank of Ireland (+20%), and Banca Pop. di
Bergamo (+20%). Gains in the Portfolio in the fourth quarter were not limited to
the banking sector, however, as Telecom Italia (+32%) and Telefonica (+25%) rose
on favorable regulatory news.
OUTLOOK
Following the very narrow rally in Europe in the fourth quarter, 1998 has been
one of the worst years on record for value investors. Importantly, the valuation
anomaly between expensive large caps and undervalued mid caps moved to new
extremes in the fourth quarter. Attracted by their quality franchises and cheap
multiples, the Portfolio has migrated over the last 18 months to mid and smaller
companies. In the recent flight to liquidity, these small/mid cap names have
been shunned by investors, often for reasons unrelated to fundamentals. Although
small/ mid cap valuations re-rated strongly upwards in the spring of 1997, the
valuation gap has widened again in 1998. This has been the principal cause for
our European returns lagging their benchmark last year.
As pure bottom up investors, we do not attempt to market time nor predict the
short term ebbs and flows of the economic cycle. We do understand quality
companies and spend a great deal of time conducting due diligence and testing
our assumptions for cash flow growth under various scenarios. Experience tells
us that owning a portfolio of cheap companies (i.e. low price/cash flow) builds
in a margin of safety for when markets fall on tough times.
The Portfolio has a neutral weighting in banks dominated by medium size regional
retail banks such as Bank of Ireland, Bank of Scotland and Sparebanken,
Nordbanken and Merita in Scandinavia. ABN Amro in the Netherlands and UBS in
Switzerland are the only large trading banks held. In addition to being
expensive, the large European trading banks look vulnerable in the current
volatile financial market environment, having much greater loan exposure to
emerging markets than do U.S. and U.K. banks. The Portfolio is underweight
insurance.
The Portfolio has almost no weighting in technology, a sector typically
characterized by high valuations and boom-bust cycles. European technology also
typically is not at the forefront of technological innovation, nor the low cost
producers. As such we have been underweight and the Portfolio's performance has
been negatively impacted by not owning European technology names like enterprise
software company SAP in Germany or Nokia in Finland.
The Portfolio is overweight cyclicals with an emphasis on less economically
sensitive names or special situations. We have found attractive value in the
European machinery and engineering sector. Our focus has been on companies who
rely more on lucrative recurring service revenues than on original
manufacturing. Elevator manufacturer, Kone in Finland, is an example. The
Portfolio is overweight cement companies within the building materials sector.
Holderbank, the Swiss cement company, has a strong defendable franchise. We
expect that with Europe's shift to the left of the political spectrum and given
the underinvestment in infrastructure on the continent (as a result of budget
restraint to meet the Maastricht criteria) demand for cement and aggregates is
likely to exceed GDP growth in the coming years.
We are attracted to the stable cash flows and attractive valuation of European
consumer stocks and remain overweight tobacco. Richemont, Swiss holding company
for Rothmans International and owning luxury good brands like Cartier and
Dunhill, is the Portfolio's largest holding. Other defensive holdings include
Nestle and U.K. household products company Reckitt & Colman.
The timing of the launch of the Euro has coincided with unprecedented financial
market volatility and continued emerging market weakness. Although we see
Economic and Monetary Union (EMU) as a long-term fillip to Europe's sustainable
growth rate, the Euro-zone faces important challenges in its first year. Of
immediate concern is a potentially strengthening Euro and the detrimental impact
that would imply for short-term growth. We believe that a quality mid cap
Portfolio offers the most compelling valuation and long term reward potential.
Robert Sargent
PORTFOLIO MANAGER
January 1999
- --------------------------------------------------------------------------------
European Equity Portfolio
38
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
EUROPEAN EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- ----------------------------------------------------------------------------
COMMON STOCKS (96.9%)
BELGIUM (1.2%)
55 GB INNO AFV...................................... $ 3
41,000 GB INNO BM....................................... 2,147
---------
2,150
---------
DENMARK (1.1%)
21,300 Unidanmark A/S, Class A.......................... 1,924
---------
FINLAND (6.4%)
48,000 Huhtamaki Oyj, Series 1.......................... 1,838
17,750 KCI Konecranes International..................... 806
14,145 Kone Oyj, Class B................................ 1,648
381,750 Merita Ltd., Class A............................. 2,427
97,850 Metra Oyj, Class B............................... 1,700
23,475 Sampo Insurance Co., plc, Class A................ 897
127,300 The Rauma Group.................................. 1,860
---------
11,176
---------
FRANCE (9.4%)
(a)31,000 CNP Assurances................................... 942
16,900 Cie de Saint Gobain.............................. 2,386
31,970 Cie Generale des Establissements Michelin, Class
B (Registered)................................. 1,279
21,400 Elf Aquitaine.................................... 2,474
6,430 Groupe Danone.................................... 1,841
8,441 Lafarge.......................................... 802
46,000 Rhone-Poulenc.................................... 2,368
21,210 Total, Class B................................... 2,148
16,165 Union des Assurances Federales................... 2,146
---------
16,386
---------
GERMANY (10.5%)
70,200 BASF AG.......................................... 2,677
16,600 Bayer AG......................................... 697
24,300 Bayerische Vereinsbank AG........................ 1,922
4,520 Buderus AG....................................... 1,668
19,065 Philipp Holzmann AG.............................. 2,975
5,395 Suedzucker AG.................................... 2,445
37,200 VEBA AG.......................................... 2,204
2,010 Viag AG.......................................... 1,188
30,030 Volkswagen AG.................................... 2,430
---------
18,206
---------
IRELAND (3.0%)
155,544 Bank of Ireland.................................. 3,466
394,000 Greencore Group plc.............................. 1,820
---------
5,286
---------
ITALY (8.2%)
14,685 Banca Popolare Di Bergamo S.p.A.................. 357
230,700 Marzotto (Gaetano) & Figli S.p.A................. 2,546
404,100 Mediaset S.p.A................................... 3,283
779,300 Sogefi S.p.A..................................... 2,121
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- ----------------------------------------------------------------------------
239,100 Telecom Italia S.p.A............................. $ 2,044
611,505 Telecom Italia S.p.A. (RNC)...................... 3,855
---------
14,206
---------
NETHERLANDS (5.0%)
82,200 ABN Amro Holding N.V............................. 1,730
68,450 Akzo Nobel N.V................................... 3,117
30,736 ING Groep N.V.................................... 1,875
28,600 Philips Electronics N.V.......................... 1,919
---------
8,641
---------
NORWAY (1.7%)
147,490 Sparebanken...................................... 2,872
---------
SPAIN (5.8%)
117,550 Banco Bilbao Vizcaya (Registered)................ 1,845
239,100 Iberdrola........................................ 4,479
42,845 Telefonica....................................... 1,907
165,400 Uralita.......................................... 1,844
---------
10,075
---------
SWEDEN (6.9%)
95,700 Autoliv, Inc..................................... 3,440
70,700 BT Industries AB................................. 1,031
475,900 Nordbanken Holding AB............................ 3,057
141,600 Svedala Intrustri AB............................. 2,064
59,000 Svenska Handelsbanken, Class A................... 2,492
---------
12,084
---------
SWITZERLAND (14.3%)
4,045 Cie Financiere Richemont AG, Class A............. 5,728
4,650 Forbo Holding AG (Registered).................... 2,034
3,310 Holderbank Financiere Glarus AG, Class B
(Bearer)....................................... 3,924
2,725 Nestle (Registered).............................. 5,941
3,290 SIG Schweizensche Industrie-Gesellschaft Holding
AG (Registered)................................ 1,943
748 Schindler Holding AG (Registered)................ 1,276
(a)5,270 Swisscom AG...................................... 2,209
(a)190 Union Bank of Switzerland AG (Registered)........ 59
6,310 Valora Holding AG................................ 1,709
---------
24,823
---------
UNITED KINGDOM (23.4%)
1,093,400 Aegis Group plc.................................. 1,583
600 Allied Domecq plc................................ 6
(a)67,700 Allied Zurich plc................................ 1,010
268,618 BG plc........................................... 1,695
239,210 Bank of Scotland................................. 2,854
111,100 British Telecommunications plc................... 1,674
312,600 Bunzl plc........................................ 1,222
213,010 Burmah Castrol plc............................... 3,048
192,300 Capital Radio plc................................ 1,872
413,800 Charter plc...................................... 2,272
</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
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
EUROPEAN EQUITY PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ----------------------------------------------------------------------------
<C> <S> <C>
</TABLE>
UNITED KINGDOM (CONT.)
<TABLE>
<C> <S> <C>
633,700 Devro plc........................................ $ 1,824
174,683 Diageo plc....................................... 1,988
82,980 Great Universal Stores plc....................... 875
748,100 Halma plc........................................ 1,506
271,200 Imperial Tobacco Group plc....................... 2,906
179,075 Lonrho plc....................................... 980
210,000 Morgan Crucible Co............................... 964
235,200 Premier Farnell plc.............................. 626
4,022,986 Premier Oil plc.................................. 1,071
175,400 RMC Group plc.................................... 2,402
212,132 Reckitt & Colman plc............................. 2,809
271,261 Royal & Sun Alliance Insurance Group plc......... 2,215
528,500 WPP Group plc.................................... 3,216
---------
40,618
---------
TOTAL COMMON STOCKS (Cost $151,918).............................. 168,447
---------
PREFERRED STOCKS (0.9%)
GERMANY (0.9%)
5,480 Dyckerhoff AG.................................... 1,529
1,600 Volkswagen AG.................................... 80
---------
TOTAL PREFERRED STOCKS (Cost $1,490)............................. 1,609
---------
</TABLE>
<TABLE>
<CAPTION>
NO. OF
RIGHTS
<C> <S> <C>
- ------------
RIGHTS (0.0%)
SPAIN (0.0%)
(a)42,845 Telefonica, expiring 1/30/99 (Cost $0)........... 38
---------
TOTAL FOREIGN SECURITIES (97.8%) (Cost $153,408)................. 170,094
---------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT
(000)
<C> <S> <C>
- ------------
SHORT-TERM INVESTMENT (2.0%)
REPURCHASE AGREEMENT (2.0%)
$ 3,547 Chase Securities, Inc. 4.45%, dated 12/31/98, due
1/4/99, to be repurchased at $3,549,
collateralized by U.S. Treasury Bonds, 11.25%,
due 2/15/15, valued at $3,621
(Cost $3,547).................................. 3,547
---------
FOREIGN CURRENCY (0.0%)
ESP 592 Spanish Peseta (Cost $4)......................... 4
---------
</TABLE>
<TABLE>
<CAPTION>
VALUE
(000)
<S> <C> <C>
- ----------------------------------------------------------------------------
TOTAL INVESTMENTS (99.8%) (Cost $156,959)......................... $173,645
--------
OTHER ASSETS (2.0%)
Receivable for Investments Sold..................... $ 2,611
Dividends Receivable................................ 594
Foreign Withholding Tax Reclaim Receivable.......... 255
Other............................................... 13 3,473
----------
LIABILITIES ( - 1.8%)
Bank Overdraft Payable.............................. (2,612)
Investment Advisory Fees Payable.................... (393)
Payable for Portfolio Shares Redeemed............... (106)
Custodian Fees Payable.............................. (30)
Administrative Fees Payable......................... (27)
Directors' Fees and Expenses Payable................ (13)
Distribution Fees Payable........................... (3)
Other Liabilities................................... (41) (3,225)
---------- --------
NET ASSETS (100%)................................................. $173,893
--------
--------
</TABLE>
<TABLE>
<S> <C>
NET ASSETS CONSIST OF:
Paid in Capital................................................... $153,005
Overdistributed Net Investment Income............................. (125)
Accumulated Net Realized Gain..................................... 4,315
Unrealized Appreciation on Investments and Foreign Currency
Translations.................................................... 16,698
--------
NET ASSETS........................................................ $173,893
--------
--------
</TABLE>
<TABLE>
<S> <C>
CLASS A:
- ------------------------------------------------------------------
NET ASSETS........................................................ $168,712
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 10,710,559 outstanding $0.001 par value shares
(authorized 500,000,000 shares)................................. $15.75
--------
--------
CLASS B:
- ------------------------------------------------------------------
NET ASSETS........................................................ $5,181
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 329,230 outstanding $0.001 par value shares
(authorized 500,000,000 shares)................................. $15.74
--------
--------
</TABLE>
- ------------------------------------------------------------
(a) -- Non-income producing security
RNC -- Non-convertible savings shares
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
European Equity Portfolio
40
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
EUROPEAN EQUITY PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
- ------------------------------------------------------------
SUMMARY OF FOREIGN AND U.S. SECURITIES BY INDUSTRY CLASSIFICATION
<TABLE>
<CAPTION>
VALUE PERCENT OF
INDUSTRY (000) NET ASSETS
<S> <C> <C>
- ----------------------------------------------------------------
Capital Equipment.................... $ 19,646 11.3%
Consumer Goods....................... 41,993 24.2
Energy............................... 17,118 9.8
Finance.............................. 34,089 19.6
Materials............................ 25,003 14.4
Multi-Industry....................... 6,141 3.5
Services............................. 26,104 15.0
--------- ---
$ 170,094 97.8%
--------- ---
--------- ---
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
European Equity Portfolio
41
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
EUROPEAN REAL ESTATE PORTFOLIO
COMPOSITION OF NET ASSETS (AT DECEMBER 31, 1998)
- --------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Denmark 3.0%
Finland 2.4%
France 30.0%
Ireland 4.6%
Italy 3.1%
Norway 3.5%
Spain 7.2%
Sweden 16.7%
United Kingdom 47.2%
Other -17.7%
</TABLE>
COMPARISON OF THE CHANGE IN VALUE OF A $500,000** INVESTMENT
- ---------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
EUROPEAN REAL ESTATE PORTFOLIO-CLASS EUROPEAN REAL ESTATE PORTFOLIO-CLASS
A B
<S> <C> <C>
10/01/97* $500,000 $100,000
12/31/97 $476,400 $95,240
12/31/98 $499,029 $99,621
* Commencement of operations
** Minimum investment
<CAPTION>
GPR LIFE EUROPEAN REAL ESTATE T.R.
INDEX(1)
<S> <C>
10/01/97* $500,000
12/31/97 $500,650
12/31/98 $498,647
* Commencement of operations
** Minimum investment
</TABLE>
In accordance with SEC regulations, Portfolio performance shown assumes that all
recurring fees (including management fees) were deducted and all dividends and
distributions were reinvested. The performance of Class B shares will vary based
upon the different fees assessed to that class. The GPR Life European Real
Estate T.R. Index value at December 31, 1998 assumes a minimum initial
investment of $500,000; if a minimum initial investment of $100,000 (the minimum
investment for Class B shares) is assumed, the value at December 31, 1998 would
be $99,729.
PERFORMANCE COMPARED TO THE GPR LIFE
EUROPEAN REAL ESTATE T.R. INDEX(1)
- -----------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
---------------------------
AVERAGE ANNUAL
ONE YEAR SINCE INCEPTION
---------- ---------------
<S> <C> <C>
PORTFOLIO -- CLASS A................. 4.75% - 0.16%
PORTFOLIO -- CLASS B................. 4.60 - 0.30
INDEX................................ - 0.40 - 0.30
</TABLE>
1. The GPR Life European Real Estate T.R. Index 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 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 year ended December 31, 1998, the Portfolio had a total return of 4.75%
for the Class A shares and 4.60% for the Class B shares compared to -0.40% for
the GPR Life European Real Estate T.R. Index (the "Index"). From inception on
October 1, 1997 through December 31, 1998, the average annual total return of
- -0.16% for Class A shares and -0.30% for Class B shares compared to -0.30% for
the Index.
Activity in the European real estate securities markets during 1998 was
dominated by investor anticipation of the January 1, 1999 initiation of the
Euro. The single currency required a harmonization of European interest rates,
which proved highly positive for a number of the markets. As a result, each of
the Euro-countries outperformed the Index. At the same time, three of the five
non-Euro markets underperformed the Index, including the two largest non-Euro
markets, Sweden and the U.K.. Overall, the Index fell -6.1% in ECU terms during
the year, dragged down by the U.K.'s -22.0% return. While we believe the actual
implementation of the currency will continue to favorably affect these markets
through 1999, we expect global economic tightening to serve as the dominant
driving force. As such, we are repositioning the Portfolio toward a more
defensive stance, lightening Scandinavia, increasing France, and adding to the
larger market-cap U.K. positions.
The United Kingdom property shares returned a dismal year. U.K. real estate
securities fell -22.0% for the year, in ECU terms, after posting a negative
performance in 8 of the last 9 months of 1998. This drop in pricing is a result
of a change in growth expectations rather than a reduction in property
- ------------------------------------------------------------
CERTAIN INFORMATION APPEARING IN THIS INVESTMENT OVERVIEW IS UNAUDITED.
ACCORDINGLY, THE REPORT OF INDEPENDENT ACCOUNTANTS APPEARING ELSEWHERE IN THIS
REPORT DOES NOT EXTEND TO THIS INFORMATION. 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.
- --------------------------------------------------------------------------------
European Real Estate Portfolio
42
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
EUROPEAN REAL ESTATE PORTFOLIO (CONT.)
values. In January 1998, the U.K. majors, 7 of the largest U.K. listed property
companies, were expected to realize a 19.2% increase in net asset value over
1998. At this time, the shares were trading at a 22% premium to net asset value.
Today, growth estimates have fallen to 6.1%, and share premiums have reversed to
a 22% discount. This change in expectations is driven by the anticipated
slowdown in the U.K. and global economies. However, we believe the recent drop
in interest rates by the Bank of England, 150 basis points since October, and
the significant discount to net asset value, provide sufficient downside
protection to warrant an additional allocation to the largest European real
estate securities market. As such, we remain underweight the country overall,
but are significantly adding to our U.K. exposure.
French property stocks were one of the strongest performers in 1998, increasing
31.9% in ECU terms. This performance dwarfed the European Index numbers of
- -6.1%. The strong performance is justified by the strength of the French real
estate recovery. According to the property research group at Bourdais, rents in
Paris' central business district have risen 17% over the past year, from
FFr3,000/square meters at end-1997 to FFr3,500/square meters at select prime
locations. Even so, these numbers remain well below the 1990 peak rents of over
FFr4,500/square meters. Furthermore, the currently low vacancy rates of 6.0% for
the total Paris market and 2.7% at La Defense suggest further strengthening in
the rental market. At the same time, investment commitments in 1998 increased
30% over the 1997 figure (FFr30 billion vs. FFr23 billion) pushing property
yields from 6.0% to 5.75% on CBD Paris office. We expect continued investor
demand, along with the recent decline in French interest rates, and further
expected reductions by the European Central Bank in the first quarter of 1999,
to place additional pressure on yields going forward. In other words, rents are
rising, yields are falling, and we are increasing our already overweight
allocation to the French market.
The Swedish property market continues to be our largest disappointment. The
market fell an additional -1.8% in the fourth quarter, dragging the year-end
number to a -17.5% return in ECU terms. We believe this decline was the result
of many factors, the least of which was the underlying real estate market.
First, Sweden's exposure to external trade concerned investors focusing on fears
of a global economic slowdown. Second, the high level of leverage in the Swedish
property companies frightened away many foreign investors. With the slowdown in
global expectations, investors were not as anxious to accept 60-70% debt/total
capitalization numbers. Third, an expectation of safety in numbers is luring
European portfolio managers and pension funds toward the Euro countries.
Uncertainties surrounding the launch of the single currency are expected to have
a relative negative impact on those economies not participating. However, the
direct real estate market remains strong, with prime office capital values
increasing by 13.8% during the first 3 quarters of 1998. Stockholm prime office
vacancies are below 4%, with no new space expected in 1999. At the same time,
property yields are falling, but not as fast as interest rates. The Riksbank has
lowered the short-term rate by 95 basis points in 1998, with further declines
expected in 1999. However, notwithstanding what we believe are strong
fundamentals, we are lowering our heavily overweight position. We believe that
in time the public property market will reflect the direct market returns, but
not until the dust of the Euro initiation settles after the first and possibly
second quarters.
Sweden's Nordic neighbors also delivered less than impressive results for the
year. Over this past year, Finland lost 24.0%, and Norway fell 26.1%. Denmark
was the only Nordic property market to outperform the Index as a whole, climbing
13.4% in ECU terms. These smaller property markets suffer from a number of the
same Euro concerns as Sweden. Only Finland is an initial member in the currency.
Furthermore the limited number of investment alternatives, 1 investible company
in both Finland and Denmark with only 4 options in Norway, are deterring
investors in these risk averse times. In response, we are decreasing our Danish
and Norwegian exposure for the near term, but increasing our holdings in the
Euro protected Finish market.
While Holland's property market performed well in the late fall and early
winter, over the past year it was one of the worst performing Euro-member
markets. The fourth quarter brought a strong 7.7% return, but this was not
enough to bring the market into positive territory for the year. The Dutch real
estate securities market fell -1.3% in ECU terms. The Dutch property market
offers one of the more stable environments for investing, with unemployment,
inflation, GDP growth, and construction all in
- --------------------------------------------------------------------------------
European Real Estate Portfolio
43
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
EUROPEAN REAL ESTATE PORTFOLIO (CONT.)
balance. At the same time, we expect a further bonus for the market in the form
of additional interest rate cuts in the first quarter. However, bottom-up
valuations suggest the securities are too expensive following their year-end
run. We continue to believe that better opportunities exist in the peripheral
Euro countries, France and even Scandinavia longer term. Thus, we are
underweight Holland, but keeping a close eye on price fluctuations.
As the governmental capital of the European Union, it is only appropriate that
the Belgian property market should fare well on the eve of the Euro
inauguration. Actually, it was the third highest absolute performer for the
fourth quarter, returning 10.6%, and offered the highest Euro-member return for
1998 overall at 40.2% (only Switzerland posted stronger numbers at 44.6% for the
year), all in ECU terms. The annual performance was sparked by the strong
offering calendar in the first half of the year, while the fourth quarter
offered attractive dividend returns, and a 19.0% total return for the company
Befimmo. However, until the IPO's return, and the EC surrenders its market
influence, we do not expect these numbers to continue. Going forward, we
continue to believe the market is over bought, and maintain an underweight
exposure through our Asticus position listed in Sweden.
Notwithstanding their third quarter decline, the Spanish property stocks
finished the year as one of the high-fliers in Europe, with no intent of landing
in the near future. The market rebounded as investors refocused their attention
on property fundamentals and Euro convergence rather than debt concerns across
the ocean. The result was a 20.9% gain in the fourth quarter, capping-off a
38.8% year in ECU terms. The refocus toward fundamentals was encouraged by the
strong increase in residential pricing. The two largest Spanish companies,
Vallehermoso and Metrovacesa each have active residential development schemes.
Going forward, we expect the pricing transparency derived from a single currency
to further strengthen the market. Thus, we remain overweight the Spanish
property market, and anxiously await further investment possibilities in the
region.
Trailing only Belgium and Spain from the Euro-countries, Italy displayed a
dazzling performance in 1998, and, we believe, promises an encore for 1999. The
total return for the Italian real estate securities market in 1998 was 36.3%,
after an 18.2% fourth quarter, both in ECU terms. The strong finish for the year
was sparked by the distribution of the Unione Immobiliare portfolio to the
shareholders of the insurance company INA, albeit at an expensive level. This
public flotation brought liquidity to a market dominated by small capitalization
companies. The ability to invest in the indirect Italian real estate market has
revived investor interest in the country. We believe this returning interest, as
well as the positive interest rate impact of the Euro should combine for a
bright future in Italian real estate securities. We remain overweight the
market.
The closed end property companies in Germany, Switzerland and Austria each
continued to outperform Europe as a whole, returning -1.2%, 9.3%, and 1.3%
respectively for the quarter, and 24.3%, 44.6%, and 4.3% respectively for the
year, in ECU terms. While these markets would have provided significant
outperformance for our Portfolio, we have continued to underweight these
countries on fundamentals. We do not like the open-ended investment structure
dominating the industry. We believe the nature of these funds create
inefficiencies in property pricing. Furthermore, we believe individual company
valuations within this region are rich. Thus, we remain underweight heading into
the new year.
Theodore R. Bigman
PORTFOLIO MANAGER
Daniel A. Policy
PORTFOLIO MANAGER
January 1999
- --------------------------------------------------------------------------------
European Real Estate Portfolio
44
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
EUROPEAN REAL ESTATE PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- ------------------------------------------------------------------------------
COMMON STOCKS (117.7%)
DENMARK (3.0%)
20,240 EjendomsSelskabet Norden A/S..................... $ 1,081
--------
FINLAND (2.4%)
(a)148,500 Sponda Oyj....................................... 871
--------
FRANCE (30.0%)
9,209 Groupe Financement Construction.................. 1,096
25,718 Klepierre........................................ 2,623
7,580 Silic............................................ 1,409
9,210 Simco (RFD)...................................... 836
7,580 Societe Fonciere Lyonnaise....................... 1,191
29,016 Sophia........................................... 1,233
16,322 Unibail.......................................... 2,381
--------
10,769
--------
IRELAND (4.6%)
(a)3,286,950 Dunloe Ewart plc................................. 1,666
--------
ITALY (3.1%)
918,180 Immobiliare Metanopoli S.p.A..................... 1,127
--------
NORWAY (3.5%)
(a)132,990 Avantor ASA...................................... 700
(a)386,720 Choice Hotels Scandinavia ASA.................... 544
--------
1,244
--------
SPAIN (7.2%)
179,260 Vallehermoso..................................... 2,567
--------
SWEDEN (16.7%)
(a)122,956 Asticus AB....................................... 1,208
126,000 Castellum AB..................................... 1,370
140,400 Diligentia AB.................................... 988
72,130 Fastighets AB Tornet............................. 1,056
149,920 Piren AB......................................... 954
432,000 Platzer Bygg AB, Class B......................... 437
--------
6,013
--------
UNITED KINGDOM (47.2%)
228,950 British Land Co. plc............................. 1,703
718,200 Buford Holdings plc.............................. 1,171
332,910 Capital Shopping Centers plc..................... 1,867
18,300 Chelsfield plc................................... 75
234,360 Freeport Leisure plc............................. 1,466
625,020 Grantchester Holdings plc........................ 1,456
353,400 Great Portland Estates plc....................... 1,158
238,190 Hammerson plc.................................... 1,365
137,570 Land Securities plc.............................. 1,772
200,820 MEPC plc......................................... 1,336
801.894 NHP plc.......................................... 2,001
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- ------------------------------------------------------------------------------
382,176 Town Centre Securities plc....................... $ 385
1,024,160 Wates City of London Properties plc.............. 1,210
--------
16,965
--------
TOTAL COMMON STOCKS (Cost $43,012).................................. 42,303
--------
</TABLE>
<TABLE>
<CAPTION>
NO. OF
WARRANTS
<C> <S> <C>
- ---------------
WARRANTS (0.0%)
FRANCE (0.0%)
(a)6,800 Societe Fonciere Lyonnaise (Cost $0)............. 7
--------
TOTAL FOREIGN SECURITIES (117.7%) (Cost $43,012).................... 42,310
--------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT
(000)
<C> <S> <C>
- ---------------
FOREIGN CURRENCY (0.0%)
GBP -- British Pound.................................... 1
FRF 1 French Franc..................................... --
ITL 10 Italian Lira..................................... --
--------
TOTAL FOREIGN CURRENCY (Cost $1).................................... 1
--------
TOTAL INVESTMENTS (117.7%) (Cost $43,013)........................... 42,311
--------
</TABLE>
<TABLE>
<S> <C> <C>
OTHER ASSETS (1.1%)
Receivable for Investments Sold..................... $ 221
Dividends Receivable................................ 144
Foreign Withholding Tax Reclaim Receivable.......... 19
Other............................................... 1 385
----------
LIABILITIES ( - 18.8%)
Bank Overdraft Payable.............................. (6,617)
Investment Advisory Fees Payable.................... (64)
Custodian Fees Payable.............................. (8)
Administrative Fees Payable......................... (5)
Directors' Fees & Expenses Payable.................. (1)
Distribution Fees Payable........................... (2)
Other Liabilities................................... (46) (6,743)
---------- --------
NET ASSETS (100%)................................................. $ 35,953
--------
--------
</TABLE>
<TABLE>
<S> <C>
NET ASSETS CONSIST OF:
Paid in Capital................................................... $ 42,773
Overdistributed Net Investment Income............................. (583)
Accumulated Net Realized Loss..................................... (5,542)
Unrealized Depreciation on Investments and Foreign Currency
Translations.................................................... (695)
--------
NET ASSETS........................................................ $ 35,953
--------
--------
</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
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
EUROPEAN REAL ESTATE PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMOUNT
(000)
<S> <C> <C>
- ----------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
CLASS A:
- ------------------------------------------------------------------
NET ASSETS........................................................ $33,422
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 3,488,413 outstanding $0.001 par value Shares
(authorized 500,000,000 shares)................................. $9.58
--------
--------
CLASS B:
- ------------------------------------------------------------------
NET ASSETS........................................................ $2,531
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 263,335 outstanding $0.001 par value Shares
(authorized 500,000,000 shares)................................. $9.61
--------
--------
</TABLE>
- ------------------------------------------------------------
(a) -- Non-income producing security
PLC -- Public Limited Company
RFD -- Ranked for Dividend
- ------------------------------------------------------------
SUMMARY OF FOREIGN SECURITIES BY INDUSTRY CLASSIFICATION
<TABLE>
<CAPTION>
VALUE PERCENT OF
INDUSTRY (000) NET ASSETS
<S> <C> <C>
- ------------------------------------------------------------------
Diversified............................ $ 10,439 29.0%
Land................................... 2,854 7.9
Lodging/Leisure........................ 6,401 17.8
Office & Industrial.................... 9,436 26.3
Shopping Centers....................... 13,180 36.7
-------- -----
$ 42,310 117.7%
-------- -----
-------- -----
</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 DECEMBER 31, 1998)
- --------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Australia 0.7%
Belgium 1.8%
Bermuda 0.4%
Canada 2.4%
Denmark 0.1%
Finland 1.3%
France 6.4%
Germany 5.5%
Ireland 1.8%
Italy 3.0%
Japan 7.5%
Netherlands 4.3%
New Zealand 0.5%
Portugal 0.8%
Spain 3.0%
Sweden 1.5%
Switzerland 10.1%
United Kingdom 10.1%
United States 32.8%
Other 6.0%
</TABLE>
COMPARISON OF THE CHANGE IN VALUE OF A $500,000** INVESTMENT
- ---------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
GLOBAL EQUITY PORTFOLIO-CLASS
A MSCI WORLD NET INDEX(1)
<S> <C> <C>
7/15/92* $500,000 $500,000
10/31/92 $467,500 $482,000
12/31/92 $455,813 $475,879
12/31/93 $703,145 $604,750
12/31/94 $752,000 $635,450
12/31/95 $892,323 $767,115
12/31/96 $1,096,041 $870,522
12/31/97 $1,356,351 $1,007,716
12/31/98 $1,554,378 $1,252,994
* Commencement of operations
** Minimum investment
</TABLE>
In accordance with SEC regulations, Portfolio performance shown assumes that all
recurring fees (including management fees) were deducted and all dividends and
distributions were reinvested. The performance of Class B shares will vary based
upon the different inception dates and fees assessed to that class.
PERFORMANCE COMPARED TO THE MORGAN STANLEY
CAPITAL INTERNATIONAL (MSCI) WORLD NET INDEX(1)
- -----------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
------------------------------------------------
AVERAGE ANNUAL AVERAGE ANNUAL
ONE YEAR FIVE YEARS SINCE INCEPTION
---------- ----------------- -----------------
<S> <C> <C> <C>
PORTFOLIO -- CLASS A.... 14.60% 17.20% 19.18%
PORTFOLIO -- CLASS B.... 14.15 N/A 19.80
INDEX -- CLASS A........ 24.34 15.68 15.27
INDEX -- CLASS B........ 24.34 N/A 17.63
</TABLE>
1. The MSCI World Net 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 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 year ended December 31, 1998, the Portfolio had a total return of 14.60%
for the Class A shares and 14.15% for the Class B shares compared to a total
return of 24.34% for the Morgan Stanley Capital International (MSCI) World Net
Index (the "Index"). For the five-year period ended December 31, 1998, the
Portfolio had a total return of 17.20% for the Class A shares compared to 15.68%
for the Index. From inception on July 15, 1992 through December 31, 1998, the
average annual total return of Class A shares was 19.18% compared to 15.27% for
the Index. From inception on January 2, 1996 through December 31, 1998, the
average annual total return of Class B shares was 19.80% compared to 17.63% for
the Index.
Within the second half of 1998, stock selection in Europe was the largest
contributor to the Portfolio's underperformance. One of the Portfolio's largest
holdings, Swiss food producer Nestle, rose 2%, held back by concerns over the
weakening U.S. dollar affecting revenues and profits (50% of Nestle revenues are
derived in dollars or dollar-related currencies). Rallying European currencies
also weighed heavily on export oriented companies such as Bayer ( - 19%), as
well as BASF ( - 20%) which suffered further on the announcement of proposed
changes in the structure of German corporate tax. These losses were mitigated by
strong performance in the telecoms sector, where increased penetration of mobile
phones in Southern Europe sparked a rally in Telecom Italia (+32%).
The Portfolio's U.S. portion also underperformed the Index, rising 5.2% against
the Index's 10.5% return. World oil prices, despite a brief spike during the
U.S.
- ------------------------------------------------------------
CERTAIN INFORMATION APPEARING IN THIS INVESTMENT OVERVIEW IS UNAUDITED.
ACCORDINGLY, THE REPORT OF INDEPENDENT ACCOUNTANTS APPEARING ELSEWHERE IN THIS
REPORT DOES NOT EXTEND TO THIS INFORMATION. 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.
- --------------------------------------------------------------------------------
Global Equity Portfolio
47
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
GLOBAL EQUITY PORTFOLIO (CONT.)
air-raids on Iraq, continued to fall sharply, leading to a collapse in the share
prices of Ocean Energy (-67%) and contract driller Noble Drilling ( - 46%).
These losses were mitigated by sharp increases in the prices of stocks like
Houghton Mifflin (+49%), which benefited from increased sales of school
textbooks, and Comsat (+27%), which announced it was being taken over by
Lockheed. Philip Morris (+36%) also gained as the tide of tobacco liability
lawsuits appeared to have peaked.
In Asia, the Portfolio outperformed the Index, notably in Japan where the
Portfolio returned 21.0% against a 7.9% Index return. Strong U.S. sales allowed
consumer products maker Kao Corp to rise 47%, while higher than expected profits
also prompted gains in Fujisawa Pharmaceutical (+52%). Both companies also
benefited as investors sought shares insulated from the domestic economy.
OUTLOOK
Overall the Portfolio is defensively positioned for a continuation of volatile
financial market conditions in 1999. The three largest surprises for investors
in 1998 were slower than expected global growth (1.8% versus consensus of 3.5%),
lower than expected global inflation (1.3% versus consensus of 2.3%), and
finally as a result of the former, weaker than expected earnings. The slowdown
in global growth occurring outside the U.S., in particular in Japan, but
increasingly in Europe suggests caution is warranted. Indeed, despite aggressive
global easing in monetary policy, led by the Federal Reserve, it seems a near
certainty that earnings expectations for 1999 are far too optimistic.
Consistent with our cautionary view on global growth, the Portfolio's largest
sector exposure and overweight remains consumer defensive staples at 21%.
Utilities, telecoms and food retailing are also overweighted. Telecom Italia is
our largest telecom holding. The Portfolio is underweight banks with a strong
emphasis on regional bank franchises like Bank of Ireland, and Nordbanken. In
contrast, the Portfolio has overweighted re-insurance and financial guaranty
companies, such as MBIA, Scor, and Enhance Financial due to compelling valuation
levels.
The Portfolio remains underweight in the U.S. and Japan. Many of our U.S.
holdings reached fair value in the last 12 months and have been sold. Our
holdings are concentrated in the mid cap segment of the U.S. market where value
is most attractive following an unprecedented narrowing in U.S. market
leadership in 1998. We have found selective value in Japanese pharmaceuticals
like Fujisawa which is cheap relative to its global peer group. Kao, with its
core household products business, and NTT lend defensiveness. The challenge in
Japan remains finding management who have embraced concepts such as return on
capital and maximizing shareholder value. Finding cheap companies is not the
problem, rather it is finding high quality cheap companies that is more
difficult. Portfolio weightings in Europe have risen gradually through 1998,
funded by reductions in the U.S. In particular, Switzerland, UK, Ireland and
Germany are overweighted as a result of our stock selection.
1998 has been a difficult year for value managers. This is starkly illustrated
by the performance gulf between the MSCI World Growth Index up 25% for the year
and the MSCI Value Index up 14% for the year (with the World Index rising 24%).
While we know that a value strategy outperforms both growth and the Index over
long periods of time, value can and has underperformed growth during times of
economic uncertainty as investors pay more for the perception of stable
earnings. Similarly, the narrowing leadership associated with manias or stock
bubbles can also disadvantage a value style like during the nifty fifty of the
early 70's or the internet/technology bubble which drove S&P 500 Index
performance in 1998. Of note, the S&P 500's performance was narrower than in all
but one of the past 10 years. While the S&P 500 returned 28.5% for the year, the
median return of all stocks in the Index was just 6.6%. 10 growth stocks
accounted for 41% of the S&P 500's 1998 performance. Microsoft, GE, Wal Mart,
Lucent, Cisco, and Intel top the list of growth stocks dominating performance.
Our disciplined value process ensures that we do not get swept up into such
manias, highlighted by the fantastic valuations currently ascribed to internet
shares.
The flight to growth and liquidity in 1998 has also meant that the large
cap/midcap valuation premium has reached historic proportions. We expect that
patient exploitation of this valuation anomaly should be rewarded over time. The
Portfolio is a value Portfolio and reflects our bottom-up value discipline. The
price to cash flow ratio of the Portfolio is less than 9 times versus 14.2 times
for the Index. This provides some comfort in what seems, after the fourth
quarter rally, once again an expensive equity world.
- --------------------------------------------------------------------------------
Global Equity Portfolio
48
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
GLOBAL EQUITY PORTFOLIO (CONT.)
Recent additions to the Portfolio include:
LION NATHAN (New Zealand) enjoys a dominant position, along with Fosters, in the
Australasian brewing market. The stock generates substantial free cash flow with
capital spending below depreciation and is currently undervalued due to concern
over recent market share losses in Australia, and management turnover. The stock
is underpinned by its valuation and an attractive dividend yield.
MICHELIN (France) is currently one of the top three global tire producers. While
the company has been all about margins in the past, the management are now
saying that a 15% return on equity is the target, with the margin becoming a
means to this end, rather than an end in itself. Management seem to be fairly
advanced in their thinking in terms of return on capital employed, and this is
very important as Michelin has never in the past been run on asset efficiency.
From an external perspective, the three Majors do seem to be playing a more
profit-oriented game now that they have a clear lead over the second tier in
terms of market share. Consolidation has come in the Original Equipment
Manufacturer which should no longer need to be subsidised by the Auto Makers, a
fact that has helped the smaller players in the past.
POTASH CORPORATION OF SASKATCHEWAN (Canada) is the world's lowest cost and
highest reserved producer of potash and one of the world's most efficient
producers of phosphate and nitrogen, the other key fertilizer applications. The
company is renowned for its supply management and is generating substantial free
cash flow.
SWISSCOM (Switzerland) is the previously state owned Telecom PTT, which was
recently floated in an initial public offering of the shares on October 5, 1998.
The company is active in the operation and maintenance of the major voice,
mobile and data network in Switzerland. Swisscom benefits from high market
shares and high margins in its mobile business.
Frances Campion
PORTFOLIO MANAGER
January 1999
- --------------------------------------------------------------------------------
Global Equity Portfolio
49
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
GLOBAL EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- --------------------------------------------------------------------------
COMMON STOCKS (93.2%)
AUSTRALIA (0.7%)
739,100 CSR Ltd........................................... $ 1,807
----------
BELGIUM (1.8%)
22,700 Delhaize-Le Lion.................................. 1,996
47,100 G.I.B. Holdings Ltd............................... 2,453
----------
4,449
----------
BERMUDA (0.4%)
38,100 Terra Nova (Bermuda) Holdings Ltd., Class A....... 962
----------
CANADA (2.4%)
39,250 Potash Corp. of Saskatchewan, Inc................. 2,515
154,107 TELUS Corp........................................ 3,259
----------
5,774
----------
DENMARK (0.1%)
5,860 Danisco A/S....................................... 318
----------
FINLAND (1.3%)
54,700 Pohjola Insurance Co., Class B.................... 2,982
11,700 Valmet Oyj........................................ 156
----------
3,138
----------
FRANCE (6.4%)
4,560 Bongrain.......................................... 2,040
19,750 Cie Generale des Establissements Michelin, Class B
(Registered).................................... 790
29,066 Elf Aquitaine..................................... 3,359
17,000 Groupe Danone..................................... 4,866
730 Pernod Ricard..................................... 47
21,000 Rhone-Poulenc, Class A............................ 1,080
47,750 Scor.............................................. 3,157
----------
15,339
----------
GERMANY (4.7%)
97,090 BASF AG........................................... 3,702
40,620 Bayer AG.......................................... 1,705
3,470 Karstadt AG....................................... 1,816
62,950 VEBA AG........................................... 3,728
5,420 Volkswagen AG..................................... 438
----------
11,389
----------
IRELAND (1.8%)
81,507 Bank of Ireland................................... 1,812
69,200 Clondalkin Group plc.............................. 494
342,981 Green Property plc................................ 1,939
----------
4,245
----------
ITALY (3.0%)
305,000 Mediaset S.p.A.................................... 2,472
760,913 Telecom Italia S.p.A. (RNC)....................... 4,786
----------
7,258
----------
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- --------------------------------------------------------------------------
JAPAN (7.5%)
80,000 Fuji Photo Film Ltd............................... $ 2,977
111,000 Fujisawa Pharmaceutical Co., Ltd.................. 1,574
199,000 Hitachi Ltd....................................... 1,234
263 Japan Tobacco, Inc................................ 2,633
182,000 Kao Corp.......................................... 4,113
140,000 Nichido Fire & Marine Insurance Co., Ltd.......... 689
270 Nippon Telegraph & Telephone Corp................. 2,086
86,000 Sumitomo Marine & Fire Insurance Co., Ltd......... 546
26,000 TDK Corp.......................................... 2,380
----------
18,232
----------
NETHERLANDS (4.3%)
119,912 ABN Amro Holding N.V.............................. 2,522
39,600 Benckiser N.V., Class B........................... 2,594
3,565 Hollandsche Beton Groep N.V....................... 44
60,172 ING Groep N.V..................................... 3,669
22,700 Philips Electronics N.V........................... 1,523
----------
10,352
----------
NEW ZEALAND (0.5%)
477,400 Lion Nathan Ltd................................... 1,214
----------
PORTUGAL (0.8%)
57,170 Cimpor SGPS....................................... 1,826
----------
SPAIN (3.0%)
210,700 Iberdrola......................................... 3,936
75,400 Telefonica........................................ 3,348
----------
7,284
----------
SWEDEN (1.5%)
404,200 Nordbanken Holding AB............................. 2,596
71,500 Skandia Forsakrings AB............................ 1,095
----------
3,691
----------
SWITZERLAND (10.1%)
760 ABB AG (Bearer)................................... 892
620 Ascom Holdings AG (Bearer)........................ 972
370 Bobst AG (Bearer)................................. 459
4,781 Cie Financiere Richemont AG, Class A.............. 6,770
2,500 Forbo Holding AG (Registered)..................... 1,094
2,330 Holderbank Financiere Glarus AG, Class B
(Bearer)........................................ 2,762
3,170 Nestle (Registered)............................... 6,911
2,500 SIG Schweizensche Industrie-Gesellschaft Holding
AG (Registered)................................. 1,476
(a)7,240 Swisscom AG....................................... 3,035
----------
24,371
----------
UNITED KINGDOM (10.1%)
35,100 Allied Domecq plc................................. 324
1,286,062 BTR plc........................................... 2,653
</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
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
GLOBAL EQUITY PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------
<C> <S> <C>
</TABLE>
UNITED KINGDOM (CONT.)
<TABLE>
<C> <S> <C>
83,800 Bank of Ireland................................... $ 1,836
126,200 Blue Circle Industries plc........................ 651
158,150 Burmah Castrol plc................................ 2,263
224,688 Christian Salvesen plc............................ 340
219,290 English China Clays plc........................... 595
211,300 Imperial Tobacco Group plc........................ 2,264
241,400 Matthews (Bernard) plc............................ 466
(a,d)653,333 Pentos plc........................................ --
331,191 Reckitt & Colman plc.............................. 4,386
285,777 Royal & Sun Alliance Insurance Group plc.......... 2,334
660,600 WPP Group plc..................................... 4,020
360,100 Wolseley plc...................................... 2,277
----------
24,409
----------
UNITED STATES (32.8%)
29,600 Albertson's, Inc.................................. 1,885
33,950 Aluminum Company of America....................... 2,531
150,500 American Stores Co................................ 5,559
(a)73,700 BJ's Wholesale Club, Inc.......................... 3,413
95,900 Boise Cascade Corp................................ 2,973
61,450 Borg-Warner Automotive, Inc....................... 3,430
134,250 COMSAT Corp....................................... 4,833
(a)139,300 Cadiz, Inc........................................ 1,062
(a,d)22,000 Cadiz, Inc. (Restricted Shares)................... 168
53,500 Chase Manhattan Bank.............................. 3,641
(a)232,050 Data General Corp................................. 3,814
68,900 Enhance Financial Services Group, Inc............. 2,067
65,250 Finova Group, Inc................................. 3,520
(a)127,200 GenRad, Inc....................................... 2,003
30,300 Georgia Pacific Group............................. 1,774
46,800 Goodrich (BF) Co.................................. 1,679
143,100 Houghton Mifflin Co............................... 6,762
23,350 IBP, Inc.......................................... 680
(a)83,000 InteliData Technologies Corp...................... 109
72,130 MBIA, Inc......................................... 4,729
36,900 Mellon Bank Corp.................................. 2,537
(a)86,000 Noble Drilling Corp............................... 1,113
(a)147,815 Ocean Energy, Inc................................. 933
120,100 Penncorp Financial Group, Inc..................... 120
66,150 Pharmacia & Upjohn, Inc........................... 3,746
147,300 Philip Morris Cos., Inc........................... 7,881
31,000 Tecumseh Products Co., Class A.................... 1,445
67,700 UST Corp.......................................... 1,595
87,300 Unicom Corp....................................... 3,367
(a)135,400 WorldCorp, Inc.................................... 19
----------
79,388
----------
TOTAL COMMON STOCKS (Cost $195,608)........................... 225,446
----------
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- --------------------------------------------------------------------------
PREFERRED STOCKS (0.8%)
GERMANY (0.8%)
38,660 Volkswagen AG (Cost $1,125)....................... $ 1,925
----------
</TABLE>
<TABLE>
<CAPTION>
NO. OF
RIGHTS
<C> <S> <C>
- ----------
RIGHTS (0.0%)
SPAIN (0.0%)
(a)75,400 Telefonica, expiring 1/30/99 (Cost $0)............ 67
----------
TOTAL FOREIGN & U.S. SECURITIES (94.0%)
(Cost $196,733)............................................. 227,438
----------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT
(000)
<C> <S> <C>
- ----------
SHORT-TERM INVESTMENT (5.8%)
REPURCHASE AGREEMENT (5.8%)
$ 13,990 Chase Securities, Inc. 4.45%, dated 12/31/98, due
1/04/99, to be repurchased at $13,997,
collateralized by U.S. Treasury Bonds, 11.25%,
due 12/15/15 valued at $14,274 (Cost $13,990)... $ 13,990
----------
FOREIGN CURRENCY (0.0%)
FRF 123 French Franc (Cost $22)........................... 22
----------
TOTAL INVESTMENTS (99.8%)(Cost $210,745)...................... 241,450
----------
</TABLE>
<TABLE>
<S> <C> <C>
OTHER ASSETS (0.4%)
Dividends Receivable.................................. $ 444
Receivable for Portfolio Shares Sold.................. 422
Foreign Withholding Tax Reclaim Receivable............ 83
Interest Receivable................................... 2
Other................................................. 8 959
----------
LIABILITIES ( - 0.2%)
Investment Advisory Fees Payable...................... (400)
Administrative Fees Payable........................... (25)
Payable for Investments Purchased..................... (22)
Custodian Fees Payable................................ (12)
Distribution Fees Payable............................. (7)
Directors' Fees and Expenses Payable.................. (7)
Bank Overdraft Payable................................ (3)
Other Liabilities..................................... (62) (538)
---------- --------
NET ASSETS (100%)................................................... $241,871
--------
--------
</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.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
GLOBAL EQUITY PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMOUNT
(000)
<S> <C> <C>
- ------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Paid in Capital......................................... $204,207
Overdistributed Net Investment Income................... (6)
Accumulated Net Realized Gain........................... 6,959
Unrealized Appreciation on Investments and Foreign
Currency Translations................................. 30,711
--------
NET ASSETS.............................................. $241,871
--------
--------
</TABLE>
<TABLE>
<S> <C>
CLASS A:
- ------------------------------------------------------------------
NET ASSETS........................................................ $228,748
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 11,031,229 outstanding $0.001 par value shares
(authorized 500,000,000 shares)................................. $20.74
--------
--------
CLASS B:
- ------------------------------------------------------------------
NET ASSETS........................................................ $13,123
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 636,107 outstanding $0.001 par value shares
(authorized 500,000,000 shares)................................. $20.63
--------
--------
</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...................... $ 16,871 7.0%
Consumer Goods......................... 65,572 27.1
Energy................................. 17,586 7.3
Finance................................ 45,409 18.8
Materials.............................. 25,511 10.5
Multi-Industry......................... 2,653 1.1
Services............................... 53,836 22.2
--------- ---
$ 227,438 94.0%
--------- ---
--------- ---
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
Global Equity Portfolio
52
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
INTERNATIONAL EQUITY PORTFOLIO
COMPOSITION OF NET ASSETS (AT DECEMBER 31, 1998)
- --------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Australia 1.6%
Belgium 0.4%
Canada 3.2%
Denmark 1.6%
Finland 0.6%
France 11.5%
Germany 7.3%
Hong Kong 1.8%
Italy 4.2%
Japan 17.8%
Netherlands 4.4%
New Zealand 0.4%
Portugal 0.3%
Singapore 0.9%
Spain 2.7%
Sweden 2.8%
Switzerland 8.7%
United Kingdom 24.2%
Other 5.6%
</TABLE>
COMPARISON OF THE CHANGE IN VALUE OF A $500,000** INVESTMENT
- ---------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY
PORTFOLIO-CLASS A MSCI EAFE INDEX(1)
<S> <C> <C>
8/04/89* $500,000 $500,000
10/31/90 $505,380 $417,750
10/31/91 $541,635 $446,800
10/31/92 $516,940 $387,750
12/31/92 $524,830 $393,450
12/31/93 $769,000 $521,500
12/31/94 $864,150 $562,100
12/31/95 $965,860 $625,111
12/31/96 $1,155,555 $662,930
12/31/97 $1,316,293 $674,730
12/31/98 $1,557,175 $809,676
* Commencement of operations
** Minimum investment
</TABLE>
In accordance with SEC regulations, Portfolio performance shown assumes that all
recurring fees (including management fees) were deducted and all dividends and
distributions were reinvested. The performance of Class B shares will vary based
upon the different inception dates and fees assessed to that class.
PERFORMANCE COMPARED TO THE MORGAN STANLEY
CAPITAL INTERNATIONAL (MSCI) EAFE INDEX(1)
- -----------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
------------------------------------------------
AVERAGE ANNUAL AVERAGE ANNUAL
ONE YEAR FIVE YEARS SINCE INCEPTION
---------- ----------------- -----------------
<S> <C> <C> <C>
PORTFOLIO -- CLASS A.... 18.30% 15.14% 12.83%
PORTFOLIO -- CLASS B.... 18.13 N/A 16.76
INDEX -- CLASS A........ 20.00 9.19 5.45
INDEX -- CLASS B........ 20.00 N/A 9.00
</TABLE>
1. The MSCI EAFE Index is an unmanaged index of common stocks and includes
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 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 year ended December 31, 1998, the Portfolio had a total return of 18.30%
for the Class A shares and 18.13% for the Class B shares compared to 20.00% for
the Morgan Stanley Capital International (MSCI) EAFE Index (the "Index"). For
the five-year period ended December 31, 1998, the average annual total return of
Class A shares was 15.14% compared to 9.19% for the Index. From inception on
August 4, 1989 through December 31, 1998, the average annual total return of
Class A shares was 12.83% compared to 5.45% for the Index. From inception on
January 2, 1996 through December 31, 1998, the average annual total return of
Class B shares was 16.76% compared to 9.00% for the Index.
Market behavior in the final quarter of 1998 was somewhat perplexing with
markets almost regaining all-time highs in the face of a deteriorating economic
outlook, a torrent of corporate profit warnings and worrying signs of a change
in the political landscape in Europe with Mr. Lafontaine's socialist bent. There
is clear empirical evidence of a sharp slowdown in industrial production in
Germany and the U.K. while the economic news in Japan goes from bad to worse.
The structural imbalances in the U.S. are as apparent as ever with U.S.
households actually dis-saving in the face of a burgeoning current account
deficit. U.S. growth is being fueled by consumer spending which in turn seems
dangerously dependent on an escalating stock market.
With the benefit of hindsight we were too slow to appreciate the calming effect
of the policy response of
- ------------------------------------------------------------
CERTAIN INFORMATION APPEARING IN THIS INVESTMENT OVERVIEW IS UNAUDITED.
ACCORDINGLY, THE REPORT OF INDEPENDENT ACCOUNTANTS APPEARING ELSEWHERE IN THIS
REPORT DOES NOT EXTEND TO THIS INFORMATION. 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.
- --------------------------------------------------------------------------------
International Equity Portfolio
53
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
INTERNATIONAL EQUITY PORTFOLIO (CONT.)
lower interest rates from the Fed and the European central banks and were
surprised at investors' willingness to uphold the falling bond yield/rising
equity prices paradigm, even in the face of mounting deflationary forces. As a
result we missed an opportunity to add to our holdings in financials and
consequently paid the price in the fourth quarter performance.
However, the Japanese experience is a salutary reminder that this relationship
of falling bond yields/rising equity prices does not hold in a world of price
deflation and corporate profits recession and where monetary and fiscal stimulus
have proven to be ineffective weapons. We therefore see the fall in short-term
rates in the U.S. and Europe as nothing more than a temporary panacea and it
does nothing to prevent the disinflationary forces unleashed from structural
over-capacity in Japan and South East Asia reverberating throughout the globe.
Having missed the fourth quarter rally we see little rationale for changing our
defensive stance now. With consensus European earnings estimates of 12%+ for
both 1999 and 2000 continuing to look wildly optimistic we remain extremely
cautious and continue to cover companies which we believe have resilient cash
flow streams and low capital intensity. We therefore envisage no major change to
our large overweight position in the household goods and beverage & tobacco
sectors. While these sectors will not be totally immune to global slowdown they
should fare much better than companies with high operational leverage exposed to
tradable goods.
Likewise we are unlikely to change our large underweight position in the
financial sector. We flatly disagree with the market view that banks are no
longer cyclical, high teen return on equity's are sustainable and surplus
capital can be reinvested at current rates of return. To our mind banks are 20
to 1 leveraged plays on the economy and will therefore not be immune to a global
economic slowdown.
The U.K. is the one market where industrial stocks appear to be discounting a
recession with valuations back to levels last seen in 1991/1992 and we are
finding compelling value among some of the building material stocks in
particular (RMC, Blue Circle). Liquidity is, however, a major constraint with
many of these stocks now falling into the mid cap category.
In Japan, we think the current appreciation of the yen is unsustainable for any
length of time as it is an outright threat to any hope of economic recovery in
Japan. Having reduced our exposure to the blue chip exporters early last year in
favor of quality domestic franchise stocks (e.g. Koa, Central Japan Railway,
Japan Tobacco, Takefuji) we may now look to reweight back towards some of the
quality exporters (e.g. Rohm, Pioneer, Sony) which are now starting to offer
exceptional value after the yen induced period of relative and absolute
underperformance. The situation with the recapitalization of the banks remains
as clear as mud and it would be foolhardy to commit funds before one can be sure
that the injection of public funds will not result in massive dilution. Evidence
that banks are going to start to reprice for credit risk is also a necessary
precondition to improving the economic viability of the banking sector.
Dominic Caldecott
PORTFOLIO MANAGER
January 1999
- --------------------------------------------------------------------------------
International Equity Portfolio
54
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
INTERNATIONAL EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- --------------------------------------------------------------------------------
COMMON STOCKS (93.0%)
AUSTRALIA (1.6%)
1,540,750 Brambles Industries Ltd.......................... $ 37,528
6,910,300 Fosters Brewing Group Ltd........................ 18,715
-----------
56,243
-----------
BELGIUM (0.4%)
238,050 G.I.B. Holdings Ltd.............................. 12,469
-----------
CANADA (3.2%)
534,980 Potash Corp. of Saskatchewan, Inc................ 34,285
(a)2,675,300 Renaissance Energy Ltd........................... 30,373
2,149,800 TELUS Corp....................................... 45,458
-----------
110,116
-----------
DENMARK (1.6%)
43,050 Danisco A/S...................................... 2,334
198,800 Den Danske Bank.................................. 26,707
264,108 Unidanmark A/S, plc Class A (Registered)......... 23,861
-----------
52,902
-----------
FINLAND (0.6%)
342,400 Huhtamaki Oyj, Series 1.......................... 13,114
1,318,967 Merita Ltd., plc, Class A........................ 8,385
-----------
21,499
-----------
FRANCE (11.5%)
347,060 Alcatel Alsthom.................................. 42,481
293,100 Assurances Generales de France (Bearer).......... 17,508
12,760 Bongrain......................................... 5,709
219,182 Cie de Saint Gobain.............................. 30,947
556,300 Elf Aquitaine.................................... 64,310
(c)393,515 France Telecom................................... 31,266
207,996 Groupe Danone.................................... 59,554
1,455,970 Rhone-Poulenc, Class A........................... 74,934
293,254 Schneider........................................ 17,790
154,686 Scor............................................. 10,228
249,500 Total, Class B................................... 25,271
1,142,298 Usinor Sacilor................................... 12,684
-----------
392,682
-----------
GERMANY (5.9%)
1,058,300 BASF AG.......................................... 40,365
709,700 Bayer AG......................................... 29,795
36,950 Karstadt AG...................................... 19,338
1,298,120 RWE AG........................................... 71,678
7,670 Varta AG......................................... 1,247
(c)65,610 Viag AG.......................................... 38,787
-----------
201,210
-----------
HONG KONG (1.8%)
14,554,155 Hong Kong Land Holdings Ltd...................... 17,174
15,741,837 Jardine Strategic Holdings, Inc.................. 22,826
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- --------------------------------------------------------------------------------
(c)3,561,600 Swire Pacific Ltd., Class A...................... $ 15,952
6,842,500 Swire Pacific Ltd., Class B...................... 4,548
-----------
60,500
-----------
ITALY (4.2%)
(c)5,842,300 Mediaset S.p.A................................... 47,460
15,380,487 Telecom Italia S.p.A. (RNC)...................... 96,972
-----------
144,432
-----------
JAPAN (17.8%)
(c)2,807,000 Aisin Seiki Co., Ltd............................. 30,968
679,600 Aoyama Trading Co., Ltd.......................... 19,030
747,000 Canon, Inc....................................... 15,986
(c)3,522 Central Japan Railway Co......................... 18,663
316,000 Chudenko Corp.................................... 6,749
1,604,000 Daibiru Corp..................................... 10,234
288,000 Daiichi Pharmaceutical Co. Ltd................... 4,872
1,211,000 Eisai Co., Ltd................................... 23,608
1,536,000 Fuji Photo Film Ltd.............................. 57,166
816,000 Fujisawa Pharmaceutical Co., Ltd................. 11,570
2,887,000 Hitachi Ltd...................................... 17,908
4,539 Japan Tobacco, Inc............................... 45,450
3,144,000 Kao Corp......................................... 71,043
(c)3,899,000 NEC Corp......................................... 35,932
3,547,000 Nichido Fire & Marine Insurance Co., Ltd......... 17,444
8,349 Nippon Telegraph & Telephone Corp................ 64,513
729,000 Ono Pharmaceutical Co., Ltd...................... 22,804
34,000 Rohm Co.......................................... 3,100
3,034,000 Shionogi & Co., Ltd.............................. 22,234
34,800 Sony Corp........................................ 2,538
(c)4,132,000 Sumitomo Marine & Fire Insurance Co., Ltd........ 26,216
31,000 TDK Corp......................................... 2,838
306,400 Takefuji Corp.................................... 22,400
(c)2,201,000 Toyo Seikan Kaisha Ltd........................... 37,408
(c)565,000 Yamanouchi Pharmaceutical Co..................... 18,224
-----------
608,898
-----------
NETHERLANDS (4.4%)
996,500 Akzo Nobel N.V................................... 45,384
502,750 Buhrmann N.V..................................... 8,998
148,400 CSM N.V.......................................... 8,569
826,060 Hollandsche Beton Groep N.V...................... 10,208
620,739 ING Groep N.V.................................... 37,859
561,000 Philips Electronics N.V.......................... 37,652
-----------
148,670
-----------
NEW ZEALAND (0.4%)
5,607,200 Lion Nathan Ltd.................................. 14,260
(a)392,500 Smith City Group Ltd............................. -
-----------
14,260
-----------
PORTUGAL (0.3%)
291,410 Cimentos de Portugal............................. 9,299
-----------
</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
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
INTERNATIONAL EQUITY PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------------
<C> <S> <C>
SINGAPORE (0.9%)
(c)446,090 Singapore Press Holdings Ltd..................... $ 4,840
3,760,000 United Overseas Bank Ltd. (Foreign).............. 24,155
-----------
28,995
-----------
SPAIN (2.7%)
3,879,500 Iberdrola........................................ 72,666
463,481 Telefonica....................................... 20,633
-----------
93,299
-----------
SWEDEN (2.8%)
1,201,800 ForeningsSparbanken AB........................... 31,174
(c)75 Mandamus AB (units).............................. 1
(c)4,999,800 Nordbanken Holding AB............................ 32,114
1,539,600 Svenska Cellulosa AB, Class B.................... 33,661
-----------
96,950
-----------
SWITZERLAND (8.7%)
48,457 Cie Financiere Richemont AG, Class A............. 68,614
22,540 Forbo Holding AG (Registered).................... 9,861
20,531 Holderbank Financiere Glarus AG, Class B
(Bearer)....................................... 24,341
44,645 Nestle (Registered).............................. 97,330
11,524 Schindler Holding AG (Participating
Certificates).................................. 18,485
(a)104,370 Swisscom AG (Registered)......................... 43,757
117,715 Union Bank of Switzerland AG (Registered)........ 36,220
-----------
298,608
-----------
UNITED KINGDOM (24.2%)
6,217,500 Aggreko plc...................................... 18,828
1,436,200 Allied Domecq plc................................ 13,250
(a)1,419,069 Allied Zurich plc................................ 21,167
2,675,400 BG plc........................................... 16,882
18,444,799 BTR plc.......................................... 38,055
3,289,567 Bank of Scotland................................. 39,244
16,492,100 Billiton plc..................................... 32,722
5,222,514 Blue Circle Industries plc....................... 26,937
1,528,069 British American Tobacco plc..................... 13,437
2,718,700 British Telecommunications plc................... 40,960
6,869,300 Bunzl plc........................................ 26,859
3,328,000 Burmah Castrol plc............................... 47,620
6,217,500 Christian Salvesen plc........................... 9,414
2,164,600 Commercial Union plc............................. 33,891
2,800,800 Diageo plc....................................... 31,875
3,566,128 English China Clays plc.......................... 9,672
2,846,900 Great Universal Stores plc....................... 30,008
1,870,200 Imperial Tobacco Group plc....................... 20,039
5,026,451 John Mowlem & Co. plc............................ 8,238
2,497,750 Lonrho Africa plc................................ 2,327
2,745,950 Lonrho plc....................................... 15,031
2,408,068 National Westminster Bank plc.................... 46,437
4,241,700 Premier Farnell plc.............................. 11,292
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- --------------------------------------------------------------------------------
2,751,700 RMC Group plc.................................... $ 37,680
3,433,500 Racal Electronic plc............................. 19,881
4,146,202 Reckitt & Colman plc............................. 54,913
668 Rolls-Royce plc.................................. 3
3,781,700 Royal & Sun Alliance Insurance Group plc......... 30,879
2,561,902 Tate & Lyle plc.................................. 14,109
13,668,200 WPP Group plc.................................... 83,178
515,900 Williams plc..................................... 2,929
4,878,100 Wolseley plc..................................... 30,842
-----------
828,599
-----------
TOTAL COMMON STOCKS (Cost $2,569,254).............................. 3,179,631
-----------
PREFERRED STOCKS (1.4%)
GERMANY (1.4%)
949,500 Volkswagen AG (Cost $19,272)..................... 47,299
-----------
</TABLE>
<TABLE>
<CAPTION>
NO. OF
RIGHTS
<C> <S> <C>
- --------------
RIGHTS (0.0%)
SPAIN (0.0%)
(a)463,481 Telefonica, expiring 1/30/99 (Cost $0)........... 412
-----------
TOTAL FOREIGN SECURITIES (94.4%) (Cost $2,588,526)................. 3,227,342
-----------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT
(000)
<C> <S> <C>
- --------------
SHORT-TERM INVESTMENTS (6.1%)
REPURCHASE AGREEMENTS (6.1%)
$ 82,684 Chase Securities, Inc., 4.45%, dated 12/31/98,
due 1/04/99, to be repurchased at $82,725,
collateralized by Federal National Mortgage
Assoc., 4.75%, due 11/14/03, valued at
$83,424........................................ $ 82,684
126,728 Goldman Sachs & Co., 4.70%, dated 12/31/98, due
1/04/99, to be repurchased at $126,728,
collateralized by U.S. Treasury Notes,
5.50%-5.75%, due 3/31/03-8/15/03, valued at
$131,887....................................... 126,728
-----------
TOTAL SHORT-TERM INVESTMENTS (Cost $209,412)....................... 209,412
-----------
FOREIGN CURRENCY (3.0%)
GBP 104 British Pound.................................... 174
DEM 129,420 German Mark...................................... 77,675
JPY 2,704,459 Japanese Yen..................................... 23,965
NLG 9 Netherlands Guilder.............................. 5
NZD 2 New Zealand Dollar............................... 1
-----------
TOTAL FOREIGN CURRENCY (Cost $99,908).............................. 101,820
-----------
</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.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
INTERNATIONAL EQUITY PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
(000)
<S> <C> <C>
- ---------------------------------------------------------------------------------
TOTAL INVESTMENTS (103.5%) (Cost $2,897,846)......................... $3,538,574
----------
OTHER ASSETS (0.5%)
Cash................................................... $ 1
Dividends Receivable................................... 8,055
Receivable for Portfolio Shares Sold................... 5,826
Foreign Withholding Tax Reclaim Receivable............. 2,231
Interest Receivable.................................... 97
Other.................................................. 156 16,366
----------
LIABILITIES ( - 4.0%)
Collateral on Securities Loaned........................ (126,728)
Investment Advisory Fees Payable....................... (6,503)
Net Unrealized Loss on Foreign Currency Exchange
Contracts............................................ (1,939)
Payable for Portfolio Shares Redeemed.................. (1,000)
Custodian Fees Payable................................. (219)
Administrative Fees Payable............................ (429)
Directors' Fees & Expenses Payable..................... (164)
Distribution Fees Payable.............................. (9)
Other Liabilities...................................... (375) (137,366)
---------- ----------
NET ASSETS (100%).................................................... $3,417,574
----------
----------
NET ASSETS CONSIST OF:
Paid in Capital...................................................... $2,741,497
Accumulated Net Investment Loss...................................... (7,162)
Accumulated Net Realized Gain........................................ 44,293
Unrealized Appreciation on Investments on Foreign Currency
Translations....................................................... 638,946
----------
NET ASSETS........................................................... $3,417,574
----------
----------
</TABLE>
<TABLE>
<CAPTION>
AMOUNT
(000)
<S> <C> <C>
- ---------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
CLASS A:
- -----------------------------------------------------------------------
NET ASSETS............................................................. $3,400,498
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 186,367,731 outstanding $0.001 par value shares
(authorized 500,000,000 shares)...................................... $18.25
----------
----------
CLASS B:
- -----------------------------------------------------------------------
NET ASSETS............................................................. $17,076
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 937,228 outstanding $0.001 par value shares (authorized
500,000,000 shares).................................................. $18.22
----------
----------
</TABLE>
- ------------------------------------------------------------
FOREIGN CURRENCY EXCHANGE CONTRACT INFORMATION:
Under the terms of foreign currency exchange contracts open at December 31,
1998, the Portfolio is obligated to deliver foreign currency in exchange for
U.S. dollars or foreign currency 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>
- --------------- --------- ----------- ------------ --------- ------------
JPY 10,700,000 $ 96,135 4/13/99 U.S.$ 92,749 $ 92,749 $ (3,386)
GBP 83,000 137,599 11/30/99 DEM 227,893 139,046 1,447
--------- --------- ------------
$ 233,734 $ 231,795 $ (1,939)
--------- --------- ------------
--------- --------- ------------
</TABLE>
- ------------------------------------------------------------
(a) -- Non-income producing security
(c) -- All or a portion of security on loan at December 31, 1998 -- See Note
A-11 to financial statements.
RNC -- Non-Convertible Savings Shares
- ------------------------------------------------------------
SUMMARY OF FOREIGN SECURITIES BY INDUSTRY CLASSIFICATION
<TABLE>
<CAPTION>
VALUE PERCENT OF
INDUSTRY (000) NET ASSETS
<S> <C> <C>
- ---------------------------------------------------------------------
Capital Equipment...................... $ 192,257 5.6%
Consumer Goods......................... 830,605 24.3
Energy................................. 328,801 9.6
Finance................................ 513,297 15.0
Materials.............................. 559,602 16.4
Multi-Industry......................... 110,153 3.2
Services............................... 692,627 20.3
----------- ---
$ 3,227,342 94.4%
----------- ---
----------- ---
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
International Equity Portfolio
57
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
INTERNATIONAL MAGNUM PORTFOLIO
COMPOSITION OF NET ASSETS (AT DECEMBER 31, 1998)
- --------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Australia 1.7%
Belgium 0.7%
Denmark 0.7%
Finland 3.8%
France 7.2%
Germany 8.2%
Hong Kong 1.4%
Ireland 1.7%
Italy 5.0%
Japan 17.7%
Malaysia 0.1%
Netherlands 3.4%
New Zealand 0.1%
Norway 1.2%
Singapore 0.3%
Spain 3.1%
Sweden 3.9%
Switzerland 8.9%
United Kingdom 16.0%
Other 14.9%
</TABLE>
COMPARISON OF THE CHANGE IN VALUE OF A $500,000** INVESTMENT
- ---------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
INTERNATIONAL MAGNUM PORTFOLIO-CLASS INTERNATIONAL MAGNUM PORTFOLIO-CLASS
A B MSCI EAFE INDEX(1)
<S> <C> <C> <C>
3/15/1996* $500,000 $100,000 $500,000
12/31/96 $541,250 $107,900 $526,300
12/31/97 $576,864 $114,730 $535,668
12/31/98 $619,148 $122,910 $642,802
* Commencement of operations
** Minimum investment
</TABLE>
In accordance with SEC regulations, Portfolio performance shown assumes that all
recurring fees (including management fees) were deducted and all dividends and
distributions were reinvested. The performance of Class B shares will vary based
upon the different fees assessed to that class. The MSCI EAFE Index value at
December 31, 1998 assumes a minimum initial investment of $500,000; if a minimum
initial investment of $100,000 (the minimum investment for Class B shares) is
assumed the value at December 31, 1998 would be $128,561.
PERFORMANCE COMPARED TO THE MORGAN STANLEY
CAPITAL INTERNATIONAL (MSCI) EAFE INDEX(1)
- -----------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
----------------------------------
AVERAGE ANNUAL
ONE YEAR SINCE INCEPTION
---------- ----------------------
<S> <C> <C>
PORTFOLIO -- CLASS A.............. 7.33% 7.94%
PORTFOLIO -- CLASS B.............. 7.13 7.65
INDEX............................. 20.00 9.81
</TABLE>
1. The MSCI EAFE Index is an unmanaged index of common stocks and includes
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 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 year ended December 31, 1998, the Portfolio had a total return of 7.33%
for the Class A shares and 7.13% for the Class B shares compared to 20.00% for
the Morgan Stanley Capital International (MSCI) EAFE Index (the "Index"). From
inception on March 15, 1996 through December 31, 1998, the average annual total
return of Class A shares was 7.94% and 7.65% for Class B shares compared to
9.81% for the Index.
1998 was a volatile year for the international markets. Despite solid results
seen in most major market indices at year-end, capital market strength was not
experienced broadly or equally among countries, sectors and styles.
Specifically, although the Index ended the year up 20.0%, most of the Index
gains were attributable to strong first and fourth quarter performances by
European stocks, which currently comprise 73% of the Index. While the European
markets rose 28.5% for the year in U.S. dollar terms (+22.3% in local currency
terms), Japan posted a mere 5.1% return in U.S. dollar terms (but fell 8.9% in
yen terms), and Asia ex-Japan fell 6.6% (-2.3% local). Even within the European
markets, there was a wide disparity among countries (Finland +121.6% vs. Norway
- -30.1%), sectors (Telecommunications +73.0% vs. Energy Equipment and Services
- -48.0%), styles (MSCI Europe Growth +32.7% vs. MSCI Europe Value +24.3%) and
even size (MSCI Europe +28.5% vs. MSCI Europe Small Cap +3.3%). Indeed, it was a
challenging environment for stock pickers, and as a result, the majority of
active managers underperformed the Index for the year -- a similar trend to that
seen in the U.S. for 1998.
- ------------------------------------------------------------
CERTAIN INFORMATION APPEARING IN THIS INVESTMENT OVERVIEW IS UNAUDITED.
ACCORDINGLY, THE REPORT OF INDEPENDENT ACCOUNTANTS APPEARING ELSEWHERE IN THIS
REPORT DOES NOT EXTEND TO THIS INFORMATION. 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.
- --------------------------------------------------------------------------------
International Magnum Portfolio
58
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
INTERNATIONAL MAGNUM PORTFOLIO (CONT.)
Against this backdrop, the Portfolio had a disappointing year, underperforming
the Index primarily due to our stock selection in Europe. The majority of the
Portfolio's underperformance occurred during the second half of the year when
investors, spooked by the mid-summer Russian debt default and the near collapse
of a U.S. hedge fund, flocked for the safety and liquidity of large and mega cap
global franchise names. Performance was also hurt by our currency hedging, as
the yen reversed its weakening trend in September and continued to strengthen
through year end. On the positive side, stock selection in Japan and Asia was
strong, outperforming their respective local benchmarks. Regional allocation
policy, in which we were overweight or neutral in Europe and underweight in
Japan and Asia virtually all year, contributed to performance for most of the
year, but was less successful from September through November, when Asia and
Japan both outperformed Europe.
The Portfolio's European holdings underperformed the European Index for the
fourth quarter and year. While companies like Telecom Italia, Nestle, Imperial
Tobacco and France Telecom were strong performers for the year, the Portfolio
was hurt by holdings in oil (Premier Oil, Total) as well as by weak stock
selection, especially in the U.K. Attracted by their quality franchises and
cheap multiples, the Portfolio has increased exposure over the last 18 months to
small/mid cap companies, many of which are British. In the recent flight to
liquidity, however, these small/mid cap names were shunned by investors, often
for reasons unrelated to fundamentals. As a result, the valuation gap between
small/mid sized companies and their larger peers has now reached the widest
point in over thirteen years. Making matters worse, the recent surge in large
and mega cap growth stocks -- in which we are underweight -- made 1998 one of
the four worst years on record for value investors. These factors are
responsible for the majority of the Portfolio's underperformance.
While we are disappointed by our European results, we believe that with
valuation gaps so extreme and earnings expectations still very rosy, our
European stocks are well positioned to navigate the choppy waters ahead. We
remain cautiously optimistic about the outlook for Europe in 1999, as we expect
demand for equities to continue to rise and merger and restructuring activity to
remain brisk. However, risks include the new Euro currency, which has shown
signs of possible strengthening versus the U.S. dollar and would hurt the
exporters which have led the European recovery. Furthermore, there are signs of
a more dramatic than expected economic slowing in Europe, which would put
further pressure on already high unemployment rates. Finally, valuations
particularly in the largest companies are at stratospheric levels, making them
extremely vulnerable to earnings disappointments which have become increasingly
likely in this volatile global financial environment.
Turning to Asia ex-Japan, the markets there finally found a bottom in the third
quarter and rebounded in the final quarter of the year on the back of increased
global liquidity and favorable interest rate policies. With the exception of
Australia, however, Asian markets ended the year in negative territory. The
Asian markets have been suffering for well over a year, with the situation in
the emerging market nations of South Korea, Thailand and Indonesia so dire they
were forced to adopt austere monetary and fiscal policies under IMF guidance.
These three nations, (which are not in our investment universe), led an Asian
fourth quarter rally just as they had led the downturn sparked by the Thai baht
devaluation in late 1997. During the fourth quarter Asian markets were helped by
stronger currencies and lower interest rates, and recent consumer and business
data point to increasing economic activity. These factors have contributed to
increasing stability and should benefit the region as a whole in the new year.
We remain cautious, however, about the outlook for China and Hong Kong. China
has seen several corporate defaults in recent weeks and the recent volatility in
Latin America raises questions about the strength of the renminbi and the
sustainability of the Hong Kong dollar peg.
Overall, we maintained a defensive portfolio in Asia during the year, and
although our holdings outperformed relative to the region, most positions were
still down for the year. However, the Portfolio was helped by the fact that our
Asian holdings were a small (less than 5%) portion of the Portfolio in absolute
terms, and underweight versus the Index on a relative basis. The only bright
spot in the region was Australia, which rose 6% for the year as the domestic
economy exhibited strong economic fundamentals -- low inflation, sound monetary
policy, a budget surplus and a healthy banking system. Additionally, many Aussie
companies are well managed with an eye toward increasing profitability. Telstra,
the telecom company, Fosters, the beer manufacturer, and National Australia Bank
were all strong performers for the fourth quarter and year.
Finally, despite a new Prime Minister and a series of economic stimulus and bank
bailout packages, the Japanese economy and stock market continued to languish,
with conditions exacerbated by year end gyrations in the value of the yen. The
story in Japan has
- --------------------------------------------------------------------------------
International Magnum Portfolio
59
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
INTERNATIONAL MAGNUM PORTFOLIO (CONT.)
in many ways changed little from a year ago; consumer and business sentiment
remain at depressed levels while the nation's credit crunch and deflationary
spiral have continued to worsen. In July, Japanese voters flocked to the polls
to replace Prime Minister Hashimoto with a new leader, Mr. Obuchi. Obuchi
declared a 60 trillion yen bank rescue package in October, doubling the efforts
of his predecessor including a new scheme to nationalize troubled banks. Late in
the year, both Long Term Credit Bank and Nippon Credit Bank were nationalized, a
first in post WWII history for Japan. Ironically, we view these bankruptcies as
a positive, as they show that Japan has finally stopped propping up its weakest
banks at the expense of healthier ones -- a much needed change. However, these
two banks are just a start and other significant structural problems remain; the
government thus far has been unable or unwilling to take the next steps and
implement the critical structural changes needed to revive the economy.
Our strategy for Japan was highly successful for most of the year, but reversed
slightly in the fourth quarter. In our equity investments, we focused on blue
chip exporters and avoided banks and more domestically oriented stocks. We
outperformed the local Japanese index for the year, although as in Asia, the
market fell for the year in local currency terms, hitting a 12-year low in
October as sentiment deteriorated about the future for the Japanese economy. Our
relative outperformance would have been greater except that in the final quarter
of the year, the yen's rapid appreciation hurt our export-oriented stocks as
investors became concerned that the exporters' profits might suffer. The yen hit
a low of 147 Y/$ in early August, and then began to strengthen, rising sharply
and suddenly in early October to end the year at nearly 110 Y/$ -- 15% higher
versus the dollar than it had begun the year. The yen's abrupt moves caused a
second problem for the Portfolio in the latter part of the year. While our hedge
versus our yen exposure contributed to performance for much of the year, we
realized a loss when we removed the last of our yen hedges in early December.
As we enter 1999, we are cautiously optimistic that this year will become a true
inflection point. With the domestic financial system in a shambles, Japanese
corporations' off-shore search for capital combined with liberalization of
Japan's pension investment guidelines are forcing much of corporate Japan to
adopt "international" accounting standards. As a result, we anticipate that the
pace of corporate operational and financial restructuring should pick up, with
the private sector finally undergoing real structural changes in areas such as
wages (pay for performance not seniority), employment efficiencies (ending
lifetime employment), balance sheet construction (deleveraging) and shareholder
value (focus on return on equity (ROE) not market share). In the public realm,
Prime Minister Obuchi has provided a platform for significant tax cuts and
economic stimulus packages to support Japan on a macro level. Nonetheless, GDP
growth is expected to be flat to negative for 1999, and further bank failures
are likely. Japan also remains vulnerable to any global economic slowdown as
well as a stronger yen and higher domestic interest rates. While the overall
backdrop for Japan is admittedly grim, the positive changes we are beginning to
see at the margin should result in long term, sustainable gains for individual
companies and for the nation as a whole. As asset allocators, these changes in
concert with attractive valuations have prompted us to assume a bias toward
increasing our holdings in Japan as equity markets are often leading indicators.
At the micro level, we will remain highly selective in our stock selection,
favoring PC, semiconductor, service, pharmaceutical and select domestic sectors
such as housing and housing related securities, but remain poised to adjust our
holdings should economic conditions warrant it.
In sum, we believe 1999 will be another volatile year in the international
equity markets overall. We reduced our holdings in Europe and are still
underweight Asia relative to the Index, but are moving to a neutral position in
Japan. We are also closely monitoring the global currency situation as we see
potential for dollar weakening against the euro which could further dampen
earnings expectations for the European global franchise names which performed so
strongly over 1998. Overall, we will remain vigilant to find the best
opportunities to put money to work, and adjust our portfolio accordingly.
Francine J. Bovich
PORTFOLIO MANAGER
January 1999
- --------------------------------------------------------------------------------
International Magnum Portfolio
60
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
INTERNATIONAL MAGNUM PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- -----------------------------------------------------------------------------
COMMON STOCKS (83.0%)
AUSTRALIA (1.7%)
16,800 Brambles Industries Ltd.......................... $ 409
129,800 Colonial Ltd..................................... 446
29,600 Commonwealth Bank Of Australia................... 420
171,800 Fosters Brewing Group Ltd........................ 465
18,960 Lend Lease Corp., Ltd............................ 256
32,580 National Australia Bank Ltd...................... 491
69,800 News Corp., Ltd.................................. 461
148,600 Oil Search Ltd................................... 150
40,250 Rio Tinto Ltd.................................... 477
(a)143,800 Telstra Corp., Ltd............................... 672
65,500 WMC Ltd.......................................... 198
34,200 Westpac Banking Corp............................. 229
72,950 Woolworths Ltd................................... 248
---------
4,922
---------
BELGIUM (0.7%)
41,825 G.I.B. Holdings Ltd.............................. 2,191
---------
DENMARK (0.7%)
22,500 Unidanmark A/S, Class A (Registered)............. 2,033
---------
FINLAND (3.8%)
23,600 Huhtamaki Oyj, Series 1.......................... 904
26,545 KCI Konecranes International..................... 1,206
16,485 Kone Oyj, Class B................................ 1,920
345,010 Merita Ltd., Class A............................. 2,193
89,850 Metra Oyj, Class B............................... 1,561
42,100 Sampo Insurance Co., plc, Class A................ 1,608
121,450 The Rauma Group.................................. 1,774
6,465 Valmet Oyj....................................... 87
---------
11,253
---------
FRANCE (7.2%)
(a)81,900 Bull SA.......................................... 614
(a)66,750 CNP Assurances................................... 2,028
21,641 Cie de Saint Gobain.............................. 3,056
48,350 Cie Generale des Establissements Michelin, Class
B.............................................. 1,934
25,400 Elf Aquitaine.................................... 2,936
6,462 Groupe Danone.................................... 1,850
10,010 Lafarge.......................................... 951
27,100 Legris Industries................................ 1,328
55,000 Rhone-Poulenc, Class A........................... 2,831
20,200 Total, Class B................................... 2,046
13,790 Union des Assurances Federales................... 1,831
---------
21,405
---------
GERMANY (6.1%)
76,700 BASF AG.......................................... 2,926
(c)23,150 Bayer AG......................................... 972
26,330 Bayerische Vereinsbank AG........................ 2,083
6,533 Buderus AG....................................... 2,411
(c)19,561 Philipp Holzmann AG.............................. 3,053
11,145 Plettac AG....................................... 883
35,300 VEBA AG.......................................... 2,091
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- -----------------------------------------------------------------------------
(c)2,110 Viag AG.......................................... $ 1,247
28,380 Volkswagen AG.................................... 2,296
---------
17,962
---------
HONG KONG (1.4%)
50,000 CLP Holdings Ltd................................. 249
110,000 China Telecom Limited............................ 190
134,000 Dairy Farm International Holdings Limited........ 154
24,400 HSBC Holdings plc................................ 608
137,300 Hong Kong & China Gas Co., Ltd................... 175
59,500 Hong Kong Electric Holdings Ltd.................. 180
136,000 Hong Kong Telecommunications Ltd................. 238
121,000 Hutchison Whampoa Ltd............................ 855
79,000 Li & Fung Ltd.................................... 164
55,000 Smartone Telecommunications...................... 153
109,000 Sun Hung Kai Properties Ltd...................... 795
73,000 Swire Pacific Ltd., Class A...................... 327
39,000 Television Broadcasts Ltd........................ 101
22,000 Vtech Holdings Ltd............................... 96
---------
4,285
---------
IRELAND (1.7%)
136,461 Bank of Ireland.................................. 3,041
443,300 Greencore Group plc.............................. 2,048
---------
5,089
---------
ITALY (5.0%)
(c)53,625 Banca Popolare Di Bergamo S.p.A.................. 1,304
23,900 Italgas.......................................... 130
318,020 Magneti Marelli S.p.A............................ 551
(c)195,115 Marzotto (Gaetano) & Figli S.p.A................. 2,153
(c)359,200 Mediaset S.p.A................................... 2,918
(c)556,300 Sogefi S.p.A..................................... 1,514
980,211 Telecom Italia S.p.A. (RNC)...................... 6,180
---------
14,750
---------
JAPAN (17.7%)
17,000 Aiwa Co., Ltd.................................... 449
128,000 Amada Co., Ltd................................... 620
12,200 Autobacs Seven Co., Ltd.......................... 411
65,000 Canon, Inc....................................... 1,391
(c)85,000 Casio Computer Co., Ltd.......................... 628
60,000 Dai Nippon Printing Co., Ltd..................... 958
228,000 Daicel Chemical Industries Ltd................... 679
128,000 Daifuku Co., Ltd................................. 685
103,000 Daikin Industries Ltd............................ 1,022
12,200 FamilyMart Co., Ltd.............................. 610
44,000 Fuji Machine Manufacturing Co.................... 1,392
40,000 Fuji Photo Film Ltd.............................. 1,489
71,000 Fujitec Co., Ltd................................. 458
132,000 Fujitsu Ltd...................................... 1,760
186,000 Furukawa Electric Co............................. 635
(c)43,800 Hitachi Credit Corp.............................. 974
254,000 Hitachi Ltd...................................... 1,575
60,000 Inabata & Co..................................... 161
154,000 Kaneka Corp...................................... 1,156
53,000 Kurita Water Industries Ltd...................... 779
17,600 Kyocera Corp..................................... 931
</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
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
INTERNATIONAL MAGNUM PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- -----------------------------------------------------------------------------
<C> <S> <C>
</TABLE>
JAPAN (CONT.)
<TABLE>
<C> <S> <C>
72,000 Kyudenko Co., Ltd................................ $ 487
42,000 Lintec Corp...................................... 391
89,000 Matsushita Electric Industrial Co., Ltd.......... 1,576
44,000 Minebea Company, Ltd............................. 504
(c)259,000 Mitsubishi Chemical Corp......................... 546
95,000 Mitsubishi Estate Co., Ltd....................... 853
238,000 Mitsubishi Heavy Industries Ltd.................. 928
(c)65,000 Mitsumi Electric Co., Ltd........................ 1,377
22,000 Murata Manufacturing Co., Ltd.................... 914
(c)170,000 NEC Corp......................................... 1,567
(c)95 NTT Data Corporation............................. 472
57,000 Nifco, Inc....................................... 460
19,000 Nintendo Corp., Ltd.............................. 1,844
32,000 Nippon Pillar Packing............................ 119
190 Nippon Telegraph & Telephone Corp................ 1,468
(c)289,000 Nissan Motor Co., Ltd............................ 886
54,000 Nissha Printing Co., Ltd......................... 330
28,000 Ono Pharmaceutical Co., Ltd...................... 876
163,000 Ricoh Co., Ltd................................... 1,505
37,800 Rinnai Corp...................................... 662
6,000 Rohm Co.......................................... 547
13,000 Ryosan Co........................................ 208
18,000 Sangetsu Co., Ltd................................ 270
65,000 Sankyo Co., Ltd.................................. 1,423
113,000 Sanwa Shutter Corp............................... 495
78,000 Sekisui Chemical Co.............................. 525
55,000 Sekisui House Co.,Ltd............................ 582
109,000 Shin-Etsu Polymer Co., Ltd....................... 570
24,100 Sony Corp........................................ 1,758
36,000 Sumitomo Marine & Fire Insurance Co., Ltd........ 228
72,000 Suzuki Motor Co., Ltd............................ 855
18,000 TDK Corp......................................... 1,648
26,000 Tokyo Electron Ltd............................... 988
288,000 Toshiba Corp..................................... 1,718
47,000 Toyota Motor Corp................................ 1,279
168,000 Tsubakimoto Chain Co............................. 359
59,000 Yamaha Corp...................................... 612
(c)51,000 Yamanouchi Pharmaceutical Co., Ltd............... 1,645
---------
52,238
---------
MALAYSIA (0.1%)
(d) 21,000 Carlsberg Brewery Malaysia Bhd................... 42
(d) 58,000 Guinness Anchor Bhd.............................. 41
(d) 20,143 Nestle (Malaysia) Bhd............................ 56
(d) 7,000 R.J. Reynolds Bhd................................ 6
(d) 20,000 Rothmans of Pall Mall (Malaysia) Bhd............. 82
---------
227
---------
NETHERLANDS (3.4%)
66,400 ABN Amro Holding N.V............................. 1,397
63,535 Akzo Nobel N.V................................... 2,894
23,695 Hollandsche Beton Groep N.V...................... 293
60,120 ING Groep N.V.................................... 3,667
27,300 Philips Electronics N.V.......................... 1,832
---------
10,083
---------
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- -----------------------------------------------------------------------------
NEW ZEALAND (0.1%)
10,000 Telecom Corp. of New Zealand Ltd. (Installment
Receipts Final Installment: NZD 4.15/share due
3/31/99)....................................... $ 22
(c)30,900 Telecom Corp. of New Zealand Ltd................. 134
---------
156
---------
NORWAY (1.2%)
83,350 Saga Petroleum ASA, Class A...................... 762
135,685 Sparebanken...................................... 2,642
---------
3,404
---------
SINGAPORE (0.3%)
37,000 City Developments Ltd............................ 160
60,000 Natsteel Electronics Ltd......................... 153
22,000 Singapore Airlines Ltd. (Foreign)................ 161
89,000 Singapore Technologies Engineering Ltd........... 83
47,000 United Overseas Bank Ltd. (Foreign).............. 302
35,000 Venture Manufacturing Ltd........................ 134
---------
993
---------
SPAIN (3.1%)
190 Banco Bilbao Vizcaya............................. 3
123,300 Banco Bilbao Vizcaya (Registered)................ 1,936
209,500 Iberdrola........................................ 3,924
36,381 Telefonica....................................... 1,620
(c)165,600 Uralita.......................................... 1,846
---------
9,329
---------
SWEDEN (3.9%)
(c)72,300 Autoliv, Inc..................................... 2,599
92,630 BT Industries AB................................. 1,350
513,000 Nordbanken Holding AB............................ 3,295
(c)139,800 Svedala Intrustri AB............................. 2,038
52,250 Svenska Handelsbanken, Class A................... 2,207
---------
11,489
---------
SWITZERLAND (8.9%)
1,090 Bobst AG (Bearer)................................ 1,351
3,788 Cie Financiere Richemont AG, Class A............. 5,364
4,270 Forbo Holding AG (Registered).................... 1,868
2,790 Holderbank Financiere Glarus AG, Class B
(Bearer)....................................... 3,308
2,800 Nestle (Registered).............................. 6,104
2,200 SIG Schweizensche Industrie-Gesellschaft Holding
AG (Registered)................................ 1,299
1,385 Schindler Holding AG (Registered)................ 2,363
(a)5,370 Swisscom AG (Registered)......................... 2,251
(a)1,170 Union Bank of Switzerland AG (Registered)........ 360
8,025 Valora Holding AG (Registered)................... 2,174
---------
26,442
---------
UNITED KINGDOM (16.0%)
1,052,900 Aegis Group plc.................................. 1,524
41,700 Allied Domecq plc................................ 385
(a)94,100 Allied Zurich plc................................ 1,404
</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
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
INTERNATIONAL MAGNUM PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- -----------------------------------------------------------------------------
<C> <S> <C>
</TABLE>
UNITED KINGDOM (CONT.)
<TABLE>
<C> <S> <C>
257,405 BG plc........................................... $ 1,624
12,300 Bank of Ireland.................................. 270
261,270 Bank of Scotland................................. 3,117
138,900 British Telecommunications plc................... 2,093
225,500 Bunzl plc........................................ 882
203,127 Burmah Castrol plc............................... 2,907
266,750 Capital Radio plc................................ 2,596
381,100 Charter plc...................................... 2,092
566,600 Devro plc........................................ 1,631
180,536 Diageo plc....................................... 2,055
228,060 Great Universal Stores plc....................... 2,404
861,600 Halma plc........................................ 1,735
172,250 IMI plc.......................................... 676
304,100 Imperial Tobacco Group plc....................... 3,258
155,700 Lonrho plc....................................... 852
436,700 Morgan Crucible Co............................... 2,005
176,000 Premier Farnell plc.............................. 469
3,311,000 Premier Oil plc.................................. 881
154,020 RMC Group plc.................................... 2,109
270,256 Reckitt & Colman plc............................. 3,579
278,983 Royal & Sun Alliance Insurance Group plc......... 2,278
443,900 Scapa Group plc.................................. 724
36,700 Scottish Media Group plc......................... 429
558,900 WPP Group plc.................................... 3,401
15,700 Williams plc..................................... 89
---------
47,469
---------
TOTAL COMMON STOCKS (Cost $237,525)............................... 245,720
---------
PREFERRED STOCKS (2.1%)
GERMANY (2.1%)
6,516 Dyckerhoff AG.................................... 1,819
6,210 Fresenius AG..................................... 1,304
7,030 Hornbach Holding AG.............................. 420
5,780 Suedzucker AG.................................... 2,619
---------
TOTAL PREFERRED STOCKS (Cost $7,061).............................. 6,162
---------
</TABLE>
<TABLE>
<CAPTION>
NO. OF
RIGHTS
<C> <S> <C>
- -------------
RIGHTS (0.0%)
SPAIN (0.0%)
(a)36,381 Telefonica, expiring 1/30/99 (Cost $0)........... 32
---------
</TABLE>
<TABLE>
<CAPTION>
NO. OF
WARRANTS
<C> <S> <C>
- -------------
WARRANTS (0.0%)
HONG KONG (0.0%)
(a,d)10,650 Hong Kong & China Gas Co., Ltd., expiring 9/30/99
(Cost $0)...................................... --
---------
TOTAL FOREIGN SECURITIES (85.1%) (Cost $244,586).................. 251,914
---------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
<C> <S> <C>
- ------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS (19.3%)
REPURCHASE AGREEMENT (19.3%)
$ 42,177 Chase Securities, Inc. 4.45%, dated 12/31/98, due
1/04/99, to be repurchased at $42,198,
collateralized by U.S. Treasury Bonds, 5.50%,
due 5/31/00, valued at $43,036................. $ 42,177
14,879 Goldman Sachs & Co., 4.70% dated 12/31/98, due
1/04/99 to be repurchased at $14,885,
collateralized by U.S. Treasury Notes, 5.125%,
due 8/31/00, valued at $15,092................. 14,879
---------
TOTAL SHORT-TERM INVESTMENTS (Cost $57,056)........................ 57,056
---------
FOREIGN CURRENCY (0.0%)
GBP -- British Pound.................................... 1
HKD 54 Hong Kong Dollar................................. 7
(d)MYR 17 Malaysian Ringgit................................ 3
ESP 205 Spanish Peseta................................... 1
---------
TOTAL FOREIGN CURRENCY (Cost $13).................................. 12
---------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS (104.4%) (Cost $301,655)....................... 308,982
----------
OTHER ASSETS (1.2%)
Due from Broker.................................... $ 1,627
Receivable for Daily Variation on Futures
Contracts........................................ 1,196
Dividends Receivable............................... 456
Foreign Withholding Tax Reclaim Receivable......... 131
Interest Receivable................................ 14
Receivable for Portfolio Shares Sold............... 2
Other.............................................. 6 3,432
----------
LIABILITIES ( - 5.6%)
Collateral Securities Loaned....................... (14,879)
Net Unrealized Loss on Foreign Currency Exchange
Contracts........................................ (728)
Investment Advisory Fees Payable................... (476)
Payable for Shares Redeemed........................ (170)
Administrative Fees Payable........................ (35)
Custodian Fees Payable............................. (30)
Distribution Fees Payable.......................... (16)
Directors' Fees & Expenses Payable................. (8)
Other Liabilities.................................. (107) (16,449)
---------- ----------
NET ASSETS (100%).................................... $ 295,965
----------
----------
</TABLE>
<TABLE>
<S> <C>
NET ASSETS CONSIST OF:
Paid in Capital.................................................... $ 290,204
Undistributed Net Investment Income................................ 751
Accumulated Net Realized Loss...................................... (2,578)
Unrealized Appreciation on Investments, Foreign Currency
Translations and Futures Contracts............................... 7,588
----------
NET ASSETS......................................................... $ 295,965
----------
----------
</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.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
INTERNATIONAL MAGNUM PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMOUNT
(000)
- -----------------------------------------------------------------------------
<S> <C>
</TABLE>
<TABLE>
<S> <C>
CLASS A:
- -------------------------------------------------------------------
NET ASSETS......................................................... $269,814
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 23,327,170 outstanding $0.001 par value
Shares (authorized 500,000,000 shares)........................... $11.57
----------
----------
CLASS B:
- -------------------------------------------------------------------
NET ASSETS......................................................... $26,151
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 2,266,846 outstanding $0.001 par value shares
(authorized 500,000,000 shares).................................. $11.54
----------
----------
</TABLE>
- ------------------------------------------------------------
FOREIGN CURRENCY EXCHANGE CONTRACT INFORMATION:
Under the terms of foreign currency exchange contracts open at December
31,1998, 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>
- -------------- -------- ----------- ------------ -------- -----------
DEM 3,318 $ 1,992 1/13/99 U.S.$ 1,996 $ 1,996 $ 4
FRF 18,158 3,251 1/13/99 U.S.$ 3,257 3,257 6
GBP 1,727 2,873 1/13/99 U.S.$ 2,901 2,901 28
ITL 2,602,738 1,577 1/13/99 U.S.$ 1,582 1,582 5
JPY 828,188 7,352 1/13/99 U.S.$ 6,889 6,889 (463)
JPY 675,640 5,998 1/13/99 U.S.$ 5,681 5,681 (317)
U.S.$ 5,108 5,108 1/13/99 FRF 28,693 5,137 29
U.S.$ 1,624 1,624 1/13/99 FRF 9,104 1,630 6
U.S.$ 4,961 4,961 1/13/99 DEM 8,349 5,014 53
U.S.$ 2,079 2,079 1/13/99 DEM 3,477 2,088 9
U.S.$ 2,446 2,446 1/13/99 ITL4,058,263 2,459 13
U.S.$ 621 621 1/13/99 ITL1,028,100 623 2
U.S.$ 12,451 12,451 1/13/99 JPY1,429,474 12,690 239
U.S.$ 644 644 1/13/99 JPY 74,354 660 16
U.S.$ 2,028 2,028 1/13/99 JPY 234,822 2,085 57
U.S.$ 8,492 8,492 1/13/99 GBP 5,099 8,480 (12)
U.S.$ 3,765 3,765 1/13/99 GBP 2,245 3,734 (31)
JPY 37,887 337 1/19/99 U.S.$ 316 316 (21)
U.S.$ 328 328 1/19/99 JPY 37,887 336 8
U.S.$ 716 716 1/19/99 GBP 428 712 (4)
JPY 1,128,168 10,034 1/27/99 U.S.$ 9,401 9,401 (633)
U.S.$ 9,756 9,756 1/27/99 JPY1,128,168 10,034 278
-------- -------- -----
$ 88,433 $ 87,705 $ (728)
--------
-------- -------- -----
-------- -----
</TABLE>
- ------------------------------------------------------------
(a) -- Non-income producing security.
(c) -- All or a portion of security on loan at December 31, 1998 -- See Note
A-11 to financial statements
(d) -- Investment is valued at fair value -- see note A-1 to financial
statements.
DEM -- German Mark
FRF -- French Franc
ITL -- Italian Lira
JPY -- Japanese Yen
NZD -- New Zealand Dollar
RNC -- Non-Convertible Savings Shares
- ------------------------------------------------------------
FUTURES CONTRACTS:
At December 31,1998, 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:
CAC 40 Index 121 U.S.$ 4,268 March-99 $ 178
DAX Index 18 U.S.$ 5,447 March-99 315
FT-SE 100 Index 105 U.S.$ 10,247 March-99 176
Milan MIB30 Index 9 U.S.$ 1,886 March-99 106
TOPIX Index 22 U.S.$ 2,042 March-99 13
-----
$788
-----
-----
</TABLE>
- ------------------------------------------------
SUMMARY OF FOREIGN SECURITIES BY INDUSTRY CLASSIFICATION
<TABLE>
<CAPTION>
VALUE PERCENT OF
INDUSTRY (000) NET ASSETS
<S> <C> <C>
- -------------------------------------------------------------------
Capital Equipment...................... $ 65,143 22.0%
Consumer Goods......................... 47,678 16.1
Energy................................. 11,044 3.7
Finance................................ 53,522 18.1
Mining................................. 853 0.3
Materials.............................. 28,611 9.7
Multi Industry......................... 11,964 4.0
Services............................... 33,099 11.2
--------- ---
$ 251,914 85.1%
--------- ---
--------- ---
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
International Magnum Portfolio
64
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
INTERNATIONAL SMALL CAP PORTFOLIO
COMPOSITION OF NET ASSETS (AT DECEMBER 31, 1998)
- --------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Australia 7.9%
Denmark 1.2%
Finland 6.5%
France 7.5%
Germany 9.9%
Hong Kong 2.3%
Ireland 3.6%
Italy 2.4%
Japan 14.5%
Netherlands 8.5%
New Zealand 2.1%
Norway 2.3%
Singapore 0.9%
Spain 1.3%
Sweden 2.7%
Switzerland 6.6%
United Kingdom 16.0%
Other 3.8%
</TABLE>
COMPARISON OF THE CHANGE IN VALUE OF A $500,000** INVESTMENT
- ---------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
INTERNATIONAL SMALL CAP
PORTFOLIO MSCI EAFE SMALL CAP INDEX(1)
12/15/92* $500,000 $500,000
<S> <C> <C>
12/31/92 $504,500 $500,000
12/31/93 $718,245 $685,950
12/31/94 $756,343 $742,952
12/31/95 $776,008 $727,944
12/31/96 $906,533 $726,925
12/31/97 $901,547 $547,811
12/31/98 $939,863 $577,612
* Commencement of operations
** Minimum investment
</TABLE>
In accordance with SEC regulations, Portfolio performance shown assumes that all
recurring fees (including management fees) were deducted and all dividends and
distributions were reinvested.
PERFORMANCE COMPARED TO THE MORGAN STANLEY CAPITAL
INTERNATIONAL (MSCI) EAFE SMALL CAP INDEX(1)
- ----------------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
----------------------------------------------
AVERAGE ANNUAL AVERAGE ANNUAL
ONE YEAR FIVE YEARS SINCE INCEPTION
---------- --------------- -----------------
<S> <C> <C> <C>
PORTFOLIO............... 4.25% 5.51% 11.37%
INDEX................... 5.44 - 3.38 2.42
</TABLE>
1. The MSCI EAFE Small Cap Index is an unmanaged index of common stocks and
includes 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 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 year ended December 31, 1998, the Portfolio had a total return of 4.25%
compared to a total return of 5.44% for the Morgan Stanley Capital International
(MSCI) EAFE Small Cap Index (the "Index"). For the five-year period ended
December 31, 1998, the average annual total return for the Portfolio was 5.51%
compared to -3.38% for the Index. From inception on December 15, 1992 through
December 31, 1998, the average annual total return of the Portfolio was 11.37%
compared to 2.42% for the Index.
The disappointing underperformance of the Portfolio in the fourth quarter
reversed the outperformance of the first nine months and left the Portfolio
below the Index for the full year. We were surprised by the rebound in the
markets in the final quarter given the clear pressures on the global economy and
having interpreted the interest rate cuts as central bankers' sharing our
concerns over the potential scale of global overcapacity and deflation. The raft
of corporate profit warnings, however, did not seem to dent other investors
optimism.
Positive stock selection, most notably in the Netherlands, Norway, Sweden, the
U.K. and Hong Kong was not sufficient to offset the significant negative impact
of the Portfolio's underweighting in Japan and the sharply appreciating yen. In
Europe we have not chased expensive valuations in the `Eurobubble' economies
such as Italy and Spain and this also hurt performance. These markets bounced
- ------------------------------------------------------------
CERTAIN INFORMATION APPEARING IN THIS INVESTMENT OVERVIEW IS UNAUDITED.
ACCORDINGLY, THE REPORT OF INDEPENDENT ACCOUNTANTS APPEARING ELSEWHERE IN THIS
REPORT DOES NOT EXTEND TO THIS INFORMATION. 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.
- --------------------------------------------------------------------------------
International Small Cap Portfolio
65
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
INTERNATIONAL SMALL CAP PORTFOLIO (CONT.)
strongly on the back of falling interest rates while the core European markets
lagged, rightly laboring under concerns over their export sectors. The
Portfolio's underweighting in the capital goods sector was not sufficient to
protect it from some weak returns in Swiss and German industrials.
Cyclical exposure was reduced at the start of the year and the Portfolio's
Japanese weighting rose from a low of 8% to 15% reflecting the extremely
depressed valuations in that market. This was largely funded from profits in the
U.K. Otherwise the Portfolio's geographic weightings did not change
significantly. In recent months Alliance Unichem was sold as strong appreciation
took it above our assessment of fair value. Sales were also made in Tamro, the
Scandinavian drug wholesaler, given clear signs of a worsening competitive
environment, and Rautarukki as we cut back further on the Portfolio's exposure
to cyclicals. New positions were established in Beru in Germany and Rapala in
Finland.
Weak demand in Asia combined with excess capacity in many industries, especially
in Japan, is now flooding the rest of the world and manufacturing in Europe and
the U.S. is suffering. Capital spending is likely to contract further and thus
we remain extremely wary on any exposure to the capital goods sector. This will
be particularly damaging for the major European economies, most notably Germany.
Unemployment is likely to rise (already apparent in Germany) and earnings
estimates fall. Recent strength in the Euro is exacerbating this. Constrained by
a Euroland budget deficit of 3% this is likely to test relations between the new
centre left governments and, an as yet untested, European Central Bank.
Despite this cautious outlook, however, many small cap valuations in Europe are
more than discounting the bad news and quality businesses available at give away
prices abound, most notably in the U.K.
Valuations in small cap Japan are also strikingly low and the Portfolio's
weighting is likely to continue to rise. Our hurdles of strength of business
franchise, cash returns and management quality, however, eliminate the vast
majority of stocks in Japan despite their depressed valuations. Corporate
Japan's continued failure to tackle costs and restructure leaves it facing a
supply problem every bit as worrying as its weak consumer demand. The
government's involvement in corporate life needs to diminish and enable capital
to be allocated based on economic return. Tough resistance, however, from vested
interests and weak political leadership do not instill confidence that this is
imminent.
In non-Japan Asia there is still some small cap value to be found but the recent
market rebound appears to be discounting a substantial economic recovery of
which we are wary. This is especially the case in Hong Kong where the news flow
from China is a concern.
Small caps have substantially underperformed large caps for the fourth year in a
row. This has largely reflected the sheer weight of money (much of it retail)
chasing the same small handful of largest cap names prompted by available
liquidity, mega mergers and the dominance of the growth sectors of
pharmaceuticals and telecommunications. Small cap's lower weightings in such
sectors and typically higher weightings in cyclicals has been a clear negative.
But with at least five smaller companies for every large one and with a broad
industrial exposure to many new emerging growth sectors, especially in services,
the natural bias towards cyclicals need not be, and is not reflected in the
Portfolio. Moreover, we actively avoid industries where there are clear
economies of scale and where small caps would be disadvantaged. The Portfolio is
already underweight many of the economic sensitive sectors except where the
quality of the company and valuation are so compelling that it is unlikely to
remain independent for long. Otherwise the Portfolio is substantially overweight
food / household / health and a broad array of services. These companies offer
sustainable growth, have excellent franchises and management and are strikingly
cheap.
Going into the New Year our colleagues are once again finding value in large
caps frustratingly scarce while small caps offer an abundance of compelling
absolute value. The unprecedentedly large valuation gap meanwhile pays testament
to the relative value argument.
Margaret Naylor
PORTFOLIO MANAGER
January 1999
- --------------------------------------------------------------------------------
International Small Cap Portfolio
66
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
INTERNATIONAL SMALL CAP PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- --------------------------------------------------------------------------------
COMMON STOCKS (93.1%)
AUSTRALIA (7.9%)
1,396,940 Ausdoc Group Ltd................................. $ 2,226
623,503 Auspine Ltd...................................... 672
1,748,543 Australian Hospital Care Ltd..................... 1,221
1,057,866 Bains Harding Ltd................................ 162
361,560 BRL Hardy Ltd.................................... 1,223
1,973,731 Eltin Ltd........................................ 1,428
7,798,947 E.R.G. Ltd....................................... 4,874
7,490,464 Parbury Ltd...................................... 1,285
537,000 Ramsay Health Care Ltd........................... 540
1,290,614 Skilled Engineering Ltd.......................... 1,455
1,990,900 Solution 6 Holdings Ltd.......................... 1,525
3,910,000 Star City Holdings Ltd........................... 3,457
---------
20,068
---------
DENMARK (1.2%)
72,400 Sydbank A/S...................................... 3,106
---------
FINLAND (6.5%)
87,308 KCI Konecranes International..................... 3,964
46,970 Kone Oyj, Class B................................ 5,471
292,600 Metsa Tissue Oyj................................. 2,715
(a)252,991 Rapala Normark Corp.............................. 2,198
134,010 The Rauma Group.................................. 1,958
---------
16,306
---------
FRANCE (7.5%)
30,569 Algeco........................................... 2,719
24,500 Chargeurs........................................ 1,355
21,999 Dauphin O.T.A.................................... 2,008
53,723 De Dietrich et Compagnie......................... 2,836
80,913 Europeene d'Extincteurs.......................... 5,061
99,833 Legris Industries................................ 4,893
---------
18,872
---------
GERMANY (6.8%)
56,000 Beru AG.......................................... 1,138
(a)46,200 Kamps AG......................................... 2,939
70,120 Marseille-Kliniken AG............................ 1,275
92,775 Moebel Walther AG................................ 3,146
20,124 Philipp Holzmann AG.............................. 3,140
5,605 Plettac AG....................................... 444
(a)13,510 Sartorius AG..................................... 2,692
(a)80,360 Winkler & Duennebier AG.......................... 2,339
---------
17,113
---------
HONG KONG (2.3%)
1,514,000 Li & Fung Ltd.................................... 3,137
7,657,000 Vitasoy International Holdings Ltd............... 2,792
---------
5,929
---------
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- --------------------------------------------------------------------------------
IRELAND (3.6%)
1,882,227 Anglo Irish Bank Corp. plc (British Pound
Shares)........................................ $ 5,443
125,105 Clondalkin Group plc............................. 895
487,856 Green Property plc............................... 2,763
---------
9,101
---------
ITALY (2.4%)
(a)940,300 Buffetti S.p.A................................... 3,181
459,000 Sogefi S.p.A..................................... 1,249
74,000 Unicem S.p.A. (RNC).............................. 380
19,000 Vincenzo Zucchi S.p.A............................ 154
207,050 Vincenzo Zucchi S.p.A. (NCS)..................... 1,079
---------
6,043
---------
JAPAN (14.5%)
60,500 Aiful Corp....................................... 3,678
212,600 Asatsu, Inc...................................... 5,087
21,000 Disco Corp....................................... 614
231,000 Foster Electric Co., Ltd......................... 1,187
760,000 Hankyu Realty Co., Ltd........................... 3,037
227,000 Hanshin Department Store Ltd..................... 895
74,000 H.I.S. Co., Ltd.................................. 1,528
780,000 Japan Oil Transportation Co., Ltd................ 1,417
117,000 Kirin Beverage Corp.............................. 2,312
131,600 Maezawa Kasei Industries......................... 1,469
335,000 Nifco, Inc....................................... 2,704
676,000 Nissan Fire & Insurance Co....................... 2,037
110,000 Nissei Industries................................ 848
64,000 Rock Field Co., Ltd.............................. 1,248
140,000 Sotoh Co., Ltd................................... 744
569,000 Toc Co........................................... 5,163
317,000 Ushio, Inc....................................... 2,784
---------
36,752
---------
NETHERLANDS (8.5%)
(a)43 Accell Group..................................... 1
74,600 Ahrend Groep N.V................................. 1,705
103,595 Apothekers Cooperatie OPG........................ 2,974
39,003 Atag Holding N.V................................. 908
80,850 Benckiser N.V., Class B.......................... 5,297
105,700 GTI Holding N.V.................................. 2,567
203,799 Hollandsche Beton Groep N.V...................... 2,519
58,510 International Muller............................. 1,449
67,600 Nutreco Holding N.V.............................. 2,665
78,865 Samas Groep N.V.................................. 1,412
---------
21,497
---------
NEW ZEALAND (2.1%)
(a)1,111,100 Auckland International Airport Ltd............... 1,550
766,736 Fisher & Paykel Industries Ltd................... 2,766
648,400 Fletcher Challenge Building...................... 1,000
---------
5,316
---------
</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
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
INTERNATIONAL SMALL CAP PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------------
<C> <S> <C>
NORWAY (2.3%)
73,850 Adelsten ASA, Class B............................ $ 457
121,900 Kverneland ASA................................... 2,999
(a,d)228,020 Oceanor.......................................... --
116,168 Sparebanken...................................... 2,262
---------
5,718
---------
SINGAPORE (0.9%)
1,101,000 GP Batteries International Ltd................... 2,349
---------
SPAIN (1.3%)
96,358 Miquel y Costas & Miquel......................... 3,263
---------
SWEDEN (2.7%)
56,103 BT Industries AB................................. 818
104,900 Haldex AB........................................ 1,063
187,910 Nobel Biocare AB................................. 2,553
61,710 Scandic Hotels AB................................ 2,272
---------
6,706
---------
SWITZERLAND (6.6%)
957 Bobst AG (Bearer)................................ 1,186
1,261 Bucher Holdings AG (Bearer)...................... 1,011
9,267 Edipresse (Bearer)............................... 2,669
9,440 PubliGroupe...................................... 2,891
4,841 SIG-Schweizensche Industrie-Gesellschaft Holding
AG (Registered)................................ 2,859
13,784 Valora Holding AG................................ 3,734
5,705 Zehnder Holding AG, Class B...................... 2,329
---------
16,679
---------
UNITED KINGDOM (16.0%)
1,528,400 Aegis Group plc.................................. 2,212
361,370 Capital Radio plc................................ 3,517
1,059,390 Devro plc........................................ 3,049
(a,d)2,540,850 Donelon Tyson plc................................ --
2,159,498 GEI International plc............................ 2,084
889,423 Informa Group plc................................ 4,188
1,235,665 John Mowlem & Co. plc............................ 2,025
(a,d)33,795,100 Kendell plc...................................... --
214,635 Le Riches Stores plc............................. 1,595
676,800 Litho Supplies plc............................... 1,323
2,575,600 Matthews (Bernard) plc........................... 4,971
673,960 NHP plc.......................................... 1,682
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- --------------------------------------------------------------------------------
741,800 Oriflame International........................... $ 2,098
(a,d)2,659,393 Pentos plc....................................... --
577,200 Quadramatic plc.................................. 1,529
171,627 Seton Scholl Healthcare Group plc................ 2,399
393,300 SGB Group plc.................................... 1,276
1,159,600 SIG plc.......................................... 2,740
1,509,500 The 600 Group plc................................ 1,457
780,200 Time Products plc................................ 954
410,200 Westminster Health Care Holdings plc............. 1,420
---------
40,519
---------
TOTAL COMMON STOCKS (Cost $253,731).................................. 235,337
---------
PREFERRED STOCKS (3.1%)
GERMANY (3.1%)
7,955 Dyckerhoff AG.................................... 2,220
16,631 Hornbach Holding AG.............................. 993
7,445 STO AG-Vorzug.................................... 1,832
164,795 Wuerttembergische Metallwarenfabrik AG........... 2,670
---------
TOTAL PREFERRED STOCKS (Cost $9,194)................................. 7,715
---------
TOTAL FOREIGN SECURITIES (96.2%) (Cost $262,925)..................... 243,052
---------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT
(000)
<C> <S> <C>
- ----------------
SHORT-TERM INVESTMENT (3.6%)
REPURCHASE AGREEMENT (3.6%)
$ 9,065 Chase Securities, Inc. 4.45%, dated 12/31/98, due
1/04/99, to be repurchased at $9,069,
collateralized by U.S. Treasury Bonds, 8.125%,
due 8/15/19, valued at $9,251 (Cost $9,065).... 9,065
---------
FOREIGN CURRENCY (0.3%)
AUD 71 Australian Dollar................................ 43
HKD 276 Hong Kong Dollar................................. 36
IEP 56 Irish Punt....................................... 83
JPY 52,677 Japanese Yen..................................... 467
CHF 36 Swiss Franc...................................... 26
---------
TOTAL FOREIGN CURRENCY (Cost $641)................................... 655
---------
</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.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
INTERNATIONAL SMALL CAP PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
(000)
- ------------------------------------------------------------------------
<C> <S> <C>
TOTAL INVESTMENTS (100.1%) (Cost $272,631).................... $252,772
--------
OTHER ASSETS (0.2%)
Dividends Receivable............................ $ 381
Receivable for Investments Sold................. 43
Foreign Withholding Tax Reclaim Receivable...... 191
Interest Receivable............................. 6
Other........................................... 26 647
----------
LIABILITIES ( - 0.3%)
Investment Advisory Fees Payable................ (597)
Administrative Fees Payable..................... (67)
Custodian Fees Payable.......................... (23)
Bank Overdraft Payable.......................... (17)
Directors' Fees & Expenses Payable.............. (16)
Payable for Portfolio Shares Redeemed........... (2)
Other Liabilities............................... (55) (777)
---------- --------
NET ASSETS (100%)............................................. $252,642
--------
--------
</TABLE>
<TABLE>
<S> <C>
NET ASSETS CONSIST OF:
Paid in Capital............................................... $272,187
Undistributed Net Investment Income........................... 161
Accumulated Net Realized Gain................................. 139
Unrealized Depreciation on Investments and Foreign Currency
Translations................................................ (19,845)
--------
NET ASSETS.................................................... $252,642
--------
--------
</TABLE>
<TABLE>
<S> <C>
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 16,562,500 outstanding $0.001 par value shares
(authorized 1,000,000,000 shares)........................... $15.25
--------
--------
</TABLE>
- ------------------------------------------------------------
(a) -- Non-income producing security
(d) -- Security valued at fair value -- see note A-1 to financial statements.
NCS -- Non-Convertible Shares
RNC -- Non-Convertible Savings Shares
- ------------------------------------------------------------
SUMMARY OF FOREIGN SECURITIES BY INDUSTRY CLASSIFICATION
<TABLE>
<CAPTION>
VALUE PERCENT OF
INDUSTRY (000) NET ASSETS
<S> <C> <C>
- -------------------------------------------------------------------
Capital Equipment...................... $ 58,290 23.1%
Consumer Goods......................... 74,384 29.4
Finance................................ 33,983 13.5
Materials.............................. 20,436 8.1
Services............................... 55,959 22.1
--------- ---
$ 243,052 96.2%
--------- ---
--------- ---
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
International Small Cap Portfolio
69
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
JAPANESE EQUITY PORTFOLIO
COMPOSITION OF NET ASSETS (AT DECEMBER 31, 1998)
- --------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Appliances & Household Durables 5.8%
Automobiles 7.0%
Broadcasting & Publishing 0.6%
Building Materials & Components 4.6%
Business & Public Service 2.1%
Chemical 5.6%
Construction & Housing 1.8%
Data Processing & Reproduction 8.4%
Electrical & Electronics 12.8%
Electric Components & Instruments 9.5%
Energy Equipment & Services 1.4%
Financial Services 1.9%
Food & Household Products 3.2%
Health & Personal Care 6.9%
Industrial Components 1.3%
Insurance 0.3%
Machinery & Engineering 8.6%
Merchandising 1.1%
Multi-Industry 0.8%
Real Estate 1.8%
Recreation, Other Consumer Goods 7.8%
Telecommunications 3.7%
Other 3.0%
</TABLE>
COMPARISON OF THE CHANGE IN VALUE OF A $500,000** INVESTMENT
- ---------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
JAPANESE EQUITY PORTFOLIO-CLASS
A MSCI JAPAN INDEX(1)
<S> <C> <C>
4/25/94* $500,000 $500,000
12/31/94 $491,500 $512,000
12/31/95 $473,609 $515,533
12/31/96 $466,979 $435,625
12/31/97 $423,877 $332,513
12/31/98 $461,263 $349,305
* Commencement of operations
** Minimum investment
</TABLE>
In accordance with SEC regulations, Portfolio performance shown assumes that all
recurring fees (including management fees) were deducted and all dividends and
distributions were reinvested. The performance of Class B shares will vary based
upon the different inception dates and fees assessed to that class.
PERFORMANCE COMPARED TO THE MORGAN STANLEY
CAPITAL INTERNATIONAL (MSCI) JAPAN INDEX(1)
- -----------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
---------------------------
AVERAGE ANNUAL
ONE YEAR SINCE INCEPTION
---------- ---------------
<S> <C> <C>
PORTFOLIO -- CLASS A................... 8.82% - 1.71%
PORTFOLIO -- CLASS B................... 8.33 - 1.26
INDEX -- CLASS A....................... 5.05 - 7.46
INDEX -- CLASS B....................... 5.05 - 11.96
</TABLE>
1. The MSCI Japan Index is an unmanaged index of Japanese 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 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 year ended December 31, 1998, the Portfolio had a total return of 8.82%
for the Class A shares and 8.33% for the Class B shares compared to 5.05% for
the Morgan Stanley Capital International (MSCI) Japan Index (the "Index"). From
inception on April 25, 1994 through December 31, 1998, the average annual total
return of Class A shares was - 1.71% compared to - 7.46% for the Index. From
inception on January 2, 1996 through December 31, 1998, the average annual total
return of Class B shares was - 1.26% compared to - 11.96% for the Index.
The Japanese economy and equity markets faced a severely challenging environment
during 1998 with the mounting uncertainty of the financial system tested
throughout the year. The tip of this economic iceberg for 1998 was the collapse
of Hokkaido Takushoku Bank, Yamaichi and Sanyo Securities in late 1997. In early
1998 the Japanese government did little to address the ballooning non-performing
loans, credit crunch and deflationary spiral that escalated as the economy
continuously failed to recover after numerous stimulus packages over the last
several years.
As the credit crunch and deflationary spiral continued to grow with negligible
economic activity, the government began to announce a series of additional
stimulus and bank rescue programs during April and May. These had minor, if any,
impact on improving the situation as banks were reluctant to apply for
government loans and the stimulus packages offered no multiplier effects on
invigorating the stalled economy and depressed consumer sentiment.
A new prime minister was elected in July, with strong voter turnout reflecting
the dissatisfaction with Hashimoto's ineffectiveness in dealing with Japan's
financial crisis. The new Prime Minister, Mr. Obuchi, declared a 60 trillion yen
bank rescue package in
- ------------------------------------------------------------
CERTAIN INFORMATION APPEARING IN THIS INVESTMENT OVERVIEW IS UNAUDITED.
ACCORDINGLY, THE REPORT OF INDEPENDENT ACCOUNTANTS APPEARING ELSEWHERE IN THIS
REPORT DOES NOT EXTEND TO THIS INFORMATION. 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.
- --------------------------------------------------------------------------------
Japanese Equity Portfolio
70
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
JAPANESE EQUITY PORTFOLIO (CONT.)
October, doubling the efforts of his predecessor including a new scheme to
nationalize troubled banks. Later in the year both Long Term Credit Bank and
Nippon Credit Bank were nationalized, the first in post World War II history for
Japan.
Not only did Japan face domestic difficulties during 1998 but compounding these
problems were external factors such as the Russian crisis, a sharp correction in
the U.S. equity market and deflation spreading throughout Asia, bringing
economic activity to a virtual halt in the region. With no structural changes,
minor fiscal reform and the above mentioned external factors, investing in Japan
could not have been more challenging. Moreover, it became evident to most
observers, including the Japanese government which stubbornly engaged in pork
belly stimulus programs, that the "traditional" way to stimulate the economy
would not work. Indeed, even though Mr. Obuchi, Japan's second prime minister in
1998, proposed tax cuts both on a corporate and individual level, this seemed to
have only a minor effect on consumer sentiment or confidence.
With the domestic equity market becoming increasingly unattractive and the high
volatility of the overseas markets, Japanese investors' flight to quality
brought 10-year government bond yields to 0.7%, the lowest on record although
yields subsequently jumped to 2% by year end 1998 due to fears of oversupply in
the market. The foreign exchange rate fell to 147 yen during the first half 1998
on "sell Japan" but jumped to 110 in September as hedge funds began to unwind
their "yen carry trades," President Clinton's fate became questioned and with
the current account deficit beginning to grow to unacceptable levels. In this
volatile and bleak environment Japanese equities fell to 12-year lows in 1998
and sentiment became increasingly negative on the future for the Japanese
economy.
OUTLOOK
Fiscal 1999 will most likely remain a difficult year for the Japanese economy.
At best we look for flat gross domestic product (GDP) growth but realistically
growth may be negative. Our outlook for flat GDP is based on some optimism that
the huge 60 trillion yen stimulus packages enacted in 1998 will provide modest
support for the economy. We are not confident that "aspirin" for a patient in
critical condition is sufficient for a sustainable recovery and positive growth
in 1999. Moreover, the recent volatility of global financial markets and in
particular the yen and domestic bond markets will mean the health of Japan's
financial institutions has significantly deteriorated over the last six months
and that credit contraction and balance sheets within these institutions will
continue to shrink.
While Prime Minister Obuchi has provided a platform for significant tax cuts and
economic stimulus packages to support Japan on a macro level, adjustments to
overcapacity and over-employment and de-leveraging on the micro level will
probably become the dominant themes for investors in 1999. As Japan increasingly
gravitates to "international" standards for return on equity, the traditional
full employment socialist system will become increasingly challenged in 1999 and
will further dampen consumer sentiment as unemployment rises during the year. In
other words, we believe that the macro stimulus programs totaling over 100
trillion yen of government spending which have occurred during the last 8 years
will now transform into aggressive private sector restructuring in 1999.
Also, external factors affecting Japan will also be challenging to the economy
and markets. A pronounced slowdown or sharp correction in the U.S. or European
markets will hurt the already fragile domestic environment. Meanwhile, the
deflationary forces which began to emerge and spread in 1998 throughout the
world will take time to correct and the IMF and G7's influence to shoulder these
problems has shown they have limits. Moreover, the rapid rise of the yen and
spike in interest rates are also compounding Japan's woes and negatively
affecting the already frail corporate earnings outlook. It appears to us that
the Japanese government and Ministry of Finance have reached the tolerance limit
to further increase deficit spending to stimulate the economy after the
negligible impact this has had over the last 8 years.
We therefore believe that investments in Japanese equities should remain highly
selective. We favor PC, semiconductor, service, pharmaceutical and select
domestic sectors such as housing and housing related securities. As we enter
1999, we are cautiously optimistic that this year will become a true inflection
point in which the private sector will finally foster real structural changes in
areas such as wage adjustment, employment efficiencies, and focus on return on
equity. After 10 years of sharp contraction Japan has entered the final phase
for real change and therefore an important milestone for long term investors in
Japanese equities.
John R. Alkire
PORTFOLIO MANAGER
Kunihiko Sugio
PORTFOLIO MANAGER
January 1999
- --------------------------------------------------------------------------------
Japanese Equity Portfolio
71
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
JAPANESE EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- -----------------------------------------------------------------------------
COMMON STOCKS (97.0%)
APPLIANCES & HOUSEHOLD DURABLES (5.8%)
99,000 Matsushita Electric Industrial Co., Ltd.......... $ 1,754
23,000 Sony Corp........................................ 1,677
---------
3,431
---------
AUTOMOBILES (7.0%)
70,000 Nifco, Inc....................................... 565
413,000 Nissan Motor Co., Ltd............................ 1,266
85,000 Suzuki Motor Co., Ltd............................ 1,009
48,000 Toyota Motor Corp................................ 1,306
---------
4,146
---------
BROADCASTING & PUBLISHING (0.6%)
60,000 Nissha Printing Co., Ltd......................... 367
---------
BUILDING MATERIALS & COMPONENTS (4.6%)
97,000 Fujitec Co., Ltd................................. 626
35,000 Rinnai Corp...................................... 613
160,000 Sanwa Shutter Corp............................... 700
110,000 Sekisui Chemical Co.............................. 741
---------
2,680
---------
BUSINESS & PUBLIC SERVICES (2.1%)
77,000 Dai Nippon Printing Co., Ltd..................... 1,230
---------
CHEMICALS (5.6%)
261,000 Daicel Chemical Industries Ltd................... 777
157,000 Kaneka Corp...................................... 1,178
263,000 Mitsubishi Chemical Corp......................... 555
113,000 Nippon Pillar Packing............................ 422
70,000 Shin-Etsu Polymer Co., Ltd....................... 366
---------
3,298
---------
CONSTRUCTION & HOUSING (1.8%)
60,000 Kyudenko Co., Ltd................................ 406
60,000 Sekisui House Co., Ltd........................... 635
---------
1,041
---------
DATA PROCESSING & REPRODUCTION (8.4%)
75,000 Canon, Inc....................................... 1,605
132,000 Fujitsu Ltd...................................... 1,760
168,000 Ricoh Co., Ltd................................... 1,551
---------
4,916
---------
ELECTRICAL & ELECTRONICS (12.8%)
268,000 Hitachi Ltd...................................... 1,662
65,000 Minebea Co., Ltd................................. 745
68,000 Mitsumi Electric Co., Ltd........................ 1,440
190,000 NEC Corp......................................... 1,751
16,000 Ryosan Co........................................ 256
283,000 Toshiba Corp..................................... 1,688
---------
7,542
---------
ELECTRONIC COMPONENTS, INSTRUMENTS (9.5%)
25,000 Kyocera Corp..................................... 1,323
27,000 Murata Manufacturing Co., Ltd.................... 1,122
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- -----------------------------------------------------------------------------
7,000 Rohm Co.......................................... $ 638
20,000 TDK Corp......................................... 1,831
18,000 Tokyo Electron Ltd............................... 684
---------
5,598
---------
ENERGY EQUIPMENT & SERVICES (1.4%)
54,000 Kurita Water Industries Ltd...................... 793
---------
FINANCIAL SERVICES (1.9%)
49,000 Hitachi Credit Corp.............................. 1,090
---------
FOOD & HOUSEHOLD PRODUCTS (3.2%)
20,000 Aiwa Co., Ltd.................................... 528
40,000 Sangetsu Co., Ltd................................ 599
75,000 Yamaha Corp...................................... 778
---------
1,905
---------
HEALTH & PERSONAL CARE (6.9%)
31,000 Ono Pharmaceutical Co., Ltd...................... 970
70,000 Sankyo Co., Ltd.................................. 1,532
48,000 Yamanouchi Pharmaceutical Co., Ltd............... 1,548
---------
4,050
---------
INDUSTRIAL COMPONENTS (1.3%)
230,000 Furukawa Electric Co............................. 785
---------
INSURANCE (0.3%)
25,000 Sumitomo Marine & Fire Insurance Co., Ltd........ 159
---------
MACHINERY & ENGINEERING (8.6%)
123,000 Amada Co., Ltd................................... 596
114,000 Daifuku Co., Ltd................................. 610
101,000 Daikin Industries Ltd............................ 1,002
45,000 Fuji Machine Manufacturing Co., Ltd.............. 1,424
268,000 Mitsubishi Heavy Industries Ltd.................. 1,045
190,000 Tsubakimoto Chain Co............................. 406
---------
5,083
---------
MERCHANDISING (1.1%)
13,000 FamilyMart Co., Ltd.............................. 650
---------
MULTI-INDUSTRY (0.8%)
50,000 Lintec Corp...................................... 466
---------
REAL ESTATE (1.8%)
117,000 Mitsubishi Estate Co., Ltd....................... 1,050
---------
RECREATION, OTHER CONSUMER GOODS (7.8%)
130,000 Casio Computer Co................................ 961
46,000 Fuji Photo Film Ltd.............................. 1,712
20,000 Nintendo Corp., Ltd.............................. 1,941
---------
4,614
---------
TELECOMMUNICATIONS (3.7%)
130 NTT Data Corp.................................... 646
200 Nippon Telegraph & Telephone Corp................ 1,545
---------
2,191
---------
TOTAL COMMON STOCKS (Cost $61,100)................................ 57,085
---------
</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.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
JAPANESE EQUITY PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- -----------------------------------------------------------------------------
<C> <S> <C>
SHORT-TERM INVESTMENT (4.0%)
REPURCHASE AGREEMENT (4.0%)
$ 2,344 Chase Securities, Inc. 4.45%, dated 12/31/98, due
1/04/99, to be repurchased at $2,345,
collateralized by U.S. Treasury Bonds, 9.875%,
due 11/15/15, valued at $2,396 (Cost $2,344)... $ 2,344
---------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS (101.0%) (Cost $63,444).......................... 59,429
--------
OTHER ASSETS (0.1%)
Dividends Receivable................................. $ 33
Receivable for Portfolio Shares Sold................. 30
Other................................................ 4 67
----------
LIABILITIES ( - 1.1%)
Net Unrealized Loss on Foreign Currency Exchange
Contracts.......................................... (426)
Investment Advisory Fees Payable..................... (89)
Payable for Portfolio Shares Redeemed................ (68)
Directors' Fees & Expenses Payable................... (10)
Administrative Fees Payable.......................... (9)
Custodian Fees Payable............................... (6)
Distribution Fees Payable............................ (2)
Other Liabilities.................................... (48) (658)
---------- --------
NET ASSETS (100%).................................................. $ 58,838
--------
--------
</TABLE>
<TABLE>
<S> <C>
NET ASSETS CONSIST OF:
Paid in Capital.................................................... $104,912
Undistributed Net Investment Income................................ 159
Accumulated Net Realized Loss...................................... (41,797)
Unrealized Depreciation on Investments and Foreign Currency
Translations..................................................... (4,436)
--------
NET ASSETS......................................................... $ 58,838
--------
--------
</TABLE>
<TABLE>
<CAPTION>
AMOUNT
(000)
<S> <C> <C>
- -----------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
CLASS A:
- -------------------------------------------------------------------
NET ASSETS......................................................... $57,755
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 9,349,072 outstanding $0.001 par value shares
(authorized 500,000,000 shares).................................. $6.18
--------
--------
CLASS B:
- -------------------------------------------------------------------
NET ASSETS......................................................... $1,083
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 176,733 outstanding $0.001 par value shares
(authorized 500,000,000 shares).................................. $6.13
--------
--------
</TABLE>
- ------------------------------------------------------------
FOREIGN CURRENCY EXCHANGE CONTRACT INFORMATION:
Under the terms of foreign currency exchange contracts open at December 31,
1998, 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>
- -------------- -------- ----------- ------------ -------- -----------
JPY 1,017,315 $ 9,041 1/21/99 U.S.$ 9,000 $ 9,000 $ (41)
JPY 1,160,300 10,385 3/15/99 U.S.$ 10,000 10,000 (385)
-------- -------- -----
$ 19,426 $ 19,000 $ (426)
--------
-------- -------- -----
-------- -----
</TABLE>
- ------------------------------------------------------------
JPY -- Japanese Yen
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
Japanese Equity Portfolio
73
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
LATIN AMERICAN PORTFOLIO
COMPOSITION OF NET ASSETS (AT DECEMBER 31, 1998)
- --------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Argentina 10.2%
Brazil 32.1%
Chile 9.0%
Colombia 0.8%
Mexico 36.3%
Peru 2.1%
Venezuela 1.1%
Other 8.4%
</TABLE>
COMPARISON OF THE CHANGE IN VALUE OF A $500,000** INVESTMENT
- ---------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
LATIN AMERICAN PORTFOLIO-CLASS
A MSCI EMERGING MARKETS GLOBAL LATIN AMERICA INDEX(1)
<S> <C> <C>
1/18/95* $500,000 $500,000
12/31/95 $456,600 $459,800
12/31/96 $679,284 $560,726
12/31/97 $959,692 $738,252
12/31/98 $603,646 $477,723
* Commencement of operations
** Minimum investment
</TABLE>
In accordance with SEC regulations, Portfolio performance shown assumes that all
recurring fees (including management fees) were deducted and all dividends and
distributions were reinvested. The performance of Class B shares will vary based
upon the different inception dates and fees assessed to that class.
PERFORMANCE COMPARED TO THE MORGAN STANLEY
CAPITAL INTERNATIONAL (MSCI) EMERGING MARKETS GLOBAL LATIN AMERICA INDEX(1)
- -------------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
----------------------------
AVERAGE ANNUAL
ONE YEAR SINCE INCEPTION
----------- ---------------
<S> <C> <C>
PORTFOLIO -- CLASS A................. - 37.10% 4.88%
PORTFOLIO -- CLASS B................. - 36.86 8.09
INDEX -- CLASS A..................... - 35.29 - 1.15
INDEX -- CLASS B..................... - 35.29 0.49
</TABLE>
1. The MSCI Emerging Markets Global Latin America Index is a broad based market
cap weighted composite index covering at least 60% of markets in Argentina,
Brazil, Chile, Colombia, Peru, Mexico and Venezuela (includes dividends).
2. Total returns for the Portfolio reflect expenses waived and reimbursed, if
applicable, by the Adviser. Without such waiver and reimbursement, total
returns would be lower.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
The investment objective of the Latin American Portfolio is long-term capital
appreciation through investment primarily in equity securities of Latin American
issuers. The Portfolio may also invest in debt securities issued or guaranteed
by a Latin American government or governmental entity.
For the year ended December 31, 1998, the Portfolio had a total return of
- 37.10% for the Class A shares and - 36.86% for the Class B shares compared
to a total return of - 35.29% for the Morgan Stanley Capital International
(MSCI) Emerging Markets Global Latin America Index (the "Index"). From inception
on January 18, 1995 through December 31, 1998, the average annual total return
of Class A shares was 4.88% compared to - 1.15% for the Index. From inception
on January 2, 1996 through December 31, 1998, the average annual total return of
Class B shares was 8.09% compared to 0.49% for the Index.
This past year was one of the most challenging years for Latin American and
emerging economies in recent memory. For the three months ended December 31,
1998, the Portfolio had a total return of 8.30% for the Class A shares and 8.31%
for the Class B shares compared to 7.24% for the Index. Outperformance relative
to the Index was largely attributable to outstanding stock selection in Brazil,
Chile, and Mexico. The star performers included Brazilian telecoms, Chilean
banks, and Mexican consumer-related companies such as Kimberly Clark (household
paper products) and Femsa (beverages).
The combination of a sharp drop in commodity prices (particularly oil, copper,
and coffee) and in net external financing to the emerging world forced Latin
American countries to tighten financial policies, weaken exchange rates, and
raise interest rates. As a
- ------------------------------------------------------------
CERTAIN INFORMATION APPEARING IN THIS INVESTMENT OVERVIEW IS UNAUDITED.
ACCORDINGLY, THE REPORT OF INDEPENDENT ACCOUNTANTS APPEARING ELSEWHERE IN THIS
REPORT DOES NOT EXTEND TO THIS INFORMATION. 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 INFORMATION 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.
- --------------------------------------------------------------------------------
Latin American Portfolio
74
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
LATIN AMERICAN PORTFOLIO (CONT.)
result, real gross domestic product (GDP) growth across the region decelerated
to about 2.1% in 1998, or less than half of the growth recorded in 1997.
Throughout the first half of the year, it became increasingly evident that a
deterioration in trade (commodity prices) and perhaps lower capital inflows
would negatively impinge upon the economic performance of the Latin economies.
However, most of the Asian countries in crisis implemented stabilization and
reform programs, supported by the IMF, which buoyed the emerging markets.
These programs gave an initial impression that the financial implosion had been
contained within the Asian sphere. Confidence picked up, as did capital flows to
Latin America (led by Brazil), which received record net inflows through July.
Such inflows allowed these economies to partly finance their trade deficits,
even allowing economic activity to expand (most notably in Argentina and Mexico)
in Latin America while Asia fell into a deep recession.
But then came the third quarter, where all the trouble spots in the world
erupted in a chain of contagion. The weakness of the Japanese yen fueled a
speculative attack against the Hong Kong dollar, reigniting concerns about the
Chinese renminbi. Growing risk aversion and tighter liquidity conditions were
detrimental to Russia: not even a larger IMF program was able to arrest foreign
investors' concern and hence departure out of the local and equity markets
there. The suspension of official support led to the collapse of the ruble and a
default on sovereign debt.
Russia's crisis placed enormous pressure on Brazil, triggering a major run on
the real. The adverse financial effects this had on global financial
institutions resulted in an explosion in credit spreads in emerging debt, while
large capital outflows brought Brazil to the brink of implosion.
By the fourth quarter, it became clear to most market participants that Brazil's
twin deficits (fiscal and current account) were unsustainable. Foreign funding
would not be forthcoming without a substantial improvement on either the fiscal
front or a change in the exchange rate policy.
Financial market participants pressured Brazil's currency, making continual
capital outflow a problem. To instill confidence, the government announced a
series of fiscal measures to raise revenues and cut costs. Once again, it seemed
Brazil would pull itself out of its problems especially once the IMF became a
lender of last resort. Their support came in the form of a multilateral $41.5
billion package to shore up reserves. In early to mid November, we raised our
Brazilian exposure significantly in light of these seemingly positive events.
On December 2, however, the government lost an important vote to structurally
improve the public social security deficit. This showed the world that despite
its woes, the country's legislature was still not willing to take harsh measures
against their own interests. It was after this disappointment that we adjusted
our Brazilian position from a 4% overweight to a 2% underweight. On a macro
basis, it was becoming increasingly hard to identify a catalyst for Brazil to
perform well, and yet the lack of opportunity in other markets kept us close to
the benchmark. On the stock level, Brazilian equities were attractively valued,
specifically the telecom sector in which we remain significantly overweight.
Overall, we remain concerned about the fragility of the Brazilian economy and
the potential knock-on effect on other Latin economies -- specifically Argentina
and Mexico, the latter due to a weaker currency and higher interest rates. The
viability of the Brazilian real strongly hinges on political will and capital
inflows to avoid a new crisis. Having devalued by some 25% already in January
1999, it now has removed one of the greatest fears overhanging the region.
However, for rational markets to prevail and for equity prices to reflect a
better longer-term economic reality, Brazil needs to deliver on further fiscal
reforms allowing domestic interest rates to come down to levels below 20%.
In order to avoid balance of payments and external debt problems, Latin American
countries will have to adjust even more in 1999. This is because current foreign
exchange earnings (from lower export volume growth, lower commodity prices, and
lower external financing) would, without adjustment, fall short of scheduled
external debt service obligations ($123 billion, of which about half corresponds
to principal). In light of the projected drop in external financing, Latin
America will have to reduce its aggregate current account deficit probably by
about $15 billion to $65.3 billion in 1999. The brunt of the external adjustment
will have to be borne by countries exhibiting the largest external financing
requirements
- --------------------------------------------------------------------------------
Latin American Portfolio
75
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
LATIN AMERICAN PORTFOLIO (CONT.)
(such as Brazil) or those most vulnerable to lower commodity prices (Venezuela,
Chile, Mexico, Colombia, and Peru).
Oil prices have been particularly weak in 1998 and the most vulnerable countries
to lower oil prices are Venezuela, Mexico, and Colombia. It is worth
highlighting that for every $1 per barrel that the price of crude falls,
reserves and fiscal positions worsen by $2.1 billion and 0.16% of regional GDP,
respectively. However, we feel that oil prices bottomed early in the fourth
quarter and as with Brazil, believe the worst is over.
With respect to politics, a new cycle of presidential elections are scheduled
for 1999 (Argentina and Chile) and 2000 (Mexico and Peru). We believe these
elections are unlikely to steer the countries away from their macroeconomic
focus.
Most Latin economies have already initiated their adjustment and lower growth
cycle, some in the third quarter, others in the fourth quarter of 1998. The
adjustment is likely to reach its harshest phase during the first quarter of
1999, followed by some recovery in the second half of 1999. This would set the
stage for regional economic expansion in 2000. We believe Latin equity markets
should recover sooner than their economies.
Robert L. Meyer
PORTFOLIO MANAGER
Andy B. Skov
PORTFOLIO MANAGER
Michael L. Perl
PORTFOLIO MANAGER
January 1999
- --------------------------------------------------------------------------------
Latin American Portfolio
76
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
LATIN AMERICAN PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- ---------------------------------------------------------------------------------
COMMON STOCKS (91.6%)
ARGENTINA (10.2%)
44,835 Quilmes Industrial ADR........................... $ 418
15,551 Telecom Argentina ADR............................ 428
8,277 Telefonica de Argentina ADR...................... 231
20,585 YPF ADR.......................................... 575
---------
1,652
---------
BRAZIL (32.1%)
11,640 Aracruz Celulose S.A. ADR........................ 93
2,687,000 Banco do Estado Sao Paulo........................ 111
272,175 Banco Itau (Preferred)........................... 133
(a,d)11,847,000 Banco Nacional (Preferred)....................... --
7,962,386 CEMIG (Preferred)................................ 152
(e)1,275 CEMIG ADR (Preferred)............................ 24
23,304 CEMIG ADR (Preferred)............................ 444
(a)726,124,000 Cia Electric Est Rio Janeiro..................... 240
1,680,177 CRT (Preferred).................................. 605
(a)5,000 CVRD............................................. 46
(d)34,986 CVRD (Bonus Shares).............................. --
13,175 CVRD ADR (Preferred)............................. 170
(a)17,633 CVRD, Class A (Preferred)........................ 226
22,990 Copel ADR (Preferred)............................ 164
44,463,400 Copel, Class B ADR (Preferred)................... 320
(d)1,863,830 Coteminas........................................ 201
(a,e)15,505 Coteminas ADR.................................... 73
23,442,000 Embratel......................................... 320
15,965,532 Gerdau (Preferred)............................... 119
5,000 Globex Utilidades (Preferred).................... 17
(a)458,900 Iven (Preferred)................................. 91
(a)10,009,300 Lojas Arapua (Preferred)......................... 3
(a,e)13,460 Lojas Arapua ADR (Preferred)..................... --
283 Petrobras ADR (Preferred)........................ 3
(a)7,663,000 Renner Participacoes............................. 5
(a,e)49,299 Rossi GDR........................................ 43
(a)101,175 Rossi GDS........................................ 89
20,882,275 Tele Celular Sul (Preferred)..................... 35
(a)22,157,675 Tele Centro Sul.................................. 193
550 Tele Leste Celular ADR........................... 16
127,695,000 Tele Leste Celular (Preferred)................... 74
128,532,000 Tele Norte Celular (Preferred)................... 59
30,235,000 Tele Norte Leste (Preferred)..................... 378
8,978,275 Tele Sudeste Celular (Preferred)................. 38
77,455,600 Tele Sudeste Celular (Preferred)................. 71
3,890 Tele Sudeste Celular ADR......................... 80
32,144,275 Telebras (Preferred)............................. 4
708 Telebras ADR (Preferred)......................... 51
1,759,800 Telesp (Preferred)............................... 240
10,968,275 Telesp Celular (Preferred)....................... 81
9,226 Unibanco GDR (Preferred)......................... 133
20,150 Usiminas......................................... 45
---------
5,190
---------
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- ---------------------------------------------------------------------------------
CHILE (9.0%)
3,180 Banco Santander ADR.............................. $ 47
3,840 Banco Edwards ADR................................ 42
8,805 CCU ADR.......................................... 169
18,463 Chilectra ADR.................................... 397
10,485 Cia. De Telecomunicaciones de Chile ADR.......... 217
5,216 D&S ADR.......................................... 60
24,319 Endesa ADR....................................... 277
7,700 Gener ADR........................................ 123
8,245 Quinenco ADR..................................... 66
8,063 Santa Isabel ADR................................. 53
---------
1,451
---------
COLOMBIA (0.8%)
263 Bancolombia...................................... --
18,447 Bavaria.......................................... 93
37,017 Valores Bavaria.................................. 39
---------
132
---------
MEXICO (36.3%)
66,926 Alfa, Class A.................................... 188
3,579 Banacci, Class B................................. 5
78,246 Banacci, Class L................................. 90
405,043 Bancomer, Class B................................ 87
74,231 Banorte, Class B................................. 64
63,035 Carso, Class A1.................................. 214
26,120 Cemex CPO ADR.................................... 111
4,204 Cemex, Class B................................... 10
43,584 Cemex, Class B ADR............................... 212
233,731 Cifra, Class C................................... 285
1 Cifra, Class V................................... --
1,960 Cifra, Class V ADR............................... 24
28,158 Femsa ADR........................................ 750
79,627 Femsa (Units).................................... 216
99,925 Grupo Industrial Bimbo, Class A.................. 192
69,605 Grupo Modelo, Class C............................ 147
210,130 Kimberly-Clark, Class A.......................... 668
81,279 Soriana, Class B................................. 259
14,317 Tamsa ADR........................................ 92
24,990 Televisa CPO GDR................................. 617
32,013 Telmex, Class L ADR.............................. 1,559
18,043 Vitro ADR........................................ 82
---------
5,872
---------
PERU (2.1%)
25,943 Tel Peru, Class B ADR............................ 329
---------
VENEZUELA (1.1%)
10,225 CANTV ADR........................................ 182
---------
TOTAL COMMON STOCKS (Cost $20,299).................................... 14,808
---------
</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.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
LATIN AMERICAN PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NO. OF VALUE
RIGHTS (000)
<C> <S> <C>
- ---------------------------------------------------------------------------------
RIGHTS (0.0%)
BRAZIL (0.0%)
(a,d)26 Cia Electric Est Rio Janeiro (Cost $0)........... $ --
---------
TOTAL FOREIGN SECURITIES (91.6%) (Cost $20,299)....................... 14,808
---------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT
(000)
<C> <S> <C>
- -----------------
FOREIGN CURRENCY (3.3%)
BRL 49 Brazilian Real................................... 41
COP 12 Colombian Peso................................... --
MXP 4,868 Mexican Peso..................................... 492
---------
TOTAL FOREIGN CURRENCY (Cost $533).................................... 533
---------
TOTAL INVESTMENTS (94.9%) (Cost $20,832).............................. 15,341
---------
OTHER ASSETS (10.6%)
Receivable for Investments Sold......................... $ 1,635
Dividends Receivable.................................... 85
Other................................................... 1 1,721
--------
LIABILITIES ( - 5.5%)
Bank Overdraft Payable.................................. (691 )
Investment Advisory Fees Payable........................ (70 )
Payable for Investments Purchased....................... (59 )
Custodian Fees Payable.................................. (22 )
Payable for Portfolio Shares Redeemed................... (8 )
Administrative Fees Payable............................. (3 )
Directors' Fees & Expenses Payable...................... (4 )
Other Liabilities....................................... (45 ) (902)
-------- --------
NET ASSETS (100%).................................................... $ 16,160
--------
--------
</TABLE>
<TABLE>
<S> <C>
NET ASSETS CONSIST OF:
Paid in Capital...............................................
$ 45,166
Undistributed Net Investment Income...........................
462
Accumulated Net Realized Loss.................................
(23,971)
Unrealized Depreciation on Investments and Foreign Currency
Translations................................................
(5,497)
---------
NET ASSETS....................................................
$ 16,160
---------
---------
</TABLE>
<TABLE>
<CAPTION>
AMOUNT
(000)
<S> <C> <C>
- -------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
CLASS A:
- --------------------------------------------------------------
NET ASSETS.................................................... $15,012
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
Applicable to 2,226,266 outstanding $0.001 par value shares
(authorized 500,000,000 shares)............................. $6.74
--------
--------
</TABLE>
<TABLE>
<S> <C>
CLASS B:
- --------------------------------------------------------------
NET ASSETS.................................................... $1,148
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
Applicable to 169,386 outstanding $0.001 par value shares
(authorized 500,000,000 shares)............................. $6.78
--------
--------
</TABLE>
- ------------------------------------------------------------
(a) -- Non-income producing security
(e) -- 144A Security -- certain conditions for public sale may exist.
(d) -- Security valued at fair value -- see note A-1 to financial statements.
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...................... $ 256 1.6%
Consumer Goods......................... 3,025 18.7
Energy................................. 2,560 15.8
Finance................................ 844 5.2
Materials.............................. 1,115 6.9
Multi-Industry......................... 560 3.5
Services............................... 6,448 39.9
-------- ---
$ 14,808 91.6%
-------- ---
-------- ---
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
Latin American Portfolio
78
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
AGGRESSIVE EQUITY PORTFOLIO
COMPOSITION OF NET ASSETS (AT DECEMBER 31, 1998)
- --------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Capital Goods 6.9%
Communication Services 13.5%
Consumer Cyclicals 15.4%
Consumer Staples 27.4%
Financial 16.9%
Health Care 5.9%
Technology 7.4%
Utilities 5.1%
Other 1.5%
</TABLE>
COMPARISON OF THE CHANGE IN VALUE OF A $500,000** INVESTMENT
- ---------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
AGGRESSIVE EQUITY PORTFOLIO-CLASS LIPPER CAPITAL APPRECIATION
A INDEX(1) S&P 500 INDEX(1)
<S> <C> <C> <C>
3/8/95 $500,000 $500,000 $500,000
12/31/95 $706,250 $629,000 $650,860
12/31/96 $995,106 $723,098 $800,285
12/31/97 $1,326,576 $866,705 $1,067,260
12/31/98 $1,530,205 $1,039,959 $1,372,176
* Commencement of operations
** Minimum investment
</TABLE>
In accordance with SEC regulations, Portfolio performance shown assumes that all
recurring fees (including management fees) were deducted and all dividends and
distributions were reinvested. The performance of Class B shares will vary based
upon the different inception dates and fees assessed to that class.
PERFORMANCE COMPARED TO THE LIPPER CAPITAL
APPRECIATION INDEX AND THE S&P 500 INDEX(1)
- ----------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
------------------------------------
AVERAGE ANNUAL
ONE YEAR SINCE INCEPTION
------------ ----------------------
<S> <C> <C>
PORTFOLIO -- CLASS A............ 15.35% 34.03%
PORTFOLIO -- CLASS B............ 15.15 28.86
LIPPER CAPITAL APPRECIATION
INDEX -- CLASS A................ 19.99 21.39
S&P 500 INDEX -- CLASS A........ 28.57 30.29
LIPPER CAPITAL APPRECIATION
INDEX -- CLASS B................ 19.99 18.19
S&P 500 INDEX -- CLASS B........ 28.57 27.95
</TABLE>
1. The Lipper Capital Appreciation Index is a composite of mutual funds managed
for maximum capital gains. The S&P 500 Index is an unmanaged index of common
stocks.
2. Total returns for the Portfolio reflect expenses waived and reimbursed, if
applicable, by the Adviser. Without such waiver and reimbursement, total
returns would be lower.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
The 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 year ended December 31, 1998, the Portfolio had a total return of 15.35%
for the Class A shares and 15.15% for the Class B shares compared to a total
return of 19.99% for the Lipper Capital Appreciation Index and 28.57% for the
S&P 500 Index. From inception on March 8, 1995 through December 31, 1998, the
average annual total return of Class A shares was 34.03% compared to 21.39% for
the Lipper Capital Appreciation Index and 30.29% for the S&P 500 Index. From
inception on January 2, 1996 through December 31, 1998, the average annual total
return of Class B shares was 28.86% compared to 18.19% for the Lipper Capital
Appreciation Index and 27.95% for the S&P 500 Index.
While our returns for the full year were disappointing, we were pleased with our
results in the fourth quarter. For the three months ended December 31, 1998, the
Portfolio had a total return of 26.17% for the Class A shares and 26.09% for the
Class B shares compared to 22.15% for the Lipper Capital Appreciation Index and
21.29% for the S&P 500 Index. The strong performance from the first and fourth
quarters, however, was not enough to offset the negative performance caused by
positions such as Cendant and Continental Airlines in the spring and summer.
Our top ten holdings as of December 31, 1998 were as follows:
<TABLE>
<CAPTION>
COMPANY %
- -------------------------------------------------------------------------- ----
<S> <C>
1. Loews Corp. 7.12
2. Tele-Communications Liberty
Media Group, Class A 5.66
3. SFX Entertainment, Inc. 5.39
4. Montana Power Co. 5.14
5. Nielsen Media Research, Inc. 5.09
6. Associated Group, Inc., Class B 4.44
7. Clear Channel Communications, Inc. 4.37
8. USA Networks, Inc. 4.02
9. NTL, Inc. 3.79
10. Genzyme Corp. -- General Division 3.70
</TABLE>
- ------------------------------------------------------------
CERTAIN INFORMATION APPEARING IN THIS INVESTMENT OVERVIEW IS UNAUDITED.
ACCORDINGLY, THE REPORT OF INDEPENDENT ACCOUNTANTS APPEARING ELSEWHERE IN THIS
REPORT DOES NOT EXTEND TO THIS INFORMATION. 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.
- --------------------------------------------------------------------------------
Aggressive Equity Portfolio
79
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
AGGRESSIVE EQUITY PORTFOLIO (CONT.)
The 49% weighting in our top ten positions is much more concentrated than most
U.S. equity portfolios, but is fairly typical for this Portfolio. Since
inception in March 1995, the top ten holdings have tended to account for between
50-75% of net assets. Our belief is that heavy concentration may lead to greater
than average volatility but not necessarily greater than average risk. To us,
risk is synonymous with lack of knowledge, which our strategy of "seeking the
information edge" seeks to avoid. We believe the ability to concentrate has been
one of the primary contributors to our strong performance in the past, and we
remain committed to the strategy of "opportunistic concentration" despite
disappointing second and third quarter 1998 performance.
The Portfolio is a balance of well known names and less traditional growth
opportunities. Loews, the Tisch family holding company, is our largest position
and offers a unique combination of growth and value characteristics. First, the
stock is compelling based on sum of the parts valuation. With holdings in
tobacco, insurance (CNA), offshore drilling (Diamond Offshore) hotels and cash,
the company has been compounding book value at 15% for more than a decade.
Management has recently begun to repurchase stock again. This is one of the more
defensive holdings in our Portfolio. However, given positive company dynamics we
expect it to perform well in a variety of stock market conditions.
We build the Portfolio stock by stock and sector allocation is a residual of the
stock selection process. That said, however, sector overweightings or
underweightings may result from our bottom-up process. A theme that emerged in
the latter half of the year was an overweighting in cable/media/telephony. Our
intense research identified opportunities in Liberty Media, AT&T,
Telecommunications Inc, SFX Entertainment, Clear Channel Communications,
Chancellor Media, Associated Group (A and B shares), Nielson Media, Outdoor
Systems, United Video Satellite and USA Networks. Montana Power is a utility
that is, in part, a telecommunications play. In total, these securities
accounted for about 46% of the Portfolio.
Our largest position in this broad communications category is Liberty Media, a
portfolio of properties including the programming assets of Tele-Communications
Inc. Among its major investments are 57 million shares of Time Warner, a 49%
interest in the Discovery Channel, a 43% interest in the QVC shopping channel
and approximately 70 million shares in USA Networks. Liberty's management has a
long and accomplished track record for creating substantial value. With the
substantial liquidity for Liberty now being created as a result of the
AT&T/Tele-Communications merger, it now appears likely that substantial
additional asset value will be created.
SFX Entertainment is consolidating the fragmented live entertainment industry,
which includes production, promotion and venue operations. The company has
attained economies of scale and a platform or "network" to exploit the 25
million plus annual audiences attending SFX-managed events. Further, corporate
sponsorships and venue naming rights will likely provide for financial results
in excess of expectations. SFX will meaningfully improve operating margins,
primarily through revenue growth, but also by realizing cost synergies. With the
stock at approximately twenty three times free cash flow per share in 1999 and
seventeen times in 2000, we believe the stock should continue to outperform.
Montana Power represents an interesting play on the increasing need for
broadband capacity as a result of the explosion in demand for telecommunications
and internet services. In addition to its traditional power generation and
energy services, the company is currently building out a 3,000-mile fiber optic
broadband network through its Touch America telecom subsidiary. We believe that
the market is not fully recognizing the value of the firm's telecommunications
business, but should begin to as telecom becomes an increasingly important
earnings generator and as telecom service firms continue to prepay for future
capacity on Montana's network.
Clear Channel Communications, another large holding, continues to consolidate
properties in the radio, television and outdoor advertising businesses and is
becoming one of the dominant players in global media. The company's most recent
acquisition of Jacor is scheduled to close in the third quarter. In addition to
adding to after tax cash flow per share, this is a powerful long-term strategic
combination. Clear Channel has been one of the best performing stocks in the S&P
500 over the past several years. We expect the stock to continue to beat
consensus estimates as the company's strong management team consolidates an
industry with powerful trends. While some investors are concerned about the
internet taking advertising dollars from more traditional media, we believe that
the lack of barriers to entry on the
- --------------------------------------------------------------------------------
Aggressive Equity Portfolio
80
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
AGGRESSIVE EQUITY PORTFOLIO (CONT.)
internet will force these new companies to use traditional media to push
eyeballs to their websites. We remain overweighted in the broadcasting/cable
group with additional exposure to Chancellor, Comcast, Time Warner and "the new
AT&T".
Nielson Media is the leading provider of television rating services in the U.S.
and Canada, serving national and local customers including television networks
and affiliates, independent stations, syndicates, cable networks, cable systems,
advertisers, and their agencies. We continue to view these shares as undervalued
given the firm's monopoly position in its core business.
AT&T is at one of those rare moments in a company's history when it is
transforming itself from a mature slow growth company into a more acknowledged
growth company. Chief Executive Mike Armstrong is using the cash flow from the
mature long distance business to enter into high growth businesses such as the
internet, broadband and wireless. Combining our position in Tele-Communications
Inc. with AT&T we now hold about a 5% position.
Philip A. Friedman
PORTFOLIO MANAGER
William S. Auslander
PORTFOLIO MANAGER
January 1999
- --------------------------------------------------------------------------------
Aggressive Equity Portfolio
81
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
AGGRESSIVE EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- ---------------------------------------------------------------------------
COMMON STOCKS (98.5%)
CAPITAL GOODS (6.9%)
METAL FABRICATORS (3.3%)
(a)288,900 CommScope, Inc................................... $ 4,857
---------
OFFICE EQUIPMENT & SUPPLIES (3.6%)
79,800 Pitney Bowes, Inc................................ 5,272
---------
TOTAL CAPITAL GOODS........................................... 10,129
---------
COMMUNICATION SERVICES (13.5%)
TELECOMMUNICATIONS (CELLULAR/WIRELESS) (11.5%)
(a)67,700 Associated Group, Inc., Class A.................. 2,911
(a)153,900 Associated Group, Inc., Class B.................. 6,541
(a)27,600 Cellular Communications International, Inc....... 1,877
(a)98,900 NTL, Inc......................................... 5,582
---------
16,911
---------
TELECOMMUNICATIONS (LONG DISTANCE) (2.0%)
38,900 AT&T Corp........................................ 2,927
---------
TOTAL COMMUNICATION SERVICES.................................. 19,838
---------
CONSUMER CYCLICALS (15.4%)
GAMING, LOTTERY & PARIMUTUEL COMPANIES (0.7%)
(a)63,000 Harrah's Entertainment, Inc...................... 988
---------
RETAIL (SPECIALTY) (4.9%)
(a)71,400 Abercrombie & Fitch Co., Class A................. 5,052
37,450 Gap, Inc......................................... 2,107
---------
7,159
---------
RETAIL (SPECIALTY/APPAREL) (0.8%)
(a)71,500 Toys 'R' Us, Inc................................. 1,207
---------
RETAILS (COMPUTERS & ELECTRONICS) (2.4%)
72,800 Circuit City Stores-Circuit City Group........... 3,635
---------
SERVICES (ADVERTISING/MARKETING) (1.5%)
(a)73,300 Outdoors Systems, Inc............................ 2,199
---------
SERVICES (COMMERCIAL & CONSUMER) (5.1%)
(a)417,200 Nielsen Media Research, Inc...................... 7,510
---------
TOTAL CONSUMER CYCLICALS...................................... 22,698
---------
CONSUMER STAPLES (27.4%)
BROADCASTING (TV, RADIO, CABLE) (20.8%)
(a)60,100 Chancellor Media Corp............................ 2,878
(a)118,300 Clear Channel Communications, Inc................ 6,447
(a)81,200 Tele-Communications, Class A..................... 4,491
(a)181,300 Tele-Communications Liberty Media Group, Class
A.............................................. 8,351
(a)179,100 USA Networks, Inc................................ 5,933
(a)105,700 United Video Satellite Group, Inc................ 2,497
---------
30,597
---------
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- ---------------------------------------------------------------------------
ENTERTAINMENT (5.4%)
(a)144,900 SFX Entertainment, Inc........................... $ 7,951
---------
FOODS (1.2%)
(a)36,700 U.S. Foodservice, Inc............................ 1,798
---------
TOTAL CONSUMER STAPLES........................................ 40,346
---------
FINANCIAL (16.9%)
INSURANCE (LIFE & HEALTH) (2.7%)
65,200 Reinsurance Group of America, Inc.
(Non-Voting)................................... 3,961
---------
INSURANCE (MULTI-LINE) (10.6%)
107,000 American Bankers Insurance Group, Inc............ 5,176
106,800 Loews Corp....................................... 10,493
---------
15,669
---------
INSURANCE (PROPERTY-CASUALTY) (3.6%)
94,800 Cincinnati Financial Corp........................ 3,472
7,300 General Re Corp.................................. 1,808
---------
5,280
---------
TOTAL FINANCIAL............................................... 24,910
---------
HEALTH CARE (5.9%)
HEALTH CARE (DRUGS-GENERIC & OTHERS) (5.9%)
(a)45,200 Amgen, Inc....................................... 4,726
(a)75,600 Forest Laboratories, Inc......................... 4,021
---------
8,747
---------
TECHNOLOGY (7.4%)
BIOTECHNOLOGY (3.7%)
(a)109,600 Genzyme Corp.-General Division................... 5,453
---------
COMPUTERS (HARDWARE) (1.6%)
57,700 Compaq Computer Corp............................. 2,420
---------
COMPUTERS (NETWORKING) (1.8%)
(a)59,500 3Com Corp........................................ 2,666
---------
COMPUTERS (SOFTWARE & SERVICES) (0.3%)
2,300 America Online, Inc.............................. 368
---------
TOTAL TECHNOLOGY.............................................. 10,907
---------
UTILITIES (5.1%)
ELECTRIC COMPANIES (5.1%)
134,000 Montana Power Co................................. 7,579
---------
TOTAL COMMON STOCKS (Cost $118,771)........................... 145,154
---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
Aggressive Equity Portfolio
82
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
AGGRESSIVE EQUITY PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- ---------------------------------------------------------------------------
<C> <S> <C>
SHORT-TERM INVESTMENT (0.7%)
REPURCHASE AGREEMENT (0.7%)
$ 1,048 Chase Securities, Inc. 4.45%, dated 12/31/98, due
1/04/99, to be repurchased at $1,049,
collateralized by
U.S. Treasury Notes, 10.375%,
due 11/15/12, valued at $1,077 (Cost $1,048)... $ 1,048
---------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS (99.2%) (Cost $119,819)........................ 146,202
--------
OTHER ASSETS (1.5%)
Cash............................................... $ 94
Receivable for Investments Sold.................... 1,086
Receivable for Portfolio Shares sold............... 1,049
Dividends Receivable............................... 31
Other.............................................. 9 2,269
----------
LIABILITIES ( - 0.7%)
Payable for Investments Purchased.................. (591)
Investment Advisory Fees Payable................... (308)
Payable for Portfolio Shares Redeemed.............. (86)
Administrative Fees Payable........................ (18)
Distribution Fee Payable........................... (10)
Directors' Fees & Expenses Payable................. (8)
Custodian Fees Payable............................. (7)
Other Liabilities.................................. (27) (1,055)
---------- --------
NET ASSETS (100%)................................................ $147,416
--------
--------
</TABLE>
<TABLE>
<S> <C>
NET ASSETS CONSIST OF:
Paid in Capital.................................................. $125,496
Accumulated Net Investment Loss.................................. (8)
Accumulated Net Realized Loss.................................... (4,455)
Unrealized Appreciation on Investments........................... 26,383
--------
NET ASSETS....................................................... $147,416
--------
--------
</TABLE>
<TABLE>
<CAPTION>
AMOUNT
(000)
<S> <C> <C>
- ---------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
CLASS A:
- -----------------------------------------------------------------
NET ASSETS....................................................... $130,734
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 7,471,542 outstanding $0.001 par value shares
(authorized 500,000,000 shares)................................ $17.50
--------
--------
CLASS B:
- -----------------------------------------------------------------
NET ASSETS....................................................... $16,682
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 958,461 outstanding $0.001 par value shares
(authorized 500,000,000 shares)................................ $17.40
--------
--------
</TABLE>
- ------------------------------------------------------------
(a) -- Non-income producing security
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
Aggressive Equity Portfolio
83
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
EMERGING GROWTH PORTFOLIO
COMPOSITION OF NET ASSETS (AT DECEMBER 31, 1998)
- --------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Auto & Transportation 0.3%
Consumer Discretionary 36.2%
Consumer Staples 5.7%
Financial Services 20.8%
Health Care 4.0%
Materials & Processing 1.0%
Producer Durables 4.6%
Technology 14.5%
Utilities 8.0%
Other 4.9%
</TABLE>
COMPARISON OF THE CHANGE IN VALUE OF A $500,000** INVESTMENT
- ---------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
EMERGING GROWTH PORTFOLIO-CLASS A NASDAQ COMPOSITE INDEX(1) RUSSELL 2000 INDEX(1)
<S> <C> <C> <C>
11/01/89* $500,000 $500,000 $500,000
10/31/90 $453,500 $362,000 $362,892
10/31/91 $815,574 $596,214 $575,885
10/31/92 $754,569 $664,779 $630,327
12/31/92 $817,576 $881,075 $702,199
12/31/93 $817,576 $852,881 $834,768
12/31/94 $812,507 $1,193,350 $819,544
12/31/95 $1,083,153 $1,464,360 $1,052,711
12/31/96 $1,123,446 $1,464,360 $1,226,348
12/31/97 $1,258,070 $1,781,248 $1,500,598
12/31/98 $1,595,615 $2,487,157 $1,462,405
* Commencement of operations
** Minimum investment
</TABLE>
In accordance with SEC regulations, Portfolio performance shown assumes that all
recurring fees (including management fees) were deducted and all dividends and
distributions were reinvested. The performance of Class B shares will vary based
upon the different inception dates and fees assessed to that class.
PERFORMANCE COMPARED TO THE NASDAQ
COMPOSITE INDEX AND THE RUSSELL 2000 INDEX(1)
- ----------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
-------------------------------------------------
AVERAGE ANNUAL AVERAGE ANNUAL
ONE YEAR FIVE YEARS SINCE INCEPTION
----------- ----------------- -----------------
<S> <C> <C> <C>
PORTFOLIO -- CLASS
A..................... 27.54% 14.31% 13.49%
PORTFOLIO -- CLASS
B..................... 26.86 N/A 13.46
NASDAQ COMPOSITE --
CLASS A............... 39.63 23.06 18.70
RUSSELL 2000 -- CLASS
A..................... -2.55 11.87 12.42
NASDAQ COMPOSITE --
CLASS B............... 39.63 N/A 27.53
RUSSELL 2000 -- CLASS
B..................... -2.55 N/A 11.51
</TABLE>
1. The NASDAQ Composite Index is an unmanaged index of common stocks. 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 Emerging Growth Portfolio invests primarily in growth-oriented equity
securities of small-to-medium sized domestic corporations and, to a limited
extent, foreign corporations.
For the year ended December 31, 1998, the Portfolio had a total return of 27.54%
for the Class A shares and 26.86% for the Class B shares compared to a total
return of 39.63% for the NASDAQ Composite Index and -2.55% for the Russell 2000
Index. For the five-year period ended December 31, 1998, the average annual
total return of Class A shares was 14.31% compared to 23.06% for the NASDAQ
Composite Index and 11.87% for the Russell 2000 Index. From inception on
November 1, 1989 through December 31, 1998, the average annual total return of
Class A shares was 13.49% compared to 18.70% for the NASDAQ Composite Index and
12.42% for the Russell 2000 Index. From inception on January 2, 1996 through
December 31, 1998, the average annual total return of Class B shares was 13.46%
compared to 27.53% for the NASDAQ Composite Index and 11.51% for the Russell
2000 Index.
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 industry, 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
last year, this was a function of our specific stock selection rather than a top
down decision.
Our largest position at year-end, Nielsen Media Research, is indicative of our
investment approach. Nielsen is the largest 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. Because it was spun off from a large cap
constituent of the S&P 500 Index in
- ------------------------------------------------------------
CERTAIN INFORMATION APPEARING IN THIS INVESTMENT OVERVIEW IS UNAUDITED.
ACCORDINGLY, THE REPORT OF INDEPENDENT ACCOUNTANTS APPEARING ELSEWHERE IN THIS
REPORT DOES NOT EXTEND TO THIS INFORMATION. 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.
- --------------------------------------------------------------------------------
Emerging Growth Portfolio
84
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Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
EMERGING GROWTH PORTFOLIO (CONT.)
July of last year, many index funds were forced to sell their shares of the
company. As a result, we were able to opportunistically establish an 8% position
in the portfolio. Although the stock has had a great run since then, we continue
to view the shares as undervalued given Nielsen's monopoly position in its core
business, strong cash flow, and its exciting growth opportunity on the internet.
RH Donnelley is another of our favorite names. The company is an independent
marketer of yellow pages advertising. Similar to Nielsen Media Research, RH
Donnelley's shares were spun off from a large corporate parent which was a
member of the S&P 500 Index in July. Again, we were able to opportunistically
build a strong position in these shares at attractive prices during the second
half of the year. Importantly, we believe that RH Donnelley's perpetual
arrangement with Ameritech to sell yellow page ads alone is worth more than the
entire current market value of the company. Furthermore, we believe that yellow
page ad sales on the internet represent a compelling new growth opportunity for
the company.
During 1998, we also strengthened our position in Associated Group. The company
owns an exciting group of telecommunications interests including a controlling
interest in Teligent, a wireless communications company with a small to medium-
sized business focus. Furthermore, the company's management team has an
exceptional history of creating significant shareholder value in the radio,
cable and telecom industries. We expect progress in Associated's True Position
solution, which enables local authorities to locate wireless emergency 911
callers, to be a catalyst for the stock over the next year.
Looking forward, we continue to see many opportunities for capital appreciation
in small to mid-sized companies. By continuing to focus on specific company
fundamentals and research, we hope to achieve similar results in the coming
year.
Alexander L. Umansky
PORTFOLIO MANAGER
Dennis P. Lynch
PORTFOLIO MANAGER
January 1999
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Emerging Growth Portfolio
85
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Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
EMERGING GROWTH PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- ----------------------------------------------------------------------------
COMMON STOCKS (95.8%)
AUTO & TRANSPORTATION (0.3%)
AUTO PARTS: AFTER MARKET (0.3%)
(a)4,600 O'Reilly Automotive, Inc......................... $ 216
--------
CONSUMER DISCRETIONARY (36.2%)
ADVERTISING AGENCIES (4.8%)
(a)4,400 ADVO, Inc........................................ 116
237,262 R.H. Donnelley Corp.............................. 3,455
--------
3,571
--------
COMMERCIAL INFORMATION SERVICES (0.6%)
2,600 America Online, Inc.............................. 416
--------
ELECTRICAL: HOUSEHOLD APPLIANCE (0.5%)
(a)6,700 Best Buy Co., Inc................................ 411
--------
ENTERTAINMENT (4.0%)
63,564 Cedar Fair L.P................................... 1,652
(a)295,940 Marquee Group, Inc............................... 1,332
--------
2,984
--------
PUBLISHING: NEWSPAPERS (2.6%)
4,236 Harte-Hanks Communications, Inc.................. 121
21,316 Pulitzer Publishing Co........................... 1,846
--------
1,967
--------
RADIO & TV BROADCASTERS (1.2%)
(a)6,900 Cox Radio, Inc., Class A......................... 292
(a)7,100 Emmis Communications Corp., Class A.............. 307
(a)7,092 Metro Networks, Inc.............................. 301
--------
900
--------
RESTAURANTS (4.5%)
(a)8,400 Dave & Busters, Inc.............................. 193
(a)8,400 Papa John's International, Inc................... 369
(a)77,346 Sonic Corp....................................... 1,866
(a)18,252 Tricon Global Restaurants, Inc................... 915
--------
3,343
--------
RETAIL (4.5%)
(a)30,300 Abercrombie & Fitch Co., Class A................. 2,144
(a)5,800 AnnTaylor Stores Corp............................ 229
(a)8,200 Insight Enterprises, Inc......................... 417
(a)5,000 Macrovision Corp................................. 209
(a)9,000 Staples, Inc..................................... 393
--------
3,392
--------
RETAIL & LEASING SERVICES: CONSUMER (0.5%)
(a)11,900 Renters Choice, Inc.............................. 374
--------
SERVICES: COMMERCIAL (13.0%)
(a)8,600 Metzler Group, Inc............................... 418
(a)5,100 NCO Group, Inc................................... 230
327,905 Nielsen Media Research, Inc...................... 5,902
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- ----------------------------------------------------------------------------
2,308 Unifirst Corp.................................... $ 53
100,708 Viad Corp........................................ 3,059
--------
9,662
--------
TOTAL CONSUMER DISCRETIONARY.................................... 27,020
--------
CONSUMER STAPLES (5.7%)
FOODS (5.7%)
(a)5,400 Performance Food Group Co........................ 151
(a)7,400 P.F. Chang's China Bistro, Inc................... 165
34,340 Tootsie Roll Industries, Inc..................... 1,344
(a)52,316 U.S. Foodservice, Inc............................ 2,563
--------
4,223
--------
TOTAL CONSUMER STAPLES.......................................... 4,223
--------
FINANCIAL SERVICES (20.8%)
DIVERSIFIED FINANCIAL SERVICES (1.7%)
32,021 Mutual Risk Management Ltd....................... 1,253
--------
FINANCIAL MISCELLANEOUS (1.9%)
12,064 CMAC Investment Corp............................. 554
(a)51,668 Indigo Aviation AB ADR........................... 420
5,700 Providian Financial Corp......................... 428
--------
1,402
--------
INSURANCE: MULTI-LINE (13.5%)
59,396 American Bankers Insurance Group, Inc............ 2,873
76,016 Cincinnati Financial Corp........................ 2,784
8,600 Horace Mann Educators Corp....................... 245
7,672 Protective Life Corp............................. 305
4,752 Reinsurance Group of America, Inc................ 333
58,256 Reinsurance Group of America, Inc.
(Non-Voting)................................... 3,539
--------
10,079
--------
INSURANCE: PROPERTY & CASUALTY (1.1%)
3,900 LandAmerica Financial Group, Inc................. 218
13,808 Mercury General Corp............................. 605
--------
823
--------
INVESTMENT MANAGEMENT COMPANIES (2.3%)
48,592 PIMCO Advisors Holdings L.P...................... 1,512
2,200 SEI Corp......................................... 218
--------
1,730
--------
SAVINGS & LOAN (0.3%)
(a)14,500 Golden State Bancorp., Inc....................... 241
--------
TOTAL FINANCIAL SERVICES........................................ 15,528
--------
HEALTH CARE (4.0%)
DRUGS & PHARMACEUTICALS (2.2%)
11,600 Alpharma, Inc.................................... 410
(a)5,000 Biogen, Inc...................................... 415
(a)13,388 Medicis Pharmaceutical, Class A.................. 796
--------
1,621
--------
</TABLE>
The accompanying notes are an integral part of the financial statements.
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Emerging Growth Portfolio
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Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
EMERGING GROWTH PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ----------------------------------------------------------------------------
<C> <S> <C>
</TABLE>
HEALTH CARE (CONT.)
<TABLE>
<C> <S> <C>
HEALTH CARE MANAGEMENT SERVICES (0.5%)
(a)10,600 MedQuist, Inc.................................... $ 419
--------
HEALTH CARE SERVICES (0.3%)
(a)3,300 Express Scripts, Inc., Class A................... 218
--------
MEDICAL & DENTAL INSTRUMENTS & SUPPLIES (1.0%)
(a)5,600 Priority Healthcare Corp., Class B............... 297
(a)9,400 PSS World Medical, Inc........................... 216
(a)7,300 Xomed Surgical Products, Inc..................... 233
--------
746
--------
TOTAL HEALTH CARE............................................... 3,004
--------
MATERIALS & PROCESSING (1.0%)
BUILDING MATERIALS (0.1%)
(a)6,100 Dal-Tile International, Inc...................... 63
--------
BUILDING: CEMENT (0.4%)
4,828 Southdown, Inc................................... 286
--------
ENGINEERING & CONTRACTING SERVICES (0.5%)
(a)11,400 Metromedia Fiber Network, Inc., Class A.......... 379
--------
TOTAL MATERIALS & PROCESSING.................................... 728
--------
OTHER (0.7%)
MULTI-SECTOR COMPANIES (0.7%)
(a)20,104 Primark Corp..................................... 545
--------
PRODUCER DURABLES (4.6%)
ELECTRONICS: INSTRUMENTS GAUGES & METERS (1.8%)
(a)36,068 Dionex Corp...................................... 1,321
--------
IDENTIFICATION CONTROL & FILTER DEVICES (0.5%)
(a)4,800 Waters Corp...................................... 419
--------
MISCELLANEOUS PRODUCER DURABLES (0.1%)
(a)4,484 SCP Pool Corp.................................... 66
--------
OFFICE FURNITURE & BUSINESS EQUIPMENT (2.2%)
(a)47,228 Knoll, Inc....................................... 1,399
(a)2,300 Lexmark International Group, Inc., Class A....... 231
--------
1,630
--------
TOTAL PRODUCER DURABLES......................................... 3,436
--------
TECHNOLOGY (14.5%)
COMMUNICATIONS TECHNOLOGY (4.5%)
(a)34,340 American Tower Corp., Class A.................... 1,015
(a)14,200 AVT Corp......................................... 408
(a)2,900 CSG System Intl., Inc............................ 228
(a)10,100 GeoTel Communications Corp....................... 374
(a)3,900 Gilat Satellite Networks Ltd..................... 215
(a)5,900 International Network Services................... 392
(a)6,700 L-3 Communications Corp.......................... 312
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- ----------------------------------------------------------------------------
(a)700 OmniAmerica, Inc................................. $ 22
(a)8,500 RF Micro Devices, Inc............................ 391
--------
3,357
--------
COMPUTER SERVICES SOFTWARE & SYSTEMS (4.3%)
(a)2,400 Citrix Systems, Inc.............................. 233
(a)9,100 Concord Communications, Inc...................... 516
(a)6,300 Legato Systems, Inc.............................. 415
(a)6,200 Macromedia, Inc.................................. 208
(a)3,700 Mercury Interactive Corp......................... 234
(a)5,800 Mindspring Enterprise, Inc....................... 354
(a)9,500 New Era of Networks, Inc......................... 416
(a)4,900 Peregrine Systems, Inc........................... 227
(a)3,800 Veritas Software Corp............................ 227
(a)1,500 Yahoo!, Inc...................................... 355
--------
3,185
--------
COMPUTER TECHNOLOGY (4.5%)
(a)2,900 Dell Computer Corp............................... 212
(a)4,800 EMC Corp......................................... 408
(a)19,912 Ingram Micro, Inc., Class A...................... 695
(a)6,200 InterVoice, Inc.................................. 214
(a)5,100 Network Appliance, Inc........................... 228
(a)2,900 Network Solutions, Inc., Class A................. 377
(a)3,100 Qlogic Corp...................................... 403
(a)10,000 Transwitch Corp.................................. 389
(a)12,000 Xircom, Inc...................................... 408
--------
3,334
--------
ELECTRONICS (0.9%)
(a)4,900 Cree Research, Inc............................... 234
(a)3,800 Gemstar International Group Ltd.................. 217
(a)9,300 Power Integrations, Inc.......................... 233
--------
684
--------
ELECTRONICS: TECHNOLOGY (0.3%)
3,600 Symbol Technologies, Inc......................... 230
--------
TOTAL TECHNOLOGY................................................ 10,790
--------
UTILITIES (8.0%)
UTILITIES: ELECTRICAL (2.2%)
28,368 Montana Power Co................................. 1,605
--------
UTILITIES: TELECOMMUNICATIONS (5.8%)
(a)72,732 Associated Group, Inc., Class B.................. 3,082
(a)18,636 Cellular Communications International, Inc....... 1,267
--------
4,349
--------
TOTAL UTILITIES................................................. 5,954
--------
TOTAL COMMON STOCKS (Cost $60,644)................................ 71,444
--------
</TABLE>
The accompanying notes are an integral part of the financial statements.
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Emerging Growth Portfolio
87
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Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
EMERGING GROWTH PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- ----------------------------------------------------------------------------
<C> <S> <C>
SHORT-TERM INVESTMENT (4.5%)
REPURCHASE AGREEMENT (4.5%)
$ 3,348 Chase Securities, Inc. 4.45%, dated 12/31/98, due
1/04/99, to be repurchased at $3,350,
collateralized by U.S. Treasury Bonds, 8.75%,
due 5/15/17, valued at $3,414 (Cost $3,348).... $ 3,348
--------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS (100.3%) (Cost $63,992)........................ 74,792
----------
OTHER ASSETS (7.3%)
Receivable for Investments Sold.................... $ 4,689
Receivable for Portfolio Shares Sold............... 712
Dividends Receivable............................... 58
Other.............................................. 9 5,468
----------
LIABILITIES ( - 7.6%)
Payable for Investments Purchased.................. (5,481)
Investment Advisory Fees Payable................... (167)
Administrative Fees Payable........................ (10)
Custodian Fees Payable............................. (6)
Directors' Fees and Expenses Payable............... (6)
Payable for Portfolio Shares Redeemed.............. (3)
Distribution Fees Payable.......................... (1)
Other Liabilities.................................. (28) (5,702)
---------- ----------
NET ASSETS (100%)................................................ $ 74,558
----------
----------
</TABLE>
<TABLE>
<S> <C>
NET ASSETS CONSIST OF:
Paid in Capital.................................................... $ 63,137
Accumulated Net Investment Loss.................................... (5)
Accumulated Net Realized Gain...................................... 626
Unrealized Appreciation on Investments............................. 10,800
----------
NET ASSETS......................................................... $ 74,558
----------
----------
</TABLE>
<TABLE>
<CAPTION>
AMOUNT
(000)
<S> <C> <C>
- -----------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
CLASS A:
- -------------------------------------------------------------------
NET ASSETS......................................................... $73,276
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 9,083,149 outstanding $0.001 par value shares
(authorized 500,000,000 shares).................................. $8.07
----------
----------
</TABLE>
<TABLE>
<S> <C>
CLASS B:
- -------------------------------------------------------------------
NET ASSETS......................................................... $1,282
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 161,642 outstanding $0.001 par value shares
(authorized 500,000,000 shares).................................. $7.93
----------
----------
</TABLE>
- ------------------------------------------------------------
(a) -- Non-income producing security
ADR -- American Depositary Receipt
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
Emerging Growth Portfolio
88
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[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
EQUITY GROWTH PORTFOLIO
COMPOSITION OF NET ASSETS (AT DECEMBER 31, 1998)
- --------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Capital Goods 20.7%
Communication Services 4.1%
Consumer-Cyclicals 7.3%
Consumer-Staples 18.5%
Energy 0.5%
Financial 16.9%
Health Care 9.4%
Technology 21.4%
Transportation 1.0%
Other 0.2%
</TABLE>
COMPARISON OF THE CHANGE IN VALUE OF A $500,000** INVESTMENT
- ---------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
EQUITY GROWTH PORTFOLIO-CLASS
A S&P 500 INDEX(1)
<S> <C> <C>
4/2/91* $500,000 $500,000
10/31/91 $533,000 $533,090
10/31/92 $582,330 $585,450
12/31/92 $604,725 $612,760
12/31/93 $630,900 $674,400
12/31/94 $651,450 $683,250
12/31/95 $944,733 $939,742
12/31/96 $1,237,317 $1,155,507
12/31/97 $1,624,845 $1,540,984
12/31/98 $1,934,215 $1,981,243
* Commencement of operations
** Minimum investment
</TABLE>
In accordance with SEC regulations, Portfolio performance shown assumes that all
recurring fees (including management fees) were deducted and all dividends and
distributions were reinvested. The performance of Class B shares will vary based
upon the different inception dates and fees assessed to that class.
PERFORMANCE COMPARED TO THE S&P 500 INDEX(1)
- -----------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
------------------------------------------------
AVERAGE ANNUAL AVERAGE ANNUAL
ONE YEAR FIVE YEARS SINCE INCEPTION
---------- ----------------- -----------------
<S> <C> <C> <C>
PORTFOLIO -- CLASS A.... 19.04% 25.12% 19.09%
PORTFOLIO -- CLASS B.... 18.71 N/A 26.47
INDEX -- CLASS A........ 28.57 24.06 19.13
INDEX -- CLASS B........ 28.57 N/A 27.95
</TABLE>
1. The S&P 500 Index is an unmanged index of common stocks.
2. Total returns for the Portfolio reflect expenses waived and reimbursed, if
applicable, by the Adviser. Without such waiver and reimbursement, total
returns would be lower.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
The 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 year ended December 31, 1998, the Portfolio had a total return of 19.04%
for the Class A shares and 18.71% for the Class B shares compared to a total
return of 28.57% for the S&P 500 Index (the "Index"). For the five-year period
ended December 31, 1998, the average annual total return for Class A shares was
25.12% compared to 24.06% for the Index. From inception on April 2, 1991 through
December 31, 1998, the average annual total return for Class A shares was 19.09%
compared to 19.13% for the Index. From inception on January 2, 1996 through
December 31, 1998, the average annual total return of Class B shares was 26.47%
compared to 27.95% for the Index.
The Portfolio tends to be broadly diversified by issue (we held 70 securities at
December 31) but we have the ability to invest up to 10% in a single security
when our conviction is very strong. The Portfolio continues to hold a mix of
"classic" growth stocks such as Microsoft, Intel, Cisco, General Electric (a
fourth quarter addition), Merck and Pfizer, as well as less traditional growth
names such as United Technologies, Clear Channel and Tyco International, and
stocks beaten down on unfounded fears -- a subset of the prior two groups --
such as Philip Morris (ongoing litigation concerns) and United Technologies
(Asia meltdown scares). At December 31 our largest position was United
Technologies, which represented 5.95% of the Portfolio (based on net assets),
and the ten largest holdings accounted for 38% of the net assets. Over the long
term we believe that our philosophy of opportunistic concentration may result in
better returns than the indices can deliver.
- ------------------------------------------------------------
CERTAIN INFORMATION APPEARING IN THIS INVESTMENT OVERVIEW IS UNAUDITED.
ACCORDINGLY, THE REPORT OF INDEPENDENT ACCOUNTANTS APPEARING ELSEWHERE IN THIS
REPORT DOES NOT EXTEND TO THIS INFORMATION. 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.
- --------------------------------------------------------------------------------
Equity Growth Portfolio
89
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Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
EQUITY GROWTH PORTFOLIO (CONT.)
While 1998 was a disappointing year for the Portfolio, we were encouraged by our
return in the fourth quarter, which we believe bodes well for 1999. For the
three months ended December 31, 1998, the Portfolio had a total return of 22.67%
for the Class A shares and 22.56% for the Class B shares compared to 21.29% for
the Index. We spent the early part of the quarter reducing our cyclical and
medium capitalization exposure and adding to our larger capitalization
technology and health care holdings. This strategy laid the foundation for our
performance in the quarter and positions us well for 1999. In particular,
performance was boosted by the quarterly returns of United Technologies,
American Online, Cisco Systems and Tyco International, which added approximately
1.48%, 1.07%, 0.85% and 0.73%, respectively to the Portfolio.
But one quarter does not make a year. This year was clearly disappointing
relative to previous periods of outperformance. While some of our large
positions performed well in 1998 (notably United Technologies, America Online,
Microsoft and Cisco) these gains were not enough to offset the disappointing
performance of positions such as Cendant and Continental Airlines, earlier in
the year.
From a macro-perspective 1998 was certainly a year to be invested in a select
number of large capitalization growth names. We cannot recollect a year that had
less breadth to it. For the full year, while the S&P capitalization weighted
index climbed 28.7%, the S&P equal weighted index rose only 12.8%. Breadth
increased somewhat in the fourth quarter, when the S&P 500 capitalization
weighted index returned 21.3% and the S&P 500 equal weighted index gained 17.4%.
Looking out into 1999, against a backdrop of continued low inflation, more
modest gross domestic product growth and ongoing fears of emerging markets
slowdowns (Latin American taking over for Asia in 1999) we can easily imagine
the U.S stock market continuing to favor some of the same high growth, mega-cap
companies which performed so well in 1998. Clearly, the U.S. is not pumping on
all cylinders and some U.S. based companies with global exposure are somewhat
precariously positioned. We view this as a "glass half full" opportunity. A
number of the growth companies we are invested in either have minimal exposure
to weak international markets, or have demonstrated an ability to withstand
these pressures. We believe this may be a continued period of outperformance by
high quality growth companies that can continue to meet or beat expectations.
United Technologies, our top holding, is one such company. While we have reduced
our position in the stock from 9.5% of net assets at the beginning of the year,
to 5.95% at year end, this is reflective of the stock's outperformance (up
approximately 49% in 1998) and not our belief in the ongoing prospects of the
company. Despite troubles in Asia (which had accounted for over 15% of company
profits) and negative currency trends (which should reverse and add to earnings
in 1999), earnings per share and cash flow estimates have continued to increase
and the quality of earnings remains very strong. Margin expansion due to
aggressive cost cutting actions is ongoing at all major units, the company
continues to repurchase its stock and it has begun to make opportunistic
acquisitions as a way to jump start revenue growth.
Our newest top three holding is Tyco International. This previously cyclical
conglomerate has demonstrated an ability to integrate additive acquisitions and
increase the service intensity of new and existing businesses. US Surgical and
AMP connectors are its two most recent acquisitions which have added to
shareholder value. We see continued improving trends in its disposable health
care products, fluid power, commercial/residential security and undersea cable
businesses leading to rising earnings per share and cash flow estimates.
Clear Channel Communications, another large holding, continues to consolidate
property in the radio, television and outdoor advertising businesses and is
becoming one of the dominant players in global media. The company's most recent
acquisition of Jacor is scheduled to close in the third quarter. In addition to
adding to after tax cash flow per share, this is a powerful long-term strategic
combination. Clear Channel has been one of the best performing stocks in the S&P
500 over the past several years. We expect this strong management team to
continue to take advantage of a consolidating industry with powerful operating
trends that should allow them to beat consensus estimates. While some investors
are concerned about the internet taking advertising dollars from more
traditional media, we believe that the lack of barriers to entry on the internet
will force these new companies to use traditional media to push eyeballs to
their websites. We remain overweighted in
- --------------------------------------------------------------------------------
Equity Growth Portfolio
90
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Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
EQUITY GROWTH PORTFOLIO (CONT.)
the broadcasting/cable group with additional exposure to Chancellor, Comcast,
Time Warner and "the new AT&T".
AT&T is at one of those rare moments in a company's history when it is
transforming itself from a mature slow growth company into a more acknowledged
growth company. Chief Executive, Mike Armstrong is using the cash flow from the
mature long distance business to enter into high growth businesses such as the
internet, broadband and wireless. The pending acquisition of TCI will accelerate
the convergence of cable and telephony. Combining our holdings in
Telecommunications Inc. with AT&T we now hold about a 3% position.
Loews is certainly one of our less traditional growth names. With holdings in
tobacco, insurance (CNA), offshore drilling (Diamond Offshore), hotels and cash,
the company has been compounding book value at 15% for more than a decade.
Management has recently begun to repurchase stock again. This is one of the more
defensive holdings in our Portfolio, however, given positive company dynamics we
expect it to perform well in a variety of stock market conditions.
We opportunistically established a position in General Electric in early
October. This is now a 2.8% position. Consistency of earnings and portfolio
management of businesses are the hallmarks to this classic growth company.
Service intensity and increased globalization remain key drivers to growth and
multiple expansion. One of the big decisions in continuing to own/add to General
Electric positions over the coming couple of years will be the succession of
Jack Welch. However, as in much that he does, Jack Welch appears to be bringing
management succession planning to a new level.
Philip W. Friedman
PORTFOLIO MANAGER
Margaret K. Johnson
PORTFOLIO MANAGER
William S. Auslander
PORTFOLIO MANAGER
January 1999
- --------------------------------------------------------------------------------
Equity Growth Portfolio
91
<PAGE>
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Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
EQUITY GROWTH PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- -----------------------------------------------------------------------------
COMMON STOCKS (99.8%)
CAPITAL GOODS (20.7%)
AEROSPACE/DEFENSE (2.7%)
140,500 Cordant Technologies, Inc........................ $ 5,269
(a)333,700 Gulfstream Aerospace Corp........................ 17,769
---------
23,038
---------
ELECTRICAL EQUIPMENT (2.8%)
239,700 General Electric Co.............................. 24,464
---------
MANUFACTURING (DIVERSIFIED) (12.3%)
119,200 Textron, Inc..................................... 9,052
596,300 Tyco International Ltd........................... 44,983
481,000 United Technologies Corp......................... 52,309
---------
106,344
---------
OFFICE EQUIPMENT & SUPPLIES (2.9%)
(a)377,700 Knoll, Inc....................................... 11,189
217,500 Pitney Bowes, Inc................................ 14,369
---------
25,558
---------
TOTAL CAPITAL GOODS............................................. 179,404
---------
COMMUNICATION SERVICES (4.1%)
TELECOMMUNICATIONS (LONG DISTANCE) (2.4%)
279,300 AT&T Corp........................................ 21,017
---------
TELEPHONE (1.7%)
(a)201,400 MCI Worldcom, Inc................................ 14,451
---------
TOTAL COMMUNICATION SERVICES.................................... 35,468
---------
CONSUMER CYCLICALS (7.3%)
PHOTOGRAPHY/IMAGING (0.6%)
70,400 Eastman Kodak Co................................. 5,069
---------
PUBLISHING (NEWSPAPERS) (1.0%)
137,300 News Corp., Ltd. ADR............................. 3,390
61,700 Pulitzer Publishing Co........................... 5,345
---------
8,735
---------
RETAIL (BUILDING SUPPLIES) (1.7%)
244,000 Home Depot, Inc.................................. 14,930
---------
RETAIL (SPECIALTY) (2.7%)
(a)61,400 Costco Cos., Inc................................. 4,432
263,200 Gap, Inc......................................... 14,805
(a)106,300 Staples, Inc..................................... 4,644
---------
23,881
---------
RETAIL (SPECIALTY/APPAREL) (0.8%)
(a)401,700 Toys 'R' Us, Inc................................. 6,779
---------
SERVICES (COMMERCIAL & CONSUMER) (0.5%)
254,132 Nielsen Media Research, Inc...................... 4,574
---------
TOTAL CONSUMER CYCLICALS........................................ 63,968
---------
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- -----------------------------------------------------------------------------
CONSUMER STAPLES (18.5%)
BEVERAGES (NON-ALCOHOLIC) (2.3%)
113,100 Coca Cola Co..................................... $ 7,563
335,600 Coca Cola Enterprises, Inc....................... 11,998
---------
19,561
---------
BROADCASTING (TV, RADIO, CABLE) (10.3%)
(a)208,200 Chancellor Media Corp............................ 9,968
(a)875,300 Clear Channel Communications, Inc................ 47,704
123,100 Comcast Corp., Class A-Special................... 7,224
74,300 Comcast Corp., Class A-Common.................... 4,268
(a)130,500 Tele-Communications, Inc......................... 7,218
(a)290,800 Tele-Communications, Liberty Media Group, Inc.,
Class A........................................ 13,395
---------
89,777
---------
ENTERTAINMENT (1.6%)
225,500 Time Warner, Inc................................. 13,995
---------
FOODS (1.6%)
101,800 Quaker Oats Co................................... 6,057
251,600 Ralston-Ralston Purina Group..................... 8,146
---------
14,203
---------
TOBACCO (2.7%)
429,800 Philip Morris Cos., Inc.......................... 22,994
---------
TOTAL CONSUMER STAPLES.......................................... 160,530
---------
ENERGY (0.5%)
OIL (INTERNATIONAL INTEGRATED) (0.5%)
60,200 Exxon Corp....................................... 4,402
---------
FINANCIAL (16.9%)
BANKS (MAJOR REGIONAL) (0.5%)
100,100 Fleet Financial Group, Inc....................... 4,473
---------
BANKS (MONEY CENTER) (0.5%)
69,500 First Union Corp................................. 4,226
---------
FINANCIAL (DIVERSIFIED) (3.4%)
202,600 American Express Co.............................. 20,716
184,850 Citigroup, Inc................................... 9,150
---------
29,866
---------
INSURANCE (LIFE & HEALTH) (1.0%)
135,600 Reinsurance Group of America, Inc., cumulative
non-voting..................................... 8,238
---------
INSURANCE (MULTI-LINE) (5.2%)
39,700 American Bankers Insurance Group, Inc............ 1,920
435,400 Loews Corp....................................... 42,778
---------
44,698
---------
INSURANCE (PROPERTY-CASUALTY) (5.2%)
164,550 Ace Ltd.......................................... 5,667
136,200 Allstate Corp.................................... 5,261
194 Berkshire Hathaway, Inc., Class A................ 13,580
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
Equity Growth Portfolio
92
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[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
EQUITY GROWTH PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- -----------------------------------------------------------------------------
<C> <S> <C>
</TABLE>
FINANCIAL (CONT.)
INSURANCE (PROPERTY-CASUALTY) (CONT.)
<TABLE>
<C> <S> <C>
(a)68,900 General Re Corp.................................. $ 17,066
20,400 Progressive Corp................................. 3,455
---------
45,029
---------
INVESTMENT BANKING & BROKERAGE (0.6%)
79,100 Merrill Lynch & Co............................... 5,280
---------
INVESTMENT MANAGEMENT (0.5%)
(a)149,700 PIMCO Advisors Holdings L.P...................... 4,659
---------
TOTAL FINANCIAL................................................. 146,469
---------
HEALTH CARE (9.4%)
HEALTH CARE (DIVERSIFIED) (0.5%)
59,500 Johnson & Johnson................................ 4,991
---------
HEALTH CARE (DRUGS-GENERIC & OTHERS) (1.5%)
(a)122,300 Amgen, Inc....................................... 12,788
---------
HEALTH CARE (DRUGS-MAJOR PHARMS) (6.2%)
124,300 Eli Lilly & Co................................... 11,047
146,300 Merck & Co., Inc................................. 21,607
166,800 Pfizer, Inc...................................... 20,923
---------
53,577
---------
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES) (1.2%)
168,700 Bausch & Lomb, Inc............................... 10,122
---------
TOTAL HEALTH CARE............................................... 81,478
---------
TECHNOLOGY (21.4%)
BIOTECHNOLOGY (1.1%)
(a)186,400 Genzyme Corp.-General Division................... 9,273
---------
COMMUNICATION EQUIPMENT (1.3%)
18,000 Lucent Technologies, Inc......................... 1,980
157,100 Motorola, Inc.................................... 9,593
---------
11,573
---------
COMPUTERS (HARDWARE) (3.5%)
261,600 Compaq Computer Corp............................. 10,971
(a)105,700 Dell Computer Corp............................... 7,736
64,600 International Business Machines Corp............. 11,935
---------
30,642
---------
COMPUTERS (NETWORKING) (2.5%)
(a)237,075 Cisco Systems, Inc............................... 22,004
---------
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- -----------------------------------------------------------------------------
COMPUTERS (SOFTWARE & SERVICES) (5.8%)
(a)79,800 America Online, Inc.............................. $ 12,768
(a)212,600 Microsoft Corp................................... 29,485
(a)204,000 Novell, Inc...................................... 3,698
(a)106,900 Oracle Corp...................................... 4,610
---------
50,561
---------
ELECTRONICS (COMPONENT DISTRIBUTORS) (0.2%)
(a)23,800 Uniphase Corp.................................... 1,651
---------
ELECTRONICS (DEFENSE) (4.1%)
(a)299,200 General Motors Corp., Class H.................... 11,874
(a)291,800 Litton Industries, Inc........................... 19,040
(a)258,300 Loral Space & Communications..................... 4,601
---------
35,515
---------
ELECTRONICS (SEMICONDUCTORS) (2.9%)
208,700 Intel Corp....................................... 24,744
---------
TOTAL TECHNOLOGY................................................ 185,963
---------
TRANSPORTATION (1.0%)
AIRLINES (1.0%)
254,100 Continental Airlines, Inc., Class B.............. 8,512
---------
TOTAL COMMON STOCKS (Cost $684,975)............................... 866,194
---------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS (99.8%) (Cost $684,975).......................... 866,194
--------
OTHER ASSETS (2.5%)
Receivable for Investments Sold...................... $ 18,615
Receivable for Portfolio Shares Sold................. 2,259
Dividends Receivable................................. 737
Other................................................ 21 21,632
----------
LIABILITIES ( - 2.3%)
Payable for Portfolio Shares Redeemed................ (11,797)
Payable For Investment Purchased..................... (5,662)
Investment Advisory Fees Payable..................... (1,221)
Bank Overdraft Payable............................... (969)
Administrative Fees Payable.......................... (108)
Distribution Fees Payable............................ (43)
Directors' Fees and Expenses Payable................. (28)
Custodian Fees Payable............................... (14)
Other Liabilities.................................... (89) (19,931)
---------- --------
NET ASSETS (100%).................................................. $867,895
--------
--------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
Equity Growth Portfolio
93
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[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
EQUITY GROWTH PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
NET ASSETS CONSIST OF:
<S> <C>
Paid in Capital.................................................... $705,653
Undistributed Net Investment Income................................ 152
Accumulated Net Realized Loss...................................... (19,129)
Unrealized Appreciation on Investments............................. 181,219
--------
NET ASSETS......................................................... $867,895
--------
--------
</TABLE>
<TABLE>
<CAPTION>
AMOUNT
(000)
<S> <C> <C>
- -----------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
CLASS A:
- -------------------------------------------------------------------
NET ASSETS......................................................... $784,565
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 41,196,169 outstanding $0.001 par value shares
(authorized 500,000,000 shares).................................. $19.04
--------
--------
CLASS B:
- -------------------------------------------------------------------
NET ASSETS......................................................... $83,330
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 4,392,224 outstanding $0.001 par value shares
(authorized 500,000,000 shares).................................. $18.97
--------
--------
</TABLE>
- ------------------------------------------------------------
(a) -- Non-income producing security
ADR -- American Depositary Receipt
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
Equity Growth Portfolio
94
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[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
TECHNOLOGY PORTFOLIO
COMPOSITION OF NET ASSETS (AT DECEMBER 31, 1998)
- --------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Data Communications 20.4%
Data Storage & Processing 4.7%
Electronic Equipment 6.2%
Information Processing 8.1%
Large Diversified Computer Mfg. 2.6%
Micro Computer Mfg. 8.1%
Mini & Mainframe Computer Mfg. 1.8%
Semiconductor Mfg. 15.2%
Software Products 18.7%
Technology-Other 10.7%
Other 3.5%
</TABLE>
COMPARISON OF THE CHANGE IN VALUE OF A $250,000** INVESTMENT
- ---------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
TECHNOLOGY PORTFOLIO-CLASS TECHNOLOGY PORTFOLIO-CLASS
A B S&P 500 INDEX(1)
<S> <C> <C> <C>
9/16/96* $250,000 $50,000 $250,000
12/31/96 $267,750 $53,550 $272,200
12/31/97 $367,540 $73,310 $363,006
12/31/98 $565,644 $112,546 $466,717
* Commencement of operations
** Minimum investment
</TABLE>
In accordance with SEC regulations, Portfolio performance shown assumes that all
recurring fees (including management fees) were deducted and all dividends and
distributions were reinvested. The performance of Class B shares will vary based
upon the different fees assessed to that class. The S&P 500 Index value at
December 31, 1998 assumes a minimum initial investment of $250,000; if a minimum
initial investment of $50,000 (the minimum investment for Class B shares) is
assumed the value at December 31, 1998 would be $93,343.
PERFORMANCE COMPARED TO THE S&P 500 INDEX AND THE
LIPPER SCIENCE AND TECHNOLOGY FUNDS INDEX(1)
- -----------------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
-----------------------------
AVERAGE ANNUAL
ONE YEAR SINCE INCEPTION
---------- -----------------
<S> <C> <C>
PORTFOLIO -- CLASS A............... 53.90% 42.83%
PORTFOLIO -- CLASS B............... 53.52 42.51
S&P 500 INDEX...................... 28.57 31.38
LIPPER SCIENCE & TECH.............. 46.77 27.34
</TABLE>
1. The S&P 500 Index is an unmanaged index of common stocks. 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 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 year ended December 31, 1998, the Portfolio had a total return of 53.90%
for the Class A shares and 53.52% for the Class B shares compared to 28.57% for
the S&P 500 Index and 46.77% for the Lipper Science and Technology Funds Index.
From inception on September 16, 1996 through December 31, 1998, the average
annual total return of Class A shares was 42.83% and 42.51% for Class B shares
compared to 31.38% for the S&P 500 Index and 27.34% for the Lipper Science and
Technology Funds Index.
Overall, we are very pleased with the Portfolio's performance in 1998 as it
performed well on an absolute and relative basis in both up and down market
periods.
After going through a meaningful correction in the third quarter the broad
markets, led by the technology sector, have rebounded. The fears of domestic
economic slowdown leading to lower corporate profits and reduced spending on
information technology did not materialize in the fourth quarter of 1998. Most
technology companies, led by bellwethers such as Microsoft, Intel, Cisco, and
America Online have reported better than expected results. Despite the extreme
volatility in the equity markets, in general,
- ------------------------------------------------------------
CERTAIN INFORMATION APPEARING IN THIS INVESTMENT OVERVIEW IS UNAUDITED.
ACCORDINGLY, THE REPORT OF INDEPENDENT ACCOUNTANTS APPEARING ELSEWHERE IN THIS
REPORT DOES NOT EXTEND TO THIS INFORMATION. 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 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.
- --------------------------------------------------------------------------------
Technology Portfolio
95
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
TECHNOLOGY PORTFOLIO (CONT.)
and in the technology sector, in particular, we managed to realize substantial
gains and finish the year with very strong performance.
As we look to 1999 and beyond we believe long term 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.
The common theme is the demand for packet-based terrestrial communication
systems and mobile communications. These new systems will eventually replace the
narrow-band analog systems that now comprise the bulk of the world's
communication capabilities.
Independent of a potential global slow down, 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. Going forward, 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.
Stephen C. Sexauer
PORTFOLIO MANAGER
Alexander L. Umansky
PORTFOLIO MANAGER
January 1999
- --------------------------------------------------------------------------------
Technology Portfolio
96
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
TECHNOLOGY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- --------------------------------------------------------------------------
COMMON STOCKS (96.5%)
TECHNOLOGY (96.5%)
DATA COMMUNICATIONS (20.4%)
(a)7,000 Adaptec, Inc...................................... $ 123
(a)39,000 Advanced Fibre Communications, Inc. .............. 427
(a)1,900 AirTouch Communications, Inc. .................... 137
21,400 Alcatel Alsthom ADR ............................. 523
(a)13,300 Ascend Communications, Inc. ...................... 875
(a)5,150 Cisco Systems, Inc. .............................. 478
(a)21,000 Commscope, Inc. .................................. 353
(a)3,900 Excel Switching Corp. ............................ 148
(a)5,400 General Instrument Corp. ......................... 183
(a)3,900 JDS Fitel, Inc. .................................. 97
2,100 Lucent Technologies, Inc. ........................ 231
(a)8,000 Metromedia Fiber Network, Inc., Class A........... 268
(a)12,800 Newbridge Networks Corp. ......................... 389
2,100 Northern Telecom Ltd.............................. 105
(a)6,700 Proxim, Inc. ..................................... 179
(a)3,000 QUALCOMM, Inc. ................................... 155
2,800 Scientific-Atlanta, Inc. ......................... 64
(a)1,950 Sprint PCS........................................ 45
(a)3,000 Tekelec, Inc. .................................... 50
(a)16,100 3Com Corp. ....................................... 722
(a)6,200 TranSwitch Corp. ................................. 241
----------
5,793
----------
DATA STORAGE & PROCESSING (4.7%)
(a)3,800 EMC Corp. ........................................ 323
(a)5,000 Quantum Corp. .................................... 106
(a)13,400 SanDisk Corp...................................... 189
(a)17,400 Seagate Technology, Inc. ......................... 526
(a)13,100 Western Digital Corp. ............................ 197
----------
1,341
----------
ELECTRONIC EQUIPMENT (6.2%)
(a)1,400 Exodus Communications, Inc. ...................... 90
(a)30,500 FORE Systems, Inc. ............................... 559
(a)3,100 International Network Services.................... 206
(a)2,950 Level One Communications, Inc. ................... 105
(a)2,500 Micrel, Inc. ..................................... 138
(a)500 Sanmina Corp. .................................... 31
(a)7,200 Uniphase Corp. ................................... 500
(a)500 Visual Networks, Inc. ............................ 19
(a)5,900 Xylan Corp. ...................................... 104
----------
1,752
----------
INFORMATION PROCESSING (8.1%)
9,200 America Online, Inc. ............................. 1,472
(a)31,794 Cendant Corp. .................................... 606
(a)5,700 Electronics For Imaging, Inc. .................... 229
----------
2,307
----------
LARGE DIVERSIFIED COMPUTER MFG (2.6%)
2,500 International Business Machines Corp.............. 462
(a)7,500 Unisys Corp. ..................................... 258
----------
720
----------
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- --------------------------------------------------------------------------
MICRO COMPUTER MFG (8.1%)
(a)11,500 Apple Computer, Inc. ............................. $ 471
26,900 Compaq Computer Corp. ............................ 1,128
(a)3,000 Dell Computer Corp. .............................. 220
(a)2,000 Gateway 2000, Inc. ............................... 102
(a)4,300 Sun Microsystems, Inc. ........................... 368
----------
2,289
----------
MINI & MAINFRAME COMPUTER MFG (1.8%)
7,600 Hewlett Packard Co. .............................. 519
----------
SEMICONDUCTOR MFG (15.2%)
(a)29,000 Advanced Micro Devices, Inc....................... 839
(a)4,300 Altera Corp. ..................................... 262
(a)5,800 Analog Devices, Inc. ............................. 182
(a)100 Broadcom Corp., Class A........................... 12
8,900 Intel Corp. ...................................... 1,055
(a)2,700 Lattice Semiconductor Corp. ...................... 124
(a)1,700 Maxim Integrated Products, Inc. .................. 74
(a)25,900 Micron Electronics, Inc. ......................... 448
(a)9,200 Micron Technology, Inc. .......................... 465
5,700 Motorola, Inc. ................................... 348
1,800 Texas Instruments, Inc. .......................... 154
(a)5,300 Xilinx, Inc. ..................................... 345
----------
4,308
----------
SOFTWARE PRODUCTS (18.7%)
5,500 Adobe Systems, Inc. .............................. 257
(a)2,200 At Home Corp., Series A........................... 163
(a)4,900 Citrix Systems, Inc. ............................. 476
(a)7,600 Compuware Corp. .................................. 594
(a)9,800 J.D. Edwards & Co. ............................... 278
(a)2,000 Lycos, Inc. ...................................... 111
(a)4,000 Manugistics Group, Inc. .......................... 50
(a)15,000 Micromuse, Inc. .................................. 293
(a)3,600 Microsoft Corp. .................................. 499
(a)9,400 Netscape Communications Corp. .................... 571
(a)33,500 Novell, Inc. ..................................... 607
(a)12,700 Oracle Corp. ..................................... 548
(a)4,400 Progress Software Corp. .......................... 149
(a)27,000 Software AG Systems, Inc. ........................ 489
(a)13,300 Vantive Corp. .................................... 106
(a)400 YAHOO!, Inc....................................... 95
----------
5,286
----------
OTHER (10.7%)
(a)1,400 Clear Channel Communications, Inc. ............... 76
(a)4,100 Ingram Micro, Inc., Class A....................... 143
(a)7,700 MCI Worldcom, Inc. ............................... 553
(a)4,600 Medicis Pharmaceutical, Class A .................. 274
(a)5,500 Mercury Computer Systems, Inc. ................... 155
22,500 Nielsen Media Research, Inc. ..................... 405
2,750 Paychex, Inc. .................................... 141
(a)7,000 SABRE Group Holdings, Inc. ....................... 312
3,900 Sprint Corp. (Fon Group) ......................... 328
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
Technology Portfolio
97
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
TECHNOLOGY PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------
<C> <S> <C>
</TABLE>
TECHNOLOGY (CONT.)
OTHER (CONT.)
<TABLE>
<C> <S> <C>
(a)6,600 SunGard Data Systems, Inc. ....................... $ 262
(a)1,100 TeleBanc Financial Corp. ......................... 37
(a)13,100 Whittman-Hart, Inc. .............................. 362
----------
3,048
----------
TOTAL TECHNOLOGY............................................ 27,363
----------
TOTAL COMMON STOCKS (Cost $19,345)............................ 27,363
----------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT
(000)
<C> <S> <C>
- ----------
SHORT-TERM INVESTMENT (3.8%)
REPURCHASE AGREEMENT (3.8%)
$ 1,078 Chase Securities, Inc. 4.45%, dated 12/31/98, due
1/04/99 to be repurchased at $1,079,
collateralized by U.S. Treasury Bonds, 10.375%,
due 11/15/12, valued at $1,105 (Cost $1,078).... 1,078
----------
</TABLE>
<TABLE>
<CAPTION>
NO. OF
CONTRACTS
<C> <S> <C>
- ----------
PURCHASED OPTIONS (1.4%)
45 Morgan Stanley High Tech Index Put at 740, due
1/16/99......................................... $ 7
30 Morgan Stanley High Tech Index Call at 740, due
1/16/99......................................... 396
----------
TOTAL OPTIONS (Cost $309)..................................... 403
----------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS (101.7%) (Cost $20,732)................... 28,844
----------
OTHER ASSETS (2.3%)
Cash.......................................... $ 1
Receivable Due from Broker.................... 625
Receivable for Portfolio Shares Sold.......... 8
Dividends Receivable.......................... 2
Other......................................... 1 637
----------
LIABILITIES ( - 4.0%)
Payable for Investments Purchased............. (607)
Written Options, at Value (Premiums Received
$225)....................................... (401)
Investment Advisory Fees Payable.............. (24)
Custodian Fees Payable........................ (5)
Directors' Fees & Expenses Payable............ (5)
Administrative Fees Payable................... (4)
Other Liabilities............................. (79) (1,125)
---------- ----------
NET ASSETS (100%)........................................... $ 28,356
----------
----------
</TABLE>
<TABLE>
<CAPTION>
VALUE
(000)
<S> <C> <C>
------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
NET ASSETS CONSIST OF:
Paid in Capital............................................... $ 20,385
Accumulated Net Investment Loss............................... (4)
Accumulated Net Realized Gain................................. 39
Unrealized Appreciation on Investments and Written Options.... 7,936
----------
NET ASSETS.................................................... $ 28,356
----------
----------
</TABLE>
<TABLE>
<S> <C>
CLASS A:
- --------------------------------------------------------------
NET ASSETS.................................................... $27,506
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 1,529,599 outstanding $0.001 par value shares
(authorized 500,000,000 shares)............................. $17.98
----------
----------
CLASS B:
- --------------------------------------------------------------
NET ASSETS.................................................... $850
NET ASSET VALUE, OFFERING, AND REDEMPTION
PRICE PER SHARE
Applicable to 47,433 outstanding $0.001 par value shares
(authorized 500,000,000 shares)............................. $17.92
----------
----------
</TABLE>
- ------------------------------------------------------------
(a) -- Non-income producing security
ADR -- American Depositary Receipt
- ------------------------------------------------------------
The following written options were open at December 31, 1998:
<TABLE>
<CAPTION>
NO. OF VALUE
CONTRACTS (000)
<C> <S> <C>
- --------------------------------------------------------------------------
WRITTEN OPTIONS (NOTE A-10)
CALL OPTIONS
30 Morgan Stanley High Tech Index Call at 740, due
1/16/99......................................... $ 396
PUT OPTIONS
30 Morgan Stanley High Tech Index Put at 740, due
1/16/99......................................... 5
-----
TOTAL WRITTEN OPTIONS (Premium $225).......................... $401
-----
-----
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
Technology Portfolio
98
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
U.S. EQUITY PLUS PORTFOLIO
COMPOSITION OF NET ASSETS (AT DECEMBER 31, 1998)
- --------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Basic Materials 1.9%
Capital Goods 12.7%
Communication Services 8.6%
Consumer Cyclicals 11.3%
Consumer Staples 12.4%
Energy 4.2%
Financial 14.6%
Health Care 12.3%
Technology 16.9%
Transportation 0.8%
Utilities 3.7%
Other 0.6%
</TABLE>
COMPARISON OF THE CHANGE IN VALUE OF A $500,000** INVESTMENT
- ---------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
U.S. EQUITY PLUS PORTFOLIO-CLASS U.S. EQUITY PLUS PORTFOLIO-CLASS
A B S&P 500 INDEX(1)
<S> <C> <C> <C>
7/31/97* $500,000 $100,000 $500,000
12/31/97 $519,700 $103,930 $512,200
12/31/98 $630,188 $125,703 $658,536
* Commencement of operations
** Minimum investment
</TABLE>
In accordance with SEC regulations, Portfolio performance shown assumes that all
recurring fees (including management fees) were deducted and all dividends and
distributions were reinvested. The performance of Class B shares will vary based
upon the different fees assessed to that class. The S&P 500 Index value at
December 31, 1998 assumes a minimum initial investment of $500,000; if a minimum
initial investment of $100,000 (the minimum investment for Class B shares) is
assumed, the value at December 31, 1998 would be $131,707.
PERFORMANCE COMPARED TO THE S&P 500 INDEX(1)
- -----------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
-----------------------------
AVERAGE ANNUAL
ONE YEAR SINCE INCEPTION
---------- -----------------
<S> <C> <C>
PORTFOLIO -- CLASS A................... 21.26% 17.71%
PORTFOLIO -- CLASS B................... 20.95 17.49
INDEX.................................. 28.57 21.41
</TABLE>
1. The S&P 500 Index is an unmanaged index of common stocks.
2. Total returns for the Portfolio reflect expenses waived and reimbursed, if
applicable, by the Adviser. Without such waiver and reimbursement, total
returns would be lower.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
The 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 year ended December 31, 1998, the Portfolio had a total return of 21.26%
for the Class A shares and 20.95% for the Class B shares compared to 28.57% for
the S&P 500 Index (the "Index"). For the period from inception on July 31, 1997
through December 31, 1998, the Portfolio had a total return of 17.71% for Class
A shares and 17.49% for Class B shares compared to 21.41% 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 banking, financial
services, insurance and electric utilities. Our worst performing sectors were
energy, consumer services, telephones and basic industries.
- ------------------------------------------------------------
CERTAIN INFORMATION APPEARING IN THIS INVESTMENT OVERVIEW IS UNAUDITED.
ACCORDINGLY, THE REPORT OF INDEPENDENT ACCOUNTANTS APPEARING ELSEWHERE IN THIS
REPORT DOES NOT EXTEND TO THIS INFORMATION. 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.
- --------------------------------------------------------------------------------
U.S. Equity Plus Portfolio
99
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
U.S. EQUITY PLUS PORTFOLIO (CONT.)
Virtually all of the differential performance between the Portfolio and the
Index came from active stock selection. The five largest contributions to our
performance relative to the S&P 500 came from the following stocks: 1) Microsoft
Corp, a computer software company, rose 115%, driven by strong sales of its core
software products and increased optimism about its Internet strategy. An
overweight position in the stock boosted our performance. 2) Home Depot, a
retail-building products company, climbed 108%, helped by a solid U.S consumer
environment, strong retail industry fundamentals, and excellent earnings. 3)
Merrill Lynch, a global financial management and advisory company, fell 7% due
primarily to losses stemming from October volatility. Robust trading from retail
and institutional investors in the last quarter allowed the company to recover
slightly. An underweight position boosted our performance. 4) McDonald's, an
operator of a worldwide system of fast-food restaurants, rose 62%, as it
benefited from an improved marketing campaign and lower prices for critical
commodities including beef. 5) Tyco, a diversified manufacturing and service
company, posted a 68% increase amid optimism about its acquisitions and strong
earnings performance.
On the other side, the five most negative contributions to our performance
relative to the Index came from the following stocks: 1) Case Corporation, which
manufactures and markets both farm and construction equipment, continued in a
painful progression, declining 69% as the problems in emerging markets, falling
commodity prices, and declining U.S. farm income pummeled the demand for farm
equipment. 2) Citigroup, a diversified financial service holding company which
includes, importantly, Travelers and Salomon Smith Barney, fell 7% as
difficulties in integrating its investment banking and commercial banking units
prevented it from fully recovering from global financial market woes in the
third quarter. 3) Armco, a producer of stainless steel and strip and electrical
sheets, dropped by 11% as its shares never fully recovered from the GM strike in
a weak and extremely rocky third quarter. 4) Rowan, an oil and gas drilling
company, dropped 68%, as concerns that lower oil prices would cut demand for oil
exploration and production services hurt its shares. 5) Deere & Co., which
manufactures and distributes both farm and construction equipment, declined 42%,
as earnings were hurt by a downturn in retail farm equipment sales.
The year of 1998 was certainly a year to remember. The U.S. economy marched
ahead with bonds providing a supportive environment for investment, beginning
the year at a 5.9% yield and ending at 5.1%. Seemingly ignoring a continual
chorus of concerns about corporate earnings growth, U.S. large capitalization
stocks gained nearly 20% by mid-year, only to fall back to January's levels by
the end of the summer when Russia announced that it would halt some of its
high-profile debt payments. But easy monetary policy and a resilient consumer
powered the U.S. economy ahead and the Index finished the year up over 28%. The
concerns about growth caused investors to shy away from securities (both debt
and equity) that were perceived to be adversely affected by economic weakness.
Large capitalization value stocks, as measured by the S&P Barra Value Index,
rose only 14.7% during the year, while their growth counterparts soared 40.6%.
Likewise, small capitalization stocks, as measured by the Russell 2000 Index,
had an amazingly dismal year, actually falling by 3.4% during the year. While
the performance of the S&P 500 Index appears to be highly impressive at first
glance, the overall number masks an important feature of the market this year.
The performance was extraordinarily narrow, with the bulk of the performance
coming from a few large cap growth stocks. Consequently, the year was a
difficult one for the Portfolio. Many of our value-oriented stock selections
were especially hard-hit, weighing on our overall performance for the year. It
is our expectation that U.S. economic growth will slow in 1999. Unless there is
another panic like the Russian scare last summer, the value/growth differential
will not be as extreme going forward. Likewise, the large cap/small cap
differential will also moderate and more normal breadth will return to the
marketplace and, hence, stock-picking conditions will not be as problematic
during the year to come.
Narayan Ramachandran
PORTFOLIO MANAGER
Eugene Flood
PORTFOLIO MANAGER
January 1999
- --------------------------------------------------------------------------------
U.S. Equity Plus Portfolio
100
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
U.S. EQUITY PLUS PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- --------------------------------------------------------------------------
COMMON STOCKS (99.4%)
BASIC MATERIALS (1.9%)
ALUMINUM (0.0%)
300 Alcoa, Inc........................................ $ 22
----------
CHEMICALS (0.5%)
2,000 Air Products & Chemicals, Inc..................... 80
3,000 E.I. du Pont de Nemours & Co...................... 159
3,900 Rohm & Haas Co.................................... 118
----------
357
----------
CHEMICALS (DIVERSIFIED) (0.3%)
3,700 Monsanto Co....................................... 176
----------
CHEMICALS (SPECIALTY) (0.2%)
1,400 Great Lakes Chemical Corp......................... 56
(a) 3,500 W.R. Grace & Co................................... 55
----------
111
----------
GOLD & PRECIOUS METALS MINING (0.2%)
8,400 Barrick Gold Corp................................. 164
----------
IRON & STEEL (0.7%)
(a)14,600 Bethlehem Steel Corp.............................. 122
10,800 USX -- U.S. Steel Group, Inc...................... 248
9,100 Worthington Industries, Inc....................... 114
----------
484
----------
TOTAL BASIC MATERIALS....................................... 1,314
----------
CAPITAL GOODS (12.7%)
AEROSPACE & DEFENSE (1.4%)
20,800 Boeing Co......................................... 679
3,500 Northrop Grumman Corp............................. 256
----------
935
----------
ELECTRICAL EQUIPMENT (5.1%)
13,400 Bank One Corp..................................... 684
6,900 Emerson Electric Co............................... 417
21,600 General Electric Co............................... 2,205
3,400 Raychem Corp...................................... 110
1,900 Thomas & Betts Corp............................... 82
----------
3,498
----------
ENGINEERING & CONSTRUCTION (0.1%)
1,300 Foster Wheeler Corp............................... 17
2,700 McDermot International, Inc....................... 67
----------
84
----------
MACHINERY (DIVERSIFIED) (1.0%)
7,300 Case Corp......................................... 159
12,900 Deere & Co........................................ 427
3,100 Timken Co......................................... 59
----------
645
----------
MANUFACTURING (DIVERSIFIED) (4.0%)
2,100 Aeroquip-Vickers, Inc............................. 63
11,700 Allied Signal, Inc................................ 518
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- --------------------------------------------------------------------------
3,700 Corning, Inc...................................... $ 167
1,400 Crane Co.......................................... 42
1,100 National Service Industries, Inc.................. 42
14,100 Tyco International Ltd............................ 1,064
7,800 United Technologies Corp.......................... 848
----------
2,744
----------
MANUFACTURING (SPECIALIZED) (0.1%)
600 Briggs & Stratton Corp............................ 30
----------
OFFICE EQUIPMENT & SUPPLIES (0.2%)
1,200 Xerox Corp........................................ 142
----------
TRUCKS & PARTS (0.4%)
400 Cummins Engine Co., Inc........................... 14
(a) 5,100 Navistar International Corp....................... 145
2,900 PACCAR, Inc....................................... 119
----------
278
----------
WASTE MANAGEMENT (0.4%)
3,300 Browning-Ferris Industries, Inc................... 94
3,700 Waste Management, Inc............................. 173
----------
267
----------
TOTAL CAPITAL GOODS......................................... 8,623
----------
COMMUNICATION SERVICES (8.6%)
TELECOMMUNICATIONS (CELLULAR/WIRELESS) (0.4%)
(a) 3,700 AirTouch Communications, Inc...................... 267
----------
TELECOMMUNICATIONS (LONG DISTANCE) (3.9%)
23,700 AT&T Corp......................................... 1,783
10,200 Sprint Corp....................................... 858
----------
2,641
----------
TELEPHONE (4.3%)
5,700 Alltel Corp....................................... 341
2,800 Ameritech Corp.................................... 177
14,300 Bell Atlantic Corp................................ 758
2,800 Bellsouth Corp.................................... 140
6,500 GTE Corp.......................................... 423
(a)13,100 MCI Worldcom, Inc................................. 940
1,300 SBC Communications, Inc........................... 70
1,400 U.S. WEST, Inc.................................... 90
----------
2,939
----------
TOTAL COMMUNICATION SERVICES................................ 5,847
----------
CONSUMER CYCLICALS (11.3%)
AUTOMOBILES (1.5%)
16,800 Ford Motor Co..................................... 986
----------
BUILDING MATERIALS (0.1%)
2,600 Owens Corning..................................... 92
----------
</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
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
U.S. EQUITY PLUS PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------
<C> <S> <C>
CONSUMER CYCLICALS (CONT.)
CONSUMER (JEWELRY, NOVELTIES & GIFTS) (0.1%)
1,200 American Greetings Corp., Class A................. $ 49
700 Jostens, Inc...................................... 18
----------
67
----------
FOOTWEAR (0.0%)
600 Nike, Inc., Class B............................... 24
----------
HARDWARE & TOOLS (0.0%)
200 Black & Decker Corp............................... 11
100 Milacron, Inc..................................... 2
----------
13
----------
HOMEBUILDING (0.0%)
500 Fleetwood Enterprises, Inc........................ 17
----------
HOUSEHOLD FURNISHINGS & APPLIANCES (0.7%)
7,600 Maytag Corp....................................... 473
----------
LEISURE TIME PRODUCTS (0.4%)
9,100 Brunswick Corp.................................... 225
----------
PHOTOGRAPHY/IMAGING (0.5%)
5,100 Eastman Kodak Co.................................. 367
----------
PUBLISHING (NEWSPAPERS) (0.4%)
6,500 New York Times Co., Class A....................... 225
----------
RETAIL (BUILDING SUPPLIES) (2.7%)
28,400 Home Depot, Inc................................... 1,738
1,300 Lowe's Cos., Inc.................................. 67
----------
1,805
----------
RETAIL (DEPARTMENT STORES) (0.0%)
1,000 Dillard's, Inc.................................... 28
----------
RETAIL (GENERAL MERCHANDISE) (4.1%)
8,700 Dayton Hudson Corp................................ 472
(a) 5,900 Kmart Corp........................................ 90
7,200 Sears Roebuck & Co................................ 306
23,700 Wal-Mart Stores, Inc.............................. 1,930
----------
2,798
----------
SERVICES (ADVERTISING/MARKETING) (0.4%)
4,400 Omnicom Group, Inc................................ 255
----------
SERVICES (COMMERCIAL & CONSUMER) (0.0%)
2,600 Laidlaw, Inc...................................... 26
----------
TEXTILES (APPAREL) (0.4%)
(a) 6,500 Fruit of the Loom, Inc............................ 90
5,200 Liz Claiborne, Inc................................ 164
----------
254
----------
TOTAL CONSUMER CYCLICALS...................................... 7,655
----------
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- --------------------------------------------------------------------------
CONSUMER STAPLES (12.4%)
BEVERAGES (ALCOHOLIC) (2.1%)
20,700 Anheuser Busch Cos., Inc.......................... $ 1,358
800 Coors (Adolph), Inc., Class B..................... 45
----------
1,403
----------
BEVERAGES (NON-ALCOHOLIC) (2.4%)
15,500 Coca Cola Co...................................... 1,037
14,000 Coca Cola Enterprises, Inc........................ 501
2,100 PepsiCo, Inc...................................... 86
----------
1,624
----------
BROADCASTING (TV, RADIO, CABLE) (0.0%)
300 Comcast Corp., Class A............................ 18
----------
DISTRIBUTORS (FOOD & HEALTH) (0.4%)
2,200 Cardinal Health, Inc.............................. 167
3,700 SUPERVALU, Inc.................................... 104
----------
271
----------
ENTERTAINMENT (0.3%)
(a) 2,200 King World Productions, Inc....................... 65
400 The Walt Disney Co................................ 12
1,600 Viacom, Inc., Class B............................. 118
----------
195
----------
FOODS (1.3%)
100 Bestfoods......................................... 5
4,200 Campbell Soup Co.................................. 231
7,500 Ralston-Ralston Purina Group...................... 243
15,600 Sara Lee Corp..................................... 440
----------
919
----------
HOUSEHOLD PRODUCTS (NON-DURABLES) (0.5%)
3,300 Kimberly-Clark Corp............................... 180
1,600 Procter & Gamble Co............................... 146
----------
326
----------
RESTAURANTS (0.9%)
7,700 McDonald's Corp................................... 590
----------
RETAIL (DRUG STORES) (1.1%)
8,200 CVS Corp.......................................... 451
4,900 Walgreen Co....................................... 287
----------
738
----------
RETAIL (FOOD CHAINS) (0.9%)
800 Albertson's, Inc.................................. 51
(a) 9,800 Kroger Co......................................... 593
----------
644
----------
SPECIALTY PRINTING (0.2%)
3,200 Deluxe Corp....................................... 117
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
U.S. Equity Plus Portfolio
102
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
U.S. EQUITY PLUS PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------
<C> <S> <C>
CONSUMER STAPLES (CONT.)
TOBACCO (2.3%)
26,000 Philip Morris Cos., Inc........................... $ 1,391
5,100 UST, Inc.......................................... 178
----------
1,569
----------
TOTAL CONSUMER STAPLES........................................ 8,414
----------
ENERGY (4.2%)
OIL & GAS (DRILLING) (2.0%)
24,400 Baker Hughes, Inc................................. 432
10,500 Halliburton Co.................................... 311
4,800 Helmerich & Payne, Inc............................ 93
(a)15,000 Rowan Cos., Inc................................... 150
7,700 Schlumberger Ltd.................................. 355
----------
1,341
----------
OIL & GAS (EXPLORATION & DRILLING) (0.3%)
5,000 Apache Corp....................................... 127
2,900 Kerr McGee Corp................................... 111
----------
238
----------
OIL & GAS (REFINING & MARKETING) (0.4%)
3,400 Ashland, Inc...................................... 164
3,700 Sunoco, Inc....................................... 133
----------
297
----------
OIL (DOMESTIC INTEGRATED) (0.3%)
5,700 USX-Marathon Group................................ 172
----------
OIL (INTERNATIONAL INTEGRATED) (1.2%)
5,900 Amoco Corp........................................ 356
3,600 Chevron Corp...................................... 299
100 Mobil Corp........................................ 9
3,300 Royal Dutch Petroleum Co.......................... 158
----------
822
----------
TOTAL ENERGY................................................ 2,870
----------
FINANCIAL (14.6%)
BANKS (MAJOR REGIONAL) (5.4%)
25,600 Bank of New York Co., Inc......................... 1,030
2,000 BankBoston Corp................................... 78
6,800 BB&T Financial Corp............................... 274
8,100 Comerica, Inc..................................... 552
12,500 Fleet Financial Group, Inc........................ 559
11,000 KeyCorp........................................... 352
1,700 Mellon Bank Corp.................................. 117
9,600 SunTrust Banks, Inc............................... 734
----------
3,696
----------
BANKS (MONEY CENTER) (1.0%)
11,400 First Union Corp.................................. 693
----------
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- --------------------------------------------------------------------------
CONSUMER FINANCE (1.5%)
1,200 Associates First Capital Corp., Class A........... $ 51
11,400 Countrywide Credit Industries, Inc................ 572
5,750 Providian Financial Corp.......................... 431
----------
1,054
----------
FINANCIAL (DIVERSIFIED) (3.0%)
1,100 American Express Co............................... 112
5,900 Citigroup, Inc.................................... 292
11,900 Federal Home Loan Mortgage Corp................... 767
6,600 Federal National Mortgage Assoc................... 488
4,700 SunAmerica, Inc................................... 381
----------
2,040
----------
INSURANCE (BROKERS) (0.1%)
1,400 Marsh & McLennan Cos.............................. 82
----------
INSURANCE (LIFE & HEALTH) (0.7%)
10,600 Conseco, Inc...................................... 324
3,000 Provident Cos., Inc............................... 125
----------
449
----------
INSURANCE (MULTI-LINE) (0.6%)
3,600 American International Group, Inc................. 348
600 CIGNA Corp........................................ 46
----------
394
----------
INSURANCE (PROPERTY-CASUALTY) (1.0%)
12,400 Allstate Corp..................................... 479
1,200 Progressive Corp.................................. 203
----------
682
----------
INVESTMENT BANKING & BROKERAGE (1.1%)
9,300 Bear Stearns Cos., Inc............................ 348
8,700 Lehman Brothers Holdings, Inc..................... 383
----------
731
----------
SAVINGS & LOANS (0.2%)
1,600 Golden West Financial Corp........................ 147
----------
TOTAL FINANCIAL............................................. 9,968
----------
HEALTH CARE (12.3%)
HEALTH CARE (DIVERSIFIED) (5.5%)
1,400 Abbott Laboratories............................... 69
16,200 American Home Products Corp....................... 912
9,500 Bristol-Myers Squibb Co........................... 1,271
5,700 Johnson & Johnson................................. 478
6,400 Mallinckrodt, Inc................................. 197
10,800 Warner Lambert Co................................. 812
----------
3,739
----------
HEALTH CARE (DRUGS-GENERIC & OTHERS) (0.4%)
(a) 2,400 Amgen, Inc........................................ 251
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
U.S. Equity Plus Portfolio
103
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
U.S. EQUITY PLUS PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------
<C> <S> <C>
HEALTH CARE (CONT.)
HEALTH CARE (DRUGS - MAJOR PHARMS) (3.2%)
20,200 Eli Lilly & Co.................................... $ 1,795
2,200 Merck & Co., Inc.................................. 325
1,900 Schering-Plough Corp.............................. 105
----------
2,225
----------
HEALTH CARE (HOSPITAL MANAGEMENT) (0.1%)
(a) 2,700 Tenet Healthcare Corp............................. 71
----------
HEALTH CARE (LONG-TERM CARE) (0.6%)
(a)25,700 HEALTHSOUTH Corp.................................. 397
----------
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES) (2.4%)
3,400 Bausch & Lomb, Inc................................ 204
7,900 Becton Dickinson & Co............................. 337
1,500 Guidant Corp...................................... 165
12,400 Medtronic, Inc.................................... 921
----------
1,627
----------
HEALTH CARE (SPECIALIZED SERVICES) (0.1%)
(a) 900 Alza Corp., Class A............................... 47
----------
TOTAL HEALTH CARE............................................. 8,357
----------
TECHNOLOGY (16.9%)
COMMUNICATION EQUIPMENT (2.4%)
(a) 3,500 Andrew Corp....................................... 58
3,900 Harris Corp....................................... 143
7,400 Lucent Technologies, Inc.......................... 814
13,100 Northern Telecom Ltd.............................. 657
----------
1,672
----------
COMPUTERS (HARDWARE) (3.3%)
(a) 6,800 Dell Computer Corp................................ 498
7,500 International Business Machines Corp.............. 1,386
(a) 4,100 Sun Microsystems, Inc............................. 351
----------
2,235
----------
COMPUTERS (NETWORKING) (0.9%)
(a) 6,500 Cisco Systems, Inc................................ 603
----------
COMPUTERS (PERIPHERALS) (0.5%)
(a) 4,300 EMC Corp.......................................... 366
----------
COMPUTERS (SOFTWARE & SERVICES) (6.5%)
(a) 2,600 BMC Software, Inc................................. 116
7,500 Computer Associates International, Inc............ 320
1,700 HBO & Co.......................................... 49
(a)23,900 Microsoft Corp.................................... 3,315
(a)14,000 Oracle Corp....................................... 604
----------
4,404
----------
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- --------------------------------------------------------------------------
ELECTRONICS (SEMICONDUCTORS) (3.3%)
18,100 Intel Corp........................................ $ 2,146
900 Texas Instruments, Inc............................ 77
----------
2,223
----------
TOTAL TECHNOLOGY............................................ 11,503
----------
TRANSPORTATION (0.8%)
AIR FREIGHT (0.0%)
(a) 400 FDX Corp.......................................... 36
----------
AIRLINES (0.4%)
(a) 700 AMR Corp.......................................... 42
5,000 Delta Air Lines, Inc.............................. 260
----------
302
----------
RAILROADS (0.1%)
1,100 Burlington Northern Santa Fe Corp................. 37
----------
TRUCKERS (0.3%)
7,700 Ryder System, Inc................................. 200
----------
TOTAL TRANSPORTATION........................................ 575
----------
UTILITIES (3.7%)
ELECTRIC COMPANIES (2.7%)
700 Duke Energy Corp.................................. 45
10,400 Edison International.............................. 290
8,300 FPL Group, Inc.................................... 511
5,700 GPU, Inc.......................................... 252
3,500 Houston Industries, Inc........................... 112
11,300 PECO Energy Co.................................... 470
900 Southern Co....................................... 26
2,300 Texas Utilities Co................................ 107
600 Unicom Corp....................................... 23
----------
1,836
----------
NATURAL GAS (0.5%)
6,700 Coastal Corp...................................... 234
1,300 Columbia Energy Group............................. 75
1,000 Eastern Enterprises............................... 44
----------
353
----------
POWER PRODUCERS (INDEPENDENT) (0.5%)
(a)6,800 AES Corp.......................................... 322
----------
TOTAL UTILITIES............................................. 2,511
----------
TOTAL COMMON STOCKS (Cost $58,996)............................ 67,637
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
U.S. Equity Plus Portfolio
104
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
U.S. EQUITY PLUS PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
<C> <S> <C>
- --------------------------------------------------------------------------
SHORT-TERM INVESTMENT (1.2%)
REPURCHASE AGREEMENT (1.2%)
$ 826 Chase Securities, Inc. 4.45%, dated 12/31/98, due
1/04/99, to be repurchased at $826,
collateralized by U.S. Treasury Bonds, 11.25%,
due 2/15/15, valued at $848
(Cost $826)..................................... $ 826
----------
TOTAL INVESTMENTS (100.6%) (Cost $59,822)..................... 68,463
----------
</TABLE>
<TABLE>
<S> <C> <C>
OTHER ASSETS (0.1%)
Cash................................................ $ 1
Dividends Receivable................................ 73
Receivable for Portfolio Shares Sold................ 15
Other............................................... 1 90
----------
LIABILITIES ( - 0.7%)
Payable for Portfolio Shares Redeemed............... (369)
Investment Advisory Fees Payable.................... (46)
Custodian Fees Payable.............................. (5)
Administrative Fees Payable......................... (8)
Director's Fees and Expense Payable................. (1)
Distribution Fees Payable........................... (1)
Other Liabilities................................... (52) (482)
---------- ----------
NET ASSETS (100%)................................................. $ 68,071
----------
----------
</TABLE>
<TABLE>
<S> <C>
NET ASSETS CONSIST OF:
Paid in Capital................................................. $ 60,651
Undistributed Net Investment Income............................. 74
Accumulated Net Realized Loss................................... (1,295)
Unrealized Appreciation on Investments.......................... 8,641
----------
NET ASSETS...................................................... $ 68,071
----------
----------
</TABLE>
<TABLE>
<CAPTION>
AMOUNT
(000)
<S> <C> <C>
- ------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
CLASS A:
- ----------------------------------------------------------------
NET ASSETS...................................................... $66,640
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 5,361,439 outstanding $0.001 par value shares
(authorized 500,000,000 shares)............................... $12.43
----------
----------
CLASS B:
- ----------------------------------------------------------------
NET ASSETS...................................................... $1,431
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 115,171 outstanding $0.001 par value shares
(authorized 500,000,000 shares)............................... $12.42
----------
----------
</TABLE>
- ------------------------------------------------------------
(a) -- Non-income producing security
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
U.S. Equity Plus Portfolio
105
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
U.S. REAL ESTATE PORTFOLIO
COMPOSITION OF NET ASSETS (AT DECEMBER 31, 1998)
- --------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Diversified 10.7%
Healthcare 1.3%
Lodging/Resorts 4.0%
Office/Industrial 27.3%
Residential 28.2%
Retail 17.9%
Self Storage 5.8%
Specialty Hotel 0.1%
Other 4.7%
</TABLE>
COMPARISON OF THE CHANGE IN VALUE OF A $500,000** INVESTMENT
- ---------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C> <C>
U.S. Real Estate Portfolio
Class A NAREIT Equity Index(1)
2/24/95* $500,000 $500,000
12/31/95 $605,350 $572,300
12/31/96 $844,826 $780,617
12/31/97 $1,078,167 $939,004
12/31/98 $945,660 $774,678
* Commencement of operations
** Minimum investment
</TABLE>
In accordance with SEC regulations, Portfolio performance shown assumes that all
recurring fees (including management fees) were deducted and all dividends and
distributions were reinvested. The performance of Class B shares will vary based
upon the different inception dates and fees assessed to that class.
PERFORMANCE COMPARED TO THE NATIONAL ASSOCIATION OF
REAL ESTATE INVESTMENT TRUSTS (NAREIT) EQUITY INDEX(1)
- -----------------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
-----------------------------
AVERAGE ANNUAL
ONE YEAR SINCE INCEPTION
---------- -----------------
<S> <C> <C>
PORTFOLIO -- CLASS A............. - 12.29% 17.99%
PORTFOLIO -- CLASS B............. - 12.52 15.45
INDEX -- CLASS A................. - 17.50 11.93
INDEX -- CLASS B................. - 17.50 10.33
</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 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 year ended December 31, 1998, the Portfolio had a total return of
- 12.29% for the Class A shares and - 12.52% for the Class B shares compared
to a total return of - 17.50% for the National Association of Real Estate
Investment Trusts (NAREIT) Equity Index (the "Index"). From inception on
February 24, 1995 through December 31, 1998, the average annual total return of
the Class A shares was 17.99% compared to 11.93% for the Index. From inception
on January 2, 1996 through December 31, 1998, the average annual total return of
the Class B shares was 15.45% compared to 10.33% for the Index.
Following the worst quarter for real estate securities in almost a decade, the
fourth quarter of 1998 was tame in comparison as the Index posted a loss of
2.5%. However, real estate investors had difficulty enjoying this calm given the
dramatic gains in the broad equity markets in the quarter and the resulting
relative underperformance. The Index declined 17.5% for the year, which marks
the worst year for real estate securities in recent history (exceeding the loss
of 13.4% posted in 1990). In comparison, the Russell 2000 Index of small
capitalization stocks ended the year down 2.5% and the S&P 500 achieved new
highs gaining over 20% for an unprecedented fourth consecutive year. As a result
of this quarter's performance, we remain in a valuation cycle in which it is
cheaper for investors to buy real estate assets on Wall Street (through the
ownership of securities) than on Main Street (through the direct ownership of
assets).
The fourth quarter featured three phases. REITs fell over 10% to start the
quarter, achieving their lowest level for the year on October 8th. REITs
proceeded to
- ------------------------------------------------------------
CERTAIN INFORMATION APPEARING IN THIS INVESTMENT OVERVIEW IS UNAUDITED.
ACCORDINGLY, THE REPORT OF INDEPENDENT ACCOUNTANTS APPEARING ELSEWHERE IN THIS
REPORT DOES NOT EXTEND TO THIS INFORMATION. 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.
- --------------------------------------------------------------------------------
U.S. Real Estate Portfolio
106
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
U.S. REAL ESTATE PORTFOLIO (CONT.)
recover from these lows and continued to rally following the Fed's surprise
interest rate cut on October 15th. However, this rally faded before month-end
and drove the Index up by less than 7.5%. In the third and longest phase of the
quarter, the REIT market made several attempts at gaining territory but
retreated each time. Causes for the retreat included broad equity market
declines as well as a constant stream of highly-publicized, negative news from
the most prominent REITs.
We have previously discussed our perspective that, over the medium and long
term, the largest determinant of the value of the shares of real estate stocks
will be underlying real estate fundamentals. We measure REITs based on their
Price to Net Asset Value ratio ("P/NAV"). Last quarter was the first in which
P/NAV had fallen below 100% since early 1995. At the annual NAREIT meeting held
in Boston in mid-October, the mood reflected the tone of an industry prepared to
remain in this new environment for some period of time. There are a number of
features that investors can expect during this period, which we have outlined
below.
Although there was a modest level of equity issuance late in the quarter, it was
in the form of small retail-oriented equity offerings by a select group of the
more favored REITs (e.g.; Kimco, Post Properties, Duke Realty and JDN Realty).
The industry continues to be closed for large institutionally oriented equity
offerings and most companies have come to realize that they may not be able to
return to the equity markets for a lengthy period of time. As a result, they are
focusing on alternative methods to raise capital. This includes the concept of
selling certain non-core assets (clearly a difficult strategy given the current
investment environment) as well as forming joint ventures. The typical joint
venture model involves teaming with a pension fund to acquire or develop assets,
utilizing property level financing. This is a popular idea, although many
companies admit to being in a preliminary stage on the concept. Significant
joint ventures were announced by Burnham Pacific (with CalPers) and First
Industrial. In addition, given the difficult market for financing of real
estate, companies are focused on refinancing debt that will come due in the near
term and on extending credit lines with existing lending relationships.
By the end of the third quarter, many companies had received Board approval and
some had implemented share repurchase programs as their share prices were
rapidly declining. We applauded this activity as it reflects the idea that the
company's best "external growth" alternative is buying its stock in the open
market (since it provides a better return than development or acquisitions at
the current share price). We have noticed a decline in this activity as
companies have realized that their shares may not recover quickly and they feel
a need to treat their remaining capital availability with great care. Those that
have capital availability have taken a selective attitude and have increased
targeted investment returns as a result of treating this capital as a scarce
resource. Many companies have determined that they cannot acquire assets due to
their capital constraints or the relative attractiveness versus their current
share price. Assuming this environment will persist, a number of companies have
initiated layoffs in their acquisitions departments, including Taubman Centers
and Federal Realty. Each company will focus exclusively on their development
pipeline. We believe that these announcements also reflect a strategic direction
for REITs to focus on "value added" external growth. This is in contrast to the
theme in 1997, which reflected more of a growth and expansion mentality for many
REITs, a theme predicated on the availability of equity.
The merger and acquisition market also heated-up in the fourth quarter as a
result of the new environment. In two similar transactions, the largest public
company in a sector merged with a smaller rival. First, after rebuffing earlier
overtures, Storage Trust agreed to merge with Public Storage, the largest owner
of self-storage facilities in a stock for stock merger. Then, Meridian
Industrial Trust agreed to merge with Prologis Trust, the largest owner of
industrial buildings in a stock for stock merger. In each case, the acquiring
company does not intend to retain the management of the smaller company. As a
result, the deals can be viewed as purchases of real estate portfolios as
opposed to companies. Not surprisingly, the prices paid are approximately the
Net Asset Values of the target companies. One may assume that the Board of each
of the target companies believed that they could no longer compete for capital
in a more difficult environment and were better off selling at this point in
order to maximize proceeds for the shareholders. We applaud the decision of the
companies and their Boards to sell.
In addition, there are public companies willing to put themselves up for sale
but having difficulty concluding
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U.S. Real Estate Portfolio
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<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
U.S. REAL ESTATE PORTFOLIO (CONT.)
transactions. These stories have been prevalent in the private markets as
purchasers are walking away from transactions in the anticipation of acquiring
assets at better prices. In one example, Bedford Realty announced that its
expected sale of a large portion of its assets (predominantly office properties
in California) was not going to proceed as the acquirer informed the company it
was not able to arrange financing to conclude the transaction. In addition,
Tower Realty announced that the joint venture formed by Crescent and Reckson was
pulling from the transaction to purchase the New York based office company.
Later in the quarter, Reckson did agree to purchase Tower for a lower price.
Crescent elected not to participate in the new company but did make an
investment in Reckson in order to honor their previous commitment.
Given the deterioration in share prices, there was tremendous debate as to
whether the industry was about to see a wave of leveraged buyouts ("LBO's"). We
agree with the general consensus that the sector is not likely to see LBO's at
this time since the stocks are not discounted to a level that merits an LBO,
combined with a difficult financing environment. However, the quarter did
feature the offer by The Irvine Company ("TIC", a private company) to purchase
and take private Irvine Apartment Communities ("IAC"), a public apartment REIT
originally sponsored by TIC, for a 20% premium to the prevailing share price. We
consider this situation to be unique given the approximate 70% stake that TIC
holds in IAC as well as certain unique legal advantages granted to TIC at the
initial public offering of IAC. An interesting highlight of the premium bid for
IAC is that many of the sell-side analysts had IAC rated as a "market performer"
since it already traded at the highest FFO multiple of all of the multifamily
REITs. However, based on our NAV model, we thought that the stock was trading at
a significant discount to NAV, and, as a result, held it as one of our larger
positions.
After monitoring third quarter earnings reported for the REITs, it is our
observation that the property market continues to perform well and the internal
growth is coming in better than expected. This has served to offset the slower
pace of earnings growth arising from external growth. As a result, most
companies are meeting analysts expectations. However, analysts may have to take
down earnings estimates for 1999 due to the potential slowing of internal growth
and the continued decline in external sources. Even with reduced estimates,
earnings growth for 1999 is estimated at 10%.
Perhaps the most troubling aspect of the fourth quarter for the overall REIT
market was the constant stream of highly-publicized, negative news from the most
prominent REITs. The media spotlighted two large REITs that announced
restructurings following unsuccessful growth plans. Patriot American announced
the sale of non-strategic hotel assets, the hiring of financial advisors to
explore all strategic alternatives and, by quarter end, the placement of
convertible preferred stock. The stock has fallen from a 52-week high of $32 to
a current $7 trading range. Patriot also decided to suspend their dividend
payment for the quarter. Meditrust announced a restructuring of the company that
included selling non-core assets and splitting the company into two separate
companies. This stock has fallen from a high of $38 to a $15 trading range.
Meditrust elected to reduce their dividend payment. The quarter also featured a
negative pre-release of earnings expectations for both the fourth quarter and
1999 from Starwood. This stock has declined from a high of $58 to a $25 trading
range. Another high-flying real estate stock badly damaged in the fourth quarter
was Security Capital Group, which declined to $13 after achieving a high of $32.
Although this company is not structured as a REIT, it is a large real estate
company that was heavily marketed to pension funds and non-dedicated real estate
investors. We believe that the overall message delivered by this group of
companies served as a warning to the universe of non-dedicated investors in real
estate securities. As we have discussed in the past, our style is value oriented
and opportunistic. As a result, we took the opportunity of price declines in
each of these stocks to add them to the Portfolio.
It has become apparent that the overall U.S. real estate market has become
dependent for receiving its direction from the public debt market (known as
"CMBS" or commercial mortgage backed securities) and equity markets. Just as the
REIT equity market has slowed, the CMBS market has come to a virtual halt as
credit spreads have widened, particularly for lower rated securities. Generally,
transaction volumes have slowed as sellers are pulling properties from the
market rather than selling at reduced prices. It is our expectation that when
transactions begin again we will see prices decline by 10% or more. Consistent
with
- --------------------------------------------------------------------------------
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108
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
U.S. REAL ESTATE PORTFOLIO (CONT.)
the credit markets, it appears that prices of the higher quality assets have
fallen (or will fall) less than those of second tier properties.
Taking its cue from questions regarding the direction of the economy, it is now
the demand side of the equation that has become the most debated in the real
estate market. Although there is no current evidence of a slowdown in
absorption, demand for real estate space will obviously be affected by GDP
growth and business and consumer confidence. The difficulties in the capital
markets, by comparison, create quite favorable news from the supply side of the
equation. Developers will complete existing developments but will not be able to
arrange financing for new developments. As a result, the net effect appears to
be one where if the current market environment persists, when the supply
pipeline is complete and as long as absorption is positive, we will continue to
have favorable real estate fundamentals.
The multifamily market has faced modest changes. Transaction volume has slowed
but remains active at modestly lower prices. Recent reports of strong levels of
new apartment construction can be attributed to large supply in three specific
markets: Manhattan, Houston and Seattle. It is interesting to note that each of
these markets face potential demand problems due to issues in the financial,
oil-related and aircraft industries.
Despite a drop in consumer confidence for much of the second half of the year,
retail sales have not slowed materially. The pace of construction has also not
slowed as retailers continue to demand new stores. Once again, the focus in
retailing was upon the Christmas season. Although the sales growth of 5.2% was
above the consensus estimates for the season, there remain questions about the
profitability of those sales.
The surging supply of new office space appears to be grinding to a halt after
existing projects are completed. In addition, the office market has shown signs
of easing rental growth. With the exception of the hotel sector, this market has
suffered the largest deterioration in property prices. As opposed to previous
years when portfolios were able to command premium pricing, portfolio
transactions must be offered at a discount given the dramatic decline in large
buyers, largely due to financing constraints.
The hotel market has been the most affected by current recession fears. It is
extremely difficult to find buyers for hotel assets and for those assets that
have sold, prices have declined dramatically -- by as much as 20%. Fears in the
hotel market have eased to some degree along with the general consensus for a
brighter economic outlook in 1999.
We have continued to shape the Portfolio with companies offering attractive
fundamental valuations relative to their underlying real estate value. Given the
expected deterioration in capital values and the potential slowdown in the
demand for real estate, we have shifted the Portfolio to be modestly more
defensive. From a top-down perspective, we have increased our overweighting to
the less volatile sectors such as residential housing (both apartments and
manufactured home communities) and maintained an underweighting to the more
volatile sectors such as hotels (which feature daily re-pricing of rents). In
addition, we favored a more opportunistic approach to investing in the fourth
quarter following a relatively dramatic defensive shift in the third quarter. As
discussed above, this was evidenced in the purchase of a number of large cap
companies that fell into disfavor with investors as a result of negative
announcements. In addition, once again we took advantage of a weak market and
price declines to add a number of the most talented companies in the REIT
universe to the Portfolio, including Simon Property Group and Apartment and
Investment Management.
Theodore R. Bigman
PORTFOLIO MANAGER
Douglas A. Funke
PORTFOLIO MANAGER
January 1999
- --------------------------------------------------------------------------------
U.S. Real Estate Portfolio
109
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
U.S. REAL ESTATE PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- ------------------------------------------------------------------------------
COMMON STOCKS (94.1%)
DIVERSIFIED (10.7%)
313,000 Crescent Real Estate Equities, Inc. REIT......... $ 7,199
426,800 Pacific Gulf Properties, Inc. REIT............... 8,563
236,100 Pennsylvania REIT................................ 4,589
66,200 Vornado Realty Trust REIT........................ 2,234
(a)654,898 Wellsford Real Properties, Inc................... 6,754
---------
29,339
---------
HEALTH CARE (1.3%)
223,200 Meditrust Corp. REIT............................. 3,376
700 Omega Healthcare Investors, Inc. REIT............ 21
---------
3,397
---------
LODGING/RESORTS (4.0%)
(a)108,300 Candlewood Hotel Company, Inc.................... 569
121,700 Host Marriott Corp............................... 1,681
(a)108,300 John Q Hammons Hotels, Inc., Class A............. 399
420,700 Patriot American Hospitality, Inc. REIT.......... 2,524
253,937 Starwood Lodging Trust REIT...................... 5,761
---------
10,934
---------
OFFICE INDUSTRIAL (25.9%)
INDUSTRIAL (4.3%)
58,300 Meridian Industrial Trust, Inc. REIT............. 1,370
193,000 ProLogis Trust REIT.............................. 4,005
412,400 Prime Group Realty Trust REIT.................... 6,238
---------
11,613
---------
OFFICE/ INDUSTRIAL MIXED (0.8%)
84,500 Bedford Property Investors, Inc. REIT............ 1,426
25,000 Spieker Properties, Inc. REIT.................... 866
---------
2,292
---------
OFFICE (20.8%)
526,500 Arden Realty, Inc. REIT.......................... 12,208
(a,d )335,100 Beacon Capital Partners, Inc..................... 6,702
1,700 Boston Properties, Inc. REIT..................... 52
364,554 Brandywine Realty Trust REIT..................... 6,516
747,500 Brookfield Properties Corp. (Canada)............. 9,146
133,400 CarrAmerica Realty Corp. REIT.................... 3,202
2,500 Cornerstone Properties, Inc...................... 39
332,827 Equity Office Properties Trust REIT.............. 7,988
592,200 Great Lakes, Inc. REIT........................... 9,290
42,200 Mack-Cali Realty Corp. REIT...................... 1,303
12,000 SL Green Realty Corp. REIT....................... 260
---------
56,706
---------
TOTAL OFFICE/INDUSTRIAL.......................................... 70,611
---------
OTHER (1.1%)
(a)580,384 Atlantic Gulf Communities Corp................... 435
(a)22,530 Merry Land Properties, Inc....................... 82
(a)192,100 Security Capital Group, Inc., Class B............ 2,605
---------
3,122
---------
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- ------------------------------------------------------------------------------
RESIDENTIAL (28.2%)
RESIDENTIAL APARTMENTS (20.6%)
36,300 Amli Residential Properties Trust REIT........... $ 808
158,000 Apartment Investment & Management Co. REIT....... 5,875
318,610 Archstone Communities Trust REIT................. 6,452
335,600 Avalon Bay Communities, Inc., REIT............... 11,494
182,718 Equity Residential Properties Trust REIT......... 7,389
296,700 Essex Property Trust, Inc. REIT.................. 8,827
224,700 Irvine Apartment Communities, Inc. REIT.......... 7,162
204,700 Smith (Charles E.) Residential Realty, Inc.
REIT........................................... 6,576
102,500 Summit Properties, Inc........................... 1,768
---------
56,351
---------
RESIDENTIAL MANUFACTURED HOMES (7.6%)
565,452 Chateau Communities, Inc. REIT................... 16,575
67,000 Manufactured Home Communities, Inc. REIT......... 1,679
72,300 Sun Communities, Inc. REIT....................... 2,517
---------
20,771
---------
TOTAL RESIDENTIAL................................................ 77,122
---------
RETAIL (17.0%)
RETAIL REGIONAL MALLS (8.3%)
(a)37,100 Acadia Realty Trust REIT......................... 195
7,400 Philips International Realty Corp. REIT.......... 114
190,000 Simon Property Group, Inc. REIT.................. 5,415
890,400 Taubman Centers, Inc. REIT....................... 12,243
145,800 Urban Shopping Centers, Inc. REIT................ 4,775
---------
22,742
---------
RETAIL STRIP CENTERS (8.7%)
823,500 Burnham Pacific Property Trust REIT.............. 9,933
376,700 Federal Realty Investment Trust REIT............. 8,900
29,400 First Washington Realty Trust, Inc. REIT......... 696
176,700 Pan Pacific Retail Properties, Inc. REIT......... 3,523
2,300 Ramco-Gershenson Properties Trust REIT........... 33
26,300 Regency Realty Corp. REIT........................ 585
---------
23,670
---------
TOTAL RETAIL..................................................... 46,412
---------
SELF STORAGE (5.8%)
245,910 PS Business Parks, Inc. REIT..................... 5,871
178,600 Public Storage, Inc. REIT........................ 4,833
114,100 Shurgard Storage Centers, Inc., Series A REIT.... 2,945
96,500 Storage Trust Realty REIT........................ 2,256
---------
15,905
---------
</TABLE>
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.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
U.S. REAL ESTATE PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- ------------------------------------------------------------------------------
<C> <S> <C>
SPECIALTY HOTEL (0.1%)
(a)12,070 Crestline Capital Corp........................... $ 177
---------
TOTAL COMMON STOCKS (Cost $256,517)................................ 257,019
---------
PREFERRED STOCK (0.9%)
RETAIL (0.9%)
STRIP CENTERS (0.9%)
80,400 First Washington Realty Trust, Inc., Series A
REIT (Cost $2,251)............................. 2,387
---------
CONVERTIBLE PREFERRED STOCKS (0.3%)
OTHER (0.3%)
(a)107,021 Atlantic Gulf Communities Corp................... 548
(a)75,765 Altantic Gulf Communities Corp., Series B........ 388
---------
TOTAL CONVERTIBLE PREFERRED STOCKS (Cost $4,079)................... 936
---------
</TABLE>
<TABLE>
<CAPTION>
NO. OF
WARRANTS
<C> <S> <C>
- --------------
WARRANTS (0.6%)
OFFICE/INDUSTRIAL (0.5%)
INDUSTRIAL (0.5%)
(a)184,843 Meridian Industrial Trust, Inc. REIT, expiring
2/23/99........................................ 1,363
---------
OTHER (0.1%)
(a)112,509 Atlantic Gulf Communities Corp., Class A,
expiring 6/23/04............................... 42
(a)112,509 Atlantic Gulf Communities Corp., Class B,
expiring 6/23/04............................... 42
(a)112,509 Atlantic Gulf Communities Corp., Class C,
expiring 6/23/04............................... 42
---------
126
---------
TOTAL WARRANTS (Cost $300)......................................... 1,489
---------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT
(000)
<C> <S> <C>
- --------------
CORPORATE BOND (0.9%)
OFFICE/INDUSTRIAL (0.9%)
OFFICE (0.9%)
$ 2,934 Brookfield Properties Corp. (Canada),
6.00%, 2/14/07 (Cost $2,267)................... 2,521
---------
SHORT-TERM INVESTMENT (2.1%)
REPURCHASE AGREEMENT (2.1%)
5,628 Chase Securities, Inc. 4.45%, dated 12/31/98, due
1/04/99, to be repurchased at $5,631,
collateralized by U.S. Treasury Bonds, 11.25%,
due 2/15/15, valued at $5,742 (Cost $5,628).... 5,628
---------
</TABLE>
<TABLE>
<CAPTION>
VALUE
(000)
<S> <C> <C>
- ------------------------------------------------------------------------------
TOTAL INVESTMENTS (98.9%) (Cost $271,042)......................... $ 269,980
----------
OTHER ASSETS (1.5%)
Dividends Receivable................................ $ 2,286
Receivable for Investments Sold..................... 1,036
Receivable for Portfolio Shares Sold................ 931
Interest Receivable................................. 6
Other............................................... 8 4,267
----------
LIABILITIES ( - 0.4%)
Investment Advisory Fees Payable.................... (485)
Payable for Investments Purchased................... (304)
Bank Overdraft Payable.............................. (124)
Payable for Portfolio Shares Redeemed............... (79)
Administrative Fees Payable......................... (33)
Directors' Fees and Expenses Payable................ (13)
Distribution Fees Payable........................... (9)
Custodian Fees Payable.............................. (8)
Other Liabilities................................... (80) (1,135)
---------- ----------
NET ASSETS (100%)................................................. $ 273,112
----------
----------
</TABLE>
<TABLE>
<S> <C>
NET ASSETS CONSIST OF:
Paid in Capital................................................... $ 277,389
Undistributed Net Investment Income............................... 2,174
Accumulated Net Realized Loss..................................... (5,389)
Unrealized Depreciation on Investments............................ (1,062)
----------
NET ASSETS........................................................ $ 273,112
----------
----------
</TABLE>
<TABLE>
<S> <C>
CLASS A:
- ------------------------------------------------------------------
NET ASSETS........................................................ $ 259,589
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 20,423,161 outstanding $0.001 par value shares
(authorized 500,000,000 shares)................................. $12.71
----------
----------
CLASS B:
- ------------------------------------------------------------------
NET ASSETS........................................................ $13,523
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 1,067,258 outstanding $0.001 par value shares
(authorized 500,000,000 shares)................................. $12.67
----------
----------
</TABLE>
- ------------------------------------------------------------
(a) -- Non-income 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
111
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
VALUE EQUITY PORTFOLIO
COMPOSITION OF NET ASSETS (AT DECEMBER 31, 1998)
- --------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Basic Materials 4.3%
Capital Goods 14.5%
Communication Services 13.9%
Consumer Cyclicals 14.4%
Consumer Staples 1.8%
Energy 4.9%
Financial 30.9%
Health Care 2.6%
Technology 4.5%
Transportation 2.0%
Utilities 3.5%
Other 2.7%
</TABLE>
COMPARISON OF THE CHANGE IN VALUE OF A $500,000** INVESTMENT
- ---------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
VALUE EQUITY PORTFOLIO-CLASS
A S&P 500 INDEX(1)
<S> <C> <C>
1/31/90* $500,000 $500,000
10/31/91 $557,460 $633,500
10/31/92 $604,880 $695,700
12/31/92 $638,765 $728,150
12/31/93 $735,485 $801,400
12/31/94 $726,000 $811,900
12/31/95 $970,589 $1,116,687
12/31/96 $1,162,086 $1,373,078
12/31/97 $1,501,415 $1,831,137
12/31/98 $1,633,390 $2,354,293
* Commencement of operations
** Minimum investment
</TABLE>
In accordance with SEC regulations, Portfolio performance shown assumes that all
recurring fees (including management fees) were deducted and all dividends and
distributions were reinvested. The performance of Class B shares will vary based
upon the different inception dates and fees assessed to that class.
PERFORMANCE COMPARED TO THE S&P 500 INDEX AND THE INDATA EQUITY-MEDIAN INDEX(1)
- -----------------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
------------------------------------------------
ONE AVERAGE ANNUAL AVERAGE ANNUAL
YEAR FIVE YEARS SINCE INCEPTION
---------- ----------------- -----------------
<S> <C> <C> <C>
PORTFOLIO -- CLASS A.... 8.79% 17.30% 14.19%
PORTFOLIO -- CLASS B.... 8.59 N/A 18.35
S&P 500 INDEX -- CLASS
A....................... 28.57 24.06 19.01
INDATA EQUITY-MEDIAN
INDEX -- CLASS A........ 19.65 19.99 16.93
S&P 500 INDEX -- CLASS
B....................... 28.57 N/A 27.95
INDATA EQUITY-MEDIAN
INDEX -- CLASS B........ 19.65 N/A 23.29
</TABLE>
1. The S&P 500 and the Indata Equity-Median Index are unmanaged indices of
common stocks. The Indata Equity-Median Index includes an average asset
allocation of 7.6% cash and 92.4% equity based on $513.9 billion in assets
among 1,270 portfolios for the period ended December 31, 1998.
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.
Our value 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 year ended December 31, 1998, the Portfolio had a total return of 8.79%
for the Class A shares and 8.59% for the Class B shares compared to a total
return of 28.57% for the S&P 500 Index and 19.65% for the Indata Equity-Median
Index. For the five-year period ended December 31, 1998, the average annual
total return of Class A shares was 17.30% compared to 24.06% for the S&P 500
Index and 19.99% for the Indata Equity-Median Index. From inception on January
31, 1990 through December 31, 1998, the average annual total return of Class A
shares was 14.19% compared to 19.01% for the S&P 500 Index and 16.93% for the
Indata Equity-Median Index. From inception on January 2, 1996 through December
31, 1998, the average annual total return of Class B shares was 18.35% compared
to 27.95% for the S&P 500 Index and 23.29% for the Indata Equity-Median Index
The Portfolio holds undervalued companies with a wide valuation gap as compared
to the characteristics of the S&P 500.
1998 CAP WEIGHTED
- ----------------
<TABLE>
<CAPTION>
PRICE-EARNINGS PRICE-TO-BOOK
-------------- ------------
<S> <C> <C> <C>
Portfolio................. 13x 3.1x
S&P 500................... 27x 5.7x
</TABLE>
For the three months ended December 31, 1998, the Portfolio had a total return
of 18.45% for the Class A shares and 18.58% for the Class B shares compared to
21.29% for the S&P 500 Index and 20.22% for the Indata Equity-Median Index.
For the year, the best performing stocks in the Portfolio were Texas
Instruments, up 91%, Gulfstream Aerospace, up 82%, Sprint, up 64%, TJX
Companies,
- ------------------------------------------------------------
CERTAIN INFORMATION APPEARING IN THIS INVESTMENT OVERVIEW IS UNAUDITED.
ACCORDINGLY, THE REPORT OF INDEPENDENT ACCOUNTANTS APPEARING ELSEWHERE IN THIS
REPORT DOES NOT EXTEND TO THIS INFORMATION. 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.
- --------------------------------------------------------------------------------
Value Equity Portfolio
112
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
VALUE EQUITY PORTFOLIO (CONT.)
up 61%, Bausch & Lomb, up 54%, United Technologies, up 52%, US West, up 49%, and
American General, up 48%. The worst performing stocks were Case, down 64%,
Northrop Grumman, down 35%, Continental Airlines, down 31%, Bankers Trust, down
21%, Harris Corp., down 18%, and Bank Boston, down 15%.
Overall, the underperformance was due to maintaining our bet against the
highly-valued mega-cap stocks and an overweight on financial and cyclical
stocks. It was an extremely difficult year where no act of prudence, caution, or
value investing went unpunished by the market.
The story for the year, and fourth quarter, was the stunning performance of the
largest stocks: this was true for the S&P 500, the Value indices, and the Growth
Indices. For the year, 5 stocks (Microsoft, GE, Wal-Mart, Lucent, and Cisco)
accounted for 25% of the S&P 500 returns and an amazing 15 stocks accounted for
50% of the S&P 500 returns. Microsoft alone accounted for 8% of the S&P 500 1998
return. In contrast, for the year, 205 stocks in the S&P 500 had negative
returns; and the average return of these 205 stocks was -6%.
While expected 1998 earnings per share growth is zero-to-negative, lower
interest rates and a wall of cash propelled the indexes to double-digit returns.
The result is an S&P 500 price/earnings of 27 on expected 1998 earnings of 45
and a 26 price/earnings on expected earnings of 47. The top 10 stocks in the S&P
500 have an average 1998 price/earnings of 43.
The combination of continued expectations of double-digit earnings growth
discounted at ever-lower interest rates has produced extraordinary index returns
and extraordinary valuations. Yet by year-end, the negative earnings
pre-announcements tracked by First Call were over 400, an all-time high. More
and more companies have seen margins squeezed by high labor costs in the face of
falling prices.
For the favored-few mega-cap stocks that have seen continued double digit profit
growth, or a forecasted rebound, there is no limit to valuations: Cisco, a 92
price/earnings, Microsoft a 85 price/earnings, Pfizer a 62 price/earnings,
Wal-Mart a 43 price/earnings, and Intel a 38 price/earnings. For the rest of the
market, there is no downside limit when expectations are for a cyclical downturn
in profits: Meritor Automotive, a 9 price/earnings, Continental Airlines, a 6
price/earnings, Cordant Technologies, a 10 price/earnings, and Allstate, a 12
price-earnings.
While the market has a 1999 price/earnings of 27, the Portfolio's 1999
price/earnings is 13. The expected S&P 500 earnings per share growth is 4% and
the Portfolio's expected earnings per share growth is a similar 6%.
Our biggest positions are TJX Companies, United Technologies, AT&T, Chase
Manhattan, and Allstate. These five stocks account for 20% of the Portfolio's
net assets. All five are dominant firms in their industries, have strong
management, have had and are expected to have positive earnings growth, are
generating excess cash and are buying back shares. All five have below market
multiples. The top 10 positions have similar characteristics and comprise 40% of
the Portfolio's net assets. These top 10 comprise the core of the Portfolio.
During the year we continued to add to core positions where management continues
to execute and valuations are attractive and at a discount to the market. United
Technologies (UTX) is the world leader in elevators (Otis), air-conditioning
(Carrier), and jet engines (Pratt). For 1998, UTX earnings will grow 19%, and
while they continue to invest and make acquisitions, they are also buying back
shares.
We added to TJX Companies (TJX) at 18 in the summer sell off. TJX is the leader
in off-price retailers with the flagship TJ Maxx and Marshall's stores. This
year, TJX will grow earnings over 40% and buy back shares; yet it, like UTX, is
valued at 20 times expected 1999 earnings per share when the market is 27 times
and the favored-few are 38 times expected 1999 earnings per share.
AT&T continues its restructuring under new CEO Mike Armstrong. This year it
defined AT&T as the leading world-wide broadband communications company with the
purchase of Teleport, the global joint venture with British Telecom, the
purchase of IBM's global data network, and the announced acquisition of the
cable group TCI. We added to our position after the announced merger by
purchasing TCI at a discount to the implied AT&T purchase price. The combined
companies are now 4% of the Portfolio's net assets.
Chase continues to be the premier bank for global syndicated lending and foreign
exchange trading. This
- --------------------------------------------------------------------------------
Value Equity Portfolio
113
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
VALUE EQUITY PORTFOLIO (CONT.)
year, even with significant losses in Asia and Russia, Chase will grow earnings
and buy back shares. Allstate is the leading property and casualty insurance
company. In an industry plagued by over capacity and limited top line growth,
Allstate has used its scale and technical skills to produce distinctly below
average loss ratios and generate steady earnings growth and cash flow that is
used to grow the core business and buy back shares.
The balance of the Portfolio is comprised of value stocks with high earnings
yields, above market dividend yields, or low price-to-asset values. The
weightings range from 1% of the Portfolio to 2.5%. The Portfolio also holds a
small number of contrarian stocks where one or a number of problems has produced
extreme valuations. These positions range form 0.5% to 1% of the Portfolio.
Stephen C. Sexauer
PORTFOLIO MANAGER
January 1999
- --------------------------------------------------------------------------------
Value Equity Portfolio
114
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
VALUE EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- --------------------------------------------------------------------------
COMMON STOCKS (97.3%)
BASIC MATERIALS (4.3%)
CHEMICALS (SPECIALTY) (0.7%)
19,900 Milennium Chemicals, Inc. ........................ $ 395
----------
CONSTRUCTION (CEMENT & AGGREGATES) (1.2%)
12,500 Southdown, Inc. .................................. 740
----------
METALS MINING (2.4%)
102,000 USEC, Inc. ....................................... 1,415
----------
TOTAL BASIC MATERIALS....................................... 2,550
----------
CAPITAL GOODS (14.5%)
AEROSPACE/DEFENSE (6.0%)
53,900 Cordant Technologies, Inc. ....................... 2,021
23,000 Gulfstream Aerospace Corp. ....................... 1,225
3,700 Northrop Grumman Corp. ........................... 271
----------
3,517
----------
ELECTRICAL EQUIPMENT (2.8%)
24,000 Philips Electronics N.V. (NY Shares).............. 1,624
----------
MACHINERY (DIVERSIFIED) (1.8%)
37,200 Case Corp. ....................................... 811
7,200 Deere & Co. ...................................... 238
----------
1,049
----------
MANUFACTURING (DIVERSIFIED) (3.9%)
21,100 United Technologies Corp. ........................ 2,295
----------
TOTAL CAPITAL GOODS......................................... 8,485
----------
COMMUNICATION SERVICES (13.9%)
TELECOMMUNICATIONS (CELLULAR/WIRELESS) (0.9%)
21,800 Sprint PCS........................................ 504
----------
TELECOMMUNICATIONS (LONG DISTANCE) (7.0%)
26,200 AT&T Corp. ....................................... 1,972
25,500 Sprint Corp. ..................................... 2,145
----------
4,117
----------
TELEPHONE (6.0%)
36,800 Bell Atlantic Corp. .............................. 1,950
23,900 U.S. WEST, Inc. .................................. 1,545
----------
3,495
----------
TOTAL COMMUNICATION SERVICES................................ 8,116
----------
CONSUMER CYCLICALS (14.4%)
AUTO PARTS & EQUIPMENT (3.3%)
90,866 Meritor Automotive, Inc. ......................... 1,925
----------
AUTOMOBILES (1.8%)
14,600 General Motors Corp. ............................. 1,045
----------
PUBLISHING (NEWSPAPERS) (0.5%)
11,700 News Corp., Ltd. ADR ............................. 289
----------
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- --------------------------------------------------------------------------
RETAIL (SPECIALTY) (4.2%)
82,000 TJX Cos., Inc. ................................... $ 2,378
23,900 Venator Group, Inc. .............................. 154
----------
2,532
----------
SERVICES (ADVERTISING/MARKETING) (1.1%)
41,800 R.H. Donnelley Corp. ............................. 609
----------
SERVICES (COMMERCIAL & CONSUMER) (3.5%)
72,533 Nielsen Media Research, Inc. ..................... 1,306
28,900 Ogden Corp. ...................................... 724
----------
2,030
----------
TOTAL CONSUMER CYCLICALS.................................... 8,430
----------
CONSUMER STAPLES (1.8%)
BROADCASTING (TV, RADIO, CABLE) (0.6%)
6,500 Tele-Communications, Inc. ........................ 360
----------
TOBACCO (1.2%)
13,100 Philip Morris Cos., Inc. ......................... 701
----------
TOTAL CONSUMER STAPLES...................................... 1,061
----------
ENERGY (4.9%)
OIL & GAS (REFINING & MARKETING) (0.4%)
5,500 Ashland, Inc. .................................... 266
----------
OIL (DOMESTIC INTEGRATED) (3.4%)
70,300 Conoco, Inc. ..................................... 1,467
17,500 USX-Marathon Group................................ 527
----------
1,994
----------
OIL (INTERNATIONAL INTEGRATED) (1.1%)
5,400 BP Amoco plc ADR.................................. 513
1,400 Mobil Corp. ...................................... 122
----------
635
----------
TOTAL ENERGY................................................ 2,895
----------
FINANCIAL (30.9%)
BANKS (MAJOR REGIONAL) (11.4%)
65,300 BankBoston Corp. ................................. 2,543
34,100 Fleet Financial Group, Inc........................ 1,524
20,000 Mellon Bank Corp. ................................ 1,375
22,900 PNC Bank Corp. ................................... 1,239
----------
6,681
----------
BANKS (MONEY CENTER) (4.8%)
9,700 BankAmerica Corp. ................................ 583
32,500 Chase Manhattan Corp. ............................ 2,212
----------
2,795
----------
FINANCIAL (DIVERSIFIED) (2.6%)
20,000 American General Corp. ........................... 1,560
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
Value Equity Portfolio
115
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
VALUE EQUITY PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
- --------------------------------------------------------------------------
<C> <S> <C>
</TABLE>
FINANCIAL (CONT.)
<TABLE>
<C> <S> <C>
INSURANCE (MULTI-LINE) (7.7%)
3,200 American Bankers Insurance Group, Inc............. $ 155
26,500 Lincoln National Corp. ........................... 2,168
22,100 Loews Corp. ...................................... 2,171
----------
4,494
----------
INSURANCE (PROPERTY-CASUALTY) (3.9%)
58,900 Allstate Corp. ................................... 2,275
----------
INVESTMENT BANKING & BROKERAGE (0.5%)
8,050 Bear Stearns Cos., Inc............................ 301
----------
TOTAL FINANCIAL............................................. 18,106
----------
HEALTH CARE (2.6%)
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES) (2.6%)
25,200 Bausch & Lomb, Inc................................ 1,512
----------
TECHNOLOGY (4.5%)
COMMUNICATION EQUIPMENT (1.1%)
18,150 Harris Corp. ..................................... 665
----------
ELECTRONICS (DEFENSE) (2.6%)
23,600 Litton Industries, Inc............................ 1,540
----------
ELECTRONICS (SEMICONDUCTORS) (0.8%)
5,678 Texas Instruments, Inc............................ 486
----------
TOTAL TECHNOLOGY............................................ 2,691
----------
TRANSPORTATION (2.0%)
AIRLINES (2.0%)
34,400 Continental Airlines, Inc., Class B............... 1,152
----------
UTILITIES (3.5%)
ELECTRIC COMPANIES (3.5%)
48,300 NIPSCO Industries, Inc............................ 1,470
13,700 Pinnacle West Capital Corp. ...................... 581
----------
TOTAL UTILITIES............................................. 2,051
----------
TOTAL COMMON STOCKS (Cost $46,858)............................ 57,049
----------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
<C> <S> <C>
- --------------------------------------------------------------------------
SHORT-TERM INVESTMENT (1.1%)
REPURCHASE AGREEMENT (1.1%)
$ 614 Chase Securities, Inc. 4.45%, dated 12/31/98, due
1/04/99, to be repurchased at $614,
collateralized by U.S. Treasury Bonds, 8.75%,
due 5/15/17, valued at $631 (Cost $614)......... $ 614
----------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS (98.4%) (Cost $47,472)..................... 57,663
-----------
OTHER ASSETS (3.9%)
Receivable for Investments Sold................ $ 1,376
Receivable for Portfolio Shares Sold........... 834
Dividends Receivable........................... 67
Other.......................................... 24 2,301
----------
LIABILITIES ( - 2.3%)
Payable for Investments Purchased.............. (1,240)
Investment Advisory Fees Payable............... (61)
Payable for Portfolio Shares Redeemed.......... (20)
Administrative Fees Payable.................... (10)
Directors' Fees & Expenses Payable............. (7)
Custodian Fees Payable......................... (5)
Distribution Fees Payable...................... (1)
Other Liabilities.............................. (32) (1,376)
---------- -----------
NET ASSETS (100%)............................................ $ 58,588
-----------
-----------
</TABLE>
<TABLE>
<S> <C>
NET ASSETS CONSIST OF:
Paid in Capital.............................................. $ 47,006
Undistributed Net Investment Income.......................... 15
Accumulated Net Realized Gain................................ 1,376
Unrealized Appreciation on Investments....................... 10,191
-----------
NET ASSETS................................................... $ 58,588
-----------
-----------
</TABLE>
<TABLE>
<S> <C>
CLASS A
- -------------------------------------------------------------
NET ASSETS................................................... $57,543
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 5,335,977 outstanding $0.001 par value shares
(authorized 500,000,000 shares)............................ $10.78
-----------
-----------
CLASS B
- -------------------------------------------------------------
NET ASSETS................................................... $1,045
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 97,099 outstanding $0.001 par value shares
(authorized 500,000,000 shares)............................ $10.76
-----------
-----------
</TABLE>
- ------------------------------------------------------------
ADR -- American Depositary Receipt
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
Value Equity Portfolio
116
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
EMERGING MARKETS DEBT PORTFOLIO
COMPOSITION OF NET ASSETS (AT DECEMBER 31, 1998)
- --------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Argentina 22.6%
Brazil 13.8%
Bulgaria 5.2%
Colombia 4.8%
Ecuador 2.5%
India 0.7%
Jamaica 3.0%
Jordan 1.2%
Korea 5.2%
Mexico 20.4%
Panama 2.2%
Peru 2.4%
Phillipines 2.5%
Russia 2.1%
South Africa 2.7%
Turkey 3.4%
Venezuela 2.0%
Other 3.3%
</TABLE>
COMPARISON OF THE CHANGE IN VALUE OF A $500,000** INVESTMENT
- ---------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
EMERGING MARKETS DEBT PORTFOLIO-CLASS J.P. MORGAN EMERGING MARKETS BOND PLUS INDEX
A (1)
<S> <C> <C>
2/1/94* $500,000 $500,000
12/31/94 $429,500 $406,550
12/31/95 $550,748 $518,514
12/31/96 $828,986 $694,653
12/31/97 $978,950 $785,097
12/31/98 $627,017 $672,436
* Commencement of operations
** Minimum investment
</TABLE>
In accordance with SEC regulations, Portfolio performance shown assumes that all
recurring fees (including management fees) were deducted and all dividends and
distributions were reinvested. The performance of Class B shares will vary based
upon the different inception dates and fees assessed to that class.
PERFORMANCE COMPARED TO J.P. MORGAN EMERGING
MARKETS BOND PLUS INDEX(1)
- -------------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURN(2)
-------------------------------
AVERAGE ANNUAL
ONE YEAR SINCE INCEPTION
----------- ------------------
<S> <C> <C>
PORTFOLIO -- CLASS A............... - 35.95% 4.75%
PORTFOLIO -- CLASS B............... - 35.37 4.26
INDEX -- CLASS A................... - 14.35 6.94
INDEX -- CLASS B................... - 14.35 10.07
</TABLE>
1. The J.P. Morgan Emerging Markets Bond Plus Index is a market weighted index
composed of all Brady bonds, outstanding loans and Eurobonds, as well as U.S.
Dollar local market instruments of Argentina, Brazil, Bulgaria, Mexico,
Morocco, Russia, Nigeria, the Philippines, Poland and Venezuela.
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 Debt Portfolio is high total
return through investment primarily in debt securities of government,
government-related and corporate issuers located in emerging countries.
For the year ended December 31, 1998, the Portfolio had a total return of
- 35.95% for the Class A shares and - 35.37% for the Class B shares compared
to a total return of - 14.35% for the J.P. Morgan Emerging Markets Bond Plus
Index (the "Index"). From inception on February 1, 1994 through December 31,
1998, the average annual total return of Class A shares was 4.75% compared to
6.94% for the Index. From inception on January 2, 1996 through December 31,
1998, the average annual total return of Class B shares was 4.26% compared to
10.07% for the Index. As of December 31, 1998, the Portfolio had an SEC 30-day
yield of 18.70% for the Class A shares and 18.10% for the Class B shares.
Throughout the first two quarters of 1998, the Asian region remained in the
spotlight and often dictated the tone for emerging markets. During the first
quarter, emerging market debt recovered a large portion of the losses realized
in October of 1997, however the market remained volatile during this period of
spread compression, with general market spreads oscillating within a 100 basis
point range. In January, a market sell-off was caused by a worsening of certain
countries fiscal accounts due to historically low commodity prices as well as
policy inaction in Indonesia. The successful rescheduling of Korea's short-term
bank debt obligations late in the month reversed this. In February, dramatic
swings in the current account positions of Thailand and Korea combined with
proactive responses on the part of policy makers in Brazil, Mexico and Russia to
the worsening external environment helped bolster investor confidence. By the
early spring, the apparent economic and political stabilization in the Asian
region buoyed investor sentiment, causing spreads to
- ------------------------------------------------------------
CERTAIN INFORMATION APPEARING IN THIS INVESTMENT OVERVIEW IS UNAUDITED.
ACCORDINGLY, THE REPORT OF INDEPENDENT ACCOUNTANTS APPEARING ELSEWHERE IN THIS
REPORT DOES NOT EXTEND TO THIS INFORMATION. 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.
- --------------------------------------------------------------------------------
Emerging Markets Debt Portfolio
117
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
EMERGING MARKETS DEBT PORTFOLIO (CONT.)
rally to the mid 400's. However, this period of calm proved to be temporary, and
spreads widened out to above 600 basis points, as the "Asian Contagion" hit
emerging markets debt yet again during the second quarter of 1998 bringing
returns for the first half of the year close to zero.
During the second quarter, the medium-term effects of 1997's Asian crisis were
manifesting themselves in the form of lower global demand for commodities and a
reduced demand for exports from other regions of the world especially Japan. The
yen declined versus the U.S. dollar which put pressure on all the currencies in
the Asian region. The ill health of the Japanese economy and of major Japanese
banks caused investors to adjust risk premiums higher and caused liquidity for
most emerging countries to evaporate. Investors feared that Japan's inability to
fix its economy would continue to weaken the yen and might eventually cause a
devaluation in China. This would increase the risk of another round of currency
devaluation in Asia and might further depress commodity prices, a large source
of earnings for many emerging countries. Furthermore, President Suharto of
Indonesia was forced out of office by a series of national protests and riots,
leaving a fragile political environment in his absence. As investor sentiment
soured in general, Russia's fiscal management came under increased scrutiny
causing a significant sell off in both the local and external Russian debt
markets. Lack of progress in tax collection, poor corporate governance policies
and a failed privatization led to a significant rise in domestic interest rates
and in difficulties rolling over domestic debt.
The Index was down -21.2% during the third quarter, which highlights the fact
that the vast majority of the negative price action had occurred during this
time period. During July, the Russian government successfully completed
negotiations on an assistance package from the International Monetary Fund but
this proved to be too little assistance too late. In August, investor
sensitivity to deteriorating credit fundamentals and a worsened global
environment for emerging countries reached a breakpoint and precipitated the
largest and broadest sell-off in emerging market debt history. The sell-off
transitioned from a focus on fundamentals to a technically driven liquidation
when Russia devalued its currency and defaulted on its domestic debt (ruble
denominated T-bills) on August 17. The Russian restructuring forced many market
participants to sell non-Russian assets to meet margin calls, thereby
contaminating the debt of all emerging countries. Spreads on the broad emerging
market debt benchmark widened by 861 basis points during that month.
The market effectively decoupled from events in Russia during September, as
every country within the Index posted positive results except Russia, which was
down an additional 23.81%. Emerging market debt continued to rebound during the
last quarter of the year, with the market, as measured by the Index, advancing
by 9.92%. The market was buoyed by interest rate cuts in the U.S., the
completion of an International Monetary Fund assistance program for Brazil, and
finally by the hope that emerging markets had already passed through the point
of maximum pessimism.
The negatives facing emerging market countries in 1999 are daunting. Emerging
countries will have to confront slowing global gross domestic product growth and
continued weak commodity prices, while caught in the grip of global excess
capacity and deflationary forces. Additionally, 1999 will likely require precise
navigation through a myriad of potential land mines ranging from equity market
corrections, to Japanese bank defaults, to Brazilian economic instability. But
rather than dwelling on what has been priced into the markets, we prefer to
focus on what might cause emerging market debt to rally or fall further from
current levels. For starters, we have seen a good dose of monetary reflation
during the final quarter of 1998. G-7 central banks have cut interest rates
aggressively and we may see emerging markets rise as newfound liquidity works
its way into the markets. With domestic interest rates below 5% in all major
developed countries, yields in the low teens may prove too tempting to ignore.
Also, the International Monetary Fund has been substantially re-capitalized and
may be both more willing and better positioned to prevent a future liquidity
driven crisis. Finally, it is true that in many cases crisis breeds reform and
that, in effect, the markets have forced an acceleration of structural
adjustment agendas in most emerging countries. This last factor may lead to
improvement in the longer-term credit prospects for certain sovereign issuers.
Unfortunately, we do not believe that the momentum provided by the easing of
monetary conditions will be powerful enough to reverse the negative fundamental
forces for the most vulnerable emerging market credits and we may experience an
- --------------------------------------------------------------------------------
Emerging Markets Debt Portfolio
118
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
EMERGING MARKETS DEBT PORTFOLIO (CONT.)
up-tick in default levels during 1999. As shown in the chart below, the market
did differentiate between stronger and weaker credits in 1998 and we expect this
differentiation to continue. Despite what is generally perceived to have been a
catastrophic year for emerging market debt, only four countries posted
significantly negative returns.
<TABLE>
<CAPTION>
U.S. DOLLAR TOTAL RETURN %
<S> <C>
COUNTRY 1998 PERFORMANCE
- ------------------------------------------ ----------------
Argentina 3.57%
Brazil -15.39%
Bulgaria -0.01%
Ecuador -25.46%
Mexico 0.03%
Morocco -1.36%
Nigeria 2.33%
Panama 3.84%
Peru 2.40%
Philippines 11.28%
Poland 11.79%
Russia -82.57%
Venezuela -18.43%
</TABLE>
During the first few months of 1999, the market will likely experience liquidity
driven broad-based rallies. However, the trend toward credit polarization should
take precedence and it is for this reason we remain cautious on countries such
as Brazil, Ecuador and Venezuela. While each suffers from its own unique set of
problems, fiscal imbalances remain high and currencies vulnerable in each of
these countries. At the same time we feel that countries with sound fundamentals
and fewer imbalances such as Mexico, the Philippines and Bulgaria will benefit
most from the return of funds into emerging markets. We also see value in
countries such as Colombia and Turkey and Korea where credible reforms initiated
in 1998 look set to continue in 1999 and the large imbalances in these countries
should prove manageable.
Thomas L. Bennett
PORTFOLIO MANAGER
Stephen F. Esser
PORTFOLIO MANAGER
Abigail L. McKenna
PORTFOLIO MANAGER
January 1999
- --------------------------------------------------------------------------------
Emerging Markets Debt Portfolio
119
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
EMERGING MARKETS DEBT PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
<C> <S> <C>
- ---------------------------------------------------------------------------------
DEBT INSTRUMENTS (95.5%)
ARGENTINA (22.6%)
CORPORATE BONDS/NOTES (3.2%)
ARP (e)1,260 CIA International Telecommunications, 10.375%,
8/01/04......................................... $ 889
U.S.$ (e)391 Nortel Inversora, Series A, 6.00%, 3/31/07........ 235
(e)700 Supercanal Holdings, 11.50%, 5/15/05.............. 406
----------
1,530
----------
SOVEREIGN (19.4%)
260 Republic of Argentina, Global Bond, Series BGLH,
11.00%, 10/09/06................................ 257
1,640 Republic of Argentina, Global Bond, Series BGL5,
11.375%, 1/30/17................................ 1,644
(n,v)3,450 Republic of Argentina, Par Bond, Series L-GP,
5.75%, 3/31/23.................................. 2,493
(v)5,612 Republic of Argentina, Series L, (Floating Rate),
6.188%, 3/31/05................................. 4,798
----------
9,192
----------
10,722
----------
BRAZIL (13.8%)
SOVEREIGN (13.8%)
(v)2,370 Federative Republic of Brazil, Debt Conversion
Bond, Series L, (Floating Rate), 6.188%,
4/15/12......................................... 1,218
(v)4,128 Federative Republic of Brazil, Series IE-L,
(Floating Rate), 6.125%, 4/15/06................ 2,678
(v)4,421 Federative Republic of Brazil, C Bond, PIK, 5.00%,
4/15/14......................................... 2,663
----------
6,559
----------
BULGARIA (5.2%)
SOVEREIGN (5.2%)
(v)2,370 Republic of Bulgaria, Discount Bond, Series A,
(Floating Rate), 6.688%, 7/28/24................ 1,692
(n,v)950 Republic of Bulgaria, Front Loaded Interest
Reduction Bond, Series A, 2.50%, 7/28/12........ 546
(v)320 Republic of Bulgaria, Interest Arrears PDI Bond,
(Floating Rate), 6.688%, 7/28/11................ 216
----------
2,454
----------
COLOMBIA (4.8%)
CORPORATE (0.9%)
2,800 Transtel, Discount Note, 0.10%, 8/13/08........... 440
----------
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
<C> <S> <C>
- ---------------------------------------------------------------------------------
SOVEREIGN (3.9%)
U.S.$ (v)1,410 Republic of Colombia, (Floating Rate), 12.243%,
8/13/05......................................... $ 1,304
640 Republic of Colombia, Global Bond, 7.625%,
2/15/07......................................... 533
----------
1,837
----------
2,277
----------
ECUADOR (2.5%)
CORPORATE (0.4%)
100 Consorcio Ecuatorian Notes, 14.00%, 5/01/02....... 51
(e)300 Consorcio Ecuatorian Notes, 14.00%, 5/01/02....... 153
----------
204
----------
SOVEREIGN (2.1%)
(v)1,780 Republic of Ecuador, Discount Bond, (Floating
Rate) 6.625%, 2/28/25........................... 912
(v)249 Republic of Ecuador, PDI Bearer Bond, (Floating
Rate), 3.25%, 2/27/15........................... 102
----------
1,014
----------
1,218
----------
INDIA (0.7%)
CORPORATE (0.7%)
(e)440 Reliance Industries Ltd., 10.375%, 6/24/16........ 350
----------
JAMAICA (3.0%)
CORPORATE (3.0%)
2,000 Mechala Group, Jamaica, Series B, 12.75%,
12/30/99........................................ 1,410
----------
JORDAN (1.2%)
SOVEREIGN (1.2%)
(e,v)443 Government of Jordan, Discount Bond, (Floating
Rate), 6.00%, 12/23/23.......................... 273
(v)479 Government of Jordan Discount Bond, (Floating
Rate), 6.00%, 12/23/23.......................... 296
----------
569
----------
KOREA (5.2%)
QUASI-SOVEREIGN (5.2%)
1,750 Korea Electric Power 7.00%, 10/01/02.............. 1,582
240 Export-Import Bank of Korea, Global Bond, 6.50%,
2/10/02......................................... 220
700 Korea Development Bank, Global Bond, 7.125%,
9/17/01......................................... 661
----------
2,463
----------
</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
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
EMERGING MARKETS DEBT PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- ---------------------------------------------------------------------------------
<C> <S> <C>
MEXICO (20.4%)
CORPORATE (1.9%)
U.S.$ (e)750 Innova S De R.L., Senior Notes, 12.875%,
4/01/07......................................... $ 518
(e)440 Petroleos Mexicanos, (Floating Rate), 9.574%,
7/15/05......................................... 409
----------
927
----------
SOVEREIGN (18.5%)
(v)200 United Mexican States, Discount Bond, Series A,
(Floating Rate), 6.116%, 12/31/19............... 163
(v)1,150 United Mexican States, Discount Bond, Series B,
(Floating Rate), 6.039%, 12/31/19............... 939
(v)2,460 United Mexican States, Discount Bond, Series D,
(Floating Rate), 6.098%, 12/31/19............... 2,008
330 United Mexican States, Global Bond, 9.875%,
1/15/07......................................... 327
440 United Mexican States, Global Bond, 11.375%,
9/15/16......................................... 458
550 United Mexican States, Global Bond, 11.50%,
5/15/26......................................... 586
(v)650 United Mexican States, Par Bond, Series W-A,
6.25%, 12/31/19................................. 507
(v)4,841 United Mexican States, Par Bond, Series W-B,
6.25%, 12/31/19................................. 3,779
----------
8,767
----------
9,694
----------
PANAMA (2.2%)
SOVEREIGN (2.2%)
800 Republic of Panama, Global Bonds, 8.875%,
9/30/27......................................... 756
(v)370 Republic of Panama, Interest Reduction Bond,
(Floating Rate), 3.75%, 7/17/14................. 279
----------
1,035
----------
PERU (2.4%)
SOVEREIGN (2.4%)
(n,v)680 Republic of Peru, PDI bond, 4.00%, 3/07/17........ 430
(v)50 Republic of Peru, Front Loaded Interest Reduction
Bond, Series US, (Floating Rate), 3.25%,
3/07/17......................................... 29
(e,v)1,148 Republic of Peru, Front Loaded Interest Reduction
Bond, (Floating Rate), 3.25%, 3/07/17........... 655
----------
1,114
----------
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
<C> <S> <C>
- ---------------------------------------------------------------------------------
PHILIPPINES (2.5%)
SOVEREIGN (2.5%)
U.S.$ (v)1,420 Republic of Philippines, Front Loaded Interest
Reduction Bond, Series B, (Floating Rate),
5.962%, 6/01/08................................. $ 1,186
----------
RUSSIA (2.1%)
SOVEREIGN (2.1%)
(b,v)4,871 Russian Principal Loans, (Floating Rate), 5.969%,
12/15/20........................................ 317
(e)1,630 Russian Federation, 8.75%, 7/24/05................ 383
(e)1,190 Russian Federation, 11.00%, 7/24/18............... 292
(v)116 Russian Interest Arrears Note, (Floating Rate),
5.969%, 12/15/15................................ 13
----------
1,005
----------
SOUTH AFRICA (2.7%)
SOVEREIGN (2.7%)
ZAR 8,000 Nacional Financiera SNC, Euro, 17.00%, 2/26/99.... 1,283
----------
TURKEY (2.2%)
CORPORATE (2.2%)
U.S.$ (e)520 Cellco Finance NV, 15.00%, 8/01/05................ 450
(e)750 Pera Financial Services Co., 9.375%, 10/15/02..... 585
----------
1,035
----------
VENEZUELA (2.0%)
SOVEREIGN (2.0%)
(v)1,500 Republic of Venezuela Debt Conversion Bond, Series
DL, (Floating Rate), 5.938%, 12/18/07........... 954
----------
TOTAL DEBT INSTRUMENTS (Cost $47,489)................................ 45,328
----------
NO. OF
RIGHTS
- -----------------
RIGHTS (0.0%)
MEXICO (0.0%)
(a)5,862,000 United Mexican States, Value Recovery Rights,
expiring 6/30/03 (Cost $0)...................... --
----------
NO. OF
WARRANTS
- -----------------
WARRANTS (0.0%)
NIGERIA (0.0%)
(a)1,250 Central Bank of Nigeria, expiring 11/15/20 (Cost
$0)............................................. --
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
Emerging Markets Debt Portfolio
121
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
EMERGING MARKETS DEBT PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- ---------------------------------------------------------------------------------
<C> <S> <C>
STRUCTURED INVESTMENTS (1.2%)
TURKEY (1.2%)
U.S.$ 550 Bankers Trust International Plc, U.S. Dollar Note
linked to Turkish Interest and Turkish Lira
Exchange Rate, 0.0%, 12/31/99................... $ 551
----------
SHORT-TERM INVESTMENT (0.4%)
UNITED STATES (0.4%)
REPURCHASE AGREEMENT (0.4%)
178 Chase Securities, Inc. 4.45%, dated 12/31/98, due
1/04/99, to be repurchased at $178,
collateralized by U.S. Treasury Bonds, 9.875%,
due 11/15/15, valued at $182.................... 178
----------
TOTAL SHORT-TERM INVESTMENTS (Cost $729)............................. 729
----------
TOTAL INVESTMENTS (97.1%) (Cost $48,218)............................. 46,057
----------
</TABLE>
<TABLE>
<S> <C> <C>
OTHER ASSETS (7.0%)
Cash..................................................... $ 991
Interest Receivable...................................... 1,470
Receivable for Investments Sold.......................... 815
Receivable for Portfolio Shares Sold..................... 43
Other.................................................... 12 3,331
----------
LIABILITIES ( - 4.1%)
Payable for Investments Purchased........................ (1,052)
Dividends Payable........................................ (216)
Payable for Foreign Taxes................................ (208)
Investment Advisory Fees Payable......................... (159)
Custodian Fees Payable................................... (106)
Payable for Portfolio Shares Redeemed.................... (88)
Directors' Fees & Expenses Payable....................... (12)
Administrative Fees Payable.............................. (9)
Distribution Fees Payable................................ (1)
Other Liabilities........................................ (116) (1,967)
---------- --------
NET ASSETS (100%)...................................................... $ 47,421
--------
--------
</TABLE>
<TABLE>
<S> <C>
NET ASSETS CONSIST OF:
Paid in Capital........................................................ $150,690
Accumulated Net Investment Loss........................................ (271)
Accumulated Net Realized Loss.......................................... (100,791)
Unrealized Depreciation on Investments and Foreign Currency
Translations......................................................... (2,207)
--------
NET ASSETS............................................................. $ 47,421
--------
--------
</TABLE>
<TABLE>
<CAPTION>
AMOUNT
(000)
<S> <C> <C>
- ---------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
CLASS A:
- -----------------------------------------------------------------------
NET ASSETS............................................................. $46,234
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 17,710,218 outstanding $0.001 par value shares
(authorized 500,000,000 shares)...................................... $2.61
--------
--------
CLASS B:
- -----------------------------------------------------------------------
NET ASSETS............................................................. $1,187
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 446,621 outstanding $0.001 par value shares (authorized
500,000,000 shares).................................................. $2.66
--------
--------
</TABLE>
- ------------------------------------------------------------
(a) -- Non-income producing security.
(b) -- Security is in default.
(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 December 31, 1998. 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 paid in additional securities or cash
at the discretion of the issuer.
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 at
December 31, 1998.
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
- --------------------------------------------------------------------------------
FIXED INCOME PORTFOLIO
COMPOSITION OF NET ASSETS (AT DECEMBER 31, 1998)
- --------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
U.S. Government & Agency Obligations 56.0%
Collateralized Mortgage Obligations 6.5%
Corporate Bonds and Notes 26.8%
Asset Backed Securities 7.1%
Eurobonds 2.1%
Other 1.5%
</TABLE>
COMPARISON OF THE CHANGE IN VALUE OF A $500,000** INVESTMENT
- ---------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
FIXED INCOME PORTFOLIO-CLASS
A LEHMAN BROTHERS AGGREGATE BOND INDEX(1)
<S> <C> <C>
5/15/91* $500,000 $500,000
10/31/91 $535,590 $537,100
10/31/92 $592,415 $589,900
12/31/92 $598,440 $599,400
12/31/93 $652,710 $657,800
12/31/94 $632,500 $638,650
12/31/95 $751,157 $756,673
12/31/96 $785,785 $784,140
12/31/97 $860,749 $859,810
12/31/98 $929,006 $934,527
* Commencement of operations
** Minimum investment
</TABLE>
In accordance with SEC regulations, Portfolio performance shown assumes that all
recurring fees (including management fees) were deducted and all dividends and
distributions were reinvested. The performance of Class B shares will vary based
upon the different inception dates and fees assessed to that class.
PERFORMANCE COMPARED TO THE LEHMAN
BROTHERS AGGREGATE BOND INDEX(1)
- ----------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
------------------------------------------------
AVERAGE ANNUAL AVERAGE ANNUAL
ONE YEAR FIVE YEARS SINCE INCEPTION
---------- ----------------- -----------------
<S> <C> <C> <C>
PORTFOLIO -- CLASS A.... 7.93% 7.31% 8.45%
PORTFOLIO -- CLASS B.... 7.85 N/A 7.21
INDEX -- CLASS A........ 8.69 7.27 8.54
INDEX -- CLASS B........ 8.69 N/A 7.31
</TABLE>
1. The Lehman Brothers 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 Fixed Income Portfolio invests primarily in a diversified portfolio of U.S.
Government securities, corporate bonds (including competitively priced
Eurodollar bonds), mortgage-backed securities and other fixed income securities.
Targeted rates of return for the Portfolio are based on current and projected
market and economic conditions and on a conservative investment management
approach.
For the year ended December 31, 1998, the Portfolio had a total return of 7.93%
for the Class A shares and 7.85% for the Class B shares compared to a total
return of 8.69% for the Lehman Brothers Aggregate Bond Index (the "Index"). For
the five-year period ended December 31, 1998, the average annual total return of
Class A shares was 7.31% compared to 7.27% for the Index. From inception on May
15, 1991 through December 31, 1998, the average annual total return of Class A
shares was 8.45% compared to 8.54% for the Index. From inception on January 2,
1996 through December 31, 1998, the average annual total return of Class B
shares was 7.21% compared to 7.31% for the Index. As of December 31, 1998, the
Portfolio had an SEC 30-day yield of 5.32% for the Class A shares and 5.17% for
the Class B shares.
The fourth quarter of 1998 witnessed a dramatic reversal of some of the damage
suffered by fixed-income investors during the third quarter of the year. Two
separate moves by the Federal Reserve to lower short-term interest rates, the
first in October and the second in November, helped to restore investor
confidence and market liquidity. The Fed's moves were preventative steps
intended to reduce the likelihood of a domestic recession, as well as to foster
a more orderly and liquid market for securities other than the most currently
issued (i.e., "on-the-run") Treasury securities, including corporates and
mortgage-backed instruments, thereby limiting the potential for a "credit
crunch." The central bank's actions had a very powerful effect on the
fixed-income market, as the yield spreads on the vast majority of
- ------------------------------------------------------------
CERTAIN INFORMATION APPEARING IN THIS INVESTMENT OVERVIEW IS UNAUDITED.
ACCORDINGLY, THE REPORT OF INDEPENDENT ACCOUNTANTS APPEARING ELSEWHERE IN THIS
REPORT DOES NOT EXTEND TO THIS INFORMATION. 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.
- --------------------------------------------------------------------------------
Fixed Income Portfolio
123
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
FIXED INCOME PORTFOLIO (CONT.)
these securities reversed trend and narrowed over the course of the fourth
quarter. In contrast to the strong relative performance of corporates and
mortgages, yields on Treasury securities eventually moved higher over the course
of the quarter as the dramatic "flight-to-quality" rally came to an end. The
bellwether 30-year bond closed the year at a yield of 5.1%; while this was above
the low yield of 4.7% recorded in early October at the height of the market
turmoil, it was well below the 6% yields prevailing on long-term Treasuries
toward the end of 1997.
Recent economic data suggest that the U.S. economy continued to exhibit
surprising resiliency during the quarter despite the lingering effects of a
difficult global economic and financial market environment. The strength of most
domestic economic indicators prompted the Fed to leave monetary policy unchanged
at its late December FOMC meeting, and there is reason to believe that the Fed
has shifted from a clearly accommodative bias toward a neutral posture at this
time. Nevertheless, we believe that the probability of at least one further
easing move during 1999 remains high, and that the Fed remains sensitive to the
risks posed to the financial system by renewed economic or financial market
turmoil.
The strong relative performance of corporates and mortgages had a marginally
positive effect on the Portfolio's total return during the quarter, most notably
during November. Sector and security decisions in the non-Treasury areas
benefited from the significant narrowing of yield spreads. Mortgage holdings
benefited from slower-than-expected prepayments. Despite the recent compression
in yield spreads, corporates and mortgages remain very attractive relative to
Treasuries, and we continue to overweight these sectors. This strategy allows
the Portfolio to maintain an attractive yield advantage versus the benchmark, as
well as versus Treasuries, while retaining a call-protected, well-diversified,
high credit quality profile.
The Portfolio's weighted average credit quality remains very strong at this
time; the overall level of prepayment risk remains fairly close to that of the
broader market benchmarks despite the slightly above market mortgage position.
We continue to add to corporate holdings at very attractive yield spread levels,
and are still emphasizing lower-coupon fixed-rate mortgages because of their low
prepayment risk and attractive yield spreads.
We have maintained the duration of the Portfolio at approximately 7/10 year
greater than the Index. This strategy added value to relative returns during the
quarter, and for all of 1998.
As noted above, longer maturities are attractive relative to intermediates.
Consequently, we have a modest yield-curve strategy involving an underweight in
intermediates in favor of longer maturities. With the narrowing of the yield
spread between these two areas of the yield-curve, this strategy had a favorable
effect on relative performance last quarter.
Real interest rates remain higher in the U.S. than in most other major
industrialized economies. Accordingly, our only exposure to non-dollar
securities at this time is a 2% weighting in long German Government Bonds.
Warren Ackerman, III
PORTFOLIO MANAGER
January 1999
- --------------------------------------------------------------------------------
Fixed Income Portfolio
124
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
FIXED INCOME PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
<C> <S> <C>
- ---------------------------------------------------------------------------------
FIXED INCOME SECURITIES (98.5%)
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (56.0%)
FEDERAL HOME LOAN MORTGAGE CORPORATION (8.2%)
$ 6 13.00%, 9/01/10................................... $ 7
17,980 6.00%, 12/01/28................................... 17,761
----------
17,768
----------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (20.2%)
3,120 6.00%, 9/01/10.................................... 3,130
4,359 6.00%, 2/01/11.................................... 4,373
2,573 8.00%, 2/01/12.................................... 2,648
6,849 6.00%, 4/01/13.................................... 6,866
17,085 6.00%, 4/01/28.................................... 16,860
10,000 6.00%, 2/01/29 TBA................................ 9,869
----------
43,746
----------
U.S. TREASURY BONDS (13.8%)
21,000 8.75%, 5/15/20.................................... 29,823
----------
U.S. TREASURY NOTES (13.8%)
8,000 6.00%, 7/31/02.................................... 8,338
5,000 5.75%, 8/15/03.................................... 5,221
8,000 6.50%, 8/15/05.................................... 8,792
7,760 3.375%, 1/15/07 (Inflation Indexed)............... 7,501
----------
29,852
----------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS....................... 121,189
----------
CORPORATE BONDS AND NOTES (26.8%)
CHEMICALS (0.9%)
(e)2,000 Monsanto Co., 6.60%, 12/01/28..................... 1,996
----------
CONSUMER STAPLES (1.2%)
2,500 Philip Morris Cos., Inc., (Floating Rate), 6.15%,
3/15/00......................................... 2,521
----------
ELECTRONICS (1.4%)
3,000 Sony Corp., 6.125%, 3/04/03....................... 3,076
----------
FINANCE (18.2%)
(e)2,000 American General Institutional Capital, Series A,
7.57%, 12/01/45................................. 2,171
2,000 BT Capital Trust, Series B1, 7.90%, 1/15/27....... 2,110
3,000 CNA Financial Corp., 6.50%, 4/15/05............... 3,018
2,000 Donaldson, Lufkin & Jenrette, Inc., 6.90%,
10/01/07........................................ 2,073
(e)2,500 Farmers Exchange Capital, 7.05%, 7/15/28.......... 2,523
(e)2,000 First Chicago Corp., 7.75%, 12/01/26.............. 2,177
3,121 First Union-Lehman Brothers Commercial Mortgage,
6.479%, 3/18/04................................. 3,177
2,000 Ford Motor Credit Co., 6.125%, 4/28/03............ 2,043
2,500 General Motors Acceptance Corp., 7.375%,
6/22/00......................................... 2,571
(e)1,500 Goldman Sachs Group, 6.25%, 2/01/03............... 1,534
1,300 Lehman Brothers Holdings, Inc., 7.375%, 5/15/04... 1,347
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
<C> <S> <C>
- ---------------------------------------------------------------------------------
$ (e)3,000 Liberty Mutual Insurance Co., 8.20%, 5/04/07...... $ 3,375
(e)2,000 Lumbermens Mutual Casualty Co., 8.45%, 12/01/69... 2,144
3,000 Merrill Lynch & Co., 6.00%, 2/12/03............... 3,045
(e)2,500 Prudential Insurance Co., 6.375%, 7/23/06......... 2,559
2,000 Salomon, Inc., 7.30%, 5/15/02..................... 2,096
1,500 Simon Debartolo Group, MTN, 7.125%, 9/20/07....... 1,480
----------
39,443
----------
HEALTH CARE SUPPLIES & SERVICES (0.7%)
1,500 Columbia/HCA Healthcare, MTN, 8.85%, 1/01/07...... 1,579
----------
INDUSTRIALS (1.0%)
2,000 Ford Motor Co., 6.625%, 2/15/28................... 2,070
----------
TELECOMMUNICATIONS (1.4%)
3,000 Worldcom, Inc., 6.40%, 8/15/05.................... 3,118
----------
UTILITIES (2.0%)
2,500 Endesa-Chile (Yankee Bond), 7.75%, 7/15/08........ 2,403
(e)1,927 Oil Enterprises Ltd., 6.239%, 6/30/08............. 1,925
----------
4,328
----------
TOTAL CORPORATE BONDS AND NOTES.................................... 58,131
----------
ASSET BACKED SECURITIES (7.1%)
(e)3,000 Aesop Funding II LLC, Series 97-1, Class A1,
6.22%, 10/20/01................................. 3,029
2 Federal National Mortgage Association, REMIC,
Series 92-59, Class F, (Floating Rate), 6.056%,
8/25/06......................................... 2
1,500 First Plus Home Loan Trust, Series 97-4, Class A4,
6.57%, 4/10/13.................................. 1,506
5,000 Ford Credit Auto Owner Trust, Series 98-B, Class
A3, 5.85%, 10/15/01............................. 5,031
2,247 Mid-State Trust, Series IV A, 8.33%, 4/01/30...... 2,409
(e)3,250 Team Fleet Financing Corp., Series 97-1A, 7.35%,
5/15/03......................................... 3,343
----------
TOTAL ASSET BACKED SECURITIES...................................... 15,320
----------
COLLATERALIZED MORTGAGE OBLIGATIONS (6.5%)
3,000 COMED, Series 1998-1, Class A2, SEQ 5.29%,
6/25/03......................................... 2,998
676 Chase Commercial Mortgage Securities Corp., Series
97-2, Class A1, 6.45%, 12/19/04................. 692
4,041 Lehman Brothers Large Loan, Series 97-LLIA1,
6.79%, 6/12/04.................................. 4,186
2,838 Merrill Lynch Mortgage Investors, Inc., Series
98-C2, Class A1, 6.22%, 2/15/30................. 2,893
</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
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
FIXED INCOME PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- ---------------------------------------------------------------------------------
<C> <S> <C>
</TABLE>
COLLATERALIZED MORTGAGE OBLIGATIONS (CONT.)
<TABLE>
<C> <S> <C>
$ 330 Resolution Trust Corp., Series 91-M5, Class A,
9.00%,3/25/17................................... $ 328
(e)2,923 World Financial Properties, Series 96WFP-B, 6.91%,
9/01/13......................................... 2,963
----------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS.......................... 14,060
----------
EUROBONDS (2.1%)
GOVERNMENT BONDS (2.1%)
DEM 7,500 Deutschland Republic, 4.75%, 7/04/28.............. 4,473
----------
TOTAL FIXED INCOME SECURITIES (Cost $209,515)........................ 213,173
----------
SHORT-TERM INVESTMENT (5.4%)
REPURCHASE AGREEMENT (5.4%)
$ 11,606 Chase Securities, Inc. 4.45%, dated 12/31/98, due
1/04/99, to be repurchased at $11,610,
collateralized by U.S. Treasury Notes, 11.25%,
due 2/15/15, valued at at $11,840 (Cost
$11,606)........................................ 11,606
----------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS (103.9%) (Cost $221,121)............................. 224,779
--------
OTHER ASSETS (1.1%)
Interest Receivable...................................... $ 2,314
Receivable for Investments Sold.......................... 16
Net Unrealized Gain on Foreign Currency Exchange
Contracts.............................................. 12
Other.................................................... 13 2,355
----------
LIABILITIES (-5.0%)
Payable for Investments Purchased........................ (9,859)
Payable for Portfolio Shares Redeemed.................... (708)
Investment Advisory Fees Payable......................... (124)
Administrative Fees Payable.............................. (29)
Directors' Fees & Expenses Payable....................... (11)
Distribution Fees Payable................................ (1)
Other Liabilities........................................ (35) (10,767)
---------- --------
NET ASSETS (100%)...................................................... $216,367
--------
--------
</TABLE>
<TABLE>
<S> <C>
NET ASSETS CONSIST OF:
Paid in Capital...................................................... $ 212,117
Undistributed Net Investment Income.................................. 80
Accumulated Net Realized Gain........................................ 499
Unrealized Appreciation on Investments and Foreign Currency
Translations....................................................... 3,671
----------
NET ASSETS........................................................... $ 216,367
----------
----------
</TABLE>
<TABLE>
<CAPTION>
AMOUNT
(000)
<S> <C> <C>
- ---------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
CLASS A:
- ---------------------------------------------------------------------
NET ASSETS........................................................... $212,718
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 19,194,568 outstanding $0.001 par value shares
(authorized 500,000,000 shares).................................... $11.08
----------
----------
CLASS B:
- ---------------------------------------------------------------------
NET ASSETS........................................................... $3,649
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 328,826 outstanding $0.001 par value shares
(authorized 500,000,000 shares).................................... $11.10
----------
----------
</TABLE>
- ------------------------------------------------------------
FOREIGN CURRENCY EXCHANGE CONTRACT INFORMATION:
Under the terms of foreign currency exchange contracts open at December 31,
1998, the Portfolio is obligated to deliver foreign currency in exchange for
U.S. dollars as indicated below:
<TABLE>
<CAPTION>
IN
CURRENCY TO EXCHANGE UNREALIZED
DELIVER VALUE SETTLEMENT FOR VALUE GAIN
(000) (000) DATE (000) (000) (000)
<S> <C> <C> <C> <C> <C>
- ---------------- ------- ----------- ------------ ------- ------------
DEM 7,700 $ 4,625 1/19/99 U.S.$ 4,637 $ 4,637 $ 12
------- ------- ---
------- ------- ---
</TABLE>
- --------------------------------------------------------------------
(e) -- 144A Security -- certain conditions for public sale may exist.
DEM -- German Mark
MTN -- Medium Term Note
REMIC -- Real Estate Mortgage Investment Conduit
TBA -- Security is subject to delayed delivery -- see note A-7 to
financial statements.
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 December 31, 1998.
Inflation Indexed -- Security includes principal adjustment feature
in which par amount adjusts with the Consumer Price Index to insulate bonds
from the effects of inflation. The face amount shown is that in effect on
December 31, 1998.
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 DECEMBER 31, 1998)
- --------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Australian Dollar 0.7%
British Pound 9.0%
Canadian Dollar 4.5%
Danish Krone 1.9%
European Currency Unit 0.9%
French Franc 3.5%
German Mark 23.6%
Italian Lira 4.4%
Japanese Yen 3.4%
Netherlands Guilder 4.3%
New Zealnd Dollar 1.9%
Swedish Krona 1.5%
United States Dollar 28.9%
Other 11.5%
</TABLE>
COMPARISON OF THE CHANGE IN VALUE OF A $500,000** INVESTMENT
- ---------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
GLOBAL FIXED PORTFOLIO-CLASS J.P. MORGAN TRADED GLOBAL BOND
A INDEX(1)
<S> <C> <C>
5/01/91* $500,000 $500,000
10/31/91 $530,500 $538,720
10/31/92 $585,090 $606,455
12/31/92 $577,395 $601,365
12/31/93 $665,985 $675,100
12/31/94 $625,500 $683,750
12/31/95 $746,347 $815,782
12/31/96 $794,412 $851,676
12/31/97 $806,328 $863,599
12/31/98 $917,924 $995,816
* Commencement of operations
** Minimum investment
</TABLE>
In accordance with SEC regulations, Portfolio performance shown assumes that all
recurring fees (including management fees) were deducted and all dividends and
distributions were reinvested. The performance of Class B shares will vary based
upon the different inception dates and fees assessed to that class.
PERFORMANCE COMPARED TO THE J.P. MORGAN
TRADED GLOBAL BOND INDEX(1)
- -------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
------------------------------------------------
AVERAGE ANNUAL AVERAGE ANNUAL
ONE YEAR FIVE YEARS SINCE INCEPTION
---------- ----------------- -----------------
<S> <C> <C> <C>
PORTFOLIO -- CLASS A.... 13.84% 6.63% 8.24%
PORTFOLIO -- CLASS B.... 13.68 N/A 6.91
INDEX -- CLASS A........ 15.31 8.08 9.40
INDEX -- CLASS B........ 15.31 N/A 6.89
</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,
Italy, Ireland, Japan, The Netherlands, New Zealand, 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 Global Fixed Income Portfolio aims to produce an attractive real rate of
return by investing in fixed income securities issued by U.S. and foreign issues
including governments, agencies, supranational entities, eurobonds and
corporations with varying maturities in various currencies.
For the year ended December 31, 1998, the Portfolio had a total return of 13.84%
for the Class A shares and 13.68% for the Class B shares compared to a total
return of 15.31% for the J.P. Morgan Traded Global Bond Index (the "Index"). For
the five-year period ended December 31, 1998, the average annual total return of
Class A shares was 6.63% compared to 8.08% for the Index. From inception on May
1, 1991 through December 31, 1998, the average annual total return of Class A
shares was 8.24% compared to 9.40% for the Index. From inception on January 2,
1996 through December 31, 1998, the average annual total return of Class B
shares was 6.91% compared to 6.89% for the Index. As of December 31, 1998, the
Portfolio had an SEC 30-day yield of 3.82% for the Class A shares and 3.67% for
the Class B shares.
1998 was an exceptional year for all financial markets as the Asian economic
crisis developed into a more far-reaching financial contagion and fears of a
widespread credit crunch and global recession took hold. Despite periods of
significant volatility, global fixed income markets performed well in this
environment as the overall picture of weaker economic growth and falling
inflation remained supportive. Reflecting this, the Index produced a return of
10.1% in local currency terms for the year ended December 31, 1998. The U.K was
the best performing bond market closely followed by the other European markets;
the U.S. and Japanese markets performed less well.
The key event of the mid part of the year was Russia's devaluation and debt
default in August which proved to be the catalyst for an intense wave of risk
aversion and de-leveraging. This spread initially to
- ------------------------------------------------------------
CERTAIN INFORMATION APPEARING IN THIS INVESTMENT OVERVIEW IS UNAUDITED.
ACCORDINGLY, THE REPORT OF INDEPENDENT ACCOUNTANTS APPEARING ELSEWHERE IN THIS
REPORT DOES NOT EXTEND TO THIS INFORMATION. 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.
- --------------------------------------------------------------------------------
Global Fixed Income Portfolio
127
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
GLOBAL FIXED INCOME PORTFOLIO (CONT.)
other emerging markets, then to global equity markets and finally to all but the
safest fixed income markets. As a result, all yield spreads on corporate and
other non-government paper widened significantly. Meanwhile, the parallel
"flight to quality" and expectations of a global reduction in interest rates
provided an extremely positive backdrop for the most liquid government bond
markets.
In contrast, the fourth quarter was characterized by a significant improvement
in overall economic sentiment, with the exception of Japan. The main stimulus to
this change was the U.S. Federal Reserve which indicated a commitment to the
role of "lender of last resort" as it followed an end of September easing by two
further cuts in interest rates in the early part of the quarter. This easing was
replicated in the other dollar bloc countries and the majority of European
markets with the euro zone moving rates to 3% ahead of Economic and Monetary
Union.
However, central bank easing failed to have the usual effect of moving bond
prices higher as markets struggled to rally further from already low yields and
equity markets rallied substantially, further calming fears of a global
financial meltdown. However, the less risk adverse environment was beneficial to
credit sensitive securities in all markets which began to stabilize, and in the
case of the better quality names to retrace much of their yield differential to
the government sector.
For the final weeks of the year, the main story was, however; Japan, where bond
yields surged on increased concern as to the mismatch between the supply of debt
needed to finance the burgeoning budget deficit and demand, as public
institutions such as the Trust Fund Bureau indicated they would not play their
traditional role in supporting the JGB market. This saw the ten-year yield at
the end of December at 2.01%, the first time it exceeded 2% in more than 15
months.
Likewise on the foreign exchange markets, the focus was the Japanese yen and
particularly yen/dollar. The sharp appreciation of the yen in early October, the
result of massive position unwinding by leveraged funds, persisted through the
fourth quarter with the yen moving further ahead towards year end as many
Japanese investors repatriated funds to cover bond market losses. Yen/U.S.
dollar ended the year at 113.60, reflecting a yen appreciation of 15.3% over the
twelve month period. The deutschemark appreciated a more modest 8.0% against the
U.S. dollar over the year. As a result, the Portfolio returns in U.S. dollar
terms were enhanced over the period and the Index produced a return of 15.3%.
While the absolute performance of the Portfolio for 1998 was excellent, this
still reflected a small underperformance relative to the Index. The main reason
for this underperformance was our underweight exposure to the Japanese yen
although our non-government holdings were also a negative factor. In contrast,
our long duration positions in both the dollar bloc and European markets
contributed positively to performance.
In terms of strategy, the most significant shift in exposure was in June. In
response to our more negative interpretation of the Asian crisis and our concern
that investors would start pricing in a higher risk premium for Japanese assets,
we sold Japanese bonds extending our underweight position and moved our interest
rate exposure in both the dollar bloc and European regions to overweight. We
also extended our underweighting to the Japanese yen at this time. In the second
half of the year our overall strategy remained broadly unchanged.
The outlook for the Portfolio is highly dependent on whether or not the Fed's
intervention has succeeded in stabilizing the world economy. While the U.S.
economy and stock market continue to do remarkably well given the turmoil in
Asia, it is premature to count on any strong rebound. Commodity prices are still
falling; Asian economies remain mired in a slump which will take longer than a
few months to climb out of; and, global excess capacity is still growing. This
is a positive environment for bonds. Bond yields are low by historical standards
but then so is inflation. Real yields, especially at the 30 year point of the
yield curve are still attractive (except for Japan) and we believe that they
have room to move lower in 1999. We plan to keep the Portfolio slightly long
duration exposure. Japanese bonds look a lot more interesting with yields over
1.7% and we will reduce our underweight at higher yields.
Although both the European and U.S. economies are likely to slow in 1999, the
U.S. economy is likely to slow more. This should lead to some modest downside
risk for the dollar. The big question remains the yen. The sharp appreciation of
the currency in the fourth quarter, despite a plethora of negative fundamentals,
can be blamed on several factors: the large and
- --------------------------------------------------------------------------------
Global Fixed Income Portfolio
128
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
GLOBAL FIXED INCOME PORTFOLIO (CONT.)
growing U.S. current account deficit; the collapse in yield differentials;
President Clinton's impeachment; and lastly, additional unwinding of structural
yen short positions. Except for the relative current account differentials,
fundamentals are not in favor of yen strength. We do not believe that even
strong-yen politicians in Japan would want the yen to strengthen much further.
We therefore believe it is advisable to maintain our yen underweight position.
With the burden of global adjustment falling on the Fed's shoulders, the U.S.
will be in the vanguard of loosening monetary policy. This is likely to keep
downward pressure on the dollar at least versus the core European currencies
which will benefit from relative stability in monetary policy.
J. David Germany
PORTFOLIO MANAGER
Michael B. Kushma
PORTFOLIO MANAGER
Paul F. O'Brien
PORTFOLIO MANAGER
Ram Willner
PORTFOLIO MANAGER
January 1999
- --------------------------------------------------------------------------------
Global Fixed Income Portfolio
129
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
GLOBAL FIXED INCOME PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
<C> <S> <C>
- -----------------------------------------------------------------------------
FIXED INCOME SECURITIES (88.5%)
AUSTRALIAN DOLLAR (0.7%)
U.S. GOVERNMENT AND AGENCY OBLIGATIONS-GLOBAL (0.7%)
AUD 500 Federal National Mortgage Association- Global
6.375%, 8/15/07................................ $ 320
--------
BRITISH POUND (9.0%)
GOVERNMENT BONDS (9.0%)
GBP 300 United Kingdom Conversion Gilt 9.00%, 7/12/11.... 714
125 United Kingdom Treasury Gilt 8.00%, 6/10/03...... 237
1,500 United Kingdom Treasury Gilt 8.50%, 7/16/07...... 3,195
--------
4,146
--------
CANADIAN DOLLAR (4.5%)
GOVERNMENT BONDS (4.5%)
CAD 2,300 Government of Canada 8.75%, 12/01/05............. 1,834
300 Government of Canada 8.00%, 6/01/23.............. 269
--------
2,103
--------
DANISH KRONE (1.9%)
GOVERNMENT BONDS (1.9%)
DEK 4,800 Kingdom of Denmark 8.00%, 5/15/03................ 875
--------
EUROPEAN CURRENCY UNIT (0.9%)
GOVERNMENT BONDS (0.9%)
ECU 350 BTAN 4.50%, 7/12/03.............................. 428
--------
FRENCH FRANC (3.5%)
GOVERNMENT BONDS (3.5%)
FRF 7,500 Government of France O.A.T. 6.00%, 10/25/25...... 1,596
--------
GERMAN MARK (23.6%)
CORPORATE BONDS (1.0%)
DEM 700 Kredit Fuer Wiederaufbau 5.00%, 1/04/09.......... 449
--------
EUROBONDS (1.7%)
1,200 Landeskreditbank Baden-Wuerttemberg Financial
6.625%, 8/20/03................................ 809
--------
GOVERNMENT BONDS (20.9%)
4,200 Deutschland Republic, Series 91, 8.375%,
5/21/01........................................ 2,816
1,800 Government of Germany 6.25%, 1/04/24............. 1,300
4,100 Treuhandanstalt 6.875%, 6/11/03.................. 2,803
3,800 Treuhandanstalt 7.50%, 9/09/04................... 2,733
--------
9,652
--------
10,910
--------
ITALIAN LIRA (4.4%)
GOVERNMENT BONDS (4.4%)
ITL 2,500,000 Buoni Poliennali L.C. el Tesoro 9.50%, 2/01/06... 2,031
--------
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
<C> <S> <C>
- -----------------------------------------------------------------------------
JAPANESE YEN (3.4%)
GOVERNMENT BONDS (3.4%)
JPY 150,000 International Bank for Reconstruction &
Development 4.75%, 12/20/04.................... $ 1,574
--------
NETHERLANDS GUILDER (4.3%)
GOVERNMENT BONDS (4.3%)
NLG 3,300 Netherlands Government, Series 1, 8.25%,
2/15/02........................................ 2,010
--------
NEW ZEALAND DOLLAR (1.9%)
GOVERNMENT BONDS (1.9%)
NZD 1,500 New Zealand Government 8.00%, 4/15/04............ 883
--------
SWEDISH KRONA (1.5%)
GOVERNMENT BONDS (1.5%)
SEK 4,900 Swedish Government 6.00%, 2/09/05................ 671
--------
UNITED STATES DOLLAR (28.9%)
ASSET BACKED SECURITIES (2.7%)
U.S.$ 130 California Infrastructure (Southern California
Edison), Series 97-1, Class A7, 6.42%,
12/26/09....................................... 129
460 Delta Funding Home Equity Loan Trust, Series
97-1, 7.21%, 4/25/29........................... 476
410 Mid-State Trust, Series IV A, 8.33%, 4/01/30..... 447
(e)200 Monsanto Co. 6.60%, 12/01/28..................... 200
--------
1,252
--------
COLLATERALIZED MORTGAGE OBLIGATIONS (1.2%)
530 Asset Securitization Corp., Series 95-MD4 A1,
CMO, 7.10%, 8/13/29............................ 551
--------
CORPORATE BONDS AND NOTES (5.1%)
(e)500 BankAmerica Institutional, Series B, 7.70%,
12/31/26....................................... 534
(e)250 Farmers Exchange Capital, 7.05%, 7/15/28......... 252
(e)150 First Chicago Corp., 7.75%, 12/01/26............. 163
150 General Motors 6.75%, 5/01/28.................... 157
(e)385 Goldman Sachs Group, 6.25%, 2/01/03.............. 394
250 Merrill Lynch & Co Inc. 6.875%, 11/15/18......... 260
(e)300 Metropolitan Life Insurance 7.45%, 11/01/23...... 311
(e)300 Nationwide Mutual Insurance 7.50%, 2/15/24....... 298
--------
2,369
--------
EUROBONDS (0.9%)
400 Deutsche Ausgleichsbank, Series E, MTN, 5.125%,
9/22/03........................................ 398
--------
TAX-EXEMPT INSTRUMENT (0.6%)
300 Tennessee Valley Authority, Series G, 5.375%,
11/13/08....................................... 301
--------
</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.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
GLOBAL FIXED INCOME PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- -----------------------------------------------------------------------------
<C> <S> <C>
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (18.4%)
FEDERAL NATIONAL MORTGAGE ASSOCIATION
U.S.$ 750 5.75%, 6/15/05................................... $ 778
--------
U.S. TREASURY BOND
3,450 6.25%, 8/15/23................................... 3,860
--------
U.S. TREASURY NOTES
1,000 6.25%, 10/31/01.................................. 1,042
1,350 7.50%, 2/15/05................................... 1,545
1,320 3.625%, 1/15/08 (Inflation Indexed).............. 1,293
--------
3,880
--------
8,518
--------
13,389
--------
TOTAL FIXED INCOME SECURITIES (88.5%) (Cost $38,759)............... 40,936
--------
SHORT-TERM INVESTMENT (9.1%)
REPURCHASE AGREEMENT (9.1%)
4,189 Chase Securities, Inc., 4.45%, dated 12/31/98,
due 1/04/99, to be repurchased at $4,191,
collateralized by U.S. Treasury Bonds, 8.75%,
due 5/15/17, valued at $4,276 (Cost $4,189).... 4,189
--------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS (97.6%) (Cost $42,948)........................... 45,125
--------
OTHER ASSETS (2.5%)
Cash................................................. $ 20
Interest Receivable.................................. 989
Net Unrealized Gain on Foreign Currency Exchange
Contracts.......................................... 130
Foreign Withholding Tax Reclaim Receivable........... 43
Other................................................ 7 1,189
-----
LIABILITIES ( - 0.1%)
Custodian Fees Payable............................... (10)
Investment Advisory Fees Payable..................... (7)
Administrative Fees Payable.......................... (7)
Directors' Fees & Expenses Payable................... (7)
Other Liabilities.................................... (37) (68)
----- --------
NET ASSETS (100%).................................................. $ 46,246
--------
--------
</TABLE>
<TABLE>
<S> <C>
NET ASSETS CONSIST OF:
Paid in Capital.................................................... $ 45,331
Undistributed Net Investment Income................................ 172
Accumulated Net Realized Loss...................................... (1,569)
Unrealized Appreciation on Investments and Foreign Currency
Translations..................................................... 2,312
--------
NET ASSETS......................................................... $ 46,246
--------
--------
</TABLE>
<TABLE>
<CAPTION>
AMOUNT
(000)
<S> <C> <C>
- -----------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
CLASS A:
- -------------------------------------------------------------------
NET ASSETS......................................................... $ 45,884
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 3,666,517 outstanding $0.001 par value shares
(authorized 500,000,000 shares)................................... $12.51
--------
--------
CLASS B:
- -------------------------------------------------------------------
NET ASSETS......................................................... $362
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 28,995 outstanding $0.001 par value shares
(authorized 500,000,000 shares)................................... $12.48
--------
--------
</TABLE>
- ------------------------------------------------------------
FOREIGN CURRENCY EXCHANGE INFORMATION:
Under the terms of foreign currency exchange contracts open at December 31,
1998, 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 TO IN EXCHANGE GAIN
DELIVER VALUE SETTLEMENT FOR VALUE (LOSS)
(000) (000) DATE (000) (000) (000)
<S> <C> <C> <C> <C> <C>
- ------------- -------- ---------- ------------- -------- --------
CAD 1,460 $ 950 01/13/99 U.S.$ 958 $ 958 $ 8
GBP 700 1,164 01/14/99 U.S.$ 1,156 1,156 (8)
DEM 695 417 01/19/99 U.S.$ 413 413 (4)
U.S.$ 416 416 01/19/99 DEM 695 417 1
U.S.$ 2,178 2,178 01/21/99 JPY 260,000 2,311 133
NZD 1,705 898 03/02/99 U.S.$ 898 898 --
-------- -------- --------
$ 6,023 $ 6,153 $ 130
--------
-------- -------- --------
-------- --------
</TABLE>
- ------------------------------------------------------------
(e) -- 144A Security -- certain conditions for public sale may exist.
CMO -- Collateralized Mortgage Obligation
MTN -- Medium Term Notes
Inflation Indexed Security -- Security includes principal adjustment feature in
which par amount adjusts with the Consumer Price Index to insulate
bonds from the effects of inflation. The face amount shown is that in
effect on December 31, 1998
- ------------------------------------------------------------
SUMMARY OF FIXED INCOME SECURITES BY INDUSTRY CLASSIFICATION
<TABLE>
<CAPTION>
VALUE PERCENT OF
INDUSTRY (000) NET ASSETS
<S> <C> <C>
- ---------------------------------------------------------------
Finance................................ $ 6,129 13.2%
Foreign Government and Agency
Obligations.......................... 25,969 56.2
U.S. Government and Agency
Obligations.......................... 8,838 19.1
-------- ---
$ 40,936 88.5%
-------- ---
-------- ---
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
Global Fixed Income Portfolio
131
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
HIGH YIELD PORTFOLIO
COMPOSITION OF NET ASSETS (AT DECEMBER 31, 1998)
- --------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Asset Backed Securities 5.8%
Common Stocks 0.7%
Corporate Bonds and Notes 82.8%
Sovereign & Emerging Markets 6.6%
Preferred Stocks 1.7%
Other 2.4%
</TABLE>
COMPARISON OF THE CHANGE IN VALUE OF A $500,000** INVESTMENT
- ---------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
HIGH YIELD PORTFOLIO-CLASS CS FIRST BOSTON HIGH YIELD
A INDEX(1)
<S> <C> <C>
9/28/92* $500,000 $500,000
10/31/92 $490,500 $494,800
12/31/92 $503,435 $507,897
12/31/93 $616,865 $593,400
12/31/94 $591,100 $598,050
12/31/95 $729,122 $701,991
12/31/96 $838,563 $789,038
12/31/97 $971,643 $888,851
12/31/98 $1,001,084 $894,006
* Commencement of operations
** Minimum investment
</TABLE>
In accordance with SEC regulations, Portfolio performance shown assumes that all
recurring fees (including management fees) were deducted and all dividends and
distributions were reinvested. The performance of Class B shares will vary based
upon the different inception dates and fees assessed to that class.
PERFORMANCE COMPARED TO THE CS FIRST BOSTON
HIGH YIELD INDEX(1)
- -----------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
------------------------------------------------
AVERAGE ANNUAL AVERAGE ANNUAL
ONE YEAR FIVE YEARS SINCE INCEPTION
---------- ----------------- -----------------
<S> <C> <C> <C>
PORTFOLIO -- CLASS A.... 3.03% 10.17% 11.73%
PORTFOLIO -- CLASS B.... 2.79 N/A 10.74
INDEX -- CLASS A........ 0.58 8.16 9.73
INDEX -- CLASS B........ 0.58 N/A 8.37
</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 High Yield Portfolio seeks to maximize total return by investing 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.
For the year ended December 31, 1998, the Portfolio had a total return of 3.03%
for the Class A shares and 2.79% for the Class B shares compared to a total
return of 0.58% for the CS First Boston High Yield Index (the "Index"). For the
five-year period ended December 31, 1998, the average annual total return of
Class A shares was 10.17% compared to 8.16% for the Index. From inception on
September 28, 1992 through December 31, 1998, the average annual total return of
Class A shares was 11.73% compared to 9.73% for the Index. From inception on
January 2, 1996 through December 31, 1998, the average annual total return of
Class B shares was 10.74% compared to 8.37% for the Index. As of December 31,
1998, the Portfolio had an SEC 30-day yield of 9.76% for the Class A shares and
9.49% for the Class B shares.
The high yield market underperformed high quality bonds in 1998 by over 500
basis points. Global financial turmoil highlighted by the default of Russia and
the subsequent flight to quality caused spreads to widen dramatically in the
third quarter. For the year, the weakness in the third quarter outweighed strong
returns for the asset class in the first and fourth quarters.
Technical factors and fear were primarily responsible for the spread widening
that occurred in the third quarter. However, for the year, default rates also
rose meaningfully which put pressure on specific industries. Leveraged investors
including many hedge funds were forced to sell to satisfy margin calls. At the
same time, dealers were under pressure to keep inventories low and net cash
flows into mutual funds turned negative. Consistent with the other non-Treasury
sectors of the bond market, high yield bonds rebounded strongly in
- ------------------------------------------------------------
CERTAIN INFORMATION APPEARING IN THIS INVESTMENT OVERVIEW IS UNAUDITED.
ACCORDINGLY, THE REPORT OF INDEPENDENT ACCOUNTANTS APPEARING ELSEWHERE IN THIS
REPORT DOES NOT EXTEND TO THIS INFORMATION. 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.
- --------------------------------------------------------------------------------
High Yield Portfolio
132
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
HIGH YIELD PORTFOLIO (CONT.)
the fourth quarter. An accommodative Fed reduced fears of a credit crunch
allowing liquidity to return to this market as well. Technical conditions
improved dramatically: mutual fund cash flows were strong, demand for the large
number of new issues has been overwhelming, and the deleveraging so prevalent in
the previous quarter appears to be over. A strong equity market and improving
conditions in the emerging markets also enhanced the confidence of high yield
investors in late December and early January. Uncertainty arose again however as
Brazil's financial crisis heightened.
For the year ended December 31, 1998, performance results relative to the Index
were negatively impacted by exposure to non-U.S. issues and an overweighting in
the telecommunications sector. Positive contributions to our relative
performance included: a higher average credit rating than the Index; an
underweight position in cyclical and commodity sectors such as metals, paper,
energy and utilities; and superior security selection across several sectors. In
addition, our focus on larger capitalization public companies, which is a key
tenet of our investment philosophy, helped support the domestic portion of the
Portfolio.
Current sector allocation, which is driven primarily by bottom up security
selection, can be described as follows. The Portfolio remains the most
overweighted in the telecommunications and emerging markets sectors where we
continue to find value. The Portfolio is also overweighted in the healthcare,
retail and gaming sectors. We have less than Index exposure in the media and
consumer as well as in the commodity and cyclical sectors. We are also finding
value in securities of selected Western European issuers. As a result of our
valuation discipline, the Portfolio continues to maintain an average credit
quality that is higher than that of the Index, while the interest rate
sensitivity is close to that of the benchmark.
Even after the recent rebound, yield spreads on high yield bonds now exceed 500
basis points over Treasuries, levels not seen since the early 1990's. During
that historical period, default rates were very high (reaching 10% in 1990 and
1991), interest coverage ratios were less than 2.0 times, and there was serious
concern over the health of the banking system. Today, default rates are less
than 3%, coverage ratios average 2.5 times, and the U.S. financial system is
better capitalized. Also, the rating agency upgrade to downgrade ratio is better
today than in it was in the late 80's, and the percentage of equity in the
capital structures of high yield issuers is significantly higher. Finally, cash
flow continues to improve for many of the issuers we follow. In summary, prices
in the high yield market continue to discount worst case outcomes/default rates
that are historically very high at a time when the fundamental credit quality of
most high yield issuers is quite strong and the financial system is very
healthy. Consequently, we believe that high yield bonds offer compelling value,
and we continue to find attractive bottom up investment opportunities using our
valuation criteria.
Robert Angevine
PORTFOLIO MANAGER
Thomas L. Bennett
PORTFOLIO MANAGER
Stephen F. Esser
PORTFOLIO MANAGER
January 1999
- --------------------------------------------------------------------------------
High Yield Portfolio
133
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
HIGH YIELD PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
<C> <S> <C>
- --------------------------------------------------------------------------
CORPORATE BONDS AND NOTES (82.8 %)
BANKING (0.5%)
$ 972 Korea Development Bank, 6.625%, 11/21/03.......... $ 865
----------
BROADCAST--RADIO & TELEVISION (8.4%)
275 Adelphia Communications, Inc., Series B, 9.875%,
3/01/07......................................... 305
(e)400 Adelphia Communications, Inc., 8.375%, 2/01/08.... 416
1,025 Adelphia Communications, Inc., Series B, 8.375%,
2/01/08......................................... 1,066
2,200 CSC Holdings, Inc., 9.875%, 5/15/06............... 2,420
2,025 CSC Holdings, Inc., 7.875%, 12/15/07.............. 2,146
910 Lenfest Communications, Inc., 7.625%, 2/15/08..... 954
1,000 Rogers Cablesystems Ltd., Series B, 10.00%,
3/15/05......................................... 1,120
185 Rogers Cablesystems of America, 10.125%,
9/01/12......................................... 204
2,620 Rogers Cantel, Inc., 8.30%, 10/01/07.............. 2,633
1,325 Rogers Communications, Inc., 9.125%, 1/15/06...... 1,378
3,600 TV Azteca, 10.50%, 2/15/07........................ 2,952
----------
15,594
----------
BUILDING MATERIALS & COMPONENTS (2.5%)
1,730 American Standard Cos., Inc., 7.375%, 2/01/08..... 1,737
(e)1,445 Building Materials Corp., 8.00%, 12/01/08......... 1,441
1,400 Outdoor Systems, Inc., 8.875%, 6/15/07............ 1,491
----------
4,669
----------
CHEMICALS (1.1%)
2,000 ISP Holdings, Inc., Series B, 9.00%, 10/15/03..... 2,110
----------
COMPUTERS (0.4%)
(n)1,290 Wam!Net, Inc., 0.00%, 3/01/05..................... 710
----------
CONSUMER STAPLES (1.3%)
2,210 Kmart Corp., 8.80%, 7/01/10....................... 2,324
----------
ELECTRONICS (1.1%)
(e)975 Hyundai Semiconductor, 8.625%, 5/15/07............ 748
(e)1,370 Samsung Electronics Co., 7.45%, 10/01/02.......... 1,211
----------
1,959
----------
ENERGY (3.0%)
(e,n)1,195 Cia Energitica Sao Paulo, 9.125%, 6/26/07......... 968
(e)1,270 Husky Oil Ltd., 8.90%, 8/15/28.................... 1,262
370 Korea Electric Power, 7.75%, 4/01/13.............. 312
1,380 Quezon Power Ltd., 8.86%, 6/15/17................. 1,028
2,055 Snyder Oil Corp., 8.75%, 6/15/07.................. 1,993
----------
5,563
----------
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
<C> <S> <C>
- --------------------------------------------------------------------------
ENTERTAINMENT & LEISURE (0.5%)
$ 860 Harrahs Operating Co., Inc., 7.875%, 12/05/05..... $ 862
----------
ENVIRONMENTAL CONTROLS (0.8%)
(n)1,380 Norcal Waste Systems, Inc., Series B, 13.50%,
11/15/05........................................ 1,490
----------
FINANCIAL SERVICES (2.5%)
(e)1,195 Fuji JGB Investments LLC, 9.87%, 12/31/49......... 881
(e)690 Indah Kiat Financial Mauritius, 10.00%, 7/01/07... 373
(n)3,535 PTC International Finance BV, 0.00%, 7/01/07...... 2,457
1,320 Western Financial Bank, 8.875%, 8/01/07........... 950
----------
4,661
----------
FOOD (0.8%)
1,425 Smithfiels Foods, Inc., 7.625%, 2/15/08........... 1,432
----------
GAMING & LODGING (3.5%)
2,335 Grand Casinos, Inc., 10.125%, 12/01/03............ 2,545
2,448 Station Casinos, Inc., 10.125%, 3/15/06........... 2,583
295 Station Casinos, Inc., 9.75%, 4/15/07............. 308
(e)975 Station Casinos, Inc., 8.875%, 12/01/08........... 980
----------
6,416
----------
HEALTH CARE SUPPLIES & SERVICES (4.7%)
(e)1,765 American Cellular Corp., 10.50%, 5/15/08.......... 1,730
700 Columbia/HCA Heathcare Corp., 7.00%, 7/01/07...... 678
895 Columbia/HCA Healthcare Corp., 8.13%, 8/04/03..... 917
1,570 Columbia/HCA Healthcare Corp., 7.25%, 5/20/08..... 1,538
1,975 Tenet Healthcare Corp., 8.625%, 1/15/07........... 2,074
(e)1,750 Tenet Healthcare Corp., 8.125%, 12/01/08.......... 1,794
----------
8,731
----------
HOSPITAL MANAGEMENT (0.9%)
(e)1,730 Fresenius Medical Capital Trust II, 7.875%,
2/01/08......................................... 1,721
----------
METALS (1.3%)
410 Algoma Steel, Inc., (Yankee Bond), 12.375%,
7/15/05......................................... 299
1,050 Jet Equipment Trust, Series C-1, 11.79%,
6/15/13......................................... 1,379
(e)525 Jet Equipment Trust, Series 95-D, 11.44%,
11/01/14........................................ 684
(e)910 NSM Steel, Ltd., 12.25%, 2/01/08.................. 128
----------
2,490
----------
</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
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
HIGH YIELD PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- --------------------------------------------------------------------------
<C> <S> <C>
MULTI-INDUSTRY (20.1%)
$ 1,845 AMSC Acquisition Co., Inc., 12.25%, 4/01/08....... $ 1,145
(e)485 Allied Waste North America, 7.875%, 1/01/09....... 491
(e)1,950 American Commercial Lines LLC, 10.25%, 6/30/08.... 1,979
970 Asia Pulp & Paper Co., Ltd., 12.00%, 2/15/04...... 461
950 Axia, Inc., 10.75%, 7/15/08....................... 964
2,175 CSC Holdings, Inc., 7.25%, 7/15/08................ 2,216
(e)900 Centennial Cellular, 10.75%, 12/15/08............. 904
(e)2,150 Cex Holdings, Inc., 9.625%, 6/01/08............... 1,946
(e)1,535 Chancellor Media Corp., 9.00%, 10/01/08........... 1,619
1,570 Chancellor Media Corp., Series B, 8.125%,
12/15/07........................................ 1,566
305 Comcast Cellular Corp., Series B, 9.50%,
5/01/07......................................... 325
1,075 Dobson Communications Corp., 11.75%, 4/15/07...... 1,096
(e)1,200 Entex Telecom Group plc, 12.50%, 8/01/06.......... 840
1,530 Glencore Nickel Property Ltd., 9.00%, 12/01/14.... 1,224
(e)1,575 Hayes Lemmerz International, Inc., 8.25%,
12/15/08........................................ 1,571
1,300 Mosaic Re, Class A, 10.10%, 7/09/99............... 1,308
1,640 Multicanal, 10.50%, 2/01/07....................... 1,518
1,380 Murrin Murrin Holdings, PTY (Yankee Bond), 9.375%,
8/31/07......................................... 1,228
500 Musicland Group, Inc., 9.00%, 6/15/03............. 480
2,245 Musicland Group, Inc., 9.875%, 3/15/08............ 2,189
2,345 Norampac, Inc., 9.50%, 2/01/08.................... 2,392
(e)1,970 Nortek, Inc., 8.875%, 8/01/08..................... 2,004
(e)925 Park Place Entertainment, 7.875%, 12/15/05........ 927
1,120 Psinet, Inc., 10.00%, 2/15/05..................... 1,098
(e)750 R&B Falcon Corp., 9.50%, 12/15/08................. 754
(e)1,470 RBS Participacoes, 11.00%, 4/01/07................ 911
(e)388 RG Receivables Ltd., 9.60%, 2/10/05............... 311
(e)1,185 Ras Laffan Gas Liquified Natural Gas, 8.294%,
3/15/14......................................... 990
(e)3,150 Vencor, Inc., 9.875%, 5/01/05..................... 2,725
----------
37,182
----------
PACKAGING & CONTAINER (0.7%)
1,145 SD Warren Co., 12.00%, 12/15/04................... 1,248
----------
REAL ESTATE (1.0%)
900 CB Richard Ellis Service Group, Inc., 8.875%,
6/01/06......................................... 873
965 HMH Properties, Inc., Series A, 7.875%, 8/01/05... 949
----------
1,822
----------
RETAIL-GENERAL (0.8%)
1,725 Southland Corp., 5.00%, 12/15/03.................. 1,518
----------
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
<C> <S> <C>
- --------------------------------------------------------------------------
TECHNOLOGY (0.6%)
$ (e)1,350 AST Research, Inc., 7.45%, 10/01/02............... $ 1,186
----------
TELECOMMUNICATIONS (23.4%)
(e,n)2,425 Dolphin Telecom plc, 0.00%, 6/01/08............... 873
600 Esprit Telecom Group plc, 11.50%, 12/15/07........ 621
965 Esprit Telecom Group plc, 10.875%, 6/15/08........ 979
1,735 Flag Ltd., 8.25%, 1/30/08......................... 1,709
2,325 Global Crossing Holdings, 9.625%, 5/15/08......... 2,441
1,040 Globalstar Capital Corp., 11.375%, 2/15/04........ 780
(e)1,105 Globo Communicacoes e Participacoes Ltd., 10.50%,
12/20/06........................................ 713
1,945 IXC Communications, Inc., 9.00%, 4/15/08.......... 1,935
800 Intermedia Communications, Inc., Series B, 8.50%,
1/15/08......................................... 764
(n)1,505 Intermedia Communications, Inc., Series B, 0.00%,
7/15/07......................................... 1,038
1,620 Iridium LLC/Capital Corp., Series A, 13.00%,
7/15/05......................................... 1,482
1,600 Level 3 Communications, Inc., 9.125%, 5/01/08..... 1,580
(e)1,020 Metromedia Fiber Network, 10.00%, 11/15/08........ 1,051
(e,n)3,050 NTL, Inc., 0.00%, 4/01/08......................... 1,891
(n)2,585 Nextel Communications, Inc., 0.00%, 8/15/04....... 2,507
(n)6,100 Nextel Communications, Inc., 0.00%, 9/15/07....... 3,904
(n)1,335 Nextel Communications, Inc., 0.00%, 2/15/08....... 801
(n)3,785 NEXTLINK Communications, Inc., 0.00%, 4/15/08..... 2,176
(n)2,275 Occidente y Caribe Cellular, 0.00%, 3/15/04....... 1,655
(e)1,290 Onepoint Communications Corp., 14.50%, 6/01/08.... 690
2,470 Philippine Long Distance Telephone, Global Bond,
9.25%, 6/30/06.................................. 2,347
1,315 Primus Telecommunications Group, Inc., 9.875%,
5/15/08......................................... 1,256
(n)1,565 Qwest Communications International, Inc., 0.00%,
10/15/07........................................ 1,221
331 Qwest Communications International, Inc., Series
B, 10.875%, 4/01/07............................. 381
(n)1,565 RCN Corp., 0.00%, 10/15/07........................ 884
(e,n)2,265 RCN Corp., 0.00%, 2/15/08......................... 1,178
(n)51 RSL Communications plc, 12.25%, 11/15/06.......... 54
(n)2,975 RSL Communications plc, 9.125%, 3/01/08........... 2,707
(e)550 RSL Communications plc, 12.00%, 11/01/08.......... 578
(n)1,440 RSL Communications plc, 0.00%, 3/01/08............ 810
(n)3,450 Rhythms Netconnections, 0.00%, 5/15/08............ 1,665
(n)1,070 Viatel, Inc., 0.00%, 4/15/08...................... 607
----------
43,278
----------
</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
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
HIGH YIELD PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
- --------------------------------------------------------------------------
<C> <S> <C>
TRANSPORTATION (1.0%)
$ 1,760 Hermes Europe Railtel BV, 11.50%, 8/15/07......... $ 1,857
----------
UTILITIES (1.9%)
1,780 AES Corp., 8.50%, 11/01/07........................ 1,807
496 Niagara Mohawk Power Corp., Series G, 7.75%,
10/01/08........................................ 542
(n)1,420 Niagara Mohawk Power Corp., Series H, 0.00%,
7/01/10......................................... 1,093
----------
3,442
----------
TOTAL CORPORATE BONDS AND NOTES (Cost $162,590)............... 153,130
----------
ASSET BACKED SECURITIES (5.8%)
AEROSPACE & DEFENSE (0.9%)
1,751 Aircraft Lease Portfolio Securitization Ltd.,
Series 96-1 P1, Class D, 12.75%, 6/15/06........ 1,751
----------
BANKING (0.6%)
(e,n)1,110 SB Treasury Co. LLC, 9.40%, 12/29/49.............. 1,052
----------
FINANCIAL SERVICES (4.3%)
(e)1,659 CA FM Lease Trust, 8.50%, 7/15/17................. 1,841
1,114 DR Securitized Finance, Series 93-K1, Class A1,
6.66%, 8/15/10.................................. 1,057
2,262 DR Securitized Finance, Series 94-K1, Class A1,
7.60%, 8/15/07.................................. 2,252
1,175 DR Securitized Finance, Series 94-K1, Class A2,
8.375%, 8/15/15................................. 1,156
(e)875 FMAC Loan Receivables Trust, Series 96-B, Class C,
(Floating Rate), 7.929%, 11/01/18............... 665
1,033 Long Beach Auto, Series 97-1, Class B, 14.22%,
10/26/03........................................ 1,027
----------
7,998
----------
TOTAL ASSET BACKED SECURITIES (Cost $10,293).................. 10,801
----------
SOVEREIGN & EMERGING MARKETS (6.6%)
(n)1,830 CTI Holdings, 0.00%, 4/15/08...................... 824
(e)1,235 Cathay International Ltd., 13.00%, 4/15/08........ 463
815 Grupo Minero Mexico, 8.25%, 4/01/08............... 701
1,010 Indah Kiat International Finance, 10.00%,
7/01/07......................................... 545
830 Multicanal, 10.50%, 4/15/18....................... 693
2,445 Pindo Deli Financial Mauritius, 10.75%,
10/01/07........................................ 1,271
1,908 Republic of Argentina, (Floating Rate), (Bearer),
6.188%, 3/31/05................................. 1,632
(e)1,410 Samsung Electronics America, 9.75%, 5/01/03....... 1,337
3,140 Republic of Argentina, 6.188%, 3/31/05............ 2,684
2,480 Satelites Mexicanos, 10.125%, 11/01/04............ 2,034
----------
TOTAL SOVEREIGN & EMERGING MARKETS (Cost $14,774)............. 12,184
----------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- --------------------------------------------------------------------------
COMMON STOCKS (0.7%)
DIVERSIFIED (0.7%)
12,500 Sinclair Capital.................................. $ 1,331
----------
FOOD SERVICE & LODGING (0.0%)
(a,e)1,300 Motels of America, Inc............................ 14
----------
TOTAL COMMON STOCKS (Cost $1,341)............................. 1,345
----------
PREFERRED STOCKS (1.7%)
TELECOMMUNICATIONS (1.7%)
(a)7,190 Concentric Network Corp........................... 615
(a)1,345 IXC Communications, Inc., Series B, PIK, 12.50%,
8/15/09......................................... 1,372
(a)9,500 Paxson Communications Corp., PIK, 13.25%,
11/15/06........................................ 831
(e)3,311 Paxson Communications Corp., PIK, 9.75%,
12/31/06........................................ 324
(a)551 Viatel, Inc., Class A, 10.00%, 4/15/10............ 3
----------
TOTAL PREFERRED STOCKS (Cost $3,146).......................... 3,145
----------
</TABLE>
<TABLE>
<CAPTION>
NO. OF
WARRANTS
<C> <S> <C>
- ----------
WARRANTS (0.2%)
COMPUTER (0.0%)
(a)3,870 Wam!Net, Inc., expiring 3/1/05.................... 3
----------
METALS (0.0%)
(a,e)576,115 NSM Steel Ltd., Inc., expiring 2/1/08............. 1
----------
TELECOMMUNICATIONS (0.2%)
(a,e)1,845 American Mobile Satellite Corp., expiring
4/1/08.......................................... 1
(a,e)130 Concentric Network Corp., expiring 12/15/07....... 2
(a,e)600 Globalstar Telecommunications Ltd., expiring
2/15/04......................................... 33
(a,e)605 Iridium World Communications, Inc., expiring
07/15/05........................................ 92
(a,n)2,800 Nextel Communications, Inc., expiring 4/25/99..... --
(a,d,e)9,100 Occidente y Caribe Cellular, expiring 3/15/04..... 159
(a)1,290 Onepoint Communications Corp., expiring 6/1/08.... --
(a,e)1,024 Paxson Communications Corp., expiring 6/30/03..... --
(a)13,800 Rhythms Net Connections........................... 10
----------
297
----------
TOTAL WARRANTS (Cost $11)..................................... 301
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
High Yield Portfolio
136
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
HIGH YIELD PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
<C> <S> <C>
- --------------------------------------------------------------------------
SHORT-TERM INVESTMENT (0.6%)
REPURCHASE AGREEMENT (0.6%)
$ 1,111 Chase Securities, Inc. 4.45%, dated 12/31/98, due
1/04/99, to be repurchased at $1,112,
collateralized by U.S. Treasury Bonds, 8.75%,
due 5/15/17, valued at $1,136 (Cost $1,111)..... $ 1,111
----------
TOTAL INVESTMENTS (98.4%) (Cost $193,266)..................... 182,017
----------
</TABLE>
<TABLE>
<S> <C> <C>
OTHER ASSETS (2.2%)
Interest Receivable........................... $ 3,526
Receivable for Investments Sold............... 482
Other......................................... 9 4,017
----------
LIABILITIES ( - 0.6%)
Payable for Portfolio Shares Redeemed......... (656)
Investment Advisory Fees Payable.............. (175)
Distribution Fees Payable..................... (34)
Administrative Fees Payable................... (24)
Directors' Fees and Expenses Payable.......... (8)
Custodian Fees Payable........................ (4)
Other Liabilities............................. (92) (993)
---------- ----------
NET ASSETS (100.0%)......................................... $ 185,041
----------
----------
</TABLE>
<TABLE>
<S> <C>
NET ASSETS CONSIST OF:
Paid in Capital............................................... $ 197,037
Accumulated Net Investment Loss............................... (7)
Accumulated Net Realized Loss................................. (740)
Unrealized Depreciation on Investments........................ (11,249)
----------
Net Assets.................................................... $ 185,041
----------
----------
</TABLE>
<TABLE>
<CAPTION>
AMOUNT
(000)
<S> <C> <C>
------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
CLASS A:
- --------------------------------------------------------------
NET ASSETS.................................................... $128,237
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 11,930,586 outstanding $0.001 par value Shares
(authorized 500,000,000 shares)............................. $10.75
----------
----------
CLASS B:
- --------------------------------------------------------------
NET ASSETS.................................................... $56,804
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 5,295,871 outstanding $0.001 par value shares
(authorized 500,000,000 shares)............................. $10.73
----------
----------
</TABLE>
- ------------------------------------------------------------
(a) -- Non-income producing security
(d) -- 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 December 31, 1998. 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 December 31, 1998.
At December 31, 1998, approximately 89% of the Portfolio's net assets consisted
of high yield securities rated below investment grade. Investments in high yield
securities are accompanied by a greater degree of credit risk and the risk tends
to be more sensitive to economic conditions than higher rated securities.
Certain securities may be valued on the basis of bid prices provided by one
principal market maker.
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
High Yield Portfolio
137
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
MUNICIPAL BOND PORTFOLIO
COMPOSITION OF NET ASSETS (AT DECEMBER 31, 1998)
- --------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Fixed Rate Instruments 99.9%
Other 0.1%
</TABLE>
COMPARISON OF THE CHANGE IN VALUE OF A $500,000** INVESTMENT
- ---------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
MUNICIPAL BOND PORTFOLIO-CLASS
A LEHMAN BROTHERS 7-YEAR MUNICIPAL BOND INDEX(1)
<S> <C> <C>
1/18/95* $500,000 $500,000
12/31/95 $544,000 $560,150
12/31/96 $563,965 $584,629
12/31/97 $604,852 $629,470
12/31/98 $638,240 $668,623
* Commencement of operations
** Minimum investment
</TABLE>
In accordance with SEC regulations, Portfolio performance shown assumes that all
recurring fees (including management fees) were deducted and all dividends and
distributions were reinvested.
PERFORMANCE COMPARED TO THE LEHMAN BROTHERS
7-YEAR MUNICIPAL BOND INDEX(1)
- ------------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
-------------------------------
ONE AVERAGE ANNUAL
YEAR SINCE INCEPTION
------------ -----------------
<S> <C> <C>
PORTFOLIO -- CLASS A............... 5.52% 6.37%
INDEX.............................. 6.22 7.64
</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 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 year ended December 31, 1998, the Portfolio had a total return of 5.52%
for the Class A shares compared to a total return of 6.22% for the Lehman
Brothers 7-Year Municipal Bond Index (the "Index"). From inception on January
18, 1995 through December 31, 1998, the average annual total return of Class A
shares was 6.37% compared to 7.64% for the Index. As of December 31, 1998, the
Portfolio had an SEC 30-day yield of 4.10% for the Class A shares.
Through all the turbulence of 1998, the municipal bond market managed to turn in
positive performance during each quarter of the year. Municipals performed well,
however the market was not able to keep pace with a runaway U.S. Treasury
market. During the year, the Portfolio maintained an average maturity of just
over eight years, slightly longer than the Index. The Portfolio is
conservatively structured, with holdings mainly comprised of AAA and AA-rated
premium coupon bonds. In this low interest rate environment, we have maintained
a structure in the Portfolio that provides investors with a relatively high
current yield.
At the beginning of 1998, the fixed income markets were focused primarily on
events in Asia and the potential impact on the global economy and financial
markets. By mid-year, the combination of the Russian economic situation,
southeast Asia political turmoil and the volatile dollar/yen relationship sent
investors worldwide running for cover, with the U.S. Treasury market the
investment of choice. Municipal bonds benefited from the global chaos as well,
although to a slightly lesser degree. By September, the combination of troubled
economies in Russia, Japan and Southeast Asia and the near-collapse of Long Term
Capital Management, a large hedge fund, caused the Federal
- ------------------------------------------------------------
CERTAIN INFORMATION APPEARING IN THIS INVESTMENT OVERVIEW IS UNAUDITED.
ACCORDINGLY, THE REPORT OF INDEPENDENT ACCOUNTANTS APPEARING ELSEWHERE IN THIS
REPORT DOES NOT EXTEND TO THIS INFORMATION. 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.
- --------------------------------------------------------------------------------
Municipal Bond Portfolio
138
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
MUNICIPAL BOND PORTFOLIO (CONT.)
Reserve to react. The Fed voted at their September 29 FOMC meeting to ease
monetary policy via a 25 basis point reduction in the targeted Federal Funds
Rate. The FOMC voted to lower the Fed Funds Rate by 25 basis points two more
times before year end, with the first move in October and the second in
November. The year ended with the Federal Funds Rate at 4.75%. The Fed's moves
were preemptive steps intended to reduce the likelihood of a domestic recession,
as well as to foster a more orderly and liquid market for securities other than
the most currently issued (i.e., "on-the-run") Treasury securities. These moves
helped to restore investor confidence and market liquidity across the fixed
income universe after the "flight-to-quality" hysteria witnessed earlier in the
year. Recent economic data suggest that the U.S. economy continued to exhibit
surprising resiliency as the year came to a close despite the lingering effects
of a difficult global economic and financial market environment. The strength of
most domestic economic indicators prompted the Federal Reserve to leave monetary
policy unchanged at its late December FOMC meeting, and there is reason to
believe that the Fed has shifted from a clearly accommodative bias toward a
neutral posture at this time
The bellwether 30-year Treasury bond closed the year at a yield of 5.1%. While
this was above the low yield of 4.7% recorded in early October at the height of
the market turmoil, it was well below the 6% yields prevailing on long-term
Treasuries toward the end of 1997. Long AAA-rated municipals ended the year
yielding 4.94%, slightly below the yield at the beginning of the year.
Municipals ended the year at the high end of their recent ratio to Treasuries,
providing the potential for attractive returns if and when the spreads return to
a more normal relationship.
It was a good year for the municipal bond market. New issue volume, at $284
billion, was just short of the record level set in 1993. Although refunding
volume was strong due to the low interest rate environment, new money issuance
was the real story behind the robust new issue market. Bonds issued for
educational purposes led the way. For years, municipalities couldn't get bond
issues passed for school improvements. Overcrowded schools, large class size and
trailers for classrooms across the country seemed to finally get the public
moved to do something. During 1998, $61 billion of bonds were issued for
educational purposes. Overall volume for 1999 is expected to be slightly lower
than 1998, but there still will be plenty of bonds to go around. Going into
1999, we expect to maintain the average maturity of the Portfolio at
approximately 8 years. The Portfolio begins 1999 with a slightly barbelled
structure; currently we see value in high quality municipal bonds in the 3-5
year range on the shorter end and 11-15 years on the longer end of the yield
curve.
Lori A. Cohane
PORTFOLIO MANAGER
January 1999
- --------------------------------------------------------------------------------
Municipal Bond Portfolio
139
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
MUNICIPAL BOND PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
<C> <S> <C>
- ----------------------------------------------------------------------
TAX-EXEMPT INSTRUMENTS (99.9%)
FIXED RATE INSTRUMENTS (99.9%)
$ 1,000 California State, Department of Water Revenue
Bonds, Series Q, 6.00%, 12/01/10............... $ 1,159
1,720 City of Dallas, Texas, General Obligation Bonds,
6.00%, 2/15/06................................. 1,921
1,500 Connecticut State, General Obligation Bonds,
Series E, 6.00%, 3/15/12....................... 1,735
1,275 Connecticut State, Housing Finance Authority,
Revenue Bonds, Sub. Series D-1, 6.20%,
5/15/17........................................ 1,350
525 Delaware Transit Authority 5.75%, 7/01/08........ 565
500 Fairfax County, Virginia, Water Authority Revenue
Bonds, 6.00%, 4/01/22 Prerefunded 4/01/07 at
102............................................ 574
1,500 Florida State Board of Education, Capital Outlay,
Public Education, General Obligation Bonds,
6.40%, 6/01/19................................. 1,626
160 Georgia State, General Obligation Bonds, Series
B, 6.00%, 3/01/12.............................. 185
500 Georgia State, General Obligation Bonds, Series
F, 6.50%, 12/01/06............................. 583
1,000 Gwinnett County, Georgia, General Obligation
Bonds, 6.00%, 1/01/11.......................... 1,089
1,000 Hawaii State, General Obligation Bonds, Series
CJ, 6.20%, 1/01/12 Prerefunded 1/01/05 at
100............................................ 1,118
570 Huntsville, Alabama, General Obligation Bonds,
Series A, 5.50%, 2/01/20....................... 590
1,000 Kentucky State Housing Corp., Revenue Bonds,
Series A, 6.00%, 7/01/10....................... 1,065
1,625 Michigan State Housing Development Authority,
Revenue Bonds, Series A, 6.75%, 12/01/14....... 1,752
1,400 Mississippi State, General Obligation Bonds,
6.00%, 2/01/09 Prerefunded 2/01/05 at 100...... 1,549
2,000 Municipal Assistance Corp. for City of New York,
NY, Revenue Bonds, 6.00%, 7/01/04.............. 2,203
960 Ohio State, Housing Finance Agency, Residential
Mortgage Revenue Bonds, Series A-1, 6.20%,
9/01/14........................................ 1,034
1,000 Orlando, Florida, Utilities Commission Water &
Electric, Revenue Bonds, Series D, 6.75%,
10/01/17....................................... 1,224
600 Salt Lake City, Utah, General Obligation Bonds,
6.375%, 6/15/11................................ 635
1,385 Shelby County, Tennessee, General Obligation
Bonds, Series B, 5.50%, 8/01/10................ 1,532
1,500 Texas State, Public Finance Authority, Series A,
5.95%, 10/01/15 Prerefunded 4/01/05 at 100..... 1,658
1,550 Triborough Bridge & Tunnel Authority, New York,
Revenue Bonds, Series Y, 6.00%, 1/01/12........ 1,782
<CAPTION>
FACE
AMOUNT VALUE
(000) (000)
<C> <S> <C>
- ----------------------------------------------------------------------
$ 1,000 Utah State, Housing Financing Agency, Single
Family Mortgage Revenue Bonds, Series G-1,
Class I, 5.50%, 7/01/16........................ $ 1,035
1,000 Virginia Beach, Virginia, General Obligation
Bonds, 6.00%, 9/01/10 Prerefunded 9/01/04 at
102............................................ 1,121
500 Virginia State Housing Development Authority,
Commonwealth Mortgage Revenue Bonds, Series B,
6.60%, 1/01/12................................. 539
1,000 Virginia State Housing Development Authority,
Commonwealth Mortgage Revenue Bonds, Series B,
6.65%, 1/01/13................................. 1,000
1,000 Washington State, General Obligation Bonds,
Series B, 6.40%, 6/01/17....................... 1,188
1,440 Wisconsin State, Clean Water Revenue Bonds,
Series 1, 6.875%, 6/01/11...................... 1,773
1,115 Wisconsin State, General Obligation Bonds, Series
2, 5.125%, 11/01/11............................ 1,193
--------
TOTAL FIXED RATE INSTRUMENTS (Cost $32,727)............... 34,778
--------
TOTAL TAX-EXEMPT INSTRUMENTS (Cost $32,727)................. 34,778
--------
TOTAL INVESTMENTS (99.9%) (Cost $32,727).................... 34,778
--------
</TABLE>
<TABLE>
<S> <C> <C>
OTHER ASSETS (1.9%)
Cash.............................................. $ 58
Interest Receivable............................... 585
Other............................................. 1 644
-------
LIABILITIES ( - 1.8%)
Payable for Shares Redeemed....................... (573)
Investment Advisory Fees Payable.................. (7)
Administrative Fees Payable....................... (6)
Director's Fees & Expenses Payable................ (3)
Custodian Fees Payable............................ (1)
Other Liabilities................................. (25) (615)
------- ---------
NET ASSETS (100%)............................................ $ 34,807
---------
---------
</TABLE>
<TABLE>
<S> <C>
NET ASSETS CONSIST OF:
Paid in Capital............................................... $ 32,599
Accumulated Net Investment Loss............................... (3)
Accumulated Net Realized Gain................................. 160
Unrealized Appreciation on Investments........................ 2,051
---------
NET ASSETS.................................................... $ 34,807
---------
---------
</TABLE>
<TABLE>
<S> <C>
CLASS A:
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 3,346,930 outstanding $0.001 par value shares
(authorized 500,000,000 shares)............................. $10.40
---------
---------
</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.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
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................................ $ 592 1.7%
California............................. 1,159 3.3
Connecticut............................ 3,085 8.9
Delaware............................... 566 1.6
Florida................................ 2,850 8.2
Georgia................................ 1,857 5.3
Hawaii................................. 1,117 3.2
Kentucky............................... 1,065 3.1
Michigan............................... 1,752 5.0
Mississippi............................ 1,549 4.5
New York............................... 3,985 11.4
Ohio................................... 1,034 3.0
Tennessee.............................. 1,532 4.4
Texas.................................. 3,579 10.3
Utah................................... 1,670 4.8
Virginia............................... 3,233 9.3
Washington............................. 1,188 3.4
Wisconsin.............................. 2,965 8.5
-------- ---
$ 34,778 99.9%
-------- ---
-------- ---
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
Municipal Bond Portfolio
141
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
MONEY MARKET PORTFOLIO
COMPOSITION OF NET ASSETS (AT DECEMBER 31, 1998)
- --------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Bankers Acceptance 0.5%
Certificates of Deposit 19.9%
Commercial Paper 58.0%
Corporate Floating Rate Notes 13.6%
U.S. Government & Agency Obligations 5.4%
Other 2.6%
</TABLE>
COMPARATIVE MONTHLY AVERAGE YIELDS
- --------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C> <C>
Money Market Portfolio 30 day
yields IBC Money Fund Comparable Yields
Jan-98 5.26% 5.24%
Feb-98 5.21% 5.17%
Mar-98 5.16% 5.16%
Apr-98 5.15% 5.15%
May-98 5.14% 5.12%
Jun-98 5.16% 5.13%
Jul-98 5.15% 5.14%
Aug-98 5.15% 5.14%
Sep-98 5.16% 5.11%
Oct-98 5.07% 4.87%
Nov-98 4.89% 4.73%
Dec-98 4.74% 4.64%
</TABLE>
- ------------------------------------------------
CERTAIN INFORMATION APPEARING IN THIS INVESTMENT OVERVIEW IS UNAUDITED.
ACCORDINGLY, THE REPORT OF INDEPENDENT ACCOUNTANTS APPEARING ELSEWHERE IN THIS
REPORT DOES NOT EXTEND TO THIS INFORMATION. INVESTMENTS IN SHARES OF THE
PORTFOLIO ARE NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT AND THERE IS
NO ASSURANCE THAT THE PORTFOLIO WILL MAINTAIN A STABLE NET ASSET VALUE OF $1.00
PER SHARE. YIELDS WILL FLUCTUATE AS MARKET CONDITIONS CHANGE.
The Money Market Portfolio's investment objectives are to maximize current
income and preserve capital while maintaining high levels of liquidity through
investing in high quality money market instruments which have remaining
maturities of 397 days or less. The Portfolio's average maturity (on a
dollar-weighted basis) will not exceed 90 days. 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 December 31, 1998 were 4.74% and 4.85%, respectively. As with
all money market portfolios, the seven day yields are not necessarily indicative
of future performance.
Over the past year, several global economies around the world experienced severe
economic difficulties. Long standing problems in emerging markets led to the
economic collapse of Thailand, Indonesia, Korea, and ultimately Russia. This
market upheaval was so pronounced that it affected credit spreads in developed
countries as well. Risk premiums for most G-7 commercial assets widened
dramatically, regardless of credit quality. As investors grew more concerned
with credit risk and liquidity, global capital gravitated toward `AAA' rated
assets such as U.S. Government bonds and U.S. Agency notes. U.S. money market
securities also experienced an inflow of capital, although on a more limited
basis.
While Asian economies were stumbling, real gross domestic product in the U.S.
expanded at a rate of about 3.5%, almost as strong as the previous year. In
spite of this growth, inflation at the CPI level was relatively non-existent as
softer global commodity prices and inexpensive imports limited domestic pricing
power. In fact, deflationary fears began to surface as the PPI drifted into
negative territory this year. Low inflation helped interest rates to decline,
but the dollar remained strong, aided by the aforementioned global flight to
quality.
Looking ahead to 1999, U.S. inflationary risks appear to remain low and
controlled. Inflation is likely to move up slightly next year, but the overall
level will stay low enough to ensure high and attractive domestic real rates.
Until foreign economies begin to
- --------------------------------------------------------------------------------
Money Market Portfolio
142
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
MONEY MARKET PORTFOLIO (CONT.)
stimulate growth, overseas demand for U.S. goods will remain low, especially in
a strong dollar environment keeping inflation in check.
In managing the Portfolio over the past year, we implemented a conservative
credit strategy. By buying top-tier commercial paper and high-grade certificates
of deposit further out on the money market curve, the Portfolio was able to take
full advantage of three successive 25 basis point easings by the Federal Reserve
in the fourth quarter. We also increased our holdings in variable rate
securities issued by high-quality, investment grade credits in order to capture
the attractive credit spreads offered in this asset class.
Currently the money market curve is flat and no longer prices in anticipated
easings, or even much tightening by the Federal Reserve. At this point it is
unlikely that the Federal Reserve will raise interest rates in the next several
months. On the other hand, if the global crisis continues and rates are lowered
to add more liquidity to the market, investors may be rewarded for extending the
maturity of their portfolios by locking into higher rates now. We therefore feel
that extending the Portfolio's maturity slightly heading into 1999 has more
upside return potential with less downside risk.
Abigail Jones Feder
PORTFOLIO MANAGER
Daniel M. Niland
PORTFOLIO MANAGER
January 1999
- --------------------------------------------------------------------------------
Money Market Portfolio
143
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
MONEY MARKET PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE AMORTIZED
AMOUNT COST
(000) (000)
<C> <S> <C>
- -------------------------------------------------------------------------
MONEY MARKET INSTRUMENTS (97.4%)
U.S. GOVERNMENT & AGENCY OBLIGATIONS (5.4%)
AGENCY FLOATING RATE NOTES (5.4%)
$40,000 Federal Farm Credit Bank, Series 1
4.76%, 2/10/99................................. $ 39,999
20,000 Federal Home Loan Bank
5.13%, 4/09/99................................. 19,998
Federal Home Loan Mortgage Corp.:
10,000 4.84%, 1/26/99................................... 10,000
22,000 5.36%, 4/21/99................................... 21,996
13,000 Federal National Mortgage Assoc.
4.70%, 7/26/99................................. 12,992
-----------
TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS
(Cost $104,985)......................................... 104,985
-----------
BANKERS ACCEPTANCE (0.5%)
BANKS (0.5%)
10,000 Nations Bank 5.02%, 2/22/99 (Cost $10,000)....... 10,000
-----------
COMMERCIAL PAPER (58.0%)
AUTOMOTIVE (9.5%)
20,000 Associates Corp. of North America 5.32%,
1/27/99........................................ 19,923
20,000 Associates Corp. of North America 5.01%,
2/12/99........................................ 19,883
10,000 Associates Corp. of North America 5.00%,
3/19/99........................................ 9,893
15,000 Daimler Benz North America Corp. 5.10%,
2/23/99........................................ 14,887
30,000 Daimler Benz North America Corp. 4.98%,
3/17/99........................................ 29,689
18,000 Daimler Benz North America Corp. 5.04%,
3/25/99........................................ 17,791
27,000 General Motors Acceptance Corp. 5.04%, 2/05/99... 26,868
15,000 General Motors Acceptance Corp. 5.25%, 2/16/99... 14,899
12,000 General Motors Acceptance Corp., Series MTN
5.16%, 8/26/99................................. 11,997
21,000 Toyota Motor Credit Corp. 5.10%, 2/05/99......... 20,896
-----------
186,726
-----------
BANKS (14.7%)
19,000 Bank of America 5.34%, 3/22/99................... 19,000
25,000 Bank of America 4.91%, 4/09/99................... 24,666
20,000 Bank One Corp. 4.79%, 6/14/99 4.72%, 6/14/99..... 19,994
25,000 Chase Manhattan Bank 4.95%, 3/31/99.............. 24,694
25,000 Chase Manhattan Bank 4.89%, 4/30/99.............. 24,596
15,000 Commerzbank AG, New York 5.47%, 1/22/99.......... 14,952
10,500 First Chicago 5.05%, 1/22/99..................... 10,469
16,700 Royal Bank of Scotland 4.83%, 6/11/99............ 16,339
27,000 SunTrust Banks, Inc. 5.04%, 3/16/99.............. 26,721
21,000 SunTrust Banks, Inc. 5.04%, 3/18/99.............. 20,777
25,000 Toronto Dominion Australian 5.35%, 1/15/99....... 24,948
25,000 Wachovia Bank 5.15%, 1/14/99..................... 24,954
20,000 Westdeutsche Landesbank 5.05%, 1/29/99........... 19,921
15,000 Westdeutsche Landesbank 5.23%, 2/03/99........... 14,928
-----------
286,959
-----------
<CAPTION>
FACE AMORTIZED
AMOUNT COST
(000) (000)
<C> <S> <C>
- -------------------------------------------------------------------------
CONSUMER STAPLES (5.4%)
$20,000 Clorox Co. 5.13%, 2/17/99........................ $ 19,866
20,200 Glaxo Wellcome plc 5.20%, 2/19/99................ 20,057
21,000 Heinz (H.J.) Co. 5.17%, 2/02/99.................. 20,904
25,000 Johnson & Johnson 4.85%, 6/28/99................. 24,400
4,100 Kellogg Co. 5.03%, 3/15/99....................... 4,058
16,000 Pfizer, Inc. 5.2%, 2/03/99....................... 15,924
-----------
105,209
-----------
DIVERSIFIED (1.7%)
13,000 Xerox Corp. 5.10%, 3/19/99....................... 12,858
20,900 Xerox Corp. 4.97%, 4/06/99....................... 20,626
-----------
33,484
-----------
FINANCE (11.7%)
25,000 CIT Group Holdings, Inc. 5.15%, 2/02/99.......... 24,886
21,500 Ford Motor Credit Corp. 5.05%, 1/20/99........... 21,443
25,000 Goldman Sachs & Co. 4.90%, 5/28/99............... 24,500
20,000 Household Finance, Inc. 5.15%, 2/12/99........... 19,880
26,000 ING US Funding 4.86%, 5/20/99.................... 25,512
13,700 International Lease Finance Corp. 5.07%,
2/22/99........................................ 13,600
20,000 Merrill Lynch & Co. 5.26%, 3/12/99............... 19,795
10,000 Merrill Lynch & Co. 5.03%, 3/24/99............... 9,885
20,000 Merrill Lynch & Co. 5.45%, 4/23/99............... 19,661
50,000 Norwest Corp. Ser J Mtn 5.55%, 8/31/99........... 49,984
-----------
229,146
-----------
INSURANCE (8.4%)
25,350 General Reinsurance Corp. 5.13%, 2/5/99.......... 25,224
20,000 Metlife Funding, Inc. 5.25%, 2/10/99............. 19,883
24,889 Metlife Funding, Inc. 5.15%, 2/16/99............. 24,725
20,000 Prudential Funding Corp. 5.05%, 1/20/99.......... 19,947
20,000 Prudential Funding Corp. 5.06%, 3/12/99.......... 19,803
9,000 USAA Capital Corp. 5.23%, 1/19/99................ 8,976
10,000 USAA Capital Corp. 5.15%, 2/01/99................ 9,956
22,250 USAA Capital Corp. 5.20%, 2/05/99................ 22,138
14,200 USAA Capital Corp. 4.91%, 2/24/99................ 14,095
-----------
164,747
-----------
TECHNOLOGY (3.8%)
25,000 Cargill, Inc. 4.88%, 5/20/99..................... 24,529
20,000 General Electric Capital Corp. 5.06%, 2/12/99.... 19,882
31,000 General Electric Capital Corp. 5.13%, 2/25/99.... 30,757
-----------
75,168
-----------
UTILITIES (2.8%)
25,000 National Rural Utilities, Cooperative Finance
Corp. 5.02%, 3/26/99........................... 24,707
7,700 National Rural Utilities, Cooperative Finance
Corp. 5.10%, 3/11/99........................... 7,625
22,000 Southern California Edison Co. 5.03%, 3/15/99.... 21,775
-----------
54,107
-----------
TOTAL COMMERCIAL PAPER
(Cost $1,135,546)..................................... 1,135,546
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
Money Market Portfolio
144
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
MONEY MARKET PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE AMORTIZED
AMOUNT COST
(000) (000)
- -------------------------------------------------------------------------
<C> <S> <C>
CORPORATE FLOATING RATE NOTES (13.6%)
BANKS (8.8%)
$20,000 Abbey National Treasury Services 5.48%,
2/17/99........................................ $ 19,998
30,000 Abbey National Treasury Services 5.49%,
6/15/99........................................ 29,986
17,000 Bank One Columbus, 5.24%, 10/25/99............... 17,009
22,000 Citicorp, Series E, 5.20%, 9/17/99............... 22,000
37,000 Credit Suisse, First Boston 5.30%, 2/09/99....... 37,000
10,000 First Union National Bank 4.70%, 5/17/99......... 10,000
33,000 Morgan Guaranty Trust Co., 5.57%, 9/27/99........ 32,990
5,000 NationsBank Corp. Series B, MTN 5.44%,
11/18/99....................................... 5,008
-----------
173,991
-----------
CONSUMER GOODS (1.2%)
23,000 Pepsico, Inc., Series MTN 5.21%, 8/19/99......... 22,984
-----------
FINANCE (1.0%)
9,000 CIT Group Holdings, Inc., 6.10%, 8/09/99......... 9,051
10,000 J.P. Morgan & Co., Series A 5.75%, 3/10/99....... 10,000
-----------
19,051
-----------
INSURANCE (2.6%)
50,000 Allmerica Financial 5.28%, 10/20/99.............. 50,000
-----------
TOTAL CORPORATE FLOATING RATE NOTES
(Cost $266,026)......................................... 266,026
-----------
CERTIFICATES OF DEPOSIT (19.9%)
BANKS (19.9%)
24,000 Bank of Austria, New York 5.74%, 4/26/99......... 23,997
25,000 Bank of Austria (Yankee) 5.72%, 4/19/99.......... 25,026
20,000 Bank of Nova Scotia (Yankee) 5.00%, 6/01/99...... 20,000
13,000 Barclays Bank plc, New York 5.65%, 3/02/99....... 12,999
25,000 Bayerishe Landesbank, New York 5.56%, 6/29/99.... 24,991
20,000 Canadian Imperial Bank, New York 4.87%,
4/16/99........................................ 20,000
18,000 Commerzbank AG, New York 5.55%, 2/11/99.......... 17,999
10,000 Commerzbank AG, New York 5.41%, 3/11/99.......... 10,007
18,000 Credit Agricole Indosuez (Yankee) 5.66%,
3/29/99........................................ 17,996
10,000 Credit Suisse, First Boston 5.60%, 2/11/99....... 10,000
19,000 Deutsche Bank, New York 5.55%, 2/11/99........... 18,999
20,100 Deutsche Bank, New York 5.62%, 2/26/99........... 20,099
14,000 Deutsche Bank (Yankee) 5.74%, 4/23/99............ 14,000
20,000 National Westminster Bank 5.74%, 5/07/99......... 20,000
23,000 Rabobank Nederland N.V., 5.70%, 4/20/99.......... 22,996
5,700 Rabobank Nederland N.V., (Yankee) 5.58%,
8/18/99........................................ 5,720
25,300 Royal Bank of Canada, New York 5.56%, 6/29/99.... 25,291
10,000 Soceite Generale Bank, New York 5.30%, 1/19/99... 10,000
20,000 Soceite Generale Bank, New York 5.795%,
4/27/99........................................ 19,996
20,000 Soceite Generale Bank, New York 5.54%, 5/20/99... 19,995
<CAPTION>
FACE AMORTIZED
AMOUNT COST
(000) (000)
<C> <S> <C>
- -------------------------------------------------------------------------
$15,000 Swiss Bank (Yankee) 5.65%, 3/24/99............... $ 14,998
15,250 UBS Finance, Inc. (Yankee) 5.32%, 2/10/99........ 15,250
-----------
TOTAL CERTIFICATES OF DEPOSIT
(Cost $390,359)......................................... 390,359
-----------
TOTAL MONEY MARKET INSTRUMENTS (Cost $1,906,916)............ 1,906,916
-----------
SHORT TERM INVESTMENT (1.0%)
REPURCHASE AGREEMENT (1.0%)
20,062 J.P. Morgan & Co. 4.85%, dated 12/31/98, due
1/04/99, to be repurchased at $20,073,
collateralized by U.S. Treasury Notes, 6.375%,
due 3/31/01, valued at $20,497 (Cost
$20,062)....................................... 20,062
-----------
TOTAL INVESTMENTS (98.4%) (Cost $1,926,978)................. 1,926,978
-----------
</TABLE>
<TABLE>
<S> <C> <C>
OTHER ASSETS (8.2%)
Cash............................................. $ 224
Receivable for Portfolio Shares Sold............. 144,120
Interest Receivable.............................. 15,955
Other............................................ 47 160,346
----------
LIABILITIES ( - 6.6%)
Payable for Portfolio Shares Redeemed............ (127,134)
Investment Advisory Fees Payable................. (1,436)
Administrative Fees Payable...................... (256)
Dividends Payable................................ (129)
Directors' Fees & Expenses Payable............... (83)
Custodian Fees Payable........................... (4)
Other Liabilities................................ (105) (129,147)
---------- -----------
NET ASSETS (100%).............................................. $ 1,958,177
-----------
-----------
</TABLE>
<TABLE>
<CAPTION>
AMOUNT
(000)
<S> <C> <C>
-----------
</TABLE>
<TABLE>
<S> <C>
NET ASSETS CONSIST OF:
Paid in Capital............................................... $ 1,958,581
Undistributed Net Investment Income........................... 4
Accumulated Net Realized Loss................................. (408)
-----------
NET ASSETS.................................................... $ 1,958,177
-----------
-----------
</TABLE>
<TABLE>
<S> <C>
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 1,959,720,313 outstanding $0.001 par value
shares (authorized 4,000,000,000 shares).................... $1.00
-----------
-----------
</TABLE>
- ------------------------------------------------------------
MTN -- Medium Term Note
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
at December 31, 1998.
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 effective yields at December 31, 1998.
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
Money Market Portfolio
145
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
MUNICIPAL MONEY MARKET PORTFOLIO
COMPOSITION OF NET ASSETS (AT DECEMBER 31, 1998)
- --------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Commercial Paper 33.2%
Daily Variable Rate Bonds 24.0%
Notes 9.8%
Weekly Variable Rate Bonds 29.3%
Other 3.7%
</TABLE>
COMPARATIVE MONTHLY AVERAGE YIELDS
- --------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C> <C>
Municipal Money Market Portfolio 30 day
yields IBC Municipal Money Fund Comparable yields
Jan-98 3.21% 3.09%
Feb-98 2.91% 2.84%
Mar-98 2.80% 2.79%
Apr-98 3.03% 3.25%
May-98 3.24% 3.34%
Jun-98 3.16% 3.13%
Jul-98 3.06% 2.90%
Aug-98 2.94% 2.87%
Sep-98 2.92% 2.94%
Oct-98 3.01% 2.89%
Nov-98 2.79% 2.72%
Dec-98 2.78% 2.73%
</TABLE>
- ------------------------------------------------
CERTAIN INFORMATION APPEARING IN THIS INVESTMENT OVERVIEW IS UNAUDITED.
ACCORDINGLY, THE REPORT OF INDEPENDENT ACCOUNTANTS APPEARING ELSEWHERE IN THIS
REPORT DOES NOT EXTEND TO THIS INFORMATION. INVESTMENTS IN SHARES OF THE
PORTFOLIO ARE NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT AND THERE IS
NO ASSURANCE THAT THE PORTFOLIO WILL MAINTAIN A STABLE NET ASSET VALUE OF $1.00
PER SHARE. YIELDS WILL FLUCTUATE AS MARKET CONDITIONS CHANGE.
The Municipal Money Market Portfolio's investment objectives are to maximize
current income that is exempt from Federal income tax and preserve capital while
maintaining high levels of liquidity through investing in high quality municipal
money market instruments which earn interest exempt from Federal income tax in
the opinion of bond counsel for the issuer. The Portfolio will purchase only
securities having a remaining maturity of one year or less. Under normal
circumstances, the Portfolio will invest at least 80% of its assets in
tax-exempt municipal securities. Additionally, the Portfolio will not purchase
private activity bonds, the interest from which is subject to alternative
minimum tax. Interest on tax-exempt municipal securities may be subject to state
and local taxes. The Portfolio's average maturity (on a dollar-weighted basis)
will not exceed 90 days. 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 December 31, 1998 were 3.10% and 3.15%, respectively. The seven
day taxable equivalent yield and the seven day taxable equivalent effective
yield for the Portfolio at December 31, 1998, assuming Federal income tax rate
of 39.6% (maximum rate) were 5.13% and 5.22%, respectively. The seven day yields
are not necessarily indicative of future performance.
In general during the first half of 1998, the municipal money market did not
track the movements experienced in the taxable market. The taxable market was
driven by economic data releases in the United States as well as the Asian
crisis. Instead the municipal market was driven by shifts in supply and demand
as corporations moved between the taxable and tax-exempt sectors depending upon
where they could find the most attractive yields. Although the municipal money
market curve was flat throughout much of the first half of 1998, the variable
rate demand securities experienced dramatic swings of as much as 300 basis
points in rates. These declines in the coupons for daily and weekly variable
rate demand securities were precipitated by pronounced decreases in supply of
paper. Each time rates declined, the taxable "crossover" buyers moved out of the
tax-exempt sector. This
- --------------------------------------------------------------------------------
Municipal Money Market Portfolio
146
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
MUNICIPAL MONEY MARKET PORTFOLIO (CONT.)
created a dramatic increase in supply forcing dealers to increase rates and
return the curve to its characteristic flat shape.
The municipal money market sector was slow to react to the events in the world
economies that created a powerful "flight to quality" rally in the US Treasury
market. In fact on a relative basis the municipal money market sector
represented attractive value when compared to the taxable market. For example,
in the month of August the one year Treasury note yield declined almost 50 basis
points while one year tax-exempts rallied only about 15 basis points. Although
the tax-exempt money market curve was flat for much of the third quarter, the
market inverted toward the end of September with overnights yielding over 4.0%,
60-70 basis points over the one year portion of the curve.
As spreads in the taxable market rebounded in the fourth quarter, the tax-exempt
market, again, did not react in any meaningful way as in the third quarter. In
fact, not until November when the Federal Reserve cut the target for the Federal
Funds rate by 25 basis points (the third decrease in 1998) did we see any
decrease in municipal money market yields. The lower yields and generally flat
curve shape persisted until the last week of December when the curve inverted as
it had in late September. This time overnight variable rate demand instruments'
yields soared to levels in excess of 5% thus eclipsing those found in the
taxable market.
The asset size of the Portfolio increased over 18% in 1998. The Portfolio
finished the year with net assets of $991 million. Overall the asset allocation
throughout the year remained consistent. Commercial paper ranged from 30-40%,
tax-exempt notes ranged from 5-16%, and daily and weekly variable rate puttable
issues fluctuated more than the other sectors with allocations ranging between
40% and 60% of the Portfolio. Because of the relatively flat shape of the curve
for most of the year, the Portfolio maintained a relatively short weighted
average maturity throughout the year hovering around 30 days. The one notable
exception to this occurred as the end of June approached when many of the
tax-exempt notes matured -- these maturities coincide with the particular state
or municipal issuer's fiscal year end which is typically June 30 -- at which
time the weighted average maturity of the Portfolio dropped to 17 days as of
June 30. The Portfolio ended the 1998 with a 29 day weighted average maturity.
Abigail Jones Feder
PORTFOLIO MANAGER
January 1999
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<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
MUNICIPAL MONEY MARKET PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE AMORTIZED
AMOUNT COST
(000) (000)
<C> <S> <C>
- ------------------------------------------------------------------------
TAX-EXEMPT INSTRUMENTS (96.3%)
FIXED RATE INSTRUMENTS (43.0%)
NOTES (9.8%)
$ 1,000 Anne Arundel County, Maryland, General
Obligation, Series A, 6.90%, 1/15/99........... $ 1,001
1,750 Dallas County, Texas, General Obligation, 5.50%,
8/15/99........................................ 1,770
3,600 Fairfax County, Virginia, General Obligation,
Series B, 6.00%, 6/01/99....................... 3,632
1,215 Fairfax County, Virginia, Series A, 6.25%,
4/01/08 Prerefunded 4/01/99 at 102............. 1,252
10,900 Idaho State TANS, 4.50%, 6/30/99................. 10,951
Illinois State, Sales Tax Revenue Bonds
3,515 7.00%, 6/15/19, Series K......................... 3,637
2,500 4.50%, 6/15/99................................... 2,520
1,950 Intermountain Power Agency Utah, Series A, 7.00%,
7/01/21 Prerefunded 7/01/99 at 102............. 2,027
7,500 Kentucky Asset/Liability, TRANS, Series A, 4.50%,
6/25/99........................................ 7,534
Maryland State, General Obligation
1,000 6.50%, 3/01/99................................... 1,005
1,000 6.70%, 7/15/99................................... 1,018
5,000 Milwaukee Wisconsin, RANS, Series A, 5.00%,
2/25/99........................................ 5,013
3,000 Minnesota State, General Obligation, 4.75%,
5/01/99........................................ 3,011
3,315 Montgomery County, Maryland, General Obligation,
Series B, 6.80%, 11/01/00 Prerefunded 11/01/99
at 102......................................... 3,482
1,000 New Jersey Building Authority, State Building
Revenue Bonds, 9.88%, 2/01/13 Prefunded 2/01/99
at 100......................................... 1,006
2,000 New Mexico State, Severance Tax Revenue Bonds,
Series B, 4.50%, 7/01/99....................... 2,014
7,700 Platte River County, 3.15%, 2/09/99.............. 7,700
1,460 Scottsdale, Arizona Water & Sewer System Revenue
Bonds, Series E, 4.50%, 7/01/99................ 1,470
1,000 Seattle, Washington Municipal Light & Power
Revenue Bonds, 4.50%, 5/01/99.................. 1,004
1,445 South Carolina State, Revenue Bonds, Series A,
6.50%, 3/01/99................................. 1,452
5,000 South Columbia Basin, Revenue Bonds, 5.70%,
6/01/99........................................ 5,048
3,700 Tennessee State, School Board Authority, Series
A, 3.05%, 2/08/99.............................. 3,700
10,000 Texas State, TRANS, 4.50%, 8/31/99............... 10,078
2,500 Tulsa County, Oklahoma, Independent School
District # 001, 5.00%, 2/01/99................. 2,503
1,000 Vermont State, General Obligation, Series A,
4.25%, 1/15/99................................. 1,000
1,000 Washington, General Obligation, 6.60%, 12/01/00
Prerefunded 12/01/99 at 102.................... 1,052
<CAPTION>
FACE AMORTIZED
AMOUNT COST
(000) (000)
<C> <S> <C>
- ------------------------------------------------------------------------
$ 1,095 Washington, General Obligation, 2nd Series,
8.00%, 1/01/00................................. $ 1,146
Wisconsin State, General Obligations
2,205 4.25%, 5/01/99, Series A......................... 2,209
1,000 5.75%, 5/01/99................................... 1,008
5,000 Wisconsin State, Revenue Notes, 4.50%, 6/15/99... 5,021
1,500 Wyoming State, TRANS, 4.00%, 6/25/99............. 1,503
----------
96,767
----------
COMMERCIAL PAPER (33.2%)
Allegheny County, Pennsylvania, Industrial
Development Authority
5,000 3.25%, 1/19/99, Series 85........................ 5,000
2,200 3.25%, 1/20/99, Series 95........................ 2,200
3,500 Ann Aroundel County, Maryland, Series A, 2.95%,
3/04/99........................................ 3,500
Baltimore County, Maryland
5,000 3.20%, 1/07/99................................... 5,000
10,000 3.20%, 1/19/99, BANS, Series 95.................. 10,000
4,900 Becker, Minnesota, Pollution Control Revenue
Bonds, Series 93A, 3.05%, 2/08/99.............. 4,900
4,100 City & County of Honolulu, Hawaii, 3.05%,
1/14/99........................................ 4,100
5,500 City of Houston, Texas, General Obligation,
Series B, 3.20%, 1/14/99....................... 5,500
4,000 City of Petersburg, Indiana, 3.00%, 3/09/99...... 4,000
City of Rochester, Minnesota
1,000 3.60%, 1/13/99, Series B......................... 1,000
1,565 3.60%, 1/13/99, Series E......................... 1,565
1,500 3.60%, 1/13/99, Series F......................... 1,500
1,500 2.90%, 1/26/99, Series 92A....................... 1,500
6,000 2.90%, 1/26/99, Series 92C....................... 6,000
7,200 City of San Antonio, Texas, Series A, 3.35%,
2/18/99........................................ 7,200
1,925 Claiborne County, Mississippi, South Mississippi
Electric, 3.00%, 2/19/99....................... 1,925
5,000 Connecticut State, Assessment, 3.00%, 2/18/99.... 5,000
1,300 Connecticut State, Special Assessment, 3.00%,
2/17/99........................................ 1,300
5,000 Cuyahoga County, Ohio, 4.10%, 1/01/25............ 5,000
6,700 Geisinger Authority, Pennsylvania Health System,
3.20%, 8/15/28................................. 6,700
1,800 Georgia Municipal Gas Authority, Gas Revenue
Bonds, 3.00%, 3/11/99.......................... 1,800
4,100 Gillette Campbell, Wyoming, 3.00%, 2/04/99....... 4,100
2,148 Harris County, Texas, General Obligation, Series
A, 3.05%, 2/11/99.............................. 2,148
Houston, Texas
13,000 3.25%, 1/13/99, Series B......................... 13,000
5,000 3.20%, 1/14/99, Series B......................... 5,000
9,000 Illinois Educational Facility Authority, 3.10%,
2/08/99........................................ 9,000
</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
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
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>
$ 2,100 Illinois Health & Educational Facilities, 3.10%,
2/18/99........................................ $ 2,100
4,750 Independence Missouri, Water Utility Revenue,
Series 86, 3.20%, 1/15/99...................... 4,750
Jacksonville, Florida, Electric Authority
9,500 3.00%, 2/04/99, Series C-1....................... 9,500
1,100 3.00%, 2/09/99, Series C-1....................... 1,100
1,500 3.20%, 2/11/99................................... 1,500
2,000 Jefferson County, Kentucky, 3.00%, 2/09/99....... 2,000
10,000 King County, Washington, Sewer Revenue, Series A,
BANS, 3.00%, 3/09/99........................... 10,000
2,000 Las Vegas, Nevada, Water Authority, 2.95%,
1/28/99........................................ 2,000
3,000 Louisiana Public Facilities Authority, 3.05%,
3/11/99........................................ 3,000
6,050 Louisiana State, General Obligation, Series 91A,
3.00%, 2/17/99................................. 6,050
6,600 Massachusetts Health & Education Facilities
Authority, Harvard University, Series L, 3.20%,
1/22/99........................................ 6,600
3,000 Massachusetts State Water Resource Authority,
3.00%, 2/16/99................................. 3,000
2,860 Michigan State Underground Storage Facility,
Series 1, 3.20%, 1/20/99....................... 2,860
6,500 Montgomery County, Alabama, Industrial
Development Board 3.10%, 1/12/99............... 6,500
Montgomery County, Maryland, BANS
10,700 3.20%, 1/20/99................................... 10,700
6,000 3.10%, 2/10/99................................... 6,000
5,000 New Jersey TRANS, 3.35%, 1/19/99................. 5,000
New York City, New York, Municipal Water Finance
Authority
8,600 3.25%, 1/21/99................................... 8,600
10,000 3.05%, 2/17/99, Series 4......................... 10,000
5,000 3.10%, 2/25/99................................... 5,000
1,500 New York State, Dormitory Authority Revenue
Bonds, BANS, Series U
3.00%, 3/04/99................................... 1,500
3,500 North Carolina Eastern Municipal
3.50%, 1/14/99................................. 3,500
2,990 Omaha, Nebraska, Public Power District, 3.05%,
2/19/99........................................ 2,990
1,000 Petersburg, Indiana, Indiana Power & Light,
Series 91, 3.00%, 3/09/99...................... 1,000
Salt River, Arizona, Agricultural & Power
District Revenue Bonds
6,600 3.35%, 1/12/99................................... 6,600
2,800 3.05%, 1/14/99................................... 2,800
1,500 San Antonio, Texas, 3.15%, 2/16/99............... 1,500
3,600 San Antonio, Texas, Electric & Gas Revenue Bonds,
3.45%, 1/28/99................................. 3,600
2,250 Seattle, Washington Municipal Light & Power
Revenue Bonds, 3.05%, 3/10/99.................. 2,250
<CAPTION>
FACE AMORTIZED
AMOUNT COST
(000) (000)
<C> <S> <C>
- ------------------------------------------------------------------------
South Carolina Public School Authority
$10,000 3.10%, 1/27/99................................... $ 10,000
1,000 3.00%, 2/09/99................................... 1,000
4,900 St. Lucie, Florida, 3.05%, 2/05/99............... 4,900
2,000 St. Petersburg, Indiana, 3.05%, 2/24/99.......... 2,000
10,000 State of Texas, TRANS, 2.95%, 8/10/99............ 10,000
Sunshine State, Florida, Government Finance
Authority
2,000 3.10%, 1/21/99, Series 86........................ 2,000
4,800 3.05%, 2/05/99................................... 4,800
2,000 3.15%, 2/10/99, Series A......................... 2,000
3,300 3.05%, 2/16/99................................... 3,300
5,000 Sweetwater County, Wyoming, 2.95%, 2/02/99....... 5,000
Tennessee State, School Board Authority, Series A
1,100 3.10%, 1/07/99................................... 1,100
4,000 3.05%, 2/24/99................................... 4,000
6,600 Texas A&M University, Series 93B,
3.10%, 1/27/99................................. 6,600
1,000 Texas State Public Finance Authority, Series B,
3.35%, 1/12/99................................. 1,000
3,000 University of Delaware, Revenue Bonds, 4.10%,
11/01/23....................................... 3,000
Wake County, North Carolina
500 3.25%, 1/07/99................................... 500
6,100 3.00%, 2/11/99................................... 6,100
3,670 Wisconsin State Transportation Authority, Series
97, 3.00%, 2/08/99............................. 3,670
Wisconsin State, General Obligation
2,287 3.00%, 1/20/99................................... 2,287
5,234 3.05%, 2/11/99, Series A......................... 5,234
----------
328,429
----------
TOTAL FIXED RATE INSTRUMENTS................................ 425,196
----------
VARIABLE/FLOATING RATE INSTRUMENTS (53.3%)
DAILY VARIABLE RATE BONDS (24.0%)
1,500 Ascension Parish, Louisiana, Pollution Control
Revenue Bonds, Shell Oil, 5.00%, 9/01/23....... 1,500
6,900 Cuyahoga County, Ohio Hospital Revenue Bonds,
5.00%, 1/01/26................................. 6,900
California Pollution Control Financing Authority,
Revenue Bonds, Southern California Edison
100 5.20%, 2/28/08, Series 86A....................... 100
1,200 5.20%, 2/28/08, Series 86B....................... 1,200
Chicago, Illinois, O'Hare International
Airport Special Facilities Revenue Bonds
4,200 5.00%, 12/01/17, Series A........................ 4,200
3,500 5.00%, 12/01/17, Series B........................ 3,500
2,800 5.00%, 12/01/17, Series C........................ 2,800
3,750 5.00%, 12/01/17, Series D........................ 3,750
500 City of Forsyth, Montana, Pollution Control
Revenue Bonds, 5.25%, 1/01/18.................. 500
</TABLE>
The accompanying notes are an integral part of the financial statements.
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149
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
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>
$ 1,700 Delta County, Michigan, Environmental Improvement
Revenue Bonds, Mead Corp., 5.05%, 12/01/23..... $ 1,700
East Baton Rouge Parish, Louisiana, Pollution
Control Revenue Bonds, Exxon Project
3,200 5.05%, 11/01/19.................................. 3,200
6,400 5.00%, 3/01/22................................... 6,400
2,400 Farmington, New Mexico, Pollution Control Revenue
Bonds, Series A, 5.00%, 5/01/24................ 2,400
4,200 Gulf Coast Waste Disposal Authority, Texas,
Pollution Control Revenue Bonds, Exxon Project,
5.05%, 6/01/20................................. 4,200
1,200 Hamond, Indiana, Pollution Control Revenue Bonds,
Amoco Oil Co. Project, 5.05%, 2/01/22.......... 1,200
1,000 Hapeville, Georgia, Industrial Development
Authority, Series 85, 5.05%, 11/01/15.......... 1,000
Harris County, Texas, Health Facilities
Development Corp., Methodist Hospital
3,050 5.00%, 12/01/26.................................. 3,050
5,450 5.00%, 12/01/25.................................. 5,450
Harris County, Texas, Industrial Development,
Pollution Control Revenue Bonds, Exxon Project
8,700 4.90%, 4/01/27................................... 8,700
2,600 5.00%, 3/01/24................................... 2,600
2,200 5.00%, 3/01/24................................... 2,200
5,700 Hurley, New Mexico, Pollution Control Revenue
Bonds, Series 85,
5.10%, 12/01/15................................ 5,700
3,200 Jackson County, Mississippi, Port Facility,
Chevron Project, Series 93,
5.10%, 6/01/23................................. 3,200
900 Kansas City, Kansas, Industrial Development
Authority, Revenue Bonds, PQ Corp., 5.10%,
8/01/15........................................ 900
2,000 Lake Charles, Louisiana, Harbor & Terminal
District Port Facilities, Series 84, 5.10%,
11/01/11....................................... 2,000
Lincoln County, Wyoming, Pollution Control
Revenue Bonds, Exxon Project
2,500 5.05%, 11/01/14.................................. 2,500
2,500 5.05%, 11/01/14.................................. 2,500
2,500 5.05%, 11/01/14, Series 84B...................... 2,500
2,500 5.05%, 11/01/14, Series 84D...................... 2,500
3,380 Long Island, New York, Power & Electric
Authority, Series 6, 4.85%, 5/01/33............ 3,380
3,120 Louisiana Public Facilities Authority, Industrial
Development, Kenner Hotel, Series 85, 5.05%,
12/01/15....................................... 3,120
<CAPTION>
FACE AMORTIZED
AMOUNT COST
(000) (000)
<C> <S> <C>
- ------------------------------------------------------------------------
$ 1,600 Manatee County, Florida, Pollution Control,
4.70%, 9/01/24................................. $ 1,600
Maricopa County, Arizona, Pollution Control
Revenue Bonds, Arizona Public Service Co.
4,500 5.00%, 5/01/29, Series C......................... 4,500
3,000 5.00%, 5/01/29, Series F......................... 3,000
1,700 5.10%, 5/01/29................................... 1,700
1,900 Martin County, Florida, Pollution Control Revenue
Bond, Florida Power & Light company, 4.70%,
9/01/24........................................ 1,900
2,700 Metropolitan Nashville, Airport Authority,
Special Facility Revenue Bonds, American
Airlines Project, Series A, 4.85%, 10/01/12.... 2,700
Missouri State Health & Educational Facilities
Authority, Revenue Bonds, Washington University
2,400 5.10%, 9/01/30, Series A......................... 2,400
3,500 5.10%, 9/01/30, Series B......................... 3,500
1,700 Missouri State, Infrastructure Development
Revenue Bonds, Series B,
5.25%, 12/01/03................................ 1,700
200 Monroe County, Georgia, Pollution Control Revenue
Bonds, Gulf Power Co., Series 2, 5.15%,
9/01/24........................................ 200
4,000 New York City, New York, Cultural Resources,
Revenue Bonds, Series B, 5.00%, 12/01/15....... 4,000
New York City, New York, General Obligation Bonds
1,500 5.10%, 8/01/15, Sub-Series A5.................... 1,500
3,400 5.20%, 8/01/16, Sub-Series A10................... 3,400
3,650 5.00%, 8/01/22, Sub-Series A4.................... 3,650
3,550 5.00%, 8/01/23, Sub-Series A4.................... 3,550
1,700 4.40%, 8/15/22, Series B......................... 1,700
2,500 5.20%, 10/01/23, Series C........................ 2,500
New York City, New York, Municipal Water Finance
Authority, Water & Sewer System Revenue Bonds
2,700 5.10%, 6/15/22................................... 2,700
400 5.20%, 6/15/25................................... 400
400 New York State Energy Research & Development
Authority, Pollution Control Revenue Bonds,
5.20%, 7/01/15................................. 400
6,000 New York State, Dormitory Authority Revenue
Bonds, Cornell University, Series B, 5.00%,
7/01/25........................................ 6,000
3,700 New York State, Research & Development, 5.05%,
2/01/29........................................ 3,700
2,700 Nueces River Authority, Texas, Pollution Control
Revenue Bonds, Series 85, 5.15%, 12/01/99...... 2,700
</TABLE>
The accompanying notes are an integral part of the financial statements.
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150
<PAGE>
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Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
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>
Ohio State Air Quality Development Authority
Revenue Bonds, Cincinnati Gas & Electric
$ 6,300 5.20%, 12/01/15.................................. $ 6,300
4,100 5.00%, 9/01/30................................... 4,100
2,000 Putnam County, New York, 5.15%, 4/01/32.......... 2,000
2,400 Peninsula Port Authority, Virginia, Coal Revenue
Bonds, 5.10%, 7/01/16.......................... 2,400
Pennsylvania Higher Education Authority Revenue
Bonds, Carnegie Mellon University
5,000 5.00%, 11/01/29.................................. 5,000
2,600 5.00%, 11/01/30, Series 95D...................... 2,600
3,215 Pennsylvania State Higher Educational Facilities
Authority, Colleges & Universities, Revenue
Bonds
4.95%, 10/01/09................................ 3,215
Philadelphia, Pennsylvania, Hospitals & Higher
Educational Facilities Authority, Childrens
Hospital
8,400 5.00%, 3/01/27, Series 96A....................... 8,400
8,050 5.00%, 3/01/27................................... 8,050
Platte County, Wyoming, Pollution Control Revenue
Bonds
3,800 5.25%, 7/01/14, Series A......................... 3,800
700 5.25%, 7/01/14, Series B......................... 700
Raleigh-Durham, North Carolina, Airport Authority
4,000 5.10%, 11/01/15, Series A........................ 4,000
600 5.10%, 11/01/15, Series B........................ 600
1,400 Saint Charles Parish, Louisiana, Pollution
Control Revenue Bonds, Shell Oil, Series 92B,
5.00%, 10/01/22................................ 1,400
1,700 Saint Lucie County, Florida, Pollution Control
Revenue Bonds, Florida Power & Light Co.,
4.70%, 1/01/26................................. 1,700
6,700 Salt Lake County, Utah, Pollution Control
Revenue, SVC Station Holdings,
5.00%, 8/01/07................................. 6,700
4,450 Southwest, Texas, Higher Education Authority
Revenue Bonds, Southern Methodist University,
5.10%, 7/01/15................................. 4,450
2,950 Sublette County, Wyoming, Pollution Control
Revenue Bonds, Exxon Project, 5.05%,
11/01/14....................................... 2,950
1,100 Sweetwater County, Wyoming, Pacificorp, Series
88B, 5.25%, 1/01/14............................ 1,100
2,100 Sweetwater County, Wyoming, Pollution Control,
5.00%, 11/01/24................................ 2,100
4,100 Tempe, Arizona, Excise Tax Revenue Bonds, 5.00%,
7/01/23........................................ 4,100
<CAPTION>
FACE AMORTIZED
AMOUNT COST
(000) (000)
<C> <S> <C>
- ------------------------------------------------------------------------
$ 4,300 Texas State, Water Development Board Revenue
Bonds, Series A, 5.00%, 3/01/15................ $ 4,300
4,000 Valdez, Alaska, Marine Terminal Authority, Exxon
Project, Series 85, 5.05%, 10/01/25............ 4,000
----------
238,215
----------
WEEKLY VARIABLE RATE BONDS (29.3%)
1,900 Alaska State, Housing Finance Corp., Revenue
Bonds, Series C, 4.00%, 6/01/26................ 1,900
2,500 Alberquerque, New Mexico, Revenue Bonds, Series
91A, 3.95%, 7/01/22............................ 2,500
2,700 Allegheny County, Pennsylvania, Hospital
Development Authority, Series 95B, 5.15%,
9/01/20........................................ 2,700
300 Arkansas State, Development Finance Authority
Bond, Series B, 3.95%, 6/01/12................. 300
2,300 Ascension Parish, Louisiana, Pollution Control
Revenue Bonds, Borden, Inc., 4.00%, 12/01/09... 2,300
Beaver County, Pennsylvania, Industrial
Development Authority, Duquesne Light
1,000 4.00%, 8/01/09................................... 1,000
1,000 4.00%, 8/01/20................................... 1,000
10,510 Burke County, Georgia, Development Authority,
Oglethorpe, Series 93A, 3.85%, 1/01/16......... 10,510
5,500 Charlotte, North Carolina, Airport, Series 93A,
3.85%, 7/01/16................................. 5,500
1,000 City of Baltimore, Maryland, Pollution Control
Revenue Bonds, General Motors Corp., 4.15%,
2/01/00........................................ 1,000
2,500 City of Columbia, Missouri, Special Revenue
Bonds, Series 88A,
3.95%, 6/01/08................................. 2,500
1,500 City of Columbia, Missouri, Water & Electric
Revenue Bonds, Series 85B, 3.95%, 12/01/15..... 1,500
2,600 City of Midlothian, Texas, Industrial Development
Corp., Pollution Control Revenue Bonds,
Box-Crow Cement Co., 4.20%, 12/01/09........... 2,600
1,000 City of Minnetonka, Minnesota, Multifamily,
Cliffs Ridgedale,
3.85%, 9/15/25................................. 1,000
1,300 City of San Antonio, Texas, Higher Education
Authority, Trinity University, 3.95%,
4/01/04........................................ 1,300
1,900 City of Seattle, Washington, Municipal Light &
Power, Revenue Bonds,
3.85%, 6/01/21................................. 1,900
Clark County, Nevada, Airport Revenue Bonds
12,500 3.85%, 7/01/12, Series 93A....................... 12,500
2,575 3.85%, 7/01/25, Series 95-A1..................... 2,575
</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.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
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>
$ 2,100 Clarksville, Tennessee, Public Building
Authority, Revenue Bonds,
3.85%, 12/01/00................................ $ 2,100
600 Colorado Student Obligation Bond Authority,
Student Loan Revenue Bonds, Series 91-C1,
3.85%, 8/01/00................................. 600
12,400 Connecticut State Health & Educational Authority,
Series T-2, 3.35%, 7/01/27..................... 12,400
4,965 Connecticut State, Revenue Bonds, Series B,
3.70%, 5/15/14................................. 4,965
6,400 Connecticut State, Special Tax Obligation Revenue
Bonds, Series 1,
4.10%, 12/01/10................................ 6,400
4,600 Cook County, Illinois, General Obligation Bonds,
4.10%, 12/01/01................................ 4,600
Cuyahoga County, Ohio, Hospital Revenue Bonds,
The Cleveland Clinic
5,000 4.10%, 1/01/16, Series C......................... 5,000
4,000 4.10%, 1/01/26................................... 4,000
1,900 Dade County, Florida, 3.90%, 1/01/16............. 1,900
1,800 Dade County, Florida, Health Facilities Authority
Revenue Bonds, Miami Children's Hospital,
3.40%, 9/01/25................................. 1,800
10,500 Dade County, Florida, Water & Sewer Revenue
Bonds, Series 94,
3.40%, 10/05/22................................ 10,500
3,000 Foothill/Eastern California Toll Road, Series
95C, TRANS, 3.60%, 1/02/35..................... 3,000
2,000 Franklin County, Ohio, Series 95,
4.00%, 6/01/16................................. 2,000
4,000 Georgia Municipal Electric Authority, 3.80%,
1/01/26........................................ 4,000
Georgia, Municipal Gas Authority, Gas Revenue
Bonds
7,755 3.90%, 9/01/07, Series B......................... 7,755
8,000 3.90%, 1/01/08, Series C......................... 8,000
2,400 Glynn, Georgia, Brunswick Memorial Hospital,
Series 96, 3.85%, 8/01/16...................... 2,400
Harris County, Texas, Toll Road Revenue Bonds
900 3.95%, 8/01/15 Series 94D........................ 900
5,000 4.10%, 8/01/20 Series 94G........................ 5,000
5,000 4.10%, 8/01/20 Series 94H........................ 5,000
7,000 Huntsville, Alabama, Healthcare Facilities
Authority, Series A, 3.85%, 6/01/27............ 7,000
Illinois Development Finance Authority, Revenue
Bonds
3,500 4.05%, 6/01/31................................... 3,500
5,000 4.10%, 2/01/29................................... 5,000
Illinois Development Finance Authority Staley
Manufacturing
300 3.85%, 12/01/05, Series 85....................... 300
5,000 4.15%, 3/01/09, Series 93A....................... 5,000
<CAPTION>
FACE AMORTIZED
AMOUNT COST
(000) (000)
<C> <S> <C>
- ------------------------------------------------------------------------
$ 3,000 Illinois State, Toll Highway Authority, Series B,
3.85%, 1/01/10................................. $ 3,000
4,000 Jefferson Parish, Louisiana, Hospital Service
District No. 001 Revenue Bonds, West Jefferson
Medical Center,
4.00%, 1/01/26................................. 4,000
800 Lehigh County, Pennsylvania, Allegheny Electric
Cooperative, 3.85%, 12/01/15................... 800
Louisiana Public Facilities Authority, Hospital
Revenue Bonds
6,000 4.00%, 9/01/10, Series 85........................ 6,000
800 4.00%, 12/01/00, Series 85....................... 800
1,900 Maryland Health & Higher Education Facilities,
Series A, 4.05%, 7/01/27....................... 1,900
2,000 Massachusetts Health & Education Facilities
Authority, Harvard University, 3.95%,
2/01/16........................................ 2,000
1,000 Massachusetts Health & Education Facilities
Authority, Series G-1,
3.60%, 1/01/19................................. 1,000
3,900 Mayfield Kentucky, 4.10%, 7/01/26................ 3,900
2,400 Meckenburg County 3.95%, 3/01/15................. 2,400
3,300 Missouri State Health & Educational Facilities,
Series B, 3.95%, 12/01/16...................... 3,300
2,200 Missouri State Health & Educational Facilities
Authority, Revenue Bonds, Washington
University, 4.10%, 9/01/09..................... 2,200
5,500 Municipal Assistance Corp. New York City,
Sub-series K-2, 3.80%, 7/01/08................. 5,500
3,000 Municipal Electric Authority, Georgia, Revenue
Bonds, Series 85C,
4.15%, 3/01/20................................. 3,000
5,000 New York City, New York, TRANS,
4.05%, 11/15/28................................ 5,000
2,900 New York City, New York, Sub-Series A-6, 4.00%,
8/01/19........................................ 2,900
5,000 New York State Housing Finance Agency, 3.90%,
3/15/28........................................ 5,000
New York State Local Government Assistance Corp.
4,170 3.90%, 4/01/22, Series A......................... 4,170
2,900 4.10%, 4/01/25, Series D......................... 2,900
5,000 3.85%, 4/01/25, Series G......................... 5,000
800 North Carolina, Educational Facilities &
Financial Agency, 4.00%, 9/01/26............... 800
1,750 North Carolina, Medical Care, Community Hospital,
4.00%, 12/01/25................................ 1,750
3,900 Nueces County, Texas, Health Facilities, Driscoll
Childrens' Foundation,
4.05%, 7/01/15................................. 3,900
4,200 Ohio State University General Receipts, 4.00%,
12/01/07....................................... 4,200
8,000 Pennsylvania State Higher Educational Facilities
Authority, Series C,
4.05%, 1/01/26................................. 8,000
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
Municipal Money Market Portfolio
152
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
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>
$ 1,500 Person County, North Carolina, Carolina Power &
Light, 4.10%, 11/01/19......................... $ 1,500
1,140 Person County, North Carolina, Industrial
Facilities & Pollution Control, Revenue Bonds,
Series A, 4.10%, 11/01/19...................... 1,140
700 Pinellas County, Florida, Health Facilities,
Bayfront Medical Center, 3.40%, 6/01/09........ 700
100 Polk County, Iowa, Hospital Equipment &
Improvement Authority, 4.00%, 12/01/05......... 100
1,500 Port of Corpus Christi, Texas, Marine Terminal,
R.J. Reynolds Metals Series, 3.85%, 9/01/14.... 1,500
550 Putnam County, Florida, Development Authority,
Seminole Electric, Series 84-H1, 4.05%,
3/15/14........................................ 550
1,000 Rapides Parish, Louisiana, Industrial Development
Revenue Bonds, Central Louisiana Electric Co.,
3.85%, 7/01/18................................. 1,000
700 Sheboygan, Wisconsin, Wisconsin Power & Light
Co., 3.85%, 8/01/14............................ 700
100 Tennessee State, BANS, Series A,
3.85%, 7/02/01................................. 100
2,400 Tennessee State, Series C, 3.85%, 7/02/01........ 2,400
7,900 Texas State, General Obligation Bonds, Veterans
Housing Assistance-Fund I, 3.85%, 12/01/16..... 7,900
University of Alabama
3,750 3.80%, 10/01/07, Series A........................ 3,750
2,000 3.85%, 10/01/07, Series B........................ 2,000
1,100 University of North Carolina, Chapel Hill Fund,
Inc., Certificates of Participation, 4.05%,
10/01/09....................................... 1,100
1,960 University of Utah, University Revenue Bonds,
Series A, 3.75%, 4/01/27....................... 1,960
2,200 University of Wisconsin, Hospitals & Clinics,
3.95%, 4/01/26................................. 2,200
520 Wake County North Carolina, Industrial Facilities
& Pollution Control,
4.00%, 5/01/15................................. 520
5,000 Washington State, General Obligation Bonds,
Series 96B, 4.05%, 6/01/20..................... 5,000
Washington State, Public Power Supply Revenue
Bonds
3,200 3.95%, 7/01/17, Series 1A-2...................... 3,200
1,845 3.95%, 7/01/17, Series 93-1A3.................... 1,845
----------
290,290
----------
TOTAL VARIABLE/FLOATING RATE INSTRUMENTS.................... 528,505
----------
TOTAL TAX-EXEMPT INSTRUMENTS (Cost $953,701)................ 953,701
----------
<CAPTION>
FACE AMORTIZED
AMOUNT COST
(000) (000)
<C> <S> <C>
- ------------------------------------------------------------------------
TAXABLE INSTRUMENTS (0.0%)
U.S. GOVERNMENT & AGENCY OBLIGATIONS (0.0%)
$ 770 Federal Home Loan Bank Discount Note 5.45%,
1/13/99 (Cost $769)............................ $ 769
----------
TOTAL INVESTMENTS (96.3%) (Cost $954,470)................... 954,470
----------
</TABLE>
<TABLE>
<S> <C> <C>
OTHER ASSETS (5.7%)
Cash........................................... $ 75
Receivable for Portfolio Shares Sold........... 51,032
Interest Receivable............................ 5,158
Other.......................................... 19 56,284
----------
LIABILITIES ( - 2.0%)
Payable for Portfolio Shares Redeemed.......... (19,085)
Investment Advisory Fees Payable............... (769)
Administrative Fees Payable.................... (139)
Director's Fees & Expenses Payable............. (48)
Dividends Payable.............................. (32)
Custodian Fees Payable......................... (6)
Other Liabilities.............................. (96) (20,175)
---------- --------
NET ASSETS (100%)............................................ $990,579
--------
--------
AMOUNT
(000)
--------
NET ASSETS CONSIST OF:
Paid in Capital.................................. $990,605
Accumulated Net Realized Loss.................... (26)
--------
NET ASSETS................................................... $990,579
--------
--------
</TABLE>
<TABLE>
<S> <C>
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE
Applicable to 990,603,451 outstanding $0.001 par value
shares (authorized 4,000,000,000 shares).................... $1.00
--------
--------
</TABLE>
- ------------------------------------------------------------
BANS -- Bond Anticipation Notes
RANS -- Revenue Anticipation Notes
TANS -- Tax Anticipation Notes
TRANS -- Tax & Revenue Anticipation Notes
Variable/Floating Rate Instruments. The interest rate changes on these
instruments are based upon a designated base rate. These instruments are payable
on demand.
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.
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.
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
Municipal Money Market Portfolio
153
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
MUNICIPAL MONEY MARKET PORTFOLIO (CONT.)
- --------------------------------------------------------------------------------
- ------------------------------------------------------------
SUMMARY OF TAX-EXEMPT INSTRUMENTS BY STATE CLASSIFICATION
<TABLE>
<CAPTION>
AMORTIZED
COST PERCENT OF
STATE (000) NET ASSETS
<S> <C> <C>
- --------------------------------------------------------------------
Alabama................................ $ 19,250 2.0%
Alaska................................. 5,900 0.6
Arizona................................ 24,170 2.4
Arkansas............................... 300 0.0
California............................. 4,300 0.4
Colorado............................... 8,300 0.8
Connecticut............................ 30,065 3.0
Delaware............................... 3,000 0.3
Florida................................ 49,750 5.0
Georgia................................ 40,665 4.1
Hawaii................................. 4,100 0.4
Idaho.................................. 10,951 1.1
Illinois............................... 52,906 5.3
Indiana................................ 8,200 0.8
Iowa................................... 100 0.0
Kansas................................. 900 0.1
Kentucky............................... 13,434 1.4
Louisiana.............................. 40,770 4.1
Maryland............................... 45,752 4.6
Massachusetts.......................... 12,600 1.3
Michigan............................... 4,560 0.5
Minnesota.............................. 20,476 2.1
Mississippi............................ 5,125 0.5
Missouri............................... 21,850 2.2
Montana................................ 500 0.1
Nebraska............................... 2,990 0.3
Nevada................................. 17,075 1.7
New Jersey............................. 6,006 0.6
New Mexico............................. 12,614 1.3
New York............................... 92,450 9.3
North Carolina......................... 29,410 3.0
Ohio................................... 37,500 3.8
Oklahoma............................... 2,503 0.3
Pennsylvania........................... 54,665 5.5
South Carolina......................... 12,452 1.3
Tennessee.............................. 16,100 1.6
Texas.................................. 133,146 13.4
Utah................................... 10,687 1.1
Vermont................................ 1,000 0.1
Virginia............................... 7,285 0.7
Washington............................. 31,298 3.2
Wisconsin.............................. 27,343 2.8
Wyoming................................ 31,253 3.2
---------- ---
$ 953,701 96.3%
---------- ---
---------- ---
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
Municipal Money Market Portfolio
154
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<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 $ 3,413 $ 1,585 $ 123 $ 28,748 $ 7,197 $ 1,014 $ 3,624
Interest 3,306 355 38 9,510 499 175 415
Less: Foreign Taxes Withheld (428) (138) (7) (1,321) (851) (142) (287)
------- ---------- ------------ --------- --------- ------------ ----------
Total Income 6,291 1,802 154 36,937 6,845 1,047 3,752
------- ---------- ------------ --------- --------- ------------ ----------
EXPENSES:
Investment Advisory Fees:
Basic Fees -- Adviser 1,501 513 35 16,181 2,206 354 1,532
Less: Fees Waived (484) (425) (35) -- (191) (176) (123)
------- ---------- ------------ --------- --------- ------------ ----------
Investment Advisory Fees -- Net 1,017 88 -- 16,181 2,015 178 1,409
Administrative Fees 401 116 11 2,020 439 73 297
Sub-Administrative Fees -- -- -- 98 -- -- --
Custodian Fees 250 303 37 3,128 156 43 73
Directors' Fees and Expenses 8 5 1 63 12 2 7
Filing and Registration Fees 57 39 47 26 56 61 48
Foreign Tax Expense -- 54 -- 492 -- -- --
Bank Overdraft Expense 2 79 2 173 37 14 12
Insurance 3 5 -- 50 9 1 5
Interest Expense -- -- -- 826 -- -- --
Professional Fees 48 52 32 175 45 34 47
Shareholder Reports 59 64 26 132 21 45 19
Distribution Fees on Class B
Shares -- 4 1 25 18 7 25
Other Expenses 41 36 6 42 9 5 7
Expenses Reimbursed by Adviser -- -- (116) -- -- -- --
------- ---------- ------------ --------- --------- ------------ ----------
Total Expenses 1,886 845 47 23,431 2,817 463 1,949
------- ---------- ------------ --------- --------- ------------ ----------
NET INVESTMENT INCOME 4,405 957 107 13,506 4,028 584 1,803
------- ---------- ------------ --------- --------- ------------ ----------
NET REALIZED GAIN (LOSS):
Investments Sold 6,045 (36,667) (2,630) (318,390) 29,049 (4,790) 8,481
Foreign Currency Transactions 1,704 (967) 110 (2,051) (125) 42 (130)
Futures Contracts 3,694 -- -- -- -- -- --
Swaps -- -- -- (4,994) -- -- --
------- ---------- ------------ --------- --------- ------------ ----------
Total Net Realized Gain (Loss) 11,443 (37,634) (2,520) (325,435) 28,924 (4,748) 8,351
------- ---------- ------------ --------- --------- ------------ ----------
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION):
Investments 21,352 28,444* 871 (93,771)** (17,930) (79) 4,167
Foreign Currency Translations (1,541) (322) (23) (5,266) 143 16 60
Futures 378 -- -- -- -- -- --
Swaps -- -- -- 5,241 -- -- --
------- ---------- ------------ --------- --------- ------------ ----------
Total Net Change in Unrealized
Appreciation (Depreciation) 20,189 28,122 848 (93,796) (17,787) (63) 4,227
------- ---------- ------------ --------- --------- ------------ ----------
TOTAL NET REALIZED GAIN (LOSS) AND
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION) 31,632 (9,512) (1,672) (419,231) 11,137 (4,811) 12,578
------- ---------- ------------ --------- --------- ------------ ----------
Net Increase (Decrease) in Net
Assets Resulting from
Operations $ 36,037 $ (8,555) $ (1,565) $(405,725) $ 15,165 $ (4,227) $ 14,381
------- ---------- ------------ --------- --------- ------------ ----------
------- ---------- ------------ --------- --------- ------------ ----------
- ---------------
</TABLE>
* Net of foreign taxes of $1,000 on unrealized appreciation.
** Net of foreign taxes of $221,000 on unrealized appreciation.
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
155
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<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 $ 76,888 $ 4,705 $ 6,800 $ 714 $ 1,750
Interest 8,780 1,775 533 214 133
Less: Foreign Taxes Withheld (8,740) (548) (781) (109) (24)
-------------- ------- -------------- --------- ---------
Total Income 76,928 5,932 6,552 819 1,859
-------------- ------- -------------- --------- ---------
EXPENSES:
Investment Advisory Fees:
Basic Fees -- Adviser 26,251 1,993 2,601 572 636
Less: Fees Waived -- Adviser (303) (265) (139) (132) --
-------------- ------- -------------- --------- ---------
Investment Advisory Fees -- Net 25,948 1,728 2,462 440 636
Administrative Fees 5,078 399 429 118 96
Sub-Administrative Fees -- -- -- -- 17
Bank Overdraft Expense 9 20 15 79 12
Custodian Fees 1,131 179 145 33 107
Filing and Registration Fees 119 48 24 38 27
Insurance 59 7 9 4 2
Directors' Fees and Expenses 134 10 12 5 --
Foreign Tax Expense -- -- 4 -- 88
Professional Fees 176 66 47 35 44
Shareholder Reports 143 47 18 39 13
Distribution Fees on Class B Shares 23 74 -- 4 15
Other Expenses 545 47 7 6 2
-------------- ------- -------------- --------- ---------
Total Expenses 33,365 2,625 3,172 801 1,059
-------------- ------- -------------- --------- ---------
NET INVESTMENT INCOME 43,563 3,307 3,380 18 800
-------------- ------- -------------- --------- ---------
NET REALIZED GAIN (LOSS):
Investments Sold 298,280 2,424 10,095 (11,591) (20,527)
Foreign Currency Transactions 27,135 (326) 1,308 (664) (92)
Futures -- (4,106) -- -- --
-------------- ------- -------------- --------- ---------
Total Net Realized Gain (Loss) 325,415 (2,008) 11,403 (12,255) (20,619)
-------------- ------- -------------- --------- ---------
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION):
Investments 164,311 5,961 (14,202) 16,921 (9,190)
Foreign Currency Translations (10,737) (2,127) (1,244) (649) 8
Futures -- 788 -- -- --
-------------- ------- -------------- --------- ---------
Total Net Change in Unrealized
Appreciation (Depreciation) 153,574 4,622 (15,446) 16,272 (9,182)
-------------- ------- -------------- --------- ---------
TOTAL NET REALIZED GAIN (LOSS) AND CHANGE
IN UNREALIZED APPRECIATION (DEPRECIATION) 478,989 2,614 (4,043) 4,017 (29,801)
-------------- ------- -------------- --------- ---------
Net Increase (Decrease) in Net Assets
Resulting from Operations $ 522,552 $ 5,921 $ (663) $ 4,035 $ (29,001)
-------------- ------- -------------- --------- ---------
-------------- ------- -------------- --------- ---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
156
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<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 $ 1,594 $ 1,457 $ 6,571 $ 27 $ 611 $ 13,180 $ 1,761
Interest 426 123 1,360 71 60 617 74
Less: Foreign Taxes Withheld -- -- -- -- -- (21) --
----------- --------- ---------- ----------- ------ ---------- ----------
Total Income 2,020 1,580 7,931 98 671 13,776 1,835
----------- --------- ---------- ----------- ------ ---------- ----------
EXPENSES:
Investment Advisory Fees:
Basic Fees -- Adviser 1,570 681 4,646 279 184 2,536 442
Less: Fees Waived (35) (65) (11) (144) (99) (113) (100)
----------- --------- ---------- ----------- ------ ---------- ----------
Investment Advisory Fees -- Net 1,535 616 4,635 135 85 2,423 342
Administrative Fees 309 111 1,196 48 69 494 140
Custodian Fees 41 44 86 9 40 43 34
Filing and Registration Fees 26 24 90 23 32 27 26
Insurance 2 2 22 1 1 10 3
Directors' Fees and Expenses 9 3 30 2 2 15 4
Professional Fees 38 27 59 46 22 72 40
Shareholder Reports 22 17 71 80 67 78 23
Distribution Fees on Class B
Shares 50 3 135 3 2 45 5
Other Expenses 19 13 16 20 14 29 17
----------- --------- ---------- ----------- ------ ---------- ----------
Total Expenses 2,051 860 6,340 367 334 3,236 634
----------- --------- ---------- ----------- ------ ---------- ----------
NET INVESTMENT INCOME (LOSS) (31) 720 1,591 (269) 337 10,540 1,201
----------- --------- ---------- ----------- ------ ---------- ----------
NET REALIZED GAIN (LOSS):
Investments Sold (2,888) 13,214 15,027 2,810 (1,252) (6,517) 15,254
Foreign Currency Transactions -- -- -- -- -- (17) --
Securities Sold Short (423) -- -- (17) -- -- --
Written Options -- -- -- (134) -- -- --
----------- --------- ---------- ----------- ------ ---------- ----------
Total Net Realized Gain (Loss) (3,311) 13,214 15,027 2,659 (1,252) (6,534) 15,254
----------- --------- ---------- ----------- ------ ---------- ----------
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION)
Investments 17,649 3,438 104,466 8,250 8,042 (48,908) (10,706)
Foreign Currency Translations -- -- -- -- -- 1 --
Short Sales (26) -- -- (147) -- -- --
Written Options -- -- -- (176) -- -- --
----------- --------- ---------- ----------- ------ ---------- ----------
Total Net Change in Unrealized
Appreciation (Depreciation) 17,623 3,438 104,466 7,927 8,042 (48,907) (10,706)
----------- --------- ---------- ----------- ------ ---------- ----------
TOTAL NET REALIZED GAIN AND CHANGE
IN UNREALIZED APPRECIATION
(DEPRECIATION) 14,312 16,652 119,493 10,586 6,790 (55,441) 4,548
----------- --------- ---------- ----------- ------ ---------- ----------
Net Increase (Decrease) in Net
Assets Resulting from
Operations $ 14,281 $ 17,372 $ 121,084 $ 10,317 $ 7,127 $ (44,901) $ 5,749
----------- --------- ---------- ----------- ------ ---------- ----------
----------- --------- ---------- ----------- ------ ---------- ----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
157
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EMERGING GLOBAL MUNICIPAL
MARKETS FIXED FIXED HIGH MUNICIPAL MONEY MONEY
DEBT INCOME INCOME YIELD BOND MARKET MARKET
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 $ 9 $ -- $ -- $ 352 $ -- $ -- $ --
Interest 19,704 12,611 3,075 16,950 2,301 96,038 33,218
Less: Foreign Taxes Withheld -- -- (21) -- -- -- --
--------- ---------- ---------- ---------- ---------- ---------- ----------
Total Income 19,713 12,611 3,054 17,302 2,301 96,038 33,218
--------- ---------- ---------- ---------- ---------- ---------- ----------
EXPENSES:
Investment Advisory Fees:
Basic Fees -- Adviser 1,410 726 231 711 160 5,176 2,881
Less: Fees Waived -- (253) (154) -- (109) -- --
--------- ---------- ---------- ---------- ---------- ---------- ----------
Investment Advisory Fees -- Net 1,410 473 77 711 51 5,176 2,881
Administrative Fees 223 329 95 282 82 2,663 1,521
Custodian Fees 97 25 21 24 5 161 75
Bank Overdraft Expense 84 6 25 41 1 -- --
Filing and Registration Fees 35 31 31 122 22 179 138
Foreign Tax Expense 434 -- -- -- -- -- --
Insurance 6 5 2 6 2 60 34
Interest Expense 949 -- -- -- -- -- --
Directors' Fees and Expenses 1 8 4 1 3 64 37
Professional Fees 57 32 34 36 25 88 55
Shareholder Reports 20 22 20 53 11 72 37
Distribution Fees on Class B
shares 8 7 1 86 -- -- --
Other Expenses 38 7 5 6 4 31 59
--------- ---------- ---------- ---------- ---------- ---------- ----------
Total Expenses 3,362 945 315 1,368 206 8,494 4,837
--------- ---------- ---------- ---------- ---------- ---------- ----------
NET INVESTMENT INCOME 16,351 11,666 2,739 15,934 2,095 87,544 28,381
--------- ---------- ---------- ---------- ---------- ---------- ----------
NET REALIZED GAIN (LOSS):
Investments Sold (97,642) 4,030 2,584 1,964 736 3 (4)
Foreign Currency Transactions (910) (6) (1,971) -- -- -- --
Securities Sold Short 17 -- -- -- -- -- --
Written Options 52 -- -- -- -- -- --
--------- ---------- ---------- ---------- ---------- ---------- ----------
Total Net Realized Gain (Loss) (98,483) 4,024 613 1,964 736 3 (4)
--------- ---------- ---------- ---------- ---------- ---------- ----------
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION):
Investments 4,405 44 3,115 (15,658) (372) -- --
Foreign Currency Translations 6 13 2 -- -- -- --
--------- ---------- ---------- ---------- ---------- ---------- ----------
Total Net Change in Unrealized
Appreciation (Depreciation) 4,411 57 3,117 (15,658) (372) -- --
--------- ---------- ---------- ---------- ---------- ---------- ----------
TOTAL NET REALIZED GAIN (LOSS) AND
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION) (94,072) 4,081 3,730 (13,694) 364 3 (4)
--------- ---------- ---------- ---------- ---------- ---------- ----------
Net Increase (Decrease) in Net
Assets Resulting from
Operations $ (77,721) $ 15,747 $ 6,469 $ 2,240 $ 2,459 $ 87,547 $ 28,377
--------- ---------- ---------- ---------- ---------- ---------- ----------
--------- ---------- ---------- ---------- ---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
158
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- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ACTIVE INTERNATIONAL
ALLOCATION PORTFOLIO ASIAN EQUITY PORTFOLIO
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
------------------------------------- --------------------------------------
1998 1997 1998 1997
(000) (000) (000) (000)
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 4,405 $ 2,394 $ 957 $ 1,278
Net Realized Gain (Loss) 11,443 14,193 (37,634) (69,153)
Change in Unrealized Appreciation
(Depreciation) 20,189 1,887 28,122 (45,989)
- -----------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations 36,037 18,474 (8,555) (113,864)
- -----------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
CLASS A:
Net Investment Income (6,441) (9,445) (2,750) (42)
In Excess of Net Investment Income (899) (220) -- --
Net Realized Gain (4,946) (13,378) -- --
In Excess of Net Realized Gain -- -- -- (8,471)
CLASS B:
Net Investment Income (4) (1) (54) (1)
In Excess of Net Investment Income (1) -- -- --
Net Realized Gain (3) (2) -- --
In Excess of Net Realized Gain -- -- -- (130)
- -----------------------------------------------------------------------------------------------------------------------------
Total Distributions (12,294) (23,046) (2,804) (8,644)
- -----------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS: (1)
CLASS A:
Subscribed 161,798 44,577 252,272 191,230
Distributions Reinvested 10,598 20,551 2,543 7,923
Redeemed (67,945) (105,088) (277,895) (356,756)
CLASS B:
Subscribed 589 53 2,253 2,594
Distributions Reinvested 8 3 43 122
Redeemed (544) (669) (2,007) (10,134)
- -----------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Capital Share
Transactions 104,504 (40,573) (22,791) (165,021)
- -----------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) in Net Assets 128,247 (45,145) (34,150) (287,529)
NET ASSETS:
Beginning of Period 138,681 183,826 86,971 374,500
- -----------------------------------------------------------------------------------------------------------------------------
End of Period $ 266,928 $ 138,681 $ 52,821 $ 86,971
- -----------------------------------------------------------------------------------------------------------------------------
Undistributed (accumulated) net investment
income (loss) included in end of period
net assets $ (900) $ (220) $ (20) $ 2,300
- -----------------------------------------------------------------------------------------------------------------------------
(1) CAPITAL SHARE TRANSACTIONS:
CLASS A:
Shares Subscribed 13,999 3,824 32,484 12,051
Shares Issued on Distributions Reinvested 891 1,945 365 420
Shares Redeemed (5,822) (8,432) (35,507) (22,811)
- -----------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Class A Shares
Outstanding 9,068 (2,663) (2,658) (10,340)
- -----------------------------------------------------------------------------------------------------------------------------
CLASS B:
Shares Subscribed 50 5 270 178
Shares Issued on Distributions Reinvested 1 -- 6 6
Shares Redeemed (44) (59) (246) (615)
- -----------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Class B Shares
Outstanding 7 (54) 30 (431)
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
159
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- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASIAN REAL ESTATE PORTFOLIO EMERGING MARKETS PORTFOLIO
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
PERIOD FROM YEAR ENDED
YEAR ENDED OCTOBER 1, 1997* DECEMBER 31,
DECEMBER 31, TO DECEMBER 31, ----------------------------------------
1998 1997 1998 1997
(000) (000) (000) (000)
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 107 $ 33 $ 13,506 $ 6,730
Net Realized Gain (Loss) (2,520) (244) (325,435) 90,456
Change in Unrealized Appreciation
(Depreciation) 848 (389) (93,796) (160,459)
- -------------------------------------------------------------------------------------------------------------------------------
Net Decrease in Net Assets Resulting from
Operations (1,565) (600) (405,725) (63,273)
- -------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
CLASS A:
Net Investment Income (131) (20) (9,772) (7,299)
In Excess of Net Investment Income -- -- -- (7,147)
Net Realized Gain -- -- -- (70,779)
In Excess of Net Realized Gain -- -- -- (66,329)
CLASS B:
Net Investment Income (32) -- (70) (33)
In Excess of Net Investment Income -- -- -- (32)
Net Realized Gain -- -- -- (462)
In Excess of Net Realized Gain -- -- -- (433)
- -------------------------------------------------------------------------------------------------------------------------------
Total Distributions (163) (20) (9,842) (152,514)
- -------------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS: (1)
CLASS A:
Subscribed 8,754 3,005 444,841 651,308
Distributions Reinvested 24 -- 7,825 141,670
Redeemed (6,950) -- (769,586) (380,590)
CLASS B:
Subscribed 976 -- 6,023 8,135
Distributions Reinvested 32 -- 56 900
Redeemed (285) -- (5,330) (12,803)
- -------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Capital Share
Transactions 2,551 3,005 (316,171) 408,620
- -------------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) in Net Assets 823 2,385 (731,738) 192,833
NET ASSETS:
Beginning of Period 2,385 -- 1,511,052 1,318,219
- -------------------------------------------------------------------------------------------------------------------------------
End of Period $ 3,208 $ 2,385 $ 779,314 $1,511,052
- -------------------------------------------------------------------------------------------------------------------------------
Undistributed (accumulated) net investment
income (loss) included in end of period
net assets $ 38 $ (20) $ (2,499) $ (2,735)
- -------------------------------------------------------------------------------------------------------------------------------
(1) CAPITAL SHARE TRANSACTIONS:
CLASS A:
Shares Subscribed 1,147 301 38,129 38,730
Shares Issued on Distributions Reinvested 4 -- 825 11,430
Shares Redeemed (1,083) -- (73,920) (23,303)
- -------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Class A Shares
Outstanding 68 301 (34,966) 26,857
- -------------------------------------------------------------------------------------------------------------------------------
CLASS B:
Shares Subscribed 154 -- 515 488
Shares Issued on Distributions Reinvested 5 -- 6 72
Shares Redeemed (45) -- (513) (784)
- -------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Class B Shares
Outstanding 114 -- 8 (224)
</TABLE>
- --------------------------------------------------------------------------------
* Commencement of operations
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
160
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- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EUROPEAN EQUITY PORTFOLIO EUROPEAN REAL ESTATE PORTFOLIO
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED PERIOD FROM
DECEMBER 31, YEAR ENDED OCTOBER 1, 1997*
------------------------------------- DECEMBER 31, TO DECEMBER 31,
1998 1997 1998 1997
(000) (000) (000) (000)
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 4,028 $ 4,680 $ 584 $ 81
Net Realized Gain (Loss) 28,924 24,610 (4,748) (435)
Change in Unrealized Appreciation
(Depreciation) (17,787) 9,365 (63) (632)
- -----------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations 15,165 38,655 (4,227) (986)
- -----------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
CLASS A:
Net Investment Income (3,856) (4,297) (951) (12)
In Excess of Net Investment Income -- -- (548) --
Net Realized Gain (33,843) (15,891) -- --
CLASS B:
Net Investment Income (98) (78) (61) --
In Excess of Net Investment Income -- -- (35) --
Net Realized Gain (1,006) (319) -- --
- -----------------------------------------------------------------------------------------------------------------------------
Total Distributions (38,803) (20,585) (1,595) (12)
- -----------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS: (1)
CLASS A:
Subscribed 225,179 146,810 61,829 25,148
Distributions Reinvested 35,750 19,418 1,356 11
Redeemed (312,976) (119,644) (39,580) (9,021)
CLASS B:
Subscribed 14,897 4,098 4,054 826
Distributions Reinvested 1,064 374 77 --
Redeemed (13,905) (2,614) (1,927) --
- -----------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Capital Share
Transactions (49,991) 48,442 25,809 16,964
- -----------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) in Net Assets (73,629) 66,512 19,987 15,966
NET ASSETS:
Beginning of Period 247,522 181,010 15,966 --
- -----------------------------------------------------------------------------------------------------------------------------
End of Period $ 173,893 $ 247,522 $ 35,953 $ 15,966
- -----------------------------------------------------------------------------------------------------------------------------
Undistributed (accumulated) net investment
income (loss) included in end of period
net assets $ (125) $ (74) $ (583) $ 9
- -----------------------------------------------------------------------------------------------------------------------------
(1) CAPITAL SHARE TRANSACTIONS:
CLASS A:
Shares Subscribed 11,087 8,152 5,703 2,513
Shares Issued on Distributions Reinvested 2,120 1,086 140 1
Shares Redeemed (16,019) (6,397) (3,950) (919)
- -----------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Class A Shares
Outstanding (2,812) 2,841 1,893 1,595
- -----------------------------------------------------------------------------------------------------------------------------
CLASS B:
Shares Subscribed 687 222 368 83
Shares Issued on Distributions Reinvested 63 21 8 --
Shares Redeemed (680) (143) (196) --
- -----------------------------------------------------------------------------------------------------------------------------
Net Increase in Class B Shares Outstanding 70 100 180 83
</TABLE>
- --------------------------------------------------------------------------------
* Commencement of operations
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
161
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- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GLOBAL EQUITY PORTFOLIO INTERNATIONAL EQUITY PORTFOLIO
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
------------------------------------- -------------------------------------
1998 1997 1998 1997
(000) (000) (000) (000)
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 1,803 $ 1,044 $ 43,563 $ 40,117
Net Realized Gain 8,351 9,315 325,415 286,219
Change in Unrealized Appreciation
(Depreciation) 4,227 9,902 153,574 8,239
- ----------------------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from
Operations 14,381 20,261 522,552 334,575
- ----------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
CLASS A:
Net Investment Income (1,782) (2,113) (63,695) (69,608)
Net Realized Gain (3,135) (5,966) (280,825) (234,828)
CLASS B:
Net Investment Income (78) (105) (232) (70)
Net Realized Gain (173) (328) (1,128) (262)
- ----------------------------------------------------------------------------------------------------------------------------
Total Distributions (5,168) (8,512) (345,880) (304,768)
- ----------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS: (1)
CLASS A:
Subscribed 164,605 28,012 754,615 593,523
Distributions Reinvested 4,794 7,897 318,874 274,428
Redeemed (57,202) (19,393) (672,650) (339,313)
CLASS B:
Subscribed 10,547 5,204 19,050 1,717
Distributions Reinvested 256 424 1,208 297
Redeemed (4,326) (4,134) (6,169) (4,302)
- ----------------------------------------------------------------------------------------------------------------------------
Net Increase in Capital Share Transactions 118,674 18,010 414,928 526,350
- ----------------------------------------------------------------------------------------------------------------------------
Total Increase in Net Assets 127,887 29,759 591,600 556,157
NET ASSETS:
Beginning of Period 113,984 84,225 2,825,974 2,269,817
- ----------------------------------------------------------------------------------------------------------------------------
End of Period $ 241,871 $ 113,984 $ 3,417,574 $ 2,825,974
- ----------------------------------------------------------------------------------------------------------------------------
Undistributed (accumulated) net investment
income (loss) included in end of period
net assets $ (6) $ 125 $ (7,162) $ (3,083)
- ----------------------------------------------------------------------------------------------------------------------------
(1) CAPITAL SHARE TRANSACTIONS:
CLASS A:
Shares Subscribed 7,765 1,503 38,932 32,518
Shares Issued on Distributions Reinvested 231 436 17,612 16,345
Shares Redeemed (2,801) (1,047) (34,708) (17,950)
- ----------------------------------------------------------------------------------------------------------------------------
Net Increase in Class A Shares Outstanding 5,195 892 21,836 30,913
- ----------------------------------------------------------------------------------------------------------------------------
CLASS B:
Shares Subscribed 518 286 1,010 92
Shares Issued on Distributions Reinvested 13 24 67 18
Shares Redeemed (215) (232) (319) (249)
- ----------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Class B Shares
Outstanding 316 78 758 (139)
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
162
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- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTERNATIONAL MAGNUM PORTFOLIO INTERNATIONAL SMALL CAP PORTFOLIO
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
-------------------------------------- ---------------------------------------
1998 1997 1998 1997
(000) (000) (000) (000)
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 3,307 $ 2,229 $ 3,380 $ 3,513
Net Realized Gain (Loss) (2,008) 4,430 11,403 11,579
Change in Unrealized Appreciation
(Depreciation) 4,622 (677) (15,446) (19,088)
- -------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations 5,921 5,982 (663) (3,996)
- -------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
CLASS A:
Net Investment Income (2,016) (5,428) (3,853) (4,472)
In Excess of Net Investment Income -- -- -- (676)
Net Realized Gain -- (1,101) (12,840) (10,992)
CLASS B:
Net Investment Income (217) (938) -- --
Net Realized Gain -- (212) -- --
- -------------------------------------------------------------------------------------------------------------------------------
Total Distributions (2,233) (7,679) (16,693) (16,140)
- -------------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS: (1)
CLASS A:
Subscribed 191,743 108,822 85,121 64,122
Distributions Reinvested 1,549 5,026 15,445 14,482
Redeemed (84,923) (38,220) (61,654) (64,267)
Transaction Fees -- -- 991 1,151
CLASS B:
Subscribed 19,773 16,947 -- --
Distributions Reinvested 216 1,146 -- --
Redeemed (23,394) (13,200) -- --
- -------------------------------------------------------------------------------------------------------------------------------
Net Increase in Capital Share Transactions 104,964 80,521 39,903 15,488
- -------------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) in Net Assets 108,652 78,824 22,547 (4,648)
NET ASSETS:
Beginning of Period 187,313 108,489 230,095 234,743
- -------------------------------------------------------------------------------------------------------------------------------
End of Period $ 295,965 $ 187,313 $ 252,642 $ 230,095
- -------------------------------------------------------------------------------------------------------------------------------
Undistributed (accumulated) net investment
income (loss) included in end of period
net assets $ 751 $ 63 $ 161 $ (676)
- -------------------------------------------------------------------------------------------------------------------------------
(1) CAPITAL SHARE TRANSACTIONS:
CLASS A:
Shares Subscribed 15,688 9,451 4,724 3,683
Shares Issued on Distributions Reinvested 125 462 990 911
Shares Redeemed (7,128) (3,275) (3,893) (3,803)
- -------------------------------------------------------------------------------------------------------------------------------
Net Increase in Class A Shares Outstanding 8,685 6,638 1,821 791
- -------------------------------------------------------------------------------------------------------------------------------
CLASS B:
Shares Subscribed 1,697 1,466 -- --
Shares Issued on Distributions Reinvested 17 105 -- --
Shares Redeemed (2,049) (1,149) -- --
- -------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Class B Shares
Outstanding (335) 422 -- --
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
163
<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>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
--------------------------------------- -------------------------------------
1998 1997 1998 1997
(000) (000) (000) (000)
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income (Loss) $ 18 $ (342) $ 800 $ (103)
Net Realized Gain (Loss) (12,255) (1,306) (20,619) 17,285
Change in Unrealized Appreciation
(Depreciation) 16,272 (9,222) (9,182) 885
- ------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations 4,035 (10,870) (29,001) 18,067
- ------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
CLASS A:
Net Investment Income (2,322) (11,702) (212) --
In Excess of Net Investment Income -- -- -- --
Net Realized Gain -- -- -- (17,224)
In Excess of Net Realized Gain -- -- (315) (2,901)
CLASS B:
Net Investment Income (58) (257) -- --
Net Realized Gain -- -- -- (1,101)
In Excess of Net Realized Gain -- -- (44) (185)
- ------------------------------------------------------------------------------------------------------------------------------
Total Distributions (2,380) (11,959) (571) (21,411)
- ------------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS: (1)
CLASS A:
Subscribed 80,573 126,168 26,531 82,256
Distributions Reinvested 2,130 11,173 512 19,134
Redeemed (103,699) (190,192) (59,398) (55,658)
CLASS B:
Subscribed 1,559 2,478 4,016 11,696
Distributions Reinvested 58 256 42 1,249
Redeemed (2,227) (3,925) (5,876) (7,170)
- ------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Capital Share
Transactions (21,606) (54,042) (34,173) 51,507
- ------------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) in Net Assets (19,951) (76,871) (63,745) 48,163
NET ASSETS:
Beginning of Period 78,789 155,660 79,905 31,742
- ------------------------------------------------------------------------------------------------------------------------------
End of Period $ 58,838 $ 78,789 $ 16,160 $ 79,905
- ------------------------------------------------------------------------------------------------------------------------------
Undistributed (accumulated) net investment
income (loss) included in end of period
net assets $ 159 $ 2,109 $ 462 $ (34)
- ------------------------------------------------------------------------------------------------------------------------------
(1) CAPITAL SHARE TRANSACTIONS:
CLASS A:
Shares Subscribed 13,223 15,980 2,606 5,947
Shares Issued on Distributions Reinvested 353 1,916 62 1,858
Shares Redeemed (17,312) (23,936) (7,153) (3,779)
- ------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Class A Shares
Outstanding (3,736) (6,040) (4,485) 4,026
- ------------------------------------------------------------------------------------------------------------------------------
CLASS B:
Shares Subscribed 253 311 400 875
Shares Issued on Distributions Reinvested 10 44 4 124
Shares Redeemed (376) (497) (856) (496)
- ------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Class B Shares
Outstanding (113) (142) (452) 503
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
164
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- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AGGRESSIVE EQUITY PORTFOLIO EMERGING GROWTH PORTFOLIO
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
------------------------------------- -------------------------------------
1998 1997 1998 1997
(000) (000) (000) (000)
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income (Loss) $ (31) $ 79 $ 720 $ (535)
Net Realized Gain (Loss) (3,311) 33,177 13,214 21,271
Change in Unrealized Appreciation
(Depreciation) 17,623 6,896 3,438 (14,435)
- ----------------------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from
Operations 14,281 40,152 17,372 6,301
- ----------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
CLASS A:
Net Investment Income -- (107) (665) --
In Excess of Net Investment Income -- (3) -- --
Net Realized Gain (4,714) (26,339) (11,952) (30,771)
In Excess of Net Realized Gain (4,038) -- -- --
CLASS B:
Net Investment Income -- (4) (9) --
Net Realized Gain (488) (3,057) (215) (667)
In Excess of Net Realized Gain (417) -- -- --
- ----------------------------------------------------------------------------------------------------------------------------
Total Distributions (9,657) (29,510) (12,841) (31,438)
- ----------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS: (1)
CLASS A:
Subscribed 103,224 109,256 44,542 37,367
Distributions Reinvested 8,162 24,425 12,498 30,552
Redeemed (139,466) (57,002) (46,040) (48,345)
CLASS B:
Subscribed 9,123 14,928 1,050 599
Distributions Reinvested 910 3,039 219 651
Redeemed (12,525) (9,209) (1,332) (3,387)
- ----------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Capital Share
Transactions (30,572) 85,437 10,937 17,437
- ----------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) in Net Assets (25,948) 96,079 15,468 (7,700)
NET ASSETS:
Beginning of Period 173,364 77,285 59,090 66,790
- ----------------------------------------------------------------------------------------------------------------------------
End of Period $ 147,416 $ 173,364 $ 74,558 $ 59,090
- ----------------------------------------------------------------------------------------------------------------------------
Accumulated net investment loss included in
end of period net assets $ (8) $ (3) $ (5) $ (4)
- ----------------------------------------------------------------------------------------------------------------------------
(1) CAPITAL SHARE TRANSACTIONS:
CLASS A:
Shares Subscribed 5,958 6,957 5,229 3,007
Shares Issued on Distributions Reinvested 468 1,596 1,612 3,708
Shares Redeemed (8,784) (3,470) (5,237) (3,885)
- ----------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Class A Shares
Outstanding (2,358) 5,083 1,604 2,830
- ----------------------------------------------------------------------------------------------------------------------------
CLASS B:
Shares Subscribed 525 939 120 46
Shares Issued on Distributions Reinvested 52 200 29 81
Shares Redeemed (781) (587) (160) (252)
- ----------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Class B Shares
Outstanding (204) 552 (11) (125)
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
165
<PAGE>
[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>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
------------------------------------- -------------------------------------
1998 1997 1998 1997
(000) (000) (000) (000)
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income (Loss) $ 1,591 $ 1,774 $ (269) $ (207)
Net Realized Gain 15,027 86,366 2,659 3,396
Change in Unrealized Appreciation
(Depreciation) 104,466 49,579 7,927 (287)
- ----------------------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from
Operations 121,084 137,719 10,317 2,902
- ----------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
CLASS A:
Net Investment Income (1,285) (1,761) -- (525)
In Excess of Net Investment Income -- (8) -- --
Net Realized Gain (26,081) (76,181) (106) (2,563)
In Excess of Net Realized Gain (17,331) -- -- (1,988)
Return of Capital -- -- -- (524)
CLASS B:
Net Investment Income (122) (15) -- (34)
Net Realized Gain (2,705) (3,225) (3) (176)
In Excess of Net Realized Gain (1,798) -- -- (137)
Return of Capital -- -- -- (34)
- ----------------------------------------------------------------------------------------------------------------------------
Total Distributions (49,322) (81,190) (109) (5,981)
- ----------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS: (1)
CLASS A:
Subscribed 323,851 246,368 13,187 42,885
Distributions Reinvested 41,645 74,499 84 4,506
Redeemed (240,110) (138,539) (27,423) (16,063)
CLASS B:
Subscribed 78,567 26,409 600 1,986
Distributions Reinvested 4,058 2,614 3 364
Redeemed (31,546) (6,413) (2,485) (1,499)
- ----------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Capital Share
Transactions 176,465 204,938 (16,034) 32,179
- ----------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) in Net Assets 248,227 261,467 (5,826) 29,100
NET ASSETS:
Beginning of Period 619,668 358,201 34,182 5,082
- ----------------------------------------------------------------------------------------------------------------------------
End of Period $ 867,895 $ 619,668 $ 28,356 $ 34,182
- ----------------------------------------------------------------------------------------------------------------------------
Undistributed (accumulated) net investment
income (loss) included in end of period
net assets $ 152 $ (8) $ (4) $ (121)
- ----------------------------------------------------------------------------------------------------------------------------
(1) CAPITAL SHARE TRANSACTIONS:
CLASS A:
Shares Subscribed 17,219 14,949 977 3,154
Shares Issued on Distributions Reinvested 2,193 4,569 5 407
Shares Redeemed (13,173) (8,169) (2,162) (1,187)
- ----------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Class A Shares
Outstanding 6,239 11,349 (1,180) 2,374
- ----------------------------------------------------------------------------------------------------------------------------
CLASS B:
Shares Subscribed 4,267 1,507 46 139
Shares Issued on Distributions Reinvested 215 161 -- 33
Shares Redeemed (1,739) (387) (203) (107)
- ----------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Class B Shares
Outstanding 2,743 1,281 (157) 65
- ----------------------------------------------------------------------------------------------------------------------------
</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>
U.S. EQUITY PLUS PORTFOLIO U.S. REAL ESTATE PORTFOLIO
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED
PERIOD FROM DECEMBER 31,
YEAR ENDED JULY 31, 1997* TO ---------------------------------------
DECEMBER 31, 1998 DECEMBER 31, 1997 1998 1997
(000) (000) (000) (000)
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 337 $ 110 $ 10,540 $ 8,535
Net Realized Gain (Loss) (1,252) 66 (6,534) 51,774
Change in Unrealized Appreciation
(Depreciation) 8,042 599 (48,907) 15,491
- --------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations 7,127 775 (44,901) 75,800
- --------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
CLASS A:
Net Investment Income (263) (106) (10,426) (8,137)
Net Realized Gain -- (55) (2,345) (43,130)
In Excess of Net Realized Gain (52) -- (5,094) (5,201)
CLASS B:
Net Investment Income (3) (1) (578) (358)
Net Realized Gain -- -- (136) (2,418)
In Excess of Net Realized Gain (2) -- (295) (292)
- --------------------------------------------------------------------------------------------------------------------------------
Total Distributions (320) (162) (18,874) (59,536)
- --------------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS: (1)
CLASS A:
Subscribed 59,080 20,231 137,342 202,155
Distributions Reinvested 260 71 15,418 51,583
Redeemed (20,302) -- (194,533) (118,383)
CLASS B:
Subscribed 2,297 100 8,511 18,735
Distributions Reinvested 2 1 947 2,799
Redeemed (1,089) -- (13,578) (9,475)
- --------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Capital Share
Transactions 40,248 20,403 (45,893) 147,414
- --------------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) in Net Assets 47,055 21,016 (109,668) 163,678
NET ASSETS:
Beginning of Period 21,016 -- 382,780 219,102
- --------------------------------------------------------------------------------------------------------------------------------
End of Period $ 68,071 $ 21,016 $ 273,112 $ 382,780
- --------------------------------------------------------------------------------------------------------------------------------
Undistributed net investment income
included in end of period net assets $ 74 $ 3 $ 2,174 $ 38
- --------------------------------------------------------------------------------------------------------------------------------
(1) CAPITAL SHARE TRANSACTIONS:
CLASS A:
Shares Subscribed 5,038 2,022 9,934 13,083
Shares Issued on Distributions Reinvested 21 7 1,131 3,430
Shares Redeemed (1,727) -- (14,151) (7,604)
- --------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Class A Shares
Outstanding 3,332 2,029 (3,086) 8,909
- --------------------------------------------------------------------------------------------------------------------------------
CLASS B:
Shares Subscribed 203 10 616 1,205
Shares Issued on Distributions Reinvested -- -- 70 187
Shares Redeemed (98) -- (982) (614)
- --------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Class B Shares
Outstanding 105 10 (296) 778
</TABLE>
- --------------------------------------------------------------------------------
* Commencement of operations
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>
EMERGING
VALUE EQUITY MARKETS DEBT
PORTFOLIO PORTFOLIO
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
------------------------------------- -------------------------------------
1998 1997 1998 1997
(000) (000) (000) (000)
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 1,201 $ 2,199 $ 16,351 $ 13,130
Net Realized Gain (Loss) 15,254 20,470 (98,483) 24,939
Change in Unrealized Appreciation
(Depreciation) (10,706) 3,672 4,411 (12,760)
- ----------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations 5,749 26,341 (77,721) 25,309
- ----------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
CLASS A:
Net Investment Income (1,194) (2,134) (15,290) (12,240)
In Excess of Net Investment Income -- -- (265) --
Net Realized Gain (18,063) (19,817) -- (37,926)
In Excess of Net Realized Gain -- -- -- (1,389)
Return of Capital -- -- -- (1,701)
CLASS B:
Net Investment Income (25) (40) (328) (183)
In Excess of Net Investment Income -- -- (6) --
Net Realized Gain (384) (509) -- (611)
In Excess of Net Realized Gain -- -- -- (22)
Return of Capital -- -- -- (27)
- ----------------------------------------------------------------------------------------------------------------------------
Total Distributions (19,666) (22,500) (15,889) (54,099)
- ----------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS: (1)
CLASS A:
Subscribed 42,549 26,077 124,573 94,373
Distributions Reinvested 17,591 19,651 11,412 45,771
Redeemed (75,102) (69,683) (140,330) (121,535)
CLASS B:
Subscribed 1,072 1,386 3,809 2,314
Distributions Reinvested 386 480 297 789
Redeemed (2,291) (2,135) (3,393) (4,654)
- ----------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Capital Share
Transactions (15,795) (24,224) (3,632) 17,058
- ----------------------------------------------------------------------------------------------------------------------------
Total Decrease in Net Assets (29,712) (20,383) (97,242) (11,732)
NET ASSETS:
Beginning of Period 88,300 108,683 144,663 156,395
- ----------------------------------------------------------------------------------------------------------------------------
End of Period $ 58,588 $ 88,300 $ 47,421 $ 144,663
- ----------------------------------------------------------------------------------------------------------------------------
Undistributed (accumulated) net investment
income (loss) included in end of period
net assets $ 15 $ 32 $ (271) $ (8)
- ----------------------------------------------------------------------------------------------------------------------------
(1) CAPITAL SHARE TRANSACTIONS:
CLASS A:
Shares Subscribed 3,097 1,781 22,907 11,924
Shares Issued on Distributions Reinvested 1,530 1,430 4,328 7,578
Shares Redeemed (5,611) (4,530) (34,221) (14,998)
- ----------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Class A Shares
Outstanding (984) (1,319) (6,986) 4,504
- ----------------------------------------------------------------------------------------------------------------------------
CLASS B:
Shares Subscribed 71 92 707 288
Shares Issued on Distributions Reinvested 33 35 111 131
Shares Redeemed (172) (146) (767) (588)
- ----------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Class B Shares
Outstanding (68) (19) 51 (169)
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
168
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIXED INCOME PORTFOLIO GLOBAL FIXED INCOME PORTFOLIO
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
------------------------------------- --------------------------------------
1998 1997 1998 1997
(000) (000) (000) (000)
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 11,666 $ 8,812 $ 2,739 $ 4,690
Net Realized Gain (Loss) 4,024 3,117 613 (1,879)
Change in Unrealized Appreciation
(Depreciation) 57 1,672 3,117 (2,788)
- -----------------------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from
Operations 15,747 13,601 6,469 23
- -----------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
CLASS A:
Net Investment Income (11,256) (9,164) (904) (2,512)
In Excess of Net Investment Income -- (6) -- --
Net Realized Gain (617) -- -- --
CLASS B:
Net Investment Income (226) (176) (5) (14)
Net Realized Gain (10) -- -- --
- -----------------------------------------------------------------------------------------------------------------------------
Total Distributions (12,109) (9,346) (909) (2,526)
- -----------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:(1)
CLASS A:
Subscribed 97,384 92,474 8,210 18,508
Distributions Reinvested 10,600 7,836 833 2,096
Redeemed (82,009) (52,011) (53,314) (46,384)
CLASS B:
Subscribed 1,412 5,117 -- 257
Distributions Reinvested 135 100 5 13
Redeemed (2,819) (1,940) (49) (1,433)
- -----------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Capital Share
Transactions 24,703 51,576 (44,315) (26,943)
- -----------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) in Net Assets 28,341 55,831 (38,755) (29,446)
NET ASSETS:
Beginning of Period 188,026 132,195 85,001 114,447
- -----------------------------------------------------------------------------------------------------------------------------
End of Period $ 216,367 $ 188,026 $ 46,246 $ 85,001
- -----------------------------------------------------------------------------------------------------------------------------
Undistributed (accumulated) net investment
income (loss) included in end of period
net assets $ 80 $ (6) $ 172 $ 323
- -----------------------------------------------------------------------------------------------------------------------------
(1) CAPITAL SHARE TRANSACTIONS:
CLASS A:
Shares Subscribed 8,841 8,608 689 1,676
Shares Issued on Distributions Reinvested 962 733 74 192
Shares Redeemed (7,440) (4,871) (4,687) (4,264)
- -----------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Class A Shares
Outstanding 2,363 4,470 (3,924) (2,396)
- -----------------------------------------------------------------------------------------------------------------------------
CLASS B:
Shares Subscribed 127 478 -- 24
Shares Issued on Distributions Reinvested 12 9 -- 1
Shares Redeemed (254) (182) (4) (130)
- -----------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Class B Shares
Outstanding (115) 305 (4) (105)
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
169
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MUNICIPAL BOND
HIGH YIELD PORTFOLIO PORTFOLIO
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
--------------------- ---------------------
1998 1997 1998 1997
(000) (000) (000) (000)
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 15,934 $ 10,245 $ 2,095 $ 2,406
Net Realized Gain 1,964 4,846 736 27
Change in Unrealized Appreciation
(Depreciation) (15,658) 1,740 (372) 1,474
- --------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting
from Operations 2,240 16,831 2,459 3,907
- --------------------------------------------------------------------------------------
DISTRIBUTIONS:
CLASS A:
Net Investment Income (12,571) (9,705) (2,107) (2,404)
In Excess of Net Investment Income (5) -- -- (1)
Net Realized Gain (1,778) -- (565) (21)
In Excess of Net Realized Gain (523) -- -- (1)
Return of Capital (137) -- -- --
CLASS B:
Net Investment income (3,479) -- -- --
In Excess of Net Investment Income (2) -- -- --
Net Realized Gain (741) (466) -- --
In Excess of Net Realized Gain (217) -- -- --
Return of Capital (48) -- -- --
- --------------------------------------------------------------------------------------
Total Distributions (19,501) (10,171) (2,672) (2,427)
- --------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS: (1)
CLASS A:
Subscribed 155,079 93,559 13,129 32,474
Distributions Reinvested 12,501 7,844 2,592 2,356
Redeemed (140,600) (90,405) (41,242) (15,996)
CLASS B:
Subscribed 80,986 7,925 -- 4
Distributions Reinvested 883 369 -- --
Redeemed (26,766) (7,061) -- (73)
- --------------------------------------------------------------------------------------
Net Increase (Decrease) in Capital
Share Transactions 82,083 12,231 (25,521) 18,765
- --------------------------------------------------------------------------------------
Total Increase (Decrease) in Net
Assets 64,822 18,891 (25,734) 20,245
NET ASSETS:
Beginning of Period 120,219 101,328 60,541 40,296
- --------------------------------------------------------------------------------------
End of Period $ 185,041 $ 120,219 $ 34,807 $ 60,541
- --------------------------------------------------------------------------------------
Undistributed (accumulated) net
investment income (loss) included
in end of period net assets $ (77) $ 90 $ (3) $ (1)
- --------------------------------------------------------------------------------------
(1) CAPITAL SHARE TRANSACTIONS:
CLASS A:
Shares Subscribed 13,382 8,260 1,245 3,162
Shares Issued on Distributions
Reinvested 1,119 693 247 228
Shares Redeemed (12,331) (7,958) (3,907) (1,554)
- --------------------------------------------------------------------------------------
Net Increase (Decrease) in Class A
Shares Outstanding 2,170 995 (2,415) 1,836
- --------------------------------------------------------------------------------------
CLASS B:
Shares Subscribed 7,010 697 -- --
Shares Issued on Distributions
Reinvested 80 32 -- --
Shares Redeemed (2,418) (625) -- (7)
- --------------------------------------------------------------------------------------
Net Increase (Decrease) in Class B
Shares Outstanding 4,672 104 -- (7)
- --------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
170
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MUNICIPAL MONEY MARKET
MONEY MARKET PORTFOLIO PORTFOLIO
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
---------------------------- ---------------------------
1998 1997 1998 1997
(000) (000) (000) (000)
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income $ 87,544 $ 69,467 $ 28,381 $ 23,167
Net Realized Gain (Loss) 3 71 (4) 9
- ---------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting
from Operations 87,547 69,538 28,377 23,176
- ---------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net Investment Income (87,540) (69,467) (28,381) (23,167)
- ---------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS: (1)
Subscribed 12,812,219 13,470,057 7,506,094 6,575,839
Distributions Reinvested 87,297 63,629 28,978 22,255
Redeemed (12,447,556) (13,312,180) (7,349,096) (6,514,906)
- ---------------------------------------------------------------------------------------------------
Net Increase in Capital Share
Transactions 451,960 221,506 185,976 83,188
- ---------------------------------------------------------------------------------------------------
Total Increase in Net Assets 451,967 221,577 185,972 83,197
NET ASSETS:
Beginning of Period 1,506,210 1,284,633 804,607 721,410
- ---------------------------------------------------------------------------------------------------
End of Period $ 1,958,177 $ 1,506,210 $ 990,579 $ 804,607
- ---------------------------------------------------------------------------------------------------
Undistributed net investment income
included in end of period net
assets $ 4 $ -- $ -- $ --
- ---------------------------------------------------------------------------------------------------
(1) CAPITAL SHARE TRANSACTIONS:
CLASS A:
Shares Subscribed 12,812,219 13,470,057 7,506,094 6,575,839
Shares Issued on Distributions
Reinvested 87,297 63,629 28,978 22,255
Shares Redeemed (12,447,556) (13,312,180) (7,349,096) (6,514,906)
- ---------------------------------------------------------------------------------------------------
Net Increase in Class A Shares
Outstanding 451,960 221,506 185,976 83,188
- ---------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
171
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF CASH FLOWS
- --------------------------------------------------------------------------------
EMERGING MARKETS DEBT PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1998
(000)
<S> <C>
- --------------------------------------------------------------
CASH FLOWS FROM INVESTING AND OPERATING
ACTIVITIES:
Proceeds from Sales of Investments $ 693,880
Purchases of Investments (666,707)
Net Decrease in Short Term
Investments 9,387
Net Realized Loss for Foreign
Currency Transactions (910)
Interest Income 19,607
Interest Expense Paid (1,039)
Operating Expenses Paid (2,320)
- --------------------------------------------------------------
Net Cash Provided by Investing and
Operating Activities $ 51,898
- --------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash Paid for Reverse Repurchase
Agreements (29,650)
Net Portfolio Share Transactions (17,139)
Cash Distributions Paid (net of
reivestments of $11,709) (3,964)
- --------------------------------------------------------------
Net Cash Used for Financing
Activities (50,753)
- --------------------------------------------------------------
Net Increase in Cash 1,145
CASH AT BEGINNING OF YEAR (154)
- --------------------------------------------------------------
CASH AT END OF YEAR $ 991
- --------------------------------------------------------------
- --------------------------------------------------------------
RECONCILIATION OF NET INVESTMENT INCOME
TO NET CASH PROVIDED BY INVESTING AND
OPERATING ACTIVITIES:
Net Investment Income $ 16,351
Proceeds from Sale of Investments 693,880
Purchase of Investments (666,707)
Net Decrease in Short Term
Investments 9,387
Net Realized Loss for Foreign
Currency Transactions (910)
Net Decrease in Receivables
Pertaining to Investing and
Operating Activities 2,423
Net Increase in Payables Pertaining
to Investing and Operating
Activities 5
(Accretion)/Amortization of
Premium/Discount (2,531)
- --------------------------------------------------------------
Net Cash Provided by Investing and
Operating Activities $ 51,898
- --------------------------------------------------------------
- --------------------------------------------------------------
Supplement disclosure: Cash paid
for taxes $ 226
</TABLE>
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:
- --------------------------------------------------------------------------------
ACTIVE INTERNATIONAL ALLOCATION PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
---------------------------------------------------------
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
1998++ 1997++ 1996 1995 1994
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.39 $ 11.44 $ 11.63 $ 11.65 $ 12.21
--------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1) 0.22 0.18 0.24 0.17 0.19
Net Realized and Unrealized Gain
(Loss) on Investments 1.86 0.80 0.88 1.00 (0.25)
--------- --------- --------- --------- ---------
Total from Investment Operations 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 $11.90 $10.39 $11.44 $11.63 $11.65
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
TOTAL RETURN 20.12% 8.61% 9.71% 10.57% (0.52)%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $266,832 $138,667 $183,193 $170,663 $182,977
Ratio of Expenses to Average Net Assets
(1) 0.80% 0.80% 0.80% 0.80% 0.80%
Ratio of Net Investment Income to
Average Net Assets (1) 1.91% 1.47% 1.22% 1.26% 1.43%
Portfolio Turnover Rate 49% 49% 65% 72% 51%
- ---------------
(1) Effect of voluntary expense
limitation during the period:
Per share benefit to net
investment income $0.02 $0.03 $0.03 $0.05 $0.03
Ratios before expense limitation:
Expenses to Average Net Assets 1.03% 1.10% 1.09% 1.18% 1.00%
Net Investment Income to Average
Net Assets 1.70% 1.18% 0.94% 0.88% 1.23%
- --------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
-----------------------------------------
PERIOD FROM
JANUARY 2,
YEAR ENDED DECEMBER 31, 1996*** TO
------------------------- DECEMBER 31,
1998++ 1997++ 1996
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $10.48 $11.44 $11.66
--------- ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (2) 0.22 0.08 0.06
Net Realized and Unrealized Gain on
Investments 1.94 0.87 1.00
--------- ------ ------
Total from Investment Operations 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 $12.12 $10.48 $11.44
--------- ------ ------
--------- ------ ------
TOTAL RETURN 20.71% 8.35% 9.22%
--------- ------ ------
--------- ------ ------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $ 96 $ 14 $ 633
Ratio of Expenses to Average Net Assets
(2) 1.05% 1.05% 1.05%**
Ratio of Net Investment Income to
Average Net Assets (2) 1.80% 0.71% 1.09%**
Portfolio Turnover Rate 49% 49% 65%
- ---------------
(2) Effect of voluntary expense limitation during the period:
Per share benefit to net
investment income $0.03 $0.03 $0.02
Ratios before expense limitation:
Expenses to Average Net Assets 1.27% 1.32% 1.33%**
Net Investment Income to Average
Net Assets 1.58% 0.45% 0.82%**
</TABLE>
- --------------------------------------------------------------------------------
** Annualized
*** The Portfolio began offering Class B Shares on January 2, 1996.
++ 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.
- --------------------------------------------------------------------------------
173
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS:
- --------------------------------------------------------------------------------
ASIAN EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
------------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.43 $ 18.73 $ 19.48 $ 21.54 $ 26.20
--------- --------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1) 0.12 0.14 0.17 0.18 0.11
Net Realized and Unrealized Gain
(Loss) on Investments (1.24) (8.93) 0.50 1.11 (4.15)
--------- --------- ---------- ---------- ----------
Total from Investment Operations (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 $ 8.01 $ 9.43 $ 18.73 $ 19.48 $ 21.54
--------- --------- ---------- ---------- ----------
--------- --------- ---------- ---------- ----------
TOTAL RETURN (11.38)% (48.29)% 3.49% 6.87% (15.81)%
--------- --------- ---------- ---------- ----------
--------- --------- ---------- ---------- ----------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $51,334 $85,503 $363,498 $314,884 $276,906
Ratio of Expenses to Average Net Assets
(1) 1.19% 1.12% 1.00% 1.00% 1.00%
Ratio of Expenses to Average Net Assets
Excluding Country Tax Expense and
Interest Expense 1.00% 1.00% N/A N/A N/A
Ratio of Net Investment Income to
Average Net Assets (1) 1.36% 0.47% 0.74% 0.97% 0.52%
Portfolio Turnover Rate 151% 107% 69% 42% 47%
- ---------------
(1) Effect of voluntary expense
limitation during the period:
Per share benefit to net
investment income $0.05 $0.05 $0.05 $0.03 $0.04
Ratios before expense limitation:
Expenses to Average Net Assets 1.79% 1.31% 1.25% 1.18% 1.20%
Net Investment Income to Average
Net Assets 0.76% 0.29% 0.54% 0.79% 0.32%
- -----------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
-----------------------------------------
PERIOD FROM
JANUARY 2,
YEAR ENDED DECEMBER 31, 1996*** TO
------------------------- DECEMBER 31,
1998 1997 1996
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.40 $ 18.74 $ 19.55
--------- ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (2) 0.07 0.03 0.11
Net Realized and Unrealized Gain
(Loss) on Investments (1.20) (8.86) 0.46
--------- ------ ------
Total from Investment Operations (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 $ 7.97 $ 9.40 $18.74
--------- ------ ------
--------- ------ ------
TOTAL RETURN (11.53)% (48.48)% 2.92%
--------- ------ ------
--------- ------ ------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $1,487 $1,468 $11,002
Ratio of Expenses to Average Net Assets
(2) 1.47% 1.37% 1.25%**
Ratio of Expenses to Average Net Assets
Excluding Country Tax Expense and
Interest Expense 1.25% 1.25% N/A
Ratio of Net Investment Income to
Average Net Assets (2) 1.06% 0.18% 0.58%**
Portfolio Turnover Rate 151% 107% 69%
- ---------------
(2) Effect of voluntary expense limitation during the period:
Per share benefit to net
investment income $0.04 $0.04 $0.04
Ratios before expense limitation:
Expenses to Average Net Assets 2.07% 1.56% 1.52%**
Net Investment Income (Loss) to
Average Net Assets 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.
- --------------------------------------------------------------------------------
174
<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,
YEAR ENDED 1997* TO
DECEMBER 31, DECEMBER 31,
1998 1997
<S> <C> <C>
- ----------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 7.94 $ 10.00
------ ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1) 0.26 0.11
Net Realized and Unrealized Loss on
Investments (1.24) (2.10)
------ ------
Total from Investment Operations (0.98) (1.99)
------ ------
DISTRIBUTIONS
Net Investment Income (0.33) (0.07)
------ ------
Total Distributions (0.33) (0.07)
------ ------
NET ASSET VALUE, END OF PERIOD $ 6.63 $ 7.94
------ ------
------ ------
TOTAL RETURN (11.82)% (19.92)%
------ ------
------ ------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $2,447 $2,385
Ratio of Expenses to Average Net Assets
(1) 1.05% 1.08%**
Ratio of Expenses to Average Net Assets
Excluding Interest Expense 1.00% 1.00%**
Ratio of Net Investment Income to
Average Net Assets (1) 2.47% 5.21%**
Portfolio Turnover Rate 261% 38%
- ---------------
(1) Effect of voluntary expense
limitation during the period:
Per share benefit to net
investment income $0.36 $0.25
Ratios before expense limitation:
Expenses to Average Net Assets 4.52% 12.95%**
Net Investment Loss to Average Net
Assets (1.00)% (6.66)%**
- ----------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
-----------------------------
PERIOD FROM
OCTOBER 1,
YEAR ENDED 1997* TO
DECEMBER 31, DECEMBER 31,
1998 1997
<S> <C> <C>
- ----------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.03 $ 10.00
------ ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (2) 0.12 --
Net Realized and Unrealized Loss on
Investments (1.16) (1.97)
------ ------
Total from Investment Operations (1.04) (1.97)
------ ------
DISTRIBUTIONS
Net Investment Income (0.33) --
------ ------
Total Distributions (0.33) --
------ ------
NET ASSET VALUE, END OF PERIOD $ 6.66 $ 8.03
------ ------
------ ------
TOTAL RETURN (12.53)% (19.70)%
------ ------
------ ------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $ 761 $ 0+
Ratio of Expenses to Average Net Assets
(2) 1.38% 1.18%**
Ratio of Expenses to Average Net Assets
Excluding Interest Expense 1.25% N/A
Ratio of Net Investment Income to
Average Net Assets (2) 2.39% 4.24%**
Portfolio Turnover Rate 261% 38%
- ---------------
(2) Effect of voluntary expense limitation during the period:
Per share benefit to net
investment income $ 0.18 N/A
Ratios before expense limitation:
Expenses to Average Net Assets 5.03% N/A
Net Investment Loss to Average Net
Assets (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.
- --------------------------------------------------------------------------------
175
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS:
- --------------------------------------------------------------------------------
EMERGING MARKETS PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
-------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $12.97 $14.66 $13.14 $16.30 $19.00
--------- ----------- ----------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) 0.16 0.07 0.09 0.08 (0.04)
Net Realized and Unrealized Gain
(Loss) on Investments (3.46) (0.29) 1.51 (2.05) (1.69)
--------- ----------- ----------- --------- ---------
Total from Investment Operations (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 $ 9.55 $ 12.97 $ 14.66 $ 13.14 $ 16.30
--------- ----------- ----------- --------- ---------
--------- ----------- ----------- --------- ---------
TOTAL RETURN (25.42)% (1.03)% 12.19% (12.77)% (9.63)%
--------- ----------- ----------- --------- ---------
--------- ----------- ----------- --------- ---------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $772,115 $1,501,386 $1,304,006 $876,591 $929,638
Ratio of Expenses to Average Net Assets 1.81% 1.75% 1.74% 1.72% 1.75%
Ratio of Expenses to Average Net Assets
excluding Interest Expense and
Country Tax Expense 1.70% N/A N/A N/A N/A
Ratio of Net Investment Income (Loss)
to Average Net Assets 1.04% 0.40% 0.69% 0.60% (0.26)%
Portfolio Turnover Rate 98% 90% 55% 54% 32%
- ------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
----------------------------------------------
PERIOD FROM
JANUARY 2,
YEAR ENDED DECEMBER 31, 1996*** TO
------------------------------ DECEMBER 31,
1998 1997 1996
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $12.98 $14.66 $13.25
------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.10 0.02 0.04
Net Realized and Unrealized Gain
(Loss) on Investments (3.43) (0.28) 1.42
------ ------ ------
Total from Investment Operations (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 $ 9.56 $ 12.98 $ 14.66
------ ------ ------
------ ------ ------
TOTAL RETURN (25.65)% (1.31)% 11.04%
------ ------ ------
------ ------ ------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $7,199 $9,666 $14,213
Ratio of Expenses to Average Net Assets 2.06% 2.00% 1.99%**
Ratio of Expenses to Average Net Assets
excluding Interest Expense and
Country Tax Expense 1.95% N/A N/A
Ratio of Net Investment Income to
Average Net Assets 0.80% 0.11% 0.33%**
Portfolio Turnover Rate 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.
- --------------------------------------------------------------------------------
176
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS:
- --------------------------------------------------------------------------------
EUROPEAN EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
-------------------------------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $17.96 $16.70 $13.92 $13.94 $12.91
--------- --------- --------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1) 0.43 0.39 0.24 0.14 0.08
Net Realized and Unrealized Gain on
Investments 1.08 2.58 2.85 1.37 1.29
--------- --------- --------- -------- --------
Total from Investment Operations 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 $ 15.75 $ 17.96 $ 16.70 $ 13.92 $ 13.94
--------- --------- --------- -------- --------
--------- --------- --------- -------- --------
TOTAL RETURN 8.09% 17.88% 22.29% 11.85% 10.88%
--------- --------- --------- -------- --------
--------- --------- --------- -------- --------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $168,712 $242,868 $178,356 $69,583 $27,634
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) 1.47% 1.96% 1.83% 1.37% 0.87%
Portfolio Turnover Rate 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 $0.03 $0.06
Ratios before expense limitation:
Expenses to Average Net Assets 1.08% 1.09% 1.16% 1.25% 1.62%
Net Investment Income to Average
Net Assets 1.40% 1.87% 1.67% 1.12% 0.25%
- ------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
---------------------------------------------
PERIOD FROM
JANUARY 2,
YEAR ENDED DECEMBER 31, 1996*** TO
----------------------------- DECEMBER 31,
1998 1997 1996
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $17.94 $16.67 $14.05
------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (2) 0.33 0.28 0.18
Net Realized and Unrealized Gain on
Investments 1.13 2.66 2.73
------ ------ ------
Total from Investment Operations 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 $15.74 $17.94 $16.67
------ ------ ------
------ ------ ------
TOTAL RETURN 7.80% 17.73% 20.76%
------ ------ ------
------ ------ ------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $5,181 $4,654 $2,654
Ratio of Expenses to Average Net Assets
(2) 1.25% 1.25% 1.25%**
Ratio of Net Investment Income to
Average Net Assets (2) 1.15% 1.55% 1.67%**
Portfolio Turnover Rate 52% 43% 24%
- ---------------
(2) Effect of voluntary expense limitation during the period:
Per share benefit to net
investment income $0.02 $0.02 $0.02
Ratios before expense limitation:
Expenses to Average Net Assets 1.34% 1.34% 1.40%**
Net Investment Income to Average
Net Assets 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.
- --------------------------------------------------------------------------------
177
<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
---------------------------
PERIOD FROM
YEAR ENDED OCTOBER 1,
DECEMBER 1997* TO
31, DECEMBER 31,
1998 1997
<S> <C> <C>
- --------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.52 $ 10.00
----------- ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1) 0.12 0.05
Net Realized and Unrealized Gain
(Loss) on Investments 0.33 (0.52)
----------- ------
Total from Investment Operations 0.45 (0.47)
----------- ------
DISTRIBUTIONS
Net Investment Income (0.25) (0.01)
In Excess of Net Investment Income (0.14) --
----------- ------
Total Distributions (0.39) (0.01)
----------- ------
NET ASSET VALUE, END OF PERIOD $ 9.58 $ 9.52
----------- ------
----------- ------
TOTAL RETURN 4.75% (4.72)%
----------- ------
----------- ------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $33,422 $15,177
Ratio of Expenses to Average Net Assets
(1) 1.03% 1.00%**
Ratio of Expenses to Average Net Assets
Excluding Interest Expense 1.00% N/A
Ratio of Net Investment Income to
Average Net Assets (1) 1.33% 2.08%**
Portfolio Turnover Rate 119% 47%
- ---------------
(1) Effect of voluntary expense
limitation during the period:
Per share benefit to net
investment income $0.03 $0.05
Ratios before expense limitation:
Expenses to Average Net Assets 1.43% 3.05%**
Net Investment Income to Average
Net Assets 0.95% 0.03%**
- --------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
---------------------------
PERIOD FROM
YEAR ENDED OCTOBER 1,
DECEMBER 1997* TO
31, DECEMBER 31,
1998 1997
<S> <C> <C>
- --------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.52 $ 10.00
----------- ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (2) 0.11 0.02
Net Realized and Unrealized Gain
(Loss) on Investments 0.33 (0.50)
----------- ------
Total from Investment Operations 0.44 (0.48)
----------- ------
DISTRIBUTIONS
Net Investment Income (0.22) --
In Excess of Net Investment Income (0.13) --
----------- ------
Total Distributions (0.35) --
----------- ------
NET ASSET VALUE, END OF PERIOD $ 9.61 $ 9.52
----------- ------
----------- ------
TOTAL RETURN 4.60% (4.76)%
----------- ------
----------- ------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $2,531 $789
Ratio of Expenses to Average Net Assets
(2) 1.28% 1.25%**
Ratio of Expenses to Average Net Assets
Excluding Interest Expense 1.25% N/A
Ratio of Net Investment Income to
Average Net Assets (2) 1.15% 1.51%**
Portfolio Turnover Rate 119% 47%
- ---------------
(2) Effect of voluntary expense limitation during the period:
Per share benefit to net
investment income $0.04 $0.03
Ratios before expense limitation:
Expenses to Average Net Assets 1.68% 3.12%**
Net Investment Income to Average
Net Assets 0.77% (0.36)%**
</TABLE>
- --------------------------------------------------------------------------------
* Commencement of Operations
** Annualized
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:
- --------------------------------------------------------------------------------
GLOBAL EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
-----------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD $ 18.52 $ 16.24 $ 14.31 $ 13.40 $ 13.87
-------- -------- ------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income (1) 0.15 0.21 0.23 0.18 0.08
Net Realized and Unrealized
Gain on Investments 2.55 3.61 3.02 2.26 0.79
-------- -------- ------- ------- -------
Total from Investment
Operations 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 $20.74 $18.52 $16.24 $14.31 $13.40
-------- -------- ------- ------- -------
-------- -------- ------- ------- -------
TOTAL RETURN 14.60% 23.75% 22.83% 18.66% 6.95%
-------- -------- ------- ------- -------
-------- -------- ------- ------- -------
RATIO AND SUPPLEMENTAL DATA:
Net Assets, End of Period
(Thousands) $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%
Ratio of Net Investment Income
to Average Net Assets (1) 0.96% 1.07% 1.38% 1.17% 0.87%
Portfolio Turnover Rate 39% 30% 26% 28% 12%
- ---------------
(1) Effect of voluntary
expense limitation during
the period:
Per share benefit to net
investment income $0.01 $0.02 $0.03 $0.02 $0.02
Ratios before expense
limitation:
Expenses to Average Net
Assets 1.07% 1.11% 1.15% 1.13% 1.24%
Net Investment Income to
Average Net Assets 0.90% 0.96% 1.23% 1.04% 0.63%
- ---------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
-------------------------------------------
PERIOD FROM
JANUARY 2,
YEAR ENDED DECEMBER 31, 1996*** TO
----------------------------- DECEMBER 31,
1998 1997 1996
<S> <C> <C> <C>
- ---------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD $ 18.46 $ 16.21 $ 14.36
------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income (2) 0.15 0.16 0.13
Net Realized and Unrealized
Gain on Investments 2.46 3.60 3.02
------ ------ ------
Total from Investment
Operations 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 $20.63 $18.46 $16.21
------ ------ ------
------ ------ ------
TOTAL RETURN 14.15% 23.37% 22.04%
------ ------ ------
------ ------ ------
RATIO AND SUPPLEMENTAL DATA:
Net Assets, End of Period
(Thousands) $13,123 $5,910 $3,928
Ratio of Expenses to Average
Net Assets (2) 1.25% 1.25% 1.25%**
Ratio of Net Investment Income
to Average Net Assets (2) 0.68% 0.80% 1.29%**
Portfolio Turnover Rate 39% 30% 26%
- ---------------
(2) Effect of voluntary expense limitation during the period:
Per share benefit to net
investment income $0.01 $0.02 $0.01
Ratios before expense
limitation:
Expenses to Average Net
Assets 1.32% 1.36% 1.39%**
Net Investment Income to
Average Net Assets 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.
- --------------------------------------------------------------------------------
179
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIO:
- --------------------------------------------------------------------------------
INTERNATIONAL EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
------------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $17.16 $16.95 $15.15 $15.34 $14.09
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1) 0.27 0.30 0.25 0.16 0.16
Net Realized and Unrealized Gain on
Investments 2.86 2.01 2.71 1.55 1.54
---------- ---------- ---------- ---------- ----------
Total from Investment Operations 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 $18.25 $17.16 $16.95 $15.15 $15.34
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
TOTAL RETURN 18.30% 13.91% 19.64% 11.77% 12.39%
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $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%
Ratio of Net Investment Income to
Average Net Assets (1) 1.33% 1.49% 1.64% 1.38% 1.12%
Portfolio Turnover Rate 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 $0.003 $0.004
Ratios before expense limitation:
Expenses to Average Net Assets 1.02% 1.02% 1.02% 1.03% 1.03%
Net Investment Income to Average
Net Assets 1.32% 1.47% 1.61% 1.35% 1.09%
- -----------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
----------------------------------------
PERIOD FROM
JANUARY 2,
YEAR ENDED DECEMBER 31, 1996*** TO
-------------------------- DECEMBER 31,
1998 1997 1996
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 17.13 $ 16.93 $ 15.24
------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (2) 0.24 0.23 0.23
Net Realized and Unrealized Gain on
Investments 2.85 2.02 2.59
------ ------ ------
Total from Investment Operations 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 $ 18.22 $ 17.13 $ 16.93
------ ------ ------
------ ------ ------
TOTAL RETURN 18.13% 13.57% 18.58%
------ ------ ------
------ ------ ------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $17,076 $3,074 $5,393
Ratio of Expenses to Average Net Assets
(2) 1.25% 1.25% 1.25%**
Ratio of Net Investment Income to
Average Net Assets (2) 0.96% 1.21% 1.68%**
Portfolio Turnover Rate 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
Ratios before expense limitation:
Expenses to Average Net Assets 1.28% 1.27% 1.27%**
Net Investment Income to Average
Net Assets 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.
- --------------------------------------------------------------------------------
180
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS:
- --------------------------------------------------------------------------------
INTERNATIONAL MAGNUM PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
---------------------------------------------
PERIOD FROM
MARCH 15,
YEAR ENDED DECEMBER 31, 1996* TO
----------------------------- DECEMBER 31,
1998 1997 1996
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $10.87 $10.66 $10.00
------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1) 0.14 0.17 0.06
Net Realized and Unrealized Gain on
Investments 0.66 0.54 0.76
------ ------ ------
Total from Investment Operations 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 $11.57 $10.87 $10.66
------ ------ ------
------ ------ ------
TOTAL RETURN 7.33% 6.58% 8.25%
------ ------ ------
------ ------ ------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $269,814 $159,096 $85,316
Ratio of Expenses to Average Net Assets
(1) 1.00% 1.00% 1.00%**
Ratio of Net Investment Income to
Average Net Assets (1) 1.34% 1.44% 0.99%**
Portfolio Turnover Rate 39% 41% 18%
- ---------------
(1) Effect of voluntary expense
limitation during the period:
Per share benefit to net
investment income $0.01 $0.02 $0.03
Ratios before expense limitation:
Expenses to Average Net Assets 1.13% 1.19% 1.54%**
Net Investment Income to Average
Net Assets 1.24% 1.25% 0.44%**
- --------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
---------------------------------------------
PERIOD FROM
MARCH 15,
YEAR ENDED DECEMBER 31, 1996* TO
----------------------------- DECEMBER 31,
1998 1997 1996
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $10.84 $10.63 $10.00
------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (2) 0.14 0.16 0.01
Net Realized and Unrealized Gain on
Investments 0.64 0.52 0.78
------ ------ ------
Total from Investment Operations 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 $11.54 $10.84 $10.63
------ ------ ------
------ ------ ------
TOTAL RETURN 7.13% 6.33% 7.90%
------ ------ ------
------ ------ ------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $26,151 $28,217 $23,173
Ratio of Expenses to Average Net Assets
(2) 1.25% 1.25% 1.25%**
Ratio of Net Investment Income to
Average Net Assets (2) 1.24% 1.19% 0.60%**
Portfolio Turnover Rate 39% 41% 18%
- ---------------
(2) Effect of voluntary expense
limitation during the period:
Per share benefit to net
investment income $0.01 $0.02 $0.01
Ratios before expense limitation:
Expenses to Average Net Assets 1.37% 1.44% 1.69%**
Net Investment Income to Average
Net Assets 1.14% 1.00% 0.15%**
</TABLE>
- --------------------------------------------------------------------------------
* Commencement of Operations
** Annualized
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:
- --------------------------------------------------------------------------------
INTERNATIONAL SMALL CAP PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 15.61 $ 16.83 $ 14.94 $ 15.15 $ 14.64
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1) 0.22 0.25 0.21 0.24 0.14
Net Realized and Unrealized Gain
(Loss) on Investments+ 0.39 (0.42) 2.29* 0.15* 0.62*
-------- -------- -------- -------- --------
Total from Investment Operations 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 0.06 0.08 -- -- --
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 15.25 $ 15.61 $ 16.83 $ 14.94 $ 15.15
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL RETURN 4.25% (0.55)% 16.82% 2.60% 5.25%
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
RATIO AND SUPPLEMENTAL DATA:
Net Assets, End of Period
(Thousands) $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%
Ratio of Net Investment Income to
Average Net Assets (1) 1.23% 1.37% 1.29% 1.72% 1.18%
Portfolio Turnover Rate 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 $0.02
Ratios before expense limitation:
Expenses to Average Net Assets 1.21% 1.22% 1.23% 1.24% 1.29%
Net Investment Income to
Average Net Assets 1.18% 1.30% 1.20% 1.63% 1.04%
</TABLE>
- --------------------------------------------------------------------------------
* Reflects a 1% transaction fee on purchases and redemptions of capital
shares.
+ 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.
- --------------------------------------------------------------------------------
182
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS:
- --------------------------------------------------------------------------------
JAPANESE EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
----------------------------------------------------------------------
PERIOD FROM
APRIL 25,
YEAR ENDED DECEMBER 31, 1994* TO
--------------------------------------------------- DECEMBER 31,
1998 1997 1996++ 1995 1994
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 5.89 $ 7.96 $ 9.27 $ 9.83 $ 10.00
--------- --------- --------- --------- ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) (1) 0.04 0.17 -- 0.04 (0.01)
Net Realized and Unrealized Gain
(Loss) on Investments+ 0.48 (0.94) (0.13) (0.40) (0.16)
--------- --------- --------- --------- ------
Total from Investment Operations 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 $ 6.18 $ 5.89 $ 7.96 $ 9.27 $ 9.83
--------- --------- --------- --------- ------
--------- --------- --------- --------- ------
TOTAL RETURN 8.82% (9.23)% (1.40)% (3.64)% (1.70)%
--------- --------- --------- --------- ------
--------- --------- --------- --------- ------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period
(Thousands) $57,755 $77,086 $152,229 $119,278 $50,332
Ratio of Expenses to Average Net
Assets (1) 1.11% 1.06% 1.00% 1.00% 1.00%**
Ratio of Expenses to Average Net
Assets Excluding Interest Expense 1.00% 1.00% N/A N/A N/A
Ratio of Net Investment Income
(Loss) to Average Net Assets (1) 0.03% (0.21)% (0.04)% 0.15% (0.10)%**
Portfolio Turnover Rate 66% 40% 38% 52% 1%
- ---------------
(1) Effect of voluntary expense
limitation during the period:
Per share benefit to net
investment income (Loss) $0.01 $0.01 $0.01 $0.06 $0.02
Ratios before expense limitation:
Expenses to Average Net Assets 1.30% 1.14% 1.07% 1.20% 1.27%**
Net Investment Loss to Average
Net Assets (0.14)% (0.28)% (0.11)% (0.05)% (0.37)%**
- --------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
--------------------------------------------
PERIOD FROM
JANUARY 2,
YEAR ENDED DECEMBER 31, 1996*** TO
------------------------- DECEMBER 31,
1998 1997 1996++
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 5.87 $ 7.94 $ 9.25
--------- ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) (2) (0.09) 0.09 (0.02)
Net Realized and Unrealized Gain
(Loss) on Investments 0.58 (0.89) (0.14)
--------- ------ ------
Total from Investment Operations 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 $ 6.13 $ 5.87 $ 7.94
--------- ------ ------
--------- ------ ------
TOTAL RETURN 8.33% (9.64)% (1.67)%
--------- ------ ------
--------- ------ ------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period
(Thousands) $ 1,083 $ 1,703 $ 3,431
Ratio of Expenses to Average Net
Assets (2) 1.36% 1.31% 1.25%**
Ratio of Expenses to Average Net
Assets Excluding Interest Expense 1.25% 1.25% N/A
Ratio of Net Investment Loss to
Average Net Assets (2) (0.25)% (0.53)% (0.26)%**
Portfolio Turnover Rate 66% 40% 38%
- ---------------
(2) Effect of voluntary expense
limitation during the period:
Per share benefit to net
investment income (loss) $0.02 $0.01 $0.01
Ratios before expense limitation:
Expenses to Average Net Assets 1.55% 1.38% 1.31%**
Net Investment Loss to Average
Net Assets (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 year ended December 31, 1996 are based on
average shares outstanding.
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:
- --------------------------------------------------------------------------------
LATIN AMERICAN PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
-------------------------------------------------------
PERIOD FROM
JANUARY 18,
YEAR ENDED DECEMBER 31, 1995* TO
-------------------------------------- DECEMBER 31,
1998++ 1997 1996 1995
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.91 $ 11.32 $ 9.06 $ 10.00
------ -------- -------- ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) (1) 0.13 (0.01) 0.14 0.05
Net Realized and Unrealized Gain
(Loss) on Investments (4.16) 4.32 4.27 (0.92)
------ -------- -------- ------
Total from Investment Operations (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) --
In 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 $ 6.74 $ 10.91 $ 11.32 $ 9.06
------ -------- -------- ------
------ -------- -------- ------
TOTAL RETURN (37.10)% 41.28% 48.77% (8.68)%
------ -------- -------- ------
------ -------- -------- ------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $15,012 $73,196 $30,409 $15,376
Ratio of Expenses to Average Net Assets
(1) 1.81% 1.89% 1.70% 1.70%**
Ratio of Expense to Average Net Assets
Excluding Country Tax
Expense and Interest Expense 1.64% 1.70% 1.70% 1.70%**
Ratio of Net Investment Income to
Average Net Assets (1) 1.40% (0.14)% 1.21% 1.62%**
Portfolio Turnover Rate 196% 286% 192% 137%
- ---------------
(1) Effect of voluntary expense
limitation during the period:
Per share benefit to net
investment income N/A $0.01 $0.05 $0.09
Ratios before expense limitation:
Expenses to Average Net Assets N/A 1.96% 2.18% 3.13%**
Net Investment Income (Loss) to
Average Net Assets N/A (0.21)% 0.75% (0.48)%**
- ------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
-------------------------------------------------
PERIOD FROM
JANUARY 2,
YEAR ENDED DECEMBER 31, 1996*** TO
-------------------------------- DECEMBER 31,
1998++ 1997 1996
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.80 $ 11.31 $ 9.44
------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (2) 0.12 -- 0.09
Net Realized and Unrealized Gain
(Loss) on Investments (4.09) 4.21 3.90
------ ------ ------
Total from Investment Operations (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 $ 6.78 $ 10.80 $ 11.31
------ ------ ------
------ ------ ------
TOTAL RETURN (36.86)% 40.37% 42.44%
------ ------ ------
------ ------ ------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $1,148 $6,709 $1,333
Ratio of Expenses to Average Net Assets
(2) 2.01% 2.14% 1.95%**
Ratio of Expense to Average Net Assets
Excluding Country Tax
Expense and Interest Expense 1.85% 1.95% 1.95%**
Ratio of Net Investment Income to
Average Net Assets (2) 1.24% (0.34)% 0.89%**
Portfolio Turnover Rate 196% 286% 192%
- ---------------
(2) Effect of voluntary expense
limitation during the period:
Per share benefit to net
investment income N/A $ 0.00+ $ 0.05
Ratios before expense limitation:
Expenses to Average Net Assets N/A 2.21% 2.43%**
Net Investment Income to Average
Net Assets 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.
- --------------------------------------------------------------------------------
184
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS:
- --------------------------------------------------------------------------------
AGGRESSIVE EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
--------------------------------------------------------
PERIOD FROM
MARCH 8,
YEAR ENDED DECEMBER 31, 1995* TO
--------------------------------------- DECEMBER 31,
1998 1997 1996 1995
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 15.78 $ 14.43 $ 12.17 $ 10.00
------ --------- -------- ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1) 0.00+ 0.01 0.18 0.15
Net Realized and Unrealized Gain on
Investments 2.42 4.58 4.73 3.95
------ --------- -------- ------
Total from Investment Operations 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 $17.50 $15.78 $14.43 $12.17
------ --------- -------- ------
------ --------- -------- ------
TOTAL RETURN 15.35% 33.31% 40.90% 41.25%
------ --------- -------- ------
------ --------- -------- ------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $130,734 $155,087 $68,480 $28,548
Ratio of Expenses to Average Net Assets
(1) 1.01% 1.02% 1.00% 1.00%**
Ratio of Expenses to Average Net Assets
Excluding Dividend Expense on
Securities Sold Short 1.00% 1.00% N/A N/A
Ratio of Net Investment Income to
Average Net Assets (1) 0.01% 0.08% 1.26% 1.64%**
Portfolio Turnover Rate 373% 302% 380% 309%
- ---------------
(1) Effect of voluntary expense
limitation during the period:
Per share benefit to net
investment income $0.01 $0.01 $0.03 $0.06
Ratios before expense limitation:
Expenses to Average Net Assets 1.03% 1.08% 1.24% 1.59%**
Net Investment Income to Average
Net Assets (0.01)% 0.02% 1.02% 1.05%**
- -------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
--------------------------------------------------
PERIOD FROM
JANUARY 2,
YEAR ENDED DECEMBER 31, 1996*** TO
-------------------------------- DECEMBER 31,
1998 1997 1996
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $15.72 $14.42 $12.25
------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) (2) (0.06) (0.01) 0.13
Net Realized and Unrealized Gain on
Investments 2.44 4.55 4.67
------ ------ ------
Total from Investment Operations 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 $ 17.40 $ 15.72 $ 14.42
------ ------ ------
------ ------ ------
TOTAL RETURN 15.15% 32.90% 39.72%
------ ------ ------
------ ------ ------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $16,682 $18,277 $8,805
Ratio of Expenses to Average Net Assets
(2) 1.26% 1.27% 1.25%**
Ratio of Expenses to Average Net Assets
Excluding Dividend Expense on
Securities Sold Short 1.25% 1.25% N/A
Ratio of Net Investment Income (Loss)
to Average Net Assets (2) (0.26)% (0.18)% 0.95%**
Portfolio Turnover Rate 373% 302% 380%
- ---------------
(2) Effect of voluntary expense
limitation during the period:
Per share benefit to net
investment income (loss) $0.00+ $0.00+ $0.03
Ratios before expense limitation:
Expenses to Average Net Assets 1.28% 1.33% 1.47%**
Net Investment Income (Loss) to
Average Net Assets (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.
- --------------------------------------------------------------------------------
185
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS:
- --------------------------------------------------------------------------------
EMERGING GROWTH PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 7.72 $ 13.50 $ 21.49 $ 16.12 $ 16.22
-------- -------- -------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) (1) 0.09 (0.07) (0.19) (0.18) (0.09)
Net Realized and Unrealized Gain
(Loss) on Investments 1.97 1.09 0.89 5.55 (0.01)
-------- -------- -------- --------- ---------
Total from Investment Operations 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 $ 8.07 $ 7.72 $ 13.50 $ 21.49 $ 16.12
-------- -------- -------- --------- ---------
-------- -------- -------- --------- ---------
TOTAL RETURN 27.54% 11.36% 3.72% 33.31% (0.62)%
-------- -------- -------- --------- ---------
-------- -------- -------- --------- ---------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $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%
Ratio of Net Investment Income (Loss)
to Average Net Assets (1) 1.06% (0.87)% (0.88)% (0.76)% (0.61)%
Portfolio Turnover Rate 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 $0.003 $0.002
Ratios before expense limitation:
Expenses to Average Net Assets 1.35% 1.34% 1.30% 1.26% 1.26%
Net Investment Income (Loss) to
Average Net Assets 0.96% (0.95)% (0.92)% (0.77)% (0.62)%
- -----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
---------------------------------
PERIOD FROM
YEAR ENDED JANUARY 2,
DECEMBER 31, 1996*** TO
----------------- DECEMBER 31,
1998 1997 1996
<S> <C> <C> <C>
- --------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 7.63 $ 13.45 $ 21.47
------- ------- ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) (2) 0.09 (0.06) (0.15)
Net Realized and Unrealized Gain on
Investments 1.90 1.04 0.82
------- ------- ------
Total From Operations 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 $ 7.93 $ 7.63 $ 13.45
------- ------- ------
------- ------- ------
TOTAL RETURN 26.86% 11.13% 3.58%
------- ------- ------
------- ------- ------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $1,282 $1,313 $3,997
Ratio of Expenses to Average Net Assets
(2) 1.50% 1.50% 1.50%**
Ratio of Net Investment Income (Loss)
to Average Net Assets (2) 0.88% (1.12)% (1.09)%**
Portfolio Turnover Rate 331% 228% 33%
- ---------------
(2) Effect of voluntary expense limitation during the
period:
Per share benefit to net
investment loss $0.01 $0.00+ $0.01
Ratios before expense limitation:
Expenses to Average Net Assets 1.60% 1.58% 1.54%**
Net Investment Income (Loss) to
Average Net Assets 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.
- --------------------------------------------------------------------------------
186
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS:
- --------------------------------------------------------------------------------
EQUITY GROWTH PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
--------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $16.93 $14.94 $14.14 $12.02 $12.14
--------- --------- --------- --------- --------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1) 0.04 0.06 0.17 0.22 0.17
Net Realized and Unrealized Gain on
Investments 3.17 4.48 4.07 4.93 0.21
--------- --------- --------- --------- --------
Total from Investment Operations 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 $19.04 $16.93 $14.94 $14.14 $12.02
--------- --------- --------- --------- --------
--------- --------- --------- --------- --------
TOTAL RETURN 19.04% 31.32% 30.97% 45.02% 3.26%
--------- --------- --------- --------- --------
--------- --------- --------- --------- --------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $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%
Ratio of Net Investment Income to
Average Net Assets (1) 0.22% 0.35% 1.12% 1.57% 1.44%
Portfolio Turnover Rate 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+ $0.01 $0.01 $0.01
Ratios before expense limitation:
Expenses to Average Net Assets 0.80% 0.82% 0.88% 0.88% 0.89%
Net Investment Income to Average
Net Assets 0.22% 0.33% 1.04% 1.49% 1.35%
- -------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
-----------------------------------
PERIOD FROM
YEAR ENDED DECEMBER JANUARY 2,
31, 1996*** TO
------------------- DECEMBER 31,
1998 1997 1996
<S> <C> <C> <C>
- ----------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $16.91 $14.92 $14.22
-------- -------- ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (2) 0.00+ 0.04 0.13
Net Realized and Unrealized Gain on
Investments 3.15 4.46 3.99
-------- -------- ------
Total from Investment Operations 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 $18.97 $16.91 $14.92
-------- -------- ------
-------- -------- ------
TOTAL RETURN 18.71% 31.05% 29.92%
-------- -------- ------
-------- -------- ------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $83,330 $27,879 $5,498
Ratio of Expenses to Average Net Assets
(2) 1.05% 1.05% 1.05%**
Ratio of Net Investment Income to
Average Net Assets (2) (0.02)% 0.10% 0.91%**
Portfolio Turnover Rate 156% 177% 186%
- ---------------
(2) Effect of voluntary expense limitation during the
period:
Per share benefit to net
investment income $0.00+ $0.01 $0.01
Ratios before expense limitation:
Expenses to Average Net Assets 1.05% 1.07% 1.12%**
Net Investment Income to Average
Net Assets (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.
- --------------------------------------------------------------------------------
187
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS:
- --------------------------------------------------------------------------------
TECHNOLOGY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
------------------------------------
PERIOD FROM
YEAR ENDED DECEMBER SEPTEMBER 16,
31, 1996* TO
------------------- DECEMBER 31,
1998++ 1997 1996
<S> <C> <C> <C>
- -----------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.73 $ 10.71 $ 10.00
-------- -------- ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) (1) (0.13) 0.07 (0.02)
Net Realized and Unrealized Gain on
Investments 6.45 3.75 0.73
-------- -------- ------
Total from Investment Operations 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 $ 17.98 $ 11.73 $ 10.71
-------- -------- ------
-------- -------- ------
TOTAL RETURN 53.90% 37.27% 7.10%
-------- -------- ------
-------- -------- ------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $27,506 $31,788 $3,595
Ratio of Expenses to Average Net Assets
(1) 1.29% 1.25% 1.25%**
Ratio of Expenses to Average Net Assets
Excluding Interest expense 1.25% N/A N/A
Ratio of Net Investment Loss to Average
Net Assets (1) (0.95)% (1.07)% (0.70)%**
Portfolio Turnover Rate 265% 622% 77%
- ---------------
(1) Effect of voluntary expense
limitation during the period:
Per share benefit to net
investment loss $0.07 $0.08 $0.22
Ratios before expense limitation:
Expenses to Average Net Assets 1.82% 2.47% 8.51%**
Net Investment Income (Loss) to
Average Net Assets (1.47)% (2.30)% (7.96)%**
- -----------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
----------------------------------
PERIOD FROM
YEAR ENDED SEPTEMBER 16
DECEMBER 31, 1996* TO
----------------- DECEMBER 31,
1998++ 1997 1996
<S> <C> <C> <C>
- ---------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.72 $ 10.71 $ 10.00
------- ------- ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) (2) (0.16) 0.04 (0.02)
Net Realized and Unrealized Gain on
Investments 6.43 3.74 0.73
------- ------- ------
Total from Investment Operations 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 $ 17.92 $ 11.72 $ 10.71
------- ------- ------
------- ------- ------
TOTAL RETURN 53.52% 36.90% 7.10%
------- ------- ------
------- ------- ------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $850 $2,394 $1,487
Ratio of Expenses to Average Net Assets
(2) 1.55% 1.50% 1.50%**
Ratio of Expenses to Average Net Assets
Excluding Interest expense 1.50% N/A N/A
Ratio of Net Investment Loss to Average
Net Assets (2) (1.32)% (1.41)% (1.00)%**
Portfolio Turnover Rate 265% 622% 77%
- ---------------
(2) Effect of voluntary expense
limitation during the period:
Per share benefit to net
investment loss $0.07 $0.04 $0.19
Ratios before expense limitation:
Expenses to Average Net Assets 2.08% 2.72% 9.14%**
Net Investment Loss to Average Net
Assets (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.
- --------------------------------------------------------------------------------
188
<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
-----------------------------
PERIOD FROM
JULY 31,
YEAR ENDED 1997* TO
DECEMBER 31, DECEMBER 31,
1998++ 1997++
<S> <C> <C>
- ----------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.31 $ 10.00
------ ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1) 0.09 0.06
Net Realized and Unrealized Gain on
Investments 2.10 0.33
------ ------
Total from Investment Operations 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 $ 12.43 $ 10.31
------ ------
------ ------
TOTAL RETURN 21.26% 3.94%
------ ------
------ ------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $66,640 $20,914
Ratio of Expenses to Average Net Assets
(1) 0.80% 0.80%**
Ratio of Net Investment Income to
Average Net Assets (1) 0.87% 1.32%**
Portfolio Turnover Rate 228% 15%
- ---------------
(1) Effect of voluntary expense
limitation during the period:
Per share benefit to net
investment income $0.03 $0.07
Ratios before expense limitation:
Expenses to Average Net Assets 1.05% 2.37%**
Net Investment Income to Average
Net Assets 0.59% (0.25)%**
- ----------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
-----------------------------
PERIOD FROM
JULY 31,
YEAR ENDED 1997* TO
DECEMBER 31, DECEMBER 31,
1998++ 1997++
<S> <C> <C>
- ----------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.31 $ 10.00
------ ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (2) 0.06 0.02
Net Realized and Unrealized Gain on
Investments 2.10 0.37
------ ------
Total from Investment Operations 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 $ 12.42 $ 10.31
------ ------
------ ------
TOTAL RETURN 20.95% 3.93%
------ ------
------ ------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $1,431 $102
Ratio of Expenses to Average Net Assets
(2) 1.05% 1.05%**
Ratio of Net Investment Income to
Average Net Assets (2) 0.52% 0.48%**
Portfolio Turnover Rate 228% 15%
- ---------------
(2) Effect of voluntary expense limitation during the period:
Per share benefit to net
investment income $0.03 $0.00+
Ratios before expense limitation:
Expenses to Average Net Assets 1.34% 2.63%**
Net Investment Income to Average
Net Assets 0.24% (0.32)%**
</TABLE>
- --------------------------------------------------------------------------------
* Commencement of Operations
** Annualized
+ Amount is less than $0.01 per share.
++ Per share amounts for the year ended December 31, 1998 and period
ended December 31, 1997 are based on average shares outstanding.
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:
- --------------------------------------------------------------------------------
U.S. REAL ESTATE PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
-------------------------------------------------
PERIOD FROM
FEBRUARY 24,
YEAR ENDED DECEMBER 31, 1995* TO
--------------------------------- DECEMBER 31,
1998 1997 1996 1995
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 15.38 $ 14.41 $ 11.42 $ 10.00
--------- --------- --------- ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1) 0.47 0.42 0.37 0.26
Net Realized and Unrealized Gain
(Loss) on Investments (2.32) 3.40 4.02 1.84
--------- --------- --------- ------
Total from Investment Operations (1.85) 3.82 4.39 2.10
--------- --------- --------- ------
DISTRIBUTIONS
Net Investment Income (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 (0.82) (2.85) (1.40) (0.68)
--------- --------- --------- ------
NET ASSET VALUE, END OF PERIOD $ 12.71 $ 15.38 $ 14.41 $ 11.42
--------- --------- --------- ------
--------- --------- --------- ------
TOTAL RETURN (12.29)% 27.62% 39.56% 21.07%
--------- --------- --------- ------
--------- --------- --------- ------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $259,589 $361,549 $210,368 $69,509
Ratio of Expenses to Average Net Assets
(1) 1.00% 1.00% 1.00% 1.00%**
Ratio of Net Investment Income to
Average Net Assets (1) 3.33% 2.72% 3.08% 4.04%**
Portfolio Turnover Rate 117% 135% 171% 158%
- ---------------
(1) Effect of voluntary expense
limitation during the period:
Per share benefit to net
investment income $0.00+ $0.01 $0.02 $0.02
Ratios before expense limitation:
Expenses to Average Net Assets 1.04% 1.04% 1.14% 1.33%**
Net Investment Income to Average
Net Assets 3.30% 2.68% 2.93% 3.71%**
- ------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
-----------------------------------
PERIOD FROM
YEAR ENDED DECEMBER JANUARY 2,
31, 1996*** TO
------------------- DECEMBER 31,
1998 1997 1996
<S> <C> <C> <C>
- ----------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 15.34 $ 14.39 $ 11.50
-------- -------- ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (2) 0.47 0.47 0.35
Net Realized and Unrealized Gain
(Loss) on Investments (2.35) 3.29 3.92
-------- -------- ------
Total from Investment Operations (1.88) 3.76 4.27
-------- -------- ------
DISTRIBUTIONS
Net Investment Income (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 (0.79) (2.81) (1.38)
-------- -------- ------
NET ASSET VALUE, END OF PERIOD $ 12.67 $ 15.34 $ 14.39
-------- -------- ------
-------- -------- ------
TOTAL RETURN (12.52)% 27.21% 38.23%
-------- -------- ------
-------- -------- ------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $13,523 $21,231 $8,734
Ratio of Expenses to Average Net Assets
(2) 1.25% 1.25% 1.25%**
Ratio of Net Investment Income to
Average Net Assets (2) 3.23% 3.49% 2.91%**
Portfolio Turnover Rate 117% 135% 171%
- ---------------
(2) Effect of voluntary expense limitation during the
period:
Per share benefit to net
investment income $0.01 $0.00+ $0.02
Ratios before expense limitation:
Expenses to Average Net Assets 1.29% 1.28% 1.37%**
Net Investment Income to Average
Net Assets 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.
- --------------------------------------------------------------------------------
190
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS:
- --------------------------------------------------------------------------------
VALUE EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 13.62 $ 13.89 $ 13.94 $ 11.50 $ 12.63
-------- -------- --------- --------- --------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1) 0.20 0.35 0.41 0.38 0.40
Net Realized and Unrealized Gain
(Loss) on Investments 0.98 3.51 2.27 3.30 (0.55)
-------- -------- --------- --------- --------
Total from Investment Operations 1.18 3.86 2.68 3.68 (0.15)
-------- -------- --------- --------- --------
DISTRIBUTIONS
Net Investment Income (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 (4.02) (4.13) (2.73) (1.24) (0.98)
-------- -------- --------- --------- --------
NET ASSET VALUE, END OF PERIOD $ 10.78 $ 13.62 $ 13.89 $ 13.94 $ 11.50
-------- -------- --------- --------- --------
-------- -------- --------- --------- --------
TOTAL RETURN 8.79% 29.20% 19.73% 33.69% (1.29)%
-------- -------- --------- --------- --------
-------- -------- --------- --------- --------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $57,543 $86,054 $106,128 $147,365 $73,406
Ratio of Expenses to Average Net Assets
(1) 0.70% 0.70% 0.70% 0.70% 0.70%
Ratio of Net Investment Income to
Average Net Assets (1) 1.36% 2.15% 2.62% 3.01% 3.37%
Portfolio Turnover Rate 153% 36% 42% 43% 33%
- ---------------
(1) Effect of voluntary expense
limitation during the period:
Per share benefit to net
investment income $0.02 $0.02 $0.01 $0.01 $0.01
Ratios before expense limitation:
Expenses to Average Net Assets 0.82% 0.80% 0.78% 0.77% 0.80%
Net Investment Income to Average
Net Assets 1.25% 2.06% 2.55% 2.94% 3.27%
- -----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
---------------------------------
PERIOD FROM
YEAR ENDED JANUARY 2,
DECEMBER 31, 1996*** TO
----------------- DECEMBER 31,
1998 1997 1996
<S> <C> <C> <C>
- --------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 13.59 $ 13.89 $ 14.06
------- ------- ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (2) 0.07 0.28 0.29
Net Realized and Unrealized Gain on
Investments 1.08 3.51 2.25
------- ------- ------
Total from Investment Operations 1.15 3.79 2.54
------- ------- ------
DISTRIBUTIONS
Net Investment Income (0.17) (0.31) (0.39)
Net Realized Gain (3.81) (3.78) (2.32)
------- ------- ------
Total Distributions (3.98) (4.09) (2.71)
------- ------- ------
NET ASSET VALUE, END OF PERIOD $ 10.76 $ 13.59 $ 13.89
------- ------- ------
------- ------- ------
TOTAL RETURN 8.59% 28.70% 18.57%
------- ------- ------
------- ------- ------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $1,045 $2,246 $2,555
Ratio of Expenses to Average Net Assets
(2) 0.95% 0.95% 0.95%**
Ratio of Net Investment Income to
Average Net Assets (2) 1.12% 1.86% 2.33%**
Portfolio Turnover Rate 153% 36% 42%
- ---------------
(2) Effect of voluntary expense limitation during the
period:
Per share benefit to net
investment income $0.02 $0.01 $0.01
Ratios before expense limitation:
Expenses to Average Net Assets 1.07% 1.04% 1.03%**
Net Investment Income to Average
Net Assets 1.01% 1.77% 2.26%**
</TABLE>
- --------------------------------------------------------------------------------
** Annualized
*** The Portfolio began offering Class B Shares on January 2, 1996.
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
191
<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
-------------------------------------------------------------
PERIOD FROM
FEBRUARY 1,
YEAR ENDED DECEMBER 31, 1994* TO
--------------------------------------------- DECEMBER 31,
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 5.77 $ 7.54 $ 8.59 $ 8.59 $ 10.00
--------- --------- --------- --------- ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 1.13 0.74 1.54 1.36 0.50
Net Realized and Unrealized Gain
(Loss) on Investments (3.19) 0.55 2.79 0.91 (1.91)
--------- --------- --------- --------- ------
Total from Investment Operations (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 $ 2.61 $ 5.77 $ 7.54 $ 8.59 $ 8.59
--------- --------- --------- --------- ------
--------- --------- --------- --------- ------
TOTAL RETURN (35.95)% 18.29% 50.52% 28.23% (14.10)%
--------- --------- --------- --------- ------
--------- --------- --------- --------- ------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $46,234 $142,382 $152,142 $181,878 $144,949
Ratio of Expenses to Average Net Assets 2.38% 1.60% 2.70% 1.75% 1.49%**
Ratio of Expenses to Average Net Assets
Excluding Country Tax Expense,
Interest Expense and Overdraft
Expense 1.34% N/A N/A N/A N/A
Ratio of Net Investment Income to
Average Net Assets 11.61% 8.06% 11.66% 14.70% 9.97%**
Portfolio Turnover Rate 457% 417% 560% 406% 273%
- ------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
---------------------------------
PERIOD FROM
YEAR ENDED JANUARY 2,
DECEMBER 31, 1996*** TO
----------------- DECEMBER 31,
1998 1997 1996
<S> <C> <C> <C>
- --------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 5.77 $ 7.53 $ 8.68
------- ------- ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 1.13 0.69 1.01
Net Realized and Unrealized Gain
(Loss) on Investments (3.17) 0.59 3.20
------- ------- ------
Total from Investment Operations (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 $ 2.66 $ 5.77 $ 7.53
------- ------- ------
------- ------- ------
TOTAL RETURN (35.37)% 18.05% 48.52%
------- ------- ------
------- ------- ------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $1,187 $2,281 $4,253
Ratio of Expenses to Average Net Assets 2.62% 1.91% 2.81%**
Ratio of Expenses to Average Net Assets
Excluding Country Tax Expense,
Interest Expense and Overdraft
Expense 1.60% N/A N/A
Ratio of Net Investment Income to
Average Net Assets 11.09% 7.87% 11.09%**
Portfolio Turnover Rate 457% 417% 560%
</TABLE>
- --------------------------------------------------------------------------------
* Commencement of Operations
** Annualized
*** The Portfolio began offering Class B Shares on January 2, 1996.
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
192
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Institutional Fund, Inc.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS:
- --------------------------------------------------------------------------------
FIXED INCOME PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
---------------------------------------------------------
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.88 $ 10.58 $ 10.81 $ 9.82 $ 11.05
--------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1) 0.62 0.65 0.67 0.72 0.59
Net Realized and Unrealized Gain
(Loss) on Investments 0.22 0.33 (0.20) 1.06 (0.92)
--------- --------- --------- --------- ---------
Total from Investment Operations 0.84 0.98 0.47 1.78 (0.33)
--------- --------- --------- --------- ---------
DISTRIBUTIONS
Net Investment Income (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 (0.64) (0.68) (0.70) (0.79) (0.90)
--------- --------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 11.08 $ 10.88 $ 10.58 $ 10.81 $ 9.82
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
TOTAL RETURN 7.93% 9.54% 4.61% 18.76% (3.10)%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $212,718 $183,192 $130,733 $165,527 $209,331
Ratio of Expenses to Average Net Assets
(1) 0.45% 0.45% 0.45% 0.45% 0.45%
Ratio of Net Investment Income to
Average Net Assets (1) 5.63% 6.11% 6.30% 6.85% 5.73%
Portfolio Turnover Rate 176% 163% 183% 172% 388%
- ---------------
(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
Ratios before expense limitation:
Expenses to Average Net Assets 0.58% 0.60% 0.60% 0.59% 0.58%
Net Investment Income to Average
Net Assets 5.51% 5.97% 6.15% 6.71% 5.60%
- --------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
---------------------------------
PERIOD FROM
YEAR ENDED JANUARY 2,
DECEMBER 31, 1996*** TO
----------------- DECEMBER 31,
1998 1997 1996
<S> <C> <C> <C>
- --------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.89 $ 10.58 $ 10.81
------- ------- ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (2) 0.61 0.64 0.64
Net Realized and Unrealized Gain
(Loss) on Investments 0.22 0.33 (0.19)
------- ------- ------
Total from Investment Operations 0.83 0.97 0.45
------- ------- ------
DISTRIBUTIONS
Net Investment Income (0.59) (0.66) (0.68)
Net Realized Gain (0.03) -- --
------- ------- ------
Total Distributions (0.62) (0.66) (0.68)
------- ------- ------
NET ASSET VALUE, END OF PERIOD $ 11.10 $ 10.89 $ 10.58
------- ------- ------
------- ------- ------
TOTAL RETURN 7.85% 9.48% 4.35%
------- ------- ------
------- ------- ------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $3,649 $4,834 $1,462
Ratio of Expenses to Average Net Assets
(2) 0.60% 0.60% 0.60%**
Ratio of Net Investment Income to
Average Net Assets (2) 5.50% 5.93% 6.15%**
Portfolio Turnover Rate 176% 163% 183%
- ---------------
(2) Effect of voluntary expense limitation during the period:
Per share benefit to net
investment income $0.01 $0.02 $0.01
Ratios before expense limitation:
Expenses to Average Net Assets 0.72% 0.74% 0.74%**
Net Investment Income to Average
Net Assets 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.
- --------------------------------------------------------------------------------
193
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Institutional Fund, Inc.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS:
- --------------------------------------------------------------------------------
GLOBAL FIXED INCOME PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
--------------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1998++ 1997++ 1996 1995 1994
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.15 $ 11.30 $ 11.22 $ 10.29 $ 11.68
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1) 0.55 0.56 0.61 0.76 0.70
Net Realized and Unrealized Gain
(Loss) on Investments 0.98 (0.40) 0.08 1.15 (1.38)
---------- ---------- ---------- ---------- ----------
Total from Investment Operations 1.53 0.16 0.69 1.91 (0.68)
---------- ---------- ---------- ---------- ----------
DISTRIBUTIONS
Net Investment Income (0.17) (0.31) (0.61) (0.98) (0.40)
Net Realized Gain -- -- -- -- (0.31)
---------- ---------- ---------- ---------- ----------
Total Distributions (0.17) (0.31) (0.61) (0.98) (0.71)
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD $ 12.51 $ 11.15 $ 11.30 $ 11.22 $ 10.29
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
TOTAL RETURN 13.84% 1.50% 6.44% 19.32% (6.08)%
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $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%
Ratio of Net Investment Income to
Average Net Assets (1) 4.76% 5.05% 5.50% 6.79% 6.34%
Portfolio Turnover Rate 110% 116% 258% 207% 171%
- ---------------
(1) Effect of voluntary expense
limitation during the period:
Per share benefit to net
investment income $0.03 $0.02 $0.02 $0.02 $0.02
Ratios before expense limitation:
Expenses to Average Net Assets 0.81% 0.71% 0.72% 0.71% 0.66%
Net Investment Income to Average
Net Assets 4.48% 4.84% 5.29% 6.58% 6.18%
- -------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
-------------------------------------------------
PERIOD FROM
JANUARY 2,
YEAR ENDED DECEMBER 31, 1996*** TO
--------------------------------- DECEMBER 31,
1998++ 1997++ 1996
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.13 $ 11.29 $ 11.23
------- ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (2) 0.53 0.54 0.48
Net Realized and Unrealized Gain
(Loss) on Investments 0.98 (0.40) 0.18
------- ------ ------
Total from Investment Operations 1.51 0.14 0.66
------- ------ ------
DISTRIBUTIONS
Net Investment Income (0.16) (0.30) (0.60)
------- ------ ------
Total Distributions (0.16) (0.30) (0.60)
------- ------ ------
NET ASSET VALUE, END OF PERIOD $ 12.48 $ 11.13 $ 11.29
------- ------ ------
------- ------ ------
TOTAL RETURN 13.68% 1.29% 6.12%
------- ------ ------
------- ------ ------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $362 $366 $1,559
Ratio of Expenses to Average Net Assets
(2) 0.65% 0.65% 0.65%**
Ratio of Net Investment Income to
Average Net Assets (2) 4.54% 4.88% 5.28%**
Portfolio Turnover Rate 110% 116% 258%
- ---------------
(2) Effect of voluntary expense limitation
during the period:
Per share benefit to net
investment income $0.03 $0.02 $0.02
Ratios before expense limitation:
Expenses to Average Net Assets 0.99% 0.86% 0.86%**
Net Investment Income to Average
Net Assets 4.26% 4.68% 5.08%**
</TABLE>
- --------------------------------------------------------------------------------
** Annualized
*** The Portfolio began offering Class B Shares on January 2, 1996.
++ 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.
- --------------------------------------------------------------------------------
194
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Institutional Fund, Inc.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS:
- --------------------------------------------------------------------------------
HIGH YIELD PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.58 $ 10.91 $ 10.46 $ 9.55 $ 11.16
--------- --------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1) 1.00 1.00 1.03 1.14 0.97
Net Realized and Unrealized Gain
(Loss) on Investments (0.66) 0.67 0.47 0.97 (1.40)
--------- --------- -------- -------- --------
Total from Investment Operations 0.34 1.67 1.50 2.11 (0.43)
--------- --------- -------- -------- --------
DISTRIBUTIONS
Net Investment Income (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 (1.17) (1.00) (1.05) (1.20) (1.18)
--------- --------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 10.75 $ 11.58 $ 10.91 $ 10.46 $ 9.55
--------- --------- -------- -------- --------
--------- --------- -------- -------- --------
TOTAL RETURN 3.03% 15.87% 15.01% 23.35% (4.18)%
--------- --------- -------- -------- --------
--------- --------- -------- -------- --------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $128,237 $113,006 $95,663 $62,245 $97,223
Ratio of Expenses to Average Net Assets
(1) 0.67% 0.69% 0.75% 0.75% 0.75%
Ratio of Net Investment Income to
Average Net Assets (1) 8.70% 8.70% 9.78% 11.09% 9.42%
Portfolio Turnover Rate 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 $0.01 $0.01 $0.001
Ratios before expense limitation:
Expenses to Average Net Assets N/A N/A 0.82% 0.83% 0.76%
Net Investment Income to Average
Net Assets N/A N/A 9.71% 11.01% 9.41%
- -----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
----------------------------------
PERIOD FROM
YEAR ENDED JANUARY 2,
DECEMBER 31, 1996*** TO
------------------ DECEMBER 31,
1998 1997 1996
<S> <C> <C> <C>
- ---------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.56 $ 10.90 $ 10.49
-------- ------- ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (2) 0.90 0.97 0.98
Net Realized and Unrealized Gain
(Loss) on Investments (0.59) 0.65 0.45
-------- ------- ------
Total from Investment Operations 0.31 1.62 1.43
-------- ------- ------
DISTRIBUTIONS
Net Investment Income (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 (1.14) (0.96) (1.02)
-------- ------- ------
NET ASSET VALUE, END OF PERIOD $ 10.73 $ 11.56 $ 10.90
-------- ------- ------
-------- ------- ------
TOTAL RETURN 2.79% 15.48% 14.37%
-------- ------- ------
-------- ------- ------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $56,804 $7,213 $5,665
Ratio of Expenses to Average Net Assets
(2) 0.95% 0.93% 1.00%**
Ratio of Net Investment Income to
Average Net Assets (2) 8.73% 8.48% 9.49%**
Portfolio Turnover Rate 93% 111% 117%
- ---------------
(2) Effect of voluntary expense limitation during
the period:
Per share benefit to net
investment income N/A N/A $0.01
Ratios before expense limitation:
Expenses to Average Net Assets N/A N/A 1.05%**
Net Investment Income to Average
Net Assets 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.
- --------------------------------------------------------------------------------
195
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS:
- --------------------------------------------------------------------------------
MUNICIPAL BOND PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
----------------------------------------------
PERIOD FROM
JANUARY 18,
YEAR ENDED DECEMBER 31, 1995* TO
------------------------------ DECEMBER 31,
1998 1997++ 1996 1995
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.51 $ 10.25 $ 10.37 $ 10.00
-------- -------- -------- ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (1) 0.50 0.47 0.49 0.44
Net Realized and Unrealized Gain
(Loss) on Investments 0.07 0.25 (0.12) 0.42
-------- -------- -------- ------
Total from Investment Operations 0.57 0.72 0.37 0.86
-------- -------- -------- ------
DISTRIBUTIONS
Net Investment Income (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 (0.68) (0.46) (0.49) (0.49)
-------- -------- -------- ------
NET ASSET VALUE, END OF PERIOD $ 10.40 $ 10.51 $ 10.25 $ 10.37
-------- -------- -------- ------
-------- -------- -------- ------
TOTAL RETURN 5.52% 7.25% 3.67% 8.80%
-------- -------- -------- ------
-------- -------- -------- ------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $34,807 $60,541 $40,227 $45,869
Ratio of Expenses to Average Net Assets
(1) 0.45% 0.45% 0.45% 0.45%**
Ratio of Net Investment Income to
Average Net Assets (1) 4.60% 4.55% 4.77% 4.61%**
Portfolio Turnover Rate 44% 80% 45% 180%
- ---------------
(1) Effect of voluntary expense
limitation during the period:
Per share benefit to net
investment income $0.03 $0.02 $0.03 $0.03
Ratios before expense limitation:
Expenses to Average Net Assets 0.69% 0.68% 0.73% 0.73%**
Net Investment Income to Average
Net Assets 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.
- --------------------------------------------------------------------------------
196
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS:
- --------------------------------------------------------------------------------
MONEY MARKET PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
----------- ----------- ----------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.051 0.051 0.049 0.054 0.040
----------- ----------- ----------- --------- ---------
DISTRIBUTIONS
Net Investment Income (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
----------- ----------- ----------- --------- ---------
----------- ----------- ----------- --------- ---------
TOTAL RETURN 5.20% 5.20% 5.03% 5.51% 3.84%
----------- ----------- ----------- --------- ---------
----------- ----------- ----------- --------- ---------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $1,958,177 $1,506,210 $1,284,633 $836,693 $690,503
Ratio of Expenses to Average Net Assets 0.49% 0.49% 0.52% 0.51% 0.49%
Ratio of Net Investment Income to
Average Net Assets 5.07% 5.12% 4.92% 5.37% 3.77%
</TABLE>
- --------------------------------------------------------------------------------
MUNICIPAL MONEY MARKET PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
----------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.030 0.031 0.030 0.034 0.020
----------- --------- --------- --------- ---------
DISTRIBUTIONS
Net Investment Income (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
----------- --------- --------- --------- ---------
----------- --------- --------- --------- ---------
TOTAL RETURN 3.00% 3.17% 3.02% 3.44% 2.44%
----------- --------- --------- --------- ---------
----------- --------- --------- --------- ---------
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands) $990,579 $804,607 $721,410 $451,519 $359,444
Ratio of Expenses to Average Net Assets 0.50% 0.50% 0.53% 0.52% 0.51%
Ratio of Net Investment Income to
Average Net Assets 2.96% 3.14% 2.98% 3.38% 2.42%
- ----------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
197
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
Morgan Stanley Dean Witter Institutional Fund, Inc., formerly Morgan Stanley
Institutional Fund, Inc., hereafter referred to as (the "Fund") is registered
under the Investment Company Act of 1940, as amended, as an open-end management
investment company. As of December 31, 1998, the Fund was comprised of 26
separate active, diversified and non-diversified portfolios (individually
referred to as a "Portfolio", collectively as the "Portfolios"). At December 31,
1998, 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. Effective February 1998, the Money Market Portfolio began offering Class
B shares. Effective August 1998, the Active Country Allocation Portfolio was
renamed Active International Allocation Portfolio. 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. REVERSE REPURCHASE AGREEMENTS: The Emerging Markets Debt Portfolio may enter
into reverse repurchase agreements with institutions that the Portfolio's
investment adviser has determined are creditworthy. Under a reverse repurchase
agreement, the Portfolio
- --------------------------------------------------------------------------------
198
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONT.)
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
receives cash from the sale of securities and agrees to repurchase the
securities at a mutually agreed upon date and price. Reverse repurchase
agreements involve market risk that the value of the securities purchased with
the proceeds from the sale of securities received by the Portfolio may decline
below the price of the securities the Portfolio is obligated to repurchase. The
Portfolio is also subject to credit risk equal to the amount by which the value
of securities subject to repurchase exceeds the Portfolio's liability under the
reverse repurchase agreement.
At December 31, 1998, the Emerging Markets Debt Portfolio had no reverse
repurchase agreements outstanding.
The Emerging Markets Debt Portfolio had an average weekly balance of reverse
repurchase agreements outstanding during the year ended December 31, 1998 of
approximately $19,812,000, at a weighted average interest rate of 4.621%.
5. FOREIGN CURRENCY TRANSLATION AND FOREIGN INVESTMENTS: The books and records
of the Fund are maintained in U.S. dollars. Foreign currency amounts are
translated into U.S. dollars at the mean of the bid and asked prices of such
currencies against U.S. dollars last quoted by a major bank as follows:
- investments, other assets and liabilities at the prevailing rates of
exchange on the valuation date;
- investment transactions and investment income at the prevailing rates of
exchange on the dates of such transactions.
Although the net assets of the Fund are presented at the foreign exchange rates
and market values at the close of the period, the Fund does not isolate that
portion of the results of operations arising as a result of changes in the
foreign exchange rates from the fluctuations arising from changes in the market
prices of the securities held at period end. Similarly, the Fund does not
isolate the effect of changes in foreign exchange rates from the fluctuations
arising from changes in the market prices of securities sold during the period.
Accordingly, realized and unrealized foreign currency gains (losses) are
included in the reported net realized and unrealized gains (losses) on
investment transactions and balances. However, pursuant to U.S. Federal income
tax regulations, gains and losses from certain foreign currency transactions and
the foreign currency portion of gains and losses realized on sales and
maturities of foreign denominated debt securities are treated as ordinary income
for U.S. Federal income tax purposes.
Net realized gains (losses) on foreign currency transactions represent net
foreign exchange gains (losses) from foreign currency exchange contracts,
disposition of foreign currencies, currency gains or losses realized between the
trade and settlement dates on securities transactions, and the difference
between the amount of investment income and foreign withholding taxes recorded
on the Fund's books and the U.S. dollar equivalent amounts actually received or
paid. Net unrealized currency gains (losses) from valuing foreign currency
denominated assets and liabilities at period end exchange rates are reflected as
a component of unrealized appreciation (depreciation) on the Statement of Net
Assets. The change in net unrealized currency gains (losses) for the period is
reflected on the Statement of Operations.
Foreign security and currency transactions may involve certain considerations
and risks not typically associated with those of U.S. dollar denominated
transactions as a result of, among other factors, the possibility of lower
levels of governmental supervision and regulation of foreign securities markets
and the possibility of political or economic instability.
Prior governmental approval for foreign investments may be required under
certain circumstances in some countries, and the extent of foreign investments
in domestic companies may be subject to limitation in other countries. Foreign
ownership limitations also may be imposed by the charters of individual
companies to prevent, among other concerns, violation of foreign investment
limitations. As a result, an additional class of shares (identified as "Foreign"
in the Statement of Net Assets) may be created and offered for investment. The
"local" and "foreign" shares' market values may differ. In the absence of
trading of the foreign shares in such markets, 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.
6. 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
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NOTES TO FINANCIAL STATEMENTS (CONT.)
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
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.
7. 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 Custodian's records for the
Portfolio's regular custody account. 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.
8. 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.
9. SHORT SALES: Certain Portfolios may sell securities short. A short sale is a
transaction in which the Portfolio sells 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 Custodian'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.
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NOTES TO FINANCIAL STATEMENTS (CONT.)
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
10. 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.
11. 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 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 December 31, 1998 are as follows:
<TABLE>
<CAPTION>
VALUE OF LOANED VALUE OF
SECURITIES COLLATERAL
PORTFOLIO (000) (000)
- -------------------------------- --------------- -----------
<S> <C> <C>
Active International
Allocation..................... $ 7,975 $ 9,031
Asian Equity.................... 1,648 1,778
International Equity............ 121,590 126,728
International Magnum............ 14,179 14,879
</TABLE>
The Chase Manhattan Bank administers the security lending program and has earned
fees for its services totaling approximately $36,000, $35,000, $475,000 and
$40,000 for the Active International Allocation, Asian Equity, International
Equity and International Magnum Portfolios, respectively, for the year ended
December 31, 1998. In addition, the Active International Allocation, Asian
Equity, International Equity and International Magnum Portfolios have earned
security lending income for the year ended December 31, 1998 of approximately
$139,000, $166,000, $1,508,000 and $87,000, respectively.
12. 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.
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NOTES TO FINANCIAL STATEMENTS (CONT.)
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
13. 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.
14. 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 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.
15. 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
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NOTES TO FINANCIAL STATEMENTS (CONT.)
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
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 may be 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 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 0.70
Money Market................... 0.30 0.55 0.80
Municipal Money Market......... 0.30 0.57 N/A
</TABLE>
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 The Chase Manhattan Bank ("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
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Institutional Fund, Inc.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONT.)
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
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: The Chase Manhattan Bank and its affiliates serve as custodian for
the Fund. The Fund's assets held outside the United States were held by Morgan
Stanley Trust Company ("MSTC"), an affiliate of the Adviser prior to October 1,
1998. On October 1, 1998, MSTC was acquired by The Chase Manhattan Bank. Custody
fees are payable monthly based on assets held in custody, investment purchases
and sales activity and account maintenance fees, plus reimbursement for certain
out-of-pocket expenses.
For the period ended September 30, 1998, the following Portfolios incurred
custody fees with MSTC:
<TABLE>
<CAPTION>
MSTC
CUSTODY FEES
INCURRED
(000)
---------------
<S> <C>
Active International Allocation............... $ 241
Asian Equity.................................. 301
Asian Real Estate............................. 5
Emerging Markets.............................. 3,120
European Equity............................... 154
European Real Estate.......................... 5
Global Equity................................. 68
International Equity.......................... 1,121
International Magnum.......................... 23
International Small Cap....................... 141
Japanese Equity............................... 29
Latin American................................ 104
Emerging Markets Debt......................... 94
Global Fixed.................................. 18
</TABLE>
In addition, through the period ended September 30, 1998, the following
Portfolios have earned interest income and incurred interest expense on balances
with MSTC as follows:
<TABLE>
<CAPTION>
INTEREST INCOME INTEREST EXPENSE
(000) (000)
--------------- ----------------
<S> <C> <C>
Active International Allocation.............. $-- $ 9
Asian Equity................................. 2 7
Asian Real Estate............................ -- 1
Emerging Markets............................. 63 150
European Equity.............................. -- 3
European Real Estate......................... -- 7
Global Equity................................ 1 1
International Equity......................... 2 1
International Magnum......................... -- 3
International Small Cap...................... -- 4
Latin American............................... 2 2
Emerging Markets Debt........................ 23 63
Global Fixed Income.......................... 3 --
</TABLE>
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
December 31, 1998 totaled $586,000 and are included in Directors' Fees and
Expenses Payable on the Statement of Net Assets.
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NOTES TO FINANCIAL STATEMENTS (CONT.)
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
G. PURCHASES AND SALES: During the year ended December 31, 1998, 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..... $ 157,834 $ 82,826
Asian Equity........................ 99,387 116,222
Asian Real Estate................... 12,148 9,576
Emerging Markets.................... 1,180,495 1,418,511
European Equity..................... 136,609 206,317
European Real Estate................ 82,091 49,043
Global Equity....................... 176,176 70,262
International Equity................ 1,116,132 1,003,557
International Magnum................ 167,463 83,735
International Small Cap............. 129,121 102,161
Japanese Equity..................... 45,024 60,056
Latin American...................... 106,357 138,908
Aggressive Equity................... 701,380 737,346
Emerging Growth..................... 219,545 224,468
Equity Growth....................... 1,300,338 1,164,407
Technology.......................... 70,023 85,581
U.S. Equity Plus.................... 132,161 91,782
U.S. Real Estate.................... 361,519 402,124
Value Equity........................ 129,973 163,937
Emerging Markets Debt............... 666,873 685,717
Fixed Income........................ 387,303 342,108
Global Fixed Income................. 59,942 98,160
High Yield.......................... 238,337 155,750
Municipal Bond...................... 19,950 44,567
</TABLE>
Purchases and sales during the year ended December 31, 1998 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.......................... $ -- $ 5,338
Global Fixed Income................... -- 1,858
</TABLE>
During the year ended December 31, 1998, 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............. $ 682
Asian Equity................................ 15,587
Asian Real Estate........................... 2,620
Emerging Markets............................ 79,082
European Equity............................. 9,823
European Real Estate........................ 8,402
Global Equity............................... 12,306
International Equity........................ 12,179
International Magnum........................ 14,426
International Small Cap..................... 3,500
Japanese Equity............................. 22,707
Latin America............................... 8,725
Equity Growth............................... 389
</TABLE>
H. OTHER: At December 31, 1998, 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............... $ 249,029 $ 38,081 $ (13,623) $ 24,458
Asian Equity.............. 57,698 5,636 (6,995) (1,359)
Asian Real Estate......... 2,970 474 (282) 192
Emerging Markets.......... 1,024,951 66,006 (326,290) (260,284)
European Equity........... 157,213 29,433 (13,005) 16,428
European Real Estate...... 43,858 2,140 (3,688) (1,548)
Global Equity............. 211,582 42,991 (13,145) 29,846
International Equity...... 2,797,941 682,110 (43,297) 638,813
International Magnum...... 302,524 30,673 (24,227) 6,446
International Small Cap... 272,338 29,769 (49,990) (20,221)
Japanese Equity........... 67,341 3,367 (11,279) (7,912)
Latin American............ 22,856 74 (8,122) (8,048)
Aggressive Equity......... 122,047 25,125 (970) 24,155
Emerging Growth........... 65,420 10,659 (1,287) 9,372
Equity Growth............. 694,441 183,282 (11,529) 171,753
Technology................ 21,370 8,450 (976) 7,474
U.S. Equity Plus.......... 61,229 9,333 (2,099) 7,234
U.S. Real Estate.......... 268,344 20,599 (18,963) 1,636
Value Equity.............. 48,250 10,829 (1,416) 9,413
Emerging Markets Debt..... 54,006 464 (8,413) (7,949)
Fixed Income.............. 221,147 4,117 (485) 3,632
Global Fixed Income....... 42,948 2,235 (58) 2,177
High Yield................ 193,415 3,050 (14,448) (11,398)
Municipal Bond............ 32,727 2,051 -- 2,051
Money Market.............. 1,926,978 -- -- --
Municipal Money Market.... 954,470 -- -- --
</TABLE>
During the year ended December 31, 1998, the Emerging Markets Portfolio owned
shares of affiliated funds for which the Portfolio earned dividend income of
approximately $16,000.
At December 31, 1998, 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>
During the year ended December 31, 1998, the Fixed Income, Global Fixed Income
and Money Market
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205
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
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NOTES TO FINANCIAL STATEMENTS (CONT.)
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
Portfolios utilized capital loss carryforwards for U.S. Federal income tax
purposes of approximately $2,946,000, $2,422,000, and $4,000, respectively.
To the extent that capital loss carryovers are used to offset any future capital
gains realized during the 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 year ended December 31, 1998, 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,
1997.................................... -- $ --
Options written during the period........ 75 292
Options closed during the period......... (15) (67)
--- -----
Options outstanding at December 31,
1998.................................... 60 $ 225
--- -----
--- -----
</TABLE>
<TABLE>
<CAPTION>
FACE AMOUNT
EMERGING MARKETS DEBT PORTFOLIO (000) PREMIUM (000)
- -------------------------------------- --------------- -------------
<S> <C> <C>
Options outstanding at December 31,
1997................................. $ -- $ --
Options written during the period..... 105 88
Options expired during the period..... (37) (41)
Options closed during the period...... (68) (47)
----- ---
Options outstanding at December 31,
1998................................. $ -- $ --
----- ---
----- ---
</TABLE>
At December 31, 1998, 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.
- --------------------------------------------------------------------------------
206
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund, Inc.
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Board of Directors of
Morgan Stanley Dean Witter Institutional Fund, Inc.
(formerly Morgan Stanley Institutional Fund, Inc.)
In our opinion, the accompanying statements of net assets and the related
statements of operations, of changes in net assets and of cash flows (the
Emerging Markets Debt Portfolio only) and the financial highlights present
fairly, in all material respects, the financial position of each of the
portfolios constituting Morgan Stanley Dean Witter Institutional Fund, Inc. (the
"Fund") at December 31, 1998, the results of each of their operations, the
changes in each of their net assets, the Emerging Markets Debt Portfolio's cash
flows and the financial highlights for the periods indicated, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of investments at December 31, 1998 by
correspondence with the custodian, brokers and counterparties, provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
February 8, 1999
- --------------------------------------------------------------------------------
207
<PAGE>
[LOGO] Morgan Stanley Dean Witter
Institutional Fund Inc.
- --------------------------------------------------------------------------------
FEDERAL TAX INFORMATION (UNAUDITED):
- --------------------------------------------------------------------------------
For the year ended December 31, 1998, the percentage of dividends paid that
qualify for the 70% dividend received deduction for corporate shareholders for
the Global Equity, Aggressive Equity, Emerging Growth, Equity Growth,
Technology, U.S. Equity Plus, U.S. Real Estate, Value Equity, and High Yield
Portfolios are 25.6%, 3.7%, 12.9%, 15.7%, 3.3%, 95.7%, 1.5%, 58.7%, and 2.2%.
For the year ended December 31, 1998, the percentage of exempt interest
dividends paid by the Municipal Bond and the Municipal Money Market Portfolios
are 100% and 96%, respectively.
For the year ended December 31, 1998, the following Portfolios intend to pass
through foreign tax credits and have derived gross income from sources within
foreign countries amounting to:
<TABLE>
<CAPTION>
FOREIGN TAX
CREDIT FOREIGN SOURCE
PASS-THROUGH INCOME
FUND (000) (000)
- ----------------------------------------------------------------------- ----------------- --------------
<S> <C> <C>
Active International Allocation........................................ $ 428 $ 3,416
Asian Equity........................................................... 188 1,653
Asian Real Estate...................................................... 7 123
Emerging Markets....................................................... 1,381 33,731
European Equity........................................................ 851 7,197
European Real Estate................................................... 142 1,014
Global Equity.......................................................... 287 2,679
International Equity*.................................................. 8,768 78,985
International Magnum................................................... 548 4,705
International Small Cap................................................ 784 6,804
Japanese Equity........................................................ 109 714
Emerging Markets Debt.................................................. 225 19,583
</TABLE>
For the year ended December 31, 1998, the following Portfolios intend to
distribute long-term capital gains totaling:
<TABLE>
<CAPTION>
LONG-TERM LONG-TERM LONG-TERM
CAPITAL GAINS - 20% CAPITAL GAINS - 25% CAPITAL GAINS - 28%
FUND (000) (000) (000)
- ---------------------------------------- -------------------- ----------------------- --------------------
<S> <C> <C> <C>
Active International Allocation......... $ 4,628 $ -- $ --
European Equity......................... 32,812 -- --
Global Equity........................... 2,941 -- --
International Equity*................... 106,709 -- 93,185
International Small Cap................. 11,076 -- --
Latin American.......................... 241 -- --
Aggressive Equity....................... 662 -- --
Emerging Growth......................... 3,793 -- --
Equity Growth........................... 34,309 -- --
Technology.............................. 5 -- --
U.S. Real Estate........................ 2,818 145 --
Value Equity............................ 18,023 -- --
Fixed Income............................ 627 -- --
High Yield.............................. 2,581 -- --
Municipal Bond.......................... 574 -- --
</TABLE>
- ------------
* Amounts based on October 31 tax year end.
- --------------------------------------------------------------------------------
208
<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,
Pinacle L.L.C.
Fergus Reid
Chairman and Chief Executive Officer,
LumeLite Plastics Corporation
Frederick O. Robertshaw
Of Counsel, Copple, Chamberlin & Boehm, P.C.
INVESTMENT ADVISER AND ADMINISTRATOR
Morgan Stanley 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, PA 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
Valerie Y. Lewis
SECRETARY
Karl O. Hartmann
ASSISTANT SECRETARY
Joanna M. Haigney
TREASURER
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.
- --------------------------------------------------------------------------------
209
